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Operator: Good afternoon, everyone, and welcome to the Preferred Bank Q4 2025 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on a touch-tone telephone. To withdraw your questions, you may press star and 2. Please also note today's event is being recorded. I would now like to turn the conference call over to Jeffrey Haas with Financial Profiles. Sir, please go ahead. Jeffrey Haas: Thank you, Jamie. Hello, everyone, and thank you for joining us to discuss Preferred Bank financial results for the fourth quarter ended 12/31/2025. With me today from management are Chairman and CEO, Li Yu; President and Chief Operating Officer, Wellington Chen; Chief Financial Officer, Edward Czajka; Chief Risk Officer, Nick Pi; and Deputy Chief Operating Officer, Johnny Tzu. Management will provide a brief summary of the results, and then we will open up the call to your questions. During the course of this conference call, statements made by management may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon specific assumptions that may or may not prove correct. Forward-looking statements are also subject to known and unknown risks, uncertainties, and other factors relating to Preferred Bank's operations and business environment, all of which are difficult to predict and many of which are beyond the control of Preferred Bank. For a detailed description of these risks and uncertainties, please refer to the SEC-required documents the bank files with the Federal Deposit Insurance Corporation, or FDIC. If any of these uncertainties materialize, or any of these assumptions prove incorrect, Preferred Bank's results could differ materially from its expectations as set forth in statements. Preferred Bank assumes no obligation to update such forward-looking statements. At this time, I'd like to turn the call over to Mr. Li Yu. Please go ahead. Li Yu: Thank you, ladies and gentlemen. Thank you for joining the earnings conference. I'm very pleased to report that for 2025, the bank's net income was $34.8 million or $2.79 a share. For the full year, the bank earned $134 million or $10.41 a share. Our profitability for the year is believed to be among the top tier of the banking industry. Amid interest margin for the fourth quarter declined from the third quarter. The principal reason for the decline was federal rate cuts. With a 70% floating rate loan portfolio, the rate cut did reduce our loan interest income. However, the cost of deposits remains stubbornly high. In fact, many analysts have reported that between quarters, the banking industry, the entire banking industry, cost of deposits may have increased slightly. Looking forward, we are seeing that our loan demand is getting stronger. For the quarter, our total loan growth is $182 million or over 12%. Deposit growth was $115 million or 7.4%. To round out the year, loan and deposit growth was 7.3% and 7.2%, respectively. During the quarter, we sold two large pieces of OREO, resulting in a net gain of $1.8 million between the two. The income was reported in the section of noninterest income. The loss, the result of the loss, was reported in the noninterest expense section. This is based on the current principle of generally accepted accounting principles. For the quarter, nonperforming assets declined slightly. However, criticized assets did increase by $97 million. Principally, this is due to placing a large loan relationship into the classified status. Our loan loss provision was $4.3 million. Most economists are forecasting 2026 to be a year of relatively stable growth. Our customers' feelings also indicate they have an improved outlook for 2026. Barring any sudden changes in the current policy or directions, which we just had one, we are hoping 2026 to be more of a growth year for Preferred Bank. Thank you very much. I will answer your questions. Operator: To ask a question, you may press star and then 1 using a touch-tone telephone. To withdraw your questions, you may press star and 2. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Again, that is star and then 1 to join the question queue. We'll pause momentarily to assemble the roster. And our first question today comes from Matthew Clark from Piper Sandler. Go ahead with your question. Matthew Clark: Hey. Good morning, everyone. Just want to start on the margin and get some visibility there at least in the near term. Do you have the spot rate on deposits? Spot rate on deposit costs at the end of the year or even the month of December, and then also the average margin in the month of December? Edward Czajka: Hi, Matthew. This is Ed. The margin for December was 3.66%, slightly below that of the quarter. That was with the full effect of the December rate cut. Total cost of deposits was 3.17% for the month of December. So that's coming down about six, seven basis points a month. Matthew Clark: Okay. Yeah. And that's where I was headed. Deposit beta this quarter looks to be about 40% on interest-bearing. Sounds like things are still pretty competitive. What are your thoughts on the beta? The deposit beta? Going forward? Assuming we get maybe one or two rate cuts this year? Edward Czajka: Well, it's going to depend on a number of things. Obviously, the rate cuts will play a big key role, but the other thing that Mr. Yu alluded to is the competition for deposits still remains very, very strong. So I would foresee a similar pattern in terms of about five or six basis points a month as we have CDs rolling off and then coming on at lower rates. They're just not coming on at rates that we thought we would see at this point given what's happened with the Federal Reserve. Matthew Clark: Got it. And it sounds like loan growth you expect to maybe step up a little bit this year from the 7.3% pace last year. I would assume you're going to try to grow deposits at a similar pace. Is that fair, just given your loan-to-deposit ratio? Li Yu: That's a fair statement. Matthew Clark: Yeah. Okay. And then just last one for me on expenses, the run rate, a little noise this quarter, but stripping that out. A little better than expected on comp. How should we think about the run rate here in the first quarter? With some seasonality? Edward Czajka: I'm going to forecast probably somewhere in the neighborhood of 22. Maybe slightly below that. But, you know, 21.5 to 22 should be about right. You know? Matthew Clark: Okay. Thank you. I'm getting it now. Yeah. Operator: Our next question comes from Gary Tenner from D. A. Davidson. Please go ahead with your question. Gary Tenner: Thanks. Good morning. Just a quick follow-up on the deposit side of things. If you could kind of update us on the CD maturities in the first quarter and kind of the out and in rate that you expect? Edward Czajka: Sure. So we have about $1.3 billion maturing in Q1 at a weighted average rate of 3.96%. They're currently coming on right now at about around 3.70% to 3.80% on average. Gary Tenner: Appreciate that. And just out of curiosity, last quarter, when you talked about the CDs maturing in the fourth quarter, they were maturing at 4.1% and you sort of posited kind of new CDs in the mid to high threes. So it sounds like that number was towards the upper end of that repricing range in the fourth quarter? Is that kind of what played out? Edward Czajka: Yes. Yes. Yes. As we said, we would have expected CD rates, market rates to come down a little more than they did given the Federal Reserve's actions. Gary Tenner: Okay. And that 70% floating rate portfolio now, does that have you with the fourth quarter cuts, did you clear through any significant floors? Edward Czajka: It probably only affected about $150 to $200 million of the loan book. Right now, we have about 45% of the floors are in the zero to 100 basis point bucket in terms of their protection effectiveness. Operator: Our next question comes from Andrew Terrell from Stephens. Please go ahead with your question. Andrew Terrell: Good morning. I was hoping to just follow-up on the time deposit commentary. I was hoping you could just maybe expand upon that a bit more and just, you know, sounds like high threes for you guys right now. Is that generally in line with your competition? Are you trying to, you know, price ahead, price below to pick up more deposits? Just curious, you know, where you're at versus the market, kind of your strategy, your expectations there. Edward Czajka: I think the challenge is kind of walking the tightrope. Right? We want to bring deposit costs in. That's really a big goal of ours, but at the same time, we want to grow the deposits. So that's been kind of a challenge. What we've seen in the marketplace is not only local competition still being fairly stiff, but we're seeing some large money center banks still out there promoting CDs right in our marketplace. And when you have those guys doing that type of it makes it more challenging for us because of their size. Andrew Terrell: No. It makes a lot of sense. On the downgraded loan this quarter, the $123 million relationship, I appreciate all the color you guys put in the release around the LTVs and debt service there that both look pretty good. I was hoping you could talk a little bit more about the pathway to curing this. You know, what the timeline and outcome looks like as you see the big picture today. And then also just, you know, as a pretty large relationship, 2% of the loan book. Is this the largest relationship with the bank, or are there other, you know, similarly large that you guys have? Li Yu: I believe this is one of the large relationships. Correct. For the bank, that is small. In terms of the workout, it's a little bit early to be able to tell what the future is going to hold for this particular relationship. There are several options, you know, that we've utilized in the past. We've sold notes, we've foreclosed and taken back property, etcetera. But our first choice, obviously, we know these customers, they are late in payments, and they are having problems with other banks. But their principle is that because these properties still have value, very positive value in their eyes. And the information we have is that they are working very hard, trying to finance it out from other alternatives. So the bank is going to be waiting for them to get these procedures done. So in case they are not able to continue the loan, and we have to go through the foreclosure procedure, we are not going to shy away from that. We'll do it immediately. And the current marketplace is pretty reasonable as regard to pay for these properties at this point in time. So in other words, when I see in the market situation 2011-2012 that you have to bottom four off, it's not happening. The market has been very stable. So it's a matter of time to resolve the thing as these loans are basically fundamentally well, reasonably underwritten. Andrew Terrell: Okay. I appreciate all the color there, and thanks for the questions. Operator: Our next question comes from Tim Coffey from Janney. Please go ahead with your question. Tim Coffey: Great. Thank you. Good morning, everybody. Mr. Yu, as we start looking at loan growth this next year, what do you think are the best opportunities for growth? Or, like, what loan product? Li Yu: Basically, we are still a sort of like a commercial market that we basically focus on commercial real estate and C&I loans. We see both sides' demand is reviving a bit right now. In fact, internally, we're budgeting a higher number than the previous year right now. So it's still very early to tell. As you know, not only do we have the normal economy, but we do have a very active government that changes practices from time to time. So it will be, you know, if we mentioned some for the babies, it was lose no change, or go this way, I think that's overly optimistic. But I like to say that we're budgeting a higher number than last year for our upcoming year. Tim Coffey: Okay. Great. Thanks. And then, Ed, looking at noninterest expenses for the full year in terms of the growth rate, is kind of a mid to high single digits number reasonable? Edward Czajka: Yes. That's about what we're looking at, right in that neighborhood, Tim. You're spot on. Tim Coffey: Okay. And then the kind of just general thoughts on share repurchases for this year? Li Yu: Well, we just have to see what the total picture is. You know, first of all, obviously, we have to see what our loan growth is during the year. And all possibility, all funds will have to be reserved for loan growth. And secondly, the deposit situation will also be very important. So when we have the balance sheet fixed, then we probably would turn around to see whether there is additional availability for repurchases. But I would say that the situation is not quite as conducive to repurchase as last year. Tim Coffey: Right. Well, sure. Absolutely. And then I guess this is what I want to kind of make sure I dot the I and cross the T's on the classified loans. I mean, given the uniqueness of this situation, what does the timeline for disposition look like? Or how does this play out? Li Yu: Well, first of all, that amount of relationship there. There are several different loans. Some of them have earlier maturity dates than the other ones. So first of all, obviously, we will be giving our customary opportunity to that particular relationship, the opportunity of resolving matters to our satisfaction. And then the legal procedure will start if they fail to do that. Now I would say that internally, we will say that probably we will have the majority of a good portion of all resolved sometime within two quarters. Nick, do you think I'm too optimistic? Or what's your take? Nick Pi: That is the goal where we're heading, Mr. Yu. Yes. Of course, we'll try to solve the issues. I think we'll give ourselves that much time to get a lot of the work done. Tim Coffey: Okay. Great. That's very helpful. Those are my questions. Thank you. Operator: Our next question comes from Liam Coohill from Raymond James. Please go ahead with your question. Liam Coohill: Hi. Good morning, everyone. This is Liam on for David Feaster. So there's been a good amount of discussion surrounding the classified downgrade, but I did just want to touch on the well-secured multifamily loan that was downgraded to nonaccrual. Did you have the credit metrics for that loan, or is there anything in particular we should take into account? Li Yu: You mean the $19.4 million? Yes. Based on the most updated appraisal we conducted after we classified this loan, the value came out even higher than the previous one. So with everything in mind, the value is $49 million, and our loan is $19.5 million. Liam Coohill: That's very helpful. Thank you. And then just one more from me. For fee income in 2026, would the Q4 number excluding the one-time OREO impact be a good baseline? Edward Czajka: I think it would be, yes. I think that's probably a good baseline, maybe slightly below that. The LC fee income was very, very strong this year. Not sure we can exactly reproduce that number, but I'm sure we'll get close to that. So I would take that noninterest income without the gain on sale of other real estate. Liam Coohill: Thank you very much. I'll step back. Operator: Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and 2. Again, that is star and then 1 to join the question queue. Our next question is a follow-up from Matthew Clark from Piper Sandler. Please go ahead with your question. Matthew Clark: Hey. Thanks. Just want to clarify your expense guidance for this year. Does that exclude OREO costs? Because the midpoint of your guide for the first quarter of $22 million, you know, annualizes obviously to $88 million, would be below this past year and would imply some significant growth after the first quarter. Just want to make sure we're on the same page. Edward Czajka: Yes. It will grow through the year. There's no question about it. And we will have, you know, we still have a couple of small OREO properties, so there will be some expense related to those as well. Matthew Clark: Okay. And then did you repurchase any shares this quarter? Li Yu: No. Not this quarter. We did in October, but it was a nominal amount, Matthew. Matthew Clark: Okay. Then just last one for me on M&A. Just wanted to get an update on your appetite for M&A to the extent you see some opportunities with M&A expected to accelerate this year? Li Yu: Yeah. There are a few deals that have been brought to us that we end up taking a look at. As you know, that has been nothing main effort in M&A. But there are a couple of deals we take a look at, and probably the pricing structure required of us is not to our satisfaction. So we'll continue to look at it. We know that there may be another one or two coming up, we'll take a look at it. Matthew Clark: Okay. Great. Thanks again. Operator: And our next question comes from Arif Angad from Cygnus Capital. Please go ahead with your question. Arif Angad: Yes. Hello. Thanks for taking my questions. First question is really more just to clarify the diluted EPS of $2.79. If I'm reading it correctly, it looks like your gain on sale of the OREO property is included in that EPS, which after tax was about 20¢. Just want to confirm, am I reading that correctly? The effect of that gain on the EPS was $2.59? Edward Czajka: That sounds about right. Yes. Li Yu: $1.8 million after equal to $3.6 million. Yeah. So that's about right. Arif Angad: Okay. Thank you. And then my next question is on those OREO properties you sold in the fourth quarter, did you provide any financing to the buyers, or have you completely absolved yourself of any exposure to those properties going forward? Li Yu: One of them we provided financing. The other one was an outright cash sale. Arif Angad: Got it. So you still have a loan through one of those properties going forward? Li Yu: Yes. Much smaller loan. Arif Angad: Got it. Okay. And then the last question I had was with respect to the increase in the classified loans. Can you please confirm the $121 million of loans that are with the relationship where there's litigation going on with other banks, assuming you're referring to Western Alliance and Zions. Are those loans paying current? Are they performing or no? Li Yu: As far as I know, we don't know exactly the status of the other two banks' loans, and we don't have any idea about their structures. All I know is that we are in a first position, you know, trust lender to the world. Fully secured by a problem. Arif Angad: But are those loans being paid, you know, are you receiving current interest in debt service on those loans? Currently? Li Yu: Yes. We have been receiving the payments, but it's being slowed down. That's correct. Arif Angad: Sorry. So when you I did so they're behind in interest service or they're currently in interest service? I'm not following. Li Yu: Generally, they're behind in interest services. That's one of the primary reasons that's the weakness of the loan that we classified. Arif Angad: For clarifying. I'm just really more trying to understand the context of a 1.14 times debt coverage ratio if the loan's not paying. Li Yu: Because of the guarantors getting involved with litigation with other banks. So a property that is not 100% using all the cash flow from those properties to make the payment to our bank and to spend that. Arif Angad: Got it. Okay. That's helpful. And then, you know, just to finalize the question on this topic, you know, given where the allowance for credit losses stood at the end of the quarter or end of the year and your increase in the provision for credit loss, what gives you comfort that you're adequately reserved and we don't get surprised as we did this quarter with a significant increase in nonperforming and criticized loans? How recent of a scrub have you done of your portfolio to kind of give you that comfort that you're adequately reserved? Li Yu: All these loans under this or go with because it's substandard in care, we go with the principal one for case analysis. And as the release mentioned about the rookie virus, around 5%. So there's no specific reserve on this one. However, the $4.3 million provision for this quarter was mainly the result of a combination of many, many factors, including the loan growth, including other specific reserve for some of the loans. Just to give you an example, we fully reserve this relationship to under unsecured credit. And also based on Q factors. So due to the movement of all this relationship, and increase of the criticized loans, we have adjusted our Q factor side, especially on the credit trend area. We increased five basis points of the risk entire risk segment. So these are the components of our reserve at this moment. Our Q factors are actually kind of around 42.5% reserve. So we do believe the reserve should be more resolved to cover our credit situation. Arif Angad: Got it. Okay. Thank you very much. Operator: And ladies and gentlemen, with that, we've reached the end of today's question and answer session. I'd like to turn the floor back over to management for any closing remarks. Li Yu: Well, thank you very much for being with us. For now, Preferred Bank, we have a little challenge and they try to within the next six months period of time, try to resolve these issues on the credit side. But overall, everything remains the same. We are the same company with a well-structured balance sheet, normal operations, normal metrics, and so on, and we still look forward to 2026. Thank you very much. Operator: And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
Operator: Good morning, and welcome to the RLI Corp. Fourth Quarter Earnings Teleconference. After management's prepared remarks, we will open the conference up for questions and answers. Before we get started, let me remind everyone that through the course of the teleconference, our alliance management may make comments that reflect their intentions, beliefs and expectations for the future. As always, these forward-looking statements are subject to certain factors and uncertainties, which could cause actual results to differ materially. Please refer to the risk factors described in the company's various SEC filings, including in the annual report on Form 10-K as supplemented in Forms 10-Q, all of which should be reviewed carefully. The company has filed a Form 8-K with the Securities and Exchange Commission that contains the press release announcing fourth quarter results. During the call, RLI management may refer to operating earnings and earnings per share from operations, which are non-GAAP measures of financial results. RLI's operating earnings and earnings per share from operations consist of net earnings after the elimination of after-tax realized gains or losses and after-tax unrealized gains or losses on equity securities. Additionally, equity and earnings of unconsolidated investees and related taxes were removed from operating earnings and operating EPS to present a consistent approach and excluding all unrealized changes in value from equity investments. RLI's management believes these measures are useful in gauging core operating performance across reporting periods but may not be comparable to other companies' definitions of operating earnings. The Form 8-K contains a reconciliation between operating earnings and net earnings. The Form 8-K and press release are available at the company's website at www.rlicorp.com. I will now turn the conference over to RLI's President and Chief Executive Officer, Mr. Craig Kliethermes. Please go ahead. Craig Kliethermes: Good morning, everyone. We appreciate you being with us today, and I'd like to introduce Aaron Diefenthaler, our Chief Financial Officer; and Jen Klobnak, our Chief Operating Officer, who are joining me. I'll start by saying we feel very good about where RLI Corp is today and just as importantly, where we're headed. 2025 was another strong year for our company. We delivered underwriting income of $264 million on an 84 combined ratio, grew book value per share by 33%, inclusive of dividends and achieved our 30th consecutive year of underwriting profitability. That kind of consistency is extremely rare in our industry, and it certainly doesn't happen by accident. It's too long to be considered a hot streak, it reflects disciplined execution over time and the principles we worked to uphold every day. The environment remains competitive, and premium growth was modest, but that's exactly when our model tends to show its strength. We don't measure success by how fast we grow, we measure it by how well we grow and whether today's decisions stand the test of time. Jerry Stevens, our founder, used to remind us that you don't win the long game by swinging at every pitch, you win it by knowing which ones to let go by. That mindset is deeply ingrained at RLI. We're comfortable pulling back when the risk-reward equation doesn't work, and we're confident leaning in where we have the expertise and when the market supports it. Our diversified specialty portfolio, strong balance sheet and ownership culture give us a lot of flexibility and a lot of confidence as we look ahead. We're well positioned and optimistic about the opportunities in front of us. And with that, I'll turn it over to Aaron to walk through the financials in more detail. Aaron Diefenthaler: Thanks, Craig, and good morning, everyone. Yesterday, we reported fourth quarter operating earnings of $0.94 per share, up from $0.52 in the year ago period. Better underwriting performance, minimal storm activity and increases in investment income drove most of the improvement compared to last year. For the quarter, we generated $71 million of underwriting income on an 82.6 combined ratio versus $22 million on a 94.4 combined ratio in Q4 last year. For the full year, we delivered $264 million of underwriting income on, as Craig mentioned, an 83.6 combined ratio, marking our 30th consecutive year of underwriting profit. I wanted to call your attention to a change we made to our definition of operating earnings. As referenced in a footnote on Page 1 of our release and in the non-GAAP disclosures on Page 2, operating earnings now excludes equity and earnings of unconsolidated investees and related taxes. Prior periods were recast to conform to that definition for comparability. Currently, unconsolidated investees only includes our minority investment in Prime Holdings. We believe excluding these investments from operating earnings, better reflects RLI's core operations, where we maintain full operational control and aligns the treatment of investee results with other equity investments. On a GAAP basis, net earnings were $0.99 in the quarter and $4.37 for the year, an increase of 17% over full year 2024. In addition to operating earnings, net earnings include net realized gains and losses, net unrealized gains and losses from equity securities and now earnings of unconsolidated investees from Prime. Our Q4 net earnings reflect Prime's core operating results based on our minority ownership and a reduction to Prime's value on our balance sheet to $53 million. Turning to premium. Top line growth was down 2% for Q4 and up 1% for the full year as competitive dynamics necessitated heightened discipline in several businesses while other products continue to find opportunities. Property premium was down 11% during the quarter, consistent with the rate environment for catastrophe-exposed commercial property although other parts of the segment, Marine and Hawaii homeowners continue to grow. Properties underwriting profitability was supported by $17 million of favorable loss emergence on prior year's catastrophes, modestly offset by $4 million of storm activity in the quarter. Inclusive of these net benefits properties combined ratio was 49.2 in Q4 and 57.2 on the year. Casualty premium was up 2% in the quarter and 7% on the year with strong contributions from personal umbrella. The bottom line for casualty benefited from $4 million of favorable prior years' loss development just under $2 million of this release was related to prior year catastrophe activity. Surety premium remains flat in the current period and up slightly on a year-to-date basis. The segment's quarterly underlying -- underwriting results included $2.7 million of favorable loss emergence from prior years, which improved surety loss ratio by 7 points in the quarter. On the expense ratio Q4 came in at 39.3%, up from 37.6% a year ago. Bonus and profit-sharing expenses were higher on strong results and business level expenses were up as we've continued to invest in people and technology. On the investment side, net investment income increased 9% in the quarter and a portfolio generated 1.5% total return in Q4 and 9% for the year. The yield environment has been relatively stable for intermediate maturities and we continue to find accretive fixed income opportunities. Purchase yields averaged 4.9% in the quarter, which was 70 basis points above our book yield. Putting it all together, we produced $5.29 of comprehensive earnings for the year, driving 33% growth in book value per share, inclusive of dividends. This level of generated capital again allowed for a special dividend to shareholders of $2 per share in addition to our ordinary fourth quarter dividend. Overall, a solidly profitable championship caliber closed in 2025. With that, I'll turn it over to Jen for more color on market conditions. Jennifer Klobnak: Thank you, Aaron. I will dive right into our segments, starting with Property. While premiums declined 11% in the fourth quarter, our property team delivered an excellent 49 combined ratio, underscoring the quality of our portfolio and ability to execute. E&S property premiums decreased by 18% on an intense competition from other carriers and MGAs along with increased risk retention in some areas by insurance. Hurricane rates were down 15%, while submissions continue to grow as insurance shop for the best terms. We are seeing pressure on terms and conditions, and our underwriters are flexing selectively to retain high-quality accounts. This competitive dynamic extends to other property lines as well. Earthquake rates declined 12% as insurers saw rate relief or decided to retain the risk. We see carrier competitors in the E&S property market slowly giving back terms and conditions, while MGAs are being more aggressive. Despite the rate moderation on catastrophe coverages, we continue to achieve returns on retained business that exceed our long-term targets. Our experienced E&S property team delivered a meaningful underwriting profits despite challenging market conditions. We have navigated many hard and soft market cycles with discipline and remain focused on securing terms and conditions at an appropriate rate while reducing uncertainty when a loss occurs. Hawaii homeowners premium grew 5% in the quarter, supported by a 16% rate increase. For the year, premium was up 26%, due in part to a couple of book rollovers we assumed following the Maui wildfires. We will continue to see growth in this profitable book through our outstanding local customer service, investments in customer experiences and additional rate increases from recent filing approval. Marine premium was up 2% in the quarter. Our diverse portfolio is evolving based on market opportunities. Inland Marine continues to grow through strategic talent additions and new product adjacencies. Ocean Marine remains competitive, particularly in cargo where we had pulled back. Our underwriting teams continue to apply patience and discipline, which resulted in underwriting profit across both Inland and Ocean in 2025. Surety premium was flat but produced a strong 80 combined ratio in the fourth quarter. Transactional surety grew 4% through continuous marketing efforts and investments in our distribution capabilities. These are very small premium bonds, so it takes significant volume to move the needle. Commercial surety also grew 4% as our talented team secured new accounts by closely engaging with our distribution partners. Increased customs bond requests offset the slowdown in renewable energy with both trends driven by government policy. On the contract surety side, premium declined 5% as we navigated the ending to a year that included multiple fits and starts in construction spending. We know that infrastructure investments are needed at the federal state and local level, and we remain well positioned to support that business as public funding increases. Our surety underwriting teams remain committed to underwriting discipline and prudent risk selection in this evolving environment. The casual segment premiums grew 2% on a 99.6 combined ratio for the fourth quarter. Personal umbrella led the way with premium growth of 24%. This included a 12% rate increase, and we secured additional approvals that will further add rate to the book in 2026. This controlled growth reflects reduced new business in several challenging seats where we have taken larger rate increases, required higher underwriting -- I'm sorry, underlying limits and works with our distribution partners to improve the quality of our book. The personal umbrella market continues to present opportunities as our competitors responded to deteriorate results by adjusting their appetite and terms and conditions. Our continuous product collaboration supported by intensive data mining, actuarial analysis and claim trend identification produced an underwriting profit for the year. Transportation premium declined 10% in the quarter despite a 13% increase in rates as we continue to prioritize profitability over volume in a highly competitive environment. Severity trends and economic pressures have reshaped the market with heightened volatility and increased expenses forcing some transportation companies to consolidate or close reducing the demand for insurance. At the same time, despite some insurance providers leaving this space due to poor financial performance, there always seems to be new markets entering and pushing for growth. Acute pressure on the largest size accounts has led to a decrease in our average account size over the last 2 years. Our in-house loss control team provides an advantage as they assess and try to improve the safety of our insurers, which helps all drivers. Our underwriters are empowered to make bottom line driven decisions. We remain disciplined, pushing for more rate and walking away from underpriced accounts. Our Executive Products group achieved an underwriting profit again this year. Premium in the fourth quarter was down 2% with rates down 1%. The market is stabilizing amid broader industry loss development. Our focus remains on marketing to increase access to business and disciplined risk selection to maintain our quality book. The E&S casualty team also produced an underwriting profit for the year. We saw increased competition in the fourth quarter, particularly on larger 6-figure premium accounts due to competitors chasing top line growth, presumably to meet year-end goals. Our primary excess liability premiums declined 8% in the quarter, but full year premiums finished up 10%. Competition varied by region with some markets exiting while others leaned in. Submissions increased by double digits, and we are constantly engaging producers to see the best new business opportunities. Much of our business is construction related and projects are taking longer to bind. We have many quotes outstanding waiting for permitting or funding. The group knows that words matter and have not relaxed terms and conditions despite competitive pressure. We continue to provide a stable solution for our business partners in the construction space. Before I provide perspective on the full year, I'll update you on our reinsurance renewals. On January 1, we renewed about 2/3 of our annual reinsurance spend. It was a buyer's market for property. We secured 15% to 20% rate decreases on our catastrophe programs and more modest relief on our property working layers. With our reduced exposure and continuing soft market conditions, we purchased $150 million less catastrophe limit for 2026, but we remain ready to approach the market midterm should an opportunity present itself as we have done in previous years. On the casualty side, rates were down around 5%. We achieved similar terms and conditions with some broadening of coverage in the property attributes. For the full year, we achieved modest growth while producing an 84 combined ratio. While E&S property prudently contracted in response to softening market conditions, other teams capitalized on opportunities, most notably personal umbrella, E&S casualty and Hawaii Homeowners. We pushed for rate change where we needed it, achieving an overall 16% rate increase in auto liability coverages across our portfolio. In 2025, we also spent time with our distribution partners, broadening and deepening those relationships, and we invested in operational efficiencies. This included simplifying and automating processes, developing new capabilities to improve ease of doing business and investing in our data infrastructure to support granular real-time decision-making. Internally, we brought our teams together regularly to talk about how we are doing and where we can improve. These actions position us well for another successful year in 2026. In a more challenging environment, capital discipline and alignment of interests differentiate successful insurers. Underwriting, which we define as underwriters, claims and analytics collaborating to evolve our products is the disciplined pursuit of opportunity. We are an underwriting company as evidenced by our unmatched track record of 30 consecutive years of underwriting profit. I'm incredibly proud of our entire team for producing these results and for how they do it by taking care of our customers and striving to improve every day because they are owners. With that, I will turn the call over to the moderator to open it up for questions. Operator: [Operator Instructions] Your first question comes from Michael Phillips with Oppenheimer. Michael Phillips: The accident year loss ratio in Casualty improved a bit from last year is once you back out the reserve addition you did. Can you talk about how much of that was because of the mix shift from pulling away from transportation book versus anything else that might have caused that improvement? Jennifer Klobnak: So as you look at the casualty loss ratio, you did see improvement. And we did pull back in both transportation and other areas of auto where we provide coverage like in our package businesses. Last year, in the fourth quarter, we did recognize additional reserving related to those auto-related coverages, both in our transportation and our personal umbrella product. This year, as we looked at losses coming in, we did not see the need to take such action. And so you did see that improvement. I can't quantify specifically the difference. Aaron? Aaron Diefenthaler: Yes. I think the bulk there on a comparative basis to Q4 of last year that you're seeing is the action we took for the full accident year in 2024 around auto-related exposures, also true of the 2023 accident year as well. So we feel we're on more stable footing around those exposures because we didn't take the same level of action in the current accident year. Still cautious around auto-related exposures. And our incentive structure is set up for those business leaders to pull back from those markets when they see underpriced competition coming to bear on Submission activity. So everything is set up for there to be a natural pullback from markets that are underpriced. But the underlying results themselves that we're seeing, we feel better about because of the stability relative to the action we took the last couple of years. Michael Phillips: Okay. I guess on that last year's reserve addition, I mean I think it was from higher severity in umbrella and transportation. And this year, you've seen a bit of -- in Casualty, a bit of a slowdown in favorable PYD. I assume that means you're still seeing that same level of severity that you -- that caused you to take those reserve additions last year. I guess the question would be, I'm not sure how much of that reserve addition was because of the accounts that you've now subsequently lost from midterm cancellations that you talked about last quarter. But to the extent some of that was and those accounts are no longer here, I guess, what does that mean for any potential favorable development if those accounts are no longer here, I guess, going forward? Aaron Diefenthaler: Yes. Well, it's hard to get down to the account level when you're -- when you're examining these things. But I'll just say, overall, you're right to identify lower levels of favorable development for Casualty here in the fourth quarter. I think you do have to rightsize that for a small proportion of the prior year catastrophe activity as well to get closer to that $4 million number that I referenced. However, just overall, we're seeing lower levels of favorable development out of casualty. We're still seeing drivers out of GL and commercial excess and still some challenges around auto-related exposures, all of that being maybe to a lesser extent than what we saw in the year ago period. Jennifer Klobnak: Yes. To supplement that, I would just add that there are many metrics that you can track to see what direction you're headed. And I'll tell you that new claim counts in 2025 were down significantly in those auto spots. So for example, our Transportation division, new claim counts were down 24% for the year, which is a positive indicator that the actions we're taking are going to translate into a more stable going forward. Michael Phillips: Yes. Okay. Perfect. That's helpful, Jen. I guess just switching gears, last question on the Property side. I mean last time, you talked a lot about how you've kind of leaned in and made some investments there as you were growing in that hard market. What does that mean today, given just the opposite? Is there any -- I guess, lack of a better term, fat there on the Property side that may need to be trimmed as there's pressure on the expense ratio in Property over the next year or so? Jennifer Klobnak: Well, that's an interesting question. I would say the one thing we did do to ramp up in addition to trying to be more efficient to handle more submissions is that we added additional talent. We've had some very experienced underwriters that have really enjoyed this hard market. And I think as they come towards the end of their career, not that I'm encouraging anyone listening to retire, but I think we will see a handful of retirements in that space, and now we'll be ready as we've already started training the next generation in that group. In addition to that, though, I would tell you our submission count is still up. We continue to see growth in submissions throughout that property book, and we do want to look at that business. So it's harder to work now. There's just as much work, if not more, despite the fact that terms and conditions are more challenging. So you can't necessarily shortcut that. You do want to support the producers that are sending you business. So there's a little bit of -- we still need to keep investing in supporting that. Operator: Our next question comes from Hristian Getsov with Wells Fargo. Hristian Getsov: On the property competition, I guess, what needs to happen in the market for us to see an inflection in the rate decreases, at least like moderate from here? Is it -- it's like thinking about it, is it simple as a large outsized cat event, call it, north of $50 billion? And then I guess on the competitive dynamics you're seeing in the space, like how much of that competition would you classify as being irrational in pricing versus a more rational normalization of the cycle given the strong rate increases and profitability we've seen in the line? Jennifer Klobnak: Well, this is Jen. I think what we need is a little bit less capacity. And whatever can cause that to happen would be beneficial to the market. So whether that's an incredible cat event, whether that's a change in the investment opportunities to shift to a better opportunity in the greater space, anything of that nature that would reduce capacity would be beneficial. Having said that, all we need is a stable market. I will tell you that the current catastrophe market is well priced with reasonable terms and conditions in a lot of places. So we can navigate this market easily if it would stay where it's at. Now with reinsurance renewals being a little more friendly on 1/1, it could soften further. And so again, looking for either a large cat or some other event that would take capacity out of the market would be beneficial. I can't quantify how many are reasonable or unreasonable as we are navigating that market every day, responding to our producers, we see business being stolen between producers. There's a lot of movement going on just because people have changed which wholesalers they work for. So that's one factor, but we also see carriers that have aligned interest being responsible. And so we don't mind competing against those people. That's a fair playground. It's where capital providers that don't have aligned interest. The MGAs, in some cases, have no downside. It's not aligned with the carriers who have to pay those claims at some point. That's where there's a disconnect and where the MGAs want to use up that capacity quickly because right now, the market could be better than it is a few months from now. So I don't know how much of that market there is. I can tell you there are examples where people have received capacity for this year that are multiples and multiples of what they were able to provide in terms of capacity last year. So we just know that we can't compete on some of that, so we don't spend a lot of time on those types of deals. We kind of moved in the spaces where we know we have a chance of the business. Hristian Getsov: Got it. And then switching to personal umbrella, are you seeing a shift in the competitive dynamics there, just given we're seeing more of a focus on growth from some of the bigger personal line carriers and mutual? I'm trying to get a sense of the ability to compete as a monoline provider becomes more challenging given a lot of these other players are focused on bundling, which would include personal umbrella. Jennifer Klobnak: Yes, I'm a fan of the [indiscernible] commercial. But other than that, I would say the personal umbrella market continues to evolve. Some of those personal lines carriers that bundle their business, I know, are increasing rates tremendously, changing their coverage. You see that in filings. You see them in the press. And we do partner with some of those same carriers to offer our personal umbrella when it doesn't match their appetite. We have a pretty wide moat around our business. We're pretty embedded with our business partners. They find value in our product and in how we support that product through servicing. So we update our information daily on what kind of business we're getting in the door. We're talking to our producer partners monthly to see what they need and how we can service that business. So I feel pretty good that we have a good base to go from a position of strength going into the next year. We're also still getting some rate increases in various states where we need some rate. And so I see opportunity for growth from both rate, but also from our continued great service that we provide to our producers, I think we'll have more opportunity there. So while there's some more competition coming in on the edges, I think people might be noticing that we do a pretty good job of this. There's some people talking about getting in. We're going to defend our space. We're going to continue to evolve this product and offer a quality product to insurers out there who need this coverage. Hristian Getsov: Got it. And if I could sneak one more. Have you seen any benefit on submission volumes from the elimination of the diligent search documentation requirement for surplus lines in Florida? I know that's a pretty good portion of your premium mix. And I just wanted to see if there's any updated thoughts there. And then also if you have any updated thoughts around the general tort reform we've seen, not only in Florida, but in states like Georgia on loss trends? Jennifer Klobnak: I'll tell you that in Florida, in the last year, we have actually tried to slow our new business a little bit given the severity that we were seeing previously. And we just talked about our actions from last fourth quarter, for example. And so with some of the actions we've taken between rate attachment points and curtailing some of the production we want from certain producers, we haven't really seen an impact from that specific regulations just because we're more controlling our growth at this point in that state. On the other side of it, I'll tell you total reform has been a positive. We don't necessarily have a number we can point to, but we do see on individual cases where we have a more reasonable resolution because we can present actual medical costs, what people pay, just -- the things that we can do to fight the plaintiff's attorneys and their playbook create a more fair playing field there to resolve claims fairly for that insurer who has an actual loss. We're willing to pay for that loss. We just don't want to pay the attorneys as much. And so that environment has changed and has improved. And we'll probably see that in other states. It's a little more early like for Georgia, for example, but some of the things they have passed have been favorable as well. And in addition to that, all of that third-party litigation, there's a lot of states now that have started passing legislation to get those kind of arrangements disclosed and that kind of thing, which will also help both in personal umbrella as well as broader auto coverages. Operator: Your next question comes from Andrew Andersen with Jefferies. Andrew Andersen: Recognizing really strong overall results and a very good long-term track record here. If we just kind of focus on Casualty over the last 2 years, 98% reported combined ratio, a little bit uncharacteristic to have that 2 years in a row. And I realize there were some headwinds on trucking, both on the reserving side and on the premium side. But do you feel that some of these headwinds within this Casualty segment are behind you or have really worked their way through and you're kind of entering '26 in a better position, both from a booking ratio and from any premium growth headwind into next year? Aaron Diefenthaler: Well, Andrew, I think as we've characterized the product level rate increases we've gotten within the Casualty segment, we think that's probably the strongest foundation we can offer in terms of data itself. We feel better about where the overall rate level is for a lot of these businesses that have had some challenges related to them. So it's hard to say the exact point in time where you turn the corner into something that may offer some additional potential for expanded margins, but having that rate profile and having some compounding of those rates over multiple years, we think, is a good foundation. Jennifer Klobnak: Yes. In addition to that, I would say we have clearly slowed a bit releasing reserves for some of those coverages. I mean we've talked about that in the past, too. Initial booking ratios tend to hold up a little longer. While we may be seeing positive signs like claim counts that I look at, we're not acting -- we tend to be pessimist. So we don't tend to act on the good news. We tend to wait and make sure that we are seeing enough good news for a while I think of a trend before we're going to recognize it for sure. Craig Kliethermes: Andrew, I grew up in the Show Me State of Missouri. So we got to wait and see. On good news, we're slower to usually recognize that. But if we see something go in the other direction, we obviously like to try to get that up as quickly as possible. So that's the way we look at things. Andrew Andersen: Understood. And on the property side, you've talked quite a bit about the MGA market being aggressive there. How would you characterize kind of more of the traditional or admitted carriers? Jennifer Klobnak: Well, I would say that everybody wants premium. So it's a fight out there, but I would say the other E&S carriers are fairly responsible. I'll give them credit. And so we don't -- again, we don't mind competing against them. I think if we could just reduce the little capacity in that market, it could -- it would at least stabilize, which would be great. Andrew Andersen: And then maybe last one. I think I heard 5% for Hawaii home. Is that just reflective of we've lapped kind of the book rolls here because it's quite a decel quarter-over-quarter? Jennifer Klobnak: Yes, that's correct. So we had a couple of book rolls that ended right at the end of the third quarter. And so now we're back to our outstanding local service and just competing on a regular basis at this point. In addition to getting green, we have gotten rate increases that will drive a little bit of growth as well. Operator: Your next question comes with Mark Hughes with Truist. Mark Hughes: Any granularity you can provide on that property dynamic just in terms of the competitive pressure as you think about Q4 relative to Q3 or even through the quarter, kind of the monthly pressure? Is there -- I know it's certainly more challenging year-over-year, but has it stabilized at all? Or is it still under incremental pressure? Jennifer Klobnak: That's a tough question. You're getting pretty granular, I would say. Every month, we -- obviously, we look at it on a very regular basis. And each month, we -- if it's good news, we hope it begins a trend. If it's down, we are like what's going on. So I don't know that I should provide color on a monthly basis. I'll tell you that in the fourth quarter, that's our smallest quarter for renewals. I mean there's just not as many renewal dates out there. So it's a tough quarter to really conclude about anything. If 1/1 is a big date and then in the spring 4/1, 5/1, 61, 7/1, all those are bigger dates, and that's really where you make your book of business. So all of that is coming up. And I think providing any 1/1 color on renewals probably provide a little too much information. So the market is still competitive. It continues to be, and we will see how that plays out this year. Mark Hughes: Yes. And then the -- thinking about the lower reinsurance costs, would you say pricing was already incorporating that? There seems to be a pretty wide expectation for 10% to 20% decline. Just thinking about whether -- when that actually happens, does that mean much for the market in the near term? Jennifer Klobnak: Well, as we prepare for our 1/1 renewals, we did contemplate a bit of a decrease in our cost. And so we built that into our benchmark pricing, which indicates how we need to price the business. I don't know what other companies do. I will tell you that last year in 2025, January, we didn't really see an impact from the reinsurance renewals. But in February, we noticed that that's when all of that information trickled down to the underwriter desk and people got more aggressive because they did get relief last year on 1/1. So January, we're just going to put it in the books, and we'll see if the behavior changes later this spring to incorporate that. We also see changes on 4/1 because that's when some MGA relationships renew their capacity. And so we may see further change in behavior at that point in time, but that's yet to be determined. Mark Hughes: And then one quick one, if I might. You've mentioned that you were seeking additional rate increases in personal umbrella, and that would help 2026. Can you size that? Jennifer Klobnak: Well, this is a 50-state product where we have to file in each state and each state has a different process. So I can tell you that effective December 1, we did get a California rate increase of about 20%. And so that will bleed into part of the book. California is one of our bigger states. I can tell you our process is that every quarter and now that we have year-end, it will be nice to, again, look at results to see which states require rate, where we're not getting adequate rate and where are we? Those analyses are underway already. And so we'll conclude in the next couple of weeks if we need to start taking additional action. But just based on these filings that were approved in the second half of last year, we know that there will be a pretty good amount of rate going into the book this year as well. Operator: Our next question comes from Meyer Shields with Keefe, Bruyette, & Woods. Meyer Shields: Jen, when you talk about lower auto claim emergence, is that across accident years? Or was that an accident year 2025 comment? Jennifer Klobnak: These are just new claims that are received in 2025. They could be related to 2025 accident year or previous accident years. Craig Kliethermes: I was just going to say, I think we did see a reduction last year as well, so 2 years in a row. Meyer Shields: Okay, that makes sense. I just want to make sure that I was understanding that correctly. The $150 million catastrophe reinsurance limit reduction, was that at the top end of the tower? Did your attachment point change at all because of the smaller book? Jennifer Klobnak: No. So we maintained our $50 million attachment on the cat tower and just brought that tower down. Meyer Shields: Okay. And then final question. Just -- you mentioned, I guess, concerns about competitors seeking to meet their budgets. How significant is maybe fourth quarter competition compared to other quarters? I've heard the comment a lot. I'm just trying to get a sense of how material you think it is in the market? Jennifer Klobnak: I mean, overall, the fourth quarter is always challenging, and our underwriters always say, oh, other people -- and it's legitimate, other people are compensated on top line directly, sometimes not even compensated on bottom line. It's just strictly top line. So you do see a rush to meet people's bonuses. But I argue with them that, that happens every year. So the real test is, is it worse this year in the fourth quarter versus last year fourth quarter, that's sprint to the finish. And in some of our segments, I would say people have this feeling it's worse, but it is a lot of feeling as opposed to something you can measure to some extent. That's offset by -- in some cases, like in property where we have just less business that renews. So you can't really measure what's going on as well as other quarters where there's just more business available. Meyer Shields: Okay. No, that makes sense. I guess the question for me is always is in the first quarter so far less competitive than the fourth quarter that just ended? Jennifer Klobnak: Sorry, I didn't follow that. Meyer Shields: I'm just asking whether some of that competitive pressure has abated in the first quarter because right now, people aren't as worried about 2026 premium budgets. I know it's early in the first quarter to even ask. Jennifer Klobnak: Well, it's too early to ask. Yes, we haven't closed January yet. So it's hard to see -- I see a partial -- a partial month is all I have right now. Operator: Your next question comes from the line of Carol Bruzzese with Philo Smith & Co. James Inglis: Sorry, it's James Inglis. Great quarter and year. But I've got a question about the reserve development. If you look at the '24 and prior cat events, there was a big swing in both the quarter and the year. And I'm wondering, is that just sort of a normal thing -- time to figure out what the cats actually ended up as? Or is there something specific or unusual in there? Aaron Diefenthaler: Not unusual, Jamie. This is Aaron. You think back to last year, we had a couple of sizable storms in Helene and Beryl. I think we outlined our expectations for there in our third quarter results and also at that time, offered a range of potential loss activity around Hurricane Milton, which was early days in the fourth quarter of last year. We tightened up our expectations as of the fourth quarter release last year, but that was close to $50 million of an estimate just on Milton alone. And so you get -- a year on from those events and then some -- and you have some more comfort around what actual losses are going to transpire, and we felt it's prudent to take down some of the IBNR. Those were not the only events that were incorporated in that analysis. We have cat activity going back over several years that we examined and each storm stands unto itself. And it's a hand-to-hand combat in terms of examining claim activity, what's outstanding, what may be in litigation, all fitting into our thinking on what to take down there. Operator: Your next question comes from the line of Gregory Peters with Raymond James. Mitchell Rubin: This is Mitchell Rubin. You referenced the 13% rate increase in transportation this quarter. Is there any quantification you could provide on the magnitude of the underlying loss trend you're seeing in the portfolio? And what level of rate increases you believe might be required in 2026 to sustain rate adequacy in the book? Craig Kliethermes: Yes. Mitch, this is Craig. So I'll speak to that. So -- I mean, we anticipate to continue to try to get increases going forward, probably double-digit increases. We have seen elevated severity trends in pretty much all auto businesses since COVID, since the courts have opened back up. At some point, we think that has to subside. I mean people are going to want to continue to pay 10%, 15% increases in their insurance or they can't afford to pay 10% to 15% increases in their insurance. So at some point, there's going to be a breaking point where we're going to get more tort reform in some of these states so that we can moderate this loss severity trend. In the meantime, you can expect us -- I can't speak for other companies, but you can expect us to try to at least get the increase to cover trend. And if we can't, we'll get smaller. That's just the way we operate. So we're going to try to continue to get 10%, 15% increases on auto business going forward until we see that loss cost trend subside. Mitchell Rubin: Great. That's very helpful. Can you provide any additional detail on how your technology investments over the past several years have impacted your underwriting performance, particularly touching on changes in submission to bind ratios within the transactional surety business? Jennifer Klobnak: Well, I would say our investments in technology have done a couple of things. I focus on a couple of things. One is really improving our customer experience, and that starts actually before the technology. So considering, for example, what questions we ask, we've tried to simplify it in a few places, the application questions that we're asking, making them more straightforward. I don't know about you, but whenever I get an application, I struggle with how do you answer this question. So trying to simplify it based on feedback and input from our producer partners and insurers has been really critical, then providing that through automation and modern systems, which we've been upgrading over the last few years. For example, in surety, we're rolling out an upgrade to our current offering. We've been in that business since 1992. As you can imagine, that technology has changed tremendously over the decades. And so our recent investment is rolling out to provide end-to-end ability to look at what's going on with surety bonds by those producers so that they can service that business better without feeling like they're bothering us to ask questions and whatnot. So that will be very helpful to them. So really kind of that customer experience and getting business in the door has been a big investment. Our second large bucket would be efficiencies. So there are a number of things we've done with efficiencies through various types of artificial intelligence and various types of other automation to try to just have people spend more time using their brains instead of doing administrative tasks. So that can include things like summarizing submission information, summarizing claims, lengthy claim information, they can mean inputting various e-mails that come in regarding claims go straight into claim files. So that we have to look at them and decide where they go, updating loss runs that come right in and go straight into our systems. So things of that nature on efficiencies have been a big category. And then lastly, I would say is just that improving that feedback loop that we have between underwriting claim and analytics, really getting our data in places where we can really look at it, slice and dice it very granularly, having the ability to update that daily where it makes sense. Some business units that doesn't make sense, we don't need to invest in that. But in others, there's data available to drive decisions that we like it updated more often. So we've invested in that. We've rolled out a number of dashboards to provide people insight into submission counts, binding percentages as well as marrying that up with loss information, so which producers, which states, which types of business, which attributes of an insurance drive loss activity. All of that information has been ramped up to help us make better decisions as we're underwriting and handling claims. So those are kind of the 3 big buckets that we have focused on. And I would say, given our diverse portfolio, you're never done, but we have spent a lot of time and effort, and I think we're reaping the rewards in that we continue to make an underwriting profit, which is in a more challenging environment as the market softens, we've got everything in place so that we can keep making great decisions for that bottom line. Operator: There are no further questions at this time. So I will turn the conference over to Mr. Kliethermes, RLI's President and CEO, for some closing remarks. Craig Kliethermes: Thank you. Before we wrap up, I want to take a minute to reflect on what this year, our 30th consecutive year of underwriting profitability truly represents. 