AI Investor Insight

WFC 2025 Q4 财报电话会议

Operator: Welcome to today's session. [Operator Instructions] Please note that today's call is being recorded. I would now like to turn the call over to John Campbell, Director of Investor Relations. Sir, you may begin the conference. John Campbell: Good morning, everyone. Thank you for joining our call today where our CEO, Charles Scharf; and our CFO, Michael Santomassimo, will discuss fourth quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our fourth quarter earnings materials, including the release, financial supplement and presentation deck are available on our website at wellsfargo.com. I'd also 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 expectations are detailed in our SEC filings, including the Form 8-K filed today containing our earnings materials. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can be found in our SEC filings and the earnings materials available on our website. I will now turn the call over to Charlie. Charles Scharf: Thanks, John. I'm going to provide an overview of our 2025 results and update you on our priorities. I'll then turn the call over to Mike to review fourth quarter results as well as our net interest income and expense expectations for 2026 before we take your questions. Let me start with our 2025 highlights. Our strong financial results reflected the significant momentum we're building across the company. Our net income increased to $21.3 billion and our diluted earnings per share grew 17% from a year ago. Our continued investments in our business helped drive revenue growth with fee-based revenue up 5% from a year ago. This growth was broad-based with increases in both our consumer and commercial businesses. Much of the investments we have been making have been funded by our disciplined approach to managing expenses. We had positive operating leverage in 2025, and we continue to have opportunities to generate efficiencies. Our ongoing focus has resulted in 22 consecutive quarters of headcount reductions, with headcount down over 25% since second quarter 2020. Since the lifting of the asset cap, we've been growing our balance sheet, and our assets grew 11% from a year ago including broad-based loan growth and higher trading assets to help support our markets businesses. We also grew deposits with higher balances in both our commercial and consumer businesses. Credit performance was strong and net charge-offs declined 16% from a year ago. The economy and our customers remain resilient, but we continue to closely monitor our portfolios for signs of weakness. In addition to tracking credit metrics in our loan portfolios, such as early-stage delinquencies, we also monitor consumer behavior more broadly to help us understand consumer health. For example, we look at things like checking accounts with unemployment flows, direct deposit amounts, overdraft activity and payment outflows and we've not observed meaningful shifts in trends. Our capital levels remain strong, while returning $23 billion of excess capital to shareholders. During 2025, we increased our common stock dividend per share by 13% and repurchased $18 billion of common stock. Given we have many opportunities to grow organically, we currently expect share repurchases to be lower in 2026. We will continue to focus on optimizing our capital levels as we manage to a CET1 ratio of approximately 10% to 10.5%. Let me turn to the progress we've made throughout the past year on our strategic priorities. The removal of the asset cap by Federal Reserve was a pivotal moment for the company. This milestone combined with successfully closing 13 regulatory orders since 2019 underscores the significant progress we've made in transforming the organization. We are incredibly proud of our success and understand the importance of continuing to build on that work and sustain the culture that supports it. While executing on our risk and control initiatives, we simultaneously worked to position the company for stronger growth and improved returns. Let me walk you through how these actions are improving our business drivers, beginning with our consumer business. We have been investing in our credit card business since I joined Wells Fargo and our focus has been driving strong outcomes. We opened nearly 3 million new credit card accounts in 2025, up 21% from a year ago. Credit card balances were up 6% from a year ago. And importantly, we've maintained our credit standards. After 2 to 3 years of absorbing the upfront costs of our new products, we are beginning to see the early vintages contributing to profitability. Our auto business returned to growth in 2025 with stronger origination volumes and 19% growth in loan balances from a year ago. Our results reflected growth across our portfolio including benefiting and becoming the preferred financing provider for Volkswagen and Audi brands in the United States in the spring of last year. The auto business goes through cycles, and we have intentionally scaled back growth in recent years. With the investments we have made to improve our capabilities, we are now well positioned to methodically return to broad spectrum lending. Importantly, we're focused on making sure we have the right level of profitability in this business not just growth. We have made good progress in transforming and simplifying the Home Lending business. Over the past 3 years, we've reduced headcount by over 50% and the amount of third-party mortgage loans serviced by over 40%, including reducing the servicing portfolio by $90 billion in 2025 alone. We are continuing to reduce the size of this business while focusing on serving our bank and wealth management customers, which will help improve profitability. Within consumer, small and business banking, we had stronger growth in net checking accounts in 2025 than last year driven by digital account openings and an increase in marketing. We continue to refurbish our branches, completing approximately 700 branches in 2025. Over half of our network is now refurbished and we are on track to complete the remaining branches over the next few years. We continue to make enhancements to our mobile app, including making it significantly easier to open accounts. And in 2025, 50% of our consumer checking accounts were opened digitally. We grew mobile active customers by $1.4 million in 2025, up 4% from a year ago. Wells Premier are offering to serve our affluent clients, continue to build momentum in 2025. We increased the number of licensed bankers and grew branch-based financial advisers by 12% from a year ago, with a focus on increasing the number of bankers and advisers in the locations where we have the most opportunities. Premier deposit and investment balances grew 14% during 2025. This remains a significant area of opportunity for us. We also had continued momentum in our Wealth and Investment Management business with total hires increasing, attrition declining and net asset flows accelerating in the second half of 2025. Turning to our commercial businesses. In the Commercial Bank, while we are the market leader with strong returns, we still have plenty of opportunities for growth. We have hired 185 coverage bankers over the last 2 years with over 60% of the bankers hired in 2025. We are starting to see early signs of success from these hires with higher new client acquisition as well as loan and deposit growth. We also continue to be focused on providing investment banking and markets capabilities with fees from providing these capabilities to our commercial banking clients growing over 25% in 2025. [ Overland Advantage ], our strategic partnership with [ Centerbridge Partners ] has enabled us to better serve our Commercial Banking customers with a direct lending product and since inception, we have helped our clients raise approximately $7 billion in financing. As I highlighted on our last call, our goal is to be a top 5 U.S. investment bank. We grew our share in 2025, and we're confident that we can continue to make progress over time by using our competitive advantages including our long and deep relationships with large corporate and middle market companies, a complete product set, significant existing credit exposure, strong risk discipline and the capacity to support our clients through cycles. In M&A, we're winning increasingly bigger and more complex assignments. We advised on 2 of the largest M&A deals of 2025 increasing our announced U.S. M&A ranking to 8th in 2025, up from 12 in 2024. We entered 2026 with our deal pipeline meaningfully greater than it has been at any point in the last 5 years, although market conditions can always change. And with the lifting of the asset cap, we've been able to utilize our balance sheet to accelerate growth in our trading businesses, including increasing trading-related assets by 50% in 2025 to accommodate customer trading flows and financing activities. While many of the assets have been added recently are lower margin, they also have lower risk and are less capital intensive. Our ability to support this client activity increases engagement and should lead to more business. In summary, our strong performance in 2025 reflects the meaningful progress we've made to transform Wells Fargo and our actions position us for continued higher growth and returns. Our ROTCE increased to 15% in 2025. To put this in perspective, when we first started talking about increasing our returns in the fourth quarter of 2020, our ROTCE was 8% and we set a goal of reaching 10%. Once we establish that goal, we raised our target to 15%. As we discussed on last quarter's call, we have a new medium-term ROTCE target of 17% to 18%. While both the path and the timing to achieve our target is dependent on a variety of factors, including interest rates, the broader macroeconomic environment and the regulatory environment, we are confident that we can reach this goal by maintaining our expense discipline, realizing the benefits of our investments to drive stronger revenue growth and further optimizing our capital levels. As a reminder, 17% to 18% is not our final goal, but another stop along the way to achieving best-in-class returns by business and ultimately, our returns should be higher than this target. I want to end by thanking everyone who works at Wells Fargo for their hard work and dedication last year. Their unwavering commitment to our customers and to our transformation is what positions us to become a best-in-class company. I'm excited about our momentum and look forward to building on our success as we enter the new year from a position of strength. I will now turn the call over to Mike. Michael Santomassimo: Thanks, Charlie, and good morning, everyone. We are in $5.4 billion in the fourth quarter, up from 6% from a year ago. Diluted earnings per common share was $1.62, up 13% year-over-year, and excluding the severance expense, our diluted earnings per share was $1.76. Fourth quarter included $612 million of severance expense, primarily for actions we will take throughout 2026. We also had severance expense in the third quarter for a total of $908 million in the second half of 2025. As Charlie highlighted, we have reduced head count every quarter since the third quarter of 2020 and we continue to have opportunities to further streamline the company and become more efficient. Turning to Slide 4. Net interest income increased $381 million or 3% from the third quarter driven by higher market NII. Net interest income, excluding markets, increased $167 million from higher loan and deposit balances as well as fixed asset repricing partially offset by changes in deposit mix. I will update you on our expectations for 2026 net interest income later in the call. Moving to Slide 5. We had strong loan growth with both average and period-end loans increasing from the third quarter and from a year ago. Period-end loans grew 5% in the third quarter, the strongest linked quarter growth since the first quarter of 2020 when we had COVID-related growth. Average loans increased $49.4 billion or 5% from a year ago, driven by growth in commercial and industrial loans, in Corporate Investment Banking as well as growth in Commercial Banking. As you can see on this slide, one of the industry categories driving commercial loan growth has been financial [indiscernible] banks. While it is often referred to as one category, it's actually fairly broad. In our 10-Q's and K, we have traditionally broken down these loans in 4 types: lending to asset managers, commercial finance, consumer finance and real estate finance. Let me walk through each of these categories briefly to give you a better understanding of what they include asset managers and funds. The biggest piece of this category as well as the driver of most of the growth is from our fund finance group, which is largely subscription or capital call facilities for alternative asset managers, targeting larger funds with strong investment track records where we have long-standing strategic relationships and that are generally backed by a diversified pool of limited partner commitments to the fund. Within Commercial Finance, the biggest piece is our corporate debt finance business, which is secured lending to asset managers and private equity funds that is typically backed by middle market and broadly syndicated loans. We underwrite, approve and monitor the performance of each underlying loan. Consumer Finance, the smallest category lends to clients engaged in auto lending, credit card issuers and other types of consumer lending. Finally, the real estate finance portfolio includes both secured lending to mortgage REITs and private equity funds that originate or purchase commercial real estate mortgage loans and secured lending to asset managers and specialty finance companies backed by agency residential mortgage loans and residential mortgage-backed securities. Since this portfolio has been growing, we are now providing additional detail by category earnings rather than just in our 10-Q filings as we've done in the past. While this type of lending has picked up across the industry recently, we have made these kinds of loans for many years, they are generally secured and have features to help manage credit risk, such as structural credit enhancements and collateral eligibility requirements as well as collateral advance rates that generally get us to the equivalent of investment-grade risk. Given these features and our experienced underwriting these loans as well as the collateral that supports them, we have found this type of lending to offer an attractive risk return. Now turning to consumer loans, which also grew from a year ago with growth in auto, securities-based lending and wealth and investment management and credit cards. While residential mortgage loans continued to decline driven by our strategy to primarily focus on our bank and wealth management customers, the rate of decline slowed. Turning to deposits on Slide 6. Average deposits increased $23.9 billion from a year ago as growth in consumer and commercial deposits more than offset declines in higher-cost corporate treasury deposits. We achieved this growth while reducing average deposit costs by 29 basis points from a year ago, with lower interest-bearing deposit yields across all of our businesses. Turning to Slide 7. Noninterest income increased $419 million or 5% from a year ago. Our results a year ago included losses from the repositioning of the investment securities portfolio as well as strong results from our venture capital investments. We grew fee-based revenue across multiple of our business related fee categories, including 8% growth in investment advisory fees and brokerage commissions our largest category, driven by growth in asset-based fees reflecting higher market valuations and wealth and investment management. Turning to expenses on Slide 8. Noninterest expense declined $174 million from a