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Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Enterprise Financial Services Corporation Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Jim Lally, President and CEO. Please go ahead. James Lally: Good morning, and thank you all very much for joining us, and welcome to our 2025 Fourth Quarter Earnings Call. Joining me this morning is Keene Turner, EFSC's Chief Financial Officer and Chief Operating Officer; and Doug Bauche, Chief Banking Officer of Enterprise Bank & Trust. Before we begin, I would like to remind everybody on the call that a copy of the release and accompanying presentation can be found on our website. The presentation and earnings release were furnished on SEC Form 8-K yesterday. Please refer to Slide 2 of the presentation titled Forward-Looking Statements and for our most recent 10-K and 10-Q for reasons why actual results may vary from any forward-looking statements that we make today. Our financial highlights begin on Slide 3. I am pleased with our results for the fourth quarter and for all of 2025. For the quarter, we earned $1.45 per diluted share, which compares favorably to the $1.19 that we earned in the linked quarter and $1.28 in the fourth quarter of 2024. These results produced a return on average assets of 1.27% and a pre-provision return on average assets of 1.74%. We discussed in our last earnings call, we closed on the branch purchase in Arizona and Kansas early in the fourth quarter. Earnings from this complemented our relationship-oriented business model, helping drive expansion of net interest income for the quarter to $168 million, which was a quarterly increase of $10 million when compared to the linked quarter and $22 million compared to the fourth quarter of 2024. Margin too improved slightly to 4.26%, driven by disciplined loan and deposit pricing throughout both books of business. Our ability to hold our margin at this level illustrates the quality of our deposit base and the relationship-oriented loan portfolio. The ability to continue to expand our net interest income, along with widening our net interest margin to the extent that we have reflects the strength of the franchise we are building and we remain positioned to produce high-quality earnings for years to come. As important, the branch purchase accelerated our strategy in 2 of our higher-growth markets by several years. Since the closing, I've spent time with our new team and our new clients and feel even better about how this fits into our overall strategy and the impact that this expansion will have on our long-term performance. The strength of our company is our well-positioned balance sheet, which provides for great flexibility when it comes to capital management. We came into 2025 with a goal of growing our balance sheet at a mid- to high single-digit pace. With our organic growth complemented by the aforementioned branch purchase, we're able to exceed this goal, growing our balance sheet by 11%. Capital levels at quarter end were stable and strong with our tangible common equity to tangible assets ratio at 9.07%. As impressive was our 14.02% return on tangible common equity for the fourth quarter. Because of the branch purchase, we expected some dilution to tangible book value. But due to our strong earnings during the quarter, tangible book value per share was relatively stable at $41.37. This represents an 11% increase in tangible book value per share growth for the year. Because of our confidence to continue to produce high-quality earnings at the pace that we are, we increased our dividend by $0.01 per share to $0.32 for the fourth quarter and repurchased 67,000 shares at an average price of $52.64. Loan growth for the quarter was $217 million and was largely attributed to the acquired loans that came with the branch acquisition. Further reducing our loan balances in the quarter was the movement of approximately $70 million of Southern California commercial real estate loans into OREO. I will provide an update on our progress with these properties later in my comments. Deposit growth and the quality of the deposit base continues to be a significant differentiator for our company. In the fourth quarter, we saw deposits grow by $1 billion, $400 million of which came from new and existing clients with the remaining approximately $600 million coming from the branch purchase. The cost and composition of the deposit base continues to improve and is aided in the consistency of earnings and profitability. The quarterly cost of deposits decreased to 1.64%, and our level of DDA to total deposits improved to 33.4%. It should be noted that we have maintained our DDAs at over 30% of total deposits for the last 4 years. Finally, liquidity remains strong as evidenced by our loan-to-deposit ratio of 81%. There were several moving parts with respect to credit in the quarter. The most important movement occurred with the real estate associated with the 7 real estate loans in Southern California that we discussed on last quarter's earnings call. With a favorable verdict handed down by the bankruptcy courts during the quarter, we were able to take 6 of these properties into OREO with the seventh to follow shortly. Like we assumed, interest in these properties has been high with purchase sale agreements on several of the properties expected to be received in the very near future. Further improvement to our overall credit metrics is a high priority. I can see a clear path for the elevated level of NPAs and OREO to reduce significantly in the next couple of quarters to more historical levels. Doug will comment on the specifics related to all of this in his comments. Slide 5 summarizes our performance for all of 2025. For the year, we earned $201 million of net income or $5.31 of diluted earnings per common share. We leveraged capital advantageously to expand in 2 key markets while growing tangible book value per share by 11%. Other uses of capital included increasing our annual dividend by $0.16 per share to $1.22 and repurchasing just over 258,000 shares at an average price of $54.60. You will hear much more about these and other financial highlights in Keene's comments. Slide 6 illustrates where we are focused as we turn the page into a new year. Like I stated previously, I can see a clear path to improve credit statistics in the next quarter or 2. Nonetheless, this is a keen focus for us in 2026. The level of NPAs is not compatible with the quality company we've built an improvement to more historical levels will be accomplished. At the same time, we will continue to grow the balance sheet with the quality and consistency that we've displayed for many years, serving our existing clients' needs while adding new ones that appreciate our consultative approach and willing to give up a few basis points on both loans and deposits to experience this. And finally, like many of our clients, we will continue to find more ways to automate mundane non-value-added tasks, utilizing the investments we have made in technology over the last few years in order to enhance productivity and efficiency within our business. Before handing the call over to Doug, I would like to share with you what I'm hearing from our clients throughout our markets and national business lines. For the most part, our clients remain optimistic about the economy and how their businesses will perform in 2026. In particular, clients that are developers, contractors, subcontractors and suppliers to companies in and around power generation and the data center industries are expecting particularly good and long runs ahead. This obviously trickles down to manufacturers and service businesses, too, that support these industries. Industries and companies that serve infrastructure improvements throughout our markets, too, should see many opportunities. This includes water projects, utility work and highway and road construction. Furthermore, there is a keen focus by our client base to further improve productivity and efficiencies. I cannot help thinking that this will come with investments in technology, robotics and other machine learning capabilities, the expense of which will be partially offset by the favorable tax treatment that such investments now receive. The agility and resilience that our client base continues to show has been quite remarkable. I would expect this to continue in 2026 and beyond. We are pleased with the results for the fourth quarter and the entirety of 2025 and look forward to what lies ahead in 2026. Our company is positioned extremely well to continue to execute on our strategic plan and drive long-term shareholder value. Our diversified relationship-oriented model has compounded tangible book value per share at a rate of over 11% for the last 14 years, and I see this continuing for many years to come. With that, I would like to turn the call over to Doug Bauche. Doug? Douglas Bauche: Thank you, Jim, and good morning, everyone. The fourth quarter, as Jim just described, was full of activity. The completion of our branch acquisition and onboarding of new clients and associates has gone exceptionally well. The feedback that I continue to receive from our new partners has been overwhelmingly positive. We also successfully completed foreclosure of the previously highlighted Southern California real estate portfolio and are now one very important step closer to substantially reducing our nonperforming assets. And certainly not to be overlooked, we continue to expand the balance sheet through the attraction of new organic commercial relationships and are positioned with momentum heading into the new year. Slide 7 demonstrates the diversity and growth of our loan portfolio across all asset classes. Asset categories representing credit to commercial and industrial businesses, including C&I, CRE owner-occupied, SBA and sponsor finance, combined are just over 50% of our portfolio, while investor-owned CRE, life insurance and tax credit lending largely round out the balance of the portfolio at 24%, 10% and 7%, respectively. Loans grew $217 million in the quarter and $580 million for the year. Organic growth in the quarter and LTM from our C&I, investor-owned CRE and life insurance premium finance lines were offset by contraction in our sponsor finance and construction and land development segments as sponsors monetize portfolio companies and developers completed and sold a number of industrial and mixed-use construction projects. Additionally, reported organic growth at $288 million for the year was muted by our sale of $78 million in SBA guaranteed debt the movement of the aforementioned $70 million in real estate loans to OREO and our election to exit several loan participations that no longer met our return thresholds. Adjusted for those 3 items alone, organic loan growth for 2025 was in line with our mid-single-digit expectations. Slide 8 displays our loan portfolio balances and growth across our geographic footprint in specialty lines. Specialty lending and all 3 of our geographic markets contributed to positive loan growth during the year, and our portfolio remains favorably balanced. Within the Specialty Lending business lines, our SBA 7(a) owner-occupied CRE production topped $250 million in originations for the year and is poised to expand as we continue to head into a more favorable interest rate environment in 2026. Additionally, growth in other low credit risk categories of Life Insurance Premium Finance and Tax Credit Finance outpaced contraction in Sponsor Finance. Our momentum in the Southwest continues. Growth in the Southwest outpaced all other markets and was driven by expansion of quality C&I and CRE relationships throughout Arizona, New Mexico, Northern Texas and Southern Nevada, including the relationships added in the branch acquisition. Turning your attention to Slide 9. Deposits grew $1 billion in the quarter and approximately 11% or $1.5 billion year-over-year, inclusive of the $609 million in branch acquired deposits in our Arizona and Kansas City markets. Organically generated deposit growth for the year was right in line with our expectations at 6.5% or $854 million. For the quarter, organic deposit growth was seasonally strong at $432 million with noninterest-bearing deposits representing 63% or $274 million of growth during the period. Similar to our legacy deposit portfolio, the $609 million in acquired branch deposits are favorably mixed with nearly 35% or $213 million in noninterest-bearing commercial transaction accounts. Strong deposit generation and favorable mix provide us opportunity to control the cost of interest-bearing deposits and defend our net interest margin in this down rate environment. Slide 10 depicts the dispersion of our deposit base across the Midwest, Southwest, West and our deposit verticals. A core strength of our business model continues to be our ability to execute our deposit strategies with balanced growth coming from new relationships, deepening of wallet share with existing clients, acquisition of attractive deposit franchises and leveraging our differentiated deposit verticals. In our Midwest region, in particular, deposit balances have grown steadily and are approaching $7 billion in aggregate. As our average client relationship duration continues to lengthen, we find we are regularly rewarded with greater share of wallet and ancillary products, including private banking, commercial card and merchant services. The breakdown of our deposit verticals is reflected on Slide 11. Community Association and Property Management largely contributed to our deposit vertical growth in 2025, while we exited higher-yielding deposits within our Legal Industry and Escrow Services segment. We've redirected our efforts in the Legal Industry and Escrow Services area and our pipeline of more favorably mixed and priced deposits is gaining traction. These 3 businesses continue to provide a diverse, growing and overall favorable cost-adjusted source of funding that complements our geographic base. Turning to Slide 12. You'll see that our deposit base is intentionally well balanced across our core commercial, business and consumer banking and specialty deposit channels. With the recent branch acquisition, our core commercial business and consumer banking and specialty deposits are 39%, 33% and 28% of total customer deposits, respectively. I'd also like to provide some commentary on asset quality. As Jim noted earlier, we see a clear path to reducing our elevated nonperforming assets of 95 basis points to a more historically normalized level of 35 to 40 basis points over the next quarter or 2. To bridge that path, let me say that we are actively negotiating PSAs on 5 of the 6 properties in Southern California that we moved into OREO in December. With final execution of these PSAs and sale of the related OREO assets, we would realize proceeds at or above our carrying value. Furthermore, we continue to chip away and make good progress on a number of other specific nonperforming loans. The combination of these successful resolutions alone will reduce NPAs in half without charge or write-down. Keene will discuss some of our asset quality metrics, but it is worth noting that our reported 21 basis points of net charge-offs for the full year includes 3 basis points related to 2 of the loans in the Southern California relationship. On a net basis, we did not take a loss on the foreclosure of the 6 properties that we took possession of in the fourth quarter. Excluding those loans for that reason, our adjusted net charge-offs were 18 basis points for 2025. Now I'll turn the call over to Keene Turner for his comments. Keene Turner: Thanks, Doug, and good morning, everyone. Turning to Slide 13. We reported earnings per share of $1.45 in the fourth quarter on net income of $55 million. Excluding certain nonrecurring items, earnings per share on an adjusted basis was $1.36, a $0.16 increase from the third quarter adjusted earnings per share of $1.20. Pre-provision earnings increased over $9 million from the linked quarter to $75 million, primarily due to continued expansion in net interest income and the seasonal fourth quarter increase in tax credit income. The branch acquisition that closed on October 10 increased our liquidity and earning assets while also adding to the bottom line. Earnings also benefited from a gain on other real estate owned that is not included in our pre-provision earnings. The provision for credit losses increased from the linked quarter and was primarily driven by net charge-offs and a change in the mix of nonperforming loans. The increase in noninterest expense in the quarter was mainly due to the addition of the run rate expenses from the branch acquisition and onetime acquisition costs related to the transaction. In conjunction with the finalization of our tax return, we have updated our state tax apportionment and effective tax rate, which resulted in a slightly higher tax rate in the fourth quarter. Turning to Slide 14 and with more details to follow on 15. Net interest income was $168 million in the fourth quarter, an increase of $10 million from the prior period, inclusive of the branch acquisition. Net interest income growth resulted from a combination of strong deposit growth, higher investment balances and a favorable spread on acquired loans and deposits, partially offset by lower interest rates paid on interest-earning assets. Interest income increased $7 million from the prior period, mainly due to higher earning asset balances. Loan interest increased $2 million, including $4.4 million from acquired branches as average loan balances increased $340 million compared to the linked period and was partially offset by lower interest rates. The rate on loans booked in the quarter was 6.75% and remained accretive to the overall portfolio yield. Interest on investments was $3.2 million higher compared to the linked period with average balances increasing $270 million and the portfolio yield improving by 9 basis points. The average tax equivalent purchase yield in the fourth quarter was 4.61%. Interest on excess cash balances increased $1.8 million in the fourth quarter, mainly as a result of seasonally higher deposit balances. Interest expense declined $3 million compared to the linked quarter and included $1.7 million in interest expense from deposits at acquired branches. Total deposit expense decreased $1.4 million as a result of lower interest rates, partially offset by higher average balances. Interest expense on borrowings decreased $1.6 million, mainly due to lower balances on short-term advances along with lower interest rates. Interest expense also reflected the redemption of our subordinated debt in September that was replaced with a new floating rate senior note at a lower interest rate. Our resulting net interest margin for the fourth quarter was 4.26% on a tax equivalent basis, an increase of 3 basis points over the linked period. The earning asset yield declined 13 basis points, driven mainly by lower rates on variable loans and short-term assets. Our cost of interest-bearing liabilities declined 25 basis points, led by lower interest rates on deposits and borrowings, including a lower average interest rate on the acquired deposit portfolio, along with a more favorable shift in the funding mix. Moving into 2026, we expect net interest margin run rate to be roughly 4.2%. Compared to the fourth quarter, we will have some additional loan repricing based on periodic and longer-term resets and would expect to see some additional attrition of deposit balances during the first quarter. We believe our balance sheet composition and funding mix have us well positioned to limit the overall impact of interest rates to net interest margin as we have demonstrated with recent cuts. We will continue to respond to interest rate changes by appropriately managing pricing on both sides of the balance sheet. We believe that by executing our plans to grow the balance sheet funded by core deposits, we will continue to see positive momentum in net interest income growth. Slide 16 reflects our credit trends. We had net charge-offs of $20.7 million in the fourth quarter compared to $4.1 million in the linked quarter. As Jim and Doug discussed, we made significant progress in the fourth quarter toward resolving our largest nonperforming relationship that consists of 7 different properties. In the process of foreclosing on the real estate collateral in this relationship, we had a charge-off on a few properties and a gain on others. While the impact of these items is reported on different line items, we recognized a net gain in earnings related to the foreclosures. This is consistent with what we had expected and previously disclosed. Other than this relationship, we had a loss on the California C&I loan and also charged off several loans that had been reserved in prior periods. Net charge-offs for the year were 21 basis points of average loans compared to 16 basis points last year. The provision for credit losses was $9.2 million in the period compared to $8.4 million in the linked quarter. The increase in provision was mainly due to net charge-offs in the quarter. Nonperforming assets increased $29 million to 95 basis points of total assets compared to 83 basis points in the linked quarter. Doug discussed the components of the movement within our nonperforming assets and the progress and expectations we have for reduced levels in 2026. Slide 17 shows the allowance for credit losses. We continue to be well reserved with an allowance for credit losses of 1.19% of total loans or 1.29% when adjusting for government-guaranteed loans. We adopted the new CECL accounting standard for purchase loans that was issued in November. This eliminated the CECL double count that would have been recognized on the acquired loan portfolio and the $3.3 million credit mark on these loans was added to the allowance for credit losses and purchase accounting. On Slide 18, fourth quarter noninterest income of $25.4 million decreased $23.2 million from the linked quarter. However, if you exclude the impact of the tax credit recapture in the linked quarter, noninterest income increased $9 million. The increase was primarily due to the other real estate owned gains and seasonally stronger tax credit income. This was partially offset by lower gains on SBA loan sales as we did not sell any production in the fourth quarter. Depending on the levels of planned growth and activity in the SBA space, we may take the opportunity to continue to sell SBA loans in coming quarters. Turning to Slide 19. Fourth quarter noninterest expense of $115 million increased $4.7 million from the linked quarter. Onetime branch acquisition costs were $2.5 million in the quarter, which is an increase of $1.9 million from the linked quarter. The impact of incremental operating expenses of the expanded branch footprint totaled $4.2 million in the quarter and were partially offset by seasonally lower employee benefit items and the reversal of a portion of the FDIC special assessment that was recorded in prior years. The resulting core efficiency ratio was 58.3% for the quarter. Our capital metrics are shown on Slide 20. Tangible book value per share of $41.37 was relatively stable with the linked quarter. We leveraged our excess capital in the period to support the branch acquisition, which was modestly dilutive on a per share basis. This dilution was offset by our strong earnings performance and the favorable improvement in the fair value of the securities portfolio in the quarter. Our tangible common equity was 9.1% compared to 9.6% in the linked quarter, and our common equity Tier 1 ratio was 11.6%. In addition to absorbing the branch acquisition, the strength of our capital position allowed us to repurchase $3.5 million of common stock and to increase our quarterly dividend by $0.01 to $0.33 per share for the first quarter of 2026. This was another solid quarter of financial performance with a 1.3% return on average assets and a 14% return on average tangible common equity. As it relates to capital, we have a history of driving shareholder value by managing our capital position and compounding tangible book value. 2025 marks the 14th consecutive year that we have increased tangible book value per share with an 11% compound annual growth rate over that period. Since we started increasing our common stock dividend in 2015, we have increased the dividend by a 17% compound annual growth rate over the past 11 years. We are well positioned with a strong balance sheet and capital position to continue this trend and to execute our strategic initiatives in 2026. I appreciate your attention today, and I will now open the line for questions. Operator: [Operator Instructions] Our first question will come from the line of Jeff Rulis with D.A. Davidson. Jeff Rulis: I wanted to check in on the foreclosed properties. I appreciate the detail. I was hoping to get maybe a little bit more. The timing of when you took control of those in the fourth quarter. And I guess it sounds like you expect the reduction in NPAs and OREO 1 to 2 quarters. So my guess is you're anticipating sales early part of this year as that plays out. Just wanted to check in a little more if we have exact timing. Douglas Bauche: Yes, Jeff, it's Doug. Just to remind you on the timing of this. We tried the original foreclosures on these properties back in October and then a bankruptcy filing was posted by the debtors. So that delayed our process, and it was in the middle of December that we received a favorable ruling from the bankruptcy court that recognized our October 15 foreclosure process as a legitimate process. So in the middle of December, we were able to take 6 of the 7 properties into OREO. The seventh property, the reason it didn't come into OREO is because back in October, there was an unrelated third party that had outbid us on that particular property. So that will have to be retried here in the first week of February. So having control now of 6 of the 7 properties, as we mentioned, we are actively engaged with parties on sale agreements at this point in time. We feel that the valuations for these negotiations continue to reaffirm our positive outlook on the resolution of these properties. As you noted, we took a gain on the OREO here in the fourth quarter. We feel good about how we're positioned. Timing of it, Jeff, is always a bit hard to predict, but we've got good momentum, good progress here, and we're optimistic that by the end of the second quarter, we're going to see some resolution. Jeff Rulis: Doug, is it safe to say, I mean, the litigation process has been an issue. I don't know how you're able to market those properties. I mean, in terms of some interested parties, I mean, for the balance of '25, probably knew that these may be coming to a sale. Do you glean any momentum that maybe conversations have predated taking control of those properties? Or is that truly you really couldn't discuss those until you've got legal ownership of that? Douglas Bauche: Yes, it was a very public -- Jeff, as you know, right? It was a very public litigation that was going on, just not only for the 7 properties that we were a direct lender on, but other properties that these parties were engaged in. So it was well known. There were a lot of parties reaching out to us before we had control of the properties and we're able to even speak of the situation. So now that we've taken control and ownership, the simple ownership, it really clears the path now for us to move forward in contract negotiations and the monetization of the assets. Jeff Rulis: Appreciate it, Doug. Just hopping over to the -- maybe Keene, on the sort of some moving pieces on the fee income and noninterest expense lines. I don't know if you could reorient us on a run rate and/or kind of growth expectations on both. Keene Turner: Yes. So when I think about the 2025 fee income run rate, you got to take out the gain on the ORE. And then you're getting -- which you really didn't see here in the quarter, you got about $2 million from the branches we acquired. And then other than the tax credit line item, which I think about as being relatively flat, we've got fees growing at about 5% year-over-year on a recurring basis. And then from an expense perspective, I've got -- if you call the run rate for 2025, $423 million of expenses, and you've got $18 million that's a full year for the branches. We think expenses grow around 5%. So that gets you -- that will get you in the ballpark. And I'd like to back up for a second and let just highlight one assumption that's there. So we've got 3 Fed funds cuts in that projection, which predominantly affects the deposit costs. So year-over-year, we're accounting for that expense guide, we're accounting for deposit costs on a run rate basis to be relatively flat. And I'll say significantly, but down from fourth quarter annualized run rate. And that's inclusive of the growth that we're expecting in those 3 businesses. Jeff Rulis: Just to recap that, so I got it on the expense side, you're talking about a $423 million core plus $18 million annual on the acquired branches. So kind of growing 5% off of 441. Is that correct number to use? Keene Turner: Yes. I mean range of reasonableness on both sides of that, but that's how I'm thinking about it and how we've built it. Operator: Our next question comes from the line of Nathan Race with Piper Sandler. Nathan Race: I was wondering if you could just shed some additional color on the 2 loans totaling $28 million that migrated to nonaccrual in 4Q in terms of what type of impairment was taken in the quarter? And then also what the timing for resolution is? I appreciate that you guys are pretty well secured here. So just curious on some of the background there and any color on just the timing. Douglas Bauche: Yes, sure. This is Doug. I'll just comment again. So these particular assets, one is a retail center in Riverside, California, approximately $22 million or $23 million in debt. Valuations that we have on current appraisals would suggest we're at a very good loan to value. And I'll comment that we're actively negotiating the exit of that credit. The second loan that came in was a $6 million loan that's secured by a residential property in San Diego. Again, I think from a valuation perspective, we're somewhere in the neighborhood of 60% to 65% of appraised value, and we feel good about our position. Timing on that one is not as clear for me in terms of the exit may take a little bit longer. But from a valuation perspective, we feel good and loss content. I believe there will be very little loss content in either one of those assets. Nathan Race: Okay. That's really helpful. And then, Keene, I'd be curious to get your thoughts on -- I appreciate the broader income comments earlier, but just in terms of SBA gain on sale revenue, obviously, the government shutdown had an impact in the fourth quarter, but just any expectations for that revenue line to grow this year? Keene Turner: Yes. I think that -- Nate, we did not take gains on SBA loan sales in the quarter. I'm not sure with the tax credit strength, we would have done that anyway, but the shutdown did tie our hands a little bit. We had a good quarter there, but it was all half -- second half of December weighted. For 2026, I would expect the SBA gain on sale to grow modestly from the 2025 levels in that 5%, but we do have that as part of our plan coming out of the gate here in '26. Nathan Race: Okay. Great. And I just want to clarify on the tax credit revenue. You had some noise in that number in the third quarter. So I think your comment was kind of flat. Is that flat versus just under $8 million in 2025? Keene Turner: Yes. Like 7.5%, 7% to 7.5% is what we're thinking. I mean, obviously, that line is fairly volatile given rates and the performance of that business, but we think it repeats by and large in 2026. But to your point, there might be some puts and takes depending on how the year and the rate cycle plays out. Nathan Race: Okay. Great. And then I appreciate the commentary around kind of mid-single-digit loan growth for this year. Is the expectation that deposit gathering should largely keep pace just based on some momentum you're having with share gains and just with some of the hires continuing to ramp up. And we would just be curious also within that context, what your spot rate of deposit costs were coming out of the quarter. James Lally: Yes, I'll take the first part of that, Nate, this is Jim. On the overall balance sheet growth, we're looking at 6% to 8%. And to your point, loans at about mid-single digit. But certainly, the deposit gathering rate and pace will exceed the loan growth pace. Relative to the spot rate on deposits in the fourth quarter. Keene you have that one? Keene Turner: Yes, it's 1.6% coming out of December. Operator: Our next question comes from the line of Damon DelMonte with KBW. Damon Del Monte: Just wanted to circle back on the margin, Keene. I think you had kind of guided to like a $420 million for the year in 2026. Just kind of curious on the cadence of kind of how you're seeing that play out. We have a bit of a step down here in the first quarter with some seasonality and then kind of just stays flat? Or what are some of the dynamics you're thinking about? Keene Turner: Yes. I think I normalize out about 3 basis points in the quarter. We just -- we didn't have any headwinds from prepayment of SBA loans that are acquired at a premium. So that was a few basis points. So we do see that $423 million stepping down to around $420 million. And then it just kind of hangs there. And that is pretty sticky, whether we have no real rate changes or whether we actually have the 3 cuts that I mentioned in our forecast. The dollars moves around a little bit, but we feel pretty comfortable that at least with the Fed funds rate coming down, but the shape of the curve remaining reasonably intact that we're pretty well positioned to defend margin in that environment. I think we've I highlighted in my comments that we've done that successfully so far with the prior Fed cuts. Damon Del Monte: Got it. That's good color. And then kind of along the lines of the credit outlook, you guys seem pretty optimistic that you'll see some meaningful resolutions on some of these NPAs in the first half of the year. How do we think about provisioning going forward? Do you think you kind of go back to a more normalized level versus what we saw in the back half of the year? Or do you think it kind of stays a little bit elevated until you kind of completely come out of the woods? Keene Turner: Yes. I mean, Damon, based on where we sit today, everything that we know that's a nonperformer or that the problem has the appropriate reserve or fair value on it, whether it's in ORE or in the allowance. And so I think that we're approaching it like this, which is the allowance because of the charge-offs and the activity, actually, the coverage came down. I think that reflects where we sit from a balance sheet perspective. And as long as we don't have unexpected migration, I think our expectation is that charge-offs move down from the level they were at in 2025, and then that will alleviate some of the provisioning. We do have, I think, aspirations to get a little bit more net growth in the portfolio this year. And so that will be a counterbalance, but we'd rather provision, obviously, for growth and for charge-offs. So I think that's the long way of saying we're optimistic, but we're also realistic about just having a little bit more credit class and ORE than we'd like. Damon Del Monte: Got it. Okay. Great. And then just lastly on capital management. You noted you guys did a little bit of buyback this quarter or last quarter. I guess, how do you think about the buyback here as we go into '26? And what is the remaining capacity? James Lally: Yes. So this is Jimmy again, Damon. We were very interested in terms of utilizing our capital for buybacks. We've got roughly -- we've got 150,000 shares. Keene Turner: There's 1.1 million that's still authorized. There's about 100,000 that's covered by a plan right now. James Lally: Yes. And then obviously, growth is a big part of it for '26 and then certainly, we'll continue relative to the increase in the dividend over time as well. Keene Turner: I'll color that in a little bit, too. I mean I think I think the question that we get is, you could have done more in 2025, why didn't you? We wanted -- we leveraged our capital through the branch acquisition. When you look at the stack, the total stack looks good, but we're a little inefficient on TCE. And so I think we've got a little bit of work to do when we come out of year-end here to work on the cap stack, and I think the environment is set up well for that. So more to come there, but that's on our radar as an early 2026 item. James Lally: And Damon, I'll just get ahead of the M&A question, which is a very low priority for us. It's about executing the plan. It's about getting our credit right, organic growth, making sure we're integrating well what we did in 2025. Operator: Our next question comes from the line of David Long with Raymond James. David Long: As it relates to your charge-offs for the quarter, I think the number was a little over $20 million. You had a few million from the properties that you've been talking about that those 7 properties. There's a good -- it's still elevated when you take that out. I think you mentioned that you decided to move forward on some credits that you had built reserves for. Just curious what drove that higher and why make the decision now to move some of those and charge them off at this point? Douglas Bauche: Yes. David, it's Doug Bauche here. Let me comment just on charge-offs. Again, fourth quarter, $20 million thereabouts in charge-offs, net of the aforementioned OREO properties that Keene talked about, right? We had about $3 million of charges there. We're really talking about $18 million of commercial charges in the quarter. We had 2 sponsor finance credits totaling $3.5 million in aggregate that were previously recognized and reserve for. We had one multifamily project in L.A. County that was still back acquired asset that we took a $3 million charge on. And then really what came up in the fourth quarter was a C&I credit in our Southern California portfolio, a company that was engaged in kind of last mile logistics and delivery of e-commerce packaging, a company that really -- its growth rate outstripped its capital. It was a $10 million credit. We took an $8.5 million charge on that. We continue to carry a $1.5 million balance that we feel we're well secured by the remaining asset to the company. But I think we wanted just to recognize that fully and head into the 2026 year with a really clean slate and good position. So those were the primary drivers of charges in the quarter. David Long: Okay. Great. No, I appreciate that color. And I think it goes without saying, but this is the fourth quarter aggregate here net charge-offs is not reflective of anything that you expect going forward, correct? Douglas Bauche: No, it's not. And I'd just refer back, right? We look at -- if you look at the year charges again, whether you look at 18 basis points adjusted or 21 reported, that's relatively in line, David, with what our 10-year average is, right? I think our 10-year average net charge-off rate is somewhere in that 15 to 16 basis points. So I think it's largely in line with our historical performance. And quite frankly, it's representative of who we are and the commercial credit that we originate and take. But I feel good about how we're positioned going into the new year. Operator: [Operator Instructions] And our next question will come from the line of Brian Martin with Janney Montgomery. Brian Martin: See most of mine were just covered there, but just one clarification, Keene, on the fee income side, just thinking about the base there, I guess, I think you talked about mid-single-digit growth, maybe is that base around -- just given some of the noise throughout the quarters, around $75 million, is that kind of the starting point that you're thinking about? Or is it different than that in terms of. Keene Turner: No, that's about right. I mean the biggest item in there is the fourth quarter gain on ORE. There are a couple of BOLI payouts throughout the year, but nothing that accumulates to be material, and we'll have items like that moving forward. So yes, I'm really just stripping out the $6 million and then growing off of that and adding the $0.04 or $2 million for the branches that will start to earn some fees here in early 2026. Brian Martin: Yes. So how much of the -- I mean, that $2 million run rate in branches, was that in the fourth quarter number? Or that's, I guess, fully in the number or not -- I guess, what part of that was in that current level? Keene Turner: Well if you think about the timing, I mean we typically put fee holidays in place. So you wouldn't have charged fees in October and likely November. So you're not -- the number in and of itself, $2 million is not that large. And then if you have a little bit of run rate in December, it's not meaningful. So really, you'll start to get that $500,000 a quarter here in 2026. Brian Martin: Got you. Okay. So roughly 75-ish, 5% and then add in the branches, and that's how we think about it. So that's helpful. And then just the loan pipeline, I think you talked about, I guess, the SBA being a bit -- maybe a bit stronger. And just wondering in terms of other areas or segments or markets that are stronger today that you're seeing. I know Jim commented about the infrastructure, but anything else in terms of where you're -- the growth outlook may be a little bit better in 2026? James Lally: Yes, Brian, this is Jim. I'd say we look at it closely. We feel very good about where the pipeline sits today. The life insurance premium finance portfolio looks good. Portfolio or the pipeline -- the pipeline down in the Southwest looks really good. As Doug mentioned, there's great momentum down there. And it's really a nice mix between C&I and the CRE side. So we like the mix. We like the pace of play. We feel very comfortable about where we sit today and the projected growth for 2026. Brian Martin: Okay. And the projected growth is still consistent with what you -- consistent with this year's performance. Is that how to think about? James Lally: No, I think we said we're mid-single digits net-net-net for 2026. Operator: And that concludes our question-and-answer session. I'll hand the call back over to Jim for any closing comments. James Lally: Well, thank you, and thank you all very much for joining us this morning and for your interest in our company. We look forward to speaking with you again in the first quarter, if not sooner. Have a great day. Operator: This concludes today's call. Thank you all for joining. You may now disconnect.
Elliot: Good day, and welcome to Camden National Corporation's Fourth Quarter 2025 Earnings Conference Call. My name is Elliot, and I'll be your operator for today's call. All participants will be in listen-only mode during today's presentation. If you require operator assistance at any time during the call, please press star then 0. And I'll turn the call over to Renée Smyth, Executive Vice President, Chief Experience, and Marketing Officer. Renée Smyth: Thank you. Good afternoon, and welcome to Camden National Corporation's conference call for 2025. Joining us this afternoon are members of Camden National Corporation's executive team, Simon Griffiths, President and Chief Executive Officer, and Mike Archer, Executive Vice President and Chief Financial Officer. Please note that today's presentation contains forward-looking statements, and actual results could differ materially from what is discussed on today's call. Cautionary language regarding these forward-looking statements is included in our fourth quarter 2025 earnings release issued this morning and in other reports we file with the SEC. All of these materials and public filings are available on our Investor Relations website at camdennational.bank. Camden National Corporation trades on Nasdaq under the symbol CAC. In addition, today's presentation includes a discussion of non-GAAP financial measures. Any references to non-GAAP financial measures are intended to provide meaningful insights and are reconciled with GAAP in our earnings release, which is also available on our Investor Relations website. I am pleased to introduce our host, President and Chief Executive Officer, Simon Griffiths. Simon Griffiths: Good afternoon, everyone, and thank you, Renée. Today marks another meaningful milestone in Camden National Corporation's continued momentum and strong financial performance. Early this morning, we reported fourth quarter earnings of $22.6 million, representing yet another record-setting achievement for the organization. This strong finish to the year reflects a 6% increase in earnings from the prior quarter, underscoring the consistent execution and discipline across our teams. We are pleased that several key financial performance indicators continue to trend positively this quarter, including 13 basis points of net interest margin expansion over the prior quarter to 3.29%, a non-GAAP efficiency ratio below 52%, and a return on average assets of 1.3%. These results underscore the durability of our operating model, validate management's effective assimilation of the Northway franchise, and reaffirm our focus on consistent, high-quality performance supported by sustainable growth and disciplined execution. With the benefits from Northway Financial acquisition now fully delivering, we are pleased to report that we are ahead of our strategic and financial objectives in several areas. As we move into 2026, we are accelerating organic growth through a broader commercial footprint in our southern markets, continued expansion of retail products and digital capabilities across the franchise, and deeper leverage of the strength of our wealth and brokerage franchise. We had great success in 2025 across our wealth and brokerage divisions, highlighted by 15% organic growth of assets under administration to $2.4 billion as of 12/31/2025. Looking ahead, we see significant opportunity to deepen existing customer relationships through advice-led interactions and the continued expansion of treasury management solutions across our footprint. Our balance sheet remains a source of strength for our company. As of 12/31/2025, our regulatory capital levels were above our internal target levels. Our loan loss reserve was 91 basis points of total loans and reflects the quality of our loan portfolio, and our liquidity position continues to be solid. Loans grew organically by 2% for the year, demonstrating our continued emphasis on profitable expansion supported by strategic talent investments. We remain bullish on home equity lending and saw strong performance in this category throughout the year, highlighted by 6% growth in the quarter and 18% organic growth for the year. While total loans were down 1% for the fourth quarter, our overall production levels for the third quarter and fourth quarters were comparable. This quarter's decrease was driven by higher loan payoffs and prepayments, muting an otherwise strong quarter of production. As of year-end, our credit metrics remained strong, underscoring the quality of our underwriting and disciplined risk management approach. Nonperforming assets as of 12/31/2025 were 10 basis points of total assets, and total past due loans were 16 basis points of total loans. Our credit teams continue to proactively address issues as they arise. During the fourth quarter, we had the opportunity to complete a short sale on a commercial real estate office loan that had been designated as classified for nearly two years. After a comprehensive assessment, we determined that entering into a short sale arrangement was the most prudent and proactive step to limit our future exposure and further strengthen our credit profile. The transaction closed late in the fourth quarter, resulting in a $3 million charge-off and an 88% recovery of the loan balance. We remain confident in the overall health of our well-diversified loan portfolio. We continue to advance our digital strategy to attract and retain highly engaged customers. This quarter, we introduced Family Wallet, a no-fee parent-controlled youth banking platform that helps families build healthy financial habits within Camden National Bank's trusted brand integrated digital environment. Family Wallet enhances our broader digital suite, including roundup savings, which now reflects nearly 1 million transactions with users saving on average $103 each since this implementation earlier this year. These investments contributed to a 19% year-over-year increase in digital engagement among customers 45 and under, as measured by monthly logins. We are actively managing operating expenses by accelerating enterprise adoption of our automation platform. Through the use of over 143 bots, we have processed more than 5 million tasks since implementation several years ago, freeing up capacity and allowing our teams to focus on higher-value customer interactions. Our performance this year, coinciding with our 150th anniversary, speaks to the effectiveness of our strategy, maintaining a resilient balance sheet, driving high-quality growth, and staying relentlessly focused on delivering value for our customers, communities, and shareholders. We believe we are well-positioned as we look ahead to 2026. And, of course, none of this would be possible without the dedication of our experienced and caring colleagues across Camden National. Their hard work, commitment to our customers and communities, and collaboration with one another bring these results to life, strengthening our franchise and delivering meaningful value to shareholders. With that, I'll hand over to Mike to provide additional financial details for the quarter. Mike Archer: Thank you, Simon, and good afternoon, everyone. We are very pleased with our finish to the year, reporting net income of $22.6 million and diluted earnings per share of $1.33 for the fourth quarter. Net income of $65.2 million and diluted earnings per share of $3.84 for the year ended 12/31/2025. In 2025, we began to see the earnings power of Camden National following the acquisition of Northway at the start of the year and the execution of our cost takeout initiatives during 2025. Our financial performance in the fourth quarter resulted in strong profitability metrics, including a return on average assets of 1.28%, a return on average tangible equity of 19.06%, and an efficiency ratio of 51.69%. Given this strong performance, we've been able to rebuild capital used in the Northway acquisition at a pace that exceeded our initial projections. In the fourth quarter, we again saw strong revenue growth, up 4% over the third quarter. Net interest income increased 5% between quarters, driven by a 13 basis point expansion in net interest margin to 3.29% in the fourth quarter. Funding costs between quarters decreased 11 basis points to 1.79% in the fourth quarter as we've been able to successfully manage deposit costs following the most recent Fed rate cuts. Additional drivers of net interest income growth between quarters were average loan growth of 1%, average deposit growth of 2%, and higher fair value mark accretion of $735,000, which is driven by elevated payoffs on acquired loans. In the fourth quarter, we saw nice momentum in deposits, which were up 2% since September 30. Our growth in savings balances, driven by our high-yield savings product, continues to be a great story for us, increasing 5% during the fourth quarter and 28% organically for the year. Interest checking balances are also up 11% in the fourth quarter compared to last quarter, primarily driven by seasonal municipal deposit flows. We anticipate our 2026 deposit balances will be relatively flat with the fourth quarter, despite normal seasonality in our deposit base during the winter months, given the impact of recent deposit relationship wins across our sales teams. Noninterest income for the fourth quarter totaled $14.1 million. It was fairly flat quarter over quarter. However, it's worth noting the change in revenue makeup between quarters. Our fourth quarter noninterest income included our annual Visa bonus incentive, which totaled $979,000 this year, and elevated fees earned on back-to-back loan swaps, which totaled $594,000 in the fourth quarter. Given seasonality considerations and normalization of certain fees, we currently estimate noninterest income will range from $12 million to $13 million for 2026. Reported noninterest expense for the fourth quarter was $36.9 million, which was an increase over last quarter as anticipated. The increase reflects continued investment in the franchise, strong performance across our revenue lines, seasonality in our expense base, including year-end performance incentive true-ups, and health care costs, and other corporate matters. We currently estimate our first quarter operating expenses will range from $36 million to $37 million. For the fourth quarter, we reported a provision for credit losses of $3 million, driven by the single charge-off Simon mentioned earlier. As of December 31, our loan loss reserves totaled $45.3 million, were 91 basis points of total loans, and were 6.4 times nonperforming loans. We continue to believe we have sufficient loan loss reserves set aside given the strength and historical performance of our loan portfolio, its diversification, and our credit trends at year-end. Lastly, I wanted to note that in early January, we announced a new share repurchase program that gives us the ability to repurchase up to 850,000 shares of the company's common stock, or approximately 5% of shares currently outstanding. This concludes our comments. We'll now open up the call for questions. Elliot: Thank you. We will now begin the question and answer session. To ask a question, press star then 1 on your touch-tone phone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. First question comes from Stephen Moss with Raymond James. Your line is open. Please go ahead. Stephen Moss: Hi. Good afternoon, guys. Mike Archer: Hey, Stephen. Stephen Moss: Maybe just starting with the margin here. Nice pickup quarter over quarter, pretty much as you expected. Just kind of curious, you know, where are deposit costs trending here for all the Fed rate cuts and kinda how much more expansion are you thinking here going forward? Mike Archer: Yeah. Great question, Stephen. So I think as we're thinking about this, I think for the first quarter, we got some different dynamics in play here. I would say, overall, to answer your question directly, we're kinda in a couple basis points here for the first quarter of core margin expansion. You know, we have generally some seasonality in deposit flow, so there'll be a level of remix there that we'd otherwise see. It would just pretty customary for us. On the funding cost side, you know, we do see that continued improvement there. I would say, in the neighborhood of seven to 10 basis points potentially for the quarter. That said, I think we'll also see some yield compression too, just given some of the repricing characteristics that didn't occur in December with the latest Fed rate cut. But overall, we're expecting a couple basis points plus or minus for the first quarter. And just to be clear, that is on a core basis. I think just long-term fees as we look out, we continue to see favorable margin expansion. I would just say barring any additional Fed rate cuts, it'll probably be a bit slower than what we, you know, certainly than what we saw this last quarter. But we continue to see potential upside here. Stephen Moss: Okay. Great. And then on the loan growth front, you know, I hear you, Simon, in terms of payoffs here, looks like they were late in the quarter. Just kind of curious how the pipeline is and kind of like how you're thinking about dynamic with payoffs here just as kind of, you know, rates have generally or spreads have generally come in over the last quarter or so. Simon Griffiths: Thanks for the question, Stephen. I think just generally, we continue to see a decent pipeline. Residential pipeline is just over $83 million. Commercial pipeline is just over $77 million, which certainly is solid for January and puts us in really good footing for the rest of the year. We expect loan growth this quarter, as Mike indicated, to be sort of flat to up 2%. But certainly, as we get into the rest of the year, we see a pickup in that April, May time frame and certainly mid-single digits is certainly our outlook. We did see a slight uptick in prepaid towards the end of the quarter, and I think certainly in the rate environment, there's the potential that that sort of sustains. But generally, we feel very positive in terms of loan growth. We're seeing really nice pickup in the southern end of our market. New Hampshire continues to be a place of strength for us. We continue to build out our teams. We continue to put a lot of resources, training, and other pieces into those markets. And see a lot of opportunity there and really fruition of the partnership with Northway, the integration with Northway. So very, very strong on this front. Stephen Moss: Okay. Great. And then just on capital with the buyback here, just kinda curious you guys are thinking about deploying that or using that authorization. Mike Archer: I would say our focus right now continues just to be to return capital, continue to build. But certainly, we'll be opportunistic on leveraging the repurchase program, but I think our initial priority is continuing to build capital there. And, you know, position ourselves for whatever the future may hold. But I would say organic growth is the first priority. And from there, Stephen, it really is a bit more opportunistic, if you will. Stephen Moss: Okay. Great. I appreciate all the color here. Nice quarter. Mike Archer: Cheers, Stephen. Thank you. Elliot: We now turn to Damon Del Monte with KBW. Your line is open. Please go ahead. Damon Del Monte: Hey. Good afternoon, hope you're both doing well. Just wanted to circle back on the fair value accretion that you mentioned, Mike. This quarter. What do you have the dollar amount of what that accretion was? Mike Archer: Yeah. In total, it's $5.3 million, I believe, for the quarter. Damon Del Monte: Okay. And I know you noted that it was somewhat accelerated because of some payoffs. But what, you know, what would be a good range to model on a scheduled basis? Mike Archer: Yeah. I mean, I guess, like, internally, Damon, we're more in that, call it, four and a half, maybe four and three-quarters. I think to the extent that, you know, of course, if prepaid accelerated, it could creep up like we saw it. But I think on a base perspective, that's pretty solid. Damon Del Monte: Okay. That's helpful. Thank you. Then, you know, with regards to the outlook for loan growth, you know, it sounds like the pipelines are pretty healthy. Do you guys intend to try to make any commercial hires this year or any team of lenders? Did you feel that you're pretty adequately staffed for, you know, for the foreseeable future? Simon Griffiths: Yeah, Damon. We certainly continue to look for talent, particularly in the key markets. We've had a couple of really nice hires recently, and we're finding people are attracted to the Camden story and continue to build out and deepen the bench of those teams. We've also elevated a couple of folks internally within the Portland market and just starting to push into some different segments. So, really, that whole focus is really on growth and building expertise. It's also, I've talked about in previous calls, just this opportunity to connect commercial into other businesses. We're seeing some great partnership across the wealth franchise. It's time to really bring the Camden team to bear, and I think that's a really important focus for us. Damon Del Monte: Okay. Great. And then just lastly, as we try to think about the provision, heard the comments on the comfort level with the reserve. But if you look at the last couple quarters of 2025, you know, provision was kind of in that $3 million range. Do you think that was just, you know, necessitated by addressing particular credit issues that came up, or do you feel like, you know, that little bit kinda higher level of charge-offs is kind of a normalization of the credit cycle, and we should factor in a little bit more in provision? Mike Archer: You know, that's a great question. I think the $3 million that we saw was more necessitated by some of the credits over the last few quarters there. And as we've highlighted, certainly, one-offs from our perspective there. I think right now, I would say, overall, we feel pretty good around the 90, 91 basis points on a, you know, PCL to loans ratio, Damon. So I would stick there, and I think we begin to see net charge-offs start to normalize more to things we're accustomed to from here. Damon Del Monte: Got it. Great. That's all that I had. Thanks so much. Mike Archer: Sure, Damon. Thank you. Elliot: We now turn to Daniel Cardenas with Janney Montgomery Scott. Your line is open. Please go ahead. Daniel Cardenas: Good afternoon, guys. As you guys think about deposit growth in 2026, do you think it's going to be able to keep up with expectations for growth on the lending front? I know there's a little bit of room on your loan to deposit ratio, but how are you guys thinking about overall deposit growth in the coming year? Simon Griffiths: Yes. Thanks, Daniel. Appreciate the question. We continue to feel we're putting a lot of resources and focus on deposit growth from a number of fronts and feel very good about, you know, how we're attracting clients, moving to primacy, and really focusing on primary relationships. And we see low to mid-single-digit growth this year. We saw, as we talked earlier in the recorded remarks, you know, some very nice growth on high-yield savings. So lots of opportunity there. So, we certainly feel there is plenty of opportunity. We like the southern, you know, markets where we see growth and households and, you know, lots of opportunities for us to leverage our digital franchise and capabilities. And I think that'll, you know, really kinda lead us to a positive outlook on our deposit growth this year. Daniel Cardenas: Excellent. Good. And then as I think about operating expenses kind of on a year-over-year basis, kind of low single-digit type of growth? Is that a good way to think about the outlook for 2026? Mike Archer: Hey, Daniel. I guess what I would say, I think for more of, you know, an annual outlook, if you will, I think from an efficiency ratio is where I might phrase it is. I think that mid-fifties is probably a good spot and normal for us. Certainly, we've been tracking a little bit lower, but I would think in, you know, kind of mid-fifties as we reinvest in the franchise is a decent spot for us. Simon Griffiths: And just to add to that, Daniel, just, you know, I just would add that, you know, that balance investments and continue to invest is certainly but doing it through a lot of self-funding, a lot of discipline. I think that theme we've been focused on that. I think we're continuing to leverage some of the automation that we talked about on the call, opportunities to be more efficient. And then reinvesting that in growth and building out our teams, whether it's on the commercial side or the wealth side. Really is the sort of philosophy of the team. And I think that's, you know, showing the results and certainly very prudent and a great way to manage the resources of Camden National Bank. Daniel Cardenas: Excellent. And then last question for me is how should I think about your tax rate on a go-forward basis? You've kind of been in that 20, 21% level here over the last two quarters. Is that kind of a reasonable assumption for you guys? Mike Archer: I think we'll sneak up a little bit. I think we'll be a little bit higher from an effective tax rate perspective. We've had some tax credits that we had this year that, you know, won't be occurring at least as of now from a forecast perspective in '26. So I think we'll see that maybe sneak up a percent. Daniel Cardenas: Okay. Great. Thank you, guys. Elliot: As another reminder, if you'd like to ask a question, please press star then 1. We now turn to Matthew Breese with Stephens. Your line is open. Please go ahead. Matthew Breese: Hey. Good afternoon. A lot of my questions have been answered, but maybe a few. The first one is just in regards to the, I think you said it was an office commercial real estate charge-off that had been classified for a couple of years. Would just love a little bit of story there. Why was it unclassified for a couple of years? And then when it came to the actual exit, how was pricing relative to where you underwrote it and relative to your expectations? Does it give you any sort of confidence or reemerging confidence in kind of commercial real estate pricing here? Just curious. Simon Griffiths: Yes. Now let me take that question. So we had a borrower, which we talked about, been expressing some fatigue with an underperforming property that was in a stress asset class, and that obviously being office. The loan tied to this property had a special mention and classified loan for us for nearly two years. So certainly been in that situation for a while with the reserve on our books of a million dollars. So during the quarter, we had an opportunity to discuss a sale with a few potential buyers in the property, and, you know, we were successful in negotiating a deal that provided 88% recovery on the loan, which was, I think, a good outcome for us. You know, there still is some softness in the Boston market, and I think this, you know, certainly was an opportune moment to take a decisive approach to and really put our credit on an even stronger footing. When you step back from this, office is, you know, very, we have a very well-balanced portfolio, and office represents 3.7% of the entire portfolio and is in extremely good condition. We have 35 loans over a million dollars, and all are pass-rated with positive and acceptable debt service coverage. We've got good occupancy and very good LTVs overall. So we feel, you know, to feel good about that segment for us. Our criticized and classified asset levels remain very solid against historical norms, so we feel very good there as well. So, you know, in the pricing, we certainly, you know, obviously, had a lot of discussion as a team, and I think the pricing represented a good balance of risk for us to get this to a stronger footing. Given some of the, you know, I think there's some softness you still do see in the office space. But generally, I think that's a trending positive. It was a balanced decision. I think I would just footnote the comments with, as a management leadership team, you know, I think we tend to continue to be very proactive. I think we see opportunities like this and just take a decisive view on situations like this, and I think it really sets us up for continued momentum and a very strong year across both the credit front and across our loan growth that we were talking about earlier. Matthew Breese: Great. I appreciate all that. Michael, maybe just on some of the deposit items, you know, thinking about what could reprice lower, what is the new blended cost of CDs, including some of the promotional items? And when we think about what's repricing over the next couple of quarters, what might we see your time deposit or your cost of time deposits kinda ratchet down to? Mike Archer: Yeah. I think, over the next three months, essentially, about 40% of our CDs are repricing, and I think those are at a blended rate around 3.35% in that neighborhood. So we certainly see some continued there based on our current CD pricing, and I'd also say, Matt, just over the next twelve months, it's nearly, I think we're around 95% that's repricing. So I think that's one of the levers we look forward and think about continued upside for us, particularly with, knock on wood, maybe some couple of Fed rate cuts here in the future. We see some, you know, continued opportunity there and optimism as we think about our funding costs and just overall margin from here. Matthew Breese: Is that the current rate or the rate on which they'll come back on the books is estimated at 3.35%? Mike Archer: Sorry. That's the rate they're currently on our books at. And I believe our current rate is, well, slower than that off the top of my head. It depends on different tiers and so forth, but I would say it's kind of, you know, 3% in that neighborhood. Matthew Breese: Great. And then maybe the only thing I would add, I won't... Mike Archer: Sorry. I just gotta say, Matt, I think the only thing I would add is just we continue to be focused on relationship pricing there. We're not chasing certainly hot money. That's not relationship-priced on the CD, you know, from a CD perspective or otherwise. We'll also, you know, where we need to, we'll do exceptions. We'll make sure we retain that relationship just thinking about the overall deposit and loan makeup of that, you know, of that customer. We'll be, you know, we're certainly being thoughtful about this as you think about overall total deposits and in our balance sheet. Matthew Breese: Got it. Is there anything significant on the securities front maturing or repricing this year? It still looks like you're about 150 bps below market rates on securities. Mike Archer: No. I don't think there's anything significant per se. I mean, our cash flow continues to be pretty steady. I think it's in the neighborhood of $11 million, call it, a month. We'll continue to see that and expect that, and that'll continue to run off. I think the ideal opportunity for there is just to continue to be able to take those cash flows and put it into higher-earning assets. And certainly, the ideal situation would be loan growth. Matthew Breese: And then last one, I would just love to hear about M&A conversations and activity and, you know, maybe frame for us, you know, what you would be interested in targeting both in terms of sizing and geography. Simon Griffiths: Yeah. I think, you know, it's Matt. Appreciate the question. And, you know, I think it's, you know, very much a continued path for us. You know, very focused on organic growth and really leveraging the opportunity that New Hampshire and Northway is providing us, and I think there's lots of runway there to continue to grow and accelerate growth in that market. On the M&A side, we continue to be opportunistic. I mean, it needs to be the right deal. We certainly look at contiguous markets. I think that sort of fit is really important to us. What we really liked about Northway is the template of that business felt very similar to our own. Very strong and similar credit kind of mindset, similar sort of geography. And really was allowing us to put the overlay of some of our digital capabilities and our treasury capabilities onto that franchise. And so I think we'd be looking for something similar to that. Obviously, the number of pieces on the chessboard are getting fewer. So, you know, I think we have to, you know, continue to look, but, you know, we're certainly very comfortable with the opportunities around organic growth. But if the right opportunity came along, I think we certainly would be interested. Matthew Breese: I know your footprint and your market stretch is into Northern Massachusetts. Would you consider a deal in Boston at this point, or is that market still a bit too far? Simon Griffiths: I think that's stretching the envelope. You know, I know Boston very well, obviously, with my time ten or so years down there. I mean, it's certainly a great market, but it's certainly a very different footprint to our own. Never say never, Matt. But, you know, I think that certainly doesn't feel within our sort of sweet spot if you like. But, you know, but need to look at everything on an individual case-by-case basis. Matthew Breese: Understood. I'll leave it there. Thanks for taking all my questions. Simon Griffiths: Thank you for the questions. Elliot: As we have no further questions, this concludes our question and answer session. I'd like to turn the conference back over to Simon Griffiths for any closing remarks. Simon Griffiths: Well, thank you for your time today and continued interest in Camden National Corporation. We truly appreciate your support. Have a great rest of your day. Elliot: Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Hope Bancorp 2025 Fourth Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Maxime Olivan, Senior Strategic Finance Manager. Please go ahead. Maxime Olivan: Thank you, Drew. Good morning, everyone, and thank you for joining us for the Hope Bancorp Investor Conference Call for the fourth quarter of 2025. As usual, we will be using a slide presentation to accompany our discussion this morning, which is available on the Presentations page of our Investor Relations website. Beginning on Slide 2, let me start with a brief statement regarding forward-looking remarks. The call today contains forward-looking projections regarding the future financial performance of the company and future events. Forward-looking statements are not guarantees of future performance. Actual outcomes and results may differ materially. Hope Bancorp assumes no obligation to revise any forward-looking projections that may be made on today's call. In addition, some of the information referenced during this call today includes non-GAAP financial measures. For a more detailed description of the risk factors and a reconciliation of GAAP to non-GAAP financial measures, please refer to the company's filings with the SEC as well as the safe harbor statements in our press release issued this morning. Now we have allotted 1 hour for this call. Presenting from management today will be Kevin Kim, Hope Bancorp's Chairman, President and CEO; and Julianna Balicka, our Chief Financial Officer. Peter Koh, our Chief Operating Officer, is also here with us as usual and will be available for the Q&A session. With that, let me turn the call over to Kevin Kim. Kevin? Kevin Kim: Thank you, Maxime. Good morning, everyone, and thank you for joining us today. I'm very pleased to report that we ended 2025 on a positive note with strong earnings growth in the fourth quarter. Beginning with Slide 3, you will find a brief overview of our results. Net income for the fourth quarter of 2025 totaled $34 million, up 42% year-over-year from $24 million in the year-ago fourth quarter. Quarter-over-quarter, net income rose 12% from $31 million in the third quarter, driven by growth in net interest income, strength in customer fee income, lower provision for credit losses, and a lower tax expense, partially offset by higher operating expense. Looking back at the year as a whole, we significantly lowered our cost of deposits, reduced our reliance on broker deposits, enhanced our earning assets mix, added experienced senior leadership and talent to support our revenue-generating capabilities, and strengthened our asset quality with a steady decrease in criticized loans in each quarter of 2025. We also expanded our banking footprint to the strategically attractive market of Hawaii via the Territorial Bancorp acquisition, which closed in April 2025. In sum, we were able to optimize our balance sheet and meaningfully improve our underlying core profitability metrics. As we look ahead, we are excited about the opportunities in 2026 and believe we are well positioned to continue making progress towards our medium-term financial goals. I want to express my sincere appreciation for the dedication of our colleagues at Bank of Hope. Their steadfast commitment to excellence has propelled our organization forward and strengthened our position as the leading regional bank serving multicultural communities across the Continental United States and Hawaii. As we navigate the path ahead, I am confident that our collective focus and hard work will drive even greater positive outcomes in the years to come. Moving on to Slide 4. All our capital ratios increased quarter-over-quarter and remain well above the requirements for well-capitalized financial institutions. Our Board of Directors declared a quarterly common stock dividend of $0.14 per share payable on or around February 20 to stockholders of record as of February 6, 2026. Our Board of Directors also reinstated our prior share purchase authorization, which still has $35 million available. Our healthy capital ratios position us to selectively and prudently return capital to shareholders via a share buyback program while maintaining strong overall capital levels to support growth opportunities and common stock dividends. Continuing to Slide 5. At December 31, 2025, gross loans totaled $14.8 billion, up 1% quarter-over-quarter, equivalent to 4% annualized, driven by broad-based growth across commercial real estate, residential mortgage, and commercial and industrial loans. Year-over-year, gross loans are up 8% largely reflecting the impact of the Territorial acquisition and organic residential mortgage growth. Loan production momentum has improved throughout 2025 with fourth quarter 2025 production volumes up 39% relative to the year-ago quarter. At December 31, 2025, deposits totaled $15.6 billion, up 9% year-over-year, primarily due to the Territorial acquisition and down 1% from September 30, largely due to typical fourth quarter fund movements in certain commercial clients, which normally return in the first quarter of the year. Our strategy is centered on building a durable deposit base by expanding primary customer relationships and improving funding efficiency through thoughtful mix management and pricing discipline. In 2025, we continue to reduce our reliance on broker deposits, which declined 15% year-over-year. Overall, we are pleased with the progress we are making in strengthening the organization. Our continued investments in people and capabilities are reinforcing disciplined growth, expanding our banking franchise, and deepening client engagements as we broaden our market footprint. With that, I will ask Julianna to provide additional details on our financial performance for the quarter. Julianna? Julianna Balicka: Thank you, Kevin, and good morning, everyone. Beginning on Slide 6. Our net interest income totaled $127 million for the fourth quarter of 2025, an increase of 1% from the prior quarter and up 25% from the fourth quarter of 2024. The fourth quarter 2025 net interest margin was 2.90%, up 1 basis point from the third quarter, reflecting the positive impact of lower funding costs, which more than offset the headwind from lower earning asset yields. Year-over-year, our net interest margin expanded by 40 basis points from the fourth quarter of 2024, primarily driven by lower cost of interest-bearing deposits and higher investment securities yields, the latter being partially repositioned in 2025. On Slide 7, we present the quarterly trends in our average loan and deposit balances and our weighted average yields and costs. Reflecting the impact of Fed funds target rate cuts, our average loan yield declined by 12 basis points and the cost of average interest-bearing deposits decreased by 17 basis points from the previous quarter. In 2026, we expect to benefit from two ongoing tailwinds in our balance sheet, the upward repricing of maturing 5-year commercial real estate loans to current market rates and the downward repricing of time deposits. On to Slide 8, where we summarize our noninterest income. In the fourth quarter of 2025, we realized growth across a number of fee income lines and strength in customer level swap fees was a highlight. Throughout 2025, management has been focused on improving fee income execution to diversify the bank's revenue streams. For example, customer level swap fees were $6 million for the full year of 2025, an increase of 270% from $1.6 million in 2024. During the fourth quarter, we sold $46 million of SBA loans compared with $48 million in the third quarter. Accordingly, we recognized SBA loan gain on sale of $2.6 million for the fourth quarter compared with $2.8 million for the third quarter. Moving on to noninterest expense on Slide 9. Our noninterest expense totaled $99 million in the fourth quarter of 2025, up from $97 million in the third quarter. The sequential quarter increase was mainly driven by compensation-related costs, reflecting the impact of hiring to support the company's strategic initiatives and revenue-generating capabilities. The year-over-year increase in noninterest expense from $78 million in the fourth quarter of 2024 additionally reflected the inclusion of Territorial Savings Bank operating expenses. The fourth quarter 2025 efficiency ratio was essentially stable linked quarter at 68%, with revenue growth effectively absorbing the incremental investments that we have been making. Next, on to Slide 10. I will review our asset quality, which steadily improved throughout the year with sequential quarterly balance decreases in criticized loans in each of the quarters of 2025. This reflected our disciplined and proactive approach to underlying -- underwriting and portfolio management as well as successful workouts of problem loans. At December 31, 2025, criticized loans were $351 million, down 6% quarter-over-quarter and down 22% year-over-year. The sequential quarter improvement included a 48% linked quarter decrease in C&I special mention loans. The criticized loan ratio improved to 2.39% of loans at December 31, 2025, down from 2.56% at September 30, 2025, and down from 3.30% at December 31, 2024. Net charge-offs were $3.6 million for the fourth quarter of 2025 or annualized 10 basis points of average loans compared with $5.1 million or 14 basis points annualized in the third quarter. The fourth quarter of 2025 provision for credit losses was $7.2 million compared with $8.7 million for the third quarter of 2025. The quarter-over-quarter decrease in the provision for credit losses primarily reflected lower net charge-offs and the linked quarter change in the allowance for unfunded commitments. The allowance for credit losses totaled $157 million at December 31, 2025, up from $152.5 million at September 30. The allowance coverage ratio was 1.07% of loans receivable at December 31, 2025, up 2 basis points compared with 1.05% at September 30. With that, let me turn the call back to Kevin. Kevin Kim: Thank you, Julianna. Moving on to the outlook on Slide 11. We present our management outlook for the full year 2026. We expect to see year-over-year loan growth in the high single-digit range in 2026, continuing to build on the growth momentum from the second half of 2025 and supported by the hiring that we have been making in our frontline teams throughout 2025. We expect year-over-year revenue growth in the range of 15% to 20% for 2026. This will be driven by our loan growth outlook, continued net interest margin expansion, and strong fee income growth. In terms of net interest income, our budget assumes two Fed funds target rate cuts, 25 basis points each in June and September 2026, in line with the current forward interest rate curve. In addition, we anticipate a tailwind to net interest margin expansion from the downward repricing of time deposits as well as from the upward repricing of maturing commercial real estate loans to current rates. In terms of fee income, we expect to see a continuation of the strong customer fee income momentum that we delivered in 2025. Overall, our outlook is for year-over-year pre-provision net revenue growth, excluding notable items, to be in the range of 25% to 30% for the full year 2026. This reflects the combination of our revenue growth outlook and positive operating leverage. The investments that the bank has been making in people and platforms to strengthen its franchise are anticipated to support our revenue growth outlook in 2026. Going forward, we would consider the fourth quarter 2025 noninterest expense level to be a reasonable starting quarterly run rate for 2026, factoring in ongoing plans to support revenue-generating hires, strengthen frontline capabilities as well as manage quarterly fluctuations. Our outlook assumes a steady asset quality backdrop and an effective tax rate between 20% and 25% on a full-year basis. With that, I will briefly review our medium-term financial targets on Slide 12. We continue to make progress towards our medium-term financial targets and believe we are well positioned to achieve these goals. Our bottom line financial target continues to be a return on average assets of approximately 1.2%. To achieve this metric, we are targeting loan growth in the high single-digit percentage range and revenue growth over 10% on an annual normalized basis. The loan growth target is part of our outlook and plan for 2026 and is expected to drive our revenue growth alongside continued expansion of net interest margin and strong fee income growth. We expect to exceed our normalized revenue target this year. Over the medium term, we are continuing to target an enhanced efficiency ratio. Our current target is for an efficiency ratio in the mid-50 percentage range which reflects our recent and planned strategic investments in the business and personnel to support the development of our commercial and corporate banking capabilities. We believe that our efficiency enhancement will come from a combination of sustained strong revenue growth, disciplined expense management, and ongoing operational process improvement. Improved efficiency remains a medium-term target, and we expect to make progress on the efficiency ratio in 2026 through positive operating leverage, but achieving our target will likely take more than just one year. Ultimately, the combination of attractive revenue growth and positive operating leverage over the medium term is expected to improve our return on assets toward the 1.2% target. In summary, building on the execution of our improved 2025 financial results, our stronger balance sheet positioning as well as targeted team and talent additions have enhanced our capacity to deliver disciplined, profitable, and sustainable growth, creating durable value for our stakeholders in the years ahead. With that, operator, please open up the call for questions. Operator: [Operator Instructions] The first question comes from Ahmad Hasan with D.A. Davidson. Ahmad Hasan: On for Gary Tenner here. Can I quickly just get the PAA accretion number? Julianna Balicka: I'm sorry, we don't disclose that number separately. Ahmad Hasan: All right. And then maybe can I get your thoughts on deposit costs from here in terms of pricing? And do you guys disclose the spot rate for deposit costs? Julianna Balicka: We did not provide the spot rate for deposit costs on this call. I can look that up momentarily. One second. Our spot rate on total deposits was 2.68% as of December 31, 2025. And in terms of deposit costs going forward, as we mentioned in our remarks, the continued downward repricing of the CD portfolio as it turns over will continue to lower our deposit costs in the future. And then we reduced our non-maturity deposit rates alongside Fed fund cuts. So to the extent that there are future cuts, we will continue that practice, of course. And then thirdly, in our outlook embedded, there's also in terms of behind the DDA growth that we are anticipating and planning for in this year, we have been investing in strengthening our TMS treasury management products and services infrastructure and teams in order to be able to expand our customer relationships and capture more of the operating deposit wallet share. So an improved deposit mix will be the third factor in helping to reduce our deposit costs in 2026. Ahmad Hasan: Appreciate the color there. And then maybe last one for me. You guys mentioned new hiring as a potential lever for loan growth in your outlook slide. How should we think about new hiring going forward in 2026? Any sort of new hire targets you guys can give out? Julianna Balicka: Not specific new hire targets, but our business plan does have very specific roles outlined in the hiring that we are bringing on board. Our hiring is focused on supporting revenue generation and the capabilities related to that as well, obviously, frontline and related support. And so in terms of thinking about that from your perspective, I would say that if you start with the fourth quarter run rate that you saw that already has embedded in it, the hiring that we've made in 2025. And then from here on out, when you think about 2026, we're going to continue to add to the hiring. But I would think about it as an OpEx growth rate in the low single digits, sub-5%. Operator: [Operator Instructions] The next question comes from Kelly Motta with KBW. Unknown Analyst: This is Charlie on for Kelly Motta. I just wanted to dig into what the CD repricing looks like, as you mentioned, that down and repricing is a core driver of the NIM going forward. So any detail you can provide about the CD schedule and repricing there going forward into 2026? Julianna Balicka: So in terms of our CDs in 2026, we're looking at a repricing of $6.3 billion. So obviously, a lot of it reprices quickly. I mean CDs are by nature, 12 months or less. And so maybe for the near term, in the first quarter, we've got a total of $2.5 billion of CDs repricing and that weighted average rate that they're repricing from is 3.99%. And the new CDs have been coming in at -- one second, I'll tell you. The new CDs have been coming in at somewhere between 3.90%. Well, actually, I'll take that back. The branch CDs were coming in at that 3.90% kind of percent level. So there's a little bit more competitive, but we also are benefiting from repricing of institutional CDs, and those are coming in at more kind of lower pricing. And so that kind of pricing has been coming in at 3.70%. So it's going to be a blend of both kind of going forward. Unknown Analyst: Awesome. And then I guess just following up on the overall margin dynamics. Can you remind us any sensitivity to cuts and how you view the overall margin expansion kind of heading into 2026? Julianna Balicka: Sorry, can you repeat your question? Unknown Analyst: I guess, the overall margin dynamics and any sensitivity to cuts and how you view kind of the margin expansion from here heading into 2026? Julianna Balicka: Actually, I need to make a correction. The 3.90s that I quoted you from the branch CDs, I was reading from the roll-off WACC column. So I'm very sorry, let me correct that. The new roll-on from branch CDs has been in the 3.75% to 3.80% range. Let me make that correction. And the sensitivity of our margin to the rate cuts, I would probably take a look at the third quarter and the fourth quarter margin relative to rate cuts you've seen in this half of the year and extrapolate from that. I mean, at this point in time, margin -- the rate cuts are expected in the second half of next year. So a lot can change between now and then. So I'll just extrapolate from recent trends. Unknown Analyst: Okay. And I guess from a high level, like looking back on the year, you guys entered Hawaii, just an update on the operations there and the strategy there, if you're hiring teams are still stabilizing operations. Kevin Kim: Yes. Our focus in '25 in Hawaii was to ensure the successful integration of the teams and add resources as necessary. And during the transition period in 2025, we were pleased to see that we did not experience any meaningful deposit fluctuations and the reception by our customer base in Hawaii was pretty positive. In 2026, we are looking forward to generating growth from the strategically attractive market in Hawaii. