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Operator: Ladies and gentlemen, welcome to the S&T Bancorp Fourth Quarter and Full Year 2025 Conference Call. After the management remarks, there will be a question and answer session. If you'd like to ask a question at that time, please press star then the number one on your telephone keypad to raise your hand and enter the queue. Now I'd like to turn the call over to Chief Financial Officer, Mark Kochvar. Please go ahead. Mark Kochvar: Thank you, and good afternoon, everyone, and thank you for participating in today's earnings call. Before beginning the presentation, I want to take time to refer you to our statement about forward-looking statements and risk factors. This statement provides the cautionary language required by the Securities and Exchange Commission for forward-looking statements that may be included in this presentation. A copy of the fourth quarter and full year 2025 earnings release as well as this earnings supplement slide deck can be obtained by clicking on the materials button in the lower right section of your screen. This will open up a panel on the right where you can download these items. You can also obtain a copy of these materials by visiting our Investor Relations website at stbankcorp.com. With me today are Chris McComish, S&T's CEO, and David Antolik, S&T's President. I would now like to turn the program over to Chris. Chris? Chris McComish: Great. Thank you, Mark, and good afternoon, everybody. Thank you for joining us on the call. I'm gonna begin my comments on page three. We certainly appreciate the analysts being here, and we look forward to your questions. Before we discuss Q4 specifically, I'd like to take a few minutes to discuss and wrap up 2025. Overall, we moved forward through 2025 very well, producing returns, building record levels of capital, with increased momentum while receiving external recognition for both our financial performance as well as our high levels of employee engagement. For the year, we produced $3.49 a share, just under $135 million of net income, with a 3.9% net interest margin. Loan growth was over 4%, and customer deposit growth was just under 3%, while expenses were well controlled. Asset quality for the full year was well managed at 18 basis points of net charge-offs, while the ACL declined 16 basis points year-over-year, reflecting three straight years of overall improved asset quality. You know, none of these results would have happened without the commitment of almost 1,300 S&T employees or some of the most engaged and talented employees in our company. For those that are listening on the call, we thank you for your hard work and your engagement. We're using these numbers and results of yours. You should be very proud. Turning to the quarter, our $34 million in net income equates to 89¢ per share, down slightly from Q3. Our return metrics were again strong, highlighted by a 1.37% ROA. Additionally, our NIM rose to 3.99%, up six basis points on a linked quarter basis, which is the best performance we've seen since 2023, as is our 1.95% PPNR up six basis points quarter over quarter. Asset quality for the quarter was mixed due to higher charge-offs associated with some NPA resolutions while the ACL declined eight basis points due to specific reserve releases and an overall reduction in CNC assets. Dave will provide more details here in a few minutes. Moving to page four, loan growth was just under $100 million for the quarter at 4.5%, led by commercial banking with both growth in our C&I portfolio as well as our CRE line of business. Customer deposit growth was just under $60 million at 2.9%, and the quality of our deposit mix remains very strong with DDAs representing 27% of total balances. Before I turn it over to Dave Antolik to provide more details on the balance sheet and credit, I wanted to bring to your attention the other announcement that we made this morning announcing our new $100 million share repurchase authorization that was approved by our board of directors yesterday. Given the robust capital levels of the company, we are fortunate to be able to have an authorization of this size available to us. Our capital levels give us the ability to repurchase shares should the market warrant it, while not in any way impeding our ability to consider other opportunities including M&A. With that, I'll turn it over to Dave, and I look forward to your questions. David Antolik: Well, thank you, Chris. And as Chris mentioned, the loan growth of the quarter was driven primarily by commercial with C&I and CRE balances growing by $53 million and $34 million respectively. C&I growth was a result of an increase in revolving balances and new customer acquisition. Q4 was a particularly active quarter for our asset-based lending group, who onboarded several new names. Categories of C&I growth include retail, utilities, and service. Our CRE growth was entirely driven by construction funding in the quarter. We continue to see demand for construction facilities for multifamily, warehouse, storage, and industrial asset classes. These loans typically fund over twelve to eighteen months, move to our permanent CRE portfolio, and frequently move on to nonrecourse funding sources. Supporting growth in the coming quarters, our unused commercial construction commitments increased by $78 million quarter over quarter. As a result of the strong funding in Q4, our pipelines reduced slightly heading into Q1, and our focus is on rebuilding. This activity is consistent with our historical experiences. Regarding loan growth guidance for 2026, we believe that mid-single-digit growth is achievable while maintaining our asset quality profile. We expect loan growth to primarily come from C&I, where we've seen improved activity from investments we've made in team leadership and banker talent, along with CRE. We've demonstrated a long-standing ability to develop deep customer relationships in support of growth. We are also forecasting continued consumer home equity growth, which is focused on complementing our deposit franchise customers. If I can now direct your attention to slide six of the presentation, which provides additional details on our asset quality performance in Q4. Starting with the allowance for credit losses, we recognized a reduction relative to gross loans from 1.23% to 1.15% quarter over quarter, primarily the result of two factors. First, a reduction in specific reserves related to problem loan resolution. Second, a reduction in criticized and classified loans of $30 million or 13% in Q4. This reduction in criticized and classified loans at year-end 2025 represents our third consecutive year of successfully reducing loans in these categories. Over that period, the three-year period, we have reduced total CNC loans by 50%. It is also a reflection of our focus on asset quality as a key driver of financial performance, robust portfolio management, and an aggressive approach to problem loan resolution. As a result of aggressively addressing problem loans, we were able to fully resolve loans totaling $29 million during the quarter. These resolutions contributed to increased charges of $11 million or 54 basis points annualized in the quarter. In addition, we recognized new NPL formations that caused overall NPAs to increase by $6 million from 62 to 69 basis points. We have appropriately reserved for these loans and have resolution strategies in place. Although an increase relative to Q3 and 2025, this level of NPLs remains at a very manageable level. Looking forward, we anticipate full-year 2026 asset quality results to perform similarly to what we saw in 2025, with a focus on reducing NPLs and maintaining the lower level of CNC loans that I discussed earlier in my comments. I'll now turn the call over to Mark. Mark? Mark Kochvar: Thanks, Dave. Fourth quarter net interest income improved by $1.8 million or just under 2% compared to the third quarter. That was mostly driven by the margin expansion of six basis points. The margin improvement came from an 11 basis point decrease in the cost of funds, and that was offset by a modest decrease in earning asset yields of about three basis points. We have been able to successfully reduce exception rates and regular rates on non-maturity deposits as the Fed has reduced short-term rates. CD rates have been somewhat more sticky but are still coming down. We continue to expect that our more neutral interest rate risk management position and pricing discipline will mitigate any rate down impact, both what has happened and what is expected in 2026. Tailwinds from our maturing received fixed swap portfolio, security, and fixed loan repricing, some limited CD repricing all contribute to these tailwinds. If we look into 2026, we expect relative stability in the net interest margin, in the mid to high 3.9% range, with net interest income growth coming from earning asset growth. Next slide. Noninterest income increased by $500,000 in the fourth quarter with small improvements in our major customer fee categories. The increase in other is timing-related, primarily to the letter of credit activity. Our expectations for fees in 2026 remain at approximately $13 to $14 million per quarter. Expenses were in line in Q4, up by $800,000 compared to the third quarter. The largest variance was in salaries and benefits. Within that, medical costs were higher and also salaries due to some hiring. Marketing was impacted by the timing of some promotions. We expect to manage our 2026 noninterest expense year over year to around 3%, which implies a quarterly run rate of approximately $58 million. Lastly, on capital, the TCE ratio decreased by 29 basis points this quarter due to the share repurchases completed in the fourth quarter. We repurchased just over 948,000 shares at an average price of $33.82, a total of $36.2 million. Our regulatory ratios continue to be very strong with significant excess capital. Even if we complete the $100 million repurchase program announced today, we are comfortable that we will have more than sufficient capital to position us well both for the environment and to enable us to take advantage of inorganic or organic growth opportunities. Thanks very much. At this time, I'd like to turn the call back over to the operator to provide instructions for questions. Operator: Thank you. The floor is now open for questions. If you like to withdraw your question at any time, please press 1 again. Please hold while we poll for questions. Your first question comes from the line of Justin Crowley with Piper Sandler. Your line is open. Justin Crowley: Hey. Good afternoon, everyone. Hi, Hi. Just want to start on loan growth for the quarter. You know, it didn't really deviate from how you folks framed expectations previously, but bigger picture, curious, is there anything specific that you'd point to that that's maybe holding you back from that ramping to say you know, a mid to high single digit pace, something more along those lines? Maybe once discussed. You know, is that a function of the demand side of the equation or is there a desired pricing component to that? What, if anything, would you speak to there? David Antolik: Yeah. Justin, it's Dave Antolik. I think that it is not necessarily on the demand side. It's, you know, making sure that the asset quality of the onboarded new customers meet our criteria to maintain the lower levels of CNCs. Some of it is, you know, we're adding to staff. We're adding bankers. We plan on doing that throughout the year. So making sure that we have adequate coverage in all of our markets and all of our segments. I think about the C&I growth and, as I mentioned, the ABL activity. There were certainly bright spots in Q4. That's relatively new. So there are some tailwinds to help us grow and hopefully get to a higher rate of growth in terms of our loan. Chris McComish: Justin, it's Chris. The other thing I would add is we do think, you know, about the overall state of the economy. And things are picking up in positive, but we don't want to be out there predicting something that's dramatically higher than what you see from a GDP growth rate standpoint or what we believe organically is available in the markets that we serve. Dave touched on it too. You know, our desire is to continue to grow teams and bankers in the field. Our leadership in the field knows that there are no constraints around adding more folks to the team, and that we'll continue to do that. But we're trying to give you our best estimate based upon all of those factors. Justin Crowley: Okay. And you mentioned in terms of or both of you mentioned sort of the hiring efforts and, you know, maybe it's a mix, but you know, how focused is that on the C&I side of things? Is that kind of the top priority in terms of looking to add new talent? David Antolik: Yes. I would call that our number one priority in terms of moving ourselves forward and accelerating growth in the commercial space. And it's not just C&I, Justin. It's both CRE and C&I. You know, we're doing an awful lot of work in our business banking space as well. So focus those teams on deposit gathering and developing new relationships. So it's across the board, you know, in the fight for talent, we think we have a really good story to tell. We'll be able to acquire and add to the teams in order to support growth. Justin Crowley: Okay. That's helpful. And I guess pivoting, you know, just one on the margin. You know, was pleasantly surprised with the expansion you saw this quarter, and it looked like some nice moves lower in deposit costs. You know, I think the last update you gave, you're referring to some of the competitive pressures on the funding side. That had been maybe a little stronger than initially expected. So curious how that has been trending as we now move through the first quarter. And, you know, I guess, how that sort of informs the mid to high three nine, guide on margin here looking forward? David Antolik: Yeah. I think with the as the Fed moved lower, you know, we've seen the competitors a little bit slower than we anticipated, but bring rates down. So we're working within that framework and are pretty confident that we can hold these levels on the NIM. Chris McComish: Justin, if you think about the quarter itself and when rates dropped, I would say the competitive intensity around rates was higher early in Q4, than as we moved through Q4. And, you know, subsequent drop in rates. The market rates kind of went with it a little bit faster. I think it's a bit harder for people to cross, for example, four on CDs. You know, that dip below four on CD, that short six CD rate took a little bit longer than we had thought would happen. But we're through that, things seem to be moving a little bit better. Justin Crowley: Okay. And then maybe just M&A. You know, I know we've talked a lot about it, but just curious for Chris, maybe an update there, you know, where things stand, just sort of the pace of conversations you're having, if there's any or has been any shift in preference or bias as to what geography or geographies you know, you might be leaning toward or where you're seeing the most active discussions. Chris McComish: No. Nothing significant. Just that we've talked about over the past couple of months. We are in active dialogue across the geographies. And we continue to make it a priority for us. But we also want to do, you know, do the things that we have most direct control over, and those are the things that we're doing every day. So still lots of interest, lots of conversations. You know, reiterating something I said earlier. This stock repurchase authorization that we have, and we're very fortunate to be able to, you know, kind of walk and chew gum at the same time. That we can potentially, if the market avails itself, to the repurchase authorization, that's great. At the same time, it doesn't inhibit us at all from an M&A standpoint. Justin Crowley: Okay. Perfect. Great. I appreciate everything. Chris McComish: Okay. Thank you. Thanks. Operator: Your next question comes from the line of Daniel Tamayo with Raymond James. Your line is open. Daniel Tamayo: Thank you. Hey, Danny. Good afternoon. Chris McComish: Yeah. Hey, guys. Maybe we start on the loan growth side, but as it relates to the funding, mid-single digits not guiding to better than that, but sounds like it could be a good year for loan growth. Loan deposit ratio now over 100%, I believe. So just curious if you expect to be able to kind of fully fund that loan growth with deposits or if you're going to be using alternative sources, just outlook on the deposit growth, if you will. David Antolik: Yeah. Sure. What we're forecasting is our ability to fund that internally through deposit growth. We saw a really strong Q4 in terms of customer deposit growth, particularly in the consumer space. Was offset a little bit by some activity with some large commercial depositors that we consider more anomalous than anything. So I think that with the focus and the investments that we've made in technology, people, campaigning, we're really focused on driving core deposit growth, and we think we can achieve balanced loan and deposit growth trajectory. Chris McComish: Danny, it's Chris. If you'd be able to show you the Teams incentive plan, you would see very clearly where the importance of deposit growth and funding our asset growth through continued expansion of customer relationships. So we know in order to match profitable growth, the funding needs to come from the continued growth in our already strong core deposit franchise, and that's a key focus for all of us in all lines of business. Daniel Tamayo: Okay. And on the cost side, I suppose, I mean, this is kind of related to that as well as your commentary earlier about repricing the current deposits. What do you have in terms of implied or assumed deposit betas in margin guide? David Antolik: Well, I mean, we have maybe in our plan, we have a couple more cuts sort of built in. I mean, it's complicated because there's, you know, on the asset side, things are moving the other way. But on the deposit side, the betas are probably in the 30 range overall. Daniel Tamayo: Okay. Alright. Great. And then, I guess, one last one for you, Chris. You talked about the M&A, and you obviously have this buyback announcement. From a capital perspective, but you know, you're obviously just under $10 billion. You've been able to kind of flatten out the asset growth over the last few quarters. You know, I'm modeling in. I think you talked about last quarter likely crossing $10 billion next year. But is there a way or a desire to potentially keep that under $10 billion through next year and push the Durbin hit out a year? Chris McComish: Yeah. At this point, Danny, we're not thinking that way. We believe that we'll know, our Durbin hit is relatively small at $6 to $7 million. There's certainly some things that you could do, you know, Mark and the team do. But our focus right now is to continue to grow and show some reasonable growth. You know, if we end up with, you know, 5% loan growth for the year, 6%, you know, in that range, you're talking about $500 million worth of loan growth, and that would put us kind of meaningfully over the $10 billion. And then we have, you know, the good part of 2027 to work through that. So our focus is to continue to and recognize that, you know, that's a potential headwind, but it's also something that we're gonna we can also celebrate because it's been talked about for too long to stay around that level. Daniel Tamayo: Understood and agreed. We're all looking forward to not talking about that anymore. Chris McComish: Think about it, Danny. The call would be ten minutes shorter. Daniel Tamayo: I'll scratch that off my question for next time. Alright, guys. That's all I have. Thanks a lot. David Antolik: Thank you. Operator: Next question comes from the line of Kelly Motta with KBW. Line is open. Charlie: This is Charlie on for Kelly. Thanks for taking my questions, guys. Chris McComish: Sure. Charlie: Just to hit on asset quality quickly, can you provide more color on the specific resolution of the NPAs that drove kind of the $11 million in charge-offs? And whether that relates to the two CRE and one C&I credit you guys identified last quarter? David Antolik: Yep. Yep. Just got that. And you directly related to those previously identified and talked about credits. We were able to bring those to resolution, recognize the charge, reduce specific reserves as a result. We also had, as I mentioned, formation in the quarter. That were both C&I and CRE. And we appropriately reserved for those. And we have resolution strategies in place for those credits as well. And, yeah, I want to reemphasize the importance of the progress we've made in terms of the criticizing classified reductions over the last three years. So if you think about, you know, we talk a lot about loan pipeline and where's growth going. You know, that CNC bucket is the pipeline for future charges and NPLs. So having reduced that by 50% over the last three years, reduces the amount of problem loans coming into the funnel, that could potentially lead to further deterioration or charges within our book. So that's why we feel good about being able to say, hey. Look. Asset quality in 2026 is not going to perform any worse than 2025. And our focus on reducing NPAs and the feeder pipeline of CNCs has taken hold and it's really our focus. Charlie: That's helpful. Thank you. And then turning to expenses, it seems like growth is gonna be expected to be strong, and you guys saw 4% expense growth this year. Is that kind of a fair run rate in the years ahead? I know you mentioned adding talent in the C&I and CRE verticals and made investments already. Just if you could speak to initiatives ahead and maybe secondly, if there's room on the efficiency ratio or it's, like, mid-fifties a good sustainable place to operate from? Thank you. David Antolik: Sure. I'll start at the last one. I think mid-50s is the place to look for the efficiency ratio to be. On the expense side, we don't think we have a lot of infrastructure build. We've invested a lot over the last few years on the staffing side for a lot of our support areas. So the FTE growth that we expect in this year and really for a couple of years after that will be mostly production-related. So that limits the overall increase on the salary benefit side. So we're working with about a 3% year-over-year expense increase. So, you know, we're pretty confident that we could hold to that going into this year. Charlie: That's great. Thank you. I'll step back. Thanks for taking my questions. Chris McComish: Thank you, Charlie. Operator: Your next question comes from the line of Matthew Breese with Stephens. Your line is open. Matthew Breese: Hey, good afternoon. Chris McComish: Hi, Matt. David Antolik: Hey, Matt. Matthew Breese: Few more questions for me. You know, first, loans this quarter held up a bit better than what I was expecting. And so I'm curious what the roll-on yields are versus roll-off today and maybe what are your expectations for back book repricing in 2026? David Antolik: We're still getting a little bit of positive on the fixed side. You know, we're also getting benefit from this received swap book that we have. So that's been helping a lot to support the lack of declines on the asset side. Although that tailwind, if you will, starts to diminish as we get farther into the year. You know, so by the end of the fourth quarter, a lot of that will be gone. The replacement yields are not all that different on the floating side. I mean, they're just kind of coming off and going on, but we are still picking up, you know, maybe 25 basis points on other more fixed products net. Matthew Breese: And do you have the maturities for fixed asset repricing or fixed loan repricing in '26? David Antolik: Say tower bets? Yeah. But we have about a billion or so that we have to replace every year. Some of that will be our prepayments and not and also amortize it. Loans. So kind of a mix of that is that the It's a mix of fix and flow. Yeah. Matthew Breese: Got it. Okay. And then do you have the updated cost of funds either at or cost deposits either at year-end or more recently? One of the things I was looking at, you know, CD costs, just look a little elevated here at $3.86. I'm assuming there's quite a bit of downside as we think about, you know, rate cuts, additional rate cuts, and the maturity schedule there. What CD cost could be a year from now? David Antolik: Yep. So they have, like, a monthly margin, you know, from December that gets us a little bit closer. And for that period, our CDs were about at a $3.82. And overall deposits were about a $2.50. Matthew Breese: $2.50 for interest-bearing. David Antolik: Yes. Yeah. That doesn't include DDA. It's just Yeah. Matthew Breese: Okay. Okay. Thank you. I guess the last one for me, a lot of the questions have been exhausted, you know, for Community Bank, what are you doing, or what are you using for AI tools at this point? How are you using them and as we look ahead, whether it's a year or five years, you know, how do you think those tools might impact your P&L? Chris McComish: Yeah. Obviously, you know, in some of these areas, things are early days, but in other areas, it's, you know, it's work that is really important to our company. I think about in the area of BSA, AML compliance, and some of the fraud protection that occurs in our company every day relative to primarily to our deposit book and, you know, anomalies that are happening within commercial and consumer deposit relationships. So all of that information that's coming to our financial intelligence group is AI-driven. And alerts are created. And it has been a big factor in our ability to, you know, find potential fraud and make sure that we're stopping things before they actually happen. And it's, you know, it's millions of dollars of savings that we see on a quarterly and annual basis. Around potential things, all coming from you would consider some sort of AI alert. We're also thinking about, you know, generally, you know, compliance consumer compliance, and the ability to use AI there. Within our commercial bank, the underwriting and portfolio management infrastructure that we have has increasing levels of AI support to do things like auto spreading of financial statements. You know, support for it will continue to mature. Will be support around underwriting for originations as well as portfolio management. We're also using it to enhance our communication. You know, just this month, some of the work that we're doing in communicating to our board, we're running through some AI tools to help us communicate more effectively. So it's a lot of kind of some experimentation. Obviously, there's a big level of risk management associated with it. This is our information that we have to protect. And we have to make sure that it's not, you know, not available elsewhere. So we're working on that. You know, we've got a working group that thinks about these things, but you know, it'll continue to evolve, and it is a priority for us. You know, we talked about expense growth in the year and, you know, the commitment that we have is, you know, all FTE growth people expense growth will come in customer-facing and revenue-producing roles. We believe that, you know, back-office support and those sorts of things should be able to be held flat. And that's kind of a forcing mechanism to make sure that we're looking at opportunities that, you know, from a technology standpoint. Matthew Breese: How far away are we from, you know, you said millions of savings. You know? How far away are we from that actually impacting guidance and your outlook? Chris McComish: Well, a long way. You know, again, it's still early days. When I'm talking about millions of savings, these are, you know, fraud alerts that are protecting, you know, protecting our customers from potential losses that could have occurred otherwise. So as it relates to significant increases in operating expenses, I've, you know, we got a ways to go, I think. Matthew Breese: Yes. I'll leave it there. Thank you very much for all that. Appreciate it. David Antolik: Sure. Operator: Your next question comes from the line of Dave Bishop with Hoste Group. Your line is open. David Bishop: Yes, thank you. Good afternoon. Chris McComish: Hey. David Bishop: Quick question for you. Most of my questions have been asked and answered, but in terms of origination, loan production this quarter versus payoffs, just curious, maybe how those compare to fourth quarter to the back in the third quarters? Thanks. David Antolik: Yeah. Fourth quarter was robust. Originations were strong in Q4. We did have elevated payoffs in Q4 that talked about the, you know, the kind of the construction cycle. A lot of those loans were refinanced out of the bank in Q4. You know, it had led to some pipeline burn that we're actively rebuilding now and would hope to, you know, regain our momentum. And as we add additional bankers incrementally add to what our experience has been over the past year or two. So we, in total, need to originate somewhere around a billion and a half to a billion 7. And in total new loans each year to drive a, you know, five to 7% net loan growth number. David Bishop: Got it. And in terms of the targeted banker assets here, any geographies burning a hole in your pocket more than others as you budget out this year? David Antolik: Yeah. We're, you know, we're agnostic relative to the geography. You know, we want we know we need to add to the C&I teams. CRE, we're pretty well heeled in terms of the legacy market. But if we can find an additional banker who can help us grow, we're gonna hire them. As Chris mentioned, the focus of the leads of both the commercial real estate and C&I groups, our ABL group, is to add additional bankers in order to further enhance customer acquisition and that, hopefully, that translates into additional loan and more specific deposit growth. So it might be treasury management officers. It could be CRE bankers. It could be C&I bankers. You know, we're looking to grow all facets of our commercial teams and the products that they offer. David Bishop: Great. Thank you for that color. Operator: Your next question comes from the line of Daniel Karthaus with Janney Montgomery Scott. Your line is open. Daniel Karthaus: Hey. Good afternoon, guys. Chris McComish: Hey, Dan. David Antolik: Hey, Dan. Daniel Karthaus: Just, most of my questions have been asked and answered, but maybe could you provide a little bit of color as to competitive factors on the deposit side, given your goal to fund loan growth with deposits. Are the markets that you operate, are they behaving rationally right now, or how would you kind of describe those? Chris McComish: Yeah. We talked a little bit about that earlier. I would say that, you know, early in Q4 as rates started coming down in that 4% number was out there when you're talking about the CD book. There was some pressure from competitors to what I would call key, you know, hold on what I have. And offer, you know, an elevated rate. We were a little surprised that folks kind of reacted as slowly as they did. And I think particularly in the month of October, maybe even into early November. But second half of the quarter, things became more rational. You know, we don't aggressively post and advertise aggressive rates in the market, generally speaking. We operate with what I would call a very responsive exception pricing process that kind of combines the ability for our team leaders in the field to make decisions with the proper level of oversight between Mark's teams and Dave's teams. And that has worked really well for us, both in the ability to attract new deposits as well as to retain things from a competitive standpoint. So we feel, you know, optimistic about our ability to respond to the information that we're getting, to make decisions around and that's a big reason why we believe we should be growing deposits at least at the rate that we're projecting our loan growth. Daniel Karthaus: Excellent. Got it. Great. So I have for right now. I'll step back. Thanks. David Antolik: Thank you, Dan. Operator: And with no further questions in queue, I'd like to turn the call over to Chief Executive Officer, Chris McComish, for closing remarks. Chris McComish: Well, listen. Thanks all for being on the call with us. And we appreciate your engagement and your guidance. Be safe out there. There's a lot of nasty weather coming in various parts of the Midwest in particular. But we look forward to a successful 2026. We're certainly very proud of 2025. Look forward to moving forward. So have a great rest of the day. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good morning, everyone, and thank you for joining us today for Old Second Bancorp, Inc.'s Fourth Quarter 2025 Earnings Call. On the call today are Jim Eccher, the company's Chairman, President and CEO; Brad Adams, the company's COO and CFO, Darin Campbell, the company's Head of National Specialty Lending; and Gary Collins, the Vice Chairman of our Board. I will start with a reminder that Old Second's comments today will contain forward-looking statements about the company's business, strategies and prospects, which are based on management's existing expectations in the current economic environment. These statements are not a guarantee of future performance and results may differ materially from those projected. Management would ask you to refer to the company's SEC filings for a full discussion of the company's risk factors. The company does not undertake any duty to update such forward-looking statements. On today's call, we will also be discussing certain non-GAAP financial measures. These non-GAAP measures are described and reconciled to their GAAP counterparts in our earnings release, which is available on our website at oldsecond.com on the home page under the Investor Relations tab. Now I will turn it over to Jim Eccher. James Eccher: Good morning, and thank you for joining us, and thanks for your patience as we worked through some technical difficulties there. I have several prepared opening remarks. Give you my overview of the quarter and then turn it over to Brad for additional details. We will then conclude with summary comments and thoughts about the future before we open it up to Q&A. From a GAAP perspective, net income was $28.8 million or $0.54 per diluted share in the fourth quarter, and ROA was 1.64%. Fourth quarter 2025 return on average tangible common equity was 16.15% and the tax equivalent efficiency ratio was 53.98%. Fourth quarter earnings were impacted by a couple of material adjusting items, the first being a $428,000 pretax loss on mortgage servicing rights and a $2.5 million in pretax acquisition-related expenses driven by $1.5 million of computer and data processing related to the core systems conversion, as well as systems related to acquired operations. Excluding those two items, net income for the fourth quarter was $30.8 million or $0.58 per diluted share. Tangible book value per share increased 61 basis points to $14.12. The tangible equity ratio increased 61 basis points from last quarter from 10.41% to 11.02% and is 98 basis points higher than the like period 1 year ago. Common equity Tier 1 was 12.99% in the fourth quarter, increasing from 12.44% last quarter and increasing 17 basis points from 1 year ago. Our financials continue to reflect an exceptionally strong net interest margin at 5.09% for the fourth quarter, which is a 4 basis point improvement from last quarter and 41 basis point increase over the prior year like quarter on a tax-equivalent basis. Pre-provision net revenues decreased from both interest-earning deposits and securities, balance declines, coupled with a decline in rates. The total cost of deposits was 115 basis points for the fourth quarter compared to 133 basis points for the prior linked quarter and 89 basis points from the fourth quarter of 2024. For the fourth quarter 2025 compared to last quarter, tax equivalent income on average earning assets decreased $1.8 million, while interest expense on average interest-bearing liabilities decreased $2 million. Loan-to-deposit ratio now sits at 93.9% as of year-end compared to 91.4% last quarter and 83.5% as of 12/31, 2024. The fourth quarter 2025 experienced a slight increase in total loans -- excuse me, a slight decrease in total loans of $12.4 million from last quarter. Tax equivalent loan yields declined 11 basis points during the fourth quarter of 2025 compared to the linked quarter, but reflected a 48 basis point increase for the quarter year-over-year. The decrease in yield comparison to the prior quarter is primarily a function of Fed rate cuts working through the portfolio. Asset quality trends were relatively unchanged. Nonperforming loans increased $4.8 million and classified assets increased by $10 million. In general, our collateral position is very good on Q4 downgrade credits. We recorded a $6 million of net loan charge-offs in the fourth quarter of 2025 with the majority, where 75% of those stemming from the Powersport portfolio and commercial real estate owner occupied. With regards to Powersports, I would say that losses given default are running a bit higher than we expected. However, yields in that portfolio are much higher than expected, and the contribution margin is both above expectations and improving. Due to the nature of Powersport business, gross charge-offs are anticipated to run at a higher rate than Old Second has historically experienced, especially in a higher interest rate environment. This is the nature of what is a very good business. Investors should know that the contribution margin is now at a multiyear high in this business, and we're very bullish on our 2026 performance. The allowance for credit losses on loans was $72.3 million, as of December 31, 2025, or 1.38% of total loans from $75 million at September 30, 2025, which was 1.43% of total loans. Unemployment and GDP forecasts used in future loss rate assumptions remained fairly static from last quarter with no material changes in the unemployment assumptions on the upper end of the range based on recent Fed projections. The impact of the global tariff volatility continues to be considered within our modeling. Provision levels quarter-over-linked quarter, exclusive of day 2 purchase accounting impacts decreased $3 million and were largely driven by the Powersport portfolio, net charge-off levels with other losses associated with the previously allocated provisions. Noninterest income reflected a slight decrease in the fourth quarter compared to the prior quarter, but continue to perform well compared to the prior year like quarter. Noninterest income in the third quarter of 2025 reflected a $430 death benefits on a BOLI policy which was not experienced in the fourth quarter of 2025. Mortgage banking income was flat compared to the linked quarter and declined $668,000 compared to the like prior year period, primarily due to the volatility of mortgage servicing rights mark-to-market valuations. Excluding the impact of mortgage servicing right mark-to-market adjustments, mortgage banking income increased nominally quarter over linked quarter and from the prior year like period. Other income decreased nominally in the fourth quarter of 2025 compared to the prior linked quarter, but increased $550,000 compared to the prior year like quarter driven largely by Powersports service fees. Noninterest income increased $544,000 compared to the prior year like quarter as wealth management fees increased $238,000 or 7.2% and service charges on deposits increased $198,000 or 7.5%. Total noninterest expenses for the fourth quarter of 2025 declined $10.2 million from the prior linked quarter. Fourth quarter experienced a decrease of $9.3 million in acquisition-related costs. Our efficiency ratio continues to be excellent and the tax equivalent efficiency ratio adjusted to exclude core deposit intangibles, amortization, OREO costs and the adjustments to net income, as noted earlier, was 51.28% for the fourth quarter compared to 52.1% for the third quarter 2025. So our focus continues to be on the optimization of the balance sheet to perform and withstand the variability of the current and future interest rates. We continue to reduce reliance on wholesale funding as we allow the legacy Evergreen Bank broker CDs to run off and reprice higher cost deposits in the falling interest rate environment. With that, I'll turn it over to Brad for additional color. Bradley Adams: Thanks, Jim. I don't have a ton to talk about today. I would say that we're pretty darn excited to close the year like this. Running at a north of a 5% margin and ROA handsomely above 1.5% and ROTCE above 17.5% on an operating basis is pretty exceptional performance that we're proud of. EPS, some 30% over last year. Integration fully done. Integration at the end of last year as well. That's a lot of work. And to close the year like that, this is especially gratifying. This quarter is not a lot of complexity to it. Most of the stuff that we talked about last quarter is still true. So I'll be relatively brief. Net interest income increased nominally this quarter relative to last quarter both around the $83 million level. Loan yields decreased about 11 basis points and securities yields decreased a bit more at 14 basis points. Total yield on interest-earning assets decreased 8 basis points over the linked quarter. Cost of interest-bearing deposits decreased more at 24 basis points, and total interest-bearing liabilities decreased 15 basis points. The end result was a 4 basis point improvement in the tax equivalent NIM, which is obviously pretty awesome. Tax equivalent NIM for the fourth quarter of 2025 increased 41 basis points from 4.68% for the period last year. Average loans increased $60 million or $1.2 million over linked quarter with average deposits declining $200 million, a level we expected. Deposit runoff is largely concentrated in high beta effectively wholesale deposit captions as planned. Loan origination activity in the fourth quarter, you may not know, was actually very good and activity remains robust. Certainly, the market environment, marginal spreads is far more favorable than it was in the first half of the year and certainly at this time last year. Payoffs, especially in the participation book have resulted in relatively flat balance sheet growth in the fourth quarter. This is interesting. Balances in the CRE loan participations acquired with West Suburban declined by $53 million in the fourth quarter of this year, the largest quarter runoff that we have seen to date in that portfolio. This was a significant headwind to growing the balance sheet this quarter. Organic activity remains exceptionally strong. Other than that, everything I said last quarter remains true to the best of my knowledge. Balance sheet is exceptionally well positioned and margin trends feel stable. We may tick down modestly in the first quarter, but I expect to still be above 5%. Loan growth being targeted in the mid-single-digit level for next year. Expense growth will be modest. Pre-inflationary trends in employee benefits and salaries are going to be moderated by the realization of the cost saves associated with Evergreen. Buyback is on the table that we haven't done anything this quarter. It's becoming inevitable. I don't have anything to add about the tax rate other than it was really high this quarter. Please don't ask me about that. There isn't a lot of complicated stuff to go over beyond that. So I'll turn the call back over to Jim. James Eccher: Okay. Thanks, Brad. In closing, we're very proud of the year we just concluded, and we believe the level of performance is reflective of the strength of the bank we are building. We're optimistic about next year or this year and all the opportunities that are in front of Old Second. I would like to thank our team for their hard work and execution in 2025, including integrations and systems conversions and upgrades that have made us a much better Old Second. I could not be more excited about the things we can accomplish next year. That concludes our prepared comments this morning. So I'll turn it over to the moderator, and we can open it up to questions. Operator: [Operator Instructions] Our first question for today is from Jeff Rulis with D.A. Davidson. Jeff Rulis: On the expense side, I just wanted to see if those cost savings, Brad, I could tell you, are those fully captured? Or was that -- is there a tailwind to '26 that leads to that muted expense growth from your perspective? Bradley Adams: There's a tailwind to '26. Employee benefits are up -- are expected to be up solidly in the double digits next year just with inflationary trends that we're seeing in health insurance. We've done a lot of things to restructure to keep those costs contained. But we've got a couple of branch closings that are scheduled and some other expense initiatives. All in all, it's going to look like we're just kind of doing a good job, not as good as flat, but not as bad as it would be just on a pure apples-to-apples basis. So it kind of feels like a 3% type level as we get those final cost saves run through. Jeff Rulis: Got you. And then on the credit front, Jim, I guess the charge-off from the Powersports, and you really outlined that clearly very profitable on the margin front. Just wanted to see on the net charge-off pace. I think we talked about kind of 30 basis point level, a little higher. Is anything that front-end loaded? Or could we expect kind of 30-40 going forward? And then secondly, on the credit side, is that 30- to 89-day bucket, a little bit of an increase? Anything to note on that balance? James Eccher: Yes, good question. I think we need to be accustomed to a little bit higher net charge-off rate due to Powersports. That's just the nature of that business. I think if you look at the $6 million in charge-offs, $4.5 million was Powersport related, so only $1.5 million in the legacy book, which is more in line with our historical trends. But given that, we're in a higher interest rate environment, we expect Powersports to have maybe elevated charge-offs in the next couple of quarters. And I think we have to look at that hand-in-hand with the contribution margin, which I mentioned was at a multiyear high. So obviously, that's flowing through the margin and profitability. As it relates to 3089, we had a couple of larger loans that were just past maturity. We had a couple of loans that obviously migrated into nonaccrual that we're working through. One has a very low loan to value. The other is a mixed-use property in Chicago that has been very slow to lease up and it's going to take another couple of quarters to work through that one. Operator: Your next question for today is from Nathan Race with Piper Sandler. Adam Kroll: This is Adam Kroll on for Nathan Race. So maybe just a question for Brad on the margin. I was curious if you could kind of frame out expectations for the first quarter with the full quarter impact of the December rate cut and just your overall positioning if we were to get another cut or two in the middle part of the year and just where you think the NIM can settle out over the longer term? Bradley Adams: I'd be very surprised if we're not around the 5% level for the full year 2027. I was my machine there. 2027, I have no comment on at this point. Adam Kroll: And I was just curious if you have the purchase accounting accretion number for the quarter? Bradley Adams: It's a few hundred thousand. I've talked about that before. It's down substantially from last quarter. The thing that I would really like people to focus on is that the amount of purchase accounting that we have in our numbers this year in aggregate is less than the amount of purchase accounting that we're getting off the solar loan book. It's nothing. I think there was $150,000. It's not something that I really think is material to anyone's understanding of Volt Second at this point. It was down substantially linked quarter. But the thing to keep in mind here is that the purchase accounting impact on the Powersports portfolio is negative for the next 2 years. So the go-forward business is better than what you're trying to isolate as the unrepeatable portion in the current periods. It's actually a tailwind going forward relative to a headwind. Adam Kroll: Got it. No, that's super helpful. And then maybe just moving to deposits. You've called out letting exception price deposits run off from the acquisition. So I guess I'm curious how much is remaining of those deposits and if you're seeing opportunities to reduce deposit costs on your legacy nonmaturity deposits? Bradley Adams: We talked about this last quarter. The thing to remember is that fixing and returning to an old second like funding profile is a multistage process. Some of it we did prior to bringing on the Evergreen balance sheet and some of it we'll do after. We probably need to replace $300 million to $400 million in deposits with our type of funding in order to complete the process. In terms of the amount of wholesale funding, effective wholesale funding that's on the balance sheet right now, that's part of the reason why the margin is so darn resilient at this point because we do have substantially more funding that benefits from falling rates than we typically otherwise would have. So it's not necessarily a bad thing to focus on, at least at this stage. It's not what I want over the long term. But right now, it's actually a benefit. I would say just the number to keep in mind is that I would like to look $300 million to $400 million different on the liability side. Adam Kroll: Got it. And then maybe just last one for me. Digging into the mid-single-digit loan growth, [ Gary ], I was curious what your expectations are for growth in the Powersports vertical specifically? Unknown Executive: Slightly less than that would be my expectation. Operator: [Operator Instructions] Your next question for today is from Terry McEvoy with Stephens. Terence McEvoy: Maybe could you just remind us of the profile of a typical Powersport borrower? And I ask, I'm just curious, where do they line up in this K-shaped economy? And is there typically -- has there typically been some seasonality in terms of the charge-offs within that portfolio? James Eccher: Sure. Terry. Darin, if you're there and on, do you want to take that one? Darin Campbell: Yes, I can do that. Yes, Terry, the average FICO score for our portfolio in the Powersports and 730 with the biggest percentage of that in your Tier 1 bucket, which has an average FICO score of 776. But from a seasonality perspective, Terry, our busy season starts March 1 through -- it's really the second and the third quarter from an origination perspective where you have most of your business. And you -- from a risk perspective from either delinquency and losses, you have more of that in the other 2 quarters, especially at year-end, like I say, when we compete with Santa Claus at year-end, the numbers elevate a little bit and then stabilize out again as you get into the second quarter. But it's been -- I've been, Terry, I've been doing it for 30 years, and it's been pretty consistent trends for 30 straight years in this portfolio. Terence McEvoy: Great. And then as a follow-up, Brad, just capital management. I think you said share repurchase inevitable. I look back the stock is up 20% from 3 months ago. So the stock is higher. Is that just a comment on where your capital levels are? Or should I read into maybe the M&A market and what you see happening in '26? Bradley Adams: No. M&A market feels good. There's no shortage of discussions happening. The question is what's the right deal for Old Second at the right time and how much capital do we need to do that. Clearly, I got it wrong in that we were basically running a big Christmas plus savings account in order to acquire the capital for an acquisition, and we needed a fraction of what we had saved up. So it's just a function of what we need versus what we have. Obviously, we generated a ton of capital. And I'm not uncomfortable where we are. I just don't really see a need to grow it much from here is the thing. Operator: Your next question is from Brian Martin with Janney. Brian Martin: Can you talk a little bit, Brad, about -- or Jim, you talked about the production being exceptional this quarter versus kind of the payoffs and then the piece from the West Suburban that was running off. Just maybe how much ran off in that West suburban and then how much is left there that may be a headwind going forward. But then just trying to get your take on this kind of mid-single-digit loan growth, but kind of the production being better kind of it's been in a long time. James Eccher: Yes, Brian. The fourth quarter actually, surprisingly, was our best production quarter of the year. And normally, that's a softer quarter along with the first quarter, but it was exceptionally strong along multiple verticals. The challenge, as Brad pointed out, we had some pretty big paydowns. Some of it was welcomed in the syndication portfolio, but we also had early payoffs in multifamily and commercial real estate, a lot of it is stemming from property sales. What I think we get encouraged is the pipeline today or as of the end of the year is the highest it's been in probably 6 to 7 quarters. So that gives us a lot of optimism that we're going to have a pretty good first half of the year in '26. And I think mid-single-digit growth is certainly achievable this year. Brian Martin: Got you. And how big is that -- where is that the syndication book today? How far is that down? And maybe how much more to go there? Is that a headwind going forward? James Eccher: It's -- well, when we -- at the start of -- at the end of 2021, which is when we closed on West Suburban. We had about $772 million in commitments. We've had that as of the end of 2025. From a balance perspective, we got about $285 million left. I would anticipate 1/3 of that will continue to run off, and we'll probably keep the remainder. Bradley Adams: I would tell you that those numbers that Jim is referencing are inclusive of some additions related to Evergreen. So what you're really talking about over a 5-year period is almost an 80% reduction in that loan book. Brian Martin: Yes. Got you. Okay. And Brad, I think you mentioned the stability in the margin, just maybe being down potentially a bit in 1Q. I guess is that -- I guess what's the -- I guess, the modest headwind here in 1Q? And just in terms of that -- the balance sheet, the runoff that you expect, it sounds like there's still a couple of hundred million of exception-based brokered CDs that, like you said, is benefiting now, but that's going to continue to run off. That's what's left to go in terms of what... Bradley Adams: I'm just being really pessimistic, man, because the reality is that the biggest headwind to the margin is probably going to be deciding to buy treasuries, especially if people keep making noise about invading countries that are largely ICE. So the more we see moves like that, I would be comfortable adding assets that largely don't offer, obviously, a 5% spread. So it's just a function of that. I also just don't want to go on here and say that, hey, the margin is going to go up from 5.09. I'm not going to say that. So I'm the biggest headwind, Brian, me personally. Brian Martin: Got you. Okay. And Jim, just going to the criticized or classified for a minute. I guess classifieds are up a little bit. I guess the -- how do you see those trends going forward? And then do you have -- how are the special mention trends? I don't know that you mentioned that, but -- or if you quantify those, were those up or down in the quarter? James Eccher: Yes. We classified, certainly, we had a lot of migration in and migration out. I think where we're seeing a little bit of degradation of that portfolio is in the C&I book and companies just showing weaker performance. By and large, collateral positions are pretty good. We're not seeing a whole lot of loss given default at this point. But it's going to take some time to work through this. I think the positive news from our perspective is the net change in special mention or watch loans was down materially. We had, I think, only a couple of loans migrate in, and we had over $15 million in reduction in that bucket. So those are early-stage indicators for us. So that should help us moving forward. Brian Martin: So the special mention were down on a linked quarter basis? Or did I hear that wrong? James Eccher: Yes, down $15 million in the quarter. Brian Martin: Down $15 million. Okay. Perfect. And the last 1 or 2 for me, and I'll jump off was the -- Brad, you mentioned on the expenses, just to clarify that, your comment, the 3% -- you were talking about 3% growth year-over-year in expenses. So 25% expenses to 263 -- or were you talking about something else there in terms of your comments? Bradley Adams: No, that's what I'm talking about. Brian Martin: Yes. Okay. And then just on the buyback, your general comments are we expected -- can you give any sense on how you're thinking about the buyback, Brad? Or is it just you expect to begin that this quarter and based on pricing, that will be opportunistic? Bradley Adams: I expect it will begin in relatively short order, yes. I'm not price sensitive at this point. Brian Martin: Got you. Okay. And the M&A environment, you said it's good with lots of discussions. What is kind of the optimal target today look like for Old Second if you are looking at M&A? I mean the last one was obviously asset driven Bradley Adams: I'm not sure how much that I can be helpful on an answer there because I can tell you that I wouldn't have described Evergreen, if you'd asked me that 18 months ago. So I think the only thing that investors can be certain of is that, we're not going to do anything unless it makes us a better bank, and that's what we're focused on. James Eccher: Yes. Brian, I would say our priority this year is really fully integrating Evergreen, which we're about there, but really focusing on organically growing the balance sheet and optimizing it. That would be priority one. Brian Martin: Yes. That's what I was getting at. I felt like it was more if there was M&A, it was likely more on the deposit side rather than the... James Eccher: We'll be opportunistic, but it's certainly not in the near term for us. Operator: We have reached the end of the question-and-answer session. And I will now turn the call over to Jim Eccher for closing remarks. James Eccher: Okay. Thanks, everyone, for joining us this morning. Again, I apologize for the technical difficulties. We look forward to speaking with you again next quarter. Goodbye. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Faten Freiha: Good morning. This is Faten Freiha, VP of Investor Relations. Thank you for joining today's fourth quarter earnings call. To accompany this call, we posted a set of slides on our IR website, ir.mccormick.com. With me this morning are Brendan M. Foley, Chairman, President and CEO, and Marcos Gabriel, Executive Vice President and CFO. During this call, we will refer to certain non-GAAP financial measures. The nature of those non-GAAP financial measures and the related reconciliations to the GAAP results are included in this morning's press release and slides. In our comments, certain percentages are rounded. Please refer to our presentation for complete information. Today's presentation contains projections and other forward-looking statements. Actual results could differ materially from those projected. The company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or other factors. Please refer to our forward-looking statement on slide two for more information. I will now turn the discussion over to Brendan. Brendan M. Foley: Good morning, everyone, and thank you for joining us. McCormick & Company, Incorporated's performance in 2025 demonstrated the strength and resilience of our business. We delivered differentiated volume-led organic growth and share gains, powered by sustained momentum from investing in our brands, expanding distribution, and driving innovation across our business. We achieved solid profitability gains in the first half of the year. However, rising costs in the second half related to the dynamic global trade environment pressured gross margins. Despite these headwinds, our disciplined cost management and efficiency initiatives kept us on track. As a result, we realized operating income growth and margin expansion for the full year, all while continuing to invest to drive future growth. We are executing with focus and discipline on what we can control and staying agile as we navigate external challenges. Our strategy continues to position McCormick & Company, Incorporated for sustainable long-term value creation. Turning now to our results on slide four. In the fourth quarter, total organic sales increased by 2%, supported by growth in both consumer and flavor solutions. In global consumer, organic sales growth was driven by volume, which grew for the seventh consecutive quarter, as well as price contributions. In The Americas region, we delivered volume growth even as pricing actions took effect, with elasticities coming in broadly in line with our expectations. Volume performance in EMEA remained solid with continued benefits from price. In Asia Pacific, organic growth was supported by strong continued momentum in Australia and our China retail business. Importantly, we achieved the gradual full-year recovery in China consumer for the year as planned. Moving to flavor solutions. Volumes declined for the global segment. Our performance was impacted by customers' reset of inventory levels in Latin America, which we expect to be behind us in 2026. Volumes across the rest of the business were roughly flat and reflected softness in large CPG and branded food service customer volumes. These headwinds were mostly offset with growth from high-growth innovators, private label customers, and QSRs across The Americas and Asia Pacific. Turning to profitability. Fourth quarter gross margin was pressured by higher-than-expected inflation across our diverse basket of commodities, and we recognized more tariff costs than previously planned. It's important to note that pricing actions and CCI-driven productivity savings were delivered as planned. In addition, as expected, we continued to invest in the business, advancing our supply chain capabilities, innovation, and growth platforms. These investments continue to strengthen our foundation and reinforce our resilience, positioning us well for long-term success. Let's move to slide five. And let me highlight for the quarter some of the key areas of success. Across the global consumer segment, we have held or improved share across many core categories in key markets for the last six quarters. McCormick branded volume consumption growth continues to outpace the broader edible category in The US. In EMEA, unit and dollar consumption continue to outpace branded and private label fast-moving consumer goods or FMCG food. Let me provide some additional color starting with spices and seasonings. We drove strong volume growth across all the regions. In The US, we implemented pricing actions due to increased cost inflation. Elasticities as well as share performance were broadly in line with our expectations. Our performance in The US was supported by innovation, most notably with our newest lineup of holiday finishing sugars as well as growth in Gourmet Garden, our fresh convenience line. Importantly, our renovated McCormick Gourmet collection, highlighted by its countertop-worthy packaging, is now on shelf. As we transition the vast majority of the portfolio, velocities so far have exceeded our expectations. We anticipate continuing to benefit from this renovation in 2026. In Canada, we continue to grow overall share in dollars, units, and volume. In France and Poland, unit share growth in spices and seasonings are contributing meaningfully to EMEA's gains. Moving to recipe mixes. Performance in EMEA is strengthening. We drove unit and dollar share gains this past quarter as we expanded distribution with new customer wins in The UK. In hot sauce, we are achieving good results. In The US, for the fourth consecutive quarter, we continue to drive unit share gains fueled by investments in brand marketing and innovation. We continue to improve total distribution points or TDPs. In The Americas, we expanded TDPs with spices and seasonings driving the majority of the growth. Across our business, we continue to gain distribution in high-growth unmeasured channels like e-commerce, and we are expanding into social commerce in The US, a channel with significant growth opportunity. In flavor solutions, we continue to see strength in our technically insulated high-margin product category flavors. In flavors in The Americas, we are expanding and diversifying our customer base by winning both high-growth innovators and private label customers. We're also seeing strong momentum in reformulation projects with larger customers and outperforming the industry across key categories, including beverages and better-for-you snack seasonings. Turning to QSRs. In The Americas, QSR volume performance remained strong, driven by continued innovation. In the Asia Pacific region, specifically in China and Southeast Asia, our customers' new products and promotions continue to drive strong volume growth. In EMEA, QSR volume performance continues to stabilize. Let me now touch on some areas where we are seeing pressure. Starting with global consumer. In recipe mixes, our base business remains strong with continued consumer loyalty and growth across many product lines. Competitive activity in The US, particularly within the Mexican flavor category, tempered overall share performance. We expect these trends to gradually improve as we launch new innovation, expand distribution, and continue to build momentum behind our authentic Mexican brands like Cholula, supported by strong brand marketing investments. In mustard, where we have performed well for the majority of the year, in the fourth quarter, the category declined in dollars and units in The US. French's mustard trailed the category, and share performance was impacted by the timing of certain promotions, which we expect to normalize as we continue to execute on our plans in 2026. These include continued focus on innovation, increased brand marketing investments, expanding distribution, as well as strategic partnerships. Outside of The US and Canada, we continue to drive dollar and unit share gains in mustard for the fifth consecutive quarter. In EMEA, most notably in Poland, we drove unit and dollar share gains in mustard for the last three quarters. Moving to flavor solutions. In flavors, in The Americas and EMEA, some of our large CPG customers continue to experience softness in volumes within their own businesses. We expect these trends to stabilize as we continue to work with our customers on product innovation, as well as win new customers. In branded food service, foot traffic remains soft, which is impacting customer volumes. We continue to see growth in certain channels, particularly with non-commercial customers. This includes places of employment, hospitals, and colleges and universities. Now that we have covered the quarter, I would like to reflect on our performance for the fiscal year on Slide six. When we set our goals for 2025 last January, market conditions were very different. Although the external environment proved more challenging than anticipated, particularly with respect to cost pressures, we achieved many of our objectives, especially on the top line, and continue to strengthen the fundamentals of our business. I am proud of the results our teams delivered and the discipline with which we executed, even as the external landscape evolved. While we achieved our top line goals, our bottom line came under pressure. Inflation, commodity cost volatility, and the macro environment created incremental costs that impacted our margins. Despite this, we made deliberate choices to continue investing in our brands, capabilities, and people. Decisions that strengthen our long-term competitiveness and position us well for sustained growth. Our focus remains clear: sustaining our strong top line, strengthening profitability, delivering strong cash flow, investing in growth, funding shareholder returns through dividends, and further strengthening our balance sheet to position McCormick & Company, Incorporated for long-term success. A few highlights for the year. We delivered sales growth at the midpoint of our constant currency guidance, driven by positive volume. Our consumer segment delivered another year of industry-leading volume-led growth, up 2% for 2025, as we continue to expand and win in high-growth channels where consumers are increasingly shopping. Our flavor solutions segment continues to show resilience despite soft industry trends, reflecting the strength of our capabilities and customer partnerships. We continue to prioritize investment in our business while driving margin improvement, particularly in flavor solutions, where we made meaningful progress in expanding operating margins despite a challenging cost environment. We generated strong cash from operations and continued to delever, reducing our leverage ratio while also continuing to fund our growing dividends and capital investments. In terms of M&A, we further strengthened our global flavor leadership with the acquisition of a controlling interest in our long-standing joint venture, Pacoemer de Mexico. Lastly, at the end of 2025, our board of directors authorized a 7% increase in the quarterly dividend, marking the 102nd year of continuous dividend payments and 40 years of consecutive annual increases. This reinforces our recognition as a dividend aristocrat and reflects our long-standing commitment to returning cash to shareholders. Our performance reflects McCormick & Company, Incorporated's strength, resilience, and solid foundation. Beginning in 2024, we set a clear path for volume growth and have now delivered two years of consistent results. With our strong brands, effective strategies, and continued investment, we remain positioned to deliver sustainable growth and profitability. We have built momentum, and we intend to carry that forward into 2026. On slide seven, let me now share our current view on the state of the consumer and considerations for 2026. The environment across our key markets is marked by volatility and continued pressure from inflation, geopolitical and trade uncertainty, and the threat of rising unemployment. Overall consumer confidence remains low. Consumers, especially low to middle-income households, continue to make more frequent trips to the store while purchasing fewer units per trip, a trend that was evident at the start of the year and accelerated through the fourth quarter. In addition, consumers continue to stretch meals across multiple occasions and seek affordable ways to prepare fresh home-cooked meals. The consumer continues to show resilience by increasing their demand for value and behaviors that enable them to stretch their budget. These behaviors reinforce the importance of flavor in everyday cooking, with herbs and spices continuing to lead center store unit consumption. Health and wellness trends continue to gain momentum. Consumers are preparing healthier, more affordable meals at home while exploring new flavors and culinary creativity. Perimeter and scratch cooking categories are outperforming, while high-carb and high-sugar foods along with alcohol are declining. High-protein and better-for-you claims are driving purchase trends across retail and food service. In addition, convenience paired with flavor exploration remains an area where consumers are willing to pay more. E-commerce continues to accelerate, and social commerce is also reshaping how consumers discover and buy packaged goods, fueling momentum for emerging brands. The convergence of these enduring trends—health and wellness, affordability, flavor exploration, and convenience—underscores McCormick & Company, Incorporated's advantaged position in the marketplace. Our consumer portfolio meets consumer demand for home cooking and healthier meal preparation. At the same time, our flavor solutions business partners with large and emerging brand customers to deliver innovation and reformulation aligned with the same trends. We are winning across the food industry, from small emerging brands to large established players. And our success is not defined by any single segment or product category. Notably, recently issued USDA dietary guidelines for Americans again promoted herbs and spices as well as natural flavors as a healthy way to flavor nutrient-dense food, including proteins, vegetables, fruits, and healthy fats, to make them more appealing, further supporting the importance of our product categories. In terms of tariffs, recent reductions are a positive step from a cost standpoint. However, approximately 50% of the incremental tariffs on McCormick & Company, Incorporated items remain in place, and we continue to face related inflationary pressures. Our pricing actions have been surgical. We took pricing actions to offset inflation, but we have not fully passed through tariff costs, and we remain focused on partnering with our customers to meet consumers' demand for value, flavor, and quality. We are navigating inflationary pressures with strategies designed to best meet the needs of the consumer and maximize category growth. Our focus on the long-term health of the business, innovation, and execution continues to position McCormick & Company, Incorporated for sustained success in a dynamic marketplace. Before reviewing our growth plans, I'd like to briefly discuss our outlook. In 2026, our results are expected to benefit meaningfully from the McCormick de Mexico acquisition, which is driving significant contributions to both the top line and operating income. Additionally, the transaction is accretive to earnings per share. However, year-over-year earnings per share growth is reduced by the elimination of the 25% minority interest in McCormick de Mexico net income attributable to Grupo Herdes and several below-the-line items that are unfavorable relative to 2025, including a higher tax rate and increased interest expense. In our base business, we continue to drive underlying profitable growth through our strong execution. That said, we anticipate incremental costs associated with elevated inflation, including tariffs, continued digital investments, most notably related to our ongoing ERP implementation, along with the rebuilding of incentive compensation from 2025 to impact our profitability. We are partially offsetting these pressures through cost reduction efforts focused on restoring gross margin performance and enhancing overall productivity. These efforts are supported by our CCI programs, including SG&A streamlining. Importantly, our outlook for 2026 and beyond remains firmly supported by our proven strategies and disciplined execution of our growth plans. As we look beyond 2026, we expect the incremental costs impacting the year to remain on our base. Through our enhanced CCI programs and disciplined SG&A streamlining, we are well-positioned to manage these costs, maintain investment in growth, and deliver sustained profitability consistent with our long-term algorithm. As outlined on slide eight, our growth levers remain consistent: to drive growth through category management, brand marketing, innovation, proprietary technologies, and our differentiated customer engagement. These levers are supported and enhanced through data and analytics as we continue to accelerate our digital transformation. The strength of our base business continues across major markets and core categories. We have a number of initiatives in flight that will continue to support our performance for 2026 and beyond. We plan to address the details of our plans at CAGNY in February. To provide some perspective relative to 2025, we expect our consumer business to continue delivering volume growth, supported by higher pricing compared to last year. We expect distribution growth, accelerated innovation, and renovation across the portfolio, and increased brand marketing investments to drive higher purchase interest and velocity and support volume performance across our core categories. Importantly, we remain at the forefront of evolving consumer trends, delivering on the demand for flavor exploration, health and wellness, convenience, and value, while expanding our presence in high-growth channels where consumers are increasingly shopping. In flavor solutions, we anticipate stronger performance as we lap a challenging 2025 in terms of customer volumes. In flavors, our customer pipeline is very healthy across our customer segments. It has doubled relative to the prior year. We are leveraging expertise in regulatory, R&D, and product development to help customers navigate evolving regulations and meet growing health and wellness demands with innovation. And finally, in branded food service, we expect a gradual improvement as traffic trends improve. To wrap up, we remain confident in the long-term health of our business, our fundamentals, and in delivering on our plans to continue to drive industry-leading differentiated performance, supported by our broad and advantaged global portfolio anchored in high-growth categories that reinforce the strength and resilience of our business. Now before I turn it over to Marcos, I would like to comment on some recent changes to our board of directors. Maritza Montiel and Tony Vernon, who have each served as directors over the past decade, will be retiring from the board as of our annual shareholder meeting this April. I am grateful for their exceptional service and many contributions, which have significantly benefited McCormick & Company, Incorporated. We will miss them both. At the same time, I would like to welcome two new members to our board, Rick Dierker, President and CEO of Church and Dwight, and Gavin Hattersley, former President and CEO of Molson Coors. Both Rick and Gavin bring deep experience in the global consumer product industry, and I look forward to working with them and to the contributions they will bring to McCormick & Company, Incorporated. Now over to Marcos. Marcos Gabriel: Thank you, Brendan, and good morning, everyone. Let's start on slide 10 and review our top-line results for the quarter. Total organic sales grew 2% for the fourth quarter, driven by growth in both consumer and flavor solutions. Moving to our consumer segment on slide 11. Organic sales increased 3%, driven by price and volume. Our continued volume growth for the last seven quarters underscores our differentiation and ability to drive growth even in a consumer backdrop that remains challenging. Consumer organic sales in The Americas grew 3%, with 1% volume growth and 2% pricing. Pricing reflects the cost inflation-related pricing we implemented in September. Despite these pricing actions, volume growth was strong across core categories. The impact of elasticities overall was broadly in line with our expectations and is informing our plans for 2026. In EMEA, we grew consumer organic sales 3%, driven by a 1% increase in volume and a 2% contribution from pricing related to targeted actions taken as a result of increased commodity costs. We're pleased with the sustained volume growth for the eighth consecutive quarter in EMEA. Consumer organic sales in the Asia Pacific region increased by 2%. The increase was driven primarily by volume growth, as our growth in China was in line with our expectations. In addition, we delivered strong results outside of China, primarily in Australia. Turning to slide 12. Fourth quarter organic sales rose 1%, driven by a price contribution of 2%, partially offset by a volume decline of approximately 1%. In The Americas, flavor solutions organic sales increased 1%, reflecting a 3% price contribution partially offset by a 2% volume decline. Volumes for the quarter were impacted by the reset of some of our customers' inventory levels in Latin America, which we expect to be behind us in 2026. Underlying volume performance was flat, reflecting continuous softness in large CPG customers' volumes as well as softer foot traffic in branded food service, offset by growth with high-growth innovator and private label customers. In EMEA, organic sales decreased by 3%, including 2% from price and a 1% impact of lower volume, reflecting soft CPG customers' volumes. We're pleased to see that volumes remain stable in EMEA relative to recent trends. In the Asia Pacific region, flavor solutions organic sales increased 3%, with volume growth of 5% driven by QSR customer promotions and limited-time offers, partially offset by a price of 2%. Moving to slide 13. Adjusted gross profit margin declined 120 basis points in the fourth quarter due to higher commodity costs, tariffs, and costs to support increased capacity for future growth, partially offset by savings from our comprehensive continuous improvement program or CCI. Relative to our expectations, changes in tariff rules within the year contributed to higher-than-expected overall cost inflation in our broad basket of commodities. In addition, we recognized more tariffs in our cost of sales than previously planned. For the year, gross margin was down 60 basis points, reflecting the pressure from rising commodity costs and tariffs. As we look ahead, we expect to recover this margin compression in 2026. Selling, general, and administrative expenses or SG&A decreased 120 basis points relative to the fourth quarter of last year, driven by lower employee-related benefits expenses as well as CCI savings, including our SG&A streamlining initiatives, partially offset by increasing investments in brand marketing and technology. For the fiscal year, SG&A improved by 70 basis points compared to 2024. For the quarter, adjusted operating income increased by 3%, or 2% in constant currency. This increase was driven by improved SG&A, partially offset by gross margin and increased investments to drive growth. For the total company, we grew fiscal year 2025 adjusted operating income by 2%, or 3% in constant currency, and expanded adjusted operating margins by 10 basis points. Our performance in 2025 demonstrates our commitment to delivering healthy top-line growth and our agility in managing costs across the P&L to protect our profitability and to enable us to invest in growth. Our fourth quarter adjusted effective tax rate was 23.9%, compared to 25.4% in the prior year, as expected. For the full year, our adjusted tax rate was 21.5% compared to 20.5% in the prior year, driven by a greater level of favorable discrete tax items in the prior year. Our income from unconsolidated operations in the fourth quarter was flat, as expected. For the fiscal year, unconsolidated income decreased 3% as strong operational performance from McCormick de Mexico was more than offset by the unfavorable impact of foreign exchange rates. Turning to segment operational results on Slide 14. Adjusted operating income in the Consumer segment increased 1% for the fourth quarter, with minimal impact from currency. The increase was driven by sales growth and improved SG&A, partially offset by increased tariffs and commodity costs. For the year, adjusted operating income in the consumer segment declined by 1%, with minimal impact from currency. The decline in the consumer segment was driven by increased commodity costs and tariffs, which impacted the segment's gross margin, as well as continued growth investments. This was partially offset by improved SG&A driven by CCI and SG&A streamlining initiatives. In flavor solutions, adjusted operating income in the fourth quarter increased by 7%, or 6% in constant currency. For the fiscal year, flavor solutions operating income grew 9%, or 11% in constant currency, and operating margin expanded by 90 basis points, reflecting our continued focus on improving flavor solutions profitability. At the bottom line, as shown on slide 15, fourth quarter 2025 adjusted earnings per share was 86¢, an increase of 7% compared to the year-ago period, driven by increased adjusted operating income, improved interest expenses as we pay down debt, and a favorable tax rate. For the full year, adjusted earnings per share was $3, reflecting an increase of 2%, driven primarily by growth in adjusted operating income. On slide 16, we've summarized highlights for cash flow and balance sheet. We delivered another year of strong cash flow from operations, of $962 million. We returned $483 million of cash to shareholders through dividends and used $122 million for capital expenditures. Capital expenditures for the year were slightly below our plans due to the phasing of certain initiatives. Our investments include projects to increase capacity and capabilities to meet growing demand, advance our digital transformation, and optimize our cost structure. Our priority remains to have a balanced use of cash. This means funding investments to drive growth, returning a significant portion of cash to shareholders through dividends, and maintaining a strong balance sheet. We remain committed to a strong investment-grade rating. With another year of strong cash flow driven by profit and improved working capital initiatives, we successfully reduced our leverage ratio to below 2.7 times. Overall, results for 2025 reflected the strength of our business. On the top line, we delivered constant currency, volume-led, organic growth at the midpoint of our range, reflecting the continued focus on driving volumes and healthy sustainable sales momentum. While inflation and tariffs impacted our gross margin for the year, we effectively offset this impact through CCI and SG&A streamlining initiatives, all while continuing to invest for growth. As a result, adjusted operating income and earnings per share finished at the low end of our outlook, a solid outcome in light of the macro headwinds we faced. Importantly, we drove strong cash flow from operations for the year, paid down debt, and delevered, giving us ample flexibility to continue to invest in the business. Before turning to our outlook, let me provide an update on our tariff exposure mitigation plans on Slide 17. Since our last earnings call, our tariff exposure has been reduced by approximately 50%. Our total gross annualized tariff exposure is now approximately $70 million compared to $140 million we provided previously. As a result, we expect the incremental year-over-year cost impact of tariffs to be approximately $50 million in 2026. We plan to mitigate the vast majority of this impact with productivity savings across the P&L, alternative sourcing, supply chain initiatives, and, of course, leverage our revenue management capabilities, including surgical pricing. The reduction in tax rates is not expected to benefit the bottom line as some supply chain mitigation efforts have been adjusted in line with the new rates, and we are intentionally choosing to continue to invest in the business. Lastly, as you know, this is an evolving situation, and we'll continue to monitor how policies impact tariff rates and, therefore, our costs. Now let's turn to our 2026 financial outlook on slide 18. Our outlook reflects our continuing investments in key categories to sustain volumes and drive long-term profitable growth while appreciating the uncertainty of the consumer and macro environment, including global trade policies. In addition, this outlook reflects the contributions of our recent M&A transaction, the acquisition of a controlling interest in McCormick de Mexico. Turning to the details. First, current rates are expected to have a one-point positive impact on net sales, adjusted operating income, and adjusted earnings per share. At the top line, we expect organic net sales growth to range between 1-3%. Growth will be supported by sustained volumes growth, a higher contribution from pricing across both segments compared to the prior year. In our consumer segment, we anticipate some volume impact from price elasticity early in the year, followed by solid volume growth as the year progresses. In our flavor solutions segment, we expect the volumes to recover and deliver full-year volume growth for the segment. We expect the acquisition of McCormick de Mexico to contribute 11-13% for the top line, leading to total constant currency sales of 12-16%. Along with this top-line performance, we anticipate full-year gross margin expansion reflecting recovery from the compression experienced in 2025. This expansion reflects favorable impacts from product mix, cost savings from our CCI program, and margin accretion from McCormick de Mexico, partially offset by the anticipated impact of a mid-single-digit increase in cost inflation. In addition to our gross margin expansion, we expect SG&A benefits from cost savings to be offset by investments to drive volume growth, including brand marketing and digital investments, most notably ERP implementation, as well as a build-back in incentive compensation. In terms of our ERP implementation, we're still taking a phased rollout approach. We've made significant progress, and our deployments to date have been successful. To further minimize execution risk, we decided to consolidate the number of waves within the upcoming deployment phase, which moves forward our timeline. Overall, program costs remain unchanged. However, this refined execution plan shifts more expense into 2026 than originally planned. For the year, we expect our brand marketing spend to increase in the low to mid-teens as we continue to invest behind our brands and reflect brand marketing investments of McCormick de Mexico. As a result, our adjusted operating income is expected to grow 15-19% in constant currency. In terms of tax, we expect the adjusted effective tax rate to be approximately 24% for 2026 compared to 22% in 2025, where we benefited from a number of discrete tax items that are not expected to repeat in 2026, in addition to a higher tax rate in Mexico. Notably, we now expect an expense from unconsolidated operations in 2026, which reflects the elimination of the minority interest or 25% of McCormick de Mexico net income