加载中...
共找到 16,490 条相关资讯
Consumer outlook improved in January, reversing some of the sharp deterioration seen at the end of last year, though the recovery remains tentative. The University of Michigan's Index of Consumer Sentiment, reported on Friday (Jan. 23) rose to 56.4 in January from 52.9 in December, reflecting gains in both current conditions and expectations.
Operator: Greetings, and welcome to the Amerant Bancorp Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Laura Rossi, Executive Vice President and Head of Investor Relations. Please go ahead, Laura. Laura Rossi: Thank you, Kevin. Good morning, everyone, and thank you for joining us to review Amerant Bancorp's Fourth Quarter and Full Year 2025 results. On today's call are Carlos Iafigliola, our Senior Executive Vice President and Interim CEO; and Sharymar Calderon, our Senior Executive Vice President and CFO. As we begin, please note that discussions on today's call contain forward-looking statements within the meaning of the Securities Exchange Act. In addition, references will also be made to the non-GAAP financial measures. Please refer to the company's earnings release for a statement regarding forward-looking statements as well as for information and reconciliation of non-GAAP financial measures to GAAP measures. I will now turn it over to our Interim CEO, Carlos Iafigliola. Carlos Iafigliola: Thank you, Laura, and good morning, everyone, and thank you for joining us today to discuss Amerant's fourth quarter and full year 2025 results. As we begin today's call, I would like to turn to Slide 3 and frame our discussion around the clarity of our direction and the disciplined execution underway across the organization. Our strategic direction remains clear. In December, the Board approved our 3-year strategic plan. Our plan is built on a disciplined and sequenced road map in order to stabilize, optimize and a disciplined and sequence road map and grow the organization. This strategy reflects our confidence in Amerant's future and our ability to significantly enhance shareholder value in the coming years. We believe human capital is a key enabler of our strategic plan. We intentionally focus on our strategy on leveraging Amerant intrinsic values, which encourages teamwork, support talent development and retention and promotes effective challenge at all levels of the organization. We're investing in the development of our teams, promoting via talent recognition and ensuring that our workforce remains stable, supported, aligned and empowered to contribute to our long-term success. As part of the stabilization phase, our immediate priorities are focused on strengthening the foundation through the following highly-impact areas. Credit transformation, we concentrated on restoring predictability to our loan portfolio's credit performance. We have taken a decisive approach to review our loan portfolio and work diligently on the resolution of our credit issues to improve asset quality. We're focused on aligning our credit portfolio with our strategic objectives, such as targeting exits from non-core markets and large exposures as well as avoiding migration into criticized buckets. At the same time, we made significant progress to improve our risk selection practices by making disciplined decisions aligned with our risk appetite. Our second point is balance sheet optimization or growing wiser. We identified components that expanded Amerant's assets above the $10 billion watermark and reduced non-core funding by quarter end to rightsize our balance sheet and improve key metrics. Our third initiative is operational efficiency, assessing processes and leveraging our technology tools to improve productivity, reduce cost and enhance client experience. We have initiated several actions resulting from our cost review process, and we'll continue to provide updates in the following quarters. Notably, we have launched an AI project aimed at discovering use cases that will assist in optimizing our processes. We remain confident in the results of our ongoing efforts to strategically reposition Amerant. Accordingly, we have approved a share repurchase program, recognizing the intrinsic value of our shares. Our continued momentum will allow us to advance with clear direction and stability, position the organization for sustained growth and long-term value creation. To our investors, clients and team members, thank you for the continued partnership and confidence in our future. We believe we have the right people, the right plan and the right focus. We are aligned, we are committed, and we are executing with discipline. I'm confident in where we are headed and proud of what we are building together. Before I turn it to Shary, I want to briefly address recent events in Venezuela, considering our historical customer base and upcoming opportunities there. Our view on these events may impact Amerant is positive. We almost have $2 billion in deposits, significant AUM and close to 50,000 customers in this country. We see meaningful opportunities for growth in a market we know exceptionally well across both individual, wealth and deposit flows as well as commercial banking relationships. We expect commercial activity to pick up again after the administration recently announced plans to restore U.S. oil extraction licenses and return them to American companies, which suggests that a key sector of Venezuela's economy could reopen soon. We believe Amerant is well positioned to support international oil industry participants through account onboarding, payment processing and transactional services tied to activity between operators and subcontractors. We have also seen an incremental value and trading flow of Venezuelan bonds through our broker-dealers since early January. We are closely monitoring the situation in the country, connecting with current and potential customers and assessing opportunities. We will continue to provide updates as appropriate. With that, I will turn it to Shary to review our financial results for the quarter. Sharymar Yepez: Thank you, Carlos, and good morning, everyone. Let's turn to Slide 4, where you will see the highlights of our balance sheet. Total assets were $9.8 billion as of the end of the fourth quarter, a decrease from $10.4 billion as of the end of the third quarter. The decrease was primarily driven by the reduction of wholesale funding through the use of our excess liquidity and sale of investments as well as reduction of higher cost deposits. Cash and cash equivalents decreased $160.7 million to $470.2 million compared to $630.9 million in the third quarter. Total investments were $2.1 billion, down from $2.3 billion in the third quarter. Total gross loans decreased by $244.6 million to $6.7 billion from $6.9 billion in the third quarter as a result of higher prepayments and repayments compared to the loan production in the quarter as we focused on credit quality improvement efforts. On the deposit side, total deposits decreased by $514 million to $7.8 billion compared to $8.3 billion in the third quarter, although as a result of our efforts to reduce higher cost deposits and broker deposits. Broker deposits continued to decrease from $550.2 million in the third quarter to $435.7 million as of the fourth quarter. As Jeff mentioned, we decreased FHLB advances by repaying $119.7 million in long-term advances as we continue to execute on prudent asset liability management and use excess liquidity at hand to optimize our balance sheet. Our assets under management increased $87.2 million to $3.3 billion, primarily driven by higher market valuations and net new assets. As we've shared in past calls, we continue to see this as an area of opportunity for us to grow fee income going forward. Let's turn to Slide 5. Looking at the income statement, you will see that diluted income per share for the fourth quarter was $0.07 compared to $0.35 in the third quarter. Net interest income was $90.2 million, down $4 million from $94.2 million in 3Q '25, primarily driven by a smaller balance sheet size, the timing of repricing of assets versus liabilities after the interest rate cuts and lower impact versus prior quarter due to collection efforts over previously classified loans. The net interest margin decreased to 3.78% from 3.92% in the third quarter. Provision for credit losses was $3.5 million, down $11.1 million from $14.6 million in the third quarter. Noninterest income was $22 million, up from $17.3 million in the third quarter, driven by the gain on sale and leaseback of 2 of our banking centers, higher gains from available-for-sale securities sold and lower derivative losses. Core noninterest income, excluding non-core items, was $16.7 million. Noninterest expense was $106.8 million, up $28.9 million from the third quarter, primarily due to valuation expenses on loans held for sale, contract termination costs, staff separation costs, impairment charges on an investment carried at cost and intangible assets related to the mortgage company's wind down. Excluding non-core items, core noninterest expense was $77.6 million. You can also see that ROA and ROE this quarter were 0.10% and 1.12% compared to 0.57% and 6.21%, respectively, and our efficiency ratio was 95.19% compared to 69.84%. These ratios were primarily impacted by the decrease in net income and the increase in expenses this quarter. Turning on to Slide 6, you can see our non-GAAP metrics. Pre-provision net revenue was $5.4 million compared to $33.6 million in 3Q '25. Excluding non-core items in noninterest income and expense, core PPNR was $29.3 million compared to $35.8 million in 3Q '25. The decrease in core PPNR was primarily driven by higher non-core expenses in the fourth quarter, which were partially offset by higher non-core income items in the same period. A reconciliation of core PPNR and the impact on key ratios is shown in Appendix 1 included in this presentation. We had the following non-core items during the fourth quarter. Noninterest income of $5.3 million, which included a $3.3 million gain on the sale and leaseback of the 2 banking centers located in South Florida, non-core noninterest expenses of $29.2 million, which included $14.9 million in losses on loans held for sale, which includes $13.8 million related to a year-end valuation allowance on loans classified for sale carried at the lower of cost or fair value, $7.5 million in contract termination costs as part of our restructuring costs aimed at improving the company's cost structure. These initiatives include terminating certain rights and benefits associated with existing advertising contracts and a third-party loan origination agreement under a white label program, $3.8 million in separation costs, primarily in connection with the leadership transition in the fourth quarter; $2.5 million in impairment charge on an investment carried at cost and $500,000 in an intangible asset impairment related to the downsizing of Amerant Mortgage. Adjusting for these non-core items, our core efficiency ratio was 72.58%, core ROA was 0.84% and core ROE was 8.98%. Turning to Slide 7, which shows the quarter-over-quarter comparison of some of our capital ratios. Our CET1 was 11.8% compared to 11.54% last quarter, mainly driven by lower risk-weighted assets and from net income during the quarter, while partially offset by $13 million in share repurchases and $3.7 million in shareholder dividends. We paid our quarterly cash dividend of $0.09 per share of common stock on November 28, 2025, and our Board of Directors just approved a quarterly dividend of $0.09 per share payable on February 27 of this year. During the fourth quarter, we also repurchased 737,334 shares at a weighted average price of $17.63 per share compared to tangible book value of $22.56 as of December 31, 2025. This represented 78% of tangible book value. Turning now to Slide 8, where we show our well-diversified deposit mix along with the composition of our loan portfolio. Total deposits for the quarter were $7.8 billion, down $514 million or 6.2% compared to $8.3 billion in the previous quarter. We had decreases in every category as we reduced higher cost deposits, but had a slight increase in customer CDs. Total loans, on the other hand, were $6.7 billion, a decrease of $244.6 million or 3.5%, compared to $6.9 billion, primarily due to decreases in CRE and owner-occupied loans. Next, on Slide 9, you will see additional information related to net interest income and net interest margin. This quarter, we continued to reprice our interest-bearing deposits to maintain a healthy NIM and saw the cumulative beta at 0.4% since the rates down period started. Moving on to asset quality. As you can see on Slide 11, nonperforming assets increased to $187 million or 1.9% of total assets compared to $140 million or 1.3% of total assets in the prior quarter. The increase in nonperforming assets is the result of rigorous efforts by portfolio management, credit administration and credit review, complemented by an independent third-party firm brought in to ensure timely reviews of updated financial information and risk rating, including the identification of any possible deteriorated conditions to allow us to be more proactive in expediting resolution. As disclosed before year-end, these reviews covered approximately $5.3 billion or 85% of the commercial loan portfolio through covenant testing, annual reviews or limited financial reviews. The remaining portfolio not covered by the reviews consists primarily of small balance loans that are evaluated through payment performance, recent originations in 2025 and loans secured with cash or investments as collateral. We will continue our scheduled review process throughout 2026, and we prioritize efforts on proactive credit quality and portfolio management measures. Now moving into criticized loans. On the next 3 slides, we provide details for nonperforming classified and special mention loan movements during the quarter. In the first slide, we show the composition of our nonperforming loans at the end of the fourth quarter. We have included details of the sufficiency of collateral coverage and the type of individual evaluation performed over them. During 4Q '25, downgrades into nonperforming loans were primarily in the commercial Florida portfolio and certain other loans that have tangible collateral. You will also see the results of efforts to exit these credits via paydowns, payoffs and loan sales with balances declining now in January to $155 million as a result of this work. In the next slide, we have included similar information as it relates to the classified portfolio. During 4Q '25, downgrades into classified loans were primarily driven by CRE loans in Florida and Texas, commercial Florida loans and certain other loans that have tangible collateral. In this slide, you will also see the results of the efforts to reduce the loan balances in this bucket by now in January 2026 when 4 loan sales closed totaling $66 million. We continue to work on the exit of the remaining $15 million credit, which is expected to occur during the first quarter of 2026. Classified loans net of held-for-sale loans closed at $274 million. In the next slide, we cover special mention loans and the characteristics as it relates to collateral coverage. During 4Q 2025, downgrades to special mention were driven by one CRE Texas loan and one CRE relationship with collateral diversified in different geographies. Overall, this composition reflects a disciplined approach to credit monitoring, valuation and resolution as we continue to proactively manage risk across the portfolio. Now moving on to Slide 15. Here, we show the drivers of the provision recorded this quarter and impact to the allowance for credit losses. The provision for credit losses was $3.5 million in the fourth quarter and was comprised of $7.9 million in additional reserves for charge-offs, $800,000 in net change in specific reserve allocations, offset by releases of $3.6 million due to credit quality and macroeconomic factors, $2.3 million due to the reduction in loan balances. In addition, we recorded $700,000 for unfunded loan commitments. During the fourth quarter of 2025, gross charge-offs totaled $29.5 million related to 5 commercial loans totaling $22.3 million, indirect consumer loans totaling $1.5 million, 1 CRE loan totaling $900,000 and multiple commercial loans totaling $4.8 million. These charge-offs were offset by $11.1 million due to recoveries, mainly the recovery of $8 million that we had previously disclosed in the 3Q '25 10-Q. Lastly, the allowance for credit losses coverage ratio was down to 1.20% from 1.37% last quarter, primarily due to charge-offs of specific reserves. Excluding specific reserves, the coverage ratio decreased slightly from 1.23% to 1.20%. In Slide 16, we provide the following regarding financial expectations. In the short term for 1Q '26, we are projecting loan balances at similar levels as of 4Q '25 as exits of credits would offset loan production. However, growth for the year is estimated between 7% to 9% with the higher end driven by funding of existing lines. Our projected deposit growth is expected to match loan growth. We continue to focus on improving the ratio of noninterest bearing to total deposits and the overall cost of funds. Net interest margin is projected to be in the 3.65% to 3.70% range. We are projecting expenses of approximately $70 million to $71 million in the first half of 2026, progressively reducing to $67 million to $68 million at the end of the year. We intend to continue executing on prudent capital management, balancing between retaining capital for growth and buybacks and dividends to enhance returns. And with that, I pass it back to Carlos for additional comments and closing remarks. Carlos Iafigliola: Thank you, Shary. As we close today's call, let me point out Slide 17, where I would like to reaffirm the priorities shaping our strategic execution and the fundamental advantages that continue to differentiate Amerant. Our capital levels remain strong. Our net interest margin continues to stand out, and we see meaningful potential to expand fee income as asset management and treasury management continue to grow. We're also driving greater efficiencies across the organization with disciplined expense management. Central to all this is an elevated focus on improving predictability of credit quality and enhancing asset quality to support sustainable performance. During the quarter, we took focused, deliberate action to reinforce risk management and strengthen our credit processes. These enhancements demonstrate our commitment to resolution, allocating resources where they matter the most and ensuring the portfolio remains resilient. Although these measures influence results this period, they position us well and remain confident in both the durability of our franchise and the opportunities ahead. Looking ahead, our operating focus is firmly aligned with priorities we have shared, advancing a high-quality loan pipeline supported by disciplined underwriting, strengthening asset quality through a disciplined relationship-driven credit culture and strong monitoring process, executing cost efficiency initiatives designed to deliver ongoing and recurrent savings, deepening core deposit relationships to increase share of wallet, maintaining strong capital and shareholder returns, including our dividend and authorized share repurchases. Thank you for your continued support as we execute on these commitments. So with that, I will stop. Shary and I will take questions. And Kevin, please open the line for Q&A. Operator: [Operator Instructions] Our first question is coming from Michael Rose from Raymond James. Michael Rose: I guess the main question here is -- and I am really appreciate all the color that you guys just gave here on the call, but you have this 3-year program. From the outside looking in, what can we use to kind of measure the progress? Again, I know there's a lot of moving pieces here, a lot of heavy lifting. But again, as analysts and shareholders from the outside looking in, whether it's at the end of year 1, year 2 or the full 3 years, what kind of metrics can we look at and things can we look at to get a better handle on if your strategy is now successful after the prior efforts over the past couple of years? Carlos Iafigliola: Thank you, Michael, for the question. I believe one of the critical items that we're trying to address this quarter is its credit quality. And I believe the improvements of those metrics related to either migration and key credit metrics would be the most important items to define success after regaining confidence on the migration and the risk rating accuracy is critical for us, and that's been -- most of the work being placed during the third quarter and the fourth quarter were precisely to accomplish that objective. So going forward, a critical measure for success for Amerant after several quarters missing the guidance and estimates related to credit quality is precisely regaining that confidence. So whenever we discuss specific line items on the credit quality buckets, we really want to accomplish the objectives that were given. So I believe in my mind, that's one of the critical objectives. Secondly is a disciplined approach towards loan origination. Those 2 items, in my mind, are critical at this point. And one is -- the second one will help us with the first as we improve a disciplined approach towards loan origination and you see that there is consistency in the approval process, underwriting, we'll get better predictability on the credit bucket. So Shary, do you want to complement. Sharymar Yepez: No, yes. Carlos, I think that's right on point. To complement what Carlos was saying, and Michael, to your point, at the strategic plan, we have long-term initiatives. But as we think about the immediate-term initiatives, I think we can summarize them into 2 buckets. Number one, credit; number two, operational efficiencies. In terms of credit, we have to do 4 steps: continue the path to reduce the size of the criticized bucket or flows are greater than inflows, if any. Third, continue to strengthen portfolio management and credit administration to make sure that we have a very healthy risk rating process. And fourth, that Carlos mentioned as well, we have to be selective with onboarding into our balance sheet. We have to stay disciplined and within our risk appetite. And then as it relates to operational efficiencies, I think it goes back to ROI and being selective on the items that really move the needle. But at the same time, we have to balance with investments that are foundational for us as we continue our growth plan. So we have ways to measure that on the credit side, for sure, looking at the criticized buckets. And then as it relates to operational efficiencies, it would be efficiency ratio and ROA. Michael Rose: I guess the follow-up would be when do you -- it sounds like maybe this -- at least these next couple of quarters are going to be just kind of working towards stabilization, getting the asset quality down, starting to regrow the balance sheet. But as we get into maybe year 2 and year 3, have you guys outlined any financial targets, whether it be ROA, efficiency ratio, just to help us from a glide path perspective. And given that it has been several years of these turnaround efforts, I think providing some of those targets and making progress towards them is kind of what I was referring to in the first question. Is that something you'd be willing to share today? I know it's early days since the whole transition has started, but I think that would certainly help investors get a little bit more confident, particularly after the move that we've seen in the stock here in the past 60 to 90 days. Carlos Iafigliola: Yes. No, definitely. So when it comes to key financial metrics, our strategic plan, which has, I guess, 4 key topics and then each of one has different type of KPIs. Return on asset is definitely one that we really want to accomplish by year-end, getting as close as possible to the 1%. That's something that we constantly are discussing internally and how to move the different levers to get into that specific number. And when it comes to efficiency ratio, our goal and with all the actions that you have seen on Q4, we're precisely geared towards the accomplishment of the 60% or getting as closer as possible to the 60% at year-end. I believe this has been 2 topics that we have been discussing for a while. I believe there has been several earnings calls that we have been flying around the airport of these 2 numbers, but very difficult to land the plane. But we really are looking at everything that we can in terms of what will take us there. And that is, in my mind, those will be the critical measures, at least for 2026 to accomplish. Evidently, as we navigate into the strategic plan, our 3-year get us to compare Amerant to other peers that have a significant price to book and that will get us into a lower 60% in the long term and a higher of 1% or 2027 and 2028. So those are ultimately goals. I believe on a way to think on this is immediately for 2026 aspirational goals is getting to the 1% and 60% for 2027 is even better than 1% and improving the 60% and reaching, that I believe, aspirationally, what everyone wants is to break the 60% and get into the 55% to 58% in the long term. Those are our aspirational goals, and those are the key metrics that we'll be focusing really, really closely. Operator: Next question is coming from Russell Gunther from Stephens. Russell Elliott Gunther: I wanted to follow up on the expense conversation. I appreciate the glide path that you guys provided for '26. Can you give some color on the specific drivers that are going to get us from point A to point B. And then as we think about 2027, how should we think about sort of an annualized 4Q '26 number and a good growth rate off of that, if any? Sharymar Yepez: Sure. Russell, I think as I was mentioning a little bit earlier, it goes back to ROI and the contributions that they provide to the company. If we want to look at buckets of where we're seeing all of these opportunities or where we have been executing on these opportunities, I would say, first, we're reducing higher cost deposits that not only impact the NIM, but that could also have higher earnings credit. So this is an impact to noninterest expenses, and we see definitely room for opportunities to improve that. But I also think that when we looked at the marketing and advertising spend, we definitely saw opportunities to optimize our cost structure for 2026 and going forward. So what this will allow us is while some of these expenses will still be noticed in the first half of 2026, we will see an improvement in the second half of the year, which is why we're identifying a progressive reduction of expenses going forward. The other thing is from a hiring perspective, we certainly continue to hire. But what we're doing is we're being very strategic and making sure we're disciplined as to the hiring to make sure that everything is aligned to our strategic plan. And I think you had a second question related to where -- what the normalized expense would be. I think we gave some guidance as to the $67 million to $68 million for 4Q. That's, I guess, what I would call a little bit of a normalized expense level. And the other way to see it is, as Carlos was mentioning, we're targeting to hit the 60% efficiency ratio and cope that -- improve that metric. So I guess that's doing the math backwards, that's what we're seeing from a normalized expense standpoint. Carlos Iafigliola: Thank you, Shary. And I believe it's important to also make the point that once we reach the $67 million, $68 million, the expectation is that those expenses for 2027, 2028 on our strategic plan, they will grow, but they wouldn't -- they will preserve the rule that we're stipulating on the efficiency ratio. So 2028, if we accomplish the 55% to 60% efficiency ratio for those years, you will expect to see around $70 million per quarter, but that would be once we cross the 2026 and going into 2027 and 2028. So those are the type of things that we have been discussing. When it goes to expenses specifically, you see the actions that we took in end of the quarter 2025. And those contract terminations and all those actions will set the plate for a leaner cost structure, especially in the marketing space. We believe we needed to rationalize certain partnerships and reduce the activation component. I believe the brand awareness that we needed to accomplish was already done, and we see already the impact of that. So I believe there is no need to overlap certain partnerships. I believe we have to stick to core partnerships and monetize on them as opposed of creating an overlap or diminishing the impact of additional partnerships. So only doing that going forward, just for 2026, that will imply savings of more than $6 million in marketing expenses. So just to giving you a sense of -- from where the cost reductions are coming from. Russell Elliott Gunther: Switching gears to the asset quality discussion. I appreciate what you've already shared with us. As we look at NPL and classified levels intra-quarter, they are above where they were at the end of third quarter. How do you see that progressing over the course of how we end the first quarter, how we end the year? Would you expect it to be linear? And then kind of what level of provisioning do you think will be necessary to address related losses and provide for that high level -- excuse me, high single-digit loan growth guide? Sharymar Yepez: Sure, Russell. So as it relates to migration during the fourth quarter, this was the result of the significant coverage that we had over the portfolio as it relates to credit reviews, whether it was done through the first line or whether it was done through credit reviews, the penetration over the portfolio as it relates to risk rating was very significant. And after that, the result of that is now we have a full understanding of the characteristics of these loans. It allows us to get to a resolution and expedite resolution and address the buckets both of criticized and I think importantly, being proactive in avoiding loans getting into those criticized buckets. So as we think about it now shift into 2026, what we're seeing is outflows outweighing any type of inflow or any type of migration that we can see into those buckets. So we do project an improvement in the criticized portfolio. You had a question as it relates to provision. Provision has multiple components that we're thinking about in the full year. There's a portion related to growth. And I know that in the first quarter, we're projecting to be overall flat, but we do have annualized growth. We have to build the reserves for that loan growth. And also -- we also have some weight as to the composition of that growth. To the extent we have a higher composition of C&I, typically, those loans require a higher coverage level. So we're expecting that to be seen in provision. And then we have some loss content that is embedded within the provision as well. Within all of that, we could be seeing something in the 40 to 45 basis points from a P&L... Carlos Iafigliola: And I have to complement, Shary, I think most of the effort that if you think of the progression of the efforts that we have been doing is risk identification, trying to be upfront with the different credit buckets and thereafter trying to exit things that could potentially migrate into this bucket. So our idea is that we're trying to prevent that further items will fall into this bucket, we have to become more proactive with the credit risk management process, and we are working towards that. Russell Elliott Gunther: If I could sneak one more in. I appreciate your prepared remarks around events in Venezuela. So it looks like international deposit levels were flat this quarter. Wondering if you could share how that has trended so far year-to-date. Also, if you could touch upon how recent current events are likely to impact your international deposit gathering efforts specifically. And then big picture, it sounded like you view for events as a potential tailwind to Amerant. Is there anything that would be caused for concern? Carlos Iafigliola: Yes. No, good question. I believe, historically, we have been very well positioned to leverage on our international capacities. The bank, as you know, is vertically integrated, especially on the personal side to onboard customers to have their banking needs and the investment needs all under the same umbrella. I believe that's a great thing that we have. And traditionally, our international customers have been using these platforms throughout the year. So I believe it's still too soon, but we see very good signs and very fast progression. We have engaged with economists and with different advisers to understand the situation down there. And I believe it's very promising. The events are moving really, really fast. We believe there is a great opportunity that we cannot size as of now, but we see that the production -- the oil production in the country will definitely surge and will create the opportunity for regaining wealth in the country that will, in turn, create opportunity for Amerant to increase deposits on the international side. So we're assessing very closely. It's still too soon to understand the impact. But we believe once it starts, it may create a positive impact for the international depository base. Sharymar Yepez: And Carlos, to complement that, too, in the fourth quarter, we did see an increase in the personal account balances on the international side, offset with some commercial reductions. The commercial reductions are typically occurring, and that's part of the business as usual for the companies. So nothing extraordinary that we're seeing there. But I think the important piece, as Carlos was highlighting is we see a lot of opportunities, although it's early to tell, we see opportunities on the deposit and AUM side, but we continue our plan of focusing on the deposit and AUMs and not looking into the lending strategy at all. Operator: Our next question is coming from Wood Lay from KBW. Wood Lay: I wanted to start with deposits and core deposits were down about $4 million. And I was just wondering how much of that was intentional runoff. And now that assets came below $10 billion at the end of the year, do you expect bringing those deposits back on balance sheet? Carlos Iafigliola: Right. No, good question. I believe those -- and we made comments along the presentation regarding to optimize the balance sheet composition. We analyzed the balance sheet in quarter end or actually in Q4, and we started to discuss once I took over the components and trying to understand if we really were a $10 billion institution or not. So understanding the excess liquidity that we carry and understanding the inorganic source of deposits, we decided there is no need to carry the burden of being a $10 billion financial institution for quarter end if the sources that are taking us there are not organic or they are not part of our core business. So we decided to exit this specific deposits at quarter end and accomplish the goal of being under the $10 billion. So now we're going to declare Amerant to be over the $10 billion, we really want to make it because they are the right fundamentals behind that, not just because of the sake of being over the $10 billion. So I believe it was a process of rationalizing and understanding what are the true drivers behind the growth not just because of the sake of being $10 billion. Wood Lay: And then you still have an elevated brokered deposits and healthy borrowing. Is the intention to continue to remix that in '26 and likely stay $10 billion? Carlos Iafigliola: Yes. We definitely -- remember, we will use brokered deposits as an ALM tool. So if there is an opportunistic approach on that side to lock in long interest rate at an advantageous level for the bank, we'll reuse that line item to hedge, but the intention is not to use it as a source of increasing the balance sheet. So you can expect low levels going forward. Wood Lay: And then just last quick follow-up on expenses. Do you expect any elevated restructuring charges in 2026? Or do you feel like you have all of that behind you now in the fourth quarter? Carlos Iafigliola: So great question. Our internal discussions have been centered about diverting or stop using non-GAAP metrics as much as we can. I believe there was an excessive usage of non-GAAP metrics to track the performance of the company that creates a lot of noise and a lot of add-backs and a lot of distraction. So we are actually transferring to the scorecards to the -- either the executive committee and the bank in general, metrics that are GAAP that we can actually trace through our financials and with no need of additional explanation. So all the efforts that we did in Q4 were precisely related to trying to have a clean 2026. Operator: Thank you. That does conclude today's teleconference webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good morning, and welcome to SouthState Bank Corporation Q4 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Will Matthews. Thank you. Please go ahead. William Matthews: Good morning. This is Will Matthews, and welcome to SouthState's Fourth Quarter 2025 Earnings Call. I'm here with John Corbett, Steve Young and Jeremy Lucas. We'll make some brief prepared remarks and then move into Q&A. I'll also refer you to the earnings release and investor presentation under the Investor Relations tab of our website. Before we begin our remarks, I want to remind you that the comments we make may include forward-looking statements within the meaning of the federal securities laws and regulations. Any such forward-looking statements we may make are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor language in the press release and presentation for more information about our forward-looking statements and risks and uncertainties which may affect us. Now I'll turn the call over to you, John. John Corbett: Thank you, Will. Good morning, everybody. Thanks for joining us. As we wrap up the year, I'm really proud of what the SouthState team accomplished in 2025. Two years ago, we were deep into the due diligence phase of the independent financial deal. And it was big transformational move for us to do a deal that size and expand Westward into new markets in Texas and Colorado. Now over a several year period, I developed a friendship with David Brooks, Independent CEO, and felt good about the chemistry between our companies. But in a deal of that size, there's always a gut check moment when you weigh all the potential risks, all the things that can potentially go wrong and compare that with the rewards of moving forward. And ultimately, we did move forward and announced the deal in May of 2024. And during this past year of 2025, the SouthState team successfully navigated through that initial period of high risks, the regulatory approvals and the systems conversions, and now we're on the other side, enjoying the rewards of a well-choreographed integration. And in that regard, a special recognition and thanks goes to Mark Thompson. Mark's been working with us for over 20 years and will be retiring soon. But his last assignment was to move to Dallas with his wife and help us build personal friendships with our new partners in Texas and Colorado. And Mark did a great job leading the integration, and we're going to miss his leadership when he hangs up his jersey later this year. In addition to the social success, the deal paid off financially. Excluding merger costs, earnings per share in 2025 are up over 30% and it's not just EPS growth. We also experienced double-digit growth in tangible book value per share, and that's including the day 1 dilution from the deal, raising the dividend by 11% and share repurchases. So double-digit growth in both earnings per share and double-digit growth in tangible book value per share in 2025. And even though organic growth started slow at the beginning of the year, pipelines were building throughout the year, and many of those deals hit the books in the fourth quarter. We ended with 8% loan growth and 8% deposit growth during the quarter. Now as investors, you know that it's typical for bank valuations to lag in the first year of an integration. But with our confidence in how well things were going, we decided to be opportunistic and get more aggressive with our share repurchase plan. We purchased 2 million shares of SouthState stock or roughly 2% of the company in the fourth quarter. And our Board authorized a new share repurchase plan, adding an additional 5 million (sic) [ 5.56 million ] shares to the 560,000 shares remaining in the old plan. We didn't want to miss the opportunity to retire shares when there was such a disconnect between the fundamental performance of the bank and the valuation. When you take a step back, things are playing out right in line with our strategic plan. Our goal for 2025 was to have a clean conversion, achieve our cost save mandate and get the organization growing at historical levels by the fourth quarter. And the team accomplished those goals. The integration is now in the rearview mirror. The risk profile of the company is reduced. The fundamentals of the company are as good as they've ever been, and we're carrying that momentum into 2026. Will, I'll turn it back to you to walk through the moving parts on the balance sheet and the income statement. William Matthews: Thank you, John. I'll hit a few highlights on our operating performance and adjusted metrics, and then we'll move into Q&A. We had a good quarter to close out a very good year with PPNR of $323 million and $2.47 in EPS, resulting in a full year PPNR of $1.27 billion and EPS of $9.50. Our return on tangible common equity for the year was approximately 20%. I'll focus most of my remaining comments on the fourth quarter in comparison with Q3. High level, it was a good quarter for balance sheet growth and noninterest income, offset by higher noninterest expenses, much of which was driven by performance. Our margin and deposit costs were in line with our guidance with a 3.86% tax equivalent NIM and a 1.82% cost of deposits. As expected, accretion income of $50 million was down $33 million from the high we saw in Q3. And I'll note that we have approximately $260 million of remaining loan discount yet to be accreted into income. Our NIM, excluding accretion, was up 2 basis points. That produced net interest income of $581 million, which was down $19 million from Q3 or up $14 million, excluding accretion. Cost of deposits and total cost of funds were down 9 and 14 basis points, respectively. With the reduced accretion and the decline in rates, our loan yields of 6.13% were down 35 basis points, close to our new loan origination coupons of 6.06% for the quarter. As John said, we had good balance sheet growth in the quarter with loans and deposits growing at an 8% annualized rate. We also carried higher cash and Fed funds sold levels in the quarter, up almost $0.5 billion. Steve will give updated margin guidance in our Q&A. Noninterest income of $106 million was up $7 million, largely driven by performance in our correspondent Capital Markets division. This group's $31 million in revenue was one of our better quarters in that business. Although full year NIE was better than guided and modeled, Q4 NIE was higher than expected, partially due to higher performance and commission-based compensation, which were up a combined $6 million from Q3 levels. Fourth quarter performance in noninterest income businesses and the 8% annualized loan growth in the quarter led to higher expense in commissions and incentives. Additionally, marketing and business development spending was up a combined $6 million for the quarter. Even with these higher fourth quarter expenses coming through, our efficiency ratio remained below 50% for the quarter and the year. As we've previously stated, our expectations for 2026 NIE are that we lean into our initiative to expand revenue producers, which likely adds approximately 1% to an inflationary type, 3% NIE increase for an estimated 4% increase over 2025 NIE levels of $1.407 billion. Of course, this is subject to variability, as always, in certain performance compensation and loan origination expense offsets. NPAs declined slightly and credit costs remain low with a $6.6 billion provision expense. Our 9 basis points of Q4 net charge-offs brought the full year number to 11 basis points. We believe our reserve levels are adequate and future provision expense is likely to be primarily a function of loan growth and net charge-offs as we see a slowing of the rotation from PCD to non-PCD and the resultant downward pressure on the ACL. This, of course, assumes no significant changes in expectations for economic and credit conditions. John noted our capital return activity in the quarter with us repurchasing 2 million shares at an average price of [ $90.65 ]. Combined with our dividend, our total payout ratio was just shy of 100% for the quarter. Even with the higher balance sheet growth and higher share repurchase activity, our capital ratios remain very healthy. Our TCE ratio remained at 8.8%, and our CET1 ended the year at 11.4%. Looking back at the year in terms of capital, we closed the sizable acquisition January 1. We increased our dividend 11% in July. We repurchased 2.4% of the company, and yet we still grew TBV per share by 10%. Looking ahead, we believe we have the ability to continue to fund our growth and grow our capital levels while also being active in share repurchases, particularly when we believe there will be an inherent disconnect between our fundamentals and the share price. Operator, we'll now take questions. Operator: [Operator Instructions] Our first question comes from John McDonald from Truist Securities. John McDonald: I thought I would just ask Steve to give the thoughts on the net interest margin for the year and how you're thinking about deposit costs and growing deposits to fund the loan growth you expect? Stephen Young: Sure. Thanks, John. Yes, really not a lot of change from last quarter's guidance. We -- as Will mentioned on the call, our NIM was right at 3.86%, which is right in line with our guidance of 3.80% to 3.90%. Our deposit costs were down 9%. So as we think about the going forward assumptions, it's really 4 things: the interest-earning assets, rate forecast, our loan accretion and our deposit beta. And really, on our interest-earning assets last quarter, we talked that 2026 would average somewhere in the $61 billion to $62 billion range. We still reiterate that guidance. So no change there. We think that it will start off first quarter somewhere in the $60 billion to $60.5 billion range as we had some seasonal municipal deposits in the fourth quarter that sort of roll over in the first quarter. The rate forecast, three rate cuts, so there's really no change there. Loan accretion, we're forecasting $125 million for next year. So that's no change. And then the last is just our deposit beta. And last quarter, we talked about 27% being the number that we think to grow deposits or to fund loans would be the right number, and we still think that's the right number. So as we think about going into next -- into 2026, we see there's always a little bit of a lag, but by the end of the first quarter, we should be in a good shape to hit that for the last three rate cuts and maybe average in the 1.75% range for the first quarter for deposit costs. So based on all those assumptions, we would expect NIM to continue to be between 3.80% to 3.90% in 2026. We might see it start a little bit lower in the year coming out as we get the deposit cost in and then higher in the year as hopefully, we get the deposit costs and growth in the back-half. John McDonald: Okay. And inside of that earning asset outlook, could you talk about your loan growth expectations? You ended the year with good momentum with the 8% you cited. How are you feeling about the loan growth outlook for this year? John Corbett: Yes, it's John here. We communicated throughout the year that we saw the pipeline building and growing. Early in the spring last year, it was about a $3.4 billion pipeline. We ended the year at about a $5 billion pipeline. It's kind of leveled off at that level for the last few months, but that growth in pipeline led to production growth. So in the fourth quarter, production was up 16% versus the third quarter, a record for us at $3.9 billion, and that kind of gave us the mid-single-digit growth in the back half of the year that we guided to. Our guidance previously for 2026 was mid- to upper single-digit loan growth. We still think that, that is appropriate as we see these pipelines build and hold. John McDonald: Okay. And what would get you to the upper end, John, of the loan growth? John Corbett: One of the things that we're seeing in the pipeline, John, is some growth in investor commercial real estate, which really lagged last year. And we're seeing really nice pipeline builds in Texas and Colorado. And if that momentum continues, they had a pipeline of $800 million after the conversion this summer. Now it's up to $1.2 billion. So if they can keep that momentum, that would be the tailwind. Operator: Our next question comes from Stephen Scouten from Piper Sandler. Stephen Scouten: So I'm just curious on the hiring activity. Obviously, you had a pretty significant announcement back in the third quarter and then the announcement this week. Do you guys think about, especially maybe within that expense guidance, a number, a target that you hope to hit in terms of new hires? Or is it really just about being opportunistic across the platform and really just leaning into the opportunity set? John Corbett: Yes. I mean it's a pretty historic time here with the amount of disruption that is going on in our markets. I think I communicated before, we've calculated in our MSAs that we operate in, there's $118 billion of bank deposits that are going to go through a conversion in the next year or so. So that's a lot of creative destruction that's going to go on. We brought in, Stephen, in the neighborhood of 550 to 600 commercial RMs and I've told our team, if we increase that 10% or 15% in the next year or two, that would be perfectly fine to kind of build the base to continue seeing this organic growth -- loan growth. Stephen Scouten: Okay. Great. And that growth of 10% to 15% is kind of contained within that expense guide already, those sort of roundabout expectations? John Corbett: It is. Stephen Scouten: Great. Great. And then I guess my follow-up question would be kind of around correspondent banking and the strength there. Do you think the strength we've seen, especially in the last couple of quarters is sustainable? Or is there anything more episodic that's led to the strength there? Stephen Young: Yes. Thank you, Stephen. Yes, it's been a really great back half of the year for the correspondent Capital Markets and really driven by two things. I mean, we've had a change in rates. We had 75 basis point decrease in rates that was helpful for that business. The interest rate swaps were up $4 million quarter-over-quarter, fixed income is up $1 million, so -- but I would say, as you kind of look at the actual quarter and then kind of look at maybe more of the movie, as we think about those businesses from quarter-to-quarter move up and down, I would look at that business kind of on the average of the year because typically, in the first quarter or two, it's not quite as robust unless there's huge interest rate changes. And then towards the back half of the year, loan production picks up and we get more. So I would say for correspondent, what we're looking for next year is somewhere in the $25 million a quarter, maybe it starts out a little lower, ends up a little higher, somewhere in their $100 million business. That probably makes sense based on what we know right now. And if you kind of just look at noninterest income in total, this quarter, we were at 63 basis points of assets. But if you look at the year, we started out much lower than that. We were -- for the year, we were at 50 basis points -- I think, 56 or 57 basis points of assets. So I would kind of look at that and kind of use that forecast somewhere in that 55 to 60 basis point range for next year on a growing asset base as we talked about. So I think -- let's see how it goes, but I think looking at a full year picture, it's probably a better way to look at it, and let's see if the momentum continues. Stephen Scouten: Yes, that makes a lot of sense. And just when you guys talk about all the hiring activity, are some of those hires contained within that kind of correspondent banking division, any product expansions? Or is it mostly just more like commercial RMs? Stephen Young: The way that I'm talking about it is more the commercial RM space, Stephen. But I would say that, obviously, we're opportunistic everywhere in all business lines. For instance, about a year ago, we hired a team that's really helped us this past year in Houston on the SBA securitization business, and that's been a really great business and has really added to profitability. I think we hired that team in February of 2024, and that's really kind of come through. So there is always opportunistic hiring we're doing. We're trying to build out different products in the capital market space. So we're leaning into foreign exchange more, and we've made some key hires there. So what John is talking about is generally general bank, but we are opportunistic and very [indiscernible]. And from an expense standpoint, in the capital markets area, those are typically commission-based businesses, so it's really not an expense drag initially like there is in the commercial hiring side. Stephen Scouten: Fantastic, it sounds like a lot of good things going on across the bank. Appreciate the color. Operator: Our next question comes from Anthony Elian from JPMorgan. Michael Pietrini: This is Mike on for Tony. So I guess I'll start on expenses. You saw a little bit of an uptick in 4Q sequentially. Anything that we should back out to get a good run rate for 2026? And does expense growth of mid-single digits that you guys guided previously, does that still feel appropriate for 2026? William Matthews: Yes, Mike, it's Will. Yes, Q4 was really, I'd say, impacted by three things: One, performance. We had good performance in noninterest income businesses. We also had a pickup in loan growth, which feeds its way through in some of the incentive-based compensation for relationship managers. Secondly, there's always a bit of Q4 seasonality in an expense base that can sometimes cause the fourth quarter numbers to pick up a little bit. We did experience that this year. And then thirdly, I'd say just the more -- the greater focus and lean into our growth initiative on hiring and some of the expenses you saw, business development, advertising, things like that move up a bit. So really a combination of those factors for Q4. My guidance that I gave in the prepared remarks does incorporate all of those things. And I'd say, too, when you're in the hiring of relationship managers, you don't -- you can't always plan exactly when they become available and because you want quality folks, you grab them when you can. And so you plan out when you hope to hire them and when you think they might come in, but it's a case-by-case basis as to when they're actually brought on board. Michael Pietrini: Great. That makes sense. And then as a follow-up on the buyback, how quickly do you guys anticipate using that new authorization? I think you're at about 5.5 million shares now authorized. And is there price sensitivity at a certain level? I guess any commentary on that would be great. William Matthews: Sure, sure. Yes. I mean I think we would all acknowledge that capital return thoughts should be flexible, and that depend upon a number of factors, where the share price is relative to intrinsic value. Obviously, in the fourth quarter, we thought there was a pretty big disconnect. What's the economic outlook? What's your growth looking like? And then, of course, earnings and capital ratios feed into it as well. So it's really a quarter-by-quarter decision. You look at the fourth quarter, our total payout ratio when you include dividends and share repurchases was in the 97% range. But we did see a big disconnect in our minds between the share price and intrinsic value. But that's higher than is really sustainable long term for a growing company like ours. So it's unlikely we'd be that active going forward with that high of a payout ratio. But I'd say with all of those caveats, growth, share price, economic outlook, other factors that impact your appetite, you could see our total payout ratio of dividends plus repurchases somewhere in that 40% to 60% range. But of course, it could be higher or lower than that depending upon the circumstance. Operator: Our next question comes from Catherine Mealor from KBW. Catherine Mealor: I just wanted to do one follow-up on expenses. And I know you said this in the beginning, Will, but what was the base at which you're growing expenses by a 4% level? That was on operating expenses, right? William Matthews: Yes. Yes. I was using the $1.407 billion for 2025, growing that by 4% was our guidance. Catherine Mealor: Okay. Perfect. I just wanted to confirm that. Awesome. And then maybe one thing back to the margin, can you talk a little bit about -- the deposit beta commentary was great. It was good to see it come down. Just on loan yields, maybe talk a little bit about loan pricing and where you're seeing that. And I feel like you still have a really big back book loan repricing story from your fixed rate book. And Steve, you've given us some commentary in the past about the kind of balance between marked loans repricing lower and then your fixed rate loans repricing higher. And so you just kind of update on that balance and what we should expect to see there would be helpful. Stephen Young: Sure. No, that's -- I'll just update you on the repricing schedule. So we -- in the legacy bank fixed rate loans, we have about $4.3 billion repricing in the next 12 months. And it's right around 5% and I think the coupon is 5.06%, but somewhere in there. Last quarter, our new loan origination rate was 6.06%. So that's, call it, 1% higher, maybe something like that. So you've got a positive there. And then on the independent -- legacy independent book, you have about $2 billion coming due over the next 4 quarters, and it will reprice down from about 7.25%, which is the discount rate to around 6.25% because the inherent loan yields are higher out in Texas and Colorado. So -- yes, there's a positive net. If you look at that, that's roughly $2.3 billion at a 1% positive. We'll have to see where the yield curve ends up because just depending on where the 5-year treasury is, that will determine what that repricing is. If it gets steeper, it will be better. If it gets more flat, it will be worse. But what we saw last quarter was a total loan -- new loan production rate of 6.06% and in Texas and Colorado, the new loan production rate was 6.31%. Catherine Mealor: Great. So I mean, all else equal, if we're in an environment where the curve remains steeper, let's just -- I know you've got three cuts in your numbers, but let's just kind of take that out. If we're in a kind of a stable rate environment, there's enough momentum with the fixed rate repricing being higher than your independent repricing down where loan yields should continue to move higher as we move through the year. Stephen Young: Yes. I would say that yes, the answer is I think we have a sustainable NIM in that 3.80% to 3.90% range. And the way I would kind of characterize it on the NIM versus volume question is if we grow closer to 10%, then probably the margin will come down a little bit because we have to fund it on an incremental dollars, but we'll have higher NII. If we have lower growth, then it will be a little more margin and a little less volume. So I think the range is about right, and then it will be driven by how fast the growth is. Operator: Our next question comes from Jared Shaw from Barclays. Jonathan Rau: This is Jon Rau on for Jared. Maybe just thinking a little bigger picture about investments outside of hiring this year. Are there any projects planned on the tech side in the correspondent banking or anything else across the business that you're looking into? Stephen Young: Sure. Yes. Of course, every year, we go through a very intensive strategic planning process, and we have different investments that we're taking on this year. I think part of the investment relates to some commercial loan servicing platform that we are working on our syndication business, and that's an important piece from a back-office perspective in order to grow on the front office, middle market. We have investments in AI. We have investments in our FX platform. So all of those are included in Will's numbers, but there are -- definitely, we're always investing in the tech platform and the other platforms. But I'd say what's different this year and was part of Will's guidance is that we are very intentional about investing in revenue producers. And that's -- we've got a lot of the platforms already built. This is some finishing off the platforms, but it's really a focus on revenue producers. Jonathan Rau: Okay. Great. And then maybe on the deposit pricing side, starting the year at like 1.75%. Is that [Technical Difficulty] to migrate lower throughout the year? And I guess, does the beta move lower as we get further cuts and you get to a lower and lower deposit rate? Stephen Young: Yes. It's very similar to what we said last quarter. I think our view is the same. We're thinking that we start off around the 27% range, which is what we were in 2018, '19 when we were growing at this pace. If growth -- and let me say that there's always a little bit of a lag with that because of CD pricing, which is true for all your banks. But hopefully, by March, early April, we kind of get all that. If there's no more cuts, we'll get all that in there. And then hopefully, over time, we can move that over towards a 30% beta. But if we grow at the higher -- mid- to higher single digits, we're not sure about that. It could be 27%, it could be 28% but that will be the difference. It will be about how fast we grow will determine how much beta we'll get. Jonathan Rau: Okay. And then if I could just ask one more. It looks like there was some increase in substandard loans this quarter. Just any color on what drove that? Stephen Young: Yes. Overall, credit-wise, John, we had a decline in past dues, a decline in NPAs and a decline in charge-offs. All that stuff trended down. There was an increase in substandard. If you take out the NPAs, 99% of the substandards are current. And the increase was due to a handful of multifamily properties that are in lease-up. The credit team is not concerned about those. In fact, they've got a weighted average loan-to-value of 52%. So really tons of equity. It's just a timing issue in lease-up. Operator: Our next question comes from Gary Tenner from D.A. Davidson. Gary Tenner: Just wanted to ask a little bit about the loan production side. I know the $3.9 billion was a great number. Just curious if you could tell us how much was in Texas or if you want to combine Texas and Colorado and then what the comparative third quarter levels were for the same market? William Matthews: Yes. So in Texas and Colorado, their production was $888 -- Texas and Colorado combined $888 million. So that's 15% higher than the third quarter, which was $775 million. If you take those markets for the entire year of 2025 versus 2024, production is up 10%. So we're continuing to see the pipelines build and our recruiting is Dan Strodel, who's our President out there, has been very successful. Of the 26 commercial RMs that we added in the fourth quarter, 17 of those were in Texas and Colorado. So those guys have kind of weathered through the conversion and they've got a lot of momentum headed into 2026. Gary Tenner: Appreciate that. And just within that same footprint, in terms of the type of production you're getting, is it -- does it remain real estate heavy with a move to shift it towards more traditional C&I? Or what's the kind of the mix that you're seeing there? William Matthews: Yes. Historically, they've been a great CRE lender, and we want them to continue to do exactly what they've been doing historically, but we see an opportunity with some of the tech platform, the treasury management platform, the capital market platform that SouthState is introducing to layer on top of their commercial real estate business with C&I bankers, and that's where a lot of Dan's recruiting activity is occurring. So we'll see that finish [ economy ] in 2026, but we don't want them to stop what they're so good at and have been so good at. Operator: [Operator Instructions] Our next question comes from David Bishop from Hovde Group. David Bishop: Just in terms of the hiring efforts you mentioned there, you mentioned the disruption, I think over -- I think it was close to $120 billion in terms of bank deposits going through the conversions and such. As we look out into the year, you mentioned the '26 here. Are there sort of calling efforts you have like list of bankers, list of clients you're looking to target? Do we see something similar to that maybe in the latter half of the year in terms of lift outs? John Corbett: Yes. Richard Murray, President of our bank, kind of leads that effort with the group presidents, and they've got a very formal pipeline process of on-boarding new bankers just as we do with new clients in the third quarter, there were 200 bankers that were on our list that we were having conversations with. In the fourth quarter, it grew to 237. So it's -- and we're going to hire a small percentage of those, but those conversations are very, very active. Operator: And we have no further questions. I would like to turn the call back over to John Corbett for closing remarks. John Corbett: All right. Well, thank you again for joining us this morning on our call. Thank you for your interest in following our company. And if you have any follow-up questions about your models, don't hesitate to contact Will and Steve. Hope you have a great day. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Daniel Morris: Hello, everyone, and welcome to the presentation of Ericsson's Fourth Quarter 2025 results. With me here in the studio today are Börje Ekholm, our President and CEO; and Lars Sandstrom, our Chief Financial Officer. As usual, we'll have a short presentation followed by Q&A. [Operator Instructions] Details can be found in today's earnings release and on the Investor Relations website. Please be advised that today's call is being recorded and that today's presentation may include forward-looking statements. These statements are based on our current expectations and certain planning assumptions, which are subject to risks and uncertainties. Actual results may differ materially due to factors mentioned in today's press release and discussed in the conference call. We encourage you to read about these risks and uncertainties in our earnings report as well as in our annual report. I'll now hand the call over to Börje and to Lars for their introductory comments. Borje Ekholm: Thanks, Daniel. So good morning, everyone, and thanks for joining us today. It was a strong end of the year, as we executed with discipline and made solid progress against our strategic priorities. We are building a more resilient Ericsson. We expanded EBITA margins year-on-year for the ninth consecutive quarter, and we're getting closer to our long-term target of 15% to 18% EBITA margin and we ended the year with a net cash position of over SEK 61 billion. Our cost initiatives are just one component of our actions to structurally improve margins and cash flow. And you have seen that we have reduced the headcount, for example, by 5,000 over the past year. And we expect to continue reducing headcount going forward. And last week, we announced some initiatives we're taking in Sweden as part of a global effort we do to keep cost efficiency in our business. With the operational improvements we've implemented over the past few years, they are now getting increasingly visible in the P&L, and we had another 48% gross margin quarter now in Q4. The EBITA margin was 18%, both for the quarter and the full year, and that means that we are tracking very close to our long-term financial targets after normalizing for the about 3 percentage point benefit from the iconectiv gain. And now going forward, we expect to see improving operating leverage as our top line accelerates that we could see in Q4. Now that the underlying demand environment for mobile networks remain actually flattish. But it is encouraging that we had an organic growth of 6% during Q4. And the reason for this is that over the past few years, we have invested in a number of growth opportunities and growth initiatives like 5G core, mission-critical networks and enterprises, and I'll expand a bit more on this. In my view, we're actually entering a very exciting era of what we can call hyper-connectivity. So now we're starting to see everything being connected. I would say Ericsson is really well placed for this paradigm shift, and I believe we have the right strategy to win. To date, AI investments have been focused on models, semiconductors, data centers, et cetera. For sure, these are really critical, but the real economic value will actually come in AI applications and devices. So think about drones, humanoids, could be connected glasses, XR glasses, could be instantaneous or simultaneous translation services. You have a number of these things. All these new type of use cases, AI use cases, will really changed the nature of traffic with much more demand for uplink and low latency, and it has to be resilient and trusted. So when you think about this new world with AI is going into the physical world, if you call it a kind of a physical AI, those applications and use cases will be distributed, but more importantly, they will also typically be mobile. So they will require advanced wireless connectivity. So best effort connectivity, Wi-Fi, 4G, and I would even say 5G non-standalone, will simply not be enough. Instead, we will require 5G standalone today and then later on will require 6G. But this new world will also require better mid-band coverage to get the right performance of the network. And I'll take just 1 example, and you see China having a 10x denser grid than the rest of the world. And I would say that's one of the reasons why many are saying China is a formidable competitor in AI today as they are moving into AI applications. So at this point in time, it's a very exciting time. Our strategy is to lead in mobile networks with high performance, autonomous and programmable networks that are 5G native and at the same time, scale this mobile platform to new areas, like mission-critical enterprise solutions, but also providing tools to developers. So now let me go briefly through some of the progress we made against our strategic initiatives during the last year. Through our high-performing programmable and autonomous network, we're enabling our CSP customers to deliver differentiated performance and create new applications and use cases to monetize. And when you think about differentiated performance, it's actually creating dedicated performance for the application you have at hand. And during the year, we actually signed several key agreements with front-runner customers like Telstra, Vodafone, but we also made critical inroads in the important Japanese market with all leading operators. These advanced networks that we're building together with front-runner customers will be key to monetize and scale the AI opportunity. In parallel, we focused on scaling the mobile platform to new use cases and sectors, the most mature new use case is fixed wireless access, that during 2025, actually reached 150 million global subscribers. And typically, and most often, they have better customer satisfaction than other access technologies like fiber, for example. And now as you've heard me say earlier, we're also starting to see traction within mission-critical applications. And this, we think, is a key growth opportunity for us going forward. During 2025, we executed many new agreements in the public safety sector, and we're also targeting national security and defense operations. On the enterprise side, we're continuing to strengthen our position. The market for network API is actually starting to develop. In 2025, Vonage was first to offer aggregated access to network APIs across all 3 major U.S. carriers. And these advanced APIs included advanced fraud detection, and we have significant customer interest today. Our joint venture, Aduna, onboarded and achieved full coverage in 5 countries, including the U.S., Spain, Germany, Canada and the Netherlands. In enterprise wireless solution, we're seeing the market for private 5G starting to industrialize. It's still, though, early days. So we -- but we continue to see growth in our Wireless WAN solutions, but that was partly offset by lower sales in private 5G. So it's still a developing market here. So -- but before passing on to Lars to go through a bit more on the numbers, I'd like to take a moment to just go through our capital allocation strategy. Our top priority is to invest for technology leadership, and we expect this to be largely organic. We don't really see any need for large acquisitions going forward, as we believe we have the assets needed to execute on our strategy. However, we expect to see some smaller, potential tuck-ins, but that will be smaller in nature. So our current, very strong financial position offers scope for increased shareholder distributions. And as you have seen in this report, the Board is proposing an increased dividend to SEK 3 per share and the buyback program of up to SEK 15 billion. So that would be a total of SEK 25 billion to shareholders. This represents the largest shareholder distribution in our history and reflect our strong position and the Board's confidence in our strategy. So Lars will now go through this as well as our financials. So over to you, Lars. Lars Sandstrom: All right. Thank you, Börje. I will begin with some additional comments on the group before moving on to the segments. Net sales in Q4 totaled SEK 69.3 billion, with organic sales growing 6% year-on-year and with growth in all segments. Sales grew in the market area, Europe, Middle East and Africa; and in market areas Southeast Asia, Oceania and India. Market area, Americas, was broadly stable impacted by intense competition in Latin America, offset by slight growth in North America, driven by higher software growth; and Northeast Asia declined. Reported sales decreased by 5%, impacted by a negative currency effect of SEK 6.8 billion. In Q4, adjusted gross income was SEK 33.2 billion, including a currency headwind of SEK 3.6 billion. Adjusted gross margin reached 48% as a result of our cost reduction measures and operational excellence in both networks and cloud and software and services. On the cost side, we made steady progress. Operating expenses, excluding restructuring charges, dropped to SEK 21.4 billion, around SEK 2 billion lower year-over-year. Of this, about half is currency and the rest is cost initiatives. Excluding FX, R&D remained broadly stable. Adjusted EBITA was SEK 12.7 billion, up by SEK 2.4 billion, including a negative currency impact of SEK 2.5 billion and the EBITA margin was up around 4 percentage points to 18.3. Behind this improvement is the good progress we've seen in terms of optimizing our operations and lowering our operating expenses. Cash flow before M&A was SEK 14.9 billion, driven by earnings and reduced net operating assets. As Börje has already highlighted, the Board will propose higher shareholder distributions following the good 2025 cash generation. Let's move on to the results for the full year. Net sales amounted to SEK 236.7 billion and organic sales grew by 2%. Growth in Americas and in Europe, Middle East and Africa was partly offset by declines in the other market areas. At the same time, reported sales decreased by 5%, impacted by a negative currency effect of SEK 13.9 billion. The sales decline, which gives a significant volume impact on gross income, was more than offset by higher gross margins. Adjusted gross margin was 48.1% with support from cost reduction initiatives and operational efficiency. The result on adjusted gross income was an increase of SEK 2.5 billion to SEK 113.9 billion, despite a negative currency impact of SEK 7.2 billion. Turning to operating costs, excluding restructuring charges and impairments. Operating expenses dropped to SEK 81.2 billion, which is SEK 7.4 billion lower than the prior year. Of these, about 2/3 come from our cost initiatives, mainly from SG&A and the rest is currency. Adjusted EBITA increased to SEK 42.9 billion, and the margin was 18.1% or 14.9% excluding the capital gain from iconectiv. Net income for the full year was SEK 28.7 billion, including the benefit from iconectiv -- the gain from iconectiv. Cash flow before M&A was SEK 26.8 billion, a reduction of around SEK 13 billion compared to the prior year. In 2024, a strong working capital reduction contributed to higher operating cash flow. I'll cover cash flow more in details here later. So let's move to the segments. In Networks, sales decreased by 6% year-over-year to SEK 44.2 billion, with a negative currency impact of SEK 4.4 billion, so organic sales increased by 4%. We saw organic growth in market area, Europe, Middle East and Africa, driven by Middle East and Africa. Sales also grew in Southeast Asia, driven by Vietnam. Sales declined slightly in Americas due to continued price competition in Latin America. Sales were broadly stable in North America with continued healthy investment levels. Sales also declined in Northeast Asia due to timing of network investments. And Networks adjusted gross margin increased to 49.6% despite the higher share of service sales. The margin benefited from cost reduction actions and operational efficiencies. Adjusted EBITA in Networks was stable at SEK 10.1 billion despite a currency headwind of SEK 1.8 billion. And adjusted EBITA margin was 22.8%, an increase of 1.2 percentage points compared to last year. And looking at the right-hand graph, the full year adjusted gross margin reached 50% and stabilized at the new level, and adjusted EBITA margin reached 20.7%. Moving on to segment Cloud Software and Services. Sales increased by 3% year-over-year to SEK 20 billion despite a negative currency impact of SEK 1.8 billion. Organically, sales grew by 12%, mostly driven by higher core sales across all market areas and timing of project deliveries. Adjusted gross margin came in at 44.3%, an improvement of around 5 percentage points compared to last year, driven by a high share of software sales and continued delivery efficiency. Adjusted EBITA increased to SEK 3.7 billion with a margin of 18.6%, supported by the effective implementation of our strategic initiatives. Looking at the right-hand graph, the full year adjusted gross margin was 43% and adjusted EBITA margin 11.4%. These are both new high levels. Enterprise sales stabilized on an organic basis in Q4, growing 2%. Reported sales decreased by 25%, and that's an impact of the sale of iconectiv and currency. Global Communications platform organically grew by 3%, driven by an expansion in CPaaS. And adjusted gross margin declined to 52.1%, driven by the iconectiv divestment. Adjusted EBITA landed at minus SEK 1.1 billion, improving by SEK 0.1 billion compared to last year despite the iconectiv impact. Turning to free cash flow, which was SEK 14.9 billion before M&A in the quarter and SEK 26.8 billion for the year. We delivered cash flow to net sales of 11% for the year within our 9% to 12% target. The decrease in cash flow year-on-year is due to very strong working capital reductions in 2024. Working capital in 2025 was broadly stable at historical low levels. And net cash increased sequentially by SEK 9.4 billion to SEK 61.2 billion. Return on capital employed in 2025 was 24.1%, including the iconectiv gain, while excluding it, it was around 19%. Then turning to capital allocation. During 2025, the Board has undertaken a review of the balance sheet and the capital allocation principles. On the balance sheet, we remain committed to an investment-grade credit rating and maintaining a solid net cash position. Turning next to the 4 capital allocation priorities. First, the top priority is to maintain a technology leadership through continued R&D investment to ensure customer confidence at all times. Second, we are committed to a stable, to progressive ordinary dividends. And third, as already -- as Börje mentioned, we remain selective with inorganic investments. And finally, any excess cash will be distributed to shareholders. So for 2025, the Board will propose an increased dividend of SEK 3 per share and a share buyback program of up to SEK 15 billion at the AGM. After adjusting for the total shareholder distribution of approximately SEK 25 billion, the 2025 net cash position is at a solid level, considering future investment needs and the business outlook. Next, I will cover the outlook. Global uncertainty remains with potential for further changes in tariffs and broader macroeconomic factors. The outlook assumes stable exchange rates and no tariff changes here. So for Networks, we expect Q1 sales growth to be broadly similar to the 3-year average quarter-on-quarter seasonality. For Cloud Software and Services, we expect Q1 sales growth to be below the 3-year average quarter-on-quarter seasonality. And we expect Networks adjusted gross margin to be in the range of 49% to 51% for Q1. And restructuring charges for the full year '26 are expected to be at an elevated level with proposed headcount reductions recently announced in Sweden and continued actions across other markets. With that, I hand back to you, Börje. Borje Ekholm: Thanks, Lars. So today, we have a very strong position and a very competitive portfolio. In many markets, there will be a need to invest to keep network performance at a competitive level. And as you've seen, we made critical inroads in many key markets during the year, for instance, in Japan. In 2026, we're planning for a flattish RAN market, but expect growth to come from new areas. This means we will need to continue our efforts on operational efficiency. And by doing so, we can strengthening our company for varying market conditions. This will enable us to continue with critical investments in technology leadership including increased R&D investments in defense and mission-critical, while at the same time supporting our margins and cash flow generation. Overall, as I mentioned before, we're entering a very exciting time where AI will move from a focus on data centers and large models to devices and applications. This will require advanced wireless connectivity, putting Ericsson in the middle of the next phase in the AI era. Our strategy is focused on making sure we capture this opportunity. We're doing it by providing the industry's best network for AI that enable differentiated services and new monetization opportunities. This includes both new use cases including by exposing networking capabilities through network APIs, but also new sectors, such as mission-critical networks. This will allow us to capture significant share of the value from connectivity and help drive growth for us as Ericsson. So if I draw this out a bit longer term, I believe we can have a model with a flattish mobile networks market, but with our investments in growth areas that we -- basically, we can see a modestly growing top line. So if you combine the operating leverage, actually improving profitability in the Enterprise segments as well as share buybacks, we should see a healthy growth in profit per share. So to wrap up, in 2025, we were laser focused on strategy execution and continue to take critical steps to position Ericsson for the future. We're unlikely to see growth in the RAN market this coming year, but our investments in mission critical 5G core and the enterprise will drive growth for the company. I would say it's exciting if you ask me. On that note, I also want to thank all my colleagues at Ericsson for a lot of great work. Thank you, team. With that, I think it's time for you, Daniel, to lead us through some Q&A. Daniel Morris: Thanks, Börje. We'll now move to the Q&A. [Operator Instructions] Thanks. Okay. Operator, we're ready to open the line for the first question. The first question today is going to come from the line of Simon Granath at ABG. Simon Granath: Congrats team Ericsson for the solid results here. On OpEx, I'd like to push a bit on the medium-term trajectory and the R&D balance. With the RAN demand looking broadly flattish into 2026. OpEx growth largely reflecting salary inflation rather than volumes. If we assume a similar demand environment into 2027 with [indiscernible] still later in this decade, how do you think about the risk of managing R&D and were capabilities changes too early? So simply on the mid-term OpEx trajectory? Lars Sandstrom: Mid-term. When you look at the OpEx levels that we have today, and the structure we have, it's a question about working and investing, and we are already in 2025 and back -- and going into this year, there are key strategic areas where we are investing and some other areas where we are taking other decisions. So I think that -- and that will also be how we will work going into 2027. Then of course, there is a continuous cost inflation that we need to drive through productivity to ensure that we keep the right level here going forward as well. So there will -- and when these big investment comes, we will see. I think you will have to comment as well from your perspective. Borje Ekholm: Yes. I think the -- given the flattish market we're in, we will have to work continuously on the, I call it, R&D efficiency. But there is also a question of making sure we allocate to the right areas. This is why new areas like mission-critical is actually critical to be part of as well as defense applications. So we believe that we can -- even in a flattish market, we can actually have the right R&D level with the program and with the efforts we have in place. But it's, as you know, it requires us to really be at the forefront of R&D efficiency as well. But you should not expect us to -- put it this way, we are not going to trade off technology leadership, and we believe we can have technology leadership at the spend level even into '27 and beyond. Daniel Morris: Moving to the next question, please. The next question is going to come from the line of Erik Rojestal at SEB. Erik Lindholm-Rojestal: Congratulations on the results here. So just Börje, you mentioned increasing investment in defense in '26 and mission-critical was a key driver here in the quarter. I understand this is a good market for you right now, but can you please shed some light on how large the exposure is that you have currently in this area? And what the size of the opportunities that you see out there? How large are they? Borje Ekholm: We -- if we start in the end of discussing -- first of all, what we want to say here is, in reality, the investments we make in defense today is captured in the total R&D spend. And as we go forward where we see that, we probably need to increase that a bit. And the reason for that is we actually see the potential for a very sizable market in defense given what the spending in the U.S., of course, but it's also the increased European spending on defense will make this into a fairly sizable market. And we see that market moving from, what I would call, dedicated solutions, kind of proprietary technology solutions into much more 3GPP-enabled solutions. And the reason for that is simply that is more cost effective and it's going to be much better performance. So we see actually the communication market in defense to be a sizable opportunity that we want to make sure we're early on in. But there are also other applications. So think about defense from a broader perspective, the sensing capabilities of the solutions we have actually allows you to, for example, do drone detection. Think about where the usefulness of that and it can do detection of objects that are not connected. So it's basically maybe popular wording will be called the radar. These are major opportunities that we would say are really large that we want to position ourselves to go after. So when you see us increasing spending, it's not -- I think part of it will be offset with other efficiency gains, but we want to say that we actually go after an opportunity here that we think is rather sizable. Daniel Morris: Thanks, Erik. Moving to the next question, please. The next question is going to come from the line of Jakob Bluestone at BNP. Jakob Bluestone: I had a question around supply chain shortages. I'm wondering sort of broadly, are you seeing any issues that might hold back your ability to grow? And specifically, can you comment on the impact of memory price increases? So what share of your bill of materials relates to memory chips? Do you hedge these? Can you pass on any price increases to customers? Lars Sandstrom: When it comes to the supply chain, I think we have worked for quite some time on resiliency. And when it comes -- that is including then supply chain, so to say, deliveries. So that is continuous work that we do. So -- but of course, when it comes to the memory side, it has been quite a bit of noise around that. But I think we are in a good position of handling that as it looks for this year here. And on the pricing side, it is a mix. Of course, there is some impact, but also here, it's really working close with our suppliers also together with our customers to make sure that we are not squeezed in the middle here. So it's both ends here to work with. Jakob Bluestone: Can you maybe just expand how have you avoided shortages? Is this just by building inventories, just given the sort of... Lars Sandstrom: It's part of the -- how we work, but also to have a good relation and long-term relationship with the different suppliers that we work with. Daniel Morris: Thanks, Jakob. Moving to the next question, please. The next question is going to come from the line of Andreas Joelsson at DNB. Andreas Joelsson: Moving from the splendid operations to the buybacks perhaps. And if we assume that you make SEK 25 billion in free cash flow on a sustainable level, that is equal to the total remuneration to shareholders. So should we say that around SEK 45 billion is a net cash that you feel -- that you and the board feel is needed for the -- to run the operations? Lars Sandstrom: I think as we mentioned there, the view is that it's important to have a solid net cash position. And we're coming out here with SEK 61.2 billion in net cash and the total distribution of around SEK 25 billion. And adjusted for that, we have given the business outlook that we see now, we see that it is a solid net cash position coming out of 2025. Then when we come to next year, then we will have a look again, of course. But the capital allocation principles are there and that is guiding us also going forward. Borje Ekholm: And when you think about the business outlook, of course, you need to think about geopolitics, you think about whether it's the question before, tight supply chain, for example. And all of these factors reaches the conclusion that, that was the right level now. Andreas Joelsson: And just as a follow-up, is there any thinking from the Board and from the management, given what you said before about growing EPS that you could -- that you would like to have a more long-term buyback program and making sure that you can achieve that? Lars Sandstrom: I think this is the first time, Ericsson now announces buyback program. So it is clearly a part of the toolbox for the Board and the AGM and for the shareholders to decide upon. Borje Ekholm: Yes. I think you would also say, Andreas, that it's intentional that is launched as a buyback program and you also know the mandate for those are reviewed annually by the AGM. So this will be our hope and ambition and what is that this will be a recurring thing. Then the size will vary, of course, depending on how the outlook looks like. Daniel Morris: Thanks, Andreas. Moving to the next question, please. The next question is going to come from the line of Sandeep Deshpande at JPMorgan. Sandeep Deshpande: My question is on the market in mobile networks, overall. Has the market changed at all? I mean, we've heard about the EU restricting some of the high-risk vendors, but at the same time, you are seeing a greater price competition in Latin America. Maybe Börje, you can make some comments on how this market overall is playing out in the world given the geopolitical situation? Borje Ekholm: Yes. If you -- a way to think about it, Sandeep, is we look at this market for the last 2 decades, right, and it's been flattish. So we like to think or plan for that type of market outlook. If it gets better, then we have a strong cost competitiveness, we get operating leverage. If it gets worse, we need to review that assumption, right? But that's kind of the way we think about the business. Then, of course, it varies what happens. So over the last few years, and I think we spoke about this a couple of quarters ago that we saw increased competition in Latin America, we see it from time to others in other parts of the world, Southeast Asia, Africa, et cetera. So that kind of comes and goes a bit. The thing that could be a positive is, of course, the high-risk vendor discussion in the EU. That's a sizable opportunity. If you think about the -- it's -- I mean we don't know exactly, but call the high-risk vendor market presence in Europe to be 1/3 to maybe up to 40%, but around that as a guideline, that would be a sizable revenue opportunity for trusted vendors. So that could change. At the same time, it's -- now it's a proposal. It has to go through the process. So this is something that's probably going to take 12, 18 months before we really know the impact. So we're not factoring that in. But of course, it is an upside opportunity. And of course, it is, I would say, the toolbox, the EU discussed or implemented quite some time ago, which is 5, 6 years ago, has been not been widely adopted. So it is a change in stance with the current proposal. Daniel Morris: Thanks for the question, Sandeep. Moving to the next question, please. The next question is coming from the line of Sébastien Sztabowicz at Kepler Cheuvreux. Sébastien Sztabowicz: On Networks, how do you see the mix trending in the coming quarters? We are now seeing some stronger growth in Africa, Southeast Asia and lower deployments in the U.S. and maybe also in Japan and Korea. So just curious about the mix trend in Networks. And also at a broad level what would be the puts and takes to your gross margin in the coming quarters? Where do you see some upside or downward pressure? Lars Sandstrom: I think single quarters will vary. But if you look a little bit on the underlying for '26, North America on healthy investment levels in the market. So -- and that we expect to continue during the year. And then when it comes to growth opportunities, there is an investment need in India and also in Japan, where we have also in both these markets, ensure that we have a good, solid market position. So when the customers decide to invest, we should be able to capture on that. Europe, rather stable. And then there are -- we will see what happens in Latin America. There is opportunities there, but still quite tough competition for sure, parts of Southeast Asia as well. So I think that's a little bit the balance act. In Africa, we have had a couple of good quarters now with 4G and 5G rollouts and modernization activities. And hopefully, we can see that continue also going into this year. So that's a little bit the balance act on the market mix. And then the puts and takes, there is a cost pressure in the group, in the flat RAN market and continuous cost pressure on us both in the people part, but also in material cost so that we need to continuously work with. That's why we talk about then somewhat higher elevated levels on restructuring, both -- that will impact both, so to say, OpEx, but also in the cost of goods sold. So that is necessary to offset this upward pressure on costs. So that is some of the puts and takes. Then you have the normal product mix, but that will vary between quarters as always. Daniel Morris: Thanks, Sébastien. Moving to the next question, please. Next question is going to come from the line of Felix Henriksson at Nordea. Felix Henriksson: It's relating to IPR. I think in the report, you called out that you had a contract expiring with the Chinese smartphone vendor at the end of 2025. So I just wanted to ensure whether or not there are other significant contract cliffs in 2026 that we should be aware of? And as a quick follow-up to that, what is your level of conviction in being able to grow the SEK 13 billion annual run rate in IPR going forward? Lars Sandstrom: Yes. Normally, we try to give you that guiding point around the run rate coming out of the year, around SEK 13 billion. When it comes to the contract, this is not a major impact. And we always -- when we negotiate, renew contracts, we are targeting the best economic outcome and that we will do as well this time. So that could be some impact here, but that is then normally coming back with a renewal. So it should not impact the full year, so to say. And then potential upsides are there. We are in settlement negotiations with one of our licensees. So that is hopefully coming into place this year. And then there is the underlying opportunities around the pure smartphones when it comes to IoT, automotive, et cetera, that should support growth coming into this year as well. So that's a little bit the balance -- the pieces that will drive some opportunities. Daniel Morris: Thanks, Felix. Moving to the next question, please. Next question is going to come from the line of Ulrich Rathe at Bernstein. Ulrich Rathe: My question is on the bigger picture of the revenue outlook. So you're guiding for a flattish market and highlight the growth opportunities in mission-critical and other areas. And now in the fourth quarter, you delivered mid-single-digit organic growth, which is taken with some excitement in the market today. Would you go as far as saying that something like mid-single-digit revenue growth is possible in a flattish run market with the growth opportunities in these new opportunity areas that you're highlighting? Or is this maybe a bit of a phasing effect here? I think you highlighted in particular in CSS, the delivery phasing. Just wondering what your bigger picture here is? Borje Ekholm: I think to -- if you think about it from a little bit longer-term perspective, and it's going to fluctuate, right? But the size of the mission-critical market and the enterprise opportunity as well as 5G core that contributes here, 5G core, by the way, you should remember, it's only about 1/4 of all networks that are upgraded to stand-alone today, so there is a rather sizable opportunity there. So when you look at those outlooks, those individual pieces, they are large enough to a drive pretty nice long-term growth. It's not going to be double digits, as you say. So that -- take that out, but it may be low- to mid-single digits. And I think the -- that's what makes me a bit excited is actually to think about it from that kind of at least some basic growth and you add on operating leverage on that, you add on what we're seeing on the enterprise that we're going to get that to profitability and you combine that with share buyback, you actually get a very healthy growth profile. So I think there is something here that I think from a little bit longer-term perspective is rather exciting. Daniel Morris: Thanks, Ulrich. Moving to the next question, please. Next question is coming from the line of Sami Sarkamies at Danske Bank. Sami Sarkamies: I have a question on your silicon strategy. Your competitor recently announced that they will start building products based on NVIDIA chips. We have also done some R&D work related to the use of chip use. What is your take on the situation? And do you see a role for NVIDIA in future RAN products? Borje Ekholm: We selected a strategy several years ago to basically disaggregate the software and hardware and actually allow our software to run on pretty much any architecture. And of course, here, we can run on, of course, the x86, but it can run on GPUs. It can run on our proprietary Silicon as well. And by the way, you could well see the TPU from Google. You could see what Qualcomm is coming with AMD, et cetera. So we wanted to be a bit independent of the selection of the hardware layer. The reason for doing that was that we felt it was the right strategy to give the customers the opportunity to choose what hardware layer they want to run on. And you know today, there are operators rolling out cloud RAN. That's on x86. In the future, it may be different. So I think the -- I cannot comment on Nokia's decision, that's for them to comment on. But from my point of view, I -- we wanted a very different strategy, not to select the infrastructure layer today, but rather do that as we come closer towards AI RAN realization and 6G, then we can make an intelligent choice together with our customers. And we feel good about that strategy, but that also means that we're going to continue to work with the x86 ecosystem and the GPU ecosystem. Daniel Morris: Thanks for the question, Sami. Moving on to the next question, please. The next question is going to come from the line of Didier Scemama at Bank of America. Didier Scemama: Sorry to come back to the point on memory and cost inflation. So I'm looking at your inventories, which are seasonally lower in Q4. You seem to suggest that you are -- you have adequate supply from new suppliers. So just can you elaborate a little bit? Have you signed like a 12-month supply agreement that makes sure that the pricing is not going to be a headwind to your gross margins? And -- or put it in a different way, what have you assumed in your gross margin in terms of cost inflation from memory over the course of '26? Lars Sandstrom: I think margin -- inventory levels are coming down in the fourth quarter following the seasonality that we have, and that includes all inventories. So when it comes to that part, I think we are well positioned coming into the year when it comes to inventory levels on this kind of areas. Then of course, there is cost increases coming that we need to work with. But we don't share exactly how much that is, of course. But it will have some impact, but we will work together with our customers to ensure that we are, so to say, not stuck in the middle here, but there is an understanding that there is some sharing to be done here. Didier Scemama: And sorry, again, to go back to the defense point, I think you sort of said, look, with the opportunities. Can you give us a sense of the size of your business today in defense? What sort of costs you're thinking about? Does that require any CapEx? Just elaborate a little bit so we've got something to work with. Borje Ekholm: Yes. I think you can assume -- we're not going into details exactly what our business is because we're working with a number of defense organizations. As you know, Ericsson exited all defense several years ago. So we haven't really had a presence. So today, we're working in partnerships as well as with defense organization. So we're not going into details there. But -- and I think when you look at the overall sizing, the revenue opportunity, there are a number of consultants out there talking about the size of that opportunity. We -- and some are very big numbers. I'm not sure it's going to be that. But we think it's compared to the rest of the opportunity we have is sizable. When we talk about it from an investment point of view, this is more saying that we will ramp up our presence in here and actually increase our investments. It's not going to be material compared to our overall SEK 50 billion we spent on R&D. So that's why we also say that it's part -- it can be -- well be offset, maybe not fully, but by the efficiency gains that we're going to do. So when you look at it from a total point of view, think about it as there is a big opportunity we will try to invest to get that. We're not going to materially impact our outlook with that. That's not the case. But we want to single it out as a growth opportunity. Lars Sandstrom: And I think on your question there on CapEx, it's very, very limited. Borje Ekholm: Yes, that's fair. That will be -- you will not see that as a CapEx need. Daniel Morris: Thanks, Didier. Moving to the next question, please. The next question is going to come from the line of Daniel Djurberg at Handelsbanken. Daniel Djurberg: I have a question. If you could give any more color on the visibility in the North American RAN market in '26? Is it fair to assume a more back-end loaded year given some of your larger customers' spectrum asset holdings, for example, that could I expect to build upon in the latter part of the year? Lars Sandstrom: I think it -- we don't -- I think we say that when it comes to the full year, we are coming out with healthy investment levels, and we expect that to continue. Then how it will pan out between quarters, it's actually rather, I think, difficult to say. It depends on what the capital investment needs that they have in different rollout phases, et cetera. So it's -- I don't think it's today, easy to say what will be the difference between the first and the second half. Borje Ekholm: No I think that -- we don't guide that way, we've elected to do it quarterly and I think that's why we do it quarterly. What I -- I do think it's fair to say that when we look at the North American market -- and by the way, this is actually a global phenomenon. But when you will hear, I think our customers talk a bit about being cautious on CapEx, the interesting thing is we also see a change in mix in our customers. So we believe we're -- the active components are going to be needed because that's driven by the traffic growth and the need to go 5G stand-alone as well as new use cases like fixed wireless access. So when you see that, you actually see, call it a healthy investment level, even though our customers most likely will guide for a bit lower CapEx without knowing they need to guide on their own, but it's given signals that you can hear and it's pretty clear, they will be cautious on CapEx. Daniel Morris: Thanks for the question. Moving on to the next question, please. The next question is going to come from the line of Andrew Gardiner at Citi. Andrew Gardiner: Just coming back to a point you made earlier in your presentation regarding the performance that you've had over the course of 2025. Your profitability has improved noticeably last year. You've had 2 good years of operational cash generation. And so that is putting Ericsson, as you point out, in touching distance of the long-term financial targets. That being said, these targets are some years old at this point. Are they still relevant and accurate targets for us to use in the market? Or given the changing state of your end markets and your strong execution, is there the possibility to do better, right? Do you have the ambition to perhaps outperform those somewhat old targets at this point? Borje Ekholm: I think it's right that they're old. We have not succeeded at reaching them, so that's a fair comment. But I think the -- we should remember, we also set the targets in a different environment geopolitically as well as business mix, to be honest. So we set them when iconectiv was part of our portfolio, we set them in a very different political environment. I think we -- I'm not too fan of changing targets easily. So we want to make sure that we reach that 15% to 18% first. Once we're solidly there, then I think we can start to talk about is that the right target after that. But right now, I think it's a good measure of what we should achieve with the current type of business we have. Daniel Morris: Thanks for the question, Andrew. We just have time for a brief follow-up question from one of the analysts before we close. So if we can bring Daniel back in, Daniel Djurberg, Handelsbanken. Daniel Djurberg: I would like to ask a little bit on the Cloud Software and Services. Sorry, if I missed the answer before. But could you help us to understand a little bit more on this impact of this large contract being in most -- in the quarter i.e., with the outlook comments on Q1 seasonality have changed to more of a similar view if the contract has been excluded in Q4? Lars Sandstrom: It's a good question. Now as we said, we are coming out strong in Q4 here with -- and as you know, we have lumpiness when it comes to project deliveries, which are -- if you look at the full year, we are up around some 6% organically in Cloud Software and Services. And I think that has been a good underlying growth that we have seen, supported by the core business, and that is what we see as a healthy level coming into '26. Then, of course, if that single comment would bring us back to normal, I think that's a little bit -- it would, of course, bring us closer for sure. That is true. And then we should remember, I think you have all seen that, that we have a significant currency headwind coming in, in Q1 year-over-year as a comparison that you will see currency rates peaked somewhat in Q1 '25. So that headwind we also are facing here. Daniel Djurberg: Look forward to see you in Barcelona. Borje Ekholm: Thank you. Lars Sandstrom: Thanks. Daniel Morris: Thanks, everyone, for joining. That concludes the call. Borje Ekholm: Thank you.