year ago. Let me highlight the primary drivers. We had lower FDIC assessment expense, lower operating losses, and we benefited from the impact of efficiency initiatives. Partially offsetting these declines was higher revenue-related compensation expense, primarily in Wealth and Investment Management, driven by strong market performance. We also had higher advertising and technology expense driven by the investments we are making in our businesses to generate growth. I would note that while our fourth quarter 2025 expenses included the $612 million of severance expense I highlighted earlier in the call, severance expense was slightly lower than a year ago. Turning to credit quality on Slide 9. Credit performance remained strong. Our net loan charge-off ratio declined 10 basis points from a year ago and increased 3 basis points from the third quarter. Commercial net loan charge-offs increased 4 basis points from the third quarter, driven by higher commercial real estate losses predominantly in the office portfolio. Office valuations continue to stabilize and although we expect additional losses which can be lumpy, they should be well within our expectations. Consumer net loan charge-offs increased modestly from the third quarter to 75 basis points of average loans with higher losses in credit card and auto. Since there is seasonality in these portfolios, I would note that both credit card and auto losses were lower than a year ago. As Charlie highlighted, we closely monitor our portfolio for signs of weakness, and consumers continue to be resilient as income growth has generally kept pace with increases in inflation and debt levels. Our nonperforming asset ratio declined modestly from a year ago and increased 3 basis points from the third quarter, driven by higher commercial real estate and commercial and industrial nonaccrual loans. The drivers of this increase were borrower specific, and we do not see any signs of systemic weakness across the portfolio. Moving to Slide 10. Our allowance for credit losses for loans was relatively stable from the third quarter. Our allowance coverage ratio was down modestly and included a decline in the coverage ratio for our corporate investment banking, commercial real estate office portfolio to 10.1% in the fourth quarter. Turning to capital and liquidity on Slide 11. Our capital levels remain strong with our CET1 ratio at 10.6%, down from the third quarter but well above our CET1 regulatory minimum plus buffers of 8.5%. We added approximately 45 basis points from earnings, which was more than offset by approximately 40 basis point reduction from common stock repurchases and an approximately 45 basis point decline from risk-weighted asset growth. We repurchased $5 billion of common stock in the fourth quarter. Average common shares outstanding were down 6% from a year ago and have declined 26% over the past 6 years. Moving to our operating segments, starting with Consumer Banking and Lending on Slide 12. Consumer Small and Business Banking revenue increased 9% from a year ago, driven by lower deposit pricing and higher deposit and loan balances. Home lending revenue declined 6% from a year ago due to lower net interest income from lower loan balances. Credit card revenue grew 7% from a year ago from higher loan balances and an increase in card fees. Our new account growth has been strong and approximately 50% of our loan balances are now from the new products we've launched since 2021. Auto revenue increased 7% from a year ago due to the higher loan balances with auto originations more than doubling from a year ago. The decline in personal lending revenue from a year ago was driven by lower loan balances and loan spread compression. Turning to Commercial Banking results on Slide 13. Revenue was down 3% from a year ago as lower net interest income was partially offset by growth in noninterest income driven by higher revenue from tax credit investments and equity investments. Average loan balances in the fourth quarter grew $4.6 billion or 2% from the third quarter, driven by higher client activity. Turning to Corporate and Investment Banking on Slide 14. Banking revenue declined 4% from a year ago, driven by lower investment banking revenue and the impact of lower interest rates. I would note that while investment banking revenue declined in the fourth quarter, it was up 11% for the full year. Investment banking revenue will vary from quarter-to-quarter based on the timing of when deals close, so looking out over a longer time frame in a more meaningful way to see the momentum we are generating in this business. Commercial real estate revenue was down 3% from a year ago, driven by the impact of lower interest rates, reduced mortgage banking servicing income resulting from the sale of our non-agency third-party servicing business in the first quarter of 2025 as well as lower loan balances. Markets revenue grew 7% from a year ago, driven by higher revenue and equities higher commodities related revenue from increased market volatility as well as higher revenue and structured products. Average loans grew 14% from a year ago and 6% in the third quarter with growth in markets and banking driven by new originations as utilization rates on existing facilities were relatively stable from the third quarter. On Slide 15, Wealth and Investment Management revenue increased 10% from a year ago, driven by growth in asset-based fees from increased market valuation and as well as higher net interest income due to lower deposit pricing and the growth in deposit and loan balances. Underlying business drivers continue to show momentum in the fourth quarter with growth in loan and deposit balances as well as growth in total client assets, which benefited from the market valuations as well as net asset flows. As a reminder, the majority of wind advisory assets are priced at the beginning of the quarter, so first quarter results will reflect the higher January 1 market valuations. Turning to our 2026 outlook on Slide 17, we provide our expectations for net interest income. We reported $47.5 billion of net interest income in 2025, and we currently expect total net interest income to be $50 billion, plus or minus, in 2026. Additionally, for the first time, we are providing our net interest income expectations for our markets business. We also enhanced our disclosures related to this activity in our financial supplement by providing more details on trading assets and liabilities on Pages 6 and 7 and including disclosures in the Corporate & Investment Banking segment on Pages 14 and 15 as well as providing net interest income, excluding markets on Page 27. We believe these disclosures will provide additional transparency and insight. As you know, we've been investing in the markets business. And while it is still a relatively small contributor to our total net interest income, its contribution has grown and it can cause volatility in our NII outlook given changes in interest rates and other market factors. We currently expect markets NII to grow to approximately $2 billion in 2026 driven by lower short-term funding costs and balance sheet growth, including increased client financing activities, which as Charlie highlighted, tend to be lower margin and lower risk assets but are accretive to net interest income. As a reminder, while markets NII is expected to be higher, this growth is expected to be partially offset by lower noninterest income. Our focus is on growing markets revenue, which we expect to increase in 2026. Net interest income, excluding markets, was $46.7 billion in 2025, and we currently expect NII, excluding markets to be approximately $48 billion in 2026. Key assumptions used for our expectations include 2 to 3 rate cuts by the Federal Reserve in 2026 with 10-year treasury rates remaining relatively stable throughout the year, which would be a modest headwind to NII. However, this expected headwind should be more than offset by loan and deposit growth as well as continued fixed asset repricing. Average loans are expected to grow mid-single digits from fourth quarter 2025 to fourth quarter 2026 driven by growth in commercial, auto and credit card loans, all else equal, our provision expense would increase in 2026 as we set outside reserves to support this expected loan growth. Average deposits are also expected to grow mid-single digits over this period with growth in all of our operating segments, with stronger growth in interest-bearing versus noninterest-bearing deposits. We currently expect net interest income, excluding markets to decline in the first quarter due to the impact of 2 fewer days. Ultimately, the amount of net interest income we earned in 2026 will depend on a variety of factors, many of which are uncertain, including the absolute level of interest rates, the shape of the yield curve, deposit balances, mix and pricing, loan demand and the ultimate mix of activity and volatility in markets. Turning to our 2026 expense expectations on Slide 18. We continue to focus on efficiency as we simplify the company for our customers' employees while at the same time investing for the future. Following the waterfall on the slide from left to right, our noninterest expense in 2025 was $54.8 billion. Looking at the next bar, our assumptions do not include significant additional severance for 2026, which would result in an approximately $700 million decline in severance expense. We expect revenue-related expenses in 2026 to increase by approximately $800 million in our Wealth and Investment Management business. As a reminder, this is a good thing as these expenses are more than offset by higher noninterest income actual revenue-related expenses will be a function of market levels with the biggest driver being the equity markets. Our outlook assumes the S&P 500 will be up modestly from current levels, but clearly, the ultimate performance of the market is uncertain. We expect our FDIC assessment expense to increase by approximately $400 million in 2026 driven by expected deposit growth and the absence of the approximately $200 million special assessment credit that reduced FDIC expense in the fourth quarter. We expect all other expenses to increase approximately $300 million in 2026 with the impact of efficiency initiatives more than offset by higher investments in other expenses. We expect approximately $2.4 billion of gross expense reductions in 2026 due to efficiency initiatives. We successfully delivered approximately $15 billion in gross expense saves since we started focusing on efficiency initiatives 5 years ago, and we continue to believe we have opportunities to get more efficient across the company. There are 3 primary expense drivers that we expect will more than offset the gross expense saves in 2026. First, we expect approximately $1.1 billion of incremental technology expense, including investments in infrastructure and business capabilities. Second, we expect approximately $800 million of incremental other investments, including in the specific areas highlighted on the next slide. And finally, we expect other expenses to increase by approximately $800 million including expected merit and benefit increases as well as performance-based discretionary compensation. Additionally, other expenses reflect approximately $400 million of lower expense following the sale of our railcar leasing business in the first quarter of 2026. However, this benefit will be offset by a reduction in noninterest income. Putting this all together, we currently expect noninterest expense to be approximately $55.7 billion in 2026. And as a reminder, the first quarter personnel expenses are seasonally higher and are expected to be approximately $700 million. On Slide 19, we provide our key areas of focus for our 2026 investments across the company. And in summary, our results in 2025 reflected continued momentum in improving our financial performance. We generated strong fee-based revenue growth, maintain strong expense and credit discipline grew our balance sheet, returned significant amounts of capital to shareholders, retained our strong capital position and increased our return on tangible common equity. I'm excited about the opportunities ahead as we build on our momentum and further improve our results. We will now take your questions. Operator: [Operator Instructions] The first question will come from Scott Siefers of Piper Sandler. Robert Siefers: Mike, I was hoping you could just expand a little on your thoughts on NII, particularly ex markets. It looks like 2026 should be basically flat with the fourth quarter annualized level despite the outlook for a pretty good loan growth. It sounds like from what you said, that's mostly going to be a function of the rate outlook, but would just love to hear your expanded thoughts on sort of the puts and takes. Michael Santomassimo: Yes. Sure, Scott. Thanks for the question. You do need to adjust for day count. So it's -- I mean it's a little bit up from when you annualize the fourth quarter. But as you said, you really got 3 things going on. You've got rates coming down, which will be a headwind for NII x-markets. And then you've got the continuation of deposit and loan growth coming throughout the year, and it's about a build as you go. And so the results will look better as you get towards the latter part of the year. And at this point, the rate curve is -- our assumptions are pretty similar to what's in the forward curve at the moment. It's really 2 rate cuts with maybe another one right at the end of the year, which doesn't have much of an impact. And then you've got the loan growth that we've been seeing across the book. I would point out like some of the loan growth in places like cards will be coming in at either intro APRs or 0 rate as we continue to grow the book. But when you look at the rest of the portfolio, we're seeing good growth, and that should continue as we look through the year. So it's really just those 3 things. When it comes to like deposits and pricing, we're not seeing anything different than what we expected to see as we come into the year on the commercial side. The betas are what we expected as rates have been coming down, the betas are high. We don't have -- we don't -- our rates on the consumer side are already -- have already been adjusted downward. And so and we're not seeing any substantial like change in trend relative to what we expected. So those are the drivers that go into it. Robert Siefers: Perfect. And then I guess to the extent that you can, given how new this issue, I was hoping you could please maybe address sort of this increased volume around credit card rate caps, how you're thinking about this newer issue. It doesn't sound like it's affected your appetite for growth here at all, but I would just love to hear how you're sort of framing that internally. Charles Scharf: Well, I think -- listen, I think, first of all, I think we all agree that the underlying issue of focusing on affordability which is people have been experiencing for some time, which we pointed out multiple times when we look at those who have less savings with us than others is a real issue. And so what the right response to that is, is something that we do think should be carefully considered. And so relative to what all this means for us, it's just -- it's too early to know because we're not quite sure what the ultimate actions, whether it's the administration or of Congress choose to go down, and that's something we hope to engage in. But we're very much aligned with trying to find solutions to help as many as we can and just do it in a way that doesn't have adverse impact. Operator: The next question will come from Ken Usdin of Autonomous Research. Kenneth Usdin: Guys, good morning. Good to see the expected balance sheet growth. One of the base is on how much you're going to continue to be able to -- or desire to grow the lower NIM over spread type