attributable to Grupo Herdes from our consolidated earnings. In addition, we expect net interest expense to increase compared to 2025, primarily due to the funding of the McCormick de Mexico transaction. Our 2026 adjusted earnings per share is projected to range from $3.05 to $3.13 on a reported dollar basis, reflecting benefits from operating income offset by unconsolidated expense, the impact of the increased tax rates relative to the prior year, and higher interest expense. Overall, we believe our outlook is balanced and gives us flexibility to continue to invest in the business while expanding margins. Moving to Slide 19, this slide summarizes the cost headwinds for 2026 and how we plan to offset them. Our guidance reflects a strong underlying base business performance and growth from acquisitions, with pressures from cost inflation, tariffs, and the review of incentive compensation that are expected to be offset through tariff mitigation plans, CCI initiatives, and SG&A streamlining. Our digital investments, most notably the refined ERP implementation plan, along with a higher tax rate, are impacting underlying growth but will become part of our base as we look beyond 2026. Importantly, we remain on track to sustain our volume momentum and drive strong top-line growth. Despite higher costs, we're investing strategically, executing with discipline, and driving efficiencies, enabling us to deliver strong operating income growth and sustain our differentiation. We are confident in our ability to deliver the 2026 outlook and in achieving our long-term objectives. Brendan M. Foley: Thank you, Marcos. Before moving to Q&A, I would like to close with our key takeaways on Slide 20. The long-term trends that fuel our attractive categories—consumer interest in healthy, flavorful cooking, flavor exploration, and trusted brands—are enduring trends. They continue to reinforce the relevance and resilience of our portfolio. In 2025, we drove differentiated volume growth and share gains across our core categories. Our results demonstrate that we are investing in the areas that drive the most value for consumers, customers, and shareholders. As we enter 2026, McCormick & Company, Incorporated is operating from a position of strength with a solid foundation and disciplined execution. Despite ongoing macro and cost headwinds, we remain positioned for sustainable profitable growth. Our 2026 outlook reflects continued top-line momentum, margin recovery, and strong operating profit growth, anchored by innovation, efficiency, and our acquisition of McCormick de Mexico. While global trade dynamics continue to drive cost inflation, we are leveraging our competitive advantages, productivity initiatives, and cost management discipline to mitigate these pressures, sustain volume growth, and fund our investments for the future. Looking beyond 2026, these incremental costs are expected to remain in our base. However, our enhanced CCI plans and SG&A streamlining discipline position us to manage these pressures effectively while sustaining investment and delivering growth in line with our long-term algorithm. Ultimately, we remain a global leader in flavor, driving growth that is both sustainable and differentiated. Finally, I want to recognize all McCormick & Company, Incorporated employees for their dedication and contributions. Your commitment and passion continue to drive our success. I'm confident that together, we will continue to deliver differentiated results and long-term shareholder value. Now for your questions. Marcos Gabriel: Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press 1 from your telephone keypad. Brendan M. Foley: And a confirmation tone will indicate your line is in the question queue. Marcos Gabriel: You may press 2 if you'd like to remove your question from the queue. Faten Freiha: For participants who are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Operator: Thank you. And our first question is from the line of Andrew Lazar with Barclays. Please proceed with your questions. Andrew Lazar: Great. Thanks very much. Good morning, Brendan and Marcos. Marcos Gabriel: Good morning. Brendan M. Foley: Maybe to start, your '26 outlook is predicated on continued volume momentum. I was hoping you could talk a bit more about the key drivers underpinning your view. And in particular, maybe you can speak to expectations in consumer Americas just given recent scanner trends have decelerated a bit. I'm assuming on elasticity but perhaps you can clarify. Brendan M. Foley: Sure. Well, a couple of thoughts just I think in terms of top line. I think our guide for '26 reflects obviously both segments. Factors in obviously the uncertainty environment. But when we look at kind of the range that we're providing, I think everyone, consumer drives sort of the mid to high end of that range, and then, you know, flavor solutions probably the low to the mid end of that range. You know, overall, we expect pricing to contribute more to our growth rate than it did in 2025, we also expect to maintain volume growth for the year with, you know, volume growth in both segments. I might just speak maybe to each segment just to give a little bit more color on that. On consumer, we expect to continue delivering volume growth. It will have higher pricing, I think, compared to, you know, let's say, the last year. You know, we have driven volume over the last one and a half years, and it has been driven by a lot of our, you know, actions and plans and a number of things that obviously we've talked about in the past. And as I look to '26, a lot of those levers really remain in place. We'll continue to increase our A&P with really strong messaging, you know, that resonates. We'll continue to benefit from the innovation that we launched in '25. And those are things like the US Cholula expansion or McCormick, you know, innovation like finishing salts or the type of innovation that we've launched in EMEA behind air fryer seasonings. I think one of the positive things now, it got launched in, sort of towards the tail end of '25 and really started to hit the shelf. But this US gourmet relaunch, you know, McCormick gourmet, you know, we really think is driving a lot of positive velocities right now. And we like what we're seeing on shelf, and so that we'll get a full three quarters of the year on that innovation. And the whole price gap management plan also still remains in our base as it did, you know, in '25. Incremental to this, we're expanding distribution across our core categories. We'll continue to launch new innovation. And we'll also continue to renovate parts of the portfolio. And, you know, one of the ones I'm also excited about is we're gonna be, you know, relaunching our entire blends and seasonings line, and that's really quite exciting. So we like that that's another renovation that's gonna be coming out in '26. And then we're just gonna continue to sort of focus on these high-growth channels that we're seeing a lot of success in. And so, those are the things that are really driving, I think, and underpin and underwrite the consumer growth. In flavor solutions, you know, we expect to do better than we did in '25. We know '25 was impacted by large CPG customer volumes and being soft as well as in branded food service, but we do expect improvement particularly as we continue to grow with those high-growth innovators and private label customers. You know, we're acknowledging that we are lapping a difficult '25, so expect to do better. But we, you know, it's difficult to predict the level and pace of that improvement. So I still expect some lumpiness in this business as we've experienced in the past. But the things that give me, I think, more optimism, if you will, is just I'm encouraged by the scope of our innovation pipeline in that part of our business. It's really healthy across a lot of our customer segments. The reformulation projects are increasing, and we talked about that, you know, before, particularly with large CPG customers. And we're partnering with a lot of emerging brands and private label players, you know, to sort of really work on flavor there. And it's in exciting categories like protein-based beverages or fiber-based snacks or, you know, these are the types of health wellness trends that we're seeing, you know, getting a lot of activity. That gives us some reason for optimism. And our win rate on health and wellness briefs, you know, remains strong. So, you know, we have, I think, a realistically, you know, positive outlook. But we're also, you know, remembering what happened in '25 and not counting on all of that to, you know, sort of necessarily rebound back really strongly, but we do think it's gonna be positive improvement over the year. And it will be volume growth in both segments. Andrew Lazar: That's really helpful. And then just a very quick one for Marcos. Just anything to keep in mind on sort of the cadence of EPS growth as we think through the four quarters ahead? Just things discrete to keep in mind, whether it's year-over-year issues or things of that nature. Thank you. Marcos Gabriel: Yeah. So, in terms of the EPS, the test should follow the operating profit over the course. So, we'll see operating profit fluctuating over the next few quarters. OP growth will be in Q1 will not reflect the full quarter of McCormick de Mexico. So we'll be slightly below guidance. So if you think about it that way, earnings per share will follow that fluctuations of OP, and we should see a Q1 that will be in line. I would say, would meet the high end of our guidance range, but then you will build up as we progress over the next few quarters. Andrew Lazar: Thanks very much. Operator: Next question is from the line of Peter Galbo with Bank of America. Please proceed with your question. Peter Galbo: Hey. Good morning, guys. Thank you for taking the question. Marcos, I just wanted to ask a bit on the gross margin in particular just given some of the nuance of what happened in the quarter. I think it came in obviously below even your expectations. You've talked a bit about, you know, the core inflation components maybe being stickier even though we've had some tariff relief and, you know, the outlook for '26 kind of implies gross margin expansion. I think you said, you know, recovery. I didn't know if that meant full recovery of '25 into '26. But maybe you can put some more parameters just around how you all are thinking about the gross margin expansion for '26 relative to '25, again, in light of kind of it coming in light of your expectations in the fourth quarter? Marcos Gabriel: Yeah. Sure. Let me just explain the 2025 Q4 results, and then I'll go into 2026. So at a high level, if you would take a step back, the external environment continues to create volatility in terms of our commodity costs. And, you know, we continue to focus on the elements within our control. We deliver CCI, enhanced CCI even to offset the additional tariffs impact that we saw in the year. We executed on pricing in line with our plan, and we continue to, you know, grow volume in the consumer business in Q4 despite all the pricing actions that we've taken. More specifically to the drivers of the gross margin, you know, there's two main drivers. One is the indirect consequences of the tariff-related market pressures that we've been talking about over the last couple of quarters. And it actually accelerated in Q4 relative to Q3, which means that, you know, it was more than we expected, meaning that there was some more inflation coming through our P&L through the balance of the year. And then the second point is the direct impact of tariffs, which is about recognizing more of those tariffs inventory in our P&L than originally planned. So we had that had tariffs on it. You know, it's a bit of a product mix in Q4, and those got sold through it, and we saw the impact of that in that impact of the additional cost hitting our P&L in Q4. So the combination of the two elements is the broader commodity cost is impacting our gross margin plus the impact of tariffs were what changed versus our expectations as we went through the year. But also, I think it's important to mention that in Q4, Peter, in this time of volatility, we are focusing on managing the P&L holistically, not only the gross margin line. And that's where we drove a lot of SG&A savings. We had done a lot of, made a lot of progress in terms of SG&A over the last, you know, few quarters. Q4 was also a quarter in which we focused on streamlining SG&A while increasing investments to drive growth and remarketing and digital. So managing the P&L holistically and getting to the OP number that was, you know, in line with our expectations, meaning SG&A offsetting the gross margin piece. But obviously, you know, the gross margin is something that we want to recover. Our expectations going into 2026 is that we are expecting to recover the margin compression that we saw of 60 basis points in 2025, and we provided a qualitative guidance in terms of gross margin. As it is a bit difficult to be precise at this time, given the uncertainty that we are facing in the market and the microeconomics, it is a little bit difficult to be precise in terms of gross margins. So we provided that view. But at the end of the day, the focus will be on recovering the margin compression that we saw in 2025. Peter Galbo: Great. Okay. Thank you for that. And Brendan, maybe if I could ask just more directly on Slide 19, where you kind of have the bridge on base business to the guidance. The ERP, I know, has kind of been discussed in the past now with the and maybe you put a more concrete number around it. But I want to make sure I understood you clearly that you're accelerating the spend or some of the projects into '26. But then those costs are actually expected to remain in the base. So we don't really expect maybe not even any relief on that in '27. Maybe you can just clarify specifically around the ERP and how we should think about the phasing of projects in '26 and then how to think about it for '27 and beyond. Thanks very much. Brendan M. Foley: Peter, first, let me provide some just some broad perspective on sort of what we were communicating, I think, throughout the script, but also on Slide 19, and then I'll ask Marcos to speak more specifically to how to think about ERP beyond '26. You know, overall, broadly, as we kind of thought about the year for 2026, you know, our top priority was to really think about how we maintain sales momentum. That being a top priority, you know, in terms of having a very healthy top line. And we're balancing volume and price. And so and still, you know, achieving, you know, sort of healthy sales growth. And still invest in the business also at the same time. But in 2025 and 2026, you know, we certainly saw a lot more cost come into our P&L, whether it be through inflation or tariffs. Or in this case, we go to '26, you know, building back incentive compensation. And we're offsetting that with, you know, targeted pricing, productivity initiatives, cost savings initiatives, but we can't fully offset everything. It's so, you know, those are the elements that you see in that bridge, which were which are. Tax and ERP. But I would say that the fundamentals and the health of our business are doing really well. And we just need to work through this dynamic environment in terms of cost. Now in ERP, you know, we decided that as this program is going well and we are seeing success in a number of our go-lives already to date. As we assess sort of the next one, it just felt prudent for us to minimize the number of waves that we would have to go through. Marcos, do you want to add on top of that? Marcos Gabriel: Yeah. So we have been very successful in deploying our ERP implementation over the last couple of years. It's a lot of work, as you can imagine. We've taken a very integrated approach in terms of how we deploy the ERP. It's not only the ERP implementation team, but it is them working together with the business as well as the technology teams with strong support from our external partners. So that is going very well. You know, this, the programs, you learn, you adapt, and you evolve. And one of the things that we were considering over the last three to four months is really about, you know, the number of waves within the next deployment phase that we have. Whether we would, you know, actually compress the waves to minimize risks. And that happens because as you shorten the periods between dual operations between legacy systems and new systems, that minimizes data reconciliation interface risks. So that is the key element of compressing the phases. Which is, you know, you'll eliminate that interfaces between the two systems for a longer period of time. So by doing that, we believe we are further minimizing risk. But as we do that, we bring forward the timeline of development and preparedness into 2026. As this last go-live will take effect in early 2027. So as you do that, you shift costs into 2026. As, which is different than we had originally planned. Overall, costs for the program remain the same. But it's just a shifting timing of expenses between '27 and '26. Due to this change in the approach that we're taking. In 2027, you should see that cost moderating, and then we should see further moderation down into 2028. Peter Galbo: Great. Thank you very much. Operator: Our next question is from the line of Tom Palmer with JPMorgan. Please proceed with your questions. Tom Palmer: I wanted to follow-up on Pete's question and clarify on the unexpected inflation you noted in the fourth quarter, really with implications as we think about '26. I think you typically carry more than a quarter's worth of inventory on your balance sheet, and you did give the guidance a month into the quarter. So I'm trying to think through to what extent this added inflationary pressure that maybe had some impact in 4Q might be even more of a consideration as we start out 2026. And kind of in that context, any help on thinking through that mid-single-digit inflation and the cadence of it in the coming year? Thanks. Marcos Gabriel: So we exited the year at mid-single-digit inflation. If you think about Q4 versus the prior years, it was the highest quarter of inflation that we saw coming into our P&L. And that is a combination of tariffs, but also commodity costs more broadly. As you know, we have a broad basket of commodities and source from 80 countries, 17,000 ingredients. We have a broad basket, and we saw inflation in the core commodities, but also tariffs coming in. As well as packaging. We saw packaging as well up in Q4. So we're exiting at a high cost base. As you go into 2026, you know, despite the moderation of tariffs, we'll still see a mid-single-digit inflation hitting the P&L and our expectations into 2026. It could improve, but if it does improve, it will be later in the year. Right now, we're estimating that it's gonna continue to be at the same run rate of Q4 into 2026. Tom Palmer: Okay. Thank you for that. And then on the consumer segment, you noted the expectation for volume impact from price elasticity. But recovery subsequently. What drives the price elasticity in the first quarter? And is there anything maybe related to shipment timing when we think about 4Q that relates back to that? Thank you. Brendan M. Foley: Sure. As we think about the consumer business and as we go into Q1 and then we think about the rest of the year, we do expect an impact from elasticities in the first quarter. And I think one of the things that that assumption is really that we have some pricing that we, you know, put in place. Targeted and surgical. In 2025, but we also have additional pricing to come on, you know, beginning in February, which is a reflection of this inflation that we've been referring to as well as the, to some degree, you know, partly offsetting tariffs. And so we expect some of that elasticity impact to really hit, you know, more in the Q1 overall. I wouldn't be surprised if we see volumes either flat to slightly negative in Q1 as a result of that. However, we do expect to sort of then improve upon that as we go throughout the rest of the year, and that there's a transition period we're going through right now in Q1 where we're seeing more pricing come into the shelf just as you try to offset these costs. But then we also have other programs in order to, you know, sort of recognize the reduction in tariffs and everything else that starts to kind of, you know, find its way to, I think, our consumption profile going through the rest of the year. Starting in Q2. Tom Palmer: Okay. Thank you for that. Marcos Gabriel: Sure. Operator: Our next question is from the line of Alexia Howard with Bernstein. Please proceed with your question. Alexia Howard: Thank you. Good morning, everybody. Marcos Gabriel: Morning. Brendan M. Foley: Morning. Alexia Howard: Can we just ask about the sort of you talked about the confidence that you have in the long-term objectives. On paper, you have a number of tailwinds. You're very on trend with consumer dynamics, interest in health and wellness and cooking from scratch, etcetera. The tariffs seem to be easing. Reformulation seems to be picking up. And yet, this seems I think we're now on year five where the earnings expectations are below your long-term algorithm. So I'm just trying to sort of square that away in thinking about what you said at the Investor Day in September, I think, in 2024 about the outlook for 2028. When might we expect to get back on algorithm, and are those 2028 goals still realistic from here? And then I have a follow-up. Brendan M. Foley: Sure. Well, Alexia, let me address the first one then. Thank you for the question. If you reflect back on the targets that we shared at Investor Day, that's reflected obviously, as we called out then, you know, our organic growth ambitions. And, you know, many of those targets were established before the onset of much of this uncertainty that we've been seeing from a global trade standpoint over the last, let's say, year. And also, it was established before the acquisition of McCormick de Mexico. Given everything that's kind of, you know, continued to sort of develop since Investor Day, you know, we are aligning our commentary to the long-term objectives, including organic growth and also accretive M&A. And I think from a sales perspective, we really feel pretty good about being able to hit those targets by 2028. From a top-line perspective. But we're also working very hard right now to offset the impact of what has been substantial incremental costs coming into our P&L over the course of 2025 and also as we look ahead to '26. And so a lot of our focus right now is on additional efforts to address these as quickly as we can. And our plan at CAGNY is to provide more color on, you know, how we look at the entire set of targets that we laid out. To make sure that we have, you know, illustrated sort of any adjustments in our pathway with regard to those targets, you know, set out at Investor Day. I just come back to from a top-line perspective, we feel really quite good and quite confident of our ability to hit those. But we gotta work through right now on a short-term basis, just really the amount of incremental cost activity that we're seeing in our P&L. We have to, you know, we'll provide you more perspective on how we look at that at CAGNY. Alexia Howard: Great. Thank you. Can I and a quick follow-up? On the reformulation activity, you've talked, I think, for much of the last year about how that's picking up particularly with private label and with some of your largest CPG clients. You still in investment phase on that because, obviously, you have to go through the process of actually figuring out how the innovation will the reformulation will work before you really get that revenue stream in the door once the product's launched. Is that expected to sort of pick up through the course of 2026? Brendan M. Foley: Yes. If I think I understand the context of your question, Alexia, and let me know if I didn't get it right, it's about, you know, from a development perspective, you know, how are we looking at reformulation activity in '26? But also, I think maybe your question also had to do with if you think about the commercialization of that development, you know, how might we think about that in '26? So if I look at sort of both ends of that question, from a development perspective, I do expect the development activity to continue to pick up. We've definitely seen that as we went through the course, especially the back half of '25. And we expect to see more of that come through in '26. And it is a reasonably, you know, sort of as we talked about before, a big tick up in our activity. I expect that to continue to, you know, increase overall. From a commercialization perspective, sort of, i.e., when it hits the market, I think that's a bit more delayed. I think, you know, late '26 is probably an early indicator when we start to expect to see that, but definitely more in '27 would be my expectation. Particularly as you think about maybe, you know, sort of large CPG customer type activity. At the same time, there's a lot of emerging brand activity going on, and they tend to move to shelf a little bit faster. Alexia Howard: Great. Thank you very much. I'll pass it on. Thank you. Operator: Next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your questions. Robert Moskow: Hi. Thanks. Brendan, I think Andrew Lazar asked about the Nielsen tracking data for spice and seasonings in The US. And, you know, some weakening sales growth share, you know, share shares are down. Both in our data, both in terms of volume and value. In the last twelve weeks. And I was hoping you could be a little more specific as to whether that reflects what you're seeing or not. And whether there's any implications as to what the sell-through was from your holiday shipments in the fourth quarter? Thanks. Brendan M. Foley: Sure. Well, there's a number of different variables in your question, so I'm going to try and make sure I address them all, Rob. First of all, I'm going to maybe hit the last point first, which is if I think about overall our inventory in the channel, meaning the comparison between our sales and our consumption in the fourth quarter, it is exactly really where we thought we think it should be, and we don't see any anomalies at this point. That would make us think that we have to, you know, speak to any differences that are unusual as we think about, you know, sort of the seasonality of our business. So, that component feels very much in line. Overall. When I think about just overall performance of the fourth quarter, you know, we saw a really very good holiday performance, especially when you look at our business in The Americas. You know, specifically, you know, we were certainly, you know, delivered very much on what we expect would happen both from a price and a volume standpoint. From a sales perspective. But as we think about consumption, we believe that we had, you know, reasonably good, you know, consumption performance. You know, I will say that there was a period there, so many things happen and change obviously in the news, but there was a period there where we saw broadly in the market a bit of a slowdown for probably a couple of weeks related to, you know, sort of the news regarding, you know, SNAP, you know, funding, etcetera. And there was a little bit of a contraction period that we saw there broadly. In grocery, in terms of total results. And so a little bit of a dip, but then things started to come back. As we got closer to the holiday season and we saw consumers really kind of purchase more closely to the holiday, which is reflective of sort of that budget, you know, sort of control behavior or that value-seeking behavior. And so we saw, you know, certainly that type of, you know, profile, if you will, in the holiday consumption, etcetera. As we go into Q1, you know, we still have to wait and see what that post-holiday consumption looks like in terms of do consumers kind of maintain that level, or do they, you know, moderate a little bit after, broadly, what was a successful holiday season. But, also, you know, keep in mind that we expect some price elasticity impact in there too. As we talked about, and we certainly see that coming through a little bit. The price elasticities are operating as expected. So that is nothing that has, at this point in time, let you know, leave us to think that we didn't really have a good handle on what that might be. As we go through Q1, as I mentioned on a previous question, we expect maybe a little bit more variability in terms of price elasticity impact because there is a little bit more pricing coming to shelf as we offset these costs that we're talking about. We are taking a very targeted surgical approach, you know, in our pricing. I mentioned a lot of things there, but I think I'm trying to get at the spirit of your question. Let me know if I did not. Robert Moskow: I think that's fine. Alright. Thank you, Brendan. Operator: The next question is from the line of Max Comfort with BNP Paribas. Please proceed with your questions. Max Comfort: Thanks for the question. First, just a housekeeping one on tariffs. So your gross annualized tariff exposure has fallen from $140 million as of last quarter to $70 million today. You also said you expect to book $50 million of incremental tariffs in FY '26. So my simple reading would suggest that this means you expect to book $70 million bricks. Now this would imply you only booked $20 million of gross tariffs in '25. However, I know last quarter, you said you expected to book $70 million of gross tariffs in '25. And it sounds like if anything, it came in higher than that number. So I was hoping you could just give us a bit of clarity. Tell us what was the final gross and net tariff number that you booked in FY '25? Marcos Gabriel: Yeah. Sure, Max. I appreciate this can create a bit of confusion, giving you so many numbers from last year into 2026. So, try to clarify that. So in 2025 first, starting with our last call, was a gross impact of $70 million. And we mitigated $50 million out of the 70 last year. So a net impact of $20 million in 2025. Going into 2026, the annualized number now is $70 million, coincidentally the same. As we have already absorbed $20 million in the base, the incremental growth year-on-year impact is $50 million. So that's our call, the $50 million. And if you look on slide 19, that is a 5% of incremental tariff impact that we're seeing now in '26 versus '25, and we plan to offset most of it as we go into 2026 with the same strategy that we had before, supply chain savings, procurement initiatives, as well as some surgical pricing that will take place next year. Max Comfort: Okay. But I also looked like on that slide that you're referencing that you're offsetting all the tariffs. So if the net impact was $20 million in '25, it looks like the net impact is going to zero in year-over-year terms in '26. Is that fair? Marcos Gabriel: Yeah. That's fair. Max Comfort: Okay. And then just actually one other housekeeping one. Just with regard to your response to Andrew on cadence for EPS throughout the year, it sounded like you were saying EPS cadence will follow operating profit cadence. And I thought you said that operating profit starts off slightly below the guidance in 1Q because you don't have a full quarter of Mexico, which makes sense. Then it also sounded like you said that 1Q EPS is at the mid to high end of the guidance range. So if that's true, why is that? And then I think you said it even builds further from there, which might mean you'd be, you know, towards the high end of guidance for the full year. So I'm assuming I misheard you that 1Q EPS is at the mid to high end of guidance, and maybe it's the low to mid end, but just hoping for more clarity there. Marcos Gabriel: So, yeah. So, it's a little bit of a between OP and EPS. So OP will be soft because of the McCormick de Mexico not being included fully in the base. EPS will be at the mid to high in Q1, and then it will normalize towards the range throughout the year as we said. So it's a Q1, a bit of a different equation between OP and EPS. But then it gets more aligned to the OP flow between Q2 and Q4. Max Comfort: Okay. Thanks very much. Marcos Gabriel: Thank you. Operator: Our final question is from the line of Scott Marks with Jefferies. Please proceed with your questions. Scott Marks: Hey. Good morning, all. Thanks so much for taking our questions. Brendan M. Foley: Sure. Scott Marks: Wanted to just ask a little bit just if we kind of take a step back and look around the world. I know you've made comments about some different regions today. Just wondering if you can share maybe a little bit more detail in terms of how you're thinking about different parts of the world, what is encouraging to you right now? Where do you see some challenges maybe? And just, you know, any thoughts you have on kind of growth profile in '26 in some of the different regions. Thanks. Brendan M. Foley: Certainly. And, you know, what I might do is not speak to The Americas first because it feels like we sort of tended to focus a little bit more on that and some of the questions that we got. I'll start with Asia Pacific. In fact, Marcos and I were just in China two weeks ago. So we've been in the region, and we'll go back out to the region here in a couple of weeks. And, you know, my outlook on Asia overall is I'll focus a little bit more on China and then the rest of that region. We, you know, when we look at '25, got that gradual growth and that we were, you know, out projecting that we would get. And so we feel pretty good about sort of performance, broadly in China. And we still see continued gradual improvement in that marketplace as we look to 2026. The parts of our business that are performing well there are broadly, you know, we feel like we're at continue, throughout the year. See strength in our retail grocery business there. Certainly good trends driven by increased distribution and stronger marketing across that business. We also see strength in the business that we have in the middle of China, which really focuses a lot on more, you know, Chinese cuisine in terms of food service, and catering and a little bit on retail shelves, and that business has been, you know, strengthening. As we, you know, take a look at going from '24 to '25 and then '25 to '26. Our QSR business there is also doing really well, and we see just a lot of strong consumption happening in that channel. The only part of that business that's been soft is really our food service business, which tends to serve the higher-end restaurant more western cuisine, that's been soft just due to a lot of, you know, different, you know, conditions in that marketplace. But overall, we expect China to be doing, you know, reasonably well in terms of slight gradual growth again in 2026. And in the rest of that region, we continue to see, you know, pretty good growth in Australia and in Southeast Asia. And we're still gonna continue to build our plan for India as we've talked about before. I look to EMEA, we continue to see, like The US and The Americas, continue to strengthen our consumer business. It will be volume growth, with some pricing, and that's consistent with what we saw in 2025. And obviously led by continued sort of, you know, all the things that we talk about. Stronger brand marketing, increased distribution, and also, you know, even in those high-growth channels like e-commerce, we see a lot of growth there right now overall in the EMEA consumer business. When I look at flavor solutions there, I do feel like we're going to have a stronger year than we did in 2025 because we just feel like the stabilization of that QSR marketplace, you know, starts to really, you know, show a little bit more improvement. I'm not counting on a lot, but I am counting on it being better than 2025. And that gives us some optimism in terms of that part of our, you know, our segment in EMEA. And then coming back to The Americas, just feel again, you know, a reasonable amount of optimism as you see in our guidance for sales. Both in the consumer business and also flavor solutions for the reasons that I mentioned on an earlier question. I just don't want to repeat all that, obviously. Because it would be redundant. But we feel some really strength there. And, you know, lastly, I'll wrap it up with Latin America and, you know, obviously, the McCormick de Mexico business, and we anticipate having a good year there too. Largely being driven by, obviously, that being the consumer segment. Scott Marks: Got it. Appreciate it. We'll pass it on. Thanks very much. Marcos Gabriel: Thank you. Operator: I have no further questions at this time. I'd like to turn the floor back over to management for closing comments. Faten Freiha: Thank you, and thanks, everyone, for joining today's call. If you have any further questions on today's information, please feel free to contact me. And this concludes this morning's conference call. Thank you.
Operator: Good day. And welcome to the TrustCo Bank Corp NY Fourth Quarter Earnings Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypad. Before proceeding, we would like to mention this presentation may contain forward-looking information about TrustCo Bank Corp NY. As intended to be covered by the Safe Harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Actual results, performance, or achievements could differ materially from those expressed in or implied by such statements due to various risks, uncertainties, and other factors. More detailed information about these and other risk factors can be found in our press release that preceded this call. And in the risk factor and forward-looking statements section of our annual report on Form 10-K. And as updated by our quarterly reports on Form 10-Q. The forward-looking statements made on this call are only valid as of the date hereof. And the company disclaims any obligation to update the information to reflect events or developments after the date of this call, except as may be required by applicable law. During today's call, we will discuss certain financial measures derived from our financial statements that are not determined in accordance with U.S. GAAP. The reconciliations of such GAAP, non-GAAP measures to the most comparable GAAP figures are included in our earnings release, which is available under the Investor Relations tab of our website at trustcobank.com. Please also note that today's event is being recorded. A replay of the call will be available for thirty days, and an audio webcast will be available for one year, as described in our earnings press release. At this time, I would like to turn the conference call over to Mr. Robert J. McCormick, Chairman, President, and CEO to begin. Please go ahead, Robert. Robert J. McCormick: Good morning, everyone, and thank you for joining the call. I'm Rob McCormick, the Chairman of TrustCo Bank. I'm joined today as usual by Mike Ozimek, our CFO, who will go through the numbers, and Kevin Curley, our Chief Banking Officer, will talk about lending. Results announced yesterday are the culmination of years of strategic long-term planning and nimble near-term execution. We resisted risky lending concentrations, borrowing, and other gimmicks in favor of building solid customer relationships through the delivery of top-notch loan and deposit products and services. This enabled us to keep our cost of funds low and grow loans, leading to a healthy margin expansion. We deployed capital through the continuation of our century-long dividend payout, a robust stock repurchase program, and our bedrock practice of lending gathered deposits right back in the communities we serve. All of these factors together contributed to a 38% increase in net income and a return on average assets of almost 33% for the quarter. Total shareholder value returned three times that of our proxy peers year over year, stellar performance by any measure. Now Mike will go through the details, and Kevin will provide some color on lending. Michael M. Ozimek: Thank you, Rob, and good morning, everyone. I will now review TrustCo's financial results for the 2025. As we noted in the press release, the company continued to see strong financial results for the 2025, marked by increases in both net income and net interest income TrustCo Bank during the '25 compared to the 2024. Performance is underscored by rising net interest income, continued margin expansion, and sustained loan and deposit growth across key portfolios. This resulted in a fourth-quarter net income of $15,600,000, an increase of 38% over the prior year quarter, which yielded a return on average assets and average equity of 0.978% and 9.99%, respectively. Capital remains strong. Consolidated equity to assets ratio was 10.66% for the 2025, compared to 10.84% in the 2024. Book value per share at 12/31/2025 was $38.08, up 7.1% compared to $35.56 a year earlier. During the 2025, TrustCo repurchased 533,000 shares of common stock under the previously announced stock repurchase program, resulting in 1,000,000 shares or 5.3% of common stock repurchase year to date. The maximum allowable under the stock repurchase program. And we have also renewed the stock repurchase program, which now allows for the repurchase of up to 2,000,000 shares or another 11.1% during 2026. We remain committed to returning value to shareholders through a disciplined share repurchase program which reflects our confidence in the long-term strength of the franchise and our focus on capital optimization. Credit quality continues to be consistent as we saw non-performing loans modestly increase to $20,700,000 in the 2025 from $18,800,000 in the '24. Non-performing loans to total loans increased to 0.39% in the '25 from 0.37% in the fourth quarter of 2024. Non-performing assets to total assets was 0.34% for both the fourth quarter of 2025 and 2024. Our continued focus on solid underwriting within our loan portfolio and conservative lending standards positions us to manage credit risk effectively in the current environment. Average loans for the '25 grew 2.5% or $126,800,000 to $5,200,000,000 for the '24, an all-time high. Consequently, overall loan growth has continued to increase, and leading the charge was home equity lines of credit, which increased by $54,100,000 or 13.5% in the fourth quarter of 2025 over the same period of '24. The residential real estate portfolio increased $50,600,000 or 1.2%. Average commercial loans increased $24,500,000 or 8.6%. And installment loans decreased $2,400,000 or 17.3% over the same period of '24. This uptick continues to reflect a strong local economy and increased demand for credit. For the '25, the provision for credit losses was $400,000. Retaining deposits has been a key focus as we navigated through 2025. Total deposits ended the quarter at $5,600,000,000, up $166,000,000 compared to the prior year quarter. We believe the increase in these deposits compared to the same period in '24 continues to indicate strong customer confidence in the bank's competitive deposit offerings. The bank's continued emphasis on relationship banking combined with competitive product offerings and digital capabilities has contributed to a stable deposit base that supports ongoing loan growth and expansion. Net interest income was $43,700,000 for the '25, an increase of $4,800,000 or 12.4% compared to the prior year quarter. Net interest margin for the '25 was 2.82%, up 22 basis points from the prior year quarter. Yield on interest-earning assets increased to 4.24%, up 12 basis points from the prior year quarter. And the cost of interest-bearing liabilities decreased to 1.84% from the fourth quarter of 2025 from 1.97%. The bank is well-positioned to continue delivering strong net interest income performance even as the Federal Reserve contemplates rate changes in the months ahead. The bank remains committed to maintaining competitive deposit offerings while ensuring financial stability and continued support for our community's banking needs. Our wealth management division continues to be a significant recurring source of non-interest income. At approximately $1,270,000,000 of assets under management as of December 31, non-interest income attributable to wealth management and financial services fees represent 44% of non-interest income. The majority of this fee income is recurring, supported by long-term advisory relationships and a growing base of managed assets. Now on to non-interest expense. Total non-interest expense, net of ORE expense, came in at $26,500,000, down $1,500,000 from the prior year quarter. ORE expense net came in at an expense of $161,000 for the quarter, as compared to $476,000 in the prior year. We are going to continue to hold the anticipated level of expense not to exceed $250,000 per quarter. All the other categories of non-interest expense were in line with our expectations for the fourth quarter. We would expect 2026 total recurring non-interest expense, net of ORE expense, to be in the range of $27.7 to $28,200,000 per quarter. Now Kevin will review the loan portfolio and non-performing loans. Kevin M. Curley: Thanks, Mike, and good morning to everyone. Our average loans grew by $120,800,000 or 2.5% year over year. The growth was centered in our residential loan portfolio, with our first mortgage segment growing by $50,600,000 or 1.2%, our home equity loans growing $54,100,000 or 13.5% over last year. In addition, our commercial loans grew by $24,500,000 or 8.6% over last year. For the fourth quarter, actual loans increased by $60,700,000 compared to the third quarter. Purchase mortgage loans, including refinances, grew by $42,400,000. Home equity loans increased by $17,000,000, and commercial loans were up by $2,000,000 for the quarter. Overall, residential activity improved during the quarter. For purchase and refinances, we did see a slight uptick in activity, and we were able to close more loans during the quarter. As we have said in the past, we are well situated in the market and will capture more growth as these segments pick up. Also, as a portfolio lender, we are uniquely positioned to manage pricing and promotions to increase lending volume. Our home equity products continue to see consistent demand as customers continue to use their equity in their home for home improvements or paying off loans at high rates such as credit cards. In all our markets, rates continue to be moving in approximately 25 basis points range. Our current rate is 5.875% for our base thirty-year fixed-rate loan. We also offer a low-rate five-one arm and a very competitive home equity credit line product. Overall, we are positive about our loan growth in the quarter and remain focused on driving strong results this year. Now moving to asset quality, at TrustCo, we work hard to maintain strong credit quality in our loan portfolio. As a portfolio lender, we have consistently used prudent underwriting standards to build our loan portfolio. Our residential loans originated in-house, on key underwriting factors that have proven to lead to sound credit decisions. These loans originated with the intent to be held by us for the full term rather than originated for sale. In addition, we have no foreign or subprime loans in our residential loan portfolio. In our commercial loan portfolio, which makes up about 10% of our total loans, we focus on relationship-based loans secured mostly by real estate within our primary market areas. We also avoid concentration of any credit to any single borrower or business and continue to require personal guarantees on all of our loans. Now for our numbers. Asset quality for the bank remains very strong. Early-stage delinquencies for our portfolio continue to be steady. Charge-offs for the quarter amounted to a net recovery of $14,000, which follows a net recovery of $176,000 in the third quarter, and $457,000 over the past year. Non-performing loans were $20,700,000 at this quarter end, $18,500,000 last quarter, and $18,800,000 a year ago. Non-performing loans to total loans was 0.39% at this quarter end, compared to 0.36% last quarter and 0.37% a year ago. Non-performing assets were $22,100,000 at quarter end versus $19,700,000 last quarter and $21,000,000 a year ago. At quarter end, our allowance for credit losses remained solid at $52,200,000 with a coverage ratio of 253%, compared to $51,900,000 with a coverage ratio of 281% last quarter, and $58,200,000 with a coverage ratio of 267% a year ago. Rob? Robert J. McCormick: Thanks, Kevin. We're happy to answer any questions. That's our story. Operator: Thank you very much. If you change your mind, please press star followed by 2. I'll pause for any questions to come through. Our first question comes from Ian Lapey from Gabelli Funds. Your line is open, Ian. Please go ahead. Ian Lapey: Good morning, gentlemen. Congratulations on a great quarter and year. Robert J. McCormick: Thank you. Ian Lapey: Just a few questions. Maybe start with asset quality. Obviously, it's great to see another quarter of net recoveries. But I did notice an increase in the New York commercial NPLs of about $1,700,000. Was that one relationship or a couple? Maybe you could expand a little bit on what happened there. Kevin M. Curley: I think it's two relationships, Ian. And they're multi-families. Like, one is in the city of Schenectady, and one is in the city of Albany. Ian Lapey: Are those typical where you have good collateral and personal guarantees? Kevin M. Curley: Oh, yeah. We don't have an unguaranteed loan in our portfolio, Ian. Ian Lapey: Okay. Good. These particular cases, it's they're both retirees who are knowledgeable with regard to this and think they've relocated to Florida. At least one of them has. Ian Lapey: Okay. And then a couple on expenses. First, the other expense was up a little bit 2.55 versus 1.7 in 3Q. Anything in particular driving that? Michael M. Ozimek: No. I mean, just at the end of the year, we just, you know, there's some of the benefit plans that we look at. We also took the opportunity for tax purposes to, you know, fund the TrustCo Foundation for about a half $1,000,000 just to be able to take the tax benefit of that. So there's a few larger expenses that we put through in the fourth quarter, but nothing really notable. Ian Lapey: Okay. And then for the I thought I heard for the guidance for the '26 expenses, you said 27.7 to 28.2. Excluding other real estate. Is that right? Michael M. Ozimek: Yeah. Yeah. It just gives us a little breathing room going into next year. But there's nothing really that's really driving us up. Ian Lapey: Okay. So because that is a decent uptick from the run rate this year. Is that anything in particular? Or is that sort of across the board? Michael M. Ozimek: It's really just across the board. There's nothing really standing out there. Just like I said, just kinda give us a little bit of room for next year. Okay. I would expect us to probably be on the lower end of that range. Ian Lapey: Okay. And then lastly for me, for the branches, they declined by two. What's the outlook? I know you've mentioned last call, Rob. You were looking at Pasco County in Florida. What sort of your expectation for branch growth or declines in the '26? Robert J. McCormick: You touched on the expenses earlier, Ian, and we are pretty cheap people when it comes to that. So we want to get in at the right price and who knew Pasco would be as difficult it would be to find a location as it is. But we are still actively looking in Pasco. There's a lot of mortgage business there. There's a market change down there. They're pushing people further north. And as Tampa becomes less affordable and some of the other West Coast cities become unaffordable, they move into Pasco. So we are still looking for a location there. We want to do it the right way. Ian Lapey: Okay. Great. Again, congratulations. A great year. Robert J. McCormick: Thanks for your interest, Ian. Operator: As a reminder, to ask a question, please press star followed by 1. This concludes our question and answer session. I would like to turn the conference back over to Robert J. McCormick for any closing remarks. Robert J. McCormick: Thank you for your interest in our company. We hope you have a great day. Operator: Thank you. The conference call has now concluded. Thank you for everyone attending. You may now disconnect your lines.
Kristen Lancia: Thank you, Michelle. Good morning, everyone. Welcome to our Q4 2025 Earnings Conference Call. With me today are James Donnelly, CEO, and John McCaffery, CFO. The press release we issued earlier this morning, together with the presentation material that accompanies our remarks, are available on the Investor Relations section of our webpage. Comments made by any participant on today's call may include forward-looking statements. These statements are subject to various risks and uncertainties and other factors that are difficult to predict. Actual results may differ materially from those expressed or implied. We assume no obligation to update any forward-looking information. Please refer to our most recent Form 10-Ks and other subsequent reports filed with the SEC for more information about risks related to forward-looking statements. During our discussion, we may refer to certain non-GAAP financial measures. These measures are used for analysts, investors, and to evaluate ongoing performance. A reconciliation of these measures to GAAP financial results is provided in our presentation materials. I will now turn the call over to James Donnelly. James Donnelly: Thank you, Kristen. Good morning to everyone. We ended 2025 on a positive note and with good momentum, as the team achieved strong results by continuing to serve our customers and communities. We maintain focus on our mission to make every day better, even while we closed on the Presence Bank acquisition. We expanded our net interest spread by 62 basis points, increasing net interest income 62% compared with 2024. Net income and earnings per share more than doubled on an adjusted basis, and we improved returns on both average assets and tangible equity. By nearly any measure, 2025 was a great year. The improvement in our results and financial position are a result of our portfolio repositioning we completed in December 2024, as well as strong loan and deposit growth. That activity combined resulted in a more robust balance sheet and higher quality earnings. That was the right thing to do for our bank, our customers, and our shareholders. It served us well in 2025 and should continue to benefit us in 2026. Our biggest achievement in 2025 was announcing and preparing for the acquisition of Presence Bank, which closed on January 5. Presence Bank is a nearly 106-year-old institution that shared our values, culture, and commitment to high-quality customer service. With this acquisition, we have grown our asset base by 20%, increased our size by adding four branches in the coveted Southeast and South Central Pennsylvania region, and have enhanced our talent base with additional excellent employees. These additions better position us to serve our communities and bring value to our customers, whether they be small business owners looking to invest and expand their enterprises, homeowners looking to utilize the equity in their residences to fund college education for their children, or consumers using online tools to help manage their finances. I am pleased with our performance in 2025 and proud of what we were able to accomplish. We have had great momentum, achieving strong results, and were able to do the additional work to close the Presence Bank acquisition at the beginning of this year. Looking forward, we have established four strategic priorities as we enter 2026 to continue to build on that momentum. The first is to successfully integrate all activity with Presence Bank in the acquisition. With the acquisition now closed, we are moving forward with a sense of urgency to integrate the two organizations, driving uniform systems and operating practices across the new combined entity. We will be bringing the acquired businesses and branches under our new brand and unifying all the branches. This alignment enhances the brand recognition and makes it easier for customers to connect with us online, in a branch, or in a community. We will also engage in open conversations across locations and functions, evaluating current practices of each company, and adopting the best-in-class policies. That will allow us to serve our communities in the best way possible. One example is our use of AI, which is foundational in the second objective of exploring ways to increase operational efficiency and elevate customer experience. Presence Bank has implemented advanced AI tools in their commercial system, which we are adopting as part of our integration. We are using AI to supplement and enhance the work of our talented credit officers in drafting credit narratives, summarizing financials, and confirming required documentation. This will allow us to underwrite deals more quickly and to do more deals with our existing team. As we move with our integration, we will evaluate these tools and deploy those that increase operating efficiency across our organization. This will empower our employees to focus on high-value activities that improve customer experience, which is critical to the success of our company. Although we are moving forward with a sense of urgency, we are not rushed, and we will be thoughtful and measured in our progress to limit and eliminate disruptions for our customers and our employees. Third, we are focused on strengthening our talent pool and deepening our leadership bench. As a regional bank with a prominent presence within the communities we serve, it is much more than a cliché to say that our people are our greatest asset. Whether teller, customer service representative, branch manager, regional manager, or executive leadership, our entire organization is committed to the proposition of delivering financial solutions along with an outstanding experience for all of our customer engagements. Beyond that, as members of our community, our team members act in ways that make our communities better. With the Presence Bank acquisition, I am pleased to welcome Janakah Min as our new Chief Operating Officer. We have also recently added Larry Witt as the Chief Information Officer and Doug Byers as the Market Executive and Head of Treasury Management. Finally, I am pleased to welcome Joseph Carroll and Spencer Andres to the Norwood Financial Corp. board of directors. All of these additions, plus the entire Presence Bank team, make us a stronger bank, and I am excited to see what we are able to accomplish together. Our results in 2025 were strong before adding these growth areas served by Presence Bank. I think they will only make us better and stronger. Finally, everything we do as an executive leadership team is designed to increase shareholder value. John McCaffery will cover the nice accretion that we have added to shareholder value in 2025 as we have grown the balance sheet and profitably later in this call. Let me say an impressive testament to our shareholder focus. We will manage our deposits and assets to maintain our strong financial position, ensuring that we are positioned to continue serving our communities for years to come. We will actively grow our assets through increased deposits and investment decisions, as well as strategic M&A when an attractive and fairly valued target is available. Finally, we will combine these activities with a capital allocation framework that includes returning cash to shareholders through a reliable and growing dividend. I firmly believe that these priorities will allow us to continue to create value and build momentum in 2026 and beyond. I will now turn the call over to John McCaffery to walk us through the results. John McCaffery: Thank you, James. Good morning, everybody. I am going to just walk through the fourth quarter results. And for the fourth quarter, we again demonstrated our ability to improve financial results, continuing the trend that began with our balance sheet repositioning back in December 2024. Our net interest income increased by $5 million on a linked quarter basis, but the margin itself did drop three basis points. This was due to loan growth in the quarter as well as some seasonal outflow of municipal deposits on a temporary basis. Below the margin line, our quarterly results do continue to include merger charges. We had about $520,000 in merger charges in the quarter. We have adjusted our returns in the press release to be able to show you performance ratios that reflect the impact of these expenses. We also reported last year's numbers net of the loss on the securities. Well, so, again, trying to look at a pre-provision net revenue number across the entire span of the press release. Our unadjusted pre-provision net revenue decreased by 2% on a linked quarter basis and an adjusted basis, mostly due to higher expenses during the quarter. We will get to that in a minute. Excluding losses from sales securities related to our portfolio repositioning in 2024, noninterest income for the year increased in the same period, most of the growth coming from fees on our loans and deposit products. Quarterly expenses year over year were up 1.5% from the fourth quarter of 2024. On a linked quarter basis, expenses were up 5% due to several factors in the quarter, including lower loan volumes resulting in lower expense deferrals, and we had some vesting of risk of stock for long-term retiring employees in the quarter. In addition, we had some elevated incentive accruals based upon the improved performance in 2025. Credit metrics continue to improve year over year. Nonperforming loans as a percentage of total loans decreased, and our reserves to nonperforming assets increased. The overall theme of the quarter was continued profitable growth, sound balance sheet management, and benign credit. These themes have aligned to deliver a solid quarter and leave our company well-positioned for the future. James Donnelly and I will now be happy to answer any questions you may have. Operator, please provide instructions for asking a question. Operator: Thank you. To ask a question, please press 11 on your telephone and wait for your name to be announced. Ross Haberman: And to withdraw a question, please press 11 again. Please press 11 on your telephone. Okay. I am not showing any questions at this time, so I will now turn it back over to James Donnelly. James Donnelly: Thank you. And thank you once again for joining us this morning. We are pleased with our accomplishments in 2025 and optimistic for what we will achieve in 2026. With a larger asset base, expanded geographic coverage, and a stronger team to serve our customers and our communities, I believe that our best days are ahead, and I look forward to updating you as we continue to make progress. Have a great day. Ross Haberman: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Greetings, and welcome to the Mobileye Fourth Quarter and Full Year 2025 Earnings Call. At this time, all participants are on a listen-only mode. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dan Galves. Mister Galves, please go ahead. Dan Galves: Thank you, Donna. Hello, everyone. Welcome to Mobileye Global Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call for the period ending December 27, 2025. Please note that today's discussion contains forward-looking statements based on the environment as we currently see it. Such statements involve risks and uncertainties. Please refer to the accompanying press release, which includes additional information on the specific factors that could cause actual results to differ materially. Additionally, on this call, we will refer to both GAAP and non-GAAP figures. A reconciliation of GAAP to non-GAAP financial measures is provided in our posted earnings release. Joining us on the call today, as usual, are Professor Amnon Shashua, Mobileye's CEO and President, Moran Shemesh, Mobileye's CFO, and Nimrod Nehushtan, Mobileye's EVP of Business Development and Strategy. And now I'll turn the call over to Amnon. Hello, everyone, and thank you for joining our earnings call. Amnon Shashua: As I look back on 2025, there are a number of meaningful positives to highlight, both for our company and the industry. In a very uncertain geopolitical environment, demand for our products came in higher than expected throughout 2025, demonstrating the resilience of the auto industry and our product offerings. Results were quite strong with revenue up 15%, adjusted operating profit up 45%, and operating cash flow up more than 50%. The industry began to clarify the structure and features of the generation of ADAS for mass market vehicles. Several forces are coming together here: demand for incremental safety, demand for convenience in the form of highway hands-off driving, and the need to consolidate the technology on a single ECU to keep the system's cost low. Mobileye's IQ6 high chip is very well positioned, and we won the first two major programs with two of the biggest fixed OEMs in the world. Waymo's commercialization provided a number of supporting proof points on consumer acceptance and demand for autonomous mobility services. This led to a major uptick in demand signals from transportation network companies and public transport groups, which led to an expansion of expected volume through our Volkswagen ecosystem to 100,000 units by 2033. We are now one year closer to the launch of our advanced product with the Volkswagen Group. We expect the first major public milestone to be the removal of the safety drivers in Moya's robotaxi fleet in 2026. We are implementing a unique first-think, slow-think structure to our advanced products that we believe accelerates both precision and scalability. This includes novel technologies like vision language, semantic action models, and artificial community intelligence. And finally, Mobileye took a decisive step to expand its footprint into the humanoid robotics field with the acquisition of Menti Robotics. Menti has achieved a fully vertically integrated, low-cost, highly capable robot that has a clear path to commercialization into the structured environment of industrial and logistics services field and with its distinctive technology to cater to unstructured environments like home use cases. Aside from our 2025 results, we detailed all of these areas in my CES talk on January 6. I encourage anyone with an interest in Mobileye or just physical AI in general to make sure to view that presentation. Turning to guidance, Moran will spend some time on it, but I'll address it briefly. We're encouraged by the volume growth we are expecting despite global auto production that's expected to be flattish again. And while we don't expect the volume levels of Q1 to be sustained throughout the year, it's a strong signal for the year, and order flows for Q1 have been rising for the last month or two. Turning to technology, at CES, I talked a bit about the debate around approach, specifically this concept of data in, command out, which is a false debate. Because no legitimate actors in our field are actually doing that. There's always a need for structure and architecture, and everyone's architectures have evolved given advancements in AI over the last few years, including ours. We introduced two new innovations that are accelerating our path to precision scalable autonomous vehicles. One is artificial community intelligence referred to as ACI. This is a simulation concept using a self-play reinforcement learning technique. That we are using to train our planning engine, also known as driving policy. This is the first-ever productization of a technique proposed in academic research. A strong motivation for ACI is that the sample complexity for planning is much higher than for perception, because the multi-agent nature of driving or actions that you take will impact the actions of other road users. Therefore, the amount of data one needs to collect could be unwieldy even for large data collection fleets. As a solution, we have created simulators that can achieve one billion hours of training overnight. Mobileye has unique advantages here since our REM maps, which cover much of the globe, can be used as a realistic and diverse baseline structure for training. The other advantage is we have developed sophisticated sim-to-wheel techniques that have the required understanding of the noise model of our perception engine when transferring the driving policy to the real world. That SIM to wheel technology is also very relevant to humanoid robotics, and will be a key area of technology sharing between Mobileye and Menti. We also introduced a fast-think, slow-think concept that utilizes specialized vision language models to provide contextual information and to address robustness to vehicle decision making. This is not necessarily about safety. It's more about understanding the semantics of complex scenes. For example, a scene where a policeman signaled the road they would like to take is blocked. The safety layer ensures that they won't hit the policeman. But we also need to understand the scene, figure out we shouldn't try to overtake the policeman, but rather we should either wait or take a different route. This is what slow thinking gives. Since this is not safety critical, the contextual information can be inputted into the system at a lower frequency than perception, which is typically analyzed at 10 frames per second. Structuring our architecture with fast-think and slow-think components saves compute and even brings the use of cloud-based compute into the picture. As a result, we can put a very sophisticated VLM on the in-car compute but call on much, much bigger VLMs in the cloud when the situation evolves. This has a very positive effect on the mean time between intervention metrics, but can also eventually lead to scalability benefits in terms of cars per teleoperator as the VLM can replace a human teleoperator in many cases. Turning briefly to our announced acquisition of Menti Robotics. Most of the AI that humans are using every day is in the digital world. The two main applications of AI in the physical world are autonomous vehicles and robotics. It makes sense for these two expressions of physical AI to be together because there's a great deal of technology overlap. Both extensively use computer vision and control, fast, slow thinking concepts, make heavy use of VLMs, and extensive simulator techniques. Menti itself, compared to other companies we evaluated, had a superior combination of strength, including a high level of vertical integration, a pure AI approach with the ability to demonstrate high-level capabilities with no teleoperation, a design strategy that results in an optimized cost versus usefulness ratio, and above all, a distinctive AI technique to do continuous on-the-job learning from passive demonstration. It's a really practical approach to capitalize on the most near-term industrial and logistics markets, then expand to more challenging markets over time. We believe access to Mobileye's tools, simulation, and data training infrastructure will accelerate Menti's development. And the number of technologies developed for robots, such as self-play simulation and think-to-real techniques, will also bolster Mobileye's AV development. Finally, there is potential for catalysts as we continue to demonstrate the strong capabilities of the Menti robot and execute on customer proof of concept work in the near term. I'll now turn the call over to Moran. Moran Shemesh: Thank you, Amnon, and thanks for joining the call, everyone. Before I begin, please be aware that all my comments on profitability will refer to non-GAAP measurement. The primary screen is Mobileye's non-GAAP number, is amortization of intangible assets, which is mainly related to Intel's acquisition of Mobileye in 2017. We also exclude software communication. Our full year 2025 revenue of $1.9 billion slightly exceeded the high end of our prior guidance. Full-year revenue was up 15% year over year, compared to our original guidance of 6% growth at the midpoint. It was a very good year where a combination of minor selling global production trend IQ program launches, and higher than expected ADAS and supervision volumes from China OEM led to significant growth. Full-year adjusted operating income was $280 million, up 45% year over year. And margin was 15%, up about 300 basis points versus 2024. The fourth quarter included a nonrecurring expense of $7 million related to workforce efficiency initiatives we undertook in Q4. That expense was not part of our guidance as of the October earnings call. So if you exclude that, adjusted operating income would have also been slightly above the high end of the guidance. Like I said earlier, we saw consistent positives from our customers throughout 2025, and we've continued to see that over the last month or two during our 2026 planning process. 2025 IQ volume was 35.6 million across the full year, which was well above our original expectation of 32 to 34 million. We've seen a fairly consistent demand trend of 9 million units per quarter, with some minor fluctuations across quarters. For example, in 2025, Q2 and Q3 were higher than trend, Q1 and Q4 were a bit lower. One more point on Q4 before turning to the future. Modest upside to the higher end of our prior guidance was related to higher than expected supervision. IQ volume was consistent with the high end of our guidance of about 8.2 million. This level at the start of the quarter looked a bit below the demand trend as our customers desired to end the year within inventory. But the demand trend in Q4 ended up higher than we expected. As a result, we believe that inventory at our Tier one customers ended 2025 extremely low. We believe there is some level of adjusting safety stock that will occur in Q1 to get back to normal levels. We expect about 10 million IQ units shipped in Q1, which supports an outlook of approximately 19% year over year growth in the first quarter. After that, customer forecasts indicate a reversion to the trend of slightly above 9 million units per quarter. Turning to the full-year guidance. We are expecting revenue in the range of $1.9 billion to $1.98 billion, representing flattish to 5% growth. The midpoint of our guidance incorporates our IQ volume of slightly above 37 million units, which again consists of 10 million units in Q1. And an assumption of a bit over 9 million per quarter in the balance of the year. If we look specifically at our top 10 customers, we are assuming that their overall production is down 2% but our volume with those customers is up 6% at the midpoint. This includes about 700,000 units for a new OEM program that requires two IQ4 chips per car. That program is clearly a positive and will generate higher gross profit in dollars per vehicle. But since the second chip is overpriced relative to the first, it has an impact on overall ASP and gross margin. For Chinese OEM, we are expecting a decline of about half a million units compared to 2025, which was a bit above 3 million. We are encouraged by the significant growth in China OEM volume in 2025. It's aligned with their export volume growth, the area where our business is the strongest with those customers. We see no reason why that wouldn't continue into 2026, but prefer to remain conservative given we only have short-term visibility into order flow with China OEM. Gross margin will be down somewhat on a year-over-year basis, driven by continuation of IQ5 related cost savings. We discussed this on the October earnings call as an impact to 2025 that would continue through 2026 and then will gradually decline beginning in 2027. We also have modest vehicle mix headwind and the impact of the dual chip program mentioned above. Turning to operating expenses. 2025 ended up at $1.003 billion. This was slightly above our original budget of $995 million, accounted for by the nonrecurring termination-related bookings in Q4 mentioned above. In 2026, we are expecting around $1.1 billion or 10% growth. The underlying growth in OpEx is approximately 5%, consisting of normal salary and benefit inflation as well as additional infrastructure to support execution of the advanced products in 2026 and 2027. On top of that, we are including Menti R&D expenses. Finally, we are experiencing a FX headwind related to appreciation of the Israeli currency versus the US dollar. That meaningfully raises our headcount cost in dollar terms. This is being mostly offset by the workforce efficiency initiative noted above, but not completely. To conclude, we are almost one month into 2026 and continue to see positive demand signals from our customers on the core business. As Amnon discussed, we are also seeing very good execution progress ahead of a large number of advanced product launches over the coming one to two years, as well as accelerating momentum in customer demand for next-gen higher ASP ADAS and the transformative robot activity. Thank you, and we will now take your questions. Operator: Thank you. The floor is now open for questions. We do ask that you please limit yourself to one question and one follow-up to allow as many people the opportunity to ask as possible. Again, that's star one to register a question at this time. Our first question today is coming from George Gianarikas of Canaccord Genuity. Please go ahead. George Gianarikas: Hi, everyone. Thank you so much for taking my questions. I'd like to ask first maybe on your view on the competitive environment, particularly in light of some announcements at CES from NVIDIA and others? Just your view on what's happening in the advanced autonomous solution space. Thank you. Amnon Shashua: So I think that we have been we've obviously seen a lot more announcements and excitement around advanced solutions and autonomous driving in general. Also robotics. It was one of the key things at CES this year for everyone who attended. We still believe that we are closer to launching our dense products than other competitors, and this is one of our strongest advantages combined with the maturity of our technologies and the advances of our technologies. And we are, as we said, one year closer to launching a spectrum of products that spans from surround data supervision to a firm robotaxi. And starting from '26 and through 2027, we believe this will be a major transformation for kind of positioning Mobileye in the market. It's having proven products on the field. Right now, there is a lot of demos, a lot of referral technologies and emerging technologies, and there's some, we think, noise. And, maybe simplistic description of some of these technologies and how useful they could be for a reliable system. There is a recent announcement by NVIDIA, but their open-source model, Alfa Romeo, that they announced and supposedly given others the ability to I mean, we'll maybe, want to say a word about this, but we don't see that as something that changes kind of our positioning in the market. George Gianarikas: Thank you. And maybe I can ask a follow-up on Menti specifically. I mean, you mentioned yourself that there were a significant amount of startups and competitors at CES in the humanoid space. I'm just maybe a synopsis, a brief bullet point or two as to what the differentiation from Menti will be as you try to attack the marketplace and commercialize the product? Thank you. Amnon Shashua: I think the other startups mostly in China, but a lot of startups in the area of the humanoid. Many of the demonstrations that you see out there are teleoperated. Now to win this game, you need to have a fully autonomous control of the robot. From perception to action to understanding the theme, having an AI stack that can control the robot economically, and this is what Menti has been demonstrating quite consistently over the past year, year and a half. And as you see, as I show the number of clips, Menti is also fully vertically integrated with the design of the actuators, the gear, the AI itself, all the software components, the electronics, which is crucial if you want to have an end-to-end system. Another, I would say, distinctive element is the ability to do continuous learning. So Menti has developed an AI technology that allows the robot to passively view a human performing the task and imitate that task in a very, very short period of time without having any equipment, no VR goggles or special suits. Just passively observing a given performing the task. This is, I think, very important as we move from structured to unstructured environments like homes. So taking everything together, we have here a company that is both thinking practical about what is going to be the first domain launch, which is structured environments like fulfillment centers, assembly plants, retail. And also developing the technology for the next deployment for unstructured environments like home use. Fully vertically integrated, very strong in AI components, whether it's reinforcement learning, simulation, or simply very strong, very interesting overlap. It's not technology overlap with Mobileye. It can go both ways to synergies. So, overall, this is a very good step for Mobileye to take decisive steps towards owning physical AI in its full scope. Nimrod Nehushtan: If I may add to this, I think to kind of differentiate between the different actors, Menti is, as we know, probably the only western humanoid robot company that is actively engaging with customers on proof of concepts and pilots that involve pure AI operations with no remote operation. It shows something about the advancements of the use of robots in a setting that a customer is willing to evaluate and deploy in a kind of a non-sterile setting. Unlike maybe some hype videos that show something on a liquid clip, this is an actual testing environment. This is a different stage of maturity and having engagement with potential customers. And we believe that through integrating Mobileye's technologies, we have obviously strong strength in computer vision, in AI using cameras, and using sensor fusion, and designing face systems for safety and reliability and how to integrate systems in a very cost-efficient manner and efficient compute. All of these will help them even accelerate the progress they made so far. George Gianarikas: Thank you. Dan Galves: Thank you, George. Next question, please. Operator: Thank you. The next question is coming from Mark Delaney of Goldman Sachs. Please go ahead. Mark Delaney: Yes. Good morning and good afternoon. Thank you very much for taking questions. For Surround ADAS, the company has already reported on some strong momentum. You spoke about the two big OEMs that have already committed and given series production awards. As you look at the opportunity set for 2026, could you give a bit more details on the number of OEMs you're engaged with for surround ADAS and how many might be able to convert into awards this year? Nimrod Nehushtan: So I think the important point about Surround ADAS is that this is the product that addresses a very clear pain point for customers. And for OEMs, I mean. In the sense that it simplifies the system. It reduces cost. It provides advanced functionality it needs. Future regulation. It ticks most of the boxes that OEMs want to tick for the high-volume vehicle segment in the, you know, the upcoming years. Therefore, you know, the first OEM that we announced with Volkswagen was kind of a starting a trend that created a flywheel effect of more and more OEMs being interested. Now having announced the second design win with, you know, two out of the top six OEMs in the planet in major markets adopting this and launching this in a few years. This has definitely created a stronger realization amongst other OEMs that this has to happen for them also. At least to some degree. We've seen an increase in the amount of engagements we have. I don't want to predict timing and, you know, in quantities, but we're definitely encouraged by the increase in different engagements we have with multiple OEMs across our customer base. And we also believe that we have inherent advantages for this product category because it requires a very reliable system performance, you know, very high safety standards, advanced functionalities like, you know, hands-free driving in primary and so on, but also be extremely cost-efficient. And just to give you some sense, these two programs we won are going to be integrated in the kind of a standard fit across the highest volume vehicle categories for these two OEMs. So every dollar counts. And the implications for the OEMs to adopt this product means how much conviction they have that they need such a product for, you know, it's not a balloon project in a small amount of vehicles, you know, that if fails and, you know, nothing happened. If this project is delayed, for example, this is obviously affecting the entire vehicle portfolio. So it shows about the confidence that Mobileye, how much conviction they have in this product. And it's definitely an encouraging sign. Mark Delaney: Thanks. My other question was on Menti. Given the announcement and engagements that you've had with potential future customers and industry participants, can you help us better understand to what extent it's catalyzed additional interest in partnering with Menti Robotics, including opportunities to have your humanoid robots in factory and commercial environments to gather data? And, you know, as you think about that 2028 commercialization target you shared at CES, how important is that data collection and gathering for hitting that time frame? Thank you. Nimrod Nehushtan: I think it's a very interesting question. We've had since two weeks since the announcement at CES, and we have received the reach out from a significant number of customers asking about our interest and readiness to support on-site pilot and concepts and kind of starting from our industrialization partners that want to contribute in manufacturing and components because they understand we do the full robot. Starting from that and really, you know, trying to attract us to work with them for manufacturing and for all of our industrial partners, whether it's tier one, OEMs, and others that want to see how they can, you know, work with Mobileye integrating robots into their logistics centers, warehouses, manufacturing lines. The need is definitely there, and for them, it made perfect sense. I think one of the encouraging signs that we've seen is that already at CES, we've had meetings with OEMs. And in most of these meetings, it came up as, you know, let's take a follow-up and schedule when we can actually talk about a plan to deploy this in our environment. I think that the fact that Mobileye comes out of this business and they trust the, you know, the standards of the company. And that they have a need for longer-term, you know, finding solutions for human labor is becoming a bigger and bigger problem for them. Especially in developed countries, this gives them an easier path to evaluate a new technology with a partner they trust. As opposed to working with a startup, you know, in humanoids that, you know, who knows what you can get from them and whether or not they can deliver. And, definitely, we're leveraging these relationships. So we definitely think of this as an area to continue to develop in the next few months. Amnon Shashua: Thank you. Dan Galves: Thank you, Mark. Next question, please. Operator: Our next question is coming from Chris McNally of Evercore ISI. Please go ahead. John Zager: Good morning. This is John Zager on for Chris McNally. Thanks for taking the questions. Amnon, you've made this sandwich analogy for ADAS and AV demand. Basically, with high demand for a surround at the low end. Or drive at the high end. If we could focus on just drive for the time being, you guys announced VW Moya, one of the two big partners, Marubeni and an unnamed OEM. But the forecast is for a fleet of 100,000 AVs by 2033, obviously, a bit of a ways away. So my question, can we get a sense for what the near-term demand for your drive system might be for just, like, the next two to three years, 2027-2028? Or on phase one for a growing, on the growing list of cities? Amnon Shashua: Well, we announced together with Moya six cities to expand to six cities in 2027, and that includes Los Angeles, together with Uber. We have another high-volume program with the Holland that will come six months later, have also its expansion. As the CEO of ADM T on stage mentioned that they foresee about 100,000 vehicles in the next eight years. The exact numbers of the rollout will depend on the success of 2027. And deployment of the first six cities. But we are talking about thousands of vehicles at this point. Nimrod Nehushtan: Just to add to this, I think, you know, it's maybe somewhat challenging to understand what it means, 100,000, because it sounds like a big number. I think what we're taking away from this, what it means is that Volkswagen has in place the manufacturing capacity to produce as many vehicles as needed. The 100,000, if we're successful in 2026 and '27, and then in '28, which we have high confidence in our chances. That 100,000 can also be a small number in hindsight. The manufacturing capacity they have and the funding they've, you know, pulled into this in the past few years to build everything needed to produce robotaxis in scale eventually, it's Volkswagen. So they can produce 10,000 per year, 50,000 per year, 75,000 per year. When the demand will be there. And the demand from, you know, from mobility operators, CNCs, municipalities is far greater than, you know, tens of thousands per year globally. Once the technology gets to this maturity level and allows quick economic and geographic expansion, which, you know, we believe we have clear advantages in. Then, you know, the numbers will the demand will not be a problem. And we have a partner that can scale and give the supply the best extent possible. John Zager: Understood. And just should we think about, like, the volume for a phase one launch? And, like, should that be, like, a thousand to, like, 1,500, like, Waymo in San Francisco? Nimrod Nehushtan: Think of it as a few hundreds of vehicles per city as a good testing as a good measuring stick. You know, just also seeing how Waymo rollout that roughly the numbers they've had. In some cities, it's 200. Some cities, it's close to 500. That's a sufficient number to kind of facilitate for the mobility demand in that city and also to build a meaningful business. And that's also roughly what we're planning. John Zager: And thanks, John. Just one last follow-up. Do the AV customers pay for anything before the purchase of the $45,000 drive content, like R&D in advance? Or do you get any protection if their volumes are less than planned? Nimrod Nehushtan: Without going into the details of our contract, we are receiving we're delivering samples and engineering samples throughout the year. There's an engineering budget that covers the direct engineering cost and development cost. So there is definitely a good amount of investment well before the commercialization. So we do I think we have high confidence in our chances of getting to driverless, I think we're not that concerned about the downside potential. John Zager: Okay. Thank you so much. Operator: Please go ahead. Thank you. The next question is coming from Joseph Spak of UBS. Joseph Spak: Thanks. Hello, everyone. Just to maybe talk about a couple of, you know, more near-term things. You know, obviously, memory has become a larger issue and concern in the automotive industry. And I know or I believe you don't really buy a lot of that memory directly, but, clearly, it is used in the modules at your tier one customers to assemble to sort of ship on to the OEMs. So I'm just curious, you know, what you're hearing from your customers and the supply chain as to and whether this is really a pricing issue? Is it an availability issue? Is there any sort of volume risk embedded in your outlook? And because if it's even if it's a pricing issue, I guess, you see any risk of decontenting? Nimrod Nehushtan: So, as you said, Joe, we're not, let's say the exposure that we have is not direct because we're not purchasing a lot of these units. It's mostly indirect through the fact that our tier one customers are purchasing memory components. We've been doing in the past few months, and we have been actively working on this I think, well, before it was public knowledge that this dynamic is developing. Is to create kind of maximizing our supply of these components and working with multiple vendors. Ensure that we have enough flexibility to kind of mitigate the direct cost impact from specific vendors. And that we will be able to ensure that vehicle manufacturing will not be impacted by these fluctuations. And we haven't I think that, like we did last year, our forecast for this year is maybe opting for the conservative side. You can see the difference between Q1 and other quarters. It does bake in some level of, you know, understanding that there is some volatility in the industry, so we wanted to be on the more conservative side. But we haven't seen any, like, let's say, direct evidence or indication that there is an imminent change to volume as a consequence. But we will keep close monitoring on this as it develops, and we're doing everything in our powers with our tier one partners to create the availability of these components. Joseph Spak: Okay. Thank you. The second question, just on you know, you mentioned some of the appreciation of the shekel, and I know you get very helpful exposure in your 10 Qs on what a change in that currency can do to your cost base. But I believe also, like, at this time, a year ago or, you know, earlier in '25, you made a comment on one of the calls about how a lot of the costs on the shekel were hedged. So did something change with the hedging strategy? Like, maybe you could just sort of update us on sort of why it's a little bit maybe more of an issue now than you thought a year ago. Moran Shemesh: Yeah. So I will start with 2025. So we have a hedging plan that basically, you know, caused that we can meet our OpEx expectation for 2025. So for example, for this 2025, the rate that we had in our financials was, like, 5 or 6% favorable than the average market rate. So and these are, you know, transactions that we made in the beginning of 2025. But as the appreciation of the shekel continues, into 2026, and we're talking about, I think, 10 or 12% in the last year, we still have hedging in place for 2026, so we are more than 50% hedged on our payroll expenses at a favorable rate. But the risk is obviously heavier as deterioration, you know, gets bigger. But we still can't into account in our guidance. So we took into account some, you know, further hedging, but it will be at a less favorable rate. The fact that we are already more than 50% hedged. I think we're in a good place in terms of the rate, but it's still the year-on-year impact because it's a significant impact. It's worth mentioning. Joseph Spak: Okay. Thank you. That's helpful. Appreciate it. Amnon Shashua: Thank you, Joe. Thank you. Next question, please. Operator: The next question is coming from Aaron Rakers of Wells Fargo. Please go ahead. Aaron Rakers: Yes. Thanks for taking the question. I want to kind of double click on the Porsche and VW and the Audi kind of programs. I'm curious as you kind of thought about your guidance for this year, I think the initial expectation was maybe early volumes on Porsche. Late this year. Just me an update on where we stand on some of those programs and how we should think about volumes appreciating that, I think, 2026 in the past has been more characterized as an execution year. Amnon Shashua: Right. 