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Kevin Kim, CEO, for any closing remarks. Kevin Kim: Thank you. Once again, thank you all for joining us today, and we look forward to speaking with you again next quarter. So long, everyone. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the FirstSun Capital Bancorp Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Also, as a reminder, this call may be recorded. I'd now like to turn the call over to Ed Jacques, FirstSun's Director of Investor Relations and Business Development. Ed Jacques: Thank you, and good morning. I'm joined today by Neal Arnold, our Chief Executive Officer and President; Rob Cafera, our Chief Financial Officer; and Jennifer Norris, our Chief Credit Officer. We will start the call with some brief remarks to highlight commentary around the fourth quarter and full year results and then move into questions. Our comments will reference the earnings release and earnings presentation, which you will find on our website under the Investor Relations section. During this call, we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures. Important information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures, is included in the appendix to our earnings presentation and in our earnings release. During this call, we will also make remarks about future expectations, plans and prospects for the company that constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors. Please refer to our earnings presentation, our annual report on Form 10-K and our other SEC filings for a further discussion of the company's risk factors and other important information regarding our forward-looking statements. We undertake no obligation to publicly revise or update any forward-looking statement, except as required by law. During our comments today, we will also discuss our pending merger with First Foundation. In connection with the proposed merger, we filed a definitive joint proxy statement and prospectus with the SEC on January 15, 2026, which we urge you to read. Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of FirstSun and First Foundation stockholders in connection with that proposed transaction is set forth in such definitive joint proxy statement and prospectus. I will now turn the call over to Neal Arnold. Neal Arnold: Thank you, Ed, and thank you all for joining us this morning. We are pleased with our strong operating results in the fourth quarter. For the quarter, we achieved adjusted net income of $26.9 million, representing adjusted diluted EPS of $0.95 and a 1.27% adjusted ROAA. This quarter was highlighted by strong revenue growth, which was up 10.8% annualized over last quarter and the growth in our net interest margin to a very strong 4.18%. We also achieved healthy average loan growth of 8.5% annualized while maintaining a strong revenue mix with noninterest income to total revenue of 24.3%. Overall, this performance underscores our emphasis on relationship-based banking across all our businesses. In addition, we've continued our focus on reinvesting in the franchise, and it has positioned us well and resulted in $11.5 million of positive adjusted operating leverage for the full year. We plan to continue to invest in our growth markets and add to our portfolio of products and services to support our relationship-based model with a continued focus on generating operating leverage and maintaining a healthy revenue mix. On the asset quality side, we took a charge on a telecom loan, which we partially charged off in prior quarters, which resulted in the biggest driver of our total charge-offs in the fourth quarter. While we have not seen pervasive credit issues in any sector or geography within our portfolio, we do continue to monitor carefully the credit conditions of our portfolio. Given our heavy C&I nature of our loan portfolio, I've always said that at times, credit will be lumpy. But all in all, we remain focused on driving healthy returns for our shareholders as we have this year. Overall, I'm very encouraged by our performance this year. Given our franchise footprint in 7 of the 10 fastest-growing MSAs in the Southwest, we believe we're well positioned to continue to grow our customer base. We see great growth potential across all markets and believe we have the right team to continue to drive our long-term growth and profitability in these markets. Touching briefly on the pending merger with First Foundation, we are encouraged by the progress our teams are making on all the integration planning, the balance sheet optimization, and we look forward to working together in the year ahead. I want to thank our entire team for their relentless focus on our businesses and our clients. Our teams remain focused on building a best-in-class bank while delivering value-added solutions to all of our clients throughout our footprint. I'll now pass the call over to Rob for a more detailed review of our financial results. Robert Cafera: Thank you, Neal. I will touch on several highlights this morning in regards to our fourth quarter and full year results. In addition, please note that when I refer to our financial outlook for the full year '26, I'm referencing FirstSun on a stand-alone basis and not reflective of the financial impact of our proposed merger with First Foundation. Starting on the balance sheet side. For the fourth quarter, on an average balance basis, we achieved healthy loan growth of 8.5% annualized. New loan fundings totaled approximately $350 million in the fourth quarter. And while this has historically been our seasonally slowest quarter for new loan fundings each year, this year's new funding level was up 30% over the fourth quarter of last year. While we saw healthy average balance growth, period-end loan balances were flat given some late quarter paydowns and as we saw overall line utilization drop 3 percentage points. For the full year, we saw net balance growth of approximately $300 million or almost 5% with the bulk of that growth in our C&I portfolio. As Neal noted, we plan to continue to invest in our franchise, including adding to our C&I teams in several of our higher-growth markets in ''26. On the deposit side, for the fourth quarter, on both an average balance and period-end basis, balances were relatively flat. Although not exactly the outcome we were looking for on the deposit side, we continue to be focused on mix and we remain pleased with our trending there. We saw average balance growth in transaction products and period-end growth in our money market accounts with a noticeable decline in consumer CD balances. Rates in many of our markets on the CD side seem to be staying higher, and that isn't our focus. We will remain focused on operating account and money market account growth across our customer base. For the full year, we saw total deposits increase over $400 million or approximately 6.5% with strong overall growth in our money market, noninterest-bearing and interest-bearing accounts, partially offset by a drop in consumer CDs. We finished the year with an approximate 93.9% loan-to-deposit ratio, a slight improvement from the third quarter. Overall, for loans and deposits, we finished the year roughly where we expected to be on a growth basis and our growth expectations on a stand-alone basis on the loan and deposit side for '26 are much the same, growing at a ratable basis throughout the year with average balance growth in the mid-single-digit level. Flipping to the P&L side, as Neal noted, we're quite pleased with the fourth quarter EPS performance as our adjusted diluted EPS of $0.95 was our best EPS quarter of the year. Our net interest margin in the fourth quarter was quite strong at 4.18%, up 11 basis points from the third quarter and has now been above 4% for the last 13 consecutive quarters. Overall, net interest margin and net interest income trending in the fourth quarter was largely driven by improved funding costs with interest-bearing deposit costs down 21 bps and wholesale borrowing costs favorably impacted by a sub debt payoff we completed at the very beginning of the quarter. All in all, we're pretty pleased with our margin performance and 7% NII growth on the full year. It's a testament to our focus on our loan and deposit product and business mix. Looking ahead to the full year '26, we expect mid-single-digit growth in our net interest income with NIM remaining stable relative to full year '25 performance. Shifting to the service fee revenue side, we had a really nice quarter with noninterest revenue totaling $26.7 million or roughly $400,000 more than Q3 and up almost 24% over the fourth quarter of '24. The sequential growth in the fourth quarter of '25 was largely driven by our loan syndication and swap revenue streams, partially offset by a nominal decline in our mortgage revenues, which certainly showed strong given the season. We also saw growth in our treasury management and interchange service fee revenues in the fourth quarter. For the full year, we saw growth of approximately $12.1 million over '24 or approximately 13%, driven mostly by service fee revenues in our mortgage and treasury management lines of business, which were up 21% and 18%, respectively. Our results on the noninterest revenue side really highlight the diversity across all our fee businesses, contributing to our achieving the 13% full year growth in '25. For '26, we expect noninterest revenue percentage growth in the low double-digit to low teens range. Our total adjusted noninterest expense in the fourth quarter, which excludes merger-related expenses, was up from the third quarter by approximately $1 million, primarily related to increases in other noninterest expenses. The increase there was primarily the result of the write-off of the remaining deferred expenses associated with the sub debt redemption at the beginning of the fourth quarter as well as some maintenance expenses related to some OREO properties. That said, the adjusted efficiency ratio for the quarter was slightly down from the prior quarter at 63.36%, resulting from the net revenue growth for the quarter. As Neal noted earlier, we saw nice operating leverage this year in both the fourth quarter and for the full year. For 2026, we expect to see our adjusted noninterest expense percentage growth in the mid- to high single-digit range. On the asset quality side, provision expense for the fourth quarter was $6.2 million, resulting in an ending allowance for credit loss as a percentage of loans of 1.27%, an increase of 1 bp from Q3. Our provisioning this quarter was due primarily to impacts from net portfolio downgrades. Our classified loan balances were down about 5% from the prior quarter, while nonperforming loan balances also decreased from the third quarter by about 13%. As Neal referenced earlier, credit on the C&I side can be lumpy at times. We finished the year with an approximate 43 basis point charge-off ratio on the full year with approximately 75% of the charge-off dollars related to 2 loans in our C&I portfolio, the telecom credit and the cross-border credit that we've referenced earlier in the year. For 2026, we expect our allowance for credit losses to loans to stay in the mid- to high 120s in basis points with a net charge-off ratio in the mid- to high 20s in basis points. On the capital side, we continue to strengthen our position as we closed out the year with our TBV per share improving by $3.89 or roughly 11.5% over 2024 year-end to $37.83 and CET1 ratio ending at 14.12%. I will now turn the call back to the moderator to open the line for questions. Operator: [Operator Instructions] The first question comes from Woody Lay of KBW. Wood Lay: I wanted to start on deposit costs, and we saw the deposit betas kind of reaccelerate, which was great to see. I was just looking for some -- maybe some additional color on the deposit pricing strategy in the quarter? And then how do you think about betas from here? Robert Cafera: Thank you, Woody. Yes, we certainly saw favorable movement as I commented on earlier with overall interest-bearing costs going down by about 21 basis points. Certainly pleased with that. And we moved rates when macro rates moved, and we'll continue to do that. We look at -- kind of looking forward, we do look at the environment. It's tougher out there, certainly when you're pushing for growth like we are. And so we acknowledge that we do have a lot of flexibility given the C&I variable nature of the asset side to our sheet. So we have a lot more flexibility to engage in some of the pricing that's going on out there. And we don't see that changing by and large. I've mentioned CD pricing across a lot of our markets is pretty aggressive. We're seeing it hang pretty high. Now CDs isn't really where we play. But we'll continue to be focused on operating account growth through all of our C&I business development efforts across our sales teams and certainly on the consumer side with money market account growth and our emphasis there. How does that translate to betas? I think our beta is going to be tracking a little lighter than it historically has tracked because of all the deposit competition out there. Having said that, I don't expect it to be terribly lighter than it has been in the past, but we do expect it to be less than the 40% plus betas that we've been able to enjoy historically. Wood Lay: Got it. That's helpful color. Next, I wanted to shift over to expenses, and I appreciate the stand-alone guide. I was just curious sort of what level in that stand-alone guide is baked into investments in the West Coast, knowing you've been kind of doing that independently? And then once the deal closes, how are you thinking about sort of the incremental expense investment needed? Robert Cafera: Yes, good -- yes, thank you Neal. Neal Arnold: I would say we -- the opportunity to add to our sales force is probably across the footprint, and we're seeing more activity in Texas, certainly as a result of the merger side. So I would expect us to add to our C&I team in both Texas and Southern Cal, specifically some of the newer markets that First Foundation brings. But I'd say I still think we, by and large, built a lot of what we're trying to do ahead of the merger. So with that, I'll turn it over to Rob. Robert Cafera: Yes. And I would just add to Neal's comment to say, aside from the sales force, Woody, in your question, our cost save synergy disclosures in our investor presentation, all took into consideration the infrastructure needs for the combined company. So we don't expect that there's anything else on the infrastructure side. Wood Lay: All right. I appreciate that. And then last for me, just real quick. Any color on what drove the special mention increase in the quarter? Robert Cafera: Yes. Fair question. I mean, ultimately, I think -- and Jennifer could certainly add to this, maybe I'll just offer that we continue to see a little bit of pressure just from macro interest rates and how that's reverberating in the portfolio. And that's the general trend that we've seen throughout '25. Of course, we do expect, given how interest rates have come down towards the latter half of '25, we do expect to see as we get financial statements through the end of the year, we expect to see some of that interest rate pressure on the business side abate a bit. But generally, that's a trend that -- net downgrade trend that we have been seeing throughout the year and particularly on interest costs. Jennifer, I suspect you may have something to add there. Jennifer Norris: Yes. And I think your comment is spot on as we've seen the interest rate -- well, the interest rates play out for a longer period of time. There were certainly, as it's been said multiple times, no pervasive themes in the increase in special mention. It was, again, a lumpy component there, primarily with one particular name. Operator: The next question comes from Matt Olney of Stephens. Matt Olney: I was looking for any commentary on loan pricing? Are C&I spreads holding in? Or is competition coming in more aggressively? Just trying to forecast loan betas, I guess, over the next few quarters. Robert Cafera: Yes. Maybe I'll kick it off there. I mean, pretty consistent really, Matt. I mean, no material changes in what we're seeing in terms of trends on credit spreads. And certainly, credit spreads have some slight differences from one market to another across our franchise footprint. But by and large, credit spreads have been holding in the spaces that we are focused on have been holding pretty well. Matt Olney: Okay. I appreciate that, Rob. And then I guess as a follow-up, I just want to ask about the pending acquisition and any kind of impact you can see on that from the recent interest rate cuts and potentially, I guess, additional rate cuts until closing. Will any of those rate changes over the last few months impact the financial metrics of the acquisition? And then maybe just strategically, as we get more rate cuts since deal announcement, what does that mean for the asset and liability repositioning that we've talked about previously? Robert Cafera: Yes, absolutely. And maybe I'll start off. I know Neal will have some items -- some additions here as well. I would just start off by saying, certainly, we remain very excited about the prospects ahead of us post-merger closing as we look forward here in '26. As it relates to macro rates, both balance sheets operate a little differently, as you know. But all in all, we're not seeing anything that is causing us any pause or having any change in our expectations. As it relates to the balance sheet repositioning, loan downsizing there, as Neal had mentioned a little bit earlier, we're making great progress on -- well, actually all integration planning efforts, including the balance sheet repositioning. So certainly, macro rates have moved around a little bit. But as it relates to the balance sheet repositioning, we think we're right on schedule for our execution plan. Neal Arnold: Yes. I'd say in general, I think people understand that First Foundation's balance sheet is a term asset, short-funded kind of structure. We're certainly taking action to reduce some of that. But I think as Rob said, we -- both with hedging and with the activity that we're working on together, I think we feel good about the progress being made. Operator: The next question comes from Michael Rose of Raymond James. Michael Rose: Maybe we can just start -- certainly appreciate the prior questions regarding loan and asset betas. How should we think about, obviously, excluding the deal, just the trajectory of the margin from here. So obviously, not much balance sheet growth this quarter, looks to reaccelerate into next year given kind of the guide. Obviously, a fair amount of fixed -- or excuse me, floating rate loans. Just walk us through just kind of the puts and takes on the margin, assuming the 2 cuts and then if we don't get any. Robert Cafera: Yes, absolutely, Michael. Maybe I'll kick off on this one. I mean, all in all, we do expect net interest margin to remain relatively stable. Very pleased with the 11 basis point expansion that we saw in the fourth quarter. But on the deposit pricing side, we see the environment tightening up. And so as I mentioned earlier, we do see or we are expecting that some of the deposit pricing is going to get a little tougher. We have a little room to play with there given the -- that we are a little bit stronger on the asset side. But we think we're going to be able to maintain margins with the contributions on both sides. We do have 2 rate cuts as we had indicated baked into our expectations, and I think that's largely consensus. So we're not really strained from consensus there. But we do see -- there's going to be quite a bit of price competition on the deposit side, we think, again, here in '26. And that's going to directionally drive where we land on net interest margin. But we do feel pretty good about the stand-alone legacy Sunflower, FirstSun franchise operating at a pretty stable level in comparison to what we saw in '25. Michael Rose: Very helpful. And then maybe one for you, Neal. I think in prior calls, you've kind of talked about the opportunity being a little bit larger or maybe much larger in the Southern California market relative to Texas. It seems like maybe there's -- if I'm reading your comments earlier correctly that there may be a little bit more in terms of opportunity in Texas than maybe you might have thought a couple of months ago. If you can just kind of square those comments and as it relates to the expense guide, how much of that is just kind of like normal kind of inflationary aspects, bonuses, raises, things like that versus hiring -- incremental hiring efforts, both in Texas and in Southern California? Neal Arnold: Sure. No, thank you. I guess I'd say broadly, our priority in the last 1.5 years was certainly to build out Southern Cal. I think we are ahead of the curve. I think we have a couple of, I'll call it, minor holes that we'd add as the First Foundation acquisition comes together. I would say, given all the M&A activity in Texas, we have seen more opportunity than we originally thought to pick up solid bankers with good relationships. I think everybody has heard me, Houston has been a priority. We continue to add in Dallas. So I think you'll see us continue to be opportunistic on the HR side. Texas has been [indiscernible] on the M&A side. We aren't going to use our currency to play on the M&A side in Texas. So our opportunity is really to grow by building teams. Michael Rose: All right. Very helpful. And then maybe if I can just squeeze one last one in. Once the deal hopefully closes here by the end of the second quarter, it looks like the loan-to-deposit ratio will come down into kind of the mid-ish 80s range, which will give you a little bit more flexibility. At that point, does the deposit narrative or beta narrative change insofar that you might have a little bit of flexibility to maybe let some of those higher cost deposits go, and that could actually be supportive of kind of NIM expansion on a combined basis. And if it's too early to answer, I certainly understand, but that was my read. Neal Arnold: No, I'll let Rob... Robert Cafera: No, absolute -- Yes. No, absolutely, Michael. As you know from our IR deck on the deal, we're certainly very focused on the liquidity equation, and that's certainly part of -- a big part of the overall balance sheet repositioning, not only immediately following close and up too close, but also in the several quarters following close. We'll continue to address and reposition as some of the term funding items continue to hit maturity dates. And by that, I mean in higher cost areas. So we'll continue to look to bring down overall costs for the pro forma company as we get there. From an overall beta perspective, I mean, our interest is always in relationships. That's what we're looking to drive. Relationships have more than one element, of course. So we know it's competitive out there. So we expect competition on pricing, but we also expect the balance through the relationship and it being more than just an one product. So our focus will be on continuing to build out on the relationship side there. We think that will have some beneficial impact in margin as we think of things not only for legacy, but looking into the future, but that's how we would be attacking it. Neal Arnold: Michael, the only thing I would add to your question because I think it is important, we look forward to running our retail strategy play in Southern Cal in their branches. I think there's great opportunity, as I've said in the past, in Southern Cal, running our play. I think it's a very robust deposit opportunity. And secondarily, as we've got into the multifamily portfolio, a lot of these clients have -- are sitting on a lot of cash because they're investors, not necessarily just developers, like we sometimes think about on the space. So I think we have -- as we've spent more and more time with First Foundation team, I think there's a robust treasury management opportunity on that multifamily portfolio, not just property counts, but actual deposit relationships. So kickstarting that will also be additive, I believe. Operator: The next question comes from Matthew Clark of Piper Sandler. Matthew Clark: Do you happen to have the spot rate on deposits at the end of December to give us some visibility into 1Q? Robert Cafera: Yes. On the deposit side, as we were talking about, certainly very pleased with what we saw in the fourth quarter. I think we were -- total cost of deposits around 1.98% for the quarter. At the end of December, we were closer to 1.90%, that neighborhood, Matthew. Matthew Clark: Okay. That's helpful. And just on the money market side, I mean, is there -- I guess, what is your current offering there? It may be customized to some degree, but I guess what's kind of the range that people are getting these days? And do you feel like there's pressure to potentially increase that rate? Or do you feel like it's just not going to come down as much as you'd like? Robert Cafera: Yes. Great question. Yes, I mean, it's very competitive out there, definitely. Our promo offerings on the MMDA side, and it's -- there's always asterisks, there's balance qualifiers. But at the top tier, we're around the [indiscernible] handle on the consumer side for that MMDA product. Matthew Clark: And then just on the pro forma -- the guidance you gave today or last night was on a stand-alone basis. But any update on your pro forma guidance relative to at the time when the deal was announced, whether -- plus or minus, whether or not you think there have been any material changes there. Obviously, put up a better-than-expected quarter, so that's helpful. But any thoughts there? Robert Cafera: Yes. I mean we don't have any updates at this time on pro forma projections. We're certainly, as we mentioned, very encouraged about the prospects looking forward. And you're right, a lot of information in our IR deck around expectations. I mean there's always some pluses and minuses. But all in all, yes, we continue to remain extremely excited about the prospects as we look forward on that side. Operator: We currently have no further questions. So I'd like to hand back to Neal for closing remarks. Neal Arnold: Thank you. Thank you all for joining our call this morning. As always, we appreciate your continued interest in FirstSun. We hope you all have a great day, and thanks for listening. Operator: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Welcome to the Getinge Q4 Report 2025 presentation. [Operator Instructions]. Now I will hand the conference over to the speakers, CEO, Mattias Perjos; and CFO, Agneta Palmer. Please go ahead. Mattias Perjos: Thank you very much, and welcome, everyone, to today's earnings call. With me, I have our CFO, Agneta Palmer. We will start the conference today with our performance in the fourth quarter and then reflect a bit on the full year and our expectations for 2026 and onwards before ending with a Q&A. So we can move directly to Page #2, please. So let's first look at the development of our longer-term strategic KPIs. You can see that we continue to clearly track in line with our plans to increase the share of sales from recurring revenue, accelerating the share of sales from high-margin products like our Paragonix offering, our ECLS portfolio, the consumables with infection controls and also data bags inside our Cell Transfer segment in Life Science. This is all supported by solid and effective quality processes as well, which is extremely important in our industry. So sales from recurring revenue now makes up about 2/3 and high-margin products a little bit more of total revenue. When it comes to quality, the number of field actions in relation to sales has decreased significantly, and we see this positive trend also sequentially continuing in the fourth quarter. This improvement should, of course, be achieved through responsible leverage and an attractive long-term return on invested capital. If you move to Page #3. If we then zoom in on the fourth quarter of last year and some of the key takeaways from the quarter, we managed to beat last year's record quarter and grow top line organically, which I think is really good. Net sales grew by 1.2% organically with positive developments in most BAs and regions, and our order intake increased 2.3% organically. If we then look at adjusted gross and EBITDA margins, they were down in the quarter, mainly due to the strong headwind from currency and tariffs. And adjusting for the over SEK 1 billion in currency and tariff headwind in 2025, the EBITA margin for the full year was considerably higher than 2024, signaling that the underlying performance of the business is strong and developing according to plan. We have solid cash flow, and we remain in a very strong financial position with our financial leverage well below 2.5x EBITDA. And the Board has -- the Board of Directors have proposed a dividend of SEK 4.75 per share. We can then move to Page #4, please. So if we then look at some of the key activities and events in the quarter and start with our -- what we offer our customers, we -- it's usually our strongest quarter than last year's significant amount of shipments that went out in the last week of the quarter -- last week of the year. So really good collaboration with our customers overall, and that this is the reason we managed to reach record high organic sales in the quarter as well. I'm also very happy to see that our intense product development efforts have resulted in several important product launches during the quarter. In Life Science, we have announced the integration of Siemens open and flexible user interface in the new generation of washers and sterilizers, and this will support streamer operations, efficient data management and secure data integrity for our customers. And also in Surgical Workflows, we launched the utility-efficient Aquadis 44 washer-disinfector, which helps hospitals reduce cost and meet environmental -- their environmental targets. And within Surgical Workflows, we also launched Automatiq, which is a new family of next-generation automated solutions, which combines smart robotics, intelligent conveyor systems and advanced software to achieve both safer, more consistent and less labor-intensive sterile reprocessing. If we then look at the sustainability and quality aspect of this, we continue to make good regulatory progress in the quarter. In our Implants business, we received premarket approval for the iCast covered stent in large diameter lanes. So this will help us become more competitive in the U.S. market. Our PLS set which is used in extracorporeal circulation for cardiac and pulmonary support received CE certificate under the EUR MDR. And also happy to see that PiCCO, our minimally invasive hemodynamic monitoring system is now included in the European Society of Intensive Care Medicine's guideline on circulatory shock. I also want to highlight again that our quality KPIs such as audit finance per audit for quality systems and also field actions in relation to sales continue to trend positively. So those are the main activities and events for the fourth quarter, and we can then move to Page #5. So looking at then our top line performance, we can see that we had solid progress in Acute Care Therapies and in Surgical Workflows. Order intake grew 2.3% organically. And in Acute Care Therapies, this increase was mainly attributable to good performance in ECLS Consumables, in Transplant Care, and we also saw growth in endoscopic vessel harvesting and in product [indiscernible]. Life Science organic order intake declined in the quarter due to softer development in WIS, which is our washers, isolators and sterilizer business and also within Bio-Processing. The organic order intake for Surgical Workflows grew strongly in the quarter, mainly on the back of strong development in infection control consumables and also operating room equipment generally within Surgical Workflows. From a sales perspective, we had a 1.2% organic increase in sales, and we have both Acute Care Therapies and also Surgical Workflows showing low single-digit growth in organic sales. Acute Care Therapies, the growth came mostly from good performance when it comes to ventilators globally. We saw Transplant Care with good momentum and also ECLS therapy. In Surgical Workflows, organic net sales increased primarily, thanks to growth in operating tables and in infection control consumables. And when we look at Life Science, we had an organic net sales decrease mainly due to lower sales in Bio-Processing and in the WIS business that I mentioned also on order intake. Growth in sterile transfer, which is our most important subcategory in Life Science continued strong. We can then move over to Page #6, and I'll hand over to Agneta. Agneta Palmer: Thank you, Mattias. It's positive to see that our activities come through a strong underlying performance. Despite negative impact from tariffs and FX in the quarter, we managed comparatively well with decent margins. On adjusted gross profit for the group, adjusted gross profit amounted to SEK 5.037 billion in the quarter, primarily on the back of currency and tariffs. Adjusted gross margin was down by 1.1 percentage points in total despite a healthy contribution from price and mix. On adjusted EBITDA, adjusted gross profit effect on the EBITDA margin was minus 0.5 percentage points due to what I just mentioned. Adjusted for currency, OpEx had a slight impact on the margin in the quarter. FX impacted severely by minus 1.2 percentage points in the quarter. And all in all, this resulted in an adjusted EBITDA of SEK 1.809 billion and a margin of 17.8%. Let's move to Page 7, please. We remain in a solid financial position. Free cash flow amounted to SEK 1.2 billion in the quarter. Compared with last year, free cash flow was impacted by changes in working capital. At the end of Q4, net debt was SEK 9.8 billion. If we adjust for pension liabilities, we are at SEK 7.5 billion. This brings us to a leverage of 1.5x adjusted EBITDA, which is well below the 2.5x, which we have set as an internal threshold. If we adjust for pension liabilities, leverage is at 1.1x adjusted EBITDA. Cash amounted to approximately SEK 3.4 billion by the end of the quarter. So all in all, we can conclude that the financial position continues to be strong. Let's move to Page 8, please, and back to you, Mattias. Mattias Perjos: Thank you, Agneta. Before looking at the full year and ahead, I'd just like to take the opportunity to quickly shift from financial KPIs to some other impactful figures. So at Getinge, my colleagues and I have a lot to be proud of, I think. If you look at our products and services in the hands of clinicians and pharmaceutical staff, they really make a true life-saving impact globally every minute. So this slide just lists a few figures describing some of that impact. And it really explains some of the reasons for the strong customer loyalty that we see year in and year out. So for example, if you look at our Operating Table business, every fourth operating table globally is from Getinge. These are used in million major surgeries annually. Look at our new washer in Life Science, it uses 32% less water, 25% less energy, so reducing cost and the climate footprint for our customers. And furthermore, if you look at our unique NAVA ventilation technology, this can cut hospital stays by roughly 1/3 for adult ICU patients. So this is a significant win-win, both for patients for their health and for hospital finance. With that, we can move to Page #9, please. So we take a step back and look at 2025. Overall, it was certainly an interesting year in many, many aspects here. If I sum up the year, it will be in 4 main themes. So first, we have the geopolitical friction such as tariffs and the strong currency headwind that we have seen throughout the year. So this has been a wet blanket not only for Getinge, but for most companies globally. And this is something we expect to continue also to have to deal with in 2026. Secondly, more specific to Getinge, we've seen really good progress in our important quality remediation work. And thirdly, I'm happy to note that our organic innovation focus has resulted in several product launches throughout the year, which will help us further strengthen our competitive position and the support from our customers. All in all, we continue to show strong underlying performance, thanks to our industry-leading products and our team's enduring efforts together with our customers navigate through ongoing political turmoil. We can then move over to Page #10, please. I just wanted to take a moment to zoom in on the headwind from tariffs and FX as well since this was a significant drag on adjusted EBITDA in Q4 and almost -- it was almost SEK 500 million and also, of course, a drag on full year adjusted EBITDA by over SEK 1 billion. So tariffs made up almost SEK 150 million in the quarter and about SEK 370 million for the full year, which for last year was Q2 to Q4. If we exclude the impact of tariffs and currency, our adjusted EBITA margin in Q4 would have been 20.3% and 16% for the full year. So this is right at the beginning of our longer-term guidance plan of 16% to 19% set for the end of 2028. So this really shows that the underlying improvement work is really having good momentum here, and that's something we look forward to continue working with and implementing in the coming years. We can then move over to Page 11. Thank you. Just a few comments on the regulatory uplift plan as well with some of the major milestones coming up during the year. So at the end of 2024, if we take a step back, we reached the important milestone of clearing the quality record backlog. During 2025, several other regulatory milestones have been reached. I mentioned some examples from Q4 at the beginning of this presentation. We've also made progress in the important regulatory product uplift of our market-leading devices, CardioSave, which is our intra-aortic balloon pump in cardiac assist and Cardiohelp, the hardware for ECMO therapy within our Cardiopulmonary business segment. When it comes to CardioSave, in CE markets, the CE approval is reinstated with conditions since last fall. We hope to initiate sales by the end of last year, but due to some delay in shipment of critical components, we have pushed of deliveries now to the second quarter of 2026. In the U.S., we're currently only selling replacement pumps to existing customers. And due to the delay with critical components that I just mentioned, we've also pushed the 510(k) submission to Q2 2026. We had strong order growth for pumps in the quarter, which confirms the leading position in this segment and the trust that our customers have in us, and this is why the submission and the start of deliveries is really a key priority for us. If we then move to Cardiohelp, there are no sales restrictions in key markets for the existing Cardiohelp. We and our customers are very excited about the next-generation device here, the Cardiohelp II . For this one, we sent in the submission for CE-mark approval in Q4 of 2025, so last year, and we expect to be able to initiate the first shipment in Europe during the beginning of this year. In the U.S., we're only selling to existing customers or customers confirming that they don't have any other viable alternative. The work with the 510(k) submission for the complete Cardiohelp II system is going according to plan and is set for the second half of this year. We can then move to Page #12. At the Capital Markets Day in our Capital Markets update in May 2024, we guided for an adjusted EBITA margin of 16% to 19% by the end of 2028. And I think we're on a steady path of reaching that, and that's despite the very different norm that we have today compared to 18 months ago. The main drivers which will enable this is related to growth, it's related to product mix and it's related to productivity. So if you look at the growth angle of this to begin with. So from the perspective of regulatory approvals and key strategic product launches, we have mentioned some of them here. We have the next-generation ECMO therapy with Cardiohelp II having no sales restriction for CardioSave intra-aortic balloon pump and also our low temp sterilization is something that will materialize during this guidance period. We also expect to get our share of the announced U.S. pharma investments and a recovery in Bio-Processing. And we will, of course, continue our diligent and successful work with realizing price increases every year. From a mix perspective, it is our strategic intent to steer our business towards a continued rotation to high-margin products and consumables. And if possible, we prefer to have products that are made up of a competent hardware and with captive consumables attached to this. Our strong R&D and innovation pipeline is set to contribute to this development. And then from a productivity perspective, we've already done a lot in several parts of the business with remaining opportunities in other parts of the company. The heightened extraordinary quality costs connected to the product uplift in CardioSave and Cardiohelp is expected to go down from the second half of 2026 and then be significantly lower in 2027 and '28. So this will also support the margin expansion. Furthermore, we will continue with our production excellence efforts, helping us to further optimize our supply chain and remain with a tight cost control across the company. So all in all, this supports our assessment that our target for 2028 is well within reach. We can then move over to Page 13, please. So what does this mean for 2026 then? And here, we see primarily 3 themes. First, unfortunately, we expect the geopolitical friction and the FX headwind to continue in 2026. And so of course, will our mitigating efforts. Secondly, a key this year will be to hit the critical quality remediation milestones to enable the product launches that we have in the pipe as soon as possible. And thirdly, we do expect the solid underlying performance to continue, and we have good momentum across large parts of our business when it comes to this. So in many aspects, a year quite similar to 2025 and setting us up for an acceleration in 2027 and '28. Can I move to Page 14. This takes us to our financial outlook for 2026. As we all know, there are some geopolitical uncertainties that we will need to navigate in the coming years. But based on the underlying demand that we see, our expectation is for an organic net sales growth to be in the range of 3% to 5%, adjusted for the phaseout of our Perfusion product category. Surgical Perfusion is expected to have a net sales in 2026 declining from about SEK 250 million to SEK 50 million. We move then to Page 16, please. So summarizing the quarter, we had organic growth in top line, resulting in record high sales for the quarter. Tariffs and FX continue to be a significant headwind, but we still managed to have margins in line with the 2024 level, really confirming that the underlying performance is developing according to our plans. Our financial position remains solid. We had a good end from a cash flow perspective for 2024 -- sorry, '25. For 2026, we guide for organic net sales growth of 3% to 5% adjusted for the phaseout of Surgical Perfusion. And our priorities remain the same for 2026. So key here is addressing the remaining challenges that we have in our Acute Care Therapies business area. We continue to focus on sustainable productivity improvement and cost consciousness when navigating the geopolitical uncertainty and addressing the impact from tariffs. And key focus, of course, as always, is to continue creating added value for our customers and really help them serve patients better. With that said, I open up for questions. Operator: [Operator Instructions] The next question comes from Oliver Reinberg from Kepler Cheuvreux. Oliver Reinberg: Three, if I may. I'll probably take them one by one. Mattias, can you just say a word on 2026? I mean, you alluded to the fact that there's obviously still the kind of headwinds from currencies and I guess also tariffs maybe a certain annualization effect. Can you just help us to get a kind of feeling for the magnitude of these headwinds? And I think the Street is currently expecting 60 basis points of margin expansion. Is that something you feel comfortable with? That would be the first question, please. Mattias Perjos: As usual, we never comment on expectations from the capital markets here. But the -- from the tariff situation, assuming that they remain the way they are now, I think the math that we have from 2025 will apply in 2026. So we will have a slightly higher level of tariffs up to a couple of hundred million. So that's something we will need to mitigate. And so we are fingers crossed for some tariff stability at least. The best thing will be if they went away, but we expect to have to live with tariffs now for 2026. So they will continue to be around SEK 0.5 billion headwind at least. On the currency side, we do expect the dollar to continue to depreciate, but we're really in no position to make any estimates forward-looking on this. So that's an additional headwind that we will need to find ways of mitigating. Oliver Reinberg: Okay. But would it be fair that you still feel that you can mitigate both and there will be net margin expansion at the end? Mattias Perjos: Yes, that's our ambition. Oliver Reinberg: Okay. Perfect. And then just secondly, on this kind of midterm guidance, which you also already gave within the last call. I mean, can you just give any kind of flavor is the upper end as likely as the low end, so the full range of the whole guidance still applies? Mattias Perjos: I'm not really in a position to dissect the guidance spend now and narrow it down. But I think it's really encouraging to see that without the negative effect from the geopolitical consequences of tariffs and headwinds, we would already be within our guidance range. So the momentum underlying in our business is good. We do feel okay about investment climates among our customers as well. I think treatment needs will continue to grow slowly, but that support our business growth. And like I mentioned in the presentation page, our productivity measures across the business is also really showing good momentum. So overall, we feel good about the traction towards the margin, but I'm not prepared to make any more detailed analysis or break this down with the probabilities right now. Oliver Reinberg: Okay. Fair enough. And the last question, just because we're full, it's always probably a kind of good opportunity to discuss capital allocation. I mean, you brought the leverage down quite significantly. Can you just talk about priorities? I mean, in the past, you were more leaning towards M&A. Can you just provide some kind of color how open you would be to any kind of share buybacks at this kind of point? And I think there was some time ago also you did this kind of discussion to what extent Life Sciences is a kind of long-term fit given that the industry is going to normalize. I mean, do you feel that there's a lot of people knocking on your door for any kind of potential offer? Any kind of flavor here would be great. Mattias Perjos: Yes. I think we definitely have continued inbound interest regarding the Life Science business, but it's not something that we have on the divest list here. We feel like good owners. We like the exposure to this end market, and we continue to invest in this part of the business as well. When it comes to capital allocation in general, M&A remains one area, but we have a mandate to do share buybacks as well. It's a discussion that is continually going on in the Board. Given the uncertainty that still remains, I think we've seen some examples of this already in this year with tariffs coming in or the threats of tariffs coming in and so on. So I think it's good to be a little bit prudent with how we allocate capital. Operator: The next question comes from Mattias Vadsten from SEB. Mattias Vadsten: I have 3. I'll take them one by one as well. First one, if you could talk a bit about the sort of phasing for the year, for example, assuming perhaps Q1 is one of your tougher comps during 2026 from the perspective of a couple of things? And also quality cost, it sounds like it should come down foremost towards the second half. So maybe if you could give your view there. That's the first one. Mattias Perjos: Yes. No, we're not prepared to make any kind of quarterly guidance here, but the dynamics that you described, we agree with, it's maybe the best way of putting this. But we've guided for 3% to 5% growth in 2026. Our ambition is to continue to expand the margin, but I can't really break it down by quarter. Mattias Vadsten: Okay. Then it appears ventilators has been very strong, of course, and strength continued also into Q4, perhaps driven more by outside U.S. markets. But could you give us your overall sort of thinking for the business in 2026, perhaps without going into too much of a detail, but more how you think about it going forward? Are accounts sort of tougher? Or is the momentum strong enough to make it continue to grow strongly also in '26? Mattias Perjos: Yes. I think I'll describe it the way we've done it during 2025. We've had over a year of good momentum now in this business. I think definitely compared to our market share pre this shift, we've been net beneficiary when it comes to market share grab. So very thankful for the support from our customers and the great work by our teams to make this happen. I think that there is a mix of replacement cycle, normal replacement cycle going on in this business, and there is the continued withdrawal of some of the remaining incumbents in this business as well. But needless to say, the tailwind will be much, much milder than it was during end of '24 and the whole of 2025. Mattias Vadsten: Okay. And then on the situation -- on the supply side in IABP, what is your sort of level of confidence to have that sorted in Q2? And also, is it fair to say that sort of CardioSave in the U.S. will be sold without restrictions towards the end of 2026? Or how do you view that? Mattias Perjos: I don't think we will be able to sell towards the end of 2026. This is now first about submitting the updated 510(k) that we said now is in the second quarter. It still hinges on making sure that we have the critical components fully available that we can do the validation and testing needed and we prepare for this. So there is still some uncertainty related to this, but we feel obviously more confident about Q2. Otherwise, we would have said something different. So there's some remaining work, but also steady progress towards this. Operator: The next question comes from Kristofer Liljeberg from Carnegie. Kristofer Liljeberg-Svensson: I will also take my questions one by one. First, are you able to comment on Paragonix sales level here for 2025, maybe how much it's growing right now and margins? Agneta Palmer: I don't think we will disclose the exact growth figures of Paragonix, but we are very happy about this development. And as is visible in our report, we will end up with a bit of a higher earn-out also based on this. And margin-wise, it is also developing according to our expectations or a bit better. Kristofer Liljeberg-Svensson: But would you say it's still dilutive on margin? Agneta Palmer: It's slightly dilutive on margin overall on the... Kristofer Liljeberg-Svensson: Okay. For the group or for ACT? Agneta Palmer: For the group. Kristofer Liljeberg-Svensson: Okay. Then my second question, Mattias asked before about phasing effects. Just wondering about Q1 and the flu season. I think that was quite a good benefit for you last year and it seems the number of cases is dropping quite fast in the U.S. Could you maybe give a little bit of flavor how much a good or a strong or weak flu season impacting sales in a given quarter? Mattias Perjos: No, the short answer is no. It is difficult to break it down. I mean there's been a couple of years after the pandemic where we had no flu season effect and now we saw last year that there was some and this year, if you look at 2025, '26, hospitalizations increased a little bit earlier than they did before. So there was maybe a bit more of a December effect, but it's impossible for us to speculate about the impact of this in... Kristofer Liljeberg-Svensson: Okay. And finally, when it comes to the quality cost, is it possible to say approximately how much lower they were in 2025 versus '24 or if they were still at this SEK 800-plus level? Agneta Palmer: No, I think we will stick to the information that we have provided before. We had sort of a peak level that is -- we are remaining on high levels, and it will slightly then come down, but we will not give any exact amount. Kristofer Liljeberg-Svensson: But you can confirm it was less than SEK 800 million in 2025? Agneta Palmer: Yes, that we can confirm. Operator: The next question comes from Ludwig Germunder from Handelsbanken. Ludwig Germunder: Ludwig Germunder from Handelsbanken. I would like to start with touching upon ventilators again, like we've been talking about a bit before already. But would you be willing to give some flavor around the ventilator sales? We knew that comps were tough going into this quarter and yet the sales come out strong now. What does the strong mean? What are the main drivers? And how should we think about this going into Q1, where dynamics are very similar? Mattias Perjos: I think the strength comes on the back of some continued competitive conversion, possibly some of the normal replacement cycle kicking in and also some fee effect positively. But we can't break this down even if we wanted to unfortunately. Ludwig Germunder: Did it surprise you? Or was this in line with what you saw coming? Mattias Perjos: I wouldn't say surprise, mild surprise, maybe it was a mild positive compared to expectations. Ludwig Germunder: Okay. And then a quick one on Paragonix as well. It seems like it's doing well there, another quarter of strong growth. What are the main drivers you're seeing in Paragonix? And what are you expecting for this in 2026? Mattias Perjos: The drivers have not changed. I mean there is this conversion from ICE, it's still one of the ongoing things. And then, of course, we had a good launch of the KidneyVault during 2025 as well. So I'd say these are the main contributors. Ludwig Germunder: Okay. And then just final one on the outlook given the updated definition. If my math are correct, you're adjusting for an estimated headwind of around 57 basis points. How should we think about this in relation to the other? Has anything changed given the, let's say, the estimated rest of the business? Or is it the same as before? Agneta Palmer: The same as before, we have not guided before on 2026. Would you care to elaborate the question? Ludwig Germunder: No. Yes, sorry. I'm thinking the development, for example, when you guided to 3% to 5% in 2025, you did that on the base of something. Do you see the same market development excluding the Surgical division? Agneta Palmer: There are a number of dynamics in the market development, of course. If you look at our market presence, it is the same trajectory as in 2025 and strong in our key position. Then we have different dynamics such, for example, as the one described by Mattias when it comes to ventilators and the conversion effect that is a tough comparison now moving into 2026. Operator: The next question comes from Philip Omnou from JPMorgan. Philip Omnou: Firstly, on Section 232, I would love to get your thoughts on that program and the implications of that and what you anticipated in terms of its outcome for 2026? Agneta Palmer: Yes. So I have hopes, but I will not speculate on the outcome. What we can say about Section 232 is that we have submitted our opinion along with our industry colleagues, and we are expecting clarity on this in Q1, this is what has been said before. So let's hope for some clarity. And as Mattias mentioned before, the very least stability on tariffs. That's all we can say on this one. Philip Omnou: Okay. Perfect. And then maybe can you remind us of your tariff mitigation actions that you've gone through and what sort of impact do you expect they can have in 2026? Agneta Palmer: We can just reiterate what we have mentioned before. So we work with it -- we always work very actively with pricing, but we intensify these efforts to mitigate for tariffs. We also intensify our productivity agenda that has been very strong also, but we have accelerated some areas of that to compensate for the increased cost of tariffs. And then the third bucket is that we review our structure, both in terms of our business partners, so to speak, with suppliers, et cetera, and in some cases, also our own footprint. Philip Omnou: Right. Okay. And then just the last one from me, please. I'm not sure if someone has really asked this because my line cut out. But we saw the corporate warning from Teleflex a few weeks ago, and they were talking about weakness in demand for intra-aortic balloon pumps and catheters in the U.S. and Asia. So just wondering if you had any thoughts on that and if you were seeing anything in your existing customers? Or does it change anything with planning for CardioSave? Mattias Perjos: Yes. I think we've seen that as well. We can only comment on our reality. And I think our view is a bit muddled by the fact that we have supply restrictions here, but the order intake and the optimism from our customers in terms of getting shipments of balloon pumps started in [indiscernible] is positive, I'd say. So we have a somewhat positive picture of the demand situation and the desire from our customers to have access to this therapy. Operator: The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: I have a question regarding the margin outlook for the year. You expect to compensate the tariffs and FX and expand margins. I think I understood you correctly. It would be good to hear what assumptions you made on tariffs and also on what type of FX headwinds you expect on EBIT for the year? Have you -- on the tariff side, have you assumed the tariffs to remain unchanged? Or coming back to the Section 232, which I think at least partly assumes higher tariffs, so if you could provide some clarity on what you have included in your sort of internal thinking for the year, that would be helpful. Mattias Perjos: Yes. When it comes to the tariffs, we have assumed the same level as we ended in 2025. We have made no predictions on the outcome of any 232 investigation here. So it's the same tariff that we left 2025 with that we have assumed for this year. Sten Gustafsson: And in terms of FX headwinds, I think it was 1.2 percentage points in Q4 on EBIT? Agneta Palmer: Yes. So we -- again, we don't speculate in the FX development, and we will not give any specific guidance on this. But overall, as you know, a weakening dollar is negative for us, and we will do everything that we can to mitigate and compensate for that in the case that, that continues, which has been the trend in the start of this year. Sten Gustafsson: Okay. But you're not -- do you think it will be higher than 1.2 for '26? Or is that sort of a proxy or what you have assumed the impact will continue to be during the year? Agneta Palmer: Again, we will not speculate on the development of the U.S. dollar. So we work with a number of scenarios and mitigation activities, and we adjust accordingly. Sten Gustafsson: Sure. And finally, on price, you were successful last year raising prices. I think you talked about previously 2 to 3 percentage points. Do you think you can do the same thing this year, raise prices by 2% to 3%? Mattias Perjos: The ambition is more closer to 2% than 3%, I'd say, is realistic. But the price work continues actively as it has done since 2018 for us. So we will continue this work. And I think you already know the dynamics with long contracts in our industry and so on and the limited ability to maneuver in the beginning of this phase. But hopefully, there'll be some opportunities there. But yes, ambition is still to continue to improve prices in 2026. Operator: The next question comes from Erik Cassel from Danske Bank. Erik Cassel: First, I want to sort of touch upon the guidance as well. I mean, as you alluded to, Mattias, excluding headwinds from FX and tariffs, you've sort of already reached the low end of the targets you set. Would you say that you've sort of managed to achieve all the improvements you set out to do earlier than planned, sort of meaning that there's not much left to do? Or would you rather say that you sort of underestimated the level of margin improvement you could achieve over time? Mattias Perjos: We have definitely not run out of improvement initiatives. There's plenty to do still. I don't want to reply that we had underestimated the potential either. We know that there's a lot of potential in the business. And we've made some good progress now as you've seen in 2025, but there's a lot still to do there. Erik Cassel: Okay. I guess that sounds good that you're not done. Then I sort of want to ask what's happening with the Perfusion business in terms of drag on margins. I mean, do you sort of keep the organization there to support customers in '26 and sort of see it become loss-making? Or have we already moved a lot of the people over to ECMO so that there is not much of an effect for ACT as a whole? Agneta Palmer: We do expect a slight marginal improvement effect coming from the gradual Surgical Perfusion in 2026. Mattias Perjos: We have moved out people already from this business, both to grow the [indiscernible] business, but also there is a reduction of people related to this that we implemented in 2025. Erik Cassel: Okay. Great. And then lastly, on ECMO, it seems to be doing pretty well. How much would you attribute that to just the underlying market doing well, perhaps the effect of influenza season coming early? Or is there some sort of aspect of you maybe gaining back some market share that is driving the maybe above-market growth? Mattias Perjos: It's not possible for us to dissect this. It's very difficult to monitor competitor performance in detail, I think. So we've definitely benefited from good overall market momentum, a little bit of a flu effect in there as well. I think it kind of confirms our competitive products and that they do really life-saving work every day. That's something that's appreciated by the clinicians who are our customers. So this is the main reason why we continue to see growth. But what the market growth was exactly in Q4 it is not possible to say right now. Erik Cassel: Okay. Just lastly, do you have any comments or thoughts on the sort of long-term prospects of ECMO now? I recall you saying that there's still a risk that you're going to lose out on customers from them switching. Have you seen any more evidence of that to sort of provide support that you're really going to lose market share going forward or sort of maintain or even improve? Do you have a different view now? Mattias Perjos: No, I think nothing has changed in our view. I think we believe still in a longer-term market growth of mid- to high single digits for this segment. And looking at the competitive dynamics right now, it doesn't appear that we are losing anything to competitors. So we remain strong with us in this segment. And all the work now that goes into both launching Cardiohelp II in CE markets and also getting the 510(k) submission into the U.S. is really key milestones now to continue to grow this business. Operator: The next question comes from Filip Wetterqvist from SB1 Markets. Filip Wetterqvist: I just have one question on Life Science and then a follow-up. Would you say that the weak quarter in Life Science is an effect of like a big pharma production ramp-up last year ahead of tariffs leading to some cooler demand this year? Or is it just lumpiness of the business? Mattias Perjos: I think it is partly natural lumpiness of the business, we have seen also throughout 2025 that there's been a lot of delayed decision-making when it comes to projects. So a lot of companies now have announced expansion plans, but they've not really started to implement projects. So we can see that we have a similar win ratio like we've had before, but there's been less fewer big opportunities in 2025 due to customer hesitation on the back of geopolitical uncertainty. Filip Wetterqvist: All right. And then do you have like any idea how much the government shutdown affected Life Science in the quarter as no NIH funding was paid out during the period? Mattias Perjos: No, we cannot quantify that, unfortunately. Operator: The next question comes from Delphine Le Louet from Bernstein. Delphine Le Louet: I go again one by one. Just a clarification on the Paragonix and just willing to know how big Paragonix is now into the ACT business, how much does that represent? I know you don't want to disclose that, but probably you can give us sort of a sense and the range of how big it is? Second question to deal with Paragonix because I didn't catch. You mentioned it was not dilutive at the group level. And so if I'm hearing well, I just -- I need a confirmation. And so my question here would be, what is missing or when can you achieve sort of the ACT margin for that specific range of products? And then I will continue. Mattias Perjos: I think from a volume perspective, we don't have enough details for subsegment, but it's well over $100 million now the Paragonix business. And what Agneta said earlier is that it's slightly dilutive to group margins and consequently also dilutive to ACT margins. We don't guide for when it's going to be accretive to margins, and this is more about how we pace the expansion of the business with it. So we're happy with the performance right now, both from a growth perspective, and we can see that there is operating leverage in the business, but we're also continuing to invest quite a lot both in the U.S., in the old U.S. expansion and in the future R&D pipeline. Delphine Le Louet: All right. Moving on probably to what's going on in China and any feedback you may give us regarding the grounds that you have in China on the hospital activity, on the evolution of the commercial interaction over the course of '25, have you anything specific to tell us about that? Mattias Perjos: I think it's a year or more of the same. I think the hurdles continue to be the same ones that we have battled for a number of years now. We have some really strong positions in China. And I think one of the bright spots is that we actually did grow in China also in 2025. That's not something we take for granted in our industry anymore. So that's really positive and confirms the strong positions that we have. 0Going forward, I think, again, I think the geopolitical friction and impact here will continue to be somewhat of a hurdle. And of course, there are barriers when it comes to having local presence and so on. And there's also, of course, an evolving competitive landscape in China. So basically, we stand by the comments that we've made before that we have a long-term positive view on China. But it has changed quite a lot from 5 years ago when we had good double-digit growth in that market. Delphine Le Louet: Okay. Moving on to the Life Science. Obviously, we hear from the competition and on the biomanufacturing side, speaking about that, back to a very nice normalization and back to high single-digit, low double-digit growth. So I was wondering on your side, if you are feeling about any traction from the clients, if you confirm because you're probably a bit more late stage that the normalization has happened and that you're hearing probably more positive coming out from the U.S. versus Europe or any comment here either on a product or on a region would be interesting? Mattias Perjos: I think bioprocessing, we highlighted was a weak spot for us in Q4. It has been a weak spot throughout 2025. And we have relative to many of our peers in the market, a higher exposure to China, which is a more difficult market, both from an investment and competitive standpoint. But we do see on a broader basis, the comeback in other markets in China like the U.S., for example. So that market dynamic, we do see as well, but we have a slightly different exposure than our peers. Delphine Le Louet: Yes. Okay. And just probably to be back into the tariff and into a mitigation measure that you are currently implementing. Can we get your first feedback, clients reaction about the price increase? And can you probably more specify over the course of the '26, how you're going to mitigate exactly the tariff? And what would be the ideal target by the end of the year for '26 when it comes to the mitigation of the tariff? Would that be 50%, 70% and then thinking about '27 and '28? Mattias Perjos: I think we've continued -- worked actively with pricing since 2018 when we were able to reverse a downward trend through price improvement, and we've been able to do that ever since. So it's really not something new for us. So there's no new -- we can't talk about new customer reactions to this. Customers understand our perspective when it comes to the impact of tariffs, but they also have, of course, a reality with their challenges. So it's a dialogue with customer by customers and very different reactions and understanding of this. But we feel that we can continue to work with pricing the way that we have done in the last 2 years successfully. So that's really the main way. And we take a couple of percentage points price increases, we can calculate the mitigation effect of that when it comes to tariffs and of course, currency. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: So I have 2, and I'll take them one by one. First on Life Science. So yes, weaker order intake here in Q4. So I just wonder what the lead times typically are for these products? And how much one should look at this Q4 order intake number when predicting sales for H1? Mattias Perjos: I think on average, the lead time in Life Science is 9 to 12 months. Having said that, I think in cell transfer, it's much, much quicker given the data bags, for example. And -- but when it comes to the weak business, it's obviously often over a year in lead time. So the average is 9 to 12 months. Ludvig Lundgren: Okay. Great. And then second one on this critical component delay, which made you push the 510(k) submission and CE mark get launch for CardioSave, I just wonder if you can elaborate a bit on your confidence in this new time and if there's any uncertainty in this? Mattias Perjos: There is some uncertainty still in this. So we still need to make sure that we have the adequate supply of the critical components and that we are able to do the remaining test validations and that is required. So it's our best estimate right now, the second quarter for submission. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Mattias Perjos: Thank you very much. I think we already made a summary before the Q&A. So nothing in addition to say from me. I just thank you for your attention today, and wish you a good rest of the day. Thank you.