of assets and RWA growth vis-a-vis your buyback opportunities and your use of CET1 capital. Can you just kind of help us understand how you're thinking through those trade-offs? And when -- and what's the balancing act between the types of balance sheet growth that you're aspiring to as you think through the overall balance sheet mix? Michael Santomassimo: Yes. Sure, Ken. I'll take a shot at that because there's a few pieces that I'll try to disaggregate for you. When you look at what's happening in the markets business and adding some of the lower ROA financing repo trades I think that -- those don't attract a lot of capital or RWA because the collateral that sits behind them, right? So a lot of treasury collateral and other general collateral that sits there. And so -- and those are an important piece of the puzzle as you look to do more across the client base in the markets business. And so you'll see that grow throughout the year, for sure. But again, it doesn't attract a lot of capital to bring with it. What you're seeing across the rest of the balance sheet is growth in loans. And I think those bring varying degrees of capital depending on what they are. And even when you look at some of the growth that we've seen in the nonbank financial space, again, given sort of the way they're structured and given the collateral is behind them, they don't necessarily attract as much capital as a regular way, commercial loan. And so I think as we look at the opportunity there, we want to be able to support clients across the broad spectrum of businesses we have. We're going to continue to focus on the consumer side in the card space and in the auto space where we think we -- within our risk appetite there. And then I think on the commercial side, we'll continue to be very thoughtful about what we go after. But just to point out something we've said a lot is our risk appetite really hasn't changed and we're not looking to change that in a significant way. But now that the asset cuts gone, we've got more opportunity to continue to do more with clients. And that should create this good virtuous circle where they do more fee-based business with us as well. Charles Scharf: Let me just add a couple of things, if I can, Ken. First of all, just agree obviously, with everything that Mike said. But as we increase the financing that we do in markets business, our expectation of doing that is because we will wind up getting paid in other ways as well. And so that's not -- those don't happen concurrently, but it's something that we track by client to ensure that we're actually seeing that payoff. And we'll do our best to share that as time goes on. And that will determine ultimately how much we're willing to grow the financing business, right? The assumption is, as we've seen up until now that we do get paid for it. But the card is a little bit ahead of the horse on that one kind of period by period, we need to see that play out. And then the only other thing I would add on what Mike said in terms of just the rest of the balance sheet, just to be really clear is this is not an either/or for us at this point, right? We have significant opportunities to be able to extend loans and use our balance sheet for customers and to continue to buy stock back. We're not -- on the margin, we're making the trade-off decision but just given the amount of capital that we generate, the amount of opportunity that we have on both is significant. And so it's a good problem to have because is in the past, all we could do is buy stock back because we were limited in what we can do for clients. Now we can do both, but there's significant capacity and as you well know, we're still above what we've said our targeted range of capital should be. And we've also said that our targeted range still has significant buffers on top of the regulatory buffers, and that's something that we'll evaluate as the regulators finalize the capital proposals and the other things that we would be able to step back and say, okay, what do we think that means for us going forward, but it's all positive for us to have flexibility. Kenneth Usdin: And Charlie, my follow-up just on that last point, [ 106 ] exiting the year and you mentioned you have the 10, 10.5 range outlook. Does that mean that you're also comfortable guiding towards the lower end, which would still give you a lot of buffer to your earlier point? Michael Santomassimo: Yes. I mean, look, we gave a range, Ken, of 10%, 10.5%. And so that would mean we're comfortable operating in the range, right? Operator: The next question will come from Ebrahim Poonawala of Bank of America. Ebrahim Poonawala: Good morning. I just want to follow up. I think there's -- so I completely appreciate what you're saying in terms of focus on profitability while you're growing the businesses. Like we heard JPMorgan talk about investing in businesses and investing capital where the returns are probably sub-17%. I think maybe, Mike, Charlie, to the extent, I think that's one concern that you hear persistently over the last few months is how do you grow the business while improving the ROTCE capital leverage aside maybe if you don't mind, double-clicking on some of the expense and the efficiency initiatives you laid out on Slide 18. And I think you mentioned that even beyond 2026, you see that, just trying to get a better sense of the outsized efficiency opportunity that Wells has to achieve that ROTCE while delivering superior growth. Charles Scharf: Yes. Let me just start out, Mike, and then I'll hand it over to you for like some real facts. But just what we have been doing -- I mean, what we're talking about doing is a continuation of what we have been doing, right, which is we believe that we continue to have opportunities going forward. And if you look at what we've been able to do, we've cut $15 billion of expenses out of the company. Our -- as we've said, we a couple of years ago, we had increased our regulatory expenses by $2 billion to $2.5 billion on an annual basis. And our expenses have come down. And so if you look at what that difference and all that is, that is a significant amount of money that we've been able to use to reinvest to position ourselves for growth. And that's very much of the way that we continue to think about what we want to accomplish here, which is we think we have more tools on a going-forward basis to get more efficient than we've ever had and especially with AI. And we're going to continue to figure out what we think the right trade-off is to reinvest those savings into driving growth inside the company as we've done in the past. But as we think about what we've done to be able to increase the returns of the company it is either -- what we've done is we've reduced the expense base of the company while we've grown revenues. And so there's not a lot of rocket scientists to what we're trying to accomplish here, it's more of the same. And we feel like we're in a great position to both use the benefits that we get by driving increased efficiency to contain any expense growth at this point and to see the benefits of those investments come through to increase revenue growth. Michael Santomassimo: And Ebrahim, maybe I'll just point out some things we saw in 2025 that sort of go at what Charlie said. The credit card business new accounts up 20% year-on-year. Auto lending balances up 19%, loans in the commercial side, up 12%. Growth in Investment Banking, 12% investment banking fee growth, win fees up significantly. And then if you look at it over a slightly longer time period, you also see trading up substantially. And so a lot in banking -- and so a lot of what Charlie talked about is coming through in the results while we're getting more efficient. And I think as we've said a number of times, but also in sort of the prepared remarks is that we're just getting started in terms of really realizing the opportunity we have across each of the businesses. Ebrahim Poonawala: That is helpful. And I guess maybe just a separate question on capital. M&A comes up a lot in the context of well rightly or wrongly now. And I appreciate you're going to be disciplined and you should be looking for sort of strategic opportunities. But just remind us when you think about M&A, either Wealth Management or bank M&A, just how you're thinking about it what do you think makes strategic sense where it would not be a distraction from what you're trying to achieve organically? Charles Scharf: Yes. I mean, I'll start with probably the most important thing is, which is we feel no pressure to do any M&A whatsoever in any of our businesses because we feel so good about the quality and the completeness of our franchise is -- and the opportunities that we have. And not everyone is in that position, and we feel blessed to be in that position. But as you point out, it's wrong not to say we would never think about something. We, of course, would think about anything that made sense. But I would just say the bar would be high for us, both in terms of what we would expect financially, and it should be something that would have some kind of material -- make us materially more attractive for investors. So we're not just looking to buy things for the sake of buying things. In fact, it's just the opposite. We spend our time focused on driving the organic opportunities that we have. Operator: The next question will come from John McDonald of Truist Securities. John McDonald: Mike, one follow-up on the NII. Does the growth in markets NII that you expect in '26 have a trade-off in the trading fees? Or maybe said differently, the base of trading fee revenues in '25 looks like about $5.1 billion? Is that a good starting point that you feel like you can grow off of? Or is there any kind of trade-off with markets NII? Michael Santomassimo: Yes. No, John, it's a good clarification. And I tried to address that in my remarks, but there is a trade-off the growth in NII is partially offset by a reduction in the fee line, not entirely, but partially offset by the fee line given the dynamic we have in terms of overall growth. But as I said in the remarks, if you look at overall revenue, overall revenue, we expect to grow in the markets business this year. And you should see some normal seasonality in there as well, right, where you see a low point in the fourth quarter, and you see a little bit of a snapback in the first quarter. And so I think you'll see some of that -- you'll see that normal pattern. But overall, revenue in the markets business, we would expect to be higher. Charles Scharf: Yes. So to that point, we do disclose that, and so we would encourage everyone to look at disclosure and as you project forward to think about that number as opposed to just the pieces because it will -- the mix will change depending on the rate environment. John McDonald: Yes. And maybe just pulling back then, just thinking about total revenues, you've got the NII growing maybe about 5% this year. Are you thinking about total revenue growth also in kind of that mid-single-digit kind of growth category, and you've got 1% to 2% expense growth and a couple of hundred basis points of operating leverage this year? Michael Santomassimo: That's not a number we guide to, John. But -- and obviously, in the markets business, it's going to be a function of what we see throughout the year in terms of the opportunity set that's there, the volatility and all the right caveats that go there. But we would expect the overall to be up, and we'll see by exactly how much. Charles Scharf: Yes. Just listen, just -- we're not trying to be coy and not give you something that we think we should be giving you. But it's just the reality is a significant number of the items that are embedded in noninterest income, are highly dependent on the world and on the markets, which as we know can be very, very volatile whether it is the trading numbers or the revenue items related to our wind business. And so we're long-term believers that those -- that the underlying business grows that we can take share, and so we would expect to see growth in those numbers. We just want to be really careful about providing any kind of guidance in any way, shape or form that boxes any of us in relative to our inability to predict that. John McDonald: Okay. Great. Fair enough. And Mike, one quick follow-up on the commercial nonperformers. It did move up. You mentioned it in the opening comments. Any more color on just what drove that? It's off a low base, but lost content or any thoughts about the drivers there? Michael Santomassimo: Yes. A couple of thoughts. I mean, look, I mean, if you look at it over a long time period, the number can be quite volatile like period-to-period. So I wouldn't read too much into that. There's really nothing systemic that we're seeing come through. And when you really look back at nonperforming assets, they're actually not a very good predictor of loss. And the vast majority of them are performing both on principal and interest. And so it's some individual names that sort of move around quarter-to-quarter, but nothing systemic as you sort of look at it that we can see. Operator: The next question will come from Betsy Graseck of Morgan Stanley. Betsy Graseck: A couple of questions, follow-up here. One is just on the markets commentary that we were discussing earlier around its lower ROA business. Can you talk to us about how you're thinking about the impact on ROTCE? And is there a limit to which you would go because if it's dilutive to ROA, it's dilutive of ROTE, I realize that regulatory capital is low. But [ GAAP ] capital still there. So help us understand how you're navigating that? How large are you okay? With it becoming? Michael Santomassimo: Yes. Betsy, I don't anticipate it's going to have any kind of negative impact on where we think returns go. The returns given the nature of it, the returns are fine, and it's not going to be going to have be dilutive relative to the overall returns of either the segment or the overall company. And as Charlie mentioned, the financing opportunity that you get through doing this -- kind of the -- or the additional opportunity you get by providing financing capacity to clients should start to build more meaningfully over time as well that sort of builds up the kind of the full set of revenues for each of those clients. Charles Scharf: And Betsy, if I can just say a couple of things. Just number one is we are not going to grow our trading business in any kind of outsized way, which would have a negative impact on our ability to produce the kind of returns that we want and you would expect. So there's nothing outsized in our minds about where that goes. I think we're starting from a low base. So it looks like it's -- it sounds like it's significant, but it shouldn't be significant to the impact to what we can produce as a company. And the other thing I would point out is a big part of why we're in the markets business, it's not for the sake of just making money and trading on its own. These are corporate relationships and these -- in which we have a broader set of business activities and as you grow your secondary business, it helps with your primary business. They're very, very much related. And so as we think about returns, we are very focused on returns overall and specifically ROTCE and weather going to see it or will slow it. And again, just the size is relative to like who we are not relative to what everyone else is out in the marketplace and we are driven by where we intend to move the firm from an overall return standpoint. Betsy Graseck: Okay. That's helpful to understand how you think through that. And then just separately, when I think about -- first of all, loan growth accelerating this quarter, very nice to see and heard all of the commentary around how you're expecting trajectory from here. Charlie, I had a question just on what kind of kind of loan