2026 is an execution year. The supervision on Porsche and Audi should start in Q1 next year, Q1, May 2027. There was some pushback of deadlines unrelated to 2027. Do I have something more? Nimrod Nehushtan: Okay. And just to say that you didn't really change the plans of the project. It's just a one-month change between December 2026 to February 2027. So it's not really material. And we think made clear in previous calls as well that we do not expect meaningful volumes in these programs in 2026. Aaron Rakers: Right. Appreciate that. And then as a quick follow-up, in the prepared comments, you talked about inventory levels that your customers, your major OEMs being fairly lean. I know you've guided 10 million IQ units this quarter. I'm just curious, can you kind of go a little bit deeper on what you're seeing as far as the inventory levels your customers are holding? And do you expect any replenishment when you gave the unit expectation for this year? Or is it more lean inventories continue? I'm just curious to how you kind of bake that into your guidance. Thank you. Moran Shemesh: Yes. So I think for what we're seeing I mentioned it also in the remarks, we are seeing increased demand in terms of order flow 2025 and then higher than expectation, 2026 is, you know, constantly increasing in terms of production. But what happened specifically in Q4 was also that the order the orders were relatively low in the first place. As December is a slow month in ordering. It's a short month with holidays, etcetera. It was low, and then production level came up even higher. So it basically means that, you know, we believe the inventory levels that our customers are, you know, not reaching their inventory target at the end of 2025. So they are tighter than usual, and had some impact on Q1. But, again, we're also seeing very good demand. The 2026 production levels are going up. But, yeah, Q1 does have some impact. Of Q4 low volume combined with heavier or bigger demand. Aaron Rakers: Yep. Thank you. Amnon Shashua: Thank you, Aaron. Operator: Thank you. The next question is coming from Edison Yu of Deutsche Bank. Please go ahead. Edison Yu: Hi, thank you for taking our questions. I want to follow-up on Menti. Can you give us a sense of what are the next steps with some of these customers you're talking with? I know you mentioned proof of concept. Are you going to basically ship maybe a few units? And then if that turns out well, you'll ship, you know, 30, 40 and then much more. How do we think about those kind of next steps to commercialization? Amnon Shashua: I believe that 2026 is going to be maybe high tens of units in terms of the POC. 2027 should be more, and 2028 should be even further. 2027 to go up until the into production with the production partner. So 2026 is tens of units. What we would like also is to have in addition to the POCs, also, to produce small units for the sake of Mobileye to start experimenting with the robots not only Menti themselves. But, again, it's going to be a high double-digit number of robots in 2026. Nimrod Nehushtan: And just maybe just to add from the viewpoint of the customers in these pilots, the purpose is to start with a smaller amount of robots that perform specific tasks that they're kind of outlining, and you just go to the logistics center, for example, and there are a few shelves with boxes, and human beings today are moving boxes according to their, you know, their instructions and so forth. And basically, they want to see how robots can perform over a certain period of time, what's the precision, you know, reliability, durability, maintenance, and so on? And, you know, gradually afterwards, expand this to more and more tasks and in larger volumes. You know, we are talking about companies that employ tens of thousands of employees today in these types of positions. So I think, again, going to be a question of supply, and that's why it's so important to have a manufacturing partner, as Amnon said, that already in '27 is able to produce robots in a serious production manner, which is important both for cost and also for scale of volume. Edison Yu: Understood. Appreciate the color. A follow-up on Robotaxi. Obviously, a lot of excitement coming out of CES. Has your view on owning more of the, should we say, ecosystem change at all? And that's just in the context of you obviously have a lot of parties involved. Could that kind of hinder the speed of deployment or some of the logistical aspects? And obviously, would require capital, but I think that's not that big of an issue anymore. Thanks. Amnon Shashua: I think the current arrangement we have with Volkswagen and Moya is really optimized for the speed of the volume of the deployment. So going right now more vertically integrated is not going to increase the volume of the deployment. This is something perhaps to be considered towards the end of the decade or further than that. I think what we have in place is really optimal to where Mobileye is at. Mobileye will be producing the self-driving system as a tier one, taking responsibility not only for the electronics, but also for the sensors, of course, the software stack and all the validation. And the revenue per vehicle plus recurring revenue per mile is very, very attractive. The focus is execution now. Edison Yu: Thank you very much. Amnon Shashua: Thank you, Edison. Operator: Thank you. The next question is coming from Tom Narayan of RBC Capital Markets. Please go ahead. Tom Narayan: Thanks a lot, guys. The first one I have is on the '26, I guess, adjusted operating expenses. I think you guys said it's up $100 million. And I know that FX was mentioned, some other issues. But then the one that I'm wondering if that's the biggest piece of it. Is the Menti R&D or maybe it's consolidating Menti if it's operating at a loss. Just curious how we should think about the OpEx going higher, what's really, you know, the biggest driver of that? Then I've got a follow-up. Moran Shemesh: Yeah. Okay. So I think I've mentioned that we have incorporated Menti R&D into our guidance. So the guidance includes in terms of operating expenses, mainly 5% of regular inflation, enhancement or something then. And the additional portion is the Menti R&D. So these are the significant two items. I also mentioned we have also a headwind from the FX rate, but that is mostly offset by the efficiencies initiatives we did in Q4. Hope that answered your question. Amnon Shashua: Just to follow-up. I mean, I think that's pretty clear. But just to follow-up, like, you know, we do expect to have normal OpEx inflation per year of around 5%. This relates to, you know, salary and benefit inflation as well as kind of additional infrastructure to support the AV activities and the advanced product activities. That's normal. On top of that, this year, we are assuming consolidation of the Menti R&D expenses. We talked about that as somewhere in the, you know, lower single digits, but, you know, probably think, you know, towards, you know, 4% type of thing. And additionally, we do have this FX headwind, which is mostly offset by the workforce initiative we did in the fourth quarter, but not completely. So that should give you a decent walk from 2025 to 2026. Nimrod Nehushtan: Yeah. I think you described it quite accurately. Amnon Shashua: But take into account that, also, growing in terms of being a tier one in a tier one net position with our programs with Porsche and Audi and drive. And sometimes you need to make adjustments in terms of increasing the headcount. Again, this is nonmaterial compared to the overall OpEx of the product. But it adds a few percentage. So take the walk through that you mentioned was quite accurate. And accurate, you know, view percentage of growth that we need to account for when we are taking a tier one position and investing heavily into the future. So two years ago, now we calculated our OpEx growth, but we cannot be precise to the single percent in an area which is experiencing rapid growth. Tom Narayan: Got it. And for a follow-up on Menti, and this I know this is very early to this question. But, I mean, look. We're seeing the market reaction to the potential news out of, you know, from Hyundai with Boston Dynamics and the credit that Hyundai is getting. Is this something you guys might think about in the maybe the distant future? I don't know about trying to crystallize the value? Right now, there's so much appetite where, you know, the capital market certainly. This something you could consider, I mean, monetizing Menti in some way? Or do you believe that, you know, together and is a combined entity that, you know, that's how you kind of view the business? Amnon Shashua: Well, I think that the market is taking some time to internalize the use of the acquisition. Or the use of Mobileye entering into humanoid. I do believe that in some, you know, near future, this would create the dividend the like of what happened between Hyundai and Boston Dynamics. Now Menti has all the potential to make big steps forward, has demonstrated quite a mature technology. As the clips that I have shown and the clips that they have on their website. And then together with Mobileye, they can make rapid steps forward. Now whether we're going to see this dividend in a month or whether we're going to see this in a year, I don't know. But it has the potential to catalyze the same benefit that Hyundai is receiving from Samsung. Tom Narayan: Got it. Thank you. Dan Galves: Thanks, Tom. Operator: The next question is coming from Colin Rusch of Oppenheimer. Thanks so much, guys. Can you talk a little bit about the near-term pricing dynamics on IQ? Just curious, how much movement there really is as you see some of these larger volumes move through in the first part of the year and how we should think about that trending to the balance? Nimrod Nehushtan: So maybe if you refer to the IQ prices, but to make sure I'm volume. Volume or prices? I didn't get the question. Colin Rusch: I'm concerned about, you know, pricing, you know, as you ship the higher volume here and then, you know, how that the pricing trends for the balance of the year as you normalize that. Nimrod Nehushtan: Yep. So the pricing is every year is affected by the mix of IQs. And as you know, the IQs have different generations with different software features and software packages. This has somewhat of a different price, but overall, on average, there's no, let's say, meaningful change. The prices. There is a different mix this year compared to last year. Last year, as Moran said in her remarks, but we see higher volumes of IQ5 based ADAS product and IQ5 has somewhat of a higher cost, but still it's the best product with, you know, meaningful volumes this year compared to last year. So this does have some impact, but it's all natural mix. Moran Shemesh: And also the second chip that I mentioned, the second chip that I mentioned combined the fact that the second chip is a lower price than the first one. So it's higher gross profit per vehicle. But lower ASP. I think that the combined natural mix with Nimrod mentioned and the second chip impact is approximately, like, 80¢ or so. Year on year. Amnon Shashua: But just to clarify, this second chip or the card has two IQ4 chips, this is a one-off thing. It's not that we see a trend having two IQ chips in the car with one of the IQ chips with the at the discounted price. This is what we call a bridge. This is a bridge towards IQ6, IQ6 light. The carmaker wanted to meet a certain regulatory environment, that IQ4 alone could not meet. Therefore, a second IQ4 was added. But, again, this is a one-off. We don't expect it to be a trend. Colin Rusch: Okay. Perfect. Thanks, guys. And as you think about, you know, doing the driver out demonstration here later this year, you know, can you talk about the regulatory process and any bottlenecks or hurdles that are still remaining here, things that are of concern that you guys are focused on, getting ready, to do that demonstration. Amnon Shashua: Well, in the US, it's self-certification. We have stringent KPIs in terms of meantime between February. That we are meeting towards going driverless. Outside of the US, there's homologation. And as we mentioned together with Volkswagen, homologation will occur in 2027 outside of the US. Colin Rusch: But nothing on a regional basis or city that you guys are concerned about? Moran Shemesh: No. We see. And, actually, the homologation in Europe will have a stronger tailwind given that the vehicles are produced by Volkswagen level four vehicles, and our cooperation together with AT&T and Moya and both of them, will allow us to go to the homologation in a much easier way than if we were doing it alone. Nimrod Nehushtan: And this is a significant entry barrier to the European market. It involves a lot of activities and direct engagements with the regulatory bodies that we are, you know, already doing with Volkswagen. So getting this approval in '27, as Amnon mentioned, will also separate us in the European market from others. Dan Galves: It's an important point. And just to clarify on the timing of homologation, we're saying that it will be completed in 2027. And start in 2026. And the six cities, commercialized in 2027 that Volkswagen talked about includes some European cities, which is gonna require the homologation process to be completed. Colin Rusch: Thanks so much, guys. Appreciate the color there. Operator: Thank you. We are asking remaining analysts to please ask your question and your follow-up at the same time. Our next question is coming from Joshua Buchalter of TD Cowen. Please go ahead. Joshua Buchalter: Hey, guys. Thanks for taking my questions. Guess both at once. I guess to start, highlighted the potential for conversions on surround ADAS this year, but you haven't made the same comments about supervision and chauffeur. Are those, you know, maybe you can provide an update there. Are you guys, you know, deemphasizing that in your go-to-market and conversations with customers? And then for my follow-up that's, you know, on a completely unrelated topic, Amnon, you've touched on this in the CES presentation, but I was hoping you could provide some more details about, you know, specifically how your IQ roadmap is gonna accelerate Menti's time to market? And perhaps as important, how much software development is needed to move further into robotics, you know, given IQ's design specifically for autos. Thank you. Nimrod Nehushtan: So we have multiple engagements also on supervision chauffeur. So there's definitely an active engagement there with the market. To put things in perspective, our relationship with Volkswagen Group with the different brands on these products started maybe in 2021. And it took us a couple of years to kind of cross all the items that need that is needed. And we are also focused now on opportunities that have a meaningful business potential. As opposed to, you know, smaller scientific projects some OEMs are trying to explore. Maybe in some cases, it's in-house development data that they're doing, and they want to allocate one car in the future and see if it works. And we're trying to focus on opportunities that present significant volumes, multiple vehicle models, you know, with complete timelines so that we can, you know, we're we can scale the products. We're not looking for the, you know, first opportunity. We want to scale, and we have several of those. I don't want to predict timing, but we are encouraged by the activities there. Amnon Shashua: I think the enrollment period, if we field of it. Too early to talk about IQ chips on, you know, the robots. We think this is a longer-term, this is a longer horizon issue. Currently, the robots are based on NVIDIA chips, and we see that we're very proud of that relationship. And we see that going on for the near for the foreseeable future. Now when we go into really high-volume production where every cent counts, then I think IQ8, IQ9 could be quite relevant. But it's not in the foreseeable future. Joshua Buchalter: Okay. Thank you both. Operator: Thank you. We're showing time for one final questioner. Our last question is coming from Samik Chatterjee of JPMorgan. Please go ahead. MP: Hi. Thank you for taking my question. This is MP on for Samik Chatterjee. My first one would be, like, since you said that Porsche and Audi programs are now pushed out to Q1 2027, will drive or robotaxi be the biggest swing factor for 2026 revenues? And on that itself, like, updated thoughts on the monetization for Drive in terms of upfront revenues versus recurring consumption-based revenues? And for my follow-up, I wanted to ask on the second Surrounded Ads customer. You said that you there could be a potential decision for the second architecture with this customer. That's it. Thank you. Dan Galves: MP, the answer to your first question is that there we did not expect any meaningful impact from the advanced products in 2026. We've been saying that for the last several quarters. So there's no change related to what you did what you talked about. Nimrod Nehushtan: And we did not account for drive revenue in 2026 guidance. So there is no it's not in the guidance. Regarding the second question on the second design with the surround ADAS, in Q1. So if that happens, like, will that potentially double your pipeline with that customer? The discussions are obviously ongoing, and, you know, we are making good progress. And again, don't want to go into predicting time, but we continue to work on this, and it's progressing. MP: Thank you, MP. Operator: Thank you. At this time, I would like to turn the floor back over to Mr. Galves for closing comments. Dan Galves: Thanks, everyone, for tuning into our earnings call, and we'll talk to you next quarter. Thank you very much. Operator: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
Operator: Good morning, ladies and gentlemen. And welcome to Live Oak Bancshares Fourth Quarter 2025 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. I would now like to turn the conference call over to Gregory Seward, Live Oak's General Counsel. Please go ahead. Gregory Seward: Thank you, and good morning, everyone. Welcome to Live Oak's Fourth Quarter 2025 Earnings Conference Call. We are webcasting live over the Internet, and this call is being recorded. To access the call over the Internet and review the presentation materials that we will reference on the call, please visit our website at investorliveoakbank. You can go to the events and presentations tab for supporting materials. Our earnings release is also available on our website. Before we get started, I'd like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from our expectations are detailed in the materials accompanying this call, our SEC filings. We do not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of today's call. Information about any non-GAAP financial measures referenced, including reconciliation of those measures to GAAP measures, can also be found in our SEC filings and in the presentation materials. I will now turn the call over to our President, Vijay Moesch. Vijay Moesch: Great. Thanks, Greg. Good morning, everybody. Thanks for joining us. Let's get started on slide four. 2025 was quite an interesting year. And here at Live Oak, I'm really, really proud of the way we navigated through those interesting times. Macro uncertainty persisted throughout the year. Whether it was Doge or tariffs or uncertain economy and ultimately three rate decreases from the Fed late in the year. We continue to navigate through a small business credit cycle and our loan portfolio showed continued credit stabilization over the course of the year. We significantly improved our operating processes and controls. We successfully executed on our first preferred offering. And we finished the year nicely with some outside venture gains from our ventures portfolio. And yet even with that busy and potentially distracting backdrop, we produced some excellent results as you can see on slide five. A few of the biggest highlights were record loan production, 17% loan growth, 27% core PPNR growth, 17% revenue growth, and 13% tangible book value growth, in addition to accelerating our momentum in our key growth initiatives of Live Oak Express and checking. I'm particularly proud of this two-year view of our production on slide six. 57% growth in loan production across both our small business and commercial groups and importantly, strong pipelines heading into 2026. And as proud as I am of those production results, what matters most is how you translate that into profitable operating leverage. And you can see on slide seven that those results are simply outstanding. With adjusted PPNR of 27% over 2024 and adjusted EPS up 49%. New customer acquisition and growth like this doesn't just happen by accident. Our people and how we deliver excellent customer service make the difference. Our goal is to continue this momentum and deliver earnings outcomes that are more consistent and sustainable over time. While credit has been top of mind for us and for investors over the past year, perspective is always important. And on slide eight, you can see our credit trends over ten years relative to all other SBA lenders. And while default rates had moved higher over the last two years, as PPP and stimulus tailwinds have burned off, and rates rose rapidly, Live Oak's performance has consistently been well ahead of peers. Thankfully, we know small businesses and are great credit managers. We're hopeful that these trends start to moderate back towards the long-term trend lines sooner rather than later. Finally, we continue extending our customer product offerings with checking and small dollar SBA loan capabilities. Both of these efforts launched in early 2024. And in just 24 months, our teams have made significant gains in winning customer checking relationships and serving more small business borrowers. At the end of 2024, only roughly 6% of our customers had both a loan and deposit relationship with us. Today, that percentage is 22%. And we've got a lot more runway to travel. On the small dollar 7(a) front, what we call Live Oak Express, production is ramping up meaningfully and will continue to do so. These loans are also very desirable on the secondary market. That are leading to nice gain on sale increases. There's a lot more upside to this business as well. We're just starting. I couldn't be prouder of how our people are taking care of customers making our operations better and profitably growing our company. Thank you to all Live Oakers for the momentum that they have built heading into 2026. And with that, Walt, how about running through some of the financial highlights for the quarter? Walt Phifer: Thanks, Vijay. Good morning, everyone. As outlined on Page 11, we had an outstanding end to our 2025 campaign. With Q4 producing $44 million of net income and $0.95 of earnings per share, both of which were approximately three times 2024. Our strong performance was aided by excellent growth in core profitability trends, as seen in both our reported and adjusted PPNR improvement year over year. Generally improving credit trends and our fourth consecutive quarter of lower to stable provision expense and $28 million of net gains in our ventures investment portfolio primarily driven by the $24 million gain from the Aperture sale. Growth remains excellent. As Q4's loan production of $1.6 billion capped off our highest year of loan production in company history with $6.2 billion driving the 17% annual loan balance growth. Outstanding loan origination that you just won't see replicated broadly across the industry. And we love to see the progress across our two initiatives of growing business checking and originating Live Oak Express loan. Business checking balances of $377 million doubled year over year, materially benefiting our interest expense line, while Live Oak Express contributed $12 million towards our gain on sale totals in 2025. Let's get into the details on the following pages. Page 12 provides a financial snapshot of our Q4 earnings results. With quarter over quarter demonstrated improvement across all major profitability and growth metrics. On the bottom right of the page, you will see several notable items, included within our reported results. Headlined by the $28 million net investment gains from our Live Oak Ventures investment portfolio, In addition, we had approximately $11 million of offsets from warrant losses, capitalized software accelerated depreciation, severance, and allocation of funding to our donor advised fund. Continue to be very excited about our operating leverage trends highlighted on slide 13 as was BJ's. Q4's adjusted PPNR of $64 million as detailed in Slide 28 is 21% higher than 2024. While our adjusted EPS has doubled over the same time period. That doesn't tell the full story. It includes approximately $5 million of accelerated depreciation of capitalized software and severance expenses. As well as an intentional decision to delay some loan sales until 2026 which we'll touch on more shortly. Due to the large aforementioned investment gains. Slide 14 breaks down the $1.6 billion of loan originations by vertical and business unit. A few quick things that hit on here. Approximately 70% of our verticals originate more production in 2025 than they did in 2024. And both small business and commercial lending teams delivered double-digit year over year balance sheet growth rates. Slide 15 illustrates our loan and deposit balance growth. Highlighting the strong, consistent trends on both fronts. Our total loan portfolio grew approximately 4% linked quarter with year over year loan balances increasing approximately 17%. That's just outstanding durable growth. Q4 customer deposit growth was slightly down linked quarter, as was expected due to typical Q4 seasonality. Yet our year over year customer deposit growth rate was 18%. Which is fantastic growth in a very, very competitive market. As I mentioned earlier, we continue to be very excited about the momentum we are seeing in business checking, as highlighted on page 16. We saw our fourth consecutive quarter of growth with checking balances increasing 4% linked quarter to $377 million and are highly encouraged by our progress in deepening customer relationships. As BJ noted, 22% of our customers now have both a loan and a deposit account with us. Our total low-cost deposits and 37% of new loan customers also open a checking account in Q4. including noninterest bearing checking balances, low-cost collateral construction, and loan reserve accounts, now totals approximately 4% of our total deposit base. A two x increase year over year. And tremendously accretive to our earnings profile. Our net interest income and margin trends are detailed on slide 17. In 2025, we saw our quarterly net interest income increase $8 million or 7% linked quarter. And $26 million or 26% compared to 2024. Driving the Q4 increase in net interest income were both our continued outstanding growth as well as our net interest margin expansion of five basis points quarter over quarter, aided by our deposit portfolio repricing downwards in response to the 50 basis points of Fed cuts in Q4. While our variable quarterly adjusted loan portfolio did not reprice until January. As in the past, when we have seen large Fed moves downward of 50 basis points in the quarter, will see near-term compression as our deposit pricing and strong volume catch up. And we continue our upward trajectory on net interest income. Historically, our model operates well in a lower interest rate environment. Once we navigate the journey down as our deposit pricing adjusts. Currently, our base outlook for the Fed consists of three Fed cuts in March, June, and September 2026. Any less cuts or cuts later in the year will provide an earnings opportunity for the bank. Moving to guaranteed loan sale trends on Slide 18. Gain on sale was intentionally down this quarter as our large investment gains provided loan sale flexibility. Essentially allowing us to delay sales into a future quarter while increasing our loans held for sale by approximately $60 million quarter over quarter to maximize net interest income for a few additional months. This is a similar tactic that we have deployed in the past when we have large investment gains. Looking back to 2025, we are more than pleased the momentum that we are seeing in our Live Oak Express product. And the immediate impact it has had on our providing for a meaningful 20% of our gain on sale for $12 million a two x what it contributed in 2024. We remain very focused on ramping our Live Oak Express originations. As that will continue to be the primary driver of our gain on sale growth going forward. Expense and efficiency trends are detailed on slide 19. Q3 reported noninterest expense of $89 million included approximately $6.6 million of one-time expenses detailed within a notable item section back on slide 12. We remain heavily focused on improving both our customer and our employee experiences. And implementing technology and operational improvements across our entire business. All with the goal of creating raving fans moderating expense growth and thus improving efficiency, and providing a solid, mature foundation to support our growth. Taking a look at credit on slide 20, Over thirty days past due remained low for the fifth consecutive quarter with $10 million or nine basis points of our held for investment loan portfolio past due as of December 31. The amount of nonaccrual loans increased to $110 million or 91 basis points of our unguaranteed held for investment loan portfolio in Q4, The linked quarter increase in here was primarily driven by SBA credit, and it's consistent with the broader SBA industry trends. Which LIBOR continues to outperform. Our reserve levels declined modestly in line with the improving trends in past dues, classified assets and net charge offs. Altogether, improvements across these metrics show that the uptick in nonaccruals is manageable. Capital levels remain healthy and robust as shown on page 21. Q4 strong results matched our asset growth. Keeping our capital levels relatively flat linked quarter. A few thoughts on the forward outlook. We are very optimistic about the opportunity in front of us in 2026 and beyond. On the revenue front, we generally see a stable or low rate environment coupled with continued strong loan growth as a favorable backdrop for our bank's growth, margin, and credit outlook. Our two strategic initiatives in business checking and Live Oak Express are nicely with plenty of runway to continue to drive deeper relationships. Increased fee revenue, and lower funding cost. We have refocused our expense base. And investments on the best opportunities. Which will moderate the growth rate while better supporting strong revenue growth. The possibilities that AI and tech innovation provides across the bank are enticing. And will enhance our customer service and efficiency with active efforts ongoing. And above all else, we have an amazing culture, team, and brand here at Live Oak Bank that is irrevocable. With that being said, thank you again for joining this morning. Vijay, back to you for closing comments before we hit the queue for Q&A. Vijay Moesch: Excellent. Thanks, Walt. Let's just take some questions. Operator: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any case. Once again, it is star one should you wish to ask a question. Your first question is from Crispin Love from Piper Sandler. Your line is now open. Crispin Love: Thank you. Good morning, everyone. Just first, NII and the NIM, very strong in the quarter. Nice expansion there. But can you just talk about some of the dynamics into the first quarter, the impact of the last two cuts, the impact of loan yields that there's likely some lag, also deposit costs, then just consequently, NII and the NIM in the first quarter relative to the fourth. Well, I believe you mentioned some compression in the NIM, but higher NI, but if you just flesh that out a little bit, that'd be great. Walt Phifer: Yeah. Hey, Chris. It's Paul. Thanks for the question. I think you hit the nail on the head and kinda go back to some of the comments I made. In the prepared remarks. Typically, anytime you see 50 basis points of Fed cuts in the quarter or the following quarter, As you know, we have a large variable quarterly adjust loan portfolio that reprices on the first business day. So that'll drive both NIM and net interest income compression in the near term. The good news, which essentially, the beauty of Live Oak and our growth engine, is that as the deposit pricing, deposit price continues to adjust, growth really pushes us back to that up into the right migration and both the interest in coming in fairly quickly. Really, and and the seedness of that flow on the up and to the right migration is largely gonna depend on know, what your your whatever fed outlook or forward curve you're thinking or or taking a look at. But I think, you know, a good proxy if you kinda, you know, kinda looking for a guide for what Q1 could look like in terms of NIM Back in '24, we had 50 base points of Fed compression or of Fed rate cuts right at the end of right at September. And you you can see kind of the quarter over quarter change, Q4 twenty twenty four as a result of that. Crispin Love: Okay. Great. Helpful color there. And then just on gain on sale income, down materially in the fourth, not a major surprise. At least directionally, because of the shutdown. And then you also mentioned the aperture gain. Drove some of that decision to hold more. I think you typically sell more in the back half of quarters. But, is that changing in the first quarter because of the shutdown? Have you been active selling in early twenty twenty six? And then just when you look at the first quarter, how would you think gain on sale income should trend just as you look at more normalized quarters like the 2025, my I would expect that it would be kind of higher than that just when you look at the fourth, but I just wanna kinda check to see what you're thinking there. Walt Phifer: Yeah. Thanks, Chris. It's Walt again. You know, I think the government shutdown really did impact us much in Q4. I think we saw a little bit of a timing delay in certain loans, but you saw that, you know, strong s b, SBA production in the quarter You know, so we're able to get, you know, kind of all our loans as we talked about in the last 30 earnings call, you know, kind of position to close once the government opened up, and that's, like, exactly what we did You know, as you think about gain on sale trajectories, I don't think anything will change between when we sell loans versus, you know, January versus February or or March. I think it'll still be much you know, more to the mid to the back end of the quarter. That's our typical approach. I think Q1 historically, for us is our lowest quarter of the year. I know 2020, '5 was a little bit different because of the fintech gains, but I would expect our Q1 to be much more in line with you know, the 2025. And then that's when we start our our up into the right stair step. Momentum within the gate on field line. Crispin Love: Alright. So if I'm looking at one q twenty five, so even if even though that there was a little bit of lag there, it could be below that kinda two Q3 q level. Walt Phifer: I think it'll be closer to what you're seeing in 2025. Yeah. So our 2026 will be closer to what you see in 01/2025, so it'll be a step up versus what you saw in Q4. And then that gets us back into you know, that's I think Q1 twenty twenty five was in the $15 million reach of total gain on sale. That feels you know, that feels appropriate. Crispin Love: Alright. Thank you. Appreciate it, Walt. Walt Phifer: Sure. Operator: Thank you. Your next question is from David Feaster from Raymond James. Your line is now open. David Feaster: Good morning, everybody. Walt Phifer: Hey, David. David Feaster: I wanted to to not to beat a dead horse on the margin outlook, but I just wanted to maybe get some thoughts on the trajectory. I appreciate the commentary on the first quarter. You've got three cuts embedded in your guidance. Obviously, there's some you you there's just gonna be a lot of moving parts. Right? You got the tailwinds from the reprep deposit repricing in the prior cuts. The headwinds on on the the assets repricing lower on on the rate sensitive stuff. I just was curious if you could help us think through with the three cuts that you've got embedded, how do you think about the margin trajectory over the course of the year? Do you think we can given the tailwind from the prior cuts, we can actually see some expansion and kinda just us think through that trajectory over the course of the year. Walt Phifer: Yeah. I think, you know, David this is Walt again. You know, really you know, thing that we think about is not only what the Fed cuts gonna do, it's the it's it's the timing and severity of those cuts. You know, stable environments work really well for us. So if you saw, you know, 2024, we saw compression And then with a stable environment, we saw a nice NIM expansion throughout the year. With 25 basis points of, you know, of Fed cut assumptions, that allows our deposit pricing to catch up relatively quickly. Ultimately, we're you know, we'll expect that step down here in Q1, and then you know, our expectation is to go back on that, you know, start seeing the up and right trajectory or NIM expansion, you know, as we move through the year. It's gonna be driven by growth Now, obviously, you know, positive market is very competitive and what kind of you know we have to do what we need to do to continue to fund our outstanding growth. And, you know, David, like we talked about in the past, we we at Live Oak, I mean, even with a you know, a three you call it anywhere from a three fifteen to a three fifty NIM. You know, we think that's really attractive. We focus a lot on net interest income. That's the beauty of kind of the Live Oak model, right, where you can have double digit net interest income growth year over year. Even with some variations, you know, from your margin trajectory? Absolutely. David Feaster: Terrific. That's helpful. And then, you know, obviously, there was a lot of noise on the expense side this quarter. You alluded to to some of the things. Just was hoping you could give us some puts and takes on expenses. You know, you've got a lot of investments on the horizon. We talked about, you know, the Live Oak Express ramping up. We talked about embedded finance. Could you just help us think through a good core expense run rate from here? What's your investing in and how you think about funding those investments just as I know you've really been focused on expense management. Walt Phifer: David. This is Walter again. Thanks. Great question. You know, we're we're really trying to do our best to make sure that we're balancing both revenue and expense growth. You know, we've as BJ mentioned and I mentioned, kind of looking at the operating leverage slide, we've done a really good job of that, especially over the last few years. They even have extended past, you know, five years with our PPNR or p p PPNR trajectory. You know, I think from, you know, where we're investing, you know, the two strategic priorities for us of both business checking and lab express and Live Oak Express are, you know, heavy focal points. You know, the the the areas with AI and application and kind of across our operational areas of of the bank, it's and our loan, loan origination platform is really exciting. Know, I think from you know, expense growth rate, You know, we typically you we mentioned that in our prepared remarks, we expect that to moderate quite a bit. You know, that that's something probably likely in the in the single digits year over year as we think through, you know, it's just making sure that we're, you know, reporting our money strategically in the right places. David Feaster: Okay. That's helpful. And then just quickly touching on credit. You know, there's there's mixed trends there. Just wanted to get your color on what are you hearing from your clients? Where are some of the pressure points that you're seeing as you as you look into the portfolio? Are there any segments that there's more pressure? And and what drove that increase in nonaccruals? And just how do you think about credit how do you think credit trends near term, and any color on the classified assets trends specifically would be helpful as well. Michael Cairns: Yeah. Good morning. Michael Cairns here. I'm happy to talk about credit a little bit here. And my view on this quarter was it was a fairly uneventful and stable quarter when you compare it to where we were last last quarter. The past dues are low, And to your point or your question, classified loans are flat to slightly improving over the quarter. And when you think about nonaccrual, loans, those live within our classified loan portfolio. And so when we determine that they're a classified loan, at that point, we're assessing the reserve of potential losses against that those loans. And natural progression of a classified loan or the the reason we identify as a potential problem loan is because payment defaults could happen. So you're seeing that in the nonaccrual balances, but you're not seeing a spike in reserve or provision expense because we've already assessed the the potential losses within that pool. And then when you look at and I and I know Walt touched on this already, but when you look at the SBA data, you know, 2025, we still saw higher industry defaults. Live Oak wasn't immune. To that, but we also fared significantly better than the industry. And when I think about that, I think about the fact that we we have always maintained our credit culture don't stress on underwriting standards. And a lot of credit really to our lending staff who are out there historically and today finding loan growth without sacrificing credit quality. And I think that's what has set us up to be a favorable favorable position to the industry and also what will pay dividends for us in the future. And then to when you also think about the interest rate cuts that happened in the 2025, Our borrowers haven't felt the benefit of that quite yet, but they should in 2026. So I expect some relief there, especially if we see some additional cuts And, again, I don't know if I touched on this or not, but the SBA the SBA portfolios that makes up the chunk of the nonaccrual balances and the classifieds. So with all that, I felt like it was a pretty stable quarter. David Feaster: That's great color. Thanks. Operator: Thank you. Your next question is from David from Cantor. Line is now open. David: Hey. Good morning, guys. Walt Phifer: Good morning, Dave. David: Hey, Walter. I just wanna go back to your comments on the margin. You mentioned down similar to that trend in 4Q 'twenty four, I believe. And so it looked like that was down about 18 basis points that quarter. So just wanted to make sure that, that was sort of the magnitude that you were thinking about. And then on slide 17, you guys included a newer line in that some income from a it was other loan income. It was about six basis points on the margin. For the quarter. I was just wondering what that was exactly, and is that something that's going to reverse as that rolls, you know, off of one queue? Or does that stay in the margin trying to figure out if that's incremental to what you guys saw in terms of the trend in 04/2024. Thanks. Walt Phifer: Sure. Hey, Dave. This is Walt. Thanks for that, you know, for the question. On the other loan income, I'll start there. So that line, it was was inflated more than we typically see in any given quarter. This really, relates to few large solar and senior housing loans that paid off that had pretty high prepayment penalty. So that's something that, you know, we don't expect to see the run rate you know, you know, moving forward and especially not to that degree. And then, you know, as you think about the trajectory you know, back in Q4, you know, after the 50 basis points of cuts, Yeah. I think that's, you know, that's in a reasonable range think the one thing that's helping us this year is that we were able to get out front of of the the variable loan portfolio, repricing on January 1. With some deposit, rate reductions there at the end of, of Q4. And, also, we're able to already to reduce the pricing again here in Q1. So we're doing what we can to mitigate it. You know, but I think the the other factor there is, you know, our pipeline has been really slowed down at all. So, you know, we're expecting a pretty strong Q1 in terms of growth. That's gonna, you know, hopefully help you know, you know, manage that that that NIM compression that they're taking a look at. David: Great. Appreciate that. And then just, on expenses, just wanna make sure I heard you right. Were you saying mid single digit growth for expenses next year? Walt Phifer: Slower than what we saw this year? David: Okay. Yeah. Great. And then just on Live Oak Express, it was good detail you had in here on the 12,000,000 of gain on sale. For 25. Are you thinking I guess, bigger picture, what are thinking for the trajectory there? Is that something that I could double in '26? Could it could it go even higher than that? What what are your thoughts there? Walt Phifer: Yeah, Dave. This is Walt again. I'll start and then Peter, you wanna add into you know, from the Live Oak Express efforts. Know, I think we're doing what we can to really make sure we're we're building top of the funnel in that space. We saw you know, we we did see a slowdown in our Live Oak Express origination back 2024 the SBA SOP changes in June. You know, that you know, we had to essentially reset kind of know, our expectations to make sure that we're to build rebuild that pipeline with borrowers or rebuild the pipeline with with borrowers after know, just essentially updating them, educating them on what those SOP changes were. Know, look, I think doubling is very aspirational. I think it'll be something less than that. I'll let Vijay talk and add in if he has any comments. Vijay Moesch: Yeah. I think at cruise altitude, I think, you know, we're our aspirational goals are a billion dollars a year of production. At cruise altitude. That's not next year. That's over time. When we started down the road of building out a Live Oak Express product, it was really by brute force. I think we've talked about it before that, you know, we just never really focused on the small dollar loans, you know, that we our average loans size was more in the 1.2 or $1,300,000 average loan size range. And so know, we started just kind of trying to see how we could do it What we're doing now is intentionally building capabilities so that we can fill you know, the top of funnel, so to speak, and get a lot more leads that we can then work in a much more efficient manner. So for instance, we are, you know, building and co developing a next generation loan origination platform, which will make it simpler, easier, faster, and more efficient for our people to serve our customers much more quickly and get to decisions and funding a lot faster. We have engaged outside expertise in our marketing group. That are expert in performance marketing to find ways to better target customers. That are out there searching for loans that we can that we can do through our Live Oak Express product. And we are making sure that our lenders, have been carrying the bulk of the water, up to now in terms of referrals, can even find more avenues for those referrals and we're encouraging them to do that both through how we how we provide them resources, but then also making it part of the you know, incentive plans that we have for them to grow the business. So we've kinda got a multifaceted way of going after this. Intentionally. So we think that we'll continue to see growth over the next several years towards that aspirational target of 1,000,000,000 a year. David: Alright. Great. Thanks, guys. Operator: Your next question is from Tim from KBW. Your line is now open. Tim: Hey. Good morning. Thanks taking my questions. My my first one is kind of a follow-up on this discussion on Live Oak Express, and you know, we're more than six months now into these SOP changes regarding the smaller dollar loans. Which I think we're now starting to see how that has pressured volume on maybe some of your competitors. So is there any way you're able to maybe not quantify, but you know, characterize the impact that has had on your competitors. And, you know, is that made it a little bit easier for you to win some market share in the smaller dollar space? And, also, like, has that impacted pricing, yields, anything like that? Vijay Moesch: On the latter, I don't think that we've seen an impact on pricing or yields quite yet. On the former, I think we started to see that. You know, we've started to see some lenders back away first the nonbank lenders, because they were were seeing a lot of the the biggest credit pressures And, you know, we're we're starting to see bank lenders be a little more choosy on what they do, which makes a lot of sense. We want a healthy SBA seven a industry. And we have always been very intentional from the outset on our small dollar lending products. We don't play at the highest, highest end of the pricing game. We don't chase you know, spotty credit. We want businesses, small businesses to succeed. And so you know, our total addressable market, so to speak, on the smaller side, is going to be reduced somewhat because we're gonna be cheesier about who we do business with. But on the flip side, we're gonna make it so easy for customers to do business with us. And we're going to target people that have a propensity to do business with us, like they want to, and they are going to get the full power of our brand and our people and our tech over time such that we think that that's going to be a huge differentiator between what they currently get today, particularly on the small dollar side, and what Live Oak is gonna deliver. So really excited about how we're actually thoughtfully building out this business, and I think it'll be quite substantial and a huge part of what we do on the SBA side. For years to come. Tim: Interesting. That that was a great color. Thank you. I was also wondering, like, on the on the flip side of this, if since everyone is not required to do basically full underwriting and you know, the upfront guarantee fees and everything, is essentially equal for the larger loans. Are you seeing some of your competitors kind of move back to Live Oak's more traditional loan size at all. Vijay Moesch: Not necessarily. Not that not that we can discern. You know, we haven't seen much much change from that perspective, Tim. Tim: Okay. And then I was also looking for maybe an update on the opportunities and internal development you guys are doing with regards to AI has brought this up a few times on conference calls. I was looking for an update there. What are kind of the tangible use cases you're exploring and you know, what are the benefits it can provide you whether that's you know, internal efficiency efforts or you know, creating a better experience for customers. Vijay Moesch: Sure. I'll just give a quick update on that. I think starting with our technology and our labs teams, all of our developers are using cursor next generation AI based developing software. And I'm not sure that that's going on across the rest of the industry, but having all of our people well versed in that, we made that pivot very quickly. So that's that's number one, and that's helpful. We are intentionally and introducing our people to AI first with things like Copilot, but then also things like you know, putting our information into proprietary large language models that they can then query and use for analytics specifically related to our customer information, our portfolios, our business. So that's that's kinda fundamental, and maybe a lot of people are doing that. But then what we're looking at is a multi pronged approach on how we how we go after this. I think if you just look at modernizing what you do in technology or in operations or revenue generating parts of an organization? Just simply say, we wanna put in AI. AI is gonna solve everything. It's not. What we're looking at is a way to say how do we go to major parts of the organization understand what the pain points are that don't make it easy or simple or fast or efficient for our people and our customers. And to fix those, sometimes with just better process, sometimes with eliminating manual process. And then more and more with AI. And it's a combination of being intelligent around that. So we're going to major departments and groups like loan operations and you know, secondary markets and deposit operations and those areas to modernize those using AI and other tactics. We're also asking everybody in our organization to be knowledgeable about just doing things better and more efficient whether it's using AI or you know, not using AI. And then thirdly, you know, we're going to create a dedicated team that is thinking about how over the next three to five years we create an AI native bank. What does that mean? What does that look like? We have the innovative history here. And technology that that was born out of our founders. And we're constantly thinking about how to do that better. And so you'll see more and more use cases, tangible use cases from us over time as we start to build out what that means to be an AI native bank. Tim: Got it. That that was great. Thank you. If if I get one more question, kind of a follow-up on the credit discussion. I I think Michael mentioned you know, we're not seeing any kind of spikes in the provision expense Is that you know, what what should we expect going forward in terms of provision if credit continues to gradually improve over the course of the year like it has over the last few months? Should provision be stable? Can it moderate a little bit further, or is this kind of where it's gonna stay? Walt Phifer: I'll start. Hey. Hey, Tim. It's Walt. I'll jump in too, and then you might can add on. I think if you think about stabilizing credit trends, I think one thing you have to remember with us was being a high growth bank. You know, that growth and CECL typically don't get along real well. So, you know, growth will continue to drive our provision expense along with our portfolio trends as well. But I think, you know, kind of what you've seen over the last three quarters is a really good view of kind of, like, stabilizing, you know or kind of stabilizing portfolio with stabilizing credit trends, and that should give you kind of a broad view of what you could expect kinda going forward, you know, assuming the same level of growth. Tim: Yeah. That that's fair fair point of provision. So I guess we should think about maybe the reserve percentage staying about level. Walt Phifer: Yeah. That's that's that's about right. Tim: Got it. Alright. Well, thank you. Operator: Your next question is from Billy Young from TD Cowen. Line is now open. Billy Young: Good morning, guys. How are you? Walt Phifer: Morning, Billy. Billy Young: Just a question on your business checking initiatives. Given the strong momentum in your comments and the strong performance you had over the past year. Do you have any updated thoughts about how we should think about the funding mix looking out over the next year or two given, you know, the the increased growth in NIB? Walt Phifer: Yes. I'll start there, Billy. I think the you know, we've been able to get to about 4% of our noninterest bearing deposits as as I mentioned earlier. You know, ultimately, our aspirational goal over just like kind of, you know, BJ mentioned with Live Oak Express is over time to get up towards in that 15% of our deposit base, like, again, that's not gonna happen next year. I think we saw 2% of non interest bearing a year ago, 4% this year. I think that trajectory makes sense. You know, as we kinda move into, into 2026. If you just think about know, leveraging that, you know, that growth rate? Billy Young: Got it. Thank you. That's helpful. And then just a couple of housekeeping items on the decision to hold on to more of your gain on sale loans. Just did you size up how much the benefit was to the margin or NII from holding on to the higher held for sale loans this quarter? And then also, did you use this opportunity to maybe portfolio some more in production? In 4Q? Walt Phifer: Yeah. I'll jump in on that, Billy. The benefit for NII of about $60 million of HFS given our our spreads and our margins is you know, likely in the call it, 1.8 to $2.5 million range. A year. Sorry. Yeah. That that's correct. Divide that by four, that kinda gives you so not overly material for Q4 itself. You know, as far as portfolioing, I don't think that's what what we'll likely do. I mean, I've always you know, kind of aspire to get to the point where we're building any kind of we used to call a treasure chest, but essentially, it's a it's a portfolio of held for sale. We are loans that we can sell at any given point, gives us some good momentum going into into Q1. So we'll likely monetize you know, that additional $60 million here in In Q1, and then that gives us some flexibility for reloads that we originate in Q1. To then kinda get a give us a headstart into Q2 and so forth. Billy Young: Got it. Thank you for taking my questions. Operator: Sure. Thanks, Billy. Operator: Thank you. There are no further questions at this time. I will now hand the callback over to Chip Mahan. Chairman and CEO. The closing remarks. Chip Mahan: See you next quarter. Thanks. Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to Atlantic Union Bankshares 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. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your name is Ray. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Bill Samia, Senior Vice President of Investor Relations. Please go ahead. Bill Samia: Thank you, Olivia, and good morning, everyone. I have Atlantic Union Bankshares' President and CEO, John Asbury, and Executive Vice President and CFO, Rob Gorman with me today. We also have other members of our executive management team with us for the question and answer period. Please note that today's earnings release and the accompanying slide presentation we are going through on this webcast are available to download on our investor website investors.atlanticunionbank.com. During today's call, we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures. Important information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures, is included in the appendix to our slide presentation and in our earnings release for the fourth quarter and full year 2025. We will also make forward-looking statements, which are not statements of historical fact and are subject to risks and uncertainties. There can be no assurance that actual performance will not differ materially from any future expectations or results expressed or implied by these forward-looking statements. We undertake no obligation to publicly revise or update any forward-looking statement except as required by law. Please refer to our earnings release and our slide presentation issued today as well as our other SEC filings for further discussion of the company's risk factors including other information regarding the forward-looking statements, including factors that could cause actual results to differ from those expressed or implied in the forward-looking statements. All comments made during today's call are subject to that safe harbor statement. And at the end of today's call, we will take questions from the research analyst community. Now, I will turn the call over to John. John Asbury: Thanks, Bill. Good morning, everyone, and thank you for joining us today. Atlantic Union Bankshares reported strong fourth quarter financial results, reflecting disciplined execution and successful integration of the Sandy Springs acquisition. We believe the adjusted operating financial results for the quarter showcased the organization's earning capacity. While merger-related charges continue to affect this quarter's results, the underlying operating performance supports our continued confidence in achieving the strategic goals associated with the Sandy Spring acquisition, namely, the targets for adjusted operating return on assets, return on tangible common equity, and efficiency ratio. With the core systems conversion completed in October and only modest residual merger-related expenses anticipated in the first quarter, we expect the noise associated with our merger-related expenses to decline. This means that we will be positioned beginning with Q1 2026 to report unadjusted results that more clearly demonstrate the financial strength and operating efficiency we are committed to delivering for our shareholders. Our commitment to creating shareholder value remains unwavering. We believe Atlantic Union is well-positioned to deliver sustainable growth, top-tier financial performance, and long-term value creation for our shareholders. We believe the strategic advantages gained from the Sandy Spring acquisition combined with continued organic growth opportunities due to our robust presence and attractive markets reinforce our status as the premier regional bank headquartered in the Lower Mid-Atlantic. I'll briefly cover our Q4 and full year 2025 highlights and share market insights before Rob presents the financial review. Here are the highlights for our fourth quarter. Quarterly loan growth was approximately 6.3% annualized, ending the year at $27.8 billion. Our pipelines were higher at the end of the fourth quarter than they were at the start of the quarter, which suggests we are on track for loan growth consistent with our full year 2026 outlook. While forecasting loan growth remains challenging in the still uncertain economic environment, we continue to expect 2026 year-end loan balances to range between $29 billion and $30 billion inclusive of the negative impact from loan fair value marks. We observed a return to more typical commercial line utilization levels in the fourth quarter. Loan production reached a record high in Q4 as our team gained momentum. Despite ongoing economic uncertainty, the Sandy Spring core system conversion and the CRE loan sale executed at the end of 2025. Additionally, we observed growing confidence among our client base which combined with seasonally strong lending trends further supported our robust performance in the quarter. Our deposit base experienced typical year-end fluctuations due to activity from large commercial depositors with some of these balances returning during the early weeks of the first quarter. Our FTE net interest margin increased by 13 basis points to 3.96%. While improvement in accretion income contributed modestly, the main driver was our ability to reduce deposit costs while holding loan yields relatively flat compared to the prior quarter. Loan yields stayed relatively steady despite the Fed rate cuts and its impact on our variable rate loan yields due to increased accretion income, higher loan fees, and the repricing of renewed and new fixed-rate loans at current market rates. Importantly, this also demonstrates we are putting our interest rate accretion income and principal repayments from the acquired fixed-rate loan portfolios to work as those loans renew or reprice to higher market rates. Fee income was strong, primarily driven by loan-related interest rate swap fees and fiduciary and asset management fees, with both benefiting from the Sandy Spring acquisition. About 27% of interest rate swap income this quarter came from former Sandy Spring customers. While Sandy Spring had a nascent swap program, AUV swap program is well established and mature. We expect ongoing growth in this area, though it's important to note that swap income may vary from quarter to quarter. Overall, credit quality showed continued strength and improvement. With our fourth quarter annualized net charge-off ratio coming in at one basis point. The net charge-off ratio for the full year was within our guidance at 17 basis points. Leading asset quality indicators remain encouraging. Fourth quarter non-performing assets as a percentage of loans held for investment declined a further seven basis points to 0.42% from 0.49% in the prior quarter. Criticized and classified assets remain low, 4.7%. We believe credit underwriting, client selectivity, and loan loss performance have consistently been traditional strengths of Sandy Spring Bank and American National Bank, reinforcing our continued confidence in asset quality. Before we discuss unemployment rates, I want to clarify we are comparing November to September figures since October data is unavailable due to the government shutdown. Taking a step back, Virginia's unemployment rate remained unchanged at 3.5% in November, compared to September. Demonstrating notable resilience, especially since the national unemployment rate rose by 0.2 percentage points to 4.6% during the same time frame. Maryland's unemployment rate rose to 4.2%, a 0.4 percentage point increase at September. This change aligns with our expectations, particularly considering the November data now includes federal government workers who took buyout plans. Despite the uptick, Maryland continues to outperform the national average during the same period. North Carolina's unemployment rate edged up 0.1 percentage point to 3.8%, remaining well below the national average. Although we do anticipate some further increases in unemployment across our markets in our CECL modeling, we expect these levels in Virginia, Maryland, and North Carolina to stay manageable and below the national average consistent with Moody's current state-level forecast. We remain confident in our markets and consider them among the most attractive in the country. For those who missed our Investor Day last month, I want to revisit a key slide from our Investor Day presentation as its message remains essential. We have deliberately and thoughtfully built a distinctive valuable franchise outlined in our strategic plan delivering on our commitments, and establishing the banking platform we set out to create. With this strong foundation, we believe we're well-positioned to capitalize on the expanded markets gained through the Sandy Spring acquisition, drive continued growth in Virginia, and pursue new organic opportunities in North Carolina and across our specialty lines. Our full Investor Day presentation details our market approach for the next three years, and I encourage everyone to watch it. With disciplined execution of our prior acquisitions and no additional acquisitions currently planned during this phase of our strategic plan, our focus now shifts to demonstrating the franchise's earnings power and capital generation ability. It's time to show that our efforts and investments have been worthwhile. After dedicating capital to strategic investments over the past two years, to complete the company we envisioned and worked so diligently to build, and consistently communicated our plans to do so, we believe we are now seeing clear tangible benefits from these efforts. In summary, 2025 was a pivotal year for AUB. We remained agile and responsive while managing a significant merger integration, a major CRE loan sale, and navigating macroeconomic headwinds including federal government restructuring and unpredictable tariff policies. Despite these challenges, we delivered operating results that we believe will stand out among our peers. With that, I'll turn the call over to Rob for a detailed review of our quarterly financial results before we open the floor for questions. Rob? Rob Gorman: Well, thank you, John, and good morning, everyone. I'll now take a few minutes to provide you with some details of Atlantic Union's financial results for the fourth quarter and full year 2025. My commentary today will primarily address Atlantic Union's fourth quarter and 2025 financial results presenting on a non-GAAP adjusted operating basis, which for the fourth quarter excludes $38.6 million in pretax merger-related costs from the Sandy Spring acquisition. For the full year 2025, it excludes the following items: pretax merger-related costs of $157.3 million, pretax gain on the sale of CRE loans of $10.9 million, and the pretax gain on the sale of our equity interest in Cary Street Partners of $14.8 million. That said, in the fourth quarter, reported net income available to common shareholders was $109 million and earnings per common share were $0.77. For the full year 2025, reported net income available to common shareholders was $261.8 million, and earnings per common share were $2.03. Adjusted operating earnings available to common shareholders were $138.4 million or $0.97 per common share in the fourth quarter, resulting in an adjusted operating return on tangible common equity of 22.1% and adjusted operating return on assets of 1.5% and an adjusted operating efficiency ratio of 47.8% in the quarter. For the full year 2025, adjusted operating earnings available to common shareholders were $444.8 million or $3.44 per common share. Resulting in an adjusted operating return on tangible common equity of 20.4% and adjusted operating return on assets of 1.33% and an adjusted operating efficiency ratio of 49.7%. As John mentioned, we believe these adjusted operating results for return on tangible common equity and the efficiency ratio put us in the upper quartile of our peer group for the full year of 2025. Turning to credit loss reserves at the end of the fourth quarter, the total allowance for credit losses was $321.3 million, which was an increase of approximately $1.3 million from the third quarter primarily driven by loan growth in the fourth quarter. As a result, the total allowance for credit losses as a percentage of total loans held for investment decreased one basis point to 116 basis points at the end of the fourth quarter. Net charge-offs decreased to $916,000 or one basis point annualized in the fourth quarter from $38.6 million or 56 basis points annualized in the third quarter due to the charge-off of two commercial and industrial loans in the third quarter. The net charge-off ratio for the year came in at 17 basis points in line with our 15 to 20 basis points guidance. Now turning to the pretax pre-provision components of the income statement for the fourth quarter. Tax equivalent net interest income was $334.8 million, which was an increase of $11.2 million from the third quarter primarily driven by a decrease in interest expense resulting from lower deposit costs and increases in interest income on loans held for investment and the securities portfolio, which was partially offset by a decline in other earning asset interest income primarily driven by lower average cash and cash equivalent balances in the fourth quarter. As John noted, the fourth quarter's tax equivalent net interest margin increased 13 basis points from the prior quarter to 3.96% primarily due to lower cost of funds, partially offset by a slight decrease in earning asset yields. Cost of funds decreased 14 basis points from the prior quarter to 2.03%. The fourth quarter due primarily to lower deposit costs reflecting the impact of Fed funds rate decreases starting in September 2025. Earning asset yields for the fourth quarter decreased one basis point to 5.99% as compared to the third quarter due primarily to lower investment in other earning asset yields, partially offset by slightly higher loan yields. As John mentioned, loan yields stayed relatively steady despite the Fed rate cuts and its impact on our variable rate loan yields due to increased accretion income, higher loan fees, and the repricing of renewed and new fixed-rate loans at current market rates. Noninterest income increased $5.2 million to $57 million for the fourth quarter from $51.8 million in the prior quarter. Primarily driven by a $4.8 million pretax loss in the prior quarter related to the final settlement of the sale of CRE loans executed at the end of 2025 as part of the Sandy Spring acquisition. Adjusted operating noninterest income, which excludes the pretax loss on the CRE loan sale in the third quarter, the pretax gain on the sale of our equity interest in Cary Street Partners in the fourth quarter, and the pretax gains on the sale of securities in both the third and fourth quarters remained relatively consistent with the prior quarter at $56.5 million primarily due to a decline in service charges on deposit accounts of $1.1 million, $400,000 of which was driven by temporary post-conversion fee waivers for Sandy Spring customers. A decrease in other operating income of $807,000 primarily due to lower equity method investment income and seasonally lower mortgage banking income of $727,000 offset by higher loan-related interest rate swap fees of $2.5 million due to higher transaction volumes, and increases in fiduciary and asset management fees of $1.3 million primarily due to increases in estate fees, personal trust income, and investment advisory fees. Reported noninterest expense increased $4.8 million to $243.2 million for 2025 primarily driven by a $3.8 million increase in merger-related costs associated with the Sandy Spring acquisition. Adjusted operating noninterest expense, which excludes merger-related costs in the third and fourth quarters and amortization of intangible assets in both quarters, increased $1.4 million to $186.9 million for the fourth quarter up from $185.5 million in the prior quarter. This was primarily due to a $2.4 million increase in other expenses driven by an increase in noncredit related losses on customer transactions. A $1.7 million increase in marketing and advertising expense. These increases were partially offset by a $1.4 million decrease in FDIC assessment premiums due to lower assessments in 2025 and a $1.2 million decline in furniture and equipment expenses, which was primarily driven by lower software amortization expense related to the integration of Sandy Spring. At December 31, loans held for investment net of deferred fees and costs were $27.8 billion, an increase of $435 million or 6.3% annualized from the prior quarter. At December 31, total deposits were $30.5 billion, a decrease of $193.7 million or 2.5% annualized from the prior quarter. Primarily due to decreases of $260 million in demand deposits largely driven by typical seasonal patterns and $14.5 million in interest-bearing customer deposits. These were partially offset by an increase of approximately $81 million in brokered deposits. At the end of the fourth quarter, Atlantic Union Bankshares and Atlantic Union Bank's regulatory capital ratios were comfortably above well-capitalized levels. In addition, on an adjusted basis, we remain well-capitalized as of the end of the fourth quarter. If you include the negative impact of AOCI and held-to-maturity securities unrealized losses, in the calculation of the regulatory capital ratios. During the fourth quarter, the company paid a common stock dividend of $0.37 per share which was an increase of 8.8% from the third quarter's and previous year's fourth quarter dividend amount. Of note, on a linked quarterly basis, tangible book value per common share increased approximately 4% to $19.69 per share in the fourth quarter. As noted on Slide 17, we are maintaining our full year 2026 financial outlook for AUB that was provided at our Investor Day in December. We expect loan balances to end the year between $29 billion and $30 billion while year-end deposit balances are projected to be between $31.5 billion and $32.5 billion. On the credit front, the allowance for credit losses to loan balances is projected to remain at current levels in the 115 to 120 basis point range and the net charge-off ratio is expected to fall between 10 and 15 basis points in 2026. Full tax equivalent net interest income for the full year is projected to come in between $1.35 billion and $1.375 billion inclusive of accretion income. As a reminder, we consider accretion income resulting from acquired loan interest rate marks as a built-in scheduled accounting tailwind to our GAAP earnings and net interest margin as the accretion income related to the loan interest rate marks gradually transitions to core cash earnings over time as the loans obtained through acquisitions either mature or get renewed at current market rates. As a result, we are projecting that the full year fully tax equivalent net interest margin will fall in a range between 3.94% for the full year driven by our baseline assumption that the Federal Reserve Bank will cut the Fed funds rate by 25 basis points in April and in September in 2026, and that term rates will remain stable at current levels. On a full year basis, noninterest income is expected to be between $220 and $230 million while adjusted operating noninterest expense is expected to fall in the range of $750 million to $760 million, including the expense impact of our North Carolina investment and other 2026 strategic initiatives. Based on these projections, we expect to generate annual growth in tangible book value per share of between 12-15% and produce financial returns that will place us within the top quartile of our proxy peer group, and meet our objective of delivering top-tier financial performance for our shareholders. In summary, Atlantic Union delivered strong operating financial results in the fourth quarter, and in 2025. And we remain firmly focused on leveraging this valuable Atlantic Union Bank franchise to generate sustainable profitable growth and to build long-term value for our shareholders in 2026 and beyond. I'll now turn the call over to Bill to see if there are any questions from our research analysts community. Bill Samia: Thanks, Rob. And, Lucia, we're ready for our first caller, please. Operator: Thank you, ladies and gentlemen. Just as a reminder, if you would like to ask a question at this time, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, simply press 11 again. Please stand by while we compile the Q&A roster. First question coming from the line of Janet Lee with TD Cowen. Your line is now open. Janet Lee: Good morning, Janet. John Asbury: Yeah. Good morning. Janet Lee: I want some more clarifications on your 2026 guide, which was reiterated from your Investor Day in December. Is there any sort of range that you're gravitating towards, whether that's higher end or lower end of that interest income given the higher launching point for QNIM, but although I do expect that NIM will grind down from there in 2026. And it looks like there are different puts and takes in terms of deposits coming in below given seasonality and loans were a little bit above what you guided. So I wanted to see what would put you at the higher end versus lower end, what your baseline expectation is. Rob Gorman: Yeah. So as we've said, Janet, you know, we're guiding to mid-interest income between $1.35 billion and $1.375 billion. To come on the higher end of that, it's really gonna depend on somewhat of do we get elevated accretion income as we saw this quarter? We're not modeling that going forward into 2026. We've got that coming down a bit. Also, I think the other component there is, can we continue to lower deposit costs as the Fed reduces the Fed funds rate? We're taking a bit of a conservative approach on that. Of course, that's dependent on the competition out there and the needs for funding loan growth that we anticipate. So really, we're kind of in that range, but on the higher end, if we could see cost of funds come down a bit more than we're projecting, that would probably lead us to the higher end and accretion income would also add to that confidence if we see that coming in a bit higher. Also, as you know, loan growth could also play a part in that regarding to mid-single digits if we see a higher loan growth and term rates remain high with a steep curve. We could see that coming in at the higher end as well. Janet Lee: Got it. Thanks for the color. And if my calculation is correct, I see the cumulative interest-bearing deposit beta to the rates coming down in the high 40% range, do you still forecast that mid-fifties beta? Or is that a little lower heading into 2026? And I see that there was a deposit remix into more interest-bearing checking, which I assume are lower cost than the other ones. I wanted to see what drove that remix in the quarter and whether that's going to reverse in the quarters ahead. Thank you. Rob Gorman: Yes. So on that, Janet, in terms of the betas, we're still guiding to an interest-bearing deposits guidance of mid-50s, 50 to 55 percent, which is in line with when rates were going up. I think we ended up the prior through the cycle. Beta was around 55% for interest-bearing deposits. On a total deposit basis, we're in that 40 to 45 range. I calculate that we're about 50% betas to date if you go back to when the Fed started cutting in September. And about 40% total deposits. So we're kind of staying in that range. We have seen we've been aggressive on lowering deposit rates. About $12 billion to $13 billion, we've been able to reprice fairly quickly as the Feds come down. That's a good thing to offset our variable rate loan book that reprices with Fed funds. So that kind of is a balancing act there. So in terms of what was the other the end of the other question you had there? Just Janet Lee: Deposit remix? Rob Gorman: Oh, yeah. So there have been some reclasses that have occurred post the Sandy Spring conversion. So there's some of that that's kind of moved in one category to another. That's primarily probably the main driver of that. So don't expect that to shift too much going forward. Level set that now. Janet Lee: Got it. Thank you. Bill Samia: Thanks, Janet. And, Olivia, we're ready for our next caller, please. Operator: Our next question coming from the line of David Bishop with Group. Your line is now open. David Bishop: Hi, Dave. John Asbury: Hey, John. How are you doing? David Bishop: Good. Thank you. Hey. I think I heard you say during the preamble that the loan pipeline had increased relative to that coming into the quarter. Just curious if there's any numbers you can put around it or percent increase and how you're thinking about near-term loan growth here as you talk to your commercial clients? Are you starting to see some traction across the legacy, Sandy Spring portfolio, and is that some of the drivers we saw in the C&I growth this quarter? John Asbury: Yeah. I would say that we had a modest increase in total pipeline by end of year end of quarter versus beginning of quarter. That's really important and a bit unusual for Q4 because as you can see, Q4 was a big quarter. Now as we expected, it was very much back-end loaded. We were teams were super busy over the month of December. The typical phenomena is you would expect to see the pipeline somewhat clean down. In other words, normally, it takes a while for it to rebuild. So we were pretty excited to see that it was continuing to refill, so to speak, over the course of the quarter. And I would just say that what we're hearing, we can see the pipeline. The feedback we're getting from our market leaders is quite encouraging. So we feel pretty good about things. In terms of the outlook. That's part of what's giving us confidence in our mid-single-digit guidance. And it feels pretty Dave Ring, you can comment on this, but what we heard is pretty broad-based in what we see. David Ring: Yeah. I guess I would only add that our folks are very optimistic going into the year. With good pipelines across the footprint. Yep. It's not in one place. Yeah. Including the former Sandy Spring franchise, to be clear. David Bishop: Great. And then, John, maybe a holistic question. You know, change in the governor's branch in there. Just your view here from a business-friendly climate, do you think that's gonna have much of an impact in terms of the Commonwealth's growth capacity and business climate? Thanks. John Asbury: Yes. Thank you. No, we feel good about the outlook here in our home state of Virginia. Virginia has a long tradition of business-oriented moderates in these statewide offices, governor of US senate, and I feel quite confident that, you know, the new governor will continue that tradition. David Bishop: Great. I'll stop there and hop back in the queue. John Asbury: Thank you, David. And, Olivia, we're ready for our next caller, please. Operator: Our next question coming from the line of Steve Moss with Raymond James. Your line is now open. Steve Moss: Hi, Steve. John Asbury: Good morning, John, Rob, Bill. Maybe just following up on the loan pipeline here. Just kind of curious where are you guys seeing loan pricing shake out these days? And also, where is in order reverse deposit costs were at quarter end? Rob Gorman: Yeah. So on the loan pricing side, we're seeing about, you know, $6 to $6.20 loan pricing both on the variable and the fixed-rate loans. So we expect that will continue. It really depends on where short-term rates are, obviously, the variable rate side. And where term rates are. But the spreads seem to be holding up pretty well on top of those indexes. And in terms of the deposit cost at the end of the at December is what you're asking, Steve? Yeah. We're below 2% on that. It's about $1.96 coming out of December. Steve Moss: Okay. Appreciate that. And then in terms of just kind of thinking about the core margin here, I apologize if I missed it, but just curious do you continue to expect core margin expansion here throughout the year and kind of how you're thinking about the cadence if that's the case? Rob Gorman: Yeah. We think core margin will expand a bit. Some of that's coming off, you know, where we talked about the acquired loan book is repricing and coming back into core. So from a loan yield point of view, that's helpful. In terms of fixed-rate loans, coming on about 100 basis points or so higher than what the portfolio yield is. If the Fed cuts more than a couple of times, we probably will see some stable loan yields or margin, or we could see some contraction a bit. But our call is a couple of cuts next year, which is manageable. And as I mentioned, we're able to reduce some of our deposit costs, which I think that's the Fed funds fairly quickly, which will offset some of the variable rate loan impacts of further cuts. So in all, I think we'll see some modest core margin expansion based on those factors. Steve Moss: Okay. Appreciate that. And then just in terms of following up on the purchase account accretion, just curious updated thoughts around the full year number for that? Rob Gorman: In terms of 2026, Steve. Yeah. We thought you know, we're currently modeling $150 and $160 million in 2026. As you know, that can fluctuate. We saw a bit higher than expected in the fourth quarter. So that can fluctuate, but give or take our baseline modeling in the guidance we provided from a margin perspective and net interest income perspective is in the $150 to $160 range. Steve Moss: Okay. Appreciate that. And John, maybe just one for you on, you know, North Carolina's expansion. I know you talked about it a fair amount last month. Just kind of curious as you continue to expand down there in the market, what are the good things you're seeing? Maybe what are some of the challenges you know, as you're building out down there? John Asbury: Yeah. Well, I think that we're making good progress in terms of the efforts to expand the commercial teams, and Sean O'Brien is your head of consumer and business banking. Sean, you can speak to just sort of the latest in terms of the branch build-out. Sean O'Brien: Yeah. We continue to move quickly and have plans for our 10 branches to be open in Raleigh and Wilmington here in the next year and a half, two years, and we're hiring staffing across the bank to make sure there's teams to support on both the wholesale and consumer side. So progress has been very good there as far as finding good sites and finding teammates. We think we're on track, Steve. Steve Moss: Okay. Great. I appreciate all the color here, I'll step back. John Asbury: Thank you. And, Olivia, we're ready for our next caller, please. Operator: Next question coming from the line of Brian Wudzinski with Morgan Stanley. Your line is now open. Brian Wudzinski: Hey, good morning. John Asbury: Hi, good morning. Brian Wudzinski: Yeah. So sticking with the loan growth. So at Investor Day last month, you talked about several different focus areas for organic loan growth over the next few years. There's the Sandy Spring footprint, North Carolina, and also the specialty banking businesses. I was wondering if you could talk a little bit about where you're seeing the most traction in the fourth quarter given how strong growth was. What you see is sort of the near-term driver across those three buckets? Versus what may take some more time to materialize. David Ring: Yeah. We could talk for hours on this one. Let's not do that. You know, we've seen the Sandy Spring part of the franchise really turn the corner from integrating the bank and getting trained up to positive results in the fourth quarter and a really good pipeline going into the first quarter. North Carolina, steady as she goes there. We're hiring into that market. So there's ramp-up periods for folks that we'll see, I think, really nice results over the course of 'twenty-six. But they also have turned the corner. They're also growing, and their pipelines are good as well. And on the specialty side, we have hired the head of healthcare banking, which we talked about in that meeting. And the other specialty businesses actually contributed largely to some of the growth we've had. John Asbury: And then here in Virginia, which would be, you know, the single largest concentration what we were so pleased to hear this week as we did our check-in with all of the commercial market leaders and credit officers is seeing strength across the state. Not and so that's actually really good to see. So we feel pretty good about the setup, Brian. It feels pretty well diversified. Brian Wudzinski: That's great to hear. And, you know, you highlighted the 6% annualized growth in the fourth quarter. Pipeline is up, sounds like production is up. Any puts and takes in terms of how we think about, say, 2026 relative to what you just did in the fourth quarter? Is there any seasonal benefit in the fourth? Was the end of the government shutdown a material tailwind? Or does it feel like you can sort of maintain this cadence over the course of the year? John Asbury: Q4 is traditionally seasonally strong. In my experience, across the industry and that's because businesses are strongly motivated to get things done before year-end for reporting purposes, planning purposes, tax purposes, you name it. So you can always expect to see a seasonally high Q4. Q1 traditionally is somewhat slow. Normally, because so much goes on at the very end of the year. So, you know, we would expect to see the typical pattern, which is it'll build as the year goes on. There's usually a little dip in Q3 as people go on vacation. Frankly. There are some yeah. There are there's normally some element of seasonality, but we see the opportunities there. So we'll see what happens. Brian Wudzinski: Really appreciate the detail, and thanks for taking my questions. John Asbury: Thank you. Thanks, Brian. And we're ready for our next caller, please. Operator: Our next question coming from the line of Catherine Mealor with KBW. Your line is now open. Hannah Wen: Good morning. This is Hannah Wen stepping in for Catherine. Thank you for taking my question. John Asbury: Of course, Hannah. Hannah Wen: Had a question on deposits. We saw a decline in deposits this quarter, and I was wondering if you could provide any guidance on the outlook for deposit growth into next year. John Asbury: Yeah. Let me start by saying we saw the typical, for us, end-of-year decline that happens really in the last two weeks of December. It's not at all uncommon, and we saw it again to where some of the larger commercial depositors will have various payments that they're making. And so you see this downdraft in noninterest-bearing deposits. It happens late, and that's what was going on. Over the course of the quarter, we did continue to run down some higher-cost sort of less relationship-oriented deposits that came out of Sandy Spring in particular. So you've got a seasonal element going in there, and you see the deposit base kind of settling in. Rob, do you want to speak to the outlook for 2026? Rob Gorman: Yeah. So, you know, if you look at our guidance, we're really guiding to about off the fourth quarter base. About 3% to 4% deposit growth for the year. We think that's achievable. Both on the commercial and on the consumer side. You know, we've got more treasury management opportunities in the former Sandy Spring footprint. So there's some opportunities to grow there. So we're feeling pretty good because really low single digits is what we're calling for. Hannah Wen: Okay. Thank you. John Asbury: Thank you. Thanks, Hannah. And, Olivia, we're ready for our next caller, please. Operator: Our next question coming from the line of Steven Skun with Piper Sandler. Your line is now open. Steven Skun: Hi, Steven. John Asbury: Good morning. Steven Skun: Yeah. Good morning, guys. Thanks. So one quick clarification, John. I think you said most of the expenses related to the Sandy Spring deal are kind of in the numbers here, maybe some marginal benefit in 1Q? How should we think about I know we've got the full year guide, but just the run rate for expenses in the first quarter off of this, you know, what I think was around $204, $205 million here this quarter? On an adjusted base? Rob Gorman: Yeah. So Steven, the way to think about that is you're gonna see kind of a flattish quarter in the way we're modeling it. Flattish quarter, first quarter, and it starts coming down a bit over the remaining years. Of course, you understand there is some seasonality in the first quarter as FICO resets, bonus payments are made, unemployment taxes go up. And then we have some merit increases going in. So that'll be kind of the high watermark as well, which is typical. And then start to come down. If you look at it from an operating excluding the amortization of intangible expense, we're calling for, on average, call it, about $188 million a quarter going forward, but it will skew a bit higher in the first quarter and starts to drop off in the subsequent quarters. John Asbury: Rob, what can we say about what's left of Sandy Spring related expenses? Rob Gorman: Yeah. So our well, I think we it's not all in the numbers yet. But we've achieved the cost savings. About $80 million is what we had projected. 