Operator: Welcome to the Getinge Q4 Report 2025 presentation. [Operator Instructions]. Now I will hand the conference over to the speakers, CEO, Mattias Perjos; and CFO, Agneta Palmer. Please go ahead. Mattias Perjos: Thank you very much, and welcome, everyone, to today's earnings call. With me, I have our CFO, Agneta Palmer. We will start the conference today with our performance in the fourth quarter and then reflect a bit on the full year and our expectations for 2026 and onwards before ending with a Q&A. So we can move directly to Page #2, please. So let's first look at the development of our longer-term strategic KPIs. You can see that we continue to clearly track in line with our plans to increase the share of sales from recurring revenue, accelerating the share of sales from high-margin products like our Paragonix offering, our ECLS portfolio, the consumables with infection controls and also data bags inside our Cell Transfer segment in Life Science. This is all supported by solid and effective quality processes as well, which is extremely important in our industry. So sales from recurring revenue now makes up about 2/3 and high-margin products a little bit more of total revenue. When it comes to quality, the number of field actions in relation to sales has decreased significantly, and we see this positive trend also sequentially continuing in the fourth quarter. This improvement should, of course, be achieved through responsible leverage and an attractive long-term return on invested capital. If you move to Page #3. If we then zoom in on the fourth quarter of last year and some of the key takeaways from the quarter, we managed to beat last year's record quarter and grow top line organically, which I think is really good. Net sales grew by 1.2% organically with positive developments in most BAs and regions, and our order intake increased 2.3% organically. If we then look at adjusted gross and EBITDA margins, they were down in the quarter, mainly due to the strong headwind from currency and tariffs. And adjusting for the over SEK 1 billion in currency and tariff headwind in 2025, the EBITA margin for the full year was considerably higher than 2024, signaling that the underlying performance of the business is strong and developing according to plan. We have solid cash flow, and we remain in a very strong financial position with our financial leverage well below 2.5x EBITDA. And the Board has -- the Board of Directors have proposed a dividend of SEK 4.75 per share. We can then move to Page #4, please. So if we then look at some of the key activities and events in the quarter and start with our -- what we offer our customers, we -- it's usually our strongest quarter than last year's significant amount of shipments that went out in the last week of the quarter -- last week of the year. So really good collaboration with our customers overall, and that this is the reason we managed to reach record high organic sales in the quarter as well. I'm also very happy to see that our intense product development efforts have resulted in several important product launches during the quarter. In Life Science, we have announced the integration of Siemens open and flexible user interface in the new generation of washers and sterilizers, and this will support streamer operations, efficient data management and secure data integrity for our customers. And also in Surgical Workflows, we launched the utility-efficient Aquadis 44 washer-disinfector, which helps hospitals reduce cost and meet environmental -- their environmental targets. And within Surgical Workflows, we also launched Automatiq, which is a new family of next-generation automated solutions, which combines smart robotics, intelligent conveyor systems and advanced software to achieve both safer, more consistent and less labor-intensive sterile reprocessing. If we then look at the sustainability and quality aspect of this, we continue to make good regulatory progress in the quarter. In our Implants business, we received premarket approval for the iCast covered stent in large diameter lanes. So this will help us become more competitive in the U.S. market. Our PLS set which is used in extracorporeal circulation for cardiac and pulmonary support received CE certificate under the EUR MDR. And also happy to see that PiCCO, our minimally invasive hemodynamic monitoring system is now included in the European Society of Intensive Care Medicine's guideline on circulatory shock. I also want to highlight again that our quality KPIs such as audit finance per audit for quality systems and also field actions in relation to sales continue to trend positively. So those are the main activities and events for the fourth quarter, and we can then move to Page #5. So looking at then our top line performance, we can see that we had solid progress in Acute Care Therapies and in Surgical Workflows. Order intake grew 2.3% organically. And in Acute Care Therapies, this increase was mainly attributable to good performance in ECLS Consumables, in Transplant Care, and we also saw growth in endoscopic vessel harvesting and in product [indiscernible]. Life Science organic order intake declined in the quarter due to softer development in WIS, which is our washers, isolators and sterilizer business and also within Bio-Processing. The organic order intake for Surgical Workflows grew strongly in the quarter, mainly on the back of strong development in infection control consumables and also operating room equipment generally within Surgical Workflows. From a sales perspective, we had a 1.2% organic increase in sales, and we have both Acute Care Therapies and also Surgical Workflows showing low single-digit growth in organic sales. Acute Care Therapies, the growth came mostly from good performance when it comes to ventilators globally. We saw Transplant Care with good momentum and also ECLS therapy. In Surgical Workflows, organic net sales increased primarily, thanks to growth in operating tables and in infection control consumables. And when we look at Life Science, we had an organic net sales decrease mainly due to lower sales in Bio-Processing and in the WIS business that I mentioned also on order intake. Growth in sterile transfer, which is our most important subcategory in Life Science continued strong. We can then move over to Page #6, and I'll hand over to Agneta. Agneta Palmer: Thank you, Mattias. It's positive to see that our activities come through a strong underlying performance. Despite negative impact from tariffs and FX in the quarter, we managed comparatively well with decent margins. On adjusted gross profit for the group, adjusted gross profit amounted to SEK 5.037 billion in the quarter, primarily on the back of currency and tariffs. Adjusted gross margin was down by 1.1 percentage points in total despite a healthy contribution from price and mix. On adjusted EBITDA, adjusted gross profit effect on the EBITDA margin was minus 0.5 percentage points due to what I just mentioned. Adjusted for currency, OpEx had a slight impact on the margin in the quarter. FX impacted severely by minus 1.2 percentage points in the quarter. And all in all, this resulted in an adjusted EBITDA of SEK 1.809 billion and a margin of 17.8%. Let's move to Page 7, please. We remain in a solid financial position. Free cash flow amounted to SEK 1.2 billion in the quarter. Compared with last year, free cash flow was impacted by changes in working capital. At the end of Q4, net debt was SEK 9.8 billion. If we adjust for pension liabilities, we are at SEK 7.5 billion. This brings us to a leverage of 1.5x adjusted EBITDA, which is well below the 2.5x, which we have set as an internal threshold. If we adjust for pension liabilities, leverage is at 1.1x adjusted EBITDA. Cash amounted to approximately SEK 3.4 billion by the end of the quarter. So all in all, we can conclude that the financial position continues to be strong. Let's move to Page 8, please, and back to you, Mattias. Mattias Perjos: Thank you, Agneta. Before looking at the full year and ahead, I'd just like to take the opportunity to quickly shift from financial KPIs to some other impactful figures. So at Getinge, my colleagues and I have a lot to be proud of, I think. If you look at our products and services in the hands of clinicians and pharmaceutical staff, they really make a true life-saving impact globally every minute. So this slide just lists a few figures describing some of that impact. And it really explains some of the reasons for the strong customer loyalty that we see year in and year out. So for example, if you look at our Operating Table business, every fourth operating table globally is from Getinge. These are used in million major surgeries annually. Look at our new washer in Life Science, it uses 32% less water, 25% less energy, so reducing cost and the climate footprint for our customers. And furthermore, if you look at our unique NAVA ventilation technology, this can cut hospital stays by roughly 1/3 for adult ICU patients. So this is a significant win-win, both for patients for their health and for hospital finance. With that, we can move to Page #9, please. So we take a step back and look at 2025. Overall, it was certainly an interesting year in many, many aspects here. If I sum up the year, it will be in 4 main themes. So first, we have the geopolitical friction such as tariffs and the strong currency headwind that we have seen throughout the year. So this has been a wet blanket not only for Getinge, but for most companies globally. And this is something we expect to continue also to have to deal with in 2026. Secondly, more specific to Getinge, we've seen really good progress in our important quality remediation work. And thirdly, I'm happy to note that our organic innovation focus has resulted in several product launches throughout the year, which will help us further strengthen our competitive position and the support from our customers. All in all, we continue to show strong underlying performance, thanks to our industry-leading products and our team's enduring efforts together with our customers navigate through ongoing political turmoil. We can then move over to Page #10, please. I just wanted to take a moment to zoom in on the headwind from tariffs and FX as well since this was a significant drag on adjusted EBITDA in Q4 and almost -- it was almost SEK 500 million and also, of course, a drag on full year adjusted EBITDA by over SEK 1 billion. So tariffs made up almost SEK 150 million in the quarter and about SEK 370 million for the full year, which for last year was Q2 to Q4. If we exclude the impact of tariffs and currency, our adjusted EBITA margin in Q4 would have been 20.3% and 16% for the full year. So this is right at the beginning of our longer-term guidance plan of 16% to 19% set for the end of 2028. So this really shows that the underlying improvement work is really having good momentum here, and that's something we look forward to continue working with and implementing in the coming years. We can then move over to Page 11. Thank you. Just a few comments on the regulatory uplift plan as well with some of the major milestones coming up during the year. So at the end of 2024, if we take a step back, we reached the important milestone of clearing the quality record backlog. During 2025, several other regulatory milestones have been reached. I mentioned some examples from Q4 at the beginning of this presentation. We've also made progress in the important regulatory product uplift of our market-leading devices, CardioSave, which is our intra-aortic balloon pump in cardiac assist and Cardiohelp, the hardware for ECMO therapy within our Cardiopulmonary business segment. When it comes to CardioSave, in CE markets, the CE approval is reinstated with conditions since last fall. We hope to initiate sales by the end of last year, but due to some delay in shipment of critical components, we have pushed of deliveries now to the second quarter of 2026. In the U.S., we're currently only selling replacement pumps to existing customers. And due to the delay with critical components that I just mentioned, we've also pushed the 510(k) submission to Q2 2026. We had strong order growth for pumps in the quarter, which confirms the leading position in this segment and the trust that our customers have in us, and this is why the submission and the start of deliveries is really a key priority for us. If we then move to Cardiohelp, there are no sales restrictions in key markets for the existing Cardiohelp. We and our customers are very excited about the next-generation device here, the Cardiohelp II . For this one, we sent in the submission for CE-mark approval in Q4 of 2025, so last year, and we expect to be able to initiate the first shipment in Europe during the beginning of this year. In the U.S., we're only selling to existing customers or customers confirming that they don't have any other viable alternative. The work with the 510(k) submission for the complete Cardiohelp II system is going according to plan and is set for the second half of this year. We can then move to Page #12. At the Capital Markets Day in our Capital Markets update in May 2024, we guided for an adjusted EBITA margin of 16% to 19% by the end of 2028. And I think we're on a steady path of reaching that, and that's despite the very different norm that we have today compared to 18 months ago. The main drivers which will enable this is related to growth, it's related to product mix and it's related to productivity. So if you look at the growth angle of this to begin with. So from the perspective of regulatory approvals and key strategic product launches, we have mentioned some of them here. We have the next-generation ECMO therapy with Cardiohelp II having no sales restriction for CardioSave intra-aortic balloon pump and also our low temp sterilization is something that will materialize during this guidance period. We also expect to get our share of the announced U.S. pharma investments and a recovery in Bio-Processing. And we will, of course, continue our diligent and successful work with realizing price increases every year. From a mix perspective, it is our strategic intent to steer our business towards a continued rotation to high-margin products and consumables. And if possible, we prefer to have products that are made up of a competent hardware and with captive consumables attached to this. Our strong R&D and innovation pipeline is set to contribute to this development. And then from a productivity perspective, we've already done a lot in several parts of the business with remaining opportunities in other parts of the company. The heightened extraordinary quality costs connected to the product uplift in CardioSave and Cardiohelp is expected to go down from the second half of 2026 and then be significantly lower in 2027 and '28. So this will also support the margin expansion. Furthermore, we will continue with our production excellence efforts, helping us to further optimize our supply chain and remain with a tight cost control across the company. So all in all, this supports our assessment that our target for 2028 is well within reach. We can then move over to Page 13, please. So what does this mean for 2026 then? And here, we see primarily 3 themes. First, unfortunately, we expect the geopolitical friction and the FX headwind to continue in 2026. And so of course, will our mitigating efforts. Secondly, a key this year will be to hit the critical quality remediation milestones to enable the product launches that we have in the pipe as soon as possible. And thirdly, we do expect the solid underlying performance to continue, and we have good momentum across large parts of our business when it comes to this. So in many aspects, a year quite similar to 2025 and setting us up for an acceleration in 2027 and '28. Can I move to Page 14. This takes us to our financial outlook for 2026. As we all know, there are some geopolitical uncertainties that we will need to navigate in the coming years. But based on the underlying demand that we see, our expectation is for an organic net sales growth to be in the range of 3% to 5%, adjusted for the phaseout of our Perfusion product category. Surgical Perfusion is expected to have a net sales in 2026 declining from about SEK 250 million to SEK 50 million. We move then to Page 16, please. So summarizing the quarter, we had organic growth in top line, resulting in record high sales for the quarter. Tariffs and FX continue to be a significant headwind, but we still managed to have margins in line with the 2024 level, really confirming that the underlying performance is developing according to our plans. Our financial position remains solid. We had a good end from a cash flow perspective for 2024 -- sorry, '25. For 2026, we guide for organic net sales growth of 3% to 5% adjusted for the phaseout of Surgical Perfusion. And our priorities remain the same for 2026. So key here is addressing the remaining challenges that we have in our Acute Care Therapies business area. We continue to focus on sustainable productivity improvement and cost consciousness when navigating the geopolitical uncertainty and addressing the impact from tariffs. And key focus, of course, as always, is to continue creating added value for our customers and really help them serve patients better. With that said, I open up for questions. Operator: [Operator Instructions] The next question comes from Oliver Reinberg from Kepler Cheuvreux. Oliver Reinberg: Three, if I may. I'll probably take them one by one. Mattias, can you just say a word on 2026? I mean, you alluded to the fact that there's obviously still the kind of headwinds from currencies and I guess also tariffs maybe a certain annualization effect. Can you just help us to get a kind of feeling for the magnitude of these headwinds? And I think the Street is currently expecting 60 basis points of margin expansion. Is that something you feel comfortable with? That would be the first question, please. Mattias Perjos: As usual, we never comment on expectations from the capital markets here. But the -- from the tariff situation, assuming that they remain the way they are now, I think the math that we have from 2025 will apply in 2026. So we will have a slightly higher level of tariffs up to a couple of hundred million. So that's something we will need to mitigate. And so we are fingers crossed for some tariff stability at least. The best thing will be if they went away, but we expect to have to live with tariffs now for 2026. So they will continue to be around SEK 0.5 billion headwind at least. On the currency side, we do expect the dollar to continue to depreciate, but we're really in no position to make any estimates forward-looking on this. So that's an additional headwind that we will need to find ways of mitigating. Oliver Reinberg: Okay. But would it be fair that you still feel that you can mitigate both and there will be net margin expansion at the end? Mattias Perjos: Yes, that's our ambition. Oliver Reinberg: Okay. Perfect. And then just secondly, on this kind of midterm guidance, which you also already gave within the last call. I mean, can you just give any kind of flavor is the upper end as likely as the low end, so the full range of the whole guidance still applies? Mattias Perjos: I'm not really in a position to dissect the guidance spend now and narrow it down. But I think it's really encouraging to see that without the negative effect from the geopolitical consequences of tariffs and headwinds, we would already be within our guidance range. So the momentum underlying in our business is good. We do feel okay about investment climates among our customers as well. I think treatment needs will continue to grow slowly, but that support our business growth. And like I mentioned in the presentation page, our productivity measures across the business is also really showing good momentum. So overall, we feel good about the traction towards the margin, but I'm not prepared to make any more detailed analysis or break this down with the probabilities right now. Oliver Reinberg: Okay. Fair enough. And the last question, just because we're full, it's always probably a kind of good opportunity to discuss capital allocation. I mean, you brought the leverage down quite significantly. Can you just talk about priorities? I mean, in the past, you were more leaning towards M&A. Can you just provide some kind of color how open you would be to any kind of share buybacks at this kind of point? And I think there was some time ago also you did this kind of discussion to what extent Life Sciences is a kind of long-term fit given that the industry is going to normalize. I mean, do you feel that there's a lot of people knocking on your door for any kind of potential offer? Any kind of flavor here would be great. Mattias Perjos: Yes. I think we definitely have continued inbound interest regarding the Life Science business, but it's not something that we have on the divest list here. We feel like good owners. We like the exposure to this end market, and we continue to invest in this part of the business as well. When it comes to capital allocation in general, M&A remains one area, but we have a mandate to do share buybacks as well. It's a discussion that is continually going on in the Board. Given the uncertainty that still remains, I think we've seen some examples of this already in this year with tariffs coming in or the threats of tariffs coming in and so on. So I think it's good to be a little bit prudent with how we allocate capital. Operator: The next question comes from Mattias Vadsten from SEB. Mattias Vadsten: I have 3. I'll take them one by one as well. First one, if you could talk a bit about the sort of phasing for the year, for example, assuming perhaps Q1 is one of your tougher comps during 2026 from the perspective of a couple of things? And also quality cost, it sounds like it should come down foremost towards the second half. So maybe if you could give your view there. That's the first one. Mattias Perjos: Yes. No, we're not prepared to make any kind of quarterly guidance here, but the dynamics that you described, we agree with, it's maybe the best way of putting this. But we've guided for 3% to 5% growth in 2026. Our ambition is to continue to expand the margin, but I can't really break it down by quarter. Mattias Vadsten: Okay. Then it appears ventilators has been very strong, of course, and strength continued also into Q4, perhaps driven more by outside U.S. markets. But could you give us your overall sort of thinking for the business in 2026, perhaps without going into too much of a detail, but more how you think about it going forward? Are accounts sort of tougher? Or is the momentum strong enough to make it continue to grow strongly also in '26? Mattias Perjos: Yes. I think I'll describe it the way we've done it during 2025. We've had over a year of good momentum now in this business. I think definitely compared to our market share pre this shift, we've been net beneficiary when it comes to market share grab. So very thankful for the support from our customers and the great work by our teams to make this happen. I think that there is a mix of replacement cycle, normal replacement cycle going on in this business, and there is the continued withdrawal of some of the remaining incumbents in this business as well. But needless to say, the tailwind will be much, much milder than it was during end of '24 and the whole of 2025. Mattias Vadsten: Okay. And then on the situation -- on the supply side in IABP, what is your sort of level of confidence to have that sorted in Q2? And also, is it fair to say that sort of CardioSave in the U.S. will be sold without restrictions towards the end of 2026? Or how do you view that? Mattias Perjos: I don't think we will be able to sell towards the end of 2026. This is now first about submitting the updated 510(k) that we said now is in the second quarter. It still hinges on making sure that we have the critical components fully available that we can do the validation and testing needed and we prepare for this. So there is still some uncertainty related to this, but we feel obviously more confident about Q2. Otherwise, we would have said something different. So there's some remaining work, but also steady progress towards this. Operator: The next question comes from Kristofer Liljeberg from Carnegie. Kristofer Liljeberg-Svensson: I will also take my questions one by one. First, are you able to comment on Paragonix sales level here for 2025, maybe how much it's growing right now and margins? Agneta Palmer: I don't think we will disclose the exact growth figures of Paragonix, but we are very happy about this development. And as is visible in our report, we will end up with a bit of a higher earn-out also based on this. And margin-wise, it is also developing according to our expectations or a bit better. Kristofer Liljeberg-Svensson: But would you say it's still dilutive on margin? Agneta Palmer: It's slightly dilutive on margin overall on the... Kristofer Liljeberg-Svensson: Okay. For the group or for ACT? Agneta Palmer: For the group. Kristofer Liljeberg-Svensson: Okay. Then my second question, Mattias asked before about phasing effects. Just wondering about Q1 and the flu season. I think that was quite a good benefit for you last year and it seems the number of cases is dropping quite fast in the U.S. Could you maybe give a little bit of flavor how much a good or a strong or weak flu season impacting sales in a given quarter? Mattias Perjos: No, the short answer is no. It is difficult to break it down. I mean there's been a couple of years after the pandemic where we had no flu season effect and now we saw last year that there was some and this year, if you look at 2025, '26, hospitalizations increased a little bit earlier than they did before. So there was maybe a bit more of a December effect, but it's impossible for us to speculate about the impact of this in... Kristofer Liljeberg-Svensson: Okay. And finally, when it comes to the quality cost, is it possible to say approximately how much lower they were in 2025 versus '24 or if they were still at this SEK 800-plus level? Agneta Palmer: No, I think we will stick to the information that we have provided before. We had sort of a peak level that is -- we are remaining on high levels, and it will slightly then come down, but we will not give any exact amount. Kristofer Liljeberg-Svensson: But you can confirm it was less than SEK 800 million in 2025? Agneta Palmer: Yes, that we can confirm. Operator: The next question comes from Ludwig Germunder from Handelsbanken. Ludwig Germunder: Ludwig Germunder from Handelsbanken. I would like to start with touching upon ventilators again, like we've been talking about a bit before already. But would you be willing to give some flavor around the ventilator sales? We knew that comps were tough going into this quarter and yet the sales come out strong now. What does the strong mean? What are the main drivers? And how should we think about this going into Q1, where dynamics are very similar? Mattias Perjos: I think the strength comes on the back of some continued competitive conversion, possibly some of the normal replacement cycle kicking in and also some fee effect positively. But we can't break this down even if we wanted to unfortunately. Ludwig Germunder: Did it surprise you? Or was this in line with what you saw coming? Mattias Perjos: I wouldn't say surprise, mild surprise, maybe it was a mild positive compared to expectations. Ludwig Germunder: Okay. And then a quick one on Paragonix as well. It seems like it's doing well there, another quarter of strong growth. What are the main drivers you're seeing in Paragonix? And what are you expecting for this in 2026? Mattias Perjos: The drivers have not changed. I mean there is this conversion from ICE, it's still one of the ongoing things. And then, of course, we had a good launch of the KidneyVault during 2025 as well. So I'd say these are the main contributors. Ludwig Germunder: Okay. And then just final one on the outlook given the updated definition. If my math are correct, you're adjusting for an estimated headwind of around 57 basis points. How should we think about this in relation to the other? Has anything changed given the, let's say, the estimated rest of the business? Or is it the same as before? Agneta Palmer: The same as before, we have not guided before on 2026. Would you care to elaborate the question? Ludwig Germunder: No. Yes, sorry. I'm thinking the development, for example, when you guided to 3% to 5% in 2025, you did that on the base of something. Do you see the same market development excluding the Surgical division? Agneta Palmer: There are a number of dynamics in the market development, of course. If you look at our market presence, it is the same trajectory as in 2025 and strong in our key position. Then we have different dynamics such, for example, as the one described by Mattias when it comes to ventilators and the conversion effect that is a tough comparison now moving into 2026. Operator: The next question comes from Philip Omnou from JPMorgan. Philip Omnou: Firstly, on Section 232, I would love to get your thoughts on that program and the implications of that and what you anticipated in terms of its outcome for 2026? Agneta Palmer: Yes. So I have hopes, but I will not speculate on the outcome. What we can say about Section 232 is that we have submitted our opinion along with our industry colleagues, and we are expecting clarity on this in Q1, this is what has been said before. So let's hope for some clarity. And as Mattias mentioned before, the very least stability on tariffs. That's all we can say on this one. Philip Omnou: Okay. Perfect. And then maybe can you remind us of your tariff mitigation actions that you've gone through and what sort of impact do you expect they can have in 2026? Agneta Palmer: We can just reiterate what we have mentioned before. So we work with it -- we always work very actively with pricing, but we intensify these efforts to mitigate for tariffs. We also intensify our productivity agenda that has been very strong also, but we have accelerated some areas of that to compensate for the increased cost of tariffs. And then the third bucket is that we review our structure, both in terms of our business partners, so to speak, with suppliers, et cetera, and in some cases, also our own footprint. Philip Omnou: Right. Okay. And then just the last one from me, please. I'm not sure if someone has really asked this because my line cut out. But we saw the corporate warning from Teleflex a few weeks ago, and they were talking about weakness in demand for intra-aortic balloon pumps and catheters in the U.S. and Asia. So just wondering if you had any thoughts on that and if you were seeing anything in your existing customers? Or does it change anything with planning for CardioSave? Mattias Perjos: Yes. I think we've seen that as well. We can only comment on our reality. And I think our view is a bit muddled by the fact that we have supply restrictions here, but the order intake and the optimism from our customers in terms of getting shipments of balloon pumps started in [indiscernible] is positive, I'd say. So we have a somewhat positive picture of the demand situation and the desire from our customers to have access to this therapy. Operator: The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: I have a question regarding the margin outlook for the year. You expect to compensate the tariffs and FX and expand margins. I think I understood you correctly. It would be good to hear what assumptions you made on tariffs and also on what type of FX headwinds you expect on EBIT for the year? Have you -- on the tariff side, have you assumed the tariffs to remain unchanged? Or coming back to the Section 232, which I think at least partly assumes higher tariffs, so if you could provide some clarity on what you have included in your sort of internal thinking for the year, that would be helpful. Mattias Perjos: Yes. When it comes to the tariffs, we have assumed the same level as we ended in 2025. We have made no predictions on the outcome of any 232 investigation here. So it's the same tariff that we left 2025 with that we have assumed for this year. Sten Gustafsson: And in terms of FX headwinds, I think it was 1.2 percentage points in Q4 on EBIT? Agneta Palmer: Yes. So we -- again, we don't speculate in the FX development, and we will not give any specific guidance on this. But overall, as you know, a weakening dollar is negative for us, and we will do everything that we can to mitigate and compensate for that in the case that, that continues, which has been the trend in the start of this year. Sten Gustafsson: Okay. But you're not -- do you think it will be higher than 1.2 for '26? Or is that sort of a proxy or what you have assumed the impact will continue to be during the year? Agneta Palmer: Again, we will not speculate on the development of the U.S. dollar. So we work with a number of scenarios and mitigation activities, and we adjust accordingly. Sten Gustafsson: Sure. And finally, on price, you were successful last year raising prices. I think you talked about previously 2 to 3 percentage points. Do you think you can do the same thing this year, raise prices by 2% to 3%? Mattias Perjos: The ambition is more closer to 2% than 3%, I'd say, is realistic. But the price work continues actively as it has done since 2018 for us. So we will continue this work. And I think you already know the dynamics with long contracts in our industry and so on and the limited ability to maneuver in the beginning of this phase. But hopefully, there'll be some opportunities there. But yes, ambition is still to continue to improve prices in 2026. Operator: The next question comes from Erik Cassel from Danske Bank. Erik Cassel: First, I want to sort of touch upon the guidance as well. I mean, as you alluded to, Mattias, excluding headwinds from FX and tariffs, you've sort of already reached the low end of the targets you set. Would you say that you've sort of managed to achieve all the improvements you set out to do earlier than planned, sort of meaning that there's not much left to do? Or would you rather say that you sort of underestimated the level of margin improvement you could achieve over time? Mattias Perjos: We have definitely not run out of improvement initiatives. There's plenty to do still. I don't want to reply that we had underestimated the potential either. We know that there's a lot of potential in the business. And we've made some good progress now as you've seen in 2025, but there's a lot still to do there. Erik Cassel: Okay. I guess that sounds good that you're not done. Then I sort of want to ask what's happening with the Perfusion business in terms of drag on margins. I mean, do you sort of keep the organization there to support customers in '26 and sort of see it become loss-making? Or have we already moved a lot of the people over to ECMO so that there is not much of an effect for ACT as a whole? Agneta Palmer: We do expect a slight marginal improvement effect coming from the gradual Surgical Perfusion in 2026. Mattias Perjos: We have moved out people already from this business, both to grow the [indiscernible] business, but also there is a reduction of people related to this that we implemented in 2025. Erik Cassel: Okay. Great. And then lastly, on ECMO, it seems to be doing pretty well. How much would you attribute that to just the underlying market doing well, perhaps the effect of influenza season coming early? Or is there some sort of aspect of you maybe gaining back some market share that is driving the maybe above-market growth? Mattias Perjos: It's not possible for us to dissect this. It's very difficult to monitor competitor performance in detail, I think. So we've definitely benefited from good overall market momentum, a little bit of a flu effect in there as well. I think it kind of confirms our competitive products and that they do really life-saving work every day. That's something that's appreciated by the clinicians who are our customers. So this is the main reason why we continue to see growth. But what the market growth was exactly in Q4 it is not possible to say right now. Erik Cassel: Okay. Just lastly, do you have any comments or thoughts on the sort of long-term prospects of ECMO now? I recall you saying that there's still a risk that you're going to lose out on customers from them switching. Have you seen any more evidence of that to sort of provide support that you're really going to lose market share going forward or sort of maintain or even improve? Do you have a different view now? Mattias Perjos: No, I think nothing has changed in our view. I think we believe still in a longer-term market growth of mid- to high single digits for this segment. And looking at the competitive dynamics right now, it doesn't appear that we are losing anything to competitors. So we remain strong with us in this segment. And all the work now that goes into both launching Cardiohelp II in CE markets and also getting the 510(k) submission into the U.S. is really key milestones now to continue to grow this business. Operator: The next question comes from Filip Wetterqvist from SB1 Markets. Filip Wetterqvist: I just have one question on Life Science and then a follow-up. Would you say that the weak quarter in Life Science is an effect of like a big pharma production ramp-up last year ahead of tariffs leading to some cooler demand this year? Or is it just lumpiness of the business? Mattias Perjos: I think it is partly natural lumpiness of the business, we have seen also throughout 2025 that there's been a lot of delayed decision-making when it comes to projects. So a lot of companies now have announced expansion plans, but they've not really started to implement projects. So we can see that we have a similar win ratio like we've had before, but there's been less fewer big opportunities in 2025 due to customer hesitation on the back of geopolitical uncertainty. Filip Wetterqvist: All right. And then do you have like any idea how much the government shutdown affected Life Science in the quarter as no NIH funding was paid out during the period? Mattias Perjos: No, we cannot quantify that, unfortunately. Operator: The next question comes from Delphine Le Louet from Bernstein. Delphine Le Louet: I go again one by one. Just a clarification on the Paragonix and just willing to know how big Paragonix is now into the ACT business, how much does that represent? I know you don't want to disclose that, but probably you can give us sort of a sense and the range of how big it is? Second question to deal with Paragonix because I didn't catch. You mentioned it was not dilutive at the group level. And so if I'm hearing well, I just -- I need a confirmation. And so my question here would be, what is missing or when can you achieve sort of the ACT margin for that specific range of products? And then I will continue. Mattias Perjos: I think from a volume perspective, we don't have enough details for subsegment, but it's well over $100 million now the Paragonix business. And what Agneta said earlier is that it's slightly dilutive to group margins and consequently also dilutive to ACT margins. We don't guide for when it's going to be accretive to margins, and this is more about how we pace the expansion of the business with it. So we're happy with the performance right now, both from a growth perspective, and we can see that there is operating leverage in the business, but we're also continuing to invest quite a lot both in the U.S., in the old U.S. expansion and in the future R&D pipeline. Delphine Le Louet: All right. Moving on probably to what's going on in China and any feedback you may give us regarding the grounds that you have in China on the hospital activity, on the evolution of the commercial interaction over the course of '25, have you anything specific to tell us about that? Mattias Perjos: I think it's a year or more of the same. I think the hurdles continue to be the same ones that we have battled for a number of years now. We have some really strong positions in China. And I think one of the bright spots is that we actually did grow in China also in 2025. That's not something we take for granted in our industry anymore. So that's really positive and confirms the strong positions that we have. 0Going forward, I think, again, I think the geopolitical friction and impact here will continue to be somewhat of a hurdle. And of course, there are barriers when it comes to having local presence and so on. And there's also, of course, an evolving competitive landscape in China. So basically, we stand by the comments that we've made before that we have a long-term positive view on China. But it has changed quite a lot from 5 years ago when we had good double-digit growth in that market. Delphine Le Louet: Okay. Moving on to the Life Science. Obviously, we hear from the competition and on the biomanufacturing side, speaking about that, back to a very nice normalization and back to high single-digit, low double-digit growth. So I was wondering on your side, if you are feeling about any traction from the clients, if you confirm because you're probably a bit more late stage that the normalization has happened and that you're hearing probably more positive coming out from the U.S. versus Europe or any comment here either on a product or on a region would be interesting? Mattias Perjos: I think bioprocessing, we highlighted was a weak spot for us in Q4. It has been a weak spot throughout 2025. And we have relative to many of our peers in the market, a higher exposure to China, which is a more difficult market, both from an investment and competitive standpoint. But we do see on a broader basis, the comeback in other markets in China like the U.S., for example. So that market dynamic, we do see as well, but we have a slightly different exposure than our peers. Delphine Le Louet: Yes. Okay. And just probably to be back into the tariff and into a mitigation measure that you are currently implementing. Can we get your first feedback, clients reaction about the price increase? And can you probably more specify over the course of the '26, how you're going to mitigate exactly the tariff? And what would be the ideal target by the end of the year for '26 when it comes to the mitigation of the tariff? Would that be 50%, 70% and then thinking about '27 and '28? Mattias Perjos: I think we've continued -- worked actively with pricing since 2018 when we were able to reverse a downward trend through price improvement, and we've been able to do that ever since. So it's really not something new for us. So there's no new -- we can't talk about new customer reactions to this. Customers understand our perspective when it comes to the impact of tariffs, but they also have, of course, a reality with their challenges. So it's a dialogue with customer by customers and very different reactions and understanding of this. But we feel that we can continue to work with pricing the way that we have done in the last 2 years successfully. So that's really the main way. And we take a couple of percentage points price increases, we can calculate the mitigation effect of that when it comes to tariffs and of course, currency. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: So I have 2, and I'll take them one by one. First on Life Science. So yes, weaker order intake here in Q4. So I just wonder what the lead times typically are for these products? And how much one should look at this Q4 order intake number when predicting sales for H1? Mattias Perjos: I think on average, the lead time in Life Science is 9 to 12 months. Having said that, I think in cell transfer, it's much, much quicker given the data bags, for example. And -- but when it comes to the weak business, it's obviously often over a year in lead time. So the average is 9 to 12 months. Ludvig Lundgren: Okay. Great. And then second one on this critical component delay, which made you push the 510(k) submission and CE mark get launch for CardioSave, I just wonder if you can elaborate a bit on your confidence in this new time and if there's any uncertainty in this? Mattias Perjos: There is some uncertainty still in this. So we still need to make sure that we have the adequate supply of the critical components and that we are able to do the remaining test validations and that is required. So it's our best estimate right now, the second quarter for submission. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Mattias Perjos: Thank you very much. I think we already made a summary before the Q&A. So nothing in addition to say from me. I just thank you for your attention today, and wish you a good rest of the day. Thank you.
Operator: Welcome to the Northeast Bank Second Quarter Fiscal Year 2026 Earnings Call. My name is Marvin, and I'll be your operator for today's call. This call is being recorded. With us today from the bank is Rick Wayne, President and Chief Executive Officer; Santino Delmolino, Chief Financial Officer; and Pat Dignan, Chief Operating Officer and Chief Credit Officer. Prior to the call, an investor presentation was uploaded to the bank's website, which will be referenced in this morning's call. The presentation can be accessed at the Investor Relations section of northeastbank.com under Events and Presentations. You may find it helpful to download this investor presentation and follow along during the call. Also, this call will be available for rebroadcast on the website for future use. [Operator Instructions] As a reminder, the conference is being recorded. Please note that this presentation contains forward-looking statements about Northeast Bank. Forward-looking statements are based upon the current expectations of Northeast Bank management and are subject to risks and uncertainties. Actual results may differ materially from those discussed in the forward-looking statements. Northeast Bank does not undertake any obligation to update any forward-looking statements. I'll now turn the call over to Rick Wayne. Mr. Wayne, you may begin. Richard Wayne: Thank you, Marvin. Good morning. I want to start off with just an administrative matter as we're going through the material this morning. During the course of the year and in fact, years we get input from shareholders and others about our slide deck, and we take that input very seriously and appreciate it. This slide deck is mostly the same format and information updated, of course, for the quarter as we've used in prior periods, but there are some differences. We have deleted a few slides. And for -- to make it easier for you, we have taken some of the slides and moved them into the appendix. There's also a new slide, which I just want to start with on Page 5 that those of you familiar with our company, of course, will know this. But as we meet new investors, which we do and enjoy doing, it kind of explains a little bit about our bank, which has been around for 150 years, most of which time it was a traditional community bank. And then when starting at the end of 2010, evolved into a national commercial real estate and small business lender. And on Page 5, you can see there are three pillars. One is the purchased commercial real estate, which is -- at this point, is the largest amount of our commercial real estate loans, those that have been purchased. Secondly, originated commercial real estate loans, which is about -- with a lot of rounding here, about 25% of our loan book. And finally, we have started to do a couple 3 years ago, or maybe even starting with PPP, doing small business lending. Some of the stats over a 3-year period are an average return on equity of 17.7% and a return on assets of 2%. Our 3-year loan growth has been 76%. And our 3-year small business originations are 600 -- over that time period of $653 million, of which most of it has been SBA loans under the 7(a) program, where we have sold $448 million. Two other points. One, our 3-year average NIM is 4.9%. And in our 7 branches, in Maine, deposit growth over a 3-year period has been 40.3%. I point this out for a couple of reasons. One is I want to show you in a really understandable form exactly what we do. We're not a traditional community bank, as I mentioned. And I think it's helpful to see how these three pillars contribute to very strong returns for the bank. The second point is that we have a long history of achieving above-market returns, very much above market returns. And while we present quarterly numbers and get judged on a quarterly basis, this quarter, our operating results were a little bit lower than they have been in the previous quarters. But I want you to consider kind of the -- not thinking about us at a quarter at a time, but thinking over just a slightly longer time frame. And with that, I want to turn to Page 3 in the slide deck and point out that I would say the highlight of this quarter for us is the very significant loan volume that we put on our balance sheet, which is for the quarter, just a little bit under $900 million of loans, total loans, we put on our balance sheet. And consisting of purchased loans with a UPB of $575 million at a basis of $532 million, or we bought them for 92.6% discount. Mostly -- maybe all, call it 95%, is all an interest rate mark, not a credit mark that we took. And so that will be income that will come in over time. On the originated loans, this was a record quarter for us. $252 million of originated loans at a weighted average rate of origination of 7.6%. And I want to just point out just a few other items. One, we originated $39.8 million of SBA loans, which we'll talk a little bit about more in this call, of which we sold $25 million, and we had gains of $2.1 million on our sold SBA loans. And finally, in the small business space, we originated during the quarter $70.6 million of our insured loan product, which we have talked about in the past. The net income was $20.7 million. This I alluded to earlier about being a little bit lower than we have had in some past quarters. But I want to explain now what contributed to that, which was mostly the SBA activity. As you all know, the SBA program as part of the government shutdown from October 1 through November 12, during that time period, we were very limited in loans that we could originate. We could only originate loans that we had previously gotten an SBA number for and had a tax return transcripts and a bunch of other things that we needed to be able to originate fund those loans and then sell them. So most of the loan activity took place between November 12 and December 31. And I also want to make the point which we've talked about in the past that on July 1, the SBA restructured the small balance program such that underwriting a small balance loan took more time and more documentation than it previously had. And so if we compare the SBA gains for the quarter ending June 30 with the quarter that just ended, that's a $6 million difference in gains. $8 million for the June 30 quarter and $2 million for this quarter. And if you convert that on an after-tax basis to earnings per share, it's $0.50. So -- and then one other point I want to make about our loan book. Most of the purchases occurred at the very end of December. And as a result, our ending loan balance, I have it here, $3 billion or $4 billion, was about $500 million higher than the average loan balance in the December 31 quarter. What's the point? The point is that we're going to have -- we have some tailwinds going into the next quarter and subsequent quarters because we have a much higher loan book than we had for the 12/31 quarter, which should -- you heard Marvin read the forward-looking statement to you. So keep that in mind. But the arithmetic would say that we should have significantly more net interest income in the following quarters than we had in this quarter. I also want to point out that our NIM was 4.49%. And in terms of just some other numbers, EPS diluted was $2.49. Return on equity was 15.6%. Return on assets were 1.87%. And if we're correct that we expect SBA loan originations to increase, and sales to -- of loans to increase and more net interest income, we would expect those numbers to be higher in subsequent quarters. On that note, I'm going to turn it over to Tino, who's going to give you much more granularity on the financial numbers, and then Pat will discuss our commercial real estate originations and purchases, and we'll probably touch on our SBA and insured loan business. And then after all of that, we will be very happy to answer any questions that you might have. Tino? Santino Delmolino: Thanks, Rick. As Rick mentioned, despite some headwinds we had this quarter, it was still a strong quarter for the bank. We reported net income of $20.7 million, or $2.47 per diluted share for the quarter. $43.3 million, or $5.14 per diluted share for the year-to-date. Return on average assets was 1.87% for the quarter and 2% for year-to-date, and return on average equity was 15.6% for the quarter and 16.6% year-to-date. As Rick mentioned, the story this quarter really was focused around balance sheet growth. Total assets ended the quarter a shade under $5 billion at $4.95 billion, and loans ended the quarter at $4.4 billion, up from $3.7 billion as of September 30. This incredible loan growth is attributable to both the purchase and originated side of the house, as Rick had mentioned. For the quarter, we had purchases of $533 million, and originations of $252 million in our National Lending division. Timing of this was heavily weighted towards the tail end of the quarter and had a muted impact on net interest income, but will be accretive to earnings on a go-forward basis. Purchases were funded through a combination of both brokered CDs as well as borrowings from the FHLB, had a weighted average cost of funds of 3.8%. Our banking centers also continue to be a strong source of liquidity to fund our origination volume as we grow our deposit franchise in Maine. Net interest margin for the quarter was 4.49%, down from 4.59% in the linked quarter, resulting in net interest income of $48.8 million for the quarter-to-date, and $97 million year-to-date. The decrease in NIM is largely due to a lag in timing of liabilities repricing as we have approximately $1.25 billion in CDs maturing over the next 6 months at a weighted average rate of 4.05%. Transactional income was flat quarter-over-quarter, coming in at $2.8 million for the current quarter, compared to $2.7 million for the linked quarter. As Rick mentioned, activity in our SBA business was heavily impacted by the government shutdown. However, we were happy to see it snap back a bit during the month of December, and appears to be on a favorable trajectory going forward. During the quarter, we originated $40 million SBA 7(a) loans, sold $25 million for a gain on sale of $2.1 million. The timing of the shutdown did, however, provide a tailwind for the launch of our new small balance insured business loan program, which saw originations of $70 million during the quarter. Despite this growth, asset quality remains strong with delinquencies, nonaccruals and classified loans all remaining relatively flat quarter-over-quarter. The allowance for credit losses did increase during the quarter from $46.7 million, or a coverage ratio of 1.24% at September 30, to $63.8 million, or a coverage ratio of 1.47% at December 31. This was largely provided for as part of the purchase loan activity during the period. Net charge-offs during the quarter were up $2.9 million, compared to $1.9 million in the linked quarter. This was largely due to a charge-off on a single purchase loan of $1.2 million. That loan was previously reserved for, so there was no impact of that in the provision during the quarter. So our provision came in at $875,000 for the quarter. On the expense side, we continue to be disciplined while strategically investing in our people and in technologies that are going to set the bank for long-term success. Noninterest expense for the quarter is down from the linked quarter, coming in at $20.8 million, compared to $21.9 million. This decrease was largely due to lower professional fees, as well as less loan acquisition and collection costs. Tax expense for the quarter was $9.4 million, representing an ETR of 31.1%, compared to $8.9 million in the linked quarter. Capital remains strong with our Tier 1 leverage ratio coming in at 12.2% and tangible book value of $62.65 a share. This strong capital position provides us with just under $1 billion of loan capacity as of December 31. Pat, over to you. Patrick Dignan: Thanks, Tino. This is a big quarter for loan volume. We purchased 152 loans in 5 transactions with $576 million of balances at a purchase price of $533 million, or 92.6%, and with weighted average yield to maturity of 10.8%. These were geographically diverse portfolios but with significant concentrations in New York and New Jersey. Three of the five transactions were from banks, but 80% of the balances were from loan funds exiting previously purchased bank portfolios. The current pipeline is as full as we've ever seen, and we're aware of several large transactions that will be coming to the market soon, fueled mostly by M&A. Interestingly, I learned from Sandler that bank M&A is up 45% in 2025 over '24, and '26 is shaping up to be even bigger. You never know in this business, but at least for the next several quarters, there appears to be a lot of opportunity growing. In our Origination business, we closed $252 million. This included 32 loans, of which 2/3 were lender financed with an average balance of $7.5 million, LTVs just over 50%, and an average interest rate of just over 7.5%. There's a lot of inbound loan requests right now despite increasing competition from private lenders. Given our funding costs, ability to close quickly, and sweet spot in the middle market space where there's less competition, we could still be picky on credit without sacrificing too much in yield. I hope that continues. Finally, with respect to our small balance program, we originated 537 loans for $111 million this quarter. SBA loans accounted for $40 million, as previously mentioned. We had some good momentum going into the quarter, but the government shutdown cost us. Looking forward, $20 million a month or so seems like a reasonable run rate for SBA loan volume before any consideration for new product offerings, which we are considering. We also closed $71 million of small balance insured loans during the quarter. As a reminder, these loans are very similar in most characteristics to SBA loans we originate, but carry private insurance instead of an SBA guarantee and with higher rates. Our intention is to sell these loans into the secondary market while retaining residual economics. More to come on that. That's it for loans last quarter. We're already knee-deep into the current quarter, so we hope to keep it going. Rick? Richard Wayne: Thank you, Pat. Marvin, we're ready for any questions out there. Operator: [Operator Instructions] And our first question comes from the line of Mark Fitzgibbon of Piper Sandler. Mark Fitzgibbon: First question, maybe for Tino. I guess I was surprised to see that the share count went down this quarter. Did you guys buy some stock back in the fourth quarter? Santino Delmolino: No, we did not buy any stock back during the quarter. That was purely a result of stock compensation activity and cancellation of shares to cover taxes. Mark Fitzgibbon: Okay. But you didn't exercise the ATM at all. Is that correct? Santino Delmolino: We did not utilize the ATM, no. No share activity this quarter besides stock compensation. Mark Fitzgibbon: Okay. And then based on your comments before, Tino, it sounds like we should see a bit of lift in the net interest margin going forward given the downward liability repricing that you anticipate over the next 2 quarters. Is that fair? Santino Delmolino: Yes, I think that would be fair to say. Mark Fitzgibbon: Okay. And then next, I wondered if, strategically, sort of, how do you think about evolving the funding mix over time as you grow as the balance sheet continues to grow? Will broker deposits continue to be the main source of growth? Richard Wayne: I would think so. We're making a real effort to grow our deposits in Maine, which tend to be less expensive than brokered and generally, stickier. And we've had great success in municipal deposits, which have grown meaningfully over the years. And we are also taking a look at other niche possibilities where we could grow deposits as well. But I just think our reality is, because our loan growth is at such a great pace that in order to fund that we'll probably be looking at brokered deposits to do a lot of that. I would also add that broker deposits, I know you would know Mark better than I would, but for a while, had a bad name. But I don't think it's really the case any that it deserves it now. It's a very efficient way of funding without all the cost of either an online presence and marketing, or brick-and-mortar space. And so you pay a little bit more for it, but it's not a problem at all as long as you stay well capitalized, which we certainly do. We have very high capital ratios. You can get the money, you can get it efficiently. And so it's -- I know that it's not -- investors tend to love cheap liabilities. We love that, too, if we can get it, but that's kind of a brick-by-brick building process. But in order to fund ourselves with the kind of growth we have had, broker deposits work well. Mark Fitzgibbon: Okay. And then lastly for me, can you give us a sense for what percentage of the purchase loans you have that typically sort of you retain at maturity? Richard Wayne: You know, we don't have that number right off hand. I mean we -- it's knowable somewhere, but three in this room don't have that. And we can get that and provide that information on another call, for the next call. But I could say to you, anecdotally, we try and keep a lot of the loans when we have them. And the case we make to the borrower is that they can extend it without any friction within, with no cost really, essentially signing an agreement that's 3 pages long or so. And it's easy. And I would say also, it's easier for us to keep them when rates are higher because their refinancing alternatives are not as great when rates come down as they're probably going to be now, the runoff may be greater, because you have a lot of local banks that would be chasing these borrowers. The kind of good and bad news. The bad news is you lose the loan. The good news is you accelerate the income that has not been recognized and you get back on the treadmill again. I guess that's the bad news for those of us who don't like to exercise. I know you're not in that camp, Mark. I know you do. Operator: Our next question comes from the line of Matt Renck of KBW. Matthew Renck: Matt Renck filling in for Damon DelMonte. My first question, just with the SBA gain on sale income. It looks like you're projecting like $20 million more of SBA loans for the quarter. Is there any catch-up next quarter from the government shutdown and fee income? Like will more things flow through? Or is it more just a return to normal fee income levels? Santino Delmolino: One clarification, that's $20 million a month, so roughly in the ballpark of $50 million to $60 million a quarter. Matthew Renck: Okay. Got it. And you did $40 million this quarter, right? Santino Delmolino: Yes, correct. So we expect it to increase next quarter. In terms of the -- you're asking about the percentage gain on sale? Matthew Renck: Yes, yes. Santino Delmolino: Yes. We anticipate that to stay somewhere in the realm of 8% to 9%, compared to the balance of guaranteed balance being sold. Matthew Renck: Okay. Got it. And then just on the insured small business product. How much -- how like do you see that growing over the course of the year? Was there any benefit? I think you mentioned from the shutdown driving some outsized demand there? Or is that run rate kind of sustainable into the future? Richard Wayne: I think the run rate is sustainable. The demand for it is gigantic. The reality for us is we got to be able to sell it. To date, we haven't sold what we have originated, and we don't want a portfolio, an uncomfortable level of these on our balance sheet. Not because they're bad loans, they're good loans with the insurance protection. I'll remind -- I said this in our last call, but I'll remind anybody who may have forgotten, or those that don't know it, which is these -- when they're insured, the loans have a 4% deductible and 10% of insurance. So the 14% -- with the deductibles funded. So there's 14% of protection on these loans and -- which is significantly higher than the losses on an SBA loan, with loans that are -- the profile is reasonably similar. Matthew Renck: Okay. But even when you guys do start to get to sell them, it should be lower than that like 8% to 9% gain you're seeing on the SBAs? Richard Wayne: No, because these are different. The SBA loans are -- it's agency paper that that's just the market for selling them. These loans would be sold to a private buyer and the economics of how much is the premium, if any, will there be some, but premium on the sale is not going to be like the SBA. It's going to be much, much smaller than that. But the benefit is once we sell them, we're going to keep a spread, and we split this with annuity, but keep a spread on assets that we don't hold anymore. So it could be -- these are very rough numbers. I'll reference again the forward-looking part of the presentation. But it could be -- we wind up making 2% or 2.5% while the loans are on the outstanding balance when we don't have the loans on our balance sheet, that's our share. [indiscernible] the same. So it's a different kind -- economics are different on this. But if we're able to sell these, the economics will be terrific. Santino Delmolino: And one thing to note on the accounting side of the house here. It's largely going to depend on how the agreements are structured, but we may very well end up with mortgage servicing assets that get recorded on the balance sheet, and that will flow through the gain line. So until we have the contract finalized and in front of us, it's hard to say what exactly to expect from a gain on sale versus how much will be some sort of spread income that's recognized over time. Patrick Dignan: We have to go through a loan sale, a couple of loan sales first. And on loan volume, we have -- it's been -- we've kind of described it as a fire hose, as Rick pointed out, but we've got to intentionally kink in that firehose. We're really slowing the incoming volume down until we can prove to ourselves that we could sell these loans and see what the real return will be. Operator: We have no further questions at this time. I'll now turn the call over to Rick Wayne for closing remarks. Richard Wayne: Thank you, Marvin, and thank all of you for calling in and listening. And I know we get a lot of listeners after the call will go on our website to hear a replay. And to those, I thank you as well. I wish you all a happy week in this snowy time of the year. As you know, we're in Boston, a lot of snow here. I assume most of you are in New England somewhere in the tri-state area. So you probably have a lot as well. Thank you. Thank you, Marvin. Operator: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to the First Merchants Corporation Fourth Quarter 2025 Earnings Conference Call. Before we begin, management would like to remind you that today's call contains forward-looking statements with respect to the future performance and financial conditions of First Merchants Corporation and involves risks and uncertainties. Further information is contained within the press release, which we encourage you to review. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. The press release available on the website contains financial and other quantitative information to be discussed today and will be -- as well as reconciliation of GAAP and non-GAAP measures. As a reminder, today's call is being recorded. I would now like to hand the conference over to your speaker today, Mr. Mark Hardwick, CEO. Mr. Hardwick, you may begin. Mark Hardwick: Good morning, and welcome to First Merchants' Fourth Quarter 2025 Earnings Call. Thanks for the introduction and for covering the forward-looking statements. We released our earnings yesterday after the market closed, you can access today's slides by following the link on the third page of our earnings release. Joining me today are President, Mike Stewart; Chief Credit Officer, John Martin; and Chief Financial Officer, Michele Kawiecki. On Slide 4, you'll see our 111 banking centers across Indiana, Ohio and Michigan, along with several recent awards recognizing our culture and performance. We ended the year with record total assets of $19 billion, record total loans of $13.8 billion and record total deposits of $15.3 billion. On Slides 5 and 6, our strong balance sheet and earnings performance reflect the quality of the First Merchants team, our customer base and our community-oriented business model. For the full year, we delivered record net income of $224.1 million and record diluted earnings per share of $3.88, an increase of 13.8% from the previous year. Fourth quarter net income totaled $56.6 million or $0.99 per share. Annual return on assets was 1.21% and annual return on tangible common equity was 14.08%. Loan growth remained robust with $197 million of linked quarter growth or 5.8% annualized and nearly $1 billion or $939 million of growth for the year, representing 7.3%. Our efficiency ratio was 54.5% for the year, and we achieved significant operating leverage with revenues growing almost 5x faster than expenses. We have now received all regulatory and shareholder approval to proceed with the acquisition of First Savings Group, which adds approximately $2.4 billion of assets and expands our presence into Southern Indiana and the Louisville MSA. We remain confident in our strategic and financial benefits of the merger, and we will actually close this weekend on February 1, 2026. Now Mike Stewart will cover some of our line of business metrics. Michael Stewart: Thank you, Mark, and good morning to all. The business strategy summarized on Slide 7 has been updated to reflect the collective work of our lines of business leadership teams. Each of these business units refined and updated their strategy in alignment with our primary focus of building on our Midwestern strength, growing organically through deeper relationships and smarter use of technology for enhanced client relationship and internal efficiencies. 2025 was a year of momentum and record results. This slide summarizes how our teams have been winning and capturing market share. We remain a commercially focused organization across all these business segments with an eye on growing within the markets pictured on the next slide. So let's go to Slide 8. As Mark stated earlier, this was another great quarter of loan growth across all segments and across all markets. It is very pleasing to see our Midwest economies continue to expand, our clients' businesses continue to grow and see our bankers continuing to win new relationships. $153 million in commercial loan growth for the quarter or 6% annualized, $852 million of increased commercial loan balances year-to-date, nearly 7% growth rate for all 2025. CapEx financing, increased usage of revolvers, M&A financing and new business conversion are the drivers of this growth. Another encouraging bullet point on this page is the quarter ending pipeline, which is stable from prior quarter and gives me optimism that we will be able to maintain our loan growth into the first quarter. The Consumer segment also shared in balance sheet growth with the residential mortgage, HELOC and private banking relationships driving the $44 million of loan growth for the quarter and the $87 million for all 2025. Pipelines in this segment also consistent from our end of quarter prior. So we can turn to Slide 9 and talk about deposits. The fourth quarter was our strongest quarter of deposit growth with the consumer segment driving increases in new households and balances. Enhanced digital platforms are deepening our client relationships. Our marketing efforts are leveraging the strength of our local brand and the reputation that we have and driving new relationships. The bottom section of this page summarizes the fourth quarter growth of $155 million of total consumer deposit increases with over $250 million in non-maturity balance growth. The full year's results also reflect the growth in the mix of non-maturity and maturity balances assisting in the margin improvement Michele will review next. Commercial business segment is summarized on the top of the page. While deposits have increased in both the quarter and year-to-date, the primary driver has come through our public fund depository relationships. It is a higher cost of deposit, but they are local government and public relationships that utilize many other treasury services we offer. Part of the increase in loan balances come from higher line of credit utilization, which typically reduces operating deposit account balances. Improving the mix of all deposit categories has been the focus of our teams for the past year and has been accomplished by focusing on primary core accounts and deposit cost. Overall, I'm pleased with the active engagement our teams are having with their clients as we've continued our pricing discipline, specifically with maturity deposits and public funds and remain hyper focused on relationships and converting single product users. Before turning the call over to Michele, one last comment regarding First Savings Bank. As Mark said, our integration efforts are on track. The engagement of their team has been strong. We have completed our product and process mapping. So post legal close, we will begin the on-site training and preparation for the May integration. Their community bank model and specialty verticals have a solid reputation and continuing their growth within Southern Indiana in these verticals will be our priority. So I'm going to turn the call over to Michele now, and she can review in more detail the drivers of our balance sheet and income statement. Michele? Michele Kawiecki: Thanks, Mike, and good morning, everyone. Slide 10 covers our fourth quarter performance, which reflects a continuation of positive financial trends we had throughout 2025. Total revenues in Q4 were strong with meaningful growth in both net interest income of $5.4 million and noninterest income of $0.6 million. This resulted in overall pretax pre-provision earnings of $72.4 million, up $1.9 million from prior quarter. Strong earnings drove a 4% increase in tangible book value per share on a linked-quarter basis. Turning to annual results on Slide 11. We delivered record diluted EPS and achieved an all-time high tangible book value per share in 2025. Year-over-year positive trends include double-digit net income growth of 12.2% and positive operating leverage. Tangible book value per share ended the year at $30.18, which is an increase of $3.40 or 12.7% from prior year. Slide 12 shows details of our investment portfolio. On the bottom right, you will see the valuation of the portfolio improved meaningfully during the quarter due to changes in interest rates. The unrealized loss on the available-for-sale portfolio declined $30 million or 15%. Expected cash flows from scheduled principal and interest payments and bond maturities over the next 12 months totaled $282 million with a roll-off yield of approximately 2.09%. We plan to continue to use this cash flow to fund higher-yielding loan growth in the near term. Slide 13 covers our loan portfolio. The total loan portfolio yield declined by 8 basis points from the prior quarter to 6.32% due to the impact of recent Fed rate cuts. This quarter, new and renewed loans were originated with a yield of 6.51%, which remains a tailwind for the overall portfolio yield. The allowance for credit losses is shown on Slide 14. This quarter, we had net charge-offs of $6 million and recorded a $7.2 million provision. The reserve at quarter end was $195.6 million and the coverage ratio of 1.42% remained robust. In addition to the ACL, we have $13.4 million of remaining fair value marks on acquired loans, providing additional coverage for potential losses. Slide 15 shows details of our deposit portfolio. The rate paid on deposits declined meaningfully by 12 basis points to 2.32% this quarter. Our team strategically reduced deposit rates following the Fed's rate cuts, resulting in a $3 million reduction in interest expense even as deposits grew $424.9 million or 11.4% annualized in the fourth quarter. On Slide 16, net interest income on a fully tax equivalent basis of $145.3 million increased $5.4 million linked quarter and was up $5.1 million from the same period in prior year. Net interest income was positively impacted by a $3.3 million recovery from a successful resolution of a nonaccrual loan. Our quarterly net interest margin of 3.29% increased 5 basis points from prior quarter. Our teams continue to stay focused on growing loans and deposits using disciplined pricing and our net interest income growth trend throughout 2025 is evidence of their success. Next, Slide 17 shows the details of noninterest income, which totaled $33.1 million with customer-related fees of $30 million. Customer-related fees were strong in all categories with notable quarter-over-quarter growth in wealth management fees of approximately $300,000, card payment fees of $300,000 and gains on sales of mortgage loans of $400,000. Moving to Slide 18. Noninterest expense for the quarter totaled $99.5 million, an increase of $3 million or 3% linked quarter. Expenses for the quarter included $500,000 of acquisition costs, which were offset by a reduction of the FDIC special assessment accrual of $700,000. Full year noninterest expense increased only $3.2 million or less than 1%, demonstrating significant operating leverage. Slide 19 shows our capital ratios. The tangible common equity ratio benefited from strong earnings and AOCI recapture, increasing 20 basis points to 9.38% while returning capital to shareholders through share repurchases and dividends. During the quarter, we repurchased 272,000 of shares for $10.4 million, bringing total share repurchases in 2025 to just over 1.2 million shares for $46.9 million. We remain well capitalized with a common equity Tier 1 ratio at 11.7% and are well positioned to support continued balance sheet growth. That concludes my remarks, and I will now turn it over to Chief Credit Officer, John Martin, to discuss asset quality. John Martin: Thanks, Michele, and good morning. My remarks begin on Slide 20. We had strong loan growth for both the year and the quarter of 7.3% and 5.8%, respectively, led by C&I loans shown on line 4, which grew nearly $700 million for the year. While we experienced strong C&I loan demand, we saw more moderate growth in investment real estate for the year and quarter on Line 7 as higher rates slow demand and assets moved into the permanent financing market. The diversity of lending types our teams continue to originate has allowed us to grow as demand varies across various asset classes. On Slide 21 and Slide 22, we again provided more detail of the loan portfolio. On Slide 21, the C&I classification includes sponsor finance as well as owner-occupied CRE. Current line utilization leveled off during the quarter, declining slightly from 50% to 49.8% after climbing in the first half of 2025. In the sponsor finance portfolio, we track key credit metrics across 90 platform companies. We took a $4.4 million charge in the quarter to an individual borrower. We underwrite to higher origination standards compared to traditional C&I loans and track the portfolio quarterly. The portfolio almost exclusively consists of single bank credits for private equity-backed platform companies as opposed to large, widely syndicated leveraged loans from money center banks trading desks. On Slide 22, we break out the investment or nonowner-occupied commercial real estate portfolio. Our office loans are detailed on the bottom half of the slide, represent only 1.9% of total loans and any potential issues are easily managed. The wheel chart on the bottom right details the office portfolio maturities, loans maturing in less than a year represent 28.1% of the portfolio or roughly $73 million. On Slide 23, I highlight this quarter's asset quality trends and position. Asset quality remains strong. NPAs and 90-day past due loans on line 4 were up $5.6 million or 2.54%. The largest nonaccrual, a $12.9 million investment real estate multifamily construction project paid off without loss of principal shortly after quarter end. Adjusting for this payoff, NPAs and 90-day past due loans would have fallen to 0.45%, down year-over-year from 0.66%. Turning to the asset quality migration roll forward on Slide 24 in column 4Q '25, there were new nonaccruals of $22.8 million on Line 2, the largest of which was a $9.6 million investment real estate multifamily construction project. We had a $9.1 million reduction on Line 3 from payoffs or changes in accrual status primarily related to a nursing facility that had been one of the prior quarter's largest nonaccruals that paid off. During dropping down to Line 5, there were $7.3 million in gross charge-offs, the largest of which was the $4.4 million sponsor finance C&I borrower I mentioned earlier. Then dropping down to Lines 12 and 13, we ended the quarter up $5.6 million, excluding the early quarter payoff with NPAs and 90-day past due loans totaling $74.5 million. To summarize, asset quality remains stable and improving. Classified loan balances are largely unchanged at 2.56% of loans with 18 basis points of annualized net charge-offs. We continue to grow C&I loans with our commercially oriented teams. And finally, we are excited about the local opportunities and new business verticals First Savings Bank brings as we head into 2026. I appreciate your attention, and I'll turn the call back over to Mark Hardwick. Mark Hardwick: Thanks, John. Slides 25 and 26 have been updated, along with our 10-year combined aggregate growth rates. As we look forward to '26, we're committed to supporting our world-class teammates and serving the needs of our clients, which will deliver the high-quality results our shareholders have come to expect. We appreciate your interest and your investment in First Merchants. And at this point, we're happy to take questions. Thank you. Operator: [Operator Instructions] Our first question is going to come from the line of Brendan Nosal with Hovde Group. Brendan Nosal: Maybe just starting off here on the topic of kind of balance sheet optimization. If I recall correctly, last quarter, I think you said you were looking at how you could optimize the sheet short of a wholesale kind of raise restructure transaction. So can you just update us on what areas of the balance sheet you're looking at, what you would try to achieve with those actions and what the parameters are around the existing capital base? Mark Hardwick: Yes. Thanks, Brendan. We are -- our line dropped right before the call started. And so for some reason, we dropped again, just give us a little time to dial back in. But we're continuing to evaluate the possibility of some type of balance sheet kind of repositioning. But I would say, as there's been some decrease in rates, the likely size of anything just continues to decline. which validates our decision -- and our communication in the last call that there would be no need to raise any type of capital. So whatever we do, it's going to be pretty modest. What we have already settled on is that we do plan to sell the entire First Savings bond portfolio. It's about $250 million at close. And anything else that we do is really just focused on trying to take pressure off of liquidity. So we're evaluating a small portion of our bond portfolio and some of our lowest yielding bonds as well as some of our lowest yielding loans. But whatever it is, it will be relatively small if we do anything beyond the First Savings bond book. Operator: Our next question will come from the line of Daniel Tamayo with Raymond James. Daniel Tamayo: Yes, maybe starting on the loan growth side. It sounds like pipelines are pretty consistent from where they were last quarter. Loan growth was certainly a solid good story in 2025. Maybe you can give us a sense for your expectations for overall loan growth and where those categories that might be driving that loan growth in 2026 are? Michael Stewart: Yes, this is Mike Stewart. I'll try to take that. You're right. The pipelines, yes, it can remain consistent. So -- it's across the board when I think about geography or when I think about our segments, our C&I teams focused on different size companies are all in a good position engaged along the way, our investment real estate team. The new asset-based team that we talked about a couple of quarters ago has been off and running and producing fantastic results. And in this marketplace, that's a really good discipline to have as it rounds out a lot of things we're doing. So when I look at that loan growth, I feel like it's balanced through our segments and how we manage that and through the geographies as well. We might have even referenced about a year ago, we put some additional focus on our small business lending efforts through our consumer network. And that also, while not a large dollar amount, it's just got good momentum across the board. I will say that's part of the strong fourth quarter, we had a couple of payoffs that didn't happen. So it ended our year a little stronger than I would have thought. So the first quarter, though, when I think about outlook, I still feel it's going to be in that mid-single-digit level. Economy is good in the Midwest and our teams, I feel like, we can convert what we're doing. Daniel Tamayo: Okay. So you said mid-single digit for the first year. I apologize if I missed it. Did you think that will carry through for the year as well? Michael Stewart: That's the way I'm looking at it, sure, yes. Mark Hardwick: Yes. I mean we're kind of mid- to high expectations for the year when you think about 6%, 7%, 8% is more how we think about the plan and consistent with what we delivered this year. Michael Stewart: And I think about the opportunities that can come our way when we're partnering with First Savings Bank. It's a new part of the state. So we get to work in new areas with their team. And then they've got those verticals that we can continue to evaluate how we want to originate and sell portfolios or continue to utilize our balance sheet. So we've got some nice levers. Daniel Tamayo: Okay. Great. And then maybe one for Michele on the deposits. If you have the CD repricing schedule over the next 12 months with balances and yields? Michele Kawiecki: Yes, I do. And so really in the first 2 quarters of 2026, we have about $800 million of CDs that are maturing. And the weighted average rate on those CDs, it is higher than our current specials. And so first quarter, that weighted average rate is like a 3.75%. Second quarter, it's like a 3.65%. And currently, our 12-month CD that we're offering is at 3.30% and the 9 months is at 3.45%. So we'll get some nice pickup on some savings on interest expense there. In the third quarter, we've got another -- just under $400 million that will be maturing. And those -- that weighted average rate is really in line with our special currently. And so that -- and then there's just really not a whole lot in the fourth quarter. So hopefully, that gives you kind of the color you're looking for. Daniel Tamayo: Yes, that's fantastic. And then one for you, Mark. Just on operating leverage, your thoughts around your ability to achieve that, I guess, probably the easiest way to look at it on an organic basis unless you want to include the deal and what might be problematic or potential issues or benefits to achieving that? Mark Hardwick: Yes, it's a great question. On our core, we were pretty aggressive with the '26 plan about just continuing to invest in people. We added about 15 FTEs in '25 that were -- that added about $4 million of total expense. And in '26, we committed to another 10 that are part of the sales force, another $2.5 million or so. And you can see some of that coming through in the fourth quarter. And so we're just finding opportunities to add talent that we're really excited about. And I would say if it were just stand-alone, maybe we'd be a little bit more conservative that we're finding the talent that we're adding and just feel like it's consistent with the market opportunity. And so on a core basis, operating leverage was going to be a little less impressive, I guess, than maybe last year, we did a hell of a job, I thought adding operating leverage in '25. But most of it is just because of the strength of the acquisition. We're going to continue to add a real positive kind of operating leverage entity in '26. And on a combined basis, I think we're going to produce the kind of results that you're used to seeing from us. And so we're pretty bullish about the growth of net interest income and fee income and how those numbers exceed any expense additions that we'll have on a net basis when you consider First Merchants, First Savings plus all of our cost takeouts for the year. So we're looking closely at all the estimates that all of you have and feel comfortable with those numbers and feel like those are -- there are EPS targets that we can meet or exceed. Operator: Our next question comes from the line of Damon DelMonte with KBW. Damon Del Monte: Just had a question on expenses and kind of the outlook there. Michele, could you give us a little guidance of kind of how you're thinking about kind of a core expense base for First Merchants given some of the moving parts in the fourth quarter? And then how we should kind of think about the first partial quarter with FSFG coming on board? Michele Kawiecki: Well, on a core basis, just looking at year-over-year noninterest expense, we have budgeted to increase about -- between 3% to 5% for the reasons Mark just indicated, the addition of talent. And then, of course, we're adding First Savings, their operating expense with we know that closes on February 1. So that will bring on 11 months of operating expense. But just as a reminder, we have 27.5% cost -- annualized cost savings that we've estimated that we think we can fully realize once we get past the integration. And so our integration is scheduled for May. And so I think we'll be able to realize those cost savings more in the back half of 2026. Mark Hardwick: Yes. And I wanted to just add when I talk about some of the additions of talent, just a reminder that back in '23 when we completed or announced a voluntary early retirement. And at that time, we had about 2,145 employees. And today, we're about 2,035. And so that 5% reduction, we've been able to hold on to even with the addition of talent and on a core basis, expect to add less than 2% to the FTE base and just excited about the quality of talent that we're bringing on to the company. Damon Del Monte: Got it. Okay. Good color there. And then with respect to the margin, Michele, did you say that there was a benefit of $3.6 million from interest recoveries on nonaccruals? Michele Kawiecki: There was, yes. And when I look at core margin -- go ahead, sorry, Damon. Damon Del Monte: Oh, no. Yes, I was going to dovetail that into the core margin, so go ahead. Michele Kawiecki: Yes. Just looking at year-over-year, we built one rate cut in our plan that we had built in early in the year. And so on a core margin basis, we did expect that margin in 2026 would compress a few basis points. We do think that we'll be able to get some momentum on repricing deposits, which will help offset some of the asset repricing that occurs because of the commercial nature of our loan portfolio. But on a net interest income basis, we definitely expect to see growth year-over-year. Operator: Our next question comes from the line of Nathan Race with Piper Sandler. Nathan Race: Maybe on fee income, nice growth quarter-over-quarter in 4Q. I'm just curious how you're thinking about the opportunities to grow some of the fee lines in 2026, just given the momentum in fourth quarter and some of the ongoing areas that you guys are trying to grow? I think in the past, Michele, maybe we were talking in mid- to high single-digit range, but just curious if that's still a good expectation versus kind of the 4Q level? Michele Kawiecki: On the noninterest income basis for 2026, I mean, we feel like we can get double-digit growth there. And so we're planning 10% growth. And some of that comes from some of the investment people that we have. We think we'll have some great momentum both in our wealth management space as well as our treasury management. Mike, I don't know if you want to add some color? Michael Stewart: Treasury management, some of the investments we're seeing with our derivative product group, that will add what we've done on the consumer side with how we're positioned there, that fee income should continue to be -- that won't be double digit, but that adds to that total. And then by the -- again, when you get past our integration, the fee income, the opportunities that sit with our acquisition, also originate and sell with the mortgage side, originating to sell with some of their products and services or their specialty groups is additive. Nathan Race: Yes, definitely. And just to clarify that double-digit growth expectation for this year, is that inclusive or not including FSFG? Michele Kawiecki: We think we'll have double-digit growth even on a stand-alone basis. Nathan Race: Okay. Great. Good stuff. And then maybe a question for Mike. There's obviously been some notable M&A announcements with some of your larger Midwest competitors recently. So just curious if you're starting to see maybe some M&A-related disruption permeate through the loan pipeline these days? And maybe just any expectations in terms of how some of those competitors maybe more focusing on the South can impact both opportunities to add talent on the commercial side of things and then anywhere else across the company? Michael Stewart: Yes, that specifically, we're thinking about -- I'm responding to you in our Michigan market where you got Fifth Third and Comerica and we view it as opportunity. When I think about the pipeline, yes, there's already early conversations happening with clients, with our teams and maybe other outside banks, too, but with our teams that might be a little sensitive to moving from one bank to the new bank or experiences of the past or making sure they've got alternative plans ready to go. So the conversations are happening. So that's a positive. I do feel like there's an opportunity to augment teams. That's probably -- that comes later. I think they've done a nice job of assuring that they've got their arms around individuals and giving them big hubs as they should. But those type of disruptions and the changes that happen in the back end we'll be positioned because we know who that is. We understand the talent that we think would be great to add to our team, and we're already having conversations there as well. Don't know -- from a consumer point of view, don't know yet how we can play into some banking center augmentation and adding to our footprint, but we're evaluating that as well with Michele. So, opportunity, for certain. Nathan Race: Got it. That's really helpful. And then maybe one last one for Mark on buybacks. Obviously, stepped up in the quarter. And I think the valuation is still quite compelling with where you guys trade relative to peers. So just curious if we can expect the pace of buybacks to step up in 2026? Or do you think what we saw in 2025 is a good approximation for this year? Mark Hardwick: Yes. If we continue to trade kind of below average, I guess -- I mean, it's an opportunity that we'd like to take advantage of, and we have the capital base to do it. So I don't have any desire really to see our TCE grow above the current levels. When we close the transaction, we'll see a decrease from that kind of 9.40% level, more like 8.70%, 8.80%, but still well above our target of 8%. And so we intend to be aggressive with buybacks as long as the price holds where it is. So I'd prefer the price to be up when we didn't take advantage of it, but if this is where we are, it's the right thing to do. Operator: Our next question comes from the line of Brian Martin with Janney Montgomery Scott LLC. Brian Martin: Maybe, Michele, just back to margin for just a minute. The core margin in the quarter ex that onetime item, kind of what was that? And then just remind us of kind of the normal seasonality that you'd expect in 1Q, I guess, as we think about it, I guess, kind of absent FSFG. Michele Kawiecki: Well, core margin for the quarter, the interest recovery did add several basis points to our core margin of probably about 8 basis points. to core margin. And then to your question about what we would expect in Q1, because of the commercial orientation of our loan portfolio, the day count in Q1 always has a pretty significant impact. And I think last year, it ended up being about 5 basis points. And so when you look at the trend of margin, the seasonality definitely takes a dip in Q1 and then obviously rebounds later quarters. But overall, for the year, we would just -- the overall annualized margin, we would expect just a couple of basis points of compression, assuming that we get a Fed rate cut in 2026. Brian Martin: Okay. And just remind us kind of the impact of FSFG on the margin overall? Michele Kawiecki: Yes. Once we pull the deal in, particularly because of the impact of some of the interest accretion, you will see that gives our margin some lift. Brian Martin: Got you. Okay. All right. And then just on the expenses for a moment. Just the kind of the integration occurs in May. Third quarter should be a pretty clean quarter then from an expense standpoint? Michele Kawiecki: Yes, it should be. Brian Martin: Okay. And then just how are you thinking about bigger picture as you get later in the year to Mark's comment or the other comments earlier about operating leverage. Just kind of where the -- the efficiency is at a pretty nice level here at 54-ish. And as you kind of get into the back -- the fourth quarter of the year, can you kind of be around that level? I guess what's kind of the bigger outlook on efficiency as far as where you get to as you start to capitalize on some of the cost savings? Michele Kawiecki: So I think our efficiency ratio will continue to be under that 55% level, and we should have really good operating leverage, I think that it should continue to grow in Q3, Q4 for sure. Brian Martin: Okay. So maybe being -- you're below the 54% or below the current level in fourth quarter of '26. Is that how we should think about it as we kind of hold everything in? Michele Kawiecki: Yes. I mean our goal is always to be below the 55% level, and we'll definitely be below that in each quarter once we get [indiscernible], yes. Brian Martin: Okay. And then just last two for me, was just on the -- you gave the CDs, Michele, but just in terms of the fixed rate loans repricing, I think you said there's still some tailwind just given where repricing is. But what -- can you remind us what's repricing on the loan side in '26? Michele Kawiecki: Yes. We had -- I believe it was $300 -- about $350 million of fixed rate loans that are going to be maturing in 2026, and they were at like a 4.40% rate. And so there's definitely some repricing upside there. Brian Martin: Yes, some tailwind. Okay. And then lastly, just was the tax rate. Still -- I guess, how are you thinking about that? I think it was still around 13% or 13.5%, is that kind of a decent level to think about or... Michele Kawiecki: Yes, good question. On a core basis, we would expect it to be about 13%. I think once you add in the deal and all of the financials on a combined basis for '26, it will probably come in a little bit lower because of the transaction costs and such. And so I would expect it to be more like 12% for 2026 on a combined basis. Operator: Our next question comes from the line of Terry McEvoy with Stephens Inc. Terence McEvoy: Maybe a question for John. The multifamily construction, it was kind of mentioned the NPL formation and then the payoff. So I guess my question is, what are you seeing across that $400-plus million portfolio? And then as a follow-up, based on your outlook today, is charge-offs kind of $6 million to $7 million like you saw in the third and the fourth quarter? Is that -- are you comfortable with that run rate over the near term? John Martin: Yes, so when I think about the multifamily portfolio, it's generally in pretty decent shape. We have had a couple of names that as a result of the higher interest rates and quite frankly, just disagreement amongst partners and the strategy there that have kind of fallen out. The two names that one that went in, one that came out were examples of it. But it's not some wholesale problem. For the most part, we've seen those assets stabilize and to move into the permanent market. When I think about charge-offs, I think about it in that 15 to 20 basis point about depending on what we have in any individual quarter. So yes, that $6 million to $7 million is probably about the right number. Terence McEvoy: Great. And then maybe a follow-up. Mike, you kind of ran through the positive consumer deposit trends and Michele talked about the success lowering rates. When I look at the decline in commercial deposits ex public funds, is that a good sign for loan demand or commercial loan demand in 2026? Or is that just seasonality and I'm reading too much into it? Michael Stewart: Well, there is definitely a correlation with line of credit usage and businesses using their cash to fund and finance. So there could be seasonality in it. That seasonality usually comes more from the public fund side when tax receipts grow and tax payments go out, and you see that in the second and fourth quarters. But when I think about the business flow and the core operating accounts, we penetrate relationships really well. And I do think it's part of the working capital cycle. So when we do see revolver increases, I mean, John had a slide that showed them pretty flat, but my comments also talked about the draws that are happening under construction -- real estate, which also means they're using their cash into projects. So I do think it's a corollary to loan growth with where they're utilizing their excess funds. Operator: We have a follow-up question from the line of Brian Martin with Janney Montgomery Scott. Brian Martin: Just one follow-up, guys, I forgot to ask. The -- and just, Mark, your comments about the outlook for this year, just given the valuation and where the stock is at in the buyback, where does -- how does M&A fit into that? I mean, obviously, it seems like you have your hands full with the transaction and a lot in front of you. But -- and where the valuation is at, does it feel like the buyback is a better use of capital today than considering M&A, and that's probably the way to think about near term, and we'll see where things go? Or how are the dialogue on M&A today? Mark Hardwick: No, I think you summed it up well. We're focused on the acquisition in front of us. And we do think that using our capital to continue to repurchase shares at the current price level is the best short-term strategy for sure. So we're really not spending much time thinking about what's next on the M&A front. Brian Martin: Got you. Understood. I just wanted to confirm. Operator: Thank you. This concludes today's Q&A session. This also concludes today's conference call. Thank you for participating. Everybody, have a great day. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Home Bancorp's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Home Bancorp's Chairman, President and CEO, John Bordelon; and Chief Financial Officer, David Kirkley. Please go ahead, Mr. Kirkley. David Kirkley: Thank you. Good morning, and welcome to Home Bank's Fourth Quarter 2025 Earnings Call. Our earnings release and investor presentation are available on our website. I'd ask that everyone please refer to the disclaimer regarding forward-looking statements in the investor presentation and our SEC filings. Now I'll hand it over to John to make a few comments about the quarter and the year. John? John Bordelon: Thank you, David. Good morning, and thank you for joining our earnings call today. We appreciate your interest in Home Bank as we discuss our results, our expectations for the future and our approach to creating long-term shareholder value. We're proud of everything we accomplished in 2025 and believe we are well positioned to continue the outstanding performance you've come to the expect from Home Bank. Yesterday afternoon, we reported fourth quarter net income of $11.4 million or $1.46 per share. For the full year 2025, net income was $46 million or $5.87 per share which is a record for Home Bank and 29% higher than our 2024 earnings per share. Fourth quarter net interest margin was 4.06% and the ROA was 1.29%, which was sharply higher than the fourth quarter of 2024, and that NIM was 3.82% and an ROA of 1.12. Loans grew by $38 million in the fourth quarter or 6% annualized as strong December originations exceeded still elevated payoffs and pay downs. Our pipeline is building and paydowns appear to be slowing, so we expect growth in 2026 to be in the mid-single digits. While loan growth in 2025 was not up to our historical trends, Deposits grew by 7% or $192 million with strong growth in demand deposits and relatively low-cost money market accounts. As a result of our success attracting deposits, we were able to reduce our loan-to-deposit ratio to 92% in the fourth quarter from 98% a year ago. We intend to continue to focus on deposits, which will build franchise value and position us for increased profitability when we return to our historical rate of loan growth. We continue to have success with our Texas franchise, which is now in its fourth year of operation. We now have 15 commercial bankers in 5 branches and 1 loan production office in the Houston market and expect to open a new full-service branch and close the loan production office in the first quarter. We expect the lending team we hired in late 2023 will be even more productive than they have been. Since entering the Texas market in 2022, loans have grown at a 15% annual rate and now represent 20% of our loan portfolio. Nonperforming loans increased in 2025, but our charge-offs remain very low, and we don't expect that to change due to our conservative underwriting standards and proactive credit management. As you can see on Slide 16, our net charge-offs have averaged about 6 basis points over the last 6 years. We continue to perform at a level above our peer banks and expect this trend to continue. We are confident in Home Bank's future and our ability to meet our higher standards in all economic climates. With that, I'll turn it back over to David, our Chief Financial Officer. David Kirkley: Thanks, John. Slide 5 in our investor presentation has a summary of the last 6 quarters. As John mentioned, fourth quarter net income totaled $11.4 million, an 8% decrease from the prior quarter but a 21% increase from a year ago. The decline in net income was primarily due to an increase in provision expense related to loan growth during the quarter. Net interest income was stable when compared to third quarter, decreasing $58,000 while NIM decreased 4 basis points to 4.06%. Year-over-year, 2025 NIM increased 32 basis points to 4.03%, while ROA increased 25 basis points to 1.33%. Yield on loans decreased 9 basis points quarter-over-quarter due to repricing of variable rate loans after the three Fed rate cuts in September. The contractual rate on new loan originations during the quarter was 7%. Despite recent rate cuts, our yield on interest earning assets increased 14 basis points to 5.88% in 2025. Slides 14 and 17 provide additional details on cash flows from our loan and investment securities portfolio that should support NIM expansion in 2026. Excluding floating rate loans repricing in the next 3 months, 41% of loans with a blended rate of 5.7% are expected to reprice or refinance over the next 3 years. Over that same time period, half of our investment portfolio is expected to mature with a roll-off yield of 2.56%, which is well below current available yields. Slides 15 and 16 of our investor presentation provides some additional detail on credit. We had $165,000 in net charge-offs in the fourth quarter and $908,000 of net charge-offs in 2025 which was only 3 basis points of total loans and $128,000 less than 2024. Fourth quarter nonperforming assets increased $5.2 million to $36.1 million or 1.03% of total assets. The increase was primarily due to the downgrade of two relationships and partially offset by paydowns. The largest was a $4.1 million relationship with two separate townhome development loans in Houston. We feel that between the loan values on these properties and the guarantor strength, there will be no material losses on this relationship. We reported a $480,000 provision expense related to loan growth during the quarter, which was an increase of $709,000 from the prior quarter. We feel very confident in reserves as our allowance for loan loss ratio was stable from the third quarter at 1.21%. Average deposits increased by $58 million in the fourth quarter and by $187 million or 7% in 2025. Average noninterest-bearing deposits, which represent 27% of total deposits increased by $3 million in the fourth quarter and $40 million in 2025. 2025's deposit growth helped us reduce more expensive FHLB advances by $173 million to just $3 million at the end of the fourth quarter. The cost of interest-bearing deposits decreased 6 basis points in the fourth quarter and decreased 15 basis points since the fourth quarter of 2024. Our overall cost of deposits in the fourth quarter was an attractive 1.84%, and we expect additional reductions in the first quarter as recent Fed rate cuts are reflected in our deposit pricing. Slide 22 of the presentation has some additional details on noninterest income and expenses. Noninterest income was $4 million, which was slightly above fourth quarter expectations of $3.6 million to $3.8 million. Going forward, we expect noninterest income to increase to between $3.8 million and $4 million over the next several quarters. Noninterest expenses increased by $515,000 to $23 million and was in line with expectations. Noninterest expenses are expected to be between $22.5 million and $23 million in the first quarter and then increase to between $23.3 million and $23.7 million from there as annual raises take effect and new projects kick off. Slides 23 and 24 summarized the impact our capital management strategy has had on Home Bank. Since 2019, we grew per share tangible book value adjusted for AOCI at a 9.6% annualized rate. Over that same time period, we also increased EPS at an 11.5% annualized growth rate. We've increased our quarterly dividend per share by 55% to $0.31 per share and repurchased 17% of our shares. And we've done this while maintaining robust capital ratios. This positions us to be successful in varying economic environments and to take advantage of any opportunities as they arise. With that, operator, please open the line for Q&A. Operator: [Operator Instructions] The first question comes from Feddie Strickland at Hovde Group. Feddie Strickland: I just wanted to start on the credit side. I hear you on the limited loss history here and the fact that charge-offs really haven't been that high the last couple of quarters or for a while here. But when do you think we might see a shift in the trajectory of the Class 5 and NPAs as you work through some of these credits? John Bordelon: Yes. It's hardening a little bit that sometimes it takes a little bit longer, especially those credits in Louisiana and Mississippi. Texas products typically move a little bit faster, we're finding out a more closer date, there is usually about 60 days or less. So we are working through a lot of these. A couple of the newer ones we had were not on our radar and then they just kind of popped up a little bit. So we do believe that the two subdivision properties in Texas, we should be getting back out of foreclosure or they should be sold by February 3. We think there's a lot of equity still in that property, very good locations. We had another facility in Texas that the tenant moved out and the landlord is looking to sell the property. He has some interested parties just hasn't gotten there yet. So he's actually waiting -- he filed some lawsuits to be able to get back rent that the tenants had, and we'll see about that. But the most part, it's a good facility that should not have trouble selling. But once again, it just takes a little bit of time. So we had a lot of one-off circumstances. We don't see this as an economic-driven downturn. And we just see different scenarios where people are able to maintain the rental property or in the case of the two subdivisions, the person never started the development of those subdivisions. David Kirkley: One of the properties that John was talking about in February, that's about $5.5 million that once again, will either be paid off, refinanced out or will foreclose on and move to sell quickly. Feddie Strickland: Got it. So all I'll see -- what we can see NPAs come down about $5.5 million if nothing else comes on. Is that a fair assumption? John Bordelon: We hope so. We think the property is if we do take them back should be able to sell relatively quickly, it does take a little bit of time in Texas to get permits and things of that nature. That would be the only thing that would slow it up, we think. Feddie Strickland: Okay. And shifting gears to the loan pipeline, does the makeup look any meaningfully different from what's on the books today? Or I guess, in other words, do you expect any sort of longer-term shift in the portfolio? I know in the past, you talked about more C&I. John Bordelon: All of '25, we had some payoffs versus second quarter, they weren't as large as they were in the third quarter, but we did have payoffs and pay downs throughout our portfolio. So I think it's just maybe because of higher rates are people selling their businesses to profits and such and the loans get paid off, but we're not -- we didn't have much of that at all a little bit but not much in fourth quarter. We're thinking hopefully, we have less of that in 2026. So the loan growth is there if we don't have the payoffs. Feddie Strickland: And just a last question, just update on what you're hearing from customers throughout different parts of the footprint, how are things in New Orleans versus Houston? Just curious where you might see a little bit more versus a little bit less growth incrementally? John Bordelon: We're not hearing anything negative in any of our markets, especially with rates coming down, yield curve coming down a little bit. So I think it's probably leaning a little more towards the positive side. Obviously, the national scene is always a concern what happens with interest rates, what happens with the economy and such. But for the most part, we have not heard any negative comments. Operator: The next question comes from Joe Yanchunis at Raymond James. Joseph Yanchunis: So I was hoping you could talk a little about the SBA business as we enter into 2026. Yes, as it currently stands, do you think the business will be a driver of growth? Or will it take some more investments to really grow the business? John Bordelon: That's a great question. We got into the SBA business after the Texan Bank acquisition, and we kind of have been slow to develop it. But as rates went up, the request were much smaller and few and far between. So we do anticipate that with the lower interest rates, that should pick up. I don't think we're low enough yet to where it's going to be tremendous, but it should be much better than it has been in the last two years. Joseph Yanchunis: Got it. And just a quick clarification. All my questions are great questions. So capital levels continue to build. You throttle down the buyback with current levels where the stock price is. Would you characterize M&A as one of the top capital deployment priorities? And if that's the case, can you talk about how the pace of conversations changed in recent months? John Bordelon: Well, a couple of important factors, I think, Dave and I have been speaking to people opportunities that have been out there for the last 3 years, of course, with the high interest rates and some of the balance sheet being a little upside down, it was not very attractive. The other important component there was we did not have a commodity that we felt we could use. So we looked at smaller deals that we could pay cash for. So now that our stock price is getting closer to a [ 140 ] of tangible or so, we feel as though we have the power to go out and maybe look for a little bit larger banks that we feel very comfortable with. So we're very optimistic about 2026 M&A. Joseph Yanchunis: And what would the larger deal look like just in terms of size or if you want to talk some geography as well? John Bordelon: Yes. I mean we're probably not looking at anything over $1.5 billion, I mean, half our size or less. Joseph Yanchunis: I appreciate that. And kind of last one for me here. In the back half of '25, you purchased nearly $20 million of securities. How should we think about the size of the bond portfolio as you move throughout '26? David Kirkley: I think it's going to be relatively in the same percentage of assets to 11% to 12%. We expect loan growth, we expect our balance sheet to increase a little bit. So I expect the investment portfolio to increase book basis -- excuse me, on a par basis by about $15 million to $20 million and then whatever happens on AOCI as it comes back. Operator: The next question comes from Stephen Scouten at Piper Sandler. Stephen Scouten: I appreciate the time. I'm curious, John, I heard you say you feel pretty good about that team you have in Texas from 2023. Do you feel like there's opportunities with all the M&A we've seen in that environment to continue to add to that team? Or is there kind of plenty of capacity there now to grow at the pace you want to grow? John Bordelon: Well, we never lost anybody in the Texan acquisition, and we added about 3 other people to that. And then we did a pull out 2 years ago, I guess, it is now a 3-person team -- actually a 4-person team with 3 relationship managers. So that's the -- that's where we're building a new branch in Northwest Houston, and that's going to give them full branch capabilities. It's been very difficult as a loan production office for the last 2 years for them to grow as much, especially on the deposit side. So we're very excited about that team and hope to continue to grow in that market. Absolutely. Stephen Scouten: Okay. Got it. And then when you think about the kind of overall loan growth capacity for the franchise as we look at '26. Is kind of -- is mid-single digit the right way to think about it? Or do you have aspirations for more given what you're seeing in the Houston MSA? John Bordelon: I think the only thing that's going to push it past mid-single digits is potentially lower interest rates that may spur the economy a little bit more. I don't know if we're going to see that until maybe midyear or second half of the year, it's anybody's guess, right, where interest rates go. But it looks like the long end staying up a little bit. So potentially, it may be better in the second half of the year than the first half of the year. But I still think based upon the pipeline that we had in fourth quarter, I think first half of the year is still going to be mid-single digits. Stephen Scouten: Okay. Great. And then just maybe last thing for me. Kind of thinking about the trajectory of the NIM and David, I heard you obviously say you think there's some expansion opportunities there. I guess, kind of two parts to that. What do you think the scale of that potential upside could be? And then two, can you kind of help me reconcile the -- obviously, on page, was it, 21 of your presentation. What would show is kind of a liability sensitive -- I mean, excuse me, like an asset-sensitive appearance on the balance sheet versus what we've kind of seen in practice and kind of how I think about your balance sheet and the upside from lower rates? David Kirkley: Yes. So we had 3 rate cuts since mid-September. And so that impacts the loan portfolio immediately, and you saw that as a 9 basis point decline in loan yields. We have a very short deposit portfolio, but it does take a couple of months to realize the impact of rate cuts through CD repricing. Our NIM in December was 4.08% and that's reflective -- that's due to seeing our deposit cuts actually playing out on the income statement. And you're going to see more of that come through in Q1 as a lot of the CDs are repricing. So we took the impact of the rate cuts and that reduced our loan portfolio by 9 basis points. We've been originating in the 7% range, and we have roll off yields, a pretty healthy roll-off yield. So in the base case scenario, we see NIM ticking back up to 4.1% and 4.15% throughout the year. So that answers one of your questions, I believe. As far as rate sensitivity goes, change in net interest income, you got to remember that this projection is based off of the next 12 months. It's not saying, "Oh, my NIM was 4.05% and then down 100 basis points, I'm going to lose 4.1% of my NIM. It's -- my NIM is projected to increase in the base case to 4.1%, 4.15% in the base case, not from the 4.04% we just -- I mean, 4.06% we just reported, it's a 4.1% or a live asset-sensitive bank from that base case. And so even if we go down 100 basis points in yields, we still think that our NIM is going to be relatively stable to what we just reported. John Bordelon: I think the biggest headwinds we have right now in regards to NIM or some outliers on the deposit side, throwing some really high CD rates out there. So we're having to compete a little bit for that. That hasn't been the issue. Pretty much a lot of banks were all in the same general vicinity rate-wise, but there are some outliers in the 4.25% range. Stephen Scouten: But generally, I guess this is kind of a shock scenario, but it sounds like you have a lag that's actually beneficial as those CDs repriced over time from each subsequent cut. So theoretically, it could impact the NIM negatively for the first 30 days, but then probably there's some strength after the fact as deposits reprice. Is that maybe the best way to think about it? David Kirkley: Yes, that does, yes. But I'm glad John did bring that up. We are seeing more -- a much wider range of deposit pricing in some of our markets than we had over the last, I guess, probably 1.5 years with the spread between the high and the average. Stephen Scouten: Yes. Makes sense. People have seeing loans out there that they want to fund up. So yes, I would imagine it all gets a little bit more competitive. But to your point, hopefully, that means we got better economic strength. So we shall see. I appreciate all the color. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to John for any closing remarks. John Bordelon: Thank you. And once again, thank you all for joining us today, and we look forward to speaking to many of you in the coming days and weeks, and thank you for your interest in Home Bancorp. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to PACCAR's Fourth Quarter 2025 Earnings Conference Call. All lines will be in listen-only mode until the question and answer session. Today's call is being recorded. If anyone has an objection, they should disconnect at this time. I would now like to introduce Mr. Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead. Ken Hastings: Good morning, and welcome, everyone. My name is Ken Hastings, PACCAR's Director of Investor Relations. Joining me this morning are Preston Feight, Chief Executive Officer, Kevin D. Baney, President, and Brice J. Poplawski, Senior Vice President and Chief Financial Officer. Preston Feight: As with prior conference calls, we ask that any members of the media on the line participate in a listen-only mode. Certain information presented today will be forward-looking and involve risks and uncertainties that may affect expected results. For additional information, please see our SEC filings and the Investor Relations page of paccar.com. I would now like to introduce Preston Feight. Preston Feight: Good morning. Kevin D. Baney, Brice J. Poplawski, Ken Hastings, and I will update you on our very good fourth quarter and full year 2025 results, as well as other business highlights. PACCAR's fourth quarter revenues were $6.8 billion, and net income was $557 million. In 2025, PACCAR achieved annual revenues of $28.4 billion and adjusted net income of $2.64 billion, which is the fourth highest profit year in company history and the eighty-seventh consecutive year of profits. Adjusted after-tax return on revenue was 9.3%. I am proud of PACCAR's outstanding employees who delivered these results by providing our customers with the highest quality trucks and transportation solutions in the industry. PACCAR Parts and PACCAR Financial Services each achieved quarterly and annual revenue records. PACCAR Parts and Financial Services represent an increasing percentage of the overall business and contribute to PACCAR's structurally stronger performance. 2025 was a dynamic year in the North American truck industry, with soft freight markets, tariffs, and emissions policy uncertainties. In this environment, Kenworth and Peterbilt made strong contributions to PACCAR's results. Importantly, we ended last year with tariff and emissions clarity. The Section 232 truck tariff policy that became effective on November 1 provides advantages to PACCAR, which produces trucks in the United States, Canada, and Mexico for each local market. I am proud of PACCAR's excellent team that has created this cost-effective, flexible, and robust manufacturing strategy. In late 2025, it was confirmed that the 35-milligram EPA 27 NOx limit will go into effect in January. This brings clarity to the market and helps customers make their buying decisions. PACCAR is wonderfully positioned for these changes with the newest lineup of trucks and engines that are the most efficient and highest quality in the industry. Last year, US and Canadian Class 8 truck retail sales were 233,000 units, and Kenworth and Peterbilt delivered a market share of 30%. The US economy is projected to expand this year. The less-than-truckload and vocational truck sectors, where Peterbilt and Kenworth are the market leaders, are steady. The truckload segment is beginning to accelerate, with industry customer demand and spot rates picking up in December. The 2026 US and Canadian Class 8 truck market is forecast to be in a range of 230,000 to 270,000 vehicles as economic growth, regulatory, and tariff clarity and improving freight conditions are poised to improve customer demand. In Europe, DAF trucks have a competitive advantage in the market with their innovative aerodynamic design that features the largest, most luxurious cab interior and the best powertrain choices. In recognition of this, the DAF team earned the prestigious International Truck of the Year award for the DAF XF and XD electric trucks. It is noteworthy that this is the third time in five years that DAF has won this award. In 2025, the European above 16-ton truck market was 298,000 units. This year, the European economy is forecast to grow modestly, and we expect the above 16-ton truck market to be in the range of 280,000 to 320,000 registrations. In addition to the excellent businesses in Europe and Brazil, DAF is also expanding in the Andean region of South America. Ken Hastings: Last year, the South American above 16-ton market was 115,000 vehicles and is expected to be in the range of 100,000 to 110,000 trucks this year. Other 2025 business highlights included PACCAR earning the elite A rating from the Climate Disclosure Project for its environmental performance, DAF being honored as the Fleet Truck of the Year in the UK, DAF, Kenworth, and Peterbilt introducing the next generation of battery electric trucks, PACCAR completing a new engine remanufacturing facility in Mississippi, and Kenworth completing a new chassis paint facility in Ohio. PACCAR delivered 32,900 trucks in the fourth quarter, and deliveries are forecast to be at a comparable level in 2026. Fourth quarter truck parts and other gross margins were 12%, and we estimate that first quarter gross margins will increase to 12.5% to 13%. We look forward to 2026 being a year of accelerated growth for our customers, dealers, and PACCAR. Kevin D. Baney will now provide an update on PACCAR Parts, Financial Services, and other business highlights. Kevin D. Baney: Thank you, Preston. In 2025, PACCAR declared dividends of $2.72 per share, including a year-end dividend of $1.40 per share. This resulted in a dividend yield of nearly 3%. PACCAR has paid a dividend for a significant eighty-four consecutive years. Last year, PACCAR Parts' annual revenues increased by 3% to a record $6.9 billion, and pretax profits were a strong $1.67 billion. Fourth quarter revenues increased 4% to a record $1.7 billion, with pretax profits of $415 million. PACCAR Parts' performance reflects the benefits of investments in connectivity and agentic AI that increase vehicle uptime and enhance the success of our customers. PACCAR Parts is continuing to expand and now has 21 distribution centers worldwide, including a new distribution center in Calgary. This new PDC enhances parts availability and delivery times to Canadian dealers and customers. The aftermarket parts business provides strong profitability through all phases of the business cycle. We estimate parts sales to grow by 4% to 8% this year, with growth accelerating as the year progresses. Last year, PACCAR Financial Services achieved record annual revenues of $2.2 billion, and annual pretax income grew 11% to $485 million. Fourth quarter revenues were a record $569 million, and quarterly pretax income grew 10% to $115 million. PACCAR Financial provides the highest quality service in the market and makes it easy for customers to do business with PACCAR through the use of technology in the credit application and loan servicing process. PACCAR Financial increased market share to 27%, a growth of two percentage points when compared to 2024. Capital project investments last year were $728 million, while research and development investments were $446 million. This year, we are planning capital investments in the range of $725 to $775 million and R&D expenses in the range of $450 million to $500 million. This year's investments in key technology and innovation projects include the creation of next-generation clean diesel, hybrid and alternative powertrains, battery cells, integrated connected vehicle services, flexible manufacturing capabilities, PACCAR's autonomous vehicle platform, and advanced driver assistance systems. PACCAR's independent Kenworth, Peterbilt, and DAF dealers consistently invest in their businesses, enhancing our industry-leading distribution network, and they make a significant contribution to PACCAR's long-term success. PACCAR is looking forward to a great year in 2026. Ken Hastings: Thank you. We would be pleased to answer your questions. Operator: Thank you. When preparing to ask a question, please ensure your device is unmuted locally. The first question comes from David Raso with Evercore ISI. Your line is open. Please go ahead. David Raso: Hi. Thank you for the time. I was just curious, can you walk us through the margin improvement you expect from 4Q to 1Q despite the flat deliveries? Preston Feight: The thinking is, David, there is a lot to unpack there. But one thing you should look at in the fourth quarter is we had the Section 232 go into effect. Obviously, that went into effect on November 1, so for a month, we had higher tariffs. So that happened in there. The other thing that was significant is our manufacturing teams in the fourth quarter did a really great job of being able to convert the factories over to build trucks local for local. For example, Chillicothe and Denton are now building the medium-duty trucks, and in Canada, we are able to build all of the product lines principally for Canada. So that was a lot of adjustment in schedules during the fourth quarter, which had some impact on margins. As we look forward, we get a full quarter in Q1 of margins that are benefiting from the Section 232 tariff. There is the clarity of NOx 27, which happens. So I think that is starting to have some improvement. Order intake has been very good, very strong in December and through January, so we are seeing some uptick in terms of customer demand, which is good for our business as well. And that is what is driving up the margin to 12.5% to 13% in Q1 compared to the 12% in Q4. David Raso: And that last point about orders, would have thought maybe the build sequentially could be up. What is the translation from those orders into when you expect to produce those trucks? Preston Feight: Yeah. I mean, you know the cadence of it is a lot of orders at the end of the year come in as fleets that are spread delivery throughout the year. So that is a little bit of what I think everybody saw in the fourth quarter. And then what we are seeing now is a little bit more close in terms of order intake, which is allowing us to build up our backlog a little bit, increase visibility a little bit, and then that is what is going to translate into higher build in the outer quarters. David Raso: And lastly, to quantify a little bit, 4Q to 1Q, can you give us some sense of the price-cost dynamic in truck in the fourth quarter and how to frame it with the Section 232 benefits for 1Q? Preston Feight: Yeah. I think you can see favorability coming in Q1 compared to Q4 in price-cost. Most significantly is cost reductions that we would expect to see again, doing that comparison of the work our factories did, that has some cost impact in the fourth quarter in terms of getting the right trucks in the right places. And then, again, we get the benefit of Section 232 in Q1, so it gets a lot more stable in that for a net positive price-cost on truck. Brice J. Poplawski: Yeah. We also had a higher level of overtime in the fourth quarter because of the events that Preston spoke to and getting all the trucks out at the end of the year. So our employees did a fantastic job getting all the trucks out that our customers desperately want to have. So we felt really good about that. That should not be recurring in the first quarter either. David Raso: Alright. Thank you for the time. Preston Feight: Yeah. Thanks, David. Have a good day. Operator: We now turn to Jerry Revich with Wells Fargo. Your line is open. Please go ahead. Jerry Revich: Hi, good morning and good afternoon, everyone. Kevin, congratulations. Kevin D. Baney: Thank you, Jerry. I am wondering if you could just talk about what you are seeing in the performance of your aftermarket business in January by region? Feels like there is an uptick in Europe in particular that is playing out. I am wondering if you could just provide the context you just provided on orders for aftermarket Europe and U.S., please. Kevin D. Baney: Yes, sure, Jerry. So the forecast for Q1 is 3% growth year over year. The team did a great job, let us say, in a soft parts market with record sales growth for last year and definitely for the fourth quarter. And what we are seeing is, you know, in a soft parts market, customers really are focused on required maintenance, and so we saw a mix shift towards that. We have great AI agentic tools to help identify that and how long we get that mix shift in our distribution centers, but also out with the dealers. And so, you know, we have got a forecast of 4% to 8% growth for this year. And, you know, we will see that, you know, definitely as we see the truck side accelerate through the year, we will see that on the parts side as well. Jerry Revich: Super. And then in Europe specifically split in... Kevin D. Baney: Yeah. That is what I was about to say. And then just the split in region is, I think, well, it will be consistent in North America as well as Europe. Jerry Revich: Very interesting. Thank you for the color. And then can we just double on Europe a little bit? So production was really high in the quarter versus normal seasonality, and you took up your outlook for Europe. Can you just expand on what you are seeing in terms of is it a particular set of countries that are driving the demand acceleration for you folks in Europe? Or how broad is the activity improvement? Kevin D. Baney: Yeah. The market finished at, I will focus on heavy-duty, at 297,000. And so a relatively strong market for Europe. No specific focus on any given region. Obviously, you know, it did depend on where you are in Europe, some markets are stronger than others. You know, we continue to focus on premium trucks. You know, Preston said we have been recognized as Fleet Truck of the Year in the UK. International Truck of the Year for the DAF XF and XD. And so we just, you know, we took the market up because we see, you know, a similar strong market this year as well. Jerry Revich: Yep. Good story. And lastly, can I ask on Section 232 as that starts to impact your competitors, how are you thinking about market share versus unit profitability from a PACCAR standpoint? As we look back historically, you folks have targeted improving unit profitability cycle over cycle. And so as we are thinking about the benefits from the rebate program as well as, you know, chatter out there for $9,000 type price increases, can you just provide a PACCAR perspective on where you see unit profitability going and how you folks are thinking about market share versus profitability given Section 232 evens the playing field for you folks? Kevin D. Baney: Yeah. I think, you know, the last statement you made is really instructive because throughout 2025, there was a bit of a disadvantage. And now I think we anticipate that to be an advantage. It does not come through quickly. Right? It is a competitive world out there. So in the first quarter, many of our competitors have not taken that to the market yet, those tariff costs to the market yet, which keeps things in a bit of a very competitive state. Maintains that dynamic nature we were talking about in our commentary. But through the year, we feel good about our opportunity to gain in terms of margin and market share. As the year progresses and things stabilize out. Because it does seem stable now, and because our teams have done such a good job getting the local for local manufacturing, it really should be an opportunity for us in both categories. Jerry Revich: Thank you. Kevin D. Baney: You bet. Operator: We now turn to Robert Wertheimer with Melius Research. Your line is open. Please go ahead. Robert, your line is open. Robert Wertheimer: I am so sorry. Just following up on Jerry, the cycle margins and where your kind of competitive and production position sits in North America now versus in the past. Is there any reason to think as things normalize over the next year or two or three that your truck margin should be, you know, anything different from average, you know, whether higher or lower? And I have one follow-up. Thank you. Preston Feight: You know, I would say, Rob, that predicting out one, two, three years in the operating environment we are in is a little bit challenging in terms of what things are going to look like. There is a USMCA negotiation that is going to take place probably later this year, so it will be instructive to look at that. So I think that could have an impact on how margins feel. What I think we are focused on is making sure that the trucks we are providing have the greatest value to our customers. And to that end, as you know, right, we have the newest lineup of trucks out there. And one of the things that we are now focusing on is how we are going to be able to help our customers be more profitable through the use of the AgenTic AI that Kevin mentioned but also maybe more generally in connected truck data. So our ability to have every truck be connected and gather, like, pentabytes of data from our trucks and then use that data to provide customer value is significant in the coming years. So that is what we can control, and that is where our focus is. It is high-quality trucks, lowest cost of ownership, highest reliability, and new transportation solutions for our customers to help them be more successful. Robert Wertheimer: Interesting. I look forward to hearing more about that. And then just a quick one. Did you mention your European market share for the year? Brice J. Poplawski: Yep. I had not yet, Rob, but it was 13.5% on the heavy-duty side. Robert Wertheimer: Perfect. I have a bunch of questions for you shortly, and thank you very much. Preston Feight: Thank you. Look forward to sharing more with you. Operator: We now turn to Steven Fisher with UBS. Your line is open. Please go ahead. Steven Fisher: Great. Thanks. Good morning. Just wanted to confirm some of the production dynamics in the quarter. The 15,000 in U.S. and Canada. I thought I heard you say that maybe that was affected by sort of shifting local for local. How much of, well, I guess, was the 15,000 less than what you expected? How did that compare? How much of that, if you could break it out, was tied to sort of shifting that production plans around? Or was there anything else going on in the quarter? Preston Feight: Yeah. I think it is not what we expected. It is kind of... Steven Fisher: Can you hear me? Preston Feight: Yeah. We can. Can you hear us? Steven Fisher: Okay. Preston Feight: Yep. Sure. Thank you. Yeah. So that 15,000 is kind of right where we thought it would be. Right in the range of where we thought it would be. Europe probably delivered a few more, maybe North America a little less. But what we really saw is a cadence change through the quarter. A cadence change continuing through the first quarter. Of stronger order intake, the ability for the truck plans, as we mentioned, keep mentioning because I am so proud of them. For them to be able to keep the build going while they were doing this transition to build was really impressive. If there was anything, a few hundred units might have been buried in there where they were working through bringing in trucks out of Mexico, bringing in trucks out of Canada. And bringing that flexibility, and then the team in Canada flexing into a wide variety of model mixes built in Sainte-Thérèse. There are some inefficiencies to that. But their ability to manage that was significant. And really impressive. So I do not think we are too surprised at all by it. What we feel good about is the stability we have going forward and how it is going to be helpful to the build cadence through the 2026 calendar year. Steven Fisher: Okay. That is helpful. And then I guess translating that into then the first quarter flat, can you just give us sort of the regional color there directionally? For US and US, Canada versus Europe? Preston Feight: Yeah. We see US Canada up some and then Europe down a little bit as it had higher deliveries in the fourth quarter at year-end in Europe. Steven Fisher: Okay. Preston Feight: You bet. Operator: We now turn to Angel Castillo with Morgan Stanley. Your line is open. Please go ahead. Angel Castillo: Hi, thanks for taking my question. Just wanted to unpack a little bit more on the order uptick. You noted continuation of maybe some of that into January. We saw strong December order data. Just expand maybe the shape of the strength in January and just maybe any details on what percentage of the order book or order slots are now filled for kind of 1Q and 2Q. And then maybe just related to that, like, you could expand on just the areas where you are seeing the uptick in orders, is there any kind of particular pockets, whether it is vocational or is it related to EPA pre-buy? Like, what are you hearing in terms of the strength in those orders? Preston Feight: Yeah. I think as you articulated the numbers for December, you know those order intakes. I would say January continued in that same level of cadence. Of significant overbuild rate order intake. Some spread delivery in there as you about fleets that are kind of putting in their buying decisions, but also some things that are closer in, as you mentioned, vocational. We are seeing some significant orders from bodybuilders coming into our mix now so they can replenish their inventory for 2026. And then a steadiness in the LTL market. So it is kind of a mixture. You articulated that well. And that is what we see. So strong order intake kind of across the board, which is helping us grow those backlogs, which is going to be positive for the year. And then I would say a big point to add is in Q1, we are mostly full. Then as you know, we will look at Q2 as we get to the next earnings call. Angel Castillo: That is very helpful. Thank you. And then maybe just along those lines on the North America truck outlook for the year, I guess, US and Canada, just expand on the rest? So you raised Europe and South America, but it sounds like the level of orders here is pretty robust, but you kept the North America unit outlook unchanged. How should we read that? Is there any nuances to, you know, what you are seeing maybe whether it is market share shifts or that dispositions you maybe better for or the industry better for the top end of the range of your provided? How should we kind of take that into context given the unchanged guide for the industry? Preston Feight: Well, I think that the truth is our unchanged is higher than maybe like ACT was previously. So we feel we felt good about 2026. We still feel good about 2026. And so there is really no change from our positive sense of what is going to come through the year and the fact that it is going to be a year of acceleration for us. And acceleration sequentially is what we would expect to see through the year. Angel Castillo: Very helpful. Thank you. Preston Feight: You bet. Operator: Our next question comes from Scott Group with Wolfe Research. Your line is open. Please go ahead. Scott Group: Hey. Thanks. So when truck rates start moving higher, we tend to see more truck orders. It feels like some of the reason why truck rates are going higher right now is that there are fewer drivers and the government is focused on non-domicile and things like that. If this is more of a supply-driven cycle with fewer drivers, how do you think about what that means for truck orders and this cycle going forward? Preston Feight: You know, I think it is a great point, Scott. I mean, obviously, you are dialed in on what is going on there. But if there are fewer drivers that maybe are not meeting the legal requirements, those drivers probably are working on the lower side of the contract rates and the spot rate businesses. And then what you see is those more established carriers tend to have probably somewhat higher rates. The fact that there are fewer of those low-side drivers enables them to probably command a better rate positioning. I think there is some of that going on right now. Obviously, as they get better rate positioning, their profitability will hopefully improve. Then that will drive their ability to have better cash flow and purchase more trucks. Scott Group: And then similar question. When you see this order pickup, do you have a sense is this more replacement, or is there any growth? And if it is sort of more replacement, I know, just thoughts on how you see the used truck market evolving over the course of the year? Preston Feight: Yeah. I think in the used truck space, it is kind of interesting. The kind of read-through to me is we think that as the year goes on, used trucks could become more valuable. Simply because of how things are shaping out in the marketplace. Even in the next year. So it should be positive. Right now, there has been a little bit of a downtick in used trucks because some of those buyers might be the people that are being affected by the CDL enforcement rules. Those might have been the buyers for the used trucks. So there is a temporary moment there. And, also, I think we have still seen the finishing up of rationalization of fleets that are going to be in the business and make it through this cycle versus those that are leaving the business. So all of that kind of put in, you would expect to see the number of delinquencies diminish as the year progresses as fleet profitabilities come up. And then used truck pricing follows that. Scott Group: And just so I understand, your point about used being more valuable, is that a sort of comment around EPA '27 and big increases in new truck prices coming next year? Preston Feight: Exactly. Yeah. That is part of it. Yeah. We saw a 4% increase in used truck values year over year. And we expect that to continue to increase for that reason. Scott Group: Thank you, guys. Appreciate it. Preston Feight: You bet. Operator: We now turn to Chad Dillard with Bernstein. Your line is open. Please go ahead. Chad Dillard: Hey, good morning, guys. Want to spend some time on parts gross margin. So first of all, fourth quarter, what was it? And then how do you think about that scaling in 2026 as that business reaccelerates? Kevin D. Baney: Yes, Chad, this is Kevin. So fourth quarter was 29.5%. And as I mentioned, on a soft parts market, I would say, you know, that is pretty good results. And, again, the team is doing a great job providing excellent customer service, getting the right parts to the right place, right time. And so, you know, in a soft parts market, customers are really focused on required maintenance. And so we were able to address that shift. And what we are forecasting going forward is, you know, a rebalancing of that mix as the market improves a higher take on proprietary parts. Chad Dillard: Got it. That is helpful. And then just really quickly, inventories. Can you just give us an update on where PACCAR is versus the market? And then just in terms of truck pricing, how are you thinking about that evolving as we go through '26? Kevin D. Baney: Sure. When you look at the industry inventory, I think the industry inventory for Class 8 is 3.2 months, and PACCAR is at 2.2 months. So we feel like we are in an optimal spot on our inventory positioning. And that at least for us, we would expect build registrations to be fairly aligned this year. So that gives us a good opportunity as well, and we are starting to see, like, we are starting to see dealers come in with stock orders. And as we mentioned previously, bodybuilders want to have their spots put in. So that is the way we see inventory and its relationship to our build. Chad Dillard: Got it. Thank you. Kevin D. Baney: You bet. Operator: Our next question comes from Jamie Cook with Truist. Your line is open. Please go ahead. Jamie Cook: Hi. Good morning, nice quarter. I guess my first question, understanding your retail sales forecast for North America and now that we have more clarity on EPA 2027, obviously, markets appear better versus where we were. But, Preston, to what degree are you concerned, you know, the supply chain cannot ramp if things really do improve and where would those bottlenecks be, and how are you handling that? And then my second question, which is my guess is you will not answer, but I am going to try. You know, the revenues were better. Deliveries were better. Your gross margins were in line with your forecast, but you said it was hurt by, you know, your shift in manufacturing local for local. Is there any way you will quantify, you know, what that impact was in the fourth quarter? Thank you. Preston Feight: Yeah. So your second question, you are right. You understand it was significant. I am not going to give you a number because there is a lot of gray in that number, so I would be taking a number that has multiple inputs to it. Say that it was a significant impact to us, and it is one that we do not expect to carry forward. As we look into the future quarters. From a bottlenecks of supplier standpoint, does that have an impact on the year? I feel like that is something that our customers are going to need to think about. We have great relationships with our suppliers. We have given them our forecast. We have given them that cadence of sequential growth and acceleration through the year and our expectations of our build. So they are aware of it. That helps them. Right? So having a good plan helps them. But it does mean that if we get into a third, fourth quarter where build is significantly higher, then it puts stress on their systems as well. And we have been through this cycle. You just articulated it. There comes a point where the ramp is too significant. It becomes bounded. Do not see that yet. But we do not rule out that that could happen in the second half of the year as well. And if that is what happens, then that is typically when price accelerates. Jamie Cook: Okay. Great. Thank you. Look forward to seeing you in February. Preston Feight: Yeah. I look forward to seeing you too. Operator: Our next question comes from Stephen Volkmann with Jefferies. Your line is open. Please go ahead. Stephen Volkmann: Hi. Thanks for taking the question. I wanted to stick with the 2027 NOx thing. Have you guys communicated to your customers and maybe even if you are willing to us what the price increase associated with that will be? Preston Feight: You know, we have talked in general, and the reason we speak to generalities is because I think the EPA has done a very good job of trying to let people know there would be 35 milligrams. But they also have stated that they are looking at useful life and warranty and what those impacts would be on cost. So those could still be subject to change. In general, I think the best number is to use, like, a plus or minus on $10,000. That is what we have been talking to customers about. It gives them a range to think about. They can kind of plan in with a new technology and a $10,000 increase. Does it mean they want to shift their buying pattern around? Stephen Volkmann: Great. That is helpful. And then this is, I am coming back to Jamie's question. But so presumably, there will be some sort of a pre-buy as we get toward the end of the year. I think you guys have been in that camp for a while now. But if the demand were stronger, would you be willing to flex up to meet it, or does the fact that '27 probably sort of comes back down fairly quickly post the change mean that it is sort of your appetite for building a lot in the second half is more limited? Preston Feight: You know, we serve our customers. And so if our customers are asking us for trucks, we do everything in our power to get them trucks. Stephen Volkmann: Okay. Great. Thank you. Preston Feight: Yeah. You bet. Operator: We now turn to Kyle Menges with Citi. Your line is open. Please go ahead. Kyle Menges: Thank you. I wanted to follow up on the last question. I guess more not as much on the customer side, but just from the standpoint of the potential of dealers stocking up. You may be willing to carry a little bit more inventory in 2027. You made a comment that you are seeing dealers ordering stock trucks right now. So, yeah, it would be helpful to just hear about how you are thinking of the potential for dealer stocking and I guess, risk of an inventory overhang exiting 2026? Preston Feight: Well, I mean, I think the statement of an inventory overhang has a negative connotation to it to me, and I am not sure that if they had inventory going in 2027, that would be necessarily too big of a problem. I think that it is a little early to predict what the fourth quarter is going to look like because, as I said, we have to see what the rules end up being from the EPA. Do think there will be an acceleration through the year. That seems obviously starting to happen to me. How big that is and how significant it is at the year-end, I think that is a lot of speculation that we cannot really get to yet. Kyle Menges: Got it. And then just on the parts guidance, the 4% to 8% and starting the first quarter at plus 3%. Just how much visibility do you have to that ramp going from three to, I guess, plus seven or 8% as we move throughout 2026? And just what are the key drivers of that acceleration in growth? Kevin D. Baney: Hey, Kyle. The key drivers are just the anticipated demand as we go through the year with the market. We have had, if you look at last year, it was a relatively soft market throughout the year. And so just with customers accelerating, putting trucks back into service, we are just anticipating kind of a steady growth as we go through the year. The other thing you can maybe think of is tariffs should be a favorability on the parts side, just like the truck side as you look at the year. Kyle Menges: That is helpful. Thank you, guys. Kevin D. Baney: You bet. Operator: Now turn to Tami Zakaria with JPMorgan. Your line is open. Please go ahead. Tami Zakaria: Hey. Good morning. Thank you so much. First question is on the tariff-related surcharges or price increases you talked about last year, are you rolling back some of those price increases or surcharges given that Section 232 eases some of the tariff cost burdens for you now? Preston Feight: Yes, Tami. We are. We have got rid of tariff surcharges for '26. So they sit in there in terms of what our actuals are because remember, IEPA is still sitting out. There is a tariff cost for everyone. That needs to be clarified still. But we are seeing some price slide in Q1 expectation. But more than offset by cost. So that gives us a positive in price-cost. Tami Zakaria: Understood. That is super helpful. And as a follow-up, I wanted to understand the first quarter gross margin guide a little better. Did you see at any point in the fourth quarter the gross margin rate being in that, you know, 12.5% to 13% range, meaning is it fair to assume that you exited 4Q at a 12.5% to 13% range, and what you are expecting for the full quarter in the first quarter. Given deliveries would be similar. Preston Feight: Yeah. I think what you are insinuating is are we seeing sequential improvement in margin by month, and we do not break it out that way, but in general, yes, we are seeing improvement in margin. As we go sequentially. Even within quarters. Tami Zakaria: Understood. Thank you. Operator: Our next question comes from Jeff Kauffman with Vertical Research Partners. Your line is open. Please go ahead. Jeff Kauffman: Thank you very much, and congratulations. I just wanted to think a little bit about margin opportunity or market share opportunity in 2026. Yeah. We have been speaking with some trucking companies that have said even now they still cannot really put in orders for Freightliners or Internationals because post the February tariffs, they are not really certain what those prices are. So you talked about the shift post-February and how that is an advantage for you. What are your customers telling you about their ability to those that have, say, more than one nameplate, more than just Kenworth and Peterbilt on their fleet, because we have seen the uptick in truck purchasing and to your point, that could be a combination of, okay. We got EPA clarity. We got February clarity on our domestic produced trucks. But our understanding is your customers are still having trouble putting in orders for their non-US built trucks post-February. So could there be a bigger opportunity for market share for you? And then when will you get some more certainty on that? Preston Feight: Jeff, I think you must be talking to the same people we are talking to. I think they would like to have that clarity as well in terms of what pricing is going to be from some of our competitors, and that will certainly find its way into the market in the coming months. We have been able to give them clarity from our standpoint. I think it is helpful. And so we feel like we should be able to meet their demand when they are ready to make those decisions, which should be good for us through the year, both, I think, from a market share standpoint and a margin standpoint. Jeff Kauffman: So just to follow up on that, the increased confidence you are seeing with their customers, and I know ACT Research just put the pre-buy back into their numbers. How much of this do you feel is increased confidence in the environment versus maybe just increased clarity on what is going on with EPA? Preston Feight: Yeah. I think it is both. I think that the clarity is helpful, but without the confidence in the freight market, without the rate increases, and without increased profitability for the carriers, the 40% of the truckload carriers being in the market, they need those things in order to be more than just tariff and regulatory clarity. So I do think it is a both thing, and I think that is where at the point where we have tariff clarity. We have regulatory clarity happening. I think we are just in the beginning parts of having the truckload carrier profitability return. So that has to continue to evolve, which will be positive for the year when that happens. Jeff Kauffman: Okay. Thank you very much. Preston Feight: Yeah. You bet. See you soon. Operator: And our final question comes from Michael Feniger with Bank of America. Your line is open. Please go ahead. Michael Feniger: Yep. Hey, guys. Thanks for squeezing me in. I appreciate it. Preston Feight: Yeah. You bet. Got called. Appreciate it. You guys touched on the price versus cost trending more favorably in Q1 versus Q4. It is mostly on the cost side. You commented on pricing is a little soft in Q1. You pointed out how competitors have not fully taken care of cost to market. We are hearing commentary out there on discounts. How do you see pricing in Q1 but beyond Q1 kind of playing out through the year, you know, as we start to get closer to that pre-buy? Preston Feight: Well, I think that is what is going to be telling us. Once price clarity from everybody in the market and the tariffs are affected into things, it is going to be there will be some costs that come along, and I think that is where price will start to become a favorable factor through the year. Michael Feniger: Alright. And when we think is there a rule of thumb we should think about your cost of goods sold? How much is raw materials? What we should be watching, what the lag is there. Brice J. Poplawski: Yeah. This is Bryce. The material in our product is the vast majority. It is 80, 85%. So labor and overhead are the remainder. So materials mean a lot in our pricing. Michael Feniger: Fair enough. And, look, you guys have an analyst day in a few weeks. I remember at the 2022 investor day, there was just a lot of focus from investors if PACCAR can drive higher margins cycle over cycle, and you clearly delivered in 2023 with strong profitability. Now as we are coming up this Investor Day in a few weeks, early innings of this, we are hoping a new truck cycle. Do you think we can see higher cycle over cycle profitability that continues? What are some of the factors we should be thinking about as we are assessing the profitability as we are moving to this next, you know, recovering truck cycle? Thanks, everyone. Preston Feight: Yeah. Thanks for the commentary, first of all, and then the question because the commentary is great. I think it is absolutely objectively true. Cycle over cycle performance that teams have delivered is really significant and outstanding. We will share more of that in the investor day. And then as we look to the future, we feel great about the opportunities in front of us. It is not just trucks, and it is not just parts, and it is not just financial services. But we think there are other new opportunities coming towards us in terms of how we support our customers with advanced transportation solutions, data, connectivity, and the interplay of all of those. So those are all positive for the business looking forward. So we feel great about not just this year, but the future. And look forward to seeing many of you in Denton. Operator: There are no other questions in the queue at this time. Are there any additional remarks from the company? Ken Hastings: We would like to thank everyone for joining the call, and we look forward to the upcoming Analyst Day on February 10. Please keep an eye on the PACCAR Investor Relations page for a link to the webcast. Thanks again. Operator: Ladies and gentlemen, this concludes PACCAR's earnings call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Northwest Bancshares Fourth Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Michael Perry, Managing Director, Corporate Development and Strategy and Investor Relations. Please go ahead. Michael Perry: Good morning, everyone, and thank you, operator. Welcome to Northwest Bancshares Fourth Quarter 2025 Earnings Call. Joining me today are Lou Torchio, President and CEO of Northwest Bancshares; Doug Schosser, our Chief Financial Officer; and T.K. Creal, our Chief Credit Officer. During this call, we will refer to information included in the supplemental fourth quarter and full year 2025 earnings presentation, which is available on our Investor Relations website. If you'd like to read our forward-looking and other related disclosures, you can find them on Slide 2. Thank you. And now I'll hand it over to Lou. Louis Torchio: Good morning, everyone. Thank you for joining us today to discuss our fourth quarter and 2025 full year results. I'll let Doug take you through the specifics of our strong fourth quarter performance. I would like to take a step back and reflect on a transformational year for Northwest and how our achievements position us for continued growth in 2026. On Slide 4, you can see some of the financial highlights of 2025. We closed on a significant acquisition, drove record revenue of $655 million for the full year and continue to expand the firm's net interest margin. Coupled with our demonstrated expense management discipline through the closing and integration of our sizable acquisition, we drove double-digit EPS growth, all while investing in the talent, technology and new financial centers and products to support our future growth prospects. One of the high points of the year was the acquisition and successful integration of Penns Woods, bringing us into the ranks of the top 100 banks in the U.S. by assets. As well as adding 20 financial centers to our existing Pennsylvania footprint, we welcome new team members and thousands of new customers to Northwest. I'm proud of the team for a successful execution of a seamless integration at scale while maintaining our distinct Northwest culture and driving a strong core performance across the bank. We continue to transform our consumer bank, moving from branch consolidation to expansion, opening our first new financial center since 2018 in the Indianapolis, Indiana MSA, featuring our new design focused on customer hospitality. We're building out our presence in our Columbus headquarters market with new financial centers now under development and due to open later this year in key locations across the city. We've already added several new team members with strong local and business community ties to focus on building momentum in advance of opening our doors. We remain focused on excellence as an outstanding full-service neighborhood bank providing a highly personalized service. I'm proud to share that we have just been recognized by Newsweek for the third consecutive year as one of America's best regional banks. We continue to strengthen and diversify our commercial banking business with C&I momentum of 26% year-over-year average loan growth. In 2025, we introduced a new franchise finance vertical, rounding out our nationwide business verticals, each with experienced and well-connected industry leaders, giving us a strong point of distinction in the specialty finance areas. We also materially grew our SBA lending activity in 2025, earning a spot among the top 50 originators in the U.S. And at the year-end, we closed on a significant funding for our Columbus-based business as we grow our SBA business both locally and nationally. Our bank is relying on outstanding talent for its success. Over the past 18 months, we've made significant investments in executive and regional leadership, hiring accomplished executives across consumer and commercial banking, wealth management, legal and finance from numerous other respected financial institutions. We have a highly experienced leadership team in place that's equipped to drive ongoing transformation and growth across our business. In 2025, we delivered on our commitment to our shareholders, returning more than half of our profits through a quarterly dividend of $0.20 per share. This is the 125th consecutive quarter in which the company has paid a cash dividend. Looking ahead, I'm confident in our trajectory. For 2026, we are providing full year guidance for another record year. Doug will provide all the details on our outlook. Finally, as we have previously discussed, we have also significantly reduced our level of classified assets. 2025 was a fast paced and productive year. We've laid the foundation for a year of organic growth in 2026 as we maintain our focus on optimizing our operations, expanding our financial center network and delivering growth across our consumer and commercial lines of business. With that, I'll turn it over to Doug to review fourth quarter results and provide more detail on our 2026 outlook. Douglas Schosser: Thank you, Lou, and good morning, everyone. As Lou indicated, we are pleased with our financial performance. We delivered a strong fourth quarter, and we successfully completed all remaining merger conversion activities on time and on budget. This is the product of all the efforts of our entire team working tirelessly to deliver these results while also ensuring that our merger and conversion activities went smoothly. I am grateful to the team for their efforts. Now let's continue on Page 5 of the earnings presentation, where I'll walk you through the highlights of Northwest financial results for the fourth quarter. As a reminder, we closed our merger on July 25. As such, this is our first full quarter of reporting as a combined entity. Given the overall size of this transaction, our fully completed conversion and opportunities as a combined organization, we don't intend to disaggregate results now or in the future. Our GAAP EPS for the quarter was $0.31 per share. And on an adjusted basis, our EPS was $0.33 per share, an improvement on the prior quarter of $0.29 per share and $0.04 per share, respectively, driven by record revenue, net interest margin improvement and expense management discipline. Net interest income grew $6.2 million or 4.6% quarter-over-quarter, with net interest margin improving to 3.69%, benefiting from higher average loan yields, increased average earning assets from the acquisition and purchase accounting accretion. Noninterest income increased by $5.5 million or 17% quarter-over-quarter, driven by an increase in bank-owned life insurance income due to higher death benefit recorded in the fourth quarter, supporting a total revenue increase of $11.8 million quarter-over-quarter or 7%. We also saw improvement in our pretax pre-provision net revenue in the fourth quarter of 2025, which increased to $66.4 million, a 92% increase from the third quarter 2025 on a GAAP basis and was $70.6 million, a 7% improvement from third quarter 2025 on an adjusted basis. And our adjusted efficiency ratio of 59.5% in the fourth quarter improved by 10 basis points quarter-over-quarter and 9 basis points year-over-year as we continue to exercise tight expense discipline. Turning to Page 6. I'll spend a moment covering our loan balances. Average loans grew $414 million quarter-over-quarter, benefiting from a full quarter impact from the acquired balance sheet and organic loan growth. More importantly, end-of-period loans grew by $66 million in the fourth quarter, ending the year at $13 billion, laying a strong foundation for 2026 continued growth. Our loan yield increased to 5.65% in the fourth quarter of 2025, growing by 2 basis points quarter-over-quarter, and our average commercial loans increased $162 million or 7.1% quarter-over-quarter and $509 million or 26% year-over-year. Moving to Page 7 and our deposit balances, which continue to be a source of strength and stability. Average total deposits grew by $475 million quarter-over-quarter, benefiting from the acquired balance sheet and organic growth. Our granular diversified deposit book has an average balance of $19,000 with customer deposits consisting of over 723,000 accounts with an average tenure of 12 years. Customer nonbrokered average deposits increased $507 million quarter-over-quarter, while brokered deposits decreased $32 million quarter-over-quarter. Our cost of deposits decreased 2 basis points to 1.53%, a product of our proactive management of the overall portfolio and benefit of late year rate cuts in 2025. 43% of our CD portfolio matures within the first quarter of 2026 at a weighted average rate of 3.60%. With new volumes at anticipated lower rates, this should drive an overall decline in CD costs. Although our overall interest rate sensitivity position remains fairly neutral, our balance sheet has become slightly more asset sensitive with the continued growth in floating rate commercial loans. Turning to net interest margin on Page 8. Net interest margin increased 4 basis points to 3.69% in the fourth quarter of 2025, with purchase accounting accretion net impact equating to 4 basis points. Turning to our securities portfolio on Page 9. We purchased $363 million of securities during the quarter, consistent with our existing portfolio risk metrics. This did not meaningfully change the portfolio's weighted average life, which remains at 4.9 years. Our new purchases were consistent with the current composition of the portfolio as we continue to strengthen an already strong source of liquidity. Our portfolio yield continues to increase as new security purchases come on at higher yields than the runoff portfolio, yields increased 29 basis points to 3.11% in the quarter. 29% of the portfolio is held to maturity to protect tangible common equity. Turning to Page 10. Our noninterest income increased $5.6 million quarter-over-quarter, driven by an increase in bank-owned life insurance income due to higher death benefit income in the quarter. Noninterest income decreased $2.3 million year-over-year, however, the prior year quarter included a gain on sale of Visa B shares and a gain on low-income housing tax credit investment that did not recur in 2025. Turning to Page 11. The overall expense, excluding merger and restructuring expenses, was higher quarter-over-quarter and year-over-year as the fourth quarter 2025 included a full quarter of the acquired Penns Woods operations. Compensation and benefits increased in the fourth quarter 2025 was driven by a full quarter of employees from the Penns Woods acquisition, combined with increased performance-based incentive compensation based on our strong financial performance in 2025. Additionally, adjusted efficiency ratio was 59.5% in the fourth quarter 2025, continuing the improvement in expense management over the last year. On Page 12, you'll see overall ACL coverage at 1.15% is down from the third quarter of 2025, driven by net charge-offs in the current period, which on an annualized basis were 40 basis points as was guided and are elevated as a result of one, $9.2 million charge-off of a student housing loan. This loan was originated more than 10 years ago, has been in workout for several years prior to it being fully resolved this quarter. As a reminder, we have no meaningful concentration in student housing in our portfolio today. Our 2025 net charge-offs of 25 basis points were at the bottom end of our full year guidance of 25 to 35 basis points. Turning to credit quality on Page 13. Our credit risk metrics are within internal expectations given the impact of the loans we acquired from the acquisition. Our total delinquency increased from 1.10% to 1.50% quarter-over-quarter, primarily as a result of mortgage loans in the 31-day month at quarter end. Our 90-day plus delinquencies declined from 0.64% to 0.51% quarter-over-quarter and NPAs decreased by $21 million quarter-over-quarter. Taking a deeper dive into the breakdown of our credit quality on Page 14, fourth quarter 2025 continued to see a decline in classified loans as a percentage of total loans and on an absolute basis, which was caused primarily by improvements within the CRE portfolio. As we discussed on earlier calls, we remain focused on reducing our classified loan balances. Turning to Page 15, we are providing our full year outlook for 2026. We expect to see loan growth in 2026 in the low to mid-single digits and deposit growth in the low single digits. We expect revenues to be in the range of $710 million to $730 million and net interest margin in the low 3.70s. We anticipate noninterest income in the range of $125 million to $130 million and noninterest expense to be in the $420 million to $430 million range. We anticipate net charge-offs of between 20 to 27 basis points, and we anticipate the tax rate to remain flat to 2025 rate at approximately 23%. As we continue to grow in 2026, we will manage the business and drive positive operating leverage. As a reminder, we said last quarter, we had not fully recognized all of the cost savings from the merger. We are on track and expected to achieve 100% of the cost savings in the first quarter of 2026, which is ahead of schedule. That is fully reflected in our outlook. Now I will turn the call over to the operator, who will open up the lines for a live Q&A session. Operator: [Operator Instructions] Your first question comes from Jeff Rulis with D.A. Davidson. Jeff Rulis: Just a follow on, Doug, I appreciate the commentary on the expenses and the cost saves. I guess looking at the full year guide, call it, the midpoint at $425 million for expenses, I guess that's $106 million a quarter, I guess, if you just average. But typical seasonality and then is Q1 maybe a little -- you start off a little heavier on that end. If you could just comment on any trend line with the expenses, that would be great. Douglas Schosser: Yes, happy to, Jeff, and thanks for the question. So a couple of things, right? So yes, you're right. Seasonally, you will typically see some increases in expenses in the first quarter for like FICA resets and some other things. But I still think our overall guide, you're right in the way you think about it, right? If I've got the low end of the guide at about $105 million a quarter, we also would see increases typically in the second quarter for merit increases. So I think you're right to say that the first quarter might be a little bit elevated, but I would expect overall it not to be at the same level as we were at in the fourth quarter. Jeff Rulis: Got you. And it seemed like is some of the performance-based in Q4 a little onetime? I know that you've got the full quarter of Penns Woods, but is there a little bit of nonrecurring kind of performance year-end stuff in that figure? Douglas Schosser: Yes. As you true up all your incentive plans and production plans and other things in the year-end, you've got a little bit of that lift in the fourth quarter as well. Correct. Jeff Rulis: Appreciate it. And one last one, just on the margin, similar kind of question. The low 30 to 3.70% range, one, does that include accretion, assuming it does? And then two, kind of the rate assumptions underlying that? Douglas Schosser: Yes. So it does include sort of normal contractual purchase accounting accretion. So there would be some slight variation to that when you've got early paydowns or payoffs. So it's one thing to note. The other thing is we do have included in our guidance 3 rate cuts internally. Now one of them was in January. We received a rate cut that we weren't expecting in December. So that effectively offsets it. So we would be thinking there's going to be 2 more rate cuts between here and the end of the year. However, we are pretty neutrally positioned, drifting slightly asset sensitive, as I said in my remarks, but generally neutral. So our NIM guidance really isn't contingent on those 2 rate cuts. We would stick to that if there were only one rate cut or no rate cuts. Operator: Your next question comes from Tim Switzer with KBW. Timothy Switzer: First one, a quick follow-up on the NIM and the purchase accounting. Can you clarify the overall net purchase accounting impact to NII this quarter? Because I think the slide deck referenced 4 basis points, but also $4 million. And my math on those don't quite add up to that. And then I guess, just to clarify, is that also a good run rate going forward? Douglas Schosser: Yes, I'm not sure on the math piece. But yes, the $4 million and the 4 basis points was effectively what we were kind of going back and recalculating all of that to. Again, I would say, generally speaking, we had pretty positive movements across the balance sheet, right? We did have a rate cut in there. So you had improvements in loan yields, small, but they were there in the margin. You had improvement or you had lower deposit costs and you also had improvements on the securities portfolio. And then you had that 4 basis points impact from purchase accounting. But again, all of those underlying metrics were driving up. Income-wise, of course, having a rate reduction in there sort of changes the income dynamic a little bit on the loan portfolio. Timothy Switzer: I get you. Okay. But is 4 basis points a good run rate for purchase accounting, obviously dependent on prepayments and things like that? Douglas Schosser: Yes, probably. I mean, we would have had -- as we went through the fourth quarter, of course, we closed our merger in July, right? So by the time we got through the end, the first 2 quarters are a little bit bumpy because you're still kind of catching up on everything. But the guidance would fully incorporate those contractual purchase accounting. So I think if you kind of go with the low 3.70s guidance that were provided, that would be inclusive both of normal performance as well as the impact of purchase accounting. Again, it does not assume materially different levels of prepayments. Timothy Switzer: Okay. Got it. And then I was looking for an update. You mentioned on the call, but on your SBA business, you mentioned about recently closing funding. Could you maybe provide a little bit more details there? And then what are your growth expectations for this business going forward? And how much of that volume will you be retaining on the balance sheet versus looking to sell? Douglas Schosser: Yes. I'll -- Lou will answer some of that, and I'll give you some of that. First of all, one of the things that we had the opportunity to do is balance sheet a bit more of that because we had some opportunistic fee income. As the BOLI proceeds come through and we have the opportunity to not have to take as many SBA gains, we certainly did that within the quarter because obviously, those are very nice yielding loans, and we like to have them on our balance sheet. And I think as we've talked about before, we do, do national originations in the SBA business. But for our in-footprint clients, we tend to want to keep them on the balance sheet. And the other thing that we'll tend to do is we'll manage a reasonable amount of growth in fee income from the SBA business as well as balance sheeting a reasonable portion of that business. I don't think we want to get into the cycle where we're booking all the gains in on that constant treadmill. So as we continue to build out the SBA vertical, we're going to do both. We're going to balance sheet, and we're going to sell for gains as we kind of migrate through the process. And then again, we are really excited about the build-out of that team and the fact that we've now reached the top 40 in SBA volume, top 40 originators by volume. Louis Torchio: Yes, Tim, this is Lou. Just a follow-up on Doug's comments and your question. We really like the flexibility that this provides for us for commercial loan growth, spread income on the balance sheet with the flexibility and the lever to generate fee income. We are just now in the early innings of scaling this business. We've invested a lot in people, a lot in the underwriting and due diligence and portfolio management around this. And our strategy really is to capitalize on quality business nationally, but also and maybe more importantly, to focus on driving customers and customer retention in the footprint in the 4 states we operate in. So we're going to layer this product, and we're looking at some other SBA products into our retail franchise. As we noted, we thought it was important to note in the call that the deal we did right here in Columbus. And so yes, we're really, really happy with the business. We'll be -- like we are with all these businesses, we'll scale them prudently. We're not in a hurry to get to the top 10. So yes, really pleased with this. And most importantly, I think I'd like to drive the message that we've built the infrastructure to do this in a prudent manner. Timothy Switzer: Yes. Got it. I mean the strategy makes a lot of sense to me. You touched on it, if I could have one quick follow-up. There's been some disruption in the SBA space with the rising credit losses over the last few years and then some of the SOP changes over the summer. Where are you finding the talent you're hiring from? And how are you going forward, making sure that you guys are as you mentioned, prudently running the business? Louis Torchio: Yes. No, great question because it's very important, right? So as you know, we've kind of remade the executive suite here over the last couple of years. And J.D. Marteau, who we formerly was GE, TD Bank and LendingClub. When he came to the firm, he had contacts that he was able to bring. So we know the management we're bringing in. We know the performance level, and we understand what their acumen is and they have a long history of success. I wouldn't certainly want to name firms, but I would tell you, like all businesses, we've gone to the best and the best of the industry and recruited from those franchise. So we're really comfortable and have experience with the team. Operator: Your next question comes from Daniel Tamayo with Raymond James. Timothy DeLacey: This is Tim DeLacey on for Danny. So I just wanted to switch over maybe to the balance sheet. You had mentioned in the release, you had targeted the securities portfolio increase in the quarter. Could you maybe share some details on maybe when the timing of when the securities were purchased during the quarter and then kind of describe maybe your appetite to grow the security book relative to the asset base going forward? Douglas Schosser: Yes. So we looked at the opportunity. So again, I think we were -- keep growing our securities book a little bit because we were slightly underweighted if you sort of compare us to sort of peer banks and other things. We did take advantage of that a little bit earlier in the quarter, but not all of it. So basically mid- to late October and then there was a bit more done in November, mid- to late November. And we'll continue to look at advantages for how do we sort of support that portfolio going forward. It's a very nice store of liquidity for us. And also, as we've got an outlook for declining rates, we'll also do things like try to prepurchase some of the securities that we see maturing within the quarter earlier in the quarter versus late to try to pick up a little bit of yield benefit there as well. So really, I would just say it's generally prudently managing the investment portfolio and growing it slightly just to keep it sort of in line with peers. I think we're targeting around 17% of loans or assets into that bucket. Timothy DeLacey: Okay. Great. And then maybe just one follow-up. CRE down this quarter. You guys obviously have the capacity to grow the portfolio going forward here. But in that low to mid-single-digit guidance for loan growth in 2026, how should we be thinking about CRE as a contributor to the loan growth this year? Douglas Schosser: Yes. So you're right. We do have some opportunities there given the percentage of capital that we have related to our CRE book. It takes a while to turn that flow around, but we're definitely in the CRE business, and we continue to look for opportunities to sort of support that particular in our market. So again, it's not one of the businesses that we're aggressively growing nationally. But in our footprint, when there's good developers and operators, and we have opportunities to sort of lend to those we would. Again, we also have some nonperforming assets that we -- or some criticized and classified assets that we talked about that are some real estate developers. So you're also seeing a little bit of that pressure on that overall line item. And again, we hope that, that continues to abate as we get through next year. So again, we're looking forward to turning that CRE business around to get it to more flat to slight growth, and that's an opportunity that we have coming up in the next year or 2. Operator: Your next question comes from Kyle Gierman with Hovde Group. Kyle Gierman: I'm on for Dave Bishop. Yes. So loan growth was strong this quarter. I was wondering if you could provide some color on what segments and geographic areas are leading the way and how the pipeline is looking into the new year? Douglas Schosser: Yes. So the pipeline is looking very good. So we've had a nice improvement in the portfolio actually throughout last year, and it continues into the first quarter. And I think I would say it's a broad-based level of growth. So we continue to see kind of growth in our national verticals. Where we're going to focus a little bit more is sort of in our 4-state footprint and in some of our businesses that we think we can continue to attract talent and develop some growth opportunities in market. But again, I would say it's generally broad-based. There are some other things that might translate into some good business opportunities into '26, like some of the tax changes that went through last term, including the expensing of equipment is good for our equipment finance business, the full expensing that you get on the tax benefit. So again, everywhere that there's some opportunities, and we like the credit profile and we like the returns that we're getting on those loans, we've got people who are out there and ready to do the business. Kyle Gierman: Awesome. And maybe a follow-up on that. Could you touch on the payoff and prepayment trends you are seeing in the quarter? Douglas Schosser: Yes. I mean, again, we've been focusing on the criticized classified assets and continue to manage that down. So our -- that was a pretty significant source of our paydowns. And then again, with interest rates falling, there's going to be other clients that are going to look to refinance existing loans. Obviously, we try to participate in those credits as well, but there's always a bit of a give and take in a rate environment that's changing. So I would just say there was nothing in particular that we'd point out on the paydown side, just sort of normal business flows. I will say that -- coming off of the year that we had focusing on the merger, now we're kind of back to business and running the bank more completely without having that distraction. So that will also be helpful. Operator: Your next question comes from Matthew Breese with Stephens Inc. Matthew Breese: Just a few for me. The first thing, quick, what was the exact amount of the BOLI death benefit? I was assuming about $6.5 million. Douglas Schosser: Yes. I think that is a pretty good assumption because it was about $6.5 million. Matthew Breese: Okay. And then, Doug, you had talked a little bit about CD costs and upcoming maturities. I think you said 43% maturing in the first quarter. As you're seeing the CD book kind of reprice mature, what is the blended new cost of CDs, including some of the higher cost promotional stuff? I'm just trying to get a sense for where CD costs could go near term. Douglas Schosser: Yes. I think we're seeing probably about a 10 basis point opportunity. Again, it's all going to be based on competitive pressures at the time. But you're seeing that kind of an opportunity that evolves. We also have got -- so we're not -- we've got other savings products as well, and we're attracting new money at times when we have some of those promotional rates, all of which is helpful. But I would say if you're kind of thinking about that 10 to 15 basis point opportunity on kind of the reprice with the markets coming down, that's probably fair. Matthew Breese: Got it. And then the rest of the book, obviously, you have a lot of lower cost categories. Just given the environment, we're hearing a lot more about competitive conditions. The core deposit book, how much more room is there to lower costs? Douglas Schosser: Yes. I mean, again, you're right. I think we're seeing that as well, and we're very focused on sort of managing kind of both the overall size of the deposit book to support growth as well as the overall cost of the book. And obviously, no one knows kind of where the rate counts -- rate hikes and cycles are going to go. But I would tell you that I think what we're seeing is you're just seeing a little bit of a longer period of time between change in rates at the Fed and then sort of the reaction sort of the banks in general. So I think we're kind of following that trend. So I don't -- I'm not concerned that there's not an opportunity there, but that opportunity might just lag rate reductions by a little bit longer than it had in the past. So call it, 30, 45 days before you're going to see sort of those rate reductions. Matthew Breese: Got it. Okay. And then just last one is on M&A. Following the last deal, curious your appetite to participate in whole bank M&A and whether or not there's active or ongoing or an increase in conversations? Louis Torchio: Yes. This is Lou. I'll take that. I think we've signaled in the past, and it remains true that we stay focused now on the successful accretion and driving organic growth in '26 as a result of our acquisition. Certainly, we're open to conversations, nothing imminent for us. We're really focused on making sure we execute the '26 plan and that we get the results that are correlated with the acquisition. We think it's going to be very additive. We like our jump-off point. And we want to string together several quarters of strong results before we would entertain anything like that. Again, notwithstanding given the regulatory environment and maybe some opportunistic deals as we get further along in this year and look into '27. We'll keep our options open. However, our goal is to find something that fits culturally that drives earnings and value for our shareholders and that fits into our geographic footprint. So we're not interested really in going out of market at this point. Operator: [Operator Instructions] Your next question comes from Manuel Navas with Piper Sandler. Manuel Navas: Can we swing back to the NIM for a moment? Could you just talk about -- the guide is pretty strong. I'm just wondering what are the drivers and progression of the NIM across the year. I hear you on the CD book repricing being a little bit more neutral. Securities yields are benefiting and loan yields are benefiting. Just kind of where does that kind of [ set ] the path across the year? Douglas Schosser: Yes. I mean we're not giving into kind of all that guide, but I think it's safe to assume that we would have a slightly improving margin as you get some of the benefit of those rate cuts, which I think most people are projecting those to be later in the year, right? So that 3.70% mid or low 3.70s is pretty consistent with where we were at 3.69% for the quarter. And I think we're working to hold on to that. The trade-off, obviously, is we also want to have asset growth. So to the extent that there's competition out there, we're not going to price ourselves out of that competition, but we're not anticipating a significant downward pressure either. So I think we're going to work to maintain that low 3.70s margin. And again, to the extent that it's going to have any sort of slope to it, it's going to be a little bit later in the year because you would expect to have some slightly lower funding costs that would benefit us. Manuel Navas: I appreciate that. Another progression question. The net charge-off range is pretty solid. Kind of what are some assumptions on that progression? Or can you not get into that a bit? Douglas Schosser: I mean, yes, I think that we have -- so obviously, in the fourth quarter, and we talked about the guide last quarter, right, that $13 million, that was largely focused on -- we had one significant credit that we knew we were working out, and we thought that there was going to be some loss content there. So now I think we're back into a much more normalized flow. So again, there may be a small peak or valley in one quarter given a credit or 2 that happens, and we're at a relatively overall low level. So you can get little spikes. But we're not anticipating it to be anything super material. So hopefully, we'll have that be a pretty steady charge-off rate throughout the year. And that guide is guides for this year, also harken back. We've kind of set our long-term guide is always that 25% to 35%. So we're still anticipating being at the lower end of that kind of overall guide. Manuel Navas: That's great commentary. Switching back to loan growth for a moment. Can you talk about the mix? You spoke a little bit to CRE having some headwinds, but some building potential there. But can you just talk about the different segments and where you see the most growth? I'm guessing C&I has the biggest drivers, but just kind of speak across the loan book for this year with that low single-digit to mid-single-digit guide. Douglas Schosser: Yes. You'll probably get a little bit of feedback both from Lou and I on this topic, right? I think we see some opportunities kind of across the book. So whether it be in indirect or even to the extent that we can start to think about the mortgage portfolio, how we slow some of that runoff, when we look at certainly what's going on in CRE and then when we see our national vertical. So we like the way we're positioned to do business across all of them, and we'll be looking to kind of just support that overall asset growth that we're targeting that low to mid-single-digit level. So again, I don't know that we would say it's going to continue to be solely focused just on commercial, but certainly, we continue to have opportunity to grow commercial. And again, we've kind of talked about our overall mix. We're not targeting any specific thing. I think we're about 45% commercial, 55% consumer. We like that. We like it anywhere kind of in that 50%, 5% plus or minus on either side. So I think we like the shape of -- we like the way things are shaping up and having an inverted yield curve also is nice. So we have the opportunity to kind of blend out a little bit on the longer end of that curve and pick up some yield that way as well. But Lou? Louis Torchio: I would concur with Doug, right? So we're getting to the point of equilibrium where we're getting a lot of balance in the book. If you remember a couple of years ago, we were heavy consumer with a large focus in mortgage and long on the curve. As we continue to work that down, remix the sheet, we're nearing a 50-50. And we kind of like that both from an interest rate risk and a credit risk standpoint. We are very diversified for a firm our size in that I think that helps with the risk profile. We're not particularly overweighted in any one business. We have a lot of different levers. We think that this year, consumer, both mortgage, home equity, our indirect will be strong. And so driving -- I think we're driving growth in our budget across all those sectors. We really like the position we're in. We like the flexibility that we have. And I think it's -- we're unique in that we do have these commercial national verticals. As Doug pointed out, we have a renewed emphasis on in market, business banking, lower middle market. We have what's recognized in the 4 states as a very, very strong consumer franchise. So -- we like the diversification, and we like the ability to be able to pivot, and we are focused on growth in '26 organically on the heels of a pretty significant acquisition that would also drive top line revenue. Operator: There are no further questions at this time. I'll now turn the call back over to Lou Torchio, President and Chief Executive Officer, for closing remarks. Louis Torchio: Thank you. On behalf of the entire leadership team and the Board of Directors, thank you for joining our call this morning. I'm excited at our prospects in 2026 as we build out our consumer franchise in Columbus, Ohio, deepen relationships in our existing core markets and continue to build market share in our commercial lines of business. I look forward to speaking to you on our first quarter call in the spring. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Central Bancompany Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, John Ross, President and CEO. Please go ahead. John Ross: Good morning, and thank you for joining our inaugural earnings call. With me in the room today is our Chief Financial Officer, Jim Ciroli; Chief Customer Officer, Dan Westhues; and Chief Credit Officer, Eric Hallgren. Before we begin, I'd like to point out that today's discussion is subject to the same forward-looking considerations outlined on Page 4 of our press release. While the format of our calls may vary over time, today, we plan to be very brief in our discussion of fourth quarter highlights before opening the line for Q&A. Before doing that, however, please allow me to thank our team for their tireless contributions. In 2025, they delivered for their communities with over 28,000 hours of community service. They also delivered for their customers with our Net Promoter Score improving 2 points to 73 on a consolidated basis across our business lines. And finally, to our shareholders, with significant progress made in our technology modernization program and our financial results, which I will turn to now. For the fourth quarter, Central Bank posted net income of $107.6 million or $0.47 per fully diluted share. Return on average assets of 2.17%, net interest margin on an FTE basis of 4.41% and an efficiency ratio on an FTE basis of 47%. Our asset quality remained in line with 10 basis points of net charge-offs and our allowance covered 131 basis points of total loans. While too early to call it a trend, we are also encouraged by the resumption of balance sheet growth with ending loans up 1% quarter-over-quarter and nonpublic deposits up 1.7% quarter-over-quarter. Lastly, capital levels at the holding company remained well above target with approximately $1.8 billion of excess or $7.50 a share. We look forward to the challenge of repeating our historical earnings growth in 2026, including the critical objective of prudently deploying our ample excess capital. With that, I'd like to open the line for questions. Operator? Operator: [Operator Instructions] And our first question comes from Manan Gosalia with Morgan Stanley. Manan Gosalia: First off, congratulations on your inaugural earnings release as a public company. And JR, maybe to start with, M&A has always been in the DNA of Central, and you guys have been pretty clear that M&A is a core part of your strategy here as you look to deploy some of this excess capital. I guess my question is, can you give us an update on the opportunity set that you're seeing as it relates to M&A right now? John Ross: Yes. I'll try to answer your question in a second. But for the broader group, let me just kind of level set for a few things that I know that you know. But over the last 50 years, we've done 47 acquisitions. So we do consider this a competency of the company. We have laid out in the context of our IPO very clearly what we're hoping to do, and we're looking to both grow in our existing markets, but also potentially expand into Texas as well. We're hoping to do that with deals of size, which we've roughly equated to $2 billion in assets. And we're looking for high-quality targets, both in terms of their deposit franchise and their credit franchise with cultures compatible to ours. And we outlined a list of about 30 names on that list that we think meet our criteria, and we are in a process and have been for a few years now of making introductions and having good conversations with at least half of the folks on that list. We do -- we are broadly encouraged by the environment. There is a lot of activity and conversations going on, which does on the margin help Boards think about their opportunity set more than they do, generally speaking. And we do have a currency now, which makes those conversations a lot more interesting to those who are more inclined to participate in the upside of the company that we've enjoyed for so long. Having said that, we're not going to go into this call or any other call in a lot of detail other than to tell you, we continue to diligently prosecute against that opportunity set, and we will likely have no specific update or detail for you until we're actually announcing a deal, which we look forward to do and hopefully in the not-too-distant future. But as we've said before, we're much more focused on doing the right deal than doing a timely deal. So no real estimate or guidance on when that might be. James Ciroli: Yes. And we're just going to -- we're going to be that way, Manan. And I think you guys can appreciate, we just don't want to leave any breadcrumbs or any signals when something might be or might not be happening. So we prefer to just continue to talk about what our target set is, but not really make any other comments. Manan Gosalia: Fair enough. And maybe as it relates to fourth quarter earnings, you spoke about the resumption of balance sheet growth. And I think in the slide deck, you noted less payoff activity as a tailwind to loan growth in the fourth quarter. How should we think about the pace of balance sheet growth from here? And where do you see the most opportunity? James Ciroli: So we're also not going to provide forward-looking guidance. What I will say is when you look at the detail of where our loan growth came from, it was pretty broad-based. And one of the things I'll point out to you that wasn't growing was our installment loan portfolio. And if you take out installment loans, and you look at loan growth, when you annualize those numbers for just the third quarter, you see a number that's kind of mid -- maybe even a bit over mid-single digits growth. But we -- look, we serve our markets and our customers are really going to dictate where that is. The one thing I would point out that is when we're in a risk-on environment, I think we're going to probably grow a little bit slower than average when we're in a risk-off environment because we don't really change our credit underwriting standards through the cycle. We've tried to be as consistent as possible. In a risk-off environment, we'll see more opportunities come to us, and we like that. We like sticking to our knitting and doing our things. So we're happy to see the loan growth. We think it's going to continue, but we're not going to provide any guidance as to how much and where it comes from is as much up to our customers as it is up to us. Manan Gosalia: Got it. Very helpful. I guess just without providing forward guidance, if you can just talk about the environment in the fourth quarter? And was that any different from the environment that you saw in the second and third quarter of 2025? James Ciroli: I would not say. So what we saw was there was just an abatement of some of the higher refi activity. We were pretty clear when we did the IPO roadshow that we thought that origination volume kind of year-to-date in 2025 was pretty robust and pretty strong, but it was muted by a higher level of payoffs that we saw earlier in the year. We think the payoff -- we think the pipelines continue to be strong and the payoffs have muted, and that's what's translated, especially when you look at the commercial numbers, that's what's translated into like the commercial and C&D growth that you're seeing at the period end balance sheet. Eric, is there anything that I'm leaving out there? Eric Hallgren: No, I don't think so. I appreciate the question, Manan. Operator: Our next question comes from Nathan Race with Piper Sandler. Nathan Race: Congrats on a nice quarter out of the gates here. Curious if you can just provide some color just in terms of how you're seeing spreads hold up on new loan production in the quarter and just maybe what kind of the weighted average rate on new loan production was in the quarter relative to the 630 portfolio yield, give or take? James Ciroli: Yes. So there's a lot there. So keep track of how much I answer here. So we're not seeing spread compression. We keep in mind that in general -- I'll make two comments about our portfolio. In general, it's more granular. So i.e., look the median ticket size is probably lower than comparable $20 billion oversized banks. And we probably over-index on the fixed side. But we continue to see if you're comparing with the treasury curve, we're seeing spreads of around 300 basis points, and we've seen that for a long, long time. And we don't, especially in our markets, expect that really to change much. So whether that's variable or whether that's the fixed rate product typically with a kind of a 2- to 5-year tenor, we're seeing about 300-ish bps in spread over comparable treasuries. Nathan Race: Okay. Great. That's helpful. And then just maybe turning to the right side of the balance sheet. Your deposit growth in the quarter was quite strong. Curious if you can just remind us how much of that may be somewhat seasonal in nature versus just kind of blocking and tackling and taking market share or just growing balances across the existing client base? James Ciroli: Very good, Nate. I appreciate you remembering the seasonality. We've got a very large public funds-oriented deposit gathering business. It's about 17% of our deposit portfolio. And in the state of Missouri, property taxes are collected at the end of the year. So really, I'd say, focused in the December time frame, and I'm learning this myself being somewhat new to the company, deposit balances grow. So if we try to normalize for that, we'd say nonpublic deposits grew about 1.7% in the quarter. When you look at a year-over-year basis, we also saw some pretty nice growth. We saw about 6% growth on a comparison to prior year-end. That does include some of the seasonality, but it also shows you that even with that seasonality, we're growing deposits in the kind of mid- to upper single digits. I want to go back one comment, I forgot to give you on loan yields. When you look at the loan yield, it came down like a bp. So amazingly stable in light of the 75 basis points of rate cuts that we had at the end of the year there. And that kind of underscores what we continue to say in terms of our sensitivity to the front end of the curve is relatively neutral. Nathan Race: Okay. That's very helpful. Jim, if I could just sneak one more in for you. Just any update in terms of how you've contemplated or redeployed some of the capital or liquidity raised in the IPO? James Ciroli: It's early days, right? So we just raised that less than a quarter ago. I will still say our primary focus is looking at M&A opportunities. We think that's probably our greatest opportunity to add shareholder wealth. JR mentioned $7.5 a share represents excess capital, and we think we can deploy that in M&A transactions and earn something significantly above that $7.5. But look, everything remains on the table that in terms of deploying that capital, and our Board is very aware of its obligation as being good stewards of capital as to how best to deploy that. So we would look at every tool on the table from dividends and buybacks. When the time comes and when it's appropriate, we'll continue to evaluate what the best way to deploy that capital is. Nathan Race: I apologize, Jim. I was actually asking in terms of how you're managing the liquidity that you raised in terms of just keeping in cash or maybe investing in some short-term treasuries. James Ciroli: I'm sorry, I'm mishovered. That's my bad, Nate. Yes. So we look at some of the seasonality in the deposits. And we would expect that the seasonality we see picking up in December kind of runs out kind of -- it stays on the balance sheet through the second, maybe a little bit into the third quarter. And we'll keep the appropriate powder dry from a cash perspective and look to invest the rest. Now down to a certain level. Given the shape of the curve right now that -- and with that cash current earning, whatever the Fed is willing to pay us, there's not a real imperative to putting that out to use a little bit longer. But in terms of where the curve goes, if the forward curve is to be believed, and that's what we look at, we're not expecting to see a rate cut in the overnight rate until the second half of the year. So we're going to deploy that excess cash patiently in a disciplined way, the way we always have into safe risk -- relatively risk-free opportunities. Nathan Race: Got it. That's, again, very helpful. I appreciate all the color, guys. Congrats on all the accomplishments over the last 90 days or so. Operator: Our next question comes from Terry McEvoy with Stephens. Terence McEvoy: Maybe first question, could you just provide an update on the wealth and treasury management initiatives? And I'm not sure you'll answer this question, but when you think about growth in those two business lines in '26, do you see similar growth within the brokerage and fiduciary services and payment services has been a little flat. When would you expect some of those initiatives to translate into organic growth? James Ciroli: Great question, Terry. I appreciate that. From a wealth perspective, I would point out to you that at the end of the quarter, our assets under advice grew to $16 billion, which was a nice pickup. That was the product of both investment performance, and I'd say investment outperformance because our guys are beating their relative benchmarks as well as we saw strong net new money coming into AUM all throughout the year, especially in the fourth quarter. And I continue to say our wealth business can compete with anyone out there. And I truly mean anyone. And so some of the other providers that are simply doing something that's simpler, but maybe even charging more, I think we win against every day. So wealth continues to be a great opportunity for us. From a treasury management side, I'm going to point out there's a couple of things that you're probably looking at. So from a payments perspective as well as a service charge perspective, we generally see a little bit of falloff going from Q3 to Q4, so there's some seasonality in those numbers. Not as much on the commercial side from a service charge perspective, but certainly, payments volume falls off in the fourth quarter. We continue to make investments in that business that we think are going to lead to us continuing the growth rate you've historically seen in our company. Terence McEvoy: And maybe just a follow-up, stepping out of the model. Could you discuss branch expansion plans in 2026? James Ciroli: We think there's tremendous opportunities, and we've got a number of things in the pipeline. I'm going to give Dan Westhues, a chance to speak because he's eager to and talk about where we're looking at putting those branches. Daniel Westhues: For 2026, we have two major locations where we know we are having branches come online at St. Louis and Colorado or Denver, Colorado. The first branch comes online here in the next couple of months in St. Louis with at least two more for sure in 2026 in St. Louis, and then we are negotiating some other spaces still looking. So branch expansion in St. Louis, we are finally trying to kind of rightsize that -- our footprint up there. We have one coming on in Colorado, and that should be on by the second quarter of this year as well. So two for sure, two more coming after that and the negotiations for the rest. Terence McEvoy: Congrats on your first company as a public company -- first quarter. Operator: [Operator Instructions] Our next question comes from Chris McGratty with KBW. Christopher McGratty: Jim, maybe a question on Slide 5, if you could. The lower right part of Slide 5 gives you kind of the net interest income outlook with a static balance sheet and also kind of alternative rate scenarios. I'm interested in how we should interpret this given the conversation this morning. Obviously, loan growth little bit better, forward curve maybe having a cut or two. The base case would seem kind of where you'd want us to kind of land, but any kind of inside baseball on the nuances would be great. James Ciroli: Yes. I don't know that there's much in the way of nuances there. We show the steepener curve because, look, rates never -- we show the parallel moves, right, but rates never move in parallel. When we look at the forward curve, we think we're looking at more of a steepener scenario with two rate cuts. This is -- wasn't the modeling, two rate cuts later in this year, and that's just not in the steepener model. It's more of an instantaneous shock. But we see the forward curve having two rate cuts later this year. So we are looking at the steepener where we dropped the front end of the curve. And from about the 2-year point on out, we gradually increased that so that we've got a full 50 basis points baked in on the longer part of that curve, but 45 of that 50 is already baked in by the 5-year mark in the steepener scenario. So as we look at that, what we wanted to show is really that we're not really -- we don't think there's much impact to us. We go from a -- we go from 6% up in net interest income next year with that steepener scenario to a 3% up, which is very similar to what we were showing at the time of the IPO. And again, we don't have much sensitivity to the front end of the curve. Our exposure is really more in the intermediate part of the curve. And to the extent that rates are up, they're up this morning, they continue to rise a little bit in that part of the curve, we're going to see a net interest income benefit. Christopher McGratty: Okay. It feels like the base case is a fair place to start and then you make my assumptions on the balance sheet growth. James Ciroli: Balance sheet too, it doesn't include growth. Christopher McGratty: That's right. Yes. And on, I guess, credit, anything on the margin incrementally that you're hearing from customers, you're keeping your eye on? I mean you guys are a good barometer of credit. So I'm interested in your thoughts if anything has changed in the last 90 days. James Ciroli: Yes. I think those are fairly pristine numbers, Chris, especially with our net charge-off rate coming down. But I'll turn to Eric and see if there's any additional color he can add. Eric Hallgren: Yes. Thanks, Jim. So we haven't really seen anything specific that I would say points to weakness or pockets of weakness in the portfolio. On the watch list side, we've seen some evolution or composition shift from criticized into classified categories. But again, as we think about loss content, we don't see anything significant or moving in the portfolio. We are traditionally patient with our relationships and our loan relationships, but we're not holding or harvesting, delaying any potential resolutions. Markets are really diligent and focused on managing outcomes to the best possible extent for both the bank as well as the client. I think that's all I've got, Jim, did I miss anything that you want to add? James Ciroli: No. Christopher McGratty: Okay. And then what have you -- Jim, why the tax rate this quarter fair for going forward? James Ciroli: So you said the tax rate? Christopher McGratty: Yes. James Ciroli: So we did call out that there was about 40 bps of unusual items in the effective tax rate. So of that, I'd guess that 30 of that 40 is out of period and 10 of that is native to the period. That should be helpful to you. Operator: I'm showing no further questions at this time. I would now like to turn it back to John Ross for closing remarks. John Ross: Thank you, operator. Just over 20 minutes that might be a record short earnings call, and I'm going to attribute that to solid numbers and a really good job that Jim did on his first call for us, having been here less than a year. So well done, Jim. I'd also like to thank the participants on the call for their time and interest and our investors more broadly for their support. We look forward to any opportunity to serve you better as we mature as a public company. Thank you again. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Bank Earnings Conference Call Fourth Quarter. [Operator Instructions] It is now my pleasure to turn the call over to Patrick Ryan, President and CEO. You may begin. Patrick Ryan: Thank you. I'd like to welcome everyone today to First Bank's Fourth Quarter 2025 Earnings Call. I'm joined by Andrew Hibshman, our CFO, Darleen Gillespie, our Chief Retail Banking Officer; and Peter Cahill, our Chief Lending Officer. Before we begin, however, Andrew will read the safe harbor statement. Andrew Hibshman: The following discussion may contain forward-looking statements concerning the financial condition, results of operations and business of First Bank. We caution that such statements are subject to a number of uncertainties and actual results could differ materially, and therefore, you should not place undue reliance on any forward-looking statements we make. We may not update any forward-looking statements we make today for future events or developments. Information about risks and uncertainties are described under Item 1A Risk Factors in our annual report on Form 10-K for the year ended December 31, 2024, filed with the FDIC. Pat, back to you. Patrick Ryan: Thank you, Andrew. 2025 overall in Q4, in particular, did not play out exactly as we expected, but the overall results were solid, nonetheless. For us, the margin drives overall profitability. And in that respect, 2025 was a very good year. Our net interest margin of 3.7% in the fourth quarter was 20 basis higher than in the fourth quarter of last year. For the full year, our NIM was 3.69% compared to 3.57% for the full year 2024. The strong margin expansion helped drive overall profitability higher as our fourth quarter return on average assets was 1.21% compared to 1.10% in the fourth quarter of 2024. Similarly, the return on tangible common equity also improved during the year, reaching 12.58% in the fourth quarter of 2025 compared to 11.82% in the fourth quarter of 2024. Despite these strong overall results, we were not happy with the performance of our small business loan products. Given the higher yield on those loans, we did expect credit cost to be higher than our other loan products, but the overall level of delinquency and charge-offs exceeded what we believe to be accessible levels. During the course of the year, we made several changes to credit parameters and how we discuss and sell the product. We expect these changes will lead to overall better performance in 2026 and beyond, and we will continue to monitor closely to make sure the changes are having the impact we believe they should. We did see some modest improvement in noninterest income during the year as our total fee income increased by almost $2 million compared to the prior year. Gains from SBA loan sales were higher in 2025. Further enhancements to technology and staff towards the end of the year in 2025 should help drive continued improvement for the SBA team in the coming year. Fee income from residential mortgage sales remained muted given continued slowness in that market. Overall, noninterest expense was managed effectively as the onetime benefit from the sale of an OREO asset helped to offset some severance and other nonrecurring expenses during the year. Our noninterest expense to average asset ratio was 1.97% for the full year 2025 compared to 2.01% for the full year 2024. Our goal will be to continue to move that ratio lower as we believe improved profitability from our newer business units and improved operating leverage will allow us to drive even stronger efficiency. Regarding credit quality, the story is mixed. The challenges in small business have been documented, but we expect to see those costs stabilize over the next few quarters given the changes we've implemented. Performance in our core CRE and Community Banking division continues to be strong. In fact, credit statistics in those areas actually improved throughout the year as the overall risk rating on the CRE portfolio improved modestly and delinquency at the end of the year stood at a very low 0.02%. As a result of these positive developments in our largest portfolios, all loans rated past watch, special mention and substandard declined from 4.86% of total loans at the end of '24 to 4.20% of total loans at the end of '25. Despite these positive developments across the board, we did see an increase in the substandard loan category because of the downgrade of 1 specific $23 million C&I loan that was moved to substandard towards the end of the year. While that overall business has a number of locations that are performing well, the decline in sales and profitability makes that a situation we will be monitoring closely. As we look ahead to 2026, we see reasons for optimism. Our pipelines remain active, and we believe we'll be able to achieve our $200 million net loan growth goal for 2026. We expect growth in asset-based lending, community banking and a return to modest growth in commercial real estate to help drive that growth in 2026. Deposit growth continues to be an area of focus. We have great teams in New Jersey and Pennsylvania working across various customer segments to help us add new relationship-based customers and drive growth. Furthermore, we expect continued expense management and operating leverage can help drive improved earnings. In summary, our primary goals for 2026 include closing the gap with our cost of funds relative to our peers, moving modestly higher with noninterest income generation and driving further reductions in our noninterest expense to average asset ratio. At this time, I'd like to turn it over to Andrew to discuss the financial details of Q4 and full year. Go ahead, Andrew. Andrew Hibshman: Thanks, Pat. For the 3 months ended December 31, 2025, we recorded net income of $12.3 million or $0.49 per diluted share, which translates to a 1.21% return on average assets. We saw another solid quarter of loan production. However, elevated payoffs more than offset the increase. Payoffs were $135 million for the fourth quarter, which was nearly as much as the total for the first 3 quarters of the year combined. As a result, total loans declined about $81 million from the end of the third quarter. We are happy to report that despite the elevated payoffs, loans were up $149 million or approximately 5% over the last 12 months. with C&I leading the way. On the deposit side, we took advantage of the decreased funding requirements related to the decline in loans and allowed certain higher cost balances to roll off during the fourth quarter. Total deposit balances were down $21 million during the quarter as we continued to prioritize profitable relationships. While total deposits were down, primarily driven by a $27.1 million decline in brokered deposits, we did see nice new customer acquisitions, especially at some of our newer branch locations. Net interest income increased $633,000 compared to the third quarter, primarily due to net interest margin expansion. Our net interest margin grew 3 basis points to 3.74% in the fourth quarter. It benefited from the decrease in interest-bearing deposit costs, which outpaced the decline in earning asset yields. It also reflects lower costs related to the subordinated debt refinance we executed over the summer. Recall that we had a double carry of sub debt for 2 months in the third quarter that resulted in about $486,000 in additional interest for that quarter. Last quarter, we said that we expected the immediate impact of Fed rate cuts to be slightly negative to the net interest margin as it takes longer to move deposit costs lower compared to the immediate impact of rates moving lower on our variable rate assets. The decline in loans in the fourth quarter shifted the balance sheet and our funding needs, ultimately driving an improvement instead. Looking ahead, we continue to manage a well-balanced asset and liability position which should result in continued strong net interest income generation. We continue to expect declines in our acquisition accounting accretion over the next several quarters. However, we expect our margin to remain relatively stable as we continue efforts to push deposit costs lower and replace the runoff of lower-yielding assets with higher-yielding loans. Our asset quality metrics at December 31, 2025, reflect some continued deterioration in the bank's small business portfolio. NPAs to total assets increased to 46 basis points compared to 36 basis points at September 30. The increase reflects growth in nonperforming loans of $4.8 million. Note that the OREO asset we sold during the quarter had a carrying value of 0, so there is no reduction in NPAs related to that sale. Our allowance for credit losses to total loans increased to 1.38% at December 31 from 1.25% at September 30. This increase primarily relates to fourth quarter charge-offs and an elevated level of specific reserves in our small business portfolio. Despite the $23 million C&I loan that moved to substandard that Pat mentioned, overall criticized loans increased only $9.4 million from September 30, 2025, as we experienced a number of payoffs and paydowns of classified loans during the quarter and had a few upgrades related to businesses with improving financial results. We recorded $1.7 million in net charge-offs during the fourth quarter, in line with net charge-offs of $1.7 million during the linked quarter with net recoveries of $155,000 in the fourth quarter of 2024. Charge-offs during 2025 were almost exclusively in our small business portfolio. Noninterest income totaled $2.3 million in the fourth quarter of 2025 compared to $2.4 million in the third quarter. The decrease of $138,000 mainly reflected lower gains on recovery of acquired loans, but this was partially offset by higher loan swap fees and gains on sale loans during the fourth quarter of 2025. Noninterest expenses were $17.1 million for the fourth quarter compared to $19.7 million in Q3. The decline was primarily driven by a $1.9 million gain on the sale of an OREO asset. This Florida-based property was acquired through the Grand Bank acquisition in 2019 and was held at no carrying value. The gain was booked as a contra expense. Outside of this nonrecurring item, salaries and benefits expense decreased by $400,000 compared to the third quarter due to lower bonus expenses, as the increased credit costs in Q4 drove a decline in our year-end bonus accruals. Other smaller declines across other expense lines compared to the linked quarter reflect our focus on expense management in 2025. We've been successful in managing expenses even as we've incurred some ongoing costs related to our efforts to optimize our branch network. We expect branch network optimization activity to slow in 2026. Tax expenses totaled $4.3 million for the fourth quarter with an effective tax rate of 25.7%. This compares to 23.4% for Q3. For the full year 2025, our effective tax rate was 23.8%. Our fourth quarter tax rate included some year-end adjustments primarily related to state tax allocations. We anticipate our future effective rate will be approximately 24% to 25%. Our efficiency ratio improved to 49.46% and remained below 60% for the 26th consecutive quarter. We also continued to expand tangible book value per share, which grew more than 12% annualized during the quarter to $15.81. We're pleased with our earnings momentum and our progress in executing our strategy to evolve into a middle-market commercial bank. We've demonstrated we don't need big balance sheet growth to produce growth and profitability. Our capital ratios remain strong, and we're pleased to provide our shareholders with a 50% increase in our quarterly cash dividend. For the first half of the quarter of the fourth quarter, we did not have a regulatory approved share repurchase plan. And with our improved stock price during the quarter, we did not execute any share repurchases during Q4. Going forward, we aim to continue driving shareholder value through a combination of core earnings, while still making ongoing investment in our franchise and technology, a stable cash dividend and share buybacks as applicable over time. At this time, I'll turn it over to Darleen Gillespie, our Chief Retail Banking Officer for her remarks. Darleen? Darleen Gillespie: Thanks, Andrew, and good morning, everyone. As mentioned, we were able to drive favorable shifts in our deposit portfolio during fourth quarter of 2025. The decline in total deposits were largely attributed to our decision to reduce higher-cost brokered deposits in light of a lower loan funding needs. You can see in our ending balances that we reduced time deposits by $38 million or 18% annualized during the quarter. We also let other higher costs and nonrelationship deposits run off, which you can see in our ending balances for money market and savings, which declined by $23.5 million or an annualized 8% during fourth quarter of 2025. Despite the attrition, we are pleased with these outcomes, the benefit from the decrease in interest-bearing deposit costs had a positive impact on our net interest margin. And even so -- even more so with our success in growing relationship-based interest-bearing demand deposits, we ended the quarter with growth of $47 million in that portfolio or 33% annualized compared to September 30. And that is a testament to the outstanding execution of our relationship bankers across our footprint. I'll also note that the $6 million linked quarter decline in noninterest-bearing deposits reflects seasonal fluctuations in business customer deposits related to things such as year-end bonuses. We have been successful onboarding noninterest-bearing deposits as we grew the portfolio by $53 million year-to-date in 2025. In addition to deposit activity, we've been equally busy in 2025, executing on our branch strategy. We opened 3 branches, closed 2 and relocated another branch, netting just 1 additional branch, but gaining stronger alignment of our branch footprint with customer demand and growth opportunities and enhancing profitability of existing locations. We ran targeted promotions at our new and relocated branches and saw great engagement, retention and the ability to onboard new customers. We see opportunity to bring these promotional rates down in line with market rates throughout 2026, while maintaining key deposit and loan relationships. I'd also note that we saw strong retention among customers affected by our branch consolidations in both relationships and balances. As Andrew mentioned, we see branch network activity slowing in 2026. We will continue to be opportunistic where it makes sense to enhance the efficiency of our network the convenience for our customers and our potential exposure to new clients in existing or adjacent markets. But right now, our focus is on optimizing the pricing and profitability of our deposit portfolio. We continue to prove successful in lowering our deposit rates while maintaining key customer relationships. As Pat mentioned, our goal is to bring our deposit costs closer to our peer bank. This is part of our evolution into a middle-market commercial bank as we move beyond our years of rapid growth. We no longer need to grow for the sake of growth, which necessitated funding that growth with expensive deposits. In 2026, we'll continue to focus on optimizing our deposit portfolio, as I mentioned, by continued to -- continuing to lower deposit costs while simultaneously deepening and adding high-quality relationships where we can serve the breadth of the customers' financial needs. Additionally, our relationship bankers are focused on onboarding noninterest-bearing deposits and cross-selling to clients who have interest-only deposits with us. We expect this will aid in bringing our overall deposit costs down and support a strong net interest margin in 2026. At this time, I'll turn it over to Peter Cahill, our Chief Lending Officer, for his remarks. Peter? Peter Cahill: Thanks, Darleen. As Pat and Andrew described, while not a good quarter from the standpoint of overall loan growth, we did finish the year up $149 million or almost 5% compared to the end of 2024. If you recall, we started the year very quickly, but we knew from speaking with clients that we had payoffs coming from either asset sales or refinancing and for that reason, held our overall estimate for the year than what was originally budgeted. As our press release states, average loan growth for the entire year was $267 million, which I believe is a good indicator of a busy year. We know that the strong loan growth we had in the first half put some pressure on funding sources, and I think we naturally became more selective in business development. When we dig into the numbers, we see that of the $429 million of new loans funded during the year, only 20% of that amount was funded in the fourth quarter. New loans continue to be centered on C&I and owner-occupied real estate. For the year, this category made up 62% of new loans with investor real estate loans comprising 22%. On the flip side, the loan payoffs, we believe were coming hit us pretty hard. The $135 million in payoffs in Q4, as referenced by Andrew, made up 47% of all payoffs for the year. Looking back, it was the largest amount of loan payoffs we've ever had in a single quarter. 6 of our 10 largest payoffs for the year took place in Q4, all but one were investor real estate loans and 3 of the investor real estate loans were construction loans that were paid off of long-term financing down elsewhere. Our goal continues to be moderate growth in investor real estate and managing more of that business in our investor real estate team. We look closely at the ratio of investor real estate loans to total capital. We have been as high as 430% of capital after the Malvern Bank acquisition, but got to 390% at March 31 of this year, 370% at September 30 and finished the year at 346% due in part to the loan payoffs previously described. Going forward, we're comfortable staying around a range of 350% to 375% capital. The lending pipeline at the end of the year stood at $284 million of probable fundings, almost exactly the same as we had at the end of Q3. If one breaks down the components of the pipeline at year-end, C&I loans made up 61% of the overall pipeline compared to 36% for investor real estate. Overall, I continue to be satisfied with where the new business pipeline stands. On the topic of asset quality, we mentioned some softness in the small business portfolio last quarter and Pat and Andrew both talked about the Q4 impact. I'll only add that we've reorganized how we manage that business. We've turned over some staff in that area, slowed production and we're giving a lot of attention to the relationships we have on our books presently. Delinquencies across all business lines are very manageable at year-end and were virtually nonexistent other than what was from the small business portfolio. In summary, while the payoffs we experienced resulted in a down quarter as far as loan growth goals, as I mentioned earlier, average loan growth for the year was strong. Our plan is to continue to grow in all segments, those being the New Jersey and Pennsylvania regions, SBA, consumer, private equity, asset-based lending and exceed what we accomplished in 2025. That concludes my remarks about lending, so I'll turn things back down to Pat Ryan. Patrick Ryan: Thank you, Peter. At this point, we'd like to open it up for the Q&A portion of the call. Operator: [Operator Instructions] And our first question comes from the line of Justin Crowley with Piper Sandler. Justin Crowley: Good morning, everyone. I was wondering if you could start out just on some further discussion on loan growth and the outlook there. I know the payoffs can be tough to predict and you had foreshadowed some of that earlier in the year. But just wondering how you think those could perhaps trend through the year as lower rates continue to work their way through the system and especially if we continue to get more cuts, just maybe -- just what you continue to hear from customers on that end of things? Patrick Ryan: Yes, Justin, obviously, it's something we're keeping a close eye on. I'll give you kind of some high-level thoughts of mine and then let Peter give you a little more clarity based on what's actually in the pipeline. But we're looking closely not just at the amount of payoffs, but what's behind them. And we didn't see any necessary, call it, disturbing trends in the sense that we weren't keeping the business that we wanted to keep or that private credit or other nonbank lenders were stealing our customers. We did have one large payoff that went CMBS because they were able to get non-recourse, which something we weren't prepared to do. But that's sort of par for the course, forgive the term, to manage the portfolio with the rate and structure and term that we like. And in situations where other financing sources are willing to do things we're not willing to do, we obviously live with the payoffs. But I think if you look back over 12, 16, 20-quarter period, I mean, these windows of what look like abnormally high payoffs, given that they come within a 90-day window, almost always snap back with strong growth, whether it's the next quarter or the quarter after. And as we've talked about in the past, our ability to kind of deliver on that historically, $175 million, $200 million in net loan growth has been pretty consistent. And so we're not -- we're not raising any alarm bells. We think it was a little bit of an anomaly. It is interesting talking to other bankers out in the market. It sounds like there were a number of banks at least we know in this market that similarly experienced unusually high payoff activity. But again, at this point, not anything that we'd attribute to macro conditions as much as perhaps more just timing and coincidence. But Peter, maybe if you can jump in and just give a little color on where the pipeline stands and what you're seeing for kind of the first half of 26% for new production. Peter Cahill: Yes. Thanks, Pat. Justin, I would -- the pipeline is where it was a quarter ago. I think that's a fairly positive sign. Everything we're hearing, I mean, we -- for the last 6 to 9 months after jumping way out ahead of plan early on in the year, we kind of were a little bit more restrictive as to what we would do or what deals we -- how hard we negotiate for a piece of business. But I'm hearing from whether it's real estate lenders in the Philadelphia market that there's plenty of business there to C&I type lenders in our regional/community bank space. We opened up new branches in Summit, in Monmouth, in Central to Northern New Jersey. But these are kind of new markets that locally we're out making ourselves known in and the feedback there is good as well. So Florida is another one where we've been there a year or 2 now coming out of the Malvern acquisition, staffed that up a bit with a couple of folks, and they're doing well. So it's kind of like all areas are producing good activity. No one more than others, really, but I don't see any reason to be overly concerned about being able to drive the growth we're forecasting. Justin Crowley: Okay. Awesome. I appreciate all the detail there. I guess just on the credit side, you talked through a lot of what you've seen on the small business side. I was wondering if you could talk a little bit more about the C&I credit that got downgraded. I'm not sure if there's any further detail you could share there in terms of things like industry and whether it was your credit alone or if it was perhaps participation? Just anything there? Patrick Ryan: Yes. Not a whole lot we can add, Justin, other than what we've already provided. It's a multi-location consumer-based business that has seen some downward trends. And while they still have a number of locations that we believe they believe are performing very well. They have some others that aren't. And so that's kind of driving a decline in the performance. And just given the cash flow-based nature of the loan and the size of the loan, we -- with the downgrade of substandard, we wanted to mentioned it on the call. But other than something we're keeping a close eye on, there's not a whole lot more we can share at this point. Justin Crowley: Okay. Got it. Understood. And then just on expenses. Obviously, some noise there this quarter with OREO gain that flowed through. And then overall, a lot of work that's been done on efficiency initiatives. I was just wondering if you could -- and I know you gave the expense to assets target, but I was wondering if you could provide thoughts on run rate from here on the expense base and just how you're thinking about costs for the duration of the year? Patrick Ryan: Yes. So high level, we're not talking about massive cuts, right? I think we're operating pretty lean and I think we're appropriately staffed. I think what we're really looking for is keeping a tight lid on expense growth as we move throughout this year and next year. And so limited expense growth, coupled with revenue growth should help drive that revenue down. But Andrew, I don't know if there's anything specific you wanted to provide around quarterly expense run rate or anything. I'm not sure we usually provide specific guidance there. But maybe you can give a sense for kind of what the core number was in Q4 and what -- is that a good basis for the future? Andrew Hibshman: Yes. So I'd just add that I think the third quarter was a pretty standard quarter with not a lot of noise. So that was -- that's a decent kind of starting point. Obviously, as you head into a new year, there are some things that drive costs higher in terms of kind of standard inflationary-type adjustments to salaries and some of our other costs there. But as I mentioned, I think the fourth quarter had the OREO gain, which was unusual. And then our bonus expenses were abnormally a little low in the fourth quarter because we had to make some adjustments to our bonus numbers based on kind of the final year-end results. So again, if you look at kind of third quarter and then kind of strip out the couple of noise there in terms of bonus, lower bonus expense in the OREO, you get a decent run rate. And I do think we have some good plans to offset some of those inflationary type adjustments with some other cost-saving initiatives. So we're hoping to maintain a fairly stable and maybe slightly increasing expense number, but I do think we should be able to hold the line pretty well as we head into 2026. Justin Crowley: Okay. I appreciate that. And then maybe just one last one. As far as the buyback, no activity in the quarter. So was wondering if you could remind us where that stands as far as capital deployment and just the appetite going forward? Patrick Ryan: I mean in terms of appetite, I don't think our views have changed, right? We had a timing issue just because these buybacks in New Jersey get approved on a kind of rolling 1-year basis. And so every year, you got to reapply and then it just -- the process can sometimes take time. So we were sort of without a plan for a while, which I think was a driver of the lack of activity. And then it stays on our -- in our toolkit. It's something we look at. We obviously pay attention to the price relative to book value when we're thinking about where to buy back. But yes, I think it's something we continue to look at. And Andrew, maybe you can just provide some information around the plan that got approved in terms of dollar amount or shares. Andrew Hibshman: Yes. So I think we had it in the release, we did get a new plan approved. We got regulatory approval, I think, about in the middle of November. So we have the full allotment of what was approved. It's up to 1.2 million shares up to a total dollar amount of $20 million, and we have -- through the fourth quarter -- or through the fourth quarter, we had not executed any buybacks. We do have an active plan in place and available depending on pricing, as Pat mentioned. Operator: [Operator Instructions] And your next question is from Dave Bishop with Hovde Group. David Bishop: I'm curious, I noted that -- I saw the narrative regarding the softness in the micro small business credit portfolio there. Though just from a numbers perspective, didn't seem to really show up maybe there's a little bit of an increase in nonaccruals, charge-offs. Just curious maybe if you can maybe give us some more details what's driving that cautiousness and softness or the 20 basis points in terms of charge-offs, is that sort of well above your expectations here when you first got into it? And does that imply you're going to sort of look that to get... Patrick Ryan: Yes. I think of it -- and again, these are high-level numbers, Dave, not specific. But right now, the average yield on the portfolio is probably around 9%. And I think what we were seeing in terms of annualized charge-off numbers were elevated 3% or higher. And so I think we'd want that portfolio to perform more in the kind of 1% to 2% annualized given the yield. So getting up at 3% or higher depending on the quarter and the annualization that just was a level that we didn't think was conducive to the long-term profitability of the segment. And so we made some changes. We reduced the overall loan amount, the availability relative size of the business, changed how we managed it. As Peter mentioned, revised the team structure a bit and really went back to basics around relationship-based selling. And I think to me, the performance is partly, as I mentioned, to be expected, right, these are smaller businesses. They have less wiggle room if they lose a big customer or they face some negative trends. And I think across the board you've seen small businesses have struggled a little bit this year. And then I think, quite frankly, we had some issues with folks that weren't selling it the right way, weren't bringing in the right types of customers and we had to fix that problem, too. And so we continue to think that if sold correctly, it can be a good product for us. Again, it's going to be -- continue to be relatively small compared to our other business units and portfolios. But it was more a function of just wanting to tighten it up a little bit. And we'll see, like you said, at 20 basis points overall, it's not overly punitive, but we look at it more within the segment itself, and we want it to be stand-alone profitable, and we think there's some work that's needed there to reduce credit cost to get it to the return on equity thresholds that we have. So... David Bishop: Got it. Yes. I figured there had to be a lot more going on behind the scenes that probably comes through across the macro level. So I appreciate that detail. And then I noted in the narrative too, a pretty good bump in the prepaid fees this quarter with the higher volume. Was that just symptomatic of just getting a wash with the prepayments? Or were these loans that maybe had earlier in their prepayment penalty phase? And did that sort of surprise you as well? Patrick Ryan: Yes. Listen, I think it was a couple of larger CRE loans that had prepayment structures built into them. And in one case, in particular, the borrower found a structure they preferred, specifically around the nonrecourse that was available in the CMBS world. And so they thought it was to their benefit to refi and move in that direction despite the prepayment fee. And so we collected the fee on the way out. We don't get prepayment fees all the time, right? If it's a construction loan, and we were offering permanent financing and then it moves on, we generally get a small fee. But if we were just planning on doing the construction, knowing that it would get taken out elsewhere for permanent, we wouldn't necessarily collect the fee. But any time you see heightened prepayment activity, especially within CRE, where we tend to have those prepayment fee structures, you're generally going to see elevated income within the quarter, again, just to help offset the lost income going forward. But I don't know, Peter, anything in particular you'd point out as you look at the prepayment fee income that we got during the quarter? Peter Cahill: No, I think you hit on most all of the topics. I mean, we do occasionally on the construction side, get kind of an exit fee on the way out. Every deal is a little different. Every deal is negotiable. And it's a combination of really all the things Pat described. David Bishop: Got it. And then maybe just curious, Peter, Pat, maybe what you're seeing in terms of new loan origination yields, if there was much movement there on a quarter-to-quarter basis? Patrick Ryan: Yes. Listen, I think we expect spreads to tighten a little bit, given the payoff activity kind of across the industry. I think folks are going to want to look to replace loans and that will probably lead to a little bit of tighter pricing. But Peter, if you want to jump in, in terms of what you're seeing specifically from the team. Peter Cahill: Yes, we're still trying to get anywhere from 200 to 300 basis points over treasuries or FHLB. So we're still north of 6%. And I think we've done a pretty good job there as far as the yield on loans as they get booked. I don't know, Andrew, I think if I recall some of the monthly presentations on new loans, they get -- we look at kind of the average interest rate, and they've been up in the high 6s. So it's a combination of all types of loans. But yes, we're still hanging in there at a spread of 250 basis points, I'll call it, as the target, whether it's treasuries or FHLB, there might be a 25, 30 basis point difference there, but that 250 number is kind of a good target for us. Patrick Ryan: Yes. And obviously, Dave, the spread depends on the credit, right? We'll tighten up the spread on a deal that we think is super strong and obviously look to stretch it a little bit if it doesn't meet kind of the A++ criteria. And so it's a mix. But I think our folks are doing a good job getting reasonable yields on the loans coming in. David Bishop: Got it. One final question back to credit. Last quarter, there was a lot of other about NDFIs and such, and we talked about the private banking and ABL, mostly portfolio lending. Are you seeing any sort of credit cracks emerging there at all in terms of those commercial segments? Patrick Ryan: Yes. I mean we looked at -- one of the reasons we did the deeper dive and provided a little extra data was to kind of say, "All right, if sub-standards are up, is this a one-off credit issue? Or is it more systemic? And what we had seen across all the portfolios is actually an improvement, obviously, outside of the one downgrade we talked about." But it does seem and feel like that's a bit of an isolated situation versus an indicator of broader softness within C&I, in particular. And like we mentioned in the call, that the CRE performance has been amazing. So we're not seeing challenges emerge there yet. Obviously, you always knock on wood and keep a close eye on where things are headed. But based on what we're seeing within the portfolio today, we're not seeing across the board indicators of emerging credit issues systemically, if you will. Operator: And with no further questions in queue, I will now hand the call back to Patrick Ryan for closing remarks. Patrick Ryan: Okay. Thank you very much. We appreciate your time today, and we look forward to regrouping with everybody when we put out the first quarter results. Thanks, everyone. Operator: This concludes today's conference call. Thank you for joining us. You may now disconnect.
Operator: Good morning, and welcome to the AGNC Investment Corp's. Fourth Quarter 2025 Shareholder Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Katie Wisecarver in Investor Relations. Please go ahead. Katie Wisecarver: Thank you all for joining AGNC Investment Corp.'s Fourth Quarter 2025 Earnings Call. Before we begin, I'd like to review the safe harbor statement. This conference call and corresponding slide presentation contains statements that, to the extent they are not recitations of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act. Actual outcomes and results could differ materially from those forecasts due to the impact of many factors beyond the control of AGNC. All forward-looking statements included in this presentation are made only as of the date of this presentation and are subject to change without notice. Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in AGNC's periodic reports filed with the Securities and Exchange Commission. Copies are available on the SEC's website at sec.gov. We disclaim any obligation to update our forward-looking statements unless required by law. Participants on the call include Peter Federico, President, Chief Executive Officer and Chief Investment Officer; Bernie Bell, Executive Vice President and Chief Financial Officer; and Sean Reid, Executive Vice President, Strategy and Corporate Development. With that, I'll turn the call over to Peter Federico. Peter Federico: Good morning, everyone, and thank you for joining our fourth quarter earnings conference call. 2025 was an exceptional year for AGNC shareholders. AGNC's 11.6% economic return in the fourth quarter drove our impressive full year economic return of 22.7%. Even more noteworthy, AGNC's total stock return in 2025 was 34.8% with dividends reinvested, nearly double the performance of the S&P 500. This outstanding performance on an absolute and relative basis clearly demonstrates the value of AGNC's actively managed portfolio of agency mortgage-backed securities and associated hedges. Looking back, we were confident that AGNC was on the forefront of a uniquely positive investment environment as the Fed's unprecedented tightening cycle of 2022 and 2023, reached its conclusion. On our third quarter earnings call in 2023, we expressed our belief that a durable and attractive investment environment for AGNC was emerging as mortgage spreads began to stabilize at historically attractive return levels. That outlook proved to be correct. And in the 9 quarters since that call and despite several episodes of extreme market turbulence, AGNC has generated an economic return of 50% for its shareholders, comprised of a 10% increase in book value and monthly dividends totaling $3.24 per share. Moreover, during that same time period, AGNC shareholders have experienced a total stock return of nearly 60% or 23% on an annualized basis. And finally, since inception, AGNC has generated a total stock return of over 11% on an annualized basis with dividends reinvested, demonstrating the long-term benefit of investing in this unique fixed income asset class and the durability of our business model across a wide range of market environments. Turning back to 2025, the Bloomberg Aggregate Agency Index was the best-performing fixed income sector in the fourth quarter, and for the year, produced a total return of 8.6%. Also noteworthy, given the similar credit quality, the Agency Index outperformed the Treasury Index by 2.3 percentage points or 36% in 2025. As I discussed throughout the year, the favorable performance of Agency MBS was driven by a confluence of positive factors. First, the Fed shifted its monetary policy stance toward lower short-term rates and greater accommodation, a promising development for all fixed income assets. The Fed also transitioned its balance sheet activity from quantitative tightening to reserve management. Second, interest rate volatility trended lower throughout the year due to the shift in monetary policy, greater fiscal policy clarity and a stable supply outlook for treasury securities which included a greater share of short-term debt. Lastly, the uncertainty and potential risks associated with GSE reform that adversely impacted the agency market early in the year, gradually dissipated as the Treasury Department and other officials communicated and approached to GSE reform that focused on reducing the spread on agency mortgage-backed securities, maintaining mortgage market stability and improving housing affordability. Collectively, these factors, combined with the sizable purchase of MBS by the GSEs later in the year, caused spreads to tighten and drove the substantial outperformance of Agency MBS relative to other fixed income asset classes. As we begin 2026, these favorable macro themes remain in place and provide a constructive investment backdrop for our business. In addition, other positive developments are possible including further actions by the administration to improve housing affordability. The recent $200 billion MBS purchase announcement is a good example of the type of action that could result in tighter mortgage spreads and lower mortgage rates. The funding market for Agency MBS has also improved in response to the Fed increasing the size of its balance sheet and improving the functionality of its standing repo program. The Fed is also considering other actions to further improve the utility of the standing repo program, which if implemented would be highly beneficial to the Agency MBS market. Finally, the supply and demand outlook for agency MBS remains well balanced. At current rate levels, the net new supply of Agency MBS this year is expected to be about $200 billion. When combined with the Fed's runoff, the private sector will have to absorb about $400 billion of MBS in 2026, an amount similar to the previous 2 years. On the demand side of the equation, however, the investor base today is more diversified and positioned to expand with GSE purchases potentially consuming about half of this year's supply. At the same time, bank, money manager, foreign investor and REIT demand should all remain strong. Pulling this all together, the underlying fundamental and technical backdrop for Agency mortgage-backed securities continues to be favorable and supportive of our positive outlook. Moreover, as the largest pure-play agency mortgage REIT, we believe AGNC is very well positioned to generate compelling risk-adjusted returns with a substantial yield component for our shareholders. With that, I'll now turn the call over to Bernie Bell to discuss our financial performance. Bernice Bell: Thank you, Peter. For the fourth quarter, AGNC reported comprehensive income of $0.89 per common share. Our economic return on tangible common equity was 11.6% for the quarter, consisting of $0.36 of dividends declared per common share and a $0.60 increase in tangible net book value per share driven by lower interest rate volatility and tighter mortgage spreads to benchmark interest rates. As Peter mentioned, our full year economic return was 22.7%, reflecting our monthly dividend totaling $1.44 per common share and a $0.47 increase in tangible net book value per share. As of late last week, our tangible net book value per common share was up about 4% for January or 3% net of our monthly dividend accrual. We ended the fourth quarter with leverage of 7.2x tangible equity, down from 7.6x at the end of the third quarter. Average leverage for the fourth quarter was 7.4x compared to 7.5x in the third quarter. In addition, we concluded the quarter with a very strong liquidity position of $7.6 billion in cash and unencumbered Agency MBS, representing 64% of tangible equity. Net spread and dollar roll income was unchanged for the quarter at $0.35 per common share, which includes $0.01 per share of expense related to year-end incentive compensation accrual adjustments. An important driver of our net spread and dollar roll income is the level of unhedged short-term debt in our funding mix as well as the composition of our hedge portfolio. As of the end of the fourth quarter, our hedge ratio was 77%, reflecting the level of swap and treasury hedges relative to total funding liabilities and was unchanged from the prior quarter. At the same time, during the fourth quarter, we opportunistically shifted our hedge mix toward a greater proportion of interest rate swaps. As a result, a meaningful portion of our funding remains short term and variable rate. This is consistent with the current more accommodative monetary policy environment and positions net spread and dollar roll income to benefit as additional rate cuts occur. Looking ahead, we expect that lower funding costs from the October and December rate cuts and anticipated future rate cuts increased stability in funding markets resulting from recent Fed actions to maintain short-term rates within their target range and the shift in our hedge mix toward a greater share of swap-based hedges, will collectively provide a moderate tailwind to net spread and dollar roll income. The average projected life CPR of our portfolio increased 100 basis points to 9.6% at quarter end from 8.6% in the prior quarter due to lower mortgage rates. Actual CPRs averaged 9.7% for the quarter compared to 8.3% in the prior quarter. Lastly, during the fourth quarter, we issued $356 million of common equity through our at-the-market offering program at a significant premium to tangible book value per share. This brought total accretive common equity issuances for the year to approximately $2 billion and delivered exceptional book value accretion for our common shareholders. And with that, I'll now turn our call back over to Peter. Peter Federico: Thank you, Bernie. Before opening the call up to questions, I would like to provide a brief review of our portfolio. Agency spreads to both treasury and swap rates tightened across the coupon stack, especially on intermediate coupons as interest rate and spread volatility remained low and the demand for MBS, particularly from the GSEs accelerated. Hedge composition was also an important driver of performance as swap spreads on 5- and 10-year swaps widened significantly during the quarter. This favorable move in swap spreads followed the announcement of the Fed's revised supplemental leverage ratio requirement and the Fed's actions to ease repo funding pressure. As a result, Agency MBS hedged with longer-dated swap-based hedges performed considerably better than positions hedged with treasury-based hedges. Our asset portfolio totaled $95 billion at quarter end, up about $4 billion from the prior quarter as we fully deployed our new capital that we raised during the quarter. The percentage of our assets with some form of favorable prepayment attribute remains steady at 76%, while the weighted average coupon on our portfolio fell slightly to 5.12%. Consistent with the growth in our asset portfolio, the notional balance of our hedge portfolio increased to $59 billion at quarter end. The composition of our portfolio also shifted toward a greater share of swap-based hedges. In duration dollar terms, our allocation to swap-based hedges increased to 70% of our portfolio from 59% the prior quarter. In light of our more favorable outlook for swap spreads, we will likely operate with a greater share of swap-based hedges in our hedge mix, particularly 1 short-term rates near the Fed's long-run neutral rate. With that, we'll now open the call up to your questions. Operator: [Operator Instructions] The first question comes from Bose George with KBW. Bose George: Can you just talk about where you see spreads currently versus where you saw it in the fourth quarter? And then just help us walk through the dividend coverage. Spreads are obviously tighter, but you've got more capital with higher book value. Just help us do the math there. Peter Federico: Sure. Yes. Thanks for the question. I figured that would be one of the first questions. I'll start with the outlook in terms of ROE and spreads. Obviously, as you pointed out, spreads have tightened a lot. And I think maybe the best way to describe the current environment, and this is essentially what happened in the fourth quarter is that mortgage spreads, I think, have now sort of entered a new spread range. We broke through the range that we have talked about for a long time, really the range that has held for almost 3 years, which is really beneficial to our business and drove the outstanding results that we had in really the last 2 years and in 2025 in particular. But I would say, as we sit here today, Bose, when I think about current coupon spreads to a blend of swap and treasury rates, and I will give you the -- I usually think about things across the curve. I would say that the potential spread for current coupon to swaps is maybe in the 120 to 160 range. And right now, we're just sort of right in the middle of that range, maybe a little bit through it, so call it in the 135-ish type range. I don't know where exactly it is this morning. But I would say that's the potential new range for mortgages relative to swaps and on a current coupon basis to treasuries, I would say it's probably in the 90 to 130 basis point range. And today, I think the number is around 110 when you think about it across the curve. So taking that number and as I mentioned, we would -- we favor swaps in this environment. We have a lot more stability in swap spreads than we had as we start 2026 than we experienced in 2025, and that's really important it allows us to go back to sort of using swaps at a much more heavy pace than we were -- as I mentioned, we were at 70% and maybe going higher. But I would put it at maybe some of spread of around 130-ish, something like that and you look at the leverage that we typically employ, I would say that you could expect returns at the current spread range, maybe in the 13- to 15-ish type percent range, maybe a little bit maybe touch above that depending on the hedge mix. So that translates, I think, into ROEs that are really competitive and really aligned with our dividend, which -- and let me go to the next question, which is I think when you think about the dividend, there's a bunch of considerations. We always talk about the dividend and the sustainability from that perspective, that marginal return. And that is important because one of the factors that will drive our dividend over a long period of time is how we replace our portfolio and these new marginal returns will matter. But what's important about that is that will take an extended period of time to occur. Measured not in days, weeks or quarters but measured in years as the portfolio slowly runs off. The prepayment speed on our portfolio will drive that and also how we reposition the portfolio and how we grow our capital base. So that is something that's much more long term. When you think about the dividend coverage today, it's important to look at what is the return on our existing portfolio. And we obviously were able to put on a really attractive returning portfolio over the last couple of years at this spread environment. If you think about our net spread and dollar roll income, for example, I call it normalized for this quarter, it was $0.35, but there was -- it was dragged down by $0.01 due to some nonrecurring performance-related compensation. $0.36 -- and what is the ROE on that, think about the $0.36 relative to our book value of $8.88. That's about an ROE of 16%. And that aligns very, very well with our total cost of capital. Our total cost of capital, when you add up all the common stock dividends, the preferred stock dividends, our operating costs normalized, it was right at, I think, 15.8% for the -- at the end of the year. So our -- the point is the total cost of capital aligns well with the existing portfolio. The new portfolio still looks really attractive at mid-teens. Obviously, that will take time. And then there's a bunch of other factors that we talk about these all the time. But when you think about our dividend, this is a very dynamic environment. As I talked about, we're kind of shifting spread environments. There's a lot of new information that we will get over the next weeks, months, maybe quarters that will determine sort of the direction and stability of mortgage spreads, that will have implications for our leverage that we'll operate with. The hedge mix is going to be an important driver. And then there's always accounting considerations. Obviously, REITs have a dividend distribution requirement based on taxable income. That's also something that we'll have to factor into our thinking over time. So there's lots of factors, but I think all of that put together is our dividend is well aligned with the economics and the accounting of our business today. Bose George: Okay. Great. And actually, just -- so the existing portfolio, it seems like it covers the dividend well. The incremental portfolio, is it fair to say it's a little bit sort of whatever closer or on the coverage just given the incremental returns are more in the 13% to 15% versus the economic -- versus kind of the breakeven ROE which looks like it's like 15.5% or something? Peter Federico: Yes. I think that's right. And also, I think it's important when you think about the -- when you think about deploying new capital, if you raise capital, the required return on the new capital that we raised is not the total cost of capital. That's on the existing book of business. The new capital that you would raise, I think the right comparison from a dividend coverage perspective, is what is the dividend yield on your stock, which is around 12%. So when you think about deploying new capital, the returns today in the marketplace, as I've mentioned, sort of 13% to 15% are actually in excess of the dividend yield on our stock. So there's ample coverage from that perspective. Operator: The next question comes from Doug Harter with UBS. Douglas Harter: I appreciate the ranges for spreads you gave. Can you talk about how you're thinking about the risk or the potential benefit that could get you either to the high end or the low end of those ranges and how that informs your decision around leverage today? Peter Federico: Yes. Well, obviously -- yes, it's a great question. Obviously, the announcement at the -- I guess it was early in the year -- early this year that really pushed the current coupon spread into this new range was the announcement that the GSEs were going to essentially use all of their portfolio capacity. Now the market was monitoring. Obviously, I mentioned it, everybody knew that the GSEs were growing their portfolio. They have been doing so really since the second half of the year. I think for the year, they grew their balance sheet. This is as of November, they added about $50 billion of mortgages. And I think from the low point, they added about $70 billion. I think -- Freddie Mac, I think, just announced their MVS for December and they had added another $15 billion of MBS in loans. So the market was anticipating that they would use and grow their portfolios and use the capacity that they had. That announcement obviously made it very clear that, that is their intention. And that really caused spreads to tighten quite a bit. From here, what I would say is I think that maybe the most likely scenario is that they move sideways for some period of time and we have to wait and see what type of actions come next from the administration and from FHFA. There are certainly a number of actions that I think could push spreads to the tighter end of the range, I'll give you some examples that I think would be highly beneficial to the agency market in terms of spread tightening. Things like changing their cap on their portfolios. And these are things that I think can be done without congressional approval, so they might be appealing from that perspective. But changing the portfolio cap seems to be within their capacity. Maybe a change in the Fed's balance sheet with the potential of a new Fed Chairman in 2026. The Fed obviously now intends to run its portfolio off. So in a sense, the government through the GSEs, is buying $200 billion of mortgages and the Fed is essentially selling or running off $200 billion in mortgage. Perhaps that may change. That would be obviously something that's not priced into the market. Given the credit guarantee from the government on the GSEs, their explicit guarantee of support, perhaps there could be a rationale for changing the capital requirement, although I don't hear that being talked about very much. So I think there's a number of things that could be very positive. I mentioned the funding market, I think that's a new positive development and maybe there's more changes that the Fed makes with respect to standing repo program, which would bleed into, I think, in a positive way, the Agency market. On the negative side, and there are negatives, there are ideas out there related to, for example, streamlined refinance or G-fees or even the portability or a [ suitability ] of mortgages, those, I think, could have negative consequences, some of them significantly negative consequences. But they might -- some of those -- when you talk about accelerating prepayment risk, it is going to have some negative effect on mortgage spreads. So obviously, there are more convexes, more optionality, and that will cause mortgage spreads to widen. But putting all those together, I think the government has made it very clear it wants greater mortgage affordability and I think some of the changes they may make may just lead to sustainability at these new levels, which I think would be very positive. Obviously, as a levered investor, we're looking for spread stability. That's key driver of our ability to generate attractive returns. And I think that's the most likely environment. But I think there are actions that they still could take that could be positive for the market. Douglas Harter: And then how do you think about what that means for leverage kind of given that are you kind of comfortable in the current range? It ticked down kind of during the quarter, but the average was flat. How should we think about that? Peter Federico: Yes. That's really key. We did -- we have let our leverage come down consistent with the spread tightening. And I would say, right now, we need to see more information in order to make a determination whether we're willing to operate with a different leverage profile. And the key input in that equation is how stable do we believe spreads will be? So what are the actions that the government may take? And will they lead to greater spread stability. So will the actions that they take said another way, be sustainable? Or will they just lead to, for example, a quick, short tightening in mortgage spreads. There's some actions that they take that cost mortgage spreads to tighten another 15 basis points. But if there is no follow-on action then spreads could actually widen back out. For example, if the GSEs were to use up their capacity quickly, mortgage spreads will be tight during that time period. But once they reach their cap, they will like -- mortgage prices will likely revert back to where they were prior to that action. And so what we're looking for is greater insight into what actions they may take. And will they lead to spread stability. And I think that's -- that would be the best benefit for the overall mortgage market from an affordability perspective is can they keep spreads at these levels, which are obviously more attractive from the homeowners perspective than they were a year ago. Operator: The next question comes from Crispin Love with Piper Sandler. Crispin Love: Peter, as you mentioned, the administration is very focused on affordability, lower mortgage rates. But supply here may be the major issue to broader affordability easing. And you did mention in the prior question, some of the things that could be in the toolkit for the administration, FHFA that could be positive for spreads. But if you were in their shoes, what would you do to address the affordability questions. Peter Federico: Well, I think they've done a lot already. I think they deserve -- the administration, FHFA, the GSEs, they deserve a tremendous amount of credit for the actions that they took in 2025. Starting with the guidance -- that sort of the guiding principles that I mentioned and I have mentioned that for a number of times and the treasury in particular, has come out with those guiding principles. The Treasury Secretary continues to reference them. The fact that they are focused on mortgage spreads and the Treasury Secretary in particular, talking about taking actions that maintain spread stability or make them tighter is obviously a really key and one of the benefits of why mortgages tighten so much. So that sort of thinking is really, really important for the market because what it's doing is it's allowing other participants to come into the market. The greater spread stability that they can achieve will allow more and more investors into the market and create a more diverse bid for agency mortgage-backed securities, which will put less pressure on the GSEs to do that. But the combination of the guidance that they had, the actions of the GSEs, those were all very positive. I think they can do other things like the cap, I think, would be one in particular that would give them more capacity and allow spreads to remain at these attractive levels. So I think that's just the key from their perspective is they've got to continue to focus on the stability of the mortgage market, which they are doing a great job of. Crispin Love: Great. That's helpful. And then just one follow-up on the leverage question. Your view seems to be constructive on overall agency MBS investment environment, less rate fall and accommodative administration. Of course, there's always a risk of widening and something unforeseen. But how would you gauge your positivity on the investing environment right now for Agency MBS versus a quarter ago, 6 months, a year ago and how that might impact leverage? And if you do wait for something, could it be almost too late? Peter Federico: Yes. There's a couple of things that I've already mentioned, but I'll add to it because it's a good follow-on question. And that is that when you think about where the mortgage market is today versus a year ago or 2 years ago or 3 years ago, yes, we are in a lower spread environment today, but it's still a widespread by historical standards. So returns, when we're talking about returns in the mid-teens, low to mid-teens. Those are outstanding returns, especially compared to returns that you can get in the marketplace, for example, look at the performance of our stock versus the S&P 500 or even the NASDAQ last year. You can get outstanding returns. And even at these lower spread levels, returns are still really excellent from a shareholder perspective. The key differentiator, which is a very positive is that when you think back to where the environment we were maybe a year ago or 2 years ago, there was a lot more uncertainty about the upper end of the range. And I think what you can take away from the environment today, and this is the credit to the decision makers and the policymakers and the administration is that they are limited in the upside of the range. They are saying we want spreads to stay here or go lower. And I would think if mortgages did move to the upper end of the range, then you would see actions being taken that would push them back down into the range. And that's really an important development and a very positive development when you're a levered investor like we are, is that the range -- the upper end of the range is more certain today than it was certainly a year ago. And I would expect actions to be taken if there were some sort of exogenous event that caused spreads to widen materially. Operator: The next question comes from Trevor Cranston with Citizens JMP. Trevor Cranston: You talked a bit about swap spreads and increasing the amount of swaps in the portfolio during the fourth quarter. I was wondering if you could give us an update on your view going forward if you think there's room for spreads to continue widening in the swap market and sort of where you think ultimately those settle out? Peter Federico: Yes. I do believe that swap spreads will stay -- certainly stay in this range, but I think there is potential for further widening as we go through the year. The Fed is changing it's balance sheet focus from quantitative tightening to reserve management. It was obviously a really critical pivotal change from that perspective. They ease some of the regulatory requirements that I mentioned, the market had anticipated that, that is very positive long run. It makes treasuries more friendly from a balance sheet perspective, which has led to some of the swap spread widening. But the overall funding market now is at a much better footing with the Fed growing its balance sheet, $40 billion a month. We'll see how long they do that, but they are adding reserves to the system. Reserves got below $3 trillion. Now they're back at $3 trillion or maybe even a little bit above. I expect that to continue. And I think, overall, that will put widening pressure on mortgage spreads. So I think from a hedge perspective, we'll be better off in a swap-based hedge and a treasury-based hedge for some period of time. And even if spreads just stay here, then obviously, we can pick up 25 or 30 basis points extra carry, as I mentioned, when you think about those spread environments, that's substantial leverage, 6x or 7x we're talking about another 1% or 2% of ROE. So I think the outlook is favorable for swap spreads. Trevor Cranston: Yes. Okay. That makes sense. And then on MBS spreads, you talked about the positive technicals in the market, which have been pretty strong. I guess the other thing that's obviously helped MBS performance over the last several months has been volatility continuing to drop. So I was curious if we could get your thoughts on volatility going forward, if you think that continues to come down or what your thoughts are around that? Peter Federico: Well, you're absolutely right. I mean that was a key driver of the outperformance of our asset class in 2025 was the decline in interest rate volatility. So we all know anytime interest rate volatility increases, it's bad for people who own mortgage-backed securities because it changes the optionality profile from a borrower perspective. And when interest rate volatility declines like it has, it's obviously a positive from a mortgage bond perspective. Just look at the sort of range of the tenure that we've been in, in the fourth quarter, I think it basically traded in a 25 basis point range. So hardly any movement in any given day. And when you look back over the year, I think I look back to -- so really from February on of last year, we traded in about a 50 basis point range. And again, this is to the credit of the administration and the treasury part of the stability that we're seeing, particularly in long-term rates is because of the focus of the Treasury Secretary and administration on keeping longer-term rates stable. The 10-year in particular, has been an area of focus. So I believe they will continue to approach their issuance from a perspective that will be beneficial to the 10-year rate. Now we've been sort of trading in this 4 to 4.25 range. As we go forward, I think spread yield volatility or interest rate volatility will continue to be generally low maybe not as low as it has been, but generally, though, because there are some more geopolitical sort of risks in the market for sure today. But I think from the treasury's perspective, I think the direction of interest rates is more likely lower than higher given their focus on affordability. But I do believe it to be a slower grind lower if the tenure does go down to 4 or maybe break through 4 a little bit. But I think the volatility environment is going to be positive for Agency MBS in 2026 based on what we know today anyhow. Operator: The next question comes from Jason Stewart with Compass Point. Jason Stewart: Just 2 quick follow-ups. One on capital activity today. Could you give us an update on equity issuance? Peter Federico: You mean quarter to date? This quarter to date? Jason Stewart: Correct. Peter Federico: None. No issuance. Jason Stewart: Okay. And then in terms of your comments, maybe just tie in sort of expectations for ATM issuance? I mean, obviously, 2025 was a big year with your ROE profile, give us some two cents on that. Peter Federico: Yes. It was a great environment, a sort of a confluence of positive factors because we could obviously issue it very accretively and we could deploy it at really attractive return levels. Now we can still issue it accretively, and so that's a positive factor going forward. But obviously, the return profile is not quite as attractive as it was. But as I mentioned, it still exceeds the threshold. So it's something that we will continue to do. But I would also say sort of that we're certainly very comfortable with our size and our scale and our liquidity. Also there's no urgency on our part to feel like we need to grow. The decision to issue capital will be just based solely on the economics that we see in the environment. So we're certainly very happy with our size and scale and liquidity and like where we are today. Jason Stewart: Okay. Got it. That makes sense. And then in terms of the MBS market, we've talked a lot about demand from the GSEs. But outside of the GSEs, when we think about traditional buyers, banks, as rates are going down, and there's been a little bit more mixed activity in terms of foreign demand. What's your take on how those 2 buyers evolve over the course of the next 12 months? Peter Federico: Yes. When you look at the market, I talked about the supply outlook. And again, the supply outlook really is going to be very similar, at least at today's levels. Now obviously, if rates come down and we have more refinance activity, these numbers will change. But again, from a supply outlook, it's about $400 billion that will have to be consumed by the private sector. And we know that the GSEs -- $200 billion, obviously, is very meaningful. So they could consume quite a bit of that supply, which would be very positive. But taking the GSEs out of it, I think what's also important, and this is a differentiator of the market today versus a year ago or two years ago, where the market was really dominated by money managers. When we look at the demand for mortgages today, I see a more diverse investor base, and that's really positive for the overall market. When you look at what money managers have done given where returns are in the equity market, given the administration's focus on long-term interest rates, I think bond fund inflows will continue to be very sizable. Last year, I think it came close to about $500 billion of inflows. The year before that, it was $450 million. So I would expect bond fund inflows to remain strong in the environment -- in the current environment, which would translate to money managers buying -- is probably somewhere between $100 billion and $200 billion of mortgages. So money managers and GSEs could consume a lot of the production. Then we have banks, which we know are growing their position, but at a very gradual pace. But I do expect the regulatory changes that will come in 2026 will be positive for MBS and mortgage risk in general. So I expect banks to buy more than $50 billion, which is, I think, most people's projections. Foreign demand has been stable but I expect that could also have a little bit of upside because I think the environment is a little bit better versus the last couple of years. And then REITs, again, they were a big contributor to the mortgage market in 2025. And I would expect that REIT demand can continue to be strong given all that we're talking about here this morning. So when you add up all the demand, I think you could credibly come up with a scenario where demand is outpacing the supply in 2026. Operator: The next question comes from Rick Shane with JPMorgan. Richard Shane: I need to buzz in one question before Jason. He really covered my topics. But just one quick clarification. It sounds like you guys are slowing issuance given the incremental return on deployed capital, which makes sense. You also said in response to Jason that you hadn't issued any equity through the ATM quarter-to-date. I am curious was that actually by choice? Or are you blacked out on the ATM until you issue earnings just so we understand really how much you're dialing back if it was a function of what you're allowed to do versus what you've chosen to do? Peter Federico: Well, that's a good clarification. I would say 2 things that I would describe my answer to the future issuance as being opportunistic and driven not by any desire to be larger or have greater scale, but just driven by the economics of the opportunity in terms of the value to our existing shareholders. And then from a quarter-to-date perspective, most companies, I think you will find in a blackout period from the end of the previous period to sometime around their earnings call. So that would be a typical pattern for companies to not know...... Richard Shane: Perfect. That was the clarification I was looking for. Peter Federico: Yes. Good follow-up. Operator: The next question comes from Eric Hagen with BTIG. Eric Hagen: I just want to get your perspective on prepayment speeds, maybe at what level for mortgage rates do you think really gets the refi market moving? And would you guys modify the hedging in any way or take off some of the longer-dated hedges, if it looked like refis were really going to accelerate? Peter Federico: Say that last part again, Eric, please? Eric Hagen: Would you adjust any of the hedges or take off some of the longer-dated hedges if it looked like the refi market was really going to accelerate? Peter Federico: So let me start with a couple of questions -- a couple of points, and then we'll -- then you can ask me some follow-ups. Obviously, prepayment risk is greater today and certainly, I think it's greater given the direction of the administration. So composition of the portfolio, I think, is going to be a real key in terms of mortgage performance going forward. I think it's going to -- the story will not -- even though in a tighter spread environment, asset selection becomes a much more critical factor on a go-forward basis. And it's -- what are the assets that you're choosing and what are the assets that you're avoiding choosing, which is really important. Coupon composition is going to be really important. And the type of characteristics you have in your pools is going to be really important. When I look, for example, just to give you a couple of numbers on the coupon distribution. I think this is really important. When I look at our position of 5.5 and above, when I think about the moneyness of mortgages and what that 5.5 means with a mortgage rate, 6.5 or something there, about 48% of our portfolio is in 5.5 and above. But what's important of that population, 87% of that population has some form of underlying attribute or characteristic that we believe will make those cash flows potentially more stable. And so that's really what is really important when you look at the underlying characteristics, whether they're -- the channel they came through or the credit or the geography, all those Fed loan balance, all those things, what's happening with the GSEs in terms of their pricing, how do they all fit together? They could be very significant drivers of performance on a go-forward basis. So the specified pool characteristics are going to be really important. Chris and I were just actually looking at some numbers this morning, which I just thought were interesting. When we looked at, for example, our 6.5 population, which is only 5% of our portfolio, the cheapest to deliver cohort in the 6.5 population today is paying at a 52% CPR. Our population is trading at just less than half of that from a CPR perspective. So the underlying characteristics matter a lot. The coupon composition will matter a lot. It will be the key driver. We also, from an interest rate perspective and from a hedging perspective, as you point out, I think it's also going to be important to operate with a positive duration gap because obviously, as rates go down, it will be more challenging for mortgages and it will affect the supply outlook. So a positive duration gap will be important. And you'll also notice, and we did this last quarter, but it's still there today. We also have actually a fairly substantial receiver swaption position, which will give us some incremental protection. So all the combination of how do we position the portfolio from a hedge perspective, the duration gap using option-based hedges and in particular, avoiding the worst pools and selecting pools that we think have really attractive characteristics should benefit us in this rising prepayment environment. Operator: And our last question comes from the line of Harsh Hemnani with Green Street. Harsh Hemnani: So as we look at the composition of the mortgage market, it's more barbelled today versus what it was over its history. And in the context of the PAR coupon being close to 5%, the coupons at 4% and 5%, there's less outstanding there versus in higher coupons and lower coupons. And then also, it sounds like from the messaging from the administration, GSE purchases are going to come in at those PAR coupons. How is that environment sort of affecting your ability to, first off, pick pools in this environment where there's less outstanding at the coupons you favored and then also deploy capital into those coupons? Peter Federico: Yes. I think I got all that. I would say you're right. I mean one of the things that we have talked about and focused on is the fact that I would expect the GSEs to -- first off, I would expect the GSEs to make decisions based on the economics of the mortgage market, but I would expect their focus of their purchases to likely be around the PAR coupon because that will have the greatest impact on the primary mortgage rate, which is what they're trying to affect. And that's why when you -- for example, when you look at the performance across the coupon stack even quarter-to-date, that 5%-ish coupon is probably 15 basis points tighter. But the rest of the coupon stock on average, for example, our portfolio, and Bernie mentioned our returns quarter-to-date, are more consistent with about 5 basis points on average because all the other coupons didn't move nearly as much. So -- but from an overall perspective, I mean, that's not particularly challenging from our perspective. We certainly have a lot of liquidity in all of these coupons. Obviously, the largest cohorts are the lower coupons and you mentioned sort of those intermediate coupons. But there is ample liquidity. When you think about the $9 trillion market, there is ample liquidity for us to move into various coupons, into 4s, 4.5s. We have a sizable position in those coupons today. So there's plenty of liquidity for us to position the portfolio anyway we want from an overall coupon distribution perspective. And I would expect the current coupon to be the area that has the most focus from an external perspective. Harsh Hemnani: Got it. That's helpful. And then maybe on the duration gap, you touched on this a little bit. It's been growing for the past few quarters, and it adds that downgrade protection in an environment where prepayment risks are elevated. How should we expect that to evolve over the coming quarters? And then what's the boundaries around that, that we should be thinking about? Peter Federico: Yes. You're right. I mean, I think we ended the quarter, our duration gap was like [ 0.3/10 ] a year or something like that. It's larger than that today because the 10-year has backed up. So right now, we have about a half a year -- that was 0.4 at the end of last quarter. I think it's just a little higher than that, maybe 0.5 this morning. Because the 10-year now is up about [ 420 ] or a little bit above. So to the extent that the 10-year rate stays here or maybe moves a little higher, I would expect our duration gap to widen even more because I think the risk to lower rates would obviously increase. I don't expect the 10-year to move very much above, say, [ 435 ] and I expect there to be some risk that it gets back down closer to 4%. So our duration gap probably in this neighborhood where we'll operate from a historical perspective, just to give you some guidance. I mean, I would say in the half year-ish type range, somewhere between 1/4 of year and 3/4 of the year would be typically where we would operate. Operator: We have now completed the question-and-answer session. I'd like to turn the call back over to Peter Federico, for concluding remarks. Peter Federico: Great. Thank you, operator, and thank you, everyone, again, for participating. We're obviously very pleased to be able to deliver outstanding results for our shareholders in 2025, and we look forward to 2026 in the environment that we're in and look forward to speaking to you again at the end of the first quarter. Thank you. Operator: Thank you for joining the call. You may now disconnect.