growth firm credit quality should we be anticipating as you build out this loan growth over the medium term. The reason I'm asking the question is before the asset cap, before GFC Wells was very well known as a full spectrum lender, both on the consumer side and in the corporate side as well, SMBs, a lot of middle market et cetera. And so I'm -- where are you looking to take the organization as you have the opportunities to lean into growth? Charles Scharf: So yes, so if we separate the business into the wholesale side and the consumer side for a second, where we are going on our wholesale credit business is no different from where we've been, specifically in the commercial bank. The business -- the risk appetite that we've had continues to be the same level of risk appetite. And what we're focused on is getting stronger in geographies where we have more opportunity, where there are more opportunities to grow and grow with the clients in the rest of our business. So there, it is more of a market share gain than any kind of change in where we're looking in terms of what the credit opportunity is. On the CIB side, we have done more to support our corporate client base. But again, very, very focused on not taking risks that go beyond the way we've thought about risk appetite as a company. So very, very consistent there. When we look at our consumer businesses, I put it like there are different phases. There's the way we operated historically, where we were historically, we were very, very good at credit. In different businesses, we were more of a full-spectrum lender across different segments, but more weighting towards the higher FICO customers, as we've gone through the last bunch of years is we've had to focus on different things and there have been different economic circumstances there, it's been much more focused on the higher credit quality. So I would say the opportunity for us, and we referred to this when we talk about our auto business specifically, is to be more full spectrum but not in a way that materially changes what you've ever thought of us as. In fact, it's probably much more of way you've thought about us in the past. So again, just go back to what the North Star is, is that we're very, very focused on returns in places like the auto business in order to get the right returns being a full-spectrum lender is helpful, but we're not going to do it in a way that creates a tale of risk in our lending book which is not consistent with how we think about our risk appetite. Operator: The next question will come from Erika Najarian of UBS. L. Erika Penala: Just one follow-up question. You mentioned $800 million in higher revenue-related expenses for the year and considering the S&P up a little. I'm just wondering in this period of what Charlie mentioned, not putting in a box, is the expense number of 55.7 contemplating a pretty robust capital markets environment that the investors are expecting? Michael Santomassimo: Erika, this is Mike. The $800 million is exclusively in our Wealth Management business. And that -- and that is based primarily on sort of where the overall equity market will land. And we do expect it to be up modestly from where it is today. I think more broadly, we do include in that -- in the bottom of our expense expectation slide in the other category, there is performance-based compensation included there, and that would include anything we expect for the market, and we do expect to have a pretty active market this year. Operator: The next question will come from Steven Chubak of Wolfe Research. Steven Chubak: So I wanted to ask on the assumptions underpinning like the '26 NII guidance, specifically around loan and deposit growth. You guys saw a really nice acceleration in some of the balance sheet KPIs to close out the year. Lending and deposit growth both grew mid-single digits sequentially. That's essentially the level of growth that you guys are contemplating for the full year for '26, so it does imply a pretty meaningful deceleration. And I recognize mid-single-digit growth is nothing to scoff add. But just what informs the slowdown? Is that a function of conservatism? ADO sources of lending strength in the fourth quarter or something else? Michael Santomassimo: Yes. Steve, look, I think you got to be careful to extrapolate from 1 quarter and you can see quite some seasonality that's in there. So in our Commercial Bank as an example, there's some trade finance type loans that are seasonally there at year-end. It's a lot of roll down a bit in the first quarter. So there are some elements that sort of -- that offset it. And it can be pretty volatile quarter-to-quarter in terms of the growth you see there. But what I would say is like what we're not -- and I try to get this across in the remarks, what we're not assuming is some like big broad-based increase in utilization across the commercial bank. So there could be more loan growth if we start to see utilization rates tick up. There's lots of factors that could drive it higher from what we have there. But I think as we sit here today, we think this is an appropriate place to be based on all of what we're seeing. Steven Chubak: Okay. Great. And then for my follow-up, Charlie, I did want to ask on the 17% to 18% ROTCE target. So it's pretty clear based on our investor conversations that no one is really questioning the potential for the franchise to get to the 17% to 18%. You even noted that's not the extent of your longer-term ambitions but you've been reluctant to commit to timing. It does appear that's driving a wider range in terms of earnings expectations. I was hoping you could just contextualize what are some of the milestones you're looking for or areas where you might need better visibility in order to get sufficient comfort to offer a more explicit time line for that 17% to 18%? Charles Scharf: Yes. Come on -- I mean let's just be a little reasonable here. Like you're all very smart people right? And you traffic in the same world that we traffic in, which is we don't know what the credit environment will be over the next 1, 2, 3, 4, 5 years. We don't know what the interest rate curve is going to be. We don't know what the market levels will do. And so asking for a very specific time line where there are just a huge amount of variables that impact that end result it's just not a -- certainly -- we don't think it's a smart thing for us to be able to predict because we don't know those things. But what we've said historically is what we continue to say, which is those things can be volatile. Those things will go up or down. But what we're focused on is ensuring that we are building a business which will drive higher revenue growth reasonable expenses where we see the payoffs for the investments that we're making. Very, very focused on ensuring that we're getting the right returns for what we're doing. And so as you see the underlying growth metrics that we pointed out in our remarks that you'll be able to tie that to the underlying revenue captions, and look through the impact of volatility. And so as we grow accounts, as we grow balances, as we grow market share, you see it coming through revenue, you see control of expenses it will be -- like is it a straight line in these businesses, which is why we want to stay away from putting any specific time frame on it. But we've also been tried to be helpful in saying, it's not what's midterm, meaning it's not tomorrow, but it's also not over an extended period of time. And we know that we should be able to show you that we're making progress to get there, and you should feel like it's possible. And we've shown up to this point that we've been able to do that. And hopefully, you'll see that in the underlying results in you'll have the confidence that will have the confidence that it continues. But you'll either see it in the results or you won't. Steven Chubak: All right. Well, Charlie, your peers do provide a time line. So I don't think it's an unreasonable expectation for us to ask for that. If I understand your perspective, there is a lot of uncertainty. If I could just squeeze in one more. Just you listed various sources of efficiency initiatives in the slides, you're making good progress there. You didn't explicitly mention how much of that reduction in the excess regulatory cost of 2% to 2.5% is contributing to some of those efficiency gains. So just wanted to understand how much relief should come from that this year? Is that should also drive incremental efficiency gains beyond 2026, which informs that improvement in returns you just alluded to? Michael Santomassimo: Steve, it's Mike. Yes, we continue to work to streamline and bring better technology to some of what we've implemented over the last number of years. So I'd say there's a little bit of impact from that in the efficiency work this year but that will likely continue to come over a slightly longer period of time. And I would just kind of also reinforce just on the efficiency stuff. It's like there's -- there's no new silver bullet here. It's continuing to peel back the onion in each of the areas, drive better automation, reduce real estate costs, reduce third-party spend. And so -- so there's hundreds of things that happen across the company in any given quarter to sort of help drive that. But we would expect to be able to continue to optimize some of that over a slightly longer time period, but there is a little bit of impact this year. Operator: The next question will come from John Pancari of Evercore ISI. John Pancari: Mike, just on the margin dynamics for the fourth quarter. I know your loan yields declined by about 19 basis points linked quarter. Can you maybe give us a little more color of the driver? How much of that was -- I know you cited the trade finance dynamic, maybe securities lending and the markets business. Curious what really were the bigger drivers behind that? And maybe if you can kind of dovetail that into how you think about the underlying margin trajectory as you look at 2026, given these dynamics? Michael Santomassimo: Yes. No. On the loan side, the biggest driver is rates coming down, right? So you've got a big variable rate portfolio there on the commercial side. So that's going to be the biggest driver. In some of the areas, it's very competitive. And so you see a little bit of spread compression across some of the commercial book as well, but the biggest driver in the sequential quarter is going to be rate. And then when you just look -- as we come into next year, as we said, you'll be growing a little bit of some of the lower ROA exposures. So that will have an impact on overall margin. And then you'll also have rates coming down again this year if the forward rates materialize. And so -- and then you -- then that will be offset by new activity that we put onto the books and some of the fixed asset repricing, particularly in the securities portfolio. John Pancari: Got it. Okay. And then one follow-up, just related to that on the deposit side. Maybe if you could help us update us on your deposit gathering strategy overall. I know you cited the mid-single-digit deposit growth for '26. Maybe can you talk about the mix shift that you would expect between interest-bearing and noninterest-bearing. And what businesses do you see driving the bulk of growth? It looks like you saw a pretty good leg up in your deposit volume through the wealth management business, for example, this quarter. So I just want to see if we can get some color there in terms of the businesses that are driving the growth. Michael Santomassimo: Yes. No, it's going to be a bit of each of them, and I'll kind of go through each. But on the Wealth Management side, it's continuing to focus the lending and banking products, bringing focus to those across the adviser base that we've got. And that will -- and we're seeing good uptake there. And so that will continue to grow. Won't be a straight line, but it -- but we do expect to see some growth in the wealth business. Now that we can compete more effectively with the asset cap on, on the commercial side, you're seeing good loan growth there. And on the commercial side, those are going to be mostly interest-bearing, even though there'll be some noninterest-bearing component of it with it. And so that's why in my remarks, I said, you'll see a little bit more interest-bearing than noninterest-bearing because you'll see more growth on the commercial side. And then on the consumer side, it's just continuing to see better execution across both our digital marketing and branch channels to drive more checking account growth and deposit growth there. So it's really going to be a function of executing across each of the businesses there. Operator: The next question will come from Matt O'Connor of Deutsche Bank. Matthew O'Connor: I was wondering if you could just talk about the environment for commercial real estate, broadly speaking. I mean you mentioned on credit obviously past the work. You have a lot of reserves. You could have some lumpy losses. But the industry and you grew loans for the first time in a really long time this quarter. And there's just been a lot like anecdotal kind of articles out there in the media talking about parts of CRE kind of coming back. So just wondering how meaningful recovery you guys think this could be and how well levered you are to that? Michael Santomassimo: Sure. I'll take a shot. And if you look at the commercial real estate book, excluding office for a second, just put that to a side and I'll come back to it. There's been good demand there for a while across a lot of different sectors, whether it's multifamily, industrial, data centers on and on. And so -- and the fundamentals there haven't shifted that much as we go into this year. So we do expect to see some continued demand come through in some of those subsectors. I think when you look at office, I think there's where you're definitely seeing stabilization in valuations. But you do have a bifurcation there between really good office space, kind of newer Class A or better space in vibrant cities that are doing really well and demand is up substantially. And you can see that just even through some of the CMBS market executions that have happened over the last number of months. And then -- and then I think on the older inventory and older stock, I think things have stabilized there. And we continue to work through that portfolio. But I think overall, if you look at everything other than kind of the older office stock, there seems to be good demand and activity levels. Operator: The next question will come from Saul Martinez of HSBC. Saul Martinez: I just have one as well. Totally get the reluctance to give specific revenue guidance. And as you indicated, a number of the fee line items are tied to market conditions and can vary. But I'm curious what -- if you can just give us some color on what your expectations directionally are for some of the major fee lines, deposit fees, investment advisory, card fees, trading IP. And part of the reason I ask is that if you do look at some of these lines deposits, advisory cards, they're tracking at mid- to high single-digit growth. banking. There's reasons, obviously, for optimism there, and you mentioned trading, you expect to grow even with some of the headwinds from the offset to trading-related NII. So it does feel like there is reason to be optimistic here. But just curious if you can -- maybe just give us some color on how to think about these line items and what some of the major drivers are that could move them one way or another. Michael Santomassimo: Yes, sure. So if you start with the biggest one, which is investment advisory and other asset-based fees, that's really going to be driven by how the markets hold up. Charles Scharf: In the short term. Michael Santomassimo: In the short term, yes. And I think as long as the equity markets hold, which is the