30 years ago, RLI was a very different company. We wrote about $270 million of gross written premium. Roughly 1/3 of our business was earthquake insurance. We were still in the contact lens business. Our market cap was under $200 million, and we were proud to make Ward's top 50 performing insurance companies for the fifth straight year. For the record 2025 representing our 35th consecutive year on that list. The world was a different place, too. Public access to the Internet was just getting started with AOL and Prodigy. The Sony PlayStation that just hit the market. Cell phones were used for one thing, to make phone calls. A lot has changed over those 30 years, but the things that matter most to us haven't. There are still no shortcuts in this business. Sustained success is built the same way it has always been with discipline, accountability and a lot of hard work. What gives me the most confidence as we look forward is not just our results, but how we produce them. We have a strong balance sheet, a diversified portfolio and a team of engaged employee owners who care deeply about the decisions they make and the outcomes they produce. Every day, they show up committed to making RLI a better company for its customers, their coworkers and our shareholders. Our founder like to say that great companies are built one good decision at a time and that those decisions never seem easy in a moment. That philosophy has served RLI well for 3 decades, and it continues to guide us today. We're proud of what we've accomplished, but we're not done. We're optimistic about the future, confident in our approach and committed to doing what we've always done, staying disciplined, staying different and playing the long game. I would be remiss to end without thanking Todd Bryant, our CFO, who just retired at year-end after 31 years of dedicated service to RLI. I also want to thank our employee owners for their hard work, and we appreciate you all for your continued interest in RLI. We look forward to speaking with you again next quarter. Operator: That concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Horizon Bancorp, Inc. conference call to discuss financial results for the fourth quarter of 2025. [Operator Instructions]. Now I will turn the call over to Mark Secor, Executive Vice President, Chief Administration Officer, for the opening introduction. Mark Secor: Good morning, and welcome to our conference call to review the fourth quarter results. Please remember that today's call may contain statements that are forward-looking in nature. These statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those discussed, including those factors noted in the slide presentation. Additional information about factors that could cause actual results to differ materially is contained in Horizon's most recent Form 10-K and its later filings with the Securities and Exchange Commission. In addition, management may refer to certain non-GAAP financial measures that are intended to help investors understand Horizon's business. Reconciliations for these measures are contained in the presentation. The company assumes no obligation to update any forward-looking statements made during the call. For anyone who does not already have a copy of the press release and supplemental presentation issued by Horizon yesterday, they may be accessed at the company's website, horizonbank.com. Representing Horizon today are Executive Vice President and Senior Operations Officer, Kathie DeRuiter, Executive Vice President, Chief Administration Officer, Mark Secor, Executive Vice President and Chief Commercial Banking Officer, Lynn Kerber, Executive Vice President and Chief Financial Officer, John Stewart; and Chief Executive Officer and President, Thomas Prame. At this time, I will turn the call over to Thomas Prame. Thomas? Thomas Prame: Thank you, Mark. Good morning. We appreciate you joining us. Horizon's fourth quarter results demonstrate the core strength of our community banking model and the excellent execution of the balance sheet repositioning. We have delivered on our shareholder commitment to create a top-performing community bank with durable peer-leading performance metrics and shareholder returns. The fourth quarter exceeded our prior performance estimates with annualized return on average assets above 1.6%, return on average equity approaching 16% and a net interest margin of 4.29%. Within the quarter, loan growth and credit quality continued to be excellent, and the team performed well, strategically reducing our portfolio of higher cost transactional deposits. Fee income continued to make progress, and our expense management efforts reflect our commitment to continually improve our operating leverage. We are very pleased with the fourth quarter results for our shareholders and the transparency the quarter provided to highlight the strength of Horizon's core community banking model that truly remains the cornerstone of our value proposition. Additionally, the company is kicking off the new year from a position of strength with the franchise well positioned to deliver durable earnings and continued top-tier performance metrics. As we look ahead, our thesis remains consistent with management focused on creating sustainable long-term value for our shareholders through our disciplined operating model, consistent profitable growth and peer-leading capital generation. I'll pass the presentation over to Horizon's Executive Vice President and Chief Commercial Banking Officer, Lynn Kerber, who will share highlights for the quarter on our loan growth and our continued excellent credit performance. Lynn? Lynn Kerber: Good morning. Total loans were $4.9 billion at December 31, an increase of $60.7 million from September 30. Commercial relationship lending continues to be our lead strategy with modest declines in consumer loans and residential mortgage loans predominantly being sold into the secondary market. Commercial loans increased $76 million in the fourth quarter, representing 9% growth on an annualized basis. Growth in the portfolio mirrored our overall portfolio mix with 28% in commercial and industrial and 72% in commercial real estate. Our growth for the quarter was well balanced across our attractive footprint of Michigan and Indiana. This quarter, we experienced growth primarily driven by the markets of Troy and Kalamazoo, Michigan, Lake County, Indiana, Metro Indianapolis and Johnson County in Central Indiana. As noted on Slide 5, our commercial portfolio is well diversified by geography and remains consistent with the overall mix. As referenced in Slide 15 of the appendix, our portfolio remains very granular with our largest segment representing 6.3% of total loans. Overall, our pipeline remains steady and quarterly volumes are consistent with our averages, for new origination activity, payoffs and net line of credit activity. As we look forward to 2026, our focus remains on steady diversified growth, disciplined pricing and credit and growing well-rounded customer relationships to drive cross-sell activity with deposit gathering and treasury management services. Residential mortgage lending continues to be a foundation product for the bank and volume has been predominantly sold in the secondary market to align with our strategy to create capacity for commercial lending activities and the generation of gain on sale fee income. Balances for the fourth quarter were essentially flat in alignment with the strategy. Turning to credit quality and the allowance. Our credit quality metrics remain within expected ranges and are summarized on Slide 7 of the presentation deck. Substandard loans of $59.4 million represent 1.22% of loans for the fourth quarter, a decrease from 1.31% for the third quarter and 1.33% for the fourth quarter of 2024. Non-performing loans of $34.9 million represent 72 basis points of loans for the fourth quarter, an increase from 64 basis points in the third quarter and 56 basis points for the fourth quarter of 2024. The increase of $3.9 million in the fourth quarter is an increase of $2.2 million in commercial nonaccrual loans, $831,000 in residential nonaccrual loans and approximately $800,000 increase in consumer loans over 90 days past due. While there is a modest increase in this metric, our overall substandard loans have decreased by $5.2 million or 8% from the year ago period, and our net charge-offs remain within historical loan ranges and continue to compare favorably to the industry. Net charge-offs were $1 million in the quarter, representing 8 basis points on an annualized basis. Net charge-off results for the full year were very positive, totaling approximately $2.9 million, representing an annualized charge-off rate of 6 basis points. This is reflective of our conservative and consistent approach of Horizon's credit culture. Finally, our allowance for credit losses increased from $50.2 million to $51.3 million, representing 1.05% of loans held for investment. The net increase of $1.127 million was predominantly related to economic forecast assumptions. The related provision for credit losses of $1.6 million consists of the $1.1 million increase in the allowance, replenishment of our fourth quarter charge-offs, offset by a reduction in reserve for unfunded commitments with the completion of several large construction loans. We continue to monitor economic conditions and future provision expense will be driven by anticipated loan growth and mix, economic factors and credit quality trends. Now I'd like to turn things back to Thomas, who will provide an overview of our deposit trends. Thomas Prame: Thank you, Lynn. Moving on to our deposit portfolio displayed on Slide 8. Horizon's core relationship balances continue to show the strength of the franchise's community banking model. As noted in our Q3 earnings call, a deliberate strategy for the fourth quarter was to further reduce the organization's exposure to high-cost transactional deposits. As we review the quarter's results, we feel very confident in the strength of the deposit portfolio in terms of mix, relationship tenure and granularity entering 2026. Comparing the current portfolio to the fourth quarter of 2024 provides good insight in the stability of the noninterest-bearing balances, which are up year-over-year and the improved cost structure of the core relationships within the interest-bearing segments. The performance of the team transitioning and improving the profile of our balance sheet while capturing the benefits of previous rate cuts has created significant benefits for the organization heading into 2026. Additionally, we believe our deposit portfolio continues to have opportunity to benefit the organization moving forward with its granular composition and long-standing relationships in our local markets. The team is well positioned to fund our go-forward loans grow with a treasury management team that has renewed capacity, commercial relationship bankers with aligned deposit objectives and an excellent branch distribution in some of the most attractive markets in Michigan and Indiana. Let me hand the presentation over to our Executive Vice President and Chief Financial Officer, John Stewart, who will walk through additional fourth quarter financial highlights and provide an outlook to what we believe will be a very successful 2026. John Stewart: Thank you, Thomas. Turning to Slide 9. Q4 marks the ninth consecutive quarter of net interest margin expansion, totaling 188 basis points from the low in Q3 of 2023. What you see now reflects the true economic profitability of our organic community banking operations without the distractions of the non-core assets and liabilities that were impeding our returns previously. Through these efforts, we believe we have built a balance sheet that is relatively neutral to changes in interest rates with a cash flow profile that should create reliable returns for our shareholders. As of the year-end, the restructuring activities are now complete and balance sheet activity from here is expected to be marginal and tactical, where growth will be driven primarily through commercial lending relationships funded with organic core deposit generation. Specific to Q4, the net interest margin increased by 77 basis points to 4.29% and above the upper end of our guidance range. Certainly, the remainder of the balance sheet repositioning played a big role in the linked quarter expansion, which can be seen in the transition of the earning asset base to more than 80% in loans and deposits are now 93% of total non-equity funding. The margin did see some modest upside relative to expectations from the decision to increase the planned deposit runoff to nearly $200 million in the quarter, which carried a weighted average cost exceeding 4% versus the planned $125 million. However, on an organic basis, we continue to see notable stability in our loan yields, as origination spreads held up well and reductions in our core deposit costs that exceeded prior expectations as realized deposit betas approached 40% for the rate cuts during the quarter. Looking ahead, to account for some of the favorable outcomes just mentioned, you will note that we have increased our net interest margin outlook for the full year 2026, which we now expect to be in the range of 4.25% to 4.35%. Importantly, as has been the objective all along, we are not anticipating there to be much volatility in that result over the year. New loan production coupons above 6.5% continue to exceed cash flows rolling off the book. At the same time, we are anticipating somewhere in the range of $75 million to $100 million of principal cash flows from the securities portfolio over the year, which is coming off at a weighted average FTE rate of approximately 4.75%. Replacement yields in January thus far have modestly exceeded that rate. As you can see on Slide 10, reported noninterest income results were broadly in line with expectations at $11.5 million for the quarter. Excluding securities losses in the comparable period, total fee income was up 7% year-over-year, led by strong results in wealth management and total mortgage fees, which grew 19% and 14%, respectively. Results in Q4 did include a BOLI death benefit of just under $600,000, which is included in other income. On Slide 11, at $40.6 million, expenses were generally in line with expectations and as planned, included $0.7 million related to the write-off of the remaining unamortized issuance expense for the subordinated notes we called on October 1. Absent this item, expenses were up modestly from the linked quarter related to seasonal occupancy-related expenses and higher marketing costs. Results also include episodic legal fees related to certain legacy items that have now largely concluded. Turning to capital on Slide 12. Capital ratios have improved quite strongly in the quarter on the heels of a much more profitable balance sheet. Additionally, you'll recall in our prepared remarks last quarter that we anticipated the leverage ratio and the total risk-based ratio to revert closer to Q2 '25 levels as average assets caught up with the mid-Q3 balance sheet activities and the prior subordinated debt issuance was repaid in early Q4. You can see that these results were consistent with those expectations. As we have previously communicated, we are comfortable with the company's current capital position, particularly against what is a significantly derisked balance sheet. Additionally, as our 2026 outlook suggests, our peer-leading levels of profitability will accrete capital very quickly, which you will see over the course of the coming year. Turning to our 2026 guidance on Slide 13. Our overall outlook has generally improved from the preliminary commentary provided last quarter, which I will make a few comments about. Period-end loans and deposit balances are expected to grow mid-single digits. This outlook would suggest deposit balances will grow modestly more than loan balances. We anticipate balance sheet growth to be driven by organic deposit funding going forward, leveraging our relationship banking model and well-positioned 70-plus branches located throughout Indiana and Michigan. Non-FTE net interest income is now expected to grow in the low teens year-over-year. This will be driven by the FTE net interest margin in the range of 4.25% to 4.35%. Average earning asset balances are likely to modestly exceed $6 billion for the full year. The first quarter average earning assets are likely to be down from the fourth quarter averages, but should represent the low point for 2026. This outlook includes the assumption for two, 25 basis point rate cuts, one in April and October, but neither moves the needle much on the outlook as intended. Fee income in the mid-$40 million range generally expresses the continuation of trends we have seen over the back half of 2025. Expenses in the mid-$160 million range represents standard inflationary expense growth, modestly higher expenses in medical benefits compared with 2025 and the continuation of ongoing growth and marketing efforts. Finally, the effective tax rate is still anticipated to land in the range of 18% to 20%. Overall, 2026 should be a strong year for Horizon, steady growth with durable peer-leading returns on assets, returns on tangible common equity and top quartile internal capital generation. With that, I'll turn the call back over to Thomas. Thomas Prame: Thank you, John, and I appreciate the summary of the quarter and the updated outlook for the year. As you can see from our financial results, we're very well positioned entering 2026 to create significant shareholder value through durable top-tier financial metrics, excellent capital generation and a premier community banking franchise located in some of the best markets in the Midwest. As the leadership team, we'll continue to be front-footed in our execution and disciplined in our operating model, focusing on profitable growth and continued smart stewardship of capital decisions for our shareholders. We look forward to what we believe will be a very positive outlook for our shareholders, clients and the communities that we call home. At this time, I would like to turn the presentation back over to our moderator to open up the lines for questions for the management team. Operator: [Operator Instructions] The first question comes from Brendan Nosal with Hovde Group. Brendan Nosal: Maybe just to kind of start here at a top level, if you guys look at your outlook for 2026, pretty similar to what you guys offered last quarter. As you look at kind of the opportunities and risks, like what in that outlook could end up going better for you guys? And conversely, what are some downside risks as you look at the year ahead? John Stewart: Brendan, this is John. I think first and foremost, I commented on this in my prepared remarks. We actually view the outlook to be slightly more favorable than it was when we initially gave it. The NII, in particular, is where the leverage is higher base and more growth in the low teens. I think as you kind of generally push that through the numbers, you'll get a non-FTE number that's closer to $260 million. I think that guidance was maybe closer to mid-250s last quarter. FTE would be then about $4 million above that. So we do view there to be a more optimistic outlook. Maybe the very modest offset to some of that NII upside would be on the expenses, but really nothing materially there, just maybe $1 million delta or something from what we had initially put out there. I think some of the levers as you kind of work your way through the year, it's really going to come down to the ability to grow organic core deposits to fund organic core commercial loan growth. And I think a favorable outcome on that front is probably the biggest leverage point to upside to the outlook. And conversely, the opposite would be true. The loan growth pipeline, Lynn can talk a lot more about this. We feel really good about it. Spreads have held up really well. The team has done a fantastic job on the asset side, and it's going to come down on the liability side, I think, most notably. Brendan Nosal: Okay. All right. That's helpful, John. Maybe pivoting here to that topic of loan growth. Is there a point at which like the modest decline in the consumer category of the loans eases, which would allow the high single-digit commercial loan growth to shine through more visibly in that net growth number? Thomas Prame: Thomas, thanks for the question again. As we look at the portfolio of our loans, our business model is truly a commercial banking model. That has been our lead strategy and Lynn and her team has just done a fantastic job on that. our consumer loan portfolio right now is primarily made up of HELOCs and consumer closed-end mortgages that deal with real estate. We feel as though we are well positioned there. We have a great credit profile in that area. Again, that's something we feel like we're going to stretch and try to create demand and/or try to create excess growth in that with taking on extra risk. So for us, it's a good product, but we're not seeing the consumer side to be something that we're going to probably push to accelerate. We really found great value not only on the lending side in commercial, but truly getting the full relationships with the deposits. Brendan Nosal: Let me sneak one more in here. Just on asset quality, can you unpack the rise in NPAs over the past couple of quarters? Like each quarter's increase is relatively small, but I think they've been up in 5 in the past 6. Like is this normalization from a low base? Or is there perhaps pockets of stress that you're seeing at this point? Lynn Kerber: Thanks for the question. I appreciate your observation. We had a very low base that we're starting from, and our overall metrics continue to be very strong and within the expected ranges for our portfolio and credit risk appetite. So recognizing that we're starting from a very low point, any increase, while modest, may appear to be a larger percent. As I noted in my comments, substandard loans did increase this quarter, roughly $2.2 million of it was commercial, $800,000 mortgage, nonaccrual and over 90 days, $800,000 consumer. These are all relatively modest numbers. I don't see it as reflective of any one sector, any particular product. When I look at our commercial nonperforming, it's really more episodic with the customer. As I shared in some previous calls, we had one customer that started up a new business, they had road construction. It just caused some delays. Sometimes we use nonaccrual as a tool to help them weather some of those challenges that they have. And the goal always is to hopefully get them back on the right path and upgrade them. Sometimes, however, we recognize that it might be a liquidation and try to work hand-in-hand with the customer. I think ultimately, though, if you look at the bigger picture, substandard loans have decreased for the last 3 quarters and roughly 8% for 2025. And if you look at commercial specifically, our criticized loans have actually decreased 17% since December '23 and 7% since December '24. So I think our overall metrics are good. I look at this just really as the migration through the buckets. Operator: The next question comes from Nathan Race with Piper Sandler. Nathan Race: John, I was hoping you can just unpack some of the margin drivers over the course of this year? It seems like you guys are pretty well matched in terms of short-term rate-sensitive liabilities and assets. So I wonder if you could just hit on kind of what the asset repricing tailwinds look like and kind of where you're originating new loans these days relative to the portfolio yield? John Stewart: Yes, sure. Thanks for the question. Yes, as I said in my prepared remarks, new originations spreads continue to be really good. We see that continuing here in January. New origination yields continue to sit on a coupon basis above 6.5%. We've got cash flows coming off the portfolio on the loan side that are still below 6%. So you do have some front book, back-book repricing that will help as we just kind of grow through the year. On the other side, it's going to come down to just deposit -- core deposit generation. I think those are going to be the big drivers for the margin, as I mentioned earlier. The only other margin leverage that will flow through over the course of the year is just whatever the cash balance ends up looking like. So as the guidance suggested, based on where cash ended the year, the averages might be down in Q1 on a cash basis, the expectation deposit growth versus loan growth, the assumption there is that the excess is just flowing back into cash for the time being for liquidity purposes and nothing else. And of course, that's not -- that's NII accretive, but maybe at the margin on a NIM percentage, modestly dilutive. So those are -- where the cash kind of lands is going to be whether or not it's up a bit flat, whatever the outcome ends up being, but I think those are the big drivers. Nathan Race: Okay. That's really helpful. And changing gears a bit, as you guys alluded to in your comments, capital levels just with the profitability profile are going to build a pretty strong clips. I could see most capital ratios increasing by 100 basis points year-over-year by the end of this year. So just curious, maybe, Thomas, if you can update us on some of your capital deployment priorities. I imagine supporting growth is still #1, but would be curious to get your thoughts on the opportunity to deploy excess capital via acquisitions and kind of what you're seeing across that landscape these days? Thomas Prame: Thanks for the question. And also, thanks for the recognition of the strong capital generation of the new profile of the organization. We're very pleased with the performance of the company and also the positive capital generation from the results coming from the fourth quarter. As we have discussed previously, there's ample opportunity internally to grow and expand our organic business model. We are located in some of the best markets in Michigan and Indiana, and we still see significant upside potential just through organic growth in our community banking model. This is going to continue to be our primary focus. As we look at our capital going forward, as we mentioned in the third quarter, this isn't going to burn a hole in our pockets. In the near term, we believe we have ample runway to build capital to align with some of our industry peers. And again, as we review capital decisions in the future, we're going to continue to be disciplined about this and make sure that we focus on logical deployment that's accretive to our shareholder value proposition. Nathan Race: Got it. That's helpful. If I could just sneak one last one in. I appreciate the expense guide. Curious if that contemplates any additional commercial hires? Obviously, you guys have been active taking advantage of M&A disruption across your footprint in the past. And there's obviously been some notable M&A announcements with some larger competitors that are maybe more focused on some southern geographies these days. So just curious what you see in terms of the opportunity to either add talent or just benefit from the existing team to grow share on the commercial side? Lynn Kerber: Yes. Thank you for that. First of all, I'd say we have a stellar team. At this point, I don't see that we're going to be adding, although there may be some opportunities presented that we consider with some of the changes in the market. But our team has been performing really well, as you can see with our growth numbers, just doing a fantastic job, not only in volumes, rate management and credit quality. So really pleased with them. We do have a few retirements that are occurring. Really pleased with the candidates that we've hired and the talent there. So I would say that we're probably benefiting from some of that disruption in talent there. We have expanded our treasury management team over the last year. We may look at some opportunistic additional adds throughout the year there, too. Operator: The next question comes from Damon DelMonte with KBW. Damon Del Monte: First question, just on the outlook for fee income. I was hoping you could just talk a little bit about some of the drivers that you see leading to the kind of that mid-$40s million of revenues for 2026? I don't know if it's going to be driven more by fiduciary duties or do you have other treasury management services? Kind of I guess, what are your key assumptions behind that growth? John Stewart: Thanks for the question. This is John. As we kind of roll the year forward and look at our budgeted assumptions, there's not one piece of that fee business that is towing the line, so to speak, modest kind of low- to mid uptick in service charges and interchange would be the assumption. We've got some specific initiatives in the market around interchange, but nothing -- we're not assuming anything in that outlook that would significantly change that view for 2026 anyway. Fiduciary activities expect them to continue to be strong. Mortgage should continue to grow and hopefully benefit rates. We'll kind of see what the rate environment does. But as we get back into the seasonally strong years, we'll get a better -- strong quarters, excuse me, we'll get a better outlook there. But there's nothing in particular, Damon, that is really pushing the growth number for 2026. It's pretty well balanced. Damon Del Monte: Okay. That's helpful. And then just quickly on the margin. Do you happen to have what the spot margin was for December, kind of where you exited the year? John Stewart: Yes. It was slightly a couple of basis points above where the full quarter average was, Damon. Damon Del Monte: Okay. And I mean, based on your commentary, John, it seems like your guidance is including 225 basis point rate cuts. So it kind of seems like, again, based on what you've been saying, you guys seem to be pretty neutral. So we shouldn't see much movement either way if we do have a couple of cuts here in '26. Is that a fair characterization? John Stewart: Yes. We continue to believe that's the case. I mean, if you -- we've walked through some of these numbers before. If on a static balance sheet, what happens inside 30 days, it's -- we'll probably need about a 30% beta on our non-time deposit balances, interest-bearing deposit balances to be neutral. We exceeded that in the fourth quarter. The assumption is that we would be able to kind of just achieve that in 2026. And so with that outcome, with that set of assumptions, I think, yes, your statement is correct that the rate cuts would not significantly change the trajectory of NII or the margin for the year. Similarly, it's not a headwind if there is not a rate cut. Operator: The next question comes from Terry McEvoy with Stepehns. Terence McEvoy: Looking at the loan growth in 2025 on the commercial side, do you expect it to be weighted more towards CRE like we saw in the fourth quarter? Or do you expect more of a mix between C&I and CRE? And then I'm just curious, is leasing still, call it, a priority for Horizon? Lynn Kerber: Terry, in regards to your question, we've been really consistent with our commercial portfolio. Our mix hasn't changed much over the last 3 years that I've been in the seat. If you look at our quarterly origination mix, it's generally pretty consistent with the overall book mix. We have been intentionally looking to add some additional C&I. Our equipment finance division has been a very nice complementary piece to that. When I say it's a priority, I would say it's one of our core products. And so is it going to be outsized? No. It's going to be complementary to what we're doing. Nathan Race: And then as a follow-up, you opened up a pretty cool office in Kalamazoo last summer in terms of just history there. Lynn, I think you mentioned loan growth in that market. So my question is, are you planning to open up more offices, which, to John's point about funding loan growth, a new office would definitely help on the deposit generation side? Thomas Prame: Thanks for the question. And I appreciate the commentary on the Kalamazoo office. Very excited about that and glad to be part of the renovation that's happening in what we feel is just an outstanding community. We do have another office that will be opening up this summer in Indianapolis that we started about 1 year ago, and that should be coming to fruition. We will look at some different opportunities throughout Michigan and some of the core markets that we've talked about that we feel like there's an opportunity for additional distribution where our teams have just have done extremely well, in both loans and deposits and get benefit from perhaps a second or third location. Those will primarily be in the Grand Rapids, Lansing, the Holland area that we feel as though we've got the right people, the right teams, the right penetration, just again, need a little bit more market reach through distribution. But I wouldn't say it's going to be a wholesale branch strategy versus very optimistic as we see opportunities come to fruition in the marketplace. Operator: [Operator Instructions] The next question comes from Brian Martin with Janney Montgomery. Brian Martin: Just wondering, can you -- how has the pricing been both on the loan and deposit side in the markets? Have you seen any irrational pricing? Has it been -- it sounds as though it's not been irrational, but just hearing mixed commentary from other banks. So just thinking about that. Lynn Kerber: Yes, I'll speak to commercial. I would say that it really just depends on the segment of the customer and their profile. I mean we are seeing some rates that -- for commercial real estate credit tenant, very attractive deal profile, it's pretty aggressive. And we've been seeing some 180, 190 spreads, which is pretty low. And so is it irrational? I guess every organization has to make a decision on what works in the balance sheet. But it just -- it depends on the sector. I think for us, we're priced appropriately for the types of deals that we're doing. We're in market generally, and there's going to be some that are higher and a little bit lower. So I wouldn't say it's irrational. There's just some competitiveness in certain segments. Thomas Prame: This is Thomas, I completely agree with Lynn's answer there. Horizon has positioned itself for decades of being a relationship bank, not a price lead bank. And so for us in our markets where we are, there's always been great competition. And for us, I think whether rates are up or down, we've seen recovery in our marketplace, there's always rational pricing out there, both on loans and deposits. And I think it gets to your go-to-market strategy. Our go-to-market strategy is really about being embedded in our communities, doing more than just price and really about being a consultant to our clients, both on the loans and deposit side. So again, I think for us, how we approach our clients, how we approach our communities probably gives us a little bit of insulation from the edges on pricing and for us also from not just the pricing, but also a discipline around credit, I think it's been a forefront of the success we've seen over the years. Brian Martin: Got you. And last couple. Just in terms of the commercial pipeline, Lynn, did you talk about kind of the commercial loan pipeline here? I know you talked about what areas did well here in the fourth quarter and geographically, we did better. But just the pipeline today, where that stands heading into first quarter? Lynn Kerber: There's always a little bit of seasonality. And so you look at the first couple of months of the year, it's usually a little bit quieter. It tends to pick up in the second quarter or third quarter. So you'll hear me talk about fluctuations from quarter-to-quarter. That being said, our pipeline is pretty strong and steady. You're just going to see some fluctuations from quarter-to-quarter. We might have a couple of larger loans one quarter. We might have a larger commercial real estate project that goes to the secondary market or is sold that could impact results. But usually, it's pretty even. So at this point, I feel like it's steady as she goes. You just might see some fluctuation quarter-to-quarter based on seasonality. Brian Martin: Okay. So pipeline is likely down from what it was last quarter and just given seasonality. And I guess your expectation will be as you kind of build the loan growth, it's more second quarter and beyond, maybe less in the first quarter. Does that seem fair based on your comments? Lynn Kerber: I don't know that I would infer that. It's just first quarter is traditionally a little bit softer as far as originations, but the pipeline itself is solid, and we look out more than 90 days, we're tracking 30, 60, 90, 120 up to 190 days. So I don't see the pipeline softening at all. It's just -- my point was is you're just going to have some timing differences month-to-month. Brian Martin: Got you. Okay. That's helpful. And I don't know if it's maybe for John, but I think someone talked about the loan repricing or kind of the back book repricing being one opportunity. What -- can you just remind us what that that loan repricing looks like throughout the year? John Stewart: Sure. Yes, what I said before was new origination coupon yields have held up very well. Spreads have held up well. New production continues to be in excess of 6.5%. The roll-off amortizing, non-amortizing maturities, the cash flow coming off the book is still sitting below 6% in that 5.5% to 5.75% range. And it's pretty evenly distributed by quarter throughout the year in 2026. Brian Martin: Right. And how much is repricing, John, I guess, in terms of throughout the year? It's pretty even by quarter, but just in aggregate, what's repricing this year at kind of that range? John Stewart: Plus or minus $150 million a quarter. Brian Martin: Okay. So $150 million coming across the quarter. Okay. And last one for me, just more housekeeping. I think, John, you said the average earning asset level. I missed what you said there, but I thought it was down linked quarter, but up thereafter. Is that kind of what you suggested? John Stewart: Yes, that's right. Just based on where cash balances kind of ended the year, you might see that pull through the averages, slightly lower cash balances in Q1. We would anticipate that from -- that's the low point for the year, and it would grow and that the full year average would slightly exceed -- modestly exceed $6 billion. That's -- we had scripted that in the guidance slide as well. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Mark Secor: Again, we want to thank everyone for participating in today's earnings call. We appreciate your time and also your interest in Horizon, and we look forward to sharing our first quarter results in April. Have a wonderful day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Jacob Lund: Good morning, and welcome to Investor's Q4 and year-end results for 2025. I'm joined here in the studio in Stockholm by our CFO, Jenny Ashman Haquinius; and our CEO, Christian Cederholm and both will soon be giving their presentations. After that, as usual, we'll be opening up for questions, both on the call via our operator and online. And with that, over to you, Christian. Christian Cederholm: Thank you, Jacob, and hello, everyone. As we look back on the past year, it's clear that 2025 was anything but straightforward. The world remains impacted by significant geopolitical uncertainty. Now despite these headwinds, the global economy delivered decent growth. And in this environment, our companies are doing a good job balancing profitable growth here and now, including focus on efficiency and cost out whilst continuously investing to future-proof their businesses. Let's take a closer look at how we performed over the last year. So 2025 turned out a strong year for Investor. Adjusted net asset value grew by 14%, and our TSR, total shareholder return, was 15%. Listed companies total return amounted to 22%, and we strengthened our ownership in Ericsson and Atlas Copco for a total investment of about SEK 2.3 billion. Patricia Industries total return was minus 9% with considerable headwind from the weaker U.S. dollar. Operationally, it was a good year in total for the major subsidiaries. And in addition to organic growth of 4%, the companies made add-on acquisitions for a total of SEK 24 billion, of which Patricia funded about SEK 16 billion with the rest funded by the portfolio companies themselves. The biggest one by far, of course, being the acquisition of Nova Biomedical. Investments in EQT generated a total return of 15%. And here, we also made our first co-investment, Fortnox, alongside EQT X, exploring another way to create value together with EQT. Lastly, supported by a strong balance sheet and cash flow generation, Investor's Board of Directors proposes a dividend of SEK 5.60 per share for fiscal year 2025. This represents an increase of SEK 0.40 or 8% over last year. At the end of the year, adjusted net asset value stood at SEK 1,087 billion. Now let me briefly go through the 3 business areas. Starting with Listed that represents about 70% of our assets. Listed Companies generated a total return of 6% in the fourth quarter. Investor received proceeds of close to SEK 900 million or SEB shares divested in Q3, so the last quarter to maintain our ownership level as the bank continued to buy back shares. Portfolio companies continued activities focused on future-proofing their businesses. So as an example, Sobi announced its acquisition of Arthrosi, expanding its portfolio within gout with a promising Phase III drug. Wärtsilä announced the divestment of its gas solution business, further focusing the Wärtsilä portfolio. Now over to Patricia Industries, which represents about 20% of our portfolio. Total return in the fourth quarter was 1%, driven by earnings growth and multiple expansion, offset by significant negative currency impact. While reported sales declined by 5%, our major subsidiaries grew sales 5% organically. Adjusted EBITDA declined by 6%, heavily impacted by the same negative currency effects I mentioned and with some costs relating to restructuring initiatives in a couple of the companies. We saw continued high activity in Patricia. For example, Laborie announced the acquisition of the JADA system, expanding its offering within obstetrics for a potential maximum value of USD 465 million. Sarnova completed 2 add-on acquisitions for a total of $165 million, strengthening Sarnova's software offering for revenue cycle management. Also, we contributed SEK 200 million to Atlas Antibodies to strengthen the balance sheet after a period of weak demand and performance. Mölnlycke and BraunAbility distributed a total of SEK 4.1 billion to Patricia Industries in the fourth quarter. All the major subsidiaries and our 40% in 3 Scandinavia in aggregate, including the combined Nova Biomedical from Q3 and onwards, reported last 12-month sales stood at SEK 68.4 billion, and EBITDA was SEK 17.2 billion. We should note here that this is in Swedish krona, so of course, rather sensitive to FX. And finally then, investments in EQT, our third business area, which represents about 10% of the portfolio. In Q4, total return for investments in EQT was 8%, driven by strong share price development in EQT AB. Net cash flow to Investor was SEK 1.2 billion with approximately SEK 0.9 billion net inflow from EQT funds, driven by continued healthy exit activity in the funds. During the quarter, we also completed the very last part of our SEK 4.5 billion investment in Fortnox. So it was a strong quarter and a strong year. But as always, our focus is on the future. I'm confident in our strong platform. Investor has a clear purpose and a focused strategy, a portfolio of high-quality companies, an ownership and governance model that is well proven and great people, both at Investor and in our network and in the companies. And we have financial flexibility with low leverage and strong underlying cash flow. Our strategy towards 2030 is clearly defined and well aligned with our purpose with the ultimate target, of course, of generating an attractive shareholder return. Our objectives are to grow net asset value, to pay a steadily rising dividend and to operate efficiently and sustainably. We will remain focused on our 3 strategic pillars: Performance, portfolio and people. And let me say a few words about each of these. Performance first. While it varies between industry segments and geographies, overall demand remains lukewarm. In addition, the U.S. dollar is down significantly and tariffs need to be managed and the geopolitical situation remain profoundly unpredictable. Against this backdrop, companies need to focus on efficiency here and now to drive profitable growth. At the same time, focus on future-proofing initiatives is critical to ensure long-term competitiveness. This includes, for example, R&D, other investments for innovation, expansion of sales, including to new geographies and investments to leverage the potential of AI and other new technologies. So moving to portfolio then. Based on our financial strength and strong cash flow generation, we continue to seek attractive investment opportunities across all 3 business areas. This includes additional investments in our listed companies, add-on investments and potential new platform companies within Patricia Industries and continued investments, of course, in and together with EQT. Ultimately, the allocation will depend on where we find the best opportunities. And finally, people. Given the rapid transition pace in all industries, we have to ensure that the right people are driving our companies. With 24 portfolio companies and around 200 board seats across the portfolio, talent sourcing and succession planning is a top priority for us. So near-term priorities are clear, and we have a lot of work cut out for ourselves. With that, I'd like to leave the word to Jenny to talk more about our financials. Please, Jenny. Jenny Haquinius: Thank you, Christian. Yes, so let me take you through the financials for the quarter. So in Q4 2025, adjusted net asset value was SEK 1,087 billion, and this implies an increase of 6% compared to Q3. For the quarter, all business areas contributed positively. Investments in EQT increased with 8%, Listed Companies with 6% and Patricia Industries with 1%. So this implies a total return of 6% for the quarter and 14% for the full year. And now double-clicking on each of the business areas, and I will start with Listed Companies. So within Listed Companies, share price performance was mixed, but with positive share price development in almost all companies, particularly strong quarter for the Electrolux share, followed by AstraZeneca, Wärtsilä, Ericsson and Sobi. Saab and Husqvarna, however, had a tougher quarter looking at total return. Total return for the Listed Companies portfolio was 6% and largely in line with SIXRX. And as for absolute contribution, it paints a similar picture, but with AstraZeneca and Atlas Copco in the top due to the weight in our portfolio. All in all, a solid quarter for the Listed Companies portfolio. And then moving on to Patricia Industries. For the quarter, the Patricia Industries portfolio, so the major subsidiaries, grew 5% organically, while the adjusted EBITA declined by 6%. For the full year, organic growth was 4% and the adjusted EBITA declined by 1%. And as a reminder, we are restrictive when it comes to EBITA adjustments. So in the 6% drop in EBITA for the quarter, we have only adjusted for transaction costs related to M&A and one-off costs related to CEO transitions. Other than that, and of course, then not adjusted for and hence, still weighing on the adjusted EBITA margin, we have negative impact from FX, so the stronger SEK and also tariffs as well as restructuring costs to unlock efficiencies in several of the companies, and we deem this as part of ongoing operations. And now double-clicking on performance across the companies in Patricia Industries. And first to highlight a few positives. We saw a second strong quarter for BraunAbility, in part explained by a relatively weak comparison quarter, but also due to strong demand. Profitability improved, but coming from a depressed level in Q4 2024. Nova Biomedical had a solid quarter in terms of growth and profitability. Growth was partly helped by recovery following the cyber incident in Q3. Integration is progressing according to plan, and this includes initiatives such as merging the organizations and implementing a common ERP system. And this, as we mentioned last quarter, may have an impact on sales and earnings near term. We also do know that Q1 last year was a particularly strong quarter for the acquired part of the business. Laborie continued to see solid growth, driven by a large extent the Optilume urethral strictures product. Reported profitability for Laborie was down as it includes USD 11 million in cost for the JADA acquisition and the CEO transition. If we were to adjust for this, profitability was still down, but only slightly on the back of commercial investments. Permobil and Piab had a more challenging quarter. Permobil is experiencing muted growth, and that's primarily explained by negative impact from the voluntary product recall of the Power Assist device announced in Q3. But positive to see good cost containment and a slight increase in EBITA margin, and this is despite SEK 32 million in restructuring costs. Piab had a quarter with negative organic growth, and that's on the back of weaker customer demand, particularly in the semiconductor market. Generally, Piab's end markets have been more choppy following the introduction of tariffs and increased geopolitical disruption. Lower sales impacts margins together with negative FX and tariffs as well as SEK 37 million in restructuring costs to drive efficiencies. And finally, on to Atlas Antibodies, we contributed SEK 200 million to strengthen the balance sheet. And this is to give room to the relatively new management to execute on the plan. And we do see that roughly 70% of the business is recovering, but we still see challenges in terms of soft market and competition for the evitria part of the business. And over to Mölnlycke. So Mölnlycke had a solid quarter with 3% organic growth, and this was primarily driven by Wound Care. So Wound Care grew 5% organically and Gloves 3% organically, and this was somewhat offset by a contracting ORS. On a general basis, we see continued good momentum in U.S. and China, while softer markets in Europe and the Middle East. In Europe, as mentioned before, there are pressures on health care budgets and that's specifically in Germany and France. And in the Middle East, we see customers with relatively high inventory levels. Profitability for Mölnlycke improved, and this is despite negative impact from FX and tariffs, and this is driven by positive product mix, but also lower cost on the back of continuous work with efficiency improvements. And Mölnlycke distributed EUR 200 million to Patricia Industries in Q4. We saw a 1% increase in estimated market values compared to Q3, so from SEK 223 billion to SEK 225 million. And this increase was explained by earnings growth in the portfolio companies as well as cash flow generation and, to a lesser extent, also expansion in valuation multiples. However, the increase was essentially offset by a negative impact from currency. And looking at value development across the companies, we can say that the main contributors for Q4 were Nova Biomedical and Laborie, while Sarnova and Piab was a drag on total value. For Sarnova, mainly due to multiples and for Piab, mainly lower earnings. Also worth highlighting is the distribution, so roughly SEK 2 billion from Mölnlycke and BraunAbility, respectively as well as the already mentioned equity contribution to Atlas Antibodies of SEK 200 million to strengthen the balance sheet. And now moving on to investments in EQT. So total value change was 8% in the quarter, and that's primarily driven by EQT AB, which was up 14%. Fund investments were essentially flat. And as a reminder, we report EQT fund investments with 1 quarter lag. So the 0% is based on EQT's Q3 report. On the right-hand side, we illustrate the net cash flow from EQT to Investor, which was roughly SEK 1 billion in the quarter, and this is driven by exit proceeds as well as dividend from EQT AB. And here, we have an illustration of the net cash flow from investments in EQT over time. While it's quite lumpy on a quarterly basis, over the past 10 years, we've received a net cash inflow of SEK 1.6 billion on average per year. And the LTM net cash flow is a negative SEK 2.4 billion. However, this includes SEK 800 million in acquisition for EQT AB shares and also SEK 4.5 billion in investment in Fortnox. If we were to adjust for this, net cash flow on an LTM basis is a positive SEK 3 billion. Our balance sheet remains strong. Our leverage as of Q4 is 2.1%. So it remains in the lower end of our policy range despite significant investments. And we closed the year with SEK 27 billion in cash at hand. All of our 3 business areas generate cash flow to support investments and a steadily rising dividend to shareholders. And as you know, from Listed Companies, we receive ordinary dividends as well as extraordinary dividend. In Patricia Industries, the portfolio companies generate cash flow, which can be reinvested in the companies or paid in distribution. And for investments in EQT, we have an ownership in EQT AB, which yields an annual dividend as well as fund investments where cash flow is, by definition, lumpy because it's dependent on drawdowns and exits, but it remains a strong contributor to cash flow over time. Since 2015, we have received total funds from all of these 3 business areas of SEK 216 billion, and note here that EQT is net cash flow in the pie chart to the left. The use of proceeds is illustrated on the right of more than 50% has been distributed to shareholders, roughly 30% has been reinvested in Patricia Industries and north of 10% in Listed Companies. So this platform with 3 strong business areas provides a broad-based cash flow that supports continued growth and distributions. The incoming funds provide strong investment capacity and have been deployed across all of our 3 business areas. 2025 was a record year in terms of investments, and this has been executed on while maintaining a strong balance sheet going into 2026. While sustaining this high level of investment activity, as mentioned, more than 50% of incoming funds have been distributed to our shareholders. We have continuously delivered on our commitment to pay a steadily rising dividend, and we continue to do so also in 2025. So the dividend proposal for 2025, as Christian has already mentioned, is SEK 5.6 per share, which is an increase of SEK 0.4 per share compared to 2024. And this applies an average annual growth of 8% over the last 10 years. And then on to my final slide. So looking at the longer-term perspective, the performance of the Investor ABB share truly illustrates the strength and the resilience of our portfolio and strategy. So with that, I will leave the word back to Jacob. Jacob Lund: Thank you, Jenny. Thank you, Christian as well. We are now ready to take your questions, and we will start with the questions through our operator, Sharon. Sharon, please. Operator: [Operator Instructions] And your first phone question comes from the line of Linus Sigurdson from DNB Carnegie. Linus Sigurdson: Starting off with a question on Mölnlycke and Mölnlycke growth. Is there any visibility on these France and Germany headwinds subsiding? Or should we expect this effect to persist in the foreseeable future? Jenny Haquinius: I can start. Thank you for the question, Linus. It's quite hard to say. We are seeing muted growth across many sectors at the moment, given what we're seeing globally. And specifically for Mölnlycke in Europe, there's weakness in France and Germany, and that is because there's a lot of pressure on health care budgets. But it's really hard to say if that would look any different in the next quarter, but really good to see continued momentum in the U.S. and China. Christian Cederholm: And maybe just to add, I think it's fair to say that this started somewhere during the first half of last year. But to Jenny's point, we don't really have visibility on the future development. Linus Sigurdson: That's fair. And then on the margin in Mölnlycke, is it fair to assume that the sort of tariff and currency impacts on profitability there are in line with previous quarters? And I mean, with 30-plus EBITDA margin, have we sort of already reached the potential for the efficiency program? Jenny Haquinius: Well, I can start. I would say that for the companies impacted by the tariffs, on a general basis, they're doing a really good job to mitigate, but it's roughly 1 percentage point or so still impacting margins. In terms of FX for Mölnlycke for this quarter, it's roughly 3 to 4 percentage points in negative FX. And Mölnlycke is doing a really good job working with efficiencies and really demonstrated that in this quarter. Then, of course, that's ongoing work because it's a mix of travel restrictions, using less consultants and also finding more sustainable efficiencies. So I think that work will continue also through 2026. Linus Sigurdson: Okay. And then my final question is a more general one. When you talk about solid cash flow in the coming years and this ambition to accelerate investments, could we view this as a comment on, say, EQT exit markets and the potential for, for example, Nova Biomedical start generating dividends to investors after the integration? Christian Cederholm: Sorry, can you repeat the question? You were asking about our comment on accelerated investments and the cash flow, and then I didn't quite follow. Linus Sigurdson: Yes. I mean, implicit in that statement is accelerating cash flows to fund those investments. So just -- is there anything you can comment on in terms of where those cash flows will come from? Christian Cederholm: Okay. I can take a first crack. So thanks, and it's a good question. And really, the way we think about it is we look at the cash generation from the 3 business areas. And when it comes to Patricia and you were asking about Nova, the way we think about it there is that really the cash flow generated and the debt capacity generated in the subsidiaries is all a potential funding source for acquisition and/or distribution. And really, cash is sort of a corporate asset. So whether it's distributed or not is maybe not the key point, but rather that the underlying cash generation in these businesses is solid. Does that answer your question? Linus Sigurdson: Yes. Operator: And your next question comes from the line of Derek Laliberte from ABG Sundal Collier. Derek Laliberte: I wanted to ask on Mölnlycke. You say the prevention and post-op were strong product segments in the U.S. I was wondering if you could give some more insight on why these areas are performing so strongly now and which product areas perhaps aren't doing as well. Also, I'm wondering if the product mix is similar in Europe in terms of performance right now. Christian Cederholm: I can start on that. I think the main difference we see is relating to the different geographies, as Jenny mentioned. And when it comes to product mix and channel mix, maybe the one thing to say there is that in the U.S., we're more heavily leaning on acute and hospital, while in Europe, including in France, for example, we have more towards post-acute and even some home care. Jenny Haquinius: And I could also add to that maybe that the Prevention segment is larger in the U.S. because of the reimbursement structure. So there's a clear market for that in the U.S., which is very different compared to Europe as well. Derek Laliberte: Okay. Great. That's very helpful. And on Laborie, what's the status on this BPH product, is it reasonable to expect any meaningful contributions from that during '26? Jenny Haquinius: Well, we don't really provide guidance, but what we can do say is that for this quarter, as we mentioned, the growth is a lot driven by the urethral strictures product. But as of now, we do have an active reimbursement in the U.S. for the BPH product. So we continue investing behind that launch. And of course, it will also depend on the reception in the market, et cetera. But the launch is very much ongoing, and we are very optimistic about the long-term runway with both of these products. Derek Laliberte: All right. And regarding Nova Biomedical, looking at the combined company now, I was wondering how the geographical split looks like, how high is the share of U.S. sales, for example? Christian Cederholm: We provided that in the last quarter. Let us come back to that. Derek Laliberte: Yes, absolutely. That's fair. And on Three Scandinavia, I was wondering generally here, the background, I think the growth looked pretty strong here in Q4 and actually over the year. What's driving this growth? Is it mainly continued market share gains or also some price increases involved here as a contributing factor? Christian Cederholm: Well, yes, we agree. Three has been continuing to gain market share, as you can also tell from the subscriber growth numbers. And then with regards to price, I mean, it remains a fiercely competitive market, of course, but at least they have been good at holding prices. That's what I would say on that. Derek Laliberte: Okay. Great. And finally, if I recall correctly, on Sarnova, you have this high inventory situation with distributors affecting market demand and so on. Is it fair to say that this has subsided now? Christian Cederholm: Thank you. Yes, this is primarily relating to the AED or cardiac response business. And really, what we see there is it is continuing to be a tough market. However, on a sequential basis, it has been more stable recently. And then, of course, inventory could be one part in that. Operator: We will now take the next question. And the question comes from the line of Jakob Hesslevik from SEB. Jacob Hesslevik: First, on demand navigation. So several businesses face weak demand and cautious demand in their segment. How do you differentiate between cyclical weakness that require patience versus structural challenges requiring strategic pivots? Christian Cederholm: I can start there. Well, so really, what we try to track, if I start there is, one, of course, total market development, but also we're benchmarking with a certain cadence so as to make sure that we understand whether we're gaining, holding or potentially losing market share. And there, I think it's fair to say that for the majority of the portfolio, we're confident that we're holding or increasing market share. And then the other part of your question was whether -- to what extent we see structural weaknesses in markets. And that's, of course, something we continuously evaluate. And generally, when it comes to investments, we're quite keen and that's one of our top criteria to make sure that we are in industries where we see, call it, GDP plus rather than GDP or GDP minus growth. And of course, sometimes that changes over time. And then we make sure we keep track of that. Jacob Hesslevik: Great. And then double-clicking on the currency exposure management. So FX headwinds significantly impacted Patricia Industries performance during this year. It should have affected your Listed portfolio as well given its large exposure towards exports. But beyond the operational efficiency improvements mentioned, what strategic actions are you considering in order to manage your FX exposure across the portfolio more efficiently, especially to hedge the Patricia portfolio that seems to be more sensitive to USD weakening while not having a professional treasury department helping out, which you can maybe found in most of your listed portfolio. Is this something you're looking into how you can help out Patricia more in managing their exposure? Christian Cederholm: Thank you for the question. Well, as you allude to, our main way of, let's say, balancing FX exposure is by way of operational hedging, i.e., to try to have the costs where we have the revenues and the income. Now despite that, we do have a significant earnings stream in U.S. dollar, thanks to our presence and strong market positions in the U.S. When it comes to sort of further hedging within the companies, we typically don't engage much in that. But rather, we want the FX effect to be seen immediately and then addressed and dealt with. So with a long-term perspective, the changes and the FX environment will be a reality and will hit. So we'd rather just see it upfront and then try to deal with it. The only additional hedging we do is we try to match our debt currency with what our underlying cash flow is per currency. So for example, if you have a company with a lot of earnings in U.S. dollars, it's appropriate to have some level of U.S. debt there as well. Jacob Hesslevik: Okay. And then just finally on Atlas Antibodies. Following the goodwill impairment and now equity contribution, what strategic options are you evaluating for Atlas Antibodies? I mean it's a holding from back in the days when it was called investor growth capital. It is still a very small investment and contribute limited to NAV. Why are you not looking into divesting this holding? Jenny Haquinius: Yes. Well, thank you for the question. First and foremost, so we are contributing the SEK 200 million, and that is to give management some room to execute on the plan. And we have a clear plan. I think we also mentioned in the presentation that roughly 70% of the business is doing well, while we have the 30% evitria business, which is struggling, and that's on the base of weaker market demand. But we have belief in management and also the plan to continue to build on Atlas Antibodies. So that's what we are focusing on here and now. I don't know if you want to add something. Christian Cederholm: No. As alluded to previously, I mean, you have 2 out of 3 business areas that are performing well. And the struggle we see is within evitria. Jacob Hesslevik: Yes. Fair enough. I'm just thinking about the time it takes versus the size of the company relative to the rest of your portfolio, maybe we can come back to Atlas in the future? Christian Cederholm: No, but I think the one thing to say there is maybe that, of course, with Atlas Antibodies as with the other companies, our ambition is to grow it bigger over time, for sure. Jacob Hesslevik: No, I agree. It should -- it's just it hasn't really grown over the past 15 years. It's not that much larger than it was when it came out of Investor Growth Capital. But it's clear. Thank you for the elaboration at least on the business performance in the name. That makes a lot of sense. Christian Cederholm: May I just, before we take the next question, come back to the question on the geographic split on the combined Nova Biomedical business. And then the numbers are roughly 60% North America and then the other 40% is roughly equally divided between Europe and rest of the world. Operator: [Operator Instructions] And your next question comes from the line of Johan Sjöberg from Kepler Cheuvreux. Johan Sjöberg: I hope you can hear me. My question is, if you start off with the Wound Care business and looking at the growth rates over the last year, it seems like you continue to be in the high single-digit growth area. And my question here, going forward here, I heard your comments on especially what's going on in Europe here. But do you see any change to that or any -- I mean, over the next, say, like 3 years, whatever, is that the sort of -- do you see any change to the market that would sort of change that picture, if you take some sort of a helicopter view on that one, please? Jenny Haquinius: Yes, I can start. And I think the short answer is, not really. So no clear change. I think looking at the full year, Wound Care specifically grew 7% organically and was 5% in the last quarter. And that is, as we've talked about before, in a market that's growing low to mid-single digit. So Mölnlycke has continued to take market share within Wound Care on the back of a strong product offering, very much focused on the customer. And we, of course, have the absolute aim to continue to do so by continuing to investing in innovation and also go-to-market. And then in addition to that, we also have new geographies. So we are investing in China, where we now have local production. And there we, of course, are seeing potential for higher growth. And then also the investments and the building presence in the post-acute channel, which is also an addition because Mölnlycke has historically had the strong position in acute, and that will also add potential avenues for higher growth. So we're not seeing anything differently now. But of course, in the more short-term perspective, we will always have markets that can be under pressure like we're seeing now in Europe. Johan Sjöberg: That's great. And also, Jenny, can I ask you on EQT funds, EQT reported today also and sort of you -- given a quarter lag on your -- the reported value of EQT funds. Should we expect any shift -- or put it like this, is there any material change if you were to use the Q4 numbers compared with the Q3 numbers? Jenny Haquinius: No, the short answer is that there will not be a material change, at least not for this quarter. Johan Sjöberg: No, good. Then also FX is all over the place right now or rather going in the wrong way, you can say, to some extent. How -- what -- could you sort of give some sort of indication? We know about the domicile of all the companies, but just to get a feeling for what is sort of the -- what is the most important currency to look at? Is it Euro-Dollar, is it the Euro-SEK or the U.S. dollar-SEK, just to see sort of the flows within the company, so to speak here, because it is a little bit big movements, to put it mildly. Christian Cederholm: I assume you're referring to the Patricia portfolio? Johan Sjöberg: Yes. Christian Cederholm: So this is what I would say. First of all, the #1 exposure is, of course, to the U.S. dollar, just given our big presence there with some U.S. domiciled companies, but also for a company like Mölnlycke and Permobil, I mean, the U.S., clearly the single biggest market for many companies. And then in Swedish krona, for most of the Swedish domiciled companies or the global, I should say, Swedish domicile companies, you would typically look at SEK exposure that is or krona exposure, where we sort of short the krona because we have headquarters here, R&D, et cetera. But of course, sales in Swedish krona is typically quite limited. And then thirdly, just to comment on the euro, I think from Mölnlycke, in particular, it's worth to highlight that we do have manufacturing for Wound Care, for example, in the U.S., in Maine. That said, we are still net exporting from Mikkeli in Finland and so from euro into U.S. dollar. So that's another one to keep track of. Johan Sjöberg: Okay. Cool. My last question, it's really about -- I mean, some of your portfolio companies are talking about also the hesitance among customers to place orders due to tariff uncertainty, geopolitical stuff and everything like that. I would like to hear your thoughts upon, especially when you're looking at -- or you are looking for a platform acquisition or if your companies are doing an add-on acquisition, do you see that being impacting, well, sellers and buyers also here in terms of hesitance. I know one thing is the sort of valuation, but that's always a thing you can say. But this geopolitical stuff here, is that something which is also sort of hindering your M&A ambitions in both platform and add-on? Christian Cederholm: Thanks for the question. I would not say that it's sort of the major obstacle. But of course, all the factors that you point to just add to the general sort of uncertainty in terms of deciding what's the underlying earnings, et cetera. That said, on a lot of things that we're looking at, for example, in the health care and life science market, tariffs, for example, is sort of not the biggest factor driving that. So it certainly adds to the unpredictability and uncertainty, but it's not a -- I would not call it out as a major obstacle for doing transactions as proven also in the recent year where we've done lots of add-on acquisitions, for example. Operator: Thank you. There are currently no further phone questions. I will now hand the call back to Jacob for webcast questions. Jacob Lund: Thank you very much, Sharon, and let's take the questions from the web. We can start with one from [ Tommy Falk ] around the dividend for 2025. Maybe add some flavor to that, Jenny. Jenny Haquinius: Yes. Well, thank you for the question. Well, I think, first of all, the dividend proposal is the Board's proposal to the AGM and for the AGM to decide. But maybe some flavor commenting on the SEK 0.40 increase. It seems balanced looking at our robust balance sheet and also view on cash flow generation and investments. And I think the SEK 0.40 is also really a testament to the fact that we have 3 business areas generating cash flow that really supports continued growth, also investments and delivering on our dividend policy to pay a steadily rising dividend. Jacob Lund: Next question, [indiscernible]. Please, how Investor AB is engaged in rearm Europe programs or other defense investments globally? Would you like to pick that up, Christian? Christian Cederholm: Yes, I'll take a crack at it. So Investor AB as such is not particularly involved in this. But of course, the build-out of the defense of Europe means business opportunities for Saab quite obviously, but also for other companies. And as an example, Ericsson do see a potential from the rebuilding of the European defense. Jacob Lund: Next question comes from Oskar Lindstrom, Danske. On Mölnlycke, are there opportunities to growth, more through acquisitions in the Wound Care or adjacent segments given weak main markets? That's the first one. And then on Patricia acquisitions, for some time now, you've been talking on and off about adding a new major leg in Patricia, mentioning industrial automation as a segment of interest. Is that still the case? What does the pipeline look like? And what is your thinking on valuations? Jenny Haquinius: Yes, I can start with Mölnlycke. Yes, well, add-ons is a priority for all of our subsidiaries and Mölnlycke included. So there is a lot of time spent to, of course, understand the different segments within Wound Care, but also adjacencies. And I think so far, there has not been any major available targets that have made sense because Mölnlycke has been able to grow so strongly organically. What Mölnlycke has done and is, of course, also continuing doing is add-ons that are smaller and more focused on innovation. So early-stage research, for example. And I think a recent example of that is a product for potential debridement of wounds, which would be a good addition to the Mölnlycke portfolio. But as for the other subsidiaries, it's also an important focus for Mölnlycke, of course. Christian Cederholm: And then the question on new platforms. And just to recap, our capital allocation priorities are quite clear in that we always put development and growth of our existing companies first. So that's our top priority. And as we've said, we are also open for and actively looking to add new platform companies, not the least in Patricia. And yes, industrial automation or industrial technology has been pointed to as one area that we're looking in, but we are also looking more broadly than that. And as for the pipeline, I think all I can say there is the work with identifying, scouting and potentially executing on acquisitions is a continuous process. And then when it comes to sort of closings and actual execution, that is inherently volatile and will remain so. Jacob Lund: Then the next one is from [indiscernible]. Will you organize another Capital Markets Day in 2026 for us, long-term shareholders? This is helpful to gauge the development of nonlisted companies. I think I can answer that briefly. It's been a while since we had the last Capital Markets update, and we'll be getting back with more information on that in due course. Next question and the final question I can see is from Jens [indiscernible]. From a strategic perspective on China, how do you assess the competitive risks and opportunities, the latter in terms of growth, investment and cooperation? Christian Cederholm: So as we comment on in the CEO statement in this report, we do see China as a very important region and for several reasons. I mean, one is that for many of our companies, both on the listed side and in Patricia, China is a large and growing market. So that's one thing, the market potential. But also, it's increasingly clear that competition in China or from China is evolving and evolving quite fast. So as we comment on, it's important for many of our companies to be in China, not just for the market opportunity, but also to be where and to compete where some of our toughest competitors are. And it's quite clear to me that comparing China today to a number of years ago, they're not just leading on low cost, but also on implementation of new technology, on fast innovation cycles, et cetera. So even more reasons to be there. Jacob Lund: Thank you very much. There are no further questions on the web. That means it's time to wrap up. Thanks to both of you. Our next scheduled call is the Q1 results for 2026 scheduled for April 21. And until then, thank you, and goodbye.