Operator: Good day, everyone. Welcome to the conference call covering NBT's Bancorp's Fourth Quarter and Full Year 2025 Financial Results. This call is being recorded and has been made accessible to the public in accordance with SEC Regulation FD. Corresponding presentation slides can be found on the company's website at nbtbancorp.com. Before the call begins, NBT's management would like to remind listeners that, as noted on Slide 2, today's presentation may contain forward-looking statements as defined by the Securities and Exchange Commission. Actual results may differ from those projected. In addition, certain non-GAAP measures will be discussed. Reconciliations for these numbers are contained within the appendix of today's presentation. [Operator Instructions] As a reminder, this call is being recorded. I will now turn the call over to NBT Bancorp President and CEO, Scott Kingsley for opening remarks. Mr. Kingsley, please begin. Scott Kingsley: Thank you, Sania. Good morning, and thank you for joining us for this earnings call covering NBT Bancorp's Fourth Quarter and Full Year 2025 results. With me today are Annette Burns, NBT's Chief Financial Officer; Joe Stagliano, President of NBT Bank; and Joe Ondesko, our Treasurer. Our operating performance for the fourth quarter continued to reflect the positive attributes of productive fixed rate asset repricing trends the diversification of our revenue streams, prudent balance sheet growth and the additive impact of our merger with Evans Bancorp completed in the second quarter. Operating return on assets was 1.37% for the second consecutive quarter with a return on tangible equity of 17.02%. These metrics demonstrate continued improvement over the prior year quarters and importantly, reflect the generation of positive operating leverage. Our tangible book value per share of $26.54 at year-end was 11% higher than a year ago. The continued remix of earning assets, diligent management of funding costs and the addition of the Evans balance sheet resulted in a 36 basis point improvement in net interest margin year-over-year. Growth in noninterest income continues to be a highlight with each of our nonbanking businesses achieving record results in both revenue and earnings generation for 2025. In the third quarter, we were pleased to announce to shareholders a year-over-year improvement of 8.8% to our dividend, marking our 13th consecutive year of annual increases. This is reflective of our strong capital position and our generation of consistent and improving operating earnings. Our capital utilization priorities focus on supporting NBT's organic growth strategies, as well as improving our dividend each year. In addition, our strong capital levels continue to allow us to evaluate a variety of M&A opportunities. Finally, returning capital to shareholders through opportunistic share repurchases is also a component of our capital planning. And as such, we repurchased 250,000 of our own shares in the fourth quarter. Our transition and integration activities over the past 8 months with the team members who joined us from Evans Bank have been highly successful and have reaffirmed our belief that we have added a customer and community-focused group of talented professionals to our ranks. We remain excited about our opportunities in the Western region of New York. Activities have continued to progress across Upstate New York semiconductor chip corridor in the fourth quarter, including the official groundbreaking of Micron's planned complex outside of Syracuse. Site development and construction of the first fabrication facility is expected to commence immediately with completed targeted in 2030. I will now turn the meeting over to Annette to review our fourth quarter results with you in detail. Annette? Annette Burns: Thank you, Scott, and good morning. Turning to the results overview page of our earnings presentation. For the fourth quarter, we reported net income of $55.5 million or $1.06 per diluted common share. On a core operating basis, which excludes acquisition-related expenses and securities gains, our operating earnings were $1.05 per share, consistent with the prior quarter. Revenue generation remained favorable and consistent with the prior quarter and grew 25% from the fourth quarter of the prior year, driven by improvements in both net interest income and noninterest income, including the impact of the Evans merger. The next page shows trends in outstanding loans. Including acquired loans from Evans, total loans were up $1.63 billion or 16.3% for the year. During 2025, commercial production remained strong, but we did experience a higher level of commercial real estate payoffs. We have captured quality C&I opportunities across our markets, which have provided growth in core deposits, consistent with our focus on holistic relationships. Our total loan portfolio of $11.6 billion remains very well diversified and is comprised of 56% commercial relationships and 44% consumer loans. On Page 6, total deposits were up $2 billion from December 2024, including deposits from Evans. We experienced a favorable change in our mix of deposits out of higher cost time deposits and into checking, savings and money market products. 58% or $7.8 billion of our deposit portfolio consists of no and low-cost checking and savings accounts at a cost of 80 basis points. The next slide highlights the detailed changes in our net interest income and margin. Our net interest margin for the fourth quarter decreased 1 basis point to 3.65% compared with the prior quarter, as lower earning asset yields were largely offset by a reduction in funding costs. In addition, a higher level of lower-yielding short-term interest-bearing balances in the fourth quarter reduced NIM by 1 basis point compared to the third quarter. Net interest income for the fourth quarter was $135.4 million, an increase of $1 million above the prior quarter and $29 million above the fourth quarter of 2024. The increase in net interest income from the prior quarter was driven by the decrease in interest expense more than offsetting the decrease in interest income, as the decline in short-term interest rates impacted both earning asset yields and funding costs. As a reminder, approximately $3 billion of earning assets repriced almost immediately with changes in the federal funds rate, while approximately $6 billion of our deposits, principally money market and CD accounts remain price-sensitive. The opportunity for further upward movement and earning asset yields will depend on the shape of the yield curve and how we reinvest loan and investment portfolio cash flows. The trends in noninterest income are outlined on Page 8. Excluding securities gains, our fee income was $49.6 million, a decrease of $1.8 million compared to the seasonally high third quarter and increased 17.4% from the fourth quarter of 2024. Our combined revenues from the retirement plan services, wealth management and insurance services exceeded $30 million in quarterly revenues. Consistent with historical trends, the fourth quarter is typically our lowest quarter in revenue generation for these businesses, while the third quarter is seasonally higher. Noninterest income represented 27% of total revenues in the fourth quarter and reflects the strength of our diversified revenue base. Total operating expenses, excluding acquisition expenses, were $112 million for the quarter, a 1.5% increase from the prior quarter, including higher technology, year-end charitable contribution and marketing costs. The effective tax rate for the fourth quarter was lower than the prior quarter at 20.3%, primarily due to the finalization of the assessment of the deductibility of merger-related expenses and the associated impact on the full year effective tax rate of 23%. The Slide 10 provides an overview of key asset quality metrics. Provision expense for the 3 months ended December 31, 2025, was $3.8 million compared to $3.1 million for the third quarter of 2025. The increase in the provision for loan losses was primarily due to a slightly higher level of net charge-offs in the fourth quarter of 2025. Reserves were 1.19% of total loans and covered 2.5x the level of nonperforming loans. In closing, the current level of net interest income and fee-based revenues have produced solid results with meaningful positive operating leverage, supported by disciplined balance sheet management as we've navigated three federal funds rate cuts in late in 2025. Asset quality remains stable. And with our strong capital position, we are well positioned to pursue growth opportunities across all our markets. Thank you for your continued support. At this time, we welcome any questions you may have. Operator: [Operator Instructions] Our first question will be coming from Feddie Strickland of Hovde Group. Feddie Strickland: Just -- and you mentioned in your opening comments, higher CRE payoffs for part of the slower loan growth. I mean, do you expect any larger payoffs on the commercial side in the next couple of quarters? And then broadly, how does that factor in to overall loan growth keeping in mind the run-off portfolios? Scott Kingsley: Thanks, Feddie. And yes, we have officially hurdled the 100-inch snow mark in Central New York. So I appreciate the sentiments on that. So your question is a good one. So in 2025, we probably had $150 million to $175 million of unscheduled commercial real estate payoffs. And where do they go? Agency money and in certain of our markets, private equity or private funding, maybe the private funding more closely aligned with some of the more larger urban areas, Southern Hudson Valley and maybe some things in New England, closer to Boston, but meaningful. So I think we think that, that's an outsized number, but we're planning for -- that could be a risk for our growth attributes going forward this year as well, understanding that there's other people out there just looking for yield. And as rates have started to come down a little bit more, I think some of our sponsors are getting offers from agency, structures and other places that are too good to turn down. Feddie Strickland: Got you. And along those same lines, I mean, can you just update us on what you're seeing in terms of loan pipelines, opportunity in terms of tight geography I'm particularly curious about Rochester and Buffalo since you've mentioned them in your opening comments. Scott Kingsley: Yes. Thank you. So across the franchise, from Buffalo to Portland, Maine from Louisbourg, Pennsylvania to Burlington, demand is good. Pipelines are strong, stronger than they were at this point last year. And we feel pretty good about the opportunities we're getting to see. We have a -- as you know, we tend to focus on things that are more holistic from a relationship standpoint. So CRE-only outcomes for us are not as attractive as something where there's real estate involved, but we get a full operating relationship with the sponsor or through C&I relationships. So no reason appears to have a real gap in demand. I think certainly given the cost of building compared to maybe early or mid-2024, there's not as many projects underway on the multifamily housing side, which is where we tend to have a concentration. But those that are out there are good opportunities. I think the pipeline is good in Western New York in Rochester and Buffalo, I think the team is really energized. We've added a couple of really talented people to the group. And I think on a going-forward basis, we're pretty bullish on opportunities we'll see in Western New York. Feddie Strickland: And I guess just to drill down on that. I mean, is kind of the mid- to lower single-digit growth rate a good number for '26? Scott Kingsley: I think it is. And reminding people that we still continue to have our just south of $800 million, older loan portfolio that's in runoff. And we use last year as a marker for that that's moving downwards about $100 million a year. So we're seeing good activity around C&I, and we're seeing good opportunities on the CRE side in most of our marketplaces. And again, we can exercise selectivity as to which ones we put our best foot forward for. And in fairness, starting in the fourth quarter, we saw better consumer lending activity, especially on the mortgage side. So upbeat that customers potentially who were thinking about moving for the last 2 or 3 years, can deal with a low 6% mortgage rate and given the dynamic of what most people have as equity in their home decide to do something else. Operator: And our next question will be coming from Mark Fitzgibbon of Piper Sandler. Mark Fitzgibbon: First question I had, it looked like, Scott, you had boosted your reserve against the solar book this quarter by a decent amount. I was curious if anything had fundamentally changed there? Annette Burns: No fundamental change there. I think we were trying to kind of rightsize our coverage allowance, given that it is a runoff portfolio. So really, what you saw this quarter is kind of recalibration of that coverage ratio, but no trends or negative concerns as it relates to that book. Mark Fitzgibbon: Okay. And then secondly, I was curious how, if at all, the tensions between the U.S. and Canada is impacting sort of the economy in the northernmost markets of your footprint? Scott Kingsley: Yes, a really good question. And I think I may have said this before, Mark, but we love the Canadians. We grew up with those people. And we have a lot of -- our customers have a lot of business that are cross-border, whether that's out in Western New York and Buffalo or whether that's up in Northern New York closer to Plattsburgh, it's a real issue. I think that the Canadian customers are just frustrated, whether that means they come into the Adirondack for seasonal housing or just straight commerce. I think the unpredictability of where we've been with tariff rates and what things were going to be accessible to that point. And I think, if I was kind of going through the underlying comments, what I have heard from people that I've talked to, is a sense of can we trust you still? And so I think that's caused hesitation and future investments. or an existing investment moving forward. So problematic for us because those are not the highest areas of long-term growth anyways. So it's really important to have that connection to the Canadian base for some of our customers to do the things they want to do. Mark Fitzgibbon: Okay. Great. And then I guess changing gears a little bit. As you think about M&A, I'm curious, are the hurdle rates of return that you're looking for higher today than in the past, given that the market really hasn't been at -- enamored of many acquisitions in recent quarters and obviously, your own frustration with your stock price post-Evans. Scott Kingsley: So a couple of things on bundler, but thank you for that. And yes, we think that -- if think about it, a combination of the Evans transaction and us improving our net interest margin, 35 or almost 40 basis points last year, has shifted the plateau of our earnings capacity from somewhere close to $0.80 a quarter to $1. And we think that's pretty noticeable. Worked hard to get to that point. But at the same point in time, the construct around people worried about either the execution risk associated with M&A or the dilution of your attention to other strategic objectives. Not an issue for us. The Evans transaction went as good as we could have hoped for. Their folks are really engaged. We've had to put them through some changes to some of our systems, but they've really been good at bringing that alive. And I think that from a practical standpoint, they're looking forward going forward. Your question on hurdle rate is a good one. We're a $16 billion bank now. So it's not so much what transaction is large enough for us to be interested in is that do we put our folks, our organization through an M&A opportunity that can't at least generate or 5% accretion? So if we're running kind of off a base of $4 a share, does something have to be north of $0.20 a share for us to really take a hard run at that. Now you can look at a bunch of different things, and you can accomplish that in a bunch of different ways. But for us, it's generally been a modest extension of the franchise geographically or really productive fill-in opportunity where our concentration hasn't been as high as we'd like it to be. So still having lots of conversations. There's a lot of high-quality, like-minded smaller community banks across our seven states. So the opportunities are there. And that's how we kind of think about it from a capital deployment mark. Operator: And our next question will be coming from Thomas Reed of Raymond James. Thomas Reed: This is Thomas on for Steve. Just wanted to start off, maybe as you guys are looking -- or as you look to deepen your presence in select markets to support growth, can you talk about maybe any planned hiring initiatives that you may have and whether those investments are already reflected in that expense guidance? Scott Kingsley: Yes. And I might even ask Joe to help me a little bit on this one. So I think we believe that all of our geographies are investable today. So I'll just use an example. We've added a couple of really high-quality folks to the team up in Maine. We have a really nice base of customers in Maine, but we never fully extended our reach from the standpoint of full holistic banking, and we're doing more of that. So the folks that we brought on board have C&I backgrounds. We've committed to a branch site off the wharf in Portland, our first true retail branch site, and we're about to make a commitment for another one up there. Joe? Joseph Stagliano: Yes. Sure, Scott. Branch site, just off the wharf, we call it Bayside. It's a marginal way. We've also signed a letter of intent down in Scarborough. So building out our main presence are really important to us. And why is that? We have good quality bankers up there and adding good quality bankers to the team, which Scott just alluded to. Now over in Western New York, the same thing, really good quality hires across all parts of the bank. Including insurance and mortgage. Scott mentioned our mortgage results the last quarter. So we're seeing some really nice pipelines across our entire footprint. So where are our focus areas? Definitely, New England, Maine, we mentioned, but also New Hampshire, the Greater Manchester market, a really important market for us, where we're looking for some growth opportunities with some new branches, as well as in Rochester, already looking at sites in Rochester. We have a lot of intent that we've signed in the city and planning on moving a financial center there in downtown Rochester, as well as across other parts of the Western region. So still in targets, as well as some of our newer markets. We're excited about the prospects that they're going to bring to us. Operator: [Operator Instructions] Our next question comes from David Konrad of KBW. David Konrad: Just had a question on the NIM outlook next year, it feels like maybe stability might be the key phrase. I'm not sure. But, the great news is your deposit costs are down to 2%. The bad news is your deposit costs are down to 2%. It might be challenging to reprice. And your commercial book, now the portfolio seems to be pretty close to new originations. So maybe talk about the NIM outlook over the next few quarters? Annette Burns: Sure. I'll start on that one. So you're right. We have our net interest margin 3.65% is a very strong NIM. We can really throw off some nice core earnings with a NIM like that. We are neutrally positioned, so we've been actively managing through federal funds rate cuts over the last few months. So when we think about our margin expansion, it's probably in that 2 or 3 basis points a quarter. Some of the factors that will influence our ability to reprice our book if you think about the lending side, probably our largest opportunity is in the residential mortgage book where we probably have somewhere in the 125 to 130 basis points of room there. Our other books are probably pretty close to market rates at this point. Another area where there's some opportunity is in our investment securities book, still have some repricing opportunity there, probably throws somewhere around $25 million in cash flows a month. You're spot on. We have very low funding costs. We talked about having right around $6 billion in deposits that we can actively reprice with market sensitivity. Probably the biggest opportunity there is in our CD book, probably 77% of that reprices in the next 2 quarters. So I think there is some room, but probably not to the extent that we've seen in 2025, it's probably limited to a few basis points. Net interest income improvement is probably going to be more focused on our earning asset growth and the opportunities that we have there. Scott Kingsley: Yes. And then I'll just follow up with that. A good observation, Dave, on the commercial crossover where for the quarter, new activity or new loans at a rate that was not terribly different than portfolio yields. Some of that was yield curve base during 2025. Remember that the 2- to 5-year point of the curve, kind of came down 60 to 75 basis points during the year. when you started the year and said, "Hey, listen, I still got a gap between new production and portfolio yields", some of that got taken away with just natural market activity. In a couple of our markets, we're seeing a little bit of pressure on spread. They typically are the best assets, and so needless to say, whether we're defending or seeing something new, we're very interested in those types of credits. But holding to a north of 200 or 225 spread above SOFR has been more difficult in recent months. And maybe that's just a function of market demand right now. There was a little bit of a -- a little bit of slowdown in the second half of the year. And then made the comment about our opportunity in -- on the CD book. CD duration today for everybody, not just us, is dam short, 5- to 7- to 9-month instruments and whether we start to see some elongation from us or from others on that, so people can lock in some yields as it looks like the rate structure is more moving in a direction of down, not up. And lastly, I'll remind everybody that the customer used to getting the yield for the last 3 years. So if you're a customer with significant liquidity, whether you kept it on a bank balance sheet or moved it off, you're used to getting a yield. After going 13 or 14 years with no yield, you now know what that looks like. So I think people utilize the tools that we give them from a treasury management standpoint, and they're very smart with how they do funds management. Operator: And our next question will be coming from Daniel Cardenas of Janney Montgomery Scott. Daniel Cardenas: So maybe just a quick question on competitive factors throughout your footprint on the lending side, would you say competition is fairly rational? Or are you beginning to see perhaps a pickup in pressure as people are looking for growth? Scott Kingsley: Yes. I would say a little bit as people are looking for growth, and if nothing else, a lot of defense when people have really solid customers where they're the incumbent, where they're defending. I don't think we've seen anything irrational from a structural standpoint. And those have seemed to make sense for us. I mentioned before, some of our payoffs came from agency-based funding sources where, in fairness, both structure and rate is something that are better normally for the customer than what our standards actually allow for that way. But I don't think it's pervasive and we have so many different markets to be participating in that I wouldn't make a general construct out of that just today. But I will say this, if you're a highly rated company and you're doing well and you have a history of doing well, you've been able to demand a lower spread if you're interested in new money this year. Daniel Cardenas: Good. And then on the deposits front, are there any markets that are better able to absorb a decrease in rates, as rates come down, are you going to be able to push down deposit costs in any markets better than others? Scott Kingsley: I would kind of frame it this way, and Annette, if you have something else, let me know. But we have such good market share in so many of our legacy markets that we've been able to do rational things as rates decline in those markets pretty uniformly. In some of our other markets where we don't enjoy that kind of a share, maybe we've had to keep rates a little higher for a little bit longer or we've got some concentration characteristics that haven't forced down the rates as fast as the Fed has moved. But generally speaking, the fourth quarter was pretty indicative of that. $3 billion of our assets reprice immediately upon a Fed's fund decline, and it takes us a little bit longer. There's a little lag there to get the funding cost down. Maybe we're a month or 6 weeks behind, but so far, we've been pretty diligent at getting it to that point. Daniel Cardenas: Great. And then just last question for me on the credit quality front. Any areas that you guys are perhaps tapping the brakes on? I mean, your credit metrics are good. Just wondering if maybe you're approaching any particular area with the -- a little bit more caution than maybe you were 2 or 3 quarters ago. Annette Burns: Not necessarily anything new. We have a pretty diversified book. So we pay attention to concentrations. We're probably a little less excited about hospitality or the office space, but that's not new. So I don't think we have anything that's specific emerging trend from something that we're going to shy away with continuing to just monitor as maturities come due and make sure we understand what our customers' position is and their ability to refi when that maturity happens. But also pretty well balanced as far as what our maturity, no large maturity walls or anything like that. So just navigating customers and paying attention to our industry composition, but really no emerging industry or anything we're avoiding at this point. Operator: Our next question will be coming from Matthew Breese of Stephens. Matthew Breese: I wanted to touch on charge-offs a little bit. For a while there, meaning for the years kind of proceeding COVID, charge-offs at NBTB could be anywhere from 30 to 35 basis points per quarter routinely. And with the consumer balances and wind down and coming down, should we reframe charge-off expectations here to something lower? And how would you kind of characterize normal with the makeup of the current book? Annette Burns: Yes, Matt, that's a good question. I -- back in maybe 5 or 6 years ago, our charge-off rates were probably somewhere in that 25 to 30 basis points. We had a fairly large unsecured consumer book with our LendingClub and Springstone portfolio, as well as our residential solar book, which is has much less of an impact. So those were throwing up a little bit higher charge-off rates. As those books wind down, we would expect to see more lower levels of charge-offs and kind of where we've been running at somewhere in the 20 basis points range, 15 to 20 basis points range is probably kind of more normalized as those books become smaller and smaller. Just -- I think residential solar is somewhere in the 90% to 95% charge-off rate basis point charge-off rate -- versus probably somewhere closer to 8% to 10% with that prior book. So really, I think that that's kind of where we are in 2025 is kind of probably that new normalized rate. Scott Kingsley: And I think, Matt, if you think about it, that we've done such a good job in indirect auto lending and our losses historically. Have kind of been between 20 to 35 basis points. So despite the cars being way more expensive in 2026, than the last time that Matt Breese bought a car, we've held in very well on that, and the customers have performed quite well on that side. Someone read to me the other day, a statistic that our combined mortgage losses from 2020 to 2025 were $31,000. So we continue to lead with that product. It's really, really important in our core marketplaces. And so many other opportunities present themselves once you're the core lender on the mortgage side. So I don't see us taking our focus away from that line of business either. Matthew Breese: Yes, not the greatest auto customer here. Annette, while you were discussing the reserve on solar, has the appetite to sell that book changed at all? And maybe I'm connecting the wrong dots, but one of my thoughts as you were discussing the recalibration there was whether or not you've been listening to bids or rethought kind of what the mark should be on that book? Scott Kingsley: I'll start with that one, Matt, and then have Annette jump in as well. The dilemma we have is so much of our production was sort of in the 2020 to early 2023 time frame where we experienced really productive, but substantial growth in that portfolio. And I think we all knew what the rate structures look like in the world then. So from a marketability of that portfolio, which we would move out of, if we could find something that made sense for us. But right now, it's really just a rate question. I think the assets are performing much better than most other solar portfolios in terms of loss rates and customer performance. but the rates are low. And so for us to do that, would be a substantial outcome. And much like investment portfolio restructuring, we're kind of curious. If we can't find something that's got a terminal value above zero, we don't like to do it. So I think for us, we're hanging in there, waiting for the customer to pay us back and redeploy those proceeds and other things. Matthew Breese: Understood. And then last one is just on share repurchases. This quarter's level is a bit higher than I was expecting. What are some of the catalysts or triggers for you to repurchase stock? And is what we saw this quarter something we might see in early '26? Scott Kingsley: Yes. Great question, Matt. I said this last quarter, I thought I was going to get to go my whole career, and not buy shares. But truthfully, the opportunity presented itself. And to your point, two things. Value price, because somebody pointed out earlier, we think our valuation does not fully reflect the improvements we've had from an operating earnings standpoint. And number two is capacity, right? So with our change of earnings capacity, essentially, those share repurchases that we did in the fourth quarter, a little over $10 million worth. We self-funded in the quarter and didn't change any of our capital ratios. So I think it presents an opportunity for us to follow that pattern like we did in the fourth quarter. Going into the future, and we probably have more capacity than that. But I'm saying we think we can self-fund the level that we bought in the fourth quarter every quarter. Operator: [Operator Instructions] Our next question will come from Feddie Strickland from Hovde Group. Feddie Strickland: I had a couple of quick follow-ups. First on the margin. I did notice secretion income picked up some there. Just to clarify, the margin still increased in the first quarter even if that normalizes back down. Annette Burns: So accretion, usually, there are a handful of accelerated payoffs or affecting accretion during the quarter, which are very hard to predict. We think working through some of the federal fund rate cuts that happened in December, the margin will probably be fairly stable, if not, maybe affected by a basis point or 2 barring any changes that are normalized accretion. So that's kind of how we're thinking about margin for the first quarter. Feddie Strickland: Okay. Got it. And then just on fees, I saw there was some seasonal activity-based fees in the wealth line. Do you have a sense for how much of the linked quarter growth was seasonal? Annette Burns: So probably somewhere around 300,000 to 400,000 was seasonal related on the wealth side. So just some activity-based fees. But all in all, a very strong quarter with organic growth, and our market helped a little bit with that. On fee income in general, there's probably somewhere around $1 million to $1.5 million of BOLI gains and other securities gains that are a little harder to predict the activity there. I think, BOLI, on a normal run rate basis is somewhere around $2.4 million. Scott Kingsley: Yes. And I even follow that up. And I think now that as we've gone to be a larger enterprise, the seasonality is a bit less noticeable for us. But -- kind of as a quick reminder, the insurance business tends to thrive in the first and the third quarter based on renewal time frames with a little lower activity in the second and the fourth benefits administration, the retirement plan administration business, usually solid first, second, third, with a little less activity fees in their fourth quarter. Your observation is astute. Wealth had a really, really strong year and a really strong finish to the year, and some of that was a bit seasonal, but generally speaking, we're in a really good lift off point on all of those businesses. I think the other thing, I think Annette has reminded people from time to time is that in our first quarter, we tend to have $0.04 or $0.05 of operating costs that are not usually reflected in some of the other quarters. Some of that is seasonality. It's just more expensive to plow and heat than it is to mow and air condition. So that's a basic one. But we also have higher payroll costs in the first quarter of the year and usually higher stock-based compensation expense just based on the protocol, the timing of how we grant new awards. So I think we always kind of think about this $0.04 to $0.05 carry that the first quarter has on the OpEx side that usually the other quarters don't have to work through. Operator: And I would now like to turn the call back to Scott Kingsley for his closing remarks. Scott Kingsley: In closing, I want to thank everyone on the call for participating with us today, and we appreciate your interest in NBT. Stay warm. See you next time. Operator: Thank you. Mr. Kingsley. This concludes today's program. You may now disconnect.
Operator: Good day, and welcome to the Community Bank System, Inc. Fourth Quarter 2025 Earnings Conference Call. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. There will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star and then 2. Please note that this event is being recorded and discussion may contain forward-looking statements within the provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, estimates, and projections about the industry, markets, and economic environment in which the company operates. These statements involve risks and uncertainties that could cause actual results to differ materially from the results discussed. Refer to the company's SEC filing, including the risk factor section, for more details. Discussion may also include references to certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in the company's earnings release. I would now like to turn the conference over to Dimitar Karaivanov, President and CEO. Please go ahead. Dimitar Karaivanov: Thank you, Dave. Good morning, everyone. Thank you for joining our Q4 and full year 2025 earnings call. My summary of the quarter is that I am very pleased with the revenue strength across all of our businesses, the liquidity and credit quality of our balance sheet, and that we also have more than the usual noise in our expense base. Mariah will provide you the details with some high-level reconciliations to prior quarter expenses. But overall, I would say that most of the delta is driven by items that are tied to actual earnings performance plus recent transactions and consolidations. Overall, 16% operating earnings growth in 2025 while making the largest organic growth investments that our company has ever made and actively deploying capital in high-return businesses is something I am very happy with. I am most happy about the progress we continue to make in our brand, reputation, talent, capabilities, presence, and the market share gains they are accruing as a result of it. One recent data point in our banking business: During the fourth quarter, we were selected as a 2025 company of the year in banking by the Buffalo Business First. Looking at a bit more details in the businesses, the largest percentage improvement in pretax income compared to the third quarter was visible in our employee benefit services business, which grew pretax income by 10% quarter over quarter. As discussed previously, we spent most of 2025 revamping our growth strategy in the trust fund administration side of the business and expect to start seeing the fruits of that in 2026. Mariah Loss: While full-year performance was in the low single digits, Dimitar Karaivanov: Q4 marked a year-over-year improvement of 8% in revenue, and 13% in pretax income as this momentum is beginning to take shape. We expect that 2026 growth will revert back to mid to high single digits. Now our banking business, in 2025, we benefited from both mid-single-digit asset growth and expanding margin which drove very meaningful operating income growth of 22% on a full-year basis. I would note that our 5% loan growth compares favorably to the industry and local peers and came in spite of very elevated paydowns of over $300 million in the commercial business. We have continued to add talent and customers from recent disruptions around our footprint and in our expanded footprint. Insurance services had a strong year as well with top-line growth of 8% and operating income growth of 42%. We expect mid-single-digit growth going into 2026. In wealth management services, revenues as expected were impacted by some realignment of producers which also as expected resulted in positive margin and operating pretax income with growth of 15%. We expect mid-single-digit growth in 2026 as we account for the full run rate of these changes. In aggregate, we had a very strong year in banking, insurance, and wealth. All of those businesses were ahead of industry metrics and peers in their bottom line improvement. Given that banking accounted for the majority of the very significant investments we are making, I am very pleased with the bottom line result there of 22% growth. We were less successful in our employee benefit services in 2025, due to both some revenue challenges and planned investment in the fund administration side. Mariah Loss: With that in mind, Dimitar Karaivanov: the trends there as mentioned are positive, and I expect meaningful improvement in 2026. I would also call out the impact of New York state income taxes. As our tax rate is now almost 2% higher than eighteen months ago. That is real money, but we will keep working through those headwinds as well. For 2026, one of our main areas of focus is expense management, and beginning to harness more fully the investments and focus we have in AI and automation. As a quick statistic on that, due to our focus on automation, we have saved over two hundred thousand hours over the past three years. And that has allowed us to keep our headcount roughly flat while growing the overall business meaningfully. We now need to see it fully in the bottom line. Now let's talk about returns. The pretax tangible returns for the quarter were 61% for employee benefit services, 39% for wealth management services, 26% for banking and corporate, and 8% for insurance services. The return in insurance services is impacted by the increase in allocated capital, due to our investment in LEAP, and seasonally lower revenues in Q4. Similar to last quarter, we continue to aggressively pursue opportunities to deploy capital at high tangible returns. Durable, growing subscription-like revenues remain our main focus and point of excitement. Our recently announced transaction with ClearPoint is a great example of that. We are excited about both the quality and durability of the trust revenue that it will provide and also the multitude of opportunities for us to deploy both expanded wealth management and banking products to the customer base. Mariah Loss: Lastly, I would note that in spite of the meaningful inorganic growth Dimitar Karaivanov: our share count is flat for the year. To reinforce our feelings, as shareholders, we love our company and its prospects. And want to own more not less of it. We are also not too excited about trading shares in our high-quality diversified income streams for lower quality ones unless there are significant offsetting benefits. With that, I will pass it on to Mariah for more details. Mariah Loss: Thank you, Dimitar, and good morning all. As Dimitar noted, the company's fourth quarter and full-year performance was robust in all four of our businesses. Including acquisition expenses, GAAP earnings per share of $1.03 increased $0.09 or 9.6% from the fourth quarter of the prior year and decreased 1¢ or 1% from linked third quarter results due to $0.04 per share of expenses associated with the Santander branch acquisition. Operating earnings per share and operating pretax pre-provision net revenue per share for record quarterly and annual results for the company. Operating earnings per share were $1.12 in the fourth quarter, as compared to one point one year prior and $1.09 in the linked third quarter. Fourth quarter operating PPNR per share of $1.58 increased $0.18 from one year prior and increased 2¢ on a linked quarter basis. These record operating results were driven by a new quarterly high for total operating revenues of $215.6 million in the fourth quarter. Mariah Loss: Operating revenues increased $8.7 million or 4.2% from the linked third quarter and increased $19.5 million or 10% from one year prior Mariah Loss: driven by record net interest income in our banking business. The company's net interest income was $133.4 million in the fourth quarter. This represents a $5.3 million or 4.1% increase over the linked third quarter and a $13.5 million or 11.2% improvement over 2024 and marks the seventh consecutive quarter of net interest income expansion. The company's fully tax-equivalent net interest margin increased six basis points from 3.33% in the linked third quarter to 3.39% in the fourth quarter, driven by lower funding costs. During the quarter, the company's cost funds were 1.27%, a decrease of six basis points from the prior quarter driven by lower deposit costs and a lower average overnight borrowing balance due in part to the funding inflows from the Santander branch acquisition. Operating noninterest revenues increased $6.1 million or 8% compared to the prior year's fourth quarter increased $3.5 million or 4.4% from the linked third quarter, reflective of increases in overall banking and non-banking financial service revenues and included the one-time impact of a $1 million income distribution from a limited partnership investment. Operating noninterest revenues represented 38% of total operating revenues during the fourth quarter, a metric that continuously emphasizes diversification of our businesses. The company recorded a $5 million provision for credit losses during the fourth quarter. This compares to $6.2 million in the prior year's fourth quarter and $5.6 million in the linked third quarter. During the fourth quarter, the company recorded $138.5 million in total noninterest expenses, This represents an increase of $10.2 million or 8% from the quarter. Excluding the impact of a $2.1 million quarter-over-quarter increase in acquisition expenses due to the Santander branch acquisition, noninterest expenses increased $8.1 million or 6.4% from last quarter. $5.4 million of the increase from the linked quarter was from salaries and employee benefits, which was impacted by an increase in performance-tied incentive compensation including a $1 million true-up of long-term incentive program-related expense, an $800,000 true-up of annual management incentive plan expense, along with a $600,000 incentive accrual tied to revenue and bottom-line performance in the CRE finance and advisory business line. Operating expenses associated with the seven branches acquired from Santander totaled $1 million during the fourth quarter, while expenses associated with the Banque de Novo branch expansions increased $600,000 between linked quarters as additional branches were opened for business. The increase in other expenses was impacted by previously announced branch consolidation activities. Specifically, $800,000 of net property-related write-downs recognized during the quarter along with $600,000 of charitable contribution expenses that were accelerated prior to 2026 tax law changes. Excluding the above-mentioned expenses, write-downs, charitable contributions, and performance-related incentive accruals, Q4 noninterest expenses were $131.9 million, an increase of $4.3 million or 3.4%. Mariah Loss: Quarter over quarter. Mariah Loss: Ending loans increased $199.5 million or 1.9% during the fourth quarter and increased $517.4 million or 5% from one year prior. Primarily due to organic growth in the overall business and consumer lending portfolios. The loan growth also increased approximately $32 million of acquired loans associated with the Santander branch acquisition. The company continues to invest in its in our loan growth opportunities and expects continued expansion into the under-tapped markets within our Northeast footprint. The company's total ending deposits increased $945.4 million or 7% from one year prior, an increase of $330.2 million or 2.3% from the end of the linked third quarter. The growth in total deposits during 2025 was comprised of growth in all of the company's regions. The increase in total deposits between both periods was primarily driven by the $543.7 million of deposits assumed from the Santander branch acquisition. Moving on to asset quality. The nonperforming loans and net charge-off ratios were consistent with the linked third quarter, while the loans thirty to eighty-nine days delinquent increased 10 basis points from last quarter, aligned with typical seasonal trends. The company's allowance for credit losses was $87.9 million or 80 basis points of total loans outstanding at the end of the fourth quarter, an increase of $3 million during the quarter. The increases were primarily attributed to reserve building in the business lending portfolio, reflecting the growth in size and volume trends recently originated commercial loans. The allowance for credit losses at the end of 2025 represented over six times the company's net charge-offs during the year. We are pleased with the fourth quarter and full-year results. All of which reinforce our commitment to scale as a diversified financial services Mariah Loss: company. Mariah Loss: During 2025, the company made significant progress on our 15 new branches across our footprint. Additionally, during the fourth quarter, we successfully integrated seven former Santander branches in the Lehigh Valley market, which accelerates our retail strategy in a market we anticipate significant growth. Furthermore, we were excited to recently announce an agreement to acquire ClearPoint Federal Bank and Trust, a national leader in a niche trust administration market. This acquisition significantly expands the revenue and offering of our wealth management business is expected to close in 2026. Looking forward, we believe the company's diversified revenue profile, strong liquidity, and historically good asset quality provide a solid foundation for continued earnings growth. More specifically, for 2026, we expect 3.5% to 6% growth in loan balances, 2% to 3% growth in deposit balances, 8% to 12% growth in net interest income, four to 8% growth in noninterest revenues, a provision for credit losses in the range of $20 million to $25 million. Core noninterest expenses are expected to be in the range of $535 million to $550 million or an increase of approximately four to 7% from 2025 including approximately $8 to $9 million of incremental associated with the branch of Sequoia from Santander which includes the nonoperating amortization of intangible. These figures do not include the impact of pending or future acquisitions. Additionally, we anticipate an effective tax rate between 23% to 24%. Finally, as a reminder for the first quarter, noninterest expenses typically trend higher compared to fourth quarter levels due to merit increase higher FICA and payroll taxes, and seasonal snow removal costs. That concludes my prepared earnings comments. But I do want to say one more thing. It was a catch. Mariah Loss: Go, Bills. Mariah Loss: And with that, Dimitar and I will now take questions. Dave, I will now turn it back to you to open the line. Operator: Thank you. We will now begin the question and answer session. Dimitar Karaivanov: To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, would like to withdraw your question, please press star and then 2. Our first question comes from Steve Moss with Raymond James. Please go ahead. Steve Moss: Morning, Dimitar. Morning, Mariah. Dimitar Karaivanov: Maybe just starting on with loan pricing here. I hear you guys in terms of loan growth opportunities. Just curious I know pricing got a little more competitive here over the last three to four months. Just kind of curious what you guys are seeing and kind of what you guys think will be the drivers of growth in 2026. Mariah Loss: Yeah. So for the fourth quarter, Steve, Dimitar Karaivanov: originations were in the low sixes. Mariah Loss: And Dimitar Karaivanov: think the curve has not really moved much. So far in this quarter. So we are probably kind of in that range. Mariah Loss: All all Dimitar Karaivanov: all all we call, clearly, the trend is lower. So I think at some point this year, we will be below six. Could be the end of this quarter, could be next quarter. Who knows? But, yeah, the trend is clearly the lower on that. Fortunately for us, we have a lot of fixed asset repricing continue. So if you look at kind of that low sixes compared to the current yields that we have on the loan portfolio. There is still a decent amount of gap for us to benefit from. Steve Moss: Okay. Appreciate that. And then in terms of Dimitar Karaivanov: the noninterest income guide, I think, is what it was. Mariah, I missed I missed your comment there. Was that four to 8% growth for 2026? Mariah Loss: Eight to 12% growth for NII. Is that what you asked, Steve? Dimitar Karaivanov: Non NII. I am sorry. Mariah Loss: Oh, sorry. Sorry. Sorry. Mariah Loss: 48. Yes. 48%. Yeah. Steve Moss: Sorry. Yep. Okay. Great. I just want to do it. It is perfect. Yep. Oh, no worries. And and then in terms of the employee services Dimitar Karaivanov: employee benefit services business, you know, obviously, a healthy step up And Dimitar, I hear you in your comments in terms of the investment and some accelerating here. Just kind of curious, I think you said mid to high single-digit growth. Mariah Loss: Babies, is there just a little bit of, like, Dimitar Karaivanov: one-time stuff in nature in the fourth quarter or seasonality that we should think of? I I realize some of there is Mariah Loss: asset values, acquisitions and stuff. Dimitar Karaivanov: Just kind of thinking about the the cadence of that trajectory a little bit. Mariah Loss: Yeah. So Dimitar Karaivanov: in in in the employee benefits services, if you kind of split it up, and kind of look at what happened in 2025, in the retirement side of the business, we actually grew high single digits. So that was a very productive outcome on the retirement side. In the institutional trust side, we were basically flat year over year. And a little bit down on pretax because of the investment on the expense side. So as you think about 2026, if you split up the two businesses, retirement is at higher asset values this year so far than last year. So we will continue to see some some pick up there. It is probably going to taper down if asset values do not continue to increase. Just on an average basis, it is going to taper down over the year. So that is going to impact that growth trajectory and on the institutional Mariah Loss: trust side, Dimitar Karaivanov: we feel like we have really kind of turned the corner there on the revenue side, and we are sitting at the highest assets we we have had in that business as well. So between that and the I think we got more than 20 fund launches coming here in the first and second quarter. We are going to have an acceleration on that side of the house to get us back to that mid to high single digits. So I think in the aggregate basis, we were sitting here of course, depending on market conditions, Mariah Loss: would be mid to high single digits for the overall Dimitar Karaivanov: line of business. And you are right on the seasonality. There is more in the fourth quarter in that business. So you are going to see like, you expect in 2026, the fourth quarter, OLSQL to be the higher mark. For 2026. Steve Moss: Okay. Great. I appreciate all that color, and I will step back in the queue here. Dimitar Karaivanov: And the next question comes from David Conrad with KBW. Please go ahead. David Conrad: Yeah. Hey. Good morning. Dimitar Karaivanov: Just taking stuff a a big picture here. I mean, you put up I think, roughly about 38% of your revenues as fee income. You know, you have a, you know, peer leading 22.7 ROTCE. It looks like based on your guide, that ratio might hold back a little bit, but just kind of thinking about, you know, over the next three to five years, where do you think the fee ratio to revenues could go to? And you know, the implications of that to your ROTC Mariah Loss: Yeah. Great question. Dimitar Karaivanov: David, and one that we certainly hear a lot and we ask ourselves a lot as well. And I will start it this way. We love all of our four businesses. And we we are experiencing right now in the banking business, which is the largest, we are experiencing tailwinds on the margin side, which we have not had historically. So even as the other businesses are doing really well themselves, it is it is hard to overrun the bank given that you have margin expansion and asset growth at the same time. Now that is not going to be forever. You know, the the margin expansion party, I think, is going to slow down here this year and and and and beyond. So that is going to temper down some of that growth rates on the bank side. The same time, we continue to also invest heavily in inorganic and organic opportunities on the fee income side. So the the short of it is I I do not know where it is going to settle. We want to we want to have more of all of them, more of all of our core businesses. I think OL SQL, we understand where tangible returns are the highest. So if we have a dollar of capital to invest, it is going to go to the highest tangible return we can find. And that is why you have seen us, you know, not only invest in the banking business, but in the insurance business, in the benefits business, in the in the wealth business now with ClearPoint, Just as a reference point, we we complete probably somewhere between eight and twelve acquisitions every year. Most of them you do not see because they are in the fee income businesses. So they are kind of small singles and doubles that over time add up. And I think we will have more opportunities to to continue to do that and maybe take some larger swings along the way as well. Okay. Thank you. Appreciate it. The next question comes from Matthew Breese with Stephens Inc. Please go ahead. Matthew Breese: Hey, good morning. Morning, Dimitar. Morning, Mariah. Dimitar Karaivanov: Dimitar, the the ClearPoint transaction you know, and and its its market share in and I think you described it as the the death care industry. I do not know much about that. I do not know if I know any of the banks that are in that arena. You maybe just introduce us to what that industry is and and what you expect to do with their with their book there? It looks to be about $8 million in in fee income. You know, maybe set the table for us on that. Mariah Loss: Sure, Matt. Thank thank you for the question. So what Dimitar Karaivanov: ClearPoint does and kind of the the background of the industry more kind of at large, is that there is the cost of, death care know, basically people planning for the funerals and, you know, the their time in the cemeteries and taking care of of of the expenses that come with that. The cost for those services has increased over time pretty meaningfully. And as a result, there are multiple ways that people save for those events, in in those life events. Depending on the state, it could be trust, it could be insurance, or it could be deposits. Like in New York State. So there are pre-needs, you know, deposit accounts, which we already have, and I am sure about our players in New York state have as well. So that business, as you can imagine, you know, if there is one thing that is certain is that none of us are going to be around forever. So there is there is a and and the population is aging. So that is a you know, tailwind, if you will, in in in the space. There is a a few larger players. ClearPoint is one of the leading ones. There are some other banks, large regional banks that are in the space as well. And then there is a lot of kind of smaller entities around it. So, one, we like the Mariah Loss: the the Dimitar Karaivanov: like the space. We like the niche. We love business where we can compete nationwide with a differentiated Mariah Loss: offering. Dimitar Karaivanov: In a space that is not easy to penetrate. It is fairly complicated. It is state by state rules. It is nationwide. So we we have a clear right to win here. With with ClearPoint. So we love that. And then secondly, the the customer base here is is basically the funeral homes and cemeteries and and larger aggregators in in the space. And, right now, ClearPoint does predominantly the recordkeeping side of of those trust relationships. They are increasingly growing into the asset management side of of those relationships as well. For the monies in the trust. We think that we bring on day one a tremendous platform through our Nottingham advisors business with eight CFAs and three CFPs and close to $10 billion of assets. And nationwide reputation. So think there is exciting opportunities there. We also know that on the purely on the banking side, we have some products that fit very neatly with with the space as well. So we have a dedicated escrow product, which one of it is actually services and, you know, demos to clients is in the funeral space. So that is that is a pretty nice ability of on day one to provide additional offering We also through the SBA can certainly provide a lot of SBA type financing some of those funeral homes as well. So there is there is a there is a lot of multiple ways for us to to make a lot more money to than what they do today on their own. Matthew Breese: Very helpful. Excited to see what you can do that with that business despite, you know, Dimitar Karaivanov: the obvious morbidity. On expenses, you know, there is a lot of moving parts there, but I just wanted to get a sense for where the starting point is. In in 1Q 2026. Is it fair to use kind of the upper end of the $550 range in the first part of the year and maybe moving towards the middle? As the year progresses? Mariah Loss: Hi. Yes. Yes. That is that is fair. As as we mentioned in the prepared remarks, Q1 tends to lean a little bit heavier. And and as you heard us talk through Q4, you know, primarily comprised of de novo, Santander, bonus accrual, We also had a a rebate in Q3 for our medical expenses that did not carry over Q4, so you saw a little bit noise there too. You know, outside of these, items, what we are looking forward to most, I think, in 2026 is seeing that the fruits of our investments, you know, come to light with, you know, people systems and and other infrastructure that that we have talked about, you know, throughout '25, and, we are confident that we will see, you know, the returns as you can see from '25, but also, you know, pulling through even more in '26. So, yeah, I will look I will I will beam beam ahead. We are we are excited. Matthew Breese: And then the last one is just on the NIM. Dimitar Karaivanov: Sure. You know, it feels like there is there is still some structural upside to the NIM. I was hoping you could comment on that. And then I I believe if I have my notes right, you start to see a bit more of the securities book reprice towards the end of the year. So might we see Yeah. You know, some acceleration in NIM expansion if that occurs? Mariah Loss: Yep. So so first, you know, for for Q4, we are happy with that expansion of six basis points. That was, you know, primarily attributed to, you know, loan growth deposit growth, ongoing repricing efforts that were really diligent with at this company, also lower overnight borrowing balance, which helps which helped there. Know, for Q1, you know, we are guiding two to four fifths for NIM. Just expecting a little bit of pressure on the loan side, as Dimitar noted earlier, And you know, looking to see that some of the realization of of the late cuts in '25 coming through in Q1 as well. To your point about the securities rebalancing at the end of the year that that we have talked through that, and and that is happening. So we do expect expansion Do not necessarily want to guide out too far, but, certainly, that is you know, a tailwind for us. And it does begin at the end end of this year. Yeah. Matthew Breese: Amirai, did you just did you Dimitar Karaivanov: describe two to four basis points of NIM expansion in one q? Or or Expansion. Mariah Loss: Yes. Mariah Loss: For Q1. Got it. Yes. Dimitar Karaivanov: Alright. Appreciate it. I will leave it there. Thank you. And the next question comes from Manuel Navas with Piper Sandler. Please go ahead. Manuel Navas: Hey. Thanks. Dimitar Karaivanov: Following up on that securities book repricing repricing, what is assumed in the NII guide? Is that the securities are reinvested put into loan growth, pay off something? What what is kind of assumed currently with those maturities? Yeah. So good morning, Manuel. The because the timing of the security is really is in the fourth quarter, and late in the fourth quarter, It does not really impact the guide for the year. And I think by then, we will see what the balance sheet looks like. We certainly our plan number one and foremost is to deploy those into loans. And we believe we have got tremendous momentum in terms of talent and presence and opportunities in the market to do that. And kind of looking forward beyond '26, we have '27 where we have another $600 million of securities maturing. Those are kind of spread out a little bit more evenly for 2027. Manuel Navas: We are going to evaluate those as the time comes. Dimitar Karaivanov: Generally, we want to be lending, not buying securities. So if we are not able to deploy them immediately into phone growth, what is likely to happen is they are going to offset some of our longer-term borrowings, which also mature roughly on on the similar timeline '27. So but again, with it is pretty early to be talking about '27 for '26. There is not a lot of impact in the guide from securities. Manuel Navas: Does the Dimitar Karaivanov: deposit growth guide include some remixing How much of it is from new branches? Just thinking that it could have been higher if the de novos are working sooner. But maybe if they are not all online yet. He just kind of talked about de novo progress and that deposit guide? Sure. Absolutely. So on the de novo side, as we we mentioned, we opened 15 this year. The vast majority of of the openings occurred in the late third quarter, fourth quarter. So those are very young branches, if you want to call it that way. We ended the year with roughly $100 million of of footings across the various branches that we have opened. Think the goal for us for this year is to double that. Which I think is is possible. So, again, these these are going to become more productive as they mature Usually takes kind of eighteen to twenty-four months before you can kind of really see some of the momentum. With that said, we are very pleased with where we are. The the customer base, not just retail, but commercial has really stepped up and contributed. And the deposits that we currently have in the De Novos roughly 60% are commercial deposits. So we are very pleased with the efforts from our commercial bankers and clients, and all the events and the receptivity. And so to your point, we hope that it accelerates. For us again, this is a growth strategy on the deposit side, which we expect ultimately brings over a billion dollars. Over a seven to ten-year period. And I think we are tracking pretty well towards that. Manuel Navas: I appreciate the commentary. Dimitar Karaivanov: This concludes our question and answer session. I would like to turn the conference back over to Dimitar Karaivanov for any closing remarks. Thank you, Dave, and thank you all for your interest. And as always, Mariah and I are available for any follow-up. Stay warm. Operator: The conference has now concluded. Dimitar Karaivanov: Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the Atlas Copco Q4 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to CFO, Peter Kinnart. Please go ahead. Peter Kinnart: Thank you, operator, and a very warm welcome to all of you attending this quarterly earnings call for the fourth quarter 2025. Before I hand over to Vagner to start the actual presentation, I will already now, as usual, remind you that when the Q&A session starts to just ask one question at a time. Please keep disciplined, so everybody has an opportunity to ask their most important question once we get through the first queue. Of course, you can line up again for a second question afterwards, and we'll be happy to answer that. But that being said, no further ado, I will hand over to Vagner Rego to guide us through the presentation. Vagner Rego: Thank you, Peter, and welcome to this conference call. So first, we had in the first picture, a wafer, just to remind you that we are exposed to the CapEx that is relevant for the wafer production. Then if you go to the first slide with a summary of the fourth quarter of 2025, first, we had a good organic order growth, driven by industrial compressors that went somewhat up. But not only, I think, also Gas and Process compressors, also had delivered a very good quarter, and solid growth as well in vacuum equipment, I would say, including semi equipment. On the other hand, we had weaker demand for industrial assembly and vision solution followed by weaker demand on power and flow equipment, where we will go a little bit more in details later on. Once again, it was very good to see that our service divisions continue to deliver a very good result and we are quite happy about that. Revenues on the other hand was unchanged, but we have a quite high level in 2024 as well. I think the level was not bad and followed by a lower operating profit, mainly driven by negative currency effect where Peter will come back with more details, followed by negative effect coming from the tariffs and also from acquisitions. In the quarter as well, due to the low demand in industrial assembly system that is connected to the automotive business, we also decided to have -- to further adapt the organization of Industrial Technique, and we have booked a provision to make sure we keep at a good profit level. Cash flow were solid, and we continue to work on our acquisition pipeline. We have acquired 8 companies in Q4. So when it looks to the financials, I think we can see for the group, 4% organic growth that we are happy, driven by 2 divisions. Once again, organically, it was unchanged in revenue. When it comes to profit margin, we delivered 20.5% in terms of adjusted profit margin. And we have booked this provision of SEK 261 million to adapt the organization in Industrial Technique. So basic earnings per share, SEK 1.36, and strong cash flow, still good return on capital employed. If we then look to the summary of the year, and I would not spend too much time here, but we had overall a mixed demand with unchanged basically in terms of orders received and revenues. It was quite similar with some segments improving, some segments going down, but it was a flat year with quite a lot of challenges and headwinds in the profitability, I would say, and the good thing our strategy in our service divisions continue to deliver good profit and good growth that we are quite happy. And we closed the year with 29 acquisitions. And once again, Peter will come back with more details about our ordinary and extra ordinary dividend proposal. So it -- once again, if we go to the full year financials, like I mentioned, already, it was unchanged, more -- 1% organic growth in orders, 1% organic decline. But of course, we had the acquisitions that came. On top of the organic growth, quite a lot of currency headwind in our results. And with the bottom line of 20.3%, if you adjust for the restructuring costs that we have done mainly in Industrial Technique and Vacuum Technique, the profitability, the adjusted operating margin was 20.7%, still solid cash flow and return on capital employed. If we then continue with our results working -- looking more geographically around the world, what has happened. If I started with Asia, we had, in the quarter, 13% growth. That was a quite good development, mainly in Compressor Technique and Vacuum Technique. I would say that was driven this -- driving this result. So we end up the quarter with 13%. When it comes to Europe, I think we were quite positive. Happy to see 10% growth in Europe. Basically, all the divisions had positive growth. I think the only exception was Industrial Technique that was flat. So all in all, considering the situation of automotive, I think we were happy with what we saw in Europe, but it's also fair to say the comparison base was lower, but very good to see. In North America, we see 8% growth. And there, the acquisition of NTE has quite a big impact. If you exclude that, still positive growth of 3%. We see a little bit more challenging environment in South America with a flat development in Q4 and also challenging in Africa, Middle East, but it's also fair to say, especially on the Middle East, 2024 was a great year. So I think the level is good, but the comparison base is quite challenging. Then if we go to the next slide on the sales bridge, then you see the currency headwind that we have had in Q4 amounting 11%. So that was continued headwind coming from currency. I think the structural changes that are mainly acquisition had a quite good development in orders and revenues. Of course, that will later on generate an impact in the profitability as well. But I think the level of the acquisitions are quite good. I mean we have done some acquisitions like NTE that's quite sizable. Then that means that we had an organic growth of 4% and unchanged organically in revenues. And we end up the year with 2% on acquisitions and a total currency headwind of 6%. If we then go to the orders received per BA, you see that very nice to see Compressor Technique developing with plus 7% organic growth. Very good to see Vacuum Technique now plus 13% organic growth, with good contribution from many divisions within Vacuum Technique. Power Technique, a little bit more challenging, but I will come back later when I talk about Power Technique. And Industrial Technique, minus 1%. Considering the environment, I think it was also a good achievement, although we don't have organic growth that we'd like to, but considering the overall environment, I think it was a good achievement in terms of orders received. Now going more into details of the business areas. We can see Compressor Technique with 7% organic growth, driven by industrial compressors that were up. And there, we see a little bit more on larger compressors than only smaller compressors in terms of growth, but both with good development. Strong Gas and Process compressors, but again, it's also fair to say Q4 2024 was also a challenging quarter. So for Gas and Process, so they had a low comparison. The service, like I mentioned, continued to grow. We continue to grow with a good profitability. We're quite happy with the development of service in all business areas. Revenue continued to increase, 3% organic growth. We have a good order book in Compressor Technique that will allow us to continue to deliver good revenue or organic revenue growth, so considering the order book. Profitability was in a good level, 24.3%, still a good level if you consider there was impact coming from acquisition, sales mix and the trade tariffs. So I think we are quite happy with the development of Compressor Technique. And also, we continue to innovate delivering new products. Here is just an example of a nitrogen system that is dedicated for laser cutting applications. So completely tailored for this type of application. So if we then move to Vacuum Technique, we saw good order growth of 13%, notable growth for semi equipment. And there, I think it's also fair to say that the comparison was quite low in Q4 2024. So -- and then we saw -- that's why we mentioned notable growth, but it was a low comparison. But anyhow, it's good to see the environment and it's good to see growth in semi equipment. Solid growth as well in industrial and scientific vacuum, and growth in the service. Basically, I think it was a good development in all the divisions of Vacuum Technique. We still have the challenge with the order book. So revenues were 3% down. I think we still have to overcome that challenge. And operating margin was at 19.2%, so negatively affected by currency and dilution from acquisitions. So they also continue to develop the new products and a new compact product for the semiconductor this vertical booster that are dedicated for semiconductor was also released. In the Capital Markets Day, you also saw some other innovation, and here, we continue to come with innovation in Vacuum Technique. When it comes to Industrial Technique, then we saw order decline of 1%, basically driven by automotive because when we look to the general industry, we had a good development, also is where we focus to find some new growth and I think still quite a lot of transformation that can be done in the general industry, and that's where we focus. Service orders essentially unchanged and revenues, they also have challenges with the order book and the revenues were -- went down 3% organically. The adjusted profitability was 19.8%. We want to highlight here the underlying profitability because the profit was -- the profitability was 15.9%, of course, affected by the SEK 261 million in provision for the restructuring cost. We still continue to invest in innovation even in a tough environment that we have now, we continue to release, and we continue to combine the solutions we have with the vision technology that we have also in the portfolio. So I think also here, continue very nice innovation. So if we then move to Power Technique, we had an order drop of 6%. And I think it's also fair to say that we had a little bit more than normal cancellations because we had an order book that was a bit too old with old prices, and we decided to take actions on those orders, either the customer would have to take those machines or we will not carry on the orders with old prices. So it was a little bit proactive from our side when it comes to this, let's say, slightly higher than normal orders, but still would be negative but not as much as 6%. Service business continued to grow, and we saw some challenges in the quarter in our rental business that all we know also that drove the revenue down 4%, and the operating profit was at 16%, affected by currency, but also by lower utilization of our rental fleet. And I think that's the level of profitability that we are not happy with. Definitely, we'll take some actions to drive the profitability back from the levels we want to have. Anyhow, they continue to innovate. Now you know we have invested in several pump assets, more connect -- this one is more connected to dewatering. So we have a new product that can be used now by our distributors but also by our own rental companies because with the acquisition of NTE, we also have now a rental company in U.S., rental company in Australia, rental company in Brazil, dedicated for pumps, and we are also supporting them with our own products. So if we then move to the next slide, you see then the profitability, the [ EBITA ] at 21.4% in the quarter and the profit of, if you don't adjust for the restructuring cost, 19.8%. But then perhaps this time now to pass to you, Peter, that you continue to explain our profit. Peter Kinnart: Yes. Thank you, Vagner. Net financial items, slightly negative, a little bit higher than last year, mostly because of somewhat higher financial exchange rate difference and lower interest income in the company. But we also expect it would be probably on a similar level going forward in the next quarter. Then the income tax expense, which is on the low side, I would say, if we take the effective tax rate of 20.5%, that's definitely a low number. We are benefiting from all the activities we do around our innovation and the tax relief that we can get there. But we also had quite a couple of positive one-offs throughout the fourth quarter. So that is why we have this low effective tax rate. Then going forward, when we think over the next quarter, then this low effective tax rate is not maintainable because these one-offs that we benefited from will not repeat themselves, and therefore, we expect the tax rate for the first quarter to be at around 22.5% that is currently our best estimate. If I move then on to Slide #14, where we can dig a little bit deeper into the profit bridge. There's quite a few comments here to be made, how we get from 21.8% to 19.8%. There's a minor impact from the share-based LTI programs, as you can see. We had items affecting comparability of SEK 220 million in the bridge. It's a combination of quite many things. Vagner already mentioned the restructuring costs this quarter of SEK 261 million in Industrial Technique business area. And basically, the difference between those SEK 261 million and the SEK 220 million are a list of a number of items that we corrected for last year leading up to the SEK 220 million and diluting the margin obviously somewhat. Also the acquisition dilute the margin in a similar way as the items affecting comparability. We are in the first year of the acquisition here. And of course, there's a lot of integration costs, while the synergies are not fully maturing yet. And that is the reason why we see that lower profitability on the revenue within the acquisitions. Then I guess one item that is requiring the most explanation here is then the currency effect, which has been quite negative, both on the top line as well as on the bottom line. And in fact, if I summarize it fairly simply, I would say we have translation effects, transaction effects, and we have the revaluations of the balance sheet items. And the first 2 items, translation and transaction effect in terms of margin basically compensate each other. One is slightly positive from a margin point of view, the other one is slightly negative from a margin point of view, and they basically end up to 0. So you could say that the entire difference that we see here is caused by the revaluation of the balance sheet items. And there, I would like to remind you that last year, in the same quarter, we had a huge revaluation positive impact in the income statement, which was mostly linked to Vacuum Technique at the time, also partly to Compressor Technique, but mostly to Vacuum Technique and led at the time to a very positive currency effect, which, of course, now in the bridge creates the opposite effect because we will -- we have not repeated the same positive currency revaluation in the balance sheet items. And that is also why you see later on in the next page, the very high currency impact on Vacuum Technique specifically. Then when we then look at the organic