27.5%. In the numbers, it's probably about annualized, about 60 some odd million there, call it 60. We're getting another five coming out of the fourth quarter. So that will get you to that $80 million mark. So there is some benefit that you'll see in the first quarter. That's why we're kind of calling for flattish in the first quarter because it's offset by some of these other seasonal items. But you should see that come through going out in the second to fourth quarter. Of course, we also have investments that are being made in North Carolina in some strategic investments we made, which we noted in Investor Day. So those are kind of all in the numbers that I'm talking about. And I referenced there's some residual remaining expenses in Q1, which is think meaning from a merger-related Yes, like merger one Yes. We have a couple of IT decommissioning expenses and a few related to some leases that we're getting out of maybe less than $5 million is our projection for the first quarter. And then merger-related. That's it. It's all over. That is done. Steven Skun: That's great. That's extremely helpful detail. Appreciate it. And maybe I know you kind of noted the progression in North Carolina that potential expansion is still pretty much on path for build out over the next year and a half to two years. Is there any impetus to kind of accelerate any of your plans? Or push maybe deeper into the hiring activity? It seems to be the norm across the spectrum today. Everybody seems to want to hire as many people as they can. With the dislocation we're seeing across the industry. So just wondering if that any of your plans there could accelerate or if you feel like there's a lot of capacity still within the team just given the integration with legacy Sandy Springs into the AUB platform? John Asbury: That would principally be, I think, a commercial or wholesale banking question. Do you want to answer that, Dave? David Ring: Yeah. I mean, this is not the time you necessarily want to hire a banker because you're gonna have to pay their bonus. You mean this time of year? Yeah. This time of year. But we have a pipeline, a strong pipeline of people that we would expect to bring on board, you know, after bonuses are paid at the other institutions. And we currently have a lot of capacity within the team. We have 20 bankers sitting in the market already in Carolina. New Carolinas. And they're very active. And so we're gonna continue to grow using those bankers, but also build out the rest over time. But you should expect to hear about more hiring, you know, March between March and August during the year. We feel we do feel good about the team and our capacity. We're sort of always in the market to some extent, but it yeah. Yeah. We wouldn't expect to see, like, some big announcement that there's some big expansion per se but we'll see how it goes. But there's no constraints on Correct. Hiring. It's just Yes. Hire at least you can. We have a long track record of you know, as we can expand, you know, with the right talent, we tend to do that. And it to make it work out. Little harder to accelerate on the consumer side because you got the branch build-out and things to get yeah. So it's more of a wholesale side. We'll, yeah, we'll push as hard as we can. But it's depending on the hiring capabilities there. Steven Skun: Great. And then just maybe lastly for me, I mean, you've got a lot on your plate clearly in terms of the North Carolina expansion. Obviously, hoping to accelerate growth overall. In terms of uses of capital. But as earnings continue to ramp higher and capital build should accelerate here, at what point do you think you entertain maybe share repurchases or other paths for that you know, soon to be building excess capital over time? And is there a kind of a threshold you wanna hit a capital level first before you'd entertain that? Rob Gorman: Yeah. I think we've been clear that we will entertain share repurchase probably the 2026 of this year. Really looking at excess capital, anything beyond the 10.5% CET one would be what we'd be looking for. To utilize consider excess capital to be in the repurchase market. So we're on track for that as we go through the first for the second quarter of this year. So we said, we could be in the market late in the second quarter or in the third quarter. John Asbury: And I'm glad you asked that question. You saw that we grew tangible capital by 4%, approximately 4% in one quarter. And we're doing exactly what we said we would do. We've invested capital to build the franchise, to secure our positioning, to put us on this profitability and capital generation footing, and now we're receiving the benefits of that. And we've been clear that we are guiding toward 12 to 15% annualized tangible capital growth. So we are going to be in a good position, as Rob said, where we'll be able to consider share buybacks. Steven Skun: Yeah. Fantastic. It feels like everything's laid out before you. Appreciate the color, guys. John Asbury: Thank you, Steven. And, Olivia, we're ready for our last caller, please. Operator: We have a follow-up question from David Bishop. Your line is now open. David Bishop: Hi, Dave. John Asbury: Hey, John. Real quick, I guess, a question for Rob. You noted the in other expenses, noncredit related customer losses. Is that is that fraudulent? Type losses? Just curious what sort of drove those other expenses higher. Rob Gorman: Yeah. That's mostly what that is. Fraud is episodic. And, you know, it can come and fit some spurts and that's what you're looking at. Because it was elevated just a couple of items or issues that came up in the fourth quarter. Hopefully, they don't recur, but yeah, you know, they're here to yeah. Do you get these scams that move around the industry? And then there'll be something else. That's episodic. Yeah. We don't But that's what that run rate. Issue. David Bishop: Got it. So within your OpEx, you know, guidance, for the first quarter to flattish, would that be flattish off the reported sort of 2.04 you know, point six on an adjusted basis, or would it be know, sort of two zero two adjusting for the fraud? Rob Gorman: Yeah. It's kind of in each yeah. Kind of around that range, you know, two zero three, two zero two, two zero three, including the amortization. Just because there's, you know, ads. Think about it as yeah. We may not see that level, but there's other things that'll come in from a seasonal point of view. David Bishop: Got it. Appreciate that color. John Asbury: Thanks, Dave. And thanks, everyone, for calling. We look forward to speaking with you in three months. Have a good day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Regina: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Old Republic International Corporation Fourth Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, press star 1 again. I would now like to turn the conference over to Joe Calabrese with MWW. Please go ahead. Joe Calabrese: Thank you, Regina. Good afternoon, everyone. And thank you for joining us for the Old Republic International Corporation conference call to discuss fourth quarter 2025 results. This morning, we distributed a copy of the press release and posted a separate financial supplement. Both of the documents are available on Old Republic's website at www.oldrepublic.com. Please be advised that this call may involve forward-looking statements as discussed in the press release dated January 22, 2026. Assumptions, uncertainties, and risks exist that may cause results to differ materially from those set forth in these forward-looking statements. For more information on the assumptions, uncertainties, and risks, please refer to the forward-looking statements discussion in the press release and the company's other recent SEC filings. We may also reference net income excluding net investment gains, or net operating income, a non-GAAP financial measure, in our remarks or in our responses to questions. GAAP reconciliations are included in the press release. Presenting on today's conference call will be Craig Richard Smiddy, President and CEO; Francis Joseph Sodaro, Chief Financial Officer; and Carolyn Jean Monroe, President and CEO of Baldwin Public National Title Insurance Group. Management will make some opening remarks, and then we'll open the line for your questions. At this time, I'd like to turn the call over to Craig. Please go ahead, sir. Craig Richard Smiddy: Alright, Joe. Thank you very much. Well, good afternoon, everyone, and welcome again to Old Republic International Corporation's fourth quarter and full year 2025 earnings. In the fourth quarter, we produced $236 million of consolidated pretax operating income compared to $285 million, and our consolidated combined ratio was 96% compared to 92.7%. For the full year, we produced $1 billion of consolidated pretax operating income, and our consolidated combined ratio was 94.7%. Some other information on 2025: our operating return on beginning equity was 14.1%, and growth in book value per share, including dividends, was 22%. We think this reflects our strong operating earnings, our higher investment valuations, and our sound capital management strategy. In the fourth quarter, specialty insurance grew net premiums earned by 8.3% over 2024, and for the full year, grew net premiums earned by 10.9%, and we eclipsed the $5 billion mark for the first time. In the fourth quarter, specialty produced $178 million of pretax operating income compared to $228 million, and specialty's combined ratio was 97.3% compared to 91.8%. For the full year, specialty produced $900 million of pretax operating income, another all-time high for us, and specialty's combined ratio was 93.2%. In the fourth quarter, title group premium and fees grew by 12.4% over 2024, and for the full year, title grew premium and fees by 9.1%. In the fourth quarter, title also produced $65 million of pretax operating income compared to $55.4 million, and title's combined ratio was 94% compared to 94.4%. For the full year, title produced $140 million of pretax operating income, and title's combined ratio was 97.6%. Our conservative reserving practices were slow to release prior year reserves, but we react very quickly to increased reserves. We continue to produce favorable prior year loss reserve development in both specialty insurance and title insurance, and Frank will give you a little more color around that topic. With that, Frank, I'll go ahead and turn the discussion over to you, and then please turn things back to me. I'll discuss specialty insurance, and then I'll turn things over to Carolyn, who'll discuss title, and then we'll wrap up and open it up for Q&A. So Frank? Francis Joseph Sodaro: Thank you, Craig, and good afternoon, everyone. This morning, we reported net operating income of $185 million for the quarter compared to $227 million last year. On a per-share basis, comparable quarter-over-quarter results were 74¢ compared to 90¢. Starting with investments, net investment income increased 7.9% in the quarter primarily as a result of higher yields on the bond portfolio and, to a lesser degree, a larger investment base. Our average reinvestment rate on corporate bonds acquired during the quarter was 4.6% compared to the average yield rolling off of about 4.2%. The total bond portfolio book yield stands at 4.75% compared to 4.5% at the end of last year. Now, given the portfolio actions taken over the last few years that allowed us to accelerate improvement in the bond portfolio yield, our return of capital initiatives, and the current interest rate environment, we expect net investment income growth to slow in 2026. Turning now to loss reserves, both specialty insurance and title insurance recognized favorable development in the quarter, leading to a 2.4 percentage point benefit in the consolidated loss ratio compared to 2.9 points last year. Within specialty insurance, workers' comp prior year reserve development was slightly unfavorable in the quarter, as strong favorable development throughout the book was offset by a prior year reserve increase related to a credit loss on a single large deductible program. Commercial auto, general liability, and property all had solid favorable development in the quarter. Now for the full year, the specialty insurance loss ratio had a benefit of 2.9 points from favorable development, and there were no large pockets of unfavorable development to report. We end the quarter with book value per share of $24.21, which inclusive of the regular and special dividends equated to an increase of 22% for the full year, resulting primarily from our strong operating earnings and higher investment valuations. In the quarter, we declared nearly $700 million in dividends and repurchased $56 million worth of our shares. This brings total capital return this year to just over $1 billion, and it leaves us about $850 million remaining in our current repurchase program. I'll now turn the call back over to Craig for a discussion of specialty insurance. Craig Richard Smiddy: Okay, Frank. Thanks for that summary. Specialty insurance net premiums written were up 6.1% in the quarter, with strong rate increases on commercial auto and general liability. We also had solid renewal retention ratios, new business writings, and increasing premium in our new specialty operating companies. As a matter of fact, these new companies contributed over $300 million in net premium written in 2025 and collectively delivered positive operating income. As I mentioned in my opening remarks, in the quarter, specialty insurance pretax operating income was $178 million, and the full year was $900 million. While the fourth quarter combined ratio was 97.3%, and the full year was 93.2%. The loss ratio for the quarter was 67.6%, and that included 2.2 percentage points of favorable prior year loss reserve development. And that compares to 64.1% in the fourth quarter last year, which included 2.4 points of favorable development. The full year loss ratio was 63.9%, including 2.9 points of favorable development. Moving to the expense ratio, for the quarter was 29.7% compared to 27.7% in the fourth quarter last year. The full year expense ratio was 29.3% in line with expectations. And our continued investment into specialty operating companies that we have recently launched, as well as in the technology modernization, data and analytics, and AI, does place some short-term strain on the expense ratio, but we're confident these investments will provide significant long-term upside potential. Turning to commercial auto, net premiums written grew 6.4% in the quarter while the loss ratio came in at 80% compared to 77.9% in the fourth quarter last year. As we noted in the release, we increased the current accident year loss ratio by three percentage points, which for the year added 12 percentage points for the quarter, I should say. This action is consistent with what we've regularly communicated, and that is that we reserve conservatively and we're quick to react to increases in loss trends that we are observing. And those loss trends for commercial auto are now coming in a bit higher than we were observing earlier in 2025. And as such, as noted in the release, rate increases accelerated in the fourth quarter to 16% for commercial auto. Again, this would be in line with our philosophy of loss trends that are commensurate with rate increases. Workers' comp net premiums written was 6% lower in the quarter while the loss ratio came in at 65.2% compared to 35.5% in the fourth quarter last year. The big difference here is that the vast majority in the fourth quarter of 2025 vis-a-vis the fourth quarter of 2024 is a significant difference in the level of prior year favorable development. Rate decreases in work comp were about 3% tier two in line with loss trends we're observing where severities remained very consistent and loss frequency continues its decline. So given positive wage trend that we apply our rates to, relatively stable severity trend, and a declining loss frequency trend, we think our rates remain adequate even with a small level of rate decreases. I'll also touch on property here. We had net premiums written of which increased 21% in the quarter, bringing the full year property writings to $750 million. The property loss ratio was 55% in the quarter, and that included some favorable prior year loss reserve development. It's of note that our property writings are diverse and often written on an E and S basis, particularly at our new specialty operating company. So we expect solid growth and profitability in specialty insurance to continue through 2026, reflecting the growing contributions from our new specialty operating companies and also reflecting our commitment to underwriting excellence within all of our specialty companies, including a keen focus on pricing discipline and cycle management. It's also noteworthy that our specialty portfolio is now more diversified than it's ever been, which also helps set us up to successfully manage market cycles. So I will now turn it over to you, Carolyn, to report on title insurance. Carolyn Jean Monroe: Thank you, Craig. Title reported premium and fee revenue for the quarter of $789 million. This represents an increase of 12% from the fourth quarter of last year. The fourth quarter was our strongest of the year and is a continuation of the market story that we have been reporting all year. Seeing strong activity in the commercial sector and softness in the residential market driven by persistent price and some affordability challenges. Still, premiums produced in our direct title operations were up 18% from this time last year. Our agency produced premiums were up 13% and made up 77% of our revenue during the quarter, which is consistent with the fourth quarter of last year. Commercial premiums increased this quarter and were 29% of our earned premiums compared to 23% in the fourth quarter of last year. For the year, our commercial premiums made up 26% of our earned premiums compared to 22% in 2024. Investment income was also up this quarter by nearly 12% compared to 2024, primarily from higher investment yields. Our combined ratio improved to 94% this quarter compared to 94.4% in the fourth quarter of last year. During the quarter, our continued expense management efforts and increased revenues resulted in a decrease in our operating expenses of 1.2% relative to premium and fees. Our loss ratio increased to 0.8%. Although prior policy years continued to develop favorably, the amount of favorable development in the fourth quarter this year was less than in 2024. Our pretax operating income this quarter was $66 million, compared to $55 million in the fourth quarter of last year. This 18% increase during the quarter brings our full year pretax income to $140 million for 2025. As we start 2026, the cornerstone of our business continues to be our title agents. We remain focused on providing our agents with the innovative technological solutions required to maintain a competitive edge. Operationally, we will continue our margin expansion efforts to ensure that our structure efficiently serves our agents. We remain focused on maximizing efficiencies and implementing the Qualia operating platform across the title operations during 2026, as well as continuing our initiatives to service the large commercial transactions we are seeing in the market. And thank you. And with that, I'll turn it back to Craig. Craig Richard Smiddy: Okay, Carolyn. Thank you. So that concludes our prepared remarks. And we will now open up the discussion to Q&A. And I'll either answer your question or I'll ask Frank or Carolyn to chime in and help me out. Regina: We will now begin the question and answer session. In order to ask a question, simply press star, followed by the number one on your telephone keypad. Again, that is star 1 for any questions. Our first question will come from the line of Gregory Peters with Raymond James. Please go ahead. Gregory Peters: Good afternoon, and happy New Year to everyone. Craig Richard Smiddy: Happy New Year, Greg. Gregory Peters: I guess starting at just the high level, you know, in the past, you've talked about sort of what you think the specialty insurance target combined ratios should look like over a course of a year, and I guess, in the context of understanding those moving pieces, can you kind of provide us some perspective of how you think the budgeting is coming along and where you think the combined ratio targets might be for 2026? Craig Richard Smiddy: Sure, Greg. Yeah. So, you know, ending the year at a combined ratio in specialty of 93.2% feels pretty good to us. We hopefully over time, be a bit better than that. But I think where we're at in the PNC cycle, that feels pretty good. And relative to next year, our plan is to produce something around the same level. You know, it depends by we have 20 different operating companies. Depending on the operating company, that varies. You know, if it's longer tail lines of business, it might be a little bit higher. If it's shorter tail lines of business, it's probably lower. So all the businesses have a unique plan, and they have targets that they set relative to those plans. So I would say 2026 looking for a very consistent year. Obviously, there's talk of pricing pressure in the marketplace. But we're going to maintain our discipline. As I mentioned in my opening comments, we're keenly focused on pricing discipline, underwriting discipline, every company is focused on combined ratio over top line. And even in our incentive compensation plans, when we have soft pockets of business where pricing is too aggressive in the marketplace, we will remove any kind of growth or retention goal and make compensation based on strictly on combined ratios. So it's all about bottom line for us, and that's really driven by the combined ratio. Gregory Peters: Great. I guess, you know, the other two questions I had on the specialty insurance side, you know, one is just going back to, you know, just some more background and what led to the higher loss pick. Because you said it wasn't reflected in yet in the paid claim data. So I'm just curious what you're seeing, and I do recognize your approach to case reserves and loss picks. So and then the other question I had, just so we just get them out on the table there for you is, I think, Frank, mentioned a credit loss on one of the large deductible programs. Just some background on that well. Craig Richard Smiddy: Sure, Greg. I'll take both of those. Yeah. So, you know, we start beginning of the year with what we believe to be a conservative loss pick. And from there, as we go through each week, we study what's happening with case reserves, and also what's happening with paid losses. And we take those into consideration, and look at what trend we think that that implies. We take a closer look at severity. We take a close look at frequency. And come up with an overall trend. So what we saw in commercial auto this year for the better part of the year was trends. We said, I think, on prior calls, we were saying trends in the low teens, and that we were obtaining rate increases that were at least commensurate with those trends. And that was the case. As we got toward the end of the year, while we did not notice any paid claim difference, we did notice that case reserves were higher. And, as we communicate, we're conservative. And if we see case reserves at a higher level, we'll react. We did that, I think, a couple years ago, same exact thing. Where trends all of a sudden moved a bit higher than what we were seeing earlier in the year. And, as such, trends now look to be rather than in the low teens, the mid-teens. And as such, the three percentage point increase to the accident year loss ratio. We'd rather be conservative and go with what we're seeing in case reserves as opposed to being relaxed and relying on paid losses. So, you know, I just point out it's not something we missed. It's and to give everyone a little more color around that, you know, loss trends move. They're volatile. We follow them regularly. You know? Like, daily, weekly, monthly, quarterly, and it's always a moving target. It's impossible to instantaneously know what today or tomorrow's loss trend is. No one has a crystal ball. And the best anyone can do is make a projection based on current observations, and that's exactly what we do. We make a projection based on what we're seeing, and that's it's usually a conservative projection. In this case, a conservative projection around what we saw in the movement between case reserves in the beginning of the year as opposed to case reserves more toward the end of the year. And just to underscore this a little bit more, when I make the statement that it's impossible to precisely and instantaneously know what your trend's gonna be, it takes time from the first notice of loss to the time that an adjuster is able to set ultimate case reserves. You know, at the time of first notice of loss, the ultimate number of bodily injuries, the severity of the injuries, whether or not there's attorney representation, are all things that are not usually immediately known, and it takes time for that to play out. And that's why it's impossible to instantaneously know what your severity is until you get that kind of information and the year progresses and it comes through in your case reserves. So hopefully, that provides a little more color around what we saw, how we reacted, and you know, it's really 100% consistent with what we've communicated to all of our investors and analysts. We observe higher loss trends, we immediately react by adjusting the loss ratio. And, as you saw in the fourth quarter, as I mentioned in my comments, we immediately react with rate. And rate increases in commercial auto accelerated. In the fourth quarter and now are upwards of 16% compared to I think we were at 14% last quarter. So and we'll keep doing exactly that. So I'll move on to your second question. Regarding the $17.5 million offset we had on workers' comp favorable development. And that came from, as we said in the release, a large deductible program where the losses from prior years had developed. And in this case, there was a credit risk exposure, so we ended up with insufficient collateral and on large deductible programs when that happens. That's something that then falls to us. And, accordingly, we have to put up the reserves ourselves. So that's what happened. In this quarter, and you've been following us long enough to know that those kind of losses are somewhat unique and certainly, in our forty, forty-five year history, that's a pretty big number for us relative to past experience. And 99 out of 100 times, we have enough collateral to take care of things even if losses do develop unfavorably in prior years. But in this one instance, there was insufficient collateral. Gregory Peters: Well, that's excellent detail. So it's appreciated. Mindful that others might be asking questions, so I just close out. Carolyn, if you could just provide your crystal ball view on what 2026 might look for the title business. I feel like your pick might be as good as anybody's out there. So just curious about your perspective on that. Carolyn Jean Monroe: Sure. You know, in all of kind of the research that we do from people that report on that, it's still showing that commercial should have about a 20% improvement over this year, which was a wonderful year for commercial. But, you know, they see a single-digit increase in residential for next year. Less than 10%. So somewhere there's it goes between 3-7% depending on who you look at. So I think it's going to be, you know, another year like this year. With some improvement, especially if commercial does improve like it did. So you know, we're looking forward to 2026. Gregory Peters: When you say next year, you and Craig, I'd presume you mean '26. Carolyn Jean Monroe: Yes. I do. Right. Craig Richard Smiddy: Right. Yep. Yeah. Perfect. Gregory Peters: Yeah. Craig Richard Smiddy: We're stuck in fourth quarter, full year '25, mode right now. Gregory Peters: Right. I assume so, but thanks for the answers. Craig Richard Smiddy: Thank you. Regina: Once again, for any questions, simply press 1 on your telephone keypad. Our next question will come from the line of Paul Newsome with Piper Sandler. Please go ahead. Paul Newsome: Good afternoon. Thanks for the call. Maybe just to follow-up on the case reserves, and I apologize if I missed this because I got a little technical issues myself during the call. The case reserve increases, were there any sort of geographic or patterns within the case reserve that stood out or would suggest other than just pure sort of overall loss trend? That might give us a hint as to what might be happening under the hood? Craig Richard Smiddy: Yeah. Paul, that's a great question. The one we and we've looked at it in great detail. I can't say geographically there's anything we've detected. But there are a few things we do know, and that is that the number of people making bodily injury claims relative to the number of accidents that we have is higher. And the percentage of bodily injury claims with attorney representation is higher. And the percentage of claims that end up in litigation is higher as well. So, you know, a bit of an opinion section here. And that is our view is that litigation system abuse is accounting for these increases and that includes the ongoing proliferation of attorney advertising where plaintiff attorneys are attempting to vilify insurance companies and you only need to turn on a television or drive down the interstate and see the billboards. And it's amazing. You know? The number of advertisements on television, on billboards, is just continuing to proliferate. And, to us, it's clear that plaintiff attorneys have come to the conclusion that there's a return on these investments. So I think, you know, there's industry studies out there from some good industry associations that we're part of. And they have are coming to the same conclusion. So those are the only observations. Again, you know, if you have an accident, and you have a property damage claim, we track both bodily injury and property damage, third-party property damage separately. Third-party property damage frequency isn't going up. But bodily injury frequency is going up. Well, how can that be other than just more people willing to make bodily injury claims? And, so you know, it again, it comes back to the only conclusion that we can come to is that this litigation system abuse and proliferation of attorney advertising continues to rear its head. And we'll have to see where it goes. But that is what we would attribute a good portion of this to. Paul Newsome: Were the trends any different? Like, you cited long haul trucking. Is the trends any different in other portions of what you do in commercial auto, obviously? Trucking is your big piece, but I think you do some other stuff as well. Was it just consistent across anything that had to do with commercial auto? Craig Richard Smiddy: Another great question. Because on our other commercial auto, other than long haul trucking, the trends are there, but they're not as pronounced as they are on long haul trucking. I think coming back to litigation abuse, you know, a lot of these plaintiff attorneys try to target trucking companies and vilify insurance trucking companies and insurance companies. And, you know, so I Yeah. Yeah. And usually, trucking long haul trucking in particular has larger limit policies, and plaintiff attorneys know that. So there's more of a target on their back, so to speak. So there is a little bit more rearing its head on long haul trucking as opposed to other commercial auto. Paul Newsome: Well, I know in the past, you've been it was, you know, last question. Don't know if you asked it. I know in the past, you guys have been very disciplined about hitting loss trend rate. And I would've assumed that that's the plan prospectively as well. Are there other things that you're considering in terms of reacting to the loss trend change in terms of condition or, you know, areas to your right or anything else sort of non-rate actions? Is this gonna be just a matter of hit it with rate at whatever you think is happening from the loss trend perspective? Craig Richard Smiddy: Yeah. So, you know, we are out of all of our 20 companies, our most sophisticated data and analytics area is within our long haul trucking company. And we slice and dice the data and analytics in a very robust and sophisticated fashion, which helps us with targeting rate to those customers that elevate higher propensity for loss. And so part of that is risk selection as well. It helps us with risk selection. And being able to not broad brush rate, but target rate to the insureds that require more rate. And then also, continually refine our risk selection so that we're selecting what we think are the best risks and making it very punitive or not providing quotes at all to those risks that we deem too high. With respect to terms and conditions, you know, there's not there's, while in other of our businesses, terms and conditions are key, really key to the business, the specialty business they're in, long haul trucking, there's not a lot you can do with terms and condition on commercial auto. So I wouldn't say that there's a lot we're doing with terms and conditions. But you know, we react with rate. We make sure our overall portfolio rate increase is reflective of the trends that we're observing. And, you know, when I answered Greg's question, you know, I explained that understanding what the trend is is not instantaneous. But we use a conservative approach. We assume trend is going to if it's going up, we assume it's going to continue to either be where it's at or continue to go up and until we have clear evidence it's going down, we're not adjusting rates downward. You know, we adjust the rates upward and, just in one quarter, you know, two or 300 basis points and we'll have to keep our foot on the pedal on that. Assuming that we, our goal is to stay ahead of trend which, we will continue to do. I would also I would also just point out that you know, as far as what this means for 2026 are, because we do that, our expectations for 2026 are not different from where we're at now with respect to loss ratio. We assume we're going to keep up with trend. You may recall from a couple of years ago, we had similar kinds of observations back at the 2023. And we, for the 2023, we bumped up that accident year loss pick. And if you look at how that year has played out, can look at the financial supplement. You know, things after 2023 were remained pretty steady. And the '24 and '25, with 72% loss ratios following a 71.5% loss ratio in '23. So we would expect the same to happen here again. We're not changing our view on how 2026 looks. Paul Newsome: We always appreciate the proper insight. Thank you very much. Craig Richard Smiddy: Thank you, Paul. Regina: Our next question is a follow-up from the line of Gregory Peters with Raymond James. Please go ahead. Gregory Peters: Hey. One of the things I just wanted to touch upon just as to close out, the capital position of the company. I mean, you've been, you know, your record of special dividends alongside your regular dividends is pretty interesting. And I'm just curious how you view in light of the $2.50 dividend that I guess is paid out in was paid out already in January here, how you view the capital of the company at this point in time and, you know, what are the metrics we should be watching for, you know, to determine whether there's still, you know, excess capital, etcetera? Craig Richard Smiddy: Sure, Greg. I'll be happy to do that. So part of our regular planning cycle is to head into our February board meetings and present our plan for 2026, which includes a complete analysis of our capital position and our projected capital position. We still think we have plenty of capital. So we think that'll put us in a position to, again, recommend to the board a regular dividend increase somewhere in line with what we've been doing over the last couple of years. And, in the meantime, we also have $850 million still remaining on our share repurchase program. And, we'll put that to work. Especially, you know, when there's opportunity. We set all along that we like having both tools in our tool chest, the share repurchase tool as well as the special dividend and regular dividend tool. And, you know, to the extent that we think there's a buying opportunity, we've said we'll be opportunistic, and to the extent that markets react or overreact, it gives us a buying opportunity to repurchase more shares. So have that $850 million. We believe that, you know, if the opportunity presented itself, we could put most of that to good use throughout the year. And we would do that. And then, you know, as we get further along in the year, again, take a look at where we're at with that capital position, what we've been able to do with share repurchases, and if we as we did at the end of last year in December, if we think we are ending the year with more capital again, we'll reset it with a special dividend. Gregory Peters: Alright. Got it. Thanks for letting me ask the follow-up question. Craig Richard Smiddy: Thank you. Regina: And this concludes our question and answer. I'll hand the call back to management for any closing comments. Craig Richard Smiddy: Okay. Well, thank you. We appreciate the Q&A. We appreciate the opportunity to share our prepared remarks in addition to the earnings release and wrap up 2025 for the year with another very good solid year, and we think we're set up for a very good '26. We realize market conditions are in question, but we'll focus on bottom line and profitability and continue with our underwriting excellence initiatives and our pricing discipline and continue to produce growth, particularly as our new specialty operating companies are producing more and more premium. And we feel very good about where we're heading in '26. So thank you all for your interest and participation, and we will talk to you all again next quarter. Francis Joseph Sodaro: Thank you. Regina: This concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, and welcome to the RLI Corp. Fourth Quarter Earnings Teleconference. After management's prepared remarks, we will open the conference up for questions and answers. Before we get started, let me remind everyone that through the course of the teleconference, our alliance management may make comments that reflect their intentions, beliefs and expectations for the future. As always, these forward-looking statements are subject to certain factors and uncertainties, which could cause actual results to differ materially. Please refer to the risk factors described in the company's various SEC filings, including in the annual report on Form 10-K as supplemented in Forms 10-Q, all of which should be reviewed carefully. The company has filed a Form 8-K with the Securities and Exchange Commission that contains the press release announcing fourth quarter results. During the call, RLI management may refer to operating earnings and earnings per share from operations, which are non-GAAP measures of financial results. RLI's operating earnings and earnings per share from operations consist of net earnings after the elimination of after-tax realized gains or losses and after-tax unrealized gains or losses on equity securities. Additionally, equity and earnings of unconsolidated investees and related taxes were removed from operating earnings and operating EPS to present a consistent approach and excluding all unrealized changes in value from equity investments. RLI's management believes these measures are useful in gauging core operating performance across reporting periods but may not be comparable to other companies' definitions of operating earnings. The Form 8-K contains a reconciliation between operating earnings and net earnings. The Form 8-K and press release are available at the company's website at www.rlicorp.com. I will now turn the conference over to RLI's President and Chief Executive Officer, Mr. Craig Kliethermes. Please go ahead. Craig Kliethermes: Good morning, everyone. We appreciate you being with us today, and I'd like to introduce Aaron Diefenthaler, our Chief Financial Officer; and Jen Klobnak, our Chief Operating Officer, who are joining me. I'll start by saying we feel very good about where RLI Corp is today and just as importantly, where we're headed. 2025 was another strong year for our company. We delivered underwriting income of $264 million on an 84 combined ratio, grew book value per share by 33%, inclusive of dividends and achieved our 30th consecutive year of underwriting profitability. That kind of consistency is extremely rare in our industry, and it certainly doesn't happen by accident. It's too long to be considered a hot streak, it reflects disciplined execution over time and the principles we worked to uphold every day. The environment remains competitive, and premium growth was modest, but that's exactly when our model tends to show its strength. We don't measure success by how fast we grow, we measure it by how well we grow and whether today's decisions stand the test of time. Jerry Stevens, our founder, used to remind us that you don't win the long game by swinging at every pitch, you win it by knowing which ones to let go by. That mindset is deeply ingrained at RLI. We're comfortable pulling back when the risk-reward equation doesn't work, and we're confident leaning in where we have the expertise and when the market supports it. Our diversified specialty portfolio, strong balance sheet and ownership culture give us a lot of flexibility and a lot of confidence as we look ahead. We're well positioned and optimistic about the opportunities in front of us. And with that, I'll turn it over to Aaron to walk through the financials in more detail. Aaron Diefenthaler: Thanks, Craig, and good morning, everyone. Yesterday, we reported fourth quarter operating earnings of $0.94 per share, up from $0.52 in the year ago period. Better underwriting performance, minimal storm activity and increases in investment income drove most of the improvement compared to last year. For the quarter, we generated $71 million of underwriting income on an 82.6 combined ratio versus $22 million on a 94.4 combined ratio in Q4 last year. For the full year, we delivered $264 million of underwriting income on, as Craig mentioned, an 83.6 combined ratio, marking our 30th consecutive year of underwriting profit. I wanted to call your attention to a change we made to our definition of operating earnings. As referenced in a footnote on Page 1 of our release and in the non-GAAP disclosures on Page 2, operating earnings now excludes equity and earnings of unconsolidated investees and related taxes. Prior periods were recast to conform to that definition for comparability. Currently, unconsolidated investees only includes our minority investment in Prime Holdings. We believe excluding these investments from operating earnings, better reflects RLI's core operations, where we maintain full operational control and aligns the treatment of investee results with other equity investments. On a GAAP basis, net earnings were $0.99 in the quarter and $4.37 for the year, an increase of 17% over full year 2024. In addition to operating earnings, net earnings include net realized gains and losses, net unrealized gains and losses from equity securities and now earnings of unconsolidated investees from Prime. Our Q4 net earnings reflect Prime's core operating results based on our minority ownership and a reduction to Prime's value on our balance sheet to $53 million. Turning to premium. Top line growth was down 2% for Q4 and up 1% for the full year as competitive dynamics necessitated heightened discipline in several businesses while other products continue to find opportunities. Property premium was down 11% during the quarter, consistent with the rate environment for catastrophe-exposed commercial property although other parts of the segment, Marine and Hawaii homeowners continue to grow. Properties underwriting profitability was supported by $17 million of favorable loss emergence on prior year's catastrophes, modestly offset by $4 million of storm activity in the quarter. Inclusive of these net benefits properties combined ratio was 49.2 in Q4 and 57.2 on the year. Casualty premium was up 2% in the quarter and 7% on the year with strong contributions from personal umbrella. The bottom line for casualty benefited from $4 million of favorable prior years' loss development just under $2 million of this release was related to prior year catastrophe activity. Surety premium remains flat in the current period and up slightly on a year-to-date basis. The segment's quarterly underlying -- underwriting results included $2.7 million of favorable loss emergence from prior years, which improved surety loss ratio by 7 points in the quarter. On the expense ratio Q4 came in at 39.3%, up from 37.6% a year ago. Bonus and profit-sharing expenses were higher on strong results and business level expenses were up as we've continued to invest in people and technology. On the investment side, net investment income increased 9% in the quarter and a portfolio generated 1.5% total return in Q4 and 9% for the year. The yield environment has been relatively stable for intermediate maturities and we continue to find accretive fixed income opportunities. Purchase yields averaged 4.9% in the quarter, which was 70 basis points above our book yield. Putting it all together, we produced $5.29 of comprehensive earnings for the year, driving 33% growth in book value per share, inclusive of dividends. This level of generated capital again allowed for a special dividend to shareholders of $2 per share in addition to our ordinary fourth quarter dividend. Overall, a solidly profitable championship caliber closed in 2025. With that, I'll turn it over to Jen for more color on market conditions. Jennifer Klobnak: Thank you, Aaron. I will dive right into our segments, starting with Property. While premiums declined 11% in the fourth quarter, our property team delivered an excellent 49 combined ratio, underscoring the quality of our portfolio and ability to execute. E&S property premiums decreased by 18% on an intense competition from other carriers and MGAs along with increased risk retention in some areas by insurance. Hurricane rates were down 15%, while submissions continue to grow as insurance shop for the best terms. We are seeing pressure on terms and conditions, and our underwriters are flexing selectively to retain high-quality accounts. This competitive dynamic extends to other property lines as well. Earthquake rates declined 12% as insurers saw rate relief or decided to retain the risk. We see carrier competitors in the E&S property market slowly giving back terms and conditions, while MGAs are being more aggressive. Despite the rate moderation on catastrophe coverages, we continue to achieve returns on retained business that exceed our long-term targets. Our experienced E&S property team delivered a meaningful underwriting profits despite challenging market conditions. We have navigated many hard and soft market cycles with discipline and remain focused on securing terms and conditions at an appropriate rate while reducing uncertainty when a loss occurs. Hawaii homeowners premium grew 5% in the quarter, supported by a 16% rate increase. For the year, premium was up 26%, due in part to a couple of book rollovers we assumed following the Maui wildfires. We will continue to see growth in this profitable book through our outstanding local customer service, investments in customer experiences and additional rate increases from recent filing approval. Marine premium was up 2% in the quarter. Our diverse portfolio is evolving based on market opportunities. Inland Marine continues to grow through strategic talent additions and new product adjacencies. Ocean Marine remains competitive, particularly in cargo where we had pulled back. Our underwriting teams continue to apply patience and discipline, which resulted in underwriting profit across both Inland and Ocean in 2025. Surety premium was flat but produced a strong 80 combined ratio in the fourth quarter. Transactional surety grew 4% through continuous marketing efforts and investments in our distribution capabilities. These are very small premium bonds, so it takes significant volume to move the needle. Commercial surety also grew 4% as our talented team secured new accounts by closely engaging with our distribution partners. Increased customs bond requests offset the slowdown in renewable energy with both trends driven by government policy. On the contract surety side, premium declined 5% as we navigated the ending to a year that included multiple fits and starts in construction spending. We know that infrastructure investments are needed at the federal state and local level, and we remain well positioned to support that business as public funding increases. Our surety underwriting teams remain committed to underwriting discipline and prudent risk selection in this evolving environment. The casual segment premiums grew 2% on a 99.6 combined ratio for the fourth quarter. Personal umbrella led the way with premium growth of 24%. This included a 12% rate increase, and we secured additional approvals that will further add rate to the book in 2026. This controlled growth reflects reduced new business in several challenging seats where we have taken larger rate increases, required higher underwriting -- I'm sorry, underlying limits and works with our distribution partners to improve the quality of our book. The personal umbrella market continues to present opportunities as our competitors responded to deteriorate results by adjusting their appetite and terms and conditions. Our continuous product collaboration supported by intensive data mining, actuarial analysis and claim trend identification produced an underwriting profit for the year. Transportation premium declined 10% in the quarter despite a 13% increase in rates as we continue to prioritize profitability over volume in a highly competitive environment. Severity trends and economic pressures have reshaped the market with heightened volatility and increased expenses forcing some transportation companies to consolidate or close reducing the demand for insurance. At the same time, despite some insurance providers leaving this space due to poor financial performance, there always seems to be new markets entering and pushing for growth. Acute pressure on the largest size accounts has led to a decrease in our average account size over the last 2 years. Our in-house loss control team provides an advantage as they assess and try to improve the safety of our insurers, which helps all drivers. Our underwriters are empowered to make bottom line driven decisions. We remain disciplined, pushing for more rate and walking away from underpriced accounts. Our Executive Products group achieved an underwriting profit again this year. Premium in the fourth quarter was down 2% with rates down 1%. The market is stabilizing amid broader industry loss development. Our focus remains on marketing to increase access to business and disciplined risk selection to maintain our quality book. The E&S casualty team also produced an underwriting profit for the year. We saw increased competition in the fourth quarter, particularly on larger 6-figure premium accounts due to competitors chasing top line growth, presumably to meet year-end goals. Our primary excess liability premiums declined 8% in the quarter, but full year premiums finished up 10%. Competition varied by region with some markets exiting while others leaned in. Submissions increased by double digits, and we are constantly engaging producers to see the best new business opportunities. Much of our business is construction related and projects are taking longer to bind. We have many quotes outstanding waiting for permitting or funding. The group knows that words matter and have not relaxed terms and conditions despite competitive pressure. We continue to provide a stable solution for our business partners in the construction space. Before I provide perspective on the full year, I'll update you on our reinsurance renewals. On January 1, we renewed about 2/3 of our annual reinsurance spend. It was a buyer's market for property. We secured 15% to 20% rate decreases on our catastrophe programs and more modest relief on our property working layers. With our reduced exposure and continuing soft market conditions, we purchased $150 million less catastrophe limit for 2026, but we remain ready to approach the market midterm should an opportunity present itself as we have done in previous years. On the casualty side, rates were down around 5%. We achieved similar terms and conditions with some broadening of coverage in the property attributes. For the full year, we achieved modest growth while producing an 84 combined ratio. While E&S property prudently contracted in response to softening market conditions, other teams capitalized on opportunities, most notably personal umbrella, E&S casualty and Hawaii Homeowners. We pushed for rate change where we needed it, achieving an overall 16% rate increase in auto liability coverages across our portfolio. In 2025, we also spent time with our distribution partners, broadening and deepening those relationships, and we invested in operational efficiencies. This included simplifying and automating processes, developing new capabilities to improve ease of doing business and investing in our data infrastructure to support granular real-time decision-making. Internally, we brought our teams together regularly to talk about how we are doing and where we can improve. These actions position us well for another successful year in 2026. In a more challenging environment, capital discipline and alignment of interests differentiate successful insurers. Underwriting, which we define as underwriters, claims and analytics collaborating to evolve our products is the disciplined pursuit of opportunity. We are an underwriting company as evidenced by our unmatched track record of 30 consecutive years of underwriting profit. I'm incredibly proud of our entire team for producing these results and for how they do it by taking care of our customers and striving to improve every day because they are owners. With that, I will turn the call over to the moderator to open it up for questions. Operator: [Operator Instructions] Your first question comes from Michael Phillips with Oppenheimer. Michael Phillips: The accident year loss ratio in Casualty improved a bit from last year is once you back out the reserve addition you did. Can you talk about how much of that was because of the mix shift from pulling away from transportation book versus anything else that might have caused that improvement? Jennifer Klobnak: So as you look at the casualty loss ratio, you did see improvement. And we did pull back in both transportation and other areas of auto where we provide coverage like in our package businesses. Last year, in the fourth quarter, we did recognize additional reserving related to those auto-related coverages, both in our transportation and our personal umbrella product. This year, as we looked at losses coming in, we did not see the need to take such action. And so you did see that improvement. I can't quantify specifically the difference. Aaron? Aaron Diefenthaler: Yes. I think the bulk there on a comparative basis to Q4 of last year that you're seeing is the action we took for the full accident year in 2024 around auto-related exposures, also true of the 2023 accident year as well. So we feel we're on more stable footing around those exposures because we didn't take the same level of action in the current accident year. Still cautious around auto-related exposures. And our incentive structure is set up for those business leaders to pull back from those markets when they see underpriced competition coming to bear on Submission activity. So everything is set up for there to be a natural pullback from markets that are underpriced. But the underlying results themselves that we're seeing, we feel better about because of the stability relative to the action we took the last couple of years. Michael Phillips: Okay. I guess on that last year's reserve addition, I mean I think it was from higher severity in umbrella and transportation. And this year, you've seen a bit of -- in Casualty, a bit of a slowdown in favorable PYD. I assume that means you're still seeing that same level of severity that you -- that caused you to take those reserve additions last year. I guess the question would be, I'm not sure how much of that reserve addition was because of the accounts that you've now subsequently lost from midterm cancellations that you talked about last quarter. But to the extent some of that was and those accounts are no longer here, I guess, what does that mean for any potential favorable development if those accounts are no longer here, I guess, going forward? Aaron Diefenthaler: Yes. Well, it's hard to get down to the account level when you're -- when you're examining these things. But I'll just say, overall, you're right to identify lower levels of favorable development for Casualty here in the fourth quarter. I think you do have to rightsize that for a small proportion of the prior year catastrophe activity as well to get closer to that $4 million number that I referenced. However, just overall, we're seeing lower levels of favorable development out of casualty. We're still seeing drivers out of GL and commercial excess and still some challenges around auto-related exposures, all of that being maybe to a lesser extent than what we saw in the year ago period. Jennifer Klobnak: Yes. To supplement that, I would just add that there are many metrics that you can track to see what direction you're headed. And I'll tell you that new claim counts in 2025 were down significantly in those auto spots. So for example, our Transportation division, new claim counts were down 24% for the year, which is a positive indicator that the actions we're taking are going to translate into a more stable going forward. Michael Phillips: Yes. Okay. Perfect. That's helpful, Jen. I guess just switching gears, last question on the Property side. I mean last time, you talked a lot about how you've kind of leaned in and made some investments there as you were growing in that hard market. What does that mean today, given just the opposite? Is there any -- I guess, lack of a better term, fat there on the Property side that may need to be trimmed as there's pressure on the expense ratio in Property over the next year or so? Jennifer Klobnak: Well, that's an interesting question. I would say the one thing we did do to ramp up in addition to trying to be more efficient to handle more submissions is that we added additional talent. We've had some very experienced underwriters that have really enjoyed this hard market. And I think as they come towards the end of their career, not that I'm encouraging anyone listening to retire, but I think we will see a handful of retirements in that space, and now we'll be ready as we've already started training the next generation in that group. In addition to that, though, I would tell you our submission count is still up. We continue to see growth in submissions throughout that property book, and we do want to look at that business. So it's harder to work now. There's just as much work, if not more, despite the fact that terms and conditions are more challenging. So you can't necessarily shortcut that. You do want to support the producers that are sending you business. So there's a little bit of -- we still need to keep investing in supporting that. Operator: Our next question comes from Hristian Getsov with Wells Fargo. Hristian Getsov: On the property competition, I guess, what needs to happen in the market for us to see an inflection in the rate decreases, at least like moderate from here? Is it -- it's like thinking about it, is it simple as a large outsized cat event, call it, north of $50 billion? And then I guess on the competitive dynamics you're seeing in the space, like how much of that competition would you classify as being irrational in pricing versus a more rational normalization of the cycle given the strong rate increases and profitability we've seen in the line? Jennifer Klobnak: Well, this is Jen. I think what we need is a little bit less capacity. And whatever can cause that to happen would be beneficial to the market. So whether that's an incredible cat event, whether that's a change in the investment opportunities to shift to a better opportunity in the greater space, anything of that nature that would reduce capacity would be beneficial. Having said that, all we need is a stable market. I will tell you that the current catastrophe market is well priced with reasonable terms and conditions in a lot of places. So we can navigate this market easily if it would stay where it's at. Now with reinsurance renewals being a little more friendly on 1/1, it could soften further. And so again, looking for either a large cat or some other event that would take capacity out of the market would be beneficial. I can't quantify how many are reasonable or unreasonable as we are navigating that market every day, responding to our producers, we see business being stolen between producers. There's a lot of movement going on just because people have changed which wholesalers they work for. So that's one factor, but we also see carriers that have aligned interest being responsible. And so we don't mind competing against those people. That's a fair playground. It's where capital providers that don't have aligned interest. The MGAs, in some cases, have no downside. It's not aligned with the carriers who have to pay those claims at some point. That's where there's a disconnect and where the MGAs want to use up that capacity quickly because right now, the market could be better than it is a few months from now. So I don't know how much of that market there is. I can tell you there are examples where people have received capacity for this year that are multiples and multiples of what they were able to provide in terms of capacity last year. So we just know that we can't compete on some of that, so we don't spend a lot of time on those types of deals. We kind of moved in the spaces where we know we have a chance of the business. Hristian Getsov: Got it. And then switching to personal umbrella, are you seeing a shift in the competitive dynamics there, just given we're seeing more of a focus on growth from some of the bigger personal line carriers and mutual? I'm trying to get a sense of the ability to compete as a monoline provider becomes more challenging given a lot of these other players are focused on bundling, which would include personal umbrella. Jennifer Klobnak: Yes, I'm a fan of the [indiscernible] commercial. But other than that, I would say the personal umbrella market continues to evolve. Some of those personal lines carriers that bundle their business, I know, are increasing rates tremendously, changing their coverage. You see that in filings. You see them in the press. And we do partner with some of those same carriers to offer our personal umbrella when it doesn't match their appetite. We have a pretty wide moat around our business. We're pretty embedded with our business partners. They find value in our product and in how we support that product through servicing. So we update our information daily on what kind of business we're getting in the door. We're talking to our producer partners monthly to see what they need and how we can service that business. So I feel pretty good that we have a good base to go from a position of strength going into the next year. We're also still getting some rate increases in various states where we need some rate. And so I see opportunity for growth from both rate, but also from our continued great service that we provide to our producers, I think we'll have more opportunity there. So while there's some more competition coming in on the edges, I think people might be noticing that we do a pretty good job of this. There's some people talking about getting in. We're going to defend our space. We're going to continue to evolve this product and offer a quality product to insurers out there who need this coverage. Hristian Getsov: Got it. And if I could sneak one more. Have you seen any benefit on submission volumes from the elimination of the diligent search documentation requirement for surplus lines in Florida? I know that's a pretty good portion of your premium mix. And I just wanted to see if there's any updated thoughts there. And then also if you have any updated thoughts around the general tort reform we've seen, not only in Florida, but in states like Georgia on loss trends? Jennifer Klobnak: I'll tell you that in Florida, in the last year, we have actually tried to slow our new business a little bit given the severity that we were seeing previously. And we just talked about our actions from last fourth quarter, for example. And so with some of the actions we've taken between rate attachment points and curtailing some of the production we want from certain producers, we haven't really seen an impact from that specific regulations just because we're more controlling our growth at this point in that state. On the other side of it, I'll tell you total reform has been a positive. We don't necessarily have a number we can point to, but we do see on individual cases where we have a more reasonable resolution because we can present actual medical costs, what people pay, just -- the things that we can do to fight the plaintiff's attorneys and their playbook create a more fair playing field there to resolve claims fairly for that insurer who has an actual loss. We're willing to pay for that loss. We just don't want to pay the attorneys as much. And so that environment has changed and has improved. And we'll probably see that in other states. It's a little more early like for Georgia, for example, but some of the things they have passed have been favorable as well. And in addition to that, all of that third-party litigation, there's a lot of states now that have started passing legislation to get those kind of arrangements disclosed and that kind of thing, which will also help both in personal umbrella as well as broader auto coverages. Operator: Your next question comes from Andrew Andersen with Jefferies. Andrew Andersen: Recognizing really strong overall results and a very good long-term track record here. If we just kind of focus on Casualty over the last 2 years, 98% reported combined ratio, a little bit uncharacteristic to have that 2 years in a row. And I realize there were some headwinds on trucking, both on the reserving side and on the premium side. But do you feel that some of these headwinds within this Casualty segment are behind you or have really worked their way through and you're kind of entering '26 in a better position, both from a booking ratio and from any premium growth headwind into next year? Aaron Diefenthaler: Well, Andrew, I think as we've characterized the product level rate increases we've gotten within the Casualty segment, we think that's probably the strongest foundation we can offer in terms of data itself. We feel better about where the overall rate level is for a lot of these businesses that have had some challenges related to them. So it's hard to say the exact point in time where you turn the corner into something that may offer some additional potential for expanded margins, but having that rate profile and having some compounding of those rates over multiple years, we think, is a good foundation. Jennifer Klobnak: Yes. In addition to that, I would say we have clearly slowed a bit releasing reserves for some of those coverages. I mean we've talked about that in the past, too. Initial booking ratios tend to hold up a little longer. While we may be seeing positive signs like claim counts that I look at, we're not acting -- we tend to be pessimist. So we don't tend to act on the good news. We tend to wait and make sure that we are seeing enough good news for a while I think of a trend before we're going to recognize it for sure. Craig Kliethermes: Andrew, I grew up in the Show Me State of Missouri. So we got to wait and see. On good news, we're slower to usually recognize that. But if we see something go in the other direction, we obviously like to try to get that up as quickly as possible. So that's the way we look at things. Andrew Andersen: Understood. And on the property side, you've talked quite a bit about the MGA market being aggressive there. How would you characterize kind of more of the traditional or admitted carriers? Jennifer Klobnak: Well, I would say that everybody wants premium. So it's a fight out there, but I would say the other E&S carriers are fairly responsible. I'll give them credit. And so we don't -- again, we don't mind competing against them. I think if we could just reduce the little capacity in that market, it could -- it would at least stabilize, which would be great. Andrew Andersen: And then maybe last one. I think I heard 5% for Hawaii home. Is that just reflective of we've lapped kind of the book rolls here because it's quite a decel quarter-over-quarter? Jennifer Klobnak: Yes, that's correct. So we had a couple of book rolls that ended right at the end of the third quarter. And so now we're back to our outstanding local service and just competing on a regular basis at this point. In addition to getting green, we have gotten rate increases that will drive a little bit of growth as well. Operator: Your next question comes with Mark Hughes with Truist. Mark Hughes: Any granularity you can provide on that property dynamic just in terms of the competitive pressure as you think about Q4 relative to Q3 or even through the quarter, kind of the monthly pressure? Is there -- I know it's certainly more challenging year-over-year, but has it stabilized at all? Or is it still under incremental pressure? Jennifer Klobnak: That's a tough question. You're getting pretty granular, I would say. Every month, we -- obviously, we look at it on a very regular basis. And each month, we -- if it's good news, we hope it begins a trend. If it's down, we are like what's going on. So I don't know that I should provide color on a monthly basis. I'll tell you that in the fourth quarter, that's our smallest quarter for renewals. I mean there's just not as many renewal dates out there. So it's a tough quarter to really conclude about anything. If 1/1 is a big date and then in the spring 4/1, 5/1, 61, 7/1, all those are bigger dates, and that's really where you make your book of business. So all of that is coming up. And I think providing any 1/1 color on renewals probably provide a little too much information. So the market is still competitive. It continues to be, and we will see how that plays out this year. Mark Hughes: Yes. And then the -- thinking about the lower reinsurance costs, would you say pricing was already incorporating that? There seems to be a pretty wide expectation for 10% to 20% decline. Just thinking about whether -- when that actually happens, does that mean much for the market in the near term? Jennifer Klobnak: Well, as we prepare for our 1/1 renewals, we did contemplate a bit of a decrease in our cost. And so we built that into our benchmark pricing, which indicates how we need to price the business. I don't know what other companies do. I will tell you that last year in 2025, January, we didn't really see an impact from the reinsurance renewals. But in February, we noticed that that's when all of that information trickled down to the underwriter desk and people got more aggressive because they did get relief last year on 1/1. So January, we're just going to put it in the books, and we'll see if the behavior changes later this spring to incorporate that. We also see changes on 4/1 because that's when some MGA relationships renew their capacity. And so we may see further change in behavior at that point in time, but that's yet to be determined. Mark Hughes: And then one quick one, if I might. You've mentioned that you were seeking additional rate increases in personal umbrella, and that would help 2026. Can you size that? Jennifer Klobnak: Well, this is a 50-state product where we have to file in each state and each state has a different process. So I can tell you that effective December 1, we did get a California rate increase of about 20%. And so that will bleed into part of the book. California is one of our bigger states. I can tell you our process is that every quarter and now that we have year-end, it will be nice to, again, look at results to see which states require rate, where we're not getting adequate rate and where are we? Those analyses are underway already. And so we'll conclude in the next couple of weeks if we need to start taking additional action. But just based on these filings that were approved in the second half of last year, we know that there will be a pretty good amount of rate going into the book this year as well. Operator: Our next question comes from Meyer Shields with Keefe, Bruyette, & Woods. Meyer Shields: Jen, when you talk about lower auto claim emergence, is that across accident years? Or was that an accident year 2025 comment? Jennifer Klobnak: These are just new claims that are received in 2025. They could be related to 2025 accident year or previous accident years. Craig Kliethermes: I was just going to say, I think we did see a reduction last year as well, so 2 years in a row. Meyer Shields: Okay, that makes sense. I just want to make sure that I was understanding that correctly. The $150 million catastrophe reinsurance limit reduction, was that at the top end of the tower? Did your attachment point change at all because of the smaller book? Jennifer Klobnak: No. So we maintained our $50 million attachment on the cat tower and just brought that tower down. Meyer Shields: Okay. And then final question. Just -- you mentioned, I guess, concerns about competitors seeking to meet their budgets. How significant is maybe fourth quarter competition compared to other quarters? I've heard the comment a lot. I'm just trying to get a sense of how material you think it is in the market? Jennifer Klobnak: I mean, overall, the fourth quarter is always challenging, and our underwriters always say, oh, other people -- and it's legitimate, other people are compensated on top line directly, sometimes not even compensated on bottom line. It's just strictly top line. So you do see a rush to meet people's bonuses. But I argue with them that, that happens every year. So the real test is, is it worse this year in the fourth quarter versus last year fourth quarter, that's sprint to the finish. And in some of our segments, I would say people have this feeling it's worse, but it is a lot of feeling as opposed to something you can measure to some extent. That's offset by -- in some cases, like in property where we have just less business that renews. So you can't really measure what's going on as well as other quarters where there's just more business available. Meyer Shields: Okay. No, that makes sense. I guess the question for me is always is in the first quarter so far less competitive than the fourth quarter that just ended? Jennifer Klobnak: Sorry, I didn't follow that. Meyer Shields: I'm just asking whether some of that competitive pressure has abated in the first quarter because right now, people aren't as worried about 2026 premium budgets. I know it's early in the first quarter to even ask. Jennifer Klobnak: Well, it's too early to ask. Yes, we haven't closed January yet. So it's hard to see -- I see a partial -- a partial month is all I have right now. Operator: Your next question comes from the line of Carol Bruzzese with Philo Smith & Co. James Inglis: Sorry, it's James Inglis. Great quarter and year. But I've got a question about the reserve development. If you look at the '24 and prior cat events, there was a big swing in both the quarter and the year. And I'm wondering, is that just sort of a normal thing -- time to figure out what the cats actually ended up as? Or is there something specific or unusual in there? Aaron Diefenthaler: Not unusual, Jamie. This is Aaron. You think back to last year, we had a couple of sizable storms in Helene and Beryl. I think we outlined our expectations for there in our third quarter results and also at that time, offered a range of potential loss activity around Hurricane Milton, which was early days in the fourth quarter of last year. We tightened up our expectations as of the fourth quarter release last year, but that was close to $50 million of an estimate just on Milton alone. And so you get -- a year on from those events and then some -- and you have some more comfort around what actual losses are going to transpire, and we felt it's prudent to take down some of the IBNR. Those were not the only events that were incorporated in that analysis. We have cat activity going back over several years that we examined and each storm stands unto itself. And it's a hand-to-hand combat in terms of examining claim activity, what's outstanding, what may be in litigation, all fitting into our thinking on what to take down there. Operator: Your next question comes from the line of Gregory Peters with Raymond James. Mitchell Rubin: This is Mitchell Rubin. You referenced the 13% rate increase in transportation this quarter. Is there any quantification you could provide on the magnitude of the underlying loss trend you're seeing in the portfolio? And what level of rate increases you believe might be required in 2026 to sustain rate adequacy in the book? Craig Kliethermes: Yes. Mitch, this is Craig. So I'll speak to that. So -- I mean, we anticipate to continue to try to get increases going forward, probably double-digit increases. We have seen elevated severity trends in pretty much all auto businesses since COVID, since the courts have opened back up. At some point, we think that has to subside. I mean people are going to want to continue to pay 10%, 15% increases in their insurance or they can't afford to pay 10% to 15% increases in their insurance. So at some point, there's going to be a breaking point where we're going to get more tort reform in some of these states so that we can moderate this loss severity trend. In the meantime, you can expect us -- I can't speak for other companies, but you can expect us to try to at least get the increase to cover trend. And if we can't, we'll get smaller. That's just the way we operate. So we're going to try to continue to get 10%, 15% increases on auto business going forward until we see that loss cost trend subside. Mitchell Rubin: Great. That's very helpful. Can you provide any additional detail on how your technology investments over the past several years have impacted your underwriting performance, particularly touching on changes in submission to bind ratios within the transactional surety business? Jennifer Klobnak: Well, I would say our investments in technology have done a couple of things. I focus on a couple of things. One is really improving our customer experience, and that starts actually before the technology. So considering, for example, what questions we ask, we've tried to simplify it in a few places, the application questions that we're asking, making them more straightforward. I don't know about you, but whenever I get an application, I struggle with how do you answer this question. So trying to simplify it based on feedback and input from our producer partners and insurers has been really critical, then providing that through automation and modern systems, which we've been upgrading over the last few years. For example, in surety, we're rolling out an upgrade to our current offering. We've been in that business since 1992. As you can imagine, that technology has changed tremendously over the decades. And so our recent investment is rolling out to provide end-to-end ability to look at what's going on with surety bonds by those producers so that they can service that business better without feeling like they're bothering us to ask questions and whatnot. So that will be very helpful to them. So really kind of that customer experience and getting business in the door has been a big investment. Our second large bucket would be efficiencies. So there are a number of things we've done with efficiencies through various types of artificial intelligence and various types of other automation to try to just have people spend more time using their brains instead of doing administrative tasks. So that can include things like summarizing submission information, summarizing claims, lengthy claim information, they can mean inputting various e-mails that come in regarding claims go straight into claim files. So that we have to look at them and decide where they go, updating loss runs that come right in and go straight into our systems. So things of that nature on efficiencies have been a big category. And then lastly, I would say is just that improving that feedback loop that we have between underwriting claim and analytics, really getting our data in places where we can really look at it, slice and dice it very granularly, having the ability to update that daily where it makes sense. Some business units that doesn't make sense, we don't need to invest in that. But in others, there's data available to drive decisions that we like it updated more often. So we've invested in that. We've rolled out a number of dashboards to provide people insight into submission counts, binding percentages as well as marrying that up with loss information, so which producers, which states, which types of business, which attributes of an insurance drive loss activity. All of that information has been ramped up to help us make better decisions as we're underwriting and handling claims. So those are kind of the 3 big buckets that we have focused on. And I would say, given our diverse portfolio, you're never done, but we have spent a lot of time and effort, and I think we're reaping the rewards in that we continue to make an underwriting profit, which is in a more challenging environment as the market softens, we've got everything in place so that we can keep making great decisions for that bottom line. Operator: There are no further questions at this time. So I will turn the conference over to Mr. Kliethermes, RLI's President and CEO, for some closing remarks. Craig Kliethermes: Thank you. Before we wrap up, I want to take a minute to reflect on what this year, our 30th consecutive year of underwriting profitability truly represents. 