Operator: Good morning, ladies and gentlemen, and welcome to the Fourth Quarter of 2025 CVB Financial Corporation and its subsidiary, Citizens Business Bank Earnings Conference Call. My name is Sherry, and I'm your operator for today. [Operator Instructions] Please note, this call is being recorded. I would now like to turn the presentation over to your host for today's call, Allen Nicholson, Executive Vice President and Chief Financial Officer. You may proceed. E. Nicholson: Thank you, Sherry, and good morning, everyone. Thank you for joining us today to review our financial results for the fourth quarter of 2025. Joining me this morning is Dave Brager, President and Chief Executive Officer. Our comments today will refer to the financial information that was included in the earnings announcement released yesterday. To obtain a copy, please visit our website at www.cbbank.com and click on the Investors tab. The speakers on this call claim the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from our forward-looking statements, please see the company's annual report on Form 10-K for the year ended December 31, 2024, and in particular, the information set forth in Item 1A, Risk Factors therein. For a more complete version of the company's safe harbor disclosure, please see the company's earnings release issued in connection with this call. I'll now turn the call over to Dave Brager. Dave? David Brager: Thank you, Allen. Good morning, everyone. For the fourth quarter of 2025, we reported net earnings of $55 million or $0.40 per share, representing our 195th consecutive quarter of profitability, which equates to more than 48 years. We previously declared a $0.20 per share dividend for the fourth quarter of 2025, representing our 145th consecutive quarter of paying a cash dividend to our shareholders. We produced a return on average tangible common equity of 14.4% and a return on average assets of 1.40% for the fourth quarter of 2025. Our net earnings of $55 million or $0.40 per share compares with $52.6 million for the third quarter of 2025 or $0.38 per share and $50.9 million or $0.36 per share for the prior year quarter. Pretax income grew by $5.4 million quarter-over-quarter and $6.3 million over the prior year quarter. Both the quarter-over-quarter increase in pretax income as well as the increase from the fourth quarter of 2024 were primarily the result of growth in net interest income. Net interest income grew by $7 million or 6% over the third quarter of 2025 and by $12.2 million or 11% over the fourth quarter of 2024. During the fourth quarter, we collected $3.2 million of interest on a nonperforming loan that was paid off during the quarter and incurred a $2.8 million loss on sale of investment securities. We also incurred $1.6 million of acquisition expense related to the pending merger with Heritage Bank of Commerce. Changes during the first quarter to our allowance for credit losses and reserve for unfunded loan commitments had the net impact of increasing pretax income by $3 million compared to the prior quarter and pretax income decreasing by $1.5 million compared to the fourth quarter of 2024. Noninterest income was $11.2 million in the fourth quarter, which was $1.8 million lower than the third quarter and $1.9 million lower than the fourth quarter of 2024. Trust and investment services income grew by $156,000 or 4% from the third quarter of 2025 and grew by $519,000 or 15% over the fourth quarter of 2024. Bank-owned life insurance income decreased by $1.1 million from the third to fourth quarters due to the annual amortization of revenue enhancements. In addition, other income declined by $800,000 from the prior quarter. This decrease in other income was the result of a smaller loss on sale of investments during the fourth quarter as we incurred a $2.8 million loss during the fourth quarter compared to the $8 million loss on sale incurred in the third quarter and the $6 million of income earned in the third quarter from a legal settlement. Now let's discuss loans. Total loans at December 31, 2025, were $8.7 billion, a $228 million or 2.7% increase from the end of the third quarter of 2025 and a $163 million or 2% increase from the end of 2024. The quarter-over-quarter increase in total loans was due to growth in nearly all loan categories. As typically happens at year-end, we experienced seasonal increases in dairy and livestock borrowings. Dairy and livestock loans grew by $139 million compared to the end of the third quarter, driven by higher line utilization. from 64% at the end of the third quarter to 78% at the end of the fourth quarter. Loan growth was also positively impacted by increases in line utilization for C&I lines of credit, increasing from 28% at the end of the third quarter to 32% at the end of the year. Compared to the end of the third quarter, C&I loans grew by $34 million, CRE loans grew by more than $39 million and SBA 504 loans grew by $17 million. The $163 million year-over-year increase in loans includes growth of CRE loans of $67 million, $49 million of growth in C&I loans, $25 million of growth in SBA 504 loans and $22 million of growth in construction loans. Loan originations were approximately 70% higher in 2025 than 2024, and the fourth quarter production was approximately 15% higher than the third quarter of 2025. Our loan pipelines remain strong going into 2026, although rate competition for the quality of loans we compete for continues to be intense. Loan originations in the fourth quarter had average yields of approximately 6.25%, which was consistent with the prior quarter. We experienced $325,000 of net recoveries during the fourth quarter compared to $333,000 of net recoveries for the third quarter of 2025. Net recoveries for the full year of 2025 were $539,000. Total nonperforming and delinquent loans decreased by $20 million to $8 million at December 31, 2025. A $20 million nonperforming loan was paid in full at the beginning of the fourth quarter. The sale of the building collateralizing this loan resulted in the bank receiving all principal and $3.2 million of interest income. Classified loans were $52.7 million at December 31, 2025, compared to $78.2 million at September 30, 2025, and $89.5 million at December 31, 2024. Classified loans as a percentage of total loans were 0.6% at December 31, 2025. Now on to deposits. Our average total deposits and customer repurchase agreements were $12.6 billion during the fourth quarter, which compares to $12.5 billion for the third quarter. Our noninterest-bearing deposits declined on average by $122 million compared to the third quarter of 2025, while interest-bearing nonmaturity deposits and customer repos grew by $234 million. On average, noninterest-bearing deposits were 58% of total deposits for the fourth quarter of 2025 compared to 59% for both the third quarter of 2025 and the fourth quarter of 2024. At December 31, 2025, our total deposits and customer repurchase agreements totaled $12.6 billion. Noninterest-bearing deposits declined from the end of the third quarter to the end of the year by approximately $440 million as we typically experience seasonal deposit declines at year-end. However, interest-bearing deposits and customer repurchase agreements increased by $430 million between the third and fourth quarter. Our cost of deposits and repos was 86 basis points for the fourth quarter compared to 90 basis points in the third quarter of 2025 and 97 basis points for the year ago quarter. I will now turn the call over to Allen to further discuss additional aspects of our balance sheet and our net interest income. Allen? E. Nicholson: Thanks, Dave. Net interest income was $122.7 million in the fourth quarter of 2025. This compares to $115.6 million in the third quarter of 2025 and $110.4 million in the fourth quarter of 2024. Interest income was $156 million in the fourth quarter of 2025 compared to $150.1 million in the third quarter and $147.6 million in the fourth quarter of last year. Average earning assets increased by $153 million in the fourth quarter when compared to the third quarter, and the earning asset yield increased by 11 basis points from 4.32% to 4.43%. The fourth quarter loan yield was 5.47% compared to 5.25% in the prior quarter. Excluding the $3.2 million of interest income on the nonperforming loan we previously discussed, the yield on loans would have increased quarter-over-quarter by 7 basis points. Interest expense was $33.3 million in the fourth quarter and $34.5 million in the third quarter of 2025. Our cost of funds decreased from 1.05% for the third quarter of 2025 to 1.01% in the fourth quarter of 2025. The average balances of interest-bearing deposits and repos increased by $232 million over the prior quarter. However, interest expense decreased as interest-bearing deposit costs declined by 17 basis points and the cost of customer repurchase agreements decreased by 24 basis points. Our allowance for credit loss was $77 million at December 31, 2025, or 0.89% of gross loans. In comparison, our allowance for credit losses as of September 30, 2025, was $79 million or 0.94% of gross loans. The decrease in the ACL resulted from a $2.5 million recapture of credit loss and net recoveries of $325,000. Our $77 million ACL is 133% of our combined nonperforming assets and classified loans. Our economic forecast continues to be a blend of multiple forecasts produced by Moody's. We continue to have the largest individual scenario weighting on Moody's baseline forecast with both upside and downside risks weighted among multiple forecasts. The resulting economic forecast at December 31, 2025, was modestly different from our forecast at the end of the third quarter, with loss rate assumptions for C&I loans experiencing a negative impact from the economic forecast. Real GDP is forecasted to stay below 1.5% through 2027 and not reach 2% until 2029. The unemployment rate is forecasted to reach 5% by the beginning of 2026 and remain above 5% through 2028. Commercial real estate prices are forecasted to continue their decline through the third quarter of 2026 before experiencing growth through 2029. So now switching to our investment portfolio. Available for sale or AFS investment securities were $2.68 billion at December 31, 2025. During the fourth quarter, we sold $30 million of securities with an average book yield of 1.5%, realizing a $2.8 million loss and then purchased $239 million of new securities at an average book value yield of approximately 4.75%. The unrealized loss on AFS securities decreased by $26 million from $334 million at September 30, 2025, to $308 million on December 31, 2025. The net after-tax impact of changes in both the fair value of our AFS securities and our derivatives resulted in a $20 million increase in other comprehensive income for the fourth quarter. Our held-to-maturity investments totaled $2.27 billion at December 31, 2025, which is $109 million lower than the balance at December 31, 2024. Now turning to the capital position. At December 31, 2025, our shareholders' equity was $2.3 billion, a $109 million increase from the end of 2024, including the $84 million increase in other comprehensive income. There were 1.96 million shares of common stock repurchased during the fourth quarter of 2025 at an average purchase price of $18.80. For all of 2025, we repurchased 4.3 million shares at an average share price of $18.60. The company's tangible common equity ratio was 10.3% at December 31, 2025, while our common equity Tier 1 capital ratio was 15.9%, and our total risk-based capital ratio was 16.7%. I'll now turn the call back to Dave for further discussion of our expenses. David Brager: Thank you, Allen. Noninterest expense for the fourth quarter of 2025 was $62 million compared to $58.6 million in the third quarter of 2025 and $58.5 million in the fourth quarter of 2024. During the fourth quarter, we incurred $1.6 million of onetime merger-related expenses associated with the pending merger with Heritage Bank of Commerce. The fourth quarter of 2025 also included a $1 million provision for off-balance sheet reserves compared to a $500,000 provision in the third quarter. Excluding acquisition expense and the provision for off-balance sheet reserves, operating expenses grew by 2.3% or $1.4 million over the third quarter of 2025 and by 1.6% or $1 million over the fourth quarter of 2024. Excluding the impact of acquisition expense and the provision for off-balance sheet reserves, we achieved positive operating leverage from both the prior quarter and the year ago quarter of 2% and 6%, respectively. Noninterest expense, excluding acquisition expense, totaled 1.53% as a percentage of average assets in the fourth quarter of 2025 compared to 1.50% for the third quarter of 2025 and 1.49% for the fourth quarter of 2024. This concludes today's presentation. Now Allen and I will be happy to take any questions that you may have. Operator: [Operator Instructions] And our first question will come from the line of Matthew Clark with Piper Sandler. Matthew Clark: Good morning, Matthew. I just want to start on the interest-bearing deposits. You mentioned some seasonality. It looked also like some mix change towards savings money market. Can you just speak to what you saw there and maybe whether or not there was some behavioral change among customers seeking rate. David Brager: Yes. No, I don't think there was any behavioral change. It's pretty standard for us. People pay bonuses, accrue for taxes, do different things. So I don't really think there was any major change. There wasn't any movement of any large relationships or deposits from noninterest-bearing to interest bearing. I think for the most part, it just was normal seasonality. The part that was different was that we actually grew the noninterest-bearing deposits, and that is something that is a little different, but it wasn't necessarily coming from the noninterest-bearing and moving to the interest-bearing . E. Nicholson: I mean, Matthew, I would just consistently say look at quarterly averages. Our deposit customers move fairly large amounts of money at any point in time. So point in time balances don't necessarily reflect exactly what's going on. So average balances, I think, are just more important. Matthew Clark: Yes. Yes. Okay. And then just on the nondairy and livestock loan growth. If you exclude it, it's up over 4% annualized this quarter. I know some of it was higher line utilization. But maybe speak to the higher line utilization, whether or not you think that might be more sustainable? And your thoughts overall on kind of nondairy and livestock loan growth this year. David Brager: Yes. It's kind of interesting. I think we ended the year year-over-year up about 2% in total loans. And it's kind of in line with what I thought at the beginning of the year. It just took us a little while to get their point-to-point. But loan pipelines remain strong. I think the utilization is normalizing I think people are a little more positive, I mean, as evidenced by just some of the GDP growth that we're seeing. So I think that that's probably going to remain a little more stable than it has been over the last 1.5 years or so. And candidly, that's anecdotal, but everybody we talk to is basically saying that they're ready to go and they think things are going to be okay. So that's a good sign. That's also evidenced, obviously, by the classified loans and the nonperforming loans that we reported at the end of the quarter. So I think all in all, the pipelines are strong. at least for the foreseeable future. And I believe that we'll be able to do more with our existing customers, and we're still attracting some pretty good relationships going forward. So all in all, I'm cautiously optimistic, maybe even positive and optimistic about 2026 so far. Matthew Clark: Great. And then last one for me. Just on the Heritage deal. Any update on how it's progressing? David Brager: Yes. So everything is going well. We've toured their offices and their headquarters, almost all of their offices. We are in -- we're getting ready from an application perspective and the proxy perspective. But everything is going according to plan right now. We still anticipate second quarter close and a second quarter systems conversion. And I think that's where we are. Obviously, there's still game to be played there, but everything is looking good so far. Operator: One moment for our next question, and that will come from the line of David Feaster with Raymond James. David Feaster: I wanted to circle back to the core deposit side. Obviously, we talked about the seasonal dynamics within NIB. But Wanted to get your thoughts on the competitive landscape for deposits from your standpoint. Where are you winning deposit business? And your thoughts on the -- obviously, you saw good interest-bearing deposit growth. And then just your thoughts on the ability to push through the Fed cuts and expectations for betas near term. David Brager: SPYes. So I think just from your first part of your question, I think the type of clients that we go after generally is an operating company. And so the majority of the new deposit relationships that we're bringing to the bank are 75% plus noninterest bearing. If you look back over the last 10 years of the bank, we always seem to have this sort of dip. And as Allen said, on any one given day, that money can move out and move back and there's a number of things that happen. And that's why I think the average number is better as well. But we are winning relationships. As you know, we are not a bank that goes out and offers the highest rate on our deposit accounts. And we're not really trying to attract that type of customer. So I think for the most part, it's pretty standard on the type of relationship. As far as the Fed rates are concerned, we basically -- during the last cut, we basically lowered everything by 25% that was earning over 1%. And so we're trying to capture as much of that as possible. I think the combination of -- on the interest-bearing deposit side with be trying to offset to the extent we can on the asset side of those rate cuts. I mean I think it was a good sign for us that our asset -- our loan yield still went up despite a Fed rate cut. And we added a slide in our investor deck in the appendix that really gives a very good overview of sort of the repricing reset time frames both on the truly variable stuff as well as the fixed rate stuff that's maturing or resetting over the next -- I think it's we go all the way up to 10 years and over. It's a very small number in that category. But there's a lot more granularity there than we had in the previous deck as well. But on the deposit side, David, it's pretty much the same type of thing. And -- and I think from a competition standpoint, we are seeing more competition utilizing earnings credit and that ability to pay. I mean we just had a relationship that came to us and said, that there was a bank, and I won't mention the name, but there was a bank that was offering them a 3% guaranteed ETR rate for 5 years with paying their accounting system, which is $120,000 a year as part of that 5-year deal. I don't know the outcome of that 1 yet, but we -- that's not something we would do. So -- that's what I'm seeing out there. And I don't know if that's just for the other banks to drive their noninterest-bearing or just deposits in general. But there is loan growth. So there's going to be funding pressure. So I think that's something that we need to stay on top of. But for the most part, it's pretty much status quo and business as usual for us. David Feaster: Okay. That's helpful. And to that point on the growth side, I was hoping you could touch on the competitive landscape state there. It sounds like you're seeing primarily just on the pricing side. But wanted to see if you're getting any more aggressiveness from competitors on the underwriting side? And then just -- how do you think about payoffs and paydowns. Obviously, there's pretty significant back book repricing in your story. But I'm just curious, with competition and potential Fed cuts still on the horizon. How do you think about payoffs and paydowns next year? Is that something that you would expect could be headwind? David Brager: Yes. Well, it's always a little bit of a headwind. The payoff and prepayment penalty activity in the fourth quarter was lower than the third quarter. But it's always something we have to deal with, and we anticipate that happening when we model and forecast internally, we look at those numbers and just sort of from a historical perspective. The one thing to your comment about the back book repricing -- the one thing that is becoming or not in a major way, but is an issue is that when there is a reset, we still have prepayment penalties in our loan. But when there is a reset there are people that are getting quotes theoretically from competitors that are lower than ours. I don't always see the actual quotes. So I always question whether that's true or not. But they're theoretically getting quotes from competitors out there saying they'll do the loan that lower rate than what our repricing rate would be or reset rate would be. And so we have a little protection with the prepayment penalty. But on the maturing book, we don't have any protection there. So we have to be a little more aggressive I was candidly very happy that our fourth quarter average yield was 6.25% because I would say some of the stuff we're doing now is closer to the 6% range just to be competitive on that. And look, treasuries are going up, at least in the last week or so, they're going up pretty good. So hopefully, people will remain disciplined. But it's really more pricing than credit. We're not we're not going to do something that we wouldn't do from a credit underwriting perspective, but we especially to protect relationships, we'll be a little more aggressive on the pricing aspect of it. David Feaster: Are you seeing more... E. Nicholson: We're seeing more short-term loans as well. So people are doing 5, 3-year instead of going out 7 or 10 years. So I think that's also part of the yield we're seeing. David Feaster: Okay. Have you started to see... David Brager: I'm sorry, David, I was just going to add one thing, and that's a very good point that Allen brought up. I don't know that, that's a good bet. Like trying to keep things 2 or 3 years. We'll see -- but if you just look at forward rates are especially on the longer end, could be higher just based on a lot of different factors. David Feaster: Yes. And so it doesn't sound like other than the duration that you've really seen much pressure on the underwriting structures or standards. . David Brager: No, not really. I mean, we wouldn't really consider it anyway. So it might not come all the way up to me... Operator: And that will come from the line of Andrew Terrell with Stephens. Andrew Terrell: If I could just start maybe asking on expenses, I think, post the adjustments you guys call out, it's around $59 million or so. But compensation up this quarter. Was any of that incentive accrual adjustments kind of at year-end? And then maybe just looking for a little bit of help around thoughts on organic expense growth into 2026 or kind of run rate expectations you guys have? E. Nicholson: Yes, Andrew, you're correct. There were some adjustments to our private bonus share accruals that elevated the expense quarter-over-quarter. We also -- every fourth quarter with the holiday season, there is extra benefit expense. So Q4 to Q4 might be a better indication of where dense growth is, and I think that was less than 2%. I think once again, particularly if you look at the full year numbers, the only expense line that's really growing more than very low single digits is the technology side, the software expense. And we'll continue to invest in that. And the percentages may not be quite as high as 24% to 25%, but an area we'll continue to invest in. Andrew Terrell: Yes. Okay. And then just on the margin overall, I appreciate the slide you guys gave on the loan repricing in the presentation. But if we look at margins for the industry right now, a lot of the banks out there approaching kind of that peak level or fairly close from back in 2019, you guys are still 50 or 75 basis points light versus the 4.25 level from 2019. So I guess the kind of question is, has anything structurally changed preventing you from getting back there? And then just keeping that loan repricing in mind, I know some of it looks decently far out there up to 10 years. How long does it take you guys to get margin back to what you would view as a normalized level? E. Nicholson: Well, of course, the yield environment plays a lot into that, Andrew. But yes, I mean, obviously, if you go back pre-pandemic, our securities book still has a much lower yield than it would have had back then. And so that's obviously going to play into it. And the loan book still as well. So it will take a little time for both cash flows and the security book to reprice as well as the loan book reprice. And that's why we added that slide. So I mean it's hard to tell. I don't know if I would comment on it knowing that there's so many variables, but I wouldn't be surprised if we get there over the next couple of years, but there's a lot of things that could change that. David Brager: Yes. And the only thing I would add to that, Andrew, is to the point that we have not done any large restructuring loss trade type transactions. And so in the fourth quarter, with the gain that we had or with the recapture of the interest income that we had, use that to take advantage of. So sort of all these onetime things that happen, we will still look at that and make determinations. And that's really part of the reason that we looked at the loss trade to utilize that $3.2 million where we recaptured an interest. So we'll just continue to do that. It's more singles. We're not planning on doing anything like we've said all along, anything larger than that. Matthew Clark: Yes. Okay. Yes, my follow-up to that was going to be on the securities, so I appreciate it. Operator: And that will come from the line of Gary Tenner with D.A. Davidson. Gary Tenner: I had just a follow-up on the loan yields in the quarter. Even excluding the interest recovery, as you pointed out, Allen, the loan yield was up 7 basis points. Was that pretty exclusively driven by the increased C&I outstandings between general C&I and the ag portfolio? I just wanted to make sure there weren't any other dynamics during the quarter that impacted. E. Nicholson: I mean I wouldn't point to anything -- one thing. I mean, dairy goes up, but really, I think the dairy borrowing to a higher percentage of our overall loans probably drove about a basis point improvement in loan yields. So a little bit on the mix. But once again, I think the bulk of our loans are commercial real estate, and it really goes back to the back book conversation. They're slowly repricing -- and as we have the payoffs, we're replacing them with higher yields. So that concept is probably still the biggest driver... David Brager: And new production. E. Nicholson: New production versus what's rolling off out there. Gary Tenner: Okay. Great. And then just looking forward to the HCP transaction, any expectations at this point of kind of any day 1 restructuring of their balance sheet or otherwise? E. Nicholson: The only thing we've announced, Gary, is that we do plan on selling approximately $400 million of single-family loans that Heritage has -- these are not really customers they were purchased. And the duration is very long on them. So even though we'll get to mark them to market, and there's a lot of accretion there that if we kept them at significant accretion, but still they're very low coupon, 30-year mortgages. We don't really care for the duration, and they're not associated with customers. So we'll sell those and reinvest into investments with shorter durations. Gary Tenner: Okay. And I was in the merger announcement, but beyond that, no other -- nothing at this point. Operator: And that will come from the line of Kelly Motta with KBW. Kelly Motta: Good morning. Thanks for the question. apologize. I joined a little bit late. I may have missed this. But just circling back to the noninterest-bearing flows. With those balances down a bit, can you just elaborate? I know you guys sold an NPL if there was any attrition of customers related to exits or anything that? Or if it was just normal seasonal movements post COVID getting back to more normal trends. David Brager: Yes. I think maybe you're just back checking me, Kelly, but no, there was no loss of relationships that, that represented and the comment that we made was really just around the point in time on December 31. There's a lot of movement around the deposits going back and forth or going out and this is actually pretty standard. The part that was a little surprising. I mean, I watch it every day, but not surprising, but a part that was different is we did grow noninterest-bearing deposits. The new relationships that we're attracting to the bank are probably in the 75% noninterest-bearing range. interest-bearing. So this is really just kind of normal stuff. If you go back 10 years, we always have this seasonality in the fourth and first quarter. I think, Allen, a while back, we had done an analysis of that. I think in the fourth quarter, we normally lose about 4% of our deposits going back like 10 years. This, on averages, that didn't occur this year. We sort of had the normal noninterest-bearing stuff that went out for taxes or bonuses or whatever the case may be. But no, there was nothing abnormal about it and no loss of relationship that -- and I'd say no loss, any material or significant relationship, nothing changed. E. Nicholson: And Kelly, I just mentioned that I think it's better to look at average balances. They are more indicative. Our customers move a lot of money. There's patterns day of the week and things like that, that depending on how a quarter end happens to land you're not really getting the -- probably the 2 picture. Kelly Motta: Got it. That's helpful. Maybe switching to the buyback. You were really this quarter. And then obviously, you had announced Heritage Commerce site in the quarter. Wondering, is it fair to say that you're out of the market at least until the deal closes, just wondering... E. Nicholson: Yes. I mean, obviously we're -- we'll be issuing an S-4 prospectus. So we've been out of the market since the beginning of December. And the Board reevaluate that once we close the merger. Operator: And our next question will come from the line of Tim Coffey with Janney Montgomery Scott. Timothy Coffey: Question on the loan modifications. Is there anything special causing the balances in that bucket to [indiscernible]. David Brager: Go ahead, Allen. I would have small on to say [indiscernible]. E. Nicholson: I wouldn't say there's anything abnormal about it. Timothy Coffey: Okay. What causes somebody to fall into that bucket? E. Nicholson: I'm sorry... David Brager: You're talking about the loan modifications. Timothy Coffey: Yes. David Brager: Yes. Well, it depends. I mean when we -- there's a lot of different reasons they can fall into that if they come to us and ask for help and they need to do something to make the payment. That's one way that they would get in there. Another way would be just through our normal evaluation when we're doing our annual term loan reviews, if we see something that's not accurate or not -- that isn't meeting our minimum debt service coverage or some other covenant that could cause us to go in there. That number in and of itself is still a material number relative to the total loan portfolio. But there's a lot -- there's a few different reasons that it could fall into that category. Timothy Coffey: Okay. And then post the closed deal with Heritage Commerce Bank, we look out back half of this year and the next year. Dave, do you anticipate the addition of Heritage Commerce to materially change your outlook for loan growth? David Brager: Yes. Well, look, I think it just depends on a couple of different factors. We are, as you know, sort of slow and steady wins the race. Heritage has been growing a little faster than we have. I'm sure there'll be some combination of that. We're going into new markets. We're going to be able to help their clients grow even -- they'll be able to do more for their clients than they can do for them today. So I think there's some definite tailwinds with respect to that. But we got to make sure we get to close, we get it integrated. We we go through the culture things to make sure they understand how we do things. So I think for the most part, there could be some benefit to that for our overall loan growth, but we're going to maintain the same credit quality that we've maintained and the same credit quality that they've maintained. So we'll have to evaluate that as we combine everything and see where we are. But I do think there's a lot of opportunity in those markets for what we have to offer, not just from the loan perspective, but also from just the overall product array that we have relative to the product array they have. Timothy Coffey: Sure. Yes. And a bigger balance sheet will help them a lot. David Brager: Exactly. Timothy Coffey: And then [Audio Gap] No check -- final no check for me, Allen. What was the core loan yield in the quarter? E. Nicholson: I would point you to the slide we added on Page 43. And that is what I would call a basic coupon, no loan fees, nothing else. And you can see where it ended the year. And then you can obviously see the relative repricing for the different buckets. David Brager: And Tim, that number was 5.12%. Operator: Thank you. I'm showing no further questions in the queue this time. I owuld now like to turn the call back over to Mr. Brager for any closing remarks. David Brager: Great. Thank you. Citizens Business Bank continues to perform consistently in all operating environments. Our solid financial performance is highlighted by our 195 consecutive quarters or more than 48 years of profitability and 145 consecutive quarters of paying cash dividends. We remain focused on our mission of banking the best small- to medium-sized businesses and their owners through all economic cycles. I'd like to thank our customers and associates for their commitment and loyalty, and we look forward to a successful 2026 and the pending merger with Heritage Bank Commerce. Thank you for joining us this quarter. We appreciate your interest and look forward to speaking to you in April for our first quarter 2026 earnings call. You can always let Allen and I know if you have any questions. Have a great day. Thank you. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to Cathay General Bancorp's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Ashia, and I'll be your coordinator for today. [Operator Instructions] Today's call is being recorded and will be available for replay at www.cathaygeneralbancorp.com. Now I would like to turn the call over to Georgia Lo, Investor Relations of Cathay General Bancorp. Georgia Lo: Thank you, Ashia, and good afternoon. Here to discuss the financial results today are Mr. Chang Liu, our President and Chief Executive Officer; and Mr. Heng Chen, our Executive Vice President and Chief Financial Officer. Before we begin, we wish to remind you that the speakers on this call may make forward-looking statements within the meaning of the applicable provisions of the Private Securities Litigation Reform Act of 1995 concerning future results and events, and that these statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are further described in the company's annual report on Form 10-K for the year ended December 31, 2024, at Item 1A in particular, and in other reports and filings with the Securities and Exchange Commission from time to time. As such, we caution you not to place undue reliance on such forward-looking statements. Any forward-looking statements speak only as of the date on which it is made, and except as required by law, we undertake no obligation to update or review any forward-looking statements to reflect future circumstances, developments or events or the occurrence of unanticipated events. This afternoon, Cathay General Bancorp issued an earnings release outlining its fourth quarter and full year 2025 results. To obtain a copy of our earnings release as well as our earnings presentation, please visit our website at cathaygeneralbancorp.com. After comments by management today, we will open up this call for questions. I will now turn the call over to our President and Chief Executive Officer, Mr. Chang Liu. Chang Liu: Thank you, Georgia, and good afternoon. This afternoon, we reported a net income of $90.5 million for the fourth quarter of 2025, a 16.5% increase from $77.7 million in Q3. Diluted earnings per share increased by 18.3% to $1.33 in Q4, up from $1.13 in Q3. For the full year 2025, our net income was $315.1 million, a 10.1% increase from net income of $286 million in 2024. In Q4, we repurchased 1.1 million shares of common stock for $51.9 million at an average cost of $47.15 per share under our June 2025, $150 million stock buyback program. There is $12 million remaining under our June 2025, $150 million buyback program, which we expect to complete in early February. We plan to announce a new buyback program after approvals are received. Total gross loans grew by $42 million, driven primarily by increases of $18 million in CRE loans and $17 million in residential loans. We expect loan growth in 2026 to be between 3.5% and 4.5%. Slide 7 of our earnings presentation shows the percentage of loans in each major loan portfolio are either at a fixed rate or hybrid rate. Aggregate fixed rate and hybrid loans account for 60% of the portfolio, excluding fixed to float interest rate swaps, which represent 3.1% of total loans. Fixed rate loans make up 30% of total loans and hybrid in fixed rate period account for 30% of total loans. We expect these fixed rate loans to support our loan yields as market rates are expected to decline. We continue to monitor our CRE portfolio. Turning to Slide 9. The average loan-to-value of our CRE loans remained steady at 49%. Our retail property loan portfolio represents 24% of our total CRE loan portfolio or 12% of total loans. As shown on Slide 10 of the $2.5 billion in retail property loans, 90% are secured by retail store, neighborhood, mixed use or strip centers, only 9% are secured by shopping centers. Turning to Slide 11. Office private loans represent 13% of our total CRE loan portfolio or 7% of our total loans. Of the $1.4 billion in office loans, 30% secured by a pure office, only 3% are in central business districts. Another 42% are collateralized by office retail stores, office mixed use and medical office properties, with the remainder 28% secured by office condos. For Q4, we reported net charge-offs of $5.4 million as compared to $15.6 million in the prior quarter. Nonaccrual loans were 0.6% of total loans as of December 31, 2025, down $53.3 million to $112.4 million compared to the prior quarter. The decrease in nonaccrual loans during the fourth quarter of 2025 included the sale of a $15.8 million CRE loan at par and a $10.8 million CRE loan brought current and restored to accrual status. Turning to Slide 13. Classified loans decreased from $420 million to $391 million for Q4. Special mention loans increased from $455 million to $535 million in Q4. The bank downgraded 5 loan relationships totaling $92 million to a special mention that have not met certain debt covenants and have exhibited short-term financial issues for closer tracking. The bank believes that these credits will resolve within the next 12 months by either credit upgrades or partial or full payoff. We recorded $17.2 million in provisions for credit losses in Q4 compared to $28.7 million in Q3. The ALLL to gross loan ratio increased to 0.97% from 0.93%. And excluding our residential loan portfolio, the total reserve to loan ratio would be 1.22%. Total deposits increased by $373 million or 7.6% on a annualized basis during Q4, driven primarily by $366 million increases in core deposits and $7 million in time deposits. The growth in core deposits reflected seasonal factors in targeted marketing activities. For 2026, we expect deposit growth to range between 4% and 5%. As of December 31, 2025, total uninsured deposits were $9.3 billion, net of $0.9 billion in collateralized deposits, representing 44.6% of total deposits. The bank has $7.5 billion of unused borrowing capacity from Federal Home Loan Bank, $1.3 billion from Federal Reserve Bank and $1.6 billion in unpledged securities. Altogether, these available liquidity sources provide more than 100% of the uninsured and uncollateralized deposits as of December 31, 2025. I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr. Heng Chen, to discuss the quarterly financial results in more detail. Heng Chen: Thank you, Chang, and good afternoon, everyone. For Q4 2025, net income increased $12.8 million or 16.5% to $90.5 million from $77.7 million for Q3, primarily due to $11.5 million lower in provision for credit losses, $5.4 million higher in net interest income and $6.8 million higher in noninterest income, partially offset by a $4 million increase in noninterest expenses and $6.8 million higher in provision for income taxes. The net interest margin increased to 3.36% in Q4 from 3.31% in the prior quarter. The increase in net interest income was driven by a lower cost of funds. We anticipate further benefits to the NIM from declining deposit costs supported by the fixed rate proportion of our loan portfolio. Based on the Fed fund futures, we project 2 rate cuts in 2026, one in June and a second cut in September and anticipate that the net interest margin for 2026 to range between 3.4% and 3.5%. In Q4, interest recoveries and prepayment penalties added 5 basis points to the net interest margin compared to adding 4 basis points to the net interest margin in Q3. Q4 noninterest income increased $6.8 million to $27.8 million compared to $21 million in Q3, mainly reflecting a $6.4 million change in mark-to-market unrealized gain on equity securities in Q4. Noninterest expense increased by $4.1 million from $88.1 million in Q3 to $92.2 million in Q4, primarily due to a $4.3 million higher bonus accrual in Q4 as a result of the above budget financial performance for 2025. We expect core noninterest expense, excluding tax credit and a core deposit intangible amortization to increase between 3.5% and 4.5% in 2026. The effective tax rate for Q4 2025 was 20.33% as compared to 17.18% for Q3. We expect effective tax rate between 20.5% and 21.5% for 2026. As of December 31, 2025, our Tier 1 leverage capital ratio increased slightly to 10.91% as compared to 10.88% in Q3. Our Tier 1 risk-based capital ratios increased to 13.27% from 13.15% in Q3 and our total risk-based capital ratio increased to 14.93% from 14.76% in Q3. Chang Liu: Thank you, Heng. We will now proceed to the question-and-answer portion of the call. Operator: [Operator Instructions] The first question comes from Kelly Motta with KBW. Kelly Motta: Maybe kicking it off on deposits. I appreciate the updated margin guidance -- or the new margin guidance for 2026. It looks like you did a pretty nice job lowering interest-bearing deposit costs here. Can you speak more in terms of what you're assuming for deposit betas embedded in that NIM outlook here? And just any market commentary as to the level of competitiveness now at this stage. Heng Chen: Yes. I think we're assuming deposit betas in the 60% range or so. And in terms of market competition, I think it's about the same. Yes, we haven't -- it's pretty rational in Q4. Chang Liu: So Kelly, kind of for me looking forward for 2026, I think the local L.A. and New York landscape is still pretty competitive. I mean we have about nearly $4 billion of maturing CDs in the first quarter with an average yield of about 3.8%. We'll run our -- the Lunar New Year campaign and likely if we can price somewhat below that, that's kind of the goal, but we're going to be sensitive about defending that base that we have, while we try to transition some of that into noninterest-bearing. Kelly Motta: Got it. That's helpful. And just a point of clarification on that beta hang that 60%, is that for interest-bearing or total deposits? Heng Chen: Interest bearing. Kelly Motta: Got it. And then maybe on -- it was nice to see the NPA improvement, and it seems like you had both a payoff and a resolution there. As we kind of look ahead, what are you seeing in terms of credit and any migration into criticized and overall trends? Chang Liu: So maybe some of that I can help with this is some of the migrations into special mention, we don't see any particular trends in particular, 3 of the 5 that we were talking about the top 3, they're different in their own nature. One, for example, is a project in New York. It's a mixed-use project. It's completed. It's fully occupied. The ownership is just waiting for a lower property tax status approval to get through. And once that status approval gets through, then they'll be back up to compliance with sort of the debt coverage with that one. Another one is a multifamily mixed use, primarily in the Pacific Northwest. They have a new commercial tenant coming in, not quite there yet. And so that's contributing to the -- not being able to meet the covenant requirement and as well as some of the more competition in the area. So it's -- they're finding some more challenges, but they're going to return that back to stabilization and it's got a great guarantor support and they're paying us as agreed. And then lastly, it's a bit of a C&I story, and it's a distributor of exercise equipment and their own warehouse and they got some quarterly -- not being able to meet the quarterly financial requirements. But overall, for the year, they're expecting a full year on a positive note. So once we get the CPA financials, we hope to be able to upgrade that if they can show a full year profit. Operator: [Operator Instructions] The next question comes from Andrew Terrell with Stephens. Andrew Terrell: Maybe just on the margin quickly. The loan yield performance this quarter was also a decent amount better than I kind of was expecting. Was there any level of interest recovery in the loan yields this quarter, just looking at some of the NPL reduction? Heng Chen: Yes. It was 5 basis points to the NIM versus 4 basis points in Q3. Andrew Terrell: Got it. Okay. So relatively close to the baseline amount? Heng Chen: Right, yes. Andrew Terrell: Okay. And I appreciate all the color on the deposit and kind of cost dynamics in the market right now. What about on the lending side? Have you seen an elevated level of competition for incremental loan growth? And just what's the kind of status of the market on the lending side? Chang Liu: Yes. So surprisingly, I looked at those numbers for 3 segments. On the residential mortgage, believe it or not, we had a pretty strong growth last year in '25 and the rates of the entire portfolio actually held up pretty nicely. As a matter of fact, I think improved by a couple of bps there. On the CRE side, I think there's still pretty strong competition for the right type of assets and loans. So that declined by, don't quote me on this, about 15, 20 bps on the entire portfolio there. I think the most amount of competition we saw probably was on the C&I side. I think the C&I side, we're still trying to push for growth and find some new lenders, new relationship kind of teams and those kind of things. But our existing portfolio on the C&I side, that we saw probably the most amount of competition there, and that rate declined steeper than the other 2 segments. Andrew Terrell: Got it. Okay. If I could just sneak one more in. Do you have the amount of the expected amortization in 2026? Heng Chen: For low income housing, it's probably $11 million a quarter, Andrew. Operator: Thank you for your participation. I will now turn the call back over to Cathay General Bancorp's management for closing remarks. Please go ahead. Chang Liu: I want to thank everyone for joining us on our call, and we look forward to speaking with you at our next quarterly earnings release call. Operator: Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.
Operator: Morning, and welcome to The Procter & Gamble Company's Quarter End Conference Call. Today's event is being recorded for replay. This discussion will include a number of forward-looking statements. If you will refer to The Procter & Gamble Company's most recent 10-K, 10-Q, and 8-K reports, you will see a discussion of factors that could cause the company's actual results to differ materially from these projections. As required by Regulation G, The Procter & Gamble Company needs to make you aware that during the discussion, the company will make a number of references to non-GAAP and other financial measures. The Procter & Gamble Company believes these measures provide investors with useful perspective on underlying business trends and has posted on its investor relations website www.pginvestor.com a full reconciliation of non-GAAP financial measures. Now I will turn the call over to The Procter & Gamble Company's Chief Financial Officer, Andre Schulten. Andre Schulten: Good morning, everyone. Joining me on the call today is Shailesh Jejurikar, Chief Executive Officer, and John Chevalier, Senior Vice President, Investor Relations. I will start with an overview of results for 2026, and Shailesh will discuss strategy, innovation, and focus areas as we start calendar year 2026. I'll close with guidance for fiscal '26, and then we'll take your questions. As we expected, second-quarter top-line results heavily reflect underlying market trends and impacts from base period dynamics. As a reminder, the base period included trade and consumer pantry loading, driven by port strikes and hurricanes in early October, and the fear of additional port strikes in late December. The biggest impacts were on the baby, feminine and family care sector, the fabric and home care sector. These base period impacts were concentrated in the US market. The balance of the company grew organic sales nearly 3% with almost all regions outside the US growing or accelerating in the quarter. Bottom-line results followed the top line. We continue to prioritize full investment in the business. We anticipated this would be the softest quarter of the fiscal year and we remain confident in stronger growth in the back half. So moving to the details. Organic sales were in line with the prior year. Volume was down one point, pricing up a point, and mix was flat for the quarter. Seven of 10 product categories held or grew organic sales. Hair Care grew mid-single digits, Skin and personal care, personal health care, home care, and oral care, were each up low single digits. Grooming and Fabric Care were each in line with a year ago, Baby care and feminine care were each down low singles, and family care was down approximately 10%, primarily due to the base period dynamics we described. As a side note, organic sales excluding Family Care were up 1% for the quarter. Seven of 10 regions grew organic sales, Focus markets were down 1%. Organic sales in North America were down 2%. Volume was down three points, including a roughly two-point headwind. From the base period trade inventory impacts I mentioned. Pricemix added a point of growth. European focused market organic sales were up 1%, Strong growth in France, Spain, and Italy largely offset by a softer period in Germany. Greater China organic sales grew 3% another quarter of growth in what remains a challenging consumer environment, Pampers and SK-II led the growth, each up mid-teens or more. Enterprise markets grew mid-single digits for the quarter, Latin America organic sales were up 8%, with solid growth across Mexico, Brazil, and the balance of smaller markets. In the region. Organic sales in the Europe enterprise market region were up 6% versus prior year, and the Asia Pacific, Middle East, Africa enterprise region grew 2%. Global Exhibit market share was down 20 basis points. 25 of our top 50 category country combinations held or grew share for the quarter. On the bottom line, core earnings per share were $1.88 in line with the prior year. On a currency-neutral basis, core EPS was 1.85 Core gross margin was down 50 basis points and operating margin was down 70 basis points versus prior year, Strong productivity improvement of 270 basis points with healthy reinvestment in innovation, and demand creation. Currency-neutral core operating margin was down 80 basis points. Adjusted free cash flow productivity was 88%, and we returned $4.8 billion of cash to shareholders this quarter, $2.5 billion in dividends and $2.3 billion in share repurchases. In summary, we've now completed what we fully expected will be the softest quarter of the fiscal year, We have strong innovation and productivity plans for the back half of the year, We continue to invest in creating superior propositions for our consumers and retail partners. With relevant innovation, powerful brand campaigns, across every touchpoint and continuously improving in-market execution across all channels and platforms. We are fully activated, It's working. So we move with confidence into half two of the fiscal year And with that, I'll turn it over to Shailesh. Shailesh Jejurikar: Thanks, Andre. Good morning, everyone. I want to start by underscoring the point Andre just made. We are confident the interventions and investments we are making now will improve our near-term performance. Strong innovation supported by sharper, consumer communication and retail execution. We are already seeing strong results in parts of the business that have made these near-term interventions. Greater China Baby Care was one of the first categories to make step change and continues to lead growth of the premium and super-premium segments of the market behind consumer insight-driven innovation, and brand communication. Chinese parents want only the best for their baby. Softness and comfort in addition to dryness. The China team created a product that delivers on this insight from first seeing and touching the packaging to feeling the diaper on their baby. They leveraged the Chinese history with silk, The shiny, soft yet strong, luxurious material has been a status symbol for more than two thousand years. Pampers Prestige is the only leading diaper brand that has real silky ingredients in the product. Delivering the ultimate experience of skin comfort and protection. The shiny soft feel package conveys superiority at first touch. Reframing our superior premium line has driven Greater China Baby Care double-digit organic sales growth over the past eighteen months, and increased share nearly three points. More recently, our fabric enhancers team has disrupted a sleepy category through deep consumer understanding. Mexican consumers describe the gold standard smell of clean as rich, tasty, fruity, and floral. Like the scents from shampoos. Downy Intense leverages our internal perfume innovation expertise to create the new high-intensity perfume. The packaging highlights the intensity of fragrance blooming on the bottle like a flower, Brand communication drives awareness of an experience of twenty-four seven smelling, like freshly washed hair. In-store execution of impactful displays with stopping power is increasing trial. These deep consumer insights driving innovation and executed with shopper brand communication and retail execution as spurred Mexico fabric enhancer category growth, and led Downey to double-digit organic sales growth and over two points for value share growth. Other examples where we've accelerated results include the Brazil hair care business, U. S. Old Spice and US liquid laundry detergents businesses. Most of these interventions are starting now in The US The biggest most impactful part of the business. We'll go deeper on these at the CAGNY conference next month. While we work to improve our near-term results, we've also begun a longer-term reinvention of The Procter & Gamble Company. Think of this as the next important phase of constructive disruption that will create and extend our competitive advantages in each element of our strategy. We remain fully committed to the integrated growth strategy that has enabled us to deliver significant growth and value creation over the better part of the past decade and it will in the future. A portfolio of daily use products in categories where performance drives brand choice. In these categories, The Procter & Gamble Company is uniquely positioned to deliver irresistible superiority across product, package, communication, retail execution, and value. We will do this to drive market growth and create value for The Procter & Gamble Company and our retail partners. We will double down on productivity with multiyear visibility to fund capabilities, innovation, and demand creation and to mitigate cost headwinds while delivering financial results at the levels you and we expect. Constructive disruption to stay ahead of and to create emerging trends and opportunities in our fast-changing industry, We will disrupt ourselves. At the core of it all is our organization. Fully engaged, enabled, and excited to serve consumers and win in the marketplace. These strategies, taken alone, are just words that any company could say. The words alone have become a point of parity. The Procter & Gamble Company's point of difference, our competitive advantage, comes from outstanding integrated execution of these strategies across all activity systems in the company and from anticipating what is needed next. We've executed the strategy well for many years. Now we see the landscape around us changing faster than it's ever been in recent memory. Neither we nor our industry in aggregate have adapted as fast as needed. This shows in the growth trends of our categories. Consumer media preferences and information collection are increasingly fragmented with new media platforms, including social media and retail media. Inflation across food, energy, health care, and many other areas of spending has taken a toll on consumers, and how they assess value. This will continue to evolve. The retail landscape is changing. More concentration, but also brand proliferation. Retailers are becoming media platforms. And media platforms are becoming retailers. In summary, the consumer path to purchase is changing every day, is nonlinear, and littered with millions of possible distractions. We expect an even more intense pace of change in the next three to five years. We will adjust to and leap ahead of these disruptions to invent CPG company of the future. The way to break through consistently is to build the strongest brands in the industry. The Procter & Gamble Company has the capabilities and unique opportunity to redefine the brand-building framework to deliver consumer-relevant superiority every day every week, every month, putting the consumer at the center of everything we do. Leading the consumer-relevant brand building and superiority at this space can and will only be delivered by leveraging superior data, superior technology, and superior capabilities to create and extend competitive advantage with consumers, and with retail partners. We define our strengths and opportunity here across three areas. First, we know how to build brands rooted in deep connections with consumers and our industry-leading innovation capability. We have an enormous wealth of consumer data and understanding and we receive a continuous flow of new data every day. Our teams connect with consumers across more touchpoints than anyone in our industry. Product research, shopper research, connected homes, ratings and reviews, social media posts, brand fan websites, and many more. We mine for insights that lead to new product innovation, brand ideas, performance claims, marketing campaigns. Now we are building the consumer connectivity the integrated data platforms, and the technologies that will enhance our team's ability to do this work better faster, and even more consumer-centric than ever before. We have a unique set of innovation capabilities in our industry. Substrate technologies, formulaic chemistry, devices, and now biology. We have years of experience integrating these capabilities to launch new platform technologies and innovations and we see many more ways to bring combinations of these technologies to life in new consumer products. Tide e Tide Evo is just one current example. Technologies, like AI-enabled molecular discovery will enable faster, and more powerful integration of innovation capabilities for faster growth. The second and related opportunity is to create a deeper, holistic connection with consumers to build brand relationships with them in the new media reality. Media fragmentation and emergence of new platforms creates an opportunity for brand builders who can best integrate across touchpoints. AI and Gen AI capability help our teams discover consumer-relevant insights at every step of the consumer path to purchase, grounded in a unifying brand idea. We are creating the individual touchpoint experiences for each consumer at a time. These ideas are activated in claims, demonstrations, visuals that communicate the performance and value of the brand across connected and broadcast TV, online video, social media, e-commerce sites, and in stores. Deep insights translated into a compelling brand idea repeated wherever consumers engage, making the brand easy to remember, reinforcing superior performance, that is worth it for the price paid. The third opportunity is integration with retail partners across the full supply chain and merchandising activity system. Again, the consumer understanding and brand-building capabilities we have from initial brand impulse to purchase transaction to in-home consumption are valuable assets. Integrating these with each retailer's category strategy and business model will enable our brands to create value across all retail formats. This includes activation of our brands in retail media, to convey our superiority and value messages close to the point of consumer purchase decision. Our supply chain capability is already a leader in the industry. Supply Chain 3.0 has driven a more complete system connection from purchase signal back through inventory systems to our production planning and material ordering to ensure consumers find the product they want each time they shop. We are well on our way in this journey across capabilities, data, and technology. We are freeing up capacity and capabilities with the organization redesign we announced, as part of the restructuring in June. We have built a structured data lake stock with petabytes of relevant data. We have built data platforms, AI capabilities, programmatic shelf tools, and media creation and evaluation systems. We have supply chain platforms that can run autonomously reacting to retail demand signals, consumer innovation needs, or productivity opportunities faster than ever before. The next step is to connect the dots. To integrate the pieces from identifying consumer friction point to product idea, to product design, to supply, the creative concept, to purchase transaction, to usage in-home, to post-use evaluation. We will close the loop, and we believe this will create a different s curve for our future growth and value creation centered around our consumer. We are doing many things right in how we are innovating, operating, and building brands today. And I'm confident in the near-term progress we are seeing. We know the opportunities ahead of us are even bigger and we will capture them with conviction and discipline. It took years to build the underlying platforms and capabilities and it will take some time to fully integrate and activate these assets across the company. We know what we need to do and we are excited by the opportunities ahead. In summary, we are confident in the short-term delivery and excited about the mid to long term as we leverage our strengths and unique capabilities to set us apart from the industry. We are inventing the CPG company of the future. We'll expand on these thoughts with some examples at CAGNY, and even more as we get to Investor Day later this year. With that, I'll hand it over to Andre to cover the guidance update. Andre Schulten: Thank you, Shailesh. It's been a challenging start to the fiscal year. With softer consumer markets, aggressive competition a dynamic geopolitical landscape. We expect stronger results in the second half which enables us to maintain fiscal year 2026 guidance ranges across organic sales core EPS and adjusted free cash flow productivity. The growth rates embedded in our near-term guidance should return us to the lower half of our long-term growth algorithm as we exit fiscal twenty-six. And head into fiscal 'twenty-seven. For fiscal 'twenty-six, we continue to expect organic sales growth of in line to plus 4%. Global market growth for our portfolio footprint is around 2%, on a value basis, at the center of our guidance range. We're seeing progress in most regions, and we expect stronger growth in The U. S. As interventions take hold. As a reminder, this guidance includes 30 to 50 basis points of headwind from product and market exits, that are part of our restructuring work. Our bottom line outlook is for core EPS growth of in line to plus 4% versus prior year. This equates to a range of €6.83 to $7.09 per share. This guidance includes commodity costs roughly in line with the prior year. And a foreign exchange tailwind of approximately $200 million after tax, Taken together, no change versus prior guidance. Our fiscal 'twenty-six outlook continues to expect approximately $500 million before tax and higher costs from tariffs. Below the operating line, we continue to expect modestly higher interest expense versus last fiscal year. And a core effective tax rate in the range of 20% to 21%, for fiscal 'twenty-six, combined a $250 million after-tax headwind to earnings growth. We continue to forecast adjusted free cash flow productivity in the range of 85% to 90% for the year, and this includes an increase in capital spending as we add capacity in several categories that we incur the cash costs from the restructuring work. Expect to pay around $10 billion in dividends and to repurchase approximately $5 billion in common stock. Combined a plan to return roughly $15 billion of cash to shareholders in fiscal 'twenty-six, This outlook is based on current market growth rate estimates, commodity prices and foreign exchange rates, significant additional currency weakness, commodity or other cost increases, geopolitical disruption, major supply chain disruptions or store closures are not anticipated within the guidance ranges. With that, I'll hand it back to Shailesh for a few closing thoughts. Shailesh Jejurikar: We continue to believe the best path to sustainable, balanced growth is to double down on the strategy. Stronger integrated execution, to delight consumers with superior products at a superior value. Challenging markets like the ones we compete in today are an opportunity for The Procter & Gamble Company to step out from the back and lead. We're focused on leveraging the industry's best insights assets, capabilities, and people and you expect. to return to the levels of growth and market leadership that we, With that, we'll be happy to take your questions. Operator: If your question has been answered or you would like to withdraw your question, press star followed by 2. Your first question comes from the line of Lauren Lieberman of Barclays. Please go ahead. Lauren Lieberman: Great. Thanks so much. Good morning. So two kind of clear themes in the remarks that I wanted to ask about. So Andre, first, kind of what gives you confidence in the near-term acceleration that you mentioned a couple of times? And to what degree is that about kind of comparisons and base period dynamic versus, like, you know, real fundamental improvement and acceleration. And then, Shailesh, I know we'll get a lot more from you. At CAGNY. But what gets you excited about this longer-term, quote, reinvention of The Procter & Gamble Company? It was a notable choice of words. In the press release and then also in the prepared remarks. Thanks. Andre Schulten: Good morning, Lauren. Thanks for the questions. So let me start with half two acceleration. I think the first positive element of quarter two results is the strength of the business outside of The U. S. If you look at Latin America, 8% growth Europe in aggregate growing 3%. China growing 3% on top of 5% growth last quarter Asia, Middle East, Africa is up 2%. And if you exclude the restructuring exits, it'll be up 4%. So there's real underlying acceleration in the business outside of The US, that is grounded in interventions that we've made in terms of innovation, in terms of commercial strategies, and in terms of doubling down on the precision and quality of execution in those markets. With Latin America really being ahead of the game here. And that's proof for us that the core strategies we're implementing, I think, are the results that we want to see. The US, underlying results, we believe will improve because we don't have the base period headwinds that we saw in quarter two. As you point out, I think that's part of the acceleration we expect in half two versus quarter two, not having inventory headwinds to the degree that we saw in quarter two. But the main element here, I think, is the fundamental execution of the same interventions we made outside of The US earlier. If you recall, The US slowdown was really a little bit delayed versus the balance of the markets. So we started in the rest of the world earlier with the innovation, commercial interventions, and execution. That same playbook is being executed in The US. Early indications where we have done this, for example, the Tide boosted launch, that is now in full distribution as of December, We're seeing results that are giving us confidence The innovation we're launching on Olay, just now on the jars with a new campaign and the launch of treatments at the same time with a new architecture, gives us confidence. The innovation we have on baby care first wave executed now, second wave coming later, TideEVO Coming In The Back Half Of The Year, So There's A Wealth Of Innovation We're Launching. We've Clearly Identified With Our North America leadership the opportunity in sharper execution, across all retail channels, And the team is committed and is turning that into execution changes And then the simple opportunity to leverage the strength of our brands by staying fully invested across the second half in media with even better execution. So all of those elements that we executed outside The U. S. That are showing progress, we feel will work in The US and if we don't see any one-timers anymore in terms of base period headwinds, that will translate into stronger growth. And our objective clearly is to leave the year with share growth in The U. S. Felix, you take the second Yes, I will. Thanks, Lauren. So first, what excites me is plenty of growth opportunities. We see that everywhere. But it's not gonna happen on its own. It will require us to create our own tailwinds Be it playing in a growth segment and driving it like personal care or playing in a segment which wasn't growing like best with Zevo and then having that category grow high singles. We see growth or you take China baby care, another example, where you take an put the odds of growth with the lowest birth rates and all of that and we find a way to grow there. So that's one thing that excites me. The second one is a unique once-in-a-generation opportunity to leverage the shifts in the landscape and our unique strengths and capabilities to set ourselves apart. The media landscape is changing. The retailer landscape is changing. There is a tremendous amount of technology both from a point of what is applicable using AI enabling a lot of other things, but even fundamentally our own product and packaging technologies. And then consumer preference and demographics which are evolving. Then you take those and take our strengths and capabilities brands with large consumer base, If you have a large user base and you're really delivering amazing products you probably have the biggest fan club already right off. The bat. Consumer understanding and consumer data. We have so much data that we have put in. Can get an answer even before getting started. And that flow just continues, and we are further strengthening that. Take the media spend leverage and take the different places we could be using it. That is another huge opportunity. Our R&D spending and capability across multiple areas of technology from formulaic chemistry, sub devices, biology, That just enables us to innovate much more broadly. Shailesh Jejurikar: Product. Another thing to be able to communicate it to consumer. Bring it into packaging, bring it to life with user-generated content. So it's the ability to bring all of that together And the technology platforms and applications we've been building and Andre talked a bit about this, we are I would say we have been building a lot and I would say the future is here. It's just a little uneven. So our job is to integrate and bring it all together. Operator: Your next question will come from the line of Steve Powers with Deutsche Bank. Please go ahead. Steve Powers: Great. Thank you very much, and good morning. I'm gonna ask a question that kinda follows the same structure as Lauren's question. So the first one, on the second half, improvements, if we think about things by category segment versus by geography, I guess, maybe a little bit more detail on where you expect progress and sequential acceleration to manifest most clearly. It sounds like laundry and baby and perhaps skincare what you said, Andre, but maybe just you could elaborate a bit more from that perspective. And then Shailesh, you know, Andre Schulten: You take the China Baby Care. It's one thing to get the insight. Another thing to find a way to put silk in the Steve Powers: If you think about all those different pieces of operational enhancement and reinvention initiatives, How do you think about the path and timeline from here for the company to put all of them together and create those own tailwinds and win in the marketplace you know, across the portfolio consistency? How long does that take in your mind? Morning, Steve. If I look across the businesses, the innovation interventions, the commercial interventions, the execution focus is consistently applied across every part of the portfolio. I would tell you the base period effects are probably a strong help when you look at family care baby care, and even fem care, They were most heavily impacted in the first half of the year. So Family Care, for example, will see strong growth in January, even turning into share growth now. And we expect similar dynamics to happen across Baby and Fem. Baby at a global level is actually growing share, so has returned to share growth in the most recent reading. So the momentum is there. We continue to work on the mid-tier proposition You recall we had innovated on the top tier. That continues to work well. Swaddlers, cruisers three sixty. We've made the innovation interventions on Luvs a year ago. That's working. On Baby Dry, we have a two-phased approach. Phase one is executed. Phase two is coming later, So that's still work to be done. On laundry, fabric enhancers, we have very strong innovation, tight boost that I mentioned before, the biggest laundry liquid upgrade in twenty years. For consumers, and that is taking hold and working. And we're preparing for the TideEVO launch. We have strong innovation across fabric enhancers as well. And as you know, that's still a huge opportunity in terms of household penetration So communication effectiveness and copy quality is improving. In beauty in aggregate, beauty is growing 4%. And we have an opportunity to strengthen growth in skincare in The US. Making strong progress on SK-II, outside of The US, on Olay Outside Of The US, And I think the new launch of Olay that is just coming out with strong retailer support, I think, will accelerate that business. Personal Care has momentum and will continue momentum in The U. S. And globally. So I can continue to go down the list, but think I've given you enough depth to say this is really across the portfolio. It's the same idea, double down on the consumer. Double down on the execution. A double down on the quality of the brand campaign, And I think that's where, you know, Shailesh is putting his focus, if I can speak for him. He's really doubling down in every review on the quality of the brand campaign, the quality of the architecture thinking. And it's stimulating thought. It's stimulating quality of execution. And I think that gives us confidence from a geographic standpoint as we talked earlier to Lauren's question, but also from a category standpoint. Shailesh Jejurikar: Well, thanks, Andre. And I'll just bridge Steve from what Andre said what I'm gonna say. But some of it will be sequential just simply because in US, also, when we make the interventions, we are extremely deliberate about making sure those interventions also drive category growth. So that's also why some of this has to happen with big innovations. But switching to your question. So I think a lot of the way to think about the future is we have, in many cases, already built platforms. Take the core data lake. That I talked about earlier. I mean, that did not happen overnight, cannot happen overnight, requires data capabilities, requires partnerships, but also importantly requires internal cultural change. For people to work the data and systems in a certain way is not a change that you can just do overnight. Even if you have the technology solution, very often the culture chain needs to go along with it. And so a lot of that work has happened or is happening. The timeline, if you asked as you specifically did ask, is I think by the time we really get the future evenly distributed, I think we're talking twelve to eighteen months. But it is not one which is a line of demarcation. So you will see parts of the business and certain businesses better equipped to take on all aspects of the transformation So some businesses may be ahead of others. Some regions may get ahead of others. But the simple answer to your question is really, I think, to get the future evenly distributed will be twelve to eighteen months. Operator: The next question will come from the line of Chris Carey with Wells Fargo. Please go ahead. Chris Carey: Hi, everyone. I wanted to ask about investment levels. The Procter & Gamble Company has recently announced a restructuring program and you're going through some initiatives today, new media platforms. Supply chain integration with an evolving retail landscape, Obviously, there's an expectation for improvement. In sales growth, rebalancing of this I guess, top line and move toward algorithm over time. Can you give us a sense of the sort of cost of this progress, I suppose? And kind of the balance between the restructuring and some of the savings that that's going to allow for you relative to what you feel like is going to be needed You know, potentially, you know, especially if you don't, you know, see that that acceleration that you're gonna be looking for you know, in the coming months. If you if you really wanna stimulate top line for this business over the next twelve to eighteen months? Thanks so much. Andre Schulten: Hey, Chris. Let me take a crack at this. The first part of the answer is many of the investments have been made over the last decade. If you think about the amount of money it takes to build a consistent global ERP platform, the data lake, the data governance structure, data engineering. All of that has been done. So that was part of the results that we that we delivered over the past, I would say, five to ten years. The investment to activate the technology specifically around the innovation capabilities, the media capabilities, won't be significant. It's an investment in scaling, but the underlying technology, the underlying data, that heavy investment is already done. So in that sense, I don't expect major capital or expense investments. On the supply chain side, you see us build capacity. And as we build capacity, that capacity is built in a way that it leverages automation. Digitization, both on the manufacturing side and on the warehouse side, So the elevated investment level in terms of capital is really related to building capacity building capacity in a different way, but not fundamentally more expensive So I don't expect, again, on the capital side, a significant shift. The restructuring we have announced in June, the two-year program, I think, will take us through the majority of the org changes and portfolio changes that we need to make. From there on out, if this works the way we want to, it will basically allow us to grow without incremental investments in organization or people. If you think about it, the objective is to grow productivity sales per head disproportionately once these capabilities are implemented. But we don't think it requires another wave of significant restructuring beyond what we typically have as part of our core earnings. So I wouldn't look at a cliff of investment that comes with this. The second part of your question on return to algorithm, I would say let us get through the next two quarters. And focus on acceleration. And then we'll talk about where we see the next year and how close algorithm we come once we have that reality under our belt. Operator: The next question will come from Dara Mohsenian of Morgan Stanley. Please go ahead. Dara Mohsenian: Hey. Good morning. So, Shailesh, I just want to dial down a bit more into The US market. There's always an opportunity under a new CEO to refocus the organization and tweak areas of emphasis Obviously, there's broad changes in the retail environment, as you mentioned, AI technology, consumer landscape, etcetera, etcetera. And, also, we're coming off a very difficult category growth environment in The US in calendar '25. So just as you look going forward, what are the most important priorities for the organization in terms of driving better execution, reaccelerating that organic sales growth? And specifically The Procter & Gamble Company's part of driving category growth. And part of the question is I'd like to better understand what's changing in terms of areas of emphasis to the strategy plans versus more where you're doubling down on execution and existing plans? Shailesh Jejurikar: Sure. Thanks, Dara. Few areas. So I think as I said, I think if we get the elements of a plan right, I think there is an opportunity to grow the market. So I think that is doable. What are some of the changes, as Andre talked about, the interventions short to midterm that we're looking at and which also bleed into the long term. So it isn't just one separate short and long-term intervention. One is the media landscape has changed very dramatically over the last few years. I think, probably driven somewhat by COVID habits, a bunch of other things. The way people consume media and content has changed dramatically. Adjusting our brand-building plans to fully reflect that change and leverage it is the first. Big intervention we are focused on as we review plans including in The US. The second one linked to the retail landscape, there are a couple. But the first one is linked to when you see which channels are growing where the growth is coming, We need to adjust the kind of innovation we do. The way we are calling it is stronger core, bigger more. Because by definition, what we are finding is just given how challenging it is to get awareness, how important it is for the big items to be there, For instance, even on e-commerce where you can list everything. It's really the first screen or two that matters. And so having the item which has the velocity is extremely important. And so the way to think about it is a stronger core, for example, is the Tide Liquid relaunch. You have an amazing user base You give them a delightful product. They continue using it, use more of it. Attract other people to come use it as well. The bigger more, a good example is the launch of something like TideEVO, which is transformational. So you are going to get consumer attention and engagement. So we're changing the innovation to reflect that both from a point of view of how the media is being consumed, but also how the retail landscape is playing out. The third area of change is, of course, very deliberate on consumer value. Particularly in a market like the US, a lot of it is about strengthening our proposition Again, Tide is a great example of it, but we are gonna have that pretty much across every category where we significantly improve the value by significantly improving the product performance. So that the consumer notices it and feeds the value. So one of the areas that we're looking at across categories is significant strengthening of the propositions and in many of these cases, that do not come with the change in price. So we will be significantly strengthening value. So if I were to just summarize what I just said, it would be adjust to the new media landscape with how we do our brand campaigns. Adjust how we innovate with much more emphasis on a strong core and a bigger mold, And then ensure we're delivering really good consumer value. Operator: The next question will come from Robert Ottenstein of Evercore ISI. Please go ahead. Robert Ottenstein: Great. Thank you very much. And I think you've kinda hinted at this. But let's just talk about The US. And Amazon. You know, our data is showing that it's driving a disproportionate amount of the growth in your categories depending on category anywhere from 60 to 80% or so. You know, how specifically is that impacting your media efficiency and competitive dynamics against smaller brands what do you need to do differently? And perhaps you know, do you have any particular learnings from China that are relevant here? Thank you. Andre Schulten: Yeah. Can I do one? Yeah. I can start. Hey, Robert. A couple of points that I think Shailesh hinted towards I think having the core brand as strong as possible by improving the performance, improving the claims, the e-content, all of that, I think, is the best and most urgent thing to do across the entire portfolio. So when it shows up on the landing page, it shows up as strong as possible. I think that's number one. I think there's an opportunity, specifically if you look at online businesses, The willingness of consumers to go into higher-priced items is still very, very strongly developed. You think about categories like hair care, if you think about categories like skincare, where small brands tend to play is in the upper end of the spectrum from a price per usage component, I think that's an opportunity for us to innovate. Which is you know, stronger core, and a bigger more. And the more, especially online, I think can be premium priced that's where you see innovation. Innovation happening. And in general, the last thing I'll leave you with is taking smaller brands and looking at some of the ideas that these creators are bringing, I think, is good inspiration. So looking at some of these brands and saying, that could be an interesting idea maybe on some of our core business, or it could be an interesting idea to replicate as a line extension There's nothing unique if you think about the ability that the ecosystem of small brands can bring. Not technology-wise, certainly not from a marketing scale perspective, certainly not from a supply chain perspective, but the creative stage is something interesting for us to look at. Shailesh Jejurikar: I'll just add a couple of points, Andre, on this. To what you said, which is firstly, at a broad strategic priority level, we are very, very deliberate about ensuring we win in the fast-growing segments, which may be channels or segments of a market. What is exciting to the point you made, Robert, about the e-commerce growth at a variety of retailers and variety of countries is very often if we can channel that right, it can dramatically grow the market size and category. And if you want to take a stark example and move away from The US for a second, we go to India where our portfolio is slightly different and has been evolving differently. E-commerce is growing probably at 10 times the pace almost of offline. And our share is about 1.8 x. Of our offline business. So we are very deliberate about that, whether it's The US or India or any other market to make sure that happens. The drivers, as Andrew pointed out, of winning there need certain things, which we are making sure we have across the board, which includes content, which includes the item specificity, and making sure those are strong. And growing. And playing with the right portfolio. So those all become very critical elements, whether it's Amazon in US or any other ecom player in The US or outside Operator: The next question will come from the line of Peter Galbo with Bank of America. Please go ahead. Peter Galbo: Hey, guys. Good morning. Thanks for taking the question. And I'm now happy to be contributing very much to the baby care comps in the Galbo household. So I wanted to ask just regarding, Andre, your comments around you know, returning to kinda the lower half of algorithm in the back half on the near term, maybe a bit of clarification there. I think one point in the prepared remarks, talked about your category is growing at maybe two Then there was another comment about if we if we took out, you know, the the the lap, you would have seen organic sales a breeze. So just maybe you can help clarify a bit on what you were trying to say with that comment as I've I've gotten some inbound from folks. On that. Andre Schulten: Hey, Peter. Glad to welcome you to the 2% in terms of terms of value. Enterprise markets are growing at about mid-single digits. China is still negative by about one point. Europe, flat in volume about 1% in value. And the most recent reading in The US, all outlet read, so our data, would indicate about 2% one to 2% of value growth. If you look specifically at the O And D Quarter, They Are There Might Be A Point Of There Is A Point Of Inventory Within Those Numbers. So You Want To Be Optimistic, You Could Say The US structurally could be growing at two to three points. But we have to see where that goes. From our point of view is the actual results, we've delivered 3% growth outside of The US. So that's roughly in line with market growth outside of The US. And we have delivered minus 2% in The US, which is below the market, And a good part of that is the inventory effects. There is a component of reduced share. So I don't wanna gloss over the fact that we have work to do to recover share, Partially, that's already in progress. I talked about family care. We're making progress on laundry. But the recovery in the second half will include both the base period effects moving out of the market and us recovering share So our objective is really to leave the fiscal year with share momentum out in The U. S. And at a global level. Operator: The next question will come from Kevin Grundy of BNP Paribas. Please go ahead. Kevin Grundy: Great. Thanks. Good morning, everyone. Shailesh, I wanted to take a step back and ask for your assessment overall. On the portfolio from a strategy perspective. So it's been over a decade since The Procter & Gamble Company completed its portfolio review. Success as you know the income right away, but ultimately did. And set the company on a very strong path for growth. Now as we talked about on this call, the company finds itself in more of a transitional sort of phase of a reinvention, if you will, as growth has slowed. With that as context, I'd like your view here on whether you are generally pleased with the current portfolio Is The Procter & Gamble Company still in the right segments with in big total addressable markets? Attractive returns on capital and stronger growth? Or do you see it possible certain businesses may make less sense today in The Procter & Gamble Company's portfolio than they may have in years past. So, your thoughts there would be appreciated. Thank you. Shailesh Jejurikar: Thanks, Evan. I split it into a few parts. So first is, I think we are clear that we play in daily use categories where performance matters. So I think we feel very good about that choice. We feel very good about that choice because it's extremely well integrated with the total strategy That's where superiority becomes critical. Whole model works well when we are in categories where daily use categories where performance matters. So I think that is one part of it. Second part of it is what we call the day one loop. We were starting our company today, we would look at our portfolio and say, okay. Are we in the right places? That has been really the genesis or driver of the restructuring that we talked about about six months back. Where we said we need to get out of certain parts of the business because simply them being a drag or we're not where we saw future growth. So there's another part of it, which is just disciplined look, continuous review of which are the right segments, and are we playing adequately in higher growth segments or not. There's a third element of it, which is when we look at categories, are we playing in the right segments? And something Andre just talked about, which is if you look at ecom, you see which category, what segments are growing, and are we present enough in some of those. If you look at social commerce, in some categories and see are we well represented in all segments, And we actually find a lot of opportunity at some of the higher price points in some of the categories in things like social commerce. So that's another aspect of the portfolio that we continue to strengthen. And the final point I would make is we continue to look at where we can build greater strength, and we've always talked about the fact that health and beauty are two areas where we find we have still opportunity to build a stronger presence, and we continue to look at opportunities which come our way there. Operator: The next question will come from the line of Peter Grom with UBS. Please go ahead. Peter Grom: Yes. Thank you, operator, and good morning, everyone. So I guess I just wanted to follow-up on The U. S. And I guess it sounds you sound confident in your ability to see performance improve But I I guess I was trying to just pin down what you're expecting in terms of category growth for the back half of the year. And I wasn't sure in your response to Peter's question around 1% to 2% growth, whether that's kind of the right runway we should expect moving forward or whether the guidance expects to get back to that 2% to 3%. So maybe if you could just elaborate on that, that would be helpful. And then I guess just related, you know, at CAGNY last year, know, there's a lot of discussion around inventory destocking. So just any thoughts or comments on what investors should expect as we anniversary those impacts? Thanks. Andre Schulten: Hey, Peter. Yeah. Thanks for the push on clarifying US category growth. Our base expectation is 2% category growth in the back half. That's what we know. And that's what we're planning on. From an inventory standpoint, hard to predict The only thing I'll leave you with is I would not expect any significant inventory built. In the second half. That's not part of our plan. We expect some level of inventory efficiency to be driven across retailers like they always do. Some of our retail partners are finishing up supply chain interventions, and that will probably lead to some efficiency in terms of inventory levels. So I'm I would tell you a slight headwind from inventory is probably adequate to assume. On a market base that has about 2% of value growth. Operator: The next question will come from Filippo Falorni of Citi. Please go ahead. Filippo Falorni: Hi. Good morning, everyone. I wanted shift maybe to margins. For the second half of the year, is it the right expectation to think that we should see an improving margin trajectory as well considering the assumed improvement that you're embedded in The US market, your highest margin business. And given the commodity outlook looks a little bit more favorable in your guidance, And then below the gross margin line, Shailesh, you mentioned a lot about the interventions that you planning, including The US business. Can you help us quantify where the sizing of those intervention, where would they show up, whether it's with more advertising, more R&D, more promotional investment. Any help, like, sizing and quantifying those impacts will be helpful. Thank you. Good morning, Filippo. Let me start Andre Schulten: At the risk of disappointing you I will not give you margin guidance for the back half. I think the margin will be an outcome and we will have to tactically maneuver to see where we want to invest for the strongest possible growth We focus on top line and we focus on EPS. And as you will have noticed, our guidance ranges on both are relatively wide. And they are wide because the outcomes will vary. There's still a lot of variability. And the most important variability to the margin line will be our conviction and need to invest. And so it's hard for me to give you a good indication of where that's gonna land because it's gonna be entirely driven by our ability and conviction to continue to invest in brands. Where that investment comes, I can start, Shailesh, and you jump in? Think it's mostly in the range of again, the innovation we're launching, and Shailesh talked about improving value by driving significant performance improvements on the core propositions, That will be an investment we're making. That's baked into our assumptions. And the second component is to communicate those investments effectively and consistently across the balance of the year. So the media side is an important part. I wouldn't expect a significant increase year over year. But consistent media spend across the second half. And the third one is trade-related spending to drive trial. Create display visibility, secondary placement in-store, Again, our path chosen is not heavy investment in promotion depth and price. We don't believe that's market constructive. But it will be to drive trial of those superior propositions So that's the third bucket. So product, media and communication, and in-store visibility and trial. Shailesh Jejurikar: No. I think you covered it. Only thing I would say is the ratios of that vary based on the category. So the mix of which one needs a little more on product, which one needs a little more on advertising or visibility will vary. So that's the only point I would add to what you said, Andrew. Operator: Our next question today will come from Bonnie Herzog of Goldman Sachs. Please go ahead. Bonnie Herzog: All right. Thank you. Good morning, everyone. Guess I had a question on your Grooming segment. Organic sales were flat in the quarter, which was a pretty big deceleration versus last quarter with volumes inflecting negative and then margins contracting nearly 300 bps. So could you provide a little more color I guess, on what drove the weakness on volumes? And if there are any other factors behind the margin contraction outside of volume deleverage And then maybe lastly, how should we think about this segment for the second in terms of whether it's innovation and whether the business can accelerate? Thank you. Andre Schulten: Good morning, Bonnie. Think you answered the first part of the question. I think the margin component and the bottom line component is an outcome of the top line. It's obviously a high-margin business. And so if the volume's slowing, that translates into the bottom line slowing, specifically since we don't curtail the investment in the business. Superiority investment across grooming is very important. The timing of the grooming business is heavily related to initiative timing. So year over year, the phasing of Braun initiative, female grooming, and male grooming initiatives is a driver in the quarterly profile that you see. On the second half, like other business, we expect modest acceleration in grooming. Related mostly to The US, And I think the biggest opportunity for our grooming business has continued activation of the portfolio in The U. S. And quality of execution in US stores, and that's what the team is entirely focused on. Shailesh Jejurikar: Just to add maybe a couple of points, Bonnie, to that. One is we see within grooming, a huge opportunity in continuing to drive Venus. That has upside in pretty much every region In many regions, that's growing in the tens and twenties percent growth. So we see a lot of upside on the female grooming side. We see a lot more on appliances as well. And then we are working on innovation, which will have which comes in the in calendar '26, which hope which should further drive category growth. And probably the last point I would make is in US, we are also looking at changing the way our shelves are in many of the retailers and significantly improving how grooming comes across as a shopping experience. Operator: Our next question will come from the line of Kaumil Gajrawala of Jefferies. Please go ahead. Kaumil Gajrawala: Hey, guys. Good morning. If we could talk a bit about usage and volumes, there's so many puts and takes on your quarter. But, know, to the extent that you're able to calculate what actual usage is in the households, has that sort of trended off as we got into the front half of this fiscal year? Is it about the same in the rest sort of within it is just noise? Andre Schulten: I think, Kaumil, it's that is still a huge opportunity in our categories. Usage volume growth is slow. To honestly flat if you look at the front half of the year. Even in the last quarter, both in The U. S. And in Europe. So reacceleration household penetration, reaccelerating user growth is a big part of what we're focusing on. And if you think about it, a lot of the growth in the past few years has been price-driven, right, as we came through the inflationary cycle, the supply chain crisis, all of our categories, And so I think the opportunity for us now is exactly what Shailesh described, It is to improve the value proposition for consumers by diligently constructing propositions that have a perfectly matching performance profile well communicated and executed, without raising the price so we can make the proposition attractive to more households, more consumers, more consistently. So the volume component will have to be a part of how we grow markets. As we talked about the second half, we believe this will take time. So we don't think this is an easy fix nor will it come quickly. So our growth trajectory that I just highlighted, the 2% value growth in The US, which is the assumption for half two, largely assumes that the volume component remains slow. Shailesh Jejurikar: Just add one point reinforcing, Andrew, what you said But as we get on the journey of growth, I think user growth will be one which we place a lot of emphasis on. As Andre said, between user, usage and price mix, I think last five years probably had a due to inflation, a bigger component of price mix. We think the future is gonna be a lot more about user growth as the foundation, and then that typically we get that, we also get the usage growth. Operator: The next question will come from the line of Andrea Teixeira with JPMorgan. Please go ahead. Andrea Teixeira: Thank you. Good morning, everyone. So I was hoping if you have a clear clarification and one question. On the clarification you just mentioned, Shailesh, and Andre, like you're assuming that your 2%, you know, category growth, but are you thinking you can stabilize or even perhaps have share gains with the interventions you were making? And within that, are still seeing some trade down within your branch from, let's say, parts to liquid? Or if that has stabilized. And my real question is on the productivity reinvestment. As you had a very strong productivity in the quarter. So are you thinking of like as you go in terms of reinvestments and all the media initiatives, innovation you've made, and perhaps by spec architecture for affordability. Should we expect that to be canceled out? Or perhaps, as you see this environment and the opportunity to lean into more of a value proposition? How are you thinking of, like, the balance between top line and bottom line? Andre Schulten: Thanks, Andrea. From a share perspective, it certainly is our objective to leave the year with share growth. Both in The US and in the rest of the world. But we also acknowledge that that is an outcome of how well we execute, the competitive environment, other in terms of geopolitical dimensions, consumer health, So that's why we still maintain the range And within the range, you know, if we end up in the mid to higher section, that will probably have an element of share growth If we end up in the lower section, it won't. But be assured, our team's energy is exactly that. We need to grow share, by growing more users, growing more households, and that's where all the innovation and the investment is focused. On the balance between productivity flow through top line and bottom line, I'll go back to what I said earlier, It depends on what we see happening. We will certainly on the side of more investment to drive more user growth drive household penetration in the short term, If we are convinced that we have the right innovation, if we are convinced that we have the right marketing program, the right commercial program, We will double down but we would be diligent in that assessment. So if we feel we've got the right program, we absolutely will continue to reinvest productivity. Operator: The next question will come from Olivia Tong of Raymond James. Please go ahead. Olivia Tong: Great. Thanks. Good morning. I want to talk a little bit about the margin with productivity savings about 70 basis points this quarter. You reinvested two twenty of that which I think highlights your you know, pricing productivity and reinvestment even as demand remains lower. So could you drill into that a little bit more in terms of what limitations there could be over the balance of the year on the price and productivity lever levers, particularly on price. Your implied second-half guidance assumes some fairly strong margin leverage but I want to understand those moving parts. And then in terms of the guidance range, you mentioned to in answer to another question that you can grow even without additional headcount, leveraging sales per employee. What's the risk that you might need to adjust those investment levels you know, as you think about delivering on EPS? Thanks. Andre Schulten: I'll give it a shot, Olivia, but you can certainly follow-up with the IR team to get you more detail. I think the margin productivity side, I feel very good about We will continue to deliver in the range that we've delivered on. Have visibility to the productivity components for the next two to three years. So I think and we have the effect of the restructuring program kicking in. So I feel good about our ability to continue to drive productivity. At the level we need to deliver investment and a reasonable EPS outcome. Again, I won't get into guidance for next year, but it's certainly our objective to make progress towards algorithm. Over the next few quarters. The extent of that progress will not depend on our ability to deliver productivity. I feel very confident about that. It will entirely deliver depend on our ability to stimulate top-line growth, in the market conditions we're facing. And the level of confidence and conviction we have to invest behind that growth in the market. So I'll leave it there. For the longer term, I'll tell you I am fairly convinced that Shailesh will jump in here. That with the restructuring program, the way we're approaching the organization design the way we're integrating technology into the way we work, and the way we want to decrease functional barriers we think that's a powerful path forward to continue to drive organizational effectiveness and honestly free up a ton of capacity of our teams from internal work to focus on what really matters, which is the consumer innovation and execution. Shailesh Jejurikar: I agree with everything, Andre. I would just add a couple of points. To frame what we are trying to do, which is productivity as fuel for growth. Growth as a fuel for EPS. So we really think productivity enables us to do what we need to to get the growth, which gives us balanced top and bottom line growth. So that is really the effort. So as you think of that, and that's really what Andrew was also saying is we're doing the productivity. We're very confident, by the way, in the productivity. But that finally is going success on that is getting us a growing top and bottom line. Operator: The next question will come from the line of Robert Moskow of TD Cowen. Please go ahead. Robert Moskow: You know, The Procter & Gamble Company probably does more than any CPG company to grow categories through innovation and improving performance That that's always been your mantra. But know, when you look at the data, as in terms of, like, the past twelve weeks or even the past year, the percent of products sold on promotion at The Procter & Gamble Company is substantially higher by about 200, 300 basis points. So I'm wondering, do you think this data, like, accurately represents what's what your approach is in market? Or because it would indicate that there is more need to move volume And or or is it inaccurately? Depicting what you're what you're trying to do to improve the volume? Thanks. Andre Schulten: Hey, Robert. I'll give you a two-part answer here. Good question. I think I've repeatedly said that I don't see a reason why the categories will not move back to pre-COVID levels of promotion, which are around 30%. That will happen. It's just a competitive dynamic, a retailer dynamic, a consumer dynamic. And it's happening sequentially over time. The promotion read you're getting is not wrong, but it only captures part of what the market reality is. It doesn't capture forward gift cards. It doesn't capture layered couponing. Which is a significant part of competitive promotion that we're seeing. You're right. Our promotion volume is increasing and probably will increase in the second half, as we execute the innovation part of creating trial for those innovations is to deliver promotion visibility. Not all of those promotions come with deep price discounting. In many cases, they don't. But they show up in the promotion line. So what I'll tell you is our objective is to grow categories. Have we done this consistently over the past twelve months? No. That's our when Shailesh talks about we need to grow users and we need to grow usage, That is the part of category growth that we're striving to drive. And part of that has to be to generate trial because if you don't have new users try superior propositions, you don't get repeat, and you don't get the growth. Shailesh Jejurikar: Thanks. I'll just add one thing to this, which is that as we strengthen our propositions it should strengthen our promotion elasticities as well. Which means we will be less impacted as our propositions get stronger. So that is always something we look for. So there's a balance between ensuring are building a future business, which is less dependent on promotions, but making sure we are not completely losing the plot on competitiveness. Operator: The next question will come from the line of Edward Lewis of Rothschild and Co. Redburn. Please go ahead. Edward Lewis: Yes. Thanks very much. I just Shailesh, wanted to touch on the regional mix of the business. Clearly, your elevated presence in The U. S. Has served you well of late. But as The U. S. Growth slows back to sort of, I guess, more normalized levels, we see continued growth in emerging markets, for example, what you're seeing in Latin America. Do you think about the regional mix of the business? And the advantages that you see the business as having are those regionally agnostic or can they be applied globally? Shailesh Jejurikar: Great question. Let me take a crack at it. So I would say our task always given our business size, and other things is first and foremost to get US growing faster. And I believe it is doable and we have plans to try and do it. That is really part of what we talk about when we say we want to create the future. But we don't we think there are tremendous opportunities on the outside The US, which we are very focused on. And what we have tried to do is get very deliberate about which markets have that potential and then really double down and making sure we are playing to the future there. So a lot of the portfolio choices we have made over the past six to nine months have really been to put us in a position that we are playing in winning segments. Even if I take Latin America, we made the choice to change our business model in Argentina A large part of that enabled us to much better focus on Mexico and Brazil, and we changed the organization structure in the rest of Latin America. Which then enabled us to get much more consumer focused And now we are seeing, as Andrew mentioned earlier, 9% growth in Brazil, That's not the pace the market is growing at. Double digit in Mexico, that's definitely not the pace the market is growing at. So talked about India. A bit earlier in a different context. But, again, playing to the future growth there, which is heavily e-com, mean, having spent a lot of my life there, it's staggering to see the pace of change over the last five years in that space. So very deliberate on the big markets outside The US on how we're going to get the growth. Of course, China still remains a big one. Has a slightly different profile of where it coming from, but still a lot of future opportunities. So we do believe many of these large markets, we are well positioned to play to where the future is going. Andre Schulten: And I would just say it's an end. We need to get The US growing, and we need to grow outside. And I think the good news is, maybe only one point to add, is the margin structure that John and then Shailesh have built in enterprise markets allows consistent investment because we have we can cover the cost of capacity, the cost of capital, So it's not dilutive. It funds itself, and that's the core idea behind expansion and growth in enterprise markets. Operator: Your final question will come from the line of Michael Lavery of Piper Sandler. Please go ahead. Michael Lavery: Good morning, and thanks for the question. Just wanted to come back to some of the share opportunities and how to think about it relative to value for the consumer You've you've talked about the importance of that, but also it sounds like no real price changes are under consideration. You've pointed out some of the premiumization some smaller brands are doing effectively and maybe delivering better benefits and value in that way. But you've also had, of course, some private label strength and share pressure. I guess how do we reconcile all of it? And maybe is it as simple as just a waiting game for the consumer health to improve, or is there more to do to move the needle on how the consumer sees value other than just sort of, you know, trading them up? Shailesh Jejurikar: Yeah. I no. Great question. I would say it's not one thing because a very critical part of delivering value is also having a portfolio. So Luvs plays an important role in baby care in that sense. Similarly, on laundry, we have a portfolio with Gain and Tide Simply, So across markets, we do build that portfolio to ensure we are playing at a variety of price points. And making our products accessible. But if I were to look at the largest opportunities to address growth through value, I would say bulk of them are really in strengthening propositions. And if I look at probably one of our largest core items, which would be tied Liquid, which is a huge, huge business. We're seeing real momentum as we've just significantly improved the product performance. So it's a combination to answer your question. And k. With that, it looks like we have no further So just thank you for joining us this morning, and look forward to seeing you at CAGNY next month. Have a great day. Andre Schulten: Thanks, everyone. Operator: That concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.