development here, I think despite a negative development of the top line, we are actually seeing a positive development on the bottom line. And of course, that is more explained if I go to the next slide, 36 (sic) [ 15 ], if I take it business area by business area as there are quite a number of different positive aspects that add up to this number. So if we take it business area by business area, then we can start with Compressor Technique. Acquisitions dilutive across all the business areas, in fact, somewhat more, somewhat less depending on the specific business area, but basically all dilutive, generating positive profitability, but not as much as we are used to within the respective business areas, so dilutive effect across the 4 business areas. The currency impact for Compressor Technique is even though negative in absolute terms, in relative terms, is quite mild. And then we see a margin organically that is quite in line, slightly higher, but only marginally higher than what we are used to in Q4 2024. And that leads us to the 24.3% result of Compressor Technique, which I think we continue to consider as a good and healthy level for Compressor Technique to perform. So here, you could say despite also tariff impact and despite acquisitions, we maintain a good level there. On the Vacuum Technique side, the main detractor by far is the currency, which has a huge impact due to the fact that we had this huge positive last year, which we don't repeat this year. In fact, revaluations across all business areas, but also on the group as a total is actually quite limited this quarter, basically not a value to be mentioned in the bigger scheme of things. It was mostly the effect of last year that basically created this negative currency effect in the bridge. Otherwise, also the acquisitions were dilutive. We also didn't have the items affecting comparability this year that we had last year, which was a one-off that we benefited from at the time. The positive news I would like to add on Vacuum Technique is the strong development of the margin also here, negative development on the top line. We just heard from Vagner how the organic growth Vacuum Technique on the revenues has developed. But operating profit, on the other hand, is positive. And this is thanks to basically the effect that materializes from all the efforts in the business area to restructure, to reorganize, to cut costs in order to adjust the size of the suit to the size of the body, and that's how we end up with the 19.2% here. On Industrial Technique, 19.4% to 15.9%. Obviously, the restructuring cost is a big item. Vagner mentioned SEK 261 million this year. Last year, in the same quarter, we also did a round of restructuring for about SEK 134 million, so the net is SEK 127 million, having a dilutive effect on the margin this year still. Acquisitions were, in this case, not adding too much from a dilution point of view, but the currency also there had a bigger impact. Although in this case, not so much due to the revaluation items, a bit more related to the transaction effect. But in the end, a bit negative on the margin. And then finally, I would say, from the bottom line perspective also here, a negative development of the top line, given the difficult climate in the industry, but no negative impact on the bottom line. So that is also positive that we see that the negative impact doesn't immediately pull down the margin. And of course, with the restructuring we are doing now, we expect to continue to create savings that will support the organic development of the business area. And then last in the row, Power Technique. Here, we dropped the margin from 17.8% to 16.0%, as Vagner already implied, not the level that we are absolutely pleased with. Acquisitions have a moderate dilutive effect here. The currency is also a bit negative, but also organically, we are not seeing a positive development. And here, it's mostly the utilization of the rental fleet as well as continued investments in A&M that we are doing within the business area. We are thinking of, for example, building up the customer centers for the industrial flow business. We're also thinking about having dedicated salespeople for the portable power and flow business, for example, and also continued investments that we started up in upgrading our ERP platforms across the different divisions that are creating quite a bit of cost investments that are necessary for the future, but with the current business climate, of course, a bit in conflict with the top line development. When we then look at the foreign exchange development going forward, I would say that we are not at the end of the negative development of the currencies. Both on the top line as well as on the bottom line, we foresee still a quite negative development and estimate that, on the bottom line, we would see an effect of at least around SEK 1 billion negative impact from currencies in the first quarter 2026. Then I would move to Slide #16 to briefly comment on the balance sheet. In fact, not so much to comment. On the one hand, of course, we've seen currency effects pulling down many of the values, but at the same time, we also see some organic improvements such as in the inventories, for example, which will also be noticeable in the cash flow. And we also see the increase of the rental equipment and the intangible assets, which is both, in fact, mostly linked to the acquisitions we recently added. NTE was already mentioned, that, of course, increased the fleet as well as the intangible assets. I think on the balance -- on the liability side and equity side, there is not so much to mention, I think, to save time, let's say. If we then move on to the cash flow development, we think that the SEK 6.8 billion cash flow that we generated throughout the last quarter of 2025 remains solid, but of course, as you can see at a lower level than last year. The main reason for this is, I would say, two things. On the one hand, the change in working capital, which actually is still positive with SEK 650 million, but last year was even much more positive with SEK 2.3 billion. And the second item that, of course, influences the cash flow negatively here is then the lower operating cash surplus, which goes hand-in-hand, I would say, with the operating profit development that we have seen. And those are the 2 main items that basically pulled down the cash flow compared to last year. And then finally, maybe just to point out that for the year, we concluded with SEK 26.8 billion, SEK 11.6 billion, let's say, SEK 12 billion of which was used to finance our acquisitions, and 2/3 of those were actually taking place in the last quarter with SEK 8 billion. So with that, I conclude my comments on the financial statements and give back to Vagner to comment on the near-term outlook. Vagner Rego: Thank you, Peter. As you know, the near-term outlook is not a guidance for the orders received. It's just how we see the sequential development of our customer activity level. But then, we still continue to have a mixed picture. If I qualified a little bit more this mixed picture, on the positive side, we see a bit more vivid and active semiconductor market when we speak to our customers. And that does not mean that we will see orders coming in Q1, but there are more interactions ongoing with our customers. We also know that this is hard for us to predict because it's a key account business, decisions can take quite fast. So in talking about quite large amounts. So it's difficult to predict if this -- we will see some reaction in the Q1 orders received. But there are more activities, let's say, I wouldn't say more activity, but perhaps more interactions with our customers. So on the [ less ] positive side, we still see challenges in automotive, especially in Industrial Technique. And that's the reason why we also have decided to further adjust the organization. So there it's a more challenging environment. And then when we look to the Industrial segment, and we talk about industrial pumps, industrial compressors, general industry for Industrial Technique, I think we still see hesitance that is still a challenging environment, full of uncertainties. We have seen how the year has started and how many development so far, and we are still in January. So -- and that's why -- with this mixed picture, that's why if we combine all this, we believe that the overall demand for the group remains at the current level. So moving back to you, Peter, then. Peter Kinnart: Yes, I will just round off this presentation by informing you about the proposal that the Board has made to bring to the Annual General Meeting of Shareholders. And the intention is that a proposal will be made to offer ordinary dividend of SEK 3 per share, topped up by an additional distribution to the shareholders of SEK 2 per share, adding up to a total of SEK 5, and that SEK 5 will be paid in two equal installments, one in the course of April and one later in the year in October. So I think with that, we are at the end of the presentation. And before giving the floor to all of you asking your questions, I just want to remind you, please stick to one person -- one question at a time so everybody has an opportunity to raise their questions. Thank you. Operator: [Operator Instructions] The next question comes from Alex Jones from BofA. Alexander Jones: Maybe I can follow up on Vacuum Technique. And it would be really helpful if you could expand a little bit on the comments you made with regards to the outlook, especially thinking about Q4, how much of that acceleration in semis orders was easy comps, given you said you're not necessarily expecting that acceleration in conversations to feed through in Q1? And that acceleration in conversations, is there any difference between different geographies, thinking about China compared to the rest of Asia compared to the Americas? That would be very helpful. Vagner Rego: Yes. So definitely, we see -- if we look to Q4, it was indeed lower comps. I think Q4 2024, it was not a great year in terms of -- great quarter in terms of orders received for Vacuum. But anyhow, there is always a little bit of seasonality, but I think we are happy with the development of the orders in the semiconductor, although we had low comps. But going forward, we see a bit more interaction with our customers. It doesn't mean that we -- like I said, we will see the orders in Q1, but we get more questions, when we say just to qualify a little bit when say more interactions, more vivid and active let's say, activity. What we mean, we get now more questions, are you prepared to increase volumes? And I think that's more what we hear these type of discussions. And again -- and we haven't seen. We cannot say that the orders will come in Q1, but there are more discussions on that line. But that is more -- the majority of the production of chips are coming from Asia. That means there are a lot of interactions in that region overall. Operator: The next question comes from John Kim from Deutsche Bank. John-B Kim: Following up on Alex' question, can you give us a little bit of color on the Q4 order intake as to whether this is going into newer facilities? Or is it refreshing or expanding production at existing fabs for your semiconductor clients? Vagner Rego: I think it's always a combination of both. But depending on the players, I think they don't need to build new fabs. They have different strategies. Some they don't need to build new fabs. They have a space where they can populate with more equipment. I would say, we have seen more that and there are also players that are building new fabs to populate later. So I think there is both, some that was built in the past and now are populating -- are being populated and there are semi players where they have -- they can rearrange the current facility to increase production and then we got some good orders in Q4. Operator: The next question comes from Rory Smith from Oxcap. Rory Smith: It's Rory from Oxcap. It's just on the order intake in Compressor Technique. I think you called out significant increase in Gas and Process from several different customer segments. Really keen to just know what those segments were in a bit more detail, if that's possible. Vagner Rego: Yes. There are several market segments that performed very well. Sometimes we get a little bit more orders from LNG, for instance, because the nature of the business when they decided to take orders -- to place orders, you talk about 10 ships or 20 ships, which was not the case. We got a couple of orders for LNG. But we also had orders for gas processing equipment. I think we still see quite a lot of opportunity around gas processing, fuel gas boosters that goes together with gas turbines. If you want to generate -- if you want to have a gas-fired power plant, you have the turbine and the turbine needs fewer gas booster. We got some orders from that. Also, air separation units was also okay and a little bit for chemical and petrochemical. It was quite balanced, I would say, this quarter more than previous quarters, I would say. Rory Smith: Could I just squeeze in a quick follow-up then on that? What percentage was Gas and Process of the Q4 orders versus industrial in Q4 in Compressor Technique? Vagner Rego: I think we don't disclose that figure on divisional level. Over time, it has been around 10% of the Compressor Technique business area. Operator: The next question comes from Klas Bergelind from Citi. Klas Bergelind: So I just had a question on the larger industrial compressor orders. They are up year-over-year against an easy comp, but some debate today around that they're down quarter-on-quarter. But isn't that just seasonality, i.e., down fourth over third, at least according to my model. You don't see any underlying weakness, right, Vagner, on the larger side in compressors. I think you said last quarter, in October, that orders started to come back in Europe, but that China was still weak. I'm just keen to understand the quarter-on-quarter underlying trends on the larger side? Vagner Rego: I think it's still challenging in China, I would say, giving a little bit more color. I think we were positive about Europe and happy, to be honest. And we saw a little bit less growth in North America, but still positive development if that can help you a little bit more. Operator: The next question comes from Sebastian Kuenne from RBC Capital. Sebastian Kuenne: Regarding compressor business again, could you tell us a little bit about the market and pricing situation in the U.S., specifically for the compressors that you have to import from Belgium? And given that you have local competition like Ingersoll, who can maybe outbid you on pricing, maybe you can give a bit more color on the situation there. Vagner Rego: Thank you for the question. Yes, indeed, I think we do have the tariffs. But it's fair to say not everything that we sell in the U.S. is important. We also have local production. I don't disclose the number of how much is local, but there is quite a good portion. We are increasing the content of local production. That will come step by step. But it's fair to say that the main driver is price, and we are increasing our list price. And it's a balance act because we also want to keep or even increase our market share. So I think that is the balance we do now while we increase list price of different product lines, we also keep fighting to increase our market, not even to maintain, but to increase our market share. We do have the impact like Peter had already mentioned, but I'm quite happy with the development, to be honest, on the market share. Not all the product lines are doing well, but some are even increasing the market share. That was quite encouraging to see under such a tough situation we can further increase. And when it comes to competition, difficult for me to talk about any competitor, but many of them also have a lot of important items as well. Operator: The next question comes from Max Yates from Morgan Stanley. Max Yates: Just my question was on your exposure within the vacuum business. Obviously, over the past few years, you've kind of expanded in China, you've built up a facility in the U.S. And I guess essentially, my question is, when we look last year, your business kind of underperformed wafer fab equipment spending. And I guess what I'd like to understand is, given we're seeing kind of disproportionate price increases across memory, maybe some of the customers like Intel and maybe their CapEx is growing slower than the overall kind of pie. So just trying to really understand kind of any nuances in your exposure? And any reason when you look today at your kind of key accounts and your exposures to them as to why you would outperform or underperform wafer fab equipment spending as we go into 2026 in your vacuum business? Vagner Rego: Yes. I think we have explained in the Capital Markets Day. Perhaps it's good to go back to that meeting where we said that the WFE now have different components and the components that is correlated to advanced packaging is growing quite fast because of AI. And that creates a bit of imbalance between if you want to compare the vacuum result with WFE. On top of that, when you go to lower nodes, you have some different process steps that are not exposed to vacuum. I think then that definitely creates a little bit of imbalance. I think when it comes to the CapEx that is important for us, all the CapEx utilized for the production of wafer, I think that is the CapEx that we should consider. I think it's not always available, but that is the one that can define if we are performing well or not. And we feel very comfortable with our performance or with our product portfolio today and going forward. Going back again to the Capital Markets Day, we have shown a new EUV system that we have released beginning of 2025. I think we're very well positioned there. We also have shown a new platform for the semi market that we call Ganymede that we are introducing step by step that is quite relevant for us. I think that is the most important because that will allow us to stay competitive in these markets, even delivering more value for our customers. I think that is the most important, in my opinion. Operator: The next question comes from Daniela Costa from Goldman Sachs. Daniela Costa: I wanted to ask you a little bit to talk through sort of the restructuring and how you view that going forward? I believe at the CMD, you've mentioned that the actions were mostly done and the benefits would sort of come. So do you expect the headwinds on margin and on cash that we've had in '25 from restructuring to maybe more normalized or be significantly lower going forward? Where do you stand in that process? Vagner Rego: I think, Daniela, we will continue to monitor the situation. I think it's difficult to say. If we feel the need that we need to adapt here and there, I think we will do. We're still harvesting -- I think Peter when he was presenting the bridge, I think he also mentioned that we already harvest that Q4 was a good example in ITBA and in Industrial Technique and Vacuum Technique where they did benefit. But we still need to do a little bit more in Industrial Technique because of the outlook. And again, we will continue to monitor. Of course, these restructuring costs that we have just booked in Q4, we have benefited slightly in Q4. So -- and that will come step by step in 2026. Operator: The next question comes from Vlad Sergievskii from Barclays. Vladimir Sergievskiy: Could you provide outlook for your compressor business for Q1 or near term similar to what you have done for Vacuum and for Industrial Technique just directionally following a healthy 7% growth last quarter, of course? Vagner Rego: I think what we mentioned, Vlad, is that the demand will stay -- the activity level will stay flat. I think that is valid for Compressor Technique as well that is exposed to several industries. I mean, I think it's -- you see that the market still has some uncertainty. Globally, there might be positives here and there. But if I look to China, the demand is still challenging. You don't have triggers from the consumer demand. Some pockets of growth here and there, but the underlying demand is not as strong as it used to be. So I think it's the -- that's why I think you should consider what we have said that the activity level will remain the same. Operator: The next question comes from Andreas Koski from BNP Paribas. Andreas Koski: Could you give us an idea of what impact the tariffs had on the margin in the quarter? And if you still expect to be able to cover that by pricing, rerouting, et cetera, in 2026? Peter Kinnart: Yes. Thank you, Andreas, for your question. When we look at the current quarter, I think last time, at the end of Q3, we said that the third quarter only had a partial impact from the changes in the tariffs like 232, et cetera, so that we haven't seen the full impact yet. While at the same time, we were, of course, implementing a number of mitigating actions. And I would say that over Q4, the impact of the tariffs was basically similar as what we saw in Q3. And so that even though the impact in absolute terms was maybe higher, considering it was a full quarter, but on the other hand, the mitigating actions also partly took effect. That being said, we also admit, let's say, that competitive situation in the market is, of course, there. Demand is not always as vibrant in some areas. And as a result, of course, everybody fights for the orders, us included. And like Vagner already indicated as well, we are not willing to let go our market share. So I would say, in a nutshell, the result is that we are not fully able at this point in time to compensate for the tariffs, that the effect was similar as what we had seen in Q3 from a margin point of view. But that we expect to continue to work hard to mitigate through price increases, through logistic flows or assembly in the U.S., for example, other type of activities. And that this combination of all these activities over the next several quarters should ultimately lead to being able to compensate for the tariffs. But at this point in time, we are not fully able to do so. Andreas Koski: But it's only a 1/10 of a percentage point or so that the impact is. It's not.... Peter Kinnart: Well, I don't give an exact number because only measuring it is already quite a challenge to see all the different aspects of it. But I mean it's definitely less than 1% on the margin. Operator: The next question comes from Phil Buller from JPMorgan. Jeremy Caspar: Phil had to jump on to the other line. It's Jeremy from JP. On the topic of capital returns, it's good to see the special dividend when operating cash was a little bit lower year-on-year. I'm wondering, is there anything we should or should not infer from this? I mean, on M&A, maybe the pipeline is a bit lower in 2026 and maybe you should see capital surplus? Or is it just a reflection of growing confidence on end markets improving, i.e., cash should be better this year? Peter Kinnart: No, I don't think anybody needs to read too much into this. I think it's not the first time that we have this kind of extraordinary or additional distribution, even though we did it in a kind of a different shape or form in the past, but now this is in this way. It doesn't have any impact with regard to our acquisition pipeline or whether we have or have not any good projects in the pipeline. I think when it comes to acquisitions, the key is always, is this the right fit for the company for the growth of the future to create value for the shareholders. And I think even with the additional capital distribution, I think we still have quite sufficient firepower to acquire both small, but also bigger targets should we feel that they are the right fit for the group. Operator: The next question comes from Anders Idborg from ABG Sundal Collier. Anders Idborg: Just a question on the Vacuum margin. The way I interpret you, Peter, is that the 19.2% that you have now, that's a pretty clean margin and representative of the current basically interest -- sorry, currency rates, et cetera. How should we think about the drop through when volumes start to come through as they probably do in 2026, given the footprint optimizations that we've done? That's the question, yes. Peter Kinnart: Yes. Thank you, Anders, for your question. As always, very difficult to give a very precise answer to this. What we have said when we discussed the different restructuring measures that we have taken with the business area was that we were targeting mostly indirect functions, try to limit as much as possible the impact -- try to prune a little bit, let's say, the management structure to become more efficient. And that over time, should, of course, when volume comes back, generate leverage from a margin point of view. Of course, once the volume goes up, we do expect that we will need to increase maybe some variable costs in line with the volume increase. I mean that's only normal. But how much exactly the leverage effect will be is hard to say at this point in time. It will depend a lot on what kind of volume growth we might be able to harvest. But that is definitely the idea with the actions we have taken to create leverage on the margin once the volume kicks in again. Operator: The next question comes from Rizk Maidi from Jefferies. Rizk Maidi: I just wanted to double-click on the North American order growth. I think you said it was 8%, but only plus 3% ex acquisition. It doesn't feel that it's a high number given the amount of pricing that you need to put through there. Just perhaps if you could just double-click on this, especially on Compressor and Industrial Technique. Are you guys not pushing pricing as much? Or are the volumes quite weak in the region? Vagner Rego: Thank you for the question, Rizk. If you take there are different colors, of course, we have been performing very well in compressors. I mean that is the component of price indeed. We saw there, perhaps, I think, to give you a little bit more color, the Gas and Process business was more flattish in North America that might help you, while Industrial Compressors in general was positive. So in Industrial Technique, there, we have a little bit more headwinds in Q4, but I must say as well that 2025, North America was a great year for Industrial Technique. I mean we had quite a lot of [ project ]. It was good development. And Q4 was weaker, definitely there. And I mentioned about portable that we had some cancellations was mostly related to North America. So some orders that we -- all the orders from large rental companies that were in our books for some time, and they were not taking the equipment, we decided to cancel these orders because the price was a bit behind what we would like to. So -- and I think when you combine that, you have the 3% growth. Operator: The next question comes from John Kim from Deutsche Bank. John-B Kim: Sorry, my question was asked. Vagner Rego: Okay. Thank you, John. And we have one last question. Operator: The next question comes from Sebastian Kuenne from RBC Capital. Sebastian Kuenne: Just on Power Technique. I think you mentioned earlier that you're not happy with the rental rates and the uptake on orders in North America. Did I hear you correctly that you mentioned that you may need to have further adjustments there for capacity? Or did I understand that wrong and we discussed that earlier? Vagner Rego: Yes. But maybe to give you a little bit more color. I think the main problem is in rental. I think Peter already mentioned. The rental utilization was a little bit lower than what we would like to. And we had lower activity level in Europe and Asia for the rental business, and that's where we will concentrate our efforts. But it's not only about restructuring, it's also about activities, finding new customers because we had some traditional customers that -- where the demand is not there today, and we have to repurpose the fleet and do some sales activity to bend the trends. Sebastian Kuenne: So higher operating cost for some time to find new customers? Vagner Rego: Yes. I think when it comes to Power Technique, if we feel the need to adjust, we will adjust, I think. But we will concentrate the efforts on the rental business for the time being. Peter Kinnart: Okay. Thank you, Sebastian for that last question. The time is unfortunately up. But of course, if you have any further follow-up questions, our IR department will be very glad to assist you in providing any further clarifications. With that, I would like to thank you all for attending the call and wish you a great rest of the day. Thank you very much. Bye-bye.
Operator: Thank you for standing by. Good day, everyone, and welcome to The Boeing Company's Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's call is being recorded. A management discussion and slide presentation plus the analyst question and answer session are being broadcast live over the Internet. To ask a question on today's call, please press star then 1 on your telephone. At this time, I'm turning the call over to Mr. Eric Hill, Vice President of Investor Relations for opening remarks and introductions. Mr. Hill? Please go ahead. Eric Hill: Thank you, and good morning. Welcome to Boeing's quarterly earnings call. With me today are Kelly Ortberg, Boeing's President and Chief Executive Officer, and Jay Mollave, Boeing's Executive Vice President and Chief Financial Officer. This quarter's webcast, earnings release, and presentation include relevant disclosures and non-GAAP reconciliations, which are available on our website. Today's discussion includes forward-looking statements that are subject to risks and uncertainties, including the ones described in our SEC filings. As always, we will leave time at the end of the call for analyst questions. With that, I will turn the call over to Kelly Ortberg. Kelly Ortberg: Thanks, Eric. Good morning, everyone. Thanks for joining today's call. As we start this year, we've set the foundation for our turnaround with stronger performance and record-breaking backlogs across our businesses. We haven't fully turned the corner, but we're making real progress in getting back to the Boeing everyone expects of us. When we spoke a year ago, we were just in the early stages of our four-point plan to stabilize our business, execute on our development programs, change our culture, and build a new future for Boeing. Today, our customers and stakeholders are seeing the difference in how we work together to uphold our commitments and deliver high-quality products and services. Before discussing the work ahead of us and our plan to meet the 2026 goals, I'll first touch on some important accomplishments in the quarter and the year that position us well for moving forward. In 2025, we methodically increased commercial production guided by our safety and quality plan. This enabled our team to deliver the most commercial airplanes since 2018. We delivered 600 airplanes and won more than 1,100 commercial orders for the year, making this one of our highest order totals ever as our portfolio continues to win in the market. Earlier this month, I joined Alaska Airlines as they announced their largest order ever. This was a clear reminder that our customers place their trust in us with every order. We must keep earning that trust by delivering safe, high-quality airplanes on time. To do this, the fundamental changes we've made this past year will serve as a base for continuous improvement as we look to increase commercial production. For example, we've simplified more than 5,100 work instructions. These are the instructions that the mechanics and inspectors use each day to do their jobs. These types of activities reduce complexity, support consistent performance, and strengthen factory health. On July production is stabilizing at 42 airplanes per month, and we're continuing to see improvement in the program as its on-time delivery performance has improved threefold compared with the previous year. We also continue to get positive customer feedback on the quality of the airplane. As we look to move to higher rates, we'll use the same process as previous rate breaks, monitoring factory health, and following our safety and quality plan. For production above 47, we'll add our new North Line in Everett, where facility and tooling investments are now complete, and we're executing a deliberate staffing plan to support production there. In Charleston, the 787 program continues to progress well and is stabilizing at rate eight. I'm pleased with the operational metrics we're seeing in the factory. As an example, during 2025, the program reduced average rework hours nearly 30%. Going forward, as with the 737, we'll use the same disciplined processes, including monitoring our KPIs, to assess readiness for the next planned rate increase to 10 airplanes per month, which is targeted for later this year. As previously announced, we're also investing in the future, breaking ground on our factory expansion to support higher rates and meet the exceptional demand for the 787. We also made progress in our defense business and scored a transformational win to build the US Air Force sixth-generation fighter. Over the past year, we've also focused on reducing the risk profile of our BDS development programs by driving improved performance and leveraging active management to deliver better outcomes for our customer. In the quarter, our defense business also hit several key milestones. The US Navy's MQ-25 successfully completed its inaugural engine run, moving it closer to first flight. We also delivered the first operational T-7A Red Hawk to the US Air Force at Joint Base San Antonio Randolph. These milestones are just a few where our programs are progressing and meeting our customer commitment. Importantly, we also ratified a new five-year labor agreement with our IAM representative workforce in Saint Louis during this past quarter. Our team there is back to work focusing on delivering and supporting our customers. Before the year-end, we took another important step forward, supporting our production stability by completing the acquisition of Spirit AeroSystems. Bringing together our companies reinforces our efforts to improve safety and quality throughout our factories, operations, and supply chain. There's a lot of work ahead of us with an integration of this magnitude, and we have thoughtful, detailed plans in place to help enable a smooth transition for our new teammates while maintaining continuity for our customers and suppliers. We also successfully completed the $10 billion Jefferson sale, solidifying our balance sheet while retaining essential digital capabilities for our customers. With a streamlined portfolio, our service business is well-positioned to support our global commercial and defense customers. BGS secured Boeing's largest-ever commercial component service deal, and our government services business received its highest orders ever in 2025, including a contract with the US government in the quarter to support C-17 modernization. BGS also launched a new unified e-commerce platform, which brings together Boeing's distribution portfolios of products and services into one streamlined digital destination, simplifying how customers and suppliers connect, transact, and grow with the company. Across commercial, defense, and service, we've built a strong foundation for the year ahead. While I'm proud of what we accomplished in 2025, we also know expectations are rising, and we must continue to elevate the performance that we've demonstrated over the past twelve months. As important, I am pleased with the progress we're making on culture that will ensure these improvements become a critical part of our success and further strengthen trust with our stakeholders. I remain confident in our team and our plan to deliver on the opportunities and address the challenges in front of us in the year ahead, particularly on our development programs. Past delays to the certification timelines for the new 737 MAX derivatives and the 777-9 have been challenging, but we are making steady progress in performing than our revised schedules. The 737-10 recently gained type and inspection authority two or TIA two to expand flight testing. This final TIA opens up the majority of the certification flight testing, which is focused on validating the airplane's avionics, propulsion, auto flight capabilities, and other airplane functions. In addition, as we previously shared, we have a final set of design changes to permanently address the engine NII issues on the 737-7 and 737-10. We're following the lead of the FAA as we work to certify the suite of design changes. We still anticipate certification for both the 737-7 and 737-10 in 2026. On the 777-9, in the quarter, we received approval for TIA3 and continue to perform certification flight tests. TIA3 is a major phase of testing focused on avionics, environmental control systems, and the auxiliary power unit. As I've said before, overall, the aircraft and engine continue to perform well. We have identified a potential durability issue during a recent inspection on the 777X engine, and we're working with GE to better understand that issue and finalize root cause and corrective action. Importantly, as we work through this issue, we continue our certification flight testing, and we don't expect this to impact our delivery in 2027. Demand for the airplane remains strong, and we remain confident that the 777X will be the next flagship airplane for our global customers. Moving now to KC-46 tanker. As we came through our quarterly process, we revised cost estimates for elements including the production support and supply chain, which Jay will cover in more detail. While it's disappointing to recognize another impact on this program, we are seeing encouraging operational performance trends, which, if sustained, should enable us to meet our customer delivery commitments and set us up well for the next tanker order beyond the current program of record. You've heard me say you're never done until you're done on any of the development programs, but across defense and commercial, we are making progress. Clear-eyed on the work remaining and committed to delivering better performance in the year ahead. As I finish my prepared remarks this morning, I want to thank all of our employees, including our newest teammates from the former Spirit AeroSystems. From our frontline mechanics to our engineers and our management team, we're all committed to continuous improvement guided by our culture with a sharp focus on safety, quality, and performance to deliver for our customers and other stakeholders. We know there's more work ahead in 2026, but the strong foundation we're building by stabilizing the business, executing these development programs, building our future, and changing our culture will position us to put our recovery behind us and restore Boeing to the company we all know it can be. With that, I'll now turn it over to Jay to discuss the results in more detail. Jay Mollave: Thanks, Kelly, and good morning, everyone. Let's start with the total company financial performance for the quarter. Revenue was $23.9 billion, the highest quarterly total reported since 2018. Revenue was up 57%, primarily driven by improved operational performance across the business, including higher commercial deliveries and defense volume. Core earnings per share of $9.92 primarily reflects the $11.83 gain associated with closing the Digital Aviation Solutions divestiture. Free cash flow was positive $375 million, slightly higher than the expectations I shared last month, driven by higher commercial deliveries and working capital that improved compared to both the prior year and the prior quarter. Turning to BCA on the next page. BCA delivered 160 airplanes in the quarter and 600 for the year, the highest annual total since 2018. Revenue of $11.4 billion and operating margin of negative 5.6% both improved materially and primarily reflect better operational performance and higher deliveries compared to last year's results that were impacted by the work stoppage. Results also include impacts associated with acquiring Spirit AeroSystems, which impacted segment margins by roughly 1.5 points in the quarter. BCA booked 336 net orders in the quarter, including 105 737-10 and five 787-9 airplanes for Alaska Airlines, and 65 777-9 airplanes for Emirates. Importantly, BCA booked 1,173 net orders for the year, and backlog ended at a record-setting $567 billion that includes over 6,100 airplanes, with the 737 and 787 both sold firm into the next decade. Let's click down to the commercial programs. Starting with the 737 program, BCA delivered 117 airplanes in the quarter and 447 for the year, in line with expectations shared last month. The factory increased the production rate to 42 per month in the quarter, and the program is on course to increase production to 47 later this year. The year ended with one 737-8 built prior to 2023, down five from the prior quarter, and we expect to deliver this final shadow factory airplane in the first quarter. On the 737-7 and 737-10, inventory levels were stable at approximately 35 airplanes. As Kelly said, we received approval from the FAA in the quarter to begin the final phase of 737-10 certification flight testing and continue to partner closely on a certification path for these programs, including the engine anti-ice solution set. On the 787, we delivered 27 airplanes in the quarter and 88 for the year. During the quarter, the program completed a successful capstone review and is continuing to make good progress, stabilizing at the new production rate of eight per month. The year ended with approximately five airplanes in inventory that were built prior to 2023, down five from last quarter. We still expect to deliver the remaining airplanes in 2026, which is aligned with our customers' fleet plans. Importantly, the 787 recorded 395 net orders in 2025, the program's highest annual order total, which highlights the market-leading capabilities that the Dreamliner will continue to deliver to our customers for decades to come. Finally, on the 777X, as Kelly mentioned, we continue to make progress on 777-9 certification flight testing. 777X inventory spend in 2025 finished at nearly $3.5 billion, in line with expectations. 777X booked 202 orders in 2025, the second-highest annual total since the program's launch, underscoring the trust that our customers have placed in this game-changing wide-body family as well as our team that's building it. Alright. Let's shift over to BDS on the next page. BDS delivered 37 aircraft in the quarter, and revenue grew 37% to $7.4 billion on improved operational performance and higher volume. Operating margin of negative 6.8% improved significantly compared to last year and also reflects the better operating performance across the business. This improvement was tempered by a $565 million loss on the KC-46A tanker, which I'll address further in a moment. BDS booked $15 billion in orders during the quarter, including awards for 15 KC-46A tankers from the US Air Force and 96 Apaches from Poland, both contributing to a backlog that grew to a record $85 billion. Overall, we continue to make progress stabilizing our fixed-price development programs, even with the cost updates on a few programs this quarter, including the tanker adjustment. As Kelly mentioned, the tanker adjustment was driven by higher BCA production support and other allocated costs in the Everett facility, as well as higher estimated supply chain costs, including Spirit. The added production support costs include keeping higher levels of quality and engineering support in the factory, which are a key part of driving improvement. For example, as compared to the first half of the year, we saw average factory rework levels decrease by 20% in the fourth quarter. So while these investments are starting to evidence progress, we need to sustain them for longer than previously planned to promote stability. Across these fixed-price development programs, we continue to see benefits from our active management approach in retiring risk and developing win-win opportunities with our customers. We remain focused on delivering these important capabilities and achieved several important milestones in the quarter. In addition to the highlights Kelly referenced on T-7A and MQ-25, we also partnered with NASA to modify the commercial crew contract to better align our long-term objectives. The remainder of the portfolio continues to benefit from increased demand supported by the global threat environment. Performance on these programs continues to reflect the operational improvement that began earlier this year. For example, on the PAC-3 seeker program, over the course of 2025, the team was able to increase output by 33%, enabled by prior investments in capacity and a focus on lean to drive more efficient production. Overall, the defense portfolio is well-positioned for the future as evidenced by our record backlog. We still expect the business to return to historical performance levels as we continue to drive execution and transition to new contracts with tighter underwriting standards. Moving to global services on the next page. BGS continued to perform well, again delivering strong financial results in the quarter. Revenue was up 2% to $5.2 billion, primarily reflecting improved government volume. Operating margin was abnormally high due to the Digital Aviation Solutions gain. Adjusting the 2025 and 2024 for Digital Aviation Solutions, BGS adjusted revenue of $5.1 billion grew 6%, and adjusted operating margin was 18.6%. On the same basis, both our commercial and government businesses again delivered double-digit margins in the quarter. BGS is driving a keen focus on continuous improvement. For example, on the C-17 sustainment program, the team achieved an 18% flow reduction over the course of 2025 as a result of nearly 200 discrete projects generated by the team, a key enabler of improved customer satisfaction. BGS also received $10 billion of orders in the quarter and an annual high of $28 billion in 2025, and the business ended the year with a record backlog of $30 billion. Shifting over to cash and debt. Cash and marketable securities grew to $29.4 billion, primarily due to $10.6 billion in proceeds associated with closing the Digital Aviation Solutions transaction, partially offset by debt repayment of $3 billion associated with the acquisition of Spirit AeroSystems. The debt balance ended at $54.1 billion, slightly up from last quarter, primarily reflecting the retained Spirit debt. The company also maintains access to $10 billion of revolving credit facilities, all of which remain undrawn, and we remain committed to strengthening the balance sheet and supporting our investment-grade rating. Okay. Let's shift to full-year performance on the next page. Full-year revenue was up 34% to $89.5 billion, primarily reflecting the improved operational performance across the business. Core earnings per share of $1.19 was up significantly, primarily driven by the $12.47 gain on the Digital Aviation Solutions sale and improved performance. Excluding the impact of the gain, EPS was up $9.1 year over year. Free cash flow was at $1.9 billion usage for the year. This was slightly better than expectations shared last month and improved significantly year on year, primarily driven by higher commercial deliveries and improved working capital. Our improving cash flow performance in 2025 provides a solid setup to deliver positive free cash flow for the full year in 2026. Let me provide some additional context on our free cash flow outlook. As we continue turning the corner in 2026, we expect positive free cash flow of $1 billion to $3 billion, aligned with the expectations I shared last month. For clarity, this outlook contemplates an unfavorable impact of roughly $1 billion in 2026 associated with incorporating Spirit. Consistent with the profile we have discussed previously, cash flow is expected to grow year over year, primarily on higher commercial deliveries, better performance at BDS as that business continues to stabilize, and continued steady growth at BGS. This outlook continues to assume significant capital expenditures for future products and growth, particularly in St. Louis and Charleston. CapEx ramped up over the second half as we expected, with nearly $3 billion invested in the business in 2025. These higher investment levels will continue into 2026, and we expect to spend closer to $4 billion this year, including the incorporation of Spirit. Within 2026, we expect first-quarter free cash flow will be a usage similar to 2025, driven by normal seasonality. We expect 2026 to be a use of cash, with the second half turning positive and accelerating sequentially. As we've discussed, there are a number of impacts to 2026 free cash flow that we expect to be temporary in nature and improve over time. Let me add a bit of color on each category and highlight the actions required to work through them. As I just covered, we expect 2026 free cash flow to be between $1 billion and $3 billion. Part of where we end up in that range may be influenced by the realized impact of these issues. The most significant impacts are related to the delayed certification and first delivery on the 777X program, as well as the prior delivery delays on the 737 and 787 programs. On 777X, regarding net cash burn, with first delivery planned for 2027, our production system expenditures will be much higher than the pre-delivery payments we expect. PDPs for 777X are lower than they otherwise would be, given customers have been paying into a schedule that previously assumed first delivery in 2026. 2026 is planned to be a higher use than 2025, but we expect the net cash use to improve over the next few years before turning positive in 2029. Our focus here remains on progressing through flight testing with the FAA. Additionally, and just as importantly, we are making sure the production and delivery system is ready to ramp up to include working through built airplanes that will undergo a systematic change incorporation program. Regarding the 737 and 787, there are two issues, both driven by previous delivery delays. The first is customer considerations, and the second is excess advances. To be clear, customer considerations for prior delays are not diminishing the pricing levels we are applying to new business. Indeed, we are seeking to better manage delay exposure in new contracts with tighter underwriting standards. We expect the impact of these items to improve over the next few years, and our path to resolve the impacts of both customer considerations and excess advances is all about production stability and continuous improvement in on-time delivery for our BCA customers. Partially offsetting these negative impacts on 737 and 787 is the plan to methodically work down selected excess part inventory and complete the final deliveries of previously built 737s and 787s. As we have said, with 737 moving to higher rates, we will address excess inventory on a commodity-by-commodity basis in order to preserve stability across the supply chain and production system. The next category of legacy issues we have discussed is the cash impact of running off prior BDS charges. Since 2022, there have been significant charges across the five fixed-price development programs. We expect sequential improvement from 2025 to 2026 and gradual improvements thereafter. Obviously, this is predicated on successfully completing these programs without taking additional charges and leveraging the active management playbook to continue to de-risk these programs. As the tanker charge this quarter highlights, there remains risk on these programs, even if the envelope of risk has been significantly reduced over the last year. Rounding it out, we have the in-year impact of the expected DOJ payment sliding from 2025 to 2026, in addition to the two-year spike in CapEx in 2026 and 2027, supporting growth and a stable production system. Our focus as a leadership team will be on closely managing these investments to drive budget and schedule performance. Adjusting for these impacts would result in high single digits 2026 free cash flow and highlights the strong underlying cash generation potential of our business. Accordingly, we continue to believe the $10 billion free cash flow mark is very attainable, including impacts of the Spirit acquisition, which aligns with my remarks last month. Okay. Summing it all up, a strong foundation was set in 2025, and we're focused on elevating our performance in 2026 and delivering on the long-term potential of this business. With that, let's open up the call for questions. Operator: We will now begin the question and answer session. In the interest of time and to allow for broader participation, we ask that you limit yourself to one single-part question. Our first question comes from the line of Myles Walton from Wolfe Research. Your line is open. Myles Walton: Thanks. Good morning. Good morning. A lot of detail there. Jay, within the context of the cash flow. So maybe I'll just start there and Myles, I'm afraid we've lost you. Operator: Operator now? Myles Walton: Yes. I can hear you now. Can you hear now? Yep. Okay. Please start over with the question. Yep. Apologies. So Jay, a lot of color on the cash flow building blocks to get to that high single-digit ex-bad guy. Could you just clarify the excess advances in customer considerations, the quantum of those, and then the duration by which they normalize? Is that 2027, 2028, or further out? Jay Mollave: Okay. You know, as I mentioned, you know, Miles, again, the total overall quantum goes from low single-digit to high single-digit. So we know that in the total. Yeah. I'm not going to give an individual breakout on each specific impact, but I'll give you a little bit more of a directional color. What I can tell you is the excess advances coming in from 25 to 26 as well as the considerations at least in 2026. They're generally close to each other, so almost the same impacts. The excess advances over time actually will burn down quicker than what we expect on the consideration. So that will take a little bit longer to burn down on the 737 and 787. Considerations. You know, again, when you think about this and take a step back, it's pretty much what I said in the prepared remarks. Burning this down all is about the production rates and getting us to the higher production rates over time. One other thing at 777X, even though you didn't ask me, you know, I colored that as well. Again, that'll take us a few years. The key thing there is while it is a higher cash burn this year, it'll improve over time with it turning positive in 2029. Similarly with BDS, that'll that's actually coming down and improving from 26 over 25. And that will burn down over time as well. So again, it's all predicated on our improvement plans. It's predicated upon our delivery plans. We've got a very good line of sight, which is why I walked you through all this detail. But as things potentially change, these could change as well. And so, we'll give you more color. 2026 is a big, big year for us. As Kelly mentioned, had to get through our certification programs. We also have rate ramp increases as well. As we get the learnings and get informed by those events, that'll give us a little bit more ability to really zone in on specific quantification as well as the timing of these. But, hopefully, this works for you. Now, and then we'll give you more color in the future. Myles Walton: Okay. Thanks for the detail. Operator: Your next question comes from the line of John Godin from Citi. Your line is open. John Godin: Taking my question. I also wanted to follow up on free cash flow. The conversation, I think, is really focused on normalized free cash flow a few years out. The $10 billion number, Jay, that's not one that you created. And I just wanted to, you know, as you spend more and more and more time thinking about this, I wanted to just give you a chance to kind of revisit that. You mentioned a lot of moving parts at the end of the prepared remarks. But needless to say, if high single-digit is, like, an adjusted starting point at the end of '26, with the benefit of substantially higher production rates that the FAA allows. It stands to reason that the normalized free cash flow figures out could be much higher, many billions higher than $10 billion. I know there's a lot there, but I'd love your take. Jay Mollave: Thanks, John. Well, let me just start by saying first things first. And the first order of business is getting ourselves to this $10 billion, which I believe we are absolutely on the right track. You're right, John. I mentioned the term I actually used was very attainable in December, and I'm repeating that again today. I went through this, you know, in the fourth quarter, and I'm very comfortable with our ability to achieve $10 billion. Again, you know, it's a little bit of a repeatable sequence of events, but we have to get through the certification programs. Have to ramp up on our BCA production rates. Need to see the improving performance at BDS related to our margin profile as well as burning off the prior charges and then continued performance at BGS. You know, again, on an adjusted basis, when you look at BGS this past year, they delivered 6% organic growth as well as 18% plus margins. We expect that to continue as well and be a contributor to cash flow. So if you're asking me, can we be above 10? I think the potential of our cash flow app supports being above 10. But first things first, let's get to 10, and we'll talk about how we go from there. John Godin: Perspective, Jay. Thank you. Operator: Your next question comes from the line of Doug Harned from Bernstein. Your line is open. Doug Harned: Good morning. Thank you. Jay Mollave: Morning. Hey, Doug. Doug Harned: When you look at the production ramps that you're focused on, I'd like to understand a little bit more about where you see the bottlenecks when you're going to 47 to 52 on 737 when you're getting to ten, and then they'll to twelve and fourteen. I mean, what are the hardest breaks to get to and, you know, what are the biggest challenges? And I want to highlight one because if I look back in 2018, when the rate increase was going to 52, Spirit had some very significant issues getting there. And so perhaps you could also address what you may be doing to ensure you don't have those kinds of issues again with Spirit. Kelly Ortberg: Yeah, Doug. Let me start and break that down. Let's start with the 737 MAX program. As you know, we've gone from rate 38 to 42 as we've said. Just to give you a little bit of color, actually gone really well. The KPIs look really good. We achieved that effective rate in November and December on the 737 line. Now recognize that November and December are heavy holiday months. So now we'll be coming into more wholesome full months, and we need to continue to see stability. But so far, so good. And as I said, the good news is the KPIs still look good, so no deterioration there. Supply chain on that ramp, not a big issue for us right now. And we projected that. As you know, we've got a lot of inventory there. And I actually don't think supply chain is going to be a big challenge for us in the next rate ramp from 42 to 47. But that's where we start to normalize with the supply base in terms of burning off the excess inventory. And as we've said, going from 47 then to 52, that will be where we'll have to see improved performance from the supply chain, and, you know, we've got time. We're working that diligently with the supply chain. Right now, nothing says we can't do that, but a lot of work yet ahead of us. And again, I think it will be a tougher rate ramp to go from 47 to 52 than it was to go from 38 to 42 because of that inventory level. You mentioned Spirit, so I'll address that right now. You're right. In that Spirit, we're going to need to continue to invest in the capacity growth from Spirit. You know, I think this is one of the big and underwrites why we've made the acquisition so that we can guide that ramp and help them move forward. I think, you know, if they had continued in a distressed environment, I think that risk would have been significantly higher than our ability to go manage that. But that, like the rest of the supply chain, moving to that rate, Spirit has some work to do, and we've got a plan to go accomplish that. If I switch to 787, as you know, we don't have the large inventory levels there on 787. That is more normalized with the supply chain. And we're working to stabilize at this rate eight now, and our plan, as we said, is to go to rate 10 here in the next year. There's no particular supply chain constraint that I see there. We still are dealing with seat and seat issues. That's less of a constraint to our production output, but more of an issue with deliveries. And so, particularly for airlines that are taking a new seat configuration that requires a new certification baseline. Those have typically been tough to get through the cert programs both with the ASA and the FAA. And so we're, you know, we're still working through that, but that's no change from what we said before. I think that's going to be with us for a little while going forward. So, you know, I think the top-level story here is that we've got these rate increases in front of us, the 42 to 47. We'll stabilize here at 42. We'll use the same process we used to move to 42 to move to 47. We'll have a rate review with the FAA, and then we'll go ahead and increase that rate. And the same is true on 787 as we go to 10. Now longer term, as you know, we've invested both in the expansion of another line on the 737 MAX up in Everett, and I commented on that in my prepared remarks. So capital's all in place. We're going through the process of training up the people, and, you know, that's really important as we move past the 47 rate that we have that line up and running. And then, likewise, to move past 10 a month rate on 787, we believe we need to have additional capacity in Charleston, and we've made a major capital investment and kicked that off for groundbreaking here last year. So our plan's in place. We're working it. I think in general, we're going to see supply chain harmony has to happen in that 47 to 52 rate, and, you know, we'll continue to work that with the suppliers. Doug Harned: Very good. Thank you. Operator: Your next question comes from the line of Sheila Kahyaoglu from Jefferies. Your line is open. Sheila Kahyaoglu: Good morning, Kelly, Jay, and Eric. Maybe if we could just talk about the momentum in Renton is very clear. How do we think about BCA margins? Jay, you mentioned Spirit is about $1 billion and the comment about delays not affecting pricing going forward potentially as much. And the $10 billion future free cash flow state. So I guess, do we think about 737 and 787 cash margins in the near term? How much they're depressed longer term as well? And then relative to history. Jay Mollave: Thank you, Sheila. And you're right. Right now, 737 and 787 cash margins are depressed, and that's reflected in our free cash flow. We do assume and expect, given what's in the backlog, that those will improve over time to support these cash flow types of numbers that we're talking about. The Spirit impact itself, in terms of the cash flow impact of $1 billion negative this year. And we've looked at that, and we've played out their impact and their contribution to our cash margins in 737 and 787 program. And forecasted that out. And we don't believe that over time, that's going to materially impact what we believe and what we need to deliver on these types of cash flows. So over time, Spirit's performance will get better. That'll be reflected in the financials through just productivity, through synergies. And higher quality and delivery performance, as Kelly mentioned. We do have what we would expect over that time period as well is a boost from pricing. And so we haven't really focused on that as much, but that will provide a boost to our margins in the out years as well. So that is what gives us the confidence that what we've seen here at Spirit, what we're absorbing at Spirit, it doesn't really alter what we're expecting in these out years. Sheila Kahyaoglu: Got it. Thank you. Operator: Your next question comes from the line of Peter Arment from Baird. Your line is open. Peter Arment: Hey, Jay. Just maybe sticking with BCA. The BCA team had a really strong delivery year in '25. I think you mentioned 447 MAXs, and you had 88 787 deliveries. And with the rate breaks that we're seeing this year, maybe you could just level set us on kind of 2026 delivery expectations for both the MAX and the 787 programs and also just maybe any cadence that we should expect first, you know, first half versus second half? Jay Mollave: Thanks, Peter. So let me start with the 737. Our expectation for deliveries on that program is around 500 aircraft. If you look at it, kind of if you compare this year to last year, last year in the 447 that we delivered, we delivered around five aircraft out of inventory. So our production rollouts are going to significantly improve. This year, as I mentioned in my prepared remarks, we've only got one left carryover. Going in. So our production performance and rollouts are going to increase substantially. When you do the math, as you indicated, Peter, in terms of just taking a look at the assumption for rate breaks, might get into around, call it, 530 aircraft or so. What we're going to be doing in this production build is building around 30 aircraft on a 737-10. Those will not be delivered in 2026. Be delivered in 2027. Upon certification. And so that would bridge between, you know, a higher expectation and 500. As far as the 787, a little bit simpler there. We're expecting around anywhere between 90 to 100 aircraft, and that'll be dependent upon real-time production rollouts. Again, just like 737, we had about 20 aircraft that came out of inventory. That we delivered in 2026. And so the production rollout system will be the primary source of our deliveries again, here in 2026. So very similar type of approach there. Overall, we expect BCA deliveries to be up close to approximately 10%. All in. And so, again, that'll be driven, I mean, led by the 737 and 787 programs. I hope that gives you the clarity you need. Peter Arment: Yeah. That was very clear. Thanks, Jay. Operator: Your next question comes from the line of Seth Seifman from JPMorgan. Your line is open. Seth Seifman: Hey, Thanks very much, and good morning, everyone. Maybe if you could talk a little bit more about defense. We saw a charge there for the first time in 2025. But it sounds like it's something that can, perhaps help in the future. Maybe you could talk a little bit about how KC-46, to the extent that you see it turning the corner, how is it turning the corner? And then, you know, moving beyond that, the state of BDS and maybe how you prepare for some of these production increases that the Defense Department is looking for. Should we think about a multiyear contract for Boeing on PAC-3 seekers and how do we think about the investment associated with that? Kelly Ortberg: Yeah. Good question. So first of all, let me just say that the charge we took on the tanker in this quarter doesn't really reflect at all on any of the other BDS programs. It's a discrete charge against that particular program. And in fact, the predominance of the charge is increased cost on the actual 767 commercial airplane production, as Jay outlined. And we look. We took a look at the program. It is taking us more resources to make the deliveries. We delivered 14 tankers in 2025, and we are planning to deliver nineteen in 2026. And we made the conscious decision that needed to keep resources at a higher level to assure that we make those deliveries on time. As you know, the Department of War is super focused on us, first of all, making investments to support growth. And also ensuring that we're delivering on time. And so you know, we took that decision, albeit, you know, a big gulp to have to take a charge here on the tanker program. I think it will pay off in dividends with us in terms of allowing us to make sure we meet delivery the 19 deliveries next year. The other thing I'll just lay out is as you know, the Air Force has made a decision to go sole source for the follow-on tanker contracts. We will be pricing that in the fall time frame according to the current schedule. So we are laser-focused on making sure we understand the cost base of that airplane. Obviously, you know, this has been a bad contract for the last decade, this existing contract. And as we enter into a new opportunity where we get to reprice, we want to make sure that we, as Jay has said, underwrite that contract to ensure it's a fair contract, and we can make money on that. You know, as I look at the broader question about increasing in rate or increasing an investment from the executive order and the Department of War. Look. We've invested ahead of contract on F-47. I think it was a key part of our win strategy, and I think the department clearly recognizes that we went out at risk and made significant investments. We have also invested in the PAC-3 capital to increase the PAC-3 production line. I suspect we will get to a multiyear similar to what you've seen elsewhere with the government on the PAC-3 contracts. So we're in discussions now with the Air Force on that. So I don't see a big step up in CapEx relative to that multiyear PAC-3 because, for the most part, we've made the major investments already going forward in terms of CapEx. You know, the rest, finishing the F-47 investment is probably our major, you know, our major capital investment here going forward in our defense portfolio. Seth Seifman: Great. Thank you very much. Operator: Your next question comes from the line of Ron Epstein from Bank of America. Your line is open. Ronald Epstein: Yeah. Hey. Hey. Good morning, guys. Kelly, maybe a broader, bigger picture question for you. You know, we can, I guess, nail that on some of the financial details with Eric after the call. But so you've been to the company now for well over a year. Doing god's work, running around. Fixing things. But here's the question. It's an effective duopoly with you guys in Airbus. I mean, there's some folks on the fringe, but it's really the two of you guys. And it seems like on a very fundamental level, that it's just not a very profitable industry. It seems like everybody else is making money on planes. From, you know, the guys doing, you know, seats, faucets, engines, aftermarket parts, even nowadays, even airlines. But it just seems like building airplanes isn't that profitable. And you've been on both sides of this. Right? So, you know, you're at an OE now, and you were on the supply side. Yeah. Can that change? And, like, on a future airplane, can that change? Like, what has to change to, like, really make this industry shine? Kelly Ortberg: Well, look. I think as you point out, I have been on both sides of this. So I, you know, I know how you can make really good margin in this aerospace market, and I see how you can not make very good margin in the aerospace market. I think the fundamental is we have to get a handle on what risks we're taking. And understand the risks. And I think building an airplane is not an easy task. There's significant risk, and we'll continue to take the risk. The issue that I think we've got to improve upon is how we manage ourselves through those risks and how we enter into contracts associated with knowing that we've got these risks out there. So concurrency, how we price things, what damages we accept, how we do that, I think are all opportunities for us to improve. And I think a new airplane program gives us that opportunity. For the most part, there's not much we can do about what we've got at hand. Other than fix our performance, and that's what we're doing, day in, day out. I really can't change the structure of the, you know, the aftermarket and OE construct. It kind of is what it is. I think this is a big part of the discussion and our strategy going forward for the next airplane is, you know, where is the value chain? What do we do? What do we partner to do? And how do we assure that we're participating? There's a lot of value in this commercial aerospace market. You're right. We should participate in that value. So, you know, that's a lot of work for us to do strategically. I don't see any impediment to do it, but we gotta understand the risks we're taking when we take them and make sure we've got plans to manage those risks. And if they go unmitigated, then you end up with situations like we're in where we don't, you know, we're not sharing in the profitability of the overall market. That would be my take. Ronald Epstein: Got it. Yeah. Yeah. Thank you. Operator: Your next question comes from the line of Robert Stallard from Vertical Research. Your line is open. Robert Stallard: Thanks so much. Good morning. Kelly Ortberg: Good morning. Hey, Rob. Robert Stallard: Kelly, again, a strategic sort of question for you. Given the recent geopolitical volatility, are you worried about a return of tariff risk at BCA this year? And similarly, on the defense side of the business, a longer-term shift in Europe to more local procurement. Kelly Ortberg: Yes, Rob, I wouldn't say worried. It's something we have to continue to watch as we saw last year. This is super dynamic. Right? It could change tomorrow. But I think if you step back from all the dynamics day in, day out, look. I think at least the US fully understands the importance of commercial aerospace to the economy. To the US economy. They've been very supportive, and we've worked through what initially looked like some pretty hairy tariff environments to resulting in pretty good outcomes. So I think we'll be able to continue to focus on that. And, again, I think this administration is fully supportive of this industry. It's not going to do things that, you know, that cause us major harm. Having said that, as we saw last year, you know, we were shut down for a little while and deliveries into China. That got resolved, we got the deliveries done. We do have about the same number of deliveries this year into China as we had last year. So, you know, we gotta watch these trade barriers. Certainly, we have a lot of deliveries into Europe. So watching how, you know, that whole negotiation plays out to assure that, you know, we don't get in a tit-for-tat environment on commercial airplanes. Something we're going to have to just continue to work. But, again, I'll just say, the administration has been accessible to us. Has listened to our concerns when we've had them, and I think we've ended up with pretty good outcomes so far. Robert Stallard: Okay. Thank you very much. Operator: Your next question comes from the line of Noah Poponak from Goldman Sachs. Your line is open. Noah Poponak: Hey, good morning. Thanks, everyone. Jay, I know you don't want to, I know you're not quantifying the pieces of the free cash bridge you just gave back to normalized, but I guess I wanted to try to ask is the total of those pieces greater or less than $7 billion? Because you have commented on most of those in the past, and if I take the midpoint of one to three of two and add all those back, it seems like more than high single. So I didn't know if you're netting out some positives or if I'm just missing something. And then what is BCA cash if you exclude the abnormalities and you were just, you know, basically just 737 and 787 price cost, is that generating cash in your 2026, or is that closer to breakeven? Jay Mollave: So, Noah, let me just go back to your first question here on these items. Again, you're talking in that range going from low single to high single. You know, kind of call it $6 to $7 billion in the aggregate. Forget in my prepared remarks, what I talked about was the benefit of excess inventory coming down over time. So that mid is a mitigator. The only thing I'd say is, you know, the DOJ payment is a one-time event that occurred here in, occurring here in 2026, and that just doesn't repeat. It's not something that draws down in any way. So that's the best way to look at it in the aggregate. With between that six and seven. As far as a BCA look, what I'll tell you there is that we continue to expect that that's going to improve. The cash margins are going to improve on our programs. I said previously. And, you know, it's a key enabler to our cash flow at getting to $10 billion. And, you know, I think as it becomes necessary or, you know, we have the visibility, we'll give you more there. But I think I'm going to stop here with the directionally what it needs to be. Noah Poponak: Okay. Thank you. Jay Mollave: Alright. Time for one more analyst question. Operator: And your final question today comes from the line of Gavin Parsons from UBS. Your line is open. Gavin Parsons: Thank you. Good morning. Jay Mollave: Hi, Kevin. Gavin Parsons: Jay, I think you're restricted from looking at all of BDS previously. So have you been able to get under the hood of all those programs at this point? Jay Mollave: Yeah. Let me just talk about it. I mean, you're right, I was restricted through the end of the year, and I started here in January doing reviews with BDS. I think I need to put some context in there because, again, I think there's some expectation that I'm doing some kind of an outside-the-process EAC kind of deep dives that it kind of circumvents processes that we have already in place. And I'm not doing that. What I am doing is really reviews with our programs as well as my first reviews where we're just with the BDS business in the aggregate. And it's really focused on three things. One is there's just a strategic element to it. One is an operational element, and then third is a financial element. And just to kind of give you a little color about that is as I look at program to program, it's trying to understand, make ensure I understand the capabilities being delivered, developed for our customer, understanding the relevance of that capability today and what that means in the future just strategically. Looking at our current backlog and our delivery profile and how that fits our customers' capability requirements, and whether or not we're meeting that mark. Operationally, looking at program status, things that are we on track schedule-wise? Things that don't necessarily translate directly into a financial, but think about earned value type metrics. And just so understanding, get myself baselined on the programs, where they are strategically, where they are operationally, and, of course, a review of EACs, but more in the context of again, baselining, what needs to happen, what are our key assumptions in those, what are the risks, what are the opportunities, how do we realize the opportunities, and how do we mitigate the risk. So I'd call it a little bit higher level than some type of EAC deep dive. To the extent that something pops up in a review, then we'll follow up with that. And I would expect that to occur, continue to occur throughout this quarter as well as the rest of the year. And that will basically convert and transition over to the normal reviews that we do. The team does with Kelly and the rest of the leadership team. So it's more of a holistic view. If there's anything on a specific EAC or anything like that, that will be handled through the regular EAC process. And going from there. So just to give you a little bit of color on terms of how I'm approaching this, and so far, it's been a great experience. The team is doing a great job. As Kelly mentioned in his remarks, they're improving each and every day. And, again, they're heavily focused on driving to the customer requirements and meeting their schedule and budget requirements. So a good start on my BDS indoctrination. Gavin Parsons: Appreciate it. Jay Mollave: Thank you. Operator: And that completes The Boeing Company's fourth quarter 2025 earnings conference call. Thank you for joining.