30 years ago, RLI was a very different company. We wrote about $270 million of gross written premium. Roughly 1/3 of our business was earthquake insurance. We were still in the contact lens business. Our market cap was under $200 million, and we were proud to make Ward's top 50 performing insurance companies for the fifth straight year. For the record 2025 representing our 35th consecutive year on that list. The world was a different place, too. Public access to the Internet was just getting started with AOL and Prodigy. The Sony PlayStation that just hit the market. Cell phones were used for one thing, to make phone calls. A lot has changed over those 30 years, but the things that matter most to us haven't. There are still no shortcuts in this business. Sustained success is built the same way it has always been with discipline, accountability and a lot of hard work. What gives me the most confidence as we look forward is not just our results, but how we produce them. We have a strong balance sheet, a diversified portfolio and a team of engaged employee owners who care deeply about the decisions they make and the outcomes they produce. Every day, they show up committed to making RLI a better company for its customers, their coworkers and our shareholders. Our founder like to say that great companies are built one good decision at a time and that those decisions never seem easy in a moment. That philosophy has served RLI well for 3 decades, and it continues to guide us today. We're proud of what we've accomplished, but we're not done. We're optimistic about the future, confident in our approach and committed to doing what we've always done, staying disciplined, staying different and playing the long game. I would be remiss to end without thanking Todd Bryant, our CFO, who just retired at year-end after 31 years of dedicated service to RLI. I also want to thank our employee owners for their hard work, and we appreciate you all for your continued interest in RLI. We look forward to speaking with you again next quarter. Operator: That concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Hello, everyone, and thank you for joining the Banner Corporation Fourth Quarter 2025 Conference Call and Webcast. My name is Lucy, and I'll be coordinating your call today. [Operator Instructions] It is now my pleasure to hand over to President and CEO, Mark Grescovich, to begin. Please go ahead. Mark J. Grescovich: Thank you, Lucy, and good morning, and Happy New Year, everyone. I would also like to welcome you to the Fourth Quarter and Full Year 2025 Earnings Call for Banner Corporation. Joining me on the call today is Rob Butterfield, Banner Corporation's Chief Financial Officer; Jill Rice, our Chief Credit Officer; and Rich Arnold, our Head of Investor Relations. Rich, would you please read our forward-looking safe harbor statement? Rich Arnold: Sure, Mark. Good morning. Our presentation today discusses Banner's business outlook and will include forward-looking statements. These statements include descriptions of management's plans, objectives or goals for future operations, products or services, forecast of financial or other performance measures and statements about Banner's general outlook for economic and other conditions. We also may make other forward-looking statements in the question-and-answer period following management's discussion. These forward-looking statements are subject to a number of risks and uncertainties, and actual results may differ materially from those discussed today. Information on the risk factors that could cause actual results to differ are available in the earnings press release that was released yesterday and a recently filed Form 10-Q for the quarter ended September 30, 2025. Forward-looking statements are effective only as of the date they are made, and Banner assumes no obligation to update information concerning its expectations. Mark? Mark J. Grescovich: Thank you, Rich. As is customary, today, we will cover four primary items with you. First, I will provide you high-level comments on Banner's fourth quarter and full year 2025 performance; second, the actions Banner continues to take to support all of our stakeholders, including our Banner team, our clients, our communities and our shareholders; third, Jill Rice will provide comments on the current status of our loan portfolio; and finally, Rob Butterfield will provide more detail on our operating performance for the quarter as well as comments on our balance sheet. Before I get started, I wanted to thank all of my 2,000 colleagues in our company who are working extremely hard to assist our clients and communities. Banner has lived our core values, summed up as doing the right thing for the past 135 years. Our overarching goal continues to be to do the right thing for our clients, our communities, our colleagues, our company and our shareholders and to provide a consistent and reliable source of commerce and capital through all economic cycles and change events. I am pleased to report again to you that is exactly what we continue to do. I am very proud of the entire Banner team that are living our core values. Now let me turn to an overview of our performance. As announced, Banner Corporation reported a net profit available to common shareholders of $51.2 million or $1.49 per diluted share for the quarter ended December 31, 2025. This compares to a net profit to common shareholders of $1.54 per share for the third quarter of 2025 and $1.34 per share for the fourth quarter of 2024. For the full year ended December 31, 2025, Banner reported net income available to common shareholders of $195.4 million or $5.64 per diluted share compared to $168.9 million or $4.88 per share for the year ended December 31, 2024. Our strategy to maintain a moderate risk profile and the investments we have made and continue to make in order to improve our operating performance have positioned the company well for the future. Rob will discuss these in more detail shortly. The strength of our balance sheet, coupled with the strong reputation we maintain in our markets, will allow us to manage through the current market uncertainty. To illustrate the core earnings power of Banner, I would direct your attention to pretax pre-provision earnings, excluding gains and losses on the sale of securities, changes in fair value of financial instruments and building and lease exit costs. For the full year 2025, core earnings were $255 million compared to $223.2 million for the full year of 2024. Banner's fourth quarter 2025 revenue from core operations was $170 million compared to $169 million for the prior quarter and $160 million for the fourth quarter of 2024. The full year 2025 core revenue was $661 million compared to $615 million for the full year of 2024, an increase of 8%. We continue to benefit from a strong core deposit base that has proved to be resilient and loyal to Banner, a very good net interest margin and core expense control. Overall, this resulted in a return on average assets of 1.24% for the fourth quarter of 2025. Once again, our core performance reflects continued execution on our super community bank strategy, that is growing new client relationships, maintaining our core funding position, promoting client loyalty and advocacy through our responsive service model and demonstrating our safety and soundness through all economic cycles and change events. To that point, our core deposits continue to represent 89% of total deposits. Reflective of this performance, coupled with our strong regulatory capital ratios, and the fact that we increased our tangible common equity per share by 14% from the same period last year, we announced a core dividend of $0.50 per common share. Finally, I'm pleased to say that we continue to receive marketplace recognition and validation of our business model and our value proposition. Banner was again named one of America's 100 Best Banks and one of the best banks in the world by Forbes. Newsweek named Banner one of the most trustworthy companies in America and the World again this year, and just recently again, named Banner one of the best regional banks in the country. J.D. Power and Associates named Banner Bank the best bank in the Northwest for retail client satisfaction. Our company was also recently certified by Great Place to Work. And S&P Global Market Intelligence ranked Banner's financial performance among the top 50 public banks with more than $10 billion in assets. Additionally, as we've noted previously, Banner Bank received an outstanding CRA rating. Let me now turn the call over to Jill to discuss trends in our loan portfolio and her comments on Banner's credit quality. Jill? Jill Rice: Thank you, Mark, and good morning, everyone. In spite of the solid level of loan originations, up 9% compared to the linked quarter and 8% when compared to the quarter ending 12/31/2024, we experienced negligible loan growth during the quarter. Loan production was offset by higher-than-expected affordable housing credit tax -- housing tax credit paydowns, a small number of both CRE and shared national credit payoffs and significantly lower C&I line utilization, down 3% in the quarter and 4% year-over-year. Year-over-year, portfolio loan balances increased 3.2%. Within the commercial real estate portfolio, we reported solid growth year-over-year with investor CRE increasing 5% and owner-occupied CRE increasing 11%. This growth was diversified both in product type and geography and was granular in nature with our small business teams providing nearly 40% of the owner-occupied originations by dollar. As mentioned earlier, the fourth quarter results were impacted by prepayments. The decline year-over-year in the multifamily portfolio is primarily the result of stabilized properties moving to the secondary market. Looking at the construction portfolio. Construction lending has long been a core competency at Banner and it continues to be a source of strength. In aggregate, it remains well balanced at 15% of total loans. The growth in commercial construction, one- to four-family construction and land and land development reported in the quarter reflects the continued funding of previously approved projects. The decline reflected in the multifamily construction was primarily driven by the affordable housing tax credit paydowns mentioned earlier. In spite of the housing affordability crisis, our residential construction portfolio at 5% of the total continues to perform well. It remains geographically dispersed and is diversified by product mix and price point with levels of completed inventory continuing to be manageable. Sales activity within the general market as well as by submarket continues to be monitored closely. The decline reflected in C&I is driven largely by a continued reduction in line utilization down 3% in the quarter and 4% when compared to last December. Additionally, the year-over-year decline includes the exiting of several classified relationships, the refinancing off balance sheet of multiple shared national credits as well as the payoff of certain relationships that we chose not to retain based on underwriting terms offered by others. The decline was offset in part by continued growth in the small business segment, up 8% year-over-year, which continues to be a focus of our Community Banking division. The modest increase in agricultural balances year-over-year is the result of expanding a select number of existing relationships. The decline reflected in the one- to four-family portfolio year-over-year is the result of slightly lower mortgage rates as we closed out 2025, resulting in home refinances. And the growth in home equity lines of credit, both in the current quarter and year-over-year represent new originations versus an increase in line utilization. As reported, our overall credit metrics remain strong. Delinquent loans increased modestly due primarily to a spike in the one- to four-family portfolio and now represent 0.54% of total loans, up 15 basis points from the linked quarter. This compares to 0.49% reported as of December 31, 2024. Adversely classified loans increased by $19 million in the quarter and now represent 1.65% of total loans. And total nonperforming assets at $51.3 million continue to represent a modest 0.31% of total assets. The net provision for credit losses for the quarter was $2.4 million, including a $1.5 million provision for loan losses and a $945,000 provision related to unfunded loan commitments. Loan losses in the quarter totaled $1.2 million and were offset in part by recoveries totaling $310,000, with net charge-offs for the year, representing a nominal 6 basis points of average total loans. After the provision, the allowance for credit losses totaled $160.3 million, providing 1.37% coverage of total loans consistent with prior quarters. I will close by again saying Banner's moderate risk profile with stable and strong credit metrics, a solid reserve for loan losses and robust capital levels continues to be a significant source of strength. We are well positioned to manage through the balance of this economic cycle and the market uncertainty that comes with it. With that, I will hand the microphone over to Rob for his comments. Rob? Robert Butterfield: Thank you, Jill. We reported $1.49 per diluted share for the fourth quarter compared to $1.54 per diluted share for the prior quarter. For the full year 2025, we reported $5.64 per diluted share compared to $4.88 per diluted share for 2024. The decrease in earnings per share compared to the prior quarter was primarily due to a decrease in the valuation of financial instruments carried at fair value, a loss on the disposal of assets related to software no longer being used as well as an increase in medical and IT expenses, partially offset by an increase in net interest income. Compared to 2024, the increase in the full year 2025 earnings per share was primarily due to an 8.5% increase in net interest income due to higher net interest margin and growth in earning assets. Core pretax pre-provision income for the current quarter increased 9% or $5.5 million compared to the quarter ended December 2024, while core pretax preprovision income for the current year increased 14% or $32 million compared to the prior year. Our performance metrics remain solid as we reported a return on tangible common equity for the current quarter of 13.11% and a return on tangible common equity for the full year 2025 of 13.16%. As Jill previously mentioned, loan growth was limited during the quarter as the increase in production was mostly offset by an increase in payoffs and reduced line utilization. The loan-to-deposit ratio ended the quarter at 86%, giving us ample capacity to continue to support existing clients and add new clients. Total securities decreased $13 million during the quarter as normal portfolio cash flows were partially offset by security purchases. Deposits decreased by $273 million during the quarter, primarily due to normal seasonal activity as clients use deposits to pay down lines of credit and larger deposit clients started to deploy excess liquidity. Core deposits ended the quarter at 89% of total deposits. Total borrowings increased $40 million during the quarter as we continue to have a low reliance on wholesale borrowings. The tangible common equity ratio increased from 9.5% to 9.84%. As a reflection of our robust capital and strong liquidity positions, Banner repurchased approximately 250,000 shares during the quarter and declared a quarterly dividend of $0.50 per share. Net interest income increased $2.5 million from the prior quarter due to a 5 basis point increase in net interest margin as well as average earning assets increasing $60 million during the quarter. The increase in average earning assets was due to average loan balances increasing $115 million, partially offset by total average interest-bearing cash and investment balances decreasing $55 million. The tax equivalent net interest margin was 4.03% for the current quarter compared to 3.98% for the prior quarter. Earning asset yields decreased 4 basis points due to a 7 basis point decrease in loan yields as floating rate loans repriced down as a result of the 75 basis point reduction in the Fed funds rate. Average rate on new loan production for the current quarter was 6.88% compared to 7.35% for the prior quarter. Funding costs decreased 10 basis points due to average borrowings decreasing $137 million and deposit costs decreasing 7 basis points as deposit pricing was reduced due to the reduction in the Fed funds rate. Noninterest-bearing deposits ended the quarter at 33% of total deposits. Total noninterest income increased $5.5 million or decreased $5.5 million from the prior quarter, primarily due to recording a loss of $1.4 million on the disposal of assets, which included the write-off of $1 million for software no longer being used as compared to a $1.4 million gain on the sale of assets in the prior quarter. In addition, the current quarter had a fair value decrease of $2 million on financial instruments carried at fair value. Total noninterest expense was $2.1 million higher than the prior quarter with increases in medical claims, software expense and legal expense as well as lower capitalized loan origination costs. Our strong capital and liquidity levels position us well for 2026. This concludes my prepared comments. Now I'll turn it back to Mark. Mark? Mark J. Grescovich: Thank you, Jill and Rob for your comments on the operating performance of Banner. That concludes our prepared remarks. And Lucy, we will now open the call and welcome questions. Operator: [Operator Instructions] The first question comes from Jeff Rulis of D.A. Davidson. Jeff Rulis: I appreciate the detail on the loan front. It sounds like some payoffs and line utilization impact. Jill, thinking about '26 and the outlook, payoffs is tough to gauge, but you're thinking on kind of net growth in the coming year? Jill Rice: Yes, Jeff, certainly payoffs are tough to gauge, and I would expect that the commercial real estate payoffs are likely to continue to be a headwind this next year. Still, our pipelines are again building. You saw decent growth this last quarter. We've seen positive impact from new bankers hired in the last 2 years. So all in, if the economy holds up, I'm going to say we would expect to grow our loan book in the mid-single digits again over the course of this next year. Jeff Rulis: And Jill, just to kind of the competitive landscape. It seems like the production side is originations pretty strong. Is that much of a headwind, if you will? I mean that sounds pretty positive if -- just want to kind of check in on the competitive environment? Jill Rice: Well, it's always been competitive in the spaces that we engage in, Jeff. So I mean, certainly, some banks, as I indicated, we lost over the course of the year some credits because we just weren't going to stretch on some of the terms that people are offering to expand their loan book. But all in, I think we compete well both in the product offering suite we have and in pricing. Jeff Rulis: Appreciate it. Maybe a similar question for Rob on the margin and the outlook as you talk 4% -- some deposit fluctuations into the year, but your expectations for margin ahead? Robert Butterfield: Yes. Thanks, Jeff. So I mean, what I'd say is, ultimately, I think it's going to be largely influenced by the level of actions from the Federal Reserve. We've talked about in the past that if there's no Fed action in a quarter, then we'd likely expect some NIM expansion as adjustable rate loans continue to reprice up. And even at this point, new production is coming on at higher rates than the average rate of the overall portfolio. If there's 125 basis point cut in a quarter or just at the end of the quarter before a quarter, then we would expect that NIM would be more of a flat scenario as deposit repricing would mostly offset the impacts of the floating rates and we also have the benefit of the adjustable rates. If you get multiple rate cuts in a quarter, then that's where we would expect that we would see some net interest margin compression. We use Moody's for our interest rate forecasting. Most recently in January, they had 3 rate cuts really in the first half of the year, March, June and July. If that's correct, that would suggest somewhat of a flat first half of the year potentially down a bit in the third quarter and expansion in the fourth quarter. But I think the Fed actions is -- there's a lot of uncertainty around that right now because the most recent market stuff, I saw the market was expecting no rate cuts next year. So somewhere between no rate cuts, which would suggest higher net interest margin expansion and three rate cuts, which would suggest more of a flattish type environment. So I'll let everybody pick their own Fed scenario there. Operator: The next question comes from Matthew Clark from Piper Sandler. Matthew Clark: [Audio Gap] on deposits at the end of December and the average margin in the month of December? Mark J. Grescovich: Matthew, could you repeat the question? Glad to have you on the call. I don't think [indiscernible] through. Matthew Clark: Sure. Just looking for the spot rate on deposits at the end of the year, either interest-bearing or total? And then if you had the average margin in the month of December. Robert Butterfield: Yes. Matthew, it's Rob. So spot deposit cost for the month of December were 1.39%. Margin was, for December was essentially the same as the quarter, right around 4.03%. Matthew Clark: Okay. And the 1.39% for the month of December, not year-end? Robert Butterfield: That's correct. That's the average for the month, yes. Matthew Clark: Got it. Okay. And then just on expenses, a couple of unusual items there this quarter. It also seemed like there might have been some transitory expenses. How do you think about that not -- kind of core run rate going into the first quarter? Robert Butterfield: Yes, sure. So it's not -- I'd just say, in general, it's not unusual for expenses to bounce around a little bit quarter-to-quarter. And we saw some of those -- we saw an increase in IT expenses as the new loan and deposit origination system was fully rolled out early in the fourth quarter. And then we also saw higher medical claims, which isn't unusual for the fourth quarter, but I'd just say they were even for the first 9 months of the year on medical expenses, they are running lower than typical. And then the fourth quarter kind of made up the difference. So probably medical expenses for the full year were kind of as expected. It was just more back-end loaded than normal. And then we had some higher legal expenses during the current quarter as well. We have one legal matter that concluded this quarter and then the capitalized loan costs were down a little bit. As I think about that going into 2025 or 2026, I would look at the full year 2025 expenses. And then above that for '26, I would just expect normal inflationary, whatever you want to call that, in that 3% range as far as total expenses in '26 compared to '25. Matthew Clark: Okay. Great. And last one for me. On Special Mention and substandard, it looked like about a 55 basis point increase. Can you give us some color on what drove those changes this quarter? Jill Rice: Sure, Matthew. When you look at Special Mention, the largest drivers of the increase were related to downgrading a couple of alcoholic beverage related enterprises due to declining cash flows. Within that category, the largest relationship is approximately $25 million and the average Special Mention loan size is modest to $2 million. If we shift over to substandard, we saw a modest increase, up $19 million. Within the commercial and construction segments, downgrades continue to be idiosyncratic and the largest substandard relationship has approximately $19 million outstanding. The average substandard loan remains well under $1 million. There's nothing screaming about a certain industry or segment that we should be worried about. Operator: The next question comes from Andrew Terrell from Stephens. Andrew Terrell: If I could go just quickly to capital. I mean you're obviously still in a very good capital position. Just hoping you could refresh us. I think you still got 1 million or so shares or maybe a little more on the buyback authorization. You've been somewhat active. Just where the valuation is at today, talk about the appetite for buyback or potentially increasing the buyback? And then just any update on how you're approaching M&A right now? Robert Butterfield: Sure, Andrew. I'll start with the capital aspect of it. So I mean, I think as you saw over the last couple of quarters, we've taken a number of capital actions middle of the year, repaying the $100 million of sub debt and then increase in the core dividend last quarter. And then as you mentioned, we have repurchased around 250,000 shares over the last 2 quarters in a row. And we still have about 1.2 million shares that are available under the repurchase authorization right now. We think if you look at the last 2 quarters, we've repurchased the shares right around that $63 level. And so we think that's an attractive point to be repurchasing shares. So based on where we ended the day yesterday, it's a little bit above that. We still think that is attractive. So ultimately, what we'll be doing during the first quarter here is really monitoring market activity and market conditions and then also the price of the stock to see if it makes sense to continue to do that. But I think if you look at our capital levels right now, we think the capital -- we target capital more of in a range than a specific number, but we're probably still in that upper end of the capital right now. And so that would suggest that the market conditions are right, we would continue to look at repurchasing shares. Mark J. Grescovich: Yes, Andrew, and this is Mark. As it relates to M&A, our posture has not changed. We continue to have conversations with parties that we think would be a great combination for Banner. And given the strong capital position we have, the strong core earnings power of the company, and our market reputation, we think we would continue to be an excellent partner. So as you know, those are a matter of timing. When things work out appropriately, it's not necessarily something that you could force. So we continue to have very good dialogue with folks that we think would be great partners for Banner. Andrew Terrell: Okay. I appreciate it. And then, Rob, just on the margin. I guess the question is what's kind of driving some of the conservatism around -- you referenced getting successive rate cuts could lead to margin down. But when I look at fourth quarter of this year, your margin was up when we digested most of the cuts and then same 4Q of '24, we had a lot of cuts in that quarter, and your margin was still up in that quarter. So I guess, what's kind of driving the conservatism? Are you trying to kind of imply that maybe there's some lag to the loan repricing on a monthly basis, and we should expect some margin headwinds in the first quarter? Just wanted to unpack that maybe a little bit more. Robert Butterfield: Yes. So I wouldn't expect some headwinds against margin necessarily in the first quarter. If you think we did get the Fed rate cut in December, that's not fully baked in necessarily to the run rate in the first quarter. But I think if you think about it, the one thing that we're looking at is those adjustable rate loans that have been repricing through the cycle and then also the new loans coming out at higher yields. The backlog of those adjustable rate loans that have been repricing is coming down. At one point, I think if you look at 1.5 years ago, we might have been getting 9 basis points a quarter from that. And at this point, it may be a benefit of 4 basis points a quarter. And then also the average loan yield -- new loan yields compared to the average yield of the portfolio is also kind of narrowing as well. So I think the repricing aspect of the loan portfolio, even under a flat rate environment, I think it's more, call it, 4 basis points a quarter at this point. So if the Fed is on pause and we're able to maintain funding costs where they're at right now, and we get that backlog then you're looking at maybe 4 basis points a quarter of expansion while the Feds on pause. But I've gone through the other scenarios that is just different once the Fed starts to cut rates because we still have 30% of the book that floating rate and -- of that 30%, 10% are on their floors right now. So 90% of that continues to reprice down 25 basis points as the Fed cut. So that's just the way we're looking at it at a high level. Operator: The next question is from Kelly Motta of KBW. Kelly Motta: I apologize if this has been asked earlier. I joined a little late, but just -- on the tax rate, it looked a bit lower in the fourth quarter, understanding there can sometimes be catch up or adjustments for the full year. Maybe, Rob, if you could provide what you're expecting here for the tax rate next year as a normalized number? Robert Butterfield: Yes. Thanks, Kelly. So on that one, you are correct. So the fourth quarter, we just had some annual year-end true-up of some of the tax items there. But the rate that we're expecting is right around 19%, I think that's what we were for the first 9 months of the year. So I think if you're looking at 2026, it's probably right around 19%. Kelly Motta: Got it. That's helpful. And then in terms of -- it looks like there was some noise too in other fees. I know there was some building lease exit costs that ran through. Was there anything else of note that we should keep in mind as we kind of start to think about a normalized fee rate? Robert Butterfield: Yes. So the other item in there, so we had a total of $1.4 million loss on the disposal of assets, and part of that was building related, which we adjusted out of our core numbers to get to the $1.55 earnings per share for the quarter. But it also included a $1 million write-off of software-related assets that we're no longer using. And that's not typically an item that we back out of our core number. So that's a $1 million nonrecurring item in there that I wouldn't expect to see going forward. Kelly Motta: Got it. Maybe last one, and I apologize again if this was taken. But for Jill, it seems like payoffs in the move of construction to permanent financing weighed on some growth this quarter. What's your expectation there? I know that's been something you've been talking about for a while. Is this a continued potential headwind here as we look to '26? Jill Rice: Yes, Kelly, I did note that I do expect that commercial real estate payoffs will continue to be a headwind as we move into this next year. Still, we're going to project that we're going to grow our loan book as long as the economy holds up in the mid-single digits over 2026 as well given the kind of numbers that we're showing in production, the strength of the new relationship managers we've brought on and the activities they're bringing to the table as well. Operator: [Operator Instructions] The next question comes from Liam Coohill of Raymond James. Liam Coohill: Liam on for David. So just to take it at a higher level, you've noted the core deposit seasonality in your prepared remarks, but deposits have increased year-on-year across all of your geographies. Could you discuss some of the key drivers behind that year-on-year growth? And could we maybe expect some similar core deposit growth in '26 given the new banker adds? Robert Butterfield: Liam, it's Rob. So -- yes, I think if you look at it, there's always some seasonality to deposits. At our core, we are a relationship bank. So as we're bringing in new clients, we expect those clients not only come with the loan relationship, but also the deposit relationship. And then also, we're -- we've been heavily focused on small -- building our small business relationships. And small businesses typically are deposit rich in nature, where oftentimes, their deposits are larger than the loans that we're giving them. So I think that part of the success, and Jill talked about it earlier, the bankers that we've added over the last 2 years, starting to get some traction there, and then also seeing some traction on the small business side. Liam Coohill: I appreciate it. And just one more for me. How are you thinking about deposit betas in 2026, given your already low-cost core deposit base? Robert Butterfield: Yes. It's Rob again. So we've been modeling 28% for the deposit beta, and that's essentially, I think, what we've seen through the cycle, specifically here in the fourth quarter and the activity that we saw there. We do think that over time, that will start to trend down some. At this point, we've been able to take that 28% deposit beta by really taking even the full 25 basis points on some of the exception price clients and also on CDs and then a higher amount even on some of our high-yield savings accounts. But as time goes by, we think that will continue to narrow some. So we might get that full 28% on the next cut or two, but I see it trending down in '26 depending on the level of effect to activity. Operator: Thank you. We have no further questions at this time. So I'd like to hand back to Mark for closing remarks. Mark J. Grescovich: Thank you, Lucy. As I've stated, we are very proud of the Banner team and our full year 2025 performance, a significant improvement over 2024. Thank you, again, for your interest in Banner and for joining the call today. We look forward to reporting our results again to you in the future. Have a great day, everyone. Thank you for attending. Operator: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Hello, and welcome to the Equity Bancshares, Inc. 2025 Q4 Earnings Call. My name is Carla, and I will be coordinating your call today. [Operator Instructions] I would now like to hand you over to your host, Brian Katzfey, Vice President, Director of Corporate Development and Investor Relations, to begin. Please go ahead when you're ready. Brian Katzfey: Good morning. Thank you for joining us today for Equity Bancshares' Fourth Quarter Earnings Call. Before we begin, let me remind you that today's call is being recorded and is available via webcast at investor.equitybank.com, along with our earnings release and presentation materials. Today's presentation contains forward-looking statements, which are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from those discussed. Following the presentation, we will allow time for questions and further discussion. Thank you all for joining us. With that, I'd like to turn the call over to our Chairman and CEO, Brad Elliott. Brad Elliott: Good morning, everyone. Thanks for being here today. Joining me are Rick Sems, our bank CEO; and Chris Navratil, our CFO. I'm really proud to wrap up what's been a big year for Equity Bank. We ended 2025 with a strong balance sheet and earnings that beat our expectations. We started the year with $5.3 billion in assets and finished with $6.4 billion in assets. We added an additional $1.4 billion when we closed the Frontier merger on January 1. That's nearly 50% growth. With that kind of scale, we're pushing to earn more than $5 per share in 2026. That's a huge milestone made possible by our team, our partners and the trust of our investors. I couldn't be more proud of what our team completed in 2025. While handling the 2 biggest transactions in our company's history, our folks stay focused on what matters most, our customers. Despite a tough environment with more competition and lower rates, we still grew loans and deepened relationships. Everything we do is about making the best decisions for our customers, our employees and our shareholders. In 2025 and into 2026, we stay true to our mission. We're creating opportunities for our people to grow, rolling out new products and processes to better serve our communities and staying laser-focused on delivering strong returns. Thanks to David Pass and our tech team, we're heading into 2026 with a big push on using technology to improve service and efficiency. We're focused on using data smarter and moving faster across the board. Even with the Frontier acquisition, our capital position and generation remains strong. We'll keep being thoughtful about how we deploy capital to benefit everyone, our shareholders, customers and employees. Our Board, leadership and team are all aligned and energized. I'm excited about what's ahead in 2026. I'll stop here and hand it over to Chris to walk through the numbers. Chris Navratil: Thank you, Brad. Last night, we reported net income of $22.1 million or $1.15 per diluted share. Adjusting for noncore items in the quarter, including merger expense of $1.5 million, litigation settlement expense of $1 million to fund anticipated resolution of our ongoing overdraft suits, and nonaccrual benefit of $900,000, adjusted earnings were $23.3 million or $1.21 per diluted share compared to adjusted earnings of $22.4 million or $1.17 per diluted share in the previous quarter. Purchase accounting accretion on the loan portfolio was $2.3 million in each period. Net interest income for the quarter was $63.5 million, up $1 million linked quarter. Margin for the quarter was 4.47%, an improvement of 2 basis points when compared to margin of 4.45% linked quarter. Noninterest income for the quarter was $9.5 million, up $400,000 from adjusted Q3 and in line with expectations. Noninterest expenses for the quarter were $46.6 million. Adjusted to exclude M&A charges and the litigation settlement accrual in both periods, noninterest expenses were $44.1 million compared to $42.9 million, an increase of 2.7% linked quarter. The increase is attributable to provisioning for unfunded commitments, which was up $1.2 million in the quarter. Excluding these noncore items for each period, adjusted noninterest expense as a percentage of average assets improved 2 basis points to 2.80%. Our GAAP net income included an immaterial release of reserve through the provision as periodic loan balances were down and charge-offs were muted. The ending coverage of ACLO loans was 1.26%. The ending reserve ratio, inclusive of discounts related to NBC closed the quarter at 1.33%. During the quarter, we were active under our repurchase authorization, acquiring 172,338 shares at a weighted average cost of $41.69. 872,662 shares remained under the authorization approved by the Board in September. TCE closed the quarter at 9.9%, up 23 basis points quarter-over-quarter. CET1 and total capital closed the quarter at 13.1% and 16.3%, respectively. At the bank level, the TCE ratio closed at 10.3%, I'll stop here for a moment and let Rick talk through asset quality for the quarter. Richard Sems: Thanks, Chris. In the quarter, we saw a series of positive outcomes in our credit portfolio. Nonaccrual loans moved down to $40.3 million from $48.6 million linked quarter, a 17% decline. The improvement was driven by a relationship brought on through NBC, resolution of which also contributed positively to margin and provisioning. The remaining nonaccrual balance is comprised of a number of low dollar exposures with only 2 in excess of $1 million to $3 million, the largest QSR relationship we have discussed previously continues to move towards resolution. Loans past due and nonaccrual as a percentage of end-of-period loans declined to 1.53% in from 1.55% linked quarter. Net charge-offs annualized were 7 basis points for the quarter as a percent of average loans, down 4 basis points linked quarter. Year-to-date net charge-offs annualized were 6 basis points. Looking ahead, we remain cautiously optimistic on the credit environment and the outlook for 2026. Despite some uncertainty in the broader economy, credit quality trends across our portfolio remained stable and below historic levels. The addition of Frontier's portfolio is not expected to have a meaningful impact on credit quality trends as their portfolio is granular and well underwritten as indicated in their history of strong credit performance. Chris Navratil: Thanks, Rick. As I previously mentioned, margin improved 2 basis points during the quarter to 4.47%. The combination of loan purchase accounting and nonaccrual benefits contributed 22 basis points in each period. The modest expansion is attributable to declines in the cost of funding, outpacing declines in the earning asset yield as the impact of our bond portfolio repositioning was fully realized in the quarter. Normalizing loan purchase accounting to 12 basis points of margin and excluding nonaccrual benefit, yields a core margin of 4.36%. As we continue to see the FOMC move down interest rates in the quarter, cost of deposits declined by 10 basis points and cost of funding declined by 12 basis points. As we look ahead to future FOMC decision, the balance sheet remains positioned to realize a neutral impact in a moderated decline scenario. During the quarter, average earning assets increased 1.21% to $5.64 billion. The combination of margin and asset expansion led to an increase in net interest income of $1 million, approximately $700,000 ahead at the midpoint of our forecast. Comparative outperformance was driven by better-than-expected purchase accounting and asset quality as well as the repositioning of the bond portfolio in the previous quarter. Loans as a percentage of average earning assets declined from 76.2% to 74.6%. As we previously mentioned, we closed on our merger with Frontier on the first day of the new year. Frontier contributes $1.3 billion in loan assets against $1.1 billion in deposits. As we look to Q1 2026, we anticipate loans as a percentage of average earning assets of approximately 80% and a loan-to-deposit ratio of 88%. While purchase accounting remains in process, using the modeled expectations from our announcement, the addition of Frontier's portfolio will be accretive to NII, but dilutive to margins. We anticipate margin for the quarter and throughout 2026 of 4.2% to 4.35%. In addition, the impact on margin, our merger with Frontier is expected to add noninterest expense of $23 million to $24 million and noninterest income of $2 million to $3 million. Refer to the outlook within our investor presentation for additional detail on expectations for 2026. The conversion of Frontier systems is scheduled to take place in the middle of February with anticipated cost saves realized by the end of Q1. Rick? Richard Sems: Thanks, Chris. I want to start by emphasizing the exceptional efforts of the Equity Bank team over the last 180 days. It has been a transformative year and it would not have been possible without the committed efforts of the best community bankers in the business. I want to thank all the operating teams that report to Julie Huber, David Pass, Chris Navratil and Krzysztof Slupkowski. The teams have done a great job executing on the integration of NBC and getting ready for Frontier. They have done a great job of making all this look routine. As we enter 2026, we have a presence in 6 states, including 5 major metros and many strong communities. We have the tools, products and motivated teams to drive excellent performance in the new year. During the quarter, throughout the footprint, our production teams continue to originate loans and relationships at a high level. Loan production in the quarter was $220 million, down linked quarter, but up $100 million compared to the same period last year. Originations came on at an average rate of 6.77%, representing continued accretion to current coupon loan yield on the portfolio. Production was offset by continued headwinds in the portfolio from payout activity. We were cognizant of the impact of Frontier on the pro forma balance sheet, and we're strategic in our approach to pricing new business in the quarter, resulting in a modest level of decline in ending balances. In addition to realized production, our pipelines continue to grow throughout our banker network, positioning the bank to execute on organic growth initiatives as we look to 2026. At the close of the quarter, our 75% pipeline is $452 million. Line utilization was flat for the quarter at approximately 54%, though unfunded positions rose with production in the quarter, providing opportunities for increases moving forward. Total deposits increased approximately $43.5 million during the quarter, including core deposit expansion of $123.5 million, offset by a decline in brokered deposits of $80 million. Noninterest-bearing accounts closed the quarter at 22.4% of total deposits. Our retail teams were busy in 2025 and results showed positive trends in gross and net production levels, including net positive DDA comp production, though we have a long way to go to meet the aggressive goals we have set. As we welcome Frontier, Mark Parman will join Doug Ayer to lead the team through the transition and into the future. We couldn't be more excited about the expansion in these markets. Greg Kossover, has done a great job leading the NBC Group through the transition into the Equity Bank platform and into our culture. Heading into 2026, we are well positioned to use available liquidity to grow throughout our markets as we look to deliver mid-single-digit loan organic growth. The additions of NPC and Frontier add asset-generation depth to our footprint, while complementary community markets continue to provide funding opportunities. As we close 2025 and look to 2026, management and the Board are aligned in the expectation for realized growth in the balance sheet and noninterest revenue lines. I look forward to assisting our excellent teams in executing on that plan. Brad? Brad Elliott: I take a lot of pride in what our team accomplished this year. We came into 2025 ready to grow, and we did just that, growing our balance sheet by nearly 50% and positioning ourselves to drive towards $5 per share in 2026. It's an honor to lead this company. We're committed to empowering our people, serving our customers and communities and delivering strong returns for our shareholders. Our Board and leadership team are fully aligned, and we're ready to keep executing on our mission. I want to take a moment to thank Rick and Chris for their outstanding work this year. The amount of modeling, analysis and strategic planning that goes into evaluating M&A opportunities is immense. And while we only pursue a few, each one takes a tremendous amount of effort from the entire team to get across the finish line. Brett Reber also plays a critical role in these efforts, and I want to recognize his contribution as well. Beyond M&A, I'm just as excited about the organic growth we're working on. We're putting the right tools, strategies and people in place to drive that growth. And I believe we're setting ourselves up for long-term success across our footprint. Thanks again for joining us today, and we're happy to take your questions at this time. Operator: [Operator Instructions] And our first question comes from Jeff Rulis with D.A. Davidson. Ryan Payne: This is Ryan Payne on for Jeff Rulis today. Just on the margin guide, I want to confirm that, that includes expected accretion from Frontier if you have a read on that going into 2026, just trying to get at a consolidated core margin expectation? Brad Elliott: Yes. Ryan, that does include the accretion for Frontier into 2026, yes. Ryan Payne: Got it. And I appreciate the loan growth guide, but maybe on competition, are you seeing other stretch on pricing or underwriting standards? How do you see things shaking out there? Richard Sems: Yes. So this is Rick. So I think what we -- we're definitely seeing some of that on the competition front. So we just kind of strategically made that decision that we're continuing to hold our pricing higher. So again, we're -- we had about $1 billion of production. We had onetime payoffs this year of about $700,000 and when we get into that, there was about 40 -- actually, I want to break, about 3/4 of -- so that was about 30% of that. So roughly 200 and some are ones in which I would say it's really rate based where we saw people go really low. Going down into maybe a point lower than where we were and winning those. So we've strategically decided to let those ones go and keep our pricing up at that point. So again, our production continues at that high level. We continue to expect that to happen through the quarter. And as we get that benefit of lower paydowns this quarter, we'll start seeing that growth. So we're not that concerned about that level. Brad Elliott: We've gone into these periods before where we just finished a merger that was very high loan-to-deposit ratio. We're adding Frontier who's very high at loan-to-deposit ratio that also has assets that are sold participations to other institutions that we can pull back. So we made a strategic look into that opportunity and said, we don't want to stretch down on rates on our portfolio, when we know we are getting rates that are at a higher number coming on our balance sheet in the very near future. So I think it was -- we've had really good originations, but in the same sense, it doesn't make sense to book things on our books at a point lower than where we think the market is just to keep loan volume. Operator: And our next question comes from Damon DelMonte with KBW. Damon Del Monte: Just a follow-up on the commentary on the loans. Brad, you just mentioned about the opportunity to pull back some participations that left the Frontier bank. What types of loans are those? Are they traditional C&I loans? Or are they CRE? And kind of any color on the opportunity there? Richard Sems: Actually, this is Rick. It's a combination there -- it's probably $50-ish million in that range across the board of types. So it's not just one type of loan. Damon Del Monte: Got you. Okay. Great. And then when you look at your expense guide for next year, I think at the time of the merger, you guys have targeted around 23% cost saves. I guess now that the deal has closed and you've had a good look at the Frontier, how do you feel about those cost saves? And do you think there's opportunity to come in at the lower end of the expense range? . Chris Navratil: Yes, Damon. I tell you, so the 23%, I think, is still a good number, can we do a little better than that? I think we'll find out as we progress through the first quarter and know better. But today, I think that's a good baseline for thinking about Frontier. That said, the lower end of the expense guide to me is still an accomplishable number. So we've been talking about over the last few quarters and really the last couple of years of initiatives to drive -- try and drive additional efficiency into the way we go about operations looking specifically at contracts and driving cost reductions across some of our partnerships that products and services we're providing to customer. So there's absolutely opportunity to hit it without, call it, outsized positives coming out of Frontier from a cost saves perspective. But that said, using 23% is still a good number today, and there may be upside to that as well. Damon Del Monte: Got it. Great. And then just lastly, from a capital management perspective, nice to see some buyback during the quarter. M&A has been a big topic of discussion with you guys, particularly in this last year with the 2 deals that you got done. But I guess how do you feel about things now that Frontier has done and you're going through the integration process. Should we think more about capital management falling into the buyback bucket in the near term? Or do you see more M&A opportunity in the near horizon? Brad Elliott: Well, as you know, banks are sold and not bought. We say that all the time. But it's -- so it's going to depend on if there are opportunities for us to deploy that capital. And by the way, I think that would be midyear that we'd be doing that. We're making $25 million in the quarter, approximately. So we're building capital along the way. So we've got plenty of capital to do both, and we feel very confident that we are going to have opportunities to do both along the way. So we're going to look at buybacks when it makes sense, and we'll deploy capital that way as we have, even while we're doing the M&A. But I think M&A still has a -- we got a lot of really good conversations going on the M&A front. Operator: And our next question comes from Nathan Race with Piper Sandler. Nathan Race: Chris, I was wondering if you could just help us on a good starting point for the margin? I know it's going to include some accretion in the first quarter. And what is that margin outlook for the first quarter contemplate in terms of the opportunities to reduce some of the higher cost funding that should be picking up from Frontier. Chris Navratil: Yes. I would look at the low end to the midpoint for the first quarter. So let's call it, 4.25% for the first quarter. It does contemplate some repositioning of debt and high-cost liabilities on the Frontier balance sheet. So immediately post transaction, we paid off all of the holding companies debt they had. So there's some cost savings. There's some margin improvement there. They do have some higher cost FHLB borrowings and brokered funding that we'll continue to look at opportunistically reducing, which I'll comment the cost of cash. So it becomes something of a neutral trade in terms of NII, but will improve margin a little bit. But yes, I'd look at about 4.25% for the first quarter and the holding company debt immediately out and looking at some other opportunities to reduce cost through the first quarter as well. Nathan Race: Okay. Great. That's really helpful. Then maybe for Rick, curious if you have any visibility into kind of expected payoffs in the first quarter and just how you kind of see the guidance -- I'm sorry, the cadence of net loan growth progressing over the course of this year. Do you anticipate to be kind of more 2Q and 3Q and 4Q weighted? Just any thoughts on kind of just the pipeline and visibility in payoffs and just how you see the cadence of loan growth over the course of 2026. Richard Sems: Yes. So right now, the pipeline, again, as we talked about, is fairly strong, consistent with where it's been in the other quarter. So we expect to still have the same amount of production for the quarter -- from this quarter. So that would be the first point there. As far as payoffs go, I mean, they're actually -- they're unexpected, unscheduled payoffs. So there are times in where we have a lot less input and visibility into that. At this point in time, I mean, we're not seeing. I don't have a list from -- and the guys do a pretty good job of staying ahead of it. I don't have a list that's saying, well, we're going to have a super high unexpected payoffs this quarter. Normally, though, it is a situation where it's second -- the second and third quarter are really good growth opportunities for us, or are really good opportunities for us where we do grow the overall loan balances. So I don't know if that exactly helps. But again, payoffs just -- they can do a lot of times come out of the blue. Brad Elliott: The borrower gets an offer, the borrower is marketing something doesn't know whether they want to sell it or not they aren't communicating with their lender on that strategy because it's not something that they want to spook the lender about, but -- so sometimes payoffs aren't scheduled. We've never had payoffs like we had last year, so I don't anticipate that repeating itself. Rick's got the team doing really great originations. We had 4 quarters in a row last year where we had our strongest origination. So I think we're well positioned to continue to grow the balance sheet and keep it where we want it to be and increase our margin. Nathan Race: Got you. That's really helpful. If I could just sneak one last one. Just on the buyback appetite going forward, obviously, like to see some share repurchases in the quarter and was wondering if you could just remind us in terms of kind of what your governors are in terms of how aggressive you want to be on buybacks going forward. Obviously, you're going to be building capital at really strong clips just given the profitability profile these days and the outlook for this year. And obviously, that includes some thoughts on kind of the expectations for acquisitions this year as well, which I appreciate your earlier comments, Brad, that there's still some active discussions going on. Brad Elliott: Yes, we always look at -- we look at it similarly to acquisition opportunities. So we look at that 3-year earn-back-ish range on buybacks. And as we're deploying capital, we're making sure that we know we have a capital need coming up, we might be less aggressive on the buyback side or if we don't think we'll have any opportunities coming up, we might be more aggressive. But it kind of gives you a framework of how we think about it as an organization. We've been very active in the buyback market over the last 5 years, and consistently been in that market when it works for our company. And so on a return basis. So I might give you enough parameters there that you can come to some conclusion on, what kind of range we look at on buybacks and how we deploy capital. Operator: [Operator Instructions] And our next question comes from Brett Rabatin with Hovde Group. Anya Pelshaw: This is Anya Pelshaw speaking on behalf of Brett. Just hoping you guys could comment on what you're seeing competitively as far as deposits go and also some thoughts on deposit generation in newer markets. Richard Sems: Yes. So this is Rick. I'll take it. So first off, I'd actually say that deposit account gathering is really good. So we've made changes there. We've been -- we're opening accounts in a manner that we haven't historically. So that part is really positive. Balances continue to be challenging because there are a lot of people out there looking for balances. And so we continue to be disciplined from a pricing perspective. And so we look at it as we'd rather have the account, we'd rather have the transaction account later on, and that's going to come back to us. The team has done a really good job, though. And we definitely gathered deposits this year. And so the outlook for this year, again, it's going to be challenging, but I like the areas we're in. We're in some really good areas of adding in that give us opportunities in Oklahoma City and in Omaha now with both NBC and with Frontier. And then their market -- their community markets are -- there are some really strong community markets that we added. And with our product sets we're adding on there, we're starting to see additional account generation. So we can see some growth coming out of there. Again, it's a challenging environment. So it's hard to say what competition will do in that space, but we feel confident that we can grow deposits this year. Operator: And the next question comes from Terry McEvoy with Stephens. Brandon Rud: This is Brandon Rud on for Terry. My first one just on loan growth in 2026. Are there any markets or commercial segments, in particular, that you may anticipate outperform the portfolio as a whole? Chris Navratil: Yes. Each year, we have a couple that seem to do well off of there. I like what's happening in Missouri. I think that's a market that can do really, really well for us. And then I think what we're doing down in Oklahoma, same type of thing. I think there's a lot of opportunity in Oklahoma City and in the surrounding communities. And as we're getting to know the team, up in Nebraska better, that's going to create a lot of opportunities for us as well. So those are the Tulsa down in Oklahoma has been a very strong generator for the last couple of years, and I expect that to continue to be the case as well. Brad Elliott: Kansas City had a booming year. Chris Navratil: Yes, Kansas City had a great year this year, and that's what same with Missouri. I think that whole -- both in Kansas City and then also throughout the community markets in there, give us a real good opportunity for growth. Brandon Rud: Okay. Perfect. Maybe more of a modeling question, but I think I heard your comments on loan pricing earlier. Where are new loans coming on at? And how does that compare to those that are paying up and maturing, I'm just trying to get a sense of the incremental benefit that they're picking up. Richard Sems: Yes. So the new originations are accretive today to where a coupon has been heading. So the new originations that are coming out about 50 basis points ahead of our coupon yield that's included within the margin. So we're seeing, call it, accretive impact of each of the incremental dollars that are going out. So as we can grow that balance sheet, you should see comparative expansion of loan yield on a coupon basis, right? So backing out the purchase accounting nonaccrual that is up. Brandon Rud: Okay. Perfect. And I guess the last one for me. Over the near term, I heard your comments that accretion is within the 4.20% to 4.35%. I guess, is there any -- do you have a near-term sense of where that may shake out? I think you said normalized to 12 basis points for the fourth quarter. I'm assuming that steps up a bit in 1Q. Richard Sems: Yes. The 12 basis points is -- that's the cost benefit of NBC as we layer in additional Frontier components, you're going to have additional accretion. I can shoot to you, Brandon, in the basis point attribution. I don't have it in front of me, but it's included or encapsulated within that 4.20% to 4.35%. Operator: [Operator Instructions] We have a follow-up from Nathan Race. Nathan Race: September quarter and as compared to 3.34% reported for the year ago... Operator: [Operator Instructions] And as we have no further questions in the queue, this does conclude today's call. Thank you, everyone, for joining. You may now disconnect.
Operator: Hello, everyone, and welcome to the Southern Missouri Bancorp Earnings Call. 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, Chief Financial Officer of Southern Missouri Bancorp. Stefan, please go ahead. Stefan Chkautovich: Thank you, James. Good morning, everyone. This is Stefan Chkautovich, CFO with Southern Missouri Bancorp. Thank you for joining us. The purpose of this call is to review the information and data presented in our quarterly earnings release dated Wednesday, January 21, 2026, and to take your questions. We may make certain forward-looking statements during today's call, and we refer you to our cautionary statement regarding forward-looking statements contained in the press release. I'm joined on the call today by Greg Steffens, our Chairman and CEO; and Matt Funke, President and Chief Administrative Officer. Matt will lead off our conversation today with some highlights from our most recent quarter. Matthew Funke: Thank you, Stefan, and good morning, everyone. This is Matt Funke. Thanks for joining us. I'll start off with some highlights on our financial results for the December quarter, the second quarter of our fiscal year. Quarter-over-quarter, our earnings and profitability improved due to a lower provision for credit losses, a larger earning asset base, which drove an increase in net interest income as well as an increase in noninterest income. With the earnings and profitability improvement we've seen in the first half of our fiscal year, we feel we have good momentum and see positive trends continuing into the second half. We earned $1.62 per share diluted in the December quarter. That's up $0.24 or 17.4% from the linked September quarter and up $0.32 or 24.6% from the December 2024 quarter. Provision for credit loss expense was about $1.7 million, a decrease of $2.8 million when compared to the linked September quarter. As we stated on the last earnings call, we expected the provision to decrease this quarter as we had some positive movement with the workout of the specialty CRE loans we've discussed in prior quarters. Greg will give some more details on that next. On the balance sheet, gross loan balances increased by $35 million during the second quarter. Compared to December 31 of the prior year, our gross loan balances are up almost $200 million or 5%. Growth in the quarter was led by 1-4 family residential, C&I and construction and loan development loans. We experienced strong growth in our East region, followed by good growth in our West region. We had a great quarter for loan originations generating almost $312 million, our strongest quarter over the last several years, but growth was slowed by seasonal ag paydowns and some larger loan payoffs. With the strong production and as we enter a slower season for ag and real estate lending, our loan pipeline for the next 90 days decreased somewhat but remains healthy at $159 million at December 31. Due to normal seasonality, we would expect limited net loan growth in the March quarter, but having grown just above 3% in our fiscal year-to-date and expecting a typical pickup of growth in our fourth quarter, we're still in a good position to achieve mid-single-digit growth for the fiscal year of '26. Deposit balances increased by about $28 million in the second quarter and by $98 million or 2.3% compared to December 31 of the prior year. Over the last 12 months, we've had a reduction of $72 million in brokered deposits. So we put our core deposit growth at about $170 million or 4.3% over that 12-month period. Net interest margin for the quarter was 3.57%, unchanged from the linked September quarter and as compared to 3.34% reported for the year ago period. Net interest income was up just over 1% quarter-over-quarter and up 12.4% year-over-year. Stefan will get into the details on the NIM in a bit, but I wanted to point out that with 50 basis points of FOMC cuts in the December quarter, we have seen some positive underlying improvement in the NIM, although that was hampered this quarter by 2 credit relationships that were placed on nonaccrual. Adjusting for $678,000 of this reversed interest income related to these credits, the NIM would have been 3.63% in the December quarter. Tangible book value per share was $44.65 an increased by $5.74 or almost 15% during the last 12 months. Lastly, in the second quarter, we repurchased 148,000 shares at an average price of $54.32 per share for a total of $8.1 million. The average purchase price was 122% of our tangible book value as of December 31, '25. I'll now hand it over to Greg for some discussion on credit. Greg Steffens: Thank you, Matt, and good morning, everyone. Starting with credit quality. Overall problem asset levels have increased slightly since last quarter but remain at modest levels with adversely classified loans totaling $59 million or 1.4% of gross loans, up $4 million or 8 basis points as a percentage of gross loans since last quarter. Non-performing loans were about $30 million at 12/31 and totaled 0.7% of gross loans, an increase of $3.6 million compared to last quarter. Non-performing assets were about $31 million and increased $4 million quarter-over-quarter, with most of the increase due to the increase in NPLs. Both the increase in classified and nonaccrual loans were primarily attributed to 2 borrowing relationships, one consisting of multiple loans collateralized by commercial real estate and equipment and separately, 2 related agricultural production loans secured by crops and equipment, all of which were placed on nonaccrual status during the second quarter and accounted for the $678,000 interest reversal Matt noted earlier. The CRE and equipment loan relationship totals $5.8 million. The borrower operates a seasonal business, and we expect increased cash flows during the spring and summer operating periods and we are also working with the borrower to add additional collateral support. The total relationship currently has a 23% specific reserve. The ag-related relationship totals $2.2 million, and we're working through formal resolution processes with the assistance of counsel with the goal of achieving repayment, no refinancing and limited potential losses. Despite the modest increase in nonperforming assets this quarter, we continue to see positive progress in our specialty CRE relationship that we've discussed the last several quarters. During the second quarter, we received a $2 million recovery on this overall relationship, which contributed to an overall net recovery for the quarter of $704,000. One of the properties has a new tenant in place with a strong 1-year letter of credit guaranteeing rental payments and the related loan has returned to accrual status and is no longer classified. The other loan is in the foreclosure process and was materially charged down during the prior quarter, so we do not expect any significant additional impact from that relationship. The combined carrying value of the 2 loans is $2.7 million. Loans past due 30 to 89 days were $12 million, down $692,000 from September and 28 basis points on gross loans, a decrease of 2 basis points compared to the linked quarter. Total delinquent loans were $32 million, up $2.7 million from the September quarter. The increase in total delinquent loans was mostly due to the CRE and equipment loan relationship discussed earlier. While nonperforming assets and nonaccrual loans were up modestly this quarter, overall problem assets remain at manageable levels and our earnings are sufficient to cover potential reserves while maintaining above-average profitability. Importantly, we made meaningful progress on the specialty CRE relationship we have discussed in prior quarters, meaningfully reducing our exposure and the resulting net recovery for the quarter. In combination with our underwriting standards and reserve position, we remain comfortable with our ability to work through existing credits and manage any broader pressures that could emerge from economic conditions. That said, we are not complacent with recent trends and remain focused on improving credit quality, and we feel good about progress being made across several problem credits as workout strategies continue to move forward. As compared to the prior quarter end September 30, ag real estate balances were up about $6 million, and they were up $21 million compared to December 31 a year ago. Ag production and equipment loan balances were down $26 million during the quarter following our normal seasonal pattern, but are up close to $15 million year-over-year. Our agricultural customers have completed harvest, and we are now in the process of underwriting their '26 operating lines. While weather conditions and heat stress affected yields in certain areas of crops, most producers reported average to above average production across the majority of our acres. Corn and soybean yields were generally solid, while rice and cotton experienced more variability and in some cases, lower yield and quality. Overall, our crop mix remains diversified, led by soybeans and corn with smaller concentrations in cotton, rice and specialty crops. Looking ahead in '26, we expect some acreage to shift away from higher cost crops such as cotton and rice more towards corn and soybeans, given current future prices and input cost dynamics. From a financial standpoint, lower commodity prices and elevated production costs are expected to result in operating shortfalls for a portion of our farm customers from the '25 crop year, with projected shortfalls concentrated among a relatively small number of larger producers. Most borrowers continue to have meaningful equity in land and equipment, and we are utilizing a combination of restructurings, government guarantee programs and conservative underwriting assumptions as we move into our renewal season. Our '26 cash flow projections using pricing that is generally consistent with current futures and FSA assumptions and includes stress testing of borrower cash flow to assess downside risk. Based on our stringent underwriting, including stress commodity pricing and assumed higher operating costs, we anticipate that our borrowers will generally be able to navigate another challenging year and expect satisfactory performance of these credits over the near term. Also this quarter, our ag borrowers will generally be eligible for new Farmer bridge assistance program and later in '26, our borrowers should benefit from higher payments under the ag risk coverage, our price loss coverage programs based on changes to those programs adopted in the One Beautiful Bill in '25. All that said, reflecting our continued prudence given the prolonged weakness in the agricultural segment, we began increasing reserves for watch list agricultural borrowers in the March '25 quarter as part of our ACL calculation. Stefan, would you update us on our financial performance? Stefan Chkautovich: Thanks, Greg. Matt hit some of the key financial items already, but I'll note a few additional details. This quarter's net interest margin of 3.57% was flat compared to the linked September quarter. The NIM included about 5 basis points of fair value discount accretion on acquired loan portfolios and premium amortization on assumed deposits compared to 7 in the linked September quarter and down from the prior year's December quarter addition of 9 basis points. As Matt mentioned earlier, excluding the interest income reversed from the 2 nonaccrual loans, we see the December quarter's run rate net interest margin at 3.63%, which is a 6 basis point increase quarter-over-quarter. This was primarily due to a 16 basis point decrease in the cost of funds as we benefited from our indexed non maturity deposit accounts repricing down through the quarter. These index deposits account for about 27% of total deposits at December 31. Looking ahead to the March quarter, declining interest rates are beginning to pressure loan yields as loans mature with approximately $619 million of fixed rate loans maturing over the next 12 months at rates closer to current origination levels of around $650 million. That said, we continue to see an opportunity for further improvement in funding costs as roughly $1.2 billion of CDs will mature over that same period with an average rate near 4% compared to current originations at approximately 3.6%, which should help support overall spreads. In addition, we are carrying lower levels of excess liquidity, which is somewhat atypical for this time of year when public unit balances and agricultural deposits are usually at seasonal highs. Those inflows have been partially offset by reductions in broker deposits, reflecting our continued focus on optimizing our funding mix rather than building liquidity through higher cost wholesale sources. Year-to-date, broker deposits have declined $53 million, of which $38 million was reduced this quarter. Non-interest income was up 3.1% compared to the linked quarter due to higher wealth management fees as we have benefited from market appreciation of AUM and net new inflows, increased interchange income as the bank benefited from lower issuer expenses, which are netted in this line and deposit account charges, primarily from increased income from non sufficient fund charges and check order fees. Non-interest expense was up less than 1% quarter-over-quarter, primarily due to higher compensation expense, other noninterest expense and data processing expenses. Compensation expense was up in the quarter, primarily due to less deferred loan origination expense and a seasonal increase in paid time off realized. Other noninterest expense increased quarter-over-quarter, primarily due to increased employee travel and training as well as other smaller costs and higher data processing expenses from an increase in transaction volumes and software licensing costs. This was partially offset by a decrease in legal and professional expenses, which were elevated in the September quarter due to $572,000 associated with the use of a consultant to assist in renegotiating a significant contract with a card processor. Looking forward, we would expect to see a quarterly increase in the compensation expense run rate in the March quarter as annual merit increases and cost of living adjustments take effect for which we awarded a mid-single-digit percentage increase, including the cost of benefits. The allowance for credit losses at December 31, 2025, totaled $54.5 million, representing 1.29% of gross loans and 184% of non-performing loans as compared to an ACL of $52.1 million, representing 1.24% of gross loans and 200% of NPLs at September 30, 2025. The increase in the ACL was primarily attributable to additions to individually reviewed loans and net recoveries, which was partially offset by a small decrease in required reserve for pooled loans. As a percentage of average loans outstanding, the company recorded net recoveries of 7 basis points annualized during the current quarter as compared to net charge-offs of 36 basis points during the linked quarter. As Greg mentioned previously, the current quarter's net recoveries and the linked September quarter's net charge-offs were primarily impacted by the specialty CRE relationship we have discussed over the last couple of quarters and accounts for the $2.8 million decrease in provision for credit loss quarter-over-quarter. Our nonowner-occupied CRE concentration at the bank level was approximately 289% of Tier 1 capital and allowance at December 31, 2025, down by about 6 percentage points as compared to September 30 due to growth in Tier 1 capital and ACL outpacing owner-occupied CRE growth. On a consolidated basis, our CRE ratio was 282% at December 31. To conclude, we remain focused on resolving problem loans and further reducing nonperforming assets. This quarter's results with a more normalized provision for credit losses better reflects the company's underlying earnings power, generating a return on assets of just over 1.4%. We are pleased with the strength and quality of this performance. And absent any unexpected deterioration in credit, we believe the operating trends we are seeing today support continued solid profitability as we move into the second half of the year. Greg, any closing thoughts? Greg Steffens: Thanks, Stefan. I would echo those comments and say we are very pleased with the level and quality of our earnings this quarter. The results we delivered reflect the strength of our franchise, the consistency of our operating performance and the discipline of our teams bring to both growth and risk management. While we remain vigilant on credit, we believe our current profitability levels are sustainable, and we are encouraged by the trajectory of the business as we move forward. Importantly, this level of performance continues to build capital, which gives us flexibility to return capital to shareholders while also preserving capacity to fund future growth. Over the last quarter, that allowed us to repurchase shares at attractive levels while still maintaining excess capital to deploy accretively through acquisitions as opportunities arise. With the near completion of our prior share repurchase authorization, our Board approved a new program to repurchase up to 550,000 shares or approximately 5% of shares outstanding. As with past programs, we intend to remain disciplined and opportunistic, deploying capital when our stock meets our internal investment and return thresholds. In addition, since last quarter, we have continued M&A discussions as market conditions have stabilized and general M&A activity has picked up in the industry. We remain optimistic about the potential for attractive opportunities and with our strong capital position and proven financial performance, we believe we are well positioned to act when the right partner is ready. Notably, there are about 75 banks headquartered in our footprint with assets between $500 million and $2 billion, along with a meaningful number of additional institutions in adjacent markets, which provides a broad and active landscape for potential partnerships. In closing, we are proud of this quarter's performance and confident in the long-term fundamentals of our company. Our focus remains focused on disciplined execution, prudent risk management and thoughtful capital deployment, all with the objective of continuing to deliver consistent attractive returns for our shareholders. Stefan Chkautovich: Thanks, Greg. At this time, James, we're ready to take questions from our participants. So if you would, please remind the callers queue for questions. Operator: [Operator Instructions] And we will now have our first question from Matt Olney from Stephens. Matt Olney: I wanted to start off on loan growth. A 2-part question. I heard Matt mention that the loan paydowns this past quarter were higher and part of it was the ag paydowns that were expected. But I also heard Matt mention additional paydowns beyond the ag. So just trying to appreciate if that was a surprise or if that was expected, the other paydowns. And then part 2, I would just love to appreciate any general commentary on loan pricing competition in your marketplace. Greg Steffens: In regard to paydowns, we had several unexpected paydowns that we were not really fully anticipating, but we weren't disappointed to see several of those. One of them was a larger C&I relationship that really had outgrown us that contributed and they moved to a larger bank for their operating lines. But overall, loan prepayment rates have been higher than what we've historically seen. And we should -- basically, we anticipate prepayment rates to be a little higher than historically. Matthew Funke: But we wouldn't say that what we've had in this quarter that was a little unexpected was rate driven necessarily. It was just kind of a mixed bag. Matt Olney: Yes. Matthew Funke: And Matt, as far as competition, treasuries have been bouncing quite a bit here lately. We were seeing some talk in the low 6s, high 5s, expect that to kind of move back a little bit higher for your top flight credit quality. But definitely, there still is some aggressive competition out there. Greg Steffens: We do still feel good about our mid-single-digit loan growth projections for our fiscal year. Matt Olney: Okay. That's great. I appreciate the color there. And then as far as the outlook on the net interest margin, I think I heard Stefan say that, that 3.63% level in December is probably the better run rate to start with. Any more color on where you see the margin in the March quarter? I know we usually see the seasonal headwinds in the March quarter, but I was unclear on the commentary if we should anticipate additional headwinds in the March quarter. Stefan Chkautovich: Thanks for the question, Matt. So we don't give specific guidance on the NIM. But underlying, we do still see potential for increased spread to pick up in the March quarter due to decrease in deposit costs. So right now, on the loan side, they're sort of at breakeven from what we're seeing maturing off versus where we're seeing new origination rates. Matt Olney: Okay. And Stefan, just to follow up there. Does that imply the liquidity build that we usually see will not happen this year or will happen less? Stefan Chkautovich: Yes. We're seeing less impact there. Basically, the inflows that we see seasonally have been partially offset by the decrease in broker deposits. Matt Olney: Okay. That's helpful. And then just one more follow-up on the margin, Stefan. Just big picture, the next several quarters on the margin, it sounds like you still see additional tailwinds to support the margin from current levels, but it sounds like it's going to be much more driven on the deposit cost side and much less driven on the loan repricing side compared to the last year or so. Is that right? Stefan Chkautovich: Yes, sir. That's correct. Operator: Next up, we have Nathan Race from Piper Sandler. Nathan Race: Stefan, I think you mentioned you're expecting to see an increase in personnel costs in the March quarter just in light of the increases that you alluded to. I wonder if you could just put some kind of guidepost around the run rate that you're expecting over the next couple of quarters overall. Stefan Chkautovich: Yes. So I guess just this is just a seasonal adjustment for annual merit increases. So that's in the ballpark of mid-single-digit increase there. Nathan Race: Okay. But otherwise, expecting any major deviations in the run rates? Stefan Chkautovich: Nothing material at this point, just general trend. Okay. Great. And then... Greg Steffens: Historically, we've had annual merit increases in that 4% to 5% range. Nathan Race: Understood. That's helpful. And I appreciate the updated refresh buyback authorization. Can you guys just maybe touch on what the appetite is over the next quarter or so to remain active? Obviously, activity on the buyback stepped up in the second quarter, but I imagine there's a balance there between building capital for additional acquisition opportunities, which hopefully, it sounds like there's some opportunities that could emerge there later this calendar year. Matthew Funke: Yes, we are hopeful that some of those do emerge. As far as buyback activity, we're going to be somewhat price dependent, thinking about how useful it is to deploy the capital there versus retaining it, waiting for a better opportunity. We always look at that as similar to an outside acquisition and what our earn back is on the premium that we're paying there. So we'll be -- we'll continue to be disciplined on that. Nathan Race: Okay. Great. And then just lastly, curious if there's any additional tail to the charge-offs on the commercial real estate loan that we saw in the December quarter here. And just absent maybe any additional recoveries, just how you're thinking about kind of a more normalized charge-off range over the next several quarters? Greg Steffens: We would anticipate being more to historical averages over the upcoming quarters would not anticipate any much of the way of a tailwind behind us. But I think just historical results would be how we did in prior years, not the last 6, 9 months. Matthew Funke: And Nathan, specific to the one relationship, if that's what you were asking about, we don't anticipate anything material further on it. Operator: [Operator Instructions] Moving on, we have Charlie Driscoll from KBW. Charles Driscoll: This is Charlie on for Kelly Motta. Just digging into the margin, wondering your expectations for terminal betas for deposits. I'm not sure if you look at total deposits or interest-bearing, but any updated thoughts on the downward repricing from here, like maybe sizing the impact of cuts. You mentioned the CDs and the index deposits trending downward, which are nice tailwinds. Maybe if you could help piece it together in general. Stefan Chkautovich: Yes. So overall, on the deposit side, we've seen betas around the 40% level. That would probably be something good to use for modeling purposes. Charles Driscoll: Great. Appreciate it. And then you seem optimistic about M&A. You mentioned plenty of banks in your footprint. If you could maybe narrow in on any preference you have for any sort of size and if you're looking for something within your footprint or adjacent, any additional color there would be great. Greg Steffens: We would prefer M&A within our footprint, but if something is right adjacent to us, I mean, that's something we definitely would look at. We look at each one individually as far as what's the underlying performance of the bank, what do we think we can do with it to grow and we look at each opportunity individually and how well does it contribute to our overall shareholder return looking forward. So we will consider either in our footprint or adjacent. It just really depends upon each deal and what they bring to the table on who we more aggressively pursue. Operator: Our questions queue are now clear. I'll hand it back to Matt Funke for final remarks. Matt? Matthew Funke: Thank you, James, and thank you, everyone, for participating. We appreciate your interest in the company. Happy to report on a good quarter for the company, and we'll talk to you again in 3 months. Have a good day. Greg Steffens: Thank you, everyone. Operator: And this concludes today's call. Thank you all for joining. You may now disconnect your lines, and have a great day.