Operator: Good morning, and welcome to the Pinnacle Financial Partners fourth quarter 2025 earnings call. All participants will be in a listen-only mode. Should you need assistance, signal a conference specialist by pressing 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. We'd like to limit this call to approximately one hour. I'll now turn the call over to Jennifer Demba, senior director, investor relations. Please go ahead. Jennifer Demba: Thank you, and good morning. During today's call, we will reference the presentation and press release that are available within the Investor Relations section of our website pnfp.com. President and Chief Executive Officer Kevin Blair will discuss our newly combined company's future and outline our 2026 financial outlook. Chief Financial Officer, Jamie Gregory will review Pinnacle and Synovus' standalone fourth quarter 2025 results. Finally, Chairman Terry Turner will make some closing remarks. And then our team will be available to answer your questions. Our comments include forward-looking statements. These statements are subject to risks and uncertainties. And the actual results could vary materially. We list these factors that might cause results to differ materially in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements because of new information, early developments, otherwise. Except as may be required by law. During the call, we will reference non-GAAP financial measures related to the company's performance. You may see the reconciliation of these measures in the appendix to our presentation. And now, President and CEO Kevin Blair will open the call. Kevin Blair: Thank you, Jennifer. Good morning, and welcome to our fourth quarter 2025 earnings call. As Pinnacle Financial Partners enters its next chapter, we do so with the belief that true success comes from staying grounded in who we are, inspired by where we're headed, and united by a relentless commitment to outperformance. As we do so, we reaffirm our commitment to the investment community with renewed energy clarity, and confidence in the path ahead. Pinnacle's focus is producing strong above-peer revenue earnings per share, and tangible book value growth. Our strategies and plans for execution are clear. Are committed to delivering exceptional client service and industry-leading loyalty as verified by external sources such as Crystal Coalition Greenwich, and J. D. Power. At the same time, we aim to be the employer of choice in regional by fostering a uniquely collaborative empowered, and rewarding culture. These priorities enable us to attract and retain revenue producers at an outsized pace, fueling our continued growth. By pursuing these goals with passion and purpose across the entire franchise, we strive to continue to create exceptional value for our shareholders, and set the standard for growth and profitability in the industry. Our strong performance in 2025 demonstrates the focus of our teams during more volatile economic times in the midst of a pending merger. Legacy Pinnacle grew adjusted diluted earnings per share by 22% in 2025, while Legacy Synovus grew adjusted diluted earnings per share by 28%. The commitment and focus of both firms on creating a differentiated client experience resulted in Legacy Pinnacle's number one Net Promoter Score ranking in its footprint and Legacy Synovus' number three Net Promoter Score ranking in its footprint amongst top market share banks. These results underscore that our team is fully engaged, focused on our clients, and delivering meaningful value for our shareholders. We are a competitive team committed to sustaining top quartile growth profitability. The merger between Pinnacle and Synovus was completed on January 1, just one hundred and sixty days after announcement, demonstrating the strengths of both companies and our resolve to swift and effective integration. Over the past two quarters, both organizations have successfully completed key milestones. These achievements highlight our strategic focus and reinforce a solid foundation for continued growth and operational excellence. The team has hit the ground running in January, already executing across all elements of the proven Pinnacle operating model. For example, the firm has brought legacy Synovus team members into the money morning sales and service meeting series, an anchor of the pinnacle operating rhythm, led by chief banking officer Rob McCabe. This long-standing practice helps teams align around core priorities promotes cross-team collaboration, and establishes shared ambitions and goals around growth hiring, pipeline activities, and service expectations. We are thoughtfully combining the strengths of Synovus and Pinnacle building on similar legacies and shared values, and remaining true to what really sets us apart. Pinnacle's exceptional operating model is our foundation and the engine of our growth guiding us through every opportunity and challenge. We're not just building another big bank, We're scaling with a soul. And now, Jamie will review both Pinnacle and Synovus' standalone fourth quarter 2025 financial results. Jamie? Thank you, Kevin. Jamie Gregory: Even in the midst of a merger integration, both Pinnacle and Synovus continued to demonstrate strong financial performance over the past two quarters. Pinnacle reported fourth quarter adjusted EPS of $2.24 which was stable quarter over quarter and up 18% from the prior year. Net interest income increased 3% from the third quarter and 12% year over year. Balance sheet growth remained well above peers. Period end loans grew at a strong 3% from the prior quarter and 10% year over year, driven by recruiting. Particularly in our expansion geographic markets. Core deposit growth was also quite healthy at 3% quarter over quarter, and 10% year over year. The net interest margin increased one basis point to 3.27%. Meanwhile, adjusted noninterest revenue declined 6% from the third quarter but jumped 25% year over year. Year over year growth was largely as a result of higher service charges, wealth management revenue and income from BHG. As expected, BHG contributed $31,000,000 in fee revenue to Pinnacle. Adjusted noninterest expense was stable quarter over quarter, and up 13% year over year. Pinnacle's fourth quarter credit metrics remained healthy, and capital levels continue to build. Net charge offs were contained $27,000,000 or 28 basis points. 63% of which was from a single non-owner occupied CRE loan. The CET1 ratio ended the quarter at 10.88%. Meanwhile, Synovus reported strong fourth quarter adjusted diluted EPS of $1.45 which was stable quarter over quarter and increased 16% year over year. Results were highlighted by healthy loan core deposit, and noninterest revenue growth. Net interest income increased 2% quarter over quarter and 7% year over year. Period end loan growth was a healthy $872,000,000 or 2% from the prior quarter and 5% from the previous year. Driven by broad-based C and I lending. Core deposits grew a solid 895,000,000 or up 2% quarter over quarter. The net interest margin continued to expand, up four basis points sequentially to 3.45%. NIM was supported by various factors, including continued fixed rate asset repricing the funding cost benefits of the core deposit growth. Synovus also continued to generate healthy, consistent growth in adjusted non-interest revenue. Which grew 6% from the prior quarter and 16% year over year $144,000,000 The drivers were broad-based, and I would highlight $16,000,000 in capital markets fees, up 30% year over year. This performance highlights the team's focus on delivering for our clients while also focusing on the merger integration. Adjusted noninterest expense increased 2% from the third quarter and was up 5% year over year. The linked quarter increase included higher incentive payments and charitable donations. Credit metrics remained healthy. Net charge offs were $24,000,000 or 22 basis points in the fourth quarter. Our common equity Tier one ratio ended the year at an all-time high of 11.28% as we prepared for the merger closing. Also, we retired $200,000,000 of subordinated tier two notes in October before issuing $500,000,000 in December. Both Pinnacle and Synovus continue to be successful in hiring new team members in the fourth quarter, with 41 new revenue producers. This brings the total to $2.17 for both firms together and twenty twenty five. We continue our work to finalize the valuation marks on the Synovus book. Which we expect to be completed later in the first quarter. Our current estimated mark on the balance sheet is generally in line with the original merger expectations. We expect this valuation impact as well as other considerations to result in a CET1 ratio of approximately 10% at the end of the first quarter. Estimate includes the realization of $225,000,000 to $250,000,000 of first quarter merger related expense and excludes legacy Pinnacle equity acceleration costs, which are capital neutral. Since the transaction closed, we have undertaken a meaningful repositioning within the legacy Sonova securities portfolio. As part of that effort, we sold approximately $4,400,000,000 and purchased roughly $4,400,000,000 of new securities with an average yield of 4.7% and estimated duration of four point two five years. These transactions helped us support our level one HQLA position, reduce risk weighted assets, and also serve to eliminate approximately 98% of the PAA associated with the securities portfolio. I will now hand it back to Kevin to review our 2026 financial outlook. Kevin Blair: Thank you, Jamie. Pinnacle's proven revenue producer hiring model allows our balance sheet growth to be more resilient and sustainable regardless of economic growth, interest rate levels, and the like. Loan and core deposit growth in 2026 should be supported by revenue producers who have not yet completed the consolidation of their portfolio to us. We also expect to continue hiring revenue producers at an accelerated pace this year, especially as the former Synovus team embraces the rigors of the Pinnacle hiring process. Our goal is to 250 total revenue producers in 2026. As we look to our first year as a combined company, we expect our period end loans to grow to $91,000,000,000 to 93,000,000,000 or up 9% to 11% versus our combined loans at year end 2025. We expect 35% of this growth to come financial advisers who have been hired in the past three years as they build their book Another 35% to come from specialty verticals and the remainder to come from the legacy market growth. Our loan growth assumptions do not assume any change in line utilization rates or recent pay down or pay off levels. On the funding front, we expect total deposits to grow to $106,500,000,000 to $108,500,000,000 or up eight to 10% this year, driven by the previously mentioned recruiting, core commercial client growth, and momentum from our specialty deposit verticals that support our markets. Our adjusted revenue outlook is $5,000,000,000 to 05/2026, The net interest margin is estimated in the three forty five to three fifty five range, which assumes the immediate benefit of purchase accounting balance sheet marks and more near to medium term fixed rate asset repricing of the legacy Pinnacle loan portfolio. Those benefits are somewhat offset by an increase in balance sheet liquidity over the next several quarters and marginal headwinds from two twenty five basis point interest rate cuts as implied by the recent market expectations. We expect our initial balance sheet profile to be modestly asset sensitive, split between short rate and long rate exposures. We anticipate adjusted noninterest revenue of approximately $1,100,000,000 this year. Growth should be primarily attributable to continued execution in areas such as treasury management, capital markets, and wealth management, as well as a 125 to $135,000,000 in BHG investment income. Adjusted noninterest expense is expected to be 2,700,000,000.0 to $2,800,000,000 in 2026. We expect to realize 40% or $100,000,000 of our annualized merger related expense savings in 2026. Underlying expense growth should be driven by revenue producer hiring from the 2025 and continued hiring in 2026. Also, real estate expansion to support market growth as well as normal inflationary expenses. Excluding legacy Pinnacle equity acceleration costs, an estimated 450 to $500,000,000 of the $720,000,000 in nonrecurring merger related and LFI expense should be incurred this year versus $64,000,000 recognized in 2025. We continue to operate in a constructive credit environment We estimate that net charge offs should be in the range of 20 to 25 basis points for the year which is consistent with 2025 performance for the combined company. Moving to capital, we will target a common equity tier one ratio of 10.25 to 10.75%. Beginning in the first quarter, our quarterly common equity dividend will be $0.50 per share. Our priority on capital deployment remains client loan growth, The board recently authorized a $400,000,000 common share repurchase program that gives us flexibility to manage capital in multiple growth scenarios. Finally, we anticipate the tax rate should be approximately 20% to 21% in 2026. It is a privilege to lead this team at such a defining moment, with our above peer revenue trajectory and the growing benefits of merger related efficiencies, we expect strong earnings performance in 2026. I am more excited than ever about the road ahead. Together, we lay the foundation to build the best financial services firm in the country. We fully recognize that 2026 will bring its own challenges, especially as we prepare for conversion in the 2027. But we are more than ready for the task. Our momentum, unity, and shared ambition give me tremendous confidence in what we will achieve. And now I will turn it over to Terry for some closing remarks before we open the call for questions. Terry? Thanks, guys. Terry Turner: Me start here. As you listen to Kevin and Jamie, I hope you can see why I'm so fired up about what we've created with this merger. Next month will be twenty six years since we put our original founder group together to form a bank specifically to take advantage of the rapidly declining service levels at the large banks that dominated the Southeast at that time. All we had were some deeply held convictions about how you produce long term sustainable shareholder value. First of all, we intended to differentiate ourselves from the competitors based on distinctive service and effective advice. Of course, distinctive service and effective advice sounded like blah blah blah back then, and still does to many even today. I know as an investors, you've never had anybody say they intended to give poor service and bad advice, but truthfully, many do. According to Greenwich, with an 84% net promoter score, we've created the single best client engagement, not just in the Southeast, but in the country. And their data also suggest we've amassed the best relationship managers, the best treasury management capabilities, and the best credit processes in the Southeast. And that talent attraction model, which is proven to be the best in the Southeast, based both on the quantity of talent we've been able to attract and the quality of talent we've been able to attract goes forward in the combined firm under Kevin's leadership led by long term friend and partner Rob McCabe as the chief banking officer. Those proven credit processes that have provided best in class service from our client's perspective and such strong asset quality over decades, continue forward in the combined firm under Kevin's leadership led by Carissa Summerlin as chief credit officer going forward who was the chief credit officer for Legacy Pinnacle. Secondly, we intended not only to attract the best talent, but to excite and engage them in such a way so as to get their best effort. Their discretionary effort, which will always be better than the stereotypical scorecard management approach used by all of our peers. As a matter of employee engagement, Fortune Magazine ranks us as the third best financial services firm to work for in the country. Behind only American Express and Synchrony. Things like granting equity to every single employee so they feel like owners, and including every salary based employee in the annual cash incentive plan are critical to the reliability of our outsized growth that we produced for twenty five years. And, of course, all of that goes forward the combined firm under Kevin's leadership. Thirdly, one of our most important principles was alignment. Aligning shareholders with management and employees. I believe there's overwhelming evidence that shareholder returns are primarily correlated to only three metrics, revenue per share growth, earnings per share growth, and tangible book value accretion. And so at Legacy Pinnacle, all annual management and employee incentives were linked to revenue per share growth and earnings per share growth. Think about that. All 3,500 employees incented to grow revenue and earnings. Over our first twenty five years, we were the fastest revenue grower among banks greater than 10,000,000,000 in assets and the second compounder of earnings per share in the country. And of course, that same incentive methodology now aligns our almost 9,000 employees under Kevin's leadership. All around revenue and earnings growth going forward. And finally, we've always relied on the principle that expectations shape behavior. It wasn't just that we incented all our employees based on revenue and EPS growth rates. We always set our targets for revenue and EPS growth rates to be at least top quartile performance. Think about that. To have targeted top quartile revenue and EPS growth for twenty five years in a row, led to this extraordinary compounding of the metrics that matter most in terms of shareholder return, which again explains the fact that over our twenty five year history, we had the second highest total shareholder return of all the publicly traded banks in the country. And that same target setting methodology is continuing forward in the combined firm under Kevin's leadership. Frankly, we both have been asked if Kevin can run the Pinnacle model. I wanna make sure you understand that I know he can. He is my handpicked successor, and it's my expectation that executing this now proven model with his proven leadership capabilities will propel this firm to levels we would never have achieved on our own. Operator, we'll stop there and take questions. Operator: Certainly. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. In the interest of time, please limit yourself to one question and one follow-up. Your first question is coming from Ebrahim Poonawala from Bank of America. Your line is live. Ebrahim Poonawala: Hey. Good morning. Good morning. Guess maybe just starting at the top, Kevin and Terry, around with the module conversion systems conversion next year, Just talk to us two things. One, what can the combined bank not do today that it will be able to do a year from now post conversion? And secondly, as we think about the new banker hiring, new sort of client onboarding, how are you handling that in terms of are they coming on the new systems, old systems? Just color around all of that would be helpful. Thank you. Kevin Blair: Yeah. Ibrahim, this is Kevin. Obviously, as we move to conversion in '27, both companies will be operating on their existing legacy platforms. And so that doesn't encumber our ability to originate new business. It doesn't encumber our ability to be able to expand the share of wallet. We have been successful in both companies being able to use our existing system So there's nothing that's missing. What will change is that we'll move to an end state platform that takes the best best of both organizations. And so there will be capabilities that arise on both sides. When we move to the new platform, there'll be new capabilities, new functionality, new products that we'll be able to offer. So there's revenue synergies that come with that. In the interim, when we bring on, we we know which systems we are moving to when we have a client that's a more complex client, and we onboard them in '26, we're gonna onboard that client onto the end state platform and start to service that, relationship there. Versus having to do another conversion in '27. So the real challenge is you're just having to manage a workforce, a Salesforce that has two sets of products and two systems but it's not stopping our ability to grow the business. As it relates to hiring, again, same situation. As we bring on new team members, if it's in the legacy Pinnacle market, they would be onboarded onto the Pinnacle platform. If it's on a legacy Synovus market, they would, start to sell these Synovus products and use those systems. But again, we have lots of workarounds that we can leverage that it's not gonna create a bad client experience when we go to that, migration. The other thing I would just mention, Terry mentioned it in prepared remarks, the number one thing we're focused on is the Net Promoter Scores. And ensuring that our clients continue to receive that distinctive service and effective advice. And that all comes down to the people. So we can talk about the products and the technology, but the people are staying the same. And that's what builds the strong relationships. Ebrahim Poonawala: Got it. And I guess maybe just another follow-up on I think you mentioned the board approved a $400,000,000 buyback authorization. Give us a sense of when you think you would actually initiate buybacks? Is it more to do with if there's a pullback in the stock, you step in? Or should we expect some level of buybacks to resume starting as early as this quarter? Jamie Gregory: Ibrahim, it's Jamie. Great question. You know, first, first thing I would say is you know, we would love to be buying back stock at these prices. We think we think it's pretty attractive, but you know, as we look at capital ratios and look at, you know, our expectation is that we close the deal. And at 03:31, our CET one ratio is 10%. If you include AOCI, it's 9.8%. Looking at that ratio, we are fine with regards to internal stress tests. We're fine with how we expect CCAR or SCB or any of that to play out. We feel like we do have excess capital. From a headline number, we would screen low relative to category four peers. If you include AOCI at 9.8, we would screen higher than median compared to category four peers. But I kinda give that background as just the fundamental how we think about it. We do not want to screen, the lowest of of a peer group. We don't wanna be at the low end. So it's likely that we will accrete capital, for a time period. And just allow earnings to drop, to to our capital ratios as we go through early twenty twenty six. And then reassess. That's why we put that range of ten twenty five to ten seventy five out there. The one thing I will note is in the first quarter, you can see the capital waterfall The earnings impact of merger expenses, etcetera, will lead to you know, not a lot of capital accretion this quarter. So you should not expect to see share repurchases this quarter It's unlikely you would see them you know, in the second quarter. But then we will reassess as we get into later into the year. Ebrahim Poonawala: Helpful. Thank you both. Operator: Thank you. Your next question is coming from John Pancari from Evercore. Your line is live. John Pancari: Morning. I'm done. On the loan growth front, the loan growth projection implies a a nine or eleven percent range on a pro form a basis. Can you just kind of walk us through your degree of confidence in achieving this given the know, we're hearing the backdrop is getting a bit more competitive. There's a little bit of uncertainty around CapEx related demand. So I guess from a demand perspective as well as from a, underlying organic and the hiring perspective, can you help us just kinda walk through your confidence in achieving that target? Kevin Blair: You know, John, I it starts with, you know, not just talking qualitatively, but when you look at the fourth quarter for the pro form a company, we generated 10% loan growth already. And so to your point, our growth as we shared in the slide deck is gonna come from existing team members that are already in the market. The recent hires that we made in the last three years is well as our specialty growth businesses. And for me, you asked the question about just general client sentiment. We we do a quarterly survey in Legacy Synovus. The clients continue to remain relatively constructive. The backdrop, continues to have some uncertainty. It's no it's not lost on anyone that tariffs still play a risk factor for our clients, but we've seen the economic growth pick up. And when we queried those clients, they expect their business activity to pick up over the next twelve months. So part of that is being in the Southeast. We know we're in a great footprint. So I think our client sentiment is positive. There's still headwinds, but there's been this appetite for capital that I think was delayed resulting from the uncertainty that happened in '25 that we expect to get. But look, said this in the prepared remarks. Unlike other banks, we're not waiting for the economy to grow to be able to generate growth. past year, Jamie mentioned 217 new revenue producers. And although that number needs to go to two fifty on the Sunnova side, I was pleased that our our growth, picked up about 20% year over year. And as Terry said, the real opportunity is for Synovus to start hiring at the same pace that Legacy Pinnacle was hiring. Hiring. And that will generate some growth this year, but the real growth has come from the people that we've hired over the last three years. And and the embedded growth that will come from those individuals continue to build out their book. So I think it's a constructive environment. It will come from being able to hire folks. You've seen this I think we have all the tools, and resources to be able to generate the growth. As we've talked about in the past, the biggest headwinds have been unexpected payoff activities. And we've kind of built that into our forecast this year. Fourth quarter was no exception to that. We saw elevated pay down activities. But the first time, we actually saw a little bit of line utilization, help to offset that. So our production goals are not predicated based on economic growth. It's based on going from a bottoms up forecasting perspective, looking at what each individual can can bring to the table. And that gives us great confidence in being able to deliver that 9% to 11%. John Pancari: Got it. All right. Thanks, Kevin. That's helpful. And then separately on expenses, I know in December, I think, a conference disclosure, you you pushed back your timing of your cost save recognition from 50% in '26 to 40% Can you just remind us what that related to? Is there a risk of future delay in the recognition of the cost saves as you work through the integration. Jamie Gregory: Hey, John. It's Jamie. As we work through this merger, our prioritization first was let's get to close. And we were very successful having a Jan one close on on the deal. And when you, you know, because that moved as quickly as it did, it it basically pushed back some of the systems because they weren't as fast as the close. And so that delay in there pushed back a little bit of the call synergies. I would also say that we've been leaning in on some of the benefits associated with with the deal and and how we've, decided to take best in class benefits on both sides. But those two things really drove the 50% down to 40% on the year one cost saves. But you will note that we didn't change year two. We didn't change the total phase. So it's really a timing, difference. We feel really good about all of the merger math from there. I feel good about our ability to achieve those synergies. But it's really in year one. We just dropped it from the 50 to the 40. John Pancari: Got it. Alright. Thanks, Jamie. Appreciate it. Operator: Thank you. Your next question is coming from Jared Shaw from Barclays Capital. Your line is live. Jared Shaw: Thanks. Good morning, guys. Looking at the the fee income side, you know, what's what's embedded in the fee income guidance for the capital markets business And maybe just some color on how long you think it takes to integrate some of those so those fee income lines? Jamie Gregory: Yeah. Jared, it's it's a great question. I mean, I love that you're focusing in on capital markets because we view that as a big area of opportunity for us. Just in general, both Pinnacle and Synovus have had great success in growing fee revenue. If you look at 2025 and you combine the companies, you have over 10% growth in account analysis fees. You have over 10% growth in overall core banking fees. You have over 10% growth in wealth management fees. But in capital markets that you mentioned, that's been a great success. And and, you know, we've had over 15% growth in swaps, swap fees. But the capital markets platforms are a great area to show what are the opportunities for revenue synergies because we have, you know, the effectiveness of the, swap delivery We also have lead arranger fees and syndications that we can actually grow on both sides But then on the Pinnacle side, they're bringing to the table the ability, for m and a advisory, and that's something that's new to the Sunnova side. So we see strong growth in capital market fees in twenty twenty twenty six, consistent with kinda what you've seen in the past. Double digit growth. Jared Shaw: Okay. Thanks. I guess maybe shifting to the to the loan growth side or back to the loan growth side, you called out the ability to hold higher balances as a result of the bigger balance sheet. How quickly do those higher hold limits flow through? And if we look sort of the slide 25 drivers of loan growth, do you think of that as more part of the contribution from the existing legacy markets? Kevin Blair: That's correct. Yeah. So, Jared, you know, when you it it can happen immediately. I mean, we have new hold limits today. But as you can imagine, not every client needs additional capital above where they are today. But what we've done with our bankers is cross tabulate the current hold limits versus where our appetite is, and it shows where we have the ability to give more capacity to our clients, and we're gonna communicate that so that we're, we'll we'll be able to to generate incremental loan growth as a result of that. Starting this quarter and moving into the future. And I consider that we we included that in the bucket for revenue synergies along with just hiring because I think that's just blocking and tackling. That's allowing us to fully use the capacity of our balance sheet to meet our clients' needs. We're still gonna be, as Jamie said, in the lean arranger business. We're gonna be syndicating deals but there will be some incremental growth there that will allow us to grow loans. But you know, it's not big enough to call out an individual number. I think between hold limits and and utilization, which we would expect, although we didn't build it into our forecast given lower interest rates, we would think both of those areas would just serve as tailwinds to growth for '26 and beyond. Jared Shaw: Thanks. Operator: Thank you. Your next question is coming from Ben Gurlinger from Citi. Your line is live. Ben Gurlinger: Hi. Good morning. Good morning, Ben. Pretty clear that you guys are are are now clearly focused on the the Outlook, and you have a pretty high degree of confidence in the continued legacy Pinnacle hiring trends When you look at kind of what you see today in the market, disrupt disruption, it's not necessarily the legacy footprint of either one of you two, or is is there opportunity to kind of expand hires or even LPOs or is it or is is it something that's still in footprint only focused? I'm just trying to figure out where the the additional or incremental revenue producer might come from. Geographically? Well, look. You we've said we try not to highlight specific markets. It kinda let your competition know where you're coming to play. But I think you should think about any metro market in any of our nine state footprint provides us with an opportunity. And it's I would tell you that disruption is our friend. But the biggest opportunity we have is what Terry said earlier. Is continuing to make this a great place to work. And when, bankers evaluate opportunities to hone their craft, they wanna work for an institution that removes bureaucracy. They wanna work for an institution that allows them to do what they do best, which is serve their clients. And so the best tool we have is continuing to create a team member base that is actively engaged and becomes our biggest recruiters. Because when they join our company, everyone hears from, their peers. And and when they say what a great company it is, it just gives us the opportunity to continue to hire. So we'll hire across the nine state footprint. The biggest opportunity as you've seen on the slides, Pinnacle has been adding at an outsized pace and doing a wonderful job. Rob McCabe and his team have worked with our Synovus geographic leaders to install that hiring model. Which is not an overnight model. As Terry said in the past, we're not hiring headhunters. We're not taking, applications on LinkedIn. Identifying who the best bankers are in each market and continuing to call on those bankers. And, in really emboldening ourselves and showing why this is the best platform for them. So I don't think there's a big risk in generating 250 new hires this year. I don't think there's a big risk in generating 275 the year after that. I think there's adequate opportunity across the market. And that doesn't include where we could continue to expand some of our specialty offerings. Where you could bring on new teams and continue to add more errors to our quiver to support that geographic banking, model. So I'm very confident. And and what I've been impressed with told Terry this, the rigors of their model and the success factor is not by happen chance. It is because they are very good at what they do in identifying those prospects and continuing to follow-up and ensuring that they bring them onto the platform. Ben Gurlinger: Gotcha. That's that's helpful. So it's it's I mean, pretty confidence in in in the net loan growth. Outlook. Via those hires over the next two or three or four years, So I was I was kinda curious. In in terms of just kind of growth, generally, lead with a credit, and you get the whole relationship quickly thereafter. Jamie, if we're thinking about like, if loan growth starts to get overly accelerated, is there an area or avenue that you might gravitate towards rate dependent on kind of backfilling the funding side of that? Before the deposits arrive. Jamie Gregory: Well, you know, if if loan growth happens before deposit growth, which actually is somewhat consistent with the forecast because deposit growth is more back end loaded yes. We would use some higher cost sources to fund that growth. But all of that is embedded in our Everything that we're saying about our margin outlook, etcetera, include seasonality of deposit growth relative to loan growth and our expectations of these bankers that we've hired over years bringing their books over. So you know, it all holds together when you see the loan forecast deposit forecast, and then the underlying quarterly impacts. But, yes, you know, if if loans come in before deposits, yes, we will use, you know, wholesale funding to bridge the gap. Terry Turner: Know, I might just jump in and add, for clarity. I think on the hiring hiring, is what gives us confidence in the long term sustainability of the growth And if you look at the pace at which we're accelerating the growth in hiring, it's a really modest increase in 2026 and not a I wouldn't say a huge increase in 2027. So those are pretty reasonable targets. And what that has to do with is the long term sustainability of the balance sheet growth and, therefore, the earnings of the company. What gives us confidence in the short term ability to grow loans is the people that we have onboarded over the last three or four years. Those people are in the process of consolidating their books of business from where they used to work to us. And we're not looking for anything special. We're simply looking for those people to produce at average rates they have produced for twenty five years. And so, again, the confidence on the loan growth comes from the people that we have already on board. Ben Gurlinger: Gotcha. Thank you. Operator: Thank you. Your next question is coming from Bernard Von Jaszczyki from Deutsche Bank. Your line is live. Bernard Von Jaszczyki: Hey, guys. Good morning. Just just on the NIM, in your '26 outlook, you assume a range of three forty five to three fifty five. Inclusive of the purchase accounting accretion. I know back in mid December, you laid out in size the contributions from from the accretion, from the fixed rate asset repricing. And you know, offset by some of the the the debt and the adding securities, the liquidity measures you're doing. Given the changes you laid out, could you just provide updates there? Jamie Gregory: Yeah. As you look at the margin, the way I would think about it is clearly, the fourth quarter, had Pinnacle had a three twenty seven tax equivalent. Margin. For the Sunnova side, when you mark the book, when you mark all of our assets, you should expect to get to a margin in the three seventy five three eighty area. When you combine those two, you get to, you know, three fifty, low three fifties. And so that's generally how we think about these coming together. The yields on the Synovus book are a little bit lower than they we originally modeled, with the merger because interest rates have declined a little bit when you look at the belly of the curve. And so that's generally the math. That's why the CET one ratio at close will be a little bit higher than we we originally modeled It's why the PAA will be a little bit lower than we originally modeled. Bernard Von Jaszczyki: And then, just on the, the revenue synergies, on Slide 28, the 100,000,000 to 130,000,000 I know it's supposed to be realized over the next two to three years. Does that start you know, in 2027 post the completion of the integration process? Any color you can share? Kevin Blair: It it starts today. I mean, we're we're already working it. So our guidance that we provided for '26 would incorporate some of those revenue synergies as they materialize. Things like we talked about earlier, like hold limits being able to hire new folks, There are certain capabilities on the capital market side that we don't have to be on the same platform. Platforms. Syndication fees, FX. Those, those are being cross pollinated across our organization. And then when you add on some of these specialty verticals I've mentioned in the past, like equipment finance, The the Pinnacle legacy team is already calling in the legacy Synovus footprint. So instead of trying to give you a line item, reconciliation of all those, we'll start to incorporate those into our annual guidance. And we sit here today, I think we're as excited about the 100 to $130,000,000, and and we think we can exceed that target over the next three years. But, yes, the '26 guidance would incorporate the benefits that we see in these early stages. Bernard Von Jaszczyki: Okay. Great. Thanks for taking my questions. Operator: Thank you. Your next question is coming from Michael Rose from Raymond James. Your line is live. Michael Rose: Hey, good morning, guys. Thanks for taking my questions. Maybe just going back to the to the comment in the slide deck just around higher hold limits. I assume that just a step function of a larger balance sheet if you can kind of expand upon that, I mean, do you plan to kind of move upstream? Or is this just hey, we're going to do the same types of loans that we've always done on both sides? And then maybe just syndicate out, you know, less. Just trying to get some better color around that. And then secondarily, if you can just comment on outlook for some of the specialty businesses. I know that's been a big focus, at least Legacy Synovus over the past couple of years. What does that look like as we kind of move through this integration? Thanks. Yeah, Michael. I I think it's the latter of your question. I I don't think that it allowing us to pursue new opportunities up market. We've both companies have been moving up market with middle market banking some of our corporate banking initiatives that we've had in some of the specialty areas. What it really does is just increase that ability to have slightly larger hold limits on those clients. And so as I said earlier, we're not talking about major step functions. It's not doubling the size of the hold limit, but it gives us a little more capacity. And so what you should see from that is slightly, higher, loan size that we would keep on balance sheet. But again, we built a strong syndicated platform to be able to manage our risk overall. And so we'll continue to out some of the larger loans, but it just gives us a little extra capacity. As it relates to the specialty units, you know, as I've said in the past, both sides bring some unique businesses to the table. I get really excited about the equipment finance area, the auto dealer, business that Pinnacle has been building. On the Sunnova side, we have things like asset based lending, structured lending. We have a family office on the wealth management side. Those organizations are working across the broader organization to make sure that their capabilities are well known. And when we have an opportunity to introduce client, we're gonna make those introductions. And so we haven't gone through and shared what the individual growth of each of those businesses will be. But I can tell you, a large portion, as you saw in the pie chart, of our loan growth will come from those specialty businesses. And it's just from the introduction to the other side's footprint and a client base that we haven't called on in the So again, excited about it. We've been having sales meetings on Mondays. Where those individuals have been working to share their products and capabilities, and there's already been joint calling efforts. So we're well underway there, and again, it's gonna generate a large percentage of our growth as we look both on the loan side as well as the deposit side, we have some deposit verticals that we've been focused on that we'll be able to introduce to the to, the other legacy, bankers. Very helpful. And then maybe just as a a follow-up. I know there's some debate about if the asset thresholds get lifted here at some point. I know you guys have some onetime costs built in for that. But you know, those rules do get changed, I assume you'll still use some of that, but I assume some of it that you probably wouldn't or you could slow that pace What would you do with those extra dollars? Would it be kind of further acceleration on the hiring front? Is there other projects or systems that you'd you'd like? I know we're not talking a huge number, but certainly would be helpful for any color. Jamie Gregory: Yes, Michael. Those costs, as we look at it, if a 100,000,000,000 was raised and it was not in our near term horizon with strong organic growth, we would still do the data work we're doing now, which is a large portion of that expense. And so you know, we will still incur a good bit of that expense that we've modeled out even if if that's increased. We would surely save on some headcount in our back office functions. But but we would still continue the work on the on the data side But when you think about what will we do with those expense dollars I I guess I would just reframe that and say that we will spend for good hires with or without those savings from, you know, LFI changing. And so we're gonna lean in to hiring the right talent because we see the, the value to long term sustainable growth, long term sustainable growth in assets and tangible book value. And that's our strategy. So I just would disassociate the savings from LFI or really anything else with the hiring because you know, we are leaning into that really in all scenarios. Michael Rose: Okay. Great. Thanks for taking my questions. Kevin Blair: You, Michael. Operator: Thank you. Your next question is coming from Catherine Mealor from KBW. Your line is live. Catherine Mealor: Thanks. Good morning. Jamie, talked in your prepared remarks about some restructuring that you've already done to the bond portfolio. Can you talk to us a little bit about what you're expecting in terms of the timing for further build in liquidity as we move through '26? Just trying to frame you give us loan growth expectations, but trying to think about what the size of the bond book could look like over the course of the year and how average earning asset growth will build through the year. Thanks. Jamie Gregory: Yep. It's a great question, Catherine. And first, I'll give a little bit of color on the trade. So I mentioned it on the call, but we did a $4,400,000,000 swap in the securities portfolio The way I would think about the securities portfolio from legacy Synovus is our book yield was about three fifty coming, you know, at the end of the year. When you marked it to market you got to about a four forty yield on the securities portfolio. And then we did the repositioning. And the repositioning did multiple things. First, we shortened duration. Second, an improved, liquidity, high you know, HQLA improved. Third, it reduced risk weighted assets Fourth, it eliminated 98% of the PAA associated with securities portfolio. So it achieved a lot of objectives to us. I mean, we're trying to reduce AOCI volatility. We're trying to reduce, PAA. All those things played out with this repositioning. So we're very pleased with how that happened. Those trades, because we did shorten duration, reduced the legacy Synovus security yield to about four thirty five. So when you bring those together, you get a securities portfolio that has a nominal yield of around 4%, a tax equivalent yield of around four fifteen. And so that's kind of where we are in the securities portfolio. As we proceed, through 2026, we do have debt issuances in the forecast. You know, we're contemplating a couple debt ish ones that could be a billion dollars this calendar year. Likely two different issuances. One in the first half, one in the second half of the year. And that's embedded in there. Now consistent with the prior conversations, the impact to average earning assets just depends on the growth of loans and deposits and how all that plays out. But that's at a high level how we're thinking about 2026. Catherine Mealor: Right. Because you still put that $1,000,000,000 of debt in into the '26 number. Feels like. That's right. Jamie Gregory: That's right. Okay. Great. Okay. Catherine Mealor: That help that that's really helpful. And then maybe within that on on deposits, they both on a legacy basis, Pinnacle and Synovus, had a had a nice reduction in deposit cost. Those came in on to better than I was expecting, so that was was great to see. And so maybe can you help us think about as you see this accelerated growth into next year, and I know rates are moving, but let's just kind of on a static basis, where are kind of new deposit costs coming in today, and where should we expect maybe on a pro form a basis deposit cost to kinda settle in outside of any kind of move big move in rates on a pro form a basis. Kevin Blair: So we look at just like the going on rates this quarter, Catherine, on the Sunnova side, it around $3.14, a little higher on the on the, Pinnacle side. But yeah, we expect those to continue to come down. Obviously, we built into rate cuts Just quarter on quarter, our rate paid was off about 30 basis points. So it's still a rational pricing market where, you know, where where you're seeing continued competitive tension is when you're going after high rate CDs. And I think both sides have really rationalized our demand for those. But as we go forward, as Jamie said earlier, part of our growth story is relying on these bankers to bring over their relationships when when when they get the loan. So we're not having to go out and rely on promotional deposits to have to generate the $8,000,000,000 in deposit growth this year. So think you would continue to see those going on rates come down as rates come down. And we'll be very thoughtful. As we've said in the past, can grow deposits as much as we would like. It's just at what rate. And and we're trying to grow them at a marginal rate I always like to give you this from a Sunnova standpoint. When you look at loan rates, for the quarter, we are at $6.23. Deposits, as I said, at $3.14. So you're still getting almost a three ten basis point spread on your new production which, again, we monitor that just to make sure that we're balanced in how we think about the going on yields for loans and what we're having to pay for deposits. Catherine Mealor: Great. Very helpful. Thank you. Jamie Gregory: Thank you. Operator: Your next question is coming from Casey Haire from Autonomous. Your line is live. Casey Haire: Great. Thanks. Good morning, everyone. I wanted to circle back on on the recruiting strategy. So the I think you guys mentioned 41 hires in the fourth quarter. Just wondering what the the success rate was on that. I think it was 90% historically. And then just looking forward, you know, what is the pipe looking like as you guys target two fifty this year? You know, how many offers do you have outstanding? Thanks. Terry Turner: Yeah. I would say on the, success rates or the kill rates for hiring, it remained roughly the same as it has, as it was all year. You know, the average number hired resembled the average for the year. The kill rate was similar for the year. I wouldn't detect any particular difference in our success at closing the recruitment cycle and turning them into hires. I think as we go forward, you heard, what Kevin said, This methodology is just it's just that. It's a routine methodology that we have run for an extended period of time, and it feels like it will produce I would say at least what we've committed, in in our guidance there. Again, if you look at the relative increase for 2026 over 2025, it's pretty modest increase with at least for me, I don't feel like we've hung ourselves out on on some big, big lift here. But, anyway, that that's my thought. Kevin Blair: I don't care if you wanna spot on. And and, look, again, you you don't have to go to the legacy Pinnacle leaders and ask them about their pipelines. They they work them three times a week. What's changing is, you know, our legacy Synovus team is starting to exercise that same process. And they're building their pipeline. So it won't that's why we said over time, that Synovus and twenty six would still lag the hiring that happens at Pinnacle. But by '27, we expect both sides to be adding a similar rate just based on that that building of the pipelines. And I've had the opportunity to be on a lot of, recruiting calls in the the last thirty days, and I can tell you that that they're not slowing down. People wanna be part of this company And ultimately, they have validation from the people that have already joined that this is a great place to work. I I joke with Terry all the time when I talk with the folks at Pinnacle. That have just joined. I said, how's it going? They said, I wish I had joined ten years ago. That's the number one answer I get from those folks. Casey Haire: Okay. Great. And then just so you guys restructured the the Synovus bond book. Just anything else that that you guys are kinda entertaining as you look at the pro form a balance sheet and maybe some updated thoughts on the BHG liquidity event given what's a pretty favorable backdrop for them? Jamie Gregory: You know, we we have a lot different things that we are working on the background on the balance sheet, but it's really too early to to think about you know, whether or not they're they're viable or you know, attractive to us. None of which are are that material to to their earnings outlook. And so we will continue to to look at options to either improve liquidity of the securities portfolio or, you know, reduce risk weighted assets or any anything similar to what we've what we've done in the past. With regards to BHG, you know, those that the team down there just continues to deliver. You can see that. With their performance in 2025. You can see it with the outlook we have in 2026. If you look at the fourth quarter of fee revenue, from BHG, we we had 30,000,000 in in the fourth quarter. Including a true up of $5,000,000 from the third quarter BHG earnings. And so to use the baseline $25,000,000 in the fourth quarter, that's really strong growth as you play it out through 2026. I mean we're talking 25% to 35% growth for for the company. So they continue to perform. And I I go through all that because it just shows that they are focused on their core business. They're focused on growing it, adding value. I think, you know, you know, what whatever they do with liquidity event or how they approach that, all I would just say is that they are positioning themselves well for you know, choosing their own destiny with regards to that. Casey Haire: Great. Thank you. Operator: Thank you. Your next question is coming from Anthony Elian from JPMorgan. Your line is live. Anthony Elian: Hi, everyone. Jamie, on slide 20 through 23, could you provide us with the updated assumptions specifically on the loan marks for 2026? You have a comment in the footnote that says you shifted the mark to longer duration loans, but I'm curious if you could give us some sensitivities to NII if you shift the loan mark back to a shorter duration. Jamie Gregory: Yeah. You know, as we look at our current expectation for the loan marks, we believe that approximately two thirds of the PAA is going to come from residential mortgages, which are clearly long long duration. And so that's the shift that we're referring to there. I would not expect these marks to move materially between products between now and finalization, but that's something that the team continues to work on. And that's that's what basically reduces that PAA benefit, that plus the rate decline in 2026. Anthony Elian: Okay. And then my follow-up I'm curious, could you give us updated thoughts on deposit beta going forward for combined company, assuming the forward curve plays out this year? Thank you. Jamie Gregory: Yes. If you look at the blended deposit beta, in this easing cycle, to now. For both companies combined. You get to about a 48% deposit beta. And when we look forward at the next two cuts, which is our current expectation, we think that a 45% to 50% deposit beta is appropriate for the rest of this year. And clearly, there's a lot of uncertainties that go into that with deposit mix and and pricing and you know, what the Fed actually does. But we think that that's a reasonable assumption, and that's what we're working towards in '20 Thank you. Operator: Thank you. Your next question is coming from John McDonald from Truist Securities. Your line is live. John McDonald: Hi. Good morning. Thanks. Lots of good thoughts on the '26 outlook. Thank you. As we pull up a bit and think about the long term promise of the merger and the case for the stock, could you share some thoughts on the long term earnings power of the company? At announcement, you showed an illustrative EPS of 11.63 using consensus 27. As a base. So maybe just any updated thoughts on that or broadly any puts takes against that or we might think about the The most profitable regional bank, the most efficient regional bank, and the bank that has the highest level of client service that's what gets me excited. Kevin, it feels sustainable over time to me, which is an important idea. I talked about it a minute ago, but the fact that we've already hired people that produce the growth that's immediately in front of us is important. The fact that we can continue to hire people sustains the growth over an extended period of time. And when you put that on top of the footprint, which is the most advantaged footprint in The United States, and then look at the market share vulnerability chart, it just hard to keep me from being excited about what the long term earnings opportunity are for this company. John, you're you're we're passionate about that that that question. John McDonald: Thank you. That's really helpful. Makes sense. Maybe one follow-up just to clean up some credit that have come in. Jamie, just in the world where there's no CECL double count, how does the mark kind of affect, you know, provisioning going forward? Does does taking that mark you know, pre provide for some losses and let you provide a little less and maybe just where the loan loss ratio is starting and how should we think about provision relative to charge offs going through '26? Yeah. John, you know, just think it as you would normally think about it where you know, the the allowance we have today, we we expect to kinda stay in this same area. Given our outlook of of allowance to loan ratio. The only you know, areas where I would say it it kinda prefunds charge off is if it if it's for something that we see in the near term. If you have a specific reserve on on a loan, And so I would just think of it as normal going through 2026. Okay. And then flattish charge offs in the first quarter, you you both had, some in individual kind of one offs in the fourth quarter. Are there still some cleanups that happened in the first quarter? Or maybe just comment on Yes. I mean, look, I think if you step back and look at this quarter, noted a couple of items, not because they're discrete, but we just wanted to provide some attribution for what drove the charge off levels. I think it's important to note if you look at pro form a charge offs, it would have been roughly 25% or 25 basis points for the combined company. And as you saw, our full year guidance is still 20% to 25 But, you know, we're we're working through a couple credits to your point. That we've already reserved for and and likely taking charge offs in the first quarter. So we just expect the levels to stay stable versus where they were this quarter. But we are not seeing anything that's indicative of any systemic change, any asset classes. It's really kind of a status quo for for charge offs. But the first quarter will will kind of be stable with where we're working for. John McDonald: That's clear. Thank you. Operator: Thank you. Your next question is coming from David Chiaverini from Jefferies. Your line is live. David Chiaverini: Hi. Thanks for taking the question. So you mentioned that loan growth should accelerate through the year. Is it reasonable to think kind of mid to high single digit in the first half of the year? And kind of high single to low double digit in the second half of the year? Any any color there would be helpful. Jamie Gregory: Yes. I think that's reasonable. And it's reasonable just based on, as Terry said earlier, as the portfolios continue to be moved over from new hires, it will build throughout the year and and it will accelerate. So I think mid single digit to high single digit in the first half and then accelerating to double digit in the second half. David Chiaverini: Helpful. Thanks. And then in terms of loan pricing, can you talk about any changes in spreads that you've observed in recent months? Jamie Gregory: You know, this quarter, we saw about a 10 basis point decline in spreads versus our internal transfer pricing. So just think about a one and ninety spread on production. That compares to about a 200 basis point spread that we had seen for the first three quarters. So some of that has to do with mix. And the size of we moved up market with our production this quarter. I think maybe that's what's lost and and hopefully I can highlight that now is our production for the combined companies was up 63% versus the same quarter last year. So back to hitting on all cylinders, the team's producing. Some of those loans were in in, kind of our upper market businesses that generally carry lower spreads. But about a 10 basis point decline I you know, we've we've said that that's been a trend that we've been monitoring. I think it's with our expectations, and our guidance for next year would include spreads in that general range. David Chiaverini: Helpful. Thank you. Operator: Thank you. Our next question comes from Christopher Marinac from Janney Montgomery Scott. Your line is live. Christopher Marinac: Hey. Good morning. Just real quick on deposit incentives. Are these any different for the combined company as it would have been separate at Pinnacle and Synovus? Just curious on how deposit incentives are compared across the new company. Kevin Blair: It's what Terry said earlier. Chris, our company is going to be everyone will be incented on the same measurements, which is revenue growth and EPS growth And it's our job as the leadership team to ensure that deposit growth is a key component of that and being able to manage our margin. So everyone's incented on the company making its top of house goals. There are no individual incentives for production any longer, and people won't be focused on filling buckets or meeting a scorecard. It's all gonna be based on top of house. And it's our job to make sure, as I said earlier, that 8 to $9,000,000,000 in deposit growth And support our path forward. For both of you, truly, a job exceptionally well done. With that operator, I'd like to conclude today's call. Thank you for joining us today. That concludes the Pinnacle Financial Partners fourth quarter 2025 earnings call. Have a good day.