Operator: Hello, everyone, and welcome to the OceanFirst Financial Corp. Q4 '25 Earnings Release. My name is James, and I will be your operator for today. [Operator Instructions] The conference call will now start, and I'll hand it over to our host, Alfred Goon. Please go ahead. Alfred Goon: Thank you, James. Good morning, and welcome. I am Alfred Goon, SVP of Corporate Development and Investor Relations. Before we kick off the call, we'd like to remind everyone that our quarterly earnings release and related earnings supplement can be found on the company website, oceanfirst.com. Our remarks today may contain forward-looking statements and may refer to non-GAAP financial measures. All participants should refer to our SEC filings, including those found on Forms 8-K, 10-Q and 10-K for a complete discussion of forward-looking statements and any factors that could cause actual results to differ from those statements. Thank you. And now I will turn the call over to Christopher Maher, Chairman and CEO. Christopher Maher: Thank you, Alfred. Good morning, and thank you to all who been able to join our fourth quarter 2025 earnings conference call. This morning, I'm joined by our President, Joe Lebel; and our Chief Financial Officer, Pat Barrett. We appreciate your interest in our performance and this opportunity to discuss our results with you. This morning, we will provide brief remarks about the financial and operating performance for the quarter and some color regarding the outlook for our business. We may refer to the slides filed in connection with the earnings release throughout the call. After our discussion, we look forward to taking your questions. We reported our financial results for the fourth quarter which included earnings per share of $0.23 on a fully diluted GAAP basis and $0.41 on a core basis. In terms of performance indicators, we're pleased to report a fifth consecutive quarter of net interest income growth, which increased by $5 million or 5% as compared to the prior quarter and up 14% as compared to the prior-year quarter. The current quarter results were fueled by an increase in average net loans of $446 million. Our net interest margin of 2.87% declined modestly compared to the third quarter. Total loans for the quarter increased $474 million, representing an 18% annualized growth rate, driven by $1 billion in originations. Joe will have more to add regarding our growth strategy in a few minutes, but we're very pleased to see the organic growth momentum that is a direct result of the investments we made in the first half of 2025. Asset quality remained exceptional as total loans classified as special mention and substandard decreased 10% to $112 million or just 1% of total loans. This continues to place us among the top decile of our peer group. The quarterly provision was primarily driven by improvements in asset quality and a decrease in unfunded commitments, offset by loan growth. GAAP operating expenses for the quarter were $84 million and included $13 million of expenses related to our residential outsourcing initiative, merger costs and execution costs for our credit risk transfer. On a core basis, operating expenses of $71 million were down $1 million or 2% from the linked quarter primarily driven by the impact of our strategic initiative to outsource our residential lending platform. Pat will provide additional commentary on the credit risk transfer and a detailed update on our financial outlook in a moment. Capital levels remain robust with an estimated Common Equity Tier 1 capital ratio of 10.7% and tangible book value per share increased to $19.79. We did not repurchase any shares this quarter under the existing plan as our capital was utilized to support loan growth. This week, our Board also approved a quarterly cash dividend of $0.20 per common share. This is the company's 116th consecutive quarterly cash dividend. Finally, on December 29, we announced a merger agreement with Flushing Financial Corporation and an investment agreement with Warburg Pincus. The acquisition of Flushing will directly support our organic growth initiatives in New York, positioning OceanFirst as a scaled competitor in the deepest banking markets in the country. The resulting company is expected to demonstrate improved profitability and increased operating scale, which should deliver meaningful upside to our shareholders. We continue to work towards an expected close in the second quarter of 2026, and we'll provide more updates as regulatory approval progresses. In the meantime, we remain focused on OceanFirst's continued organic growth efforts, which are proving successful as shown in the results of this quarter. At this point, I'll turn the call over to Joe for additional color on the businesses. Joseph Lebel: Thanks, Chris. I'll start with loan originations for the quarter, which totaled just north of $1 billion for the second consecutive quarter and resulted in record quarterly loan growth of $474 million. Our C&I business grew 42% for the year as we have reaped the benefit of our continued recruitment of talent, coupled with favorable conditions for many of our borrowers. Much of that was in the second half of the year, which bodes well for interest income growth early in 2026. As discussed in the previous quarter, we made the decision to outsource the residential and title businesses, and we have worked through the remainder of the existing pipeline and expect to see measured runoff in the portfolio going forward. The loan pipeline of $474 million, while lower quarter-over-quarter, is due to the outsourcing of residential and is still markedly higher than this time last year, reflecting the robust growth in the commercial bank. Total deposits in the fourth quarter increased $528 million, with $323 million driven by organic growth across varied business lines. Among those lines, the Premier Bank team grew deposits $90 million or 37% from the linked quarter with the weighted average cost of their deposit portfolio declining 36 basis points to 2.28% as of December 31. To date, the Premier Banking teams have brought in a $332 million in deposits across more than 1,300 accounts and representing more than 350 new customer relationships. Approximately 21% of those balances are in noninterest-bearing DDA. Lastly, noninterest income decreased by $3.3 million to $9 million during the quarter primarily driven by lower title fees and a reduction in the gain on sale of loans related to the outsourcing of our residential and title platforms. We continue to see strong swap demand linked to our commercial growth and look for that to continue in the coming quarters. Overall, noninterest income levels were in line with our expectations as guided in the previous quarter. With that, I'll turn the call over to Pat to review the remaining areas for the quarter. Patrick Barrett: Thanks, Joe. As Chris noted, net interest income grew while margin declined modestly, as we had previously guided. Pretax pre-provision core earnings grew 9% or $3 million from the prior quarter, driven by earning asset growth over the second half of the year. Loan yields decreased modestly, reflecting the impact of floating rate resets and a continued mix shift in our portfolio. Total deposit costs increased modestly, reflecting very isolated upward repricing for certain interest-bearing accounts combined with continued competitive deposit pricing. Borrowing costs also contributed a modest 1 basis point of pressure on our margin, reflecting the net impact of our subordinated debt issuance and retirement during the fourth quarter. Average interest-earning assets increased meaningfully compared to the prior quarter, reflecting increases in both the securities and loan portfolios. Growth in securities was from our late third quarter opportunistic purchases, which also had a modestly compressing impact on our margin. Looking ahead, we expect positive expansion in both NII and margin. As Chris mentioned, asset quality remained very strong with nonperforming loans to total loans at 0.2% and nonperforming assets to total assets at 0.22%. Asset quality continues to remain at the low end of historical levels for criticized and classified loans as risk ratings across our commercial portfolio remained stable. Net charge-offs ticked up slightly, but full year net charge-offs as a percentage of total loans remained extremely low at 5 basis points. Turning to expenses. Core noninterest expenses decreased from $72.4 million to $71.2 million, driven by the sale of our title business, noncore items include restructuring charges of $7 million related to our residential outsourcing initiative, $4 million of merger-related costs and $1 million of professional fees related to the credit risk transfer transaction we executed during the quarter. Looking ahead, we expect our first quarter core operating expense run rate to remain in the range of $70 million to $71 million, with seasonal compensation increases offset by a full quarter's benefit of our residential outsourcing initiatives. Capital levels remained strong, with our CET1 ratio increasing to 10.7%, reflecting strong loan growth during the quarter combined with the benefits of the credit risk transfer transaction. This trade provided approximately 50 basis points of CET1 ratio benefit at an annual pretax cost of less than $4 million. A word on taxes, we expect our effective tax rate, which was 22% in Q4, to remain in the 23% to 25% range quarterly, absent any changes in tax policy. There are no changes to our full year guidance, as stated in the third quarter's earnings release, mid- to high single-digit loan and deposit growth. NII and NIM growing with NIM growing past 3% during the year and NII ramping in the second half of the year. Other income, $7 million to $9 million per quarter and expenses relatively flat to current run rates. Note that these are stand-alone expectations that do not reflect the impact of the Flushing acquisition. We've also added our first quarter outlook for convenience. But again, remember that the first quarter always reflects the impact of 2% fewer days and the impact that has on a lot of our P&L items and NII. At this point, we'll begin the question-and-answer portion of the call. Operator: [Operator Instructions] And moving on to our questions, we have one from Daniel Tamayo from Raymond James. Daniel Tamayo: Maybe just a clarity on your net interest income guidance, Pat. The growth in dollars matching the growth in loans, that's to be read as -- the back of the envelope math is just under $90 million, I guess, in loan growth. So that's the way to think of that. That number is the net interest income growth? Or how should we be thinking about... Patrick Barrett: No, it will -- it actually will probably grow at a bit higher clip than whatever our loan balances grow just because of the compounding effect of how big the balance sheet is today. So I was just reminding that Q1, it always looks disappointing because you have to shave 2% off for fewer days in the quarter with the drop from fourth quarter to first quarter, and then it will begin to ramp back up. I think you'll see high single-digit growth in NII for the year. Daniel Tamayo: Great. Okay. That's perfect. And then let's see here, the -- I guess as it relates to the deal, any kind of updated commentary around what loan sales might end up looking like after the close? Christopher Maher: It's a little bit too early to give you any precise figures on that. We're undergoing a process right now to review the portfolios. A lot of the work we could not really kind of get deep into when we were still in the confidential mode of negotiating with Flushing. So now we've got a little better ability to do that. So we'll update you as our thoughts evolve, but we do expect to be able to do some work on the balance sheet in a way that improves our margins and ROA outlook over time while also reducing credit risk. Daniel Tamayo: Understood. And then maybe just a clarification question for you, Pat, on the expense line. Where is the recurring CRT premium expense? In what line? Patrick Barrett: It comes through other. It's just like insurance premium expense essentially. Christopher Maher: So an expense, it's not in the yield. It won't be in the NIM or in the -- will look like OpEx... Operator: Moving on, we have Tim Switzer from KBW. Timothy Switzer: I got a few on balance sheet growth here. So first up on commercial balances, C&I on a dollar basis, it looks like it's accelerated for 4 straight quarters, basically every quarter this year with a pretty meaningful pickup in Q4. What kind of pace should we expect for 2026? Joseph Lebel: Tim, it's Joe. Look, I think we probably snuck in a couple of Q1 stuff into Q4, but that's what the borrower wants and that's what we're going to do. But the seasonality aside, which tends to be a little slower in Q1 as everybody is waiting for year-end financial statements, I would tend to think that you're going to see very similar growth rates. I think we've got it in the 7% to 9% range, which I think is fair. Look, we put a ton of dollars into talent in that space, and I think that space is now just starting to deliver what we expected. So more to come. Timothy Switzer: Okay. Okay. That's helpful. And I think you guys disclosed this last quarter, wondering if you could talk about how much of the growth this quarter in C&I was driven from the Premier Bank in cross sales? Joseph Lebel: Yes. So I don't have the quarterly number in front of me, but I do have the half year numbers. So they generated just shy of $200 million in gross closed loans and the outstandings at the end of the year were about $64 million, which is pretty much what we figured, right? They're going to be more deposit-heavy, loan-to-deposit number is going to be really good. But they do have a solid C&I clientele, which is a benefit. And I think we'll see more of that to come in '26 as well. Christopher Maher: Tim, it's Chris. One other thing I'd mention is that we're really pleased that the level of self-funding in the C&I customers was pretty strong this year. So we're seeing pretty strong deposits come in. The C&I teams have done a nice job with that. So we had just shy of like a 40% coverage of outstanding self-funding. So as that book rotates, we do more C&I and on a relative basis, less CRE, the deposit portfolio is going to strengthen as well. Timothy Switzer: Got you. Yes, that's great. And then on the Premier Bank specifically, it looks like the deposit growth maybe slowed down a little bit. I know it's just one quarter, there's probably some volatility, maybe some seasonality in there. But can you add some color on that? And then reconfirm if you still feel good about the target for $2 billion to $3 billion of deposits by the end of '27? Joseph Lebel: Yes. So Tim, I think you hit on the head. We had higher balances up until really the last week of the year. We had some seasonality, some distribution, some bonus payments. I think that's part for us to learn about the clientele as well. You onboard 350 new clients, you're trying to solve for what works. So we saw nothing but a ramp up until the last week. So I think you're going to see recoveries as the year goes on, you're going to see continued growth. I don't see any reason why we would back off the 2027 targets. Operator: Moving on, we now have Christopher Marinac from Janney Montgomery Scott. Christopher Marinac: Chris and Pat and Joe, I wanted to ask about the Premier banking new money rate that came in. You may have mentioned it, I just missed it. Then I had a follow-up. Christopher Maher: Yes. I don't know that we have the new money rate, handy. We did -- the overall portfolio was down nicely to just like a [ 2.25% ] cost. We're seeing noninterest-bearing is coming in faster now. And although the balances were seasonally weak, as Joe mentioned, we continue to open new accounts and establish new relationships at a good clip. So I think you're going to see that trend with more noninterest over time, better -- lower yields on those deposits and a faster pace of growth in Q1. Christopher Marinac: Okay. So [ 2.25% ] is the overall rate, and that works with what I was asking. Chris, as you move forward with Flushing, can you just go back through the opportunity to kind of reset deposit rates? And is there anything instructive from what you're doing now with Premier banking and those new customers with what you can do with Flushing. And I guess part of my question is also how much of that is sort of additional potential earnings beyond what you underwrote going in? Christopher Maher: Yes. So I think there's a tremendous opportunity there, Chris. So let me just kind of walk through mechanically what we think it is. And I hope you understand also kind to shy away from any numbers around that opportunity. But the premise is -- well, first, I should say, if you look at Flushing's numbers, they've done a nice job of building noninterest-bearing accounts at a pretty good clip. They've built nicely over the course of the year and have had some momentum on their side. I think our Premier folks who operate in the markets where the Flushing branches are today, will find a higher rate of success because they have the opportunity to offer that kind of branch distribution network over time. And then I think the real important part of this is that for both us and for Flushing, being a stronger, larger regional bank is going to help us in recruiting top-tier talent. So I think we are a more attractive destination for career commercial bankers who are looking for a platform to continue to build their brand and build their teams and build their legacy. So I kind of see it in a few ways. Flushing was doing a great job on its own. We can probably do a little better with our Premier teams giving them a branch distribution network. And then we're going to be a much more competitive place to land. I think as we go through the first few quarters as a combined company, hopefully later this year, we'll be able to put a finer point on what we think that growth rate will look like. But those deposit markets are absolutely massive. So although you do -- in the Northeast, you're always picking up share from someone else. That's kind of the name of the game. There's a lot of share out there in the markets. We're picking. And we really like the branch distribution network where it is, the neighborhoods they're in, the streets they're on. And I think that's going to help both of us grow faster than either one of us would have grown stand-alone. Christopher Marinac: Great. That's helpful, Chris. And I guess, without getting too deep in the weeds, I mean, in general, it doesn't seem like what you had told us in late December really is dependent on adjusting these rates that, as you can have success later on that, then that creates future opportunities for earnings. Christopher Maher: Yes. So with the one caveat, we are thinking through the balance sheet and in every bank, you have a variety of different funding sources and a variety of different assets. And this is an opportunity for us to be very thoughtful about thinking through the higher cost deposits and the lower-yielding loans and securities, and kind of saying -- looking at that mix and say the marginally highest-cost funding and the lowest-yielding assets present an opportunity to be much more efficient together. And that's really what the balance sheet process is about. And that's something that we may not be able to solve exactly at closing, but we would hope that within 30 days of closing, we would be able to provide some really good data on that. Operator: We now have David Bishop from Hovde Group. David Bishop: A quick question on the -- back to the C&I growth here and maybe for Joe. Just curious geographically, maybe where you're seeing the best strength there? And is any of this growth also driven by maybe expiration of noncompetes or handcuffs that were maybe placed against some of these lenders you had hired over the past year? Joseph Lebel: So the good news is it's pretty geographically dispersed, David, which I appreciate because we've hired lenders in all markets. Yes, we are -- some of the handcuff stuff that comes off, even if it's really like what I consider to be not really true handcuffs, people do feel that obligation, and that's a fair assessment. So I anticipate that we'll see more and more out of those folks as they get a little deeper into their OceanFirst tenure. But I don't -- I wouldn't say that there's anywhere where we're not performing up to standard. And then I think I've mentioned earlier that we've even got some of that activity from the Premier Bank, which is really valuable in terms of some of their clientele in -- New York City-centric. Christopher Maher: And there's like a positive flywheel as these new bankers come on. Their first few clients take a little bit of time. And then those clients have a good experience. They tell not just their friends but the accountants, the attorneys and get better known and then it becomes incrementally better to pick up kind of the second round of clients and the third rounds of the -- we see a lot of opportunity going forward. David Bishop: Got it. And I saw the earnings narrative on the deposit funding side, sounds like one large deposit client reset in terms of deposit rates from 0 upwards. I don't know, Pat or Joe, if you have that number in terms of maybe what the NIM headwind? And is that sort of just a onetime, a [ femoral ] impact? Patrick Barrett: Yes, it's onetime. It happens all the time where customers don't know where they want their money and they keep it out of higher-earning promotional type of things if they think they need it. So it was just -- it was noteworthy because of its size, and it's very infrequent and we would expect not recurring. Christopher Maher: And it was fully reflected in Q4. It -- actually, it was kind of like a late Q3 thing. So you're not going to see that drag or provide a headwind going into Q1. So... Patrick Barrett: I could have just said that NIM hardly moved at all just due to a lot of little things and noise, but that didn't feel like it was a good enough explanation for 3 basis points of contraction. So it was that kind of quarter... David Bishop: And I know this number bumps around, especially at the end of the year, but did see a noticeable pickup in the early-stage delinquencies in the 30- to 89-day bucket. Any commentary there that could be driving that? Christopher Maher: Yes. It was just one loan, Dave, that has a federal government lease where the lease payment is a little bit late. So we don't have any concern in the long term, but it was already a loan that we had in the substandard bucket. We've been watching it because of that tenancy. So we'll give you an update as time goes on, but they have a good lease in place. It looks like it was just a payment issue, meaning their collection of their rent was just delayed administratively. David Bishop: Got it. And then maybe a holistic question for you, Chris. It looks like the Netflix studio is entering into sort of the final stages, they're building the studios, sound stages and such. Any thoughts about maybe is there a potential to sort of set up branches within that footprint or any sort of branding within that community or within that development to sort of take advantages of branding the company there and backing the caterers, the builders, et cetera. Do you see any sort of longer-term opportunities as that builds out? Christopher Maher: That's going to be a tremendous thing for the Monmouth County, which is our second strongest county after Ocean County. So I think we've got a few branches that provide some good coverage for that market already. I don't know that we'll need to open other branches. But I'll make a broader comment. That's a great kind of boom to the Monmouth County market. But we continue to see over the course of our core, call it, the Jersey Shore market, that the post-pandemic period has been a seismic shift, more people were down at the shore more parts of the year. There's been a significant demand for the infrastructure you need, everything from hospital systems having to expand to hospitality and office and all sorts of stuff. So our core, our strongest market in kind of the Central New Jersey Shore is doing pretty well. And I think that's going to be a pretty sticky thing. We see that happening probably for several more quarters. Operator: Next up, we have Matthew Breese from Stephens Inc. Matthew Breese: On Premier Banking, I guess I was a little bit surprised by the loan and deposit growth guide and outlook maintaining 100% loan-to-deposit ratio. I was thinking once the Premier banking effort got up and running, there would be a reduction to that ratio. I was hoping you could maybe talk a little bit to that. And then the other one is, I know it's still early days with these teams, but on the DDA side, is 30% DDAs from Premier banking, that's still the right long-term number? Christopher Maher: I'll take the first side and then Joe can take the question about the noninterest bearing. In terms of the loan-to-deposit ratio, we'd like to see that down under 100%. On any particular quarter, it's a little bit of wait until the last few days as you see deposits come in or go out. I don't expect us to be a bank that's going to wind up at a 90% loan-to-deposit ratio, but I'd like to be substantially lower than 100%. I think we're going to see how things play out. We're opportunistic too, about earnings and making sure that we've got the right earnings power. And I would note that we've got a very robust set of deposit verticals. So we have our consumer deposit vertical. We have a government banking vertical, we have our corporate cash management and C&I vertical, and we have the Premier vertical, which overlaps a lot with the C&I vertical. So we have a lot of different sources of deposits and feel comfortable running at the higher end, which is not unusual for banks in the Northeast. But to your point, we'd like to be further under 100%. I think you may see that over the next several quarters, but not dramatically under 100%. Joseph Lebel: I think on the second half, Matt, I'd tell you that between 25% and 30% is actually, in my mind, still the right number. What we're hearing a lot from clients and clients that I've met personally is that their anticipation in midyear '25 or late-year '25 was a transition into full operating businesses coming across to OceanFirst in '26. So we still have a significant number of unfunded operating accounts that we've opened, getting ready for people to migrate. So I anticipate you're going to see a higher percentage of DDA as time goes on during the 2026 fiscal year. Matthew Breese: Got it. Okay. And then, Chris, going back to Flushing, you had mentioned that there was some higher-cost components. Of the $7.3 billion of Flushing deposits, could you just describe some of the business lines tied to the higher-cost components? And then oppositely, what are the highest-quality parts that you're more likely to kind of keep and grow? What's on the whiteboard there? Christopher Maher: So if you think about -- everyone has kind of pockets of deposits and everyone has more kind of promotionally-priced deposits. You think about their national deposit vertical, the iGObanking, for example, or BankPurely, which is not a lot of dollars. It's a good capability for us to have and preserve going forward but those are higher-cost deposits. Not surprising, some of the government deposits are higher cost because they wind up being excess fund accounts and you've got to be competitive on that. And then there are some money market accounts across the base that have been kind of priced more to acquire deposits. But there's still a pretty big slug of long-term high-quality deposits that either historically have been at Flushing for a long time, I remember the bank was chartered in 1929, so they've got a really long history. Very strong in Queens, very strong in the Asian communities, significant number of the branches they've opened in the last several years have been to serve the Asian communities around the city, which are not just in Flushing but places like Bay Ridge, and Lower Manhattan, Sunset Park, kind of those areas. So I think the real opportunity here is those long-term consumer accounts that go back in a lot of the franchise, the Asian markets and a lot of their commercial clients keep operating accounts with them. So that's all high-quality stuff. Around the edges, we might decrease the amount of dollars that are out in iGObanking, maybe some of the higher-yield money market, maybe some of the higher-cost government. That's kind of the high quality, lower quality. And I think every bank has some of that. We're looking at our own stuff, too, in the way we price it. Matthew Breese: Understood. Very helpful. And Pat, just looking at deposit costs up this quarter, and I know you mentioned there was an isolated incident. Obviously, Premier banking as a blend is higher than the average cost, could you help us out with the deposit cost outlook for the year? Where do we peak and without any rate cuts or using your rate cuts to kind of forecast, where do you expect deposit cost to be at the end of the year? Patrick Barrett: Yes. I am not going to give you a guess of where deposit costs are going to be at the end of the year, but I do think that they're going to keep coming down. They are coming down. They're lagging a little bit from a speed of repricing relative to rate cuts, which is exactly what happened when we were in an uprate environment, we lagged before they started going up. So I think we're seeing the same kind of things. So starting off slowly, repricing and then picking up. I'm encouraged by the fact that all of our spot rates across all of our deposit types are noticeably lower than the averages for the quarter. So they are steadily coming down already. Rate cuts help because there's a lot of promotionally-priced stuff. It's not contractually indexed, but a lot of the larger promotional balances definitely are linked there. And frankly, the pace of loan growth and the opportunity for loan growth is going to drive a lot of how that ends up occurring, similar to the loan-to-deposit ratio. It's less something that we drive the business towards rather than an outcome. And if there's high-quality loan growth that is a little bit higher than our deposit growth outlook, then we'll probably fill the buckets with some higher-cost deposits just to secure the longer-term lending relationships. So I think you'll probably see deposit costs and loan yields roughly moving in line with each other with a slight edge on the loan yields due to growth, and that's going to drive our margin, I think, steadily improving as we move through the year, a handful of basis points every quarter. That's a backhanded way of not answering your question exactly. So... Matthew Breese: All very helpful. And maybe just to drill in on one category that looks like it has the most room, your time deposit costs, the spot cost at the end of the quarter was 3.64%. What is kind of the blended all-in cost of CDs as they -- I know there's going to be some promotional stuff in there, but the all-in blend of [ stuff ] resets. Christopher Maher: Yes. Well, one thing, Matt, I'd note that when we think about the balance sheet restructure, to your prior question, that's the first dollars we're going to give up. We don't have a lot of brokered, but we do have some, and we've kept those durations really short. So as we kind of zero-in on the combined balance sheet with Flushing, the very first thing we will do is let those brokered runoff, and those are in the high 3s, but coming down. So even if we kept them, they would be coming down. So I think there's a strong opportunity there. And all of that is probably -- the weighted average duration on that is under 6 months, Pat? Patrick Barrett: Yes. It's about 4 months. So we can pretty rapidly change prices, and we actually do. We don't wait for a rate cut and mess around with kind of daily changes and we see are we able to keep rollover balances or not? Are we attracting any new balances or not? With, again, that being just one of the components of funding base that we need to maintain to support whatever the loan growth rate is. Operator: And that is it for all the questions. Thank you, everyone, for participating on that. And the Q&A is now clear, and I'll hand it back to Chris Maher for some final remarks. Christopher Maher: All right. Thank you. We appreciate your time today and your continued support of OceanFirst Financial Corp. We look forward to speaking with you in April about our first quarter results. Thanks very much. Bye. Operator: And this concludes today's call. Thank you all for joining. You may now disconnect your lines. Have a great one.
Operator: Good day, and thank you for standing by. Welcome to the First Western Financial Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Tony Rossi. Please go ahead. Tony Rossi: Thank you, Marvin. Good morning, everyone, and thank you for joining us today for First Western Financial's Fourth Quarter 2025 Earnings Call. Joining us from First Western's management team are Scott Wylie, Chairman and Chief Executive Officer; Julie Courkamp, Chief Operating Officer; and David Weber, Chief Financial Officer. We will use a slide presentation as part of our discussion this morning. If you've not done so already, please visit the Events and Presentations page of First Western's Investor Relations website to download a copy of the presentation. Before we begin, I'd like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of First Western Financial that involve risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website. I would also direct you to read the disclaimers in our earnings release and investor presentation. The company disclaims any obligation to update any forward-looking statements made during the call. 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 the financial and other quantitative information we discussed today as well as the reconciliation of the GAAP to non-GAAP measures. With that, I'd like to turn the call over to Scott. Scott? Scott Wylie: Okay. Thanks, Tony, and good morning, everybody. We executed well in the fourth quarter and saw positive trends in many areas, including loan growth, net interest margin expansion, well-managed operating expenses and generally stable asset quality. This resulted in an increase in our level of profitability. The market remains very competitive in terms of pricing on loans and deposits, but we continue to successfully generate new loans and deposits by offering a superior level of service, expertise and responsiveness rather than winning business by offering the lowest rates -- highest rates on deposits and the lowest rates on loans as other banks are doing. We continue to maintain a conservative approach to new loan production with our disciplined underwriting and pricing criteria. As a result of the additions we've made to our banking team over the past few years as well as generally healthy economic conditions in our market, we've had a solid level of loan production, which was diversified across our markets, industries and loan types. As a result of our financial performance and the balance sheet management strategies, we had a further increase in both book value and tangible book value per share. Moving to Slide 4. We generated net income of $3.3 million or $0.34 per diluted share in the fourth quarter, which is higher than the prior quarter. We had a write-down of value of an OREO property that reduced our earnings per share by $0.10 after tax in the fourth quarter. With our prudent balance sheet management, our tangible book value per share increased 1.6% this quarter. So, now I'll turn the call over to Julie for some additional discussion of our balance sheet and our treasury -- trust and investment management trends. Julie? Julie Courkamp: Thanks, Scott. Turning to Slide 5. We'll look at the trends in our loan portfolio. Our loans held for investment increased $59 million from the end of the prior quarter. We continue to be conservative and highly selective in our new loan production, but with the higher level of productivity we are seeing from the additions to our banking team that we made over the last several quarters, we are seeing a solid level of new loan production, while we are also seeing an increase in our CRE loan demand that meets underwriting relationship and pricing criteria. We also saw some construction loans that moved into our CRE portfolio after completion of their projects. New loan production was $146 million in the fourth quarter. The new loan production was diversified with the largest increases coming in our commercial real estate portfolios, and we are also getting deposit relationships with most of these new clients. We continue to be disciplined, and we are maintaining our pricing criteria. This resulted in the average rate on new production being 6.36% in this quarter. Moving to Slide 6, we'll take a closer look at deposit trends. Our total deposits increased $102 million from the end of the prior quarter. While we continue to successfully add new deposit relationships, this was partially offset by seasonal outflows we saw largely related to title company operating accounts who typically see declines in their deposit balances during the fourth quarter due to lower home purchase activity. In addition, we were able to run off high-cost deposits as a result of the strong core deposit production in the third quarter. Average deposits increased 10% in the fourth quarter of 2025 compared to the fourth quarter of 2024. Turning to Trust and Investment Management on Slide 7. We had $155 million decrease in our assets under management in the fourth quarter, primarily attributed to net withdrawals on low fee and fixed fee product categories, which was partially offset by improved market conditions on investment agency accounts that carry a higher variable fee, which increased $15 million or approximately 1% during the quarter. Now I'll turn the call over to David for further discussion of our financial results. David? David Weber: Thanks, Julie. Turning to Slide 8, we'll look at our gross revenue. Our gross revenue increased 1.5% from the prior quarter, primarily due to an increase in net interest income. Relative to the fourth quarter of 2024, our gross revenue increased 12.2%. Turning to Slide 9. We'll look at the trends in net interest income and margin. Our net interest income increased 5.6% from the prior quarter and 21.7% from the fourth quarter of 2024 due to an increase in our net interest margin. Our NIM increased 17 basis points from the prior quarter to 2.71%. This was due to a reduction in our cost of funds, which was primarily due to lower rates on money market deposit accounts as a result of the company reducing deposit rates commensurate with the short-term rate decreases and runoff of high-cost deposit accounts. Now turning to Slide 10. Our noninterest income decreased by approximately $800,000 from the prior quarter. This was primarily due to a decrease in gain on sale of mortgage loans, which typically see seasonal declines in the fourth quarter and a decrease in risk management and insurance fees. We have successfully transitioned to previously discussed new leadership and focus in Trust and Investment Management and insurance that are expected to produce improved results going forward. Now turning to Slide 11 and our expenses. Our noninterest expense increased $1.2 million from the prior quarter. Our noninterest expense was impacted in the fourth quarter by a onetime $1.4 million write-down we took on the value of an OREO property. Excluding the write-down of the OREO property, our noninterest expense decreased $100,000 in the quarter. Most areas of noninterest expense were relatively consistent with the prior quarter as we continue to tightly manage expenses while also making investments in the business that we believe will positively impact our long-term performance. Now turning to Slide 12. We'll look at our asset quality. As Scott indicated earlier, we saw generally stable trends in the loan portfolio in the fourth quarter with decreases in nonaccrual loans and NPAs. And we had a minimal level of net charge-offs in the quarter. Our last piece of OREO is currently under contract for sale and is expected to close during the first quarter. Our allowance coverage remained unchanged at 81 basis points of total loans as the decrease in nonaccrual loans and NPAs resulted in a more normal level of provision during the quarter. Now I will turn it back to Scott. Scott? Scott Wylie: Thanks, David. Turning to Slide 13, I'll wrap up with some comments about our outlook. Overall, we continue to see relatively healthy economic conditions in our markets, and we're seeing good opportunities to add both new clients and talent due to the ongoing disruption from M&A activity in the Colorado banking market. We also recently added a new market presence for Arizona, where we're seeing good opportunities for growth. Our loan deposit pipelines remain strong and should continue to result in solid balance sheet growth in 2026 with loan and deposit growth at similar levels to what we had in 2025. In addition to the balance sheet growth, we also expect to see positive trends in our net interest margin, our fee income and more operating leverage resulting from our disciplined expense control. We had net interest margin of 26 basis points in 2025. And while we expect further expansion in 2026, it may not be at the same level as we saw last year. And while we remain disciplined in our expense control, we believe that investing in the business will drive future shareholder value. The ongoing disruption from the M&A activity in our markets creates opportunities for us to add banking talent, and we will continue to take advantage of these opportunities if and when they materialize as well as opportunities to add new clients. Based on trends we're seeing in the portfolio and the feedback we're getting from our clients, we're not seeing anything to indicate that we'll experience any meaningful deterioration in asset quality. The positive trends we're seeing in a number of key areas are expected to continue, which we believe will result in a steady improvement in our financial performance and further value being created for our shareholders in 2026. With that, we're happy to take your questions. Marvin, please open up the call. Operator: [Operator Instructions] Our first question comes from the line of Brett Rabatin of Hovde. Brett Rabatin: I wanted to start off on the margin and just the outlook in terms of magnitude of margin expansion opportunities you see in the next few quarters. And then if you add it, the amount of loans that are repricing this year at lower rates from fixed rates? David Weber: Yes. So we had -- certainly had good NIM performance in the fourth quarter. Pretty pleased with the expansion that occurred there. That was primarily driven by our ability to reduce our -- primarily deposit costs. And we do expect further expansion to continue through 2026. Now it may not be at the same level that we saw through 2025, if you look at Q4 '24 to Q4 '25. It may not be at that same level, but we do expect to continue through 2026. And then specifically on the loan portfolio, we have about $250 million in fixed loans -- fixed rate loans maturing over the next year. And those average yield on those is in the low 5s. So that does give us an opportunity, obviously, to continue to reprice our loan book and see some positive trends on the yield on interest-earning assets. Scott Wylie: The only thing I would add to that is we have shifted our balance sheet interest rate risk to be closer to neutral over the last six months, and we feel like continued improvement in NIM is not dependent on continued rate cuts. If we do see rate cuts, that will be beneficial to us. But we're expecting for the purposes of planning and budgeting, no rate cuts. I think we could debate that one all day, but the feeling is that we should have the balance sheet more neutral, and that's where we are today. Brett Rabatin: Okay. That's helpful. And then on the asset management, wealth management business and the mortgage banking operation, you've obviously made some changes. I was hoping for maybe some clarity on the AUM levels in the fourth quarter relative to 3Q, if you had clients that were just taking money out to do things? Or what was the driver behind the trends in that business in the fourth quarter? And then just thinking about '26, given the changes, what do you think those businesses might do? Obviously, rates will impact mortgage, but just any thoughts on those businesses and the growth of fee income? Scott Wylie: Yes. So, maybe I'll start on that one, Julie, do you want to pick it up. So with respect to the wealth management fees, the AUM, we obviously did a deep dive on that because we were a little surprised to see the decline happening in the quarter. And what we have seen is a lot of the lower-yielding categories and the fixed rate categories have had reductions. We're actually in the higher-yielding categories for us on the AUM side that we're seeing improvements. So, I think the trend there is positive. It looks negative on the surface. But in reality, those are actually things that we're trying to do to improve the trend on PTIM over time. We've made a pretty major shift there over the last year, which we've talked about a little bit before from being so investment management focused and led in the PTIM world over the last 20 years to being more fiduciary and trust and especially planning driven now. And we've talked about the change in leadership there and a number of very positive changes that have been underway over the last six months. We've seen a lot of progress here in the last few months, and that's going to show up in the numbers in 2023 -- 2026. The other thing that I think you asked about in there was the risk and insurance revenues. And those are typically quite strong in the fourth quarter, and they were not in this quarter. And we've also made a pretty big restructuring of that group. And there were two very high-cost leaders for that group that we're comfortable operating as a loss leader. We're not a big believer in loss leaders here. And so we have made some changes there and brought that into the wealth planning team more directly. And you don't see the expense save that went with that, and you do see the cost reduction. So, I think that those were actually very positive developments that we wanted to see in Q4 there. What I missed, Julie? Julie Courkamp: Maybe something on mortgage. I don't think that was part of your question as well. But Q4 mortgage production, Q1 mortgage production for us is typically lower just given the seasonality. But we continue to remain very focused as a strategic part of our business. We've added, I think, eight MLOs in the year of 2025. And as you know, it's hard to move MLOs whenever times are strong. So we feel like continuing to make that effort. Even though overall, the production isn't at the level we want it to be, we're profitable in that area. We're still adding and contributing net positive clients into the bank and the portfolio of the bank. And I would expect that second and third quarters of the coming year, 2026 are going to be seasonally stronger than the first and fourth. So I think we have good outlook there. I think we're doing the right things. And then to add on to the wealth planning conversation, we have a lot of really strong momentum in that business line and feel really good about what we're doing there. We've also added a B2B offering that's really just now getting going, and we're seeing some early green shoots on that. So I think the outlook for us is strong, but the last year's production really hasn't shown that yet. So we're looking to that growth into 2026. Scott Wylie: Good points there, Julie. And just to give some context to the eight people, that's a 45% increase from where we were a year ago. on MLOs at no direct expense. It's a variable cost that's commission-based. Brett Rabatin: Okay. That's really helpful. And then if I could ask one last one. You're almost a double-digit grower in '25 on loans and deposits. Does the outlook for you guys as you see it in your economies and markets, does that suggest another similar performance in '26? Or any thoughts on how you see the pipelines playing out for the year? Scott Wylie: We are expecting growth in 2026 in line with what we saw in 2025. We continue, as you know, Brett, to have really small market share in all of our markets. We're in strong economies. I mean I think the big change that we've really seen in the past few months is this market disruption. And it continues and in fact, is accelerating and it's creating all this opportunity for talent and for new clients. We set up this disruption task force, when Julie? Was that in the third quarter? Julie Courkamp: Yes, late summer. Scott Wylie: And we're working through that group on a series of very specific recruiting and sales and marketing initiatives. And we just had our big annual manager summit the last two days and the success stories coming out of that were remarkable. I mean there's just a lot of momentum in the field from prospects that don't want to be with these new organizations, and they want a stable local expert team and an expert stable local institution. And I think that's especially true in our niche with the private bank and trust focus. And with strong and healthy and diverse economies, I think all that's going to continue on into '26 and give us good opportunity for balance sheet growth. Operator: Our next question comes from the line of Woody Lay of KBW. Wood Lay: I wanted to start on the expense outlook. If I adjust for that OREO adjustment, it was good to see sort of the core run rate flat. You talked about continuing to want to invest in the business, especially given the M&A disruption. So how should we think about the expense growth rate in 2026? Scott Wylie: The way we've talked about it internally is we wanted to keep our expense below $20 million a quarter. And I think we've done that. Did you go back and look, David, I've been saying it's something like 12 quarters in a row. I don't know exactly. But certainly, over the last eight quarters, that's been true. And so I think that's kind of our base case is how do we drive more efficiency and more effective teamwork here without driving up expenses. But having said that, and this was very much in your question, Woody, if we see opportunities, we have an internal business case process, and we told our people, if you can bring in some good people that are going to have a strong short-term and long-term impact, we want to hear about it and we want to look at it and support you with that. So I think we're doing the best of both worlds here where we can manage expenses, grow revenues, get that operating leverage. And if we see opportunities for more revenue growth, go ahead and invest in that. That's the outlook we're taking for '26. Wood Lay: Got it. So if I pair that with the commentary of growth remaining strong, the NIM should continually grind higher. How should we think about the profitability improvement potential in 2026? Is there kind of an ROA range that you're hoping to be at by year-end? Scott Wylie: Yes, there is, but I'm sworn to secrecy. I'll give my answer and let Julie and David do their rebuttal if they want. If you look at our operating run rate, in the third quarter and again in the fourth quarter, we're doing something like $0.50 a quarter if you take out things like that OREO write-down, which, again, that was a decision we made. We had this last property up in Aspen in Basalt, actually near Aspen. And there were some unpermitted construction done by the former owner that we foreclosed on. And the city has just really taken it out on us and made it very difficult for us to sell that thing given the strong attributes, but the unpermitted construction that was done on it. And so we've been back and forth and back and forth with them. We had a buyer that was really interested and she worked with the city and she couldn't get them anywhere. And then we have a buyer now that put under contract and is taking it kind of as is, and he was supposed to close in December, and he hasn't finished his diligence yet. So we gave a 60-day extension. his request supposed to close in February. And the update from this week is he's on track. So I think that's going to get sold. It's $1.4 million write-down from the discounted value that we had already put on it. So frankly, we're looking forward to having that off our books, not having OREO. So that is a onetime thing. We don't have other OREO. We had that marked below our appraised value. We worked hard to realize that value at some point, that's not really our highest and best use of our executives' time and efforts. So, hopefully, that will get sold here in Q1. So if you take that out and you look at kind of the typical monthly expenses, and we always have puts and takes, and I'm not adjusting for that. I'm saying if you take out the big things and you kind of run through the net interest income, you look through the fee income, you look through the operating expenses, we're doing kind of a $2 run rate, and it improved actually a little bit from Q3 to Q4. So that's my starting point going forward is under a normal world, we ought to be starting the year at a 2% operating run rate, $2 that was wishful thinking a 2% thing, $2 a share operating run rate. And then I do think we can grow from there. We have said our near-term objective here is to get to a 1% ROA, which would be 3.50-ish. And so we got people focused on that. Can we get there on a run rate basis this year? I think that's pretty stretchy. But I think we will get there. And I think we can get beyond that, but we have to get there first with the improvements in NIM and the operating growth and the impact of all these initiatives we've been talking about, we seem well on the way. Is anything, David or Julie, you want to add? Yes. David Weber: No, not for me. Wood Lay: Well, that's really helpful color. And I guess just last for me, with a strong loan pipeline, how do you think about matching that with core deposits? The growth has been a little lumpy as you've optimized the balance sheet. But just curious on your thoughts on maybe the deposit competition in the next year. Scott Wylie: Yes. The team is really focused on that. And one of the questions we asked folks while they were here for the summit was how do you feel about the loan pipeline and the deposit pipeline? And the feedback is that both are strong. I think the focus that we've put on the deposit side seems to be paying dividends in terms of that new business. Historically, if you look back at the 22-year whatever history of First Western, we have found that at the margin, when we need deposits to fund the loan opportunities that we want to do, we can bring those in. And there was a period there. Actually, after our last call, it was interesting. One of our bigger holders texted or e-mailed Julie and me and said, hey, great quarter, good report on the third quarter. must feel good to get out of the slog of the last couple of years. And for me, that just really resonated. It was kind of a difficult period there with the bank failures and the darling of the private banking industry going out of business and all that. So I think getting out of that slot, getting back on a growth track, getting off of defense, which I feel like we played well to get back on offense. And those are all things that I think are panning out in our deposit growth story, which your use of the term lumpy was kind. I mean that was obviously not what we would choose to see all that great growth in Q3, but it did let us run off some of the high-cost deposits in Q4 and in some way kind of proved what we've seen over the years, which is when we want deposits, we can bring them in. And when we don't need them, we can pay them off and those things help NIM. And I like the NIM slide this quarter, I'm not sure which page that's on. But if you look at kind of the full year trends for the last five quarters, it shows a nice upward trend that gets us -- is that Page 9, Julie? Yes. It gets us on this trajectory back to 3.10%, 3.15% that I've talked about before that historically we've seen in our banks. Operator: And our next question comes from the line of Matthew Clark of Piper Sandler. Matthew Clark: Just the first question on the deposit beta, 54% this quarter from an interest-bearing perspective. Do you feel like you can hold that kind of mid-50s beta this year? Or do you feel like that might come down a little bit? David Weber: No, I think we can hold that. Matthew Clark: Okay. And then do you have the spot rate... Scott Wylie: An unhedged response, I like it. I mean we have seen it come down, you know, Matt. And we do think that -- well, David said it. Matthew Clark: Yes. Okay. And then do you have the spot rate on deposits at the end of the year? David Weber: Yes, it was 2.86%. Matthew Clark: 286%, okay. Got it. And then -- assuming that's the case and just thinking about the near-term margin kind of implies your beta steps up here actually in the first quarter. With the noninterest-bearing deposits down at the end of the year, I'm assuming they'll come back to some degree, but borrowings are up a little bit. You'll likely see some asset yield pressure from the December rate cut on the floating rate portfolio, which I think is 25% of the book. It appears like your NIM might come down a little bit here in the first quarter, but I'd love to hear your thoughts and tell me why I'm wrong. David Weber: Our NIM in the month of December was 2.72%. Matthew Clark: Okay. Okay. But in terms of the end-of-period balance sheet, you don't think there's some incremental pressure there? David Weber: No, I don't. Matthew Clark: All right. Fair enough. And then the other one I had -- actually, I think it was already asked and answered on expenses. Operator: Our next question comes from the line of Bill Dezellem of Tieton Capital Management. William Dezellem: Two questions from the balance sheet. The first one is mortgage loans for sale jumped in the fourth quarter from, I think, $22 million or so in Q3 up to $40 million in Q4. Would you discuss the dynamics behind that, please? David Weber: You're asking about the mortgage held-for-sale balance. William Dezellem: That's right. David Weber: Yes. Yes. There are timing dynamics there, timing of when the sales occur relative to the end of period. Scott Wylie: Can you explain what those are? Which are loans that we're originating and selling in the secondary markets that are on the balance sheet in the interim. David Weber: Yes. Yes. Those loans are originated for the purpose from the beginning of application and lock and everything, those are originated for the purpose of selling. So the balance typically will kind of trend up and then we'll package those and we'll do a sale and move those off the balance sheet. So it does get impacted simply just by the timing of when those sales occur relative to the end of the period. Scott Wylie: Your question is a good one, though, Bill, because generally, when volumes are higher, that balance goes up, but then it's also offset by this timing thing that David was talking about. So, I wouldn't read too much into that. William Dezellem: And part of the, I guess, backdrop of the spirit of the question was wondering if there was some dynamic that you saw in the market, whether it was sale premiums or something else that led you to conclude you wanted to hold those a little bit longer or if it truly was simply timing and getting proper volume set up for your sale? Scott Wylie: No, it's mechanical. We don't play that game. William Dezellem: So, it's truly just a timing phenomenon? Scott Wylie: Correct. William Dezellem: Okay. And then the other question was relative to your construction and development loans. You had a pretty significant reduction in the amount of those loans. And the question is whether that was an intentional risk mitigation strategy or whether it was all part of the normal ebb and flow of bringing on new loans and loans paying off moving out of that C&D category. Scott Wylie: I would say much more the former than the latter. We had a review of that portfolio 18 months ago, something like that, and felt like that was as high as we wanted to get, and we wanted to work it down. And so if you look on Page 5, you can see that's gone $315,000, $230,000, $189,000, and actually, a lot of the increase that we've seen in nonowner-occupied CRE is that those construction projects getting finished and then moving on to our investor real estate. And I don't think that those generally sit there very long because they get refinanced into permanent financing. So that's something that I think we'll continue to see there is less of an increase in that investor real estate line item, too. Operator: And our next question comes from the line of Brett Rabatin of Hovde. Brett Rabatin: Just one follow-up around the tax rate. It's been jumping around a lot the last few quarters. Any thoughts on the tax rate from here? And then just any strategies that you guys are implementing on the tax side, whether it be municipals or other things? David Weber: Yes. Good question, Brett. The tax rate, I agree, it has been a bit lumpy over the quarters. And some of those dynamics at play just have to do with some of our LIHTC investments and the K-1 losses that flow through and the timing of when we actually receive that information of the actual losses versus the projected losses that we're kind of using to work that through the year for the effective tax rate as well as there are components of equity compensation and the differences that come with that, that come at play as well, and that had an impact in the fourth quarter. So that's -- that was one of the main drivers of why we saw the fluctuation in the effective tax rate in Q4. But going forward, I think we're more in that 23% to 24% range from an effective tax rate perspective. Scott Wylie: We have added some tax-exempt interest income sources, I think, over the past 12 months, and we're working on another one now or looking at it. So I mean it's something that we do pay attention to, Brett. But I think for planning purposes and forecasting purposes, that 23%, 24% is a reasonable range. Operator: Our next question comes from the line of Ross Haberman of Rlh Investments. Ross Haberman: Scott, I got on a bit late. Could you just tell me -- did you touch upon your opinion of the mortgage market and what your expectations are for '26? Let's say, I don't know, rates stay about the same or maybe come down a little bit. What's your expectation on your mortgage operation? Scott Wylie: Well, thanks for the question, Ross. We have been trying to build our production capability there, even though the market is slower, and Julie did talk on the call a little bit about our experience has been that when the market is really strong and you want to add more mortgage loan officers, which are commission-based the producers, they won't move because they have a big pipeline wherever they are. So building that team when times slow is pretty much how we've experienced that you have to do it if you want to get good ones. And so as we talked about on the call, we've increased -- that has been a focus for us, and we've deliberately gone out and increased our MLO team by 8 producers in 2025, which is a 45% increase year-over-year. So that's somewhere we are investing. We do think -- well, investing, they're commission based, so it's not a cost. But we're investing effort for sure in building that team for future productivity. We do think that there just has to be a lot of pent-up demand out there for people that want to move. We know people aren't going to leave their 2% or 3% mortgages behind. But at some point, if you got another kid or you're moving, relocating, you need to do that. And we're seeing prices, I think, at least in the Denver market, moderate. And so at some point, that's going to create some mortgage opportunities for us, I think. And obviously, the decline we saw this year and this quarter, it's not us, it's the industry. And so I think that we are doing a good job of being -- playing the hand that we're dealt by this industry. But I also think we're well positioned that when that comes back and we see some growth, we're well positioned to take advantage of it. Ross Haberman: Are you seeing any pickup in that division, either in Phoenix or Wyoming or I think you opened up -- was a lending office in Bozeman, was it? Are you seeing -- are those -- would those -- would you see a pickup there first? Or maybe the Denver area, if you saw any sort of pickup, it would show up there first. Julie Courkamp: We have actually brought in a few in the Lowes and Arizona. So we've seen some nice production out of that region. And then we've also brought in a few from the Wyoming region, which has really helped us there, too. And these are really high-quality producers that have really our type of clients. So some of that you'll see adding to the portfolio. Montana is a little bit trickier. We haven't been successful finding a pure-play MLO there, but we have a great lending team and they're capable of doing all of the lending needs. So it's definitely a focus of ours is to make sure that all of the markets are seeing the growth that we want. So -- and we've been seeing production in all of the markets. Scott Wylie: And to be clear, Bozeman is a full-service First Western profit center that is actually contribution positive. They've made really nice progress there. Julie Courkamp: Yes. Ross Haberman: And just one other question. Have you been looking around for other operations to buy either money management or branches or other little banks? Are you actively looking at in either -- in any of those other three markets or any other -- now that you have a little bit of a currency this year than you had in the year or two past. Is that on your radar screen? Or that's a backseat and you would rather -- if you found some great relationship bankers, you would rather hire one or two and/or a lift out rather than a whole bank. Scott Wylie: Yes. So, as you know, we have a long history of acquisitions and our currency really is not been in a place where that has made sense here for the last couple of years. Our focus is on organic growth. We talked on the call a little bit about all this market disruption. And the beauty of hiring the people you want is you get the business that you want, you have to take the stuff you don't want. And so definitely, there's a strong focus here with this disruption task force and with our internal focus on how do we take advantage in an organic way. And that's Front Range, that's resort markets, that's Arizona, Montana and Wyoming, all of them. So we do think there's a lot of opportunity right now for us to just do our jobs and get after this organic growth. Ross Haberman: Thanks a lot, and best of luck. Operator: I'm showing no further questions at this time. I'll now turn it back to Scott Wylie for closing remarks. Scott Wylie: Great. Thank you. So we said for several quarters that we had success playing defense through that slog of '22 and '23, and now we're shifting back on to offense. The headwinds out in the market have changed to tailwinds for 2026, and that's both in financial and economic and competitive terms. We feel like our 2025 shift to offense really worked, and we've leveraged our investments that we've been making in these five key areas I talked about last time, which is our tech infrastructure, our product teams, our local PC teams, profit center teams, our reset of our internal processes for more efficiency and more value add. And we've also now strengthened our credit and risk support and marketing teams to support the First Western of the future. So with the positive trends that we saw from Q3 to Q4, where our net interest income was up 22% quarter-over-quarter annualized or it was also up year-over-year nicely. Our NIM was up 17 basis points quarter-over-quarter, 26 basis points year-over-year on a continued path back to where that should be. We -- if you adjust for the operating -- the OREO write-down, our pre-provision net revenues were up another 39% quarter-over-quarter annualized or double from a year ago. Our efficiency ratio when adjusted for that OREO continues to trend down nicely and our operating run rate in the last quarter was, as I said, $0.50 if you take out -- if you normalize it, and that's a little over $2 annualized. So looking at our 2026 business plan, assuming a stable environment, we expect these positive trends to continue, as we've talked about. Market disruption continues and increases. The opportunity for talent and clients, I don't think has ever been better. Our disruption task force is we're focused on recruiting and sales marketing initiatives. Our prospects are telling us they want a stable local team of experts and a stable local institution, especially in our niche. This small market share that we have in each of our markets provides lots of upside in our strong and healthy and diverse economies that we are operating in. Our PTIM restructuring is working. We'll see some results of that this year, both with the reemphasis on planning and our B2B initiative that we've launched. Our MLOs are up, and that's taking advantage of the slow market for building for the future. And our NIM, I think, is going to continue to trend up towards the 3.15% number we've talked about as the economy and our financial markets normalize. So those NIM gains and some modest balance sheet growth, they will generate some nice net interest income gains and they'll generate some nice earnings gains. So our intent is to get back to being a financial high performer. We see a clear path to 1% ROA and plenty of room beyond that. So, thanks, everybody, for your support. We really appreciate you dialing in today, and we'll look forward to connecting in the future. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to NOVAGOLD's 2025 Year-end report conference call and webcast. [Operator Instructions] The conference is being recorded. [Operator Instructions]. I would now like to turn the conference over to Melanie Hennessey, Vice President, Corporate Communications. Please go ahead. Melanie Hennessey: Thank you, [ Aisha ]. Good morning, everyone. We are pleased that you've joined us for NOVAGOLD 2025 year-end webcast and conference call and also for an update on the Donlin Gold project. On today's call, we have NOVAGOLD's Chairman, Dr. Thomas Kaplan; President and CEO, Greg Lang; and Peter Adamek, NOVAGOLD Vice President and CFO. At the end of the webcast, we will take questions by phone. Additionally, we will respond to questions received by e-mail. I would like to remind you, as stated on Slide 3, any statements made today may contain forward-looking information, such as projections and goals, which are likely to involve risks to tail in our various EDGAR and SEDAR filings and forward-looking disclaimers that are included in this presentation. With that, I will now turn the presentation over to Dr. Thomas Kaplan. Thomas Kaplan: Thank you very much, Melanie. We start on Slide 4. I'd just like to point out something which in this era of volatility and resource nationalism. It's important to understand that NOVAGOLD and our partners at Paulson are building the path to what will be America's largest single gold mine. That's an extraordinary statement. And candidly, one that would have seemed to many people a year ago, something that would be very hard to imagine. And yet, here we are at a perfect time to be building America's gold mine. If we go to Slide 5, I'd like to speak to the most important event that took place last year. And that was the transaction that has already shown itself to be catalytic. And yet on the other hand, for reasons which I will state, I believe that we are really in just the first inning of the revaluation of NOVAGOLD. And the reason is simple, for the first time, NOVAGOLD is perfectly aligned with its partner. People used to ask me, Tom, you own gold assets, silver assets and you never joined the public boards. And why this one? And my answer to that is because I enjoy it. I love working with the people. And by temperament, if I'm interested in something, I tend to go all in. My interest in NOVAGOLD has been metaphysical from the time that I first saw it in the public markets to the time when on December 31, 2008, Egor Levental negotiated an agreement that effectively had us come in as the safer of NOVAGOLD, which was going to go out of business. It had a lot of problems. We turned them around. But along the way, our first shareholder has become something of an angel, and that's John Paulson. He was the first investor in NOVAGOLD after the Electrum Group took it over. And it was a fantastic journey as some of you will read Greg Lang's own story of how he came to NOVAGOLD. When John sent his analysts to see whether I could possibly be right when I posited that we think it's possible that NOVAGOLD just on the 5% of the land package that's been explored is a pure play on the next Carlin, we felt that we could see 80 million to 100 million ounces. And of course, he found that, that was highly improbable. He sent his analysts to visit they came back, he called me and he said, "What do you want to do?" and I said, "Like $100 million." He said, "Done." And I said, "What changed?" and he said, "Our analysts came back. We can see what you see. Congratulations." Up until about 2020, I think I can say that it really was a lot of fun. And then unfortunately, we had some glitches. I'll get to that in a moment. But suffice to say that since John Paulson took the extraordinary step of investing $800 million personally to take a 40% stake in Donlin, the market has understood that this may well have been the best single buy in the gold mining space since Barrick itself, Goldstrike, which was the company maker, for that company and certainly, one of them as well for Franco-Nevada. The market reception that we've had from a low of $2.5 early last year to, well, where we are today, certainly shows that people understand not just the quality of the asset, but that we argue for a major, major revaluation, which as far as we're concerned, hasn't really even taken place yet. Next slide, please. On Slide 6, what you can see is a very interesting story. We were partners for a very, very long time. The Barrick partnership preexisted my coming into the story in 2008 to 2009. But from the time that we applied our team approach, NOVAGOLD was one of the premier rated assets in the GDXJ. And we believe that it has the potential to be that once again, maybe the premier asset in the play. And what you see is a very, very nice progression up until about 2020 when there was a change in management at Barrick. Well, the next several years were not as fun as the previous ones. However, by the time that last year or the year before, rolled around, it was very clear that our partners agenda was not going to work. And fortunately, Mark Bristow and I were able to reach an agreement to buy Barrick's half of Donlin with John Paulson buying 80% of that stake and NOVAGOLD increasing its stake from 50% to 60%. We went from having years of nonalignment with our partner, whose I had wondered very much to copper and in some very interesting jurisdictions to being in a position where we could once again reboot and take us back to where we were. Well, if you look at this chart, we were a $12 stock in 2020. So many things have happened since then. And I would argue, and I think John Paulson would partly agree that based on where we should be, where we would have been without the delay, we would be multiples higher than where we are today. One thing I can tell you is that I will be working with management and also with the Paulson Group for us to remain that lost ground and multiply where we should be because to my mind, that lost ground took place in sub-$2,000 gold, and we are in a completely different place and one of the reasons why I am so confident about that is that we are literally in the right place. People talk about world-class, but as somebody who really made his fortune in countries like Bolivia, Zimbabwe, South Africa, I sold Kibali to Mark Bristow. I really do believe that in order to be able to get the premium rating, you have to be in a place where people can sleep well at night where when they go to sleep, they know that when they wake up in the morning, what they thought they owned, they still own. In other words, you want all the leverage to an underlying thesis, but in a jurisdiction that will allow you to keep the fruits of that leverage. It really doesn't get any better than Alaska. So for all of those reasons, I believe that we are really just in the first inning. We haven't really even taken ourselves back to where we should be at $2,000 gold. Next slide. Now let me talk a bit about the advantage that we have from being partners with John Paulson and his team. They are proven talents in the mining industry at a time when very few generalists have the kind of expertise that they have shown, not just in picking the right assets, but also we're necessary becoming activists. John Paulson, of course, is very famous for having been perhaps the greatest beneficiary of identifying the macro trade that coincided with the financial crisis. And as George Soros put it at the time, he not only identified the trade, he identified the very, very best vehicles to be able to make from 10 to 100x on the investments for his clients. I am very proud to say that John, who has been an investor in NOVAGOLD since 2010. It's our longest-standing and most active shareholder. But the fact that John, who is, as I've been a very, very well-known public advocate for gold ownership has decided to make such an investment. He's basically said the macros, I know. I'm bullish on gold. I want more exposure to it. And as far as I'm concerned, Donlin is the single best way for me to play it. In other words, the same thesis that accompanied his views on how to be able to deal with subprime and the housing prices are embodied in the stake that he has taken in Donlin. He didn't have to do it. He saw an opportunity. And again, I really do believe and all credit to him that this will be the single savviest investment having been made in the gold space in many, many decades. One other factor that I'd like to add is not only does Paulson bring acumen and strategic depth to the project. But also, they have extraordinary access to financing that is not necessarily my frame of reference. So in Electrum, we have several sovereign wealth funds, which are the only outside owners in what is essentially a family an employee-owned business. And my strong suit is in the sovereign wealth funds. John is in the United States. And as we've seen with the success of perpetual, he knows how to be able to bring capital to an equation to be able to lower the cost of capital. And there are many, many upsides in the financing opportunities which we can look towards. There are a number of countries, including Japan, Korea, the Emirates, Saudi Arabia, which really have pledged to invest well over $1 trillion in the United States. I would venture to say that the largest gold mine in the United States on the Pacific Coast might very well be attractive to countries like Japan, where you have very, very strong gold demand or a country like Korea, where the central banks the Central Bank has said that they're going to resume gold purchases. Well, Japan has pledged $550 billion, and last I saw Korea $350 billion. And then, of course, you have the Emirates, who are partners with me, Saudis who are partners with me. It's a whole different world to be able to finance the largest gold mine in the United States. Paulson brings advantages to us in that respect. And there are many, many upsides that could take place. Possible we could merge and on a 100% basis. be, a 1.5 million ounce gold producer. Whatever is in the interest of NOVAGOLD, we will always consider and most importantly, take into consideration our shareholders who have been fantastic guides. But the point is there are upside cases on financing stories that really didn't exist until a year ago. So again, watch this space. Now I'd like to go to something which on Slide 8, may look like a little bit of sulfur [indiscernible]. There are suit been bullish on gold, not as many who have basically put all of their wealth into gold and silver mining assets. We are called Electrum because it is a naturally occurring alloy of gold and silver. And we have been all in. And obviously, what's transpired over the last year or 2 has been wonderful. But when I go out on the road, because I have been told evangelist or one of them for a number of years, I'm very often asked where I see gold going. So if I can take a step back so that it gives me the opportunity without selective disclosure or selective hypothesizing for years. I expressed that I thought the first equilibrium level for gold would be between $3,000 to $5,000. I expressed this publicly as early as when gold was at $550 and that, of course, took a lot of people by surprise. I expressed I was going to sell. What I then had is the fastest-growing privately held natural gas producer in the United States. We sold that in 2007 to pivot entirely into the one money that I believe in. And still the believe in. Gold 1.0 has been great, candidly, crypto and calling it Gold 2.0 has expanded Gold 1.0's reach to so many places that I normally don't even have to speak to most people about why they should earn gold. I just tell them where I think it's going. In May 2019, I did a Bloomberg peer-to-peer interview with David Rubenstein. That night, gold was at about $1,900. actually, that's not true. It was $1,280. And David asked me, so you see it going past $1,900, which was the previous high and I told I believe that when it goes past $1,900, we're talking about $3,000 to $5,000. But I also added this, which was, if not a lot higher, depending on macro circumstances that today seem in but which I can't really quantify. Now at that time, I was already formulating a different thesis on where I saw gold going. A lot has changed since the early 2000s. And my thesis has changed. But I really didn't think it was prudent for me to say that publicly. It was already enough when gold was at $1,280 to say I see it going from $3,000 to $5,000. But now I want to walk you through my thesis which is borne out of the fact that I'm no more a gold bug than I was a silver bug, a hydrocarbon bug, the platinum bug or any other insect. It's just that this is my belief and you can take it for whatever it's worth. On Slide 9, I think it's very clear now that gold is here to stay. It has been revitalized as an asset class. I'm not going to spend too much time on the things that make it attractive. Gold has been thriving whether you have inflation fears, deflation fears, whether you require a safe haven or you don't. The gold industry itself has dwindling discovery rates or grades are now plunging to below a gram central buyers have been buying. I've said for years, the central banks are not dumb money. They actually know better the lack of credibility of so much of the assets that they own on their balance sheet that by buying gold as an act of choice and active volition, they are doing as much as anyone to be able to show you that you should own it. And clearly, everyone who's been buying gold as a central banker, and they're not paid [ 2 in '20 ] to take bold decisions is obviously looking like a genius. That also goes with the other aspect that I've always said since gold was at $500, which is whenever the Indians and the Chinese are competing over a scarce asset you must want to own it. So you have Chinese and Indian demand, you have central bank demand, and you now have new investors who are coming in to compete with the official sector. This environment is perfect. I should add that I never used to resort to talking about the fear factors in pushing for why people should own gold. I spoke about economics 101, supply and demand, why one wants to have a money that can't be debased by fiat. A lot of good logical factors, but I didn't go into the 4 horsemen of the apocalypse, or any of the things that sometimes people bear into when they talk about both. However, after 2022 and the combination both of the real displacement in the world order with the Russian invasion of Ukraine, and the displacement of the financial order with the freezing of Russian assets outside of Russia. That really was a game changer. It was a game changer for a lot of central banks. It was a game changer for a lot of investors who want to preserve their capital, both as a safe haven and also because gold is something that when you own it, it doesn't represent someone, it doesn't represent someone else's liability to repay you. So all of these things, we've seen a little bit esoteric, all of a sudden came into sharp relief. And you see gold taking off. Well, I do believe this is the early stage of a complete revaluation. On Slide 10, this is where I believe we're going to see