bigger driver, you also have some impact on fixed income markets there as well. If rates come down, you get a benefit as asset prices go up. But you will see the equity markets in the short run, drive that the most. So as long as we have a pretty stable growing market there, I think you should be able to model that relatively easily in the jumping off point, this year is much better than where we entered last year. So that -- I think that's what you're alluding to. When you look at then deposit-related fees and card fees, I'll kind of lump them together. It's really going to be a function of just the overall macro picture in the economy. And at this point, what we're seeing and what's happening across the consumer base is just very consistent activity. And so I think as long as that continues, that should support those fee lines. And between the 3 of those, that's over half of the fee line just right there alone. And then I think Investment Banking fees, it appears like I think everybody thinks that we're going to have a pretty active deal make, both on the M&A side, but also sort of the maybe even more active equity capital markets outlook as well. And so -- and then the debt market, I think, has been holding up quite well over the last couple of years. And so assuming that's the case and given our investments, we should be able to continue to grind out share gains as we go over time. And then the last one I'll sort of maybe highlight is just trading. Again, we talked about it earlier, but you will have an impact of rates come down, you'll have higher NII in the markets business, lower fees, but we should continue to be able to grow overall revenues in the markets business. So I think as long as the kind of macro picture sort of holds, then it should be quite constructive for a lot of the fee lines as we look at them. Operator: The next question will come from Chris McGratty of KBW. Christopher McGratty: Mike, on the consumer deposit growth, just to follow back on the prior question. It was about 1% year-on-year. I'm interested now that rates have come down and excess liquidity has kind of been pulled. Like is this a GDP or GDP plus opportunity for deposit growth over the medium term? Michael Santomassimo: Yes. I mean, look, I think for us, it's now that we're able to kind of more aggressively in a much more front-footed way, deploy marketing and get our branch system to be more productive, hopefully, over time, we'll be able to see outsized growth there. But I do expect that we'll -- that will not be kind of a linear path up. But I do expect us to see some growth in the consumer deposit base. And I think you'll start to see that relationship between deposits and GDP start to move in sync again hopefully over time. It's been a lit bit... Charles Scharf: Like remember, our -- we believe based upon who -- what the franchise is and the benefits that we bring that we should be able to grow faster than the market over time. And we're working hard to reinvigorate the business, which was really hard hit by all the issues that we've been that we've gone through, not just the actual cap itself, but like how it limited the things that we could do internally. And so that's something that you build up over a period of time. But we think the opportunity is to be able to, over time, grow faster than the market and to take share in a profitable way. Christopher McGratty: Great. And then just coming back to the -- I think you said 185 coverage bankers over the past 2 years. Is the pace of -- or the opportunities for hiring '26 greater or less? Is it slowing? Any coverage kind of company question there. Michael Santomassimo: It's about the same per year. Charles Scharf: Which, again, I would just say, as we think about it, these efforts that we have underway, these are multiyear plans where we've looked at whether it's geographies, industry coverage within our CIB is what you want to accomplish in a year, you want to see the payoff and then we'll keep going. And so we still see materially more opportunities to grow in both the commercial bank and the corporate investment bank as well as in our consumer banking system for a whole bunch of different reasons. Operator: And the final question for today will come from Gerard Cassidy of RBC Capital Markets. Gerard Cassidy: Guys, when we take a look at your average balance sheet on Slide 7 in the supplement, you show that you've had some nice growth, obviously year-over-year in the balance sheet. And the funding of that, you've had real good strong growth in the Fed funds purchase and short-term borrowings on a year-over-year basis. Can you share with us you're thinking the strategy of using that source of funding to grow the balance sheet as we go forward and what the outlook could be for this going in 2026? Michael Santomassimo: Yes, Gerard, that's just funding the growth in the markets business, very similar to the way the other investment banks do it. So there's nothing too exciting there, to be honest. And when we came out of -- and I think we mentioned this maybe coming out of the second quarter, we did move some funding to the repo line that we had internalized while the asset cap is in place. And so this is just normal funding of the markets business. Gerard Cassidy: Very good. And then just a quick follow-up. You talked a lot about the success you're having in investing in Investment Banking and markets and you just commented about the hiring if it's about the same or more challenging. When you look at the team on the field, I think there was a Financial Times article, Charlie, talking about some areas that you may want to add to. But when you look at this team, are you 75% there in terms of you got all the people you need? Or where do you stand on both markets and then Investment Banking? Charles Scharf: I would say, well, first of all, I think what's really important is just the quality of the people that we've hired, not just the numbers. And so I didn't say that before. But what our team has done just a great job of attracting some of the most talented people from great institutions out there that have just done a great job of building talent. So we're not just focused on growing the numbers. It's about the quality and then making sure that we're seeing the payoff. Listen, I think it's -- I don't really want to put a percent number on it because it's a journey. And we've seen -- as we've added resources this year, it's so much a moving target because other companies aren't standing still either, and they've grown their resources as well. And so I think let's just -- we'll try and provide a little bit more context as time goes on to give you a sense. But I'm just kind of going to leave it at that, that we think the opportunity to continue to add resources to see the continued growth is as strong as it's ever been for us. Michael Santomassimo: All right. Thanks, everyone. We appreciate the questions. We'll talk to you next time. Bye. Operator: Thank you all for your participation on today's conference call. At this time, all parties may disconnect.

Aki Vesikallio: Okay. I think clock is now 1:00 here in Helsinki, so I can welcome you to Hiab's pre-silent call ahead of our fourth quarter results. Still some people joining, so I'm letting them in. So we will start having a presentation by Mikko Puolakka, recapping the third quarter results and any notable releases during the fourth quarter. After that one, we will have a Q&A session. [Operator Instructions]. Just to note that this call is recorded and will be then later available on Hiab's website. So with that, over to you, Mikko. Mikko Puolakka: Thank you, Aki, and happy New Year also from my side. So a quick recap on our quarter 3 results, then a couple of words about the releases and the developments, what we have seen during quarter 4, and then, like Aki said, questions-and-answers section. About quarter 3. So our order intake was EUR 351 million. That was down by 3% year-on-year. And based on the first 9 months performance, our order intake was more or less flat compared to the previous year. So this was now the 3rd -- 12th consecutive quarter in a row when our order intake has been fairly flat. Our last 12 months order intake has been roughly on the level of EUR 1.5 billion. And primarily the order, kind of, intake headwind we have seen, the Americas region, especially in the U.S. area. While in Europe, we have seen some improvement in the overall market and also in a couple of seg end markets like defense logistics and the wind segment orders what we have announced also earlier in 2025. When we look geographically, the first 9 months EMEA has been up by 13%. Americas down by 14%, very much driven by the tariff-related uncertainties, especially smaller customers withholding their investment decisions, while some kind of bigger home improvement customers have been still quite nicely placing orders. On a positive side, there has been a positive momentum in defense logistics. We have a very good pipeline in that area, of course, the deals typically -- kind of, the revenue we recognized from the defense logistics orders, typically, over multiple years. And then the energy segment, like mentioned already earlier. All in all, there is a robust replacement demand both in EMEA, but also in Americas, like I said, in the U.S., especially the larger kind of home improvement customers have been renewing their fleet. But on the kind of minus side, trade tensions in the U.S., those have increased the customers' uncertainty, and that's why we have seen, especially in the smaller customers in the U.S., quite cautious ordering activity. Our sales decreased in quarter 3 due to the lower order book. Sales were basically on the same level what we had the order intake in quarter 3. Currencies, in currencies, we had, in quarter 3, roughly 2 percentage points negative impact. And if we look at the year-to-date 9 months sales, that's down by 6%, primarily coming from the U.S. market, that lower order intake, especially in the early part of the year. Americas' sales was down by 9% during the first 9 months. EMEA was down by 4%. APAC sales grew slightly in quarter 3, but year-to-date, September, more or less flat on year-on-year basis. We have had a good development in the Eco portfolio sales, especially in the circular solutions and climate solutions. So year-to-date, 38% of the total sales. If we look at our comparable operating profit, so especially in quarter 3, our comparable operating profit was negatively impacted by the lower U.S. equipment sales. That impact was approximately EUR 20 million in our comparable operating profit. Gross profit margin decreased by 80 basis points, also very much coming from the U.S., kind of, lower utilization. SG&A costs, we have been able to reduce year-on-year, but that's not necessarily enough to compensate quite sizable decline in the U.S. equipment sales. And that's why we have also announced in connection of quarter 3, the EUR 20 million cost savings program in order to protect the profitability in 2026 if this kind of market activity would continue in the coming quarters. Key takeaways from quarter 3. So overall, the market uncertainty has continued. Overall, we have not seen any dramatic changes compared to the previous quarters. So gradual improvement in EMEA, while in Americas, especially in the U.S., the customers' decisions have been impacted by the tariff situation. Despite the market situation, we have been able to improve our comparable operating profit if we look at the rolling 12 months performance. And as mentioned, we have started the planning for the EUR 20 million cost savings program. And this would be EUR 20 million lower costs compared to the 2025 level. Nothing has been changed in our strategy. So even despite the current tariff situation in the U.S., we see that the U.S. market is able to offer us good growth opportunities in the future by addressing those white spaces, what we have, for example, in the Central and Western part of the U.S. Also services and the focus on 4 key growth segments have still been intact in our strategy. So overall, no changes in our strategy. Despite the lower top line, our cash flow has been very strong in the first 9 months, and our balance sheet is also very strong, offering, for example, in quarter 3, if we would look the quarter 3 balance sheet, that would offer us roughly EUR 800 million M&A firepower. And with that kind of EUR 800 million additional debt, we would be still below the 50% year-end target. A couple of releases from quarter 4. So we announced in the first week of January, the acquisition of ING Cranes. ING has been founded in 2010. Last -- 2024 revenues, EUR 50 million. We had already, before the ING acquisition, a business in Brazil, Argos, which we acquired back in 2017. Argos has been mainly focusing on light and medium loader cranes, while ING brings into our portfolio the heavier loader cranes in the Brazilian market. So actually quite nice complementary acquisition for our Brazilian business, plus then offering also sales channels for the Southern American markets. We also announced the proposals by the Nomination Board for the Board of Directors. So the current Board members would continue except for Ilkka Herlin, who has informed that he is not available for reelection in the AGM, which is to be held on 24th of March. And the other releases -- press releases, what we have announced, during quarter 4, you can find in our website. And as a last topic, our outlook for 2025 is unchanged. So what we have said already earlier this year, we are aiming at reaching higher than 13.5% comparable operating profit. And as we are now at the end of the year, I would like to remind you also about our dividend policy, which is 30% to 50% of the net income. Aki Vesikallio: Thank you, Mikko. We can jump to this consensus already now and then take the Q&A. So we -- at the change of the year, we also changed the provider of our consensus services. So we now work with Modular Finance. So all of the analysts will be -- sell-side analysts will be reached out by Modular Finance to collect in the numbers. The consensus is now available on Hiab's website, hiabgroup.com. But with that, we jump to Q&A. And Antti Kansanen was first with his hand. Please, Antti, go ahead. Antti Kansanen: Yes. A couple of questions, and I'll start with the earnings side of things. If we think about Q4 versus Q4 last year, I think there was a couple of recurring type of cost elements on the fourth quarter last year. So how much of those that you don't expect to repeat this year? Just a reminder. And maybe then also reflecting on the EUR 20 million that you are flagging on the lower U.S. sales impact on Q3, will that impact be different on Q4 in terms of realized savings or higher volumes on the U.S. production on the fourth quarter? Mikko Puolakka: Thank you, Antti. So if I remember correctly, we had, last year, in quarter 4, approximately EUR 15 million nonrecurring items. We have also announced when we communicated this EUR 20 million cost savings program that for the full transparency, we will report these as items affecting comparability, so below the comparable operating profit. However, as the program is still on the planning phase, we do not anticipate, let's say, significant amount of one-off items in quarter 4, some but not in a significant manner. Once the program implementation starts in the first half of this year based on the planning, then we should start to see the nonrecurring items. What comes to the U.S.? Our quarter 3, like you mentioned, was impacted by the lower volumes. We got a fairly sizable home improvement customer order in quarter 2. And basically, that order, we have started to deliver now in quarter 4. So that will support the U.S. market profitability to some extent at least. So the expectation is that, that kind of volume impact would contribute to