Operator: Good day, and thank you for standing by. Welcome to Atlantic Union Bankshares Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your name is Ray. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Bill Samia, Senior Vice President of Investor Relations. Please go ahead. Bill Samia: Thank you, Olivia, and good morning, everyone. I have Atlantic Union Bankshares' President and CEO, John Asbury, and Executive Vice President and CFO, Rob Gorman with me today. We also have other members of our executive management team with us for the question and answer period. Please note that today's earnings release and the accompanying slide presentation we are going through on this webcast are available to download on our investor website investors.atlanticunionbank.com. During today's call, we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures. Important information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures, is included in the appendix to our slide presentation and in our earnings release for the fourth quarter and full year 2025. We will also make forward-looking statements, which are not statements of historical fact and are subject to risks and uncertainties. There can be no assurance that actual performance will not differ materially from any future expectations or results expressed or implied by these forward-looking statements. We undertake no obligation to publicly revise or update any forward-looking statement except as required by law. Please refer to our earnings release and our slide presentation issued today as well as our other SEC filings for further discussion of the company's risk factors including other information regarding the forward-looking statements, including factors that could cause actual results to differ from those expressed or implied in the forward-looking statements. All comments made during today's call are subject to that safe harbor statement. And at the end of today's call, we will take questions from the research analyst community. Now, I will turn the call over to John. John Asbury: Thanks, Bill. Good morning, everyone, and thank you for joining us today. Atlantic Union Bankshares reported strong fourth quarter financial results, reflecting disciplined execution and successful integration of the Sandy Springs acquisition. We believe the adjusted operating financial results for the quarter showcased the organization's earning capacity. While merger-related charges continue to affect this quarter's results, the underlying operating performance supports our continued confidence in achieving the strategic goals associated with the Sandy Spring acquisition, namely, the targets for adjusted operating return on assets, return on tangible common equity, and efficiency ratio. With the core systems conversion completed in October and only modest residual merger-related expenses anticipated in the first quarter, we expect the noise associated with our merger-related expenses to decline. This means that we will be positioned beginning with Q1 2026 to report unadjusted results that more clearly demonstrate the financial strength and operating efficiency we are committed to delivering for our shareholders. Our commitment to creating shareholder value remains unwavering. We believe Atlantic Union is well-positioned to deliver sustainable growth, top-tier financial performance, and long-term value creation for our shareholders. We believe the strategic advantages gained from the Sandy Spring acquisition combined with continued organic growth opportunities due to our robust presence and attractive markets reinforce our status as the premier regional bank headquartered in the Lower Mid-Atlantic. I'll briefly cover our Q4 and full year 2025 highlights and share market insights before Rob presents the financial review. Here are the highlights for our fourth quarter. Quarterly loan growth was approximately 6.3% annualized, ending the year at $27.8 billion. Our pipelines were higher at the end of the fourth quarter than they were at the start of the quarter, which suggests we are on track for loan growth consistent with our full year 2026 outlook. While forecasting loan growth remains challenging in the still uncertain economic environment, we continue to expect 2026 year-end loan balances to range between $29 billion and $30 billion inclusive of the negative impact from loan fair value marks. We observed a return to more typical commercial line utilization levels in the fourth quarter. Loan production reached a record high in Q4 as our team gained momentum. Despite ongoing economic uncertainty, the Sandy Spring core system conversion and the CRE loan sale executed at the end of 2025. Additionally, we observed growing confidence among our client base which combined with seasonally strong lending trends further supported our robust performance in the quarter. Our deposit base experienced typical year-end fluctuations due to activity from large commercial depositors with some of these balances returning during the early weeks of the first quarter. Our FTE net interest margin increased by 13 basis points to 3.96%. While improvement in accretion income contributed modestly, the main driver was our ability to reduce deposit costs while holding loan yields relatively flat compared to the prior quarter. Loan yields stayed relatively steady despite the Fed rate cuts and its impact on our variable rate loan yields due to increased accretion income, higher loan fees, and the repricing of renewed and new fixed-rate loans at current market rates. Importantly, this also demonstrates we are putting our interest rate accretion income and principal repayments from the acquired fixed-rate loan portfolios to work as those loans renew or reprice to higher market rates. Fee income was strong, primarily driven by loan-related interest rate swap fees and fiduciary and asset management fees, with both benefiting from the Sandy Spring acquisition. About 27% of interest rate swap income this quarter came from former Sandy Spring customers. While Sandy Spring had a nascent swap program, AUV swap program is well established and mature. We expect ongoing growth in this area, though it's important to note that swap income may vary from quarter to quarter. Overall, credit quality showed continued strength and improvement. With our fourth quarter annualized net charge-off ratio coming in at one basis point. The net charge-off ratio for the full year was within our guidance at 17 basis points. Leading asset quality indicators remain encouraging. Fourth quarter non-performing assets as a percentage of loans held for investment declined a further seven basis points to 0.42% from 0.49% in the prior quarter. Criticized and classified assets remain low, 4.7%. We believe credit underwriting, client selectivity, and loan loss performance have consistently been traditional strengths of Sandy Spring Bank and American National Bank, reinforcing our continued confidence in asset quality. Before we discuss unemployment rates, I want to clarify we are comparing November to September figures since October data is unavailable due to the government shutdown. Taking a step back, Virginia's unemployment rate remained unchanged at 3.5% in November, compared to September. Demonstrating notable resilience, especially since the national unemployment rate rose by 0.2 percentage points to 4.6% during the same time frame. Maryland's unemployment rate rose to 4.2%, a 0.4 percentage point increase at September. This change aligns with our expectations, particularly considering the November data now includes federal government workers who took buyout plans. Despite the uptick, Maryland continues to outperform the national average during the same period. North Carolina's unemployment rate edged up 0.1 percentage point to 3.8%, remaining well below the national average. Although we do anticipate some further increases in unemployment across our markets in our CECL modeling, we expect these levels in Virginia, Maryland, and North Carolina to stay manageable and below the national average consistent with Moody's current state-level forecast. We remain confident in our markets and consider them among the most attractive in the country. For those who missed our Investor Day last month, I want to revisit a key slide from our Investor Day presentation as its message remains essential. We have deliberately and thoughtfully built a distinctive valuable franchise outlined in our strategic plan delivering on our commitments, and establishing the banking platform we set out to create. With this strong foundation, we believe we're well-positioned to capitalize on the expanded markets gained through the Sandy Spring acquisition, drive continued growth in Virginia, and pursue new organic opportunities in North Carolina and across our specialty lines. Our full Investor Day presentation details our market approach for the next three years, and I encourage everyone to watch it. With disciplined execution of our prior acquisitions and no additional acquisitions currently planned during this phase of our strategic plan, our focus now shifts to demonstrating the franchise's earnings power and capital generation ability. It's time to show that our efforts and investments have been worthwhile. After dedicating capital to strategic investments over the past two years, to complete the company we envisioned and worked so diligently to build, and consistently communicated our plans to do so, we believe we are now seeing clear tangible benefits from these efforts. In summary, 2025 was a pivotal year for AUB. We remained agile and responsive while managing a significant merger integration, a major CRE loan sale, and navigating macroeconomic headwinds including federal government restructuring and unpredictable tariff policies. Despite these challenges, we delivered operating results that we believe will stand out among our peers. With that, I'll turn the call over to Rob for a detailed review of our quarterly financial results before we open the floor for questions. Rob? Rob Gorman: Well, thank you, John, and good morning, everyone. I'll now take a few minutes to provide you with some details of Atlantic Union's financial results for the fourth quarter and full year 2025. My commentary today will primarily address Atlantic Union's fourth quarter and 2025 financial results presenting on a non-GAAP adjusted operating basis, which for the fourth quarter excludes $38.6 million in pretax merger-related costs from the Sandy Spring acquisition. For the full year 2025, it excludes the following items: pretax merger-related costs of $157.3 million, pretax gain on the sale of CRE loans of $10.9 million, and the pretax gain on the sale of our equity interest in Cary Street Partners of $14.8 million. That said, in the fourth quarter, reported net income available to common shareholders was $109 million and earnings per common share were $0.77. For the full year 2025, reported net income available to common shareholders was $261.8 million, and earnings per common share were $2.03. Adjusted operating earnings available to common shareholders were $138.4 million or $0.97 per common share in the fourth quarter, resulting in an adjusted operating return on tangible common equity of 22.1% and adjusted operating return on assets of 1.5% and an adjusted operating efficiency ratio of 47.8% in the quarter. For the full year 2025, adjusted operating earnings available to common shareholders were $444.8 million or $3.44 per common share. Resulting in an adjusted operating return on tangible common equity of 20.4% and adjusted operating return on assets of 1.33% and an adjusted operating efficiency ratio of 49.7%. As John mentioned, we believe these adjusted operating results for return on tangible common equity and the efficiency ratio put us in the upper quartile of our peer group for the full year of 2025. Turning to credit loss reserves at the end of the fourth quarter, the total allowance for credit losses was $321.3 million, which was an increase of approximately $1.3 million from the third quarter primarily driven by loan growth in the fourth quarter. As a result, the total allowance for credit losses as a percentage of total loans held for investment decreased one basis point to 116 basis points at the end of the fourth quarter. Net charge-offs decreased to $916,000 or one basis point annualized in the fourth quarter from $38.6 million or 56 basis points annualized in the third quarter due to the charge-off of two commercial and industrial loans in the third quarter. The net charge-off ratio for the year came in at 17 basis points in line with our 15 to 20 basis points guidance. Now turning to the pretax pre-provision components of the income statement for the fourth quarter. Tax equivalent net interest income was $334.8 million, which was an increase of $11.2 million from the third quarter primarily driven by a decrease in interest expense resulting from lower deposit costs and increases in interest income on loans held for investment and the securities portfolio, which was partially offset by a decline in other earning asset interest income primarily driven by lower average cash and cash equivalent balances in the fourth quarter. As John noted, the fourth quarter's tax equivalent net interest margin increased 13 basis points from the prior quarter to 3.96% primarily due to lower cost of funds, partially offset by a slight decrease in earning asset yields. Cost of funds decreased 14 basis points from the prior quarter to 2.03%. The fourth quarter due primarily to lower deposit costs reflecting the impact of Fed funds rate decreases starting in September 2025. Earning asset yields for the fourth quarter decreased one basis point to 5.99% as compared to the third quarter due primarily to lower investment in other earning asset yields, partially offset by slightly higher loan yields. As John mentioned, loan yields stayed relatively steady despite the Fed rate cuts and its impact on our variable rate loan yields due to increased accretion income, higher loan fees, and the repricing of renewed and new fixed-rate loans at current market rates. Noninterest income increased $5.2 million to $57 million for the fourth quarter from $51.8 million in the prior quarter. Primarily driven by a $4.8 million pretax loss in the prior quarter related to the final settlement of the sale of CRE loans executed at the end of 2025 as part of the Sandy Spring acquisition. Adjusted operating noninterest income, which excludes the pretax loss on the CRE loan sale in the third quarter, the pretax gain on the sale of our equity interest in Cary Street Partners in the fourth quarter, and the pretax gains on the sale of securities in both the third and fourth quarters remained relatively consistent with the prior quarter at $56.5 million primarily due to a decline in service charges on deposit accounts of $1.1 million, $400,000 of which was driven by temporary post-conversion fee waivers for Sandy Spring customers. A decrease in other operating income of $807,000 primarily due to lower equity method investment income and seasonally lower mortgage banking income of $727,000 offset by higher loan-related interest rate swap fees of $2.5 million due to higher transaction volumes, and increases in fiduciary and asset management fees of $1.3 million primarily due to increases in estate fees, personal trust income, and investment advisory fees. Reported noninterest expense increased $4.8 million to $243.2 million for 2025 primarily driven by a $3.8 million increase in merger-related costs associated with the Sandy Spring acquisition. Adjusted operating noninterest expense, which excludes merger-related costs in the third and fourth quarters and amortization of intangible assets in both quarters, increased $1.4 million to $186.9 million for the fourth quarter up from $185.5 million in the prior quarter. This was primarily due to a $2.4 million increase in other expenses driven by an increase in noncredit related losses on customer transactions. A $1.7 million increase in marketing and advertising expense. These increases were partially offset by a $1.4 million decrease in FDIC assessment premiums due to lower assessments in 2025 and a $1.2 million decline in furniture and equipment expenses, which was primarily driven by lower software amortization expense related to the integration of Sandy Spring. At December 31, loans held for investment net of deferred fees and costs were $27.8 billion, an increase of $435 million or 6.3% annualized from the prior quarter. At December 31, total deposits were $30.5 billion, a decrease of $193.7 million or 2.5% annualized from the prior quarter. Primarily due to decreases of $260 million in demand deposits largely driven by typical seasonal patterns and $14.5 million in interest-bearing customer deposits. These were partially offset by an increase of approximately $81 million in brokered deposits. At the end of the fourth quarter, Atlantic Union Bankshares and Atlantic Union Bank's regulatory capital ratios were comfortably above well-capitalized levels. In addition, on an adjusted basis, we remain well-capitalized as of the end of the fourth quarter. If you include the negative impact of AOCI and held-to-maturity securities unrealized losses, in the calculation of the regulatory capital ratios. During the fourth quarter, the company paid a common stock dividend of $0.37 per share which was an increase of 8.8% from the third quarter's and previous year's fourth quarter dividend amount. Of note, on a linked quarterly basis, tangible book value per common share increased approximately 4% to $19.69 per share in the fourth quarter. As noted on Slide 17, we are maintaining our full year 2026 financial outlook for AUB that was provided at our Investor Day in December. We expect loan balances to end the year between $29 billion and $30 billion while year-end deposit balances are projected to be between $31.5 billion and $32.5 billion. On the credit front, the allowance for credit losses to loan balances is projected to remain at current levels in the 115 to 120 basis point range and the net charge-off ratio is expected to fall between 10 and 15 basis points in 2026. Full tax equivalent net interest income for the full year is projected to come in between $1.35 billion and $1.375 billion inclusive of accretion income. As a reminder, we consider accretion income resulting from acquired loan interest rate marks as a built-in scheduled accounting tailwind to our GAAP earnings and net interest margin as the accretion income related to the loan interest rate marks gradually transitions to core cash earnings over time as the loans obtained through acquisitions either mature or get renewed at current market rates. As a result, we are projecting that the full year fully tax equivalent net interest margin will fall in a range between 3.94% for the full year driven by our baseline assumption that the Federal Reserve Bank will cut the Fed funds rate by 25 basis points in April and in September in 2026, and that term rates will remain stable at current levels. On a full year basis, noninterest income is expected to be between $220 and $230 million while adjusted operating noninterest expense is expected to fall in the range of $750 million to $760 million, including the expense impact of our North Carolina investment and other 2026 strategic initiatives. Based on these projections, we expect to generate annual growth in tangible book value per share of between 12-15% and produce financial returns that will place us within the top quartile of our proxy peer group, and meet our objective of delivering top-tier financial performance for our shareholders. In summary, Atlantic Union delivered strong operating financial results in the fourth quarter, and in 2025. And we remain firmly focused on leveraging this valuable Atlantic Union Bank franchise to generate sustainable profitable growth and to build long-term value for our shareholders in 2026 and beyond. I'll now turn the call over to Bill to see if there are any questions from our research analysts community. Bill Samia: Thanks, Rob. And, Lucia, we're ready for our first caller, please. Operator: Thank you, ladies and gentlemen. Just as a reminder, if you would like to ask a question at this time, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, simply press 11 again. Please stand by while we compile the Q&A roster. First question coming from the line of Janet Lee with TD Cowen. Your line is now open. Janet Lee: Good morning, Janet. John Asbury: Yeah. Good morning. Janet Lee: I want some more clarifications on your 2026 guide, which was reiterated from your Investor Day in December. Is there any sort of range that you're gravitating towards, whether that's higher end or lower end of that interest income given the higher launching point for QNIM, but although I do expect that NIM will grind down from there in 2026. And it looks like there are different puts and takes in terms of deposits coming in below given seasonality and loans were a little bit above what you guided. So I wanted to see what would put you at the higher end versus lower end, what your baseline expectation is. Rob Gorman: Yeah. So as we've said, Janet, you know, we're guiding to mid-interest income between $1.35 billion and $1.375 billion. To come on the higher end of that, it's really gonna depend on somewhat of do we get elevated accretion income as we saw this quarter? We're not modeling that going forward into 2026. We've got that coming down a bit. Also, I think the other component there is, can we continue to lower deposit costs as the Fed reduces the Fed funds rate? We're taking a bit of a conservative approach on that. Of course, that's dependent on the competition out there and the needs for funding loan growth that we anticipate. So really, we're kind of in that range, but on the higher end, if we could see cost of funds come down a bit more than we're projecting, that would probably lead us to the higher end and accretion income would also add to that confidence if we see that coming in a bit higher. Also, as you know, loan growth could also play a part in that regarding to mid-single digits if we see a higher loan growth and term rates remain high with a steep curve. We could see that coming in at the higher end as well. Janet Lee: Got it. Thanks for the color. And if my calculation is correct, I see the cumulative interest-bearing deposit beta to the rates coming down in the high 40% range, do you still forecast that mid-fifties beta? Or is that a little lower heading into 2026? And I see that there was a deposit remix into more interest-bearing checking, which I assume are lower cost than the other ones. I wanted to see what drove that remix in the quarter and whether that's going to reverse in the quarters ahead. Thank you. Rob Gorman: Yes. So on that, Janet, in terms of the betas, we're still guiding to an interest-bearing deposits guidance of mid-50s, 50 to 55 percent, which is in line with when rates were going up. I think we ended up the prior through the cycle. Beta was around 55% for interest-bearing deposits. On a total deposit basis, we're in that 40 to 45 range. I calculate that we're about 50% betas to date if you go back to when the Fed started cutting in September. And about 40% total deposits. So we're kind of staying in that range. We have seen we've been aggressive on lowering deposit rates. About $12 billion to $13 billion, we've been able to reprice fairly quickly as the Feds come down. That's a good thing to offset our variable rate loan book that reprices with Fed funds. So that kind of is a balancing act there. So in terms of what was the other the end of the other question you had there? Just Janet Lee: Deposit remix? Rob Gorman: Oh, yeah. So there have been some reclasses that have occurred post the Sandy Spring conversion. So there's some of that that's kind of moved in one category to another. That's primarily probably the main driver of that. So don't expect that to shift too much going forward. Level set that now. Janet Lee: Got it. Thank you. Bill Samia: Thanks, Janet. And, Olivia, we're ready for our next caller, please. Operator: Our next question coming from the line of David Bishop with Group. Your line is now open. David Bishop: Hi, Dave. John Asbury: Hey, John. How are you doing? David Bishop: Good. Thank you. Hey. I think I heard you say during the preamble that the loan pipeline had increased relative to that coming into the quarter. Just curious if there's any numbers you can put around it or percent increase and how you're thinking about near-term loan growth here as you talk to your commercial clients? Are you starting to see some traction across the legacy, Sandy Spring portfolio, and is that some of the drivers we saw in the C&I growth this quarter? John Asbury: Yeah. I would say that we had a modest increase in total pipeline by end of year end of quarter versus beginning of quarter. That's really important and a bit unusual for Q4 because as you can see, Q4 was a big quarter. Now as we expected, it was very much back-end loaded. We were teams were super busy over the month of December. The typical phenomena is you would expect to see the pipeline somewhat clean down. In other words, normally, it takes a while for it to rebuild. So we were pretty excited to see that it was continuing to refill, so to speak, over the course of the quarter. And I would just say that what we're hearing, we can see the pipeline. The feedback we're getting from our market leaders is quite encouraging. So we feel pretty good about things. In terms of the outlook. That's part of what's giving us confidence in our mid-single-digit guidance. And it feels pretty Dave Ring, you can comment on this, but what we heard is pretty broad-based in what we see. David Ring: Yeah. I guess I would only add that our folks are very optimistic going into the year. With good pipelines across the footprint. Yep. It's not in one place. Yeah. Including the former Sandy Spring franchise, to be clear. David Bishop: Great. And then, John, maybe a holistic question. You know, change in the governor's branch in there. Just your view here from a business-friendly climate, do you think that's gonna have much of an impact in terms of the Commonwealth's growth capacity and business climate? Thanks. John Asbury: Yes. Thank you. No, we feel good about the outlook here in our home state of Virginia. Virginia has a long tradition of business-oriented moderates in these statewide offices, governor of US senate, and I feel quite confident that, you know, the new governor will continue that tradition. David Bishop: Great. I'll stop there and hop back in the queue. John Asbury: Thank you, David. And, Olivia, we're ready for our next caller, please. Operator: Our next question coming from the line of Steve Moss with Raymond James. Your line is now open. Steve Moss: Hi, Steve. John Asbury: Good morning, John, Rob, Bill. Maybe just following up on the loan pipeline here. Just kind of curious where are you guys seeing loan pricing shake out these days? And also, where is in order reverse deposit costs were at quarter end? Rob Gorman: Yeah. So on the loan pricing side, we're seeing about, you know, $6 to $6.20 loan pricing both on the variable and the fixed-rate loans. So we expect that will continue. It really depends on where short-term rates are, obviously, the variable rate side. And where term rates are. But the spreads seem to be holding up pretty well on top of those indexes. And in terms of the deposit cost at the end of the at December is what you're asking, Steve? Yeah. We're below 2% on that. It's about $1.96 coming out of December. Steve Moss: Okay. Appreciate that. And then in terms of just kind of thinking about the core margin here, I apologize if I missed it, but just curious do you continue to expect core margin expansion here throughout the year and kind of how you're thinking about the cadence if that's the case? Rob Gorman: Yeah. We think core margin will expand a bit. Some of that's coming off, you know, where we talked about the acquired loan book is repricing and coming back into core. So from a loan yield point of view, that's helpful. In terms of fixed-rate loans, coming on about 100 basis points or so higher than what the portfolio yield is. If the Fed cuts more than a couple of times, we probably will see some stable loan yields or margin, or we could see some contraction a bit. But our call is a couple of cuts next year, which is manageable. And as I mentioned, we're able to reduce some of our deposit costs, which I think that's the Fed funds fairly quickly, which will offset some of the variable rate loan impacts of further cuts. So in all, I think we'll see some modest core margin expansion based on those factors. Steve Moss: Okay. Appreciate that. And then just in terms of following up on the purchase account accretion, just curious updated thoughts around the full year number for that? Rob Gorman: In terms of 2026, Steve. Yeah. We thought you know, we're currently modeling $150 and $160 million in 2026. As you know, that can fluctuate. We saw a bit higher than expected in the fourth quarter. So that can fluctuate, but give or take our baseline modeling in the guidance we provided from a margin perspective and net interest income perspective is in the $150 to $160 range. Steve Moss: Okay. Appreciate that. And John, maybe just one for you on, you know, North Carolina's expansion. I know you talked about it a fair amount last month. Just kind of curious as you continue to expand down there in the market, what are the good things you're seeing? Maybe what are some of the challenges you know, as you're building out down there? John Asbury: Yeah. Well, I think that we're making good progress in terms of the efforts to expand the commercial teams, and Sean O'Brien is your head of consumer and business banking. Sean, you can speak to just sort of the latest in terms of the branch build-out. Sean O'Brien: Yeah. We continue to move quickly and have plans for our 10 branches to be open in Raleigh and Wilmington here in the next year and a half, two years, and we're hiring staffing across the bank to make sure there's teams to support on both the wholesale and consumer side. So progress has been very good there as far as finding good sites and finding teammates. We think we're on track, Steve. Steve Moss: Okay. Great. I appreciate all the color here, I'll step back. John Asbury: Thank you. And, Olivia, we're ready for our next caller, please. Operator: Next question coming from the line of Brian Wudzinski with Morgan Stanley. Your line is now open. Brian Wudzinski: Hey, good morning. John Asbury: Hi, good morning. Brian Wudzinski: Yeah. So sticking with the loan growth. So at Investor Day last month, you talked about several different focus areas for organic loan growth over the next few years. There's the Sandy Spring footprint, North Carolina, and also the specialty banking businesses. I was wondering if you could talk a little bit about where you're seeing the most traction in the fourth quarter given how strong growth was. What you see is sort of the near-term driver across those three buckets? Versus what may take some more time to materialize. David Ring: Yeah. We could talk for hours on this one. Let's not do that. You know, we've seen the Sandy Spring part of the franchise really turn the corner from integrating the bank and getting trained up to positive results in the fourth quarter and a really good pipeline going into the first quarter. North Carolina, steady as she goes there. We're hiring into that market. So there's ramp-up periods for folks that we'll see, I think, really nice results over the course of 'twenty-six. But they also have turned the corner. They're also growing, and their pipelines are good as well. And on the specialty side, we have hired the head of healthcare banking, which we talked about in that meeting. And the other specialty businesses actually contributed largely to some of the growth we've had. John Asbury: And then here in Virginia, which would be, you know, the single largest concentration what we were so pleased to hear this week as we did our check-in with all of the commercial market leaders and credit officers is seeing strength across the state. Not and so that's actually really good to see. So we feel pretty good about the setup, Brian. It feels pretty well diversified. Brian Wudzinski: That's great to hear. And, you know, you highlighted the 6% annualized growth in the fourth quarter. Pipeline is up, sounds like production is up. Any puts and takes in terms of how we think about, say, 2026 relative to what you just did in the fourth quarter? Is there any seasonal benefit in the fourth? Was the end of the government shutdown a material tailwind? Or does it feel like you can sort of maintain this cadence over the course of the year? John Asbury: Q4 is traditionally seasonally strong. In my experience, across the industry and that's because businesses are strongly motivated to get things done before year-end for reporting purposes, planning purposes, tax purposes, you name it. So you can always expect to see a seasonally high Q4. Q1 traditionally is somewhat slow. Normally, because so much goes on at the very end of the year. So, you know, we would expect to see the typical pattern, which is it'll build as the year goes on. There's usually a little dip in Q3 as people go on vacation. Frankly. There are some yeah. There are there's normally some element of seasonality, but we see the opportunities there. So we'll see what happens. Brian Wudzinski: Really appreciate the detail, and thanks for taking my questions. John Asbury: Thank you. Thanks, Brian. And we're ready for our next caller, please. Operator: Our next question coming from the line of Catherine Mealor with KBW. Your line is now open. Hannah Wen: Good morning. This is Hannah Wen stepping in for Catherine. Thank you for taking my question. John Asbury: Of course, Hannah. Hannah Wen: Had a question on deposits. We saw a decline in deposits this quarter, and I was wondering if you could provide any guidance on the outlook for deposit growth into next year. John Asbury: Yeah. Let me start by saying we saw the typical, for us, end-of-year decline that happens really in the last two weeks of December. It's not at all uncommon, and we saw it again to where some of the larger commercial depositors will have various payments that they're making. And so you see this downdraft in noninterest-bearing deposits. It happens late, and that's what was going on. Over the course of the quarter, we did continue to run down some higher-cost sort of less relationship-oriented deposits that came out of Sandy Spring in particular. So you've got a seasonal element going in there, and you see the deposit base kind of settling in. Rob, do you want to speak to the outlook for 2026? Rob Gorman: Yeah. So, you know, if you look at our guidance, we're really guiding to about off the fourth quarter base. About 3% to 4% deposit growth for the year. We think that's achievable. Both on the commercial and on the consumer side. You know, we've got more treasury management opportunities in the former Sandy Spring footprint. So there's some opportunities to grow there. So we're feeling pretty good because really low single digits is what we're calling for. Hannah Wen: Okay. Thank you. John Asbury: Thank you. Thanks, Hannah. And, Olivia, we're ready for our next caller, please. Operator: Our next question coming from the line of Steven Skun with Piper Sandler. Your line is now open. Steven Skun: Hi, Steven. John Asbury: Good morning. Steven Skun: Yeah. Good morning, guys. Thanks. So one quick clarification, John. I think you said most of the expenses related to the Sandy Spring deal are kind of in the numbers here, maybe some marginal benefit in 1Q? How should we think about I know we've got the full year guide, but just the run rate for expenses in the first quarter off of this, you know, what I think was around $204, $205 million here this quarter? On an adjusted base? Rob Gorman: Yeah. So Steven, the way to think about that is you're gonna see kind of a flattish quarter in the way we're modeling it. Flattish quarter, first quarter, and it starts coming down a bit over the remaining years. Of course, you understand there is some seasonality in the first quarter as FICO resets, bonus payments are made, unemployment taxes go up. And then we have some merit increases going in. So that'll be kind of the high watermark as well, which is typical. And then start to come down. If you look at it from an operating excluding the amortization of intangible expense, we're calling for, on average, call it, about $188 million a quarter going forward, but it will skew a bit higher in the first quarter and starts to drop off in the subsequent quarters. John Asbury: Rob, what can we say about what's left of Sandy Spring related expenses? Rob Gorman: Yeah. So our well, I think we it's not all in the numbers yet. But we've achieved the cost savings. About $80 million is what we had projected. 27.5%. In the numbers, it's probably about annualized, about 60 some odd million there, call it 60. We're getting another five coming out of the fourth quarter. So that will get you to that $80 million mark. So there is some benefit that you'll see in the first quarter. That's why we're kind of calling for flattish in the first quarter because it's offset by some of these other seasonal items. But you should see that come through going out in the second to fourth quarter. Of course, we also have investments that are being made in North Carolina in some strategic investments we made, which we noted in Investor Day. So those are kind of all in the numbers that I'm talking about. And I referenced there's some residual remaining expenses in Q1, which is think meaning from a merger-related Yes, like merger one Yes. We have a couple of IT decommissioning expenses and a few related to some leases that we're getting out of maybe less than $5 million is our projection for the first quarter. And then merger-related. That's it. It's all over. That is done. Steven Skun: That's great. That's extremely helpful detail. Appreciate it. And maybe I know you kind of noted the progression in North Carolina that potential expansion is still pretty much on path for build out over the next year and a half to two years. Is there any impetus to kind of accelerate any of your plans? Or push maybe deeper into the hiring activity? It seems to be the norm across the spectrum today. Everybody seems to want to hire as many people as they can. With the dislocation we're seeing across the industry. So just wondering if that any of your plans there could accelerate or if you feel like there's a lot of capacity still within the team just given the integration with legacy Sandy Springs into the AUB platform? John Asbury: That would principally be, I think, a commercial or wholesale banking question. Do you want to answer that, Dave? David Ring: Yeah. I mean, this is not the time you necessarily want to hire a banker because you're gonna have to pay their bonus. You mean this time of year? Yeah. This time of year. But we have a pipeline, a strong pipeline of people that we would expect to bring on board, you know, after bonuses are paid at the other institutions. And we currently have a lot of capacity within the team. We have 20 bankers sitting in the market already in Carolina. New Carolinas. And they're very active. And so we're gonna continue to grow using those bankers, but also build out the rest over time. But you should expect to hear about more hiring, you know, March between March and August during the year. We feel we do feel good about the team and our capacity. We're sort of always in the market to some extent, but it yeah. Yeah. We wouldn't expect to see, like, some big announcement that there's some big expansion per se but we'll see how it goes. But there's no constraints on Correct. Hiring. It's just Yes. Hire at least you can. We have a long track record of you know, as we can expand, you know, with the right talent, we tend to do that. And it to make it work out. Little harder to accelerate on the consumer side because you got the branch build-out and things to get yeah. So it's more of a wholesale side. We'll, yeah, we'll push as hard as we can. But it's depending on the hiring capabilities there. Steven Skun: Great. And then just maybe lastly for me, I mean, you've got a lot on your plate clearly in terms of the North Carolina expansion. Obviously, hoping to accelerate growth overall. In terms of uses of capital. But as earnings continue to ramp higher and capital build should accelerate here, at what point do you think you entertain maybe share repurchases or other paths for that you know, soon to be building excess capital over time? And is there a kind of a threshold you wanna hit a capital level first before you'd entertain that? Rob Gorman: Yeah. I think we've been clear that we will entertain share repurchase probably the 2026 of this year. Really looking at excess capital, anything beyond the 10.5% CET one would be what we'd be looking for. To utilize consider excess capital to be in the repurchase market. So we're on track for that as we go through the first for the second quarter of this year. So we said, we could be in the market late in the second quarter or in the third quarter. John Asbury: And I'm glad you asked that question. You saw that we grew tangible capital by 4%, approximately 4% in one quarter. And we're doing exactly what we said we would do. We've invested capital to build the franchise, to secure our positioning, to put us on this profitability and capital generation footing, and now we're receiving the benefits of that. And we've been clear that we are guiding toward 12 to 15% annualized tangible capital growth. So we are going to be in a good position, as Rob said, where we'll be able to consider share buybacks. Steven Skun: Yeah. Fantastic. It feels like everything's laid out before you. Appreciate the color, guys. John Asbury: Thank you, Steven. And, Olivia, we're ready for our last caller, please. Operator: We have a follow-up question from David Bishop. Your line is now open. David Bishop: Hi, Dave. John Asbury: Hey, John. Real quick, I guess, a question for Rob. You noted the in other expenses, noncredit related customer losses. Is that is that fraudulent? Type losses? Just curious what sort of drove those other expenses higher. Rob Gorman: Yeah. That's mostly what that is. Fraud is episodic. And, you know, it can come and fit some spurts and that's what you're looking at. Because it was elevated just a couple of items or issues that came up in the fourth quarter. Hopefully, they don't recur, but yeah, you know, they're here to yeah. Do you get these scams that move around the industry? And then there'll be something else. That's episodic. Yeah. We don't But that's what that run rate. Issue. David Bishop: Got it. So within your OpEx, you know, guidance, for the first quarter to flattish, would that be flattish off the reported sort of 2.04 you know, point six on an adjusted basis, or would it be know, sort of two zero two adjusting for the fraud? Rob Gorman: Yeah. It's kind of in each yeah. Kind of around that range, you know, two zero three, two zero two, two zero three, including the amortization. Just because there's, you know, ads. Think about it as yeah. We may not see that level, but there's other things that'll come in from a seasonal point of view. David Bishop: Got it. Appreciate that color. John Asbury: Thanks, Dave. And thanks, everyone, for calling. We look forward to speaking with you in three months. Have a good day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Sandra Åberg: Good morning, and welcome to Essity's presentation of the Q4 and full year 2025 results. Here to take us through the highlights, we have our CEO, Ulrika Kolsrud; and our CFO, Fredrik Rystedt. After the presentation, we will open up for your questions. [Operator Instructions]. With that, let's get started. I'll leave over to our CEO, Ulrika. The floor is yours. Ulrika Kolsrud: Thank you, Sandra. And also from my side, welcome to this webcast. The final quarter of 2025 confirms that we are standing strong in a continued challenging market environment. We continue to grow in our strategic segments, such as Incontinence Care, Wound Care and premium products in Professional Hygiene, and we strengthened market shares across our different branded categories. We're also strengthening our profit margins. Actually, we are strengthening our profit margins in all 3 business areas in the quarter, and we delivered a stronger result than last year's same quarter. When it comes to volumes, sequentially, we have a stronger volume, so stronger volume in Q4 versus Q3. Looking at quarter over last year's quarter, however, there was a flat volume growth. And that, together with the fact that we are then lowering prices in order to compensate for lower input costs is resulting in that we are reporting a negative organic sales growth. And that underpins the importance of the initiatives that we took last quarter to accelerate profitable growth. We are now operating in the new organizational setup with decentralized decision-making with end-to-end accountability and with even sharper focus on our most attractive categories and segments. And we are starting to implement our cost-saving program. In the quarter, we also strengthened our position for profitable growth by acquiring the Edgewell Feminine Care business in North America. And now with the brands Carefree, Stayfree and Playtex in our bag, we are more than doubling our Personal Care sales in the U.S., in line with our focus on high-yielding categories in attractive geographies. Another key highlight of the quarter is that we again got recognized for our strong sustainability performance. So we were awarded for the EcoVadis Platinum Medal, recognizing our sustainability performance, placing us among the top 1% companies worldwide that they are assessing when it comes to sustainability performance. And also, we have been placed on the CDP prestigious A list. I would say sustainability performance is important in all of our business areas, but not the least in the health care sector. Many of our customers in the health care sectors have high ambitions when it comes to sustainability. One good example of that is one of our biggest customers, NHS, in the U.K. They continue to pursue ambitious sustainability agenda even if there is financial pressure, with increasing demand for health care and funding under pressure. And speaking about funding under pressure, we talked already last quarter about that we see in some selected markets that there are some cuts in funding, and we continue to see that, for example, in Indonesia. That does not, however, prevent us from growing. Quite the contrary, we have a positive organic sales growth in Health & Medical, and we grow volumes both in incontinence Care as well as in Medical Solutions. If we double-click on the Medical business, this is the 19th consecutive quarter that we grow the Medical business, and we grow in all 3 therapy areas. A critical success factor behind this good performance in Health & Medical is, of course, our strong and unique offers that we have. And we continue to strengthen those offers. In the quarter, we upgraded one of our flagship products in the TENA assortment, the belted TENA Flex product. This product is specifically easy and ergonomic for caregivers to use on bedridden patients. And in this quarter, then we upgraded it with an even better comfy stretch belt. The elasticity is better, so it adapts easier to different body types and thereby, you can use this product for more patients. Also in the quarter, we relaunched one of our unique offers in the Advanced Wound Care assortment, the Cutimed Siltec Sorbact product. And in connection with that, we kicked off a new brand campaign for Cutimed on the theme of imagine a world where wounds would heal faster. And in this campaign, we showcase how our unique offers are helping health care to improve patient outcomes and reduce health care costs, thereby improving health economic -- or bringing health economic benefits. And it's, of course, leveraging these unique advanced solutions that is helping us and contributing to our performance in Wound Care and allowing us to gradually strengthen our positions in this category. Strengthened positions is also the theme if we go to consumer goods. In the quarter, we strengthened our branded market shares in 65% -- more than 65% of our business. And this is not only attributed to one of the categories, but it's actually contributing from all different -- all 4 categories. Looking at Incontinence Care, there, we strengthened our market shares, and also it's a fast-growing category. So as a result of that, we saw very good growth in Incontinence Care. In Feminine Care, we were impacted by a one-off, but underlying, we continue to perform very nicely also in this category, and that is demonstrated through the market share development that we see. In fact, in feminine, we grew our market shares in 80% of our business. And we had also some good records that we saw in the quarter. One very exciting of those is that we now in Mexico have 62% market share in Feminine Care. And as you know, Mexico is one of our most important markets for Feminine. Another exciting development in the quarter in Feminine was that we now are back to growth in Knix washable absorbent underwear. And that is thanks to new retail listings, higher prices, as well as product launches. Then if we move to Baby Care and Consumer Tissue, here, we saw an organic net sales decline. And this is for the same reasons that we have talked about previous quarters. So in Baby, we are impacted by the lower birth rates and also the fierce competition that we see, and consumers being more price sensitive than what we have seen before. And in Consumer Tissue, it's the weak consumer sentiment that makes the growth happening mostly in the mid- and low-tier segments, and we also lost some private label contracts due to pricing. Then it's very encouraging to see that we are growing our branded business, both in Baby as well as in Consumer Tissue. And that's a testament to the effect of our launches and our marketing activities. They are really paying off. And we continue to have a very high activity level in Consumer Goods. As you can see here on the slide, there are many different launches to talk about in the quarter. But in the interest of time, I have to choose one of them. And I choose to talk about the upgrade of our thin assortment, our thin towels in feminine care in Latin America. So having thin feminine pads is, of course, more discrete and comfortable than using thick pads when you have menstruation. But even so, many women actually choose thick pads because they don't fully trust the leakage security of the thinner ones. Now with this upgrade, we are introducing a new core technology that we call SmartPROTECT that manage even sudden gushes and thereby increased leakage security. And for that benefit, we have 2 -- actually 2 benefits of that. One is, of course, that we strengthen our superiority even further in this ultra-thin segment in the market, but also that we move consumers from the thicker pads to the thinner pads, which is a benefit because we normally have higher profitability in this segment. Now the activity level was also very high in Professional Hygiene in the quarter. Here, market growth continues to be depressed following the weak consumer sentiment, and we see that as impacting our sales. But we are responding to that by continuing to have selective price adjustments, continuing to work with joint sales plans together with our distributors, and also adapting our assortment. In this situation, it's super important to be competitive in all different price tiers. And in the quarter, we launched some what we call volume fighter specifications to make sure that we are at the right price point for the customer. We expect this to pay off in the coming quarters, but what has already paid off is really our push in the premium segments. So we continue to see strong growth in our premium segments in Professional Hygiene like Tork skincare and Tork PeakServe. We also continue to develop these products even further. So in the quarter, we launched an automated sensor-based dispenser for PeakServe in addition to the manual one that we have already. And that will broaden the relevance of this premium solution in the market. We are also broadening the relevance of our center feed dispenser solutions. The center feed dispenser solution allows you to take one sheet at a time, which is more hygienic and it also controls consumption. So it's cost efficient for our customers. Now in some segments, it's more important with design than in others. A good example of that is in restaurants that have an open kitchen. Then, of course, you are very dependent on a good-looking dispenser. And if you see on this picture, the black stylish dispenser here is what we launched in the quarter, and that is really a very strong fit into these type of environments. I would even call it decoration. It's really nice. Also, we launched a new refill paper with natural color that also has a lower price point. And that is then an excellent choice for those customers who are either very price sensitive and/or want to work with their sustainability image. Now all of these innovations that I'm talking about, they have 2 purposes. I mean, one is to expand the relevance of the product, but also, of course, to drive product superiority. And with product superiority, we mean that it's the preferred choice by customers and consumers. And looking across categories in 2025, we reached a record level when it comes to product superiority. And that, of course, makes us very well equipped to continue on that positive market share growth that we have seen in the fourth quarter of 2025. And now after all of these talk about products and innovations, I'm sure you guys want to hear a bit about the figures behind this. So over to you, Fredrik. Fredrik Rystedt: Thank you, Ulrika, and I will put a few numbers to what you have been talking about here. And as you can see, and you've already mentioned it, we actually had, in terms of organic sales, a negative development during Q4. And this is basically driven by price decline and a slight volume decline. It's maybe worth noting or perhaps repeating what you said, Ulrika, we are taking market share. So this is very much a market issue. And if we actually look at the sequential development of volume, it's always a little bit of seasonality. But nevertheless, you can see that we actually grew our volume sequentially between Q3 and Q4 with just under 2%. So it's a good momentum despite the fact that we have a decline versus Q4 of 2024. I mean, some of you will actually remember that Q4 of '24 was very strong. So we also have a bit of difficult comparable. Now as before, the volume decline is very much driven by Baby, or same as in Q3, our Baby business, our Consumer Tissue business and also Professional Hygiene, and these all are leading to the group decline of volumes of minus 0.2%. So just really brief, Health & Medical, you've said it, Ulrika, we had a good volume development in Inco Health Care and Medical. And if you look at the Medical area, actually all therapy areas and especially Wound Care, so that story you will remember. And if you talk about price and mix, largely flat in Health & Medical. Consumer Goods, Inco really, really doing very well in terms of volume, Inco Retail. Feminine is as well. It's a little bit -- it's positive volumes, just under 1% of positive volumes. And that is actually despite a fairly weak market in Europe. So overall, you can say we are growing, but the European market is a bit challenging. Ulrika talked about a onetime issue in Feminine, and that is related to an adjustment that we have made of customer rebates in Latin America. So we've increased those, and that has actually impacted sales and the pricing components, and this is why you see a negative organic sales growth for Feminine. And this is temporary for the quarter. It will go back to normal in the next quarter. And if you actually adjust for that, we have stated that the underlying growth is good. And so what we mean by that is that growth would have been -- organic sales growth would have been low single digits, to give you a little bit of perspective. When it comes to Baby, again, we are gaining in our branded business in the Nordics, but we are continuing to lose in the rest of the retail branded business in Europe. And overall, volumes are down with approximately about 4%. That's also for the market as a whole. So it's not just us, but it is a very competitive market in Europe. And this is also why we are losing volumes. And finally, Consumer Tissue, we're struggling a bit with volume there, minus 2%. And this is all actually related to private label. We have talked about this before. So there is no news here. We have lost a few contracts on the back of pricing. And of course, we have always prioritized margin over volume. But of course, we don't want to lose volume. So we have selectively actually reduced prices in Consumer Tissue. And hopefully, that will pay off as we go forward. HoReCa, we've talked about Professional Hygiene, and this is, of course, still leading to a slight volume loss of about 0.5%. And there are signs here of at least stabilization of the HoReCa markets. So here, we're hoping for better conditions going forward, but there time will tell. And to summarize maybe for the group, minus 0.2% in terms of volume, minus 0.9% in terms of price and mix is actually flat. So that sums it up a bit. Then if I go to the margin, you can see that we've actually -- we've improved our margins, both if you compare between Q4 of '24 and Q4 of '25 and sequentially. And it's not only for the group, it's actually for all the business areas. Gross profit, as you can see, increasing by 180 basis points, and this is on the back of lower COGS as we flagged when we talked to you last or after Q3. So that actually happened. And we've maintained a very good price management in the quarter, all of that leading to that very good improvement of the gross profit margin. The COGS reduction is all about, I should say, raw material energy, but we actually -- and this is a little bit of -- we're proud of that. We managed under tough conditions to reach also our COGS savings of just above SEK 500 million. So you will know our target for the year was SEK 500 million to SEK 1 billion, and we said we were struggling to reach that range, but in the end, we actually managed to do that, and that contributed to that margin enhancement. As you can see, and we've said that, we want to fuel our growth. We want to fuel our innovations that we put on the market. So we are spending more in terms of A&P, and that's both percentage of sales-wise and as an absolute number. When it comes to SG&A here, you see that it's actually favorable. So we have reduced in terms of absolute. Also in constant currency, we have reduced our spending in terms of SG&A. And this is due to, of course, a tight cost control. That's not surprising to you. We've reduced our travel, as an example, with more than 30%. We have a bit of lower bonus accruals. And there is also a bit of onetime here that is positive. So it's not as good as you see here. There is a bit of onetime. But if you look at the overall group, there is also positive and negative onetime impacts in the result. So overall, all the onetime impacts are balancing off for the group as a whole. But all in all, we're quite proud of our SG&A performance. So let me then just talk a little bit about the SG&A program, the cost saving program that we have launched previously. And as you know, we're aiming for a run rate saving of SEK 1 billion towards the end of '26. Now we are actually aspiring to reach quite part of this saving already throughout this year, but that will be more towards the latter part. So you can expect more of the savings. So far, we have realized very, very little, and we've also put fairly little in terms of restructuring charges. We expect the cost of this program to be a bit over SEK 1 billion, so approximately SEK 1.1 billion in restructuring charges. Let me end this part with a little bit of guidance for Q1, as we normally do. We expect actually COGS to be slightly lower, partly from savings, but also a little bit from currency or positive currency impact in raw materials. So slightly lower COGS, that is what we expect. And we are expecting a slightly higher SG&A. And please remember, I'm now giving you guidance Q1 of '26 versus Q1 of '25. So we are expecting slightly higher SG&A, and this is primarily driven by higher A&P in line with our ambition to fuel growth. And customary, and you know that, we also give you a little bit of guidance for the full year, and we expect CapEx, to start with that, between SEK 8 billion to SEK 8.5 billion, a bit higher than we had in '25. And this is actually partly phasing and just ambitions to grow as we go forward. We expect other cost or the corporate cost, if you will, to be approximately SEK 1.3 billion, so very similar to this year -- or to 2025. The structural tax rate to be between 25% to 26%. And then finally, on the COGS savings, we remain with our estimated range of SEK 500 million to SEK 1 billion. So let me move on then to the cash flow side. We're quite pleased with the cash flow here in Q4. This is driven by obviously a good cash surplus. The margin was good. So this was a good operating cash surplus, but we also had good working capital management. So inventory days came down a little bit, continue to do that. And we had unchanged credit days, both in receivables and payables. So all fine in terms of working capital. And net cash flow was also quite strong. And this cash flow has driven a continued strengthening, of course, of our balance sheet. So net debt-to-EBITDA is approximately 1.0 here, as you can see at the end of the year. We've continued to repurchase shares in line with our program that we launched with SEK 3 billion. And so far, we have purchased 9.2 million shares or totally SEK 2.4 billion. So we are roughly about 80% through this year's program. So let me then finalize with a little bit of overview of 2025. In many aspects, this was a good year. We had an organic sales growth of 0.9%, and this is despite challenging market conditions. We actually had growth in all our business areas. We maintained our volumes and price management remained strong for the entire year. In terms of margin, we've already talked about that, but it was a very good year in terms of margin. In fact, if you look at that operating margin of 14.1%, it's the second highest we've ever had. It's second only to the artificially high margin during the pandemic that was caused by all the panic buying, for those of you who remember. So this is, from a historic perspective, a very attractive margin. And then turning a little bit to what does that imply? And some of you may have seen from the report that our EPS growth was, if you look at it, between 2024 and 2025 in nominal terms, roughly about 1% growth. Now of course, the Swedish krona has strengthened a lot. So if you actually look at the EPS growth in comparable currencies, you will see a growth of roughly about 8%. And this is quite consistent with the long-term growth of about 6% if we start with the birth of Essity as the first year. So continued good performance. And this is, of course, on the back of good margins, the growth we've had and of course, also a shrinking finance net as our net debt has reduced. Finally, then the Board has -- or will propose to the AGM a dividend increase of SEK 0.50 to SEK 8.75. This represents an increase of about 6%. And if you look at, once again, from the birth of Essity, you can say this is consistent with the growth that we've had, roughly about 6% or a total growth of 52%. So with those words, leaving over to you, Ulrika. Ulrika Kolsrud: Yes. Thank you, Fredrik. And with that, we are leaving a solid 2025 behind us. We finished the year with stronger market shares with continued growth in our strategic segments and not the least with strengthened profit margins. It's been, from an external perspective, a quite turbulent year with a lot of geopolitical uncertainty and the weak economy. And that has, of course, impacted also our industry. And we see that the resilience that we have shown during this is really a sign of strength. As Fredrik has shared, we have grown organically during the year. We have strengthened our profit margins, and we have now the strongest profit margin in 5 years, and we have delivered a solid result. So we are proud over this, but we're also determined to accelerate our profitable volume growth and to speed up our progress towards our financial targets. And therefore, the initiatives that we've launched earlier than in 2025, with the reorganization with the cost saving program and with the acquisition of the Edgewell Feminine Care business in North America. And we bring those initiatives with us together with then the very strong financial position we have into 2026, where we remain fully committed to our strategy to drive profitable volume growth. And we will do that by, first and foremost, making sure that we have the customer and consumer at the center in everything we do. We will also do that by continuing on the path to strengthen our market shares and our product superiority. We will, of course, integrate the Edgewell acquisition to strengthen our Personal Care position in North America. And we will implement our cost save programs, both the COGS cost save program that Fredrik was talking about as well as then the SG&A cost save program, where we have the ambition to reinvest the majority of that into fueling profitable growth. And also, we will fully leverage our new organizational setup with end-to-end accountability with more decentralized decision-making and also with even sharper focus on our most attractive parts of our business, so that we can unleash the full power of our fantastic Essity teams, and also to make the boat go faster. Speaking about our fantastic Essity teams, you have the opportunity to meet some of them if you join us in our Capital Market Day on the 7th of May. We will host that in our Mölndal office in Sweden, which is our largest office. And you don't want to miss the opportunity of hearing more about our strategy to drive profitable growth and to be able to see some of our R&D laboratories in this facility as well as production facility in the neighborhood. So I really hope to see all of you there. Sandra Åberg: Thank you, Ulrika, and thank you, Fredrik, for that walk through. Now we are ready to take your questions. [Operator Instructions]. Ulrika and Fredrik, are you ready to open up for questions? Ulrika Kolsrud: Yes. Sandra Åberg: Perfect. We have the first question from Niklas Ekman, DNB Carnegie. Niklas Ekman: Can I start asking about kind of your priorities for '26 here? Obviously, volumes have been weak now for some time. And now you have a couple of quarters with a pretty strong margin expansion. How do you view that now in '26? Are you willing to sacrifice some of that margin in order to restore volume growth? Or are you more optimistic maybe about the market now having had some kind of cyclical headwinds, that they might turn to some tailwinds in '26? Or you're thinking there on the mix between organic volume growth and margins and what your priorities are? Ulrika Kolsrud: Well, as we have talked about previous quarters as well as in this quarter, we are doing selective price adjustments in order to fuel volume growth. And also, we have the intention to increase our A&P investments. We have seen that the investments that we do in A&P is paying off very nicely, as you saw in the market share development. So that we will do. And then the volume growth will give us operating leverage and thereby also securing the profit margins. And since we talk about this and how to drive volume growth, I want to mention one thing that we're also very proud of in 2025 that will support volume growth in '26, and that is our innovation delivery in the year. We increased our share of sales that is generated through innovations and also the superiority record that I talked about earlier. That shows that we are strengthening our offers to consumers and customers, and that is the base for driving volume growth. And then, of course, we need to make sure we have the right price positioning and that we support those fantastic offers with A&P investments. Niklas Ekman: Very good. But do you see any risk of margins? Or are you looking at maybe sacrificing some of these strong margins now to accelerate growth? Or do you think that you can do both? Ulrika Kolsrud: Our ambition is to do both. I mean, in some areas, of course, when we have selected price adjustments, that will have an impact on margin short term. But in other areas, we have opportunities to go in the other direction. So that is a continuous work that we do to optimize this. Fredrik Rystedt: Maybe to add, if I may, Niklas, as you are aware of, and we communicated last quarter that the cost saving program will generate fairly significant savings. And of course, we are aiming to use those funds to actually do what Ulrika was talking about here in terms of fueling growth, both in terms of selective price decline, but also A&P spend. So this is a way to make sure that we can do both, just to emphasize. Sandra Åberg: Next up is Charles Eden from UBS. Charles Eden: You mentioned the lower volumes and prices in Consumer Tissue private label. Are you able to quantify the organic sales decline for that business in Q4? And can I ask whether the continued challenges of this unit makes you reconsider whether this asset is indeed core to Essity going forward as you concluded at the most recent strategic review of this asset? And then if I can sneak a clarification question, it's the usual one for me, Fredrik, on the group EBITA bridge. Of the SEK 749 million cost of goods sold tailwind in the quarter, can you help break that down between raw mats and energy distribution? I've got the SEK 190 million benefit from COGS savings in Q4 from the press release. Ulrika Kolsrud: If we start with the second question, maybe there with the reconsidering, I mean, we are continuously looking at our portfolio in evaluating and optimizing our portfolio. Then Fredrik, maybe you can help on the details of private label... Fredrik Rystedt: COGS... Ulrika Kolsrud: Yes, and the private label part. Fredrik Rystedt: Yes. Charles, we are not giving the details specifically as to the individual components. So I'm not going to say that. But of course, we already alluded to that the majority of the decline in volumes of the 2% or just under 2% is coming from there. But it's worth noting that the performance or actually EBITA is really, really good with Consumer Tissue private label. And we always have a bit of volume volatility in Consumer Tissue private label. So I don't think you can draw the conclusion that it's a bad business. In fact, it actually is generating quite a healthy margin and good profit. It's just that for the time being, volume is actually low. Should I answer also -- you were asking for the breakdown of COGS, right? Was that your question there? Charles Eden: Yes. Fredrik Rystedt: So the majority was related to raw materials. So that was about 2/3, give and take. And then we had energy, how should I say, more or less the rest. And then if you look at the other COGS, which was basically volume decline or less absorption plus new lines, et cetera, that was about the same as the cost saving program, so to give you a little bit of indication. Does that answer your question, Charles? Charles Eden: Yes, it does. Thanks, Fredrik. Sandra Åberg: Then let's move to the next question. Warren Ackerman from Barclays. Warren Ackerman: Warren Ackerman here at Barclays. Could you maybe sort of dive a little bit deeper on the A&P spend? You're talking about the increase to help drive the volume. I get it's going to be funded from the savings. But are you able to say -- I think it's around 5% of sales at the moment. But how much do you want to increase that by? And what is your current A&P mix in terms of online digital, and how do you measure the returns on that investment? What kind of tools do you have to sort of figure out where and how you allocate that spend? It sounds like it's going to be a big part of the story for this year. So just keen to understand a bit more on the details. Ulrika Kolsrud: And I can answer to some extent today, but I would also then invite you to the Capital Markets Day and talk more about this in detail. But of course, we are eager to measure the return of our marketing investments. So we do that on a regular basis. And it's by doing research on what we produce as well as following up that the activation is having the effect that we expect, both when it comes to purchase intent, when it comes to awareness and, at the end of the day, that it's generating the sales and the repurchase that we are expecting. So that we do on a continuous basis to make sure that we allocate the investments to where they do the best job for our brands. That was one question. The other question was more about how much we intend to increase A&P. Fredrik Rystedt: Yes, we haven't specified that. And of course, it's connected also to the innovation that we put on the market, because that always has an impact on the A&P spend. But generally speaking, we are, of course, convinced and, Ulrika, you gave a couple of examples here that A&P in general is fueling growth and is also profitable. You were asking there, Warren, about how we actually track profitability, return on market investments that we do. We believe we are reasonably good at it. Of course, as you always know, it's really very difficult to exactly have a scientific way of measuring. But we think we are pretty okay with measuring return of market investment. So to allocate where to put it, I think we are doing it reasonably okay. So we can't give you exact answers to your question as to how much or exactly how much the return is. It varies a lot. But generally speaking, we will increase, and we think we know where to increase. Warren Ackerman: And maybe just to clarify quickly, Fredrik. I guess I'm going to press you a little bit from a modeling point of view, I mean another way to ask it is, of that SEK 1 billion savings, how much of that will be sort of allocated to reinvestment? Or maybe another way to ask it is that 5%, how does that benchmark against peers? I mean, from a modeling point of view, do we stick in 6%? Or I mean, because it's sort of like it's quite a big swing factor. So any kind of help would be useful. Fredrik Rystedt: Yes. It's a great question. And of course, we got this question last quarter that is this going to impact in the end the EBIT margin or EBIT line. And we said, yes, it will, indirectly. So it's not so that we are putting the savings to our income statement or to the EBIT line immediately. We are investing it. And through that return on market investment, we believe that over time, we will both get operating leverage for growth and then, of course, margin enhancement. And it's not all about A&P, it is also about a combination of selective price increases that we partly have already done, but will do and A&P increases. So it's actually both. It's very difficult to give you specific details on exactly where, it's many different combinations. But over time, we think it will be profitable. Your final question as to how do we compare. Quite difficult to answer that. We are making a lot of benchmarking and trying to kind of adjust for the differences in structures and categories. But I think overall, there is an upside for us to do this. Sandra Åberg: Let's continue then with a question from Johannes Grunselius from SB1 Markets. Johannes Grunselius: I have a question on COGS again, if you can dive in a bit more there. Because Fredrik, you mentioned here, you will have slightly lower COGS year-over-year in Q1. In Q4, you obviously had a tailwind year-over-year of SEK 749 million. It's such a huge COGS base. So maybe you can provide a range or something on the year-over-year tailwind in Q1, that would be very appreciated, if you can give any indications, please. Fredrik Rystedt: Yes, we can. So thanks, Johannes, for the question. And we have chosen to guide only on COGS as a totality, because understanding all the ins and outs doesn't make things easier to actually grasp. So we are typically reasonably accurate when it comes to the estimate of the entire COGS number, and this is why we are giving it to you. But as I said, raw material is largely -- they're a bit in and out there, or positive and negative, but it's largely going to be a bit positive as energy as well, perhaps, if we compare then Q1 versus Q1. We're going to continue to have a little bit of unfavorable volume comparisons. We're going to have a bit of new -- or cost for new lines that we will have -- we're putting in place in Q1, and then we'll have a bit of cost savings. So all in all, this will give a slightly lower cost. The main driver actually still being raw material. And if you think about the main driver of raw material, it's actually mainly favorable FX actually. Johannes Grunselius: Okay. Okay. Can I put it the question in this way, if we look at COGS sequentially, are you thinking about more stable COGS? Or are COGS perhaps up a bit Q1 over Q4? Fredrik Rystedt: It's mainly stable. Mainly stable, you can say. Sandra Åberg: So let's move to the next question. Aron Adamski from Goldman Sachs. Aron Adamski: First, I had a follow-up on growth expectations for 2026. I mean, against the backdrop of lower input cost environment that you highlighted, would you expect price to be negative for the entirety of '26? And given that context, would you expect to achieve a better organic sales growth in '26 than you have done in '25? And then second, a quick follow-up on the A&P discussion. Can you please give us a sense of how the advertising step-up is going to be phased through 2026? Is it going to be more front-loaded? And therefore, could we expect the margin delivery to be relatively weaker in the first half of the year, given everything you said on volume, price adjustments and the cost savings delivery? Ulrika Kolsrud: I almost forgot the first question after the third question. What was the first question again? Sorry. Aron Adamski: Sorry, just on pricing expectations for '26. Ulrika Kolsrud: Yes, it was pricing and volume expectation, that's true. So I mean, we need to be agile and want to be agile when it comes to pricing because it's, of course, dependent on what happens in the market environment. So we are adapting to both, of course, what happens with input costs, but also what happens when it comes to demand and need to adapt to that situation as well as being fully equipped to capture the market growth when the wind is turning. So therefore, of course, there are scenario planning and so on, but to be agile is most important. When it comes to organic growth, yes, our ambition is clearly to move towards our financial target with 3% organic growth. So our ambition is to accelerate our growth. But again, we are in a volatile environment. So it's so important for us, and that's why it's so great to see that we are strengthening market shares in this quarter, because when the market is as volatile as it is, what we can focus on a lot is to win the relative game. And what we see in the quarter is that we're doing exactly that. And what's also important for us is that we win where it matters the most, and that is to drive our strategic segments. So that was an answer to say that we need to stay agile and see what happens in the market and then adapt to that. Sandra Åberg: Perfect. Aron, does that answer your question? Aron Adamski: Yes. Just on the second question on the phasing of margins, I suppose, for 2026, maybe if you could give us a bit more color on how the step-up in A&P is going to be phased and how is that going to impact the margin phasing through the year? Fredrik Rystedt: Maybe I can -- we don't give those kind of detailed guidance, as you've seen, Aron, but just maybe as a little bit of still a hint or 2, maybe even. First of all, you can see that Q4, as we have just reported, was higher than Q4 of '24. So that step-up has already actually happened. And if you remember, I mentioned -- maybe you weren't participating, but I actually mentioned that we do expect higher SG&A cost in Q1 on the back of higher A&P. So this gives you a little bit of hint. So we believe that the higher A&P cost will be there immediately -- actually already is there, higher, if you see the numbers. Sandra Åberg: Now let's move to Tom Sykes, Deutsche Bank. Tom Sykes: Would you be able to say how the A&P to sales for you differs by category? And just what are the categories which would have the greatest elasticity to increased A&P spend, please? And maybe just in addition is, what's happening to your trade retail spend? And how big is that in the COGS costs presumably? Ulrika Kolsrud: Well, if we look at A&P to sales, it's the categories that you find in Personal Care that has the consumer brands that has the biggest A&P spend in relation to sales, or I should say A&P investment rather in share of sales. Then if you look at a category like Wound Care, for example, you have a much lower A&P in relation to sales. There, it's much more about the sales force and equipping the sales force with the right products and support. And you find that fueling growth is through the sales force. And then we have everything in between there. Tom Sykes: Okay. And in terms of sort of the elasticity, where do you think the best place to allocate incremental A&P is? Was it just across the board? Ulrika Kolsrud: Yes. This is more about where we have our most attractive segments and categories. We want to invest the most where we have the highest potential for profitable growth and the strongest reason to win. So I think what you've seen here also now is that we have had good effect of investing, for example, in Feminine Care as well as in Incontinence Care. But we do want to fuel growth across our categories, but that should give you an indication. Fredrik Rystedt: And I guess, Tom, your question on trade spend, are you referring then to promotional activity there, I guess, right? Tom Sykes: Yes. I guess it's yes. That's spend with retailers. Fredrik Rystedt: Yes. And that is by far Consumer Tissue traditionally. So the promotional -- the percentage of all products sold under promotion is by far highest in Consumer Tissue. Tom Sykes: Okay. So that's just sitting in reduction of your revenues? Is it... Fredrik Rystedt: It's a pricing issue. It's a way -- you can say the pricing activity, they're strategic, so kind of headline pricing, and then you've got tactical pricing. And so promotion is a tactical -- it's what you do on a more temporary basis. So it's not list price adjustment. Tom Sykes: I get some of it. Sorry. Is there not spends that you would do on the websites of major retailers to get up the ladder of people searching for particular categories? I mean, that wouldn't -- or do you just include that in pricing? Ulrika Kolsrud: No, there is also brand communication and marketing that we do through the retailers or in connection with the retailers. So that is one element. But to Fredrik's point, when it comes to price campaigns, that you see in the sales. Tom Sykes: Okay. But just to clarify, does all your, if you like, A&P type spend, setting aside any promotion and price reductions, does all of that sit in the A&P line? Or does some of it sit also in the COGS line, because it's trade spend that goes on? Fredrik Rystedt: Not in COGS. It's not in COGS. It's either sales or A&P. So in this case, what you're referring to is A&P. So it's not COGS. I'm not sure how that could be possible. But we can talk about that offline, but it's not in COGS. Promotion is in sales and marketing in A&P. Sandra Åberg: Perfect. Next question comes from Karel Zoete from Kepler. Karel Zoete: I have 2 questions, if I may. The first one is in relation to M&A. You've done last year, one acquisition, but the market is difficult certainly in places such as Latin America. What's hindering you from doing more M&A? Or why haven't we seen more acquisitions over the last 18 months given the difficult markets? And then the second question is more in relation to Asia. I think there's still an agreement within that they can use some of your brands. What's the status of this? Is this going to be renegotiated in the coming year? Or do you have plans to build operations yourself selectively to capture some of the growth in the Asian market? Ulrika Kolsrud: If I start with the M&A question, maybe you can answer to Asia later. We continue to work actively with M&A, identifying potential targets and assessing potential targets. As you know, it's part of our strategy to grow both organically, but also inorganically. So we clearly have the ambition to do value-creating M&As. But we are, to that point, very disciplined to make sure that they are value creating. So that is, of course, always what we're doing in the screening to make sure that, that is the case, and always judging what is the most value creating, is it organic growth or inorganic growth. And you could argue, of course, when it comes to valuation, that in order to bridge the potential valuation gap, we need to find quite a lot of synergies then to secure that value creation. So the short answer is that we have the ambition to drive more M&As and are working on that actively. Fredrik Rystedt: So Karel, when it comes to Asia, the story isn't really different there. When we divested Vinda in 2024, there was a license agreement for these brands, and that expires in 2027. Now as we sold the company, we also granted an option for the buyer to continue licensing these brands also in the future against, of course, a license fee. And that option has not yet been translated into an agreement. And of course, we remain unsure of whether that will actually happen. So there are 2 possibilities here. One is that we continue with the license agreement subject to the buyer actually exercising on that option, or if they don't, then, of course, we get those brands back in Asia. So we cannot give you an answer at this point of time as we actually don't know. Sandra Åberg: Let's move then to Misha Omanadze, BNP Paribas. Mikheil Omanadze: I just wanted to zoom in a bit more on your end market dynamics where you already provided some helpful color. And overall, it seems that the markets remain challenging. If you were to look at your biggest category geography exposures, where would you say you saw the biggest sequential change from the previous quarter in both positive and negative direction in terms of end market trends and consumer environment? Ulrika Kolsrud: I wouldn't say that we've seen any big movements between quarter 4 and quarter 3. It's been quite stable when it comes to market environment. Sandra Åberg: Next question comes from Henrik Bartnes from ABG. Henrik Bartnes: One question for me, please. You have historically talked about seasonally lower volumes in Q1 compared to Q4. And if we look at Q1 sequentially, how should we think about volumes this year? Are there any indications that this year won't show any seasonally lower volumes? Fredrik Rystedt: I can maybe answer. First of all, we don't give volume estimates. We can only report what has historically been the case in terms of seasonality. So as you rightly say, seasonality would suggest that volumes in Q1 are lower than Q4. It's not actually one and the same for all our business areas or categories. Some don't have that. But in general, if you look at the group as a whole, clearly, volumes are typically, I should say, lower in Q1 versus Q4, but we are not giving an estimate for '26 specifically. Sandra Åberg: Let's now move on to Celine Pannuti from JPMorgan. Celine Pannuti: So my question is coming back on the Consumer Goods performance with price/mix negative. I think you mentioned that you had to roll back some pricing in order to keep some of your customers. I think it was in private label. Does that mean that going forward, we still have to annualize that, and so we'll have continuous negative pricing. I also said you mentioned there was a one-off impact from Latin America. So if you could give us a bit of an idea on that go forward. [indiscernible]. Sandra Åberg: Sorry, your sound is not working really. So we can't really hear your question. Maybe we can just start with the 2 questions you had now, because then we have to move on. Is that okay? Celine Pannuti: Perfect. Sandra Åberg: Good. Fredrik Rystedt: Yes. I think I got the question whether the price/mix -- the negative price/mix in consumer goods would flow into Q1 or Q2? Was that the question, Celine? Celine Pannuti: Yes. I mean, I would presume it annualizes if you have made some pricing concessions. And then the question, is there any other price negotiation that you are going through now in retail? Fredrik Rystedt: Yes, right. No, again, we can't comment on, obviously, price negotiations. That's more commercially related, I can't do that. But of course, as we have lower prices now in Q3 and Q4 and especially here in Q4. So there has been a price decline in Consumer Tissue. That will, of course, obviously continue into Q2. So in short, we'll see those price impacts coming or continuing in Q1 and Q2 potentially. Celine Pannuti: And just how material is the Latin America impact that you mentioned? Fredrik Rystedt: Yes, we are not actually giving you the exact number there, Celine, and this is for commercial reasons basically. But if you actually look at -- I gave you a little bit of guidance. It's always interesting when you say you're not going to give a number and then you almost do it anyway. But I'll do it because if you look at the minus 0.6% in terms of organic sales growth for Feminine in the quarter. And then we also stated that without that sales, organic sales growth would have been low single digit. That gives you a little bit of indication as to the size. So this is a bit -- of course, for the group, not a lot, but for Feminine, it is a bit, and it comes out as pricing. So that's temporary. That will not be there in the next quarter. Sandra Åberg: Perfect. Thanks for your question, Celine. Now we will move to our final question, and that question is from Oskar Lindstrom, Danske Bank. Oskar Lindström: Just a slightly different question from me. Following the Edgewell acquisition and an acquisition by another company, you're not going to be sharing, I understand, the brands Stayfree and Carefree between you. Who owns those brands? And who is paying royalties or fees to whom? Ulrika Kolsrud: Well, we own the brands in the geographies that we are operating the brands with. So in those geographies, it's our -- we can actually then do what we think is commercially right to do with those brands. Fredrik Rystedt: So in short, no royalties paid to anyone. Oskar Lindström: Wonderful. That's all the questions I had. Ulrika Kolsrud: That's what you wanted to know. Thank you for that interpretation. Sandra Åberg: Thank you, Oskar, for that question. And now it's time to wrap up. But before we end, I would like to hand over to you, Ulrika, again, for final remarks. Ulrika Kolsrud: Yes. Well, thank you, Sandra. Thank you for joining us today. We are leaving, as I said, a solid 2025 behind us, where I think our resilience has really been a critical success factor. And it's especially great to go into 2026 with this good market share momentum that we have talked about today. And finally, I look forward to see you all on the 7th of May in Mölndal, Sweden. Sandra Åberg: Yes. Thank you for that, Ulrika, and thanks to you for joining. If you have any further questions, just reach out. We will be road showing in Stockholm today virtually next week, and we will also be in London next week. So see you there. And take care, and have a good rest of the day. Bye for now.