Jacob Lund: Good morning, and welcome to Investor's Q4 and year-end results for 2025. I'm joined here in the studio in Stockholm by our CFO, Jenny Ashman Haquinius; and our CEO, Christian Cederholm and both will soon be giving their presentations. After that, as usual, we'll be opening up for questions, both on the call via our operator and online. And with that, over to you, Christian. Christian Cederholm: Thank you, Jacob, and hello, everyone. As we look back on the past year, it's clear that 2025 was anything but straightforward. The world remains impacted by significant geopolitical uncertainty. Now despite these headwinds, the global economy delivered decent growth. And in this environment, our companies are doing a good job balancing profitable growth here and now, including focus on efficiency and cost out whilst continuously investing to future-proof their businesses. Let's take a closer look at how we performed over the last year. So 2025 turned out a strong year for Investor. Adjusted net asset value grew by 14%, and our TSR, total shareholder return, was 15%. Listed companies total return amounted to 22%, and we strengthened our ownership in Ericsson and Atlas Copco for a total investment of about SEK 2.3 billion. Patricia Industries total return was minus 9% with considerable headwind from the weaker U.S. dollar. Operationally, it was a good year in total for the major subsidiaries. And in addition to organic growth of 4%, the companies made add-on acquisitions for a total of SEK 24 billion, of which Patricia funded about SEK 16 billion with the rest funded by the portfolio companies themselves. The biggest one by far, of course, being the acquisition of Nova Biomedical. Investments in EQT generated a total return of 15%. And here, we also made our first co-investment, Fortnox, alongside EQT X, exploring another way to create value together with EQT. Lastly, supported by a strong balance sheet and cash flow generation, Investor's Board of Directors proposes a dividend of SEK 5.60 per share for fiscal year 2025. This represents an increase of SEK 0.40 or 8% over last year. At the end of the year, adjusted net asset value stood at SEK 1,087 billion. Now let me briefly go through the 3 business areas. Starting with Listed that represents about 70% of our assets. Listed Companies generated a total return of 6% in the fourth quarter. Investor received proceeds of close to SEK 900 million or SEB shares divested in Q3, so the last quarter to maintain our ownership level as the bank continued to buy back shares. Portfolio companies continued activities focused on future-proofing their businesses. So as an example, Sobi announced its acquisition of Arthrosi, expanding its portfolio within gout with a promising Phase III drug. Wärtsilä announced the divestment of its gas solution business, further focusing the Wärtsilä portfolio. Now over to Patricia Industries, which represents about 20% of our portfolio. Total return in the fourth quarter was 1%, driven by earnings growth and multiple expansion, offset by significant negative currency impact. While reported sales declined by 5%, our major subsidiaries grew sales 5% organically. Adjusted EBITDA declined by 6%, heavily impacted by the same negative currency effects I mentioned and with some costs relating to restructuring initiatives in a couple of the companies. We saw continued high activity in Patricia. For example, Laborie announced the acquisition of the JADA system, expanding its offering within obstetrics for a potential maximum value of USD 465 million. Sarnova completed 2 add-on acquisitions for a total of $165 million, strengthening Sarnova's software offering for revenue cycle management. Also, we contributed SEK 200 million to Atlas Antibodies to strengthen the balance sheet after a period of weak demand and performance. Mölnlycke and BraunAbility distributed a total of SEK 4.1 billion to Patricia Industries in the fourth quarter. All the major subsidiaries and our 40% in 3 Scandinavia in aggregate, including the combined Nova Biomedical from Q3 and onwards, reported last 12-month sales stood at SEK 68.4 billion, and EBITDA was SEK 17.2 billion. We should note here that this is in Swedish krona, so of course, rather sensitive to FX. And finally then, investments in EQT, our third business area, which represents about 10% of the portfolio. In Q4, total return for investments in EQT was 8%, driven by strong share price development in EQT AB. Net cash flow to Investor was SEK 1.2 billion with approximately SEK 0.9 billion net inflow from EQT funds, driven by continued healthy exit activity in the funds. During the quarter, we also completed the very last part of our SEK 4.5 billion investment in Fortnox. So it was a strong quarter and a strong year. But as always, our focus is on the future. I'm confident in our strong platform. Investor has a clear purpose and a focused strategy, a portfolio of high-quality companies, an ownership and governance model that is well proven and great people, both at Investor and in our network and in the companies. And we have financial flexibility with low leverage and strong underlying cash flow. Our strategy towards 2030 is clearly defined and well aligned with our purpose with the ultimate target, of course, of generating an attractive shareholder return. Our objectives are to grow net asset value, to pay a steadily rising dividend and to operate efficiently and sustainably. We will remain focused on our 3 strategic pillars: Performance, portfolio and people. And let me say a few words about each of these. Performance first. While it varies between industry segments and geographies, overall demand remains lukewarm. In addition, the U.S. dollar is down significantly and tariffs need to be managed and the geopolitical situation remain profoundly unpredictable. Against this backdrop, companies need to focus on efficiency here and now to drive profitable growth. At the same time, focus on future-proofing initiatives is critical to ensure long-term competitiveness. This includes, for example, R&D, other investments for innovation, expansion of sales, including to new geographies and investments to leverage the potential of AI and other new technologies. So moving to portfolio then. Based on our financial strength and strong cash flow generation, we continue to seek attractive investment opportunities across all 3 business areas. This includes additional investments in our listed companies, add-on investments and potential new platform companies within Patricia Industries and continued investments, of course, in and together with EQT. Ultimately, the allocation will depend on where we find the best opportunities. And finally, people. Given the rapid transition pace in all industries, we have to ensure that the right people are driving our companies. With 24 portfolio companies and around 200 board seats across the portfolio, talent sourcing and succession planning is a top priority for us. So near-term priorities are clear, and we have a lot of work cut out for ourselves. With that, I'd like to leave the word to Jenny to talk more about our financials. Please, Jenny. Jenny Haquinius: Thank you, Christian. Yes, so let me take you through the financials for the quarter. So in Q4 2025, adjusted net asset value was SEK 1,087 billion, and this implies an increase of 6% compared to Q3. For the quarter, all business areas contributed positively. Investments in EQT increased with 8%, Listed Companies with 6% and Patricia Industries with 1%. So this implies a total return of 6% for the quarter and 14% for the full year. And now double-clicking on each of the business areas, and I will start with Listed Companies. So within Listed Companies, share price performance was mixed, but with positive share price development in almost all companies, particularly strong quarter for the Electrolux share, followed by AstraZeneca, Wärtsilä, Ericsson and Sobi. Saab and Husqvarna, however, had a tougher quarter looking at total return. Total return for the Listed Companies portfolio was 6% and largely in line with SIXRX. And as for absolute contribution, it paints a similar picture, but with AstraZeneca and Atlas Copco in the top due to the weight in our portfolio. All in all, a solid quarter for the Listed Companies portfolio. And then moving on to Patricia Industries. For the quarter, the Patricia Industries portfolio, so the major subsidiaries, grew 5% organically, while the adjusted EBITA declined by 6%. For the full year, organic growth was 4% and the adjusted EBITA declined by 1%. And as a reminder, we are restrictive when it comes to EBITA adjustments. So in the 6% drop in EBITA for the quarter, we have only adjusted for transaction costs related to M&A and one-off costs related to CEO transitions. Other than that, and of course, then not adjusted for and hence, still weighing on the adjusted EBITA margin, we have negative impact from FX, so the stronger SEK and also tariffs as well as restructuring costs to unlock efficiencies in several of the companies, and we deem this as part of ongoing operations. And now double-clicking on performance across the companies in Patricia Industries. And first to highlight a few positives. We saw a second strong quarter for BraunAbility, in part explained by a relatively weak comparison quarter, but also due to strong demand. Profitability improved, but coming from a depressed level in Q4 2024. Nova Biomedical had a solid quarter in terms of growth and profitability. Growth was partly helped by recovery following the cyber incident in Q3. Integration is progressing according to plan, and this includes initiatives such as merging the organizations and implementing a common ERP system. And this, as we mentioned last quarter, may have an impact on sales and earnings near term. We also do know that Q1 last year was a particularly strong quarter for the acquired part of the business. Laborie continued to see solid growth, driven by a large extent the Optilume urethral strictures product. Reported profitability for Laborie was down as it includes USD 11 million in cost for the JADA acquisition and the CEO transition. If we were to adjust for this, profitability was still down, but only slightly on the back of commercial investments. Permobil and Piab had a more challenging quarter. Permobil is experiencing muted growth, and that's primarily explained by negative impact from the voluntary product recall of the Power Assist device announced in Q3. But positive to see good cost containment and a slight increase in EBITA margin, and this is despite SEK 32 million in restructuring costs. Piab had a quarter with negative organic growth, and that's on the back of weaker customer demand, particularly in the semiconductor market. Generally, Piab's end markets have been more choppy following the introduction of tariffs and increased geopolitical disruption. Lower sales impacts margins together with negative FX and tariffs as well as SEK 37 million in restructuring costs to drive efficiencies. And finally, on to Atlas Antibodies, we contributed SEK 200 million to strengthen the balance sheet. And this is to give room to the relatively new management to execute on the plan. And we do see that roughly 70% of the business is recovering, but we still see challenges in terms of soft market and competition for the evitria part of the business. And over to Mölnlycke. So Mölnlycke had a solid quarter with 3% organic growth, and this was primarily driven by Wound Care. So Wound Care grew 5% organically and Gloves 3% organically, and this was somewhat offset by a contracting ORS. On a general basis, we see continued good momentum in U.S. and China, while softer markets in Europe and the Middle East. In Europe, as mentioned before, there are pressures on health care budgets and that's specifically in Germany and France. And in the Middle East, we see customers with relatively high inventory levels. Profitability for Mölnlycke improved, and this is despite negative impact from FX and tariffs, and this is driven by positive product mix, but also lower cost on the back of continuous work with efficiency improvements. And Mölnlycke distributed EUR 200 million to Patricia Industries in Q4. We saw a 1% increase in estimated market values compared to Q3, so from SEK 223 billion to SEK 225 million. And this increase was explained by earnings growth in the portfolio companies as well as cash flow generation and, to a lesser extent, also expansion in valuation multiples. However, the increase was essentially offset by a negative impact from currency. And looking at value development across the companies, we can say that the main contributors for Q4 were Nova Biomedical and Laborie, while Sarnova and Piab was a drag on total value. For Sarnova, mainly due to multiples and for Piab, mainly lower earnings. Also worth highlighting is the distribution, so roughly SEK 2 billion from Mölnlycke and BraunAbility, respectively as well as the already mentioned equity contribution to Atlas Antibodies of SEK 200 million to strengthen the balance sheet. And now moving on to investments in EQT. So total value change was 8% in the quarter, and that's primarily driven by EQT AB, which was up 14%. Fund investments were essentially flat. And as a reminder, we report EQT fund investments with 1 quarter lag. So the 0% is based on EQT's Q3 report. On the right-hand side, we illustrate the net cash flow from EQT to Investor, which was roughly SEK 1 billion in the quarter, and this is driven by exit proceeds as well as dividend from EQT AB. And here, we have an illustration of the net cash flow from investments in EQT over time. While it's quite lumpy on a quarterly basis, over the past 10 years, we've received a net cash inflow of SEK 1.6 billion on average per year. And the LTM net cash flow is a negative SEK 2.4 billion. However, this includes SEK 800 million in acquisition for EQT AB shares and also SEK 4.5 billion in investment in Fortnox. If we were to adjust for this, net cash flow on an LTM basis is a positive SEK 3 billion. Our balance sheet remains strong. Our leverage as of Q4 is 2.1%. So it remains in the lower end of our policy range despite significant investments. And we closed the year with SEK 27 billion in cash at hand. All of our 3 business areas generate cash flow to support investments and a steadily rising dividend to shareholders. And as you know, from Listed Companies, we receive ordinary dividends as well as extraordinary dividend. In Patricia Industries, the portfolio companies generate cash flow, which can be reinvested in the companies or paid in distribution. And for investments in EQT, we have an ownership in EQT AB, which yields an annual dividend as well as fund investments where cash flow is, by definition, lumpy because it's dependent on drawdowns and exits, but it remains a strong contributor to cash flow over time. Since 2015, we have received total funds from all of these 3 business areas of SEK 216 billion, and note here that EQT is net cash flow in the pie chart to the left. The use of proceeds is illustrated on the right of more than 50% has been distributed to shareholders, roughly 30% has been reinvested in Patricia Industries and north of 10% in Listed Companies. So this platform with 3 strong business areas provides a broad-based cash flow that supports continued growth and distributions. The incoming funds provide strong investment capacity and have been deployed across all of our 3 business areas. 2025 was a record year in terms of investments, and this has been executed on while maintaining a strong balance sheet going into 2026. While sustaining this high level of investment activity, as mentioned, more than 50% of incoming funds have been distributed to our shareholders. We have continuously delivered on our commitment to pay a steadily rising dividend, and we continue to do so also in 2025. So the dividend proposal for 2025, as Christian has already mentioned, is SEK 5.6 per share, which is an increase of SEK 0.4 per share compared to 2024. And this applies an average annual growth of 8% over the last 10 years. And then on to my final slide. So looking at the longer-term perspective, the performance of the Investor ABB share truly illustrates the strength and the resilience of our portfolio and strategy. So with that, I will leave the word back to Jacob. Jacob Lund: Thank you, Jenny. Thank you, Christian as well. We are now ready to take your questions, and we will start with the questions through our operator, Sharon. Sharon, please. Operator: [Operator Instructions] And your first phone question comes from the line of Linus Sigurdson from DNB Carnegie. Linus Sigurdson: Starting off with a question on Mölnlycke and Mölnlycke growth. Is there any visibility on these France and Germany headwinds subsiding? Or should we expect this effect to persist in the foreseeable future? Jenny Haquinius: I can start. Thank you for the question, Linus. It's quite hard to say. We are seeing muted growth across many sectors at the moment, given what we're seeing globally. And specifically for Mölnlycke in Europe, there's weakness in France and Germany, and that is because there's a lot of pressure on health care budgets. But it's really hard to say if that would look any different in the next quarter, but really good to see continued momentum in the U.S. and China. Christian Cederholm: And maybe just to add, I think it's fair to say that this started somewhere during the first half of last year. But to Jenny's point, we don't really have visibility on the future development. Linus Sigurdson: That's fair. And then on the margin in Mölnlycke, is it fair to assume that the sort of tariff and currency impacts on profitability there are in line with previous quarters? And I mean, with 30-plus EBITDA margin, have we sort of already reached the potential for the efficiency program? Jenny Haquinius: Well, I can start. I would say that for the companies impacted by the tariffs, on a general basis, they're doing a really good job to mitigate, but it's roughly 1 percentage point or so still impacting margins. In terms of FX for Mölnlycke for this quarter, it's roughly 3 to 4 percentage points in negative FX. And Mölnlycke is doing a really good job working with efficiencies and really demonstrated that in this quarter. Then, of course, that's ongoing work because it's a mix of travel restrictions, using less consultants and also finding more sustainable efficiencies. So I think that work will continue also through 2026. Linus Sigurdson: Okay. And then my final question is a more general one. When you talk about solid cash flow in the coming years and this ambition to accelerate investments, could we view this as a comment on, say, EQT exit markets and the potential for, for example, Nova Biomedical start generating dividends to investors after the integration? Christian Cederholm: Sorry, can you repeat the question? You were asking about our comment on accelerated investments and the cash flow, and then I didn't quite follow. Linus Sigurdson: Yes. I mean, implicit in that statement is accelerating cash flows to fund those investments. So just -- is there anything you can comment on in terms of where those cash flows will come from? Christian Cederholm: Okay. I can take a first crack. So thanks, and it's a good question. And really, the way we think about it is we look at the cash generation from the 3 business areas. And when it comes to Patricia and you were asking about Nova, the way we think about it there is that really the cash flow generated and the debt capacity generated in the subsidiaries is all a potential funding source for acquisition and/or distribution. And really, cash is sort of a corporate asset. So whether it's distributed or not is maybe not the key point, but rather that the underlying cash generation in these businesses is solid. Does that answer your question? Linus Sigurdson: Yes. Operator: And your next question comes from the line of Derek Laliberte from ABG Sundal Collier. Derek Laliberte: I wanted to ask on Mölnlycke. You say the prevention and post-op were strong product segments in the U.S. I was wondering if you could give some more insight on why these areas are performing so strongly now and which product areas perhaps aren't doing as well. Also, I'm wondering if the product mix is similar in Europe in terms of performance right now. Christian Cederholm: I can start on that. I think the main difference we see is relating to the different geographies, as Jenny mentioned. And when it comes to product mix and channel mix, maybe the one thing to say there is that in the U.S., we're more heavily leaning on acute and hospital, while in Europe, including in France, for example, we have more towards post-acute and even some home care. Jenny Haquinius: And I could also add to that maybe that the Prevention segment is larger in the U.S. because of the reimbursement structure. So there's a clear market for that in the U.S., which is very different compared to Europe as well. Derek Laliberte: Okay. Great. That's very helpful. And on Laborie, what's the status on this BPH product, is it reasonable to expect any meaningful contributions from that during '26? Jenny Haquinius: Well, we don't really provide guidance, but what we can do say is that for this quarter, as we mentioned, the growth is a lot driven by the urethral strictures product. But as of now, we do have an active reimbursement in the U.S. for the BPH product. So we continue investing behind that launch. And of course, it will also depend on the reception in the market, et cetera. But the launch is very much ongoing, and we are very optimistic about the long-term runway with both of these products. Derek Laliberte: All right. And regarding Nova Biomedical, looking at the combined company now, I was wondering how the geographical split looks like, how high is the share of U.S. sales, for example? Christian Cederholm: We provided that in the last quarter. Let us come back to that. Derek Laliberte: Yes, absolutely. That's fair. And on Three Scandinavia, I was wondering generally here, the background, I think the growth looked pretty strong here in Q4 and actually over the year. What's driving this growth? Is it mainly continued market share gains or also some price increases involved here as a contributing factor? Christian Cederholm: Well, yes, we agree. Three has been continuing to gain market share, as you can also tell from the subscriber growth numbers. And then with regards to price, I mean, it remains a fiercely competitive market, of course, but at least they have been good at holding prices. That's what I would say on that. Derek Laliberte: Okay. Great. And finally, if I recall correctly, on Sarnova, you have this high inventory situation with distributors affecting market demand and so on. Is it fair to say that this has subsided now? Christian Cederholm: Thank you. Yes, this is primarily relating to the AED or cardiac response business. And really, what we see there is it is continuing to be a tough market. However, on a sequential basis, it has been more stable recently. And then, of course, inventory could be one part in that. Operator: We will now take the next question. And the question comes from the line of Jakob Hesslevik from SEB. Jacob Hesslevik: First, on demand navigation. So several businesses face weak demand and cautious demand in their segment. How do you differentiate between cyclical weakness that require patience versus structural challenges requiring strategic pivots? Christian Cederholm: I can start there. Well, so really, what we try to track, if I start there is, one, of course, total market development, but also we're benchmarking with a certain cadence so as to make sure that we understand whether we're gaining, holding or potentially losing market share. And there, I think it's fair to say that for the majority of the portfolio, we're confident that we're holding or increasing market share. And then the other part of your question was whether -- to what extent we see structural weaknesses in markets. And that's, of course, something we continuously evaluate. And generally, when it comes to investments, we're quite keen and that's one of our top criteria to make sure that we are in industries where we see, call it, GDP plus rather than GDP or GDP minus growth. And of course, sometimes that changes over time. And then we make sure we keep track of that. Jacob Hesslevik: Great. And then double-clicking on the currency exposure management. So FX headwinds significantly impacted Patricia Industries performance during this year. It should have affected your Listed portfolio as well given its large exposure towards exports. But beyond the operational efficiency improvements mentioned, what strategic actions are you considering in order to manage your FX exposure across the portfolio more efficiently, especially to hedge the Patricia portfolio that seems to be more sensitive to USD weakening while not having a professional treasury department helping out, which you can maybe found in most of your listed portfolio. Is this something you're looking into how you can help out Patricia more in managing their exposure? Christian Cederholm: Thank you for the question. Well, as you allude to, our main way of, let's say, balancing FX exposure is by way of operational hedging, i.e., to try to have the costs where we have the revenues and the income. Now despite that, we do have a significant earnings stream in U.S. dollar, thanks to our presence and strong market positions in the U.S. When it comes to sort of further hedging within the companies, we typically don't engage much in that. But rather, we want the FX effect to be seen immediately and then addressed and dealt with. So with a long-term perspective, the changes and the FX environment will be a reality and will hit. So we'd rather just see it upfront and then try to deal with it. The only additional hedging we do is we try to match our debt currency with what our underlying cash flow is per currency. So for example, if you have a company with a lot of earnings in U.S. dollars, it's appropriate to have some level of U.S. debt there as well. Jacob Hesslevik: Okay. And then just finally on Atlas Antibodies. Following the goodwill impairment and now equity contribution, what strategic options are you evaluating for Atlas Antibodies? I mean it's a holding from back in the days when it was called investor growth capital. It is still a very small investment and contribute limited to NAV. Why are you not looking into divesting this holding? Jenny Haquinius: Yes. Well, thank you for the question. First and foremost, so we are contributing the SEK 200 million, and that is to give management some room to execute on the plan. And we have a clear plan. I think we also mentioned in the presentation that roughly 70% of the business is doing well, while we have the 30% evitria business, which is struggling, and that's on the base of weaker market demand. But we have belief in management and also the plan to continue to build on Atlas Antibodies. So that's what we are focusing on here and now. I don't know if you want to add something. Christian Cederholm: No. As alluded to previously, I mean, you have 2 out of 3 business areas that are performing well. And the struggle we see is within evitria. Jacob Hesslevik: Yes. Fair enough. I'm just thinking about the time it takes versus the size of the company relative to the rest of your portfolio, maybe we can come back to Atlas in the future? Christian Cederholm: No, but I think the one thing to say there is maybe that, of course, with Atlas Antibodies as with the other companies, our ambition is to grow it bigger over time, for sure. Jacob Hesslevik: No, I agree. It should -- it's just it hasn't really grown over the past 15 years. It's not that much larger than it was when it came out of Investor Growth Capital. But it's clear. Thank you for the elaboration at least on the business performance in the name. That makes a lot of sense. Christian Cederholm: May I just, before we take the next question, come back to the question on the geographic split on the combined Nova Biomedical business. And then the numbers are roughly 60% North America and then the other 40% is roughly equally divided between Europe and rest of the world. Operator: [Operator Instructions] And your next question comes from the line of Johan Sjöberg from Kepler Cheuvreux. Johan Sjöberg: I hope you can hear me. My question is, if you start off with the Wound Care business and looking at the growth rates over the last year, it seems like you continue to be in the high single-digit growth area. And my question here, going forward here, I heard your comments on especially what's going on in Europe here. But do you see any change to that or any -- I mean, over the next, say, like 3 years, whatever, is that the sort of -- do you see any change to the market that would sort of change that picture, if you take some sort of a helicopter view on that one, please? Jenny Haquinius: Yes, I can start. And I think the short answer is, not really. So no clear change. I think looking at the full year, Wound Care specifically grew 7% organically and was 5% in the last quarter. And that is, as we've talked about before, in a market that's growing low to mid-single digit. So Mölnlycke has continued to take market share within Wound Care on the back of a strong product offering, very much focused on the customer. And we, of course, have the absolute aim to continue to do so by continuing to investing in innovation and also go-to-market. And then in addition to that, we also have new geographies. So we are investing in China, where we now have local production. And there we, of course, are seeing potential for higher growth. And then also the investments and the building presence in the post-acute channel, which is also an addition because Mölnlycke has historically had the strong position in acute, and that will also add potential avenues for higher growth. So we're not seeing anything differently now. But of course, in the more short-term perspective, we will always have markets that can be under pressure like we're seeing now in Europe. Johan Sjöberg: That's great. And also, Jenny, can I ask you on EQT funds, EQT reported today also and sort of you -- given a quarter lag on your -- the reported value of EQT funds. Should we expect any shift -- or put it like this, is there any material change if you were to use the Q4 numbers compared with the Q3 numbers? Jenny Haquinius: No, the short answer is that there will not be a material change, at least not for this quarter. Johan Sjöberg: No, good. Then also FX is all over the place right now or rather going in the wrong way, you can say, to some extent. How -- what -- could you sort of give some sort of indication? We know about the domicile of all the companies, but just to get a feeling for what is sort of the -- what is the most important currency to look at? Is it Euro-Dollar, is it the Euro-SEK or the U.S. dollar-SEK, just to see sort of the flows within the company, so to speak here, because it is a little bit big movements, to put it mildly. Christian Cederholm: I assume you're referring to the Patricia portfolio? Johan Sjöberg: Yes. Christian Cederholm: So this is what I would say. First of all, the #1 exposure is, of course, to the U.S. dollar, just given our big presence there with some U.S. domiciled companies, but also for a company like Mölnlycke and Permobil, I mean, the U.S., clearly the single biggest market for many companies. And then in Swedish krona, for most of the Swedish domiciled companies or the global, I should say, Swedish domicile companies, you would typically look at SEK exposure that is or krona exposure, where we sort of short the krona because we have headquarters here, R&D, et cetera. But of course, sales in Swedish krona is typically quite limited. And then thirdly, just to comment on the euro, I think from Mölnlycke, in particular, it's worth to highlight that we do have manufacturing for Wound Care, for example, in the U.S., in Maine. That said, we are still net exporting from Mikkeli in Finland and so from euro into U.S. dollar. So that's another one to keep track of. Johan Sjöberg: Okay. Cool. My last question, it's really about -- I mean, some of your portfolio companies are talking about also the hesitance among customers to place orders due to tariff uncertainty, geopolitical stuff and everything like that. I would like to hear your thoughts upon, especially when you're looking at -- or you are looking for a platform acquisition or if your companies are doing an add-on acquisition, do you see that being impacting, well, sellers and buyers also here in terms of hesitance. I know one thing is the sort of valuation, but that's always a thing you can say. But this geopolitical stuff here, is that something which is also sort of hindering your M&A ambitions in both platform and add-on? Christian Cederholm: Thanks for the question. I would not say that it's sort of the major obstacle. But of course, all the factors that you point to just add to the general sort of uncertainty in terms of deciding what's the underlying earnings, et cetera. That said, on a lot of things that we're looking at, for example, in the health care and life science market, tariffs, for example, is sort of not the biggest factor driving that. So it certainly adds to the unpredictability and uncertainty, but it's not a -- I would not call it out as a major obstacle for doing transactions as proven also in the recent year where we've done lots of add-on acquisitions, for example. Operator: Thank you. There are currently no further phone questions. I will now hand the call back to Jacob for webcast questions. Jacob Lund: Thank you very much, Sharon, and let's take the questions from the web. We can start with one from [ Tommy Falk ] around the dividend for 2025. Maybe add some flavor to that, Jenny. Jenny Haquinius: Yes. Well, thank you for the question. Well, I think, first of all, the dividend proposal is the Board's proposal to the AGM and for the AGM to decide. But maybe some flavor commenting on the SEK 0.40 increase. It seems balanced looking at our robust balance sheet and also view on cash flow generation and investments. And I think the SEK 0.40 is also really a testament to the fact that we have 3 business areas generating cash flow that really supports continued growth, also investments and delivering on our dividend policy to pay a steadily rising dividend. Jacob Lund: Next question, [indiscernible]. Please, how Investor AB is engaged in rearm Europe programs or other defense investments globally? Would you like to pick that up, Christian? Christian Cederholm: Yes, I'll take a crack at it. So Investor AB as such is not particularly involved in this. But of course, the build-out of the defense of Europe means business opportunities for Saab quite obviously, but also for other companies. And as an example, Ericsson do see a potential from the rebuilding of the European defense. Jacob Lund: Next question comes from Oskar Lindstrom, Danske. On Mölnlycke, are there opportunities to growth, more through acquisitions in the Wound Care or adjacent segments given weak main markets? That's the first one. And then on Patricia acquisitions, for some time now, you've been talking on and off about adding a new major leg in Patricia, mentioning industrial automation as a segment of interest. Is that still the case? What does the pipeline look like? And what is your thinking on valuations? Jenny Haquinius: Yes, I can start with Mölnlycke. Yes, well, add-ons is a priority for all of our subsidiaries and Mölnlycke included. So there is a lot of time spent to, of course, understand the different segments within Wound Care, but also adjacencies. And I think so far, there has not been any major available targets that have made sense because Mölnlycke has been able to grow so strongly organically. What Mölnlycke has done and is, of course, also continuing doing is add-ons that are smaller and more focused on innovation. So early-stage research, for example. And I think a recent example of that is a product for potential debridement of wounds, which would be a good addition to the Mölnlycke portfolio. But as for the other subsidiaries, it's also an important focus for Mölnlycke, of course. Christian Cederholm: And then the question on new platforms. And just to recap, our capital allocation priorities are quite clear in that we always put development and growth of our existing companies first. So that's our top priority. And as we've said, we are also open for and actively looking to add new platform companies, not the least in Patricia. And yes, industrial automation or industrial technology has been pointed to as one area that we're looking in, but we are also looking more broadly than that. And as for the pipeline, I think all I can say there is the work with identifying, scouting and potentially executing on acquisitions is a continuous process. And then when it comes to sort of closings and actual execution, that is inherently volatile and will remain so. Jacob Lund: Then the next one is from [indiscernible]. Will you organize another Capital Markets Day in 2026 for us, long-term shareholders? This is helpful to gauge the development of nonlisted companies. I think I can answer that briefly. It's been a while since we had the last Capital Markets update, and we'll be getting back with more information on that in due course. Next question and the final question I can see is from Jens [indiscernible]. From a strategic perspective on China, how do you assess the competitive risks and opportunities, the latter in terms of growth, investment and cooperation? Christian Cederholm: So as we comment on in the CEO statement in this report, we do see China as a very important region and for several reasons. I mean, one is that for many of our companies, both on the listed side and in Patricia, China is a large and growing market. So that's one thing, the market potential. But also, it's increasingly clear that competition in China or from China is evolving and evolving quite fast. So as we comment on, it's important for many of our companies to be in China, not just for the market opportunity, but also to be where and to compete where some of our toughest competitors are. And it's quite clear to me that comparing China today to a number of years ago, they're not just leading on low cost, but also on implementation of new technology, on fast innovation cycles, et cetera. So even more reasons to be there. Jacob Lund: Thank you very much. There are no further questions on the web. That means it's time to wrap up. Thanks to both of you. Our next scheduled call is the Q1 results for 2026 scheduled for April 21. And until then, thank you, and goodbye.
Operator: Good afternoon, everyone, and welcome to the Preferred Bank Q4 2025 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on a touch-tone telephone. To withdraw your questions, you may press star and 2. Please also note today's event is being recorded. I would now like to turn the conference call over to Jeffrey Haas with Financial Profiles. Sir, please go ahead. Jeffrey Haas: Thank you, Jamie. Hello, everyone, and thank you for joining us to discuss Preferred Bank financial results for the fourth quarter ended 12/31/2025. With me today from management are Chairman and CEO, Li Yu; President and Chief Operating Officer, Wellington Chen; Chief Financial Officer, Edward Czajka; Chief Risk Officer, Nick Pi; and Deputy Chief Operating Officer, Johnny Tzu. Management will provide a brief summary of the results, and then we will open up the call to your questions. During the course of this conference call, statements made by management may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon specific assumptions that may or may not prove correct. Forward-looking statements are also subject to known and unknown risks, uncertainties, and other factors relating to Preferred Bank's operations and business environment, all of which are difficult to predict and many of which are beyond the control of Preferred Bank. For a detailed description of these risks and uncertainties, please refer to the SEC-required documents the bank files with the Federal Deposit Insurance Corporation, or FDIC. If any of these uncertainties materialize, or any of these assumptions prove incorrect, Preferred Bank's results could differ materially from its expectations as set forth in statements. Preferred Bank assumes no obligation to update such forward-looking statements. At this time, I'd like to turn the call over to Mr. Li Yu. Please go ahead. Li Yu: Thank you, ladies and gentlemen. Thank you for joining the earnings conference. I'm very pleased to report that for 2025, the bank's net income was $34.8 million or $2.79 a share. For the full year, the bank earned $134 million or $10.41 a share. Our profitability for the year is believed to be among the top tier of the banking industry. Amid interest margin for the fourth quarter declined from the third quarter. The principal reason for the decline was federal rate cuts. With a 70% floating rate loan portfolio, the rate cut did reduce our loan interest income. However, the cost of deposits remains stubbornly high. In fact, many analysts have reported that between quarters, the banking industry, the entire banking industry, cost of deposits may have increased slightly. Looking forward, we are seeing that our loan demand is getting stronger. For the quarter, our total loan growth is $182 million or over 12%. Deposit growth was $115 million or 7.4%. To round out the year, loan and deposit growth was 7.3% and 7.2%, respectively. During the quarter, we sold two large pieces of OREO, resulting in a net gain of $1.8 million between the two. The income was reported in the section of noninterest income. The loss, the result of the loss, was reported in the noninterest expense section. This is based on the current principle of generally accepted accounting principles. For the quarter, nonperforming assets declined slightly. However, criticized assets did increase by $97 million. Principally, this is due to placing a large loan relationship into the classified status. Our loan loss provision was $4.3 million. Most economists are forecasting 2026 to be a year of relatively stable growth. Our customers' feelings also indicate they have an improved outlook for 2026. Barring any sudden changes in the current policy or directions, which we just had one, we are hoping 2026 to be more of a growth year for Preferred Bank. Thank you very much. I will answer your questions. Operator: To ask a question, you may press star and then 1 using a touch-tone telephone. To withdraw your questions, you may press star and 2. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Again, that is star and then 1 to join the question queue. We'll pause momentarily to assemble the roster. And our first question today comes from Matthew Clark from Piper Sandler. Go ahead with your question. Matthew Clark: Hey. Good morning, everyone. Just want to start on the margin and get some visibility there at least in the near term. Do you have the spot rate on deposits? Spot rate on deposit costs at the end of the year or even the month of December, and then also the average margin in the month of December? Edward Czajka: Hi, Matthew. This is Ed. The margin for December was 3.66%, slightly below that of the quarter. That was with the full effect of the December rate cut. Total cost of deposits was 3.17% for the month of December. So that's coming down about six, seven basis points a month. Matthew Clark: Okay. Yeah. And that's where I was headed. Deposit beta this quarter looks to be about 40% on interest-bearing. Sounds like things are still pretty competitive. What are your thoughts on the beta? The deposit beta? Going forward? Assuming we get maybe one or two rate cuts this year? Edward Czajka: Well, it's going to depend on a number of things. Obviously, the rate cuts will play a big key role, but the other thing that Mr. Yu alluded to is the competition for deposits still remains very, very strong. So I would foresee a similar pattern in terms of about five or six basis points a month as we have CDs rolling off and then coming on at lower rates. They're just not coming on at rates that we thought we would see at this point given what's happened with the Federal Reserve. Matthew Clark: Got it. And it sounds like loan growth you expect to maybe step up a little bit this year from the 7.3% pace last year. I would assume you're going to try to grow deposits at a similar pace. Is that fair, just given your loan-to-deposit ratio? Li Yu: That's a fair statement. Matthew Clark: Yeah. Okay. And then just last one for me on expenses, the run rate, a little noise this quarter, but stripping that out. A little better than expected on comp. How should we think about the run rate here in the first quarter? With some seasonality? Edward Czajka: I'm going to forecast probably somewhere in the neighborhood of 22. Maybe slightly below that. But, you know, 21.5 to 22 should be about right. You know? Matthew Clark: Okay. Thank you. I'm getting it now. Yeah. Operator: Our next question comes from Gary Tenner from D. A. Davidson. Please go ahead with your question. Gary Tenner: Thanks. Good morning. Just a quick follow-up on the deposit side of things. If you could kind of update us on the CD maturities in the first quarter and kind of the out and in rate that you expect? Edward Czajka: Sure. So we have about $1.3 billion maturing in Q1 at a weighted average rate of 3.96%. They're currently coming on right now at about around 3.70% to 3.80% on average. Gary Tenner: Appreciate that. And just out of curiosity, last quarter, when you talked about the CDs maturing in the fourth quarter, they were maturing at 4.1% and you sort of posited kind of new CDs in the mid to high threes. So it sounds like that number was towards the upper end of that repricing range in the fourth quarter? Is that kind of what played out? Edward Czajka: Yes. Yes. Yes. As we said, we would have expected CD rates, market rates to come down a little more than they did given the Federal Reserve's actions. Gary Tenner: Okay. And that 70% floating rate portfolio now, does that have you with the fourth quarter cuts, did you clear through any significant floors? Edward Czajka: It probably only affected about $150 to $200 million of the loan book. Right now, we have about 45% of the floors are in the zero to 100 basis point bucket in terms of their protection effectiveness. Operator: Our next question comes from Andrew Terrell from Stephens. Please go ahead with your question. Andrew Terrell: Good morning. I was hoping to just follow-up on the time deposit commentary. I was hoping you could just maybe expand upon that a bit more and just, you know, sounds like high threes for you guys right now. Is that generally in line with your competition? Are you trying to, you know, price ahead, price below to pick up more deposits? Just curious, you know, where you're at versus the market, kind of your strategy, your expectations there. Edward Czajka: I think the challenge is kind of walking the tightrope. Right? We want to bring deposit costs in. That's really a big goal of ours, but at the same time, we want to grow the deposits. So that's been kind of a challenge. What we've seen in the marketplace is not only local competition still being fairly stiff, but we're seeing some large money center banks still out there promoting CDs right in our marketplace. And when you have those guys doing that type of it makes it more challenging for us because of their size. Andrew Terrell: No. It makes a lot of sense. On the downgraded loan this quarter, the $123 million relationship, I appreciate all the color you guys put in the release around the LTVs and debt service there that both look pretty good. I was hoping you could talk a little bit more about the pathway to curing this. You know, what the timeline and outcome looks like as you see the big picture today. And then also just, you know, as a pretty large relationship, 2% of the loan book. Is this the largest relationship with the bank, or are there other, you know, similarly large that you guys have? Li Yu: I believe this is one of the large relationships. Correct. For the bank, that is small. In terms of the workout, it's a little bit early to be able to tell what the future is going to hold for this particular relationship. There are several options, you know, that we've utilized in the past. We've sold notes, we've foreclosed and taken back property, etcetera. But our first choice, obviously, we know these customers, they are late in payments, and they are having problems with other banks. But their principle is that because these properties still have value, very positive value in their eyes. And the information we have is that they are working very hard, trying to finance it out from other alternatives. So the bank is going to be waiting for them to get these procedures done. So in case they are not able to continue the loan, and we have to go through the foreclosure procedure, we are not going to shy away from that. We'll do it immediately. And the current marketplace is pretty reasonable as regard to pay for these properties at this point in time. So in other words, when I see in the market situation 2011-2012 that you have to bottom four off, it's not happening. The market has been very stable. So it's a matter of time to resolve the thing as these loans are basically fundamentally well, reasonably underwritten. Andrew Terrell: Okay. I appreciate all the color there, and thanks for the questions. Operator: Our next question comes from Tim Coffey from Janney. Please go ahead with your question. Tim Coffey: Great. Thank you. Good morning, everybody. Mr. Yu, as we start looking at loan growth this next year, what do you think are the best opportunities for growth? Or, like, what loan product? Li Yu: Basically, we are still a sort of like a commercial market that we basically focus on commercial real estate and C&I loans. We see both sides' demand is reviving a bit right now. In fact, internally, we're budgeting a higher number than the previous year right now. So it's still very early to tell. As you know, not only do we have the normal economy, but we do have a very active government that changes practices from time to time. So it will be, you know, if we mentioned some for the babies, it was lose no change, or go this way, I think that's overly optimistic. But I like to say that we're budgeting a higher number than last year for our upcoming year. Tim Coffey: Okay. Great. Thanks. And then, Ed, looking at noninterest expenses for the full year in terms of the growth rate, is kind of a mid to high single digits number reasonable? Edward Czajka: Yes. That's about what we're looking at, right in that neighborhood, Tim. You're spot on. Tim Coffey: Okay. And then the kind of just general thoughts on share repurchases for this year? Li Yu: Well, we just have to see what the total picture is. You know, first of all, obviously, we have to see what our loan growth is during the year. And all possibility, all funds will have to be reserved for loan growth. And secondly, the deposit situation will also be very important. So when we have the balance sheet fixed, then we probably would turn around to see whether there is additional availability for repurchases. But I would say that the situation is not quite as conducive to repurchase as last year. Tim Coffey: Right. Well, sure. Absolutely. And then I guess this is what I want to kind of make sure I dot the I and cross the T's on the classified loans. I mean, given the uniqueness of this situation, what does the timeline for disposition look like? Or how does this play out? Li Yu: Well, first of all, that amount of relationship there. There are several different loans. Some of them have earlier maturity dates than the other ones. So first of all, obviously, we will be giving our customary opportunity to that particular relationship, the opportunity of resolving matters to our satisfaction. And then the legal procedure will start if they fail to do that. Now I would say that internally, we will say that probably we will have the majority of a good portion of all resolved sometime within two quarters. Nick, do you think I'm too optimistic? Or what's your take? Nick Pi: That is the goal where we're heading, Mr. Yu. Yes. Of course, we'll try to solve the issues. I think we'll give ourselves that much time to get a lot of the work done. Tim Coffey: Okay. Great. That's very helpful. Those are my questions. Thank you. Operator: Our next question comes from Liam Coohill from Raymond James. Please go ahead with your question. Liam Coohill: Hi. Good morning, everyone. This is Liam on for David Feaster. So there's been a good amount of discussion surrounding the classified downgrade, but I did just want to touch on the well-secured multifamily loan that was downgraded to nonaccrual. Did you have the credit metrics for that loan, or is there anything in particular we should take into account? Li Yu: You mean the $19.4 million? Yes. Based on the most updated appraisal we conducted after we classified this loan, the value came out even higher than the previous one. So with everything in mind, the value is $49 million, and our loan is $19.5 million. Liam Coohill: That's very helpful. Thank you. And then just one more from me. For fee income in 2026, would the Q4 number excluding the one-time OREO impact be a good baseline? Edward Czajka: I think it would be, yes. I think that's probably a good baseline, maybe slightly below that. The LC fee income was very, very strong this year. Not sure we can exactly reproduce that number, but I'm sure we'll get close to that. So I would take that noninterest income without the gain on sale of other real estate. Liam Coohill: Thank you very much. I'll step back. Operator: Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and 2. Again, that is star and then 1 to join the question queue. Our next question is a follow-up from Matthew Clark from Piper Sandler. Please go ahead with your question. Matthew Clark: Hey. Thanks. Just want to clarify your expense guidance for this year. Does that exclude OREO costs? Because the midpoint of your guide for the first quarter of $22 million, you know, annualizes obviously to $88 million, would be below this past year and would imply some significant growth after the first quarter. Just want to make sure we're on the same page. Edward Czajka: Yes. It will grow through the year. There's no question about it. And we will have, you know, we still have a couple of small OREO properties, so there will be some expense related to those as well. Matthew Clark: Okay. And then did you repurchase any shares this quarter? Li Yu: No. Not this quarter. We did in October, but it was a nominal amount, Matthew. Matthew Clark: Okay. Then just last one for me on M&A. Just wanted to get an update on your appetite for M&A to the extent you see some opportunities with M&A expected to accelerate this year? Li Yu: Yeah. There are a few deals that have been brought to us that we end up taking a look at. As you know, that has been nothing main effort in M&A. But there are a couple of deals we take a look at, and probably the pricing structure required of us is not to our satisfaction. So we'll continue to look at it. We know that there may be another one or two coming up, we'll take a look at it. Matthew Clark: Okay. Great. Thanks again. Operator: And our next question comes from Arif Angad from Cygnus Capital. Please go ahead with your question. Arif Angad: Yes. Hello. Thanks for taking my questions. First question is really more just to clarify the diluted EPS of $2.79. If I'm reading it correctly, it looks like your gain on sale of the OREO property is included in that EPS, which after tax was about 20¢. Just want to confirm, am I reading that correctly? The effect of that gain on the EPS was $2.59? Edward Czajka: That sounds about right. Yes. Li Yu: $1.8 million after equal to $3.6 million. Yeah. So that's about right. Arif Angad: Okay. Thank you. And then my next question is on those OREO properties you sold in the fourth quarter, did you provide any financing to the buyers, or have you completely absolved yourself of any exposure to those properties going forward? Li Yu: One of them we provided financing. The other one was an outright cash sale. Arif Angad: Got it. So you still have a loan through one of those properties going forward? Li Yu: Yes. Much smaller loan. Arif Angad: Got it. Okay. And then the last question I had was with respect to the increase in the classified loans. Can you please confirm the $121 million of loans that are with the relationship where there's litigation going on with other banks, assuming you're referring to Western Alliance and Zions. Are those loans paying current? Are they performing or no? Li Yu: As far as I know, we don't know exactly the status of the other two banks' loans, and we don't have any idea about their structures. All I know is that we are in a first position, you know, trust lender to the world. Fully secured by a problem. Arif Angad: But are those loans being paid, you know, are you receiving current interest in debt service on those loans? Currently? Li Yu: Yes. We have been receiving the payments, but it's being slowed down. That's correct. Arif Angad: Sorry. So when you I did so they're behind in interest service or they're currently in interest service? I'm not following. Li Yu: Generally, they're behind in interest services. That's one of the primary reasons that's the weakness of the loan that we classified. Arif Angad: For clarifying. I'm just really more trying to understand the context of a 1.14 times debt coverage ratio if the loan's not paying. Li Yu: Because of the guarantors getting involved with litigation with other banks. So a property that is not 100% using all the cash flow from those properties to make the payment to our bank and to spend that. Arif Angad: Got it. Okay. That's helpful. And then, you know, just to finalize the question on this topic, you know, given where the allowance for credit losses stood at the end of the quarter or end of the year and your increase in the provision for credit loss, what gives you comfort that you're adequately reserved and we don't get surprised as we did this quarter with a significant increase in nonperforming and criticized loans? How recent of a scrub have you done of your portfolio to kind of give you that comfort that you're adequately reserved? Li Yu: All these loans under this or go with because it's substandard in care, we go with the principal one for case analysis. And as the release mentioned about the rookie virus, around 5%. So there's no specific reserve on this one. However, the $4.3 million provision for this quarter was mainly the result of a combination of many, many factors, including the loan growth, including other specific reserve for some of the loans. Just to give you an example, we fully reserve this relationship to under unsecured credit. And also based on Q factors. So due to the movement of all this relationship, and increase of the criticized loans, we have adjusted our Q factor side, especially on the credit trend area. We increased five basis points of the risk entire risk segment. So these are the components of our reserve at this moment. Our Q factors are actually kind of around 42.5% reserve. So we do believe the reserve should be more resolved to cover our credit situation. Arif Angad: Got it. Okay. Thank you very much. Operator: And ladies and gentlemen, with that, we've reached the end of today's question and answer session. I'd like to turn the floor back over to management for any closing remarks. Li Yu: Well, thank you very much for being with us. For now, Preferred Bank, we have a little challenge and they try to within the next six months period of time, try to resolve these issues on the credit side. But overall, everything remains the same. We are the same company with a well-structured balance sheet, normal operations, normal metrics, and so on, and we still look forward to 2026. Thank you very much. Operator: And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
Operator: Hello, everyone, and welcome to the Heritage Financial 2025 Q4 Earnings Call. My name is Emily, and I'll be coordinating your call today. [Operator Instructions] I would now like to turn the call over to Bryan McDonald, President and CEO, to begin. Please go ahead. Bryan McDonald: Thank you, Emily. Welcome, and good morning to everyone who called in and those who may listen later. This is Bryan McDonald, CEO of Heritage Financial. Attending with me are Don Hinson, Chief Financial Officer; and Tony Chalfant, Chief Credit Officer. Our fourth quarter earnings release went out this morning premarket, and hopefully, you've had the opportunity to review it prior to the call. In addition to the earnings release, we also posted an updated fourth quarter investor presentation on the Investor Relations portion of our corporate website, which includes more detail on our deposits, loan portfolio, liquidity and credit quality. We will reference this presentation during the call. As a reminder, during this call, we may make forward-looking statements, which are subject to economic and other factors. Important factors that could cause our actual results to differ materially from those indicated in the forward-looking statements are disclosed within the earnings release and the investor presentation. Our improving net interest margin and a shift in our loan mix benefiting the provision expense drove earnings higher in the fourth quarter. On an adjusted basis, diluted earnings per share was up 18% versus last quarter and up 29% versus the fourth quarter of 2024. And on the same adjusted basis, our ROA improved to 1.29% versus 0.99% in the fourth quarter of 2024. We now have regulatory and shareholder approval for the pending merger with Olympic Bancorp and plan to close at the end of January. Their addition to the Heritage franchise will add to the profitability of our operations and better position our company for growth in the Puget Sound market. We will now move to Don, who will take a few minutes to cover our financial results. Donald Hinson: Thank you, Bryan. I will be reviewing some of the main drivers of our performance for Q4 as I walk through our financial results, unless otherwise noted, all the prior period comparisons will be with the third quarter of 2025. Starting with the balance sheet. Total loan balances increased $14 million in Q4. Yields on the loan portfolio were 5.54%, which is 1 basis point higher than Q3. The positive impact of new loans being originated at higher rates and adjustable rate loans repricing higher was partially offset by the impact of 3 rate cuts over the last 4 months of the year. Bryan McDonald will have an update on loan production and yields in a few minutes. Total deposits increased to $63 million in Q4. This increase was due primarily to a $100 million increase in interest-bearing demand deposits. The cost of interest-bearing demand deposits decreased to 1.83% from 1.89% in the prior quarter. As a result of rate cuts in Q4, we expect to see continued decreases in the cost of deposits. Investment balances decreased $31 million due primarily to expected principal cash flows on the portfolio. The yield on the investment portfolio decreased 9 basis points to 3.26% for Q4 compared to 3.35% in Q3. This decrease was partially due to a bond called in Q3 that provided approximately 4 basis points of additional accretion income that quarter and partially due to the runoff of higher-yielding bonds without replacement of those balances at current market rates. The cash flows provided by the investment portfolio as well as growth in deposits was used to pay down borrowings during the quarter. Borrowing balances decreased to $20 million at year-end from $138 million at the end of Q3. The remaining balances all mature in 2026. Moving on to the income statement. Net interest income increased $1 million or 1.7% from the prior quarter due primarily to a higher net interest margin. The net interest margin increased to 3.72% from 3.64% in the prior quarter and from 3.36% in the fourth quarter of 2024. We recognized a reversal of provision for credit losses in the amount of $814,000 in Q4. This reversal was due primarily to a change in the mix of the loan portfolio. During Q4, commercial construction loans decreased while permanent commercial real estate loan balances increased. We consider construction loans to have an inherently higher credit risk component and provided a much higher allowance on those loans. Therefore, the reallocation of those balances resulted in the allowance decreased to 1.10% in Q4 from 1.13% in Q3. In addition, net charge-offs remain at very low levels. Tony will have additional information on credit quality metrics in a few moments. Noninterest expense decreased $132,000 from the prior quarter due mostly to lower merger-related expenses. Comp and benefits expense was higher due primarily to increased incentive compensation accrual and not due to additional employees. We continue to manage our employee levels carefully as shown by decreases in average FTE from both the prior quarter and the same quarter in the prior year. And finally, moving on to capital. All of our regulatory capital ratios remain comfortably above well-capitalized thresholds and our TCE ratio was 10.1%, up from 9.8% in the prior quarter. We were inactive in both lost trades on investment and stock buybacks in Q4. I will now pass the call over to Tony, who will have an update on our credit quality. Tony Chalfant: Thank you, Don. I'm pleased to report that we ended the year with strong credit quality across all segments of our loan portfolio. Nonaccrual loans totaled $21 million at year-end, and we do not hold any OREO. This represents 0.44% of total loans and compares to 0.37% at the end of the third quarter. The increase was primarily attributed to 3 nonowner-occupied CRE loans that were moved to nonaccrual status due to their delinquency. These loans are all well secured and are expected to pay off from either sale or refinance of the underlying properties with no anticipated loss. Total nonaccrual additions of $4.4 million were partially offset by $1.1 million in payoffs or paydowns. Within our nonaccrual loan portfolio, we have just over $2.4 million in government guarantees. Nonperforming loans were stable during the quarter with the 0.44% of total loans matching the ratio at the end of the third quarter. In addition to nonaccrual loans, loans over 90 days and still accruing was limited to one small residential mortgage loan with a balance of $194,000. Criticized loans moved lower during the quarter. However, we did see an increase in our substandard loans. Criticized loans totaled just under $188 million at year-end, declining by $6.6 million during the quarter. While special mention loans were lower by 29%, some were downgraded to substandard, resulting in a 24% increase in that risk category during the quarter. The largest contributor to the increase came from the downgrade of 2 C&I relationships totaling just under $30 million. Partially offsetting the downgrades was the resolution of a long-term problem loan workout for a nonowner-occupied CRE loan, resulting in a full payoff of $15.6 million. While we are closely watching this increase in substandard loans, they remain at manageable levels at 2.44% of total loans and in line with our longer-term historical performance. Page 19 in our investor presentation provides more detail on the composition of our criticized loans and reflects the stability we've seen over the past 2 years. During the quarter, we experienced total charge-offs of $640,000, primarily in our commercial loan portfolio. The losses were partially offset by $159,000 in recoveries, leading to net charge-offs of $481,000 for the quarter. For the full year, total net charge-offs were just under $1.4 million or 0.03% of total loans. This compares favorably to our 2024 performance, where net charge-offs were just over $2.5 million, representing 0.06% of total loans. We are pleased that our early identification and proactive management of problem credit has led to another year of exceptionally low loan losses. The correlation between these credit management practices and our low level of historical loan losses is demonstrated on Page 20 in the investor presentation. Overall, we remain pleased with the credit quality of our loan portfolio at year-end. We believe our consistent and disciplined approach to credit underwriting and concentration management will continue to generate strong credit quality performance in a wide range of economic conditions. I'll now turn the call over to Bryan for an update on our production. Bryan McDonald: Thanks, Tony. I'm going to provide detail on our fourth quarter production results, starting with our commercial lending group. For the quarter, our commercial teams closed $254 million in new loan commitments, down from $317 million last quarter and down from $316 million closed in the fourth quarter of 2024. Please refer to Page 13 in the investor presentation for additional detail on new originated loans over the past 5 quarters. The commercial loan pipeline ended the fourth quarter at $468 million, down from $511 million last quarter and up modestly from $452 million at the end of the fourth quarter of 2024. As anticipated, loan balances were fairly flat quarter-over-quarter with a $14 million increase in the quarter. Total new loan production of $271 million was largely offset with elevated payoffs and prepaids. Looking year-over-year, prepayments and payoffs were $208 million higher than the prior year and net advances on loans have swung from a positive $153 million last year to a negative $81 million in 2025. Please see Slides 13 and 16 in the investor presentation for further detail on the change in loans during the quarter. Looking ahead to 2026, we expect to resume loan growth at more historical levels as we are through the period of [ known ] elevated loan payoffs, and we expect net advances to move back to a positive position. Deposits increased $63 million during the quarter and were up $236 million for the year. The deposit pipeline ended the quarter at $108 million compared to $149 million in the third quarter, and average balances on new deposit accounts opened during the quarter are estimated at $43 million compared to $40 million in the third quarter. Moving to interest rates. Our average fourth quarter interest rate for new commercial loans was 6.56%, which is down 11 basis points from the 6.67% average for last quarter. In addition, the fourth quarter rate for all new loans was 6.43%, down 28 basis points from 6.71% last quarter. In closing, as mentioned earlier, we are pleased with our solid performance in the fourth quarter. Our assets continue to reprice upward and deposit growth has allowed us to pay down borrowings. These factors drove our net interest income up $1 million versus last quarter and up $4.6 million versus the fourth quarter of 2024. The combination with Olympic Bancorp and its subsidiary, Kitsap Bank, will add to this positive momentum. We look forward to having the exceptional bankers at Kitsap join the Heritage Bank family and are excited about what we can accomplish together. Overall, we believe we are well positioned to navigate what is ahead and to take advantage of various opportunities to continue to grow the bank. With that said, Emily, we can now open the line for questions from call attendees. Operator: [Operator Instructions] Our first question today comes from Jeff Rulis with D.A. Davidson. Jeff Rulis: Appreciate that Slide 28. The Slide 28, I think, outlined a pretty good outlook for your adjustable rate opportunity. It looks like within the next year, almost a 200 basis point potential there if repriced. I mean maybe, Don, if you could kind of unpack the margin outlook given it looks like you got some earning asset reprice opportunities still to come? Donald Hinson: Yes. Thanks, Jeff. There's -- if we look back and see what happened, we -- this last quarter, we had -- well, we've had about 3 rate cuts in the last 4 months of the year. And we were still able to slightly grow our loan yields in Q4. So this is where the -- in a quarter where we have rate cuts, we're going to have this balancing where we're repricing our adjustable rate loans higher, putting on new loans at higher rates, but the adjustable rate loans or the floating rate loan will be obviously repriced down those tied to [ prime ] or SOFR. So kind of even for this last quarter, if we have quarters where we don't have rate cuts, we expect more improved improvement in the loan yields. And then on the deposit side, the cuts help us speed up, I guess, our deposit betas. But at the same time, I think because we had rate cuts at the end of the year, I think we'll continue to see some improvement in our -- on the cost. So overall, I think that -- and this is all without the merger, right, that's going to occur. So just on the -- on the legacy Heritage side, we expect to see margin improvement to continue over the next year or 2. Jeff Rulis: Got it. And if I could take that step of incorporating Olympic look like their margin was a little bit lower, but a smaller balance sheet and adding accretion. Any thoughts on the kind of the blended -- if we look at legacy upward trending roll in Olympic, any broad level thoughts on the consolidated margin? Donald Hinson: Well, and I'm going to preface this if I get questions about this year as far as the combined because obviously, we have some fair value work to do once the deal closes, and we will get that done in this quarter. And so we've got some initial estimates from that we did in our due diligence. I don't think they've changed a whole lot, but I will just preface that, that it's a little less precise than we would might normally be on this. But there -- I think their loan portfolio will probably reprice with yields up in the low 6s. So if you think about that, and then the deposits are already -- I think they're over 20 basis points lower than our cost of deposits. And then the investment portfolio should reprice probably up into the low to mid-4s, which I think they're at 3 or a little under on there currently. So I think that we're going to get a nice bump in margin where we could potentially get near that 4% range by the end of the year. Jeff Rulis: Appreciate it, Don. And maybe if I hop over to -- well, Bryan, I appreciate the commentary on maybe getting back to normal on -- with payoffs maybe subsiding a bit. Is that historical rate kind of a mid- to high single digit? Is that what we could expect absent the balances from Olympic? Bryan McDonald: Yes, Jeff, it would just add to -- yes, so the short answer is yes, but would add to that, looking at the pipeline at the end of the fourth quarter, the $468 million, and we have good visibility near term. So I would say low single digits is our estimate kind of Q1. And then I would move that to upper single digits based on what we're seeing from the customer base and loan demand heading into 2026, which is the pipeline has been increasing since year-end. So that's our thought based on what we're seeing today. Jeff Rulis: Okay. So a slow rate and then accelerating as we go over the course of the year. Bryan McDonald: Yes. Operator: Our next question comes from Matthew Clark with Piper Sandler. Adam Kroll: This is Adam Kroll on for Matthew Clark. Yes. So Bryan, I think last quarter, you mentioned having a few chunky loans you expected to pay off in the fourth quarter. Just wanted to check if any of those got pushed to the first quarter? And just digging more into the loan growth guide in '26, what industries or geographies do you expect to drive that loan growth? Bryan McDonald: Yes. So the -- I would say the bulk of the payoffs we were anticipating did come through. The payoffs were -- payoffs and prepaids were a little over $170 million for the quarter, which was the highest quarter of the of the year. And so for the total year, it was more like $540 million, $550 million, around $45 million a month. We think that's going to moderate at least based on our current visibility, potentially 1/3 less. And then as I said in my comments, last year, we had this -- last year being 2025, we had net advances on loans fall $81 million versus 2024, where they were up $153 million. So we've cycled through that. And I think we should also see net advances move up modestly in 2026. So potentially 1/3 less payoff prepay volume and then not the negative drag from net advances that we had in 2025. So that's kind of what's happened in '25, and it has played out substantially based on our expectations as we came into '25. Adam Kroll: Got it. That's great to hear. And maybe switching to expenses. How are you thinking about operating expense growth, both on a legacy Heritage basis for '26? And just maybe what's a good starting point for pro forma 2Q expense run rate? Bryan McDonald: Sure. Don, do you want to take that? Donald Hinson: Yes. I think we're combining with -- there's so much, I think, noise going on. I think maybe we'll just maybe just talk about what kind of we're expecting. We are expecting approximately $20 million, $21 million of merger-related expenses. So -- but we're moving those, I think starting in Q2. And the other thing we have going on here is our conversion is not expected to take place until sometime into September. So we're keeping a large amount of the employees that at some point will be gone by the end of the year, but we'll keep them through Q3 because it will be on 2 separate systems. Then we'll have a reduction of employees after that. But probably a run rate for Q2 and Q3 will probably be in the 56s some -- probably somewhere in the 56% range, maybe a little 56%, 57%. So that will be for Q2, Q3, and then we'll have some -- we'll get more of our cost savings in Q4. And the core will probably be down more in the $54 million range after that. Adam Kroll: Got it. And then just last one for me. I'd like to get your updated thoughts on crossing the $10 billion in asset threshold and just maybe what inning you're in, in terms of making the necessary investments to cross that $10 billion mark? Donald Hinson: Bryan, do you want to take that one or? Bryan McDonald: Yes, sure. I'll take that one. Let me take the second part of your question first, just in terms of preparedness. We did extensive planning back in 2023 when we were about $7.7 billion in assets, felt like we had 3 or 4 years, but we wanted to be very clear on what we needed to do. So we put together a pretty detailed plan, met with our regulators and a variety of other parties. And so we've been making progress on that plan. Since then, with our deposit outflows we had in 2023, we felt like we had a little bit of additional time. And so anyway, we've been making progress on that and have a good view into what the requirements are. In terms of when we cross the $10 billion, our focus now is on integrating Olympic and making sure that all aspects of that go as planned. On an organic basis, we're several years out from crossing the $10 billion. So that's how we're looking at it right now, executing on the plan to be ready, but still seeing ourselves a ways off from crossing it. Operator: Our next question comes from Jackson Laurent with Stephens. Jackson Laurent: This is Jackson on for Andrew Terrell. If I could just start out on the margin, more specifically loan yields. You guys already touched on the fixed repricing benefits to loan yields a little bit earlier. I was just wondering if you could kind of give some color on what you're seeing on the competition front in your markets? It looked like origination yields stepped down a little bit quarter-over-quarter. Bryan McDonald: Yes. Sure, Jackson. I'll take that. So on commercial loans, the new loan production went on at 5.56% during the quarter. And then in total, it was 6.43%. So that was down a bit over -- a bit over Q3. Some of that's due to the drop in short-term rates, any variable rate loans we have just kind of naturally are going to come on at lower levels. And then the rest is just driven really off of what the Federal Home Loan Bank, particularly the 5-year index does during the quarter. From just purely a competitive standpoint, it continues to be a really competitive market for the clients that we're going after and particularly so if it's a new relationship to the bank where there's maybe several banks competing for that opportunity, although I would say that's not significantly different than it normally is. So we're not seeing necessarily any outsized competition. It's just always competitive for that -- for the type of clients we're going after. Jackson Laurent: Got it. That's helpful. And then just on the deposit cost front, it sounded like maybe some positive carry forward into the first quarter. Just wondering, last quarter, you guys talked about around $1 billion of exception price deposits that were sitting around a 3% rate. Just wondering where that bucket is and where that is priced today? And also just how much room you guys have left on the deposit repricing front? Bryan McDonald: Don, do you want to take that? Donald Hinson: Yes. We have -- we're still at about the same level of exception priced, but it's the cost -- overall cost at year-end, I think we're down to about -- I think we're at maybe [ $270 million ] at this point. So -- and we still have -- there's some other -- still other -- we still have about $100 million of floating rate public deposits that would come down if there were rate cuts. We didn't experience all that impact because, again, we had a rate cut in December. So we'll -- that will help out. And of course, the CD rates, I think, keep coming down. So our average rate of CDs -- core CDs is like -- like [ 360 ], I think, we'll keep working those down. I think the current -- our current highest rate is like [ 330 ]. So there's definitely -- we're expecting costs to keep coming down. Our December cost was lower than for the quarter by about 4 basis points. So that's just, again, another sign that it's going to keep coming down a little bit. Jackson Laurent: Got it. That's helpful. And then just last one for me. I know we talked about like uses of capital being on hold until the closing of the Olympic transaction. But with a clear line of sight to deal close later this month and capital building nicely, I was just wondering if you could kind of update us on capital priorities in 2026? Bryan McDonald: Sure. Don, do you want to take that? Donald Hinson: Sure. Well, again, the first one was just closing the transaction. And that will use about -- again, we've mentioned this before, about 100 basis points of capital. So that's the most important use of capital this year. We will look into other uses as we do more planning and as we get through, again, the fair value, so we really know what our balance sheet looks like, we can take, I guess, more steps to manage it to the levels that we want to be at. So there could be some buybacks. We have about 800,000 shares left in our current repurchase program. There's always a chance we could do more loss trades, but we're not planning any at this point. But there's a chance we could do. I would say we could do buybacks. If we find that the dilution is less, but maybe the accretion is less from the deal, then maybe buybacks make sense to kind of offset that. So we'll kind of -- we're working on that now. Again, after the deal closes at the end of the month, we'll definitely be looking carefully at that. Operator: Our next question comes from Liam Coohill with Raymond James. Liam Coohill: It's Liam on for David Feaster. So I wanted to touch on some of the impressive interest-bearing demand deposit growth you saw in the quarter. Could you maybe discuss some of the initiatives that you've been using to see success there? Is it mostly granular wins across the franchise? Bryan McDonald: Yes, Liam, it is. It's really a continuation of what we've been doing throughout the bank's history, just relationship banking, high service quality delivery. And then we added significantly to our deposit sales team over the last several years. And so we continue to see new relationships coming in from the investments we've made with our deposit teams. And Slide 11 in the investor deck has that detail. But back in 2022, we added 3 teams that year and 2/3 of that group were deposit-generating staff. And then, of course, several new locations, both in Oregon and then Boise and then also Spokane. So it is a continuation of what the banks always focused on, which is those relationship clients, but we've benefited pretty significantly from both the new teams as well as our existing efforts in that area. Liam Coohill: Great. And just one more for me. On the credit side, I'm just curious if there's any underlying trends or industries that you're watching more closely? And on the couple of C&I downgrades in the quarter, were those idiosyncratic? Or were there any commonalities? Bryan McDonald: Sure. Tony, you want to take that one? Tony Chalfant: Yes, sure. Liam, there was really no correlation between those 2 deals. They're in kind of separate industries. And I guess the big question is -- was there any tie-in to tariffs or things like that? And I would say no. So not really anything that I can really point out to. Obviously, both being in C&I category jumps out, but I think it was just -- that was just more timing than anything else and doesn't really reflect anything that we're watching any more closely in the portfolio. Operator: Our next question comes from Kelly Motta with KBW. Kelly Motta: I guess as we look ahead, your efficiency ratio for the past couple of years has hovered in that mid-60 percentage range. You did a bunch of things with the securities loss trades and such expense saves in order to kind of mitigate some profitability headwinds. Now with the increased scale from Olympic, wondering how you're thinking about how that helps with generating perhaps better efficiency ahead? Is that a way you're thinking about it? Just interested in thoughts here since it seems like the growth and margin picture is shaping up quite nicely. Bryan McDonald: Yes. Maybe, Kelly, thanks for the question. I'll have Don start and then maybe I'll provide some comments after Don shares his thoughts. Donald Hinson: Okay. Thanks, Bryan. Yes, we're going to -- I think just the overall -- are you talking about the efficiency ratio itself, Kelly? Or are you just talking about operations? Kelly Motta: Yes. I was speaking specifically with the efficiency, but I don't know how you necessarily think about it. So if it's easier to talk about it, just is operational efficiency in general, that's okay, too. Donald Hinson: Okay. Well, I'll just touch on the -- obviously, we're going to get overall efficiencies between the 2 organizations. Our efficiency ratio will continue to go down over time. But I will say also that I think it will be mostly driven on the revenue side as opposed to the expense side, but we are looking at, again, trying to keep our expense base at a good level. But Bryan, I don't know if you want to talk any more about what you see in the overall efficiencies of the organization. Bryan McDonald: Yes, I would just add a little bit on to what Don said. If you look at the trajectory of Heritage kind of independent of the combination with Olympic, we've had a big increase in our margin year-over-year. So Q4 last year was 3.36% and 3.72% and Don had mentioned in terms of answering Jeff Rulis' question, we see potential to get that margin potentially up in the 4% range within the not-too-distant future. So that's the revenue driver. Beyond that, the combination with Olympic is bringing a significant amount of low-cost deposits. There's a little bit of a recap on Slide 6 of the investor presentation on the merger with Olympic. And one of the bullet points highlights their cost of deposits at [ 102% ]. It doesn't note their loan-to-deposit ratio, but it's in the mid-60s and ours, of course, is just over 80%. So there's potential significant potential upside. It just some moderate additional leveraging in the loans over the next few years that will give us room to drive that efficiency ratio lower. So those are my thoughts. Obviously, we'll be continuing to focus on ways that we can continue to scale the company without adding significant cost. We'll be continuing to focus on our expense run rates. But if you look at kind of what's happening on the loan repricing side and the asset repricing, the addition of the Kitsap balance sheet mark-to-market on the asset side, it's a pretty good outlook. And then, of course, if you add the additional leveraging, there's a lot of additional potential beyond that. Kelly Motta: Got it. Maybe last question for me. I realize this is a little early to be asking this question. But with Olympic on board, I'm just wondering if there's been any updated M&A conversations knowing that you've been more recently active here? Bryan McDonald: Sure. We're really focused on making sure that we get the combination with Olympic successfully integrated, and that's definitely our -- in our #1 priority here in 2026. We -- at the same time, we have continued to be active in conversations just as we always do so that if another bank within our footprint makes the decision that they want to partner with somebody that we're a known party to them and hope to be considered if that was the case. So really no change from our past conversations. We're continuing to have them. The only nuance, which I' just added is we're very focused on making sure that we get Kitsap integrated over additional M&A. Operator: Thank you. At this time, we have not received any further questions. And so I'll hand the call back over to Bryan for closing remarks. Bryan McDonald: Okay. If there are no more questions, then we'll wrap up this quarter's earnings call. We thank you for your time, your support and your interest in our ongoing performance, and we look forward to talking with many of you over the coming weeks. Goodbye. Operator: Thank you all for joining us today. This concludes our call, and you may now disconnect your lines.