the equipment and total higher top line in quarter 4. Antti Kansanen: Okay. And then on the order side, don't have it in front of me, don't remember if you disclosed the U.S. orders from Q4 last year. But overall, just if you think about kind of the run rate that we saw in the U.S., especially on the equipment side in the past 2 quarters versus Q4 last year, what's kind of the delta? Mikko Puolakka: We have not -- if I remember correctly, in quarter 4, we have not announced any sizable orders in the U.S. So the comparison period as such was quite high. Antti Kansanen: Yes. And is there any seasonality that if we just like think about that the demand is similar as it has been, let's say, Q3? Is Q4 typically higher and lower in any type of calendar impacts or anything like that? Mikko Puolakka: Overall, quarter 3 for us is the lowest, typically due to the holiday season, and then quarter 4 is higher than quarter 3. And if I think the U.S. market in general, like I mentioned also earlier that there are kind of bigger customers, are kind of quite okay from the investment side, while the smaller customers are more considerate. However, with the bigger customers, the order timing might sometimes fluctuate so that they don't necessarily place orders in every quarter. Aki Vesikallio: Thank you, Antti. And next in line, we have Mikael Doepel. Mikael Doepel: Yes. So a couple of questions. Just firstly, coming back to the cost takeout. So just to be clear here, so what you're saying is that it's still in the planning phase and it's going to be implemented in the first half of this year, but you still expect the full EUR 20 million to flow through on the P&L next year? And related to that, how big will the one-off cost be at the end of the day? Mikko Puolakka: Yes, it's still in the planning phase. Of course, we need to have the works council negotiations before we can start to do the implementation. This EUR 20 million is the 2026 impact. So if you would compare at the end of 2026, our cost base, that would be EUR 20 million -- fixed cost base, that would be EUR 20 million lower compared to 2025. Aki Vesikallio: And on the one-off costs... Mikko Puolakka: One-off costs. We would come to the one-off costs most probably somewhere around the full year results announcement, in February. Mikael Doepel: Okay. Yes, right. And this EUR 20 million, is this purely just layoffs? Or are you doing something else as well to get those costs down? Mikko Puolakka: It's anticipated that it comes from various sources, personnel costs surplus, also other non-personnel-related costs. Mikael Doepel: Okay. Good. Then just secondly, on this aftermarket or the service business. So despite the fact that the markets have been fairly muted overall, I think you have been able to grow the business in quite a good way in the last couple of quarters. How should we think about this business going forward into Q4 into next year? What are kind of the levers for you to keep that business growing? And are you seeing any headwinds within this aftermarket business currently? Mikko Puolakka: Overall, like you said, despite the equipment volumes decline, we have been able to grow the services business. In our case, in 2025, the services growth has been very much coming from the recurring services, so spare parts, maintenance-related services. And this is actually very much according to our strategy because in our strategy, we have been focusing on the connected fleet, increasing through that basically the spare parts capture rate from the, let's say, current 47% towards 52% by 2028. And then basically, whenever we sell new equipment, we try to combine with that also the maintenance contract. And through the maintenance contract, then we can ensure that we or our partners, like dealers, get then the maintenance work and the spare parts sales when the customer requires the servicing. So basically, we have not, let's say, made any kind of new inventions as such, but we are just prudently executing those strategic initiatives, which we have been, let's say, identifying already, some years backwards. And these are now starting to bear the fruit, and you can see that in our service development. What comes to the U.S. market? We have seen that equipment utilization in the U.S. has been on a good level despite kind of new equipment orders declining, so indicating that customers are actively using the equipment and for that purposes, they need to buy spare parts. In the U.S., we have seen to some extent that customers are perhaps not holding as large spare parts inventories and what they kind of in a pre-tariff situation would hold in the spirit of not tying up capital in the inventories. Mikael Doepel: Okay. And then just finally, a question on your guidance. So you tend to guide an adjusted EBIT margin for the year. Is this the way forward as well? Or are you considering some other measures, perhaps sales growth or something else also for this year? Any changes planned for the guidance essentially the question? Mikko Puolakka: At the moment, no changes planned. So we have considered that for us the most important is the profitable growth. And of course, we want to make sure that the profitability is on that kind of trajectory that it brings us to the 16% comparable operating profit margin by 2028. Aki Vesikallio: Next in line is Tom Skogman. Tomas Skogman: I'd just like to talk a bit about the dynamics of the U.S. market. So I mean, now we have had a time with tariffs on your products and also on trucks. I've heard at least some rumors that in the truck industry that some seem to have difficulties to push through the tariffs and are backing off a bit, not to kill demand too much. Have you heard anything about this? And are you 100% confident your kind of price hikes are sticking basically? Mikko Puolakka: Yes, I can't talk about the others. But in our case, we have sticked with the principle that tariff is an extra cost for us, which we move to the customers. So we are also very transparent with the so-called tariff surcharge in our invoicing, not kind of hiding it in the price list, but showing as a separate line item in the invoice. Of course, we are doing also actively measures to mitigate as much as possible the tariff impacts, localizing the supply chain. We already assembly more than 50% of our U.S. revenues in the U.S. market. So continuously looking ways at how can we reduce the tariff cost, and that is also something what we continuously also reflect in the customer invoicing. So not kind of just sitting and waiting because most probably these tariffs are here to stay at least in some extent or in some form and shape. Aki Vesikallio: And in our industry, many of the OEMs have a similar type of assembly setup that we have. So global supply chains with local assembly, so no clear big differences between the players. Tomas Skogman: And there seems to be discipline that all stick to kind of adding tariffs to prices. You don't see this? [ You were inside the market. ] Mikko Puolakka: Yes. This is what our competitors have been doing as well. And in the U.S., the most -- let's say, most of the competition is coming from European companies. Tomas Skogman: We have seen lately that the Trump administration is quite active when it comes to Fannie Mae and Freddie Mac, trying to boost private consumption and construction, making it easier for the consumer. But do you see any positive signs in some segment of the market or some geography in the U.S.? Or is it still just negativity everywhere, basically? Mikko Puolakka: At least so far, until today, we have not seen any kind of notable changes in customers' behavior in the U.S. market, in none of the kind of end markets where we operate. Tomas Skogman: And then the opposite in Germany, we have seen good construction data in December. Do you see any -- the recovery is continuing, I guess, but do you see that it's accelerating or... Mikko Puolakka: I would say that the recovery, what we started to see in the latter part of 2024, has continued in those main markets like Germany, here in Europe. I can't say that we would have seen a kind of acceleration in the recovery, but solid development in that improvement part. Still, it's good to remember that -- or note that also our European volumes, if we would look the unit volumes, those are not necessarily in all markets even yet on 2019 level. So there is a kind of a replacement need coming -- piling up, but at least so far, we have not seen any kind of accelerated replacement activities. Overall, good tendering activity has continued like we saw already in quarter 3, but still it takes quite a while for the customers to make the kind of final investment decisions also in Europe. Tomas Skogman: And then I'd like to not discuss the Q4 margin yet, but if you go to H1, I mean, you had very good margins in H1 in '25. And help us to -- or remind us about the cost savings you had last year when you had the biggest incremental help. I mean, how is it then you roll over to Q1 and Q2 in 2026, then apparently, these savings for this year, this EUR 20 million will not really help now in H1. It's rather an H2 thing now. And -- but you had savings, if I remember right, immediately from the beginning of last year, right? Mikko Puolakka: Yes. Some kind of quick wins we had already from the beginning of 2025. But I would say that let's say, majority of the previous EUR 20 million cost savings kind of a run rate we started to reach somewhere in the middle of 2025. And also in this new program, which we announced now in quarter 3, I would say that it will not have, let's say, significant impact in the -- at least not in the first quarter and possibly also not yet in the very early part of the second quarter. Aki Vesikallio: As a reminder, so in the first half last year, the U.S. business were still much less impacted by the slow decision-making as we had volumes stemming from the latter part of '24 and January '25. Tomas Skogman: So do you -- I mean, is it wise just to expect that margins go down in the first 6 months then given you have lower order books and these savings are not really helping now the new savings in H1 and you had big savings from the beginning of last year? It sounds like that. I mean it's just good that we don't expect too high margins in H1, if that's the case at the moment, that it's more of a... Mikko Puolakka: Yes, let's come back to the 2026 margins when we provide the full year outlook. But yes, overall, like I said, the first half of last year, i.e., 2025 was still quite normal for the U.S. market, while we were then negatively impacted in quarter 3 and to a certain extent, in quarter 4, even though we started to book some of the revenues from those U.S. orders, which we received in quarter 2. But overall, as the U.S. order intake has been lower this year compared to last year, that will at least impact us to a certain extent in the first half of next year, before the cost savings start to kick in. Tomas Skogman: Then finally, are you in active acquisition discussions for more companies at the moment given your strong balance sheet and earlier communication? Mikko Puolakka: We have discussions with potential target companies. Aki Vesikallio: [ Edward ], you next in headline. Unknown Analyst: Sorry about that. Just an understanding on the EUR 20 million savings. Is this a structural saving? Or if the market turned in the U.S., as one hopes it does and gets back to a normalized market conditions, how much of that EUR 20 million would you actually see having to go back in? And then just on the other question, do you actually see then a sort of margin mix dilution as the equipment part picks up, going back to your comment about the overall usage and extension of either rental and lease contracts and over usage of equipment as it is, that you actually see the new kit being bought and the service side drops? That's one. And then the other question was just on pricing in the U.S. If you looked at your pricing for '26 versus your pricing that you were thinking about for the second half of '25, is there a major delta difference between that thinking? Mikko Puolakka: Thanks for the questions. First on the savings, we aim at doing as much as possible structural savings. So those should be fairly sticky, i.e., not kind of traveling type of savings, which might go up when the business picks up. So as much as possible, structural savings. Then what comes to the mix when the business improves? Yes, the equipment growth -- equipment business growth might have a slightly negative impact on the mix as services is now a bigger portion of the business due to the equipment sales decline. But it's good to remember that before the U.S. market decline also, our equipment business was doing a very solid double-digit comparable operating profit. So yes, equipment growth can have a slightly negative adverse impact on the mix. But on the other hand, with the equipment volumes, we can get good leverage on our SG&A costs. And then what comes to the pricing in the U.S.? I would say that the kind of underlying pricing in the U.S. has been fairly stable. But then, of course, due to this tariff surcharge, I would say that our pricing kind of invoicing to customers has been, say, 10-plus percent higher since, I would say, 1st of March compared to the beginning of 2025. Unknown Analyst: Okay. And then just a last question. If you just look at the overall inventory between both from yourselves and from competitors actually in the distribution network, how is that looking running into '26? Mikko Puolakka: In our case, our kind of inventories have declined in 2025 due to the top line declining. And if we think our dealers, they don't typically hold sizable inventories. They kind of -- when they get an order from the customer, then they place an order for our equipment, so they don't -- except for some kind of high runner, very standardized products. Otherwise, they don't typically hold sizable inventories. Aki Vesikallio: I don't see any hands up or any questions in the chat, but if we have any questions from the telephone lines, now is your chance. So I don't hear any questions from the telephone lines, but [ Edward ] has a follow-up. So please go ahead. Unknown Analyst: Sorry, I'll take an opportunity then. You talked earlier about discussions with clients in the U.S. that not much really has changed. But if you take the commentary from the larger clients at least, I mean what is their planning for '26? I mean, okay, we had the whole tariff friction through '25, but at some point, companies just say, "Okay, we just have to swallow it to a certain extent. We've had it so far. There's a degree of known dynamics within it. We've got to get on with the business." So what are they actually talking to you, the larger clients, at least who probably have the financial flexibility to make decisions? Mikko Puolakka: Yes. The larger clients, they have done, for example, market consolidation. So they have been buying competitors. And what they have been doing in '25 and most probably they would possibly do also in '26 is this kind of fleet renewals. They might have thousands of our equipment in use. And basically, every year, they may have to replace hundreds of those. So basically, they have -- like you said, they have stronger balance sheets. They have established relationships with leasing companies, and they are looking perhaps things in a bit longer time horizon than perhaps smaller players who might kind of have a bit more constrained balance sheet. Aki Vesikallio: Thank you. I don't see any further hands up, so it's time to conclude today's call. So we will go into the silent period on 22nd of January, and the results will be published on 12th of February. So stay tuned and have a nice, let's say, winter so far, and let's get back to the topics on 12th of February. So thank you, and bye-bye. Mikko Puolakka: Thank you.