Operator: Good day, and thank you for standing by. Welcome to the Great Southern Bancorp's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, [Christina Maldonado]. Please go ahead. Unknown Attendee: Good afternoon, and thank you for joining Great Southern Bancorp's Fourth Quarter 2025 Earnings Call. Today, we'll be discussing the company's results for the quarter and year ended December 31, 2025. Before we begin, I'd like to remind everyone that during this call, forward-looking statements may be made regarding the company's future events and financial performance. These statements are subject to various factors that could cause actual results to differ materially from those anticipated or projected. For a list of these factors, please refer to the forward-looking statements disclosure in the fourth quarter earnings release and other public filings. Joining me today are President and CEO, Joseph Turner; and Chief Financial Officer, Rex Copeland. I'll now turn the call over to Joe. Joseph Turner: Okay. Thanks, Christina, and good afternoon to everybody on the call. We appreciate you joining us today. Our fourth quarter and full year 2025 results reflect the sustained success of our core banking operations and our commitment to long-term tangible book value appreciation despite a volatile economic environment. Throughout the year, we remain focused on preserving net interest margin, protecting credit quality, controlling noninterest expense and opportunistically repurchasing our stock. For the fourth quarter, we reported net income of $16.3 million or $1.45 per diluted common share compared to $14.9 million or $1.27 per diluted common share in the year ago quarter. For the full year, net interest income totaled $71 million -- net income, I'm sorry, totaled $71 million or $6.19 per diluted common share. These results happen because of resilient net interest income, strong asset quality, and prudent asset liability management despite ongoing loan and deposit competition and fundamental economic pressures. Net interest income for the 2025 fourth quarter totaled $49.2 million, which was a decrease of $371,000 or 0.7% compared to the prior year quarter. As you'll recall, we did lose the income from our terminated swap during the fourth quarter. We lost most of that income and the quarterly income had been $2 million. So that's the primary reason for the small decline. Additionally, we have lower loan balances, which resulted in some lower interest income. But despite those factors, effective management of funding costs reduced interest expense and mostly offset the decrease in interest income. This resulted in net interest margin expansion. Our margin grew from 3.70% this quarter, 3.7% from 3.49% in the year ago quarter. Core deposits remained relatively stable, reflecting continued customer engagement and the underlying strength of our relationship-based banking model. Net loans receivable totaled $4.36 billion at year-end, representing a decline of $333.5 million or 7.1% from where they were a year ago. We had declines in multifamily residential, commercial construction, one- to four-family and commercial business. The decrease primarily reflects elevated payoff activity as capital markets have eased during the year. Though loan production remained active, we continue to maintain a conservative underwriting posture focusing on pricing structure and borrower stream. Additionally, construction lending remained steady through the quarter and the full year into 2025, supported by a solid level of unfunded commitments. On the funding side, total deposits decreased $122.8 million or 2.7%. This really was almost exclusively in the brokered category that category declined $108.7 million. We did have a decline of $87.3 million in our core CDs or the CDs originated through our system of banking centers, but that was almost completely offset by the growth in our interest-bearing checking accounts that was $75 million. Deposit markets remain competitive across both core and brokered channels and we continue to balance pricing discipline with customer retention. We will continue to monitor repricing opportunities as interest rates and competitive dynamics develop and utilize nondeposit funding sources when appropriate. Credit quality remains a clear area of strength at year-end. Nonperforming assets for the fourth quarter totaled $8.1 million, representing 0.15% of assets. Compared to the linked quarter, nonperforming assets increased $319,000. We did not record a provision for credit losses on outstanding loans in the fourth quarter of 2025. We also recorded net recoveries of of $22,000 for the quarter compared to net charge-offs of $155,000 during the same quarter a year ago. For all of 2025, we recorded recoveries of $11,000. These results reflect stable borrower performance and the effectiveness of our underwriting and portfolio monitoring practices. Expense management remained a focus for the company during the year. Noninterest expense for the fourth quarter of 2025 was $36 million, down about $947,000 or 2.6% from the year ago quarter. The year-over-year decline was really exclusively a result -- in the year ago quarter, we had a $2 million charge associated with the settlement of a contract matter. And obviously, that did not recur this quarter. We did have some higher net occupancy and equipment expense that's driven by investment in facilities and really primarily driven by investments in technology. For the fourth quarter of 2025, we reported an efficiency ratio of 63.89%. Looking forward, our priorities remain centered on maintaining strong capital and liquidity, supporting our customers and communities, maintaining strong credit metrics and deploying capital thoughtfully. Though loan growth may remain challenging and economic conditions fluid, we believe our conservative approach and sound balance sheet management will continue delivering long-term value for our stockholders. With that, I'll turn the call over to Rex for a more detailed review of our financial results. Rex Copeland: Thank you, Joe, and good afternoon, everyone. I'll now provide a more detailed review on our fourth quarter and full year 2025 financial performance and how it compares to both the prior year period and the linked quarter. For the quarter ended December 31, 2025, we reported net income of $16.3 million or $1.45 per diluted common share compared to $14.9 million or $1.27 per diluted common share in the fourth quarter of 2024 and $17.8 million or $1.56 per diluted common share in the third quarter of 2025. For the full year, net income was $71.0 million or $6.19 per diluted common share compared to $61.8 million or $5.26 per diluted common share in the prior year. Net interest income totaled $49.2 million for the fourth quarter of 2025 compared to $49.5 million in the prior year quarter and $50.8 million in the third quarter of 2025. Interest income totaled $73.4 million for the fourth quarter of 2025 compared to $82.6 million in the fourth quarter of 2024 and $79.1 million in the third quarter of 2025. The year-over-year change primarily reflects the discontinuation of the previously terminated interest rate swap that Joe mentioned earlier, which was providing $2 million roughly in quarterly income prior to the fourth quarter. Also, along with that, we had lower average loan balances and lower average market interest rates in the fourth quarter of '25 compared to the fourth quarter of 2024. While market rates move lower, the impact on loan yields was somewhat moderated as cash flows from lower rate -- fixed rate loans originated in prior years were redeployed into loans with comparatively higher rates. Interest expense totaled $24.3 million in the 2025 fourth quarter, reflecting continued reductions in deposit and borrowing costs as repricing dynamics moderated and wholesale funding remained well managed. In addition, we repaid $75 million in subordinated debt in June of 2025, which resulted in $1.1 million in lower interest expense in the fourth quarter 2025 compared to the fourth quarter of 2024. These reductions in funding costs mostly offset the downward pressure we saw on interest income. Our proactive loan pricing in conjunction with disciplined management of funding costs resulted in net interest margin expansion as we realized an annualized net interest margin of 3.70% in the 2025 fourth quarter compared to 3.49% annualized in the year ago quarter. Noninterest income totaled $7.2 million for the fourth quarter of 2025 compared to $6.9 million in the prior year quarter and $7.1 million in the third quarter of 2025. The small increase in noninterest income was due primarily to a $289,000 increase in late charges and fees on loans resulting from the early payoff of really primarily one commercial real estate loan in the 2025 fourth quarter. Total noninterest expense for the fourth quarter of 2025 was $36.0 million compared to $36.9 million in the fourth quarter of 2024 and $36.1 million in the third quarter of 2025. The year-over-year decline primarily reflects, as Joe mentioned earlier, the $2 million decrease in other operating expenses, which resulted from the litigation and contract matter that we spoke of earlier. These reductions were partially offset by a $1.2 million increase in net occupancy and equipment expense, driven primarily by higher computer license and support costs related to core systems and disaster recovery enhancements, charges associated with branch closures and lease facility asset adjustments and seasonal expenses related to things like snow removal and some adjustments to real estate taxes. Our efficiency ratio was 63.89% in the fourth quarter of 2025 compared to 65.43% in the fourth quarter of 2024 and 62.45% in the third quarter of 2025. Turning to the balance sheet items now. Total assets ended the year at $5.60 billion down from $5.98 billion at the end of 2024 and $5.74 billion at September 30, 2025. Total net loans, excluding mortgage loans held for sale, totaled $4.36 billion at December 31, 2025, down from $4.69 billion at December 31, 2024, driven by primarily declines, as Joe mentioned, in multifamily, construction, one- to four-family residential and commercial business loans. And while the loan demand remains selective, the pipeline of unfunded loan commitments remain solid with the largest portion related to the unfunded portion of booked construction loans. Liquidity remained strong at year-end with cash and cash equivalents totaling $189.6 million. In addition, the company maintained access to approximately $1.63 billion of additional borrowing capacity through the Home Loan Bank and the Federal Reserve Bank. Total deposits were $4.48 billion at December 31, 2025, reflecting a decrease of $122.8 million or 2.7% compared to December 31, 2024. The reduction was primarily driven by a decrease in brokered deposits of $109 million and a decrease in time deposits of $87 million. Those are retail time deposits, not brokered. This was partially offset, as Joe mentioned before, by increases in interest-bearing checking deposits, which totaled about $75 million. As of December 31, 2025, we estimated that uninsured deposits, excluding deposit accounts of the company's consolidated subsidiaries were approximately $720 million, representing roughly 16.1% of total deposits. Asset quality remained excellent with nonperforming assets representing 0.15% of total assets at year-end, consistent with both the linked quarter and prior year quarter. During the fourth quarter of 2025, we recorded net recoveries of $22,000, an improvement from $155,000 in total net charge-offs recorded in the fourth quarter of 2024. For the full year 2025, we recorded net recoveries of $11,000. For the year ended December 31, 2025, we did not record a provision for credit losses on the portfolio of outstanding loans compared to a provision of $1.7 million recorded in 2024. In the fourth quarter of both 2024 and 2025, we did not record a provision for credit losses on the portfolio of outstanding loans. However, as a result of increased unfunded commitment balances, we recorded a provision for unfunded commitments of $882,000 in the 2025 fourth quarter, down from $1.6 million provision recorded in the fourth quarter of 2024. Capital levels remained a key strength at year-end. Stockholders' equity was $636.1 million at December 31, 2025, an increase of $36.6 million from $599.6 million at the end of 2024. Stockholders' equity represented 11.4% of total assets and book value per common share was $57.50 at year-end 2025. The increase in stockholders' equity over the prior year was driven primarily by full year earnings, improvements in unrealized losses on investment securities and interest rate swaps and proceeds from stock option exercises, partially offset by cash dividends declared and common stock repurchased throughout the year. Tangible common equity increased to 11.2% at December 31, 2025, compared to 9.9% at year-end 2024, reflecting the combined impact of retained earnings and improved market valuations within the securities portfolio. We ended the year with capital levels well in excess of regulatory requirements, providing flexibility to support the balance sheet, return capital to shareholders and navigate changing economic conditions. During the fourth quarter of 2025, we repurchased 241,000 shares of our common stock at an average price of $59.33. And during the full year 2025, we repurchased 755,000 shares of our common stock at an average price of $58.35. In the fourth quarter of 2025, our Board of Directors also declared a regular quarterly cash dividend of $0.43 per common share, consistent with the previous quarter. For the full year ended December 31, 2025, the Board declared regular quarterly cash dividends totaling $1.66 per common share. Overall, our balance sheet remains well positioned, supported by strong capital levels, ample liquidity and a healthy loan portfolio. That concludes my remarks. We are now ready to take your questions. Operator: [Operator Instructions] Our first question is going to come from the line of Damon DelMonte with KBW. Damon Del Monte: First question just regarding the margin. A pleasant surprise this quarter. I think given the impact from the swap, we're expecting the margin to come down pretty substantially, but you were able to offset that, it looks like with some lower funding costs. So just kind of curious as to how you think about the margin here as we start off 2026. Rex Copeland: I think so far, we -- as you said, we performed a little better than we thought we might in the fourth quarter with that. We were able to bring some of our funding costs down, we're trying to manage that pretty proactively with the different avenues that we have to provide funding whether it's deposits or wholesale funds, et cetera. So we're trying to work through that and manage those -- the cost side of it. I think what we're seeing, too, on the interest income side, we are seeing some of our loans, which were put on the books maybe a few years ago at maybe some lower short-term fixed rates, and some of those are renewing or we're just getting repayments on those and we're able to redeploy those funds in a little bit higher rate -- the current market rate than we had on the books before. So it's a combination of a few of those things. Obviously, the first quarter, there's fewer calendar days. That shouldn't affect the margin percentage as much per se, but dollar-wise, we'll expect to be down some because of just a number of days in the quarter. Damon Del Monte: So do you think you're able to manage it so there's just a modest amount of compression? Or I mean, do you think you can make it -- have it go higher from here? Rex Copeland: I don't know that -- I mean, you can jump in, Joe. I don't think we can expect to see it go higher necessarily. Joseph Turner: Yes. I think, Damon, until the Fed takes some action, I think we will see our -- maybe our core CD portfolio since that's sort of a lagging portfolio, maybe some of that will reprice and we'll see some interest expense go down there, but that's not a very big portion of our deposits. Most of our deposits reprice pretty well immediately. And so I think we've probably gotten about all we can done on the deposit portfolio. So there won't -- there probably won't be any more improvement there. The loan portfolio, as Rex said, I guess, if there is a bias, it would be a slight bias to go maybe a little bit higher, but it's not very meaningful in the overall scope of our level of net interest income. So I mean, as we said, we don't give guidance. But I think looking at the fourth quarter, I don't see anything that would make it be a whole lot different than that. Damon Del Monte: Okay. Got it. And then with respect to the outlook for loan growth, it sounds like you're continuing to have good production, pipelines are healthy, but you continue to face elevated payoffs. Do you expect those payoffs to slow down at all to a point where we can get some net growth here in 2026? Joseph Turner: Yes. I think it's still going to be a challenging loan growth market for us because there's just -- while there's good activity, it's not great, and there still is outsized loan portfolio or loan payoffs. So I think that's going to be our challenge going forward. Rex Copeland: In the fourth quarter, we did have 1 or 2 kind of unique loans. They were short-term loans and they paid off, and we knew that was going to happen. So that was one sizable one for sure. And we did generate new loans and had some growth. Some of the loans are construction deals where they are not going to fund immediately, but others were ones where they were existing projects, and so we did fund those day 1. I think there will just be, like Joe said, there will be some more continuation of that. But I don't know that I see that -- I don't have a lot of clarity as far as what might pay off. We do have a pretty sizable multifamily portfolio. And I think that was where we saw quite a bit of the repayment with the exception of the one loan I mentioned was in that multifamily. So it's hard to know exactly the timing and magnitude of how that's going to go. Joseph Turner: Yes. It really is hard, Damon. I mean we try to keep track of it. We try to guess, but it's sort of up to the borrowers. Some of them choose to maybe pay us off with a debt fund. Some of them choose to take a sale that's maybe at a lower price than they would be able to sell it for maybe a year or two down the road. So it's sort of the ball is in the borrower's court to a big extent. So it's really hard to give you any guidance on that. Damon Del Monte: Got it. And then if I could just ask one more question on expenses. Fourth quarter came in much better than what we were looking for. Should we kind of expect an uptick off of this quarter's level, just kind of given a reset with salaries and benefits and things of that nature? Joseph Turner: Yes. I mean, I think that's fair. Rex Copeland: We do have a lot of our employee base does have annual normal increases and a lot of those happened at the beginning of the year. Payroll taxes will reset. And generally, there will be some increase in that compared to the fourth quarter. So there are some factors, as you say, there that play into that. Operator: Our next question is going to come from the line of John Rodis with Janney. John Rodis: Joe, just sort of back to the loan question from before. Loans were down 7% this year. I know payoffs are hard to predict, so I appreciate that. But do you think maybe you've seen at least the worst of it? Or do you think loans could be down a similar amount in '26. Joseph Turner: It's just really hard to say, John. Obviously, I hope we've seen kind of the worst of it. We really like our loan portfolio. And we're working hard to originate stuff. So I hope that's kind of like a high watermark for paydowns. But because loan repayments is such a big part of the calculation, it's just hard to kind of guarantee that one way or the other. Rex Copeland: I continue to originate and -- but we are also maintaining some pricing discipline, obviously, credit term discipline. So we're going to continue that. We want to maintain credit quality obviously. So there's been growth, new loan originations in 2025. We just had payoffs that were outpacing a bit. John Rodis: Okay. That's helpful, Rex. Rex, just on the securities portfolio, how should we think about that going forward? It was down a little bit this year? What sort of cash flows do you expect for the year? Rex Copeland: Yes. I mean, the portfolio is about the same now as it has been for most of the year. So nothing really different about it. So probably similar type -- assuming rates don't change a whole lot, probably similar type of payments. Maybe since rates are lower now than they were to start 2025, maybe there'll be a little bit more repayment. But the portfolio is mostly, as you can see from our filings, it's mostly mortgage-backed. It's all agency stuff, some SBAs,some municipality stuff, but by and large, the bulk of it is going to be some sort of an agency pass-through types and things of that nature. So we do get some monthly payment stream from it, but it's not large amounts necessarily. The portfolio is fixed rate stuff. So it's not changing around based on rates from that standpoint as far as our yields and such go. So I don't know that -- I mean it's not probably going to be dramatically different in '26. I wouldn't think unless the rates move down enough that there's a kind of a larger amount of prepayments that go on. John Rodis: Okay. And as far as the cash flows, you're not really reinvesting right now, are you? Rex Copeland: No, we've pretty much been taking the cash flows and reinvesting in loans. John Rodis: Yes. Okay. Okay. Just one more question on the buybacks. You guys have been fairly active. And I think for the press release, you leave almost 700,000 shares currently. All things equal, would you expect to repurchase most of that this year? Joseph Turner: I mean, we're -- Yes, we like where our stock is trading at, John. Obviously, it's a little bit higher than it was in 2024, but I mean, our book value is a little higher, too. So I mean I think even with the recent run-up in stock price, we're still trading at less than 115% of book. So we see that as a good value. And particularly while we're not growing a lot, a good use of capital. John Rodis: Yes. You've definitely got the capital to support it. Joseph Turner: Thanks, John. Operator: And I'm showing no further questions at this time. And I would like to hand the conference back over to Joe Turner for closing remarks. Joseph Turner: All right. We appreciate everybody being on the call today, and we'll look forward to talking to you in April. Thank you. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.
Kristen Lancia: Thank you, Michelle. Good morning, everyone. Welcome to our Q4 2025 Earnings Conference Call. With me today are James Donnelly, CEO, and John McCaffery, CFO. The press release we issued earlier this morning, together with the presentation material that accompanies our remarks, are available on the Investor Relations section of our webpage. Comments made by any participant on today's call may include forward-looking statements. These statements are subject to various risks and uncertainties and other factors that are difficult to predict. Actual results may differ materially from those expressed or implied. We assume no obligation to update any forward-looking information. Please refer to our most recent Form 10-Ks and other subsequent reports filed with the SEC for more information about risks related to forward-looking statements. During our discussion, we may refer to certain non-GAAP financial measures. These measures are used for analysts, investors, and to evaluate ongoing performance. A reconciliation of these measures to GAAP financial results is provided in our presentation materials. I will now turn the call over to James Donnelly. James Donnelly: Thank you, Kristen. Good morning to everyone. We ended 2025 on a positive note and with good momentum, as the team achieved strong results by continuing to serve our customers and communities. We maintain focus on our mission to make every day better, even while we closed on the Presence Bank acquisition. We expanded our net interest spread by 62 basis points, increasing net interest income 62% compared with 2024. Net income and earnings per share more than doubled on an adjusted basis, and we improved returns on both average assets and tangible equity. By nearly any measure, 2025 was a great year. The improvement in our results and financial position are a result of our portfolio repositioning we completed in December 2024, as well as strong loan and deposit growth. That activity combined resulted in a more robust balance sheet and higher quality earnings. That was the right thing to do for our bank, our customers, and our shareholders. It served us well in 2025 and should continue to benefit us in 2026. Our biggest achievement in 2025 was announcing and preparing for the acquisition of Presence Bank, which closed on January 5. Presence Bank is a nearly 106-year-old institution that shared our values, culture, and commitment to high-quality customer service. With this acquisition, we have grown our asset base by 20%, increased our size by adding four branches in the coveted Southeast and South Central Pennsylvania region, and have enhanced our talent base with additional excellent employees. These additions better position us to serve our communities and bring value to our customers, whether they be small business owners looking to invest and expand their enterprises, homeowners looking to utilize the equity in their residences to fund college education for their children, or consumers using online tools to help manage their finances. I am pleased with our performance in 2025 and proud of what we were able to accomplish. We have had great momentum, achieving strong results, and were able to do the additional work to close the Presence Bank acquisition at the beginning of this year. Looking forward, we have established four strategic priorities as we enter 2026 to continue to build on that momentum. The first is to successfully integrate all activity with Presence Bank in the acquisition. With the acquisition now closed, we are moving forward with a sense of urgency to integrate the two organizations, driving uniform systems and operating practices across the new combined entity. We will be bringing the acquired businesses and branches under our new brand and unifying all the branches. This alignment enhances the brand recognition and makes it easier for customers to connect with us online, in a branch, or in a community. We will also engage in open conversations across locations and functions, evaluating current practices of each company, and adopting the best-in-class policies. That will allow us to serve our communities in the best way possible. One example is our use of AI, which is foundational in the second objective of exploring ways to increase operational efficiency and elevate customer experience. Presence Bank has implemented advanced AI tools in their commercial system, which we are adopting as part of our integration. We are using AI to supplement and enhance the work of our talented credit officers in drafting credit narratives, summarizing financials, and confirming required documentation. This will allow us to underwrite deals more quickly and to do more deals with our existing team. As we move with our integration, we will evaluate these tools and deploy those that increase operating efficiency across our organization. This will empower our employees to focus on high-value activities that improve customer experience, which is critical to the success of our company. Although we are moving forward with a sense of urgency, we are not rushed, and we will be thoughtful and measured in our progress to limit and eliminate disruptions for our customers and our employees. Third, we are focused on strengthening our talent pool and deepening our leadership bench. As a regional bank with a prominent presence within the communities we serve, it is much more than a cliché to say that our people are our greatest asset. Whether teller, customer service representative, branch manager, regional manager, or executive leadership, our entire organization is committed to the proposition of delivering financial solutions along with an outstanding experience for all of our customer engagements. Beyond that, as members of our community, our team members act in ways that make our communities better. With the Presence Bank acquisition, I am pleased to welcome Janakah Min as our new Chief Operating Officer. We have also recently added Larry Witt as the Chief Information Officer and Doug Byers as the Market Executive and Head of Treasury Management. Finally, I am pleased to welcome Joseph Carroll and Spencer Andres to the Norwood Financial Corp. board of directors. All of these additions, plus the entire Presence Bank team, make us a stronger bank, and I am excited to see what we are able to accomplish together. Our results in 2025 were strong before adding these growth areas served by Presence Bank. I think they will only make us better and stronger. Finally, everything we do as an executive leadership team is designed to increase shareholder value. John McCaffery will cover the nice accretion that we have added to shareholder value in 2025 as we have grown the balance sheet and profitably later in this call. Let me say an impressive testament to our shareholder focus. We will manage our deposits and assets to maintain our strong financial position, ensuring that we are positioned to continue serving our communities for years to come. We will actively grow our assets through increased deposits and investment decisions, as well as strategic M&A when an attractive and fairly valued target is available. Finally, we will combine these activities with a capital allocation framework that includes returning cash to shareholders through a reliable and growing dividend. I firmly believe that these priorities will allow us to continue to create value and build momentum in 2026 and beyond. I will now turn the call over to John McCaffery to walk us through the results. John McCaffery: Thank you, James. Good morning, everybody. I am going to just walk through the fourth quarter results. And for the fourth quarter, we again demonstrated our ability to improve financial results, continuing the trend that began with our balance sheet repositioning back in December 2024. Our net interest income increased by $5 million on a linked quarter basis, but the margin itself did drop three basis points. This was due to loan growth in the quarter as well as some seasonal outflow of municipal deposits on a temporary basis. Below the margin line, our quarterly results do continue to include merger charges. We had about $520,000 in merger charges in the quarter. We have adjusted our returns in the press release to be able to show you performance ratios that reflect the impact of these expenses. We also reported last year's numbers net of the loss on the securities. Well, so, again, trying to look at a pre-provision net revenue number across the entire span of the press release. Our unadjusted pre-provision net revenue decreased by 2% on a linked quarter basis and an adjusted basis, mostly due to higher expenses during the quarter. We will get to that in a minute. Excluding losses from sales securities related to our portfolio repositioning in 2024, noninterest income for the year increased in the same period, most of the growth coming from fees on our loans and deposit products. Quarterly expenses year over year were up 1.5% from the fourth quarter of 2024. On a linked quarter basis, expenses were up 5% due to several factors in the quarter, including lower loan volumes resulting in lower expense deferrals, and we had some vesting of risk of stock for long-term retiring employees in the quarter. In addition, we had some elevated incentive accruals based upon the improved performance in 2025. Credit metrics continue to improve year over year. Nonperforming loans as a percentage of total loans decreased, and our reserves to nonperforming assets increased. The overall theme of the quarter was continued profitable growth, sound balance sheet management, and benign credit. These themes have aligned to deliver a solid quarter and leave our company well-positioned for the future. James Donnelly and I will now be happy to answer any questions you may have. Operator, please provide instructions for asking a question. Operator: Thank you. To ask a question, please press 11 on your telephone and wait for your name to be announced. Ross Haberman: And to withdraw a question, please press 11 again. Please press 11 on your telephone. Okay. I am not showing any questions at this time, so I will now turn it back over to James Donnelly. James Donnelly: Thank you. And thank you once again for joining us this morning. We are pleased with our accomplishments in 2025 and optimistic for what we will achieve in 2026. With a larger asset base, expanded geographic coverage, and a stronger team to serve our customers and our communities, I believe that our best days are ahead, and I look forward to updating you as we continue to make progress. Have a great day. Ross Haberman: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day. And welcome to the TrustCo Bank Corp NY Fourth Quarter Earnings Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypad. Before proceeding, we would like to mention this presentation may contain forward-looking information about TrustCo Bank Corp NY. As intended to be covered by the Safe Harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Actual results, performance, or achievements could differ materially from those expressed in or implied by such statements due to various risks, uncertainties, and other factors. More detailed information about these and other risk factors can be found in our press release that preceded this call. And in the risk factor and forward-looking statements section of our annual report on Form 10-K. And as updated by our quarterly reports on Form 10-Q. The forward-looking statements made on this call are only valid as of the date hereof. And the company disclaims any obligation to update the information to reflect events or developments after the date of this call, except as may be required by applicable law. During today's call, we will discuss certain financial measures derived from our financial statements that are not determined in accordance with U.S. GAAP. The reconciliations of such GAAP, non-GAAP measures to the most comparable GAAP figures are included in our earnings release, which is available under the Investor Relations tab of our website at trustcobank.com. Please also note that today's event is being recorded. A replay of the call will be available for thirty days, and an audio webcast will be available for one year, as described in our earnings press release. At this time, I would like to turn the conference call over to Mr. Robert J. McCormick, Chairman, President, and CEO to begin. Please go ahead, Robert. Robert J. McCormick: Good morning, everyone, and thank you for joining the call. I'm Rob McCormick, the Chairman of TrustCo Bank. I'm joined today as usual by Mike Ozimek, our CFO, who will go through the numbers, and Kevin Curley, our Chief Banking Officer, will talk about lending. Results announced yesterday are the culmination of years of strategic long-term planning and nimble near-term execution. We resisted risky lending concentrations, borrowing, and other gimmicks in favor of building solid customer relationships through the delivery of top-notch loan and deposit products and services. This enabled us to keep our cost of funds low and grow loans, leading to a healthy margin expansion. We deployed capital through the continuation of our century-long dividend payout, a robust stock repurchase program, and our bedrock practice of lending gathered deposits right back in the communities we serve. All of these factors together contributed to a 38% increase in net income and a return on average assets of almost 33% for the quarter. Total shareholder value returned three times that of our proxy peers year over year, stellar performance by any measure. Now Mike will go through the details, and Kevin will provide some color on lending. Michael M. Ozimek: Thank you, Rob, and good morning, everyone. I will now review TrustCo's financial results for the 2025. As we noted in the press release, the company continued to see strong financial results for the 2025, marked by increases in both net income and net interest income TrustCo Bank during the '25 compared to the 2024. Performance is underscored by rising net interest income, continued margin expansion, and sustained loan and deposit growth across key portfolios. This resulted in a fourth-quarter net income of $15,600,000, an increase of 38% over the prior year quarter, which yielded a return on average assets and average equity of 0.978% and 9.99%, respectively. Capital remains strong. Consolidated equity to assets ratio was 10.66% for the 2025, compared to 10.84% in the 2024. Book value per share at 12/31/2025 was $38.08, up 7.1% compared to $35.56 a year earlier. During the 2025, TrustCo repurchased 533,000 shares of common stock under the previously announced stock repurchase program, resulting in 1,000,000 shares or 5.3% of common stock repurchase year to date. The maximum allowable under the stock repurchase program. And we have also renewed the stock repurchase program, which now allows for the repurchase of up to 2,000,000 shares or another 11.1% during 2026. We remain committed to returning value to shareholders through a disciplined share repurchase program which reflects our confidence in the long-term strength of the franchise and our focus on capital optimization. Credit quality continues to be consistent as we saw non-performing loans modestly increase to $20,700,000 in the 2025 from $18,800,000 in the '24. Non-performing loans to total loans increased to 0.39% in the '25 from 0.37% in the fourth quarter of 2024. Non-performing assets to total assets was 0.34% for both the fourth quarter of 2025 and 2024. Our continued focus on solid underwriting within our loan portfolio and conservative lending standards positions us to manage credit risk effectively in the current environment. Average loans for the '25 grew 2.5% or $126,800,000 to $5,200,000,000 for the '24, an all-time high. Consequently, overall loan growth has continued to increase, and leading the charge was home equity lines of credit, which increased by $54,100,000 or 13.5% in the fourth quarter of 2025 over the same period of '24. The residential real estate portfolio increased $50,600,000 or 1.2%. Average commercial loans increased $24,500,000 or 8.6%. And installment loans decreased $2,400,000 or 17.3% over the same period of '24. This uptick continues to reflect a strong local economy and increased demand for credit. For the '25, the provision for credit losses was $400,000. Retaining deposits has been a key focus as we navigated through 2025. Total deposits ended the quarter at $5,600,000,000, up $166,000,000 compared to the prior year quarter. We believe the increase in these deposits compared to the same period in '24 continues to indicate strong customer confidence in the bank's competitive deposit offerings. The bank's continued emphasis on relationship banking combined with competitive product offerings and digital capabilities has contributed to a stable deposit base that supports ongoing loan growth and expansion. Net interest income was $43,700,000 for the '25, an increase of $4,800,000 or 12.4% compared to the prior year quarter. Net interest margin for the '25 was 2.82%, up 22 basis points from the prior year quarter. Yield on interest-earning assets increased to 4.24%, up 12 basis points from the prior year quarter. And the cost of interest-bearing liabilities decreased to 1.84% from the fourth quarter of 2025 from 1.97%. The bank is well-positioned to continue delivering strong net interest income performance even as the Federal Reserve contemplates rate changes in the months ahead. The bank remains committed to maintaining competitive deposit offerings while ensuring financial stability and continued support for our community's banking needs. Our wealth management division continues to be a significant recurring source of non-interest income. At approximately $1,270,000,000 of assets under management as of December 31, non-interest income attributable to wealth management and financial services fees represent 44% of non-interest income. The majority of this fee income is recurring, supported by long-term advisory relationships and a growing base of managed assets. Now on to non-interest expense. Total non-interest expense, net of ORE expense, came in at $26,500,000, down $1,500,000 from the prior year quarter. ORE expense net came in at an expense of $161,000 for the quarter, as compared to $476,000 in the prior year. We are going to continue to hold the anticipated level of expense not to exceed $250,000 per quarter. All the other categories of non-interest expense were in line with our expectations for the fourth quarter. We would expect 2026 total recurring non-interest expense, net of ORE expense, to be in the range of $27.7 to $28,200,000 per quarter. Now Kevin will review the loan portfolio and non-performing loans. Kevin M. Curley: Thanks, Mike, and good morning to everyone. Our average loans grew by $120,800,000 or 2.5% year over year. The growth was centered in our residential loan portfolio, with our first mortgage segment growing by $50,600,000 or 1.2%, our home equity loans growing $54,100,000 or 13.5% over last year. In addition, our commercial loans grew by $24,500,000 or 8.6% over last year. For the fourth quarter, actual loans increased by $60,700,000 compared to the third quarter. Purchase mortgage loans, including refinances, grew by $42,400,000. Home equity loans increased by $17,000,000, and commercial loans were up by $2,000,000 for the quarter. Overall, residential activity improved during the quarter. For purchase and refinances, we did see a slight uptick in activity, and we were able to close more loans during the quarter. As we have said in the past, we are well situated in the market and will capture more growth as these segments pick up. Also, as a portfolio lender, we are uniquely positioned to manage pricing and promotions to increase lending volume. Our home equity products continue to see consistent demand as customers continue to use their equity in their home for home improvements or paying off loans at high rates such as credit cards. In all our markets, rates continue to be moving in approximately 25 basis points range. Our current rate is 5.875% for our base thirty-year fixed-rate loan. We also offer a low-rate five-one arm and a very competitive home equity credit line product. Overall, we are positive about our loan growth in the quarter and remain focused on driving strong results this year. Now moving to asset quality, at TrustCo, we work hard to maintain strong credit quality in our loan portfolio. As a portfolio lender, we have consistently used prudent underwriting standards to build our loan portfolio. Our residential loans originated in-house, on key underwriting factors that have proven to lead to sound credit decisions. These loans originated with the intent to be held by us for the full term rather than originated for sale. In addition, we have no foreign or subprime loans in our residential loan portfolio. In our commercial loan portfolio, which makes up about 10% of our total loans, we focus on relationship-based loans secured mostly by real estate within our primary market areas. We also avoid concentration of any credit to any single borrower or business and continue to require personal guarantees on all of our loans. Now for our numbers. Asset quality for the bank remains very strong. Early-stage delinquencies for our portfolio continue to be steady. Charge-offs for the quarter amounted to a net recovery of $14,000, which follows a net recovery of $176,000 in the third quarter, and $457,000 over the past year. Non-performing loans were $20,700,000 at this quarter end, $18,500,000 last quarter, and $18,800,000 a year ago. Non-performing loans to total loans was 0.39% at this quarter end, compared to 0.36% last quarter and 0.37% a year ago. Non-performing assets were $22,100,000 at quarter end versus $19,700,000 last quarter and $21,000,000 a year ago. At quarter end, our allowance for credit losses remained solid at $52,200,000 with a coverage ratio of 253%, compared to $51,900,000 with a coverage ratio of 281% last quarter, and $58,200,000 with a coverage ratio of 267% a year ago. Rob? Robert J. McCormick: Thanks, Kevin. We're happy to answer any questions. That's our story. Operator: Thank you very much. If you change your mind, please press star followed by 2. I'll pause for any questions to come through. Our first question comes from Ian Lapey from Gabelli Funds. Your line is open, Ian. Please go ahead. Ian Lapey: Good morning, gentlemen. Congratulations on a great quarter and year. Robert J. McCormick: Thank you. Ian Lapey: Just a few questions. Maybe start with asset quality. Obviously, it's great to see another quarter of net recoveries. But I did notice an increase in the New York commercial NPLs of about $1,700,000. Was that one relationship or a couple? Maybe you could expand a little bit on what happened there. Kevin M. Curley: I think it's two relationships, Ian. And they're multi-families. Like, one is in the city of Schenectady, and one is in the city of Albany. Ian Lapey: Are those typical where you have good collateral and personal guarantees? Kevin M. Curley: Oh, yeah. We don't have an unguaranteed loan in our portfolio, Ian. Ian Lapey: Okay. Good. These particular cases, it's they're both retirees who are knowledgeable with regard to this and think they've relocated to Florida. At least one of them has. Ian Lapey: Okay. And then a couple on expenses. First, the other expense was up a little bit 2.55 versus 1.7 in 3Q. Anything in particular driving that? Michael M. Ozimek: No. I mean, just at the end of the year, we just, you know, there's some of the benefit plans that we look at. We also took the opportunity for tax purposes to, you know, fund the TrustCo Foundation for about a half $1,000,000 just to be able to take the tax benefit of that. So there's a few larger expenses that we put through in the fourth quarter, but nothing really notable. Ian Lapey: Okay. And then for the I thought I heard for the guidance for the '26 expenses, you said 27.7 to 28.2. Excluding other real estate. Is that right? Michael M. Ozimek: Yeah. Yeah. It just gives us a little breathing room going into next year. But there's nothing really that's really driving us up. Ian Lapey: Okay. So because that is a decent uptick from the run rate this year. Is that anything in particular? Or is that sort of across the board? Michael M. Ozimek: It's really just across the board. There's nothing really standing out there. Just like I said, just kinda give us a little bit of room for next year. Okay. I would expect us to probably be on the lower end of that range. Ian Lapey: Okay. And then lastly for me, for the branches, they declined by two. What's the outlook? I know you've mentioned last call, Rob. You were looking at Pasco County in Florida. What sort of your expectation for branch growth or declines in the '26? Robert J. McCormick: You touched on the expenses earlier, Ian, and we are pretty cheap people when it comes to that. So we want to get in at the right price and who knew Pasco would be as difficult it would be to find a location as it is. But we are still actively looking in Pasco. There's a lot of mortgage business there. There's a market change down there. They're pushing people further north. And as Tampa becomes less affordable and some of the other West Coast cities become unaffordable, they move into Pasco. So we are still looking for a location there. We want to do it the right way. Ian Lapey: Okay. Great. Again, congratulations. A great year. Robert J. McCormick: Thanks for your interest, Ian. Operator: As a reminder, to ask a question, please press star followed by 1. This concludes our question and answer session. I would like to turn the conference back over to Robert J. McCormick for any closing remarks. Robert J. McCormick: Thank you for your interest in our company. We hope you have a great day. Operator: Thank you. The conference call has now concluded. Thank you for everyone attending. You may now disconnect your lines.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help. Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Please standby. Your meeting is about to begin. Good morning. Thank you for joining OFG Bancorp's conference call. My name is Nikki, and I will be your operator today. Our speakers are José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, Maritza Arizmendi, Chief Financial Officer, and Cesar Ortiz, Chief Risk Officer. A presentation accompanies today's remarks. It can be found on the homepage of the OFG website under the fourth quarter 2025 section. This call may feature certain forward-looking statements about management's goals, plans, and expectations. These statements are subject to risks and uncertainties outlined in the Risk Sectors section of OFG's SEC filings. Actual results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed in this call as a result of developments that occur afterward. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Instructions will be given at that time. I would now like to turn the call over to Mr. Fernández. José Rafael Fernández: Good morning, and thank you for joining us. We are pleased to report our fourth quarter and 2025 results. Let's go to Page three of the presentation to review the fourth quarter. Earnings per share diluted were up 17% year over year on 2% growth in total core revenues. This was driven by disciplined core operations and a favorable tax benefit. Asset quality and credit metrics were sound and well controlled throughout the quarter. During the quarter and year, in line with our strategies, we saw increased commercial loans, and broad acceptance of our flagship mass market Libre account and mass affluent Elite deposit account. Performance and credit metrics remained strong. Capital continued to grow, and we repurchased $40 million of common shares in the fourth quarter. Maritza will go into more detail on these numbers shortly. Please turn to page four. We accomplished many of our strategic and financial goals last year. Earnings per share increased 8.3% on a 2.8% increase in total core revenues. Total assets grew 8.4% to a record $12.5 billion. Core deposits grew 5% to $9.9 billion. Loans grew 5.3% to $8.2 billion with commercial loans growing to $3.5 billion now representing 43% of our loan book. In addition, new loan production increased 11.5% to $2.6 billion. We repurchased close to $92 million of shares and increased our dividend 20%. Business activity is robust in Puerto Rico, the outlook. Economic growth is positive, and businesses and the consumer are resilient. Having said all that, one of our biggest strategic and financial accomplishments of 2025 was the progress we made with our digital-first strategy. Please turn to page five. Over the last two years, we have clearly emerged as a leader in banking innovation in Puerto Rico. Our digital focus gives us a differentiated approach and provides customers with a unique enhanced experience. In 2024, we introduced the Libre Account for the mass market and the Elite account for the mass affluent market. Both Libre and Elite have been successful in attracting deposits from new and existing customers. In addition, we enhanced our Oriental Biz account suite making treasury management easier and more secure for small businesses, driving a 5% increase in commercial customers during 2025. We have further enhanced the customer experience through technology. In 2025, we launched our omnichannel platform. This provides customers with a seamless banking experience anywhere they choose to interact, transforming the branch into a place for building customer relationships. With our intelligent banking model, customers now receive tailored insights based on cash flows and payment habits. Helping them access and monitor their finances with real-time value-added tools to improve their financial life from their mobile phones. Please turn to page six. All this has directly contributed to our increased market share in retail deposits and a 4% growth in retail customers. To put this into perspective, we have provided data showing our progress over the last two years. As you can see, OFG is well-positioned for continued success in the coming years. Now here's Maritza to go over the financials in more detail. Maritza Arizmendi: Thank you, José. Let's turn to page seven to review our financial highlights. All comparisons are to the third quarter unless otherwise noted. Core revenues totaled $185 million, an increase of $1.4 million. Total interest income was $197 million, a decrease of $3 million. This reflected higher average balances of loans and cash at lower average yields. This was partially offset by higher average balances of investment securities at slightly higher yields. Total interest expense was $44 million, a decrease of $1 million. This reflected higher average balances of deposits and borrowings at lower average rates. Total banking and financial service revenues were $33 million, an increase of $3.4 million. This mainly reflected increased wealth management revenues due to $2.3 million in annual insurance commission recognition. The other income category was a loss of $1.11 million compared to a profit of $2.2 million in the third quarter. The change reflects $6.1 million for accelerated amortization of technology-related assets. Gains of $3.9 million on the sale of nonperforming loans and $1.1 million on the sale of free real estate. Please note that the third quarter benefited from gains from OFG Ventures investment in fintech hubs. Looking at non-interest expenses, they totaled $105 million, up $8.5 million from the third quarter. This reflected $3.3 million in professional services fees related to performance-based advisory costs. This was part of the cost savings renegotiation of our technology service contract. $2.5 million of business rightsizing and $1 million related to the previously mentioned acceleration of technology-related assets. Compared to the third quarter, there were $1.7 million in increased costs related to an additional accumulation of performance bonuses, expanded marketing activities, and the sales of foreclosed assets. For 2026, we currently expect that total non-interest expense to be between $380 million to $385 million. Income tax was a benefit of $8.5 million due to two discrete items. $12.9 million from the expiration of a tax agreement from the 2019 acquisition of Scotia and Puerto Rico and USVI operations and $3.9 million from a release evaluation allowance of deferred tax assets at the holding company level. Excluding discrete benefits, the estimated tax rate for 2025 was 21.8%. Looking at some other metrics, tangible book value was $29.96 per share. Efficiency ratio was 56.7%, return on average assets was 1.81%, and return on average tangible common equity was 17.2%. Now let's turn to Page eight to review our operational highlights. Average loan balances were $8 billion, up slightly from the third quarter. This reflected increases in Puerto Rico commercial loans, partially offset by lower balances in auto and residential mortgage. Loan yield was 7.73%, down 70 basis points. This was mainly due to the effect on variable rate commercial loans from the Fed's 50 basis point rate cut in the fourth quarter. New loan production was $606 million compared to $624 million. This reflected decreases in Puerto Rico and U.S. commercial and consumer lending, partially offset by increases in auto and residential mortgage lending. Average core deposit balances were $9.9 billion, up almost 1% from the third quarter. This reflected increases in retail, commercial, and government balances. By account type, it reflected increases in demand, time, and saving deposits. Core deposit cost was 1.42%, down five basis points. This was mainly due to the lower cost of government deposits. Excluding public funds, the cost of deposit was 102 basis points compared to 103 basis points in the third quarter. Investments totaled $2.8 billion, down $96 million. This reflected principal paydowns and maturities and it was partially offset by purchases of $25 million of mortgage-backed securities and residential mortgage securitization of $21 million. Average borrowings and broker deposits were $787 million compared to $769 million in the third quarter. The aggregate rate paid was 4.03%, down eight basis points from the third quarter. End of period balances were $897 million compared to $746 million. This reflected increased broker deposits for liquidity management. End of period cash at $1 billion was 41% higher reflecting increased core and brokered deposits. Net interest margin was 5.12% within the range we had expected. Please turn to page nine to review our credit quality and capital strength. Credit quality continues to be resilient. Provision for credit losses was $31.9 million, up $4 million from the third quarter. This reflected $21 million for increased loan volume, $5.1 million for a specific reserve on a Puerto Rico telecommunications commercial loan, $2.4 million related to the U.S. macroeconomic factors, and $1.7 million in charge-offs from the sale of nonperforming loans. Net charge-offs totaled $27 million, up $6.7 million. Net charge-offs included $4.8 million related to the sale of nonperforming loans, of which $3.1 million had been previously reserved. Looking at other credit metrics, we observed the typical seasonal pattern of higher delinquency and nonperforming levels during the year-end period. Despite this, overall credit quality remains within expected ranges. Early delinquency rate was 2.8%, down from the third quarter and down year over year. Total delinquency rate was 4.18%, up from the third quarter but down year over year. The nonperforming loan rate was 1.59%, due to the move to nonaccrual classification of the Puerto Rico telecommunication loan that I mentioned. On the capital side, our CET1 ratio was 13.97%. Stockholders' equity totaled $1.4 billion, up $15 million, and the tangible common equity ratio decreased eight basis points to 10.47%. To summarize the year, loans and core deposits both grew about 5% in 2025. This year, we expect loans to continue to grow in low single digits. We also expect retail and commercial deposits to increase with Libre plus Elite, Oriental Biz, and our digital offerings driving customer growth. As for the large Puerto Rico government deposits, $500 million moved this month to our wealth management business as an advisory account. The remaining $600 million is staying a variable rate for deposit. Net interest margin was 5.27% for 2025. Looking ahead, net interest margin should range between 4.95% to 5.05% in 2026. That takes into account two more 25 basis point cuts, the effect of the partial exit of the government deposit, and the incremental cost of funding to replace it. Noninterest expense totaled $89 million in 2025. We currently expect them to be between $380 million to $385 million this year. Credit should remain steady, reflecting the strong economic environment in Puerto Rico. Our effective tax rate for 2026 should be around 23%, excluding any possible discrete items. Capital should continue to build, enabling us to continue to return capital to shareholders through dividends and buyback shares on a regular basis. Now here's José. Thank you, Maritza. Please turn to Page 10. José Rafael Fernández: The Puerto Rico economy continues to be steady with a sustainable long-term outlook. Liquidity is solid, businesses and consumers remain resilient, and unemployment is low. Public reconstruction funds and private investments are providing economic tailwinds. Manufacturing investments are continuing from multinational companies seeking onshoring solutions, particularly in the pharmaceutical and medical devices sectors. Having said that, we always have to closely monitor all the global macroeconomic and political uncertainties these days, and their potential impact on Puerto Rico. Turning to OFG, the success of our differentiated positioning has been evident over the last several years. We will continue to focus on the client experience with enhanced product tailoring strategies. Our Libre plus and Elite accounts offer AI insights and tools not available elsewhere in Puerto Rico. Commercial loan and deposit account growth is benefiting from deeper relationships and services, and credit and asset quality are sound and well controlled. The technology investments we make and our continuous improvement culture are starting to produce tangible efficiencies. All of these give us confidence in sustainable long-term growth across our core businesses. As always, we could not have achieved these results without the hard work of our dedicated team members. We're very thankful to them and excited about our future. With this, we end our formal presentation. Operator, let's start the Q&A. Thank you. Operator: If you have a question at this time, please press 1 on your telephone keypad. Press 2. Again, if you would like to ask a question, press star, then the number 1 on your telephone keypad. We'll take our first question from Kelly Motta of KBW. Please go ahead. Your line is open. Kelly Ann Motta: Hey, good morning. Thanks for the question. Maybe to just kick it off with credit, given that provisions were a bit elevated for the second quarter now. Can you provide additional color into the larger Puerto Rico charge-offs this quarter as well as there was some movement in NPLs with some sales? Can you provide more color as to what was done there and what migrated back in? Thank you. José Rafael Fernández: Hi, Kelly. This is José. I'll let Cesar take that question. Cesar A. Ortiz-Marcano: So the charge-offs that you're looking at in the quarter are the result of a sale that we performed that released $17 million in nonperforming loans during the quarter. And that release triggered charge-offs, etcetera. But the result at the end of the day was a gain of $3.9 million. We reported. Offset, of course, by the entry of a telecommunications loan that was recorded as nonaccrual nonperforming during this quarter. So that's basically the movement in nonperforming during the quarter in commercial. So, only one loan, and it's not something that it's across the portfolio. We just see this as very idiosyncratic. Maritza Arizmendi: Yeah. And just to add, and I shared a little bit on prepared remarks. There was a charge-off related to the sale, of about $4.8 million, and a big portion of it was already reserved. It was about $3.1 million that was already set. Kelly Ann Motta: Got it. And then on loan growth, I mean, you've been talking about auto being more competitive in prior calls and such. In terms of your outlook, for low single-digit loan growth ahead, can you provide additional color in terms of what's the driver of that? Is the expectation that auto will be kind of more muted like the past two quarters? José Rafael Fernández: Yep. Yeah. Yeah. That's a great point. We see auto starting to stabilize at these levels. As again, in Puerto Rico, you also are starting to see a stabilization in the new car sales. So we look at auto balances to be down in the year between 2-3%. We also see commercial loans up 5-6% during the year. Both Puerto Rico and US. So with that kind of a setup, see consumer going up a bit. Mortgage also is trending down, but less than in years past. We see low single digits as a reasonable target for us for loan growth overall. Kelly Ann Motta: Got it. Last question, if I can just sneak it in, is on your expenses. $380 to $385, you know, relative to your operating is relatively flat year over year. Can you provide like your confidence in that and the drivers of those increased efficiencies? Maritza Arizmendi: Well, yes, thank you for your question, Kelly. The range reflects our continuous investment in technology and people capabilities talent. To continue driving the digital-first strategy that we are deploying constantly in the bank. And we have seen certain efficiencies. Like, this year, we have, like, you look at our full-time equivalent employee, there are 30 less, 30 people. 60. Sixty altogether. No? So we continue to expect that number to go down. But we need to continue reinvesting. That's why we see expenses to continue to be flat this year, but we're thinking that by the end of the year, we will start seeing some of that saving and in 2027 and 2028, we see savings to accelerate. And we will see that more in a time you will wait for 2027, 2028. Yep. José Rafael Fernández: It's something that we've always been very cognizant of. These investments in technology they certainly have enhanced the customer experience in a significant way, and it's providing us the ability to grow and differentiate ourselves. But it also has a very intentional effort to bring efficiencies to the bank. And is the first year where we are seeing in 2026, we're seeing the expense range flattening it out. And it has everything to do with a little bit of what we've done in the past, but it's being more importantly on the culture of a continuous improvement and how do we look at processes to simplify them, make them more agile, and really try to eliminate interactions and processes that are very manual and with very little value add, try to convert them into technologies and use the blockchain and all the technology, all the robotics and all. We are starting to use all those things. And we feel more confident in our expense ranges in 26 for sure. And we will continue to work hard to bring additional expense reductions in '27 and '28. Maritza mentioned. Kelly Ann Motta: Great. Thank you so much. I'll step back. Appreciate the color. José Rafael Fernández: Yep. Thank you, Kelly. Thank you. Operator: Our next question comes from Arren Cyganovich of Turist. Please go ahead. Your line is open. Arren Cyganovich: Thank you. Good morning, José, I was wondering if you could talk a little bit about what you're viewing as the best strategic initiatives or your focused on strategic initiatives for 2026. Maybe relative to 2025, it seems like you're making a good push on the deposit side and, of course, always investing in technology. José Rafael Fernández: Yes. Thank you, Arren. So as we will continue to enhance our retail efforts. It's not something that we're gonna decelerate. So we will continue to invest in enhancing the customer experience and adding additional functionality to our omnichannel platform and drive additional benefits for our customers on the retail side, and you'll see some of those playing out throughout 2026. In 2026, our focus is gonna be much more on commercial. And we see a good opportunity as you saw, we grew 5%. Our commercial customers last year. And I think we have an opportunity here to continue to translate the same strategies that we have done in terms of technology and digital translate it as it is appropriate on the commercial side. And it's gonna be a journey. It's gonna be three years or so for us to be able to deploy all this and all that stuff. Well, that's where we're gonna be putting more effort. We see an opportunity for us to keep growing our commercial business and we think the Puerto Rican economy is supporting that. And I also as a bank feel compelled to invest in small and mid-sized clients and help them grow because that's critical for the growth of our economy here in Puerto Rico. We're really focused on the Puerto Rico market, and we feel that we have a great opportunity there. Arren Cyganovich: Thanks. And on capital return, I think we just said that she expects capital to build so to return capital to shareholders. I'm just trying to balance the two. What's the expectations for account for return for 2026? José Rafael Fernández: I think the fourth quarter capital actions that we took in terms of the buyback I think it's going to become more given our valuation. Right? Given the way the market is valuing our stock and given the multiples that they're assigning to us versus our peers, we feel the best use of our capital after loan growth and balance sheet growth is buying back shares. And so we will continue to be very intentional there. We certainly will also look at the dividend. But, again, we see some differentiation in the valuation there, and we feel that it's the best way to reward our shareholders by buying back shares. Arren Cyganovich: Great. And then just lastly, some clarification on your answer about expenses. The expense reductions in '27 and '28, is that more so thinking about the efficiencies that you're going to get from actions you're making this year? It's like And Correct. And then I guess I'm just thinking, like, is it actually gonna go down, or is are you gonna Yeah. Yeah. Yeah. So going down and some erosion on top of that. José Rafael Fernández: I don't wanna put the cart in front of the horses. Right? But I tell you, you're working we're working very hard to bring additional efficiencies during 2026 that will play out in '27 and '28. We will give you more details as we execute on those initiatives. But as Maritza mentioned, we are looking at FTEs and where can we redeploy our people talent to more customer-facing and value-add building relationships type of talent versus having FTEs sitting behind a desk in operations and servicing and pushing papers and dealing with Excel spreadsheets to manage different functions. And I can give you an example. We have been able to optimize the entire fraud management processes just simply by using robotics and being able to eliminate several FTEs that were basically managing fraud on a daily basis. And those are some of the small examples that we can provide. And I'm sure, you know, many banks in the US and in Puerto Rico are also doing the same. We're trying too hard to bring down expenses. Not without investing in technology, investing in our people, and continuing to do the right thing for the long term of our franchise. Which is critical for us. It's important. Arren Cyganovich: Great. Thank you. José Rafael Fernández: Yep. You're welcome. Operator: Thank you. We will move next with Brett Rabatin of Hovde Group. Please go ahead. Your line is open. Brett Rabatin: Hey. Good morning, everyone. Wanted to start on the margin and just on the fourth quarter, wanted to get a little better color on the linked quarter change in the loan yields. Which had been fairly stable up until this quarter. So this the 17 basis point linked quarter change, was just hoping to figure out how much of that was the large nonaccrual loan and any other comments on the loan portfolio yield change linked quarter? Maritza Arizmendi: Yep. My name is Alex. Yeah. You. Thank you, Brett, for your question. And you know, remember that we are asset sensitive and we continue to be asset sensitive and this quarter, as I mentioned in my prepared remarks, the loan yield went down basically because of first, 50 basis point cost during the quarter, but also we have the full effect of the September 25 basis cost. So that's one of the main drivers for the reduction in the NIM, and we were able to compensate that to our government deposit variable rate because it also got a reduction there. But it reflects our asset-sensitive positioning. Yep. I think also, you're also on the loan side. You're starting to see since we have moved our auto originations to higher significantly higher quality, we have been able to we are also seeing a slight decrease in the yield coming in on the auto lending side. And that's just a testament to the credit quality that we're bringing in, better credit quality. Brett Rabatin: Okay. That's helpful. And then just thinking about the margin guidance for '26, it was nice to see that the funding cost which were up a little bit in 3Q, moved back down in the fourth quarter. Is the margin guidance for 26%, does that reflect some additional leverage to lower funding costs from here? You know, one of the key things that's always been a question is Puerto Rico has lower cost deposits. The mainland, you know, how much can those go down? As rates go down given they're already fairly competitively priced? Maritza Arizmendi: Yeah. The reality is when you look forward for this year, 2026, we will have a change in our funding mix because the $500 million exit, $500 million exiting the bank, you know, moving to the wealth management business. And we will replace that with wholesale funding, and that carries a higher cost of about 25 basis point to 40 basis point depends on the term of that wholesale funding, but the reality is that we will have that change. And that's part of the impact of the NIM. But when you look at 2026, 2026 will have the full effect of the 75 basis point cut that happened in the last part of 2025. Will have all that full effect, plus we are also foreseeing two additional cuts during 2025. And we are sensitive. We have more assets repricing than the deposit side. And that's why we are giving that indicative in the margin. Okay? That guidance. And when you look at 2024 basis 2025, it reflects that. You know, we had a margin in 2024 of 5.43%. This year, it was 5.27%. It was about 16 basis points reduction, and it's related to the rate cuts that 100 basis point late 2024. And this year, 75 basis point end of 2025. Brett, and could also add as you saw this quarter and you saw throughout 2025, core deposits, excluding government, went up. On the retail side as well as on the commercial side. And that is also something that we expect to help mitigate what Maritza just said. Right? Because the more core funding that we bring in, it's gonna be cheaper than wholesale funding. So you know, our margin guidance is the margin guidance, and that's how we see it. But we're gonna be working hard to beat that margin guidance as you guys can expect. So we'll update everybody on the first quarter when we talk again. Brett Rabatin: Okay. If I could ask one last one, the other thing I was hoping to figure out was if you look at slide 20, it has the auto portfolio net charge-off rate. It was a little bit higher in the fourth quarter as were NPLs. And just wanted to see if the higher level in 4Q, if that seems to be an anomaly, a year-end cleanup of the portfolio or what have you. You know, versus something maybe you're seeing with the book? Cesar A. Ortiz-Marcano: Yeah. Seth, I can take that one. This is a like Maritza mentioned before, it's typical that the seasonality of the portfolio starts very low in terms of delinquencies and nonperforming loans in the first quarter of the year, and then it tickles up until the fourth quarter. And at the fourth quarter, got the upper level of that equation. But next year jobs, if you compare this next year job, we usually compare it to last year. Same period last year. And what you saw what you see there is 1.63 last year. But that was benefited by because we sold charge-off portfolio. Without that sale, that number would have been 1.86%, and we are right now at 1.81%. This quarter. So it is a positive sign. But, you know, but again, the seasonality of the portfolio will result in an increase in delinquency in this quarter, but we expect that benefit in the next quarter. You're gonna see a positive effect on all those metrics. José Rafael Fernández: Yeah. Cesar A. Ortiz-Marcano: Okay. So it's That's helpful. Central and lower. Brett Rabatin: I'm sorry. The year is no. It's just end of the year seasonality. And we'll keep on keep you guys updated in the first part of the year and see if that turns around again. But that's what we've seen in the last three years. We'll be watching closely in the part of this year to see if that replicates again. Brett Rabatin: Okay. Okay. Great. Thanks for all the color. José Rafael Fernández: Yeah. Thank you for your questions, Brett. Operator: Thank you. Our next question comes from Timur Braziler with Wells Fargo. Please go ahead. Your line is open. Timur Felixovich Braziler: Hi, good morning. Maybe bigger picture on the credit. Hi. Can you hear me? José Rafael Fernández: Operator, we can't hear anymore. Timur Felixovich Braziler: Here. One second. How about now? Can you hear me? Operator: Hello. Timur Felixovich Braziler: Can you hear me now? Operator: Timur, we are able to hear you. One moment, please. Sure. Timur Felixovich Braziler: Hey, and for the interruption speakers, are you able to hear us? Is this better? José Rafael Fernández: I can hear now I can hear Okay. Timur Felixovich Braziler: Perfect. Sorry about that. Maybe just a bigger picture on credit. You know, if we look at kind of 1% full-year charge-off rate, is that kind of a good proxy for where we are in this post-pandemic cycle? And then if you look at the allowance ratio, you know, year over year, you added a little bit over $25 million to allowance. You built that to almost, you know, 2.46% of loans. I guess, how do we think about the allowance build in 2025, what that might portend for charge-off activity in 2026, and then you know, what does a stabilized level of credit activity look like going forward here? Maritza Arizmendi: Well, I think that the 1% range that you mentioned is within what we can expect here in the in HR two. If you look at 2025 without any specifics of the sales or any particular case, that should be a good run rate. When we think about how we build the reserve, please be mindful that there's some specific reserve at the end of this year related to the telecommunication loan. So that's a very isolated case, very specific. So setting that aside, I think that we could continue monitoring credit and building this stuff as needed, but 1% net charge-off delinquency remaining this the level that we're managing this year. Maybe we won't be reserved at the same level because of the specific that we have this quarter, but definitely it could be about flat from what we have right now. Excluding any specific case that we have managed during the year. Okay? Timur Felixovich Braziler: Got it. And then the telecom credit this quarter, was there anything incremental that happened in 4Q that drove the activity? Or is this just really recalibration of maybe what the other banks were talking about in the third quarter and you guys kind of catching up to that same level of reserving in the fourth quarter? Cesar A. Ortiz-Marcano: No. It's basically, we receive financials every period. So last period, you know, they didn't, you know, warranted right away, you know, no closed out. But this period, it repeated the deterioration of the on the financials. So basically, we decided, yeah, this is a situation that merits the no approved status. Maritza Arizmendi: Yeah. And at the end, this is a loan that is continuing to pay. You know, it stays paying. So what we're doing is being prudent on giving the specific situation of the company that comes from the outcome of a merger we decided to put it in. Timur Felixovich Braziler: Got it. That's great color. Thank you. And then just last for me, you guys have had really good success rolling out some of these retail deposit products during the course of 2025 that have been, you know, differentiated from what the island typically sees. I'm just wondering from a competitive standpoint, what's been the reaction? And as you think about, you know, Puerto Rico ex public fund deposits, during 2026, during 2027. Does it feel like the competitive nature is shifting now, and do you still think you can maybe get those lower with these rate cuts, or is the competitive nature such that even with these rate cuts, the cost of the core Puerto Rican deposits are likely continuing to rise here? José Rafael Fernández: Yes. I think the competitive landscape is slowly but surely intensifying. I think each institution has its own drivers. Right? And some of the drivers that come in from the reinvestment in the investment portfolio at a higher yield gives flexibility to be more competitive and more aggressive on some of the CD offerings and stuff like that. So I'm not saying that we are going out crazy here in the market in Puerto Rico in terms of deposits, but it's slightly and slowly but surely getting more intense in terms of deposit competition. Also, be aware that we have credit unions, US credit unions that have been for the last three or four years very aggressive. They remain so. And that is also part of the equation here in Puerto Rico, these tax-exempt credit unions. They have another lever there that allows them to be more aggressive on the deposit side. So that's our strategy is to target the mass and the mass affluent. We have come up with the products. We have come up with the in terms of our platforms and technology and the way we do the business. That's the formula that we're using. And it's paying off. I'm sure, our friendly and larger competitors are also doing their thing, and I'm sure they're going to be very competitive throughout. So it's just now blocking and tackling and trying to achieve organic growth on the loan side and on the deposit side. And it's exciting for us at this juncture how we are well-positioned to achieve both. Timur Felixovich Braziler: Got it. Thanks for the color. Appreciate it. José Rafael Fernández: Yep. Thank you, Timur. Operator: Thank you. We will move next with Manuel Navas with Piper Sandler. Please go ahead. Your line is open. Manuel Navas: Hey, good morning. I just wanted to follow-up on that last question. Has there been any price response from other players on the island from your new, Libre and Elite products? And where are those having the most success? Yeah. Happy to hear a little bit more on those two products as well. José Rafael Fernández: So there's no need to have a price response because we're not paying high yield. So, I don't know where the idea that we're kind of bringing in higher yields or so. It's actually, the Libre account is a noninterest-bearing account. So I don't know where that comes from. But Elite does pay 1.28% average cost of funds on the balances that we have. And that is the way we approach the mass affluent, and it's paying off, and it's doing well. Because it's not about the rate only. It's about what we offer as a product and what is the value that we bring into the equation here. And it's not only a rate. It's more than a rate. It's the functionality. It's the accessibility. It's the everyday, every time, anywhere, wherever you are. And the fast, the agile way we service our customers in any that they have with us. That brings us the ability to attract, deepen, and expand relationships across markets that we operate, which is here in Puerto Rico. So reaction from the competition, zero. There's no increase in competition in terms of rates here. What we're seeing is more on a targeted basis, CD rates, and that's what I have mentioned earlier, Manuel. Manuel Navas: Alright. I appreciate that. And it is pretty early innings, but are you seeing that deeper relationship? Are you seeing younger clientele in these accounts as well given they're a little bit more digital forward? José Rafael Fernández: Actually, that's a good point, Manuel. Given Puerto Rico's demographics, what we're seeing is that I'll share this information 75% of the accounts that we're opening on the Libre account are new customers. 40% of those are 29 years or younger. And to us, that is extremely positive. Because it allows us to build a long-term relationship and build a long-term franchise with them. So it's exciting times for us. That's kind of the crux of the matter. You actually pointed out one of the great things that is going on in the last couple of years. Manuel Navas: I appreciate that extra color. Going back to the NIM for a moment, as you're targeting a little different auto client and commercial loans are adjusting. What are kind of some of your new yields coming on, especially in those two categories in auto and commercial? José Rafael Fernández: So commercial, remember, our commercial originations are 50% fixed, 50% variable. And the rates are depending on the type and the size of the commercial loan, but it ranges between, let's say, 275 to 350 basis points above the term that we're lending at. So that's kind of I'm giving you a range, and it can get on the lower end when it's a larger account, a larger loan, or if it's a small business or a larger commercial account or loan. So that's on the commercial side. On the auto side, I think the yields are in the eight handle, eight and change. It is coming from the higher eight levels. It's now stabilizing around eight thirty or eight forty or something like that, between eight thirty and eight fifty. And it's all about, certainly competition, but also us originating close to 90% of our loans in prime and super prime loans. Manuel Navas: That's really helpful. And then I guess my last question is, is there a level, I appreciate the commentary around the buyback. The pace was a little accelerated in the fourth quarter. Do you think we stay at this fourth quarter pace? And is there any price sensitivity, or where is there some price sensitivity on repurchases? José Rafael Fernández: Oh, I'll repeat what I said earlier, Manuel, because we don't have a price target. We do see the market being of penalizing us a bit in terms of the multiples that they're pricing us at. So I think we kind of look at the market in general. We see where we can deploy our capital in terms of loan growth. This year, we're probably going to grow single digits, as I said earlier, low single digits. Because of what I mentioned earlier on the auto. So we might have more ability to deploy capital through buybacks throughout the year. But we don't have a set number or a set stock price to go after. It's just part of our natural ongoing capital management strategies. Manuel Navas: I really appreciate the commentary. Thank you. José Rafael Fernández: Yep. Thank you for your questions, Manuel, and welcome to the calls. Cesar A. Ortiz-Marcano: Thank you. Yeah. Thank you. Operator: And once again, if you would like to ask a question, please press star then the number one on your telephone keypad. And at this time, there are no further questions. I will now turn the call back over to management for closing remarks. Arren Cyganovich: Thank you, operator, and thanks again to all our team members. José Rafael Fernández: Thanks. To all our shareholders who have listened in. Looking forward to our next call. Have a great day. Operator: Thank you. This does conclude today's program. Thank you for your participation, and you may disconnect at any time.