Olof Svensson: Good morning, everyone, and welcome to the presentation of EQT's full year results. We have a lot to cover today. Per will start off by reflecting on our strategic positioning and today's announcement that we're entering the fast-growing secondaries market by joining forces with Coller Capital. Teaming up with Coller strengthens our ability to serve clients globally and it unlock growth opportunities for both firms. The transaction is accretive to our fee-related earnings. It accelerates our growth outlook and it will further diversify our platform. Before handing over to Per to share more details, let me share a few highlights on 2025. First, it was our most active exit year ever with fund exits and realizations for co-investors of EUR 34 billion. We invested EUR 16 billion across our strategies globally while providing a co-invest ratio for our clients of close to 1:1. It was a pivotal year for EQT's expansion into evergreens and open-ended strategies across the globe with new product launches and accelerating inflows. We continued to deliver on our fundraising agenda, more than doubling gross inflows to EUR 26 billion. All our key funds continue to develop on or above plan, and our more recent vintages in particular performed strongly. EQT delivered total revenue growth of 16%, while keeping head count largely flat year-over-year. So with those remarks, let me hand over to Per to go through things in more detail. Next slide, please. Per Franzén: Thank you, Olof. Good morning, everyone, from Davos. We have very exciting news to share this morning, and we'll come back to Coller shortly. I'll start by saying a few words about the private markets industry and our strategic positioning. EQT remains well positioned to navigate a fast-changing world and to capture the growth opportunity ahead. There are a number of forces shaping our industry. The geopolitical backdrop remains volatile. We continue to see private market investors wanting to rebalance their portfolios as they are looking to achieve a better global diversification. At EQT, we are well positioned to navigate this environment and to help our clients achieve their strategic portfolio objectives. We want to be the most attractive global provider of international alpha. Through our global sector teams, we engage with our clients to align on their pipeline priorities. And with the help of our local teams in more than 25 countries, we can move quickly in times of market dislocation to unlock attractive thematic opportunities. The combination of our global sector teams with our strong local presence helps us deliver structural uncorrelated alpha as often the sources of alpha across those various countries and regions are uncorrelated. A good example of the investments that we've made into our global platform and how it's paying off is Japan. We built our local presence in Tokyo over many years. And in 2025, we were able to reap the benefits of those investments. In our private capital strategies, we created 2 attractive public to private opportunities, and we continue to have a very attractive pipeline in Japan going forward. The second force, AI that I'd like to touch upon, that will have an impact on most sectors and businesses that we invest into, including, of course, also our own industry and how we run our business at EQT. At EQT, we keep on investing in our AI capabilities. On the investment side, we continue to back AI-driven tailwinds in our early-stage strategies. We make investments into native AI companies. Harvey and Lovable are 2 good recent examples. In our infrastructure platform, we keep on investing into globally leading data center platforms. One of our companies, EdgeConnex is a good example of that, but also into fiber assets and into energy platforms. We're also driving AI adoption across our organization, deploying advanced solutions that enable better decision-making and help us realize synergies across our platform. Over time, we believe that this will help us run our business in a better way, but also in a more efficient way. Private wealth and insurance remain 2 attractive growth opportunities where we see new capital pools emerging. We're making the necessary investments to build our capabilities in those areas, and we expect to see significant capital inflows in this part of our business. Coller will be a catalyst for the insurance segment as we will get access to their capabilities within structured solutions. The rise of secondaries continues, and this part of the market will also going forward, outgrow the rest of the industry. There's a number of structural forces driving that growth. Private markets have grown in size and in relevance. And in some regards, they've become more complex, and we also see public and private markets converging. Clients want to be able to ride the winners, and they want to stay invested in compounding open-ended structures. On the other hand, there's also been a lack of distributions in our industry post pandemic, we saw a slowdown in dealmaking. And as a result, many firms are not able to raise new funds, and that has created more and more zombie funds in our industry. And all of this drives a need for clients to be able to restructure their private market portfolios and to find good liquidity solutions. And in this context, Coller will be an important enabler and really further strengthen our ability to be that strategic partner for our clients. Finally, we see the consolidation of the industry accelerating. Not everyone in the private markets will be able to navigate this environment. We'll be able to make the necessary investments to capture that growth opportunity ahead. So size and reach matter more than ever when it comes to creating real alpha and when it comes to serving clients in the best possible way. And our global platform, our size, being the largest private markets firm in the world outside of the U.S., will continue to be a true differentiator for us. Next slide, please. At EQT, we remain committed to our long-term strategic ambition to keep on building the most attractive scaled private markets firm, delivering industry-leading performance and solutions for clients. By continuing to be that client-centric firm focused on delivering attractive risk-adjusted returns for investors, real alpha, we will also be able to attract the best talent in our industry to our organization and to our portfolio companies. And really that way, creating that virtuous circle that will give us the license to keep on scaling our firm and as a result, over time, also delivering attractive sustainable value creation for shareholders. Next slide, please. In 2025, we made good progress on our strategic ambitions, and we executed well in a volatile environment. We took the opportunity to simplify our organization to ensure that we can remain that entrepreneurial, fast-paced, high-performing organization. We successfully completed a number of leadership transitions. We streamlined our organizational structures and reinforced our focus on accountability, performance and efficiency across the platform. We also integrated our client relations, capital raising and capital markets teams, creating one unified platform well set up to deliver a seamless experience for institutional clients and private wealth distribution partners. And all of this makes us also well prepared to add Coller now as a new business line to the EQT platform. In 2025, we stayed disciplined in our investment pacing, producing a record year for co-investments. We facilitated EUR 14 billion of co-investment opportunities for our clients. That is up from EUR 12 billion in 2024. And we want to -- this is an important tool for us to also going forward, create those deep strategic relationships with the institutional investors. And we want to -- we remain committed to continue to produce that most attractive co-invest to fund commitment ratio in our industry. We did a superb job really in driving realizations in a tricky exit environment. 2025 was actually our most active exit year ever with EUR 34 billion in total of realizations, and that includes EUR 14 billion of realizations out of co-investments that were done together with our clients. And that is just massive outperformance compared to the wider private markets industry in terms of those realizations. A good example is our equity strategy, which is our oldest strategy at EQT. In that part of our business, we sent back close to 30% of NAV, which is approximately 3x the industry average. And notably, we set a new record for distributions and capital gains from a single investment. So in Galderma, in 2025 alone, we realized more than EUR 9 billion of proceeds for fund investors and for our co-investors. And this actually excludes the stake sale that we have announced to L'Oreal that is yet to close. And this investment has generated more than $20 billion so far in capital gains for investors. As a result of that strong performance, we saw a good fundraising momentum. We more than doubled gross inflows to EUR 26 billion. Our evergreen offerings targeting the private wealth segment saw inflows of approximately EUR 2 billion. And we also introduced our first open-ended institutional product, which is exciting. This is the second generation of our active core infrastructure strategy. And the portfolio in Fund I is performing very nicely, and we really see a strong client interest for this fund. Next slide, please. As you've heard me say, I think, many times before, we have actively been looking to establish a presence in the secondaries market for some time now, actually. And this is one of the fastest-growing parts of our industry and building our capabilities in this area is really critical so that we can become an even more stronger and attractive strategic partner for our clients. And so today, I'm just very, very pleased to announce that we have reached an agreement to join forces with Coller Capital. This is really a highly strategic and complementary combination. By joining forces with Jeremy and his team, we want to build a market-leading secondaries platform together. We really have a very high bar for any M&A that we do at EQT and the fit must be just very, very strong. And in this case, from a strategic, performance, culture perspective, Coller checks all the boxes. The strategic fit between our 2 firms is simply excellent. It's highly complementary. And most importantly, the cultural fit, the values fit is very strong. Similar to EQT, Coller is a performance-driven and entrepreneurial organization focused on delivering consistent long-term solutions and returns for investors. And just like EQT, Coller also has that constant improvement mindset and that relentless drive to continue to drive innovation and stay ahead of the curve. At EQT, we like to say everything can always be improved everywhere at all times. Coller's version of this is better never stops. I'm very excited to welcome Jeremy and the entire Coller team to our firm. And I really look forward to working closely with Jeremy as part of the executive leadership team. And together, we will be just incredibly well placed to deliver the most attractive solutions and the most attractive performance for private market investors and to really fully capture that growth opportunity ahead that we see in secondaries. I'll now hand it over to Gustav, who will cover the highlights from our 2025 results together with Olof and Kim, and I believe starting with fundraising. So next slide, please. Gustav Segerberg: Thank you, Per, and good morning, everyone. In 2025, we executed strongly on fundraising across the platform and more than doubled inflows versus last year. Starting with the key funds. Fundraising for BPEA IX continued with strong momentum, having raised $14 billion as of today. We expect to close at the $14.5 billion hard cap in the first quarter. Fundraising for EQT XI continues to be off to a strong start, further helped by the strong exit pace during 2025. Note that in our reporting fee-paying AUM, it does not include EQT XI until activation. And later this year, we expect to launch fundraising for Infrastructure VII. So moving over to our other closed-ended strategies. We are advancing our Healthcare Growth and transition infrastructure fundraisings, having raised approximately EUR 3 billion combined, and we expect to conclude fundraising for Healthcare Growth momentarily. In the fourth quarter, we activated our latest European real estate logistics fund. The fund is expected to close in Q1, and our reporting fee-paying AUM includes almost EUR 3 billion of commitments versus the size of the last fund at EUR 2.1 billion. And then finally, on evergreens and open-ended institutional strategies. In 2025, EQT launched 3 new evergreens, Nexus Infrastructure and Nexus ELTIF Private Equity distributed in Europe and APAC, and a U.S. domiciled private equity vehicle. Hence, our evergreen offering consisted of 5 vehicles at the end of 2025, and we raised close to EUR 2 billion in 2025, while reaching an NAV of around EUR 3.5 billion by year-end. And just last week, we launched a U.S.-domiciled evergreen structure for infrastructure. During the year, we've also introduced our first open-ended structure for institutional clients, as Per mentioned, with our active core infrastructure strategy. This fund is yet to be activated and is not in our fee-generating AUM number as of year-end. However, we continue to be very excited about the prospects of scaling this strategy in the coming years. We've also decided to pursue our first continuation vehicle based on EdgeConneX. This will be an open-ended structure that will allow us to continuously support EdgeConneX's long-term growth opportunity. And with that, I will hand over to Olof to cover investments and realizations. Next slide, please. Olof Svensson: Great. Thank you, Gustav. So looking at the investment activity in 2025, I'd say it reflects our global sourcing machine and our thematic focus. 45% of the EUR 16 billion of fund investments were invested in Europe, about 1/3 in North America and the remaining 20-ish percent across APAC. We invested in a number of high-quality businesses throughout the year, be it the cloud-based software companies such as Fortnox or NEOGOV; industrial tech businesses like Fujitec in Japan or as Per mentioned, AI native investments such as Lovable and Harvey. In real estate, we continue to see attractive risk/reward dynamics. And in our flagship and transition strategy, we invested in areas such as energy, grids, AI infrastructure and transportation companies. And on that note, please do make sure to take the Arlanda Express when you next come and visit us in Stockholm. In total, we provided a further EUR 14 billion of co-invest for our clients, a co-invest ratio of close to 1:1. EQT X and Infrastructure VI are now about 60% to 65% invested, while BPEA IX is 5% to 10% invested. We expect to activate EQT XI around midyear 2026 and Infra VII around year-end. Next slide, please. Turning to exits. It was a breakthrough year in 2025 for exits. Volumes in the EQT funds amounted to more than EUR 19 billion or 70% higher than last year's volumes. Around 2/3 of the fund exits were from funds in carry mode. In addition, we realized EUR 14 billion for our co-investors. The strong activity means that we reached the ambition communicated at the start of the year to execute more than 30 exit events across our key funds. Key fund exits were made at an average gross MOIC of 2.6x above our target return levels. Roughly 40% of the fund exits were minority sales and secondary buyouts. Early in the year, we announced a minority sale in IFS at a gross MOIC of 7x. This is an example of how we actively work with portfolio construction, sending back EUR 3 billion to fund investors while continuing to own an asset that is expected to have an outsized impact on the fund returns for EQT IX. 1/3 of the exits were equity capital markets transactions. And as a result, EQT retained its position as the most active private markets firm across global equity capital markets for the second year in a row. Looking ahead, we believe that fund exits in 2025 is a relevant proxy for '26 if markets continue to be favorable. Our gross pipeline for 2026 is, in other words, similar to 2025 when we had gross realizations of close to EUR 20 billion. And with that, I'll hand over to Kim. Kim Henriksson: Thank you. Thank you, Olof, and good morning, everyone. All of our key funds continue to perform on or above plan. And during the year, key fund valuations increased by 8% on an FX-neutral basis, but let's look at performance by vintage. 4 out of 5 funds raised in 2019 or before are performing above plan, and most of these funds are in exit mode and already derisked. Funds raised 2020 to 2021, which are still in value creation mode, performed predominantly well with value creation of 10% plus on an FX-neutral basis. We did face some headwinds related to idiosyncratic events in a few individual portfolio companies. But with 350 portfolio companies globally, we will always have certain underperforming assets. Risk-taking is part of our model. As a reminder, historically, about 10% to 15% of our investments have returned less than 1x gross MOIC, while the total portfolios have still delivered on or above target returns. In 2025, we also realized some assets with subpar performance, enabling us to refocus on the part of the portfolio where we can create more value. Overall, underlying operational performance was solid across the portfolio and particularly so in our latest generation of key funds, which increased by 15%, excluding FX. 1/3 of our investments in these funds are already performing ahead of plan. Next slide, please. In 2025, carried interest and investment income increased to EUR 448 million on the back of the strong exit activity in funds in carry mode. Looking into 2026, we expect that carried interest will continue to be paced by the key funds already in carry mode. And please note that the figures on this page are based on a simplified and illustrative on-plan scenario. To date, the 4 funds in carry mode have recognized EUR 1.3 billion of carried interest and roughly EUR 600 million remains, and we continue to expect the remaining carry from these funds to be recognized over a multiyear period. The next 2 funds expected to enter carry mode, Infra IV and EQT IX are currently executing on their value creation and realization plans. And we do not expect these funds to enter carry mode in 2026, in line with our previous communication. The final bucket includes the most recent key fund vintages, which are still in value creation mode. In total, the remaining illustrative carry potential in the key funds activated as of today is approximately EUR 9 billion. This is a simplified round number based on a number of assumptions, which are outlined in the appendix. Next slide, please. Let's now look at the financials in a bit more detail. In 2025, we grew fee-related revenues by 9% and delivered a fee-related EBITDA margin of 52%, reflecting also the continued investments we make in our business, for example, the build-out of the evergreen offering. As you know, we initiated and completed a number of efficiency measures during the second half of 2025. And as a result, the number of FTEs was broadly flat year-over-year. We expect to see the full year cost effects of this in 2026 and therefore, expect mid-single-digit total OpEx growth this year. Run rate savings from the efficiencies will, to a degree, be reinvested to support future growth in our priority growth areas, including focused geographies such as Asia and the U.S., focus areas such as AI capabilities, private wealth and of course, the build-out of our new secondaries business. We're ramping up marketing and brand spend, which will remain at meaningfully higher levels going forward. We remain committed to reaching a 55% plus fee-related EBITDA margin at completion of the current fundraising cycle. And we're highly focused on efficiency, scaling and automating parts of our work, including through increased AI adoption. We will continue to keep you posted on this progress and how we see the OpEx outlook beyond 2026. Let me also come back later in the presentation on how the combination with Coller impacts our financials. The Board has proposed a dividend of SEK 5 per share for 2025, representing a growth rate of 16%. And during 2025, we distributed approximately EUR 460 million in dividends to shareholders. And in addition, we repurchased shares for around EUR 300 million. Let me also spend a brief moment on our new revenue disclosures. We have, in our income statement, introduced the concept of fee-related revenues, which consists of the underlying management fees, fee-related performance revenues and transaction, advisory and other fees. Fee-related performance revenues are revenues from our evergreen products that are measured and received on a recurring basis and do not require the realization of underlying assets to materialize. Transaction, advisory and other fees include fees from, for example, debt and equity underwriting and other capital markets activities. With that, I will hand over to Per to cover the Coller combination. Next 2 slides, please. Per Franzén: Thank you, Kim. As I mentioned earlier, secondaries and solutions is becoming an increasingly important part of the private markets ecosystem. GPs are looking for ways to hold on to their best assets for longer, driving the growth of continuation vehicles or GP-led secondaries and LPs are seeking strategic liquidity tools and the ability to actively rebalance their portfolios where LP-led secondaries are a key enabler. And secondaries have now become one of the fastest-growing parts of our industry, and that the market actually grew by more than 40% in 2025 and is expected to more than double from now until 2030. And continuation vehicles are today driving close to 20% of global exit volumes. Next slide, please. With Coller, we're really happy that we found the right partner to enter this segment at scale. Coller shares our values-driven culture, a strong performance mindset and that drive to constantly innovate for clients with an entrepreneurial approach. As a pure-play dedicated secondaries firm, Coller is 100% complementary and a perfect match for us. I'll now hand it over to Gustav to tell you more about Coller's track record, Coller's offering and its client base. Next slide, please. Gustav Segerberg: Thank you, Per. As a pioneer in secondaries, Coller has led many of the first in the industry, such as leading the first ever GP-led transaction almost 30 years ago and continuing to innovate across product categories and client channels. Coller has 35 years of proprietary data from more than 25,000 companies has incorporated AI-enabled underwriting into its investment process. This enables faster and more precise investment decisions, aligning very well with EQT's data-driven investment approach and leading AI capabilities. Their strong investment track record and ability to innovate has allowed them to expand from a single flagship fund in 2021 to today having a multiproduct and multichannel offering investing across both private equity and private credit secondaries. The private equity secondary strategy recently held a successful final close of Fund IX at USD 10.2 billion of fee-generating commitments, up more than 35% compared to the last generation. Since launching the private credit secondary strategy in 2021, Coller has already been able to raise 3 funds with a total of close to USD 5 billion in fee-generating commitments. Next slide, please. The team also shares our strategic commitment to the private wealth opportunity, and their journey closely resembles ours. They -- like us, they have a very deliberate and disciplined focused on product development to launch and ramp up products across asset classes and geographies. Since 2024, Coller has launched 4 evergreen products in total with the current combined NAV of more than USD 4 billion. And expansion continues to show great momentum and inflows are around USD 200 million per month. Coller also recently announced a strategic partnership with State Street along with State Street's investment in Coller. Their partnership gives a unique opportunity to go after the 401(k) market in the U.S. We look forward to exploring what we can do together to strengthen the global distribution of the combined evergreen platform. Next slide, please. Insurance is 1 of the most interesting capital pools in private markets. However, insurance companies operate in a highly regulated environment with strict requirements around capital charges, duration matching, liquidity, ratings and asset-liability management. To participate at scale credit exposure, secondaries and strong structure capabilities are required. This is an area where EQT on a stand-alone basis has been limited on a structural basis, and where Coller today is the clear market leader. Coller is the preferred partner to insurance clients with deep relationships and in-house structuring expertise. They have reached over USD 5 billion in structured products in the last 2 years, including the largest CFO backed by secondaries at USD 3.4 billion. This is a significant growth opportunity for the combined platform and where EQT's scale will be a key enabler. Next slide, please. We believe that this combination and more diversified secondaries platform by bringing together complementary strengths, we can accelerate innovation, deepen client relationships across both institutional and private wealth clients. Together, EQT and Coller are very well positioned to accelerate insurance-related product -- and to Per. Next 2 slides, please. Per Franzén: Thank you, Gustav. In 2025, we took the opportunity to simplify our organization and to clarify our governance to put us in the best possible position to be able to accelerate our strategic M&A agenda. So today, we are very well prepared to add Coller to EQT and to support Jeremy and the team to accelerate their growth independent investment committee. Next slide, please. The Coller team has demonstrated strong fundraising momentum, most recently with the successful close of Fund IX and has earned the strong client trust to expand into new strategies such as credit secondaries over recent years. Today, Coller has around 600 clients and more than half of those will represent new client relationships for EQT. At the same time, EQT brings a base of around 1,400 institutional clients, of which more than 900 clients are not currently invested with Coller, representing a significant opportunity to accelerate growth across the combined platform. The client bases are also complementary. EQT has a strong footprint with sovereign wealth funds, while Coller is more heavily weighted towards private wealth and insurance. So together, we will be able to offer clients a broader and more flexible range of solutions from primary investments to tailored liquidity solutions within one global platform with a real focus on generating alpha and performance. I'll now hand it over to Olof to comment on the transaction structure. Next slide, please. Olof Svensson: Thank you very much, Per. So let me talk about how we have structured this to ensure alignment of interest and this growth orientation. The transaction entails 100% of Coller and EQT will be entitled to 35% of carried interest in all the future funds in line with the EQT setup. We are also acquiring 10% of the carried interest in Private Equity Fund IX that Per just referred to. The deal construct includes a base consideration of $3.2 billion with a growth-oriented contingent consideration in 2029 of up to $500 million. The contingent consideration is structured to incentivize strong growth in the business with full consideration dependent on delivering high 20s, almost 30% fee-related revenue growth until 2029. The base consideration of $3.2 billion will be funded in newly issued EQT AB shares, creating a strong alignment to drive value. At closing, the shareholders of Coller will own approximately 6.5% of EQT, where Jeremy is the main shareholder of Coller's business today. Closing of the transaction is expected in the third quarter of '26. And with that, I'll hand over to Gustav to give us the combined fundraising outlook. Next slide, please. Gustav Segerberg: Thanks, Olof. I'll start on the evergreen side, where the joint offering will compromise more than 10 vehicles distributed across U.S., Europe and Asia. In terms of inflows, Coller increases the H2 2025 annual run rate to around EUR 4 billion. As only 7 out of the 10 plus evergreens where operational during that time frame, we hence expect 2026 to be significantly higher than the H2 2025 annual run rate. We believe that there are significant revenue synergies for the evergreens through the strengthened combined private wealth organization. By leveraging EQT's banking relationships to further accelerate Coller's distribution reach and by jointly tapping into EQT's brand and marketing capabilities. For reference 100% of Coller's evergreen inflows are incremental to fee-generating AUM. Next slide, please. So we are now a bit more than 1 year into our current of that EUR 100 billion based on the funds activated. 2026 is set up to be a very active fundraising year for EQT with 3 flagship funds, a number of other closed-ended strategies and of course EUR 25 billion to EUR 30 billion to the total amount effectively increasing it to roughly EUR 125 billion to EUR 130 billion. And with that, I will hand over to Kim. Next slide, please. Kim Henriksson: Thanks, Gustav. First, a few words on the latest flagship fund, the introduction of credit secondaries and the expansion into private wealth evergreens and structured products. Fee-related revenues were approximately $330 million, nearly all of which were management fees. This number includes catch-up fees as Fund IX was activated in July 2023 and closed on 31st of December 2025. However, it does not reflect the run rate management fees from evergreens due to fee holidays for some products in 2025. From 2026 onwards, all private wealth evergreens will be charging full fees. Across funds, the average fee rate is about 1% and in general, charged on committed capital. It's worth noting, though, that the private wealth evergreens in general charge somewhat higher fee rates with NAV as the fee base and that we see this channel growing faster than the closed-ended funds. Expect Coller to generate fee-related revenue of between $350 million to $375 million. Adjusting for catch-up fees, fee-related revenue is expected to grow in the range mentioned, the 2029 contingent consideration is based on growth in the high 20s. On costs, Coller has a similar profile to EQT, where the majority of operating expenses are salaries and other personnel-related costs. Then fee-related EBITDA margin at around 50%. Next slide, please. So what does the above then mean for the combined platform? We expect Coller to accelerate our fee-related revenue growth from day 1. In terms of carry, the acquisition will not impact our outlook for a number of years since the first fund where EQT has right to carry is a 2024 vintage. As I mentioned, today, Coller has a somewhat lower fee-related EBITDA margin than EQT. But in the near to midterm, however, we expect Coller to be in line with EQT's margin and to grow fee-related expenses. As a result, we maintain our ambition to reach a 55% fee-related EBITDA margin at completion of the current fundraising cycle. I'll now hand over to Per for some concluding remarks. Per Franzén: Adding Coller to EQT is a significant milestone in the development of our firm. Secondaries represents one of the fastest-growing parts of the private markets industry. We're confident that Coller is the best possible platform to build a market-leading secondaries franchise being a pioneer in the space with more than 3 decades of track record and experience. Next slide, please. The combination really means a step change for EQT in terms of scale, growth and revenue profile. Coller will add approximately EUR 28 billion of fee-paying assets under management and EUR 42 billion of total AUM. We will have a combined AUM of approximately EUR 312 billion. And to our business, we also significantly diversify our fee-related assets under management. Secondaries will represent about 15% initially of that fee-related fee-based assets under management, but it is expected to represent a significantly larger share over time. The acquisition will enhance our growth profile, and we aim to double Coller's fee-generating assets under management in less than 4 years. This means that 5 years from now, the mix of EQT's business will be much more well balanced across our business lines, private capital, infrastructure, real estate and secondaries. And we also see a very attractive opportunity to accelerate growth and scale of our real estate platform in the years ahead. Finally, we now manage strategies that, to some extent, are somewhat also countercyclical, if you will, creating an even more resilient and well-diversified revenue profile. As we look ahead with this transaction, we have created a platform that is even better positioned to attract and retain the best people in our industry and to continue to serve our clients, a more attractive, resilient and higher growing platform. With that, I open up for questions. Operator, please. Operator: [Operator Instructions] Olof Svensson: Operator, can I say a few words before we have the first question? Operator: Yes, please proceed. Olof Svensson: Thank you. So as you can imagine, Per is on a tight schedule in Davos today. So our suggestion is that we keep the Q&A open for about 45 minutes. And to make sure that everybody has time to ask questions, I would very humbly and politely suggest that you keep it to 2 questions each. And as always, we're, of course, available for any follow-ups after the call today. So let us aim for that and really looking forward to the Q&A session. Operator: And now we're going to take our first question, and it comes from the line of Oliver Carruthers from Goldman Sachs. Oliver Carruthers: Oliver Carruthers from Goldman Sachs. Two questions on Coller, please. So I guess you're acquiring a revenue fee stream in a growing asset class that's accretive to EQT, but you've also acquired this knowledge base in wealth. So can you talk to how you think this might help as you build out your existing wealth and evergreen business? And do you think this will accelerate the uptake of your existing Nexus products? So that's the first question. And the second question on this transaction. I may be wrong, but I don't think Coller has a dedicated infra secondary strategy. And so my guess would be that EQT is one of the largest global value-add infra managers, could add value here? And is this a kind of white space that you could go after? Because it feels like the use case for GP-led secondaries in infra could be even higher than it is in private equity over time because you have these platform build-outs like EdgeConneX that are very long-term assets that need capital and maybe don't fully belong in drawdown funds. So any thoughts there would be helpful as well. Per Franzén: Good questions, Oliver. I think the answer is that in both of those areas, on the private wealth side, evergreen side as well as on the infrastructure side, we see attractive growth opportunities ahead and are both good examples of why we're stronger together. But Gustav maybe you want to elaborate? Gustav Segerberg: Yes, happy to do that. And just echoing what you said, Per, so to speak. I think on the evergreen side, of course, this -- what this enables us, we get 2 strong evergreen organizations, both from a sales perspective, from a product development perspective, where we get to a completely different scale on a combined basis. So I think there's a lot of opportunity there, including joint products going forward in at least a midterm perspective. I think same on the infra side. This is, of course, one of the key areas where we see that there are complementary capabilities in terms of that Coller is very, very strong on the secondary side. We are very, very strong on the infra side and as well on the real estate side. So going forward, we see that this is, of course, a very interesting growth opportunity for us to attack on a joint basis and where we combined will have a very good right to win in that aspect. Operator: Now we're going to take our next question. And the question comes from the line of Arnaud Giblat from BNP Paribas. Arnaud Giblat: I've got 2 questions, one on Coller and one on your infra business. On Coller, could you -- when I step back and just look at who are the largest GP-led secondary fund, typically, there are quite a few, including Coller before the acquisition, being independent and not having a very large direct business. So I'm just wondering how you're thinking about that? Do you see a need to operate a bit at arm's length? How is that going to be pitched to investors? I'm just wondering if there's any risks around that and how you intend to put that to investors. My second question is -- thanks for the update on -- in terms of what you intend to do with EdgeConneX and wrapping that into a longer-term structure. I'm just wondering if you could give us a bit more detail in terms of the mechanics, how much of enterprise value would EdgeConneX come into this continuation or long-term fund? And how you're thinking about fundraising around that? Per Franzén: Good questions. I'll let Gustav talk about EdgeConneX and provide more details on that transaction. In terms of the combination with Coller. As I mentioned in my presentation, right, I mean, we've really organized ourselves in a way so that it's very easy to add on a platform such as Coller and also to have that platform continue to be run in a very independent way so that the Coller team can serve clients and its stakeholders in the right way and in the best possible way going forward. And that's the intention also with the combination. That's how we'll organize ourselves. As I said, Coller will have an independent investment committee going forward and will be a separate business segment of EQT, where we will, of course, collaborate as was mentioned earlier, is in the areas around branding, marketing, also on the client relations side, where we can leverage the strong combined sales force that we have, both on the institutional side and on the private wealth side, right? And that's also how previous transactions have been structured and done in this space in the past, and that's what we intend to do also here when it comes to the combination between EQT and Coller. And Gustav, why don't you address the question on EdgeConneX? Gustav Segerberg: Absolutely. So due to where we are in the process, I can't go into, let's say, details about the size or the terms at this point in time. So we'll come back to you on that at the right time. I think what we can say in general is, so to speak, that we're super excited about this opportunity because, of course, it allows us to really continue to support the company for the long term as there is a very, very significant growth opportunity here in the data center area, so to speak. And therefore, it was also important for us to create this into an open-ended structure. Operator: Now we're going to take our next question and it comes from the line of Hubert Lam from Bank of America. Hubert Lam: I've got 2 of them. Firstly, I just wanted to check your expectations for exits in 2026. I think you said you expect it to be similar to 2025. Just wondering why not better? And also, does this mean that we should expect a similar carried interest as in 2025? The second question is on Coller. Can you talk about the opportunity you see with State Street and the partnership there? And do you see this as a way to enter the U.S. target date funds and maybe the outlook for this partnership going forward? Per Franzén: Thank you for those questions. I'll start by addressing the first one, then I'll hand over to Kim to provide more details, and Gustav can talk about the partnership opportunity with State Street going forward. So when it comes to exit volumes, right, I mean, it's important to keep in mind that 2025 was a record year in the history of EQT for us, right? I mean we sent back EUR 34 billion of proceeds to clients, 3x industry average in our equity strategy. So the beauty, of course, the benefits of having a truly global diversified platform the way we have it at EQT is that in certain years, there will be higher amounts of distributions in relation to NAV in certain strategies. And then in other years, there will be a step-up in other parts of the business. And so that's what you should expect in 2026, right? In 2026, we do expect a pickup in distributions coming out of our infrastructure platform, for instance. And yes, I just wanted to provide a little bit of that background and color as to the outlook for 2026. And Kim, maybe you want to elaborate a little bit on the details and carried interest. Kim Henriksson: Yes. And what Per just said, how that sort of translates into carried interest really then goes into the framework I talked about earlier, where the carry will predominantly come from the funds that are in 2019 vintages or before. And you saw yourself that there's about EUR 600 million of carry left in those funds to be recognized, whereas the 2 flagship funds not -- next to come into carry mode are not expected to -- with the current exit plans it being carry mode still in 2026. So that's the guidance we can give you at this point in time. Gustav Segerberg: And maybe I'll touch upon the State Street partnership. I think, first of all, we're super excited about having State Street as a shareholder in EQT and the partnership that they already have in place with Coller. Of course, there is a lot happening in the private market side connected to private individuals and in the U.S., especially the target date funds and the 401(k) opportunity. We think that there is tremendous opportunities here, both in the form of over time broadening the partnership with State Street, and that's something that we look forward to having a positive dialogue with them around. But also when you think about how the target date funds operate and what's required to be able to win in that channel, it's very clear that secondaries is going to be a very attractive and key component of that solution, also given the need to trade on a daily basis which when you think about it from a primary versus secondary perspective, would just make it easier. So I think all in all, we're very excited about it. As we've talked about, we think that the 401(k) opportunity is very significant, but then it will also take time. And this, of course, is an important step for us in that journey to really create products that fit into that type of client base. Operator: Now we're going to take our next question. And it comes from the line of Ermin Keric from DNB Carnegie. Ermin Keric: Do you hear me now? Per Franzén: Yes, we can hear you. Ermin Keric: Maybe just you mentioned that you expect an increase in evergreen flows in 2026. Could you quantify that? And sorry, then the second question would be on branding. You're saying that you're increasing your spending on that. Could you give us any more kind of details on how much you expect to spend on branding and put it in context to what you spent before and also how the success of those efforts are measured? Per Franzén: Good questions. I'll leave both of them to Gustav and Kim. Gustav Segerberg: Yes. Maybe I'll start with the first one. I'm not going to quantify it into a number. I think that if you think about -- if I were you, I would think about it in 2 aspects. First of all, as I talked about, during that time frame, 7 out of the 10 or 10-plus were operational. So that kind of gives you, I think, a first piece of the puzzle of seeing how that could then be in the 2026 flow. I think the second piece of it is -- it's really that out of the 7 and of course, the remaining 3, 4 products, we still see an acceleration of the flows as we're ramping it up, so to speak. So I think what we're saying is that we expect that number to be significantly above the EUR 4 billion in 2026. Kim Henriksson: On the brand and marketing topic, in order to have a successful spend of brand and marketing, you first need to build a sort of organization and have the processes, et cetera, in place. And that is what we have been doing over the last few years, and we now have that foundation, which allows us to spend money efficiently externally on marketing campaigns and on brand events and branding more generally. The -- we're not going to go into the specific numbers here on a line-by-line basis, but it's -- the amount we will spend is a multiple of what we have done historically, but from a fairly low base to start with, I would say. Then it is a science of its own in terms of how this money will be measured, and it's quite different from a directed marketing campaign where you can sort of measure the exact clicks, et cetera, where from a more branding campaign where it's more about brand awareness, et cetera, in the market. But we have a great team focused on that with very specific sort of follow-up processes that are going to be in place. Operator: And the question comes from the line of Isobel Hettrick from Autonomous Research. Isobel Hettrick: Isobel Hettrick from Autonomous Research. So in your presentation, you touched on the significant number of new LP relationships the transaction opens up for both you and Coller. Can you provide some color on how you're thinking about the cross-selling opportunity from both ways, so existing EQT clients investing in new secondary funds and vice versa over time. So perhaps with reference to BPEA, how have you seen cross-selling develop since you acquired that manager? And what can we read across to Coller? Per Franzén: Good question. I'd say it's not only that we have a track record in terms of achieving cross-selling synergies on the institutional side from the merger with Barings. And we, of course, also acquired Exeter before making the Baring's transaction. And I think we have good data points and evidence from both of those transactions in terms of the synergies that we can generate. Gustav can provide more details. And then, of course, what's different also this time around is that the private wealth opportunity has developed further. And here, we really see an opportunity for us to leverage all of the investments that we've been making into our capabilities, into our brand, into our marketing in those areas, right? So -- but Gustav, why don't you elaborate? Gustav Segerberg: Yes. No. But I think as you say, Per, there, we have experienced from it both from Exeter and BPEA. Of course, BPEA is not fully closed yet, but what you will see in the appendix is that around 25% of the capital in BPEA IX is from, let's say, original EQT clients. I think the equivalent number for Exeter on the latest U.S. fundraise there is about 15%. So we -- I think we have good track record of showing that there is significant cross-selling opportunities in these transactions, of course, going both ways in it. And in this specific transaction, as Per points out, the private wealth opportunity, there is significant cross-selling opportunities there. And then, of course, we also have the insurance side where over time, there can also be, let's say, some joint opportunities going forward. Operator: Now we're going to take our next question, and the question comes from the line of Magnus Andersson from ABG Sundal Collier. Magnus Andersson: Just first of all, on the transaction, if you could, in any way, quantify potential income and cost synergies and any potential structural charges related to this transaction in 2026? And secondly, just on your fundraising, there seems to be very strong demand for infrastructure according to market data. So I was just wondering whether we eventually should expect your flagship infra funds to become larger than your traditional key funds and if we could see that already in the generations that will be on the fundraising in 2026? Per Franzén: Yes. Good questions. I think we're incredibly -- I think as we've mentioned in the past, we're incredibly excited and optimistic about the growth potential across our infrastructure strategies, and we see very good momentum here in the ongoing fundraises that we have. I'm not sure we're going to comment on or give guidance in terms of the sizes for the next generation of these funds. But I leave that to Gustav to comment on further. And then on Coller and the income and cost synergies in '26, maybe, Kim, you want to take that question? Kim Henriksson: Yes. Well, first of all, on Coller, as you heard, we gave the guidance that we intend to more than double the business in the next 4 years. That's really the income guidance we can give you. And that is based on all of the strengths that we just talked about of the combined business. And this is not a transaction that is done because of cost synergies. Having said that, as I mentioned, there's a number of, let's say, costs that are of a nature where you can spread them out over a larger base, and that will become more efficient. Then there are some areas of overlap on the back end that we will work together to solve in the most efficient ways, but that's not the reason for the transaction. There's likely to be some transaction costs associated with it, of course, but they are not in the big scheme of things of a magnitude that will move any needle. Gustav Segerberg: And then maybe on the infra side, I think we fully agree with you on the infra opportunity in general terms, so to speak. And that's also why we, in the last couple of years, have been very focused on broadening the infra offering which you've seen both with the Active Core, especially now going open-ended. You've seen it with Transition Infra. We talked today about the EdgeConneX opportunity on the [ CV ] side. So I think you should think about it that -- and I'm not going to comment specifically on Infra VII, so to speak. But we probably think that the large opportunity here is continuing to broaden the infra scope and scaling those things in a way that we can really be a market leader across from, let's say, more infra growth opportunities all the way to core plus. Operator: Now we're going to take our next question and the question comes from the line of Jacob Hesslevik from SEB. Jacob Hesslevik: So my first question is on the culture fit. When you acquired both BPEA and Exeter, you talked a fair bit about the strong culture and how EQT and the related partner would fit together. But you have said very limited today with the acquisition of Coller. So what are the key culture and operational integration priorities over the next 12 to 18 months? And how will you maintain both EQT and Coller's entrepreneurial culture while achieving the synergies? That's the first question. The second one is you highlighted a particularly strong pipeline for Japan for 2026. What makes Japan distinctive from other Asian markets in the upcoming year? And do you need to change your approach to capture the market potential? Per Franzén: Yes. I'll start with the second one. On Japan, the reason why we are particularly excited about the pipeline that we see in Japan right now is because of some of those corporate governance reforms that have been implemented in Japan and that just enable us to pursue opportunities where we can really unlock value creation opportunities. And it allows us to create sources of alpha that are uncorrelated to the type of value creation opportunities that we see elsewhere in Asia. So for instance, in India, there's a lot of tailwind from demographics, capital markets-related tailwinds, whereas in Japan, the alpha-generating opportunities really around unlocking that value creation opportunity, thanks to some of those corporate governance reforms. And of course, we are very well positioned to capture that. Why? Because we have a best-in-class value creation toolbox that we've developed over 30 years. We have best-in-class sector-based strategies and value creation playbooks that we can apply. And then, of course, in Japan, our brand resonates very well. We've been present in the country for 20 years, thanks to the Wallenberg connection. We were also seen as a very credible long-term player, which is particularly important in a market such as Japan. So for all of those reasons, we're very excited about the opportunity ahead in that country. When it comes to Coller and the cultural values fit, right, it is as strong as we have seen in previous combinations. We've spent -- Jeremy and I have spent a lot of time together to get to know each other. I'm sure we're going to have an excellent partnership. And we've also spent significant of time together at the next generation of the leadership team between Coller and EQT, exactly like we did it in the combination with Barings and also in the transaction with Exeter, right? So that's a good way to get to know each other, and that's why we can with confidence say that this fit from a values perspective, culture perspective, the entrepreneurial, the innovation drive, the performance drive, all of that is exactly similar as it is in EQT. And the way, of course, we maintain and retain that culture, that's how we run our business, right? And that's why it was so important that we took those steps in 2025 to simplify our organizational setup. What I spoke about in my presentation and what I've also talked about in previous instances. So today, we have organized ourselves around a number of highly accountable high-performing business lines. And then we have simplified our governance, our structure in a way so that we have one combined capital markets client relations team on the institutional side that will be very well positioned to serve all of these business lines going forward, including Coller EQT. And then finally, of course, we have a clear governance around how we run our backbone, our business on the operations side. And those would also then be areas where we can achieve synergies together, right? And so by having those highly accountable business lines, that's also how you can ensure that you retain that entrepreneurial performance-driven culture. Kim and Gustav, anything else you want to say on the synergies? Gustav Segerberg: No, I think maybe one more point, and that's we just had a partner meeting earlier this week where, of course, the real estate and the Asia team was there. And I think it's so clear to see how well those integrations have gone, how much they feel like part of EQT in a real way. There is only one company. And I think it also shows that the model works, and also that we're ready to do the next one. So I think from all of those perspectives, this timing is also a good one, I would say. Operator: And now we'll go and take our last question for today. And it comes from the line of Nicholas Herman from Citi. Nicholas Herman: Congrats on the deal. Two questions from me, please. One on accretion and synergies and one on cash. On the accretion and synergies, you referred to a doubling of fee-paying AUM in Coller over 4 years. Is that the time frame for the mid-single-digit FRE accretion? Or is the accretion time frame shorter? And related to that, what synergies are in that guidance? And how should we think about the sequencing of adjacencies and synergies. And then a quick one on cash. I guess given this transaction is almost entirely equity, should investors now have greater confidence that you will announce share buybacks over time? And I guess for avoidance of doubt, I'm assuming you have no ambition for further deals or especially larger deals for now at least? Per Franzén: Thank you. Olof and Kim, do you want to take those questions? Olof Svensson: Yes. Do you want to go ahead? So I mean, if you think about the accretion, we're buying, first of all, 100% management fees, right, over the next several years. And as we talked about before, the earn-out mechanics is based on a fee-related growth of close to 30% or high 20s, right? And to Kim's earlier comments on the margins, that means that you're going to have a very rapid top line growth, and that means that our margins are going to scale quite meaningfully over the next several years in this business. So if you think about this from a fee-related EBITDA multiple, it's based on the guidance that we gave, it's about 16 to 18x multiple that we're paying in '26, but that's not then capturing this significant ramp-up that you have in '27 and '28, right? So to your question, if you think about this transaction in, say, a couple of years' perspective, I'd argue it's high single-digit accretive to our earnings. And that means that this mid-single-digit guidance, that's an average over the next few years. Kim Henriksson: And in terms of cash and buybacks, yes, you're absolutely right. This is an all-share transaction and will, if anything, strengthen our balance sheet further over time. There's -- last year already, we did about EUR 300 million of share buybacks in 2025. So it's not that we haven't been doing share buybacks already. And what we have said in terms of guidance is that we will use share buybacks or extraordinary dividends for that matter as a tool if we, at any point, become overcapitalized, for example, if cash carry comes in at scale, but I can't give you any specifics around that in terms of timing or how that's going to look. But right now, we have a solid balance sheet, but we're not overcapitalized given the opportunities we have, both organic and inorganic going forward. Nicholas Herman: That's really helpful, guys. If I could quickly follow up on the synergies. Just what synergies, as you said, are in that guidance? And how should we think about the sequencing there from, I guess, from a -- presuming is it wealth first, then insurance then Asia, I mean how should we think about the way you're going to be tackling those -- the numerous opportunities there? Gustav Segerberg: Yes. And I think we're not going to go into specifics of it. Of course, as always in this, it's going to be evolving development in it. And there are a number of opportunities. But I think we also feel that we're very well equipped, both from a Coller perspective and from an EQT perspective in order to capture many of this. I think you should think about the guidance on, let's say, doubling the business on -- in less than 4 years that, that does not include a very significant new initiatives in that. It's, of course, a development of the business. It's continuing to scale of the PE and credit side. On the institutional side, it's maybe 1 or 2 new initiatives on the institutional side. And then, of course, it's a development of the evergreen as well as the insurance side. But it's a base case that we feel and the Coller team feels comfortable, which I think is good. Operator: Dear speakers, there are no further questions for today. I would now like to hand the conference over to management for any closing remarks. Olof Svensson: Okay. Well, everybody, thank you very much for great questions and for the discussion. As you can hear, we're extremely excited about this combination with Coller, and we are very pleased with the results that we delivered for 2025. As always, you know where to find us, we're available for any follow-up questions. So thank you very much. Kim Henriksson: Thank you all. Gustav Segerberg: Thank you. Olof Svensson: Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to the Resolute Mining Fourth Quarter 2025 Activities and 2026 guidance. [Operator Instructions] I would like to remind all participants that this call is being recorded. I will now hand over to the Chief Executive Officer, Chris Eger, to open the presentation. Please go ahead. Christopher Eger: Good afternoon, and good morning to all. Welcome to Resolute Mining's Q4 2025 Activity Report in addition to providing some color on our 2025 annual results as well as our guidance for 2026. Today, I'm joined on our call by Gavin Harris, our Chief Operating Officer, who's actually sitting at our Syama operations in Mali as well as our CFO, Dave Jackson, in addition to our Head of Corporate Development and Investor Relations, Matty O'Toole-Howes. So let's dive into it. When looking at our Q4 performance across the business, I'm very proud to say that we achieved all of our targets and have very much stabilized the operations, setting up a very strong foundation for 2026. But when looking at the details, our gold produced was 66,000 ounces, an increase of 6,000 ounces over our Q3 results. A lot of this additional work came from our activities in both Senegal and Mali. Specifically in Mali, we have stabilized the supply chain issues that we talked about at the beginning of last year and throughout 2025, whereby now we've now stabilized our explosive situations and are hitting our targets through the end of the year and into 2026. Mako continues to perform extremely well, and we had a very strong quarter in the last quarter of the year. As a result of the good production across the business, our all-in sustaining costs came in at $1,877, again, a decrease versus our Q3 AISC of just about $2,200. So the difference between the 2 AISCs really results in the fact that we are really managing our costs across the business as extremely and efficiently as possible, but most importantly, with the increase in the production levels. Very also positively, we reduced our TRIFR to 1.87x versus 1.95x in the previous quarter. CapEx came in line at $18 million. But ultimately, what we're most proud of is the fact that we generated close to $86 million of operating cash flows in Q4 relative to $70 million in Q3. So what does this mean from a net cash position for the year is that we ended the year at $209 million of net cash, which is roughly $140 million increase in cash from the beginning of the year. But Q4 was also very exciting for us and the fact that we had some significant developments in Côte d'Ivoire. Specifically, on December 15, we provided an update of the Doropo DFS to the market, which shows the incredible robustness of this project, whereby the NP of the project at $4,000 is just about $2.5 billion. We'll go into more details on the specific activities for Doropo in the upcoming slides, but I'm very pleased to say that this project remains on track, on budget for construction in the first half of this year. In addition, we continue to progress across the portfolio in our exploration assets. And most notably, we introduced a Le Debo MRE at 643,000 ounces at 1.14 grams per tonne. In addition, we started really drilling at the ABC deposit in Western Côte d'Ivoire, achieving very strong exploration results, which I'll go into detail in the coming slides. Across the business, we also are continuing to execute our other strategic projects, most notably in Mali, we're very much on track and on budget with our SSCP project, again, which we'll talk about in the upcoming slides, and we continue to progress in Senegal on the life extension projects. 2025 was an incredibly pivotal year for Resolute as well as a very transformational year for the business. I'm very proud to say that we were able to achieve gold production in line with our guidance of 275,000 ounces to 285,000 ounces with final gold forward of 277,000 ounces. So very much on track to guidance, on production, also on all-in sustaining costs, whereby we ended the year at an all-in sustaining cost of $1,843, which is in line with our revised guidance. Additionally, CapEx came in on guidance at $118 million, and we achieved very strong operational and financial results with EBITDA coming in at $383 million. It is worth noting though that at the end of the year, we finished with quite a lot of gold bullion that we did not sell. So we roughly had 31,000 ounces of gold in inventory that we sold in January, which impacted the EBITDA profile for 2025. With regards to cash flow generation and as it relates to the previous slide, we ended the year with $209 million of net cash, but our overall available liquidity was just over $320 million between our gross cash and access to working capital facilities. So when looking at the business from a qualitative perspective, we're very pleased with all the activities that occurred in 2025 to position the business for continued success in 2026. Most notably, in 2025, we substantially augmented the skill sets of the executive team. We brought new people into the business, specifically a project team in Côte d'Ivoire for the construction of the Doropo project. We also restructured a lot of the principal activities in Mali as a result to some of the challenges that we encountered in 2024. We spent quite a bit of time with different government bodies across the business, and we've been augmenting the relationships that we have with the people in all the different jurisdictions that we operate. We also completed the acquisition of the Doropo and ABC projects in Côte d'Ivoire in May of 2025. This acquisition has set the business up for continued success by becoming a multi-producer West African gold company. We also made significant achievements in continuing the projects that we have in both Mali and Senegal as it relates to the SSCP and [indiscernible] programs, which we'll go into more detail. The other key activity for the business in 2025 was continued focus on exploration as I see this as a pivotal leg to creating shareholder value in the long term. But I'll spend a bit more time in the exploration section as it relates to some of the key activities that we see in 2026. Here's a recap of the organic growth profile for the next coming years. As you can see, in 2025, we achieved 277,000 ounces but as you look to the future, we'll be achieving between 250,000 to 275,000 ounces for the next couple of years as we continue our stockpile processing at Mako, where we start the construction of the Doropo project. So I'm very confident by 2028, we will be on a run rate to achieve 500,000 ounces for the foreseeable future across the business. And beyond that, with the work that we're doing on exploration, I'm very confident that we'll be able to grow the production profile organically through some of the success that we're seeing in the exploration side of the business. So as you can see on the page, we're guiding gold production from 250,000 to 275,000 ounces across the group. That's split between Syama and Mako of 195,000 to 210,000 ounces of gold production out of Syama and 55,000 to 65,000 ounces of gold production out of Mako. Mako is quite straightforward as we're continuing to process stockpiles all through '26 and into '27. However, at Syama, Syama is going to have an interesting year as we will be commissioning the SSCP program, whereby we are going to start processing the majority of the ores to be sulfides as opposed to in the past, a split between sulfides and oxides. But Gavin will go into very specific details about how this transition will occur in 2026. As a result of the high gold price environment, we are seeing our all-in sustaining costs increasing. And so we are guiding our all-in sustaining costs across the group between $2,000 to $2,200, but a significant reason for the increase from 2025 is due to the fact that the royalty expense at today's gold price environment at $4,000-plus is adding quite a bit of expense to our all-in sustaining costs. Capital expenditure for 2026 is substantially higher versus 2025. And as you can see on the page, is between $310 million to $360. Going through the different line items, we will provide some context to the increase in CapEx. So let's start with Syama. Syama is being guided between $110 million to $125 million. But of this number, approximately $40 million relates to the finalization of the SSCP program relative to 2025. In addition, waste stripping is also about $40 million, which is an increase versus 2025 of about $20 million. And that additional waste stripping capital is required in order to further develop the Syama North deposit in order to access higher-grade zones for the future. At Mako, we anticipate that the CapEx will be between $15 million to $20 million with the vast majority of that capital being spent on capital projects at the Tombo and Bantaco projects. Doropo is projected to be between $170 million to $190 million, subject to permitting an FID approval. And most of that CapEx is scheduled to be spent in the second half of the year. But again, we'll go into more detail how we see Doropo being built and expensed in the upcoming slides. And finally, we continue to spend quite a bit of money on exploration as this is a key value driver for the business. And so we expect to spend at least $15 million to $25 million on exploration, predominantly in Côte d'Ivoire, but we are looking to expand our activities in both Guinea and also in Senegal. So with that, let me turn it over to Gavin Harris to walk you through the specifics of each of our assets and our activities in 2026. Gavin Harris: Okay. Thanks, Chris, and good morning and good afternoon to everybody on the call. Starting in Ivory Coast. We've made major progress on Doropo and ABC projects, which we acquired in May last year from AngloGold Ashanti. Doropo is a transformational project for Resolute, one that I was already familiar with as it was originally developed during my time with Centamin. Throughout the second half of 2025, we built out the project team, appointing key positions; the Project Director, the Project Manager and the Project Services Manager. The Project Director, Rob Cicchini, leads this team, which has nearly 100 years of experience building projects in West Africa, Asia and Australia, predominantly with Lycopodium in the past. The long list of projects this team have worked on in West Africa include Ity, Agbaou and Sissingué in Côte d'Ivoire; Houndé, Bissa and Bouly in Burkina Faso; Fekola in Mali, Obotan and Nzema in Ghana and of course, our very Mako mine in Senegal. Moving on to key achievements for Doropo last year. These include the updated mineral resource estimate, which increased by 28%. The release of the updated definitive feasibility study, or DFS, that outlined a larger and longer life operation than the previous DFS by Centamin in 2024. The appointment of Lycopodium Engineering to complete the front-end engineering design or FEED and the issuance of the tender for engineering, procurement, construction management or EPCM, with site visits taking place next week. Progression of permitting saw increased governmental interactions, including multiple visits from the Resolute executive team and a meeting with the Prime Minister. We are waiting for approval for the mining permit. At the end of last year, the permitting process slowed due to elections. With these now over and ministers being appointed this week, we expect the last 2 stages of permitting to progress over the coming months. These stages are, firstly, approval in the Interministerial Commission followed by signature of the presidential decree. The updated DFS released on the 15th of December outlines a significantly larger project compared to the previous version of the DFS with a 55% increase in gold reserves and an extension of the mine life. An updated gold price of $1,950 per ounce has increased total life of mine gold production to 2.2 million ounces over 13 years. Current spot gold price is significantly higher than this, but to manage the time line and permitting, which was submitted using $2,000 pit shells, the updated DFS remains within these confines. Further gold production is anticipated at higher gold prices, which underpins the confidence that the Doropo life of mine could be extended beyond 13 years. We believe additional exploration targets between the main Souwa hub and Kilosegui could add even further mine life. [indiscernible] front capital costs have increased to an estimated $516 million, which reflects updated pricing with a significant inflationary aspect compared to the previous version completed during the first half of 2024. A 25% increase in processing capacity, future-proofing the project, which allows for further modular expansion, an 80% increase to the water storage capacity, a 55% increase in the capacity of the tailings storage facility to meet the additional process tonnages, increased land and livelihood restoration and resettlement costs and the inclusion of some previously admitted items. Financial highlights from the updated DFS at a base case gold price of $3,000 an ounce include all-in sustaining cash cost of $1,406 an ounce, a post-tax net present value of $1.46 billion at a 5% discount rate and internal rate of return of 49%. A payback period of 1.7 years, the payback drops to under a year of $4,000 gold price, and obviously, the gold price is much higher than that right now. Very strong free cash flows averaging over $260 million per year over the first 5 years of production. As I mentioned a moment ago, we see a lot of upside potential at Doropo, and I believe it's going to be one of those mines that simply keeps producing well beyond initial expectations. So the key work streams for Doropo in 2026, which are already underway are focused on maintaining project time lines whilst permitting and the final investment decision or FID takes place. FEED work undertaken by Lycopodium will mean equipment and construction tender packages can be prepared and issued in the first half of 2026. This work will enable procurement of key long lead items to start as soon as FID is approved. EPCM tenders have been issued with a site visit taking place next week. We initiated a competitive bid process with strong interest from world-class engineering firms with proven track records building gold mines in West Africa. The EPCM submission and adjudication will continue throughout the early part of the year, and we plan to award this towards the end of Q2. Site earthworks will start before the wet season to establish access roads and advance the early stages of the water storage and water harvesting tasks, which are key to retaining and providing water during the project construction phase. To facilitate the early work schedule, work will start on the construction of the camp and permanent village to provide messing and accommodation for the construction teams. If we assume that FID is completed by the end of Q1, the project time line has construction starting from midway through Q2 of 2026 with commissioning starting early 2028. The first gold pool is expected to be towards the end of the first half of 2028. Again, assuming the FID is reached by the end of Q1, capital expenditure on the project in 2026 is expected to be between $170 million to $190 million with approximately 75% or $135 million of expenditure during the second half of the year. Expenditure in the first half of the year will include land acquisition and crop compensation for the villages affected by the project. So now we'll move across over to Mali and the Syama operation. Syama delivered 47.2 kilo ounces during Q4, the momentum shift after 2 successive lower quarters, largely due to supply chain issues encountered from the end of Q1. The strong quarter resulted in Syama achieving the lower end of guidance with 176.3 kilo ounces of gold produced at $2,008 all-in sustaining cost, again, within the guidance range. Of note during Q4 was a new ore production record from the underground mine, achieving over 250,000 tonnes of ore in a single month. This underpinned the strong quarter as we use alternative explosive products and supplies to address issues encountered over the previous 9 months. On joining Resolute, I traveled to Mali on the evening of my first day with the company. During this visit, which lasted 3 weeks, it was clear the team on site needed strategic leadership to help with decision-making of the complex operation. We made great progress in this area, and we see further areas of improvement in 2026. Additionally, I spent considerable time reviewing contractor and supplier arrangements to make sure we're receiving the most competitive rates. To address some of the challenges, I carried out a restructuring of the management team in the second half of 2025. This started with the General Manager of the operation. While this restructure took place, I spent 3 months on site at Syama overseeing the operation and implementing a reset to remove historical inefficiencies, also whilst taking advantage of many opportunities that were immediately visible. The team at Syama were bolstered with experienced and seasoned professionals bringing first-hand experience of turning around distressed assets. We conducted an operational review starting during Q3, focused on optimization of the underground assets and cost reduction programs across the whole site. It resulted in a significant drop quarter-on-quarter as these benefits began to hit the bottom line in Q4. You can see this reflected in the all-in sustaining cost of $1,779 an ounce. This review continues today with the new leadership team and with even more opportunities under evaluation that are expected to deliver shareholder value throughout 2026 and into the future. These ongoing measures as a minimum are expected to assist in offsetting inflationary pressures. Full year capital expenditure was just below the guidance range, largely due to the Syama Sulphide Conversion Project or SSCP as we call it, deferring some $5 million of costs with the revised schedule for sulphide processing. This was while we were completing Tabakoroni oxide reserves in Q4. The key supply chain issues revolved around transport of products internally through Mali. The largest effects were on explosive products and fuel that needed government escorts. Currently, fuel levels are stable and to combat the explosive transportation issues we faced, we followed our in-country peers and will construct an explosive manufacturing plant at Syama in 2026. This is expected to increase operational stability and explosive availability across the operation. Whilst I've been on site as Syama stabilized in the operations. Chris, the CEO has been busy working to improve dialogue and build a relationship with the government leasing with the value in Prime Minister [indiscernible] during Q4. During Q4, we completed oxide mining at the Tabakoroni deposit, which lies about 40 kilometers southeast of the Syama processing plant. With nearly all economic high-grade oxide deposits local to Syama exhausted, open pit ore production will focus on the Syama North 821 district for fresh sulphide ore over the coming years. Syama today has a processing capacity of 4 million tonnes per annum. This is split between 2 processing plants. First of which is the 2.4 million tonne per annum sulphide plant which treats the underground sulphide ore. The second, the 1.6 million tonne per annum oxide plant processes open pit oxide ore. The Syama sulphide conversion project started in 2023 as key infrastructure to allow sulphide ore to be processed through the existing oxide plant. The project includes the installation of a secondary crusher after the primary crusher to reduce the harder sulphide which material and transitional or prior to feeding the existing SAG mill, a pebble crusher to deal with scats, which is the oversight of discharges from the existing SAG, a close circuit secondary ball mill to treat cyclone rejects and deliver the correct grind size of flotation. The column flotation cells to recover the sulphide material prior to roasting, 2 additional CIL tanks and a roaster upgrade with a new electrostatic precipitator or ESP, which will increase concentrate throughput by over 15%. All of this will allow for the plant to process sulphide feed whilst maintaining flexibility to still be able to process oxide ore. The SSCP is currently on time and on budget. Stage 1, the oversized pebble crusher and sulphide flotation plant scheduled to be commissioned in Q2 2026. The SSCP will then be able to run at 50% capacity, approximately 110 tonnes per hour during Stage 1. As we move to Stage 2, this focuses on the secondary crusher, ball mill construction and the roaster upgrade. This is scheduled to be commissioned and fully operational in Q3. Once fully commissioned, the throughput capacity is expected to increase to 215 tonnes per hour. Syama production will increase in 2026 compared to 2025, and will deliver between 195,000 to 210,000 ounces of gold at an all-in sustaining cost of between $1,950 to $2,150 per ounce. The gold production is weighted heavily towards the second half of the year, with H1 and H2 representing 42% and 58% of gold produced, respectively. This split is due to the ongoing review and optimization of open pit mining, which will conclude during Q1. As such, mining will be limited to the Syama North A21 waste stripping with the existing appointed contractor. During this time, existing oxide stockpiles will be processed and sulphide ore will be stockpiled ready for SSCP commissioning in Q2. The Syama North A21 open pit is expected to mine 1 million tonnes of sulphide ore averaging 2.3 grams per tonne. H1 will be focused on waste and low-grade oxide stripping before ramping into full-scale sulphide ore production in H2. The underground operation is expected to build on the optimization work completed in the second half of 2025 and deliver over 2.6 million tonnes of ore to the surface. The underground production includes 300,000 tonnes of development ore with total development increasing by 74% compared to 2025 and 8.2 kilometers of underground development plan. The highest grades from the underground will be processed, resulting in an average head grade of 2.4 grams per tonne. The lower grade material will be stockpiled, rebuilding the stockpiles that we've depleted during 2025. On completion of the open pit optimization review, oxide mining will take place during Q2 at the [indiscernible] open pit, completing the oxide high-grade reserves of this ore body ahead of the rainy season. This oxide will be stockpiled whilst SSCP Stage 1 commissioning takes place and will be processed later in the year. The second and third quarters focused solely on sulphide processing and the ramp-up of SSCP during Stage 2. By the middle of Q4, sulphide concentrate stocks will be sufficient to meet the process throughput. And as such, any further sulphide processing in the SSCP will defer ounces to be poured in 2027. As a result, there's an excess capacity on the SSCP to revert back to oxide and add additional ounces while stockpiled concentrate feeds the roaster. Hence, the heavy weighting of ounces in H2 with 12,000 ounces of oxide gold production expected during Q4. The current sulphide plant, which receives ore from the underground mine will process over 2.2 million tonnes in 2026, slightly down from 2025 as a 3-week essential maintenance work program takes place in the second quarter on the primary ball mills and the roaster. Once fully commissioned, the SSCP is expected to lift overall gold production by 5% to 10% from 2026 levels. As oxide resources deplete, oxide production is expected to decrease over the next 2 years with operations transitioning to 100% sulphide processing from 2028. CapEx at Syama this year is expected to be in the region of $120 million. And this is split into 3 main areas: approximately $40 million to complete the SSCP and roaster upgrades, another $40 million of waste stripping in Syama North A21 pit and the underground development and around $40 million comprising of equipment replacements and maintenance within the processing plant and the underground mine and additional tailings storage facility studies and construction. A full life of mine review commissioned in H2 2025 is progressing to increase production in subsequent years. We'll report on this in H2 of this year. So we move across to Senegal now on our Mako operations. The Mako operation in Senegal delivered an outstanding 2025, achieving an upward revised guidance target of 123 kilo ounces at a lower all-in sustaining cost of $1,270 per ounce. The fourth quarter gold production of 18,755 ounces was enhanced by higher than forecast stockpile grades. This strong performance was achieved despite open pit mining activities ending in H1 and transitioning to stockpile material in H2. Naturally, the cessation of mining and processing of stockpiles has seen the overall feed grade decrease over the second half of the year. Processing throughput of 604 kilo tonnes has improved year-on-year, but also quarter-on-quarter with continuous improvement. This means that recovery above 91% is maintained despite a reduction of feed grade to 1.04 grams per tonne and higher throughput rates. This has been achieved primarily by metallurgical testing on course grind sizes and optimization of the gravity gold circuit. All-in sustaining costs have increased in the second half of the year with Q4 all-in sustaining cost of $1,666 per ounce as overall gold production reduces with no higher grade run of mine ore to process, increased royalty payments and noncash stockpile movements of approximately $143 per ounce. Capital expenditure was limited to $0.3 million in the fourth quarter and a total of $2.9 million for the full year. As part of our ongoing commitment to build strong relationships with the governments of the countries in which we operate, Chris also met with the President of Senegal in Q4. The Mako Life Extension Project or MLEP, has the potential to extend the current Mako mine life up to 10 years. The MLEP encompasses 2 main areas, the Tomboronkoto and Bantaco deposits. The exciting discovery of the Tomboronkoto deposit, approximately 20,000 from the Mako mine has a current resource of 377 kilo ounces with average grade of 1.7 grams per tonne. The Tomboronkoto ESIA has been pre-validated by the Senegalese technical agencies and is pending ministerial approval. Importantly, this has been supported and approved by the Tomboronkoto village and surrounding communities. The resettlement action plan or RAP and the DFS is nearing completion and the cutoff date, the point at which no further compensation can be claimed, has passed. A full survey of the affected houses and livelihoods has been completed and is now crystallized for the purposes of this project. The overall process has been completed with detailed approach to stakeholder engagement, underscoring our commitment to regulatory compliance, transparent community consultation and responsible project execution. The application for the Tomboronkoto mining permit will follow the issuance of the environmental permit with all permitting anticipated to be received by the end of 2026, assuming no major revisions are required. When we receive the mining permit, we will have the authority we need to implement the RAP and initiate the village relocation work. We expect detailed engineering to start during Q2 with long lead items procured before the end of 2026. That means mining at Tomboronkoto is scheduled to start in the second quarter of 2028. Two additional deposits are currently being explored at Bantaco. The Bantaco South and Bantaco West deposits have recently published resources totaling 266,000 ounces at 1.1 gram per tonne. During 2025, infill drilling, technical studies and metallurgical analysis work streams were progressed with $4.1 million of capital expenditure on this part of the project. This included progressing the ESIA submission and community engagement activities, which are far less onerous than at Tomboronkoto. 2026 work streams for Bantaco are related to technical studies, additional infill drilling is required and progressing the permitting process. Subject to full economic analysis, Bantaco ore delivery is scheduled to commence in Q4 2027 to bridge the gap between the completion of Mako stockpile processing and the start of ore delivery from Tomboronkoto. Total capital expenditure on the MLEP is expected to be between $10 million to $15 million during 2026. Mako production will decrease compared to 2025 as stockpile material is processed in 2026 and deliver a guidance of between 55,000 and 65,000 ounces of gold at an all-in sustaining cost of between $1,600 to $1,800 per ounce. The all-in sustaining cost increase is a reflection of the lower stockpile grades processed within an inflationary environment, including higher royalties due to the higher average gold prices expected in 2026 and compared to H2 2025. Gold production is slightly weighted to the first half of the year with H1 and H2 representing 52% and 48% of gold production, respectively, although it's important to note that the potential variability when processing stockpiles. 2.2 million tonnes of ore to be processed at an average grade of 0.9 grams per tonne with gold recoveries above 90%. Mako currently has sufficient stockpile low-grade ore to continue processing to the end of 2027, albeit grades will decrease as processing moves through low grade to mineralized waste stockpile. And with that, I'll hand you back to Chris to talk through the exploration activities. Christopher Eger: Thank you, Gavin. And now let's move to talking about exploration. Exploration continues to be very important to the business strategic priorities moving forward. As you can see on Slide 21, in 2025, we spent just shy of $25 million on exploration activities with considerable success. Of that $25 million, roughly $15 million was spent in Senegal, $5 million in Côte d'Ivoire and $5 million in Mali. Some of the key achievements in 2025 was an initial MRE at Bantaco as well as continued exploration activities at La Debo and Doropo. But however, when we look at 2026, we will plan to continue to spend around the same amount of money but to focus more on Côte d'Ivoire versus Senegal as the bulk of the drilling in Senegal has been completed. We will continue, though, in Senegal to spend some money at Bantaco and Tombo with regards to infill exploration drilling, like I said, the bulk of the cash expenditures for this year is going to be focused at Côte d'Ivoire because we see real value at the ABC and La Debo projects. But I'll go to that in more detail in the upcoming slides. The other key area of focus for the business, which has been forgotten about is in Guinea. We do have a number of permits in Guinea, but we have been looking to apply for new permits, and I will be very proud to say that we did receive first reconnaissance authorizations for a number of permits in the Siguiri Basin, which we'll start spending time and effort in 2026. So when I look at the triangle on the right side of the page, this shows that we are developing a proper pipeline to developing the fourth asset within the Resolute business. So again, exploration is core to our success, and we are spending quite a bit of time and effort in developing additional projects within the portfolio. Moving to Page 22. I want to spend a bit more time on our ABC exploration project in the West side of Côte d'Ivoire. When you look at the map, ABC actually is comprised of 4 key deposits. There is a Farako-Nafana permit, which you can see in the very north part of the deposit; the Kona permit, the Windou permit and most recently, the Gbemanzo permit. The bulk of this initial resource is all situated on Kona. That's where you see the $2.2 million of inferred ounces at 0.9 grams per tonne. In Q4 of 2025, we started an excessive drill program across all 4 of those deposits, where we're seeing very exciting results. So the Farako-Nafana permit, which is in the north part, we've got some very exciting drill results support by we saw 1 hole at 31 meters at 2.4 grams per tonne from 13 meters from surface. We also started drilling in Kona to expand that deposits with very strong drill results and this year, the focus will be to drill at least 20,000 meters across the 4 different areas in order to expand this footprint. We are, though, looking to put economics on this project, and we've commissioned a scoping study which we hope will be released towards the end of H1 2026, but possibly to H2 of 2026. So once those numbers are completed, we'll release those to the market. Similar to the ABC project in Côte d'Ivoire, we're also very excited about the La Debo project in Côte d'Ivoire. This is a project that's about 400 kilometers into the northwest of Abidjan, which we acquired in 2024. So we spent quite a bit of time and effort in 2025 drilling out this deposit, and we had a very successful MRE of about 643,000 ounces at 1.14 grams per tonne that was issued in Q4, and that was after 16,000 meters of drilling completed in 2025. When you look at the map on the right side, the resource is focused on the Northeast area of the deposit in the G3S and in G3N zones. Those zones show gold that continue at depth and at strike. And so in 2026, we will start doing a bit more drilling to prove out the size of that deposit and continue to expand. We also see some interesting anomalies at the G1 area, which is kind of in the middle. And so we're going to be spending time drilling that deposit out as well. So the goal is to try and make us to at least 1 million ounces but also is very similar to ABC, we will be looking to implement a scoping study report towards the end of H1 2026, possibly into H2, which will demonstrate the economics of this asset. So look, in summary, I do believe that between Le Debo and ABC, we have been making for a fourth asset -- fourth producing asset, I should say, within the Resolute portfolio. So with that, I'll turn it over to Dave Jackson to go through the financial summary. Dave Jackson: Thanks, Chris. Today, I will walk you through the Q4 and full year headline financial results highlighted in the key performance metrics. Overall, we ended the year strong, and our Q4 metrics were in line with expectations. We continue to strengthen our balance sheet and build cash in the business. Looking at the financial highlights. Our year-to-date EBITDA was an impressive $383 million, which was a substantial increase from the $319 million reported in 2024. This performance was underpinned by revenue of $863 million generated from the sale of 259,000 ounces of gold at an average realized price of $3,338 per ounce. As previously noted, Resolute remains fully unhedged and continues to sell all of its gold at spot prices. At quarter end, net cash stood at $209 million, marking a $72 million increase from Q3. Included in the net cash figure is $135 million of unsold bullion, representing nearly 31,000 ounces of gold that were sold shortly after the quarter closed. We had $57 million drawn on overdraft facilities at quarter end. These facilities continue to be used locally to optimize working capital. Currently, the group has in-country overdraft facilities of approximately $113 million available as we continue to maintain financial flexibility for the group. The group all-in sustaining cost for Q4 was $1,877 per ounce, which represents a $328 per ounce decrease from Q3. This decrease was primarily driven by the expected increase in gold production at Syama. At Syama, specifically, the all-in sustaining cost was lower than Q3 due to higher production and lower sustaining capital expenditure. As already mentioned, we have successfully navigated the supply chain disruptions in Mali, which resulted in Q4 being Syama's second strongest production quarter in 2025. Let me now walk you through the key components of our cash flow summary that led to the net cash position of $209 million at the end of Q4 on our next slide. We generated a solid $86 million operating cash flow during the quarter and $314 million for the full year. This was a substantial increase from the comparable periods in 2024 and is mainly attributed to the increase in gold price throughout the year. CapEx totaled $118 million for year-to-date. This includes $24 million spent on exploration, $70 million in project capital across Syama and Mako and $24 million spent on the SSCP. Overall, CapEx and exploration spend were within guidance. As previously noted, we made the initial $25 million payment for the acquisition of the Doropo and ABC projects during Q2. These projects represent exciting growth opportunities for the company and are expected to deliver meaningful long-term value for our stakeholders. VAT outflows in 2025 totaled $66 million across Mali and Senegal. We are pleased to say we obtained $34 million of VAT mandates in Senegal in 2025, which were used to offset government payables However, VAT remains a source of cash leakage in Mali, and we continue to engage actively with the local government to recover these amounts. Our recent discussions have been positive, and we remain encouraged by the progress being made. Moving to working capital. We recorded a $29 million inflow for the year-to-date. This was driven by a $6 million reduction in consumable inventory across the group, a $10 million reduction in stockpile balances at both Syama and Mako and a $13 million change in supplier payments, which are settled in the normal course of business. Our ending cash in bullion was $266 million and marks a $165 million increase from the beginning of the year. This leaves us with ample available liquidity of over $322 million at the end of December. As noted on our last call, we have a stake in Loncor gold worth approximately $31 million, which is currently being sold. We expect to receive these funds in Q1 this year, and we expect no tax impact on the proceeds once received. Supported by a strong cash position and ample liquidity, the company is well placed to fully fund its 2026 capital expenditure requirements, including Doropo, through existing cash balances and the anticipated strong cash flows in 2026. We are currently in discussion with debt providers to secure additional capital for the Doropo project, which we are expecting to be finalized in 2026. The timing to secure any financing will not impact the Doropo time line as we expect to begin construction as soon as the permits and FID are obtained. In summary, we're in a very solid financial position and are excited about the growth potential of the business. With that, I'll hand it back to Chris. Christopher Eger: Thanks, Dave. And look, just a couple of more slides to wrap up the story. First, let's start on Page 28, which has qualitatively highlights some of the key milestones we're expecting in the next few years. Let me just focus on 2026. So going first and starting in Cote d'Ivoire, the most important is we expect to get the mining permits and FID for the Doropo projects in the coming months. And that will then obviously formalize and kick off the construction period for Doropo. But I think as provided by Gavin, we're not slowing this down, and we believe we have the financial resources to execute the construction of the project without missing a beat and initiating full construction and initial commissioning in the beginning of 2028. In addition, we're going to provide economic studies on both Doropo and at ABC. Moving to Mali, we will be commissioning the SSCP and transitioning to almost 100% sulfide production and completing an optimization study. And then when looking at Senegal, the key activities revolve around permitting of both Bantaco and Tombo projects. So we anticipate that we'll kick off those permitting applications in 2026, and we'll keep the market updated. So we have a lot on our place. We're very excited about what we're doing. We also see tremendous opportunities to continue to drive cost reductions across the business and continue to develop and build our relationships with the governments where we operate. So in summary, again, very proud of what the business achieved in 2025. We achieved our production guidance. We managed our costs across the business. We generate a substantial amount of cash flow in the business although with the support of the rising gold price environment. But most importantly, we executed our strategy of becoming a geographically diversified producer through the acquisition of the Doropo project in Cote d'Ivoire. We also made substantial improvements in exploration by focusing this as a key strategic priority for the business. I made a number of executive changes and augmented the skill set of people within the business, which is incredibly important to any mining operation. So with all the pieces that we put in place, I'm very confident that we'll have a very successful 2026. But most importantly, we're well on track to becoming a 0.5 million ounce producer from 2028. So with that, I will turn over to the operator for questions. Operator: [Operator Instructions] We'll take our first question from Justin Chan with SCP. Justin Chan: My first one is just maybe just clarifying the explosive situation in Mali. I read that you're planning to put it in an emulsion plant and that the explosives are no longer an issue. And I was just wondering, I mean, a bit more detail. Do you have a stockpile now? And then what's the timing on the plants? And can you just give us a bit more color on that situation and I guess, how it evolves through the year? Christopher Eger: Thanks for the question. Maybe just easier, I'll just turn over to Gavin, and he can probably give a bit more color than I would. Gavin Harris: Yes. Thanks for the question. So basically, our strategy at the moment is the explosives that are coming into site has to be escorted in by the Mali and government forces, obviously, given the security situation in Mali. What's been happening is the government have been in talks with our team in country to effectively set up a grade to support the mining operations. So we're seeing a lot -- we're getting a lot more exports into the site now. So currently, the stocks on site are good enough for us to continue production and obviously be a little bit more relaxed in terms of the issues that we have had previously. But further to that, we have been in discussion with different suppliers to effectively build their own plants on site to be able to produce the products we need going forward. So we have had a successful discussion with two suppliers on that, and we're waiting for final proposals to come in ahead of building these, but we expect these to be constructed within 2026. And obviously, bringing in raw materials that are precursors to explosives will not be subject to the scores from the government, which makes things a lot easier. So that really should solve that issue that we've had with explosives throughout 2025. Justin Chan: Got you. So perhaps to paraphrase, so the near-term issue is resolved because you have these convoys that are more frequent and the supply frequencies increased and then the emotion plant is more of a longer-term solution, but timing on that in 2026 is to be determined. Gavin Harris: Yes, exactly. That's a good summary. Justin Chan: Okay. Perfect. And then maybe just on Mali more broadly, I mean, there's been a couple of major developments, the Barrick coming to an agreement with the government on Loulo-Gounkoto. And then I mean, there was a lot of press on the fuel blockades, et cetera, around November last year. It seems like that situation has improved quite a lot. It sounds like. And I'm curious on the situation with Barrick coming to an agreement with the government. I think four companies are having a hard time implementing their already agreed terms just because the government was preoccupied. Maybe could you give us an update on what you're seeing in the country on both those fronts? Christopher Eger: Yes. So Justin, I think, look, what we see is similar to the others that the mood has changed dramatically versus 2024 and a lot more positive and constructive. We do believe the situation with Bayer coming to resolution is good for the industry and good for Mali. I think the government understands what has happened and why and are trying to work with the remaining operators to try and keep it more stabilized. There was obviously a bit more noise on security at the beginning of Q4 that we've seen kind of reverse. So it's -- unfortunately, it's a bit more of the same. We are continuing open dialogue and constructive dialogue with the government and trying to educate them on how we can work together for future investments. That's why we're doing the Phase II studies that we work with the government. Demonstrate that I know if we can work together, we think that there's growth in our business. But unfortunately, a bit similar to 2025, I'm still cautiously optimistic. We're still very cautious that we need to see a bit more signs of reversals. One of the key activities that we have not been receiving or VAT refunds back. And I think that's a key milestone that needs to be achieved for future investments. But generally, the mood is much more positive and continues to head in that direction, but it's still delicate. So look, I would say, just a summary, security is probably in good shape. And as fuel hasn't been an issue because we're working very closely again with the government to get the convoys and for our mines to be fed, which has been not impacted, but it's still delicate. Justin Chan: Got you. I appreciate that. That's really helpful color. And just one last one, I'll free up the line. Just clarifying with regards to the CapEx and exploration at Mako this year. So the $10 million to $15 million quoted in CapEx, that's for studies and that's independent of the exploration budget for Mako this year? Christopher Eger: That's correct. The bulk of that is study work. We will do, like I said, a bit more drilling on Bantaco, less on Tombo because we've pretty much completed that. And look, we'll spend more -- if we find more areas to explore and to expand on. But the key is to get the studies completed so that we can file for mining applications. And then depending on how we see our cash needs in '27 and '28, we may open up a bit. We're going to also look -- we have two other deposits in Senegal, Sangola and Laminia, and we're going to do some work there. But with the resources we have, we're going to focus more in Cote d'Ivoire. Justin Chan: Okay. Got you. And that will be primarily studies, it's not for, say, early site works or relocation. Christopher Eger: There is some capital towards the back end of this year, depending on the timing of -- if we receive the mining applications towards the end of the year, we'll start doing some, we'll call it, early site works and mostly it's around the wrap the relocation process at Tombo. So there's probably about $3 million to $4 million anticipated in Q4 assuming we get exploitation permits coming in as expected, but that may change and get pushed into '27. Operator: Our next question comes from the line of Casper [indiscernible] from Berenberg. Unknown Analyst: I just had two quick questions. At on the CapEx at Syama this year. I just wanted to ask how we should think about that CapEx going forward after this year's $170 million to $190 million spend? Christopher Eger: Yes. So it's a good question because I know it's higher this year because we have decided to put a bit more capital into effectively into the plant because look, the plan is 30-plus years, and obviously, we need to do a new TSF. So that's why there's additional, call it, $40 million of what we call capital projects that is probably more of a one-off. I would say next year, 2027 will be probably closer to $30 million. And then look, we have, like I said, more than $40 million this year on waste stripping with a lot of that, half of it being new stripping at the 21 Syama North Zone. So I'd say, look, moving forward, the run rate CapEx is closer to $30 million to $50 million. So probably a bit on the higher end for '27 and then it will start to stabilize in that $30 million to $40 million thereafter. Unknown Analyst: Okay. Great. And just as a follow-up, why -- I just wanted to ask why sales at Syama lagged production volumes in Q4? And did they get sold in early Q1? Christopher Eger: Again. So look, in summary, we had just about 30,000 ounces of gold volume, 31,000 to be specific at the end of the year. It has to do with the fact that the 31st of December was on Wednesday, and we tend to ship our gold on Fridays. And so we have built up stock around 2 weeks' worth of stock. So all of that gold was then shipped effectively in the first 10 days of January. So look, we'll have -- that was a key impact to the lower EBITDA versus overall guidance. It's just that some of those gold sales were pushed into January, which will impact the '26 numbers. Operator: Our next question comes from the line of William Jones with Canaccord Genuity. William Jones: And congratulations on a pretty good quarter. Most of my questions have been answered. But maybe just one on trying to understand the grades going through the plant at Syama post '26. So I know you quote sort of a 5% to 10% step-up. I gather that is grades are going to be impacted just by oxide feed. So just if you could provide some color on those -- the grade of those oxide stocks going into the plant over the 2 years and if that will step up towards the reserve grades once those stockpiles are used, probably firstly. And then secondly, just a bit of the strategy around utilizing those stockpiles. Christopher Eger: Thanks. Maybe, Gavin, over to you on that one. just obviously as we're reviewing the mine plans... Gavin Harris: Yes. Thanks for the questions. Look, on the Syama grades, obviously, the sulfides that we're seeing are reasonably good grades coming out of that Syama North A21 district, and we expect those to improve as we go forward. They're sitting around sort of 2.3 at the moment for this year. There will be ups and downs in that as we go through the mine life, but we think reasonably around 2 grams per tonne is acceptable for what we'd be looking at, at the moment. And then the underground, realistically, the grades will drop off towards the end of the mine life. But certainly, over the next few years, they're sitting around that sort of 2.4 gram per tonne as we go forward. William Jones: Okay. And then just interested on -- look, I appreciate how much you can say on this, but how you're thinking about the funding or capital stack for Doropo? And is there any target leverage perhaps that you're thinking of? Christopher Eger: No, it's a good question, and it's an evolving question, to be honest, because of the cash flow generation that we're generating in the business. So as you saw from Dave, we have today over $300 million of liquidity. At today's gold price environment, we're generating anywhere from $30 million to $50 million of fresh cash every quarter. So that puts us in a very strong position to actually fund the bulk of the CapEx with our own resources. But we think it's prudent to put in some debt and because we will need some cash in the future for the MLEP program. I would say we're looking at kind of a 50-50 target split between equity and debt, but it may be a bit more equity depending when I say equity or cash versus debt. It all comes down to the cost of capital net debt. But what's really important to us because of the cash flow generation of the business, and we're not a developer is that we put in a debt facility that's very flexible that allows us to pay that back quite quickly without too many penalties and costs. And look, we've been innovated with term sheets for funding of Doropo because of the attractiveness of the project and where it's located in the world. But again, similar to what Dave said, we're working through these. So we're not in a rush because we have quite a -- look, everything is going on track as we expected, and we'll probably look to put something in place towards the end of H1, maybe into early H2 because in any case, we'll be using our cash to fund the front end of the project. Operator: [Operator Instructions] Our next question comes from the line of Richard Knights with Barrenjoey. Richard Knights: Just one on ABC. It feels like it's a bit of a sleeper in the portfolio. You mentioned there's a scoping study that you're targeting to get out in H2. How quickly do you think you could turn that around into a DFS and ultimately an FID decision? Christopher Eger: Look, I think realistically, that would be towards the back end of '27. And look, and I agree with you, it is a bit of a sleeper in the group. It's a fantastic asset, and it's a very large footprint that we have. So look, depending on the economics of the scoping study, we can try and fast track it, but there is infill drilling that needs to be done. And because there's various deposits on the permit, we would need to think about where we would start and how we would kind of build that line because it's a good problem to have, but they are different -- the ore bodies are quite different in each of the different zones that we have. So we just need to understand that a bit better. But we see significant strategic value in ABC and how it's continuous with other deposits in the area. So there's definitely a mine at ABC that will be built at some point in time. Richard Knights: Yes. Okay. And maybe -- sorry, just one more on Doropo. The $170 million to $190 million of CapEx you're targeting for this year. I'm assuming all of that comes out of the $516 million total CapEx bill for the project? Christopher Eger: That's correct. Operator: At this time, we have no further questions. This concludes today's call. We would like to thank everyone for their participation. You may now disconnect your lines. Have a nice day.