115天前Insight Analytics约5分钟阅读

SIFY 2026 Q3 财报电话会议

Operator: Good morning, everyone, and welcome to the Sify Technologies financial results for the third quarter FY 2025-2026. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Praveen Krishna, Head of Investor Relations of Sify Technologies. Praveen, the floor is yours. Praveen Krishna: Thank you, Jenny. I'd like to extend a warm welcome to all our participants on behalf of Sify Technologies Limited. I'm joined on the call today by Mr. Raju Vegesna, Chairman; and Mr. M.P. Vijay Kumar, Executive Director and Group CFO. . Following our comments on the results, there will be an opportunity for questions. If you do not have a copy of our press release, please call Luri Group at 1 (646) 824-2856, and we'll have one sent to you. Alternatively, you may obtain a copy of the release at the Investor Information section on the company's corporate website at www.sifytechnologies.com/investors. A replay of today's call may be accessed by dialing in on the numbers provided in the press release or by accessing the webcast in the Investor Information section of the corporate website. Some of the financial measures referred to during this call and in the earnings release may include non-GAAP measures. Sify's results for the year are according to the International Financial Reporting Standards or IFRS, and will differ somewhat from the GAAP announcement made in previous years. The presentation of the most directly comparable financial measures calculated and presented in accordance with the GAAP and a reconciliation of such non-GAAP measures and of the differences between such non-GAAP measures and the most comparable financial measures calculated will be made available on Sify's website. Before we continue, I'd like to point out that certain statements contained in the earnings release and on this call are forward-looking statements rather than historical facts and are subject to risks and uncertainties that could cause actual results to differ materially from those described. With respect to such forward-looking statements, the company seeks protection afforded by the Private Securities Litigation Reform Act of 1995. These risks include a variety of factors, including competitive developments and risk factors listed from time to time in the company's SEC reports and public releases. Those lists are intended to identify certain principal factors that could cause actual results to differ materially from those described in the forward-looking statements but are not intended to represent a complete list of all risks and uncertainties inherent to the company's business. I would now like to introduce Mr. Raju Vegesna, Chairman of Sify Technologies. Chairman? Raju Vegesna: Thank you, Praveen. Good morning, everyone. And thank you for joining us on the call. India's growth story has moved decisively from promising to performance. Strong economic fundamentals, policy continuity and accelerating digital adoption are positioning India as a central pillar in the global technology ecosystem. India IT is entering into a new phase, one defined not only by scale, by -- but by leadership in digital infrastructure, cloud and AI-led innovations. As enterprises and government intensify their focus on AI, cloud and data-driven platforms, demand for the secure and high-performance and governance digital infrastructure is rising rapidly. At Sify, our strategy is aligned with this inflection point through a sustained investment in hyperscaler data centers, resilient networks and AI-driven platforms, positioning us to enable the next decade of enterprise transformation in India. Let me now bring in our Executive Director and Group CFO. Mr. M. P. Vijay Kumar to explain both the business and financial highlights. Vijay Kumar? M. Vijay Kumar: Yes. Thank you, Chairman. We continue to exercise fiscal discipline while making measured investments to strengthen our long-term capabilities. Our capital allocation across data centers, networks, and people for digital platforms remains guided by a disciplined approach to risk and future readiness with a focus on long-term value creation. Let me now expand on the business highlights for the quarter. The revenue split between the businesses for the quarter was Network services 37%, data center co-location services 40% and Digital services, 23%. In this quarter, data center co-location capacity of 9.1 megawatts was sold. As of December 31, 2025, Sify Network Services provides services via 1,214 fiber nodes, a 9% increase over the same quarter last year. And as at the same date, we have so far deployed 9,695 SD-WAN service points across the country. A detailed list of our key wins is recorded in our press release, now live on our website. Let me briefly sum up the financial performance for Q3 of financial year 2025-'26. Revenue was INR 11,596 million, an increase of 11% over the same quarter last year. EBITDA was INR 2,470 million, an increase of 29% over the same quarter last year. Loss before tax was INR 257 million and after tax INR 329 million. Capital expenditures during the quarter was INR 3,452 million and cash balance at the end of the quarter, 31st December 2025, was INR, 3,627 million. I will now hand over to our Chairman for his closing remarks. Raju Vegesna: Thank you, Vijay Kumar. Sify is committed to driving technology-led growth by enabling enterprises to modernize, expand and capture new opportunities. Our resilient infrastructure and comprehensive portfolio of services provide a strong foundation to deliver sustainable value and long-term returns. As we execute on this road map, I want to thank you for your continued confidence and support in our vision for the future. Thank you for joining us on this call. I will now hand over to the operator for any questions. Operator: [Operator Instructions] Our first question is coming from Greg Burns of Sidoti & Company. Gregory Burns: I just wanted to start off just asking about maybe an update on the timing for the IPO of Infinit Spaces. Are there any milestones that are upcoming? Or how should we think about the major milestones that still need to be completed and the timing -- the expected timing for that IPO? M. Vijay Kumar: Yes, Greg, we filed the draft prospectus middle of October 2025. And usually in the period of 3 to 4 months, we get the securities regulators approval. We are expecting the approval of the draft prospectus this month. And we will be guided by the bankers on the exact timing of opening the issue and getting listed. Once we get the SEBI's approval this month, there are additional processes in terms of updating the draft prospectus with the financials as of 31 December. And basis the banker's guidance, we will go to the market for listing. Gregory Burns: Okay. And I guess you mentioned that you had sold an additional, I think, 9 megawatts of capacity this past quarter. Could you update us on maybe what your total design capacity currently is and how much of that in total has been sold? M. Vijay Kumar: Yes. The total design capacity is 188 megawatts, out of which the capacity which is ready for service is 130 megawatts. And out of 130, the total sold capacity is about 127 megawatts. Gregory Burns: Okay. Great. And then of I don't know, maybe over the next 6 to 12 months, could you give us maybe an update on the road map for your new data center construction, maybe in terms of either DCs or capacity that you expect to bring online? M. Vijay Kumar: Yes. There are 2 facilities in our Rabale data center campus, which will go live in this calendar year for which we have contracted with the customer. And there are other 2 greenfield projects, which are under construction. One of which will get delivered middle of this calendar year and the other will get delivered middle of the next calendar year. Gregory Burns: And the total capacity of those 4 facilities? M. Vijay Kumar: Okay. The aggregate capacity of all the 4 facilities at present is about 125 megawatts, but basis customers' actual deployment, the capacity could be a little higher because we are seeing customers bringing in AI workloads into the country. It has just begun. So the densities are expected to increase. Gregory Burns: All right. And then lastly, the digital services still operating at a loss. How should we think about that part of the business longer term. At what point do you expect that to maybe either be at breakeven or profitable? When are you going to start to get some operating leverage on the investments you're making there? M. Vijay Kumar: Yes. To breakeven -- I don't want to sound forward-looking, but let me give a little guidance to the extent I can. The next fiscal year, '26-'27, latter part of the year, we should hopefully become breakeven. And depending on how the services market scales up for the new offerings, which we are investing, we will see profitability thereafter. . Operator: Our next question is coming from [ Ramesh Vijaj ] of StockHifi. Unknown Analyst: Sir, you mentioned the 12.16 megawatt capacity sold since June 2025. How much of this is already revenue generating? M. Vijay Kumar: Out of that, the revenue generating will be about 4 megawatts because a substantial part of the orders have come in December, which will generate revenue in the coming quarter. Unknown Analyst: What is the average contract tenure and return on capital employed per megawatt? M. Vijay Kumar: For hyperscaler, the average [Technical Difficulty] Praveen Krishna: Hello, Jenny. We are experiencing difficulties on the line? Operator: Yes. Ramesh, I'm going to just boost your line. Are you quite far away from your handset? Unknown Analyst: No, we are able to speak. I hope you guys are able to hear us. Operator: That's better. Praveen Krishna: Jenny just a confirmation. I think we lost Vijay on this call. Operator: Okay. Bear with me one second. Vijay's line is still connected. Vijay, can you hear us? Okay. The line is still connected. Just bear with me a second. I'll try and pull the line, just one second. Okay. I'm trying to get Vijay back in the call. So just bear with me, I try and do that. Okay. One second. Praveen Krishna: Yes, please. He got dropped, so he's asking to connect again. Operator: Okay. For the moment, we have lost Vijay, and I'm not getting him back in at the moment. I will keep trying. In the meantime, if -- would you like me to carry on with any questions. We still have Ramesh on the line. Praveen Krishna: I would give it another -- could you hold for a minute, please? Could you hold for a minute? Operator: Yes, certainly. Yes. Ladies and gentlemen, we'll just wait a moment to see if we can get the Chairman back on the line. Praveen Krishna: I have Vijay on my phone, and he is listening in on this call, so he can take your questions. Operator: Okay. So Ramesh, if you would like to ask your question again. Unknown Analyst: The question was regarding the tenure of [indiscernible] . M. Vijay Kumar: Yes. The hyperscale contracts are all for a tenure of 7 years and with renewal for 2 further terms of a similar period and for enterprise contracts, it is 5 years and which usually tend to get renewed for similar periods. Unknown Analyst: Okay. Return on capital employed each megawatt per megawatt? M. Vijay Kumar: Return on capital employed, we measure it essentially for the stabilized facilities, which is facilities when they get fully populated. And for the fully populated facilities, the return on capital employed is in high teens. Unknown Analyst: So this IPO, which you're coming out with Sify Infinit, is this proceed going to be used for debt reduction of parent level? Or is it going to be used for fresh network expansion? M. Vijay Kumar: The IPO primary portion of it is going to go for data center expansion. A portion of the funds will go towards retiring the existing loans, and we will replace those loans with lower cost and longer-term infrastructure debt subsequently. Unknown Analyst: So how is Sify Infinit structurally separated like more debt, cash flow, everything, how exactly is it separated? M. Vijay Kumar: Yes. Sify Infinit Spaces is the 100% subsidiary of Sify Technologies Limited, separate legal entity. And its separate financial statements are available on our website. They are also available in the IPO documents which we have presented. It's also available at the MCA portal. The separate financial statements are available. And since our [ debt ] is listed in the Bombay Stock Exchange, the quarterly results are also updated in the Bombay Stock Exchange portal. Unknown Analyst: Okay. is the existing Sify shareholders ADR going to get any kind of shareholder quota in the new IPO? M. Vijay Kumar: We have been advised by the bankers that the existing ADR shareholders are holders of American Securities and the legal framework does not allow any priority to be given. However, the U.S. shareholders who have -- if you are in U.S., you can -- and you have a nonresident account in India, you can participate through the NRE account which you have here. Operator: [Operator Instructions] Our next question is coming from Prateek Singh of IIFL Capital. Prateek Singh: The first question is on the depreciation. So basically, I understand that the management estimates useful life for power equipment to be around 8 years. Is it something -- does it mean that after 8 years, we'll need to replace power equipment? I don't think so, right? It's just for accounting, the power equipment would be lasting for 15, 20 years. Is this understanding correct? M. Vijay Kumar: Exactly. You're right, Prateek. In fact, we have been in business for about 25 years. And except for certain items like the UPS and the batteries, rest of them have a life north of 15 years, north of 15 years. One of the reasons the company took a depreciation policy of an average of 8 to 10 years is to coincide with the pricing model, which the company adopts. So our pricing model assumes 8 to 10 years' capital recovery. And hence, the depreciation is synced to that. Prateek Singh: The next question is on margins of the data center business, which is kind of a steady state and growing very well for us. Margins, while I understand that they are stable, we saw a small dip in margin this quarter. So usually, when we have to forecast numbers, how should we look at it? Is it like hyperscalers? Are they driving pricing down or the situation is quite tight in India, and that's not the case. It might be due to power costs going up. How should we look at margins and pricing environment going ahead? M. Vijay Kumar: Okay. The EBITDA margins are consistent between 44% to 45%, 100 basis points difference at times arises between quarters, depending on the customers ramping up their IT power consumption. So when -- for example, Rabale Tower 5 went live in the last 9 months, and those equipments have come in, which have contributed to capacity revenue, but the power revenues start scaling up over a period of time. And similarly, whenever new large capacities come live, there are -- there is that period of ramping up for about 6 to 9 months where you have some operating expenses, which later give us the operating leverage to reduce the same. So it generally fluctuates between 100 to 200 basis points. Otherwise, it's close to 45%. Prateek Singh: Understood. And sir, so like you said, like sir said earlier that our design capacity is 188, installed is around 130, operational is 127. So did I hear it correct, the installed is 130, right? Or was it 150? M. Vijay Kumar: 130. Prateek Singh: Okay. So these are the same numbers as of June as per the DRHP. So does it mean that the CapEx that we are doing right now is going into capital work in process and we can see a step jump when a new facility is commissioned. M. Vijay Kumar: Correct. Correct. You're right. The design capacity of 180 between the DRHP of June and now is the same. A substantial amount of capacity is going to get added in this calendar year, where we have Rabale Tower 6 