Operator: Good morning, and welcome to the Amalgamated Financial Corporation Fourth Quarter 2025 Earnings Call. Today's presentation is listen-only with Q&A to follow. A replay of the call and the accompanying slides are available on our Investor Relations website. Please review the forward-looking statements and non-GAAP disclosures on Slide two. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Jason Darby, Chief Financial Officer. Please go ahead, sir. Jason Darby: Thank you, operator, and good morning, everyone. We appreciate your participation in our earnings call. With me today is Priscilla Sims Brown, our President and Chief Executive Officer. Additionally, Sam Brown, our Chief Banking Officer, is here for the Q&A portion of today's call. We'll be continuing with short prepared comments this quarter to get to your questions faster and avoid repeating details you've already reviewed in the earnings materials. I'll now turn the call over to Priscilla. Priscilla Sims Brown: Good morning, everyone, and thank you for joining us. 2025 is in the books, and Amalgamated shine brightly. I have to start by expressing my deep praise and gratitude to all my amazing colleagues at the bank. You are builders, creators, and advancers of our mission to help those who do good do better. We offer unwavering support to our customers. We admire your courage and conviction to serve, and we feel privileged to be your banking partner. And to our shareholders, thanks for believing in us and in our business model. You are the capital engine that makes us go and grow. I'll get to more on growth in a couple of minutes, but first, I want to start by recapping another excellent quarter for Amalgamated. Jason Darby: Core earnings was 99¢ per diluted share, again showing the consistency of our earnings power and teeing us up to deliver consistent growing returns on tangible common equity. We had a record-breaking quarter for deposit gathering, generating nearly $1 billion of new deposits. Absolutely incredible, and not even in an election year. This smashes our previous record set way back in 2020 during the peak run-up to the presidential election. Our net interest margin expanded again, and we booked almost $170 million in net new loans. One of our best quarters ever. A lot to like there. So let's dive in a bit more. Deposit gathering was on fire. On-balance sheet deposits grew $179 million to $7.9 billion, and our off-balance sheet deposits increased $789 million to $1.1 billion. Our political deposits increased $287 million to $1.7 billion, as our share of the fundraising taking place ahead of November's midterm elections continues to grow. It's important to note that all of our customer segments experienced deposit growth again this quarter. Not-for-profit grew an eye $388 million, Social and philanthropy grew $122 million, and our climate and sustainability segment grew $77 million. This across-the-board strength demonstrates the mission-aligned differentiated competitive advantage that only Amalgamated possesses. Turning to loans. We delivered strong growth with loans increasing $167 million or 3.5% to $4.9 billion. Loans in our growth mode portfolios, including multifamily, CRE, and C&I, increased by 7% or $218 million, a nice from the 3.3% growth achieved in the third quarter and 2.1% growth achieved in the second quarter. We continue to benefit from the addition of several C&I experts we added to our team, and we expect to deliver more growth in 2026 as we continue to expand our reach on the West Coast. Our PACE portfolio also saw a nice acceleration with total assessments growing $38 million or 3% to $1.3 billion in the fourth quarter. The strength came from over $27 million in growth in C PACE, where there's a range of opportunities. We continue to ramp up with the new originator partnership we discussed with you last quarter. The question now is where is all of this leading? We believe Amalgamated is ready to grow significantly. We're ready to cross $10 billion in assets and have made and will continue to make the necessary investments in people and technology. The business model is a winner, and we have an exceptional proven management team that can carry the bank into its next phase. While Amalgamated has seen its fair share of specific challenges during our four and a half years as a team, banks broadly have been operating through extraordinary environmental challenges. From the pandemic and inflation shock to sharp swings in growth asset prices, and deposit behavior all of which transformed credit demand and risk. In The US, we have experienced the fastest rate hike environment in sixty years, the longest inverted yield curve in forty years, and the largest Fed-driven liquidity drain on record. Thinking of these things really helps put into context the success Amalgamated Bank announced today compared to five years ago. Through these massive challenges, our bank has grown from $6 billion nearly $9 billion has become one of the most reliably profitable banks in the country, now employs nearly 500 people and is making a bigger and longer-lasting impact than ever. Our outstanding management team navigated what was arguably the most difficult banking conditions in modern memory with a steady hand and adherence to a clear strategy. Our expectations for growth and performance in the future will be bold for sure, and Jason will outline some of this in his 2026 guidance in just a few moments. Our team's demonstrated track record provides a clear precedent for future achievement as Amalgamated Bank advances toward its full potential. Jason, take it from here. Jason Darby: Thanks, Priscilla. The big theme we've been communicating this morning is growth. As Priscilla noted, we have taken the right steps to position the bank for responsible expansion and 2026 guidance outlined some of our plans. But this quarter also marks a milestone as 2025 concludes the fifth fiscal year since Priscilla joined the bank, and it's worth briefly reflecting on that progress. Slide three illustrates Amalgamated's remarkable growth across multiple metrics during this era. And beyond the numbers, the strategy guiding this progress is clear. Profitability is a North Star inextricably tied with mission purpose, a capital base to match the size of the balance sheet, the balance sheet as a source of strength and asset quality consistent with well-run peers. And when we got started four and a half years ago, our first priority was to rebuild trust. Today, we can confidently say we did what we set out to do. We now look forward to driving the next phase of Amalgamated's growth building on this solid foundation. Before we get to guidance, let's review the quarter. In addition to the markers Priscilla mentioned, here are some other key highlights. Net income is $26.6 million or $0.88 per diluted share and core net income the non-GAAP measure, $30 million or 99¢ per diluted share. The spread between GAAP and core earnings per share was almost entirely related to a $41.9 million sale of performing residential loans with sub 3% coupons that resulted in a $3.8 million pretax loss. GAAP and core earnings were bolstered by the recognition of a $1.5 million tax credit, which I'll talk about more in a moment. Excluding that benefit, core net income would have been a solid $27.5 million or 91¢ per diluted share, on par with the prior quarter. Our net interest income grew by 1% to $77.9 million which exceeded the high end of our guidance range. Additionally, our net interest margin increased six basis points to 3.66% driven by a 16 basis point decline in our cost of funds as we benefited from the Fed's recent rate cuts. Core noninterest income was solid at $10.1 million continuing its steady improvement over the past four quarters. Driven primarily by trust income and banking fees. It now represents 11.4% of core revenue, reflecting meaningful progress towards our 85/15 revenue diversification objective. Expenses ticked up a bit during the quarter, largely related to non-core severance costs in our residential lending unit, core expense of $44.9 million was right in line with our annual target of $170 million. We are very happy with our core efficiency ratio of 51.13%, And as expenses have risen as expected, revenue growth has kept pace and sets us up well for 2026. Overall, it's another solid quarter with continued strength across our key performance metrics. Most notably, tangible book value per share rose 87¢ or 3.4%, and tier one leverage was strong at 9.36%. We returned capital to shareholders through buybacks of $8.7 million and our $0.14 quarterly dividend, And earlier this week, we announced a $0.03 dividend increase to $0.17 based on our confident outlook for 2026 earnings. Now just a quick note on the tax credit I mentioned earlier. This quarter's credit reflects a new tax planning approach that runs credits through the tax provision instead of noninterest income. And because of this change, past tax credit recognition will no longer be classified as noncore credits recognized under this new approach will be considered core. We've added a slide on page seven to explain the change, and we'll keep it in for a bit to help clarify any tax line volatility as we build our inventory of credits. The key point we're reducing noncore adjustments to make our financials simpler to understand. Asset quality metrics remained solid overall, but there were some credit turbulence during the quarter. We marked for sale the non-accrual multifamily asset identified in Q3, which contributed to an elevated charge-off ratio and added approximately $800,000 to provision expense. In our DC market, one borrower showed stress related to the rapid rehousing program restructuring resulting in increased reserves of $1.9 million and a related $7.5 million increase in nonaccrual multifamily loans. This also was the source of the entire increase in multifamily criticized or classified assets during the quarter. We are currently working with this borrower to restructure portions of their portfolio, and we believe we are adequately reserved this time on the nonaccruing loans. The other loans with this bar that moved into classified and criticized the quarter benefit from additional equity partners to support ongoing rightsizing activities. And while this development is unfortunate, our total exposure to DC's rehousing program beyond this relationship is low, with all loans graded past as of the quarter end. Now let's move to full year 2025 performance. We've updated our targets to actual results for easier comparison, In what began as a very challenging year, we exceeded all our key performance goals and maintained consistent upward momentum, issuing two guidance increases during the year and ultimately exceeding those projections. Looking ahead to 2026, I'll wrap up my comments where Priscilla started. Talking about growth. We believe our business model will deliver reliable growth across multiple dimensions. With our full year 2026 guidance, we aim to hit the following revenue and profitability ranges: Net interest income of $327 million to $331 million or roughly 10% to 11% growth, and core pretax pre-provision earnings of $180 million to $183 million or nine to 10% growth. For performance targets, we aim to deliver core return on average assets growth to 1.35% core return on tangible common equity growth to 15%, and balance sheet growth of approximately 5%. And for expense discipline targets, we aim to deliver return to core positive operating leverage of between 34%. Growth in technology spend of about 18% to continue to scale the business and annual core OpEx growth to $188 million. Underpinning these targets is quarterly net loan growth of one and a half to 2%. That builds on the momentum we established in the 2020 and considers the effect of our runoff portfolios. This guidance reflects our commitment to disciplined execution and value creation, We enter 2026 with clarity, confidence, and intent to deliver quality returns on tangible common equity consistently. Closing with Alens in the 2026 based on its target average balance sheet size at approximately $8.7 billion. We estimate net interest income to increase to between $79 million and $81 million and we also expect our net interest margin to rise from the fourth quarter primarily from increased yields from the loan growth that came on late in the quarter. We're now happy to take your questions. So operator, please open up the line for Q&A. Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Our first question comes from the line of Mark Fitzgibbon with Piper Sandler. Please proceed with your question. Mark Fitzgibbon: Hey, guys. Good morning. Good morning. Hi, Priscilla. So first question I had, I was curious how you're thinking about the outlook for the provision in 2026 based on what you see today from a credit perspective. Would you expect credit cost to generally, you know, be a little bit lower than what we saw 2025? Just curious on, you know, macro thoughts on that as well as the effective tax rate for the new year. Jason Darby: Yeah. Great. Hey, Mark. It's Jason. The provision outlook for the coming year is roughly the same from an actual perspective as we've recognized for 2025. Maybe a little bit of improvement there but I wouldn't, on the margin, say it's very significant. I think the reason for that is more rooted than just the normal charge-off activity we've seen through the consumer solar portfolio. And we don't expect that to abate very much in the coming year. Albeit, it would be nice if that came through in a more recovered fashion because that would be benefit through the provision line. Then we're just keeping a more conservative approach to the overall provisioning just given some of the that we went through in the current year. That said, we still think that the provision expense overall is a very manageable number relative to the core earnings progress that the bank will show, and it actually will not detract from the earnings per share growth that we're looking forward to in the coming year. From an effective tax rate perspective, this is an area I think we've spent a decent amount of time focusing, new tax strategy on. We have the opportunity to make more inroads on our effective tax rate. We're targeting to start off a 26 and a half percent ETR and that takes into account a small inventory of tax credits related to this new strategy we've deployed we also think there's potential upside on the ETR throughout the year as we work to build up more of these tax provision related credits as we go. And, hopefully, we'll be able to show a lower ETR. But for now, we're modeling out 20 and a half percent. Mark Fitzgibbon: Okay. Great. And then since you guys are so close to it, I'm curious how you're thinking about political deposits over the next couple of quarters. I think you peaked prior to the presidential election in the third quarter last year at about $2 billion. Given where I think you're $1.7 today in total on and off balance sheet deposits, do you think we'll see that by the third quarter soar you know, past that $2 billion level? Are you based on what you see today as pipeline fundraising strong? Any thoughts there would be appreciated. Priscilla Sims Brown: I'll ask Sam to address that, Mark. But I will say, you know, we have been pleasantly surprised, as you know, every cycle in that our projections or our actuals from the prior cycle have been surpassed. So you're right on the 1.7, and we certainly expect to build through till the election. And Sam, do you have more thoughts on that? Sam Brown: Yeah. Mark, I'll just say that, you know, you're you're you're exactly right. That, you know, we're really pleased with about our 20% growth quarter over quarter in political. That has certainly been right trend with what we've put out in disclosure. You're exactly right that that usually peaks right you know, about about a month before the election actually happens, and then we see that wind down. You've seen since we've been putting out data since 2018, you know, there's a little bit of a you know, kind of inflationary impact cycle over cycle just as the contribution limits get larger each year. And we certainly see that as well. But I think if you look at the trend, you look at the performance quarter over quarter, I think it's a good kind of straight line dashboard to where we this will head and very consistent with prior quarter's performance. Prior election cycle performance. Mark Fitzgibbon: Okay. Great. And the last question I had, it looked like you had really strong multifamily growth this quarter. I was curious is, assume it probably wasn't in New York City or was it across other parts of your footprint, any thoughts there would be appreciated. Thank you. Sam Brown: Yeah. We were we were really proud of that. Obviously, it's a great great quarter for multifamily. I think, you know, really exciting that, you know, slightly under half of that actually came outside of New York City, which is really good geographic diversification for us. Proud to see, you know, multifamily and all of our physical footprint locales. And so we think that that is is also bolstered by pipeline going forward. And so we think that we will definitely continue see good geographic representation in multi. Mark Fitzgibbon: Thank you. Thank you. Operator: Our next question comes from the line of David Conrad with KBW. Please proceed with your question. David Joseph Konrad: Hi. Good morning. I had a question. You know, I thought I thought the NIM expansion was really impressive. In a down rate quarter, really. Just wanted to follow-up on the on the commercial loan yields and the impact on NIM. What what are the yields that you're you're booking now in the pipeline and and kind of the mix of fixed versus floating? Jason Darby: Sure. Hey, David. It's Jason. So yeah. The the NIM for the fourth quarter was really nice. We we're still able to see some baseline loan yield expansion despite the fact that we had some contraction on the posted numbers, but that really relates to the item that we talked about last quarter, which had that onetime recapture flowing through the interest income line. On the whole, loan yields were rising, but we also had quite a bit of benefit from the rate cuts in our deposit betas being higher than we model. And I think that bodes well for how we would set up for margin expansion heading into 2026, the bring on rates we are looking at probably somewhere in the 5.9 to 6% range for C and I for multifamily and series, probably in the five seventy range. So the overall rates are I think, in line with where market generally is, for quality credits. But as we've talked about before, the real advantage for the bank gonna be in the repricing of the older real estate loans. And those are coming off this year in the four thirty range. So we're gonna get a decent clip there. In terms of just the overall repricing benefit. Obviously, we still have the PACE portfolio, which comes on at higher rates in that high sixes, even close to 7% range. So the ability to add yield is pretty strong there. And then just looking outward, I think the bank is really in a great place to steadily have margin expansion throughout the year. David Joseph Konrad: Great. And maybe, you know, with all the deposit growth, just following up on the PACE portfolio, and the outlook for growth there. And is there any any limitations that you look out a few years in terms of percentage of the securities book or percentage of capital with that with that portfolio? Because it seems like such a strong yield. Jason Darby: Yeah. From a concentration perspective, we have lots of on our balance sheet to add CPE. So no real restriction there in terms of the ability to add assets in a meaningful way from a growth perspective. I'll ask Sam to talk a little bit more about the prospects of growth in just a moment. But the opportunity for CPAS yield is very, very strong as we've seen. The risk-adjusted returns are excellent. And there's a green space that's continuing to develop in the C PACE market. As more and more municipalities throughout The United States added to the capital stack. So the bank's ability to be first mover in that area is going to be really good. Gonna be taking advantage of a partnership that we've established that drives lower dollar value CPaaS, but more volume, which we think will add a lot of opportunity for us. And going forward, C PACE is going to be an opportunity to trade down on our traditional securities portfolio. So from a balancing perspective, we still feel overweight on traditional securities. You saw a little bit of this movement this quarter where we traded down on traditional securities to the tune of about $200 million to fund the combination of loan growth and CPaaS, and I expect you'll see more of that. We continue to move out into 2026. You wanna talk about growth potential? Sam Brown: Sure. Thanks, David. So I think one of the great things about the quarter was really just realization on something we've talked about in the past about increasing the percentage of C PACE to resi PACE. And as you saw our origination in the quarter, you know, three quarters of that came from the commercial side, which is really something that we been focused on, and we see that going forward as a real source of income for us. I think that $27 million number on commercial PACE is certainly something that we see as based on where we want to be going forward and feel good about that number as a supplement to the loan activity. And I think you can continue to expect to see more of. David Joseph Konrad: Great. Thank you. Nice quarter. Jason Darby: Thank you. Thank you. Operator: And we have reached the end of the question and answer session. I would like to turn the floor back over to Priscilla Brown for closing remarks. Priscilla Sims Brown: Thank you, operator, and, thank you for those those good questions. Amalgamated Bank has delivered a strong, consistent performance through one of the most challenging operating environments in modern banking, growing earnings, expanding margin, and improving capital while many peers struggled with deposit volatility, credit concerns, and rate shock. Over the last several years, it has combined disciplined balance sheet management including appropriate commercial real estate concentration, high on balance sheet, and contingent liability. And above peer capital ratios with a focused values aligned client franchise that has continued to attract mission-driven deposits. Looking forward, Amalgamated is well positioned because our business model sits at the intersection of resilient market opportunities and powerful secular trends. What we've already established deep relationships and differentiated capabilities. This team's track record of mission meets performance combined with a flexible balance sheet and multiple earnings levers, provide a strong platform for sustainable growth and outsized relevance as the industry continues to evolve. I look forward to updating you on our progress on our first quarter call and accepting your questions, in between. Thank you again for your time today. Operator: And this concludes today's conference. You may disconnect your line at this time. Thank you for your participation, and enjoy the rest of your day.
Operator: Good day, and thank you for standing by. Welcome to the Independent Bank Corporation Fourth Quarter twenty twenty five Earnings Call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. Will then hear automated message advising your hand as raised. Withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Brad Kessel, President and Chief Executive officer. Please go ahead. Brad Kessel: Good morning, and welcome to today's call. Thank you for joining us for Independent Bank Corporation's conference call and webcast to discuss the company's fourth quarter and full year 2025 results. I am Brad Kessel, President and Chief Executive Officer. And joining me is Gavin Moore, executive vice president and chief financial officer and Joel Rahn, EVP, Head of Commercial Banking. Before we begin today's call, I would like to direct you to the important information on Page two of our presentation, specifically the cautionary note regarding forward looking statements. If anyone does not already have a copy of the press release issued by us today, you can access it at the company's website, independentbank.com. The agenda for today's call will include prepared remarks followed by a question and answer session, and then closing remarks. I'm pleased to report on our fourth quarter and full year 2025 results as we advance our mission of inspiring financial independence today with tomorrow in mind. Our vision is a future where people approach their finances with confidence, clarity, and the determination to succeed. Our core values of courage, drive, integrity, people focus, and teamwork are the blueprint our employees live by. We strive to be Michigan's most people focused bank. Independent Bank Corporation reported fourth quarter two thousand twenty five net income of $18,600,000 or $0.89 per diluted share, versus net income of $18,500,000 or $0.87 per diluted share in the prior year period. For the year ended 12/31/2025, the company reported net income of $68,500,000 or $3.27 per diluted share compared to net income of $66,800,000 or $3.06 per diluted share in 2024. Highlights for the '25 include an increase in net interest income of $1,000,000, that's 2.2% over the '24. A net interest margin of 3.62%, that's eight basis points up on a linked quarter basis. A return on average assets and a return on average equity of 1.35% and 14.75% respectively. Net growth in loans of $78,000,000 or 7.4% annualized, from 09/30/2025. Net growth in total deposits less brokered deposits of $57,500,000 or 4.8% annualized. An increase in tangible common equity ratio to 8.65% and the payment of a $0.26 per share dividend in common stock on 11/14/2025. Our fourth quarter performance marked the culmination of another remarkable year with our organization excelling on all fundamentals. Over the past year, we increased tangible book value by 13.3% and delivered near record earnings. Meanwhile, our dividend payout ratio was 32% for the year as we continue to recognize the value of returns for our shareholders. During the fourth quarter, we realized continued net interest margin expansion, strong loan growth, and increased non interest income. In addition, our credit quality metrics remain positive with watch credits and non performing assets below historic averages. In anticipation of continued strong earnings, we repurchased shares and executed a tax credit transfer agreement during the fourth quarter which is expected to reduce tax obligations and enhance earnings per share. Looking ahead to 2026, our confidence is bolstered by a robust commercial loan pipeline and our ongoing strategic initiative to attract and integrate talented bankers into our organization. Moving to Page five of our presentation, deposits totaled $4,800,000,000 at 12/31/2025. An increase of $107,600,000.0 from December 31, 2024. This increase is primarily due to growth in savings and interest bearing checking reciprocal and time balances that were partially offset by decreases in noninterest bearing and brokered time deposits. On a linked quarter basis, business deposits increased by $20,400,000, retail deposits increased by $64,100,000.0 offset by a $28,600,000 decrease in municipal deposits. The deposit base is comprised of 47% retail, 37% commercial, and 16% municipal. All three portfolios are up on a year over year basis. On Page six, we have included in our presentation a historical view of our cost funds as compared to the Fed fund spot rate and the Fed effective rate. For the quarter, our total cost of funds decreased by 15 basis points to 1.67%. At this time, I'd like to turn the presentation over to Joel Rahn to share a few comments on the success we're having in growing our loan portfolios and provide an update on our credit metrics. Joel? Joel Rahn: Thank you, Brad, and good morning, everyone. On page seven, we share an update of loan activity for the quarter. We continue to experience solid loan growth in the fourth quarter with total loans growing by $78,000,000 or 7.4% annualized as Brad just referenced. For the year, we increased our loan portfolio $237,000,000 or 5.9%. Our commercial portfolio led the way with $276,000,000 or 14.2% growth. Commercial loan generation continued its strong trend in Q4 with $88,000,000 in quarterly growth or 16% annualized. Our residential mortgage portfolio grew by $7,200,000.0, and our installment loan portfolio decreased $17,000,000 for the quarter. Our strategic investment in commercial banking talent continues to supplement our loan growth. During the fourth quarter, we added an experienced banker in Metro Detroit, and in total, we have 49 bankers comprising eight commercial loan teams across our statewide footprint. During the year, we added a net of five experienced bankers to the team. Looking ahead, we believe we will continue low double digit growth of our commercial loan portfolio in 2026. Our pipeline remains solid, it's comparable to January '25. We continue to see market opportunities from regional banks in both talent and customer acquisition. They're seeing steady organic growth from existing customers. Looking at the commercial loan production activity on a year to date basis, mix of C and I lending versus investment real estate was 57% and 43%, respectively. And for our commercial portfolio, our mix is 67% C and I and 33% investment real estate. Page eight provides detail on our commercial loan portfolio concentrations. There's not been any significant shift in our portfolio over the past year with the portfolio remaining very well diversified. Our largest segment of the C and I category is manufacturing, $183,000,000 or 8.3% of the portfolio. In the investment real estate segment of the portfolio, the largest concentration is industrial at $202,000,000 or 8.8%. We outlined key credit quality metrics and trends on page nine. We continue to demonstrate strong credit quality. Total nonperforming loans were $23,100,000 or 54 basis points of total loans at quarter end, up slightly from 48 basis points at 09/30. It's worth noting that $16,500,000 of this total is one commercial development exposure that we discussed last quarter. We continue to work through the challenges of this particular project, and are appropriately reserved for any loss exposure. Past due loans totaled $7,800,000 or 18 basis points, up slightly from 12 basis points at 09/30. It's not reflected on the slide, but worth noting that we realized net charge offs of $1,600,000 or four basis points of average loans for the year. This compares to $900,000 or two basis points in 2024. At this time, I would like to turn the presentation over to Gavin for his comments including the outlook for 2026. Gavin Moore: Thank you, Joel, and good morning, everyone. I'm going to start on Page 10 of our presentation. Page 10 highlights our strong regulatory capital position. I'd like to note our tangible common equity ratio has moved back into our targeted range of 8.5% to 9.5%. Additionally, 407,113 shares of common stock were repurchased for an aggregate purchase price of $12,400,000.0 in the year 2025. Turning to page 11. Net interest income increased $3,500,000 from the year ago period. Our tax equivalent net interest margin was 3.62% during the 4Q 2025 compared to 3.45% in the 4Q 2024 and up eight basis points from the 3Q 2025. Average interest earning assets were $5,160,000,000 in the 4Q 2025 compared to $5,010,000,000 in the year ago quarter and $5,160,000,000 in the 3Q 2025. Page 12 contains a more detailed analysis of the linked quarter increase in net interest income and the net interest margin. On a linked quarter basis, our fourth quarter '25 net interest margin was positively impacted by two factors. Change in interest bearing liability mix added nine basis points and a decrease in funding cost added 13 basis points. These were offset by a change in earning asset yield and mix of 13 basis points as well as interest charged off on a commercial loan, that was negative one basis point. On page 13, we provide details on the institution's interest rate risk position. The comparative simulation analysis for the 4Q '25 and 3Q '25 calculates the change in net interest income over the next twelve months under five rate scenarios. All scenarios assume a static balance sheet. The base rate scenario applies the spot yield curve from the valuation date. Shock scenarios consider immediate, permanent, and parallel rate changes. The base case modeled NII is slightly higher during the quarter due to nine basis points of model margin expansion. The NIM benefited from mix shifts in both assets and liabilities. On the asset side, solid commercial loan growth was funded by runoff in overnight liquidity, investments in lower yielding retail loans. Funding costs benefited from growth in non maturity deposits and a decline in wholesale funding. The NIM further benefited from a reversal of excess liquidity in the 4Q 2025. DNI sensitivity position is largely unchanged for rate changes of plus and minus 200 basis points. The bank has slightly more exposure to larger rate declines minus three and four hundred and larger benefit from larger rate increases plus 300 or 400. The shift in sensitivity for larger rate moves is due to shifts in non-maturity deposit modeling primarily caused by 50 basis points of Fed cuts during the quarter. Currently, 8.3% of assets reprice in one month and 49.2% reprice in the next twelve months. Moving on to page 14. Non interest income totaled $12,000,000 in the 4Q 2025 compared to $19,100,000 in the year ago quarter and $11,900,000 in the third quarter twenty twenty five. Fourth quarter twenty twenty five net gains on mortgage loans totaled $1,400,000 compared to $1,700,000 in the fourth quarter twenty twenty four. The decrease is due to lower profit margins and lower volume of loan sales. Mortgage loan servicing net was $900,000 in the fourth quarter twenty twenty five compared to $7,800,000.0 in the prior year quarter. The change due to price was a gain of $200,000 or $0.01 per diluted share after tax in the 4Q 2025, compared to a gain of $6,500,000.0 or $0.24 per diluted share after tax in the year ago quarter. The decline in servicing revenue compared to the prior year quarter is attributed to the sale of approximately $931,000,000 of mortgage servicing rights on 01/31/2025. As detailed on page 15, noninterest expense totaled $36,100,000 in the fourth quarter twenty twenty five as compared to $37,000,000 in the year ago quarter and $34,100,000 in the 3Q 2025. Compensation expense decreased $300,000.0, primarily due to lower performance based compensation expense, lower medical related costs, and lower payroll tax expense, and higher deferred loan origination costs due to higher commercial loan production. That was partially offset by higher salary expense. Data processing costs decreased by $300,000.0 from the prior year period, primarily due in part to a reimbursement from the core provider for billing overages and other credits received. That was partially offset by smaller increases in several other solutions and onetime charges relating to special projects. Income tax expense included a $1,800,000 benefit or $0.09 per share resulting from the execution of a tax credit transfer agreement related to the purchase of $22,900,000 of energy tax credits during the three month and full year ended 12/31/2025. That's compared to no such benefit in the prior year. Gonna move on to page 18. This will summarize our initial outlook for 2026. The first column is loan growth. We anticipate loan growth in the mid single digit range, and are targeting a full year growth rate of 4.5% to 5.5%. We expect to see growth in commercial with mortgage loans remaining flat and in installment loans declining. This outlook assumes a stable Michigan economy. Next is net interest income where we are forecasting growth of seven to 8% over FY 2025. We expect the net interest margin expansion of five to seven basis points in the first quarter twenty twenty six with successive quarterly increases of three to five basis points, primarily due to decreasing yields on interest bearing liabilities that's partially offset by a decrease in earning asset yields. This forecast assumes 0.25% cuts in March 2026 and August 2026 while long term interest rates increased slightly from year end 2025 levels. A full year 2026 provision expense for allowance for credit losses of approximately 20 to 25 basis points of average portfolio loans would not be unreasonable. Moving to page 19. Related non interest income, we estimate a range of $11,300,000.0 to $12,300,000.0 quarterly. We estimate total for the year to increase three to 4% as compared to 2025. We expect mortgage loan origination volumes to decrease six to 7% and net gain on sale to be down 14 to 16% compared to the full year 2025 results. Our outlook for noninterest expense is a quarterly range of $36,000,000 to $37,000,000 with the total for the year five to 6% higher than 2025 actuals. The primary driver is an increase in compensation and employee benefits, data processing, loan and collections, and occupancy. Our outlook for income taxes is an effective rate of approximately 17% assuming the statutory federal corporate income tax rate does not change during 2026. Lastly, the board of directors authorized share repurchases of approximately 5% in 2026. Currently, we are not modeling any share repurchases in 2026. That concludes my prepared remarks, and I would now like to turn the call back over to Brad. Brad Kessel: Thanks, Gavin. We've built a strong community bank franchise, which positions us well to effectively manage through a variety of economic environments, and continue delivering strong and consistent results for our shareholders. As we move through 2026, our focus will be continuing to invest in our team, investing in and leveraging our technology while striving to be Michigan's most people focused bank. At this point, we would now like to open up the call for questions. Operator: We will now begin the question and answer session. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. First question comes from the line of Brennan Hawken of Hovde Group. Your line is now open. Brennan Hawken: Hey, good morning, everybody. Hope you're doing well. Brad Kessel: Good morning. Brennan Hawken: Let me just start off here kind of on market outlook here in Michigan. Can you just kick it off by offering your latest thoughts on the opportunity set you're seeing, particularly in Michigan given the M and A dislocation? And I guess if you added five commercial bankers in 2025, like, what what would the ambition set look like for banker ads in '26? Joel Rahn: Well, I'll take it. And Brennan, this is Joel. Good question. I would think in terms of our talent acquisition expectation, it's similar. We'll have some departures with retirements, etcetera, that we have to cover. But I think a net add of four to five bankers this year would be reasonable to expect. And in terms of opportunity in Southeast Michigan, we do think there will be opportunity there. It's just beginning. And so I think there's, you know, typically, the account side window opens first, and it can be some time before the customer feels the impact. But we're watching it closely and feel that it'll be accretive for us. Brennan Hawken: Okay. Thanks, Joel. Maybe one more for you before I step back. Just on the loan growth outlook for, I guess, 5% at the midpoint, I guess, like, typically, I think of your bank as a high single digit organic grower. So I guess just given the market opportunity you see what's pushing that range down to the mid single digit area? And and is there upside if payoffs behave a little more rationally in '26? Brad Kessel: Brennan, this is Brad. I'll jump in there, and I'd just say that over the last few years, we've actually reshaped the balance sheet. And particularly with the loan portfolios and our strategic emphasis. So of course, we've got the rundown in the investment portfolio, which has been funding our loan growth. But within the loan portfolios, the largest emphasis and where we've been investing in talent has been in Joel's group, that's the commercial banking team. And that has driven what I'd call the outsized growth rate for our company for that line of business. At the same time, we still have a very strong and robust lending talent and teams in the consumer and mortgage banking groups. Yet we're just putting less on in those categories on our balance sheet. And in fact, we forecast in '26 some shrinkage in the consumer portfolio. And that's not so much coming out of the branch channel. The shrinkage is really coming off of less originations from our indirect lending group. Which is as we've shared in the past, has always two focuses. One is marine, and the second is in RV. And we really have just not seen the same volume that we saw several years ago coming through the RV channel. The marine is still pretty good, but so when you add that all up, what ends up happening is you have double digit growth in commercial, but the lower level of net growth in mortgage and consumer get us to that somewhere mid single digit overall loan growth projected for 2026. Does that make sense? Brennan Hawken: Yeah. No. That that that's a helpful framework to view it through. I I guess just I'll sneak in one more on a related topic then. Just given how much of the loan growth has been funded by securities cash flows in the recent past, what is the outlook for that dynamic this year? Gavin Moore: Yes. So we got about a $120,000,000 of forecasted runoff in securities for 2026. And that that will fund loan growth. So we continue to intend to continue to remix that asset mix through next year. Brennan Hawken: Fantastic. Thank you for taking my questions. Joel Rahn: Thank you. Operator: Thank you. One moment for our next question. Question comes from the line of Damon DelMonte of KBW. Your line is now open. Damon DelMonte: Hey. Good morning, Hope everybody's doing well today, and thanks for taking my questions here. First one, just on the margin and the guidance provided around that. Gavin, just wondering if you could kind of walk through the cadence again for kind of what you expect here in the first quarter and then the forthcoming quarters after that? And then what were some of the drivers behind the optimism for a rising margin? Gavin Moore: Yeah. So, we're looking at five to seven basis points of expansion in Q1, and then Q2, '3, and four, we're forecasting three to five basis points of expansion each quarter. And that gets you to the overall forecast of, you know, 18 to 23 basis points on a year over year, full year basis. What's going on there is a couple things. One, just the benefit of we have two rate cuts in the forecast of March and August. We feel really good about our ability to see that 40% plus beta on the repricing down of deposits. The yield curve shape right now in terms of the forward yield curve is beneficial. The five to seven point of the curve is actually drifting a little bit higher. So we're creating we're getting some more slope in that respect. And then also, it's the continued repricing of below market assets as we go into 2026. Does that make sense, Damon? Damon DelMonte: It does. Yep. I appreciate that color. And then kind of just broader on capital management, just kinda given where capital levels are and you do have a buyback in place, just kinda wondering, I know it's not in your guidance and your forecast, but just kinda wondering what your appetite is for buybacks? And then also, you know, how how do you view the M and A landscape right now? Are there any interest in trying to pursue a merger with another company? So just kinda curious on your thoughts around that. Gavin Moore: I'll start with capital and then hand it over to Brad. I I would just say that we're really excited about the capital build and outlook for the organization. And that provides us with a tremendous amount of flexibility, and that's really what we're focused on. Obviously, the dividend is very important. We just announced a significant increase of over seven and a half percent. The board approved and we wanna continue to have a stable and growing dividend. But with that capital build, it's going to allow us the flexibility to do share repurchase when we think the price makes sense. So I just really am excited about the capital position today. Brad? Brad Kessel: Yeah. Very good, Gavin. And in regards to the M and A and M and A in the Michigan market, of course, you've got the Fifth Third Comerica which well, that's not directly impacting us. Indirectly, as it goes back to Joel's remarks, we think there's an opportunity for talent and customer acquisition. Across the state, today, we have 80 plus or minus Independent Michigan based community banks. I think we'll see consolidation at a similar pace to what we've seen historically in Michigan. And that's probably somewhere between 4-6%. Who they are, I'm not sure. Our appetite, we would be very interested depending on the specifics. And so that would include sort of strategically or geographically, how does it fit the footprint, the overall size, you know, and not wanting to maybe well, wanna be cognizant of all the other good work we've got going on organically. So I think the culture, obviously, would be very important. The metrics need to work in it. We need to materially add to EPS and at the same time, we're very respectful of not wanting to dilute our existing shareholders. So I would just step back and just say M and A for Independent is, it could very well happen but is not a requirement for us to continue the success that we've experienced historically over the years. Damon DelMonte: Great. That's excellent color. I appreciate that. That's all that I had. Thank you very much. Gavin Moore: Thanks, Damon. Operator: One moment for next question. And our next question comes from the line Nathan Race of Piper Sandler. Your line is now open. Nathan Race: Hey, guys. Good morning. Thanks for taking the questions. Gavin, just going back to the margin discussion, could you update us just in terms of how much cash flow you have coming off the bond portfolio each quarter and what the magnitude of or the amount of loans that you have that are repricing higher and what that amount looks like in terms of that yield pickup? Gavin Moore: Yeah. Give me one sec. So the bonds, the run rate for 2026 is a $120,000,000. And that's I think it's fair you could model that as pro forma or split it up equally per quarter. On the loan side... Nathan Race: Maybe to ask another question while you dig that up, Gavin. Brad, just thinking, you know, more holistically about the balance sheet composition. Just curious what the appetite is to maybe trade some of your excess capital. And, obviously, you guys are gonna be building capital at pretty strong clips just given the profitability profile. But just what the appetite is, maybe trade some regulatory capital to maybe reposition the securities book, whether it's on the AFS or HTM side of things? Brad Kessel: You know, that's a good question Nathan. And we revisit that strategy regularly. Historically, we've sort of nibbled at selective investment sales and, generally where we can earn it back within a reasonable time frame. But we've had the book. It's running off. And I'm not sure you're really gonna see Independent needing to accelerate that, taking losses, and I just that's not really in the strategy at this point. Nathan Race: Okay. I appreciate that. Maybe one more from me. Just in terms of what you're seeing or expecting from a charge off perspective, I appreciate the provision guide, and charge offs have been really well behaved over the last several quarters now. But just any thoughts maybe, Joel, in terms of any normalized expectations around charge off range going forward? Joel Rahn: Yeah. I think we see it being very similar to the past few years. We really don't see any big change in that profile. And I can't recall, Gavin, if in your guidance, if you had any specific range there. Gavin Moore: Well, we said the provisioning would be 20 to 25 basis points. And that provision's gonna be a function of more loan growth than anything. Brad Kessel: But I think the charge off history, recent history has been really, really well. And I think probably it is unrealistic to expect that indefinitely. The charge offs really today have been in the consumer loan portfolio. And the biggest driver has been quite frankly, due to a customer passing away and then getting the collateral back in and then disposing of it. But I think somewhere in our recent history, maybe a little bit higher, could be modeled on a go forward basis. Joel Rahn: Agree with that. Gavin Moore: Nathan, I I have the details for your question on cash flow repricing. Average quarterly for 2026 is gonna be about $105,000,000 at an exit rate on average of $5.50 at current speeds, CPRs. Nathan Race: And that's the commercial book or just overall, Gavin? Gavin Moore: That fully... I mean, that's the entirety of our fixed rate portfolio. So that includes mortgage. Commercial is going to run about for the year, it's about $220,000,000. My totals were off. Let me... total commercial is around $220,000,000 for the year. Nathan Race: Okay, quite substantial then. Yeah. That's all I had. I appreciate all the color, guys. Thank you. Joel Rahn: Thanks, Nathan. Operator: Thank you. One moment for our next question. And our next question comes from the line of John Rodis of Janney. Your line is now open. John Rodis: Hey, good morning guys. Gavin, just following up on the securities portfolio. You said runoff of roughly $120,000,000. Does that all... I mean, are you looking to reinvest any into the securities portfolio at this time? Or I think looking at my prior notes, I think you said sort of targeting securities portfolio, you know, 12 to 15% of assets. Is that still sort of the thought process? Gavin Moore: That is, John. And I don't think we'll get through 2026 without doing any securities purchases. John Rodis: Okay. But if you look... I know 2027's a long way away, but could you maybe hit a bottom then, I guess? Gavin Moore: Yeah. I anticipate in 2027, within 2027, we'll start to reinvest. 12 to 14% of total assets is still a target for us in terms of triggering investment purchases. So that's still the strategy there, John. Brad Kessel: Yeah. Okay. John Rodis: Thanks, Brad. Brad, maybe just a follow-up on the M and A question. You guys talked about through the normal course of business sort of adding a handful of bankers each year. I mean, would you be open to picking up a team of lenders or anything like that? I know it gets a little bit tougher when you add teams as far as culture and stuff like that, but what are your thoughts? Brad Kessel: Yeah. I mean, that has not been the pattern historically. But I would say we'd be open to that. Joel, what what are your thoughts on that? Joel Rahn: Yeah. Certainly open to it. That doesn't happen very often. It's fairly rare. And we've just had really good success in just going after one banker at a time. And so I would expect that's where the majority of our ads will continue to come. Brad Kessel: Sort of one banker at a time and then building a team. Joel Rahn: Correct. Yeah. John Rodis: Okay. Thanks, guys. You're sort of breaking up a little bit, but I think I get the picture. Thank you. Brad Kessel: Thanks, John. Operator: I'm showing no further questions at this time. I'll now turn it back to Brad Kessel for closing remarks. Brad Kessel: In closing, I would like to thank our Board of Directors and our senior management for their support and leadership. I also want to thank all our associates. I continue to be so proud of the job being done by each member of our team. Each team member in his or her own way continues to do their part toward our common goal of guiding customers to be independent. Finally, I would like to thank each of you for your interest in Independent Bank Corporation and for joining us on today's call. Have a great day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Olof Svensson: Good morning, everyone, and welcome to the presentation of EQT's full year results. We have a lot to cover today. Per will start off by reflecting on our strategic positioning and today's announcement that we're entering the fast-growing secondaries market by joining forces with Coller Capital. Teaming up with Coller strengthens our ability to serve clients globally and it unlock growth opportunities for both firms. The transaction is accretive to our fee-related earnings. It accelerates our growth outlook and it will further diversify our platform. Before handing over to Per to share more details, let me share a few highlights on 2025. First, it was our most active exit year ever with fund exits and realizations for co-investors of EUR 34 billion. We invested EUR 16 billion across our strategies globally while providing a co-invest ratio for our clients of close to 1:1. It was a pivotal year for EQT's expansion into evergreens and open-ended strategies across the globe with new product launches and accelerating inflows. We continued to deliver on our fundraising agenda, more than doubling gross inflows to EUR 26 billion. All our key funds continue to develop on or above plan, and our more recent vintages in particular performed strongly. EQT delivered total revenue growth of 16%, while keeping head count largely flat year-over-year. So with those remarks, let me hand over to Per to go through things in more detail. Next slide, please. Per Franzén: Thank you, Olof. Good morning, everyone, from Davos. We have very exciting news to share this morning, and we'll come back to Coller shortly. I'll start by saying a few words about the private markets industry and our strategic positioning. EQT remains well positioned to navigate a fast-changing world and to capture the growth opportunity ahead. There are a number of forces shaping our industry. The geopolitical backdrop remains volatile. We continue to see private market investors wanting to rebalance their portfolios as they are looking to achieve a better global diversification. At EQT, we are well positioned to navigate this environment and to help our clients achieve their strategic portfolio objectives. We want to be the most attractive global provider of international alpha. Through our global sector teams, we engage with our clients to align on their pipeline priorities. And with the help of our local teams in more than 25 countries, we can move quickly in times of market dislocation to unlock attractive thematic opportunities. The combination of our global sector teams with our strong local presence helps us deliver structural uncorrelated alpha as often the sources of alpha across those various countries and regions are uncorrelated. A good example of the investments that we've made into our global platform and how it's paying off is Japan. We built our local presence in Tokyo over many years. And in 2025, we were able to reap the benefits of those investments. In our private capital strategies, we created 2 attractive public to private opportunities, and we continue to have a very attractive pipeline in Japan going forward. The second force, AI that I'd like to touch upon, that will have an impact on most sectors and businesses that we invest into, including, of course, also our own industry and how we run our business at EQT. At EQT, we keep on investing in our AI capabilities. On the investment side, we continue to back AI-driven tailwinds in our early-stage strategies. We make investments into native AI companies. Harvey and Lovable are 2 good recent examples. In our infrastructure platform, we keep on investing into globally leading data center platforms. One of our companies, EdgeConnex is a good example of that, but also into fiber assets and into energy platforms. We're also driving AI adoption across our organization, deploying advanced solutions that enable better decision-making and help us realize synergies across our platform. Over time, we believe that this will help us run our business in a better way, but also in a more efficient way. Private wealth and insurance remain 2 attractive growth opportunities where we see new capital pools emerging. We're making the necessary investments to build our capabilities in those areas, and we expect to see significant capital inflows in this part of our business. Coller will be a catalyst for the insurance segment as we will get access to their capabilities within structured solutions. The rise of secondaries continues, and this part of the market will also going forward, outgrow the rest of the industry. There's a number of structural forces driving that growth. Private markets have grown in size and in relevance. And in some regards, they've become more complex, and we also see public and private markets converging. Clients want to be able to ride the winners, and they want to stay invested in compounding open-ended structures. On the other hand, there's also been a lack of distributions in our industry post pandemic, we saw a slowdown in dealmaking. And as a result, many firms are not able to raise new funds, and that has created more and more zombie funds in our industry. And all of this drives a need for clients to be able to restructure their private market portfolios and to find good liquidity solutions. And in this context, Coller will be an important enabler and really further strengthen our ability to be that strategic partner for our clients. Finally, we see the consolidation of the industry accelerating. Not everyone in the private markets will be able to navigate this environment. We'll be able to make the necessary investments to capture that growth opportunity ahead. So size and reach matter more than ever when it comes to creating real alpha and when it comes to serving clients in the best possible way. And our global platform, our size, being the largest private markets firm in the world outside of the U.S., will continue to be a true differentiator for us. Next slide, please. At EQT, we remain committed to our long-term strategic ambition to keep on building the most attractive scaled private markets firm, delivering industry-leading performance and solutions for clients. By continuing to be that client-centric firm focused on delivering attractive risk-adjusted returns for investors, real alpha, we will also be able to attract the best talent in our industry to our organization and to our portfolio companies. And really that way, creating that virtuous circle that will give us the license to keep on scaling our firm and as a result, over time, also delivering attractive sustainable value creation for shareholders. Next slide, please. In 2025, we made good progress on our strategic ambitions, and we executed well in a volatile environment. We took the opportunity to simplify our organization to ensure that we can remain that entrepreneurial, fast-paced, high-performing organization. We successfully completed a number of leadership transitions. We streamlined our organizational structures and reinforced our focus on accountability, performance and efficiency across the platform. We also integrated our client relations, capital raising and capital markets teams, creating one unified platform well set up to deliver a seamless experience for institutional clients and private wealth distribution partners. And all of this makes us also well prepared to add Coller now as a new business line to the EQT platform. In 2025, we stayed disciplined in our investment pacing, producing a record year for co-investments. We facilitated EUR 14 billion of co-investment opportunities for our clients. That is up from EUR 12 billion in 2024. And we want to -- this is an important tool for us to also going forward, create those deep strategic relationships with the institutional investors. And we want to -- we remain committed to continue to produce that most attractive co-invest to fund commitment ratio in our industry. We did a superb job really in driving realizations in a tricky exit environment. 2025 was actually our most active exit year ever with EUR 34 billion in total of realizations, and that includes EUR 14 billion of realizations out of co-investments that were done together with our clients. And that is just massive outperformance compared to the wider private markets industry in terms of those realizations. A good example is our equity strategy, which is our oldest strategy at EQT. In that part of our business, we sent back close to 30% of NAV, which is approximately 3x the industry average. And notably, we set a new record for distributions and capital gains from a single investment. So in Galderma, in 2025 alone, we realized more than EUR 9 billion of proceeds for fund investors and for our co-investors. And this actually excludes the stake sale that we have announced to L'Oreal that is yet to close. And this investment has generated more than $20 billion so far in capital gains for investors. As a result of that strong performance, we saw a good fundraising momentum. We more than doubled gross inflows to EUR 26 billion. Our evergreen offerings targeting the private wealth segment saw inflows of approximately EUR 2 billion. And we also introduced our first open-ended institutional product, which is exciting. This is the second generation of our active core infrastructure strategy. And the portfolio in Fund I is performing very nicely, and we really see a strong client interest for this fund. Next slide, please. As you've heard me say, I think, many times before, we have actively been looking to establish a presence in the secondaries market for some time now, actually. And this is one of the fastest-growing parts of our industry and building our capabilities in this area is really critical so that we can become an even more stronger and attractive strategic partner for our clients. And so today, I'm just very, very pleased to announce that we have reached an agreement to join forces with Coller Capital. This is really a highly strategic and complementary combination. By joining forces with Jeremy and his team, we want to build a market-leading secondaries platform together. We really have a very high bar for any M&A that we do at EQT and the fit must be just very, very strong. And in this case, from a strategic, performance, culture perspective, Coller checks all the boxes. The strategic fit between our 2 firms is simply excellent. It's highly complementary. And most importantly, the cultural fit, the values fit is very strong. Similar to EQT, Coller is a performance-driven and entrepreneurial organization focused on delivering consistent long-term solutions and returns for investors. And just like EQT, Coller also has that constant improvement mindset and that relentless drive to continue to drive innovation and stay ahead of the curve. At EQT, we like to say everything can always be improved everywhere at all times. Coller's version of this is better never stops. I'm very excited to welcome Jeremy and the entire Coller team to our firm. And I really look forward to working closely with Jeremy as part of the executive leadership team. And together, we will be just incredibly well placed to deliver the most attractive solutions and the most attractive performance for private market investors and to really fully capture that growth opportunity ahead that we see in secondaries. I'll now hand it over to Gustav, who will cover the highlights from our 2025 results together with Olof and Kim, and I believe starting with fundraising. So next slide, please. Gustav Segerberg: Thank you, Per, and good morning, everyone. In 2025, we executed strongly on fundraising across the platform and more than doubled inflows versus last year. Starting with the key funds. Fundraising for BPEA IX continued with strong momentum, having raised $14 billion as of today. We expect to close at the $14.5 billion hard cap in the first quarter. Fundraising for EQT XI continues to be off to a strong start, further helped by the strong exit pace during 2025. Note that in our reporting fee-paying AUM, it does not include EQT XI until activation. And later this year, we expect to launch fundraising for Infrastructure VII. So moving over to our other closed-ended strategies. We are advancing our Healthcare Growth and transition infrastructure fundraisings, having raised approximately EUR 3 billion combined, and we expect to conclude fundraising for Healthcare Growth momentarily. In the fourth quarter, we activated our latest European real estate logistics fund. The fund is expected to close in Q1, and our reporting fee-paying AUM includes almost EUR 3 billion of commitments versus the size of the last fund at EUR 2.1 billion. And then finally, on evergreens and open-ended institutional strategies. In 2025, EQT launched 3 new evergreens, Nexus Infrastructure and Nexus ELTIF Private Equity distributed in Europe and APAC, and a U.S. domiciled private equity vehicle. Hence, our evergreen offering consisted of 5 vehicles at the end of 2025, and we raised close to EUR 2 billion in 2025, while reaching an NAV of around EUR 3.5 billion by year-end. And just last week, we launched a U.S.-domiciled evergreen structure for infrastructure. During the year, we've also introduced our first open-ended structure for institutional clients, as Per mentioned, with our active core infrastructure strategy. This fund is yet to be activated and is not in our fee-generating AUM number as of year-end. However, we continue to be very excited about the prospects of scaling this strategy in the coming years. We've also decided to pursue our first continuation vehicle based on EdgeConneX. This will be an open-ended structure that will allow us to continuously support EdgeConneX's long-term growth opportunity. And with that, I will hand over to Olof to cover investments and realizations. Next slide, please. Olof Svensson: Great. Thank you, Gustav. So looking at the investment activity in 2025, I'd say it reflects our global sourcing machine and our thematic focus. 45% of the EUR 16 billion of fund investments were invested in Europe, about 1/3 in North America and the remaining 20-ish percent across APAC. We invested in a number of high-quality businesses throughout the year, be it the cloud-based software companies such as Fortnox or NEOGOV; industrial tech businesses like Fujitec in Japan or as Per mentioned, AI native investments such as Lovable and Harvey. In real estate, we continue to see attractive risk/reward dynamics. And in our flagship and transition strategy, we invested in areas such as energy, grids, AI infrastructure and transportation companies. And on that note, please do make sure to take the Arlanda Express when you next come and visit us in Stockholm. In total, we provided a further EUR 14 billion of co-invest for our clients, a co-invest ratio of close to 1:1. EQT X and Infrastructure VI are now about 60% to 65% invested, while BPEA IX is 5% to 10% invested. We expect to activate EQT XI around midyear 2026 and Infra VII around year-end. Next slide, please. Turning to exits. It was a breakthrough year in 2025 for exits. Volumes in the EQT funds amounted to more than EUR 19 billion or 70% higher than last year's volumes. Around 2/3 of the fund exits were from funds in carry mode. In addition, we realized EUR 14 billion for our co-investors. The strong activity means that we reached the ambition communicated at the start of the year to execute more than 30 exit events across our key funds. Key fund exits were made at an average gross MOIC of 2.6x above our target return levels. Roughly 40% of the fund exits were minority sales and secondary buyouts. Early in the year, we announced a minority sale in IFS at a gross MOIC of 7x. This is an example of how we actively work with portfolio construction, sending back EUR 3 billion to fund investors while continuing to own an asset that is expected to have an outsized impact on the fund returns for EQT IX. 1/3 of the exits were equity capital markets transactions. And as a result, EQT retained its position as the most active private markets firm across global equity capital markets for the second year in a row. Looking ahead, we believe that fund exits in 2025 is a relevant proxy for '26 if markets continue to be favorable. Our gross pipeline for 2026 is, in other words, similar to 2025 when we had gross realizations of close to EUR 20 billion. And with that, I'll hand over to Kim. Kim Henriksson: Thank you. Thank you, Olof, and good morning, everyone. All of our key funds continue to perform on or above plan. And during the year, key fund valuations increased by 8% on an FX-neutral basis, but let's look at performance by vintage. 