Operator: Good day, and thank you for standing by. Welcome to the Fulton Financial Fourth Quarter 2025 Results 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, Pat Lafferty, Investor Relations Manager. Please go ahead. Patrick Lafferty: Good morning, and thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the fourth quarter ending December 31, 2025. Your host for today's conference call is Curt Myers, Chairman, Chief Executive Officer and President. Joining Curt is Rick Kraemer, Chief Financial Officer. Our comments today will refer to the financial information and related slide presentation included with our earnings announcement, which we released yesterday afternoon. These documents can be found on our website at fult.com by clicking on Investor Relations and then on News. The slides can also be found on the Events and Presentations page under Investor Relations on our website. On this call, representatives of Fulton may make forward-looking statements with respect to Fulton's financial condition, results of operations and business. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, and actual results could differ materially. Please refer to the safe harbor statement on forward-looking statements in our earnings release and on Slide 2 of today's presentation for additional information regarding these risks, uncertainties and other factors. Fulton undertakes no obligation, other than as required by law to update or revise any forward-looking statements. In discussing Fulton's performance, representatives of Fulton may refer to certain non-GAAP financial measures. Please refer to the supplemental financial information included with Fulton's earnings announcement released yesterday and Slides 28 through 38 of today's presentation for a reconciliation of those non-GAAP financial measures to the most comparable GAAP measures. Now I would like to turn the call over to your host, Curt Myers. Curtis Myers: Well, thanks, Pat, and good morning, everyone. For today's call, I'll be providing a few high-level comments as well as some operating highlights for the full year 2025. Unless I note otherwise, comparisons I discuss are with the full year of 2024 performance. Then Rick will review our quarterly financial results and provide our 2026 operating guidance. After our prepared remarks, we'll be happy to take any questions you may have. 2025 was another outstanding year for our company. I want to start by thanking all of our team members for their dedication to advancing our mission to change lives for the better and for generating strong operating results. Last year, we once again successfully executed on our community banking strategy and deliver value for customers, career success for employees and meaningful operating results for shareholders. Our goal going forward remains the same, creating long-term value by growing the company, delivering effectively for customers and operating with excellence so that we can continue to serve all of our stakeholders. Our 2025 results were strong. Operating earnings per share of $2.16 set a new record. We also maintained a solid balance sheet and demonstrated disciplined expense management. Customer deposits grew by $449 million, and we're seeing momentum from our enhanced deposit initiatives which have increased customer engagement and driven a 25% growth in consumer demand deposit account openings year-over-year. Sales productivity is strong and CD retention remains solid. This has resulted in good deposit growth and an ability to effectively manage cost of funds over time. Our focused and expanded business banking team has generated great results. raising over $133 million in lower cost operating deposits. Throughout the year, we highlighted some strategic actions that have offset organic loan growth. These actions represented more than an $800 million headwind during 2025. Even with these actions, our organic loan growth originations delivered overall net loan growth on a year-over-year basis. Over the course of 2025, we consistently drove growth in quarterly originations, creating a strong foundation for 2026 and beyond. To support this ongoing loan growth, we've been adding new team members. This expands our ability to serve small businesses and middle-market customers throughout the footprint. Accordingly, in 2026, we expect loan growth to return to our historical growth rates in the mid-single-digit range. We are also pleased with our noninterest income generating performance in 2025. When excluding the bargain purchase and investment securities gains and losses, noninterest income of $277 million was up almost 7%. Noninterest income continues to represent more than 20% of total revenue and underscores the strength of our diversified revenue model as we've grown both noninterest income and net interest income at a similar pace. The drivers of noninterest income growth were broad-based. Commercial fees grew overall by 8%, led by 17% growth in cash management revenue, Fulton Financial Advisors continues to be a meaningful contributor to overall fee income. Wealth assets under management and administration surpassed $17 billion in 2025 and referrals from financial centers to our advisers increased 17% or almost $50 million year-over-year. This strong level of activity was supported by significant new opportunities from legacy Republic First financial centers. This highlights our strategy to bring new product and value to acquire customers and grow our overall revenue base. Turning to expenses. We continue to realize benefits from strategic initiatives driving positive operating leverage for the year. Our operating expenses grew by a modest 1.9% in 2025. When normalizing for a full year of Republic First expenses in 2024, our operating expenses would have been down 2.7% year-over-year, a meaningful contributor to profitability and efficiency. Our profitability, liquidity profile and capital position all further improved during 2025. Our operating return on assets improved by 17 basis points to 1.28% as we continue to drive greater efficiencies across the bank. We ended the year with a loan-to-deposit ratio of 91% allowing for continued balance sheet flexibility. Our teams work diligently to grow balances while also managing deposit costs. Our net interest margin was strong increasing 9 basis points to 3.51% from the prior year. Net interest margin ended the fourth quarter at an even stronger position of 3.59% despite several Fed rate cuts. The consistent increase in net interest margin throughout the year demonstrated our relatively neutral interest rate profile. Our strong earnings also supported higher capital ratios helping to grow tangible book value per share by 15%. Our capital ratios ended the year at the highest level seen in more than a decade. Even after we increased our dividend and opportunistically repurchased $59 million of common stock. Credit metrics meaningfully improved throughout 2025. Nonperforming assets as a percent of total assets declined 11 basis points, ending the year at 58 basis points. Net charge-offs for the year remained historically low at 21 basis points as a percentage of average loans. Our allowance for loan losses ended the year at 1.51% of total loans. We believe we are well positioned moving forward. In November, we announced the acquisition of Blue Foundry Bancorp, a strategic move that strengthens our footprint and reinforces our community banking model. We're excited to have our new team members and customers join our organization as we expand our presence in several attractive markets. This expansion positions us to deliver even greater value to our customers and shareholders as we leverage shared strengths and deepen relationships in these communities. Looking forward, we're excited about the opportunities ahead. We focused on making 2026 a year of continued strength, building on our momentum, driving growth and delivering strong results for all stakeholders. Now I'll turn the call over to Rick to discuss our quarterly financial results and provide our 2026 operating guidance. Richard Kraemer: Thank you, Curt, and good morning. Unless I note otherwise, the quarterly comparisons I discuss are with the third quarter of 2025. Loan and deposit growth numbers I referenced are annualized percentage on a linked-quarter basis. Starting on Slide 5. Operating earnings per diluted share were $0.55 or $99.4 million of operating net income available to common shareholders. Net interest income grew 2.8% annualized from the previous quarter, while NIM expanded by 2 basis points despite 75 basis points of Fed rate cuts from September through December. Modest asset growth and positive credit trends, combined with prudent management of deposit costs and a relatively neutral interest rate profile drove much of the linked quarter performance. Total period-end loans increased $103 million during the quarter. Growth was driven across most loan categories and offset by declines in construction balances. As discussed throughout 2025, we continue to proactively work certain credits out of the portfolio that don't align to our long-term strategy. During the quarter, we saw a runoff of approximately $30 million of indirect auto and resolved an additional $211 million of adversely rated loans. In total, these strategic actions aggregated to a more than $800 million headwind for growth in 2025. Apart from the continued planned runoff of indirect auto, we expect the impact of these activities to moderate as we move into 2026. Accordingly, we expect to revert towards our long-term historical organic loan growth trends of mid-single digits. Total deposits grew $257 million or 3.9%. Growth was relatively balanced across categories as interest-bearing deposit balances grew by $137 million and noninterest bearing grew by $120 million. Our consumer business was a key driver of deposit growth. Commercial deposits and the number of commercial accounts remain stable. However, this segment did see a rebound in noninterest-bearing balances of $40 million. Municipal deposits decreased $254 million, while other wholesale funding, including broker declined $29 million. Finally, our loan-to-deposit ratio was unchanged, ending the quarter at 91%. Moving to the investment portfolio. Securities decreased $212 million as prepayments accelerated from previous periods. Investments as a percentage of total assets were 15%, a level that continues to provide balance sheet optionality moving forward. AOCI improved by $29 million. Net interest income on a non-FTE basis was $266 million, a $1.8 million increase linked quarter as net interest margin expanded 2 basis points to 3.59%. Loan yields declined 11 basis points to 5.82%. Fixed rate asset repricing continues to provide some benefit to loan yields in the face of declining short-term rates as illustrated on Slide 22 of our earnings presentation. Over the next 12 months, we have approximately $5.7 billion of fixed and adjustable rate earning assets subject to repricing, currently at a blended yield of 5.01%. Of note, accretion interest was down $2.2 million linked quarter to $10.5 million. For the quarter, our average cost of total deposits decreased 10 basis points to 1.86%, while our total cost of funds declined 13 basis points due to quarterly wholesale repositioning aided by customer deposit growth. Through the current rate cutting cycle, our cumulative interest-bearing deposit beta has been 30%, while our total deposit beta has been 20%. Our deposit pricing strategy continues to balance the desire to fund future balance sheet growth, while defending margins. Turning to Slide 7. Noninterest income for the quarter was stable at $70 million. While consolidated fees were flat, we saw strong linked quarter growth within our Wealth, Capital Markets and SBA businesses. Noninterest income as a percentage of total revenue equaled 21% for the fourth quarter. Moving to Slide 8. Noninterest expense on an operating basis was $204 million, an increase of $12.7 million linked quarter. This increase is mostly attributable to salaries and benefits driven by higher accrual expense of $7.5 million related to variable compensation due to continued strong annual performance. Other noteworthy items in the quarter amounted to $2.5 million and included unseasonably high snow removal costs and elevated health care claims. As in these expenses, our quarterly and annual expenses would have been within our previously expected ranges. Of note, core salaries increased less than 1% from the prior quarter. Items excluded from operating expenses as listed on Slide 8 include charges of $5.4 million of core deposit intangible amortization, $2.8 million of Fulton first implementation and asset disposal and $802,000 of acquisition-related expense. Turning to asset quality. Provision expense of $2.9 million was lower than last quarter and below our expected range. The quarterly provision was positively impacted by a $5 million recovery from a loan acquired in the Republic First Bank acquisition. As Curt mentioned, we saw positive trends throughout the book. Net charge-offs increased slightly to 24 basis points, while nonperforming assets to total assets improved 5 basis points to 0.58%. Our allowance for credit losses to total loans ratio decreased from 1.57% to 1.51%, while our ACL to nonperforming loan coverage increased to 198%. Slide 10 shows a snapshot of our capital base. We maintain a healthy capital position that provides us with balance sheet flexibility. During the quarter, we repurchased 1.1 million shares at a weighted average cost of $18.34. In December, our Board approved a new repurchase authorization of $150 million, which is in effect through January of 2027. Inclusive of share repurchases, internal capital generation was robust at $77 million. Our tangible common equity to tangible asset ratio increased to 8.5% while CET1 increased to 11.8%. On Slide 11, we are providing operating guidance for 2026. Our guidance assumes 125 basis point Fed cut in March and assumes our previously announced acquisition of Blue Foundry Bancorp closes early in 2Q '26. Our 2026 guidance is as follows: Net interest income of $1.120 billion to $1.140 billion. Our NII guide assumes an annual FTE adjustment of $16 million to $18 million. Loan loss provision expense of $55 million to $75 million. Noninterest income of $285 million to $300 million. Operating expense of $800 million to $835 million. An effective tax rate of 18.5% to 19.5%. Finally, nonoperating expenses of approximately $60 million, which includes $22 million of CDI and $36 million of merger-related costs. With that, I'll now turn the call over to the operator for any questions. Operator: [Operator Instructions]. Our first question comes from the line of Daniel Tamayo with Raymond James. Daniel Tamayo: Maybe starting on the loan growth guide, the mid-single digits in '26. I appreciate your comments around the lenders that were hired recently and the -- some of the headwinds that were there in '25 that are no longer there in '26. Maybe you could quantify that a bit for us. Just give us a sense for what that headwind won't be? And if there's a way you can quantify the lenders? And then if there's any number you could put around what you're assuming in paydowns as well. Curtis Myers: Yes, Danny, just a little color on that overall. As we look back on last year, we had more than $800 million of headwinds around strategic actions that we took derisk the portfolio, get the portfolio where we wanted it to be. So we see those things moderating. And I think that's a big -- if you look back on last year, we feel it's about 3.5% organic growth, eliminating those headwinds. So just that really gets us back close to those long-term trends. And then as we get the increased productivity, additional people in really every area of the company from our Fulton First initiative. We're really building productivity. So we've added bankers in commercial banking, business banking, SBA. We're moving all of those teams forward just from an overall count. And we're doing that kind of each quarter. So it's not big teams that we're adding. It's a person or 2 or a small team and we just continue to build that momentum. If you look at underlying originations for each of the quarters this year, we built momentum. Originations were up each quarter. The pipeline is up year-over-year as well. So as we stand here today, we're confident getting back into that mid-single-digit range and then continuing that momentum to move it forward. Daniel Tamayo: And any commentary on the paydown assumptions relative to where you've been? Curtis Myers: Yes. So as we look for -- obviously, we rolled the maturities forward. We make assumptions on just business happening. So we really don't see just the normal portfolio paydowns and prepayments of really any different year-over-year. Again, what in 2025, it was really the strategic actions that we took that were the headwinds. So we really don't see underlying changes in those prepayment activity. We feel pretty good about the ability to forecast those. Daniel Tamayo: Okay. Terrific. And then maybe just a clarification on the loss provision guidance as to how you're getting there. Quick math for me as I'm working through my model. It looks like either the net charge-offs would need to come down off the fourth quarter level or the reserves would need to come down. Are you -- maybe just a little color on how you're thinking about the provision next year. Richard Kraemer: Yes. Danny, it's Rick. Yes, look, I think all else equal, obviously, thinking about mid-single-digit growth you're kind of backing into it, you would -- in a stable environment, you'd continue to see allowance kind of drift a little bit lower, assuming, like I said, assuming a stable credit environment and a stable economic environment. So you're right. I think from a charge-off perspective, relatively flat with what we've seen this year is what we're expecting. Operator: Our next question comes from the line of David Bishop with Hovde Group LLC. David Bishop: I'm curious, as you talk about or think about the mid-single-digit growth rate next year, just curious, do you think the distribution of the loan mix changes materially in terms of the new hire? Or do you think that's going to come more out of the C&I book versus CRE. Just curious how you're thinking about production next year. Curtis Myers: Yes. So overall, what served us really well over the long term is having a diversified loan book. So our strategy is to grow each of those segments. They do grow at different paces over time. We think we have opportunity in CRE, C&I, business banking, all of those categories, we feel that, that could be drivers to the accelerated organic growth and we have a balance sheet mix that we can really lean in and grow any of those at normal pace or even accelerated pace. You look at our CRE concentration, it's below 200%. We're selective but it's a good position to be in, and we really want to grow all categories. But we think specifically in those 3, we can do a little outsized growth year-over-year. David Bishop: Got it. And then in terms of the OpEx guide, you mentioned some of the hiring you've done here. So excluding the Blue Foundry deal, do you think you're going to be more aggressive maybe in some of the New Jersey markets in terms of looking to add bankers up in that market relative to maybe some of the legacy Pennsylvania footprint? Curtis Myers: Well, specifically on the guide on expenses, like we're always active in recruiting talented people to join the team. So there's really nothing specific in the guide other than normal opportunistic hires in the marketplace. That's an ongoing effort really in all year. So we have that baked into the normal run rate around continuing to be able to add to the team. There's nothing in the guide that's outsized in expenses for new hires. Operator: [Operator Instructions]. Our next question comes from the line of Matthew Breese with Stephens Inc. Matthew Breese: I was hoping you could help us out with deposits. We'd love your thoughts around deposit growth for this year, including some composition thoughts? And then, Rick, if you have it either at the period end or most recent cost of deposits, just to give us some sense of trajectory on the overall cost of funds. Curtis Myers: Yes, Matt, just a little bit on deposit growth. We feel we do have some good momentum. We referenced some of the account opening and customer engagement things that we've been doing that are driving momentum. Again, it's consumer, small business are really outsized there. We referenced the treasury performance. We referenced it in a fee income basis, 17%, but that's a really good generator of low-cost operating deposits. So really, in all those categories, consume -- just core consumer, kind of always building that, really good momentum in business banking. And then on treasury and cash management on the corporate side, we have some outpaced momentum there as well. So those are the categories that we feel really good about the teams driving growth. Richard Kraemer: Yes, Matt, maybe just -- just on your spot question, we finished December at 1.80%. So about 6 bps lower than the quarterly average. Matthew Breese: Got it. Okay. And then, Curt, I heard you on the pipeline sounds strong. I would love any sort of percentage comparison. I know I think you said it was up year-over-year. And then I heard you talk a little bit about kind of more diversified loan growth as you integrate Blue Foundry. Curious, geography-wise, given their geography in Northern New Jersey, what are your thoughts on kind of inching into the Metro New York City market for commercial real estate? And I just love your thoughts around that. Curtis Myers: Yes. So first, on the pipeline. So I was specifically referencing the commercial pipeline, and that's up more than 10% year-over-year. So it's a marked improvement. We've seen a little improvement in the pull-through rate too. You've heard me talk about that before, not just things in the pipeline, but customers actually spending the money and moving forward with the project or purchase. We see a little positive momentum there as well. So a couple of those factors, I think, really help us be confident in that momentum as we move forward. Then on geography, we really like the Northern New Jersey market. We're in that market. This acquisition fills out gives us a good franchise there, crossing the state lines there is not within our strategy. Matthew Breese: Great. And then last one, I guess for Rick or Curt, just a couple of nitpicky questions on fee income. Could you help me out with, first of all, your thoughts around commercial interest rate swap income. It's a bit all over the place, but the fourth quarter was stronger than I was anticipating. What's a good run rate there? Or what are you expecting there? And then the other one is just other fee income dropped quite a bit this quarter, and I'm curious what you're expecting for run rate there as well? Curtis Myers: Well, Matt, first, on the swap income, that really tracks with originations, and it's typically the larger deals that would have a swap versus a fixed rate, so that you're right, that does bounce from quarter-to-quarter and it really ties and correlates to originations and some larger originations. So it's natural as you seeing growth and origination accelerate in the fourth quarter. That's pretty in line with what we would expect from the derivatives too. Richard Kraemer: And Matt, on the other component, I would say it's a little bit in that other really driving, call it, that quarterly volatility is income from equity method investments. So over the course of the year, we had a couple of that improved in valuation. And then in the fourth quarter, we had one that declined about -- well, the net of it was around $1.7 million. So probably $2.5 million is a reasonable level for that on a normalized basis. Matthew Breese: Great. I'll leave it there. Thank you. Operator: Thank you. And I'm currently showing no further questions at this time. I'd now like to hand the call back over to Curt Myers for closing remarks. Curtis Myers: Well, great. Thank you, everyone, for joining us today. Hopefully, you'll be able to be with us when we discuss first quarter results in April. Thank you. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Jacob Lund: Good morning, and welcome to Investor's Q4 and year-end results for 2025. I'm joined here in the studio in Stockholm by our CFO, Jenny Ashman Haquinius; and our CEO, Christian Cederholm and both will soon be giving their presentations. After that, as usual, we'll be opening up for questions, both on the call via our operator and online. And with that, over to you, Christian. Christian Cederholm: Thank you, Jacob, and hello, everyone. As we look back on the past year, it's clear that 2025 was anything but straightforward. The world remains impacted by significant geopolitical uncertainty. Now despite these headwinds, the global economy delivered decent growth. And in this environment, our companies are doing a good job balancing profitable growth here and now, including focus on efficiency and cost out whilst continuously investing to future-proof their businesses. Let's take a closer look at how we performed over the last year. So 2025 turned out a strong year for Investor. Adjusted net asset value grew by 14%, and our TSR, total shareholder return, was 15%. Listed companies total return amounted to 22%, and we strengthened our ownership in Ericsson and Atlas Copco for a total investment of about SEK 2.3 billion. Patricia Industries total return was minus 9% with considerable headwind from the weaker U.S. dollar. Operationally, it was a good year in total for the major subsidiaries. And in addition to organic growth of 4%, the companies made add-on acquisitions for a total of SEK 24 billion, of which Patricia funded about SEK 16 billion with the rest funded by the portfolio companies themselves. The biggest one by far, of course, being the acquisition of Nova Biomedical. Investments in EQT generated a total return of 15%. And here, we also made our first co-investment, Fortnox, alongside EQT X, exploring another way to create value together with EQT. Lastly, supported by a strong balance sheet and cash flow generation, Investor's Board of Directors proposes a dividend of SEK 5.60 per share for fiscal year 2025. This represents an increase of SEK 0.40 or 8% over last year. At the end of the year, adjusted net asset value stood at SEK 1,087 billion. Now let me briefly go through the 3 business areas. Starting with Listed that represents about 70% of our assets. Listed Companies generated a total return of 6% in the fourth quarter. Investor received proceeds of close to SEK 900 million or SEB shares divested in Q3, so the last quarter to maintain our ownership level as the bank continued to buy back shares. Portfolio companies continued activities focused on future-proofing their businesses. So as an example, Sobi announced its acquisition of Arthrosi, expanding its portfolio within gout with a promising Phase III drug. Wärtsilä announced the divestment of its gas solution business, further focusing the Wärtsilä portfolio. Now over to Patricia Industries, which represents about 20% of our portfolio. Total return in the fourth quarter was 1%, driven by earnings growth and multiple expansion, offset by significant negative currency impact. While reported sales declined by 5%, our major subsidiaries grew sales 5% organically. Adjusted EBITDA declined by 6%, heavily impacted by the same negative currency effects I mentioned and with some costs relating to restructuring initiatives in a couple of the companies. We saw continued high activity in Patricia. For example, Laborie announced the acquisition of the JADA system, expanding its offering within obstetrics for a potential maximum value of USD 465 million. Sarnova completed 2 add-on acquisitions for a total of $165 million, strengthening Sarnova's software offering for revenue cycle management. Also, we contributed SEK 200 million to Atlas Antibodies to strengthen the balance sheet after a period of weak demand and performance. Mölnlycke and BraunAbility distributed a total of SEK 4.1 billion to Patricia Industries in the fourth quarter. All the major subsidiaries and our 40% in 3 Scandinavia in aggregate, including the combined Nova Biomedical from Q3 and onwards, reported last 12-month sales stood at SEK 68.4 billion, and EBITDA was SEK 17.2 billion. We should note here that this is in Swedish krona, so of course, rather sensitive to FX. And finally then, investments in EQT, our third business area, which represents about 10% of the portfolio. In Q4, total return for investments in EQT was 8%, driven by strong share price development in EQT AB. Net cash flow to Investor was SEK 1.2 billion with approximately SEK 0.9 billion net inflow from EQT funds, driven by continued healthy exit activity in the funds. During the quarter, we also completed the very last part of our SEK 4.5 billion investment in Fortnox. So it was a strong quarter and a strong year. But as always, our focus is on the future. I'm confident in our strong platform. Investor has a clear purpose and a focused strategy, a portfolio of high-quality companies, an ownership and governance model that is well proven and great people, both at Investor and in our network and in the companies. And we have financial flexibility with low leverage and strong underlying cash flow. Our strategy towards 2030 is clearly defined and well aligned with our purpose with the ultimate target, of course, of generating an attractive shareholder return. Our objectives are to grow net asset value, to pay a steadily rising dividend and to operate efficiently and sustainably. We will remain focused on our 3 strategic pillars: Performance, portfolio and people. And let me say a few words about each of these. Performance first. While it varies between industry segments and geographies, overall demand remains lukewarm. In addition, the U.S. dollar is down significantly and tariffs need to be managed and the geopolitical situation remain profoundly unpredictable. Against this backdrop, companies need to focus on efficiency here and now to drive profitable growth. At the same time, focus on future-proofing initiatives is critical to ensure long-term competitiveness. This includes, for example, R&D, other investments for innovation, expansion of sales, including to new geographies and investments to leverage the potential of AI and other new technologies. So moving to portfolio then. Based on our financial strength and strong cash flow generation, we continue to seek attractive investment opportunities across all 3 business areas. This includes additional investments in our listed companies, add-on investments and potential new platform companies within Patricia Industries and continued investments, of course, in and together with EQT. Ultimately, the allocation will depend on where we find the best opportunities. And finally, people. Given the rapid transition pace in all industries, we have to ensure that the right people are driving our companies. With 24 portfolio companies and around 200 board seats across the portfolio, talent sourcing and succession planning is a top priority for us. So near-term priorities are clear, and we have a lot of work cut out for ourselves. With that, I'd like to leave the word to Jenny to talk more about our financials. Please, Jenny. Jenny Haquinius: Thank you, Christian. Yes, so let me take you through the financials for the quarter. So in Q4 2025, adjusted net asset value was SEK 1,087 billion, and this implies an increase of 6% compared to Q3. For the quarter, all business areas contributed positively. Investments in EQT increased with 8%, Listed Companies with 6% and Patricia Industries with 1%. So this implies a total return of 6% for the quarter and 14% for the full year. And now double-clicking on each of the business areas, and I will start with Listed Companies. So within Listed Companies, share price performance was mixed, but with positive share price development in almost all companies, particularly strong quarter for the Electrolux share, followed by AstraZeneca, Wärtsilä, Ericsson and Sobi. Saab and Husqvarna, however, had a tougher quarter looking at total return. Total return for the Listed Companies portfolio was 6% and largely in line with SIXRX. And as for absolute contribution, it paints a similar picture, but with AstraZeneca and Atlas Copco in the top due to the weight in our portfolio. All in all, a solid quarter for the Listed Companies portfolio. And then moving on to Patricia Industries. For the quarter, the Patricia Industries portfolio, so the major subsidiaries, grew 5% organically, while the adjusted EBITA declined by 6%. For the full year, organic growth was 4% and the adjusted EBITA declined by 1%. And as a reminder, we are restrictive when it comes to EBITA adjustments. So in the 6% drop in EBITA for the quarter, we have only adjusted for transaction costs related to M&A and one-off costs related to CEO transitions. Other than that, and of course, then not adjusted for and hence, still weighing on the adjusted EBITA margin, we have negative impact from FX, so the stronger SEK and also tariffs as well as restructuring costs to unlock efficiencies in several of the companies, and we deem this as part of ongoing operations. And now double-clicking on performance across the companies in Patricia Industries. And first to highlight a few positives. We saw a second strong quarter for BraunAbility, in part explained by a relatively weak comparison quarter, but also due to strong demand. Profitability improved, but coming from a depressed level in Q4 2024. Nova Biomedical had a solid quarter in terms of growth and profitability. Growth was partly helped by recovery following the cyber incident in Q3. Integration is progressing according to plan, and this includes initiatives such as merging the organizations and implementing a common ERP system. And this, as we mentioned last quarter, may have an impact on sales and earnings near term. We also do know that Q1 last year was a particularly strong quarter for the acquired part of the business. Laborie continued to see solid growth, driven by a large extent the Optilume urethral strictures product. Reported profitability for Laborie was down as it includes USD 11 million in cost for the JADA acquisition and the CEO transition. If we were to adjust for this, profitability was still down, but only slightly on the back of commercial investments. Permobil and Piab had a more challenging quarter. Permobil is experiencing muted growth, and that's primarily explained by negative impact from the voluntary product recall of the Power Assist device announced in Q3. But positive to see good cost containment and a slight increase in EBITA margin, and this is despite SEK 32 million in restructuring costs. Piab had a quarter with negative organic growth, and that's on the back of weaker customer demand, particularly in the semiconductor market. Generally, Piab's end markets have been more choppy following the introduction of tariffs and increased geopolitical disruption. Lower sales impacts margins together with negative FX and tariffs as well as SEK 37 million in restructuring costs to drive efficiencies. And finally, on to Atlas Antibodies, we contributed SEK 200 million to strengthen the balance sheet. And this is to give room to the relatively new management to execute on the plan. And we do see that roughly 70% of the business is recovering, but we still see challenges in terms of soft market and competition for the evitria part of the business. And over to Mölnlycke. So Mölnlycke had a solid quarter with 3% organic growth, and this was primarily driven by Wound Care. So Wound Care grew 5% organically and Gloves 3% organically, and this was somewhat offset by a contracting ORS. On a general basis, we see continued good momentum in U.S. and China, while softer markets in Europe and the Middle East. In Europe, as mentioned before, there are pressures on health care budgets and that's specifically in Germany and France. And in the Middle East, we see customers with relatively high inventory levels. Profitability for Mölnlycke improved, and this is despite negative impact from FX and tariffs, and this is driven by positive product mix, but also lower cost on the back of continuous work with efficiency improvements. And Mölnlycke distributed EUR 200 million to Patricia Industries in Q4. We saw a 1% increase in estimated market values compared to Q3, so from SEK 223 billion to SEK 225 million. And this increase was explained by earnings growth in the portfolio companies as well as cash flow generation and, to a lesser extent, also expansion in valuation multiples. However, the increase was essentially offset by a negative impact from currency. And looking at value development across the companies, we can say that the main contributors for Q4 were Nova Biomedical and Laborie, while Sarnova and Piab was a drag on total value. For Sarnova, mainly due to multiples and for Piab, mainly lower earnings. Also worth highlighting is the distribution, so roughly SEK 2 billion from Mölnlycke and BraunAbility, respectively as well as the already mentioned equity contribution to Atlas Antibodies of SEK 200 million to strengthen the balance sheet. And now moving on to investments in EQT. So total value change was 8% in the quarter, and that's primarily driven by EQT AB, which was up 14%. Fund investments were essentially flat. And as a reminder, we report EQT fund investments with 1 quarter lag. So the 0% is based on EQT's Q3 report. On the right-hand side, we illustrate the net cash flow from EQT to Investor, which was roughly SEK 1 billion in the quarter, and this is driven by exit proceeds as well as dividend from EQT AB. And here, we have an illustration of the net cash flow from investments in EQT over time. While it's quite lumpy on a quarterly basis, over the past 10 years, we've received a net cash inflow of SEK 1.6 billion on average per year. And the LTM net cash flow is a negative SEK 2.4 billion. However, this includes SEK 800 million in acquisition for EQT AB shares and also SEK 4.5 billion in investment in Fortnox. If we were to adjust for this, net cash flow on an LTM basis is a positive SEK 3 billion. Our balance sheet remains strong. Our leverage as of Q4 is 2.1%. So it remains in the lower end of our policy range despite significant investments. And we closed the year with SEK 27 billion in cash at hand. All of our 3 business areas generate cash flow to support investments and a steadily rising dividend to shareholders. And as you know, from Listed Companies, we receive ordinary dividends as well as extraordinary dividend. In Patricia Industries, the portfolio companies generate cash flow, which can be reinvested in the companies or paid in distribution. And for investments in EQT, we have an ownership in EQT AB, which yields an annual dividend as well as fund investments where cash flow is, by definition, lumpy because it's dependent on drawdowns and exits, but it remains a strong contributor to cash flow over time. Since 2015, we have received total funds from all of these 3 business areas of SEK 216 billion, and note here that EQT is net cash flow in the pie chart to the left. The use of proceeds is illustrated on the right of more than 50% has been distributed to shareholders, roughly 30% has been reinvested in Patricia Industries and north of 10% in Listed Companies. So this platform with 3 strong business areas provides a broad-based cash flow that supports continued growth and distributions. The incoming funds provide strong investment capacity and have been deployed across all of our 3 business areas. 2025 was a record year in terms of investments, and this has been executed on while maintaining a strong balance sheet going into 2026. While sustaining this high level of investment activity, as mentioned, more than 50% of incoming funds have been distributed to our shareholders. We have continuously delivered on our commitment to pay a steadily rising dividend, and we continue to do so also in 2025. So the dividend proposal for 2025, as Christian has already mentioned, is SEK 5.6 per share, which is an increase of SEK 0.4 per share compared to 2024. And this applies an average annual growth of 8% over the last 10 years. And then on to my final slide. So looking at the longer-term perspective, the performance of the Investor ABB share truly illustrates the strength and the resilience of our portfolio and strategy. So with that, I will leave the word back to Jacob. Jacob Lund: Thank you, Jenny. Thank you, Christian as well. We are now ready to take your questions, and we will start with the questions through our operator, Sharon. Sharon, please. Operator: [Operator Instructions] And your first phone question comes from the line of Linus Sigurdson from DNB Carnegie. Linus Sigurdson: Starting off with a question on Mölnlycke and Mölnlycke growth. Is there any visibility on these France and Germany headwinds subsiding? Or should we expect this effect to persist in the foreseeable future? Jenny Haquinius: I can start. Thank you for the question, Linus. It's quite hard to say. We are seeing muted growth across many sectors at the moment, given what we're seeing globally. And specifically for Mölnlycke in Europe, there's weakness in France and Germany, and that is because there's a lot of pressure on health care budgets. But it's really hard to say if that would look any different in the next quarter, but really good to see continued momentum in the U.S. and China. Christian Cederholm: And maybe just to add, I think it's fair to say that this started somewhere during the first half of last year. But to Jenny's point, we don't really have visibility on the future development. Linus Sigurdson: That's fair. And then on the margin in Mölnlycke, is it fair to assume that the sort of tariff and currency impacts on profitability there are in line with previous quarters? And I mean, with 30-plus EBITDA margin, have we sort of already reached the potential for the efficiency program? Jenny Haquinius: Well, I can start. I would say that for the companies impacted by the tariffs, on a general basis, they're doing a really good job to mitigate, but it's roughly 1 percentage point or so still impacting margins. In terms of FX for Mölnlycke for this quarter, it's roughly 3 to 4 percentage points in negative FX. And Mölnlycke is doing a really good job working with efficiencies and really demonstrated that in this quarter. Then, of course, that's ongoing work because it's a mix of travel restrictions, using less consultants and also finding more sustainable efficiencies. So I think that work will continue also through 2026. Linus Sigurdson: Okay. And then my final question is a more general one. When you talk about solid cash flow in the coming years and this ambition to accelerate investments, could we view this as a comment on, say, EQT exit markets and the potential for, for example, Nova Biomedical start generating dividends to investors after the integration? Christian Cederholm: Sorry, can you repeat the question? You were asking about our comment on accelerated investments and the cash flow, and then I didn't quite follow. Linus Sigurdson: Yes. I mean, implicit in that statement is accelerating cash flows to fund those investments. So just -- is there anything you can comment on in terms of where those cash flows will come from? Christian Cederholm: Okay. I can take a first crack. So thanks, and it's a good question. And really, the way we think about it is we look at the cash generation from the 3 business areas. And when it comes to Patricia and you were asking about Nova, the way we think about it there is that really the cash flow generated and the debt capacity generated in the subsidiaries is all a potential funding source for acquisition and/or distribution. And really, cash is sort of a corporate asset. So whether it's distributed or not is maybe not the key point, but rather that the underlying cash generation in these businesses is solid. Does that answer your question? Linus Sigurdson: Yes. Operator: And your next question comes from the line of Derek Laliberte from ABG Sundal Collier. Derek Laliberte: I wanted to ask on Mölnlycke. You say the prevention and post-op were strong product segments in the U.S. I was wondering if you could give some more insight on why these areas are performing so strongly now and which product areas perhaps aren't doing as well. Also, I'm wondering if the product mix is similar in Europe in terms of performance right now. Christian Cederholm: I can start on that. I think the main difference we see is relating to the different geographies, as Jenny mentioned. And when it comes to product mix and channel mix, maybe the one thing to say there is that in the U.S., we're more heavily leaning on acute and hospital, while in Europe, including in France, for example, we have more towards post-acute and even some home care. Jenny Haquinius: And I could also add to that maybe that the Prevention segment is larger in the U.S. because of the reimbursement structure. So there's a clear market for that in the U.S., which is very different compared to Europe as well. Derek Laliberte: Okay. Great. That's very helpful. And on Laborie, what's the status on this BPH product, is it reasonable to expect any meaningful contributions from that during '26? Jenny Haquinius: Well, we don't really provide guidance, but what we can do say is that for this quarter, as we mentioned, the growth is a lot driven by the urethral strictures product. But as of now, we do have an active reimbursement in the U.S. for the BPH product. So we continue investing behind that launch. And of course, it will also depend on the reception in the market, et cetera. But the launch is very much ongoing, and we are very optimistic about the long-term runway with both of these products. Derek Laliberte: All right. And regarding Nova Biomedical, looking at the combined company now, I was wondering how the geographical split looks like, how high is the share of U.S. sales, for example? Christian Cederholm: We provided that in the last quarter. Let us come back to that. Derek Laliberte: Yes, absolutely. That's fair. And on Three Scandinavia, I was wondering generally here, the background, I think the growth looked pretty strong here in Q4 and actually over the year. What's driving this growth? Is it mainly continued market share gains or also some price increases involved here as a contributing factor? Christian Cederholm: Well, yes, we agree. Three has been continuing to gain market share, as you can also tell from the subscriber growth numbers. And then with regards to price, I mean, it remains a fiercely competitive market, of course, but at least they have been good at holding prices. That's what I would say on that. Derek Laliberte: Okay. Great. And finally, if I recall correctly, on Sarnova, you have this high inventory situation with distributors affecting market demand and so on. Is it fair to say that this has subsided now? Christian Cederholm: Thank you. Yes, this is primarily relating to the AED or cardiac response business. And really, what we see there is it is continuing to be a tough market. However, on a sequential basis, it has been more stable recently. And then, of course, inventory could be one part in that. Operator: We will now take the next question. And the question comes from the line of Jakob Hesslevik from SEB. Jacob Hesslevik: First, on demand navigation. So several businesses face weak demand and cautious demand in their segment. How do you differentiate between cyclical weakness that require patience versus structural challenges requiring strategic pivots? Christian Cederholm: I can start there. Well, so really, what we try to track, if I start there is, one, of course, total market development, but also we're benchmarking with a certain cadence so as to make sure that we understand whether we're gaining, holding or potentially losing market share. And there, I think it's fair to say that for the majority of the portfolio, we're confident that we're holding or increasing market share. And then the other part of your question was whether -- to what extent we see structural weaknesses in markets. And that's, of course, something we continuously evaluate. And generally, when it comes to investments, we're quite keen and that's one of our top criteria to make sure that we are in industries where we see, call it, GDP plus rather than GDP or GDP minus growth. And of course, sometimes that changes over time. And then we make sure we keep track of that. Jacob Hesslevik: Great. And then double-clicking on the currency exposure management. So FX headwinds significantly impacted Patricia Industries performance during this year. It should have affected your Listed portfolio as well given its large exposure towards exports. But beyond the operational efficiency improvements mentioned, what strategic actions are you considering in order to manage your FX exposure across the portfolio more efficiently, especially to hedge the Patricia portfolio that seems to be more sensitive to USD weakening while not having a professional treasury department helping out, which you can maybe found in most of your listed portfolio. Is this something you're looking into how you can help out Patricia more in managing their exposure? Christian Cederholm: Thank you for the question. Well, as you allude to, our main way of, let's say, balancing FX exposure is by way of operational hedging, i.e., to try to have the costs where we have the revenues and the income. Now despite that, we do have a significant earnings stream in U.S. dollar, thanks to our presence and strong market positions in the U.S. When it comes to sort of further hedging within the companies, we typically don't engage much in that. But rather, we want the FX effect to be seen immediately and then addressed and dealt with. So with a long-term perspective, the changes and the FX environment will be a reality and will hit. So we'd rather just see it upfront and then try to deal with it. The only additional hedging we do is we try to match our debt currency with what our underlying cash flow is per currency. So for example, if you have a company with a lot of earnings in U.S. dollars, it's appropriate to have some level of U.S. debt there as well. Jacob Hesslevik: Okay. And then just finally on Atlas Antibodies. Following the goodwill impairment and now equity contribution, what strategic options are you evaluating for Atlas Antibodies? I mean it's a holding from back in the days when it was called investor growth capital. It is still a very small investment and contribute limited to NAV. Why are you not looking into divesting this holding? Jenny Haquinius: Yes. Well, thank you for the question. First and foremost, so we are contributing the SEK 200 million, and that is to give management some room to execute on the plan. And we have a clear plan. I think we also mentioned in the presentation that roughly 70% of the business is doing well, while we have the 30% evitria business, which is struggling, and that's on the base of weaker market demand. But we have belief in management and also the plan to continue to build on Atlas Antibodies. So that's what we are focusing on here and now. I don't know if you want to add something. Christian Cederholm: No. As alluded to previously, I mean, you have 2 out of 3 business areas that are performing well. And the struggle we see is within evitria. Jacob Hesslevik: Yes. Fair enough. I'm just thinking about the time it takes versus the size of the company relative to the rest of your portfolio, maybe we can come back to Atlas in the future? Christian Cederholm: No, but I think the one thing to say there is maybe that, of course, with Atlas Antibodies as with the other companies, our ambition is to grow it bigger over time, for sure. Jacob Hesslevik: No, I agree. It should -- it's just it hasn't really grown over the past 15 years. It's not that much larger than it was when it came out of Investor Growth Capital. But it's clear. Thank you for the elaboration at least on the business performance in the name. That makes a lot of sense. Christian Cederholm: May I just, before we take the next question, come back to the question on the geographic split on the combined Nova Biomedical business. And then the numbers are roughly 60% North America and then the other 40% is roughly equally divided between Europe and rest of the world. Operator: [Operator Instructions] And your next question comes from the line of Johan Sjöberg from Kepler Cheuvreux. Johan Sjöberg: I hope you can hear me. My question is, if you start off with the Wound Care business and looking at the growth rates over the last year, it seems like you continue to be in the high single-digit growth area. And my question here, going forward here, I heard your comments on especially what's going on in Europe here. But do you see any change to that or any -- I mean, over the next, say, like 3 years, whatever, is that the sort of -- do you see any change to the market that would sort of change that picture, if you take some sort of a helicopter view on that one, please? Jenny Haquinius: Yes, I can start. And I think the short answer is, not really. So no clear change. I think looking at the full year, Wound Care specifically grew 7% organically and was 5% in the last quarter. And that is, as we've talked about before, in a market that's growing low to mid-single digit. So Mölnlycke has continued to take market share within Wound Care on the back of a strong product offering, very much focused on the customer. And we, of course, have the absolute aim to continue to do so by continuing to investing in innovation and also go-to-market. And then in addition to that, we also have new geographies. So we are investing in China, where we now have local production. And there we, of course, are seeing potential for higher growth. And then also the investments and the building presence in the post-acute channel, which is also an addition because Mölnlycke has historically had the strong position in acute, and that will also add potential avenues for higher growth. So we're not seeing anything differently now. But of course, in the more short-term perspective, we will always have markets that can be under pressure like we're seeing now in Europe. Johan Sjöberg: That's great. And also, Jenny, can I ask you on EQT funds, EQT reported today also and sort of you -- given a quarter lag on your -- the reported value of EQT funds. Should we expect any shift -- or put it like this, is there any material change if you were to use the Q4 numbers compared with the Q3 numbers? Jenny Haquinius: No, the short answer is that there will not be a material change, at least not for this quarter. Johan Sjöberg: No, good. Then also FX is all over the place right now or rather going in the wrong way, you can say, to some extent. How -- what -- could you sort of give some sort of indication? We know about the domicile of all the companies, but just to get a feeling for what is sort of the -- what is the most important currency to look at? Is it Euro-Dollar, is it the Euro-SEK or the U.S. dollar-SEK, just to see sort of the flows within the company, so to speak here, because it is a little bit big movements, to put it mildly. Christian Cederholm: I assume you're referring to the Patricia portfolio? Johan Sjöberg: Yes. Christian Cederholm: So this is what I would say. First of all, the #1 exposure is, of course, to the U.S. dollar, just given our big presence there with some U.S. domiciled companies, but also for a company like Mölnlycke and Permobil, I mean, the U.S., clearly the single biggest market for many companies. And then in Swedish krona, for most of the Swedish domiciled companies or the global, I should say, Swedish domicile companies, you would typically look at SEK exposure that is or krona exposure, where we sort of short the krona because we have headquarters here, R&D, et cetera. But of course, sales in Swedish krona is typically quite limited. And then thirdly, just to comment on the euro, I think from Mölnlycke, in particular, it's worth to highlight that we do have manufacturing for Wound Care, for example, in the U.S., in Maine. That said, we are still net exporting from Mikkeli in Finland and so from euro into U.S. dollar. So that's another one to keep track of. Johan Sjöberg: Okay. Cool. My last question, it's really about -- I mean, some of your portfolio companies are talking about also the hesitance among customers to place orders due to tariff uncertainty, geopolitical stuff and everything like that. I would like to hear your thoughts upon, especially when you're looking at -- or you are looking for a platform acquisition or if your companies are doing an add-on acquisition, do you see that being impacting, well, sellers and buyers also here in terms of hesitance. I know one thing is the sort of valuation, but that's always a thing you can say. But this geopolitical stuff here, is that something which is also sort of hindering your M&A ambitions in both platform and add-on? Christian Cederholm: Thanks for the question. I would not say that it's sort of the major obstacle. But of course, all the factors that you point to just add to the general sort of uncertainty in terms of deciding what's the underlying earnings, et cetera. That said, on a lot of things that we're looking at, for example, in the health care and life science market, tariffs, for example, is sort of not the biggest factor driving that. So it certainly adds to the unpredictability and uncertainty, but it's not a -- I would not call it out as a major obstacle for doing transactions as proven also in the recent year where we've done lots of add-on acquisitions, for example. Operator: Thank you. There are currently no further phone questions. I will now hand the call back to Jacob for webcast questions. Jacob Lund: Thank you very much, Sharon, and let's take the questions from the web. We can start with one from [ Tommy Falk ] around the dividend for 2025. Maybe add some flavor to that, Jenny. Jenny Haquinius: Yes. Well, thank you for the question. Well, I think, first of all, the dividend proposal is the Board's proposal to the AGM and for the AGM to decide. But maybe some flavor commenting on the SEK 0.40 increase. It seems balanced looking at our robust balance sheet and also view on cash flow generation and investments. And I think the SEK 0.40 is also really a testament to the fact that we have 3 business areas generating cash flow that really supports continued growth, also investments and delivering on our dividend policy to pay a steadily rising dividend. Jacob Lund: Next question, [indiscernible]. Please, how Investor AB is engaged in rearm Europe programs or other defense investments globally? Would you like to pick that up, Christian? Christian Cederholm: Yes, I'll take a crack at it. So Investor AB as such is not particularly involved in this. But of course, the build-out of the defense of Europe means business opportunities for Saab quite obviously, but also for other companies. And as an example, Ericsson do see a potential from the rebuilding of the European defense. Jacob Lund: Next question comes from Oskar Lindstrom, Danske. On Mölnlycke, are there opportunities to growth, more through acquisitions in the Wound Care or adjacent segments given weak main markets? That's the first one. And then on Patricia acquisitions, for some time now, you've been talking on and off about adding a new major leg in Patricia, mentioning industrial automation as a segment of interest. Is that still the case? What does the pipeline look like? And what is your thinking on valuations? Jenny Haquinius: Yes, I can start with Mölnlycke. Yes, well, add-ons is a priority for all of our subsidiaries and Mölnlycke included. So there is a lot of time spent to, of course, understand the different segments within Wound Care, but also adjacencies. And I think so far, there has not been any major available targets that have made sense because Mölnlycke has been able to grow so strongly organically. What Mölnlycke has done and is, of course, also continuing doing is add-ons that are smaller and more focused on innovation. So early-stage research, for example. And I think a recent example of that is a product for potential debridement of wounds, which would be a good addition to the Mölnlycke portfolio. But as for the other subsidiaries, it's also an important focus for Mölnlycke, of course. Christian Cederholm: And then the question on new platforms. And just to recap, our capital allocation priorities are quite clear in that we always put development and growth of our existing companies first. So that's our top priority. And as we've said, we are also open for and actively looking to add new platform companies, not the least in Patricia. And yes, industrial automation or industrial technology has been pointed to as one area that we're looking in, but we are also looking more broadly than that. And as for the pipeline, I think all I can say there is the work with identifying, scouting and potentially executing on acquisitions is a continuous process. And then when it comes to sort of closings and actual execution, that is inherently volatile and will remain so. Jacob Lund: Then the next one is from [indiscernible]. Will you organize another Capital Markets Day in 2026 for us, long-term shareholders? This is helpful to gauge the development of nonlisted companies. I think I can answer that briefly. It's been a while since we had the last Capital Markets update, and we'll be getting back with more information on that in due course. Next question and the final question I can see is from Jens [indiscernible]. From a strategic perspective on China, how do you assess the competitive risks and opportunities, the latter in terms of growth, investment and cooperation? Christian Cederholm: So as we comment on in the CEO statement in this report, we do see China as a very important region and for several reasons. I mean, one is that for many of our companies, both on the listed side and in Patricia, China is a large and growing market. So that's one thing, the market potential. But also, it's increasingly clear that competition in China or from China is evolving and evolving quite fast. So as we comment on, it's important for many of our companies to be in China, not just for the market opportunity, but also to be where and to compete where some of our toughest competitors are. And it's quite clear to me that comparing China today to a number of years ago, they're not just leading on low cost, but also on implementation of new technology, on fast innovation cycles, et cetera. So even more reasons to be there. Jacob Lund: Thank you very much. There are no further questions on the web. That means it's time to wrap up. Thanks to both of you. Our next scheduled call is the Q1 results for 2026 scheduled for April 21. And until then, thank you, and goodbye.