Operator: Good morning, and welcome to the Brown & Brown, Inc. Fourth Quarter Earnings Call. Today's call is being recorded. Please note that certain information discussed during this call, including information contained in the slide presentation posted in connection with this call and including answers given in response to your questions, may relate to future results and events or otherwise be forward-looking in nature. Such statements reflect our current views with respect to future events, including those related to the company's anticipated financial results for the fourth quarter and are intended to fall within the safe harbor provisions of the securities laws. Actual results or events in the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated or desired, or referenced in any forward-looking statements made as a result of a number of factors. Such factors include the company's determination as it finalizes its financial results for the first quarter that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday, other factors that the company may not have currently identified or quantified and those risks and uncertainties identified from time to time in the company's reports filed with the Securities and Exchange Commission. Additional discussion of these and other factors affecting the company's business and prospects as well as additional information regarding forward-looking statements is contained in the slide presentation posted in connection with this call and in the company's filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, there are certain non-GAAP financial measures used in this conference call. A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measure can be found in the company's earnings press release or in the investor presentation for this call on the company's website at bbrown.com by clicking on Investor Relations and then Calendar of Events. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may now begin. J. Powell Brown: Thank you, Tanya. Good morning, everyone, and welcome to our fourth quarter earnings call. Before we get into the results, I wanted to share that we lost a key member of our leadership team, an incredible individual and great friend. Last week, Rob Mathis, our Chief Legal Officer, passed away. Our thoughts and prayers go out to Rob's family. We'll miss his friendship, his leadership and his wit. Now let's transition to our results. The fourth quarter capped off another year of strong top and bottom line financial performance. For the full year, we grew our revenue by 23% through a combination of M&A, organic revenue growth and strong growth in our contingent commissions. We expanded our margins materially and grew our cash flow from operations by nearly 24%. This strong performance was in spite of softening CAT property rates and economies returning to more normal growth levels. Our performance was driven by our culture, teammates, diversification and disciplined leadership. In addition, to the good financial results, we also completed the largest acquisition in our history, welcoming over 5,000 incredible teammates in Accession. We're very pleased with the integration efforts to date, and we'll touch on that more later. Lastly, we invested in talent and technology to help us deliver even better solutions for our customers. Indeed, it was a very eventful year that we're very proud of. Before we get started, we wanted to share some comments related to Brown & Brown and also involve our industry in general. First and foremost, we believe in competition. That's what makes great companies, great leaders and great individuals. We also believe in integrity, honesty, loyalty and trust. However, when a start-up U.S. broker conducts what appears to be a highly coordinated plan to lift entire teams from its competitors, taking information and customers in the process, it must be addressed. As of today, approximately 275 of our former teammates have joined this start-up, taking with them customers currently representing known annual revenues of $23 million. As we've done in the past, we will defend our rights in court and already have obtained an injunction. We stand behind our values and we'll continue to stay customer-focused with the goal of achieving the best possible outcomes for our customers and our trading partners. Now back to our results. I'll provide some high-level comments regarding our performance along with updates on the insurance market and the M&A landscape. Then Andy will discuss our financial performance in more detail. Lastly, I'll wrap up with some closing and forward-looking thoughts before we open it up to Q&A. On Slide 4. For the fourth quarter, we delivered revenues of $1.6 billion, growing 35.7% in total with organic revenue decreasing 2.8%, driven substantially by flood claims processing revenue we recognized in the fourth quarter of last year. Our adjusted EBITDAC margin remained flat at 32.9% and our adjusted earnings per share grew over 8% to $0.93. Both are very strong considering last year's flood claims processing revenue. On the M&A front, we remained active and completed 6 acquisitions with estimated annual revenue of $29 million. On Slide 5. For the full year of '25, we delivered revenues of $5.9 billion, growing 23% in total and 2.8% organically. Our adjusted EBITDAC margin was approximately 36%, increasing 70 basis points. On an adjusted basis, our diluted net income per share grew over 10% to $4.26, and we generated nearly $1.5 billion of cash from operations. Lastly, we had a record year for M&A, adding approximately $1.8 billion of annual revenue from 43 acquisitions with the largest being Accession. I'm on Slide 6. From an economic standpoint, growth was relatively consistent compared to the last few quarters. We view this stability as positive. Our customers for the most part continue to hire at a modest pace and invest in their businesses as they see steady demand for their products and services. Not all industries are equal as some companies are hiring while others are holding steady, and we're not seeing any major workforce reductions impacting our diversified customer base. In general, our customers have a cautiously optimistic outlook. From a commercial insurance pricing standpoint, rates for most lines were fairly similar to the third quarter, but we did see some moderation across some lines. Casualty and CAT property remain the outliers on both ends of the spectrum. Pricing for employee benefits increased slightly as compared to prior quarters with medical costs up 7% to 9% and pharmacy costs up over 10%. As we've mentioned in the past, we do not see any signs that this trend will slow. Our customers continue to be challenged to balance rising health care costs and the impact to their employees and their P&Ls. During strategic planning sessions with our customers, management of high-cost claimants, specialty pharmacy and population health remain the key areas of focus. Rates in the admitted P&C market moderated slightly as compared to last quarter and continue to be in the range of flat to up 5%. Workers' compensation rates remains flat to down 3%, but we're seeing a few states increasing rates. For non-CAT property, overall rates were down 5% to up 5% depending on loss experience with the blended rates relatively flat for the quarter. For casualty lines, rates increased 3% to 6% for primary layers with excess layers increasing even more. For professional liability, rates remained similar to the last couple of quarters and were down 5% to up 5%. Shifting to the E&S property market. Rate changes for the fourth quarter were similar to the third quarter and were generally down 15% to 30%. We did see some incremental drop off at the end of the year, but not as much as we did in June. With the availability of capital and lower insured storm losses, if you have a -- you have a lot of firms looking to put capital to work. Therefore, the pricing environment and approach by carriers did not surprise us. From a customer perspective, they continue to manage their total insurance spend, both commercial as well as employee benefits. As a result, we're seeing some customers leverage, the lower rates enabling them to decrease their deductibles or increase their limits. In some cases, they're utilizing the savings to purchase incremental limits on other lines or they're just capturing the savings. On Slide 7. Now let's transition to the performance of our 2 segments for the fourth quarter. Retail delivered organic growth of 1.1%. As a reminder, during our third quarter earnings call, we anticipated Q4 organic growth to be negatively impacted by multiyear policies written in the fourth quarter of '24. In addition, we had certain onetime adjustments to incentive commissions that were larger than anticipated. Lastly, we had certain project work that was delayed into 2026. In total, these items negatively impacted organic growth by 100 to 150 basis points. For the full year, our team delivered 2.8% organic revenue growth, a good performance given the headwinds we have discussed related to incentive commissions and multiyear policies. We feel good about our capabilities and how our team is positioned, and therefore, we're expecting improved organic performance in 2026. For the quarter, organic revenue for Specialty Distribution segment decreased by 7.8%. As we discussed, the decline was primarily impacted by $28 million of flood claims processing revenue recognized in the fourth quarter of last year. In addition, the decrease in CAT property rates was slightly more than expected, and we saw some binding authority business move back into the admitted market. For the full year, we grew 2.8% organically, a good result considering a tough comparison for '24 and the continued decline in CAT property rates. Now I'll turn it over to Andy to give you more details about our financial results. R. Watts: Thank you, Powell. Good morning, everyone. Before we get into the financial details, I want to talk about the impact on our earnings related to the acquisition of Accession. For the quarter, Accession's total revenue was approximately $405 million. This is below the guidance of $430 million to $450 million. As a result of refining our revenue recognition estimates by quarter, revenue, margins and adjusted earnings per share were impacted for the quarter. However, these revisions do not change our annual expectations for the business. From an adjusted earnings per share perspective, the impact of lower revenues versus our guidance was approximately $0.05 for the quarter. As it relates to the margin for the quarter, due to the phasing of revenue and profit, Accession's results decreased our margins by approximately 200 basis points for the total company. Transitioning now to our consolidated results. As a reminder, when we refer to EBITDAC, EBITDAC margin, income before income taxes or diluted net income per share, we are referring to those measures on an adjusted basis. The reconciliations of our GAAP to non-GAAP financial measures can be found either in the appendix of this presentation or in the press release we issued yesterday. Now let's get into more detail regarding our financial performance for the quarter and the year. On a consolidated basis, we delivered total revenues of $1.607 billion, growing 35.7% as compared to the fourth quarter 2024. Contingent commissions grew by an impressive $37 million, with $21 million coming from Accession. The underlying increase was driven by minimal storm claim activity and higher underwriting profitability. Income before income taxes increased by 23.1% and EBITDAC grew by 35.6%. Our EBITDAC margin was 32.9%, remaining flat versus the fourth quarter of the prior year. This was a good result considering the negative 200 basis point impact of Accession mentioned earlier and the prior year floods claim -- flood claim processing revenue. The strong underlying margin expansion was driven by significantly higher contingent commissions and lower claims within our captives, both due to the quiet storm season along with our continued disciplined management of our expenses. Our effective tax rate for the quarter was 21%, a decrease over the prior year rate of 24.9%. The lower tax rate was driven by the benefit from our international operations and certain end of the year adjustments. Diluted net income per share increased 8.1% to $0.93. Our weighted average shares outstanding increased by approximately 55 million to 339 million, primarily due to shares issued in connection with the acquisition of Accession. Lastly, our dividends paid per share increased by 10% as compared to the fourth quarter of 2024. We're moving over to Slide #9. The Retail segment grew total revenues by 44.4%. This growth was driven primarily by acquisition activity over the past year. Our EBITDAC margin decreased by 120 basis points to 26.6%, resulting from the quarterly phasing of revenue and profit associated with Accession. The Accession impact more than offset good underlying margin expansion driven by the leveraging of our expense base and certain onetime items. We're on Slide #10. Specialty Distribution grew total revenues by 27% driven by the acquisition of Accession and a substantial increase in contingent commissions. The higher contingents were driven by acquisition activity, certain end of the year adjustments and growth due to our favorable underwriting performance. Generally, our contingent commissions will increase when there are low loss ratios and strong underwriting profitability. Traditionally, when there is a strong underwriting profitability, it has the long-term effect of decreasing rates over time. This inverse correlation for contingent commissions helps put stability in our long-term revenue growth, margins and cash flow generation as contingents are a core part of our business model. Our EBITDAC margin decreased by 60 basis points to 41.3% due to the lower flood claims processing revenue and the impact of Accession having a lower overall margin as compared to our existing Specialty Distribution segment. These impacts more than offset the increase in margins driven by higher contingent commissions, lower claims in our captives and the disciplined management of our expenses. We're over on Slide #11. This slide presents our results for both years. Our EBITDAC grew by 25.6% and our margin increased 70 basis points to 35.9%. We view this as a very strong result given that coming into the year, we are anticipating margins to be flat due to lower contingent commissions, the difficult comparison to 2024 driven by the flood claims revenue and the seasonality of Accession's profitability, which negatively impacted the full year margin by approximately 80 basis points. We're very pleased with the strong underlying performance. This performance was driven by significant growth in our contingent commissions, higher profitability in our captives, increased interest income and the disciplined management of our expenses, while still investing in our teammates and capabilities. Net income before income taxes increased 21.8% and net income per share was $4.26, growing 10.9%. Overall, it was another good year of strong top and bottom line performance. We have a few other comments. From a cash perspective, we generated $1.450 billion of cash flow from operations, growing 23.5% over the prior year. This is in comparison to 23% revenue growth. Our full year ratio of cash flow from operations as a percentage of total revenues remained strong and increased to 24.6%, a reflection of our margins and disciplined working capital management. In addition, during the quarter, we paid $100 million on our revolving credit facility and bought back $100 million of shares of our common stock as we continue to deploy our capital in a balanced manner. Before we wrap up, we want to provide guidance on a few items. Now that we have a better view on the seasonality of revenues and profit for Accession, both are substantially equally weighted between the first and second half of the year. For the second half, revenue and profit are more heavily weighted towards the third quarter. Lastly, due to the high margins in the first quarter for the legacy Brown & Brown business, we anticipate Accession will have a modest negative impact on our adjusted margins in Q1. From a synergy perspective, as Powell described earlier, we're very pleased with the progress made on our integration activities over the last few months. We continue to anticipate integration efforts will be completed by the end of 2028, so we have only just begun our journey. The team has made great progress in a short period of time, and we expect EBITDA synergies of approximately $30 million to $40 million in 2026. Regarding contingents, as we mentioned, they are a core part of our business and have a recurring nature and represented over $250 million of revenue last year. They will fluctuate quarterly with changes in our organic growth and underwriting profitability, so it's better to assess them on an annual basis. For next year, we anticipate contingents for Specialty Distribution will be down approximately $15 million due to certain onetime adjustments in 2025 and ultimately subject to storm claim activity. For Specialty Distribution, we anticipate organic growth to be somewhat flat in the first quarter due to flood claims processing revenue in the first quarter of last year and continued CAT property rate decreases. As it relates to 2026 organic revenue outlook for the Retail segment, we'd anticipate modest improvement over the 2.8% we delivered in 2025. As a reminder, we think about our Retail business as a mid- to low single-digit organic growth business in a normal pricing environment and a stable economy. Our team continues to work hard to grow net new business, and we feel really good about our prospects for 2026. As it relates to organic revenue growth, depending on the materiality of revenues taken by the start-up broker, we will quantify the impact in our commentary and may adjust our organic growth calculation in order to give a better representation of our underlying performance of the business. From a margin perspective, as we look into 2026, we are projecting lower investment income due to the income generated in 2025 by the cash held for the acquisition of Accession as well as lower interest rates. This will have a downward impact on our total margins in 2026, while the underlying business is projected to achieve relatively flat margins. We view this projection as a great outcome and a reflection of the strength of our operating model, our teammates and our performance-based culture. As we've discussed in the past, our long-term adjusted EBITDAC margin target range is between 30% and 35%. As a result of our changing business mix over the years, the addition of Accession, along with our combined synergies, increased contingents, utilization of technology and our continued focus on our balanced profitable growth, which is enabled by our unique decentralized sales and service model, we are increasing our long-term margin target range to 32% to 37%. As we always have, we will continue to invest in our teammates and our businesses, which may result in the margins increasing or decreasing. But over time, the ultimate goal is to drive long-term growth and value. Lastly, from a tax perspective, we anticipate our effective tax rate will be in the range of 24% to 25% in 2026. With that, let me turn it back over to Powell for closing comments. J. Powell Brown: Thanks, Andy, and good summary of our results. As we head into 2026, we continue to believe economic growth will be relatively stable, which we view as positive. Assuming interest rates continue to decrease, in 2026, this should provide additional economic stimulus for many companies as well as individuals. As we've said in the past, we believe diversification of customers, geography and lines of coverage are very powerful as it creates stability in our revenues, margins, cash flow and earnings per share. Overall, we feel that the economies in which we operate should be generally stable, barring something unusual happening. From a pricing standpoint, we expect admitted rates to be fairly similar to what we experienced in the fourth quarter or might moderate slightly. We believe casualty rates will continue to increase, which are the largest segment of the market and that admitted property will continue to be competitively priced. For the E&S space, we anticipate pricing will be very similar to the fourth quarter, with casualty lines being the most challenging to place. Due to the lack of meaningful insured losses from hurricanes last year and the amount of available capital, we believe CAT property rates will decline modestly from the levels in the fourth quarter. On the M&A front, our pipeline looks good, and we expect to remain active in 2026. For us, it comes down to finding businesses and leaders that fit culturally and then it needs to make sense financially. From an session integration standpoint, things are coming together well, and I'm very pleased with the progress. The teams are leveraging the best of both in order to win more new business, and we're bringing offices together where it makes sense. We have a lot to get done in 2026, but I feel confident that we have the right team focused on the key value drivers. I'm extremely pleased with how the teams are collaborating together. On balance sheet and -- our balance sheet and cash flow remain very strong, which enables us to continue to delever, invest in our teams and acquire more businesses. We'll continue our disciplined approach of capital allocation, investing the capital like it's our own and striving to create long-term shareholder value. 2025 was another great year for Brown & Brown. We grew the top and bottom line significantly. We added to our capabilities, invested in innovation, data and analytics, and most importantly, added over 6,000 new teammates. While the markets might have some volatility, we believe our operating model provides stability as well as industry-leading margins and cash flow. I'm proud of how our team is focused on our customers and creating innovative solutions for them. We look forward to 2026 being another good year for our company, which will enable us to deliver solid top and bottom line results that will drive shareholder value as we continue to march towards our intermediate goal of $8 billion and beyond. With that, I'll turn it back over to Tanya to open up the lines for Q&A. Operator: [Operator Instructions] Our first question will be coming from Gregory Peters of Raymond James. Charles Peters: So I guess happy New Year to you all. I guess I only have one question. So I'd like to focus on all your comments regarding the 275 former teammates that left for the competitor and the $23 million of revenue that is going with them. I guess there's a lot of questions you can ask, but I'd like to focus just on -- have you changed your strategy about retaining your producers? And more importantly, can you talk about -- and I know you're not going to talk about ongoing litigation, but can you talk about, generally speaking, your legal defenses around your customers and your company IP? J. Powell Brown: Yes. Okay. So first off, what I want you to know is the way we pay our teammates and specifically producers is a mix between cash compensation and equity based on performance. And we believe that, that has worked really well over a period of time and continues to work well. So as it relates to, is there something unusual or different going on or we're changing something, no, that's not the case on both fronts. I think this is a highly unusual instance, just like it was with the other large broker firms that were affected. As it relates to the second part of the question... R. Watts: Legal defense. J. Powell Brown: Yes. In the industry, as you know, Greg, typically, there are -- and it might be slightly different in certain states. But generally, there are nonpiracy and nonsolicitation agreements. And those typically have a 2-year period on customers and a 2-year period on hiring teammates. It also has a component on intellectual property, which is in perpetuity. And so obviously, we can't talk about legal actions or anything that's in the legal system at the present time. But as we said in our comments earlier, there's currently some -- you can read all of it out there, let's put it that way. That's where I'd leave it. Operator: Our next question will be coming from Jimmy Bhullar of JPMorgan. Jamminder Bhullar: First, just had a question on your comments around the sort of shift of business from E&S to standard. Are you seeing that in specific lines? Or is it more prevalent? And what are your expectations for that -- for the move of exposures from the E&S market to standard over the next year or so? J. Powell Brown: So Jimmy, as you may know, there are accounts that I'm going to call them tweeners and tweeners, depending on the market cycle, either are in E&S or in standard. And typically, they look or lean a little bit more towards the E&S market. And many times, you see this in the smaller accounts. They're not small but smaller accounts, and those accounts might be up to $50,000 or more in premium. But typically, when the market starts to change in property, in particular, you see standard markets will come back in and except some of those. So again, I believe that where we saw this that we're referencing is in our binding authority business and in the Specialty Distribution. And it's too early to draw a conclusion. I don't believe 1 quarter is a trend. However, we've seen this movie before. So I do think that there may be some continued movement from E&S to admitted, particularly in the smaller binding authority business. Jamminder Bhullar: Okay. And just on your comment around... R. Watts: Jimmy, just one second before you move to the next question. Just one of the things just to keep in mind is that while accounts can, in fact, migrate from the E&S back into admitted, we continue to believe that there's going to be more insured assets though moving into the E&S space versus moving back into the admitted. So it's always kind of talked about back and forth. But if you can just look at the trend over the last 10, 15, 20 years, there's more and more moving into E&S because they want the flexibility of pricing and terms. Jamminder Bhullar: Yes. And so there's the secular component, obviously, but I think cyclically, there's just been a lot more business than normal that's moved into E&S the last several years. So maybe some of that goes back into standard, right, in the short term at least? R. Watts: Yes, it can probably somewhat. You'll see it on the fringes. Jamminder Bhullar: And then on your comment around Howden, is like they're being pretty aggressive, and other brokers have sued them as well for similar issues. Is competition picked up in general even outside of that? Or is Howden really a one-off and you're not seeing other companies being more proactive in either poaching or paying people more to add producers? J. Powell Brown: So the answer is the start-up firm is one of many that are aggressively looking to hire people. The question is how they're doing it. And so again, as I said earlier, we're all for competition. And when we hire people from other firms, we ask them to abide by the contracts, whatever those contracts are that they have. And so there's a difference in opinion with that particular start-up here in the States. And there are others. There are others in the United States that think that way as well. But that's the story. Thank you. Operator: And our next question will be coming from Rob Cox from Goldman Sachs. Robert Cox: I just wanted to ask about in the presentation, your commentary on casualty pricing. It sounds like you guys are still talking about it as, of course, seeing strong increases, but it looked like the range you provided, 3% to 6% fell a good bit from the 5% to 10% last quarter. So I just was curious to see what's driving that deceleration in casualty pricing increases and if you had any additional color to provide there? J. Powell Brown: Sure. So once again, in a market that is changing, just a broadly broad statement, I believe that you're going to continue to see more competitive pricing across the board. So what you're seeing, at least in primary business is a slight moderation of those rate increases. Remember, the biggest pressure in that area is on the excess. That has not changed because of the way the court system is -- views accidents and things like that. So I don't -- Rob, I think it's a normal course of the market. I don't think there's some structural change that's happened or some carrier has figured out how to make so much money in casualty. That's not what I'm trying to say. But I'm just giving you what we're seeing in the quarter in terms of rate impact. R. Watts: Yes. And Rob, with our commentary, don't read anything into that, that we're saying we expect casualty rates to go negative. So don't read anything into the trend or whatever. It's just kind of how the pricing was for the quarter. It can move around. Robert Cox: Okay. So as you look forward, you would think -- I don't want to put words in your mouth, but you think like relatively similar on casualty pricing going forward? J. Powell Brown: We think at least based on what we see, that would be the state or the case. I don't know if there's something we're not aware of or can't see right now. But based on what we see at the present time, yes. Robert Cox: Got you. Operator: And our next question will be coming from Tracy Benguigui of Wolfe Research. Tracy Benguigui: I appreciate hearing your comments on contingent commissions. Can you talk about which accident years are used in that formula? I'm trying to get a sense if you're still benefiting from those harder market years. R. Watts: Tracy, it's Andy here. So a number of our calculations generally because there is -- a lot of these are around property less on the casualty side. Normally, it's kind of shorter term in nature. Generally, it's over a 12-month horizon, but you might see that it could have a rolling 2- or 3-year inside the calculation. But in general, it's normally over kind of a 12-month horizon. And then what we -- in our commentary is, you'll see kind of movements around by quarter as we're doing ultimate true-ups to calculations back and forth and why we kind of look at them on a total basis in there. We suggest, again, you look at it kind of differently between Specialty Distribution versus Retail. The Retail is, honestly, it's a pretty consistent number as a percentage of revenue. SD will, in fact, move around by quarters, but it's an important part of our business. Tracy Benguigui: And then just going back to the comments about those 275 producers that were approached by a competitor. Can you just walk us through the cadence of the reduction of those $23 million of revenues? Was it mostly in employee benefits so that we could see that in the fourth quarter in '26? And is it fair to assume there was no impact this quarter? R. Watts: Yes. Tracy, on those. So it was a mix of business that was more heavily weighted towards employee benefits. So you probably see more of the impact probably early in the year. J. Powell Brown: And it's not 275 producers... R. Watts: Right. J. Powell Brown: It's 275 people. A small portion of that group were producers. R. Watts: Right. J. Powell Brown: The vast majority of them were in nonproduction roles. Operator: And our next question will be coming from Mike Zaremski of BMO. Michael Zaremski: Maybe just a question on the profit margin commentary. Andy, you said underlying margins is expected to be flattish. Just to clarify the definition of underlying, does that include contingency and exclude investment income? And it sounds like the -- which is a good flattish outcome is the result of the Accession synergies waterfalling in '26, if you think that's the right read. R. Watts: Yes. Mike. Yes, I think that's -- so what we are saying is if you isolate the impact of lower investment income next year, we would say the remainder of the business will be flat. And yes, we do view that as a really strong performance next year, considering the different puts and takes that we have and having contingents down inside of there. So that would be a really good year for us. Michael Zaremski: Okay. Great. And my follow-up might just be a quick yes or no, but because Tracy just asked for a clarification, but I just want to make sure that the $23 million of lost revs, that's -- that's all we're going to see from the lost employees for the most part. There's not -- it doesn't build up over time to a much larger number. I just wanted to -- just make sure because there's a $23 million divided by 275 employees, it's a fairly not immaterial, but small number. J. Powell Brown: So let's make sure we clarify that, Mike. Number one, that is the amount that they have taken at the present time. So what I'm saying is when something like this happens, which we haven't had before, they can impact retention going forward, some of that may be legally -- I'm not going to say prevent it, but run a foul with legal matters or whatever the case may be. But the answer is, at the present time, it is $23 million. And yes, relatively speaking, at the present time, it is a big number in a regular sense. But as it relates to the overall organization, it is a small number. And your statement is correct, but we don't know what has been said to existing customers, and that will bear itself out in the next year or so. R. Watts: Mike, that's why in our commentary, we said depending upon the materiality on a quarterly basis, we may call it out just to help give an idea of how the underlying business is performing. But this will take a number of quarters to ultimately play itself through. And again, it's not that it's all one business. Operator: And our next question will be coming from Elyse Greenspan of Wells Fargo. Elyse Greenspan: My first question was on the Retail organic. I think you guys said within the guidance, right, that there should be some modest improvement from the 2.8% that you guys saw in '25. Does that, I guess, adjust out the impact of the Howden departures? Because I think you said you may or may not adjust it out? Or does that account -- would that be leaving in the $23 million impact and you might adjust out if it's larger? R. Watts: That adjusts that out. Elyse Greenspan: Okay. Got it. And then in terms of the fourth quarter, what was the impact of the government shutdown on both Retail and Specialty Distribution? And would you expect -- are you expecting any impact in Q1 or in '26? R. Watts: Elyse. No, nothing material. Obviously, when -- especially you'll see it kind of in our flood business when you have these shutdowns. But I guess, sorry to say we're fairly adept at knowing how to manage through these since our government seems to have this as a recurring challenge at times. And so our team is really good about getting ahead of upcoming renewals, et cetera. But normally, if you have any delays, they kind of get caught up over 30, 60 days. So nothing major. Operator: And our next question will be coming from Yaron Kinar of Mizuho. Yaron Kinar: So my first question is on the Specialty Distribution organic. So I think even when we adjust for the flood revenues, organic EBITDA decreased by low single digits. You called out the greater-than-expected pressure from property CAT pricing, some binding authority business moving back to the admitted market. I assume both of those will be headwinds that remain in '26. So what offset drivers do you have that would still get the segment back up to positive organic growth in '26? R. Watts: Yaron. So I think in our commentary, we highlighted a couple of things. One, we think that the organic will be challenged in the first quarter with the flood claims that we recognized in Q1 of last year. And then with the CAT property pricing is, it will probably still be a little bit challenged in the second quarter. Then as we start looking into the back end of the year, we start getting the benefit of the organic growth of the Specialty Distribution businesses that have joined us from a session. And again, remember that -- those businesses have very, very little CAT inside of them. There's quite a bit of casualty plus other specialty lines inside. And then obviously, there's less CAT property placed in the third quarter, and then we'll see what the fourth quarter looks like. But we feel good about the business and the outlook, probably a little bit modest in the first part of the year, but then if everything continues on with trend, it will pick up some momentum in the back end of the year. Yaron Kinar: Okay. And you've given us a flavor of what kind of steady-state organic should be or has been in Retail over the years in kind of the low to mid-single-digit range. I realize that it may be a bit more challenging to offer that for Specialty Distribution. But nonetheless, I'll give it a shot. R. Watts: Sorry, you broke up at the end, Yaron. Can you repeat the end of the question, please? Yaron Kinar: Yes. I'd just like to see if there's a steady-state organic level that you'd expect from the Specialty Distribution segment, kind of the equivalent of the low to single digits you've offered for Retail. R. Watts: Yes. I think when we look at that business, because you've got the E&S component to it as well as there's still admitted inside of there, it's generally going to grow faster than retail, not all the time, and you're going to have kind of different periods. But we would normally think about that being a slightly faster-growing business than our Retail. Operator: And our next question will be coming from Mark Hughes of Truist. Mark Hughes: Yes. The procedure when you lose a teammates that going back to the Howden issue, how quickly would they change, say, the broker of record and so the business would shift immediately? I think, Powell, you had alluded to you didn't know kind of what conversations they might have had with other clients maybe positioning themselves for the renewal. But what's the usual cadence where you learn about how much has shifted over just so we can think about what that $23 million might end up being as it progresses throughout the year? J. Powell Brown: Well, Mark, there's 2 parts. So as you know, people do business with people that they like and they trust. And depending on how this story is presented, sometimes, and we've run into this already, they were said -- they were told one thing and then the customer determines that maybe it happened a little differently. And so having said that, there -- in our experience or hearing what the scenario is here, we have seen a group of accounts, which is the $23 million in question, that move right away. And we believe that those discussions occurred with them either before the departure or right around that time. We don't know exactly, and that will bear itself out. But having said that, there are other people that when presented with the scenario, they may end up thinking that they need to review their program, their placement. Sometimes they would go to an RFP, not all, but I'm saying some. And some of that may be honest and honorable and some of that may have something else embedded in it, and we just don't know. And so we think about how do you deliver better customer outcomes. And I have been hard-pressed to determine at the present time how the start-up presents better customer outcomes to those insureds. So ultimately, that will pan itself out. But we don't have a way -- it would be purely speculative, Mark, and we're not going to do that on what that number could ultimately be. But what I'm saying is we are rehiring teammates in the affective areas. We are engaging capabilities across the platform to continue or to show these customers the -- how we can bring -- have the best customer outcomes. And I'm very pleased with the engagement of our team across the entire organization. Mark Hughes: Appreciate that. And then, Powell, I think you had said you anticipate CAT property rates might decline modestly from 4Q levels. Do you think the market has pretty close to bottoming? J. Powell Brown: I don't -- I'm not going to say that, Mark, and let me tell you why. You have this really unique dynamic because you have all these issues with convective storms and fires and all this other stuff. And yet when the wind doesn't blow in Florida, as an example, you have this great pressure on rates. And as you know, it's a little bit like a pendulum and the pendulum usually swings too far one way and too far the other way. Well, the rates, quite honestly, we would all agree, probably were too high, and we don't control the pricing the carriers do. But then all of a sudden, when it becomes profitable again, and it looks really good, it brings everybody back in. So I believe that we're going to continue to have some pretty significant competition on those rates in the near to intermediate term. And I would typically say that really exists down between now and May or June, and then you get into hurricane season. So I would tend to say that I think it's still going to be quite competitive between now and then. Operator: And our next question will be coming from Josh Shanker of Bank of America. Joshua Shanker: Obviously, you were very proud and have a good view of the long-term success for your business, but someone much smarter than me said that the hard market is an elevator, and the soft market is an escalator. When you're looking at the dynamics of the market and you have a view of what the long-term growth rate of this industry is, do you believe we're entering into an extended period of suboptimal growth? J. Powell Brown: Well, I think that we are entering a more normal historically growth rate in the industry. And so I don't -- I wouldn't say it the way you just said it, Josh. I also think it's very interesting, the weight that people place on organic growth versus other important metrics like cash flow and margins. And so I have this -- and Andy and I have this healthy debate where we discuss with our team, the more and more of the changes that occur in GAAP, the further it moves away from real cash. Doesn't mean that it's wrong. I mean that's the SEC's deal and they figure it out and everybody, but -- or the generally accepted accounting principles. But what I would say is we think about it is how do we grow our business; how do we do that profitably? How do we reward those teammates, all of our teammates enable them to create wealth over a long period of time for helping us grow the business, and then how do we translate those revenues and earnings into cash, as you saw at 24.6% for the year and then use that to either buy businesses, hire more teammates, acquire our stock or something else that -- those are the 3 that come right to mind. So I believe it's -- this is exactly, Josh, what Andy and I have been saying for the last 12 months, which was more of a return to the normal growth rates historically seen in the brokerage space. R. Watts: Yes. Josh, the other thing it's -- again, it's interesting to us, I think, the way in which people write about the market. If you think about the retail space and just think about our business for a second, the large majority of what we place there is admitted markets, right? And those rates, they had to come down from where they were during kind of that '22, '23, '24 period just because of inflation and everything else. They've kind of leveled back out. They're kind of normal again. And so we don't see anything else unusual. So we don't see like this significant like softening market maybe that people are writing about. That's not what we're seeing in the rates on the admitted side actually feels fairly stable and the economy feels pretty good to us right now. Even though the headlines may potentially indicate something else, that's not actually what we see. The place where you see more of the volatility is over in the E&S space. But it seems nobody talks about casualty continues to just keep going up, though. And casualty is a really large part of the marketplace. And so look, we feel good about the backdrop. The numbers can move around again for anybody by quarter. But when we think about our business and heading into 2026, we feel really good about our ability to continue to capture market share and grow net new business. And that's kind of the key performance metrics that we focus on in -- across the entire organization. So we don't hear that -- we don't hold that -- maybe that potential dire view that you kind of put out there. That's not our perspective on the market. Joshua Shanker: Well, I don't know if it's dire, but I just want to follow-up on one thing that Powell said about that investors don't focus enough on cash flow, and I agree that's true. But do you believe that over the next 3-year period that Brown & Brown's business can outgrow the organic pace of the rest of the industry? Are you in a position -- or it just doesn't matter, cash flow will be the guiding factor for how we operate our business. R. Watts: Yes. Josh, we don't think that's actually the right question, if you don't mind me coming back at this one because the organic is only one part of the equation. One of the things that we've been saying for an extended period of time is you have to also look at contingent as part of our business model in total. Otherwise, you get kind of a false understanding of how the business is performing. Look at last year, we grew the top line, total revenues 23%. We grew our cash by 24%. The organic sure didn't grow that level, right? So you have to put contingents inside. Maybe look -- maybe our business is just different than everybody else. But when you think about Brown & Brown, you have to put the contingents inside of it because you're going to have scenarios where the organic will be down and the contingents will be up, right? And the contingents are very profitable for us ultimately because these businesses should really be valued off of cash, not organic. And the question is, how can you grow your cash over time? We grew at 24% last year to $1.450 billion. That's an incredible year. And just look back to the last 10 years at how we've grown our cash, right? And it's a combination of our acquisitions, organic and contingents. Operator: And our next question will come from Andrew Andersen of Jefferies. Andrew Andersen: Into '26 and recognizing the lost headcount, is there a scenario where you actually have a margin benefit as you're not incurring the comp and ben costs, but you are keeping the revenues? Are you thinking about that in underlying margin guidance? J. Powell Brown: I think that what I want you to understand is we are rehiring teammates that display the characteristics that we look for to deliver very creative solutions to our customers. So some of those people are being hired in those markets effective. Some may be hired elsewhere. But in the near term, technically, that could be the case, but we don't believe that it's going to have a significant impact or a material impact because we are hiring people back. So I think the question is the right question, but I don't want you to go away and say there's some hidden bonus in here. It's -- we believe it's immaterial. Andrew Andersen: Okay. And traditionally, I thought of you all is not really doing team lifts, but if there's an effort to replace these folks' kind of quickly, is that strategy kind of contemplated here? J. Powell Brown: No, we don't think really that way. We think about hiring good people and bringing them on to the team. And so I don't like to use the term never or always, but that has not really been our thought process. R. Watts: Andy, keep in mind our comment earlier because I think maybe some people have believed that it was whatever, 200, 250, 275, those were all producers. That represents teammates across the board. So that's service, account executives, et cetera. J. Powell Brown: We'll take one more question. Is that what we're going to do. R. Watts: We'll run it. We got a few more in the queue. J. Powell Brown: We've got few more in the queue. Okay, go ahead. Operator: Our next question will be coming from Alex Scott of Barclays. Taylor Scott: I wanted to ask about the incentive commissions. And I guess we've seen some of the national carriers who are trying to be a little more disciplined in the face of more competition beginning to have lower premium growth numbers. And so I just wanted to understand if we should expect any impact from maybe volume-based incentive commissions being impacted by that? R. Watts: And Alex, is that just an overall comment on the market? Or is it related to something specific when you asked that? Taylor Scott: Yes, I'll try to be more clear. We're seeing some national carriers have very low premium growth numbers at this point because of competition. And I'm trying to... J. Powell Brown: Yes. Taylor Scott: Understand if in 2026, your incentive commissions could be negatively impacted by that. R. Watts: Always a potential for that. I think you saw some of that actually in 2025, Alex, that we called out in the third and fourth quarter because the carriers are always moving around different measurement targets that could be on persistence or on growth. So yes, those are some of the dynamics going on. Taylor Scott: Okay. But is there anything embedded in sort of what you commented on your retail organic that include that? Or is that something that could be incremental? To help me understand. R. Watts: That includes our commentary unless we get something unusual throwing out that we don't know about. Taylor Scott: Okay. And then I wanted to see if we could circle back on Accession and just see if you would be willing to provide any commentary around how that performed in 4Q and its contribution to revenue. And I know we probably should care and look at more cash flow. But for Accession in particular, just thinking through the different pieces of guidance you've given in the past, I wanted to understand how the growth is going there. R. Watts: Yes. I would say, good for the businesses. So we're very pleased with the performance of the businesses inside there. We're extremely, extremely pleased with how all our new teammates are leaning in, which is wonderful to see in there. The item on the growth in the quarter when we called out the 405 versus the 430 versus 450. Again, that was just an estimate we had going into the quarter. We had to refine revenue recognition. But nothing changes full year how we think about the business. Everything is going really well and coming along with integration. So we're extremely pleased. Operator: And our next question will be coming from Meyer Shields of Keefe, Bruyette, & Woods. Meyer Shields: Two quick questions. First, Andy, the $15 million of adjustment-related contingents, is that a fourth quarter issue? Is that where we should expect the drop-off? R. Watts: No, we'll probably see that more kind of spread between the third and fourth quarters of next year, Meyer. Meyer Shields: Okay. That's helpful. And second, just to clarify, I know you said that the Retail segment should have organic growth better than the 2.8%. Is that comment also applicable to Specialty Distribution? R. Watts: We would expect that the organic growth also would improve for Specialty Distribution during the year, yes. Meyer Shields: Okay, perfect. Operator: And our next question will be coming from Brian Meredith of UBS. Brian Meredith: Two questions here. The first one, you called out multiyear policies as a headwind in retail growth again this quarter. Maybe you can quantify that. And is that going to continue to be a headwind in 2026? R. Watts: Brian, yes, we wouldn't quantify that level of granularity. I think we included that in our commentary about the 100 to 150 basis points in addition to incentives and some other projects. Those are always kind of moving around by quarters. Remember, if there's a headwind this year, remember, they come up for renewal next year. Brian Meredith: Got you. Okay. And then second question, Powell, this is more for you. If I think about going back and when we transition into these soft cycles, I found that historically, you do get these talent wars, and this is obviously a little unusual what's going on with Howden. But as I think about here going forward, is that a correct characterization? And maybe is there likely to be maybe potential pressure on margins, not only Brown & Brown for the industry is perhaps SMB has got to grow at a faster rate than organic revenue growth given just the talent war going on right now to try to sustain growth? J. Powell Brown: That's possible. Yes. I mean I'm not trying to be flippant, but yes, your thought process is fair on that. That could impact the industry, yes. R. Watts: Brian, just the other thing, this industry has always been competitive, though. I mean it's been competitive for many decades. And so I think to our earlier comments, it's why we're very thoughtful about our compensation plans, both on cash and equity and how that creates long-term wealth for our teammates. And we continue to invest across the entire organization. But I don't think that like all of a sudden, like competition just showed up in the last 6 months. It's been here for decades. Operator: And I would now like to turn the conference back to Powell for closing remarks. J. Powell Brown: All right. Thank you all very much, and we look forward to talking to you after Q1. Have a nice day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to the Atlas Copco Q4 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to CFO, Peter Kinnart. Please go ahead. Peter Kinnart: Thank you, operator, and a very warm welcome to all of you attending this quarterly earnings call for the fourth quarter 2025. Before I hand over to Vagner to start the actual presentation, I will already now, as usual, remind you that when the Q&A session starts to just ask one question at a time. Please keep disciplined, so everybody has an opportunity to ask their most important question once we get through the first queue. Of course, you can line up again for a second question afterwards, and we'll be happy to answer that. But that being said, no further ado, I will hand over to Vagner Rego to guide us through the presentation. Vagner Rego: Thank you, Peter, and welcome to this conference call. So first, we had in the first picture, a wafer, just to remind you that we are exposed to the CapEx that is relevant for the wafer production. Then if you go to the first slide with a summary of the fourth quarter of 2025, first, we had a good organic order growth, driven by industrial compressors that went somewhat up. But not only, I think, also Gas and Process compressors, also had delivered a very good quarter, and solid growth as well in vacuum equipment, I would say, including semi equipment. On the other hand, we had weaker demand for industrial assembly and vision solution followed by weaker demand on power and flow equipment, where we will go a little bit more in details later on. Once again, it was very good to see that our service divisions continue to deliver a very good result and we are quite happy about that. Revenues on the other hand was unchanged, but we have a quite high level in 2024 as well. I think the level was not bad and followed by a lower operating profit, mainly driven by negative currency effect where Peter will come back with more details, followed by negative effect coming from the tariffs and also from acquisitions. In the quarter as well, due to the low demand in industrial assembly system that is connected to the automotive business, we also decided to have -- to further adapt the organization of Industrial Technique, and we have booked a provision to make sure we keep at a good profit level. Cash flow were solid, and we continue to work on our acquisition pipeline. We have acquired 8 companies in Q4. So when it looks to the financials, I think we can see for the group, 4% organic growth that we are happy, driven by 2 divisions. Once again, organically, it was unchanged in revenue. When it comes to profit margin, we delivered 20.5% in terms of adjusted profit margin. And we have booked this provision of SEK 261 million to adapt the organization in Industrial Technique. So basic earnings per share, SEK 1.36, and strong cash flow, still good return on capital employed. If we then look to the summary of the year, and I would not spend too much time here, but we had overall a mixed demand with unchanged basically in terms of orders received and revenues. It was quite similar with some segments improving, some segments going down, but it was a flat year with quite a lot of challenges and headwinds in the profitability, I would say, and the good thing our strategy in our service divisions continue to deliver good profit and good growth that we are quite happy. And we closed the year with 29 acquisitions. And once again, Peter will come back with more details about our ordinary and extra ordinary dividend proposal. So it -- once again, if we go to the full year financials, like I mentioned, already, it was unchanged, more -- 1% organic growth in orders, 1% organic decline. But of course, we had the acquisitions that came. On top of the organic growth, quite a lot of currency headwind in our results. And with the bottom line of 20.3%, if you adjust for the restructuring costs that we have done mainly in Industrial Technique and Vacuum Technique, the profitability, the adjusted operating margin was 20.7%, still solid cash flow and return on capital employed. If we then continue with our results working -- looking more geographically around the world, what has happened. If I started with Asia, we had, in the quarter, 13% growth. That was a quite good development, mainly in Compressor Technique and Vacuum Technique. I would say that was driven this -- driving this result. So we end up the quarter with 13%. When it comes to Europe, I think we were quite positive. Happy to see 10% growth in Europe. Basically, all the divisions had positive growth. I think the only exception was Industrial Technique that was flat. So all in all, considering the situation of automotive, I think we were happy with what we saw in Europe, but it's also fair to say the comparison base was lower, but very good to see. In North America, we see 8% growth. And there, the acquisition of NTE has quite a big impact. If you exclude that, still positive growth of 3%. We see a little bit more challenging environment in South America with a flat development in Q4 and also challenging in Africa, Middle East, but it's also fair to say, especially on the Middle East, 2024 was a great year. So I think the level is good, but the comparison base is quite challenging. Then if we go to the next slide on the sales bridge, then you see the currency headwind that we have had in Q4 amounting 11%. So that was continued headwind coming from currency. I think the structural changes that are mainly acquisition had a quite good development in orders and revenues. Of course, that will later on generate an impact in the profitability as well. But I think the level of the acquisitions are quite good. I mean we have done some acquisitions like NTE that's quite sizable. Then that means that we had an organic growth of 4% and unchanged organically in revenues. And we end up the year with 2% on acquisitions and a total currency headwind of 6%. If we then go to the orders received per BA, you see that very nice to see Compressor Technique developing with plus 7% organic growth. Very good to see Vacuum Technique now plus 13% organic growth, with good contribution from many divisions within Vacuum Technique. Power Technique, a little bit more challenging, but I will come back later when I talk about Power Technique. And Industrial Technique, minus 1%. Considering the environment, I think it was also a good achievement, although we don't have organic growth that we'd like to, but considering the overall environment, I think it was a good achievement in terms of orders received. Now going more into details of the business areas. We can see Compressor Technique with 7% organic growth, driven by industrial compressors that were up. And there, we see a little bit more on larger compressors than only smaller compressors in terms of growth, but both with good development. Strong Gas and Process compressors, but again, it's also fair to say Q4 2024 was also a challenging quarter. So for Gas and Process, so they had a low comparison. The service, like I mentioned, continued to grow. We continue to grow with a good profitability. We're quite happy with the development of service in all business areas. Revenue continued to increase, 3% organic growth. We have a good order book in Compressor Technique that will allow us to continue to deliver good revenue or organic revenue growth, so considering the order book. Profitability was in a good level, 24.3%, still a good level if you consider there was impact coming from acquisition, sales mix and the trade tariffs. So I think we are quite happy with the development of Compressor Technique. And also, we continue to innovate delivering new products. Here is just an example of a nitrogen system that is dedicated for laser cutting applications. So completely tailored for this type of application. So if we then move to Vacuum Technique, we saw good order growth of 13%, notable growth for semi equipment. And there, I think it's also fair to say that the comparison was quite low in Q4 2024. So -- and then we saw -- that's why we mentioned notable growth, but it was a low comparison. But anyhow, it's good to see the environment and it's good to see growth in semi equipment. Solid growth as well in industrial and scientific vacuum, and growth in the service. Basically, I think it was a good development in all the divisions of Vacuum Technique. We still have the challenge with the order book. So revenues were 3% down. I think we still have to overcome that challenge. And operating margin was at 19.2%, so negatively affected by currency and dilution from acquisitions. So they also continue to develop the new products and a new compact product for the semiconductor this vertical booster that are dedicated for semiconductor was also released. In the Capital Markets Day, you also saw some other innovation, and here, we continue to come with innovation in Vacuum Technique. When it comes to Industrial Technique, then we saw order decline of 1%, basically driven by automotive because when we look to the general industry, we had a good development, also is where we focus to find some new growth and I think still quite a lot of transformation that can be done in the general industry, and that's where we focus. Service orders essentially unchanged and revenues, they also have challenges with the order book and the revenues were -- went down 3% organically. The adjusted profitability was 19.8%. We want to highlight here the underlying profitability because the profit was -- the profitability was 15.9%, of course, affected by the SEK 261 million in provision for the restructuring cost. We still continue to invest in innovation even in a tough environment that we have now, we continue to release, and we continue to combine the solutions we have with the vision technology that we have also in the portfolio. So I think also here, continue very nice innovation. So if we then move to Power Technique, we had an order drop of 6%. And I think it's also fair to say that we had a little bit more than normal cancellations because we had an order book that was a bit too old with old prices, and we decided to take actions on those orders, either the customer would have to take those machines or we will not carry on the orders with old prices. So it was a little bit proactive from our side when it comes to this, let's say, slightly higher than normal orders, but still would be negative but not as much as 6%. Service business continued to grow, and we saw some challenges in the quarter in our rental business that all we know also that drove the revenue down 4%, and the operating profit was at 16%, affected by currency, but also by lower utilization of our rental fleet. And I think that's the level of profitability that we are not happy with. Definitely, we'll take some actions to drive the profitability back from the levels we want to have. Anyhow, they continue to innovate. Now you know we have invested in several pump assets, more connect -- this one is more connected to dewatering. So we have a new product that can be used now by our distributors but also by our own rental companies because with the acquisition of NTE, we also have now a rental company in U.S., rental company in Australia, rental company in Brazil, dedicated for pumps, and we are also supporting them with our own products. So if we then move to the next slide, you see then the profitability, the [ EBITA ] at 21.4% in the quarter and the profit of, if you don't adjust for the restructuring cost, 19.8%. But then perhaps this time now to pass to you, Peter, that you continue to explain our profit. Peter Kinnart: Yes. Thank you, Vagner. Net financial items, slightly negative, a little bit higher than last year, mostly because of somewhat higher financial exchange rate difference and lower interest income in the company. But we also expect it would be probably on a similar level going forward in the next quarter. Then the income tax expense, which is on the low side, I would say, if we take the effective tax rate of 20.5%, that's definitely a low number. We are benefiting from all the activities we do around our innovation and the tax relief that we can get there. But we also had quite a couple of positive one-offs throughout the fourth quarter. So that is why we have this low effective tax rate. Then going forward, when we think over the next quarter, then this low effective tax rate is not maintainable because these one-offs that we benefited from will not repeat themselves, and therefore, we expect the tax rate for the first quarter to be at around 22.5% that is currently our best estimate. If I move then on to Slide #14, where we can dig a little bit deeper into the profit bridge. There's quite a few comments here to be made, how we get from 21.8% to 19.8%. There's a minor impact from the share-based LTI programs, as you can see. We had items affecting comparability of SEK 220 million in the bridge. It's a combination of quite many things. Vagner already mentioned the restructuring costs this quarter of SEK 261 million in Industrial Technique business area. And basically, the difference between those SEK 261 million and the SEK 220 million are a list of a number of items that we corrected for last year leading up to the SEK 220 million and diluting the margin obviously somewhat. Also the acquisition dilute the margin in a similar way as the items affecting comparability. We are in the first year of the acquisition here. And of course, there's a lot of integration costs, while the synergies are not fully maturing yet. And that is the reason why we see that lower profitability on the revenue within the acquisitions. Then I guess one item that is requiring the most explanation here is then the currency effect, which has been quite negative, both on the top line as well as on the bottom line. And in fact, if I summarize it fairly simply, I would say we have translation effects, transaction effects, and we have the revaluations of the balance sheet items. And the first 2 items, translation and transaction effect in terms of margin basically compensate each other. One is slightly positive from a margin point of view, the other one is slightly negative from a margin point of view, and they basically end up to 0. So you could say that the entire difference that we see here is caused by the revaluation of the balance sheet items. And there, I would like to remind you that last year, in the same quarter, we had a huge revaluation positive impact in the income statement, which was mostly linked to Vacuum Technique at the time, also partly to Compressor Technique, but mostly to Vacuum Technique and led at the time to a very positive currency effect, which, of course, now in the bridge creates the opposite effect because we will -- we have not repeated the same positive currency revaluation in the balance sheet items. And that is also why you see later on in the next page, the very high currency impact on Vacuum Technique specifically. Then when we then look at the organic development here, I think despite a negative development of the top line, we are actually seeing a positive development on the bottom line. And of course, that is more explained if I go to the next slide, 36 (sic) [ 15 ], if I take it business area by business area as there are quite a number of different positive aspects that add up to this number. So if we take it business area by business area, then we can start with Compressor Technique. Acquisitions dilutive across all the business areas, in fact, somewhat more, somewhat less depending on the specific business area, but basically all dilutive, generating positive profitability, but not as much as we are used to within the respective business areas, so dilutive effect across the 4 business areas. The currency impact for Compressor Technique is even though negative in absolute terms, in relative terms, is quite mild. And then we see a margin organically that is quite in line, slightly higher, but only marginally higher than what we are used to in Q4 2024. And that leads us to the 24.3% result of Compressor Technique, which I think we continue to consider as a good and healthy level for Compressor Technique to perform. So here, you could say despite also tariff impact and despite acquisitions, we maintain a good level there. On the Vacuum Technique side, the main detractor by far is the currency, which has a huge impact due to the fact that we had this huge positive last year, which we don't repeat this year. In fact, revaluations across all business areas, but also on the group as a total is actually quite limited this quarter, basically not a value to be mentioned in the bigger scheme of things. It was mostly the effect of last year that basically created this negative currency effect in the bridge. Otherwise, also the acquisitions were dilutive. We also didn't have the items affecting comparability this year that we had last year, which was a one-off that we benefited from at the time. The positive news I would like to add on Vacuum Technique is the strong development of the margin also here, negative development on the top line. We just heard from Vagner how the organic growth Vacuum Technique on the revenues has developed. But operating profit, on the other hand, is positive. And this is thanks to basically the effect that materializes from all the efforts in the business area to restructure, to reorganize, to cut costs in order to adjust the size of the suit to the size of the body, and that's how we end up with the 19.2% here. On Industrial Technique, 19.4% to 15.9%. Obviously, the restructuring cost is a big item. Vagner mentioned SEK 261 million this year. Last year, in the same quarter, we also did a round of restructuring for about SEK 134 million, so the net is SEK 127 million, having a dilutive effect on the margin this year still. Acquisitions were, in this case, not adding too much from a dilution point of view, but the currency also there had a bigger impact. Although in this case, not so much due to the revaluation items, a bit more related to the transaction effect. But in the end, a bit negative on the margin. And then finally, I would say, from the bottom line perspective also here, a negative development of the top line, given the difficult climate in the industry, but no negative impact on the bottom line. So that is also positive that we see that the negative impact doesn't immediately pull down the margin. And of course, with the restructuring we are doing now, we expect to continue to create savings that will support the organic development of the business area. And then last in the row, Power Technique. Here, we dropped the margin from 17.8% to 16.0%, as Vagner already implied, not the level that we are absolutely pleased with. Acquisitions have a moderate dilutive effect here. The currency is also a bit negative, but also organically, we are not seeing a positive development. And here, it's mostly the utilization of the rental fleet as well as continued investments in A&M that we are doing within the business area. We are thinking of, for example, building up the customer centers for the industrial flow business. We're also thinking about having dedicated salespeople for the portable power and flow business, for example, and also continued investments that we started up in upgrading our ERP platforms across the different divisions that are creating quite a bit of cost investments that are necessary for the future, but with the current business climate, of course, a bit in conflict with the top line development. When we then look at the foreign exchange development going forward, I would say that we are not at the end of the negative development of the currencies. Both on the top line as well as on the bottom line, we foresee still a quite negative development and estimate that, on the bottom line, we would see an effect of at least around SEK 1 billion negative impact from currencies in the first quarter 2026. Then I would move to Slide #16 to briefly comment on the balance sheet. In fact, not so much to comment. On the one hand, of course, we've seen currency effects pulling down many of the values, but at the same time, we also see some organic improvements such as in the inventories, for example, which will also be noticeable in the cash flow. And we also see the increase of the rental equipment and the intangible assets, which is both, in fact, mostly linked to the acquisitions we recently added. NTE was already mentioned, that, of course, increased the fleet as well as the intangible assets. I think on the balance -- on the liability side and equity side, there is not so much to mention, I think, to save time, let's say. If we then move on to the cash flow development, we think that the SEK 6.8 billion cash flow that we generated throughout the last quarter of 2025 remains solid, but of course, as you can see at a lower level than last year. The main reason for this is, I would say, two things. On the one hand, the change in working capital, which actually is still positive with SEK 650 million, but last year was even much more positive with SEK 2.3 billion. And the second item that, of course, influences the cash flow negatively here is then the lower operating cash surplus, which goes hand-in-hand, I would say, with the operating profit development that we have seen. And those are the 2 main items that basically pulled down the cash flow compared to last year. And then finally, maybe just to point out that for the year, we concluded with SEK 26.8 billion, SEK 11.6 billion, let's say, SEK 12 billion of which was used to finance our acquisitions, and 2/3 of those were actually taking place in the last quarter with SEK 8 billion. So with that, I conclude my comments on the financial statements and give back to Vagner to comment on the near-term outlook. Vagner Rego: Thank you, Peter. As you know, the near-term outlook is not a guidance for the orders received. It's just how we see the sequential development of our customer activity level. But then, we still continue to have a mixed picture. If I qualified a little bit more this mixed picture, on the positive side, we see a bit more vivid and active semiconductor market when we speak to our customers. And that does not mean that we will see orders coming in Q1, but there are more interactions ongoing with our customers. We also know that this is hard for us to predict because it's a key account business, decisions can take quite fast. So in talking about quite large amounts. So it's difficult to predict if this -- we will see some reaction in the Q1 orders received. But there are more activities, let's say, I wouldn't say more activity, but perhaps more interactions with our customers. So on the [ less ] positive side, we still see challenges in automotive, especially in Industrial Technique. And that's the reason why we also have decided to further adjust the organization. So there it's a more challenging environment. And then when we look to the Industrial segment, and we talk about industrial pumps, industrial compressors, general industry for Industrial Technique, I think we still see hesitance that is still a challenging environment, full of uncertainties. We have seen how the year has started and how many development so far, and we are still in January. So -- and that's why -- with this mixed picture, that's why if we combine all this, we believe that the overall demand for the group remains at the current level. So moving back to you, Peter, then. Peter Kinnart: Yes, I will just round off this presentation by informing you about the proposal that the Board has made to bring to the Annual General Meeting of Shareholders. And the intention is that a proposal will be made to offer ordinary dividend of SEK 3 per share, topped up by an additional distribution to the shareholders of SEK 2 per share, adding up to a total of SEK 5, and that SEK 5 will be paid in two equal installments, one in the course of April and one later in the year in October. So I think with that, we are at the end of the presentation. And before giving the floor to all of you asking your questions, I just want to remind you, please stick to one person -- one question at a time so everybody has an opportunity to raise their questions. Thank you. Operator: [Operator Instructions] The next question comes from Alex Jones from BofA. Alexander Jones: Maybe I can follow up on Vacuum Technique. And it would be really helpful if you could expand a little bit on the comments you made with regards to the outlook, especially thinking about Q4, how much of that acceleration in semis orders was easy comps, given you said you're not necessarily expecting that acceleration in conversations to feed through in Q1? And that acceleration in conversations, is there any difference between different geographies, thinking about China compared to the rest of Asia compared to the Americas? That would be very helpful. Vagner Rego: Yes. So definitely, we see -- if we look to Q4, it was indeed lower comps. I think Q4 2024, it was not a great year in terms of -- great quarter in terms of orders received for Vacuum. But anyhow, there is always a little bit of seasonality, but I think we are happy with the development of the orders in the semiconductor, although we had low comps. But going forward, we see a bit more interaction with our customers. It doesn't mean that we -- like I said, we will see the orders in Q1, but we get more questions, when we say just to qualify a little bit when say more interactions, more vivid and active let's say, activity. What we mean, we get now more questions, are you prepared to increase volumes? And I think that's more what we hear these type of discussions. And again -- and we haven't seen. We cannot say that the orders will come in Q1, but there are more discussions on that line. But that is more -- the majority of the production of chips are coming from Asia. That means there are a lot of interactions in that region overall. Operator: The next question comes from John Kim from Deutsche Bank. John-B Kim: Following up on Alex' question, can you give us a little bit of color on the Q4 order intake as to whether this is going into newer facilities? Or is it refreshing or expanding production at existing fabs for your semiconductor clients? Vagner Rego: I think it's always a combination of both. But depending on the players, I think they don't need to build new fabs. They have different strategies. Some they don't need to build new fabs. They have a space where they can populate with more equipment. I would say, we have seen more that and there are also players that are building new fabs to populate later. So I think there is both, some that was built in the past and now are populating -- are being populated and there are semi players where they have -- they can rearrange the current facility to increase production and then we got some good orders in Q4. Operator: The next question comes from Rory Smith from Oxcap. Rory Smith: It's Rory from Oxcap. It's just on the order intake in Compressor Technique. I think you called out significant increase in Gas and Process from several different customer segments. Really keen to just know what those segments were in a bit more detail, if that's possible. Vagner Rego: Yes. There are several market segments that performed very well. Sometimes we get a little bit more orders from LNG, for instance, because the nature of the business when they decided to take orders -- to place orders, you talk about 10 ships or 20 ships, which was not the case. We got a couple of orders for LNG. But we also had orders for gas processing equipment. I think we still see quite a lot of opportunity around gas processing, fuel gas boosters that goes together with gas turbines. If you want to generate -- if you want to have a gas-fired power plant, you have the turbine and the turbine needs fewer gas booster. We got some orders from that. Also, air separation units was also okay and a little bit for chemical and petrochemical. It was quite balanced, I would say, this quarter more than previous quarters, I would say. Rory Smith: Could I just squeeze in a quick follow-up then on that? What percentage was Gas and Process of the Q4 orders versus industrial in Q4 in Compressor Technique? Vagner Rego: I think we don't disclose that figure on divisional level. Over time, it has been around 10% of the Compressor Technique business area. Operator: The next question comes from Klas Bergelind from Citi. Klas Bergelind: So I just had a question on the larger industrial compressor orders. They are up year-over-year against an easy comp, but some debate today around that they're down quarter-on-quarter. But isn't that just seasonality, i.e., down fourth over third, at least according to my model. You don't see any underlying weakness, right, Vagner, on the larger side in compressors. I think you said last quarter, in October, that orders started to come back in Europe, but that China was still weak. I'm just keen to understand the quarter-on-quarter underlying trends on the larger side? Vagner Rego: I think it's still challenging in China, I would say, giving a little bit more color. I think we were positive about Europe and happy, to be honest. And we saw a little bit less growth in North America, but still positive development if that can help you a little bit more. Operator: The next question comes from Sebastian Kuenne from RBC Capital. Sebastian Kuenne: Regarding compressor business again, could you tell us a little bit about the market and pricing situation in the U.S., specifically for the compressors that you have to import from Belgium? And given that you have local competition like Ingersoll, who can maybe outbid you on pricing, maybe you can give a bit more color on the situation there. Vagner Rego: Thank you for the question. Yes, indeed, I think we do have the tariffs. But it's fair to say not everything that we sell in the U.S. is important. We also have local production. I don't disclose the number of how much is local, but there is quite a good portion. We are increasing the content of local production. That will come step by step. But it's fair to say that the main driver is price, and we are increasing our list price. And it's a balance act because we also want to keep or even increase our market share. So I think that is the balance we do now while we increase list price of different product lines, we also keep fighting to increase our market, not even to maintain, but to increase our market share. We do have the impact like Peter had already mentioned, but I'm quite happy with the development, to be honest, on the market share. Not all the product lines are doing well, but some are even increasing the market share. That was quite encouraging to see under such a tough situation we can further increase. And when it comes to competition, difficult for me to talk about any competitor, but many of them also have a lot of important items as well. Operator: The next question comes from Max Yates from Morgan Stanley. Max Yates: Just my question was on your exposure within the vacuum business. Obviously, over the past few years, you've kind of expanded in China, you've built up a facility in the U.S. And I guess essentially, my question is, when we look last year, your business kind of underperformed wafer fab equipment spending. And I guess what I'd like to understand is, given we're seeing kind of disproportionate price increases across memory, maybe some of the customers like Intel and maybe their CapEx is growing slower than the overall kind of pie. So just trying to really understand kind of any nuances in your exposure? And any reason when you look today at your kind of key accounts and your exposures to them as to why you would outperform or underperform wafer fab equipment spending as we go into 2026 in your vacuum business? Vagner Rego: Yes. I think we have explained in the Capital Markets Day. Perhaps it's good to go back to that meeting where we said that the WFE now have different components and the components that is correlated to advanced packaging is growing quite fast because of AI. And that creates a bit of imbalance between if you want to compare the vacuum result with WFE. On top of that, when you go to lower nodes, you have some different process steps that are not exposed to vacuum. I think then that definitely creates a little bit of imbalance. I think when it comes to the CapEx that is important for us, all the CapEx utilized for the production of wafer, I think that is the CapEx that we should consider. I think it's not always available, but that is the one that can define if we are performing well or not. And we feel very comfortable with our performance or with our product portfolio today and going forward. Going back again to the Capital Markets Day, we have shown a new EUV system that we have released beginning of 2025. I think we're very well positioned there. We also have shown a new platform for the semi market that we call Ganymede that we are introducing step by step that is quite relevant for us. I think that is the most important because that will allow us to stay competitive in these markets, even delivering more value for our customers. I think that is the most important, in my opinion. Operator: The next question comes from Daniela Costa from Goldman Sachs. Daniela Costa: I wanted to ask you a little bit to talk through sort of the restructuring and how you view that going forward? I believe at the CMD, you've mentioned that the actions were mostly done and the benefits would sort of come. So do you expect the headwinds on margin and on cash that we've had in '25 from restructuring to maybe more normalized or be significantly lower going forward? Where do you stand in that process? Vagner Rego: I think, Daniela, we will continue to monitor the situation. I think it's difficult to say. If we feel the need that we need to adapt here and there, I think we will do. We're still harvesting -- I think Peter when he was presenting the bridge, I think he also mentioned that we already harvest that Q4 was a good example in ITBA and in Industrial Technique and Vacuum Technique where they did benefit. But we still need to do a little bit more in Industrial Technique because of the outlook. And again, we will continue to monitor. Of course, these restructuring costs that we have just booked in Q4, we have benefited slightly in Q4. So -- and that will come step by step in 2026. Operator: The next question comes from Vlad Sergievskii from Barclays. Vladimir Sergievskiy: Could you provide outlook for your compressor business for Q1 or near term similar to what you have done for Vacuum and for Industrial Technique just directionally following a healthy 7% growth last quarter, of course? Vagner Rego: I think what we mentioned, Vlad, is that the demand will stay -- the activity level will stay flat. I think that is valid for Compressor Technique as well that is exposed to several industries. I mean, I think it's -- you see that the market still has some uncertainty. Globally, there might be positives here and there. But if I look to China, the demand is still challenging. You don't have triggers from the consumer demand. Some pockets of growth here and there, but the underlying demand is not as strong as it used to be. So I think it's the -- that's why I think you should consider what we have said that the activity level will remain the same. Operator: The next question comes from Andreas Koski from BNP Paribas. Andreas Koski: Could you give us an idea of what impact the tariffs had on the margin in the quarter? And if you still expect to be able to cover that by pricing, rerouting, et cetera, in 2026? Peter Kinnart: Yes. Thank you, Andreas, for your question. When we look at the current quarter, I think last time, at the end of Q3, we said that the third quarter only had a partial impact from the changes in the tariffs like 232, et cetera, so that we haven't seen the full impact yet. While at the same time, we were, of course, implementing a number of mitigating actions. And I would say that over Q4, the impact of the tariffs was basically similar as what we saw in Q3. And so that even though the impact in absolute terms was maybe higher, considering it was a full quarter, but on the other hand, the mitigating actions also partly took effect. That being said, we also admit, let's say, that competitive situation in the market is, of course, there. Demand is not always as vibrant in some areas. And as a result, of course, everybody fights for the orders, us included. And like Vagner already indicated as well, we are not willing to let go our market share. So I would say, in a nutshell, the result is that we are not fully able at this point in time to compensate for the tariffs, that the effect was similar as what we had seen in Q3 from a margin point of view. But that we expect to continue to work hard to mitigate through price increases, through logistic flows or assembly in the U.S., for example, other type of activities. And that this combination of all these activities over the next several quarters should ultimately lead to being able to compensate for the tariffs. But at this point in time, we are not fully able to do so. Andreas Koski: But it's only a 1/10 of a percentage point or so that the impact is. It's not.... Peter Kinnart: Well, I don't give an exact number because only measuring it is already quite a challenge to see all the different aspects of it. But I mean it's definitely less than 1% on the margin. Operator: The next question comes from Phil Buller from JPMorgan. Jeremy Caspar: Phil had to jump on to the other line. It's Jeremy from JP. On the topic of capital returns, it's good to see the special dividend when operating cash was a little bit lower year-on-year. I'm wondering, is there anything we should or should not infer from this? I mean, on M&A, maybe the pipeline is a bit lower in 2026 and maybe you should see capital surplus? Or is it just a reflection of growing confidence on end markets improving, i.e., cash should be better this year? Peter Kinnart: No, I don't think anybody needs to read too much into this. I think it's not the first time that we have this kind of extraordinary or additional distribution, even though we did it in a kind of a different shape or form in the past, but now this is in this way. It doesn't have any impact with regard to our acquisition pipeline or whether we have or have not any good projects in the pipeline. I think when it comes to acquisitions, the key is always, is this the right fit for the company for the growth of the future to create value for the shareholders. And I think even with the additional capital distribution, I think we still have quite sufficient firepower to acquire both small, but also bigger targets should we feel that they are the right fit for the group. Operator: The next question comes from Anders Idborg from ABG Sundal Collier. Anders Idborg: Just a question on the Vacuum margin. The way I interpret you, Peter, is that the 19.2% that you have now, that's a pretty clean margin and representative of the current basically interest -- sorry, currency rates, et cetera. How should we think about the drop through when volumes start to come through as they probably do in 2026, given the footprint optimizations that we've done? That's the question, yes. Peter Kinnart: Yes. Thank you, Anders, for your question. As always, very difficult to give a very precise answer to this. What we have said when we discussed the different restructuring measures that we have taken with the business area was that we were targeting mostly indirect functions, try to limit as much as possible the impact -- try to prune a little bit, let's say, the management structure to become more efficient. And that over time, should, of course, when volume comes back, generate leverage from a margin point of view. Of course, once the volume goes up, we do expect that we will need to increase maybe some variable costs in line with the volume increase. I mean that's only normal. But how much exactly the leverage effect will be is hard to say at this point in time. It will depend a lot on what kind of volume growth we might be able to harvest. But that is definitely the idea with the actions we have taken to create leverage on the margin once the volume kicks in again. Operator: The next question comes from Rizk Maidi from Jefferies. Rizk Maidi: I just wanted to double-click on the North American order growth. I think you said it was 8%, but only plus 3% ex acquisition. It doesn't feel that it's a high number given the amount of pricing that you need to put through there. Just perhaps if you could just double-click on this, especially on Compressor and Industrial Technique. Are you guys not pushing pricing as much? Or are the volumes quite weak in the region? Vagner Rego: Thank you for the question, Rizk. If you take there are different colors, of course, we have been performing very well in compressors. I mean that is the component of price indeed. We saw there, perhaps, I think, to give you a little bit more color, the Gas and Process business was more flattish in North America that might help you, while Industrial Compressors in general was positive. So in Industrial Technique, there, we have a little bit more headwinds in Q4, but I must say as well that 2025, North America was a great year for Industrial Technique. I mean we had quite a lot of [ project ]. It was good development. And Q4 was weaker, definitely there. And I mentioned about portable that we had some cancellations was mostly related to North America. So some orders that we -- all the orders from large rental companies that were in our books for some time, and they were not taking the equipment, we decided to cancel these orders because the price was a bit behind what we would like to. So -- and I think when you combine that, you have the 3% growth. Operator: The next question comes from John Kim from Deutsche Bank. John-B Kim: Sorry, my question was asked. Vagner Rego: Okay. Thank you, John. And we have one last question. Operator: The next question comes from Sebastian Kuenne from RBC Capital. Sebastian Kuenne: Just on Power Technique. I think you mentioned earlier that you're not happy with the rental rates and the uptake on orders in North America. Did I hear you correctly that you mentioned that you may need to have further adjustments there for capacity? Or did I understand that wrong and we discussed that earlier? Vagner Rego: Yes. But maybe to give you a little bit more color. I think the main problem is in rental. I think Peter already mentioned. The rental utilization was a little bit lower than what we would like to. And we had lower activity level in Europe and Asia for the rental business, and that's where we will concentrate our efforts. But it's not only about restructuring, it's also about activities, finding new customers because we had some traditional customers that -- where the demand is not there today, and we have to repurpose the fleet and do some sales activity to bend the trends. Sebastian Kuenne: So higher operating cost for some time to find new customers? Vagner Rego: Yes. I think when it comes to Power Technique, if we feel the need to adjust, we will adjust, I think. But we will concentrate the efforts on the rental business for the time being. Peter Kinnart: Okay. Thank you, Sebastian for that last question. The time is unfortunately up. But of course, if you have any further follow-up questions, our IR department will be very glad to assist you in providing any further clarifications. With that, I would like to thank you all for attending the call and wish you a great rest of the day. Thank you very much. Bye-bye.