gold going. Now that chart is a chart of the Dow Jones Industrial average since 1975. Here's what happened in the Dow. Up until about 1980, essentially for 30 years, the Dow was in a trading range. And if it came to 1,000 or peaked above it, smart people said, well, sell it. It's at the top of the trading range. And that worked for a while. The problem is that reversals essentially mean that at some point, you can actually say this time it's different. Otherwise, it's not a reversal. So normally, when people hear this time it's different, they think, "Oh, well, that's a bubble about the burst." Very often it is, but sometimes it's just representing new facts and this is what happened with the Dow. Now I happen to remember I was working for someone in London in 1987, while I was doing my PhD. And I remember the crash of '87. I'd like you to try to see if you can see it on this chart, a crash, which took the Dow down from the 2000s to, I think, 16 -- 1,700. It seems like the sky was falling in. You cannot see it. It was a downdraft essentially in the passage of time meant to wipe out weak hands as it started to make its climb to 45,000. I don't know where the gold needs an '87 moment. If it happens, you just have to buy it and buy it and buy it. It could be brief, it could be short and it may not even happen at all because the reality is that the fundamentals for gold are so strong and literally get reinforced almost with every tweet. It is reinforced on a weekly, if not daily basis why everyone should have gold in their portfolio. The problem is there really isn't enough gold to go around, except at much, much higher equilibrium prices. So with the 3,000 to 5,000 area having been met. And by the way, people sometimes say, why 3 to 5. I said, be it could go to 5 and then correct down to 3 before going past 5 to 20. In any event, I'd like to cite Ray Dalio, who is someone that I deeply, deeply respect rate is extraordinary. And if there's a public service announcement, reads books is the best what I would say, market-related applied historian in the world today. So at a certain point, not long ago, Ray said, gold is now the second largest reserve currency behind the U.S. dollar. To understand why you need to look at the history of fed currencies like the dollar in hard currencies like gold. The way I see it, we're currently facing a plastic currency devaluation similar to what we saw in the 1970s or in the 1930s. In both of those cases, fiat currencies around the world all went down together and also went down in relationship to hard currencies like gold. Up until about a year or 2 ago, for decades, when people ask me, which currencies should I own, I said on the U.S. dollar because although I do believe that all paper currencies are toilet tissue, the U.S. dollar is double-ply. It has factors that make it better than its other paper currency comparables. Not that I believe in it, but if you need a paper currency, the dollar, of course, there's always room for the Swiss franc and a couple of other esoteric things, but you get the idea. The dollar and gold and I said, for me, it's all about gold, not the dollar. But for most investors, you know they can't be as all in as a private investor like myself. Suffice to say that the U.S. is doing everything it can to debate the cornerstones of its being not just first among equals, but the superpower. Those chickens will come home to roost, and I'm sorry to see it. The United States obviously has factors that make it unique. It has the ability to project power all over the world in a way that until the Chinese catch up is unique to itself. It -- well, it had a multilateral alliance system that the Chinese could not compete with, and therefore, was the boss. And in return, for this leadership people were willing to buy the dollar despite America's bipartisan commitment to spending so much more money than it has, and they were willing to go along with the convenient picture, which is to say if you defend us, you are the economic superpower and that's a trade we're willing to make. It was a trade-off. Well, we are starting to witness shifts in that, which I'm not saying are going to immediately displace the dollar. But for a variety of reasons, you will see not only adverse series now, but friends look to be able to have more financial autonomy. One thing, however, I do have to say for those who are buying gold depos, they think that the dollar will weaken. That's not necessarily true. I remember when I sold my energy company, we got a lot of money. And I remember saying, George Soros once said that the existential decision for any investors is in which currency to denominate themselves. I chose gold. But also, I had other paper currencies. The dollar euro at that time in November of 2007, was about $147 million. The dollar has strengthened to 115, let's say, and gold has gone from 600 to nearly 5,000. In other words, you do not need a weaker dollar to buy gold. Does it help? Yes. But those who shut off that mythology will do a lot better. I knew that the gold and the dollar could go up in tandem. So really, when you're looking at that analysis, don't make that the central pivot in my opinion. If it helps the analysis, no problem. But there are a lot of myths about gold, which have been dispelled that now people really do understand. You didn't need strong oil. When I sold my energy company oil was at $120 a barrel. It's half of that, gold was at $600. There are a lot of miss. The point is, this is a bull market. And you're going to play it if you're not in it and you're going to be increasing your allocation as other people come into it for the first time. The mining equities are tremendously undervalued. And the reason for that is after so many years of dismissing gold as a harbors relic people almost can't believe what they're seeing. They can't believe it's really going to be 3,000, 4,000, 5,000. Well, if it is, the gold miners are truly, truly value plays, something to consider. If I move to Slide 11, very simply put, if you look back over 25 years, which is not unreasonable since the turn of the century, gold has done a brilliant job as an asset class. As we know that people do like to look back, I think people, our investors are going to be encouraged more and more to have gold in their portfolio as portfolio diversifiers. Not to mention the other myriad factors for owning gold in today's world. Slide 12. So this for me has been one of the great reasons why I love Donlin. The leverage to gold, the leverage to what we see is 45 million ounces now in all resources with the potential for that to multiply along strike. The 45 million ounces is only 3 kilometers of an 8-kilometer mineralized belt, which itself is only 5% of the land package, 95% of Donlin is unexplored. That's going to turn around. We are now, for the first time, systematically going through our land package, we believe that it is possible, although this is a wildly forward-looking statement at the next [ Donlin ] could be at Donlin. The chance is that there's nothing else big there are very small. Having said that, even if nothing else was there, we do believe that we can see the existing resource multiply. But assuming never none of that happens, this is the leverage that we have to go -- and it shows NPV 5, which are perfectly fine. And it also shows NPV 0. And the reason why I say that is because up until the early 1990s, U.S. assets were valued at a 0% discount rate. I believe we're going to get back to that. If you have the right jurisdiction and you have exploration potential and you have so many of the other attributes that Greg will be describing in just a couple of minutes. I really do believe that we will be closer to the right of the right-hand side. But be that as it may, you can clearly see that the beauty of Donlin is that it gives you all the leverage, you could possibly want to gold, but in a jurisdiction that will allow you to keep it. At Donlin, you can sleep well at night and be exposed to tremendous good news while being short jurisdiction risk. And so with that, I'm going to hand the baton over to Peter Adamek to talk about our financial results. Thank you. Peter Adamek: Thank you, Tom. Turning to our operating performance on Slide 14. NOVAGOLD reported a fiscal 2025 4th quarter net loss of $15.6 million. This represents an increase of $4.7 million from the comparable prior year primarily due to higher site activity at Donlin Gold and higher general and administrative expenses. NOVAGOLD Fourth quarter results also reflect the company's second consecutive quarter with a 60% interest in Donlin Gold. For the full year, NOVAGOLD reported a net loss of $94.7 million during fiscal 2025, which included a $39.6 million noncash, nonrecurring charge for warrants issued as consideration for a backstop commitment in support of the Donlin Gold transaction. Excluding this onetime charge, general and administrative expenses during the fiscal 2025 were largely unchanged from prior year while Donlin Gold expenditures were $9 million higher due to the 2025 field program. On Slide 15, our treasury during fiscal 2025 increased by $13.9 million, which left us with $115.1 million at the end of the year. During the year, we closed a public offering and a private placement, generating net proceeds of $259.6 million, we also acquired an additional 10% of Donlin Gold for consideration and transaction costs totaling $210.1 million at the start of the third quarter of 2025. Corporate G&A cash spend during the year increased by $1 million versus prior year, and our share of Donlin Gold funding increased by $10.1 million due to increased site activity in 2025 and the company's 10% increased Donlin Gold funding obligation. Moving to Slide 16. As discussed on the previous slide, our treasury sits at a robust $115.1 million at the end of the fourth quarter of fiscal 2025. Our 2025 cash expenditures of $41.2 million were below our overall 2025 guidance by $0.8 million due to slightly lower-than-anticipated spending at Donlin Gold and marginally higher G&A costs at NOVAGOLD as a result of higher professional fees following the closing of the Donlin Gold transaction. Looking ahead to 2026, our anticipated expenditures for 2026 are approximately $98.5 million, which include $78.8 million for NOVAGOLD 60% of Donlin Gold expenditures and $19.7 million for corporate G&A. With that, I will now turn the presentation over to Greg. Greg Lang: 2025 was a very active year at the Donlin site. We completed an 18,000 meter drill program. Throughout this program, the safety record was impeccable, and we hired over 80% of our employees from villages in and around the Donlin mine site. The results from this program will be used to enhance our geologic modeling, resource conversion and geotechnical drilling to support the designs of the project facilities. We recently updated our technical report for regulatory compliance, pending the completion of the feasibility study. This report more than anything else really demonstrates the robust nature of the mineralization at Donlin. We're also very active in the communities this year. With the renewed progress at the site, it garnered a lot of interest. We hosted many community visits, regulatory visits as well as additional analyst tours. So a very active year at the site. Our team in Alaska also finalized shared value statements with additional villages, bringing the total to 20. We completed a restoration program at Snow Gulch. And Enrique Fernandes, one of the Donlin employees was recognized by his peers for his contributions to misundertaking. Turning to the next slide. What I really want to highlight here is just to remind everybody, we have completed the federal permitting process. and we have substantially completed the state permitting. We're one of the few projects that is not relying on permitting and the decisions impacting the timing are solely in the hands of the owners. As shown on Slide 20, we continue to support the state and federal agencies in defending the permits they have issued. The court rulings to date have validated that the agencies did a thorough job preparing the environmental impact statements and the associated permits. We're continuing to advance the design of our tailings dam and other water retention structures. This work has been submitted to the regulatory agents in Alaska, and we expect them to be responding in the near future. Our federal permit, turning to the next slide was remanded for a small additional study by the courts. This requires a supplemental EIS. During the permitting, we evaluated a tailings release and the court asked that we study additional releases. This work is well advanced, and this supplemental EIS has been incorporated into the FAST-41 program. This is a program that creates schedules and deadlines for the agencies to follow in processing a permit. It doesn't change anything in our designs, but it just focuses the agencies on getting this work done in a timely fashion. My next few slides will talk about why one might consider investing in NOVAGOLD. Donlin is -- it is just simply a unique asset in terms of its production profile, it will average over 1 million ounces a year in a mine life of almost 3 decades. There are many mines in the industry of this size anymore. At 40 million ounces, we've got a huge endowment at 2.25 grams, great grade for an open-pit deposit the exploration potential at Donlin is tremendous. We know the ore body is open ended at strike at depth and along with 3 kilometers of the 8-kilometer gold-bearing system has only likely been explored. When the time is right, we will resume exploration on the project. We also know that there's tremendous potential on our landholdings at Donlin. The area of the known mineralization represents about 5% of our land holdings are. Alaska is a great place to do business. They've got a well-established, traditional and responsible mining and are the second largest gold producing state in the U.S. Another great factor about Donlin, it is located on private land owned by 2 native corporations. As I mentioned earlier, our permits are in hand, and we're wrapping up the state permitting. We've maintained a great environmental and safety record at our site, and we're committed to responsible mining. The team at NOVAGOLD has the expertise it takes to bring a project like Donlin into fruition. Moving to the next slide. When you look at the other development projects that are being advanced in the industry, the output of them is less than 0.5 million ounces a year. Clearly, Donlin would be far and away the largest new gold mine to be built. Its first 10 years will produce about 1.3 million ounces a year, truly in a class of its own. Grade is also a very key attribute at Donlin. The industry grades are approaching a gram per tonne. At 2.25 grams, Donlin is twice that. And it's that grade that gives Donlin very competitive cash costs. And this slide just highlights the potential along trend. The ACMA, Lewis deposits are less than half of the 8-kilometer belt. We've got gold bearing drill holes all up and down the trend, and we will resume exploration when the time is right. This year's drill program included results of over 26 grams per ton demonstrating the quality of the resource and the potential for significant grades when we continue exploring. Moving to the next slide. We're up in Alaska. We've been there for many years. We're very comfortable operating in the state. It's got a great regulatory environment. There is a responsible active mining industry in Alaska, and we're really privileged to be there. When you look at the jurisdictional risks of other mining jurisdictions, Alaska is third globally on the Fraser Institute Index. As I mentioned earlier, we are on private land. Calista Corporation owns the mineral rights and TKC owns the surface rights. Both of these entities have been stance, allies and advocates for the project as we navigated the permitting process. We have life of mine agreements in place with both of these entities. Donlin will provide a meaningful impact to these businesses, and they look forward to the economic opportunities that the mine will bring. Another development in Alaska that we're following very closely is the planning to bring gas down from the north slope into the Cook Inlet. This is being championed by Glenfarne, and they are working to secure funding to advance this. Gas resources up in the North Slope have been known for many years, but it was the difficulty getting them to market was the challenge with the Administration's new focus on U.S. energy independence. I think the time is getting close to bring this gas into the Cook inlet, produce in Alaska as well as the export markets. This is very important to us, and I think you might have noticed we have signed a nonbinding letter of intent with Glenfarne, the champion of this pipeline project. The parties will advance discussions on a supply agreement with Glenfarne as their plans materialize to build the gas pipeline from the North Slope. NOVAGOLD enjoys strong institutional support. We've been very fortunate to have a shareholder base that's been with us many, many years. The top 10 shareholders represent almost 2/3 of our outstanding stock. It's great to have such blue-chip investors behind us. We value their support and the long-term relationships that have guided us for many, many years. Turning to the next steps at the project and some of the catalysts that will be coming up. Within the next few weeks, we anticipate that we will announce an engineering firm to complete the bankable feasibility study. This work is expected to take about 18 months and the firm will be certainly well known to many of you that follow the construction activities in the mining industry. We've also hired Frank Arcese. He is the project manager. He brings extensive experience to the project, and we're very fortunate to have a man with his background. We will also be exploring future sources of financing as we advance the feasibility study. Looking ahead, we look forward to updating all of our shareholders and stakeholders on the progress we're making. We'll now open the line for questions. Operator: [Operator Instructions]. The first question comes from Raj Ray with BMO Capital Markets. Raj Ray: I have 3 questions, if I may. The first one is, well, congratulations on getting the nonbinding LOI signed with the Glenfarne. I know it's early days of negotiations, but is there anything you can share with us with respect to what's the structure of that agreement that NOVAGOLD would like to have? That's the first. The same question is on your RFP for the BFS that you have sent out of various engineering funds Look, I know it's -- there's a lot of good engineering firms. But given the fact that commodity prices across the board are running, it's also important to have the best teams within those engineering firms. So as you are starting to talk to them what's the feeling you're getting about the capacity they have and your ability to have not only the top form but also the best team within the firm? And my last question is on the technical report update. It's great to have that very informative. I did see that there's a slight pickup in the strip ratio. I just wanted to get a sense whether some of the geotech drilling you have done, if that's informing that increase in [indiscernible] or if you can share any additional details? Greg Lang: All right. Raj, Well, thank you for joining the call this morning. I think I could cover all your questions. Beginning with the pipeline and our discussions with Glenfarne, it's a clean slate. Glenfarne is quite interested in all aspects of what we're doing. They've expressed interest in building and operating the pipeline for us. And we think that's really a logical piece of the project to carve out. So we're really just, like I said, an open slate where discussions will continue. And I would watch Alaska for the next month or so and look for announcements on their success in financing the pipeline. And it's important to note that this is not a new project, and it's already permanent, and it will follow the existing Trans Alaska oil pipeline. So very exciting developments there, and it's great that Donlin has a seat at the table as their plans advance. On the RFP for the feasibility study, we were very select in the firms that we brought into the bidding process. We only wanted to consider firms that have one experience to take on a project of this scale and the capacity of people to do it. And so we've kept the field very narrow, and we anticipate releasing that news in the next few weeks. But I think part of the selection process addressed the buried issue you talked about, and that was we went with the firm that did have the capacity to take on a big project. And finally, on the technical report, the strip ratio has ticked up a bit, and that's driven by 2 factors. I think, one, we've taken some areas of the pit, we flattened the slopes a little bit. And we've also taken a little different view of dilution. And these are areas that we will revisit when we are advancing the model that will support the feasibility study. Operator: The next question comes from Soundarya Iyer with B. Riley Securities. Soundarya Iyer: Congratulations on the quarter. I just have 2 questions. One is on the bankable feasibility study. So I'm trying to understand like how the current budget, the $78 million that has been budgeted for the upcoming Donlin activities. How is that allocated between like feasibility work and the ongoing exploration. My actual question is how do we look at it as -- do we look at it as a single year budget? Or is it like through the feasibility study that's going to take 12 to 18 months. Greg Lang: Well, the work program at Donlin in 2026 will be very active. The bankable feasibility study will obviously be a large component of that. In addition to the bankable feasibility study, we're also in final discussions on firms on several unique parts of the project. For example, these would be the autoclaves. There's some companies out there with deep experience in this processing technology. So we'll have a separate contract for that as well as the gas pipeline and other components of the infrastructure. Those are also included in the Donlin budget for next year. We continue to be very active in the communities, and we've increased our budget in the communities to reflect the increased activity as the project is moving forward. Of course, it's getting more and more interest. So we're going to really be out in the villages and throughout the state and in our nation's capital, actively talking up the project and keeping everybody informed of our plans. So that's the main components of the Donlin budget. The feasibility study, we've guided will take about 18 months to complete, and we'll be -- once we announced the firm that we've selected, we'll update everybody on the schedule. Soundarya Iyer: Just one more from me. I mean, there's a lot of potential in the Donlin land package with just like 5% explode so far. So as we move into feasibility and then eventual construction , how are you guys thinking about advancing that exploration optionality in the near term. Will that be a confident event along with the feasibility study? Greg Lang: We will -- last year, we did a pretty extensive soil sampling program along the known mineralized trend. As I noted earlier, and that's just a very small part of our landholdings at Donlin. So we will be working with our partner developing plans for future exploration. But right now, really, it's all hands on deck getting the feasibility study kicked off. And once we get that work well underway, we'll turn our attention to the exploration and other matters. But certainly, the potential is vast at Donlin, and we look forward to updating everybody on that work. But I think the immediate potential exists in and around the new ore bodies. So it'll be an exciting time to be exploring it up in Alaska. Melanie Hennessey: Thank you. We have a few questions coming in from the webcast, and I'll start with a question coming in from [ Eric Schein]. Is the tailings design now effectively locked or still at risk of material change? Greg Lang: That's it. That's a good question. Let me -- first off, remind everybody that the tailings dam at Donlin is a downstream rock construction anchored into the bedrock. It's also a fully aligned structure. And that's really -- that's state-of-the-art. That's the most stable dam being built and the liner is just added protection. So the design of the tailings dam is really not impacted at all. It's finalized and we've submitted the design packages to the state. I don't anticipate any changes at all. Melanie Hennessey: Great. The second question, what are the project economics, [ NPV and IRR ] that you're targeting as part of the DFS? Greg Lang: I think that's -- that will be addressed in the feasibility study sensitivities. Looking at our recent technical report, and I encourage everybody when they have time to give it a review. The economics on the gold price of about $2,100 were double-digit rate of return. And it's -- you don't have to stretch your imagination from 2,100 to where we sit today, that's almost -- it's better than a twofold increase in price. So I think the economics at much lower gold prices are robust. And as you've noted in all of our presentations, we have tremendous leverage to upside and the current projects have close to an amazing cash flow generator. Melanie Hennessey: The next question is for Tom. It's actually more of a statement from Matt Kovacs, Dr. Kaplan. I have been listening to you at NOVAGOLD for many years. How does it feel to be right and see your predictions and the price of gold coming to fruition? Thomas Kaplan: It's not really a function of satisfaction of being right. Obviously, being right is essential for the way that we do business. We always start with a macro view on an underlying commodity or as I would put it in the case of precious metals currencies, and the reason why we start with macro is for the good reason that I'm not a mining guy. I've been in the business for 33 years. And I've surrounded myself with the best of the best geologists, people who've been there and done that, like Dr. [ Larry Buchanan], you know who's still our Chief Geologist since 1994, or Greg Lang and Richard Williams, who both brought in [ Cortez ] and whether be on time, on budget when they were at Barrick. If you surround yourself with great people and you have assets that have superlatives attached to them, you're going to be right. The question is how long does it take? If I have that kind of conviction, which some was metaphysical certitude about a thesis like I have had with gold and silver. And I have the right vehicle with which to be able to get the greatest leverage to that, especially today, in a jurisdiction that allows you to keep the fruits of the leverage. I can hold forever. I don't get frustrated. So by the time people come around to my point of view, it's not like I feel of indication. It's -- well, I'm glad that they came around and that offers me the opportunity to reward the people who've been with us with outsized gains. To me, business is personal. I mean I have multiple passions in life. But over the last 33 years, we've only really focused on maybe half a dozen, 6, 7 assets. But if you look at our track record from first investment to exits, the annual track record is into the 80s of percents. And that was actually over 100% around the time of the financial crisis. But the last 10 years or so have been almost like watching paint dry in the mining industry. But fortunately, the fundamentals always well out. I've never had a doubt about gold. And if I don't have a doubt. And by the way, I'm always questioning myself, I'm always saying, have the circumstances changed. In fact, in 2007, when I made that statement that a private equity conference that I was selling my energy company, fastest-growing natural gas producer in North America to go into gold and silver. And remember, I mean, the [ Petro ] state, and they said, what is your target? And I said my first equilibrium level is between 3,000 and 5,000 and then the next question was a very, very intelligent one, which was what can go wrong with your thesis? You obviously have so much conviction. And I said for the first time in my life in my career, I can't find how I'm wrong, and that scares me. And for years, I was looking around for people to challenge me, like an ancient Greek with a light, [indiscernible] with a lamp looking for an honest man. And I was never persuaded out of my position and God only knows -- or excuse me, heaven knows. There is nothing that has happened either within the realm of gold specifically or the macro circumstances in which we find ourselves, that has done anything to dissuade me from my firm beliefs which are, as you've seen, that gold will do as the Dow has done in terms of the breadth and long waves and sweep of the bull market. And it may happen much faster than the Dow for reasons that are almost self-evident at this point. So it's not really so much about being right. It's about doing the right thing. And candidly, gold because I felt it was the best way to protect my family's wealth. And the fact that we express that through mining companies means that other people can join in if they like what we're doing. But first and foremost, it was out of personal interest. And so being right is not about -- growing about it. It's about knowing that we allocated capital properly for our kids. I hope that answered -- well, you made a statement, but I hope that, that just gave a little bit more context to it. It's not so much about being right. It's about doing the right thing. And that can sometimes seem different. Melanie Hennessey: The final commentary is worth sharing, and I'll just read it. It comes from the line of [ Jim Jamieson ]. Mr. Lang, Dr. Kaplan and Mr. Paulson, my wife and I have been NOVAGOLD shareholders and related Trilogy shareholders since 2011. I have been a true believer from the get go. My wife, not so much. Thank you all for saving my marriage, just kidding. Thank you for your blood, sweat and tears, your extraordinary efforts, patients, resilience and foresight have brought us this far. We can't wait for the next 8 innings. Best wishes [ Jim ]. Thomas Kaplan: Thank you, Jim. You certainly made our week. Greg Lang: I'm glad it worked out for you. Melanie Hennessey: That ends our Q&A. So back to you, Aisha. Thomas Kaplan: All right. We thank you for joining our call. Operator: Go ahead. Thomas Kaplan: Thank you, everyone. Greg Lang: Thank you. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good morning. Welcome to Webster Financial Corporation's Fourth Quarter 2025 Earnings Conference Call. Please note that this event is being recorded. I would now like to introduce Webster's Director of Investor Relations, Emlen Harmon, to introduce the call. Mr. Harmon, please go ahead. Emlen Harmon: Good morning. Before we begin our remarks, I want to remind you that comments made by management may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor language in today's press release and presentation for more information about risks and uncertainties which may affect us. The presentation accompanying management's remarks can be found on the company's Investor Relations website at investors.websterbank.com. I'll now turn the call over to Webster Financial's CEO, John Ciulla. John Ciulla: Thanks, Emlen. Good morning, and welcome to Webster Financial Corporation's fourth quarter and full year 2025 earnings call. We appreciate you joining us this morning. I'm going to start with a quick synopsis of the year. Our President and Chief Operating Officer, Luis Massiani, is going to provide an update on operating developments, and our CFO, Neal Holland, will provide additional detail on financials before my closing remarks and Q&A. Webster continued to excel from a fundamental perspective in the fourth quarter, and we entered 2026 on our front foot. Our strategic efforts in 2025 largely focused on execution, and our performance was consistently strong over the course of this year. Despite an uncertain macro backdrop at times, we held our focus on delivering for our clients and enhancing the operating capabilities of the bank. On a full-year basis, Webster generated a 17% ROTCE and a 1.2% ROA. Our EPS was up 10% over the year prior, while we grew loans 8% and deposits 6%. Our tangible book value per share increased 13% over the prior year while accelerating capital distributions to shareholders by repurchasing 10.9 million shares. We produced strong financial results while continuing to invest in our nontraditional banking verticals, including HSA Bank, Mitros, and InterSync, as we look to fortify and advance the strategic advantages these businesses provide. We also aggressively remediated the two isolated pockets of our loan portfolio with less favorable credit characteristics, which optimizes our balance sheet and enhances forward profitability. One illustration of this initiative is the 5% decline in commercial classified loans relative to the prior year-end. The macroeconomic backdrop remains supportive of asset quality performance more generally as we continue to see solid asset quality trends from our portfolio at large. We entered 2026 with robust capital levels and a uniquely strong funding and liquidity profile. Diverse asset origination capabilities, consistent credit performance, robust capital generation, and a strong risk mitigation framework enable the sustainable and steady growth of the company. I'll now turn it over to Luis to review business developments. Luis Massiani: Thanks, John. Our performance in the fourth quarter echoed the solid results that we delivered through the year. Our clients continue to navigate well through the macro environment, and client activity remained robust in terms of both loan growth and lending-related fee income. Limited payoff activity also contributed to better-than-expected loan growth in the fourth quarter. Growth was generated across a broad range of asset classes, highlighting the diversity of origination capabilities that is a key strength of our franchise. We saw significant progress on credit remediation as classified commercial loans were down 7% and nonperformers were down 8%. Net charge-offs were 35 basis points. The trajectory of problem assets should continue to decline, with some quarters decreasing more than others, as was the case in 2025. Following the strong year of deposit growth in which our commercial, consumer, health financial services, and InterSync businesses all contributed to our performance, we see continued opportunity to grow across our diverse funding platforms. While still early stages, Fram's plan participants in Affordable Care Act health care plans have started opening HSA accounts. We enhanced our existing mobile and web enrollment systems to better serve ACA participants. We are seeing increased account openings in our direct-to-consumer channel, which should accelerate through the rest of the year. Expectation for deposit growth from HSA eligibility for bronze and catastrophic plans is unchanged. We believe newly HSA-eligible plan participants will drive $1 billion to $2.5 billion in incremental deposit growth at HSA Bank over the next five years, including $50 million to $100 million of growth in 2026. The acceleration in growth will be gradual as newly eligible enrollees in the ACA plans first recognize and then adopt HSA accounts. We're also closely watching health care policy development as there is growing appetite in Washington for a number of potential legislative actions that would enable HSA Bank to help a significantly greater portion of Americans manage their health care saving and spending needs. This includes the potential for unpatched provisions in last year's reconciliation bill to now be passed and proposed legislation that could direct some ACA subsidies directly into consumer HSA accounts. The outlook for deposit growth at Mitros also remains very strong. A greater portion of settlement recipients are recognizing the benefits of professional administration. We are adding sales capacity and leveraging Webster's scale and technology to further enhance the member experience. I'll turn it over to Neal. Neal Holland: Thanks, Luis, and good morning, everyone. I'll start on slide five with a review of our balance sheet. Balance sheet growth continues at a solid clip in the fourth quarter, with growth in both loans and deposits. Assets were up $880 million or 1% in the fourth quarter. On a full-year basis, they were up just over $5 billion or 6.4%. We continue to operate from a strong capital position relative to internal and external thresholds. During the fourth quarter, we repurchased 3.6 million shares. Loan trends are highlighted on slide six. In total, loans were up $1.5 billion or 2.8%, and on a full-year basis, were up 7.8%. Growth was diverse and predominantly driven by commercial loan categories, including commercial real estate. We provide additional details on deposits on slide seven, where total deposits were up 0.9% over the prior quarter. While we did see a seasonal $1.2 billion decline in public funds, we also saw growth across each of our business lines and backfilled the seasonal public fund outflows with corporate deposits. Deposit costs were down 11 basis points relative to the prior quarter. While deposit pricing remains competitive, we should see some repricing accelerate in the first quarter driven by seasonal factors and recent repricing efforts. Income statement trends are on slide eight. There were a number of adjustments this quarter. The net effect was a loss of $8 million to pretax income and $6 million to after-tax income. Excluding these, adjusted PPNR was down $4.9 million relative to the prior quarter, with slightly better revenue offset by expenses related to current and future growth. Adjusted net income was slightly higher than the prior quarter on a lower provision and tax rate. Adjusted earnings per share additionally benefited from a lower share count. The adjustments to GAAP earnings are highlighted on the following slide. On slide 10 is detail of net interest income. We saw a modest increase in NII as loan growth remained solid through the quarter, and we saw more limited payout activity than anticipated in the quarter-end. Better-than-expected loan yields also help support the net interest margin, which was a couple of basis points better than our most recent guidance. Our December and spot NIM were both 3.35% for the quarter and December. As illustrated on slide 11, we remain effectively neutral to gradual changes in short-term interest rates. On slide 12, linked quarter adjusted fees were up $2.7 million with contributions from increased client activity, direct investment gains, and the credit valuation adjustment. Slide 13 reviews noninterest expense strengths. Increases in expenses quarter over quarter were largely related to growth and growth potential, with higher incentive accruals, investments in expanded opportunity at HSA Bank, and investments in technology. Slide 14 details components of our allowance for credit losses, which decreased $9 million relative to the prior quarter. The decline was driven by charge-offs of loans previously reserved and improvements in underlying credit trends. Those improving trends are highlighted on the following slide, which shows that nonperforming assets were down 8% and commercial classified loans were down 7%. Criticized loans were also down 6%. Charge-offs for the quarter were 35 basis points. Turning to slide 16, our capital ratios remain above well-capitalized levels and in excess of our publicly stated targets. Our tangible book value per share increased to $37.20 from $36.42 in the prior quarter, with net income partially offset by shareholder capital return. I'll wrap up my comments on slide 17, with our outlook for full year 2026. We're anticipating loan growth of 5% to 7% and deposit growth of 4% to 6%. The midpoint of the guide has expected revenue of $3 billion for 2026. On a GAAP basis, we expect net interest income of $2.57 billion to $2.63 billion, which assumes two 25 basis point Fed funds cuts in June and September. We expect fees to be $390 million to $410 million and expenses to be $1.46 billion to $1.48 billion. While noting the '26 expenses will likely be a few percentage points higher than adjusted expenses in the fourth quarter, primarily due to seasonal impacts of payroll taxes, annual merit, and benefit costs. With that, I'll turn back to John for closing remarks. John Ciulla: Thanks, Neal. Our outlook for this year anticipates that we continue to drive growth that enhances our financial performance. As we also invest in and grow businesses that advance our strategic advantage in terms of attractive funding characteristics and asset origination capabilities, further building on Webster's substantial franchise value. We're in a unique period for the banking industry with positive momentum coming from macroeconomic and regulatory tailwinds. While we anticipate we will be a beneficiary of these dynamics, we will also ensure we grow while maintaining the resiliency and adaptability of the company. In terms of Webster's performance, 2025, our ninetieth year, it was a record year for the bank in terms of milestones and financial achievements. And we're positioned to prosper into the future. The efforts of those in our organization in the past several years have created a bank with a differentiated business model that organically and sustainably outgrows and outgurns the banking industry at large. Does so with a focus on risk-appropriate returns and at the same time is investing in the well-being of its communities at large. Thank you to our colleagues and clients for their contributions to our success in the fourth quarter and for the full year. And what it means for the future of the organization. Thank you for joining us on the call today. Operator, we'll take questions. Operator: Thank you. We will now begin the question and answer session. We also ask that you limit yourself to one question and one follow-up. For any additional questions, please re-queue. Your first question comes from Jared Shaw with Barclays. Please go ahead. Jared Shaw: Hey, everybody. Good morning. Good morning. On the loan growth side or outlook, can you just give an update on how the partnership with Marathon is influencing that and, you know, maybe where things stand there now that we've had a couple of quarters? John Ciulla: Sure. We're live, and we're operational. I would say we've not yet seen a material impact on loan growth trajectory in the sponsor business. I think we are having more swings at the plate just given the bigger implied balance sheet. So we remain optimistic that it was a smart strategic move, Jared. We promised people that this quarter we would give you a little indication of what it meant financially. It's obviously baked in, and it's not material. We expect a couple of million dollars in positive income resulting from the JV itself, meaning kind of returns, and everything we've quantified is in our loan growth forecast going forward. I think it could be an upside opportunity for us should we be able to get some more wins in the sponsor business. But we're kind of, I would say, relatively conservative in terms of our view of the impact on both loan growth and our financial performance in '26. But live operational, we have originated loans for the JV. As I said, we've been more competitive in competitive situations with borrowers. We just haven't seen a real change in the dynamic in the sponsor book as of yet. Jared Shaw: Okay. Thank you. And I guess as a follow-up, just looking at the expense trends and some of the investments you called out in systems and taking advantage of the bronze opportunity, is most of that marketing and, you know, sort of client outreach, or is there any system change that you're contemplating to, you know, to bring on more of those individuals? Luis Massiani: No. It's mostly marketing, Jared. It's, you know, as we've talked about the opportunity in the past, a large part of what we're doing is that we have to identify who those individuals are, which is very different from how our sales channels have worked historically because this is not an employer business, but a direct-to-consumer business. And so the vast majority of the investment in the technology is done. And we feel very good about the capabilities of what we have there. You are going to continue to see us investing in identifying those individuals and motivating and educating those individuals to become HSA holders. So that's where the larger investment dollars are going to work in the fourth quarter and will continue to, you know, you'll continue to see in 2026. Jared Shaw: Great. Thanks. John Ciulla: Thank you, Jared. Operator: Your next question comes from the line of Mark Fitzgibbon with Piper Sandler. Please go ahead. Mark Fitzgibbon: Thanks, guys. Good morning. John Ciulla: Mark, let's suppose the category four threshold is lifted meaningfully sometime soon. I know you'll be able to reduce sort of that annual cost number by, pick a number, $20 million to $30 million. But I guess I'm curious, strategically, how that might change your plans for the company. John Ciulla: Yeah. It's a great question, Mark. And I wish we could give more specific numbers. I mean, I think you see in our guide of expenses that we're not anticipating the additional incremental $20 million of expense this year because we're able to either potentially avoid some of those expenses or certainly have more time to spread out those expenses into the future. So it's our anticipation of changes is already impacting our forward look at investment, and we've already pivoted in terms of, you know, not pedal to the metal in terms of getting ready for category four because we think it's highly likely that it'll be significantly modified in the future. So I think that's important, and I think it gives us a lot of flexibility going forward. I think from an overall strategic perspective, it really doesn't change kind of the way we view life in terms of our growth trajectory, our organic path forward. So I would say it doesn't have much of an impact on the way we strategically look at growing the bank. It's really giving us the opportunity to either increase profitability in the short term or reposition dollars that otherwise would have been invested for category four preparedness into revenue-generating investments, which is obviously the goal. So I think that's the way I would characterize our view of category four. Mark Fitzgibbon: Okay. Great. And then separately, Neal, I wonder if you could help us think through the NIM trajectory in the early part of 2026. Neal Holland: Yeah. So we ended the quarter and December at a NIM of 3.35%. We expect that exit rate to maintain throughout 2026, and so we should see kind of a 3.35% for the full year. Now, obviously, there's variability there depending on what happens with the curve and other items, but we think 3.35% is a good midpoint guide for next year. There will be the normal seasonal factors. You know, we'll tick up a few basis points likely in Q1, and then that will come down a little bit in Q2. And pick back up in Q3. But I would be thinking in that mid-3.30s range for our go-forward NIM expectations for 2026. Mark Fitzgibbon: Thank you. John Ciulla: Thank you, Mark. Operator: Your next question comes from the line of Matthew Breese with Stephens. Please go ahead. Matthew Breese: Hey, good morning. Good morning. John, at a recent event, you noted that you and the Webster team can be a bit more aggressive on deposit pricing. Hoping you could provide just a bit more color there. How much more room do you see to lower deposit costs absent rate cuts this year? And if you have it, what was the period-end cost of deposits? John Ciulla: Yeah. I'll let Neal give you the numbers as usual. But I think we did we were a little bit more aggressive in the fourth quarter. There is still significant competition, particularly in our geographic footprint. And so I think we're kind of taking a very thoughtful and deliberate approach, and I'll let Neal kind of talk to you about what transpired in the quarter and how we're looking at pricing going forward. Neal Holland: Yes. For those of you who listened to our last public comments, we guided down NIM for the fourth quarter by a few basis points. And when we had the mid-December cut, we made more aggressive moves than some of our last cuts. And so we had nice pricing down, and we ended December with an average cost of deposits at $1.91 versus $1.99 for the quarter. So a nice trajectory down there. As John said, competition remains strong. But we did have some positive movement on that last cut and are continuing to look for ways to optimize our overall customer deposits. Carrying that into kind of beta assumptions, we're assuming for kind of this cycle through the end of next year, a 30% overall beta, which is a little bit higher than we are today, but that's how we're looking at deposit pricing within our guide. Matthew Breese: Great. And then just thinking about loan growth as it relates to reserve, maybe first, what are current spreads on commercial real estate and C&I? And do you expect to grow in some of these lower-risk sectors in 2026, resulting in further reductions in the, you know, reserve as a percentage of loans? John Ciulla: Yeah. That's another interesting question. Credit spreads have tightened significantly. I was talking with our Chief Credit Risk yesterday, and we've seen 30 to 50 basis points over the last eighteen months or so compression in spreads, particularly in kind of commercial real estate assets that have gone kind of stabilized down to 180 basis points to 200 basis points over reference rates. So I do think you're seeing in our and what you saw in our provisioning this quarter, Neal mentioned the fact that we resolved some problem assets and that sort of continues to release. But you're right in that what we've been adding in terms of stabilized commercial real estate, in terms of fund banking, in terms of some of the other asset categories, public sector finance, tend to make the weighted average risk rating of the overall portfolio better. And so I think you'll continue to see that. Quite frankly, and we've mentioned it, we'd like to see the sponsor business at some of our verticals that have higher risk-return profiles and higher yields grow more. So it's not all by choice. It's also by what the market's giving us. But I think if you see continued benign credit and you continue to see trend lines in where we're growing assets, I think your supposition is correct that we would have less risk in the overall portfolio and we could still have room in that reserve as we move forward. Matthew Breese: Thank you. John Ciulla: Thank you. Operator: Your next question comes from the line of Casey Haire with Autonomous Research. Please go ahead. Jackson Singleton: Hi. Good morning. This is Jackson Singleton on for Casey Haire. Just starting out, I hear your thoughts on 11% annualized growth in 4Q and really just strong growth in all 2026. It feels like the guide is still a little conservative. So just wondering if you can maybe provide some thoughts on kind of why the 5% to 7%. John Ciulla: Sure. You know, I do think that there was and Neal mentioned the fact that there were lower payoffs than we had anticipated in the fourth quarter. And so I think if you normalize that, we feel kind of our growth was a little bit less than the headline number was. I think the other dynamic here is we've talked a lot about making sure we maintain our profitability and our returns as we move forward. And so I think one of the things that Luis and Neal and I and the rest of the team have been doing is spending a lot of time thinking about really deliberate capital allocations and looking at what businesses are going to continue to grow franchise value in the long term. We may be deemphasizing some businesses and really looking at kind of core franchise building full relationships. So I think when you put everything together, as I said earlier, I think we do anticipate continued competition from private credit in the sponsor group, although the moves we're making hopefully will get a little bit more growth out of that business than is in our numbers. So that could help us surprise to the upside. But I think we think we can grow loans 5% to 7% in a very profitable manner, continue to show at or better than market growth over time, and do it profitably. So we think that's the right number for growth. Could we outperform that if the economy continues to kind of along and we get a few breaks with respect to M&A activity and then the sponsor book? Yes. But we think this is our best guess of optimal growth and profitability mix. Jackson Singleton: Got it. Thanks for that. And then just my follow-up is on loan-to-deposit ratio. So the deposit guide, the midpoint of the deposit guide's a little bit lower than the midpoint of the loan guide. So just wondering maybe is there any kind of ceiling for the loan-to-deposit ratio that you guys wouldn't want to go past? And then maybe how should we think about the mix of deposit growth in 2026? Neal Holland: Yeah. I'll start that one. We don't have a formal ceiling that we're looking at. We are in the low 80% range. I personally believe sitting in the CFO seat that kind of in that low to mid-85% range is the optimal place to be. So I would be surprised if we went over 85%, and we tend to stay more in that 80% to 85% range. On the deposit growth side in the mix, the mix should be fairly similar to how we've grown loans this year. We are expecting a little bit more on the HSA side from the bronze opportunity that we've talked about. We expect continued strong mid-20% growth from our Amitros business and then similar growth rates across the board in the other categories. Jackson Singleton: Got it. Okay. Perfect. Thanks for taking my questions. John Ciulla: Thank you. Operator: Your next question comes from the line of Chris McGratty with KBW. Please go ahead. Chris O'Connell: Hey. Good morning. This is Chris O'Connell filling in for Chris. Hey, Chris. Hey. Just wanted to start off just quickly on the balance sheet on the liability side. On the end-of-period basis, there seemed to be, you know, a bit of movement outsized here and there on the borrowing side. Anything driving that outside of seasonality in kind of the movement with the sub-debt? Neal Holland: The quarter? Nothing unusual. I guess I would say the one unusual factor relates to what you mentioned, the sub-debt. So throughout the quarter, we were a little bit elevated on the sub-debt side with long-term debt just over, I think, we're at $1.1 billion, slightly over $1.1 billion, and we now sit at $650 million back where we wanted to be after we redeemed two outstanding notes. So we also have some seasonality in the quarter where I mentioned in my prepared remarks, we had $1.2 billion of public funds leave. Those are already starting to flow back in Q1, just those seasonal trends. So, you know, we offset some of that with broker deposits and FHLB advances. But during Q1, we'll see, as I mentioned, those public funds flow back in and the broker deposits reduce back down. So no, nothing unusual there. Just some transactions that tie into seasonality and tie into our September sub-debt issuance. Chris O'Connell: Okay. Great. Thank you. And then, you know, on the fee guide, if I'm, you know, reading the, you know, numbers correct on a year-over-year basis, it's a little bit of a wide range, 1% to nearly high single digits. Can you just maybe frame some of the drivers and growth for next year? And kind of what would push you towards, you know, the lower or higher end of the upside? Neal Holland: Yes. We've talked about our fee earnings having kind of four major areas in the past. And on our kind of health care services, our loan business, and our deposit business, three of the main businesses, we kind of expect that steady, you know, 2% to 4% growth from client activity. What really drives some variability in our fees are some of the unusual categories. When we look at BOLI, when we look at our CBA, and when we look at some of our direct investments, which have been very for us, but do have some volatility, leads us to leave a little bit wider range on our fee guide just because of that last 25% and some of the lumpiness of when those flows come in. Is how I would address that one. Luis Massiani: Yeah. I'd add one more thing there is the, you know, to the place where you see a little bit of seasonality and volatility, but where we saw a lot of good performance in the third and fourth quarter and the back half of this year was in loan-related fees. So we actually did see with the, and that's been pointed out in the call, with the higher origination activity that we saw and the growth that we saw in C&I and in CRE, we do get a fair amount of, you know, swaps, syndications, and FX business as well. And so what could potentially move it to the higher end of the range is if we continue to see good momentum in those, you know, kind of, we'll call it, the larger commercial asset classes. Then we feel very good that, you know, '26 should be a good year for loan-related fees, and that could potentially move it a little bit higher towards that high end of the range as well. But tough to forecast those because it is very much driven by what overall origination activity is going to be. So it's but it's a good opportunity. Chris O'Connell: Thank you. Great. Operator: Your next question comes from the line of David Schiavarini with Jefferies. Please go ahead. David Schiavarini: Hi. Thanks for taking the questions. Wanted to start on HSA. How did the open enrollment season go? I know that normally leads to a nice bump in deposits in the first quarter. Luis Massiani: Yeah. David, so far so good as I were characterizing it. So we're slightly ahead of where we were last year. We've opened up approximately about 15,000 more accounts than what we had at this point in 2025. And, you know, total account opening so far about are just shy of 250,000. So we had, as we mentioned on prior calls, you know, during the, you know, course of the year, we've had a fair amount, we made a fair amount of investments on just broad-based client experience, you know, new technology, new investment experience, that led to some nice client wins. Obviously, it's a competitive market, so we had some losses as well. But net-net, the client wins have outweighed the client losses on the employer side. And so, therefore, we've seen some, you know, some nice momentum on, you know, account opening. And so we think that it should be, it sets up pretty well for having good performance, and we should be slightly ahead of where we were in 2025, you know, when you'll see, you know, for first-quarter results. What we haven't seen yet and we're still waiting on is on the direct-to-consumer side. So the, you know, we had, guided to the, you know, the new ACA opportunity to be a slow-moving target, I guess, that's going to take some time for us to play out. We've seen account openings that are faster in our direct-to-consumer channel as of the, you know, through this date, you know, last year. So we have seen growth, but we have not yet seen, you know, the type of growth that we think we're going to see over the balance of the year. So we should see the direct-to-consumer channel, you know, kind of increasing and accelerating growth in account opening should accelerate over the course of the year, and we should be able to continue to maintain the good positive momentum that we have in the employer channel as well. So we feel good about the business and where it is today. David Schiavarini: Great. Thanks for that. And then shifting over to capital management. Nice uptick in the buyback activity in the fourth quarter. Can you talk about the pace looking forward on the buybacks? And I see your CET1 is 11.2% with the near-term target 11% and long-term target 10.5%. Can you talk about the timing of bringing that CET1 down? John Ciulla: Sure. I think our kind of capital strategy from the top of the house remains the same. We look to invest in organic growth, and we're still looking for tuck-in acquisitions to enhance and supplement our health care verticals. And if those aren't available to us, we obviously look to return capital to shareholders in the form of dividends or buybacks. I think we think that you could see another year like you saw in '25 with respect to share repurchases as we move forward. As it relates to changing from our short-term to our long-term 10.5% target, I think you see that the industry en masse is kind of getting closer to pivoting, and you've seen some people announce. We go through at the end of the first quarter and into the second quarter our annual stress testing and capital management activities. And I think, you know, we're more likely than we were last year to feel comfortable to start to move that thing down after we go through that exercise. So I think we're a couple of quarters away from giving you a little more specificity on moving that down. But we certainly feel more comfortable. The credit coast seems pretty clear. We've got some good economic momentum. So I think you'll continue to see us buy back shares. Absent other organic uses of capital. And I think we're getting more confident that we can start to reach that 11% CET1 ratio as we move through the year. David Schiavarini: Great. Thank you. John Ciulla: Thanks, David. Operator: Your next question comes from the line of Daniel Tamayo with Raymond James. Please go ahead. Daniel Tamayo: Thank you. Good morning, everyone. Good morning. Maybe we can start on the credit. I know that's not as pressing a topic as it has been, but new year, maybe just kind of reset expectations and give your latest thoughts on the office book and what that could look like through any further sales, etcetera, for the coming year. John Ciulla: Sure. I feel really pretty good overall. I mean, I think we nailed it, and I give credit to our Chief Credit Officer in terms of calling the inflection point. We've had three good quarters of underlying risk rating, migration trending. As you saw, we've materially reduced criticized class and nonaccrual loans. And so the overall credit profile, I think, continues to improve and be certainly well within our comfort levels. With respect to those two portfolios we've talked about over and over again, our office and our health care services, they still represent a large portion of NPLs and classifieds, which is sticky and frustrating, but also really portends to the fact that the vast majority of the $55 billion loan book is performing really, really well. The way I would characterize office, and this would also go to health care services, is that I think we have it pretty much ring-fenced. You know, we're about $720 million left in the office portfolio. There's a good amount that's performing as agreed. We've risk-rated it appropriately. We've got the appropriate reserves. And so we don't think it's going to be a big contributor as we move forward to kind of outsized nonaccruals or losses. We could see, obviously, more as we try and resolve some of the sticky nonaccruals we have now. We'll make the right calls in terms of loan sales or charges. But we feel pretty good about the fact that we can operate within that 25 to 35 basis point annualized charge-off rate. Obviously, when you're a commercial bank with big credits, that can sort of bump around a little bit as you've seen in the last several quarters. But we feel pretty good that we've kind of have a good handle on everything in there and that we don't see any significant deterioration in that portfolio. And the same goes with the health care portfolio, which is now down to, like, $400 million. So in aggregate, those two portfolios are roughly $1 billion. We've identified the problems that are in them. We've adequately reserved, and we're not as concerned to have contributions in big contributions and charges and NPLs going forward. Daniel Tamayo: Okay. Great. Yep. That's great color. Thanks. And then, you know, we've talked a lot about the deposit portfolio today. You know, the noninterest-bearing side, obviously, tied to commercial loan growth. But it really has continued to trend down for reasons that, you know, you're growing in other areas. You had a lot of growth opportunities, understandably. But that has kind of continued to trend down over the last few years, even in quarters. Just curious if you see a bottom from a mix perspective with noninterest-bearing anytime soon. Thanks. Neal Holland: Yeah. You know, I would answer that with two different directions. The first is saying that we are seeing a slowing pace and reductions in noninterest-bearing. For the full year, we were down just over $200 million. So we believe that we're very close to an inflection point there. Looking at it a little differently as an organization, we really focus on noninterest-bearing, including our health care services. You know, priced at 15 basis points. You know, where we had $450 million in growth this year. And so when we have a marginal dollar of marketing where we could put towards the Mitros or towards the HSA versus going out and competing head-to-head for a new consumer client, we tend to go in the direction of our health care services book, which is differentiated, and we have a strong opportunity there. So, overall, kind of look at those combined, and we do think for the pure, noninterest-bearing excluding health care vertical, we are close to an inflection point. John Ciulla: And I want to be clear that we still have a significant focus on driving core commercial and consumer relationships in noninterest-bearing accounts. We're investing in treasury management capabilities. We continue to push all of the line folks to make sure that they're deepening their share of wallet and that we're getting our share of operating business along with the loans we're making. I agree with Neal's comments, but I don't want that to be that we're not still focused on making sure that we're growing kind of core traditional consumer and commercial deposits. Daniel Tamayo: Great. Thanks for the color. Operator: Your next question comes from the line of David Smith with Truist Securities. Please go ahead. David Smith: Hey. Good morning. Hey, David. You had mentioned deposit competition was elevated in a lot of your geographic footprint right now. I'm wondering if you could just help us frame, you know, within your broader what areas are seeing more or less competition from a geography standpoint? Thank you. Neal Holland: Yeah. I would put it across multiple categories. When we look at consumer CDs, we've seen some of the large banks in our market maintain very aggressive pricing there, which were priced a little bit below some of those competitors at this point in time. On the direct bank, we don't have a large portion of our portfolio there, you know, $2 billion to $3 billion, but there's some offers still sitting out in the market, well over 4% where we moved lower. The commercial side continues to be competitive as always, especially in our market. So I would say it's generally across the board. We're seeing a competitive landscape. As we talked about, we did move pricing down at the mid-December rate cut, and we'll continue to be aggressive. But we do very much focus on that balance between liquidity and net interest margin, and we feel like we're in a good spot. But competition does remain strong in the market. David Smith: Thank you. Operator: Your next question comes from the line of Manan Gosalia with Morgan Stanley. Please go ahead. Manan Gosalia: Hey. Good morning, all. Good morning. You noted earlier on that loan yields were better this quarter than you anticipated. Can you talk about what's driving that? You know, you also mentioned the credit spreads have tightened. So it seems like the loan growth is coming in higher-yielding categories. I guess two-part question, is that right? And if that is, then what is baked into the flattish NIM trajectory that you just spoke about? Luis Massiani: Yeah. I'll take the first one for the first question, Manan, Neal can answer on the NIM. You know? So, no, I don't think that we said that loan yields were better than expected in the fourth quarter. It was actually loan payoffs. And so part of the kind of better performance that we saw from a loan growth perspective and just the overall stability that saw in the portfolio was driven by the fact that loan, you know, the expectations regarding loan payoffs with rate so forth did not turn out to be what we thought it was. So we actually better performances, so we were able to retain, you know, a larger, you know, larger percent of particularly of the real estate book, which was great. On loan yields, it's competitive out there. And so we've, you know, we've seen, similar to what we've talked about a little bit on the deposit side. We've seen a bottoming out in an inflection point where spreads for the most part have contracted to where they're going to contract. And part of the spread contraction that we've seen in new originations for us is driven by the fact that we've been focusing on higher quality, you know, just better more middle-of-the-fairway type of assets that are just by design gonna have a tighter credit spread than, you know, than things that are not middle-of-the-fairway, not as bank eligible or as bank friendly from an asset class perspective. So, you know, we feel good about where the, you know, the origination and pipeline activity is for '26. We think that spreads are going to hold, you know, hold in relative to what we've seen for the back half of this year. And if anything, to the extent that there's a, you know, a better supply-demand imbalance with credit providers into the market to the loan demand. We think that there could be some potential for credit spreads to, you know, move slightly up over the course of the year, but that's not factored into our numbers today. And if anything, that would be a positive. Neal Holland: Yeah. And so clearly, with market rates coming down, our overall loan yields for the quarter were down about 17 basis points. When we were sitting midway through the quarter and seeing the performance at the beginning of the quarter, we were expecting to see it come down a little bit more. At the end of the quarter, we had a few positive movements and a little bit of change in mix that were better than we were anticipating. So overall, from that middle of the quarter, clearly, loan yields were down based on the overall market, but came in a little bit better than expected for the quarter. Manan Gosalia: Got it. Perfect. And then just wanted to get your thoughts on the leverage lending guidance withdrawn. Does that help loan growth a little bit? As you look out the next two or three years? And does that help you do more with clients that you already have a deep relationship with? John Ciulla: Yeah. It's a great question. I think the answer is it does not really change our financial outlook. I think it does give us a little more flexibility in terms of those kind of prescriptive guidance things. It's interesting. The unintended consequences is you end up maybe doing transactions that are not as optimal and actually not as credit strong, but within a box of a leverage covenant. This gives us a little more flexibility to do deals we know are good, you know, in the sponsor book. We've been in the business for twenty-five years, and we're really good at it. So I would say, you know, during the course of the year, will it allow us to do three to five more transactions that we otherwise might have not done because of regulatory scrutiny that we know are really, really good transactions? Yes. Does that really move the needle and change our kind of forward look on loan growth or profitability? Probably not. It's factored into what we're giving in guidance. So I would kind of say it's definitely and I know this question's been asked across the board. It's definitely not as impactful as people say. But it's another good sign consistent with a more constructive and tailored regulatory environment. It gives, you know, good bankers and good bank management teams the ability to serve their customers better. Manan Gosalia: That's very helpful. Thank you. Operator: Your next question comes from the line of Bernard Von Gizycki with Deutsche Bank. Please go ahead. Bernard Von Gizycki: Hey, guys. Good morning. Just my first question, sorry I missed this, but I think you acquired SecureSafe in December, which adds employer-sponsored emergency savings accounts. Can you just talk more on the acquisition, sizing of the deal, any economic or any color you can share on that? Luis Massiani: Yeah. On the size of the deal, Bernard, we're not, you know, we didn't put anything out when we announced it. And so you could assume that it's, you know, relatively small, and it's already, you know, factored into all of the, you know, quarter-end balance sheet numbers and, you know, capital metrics and so forth. So it's a, you know, SecureSafe is a relatively small company still in, we could characterize it as almost in, you know, still pseudo start-up phase. But it does have, it's a market leader in that growing business of ESAs, of emergency savings accounts. It's clearly, or the mission of the business is focused on helping, you know, large employers that have, you know, large workforces, you know, help those, you know, employees through an incremental benefit to being able to save for, you know, eventuality, specific rainy day funds, and so forth. And so it's largely viewed as a retention tool by employers. It's a big, you know, kind of focal point of HR officers for large employers. They're trying to figure out other ways to help those, you know, places that have large employee workforces to, you know, just, you know, kind of put more arms around them and bear hug their employees to, you know, to stay, you know, stay on and kind of limit turnover. But, again, it's a small business. We think that it adds a lot of good potential. It's a product that we had started to sell through our HSA Bank channel to our employer clients for some time and saw some good receptivity. We've been very familiar with the product for about the last year, year and a half, and we think that could be, again, it's going to be well received into our existing channels, but we're also expanding the universe of potential large employers that we can now target because this is something that we think is going to be well received by the large world of, you know, human resources in large corporate. But more to come on how that business will continue to evolve, and you'll start seeing, you know, we'll call out deposit balances and start highlighting those as those flow in over the course of this year. Bernard Von Gizycki: Okay. Great. And just as a follow-up, so what is your appetite on further deals? And how actively are you looking at them? And any color on, like, pricing and is it just harder to find these types of, like, bolt-ons to add to the HSA business? John Ciulla: Yeah. It is. I mean, I think, you know, it's always a good question, and we answer every year. We're obviously very active in looking to enhance two things. Our deposit-gathering low-cost, long-duration deposit-gathering capabilities. We've got a first-mover advantage in health care through HSA and Amitros. Or potentially adding more fee income streams to our business. So we continue to look at those tuck-ins where we can. We have been very transparent in the past that most banks are also looking at those two categories to grow. And when companies go to auction, metrics in terms of tangible book value dilution and others get very challenging. So I'd say we're active. If you think about it, since the Sterling MOE, we've done Bend in HSA. We've done InterSync. We've done SecureSafe. We've done Amitros. We have a really good track record, I think, of acquiring businesses that enhance our existing business and let us leverage our core competencies without making it shareholder unfriendly. And so I think that's the key. We'll continue to look at it. We'd love to do that sort of on a serial basis. Again, we're going to be really disciplined in terms of how much we pay and what we are looking to acquire. Bernard Von Gizycki: Great. Thanks for taking my questions. John Ciulla: Thank you. Operator: Your next question comes from the line of Jon Arfstrom with RBC. Please go ahead. Jon Arfstrom: Thanks. Good morning, guys. Good morning, John. Neal, question for you on expenses. It looks like the fourth-quarter run rate, the core run rate, puts you at the low end of the '26 guide. Which is fine. But what do you think the slope looks like for the year-end expenses? Neal Holland: I think you said what does the slope look like. You're a little hard to hear, but okay. Perfect. Background, I guess, maybe. Yeah. Yes. As I mentioned in prepared remarks, we'll move up seasonally a little bit in Q1 due to those three factors that I mentioned. I'll tell you that I think fairly stable expenses on the quarters after. We're going to continue to invest in our client-facing businesses and look for opportunities to grow. At the same time, we'll be continuing, as we always do, to look for ways to drive efficiency into the organization. So I would say that we'll have a percentage point increase in Q1, as I've mentioned before, and then probably neutral to a slight increase each quarter going forward. So not a material upslope after the first quarter. Jon Arfstrom: Okay. Good. That helps. And then back on growth, like, I heard your comments on less payoffs maybe caused an aberration in growth. But do you have any reason for the lower payoff activity? And it also looks like the way I see it, originations in commercial and commercial real estate are up pretty nicely. Is that seasonal, or is there something else going on there? Thank you. Luis Massiani: Yeah. I think that it's a little bit of easy now. So it's a little bit of all the above that you mentioned. If you go back to the performance of 2025, the first part of the year, first and second quarter, we did not have as much commercial real estate growth as you saw on the back end. So a little bit of that was pipeline buildings over the course of the year. And, you know, so we continue to feel good that, you know, pipelines are building up nicely for '26 as well, but you're unlikely to see the same type of growth trajectory that we saw in the fourth quarter on those specific, you know, CRE and C&I asset classes as you saw in the back half of the year. But then you'll see potentially some seasonality in the back half of '26 as well that could get you to the higher end of the range that we put out there today. So there's, you know, there's a little bit of all the above. Why did the expected payoffs, you know, perform better? It happens at times. You know? So we, again, we think that there's, you know, we go through the portfolio. We have, you know, pretty good, you know, visibility onto, you know, how things will perform. Rate moves being a little bit later in the quarter than what we had originally anticipated also, you know, drove some of that performance. But, you know, rates continue to go down. You should see some, you know, accelerated payoffs, particularly on the CRE book, but, you know, we'll see what happens over the course of the year. And if rate cuts do come, that will have some sort of impact. So it's a little bit of a conservative guide from that perspective, but the overall theme is pipelines are good. Feel good about the origination activity for the year. And we think that there's, you know, there could be good potential opportunities for us to the high end of the range. Jon Arfstrom: Yeah. Okay. Alright. Thank you very much. Operator: Your next question comes from the line of Anthony Elian with JPMorgan. Please go ahead. Anthony Elian: Hi, everyone. On the loan growth and deposit growth outlook, are you anticipating the growth within those ranges spread evenly throughout this year? Or do you think the growth will be more first half or second half weighted? John Ciulla: You know, that's always tough to predict. There is a general seasonality. The last year actually was a little bit different given the pipeline build in CRE. We had a stronger third quarter than you'd normally see. The fourth quarter is usually the strongest quarter for us, but I think for our modeling purposes, thinking about kind of an even growth trajectory is, you know, you can build it into your models. The first quarter is usually a little bit slower, but, again, it has a lot to do with payoffs, which we can't predict. So very difficult to give you kind of the seasonal growth aspects. Anthony Elian: Okay. And then on HSA and the $1 billion to $2.5 billion incremental deposit growth, you could see from the bill over the next five years, is all the necessary infrastructure technology in place to support that growth, or is there any further build-out required? Thank you. Luis Massiani: No build-out required from a technology perspective. It's in place. And we feel very good that we've made the investments that if there's a mad rush of potentially to say client trying to open up accounts through our direct-to-consumer channel that we have all the capabilities and scalability to be able to, you know, to take that on at no incremental cost to where today. So we feel very good about that tech investments that we've made there. Anthony Elian: Great. Thank you. John Ciulla: Thank you. Operator: And that concludes our question and answer session. John, I'll turn it to you for closing remarks. John Ciulla: Yeah, I just want to thank everybody for joining us today. Hope you can survive the storm this weekend no matter where you are, and enjoy the day. Operator: And ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. And welcome to the First Citizens BancShares, Inc. Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. If you require operator assistance during the program, please press star then 0. As a reminder, today's conference is being recorded. I would now like to introduce the host of this conference call, Ms. Deanna Hart, Head of Investor Relations. You may begin. Deanna Hart: Good morning. Welcome to First Citizens BancShares, Inc.'s fourth quarter 2025 earnings call. Joining me on the call today are our chairman and chief executive officer, Frank Holding, and chief financial officer, Craig Nix. They will provide fourth quarter business and financial updates referencing our earnings call presentation, which you can find on our website. Our comments will include forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ materially from expectations. We assume no obligation to update such statements. These risks are outlined on page three of the presentation. We will also reference non-GAAP financial measures. Reconciliations of these measures against the most directly comparable GAAP measures can be found in section five of the presentation. Finally, First Citizens BancShares, Inc. is not responsible for and does not edit nor guarantee the accuracy of earnings transcripts provided by third parties. I will now turn it over to Frank. Frank Holding: Thank you, Deanna. Good morning, and welcome, everyone. Thank you for joining us for our fourth quarter earnings call. We will start by highlighting our overall performance for the quarter and provide comments on our strategic priorities for 2026. Then I will turn it over to Craig to take you through our financial results and outlook for 2026. Starting on page five, the fourth quarter was a continuation of what was a successful year for First Citizens BancShares, Inc. in 2025. This morning, we reported adjusted earnings per share of $51.27, an adjusted ROE of 11.93%, and an adjusted ROA of 1.1%. Despite the headwinds of lower rates, these earnings metrics exceeded our expectations, marked by resilient net interest income and stable credit quality. Before I highlight our balance sheet performance, I'd like to point out that we made a change in our operating segment reporting during the quarter. Previously, we reported SVB Commercial as a separate operating segment. In the fourth quarter, it was consolidated into the commercial bank segment. Now, despite this change in reporting, we remain committed to the innovation economy, and we will continue to report key metrics like loans, deposits, and off-balance-sheet client funds at the SVB commercial level. Compared to the linked quarter, loans were up $3.2 billion or by 2.2%, driven mostly by our global fund banking business with SVB Commercial, due to strong production and increased line utilization. Deposits were down sequentially by $1.1 billion or by 1%, primarily driven by anticipated shifts in the off-balance-sheet client funds and seasonal distributions. Despite the decline in actual balances at the quarter end, due to late-quarter outflows, average deposits were up by $2.26 billion or by 1.6%, driven by broad growth in the general and commercial bank segments. We returned another $900 million to our shareholders through share repurchases, moving us closer to our long-term capital targets. Despite loan growth exceeding deposit growth during the quarter, and the prepayment of $2.5 billion of the FDIC purchase money note, our liquidity position remains strong. Now turning to Page six. We made significant progress on our strategic objectives in 2025. And for 2026, our strategic priorities remain consistent with 2025 and are to: one, deepen client relationships; two, develop, retain, and recruit talent; three, optimize our balance sheet; and four, make investments in our franchise to improve our capabilities and poise us for growth in the years ahead. In 2025, we made great progress in improving our customer support within the general bank. We continue to make investments in our digital capabilities to serve customers in their channel of choice. These capabilities have enabled us to deepen relationships with existing customers and acquire key new ones through Burroughs branch and digital channels. We also continue to invest in our wealth business by expanding into new markets and increasing product and service offerings. We're excited about the momentum in the commercial bank as we head into 2026. By investing in technology and our teams, we're growing relationships and adding new clients. During 2025, we simplified the organizational structure and streamlined processes to meet the needs of our clients. In 2026, we will continue these efforts but will start focusing on optimizing systems and platforms for an improved end-to-end client experience. For example, we're investing in our payments capabilities to achieve client growth and increase capture of core deposits. Now, we can't do any of this without our associates, and we remain dedicated to attracting, retaining, and developing our associates, given that customer and client service is paramount to our success. Operational efficiency remains a key priority. We did a lot of foundational work in 2025 to reduce operating complexity and position the bank for continued growth and expect to continue to do so in 2026. While these efforts have resulted in expense growth over the past few years and will continue to have an impact in 2026, we're committed to delivering positive operating leverage over time and recognize that responsible growth is balanced through operational efficiency. Effectively managing expenses remains a priority for us. We made significant progress on balance sheet optimization in 2025, moving our capital ratios closer to our long-term targets, growing core deposits, and beginning repayment of the purchase money note. In 2026, we will continue to focus on a funding remix to core deposits, repaying the purchase money note, and moving capital ratios to our target range through share repurchases, all while supporting quality loan growth in our lines of business. I'd also like to take a moment to thank our Chief Risk Officer, Lori Rupp, for her outstanding leadership and unwavering commitment to First Citizens BancShares, Inc. throughout her thirteen-year career at the bank. Lori intends to retire in June 2026, and we wish her all the best in this next chapter of her life. She will be replaced by our current treasurer, Tom Eckland, who is a seasoned executive with substantial experience managing capital market, liquidity, and compliance risk. We're confident Tom will build on our strong risk foundation and drive continued success as we remain committed to maintaining a robust risk governance framework in pursuit of our long-term objectives. To close, 2025 was a successful year for First Citizens BancShares, Inc. despite a challenging macroeconomic backdrop that included interest rate volatility, competitive pressure on lending spreads, competition for deposits, and geopolitical uncertainties. As always, we remain vigilant on the macro and geopolitical landscape and keep prudent risk management at the core of our actions. I want to emphasize that even in volatile periods across markets and rates, our diverse business model and disciplined risk posture are key differentiators that have and will continue to serve us well. I want to thank all our associates for their contributions to making 2025 a successful year for our company, clients, and customers. We enter 2026 on a strong footing, and I'm excited about what we can accomplish in the years ahead. With that, I'll turn it over to Craig to take us through our fourth quarter financial performance and 2026 outlook. Craig? Craig Nix: Thanks, Frank, and good morning, everyone. I will anchor my comments to page eight of the presentation. Pages nine through 26 provide more details underlying our fourth quarter results and are for your reference. We earned adjusted net income of $648 million in the fourth quarter or $51.27 per share, which was up $6.65 over the linked quarter, driven mostly by a decline in provision for credit losses due to lower net charge-offs and a higher net provision release related to lower specific reserves on impaired loans, a mix shift to higher credit quality loan portfolios, and improvement in the macroeconomic outlook. Tangible book value per share grew by 11% in 2025 and 3% sequentially, including the impacts from share repurchases, which as of year-end totaled $4.7 billion since the July 2024 inception of the plan. Headline net interest income declined $12 million sequentially, aligned with our guidance. Net interest income ex-accretion was unchanged sequentially. Interest income ex-accretion declined by $46 million but was offset by a similar decline in interest expense due mostly to a lower rate paid on deposits. Headline NIM was 3.2%, lower by six basis points sequentially, while NIM ex-accretion was 3.11%, down four basis points sequentially. The decline was primarily due to a lower yield on earning assets impacted by the Fed rate cuts in 2025, only partially offset by lower funding costs and a higher average loan balance. Adjusted noninterest income exceeded our expectations, up 2% sequentially. The increase was broad-based, but the most significant items contributing to the increase were rental income on operating leases and wealth management income. Rental income benefited from a larger fleet and lower maintenance costs. Wealth benefited from higher assets under management and increased sales activity, including brokerage income. International factoring and deposit service charges were also up during the quarter. These increases were partially offset by a decline in client investment fees due to the lower Fed funds rate, only partially offset by a $3.1 billion increase in average off-balance-sheet client funds. Adjusted noninterest expense was up $89 million sequentially, driven by higher personnel, technology, and direct bank marketing costs. Personnel costs increased $38 million, mostly driven by higher temporary labor to support technology-related projects, performance-based incentive compensation, benefit expenses due to seasonally higher health insurance claims as employees reach their out-of-pocket deductibles, and termination costs. Technology-related costs contributed $22 million of the increase related to higher amortization expense as several technology-related projects were placed into service late in the third quarter as well as in the fourth quarter. In addition, software costs were up as we continue to scale our technology platforms and invest in new capabilities. Finally, direct bank marketing costs contributed to $12 million of the sequential increase. As I will discuss in a moment in our 2026 outlook, we expect year-over-year adjusted expenses to be up in the low to mid-single-digit percentage range, with less than 1% of the increase coming from the BMO acquisition expected to close in the second half of the year. Compared to the annualized run rate of the fourth quarter, we expect expenses to be flat to slightly down as episodic fourth-quarter items are offset by increases from merit as well as the full-year impact of higher depreciation from completed projects. Moving to the balance sheet. Period-end loans increased by $3.2 billion or 2.2% sequentially, led by strong growth in global fund banking. Global fund banking loans were up $3.8 billion sequentially, and loan production was over $5 billion, the highest since acquisition. Average line utilization continued to trend higher, resulting in growth in outstanding balances. We are encouraged by the momentum in this business, driven by increased market activity. General bank loans were down $267 million sequentially, as we moved approximately $700 million of mortgage loans to held for sale in advance of a strategic planned sale in 2026. Removing the impact of this transfer, general bank loans increased modestly, driven by growth in business and commercial loans within the branch network and wealth. Period-end deposits declined by $1.6 billion or 1% sequentially, mostly driven by expected outflows of global fund banking deposits into off-balance-sheet client funds and from seasonal fund distributions to limited partners. The decline was partially offset by growth in tech and healthcare banking, given higher VC investing activity during the fourth quarter. In the general bank, deposits were up modestly as balance growth was partially offset by seasonal outflows. Direct bank deposits were down $344 million compared to the linked quarter. On an average basis, deposits performed well during the quarter, growing by $2.6 billion or 1.6% sequentially, supported by strong customer retention and acquisition in both the commercial and general bank. Encouragingly, this was achieved while we continued to reduce our total cost of deposits. SVB Commercial off-balance-sheet client funds totaled $69.7 billion, up $2.7 billion sequentially, while average off-balance-sheet client funds were up $3.1 billion over the third quarter. Now let's shift to credit. Provision declined $137 million sequentially due to lower net charge-offs and a larger reserve release. Net charge-offs totaled $143 million or 39 basis points annualized in the fourth quarter, a $91 million or 26 basis points decline. The reserve release increased by $66 million over the linked quarter. You will recall that there was an $82 million single-name loss in the third quarter, which was the largest contributor to the sequential decline in net charge-offs. Both fourth-quarter and full-year net charge-offs were within our guidance. Reasonably consistent with prior quarters, approximately half of the net charge-offs were concentrated in the SVB investor-dependent, commercial bank general office, and equipment finance portfolios. The larger reserve release this quarter was driven by lower specific reserves, growth in higher credit quality loan portfolios, and improvements in the macroeconomic outlook. The allowance ratio was down eight basis points sequentially, driven by these same factors. On the capital, Frank mentioned that we continue to make progress on our 2025 share repurchase plan. As of the close of business on January 20, 2026, we had repurchased 18.3% of class A common shares or just over 17% of total common shares outstanding for a total price of $4.9 billion. Note that this is inclusive of the 2024 plan, which we completed in 2025. With respect to the $4 billion repurchase plan approved by the board in July 2025, we have completed approximately 30% of this authorization. Share repurchases will continue to be a tool to support capital management activities, providing us with an opportunity to return capital to our shareholders and to be more capital efficient over time. During the fourth quarter, repurchases were $900 million, and we expect repurchases to remain near or at that level during 2026. The pace will slow down as we get closer to our target range and as we regularly assess our growth outlook, economic conditions, the regulatory environment, and overall capital deployment. The fourth quarter CET1 ratio was 11.15%, a decrease of 50 basis points from the third quarter as the impact from share repurchases and loan growth outpaced earnings. I will close on page 28 with our first quarter and full-year 2026 outlook. Starting with the balance sheet, we anticipate loans in the $148 billion to $151 billion range in the first quarter. In the commercial bank, we remain optimistic about the momentum in global fund banking as we enter 2026. Pipelines remain robust, approximately $11.5 billion as of year-end. While we are optimistic here on absolute loan levels over time, I think it bears reminding that loan outstandings can ebb and flow based on client draws and repayments, and we may see some volatility in ending balances quarter to quarter. Outside of growth in global fund banking, we are projecting growth in our commercial finance industry verticals and middle market banking. Within the general bank, we expect loan growth to be supported by continued strong performance in our business and commercial portfolios within the branch network as well as in our wealth business. Additionally, we expect to close the BMO branch acquisition in the second half of the year, which we expect will add approximately $1 billion in loan balances. For the full year, we anticipate loans in the $153 billion to $157 billion range as we expect growth in both the general and commercial banks. We are continuing to explore some strategic loan portfolio sales similar to what we did in the mortgage book this quarter to provide liquidity for repayment of the purchase money note, which could impact absolute growth levels in 2026. We expect deposits to be in the $164 billion to $167 billion range in the first quarter. We think growth will be broad-based across our channels, including the direct bank due to competitive pricing and marketing efforts, expansion in the general bank within the branch network and wealth, and growth in SVB commercial as investment activity and overall valuations continue to improve. For the full year, we anticipate deposits in the $181 billion to $186 billion range, representing low to mid-teens percentage growth over 2025, driven by the momentum across our lines of business as well as the BMO branch acquisition, which will add approximately $5.7 billion in deposits in the second half of the year. We are projecting more significant growth in the direct bank as rates decline and we begin repaying the purchase money note more aggressively. While it is a higher-cost channel, it provides us with a source of insured granular deposits, and we anticipate benefiting from falling interest rates. The direct bank will be an important source of repayment of the purchase money note, even if leading to elevated marketing costs in the near term. Next, I'd like to take a minute to talk about our plans for repayment of the purchase money note. We began pledging US treasury securities against the note in 2025 as loan collateral available to secure the note diminished. As Frank mentioned, we made an initial payment of $2.5 billion in December as rate cuts in the back half of 2025 and the differential between the note rate and the yield on the pledged securities diminished. As we look into 2026, we expect at a minimum, we will make payments against the note for the incremental loss in loan collateral, which averages $500 million to $1 billion per month. We will also consider making other incremental payments if interest rates continue to decline and/or alternative funding sources become cheaper as we anticipate based on our interest rate forecast. Currently, our rate forecast covers a range of zero to four twenty-five basis point rate cuts in 2026, with the effective Fed funds rate range declining from 3.5 to 3.75 currently to as low as 2.5 to 2.75 by the end of the year. Our baseline forecast includes two rate cuts, but we do believe that stubborn inflationary metrics and possible impacts of macroeconomic policy could lead to fewer or no cuts. Therefore, we believe it is prudent to provide a range of expectations as we have done in prior quarters. With that in mind, we expect first-quarter headline net interest income to be in the range of $1.6 billion to $1.7 billion, a modest decline from the fourth quarter as the full impact of the December rate cut pulls through, resulting in a lower yield on earning assets. This decline will be partially offset by earning asset growth and lower funding costs. For the full year, we believe our headline net interest income will be in the range of $6.5 billion to $6.9 billion. We project loan accretion will be down approximately $100 million for the year. Given continued rate cuts, we expect loan interest income to decline, driven by declining yield despite asset growth levels. We also expect interest income on cash and investments to decline, given a reduction in yields as well as balances driven by lower absolute levels of cash and investments due to a reduction in excess liquidity. While despite balance sheet growth, we project a net reduction in interest expense due to lower cost of total deposits. This will only partially offset the decline in interest income. On credit losses, we anticipate first-quarter net charge-offs in line with our previous range of 35 to 45 basis points. We expect losses to continue to be elevated in the commercial bank general office portfolio and other portfolios where we have seen stress. While rate cuts could ease some of the pressure on borrowers in this sector, we believe losses will remain elevated in the medium term, even as market disruption may lessen as more companies reinstate office attendance requirements. While losses in the equipment finance portfolio have largely stabilized, we have a larger deal we are watching that could elevate losses during the first quarter. Additionally, we expect SVB commercial losses to remain slightly elevated in early 2026. With respect to the full-year range, we anticipate in the same range of 35 to 45 basis points. Moving to adjusted noninterest income, we expect to be in the $500 million to $530 million range in the first quarter. Overall, we continue to see strength in many of our business lines, such as fees from lending-related activities in capital markets, deposit fees and service charges, wealth, rail, and card and merchant services. For the full year, our adjusted noninterest income range is $2.1 billion to $2.2 billion. We expect year-over-year growth to continue to be driven by our rail business, which includes a balanced railcar portfolio and a strategic exploration ladder. We further expect rail to have continued momentum on repricing rates throughout 2026. We also expect continued growth in our wealth and deposit businesses. Moving to adjusted noninterest expense, we expect the first quarter to be in the $1.34 billion to $1.38 billion range, essentially flat to slightly down from the fourth quarter as we had some non-recurring items in the fourth-quarter expenses that will not impact our run rate. These declines will be offset by continued investments in our technology platforms to allow us to scale efficiently and improve our customer experience. We will also be impacted by the seasonal benefit resets for Social Security, unemployment, and 401(k) that drive the first quarter higher from a personnel expense perspective. Looking at the full year, our adjusted noninterest expense range is $5.37 billion to $5.46 billion. This is a low to mid-single-digit percentage increase from 2025, driven primarily by higher personnel costs due to merit-based increases, higher costs in equipment expense and third-party processing, given continued tech investments, and the full-year impact of projects that went into depreciation in the last half of 2025. Marketing expense is also expected to be up, given our focus on client acquisition and retention in the direct bank. Note that the full-year increase also includes the impact of the BMO acquisition, which will add slightly less than a percentage point to overall adjusted noninterest expense growth, which will be realized during the second half of the year. Our adjusted efficiency ratio is expected to be in the lower 60% range in 2026 as the impact of the Fed rate cut cycle puts downward pressure on net interest income. We believe that the investments we have made in our franchise, while driving up costs in the short and medium term, are foundational to delivering positive operating leverage over time. Meanwhile, exercising disciplined expense management is a top priority for us, given headwinds to net interest income. While we are not providing guidance beyond 2026, we are committed to returning to positive operating leverage as the interest rate environment normalizes, and we begin to recognize some of the efficiencies from our continued investments in the franchise. Longer term, our goal remains to operate at an efficiency ratio in the mid-fifties. Finally, for both the first quarter and full year 2026, we expect our tax rate to be in the range of 24% to 25%, exclusive of any discrete items. In summary, our 2025 financial performance reflected the strength and resilience of our diversified business model. We generated strong returns, maintained credit discipline, grew our balance sheet, and returned significant amounts of capital to shareholders, all while retaining strong liquidity and capital positions. We are excited about the opportunities in front of us and are well-positioned to continue to deliver long-term value for our shareholders. This concludes our prepared remarks. I will now turn it over to the operator for instructions for the question and answer portion of the call. Operator: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star then one on your telephone keypad. As a courtesy to others on the call, we ask that you limit yourself to one question and one follow-up. Please hold for a brief moment to compile our roster. From KBW, Chris McGratty, please go ahead. Your line is open. Chris McGratty: Great. Good morning. Craig, maybe to start with the guide for a moment. I hear you on the zero to four on rates, and I think you said in your prepared remarks two was your base case. Is it as simple as, I guess, putting two as the midpoint? How are you thinking about, I guess, the cadence of NII? And I think in past quarters, you've provided kind of exit rates. So any comments on exit NII margin would be great. Craig Nix: Okay. Yeah. Chris, our baseline forecast calls for two rate cuts in 2026 in June and October. So in terms of the guide, I would direct you in the baseline to the middle of that range. So for the first quarter of '26, we expect both headline and ex-purchase accounting net interest income to be down mid-single-digit percentage points. We expect headline NIM in the mid-three tens and ex-purchase accounting in the mid-three zeros. In the exit quarter, fourth quarter '26, we expect both headline and ex-purchase accounting net interest income to be flat with '25. With two cuts, we also expect that headline and ex-purchase accounting net interest income will trough in '26. We expect that net interest margin headline in the mid-three zeros and ex-purchase accounting in the high two nineties and expect headline NIM to trough in '26 and ex-purchase accounting in '26. So that's the trajectory at our baseline, which includes two rate cuts, one in June and one in October. Chris McGratty: Okay. That was a lot. Thank you very much for the color. On the investments, I think I heard you talk about kind of the focus on operating leverage, maybe not near term, but medium term. And I guess I'm interested in the cadence and the pace of technology and investment spend at the bank now that it's grown, and obviously, CCAR is on the horizon. Are we nearing the kind of the peak investment? Am I hearing kind of you're nearing the peak investments and then over time, you kind of grow into the returns a bit? Thanks. Craig Nix: Yeah. I think that's a fair statement. I mean, we've been very intentional about investments in our franchise and particularly in the areas of building out our risk management capabilities and in our technology infrastructure as we strive to, as we've grown four times, we're striving to reduce operational complexity. We're striving to meet category three expectations. All of this is to meet regulatory requirements, improve our client experience, and we recognize that this has put pressure on our efficiency in the short term, but we do like where we're heading. We are materially complete with the implementation of our risk management capabilities and are transitioning to maturity or a business-as-usual model. We will continue to make investments in technology, and really, that is to enable client-centric business solutions for our general commercial bank to streamline our processes to improve efficiency and to build a technical infrastructure commensurate with the bank's future growth. So those investments will continue, but we are hyper-focused on bending the cost curve, and costs were up 8% last year. We expect them to be low to mid-single-digit percentage points this year. So we're starting to bend the curve, and we do have a lot of focus on improving operating leverage as we move forward. Greg, I don't know if you have anything else to add to that on the technology side, other than that we're continuing to invest in our franchise. But the focus is now, as we've gotten our risk management infrastructure sort of behind us, and we're into the maturity model, to start bending that cost curve going forward. Gregory Smith: Yeah, Craig, I think you did a great job there. So this is Greg Smith, CIO. And, you know, Chris, the question is a good one, and we do recognize that we're on the higher end of our spend when you compare it to our peer group. But you have to put that in context with where we were, where we are in our maturity. So just like Craig said, we, at the end of our acquisitions in 2022 and '23, we took a step back, we looked at our entire technology environment, and we laid out a very clear plan to simplify and modernize the environment. And we are in full execution mode there. So the simple answer is we are indeed peaking in 2026 from a spend on the tech roadmap. But a couple of the key things that we're working on, so just coming into the year or leaving 2025, we've simplified or reduced over a third of our applications. So that's a big win as well. We have at least two-thirds of the actual program up and running in full execution mode. And this is both simplifying as well as modernizing our applications and our infrastructure. So another simple example is at the beginning of 2024, we had eight different data centers. By the end of '26, we will only have two data centers. Now that means we're closing seven, and we're building a new one. But the benefits of all that mean that at the end, we will not only have efficiency coming out of that simple example, but we'll also have much better resiliency, and more flexibility and scalability in our environment. Those are the kind of things that we're working on. It is a multiyear plan. But the simple answer is we will peak in that plan in 2026, and that will allow us some more capacity to spend in other areas of the business. Chris McGratty: Thanks. And just quickly on the tax rate, Craig, in the quarter. Were there any specific charges in the quarter on the taxes? John Wilson: This is John Wilson, the tax director. The only charge in the quarter was a return to provision adjustment that we recognized after filing our 2024 tax returns, primarily related to the estimate that we had for tax credits for the prior year provision. Chris McGratty: Alright. Thank you. Operator: The next question comes from Anthony Iulian from JPMorgan. Anthony, please go ahead. Your line is open. Anthony Iulian: Yes. Hi, everyone. Craig, your expense outlook is quite wide. The range is about $100 million. I'm curious, I recognize your previous comments on tech spend. I'm curious, just what gets you to the high end versus the low end? How much LFI cat three expenses you have that's baked in that may eventually go away? Elliot Howard: This is Elliot Howard. You know, I think when you look at that range, you know, $100 million, you know, on the entire base is only, you know, really kind of two percentage points. And really what puts us probably at the top end of that range is that includes, you know, we're doing the heavy lift on direct bank advertising to really raise deposits. And then I think, you know, as we kind of progress along the year, just kind of the timing of, you know, the tech expenses and when we can get efficiencies. So, you know, full year, you know, I think being able to get the efficiencies faster, and less in marketing expense would put us closer to the lower end of that range. And then really, you know, having a more competitive, really rate environment, you know, on the direct bank side, would probably give us a little bit higher to, you know, the top end of that range. Anthony Iulian: And then if Mark's on the line, you guys saw another really strong quarter in SVB total client fund growth. What specifically drove that? And I didn't hear the level of cautiousness that you guys have emanated the past couple of quarters on the outlook for SVB. So how are you guys thinking about that business and the growth in total client funds for this year? Thank you. Marc Einerman: Hi. Good morning, Anthony. This is Marc Einerman. And I think the growth in total client funds that we saw in the fourth quarter and really over the course of '25, I think, is a function of the incremental improvement that we're seeing in venture investment year over year and innovation economy activity. And as the longer we have been with First Citizens BancShares, Inc., the more things have stabilized within our four walls, and our ability to go to market and execute has just continued to get better. And so it's really a function of it's improving out there. As reflected in the guidance, there's that further expectation of further incremental improvement, and our ability to capture continues to improve as well. And so that, in a nutshell, is the story, if you will, behind the positive TCF trends. Operator: Thank you. Next question comes from Bernard Von Gizycki from Deutsche Bank. Bernard, your line is open. Please go ahead. Hi. The manager line is open. We will move on. The next question comes from Casey Haire with Autonomous. Casey, please go ahead. Casey Haire: Great. Thanks. Good morning, guys. So, Craig, wanted to touch on the purchase money note. If I heard you right, it sounds like the pace of retirement's gonna be a little bit slower between the half billion, billion a month. So 9 billion a year, if that's right. So just wondering, I thought the first tranche was gonna be the biggest. It just feels like it's a little bit slower. So just maybe a little more color on that. And, you know, how much, what, how low you're willing to go on the cash front as a percentage of earning assets? Thanks. Craig Nix: Okay. The reason for the lower than anticipated payment in December was really related to the loan growth that we experienced versus deposit growth and its impact on our excess liquidity. So that's just simple math there. In terms of just the 500 million to a billion, that relates to the amount of loan collateral that rolls off monthly as an estimate of that. And that would sort of indicate the minimum. The loan collateral, the loans that are eligible, would be loans in place at the time of the acquisition, and as those loans mature, that collateral pool gets diminished. And we have pledged US treasury securities as well to that, but that gets into whether or not we pay off. That gets into the rate arbitrage between those securities and the purchase money notes. So we're trying to balance both the need to get the note paid efficiently with doing it in a way that's most profitable, if that makes sense. So the 500 to 1 billion would be sort of, and you should think of that as sort of the minimum amount that we'd pay off this year. Tom, I'd let you amplify anything there. Tom Eklund: No. I think that was very clear on the 500 to 1 billion being the minimum. And, obviously, looking at the alternative funding costs is why we've sort of moderated our pace of pay down with the 3.5% we're paying on the purchase money notes. So as alternative funding costs come down, you can expect to see us accelerate those payments. I think you also asked about cash sort of as a percentage of earning assets. You know, we're currently right at about 10%. I think you could see that come down a little bit from there, but you know, it'll remain in that 8 to 10% range is sort of what we'll manage to from a liquidity risk perspective. Casey Haire: Okay. That's great. So and then I guess just switching to the loan growth outlook. So, you know, a very strong result in the fourth quarter here. The pipeline is up. And yet you're calling for growth to moderate to a mid-single-digit pace in '26. You know, the deposit growth guide does imply that the loan-to-deposit ratio moves up to the mid-nineties. So I guess the question is, like, are you purposefully constraining the loan growth for liquidity reasons, or do you expect loan growth to moderate from near double-digit pace? Craig Nix: Yeah. You know, I think there's a lot of positives certainly on the loan front. I think, you know, SVB, we talked about, you know, pipelines are full. We feel very good about the activity in the fourth quarter and where we are heading in the first quarter. You know, I think we have, you know, a really good outlook on commercial finance. Then in our general bank, kind of in our, you know, business and commercial side, I think that said, you know, as Tom touched on the purchase money note, you know, we will look certain places to sell portfolios. You know, we had the 700 million that we moved mortgage. I think we're exploring potential sales, you know, elsewhere, SBA, where kind of the financials make sense. And so, you know, we're gonna be there for our clients. We're gonna continue to lend. But I think, you know, the reality is we still do have, you know, over 33 billion, you know, we do need to repay on the purchase money notes. So it's gonna be a function of, you know, how much we can, you know, really, you know, generate deposits. Tom Eklund: I think one other component, this is Tom. One other component to add is when you look at the capital call line and the nature of the loan growth that has come through there, as you get further into that, obviously, a larger portfolio is gonna lead to larger paydowns. So even with the same elevated activity, it will lead to moderating growth. That portfolio is of natural duration. Craig Nix: That's right. Casey Haire: Yep. Okay. Alright. Just last one housekeeping. Craig, it was very helpful to watch for all the headline and core NIM NII. Just, and I apologize if I missed this, but what is the outlook for purchase accounting this year? Craig Nix: For just, are you speaking of net accretion income? Casey Haire: Yeah. Just per. Craig Nix: Yeah. We expect it to be, for 2025, we recognized around $250 million of net accretion income. We expect that to drop to about $203 million this year, so around a $50 million decline. So not very significant. Not as significant as it has been in prior years, as some of those shorter portfolios ran off. Casey Haire: Gotcha. Alright. Great. Thank you. Operator: As a reminder, that's star followed by one to ask a question today. I'm not showing any further questions at this time, so I'd like to turn the call back over to our host, Ms. Deanna Hart, for any closing remarks. Deanna Hart: Thank you, and thanks, everyone, for joining our earnings call today. We appreciate your ongoing interest in our company. And if you have any further questions or need additional information, please feel free to reach out to the investor relations team. We hope you have a great rest of your day. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Have a wonderful day.
Operator: Hello, and welcome, everyone joining today's Kimberly-Clark de México Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the meeting over to CEO, Pablo Gonzalez. Pablo Roberto González Guajardo: Thanks so much. Hello, everyone. Thanks for participating on the call. We wish you and your families a terrific 2026. We'll go straight to results and then make some brief comments about the quarter and our expectations going forward. So I'll pass it on to Xavier. Xavier Cortés Lascurain: Thank you, Pablo. Good morning, everyone. Our sales reached MXN 14.1 billion in the fourth quarter, an increase of 2.1% versus the same period of 2024. Total volume was flat and price/mix improved 2%. Growth was driven by consumer products, which expanded 5.5%, supported by healthy year-over-year growth of 1.4% and price/mix of 4.1%. Export hard rolled sales continued to decline as we converted more tissue towards higher-value domestic products. Sequentially, results continued to improve from Q3 to Q4 as sales increased 4.8%, with Consumer Products up 8.5% primarily volume less, reflecting strong commercial execution, the planned innovations to products and improved market dynamics. Cost of goods sold was flat and as a percentage of sales improved by 130 basis points. Compared to last year, virgin fibers, recycled fibers, SAM and resins were favorable, partly offset by higher fluff costs. The peso remained supportive with an average appreciation of roughly 8%. Our cost reduction program once again delivered solid results, generating approximately MXN 500 million in savings during the quarter, mostly within cost of goods sold. These efficiencies came from sourcing, materials optimization and ongoing process improvements across our operations. As a result, gross profit increased 5.4% and our margin reached 40.4%, reflecting both disciplined revenue management and cost tailwinds. SG&A expenses increased 0.8% year-over-year and as a percentage of sales decreased 22 basis points as we continue to carefully prioritize brand investment and overhead efficiency. Operating profit grew 9.2%, and our operating margin expanded to 22.9%. We generated MXN 3.7 billion of EBITDA, an increase of 6% with an EBITDA margin of 26.4%, a 140 basis point sequential improvement and 100 basis point expansion versus the fourth quarter of 2024. Financing cost was MXN 398 million compared to MXN 350 million last year, driven mainly by lower returns on cash balances. Net income reached MXN 2.2 billion with EPS of MXN 0.73, a 23% increase year-over-year. For the full year, sorry, sales reached an all-time record of MXN 55.4 billion, up 1.1%. EBITDA was MXN 14.1 billion, representing 25.5% of sales, while margins declined 170 basis points due to the cost pressures we faced, particularly during the first half of the year. Net income was MXN 7.6 billion or 13.7% of sales. Throughout 2025, our cost reduction initiatives delivered MXN 1.95 billion in savings, driven by sourcing, operating efficiencies and product design optimization. We invested MXN 1.8 billion in CapEx, consistent with our plan and focused on technology upgrades, cost reductions, efficiencies and strategic capacity additions. We also repaid MXN 3.7 billion of debt, paid MXN 6.2 billion in dividends and repurchased nearly 43 million shares, equivalent to 1.4% of shares outstanding. We closed the year with a strong and healthy balance sheet. Total cash stood at MXN 9.7 billion. Net debt-to-EBITDA was 1.0x, and EBITDA to net interest coverage remained very solid at 10x. Thank you very much. I return it to Pablo. Pablo Roberto González Guajardo: Thanks. So we continue to operate against a soft consumer backdrop. However, we've delivered year-over-year growth, strong margins and a meaningful sequential improvement. Consumer Products performance was notably stronger, supported by innovations and commercial initiatives. Overall, consumer confidence remains subdued and private consumption growth has moderated. Within retail, value formats and private label continue to gain share as shoppers seek savings, while e-commerce growth remains robust. Against this backdrop, our categories continue to show resilience, and our brands have benefited from our strong innovations, price and mix discipline and market execution. As we get into 2026, we have solid plans to strengthen our core businesses, accelerate growth in our diamond categories, expand into adjacencies and new categories, most notably in pet food as well as participate in markets we have traditionally not emphasized in the past, such as private label. On costs, we're seeing the benefits of lower pulp, recycled fibers, resins and superabsorbent materials, which together with a stronger peso, will provide important tailwinds as we move into 2026. Cost reduction program remains a key structural lever, and we will stay aggressive in sourcing, product design and process efficiencies. A few additional comments before we open it up for Q&A. First, Kimberly-Clark Corporation, our strategic partner, announced in November its agreement to acquire Kenvue. This combination will create a leading global health and wellness company with a complementary consumer portfolio and expanded capabilities. As the transaction progresses towards closing expected in the second half of 2026, we will evaluate potential strategic implications for Kimberly-Clark de México, including the possibility of integrating Kenvue's operations in Mexico. Our focus will remain on achieving operational excellence and capturing value-accretive growth opportunities for the business. Additionally, we will hold our Annual Shareholders Meeting on February 26, where the Board will propose a dividend increase in the high single digits, reflecting our solid cash generation and confidence in future performance. We will also propose a share repurchase program, which will remain significant and aligned with our commitment to disciplined capital allocation. One final note. Starting with the first quarter results, we will be releasing them to the public on the third Tuesday of the month after the end of the quarter as soon as the Board approves them at the regularly scheduled meeting later on the same day, and we will hold our call early on Wednesday morning. In summary, looking ahead to 2023, we face 2026, we face external risks, including ongoing tariff uncertainty and a slower domestic demand backdrop tied to softer formal employment and slower remittances. However, we are optimistic. We are entering 2026 with better momentum than 2025, and we have mitigating factors to those risks, including our leading positions in essential categories, portfolio initiatives focused on value and affordability, continued excellent execution with customers and, of course, a robust balance sheet. With that, let me turn it over to questions. Operator: [Operator Instructions] Our first question comes from Alejandro Fuchs with Itaú. Alejandro Fuchs: Congratulations on the results. I have 2 very quick ones. First for Pablo. I was wondering, Pablo, if you could comment on the expectations for this year, maybe on competitive environment, what you're expecting? And maybe if you can elaborate a little bit more into going into private label, how relevant do you think this will be for the business in the medium to longer term? And then the second one, very quickly to Xavier. I was wondering, Xavier, if you could give us some color on the tax rate during the quarter. I think it was quite low. So maybe you could explain a little bit more what was the case, that would be very helpful. Pablo Roberto González Guajardo: Thanks, Alejandro. Thanks for being on the call. Yes, first, on the competitive environment, I mean, we faced a pretty competitive environment during 2025, again, given that the economy is not growing much and consumption is subdued. I don't think it was more aggressive than in some years past, but it certainly was, I would say, maybe a tidy more aggressive. And we expect that to continue this year. I mean we expect the economy to grow at a higher rate not what it should be growing, but certainly at a higher rate. So we expect categories to expand a little bit, but competitors to be aggressive to try and gain share and grow at a faster clip than categories. So nothing that we haven't seen in the past. This is the nature of our categories. And against that backdrop, I guess, we performed very, very well, particularly in consumer products during the second half of the year and we're entering with that momentum and with stronger shares into 2026. And we've got plans on innovation, price mix, et cetera, that I think will carry us forward. So we're pretty optimistic with the year as a whole. It might start a little bit slow, but I think for the year as a whole, we're pretty optimistic. On private label, as I mentioned in my opening remarks, and you guys know this, I mean, given the consumer is so stretched, private label has been gaining ground in many categories, not only ours. We've been able to fend off on our part the private label, given our -- the strength of our shares, but it is no doubt increasing. It's important and both hard discounters and overall retailers are pushing it forward. So what we decided to do is to participate more aggressively in private label, and we put together a dedicated team with dedicated assets to look into this and with some early successes. And we will be going forward, competing on private label and of course, competing overall in the market for this business. So we expect this can be a benefit for us going forward. And together with, again, strengthening our core, accelerating diamond categories, being more aggressive on the supply chain front with Kimberly-Clark Corporation, Private label, I think, can add an additional opportunity for growth in KCD Mexico's case. Javier, on the tax rate? Xavier Cortés Lascurain: Sure. Alejandro. You are correct in pointing out that the tax rate -- the effective tax rate shown in the fourth quarter was lower than what we traditionally have. And that, of course, also had an impact for the full year. This comes from an accounting adjustment that primarily reflects improvements in our estimation processes and those yielded a more accurate estimate, and that allowed us to reverse some provisions. This adjustment does not result from any change in our tax strategy nor from the adoption of new tax positions or any aggressive tax assumptions. And it will also not impact how much taxes we pay. This is -- these are mostly accounting and noncash adjustments. And let me underline that we continue to apply a consistent, conservative and very responsible approach to tax accounting. So I hope that helps. Operator: Our next question comes from Ben Theurer with Barclays. Benjamin Theurer: Congrats on the results. Two very quick ones. So one, obviously, 2025, you've done a relatively good job on continued cost savings initiatives. And I mean, the run rate was really good. So if you could share maybe how you think about that into 2026, also in the backdrop of the better environment that you're expecting? And then as it relates to raw materials, I mean, I would say it was mixed, but obviously, FX supportive. So how do you feel about the raw material price environment and then obviously, as FX as a tailwind and how that then ultimately comes down to profit margins into 2026? Pablo Roberto González Guajardo: Thanks, Ben. Thanks for the questions. First, on the cost reduction program, as we've said before, I mean, this is really an essential part of our culture. And that's why year-over-year and every year we deliver very strong results. And we are confident 2026 will not be the exception. We have identified already upwards of MXN 1 billion in savings for this year and most likely will be close to what we achieved in 2025. And again, this is just part of our culture of continuously looking for opportunities in product design and sourcing and materials on efficiencies to continue to improve our execution operationally. So we expect another strong year on our cost reduction program, and we are off to a very, very good start. When it comes to raw material price environment, I mean, we're entering 2026 in a very different position as most of our raw materials are -- have come down, and we don't necessarily expect them to continue to go down throughout the year. But certainly, they will compare very, very favorably at least through the first half of the year and maybe through the whole year. I mean it's hard to tell these things can -- they're very volatile and they can change. But the scenario we're looking at right now is pretty favorable to start the year together with the exchange rate. So we do expect, as you could see in the fourth quarter, that to trickle down to our margins on the bottom line. Operator: We will move next with Antonio Hernandez with Actinver. Antonio Hernandez: Congrats on your results. I wanted to check what's the current standpoint on the Nutec partnership? At what stage are you currently in terms of operations, distribution and sales? Pablo Roberto González Guajardo: Sure. Thanks, Antonio. We -- as you know, we entered the pet food business in the second quarter of last year and really have been working on ramping that up over the last half of last year, and that will continue to be our priority this year. We continue to gain space at shelf as consumers have reacted very, very positively to the products, I would say, particularly to the premium offering, so Prime Care. And as that has happened, of course, retailers have become more and more interested in giving us more space, putting the brand out there, and that is allowing us to increase our penetration. And that will be our main focus still on 2026. As we said from the very beginning, this is a category that will contribute to our results in the medium term. It won't be immediate. But I think we continue to make very good strides, and we believe 2026 will be a breakout year for us in that sense. And in the coming years, it should be a category that delivers more in terms of both top line and bottom line for Kimberly-Clark de México. Operator: We will move next with Renata Cabral with Citibank. Renata Fonseca Cabral Sturani: I have one that is a follow-up about the consumer segment that you just commented. Just would like to ask if you can provide some color in terms of price mix for this quarter. And since last quarter, I think it's performing really well, and you already commented something about why this is going well. And my second question is if you can comment something about dividends and buybacks for 2026. Pablo Roberto González Guajardo: Sure. First, on the price/mix, Renata, I mean, as we mentioned, Consumer Products overall grew 5% for the quarter. Volume was a little bit over 1% and price/mix was a different 4%. And when you look at price and mix, if you break it down, it was pretty much even, 2.1% price was up and mix was up 2%. And again, this is not only a testament to the discipline on our pricing, but also on our good commercial execution and the effort we've placed on improving our mix in all of our categories and driving consumers up to the higher tiers. And we've been very successful, for example, in doing that in bathroom tissue as we move users up to Cottonelle. So even in a very, I would say, subdued consumer environment, we've shown that we can bring mix and price to the table. So those 2 components together with gaining a little bit of volume, that's what really has delivered a very strong showing for Consumer Products in fourth quarter and also third quarter. So we'll continue to work on that to think about where we see pricing opportunities, continue to push for a stronger and better mix and of course, continue to look for ways to grow the categories and volume. So it's really the combination of the 3 that allowed us to post these results, and that will that's the objective for 2026 is to continue to move on all those 3 fronts. When it comes to dividends, as we mentioned, we will have our shareholder meeting late in February, and we will be discussing with the Board on February 10, the dividend that we want to propose and the repurchase program that we want to go forward with. But we are -- we will -- we know we'll be proposing a dividend increase in the high single digits. And again, this reflects our solid cash generation and confidence in future performance. So it will be another year where we provide this high single-digit dividend increase into 2026. Xavier Cortés Lascurain: And we will also be proposing a share buyback, which will continue to be significant. Operator: We will move next with Guilherme Mendes with JPMorgan. Guilherme Mendes: I have 2. First, on your short-term and long-term thoughts about the degree of cannibalization between private label and your own branded portfolio. Where do you see it now? And long term, is there some, let's say, mindset around what degree of cannibalization this can make to your long-term volumes in your core branded brands? And secondly, if you could share more thoughts around what the Kenvue potential acquisition in Mexico could mean in terms of incremental revenue, CapEx, returns? That's it. Pablo Roberto González Guajardo: Thank you. Thanks for the questions. First on cannibalization. Look, with our strategy of multi-tier, multichannel, multi-brand in our categories, our brands have held up steady very, very nicely. I mean our shares are very strong in many categories growing, even though private label in the category is growing. So in many, many instances, we're the #1 player with very strong shares and then private label is now the second player in those categories. So we will continue to focus on our brands, and I want to be very, very clear about that. Our brands are our priority. We're a branded consumer products company. But given the opportunity for growth in private label and the fact that we believe we could be good partners with some of our clients in strategic areas, we want to participate -- and -- but our, again, multi-tier innovation program, multichannel, multi-brand continue to be the priority. And as it's held up very strongly until this point, we expect it to continue to hold on very strongly going forward. We just see an added opportunity for growth if we can participate in private labels. And as we've started to do this, we've seen some early success. So we'll see what it means going forward. But I can't stress enough that our main priority is our brands, innovation behind our brands and bringing to consumers the best products at the best cost in every single tier, in every single channel with the best brands, which -- and preferred brands, which are ours. On the Kenvue issue, and thanks for asking that question. As I mentioned, we've just started conversations with our partners -- with our strategic partner. And these conversations will evolve here through end of January, February, March. By -- I'm going to say by April, we should have a much clearer understanding of where we stand, what the Kenvue business in Mexico would mean for Kimberly-Clark de México and whether we can come to an agreement with our strategic partner as to how to move forward. So we'll have more information certainly in our conference call when we report first quarter results in April. But let me just say this. Our understanding is that on the top line, Kenvue, Mexico is about roughly $200 million in sales company. So it's about 1/10 of where we stand. So not huge, but also not insignificant. It's a nice size, and it would be a transaction that would add quite a few categories that we're interested in, in the health and wellness. And as we've always said, categories that have great growth potential, categories where we see we can add value given the way we operate innovations, brands, channels, tiers, et cetera, categories where we think we can add value not only to consumers but also to clients and that in the medium term would be accretive to our, of course, top line, but also bottom line results and margins. So early. Again, we've just started the conversations, but it's a good opportunity for us. Again, not a huge one, but an opportunity that opens very nice windows of growth going forward that would add to our core diamond categories, new categories where we've entered like pet supply chain integration with Kimberly-Clark Corporation. And if this happens, then Kenvue categories. So the whole scenario, I think, paints a very good picture of the possibilities of growth for Kimberly-Clark de México going forward. Operator: Our next question comes from Bob Ford with Bank of America. Robert Ford: Congrats on the results. Pablo, given the concerns around private label, could you maybe provide some examples of innovations across major categories and price tiers? And maybe touch on like some of the materials innovations, right? We're going through this pretty big technology cycle. And I'm just curious if you -- if there are any things that have been patented or maybe a product cycle that you feel really comfortable that you can maintain leadership in for an extended period of time? Pablo Roberto González Guajardo: Yes. Thanks, Bob. Thanks for the question. These are all very, very dynamic categories. And I can talk about a few of the things we did this past year. I wouldn't want to get ahead of myself and talk about 2026. But I'll give you some color on where we stand. But in 2025, for example, we -- in bathroom tissue, we introduced new products in a whole range of products. And particularly, we were very aggressive in bringing new technologies into the premium category with Cottonelle with great, great results. I mean our sales in Cottonelle are growing double digits and continue to do so very strongly. When you look at diapers, we also brought even a Tier 7 diaper to continue to premiumize the category with softness that is unparalleled in the market and of course, the absorbency that consumers come to expect from Huggies. And we've also improved even our economy tiers with now stretchable ears in diapers, which is a first really for the economy tiers. So again, across all of the tiers, -- we've improved our products in feminine care. We brought a new nocturnal pad that it's considered by consumers the best product in the market by an important margin, and it's just a new platform that we're bringing to that category. And incontinence, we brought new products, again, in pads and panty liners that have also preferred by consumers that also offer a new platform. So very, very excited about what we've done and even more so with what we see going forward because I think we're going to be bringing to market some new technologies, first-in-market technologies and in some cases, first to the world technologies that I think will continue to strengthen our platform, strengthen our brands and strengthen our position in the market. So this is never ending, and I'm very excited about our plans for 2026 and innovation, but already looking at '27, '28 and making sure we bring very relevant innovations to market and try and step ahead -- and keep stay a step ahead of competition in every tier in every channel going forward. So sorry, I can't say more about '26, Bob. I'll share more as we go through the year and bring those innovations to market. But as you can see, I'm very, very excited with what I see we can bring to the table in this year. Robert Ford: No, that's definitely well communicated. It's a great teaser. With respect to maybe playing a greater role in the supply chain, can you touch on what you think your competitive advantages are, right? I mean you're clearly doing a much more sophisticated kind of tiering of products. You're doing more shorter production runs. I'm familiar with some of the productivity rates that Kimberly-Clark de México versus the rest of the system. Beyond that, what should we think about when it comes to maybe selecting Mexico to play a much bigger role in the North American supply chain? Pablo Roberto González Guajardo: That's a great question, Bob. Look, we are at a great point on that issue because after working with Kimberly-Clark on specific projects over the past years, we really have -- it's come to the point where we're sitting down, we're taking a look at the whole supply chain. We are being completely transparent in putting the numbers out there, costs, efficiencies, logistics, et cetera, and identifying the biggest opportunities going forward. And as you mentioned, in many respects and particularly when it comes to certain of the tiers in the market, we have advantages because of the way we operate, because of our costs and because of how we know to manage different tiers, which, again, it's much easier said than done. So we're finding very interesting opportunities. But the key thing is where I started that it's not now just hey, we found this project, how do we move forth together with it. It's really a holistic look at the supply chain, figuring out where we can add value, figuring out where they can add value and putting all of that together so that when we think of a project now, it's really for the medium and long term. It's not just a one-timer. We will still have some one-timers, but it is becoming more of a, hey, can we think of certain area of the U.S. where Mexico would be better positioned to supply products and put us in a better competitive position overall in such a market. So we're delighted that that's where the conversations stand. And we just had our Kimberly-Clark Board members attend our Board meeting, and they expressed the same confidence that we're finding very interesting opportunities and that we're very confident going forward our supply chains can come together and deliver very positive improvements for both Kimberly-Clark Corporation and Kimberly-Clark de México. So again, another area where we're very excited and where we think that '26, '27 could be breakout years when it comes to really determining how to play together. Operator: [Operator Instructions] We will move next with Jeronimo de Guzman with INCA Investments. Jeronimo de Guzman: I had 2 questions. The first one was just a follow-up on what you talked about with the shift. You talked a little bit more about the shift or increasing the emphasis on private label and value. And I was just -- you kind of touched upon it, but I just wanted to see if we should expect any kind of impact on pricing/mix or margins as a result of this. Pablo Roberto González Guajardo: No, we don't think so, Jeronimo, certainly not in the short term. And in the medium to long term, we'll see how successful we are and how many -- how strongly we can participate. But of course, and you know our culture, we're already working into, okay, if we are very successful and can participate meaningfully, how do we change our cost structure so that we continue to deliver the margins that we've targeted and that continue to be our target. So no, don't expect a change anytime soon on that target. And we will find ways to, over the medium to long term, be there within that target range. Jeronimo de Guzman: Okay. Makes sense. And then a question on just how are you thinking about pricing because you're mentioning the raw material environment being very supportive, but you're also talking about competition continue to be aggressive, trying to gain share. So yes, kind of how are you thinking about pricing going forward? Pablo Roberto González Guajardo: Thanks for the question. We are looking at all of the opportunities on pricing because notwithstanding, as you say, that raw materials are a tailwind right now and so is the exchange rate. These are very volatile, particularly -- well, both of them. And we've seen in past years that things can change relatively quickly. We don't expect that to happen, but it could. So we're ready. We're ready to move on pricing. And with our revenue growth management initiative, we're always looking for opportunities, both on pricing and mix. So we -- I would venture to say that we will -- you will see some pricing coming to the market this year and aiding our results. And again, we'll continue to work on the mix, and you will see some mix also come into the equation and also help our results during the year. No specific plans at this point, but pretty confident that both factors will be relevant and help us with the results in 2026. Operator: Our next question comes from Juan Guzmán with Scotiabank. Juan José Guzmán Calderón: Congrats on the strong performance. Just one quick question here as most of my questions have already been answered. Regarding Away from Home, given this 10% contraction that you mentioned due to channel inventory adjustments, what's your outlook for this business going forward? And even when it's early in the year, what trends have you been observing recently? And what strategies are you implementing to recover sales growth here? And that will be it. Pablo Roberto González Guajardo: Thanks, Juan. Thanks for the question. Yes, not happy with the results on the professional side. Again, a combination of a softer economy and our wholesalers reducing their inventories given their concerns on the market. Having said that, again, we believe the economy will pick up a little bit this year. And particularly on that side, when it comes to hotels, restaurants, et cetera, we will definitely see the benefit of at least some of the games of the World Cup being played in Mexico. And not just because of some of the games, I think tourism overall will be a positive for the country this year. So we expect really this to turn around in the coming -- I don't know by the first quarter, I think we'll do quite better, and we're already seeing much better performance in the first quarter, early, but we're seeing much better performance in the first quarter. But certainly, by the second quarter, I think we'll see better performance. And our strategies, same as in consumer products, we're very clear of the different areas we want to go after, and we're bringing also innovation and interesting -- very interesting innovation to the different categories, and we're working very, very closely with our wholesalers to go after specific accounts and to try and premiumize in different categories. So not very different in terms of the strategies that we're pursuing in Consumer Products. And again, we expect this to turnaround certainly by second quarter, and we expect the business as a whole to grow nicely throughout the rest of the year. And again, we're already starting to see early signs of that turnaround, but I think it will take a little bit more so maybe by second quarter. Operator: And at this time, there are no further questions in queue. I will now turn the meeting back to Pablo Gonzalez for closing remarks. Pablo Roberto González Guajardo: Well, thanks again, everyone, for participating. As you can see, very exciting things going on at Kimberly-Clark de México, and we -- we will have more to share when we have our call on April, certainly on many of the initiatives that I just mentioned on innovation, on Kenvue, et cetera. So looking forward to it and looking forward to have a very good year at Kimberly-Clark de México. And with that, again, thanks so much, and I hope that you also have a terrific 2026. Thank you all. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Independent Bank Corp. Fourth Quarter Earnings Call. Before proceeding, please note that during this call, we will be making forward-looking statements. In addition, some of our discussion today may include references to certain non-GAAP financial measures. Information about these non-GAAP measures, including reconciliation to GAAP measures may be found in our earnings release and other SEC filings. These SEC filings can be accessed via the Investor Relations section of our website. Finally, please note that this event is being recorded. I would now like to turn the conference over to Jeff Tengel, President and CEO. Please go ahead. Jeffrey Tengel: Good morning, and thanks for joining us today. I'm accompanied this morning by CFO and Head of Consumer Lending, Mark Ruggiero. Our fourth quarter results reflect ongoing progress towards restoring Rockland Trust's historically strong performance. Quarterly highlights included continued NIM expansion, strong C&I growth, solid non deposit growth, stable credit costs, realized cost savings from the Enterprise acquisition and the return of excess capital to shareholders. Between the first quarter of 2025 and the fourth quarter of 2025, our operating EPS increased by 60%. Our operating ROA rose by 40 basis points, and our operating ROTCE improved by 529 basis points. Reflecting on 2025, it was a busy and rewarding year as we gained traction on a number of key initiatives. First, we closed an integrated Enterprise. I want to extend my immense gratitude to their former Chairman and Founder, George Duncan, as well as all of the Enterprise colleagues who help champion the integration process. Acquisitions are never easy and often are disruptive to the day-to-day operations of the bank, the Rockland Trust and Enterprise team members collaborated to ensure disruptions were kept to a minimum. Let me share a few examples with you. On the commercial banking side, we have retained almost 100% of client-facing personnel and have experienced negligible customer loss. Obviously, keeping the relationship managers has helped retain the customers. Despite distractions from the acquisition and integration process, there has been no material drop-off in Enterprise loan production, and their pipeline remains as strong as it was when they joined Rockland Trust in July. On the retail banking side, it is again important to emphasize that we did not close any Enterprise branches and all Enterprise branch employees were retained. Excluding ICS and municipal deposits, all Enterprise branches have exceeded our 95% deposit retention target with approximately 60% of these branches having stable to increasing deposit balances. Given the acquired bank typically loses 10% of their deposits post deal, we are delighted with our performance. In the fourth quarter, we opened 271 business relationships and 837 new consumer relationships in the acquired branches. Within our investment management group, we've been able to retain almost all employees. We have targeted the caliber of talent and strength of the client base and the depth of relationships between colleagues and clients are outstanding at both Rockland Trust and Enterprise at a client-centric focus and the cultural integration has been excellent. Secondly, we made solid progress on the credit front. Our net charge-offs averaged just 11 basis points over the last 3 quarters of the year and the challenges within our office portfolio are identifiable and manageable. Third, we continue to rebalance our commercial lending business. C&I loans increased 9% organically in 2025 and now represent 25% of total loans versus 22% at year-end '24. Commercial real estate balances were down 3.6% organically from year-end 2024 were flat from the third quarter. Our CRE concentration stood at 289% at year-end, we believe we have achieved most of the targeted reduction in transactional CRE business. Total commercial loans closed and were $789 million in the fourth quarter, up from $754 million last quarter. Funding on these commitments were $454 million versus $396 million last quarter. 52% of fourth quarter fundings were C&I. Our middle market C&I group continues to gain momentum as evidenced by the fact that it represented 27% of total closed commitments in the quarter. The regional banking, which represents Rockland's traditional lending business, accounted for 39% of total closed commitments. I would also note that our low-income housing tax credit business injected $100 million of capital into our communities. And lastly, we were named Massachusetts Third Party Lender of the Year for 2025, showing a solid progress in the SBA space. Fourth, we generated solid organic growth in non-time deposits of 4.2% in 2025, which has been a historical strength of ours. DDAs represent a healthy 28% of overall deposits about where we were pre-pandemic. The cost of total deposits was 1.46% in the fourth quarter, highlighting the immense value of our deposit franchise. Legacy Rockland Trust branches generated record new business relationships totaling 6,921 and 3,463 net new relationships. 97% of branches achieved positive net new growth in business relationships in 2025. 100% of all our legacy branches achieved positive net new consumer growth. Fifth, our Wealth Management business continues to be a key driver. Our AUA remained stable at $9.2 billion in the fourth quarter, while revenues grew at a 4% annual rate. Lastly, we returned $164 million of capital to shareholders in 2025, including the repurchase of 913,000 shares for $61 million. With the Enterprise acquisition completed in 6 months of customer integration behind us and with credit trends stabilize, we'll enter 2026 laser-focused on organic growth, expense management and capital optimization. With respect to growth, I would highlight the following items. We hired a number of commercial lenders in 2025. In addition, we're working to ensure our alignment and incentive structures to emphasize both loan and deposit growth. We are also intently focused on identifying opportunities within our acquired footprint to deepen our relationships with our expanded product set. Lastly, given the improved credit metrics, we are more open to resuming normal commercial real estate growth. As we always highlight, loan growth will be commensurate with our deposit growth. On the expense front, with the Enterprise transaction complete, we believe a hold-the-line mentality with respect to staffing levels is appropriate. We will continue to invest prudently in technology to leverage efficiencies. Examples include our core systems conversion scheduled for later this year and our AI innovation team. Our AI efforts are focused on enhancing back-office efficiency, including fraud review day-to-day processing and BSA/AML. With respect to capital, we acknowledge that current levels are above our internal targets and our improved profitability will add upward pressure to our capital position. We remain committed to returning excess capital to shareholders. We believe fourth quarter results represent another major step forward in driving improved growth and profitability at Rockland Trust. We expect to build on this strong performance in orders ahead. Prudent expense and capital management, combined with improved organic growth and sustained NIM expansion position us to unlock inherent earnings power. I feel particularly confident in Rockland Trust's positioning across our markets, driven by the strength of our products, the dedication of our people and the effectiveness of the strategies we've put in place. I want to thank all Rockland Trust employees for their tremendous efforts in making 2025 a successful year. Every measure of our success is a direct result of your commitment. On that note, I will turn it over to Mark. Mark Ruggiero: Thanks, Jeff. I will now provide a bit more color into some of the fourth quarter numbers that Jeff just discussed and wrap up with full year 2026 guidance. To summarize the quarter results, 2025 fourth quarter GAAP net income was $75.3 million and diluted earnings per share was $1.52, resulting in a 1.20% return on assets, an 8.8% return on average common equity and a 12.77% return on average tangible common equity. Excluding $12.3 million of merger and acquisition expenses and the related tax impact, the adjusted operating net income for the quarter was $84.4 million or $1.70 diluted EPS, representing a 1.34% return on assets, a 9.8% return on average common equity and a 14.3% return on average tangible common equity. It is worth noting that the fourth quarter results also benefited from a lower tax rate due to onetime adjustments associated with the filing and true-up accounting of the 2024 corporate tax return as well as the finalization of all tax-related estimates inclusive of the Enterprise acquisition. Diving more into the fourth quarter results, we'll start with loan and deposit growth. As Jeff alluded to in his comments, commercial growth was driven entirely by C&I, which increased 7% annualized for the quarter and over 9% on an organic basis for the year. This focus on C&I lending has also helped fuel an almost 50% increase in new commercial deposit generation in 2025 versus the prior year. On the consumer real estate side, total loan balances were relatively flat with an increased level of mortgage production sitting at year-end in the held-for-sale category, which bodes well for mortgage banking income momentum heading into 2026. And lastly, though much smaller in volume, a 2025 initiative to build out a more robust premier banking offering, drove a nice increase in the quarter and our wealth management secured consumer lines of credit. On the deposit side, I already mentioned the calendar year commercial deposit activity. But for the quarter, total period end deposit balances declined 0.8% and due mostly to seasonal business deposit activity related to year-end bonuses, distributions and tax payments. We are encouraged by the growth in average deposits for the quarter across both the consumer and business lines, with 3.6% annualized growth in average core deposits, while we allowed for some level of attrition in our highest rate time deposits. In terms of a capital update, tangible book value grew nicely at $1.04 for the quarter to $47.55 at year-end. During the quarter, we repurchased approximately 548,000 shares for $37.5 million, representing a weighted-average repurchase price of $68.39, and as Jeff noted, we are committed to returning capital to shareholders via buyback in a prudent manner throughout 2026. Shifting gears to asset quality, the overall picture remains very stable. Total nonperforming assets stayed relatively consistent at $85.7 million or 0.45% of total loans. Net charge-offs for the quarter were $5.3 million, with $4 million of that related to a C&I relationship that was fully reserved for the last quarter. Provision for loan loss was $4.75 million and total criticized and classified levels decreased 8.9% during the quarter. Moving to net interest income. Despite the modest balance sheet growth, Net interest income increased $9.1 million to $212.5 million for the quarter. The reported margin increased 15 basis points to 3.77%, while the adjusted margin, which excludes purchase loan accretion and other significant onetime items, increased 10 basis points to 3.64%. Breaking down the components of that 10 basis point increase. First, we were able to effectively reduce our cost of deposits by 12 basis points during the quarter to an impressive 1.46% total cost of deposits. This reflects an approximately 30% beta on the average Fed funds decrease of 40 basis points quarter-over-quarter, right in line with our expectations. Second, loan yields stayed relatively flat when excluding purchased loan accretion, as immediate repricing on floating rate loans was nicely offset by continued yield expansion from cash flow repricing. And lastly, the vast majority of the securities book continues to see yield expansion driven by repricing. Our fee income businesses performed right in line with expectations for the quarter. Assets under administration ended the year at $9.2 billion, with the expanded footprint and resources providing nice momentum heading into 2026. And we are optimistic that both loan level swap up and mortgage banking income should continue to serve as a natural hedge against any pressure over longer-term rates. On the expense side, I would point you to Slide 12 in our earnings deck to provide some context over the fourth quarter results. In addition to providing insight into our 2026 guidance, which I'll soon share. As noted on this slide, total fourth quarter expenses of $142 million on an operating basis, represent a 3.7% increase versus the prior quarter, which can primarily be attributed to a number of large onetime or outsized expenses. To highlight a few, the fourth quarter included a $2 million increase in incentive expense versus the prior quarter. $750,000 of consulting expense related to our 2026 core system upgrade, a $750,000 swing in equity securities valuations, an updated FDIC insurance premium assessment, which created an almost $1 million change quarter-over-quarter and approximately $325,000 in snow removal expense. So as noted on this slide, which is difficult to extract from the noisy reported results, we peg our core expenses plus full cost saves from enterprise right around the $136 million number for a quarter. With that, I'll now finish up with full year 2026 guidance. Before I get into the various components, a lot of the fundamentals that we have been highlighting over the last few quarters give us strong conviction in our ability to improve earnings in a focused, sustainable manner throughout 2026. As such, we have established 2 primary profitability targets for the fourth quarter of 2026. The first is return on average assets of 1.4% and the second is return on average tangible capital of 15%. As for the drivers behind those targets, starting first with loan growth, we are targeting mid-single-digit percentage growth for C&I loans, low single-digit percentage growth for combined CRE and construction and flat to low single-digit percentage growth for total consumer as we anticipate a higher percentage of mortgage volume to be sold versus the 2025 levels. For deposit growth, we are targeting low- to mid-single-digit percentage growth for total core deposits while relatively flat to slightly lower balances for time deposits. For the net interest margin, we are modeling in 2 Federal Reserve rate cuts, which we continue to suggest will drive a fairly neutral impact on the margin. Assuming the 5- to 10-year part of the curve stays consistent with current rates, we anticipate continued margin expansion from cash flow repricing dynamics in both the loan and securities portfolios. Assuming purchase loan accretion of 10 basis points, we estimate the net interest margin to continue to grow to a range of 3.85% to 3.90% in the fourth quarter of 2026. From a credit standpoint, we have no significant loss exposures that are currently in workout status. And as such, we expect overall asset quality metrics to remain stable. Regarding noninterest income, we guide low single-digit percentage growth off of the 2025 second half combined annualized results. And for noninterest expense, again, referring back to the details on Slide 12, we are estimating a range of $550 million to $555 million for full year operating expenses, plus another $4 million to $5 million for onetime costs associated with our planned core system upgrade. And lastly, for the tax rate, with the significant increase in pretax income versus 2025 results, we project a full year tax rate in the 23.50% to 24% range. I will close out with a reminder that the fewer number of business days in the first quarter will typically result in lower first quarter earnings versus the rest of the year. And with that, that concludes my comments, and we'll now open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Jared Shaw with Barclays. Jared David Shaw: Maybe if we could just start with the -- on the credit side in Slide 9 with the office. Can you just walk through some of the dynamics with the change that we've seen, sort of the criticized classified was down but NPLs are up, and it looks like the criticized classified '26 maturities increased. What was sort of the backdrop of that? Mark Ruggiero: Yes. I'd say the most notable mover in terms of NPAs versus prior quarter is one specific loan that is now in the first quarter 2026 maturity bucket. So that's the $18.1 million classified balance there. That's one relationship that was actually originally scheduled to mature last quarter. We put it on a short-term extension, that deal is actually with our current P&S. We expect that to go through. Right now, the negotiations are going well. The appraisal we had on that actually suggested there was sufficient protection from a valuation standpoint, but the P&S that is in process suggests a small loss there. So we did reserve about a $2 million loss in the fourth quarter. So that's already in the allowance, but we expect that to get resolved here early in 2026. So that was probably the biggest -- the only downgrade for the quarter, Jared. I think on a positive front, we had a maturity in the last quarter that was approved. This was a $27 million loan. That continues to perform well. That was actually upgraded from a risk rating standpoint. When you look out into 2026 and you look at the criticized and classified levels that are disclosed, it's really just a handful of loans. As I mentioned in my guidance, there isn't really anything out there that has imminent loss exposure that we feel exposed to, I think anything with a very modest loss like the one I just talked about, we've already specifically reserved for. So we feel good about the office book. Jared David Shaw: Okay. And then maybe shifting over to deposits as we move through the year and with that guidance sort of a backdrop, where do you see betas coming through with potentially a couple more cuts here. Do you still feel like you can get 20% in the non-CD beta and 80% in CD? Or how should we think about that? Mark Ruggiero: Yes. I do, Jared. I think fourth quarter was a really good example of our ability to do that. I talk a lot about how this deposit franchise is structured. We have real visibility into a lot of the small balance core deposits that we don't move a lot on, what we would call our rack rate pricing. We're probably only in a 5% to 10% beta in that bucket, but