and 7, which will go live and Rabale 11 also, which is going to go live. So you'll have a substantial capacity getting added. Prateek Singh: And what kind of time difference do we see? Like -- so I understand that design capacity is bare shell, right, without UPS, gensets and all those things and installed capacity has all those things. So what kind of time difference do we see between 130 going to 188? Is it more like 6, 7 months? Or is it more like 12 months? So basically, how long does it take for installed capacity to rise to the level of design capacity in short? M. Vijay Kumar: Yes. So the markets are divided as Mumbai and other cities. In Mumbai, the recent experience is any capacity you add, the design capacity getting fully populated is approximately about 15 months, 15 months, whereas in other cities, where you build on a tower concept, where you build a core and shell meet the future demand because when customers come in, they see whether the capacity is scalable, that becomes one of the important requirements. So in other markets, they experience this, it takes about 3 to 4 years to get fully populated. But at times, if a hyperscale customer comes in, then it gets populated earlier. The second question you had on pricing. We are not seeing any pricing challenges, whether it is hyperscale customers or the enterprise customers. The pricing -- the return on capital is fairly consistent [indiscernible] for customers to look at it is availability of capacity on time. And the service providers quality of product and operations and maintenance is a key criteria for the customers and it continues to be so now. Prateek Singh: Understood. And sir, just a bit... Operator: Prateek, your line cut out for a second. Would you mind reasking the question, please? Prateek Singh: Sure. So is my line clear now? Operator: Yes. M. Vijay Kumar: Better. Better. Prateek Singh: Yes. So on the related party disclosures in the DRHP, when we talk about expense transfer and revenue transfer with the Sify Technologies, I wanted to get more sense as to what these are and how should we look at it? M. Vijay Kumar: Yes. Yes. So the related party transactions are broadly 2 things. The revenue transfer and the expense transfer, which you see there is actually in the context of some of the contracts which were signed by the parent company before the data center business was carved out. So those customer contracts have remained with the parent company because they are largely with the public sector companies, so those contracts, whatever revenue comes, we pass it on as it is to the data center entity as per the business transfer agreement. So parent company does not have any margin. It's just a simple revenue and expense transfer, which is -- that's point number one. Second is there are 3 data center assets, which are owned by the parent company. Those assets have been given on lease to the subsidiary because when we did the business transfer in 2020, it was tax efficient to retain the asset in the parent company and give it on a long-term lease to the subsidiary. The third point is as far as the go-to-market of the company is concerned, the go-to-market, we have for hyperscale business, a dedicated go-to-market team within the data center entity. But for the domestic enterprise business, we leverage on the go-to-market capabilities, which are there in the parent company, where we have about 5,000 enterprise customers. So that go-to-market cost and the marketing costs are apportioned on an actual cost basis to the data center entity. Prateek Singh: Understood. And just one last clarification. When sir said that December quarter will -- the capacity sold in December quarter will generate revenue in the upcoming quarter. By upcoming quarter, do we mean March or June? M. Vijay Kumar: March, March, March. A few more questions we can interact any time at your convenience, please feel free to reach out to us. Operator: Our next question is coming from Sourabh Arya of Oaklane Capital. Sourabh Arya: Am I audible? M. Vijay Kumar: Yes, you are. Yes. Sourabh Arya: Sir, my first question is actually on the Network business. So why this business is flat in this quarter? M. Vijay Kumar: Yes. As far as the Network business is concerned, during this quarter, we had some bit of price corrections for our existing customers. Second is there is also a small shift of customers moving from MPLS to Internet and when the customers move from MPLS to Internet because of the new technologies like SD-WAN and SASE, the price realization comes down. But at the same time, we manage our costs also to protect our margin. So volume-wise, we would have grown, but the revenue numbers would look a little flattish. Sourabh Arya: So does that mean this exercise will continue? And second, then how should one look at the growth of this business? Because I was under the impression, ultimately, it should grow in line with the data center business. M. Vijay Kumar: Correct. Correct. Correct. And that's actually what will happen. The Network business will grow similar to the Data Center business, but probably not at the same pace because Data Center growth momentum is significantly higher, but Network will also grow alongside the Data Center business. Sourabh Arya: Okay. And second was there's continuous new [ Vizag ] and this Google partnership on the networking side. Can you explain that if like what exactly is happening? And what kind of CapEx Sify would be doing because these are very large numbers that keep coming. M. Vijay Kumar: Yes, yes. So as far as Sify Network business is concerned, you might be aware, we are a carrier-neutral cable landing station operator in the country. We have one operating cable landing station in Mumbai for over a decade where there are 3 cable systems, which are landing and those cable systems may take them into the city to the various data centers. Now some of the hyperscalers, as part of their overall strategy, are looking at landing capacities in other cities in India. Visakhapatnam happens to be one such chosen location. So Google for their cable landing system, which is coming on the eastern side has chosen Sify as the partner for setting up the cable landing station where their cable will come and land. So this cable will land in a data center, which we are setting up in Visakhapatnam, which we call as an edge data center, where we'll have some anchor customers as well. And this cable will land there. And this cable from the data center and the cable landing station investment is not a material investment. It's a very strategic investment, though. The material investment will be carrying the capacity from the cable landing station to Google's own data center, which they are putting up in Visakhapatnam, which is not too much of a distance. So that will be a capital investment to be done. At this point in time, we don't have a real estimate of how much is that. But typically, those investments are largely funded by the customer themselves. So they would not be balance sheet heavy for Sify Technologies. Sourabh Arya: Okay. That is fine. So you will continue to benefit from this but not by putting too much of capital. M. Vijay Kumar: Correct. Correct. It's a very strategic investment. What it actually helps us in the long term is carrying the traffic which comes to the subsea cable systems into the data centers, length and breadth of the country. So that's the kind of strategic position it comes. It's similar to an international -- cable landing station is similar to an international airport where the traffic comes in. And from there, you carry the traffic to your network into the domestic cities. So that's a simpler way of understanding the cable landing station investment. Sourabh Arya: Okay. Okay. And one last question. So you said that the new data centers, the Rabale, the new towers, there the capacity is some 30s, right, per tower. But you are seeing some AI investments if they can upgrade the capacity. But is the -- so does it mean the CapEx per megawatt for some of these upgradation is far more than your traditional $5 million, $6 million per megawatt investment, which happens in normal scenario? M. Vijay Kumar: Yes. So currently, what is happening, Sourabh, is the 4 data centers, 2 of them are 77 megawatts, the other 2 are 55-megawatt. The 77 megawatts we are going to host AI infrastructure of the customer. So a customer is bringing in substantial amount of AI into that facility. This facility was originally designed for 52, whereas now it's going to be for 77 megawatts. And the incremental capacity, incremental CapEx cost for the AI is marginal for us, and some of it is getting funded by the customers themselves because they are bringing some proprietary design. Second, coming to the 52 megawatt is what I mentioned. The other 52 megawatts, which I mentioned, has been originally designed for cloud workloads. But if the customer is coming with AI workloads, we have the opportunity of increasing that 52-megawatt to a higher capacity. So it depends eventually on what kind of workloads the customer is bringing in. Sourabh Arya: Sure. This is helpful. Just very lastly. So when the normal DCs there, you have got air cooling. So does it mean -- and as you are saying, the CapEx would not increase much and it is done by the customer only. So does it mean none of these new capacities have some liquid cooling, et cetera, which are very, very expensive. And even if those are there, those would be borne by the customer. M. Vijay Kumar: No, no, no. That's not the right way to understand. All our data centers, which have gone live since 2024, are NVIDIA certified and capable of hosting liquid cooling systems. They're all designed for that. And our new facilities, Rabale 6 and 7, which is coming, right from day 1, will have liquid cooling system. And the commercial engagement with the customers varies from customer to customer, contract to contract. Some contracts we incur the whole amount and it gets added to the capacity charges. Some customers, the customer invests in that for which we enable the same. So it depends on contract to contract and customer-wise. And whenever you have the liquid cooling system coming in, the incremental cost is approximately $1.3 million per megawatt. Sourabh Arya: $1.3 million per megawatt, right? M. Vijay Kumar: Correct. Correct. Correct. Sourabh Arya: Okay. Okay. That is helpful, and that is borne by the customer or by you? M. Vijay Kumar: As I told you in some cases, the customer does it. Sometimes we do it and charge from the customers. Sourabh Arya: Okay. Perfect. And one last, if I can squeeze, is on the data services side, though you gave the guidance that maybe we will see some flat margins for breakeven by next year, second half. But what kind of ramp-up in this business is expected? Like because you've been building this business for quite some time now. And what are the green shoots? M. Vijay Kumar: We are expecting a combination of actions to help us get to breakeven. One is from our portfolio of services. We will look at focusing on 2 or 3 services more for revenue ramp-up like we have the cloud and managed services, the network managed services and the security managed services. So those are a portfolio, which we will see some revenue growth to help us get to breakeven, where we are actually developing capabilities around AI ops to bring the differentiation to the customers. That's part one. Some of the portfolios where the scale of opportunity is limited, we might decide to repurpose those resources and get them to businesses which are productive. So we are looking at that carefully, and we will do it in a calibrated manner over the next 3 to 4 quarters. We have good quality resources engineers, very young engineers, whom we have trained good quality people. So we would like to monetize their capabilities by increasing the focus on certain set of services. Operator: Our next question is coming from [ Ramesh Vijaj ] of StockHifi. Ramesh, can you hear us? Ramesh. It's quite hard to hear you. Unknown Analyst: Are you able to hear me? Operator: Yes, we can hear you now. You can ask a question. Unknown Analyst: There is a small thing that we would like to know. How should we go forward with this equity stability, especially such as CapEx and debt going forward, which is continuing to rise? M. Vijay Kumar: Yes. As the capital requirements is substantially for the data center business, and our initiative now to do an IPO helps us to create the stock as a currency. The initial primary capital which you are raising should take care of the demand growth for the next 2 to 3 years. And thereafter, we should be able to do a combination of rights and QIPs to raise capital to meet the incremental capital requirements. In fact, this listing is essentially to fund the growth for the future, given the fact that the business has very good prospects over the next decade. Unknown Analyst: What kind of offloading has been -- or what kind of new equity is being issued? How much percentage would be impacting for the existing shareholders for the Sify Infinit? M. Vijay Kumar: The DRHP has been filed and it is in the company's domain. I would encourage given the fact that these are all subject to capital market regulations, I encourage you to read the same. The primary capital which we are raising is INR 2,500 crores, and there's an offer for sale from our capital partner, Kotak, where we have [ Arya ] and GIC as LPs, where they'll be liquidating a small portion of their existing holding for INR 1,200 crores. So total issue size is INR 3,700 crores. Operator: And our next question is coming from Prateek Singh of IIFL Capital. Prateek Singh: Just a clarification on an earlier answer. So when we said we have 4 capacities in line, Rabale, 2 brownfield and 2 greenfield. So these 2 greenfield are in Rabale as well or they are in some other city or some of the area? M. Vijay Kumar: Yes, Prateek, all the 4 are greenfield. All the 4 are greenfield. 2 of them are right adjacent to the existing facilities. And the other is right opposite -- other 2 are right opposite the existing facilities. They all constitute a single CapEx. All the 4 are greenfield projects. Prateek Singh: Okay. In Rabale itself, right? All 4 are in Rabale. M. Vijay Kumar: In Rabale. They're all part of the same campus and all the 4 are greenfield projects. Prateek Singh: Understood. Understood. And when we sign these AI contracts, do they have -- do we expect to maintain similar kind of return on capital employed in AI contracts like cloud? Or would they be a bit higher? M. Vijay Kumar: At present, we are seeing same kind of returns. Early stages, Prateek, let's see how it increases in the future. But at present, it's the same set of returns. Prateek Singh: Okay. And the Andhra Edge facility will be 50 megawatts. Is that the right understanding? M. Vijay Kumar: No, no, no. Andhra Edge facility is on a land parcel of 3.6 acres. The initial design could be for 5 acres, but it's early stages. Once everything is firmed up, we will communicate to you. It's early stages. But typically, all the edge sites, we are designing it for 5 megawatts. Prateek Singh: Understood. M. Vijay Kumar: And just to clarify on that Andhra one. Apart from the 3.6, we have a land allotment of 50 acres, probably your 50-megawatt context came there. So we have a land allotment of 50 acres, which is there in Visakhapatnam, which is for the future capacity additions depending on how the demand comes in. Operator: Well, we appear to have reached the end of our question-and-answer session. I will now hand back over to Raju for any closing comments. Raju Vegesna: Thank you for joining us on the call. Have a good day. Thank you. . Operator: Thank you very much. This does conclude today's call. You may disconnect your phone lines at this time, and have a wonderful day. We thank you for your participation.

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