it's the higher rate more sensitive where we do very deliberate what we call exception pricing, and that's the bucket where we typically are seeing 70% to 80% beta. So that combined methodology gets you to that 20%, give or take, all-in deposit base -- beta on the non-time deposits. And We've talked a lot about keeping the CD book relatively short for that reason as well. So we are really well positioned to continue to get some cost savings on the CD book, if you see the Fed continuing to cut. Jared David Shaw: Okay. And if I could just sneak 1 final one. Looking at capital continuing to grow and the success you've had with some of the deals in the past, what's the outlook on M&A? And I guess, maybe what's the sort of the feeling on the ground from potential sellers in the market? Jeffrey Tengel: Yes. So we -- as we've said this a lot over the last few quarters that we're really not focused on M&A at the moment. We're -- the priorities are organic growth, launching our expenses and focused on the conversion that's coming towards the latter part of the year. And we got to get the conversion right. You don't get a second chance if you don't. And we were able to get the conversion and enterprise done, we think, pretty well. And so we're working at making sure the same experience happens with the entire the entire enterprise come October. And so those are the things that we're really focused on. I would say M&A is not one of them. Operator: Your next question comes from the line of Mark Fitzgibbon with Piper Sandler. Mark Fitzgibbon: First, I just wanted to follow up on Jared's question as it relates to capital. Jeff, you had mentioned that you have internal capital targets. Is that something you'd be willing to share with us, whether TCE or CET1 or whatever you look at? Mark Ruggiero: Yes, I can jump in there, Mark. I'd say long-term capital targets for us, CET1, probably in the high 11% to 12% range, call it, 11.75% to 12%. I think that suggests your tangible capital in the 8.75% to 9% range. So certainly, suggests lower than where we are today, which is why we are talking a lot about expecting to continue to return capital to shareholders via buyback in a prudent manner. I don't think you're going to see us get to those levels certainly in the next 12 months just from buying back stock. But I'd say long term, that's where we should be optimizing capital. Mark Fitzgibbon: I guess the challenge is based on your projections, organic growth is going to be relatively modest in the near term. So it looks like capital will continue to build unless you're aggressive with buybacks. And I would suspect that sort of $168 or $170 of book, it's kind of hard to justify doing buybacks up at these levels. So I guess how else -- if M&A is out of the equation and buybacks that are out of the equation, organic growth doesn't get you there? Do you raise the dividend? Or is there something else that we're missing? Mark Ruggiero: I would suggest, I don't believe buybacks are out of the equation. I know -- I get your point in terms of the valuation has moved nicely. I look at our profitability profile and the future profitability profile, and I would suggest we'd be comfortable buying back at levels in 2026. So I think that the target would be to keep capital fairly flat via buyback through 2026 and allow us to deploy capital, hopefully in a better growth environment heading into 2027. Jeffrey Tengel: I would also just add, Mark, maybe to slice it a little bit finer on the M&A question. Bank M&A, clearly not interested. But if there is an RIA that we thought was a good fit and we could get it at the right price and continue to build the wealth management business, we would consider that because it doesn't involve a big systems conversion. I think the execution risk is much less, assuming the culture is very similar to ours and there -- this is the business model they want to be in. Mark Fitzgibbon: Okay. And then just pivoting gears a little bit. You guys have seen non-accruals decline in the last 2 quarters. And one of your competitors sort of said today that they thought the third quarter was sort of the peak in this cycle for credit issues. Do you agree with that? Or do you think we're out of the woods? Or do you see things on the horizon that cause you to be a little bit cautious? Jeffrey Tengel: We don't see anything on the horizon per se that makes us cautious. I think in general, we're cautious because of all the geopolitical noise and the potential for more tariffs and things like that. It makes our customers a little anxious. And so I would say there is that. But the traditional ways that you might think of being worried about our credit profile, I would say we do think we're at the peak or pretty close to the peak. I know Mark and I often get asked the question, how -- this is a baseball game, how many innings? What inning are we at in the credit cycle? And we haven't been asked that in a few months, I guess. But honestly, I would say like 8 or I don't know, Mark and I haven't talked about this [indiscernible]. Mark Ruggiero: I was going to say the same thing. We might be making the call into the bull pen soon. Mark Fitzgibbon: Okay. Great. And then lastly, I guess, framing the M&A question a little bit differently. There's a bunch of similar-sized banks in Eastern Massachusetts today. I guess, philosophically, I'm curious, do you think that a well-structured and priced MOE can work? Jeffrey Tengel: My -- I have a bias against MOEs just because they're difficult to manage. There's more risk in it. The ones that have worked, I think, are fewer than the ones that haven't worked. And you need to have a -- one person in charge. And invariably, with these MOEs, you get like, okay, you get a position here and then you get a position here. It's like a trade-off. And unless the companies are incredibly well positioned, both financially and culturally and everything else, I think it's hard to make those work. Operator: Your next question comes from the line of Steve Moss with Raymond James. Stephen Moss: Maybe just starting here on loan pricing here. Just kind of curious what you guys are seeing in the market for C&I and CRE loans these days? Mark Ruggiero: Yes, it's competitive. I think not surprisingly in our market. I think in some C&I deals, you're seeing some of the spreads competitively bidding out under 200 basis points. But we're getting our fair share of deal flow at the pricing we would like, which is 200 plus. So I think in the fourth quarter, all in, you saw total loan yields in the mid 6s. So that kind of reflects the pricing that we'd like to be getting in an environment like this. So I think as long as we're -- kind of my caveat there on the margin guidance, as long as you're seeing the 5-, 7-year part of the curve, stay where it is, I'd like to see loan yields staying in that range, which has given us the nice lift on the repricing aspect of it. Stephen Moss: Okay. appreciate that. And then in terms of just the maturing cash flows from the securities book this year, Mark, what are your thoughts in terms of deploying that just into securities or maybe be a little more aggressive on pricing CDs down? Just kind of curious how you're thinking about that. Mark Ruggiero: Yes. I really like where we are with total securities as a percentage of the balance sheet today. So I would say the vast majority of what will generate cash flow out of the securities book will likely go right back into the securities book. If we start to see any major variations and the rest of the balance sheet composition, that could change slightly. But I think general guidance would be expect to see securities stay relatively flat, meaning we're putting the $670 million, that's repricing, that's coming off right back into the bank. And just to remind you there, a big portion of that, Stephen, is at lower rates. So of the $670 million, $625 million of that is yielding about $180 million today. So if we're conservatively assuming to put that back into 4% securities, that's a nice lift to the securities book throughout 2026. Stephen Moss: Yes, 100% on that. And then in terms of -- maybe just the other thing in terms of hiring talent here. Just kind of curious what are you guys plans for hiring additional commercial loan officers? I know, Jeff, you talked about wanting more organic growth. I'm just kind of curious as to how you guys are thinking about those plans and where they may be these days? Jeffrey Tengel: Yes. I think at the moment, we're in a good position. A number of the people that we hired in the second half of last year came over into a relatively new segment of the commercial business. And so some of them came over without a portfolio. And so I think there's a lot of just inherent C&I growth that we can get from getting some of our new hires, basically the support that they need and just let them go. They all came over with a Rolodex, and we feel pretty good about their ability to drive activity and drive volume. Stephen Moss: Excellent. [indiscernible] nice quarter. I appreciate all the color here. Jeffrey Tengel: Thank you. Operator: Your next question comes from the line of Laurie Hunsicker with Seaport Research. Laura Havener Hunsicker: Jeff and Mark. I Wanted to start here with expenses and really appreciate the Slide 12, and really appreciate your breakdown of the $5.1 million. But I just wanted to make sure that I heard it right. Included in that $700,000 was from the core systems upgrade and that's... Mark Ruggiero: That's right. In the fourth quarter, we had some consulting to start preparing some of the work associated with that upgrade that would be somewhat onetime in nature. Laura Havener Hunsicker: Got you. Okay. And that -- the $4 million to $5 million of onetime, that's going to be spread over the year or sort of over the first 2, 3 quarters. How should we think about that? Mark Ruggiero: Yes. I'd say probably pretty evenly spread over the year, maybe a little bit more in the first quarter to come. But I -- if I had to guess, it's probably $1 million or $2 million here in the first quarter, probably another $1 million or $2 million in the second quarter. And then as we get to the October time line, it probably -- I think a lot of that will be the work that needs to happen over the 6 months, including third-party consulting to just get a lot of the processes documented as we gear up for that conversion. Laura Havener Hunsicker: Okay. And the conversion is in October? Mark Ruggiero: That's right. If you recall, we're originally talking about it as May as we started to do some of the initial work in lining up all the teams that are going to be needed. We just felt it was appropriate to give us a bit more time. Further complicating it, you need to get the core provider with the weekend where they can facilitate the conversion as well. So it's almost similar to scheduling and acquisition deal where you need the FISs of the world to be able to have a slot. So the next table slot that we were comfortable with was in October. Laura Havener Hunsicker: Okay. Okay. And then you mentioned the AI innovation team. What is your spend this next year on AI? Can you share that? Jeffrey Tengel: I actually don't know what the spend is, but I can tell you what we're doing about it, because I think one of the things that could get people caught in the AI space is trying to boil the ocean and do too much. And so what we've been doing is putting a governance model in place and then have all the kind of AI business use cases flow through this governance to make sure that we're thinking about the right thing. We don't want to have every one of our different business units all doing their own kind of AI Skunkworks. So we'd rather get that flowing through a centralized governance and let that team, which is, as you can imagine, heavily populated by our IT announced folks and have them pick and choose 2 or 3 of these business cases and get them done and show ourselves that we can get and get them done and get them done right, and then we'll bring more ideas into the centralized utility that is going to have a hand in the AI work that we do anyways. So we're trying to be methodical about it because I'd rather get 2 or 3 wins and knowing that it got done correctly, and we got the output that we're looking for than try and do 25 of these in each business unit kind of doing it themselves. I think that would be counterproductive. Mark Ruggiero: Yes. I'll jump on to that. So from a dedicated spend, the guidance for '26 is exactly as kind of Jeff laid out, it's specifically 3 dedicated individuals that we would expect to sort of create this initiated project. And I would propose, as we learn more through what their capabilities are, if we feel the need to invest more money and/or ramp up from a people standpoint and/or a technology standpoint, we would need conviction that, that is being done with offsets and other expenses through the environment so that it's ultimately beneficial to the expense run rate to keep investing in AI. So I think we need to see those benefits come through, give us conviction to continue to invest in AI, which should allow us to either reduce or at a worst case, hold the line in other expenses. Laura Havener Hunsicker: Okay. Okay. That's helpful. And then just one more on expenses. Your onetime charges with EBTC, those are finished, correct? Mark Ruggiero: Those are finished, correct. Laura Havener Hunsicker: Yes. Okay. Okay. Great. And then just jumping over to margins. Do you have a spot margin you can share with us? Mark Ruggiero: For December? You know what, Laurie, I actually forgot to bring that with me and at the top of my head, I don't have it because I want to give you a core number, but I can follow up with that. I don't have it in front of me. Laura Havener Hunsicker: Okay. Okay. And then just 2 more questions on the income statement. The -- just thinking about sort of the nonrecurring, I guess, obviously, the $315,000 of BOLI benefits, but the $7.6 million that you had of other income, what's the nonrecurring piece in there? And that should be running $1 million, $1.5 million lower. Is that right? Mark Ruggiero: Yes. In the fourth quarter, it was about $400,000 or so on our equity securities book. So whether you call it nonrecurring or not, you do -- we always see a fourth quarter lift because you get capital gain distributions and redistribution that may generate realized gains. So increased interest, dividends, cap gain distributions typically give us a $200,000 to $300,000 lift in the fourth quarter. So that's what you saw as a big piece of that. I'm trying to -- there wasn't anything else of that size. There was probably a few different pieces with $100,000 increases quarter-over-quarter. So nothing really unusual that I would definitively pull out as onetime or nonrecurring in nature outside of those equity securities gains. Laura Havener Hunsicker: Okay. Okay. And then just last question, just circling back here on office. So I know you talked about the $18.1 million classified that is maturing in the first quarter. The $9.9 million that's criticized, how should we think about that? Mark Ruggiero: Yes. Let me just -- so the $9.9 million, that is criticized in Q1. That is a participated deal that we have basically received an appraisal that had suggested valuation had been challenged a bit. That appraisal came in at the time the government announced kind of some of the DOGE initiatives, and there was a pullback on GSA leases. So this is a property that is being impacted by that sort of out of market. The sponsor is looking to either refinance or sell, we'll likely be working with the sponsor on that. So we expect there'll be an extension coming. The property is cash flowing. It's continuing to make payments. It's current, but there is likely a longer-term resolution to hopefully get repaid out of that. So I think I -- if I had to guess right now, Laurie, I'd say you'd see that probably with an extension that gets executed in this quarter with hopefully exiting out of that without really any loss at some point in '26, hopefully. Laura Havener Hunsicker: Okay. Okay. That's great. And then just lastly, the actual increase in the office non performers from the $22 million to the $41 million. Can you just break down roughly what that $18 million, $19 million is? Mark Ruggiero: Yes. That's one loan. So that was a loan that I mentioned earlier, we actually have a P&S on, where we accepted a slightly lower value than what the appraisal suggested. So that $2 million loss that we expect is already reserved for. That's the only change. Laura Havener Hunsicker: Got you. Okay. I thought you were talking about the [ $18 million ] classified. My apologies. Mark Ruggiero: So I know that's the -- well, that is -- yes, that's the $18.1 million classified in Q1. So that was new to nonperforming. Operator: [Operator Instructions] your next question comes from the line of David Konrad with KBW. David Konrad: Yes. Just had a follow-up question on the Commercial Banking platform. Your guide for '26 mid-single-digit increase is fair, probably what I would do with all the uncertainty as well. But on the other hand, you've hired a lot of people in the back half of '25, and you grew by, I think Mark said about 9% organically in '25 as well. So it feels like you got a lot of momentum, and this is kind of a slower growth. So are you seeing something in the marketplace, whether it's competition that hold that back? Or maybe talk about potential upside to that growth rate? Jeffrey Tengel: Yes. So there probably is some potential upside just because I know all the people we hired last year and are they're all very, very talented. I would also point out that in addition to just getting our teams that are already doing well, pushing the zoo even more. We had one line of business that we started in '25, will be done in '26 that we just decided it wasn't where we wanted to be. And so we wound up -- we're in the middle, I should say, of exiting that business. It's around $100 million, give or take. And so we've been in process of moving that. So any of the growth that you see is going to include $100 million of runoff in this specific business segment. And that's a little bit of the headwinds that I think if you -- if we wind up, we're sitting here at the end of the year and we exclude the impact of that runoff, I think the low to mid-single-digit percentage increase could be higher. David Konrad: Got it. Got it. Okay. And then what was -- what type of loans were in this specific segment you're running now? Jeffrey Tengel: It's our floor plan business, not to be confused with our ABL business, which we like a lot. This was a business that had floor plan lines [ of ] very small used car dealerships. It was a bit of a legacy Rockland Trust business. And we just got to the point that we didn't have the right systems that help track the collateral. And the loans were small. We didn't think the outlook for this business was good, given the nature of the business. A lot of the floor plan companies are consolidating, just like the OEM part of this. And so to the extent that this just really didn't fit our risk profile. David Konrad: Got it. And I know, historically, those loans are actually pretty tight credit spreads as well. Jeffrey Tengel: Yes. Can be. Operator: There are no further questions at this time. I will now turn the call back to President and CEO, Jeff Tengel, for closing remarks. Jeffrey Tengel: Thank you. Appreciate everybody's interest in Rockland Trust and have a terrific weekend. And Go Pats. Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Hello, and welcome, everyone joining today's Kimberly-Clark de México Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the meeting over to CEO, Pablo Gonzalez. Pablo Roberto González Guajardo: Thanks so much. Hello, everyone. Thanks for participating on the call. We wish you and your families a terrific 2026. We'll go straight to results and then make some brief comments about the quarter and our expectations going forward. So I'll pass it on to Xavier. Xavier Cortés Lascurain: Thank you, Pablo. Good morning, everyone. Our sales reached MXN 14.1 billion in the fourth quarter, an increase of 2.1% versus the same period of 2024. Total volume was flat and price/mix improved 2%. Growth was driven by consumer products, which expanded 5.5%, supported by healthy year-over-year growth of 1.4% and price/mix of 4.1%. Export hard rolled sales continued to decline as we converted more tissue towards higher-value domestic products. Sequentially, results continued to improve from Q3 to Q4 as sales increased 4.8%, with Consumer Products up 8.5% primarily volume less, reflecting strong commercial execution, the planned innovations to products and improved market dynamics. Cost of goods sold was flat and as a percentage of sales improved by 130 basis points. Compared to last year, virgin fibers, recycled fibers, SAM and resins were favorable, partly offset by higher fluff costs. The peso remained supportive with an average appreciation of roughly 8%. Our cost reduction program once again delivered solid results, generating approximately MXN 500 million in savings during the quarter, mostly within cost of goods sold. These efficiencies came from sourcing, materials optimization and ongoing process improvements across our operations. As a result, gross profit increased 5.4% and our margin reached 40.4%, reflecting both disciplined revenue management and cost tailwinds. SG&A expenses increased 0.8% year-over-year and as a percentage of sales decreased 22 basis points as we continue to carefully prioritize brand investment and overhead efficiency. Operating profit grew 9.2%, and our operating margin expanded to 22.9%. We generated MXN 3.7 billion of EBITDA, an increase of 6% with an EBITDA margin of 26.4%, a 140 basis point sequential improvement and 100 basis point expansion versus the fourth quarter of 2024. Financing cost was MXN 398 million compared to MXN 350 million last year, driven mainly by lower returns on cash balances. Net income reached MXN 2.2 billion with EPS of MXN 0.73, a 23% increase year-over-year. For the full year, sorry, sales reached an all-time record of MXN 55.4 billion, up 1.1%. EBITDA was MXN 14.1 billion, representing 25.5% of sales, while margins declined 170 basis points due to the cost pressures we faced, particularly during the first half of the year. Net income was MXN 7.6 billion or 13.7% of sales. Throughout 2025, our cost reduction initiatives delivered MXN 1.95 billion in savings, driven by sourcing, operating efficiencies and product design optimization. We invested MXN 1.8 billion in CapEx, consistent with our plan and focused on technology upgrades, cost reductions, efficiencies and strategic capacity additions. We also repaid MXN 3.7 billion of debt, paid MXN 6.2 billion in dividends and repurchased nearly 43 million shares, equivalent to 1.4% of shares outstanding. We closed the year with a strong and healthy balance sheet. Total cash stood at MXN 9.7 billion. Net debt-to-EBITDA was 1.0x, and EBITDA to net interest coverage remained very solid at 10x. Thank you very much. I return it to Pablo. Pablo Roberto González Guajardo: Thanks. So we continue to operate against a soft consumer backdrop. However, we've delivered year-over-year growth, strong margins and a meaningful sequential improvement. Consumer Products performance was notably stronger, supported by innovations and commercial initiatives. Overall, consumer confidence remains subdued and private consumption growth has moderated. Within retail, value formats and private label continue to gain share as shoppers seek savings, while e-commerce growth remains robust. Against this backdrop, our categories continue to show resilience, and our brands have benefited from our strong innovations, price and mix discipline and market execution. As we get into 2026, we have solid plans to strengthen our core businesses, accelerate growth in our diamond categories, expand into adjacencies and new categories, most notably in pet food as well as participate in markets we have traditionally not emphasized in the past, such as private label. On costs, we're seeing the benefits of lower pulp, recycled fibers, resins and superabsorbent materials, which together with a stronger peso, will provide important tailwinds as we move into 2026. Cost reduction program remains a key structural lever, and we will stay aggressive in sourcing, product design and process efficiencies. A few additional comments before we open it up for Q&A. First, Kimberly-Clark Corporation, our strategic partner, announced in November its agreement to acquire Kenvue. This combination will create a leading global health and wellness company with a complementary consumer portfolio and expanded capabilities. As the transaction progresses towards closing expected in the second half of 2026, we will evaluate potential strategic implications for Kimberly-Clark de México, including the possibility of integrating Kenvue's operations in Mexico. Our focus will remain on achieving operational excellence and capturing value-accretive growth opportunities for the business. Additionally, we will hold our Annual Shareholders Meeting on February 26, where the Board will propose a dividend increase in the high single digits, reflecting our solid cash generation and confidence in future performance. We will also propose a share repurchase program, which will remain significant and aligned with our commitment to disciplined capital allocation. One final note. Starting with the first quarter results, we will be releasing them to the public on the third Tuesday of the month after the end of the quarter as soon as the Board approves them at the regularly scheduled meeting later on the same day, and we will hold our call early on Wednesday morning. In summary, looking ahead to 2023, we face 2026, we face external risks, including ongoing tariff uncertainty and a slower domestic demand backdrop tied to softer formal employment and slower remittances. However, we are optimistic. We are entering 2026 with better momentum than 2025, and we have mitigating factors to those risks, including our leading positions in essential categories, portfolio initiatives focused on value and affordability, continued excellent execution with customers and, of course, a robust balance sheet. With that, let me turn it over to questions. Operator: [Operator Instructions] Our first question comes from Alejandro Fuchs with Itaú. Alejandro Fuchs: Congratulations on the results. I have 2 very quick ones. First for Pablo. I was wondering, Pablo, if you could comment on the expectations for this year, maybe on competitive environment, what you're expecting? And maybe if you can elaborate a little bit more into going into private label, how relevant do you think this will be for the business in the medium to longer term? And then the second one, very quickly to Xavier. I was wondering, Xavier, if you could give us some color on the tax rate during the quarter. I think it was quite low. So maybe you could explain a little bit more what was the case, that would be very helpful. Pablo Roberto González Guajardo: Thanks, Alejandro. Thanks for being on the call. Yes, first, on the competitive environment, I mean, we faced a pretty competitive environment during 2025, again, given that the economy is not growing much and consumption is subdued. I don't think it was more aggressive than in some years past, but it certainly was, I would say, maybe a tidy more aggressive. And we expect that to continue this year. I mean we expect the economy to grow at a higher rate not what it should be growing, but certainly at a higher rate. So we expect categories to expand a little bit, but competitors to be aggressive to try and gain share and grow at a faster clip than categories. So nothing that we haven't seen in the past. This is the nature of our categories. And against that backdrop, I guess, we performed very, very well, particularly in consumer products during the second half of the year and we're entering with that momentum and with stronger shares into 2026. And we've got plans on innovation, price mix, et cetera, that I think will carry us forward. So we're pretty optimistic with the year as a whole. It might start a little bit slow, but I think for the year as a whole, we're pretty optimistic. On private label, as I mentioned in my opening remarks, and you guys know this, I mean, given the consumer is so stretched, private label has been gaining ground in many categories, not only ours. We've been able to fend off on our part the private label, given our -- the strength of our shares, but it is no doubt increasing. It's important and both hard discounters and overall retailers are pushing it forward. So what we decided to do is to participate more aggressively in private label, and we put together a dedicated team with dedicated assets to look into this and with some early successes. And we will be going forward, competing on private label and of course, competing overall in the market for this business. So we expect this can be a benefit for us going forward. And together with, again, strengthening our core, accelerating diamond categories, being more aggressive on the supply chain front with Kimberly-Clark Corporation, Private label, I think, can add an additional opportunity for growth in KCD Mexico's case. Javier, on the tax rate? Xavier Cortés Lascurain: Sure. Alejandro. You are correct in pointing out that the tax rate -- the effective tax rate shown in the fourth quarter was lower than what we traditionally have. And that, of course, also had an impact for the full year. This comes from an accounting adjustment that primarily reflects improvements in our estimation processes and those yielded a more accurate estimate, and that allowed us to reverse some provisions. This adjustment does not result from any change in our tax strategy nor from the adoption of new tax positions or any aggressive tax assumptions. And it will also not impact how much taxes we pay. This is -- these are mostly accounting and noncash adjustments. And let me underline that we continue to apply a consistent, conservative and very responsible approach to tax accounting. So I hope that helps. Operator: Our next question comes from Ben Theurer with Barclays. Benjamin Theurer: Congrats on the results. Two very quick ones. So one, obviously, 2025, you've done a relatively good job on continued cost savings initiatives. And I mean, the run rate was really good. So if you could share maybe how you think about that into 2026, also in the backdrop of the better environment that you're expecting? And then as it relates to raw materials, I mean, I would say it was mixed, but obviously, FX supportive. So how do you feel about the raw material price environment and then obviously, as FX as a tailwind and how that then ultimately comes down to profit margins into 2026? Pablo Roberto González Guajardo: Thanks, Ben. Thanks for the questions. First, on the cost reduction program, as we've said before, I mean, this is really an essential part of our culture. And that's why year-over-year and every year we deliver very strong results. And we are confident 2026 will not be the exception. We have identified already upwards of MXN 1 billion in savings for this year and most likely will be close to what we achieved in 2025. And again, this is just part of our culture of continuously looking for opportunities in product design and sourcing and materials on efficiencies to continue to improve our execution operationally. So we expect another strong year on our cost reduction program, and we are off to a very, very good start. When it comes to raw material price environment, I mean, we're entering 2026 in a very different position as most of our raw materials are -- have come down, and we don't necessarily expect them to continue to go down throughout the year. But certainly, they will compare very, very favorably at least through the first half of the year and maybe through the whole year. I mean it's hard to tell these things can -- they're very volatile and they can change. But the scenario we're looking at right now is pretty favorable to start the year together with the exchange rate. So we do expect, as you could see in the fourth quarter, that to trickle down to our margins on the bottom line. Operator: We will move next with Antonio Hernandez with Actinver. Antonio Hernandez: Congrats on your results. I wanted to check what's the current standpoint on the Nutec partnership? At what stage are you currently in terms of operations, distribution and sales? Pablo Roberto González Guajardo: Sure. Thanks, Antonio. We -- as you know, we entered the pet food business in the second quarter of last year and really have been working on ramping that up over the last half of last year, and that will continue to be our priority this year. We continue to gain space at shelf as consumers have reacted very, very positively to the products, I would say, particularly to the premium offering, so Prime Care. And as that has happened, of course, retailers have become more and more interested in giving us more space, putting the brand out there, and that is allowing us to increase our penetration. And that will be our main focus still on 2026. As we said from the very beginning, this is a category that will contribute to our results in the medium term. It won't be immediate. But I think we continue to make very good strides, and we believe 2026 will be a breakout year for us in that sense. And in the coming years, it should be a category that delivers more in terms of both top line and bottom line for Kimberly-Clark de México. Operator: We will move next with Renata Cabral with Citibank. Renata Fonseca Cabral Sturani: I have one that is a follow-up about the consumer segment that you just commented. Just would like to ask if you can provide some color in terms of price mix for this quarter. And since last quarter, I think it's performing really well, and you already commented something about why this is going well. And my second question is if you can comment something about dividends and buybacks for 2026. Pablo Roberto González Guajardo: Sure. First, on the price/mix, Renata, I mean, as we mentioned, Consumer Products overall grew 5% for the quarter. Volume was a little bit over 1% and price/mix was a different 4%. And when you look at price and mix, if you break it down, it was pretty much even, 2.1% price was up and mix was up 2%. And again, this is not only a testament to the discipline on our pricing, but also on our good commercial execution and the effort we've placed on improving our mix in all of our categories and driving consumers up to the higher tiers. And we've been very successful, for example, in doing that in bathroom tissue as we move users up to Cottonelle. So even in a very, I would say, subdued consumer environment, we've shown that we can bring mix and price to the table. So those 2 components together with gaining a little bit of volume, that's what really has delivered a very strong showing for Consumer Products in fourth quarter and also third quarter. So we'll continue to work on that to think about where we see pricing opportunities, continue to push for a stronger and better mix and of course, continue to look for ways to grow the categories and volume. So it's really the combination of the 3 that allowed us to post these results, and that will that's the objective for 2026 is to continue to move on all those 3 fronts. When it comes to dividends, as we mentioned, we will have our shareholder meeting late in February, and we will be discussing with the Board on February 10, the dividend that we want to propose and the repurchase program that we want to go forward with. But we are -- we will -- we know we'll be proposing a dividend increase in the high single digits. And again, this reflects our solid cash generation and confidence in future performance. So it will be another year where we provide this high single-digit dividend increase into 2026. Xavier Cortés Lascurain: And we will also be proposing a share buyback, which will continue to be significant. Operator: We will move next with Guilherme Mendes with JPMorgan. Guilherme Mendes: I have 2. First, on your short-term and long-term thoughts about the degree of cannibalization between private label and your own branded portfolio. Where do you see it now? And long term, is there some, let's say, mindset around what degree of cannibalization this can make to your long-term volumes in your core branded brands? And secondly, if you could share more thoughts around what the Kenvue potential acquisition in Mexico could mean in terms of incremental revenue, CapEx, returns? That's it. Pablo Roberto González Guajardo: Thank you. Thanks for the questions. First on cannibalization. Look, with our strategy of multi-tier, multichannel, multi-brand in our categories, our brands have held up steady very, very nicely. I mean our shares are very strong in many categories growing, even though private label in the category is growing. So in many, many instances, we're the #1 player with very strong shares and then private label is now the second player in those categories. So we will continue to focus on our brands, and I want to be very, very clear about that. Our brands are our priority. We're a branded consumer products company. But given the opportunity for growth in private label and the fact that we believe we could be good partners with some of our clients in strategic areas, we want to participate -- and -- but our, again, multi-tier innovation program, multichannel, multi-brand continue to be the priority. And as it's held up very strongly until this point, we expect it to continue to hold on very strongly going forward. We just see an added opportunity for growth if we can participate in private labels. And as we've started to do this, we've seen some early success. So we'll see what it means going forward. But I can't stress enough that our main priority is our brands, innovation behind our brands and bringing to consumers the best products at the best cost in every single tier, in every single channel with the best brands, which -- and preferred brands, which are ours. On the Kenvue issue, and thanks for asking that question. As I mentioned, we've just started conversations with our partners -- with our strategic partner. And these conversations will evolve here through end of January, February, March. By -- I'm going to say by April, we should have a much clearer understanding of where we stand, what the Kenvue business in Mexico would mean for Kimberly-Clark de México and whether we can come to an agreement with our strategic partner as to how to move forward. So we'll have more information certainly in our conference call when we report first quarter results in April. But let me just say this. Our understanding is that on the top line, Kenvue, Mexico is about roughly $200 million in sales company. So it's about 1/10 of where we stand. So not huge, but also not insignificant. It's a nice size, and it would be a transaction that would add quite a few categories that we're interested in, in the health and wellness. And as we've always said, categories that have great growth potential, categories where we see we can add value given the way we operate innovations, brands, channels, tiers, et cetera, categories where we think we can add value not only to consumers but also to clients and that in the medium term would be accretive to our, of course, top line, but also bottom line results and margins. So early. Again, we've just started the conversations, but it's a good opportunity for us. Again, not a huge one, but an opportunity that opens very nice windows of growth going forward that would add to our core diamond categories, new categories where we've entered like pet supply chain integration with Kimberly-Clark Corporation. And if this happens, then Kenvue categories. So the whole scenario, I think, paints a very good picture of the possibilities of growth for Kimberly-Clark de México going forward. Operator: Our next question comes from Bob Ford with Bank of America. Robert Ford: Congrats on the results. Pablo, given the concerns around private label, could you maybe provide some examples of innovations across major categories and price tiers? And maybe touch on like some of the materials innovations, right? We're going through this pretty big technology cycle. And I'm just curious if you -- if there are any things that have been patented or maybe a product cycle that you feel really comfortable that you can maintain leadership in for an extended period of time? Pablo Roberto González Guajardo: Yes. Thanks, Bob. Thanks for the question. These are all very, very dynamic categories. And I can talk about a few of the things we did this past year. I wouldn't want to get ahead of myself and talk about 2026. But I'll give you some color on where we stand. But in 2025, for example, we -- in bathroom tissue, we introduced new products in a whole range of products. And particularly, we were very aggressive in bringing new technologies into the premium category with Cottonelle with great, great results. I mean our sales in Cottonelle are growing double digits and continue to do so very strongly. When you look at diapers, we also brought even a Tier 7 diaper to continue to premiumize the category with softness that is unparalleled in the market and of course, the absorbency that consumers come to expect from Huggies. And we've also improved even our economy tiers with now stretchable ears in diapers, which is a first really for the economy tiers. So again, across all of the tiers, -- we've improved our products in feminine care. We brought a new nocturnal pad that it's considered by consumers the best product in the market by an important margin, and it's just a new platform that we're bringing to that category. And incontinence, we brought new products, again, in pads and panty liners that have also preferred by consumers that also offer a new platform. So very, very excited about what we've done and even more so with what we see going forward because I think we're going to be bringing to market some new technologies, first-in-market technologies and in some cases, first to the world technologies that I think will continue to strengthen our platform, strengthen our brands and strengthen our position in the market. So this is never ending, and I'm very excited about our plans for 2026 and innovation, but already looking at '27, '28 and making sure we bring very relevant innovations to market and try and step ahead -- and keep stay a step ahead of competition in every tier in every channel going forward. So sorry, I can't say more about '26, Bob. I'll share more as we go through the year and bring those innovations to market. But as you can see, I'm very, very excited with what I see we can bring to the table in this year. Robert Ford: No, that's definitely well communicated. It's a great teaser. With respect to maybe playing a greater role in the supply chain, can you touch on what you think your competitive advantages are, right? I mean you're clearly doing a much more sophisticated kind of tiering of products. You're doing more shorter production runs. I'm familiar with some of the productivity rates that Kimberly-Clark de México versus the rest of the system. Beyond that, what should we think about when it comes to maybe selecting Mexico to play a much bigger role in the North American supply chain? Pablo Roberto González Guajardo: That's a great question, Bob. Look, we are at a great point on that issue because after working with Kimberly-Clark on specific projects over the past years, we really have -- it's come to the point where we're sitting down, we're taking a look at the whole supply chain. We are being completely transparent in putting the numbers out there, costs, efficiencies, logistics, et cetera, and identifying the biggest opportunities going forward. And as you mentioned, in many respects and particularly when it comes to certain of the tiers in the market, we have advantages because of the way we operate, because of our costs and because of how we know to manage different tiers, which, again, it's much easier said than done. So we're finding very interesting opportunities. But the key thing is where I started that it's not now just hey, we found this project, how do we move forth together with it. It's really a holistic look at the supply chain, figuring out where we can add value, figuring out where they can add value and putting all of that together so that when we think of a project now, it's really for the medium and long term. It's not just a one-timer. We will still have some one-timers, but it is becoming more of a, hey, can we think of certain area of the U.S. where Mexico would be better positioned to supply products and put us in a better competitive position overall in such a market. So we're delighted that that's where the conversations stand. And we just had our Kimberly-Clark Board members attend our Board meeting, and they expressed the same confidence that we're finding very interesting opportunities and that we're very confident going forward our supply chains can come together and deliver very positive improvements for both Kimberly-Clark Corporation and Kimberly-Clark de México. So again, another area where we're very excited and where we think that '26, '27 could be breakout years when it comes to really determining how to play together. Operator: [Operator Instructions] We will move next with Jeronimo de Guzman with INCA Investments. Jeronimo de Guzman: I had 2 questions. The first one was just a follow-up on what you talked about with the shift. You talked a little bit more about the shift or increasing the emphasis on private label and value. And I was just -- you kind of touched upon it, but I just wanted to see if we should expect any kind of impact on pricing/mix or margins as a result of this. Pablo Roberto González Guajardo: No, we don't think so, Jeronimo, certainly not in the short term. And in the medium to long term, we'll see how successful we are and how many -- how strongly we can participate. But of course, and you know our culture, we're already working into, okay, if we are very successful and can participate meaningfully, how do we change our cost structure so that we continue to deliver the margins that we've targeted and that continue to be our target. So no, don't expect a change anytime soon on that target. And we will find ways to, over the medium to long term, be there within that target range. Jeronimo de Guzman: Okay. Makes sense. And then a question on just how are you thinking about pricing because you're mentioning the raw material environment being very supportive, but you're also talking about competition continue to be aggressive, trying to gain share. So yes, kind of how are you thinking about pricing going forward? Pablo Roberto González Guajardo: Thanks for the question. We are looking at all of the opportunities on pricing because notwithstanding, as you say, that raw materials are a tailwind right now and so is the exchange rate. These are very volatile, particularly -- well, both of them. And we've seen in past years that things can change relatively quickly. We don't expect that to happen, but it could. So we're ready. We're ready to move on pricing. And with our revenue growth management initiative, we're always looking for opportunities, both on pricing and mix. So we -- I would venture to say that we will -- you will see some pricing coming to the market this year and aiding our results. And again, we'll continue to work on the mix, and you will see some mix also come into the equation and also help our results during the year. No specific plans at this point, but pretty confident that both factors will be relevant and help us with the results in 2026. Operator: Our next question comes from Juan Guzmán with Scotiabank. Juan José Guzmán Calderón: Congrats on the strong performance. Just one quick question here as most of my questions have already been answered. Regarding Away from Home, given this 10% contraction that you mentioned due to channel inventory adjustments, what's your outlook for this business going forward? And even when it's early in the year, what trends have you been observing recently? And what strategies are you implementing to recover sales growth here? And that will be it. Pablo Roberto González Guajardo: Thanks, Juan. Thanks for the question. Yes, not happy with the results on the professional side. Again, a combination of a softer economy and our wholesalers reducing their inventories given their concerns on the market. Having said that, again, we believe the economy will pick up a little bit this year. And particularly on that side, when it comes to hotels, restaurants, et cetera, we will definitely see the benefit of at least some of the games of the World Cup being played in Mexico. And not just because of some of the games, I think tourism overall will be a positive for the country this year. So we expect really this to turn around in the coming -- I don't know by the first quarter, I think we'll do quite better, and we're already seeing much better performance in the first quarter, early, but we're seeing much better performance in the first quarter. But certainly, by the second quarter, I think we'll see better performance. And our strategies, same as in consumer products, we're very clear of the different areas we want to go after, and we're bringing also innovation and interesting -- very interesting innovation to the different categories, and we're working very, very closely with our wholesalers to go after specific accounts and to try and premiumize in different categories. So not very different in terms of the strategies that we're pursuing in Consumer Products. And again, we expect this to turnaround certainly by second quarter, and we expect the business as a whole to grow nicely throughout the rest of the year. And again, we're already starting to see early signs of that turnaround, but I think it will take a little bit more so maybe by second quarter. Operator: And at this time, there are no further questions in queue. I will now turn the meeting back to Pablo Gonzalez for closing remarks. Pablo Roberto González Guajardo: Well, thanks again, everyone, for participating. As you can see, very exciting things going on at Kimberly-Clark de México, and we -- we will have more to share when we have our call on April, certainly on many of the initiatives that I just mentioned on innovation, on Kenvue, et cetera. So looking forward to it and looking forward to have a very good year at Kimberly-Clark de México. And with that, again, thanks so much, and I hope that you also have a terrific 2026. Thank you all. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning all and welcome to the Byline Bancorp 4Q 2025 Earnings Call. My name is Carli, and I'll be coordinating the call today. [Operator Instructions] Please note that this conference call is being recorded. At this time, I'd like to introduce Brooks Rennie, Head of Investor Relations of Byline Bancorp. Please go ahead. Brooks Rennie: Thank you, Carli. Good morning, everyone, and thank you for joining us today for the Byline Bancorp Fourth Quarter and Full Year 2025 Earnings Call. In accordance with Regulation FD, this call is being recorded and is available via webcast on our Investor Relations website along with our earnings release and the corresponding presentation slides. As part of today's call, management may make certain statements that constitute projections, beliefs or other forward-looking statements regarding future events or their future financial performance of the company. We caution that such statements are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from those discussed. The company's risk factors are disclosed and discussed in its SEC filings. In addition, our remarks and slides may reference or contain certain non-GAAP financial measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. Reconciliation of each non-GAAP financial measure to the comparable GAAP financial measure can be found within the appendix of the earnings release. For additional information about risks and uncertainties, please see the forward-looking statement and non-GAAP financial measures disclosure in the earnings release. As a reminder for investors, this quarter, we plan on attending the KBW Winter Financial Services Conference in Boca Raton, Florida. With that, I would now like to turn the conference call over to Alberto Paracchini, President of Byline Bancorp. Alberto Paracchini: Thank you, Brooks. Good morning, everyone, and Happy New Year to all of you. We appreciate you joining the call this morning to review our fourth quarter and full year 2025 results. With me today are Chairman and CEO, Roberto Herencia; our CFO, Tom Bell; and our Chief Credit Officer, Mark Fucinato. Before we get started, I'd like to pass the call over to our Chairman, Roberto Herencia for his remarks. Roberto? Roberto Herencia: Thank you, Alberto, and a Happy New Year to all. we extend our best wishes for a successful and healthy year ahead. We are delighted and proud to finish the year on a strong note and excited to announce a 20% increase in our quarterly dividend. No doubt a reflection of our strong financial performance and confidence in our ability to continue to deliver top quartile results in key profitability metrics as Alberto and the team will cover shortly. What our Board and team have accomplished over the last few years is remarkable and provides a great platform for the future. Our North Star, the preeminent local commercial bank. The Chicago banking market, including verticals we run out of Chicago, offers significant opportunities for growth and development with Byline well positioned to lead. Every day, it feels we're reminded that we live in an era of radical uncertainty where rules-based order is fading. And of course, we care about the impact and outcomes on our customers. The majority of which live in a world that is very distant from billionaires, Davos and geopolitics. In this environment, we, as the local community and commercial bank become even more relevant to our customers and the people who work with us. As you know, we believe in people first banking where engaged employees delight our customers, enabling Byline to produce top quartile returns for our shareholders. In December, we were named to America's Best Workplaces for 2026 overall. We wrapped up the year with continued low turnover and an engaged workforce of just over 1,000 employees who work together to deliver value for our customers and community. And that's inspiring to me and the rest of the Byline team. We have at Byline identified our common purpose, becoming the preeminent local bank. We strive to execute consistently with that at all levels all the time. And that defines our future. So others don't have to do it for us. The position of the franchise is enviable as the largest local community bank, the second largest local commercial bank and the largest, most stable platform for quality lenders to bring their books and grow their businesses. We have the balance sheet plus a strategically stable ownership group with all the tools and structure in place that a lender needs to just focus on serving clients and finding new ones. This gives us an edge over what most banks dream of and the #1 that you show most banks try to solve with deals, organic growth. We are driving everything toward compounding returns and that means reliable, sustainable, prudent growth over the long run. And you can see that in all our actions with capital and recruiting and in our track record for achieving top-tier financial results. To summarize why we are excited. First, the people we have in place from those that have been here for over 40 years, to those who joined us over the last 5 years as a result of merger activity in the market. Second, the results out of that execution have been exquisite, 130 million reasons in the last year to back up this excitement. Third, the quality and simplicity of our strategic plans have kept us focused. We don't strive to be everything to everyone. We are a commercial bank, striving for preeminence in that segment. Fourth, our position in the marketplace, as I've described, and finally, our unique shareholder base and their representation in our boardroom. This is an incredibly optimistic time for Byline, company populated by exceptionally kind competent people who care about what we do and how we do our work. Differentiate and separate is what we plan to do. I truly believe that among the thousands of community banks, we are unique in our approach and prospects. And with that, I'm happy to return the call to Alberto. Alberto Paracchini: Great. Thank you, Roberto. This morning, I'll walk you through the highlights for the full year as well as the quarter. Tom will follow the detail -- with the details on the financials, and I'll come back and wrap up before we open it up for questions. As always, you can find the deck for this morning's call on the IR section of our website. Please refer to the disclaimer at the front. So turning to our full year results on Slide 4. Byline delivered strong results for both the fourth quarter and full year of 2025. Before I get into the numbers, I want to thank our team. The results we're sharing today are a direct reflection of their dedication to customers and the effort they put in throughout the course of the year. A year ago, I said we had excellent momentum and felt confident in our ability to profitably grow the business and deliver value for shareholders. I'm pleased to report we did exactly that. The operating environment evolved differently than we anticipated. Interest rates remained elevated longer-than-expected, macroeconomic uncertainty increase and regulatory and policy changes came faster than in the past. Against that backdrop, we stayed focused on what matters, serving customers, executing our strategy and achieving several important milestones. First, we closed our transaction with First Security, converted systems and completed the integration all within a single quarter. Second, we upgraded important customer-facing technology platforms. And third, we continued our preparation to cross the $10 billion asset threshold in 2026. We also grew relationships, sustained profitability, build capital returned $42 million back to stockholders and grew tangible book value per share by approximately 17%. Overall, 2025 was a productive year in which we continued advancing our strategy to become the preeminent commercial bank in Chicago. For the year, net income was $130.1 million or $2.89 per diluted share on revenue of $446 million, up 9.7% year-on-year. Profitability was strong with pretax preparation ROA of 219 basis points ROA of 136 basis points and ROTCE of 13.5%. Year-on-year loan growth came in at 8.9% and deposits grew 2.5%. Capital ratios increased throughout the year and ended strong with TCE at 11.3%, demonstrating strength and financial stability. Lastly, we maintained positive operating leverage, notwithstanding the rate environment towards the end of the year and our continued investment in the business. Turning to the fourth quarter on Slide 5. Results for the fourth quarter were also strong. Net income was $34.5 million or $0.76 per diluted share on revenue of $117 million. Profitability and returns remain solid. Pretax preparation income was $56.6 million, pretax preparation ROA was 232 basis points. ROA was 141 basis points. And again, ROTCE notwithstanding a higher capital base was 13%. Revenue was up 1.1% from the prior quarter and 12% year-on-year, driven by higher net interest income. From a balance sheet standpoint, loans grew 3% linked quarter, deposits declined to $7.65 billion due largely to balance sheet management at the end of the year. Origination activity was consistent with prior quarters at $323 million, with growth coming primarily from our commercial and leasing businesses. On the liability side, noninterest-bearing deposits were essentially flat at 24% of total deposits and deposit costs came down 19 basis points to below 2% for the quarter. Tom will provide you with additional detail on deposit costs, the margin as well as our rate outlook. Expenses remained well managed and came in at $60.4 million. Our efficiency ratio was 50.3% and our cost-to-asset ratio was 2.47% as of quarter end. Asset quality remained stable. Credit costs for the quarter were $9.7 million, driven by net charge-offs of $6.7 million, down on a quarter-over-quarter basis and a reserve build of $3 million. Our allowance now stands at 1.45% of total loans, up 3 basis points from last quarter and NPLs increased to 95 basis points. Turning to capital. Our capital levels remain strong across the board, and that strength gives us real flexibility in how we allocate resources. We put that flexibility to work this quarter by repurchasing approximately 346,000 shares. Looking ahead, our Board authorized a new repurchase program that allows us to buy back up to 5% of outstanding shares. And the Board also approved a 20% increase in our quarterly dividend, which will be paid this quarter. I'll now turn it over to Tom to walk you through the financials in more detail. Thomas J. Bell: Thank you, Alberto, and good morning, everyone. Starting with our loans on Slide 6. Total loans increased [ 3.3 million ] annually and stood at $7.5 billion at year-end. Origination activity was solid, which was up 22% compared to the prior quarter. Payoff activity increased $156 million from Q3 and stood at $361 million. And line utilization ends up to 60% for the quarter. Our loan pipelines remain strong, and we expect loan growth to continue in the mid-single digits to 2026. Turning to Slide 7. Total deposits were $7.6 billion for the quarter, down 2.3% from the prior quarter primarily due to managing the balance sheet to stay below the $10 billion year-end and Q4 seasonality outflows. We saw a nice decline in deposit costs for the quarter and continue to see the benefit from disciplined deposit pricing which drove deposit costs lower by 19 basis points. Turning to Slide 8. We had record high net interest income of $101 million in Q4, up 1.4% from the prior quarter, primarily due to loan growth, lower rates paid on deposits and lower interest expense related to the sub debt payoff, partially offset by lower yields on loans and securities. This was the third consecutive quarter of NII growth and reflects a 10.7% increase for the full year. The net interest margin grew to 4.35%, up 8 basis points linked quarter and on a year-over-year basis, NIM expanded 25 basis points. The improvement in the margin was driven by a decrease in the cost of interest-bearing liabilities, which declined by 29 basis points. Our outlook for net interest income is based on the forward curve, which currently assumes 50 basis point decline in the Fed funds rate for 2026. This implies a net interest income range of $99 million to $100 million for the first quarter. We continue to remain focused on growing and sustaining our net interest income by growing the balance sheet and reducing our asset sensitivity. Turning to Slide 9. Noninterest income was $15.7 million, essentially flat from the prior quarter. Gain on sale of loans was $5.4 million, down $1.6 million linked quarter, reflecting lower premiums and mix of loans sold. Swap income was up nicely for the quarter as we continue to focus on growing other fee income categories. Our gain on sale forecast for 2026 is on average, $5.5 million per quarter. with lower Q1 expectations due to typical seasonality. Turning to Slide 10. Expenses came in at $60 million, essentially flat from the prior quarter. The modest decrease reflected lower loan-related and data processing expenses, partially offset by higher incentive compensation. For 2026, we expect our quarterly noninterest expense to trend between $58 million and $60 million. Turning to Slide 11. Our allowance for credit losses increased 3% to $109 million, representing 1.45% of total loans, up 3 basis points from the prior quarter. We recorded $9.7 million in provision for credit losses in Q4 compared to $5.3 million in Q3. Net charge-offs decreased $6.7 million compared to $7.1 million in the previous quarter. NPAs to total assets increased to 77 basis points in Q4 from 69 basis points in Q3. The increase was partially driven by a lower balance sheet at year-end. Moving on to capital on Slide 12. This quarter capped a year of meaningful progress in growing our capital position. For the quarter, CET1 came in at a strong 12.33%, up 18 basis points linked quarter and up 63 basis points year-over-year. Additionally, the TCE to TA ratio stood at 11.29%, up 168 basis points from last quarter. In closing, we remain focused on long-term stockholder value by growing tangible book value per share, EPS and increasing our return on tangible common equity. With that, Alberto, back to you. Alberto Paracchini: Thank you, Tom. Before we open the call for questions, let me touch on our priorities heading into 2026. First, we remain on track and expect to cross the $10 billion asset threshold this year, and we're well prepared for that milestone. We're monitoring the regulatory environment closely, particularly potential changes to asset thresholds, but we're not slowing down in anticipation of what might happen. We will continue to move forward. Second, our focus remains on organic growth. Last April, we launched a commercial payments business and the progress so far has been excellent. We've onboarded 6 customers and have several more in the pipeline for this year. We've also added approximately $70 million in liability balances and have seen a corresponding increase in ACH volumes, both transactions as well as dollars. We entered 2026 with good pipelines and remain well positioned to continue gaining share across all our commercial businesses. Third, credit discipline remains a priority. The way we maintain that discipline is by staying close to our portfolio, monitoring it and identifying and addressing issues quickly as they emerge. As we move into 2026, we're excited about where we stand. We've built a strong team. We're generating real operating leverage. Our competitive position is solid and we're able to capitalize on opportunities when they come. In short, we like where we're positioned. Before we turn to questions, I want to thank our employees for everything they do for our company and our customers on a daily basis. And with that, Carli, we can open the call up for questions. Operator: [Operator Instructions] Our first question is from Nathan Race from Piper Sandler. Nathan Race: Maybe just to zoom out for a second, Alberto. You guys posted a really strong year in 2025. Pre-tax pre-provision income was up 13% year-over-year. So just curious, as you look at the company broadly, which areas or which verticals are you most excited about to just continue to scale up and where you see an opportunity to become more efficient, whether it's in the technology front where you guys have been proactively investing or in any other areas? Alberto Paracchini: Yes. Thanks for the question, Nate. So I touched on it a little bit in the remarks there. So certainly, we continue to be excited with our commercial payments team. It's a team that we launched last April. We're being very deliberate in how we approach that market. But we have a great team. We've added people there and we're starting to see the benefit of not only having a pipeline but onboarding customers, growing deposits, growing transaction volumes and correspondingly ultimately, fees that come along with that. So we're -- we're certainly excited about that, but we're also excited given our position in Chicago and the current competitive dynamics about our ability to continue to gain share in the commercial banking space here. As you know, we are today the largest community bank in the market. Tomorrow, when we go over $10 billion, we will be between $10 billion and probably $70 billion or $75 billion, we will be the largest local commercial bank in the market. So we like where we are, and we like the opportunities that we have across really all of our businesses, Nate. Nathan Race: Got it. That's really helpful color. Changing gears to capital. You guys have continued to build at pretty strong clips, just given the profitability profile. And I noticed in the last couple earnings decks, the 8% to 9% TCE target has been absent. So curious if there's anything to read into that just in terms of how you think about capital returns to shareholders and what that implies in terms of the M&A environment these days. Or if you're just looking to maybe operate with higher capital levels going forward versus the previous targets? Alberto Paracchini: Yes. I think from if you think about it in terms of -- we always talk a bit about always wanting to have some degree of flexibility. So that comes with it. So we do carry a bit more capital to allow for that. I think our experience has been that, that has served us well. It has allowed us to move very, very quickly and really without any hesitation or delay when opportunities come up in the market, and we like that. That being said, I think this past quarter, I think you also saw the comments related to the increase in dividends to the degree that we have excess capital, we will -- and we have no immediate use for it. We will find ways to return that capital back to shareholders. As you know, this past quarter, we were active, we were repurchasing shares. We thought we repurchased shares at attractive prices. And also over time, and I think you've heard the comments, we want to have a sustainable and growing dividend over time. And I think our Board took action in that regard with the dividend increase that we just announced. So hopefully, that's indications of the capital priorities. We obviously want to have capital to take advantage of; to grow the balance sheet, grow organically, support the growth of the business; two, have a sustainable dividend; three, have enough flexibility to pursue M&A when and if those opportunities surface. And then lastly, we have the buyback program in place. As you know, we also announced an authorization to buy back up to 5% of shares outstanding. So we think the combination of that gives us enough flexibility to do what we need to do in terms of growing the business, but also at the same time, return capital back to shareholders if we have no use for that capital. Nathan Race: Okay. That's very helpful. If I could just sneak 1 more in for Tom. I think you mentioned in your comments that you're looking to reduce the asset sensitivity of the balance sheet going forward. Just curious if you could shed some more light on that and kind of how you think that positions the margin going forward in light of potentially additional Fed cuts this year? Thomas J. Bell: Sure, Nate. The margin has been growing. We're happy with that. We like the idea that NII is growing. We continue to kind of try to -- we are issuing some CDs, but also we have some flexibility to do some more interest-bearing accounts. So just because of the mix of our bank, we really want to have some more floating rate liabilities, and I think we're set up well for that. It will take time to get there. But again, the disciplined pricing we've had going on over the last year here related to deposits has really helped to kind of lift the margin. And the goal is to kind of try and keep it stable. But again, year-end was -- we had a lot of activity in the fourth quarter, and we had some securities that we sold just to keep the bank under $10 billion. That was a really important effort for us. And so we'll -- it's likely we'll be buying those securities back here in the first quarter. So obviously, those transactions are a little bit tighter margin trades. We just think about -- that's why we focus on NII. So stable, I would say, stable and growing net interest income. Alberto Paracchini: Yes. And it also to add to what Tom said, Nate. It also -- again, just the common theme today seems to be flexibility. But with our margin, it gives us ample flexibility from a competitive standpoint. I mean we're not in a situation like other institutions are where they're trying to get their margin back up to a level that they need to get it to from a base profitability standpoint. I think with our margin today, it certainly gives us a lot of flexibility competitively that we can use when appropriate. Operator: Our next question comes from Damon DelMonte from KBW. Damon Del Monte: Just looking for a little color on the loan growth outlook. I know you mentioned mid-single-digit growth, but -- can you just kind of remind us what areas of your lending platform offer the best opportunities kind of across which segments can drive that? Alberto Paracchini: Really, I mean, commercial, I would still say that, Damon. Real estate I think it's going to be a function of transaction activity. It's not to say that there are not transactions happening, but certainly since rates started going up in 2022. I think transaction activity relative to what it was before has been somewhat muted. With rates coming down, is that going to change? Are we going to see some of that. Obviously, if that picks up, then probably what we would tell you at some point is that we probably move that guidance up. But at this point, I think that kind of mid-single-digit range is solid. Damon Del Monte: Got it. Okay. And then, Tom, with regards to your commentary on NII for next quarter, is typically first quarter like a seasonally low quarter for you guys and then you'll see like a steady build as we go through the rest of the year. Or do you think that... Thomas J. Bell: No. Damon Del Monte: There's not really much seasonality in the first quarter. Thomas J. Bell: Damon, you're right. It's -- obviously, there's fewer days in the quarter. So that's one drag. Loan fees, et cetera, that go through the margin are a little bit lower during that -- during the first quarter. But generally speaking, again, stable to growing throughout the year. Damon Del Monte: Got it. Okay. Alberto Paracchini: Yes. I would also to add to that, Damon. I think always we've gotten some rate cuts here towards the end of the year last year, naturally we're asset sensitive. So notwithstanding the fact that our margin expanded, but just putting that aside for a second. If we're asset sensitive, we see rate cuts there's a transition period, right? We have to catch up probably on a gradual kind of declining rate scenario. We have to catch up. It usually takes us about a quarter to catch up and be able to kind of reprice and reset. So just keep that in mind as you think about the rate environment going forward. Thomas J. Bell: Damon, one more thing, Damon, just to point out is, remember, with the Fed cuts in the fourth quarter, the SBA loans reset January 1. So when you see guidance a little bit lower than what we actually reported for the fourth quarter, some of that is driven by the fact that we have loans resetting here January 1. Damon Del Monte: Got it. Okay. Great. And then with regards to credit and kind of your outlook for net charge-offs for the upcoming year as you kind of think about provisioning. I think last year, you had around close to 40 basis points of net charge-offs, which was down a little bit from '24. Based on what you're seeing in your portfolio, do you feel like you're kind of going to be in that near 40 basis point range again? Alberto Paracchini: I think in the -- I think, Damon, our guidance has been pretty consistent on that like 30 to 40 basis points, somewhere in there. It might be towards the high end of that range. It might be towards the low end of that range, but somewhere in that kind of 30 to 40 basis points range at this point. Operator: [Operator Instructions] Our next question comes from Brendan Nosal from Hovde Group. Brendan Nosal: Yes. Maybe just to start off here on kind of the underlying pieces of the loan growth outlook. Just thinking between origination activity and payoffs. I think originations dropped 17% for this year to $1.3 billion or so. So like how do you think about the underlying pace of originations that are getting you to that mid-single-digit net growth outlook for 2026? Alberto Paracchini: I think I would point you to that page in the deck that shows the kind of the trend of originations and payoffs. It's slide -- it's Page 6 of the deck where it talks about portfolio trends. I know throughout the year, we get questions sometimes in terms of, well, your loan growth is exceeding kind of the target and probably the answer that you hear us give is we have a pretty good handle in terms of what we're seeing from an origination standpoint. We think we know the activity that's going to pay off. But obviously, that's at times, the timing of it, and it also can be a little bit harder to predict. And I think the past quarter -- the fourth quarter, certainly, you saw payoffs catch up a bit. So I would point you to that chart and kind of that mid-single-digit range in the categories that I highlighted, which is primarily our kind of commercial banking categories is really where we're going to expect to see growth. And just the nuance quarter-on-quarter is going to be really that payoff number and our ability to actually be as accurate as we can be with that. So hopefully, that answers your question. Brendan Nosal: Yes, yes. That's helpful. Switching gears here to net interest income, but a bit more of a conceptual question. Like you folks have been outperforming your quarterly NII guide pretty consistently for the past I would say, 2 years or so, despite the short-term part of the curve coming down and your asset sensitivity. Is there a point at which you just gain a little more comfort with how your balance sheet is responding to this environment? Do you get a little more bullish with the NII outlook that you're giving. Thomas J. Bell: That's a good question. I mean I think Alberto touched on it with the loan payoffs. I mean I think loan payoffs were probably lower overall for the year than expected. So we benefited from some NII related to that. We continue to hear that payoffs will probably be a little bit higher. So I think that's where we probably provide some caution. But generally speaking, I think we've done a really good job on deposit pricing. We still are growing, so we need to grow more deposits. I mean we just had some, call the fourth quarter noise because of the $10 billion, but we continue to focus on deposit, growing core deposits first and foremost and then sprinkling in some other deposits to help support the balance sheet. But look, we're continuing to grow NII. I think it's grown meaningfully. I think we've done well on the rates down scenarios that have happened that we've been able to have stable and growing NII. I think at some point, you run out of room there to continue to drop deposit costs in a meaningful way. And I think you still have to be mindful of the competition and the other banks that are growing. So I think our numbers are really strong still. And I think we're really proud of the results we've had. But it really is a function of loan growth and low-cost deposits, and we have seasonality that happens and a lot of our deposits that we saw leave in the fourth quarter, we've already seen a recovery on some of that. So we will benefit from that as well. And I think then, furthermore, we'll just see how the payment scheme does and then the benefits we get from that will probably give us a chance to say guidance could be better. Roberto Herencia: Yes. I would add... Thomas J. Bell: Those are couple of thoughts. Alberto Paracchini: Just to add just another -- a bit more on the deposit pricing thing. We've been outperforming our own internal models as it pertains to it. So you're probably a question that you have in your mind is, well, what are you guys doing? Why is that? And I think I touched on that a quarter or a couple of quarters ago that look, I think analytically, we're getting a little bit better and being able to segment our portfolio more granularly and therefore, be able to make more precise pricing decisions in different pockets or segments of the portfolio. So I think we're getting better at that operationally, and that's resulted in some of the, call it, the -- even against internally what we expect some of the outperformance. But -- so there's some of that, that you're seeing come into play, and I think you saw it in terms of how quickly we've been able to reprice liabilities here with -- in the fourth quarter with a changing environment. But that said, ultimately, we will exhaust that. And that has -- ultimately will have limits, meaning it will catch up, but that's just something to keep in mind in that we've -- it hasn't been just -- how confident are you to provide higher guidance? It's been -- we've actually been kind of performing better than what we thought internally we could do. And that's been obviously a positive overall. So just keep that in the back of your mind. Brendan Nosal: Yes. That's super helpful. I'm going to sneak 1 more in here. Just on the SBA business. I mean, the gains on sale have been compressing for a couple of years now. Is there a point at which like the risk-adjusted return that you're getting for the overall business, including lending plus gains isn't up to where you want it to be? And like how far are we from that point today? Thomas J. Bell: I still think, Brendan, we're pretty far from that. And I would also point you when you look at the compression and the gain on sale margin, a lot of that has to do with the mix. I mean, as you can see on the chart on Page 9, where any time that you have a higher proportion of loans that are longer tenor loans, so like 25-year term versus 10. That mix between 10 and 25 drives that. And certainly, to a degree that you have other types of government guaranteed loans like a USDA loan here or there, that also impacts the gain on sale margin. But to answer your question on the big picture side of it, I think you would have to see materially much more compression for it to get to a point where you start to rethink whether on a risk-adjusted basis, this is still attractive. Operator: [Operator Instructions] Our next question comes from Terry McEvoy from Stephens. Terence McEvoy: Maybe just circling back to the commercial payments team. Are these clients or customers, are they fintech companies? And if so, could you talk about the due diligence you're doing there? Are they more traditional payments to your commercial customers? And Alberto, what maybe some medium-term goals and objectives that we can kind of track over the next couple of years to track the progress? Alberto Paracchini: Yes, good question, Terry. So I think on that commercial payments business, I would say so far, think of like -- so I'll give you an example. So payroll processing companies. So not necessarily kind of like a small commercial customer, but a payroll processor that provides payroll services and as part of those services is the ability to originate and process payroll payments for their client base. And we would be, for example, the banking institution behind that providing the infrastructure to allow that to happen. So that's an example. I would tell you some of the clients that we've onboarded have been in that particular vertical. But we also want to look for opportunities beyond that in terms of -- you mentioned fintech companies that would need to have a payment element to their business. In other words, it could be something along the lines of embedded finance or a company that's trying to embed payments into their product offering to their end clients. So that's certainly something that we could entertain. We could entertain that with just traditional access to the payment rails, but also we could do it through access to supporting their issuing of cards or their acquiring of card transactions. So that's just a flavor of the capabilities of the team that we have and the business that they're going after. And as far as metrics going forward, I think we'll keep you up to date. Certainly, we're off to a good start. I would tell you it's been deliberate. We hired that team -- we launched the business in April of last year. The team came on board fully a year earlier. So this has not been a quick build. Let's make sure that we have processes, procedures, policies and the infrastructure to properly be in the business and support the clients that we want to do business with. The last thing I would say is also think about it as not really a shotgun approach. We're not trying to onboard 10 or 15 customers a year. We're trying to onboard 3 or 4 and the onboarding process for the reasons that you are thinking of is 6 to 9 months. And that's just to make sure that from a compliance process, procedures, policies, we are comfortable supporting the banking needs of those customers. So hopefully, that gives you some color on that business. Terence McEvoy: Yes. That's great. And then maybe just 1 quick last one. Did the government shutdown impact the SBA business in Q4, and it didn't look like it from a revenue standpoint. And did anything get pushed out into the first quarter? I know Tom said Q1 is going to be down a bit, but just wondering there. Alberto Paracchini: It always has a little bit of an impact, Terry, but I think we would just tell you it was -- it's immaterial. Operator: Our next question comes from Brian Martin from Janney Montgomery Scott. Brian Martin: Say, just 1 on -- I think I'm not sure who mentioned it, but maybe whoever was talking about the swap income, just talked about maybe a bit more focus on fee income this year. You've already touched on the SBA. I guess just kind of wondering the run rate we're at today, around $16 million and kind of is that a good sustainable level and then it grows from there given kind of focus there and maybe where the focus is to maybe improve that run rate as you look into '26? Alberto Paracchini: I think it's a good level. We want to see that absolute number go up. The answer is yes. I think a couple of areas. Tom mentioned swaps and derivatives and things of that sort. So we want to continue to do as much as we can there. Obviously, that's a bit of a rate-sensitive dynamic, but we certainly want to continue to offer those products and services and take advantage of situations where we can do that. Second would be I touched on the commercial payments business, while the side effect of that is fee income, treasury management fees and the like. So certainly, that's one area that we want to see grow. Our wealth management business, which is a small part of our business today, but we grew nicely this year. We're getting closer and closer to be able to eclipse the $1 billion in assets under management, which is a milestone given the size of that business today. So hopefully, over time, that business gets to contribute a bit more. And then you obviously have the gain on sale business from our SBA government-guaranteed lending business. Brian Martin: Got you. Okay. That's helpful. And I guess maybe 1 for Tom. Just given some of the noise, I think you talked about Tom at year-end with kind of managing the balance sheet to the $10 billion level. Can you help us just maybe a guidepost on the average earning assets in 1Q, just given end of period, fourth quarter was a bit lower than the average for the quarter, but knowing your commentary about kind of buying back some here in the first quarter, kind of a landing spot or just kind of a range and I think about the earning asset base for 1Q? Thomas J. Bell: I think kind of in that $150 million to $200 million Brian. I mean we had -- in the fourth quarter, we had a number of payoffs. The payoffs kind of came early in the quarter and the loan growth came towards the end of the quarter. So I think that plus the fact that we had about $100 million of securities that we had cleaned up for the portfolio a little bit. So I would call it $150 million to $200 million and more earning assets, but still below $10 billion in total assets for the first quarter. Brian Martin: Yes. So the average in the fourth quarter was $9.2 billion, but the period end was closer to, call it, $9 billion maybe. So maybe it's a $9.2 billion level is kind of a decent way to think about 1Q as a landing spot broadly. Thomas J. Bell: I think so. It sounds right. Brian Martin: Yes. Okay. I appreciate that. Alberto Paracchini: No, I was going to say, Brian, just I commented on it, and Tom commented on it as well. And just to be clear, towards the end of the year, we just wanted to make sure, and we had levers to pull. We just wanted to simply make sure that we were not going to be over $10 billion. So that is the comments related to really balance sheet management were really attributed to that. We just wanted to make sure that as of that snapshot of 12/31, we were not going to be over $10 billion. So we achieved that. We don't have that constraint going forward. So to Tom's point, I think you will not really see any type of management activity to try to keep us below a certain level in terms of assets. Brian Martin: Yes. No, I appreciate that, Alberto. That's kind of what I figured. I just want to make sure I have the right starting point given all the noise in there that, like you said, was just the management function. So thank you for that commentary. Maybe just 1 or 2 others. Just on the credit quality front, any changes in the -- any material changes, I'm assuming no in the criticized or classified levels from third to fourth quarter when we see the filings come out? Alberto Paracchini: No material changes just ebbs and flows. We're going to be -- I mean, you certainly know us, we're going to be quick to -- if we see something, we're going to be very, very quick to downgrade, even if it means to downgrade something to criticize. And we certainly have a view anytime we do that. We have a plan. Where is the credit? Where is the trajectory of the credit, like we had it in a short period of time. Is this temporary? Do we expect this to be ultimately to correct itself? Are they -- is the borrower taking the right corrective actions in which case, you will see us -- we'll see that credit migrate back. If not -- if we don't have confidence in that, then we look to move the credit quickly out of the bank. So -- but no, I would tell you, it's just ebbs and flows. Brian Martin: Okay. Okay. And the last 1 for me is just -- I know Tom has talked about the NII dollars. But just in terms of the margin percentage, I guess, would it make sense that there's -- given the outlook for rates this year with maybe potentially 2 cuts out there, but really less noise than last year from a rate perspective that maybe the core margin, when you think it ex the accretion, there's a little bit more stability in that margin this year. I'm not sure what's baked into the guidance in terms of NII, but just thinking about it intuitively that we don't see much rate movement, maybe that core margins a bit more stable or steady as you move throughout the year? Or is that not -- how to think about it? Alberto Paracchini: Yes. It's going to be stable, Brian, I hate to talk about margins. But it's going to be stable. I mean it has grown. I don't know that you can expect it to continue to grow -- but I think we'll take the margin we have. And if we can maintain it throughout the year, I think we'd be pretty satisfied with that. Brian Martin: Yes. I apologize for asking the question, Tom. I know it's a bigger financial picture question with the rate environment. So I appreciate the color. And thank you for the questions and congrats on a great year. Alberto Paracchini: Yes. Thank you, Brian. We appreciate it. Operator: Thank you very much. We currently have no further questions. So I'd just like to hand back to Alberto to Paracchini for any further remarks. Alberto Paracchini: Great, Carli. So to everyone on the call, thank you for joining us today. We appreciate your interest in Byline, and we look forward to talking to you again next quarter. Thank you very much. Operator: As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Cohen & Steers Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Friday, January 23, 2026. I would now like to turn the conference over to Brian Heller, Senior Vice President and Deputy General Counsel of Cohen & Steers. Please go ahead. Brian Heller: Thank you, and welcome to the Cohen & Steers Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining me are Joe Harvey, our Chief Executive Officer; Mike Donohue, our Chief Financial Officer; and Jon Cheigh, our President and Chief Investment Officer. I want to remind you that some of our comments and answers to your questions may include forward-looking statements. We believe these statements are reasonable based on information currently available to us, but actual outcomes could differ materially due to a number of factors, including those described in our accompanying fourth quarter and full year earnings release and presentation, our most recent annual report on Form 10-K and our other SEC filings. We assume no duty to update any forward-looking statement. Further, none of our statements constitute an offer to sell or the solicitation of an offer to buy the securities of any fund or other investment vehicles. Our presentation also contains non-GAAP financial measures referred to as adjusted financial measures that we believe are meaningful in evaluating our performance. These non-GAAP financial measures should be read in conjunction with our GAAP results. Reconciliation of these non-GAAP financial measures is included in the earnings release and presentation to the extent reasonably available. The earnings release and presentation as well as links to our SEC filings are available in the Investor Relations section of our website at www.cohenandsteers.com. With that, I'll turn the call over to Mike. Michael Donohue: Thank you, Brian, and good morning, everyone. My remarks today will focus on the as-adjusted results. Reconciliation of GAAP to as adjusted results can be found in the earnings release and presentation. Yesterday, reported earnings of $0.81 per share, which equaled EPS reported in the prior quarter. Earnings for the full year 2025 was $3.09 per share compared to $2.93 in 2024. Key highlights for the quarter include: solid revenue growth driven by higher average AUM and combined with a stable effective fee rate. We had another quarter of net inflows, which makes 5 out of 6 trailing quarters with net inflows. Operating income was higher than prior quarter and prior year and our one but unfunded pipeline is again near multiyear highs. Now I'll provide some detail on our financial results. Revenue for Q4 increased 2% sequentially to $143.8 million. Revenues for the full year increased 6. 9% versus the prior year to $554 million. The increase in revenue from the prior quarter was driven by higher average AUM and the recognition of $1.7 million in performance fees. Our effective fee rate during the quarter, excluding performance fees, was 59 basis points, which was consistent with the prior quarter. Operating income increased 3% to $52.4 million during the quarter. Operating income for the full year increased 6.3% to $195.1 million. And our operating margin was 36.4% as compared to 36.1% in the prior quarter. Ending AUM in Q4 was $90.5 billion, which was down slightly from the end of Q3. However, as noted earlier, we experienced higher average AUM during Q4 as compared to the prior quarter. Net inflows during Q4 were $1.2 billion, primarily related to advisory and closed-end funds, which was offset by market depreciation and distributions. Joe Harvey will provide additional insights regarding our flows and pipeline. Total expenses were higher compared to the prior quarter, primarily due to increased G&A expense. During the quarter, the increase in compensation and benefits was below the sequential increase in revenue to reflect actual incentive compensation to be paid. As a result, our compensation ratio for the quarter decreased to 39% and was 40% for the full year. This was just below the guidance we provided at the beginning of the year of 40.5%. The decrease in distribution and service fees during the quarter was due to reduced fees paid to intermediaries as investors shifted into lower fee paying share classes. G&A expenses were higher during the quarter primarily related to travel and other business development-related activities as well as increased talent acquisition costs. Regarding taxes, our effective rate was 25.7% for the quarter and 25.3% for the year, which was consistent with 2024. Our earnings material presents liquidity at the end of Q4 and prior quarters. Our liquidity totaled $403 million at year-end, which represents a $39 million increase versus the prior quarter end. As a reminder, our liquidity normally decreases during Q1 of each year due to our compensation cycle as year-end bonuses are paid. Let me now touch on a few items for 2026. With respect to compensation and benefits, we would expect our compensation ratio to remain at 40%. We continue to maintain a disciplined approach to managing talent by balancing our business needs and strategic priorities with revenue growth. We expect annual G&A growth in 2026 to moderate from 2025 and are projecting it to be in the mid-single-digit percentage range. Lastly, regarding 2026 guidance, we expect our effective tax rate to be 25.4% on an as-adjusted basis. I will now turn it over to Jon Cheigh, who will discuss our investment outlook. John Cheigh: Thank you, Mike, and good morning. Today, I'd like to cover 3 topics: our performance scorecard, the investment environment for the fourth quarter and our 2026 outlook for the economy, markets and the opportunity in our asset classes. Beginning with our performance scorecard. We have maintained a record of consistent long-term outperformance. On a 1-year basis, 95% of our AUM has outperformed its benchmark, while our 3-, 5- and 10-year outperformance rates or all above 95%. 90% of our open-end fund AUM is rated 4- or 5-star by Morningstar, a modest increase from last quarter. Importantly, our nontraded REIT, CNS REIT has enjoyed a 10.3% annualized return since its January 2024 inception, which is more than double the return of the median equity nontraded REIT. In short, we continue to meet our objective of providing long-term alpha for our clients. Transitioning to investment market conditions, equities finished 2025 with double-digit gains for the third consecutive year. Although sentiment in the fourth quarter generally shifted toward value-type stocks as investors trimmed positions in prior AI winners. In this environment, diversified real assets rose about 3% in the quarter, in line with global equities but outperformed equities for the full year, which we believe is significant as market drivers broaden, which I will touch on later. Natural Resource equities were a positive standout in the quarter, up more than 6%, driven by strength in metals and mining stocks amid reduced tariff uncertainty and expectations for stronger economic growth in 2026. Global real estate stocks were flattish overall in the quarter as gains in Asia Pacific markets were countered by weakness elsewhere. While U.S. REIT had a modest decline in the quarter, we continued to see large return disparities by property type. In this case, industrial and hotel REITs had sizable games, while data center and telecommunication landlords remained sluggish. Private real estate meanwhile, had a total return of 0.9% as measured by the preliminary results of NCREIF Odyssey Index. This marked the sixth consecutive quarter that total returns have increased. The clearest private real estate recovery signal we've seen since the 2022 downturn. Within listed infrastructure, airports were a notable winner on strong passenger traffic volumes amid steady air travel demand. Most fixed income classes, including preferred securities, had slightly positive total returns in the quarter with treasury yields ending the period largely unchanged and as credit spreads remained historically tight. Turning to our economic and investment outlook. Last quarter, I noted that economic growth for 2025 was historically narrow, the so-called K-shaped economy. Unsurprisingly, corporate profit growth and market performance have also been narrow. As we enter 2026, we expect economic activity and market returns to broaden after several years of highly concentrated games. Our view is for above consensus global growth inflation and interest rates. We believe the economic and market rotation is well underway. Real assets, which have lagged for some time are evidence of this shift. In 2025, a diversified portfolio of real assets outperformed equities, with virtually all categories generating double-digit returns. Natural resource equities led rising nearly 30%, followed by commodities up 16%, global listed infrastructure at 14% and global real estate just under 10%. We also can't forget about gold, which had a banner year, climbing 64% last year. Gold is an interesting case study. From mid-2020 to mid-2023, gold generally traded around $1,800 per ounce with a range of plus or minus $200. Some argued that maybe gold had become displaced by Bitcoin and secular change or that gold couldn't work in a higher interest rate environment. 2.5 years later, gold is up 250% to 4,800 an ounce. Few people today now argue that gold is obsolete versus Bitcoin. In our experience, claims that this time is different, or that an asset class, like real estate is also obsolete, tend to correct over time. And when the sentiment and fund flows shift, valuations can move meaningfully and quickly. Equities are at historically high valuations. Everyone knows this and has known this. Just because equity valuations were expensive at the start of 2025 and the market still went up doesn't mean relative valuations don't matter or the asset allocations don't need to shift. Instead, it means the case for asset allocation changes is even stronger today with the rotation just starting. Turning to more specific drivers by asset class. Real estate has been a laggard for the last several years because of the rapid rise in long-term interest rates from 2022 to 2023, oversupply in industrial, apartments and self-storage and growth rates that decelerated from double digits down to only 3.3% growth in 2025. But that performance and those drivers are now in the past. Long-term interest rates have essentially been flat now for 2.5 years. Those same higher rates plus construction costs that are up 40% since 2020, have driven new supply materially lower. Our companies are not in the construction business. Lower supply is good for real estate. We expect the combination of lower supply and accelerating economic growth and thus demand to result in accelerating REIT earnings above trend to roughly 8% in 2026 and 2027. In our experience, discounted valuations with accelerating growth drives multiple expansion. Performance drives flows to the asset class. And often, we see the rotation from laggard to leader and investors fear of missing out, take hold. And historically, the recovery in share prices is a sharp rather than measured move. Natural resource equities and global listed infrastructure represent some of the clearest examples of how broadening market leadership can unlock return over a longer time horizon. Capacity discipline, higher borrowing costs and aging infrastructure have constrained the supply of natural resources. Meanwhile, growing populations, AI infrastructure needs, defense growth, and increased electrification or accelerating demand, record metal prices and persistent supply chain disruptions in 2025 highlight this shift. Against this backdrop, natural resource equities led real asset returns last year. And importantly, we believe we're still early in a multiyear commodity super cycle. As market leadership broadens beyond mega cap tech, these companies offer structural growth, yield, diversification, and an attractive complement to richly valued traditional assets. Last, in fixed income markets, lower short-end rates combined with stronger broadening growth bode well for preferred securities. To be sure, overall credit spreads are tight, preferreds represent high income from high-quality issues and generally with tax advantages. In short, we continue to believe that the combination of a broadening economic growth engine along with relative valuation attractiveness will benefit our asset classes in 2026, while secular forces provide an exciting backdrop for many years to come. The stage is set for natural resource equities, along with listed infrastructure and listed real estate play a larger role in portfolios as the next leg of participation unfolds. With that, let me turn the call over to Joe. Joseph Harvey: Thank you, Jon, and good morning. Today, I will review key business trends in the fourth quarter and then discuss our plans to drive organic growth and realize returns on investments we have made in recent years. We ended 2025 with good momentum across key business metrics. We saw positive flows into nearly all vehicles. Fee rates were stable. Our institutional pipeline continued to strengthen and we are making progress on distribution initiatives. We ended the year with $90.5 billion in AUM compared with the full year average of $88.6 billion. While markets were strong in 2025, our largest strategy by AUM, U.S. REITs returned just 3.2%, ranking 11 out of the 11 gig sectors in the S&P 500. Some of our smaller strategies performed exceptionally well, such as natural resource equities at 30%, real assets multi-strategy at 17% and global listed infrastructure ranging from 14% to 22%, depending on the sub strategy, and that's before our teams generated alpha on top of those benchmarks. In the fourth quarter, we had net inflows of $1.28 billion, bringing full year 2025 flows to $1.5 billion. Major story lines included net inflows in all vehicles, including improved advisory flows, which led at $651 million, flow leadership by strategy in U.S. REITs and global listed infrastructure and an inflow of $513 million from a rights offering and associated leverage for our infrastructure closed-end fund. Open-end funds had a small net inflow at $13 million with large inflows into 2 of our U.S. real estate open-end funds and outflows from our third real estate fund and our core preferred stock fund. Our non-U.S. CCAP funds had inflows of $89 million. Active ETFs had $175 million in net inflows, comprised of $25 million of seed capital and $150 million from clients. Advisory had 4 new mandates totaling $689 million plus existing client inflows of $86 million offset by 1 termination of $124 million. Subadvisory had $30 million of net inflows, framed by significant activity, including 2 new mandates of $532 million, 1 account termination of $330 million and client rebalancing outflows of $172 million. Our one unfunded pipeline continued to strengthen at $1.72 billion at year-end across 20 mandates compared with $1.75 billion last quarter and a 3-year average of $970 million. We were awarded $660 million of new mandates in the quarter and an additional $385 million was one and funded within the quarter and therefore, did not hit the pipeline. The largest percentage of the pipeline at 54% is U.S. REIT strategies with another 23% in global listed infrastructure and 16% in global real estate. The factors driving improved activity are similar to last quarter. More confidence by allocators in the macro environment and interest rate cycle additional flexibility in portfolios due to listed equity outperformance, increased interest in more inflation-sensitive allocations and takeaways from underperforming competitors. Over the past several quarters, we have disclosed known terminations and last quarter, that AUM was $500 million to $600 million. As before, those terminations were principally driven by client allocation and investment vehicle changes rather than performance. We have transitioned to a more typical low level of termination activity now that those outflows are complete. Other full year highlights include record net inflows of $1.6 billion into global listed infrastructure, record inflows into our 6 CCAP vehicles of $291 million and the doubling of our AUM in Australia over the past 2 years to $1.2 billion. All of these areas deserve continued focus in 2026. Since the Fed began easing in September 2024, we have had 6 -- 5 of 6 quarters of net inflows averaging $612 million. This contrasts with 9 prior quarters of outflows during the interest rate tightening period. While on the surface that may seem to reflect a business that is interest rate sensitive, I believe the right depiction is more muted especially considering that interest rates have normalized and that will likely be in a more inflation persistent environment. The need for diversification amidst top decile valuations alongside persistent inflation backdrop is helping to drive more listed real asset allocations. During 2026, we expect to focus on harvesting ROI or return on investment for investments we've made over the past several years in new strategies, vehicles and talents. In November, we announced Dan Noonan's promotion to Head of Global Distribution after watching him implement his strategic plan for wealth that is well underway. Key goals include increasing coverage of the RIA channel, while maintaining our presence in the wirehouses, putting greater resources on global sub-advisory and growing our institutional presence outside of the U.S. with focuses on Japan, the Middle East and Asia. We believe our largest AUM strategy, real estate, is entering a favorable return cycle. Looked at through REITs, real estate has been among the worst S&P sectors for multiyear periods driven by asset pricing adjustments as well as earnings deceleration. But we expect earnings to inflect positively, as Jon discussed. REITs are statistically cheap versus equities in our view, but fairly priced versus bonds. And reflecting inflation, REIT prices are 18% below trend versus replacement cost. In our view, at this time, real estate should garner 15% of the 60-40 medium risk portfolio with 9% allocated to listed real estate and 6% to private. Our U.S. REIT performance is outstanding, and global strategies are seeing increasing interest. Meantime, our private business is gaining momentum with strong investment performance by our non-traded REIT while distribution is expanding through an increasing number of independent and enterprise RIA firms. What's more, last year, we launched an institutional vehicle that combines a listed real estate strategy with an indexed approach to core private property funds through our partner, IDR. We have commenced fundraising and are excited about this vehicle's prospects. My favorite investment strategy, the one to allocate to and forget about, so to speak, is natural resource equities. These companies produce critical real assets, which are connected to the economy survival, national security and capital investment. Their supply-demand profiles are attractive because of depleting resources in many cases and result in strong pricing power. As Jon articulated, resource equities are in a multiyear return cycle in our view. Following record flows in global listed infrastructure in 2025, we expect the allocation momentum to continue. The investment case remains compelling, centered around critical themes such as deglobalization and evolving supply chains, digitalization and power demand and decarbonization. We successfully completed a rights offering for our closed-end fund and are excited about our recently launched active ETF. Interestingly, several of the institutional wins in 2025 include open-end vehicles which provide opportunities for organic growth. Our core preferred strategy has been in outflows in spite of yields normalizing and fixed income allocations being reestablished potentially the result of competition from private credit strategies. Nevertheless, preferreds had very strong returns on '25, and we delivered alpha. We are prepared for allocations to return to preferred with open-end fund, ETF and CCAP vehicles in both our core and short duration preferred strategies. We are very pleased with the launch of active ETFs, we closed the year with 5 ETFs and total AUM of $378 million, of which our seed capital is $90 million. We are pleased with their trading spreads, performance and flows. Our first launches in February were REITs, preferreds and natural resource equities. In December, we launched short duration preferreds and the global infrastructure strategy, which is more concentrated and opportunistic in nature than our open-end fund. We are working toward threshold AUM milestones for allocators while continuing to deliver performance. Next milestone is to achieve profitability. Efforts to grow our offshore CCAP vehicles are paying off with record net inflows in 2025 and in 24 of the past 26 quarters. The leading flow CCAP is our real assets multi-strategy a reflection of the inflation environment. These vehicles are seeing flows in over 8 countries, led by the U.K. and South Africa. We expect to achieve profitability in 2026, and the next milestone is to scale AUM. Turning to our investment initiatives. We have invested significantly in the business the past few years across vehicles and strategies. As these businesses scale, we will add more distribution resources calibrated to organic growth. At this point, we expect that we're reaching the peak of balance sheet funding for new vehicles and strategies. In closing, Cohen & Steers will celebrate its 40th anniversary in 2026. We'll be celebrating both our evolution from a single strategy manager to a global real assets manager as well as the role of the listed markets. What Martin Cohen and Bob Steers, our founders, created in 1986 is truly remarkable. First, in terms of pioneering a better way to invest in core real estate through the listed REIT market. Second was to lead the way in evolving the traditional 60-40 portfolio construction to include real asset allocations and the 20% context to enhance returns with better inflation sensitivity and diversification. Our founders backed their belief in the listed markets by bringing Cohen & Steers public in 2004. It has been a spectacular way for us to organize for our clients, our employees and the business, particularly now with the speed of change in asset management. Part of the 40-year celebration will be to extol the virtues of the listed markets. Too many companies have false impressions about the costs and risks of being public. To us, it's easy. It's like waking up in the morning. and being public provides discipline, governance, brand awareness and resources to continually innovate and improve our business. Going public also provided a strong balance sheet to support seeding strategies and funding co-investments. Our active ETF launches and the nontraded REIT are prominent recent examples. We will continue to do our part to promote capital formation in the listed markets in 2026. Now I will turn the call back to Abby to facilitate Q&A. Operator: [Operator Instructions] And our first question comes from the line of John Dunn with Evercore ISI. John Dunn: I wanted to ask a little more on the private real estate. It seems like we're seeing signs of some improving demand for that asset class. First of all, are you seeing that? And then also, do you think it can be a more significant contributor in 2026? Joseph Harvey: Well, I think we're early in the process of investor interest coming back to private real estate, but we're seeing some good early phase signs. The level of interest is increasing, particularly with some cracks showing up in the private credit markets and the vehicles in the wealth channel that have raised a lot of money. So when you just follow the chain of factors that are starting to drive that private credit is wrestling with interest rates coming down some, some potential credit problems and the fact that there's been a lot of money raised. So the recent articles that have followed the outflows that are coming from those vehicles, and we believe that some of that capital will find its way into the real estate market because the factors driving what's going on in private credit will help the private real estate market, namely, reduction in the interest rates and the fact that prices have adjusted in the commercial real estate and the capital flows have really slowed. So as with all these types of transitions, it will take -- it will unfold over a period of time. But we're -- as I said, we're seeing more shoppers, more lookers and we're really well positioned with our nontraded REIT because we believe we have the right investment strategy. We've delivered performance. We're gaining critical mass and we're starting to broaden the number of platforms that we're on. So we're ready in case that transition does follow through. John Dunn: Got it. And then on the active ETFs, other vehicle launches take time for the market to kind of accept. But because these are based on established strategies. Do you think active ETFs can scale more quickly for you guys? Joseph Harvey: Absolutely. And there are a lot of factors behind that. You named one of them, there are core strategies. They're just delivered in a different vehicle and the market has voted that active ETFs are the way to go for the future. Of course, there's nothing wrong with open-end funds, and there will be a lot of advisers and individual investors that continue to hold them. But at the margin, the new business models are using active ETFs more. So because we've got proven strategies or strategies that close cousins and based on our core strategies. Investors know what they're getting is just happening through a different vehicle. So I think that, as I said in my remarks, we've got our milestones. We want to get the vehicles as we launch them to scale so that allocators know they can come in and have efficient trading spreads on them. They'll -- because of the strategies, in some cases, they're a little bit different. They'll get comfortable with those differences and the performance that we're delivering. And once we get to critical mass so that model-based users and other allocators are comfortable. I think they have the potential to scale up very rapidly. And that stands in contrast to some of the private strategies you're seeing in nontraded REITs or interval funds, et cetera, where it is a new allocation for the wealth market and some of the strategies are less tested. And because they have a private element to them, there's more risk for the gatekeepers and they want to see more performance. So I think it's very different, and it makes us very excited because we can see how for the new capital going into active ETFs, it can help these vehicles scale very rapidly. John Cheigh: John, this is Jon Cheigh. I would just add one thing. I think our REIT ETF is a really good example of that. So this is a CSRE. So as an example, it took us 159 days to get to $50 million of AUM in that ETF. And with each proceeding $50 million, it's -- we're achieving that faster and faster and faster, meaning it took us almost half a year to get the first $50 million at this stage. It's taken us a little bit more than a month to get the last $50 million. So clearly, adoption is accelerating and has continued to accelerate. Operator: And our next question comes from the line of Rodrigo Ferreira with Bank of America. Rodrigo Ferreira: Can you talk a little bit about the recent progress in the institutional channel? Just what have conversations looked like and maybe contrast it to what it had looked a year ago? And then if you also can maybe expand like based on the conversations you're having right now, where do you think it can go from here? Joseph Harvey: Sure, Rodrigo. Yes, I think that's one of the critical inflections in our business, and we've been talking about this for the past year or so. And again, like a lot of these transitions, it takes time. But we've now had a very strong pipeline for 2 quarters in a row. This quarter, I'd say that, that pipeline has broadened a little bit. It's deepened a little bit with the number of mandates, the location of the domicile of the allocator and the range of strategies. So I think it's a combination of our team just being very steadfast and sticking with the process and the program. but also the environment changing, as I said, I think the environment is improved for allocators with more liquidity in the portfolios. It's not totally in the free and clear because there's still illiquidity and private allocations. But with -- going back a couple of years, allocators were reestablishing fixed income allocations, okay. Now with equities, it's created more flexibility. And so -- and then with the backdrop of persistent inflation, we just see more allocators coming back to the strategies we manage. And so it's a better environment. Our teams are very focused and there's disciplined about pursuing the process. So I would expect as these things go for this to continue to unfold. And as we've talked about also in prior calls, we're working on investing in the institutional side of our business and with adding sales professionals, adding consultants to help us in different markets. So becoming more bullish on this segment of the market and can't wait to report in future quarters. Rodrigo Ferreira: Got it. And then maybe for my follow-up. On the one but unfunded pipeline, it seems like the amount that you're winning and funding intra-quarter has been going up. Is that a fair observation? And then also, can you comment on any dynamics driving that? Joseph Harvey: I think over the longer history, what happens in the one and unfunded or the intra-quarter is pretty consistent. So the fact that it's turned up in the recent quarters is just a reflection of the broader dynamic that I described. I don't think there's anything unique to that. But over the longer term, it's been pretty consistent. Operator: [Operator Instructions] And we will take a follow-up question from John Dunn with Evercore ISI. John Dunn: So just thinking about like regional demand. You mentioned on the wealth management side, where there's demand for the CCAP. But on the institutional side, could you just kind of give us a flavor of any pockets of demand around the world for both advisory and subadvisory. Joseph Harvey: But again, if you go back a couple of years in a more challenging environment for advisory and it's also been a period when the U.S. has really performed well market-wise. More of the activity got concentrated in the U.S. I would say we're starting to see that expanding now with -- now with the non-U.S. international markets performing better. A little bit of concern on the geopolitical front and non-U.S. allocators not wanting to be so concentrated in the U.S. But just to give you a flavor for the domiciles of our allocators, it's Belgium, it's Canada, it's Japan, it's Philippines, it's the U.K. So it's starting to expand. And I would hope to see that continue as we are allocating more resources, more sales talent in the non-U.S. markets. John Dunn: Got it. And then maybe just one more quick one. On the global real estate side, what do you think some of the dynamics that could change that would move that to become more of a tailwind? John Cheigh: Well, I think there -- this is Jon. I think there's 2 factors. So the first is, generally speaking, global real estate is more favored by global institutions. So as we've talked about, there have been lower interest in real estate overall in 2022, 2023, 2024. So I think as we see a reacceleration in demand for real estate from global institutions. I think generally, they're going to have a preference for global real estate. So that's the first thing. I think the second thing is that for U.S.-based investors, and so that's both for wealth and institutional, the reality is that international underperformed for the last 10, 11, 12 years, not every year, but a majority of those years. And so it's like the comments I talked about sometimes when something underperforms, people say, oh, there's something structurally wrong. It's never going to perform. And there's elements of that, but the realities are more that growth had slowed in China. That growth was slow in Europe and that places like Europe and Japan had to go through interest rate resetting cycle. Again, a majority of those factors are more in the rearview mirror. And we've seen last year, international real estate did meaningfully better than U.S. real estate. And that's probably a harbinger of what we're likely to see over the next few years. So I think we're seeing changes in behavior, both from global institutions and thinking about the U.S. versus global as well as U.S. institutions. Operator: And our next question comes from the line of Macrae Sykes with Gabelli. Macrae Sykes: Just on -- going back to the ETFs, the active ETFs, could you perhaps break down some of the areas of demand that you're seeing? And any surprises there. So retail platforms, RIAs, Institutional? Joseph Harvey: I wouldn't say there's been too many surprises. But when you see it actually happen, it gives you more conviction about the strategy but we're seeing examples of RIAs who only use ETFs in their practice. So this is money that we never would have seen had we not launched active ETFs. We're seeing existing holders of our open-end funds who are converting their practices to using ETFs. And so there's some swapping going on. In our business projections for the ETFs, we've factored in some the cannibalization, so to speak. And to the extent that you can measure that, we'd say that it's kind of in line with what we've expected. But in the -- if there's money that would be going away for us, net-net, better off for having launched the active ETF. So there are model builders who only use ETFs, and so that's a dynamic. So far, the activity has been with the independent RIAs because for the wire houses, we need to go through the process of getting onboarded. We're in that process for several of our ETFs. So as that happens, we're going to be able to see other dimensions to how this transition from open-end funds to ETFs is going to unfold. And as we talk about these launches, we talk about it in phases, so we've launched 5. We're going to continue to create vehicles that we have all of our core strategies in ETF. But then over time, there's going to be a longer-term exercise of figuring out how to create vehicles for other of our open-end fund AUM which we haven't been able to address with what we currently have. So it's -- there's to be a process that unfolds over multiple years. Operator: And that concludes our question-and-answer session. I will now turn the conference back over to Mr. Joe Harvey for closing remarks. Joseph Harvey: Well, thank you, Abby, and thank you, everyone, for taking the time to listen to our outlook and look forward to reporting our first quarter in April. See you then. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Daniel Morris: Hello, everyone, and welcome to the presentation of Ericsson's Fourth Quarter 2025 results. With me here in the studio today are Börje Ekholm, our President and CEO; and Lars Sandstrom, our Chief Financial Officer. As usual, we'll have a short presentation followed by Q&A. [Operator Instructions] Details can be found in today's earnings release and on the Investor Relations website. Please be advised that today's call is being recorded and that today's presentation may include forward-looking statements. These statements are based on our current expectations and certain planning assumptions, which are subject to risks and uncertainties. Actual results may differ materially due to factors mentioned in today's press release and discussed in the conference call. We encourage you to read about these risks and uncertainties in our earnings report as well as in our annual report. I'll now hand the call over to Börje and to Lars for their introductory comments. Borje Ekholm: Thanks, Daniel. So good morning, everyone, and thanks for joining us today. It was a strong end of the year, as we executed with discipline and made solid progress against our strategic priorities. We are building a more resilient Ericsson. We expanded EBITA margins year-on-year for the ninth consecutive quarter, and we're getting closer to our long-term target of 15% to 18% EBITA margin and we ended the year with a net cash position of over SEK 61 billion. Our cost initiatives are just one component of our actions to structurally improve margins and cash flow. And you have seen that we have reduced the headcount, for example, by 5,000 over the past year. And we expect to continue reducing headcount going forward. And last week, we announced some initiatives we're taking in Sweden as part of a global effort we do to keep cost efficiency in our business. With the operational improvements we've implemented over the past few years, they are now getting increasingly visible in the P&L, and we had another 48% gross margin quarter now in Q4. The EBITA margin was 18%, both for the quarter and the full year, and that means that we are tracking very close to our long-term financial targets after normalizing for the about 3 percentage point benefit from the iconectiv gain. And now going forward, we expect to see improving operating leverage as our top line accelerates that we could see in Q4. Now that the underlying demand environment for mobile networks remain actually flattish. But it is encouraging that we had an organic growth of 6% during Q4. And the reason for this is that over the past few years, we have invested in a number of growth opportunities and growth initiatives like 5G core, mission-critical networks and enterprises, and I'll expand a bit more on this. In my view, we're actually entering a very exciting era of what we can call hyper-connectivity. So now we're starting to see everything being connected. I would say Ericsson is really well placed for this paradigm shift, and I believe we have the right strategy to win. To date, AI investments have been focused on models, semiconductors, data centers, et cetera. For sure, these are really critical, but the real economic value will actually come in AI applications and devices. So think about drones, humanoids, could be connected glasses, XR glasses, could be instantaneous or simultaneous translation services. You have a number of these things. All these new type of use cases, AI use cases, will really changed the nature of traffic with much more demand for uplink and low latency, and it has to be resilient and trusted. So when you think about this new world with AI is going into the physical world, if you call it a kind of a physical AI, those applications and use cases will be distributed, but more importantly, they will also typically be mobile. So they will require advanced wireless connectivity. So best effort connectivity, Wi-Fi, 4G, and I would even say 5G non-standalone, will simply not be enough. Instead, we will require 5G standalone today and then later on will require 6G. But this new world will also require better mid-band coverage to get the right performance of the network. And I'll take just 1 example, and you see China having a 10x denser grid than the rest of the world. And I would say that's one of the reasons why many are saying China is a formidable competitor in AI today as they are moving into AI applications. So at this point in time, it's a very exciting time. Our strategy is to lead in mobile networks with high performance, autonomous and programmable networks that are 5G native and at the same time, scale this mobile platform to new areas, like mission-critical enterprise solutions, but also providing tools to developers. So now let me go briefly through some of the progress we made against our strategic initiatives during the last year. Through our high-performing programmable and autonomous network, we're enabling our CSP customers to deliver differentiated performance and create new applications and use cases to monetize. And when you think about differentiated performance, it's actually creating dedicated performance for the application you have at hand. And during the year, we actually signed several key agreements with front-runner customers like Telstra, Vodafone, but we also made critical inroads in the important Japanese market with all leading operators. These advanced networks that we're building together with front-runner customers will be key to monetize and scale the AI opportunity. In parallel, we focused on scaling the mobile platform to new use cases and sectors, the most mature new use case is fixed wireless access, that during 2025, actually reached 150 million global subscribers. And typically, and most often, they have better customer satisfaction than other access technologies like fiber, for example. And now as you've heard me say earlier, we're also starting to see traction within mission-critical applications. And this, we think, is a key growth opportunity for us going forward. During 2025, we executed many new agreements in the public safety sector, and we're also targeting national security and defense operations. On the enterprise side, we're continuing to strengthen our position. The market for network API is actually starting to develop. In 2025, Vonage was first to offer aggregated access to network APIs across all 3 major U.S. carriers. And these advanced APIs included advanced fraud detection, and we have significant customer interest today. Our joint venture, Aduna, onboarded and achieved full coverage in 5 countries, including the U.S., Spain, Germany, Canada and the Netherlands. In enterprise wireless solution, we're seeing the market for private 5G starting to industrialize. It's still, though, early days. So we -- but we continue to see growth in our Wireless WAN solutions, but that was partly offset by lower sales in private 5G. So it's still a developing market here. So -- but before passing on to Lars to go through a bit more on the numbers, I'd like to take a moment to just go through our capital allocation strategy. Our top priority is to invest for technology leadership, and we expect this to be largely organic. We don't really see any need for large acquisitions going forward, as we believe we have the assets needed to execute on our strategy. However, we expect to see some smaller, potential tuck-ins, but that will be smaller in nature. So our current, very strong financial position offers scope for increased shareholder distributions. And as you have seen in this report, the Board is proposing an increased dividend to SEK 3 per share and the buyback program of up to SEK 15 billion. So that would be a total of SEK 25 billion to shareholders. This represents the largest shareholder distribution in our history and reflect our strong position and the Board's confidence in our strategy. So Lars will now go through this as well as our financials. So over to you, Lars. Lars Sandstrom: All right. Thank you, Börje. I will begin with some additional comments on the group before moving on to the segments. Net sales in Q4 totaled SEK 69.3 billion, with organic sales growing 6% year-on-year and with growth in all segments. Sales grew in the market area, Europe, Middle East and Africa; and in market areas Southeast Asia, Oceania and India. Market area, Americas, was broadly stable impacted by intense competition in Latin America, offset by slight growth in North America, driven by higher software growth; and Northeast Asia declined. Reported sales decreased by 5%, impacted by a negative currency effect of SEK 6.8 billion. In Q4, adjusted gross income was SEK 33.2 billion, including a currency headwind of SEK 3.6 billion. Adjusted gross margin reached 48% as a result of our cost reduction measures and operational excellence in both networks and cloud and software and services. On the cost side, we made steady progress. Operating expenses, excluding restructuring charges, dropped to SEK 21.4 billion, around SEK 2 billion lower year-over-year. Of this, about half is currency and the rest is cost initiatives. Excluding FX, R&D remained broadly stable. Adjusted EBITA was SEK 12.7 billion, up by SEK 2.4 billion, including a negative currency impact of SEK 2.5 billion and the EBITA margin was up around 4 percentage points to 18.3. Behind this improvement is the good progress we've seen in terms of optimizing our operations and lowering our operating expenses. Cash flow before M&A was SEK 14.9 billion, driven by earnings and reduced net operating assets. As Börje has already highlighted, the Board will propose higher shareholder distributions following the good 2025 cash generation. Let's move on to the results for the full year. Net sales amounted to SEK 236.7 billion and organic sales grew by 2%. Growth in Americas and in Europe, Middle East and Africa was partly offset by declines in the other market areas. At the same time, reported sales decreased by 5%, impacted by a negative currency effect of SEK 13.9 billion. The sales decline, which gives a significant volume impact on gross income, was more than offset by higher gross margins. Adjusted gross margin was 48.1% with support from cost reduction initiatives and operational efficiency. The result on adjusted gross income was an increase of SEK 2.5 billion to SEK 113.9 billion, despite a negative currency impact of SEK 7.2 billion. Turning to operating costs, excluding restructuring charges and impairments. Operating expenses dropped to SEK 81.2 billion, which is SEK 7.4 billion lower than the prior year. Of these, about 2/3 come from our cost initiatives, mainly from SG&A and the rest is currency. Adjusted EBITA increased to SEK 42.9 billion, and the margin was 18.1% or 14.9% excluding the capital gain from iconectiv. Net income for the full year was SEK 28.7 billion, including the benefit from iconectiv -- the gain from iconectiv. Cash flow before M&A was SEK 26.8 billion, a reduction of around SEK 13 billion compared to the prior year. In 2024, a strong working capital reduction contributed to higher operating cash flow. I'll cover cash flow more in details here later. So let's move to the segments. In Networks, sales decreased by 6% year-over-year to SEK 44.2 billion, with a negative currency impact of SEK 4.4 billion, so organic sales increased by 4%. We saw organic growth in market area, Europe, Middle East and Africa, driven by Middle East and Africa. Sales also grew in Southeast Asia, driven by Vietnam. Sales declined slightly in Americas due to continued price competition in Latin America. Sales were broadly stable in North America with continued healthy investment levels. Sales also declined in Northeast Asia due to timing of network investments. And Networks adjusted gross margin increased to 49.6% despite the higher share of service sales. The margin benefited from cost reduction actions and operational efficiencies. Adjusted EBITA in Networks was stable at SEK 10.1 billion despite a currency headwind of SEK 1.8 billion. And adjusted EBITA margin was 22.8%, an increase of 1.2 percentage points compared to last year. And looking at the right-hand graph, the full year adjusted gross margin reached 50% and stabilized at the new level, and adjusted EBITA margin reached 20.7%. Moving on to segment Cloud Software and Services. Sales increased by 3% year-over-year to SEK 20 billion despite a negative currency impact of SEK 1.8 billion. Organically, sales grew by 12%, mostly driven by higher core sales across all market areas and timing of project deliveries. Adjusted gross margin came in at 44.3%, an improvement of around 5 percentage points compared to last year, driven by a high share of software sales and continued delivery efficiency. Adjusted EBITA increased to SEK 3.7 billion with a margin of 18.6%, supported by the effective implementation of our strategic initiatives. Looking at the right-hand graph, the full year adjusted gross margin was 43% and adjusted EBITA margin 11.4%. These are both new high levels. Enterprise sales stabilized on an organic basis in Q4, growing 2%. Reported sales decreased by 25%, and that's an impact of the sale of iconectiv and currency. Global Communications platform organically grew by 3%, driven by an expansion in CPaaS. And adjusted gross margin declined to 52.1%, driven by the iconectiv divestment. Adjusted EBITA landed at minus SEK 1.1 billion, improving by SEK 0.1 billion compared to last year despite the iconectiv impact. Turning to free cash flow, which was SEK 14.9 billion before M&A in the quarter and SEK 26.8 billion for the year. We delivered cash flow to net sales of 11% for the year within our 9% to 12% target. The decrease in cash flow year-on-year is due to very strong working capital reductions in 2024. Working capital in 2025 was broadly stable at historical low levels. And net cash increased sequentially by SEK 9.4 billion to SEK 61.2 billion. Return on capital employed in 2025 was 24.1%, including the iconectiv gain, while excluding it, it was around 19%. Then turning to capital allocation. During 2025, the Board has undertaken a review of the balance sheet and the capital allocation principles. On the balance sheet, we remain committed to an investment-grade credit rating and maintaining a solid net cash position. Turning next to the 4 capital allocation priorities. First, the top priority is to maintain a technology leadership through continued R&D investment to ensure customer confidence at all times. Second, we are committed to a stable, to progressive ordinary dividends. And third, as already -- as Börje mentioned, we remain selective with inorganic investments. And finally, any excess cash will be distributed to shareholders. So for 2025, the Board will propose an increased dividend of SEK 3 per share and a share buyback program of up to SEK 15 billion at the AGM. After adjusting for the total shareholder distribution of approximately SEK 25 billion, the 2025 net cash position is at a solid level, considering future investment needs and the business outlook. Next, I will cover the outlook. Global uncertainty remains with potential for further changes in tariffs and broader macroeconomic factors. The outlook assumes stable exchange rates and no tariff changes here. So for Networks, we expect Q1 sales growth to be broadly similar to the 3-year average quarter-on-quarter seasonality. For Cloud Software and Services, we expect Q1 sales growth to be below the 3-year average quarter-on-quarter seasonality. And we expect Networks adjusted gross margin to be in the range of 49% to 51% for Q1. And restructuring charges for the full year '26 are expected to be at an elevated level with proposed headcount reductions recently announced in Sweden and continued actions across other markets. With that, I hand back to you, Börje. Borje Ekholm: Thanks, Lars. So today, we have a very strong position and a very competitive portfolio. In many markets, there will be a need to invest to keep network performance at a competitive level. And as you've seen, we made critical inroads in many key markets during the year, for instance, in Japan. In 2026, we're planning for a flattish RAN market, but expect growth to come from new areas. This means we will need to continue our efforts on operational efficiency. And by doing so, we can strengthening our company for varying market conditions. This will enable us to continue with critical investments in technology leadership including increased R&D investments in defense and mission-critical, while at the same time supporting our margins and cash flow generation. Overall, as I mentioned before, we're entering a very exciting time where AI will move from a focus on data centers and large models to devices and applications. This will require advanced wireless connectivity, putting Ericsson in the middle of the next phase in the AI era. Our strategy is focused on making sure we capture this opportunity. We're doing it by providing the industry's best network for AI that enable differentiated services and new monetization opportunities. This includes both new use cases including by exposing networking capabilities through network APIs, but also new sectors, such as mission-critical networks. This will allow us to capture significant share of the value from connectivity and help drive growth for us as Ericsson. So if I draw this out a bit longer term, I believe we can have a model with a flattish mobile networks market, but with our investments in growth areas that we -- basically, we can see a modestly growing top line. So if you combine the operating leverage, actually improving profitability in the Enterprise segments as well as share buybacks, we should see a healthy growth in profit per share. So to wrap up, in 2025, we were laser focused on strategy execution and continue to take critical steps to position Ericsson for the future. We're unlikely to see growth in the RAN market this coming year, but our investments in mission critical 5G core and the enterprise will drive growth for the company. I would say it's exciting if you ask me. On that note, I also want to thank all my colleagues at Ericsson for a lot of great work. Thank you, team. With that, I think it's time for you, Daniel, to lead us through some Q&A. Daniel Morris: Thanks, Börje. We'll now move to the Q&A. [Operator Instructions] Thanks. Okay. Operator, we're ready to open the line for the first question. The first question today is going to come from the line of Simon Granath at ABG. Simon Granath: Congrats team Ericsson for the solid results here. On OpEx, I'd like to push a bit on the medium-term trajectory and the R&D balance. With the RAN demand looking broadly flattish into 2026. OpEx growth largely reflecting salary inflation rather than volumes. If we assume a similar demand environment into 2027 with [indiscernible] still later in this decade, how do you think about the risk of managing R&D and were capabilities changes too early? So simply on the mid-term OpEx trajectory? Lars Sandstrom: Mid-term. When you look at the OpEx levels that we have today, and the structure we have, it's a question about working and investing, and we are already in 2025 and back -- and going into this year, there are key strategic areas where we are investing and some other areas where we are taking other decisions. So I think that -- and that will also be how we will work going into 2027. Then of course, there is a continuous cost inflation that we need to drive through productivity to ensure that we keep the right level here going forward as well. So there will -- and when these big investment comes, we will see. I think you will have to comment as well from your perspective. Borje Ekholm: Yes. I think the -- given the flattish market we're in, we will have to work continuously on the, I call it, R&D efficiency. But there is also a question of making sure we allocate to the right areas. This is why new areas like mission-critical is actually critical to be part of as well as defense applications. So we believe that we can -- even in a flattish market, we can actually have the right R&D level with the program and with the efforts we have in place. But it's, as you know, it requires us to really be at the forefront of R&D efficiency as well. But you should not expect us to -- put it this way, we are not going to trade off technology leadership, and we believe we can have technology leadership at the spend level even into '27 and beyond. Daniel Morris: Moving to the next question, please. The next question is going to come from the line of Erik Rojestal at SEB. Erik Lindholm-Rojestal: Congratulations on the results here. So just Börje, you mentioned increasing investment in defense in '26 and mission-critical was a key driver here in the quarter. I understand this is a good market for you right now, but can you please shed some light on how large the exposure is that you have currently in this area? And what the size of the opportunities that you see out there? How large are they? Borje Ekholm: We -- if we start in the end of discussing -- first of all, what we want to say here is, in reality, the investments we make in defense today is captured in the total R&D spend. And as we go forward where we see that, we probably need to increase that a bit. And the reason for that is we actually see the potential for a very sizable market in defense given what the spending in the U.S., of course, but it's also the increased European spending on defense will make this into a fairly sizable market. And we see that market moving from, what I would call, dedicated solutions, kind of proprietary technology solutions into much more 3GPP-enabled solutions. And the reason for that is simply that is more cost effective and it's going to be much better performance. So we see actually the communication market in defense to be a sizable opportunity that we want to make sure we're early on in. But there are also other applications. So think about defense from a broader perspective, the sensing capabilities of the solutions we have actually allows you to, for example, do drone detection. Think about where the usefulness of that and it can do detection of objects that are not connected. So it's basically maybe popular wording will be called the radar. These are major opportunities that we would say are really large that we want to position ourselves to go after. So when you see us increasing spending, it's not -- I think part of it will be offset with other efficiency gains, but we want to say that we actually go after an opportunity here that we think is rather sizable. Daniel Morris: Thanks, Erik. Moving to the next question, please. The next question is going to come from the line of Jakob Bluestone at BNP. Jakob Bluestone: I had a question around supply chain shortages. I'm wondering sort of broadly, are you seeing any issues that might hold back your ability to grow? And specifically, can you comment on the impact of memory price increases? So what share of your bill of materials relates to memory chips? Do you hedge these? Can you pass on any price increases to customers? Lars Sandstrom: When it comes to the supply chain, I think we have worked for quite some time on resiliency. And when it comes -- that is including then supply chain, so to say, deliveries. So that is continuous work that we do. So -- but of course, when it comes to the memory side, it has been quite a bit of noise around that. But I think we are in a good position of handling that as it looks for this year here. And on the pricing side, it is a mix. Of course, there is some impact, but also here, it's really working close with our suppliers also together with our customers to make sure that we are not squeezed in the middle here. So it's both ends here to work with. Jakob Bluestone: Can you maybe just expand how have you avoided shortages? Is this just by building inventories, just given the sort of... Lars Sandstrom: It's part of the -- how we work, but also to have a good relation and long-term relationship with the different suppliers that we work with. Daniel Morris: Thanks, Jakob. Moving to the next question, please. The next question is going to come from the line of Andreas Joelsson at DNB. Andreas Joelsson: Moving from the splendid operations to the buybacks perhaps. And if we assume that you make SEK 25 billion in free cash flow on a sustainable level, that is equal to the total remuneration to shareholders. So should we say that around SEK 45 billion is a net cash that you feel -- that you and the board feel is needed for the -- to run the operations? Lars Sandstrom: I think as we mentioned there, the view is that it's important to have a solid net cash position. And we're coming out here with SEK 61.2 billion in net cash and the total distribution of around SEK 25 billion. And adjusted for that, we have given the business outlook that we see now, we see that it is a solid net cash position coming out of 2025. Then when we come to next year, then we will have a look again, of course. But the capital allocation principles are there and that is guiding us also going forward. Borje Ekholm: And when you think about the business outlook, of course, you need to think about geopolitics, you think about whether it's the question before, tight supply chain, for example. And all of these factors reaches the conclusion that, that was the right level now. Andreas Joelsson: And just as a follow-up, is there any thinking from the Board and from the management, given what you said before about growing EPS that you could -- that you would like to have a more long-term buyback program and making sure that you can achieve that? Lars Sandstrom: I think this is the first time, Ericsson now announces buyback program. So it is clearly a part of the toolbox for the Board and the AGM and for the shareholders to decide upon. Borje Ekholm: Yes. I think you would also say, Andreas, that it's intentional that is launched as a buyback program and you also know the mandate for those are reviewed annually by the AGM. So this will be our hope and ambition and what is that this will be a recurring thing. Then the size will vary, of course, depending on how the outlook looks like. Daniel Morris: Thanks, Andreas. Moving to the next question, please. The next question is going to come from the line of Sandeep Deshpande at JPMorgan. Sandeep Deshpande: My question is on the market in mobile networks, overall. Has the market changed at all? I mean, we've heard about the EU restricting some of the high-risk vendors, but at the same time, you are seeing a greater price competition in Latin America. Maybe Börje, you can make some comments on how this market overall is playing out in the world given the geopolitical situation? Borje Ekholm: Yes. If you -- a way to think about it, Sandeep, is we look at this market for the last 2 decades, right, and it's been flattish. So we like to think or plan for that type of market outlook. If it gets better, then we have a strong cost competitiveness, we get operating leverage. If it gets worse, we need to review that assumption, right? But that's kind of the way we think about the business. Then, of course, it varies what happens. So over the last few years, and I think we spoke about this a couple of quarters ago that we saw increased competition in Latin America, we see it from time to others in other parts of the world, Southeast Asia, Africa, et cetera. So that kind of comes and goes a bit. The thing that could be a positive is, of course, the high-risk vendor discussion in the EU. That's a sizable opportunity. If you think about the -- it's -- I mean we don't know exactly, but call the high-risk vendor market presence in Europe to be 1/3 to maybe up to 40%, but around that as a guideline, that would be a sizable revenue opportunity for trusted vendors. So that could change. At the same time, it's -- now it's a proposal. It has to go through the process. So this is something that's probably going to take 12, 18 months before we really know the impact. So we're not factoring that in. But of course, it is an upside opportunity. And of course, it is, I would say, the toolbox, the EU discussed or implemented quite some time ago, which is 5, 6 years ago, has been not been widely adopted. So it is a change in stance with the current proposal. Daniel Morris: Thanks for the question, Sandeep. Moving to the next question, please. The next question is coming from the line of Sébastien Sztabowicz at Kepler Cheuvreux. Sébastien Sztabowicz: On Networks, how do you see the mix trending in the coming quarters? We are now seeing some stronger growth in Africa, Southeast Asia and lower deployments in the U.S. and maybe also in Japan and Korea. So just curious about the mix trend in Networks. And also at a broad level what would be the puts and takes to your gross margin in the coming quarters? Where do you see some upside or downward pressure? Lars Sandstrom: I think single quarters will vary. But if you look a little bit on the underlying for '26, North America on healthy investment levels in the market. So -- and that we expect to continue during the year. And then when it comes to growth opportunities, there is an investment need in India and also in Japan, where we have also in both these markets, ensure that we have a good, solid market position. So when the customers decide to invest, we should be able to capture on that. Europe, rather stable. And then there are -- we will see what happens in Latin America. There is opportunities there, but still quite tough competition for sure, parts of Southeast Asia as well. So I think that's a little bit the balance act. In Africa, we have had a couple of good quarters now with 4G and 5G rollouts and modernization activities. And hopefully, we can see that continue also going into this year. So that's a little bit the balance act on the market mix. And then the puts and takes, there is a cost pressure in the group, in the flat RAN market and continuous cost pressure on us both in the people part, but also in material cost so that we need to continuously work with. That's why we talk about then somewhat higher elevated levels on restructuring, both -- that will impact both, so to say, OpEx, but also in the cost of goods sold. So that is necessary to offset this upward pressure on costs. So that is some of the puts and takes. Then you have the normal product mix, but that will vary between quarters as always. Daniel Morris: Thanks, Sébastien. Moving to the next question, please. Next question is going to come from the line of Felix Henriksson at Nordea. Felix Henriksson: It's relating to IPR. I think in the report, you called out that you had a contract expiring with the Chinese smartphone vendor at the end of 2025. So I just wanted to ensure whether or not there are other significant contract cliffs in 2026 that we should be aware of? And as a quick follow-up to that, what is your level of conviction in being able to grow the SEK 13 billion annual run rate in IPR going forward? Lars Sandstrom: Yes. Normally, we try to give you that guiding point around the run rate coming out of the year, around SEK 13 billion. When it comes to the contract, this is not a major impact. And we always -- when we negotiate, renew contracts, we are targeting the best economic outcome and that we will do as well this time. So that could be some impact here, but that is then normally coming back with a renewal. So it should not impact the full year, so to say. And then potential upsides are there. We are in settlement negotiations with one of our licensees. So that is hopefully coming into place this year. And then there is the underlying opportunities around the pure smartphones when it comes to IoT, automotive, et cetera, that should support growth coming into this year as well. So that's a little bit the balance -- the pieces that will drive some opportunities. Daniel Morris: Thanks, Felix. Moving to the next question, please. Next question is going to come from the line of Ulrich Rathe at Bernstein. Ulrich Rathe: My question is on the bigger picture of the revenue outlook. So you're guiding for a flattish market and highlight the growth opportunities in mission-critical and other areas. And now in the fourth quarter, you delivered mid-single-digit organic growth, which is taken with some excitement in the market today. Would you go as far as saying that something like mid-single-digit revenue growth is possible in a flattish run market with the growth opportunities in these new opportunity areas that you're highlighting? Or is this maybe a bit of a phasing effect here? I think you highlighted in particular in CSS, the delivery phasing. Just wondering what your bigger picture here is? Borje Ekholm: I think to -- if you think about it from a little bit longer-term perspective, and it's going to fluctuate, right? But the size of the mission-critical market and the enterprise opportunity as well as 5G core that contributes here, 5G core, by the way, you should remember, it's only about 1/4 of all networks that are upgraded to stand-alone today, so there is a rather sizable opportunity there. So when you look at those outlooks, those individual pieces, they are large enough to a drive pretty nice long-term growth. It's not going to be double digits, as you say. So that -- take that out, but it may be low- to mid-single digits. And I think the -- that's what makes me a bit excited is actually to think about it from that kind of at least some basic growth and you add on operating leverage on that, you add on what we're seeing on the enterprise that we're going to get that to profitability and you combine that with share buyback, you actually get a very healthy growth profile. So I think there is something here that I think from a little bit longer-term perspective is rather exciting. Daniel Morris: Thanks, Ulrich. Moving to the next question, please. Next question is coming from the line of Sami Sarkamies at Danske Bank. Sami Sarkamies: I have a question on your silicon strategy. Your competitor recently announced that they will start building products based on NVIDIA chips. We have also done some R&D work related to the use of chip use. What is your take on the situation? And do you see a role for NVIDIA in future RAN products? Borje Ekholm: We selected a strategy several years ago to basically disaggregate the software and hardware and actually allow our software to run on pretty much any architecture. And of course, here, we can run on, of course, the x86, but it can run on GPUs. It can run on our proprietary Silicon as well. And by the way, you could well see the TPU from Google. You could see what Qualcomm is coming with AMD, et cetera. So we wanted to be a bit independent of the selection of the hardware layer. The reason for doing that was that we felt it was the right strategy to give the customers the opportunity to choose what hardware layer they want to run on. And you know today, there are operators rolling out cloud RAN. That's on x86. In the future, it may be different. So I think the -- I cannot comment on Nokia's decision, that's for them to comment on. But from my point of view, I -- we wanted a very different strategy, not to select the infrastructure layer today, but rather do that as we come closer towards AI RAN realization and 6G, then we can make an intelligent choice together with our customers. And we feel good about that strategy, but that also means that we're going to continue to work with the x86 ecosystem and the GPU ecosystem. Daniel Morris: Thanks for the question, Sami. Moving on to the next question, please. The next question is going to come from the line of Didier Scemama at Bank of America. Didier Scemama: Sorry to come back to the point on memory and cost inflation. So I'm looking at your inventories, which are seasonally lower in Q4. You seem to suggest that you are -- you have adequate supply from new suppliers. So just can you elaborate a little bit? Have you signed like a 12-month supply agreement that makes sure that the pricing is not going to be a headwind to your gross margins? And -- or put it in a different way, what have you assumed in your gross margin in terms of cost inflation from memory over the course of '26? Lars Sandstrom: I think margin -- inventory levels are coming down in the fourth quarter following the seasonality that we have, and that includes all inventories. So when it comes to that part, I think we are well positioned coming into the year when it comes to inventory levels on this kind of areas. Then of course, there is cost increases coming that we need to work with. But we don't share exactly how much that is, of course. But it will have some impact, but we will work together with our customers to ensure that we are, so to say, not stuck in the middle here, but there is an understanding that there is some sharing to be done here. Didier Scemama: And sorry, again, to go back to the defense point, I think you sort of said, look, with the opportunities. Can you give us a sense of the size of your business today in defense? What sort of costs you're thinking about? Does that require any CapEx? Just elaborate a little bit so we've got something to work with. Borje Ekholm: Yes. I think you can assume -- we're not going into details exactly what our business is because we're working with a number of defense organizations. As you know, Ericsson exited all defense several years ago. So we haven't really had a presence. So today, we're working in partnerships as well as with defense organization. So we're not going into details there. But -- and I think when you look at the overall sizing, the revenue opportunity, there are a number of consultants out there talking about the size of that opportunity. We -- and some are very big numbers. I'm not sure it's going to be that. But we think it's compared to the rest of the opportunity we have is sizable. When we talk about it from an investment point of view, this is more saying that we will ramp up our presence in here and actually increase our investments. It's not going to be material compared to our overall SEK 50 billion we spent on R&D. So that's why we also say that it's part -- it can be -- well be offset, maybe not fully, but by the efficiency gains that we're going to do. So when you look at it from a total point of view, think about it as there is a big opportunity we will try to invest to get that. We're not going to materially impact our outlook with that. That's not the case. But we want to single it out as a growth opportunity. Lars Sandstrom: And I think on your question there on CapEx, it's very, very limited. Borje Ekholm: Yes, that's fair. That will be -- you will not see that as a CapEx need. Daniel Morris: Thanks, Didier. Moving to the next question, please. The next question is going to come from the line of Daniel Djurberg at Handelsbanken. Daniel Djurberg: I have a question. If you could give any more color on the visibility in the North American RAN market in '26? Is it fair to assume a more back-end loaded year given some of your larger customers' spectrum asset holdings, for example, that could I expect to build upon in the latter part of the year? Lars Sandstrom: I think it -- we don't -- I think we say that when it comes to the full year, we are coming out with healthy investment levels, and we expect that to continue. Then how it will pan out between quarters, it's actually rather, I think, difficult to say. It depends on what the capital investment needs that they have in different rollout phases, et cetera. So it's -- I don't think it's today, easy to say what will be the difference between the first and the second half. Borje Ekholm: No I think that -- we don't guide that way, we've elected to do it quarterly and I think that's why we do it quarterly. What I -- I do think it's fair to say that when we look at the North American market -- and by the way, this is actually a global phenomenon. But when you will hear, I think our customers talk a bit about being cautious on CapEx, the interesting thing is we also see a change in mix in our customers. So we believe we're -- the active components are going to be needed because that's driven by the traffic growth and the need to go 5G stand-alone as well as new use cases like fixed wireless access. So when you see that, you actually see, call it a healthy investment level, even though our customers most likely will guide for a bit lower CapEx without knowing they need to guide on their own, but it's given signals that you can hear and it's pretty clear, they will be cautious on CapEx. Daniel Morris: Thanks for the question. Moving on to the next question, please. The next question is going to come from the line of Andrew Gardiner at Citi. Andrew Gardiner: Just coming back to a point you made earlier in your presentation regarding the performance that you've had over the course of 2025. Your profitability has improved noticeably last year. You've had 2 good years of operational cash generation. And so that is putting Ericsson, as you point out, in touching distance of the long-term financial targets. That being said, these targets are some years old at this point. Are they still relevant and accurate targets for us to use in the market? Or given the changing state of your end markets and your strong execution, is there the possibility to do better, right? Do you have the ambition to perhaps outperform those somewhat old targets at this point? Borje Ekholm: I think it's right that they're old. We have not succeeded at reaching them, so that's a fair comment. But I think the -- we should remember, we also set the targets in a different environment geopolitically as well as business mix, to be honest. So we set them when iconectiv was part of our portfolio, we set them in a very different political environment. I think we -- I'm not too fan of changing targets easily. So we want to make sure that we reach that 15% to 18% first. Once we're solidly there, then I think we can start to talk about is that the right target after that. But right now, I think it's a good measure of what we should achieve with the current type of business we have. Daniel Morris: Thanks for the question, Andrew. We just have time for a brief follow-up question from one of the analysts before we close. So if we can bring Daniel back in, Daniel Djurberg, Handelsbanken. Daniel Djurberg: I would like to ask a little bit on the Cloud Software and Services. Sorry, if I missed the answer before. But could you help us to understand a little bit more on this impact of this large contract being in most -- in the quarter i.e., with the outlook comments on Q1 seasonality have changed to more of a similar view if the contract has been excluded in Q4? Lars Sandstrom: It's a good question. Now as we said, we are coming out strong in Q4 here with -- and as you know, we have lumpiness when it comes to project deliveries, which are -- if you look at the full year, we are up around some 6% organically in Cloud Software and Services. And I think that has been a good underlying growth that we have seen, supported by the core business, and that is what we see as a healthy level coming into '26. Then, of course, if that single comment would bring us back to normal, I think that's a little bit -- it would, of course, bring us closer for sure. That is true. And then we should remember, I think you have all seen that, that we have a significant currency headwind coming in, in Q1 year-over-year as a comparison that you will see currency rates peaked somewhat in Q1 '25. So that headwind we also are facing here. Daniel Djurberg: Look forward to see you in Barcelona. Borje Ekholm: Thank you. Lars Sandstrom: Thanks. Daniel Morris: Thanks, everyone, for joining. That concludes the call. Borje Ekholm: Thank you.
Operator: Good morning. Thank you for joining us, and welcome to the Customers Bancorp 2025 Q4 and year-end earnings report. My name is Devin, and I will be your call moderator for today. [Operator Instructions] I will now hand the call over to Philip Watkins, Executive Vice President, Head of. Please go ahead. Philip Watkins: Thanks, Devin, and good morning, everyone. Thank you for joining us for the Customers Bancorp's Earnings Webcast for the Fourth Quarter and Full Year 2025. The presentation you will see during today's webcast has been posted on the Investors web page of the bank's website at www.customersbank.com. You can scroll to fourth quarter and full year 2025 results and click download presentation. You can also download a PDF of the full press release at this spot. Before we begin, we would like to remind you that some of the statements we make today may be considered forward-looking statements under applicable securities laws. These forward-looking statements are subject to change and involve a number of risks and uncertainties that may cause actual performance results to differ materially from what is currently anticipated. Please note that these forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update these forward-looking statements in light of new information or future events, except to the extent required by applicable securities laws. Please refer to our SEC filings, including our most recent Form 10-K and 10-Q and our current reports on Form 8-K for a more detailed description of the assumptions and risk factors related to our business. Copies of these filings may be obtained from the SEC or by visiting the Investor Relations section of our website. At this time, it is my pleasure to introduce Customers Bancorp Executive Chairman, Jay Sidhu. Jay Sidhu: Thank you so much, Phil, and good morning, ladies and gentlemen. I too want to welcome you to the Customers Bancorp Fourth Quarter and Full Year 2025 Earnings Call. Hope you've all had a great start to 2026. I'm joined this morning by Customers Bank and Bancorp CEO, Sam Sidhu; and Customers Bank and Bancorp CFO, Mark McCollom. I'd like to start by congratulating Sam again, on his appointment as CEO and also to the Board of Directors of Customers Bancorp. The Board of Directors and I are delighted with this transition, which has been in the works since we began our succession planning exercise at the Board level over 5 years ago. We have every confidence that Sam and the team that he has assembled will continue to build upon the incredible results we have achieved over the past few years. Since we founded this bank in late 2009, the journey has been exciting. With a clear vision and a lot of determination, what began as an approximately $175 million troubled failing bank has now grown into a $25 billion asset institution recognized for its unique single point of contact strategy, its exceptional customer service focus and a forward-thinking approach to technology. That success did not happen by chance. It's the direct result of superior execution by a world-class team. We have consistently put customers first and build a best-in-class risk management infrastructure while embracing innovation and change. Moving to Slide 4. We are pleased to report another quarter and a very strong quarter and a very impressive full year of 2025, which Sam and Mark will talk through in more detail. As you know, our 2025 core EPS was $7.61 a share and up from $5.60 a share in 2024. Before they discuss the details of 2025 with you, I wanted to spend some time putting into perspective our performance over the past few years. Customers Bank has been one of the strongest organic growth stories in the entire industry, and we see no reason that will change in the years to come. We've had incredible deposit-led growth in our balance sheet with low-cost core deposits growing at a 16% compounded annual rate over the last 6 years. And we did this while materially improving the quality of our deposit franchise, as you will hear much more about that later from Sam and Mark. Moving to Slide 5. We highlight that we believe is the clearest way to evaluate sustainable franchise value creation, long-term compounding returns in revenue, earnings and tangible book value. We've been an industry leader in growing these metrics by a number of years now for a number of years. We are the #1 compounder of core earnings per share over the last 6 years, which represents outstanding performance against the peer medium and so we performed over 5x better than the peer median and we performed over 3x better than the top quartile. Similarly, tangible book value per share compounding is the #2 among the entire peer group and represents outperformance of the peer medium by about 3x and the top quartile by over 2x. Finally, on Slide 6, our core strategy has translated into significantly improved profitability over the last several years. Our margin increased by 57 basis points and our return on assets increased by 33 basis points. And very importantly, our return on equity increased by 450 basis points, while we simultaneously increased our capital level by 500 basis points. This profitability improvement has been achieved while making substantial investment for the future, investments in people, investments in technology, investments in processes and huge investments in risk infrastructure for the future. These have turned into incredible results for our shareholders while helping us build a very strong foundation for the future. Our 5-year total shareholder return has been over 300%, placing us at the very top of our peers as an industry. In fact, in the entire financial services industry. It is exactly these kinds of financial results and multiyear transformation that give us the great confidence in Sam and the rest of the management team to continue building on our momentum and to take on tomorrow. Our mission will remain unchanged, and that is to deliver long-term value for shareholders and our communities by putting clients first and continuing to innovate and build strong risk management and execute with excellence. We believe our best years are still ahead of us. With that, I'm going to turn it now over to Sam. Samvir Sidhu: Thank you, Jay, and good morning, everyone. I want to begin by expressing my deep gratitude and excitement to Jay and our Board of Directors as I lead the organization through its next phase of growth as CEO. It is truly an honor to step into this role and to build upon the extraordinary foundation Jay and the team have established since the bank's founding 16 years ago. What makes this moment especially meaningful is the opportunity to lead alongside such an extraordinary team. Across the organization, from our client-facing bankers to the team members in our operations, technology, risk finance and many other areas, I see a shared drive to innovate, serve with purpose and never settle for average. It's the efforts of this exceptional team and their relentless focus on the customer that has resulted in our Net Promoter Score, increasing to 81, up 8 points from 73 last year. This is nearly double the industry average and places us among the very top of companies not just in the banking industry but all service-oriented firms. With that, I'll turn to our top priorities for 2026. You'll notice in many ways, these look similar to last year, but evolved, highlighting our consistent strategic focus and entrepreneurial culture. First, our top financial priority is continuing our organic growth story on both sides of the balance sheet with the hires we made in 2025 stacked on top of '23 and 2024 vintage teams hitting their stride, we have the pipeline in place for 2026, which brings me to our next priority. Our team recruitment strategy has been foundational to our recent success. On top of the previous team onboardings, we continue to have active discussions with top-performing teams that are looking to join an entrepreneurial and customer-centric bank. We will have more to share on this as the year develops. But if 2025 was any indication, top talent is excited about leveraging the unique platform here at Customers Bank. Third, we believe payments are a key driver of the future of banking. We have an ambitious goal of being a commercial payments leader in the industry. We are tirelessly working on expanding our payments offerings and capabilities to meet that target. Next, as a future focused bank, we see an immense opportunity to leverage AI to deliver enhanced client experience and productivity gains across our organization. More importantly, we look to do all of this while not taking our eye off the risk management areas, ensuring we maintain strong capital, liquidity and credit quality. We did an amazing job executing our priorities in 2025, and that was evidenced by the fact that we were one of the top-performing bank stocks of the year as our stock price increased by over 50%. On Slide 8, I'll cover our priority to continue to enhance our payments capabilities and further establish Customers Bank as an industry leader across verticals. First, I want to provide some more insight into exactly what makes our approach so powerful. Core to our strategy was the in-house development of cubiX, which allows clients to communicate and operate seamlessly across all of our payment rails. cubiX allows our clients to digitally interact with and access both traditional products like wire and ACH as well as more advanced systems like RTP, FedNow and our 24/7 365 intra bank's instant payments platform, which gets a lot of the attention. Turning to our Instant Payments platform. 2025 was truly an exceptional year where we saw incredible scale and utilization. We had over $2 trillion of payments volume during the year, which was a 30% increase over last year's impressive $1.5 trillion. That level of payments activity now puts us as the #1 commercial payments network in the U.S. ahead of household names like Max and VISA based on latest publicly available data. That volume supported consistent average deposit balances quarter-over-quarter of $3.9 billion. As exceptional as these results have been going forward in 2026, we will look to showcase the durability and unlock the franchise value of the network. We'll seek to achieve this by deepening and broadening our existing network and product offerings, by expanding cubiX utilization to other existing commercial clients in traditional verticals and onboarding networks of new clients in verticals that can drive meaningful low-cost deposit growth. With that, let's move to our AI efforts on Slide 9. For us, AI represents an opportunity to elevate quality, customization and responsiveness across the bank while continuing to deliver the high touch, white glove experience our clients expect. AI will redefine the banking industry and our organization. Given this, I'm personally leading our AI efforts and empowering and encouraging our team to effectively leverage this transformational technology. After building a strong foundation, 2025 became a year of broad enablement and adoption. Our company has trained every employee on AI. Over the last year, we began rolling out more focused AI training for each department to develop use cases from generative and agentic AI tools. As you can see from the chart here, our employees already report a nearly 20% productivity gain using this technology, and over half of our firm is already using our enterprise-level AI operating platforms. As we continue to leverage this technology, we see the ability to orchestrate our workflow across our operating platform and deliver our products and services to our clients faster. Frankly, we're only in the early innings of unlocking the vast potential of AI for our clients in our organization. Moving to the next slide. We had an excellent quarter and an exceptional year. Let me start off by saying a big thank you to all of our team members. We really went above and beyond in 2025 and the entire executive team, our Board and I'm sure our shareholders are so incredibly appreciative. We had a strong finish to 2025. This quarter and full year 2025 was yet another clear demonstration of the strength of customers' diversified model. Our results represent a very strong financial performance across the board. Here are a few of the highlights of the year's performance. Deposits grew by about $2 billion or 10%. This was led by our new commercial banking teams, which added $1.6 billion in deposits. Loans grew by 15%. We had record net interest income, which grew by 15%. Our efficiency ratio dropped by over 6 percentage points and we grew tangible book value, as Jay mentioned, over 14% in the year, continuing our multiyear trend of 15% annualized growth, which is industry leading. We accomplished all of this while maintaining strong credit performance and ample liquidity. Moving to Slide 11. You'll see our GAAP financials, and then moving to Slide 12. I'll run through a few core financial highlights for the quarter and full year. In the quarter, we delivered core EPS of $2.06, core ROE of 13.8% and ROA of about 1.2%, respectively. And for the full year, we achieved $7.61 in core EPS, which is up 36% from last year. With the highlights now covered, I'll turn it over to Mark to dive deeper into the details of the quarter. Mark McCollom: Thanks, Sam, and good morning, everyone. Turning to Slide 13. During the quarter, we continued to enhance the quality of our deposit franchise with a meaningful shift toward relationship-based granular, high-quality deposits. Total deposits grew almost $400 million during the quarter, ending at just under $21 billion. And as you heard from Sam, these balances were up about $2 billion or 10% for the year. This was led by a great performance from our new teams, which I'll give more detail on shortly. This growth is also after giving effect to the fact that we averaged about $675 million of quarterly deposit remixing throughout 2025, which helped drive the strong deposit beta I'll detail shortly. For noninterest-bearing deposits, our core franchise again delivered 9 figures of growth at about $150 million for the fourth quarter. And for the year, we had over $500 million of noninterest-bearing DDA growth apart from the large DDA increases we saw from our cubiX clients. Because of the momentum with our deposit teams, we think we have the potential to replicate or even beat this performance in 2026. Our team responded very well to the Fed rate cuts in October and December. Our deposit beta in the quarter was 54% and a very strong 71% on interest-bearing deposits only. Through the full easing cycle to date, our total deposit beta has been about 61%, which is a number that we're very proud of. The results of our deposit transformation over the last few years can be seen on the right-hand side of Page 13, which shows we've been steadily converging to peer median deposit costs from a spread of over 200 basis points in the fourth quarter of 2022 or 3 years ago to 165 basis points today. Now let's turn to Slide 14, where I'll provide more detail on the incredible success of our deposit gathering efforts with a particular focus on our new banking teams. Sam discussed earlier how critical recruitment is to our strategy. And here, you can see the results of that hard work. The teams we've recruited over the last 2.5 years now manage over $3.3 billion in deposits, excluding our cubiX payments business. And that's a very granular book of business with over 8,000 commercial accounts. In 2025, the increased deposit balances by $1.6 billion, essentially doubling the balance from the prior year. And in the fourth quarter alone, they added $585 million in deposits, of which 40% was noninterest-bearing. And that's without any meaningful contribution from the teams that we onboarded in 2025, which we believe could be a meaningful driver of deposit growth in 2026. Now let's turn to loans on Slide 15. Loans grew approximately $500 million or 3% quarter-over-quarter. Growth was broad-based and led by commercial real estate, health care and mortgage finance while we saw net paydowns in our fund finance business. You can see the same diversification in loan growth when looking at the full year view as the majority of our businesses contributed to 2025 growth in some way. As we often say, the chart on loan growth can vary each quarter, but the diversified nature of our quarterly and annual results highlight the multifaceted nature of our asset generation capabilities. Given the depth and breadth of our platform, we see opportunities to add franchise-enhancing loans in 2026 with a continued focus on credit quality. Turning to Slide 16. Net interest income increased 22% year-over-year to $204 million, and our net interest margin expanded by 29 basis points to 3.4% over the same period. Net interest income increased $2.5 million sequentially and was driven by the following core trends, an increase in average loan balances of nearly $800 million, an increase in average deposits of over $300 million, a decline in our blended cost of deposits from 2.77% last quarter to 2.54% in the fourth quarter and nearly $250 million of higher average noninterest-bearing balances despite flat average cubiX balances quarter-over-quarter. This performance highlights our ability to grow net interest income even in a falling rate environment. And with levers to pull on both sides of the balance sheet, we're optimistic about our ability to continue net interest income growth in 2026. Moving on to Slide 17. Our reported noninterest expense was $117 million in the quarter. The linked quarter increase was mostly driven by expenses that were either unique to the quarter or directly related to fee income or tax savings. To give some more color, we had a total of $4.8 million of unique expense in the quarter, which included $1.9 million in legal fees associated with the new team on boarding, $2.2 million of insurance expense on tax credit purchases, which had a corresponding direct benefit to our effective tax rate and $700,000 in compensation and benefits. Additionally, our commercial lease depreciation expense was $2.2 million higher quarter-over-quarter, but that came with higher volume in the business. So our noninterest income for that business was up $2.7 million linked quarter. It's also worth noting that our expenses last quarter benefited from a positive adjustment to our FDIC expense of about $1.8 million. But even with these discrete items, our efficiency ratio was 49.5% and our noninterest expense to average asset ratio was 1.88%, placing us firmly in the top quartile of peers even as we invest in growth. Now turning to Slide 18. Many of you recall that during our third quarter 2024 earnings call, we outlined our first operational excellence initiative. It was designed to identify revenue enhancement and cost saving opportunities that we could use to reinvest in the areas of strategic growth for our future while maintaining strong efficiency for our organization. Based on the success of that program, we're once again undertaking a similar program. Between revenue and expense initiatives, we are targeting $20 million in run rate proceeds, which we will again invest in our future. We believe this ongoing philosophy is reflected -- well, sorry, the results of this ongoing philosophy is reflected in the guidance I'll provide in a minute. And it's a key component to having sustainable, long-term positive operating leverage. On Slide 19, you can see our tangible book value per share grew to $61.77, up 3% sequentially or 14% annualized. This represents one of the clearest markers of long-term shareholder value creation and continues our multiyear track record of double-digit tangible book value growth. And we achieved 14% growth during the year in which we added 9% to our shares outstanding and enhanced our capital ratios across the board. Let's now turn to Slide 20 to discuss that capital growth. We further strengthened our capital position this quarter with a successful sub debt issuance, which provided us with $100 million of additional Tier 2 capital. Our tangible common equity ratio continued to climb higher, now reaching 8.5% even after a quarter of strong balance sheet growth. And this ratio was up 90 basis points year-over-year, growing meaningfully while still supporting 12% growth in our asset base. On Slide 21, credit performance remains stable across the board. A strong credit culture will always be a critical success factor for customers and our results support this. NPAs were just 29 basis points of total assets and have been consistently below peers for the last 5 quarters. Total net charge-offs declined by 10% in the quarter as we saw strong performance from both our commercial and consumer portfolios. Excluding our small consumer portfolio, which represents only about 5% of our loans, commercial net charge-offs remained very low at 16 basis points annualized. Overall, we believe the loan portfolio is well positioned, and we have a strong reserve coverage within our allowance for credit loss. With that, I'll wrap up my comments with our 2026 outlook on Slide 22. As most of you on the call know, I've been with the company for about 8 months now. I went back and reviewed last year's guidance against what we delivered, and I was very impressed with the fact that we beat on every line item. We had also raised our guidance a couple of times along the way as our execution panned out. So with another strong quarter and year in the books, we're pleased to share our initial guidance for 2026. With strong pipelines across the franchise, we are targeting loan growth of 8% to 12%. Led by the commercial teams we've onboarded and continue to recruit, we see deposit growth net of remixing of 8% to 12%. The result of this growth is expected net interest income of $800 million to $830 million for the year or growth of 7% to 11%. On noninterest expenses, we project $440 million to $460 million for the year. This is growth of 2% to 6% as we continue to make investments in our future, largely in people and technology, but this range results in very significant positive operating leverage. On capital, we are targeting common equity Tier 1 of 11.5% to 12.5% with our strong organic earnings potential positioning us well to support solid balance sheet growth. And lastly, we expect an effective tax rate of between 23% and 25%. With that, I'll now pass the call back to Sam for closing remarks before we open up the line for your Q&A. Samvir Sidhu: Thanks, Mark. In closing, Customers Bank is executing on its strategy, delivering exceptional client service, differentiated deposit gathering, diversified loan growth, the recruitment of top talent leading payments capabilities and maintain strong capital and credit. Our teams delivered a phenomenal deposit gathering year. Total deposits increased approximately $2 billion with $700 million of that being noninterest-bearing growth. Our commercial teams delivered over $500 million of that noninterest-bearing growth, which should be the floor for 2026 and with this momentum, we feel good about the growth in our guidance. Similarly, our loan teams are well positioned to build on the diversified loan growth we delivered in '25. Our team recruitment efforts are kicking into high gear. We're already in active discussions with half a dozen teams. That's on top of the long runway from our recently onboarded teams. We are seeing a big payoff from the investments we've made in our payments infrastructure. We did over $2 trillion of cubiX activity in 2025, strengthening our market position and competitive moat. Last Friday, we enabled a network of existing customers in the mortgage industry that could add $50 billion in transaction volume this year. We are further targeting additional networks of prospective clients within the real estate industry as a starting point that could be a meaningful driver of noninterest-bearing deposits in the next couple of quarters. As you heard, we delivered strong profitability with an ROA and ROE of 1.2% and 13.8% in the first quarter -- fourth quarter. We completed 2 successful capital transactions during the year, all while maintaining excellent credit performance. As you can imagine, we're incredibly excited about the prospects for this company in 2026 and beyond. We'll now open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Janet Lee with TD Cowen. Sun Young Lee: Good morning, everyone. And congrats, Sam, on your new role. So if I were to, obviously, if I look at net interest income guide and expense, it's very good positive operating leverage for 2026 and 2025 was also a good year for fee income. If I were to look at 2026, is there a good level of expectations that you could set for fee income growth and were you're most optimistic about that fee income line? Samvir Sidhu: Sure, Janet. When you look at our noninterest income, similar to our asset businesses that we built, we have a nice portfolio of fee income businesses. And at different quarters, different businesses stepped to the forefront. In the third quarter of 2025, our venture business is stepped to the forefront, and we had outsized loan fees. If you look at our loan fee line on our 5-quarter progression, that's where we had some warrant income. This quarter, our commercial finance business stepped to the forefront, where we have a stronger commercial lease income and then also down in the other line, we had some sales on operating -- some operating leases that we have sold residuals, lease residuals at a gain. So my advice would be that while there will be different businesses that step to the forefront throughout the course of the year, on a quarterly basis, if you go back and look, we've averaged about $30 million. So from 2Q to [ Q4 ] in the average is right around $30 million. So I think that's a good place to start. And then on top of that, we now think we have some businesses that have matured that have a good full product set around them. And now we know a focus in 2026 will be how to better monetize that. Sun Young Lee: Very helpful. And for your deposit growth, obviously, the new banking team hires, I think they brought in $600 million of deposit growth in the quarter and your deposit growth of 8% to 12% for 2026. I would assume a lot of that growth is driven by the new banking team hires continuing to bring in that lower cost deposits. What level of deposit growth are you assuming from cubiX? I believe the balances on an average basis were pretty stable quarter-over-quarter. And what you're seeing on the institutional adoption of digital assets and how that's impacting the trend? Samvir Sidhu: Yes. Sure, Mark, I'll jump in and take that. I think, Janet, conservatively, we're not assuming that there's any major contribution from our digital assets balances there. While I think you're right, we could see potential increased market activity if there's sort of legislation that comes into the forefront. However, it's not something we're counting on. So deposit growth that you see there and sort of our guidance that Mark walked through is really going to be driven by the core commercial bank. And I think that's really one of the highlights of this organization. There are potential levers that could be pulled or frankly, maybe it's another way of saying is there are potential embedded upside that could be there if we continue to see sort of brought me to the network and sort of increased activity. But to that point, you touched on the $600 million in the quarter. We also talked about the $2 billion of growth for the year. But I think Mark also touched on the $675 million on average plus or minus throughout 2025 of remix that we did. If you put that all together, our $2 billion on a percentage basis was industry-leading in 2025. We would have more than doubled that had we just not remix and grown the balance sheet. And I think that really shows the diversified power across the organization. It's not just the '23 and '24, then the next year, the '25 team. The core bank is delivering -- is continuing to deliver great strength to the organization. And I think given the investments we made, we focused on the -- highlighting the return on those investments with the '23 and '24 teams. But really, I think that the commercial bank is firing on all cylinders. And as we continue to flex our payments expertise, you heard me highlight it in my prepared remarks that we could also see lifts in deposits related to traditional payment verticals that would be operating on the cubiX platform. Operator: Your next question comes from the line of Steve Moss. Stephen Moss: Sam, Mark, nice quarter here. And maybe just starting -- going back to the teams you're looking to hire this upcoming year. I think, Sam, you kind of touched on part of it at least, that with looking to hire additional real estate teams, I think is what I heard, they were a little static for me. But just kind of curious, are they new verticals or just additive to existing verticals? And then kind of with the $50 billion in transaction volumes you touched on, Sam, just kind of curious as to how we could translate that to deposits? Samvir Sidhu: Sure. So I'll tackle those, and let me know if I miss anything. So firstly, on future teams, I think was your first part of your question. Again, it's -- we're in discussions with half a dozen teams. It's difficult to sort of say where we'll land out. We do think it's a question of a little bit of bottoms-up as well as top-down. So top-down strategically, we think about different strategic areas that we'd like to be in that we aren't in today or we're already in a decentralized way, and it might be better to sort of centralize these and strengthen our overall go-to market. And then from a bottoms-up perspective, we have inbounds that kind of come from teams. So that's actually where a lot of our teams came from 2025, and we have to sort of prioritize and think about investments and align those for '26. So we'll continue to keep you posted. The real focus is continuing on the low-cost deposit gathering in '26. And as you can imagine, the hiring we do this year will really be for next year. The hiring we did last year is going to start picking up by the middle of this year. And I think we're really excited about that based on the pipeline that we're seeing and the momentum that we're seeing. So that was the first part of your question. Can you remind me the second part, the last part? Stephen Moss: Yes. On the $50 billion transaction volume you mentioned, just kind of how do you think about that in terms of deposits? Samvir Sidhu: Sure. So the projected sort of up to $50 billion of payment volume is related to existing customers. So today, it's really sort of helping customers do business on our operating platform, on advanced payments rails and strengthening our relationship with those customers and also strengthening their -- the effectiveness of the way that they sort of currently operate and use our platform. I also mentioned that we'll be looking to new verticals. I think that's also something that we did some hiring for last year, and we're also continuing to align with hiring this year. We're just trying to bring on networks from more traditional verticals -- and as you can appreciate, payments, deposits typically will be low to no cost to the organization and that's really going to be our focus. And our goal, I think you heard me say this, we had $500 million of non-digital asset cubiX related deposit growth in '25. We hope that's the floor for this year, which would continue to increase our noninterest-bearing deposit percentages of overall deposits. Stephen Moss: Okay. Appreciate that. And then just on the loan growth guide here. I just wanted to -- you had a really strong year for loan growth. It sounds like the pipeline is strong as well. Just kind of wondering kind of what the puts and takes are for your expectations around loan growth here, where you see potentially the best opportunities and maybe if there's some upside to the number here. Mark McCollom: Yes, sure, I'll take that. Again, when you go back and look over the last couple of quarters, Steve, what you've seen is it different groups step to the forefront. Commercial real estate was strong this quarter. Health care was a leader last quarter. We have a lot of room on commercial real estate relative to our peers to be able to add that selectively if the credit is right. And so I would just say that there's no one particular segment that we're more bullish about than the rest. We just think that each group will continue to have its moments, probably to shine in 2026 as we saw in 2025. And there's obviously -- that's an annual guide. First quarters are typically slow, across the entire industry. Second and third quarters tend to ramp up. And -- but we feel really good about the full year guidance. Operator: Your next question comes from the line of Kelly Motta with KBW. Kelly Motta: Nice quarter. I guess with your expense guidance for next year, as you noted, it allows for some decent positive operating leverage. Just wondering if that factors in any of this like additional team pipeline hiring, which presumably over time will drive stronger revenues, but comes with higher expenses. So part one of the expense question. And then part two, what's embedded in terms of professional fees, which presumably also should come down as you work through the right quarter? Mark McCollom: Yes. You bet, Kelly. On the first question, yes, our expense guide assumes that we're going to continue investing in teams. And that's part of why we put a specific slide in the deck highlighting our operational excellence initiative, where we're going to continue to find ways to be able to pay for that ongoing flywheel of recruitment of those new teams. And then on the second question on professional services, yes, we've been signaling to you folks for a couple of quarters, that we would expect to see that number come down. We've been right around that sort of $12.5 million to $13.5 million in that line item. We are starting to see some of that decline occur actually in the fourth quarter related to some of the build-out of our risk infrastructure. But in that professional service fee as legal expenses, and we highlighted that in the fourth quarter, we had what we think are more unique costs that should not continue of $1.9 million related to some of those 2025 teams that we've onboarded. Kelly Motta: Got it. That's really helpful. And maybe circling back to the opportunity for cubiX. It seems like it's a nice -- you're positioning yourself as premier payments driven bank. And it looks like there's a good opportunity from industries outside the digital asset space. I think escrow makes sense. But maybe you could just provide us with a couple of use case examples of how you see that fitting in with your existing client base as an opportunity ahead? Samvir Sidhu: Yes. Sure, Kelly. I appreciate that. And I think that on the slide, we had highlighted a couple of them. I think the first 2 we mentioned were sort of mortgage finance, which is, as you can appreciate, existing business, then we also touched on sort of more broadly in the retail industry. And yes, you talked about title. But really, it's not just sort of title and escrow, it's also sort of broadly thinking about the closings of commercial real estate transactions and how we could sort of help and facilitate our customers and their partners. And we're seeing really good traction up there. And as you can appreciate, would be less tech-savvy industries, builds take longer, but the stickiness is even stronger. And so we are really excited about this. And frankly, because these would be new customer relationships, the first part, sort of like say, on mortgage finance, it really helps you strengthen and deepen your existing relationships, helps you broaden customers around the edges, but de novo industries are really exciting for us. Operator: Your next question comes from the line with Brian Wilczynski from Morgan Stanley. Brian Wilczynski: I was wondering if you could speak to the resiliency of the cubiX platform in light of some of the volatility in cryptocurrency prices that we saw in the fourth quarter. I understand the volatility does often drive trading activity. But can you just speak to what else drove the relative stability in cubiX-related deposits in the fourth quarter despite some of the volatility we saw in the market? Samvir Sidhu: Yes. So I think that you hit the nail on the head. I think that changes in prices actually mean increased volatility, just like you see in traditional markets with volatility trading-related type traditional players, and it's a similar in the digital asset ecosystem. So on days of the highest amount of volatility, you may see the highest amounts of network activity and balances. And I think that's really speaks to that. So say our spot balances were $100 million below the average on 12/31 on 9/30, they were $100 million above the Q3 average. And we've always said they operate sort of within a plus or minus -- generally operate within a plus or minus 10% type thresholds. And so to put in perspective, while New Year's Eve and New Year's Day was on a Thursday, last Thursday, as an example, we were at $4.4 billion in balances and based upon market activity that was occurring over the prior week or so, which all ends up going through our balance sheet through multiple customers and exchanges and custodians and market makers. So -- and then over the last couple of days, a little bit less than the sort of the average that you're seeing there. So I think that that's really the power. But to sort of step back, we've seen balances dramatically increase since Q4 of last year, and then we saw another step function in -- beginning of Q3 with the passing of GENIUS and then maintaining a new band within that higher step function. And I think that's really how we see the strength of this platform is as we continue to strengthen product offerings as we continue to enable more payment rails for our existing customers as we continue to bring on more traditional players. We'll -- our goal is to sort of see a new floor to sort of operate within that sort of payment spend. Brian Wilczynski: That's really helpful color. Earlier in the call when you were talking about the 2026 priorities, one of the things that you've talked about was deepening relationships with the existing client base, adding additional products and services. I was wondering if you could just give us a few examples of some of the key focus areas that you have additional products and capabilities you're adding and how that translates into deeper relationships with cubiX? Samvir Sidhu: Yes, sure. So I think that we -- I talked about new payment rails. That's obviously incredibly important. And I think that what we're also looking to do is consider not all of our -- so to put it in perspective, not all of our customers use all the payment rails that we offer. Secondly, while we're the on-off-ramp to the digital asset ecosystem from fiat to digital asset ecosystem, we're not always the on-off ramp for our customers on to the sort of the fiat rails as well. And then there's sort of bespoke sort of market-specific and in many cases, sort of trade secret specific type functionality that clients ask for from us that we also sort of enable. So we are continuing within each major customer, we're sort of very focused on building and strengthening our relationship with them. And frankly, what we're doing is we're helping them to run their business more effectively. And as you can appreciate, a lot of our customers have been very focused on driving sort of regulatory clarity, no pun intended as well as sort of legislation. And they're also very focused on product and to sort of be very, very effective on product, they need us and sort of the traditional fiat rails to sort of help them with that. So there's lot of activity going on, especially sort of beginning in sort of Q3, Q4 of last year. Operator: Your next question comes from the line of Peter Winter with D.A. Davidson. Peter Winter: I wanted to start with credit quality. Obviously, it's been very good. It's low nonperforming loans relative to peers, but there was a $15 million increase in C&I and $2 million in multifamily. Just could you provide some details around the increase and maybe give an update on the credit outlook? Mark McCollom: Peter. Yes, I would say that our credit quality was, as you pointed out, starting from a very, very low base. So it doesn't take many deals to actually move the needle for us. On the nonperforming side, I mean, it was largely one transaction, about a $10 million, $11 million credit. It is currently under agreement, and we're hoping to have either a restructuring or a resolution of that asset in the first quarter. But I would continue to say that when you look back, we had 2 quarters, 3Q and 4Q that were extraordinarily low in terms of NPA and NPL ratios. So I think what you see here in the fourth quarter is certainly not unusual and still puts us feeling really good about overall credit quality. Peter Winter: And the multifamily, was that New York City rent-controlled property? Just curious around that. Mark McCollom: I don't have the stats to know specifically what it was because as you pointed out, it was a $2 million credit. So I'm not sure if that came from primarily rent-regulated multifamily or just our broader multifamily, which is the majority of our multifamily is in sort of a 4-state region around the Mid-Atlantic. Peter Winter: Right. And then if I could just ask the benefit, I believe, from the deferred loan fees ends this quarter, what's a good starting point for the first quarter margin? And maybe talk about how you think about the trajectory of the margin this year? Mark McCollom: Yes, sure. If you go back to the second quarter of '25 and kind of project forward from there, I think that's kind of a good place to start. Second quarter margin was 3.7%. And we had just a little bit of -- about half of a month of accretion in the second quarter. But with some of the deposit remix that we've done, I think that kind of 3.25%, 3.27% level might be a good place to start and then build from there throughout 2026. Yes. One other thing I would add is that in the first quarter here, I mean, we are modestly obviously, asset sensitive. And so we did see a couple of bp decline linked quarter from 3Q to 4Q. But I think somewhere around that 3.25% plus or minus a couple of basis points would be a good place to start from and then build out from there. Operator: Your next question comes from the line of Tyler Cacciatori from Stephens Inc. Tyler Cacciatori: This is Tyler on for Matt Breese. Most of my questions have already been answered, but I guess just starting on cubiX and I appreciate a lot of the color you've provided there. Can you just provide us some context on the size of the customer base in that business? Samvir Sidhu: Tyler, Sam here. So we have hundreds of customers that are -- that operate within that industry. And I think one of the things that I mentioned a couple of quarters ago is there's no real material change to our customer base because we actually are the market leader. We are around the edges, adding for existing customers, some of their counterparties -- edge counterparties that are already on the network. And then we're also adding sort of new traditional finance nodes, which are less active as sort of the more digital asset first type customers. So we're broadening the network with some of those players who connect to a lot of our existing customers. We don't drive huge deposit balances, but they tremendously strengthen both the breadth, the quality and the stickiness of the network. Tyler Cacciatori: And then if you could just update us on the regulatory order and where you stand in terms of items that need to be addressed there? Samvir Sidhu: Yes, sure. So as of the end of the year, we are substantially done with our plan and I'm excited to say that in 2026, our focus is to put this behind us. So one of the things kind of just building off of what I just talked about with cubiX and the network. Frankly, the work is now a massive competitive advantage and the moat is, frankly, as a result of this is as big as the benefit of the network effects. Operator: Your next question comes from the line of David Bishop with HOVD Group LLC. Kyle Gierman: This is Kyle Gierman on for Dave Bishop, and congratulations, Sam, on the transition. Most of my questions have already been answered, but I was wondering if you could provide some color on the yields at which new loans were originated and add to the books this quarter and also your current read on the competition in your lending markets? Mark McCollom: Yes. Yes, I'll take the first one and then Sam can comment on competition or markets. For new loan originations, principally, we're a commercial bank, so I'll just focus on the commercial yields. We are going to be anywhere between 225 and 275 basis points over Fed funds or SOFR depending on the business line. A couple of our business lines might approach 300 basis points, but the majority of new originations are between 225 and 275 basis points over cost of funds. Samvir Sidhu: Yes. And just in terms of competition, what I would just say is that I think you can see on the loan growth side, but not only for the quarter. But also for the year that there's just a broad base of diversified loan growth across a number of commercial verticals. So the benefit we have is that as both sort of supply and demand dynamics in each of those verticals change, we're able to lean in. And in some quarters, you'll have health care stepping up a little bit more in other quarters, you'll have mortgage warehouse refinance activity step up. So generally, we're seeing a good, diversified durable loan growth. As you can appreciate, in '25, generally the broad-based industry saw a bit of pricing pressure. But as you saw from sort of our NII growth and sort of Mark's comments related to margin, we continue to see the benefit. There was a great chart that the team kind of pulled together on the driving down of the delta between our interest bearing cost deposits relative to our peer group relative versus -- from end of '22 versus where we are today. And that's really a much bigger driver than sort of changes on loan yields and competition. Operator: Your next question comes from the line of Harold Goetsch with B. Riley Securities. Harold Goetsch: Great quarter and great year. Just wanted to ask a couple of quick questions back to cubiX just for more general information. When you just -- it's a great slide on Slide 8 and that you for that. I just wanted to know if the addition of instant payment platform, real-time payments and FedNow, are those payment rails cannibalizing the traditional wire and ACH business? Or is most of these new capabilities incremental to volumes? Or -- that's my first question. Samvir Sidhu: Yes, sure. Right now, we're sort of seeing an additional incremental to sort of more traditional rails. So it's not necessarily sort of a big tectonic shift. But there are different ways that some of our customers like to utilize different channels, both for them as well as their counterparties. And we're helping them think about sort of also sort of next-gen type ways to sort of utilize pushes and pulls within our network as well as sort of outside and sort of bringing in new dollars as well. So there's a lot of interesting things that are happening in the industry, and we continue to see evolution we really are at the forefront of advancing many of these technologies because we haven't established existing tech forward payment focused customer base. Harold Goetsch: And when you use a terminal large or massive competitive management in this platform now. How would you describe that competitive advantage? Is it a -- is the barrier to entry now? Is it network effects that you're generating before anybody else just try to start a new platform, they were like a -- or like, for example, is this a narrow window to innovate like this? And now that you're up and running, you're garnering a lot of network effects that prevent others from trying something similar? What are the sources? Or how would you describe the competitive advantages? Samvir Sidhu: Sure. So it absolutely is sort of a barrier to entry and the way that we sort of see the strengthening of that mode is sort of like you talked about what the network effect is. As you can appreciate in '24 and early '25, we were heads down and sort of making sure that we were focused on making sure we satisfied sort of regulatory requirements. And now at this point in time, we're really importantly focused on broadening the way that these guys and our customers do business. So to answer your question is that flywheel of network effect just keeps getting stronger and stronger, which creates a lot more stickiness. And then you also just think about it operationally. Operationally, the volume that we are sort of operating under is really at levels of category 3, category 4 type banks and institutions. So when you think about the competition and then you add in sort of the risk and compliance book that we talked about that we've sort of invested a tremendous amount of people process and technology on. You put all that together, the types of institutions that could even compete, you can count on one hand with us and then how many of those are actually focused in the space, et cetera, it's very de minimis. And I think that's really the interesting position that we're in. We're more confident in our market position today than we were 6 months ago. Harold Goetsch: Great. And I got one quick follow-up around -- on you leading the AI efforts. Can you give us like a couple of anecdotes on how AI is making processes more efficient, saving money, improving underwriting, let me know. Samvir Sidhu: Yes, sure. So we, and frankly, the banking industry has been slow to discuss AI because there's actually, as you can understand, a monumental amount of work that you need to do behind the scenes to really get going. So we started our journey with like AI governance, training. We did a lot of data transformation. We are advanced in sort of fully digital onboarding for very complex commercial clients. Now as we sort of look forward, we're focused on full complete loan deposit automated onboarding. We're looking to build an AI layer on top of our CRM. We touched on credit. We're automating sort of CAM draft creation and underwriting support. We are working on sort of risk and compliance automation. And then in parallel to that, we're also in the process of building a workflow orchestration layer to conduct all of this across the bank. So only then are you able to deploy AI agents across your operating platform. That's really where you transform the bank and the way that we work internally, our team members work and then also the way that we do business and really transform the way our customers see it. So right now, today, how the work is sort of siloed where we're doing sort of AI and agentic work gets used for micro use cases, which is nice, but not really transformational. Tomorrow, it's going to be across the overall bank, and it's really going to differentiate us and agents working all the time versus working on 2-hour projects to kind of help advance a specific use case, which is nice to have, but not really needed to transform the way that we do business. And that's really sort of where we are in our journey. So hopefully, that gives you a little bit of color. And if we get to the -- to sort of our initial sort of Phase 2, end state, it's really going to transform the way that we do business. And my guess is also potentially just given in the size of our organization relative to much larger complex organizations. While they may have much bigger budgets, they don't have the operational flexibility and visibility that we have. Operator: There are no further questions at this time. I will now turn the call back to Sam Sidhu, CEO, for closing remarks. Samvir Sidhu: Thank you to everyone for your continued interest and support of Customers Bancorp. We appreciate you being a part of the incredible franchise we're building, and we're excited about 2026. Thank you, and have a great day and great weekend. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Excuse me, ladies and gentlemen. Thank you for your patience. The call will begin momentarily. Thank you for your patience. The call will begin momentarily. Good morning. My name is Megan, and I'll be your conference operator today and would like to welcome everyone to the Fourth Quarter and Full Year 2025 SLB N.V. Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a Q&A session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. You may remove yourself from the queue by pressing star two. A reminder, this call is being recorded. I will now turn the call over to James McDonald, senior vice president of investor relations and industry affairs. Please go ahead. James McDonald: Morning, and welcome to the SLB N.V. Fourth Quarter and Full Year 2025 Earnings Conference Call. Today's call is being hosted from Houston, following our board meeting held earlier this week. Joining us on the call are Olivier Le Peuch, chief executive officer, and Stephane Biguet, chief financial officer. Before we begin, I would like to remind all participants that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. For more information, please refer to our latest 10-K filing and other SEC filings, which can be found on our website. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our fourth quarter and full year earnings press release, which is on our website. With that, I will turn the call over to Olivier. Olivier Le Peuch: Thank you, James. Ladies and gentlemen, thank you for joining us today. I'll begin by reviewing our fourth quarter performance followed by an update on market conditions and the unique opportunities we see developing for our business. I will then share our outlook for the first quarter and expectations for the full year 2026. Stephane will then provide additional details on our financial results, and finally, we will open the line for your questions. Let's begin. We ended the year with strong financial performance in the fourth quarter, achieving sequential revenue growth, margin expansion, and substantial cash flow generation. This performance reflects the breadth of our portfolio and the impact of our strategy in a challenging macro environment. Growth internationally, sequentially, volume increased by 9% driven by high single-digit and mid-teens growth in North America. Excluding ChampionX, organic revenue increased by 7% internationally and 6% in North America. We saw sequential growth across all our geographies for the first time since 2024. This demonstrates that global upstream activity has stabilized with key markets showing early signs of a rebound. This helped us to deliver approximately $500 million of organic revenue growth this quarter, in addition to a roughly $300 million contribution from ChampionX resulting from an extra month of consolidation. Let me briefly discuss a few highlights from the quarter. First, we benefited from strong year-end product sales in production globally, higher exploration data sales, and strong demand for digital operations across all areas. Second, activity increased across The Middle East led by Saudi Arabia and with momentum in UAE, due to a combination of sustained gas development and increased oilfield intervention activity. Third, we delivered strong results across Asia, with increased activity in North Asia, East Asia, and Indonesia as these markets continue to benefit from offshore gas development. Notably, this quarter also marked the return of growth in Saudi Arabia and across Sub-Saharan Africa with flat revenue in Mexico. These three basins actually accounted for the entire organic revenue decline for the full year of 2025. Directionally, we expect activity in these markets to improve as we move throughout 2026. Turning to the divisions, in the fourth quarter, production systems and digital led the way, while reservoir performance was up slightly and well construction revenue was steady. The strength in production systems was driven by increased demand for production chemicals, offshore lift, and process technology and solutions, as well as backlog execution completions and OneSubsea. When excluding the ChampionX contribution, this division still grew by double digits sequentially and maintained its momentum with several contract awards during the quarter, as you can see from today's highlights. Digital also continued to grow at a healthy rate, driven by strong growth in digital exploration with year-end sales in the Gulf of America, Brazil, and Mongolia, as well as a robust increase in digital operations and platform applications. Digital annual recurring revenue surpassed $1 billion, reflecting year-on-year growth of 15%. We also announced several exciting digital milestones in the fourth quarter, including launching Tela, an AI system purpose-built to transform the upstream energy sector, and forming a partnership with ADNOC to launch an AI-powered production system optimization platform. These underscore the opportunity for AI to continue to reshape industry operations. Meanwhile, in reservoir performance, sequential growth was a result of increased stimulation activity in the Middle East and Asia and higher intervention activity in Europe and Africa. In well construction, higher offshore drilling activity in North America and Europe and Africa was offset by declines in some land markets. Additionally, our fourth quarter revenue benefited from the resumption of production APS projects in Ecuador. Overall, our fourth quarter results are a positive indication of the opportunity that lies ahead. I want to thank the entire SLB N.V. team for delivering excellent performance for our customers throughout 2025 and finishing the year on such a strong note. Turning to the market environment, near-term oversupply may continue to exert downward pressure on commodity prices through 2026, while elevated geopolitical uncertainties should provide a price floor. E&P operators are therefore expected to remain cautious and to backlog their 2026 budgets. As supply and demand continue to rebalance into 2027, conditions will likely support a gradual recovery in upstream investments and activity in key international markets and offshore deepwater, exiting 2026 at higher levels than 2025. Indeed, economic growth, increasing population, and large-scale manufacturing and infrastructure investments, particularly in the US and China related to AI, will inherently drive more demand in both oil and gas. Coupled with the natural decline of existing oil and gas assets, we believe these will be the key drivers for the rebalancing of supply and demand. In the meantime, our customers are focused on delivering the lowest cost incremental barrels. This means capturing efficiencies at scale, and in our view, that requires more technology, more integration, and more digital solutions. Today, operators are increasingly prioritizing performance assurance across the asset life cycle, reducing development timelines, and accelerating optimization through digital solutions. SLB N.V. is uniquely positioned to deliver value in this environment by integrating equipment with intelligent and autonomous digital capabilities to reduce downtime, improve efficiency, and increase productivity, as witnessed by the rapid uptake in our digital operations. Additionally, production recovery has emerged as a critical domain for value creation, not only in brownfield and mature assets but also across greenfield developments and tiebacks. This is not an either-or proposition between CapEx and OpEx, but an opportunity to increase our share of CapEx spend and capture OpEx white space with new solutions. With SLB N.V.'s expanded production portfolio, including the addition of ChampionX, we are uniquely positioned to meet the developing demand in the production space. Globally, the international markets are stabilizing and trending upwards directionally, with Latin America and the Middle East and Asia leading the rebound in 2026. Regionally, the Middle East continues to operate on the largest international scale, and we are positive in that investment outlook. Indeed, there is a resurgence of oil production across the region, driven by OPEC+ policy, while gas remains a strategic priority to meet seasonal demand and long-term capacity expansion. In 2025, we witnessed double-digit growth in The United Arab Emirates, Iraq, and Kuwait, which was more than offset by the decline in Saudi Arabia. In 2026, the Middle East market will be characterized by a rebound in drilling and more cove activity in Saudi Arabia, with rig counts potentially returning to early 2025 levels by 2026. And this has already begun. Offshore also continues to present compelling long-term growth opportunities for SLB N.V., particularly in deepwater, where we expect activity to inflect toward 2026 as white space subsides. With OneSubsea, we have the unique ability to combine subsea processing capabilities, digital solutions, and SLB N.V.'s integrated port-to-process expertise across subsea intervention and integrated well construction to create differentiated value for customers. Specific to the subsea market, more than 500 subsea trees are expected to be awarded across 2026 and 2027, about 20% higher than the 2025 run rate. And this is an opportunity we aim to capitalize on. In 2025, OneSubsea was awarded approximately $4 billion in subsea bookings, and we see a path to cumulative bookings exceeding $9 billion over the next two years, supported by this tendering activity. Finally, we are excited about the strong progress in our data center solutions business since its launch less than two years ago. This year, we plan to expand our range of offerings, our customer base, and the geographies we serve, paving the way for future growth. The opportunity is growing faster than anticipated, and we expect to exit the year at a quarterly revenue run rate of $1 billion per year. Overall, SLB N.V. is clearly positioned to fully benefit from a rebound in international activity as supply and demand rebalance, supported by ongoing investments for oil capacity, gas expansion projects, and a constructive long-term outlook for the quarter. Regional activity dynamics further reinforce the favorable directional trajectory beginning in 2026. Let me now share our outlook for the year. The headwinds we faced in 2025 in certain markets may become tailwinds for our business this year. We anticipate this will translate into a higher fourth-quarter revenue exit rate in 2026 compared to the fourth quarter of 2025. For the full year, assuming oil prices remain range-bound in the high fifties to low sixties range, we expect 2026 revenue to be between $36.9 billion to $37.7 billion. North America will benefit from the addition of seven months of activity from ChampionX, stronger offshore activity tied to customer plans, and accelerated growth in data centers, while upstream land activity will continue to decline year on year. International markets' revenue is expected to trend upwards over the year, resulting in a slight year-over-year increase. Growth will come from Latin America and The Middle East and Asia, while Europe and Africa are anticipated to decline slightly. Let me now describe how these dynamics will unfold across the divisions. In digital, revenue is expected to grow at the same pace as 2025, driven by digital operations. Production systems will increase, mostly benefiting from the full year of ChampionX revenue. Reservoir performance will be flattish, while well construction will decline slightly. Revenue in the all-other category will be flat year on year, considering the loss of revenue from the divested Palliser assets will be offset by growth in the data center solutions. This revenue outlook translates into adjusted EBITDA between $8.6 billion to $9.1 billion, with margins remaining in line with full-year 2025 levels. Finally, with visibility into another year of strong cash flow, we will return more than $4 billion to shareholders in 2026 through the combination of the increased dividend that we announced this morning and share repurchase. Turning to the first quarter, we anticipate revenue to decline by high single digits sequentially, similar to the prior year, due to outsized year-end product sales and project milestones in production systems in the prior quarter. We also expect adjusted EBITDA margin to decrease by 150 to 200 basis points versus the prior quarter. This seasonal dip will be followed by a rebound in activity during the second quarter, with further expansion into the second half driven primarily by international markets. Finally, before I hand over to Stephane, let me briefly touch on Venezuela. SLB N.V. is the only international service company actively operating in Venezuela today, as we are delivering a diverse set of services for NRC under their license. With nearly a century of experience in Venezuela, we have maintained active facilities, equipment, and local personnel on the ground. Historically, we have been linear in the country and remain confident that with appropriate licensing, safety parameters, and compliance measures in place, we can rapidly ramp up activities in support of the oil and gas industry in Venezuela. We are excited and we are already receiving a lot of inquiries from our customers. I will now turn the call over to Stephane to discuss our financial results in more detail. Stephane Biguet: Thank you, Olivier, and good morning, ladies and gentlemen. Fourth-quarter earnings per share, excluding charges and credits, was $0.78. This represents an increase of $0.09 sequentially and a decrease of $0.14 compared to the fourth quarter of last year. We recorded $0.23 of net charges during the fourth quarter. This includes an $0.11 goodwill impairment charge relating to our carbon capture business, $0.08 of merger and integration charges, $0.07 related to workforce reductions, and $0.03 of other charges. Offsetting these charges is a $0.06 credit relating to the reversal of a valuation allowance that was recorded against certain deferred tax assets. Overall, our fourth-quarter revenue of $9.7 billion increased $817 million or 9% sequentially. Approximately $300 million of this increase is due to an additional amount of activity from the acquired ChampionX businesses. Excluding the impact of this transaction, SLB N.V.'s fourth-quarter global revenue increased 6% sequentially. The sequential revenue step-up was higher than expected and was driven by strong year-end digital sales, significant backlog deliveries, and project milestones in production systems, as well as higher reservoir performance activity in international markets. Fourth-quarter adjusted EBITDA margin of 23.9% increased 83 basis points sequentially, primarily driven by very strong digital performance. Margin growth during the quarter was, however, constrained by a loss in the carbon capture project that negatively impacted margins by approximately 50 basis points. Let me now go through the fourth-quarter results for each division. Fourth-quarter digital revenue of $825 million increased 25% sequentially, while pretax operating margin expanded 557 basis points to 34%. These results were driven by strong year-end sales in digital exploration and increased revenue in both digital operations and platforms and applications. Notably, for the full year, digital revenue of $2.7 billion grew 9%. The combination of this growth rate and the full-year EBITDA margin of 35% well exceeded the widely recognized rule of 40. In addition, digital annual recurring revenue surpassed $1 billion, reflecting year-on-year growth of 15%. Finally, trailing twelve months net recurring revenue was 103% at the end of the fourth quarter. Reservoir performance revenue of $1.7 billion increased 4% sequentially, driven by strong international activity, particularly in Saudi Arabia, East Asia, Qatar, and Indonesia. Pretax operating margin of 19.6% increased 105 basis points, largely due to a favorable activity mix in The Middle East. Well construction revenue of $2.9 billion decreased 1% sequentially, primarily driven by declines in The Middle East and Asia, while pretax operating margin of 18.7% was slightly down. Production systems revenue of $4.1 billion increased 17% sequentially, reflecting a full quarter of activity from ChampionX. Excluding the impact of this acquisition, production systems revenue increased 11%, driven by strong sales of completions and artificial lift, as well as project milestones in process technologies, subsea, and valves. Pretax operating margin of 16% increased 20 basis points due to improved profitability in completions and production chemicals. Now turning to liquidity. During the fourth quarter, we generated $3 billion of cash flow from operations and $2.3 billion of free cash flow. This strong performance was due to the unwinding of working capital, significant customer collections, and reduced inventory driven by year-end product deliveries. For the full year, we generated free cash flow of $4.1 billion, marking the third year in a row with free cash flow at or above $4 billion. As a result, net debt reduced by $1.8 billion during the quarter to end the year at $7.4 billion. Capital investments, including CapEx and investments in APS projects and exploration data, were $716 million in the fourth quarter and $2.4 billion for the full year. For the full year, we returned a total of $4 billion to our shareholders, with approximately $2.4 billion in stock repurchases and $1.6 billion in dividends. Looking ahead, let me now provide some additional color on our outlook for 2026, building on the details Olivier shared earlier. We expect revenue to benefit from a full year of ChampionX, which will result in incremental revenue of approximately $1.8 billion in 2026. This increase will be partially offset by the effects of the 2025 divestitures of our interest in the Palliser APS project in Canada and of our RIG business in The Middle East. These two businesses accounted for approximately $350 million in combined revenue in 2025. As Olivier mentioned, adjusted EBITDA margin for 2026 will be relatively consistent with 2025 levels, with differing dynamics by division. Digital margin will increase slightly year on year on continued top-line growth. Production systems margin will increase, primarily driven by synergies from the ChampionX acquisition, where we still expect to achieve approximately half of the $400 million of total synergies by 2026, $30 million of which were achieved in 2025. About 75% of the synergies will benefit production systems, with the remaining portion benefiting well construction and reservoir performance. The positive effect of ChampionX synergies on production systems margins will be partially offset by unfavorable technology mix within the division. In reservoir performance and well construction, despite activity levels stabilizing, margins will be down year on year due to activity mix and pricing headwinds in select markets. From a below-the-line perspective, corporate costs will increase year on year, driven by an incremental $70 million of intangible asset amortization expense as a result of a full year of ChampionX. Additionally, we expect our effective tax rate to be approximately 20%, representing a slight increase from 2025. While we expect overall activity to stabilize and increase from today's level in certain key international markets, we will remain disciplined in our capital allocation. In this regard, we expect our total capital investments to be approximately $2.5 billion in 2026. This should lead to another year of strong free cash flow generation. As a result, today, we announced a 3.5% dividend increase, and we expect to return more than $4 billion to our shareholders in 2026 through a combination of dividends and stock buybacks. We are currently targeting to buy back the same $2.4 billion that we repurchased in 2025. However, this amount could increase as the year unfolds, depending on our free cash flow generation progress and our visibility on the business outlook. I will now turn the conference call back to Olivier. Olivier Le Peuch: Thank you, Stephane. I believe, Megan, that we are ready for the Q&A session. Operator: We will now begin the Q&A session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. Your first question comes from the line of Steve Richardson from Evercore ISI. Your line is open. Steve Richardson: Hi. Good morning. Good morning, Olivier and Stephane. Olivier Le Peuch: Hi. Good morning, Steve. Steve Richardson: I was wondering if we could talk a little bit about CapEx. I appreciate you've given some outlook here on 2026. There seems to be something with investors of an old rule of thumb about your CapEx leading revenue expectations. And I thought it'd be helpful if you could maybe give us some context around the trend line of CapEx, but also how is the capital intensity of your forward business different than perhaps it was in the past? Stephane Biguet: Thanks for the question. Yes. So we increased CapEx slightly compared to last year to a total with APS and exploration to $2.5 billion, as I just said. We think this is what we need to operate this year and to capture new opportunities as activity recovers gradually throughout the year, particularly in international markets. So, yes, compared to the past, our capital efficiency has improved quite a bit in the last few years. We can do more with less, basically, but clearly, we will not miss any opportunity. In fact, if activity recovers faster, we want to be ready for the ramp-up. We'll bring more equipment and tools as needed. By division, clearly, reservoir performance is probably the highest capital intensity, followed by well construction and production systems, especially with the addition of ChampionX, which has quite lower capital intensity. Steve Richardson: Thank you. And on The Middle East, your comments are appreciated about the other regions picking up the slack in Saudi and your view on the full year improving. I was wondering if you could talk about what we're seeing as the IOCs are seeing a lot more opportunity across North Africa and The Middle East. And I was wondering if you could talk a little bit about your mix or your expectation of your customer mix as you go into '26 and how much of that is driving some of this optimism on improvement versus some of your traditional customers on the national oil companies? Olivier Le Peuch: No. At first, I would comment to reinforce the trust and the confidence we have with our national company to continue to execute their capital program. And I think indeed, we are foreseeing and already witnessing the rebound of the Saudi rig and drilling and workover activity, which is very probable. And I think, as I said, coming from a dip in 2025, rebounding in 2026 to, as we expect, to the level of entry of 2025, which is a V-shaped recovery. I think that will set the year very well and also the 2027 as a much stronger year going forward. So beyond that, obviously, the region still continues momentum, high momentum in Kuwait, in UAE, and has been witnessing significant growth. But coming to international, indeed, India, I think that parking is confirmed this week and next week. And Libya is attracting a lot of investment, and we are in the early benefit of this, and we see Libya as a high product of growth. We have seen it in the last couple of years, and we foresee this will continue well into 2026-2027, driven by investment coming back in-country from international companies. Algeria has been successful in the licensing round, and I think it's exploring commercial in the South and also getting additional independents coming back into the country. So we see a rebound in Asia that will strengthen in 2027. Egypt, in the region, I think, is back in offshore. Additional rigs will mobilize in deepwater offshore Egypt as well as in Egypt due to the support that the government has provided and again, the return of investment into Egypt. Finally, Iraq, I think, has been and our growth last year will continue to be significant going forward. So Iraq is where some international companies are investing, and I think we are associated with this directly. So we have a strong exposure in all of these markets where international companies are joining. And finally, I would say that the unconventional UAE is a place where newcomers are appraising the resource and ready to scale the investments from appraisal in '26 to 2027 development and going forward. So a combination of oil attractiveness in the region, Iraq, particularly for international companies, and gas in the region, Qatar, obviously, steady, but also the upcoming UAE and unconventional and deepwater offshore is met. So that's the template, and I've set the favorable outlook from NOC and international companies in The Middle East. Steve Richardson: Thanks so much. Olivier Le Peuch: Thank you. Thank you. Operator: Your next question comes from the line of James West with Melius Research. Your line is open. James West: Thanks. Good morning, Olivier and Stephane. Olivier Le Peuch: Good morning. Morning, James. James West: So, Olivier, curious. So with the new headwinds bottoming here, you know, Saudi, Mexico, some of the white space in deepwater, Sub-Saharan Africa, and everything looking kind of up into the right, how are you thinking about the exit rate for '26 versus the exit rate we saw in '25? Certainly, it's gonna be higher, but what kind of if you give us some observations or thoughts on the magnitude of how this upcycle will begin? Olivier Le Peuch: I think first, I think we have guided into our prepared remarks that we expect 2026 to be higher than 2025. And this would be led by the international rebound. So only as we gathered the first quarter as a marked decline compared to last year's Q4, we will see gradual recovery. Again, driven mostly by international markets throughout the year. That is setting the scene, I will say, for 2027 to be favorable. Driven by first and foremost continuous regain momentum in The Middle East with the addition of the rebound activity in Saudi and a combination of what the factors I mentioned before. Asia, I think, has been on a momentum. Latin America, as well. I think a bit the offshore base in Latin America or a bit in Argentina. We are experiencing a slight rebound of Mexico driven by deepwater activity in Mexico coming back. And we will see, we expect that gradually and into 2027, the activity in Sub-Saharan deepwater will resume to higher levels. This will be higher levels. The combination of FID in Namibia, in Mozambique, in Angola, and the early pickup of activity in Nigeria are already showing signs of a very promising 2027-2028 cycle. So directionally, international gradually recovering. And exit rates at the end of this year to be driven by international addition so that it will result in Q4 of this year being higher than last year. James West: Okay. That's helpful. Thank you. Thanks, Olivier. And then maybe a follow-up on the digital side of the business. Obviously, strong results in the fourth quarter, but my sense is we're still fairly underpenetrated on Lumi and Delphi and the cloud platforms, and the AI platform that you have. I, you know, my numbers may be a little bit dated, but I think, you know, a couple, you know, 300 or so customers out of your 1,500 or so customers were on the cloud as of maybe a year ago. Could you give us a sense of kind of where that stands now or where you see that heading? I'm assuming everybody, you know, eventually goes there. Most everybody goes there. But just the magnitude of what that could mean for your digital business. I'm assuming it's pretty accretive. Olivier Le Peuch: No. Long term, I think, I think we believe that the potential of digital to transform our industry from the asset team productivity to the efficiency of these operations between drilling and producing assets is very significant. I think we are just touching the early innings of that transformation. And we're using multiple approaches towards this first and foremost strategy built on a platform approach to it. And I think you mentioned the combination of Delphi, Lumi, and Tela. And we have been indeed gradually gaining a lot of traction in customers to recognize that a platform is the approach to have the most benefit to combine the geosounds, the production, the drilling, the operation workflow improvement that everybody is looking for. But if we look at the momentum that we are benefiting from today, momentum comes from digital operations, that I think you have seen is getting significant benefit. Because it's a way I think the river hits the ground and where the customers are seeing and materializing the savings in the training performance, in production and prediction, in production optimization, we have anything from that. But, obviously, we are pursuing adoption of data and AI, Lumi, which we launched four or five quarters ago, is already having more than 50 customers of an adoption. Tela, that we launched less than three months ago, has already more than a dozen customers that are engaging and working with us to create this foundation model that can transform their geosounds workflow or that can automatically detect and optimize autonomously some producing assets as you have seen with ADNOC announcement that we have done. So while we are pleased with progress, surprised with the tech digital portion, believe this momentum continues. And we're very confident that the secular trend that the industry is continuing to witness will benefit our platform approach and that Lumi, Delphi, and Tela will be at the core of this industry transformation going forward. James West: Thanks, Olivier. Olivier Le Peuch: Thank you. Operator: Thank you. Your next question will go to the line of Arun Jayaram with JPMorgan. Your line is open. Arun Jayaram: Yeah. Good morning, Olivier. I was wondering if you could frame your thoughts on the near-term and longer-term opportunity for SLB N.V. in Venezuela. You mentioned you're the only international service company now actively operating. But talk to us about what type of product lines could benefit if we do get a revitalization of the oil industry in Venezuela? Olivier Le Peuch: Obviously, we have to preface this with the right conditions, including licensing, including payments, and operating licenses will have to be put in place. But assuming that the conditions are set for investment to resume and to accelerate, hopefully, from the customers that we are serving today and from new customers reentering or entering the country, we have historically been the largest supplier, the largest partner of the national company, the largest supplier in sales technology in the country. Historically, we have had about ten years ago, more than 3,000 people, and we were recording visibly more than $1 billion in revenue at that time. So we have the track record in integration. We have a unique subsurface digital leading all that we had at that time that we can resume, and we have today a significant set of assets that are ready to be deployed across the drilling services, across production with no less than 10 production sets across rig operation with rigs that we are ready to mobilize. And I think across intervention, across drilling, for infill drilling, or production optimization, we believe to have a capacity in-country and we believe that we have the access to the village and nationals, about 80 of them already in-country. We have more than 1,000 Venezuelan country employees in the company. And some of them will be welcoming to work back in Venezuela. We have almost 2,000 alumni that I think we have kept in touch with that will be also ready to be joining us as we move forward. So as I said, long term, under the right conditions, we can be the leading partner for customers there, and I think I've quoted the number. Where we are before. And I think the future will tell us when and as this can accelerate. But we are ready. And we're already seeing a lot of incoming calls, as I would say, to explore options going forward. Arun Jayaram: Great. That's helpful. Olivier, my follow-up is wondering if you could talk a little bit about your data center infrastructure business. You mentioned that you expect to reach a $1 billion run rate in revenue, if I heard you correctly, by year-end? Can you talk a little bit about the solutions you're providing today and maybe how you're thinking about organic and even inorganic opportunities to grow that business over time? Olivier Le Peuch: Yeah. I think and you heard me correctly. I think this is amazing what we have put together in less than eighteen months. I think the rate of growth, the customer engagement that we are getting, the we're getting with hyperscalers, and I think is amazing. And yes, we put together a setup that is focused on the modular manufacturing capability and co-engineering of data center solutions. From several and cooling solutions. And we are aiming at increasing not only our scope but also our footprint as we have announced last quarter. Doubling our capacity to respond to the pipeline and to respond to the backlog we have. And we continue to be expanding both in terms of scope, in terms of around this manufacturing design capability for modular data center solutions. We will be this year going and going internationally. We'll be this year adding new customers to our portfolio and preparing ourselves to go in throughout the year in 2027. $1 billion is their own rate, but it will be significant to above this in 2027. And we believe that we see growth today, rest of the decade internationally. And indeed, as we explore and respond to the request from our customers who are looking for integrators in this space. We will look for complementing our current capability that you have built organically. And to look at what could help complement this and accelerate market penetration. And make us a fulfilled partner for customers going forward. Technology throughout the life cycle of the data center for construction and operation. Arun Jayaram: Great. Thanks. Operator: Thank you. Your next question comes from the line of David Anderson with Barclays. Your line is open. David Anderson: Great. Thank you. Good morning, Olivier. You know, if we compare SLB N.V. today versus ten years ago, in addition to digital, I think the biggest shift is now the emphasis on production recovery. Was wondering if you could talk a little bit more specifically about the growth opportunity in the next few years as we think about OneSubsea, ChampionX, artificial lift. If I think about OneSubsea, I'm thinking about backlog conversion accelerating. You know, in Guyana, Venezuela, potentially Venezuela could be growth engines, chemicals, and then artificial lift in The Middle East. Could you sort of frame this growth opportunity for us over the next few years on this side of your business? Olivier Le Peuch: No. Absolutely, Dave. I think production recovery, as we call it, is a new chapter for the company, something that we have strategically invested in because we believe that first, it is a market that has significant opportunity for value creation through technology, through integration, through digital, and we believe that we needed to own and have access to a broader portfolio, hence, the access to the ChampionX chemical, OpEx, and full lift technology and the digital platform addition that put us very well placed into that market. So now, the customer response is very positive. And indeed, I think as you see, look at the priority of our customers today into a challenging commodity pricing environment, it's all about getting more from the assets they have on production. And hence, the return of the higher barrier for lower cost is a priority. So I am getting a lot of intake into our lift solution, into our digital production, as you have heard, and indeed, trying to realize and realizing today the benefit of chemistry. Chemistry for not only a shoe. Production assurance, chemistry for but also chemistry for reservoir performance or recovery. So we believe that the integrated capability that we have built together will give us a positive trade solution for the market. End-to-end solution that will help to improve the performance of existing producing assets. We'll have to transform existing assets into a solution for eco re-solution for the team and we'll have the cost to bring digital solutions. So, yes, lead solution in the metro basin or into the most producing oil basin in the world, including The Middle East. Yes. Subsea as a beneficiary for the long-term deepwater, but also the boosting processing capability we have in subsea, that are quite unique. And contribute to this recovery production, gain, and goal we have. So, yes, it is a new story for us. It's a new chapter. We're excited. Customer feedback is very strong because they believe that they need somebody that has the subsurface, has the technology, and has the full integrated portfolio to respond to the transformation of operation recovery landscape as we have contributed and that the industry transformed the well construction or exploration. Historically. David Anderson: That makes a lot of sense. Shifting gears a little bit to another area of potential growth in geothermal. You've been dabbling there for a number of years. But now you, as you noted in the release here, you're working with Ormat on a pilot project, I believe, later this year in enhanced geothermal. It looks a lot of this. When we look at geothermal, a lot of this sounds a lot like shale in the early February. We know the resources there. But it's a matter of process and technique to solve for the economics. Do you agree with that conceptually? And where is your confidence that this can be scaled up to create, say, hundred-plus megawatt geothermal plants in the next few years? Olivier Le Peuch: Let me know. Absolutely. I think, Dave, let me first step back and explain the reason why we have partnered with Ormat and the potential we've seen in this partnership first. Is to put together the two leading companies in their field. We are subsurface leaders in geothermal, being able to characterize the geothermal source and then develop the wells and develop the solution to produce the heat and the hot water from those wells, and Ormat is leaders into building geothermal power plants and understanding the full life cycle. Putting this together and providing industry for one integrated offering, I think, was very well received by the industry. And will help accelerate providing conventional geothermal bridge power or base power for some of the data centers in the future. So that's clearly one of the first aspects. The second, obviously, we have put this together because we believe that we want to together optimize, explore, and optimize through the development of an asset. Or two assets in the future in a recent near future. Into the unconventional geothermal. And, yes, we believe this is a field that has significant potential, but we want to do it right. We want to do science. We want to do technology. We want to do digital modeling. Of the process so that we get it right, and we understand how to scale it economically. How to make it viable, how to make it safe, and then how to afford together to the market, in the near future. So that's the ambition. So we have done this for a reason. And I think we will be developing this asset. It would be experimenting with these assets, appraising. And then getting ready for technology of digital and with joint offering. To offer this at scale to the market in The US and beyond. David Anderson: Very exciting. Thank you. Olivier Le Peuch: Thank you. Thank you. Operator: Your next question comes from the line of Neil Mehta with Goldman Sachs. Your line is open. Neil Mehta: Yes. Thank you so much, Olivier, and team. I guess the first question is more of a macro question, Olivier. You have a unique perspective on this big debate that's in the market right now about how much OPEC spare capacity really lives there in markets like The Middle East and, you know, of course, recognizing that there's probably limitations about what you could say. Your perspective on that question, I think, would be helpful for us. As we think about the back end of the oil curve. Olivier Le Peuch: No, I think you have been reading what I'm reading, and I think I don't want to read anymore. But I think OPEC+ has been unwinding 2.2 million barrels. And I think when you fast forward in a year from now when the unbalance that still exists today will start to subside and then the market will balance itself. I don't think there will be much spare capacity available. A sign of which you see by the reinvestment into oil capacity sustenance investment that are happening to their cost across The Middle East, and all intervention and interventional activity in which we have a strong exposure is benefiting from this. So, yes, I don't think you have some of the OPEC members beyond The Middle East that are not necessarily having an easy path towards sustaining their existing production. So I think it bodes very well to focus on production recovery, which is focusing on providing technology, the integrated capability to sustain production, enhance recovery. And I think that's where we will see the adoption of this. But I don't think there is significant spare beyond what has been released back to the market. Hence, the market will tighten in the balance into '27 and beyond. Hence, we set the condition for a better outlook as an investment backdrop for an industry from '27 and beyond. Neil Mehta: Yeah. That makes sense. And then another market I would love to get your perspective on is Mexico. Olivier, this is probably the most constructive I've heard you on Mexico in a little bit, but we're in a bottoming phase and even a cash recovery phase. Perspective on that market and how it should evolve from here? As we think about SLB N.V. Olivier Le Peuch: Yeah. The market that we say has normalized from a market that has dropped significantly and has had a need for getting the confidence of the whole industry to reinvest, I think it has normalized in the last few months. I think it's we anticipate it to be steady from the land activity for the foreseeable short to midterm, and we expect the conditions are gradually in place getting in place for investment going forward. In 2020, however, where we see the upside is in offshore activity in Mexico where the deepwater asset that we are developing with that is being developed by the which side will give us an upside. Whereas the activity in land now will make the assumption it is steady. But we've got potential to start to strengthen as moving to 2027. Neil Mehta: Thank you, sir. Operator: Thank you. Your next question comes from the line of Mark Bianchi with TD Cowen. Your line is open. Mark Bianchi: Hey. Hey. Thank you. Good morning. I wanted to ask on Good morning, Bob. So we've got these activity increases in your outlook for '26 for certain international markets. Earlier, I think a few months ago, was some discussion of some pricing potential weakness. Can you talk about what that looks like today and what your expectation is embedded in the outlook here? Olivier Le Peuch: Yeah. I think first, first to comment on that, I think the industry has been under pricing pressure. In the last couple of years starting with North America, and I don't see a change there. I think although we believe in North America, we are shifted to the mix of the portfolio we have and exposure where data center and digital and our exposure in deepwater and Gulf of America is proportionally bigger and also the OpEx exposure where ChampionX is a bit of a shield towards some of the pricing pressure in North America internationally. The model has been, and I keep repeating every time I get to comment on this, has remained highly competitive for a large tender in international markets. And the market has been keeping pressure considering that the market has been declining. The last eighteen months or twelve months in the international market. And supply share pricing pressure has been sustained and, in some clinical markets. And we have been responding to this pressure when we felt it was the appropriate thing to do to keep us in the market, but at the same time, I think we are able to maintain our margin steady in 2026 compared to 2025. Building on the ChampionX synergy, on the digital growth margin accretive business. And therefore, we are going to continue to use technology performance as a differential to protect where we can margin against the pricing pressure. Mark Bianchi: Okay. Thank you for that. And the other question I had was related to the offshore outlook. So you've talked about an expectation for improvement in offshore. And I think if we go back a year or two, there was an expectation for offshore improvement that didn't really materialize. So what are you seeing now that you think is different from that prior period and gives you the confidence to make those comments? Olivier Le Peuch: Well, the comments I'm making is that I believe that the FID and the booking will improve in 2026. Setting the right setup and context for 2027, 2028 offshore cycle rebound. Whether this is material in 2026, yes, in certain markets, in East Asia, the activity of Indonesia, the market will strengthen in deepwater, and I think this reflects into this year. In South Africa, this is more a trend of FID of projects from Namibia to Angola and Mozambique that will set the context for a marked rebound going forward, and these FIDs are happening as we speak. Being negotiated and being pending. And in the Americas, I think the continuous momentum in Brazil, in Guyana or Suriname, and I think I have to stay with the metro basin, Gulf of America metro basin of the North Sea remaining steady somehow. Although with a slight decline in the North Sea. So we believe that the FID economics are favorable. And the pipeline of FID across Africa and Asia are set to create a rebound of activity going forward from as we turn into 2027. Mark Bianchi: Thank you very much. Olivier Le Peuch: Thank you. Operator: Your last question comes from the line of Scott Gruber with Citigroup. Your line is open. Scott Gruber: Yes. Good morning. So I want to come back to the data center solutions business. Olivier, you mentioned expanding the business abroad. So does the billion-dollar target capture any of that international growth opportunity? Or would that be future upside? And how quickly could this materialize? And ultimately, you know, as you leverage your global relationships, you know, could the international opportunity become even larger than your US business? Olivier Le Peuch: Difficult to say whether it could become larger. But easy to tell you that it will grow. And this year will be the first step into establishing ourselves in Asia. And to provide this modular manufacturing solution to our customers there. Also, we initiate partnerships to design a next-generation data center in one country in the Asia region. And then we expect to also look at our relationship to embed and go further, including The Middle East in the near future. So these are the places where we have ambition to leverage our hyperscale relationship and modular manufacturing capability. Ability to source locally, ability to manufacture everywhere, I think it's something unique that not so many companies can do and scale. And replicate what we have done in the last eighteen months. So that's what we look forward to and that's where I about the international market. But the US is still the hot market, and the US is where we believe we have the most exciting pipeline in '26 and '27 coming our way. I will not miss that market. Scott Gruber: Oh, got it. Appreciate that color. And I want to come back to the question Steven asked at the beginning on CapEx. So your $2.5 billion of CapEx this year will support the second-half growth rate that you'll achieve, which will be led by digital and data center solutions. Some contribution from the core. But overall, the capital intensity of the portfolio is improving. So my question is, can you sustain similar growth rates for a couple of years into the future at a CapEx level that's still broadly around $2.5 billion given those kind of less capital-intensive drivers of growth? Or do you think CapEx would need to creep a bit higher? Stephane Biguet: Look, as I said before, we'll do what it takes to not miss any opportunity. But again, we have really improved our capital efficiency over the last five to six years, so we can really operate with less. But if growth really comes at high growth rates, we will have to increase beyond the $2.5 billion for sure. But as a percentage of revenue, that will still remain pretty low compared to what we were doing before and still quite in the low range of in the low end of the range we had guided before of 5% to 7% of revenue. That's excluding APS and exploration data. So, yes, we'll increase as necessary, but will go with increased cash flow as well. And some of the growth that we will be seeing is production and recovery as we elaborated on before as well as digital. And that doesn't require as much CapEx as the well-centric businesses. So this is how we can maneuver within that range, basically. Scott Gruber: So it's without some acceleration in the kind of core business, you would expect the CapEx to sales ratio to continue to improve over the next couple of years? Is that fair? Stephane Biguet: It will be more or less a percentage of revenue, which will stay within that 5% to 7% we've guided before, but it's more below. As you have seen, we've been closer to 5% to 7%. So we will remain at the low end of that range in the future. Scott Gruber: Okay. I appreciate the call. Thank you. Stephane Biguet: Thank you. Olivier Le Peuch: Thank you, Scott. Ladies and gentlemen, as we conclude today's call, I would like to leave you with the following takeaways. First, our strategy focused on production recovery, including ChampionX, digital, and data center solutions present new pathways for growth supporting a full-year revenue and margin guidance. Second, I'm confident that we continue to generate strong cash flow enabling us to return more than $4 billion of shareholder return in 2026. Third, in the longer term, the outlook is becoming more positive for SLB N.V. The recovery of Saudi Arabia, the positive pipeline in subsea, growth dynamics in both digital and data centers, are all catalysts. And Venezuela represents an upside. In summary, the current cycle is recovering towards the strength of SLB N.V. With this, I will conclude today's call. Thank you all for joining. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Q4 2025 USCB Financial Holdings, Inc. Earnings Conference Call. [Operator Instructions] Please also note, today's event is being recorded. At this time, I would like to turn the conference over to Luis de la Aguilera, Chairman and CEO. Sir, please go ahead. Luis de la Aguilera: Thank you, Jamie, and good morning, and thank you for joining us for USCB Financial Holdings Q4 2025 Earnings Call. I am Luis de la Aguilera, Chairman, President and CEO of USCB Financial Holdings. With me today reviewing our Q4 highlights is CFO, Rob Anderson; and Chief Credit Officer, Bill Turner, who will provide an overview of the bank's performance, the highlights of which commence on Slide 3. 2025 was another successful year in which team USCB closely focused on our business plan, executed efficiently and delivered strong results. In reviewing overall performance, we note that total assets reached $2.8 billion, up 8.1% year-over-year. Loans grew by $216 million or 11%, reflecting strong commercial activity and disciplined underwriting. Deposits increased $171 million or 7.9%, demonstrating continued franchise growth and deep client relationships. Net interest income expanded to 3.27%, improving from 3.16% in the prior year. Credit quality remains excellent with nonperforming loans at 0.14% of total loans. Tangible book value per share increased 10.8% year-over-year to 11.97% (sic) [ $11.97 ]. These metrics affirm that our business model remains sound and that the bank continues to execute consistently across all major areas: profitability, balance sheet strength, credit quality and capital. Still, as we executed our 2025 plans, management kept its eye on the future, taking strategic actions to enhance our earnings power in 2026 and beyond. In the third quarter of 2025, we completed a successful $40 million subordinated debt issuance, providing efficient capital at attractive terms. Most of the proceeds were used to repurchase approximately 2 million shares at a weighted average of 17.19% (sic) [ $17.19 ] per share, underscoring our confidence in the intrinsic value of our stock and our commitment to returning capital to shareholders. In the fourth quarter of 2025, we reported GAAP diluted EPS of $0.07, which included 2 known nonoperating impacts. First, the execution of select restructuring of our securities portfolio that resulted in the sale of $44.6 million of lower-yielding available-for-sale securities producing an after-tax loss of $5.6 million or $0.31 per diluted share. Second, a $0.06 per share income tax liability expense related to prior periods for income generated in states outside of Florida. When you exclude these strategic nonroutine items, operational diluted EPS was $0.44, consistent with last quarter and reflecting strong stable performance. The balance sheet repositioning was thoughtfully planned as we reinvested the proceeds into higher-yielding loans at year-end. As a matter of fact, Q4 2025 was our strongest loan production quarter for the year, and this past December, posted a record monthly closing high for 2025. This action is expected to lift NIM, accelerate earnings and deliver long-term value for our shareholders. On expenses, while GAAP noninterest income and expense reflect the restructuring and onetime items, our operation efficiency ratio remained 55.92%, demonstrating stable operating leverage. Our capital remains strong, and we announced this week that the Board's approval of a 25% increase quarterly cash dividend of $0.125 per share. Risk-based capital ratios continue to exceed regulatory requirements by a comfortable margin, and the bank's underlying business remains solid, disciplined and resilient across all metrics. CFO, Anderson will guide us in detail through these strategic actions and their expected positive impacts. The following Page 4 is self-explanatory, directionally showing 9 select historical trends since recapitalization. Profitable performance based on sound and conservative risk management is what our team is focused on consistently delivering. I'll now turn the call over to Rob for a deeper review of our performance. Robert Anderson: Thank you, Lou, and good morning, everyone. Q4 was an interesting quarter for us, and there are several items that require some detailed explanations. Prior to addressing each item individually, I would note that the bank's core performance remains strong. The measures implemented in the fourth quarter will further strengthen USCB's position for continued improvement in 2026. First, as we previously disclosed, we executed a securities loss sale in December, which negatively impacted our earnings per share by $0.31. We also incurred tax liabilities to other states where we generate income from loans. State tax liability expenses for all 2024 and for the first 3 quarters of '25 were recognized during the fourth quarter of this year. This was $1.1 million and negatively impacted earnings by $0.06 per share. Going forward, our tax expense should be modeled at 26.4%. Adjusting our GAAP figures for these 2 items only, you will find the operating or adjusted numbers on Page 6. This includes operating return on average assets of 1.14%, operating return on average equity of 15.05%, operating efficiency of 55.92% and operating diluted earnings per share of $0.44. I would note that our expenses were not adjusted, and this line item does include costs that although semi-routine in nature, do not occur consistently or have a full year impact recognized in Q4 and subsequently will be amortized over 12 months in future periods. I'll provide further details once we get to the expense slide. Also, the 18.3 million shares represent a complete 3-month period following the repurchase of shares in September. And last, tangible book value per share was $11.97. So with that overview, let's discuss deposits on the next page. Average deposits were essentially stable this quarter, down $3.9 million compared to the prior quarter, but up $314.6 million year-over-year, reflecting continued strength in core relationship growth. Within the mix, a positive development was a $26.4 million quarter-over-quarter increase in DDA balances, which represented 24.3% total average deposit. This shift toward lower cost funding supports our NIM resilience, particularly in an uncertain rate environment. On pricing, interest-bearing deposit rates decreased 27 basis points to 3.02%, down from 3.29% in the third quarter. Total deposit costs improved 25 basis points from the quarter-to-quarter and 20 basis points compared to the same quarter last year. These results reflect the benefit of the September, October and December rate cuts and the disciplined repricing actions we have implemented. So with that, let's move on to the loan book. Average loans increased $31.9 million or 6.02% annualized compared to the prior quarter and $172.3 million or 8.8% compared to the fourth quarter of 2024. On an end-of-period basis, our loan book grew just under 11%. As Lou mentioned, December was a record month for the new loan production. Also, since these loans were booked at the end of December, we did not get the full benefit of interest income in the period. This will be realized in Q1 of 2026. Additionally, we must provision on day 1 for these loans, so the financial impact in the quarter was negative. Portfolio yield declined modestly to 6.16%, reflecting the Federal Reserve's Q3 and Q4 rate cuts, which impacted our variable rate loans tied to SOFR and Prime. Additionally, a higher proportion of new loan production were short-tenured 180-day correspondent banking loans tied to SOFR. Gross loan production totaled $196 million in the fourth quarter with $83.5 million or 43% coming from correspondent banking. These loans carried a 5.26% new loan yield due to their short-term 180-day SOFR-linked structure, which helps explain the sequential yield decline. Excluding correspondent banking new loan production, new loan yields remained healthy at 6.43% for the quarter. And as we look ahead to 2026, we expect loan yields to remain above 6%. On Page 10 is a snapshot of our business verticals, and all these business verticals are led by very seasoned experienced bankers and are pivotal to our branch-light model. These business verticals are highly scalable. And in the past year, we have added production personnel to support further growth. Now moving on to Page 11. Net interest income increased $933,000 on a linked quarter basis, representing 17.4% annualized growth and improved by $2.8 million compared to the same period last year. NIM expanded 13 basis points quarter-over-quarter and 11 basis points year-over-year to 3.27%. A key driver of this improvement, consistent with what we discussed on the deposit side is our ability to reprice the deposit book more quickly than the loan portfolio. Our disciplined deposit pricing strategy supported a steady NIM recovery throughout 2025. As we head into 2026, we expect further NIM improvement to be supported by continued impact of rate cuts and the ongoing execution of our deposit strategy, which emphasizes core relationship funding. Additionally, we anticipate NIM improvement from the securities restructuring performed late in Q4. Moving on to Page 12. Our balance sheet remains well positioned to benefit from an easing cycle. According to our ALM model, the balance sheet is liability sensitive, and we continue to maintain a healthy mix between fixed rate and variable rate loans. With additional rate cuts expected in the near term, we anticipate meaningful relief in funding costs and a supportive backdrop for overall margin expansion. While we believe we can continue to outperform our model deposit betas, it's important to consider the dynamics on the asset side as well. We currently have $2.18 billion in the loan portfolio and 61% or roughly $1.33 billion is variable rate or hybrid in nature. Of that, 52% or approximately $692 million is scheduled to reprice or mature over the next year. This will naturally influence the pace at which asset yields adjust in the lower rate environment. In short, our liability sensitivity will depend on our ability to reprice our deposit book faster than the loan portfolio reprices, something we have historically executed well. With that, let's turn to our securities portfolio. We ended the quarter with $461.4 million in securities, split 67% AFS and 33% HTM with a quarterly portfolio yield of 3.01%. At current rates, we expect to receive $68.2 million of cash flows in 2026 and approximately $87.7 million in a 100 basis point down rate scenario. These cash flows provide meaningful optionality, allowing us to support loan growth or retire higher cost funding as conditions evolve. At this point, we are not anticipating any additional portfolio restructuring. We do expect the yield on the investment portfolio to improve from current levels driven by natural cash flow reinvestment at higher yields when available. As noted, the loss rate executed in the fourth quarter of 2025 was deliberately aimed at increase our NIM and the resulting cash flows were redeployed into higher-yielding loans. So with that, let me pass it over to Bill to discuss asset quality. William Turner: Thank you, Rob, and good morning, everyone. As you can see on Page 14, the first graph shows the allowance for credit losses increased to $25.5 million at the end of the fourth quarter at an adequate 1.16% of the portfolio. We made a $480,000 provision to the allowance that was driven mostly by the $59 million in net loan growth. There were no loan losses during the quarter. The remaining graphs on Page 14 show the nonperforming loans at quarter end grew by 8 basis points or almost $2 million. The nonperforming ratio stands at 0.14% of the portfolio, and these loans are well covered by allowance. This increase is related to 2 past due residential real estate loans that are in the process of collection. These loans are well collateralized by real estate and no loss is expected. Classified loans also increased during the quarter to $6.4 million or 0.29% of the portfolio and represents 2.1% of capital. The increase is related to the 2 nonperforming residential loans previously mentioned. No losses are expected from the classified loan pool. The bank continues to have no other real estate. On Page 15, the first graph shows the diversified loan portfolio mix at year-end. The loan portfolio increased $59 million on a net basis in the fourth quarter to just under $2.2 billion. Commercial real estate represents 57% of the loan portfolio or $1.2 billion centered in retail, multifamily and owner-occupied loans. The second graph is a breakout of the commercial real estate portfolios for the nonowner-occupied and owner-occupied loans, which also demonstrates our collateral diversification with no major changes from the third quarter. The table to the right of the graph shows the weighted average loan to values of the commercial real estate portfolio at less than 60%, and the debt service coverage ratios are adequate for each portfolio segment. The quality and payment performances are good for all segments of the loan portfolio with the overall past due ratio at 0.14% and nonperforming loans also at 0.14% with both ratios below peer banks. There were no loan losses in the quarter. Overall, the quality of the loan portfolio is good. Now let me turn it back over to Rob. Robert Anderson: Okay. Thank you, Bill. The headline for noninterest income was the securities loss restructuring we executed in December. The AFS securities sold represented approximately 12.6% of the AFS portfolio as of November 30, 2025, and had a weighted average yield of 1.70% and the sales resulted in a onetime after-tax loss of $5.6 million or $0.31 per diluted share. The proceeds were reinvested into loans with a 6.15% yield. Excluding the security loss, noninterest income was $3.3 million for the fourth quarter of 2025, consistent with prior quarters. So let's move on to expenses. Our total expense base was $14.3 million, while up from the prior quarter contained $759,000 for a new bonus plan for nonmanagement personnel and enhancements of sales incentives and retention programs. It's important to note that the $759,000 represents an annual expense and will be accrued monthly based on performance in the future periods. The new bonus and retention programs aim to attract and retain top talent and position USCB as a leading bank employer. Consulting and legal fees rose by $315,000 compared to the previous quarter with $275,000 of this increase attributed to the nonroutine expenses related to the universal shelf offering and the share repurchase transaction that took place earlier in 2025. Other operating expenses increased $137,000 primarily due to force-placed insurance for specific borrowers, which the company fully expects to receive reimbursement for in the coming quarters. The operating efficiency ratio was $55.92, which encompasses the full $14.3 million expense base. Adjusting for the $759,000 and the $275,000, the fourth quarter expense base would have been $13.2 million, resulting in an adjusted efficiency ratio of 51.87%. When planning for 2026, we consider the $13.2 million to be an appropriate baseline for our expenses in Q4 of '25. So with that, let's turn it to -- turn over to capital ratios. Earlier this week, the Board approved a 25% increase to the dividend or $0.125 per share based on strong operating earnings. As a reminder, in August of 2025, the company issued $40 million in subordinated notes and used most of the proceeds to buy back 2 million shares or approximately 10% of the company at a weighted average price of $17.19 per share. The bank maintains regulatory capital levels that significantly exceed the thresholds necessary for classification as well capitalized, and we look for ways to deploy capital where the return on average equity is between 15% to 17%, which equates to top quartile performance relative to peers of similar size. Last, I will note the ending share count for the quarter was 18.1 million. And with that, let me turn it back to Lou for some closing comments. Luis de la Aguilera: Thank you, Rob. 2025 ended another strong year for U.S. Century, and we continue to proactively make ongoing strategic decisions that support profitability and shareholder value. As we look ahead into 2026, expanding and strengthening our deposit base remains one of our highest priorities. Our approach is multi-vertical and intentionally relationship-driven, not rate-driven. While all our production units are ready to deliver results, we are leaning on 4 of our strongest business lines: Business Banking, Private Client Group, Association Banking and Correspondent Banking. Each vertical has a clear plan, clear targets and experienced leadership accountable for execution. Business banking delivered strong results in 2025, closing the year-end at nearly $400 million in deposits, and we are building on that momentum. In 2026, we're expanding production capacity by launching a new lending and deposit gathering team focused on Doral, Medley and Hialeah, 3 of the densest small business markets in Miami-Dade. This team will emphasize SBA and C&I lending, operating accounts and treasury services, all designed to bring in sticky relationship anchored deposits. It's a very targeted expansion, and this positions business banking to be one of our biggest contributors to organic deposit growth this year. Our Private Client Group had an excellent year-round growing deposits, 18% to $300 million. This franchise continues to win because of its deep specialization in professional markets, legal, medical and affluent professional clients. For 2026, we're adding more dedicated relationship talent, beginning with additional production hires expected between Q1 and Q2. The strategy here is share of wallet, more operating accounts, more treasury services and deepening our footprint in the professional services sector. Association Banking remains one of the most scalable opportunities, and it carries our largest deposit growth target for 2026 of $100 million. The team now manages over 480 homeowner associations relationships today and continues to grow both deposits and lending in this vertical. Our 2026 strategy focus on property management company. Roughly half of the HOAs in South Florida are professionally managed. And now with 25 firms onboarded, we are working hard to capture these operating and reserve balances. Keep in mind that approximately 40% of the state's population of 23 million live in either a condominium, homeowner association or a planned urban development, underscoring the importance potential of this business vertical. This granular, stable, low beta deposit growth is exactly the kind of funding we want more of. Correspondent Banking grew to $235 million by year-end. The team also delivered a strong lending year and meaningful fee income through wire activity. In 2026, the focus is on expanding the corresponding banking relationships onboarding 3 to 5 new correspondent banks and maintaining an active travel schedule. We're also evaluating additional production talent to support growth. Our goal is to continue growing low-cost deposits as well as expand on trade finance and income -- and fee income opportunities. Our specialty business lines, namely private client, correspondent and association banking have grown to $686 million or 29.3% of total deposits. We have a clear and attainable plan to continue this important growth trajectory. With that said, I would like to open the floor to Q&A. Operator: [Operator Instructions] And our first question today comes from Will Jones from KBW. William Jones: So I just wanted to start on deposit trends. I know the story with average balances is a little bit different than what you saw in the period, but I just wanted to dig into kind of the shrinkage you saw there at the end of the year, essentially given back some of that growth you saw last quarter. Rob, just any notable trends to point out there? And any kind of seasonality to be aware of or strategic shrinkage you guys kind of saw there at the end of the quarter? Luis de la Aguilera: Well, there's 2 things that happened literally on the last 2 weeks of the last month. We have a relationship with a client that is over 10 years, phenomenal relationship, and there was a significant move in deposits of well over $100 million. This is something that they had communicated to us as early as February, it was a business move that they were going to make. It could have happened in January, but it happened in the last 2 weeks of the year. The client still maintains with us over $112 million in deposits, 31% is DDA [indiscernible] accounts, and that is something that's going to rebuild over time. There was also on the correspondent banking side, about a $50 million swing also in the last 2 weeks of the year, but that has pretty much been recovered already in January. Our Correspondent Bank clients are flush with cash and periodically, especially at year-end, they tend to pay down their loans, and that's exactly what happened here. So those were isolated to very identified situations, and we're not really concerned about them. We expected them. William Jones: Yes. Okay. Got it. I guess that kind of bares my next question. You guys are kind of operating at the higher bound of your loan-to-deposit ratio that we've seen over the past handful of years. So I guess just based on your commentary that that's probably going to trend maybe back down a little bit in the first half of '26. But maybe just any thoughts about where you could -- what range you would like to see that ratio operate in and how you think about the current levels? Robert Anderson: Yes. I think optimally, I mean, I like kind of the 90% to 95% on the loan-to-deposit ratio. I think you get a little bit above that. That seems a little too tight for me, when you get a little lower than that, I think you have a little bit more liquidity. So I generally like anywhere between 90% and 95%, and I think we're operating at that level. As Lou mentioned, you do have some companies that do some window dressing at year-end. We anticipate to build back those deposits. I think Lou mentioned in his closing comments, we have a lot of resources decked up against deposit building for 2026, and we feel that is the #1 priority for the bank as we go into 2026. William Jones: Yes. Okay. That's helpful. And Lou, I thought your comments were interesting about this new kind of SBA vertical that you guys are launching there in some of your specific Florida markets. Maybe if you could just unpack that a little bit deeper for us. Just frame what you see the -- that opportunity looking like over the next, call it, 1 to 3 years? And maybe whether or not you already have the personnel in place to kind of kickstart that initiative? Luis de la Aguilera: Sure. Well, the initiative actually launched about 4 years ago, and we have been growing it prudently. It delivered over $1 million in fee income last year. We tend -- we do a lot of SBA 504, always have, always will. But we got into the 7a space just to diversify our product offering on the SBA side. And also, we like the gain on sale opportunity there. We're -- our average ticket is about $1.2 million. I think most of them are real estate secured. So we tend to be conservative in nature. We're not a shop that is trying to do millions of dollars in $50,000 loans that are unsecured. That's not what we're going to be doing. We'd like to grow this probably in the next 3 years to about $40 million or $50 million in annual volume, and that would deliver very handsomely on the fee income side. So we believe that the markets that we're going to be targeting down here, Hialeah, Medley and Doral, they're contiguous markets on the North and Northwest side of the county. Our analysis show that there's over 43,000 small businesses in these markets, and that's the type of business we're going to go after pretty much with the same focus that we started. It's not the tiny little, small SBA loan. These are established businesses. They have revenues probably between $3 million to $5 million. And again, this is the type of business that we're going to be selling treasury to and developing. William Jones: Got it. Okay. So this is just an extension of what you guys are already doing on the SBA side then? Okay. Luis de la Aguilera: Correct. We're just going to be -- we're going to be ramping it up. William Jones: Got you. Okay. That's helpful. And then the last thing for me, maybe just broad strokes over capital. You guys have been just fairly active over the past 3 months or so. Just strategically, as you think about some of the repurchase you did, the dividend increase, bond structure and of course, organic growth. Maybe it's just a good time to reset and just ask whether there's anything else you guys are thinking about strategically on the capital front and maybe just what your top priorities are in 2026. Robert Anderson: Yes. Besides building capital and returning it to shareholders, that's the #1 priority. I mean we just increased the dividend 25%. I think that demonstrates some conviction and strength by the management team and the Board. We did a lot last year with the buyback and the sub debt, I think 2026, we're looking to earn and return capital, and we don't have any significant plans, I would say, at this time to do anything other than produce good earnings and build it. Operator: Our next question comes from Feddie Strickland with Hovde Group. Feddie Strickland: I wanted to drill down on the margin a little bit. It sounds like in your opening comments, you talked about thinking there's going to be some expansion over the course of the year. But is it fair to expect a little bit more of a spike maybe in the first quarter from the impact of the balance sheet restructure and then kind of see a more steady growth over the rest of the year, particularly if we get some rate cuts? Robert Anderson: You broke up a little bit on the first part. Are you referencing the NIM, Feddie? Feddie Strickland: Yes. Sorry about that. I want to talk about the margin and just whether we might see a little bit more of a spike in the first quarter versus [indiscernible]. Robert Anderson: Yes. I think we're going to be probably, I would say, conservatively, probably a little flat. What we had is some runoff in deposits that were moderately priced. We backfilled a little bit of that with some FHLB advances, which were a little bit priced here. We ended the quarter at 3.27%. I think you should model flat to slightly up, not significant, and we look to build it. If we do get any rate cuts, certainly, that would be on the front end of the curve, and we look to our $1.2 billion money market book to reprice plus our CDs. And I think that would give us the margin expansion as well. But right now, the challenge for us is to backfill the deposits we lost with either DDA or moderately priced money market and either pay off the advances or redeploy that into higher-yielding loans. So I would say, conservatively, flat to slightly up on the NIM in the first quarter. Feddie Strickland: Appreciate that. And just on the loan growth, I mean, is kind of high single digits, low teens still on the cards? It sounds like it is, particularly given the strong growth at quarter end. Robert Anderson: Yes, I would say that, I mean, on average, we were kind of 6% for the quarter, but we just put up our largest quarterly new loan production in a while. It was $196 million, and a lot of that was done at year-end. So we didn't get the benefit of it in the quarter in terms of interest income, but we provisioned for it, and we'll get the benefit in the second quarter. But I would still say conservatively, certainly high single digits and maybe a little bit more to the low double digits would be kind of a secondary guide for you. Feddie Strickland: Perfect. And just one last question on the tax rate guidance. I think I heard you say that's going to go up to 26.4%. Is that a consequence of some of the securities you sold? Or just curious what the driver was there? Robert Anderson: No. The main driver is that we self-identified with our tax professionals kind of -- we do have some loans that are out of state, and we want to make sure we're complying with everything. So we went ahead and paid those. It was for prior periods. But I would say, from a modeling standpoint, going forward is 26.4% is a good modeling number in terms of the tax expense you'll see in 2026. Operator: [Operator Instructions] Our next question comes from Evan Yee from Raymond James. Evan Yee: I was just kind of curious on your expense outlook. If you have any updates there and maybe what the puts and takes would be given just the new bonus plan enhancements to sales incentives and retention programs in addition to what kind of sounds like more anticipated hires here? Robert Anderson: Yes. So the fourth quarter, I would characterize as first is we have our GAAP numbers. And this quarter, we're referencing some non-GAAP numbers, which I historically really don't prefer, and I think we've done it one other time with a portfolio of restructuring maybe in 2023. But since we've been public, we have been reporting GAAP numbers, and that's what I prefer. I think it's just a cleaner quarter for you guys. But we backed out the 2 known items. And then on the expense side, we did some new programs that were annual type expenses that booked in the quarter, and those will be based on performance on a run rate going forward. But I think if you were to back those things out, our expense base was around $13.2 million for the quarter. And I think you'll see that gradually increase in the first quarter with new hires and through the year. But we anticipate to have low 50% on an efficiency ratio. And -- but I think $13.2 million would be a good jump-off point for the fourth quarter as you model out 2026, if that's helpful. Evan Yee: Okay. Great. No, that is super helpful. And then I guess another one for me. I know we've had -- we touched on SBA, but just curious if you have any updates on your fee outlook as a whole? And could you maybe go into the puts and takes there? Robert Anderson: Yes. So on noninterest income, we've been running this quarter would have been $3.3 million if you backed out the securities loss that we executed. The quarter before was around $3.7 million, $3.3 million, $3.7 million. So I would anticipate us to continue to build that around, I think, the $3.5 million to $3.8 million range for 2026 initially and as we move forward -- but that's kind of what we're targeting. I think that's a good number, and it should gradually build from there. We have a lot of -- on the wire fees, new correspondent banks, we're increasing volume there. We've done that successfully. Swap fees remain attractive to our clients in the marketplace. And then certainly, our treasury management business as well is bringing in a lot of fees as well. So I think there's opportunity there for us as a company. And I would say anywhere from $3.5 million to $3.8 million in the coming quarters is a good number. Operator: And ladies and gentlemen, at this time, in showing no additional questions, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Lou for any closing remarks. Luis de la Aguilera: Thank you, Jamie. Before I conclude, I want to express my appreciation to our shareholders, clients and the entire USCB team for their continued confidence and partnership. As you've heard today, 2025 was a year marked by strong execution, disciplined decision-making and strategic actions designed to evaluate our earnings power for years to come. As we move into 2026, our focus remains unchanged, deliver consistent performance, grow high-quality loans, strengthen core funding, manage risk with discipline, invest in our people and create long-term value for our shareholders. I thank you all for your interest and support, and I look forward in meeting again at our next earnings call. Operator: Ladies and gentlemen, with that, we'll be concluding today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Glacier Bancorp Fourth Quarter 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, Randy Chesler, President and CEO of Glacier Bancorp. Please go ahead. Randall Chesler: Good morning, and thank you for joining us today. With me here in Kalispell is Ron Copher, our Chief Financial Officer; Tom Dolan, our Chief Credit Administrator; Angela Dose, our Chief Accounting Officer; and Byron Pollan, our Treasurer. I'd like to point out that the discussion today is subject to the same forward-looking considerations outlined on Page 14 of our press release, and we encourage you to review this section. 2025 was a transformative year for Glacier Bancorp. We successfully closed two strategic acquisitions: Bank of Idaho in April and Guaranty Bank & Trust in October, growing our footprint in fast-growing Idaho and expanding our Southwest region to include the great state of Texas. These markets offer strong growth potential and fit seamlessly with our long-term growth strategy. We converted the Bank of Idaho business operating platform in September and plan to convert Guaranty Bank & Trust in February. This was the largest acquisition year in our history with over $4.7 billion acquired, topping our previous record of $4.1 billion in 2021. We delivered strong financial results in 2025 with significant growth in all key metrics. We also delivered an excellent quarter, continuing our momentum with strong margin expansion, higher loan yields, lower cost of funding and solid high-quality loan growth. The company's total assets exceeded $30 billion in the quarter, ending the year at $32 billion in total assets, which was another record for the company. Net income was $63.8 million for the quarter, including the $36 million of expenses related to our 2025 acquisitions. Net income for 2025 was $239 million, an increase of $48.9 million or 26% from the prior year net income and was driven by the two acquisitions and our disciplined approach to increasing our net interest margin during the year. Pretax pre-provision net revenues of $362 million for 2025 increased $107 million or 42% over the prior year. Diluted earnings per share for the quarter was $0.49 per share. Diluted earnings per share for 2025 was $1.99 per share, an increase of $0.31 per share or 18% from the prior year. Net interest income of $266 million for the quarter increased $41 million or 18% from the prior quarter. Net interest income of $889 million for 2025 increased $184 million or 26% from the prior year. The loan portfolio of $21 billion at the end of 2025 increased $2 billion or 11% from the prior quarter. For 2025, the loan portfolio increased $3.7 billion or 21%. Total deposits of $24.6 billion increased $2.7 billion or 12% from the prior quarter. Total deposits increased $4 billion or 20% during 2025. The net interest margin as a percentage of earning assets on a tax equivalent basis for the quarter was 3.58%, an increase of 19 basis points from the prior quarter and an increase of 61 basis points from the prior year fourth quarter. The loan yield of 6.09% in the quarter increased 12 basis points from the prior quarter and increased 37 basis points from the prior year fourth quarter. The total earning asset yield of 5% in the quarter increased 14 basis points from the prior quarter and increased 43 basis points from the prior year fourth quarter. The total cost of funding, including noninterest-bearing deposits of 1.52% in the quarter decreased 6 basis points from the prior quarter and decreased 19 basis points from the prior year fourth quarter. Total noninterest expense of $195 million for the quarter increased $26.8 million or 16% over the prior quarter, primarily due to the increased costs from our two acquisitions. Included in noninterest expense for the quarter was $24 million from the Guaranty Bank & Trust acquisition and $3 million of expenses related to vacating branch locations. Noninterest income for the quarter totaled $40 million, which was an increase of $5 million or 14% over the prior quarter and was up 28% over the prior year fourth quarter. Service charges and fees increased 14% from the prior quarter and increased 20% over the prior year fourth quarter. In 2025, our efficiency ratio dropped from 66.7% at the beginning of the year to 63%, showing good momentum for continued steady reduction. Credit quality remains at historically low levels. Our nonperforming assets remained low at 22 basis points of total assets with a slight increase from the prior quarter, driven primarily by the acquisition of Guaranty Bank & Trust. Net charge-offs were 6 basis points of total loans for the year compared to 8 basis points in the prior year. Our allowance for credit remains at 1.22% of total loans, reflecting our conservative approach to risk management. We continue to improve our strong capital position with tangible stockholders' equity increasing $609 million or 29% in 2025. Tangible book value per share increased to $21, up 12% year-over-year. And in November, we declared our 163rd consecutive quarterly dividend of $0.33 per share, underscoring our commitment to delivering consistent shareholder returns. We are very pleased with the performance in the fourth quarter and for the full year 2025. Our exceptional team, expanding footprint, unique business model, strong business performance, disciplined credit culture and strong capital base provide a very solid foundation for future growth. So, that ends my formal remarks, and I would now like the operator to open the line for any questions our analysts may have. Operator: [Operator Instructions] And our first question comes from David Feaster of Raymond James. David Feaster: I just wanted to -- I want to start on the growth side. Obviously, it was a noisy quarter. We had the Guaranty deal. Organic growth you guys laid it out, it was about 1% annualized, a little bit slower than maybe we expected. It looks like it's actually pretty solid in the quarter. So I just wanted to get a sense of what you saw on the loan side that maybe kept things a little bit slower this quarter. And then just how you think about growth going forward? And when you'd expect Guaranty to maybe start contributing more meaningfully as all those bankers are trained on the new systems and fully ramped up? Randall Chesler: Yes. Yes, a lot going on, and we actually feel good about the growth. But let me let Tom fill you in on some of the details there. Tom Dolan: Yes, David. Fourth quarter and even first quarter is seasonally slower for us. In the fourth quarter, we exited the ag season, the construction season. So the tailwinds provided by those draws earlier in the year, those ceased and for the ag growers as they end of their season, we saw a lot of line paydowns as they went to harvest. And then not unusual for us to see lower line utilization in the latter part of the year as well. Looking into 2026, we're looking at low to mid-single digits for the full year. But one thing I wanted to mention, we are now at a record level of our pipeline early this year. And it's too early to tell whether the increase in the pipeline that we've seen is a surge or if it's sustainable. In addition to that, a growing piece of the production is related to construction, and that's been evident for the last couple of quarters. And as you know, those don't fund at origination. So it should give us some decent tailwinds heading into the stronger seasonal quarters, second, third quarter. So we could be towards the higher end of that range for 2026. And then in terms of Guaranty, to answer your other question there, they've hit the ground running. I think they're going to add meaningful production for us, quite frankly, David, starting immediately. David Feaster: That's great. That's great. And then, Byron, I just wanted to maybe dig back into the margin trajectory going forward. I mean, thus far, it's kind of played out exactly how you've laid it out. I know you've laid out that kind of that 4% threshold by the end of this year. I just wanted to make sure that, that was still on track. And maybe if you could walk us through the NIM walk and what gives you confidence in your ability to achieve that? And how dependent is that 4% level on Fed cuts? Byron Pollan: Yes, David, this is Byron. Yes, we've seen tremendous progress in our net interest margin. We've got great momentum, and we continue to see momentum ahead of us. We have a lot of programmatic structural repricing drivers in the balance sheet. That will, to your point, that will continue to lift margin regardless of the Fed. So, we're not in any way Fed dependent. And we continue to see growth ahead of us. We do expect to hit 4% at some point later this year, probably second half of '26. So, green lights ahead. David Feaster: Okay. That's great. And then maybe just touching on the expense side. Obviously, there's a lot of noise just with the Guaranty deal, ongoing savings from BOID. Just wanted to see if you could help us think about the core expense run rate heading into the new year and how you'd expect expenses to trend over the year and maybe some investments that you might have on the horizon, just including potential hiring. I mean there is a lot of disruption in the market. Just kind of curious what investments and your thoughts on that. Byron Pollan: Yes. Dave, this is Byron here. So our -- just to cover what happened in Q4. So our reported all-in noninterest expense was $194.6 million, but we had some onetime -- we had M&A of $5.8 million, as we explained in the earnings release, $3 million related to three leased branches. And then we had $827,000 reversal of FDIC assessment. So taking those three adjustments into account, our operating core noninterest expense was $186.6 million, which was within the guide, we said $185 million to $189 million. So feel good about that. The run rate for next year, the first quarter, as is traditional, will step up. We're going to guide $189 million to $193 million, and that represents just a 2% increase compared to Q4. And then it will step down there over Q2, Q3, Q4 as we grow into our expense base. And basically, that's the typical pattern that we exhibit. So, but in terms of the technology spend, the really good news is that's helping us control our noninterest expense as we get more efficient as our divisions, our people embrace that technology. So it's made a difference certainly in the numerator of the efficiency ratio, but as well as helping to helping us with our net interest income, the loans, the commercial loans, what we're doing there, the treasury management services, that continues to pick up. Good news there as the divisions embrace it more so and including what Guaranty Bank & Trust will bring to us, they're very excited about that. So, as Randy commented, we've made some pretty good headway, especially if you look at the four consecutive quarters in '25. each time, whether you look at reported or operating, our efficiency ratio continues to improve. And the good news is we think in this year, we will be able to hit mid-50s, 54% to 55%, which is our traditional range. Randall Chesler: In terms of investment in people, David, one of the -- and there is a lot of disruption. I think one of the interesting things here is and we're looking at all the people, we are -- we really kind of whittle funnel the folks, the talent down and find that there's fewer rather than many that we think would be a good fit for our team and add some real significant lift. And so really no material increase in expense associated with bringing those people on. It's more individual. And as I said, that's because there's a lot of people, but when you really sort through who has the relationships and who's got a lot to bring to the table, it's actually a smaller number. Operator: And our next question comes from Andrew Terrell of Stephens. Andrew Terrell: If I could just follow back up on expenses. I appreciate the guide, the $189 million to $193 million in the first quarter, but it sounds like it moderates afterwards. I know you guys will have the core system conversion and some cost saves coming through from Guaranty. But I'm just trying to get a sense of full year kind of expected expenses if you have it for 2026, just the 1Q guide is a little bit higher than where consensus is. I'm just trying to make sure we're maybe stepping down appropriately throughout '26. Ron Copher: Yes. So, Ron here. I appreciate the question. So, Q2 through Q4, I would estimate it will range, and this is for each of the 3 remaining quarters, $187 million to $192 million. So on a full year guide basis, that shapes up to be -- and I'm talking core. I want to make that very clear. So when I say core, I'm excluding M&A, onetime unusual items, gain or loss on any facility sales, et cetera. But the full year guide would be $750 million to, say, $600 million -- excuse me, to $766 million for the full year. Again, that's core operating expense. Andrew Terrell: Understood. I appreciate it. If I could move over just to margin quickly. You guys buy to your credit, really spot on kind of with where we've talked about margin going. I'd just like to maybe better understand on the origination side and just as we think about the asset repricing potential, what are you seeing in terms of new origination yields and spreads right now? Have you seen any level of increased competition that's impacted that? Just hoping to get some more comfortability around the pace of loan yield expansion or earning asset yield expansion. Randall Chesler: Yes. Let me -- I think Tom can answer part of that. And then, Byron, if you have things to add, that would be great. Tom Dolan: Yes. On the production, we're still seeing good spreads. We're at around 300 basis points over the index. We that we utilize. For the fourth quarter, we were a little over 6.8%. We've seen that come up a little bit towards the latter part of December and continuing into January. That's what we're seeing on the production side right now. Randall Chesler: Byron, anything to add? Byron Pollan: No. I think you covered it. Repricing is another area of lift for us. I think we expect to see north of $2 billion of assets reprice and we'll be gaining 75 to 100 basis points on that balance. So, another strong driver there. Andrew Terrell: Great. I appreciate it. And then last one for me, just I'd be curious, do you guys have the final day one tangible dilution for Guaranty? And maybe I missed it, but I think it's supposed to be barely dilutive when you guys announced. But your tangible book value was up pretty nicely this quarter and capital is obviously in a better spot than what you were forecasting as well. So I was just hoping if you had the update there. Randall Chesler: Yes. No, that was one of the -- there's many good things about that Guaranty transaction, but one of them was a tangible book value payback period, which was six months. So don't see any change to that. So still tracking to that. Operator: [Operator Instructions] Our next question comes from Kelly Motta of KBW. Kelly Motta: I'm sorry, I do want to get a few points of clarification on certain pieces of the guide. Ron, I just wanted to make sure on the expenses that the upper end was $766 million. Is that correct? Ron Copher: That's correct. Kelly Motta: Okay. So, in terms of where you -- it sounds like you're still expecting to get into that mid-50s efficiency by the second half of the year. In terms of where the expenses kind of come out, can you -- I would imagine the upper end of the range would be commensurate with higher revenues. Like is that the right way to think about it? And just kind of any puts and takes of what could push you higher versus lower end? Ron Copher: Yes. So, yes, as revenues increase and as we add some talent, yes, the expenses would expect to go up. And that just makes -- that's a typical pattern. So I have a complete agreement with that. Just I want to be clear, just on that first quarter, that's typically our higher first quarter because we have the merit pay increases, employment taxes and then it will drop down. And we're doing very well across the divisions, the corporate departments with controlling our noninterest expense. And so I think that's really helping with the efficiency ratio. But the net interest income revenues growing is certainly making a big difference as well as we continue to get towards that, as you said, in the second half, get to the mid-50s on the efficiency ratio. Kelly Motta: Got it. That's really helpful. And then what was a nice I guess, surprise or at least relative to my model is your loan yields came in higher and granted there's the contribution from Guaranty. It looks like loan fees were fairly minimal. So, as you look ahead, maybe can you provide where new loan pricing is coming on and how we should be thinking about that as being additive to the outlook ahead? Randall Chesler: Yes. I think that as Tom commented on, we're getting a little better margin at origination than we expected. We saw some compression in the tail end of '25, but December was really strong and that margin, we're getting closer to 3% margin on the new loan pricing. And so whether that continues or not, it's a little difficult to say. It's a little early, but we're encouraged we're starting off the year with that dynamic. And we'll just see if that trend carries through for the rest of '26. Kelly Motta: Got it. That's helpful. And then maybe a last question for Byron is obviously, the cash flows from securities with the treasury ladder maturing has been a nice tailwind. Can you remind us kind of the cadence of securities cash flows as we get through the year? Byron Pollan: Sure. We're expecting roughly $425 million of cash flow from the securities book every quarter. And that's a rough estimate quarterly for '26. Kelly Motta: Got it. Do you have the blended roll-off yields on that? Byron Pollan: That's going to be -- it's going to have a one handle on it. It's going to probably be in the low to mid-1% range. Operator: And our next question comes from Jeff Rulis of D.A. Davidson. Jeff Rulis: Tom, I wanted to circle back to your -- the growth conversation. And I think you loans up 3% organically this year. And I understand kind of the guide for this coming year is at a minimum, that level and hope to do better. But was there anything in '25 that you had more kind of credit trimming or balance sheet adjustments, certainly brought on a lot of your busiest acquisition years. So I don't know if there was some balance sheet reshaping. Just trying to get a sense for -- it feels like the model is in some fantastic markets and repeating 3% might be a little mild. So anything in '25 that you maybe had headwinds versus '26 that releases maybe some of those pressures? Tom Dolan: Yes. I think there's two things that are real tailwinds. One is the construction production we've had over the last few quarters. As we enter the construction season, that's going to be a tailwind for net growth. Those don't typically fully fund at close. So as we enter the construction season, especially in the northern part of the footprint, that will pick up. Same thing with the ag book. And then we typically see stronger line utilization towards the middle part of the year. From a headwinds perspective, 2025 was impacted probably a little more than normal with some early term payoffs. We've talked about that on prior calls. We'll just have to watch that to see if that's a continuing trend. And just given the overall CRE market, cap rate is still quite low. NOI is probably better than anticipated. that gives a pretty good investment return for those developers as they hit stabilization on those projects. So the economics around that are still pretty positive for the investor side. So that's just something we'll need to watch, Jeff. Jeff Rulis: Okay. And Randy, I guess the baseline question for you on busiest acquisition year in the history of the bank as you get into the Southwest footprint in terms of more conversations as well as the historical regions that you've been in. How is the M&A outlook from your perspective? Randall Chesler: No, I think it's good. And we're having conversations in the Mountain West region as well as the Southwest. And there's increasing activity there. And I'd say we're being very disciplined and selective as we've always been as more and more things appear. And right now, our focus is on getting the Guaranty Bank & Trust conversion done. We're going to do that in mid-February and really making sure that goes exceedingly well, which we believe it will. And then I think we have a lot of conversations ongoing. We'll see where that will take us. But I think it should be a very good environment for the next couple of years. Operator: We have a follow-up from Andrew Terrell of Stephens. Andrew Terrell: Just a couple of quick questions around the margin. Byron, I think you said it was a little north of $2 billion for repricing assets in 2026. Do you have a -- can you confirm that? And do you have a comparable figure for 2027? And then separately, I was going to ask, you're getting close to the end on the FHLB balances. Do the rest of those come off in the first part of 2026? And then with some of this excess cash flow you're generating, what should we think about in terms of uses of that? Does it go back into the bond book? Is there anything else that needs to come off in terms of higher cost funding? Just a couple of the moving pieces there. Byron Pollan: Sure. In terms of the repricing, Andrew, I don't have the '27 number in front of me. I can look that up and get back to you. I think it will be comparable to what we expect in '26, $2 billion, $2.5 billion, somewhere in that neighborhood would likely be repricing in '27. In terms of the FHLB paydown, we expect to complete the payoff of our FHLB advances later in the first quarter. I think mid-March is the payoff of that. And so that will be great to see the payoff of that higher cost debt. And that's been a big part of our margin recovery story as well. And that will be funded with securities cash flow with the elevated cash flow that we noted earlier coming off of the securities portfolio, perfectly sufficient to fund that payoff. So -- and once we pay off that remaining $440 million, that's pretty much it in terms of our wholesale funding that plus. Andrew Terrell: Yes. And so just probably gets put back into the bond book at that point, the excess cash flows? Byron Pollan: Exactly right. Yes. We're looking at strategies for later this year to what to do to redeploy that cash that would build. Operator: And we have a follow-up from David Feaster of Raymond James. David Feaster: I wanted to circle back to Guaranty and just kind of get a sense of how that integration has gone so far. Going into a new market can be very difficult in Texas isn't easy, but I know that's a market that you know well, Randy. I suspect it's pretty limited disruption just given this is a new division that you all are creating, no real brand changes or anything like that. And again, Tom, I appreciate the commentary that they're already starting to contribute. But just wanted to get an early read on the integration now that we're a few months in post close and kind of what you're most excited about with them at this point? Randall Chesler: Sure. Yes. I mean to start with our model, we keep the name. It's a 100-year-old bank in terms of minimizing disruption. We keep the people. We have the same leadership in place. And so that is very, very helpful compared to some of the other transitions ongoing in the market down there. We think that we're extremely well positioned with customers and employees. So, that part, just setting the stage with the model is very, very helpful and positive from our standpoint. It's been a great fit. I think we've noticed that from the beginning and talked about that, the culture fit, certainly on the credit side, Tom has done a lot of work, and it's a very good fit. So it looks very much like a seamless handoff. They're integrated into the credit system right now. And we're very, very mindful of making sure that they have all the tools they need to succeed. In terms of being excited about it, I mean, it's -- the franchise has been and still is extremely well positioned in that market. They've got a great legacy base in East Texas with Mount Pleasant as the centerpiece there, but a lot of very, very good markets. And then they're exposed to some very strong growth markets with very good teams in place. So, Dallas-Fort Worth, College Station, Houston, Austin. And so I think the opportunity, and they really just have scratched the surface there. That's probably the most exciting thing is as we give them some sophisticated tools. So we're giving them our automated commercial loan processing system. That's going to create some productivity, some improvement in how we can serve customers there. And then a much bigger balance sheet, so an ability to take care of customers, bring back relationships that had to be handed off from a $3 billion bank to a $30 billion bank. So all those things, David, we think will be really, really nice tailwinds going forward. David Feaster: Okay. That's great. And then I don't want to beat a dead horse on the margin. You guys have been very clear on the near-term dynamics. But if I think longer term, just given the strength of your core deposit base, you've historically operated -- you had a -- pre-pandemic, you had a margin in the mid-4% realm. I just wanted to get your thoughts on if that's still an achievable level, again, based on the back book repricing and securities tailwinds even into 2027, would you still expect fairly robust margin expansion in '27? Byron Pollan: Yes, David, we do see continued expansion, whether we get to 4.5%, let's get to 4% first and then work and build on that progress. But just from what I see ahead of us right now, yes, I could see us growing beyond that 4% in '27, absolutely. Operator: And our next question comes from Matthew Clark of Piper Sandler. Matthew Clark: I thought my hand was raised. Just want to clarify the expense run rate for the upcoming quarter, the guide. Did you say $189 million to $190 million or $189 million to $193 million. Ron Copher: $193 million. Ron here. $189 million to $193 million. Matthew Clark: Got it. Okay. And then on your deposit costs this quarter, they ticked up a little bit here. I'm assuming that's from the Guaranty deal? Or was there something else going on? And I assume we're going to see deposit costs trend down from here, though. Byron Pollan: That's exactly right. Yes, the uptick that you saw was from the acquisition, and we do expect to see a declining deposit costs from here. Matthew Clark: Okay. Got it. And then on the -- for the cost saves, did you get any cost save -- I think it was expected to be a little over $17 million from Guaranty. Did you get any of the cost saves out this quarter? Or is it all on the come beginning in 1Q? Ron Copher: Yes, Ron here, it will really take hold after the conversion. And so that's really where it is. We've been just doing a lot of things, as Randy pointed out, but they will show up. They've been very, very mindful of that, and we're working with them back to Randy's point, integration coordination going very well. Matthew Clark: Yes. Good. Okay. And then on the net charge-offs this quarter, I know we're splitting hairs at 12 basis points, but up from the prior quarter. Anything unusual in that those charge-offs, anything outsized? Or is that kind of more normal, you think? Tom Dolan: No, more normal and typical for year-end cleanup. We typically -- as we continue to scrub the portfolio, if there's an opportunity to exit a credit, we'll do it. So it's normal. Nothing outsized, nothing unusual. Operator: This concludes our question-and-answer session. I would like to turn it back to Randy Chesler for closing remarks. Randall Chesler: Very good. Thank you, Didi, and thank you, everybody, for dialing in today. Very excited about the trends here and the growth into '26. So, we appreciate everybody dialing in. Have a great Friday and a great weekend. Thank you. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Welcome to the Eastern Bankshares, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded for replay purposes. In connection with today's call, the company posted a presentation on its Investor Relations website, investor.easternbank.com, which will be referenced during the call. Today's call will include forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors These factors are described in the company's earnings press release and most recent 10-K filed with the SEC. Any forward-looking statements made represent management's views and estimates as of today, and the company undertakes no obligation to update these statements because of new information or future events. The company will also discuss both GAAP and certain non-GAAP financial measures. For reconciliations, please refer to the company's earnings press release. I would now like to turn the call over to Bob Rivers, Eastern Executive Chair and Chair of the Board of Directors. Robert Rivers: Thank you, Joelle. Good morning, everyone, and thank you for joining our call. We hope your 2026 is off to a great start. With me today is Eastern's CEO, Denis Sheahan; and our CFO, David Rosato. As we close out the fourth quarter, I want to take a moment to reflect on another successful year and share my thoughts on the future. First, I want to welcome our new colleagues from HarborOne and express my sincere gratitude to all of our employees for their tremendous work throughout the year. It is their efforts that elevate Eastern's brand every day and make us distinctive as Eastern New England's hometown Bank. 2025 was a terrific year for Eastern, highlighted by a 62% increase in operating earnings, strong organic loan growth and a record level of wealth assets under management. We delivered strong financial metrics, continue to return capital to shareholders and our share price outperformed the regional banking index. Our results underscore the strength of our company of our relationship banking model and enhanced earnings power of the company. The merger with HarborOne was another important milestone in 2025. It strengthens our presence in key markets south of Boston and provides an entrance into Rhode Island. At $31 billion in assets and a highly concentrated footprint, we are the largest independent bank headquartered in Massachusetts and have the fourth largest deposit market share in Greater Boston. Our scale allows us to invest in the franchise and better serve our customers while preserving a nimble community-focused approach. Looking ahead, we believe Eastern is well positioned for 2026 and beyond. Our foundation is firmly in place, and we have the size and scale to compete effectively. Now is the time for us to realize the full potential of what we have built to deliver organic growth and solid financial returns. As a result, we will not pursue any acquisitions as we are completely focused on organic growth and returning capital to our shareholders for the foreseeable future. We are excited about the organic growth opportunities we see in the market in both our banking and fee-based businesses and expect to continue returning excess capital through share repurchases and prudently growing the dividend. We believe this approach will deliver meaningful value to our shareholders. Now I'll turn it over to Denis. Denis Sheahan: Thank you, Bob. I share Bob's comments in thanking the team for a successful 2025. We are well positioned entering 2026 to capture growth opportunities in our larger market, resulting in steady improvement in our profitability metrics. Our balance sheet is healthy, well capitalized, highly liquid and well reserved. We are frequently asked about M&A, and I want to echo Bob's comments. Simply put, we are not focused on M&A. We have plenty of opportunities to organically grow the company's earnings and enhance profitability, and that is our focus. We will allocate capital towards organic growth efforts and returning excess capital to shareholders while still maintaining appropriate capital levels. What excites me most is the organic growth opportunity ahead of us in both our legacy and newer markets. We see a significant runway to take share with our commercial banking and wealth management businesses and improve deposit growth. Strategic investments in hiring talent have been an important driver of growth. Eastern is a destination of choice for high-caliber talent, particularly those with large bank experience. We offer the size to compete effectively, yet are small enough for individuals to apply their expertise, make decisions and feel a sense of ownership. As a result, our lending teams, both new hires and long-tenured relationship managers remain energized. Our commercial lending platform is a key differentiator driven by the strength of our culture and capabilities. We can deliver the products and services expected for much larger banks while retaining the certainty of execution of local decision-making and deep understanding of our customers and communities. Our banking model continues to resonate with clients, reinforcing trust, building long-term relationships and attracting new business. The positive impact of our renewed growth focus and investments in talent was evident in 2025. Excluding the merger impact, total loans grew $1 billion or 5.6% for the full year on a stand-alone basis, driven primarily by strong commercial lending results. The legacy Eastern commercial portfolio increased 6% from the beginning of the year and pipelines remain solid heading into 2026. We originated $2.5 billion of commercial loans in 2025, with approximately half in commercial and industrial lending and half in commercial real estate. Wealth Management is an important component of our long-term growth strategy and the wealth demographics of our footprint provide significant opportunities. We have been pleased with the integration of the Eastern and Cambridge wealth teams and the progress made strengthening alignment between our wealth and banking businesses. Wealth assets reached a record high of $10.1 billion at year-end, including $9.6 billion in assets under management, driven by market appreciation and positive net flows. Still a lot of work to do, but we are encouraged by the momentum in wealth and optimistic about the growth opportunities in the years ahead. Turning to capital. Our ratios remained strong and well positioned to support our organic growth initiatives. At the same time, we recognize that given our profitability, we expect to generate capital in excess of what can be efficiently deployed through organic growth alone. This dynamic reinforces our commitment to aggressively return excess capital to shareholders primarily through share repurchases. That commitment was evident in the fourth quarter as we repurchased 3.1 million shares for $55.4 million or 26% of the total authorization announced in October. We are committed to rightsizing our capital through organic growth, share repurchases and quarterly dividends. We ended 2025 with a CET1 ratio of 13.2%. Assuming we execute the remainder of our existing share repurchase authorization, we estimate the CET1 ratio will decline to approximately 12.7% by June 30, at which point we anticipate seeking an additional share repurchase authorization subject to regulatory approval. We expect to continue to generate excess capital, but plan to manage our CET1 ratio towards the median of the KRX, which is currently 12%. We are pleased with our performance in 2025 and feel well positioned for 2026 and beyond. We believe that focusing on meaningful growth -- organic growth opportunities we have in front of us and returning excess capital, not M&A, will deliver meaningful value to shareholders for the foreseeable future. David, I'll hand it over to you to provide a review of our fourth quarter financials. R. Rosato: Thanks, Denis, and good morning, everyone. I'll begin on Slides 2 and 3 of the presentation. Q4 marked a strong finish to the year as we reported net income of $99.5 million or $0.46 per diluted share. Included in net income is a GAAP tax benefit related to losses from the investment portfolio repositioning completed in Q1 that accrued over the course of 2025 and nonoperating merger-related costs in the fourth quarter. Operating earnings of $94.7 million increased 28% linked quarter. On a per diluted share basis, operating earnings increased 19% to $0.44. Results benefited from the partial quarter impact of the merger, which closed on November 1 and reflected continued organic loan growth and return of capital to shareholders. Looking at Slide 4. We are pleased by the strength of quarterly trends across several key financial metrics, including operating ROA and operating return on average tangible common equity, reflecting stronger earnings performance and thoughtful balance sheet management. Operating ROA of 130 basis points for the fourth quarter is up 24 basis points from a year ago, while return on average tangible common equity of 13.8% increased from 11.3% over the same period. We continue to generate positive operating leverage as evidenced by an operating efficiency ratio of 50.1%, which improved from over 57% in the prior year quarter. Moving to the margin on Slide 5. Net interest income of $237.4 million or $243.4 million on an FTE basis increased $37.2 million from Q3. The growth was driven by margin improvement due to higher interest-earning asset yields. Included in net interest income was net discount accretion of $22.6 million compared to $10 million in the third quarter, reflecting the HarborOne merger impact. The margin of 3.61% was up 14 basis points from 3.47%. The yield on interest-earning assets increased 21 basis points, while interest-bearing liability costs were up 4 basis points. Net discount accretion contributed 34 basis points to the margin compared to 17 basis points in the prior quarter. Turning to Slide 6. Noninterest income of $46.1 million increased $4.8 million from the third quarter. Q4 results were highlighted by mortgage banking income, which increased $2.9 million to $3 million as we benefited from the addition of HarborOne's mortgage banking operations. Investment advisory fees increased $1.1 million to $18.6 million due to higher asset values as wealth assets reached a record high and interest rate swap income, which increased $500,000 to $1.4 million, the highest level since the third quarter of 2023, which benefited from our hiring last year of an experienced leader to head up foreign exchange and derivative sales. Turning to Slide 7. We highlight Wealth Management, our primary fee business. Wealth assets reached a record high of $10.1 billion, including AUM of $9.6 billion, driven by market appreciation and positive net flows. Wealth fees in Q4 accounted for 40% of total operating noninterest income, which was lower than recent quarters. This was due to the addition of HarborOne, which did not have a wealth management business. Moving to Slide 8. Noninterest expense was $189.4 million, an increase of $49 million linked quarter due to higher operating expenses and merger-related costs. Nonoperating expenses of $33.4 million increased $30.2 million linked quarter due to a $26.7 million increase in merger-related costs and a $3.5 million lease impairment. On an operating basis, expenses of $156.1 million increased $18.9 million due primarily to the addition of HarborOne. Moving to the balance sheet, starting with deposits on Slide 9. Period-end deposits totaled $25.5 billion, an increase of $4.4 billion or 21% from Q3, mostly due to the addition of $4.3 billion of HarborOne deposits. $163 million of HarborOne brokered deposits matured in the quarter, and we anticipate the remaining $85 million to run off in Q1. Excluding the merger impact, deposits increased $20 million. Importantly, while still early, we have not experienced any material drawdowns of HarborOne deposits. Total deposit costs of 159 basis points increased modestly from the third quarter, primarily due to a mix shift from the addition of the HarborOne deposit base, partially offset by pricing actions undertaken in the quarter. We are focused on growing deposits to support our funding strategy and remain disciplined in balancing the needs of our very strong deposit base with that of the margin. Looking ahead, as we thoughtfully integrate the HarborOne deposit base, we anticipate deposit costs to remain slightly elevated. However, we will work deposit costs down and target deposit betas like our experience during the most recent tightening cycle or about 45% to 50% with lags relative to Fed actions. Turning to Slide 10. Period-end loans increased $4.7 billion or 25% linked quarter, primarily due to the addition of $4.5 billion of HarborOne loans. Excluding the merger impact, loans increased $255 million or 1.4%, primarily due to continued strong commercial lending. On a full year basis, organic loan growth was $1 billion or 5.6%, driven by commercial and steady growth in consumer home equity lines. Heading into 2026, commercial pipelines remain solid. Slide 11 is an overview of our high-quality investment portfolio. The portfolio yield was up 1 basis point to 3.04% from Q3. In addition, the AFS unrealized loss position ended the quarter at $259 million after tax compared to $280 million at September 30. In addition, securities acquired from HarborOne totaling $298 million were sold following the completion of the merger and the proceeds used to reduce HarborOne's wholesale funding. Turning to Slide 12. Our capital position remains strong as indicated by CET1 and TCE ratios of 13.2% and 10.4%, respectively. As Denis stated earlier, we are committed to rightsizing capital through organic growth, share repurchases and quarterly dividends. This commitment was evident in Q4 with the repurchase of 3.1 million shares for $55.4 million or 26% of the authorization announced in October at an average price of $17.79, which was $0.44 below the VWAP for the quarter. Our diluted common shares outstanding were 224.4 million as of year-end. To start 2026, we have repurchased an additional 635,000 shares through yesterday for a total cost of $12.3 million and now have 8.1 million shares remaining in our authorization that runs through the end of October. However, we currently anticipate completing the authorization around midyear. Additionally, our Board approved a $0.13 dividend for the first quarter. As displayed on Slide 13, asset quality remains excellent as evidenced by net charge-offs to average total loans of 18 basis points and reflects the quality of our underwriting and proactive risk management approach, addressing issues prudently and quickly. Nonperforming loans increased as expected by $103 million linked quarter, mostly due to $94 million of loans acquired from HarborOne that were thoroughly assessed and adequately reserved. We have very strong reserve coverage of 35% on these loans. The HarborOne NPLs are largely driven by a handful of larger CRE loans across a mix of property types and one C&I loan. We expect to see resolution of several credits in the first half of 2026. Others may take longer, but we have action plans for each loan and our managed asset group has strong experience in working through acquired nonaccruing loans. Reserve levels remain strong as demonstrated by an allowance for loan losses of $332 million or 144 basis points of total loans. These metrics are up from $233 million or 126 basis points at the end of Q3 due to the initial allowance established for acquired HarborOne loans. Criticized and classified loans of $793 million or 5% of total loans increased from $495 million or 3.8% of total loans at the end of Q3. The increase is entirely from HarborOne loans as Eastern legacy criticized and classified loans decreased $23 million. Finally, we booked a provision of $4.9 million, down from $7.1 million in the prior quarter. On Slides 14 and 15, we provide details on total CRE and CRE investor office exposures. Total commercial real estate loans are $9.5 billion. Our exposure is largely within local markets that we know well and is diversified by sector. The largest concentration is the multifamily at $3.1 billion, which is a strong asset class in Greater Boston due to ongoing housing shortages. Within our Eastern legacy portfolio, we have had no multifamily nonperforming loans and have had no charge-offs in this portfolio for well over the past decade. We remain focused on investor office loans. The portfolio is now $1.1 billion or 5% of our total loan book with the addition of HarborOne. Criticized and classified loans of $178 million or about 16% of total investor office loans compared to $138 million or 17% of total investor loans at the end of Q3. In addition, our reserve level of 5% remains conservative. Before discussing our 2026 outlook, I want to briefly review the HarborOne merger financials starting on Slide 16. We are on track to achieve the merger-related financial targets set forth at the time of our announcement last year. Notably, as indicated on our third quarter call, we early adopted the CECL accounting standard ASU 2025-08, which marginally reduced accretion and marginally helped tangible book value due to the elimination of the day 2 credit reserve. Slide 17 outlines the final purchase accounting adjustments relative to estimates at time of announcement. These came in as expected. The interest rate fair value mark on loans of $246 million was modestly higher than estimated at announcement. The credit mark of $104 million at closing was spot on [indiscernible] consistent with expectations and the result of a very thorough review of the HarborOne loan portfolio. On Slide 18, we provide an estimated schedule of accretion and amortization for the fair value marks that will impact earnings going forward from the HarborOne merger. Most notable is the accretion of the discount on acquired loans. We expect this will create net interest income of approximately $12 million to $13 million each quarter for the next year. For acquisitions prior to HarborOne, we anticipate accretion will provide net interest income of approximately $9 million to $10 million per quarter in 2026. We have modeled the loan accretion schedule based on the best information we have available, but actual accretion recognized is subject to loan prepayments over time. We provided a similar schedule following the close of the Cambridge transaction, and the actual results have been generally consistent with our projections, which reinforces our confidence in these estimates. Also provided on Slide 18 is the expected amortization of the core deposit intangible for HarborOne, which will be reported in noninterest expense. We anticipate this noncash expense to be approximately $8 million to $9 million per quarter over the next year. We are focused on merger integration and ensuring a smooth transition for customers and employees while capturing the projected cost savings and other long-term benefits of the transaction. As a reminder, the core system conversion is scheduled for February. On Slide 19, we provide our full year outlook for 2026. Loan growth for 2026 is anticipated to be 3% to 5% and deposit growth of 1% to 2%. Based on market forwards as of year-end, we anticipate net interest income to be in the range of $1.20 billion to $1.50 billion with a full year FTE margin of 3.65% to 3.75%. While provision will be based on the evolution of credit trends in 2026, we currently expect $30 million to $40 million of provision expense. Operating noninterest income is expected to be between $190 million and $200 million, this assumes no market appreciation impacting our wealth management business. Also, fee income is seasonally weaker in the first quarter and grows in subsequent quarters. Operating noninterest expense should be in the range of $655 million to $675 million. As a reminder, Q1 expenses are impacted by seasonally higher payroll and benefit costs of approximately $2 million to $3 million. We expect a full year tax rate on an operating basis of approximately 23%. We will maintain a strong capital position as we manage our CET1 ratio towards 12%. Continuing our 2026 outlook on Slide 20, we have significant capital return opportunities. We believe focusing on organic growth within our existing footprint, returning capital through share repurchases and prudently growing the dividend and not pursuing acquisitions will deliver meaningful value to shareholders for the foreseeable future. This concludes our comments, and we will now open up the line for questions. Operator: [Operator Instructions]. And your first question comes from Feddie Strickland from Hovde. Feddie Strickland: Just wanted to drill down on the margin. I appreciate the guide, but is the idea that we maybe see the core margin relatively flat near term as you focus on growing deposits and holding on to the HarborOne deposits and then maybe we see more expansion later in the year? R. Rosato: Feddie, it's David. Yes, that is accurate. Our margin forecast does ramp up each -- marginally each quarter, accelerates a little bit in the back half of the year. Just as a reminder, we -- that forecast is based on market forwards of 2 rate cuts in June and September. So the impact as if those 2 cuts come to be, steeper yield curve and margin expansion. Feddie Strickland: Great. And just one more, if you could talk about the pipeline mix today and what percentage of maybe C&I versus owner-occupied CRE, nonowner-occupied CRE and HELOCs we might see in terms of loan growth over the next couple of quarters? Denis Sheahan: Yes. Feddie, it's Dennis here. We -- the pipeline remains strong across our different commercial businesses, whether it's commercial real estate, community development lending and C&I. It's down somewhat from our peak, which was during the fourth quarter, but we have a good mix. It's about a little bit more than 50% CRE, between CRE and community development lending and the other, say, 45% is C&I. But we had a lot of closings here to end the year. So it's good. We'll expect it to continue to grow certainly in first and second quarter. Operator: Your next question comes from Damon DelMonte from KBW. Damon Del Monte: So just curious on the outlook for the provision of $30 million to $40 million. Just wondering if that's higher than we saw this year for realized provision. Just kind of curious on your thoughts of the credit landscape. And are you sensing there's some softness, which is leading you to kind of step that up on a year-over-year basis? R. Rosato: The guidance is similar to what we gave last year. And then in '25, we outperformed the guidance. Our thoughts are generally the same. We tend to leave lean, a little conservative and hope to outperform what we have there. But I wouldn't read too much into concerns that we have on the credit front. Denis Sheahan: Yes. We're not seeing -- Damon, it's Denis here. We're not seeing any material shift in our credit metrics, credit trends in the marketplace. I think as David said, he outlined sort of the rationale for the provision, but there's nothing underneath it that has us concerned. Damon Del Monte: Okay. Great. And then just given the timing of the deal closing during the quarter, David, can you give us a little guidance on what a pro forma average earning asset base would be in the first quarter, also considering that you paid off some brokered CDs and wholesale stuff from the HarborOne side? R. Rosato: Sure, Damon. There was very modest deleveraging, as you know, in the securities portfolio, it was $298 million. So I would take the period-end balance sheet and -- 12/31 and then the growth numbers that we've laid out for loans and deposits. The only thing I'd add to that would be a slight uptick, maybe 1% of total assets in the securities portfolio, but that will be throughout the year. We haven't been reinvesting in bonds for a while. So we're going to -- we're targeting about 15% of total assets and securities. So little growth there. And Damon, just one other thought is similar to this year, residential mortgage balances will be basically flat. So the growth will come, as Denis said, in commercial and then HELOCs, consistent with 2025. Operator: Your next question comes from Gregory Zingone from Piper Sandler. Gregory Zingone: First question, nice quarter on the AUM growth. Would you be able to break out the growth between market appreciation and the net flows? Denis Sheahan: Yes. We had about $200 million of net flows in the fourth quarter, really strong, good momentum building in terms of the integration of the business here at Eastern. Referrals from our colleagues across the bank, whether it be from the Commercial Banking division or the retail division into Wealth Management are building nicely. So we're very pleased with the progress there. And hopefully, that will continue into 2026. Gregory Zingone: Awesome. And then pivoting back to credit for a second. Would you be able to give us a little more color on those nonperforming credits, maybe including whether or not these loans were located in downtown Boston? R. Rosato: Sure. They -- first of all, they are not located in downtown Boston. The NPLs were completely driven by HarborOne. And what I would point you to, it's -- they're mostly CRE. There's one C&I loan in there. There's no surprises in there whatsoever to us. We followed these loans from the beginning of due diligence all the way through to today. We have plans, resolution plans for each one of those. Some will actually be resolved this quarter. And I'd point you to the originally telegraphed credit mark and the final credit mark, which is exactly the same. So there was no surprise whatsoever in that book. Gregory Zingone: Okay. And at what point in your workout phase would you guys entertain a larger sized loan sale for any of these portfolios, whether they're nonperforming or criticized? Denis Sheahan: We don't see that as necessary here. We certainly -- in terms of resolving the loans, you might look at individual loan sales, but we don't think that this is significant enough to entertain sort of a blanket portfolio sale. Again, as David said, we have these well identified through the merger process, the merger evaluation. These loans are being closely monitored by HarborOne. They may not have been nonaccruing, but there's some deterioration that we expected, and that's why we had a significant credit mark in those, and that was part of our overall evaluation of the firm and of the merger. So we're confident in our ability to resolve these here relatively quickly. And we don't think we need to do any kind of a bulk portfolio sale. Operator: [Operator Instructions]. Your next question comes from Laura Hunsicker from Seaport Research. Laura Havener Hunsicker: So David, if I could just come back to you on margin. Just a couple of things here. When in the quarter did you guys do the whole investment portfolio repositioning on HONE? R. Rosato: Right out of the chute. So the first couple of days of November. Laura Havener Hunsicker: Perfect. Okay. Cool. And then do you have a spot margin for December? R. Rosato: I do -- similar to, I think, 2 quarters ago, let me give you an adjusted spot margin because there was a bunch of accretion that came through in December. I think the most representative number would be 3.64% from December. So yes -- no, so what I was going to say is just a basis point below the lower end of our margin guidance. And together with the comments I said that the margin will incrementally creep up over the course of the year. Laura Havener Hunsicker: Got you. Got you. Okay. And then just looking at Slide 18, I love this slide. I really appreciate you including it. So your actual accretion impact, the 11.4%, that's 17 basis points on margin, and I look to first quarter, so it looks like that's going to be about 20 basis points or so, kind of that's the run rate, 19 to 20 basis points of accretion income on margin. Is that correct? So just thinking about your guide of 3.65% to 3.75%, that's obviously inclusive of that, just making double share here. R. Rosato: Yes. The guide includes the numbers you see on Slide 18. Again, I just want to caution everyone, there's variability quarter-to-quarter. If you go back to third quarter -- second quarter and third quarter of last year, we had a $6.5 million swing linked quarter. So this is our best estimate based on a lot of analytical work and what happened. Though there's variability quarter-to-quarter in Cambridge Trust. Life of the deal, we're basically spot on. That's the good news. But it will bounce around each quarter. Denis Sheahan: And to be clear, Laurie, this is -- what you see in the schedule is the accretion for HarborOne. As David indicated in his comments, there's an additional $9 million to $10 million of accretion from former mergers that being mostly Cambridge, but also Century. R. Rosato: Yes. Thank you, Denis. And Laurie, just make sure you read the footnotes. Everyone read the footnotes because we've laid out the remaining accretion and amortization expense for each deal. Laura Havener Hunsicker: Okay. Sorry, where is that? R. Rosato: It's just the footnotes, the bottom of Page 18. Laura Havener Hunsicker: Right. Okay. Got you. Got you. Got you. Okay. And then just going back over to credit. I just want to make sure I got right. So looking at the increase in the commercial nonperformers from $51 million to $147 million, $96 million, $94 million came from HONE and that's 35% reserved? Denis Sheahan: Yes. Yes. Laura Havener Hunsicker: Okay. And then as we look throughout the year, you said you'd reduce it. Can you just help us think about when is that $94 million gone? R. Rosato: That's difficult to answer. I know it's a handful of loans. I know there will be some resolutions in the first and second quarter. I can't be more specific than that. We -- I would point you back to our experience with Cambridge Trust. We had an initial jump up in NPLs, and we worked those down quite quickly. It took a couple of quarters, but a year after that deal, all that stuff had been worked through. And I would expect similar experience here, maybe even a little faster. Laura Havener Hunsicker: Perfect. Perfect. And then MBFI exposure, do you have an update there? Denis Sheahan: Yes. I mean it's -- Laurie, it's still -- it's in the same ballpark, a little over $500 million. And again, for us, a big chunk of this is affordable housing. It's lending to organizations that provide affordable housing in the state. That's about $120 million of that $0.5 billion. There's another $250 million is to REITs that lend in our market. These are direct loans that we look at and we underwrite right alongside the REIT. It's in the multifamily space largely. And then there's about $100 million of asset-based lending that are fully followed asset-based credits. So it's not a particularly large segment for us, and that constitutes the composition of the portfolio. Laura Havener Hunsicker: Right. Okay. Okay. And then just shifting over here, the $3.5 million lease impairment, where is that showing up exactly? Is that a credit against your other noninterest income? Or is that sort of separate sale of other assets category? Where do you -- where is that line? R. Rosato: It runs through the nonoperating expense line. So it was a building... Unknown Executive: But on the income statement... R. Rosato: Through the... Unknown Executive: Nonoperating... R. Rosato: Nonoperating expense, yes. Laura Havener Hunsicker: Okay. Okay. It's in the other. Okay. And then can you just talk a little bit about -- you had a drop in that sort of the -- within sort of other -- it's broken out at the end, the sale of other assets, the loss of $700,000, what's that relative to -- it was $1.5 million last quarter. R. Rosato: Yes. That was just the associated leasehold improvements in that building that had the -- that had the lease. So there's 2 components. Laura Havener Hunsicker: Okay. And how should we think about that running? R. Rosato: One time event. Laura Havener Hunsicker: Okay. Okay. Okay. So that line should run 0-ish. Unknown Executive: Yes. Laura Havener Hunsicker: Okay. Okay. Okay. And then last question, Denis, to you. Can you just share a little bit about -- and this maybe kind of circles back to HoldCo. I realize you're not probably going to comment. But again, your outlook, Page 20, last bullet, not pursuing acquisitions, all in bold. I mean, I think that's great. It's certainly more definitive than we were last quarter. So directionally, you've gotten stronger on that. Can you just share a little bit about your thinking around that and how you come to be? And certainly, we love that you're leaning more into buybacks. But just can you share a little bit about how you came to this position? Denis Sheahan: Well, we've outlined, Laurie, just look, we're not pursuing acquisitions. We're entirely focused on the growth of this company, the organic growth. We're excited about the potential in each of our businesses. That's what we're leaning into. We recognize returning capital to our shareholders is the best use in terms of that excess capital. And so we're leaning heavily into buybacks. As I said in my comments, we think we'll manage our CET ratio down over time towards 12%, which is a pretty significant decline from where it is today. And we still think it leaves us with very comfortable and safe capital levels. So we're going to lean into buybacks. We're going to do all the blocking and tackling of growing this business one customer at a time. And that's what we're looking forward to. And we're just -- we're not pursuing acquisitions. Operator: Your next question comes from Janet Lee from TD Cowen. Sun Young Lee: For -- I don't know if this is talked about yet. For your fee income, could there be -- where do you see better upside? And then did you also talk about what you would do with HarborOne's mortgage banking business? Would you be beneficiary if mortgage comes back more fully if the rates were to go down a little more? And what's sort of your outlook for other fee income line for the investment advisory business fees or others that could be -- that could potentially surprise to the upside versus where you have on your guide? R. Rosato: Sure, Janet. So I called out in my comments that the guide was assuming no market appreciation in the Wealth Management business. So you can make a judgment of expected returns of the S&P 500. And if it's up, there's additional fee income that will be derived there. So I want to make sure we're clear about that. The -- I think over, over time, fee income from HarborOne's mortgage business will probably be 8% to 10% of total fee income. We will -- you're right, we would be a large beneficiary if there's a drop in rates, there's an increase in refi activity or even purchase activity. We're not counting on that. We're not -- we're -- time will tell if that's true. It's a highly efficient well-oiled business that they run. We're still in the process of integrating that into legacy Eastern. That business will be part of the system conversion next month. But it gives us an option on fee income, and it also gives us an option on the ability to feed our balance sheet with residential mortgage if we ever choose to do so. That's not -- as I said, to Damon, our expectation is we're going to keep our residential mortgage portfolio flat in 2026, just as we did in 2025 and favor HELOC and commercial loan growth. Sun Young Lee: Got it. And just one follow-up. really appreciate the comment around how you're staying focused on organic and probably there's more opportunities for buyback. You talked about 12 -- getting that CET1 down to 12.7% by the June quarter. When you say managing towards that 12%, is there sort of a time line around when you want to get down to that peer level beyond that June guidance that you gave? Denis Sheahan: Well, Janet, it's Denis. I think assuming there's a lot of assumptions in there. The first one being that we finish and we believe we will, let's see the existing buyback authorization by about midyear. And at that point, we would look to request approval for another buyback. And thinking about the profitability of the company, the amount of excess capital we believe we will generate because organic growth will not absorb that excess capital. So it will give us room to continue to execute and do buybacks. We will continue to manage down that pro forma, say, 12.7% to a lower level and towards 12% as we execute that additional buyback. So we don't have a precise point in time, but our intent is to continue to manage it. It's, of course, subject to where stock price, et cetera. We want to be disciplined and responsible as we execute the buyback. But nonetheless, that is our intent. Operator: And your next question comes from Feddie Strickland from Hovde. Feddie Strickland: Just had a quick follow-up on loan growth. Is there any seasonality or particular slower or faster quarter in terms of loan growth just as we think about the guide within the course of the year? Denis Sheahan: Yes. It's a little bit like a frozen thunder here in the first quarter. So it would build more throughout the year, Feddie. Pipelines build into the first quarter. But certainly, as you get late Q1 into Q2 and Q3, that's typically when most of our production happens and round off the end of the year nicely as we did this year. But typically, Q1 is a little slower. Do you agree, David? R. Rosato: Yes, 100%. Operator: And there are no further questions at this time. I will turn the call back over to Bob Rivers for closing remarks. Robert Rivers: Well, thanks again, folks for joining our call this morning. We hope you fare well during the winter and look forward to talking with you again in the spring. Operator: This concludes today's conference call. You may now disconnect. Thank you.