4 out of 5 funds raised in 2019 or before are performing above plan, and most of these funds are in exit mode and already derisked. Funds raised 2020 to 2021, which are still in value creation mode, performed predominantly well with value creation of 10% plus on an FX-neutral basis. We did face some headwinds related to idiosyncratic events in a few individual portfolio companies. But with 350 portfolio companies globally, we will always have certain underperforming assets. Risk-taking is part of our model. As a reminder, historically, about 10% to 15% of our investments have returned less than 1x gross MOIC, while the total portfolios have still delivered on or above target returns. In 2025, we also realized some assets with subpar performance, enabling us to refocus on the part of the portfolio where we can create more value. Overall, underlying operational performance was solid across the portfolio and particularly so in our latest generation of key funds, which increased by 15%, excluding FX. 1/3 of our investments in these funds are already performing ahead of plan. Next slide, please. In 2025, carried interest and investment income increased to EUR 448 million on the back of the strong exit activity in funds in carry mode. Looking into 2026, we expect that carried interest will continue to be paced by the key funds already in carry mode. And please note that the figures on this page are based on a simplified and illustrative on-plan scenario. To date, the 4 funds in carry mode have recognized EUR 1.3 billion of carried interest and roughly EUR 600 million remains, and we continue to expect the remaining carry from these funds to be recognized over a multiyear period. The next 2 funds expected to enter carry mode, Infra IV and EQT IX are currently executing on their value creation and realization plans. And we do not expect these funds to enter carry mode in 2026, in line with our previous communication. The final bucket includes the most recent key fund vintages, which are still in value creation mode. In total, the remaining illustrative carry potential in the key funds activated as of today is approximately EUR 9 billion. This is a simplified round number based on a number of assumptions, which are outlined in the appendix. Next slide, please. Let's now look at the financials in a bit more detail. In 2025, we grew fee-related revenues by 9% and delivered a fee-related EBITDA margin of 52%, reflecting also the continued investments we make in our business, for example, the build-out of the evergreen offering. As you know, we initiated and completed a number of efficiency measures during the second half of 2025. And as a result, the number of FTEs was broadly flat year-over-year. We expect to see the full year cost effects of this in 2026 and therefore, expect mid-single-digit total OpEx growth this year. Run rate savings from the efficiencies will, to a degree, be reinvested to support future growth in our priority growth areas, including focused geographies such as Asia and the U.S., focus areas such as AI capabilities, private wealth and of course, the build-out of our new secondaries business. We're ramping up marketing and brand spend, which will remain at meaningfully higher levels going forward. We remain committed to reaching a 55% plus fee-related EBITDA margin at completion of the current fundraising cycle. And we're highly focused on efficiency, scaling and automating parts of our work, including through increased AI adoption. We will continue to keep you posted on this progress and how we see the OpEx outlook beyond 2026. Let me also come back later in the presentation on how the combination with Coller impacts our financials. The Board has proposed a dividend of SEK 5 per share for 2025, representing a growth rate of 16%. And during 2025, we distributed approximately EUR 460 million in dividends to shareholders. And in addition, we repurchased shares for around EUR 300 million. Let me also spend a brief moment on our new revenue disclosures. We have, in our income statement, introduced the concept of fee-related revenues, which consists of the underlying management fees, fee-related performance revenues and transaction, advisory and other fees. Fee-related performance revenues are revenues from our evergreen products that are measured and received on a recurring basis and do not require the realization of underlying assets to materialize. Transaction, advisory and other fees include fees from, for example, debt and equity underwriting and other capital markets activities. With that, I will hand over to Per to cover the Coller combination. Next 2 slides, please. Per Franzén: Thank you, Kim. As I mentioned earlier, secondaries and solutions is becoming an increasingly important part of the private markets ecosystem. GPs are looking for ways to hold on to their best assets for longer, driving the growth of continuation vehicles or GP-led secondaries and LPs are seeking strategic liquidity tools and the ability to actively rebalance their portfolios where LP-led secondaries are a key enabler. And secondaries have now become one of the fastest-growing parts of our industry, and that the market actually grew by more than 40% in 2025 and is expected to more than double from now until 2030. And continuation vehicles are today driving close to 20% of global exit volumes. Next slide, please. With Coller, we're really happy that we found the right partner to enter this segment at scale. Coller shares our values-driven culture, a strong performance mindset and that drive to constantly innovate for clients with an entrepreneurial approach. As a pure-play dedicated secondaries firm, Coller is 100% complementary and a perfect match for us. I'll now hand it over to Gustav to tell you more about Coller's track record, Coller's offering and its client base. Next slide, please. Gustav Segerberg: Thank you, Per. As a pioneer in secondaries, Coller has led many of the first in the industry, such as leading the first ever GP-led transaction almost 30 years ago and continuing to innovate across product categories and client channels. Coller has 35 years of proprietary data from more than 25,000 companies has incorporated AI-enabled underwriting into its investment process. This enables faster and more precise investment decisions, aligning very well with EQT's data-driven investment approach and leading AI capabilities. Their strong investment track record and ability to innovate has allowed them to expand from a single flagship fund in 2021 to today having a multiproduct and multichannel offering investing across both private equity and private credit secondaries. The private equity secondary strategy recently held a successful final close of Fund IX at USD 10.2 billion of fee-generating commitments, up more than 35% compared to the last generation. Since launching the private credit secondary strategy in 2021, Coller has already been able to raise 3 funds with a total of close to USD 5 billion in fee-generating commitments. Next slide, please. The team also shares our strategic commitment to the private wealth opportunity, and their journey closely resembles ours. They -- like us, they have a very deliberate and disciplined focused on product development to launch and ramp up products across asset classes and geographies. Since 2024, Coller has launched 4 evergreen products in total with the current combined NAV of more than USD 4 billion. And expansion continues to show great momentum and inflows are around USD 200 million per month. Coller also recently announced a strategic partnership with State Street along with State Street's investment in Coller. Their partnership gives a unique opportunity to go after the 401(k) market in the U.S. We look forward to exploring what we can do together to strengthen the global distribution of the combined evergreen platform. Next slide, please. Insurance is 1 of the most interesting capital pools in private markets. However, insurance companies operate in a highly regulated environment with strict requirements around capital charges, duration matching, liquidity, ratings and asset-liability management. To participate at scale credit exposure, secondaries and strong structure capabilities are required. This is an area where EQT on a stand-alone basis has been limited on a structural basis, and where Coller today is the clear market leader. Coller is the preferred partner to insurance clients with deep relationships and in-house structuring expertise. They have reached over USD 5 billion in structured products in the last 2 years, including the largest CFO backed by secondaries at USD 3.4 billion. This is a significant growth opportunity for the combined platform and where EQT's scale will be a key enabler. Next slide, please. We believe that this combination and more diversified secondaries platform by bringing together complementary strengths, we can accelerate innovation, deepen client relationships across both institutional and private wealth clients. Together, EQT and Coller are very well positioned to accelerate insurance-related product -- and to Per. Next 2 slides, please. Per Franzén: Thank you, Gustav. In 2025, we took the opportunity to simplify our organization and to clarify our governance to put us in the best possible position to be able to accelerate our strategic M&A agenda. So today, we are very well prepared to add Coller to EQT and to support Jeremy and the team to accelerate their growth independent investment committee. Next slide, please. The Coller team has demonstrated strong fundraising momentum, most recently with the successful close of Fund IX and has earned the strong client trust to expand into new strategies such as credit secondaries over recent years. Today, Coller has around 600 clients and more than half of those will represent new client relationships for EQT. At the same time, EQT brings a base of around 1,400 institutional clients, of which more than 900 clients are not currently invested with Coller, representing a significant opportunity to accelerate growth across the combined platform. The client bases are also complementary. EQT has a strong footprint with sovereign wealth funds, while Coller is more heavily weighted towards private wealth and insurance. So together, we will be able to offer clients a broader and more flexible range of solutions from primary investments to tailored liquidity solutions within one global platform with a real focus on generating alpha and performance. I'll now hand it over to Olof to comment on the transaction structure. Next slide, please. Olof Svensson: Thank you very much, Per. So let me talk about how we have structured this to ensure alignment of interest and this growth orientation. The transaction entails 100% of Coller and EQT will be entitled to 35% of carried interest in all the future funds in line with the EQT setup. We are also acquiring 10% of the carried interest in Private Equity Fund IX that Per just referred to. The deal construct includes a base consideration of $3.2 billion with a growth-oriented contingent consideration in 2029 of up to $500 million. The contingent consideration is structured to incentivize strong growth in the business with full consideration dependent on delivering high 20s, almost 30% fee-related revenue growth until 2029. The base consideration of $3.2 billion will be funded in newly issued EQT AB shares, creating a strong alignment to drive value. At closing, the shareholders of Coller will own approximately 6.5% of EQT, where Jeremy is the main shareholder of Coller's business today. Closing of the transaction is expected in the third quarter of '26. And with that, I'll hand over to Gustav to give us the combined fundraising outlook. Next slide, please. Gustav Segerberg: Thanks, Olof. I'll start on the evergreen side, where the joint offering will compromise more than 10 vehicles distributed across U.S., Europe and Asia. In terms of inflows, Coller increases the H2 2025 annual run rate to around EUR 4 billion. As only 7 out of the 10 plus evergreens where operational during that time frame, we hence expect 2026 to be significantly higher than the H2 2025 annual run rate. We believe that there are significant revenue synergies for the evergreens through the strengthened combined private wealth organization. By leveraging EQT's banking relationships to further accelerate Coller's distribution reach and by jointly tapping into EQT's brand and marketing capabilities. For reference 100% of Coller's evergreen inflows are incremental to fee-generating AUM. Next slide, please. So we are now a bit more than 1 year into our current of that EUR 100 billion based on the funds activated. 2026 is set up to be a very active fundraising year for EQT with 3 flagship funds, a number of other closed-ended strategies and of course EUR 25 billion to EUR 30 billion to the total amount effectively increasing it to roughly EUR 125 billion to EUR 130 billion. And with that, I will hand over to Kim. Next slide, please. Kim Henriksson: Thanks, Gustav. First, a few words on the latest flagship fund, the introduction of credit secondaries and the expansion into private wealth evergreens and structured products. Fee-related revenues were approximately $330 million, nearly all of which were management fees. This number includes catch-up fees as Fund IX was activated in July 2023 and closed on 31st of December 2025. However, it does not reflect the run rate management fees from evergreens due to fee holidays for some products in 2025. From 2026 onwards, all private wealth evergreens will be charging full fees. Across funds, the average fee rate is about 1% and in general, charged on committed capital. It's worth noting, though, that the private wealth evergreens in general charge somewhat higher fee rates with NAV as the fee base and that we see this channel growing faster than the closed-ended funds. Expect Coller to generate fee-related revenue of between $350 million to $375 million. Adjusting for catch-up fees, fee-related revenue is expected to grow in the range mentioned, the 2029 contingent consideration is based on growth in the high 20s. On costs, Coller has a similar profile to EQT, where the majority of operating expenses are salaries and other personnel-related costs. Then fee-related EBITDA margin at around 50%. Next slide, please. So what does the above then mean for the combined platform? We expect Coller to accelerate our fee-related revenue growth from day 1. In terms of carry, the acquisition will not impact our outlook for a number of years since the first fund where EQT has right to carry is a 2024 vintage. As I mentioned, today, Coller has a somewhat lower fee-related EBITDA margin than EQT. But in the near to midterm, however, we expect Coller to be in line with EQT's margin and to grow fee-related expenses. As a result, we maintain our ambition to reach a 55% fee-related EBITDA margin at completion of the current fundraising cycle. I'll now hand over to Per for some concluding remarks. Per Franzén: Adding Coller to EQT is a significant milestone in the development of our firm. Secondaries represents one of the fastest-growing parts of the private markets industry. We're confident that Coller is the best possible platform to build a market-leading secondaries franchise being a pioneer in the space with more than 3 decades of track record and experience. Next slide, please. The combination really means a step change for EQT in terms of scale, growth and revenue profile. Coller will add approximately EUR 28 billion of fee-paying assets under management and EUR 42 billion of total AUM. We will have a combined AUM of approximately EUR 312 billion. And to our business, we also significantly diversify our fee-related assets under management. Secondaries will represent about 15% initially of that fee-related fee-based assets under management, but it is expected to represent a significantly larger share over time. The acquisition will enhance our growth profile, and we aim to double Coller's fee-generating assets under management in less than 4 years. This means that 5 years from now, the mix of EQT's business will be much more well balanced across our business lines, private capital, infrastructure, real estate and secondaries. And we also see a very attractive opportunity to accelerate growth and scale of our real estate platform in the years ahead. Finally, we now manage strategies that, to some extent, are somewhat also countercyclical, if you will, creating an even more resilient and well-diversified revenue profile. As we look ahead with this transaction, we have created a platform that is even better positioned to attract and retain the best people in our industry and to continue to serve our clients, a more attractive, resilient and higher growing platform. With that, I open up for questions. Operator, please. Operator: [Operator Instructions] Olof Svensson: Operator, can I say a few words before we have the first question? Operator: Yes, please proceed. Olof Svensson: Thank you. So as you can imagine, Per is on a tight schedule in Davos today. So our suggestion is that we keep the Q&A open for about 45 minutes. And to make sure that everybody has time to ask questions, I would very humbly and politely suggest that you keep it to 2 questions each. And as always, we're, of course, available for any follow-ups after the call today. So let us aim for that and really looking forward to the Q&A session. Operator: And now we're going to take our first question, and it comes from the line of Oliver Carruthers from Goldman Sachs. Oliver Carruthers: Oliver Carruthers from Goldman Sachs. Two questions on Coller, please. So I guess you're acquiring a revenue fee stream in a growing asset class that's accretive to EQT, but you've also acquired this knowledge base in wealth. So can you talk to how you think this might help as you build out your existing wealth and evergreen business? And do you think this will accelerate the uptake of your existing Nexus products? So that's the first question. And the second question on this transaction. I may be wrong, but I don't think Coller has a dedicated infra secondary strategy. And so my guess would be that EQT is one of the largest global value-add infra managers, could add value here? And is this a kind of white space that you could go after? Because it feels like the use case for GP-led secondaries in infra could be even higher than it is in private equity over time because you have these platform build-outs like EdgeConneX that are very long-term assets that need capital and maybe don't fully belong in drawdown funds. So any thoughts there would be helpful as well. Per Franzén: Good questions, Oliver. I think the answer is that in both of those areas, on the private wealth side, evergreen side as well as on the infrastructure side, we see attractive growth opportunities ahead and are both good examples of why we're stronger together. But Gustav maybe you want to elaborate? Gustav Segerberg: Yes, happy to do that. And just echoing what you said, Per, so to speak. I think on the evergreen side, of course, this -- what this enables us, we get 2 strong evergreen organizations, both from a sales perspective, from a product development perspective, where we get to a completely different scale on a combined basis. So I think there's a lot of opportunity there, including joint products going forward in at least a midterm perspective. I think same on the infra side. This is, of course, one of the key areas where we see that there are complementary capabilities in terms of that Coller is very, very strong on the secondary side. We are very, very strong on the infra side and as well on the real estate side. So going forward, we see that this is, of course, a very interesting growth opportunity for us to attack on a joint basis and where we combined will have a very good right to win in that aspect. Operator: Now we're going to take our next question. And the question comes from the line of Arnaud Giblat from BNP Paribas. Arnaud Giblat: I've got 2 questions, one on Coller and one on your infra business. On Coller, could you -- when I step back and just look at who are the largest GP-led secondary fund, typically, there are quite a few, including Coller before the acquisition, being independent and not having a very large direct business. So I'm just wondering how you're thinking about that? Do you see a need to operate a bit at arm's length? How is that going to be pitched to investors? I'm just wondering if there's any risks around that and how you intend to put that to investors. My second question is -- thanks for the update on -- in terms of what you intend to do with EdgeConneX and wrapping that into a longer-term structure. I'm just wondering if you could give us a bit more detail in terms of the mechanics, how much of enterprise value would EdgeConneX come into this continuation or long-term fund? And how you're thinking about fundraising around that? Per Franzén: Good questions. I'll let Gustav talk about EdgeConneX and provide more details on that transaction. In terms of the combination with Coller. As I mentioned in my presentation, right, I mean, we've really organized ourselves in a way so that it's very easy to add on a platform such as Coller and also to have that platform continue to be run in a very independent way so that the Coller team can serve clients and its stakeholders in the right way and in the best possible way going forward. And that's the intention also with the combination. That's how we'll organize ourselves. As I said, Coller will have an independent investment committee going forward and will be a separate business segment of EQT, where we will, of course, collaborate as was mentioned earlier, is in the areas around branding, marketing, also on the client relations side, where we can leverage the strong combined sales force that we have, both on the institutional side and on the private wealth side, right? And that's also how previous transactions have been structured and done in this space in the past, and that's what we intend to do also here when it comes to the combination between EQT and Coller. And Gustav, why don't you address the question on EdgeConneX? Gustav Segerberg: Absolutely. So due to where we are in the process, I can't go into, let's say, details about the size or the terms at this point in time. So we'll come back to you on that at the right time. I think what we can say in general is, so to speak, that we're super excited about this opportunity because, of course, it allows us to really continue to support the company for the long term as there is a very, very significant growth opportunity here in the data center area, so to speak. And therefore, it was also important for us to create this into an open-ended structure. Operator: Now we're going to take our next question and it comes from the line of Hubert Lam from Bank of America. Hubert Lam: I've got 2 of them. Firstly, I just wanted to check your expectations for exits in 2026. I think you said you expect it to be similar to 2025. Just wondering why not better? And also, does this mean that we should expect a similar carried interest as in 2025? The second question is on Coller. Can you talk about the opportunity you see with State Street and the partnership there? And do you see this as a way to enter the U.S. target date funds and maybe the outlook for this partnership going forward? Per Franzén: Thank you for those questions. I'll start by addressing the first one, then I'll hand over to Kim to provide more details, and Gustav can talk about the partnership opportunity with State Street going forward. So when it comes to exit volumes, right, I mean, it's important to keep in mind that 2025 was a record year in the history of EQT for us, right? I mean we sent back EUR 34 billion of proceeds to clients, 3x industry average in our equity strategy. So the beauty, of course, the benefits of having a truly global diversified platform the way we have it at EQT is that in certain years, there will be higher amounts of distributions in relation to NAV in certain strategies. And then in other years, there will be a step-up in other parts of the business. And so that's what you should expect in 2026, right? In 2026, we do expect a pickup in distributions coming out of our infrastructure platform, for instance. And yes, I just wanted to provide a little bit of that background and color as to the outlook for 2026. And Kim, maybe you want to elaborate a little bit on the details and carried interest. Kim Henriksson: Yes. And what Per just said, how that sort of translates into carried interest really then goes into the framework I talked about earlier, where the carry will predominantly come from the funds that are in 2019 vintages or before. And you saw yourself that there's about EUR 600 million of carry left in those funds to be recognized, whereas the 2 flagship funds not -- next to come into carry mode are not expected to -- with the current exit plans it being carry mode still in 2026. So that's the guidance we can give you at this point in time. Gustav Segerberg: And maybe I'll touch upon the State Street partnership. I think, first of all, we're super excited about having State Street as a shareholder in EQT and the partnership that they already have in place with Coller. Of course, there is a lot happening in the private market side connected to private individuals and in the U.S., especially the target date funds and the 401(k) opportunity. We think that there is tremendous opportunities here, both in the form of over time broadening the partnership with State Street, and that's something that we look forward to having a positive dialogue with them around. But also when you think about how the target date funds operate and what's required to be able to win in that channel, it's very clear that secondaries is going to be a very attractive and key component of that solution, also given the need to trade on a daily basis which when you think about it from a primary versus secondary perspective, would just make it easier. So I think all in all, we're very excited about it. As we've talked about, we think that the 401(k) opportunity is very significant, but then it will also take time. And this, of course, is an important step for us in that journey to really create products that fit into that type of client base. Operator: Now we're going to take our next question. And it comes from the line of Ermin Keric from DNB Carnegie. Ermin Keric: Do you hear me now? Per Franzén: Yes, we can hear you. Ermin Keric: Maybe just you mentioned that you expect an increase in evergreen flows in 2026. Could you quantify that? And sorry, then the second question would be on branding. You're saying that you're increasing your spending on that. Could you give us any more kind of details on how much you expect to spend on branding and put it in context to what you spent before and also how the success of those efforts are measured? Per Franzén: Good questions. I'll leave both of them to Gustav and Kim. Gustav Segerberg: Yes. Maybe I'll start with the first one. I'm not going to quantify it into a number. I think that if you think about -- if I were you, I would think about it in 2 aspects. First of all, as I talked about, during that time frame, 7 out of the 10 or 10-plus were operational. So that kind of gives you, I think, a first piece of the puzzle of seeing how that could then be in the 2026 flow. I think the second piece of it is -- it's really that out of the 7 and of course, the remaining 3, 4 products, we still see an acceleration of the flows as we're ramping it up, so to speak. So I think what we're saying is that we expect that number to be significantly above the EUR 4 billion in 2026. Kim Henriksson: On the brand and marketing topic, in order to have a successful spend of brand and marketing, you first need to build a sort of organization and have the processes, et cetera, in place. And that is what we have been doing over the last few years, and we now have that foundation, which allows us to spend money efficiently externally on marketing campaigns and on brand events and branding more generally. The -- we're not going to go into the specific numbers here on a line-by-line basis, but it's -- the amount we will spend is a multiple of what we have done historically, but from a fairly low base to start with, I would say. Then it is a science of its own in terms of how this money will be measured, and it's quite different from a directed marketing campaign where you can sort of measure the exact clicks, et cetera, where from a more branding campaign where it's more about brand awareness, et cetera, in the market. But we have a great team focused on that with very specific sort of follow-up processes that are going to be in place. Operator: And the question comes from the line of Isobel Hettrick from Autonomous Research. Isobel Hettrick: Isobel Hettrick from Autonomous Research. So in your presentation, you touched on the significant number of new LP relationships the transaction opens up for both you and Coller. Can you provide some color on how you're thinking about the cross-selling opportunity from both ways, so existing EQT clients investing in new secondary funds and vice versa over time. So perhaps with reference to BPEA, how have you seen cross-selling develop since you acquired that manager? And what can we read across to Coller? Per Franzén: Good question. I'd say it's not only that we have a track record in terms of achieving cross-selling synergies on the institutional side from the merger with Barings. And we, of course, also acquired Exeter before making the Baring's transaction. And I think we have good data points and evidence from both of those transactions in terms of the synergies that we can generate. Gustav can provide more details. And then, of course, what's different also this time around is that the private wealth opportunity has developed further. And here, we really see an opportunity for us to leverage all of the investments that we've been making into our capabilities, into our brand, into our marketing in those areas, right? So -- but Gustav, why don't you elaborate? Gustav Segerberg: Yes. No. But I think as you say, Per, there, we have experienced from it both from Exeter and BPEA. Of course, BPEA is not fully closed yet, but what you will see in the appendix is that around 25% of the capital in BPEA IX is from, let's say, original EQT clients. I think the equivalent number for Exeter on the latest U.S. fundraise there is about 15%. So we -- I think we have good track record of showing that there is significant cross-selling opportunities in these transactions, of course, going both ways in it. And in this specific transaction, as Per points out, the private wealth opportunity, there is significant cross-selling opportunities there. And then, of course, we also have the insurance side where over time, there can also be, let's say, some joint opportunities going forward. Operator: Now we're going to take our next question, and the question comes from the line of Magnus Andersson from ABG Sundal Collier. Magnus Andersson: Just first of all, on the transaction, if you could, in any way, quantify potential income and cost synergies and any potential structural charges related to this transaction in 2026? And secondly, just on your fundraising, there seems to be very strong demand for infrastructure according to market data. So I was just wondering whether we eventually should expect your flagship infra funds to become larger than your traditional key funds and if we could see that already in the generations that will be on the fundraising in 2026? Per Franzén: Yes. Good questions. I think we're incredibly -- I think as we've mentioned in the past, we're incredibly excited and optimistic about the growth potential across our infrastructure strategies, and we see very good momentum here in the ongoing fundraises that we have. I'm not sure we're going to comment on or give guidance in terms of the sizes for the next generation of these funds. But I leave that to Gustav to comment on further. And then on Coller and the income and cost synergies in '26, maybe, Kim, you want to take that question? Kim Henriksson: Yes. Well, first of all, on Coller, as you heard, we gave the guidance that we intend to more than double the business in the next 4 years. That's really the income guidance we can give you. And that is based on all of the strengths that we just talked about of the combined business. And this is not a transaction that is done because of cost synergies. Having said that, as I mentioned, there's a number of, let's say, costs that are of a nature where you can spread them out over a larger base, and that will become more efficient. Then there are some areas of overlap on the back end that we will work together to solve in the most efficient ways, but that's not the reason for the transaction. There's likely to be some transaction costs associated with it, of course, but they are not in the big scheme of things of a magnitude that will move any needle. Gustav Segerberg: And then maybe on the infra side, I think we fully agree with you on the infra opportunity in general terms, so to speak. And that's also why we, in the last couple of years, have been very focused on broadening the infra offering which you've seen both with the Active Core, especially now going open-ended. You've seen it with Transition Infra. We talked today about the EdgeConneX opportunity on the [ CV ] side. So I think you should think about it that -- and I'm not going to comment specifically on Infra VII, so to speak. But we probably think that the large opportunity here is continuing to broaden the infra scope and scaling those things in a way that we can really be a market leader across from, let's say, more infra growth opportunities all the way to core plus. Operator: Now we're going to take our next question and the question comes from the line of Jacob Hesslevik from SEB. Jacob Hesslevik: So my first question is on the culture fit. When you acquired both BPEA and Exeter, you talked a fair bit about the strong culture and how EQT and the related partner would fit together. But you have said very limited today with the acquisition of Coller. So what are the key culture and operational integration priorities over the next 12 to 18 months? And how will you maintain both EQT and Coller's entrepreneurial culture while achieving the synergies? That's the first question. The second one is you highlighted a particularly strong pipeline for Japan for 2026. What makes Japan distinctive from other Asian markets in the upcoming year? And do you need to change your approach to capture the market potential? Per Franzén: Yes. I'll start with the second one. On Japan, the reason why we are particularly excited about the pipeline that we see in Japan right now is because of some of those corporate governance reforms that have been implemented in Japan and that just enable us to pursue opportunities where we can really unlock value creation opportunities. And it allows us to create sources of alpha that are uncorrelated to the type of value creation opportunities that we see elsewhere in Asia. So for instance, in India, there's a lot of tailwind from demographics, capital markets-related tailwinds, whereas in Japan, the alpha-generating opportunities really around unlocking that value creation opportunity, thanks to some of those corporate governance reforms. And of course, we are very well positioned to capture that. Why? Because we have a best-in-class value creation toolbox that we've developed over 30 years. We have best-in-class sector-based strategies and value creation playbooks that we can apply. And then, of course, in Japan, our brand resonates very well. We've been present in the country for 20 years, thanks to the Wallenberg connection. We were also seen as a very credible long-term player, which is particularly important in a market such as Japan. So for all of those reasons, we're very excited about the opportunity ahead in that country. When it comes to Coller and the cultural values fit, right, it is as strong as we have seen in previous combinations. We've spent -- Jeremy and I have spent a lot of time together to get to know each other. I'm sure we're going to have an excellent partnership. And we've also spent significant of time together at the next generation of the leadership team between Coller and EQT, exactly like we did it in the combination with Barings and also in the transaction with Exeter, right? So that's a good way to get to know each other, and that's why we can with confidence say that this fit from a values perspective, culture perspective, the entrepreneurial, the innovation drive, the performance drive, all of that is exactly similar as it is in EQT. And the way, of course, we maintain and retain that culture, that's how we run our business, right? And that's why it was so important that we took those steps in 2025 to simplify our organizational setup. What I spoke about in my presentation and what I've also talked about in previous instances. So today, we have organized ourselves around a number of highly accountable high-performing business lines. And then we have simplified our governance, our structure in a way so that we have one combined capital markets client relations team on the institutional side that will be very well positioned to serve all of these business lines going forward, including Coller EQT. And then finally, of course, we have a clear governance around how we run our backbone, our business on the operations side. And those would also then be areas where we can achieve synergies together, right? And so by having those highly accountable business lines, that's also how you can ensure that you retain that entrepreneurial performance-driven culture. Kim and Gustav, anything else you want to say on the synergies? Gustav Segerberg: No, I think maybe one more point, and that's we just had a partner meeting earlier this week where, of course, the real estate and the Asia team was there. And I think it's so clear to see how well those integrations have gone, how much they feel like part of EQT in a real way. There is only one company. And I think it also shows that the model works, and also that we're ready to do the next one. So I think from all of those perspectives, this timing is also a good one, I would say. Operator: And now we'll go and take our last question for today. And it comes from the line of Nicholas Herman from Citi. Nicholas Herman: Congrats on the deal. Two questions from me, please. One on accretion and synergies and one on cash. On the accretion and synergies, you referred to a doubling of fee-paying AUM in Coller over 4 years. Is that the time frame for the mid-single-digit FRE accretion? Or is the accretion time frame shorter? And related to that, what synergies are in that guidance? And how should we think about the sequencing of adjacencies and synergies. And then a quick one on cash. I guess given this transaction is almost entirely equity, should investors now have greater confidence that you will announce share buybacks over time? And I guess for avoidance of doubt, I'm assuming you have no ambition for further deals or especially larger deals for now at least? Per Franzén: Thank you. Olof and Kim, do you want to take those questions? Olof Svensson: Yes. Do you want to go ahead? So I mean, if you think about the accretion, we're buying, first of all, 100% management fees, right, over the next several years. And as we talked about before, the earn-out mechanics is based on a fee-related growth of close to 30% or high 20s, right? And to Kim's earlier comments on the margins, that means that you're going to have a very rapid top line growth, and that means that our margins are going to scale quite meaningfully over the next several years in this business. So if you think about this from a fee-related EBITDA multiple, it's based on the guidance that we gave, it's about 16 to 18x multiple that we're paying in '26, but that's not then capturing this significant ramp-up that you have in '27 and '28, right? So to your question, if you think about this transaction in, say, a couple of years' perspective, I'd argue it's high single-digit accretive to our earnings. And that means that this mid-single-digit guidance, that's an average over the next few years. Kim Henriksson: And in terms of cash and buybacks, yes, you're absolutely right. This is an all-share transaction and will, if anything, strengthen our balance sheet further over time. There's -- last year already, we did about EUR 300 million of share buybacks in 2025. So it's not that we haven't been doing share buybacks already. And what we have said in terms of guidance is that we will use share buybacks or extraordinary dividends for that matter as a tool if we, at any point, become overcapitalized, for example, if cash carry comes in at scale, but I can't give you any specifics around that in terms of timing or how that's going to look. But right now, we have a solid balance sheet, but we're not overcapitalized given the opportunities we have, both organic and inorganic going forward. Nicholas Herman: That's really helpful, guys. If I could quickly follow up on the synergies. Just what synergies, as you said, are in that guidance? And how should we think about the sequencing there from, I guess, from a -- presuming is it wealth first, then insurance then Asia, I mean how should we think about the way you're going to be tackling those -- the numerous opportunities there? Gustav Segerberg: Yes. And I think we're not going to go into specifics of it. Of course, as always in this, it's going to be evolving development in it. And there are a number of opportunities. But I think we also feel that we're very well equipped, both from a Coller perspective and from an EQT perspective in order to capture many of this. I think you should think about the guidance on, let's say, doubling the business on -- in less than 4 years that, that does not include a very significant new initiatives in that. It's, of course, a development of the business. It's continuing to scale of the PE and credit side. On the institutional side, it's maybe 1 or 2 new initiatives on the institutional side. And then, of course, it's a development of the evergreen as well as the insurance side. But it's a base case that we feel and the Coller team feels comfortable, which I think is good. Operator: Dear speakers, there are no further questions for today. I would now like to hand the conference over to management for any closing remarks. Olof Svensson: Okay. Well, everybody, thank you very much for great questions and for the discussion. As you can hear, we're extremely excited about this combination with Coller, and we are very pleased with the results that we delivered for 2025. As always, you know where to find us, we're available for any follow-up questions. So thank you very much. Kim Henriksson: Thank you all. Gustav Segerberg: Thank you. Olof Svensson: Thank you.
Laurie Shepard Goodroe: Good morning, and thank you for joining our 2025 full year earnings call. Financial statements were posted with market authorities early this morning. All materials can also be found on our corporate website. Please refer to disclaimer in the presentation and note that this call is being recorded. And we welcome today our Chief Executive Officer, Gloria Ortiz, and Chief Financial Officer, Jacobo Diaz. Gloria, over to you, please. Gloria Portero: Thank you, Laurie, and thank you all for joining us in this 2025 full year results presentation. Since we are reporting the full year, I believe it's appropriate to start with a brief overview of the environment in which our business has operated to provide context for the figures that we are about to review. 2025 was the year of Donald Trump's return to the White House and even that has set the political tempo of the international calendar. Continuing the trend of previous years, the events in 2025 confirmed that the international landscape is moving towards an increasingly turbulent and fragmented scenario. Long-standing conflicts, such as Ukraine, remain unresolved despite failed attempts to reach an end to the war. In Gaza, the ceasefire came only after months of escalating violence. Meanwhile, the Franco-German Axis, the traditional engine of the European Union, has been weakened by deep domestic political crisis. Without a doubt, tariff has been the most repeated word of the year. The imposition of tariffs on international trade has become the main diplomatic pressure tool of the Trump administration. The European Union, which for years has been a strategic partner of the United States, ultimately considered in trade negotiations and accepted a 15% tariff to maintain access to the U.S. markets. Thus, the balance of 2025 confirms an international landscape that is increasingly fragmented and less predictable, where open conflicts tend to become chronic, and long-lasting political solutions are replaced by fragile truces or unbalanced agreements. And indeed, what we have been observing in these first weeks of 2026, for example, in Venezuela or in the U.S. stance on Greenland, amongst others, confirms that this year will again be marked by geopolitical volatility just as 2025 was. At the same time, technology, led by artificial intelligence, continues to advance at a blistering pace, transforming operating and business models. And the banking sector is undoubtedly no exception. These are global trends shaping the broader environment. But if we focus on the countries in which we operate, it is worth noting that the 3 economies, Spain, Portugal and Ireland, are among the most dynamic in the Eurozone and have become the new growth locomotives of the union. In fact, the Eurozone in 2020 -- in fact, in the Eurozone in 2025 inflation, which had surged sharply after the pandemic and the Ukraine war, moderated. And as a result, the ECB accelerated interest rate cuts, especially during the first half of the year. With inflation under control at the European Central Bank's target level, benchmark rates stabilized at 2%, and no further cuts are expected in the short term. As a result, in 2025, the ECB reference rate averaged 2.2%, that is 1.4 percentage points lower than in 2024, while the 12-month Euribor fell by an average of 1.05%. Turning to financial markets. It's notable that despite escalating conflicts and increased political polarization, market performance remained robust. The IBEX 35 achieved a record increase of 50%. German equities rose by 23%, and the NASDAQ advanced by 19%. In this environment of geopolitical uncertainty and significantly lower interest rates compared to the previous year, we have delivered in 2025, very strong results, once again, record breaking. These results are built on solid foundations and driven by recurring client commercial activity. Moreover, in 2025, we executed major strategic projects that will underpin the bank's future growth such as the integration of EVO Banco and Avant Money, which is now Bankinter Ireland, a branch of Bankinter just like Portugal. Of course, before moving on, I want to express my thanks to all Bankinter Group employees for their dedication, effort and commitment because they are the true architects of the results that we present today. The results we present today are very satisfactory, driven by intense commercial activity that brings us to report a net profit of EUR 1,090 million in 2025, representing 14% growth over the previous year. 2025 was marked by diversified growth, both geographically and by business line. Overall, we grew 9% in total business volume, 5% in lending, 6% in customer funds and delivered a strong double-digit growth, 19%, in off-balance sheet products. Despite the sharp decline in interest rates, we managed to limit the falling interest income to 1.8% in 2025. And on a year-over-year basis, the inflection point was reached in the first quarter. From that point onward, net interest income grew quarter after quarter, thanks to credit growth and margin management. Customer spreads averaged 2.68% for the year with the overall NIM at 1.78%. Fee income from services had an exceptional year, growing 11%, which in nominal terms, almost doubled the reduction in interest income. This allowed us to grow gross margin by 5%, and I think it is important to note that the strong performance in fee income is due to the significant growth in our balance sheet funds and not to any increases in customer fees. All this growth has been achieved while keeping our risk appetite unchanged, improving the asset quality of our balance sheet, reflected in a nonperforming loan ratio below 2%, specifically 1.94%. Another key element of our business model is efficiency at 36%, indeed the best efficiency level across the industry. These 3 pilots, the diversified growth, asset quality and efficiency, are the foundation of our business profitability, which reached ROTE of 20%. As I have been commenting in previous quarters, commercial activity with clients has been very strong. Total customer business volume stands at EUR 241 billion, EUR 20 billion more than in 2024, representing 9% growth in the year or a compound annual growth rate of 8%, an increase of EUR 80 billion since 2020. This volume breaks down into EUR 84 billion in lending, representing 5% growth versus 2024 at year-end. Customer funds reached EUR 88 billion, EUR 5 billion more than a year ago, and we now manage EUR 69 billion in assets under management, 19% more than at the end of 2024. We have more than doubled the balance recorded at the end of 2020 with a compound annual growth rate of 17%. All this growth is organic and diversified with every geography contributing and outperforming the market. Our diversified customer business volume growth is what enables us to consistently strengthen revenue streams. Core revenue fees and interest income reached EUR 3,032 billion, a compound annual growth rate of 12% and a record for the series, exceeding 2024 by 1% despite the headwind of lower interest rates. We achieved this by limiting the decline in interest income to 1.8% through volume and margin management and through the excellent performance of fee income, which with an 11% growth rate more than offset the reduction in net interest income. The drivers of fee income are the strong growth in off-balance sheet funds, the increasing activity of Bankinter investment across all its business lines and the positive performance of the economies in which we operate. Regarding interest income, I would like to highlight its upward trend throughout the year. It bottomed out in the first quarter of 2025. And from that point on, revenues increased quarter after quarter. By the fourth quarter, we already grew on a year-on-year basis by 4%. So the outlook continues to be more positive, especially with the forward rate current scenario for 2024 -- 2026. In summary, sustained growth, asset quality and efficiency are what allows us, once again, to deliver results that surpass our own records, exceeding EUR 1 billion and representing 14% growth versus 2024, tripling our results over a 5-year period. Our ROTE now at 20% is also the highest in the entire series. Before I hand over to Jacobo to review in further detail the financial results, I wanted to quickly showcase one commercial strategy that was quite successful in 2025. In 2025, the 100% digital new client acquisition is what I'm referring to. Since the EVO integration, we have improved our digital customer experience with the use of AI in commercial and marketing processes. Our deposit gathering capabilities are now stronger, more granular and flexible. We increased customer funds in this channel by 64% in the year, now reaching EUR 12 billion, close to 14% of our total customer deposit base. New customer acquisition trends have doubled since 2022, and the digital channel now represents more than half of the new client acquisition in 2025. From an industry perspective, our digital offering is -- not only allows us to compete effectively with new entrants, but gives us a clear competitive advantage. Customers benefit from a full multichannel ecosystem, digital branches, contact center and also private banking network, which enhances loyalty and broadens upsell opportunities. In the second half of 2025, the strong growth of this channel generated some short-term pressure on deposit cost. However, looking ahead, our digital strategy and strengthened deposit gathering capabilities create meaningful upside supported by lower acquisition and servicing costs. Overall, our digital franchise has become a scalable and cost-efficient acquisition engine that strengthens loyalty, supports margin resilience and accelerates fee growth, a competitive moat that becomes more powerful each quarter. Jacobo, now over to you. Jacobo Díaz: Thank you very much, Gloria, and good morning, everybody. 2025 marks yet another year of increased revenues and profitability. In operating income, we have grown by 5% with increased volumes, continued strong fee growth and effective margin management. Operating costs were more balanced this year over the quarters with annual cost growth growing below revenue growth to end the year within guidance, confirming positive operating jaws another year. Cost of risk and related provisions declined by more than 15%, reflecting a continued positive trend in risk management. And net profit increased by 14.4% to well surpass our initial goal of EUR 1 billion in 2025. Onto NII and customer margins on the next page. NII contributed to EUR 2,237 million this year, slightly below our initial target. Asset yields for the year averaged 365 basis points and remained quite stable this quarter at 3.48%, down only 1 basis points from the third quarter given the good volume growth, especially in corporate and uptick in short-term interest rate. This helps soften the impact of a slight increase of 3 bps in quarterly deposit costs due to the same uptick in short-term rates as well as a successful commercial strategy that Gloria just mentioned regarding digital account deposit gathering. Customer margins for the year averaged 268 basis points, very near to our 270 longer-term target. We believe Q4 '25 mark a low point, as the downward repricing of digital account deposit is underway in Q1 '26. Therefore, we expect customer margins to recover moving forward. NIM averaged 178 basis points for the year as the noncustomer interest income improved in the quarter, leading to an increase of NIM of 4 basis points in Q4. Regarding the ALCO portfolio, this has been achieved through increased ALCO balances that you can see on Page 13 as well as reduced wholesale funding costs. Moving on to fees. Fees continued to deliver sequential increases each year, reaching EUR 795 million, up 11% versus 24%, reaching a double-digit compound annual growth rate of 10%. This sustained growth momentum is mainly attributable to the strong growth volume or strong volume growth in asset management, custody and brokerage services. Moving on to Page 15. Equity method and trading dividend income lines also up with an impressive 21% on a year-on-year basis. The diversification of sources of revenue is well represented here as a result of our business investment in the past. For example, Bankinter investment that we will look later in the presentation, insurance JVs as well with our JV in Portugal with Sonae called Universo. We also confirm the banking tax will have no impact in 2025 and expect this to be the case for '26 and '27. Moving into the contribution of gross operating income, there's been a very strong contribution from each geography in gross operating income, demonstrating increased diversification with Portugal and Ireland, growing from an 11% contribution to gross income in '22 up to 16% in '25. Moving to the expenses on page 17. We have contained total operating cost growth to 4%, notably with flat general expenses due to the tangible impact we are achieving through our IT and AI initiatives as well as with the EVO integration. Efficiency ratio improved to 36.1% this year, demonstrating our commitment to delivering positive operating jaws now and in the future. On Page 18, PPP more than doubled over a 5-year period to reach EUR 1,947 million in '25. Moving on, we see improvement in credit and other provisions. Significant decrease in cost of risk down to 33 basis points from 39 basis points in '24 with loan loss provision volumes now below those even of the ones in '23. Other provisions also performing well, down to 8 basis points for the year with no signs of deterioration in the market of -- in our portfolio, and our disciplined approach to risk management, we remain optimistic to maintain current levels for the coming quarters with potentially some upside risk. Next page, net profit reached once again historical levels at EUR 1,090 million, an exceptional increase of 14.4% in the year, maintaining similar growth rates seen in '24 even with the headwinds faced in interest rate during the year. Moving into the credit and asset quality indicators, as you can see, they continue to improve. Risk quality measure in terms of the nonperforming loan ratio has improved significantly this year breaking below 2% to reach 1.94%. The coverage ratio remains very solid at 68%, substantially higher than in the 2020. By geographies, Spain, down to 2.1%; Portugal at 1.4%; and Ireland, stable, 0.3%, all well below sector average consistently over time. Moving into capital. Our CET1 ratio ended the year at 12.72% and well above the minimum requirements of 8.36%, leaving an ample capital buffer of 4.4% as well as adequate MREL and leverage ratios. Main movements in the year related to retained earnings contributing to a total of 111 basis points, capital consumption of 51 basis points in RWAs and 35 basis points in operational and market risk. The implementation of the countercyclical buffer in Spain has resulted in a 41 basis point increase in minimum requirements. Moving into Page 24. Commercial activity, volumes and profit trends remain not only strong, but with a greater diversification each year across geographies. Customer volumes up 8% in Spain, 15% in Portugal and 23% in Ireland. Each region contributed at increasing levels to the profit of the bank as well we see on the following slide. Within Spain, loan growth this year, up 3% with a strong performance in the business lending segment growing 6%. I consider this satisfactory growth rate, especially when considering the intense competitive margin dynamics in Spain as well as our reduced appetite for open market consumer lending in Spain in 2025. Retail deposits continued to demonstrate solid and balanced growth, increasing by 5%, fueled by the successful digital campaigns we mentioned a little bit earlier. Stellar performance in Wealth Management, reflected by an 18% increase in assets under management balances as well as a 19% increase in assets under custody. Profit before tax, up 14%, reflecting solid contribution from our core Spanish business. Moving into Portugal, a continued momentum in lending activity across both business segments, up 9% in total with a strong deposit gathering growing 8% as well as a substantial increase in wealth management and custody balances, rising 28% on a year-on-year basis. Cost-to-income ratio at a very efficient low level of 33% even with increased investment in IT. Profit before tax, up 7% to EUR 210 million or 14% of total contribution to the group. Moving into Ireland. 2025 marked the year for our Irish business to convert into a branch of Bankinter, allowing for increased upside risk in terms of volume potential and efficiencies. We launched deposit in Q4, albeit with volumes still at marginal levels, definitively more to come in this space during 2026, as we begin to scale up deposit campaigns this quarter. Asset market dynamics and our Bankinter style commercial differentiation supported a 27% growth rate in the mortgage book in '25, with improved trends seen in the second half of the year. Consumer finance also growing at 11%. Profit before tax contribution reaching EUR 46 million, up 13% this year with important improvements in the cost-to-income ratio down to 44% from 48% last year. Now moving into the corporate and SME banking business. Business lending continues to deliver a strong performance, up 6% this year, consistently increasing market share year after year. One key growth catalyst continues to be our international business segment that has doubled loan volumes over a 5-year period, now reaching EUR 11 billion, representing 30% of the business lending book currently. This segment is also a strong recurring contributor to fee income from services. We also see increased activity and upside risk from other growth catalysts like our new ESG client solution across loan and servicing income products. For example, the loan advances we provide for energy certificates, where we were the first to launch in the market in 2025. Additionally, we are expanding substantially our Bankinter investment business that I will detail more in the next couple of slides. Bankinter investment has doubled income contribution to the group over the past 5 years with currently 31 alternative investment vehicles and associated vintages well distributed over the year since 2017. More than 15,000 Iberian Bankinter customers now invest in real assets. This franchise has been a key source for the increased fee income to the group, reaching a 12% compound annual growth rate with upside risk potential for the future. On the next page, you can see the strong diversification of the different investment strategy for the vehicles across many sectors and countries with more than 360 different underlying assets in the portfolio. Moving on now to review the Retail Banking business. Retail banking asset and deposit trends remained strong with increased core salary account balances up by 7%. New mortgage origination, up 10% year-on-year, with solid market shares of new production across Spain, Portugal and Ireland. Our mortgage back book is growing steadily at 5% annually despite rising competition in 2025. The Wealth Management business, on Page 32, shows our high-quality affluent client base that continues to drive exceptional incremental wealth volumes, up EUR 21 billion this year, a 16% increase on a year-on-year basis, of which half of it is new money to the bank. When excluding the market effect, the net new money has reached the EUR 10 billion level milestone, well above our historical range between EUR 5 billion to EUR 7 billion. Off-balance sheet, volumes under management and custody on Page 33 ended the year at EUR 156 billion, up EUR 25 billion, or 19%, increasing significantly with the markets and net new inflows in all categories. With the exception of fixed income security, we have provided additional details regarding commercial activity and trends for those key fee income growth catalysts in the annex, no doubt a key driver of continued fee growth for the future. Now, let me just spend a couple of minutes sharing our ambitions and targets for 2026 before I hand back to Gloria. We expect -- the first one, we expect solid macro outlook for all the regions where we are operating. Therefore, we expect growth across all segments and geographies, focus on our targeted type of customer and insurance and ensuring a disciplined risk-return approach for asset origination. Volumes are expected to grow at similar levels than in '25 and previous years. This means that lending volumes at mid-single-digit growth with deposit volumes targeting to keep our liquidity ratio stable, that is above 100% in terms of deposit to loan or below 100% in terms of loan to deposit. All geographies and business segments are expected to grow at similar levels with Portugal and Ireland keeping their successful track record, and Spain, keeping strong volumes in the corporate and retail businesses. Regarding NII, with the current Euribor 12 months rate outlook in '26 stable around current levels or slightly increasing towards the end of the year and next -- and following years, we expect customer average margin to recover 270 bps, our initial target. And therefore, we target in 2026 overall similar levels of client margins and NIM that the ones we saw in 2025. With residual negative repricing for mortgages and a downward repricing of our digital accounts in Q1, we expect minimal margin compression in the first half '26 with an upside bias to possibly reach a stable asset yields by the end of Q1 and beginning of Q2. Given these dynamics, we would expect NII for the entire 2026 to increase in correlation with volume growth. For fee growth, we target high single digit for the year, supported by increasing volumes from assets under management and assets under custody as well as from increased transactionality from each of the geographies, which are strongly correlated with the economic growth of each of them. With our strict cost allocation and management, while keeping strong IT investment around 10% of our gross income, efficiency remains one of our pillar or our main pillars, and we are committed to delivering positive operating jaws, again, in 2026, reducing cost-to-income levels below 35% for the year. In terms of credit quality, we have a stable outlook for cost of risk for the year around current levels of 33 basis points, albeit with a positive bias. And ROTE is expected to stay above 20%, ensuring attractive shareholder value creation. In summary, we expect 2026 to be another year of consistent growth in volumes and profitability reaching new records in volumes, gross income, efficiency, net income, and of course, profitability. Gloria, back to you, please. Gloria Portero: Thank you, Jacobo. Thank you for sharing our financial ambitions. In terms of our management priorities, all of these are well-integrated and will contribute to our financial goals with high-quality volume growth, a greater diversification of income from servicing fees and geographies. We will continue to invest in technology to achieve tangible benefits from our AI initiatives, driving both competitive differentiation and operational efficiencies. The outcome will undoubtedly result in a strong profitability and sustained improvement in shareholder returns. The key driver for this success centers around our clients and our employees. 2025 is a pivotal year for artificial intelligence, and we are committed to embedding AI tools and culture throughout the group. I will oversee project selection to ensure we achieve tangible results. Our program called AI First is designed to enhance our competitive advantage by integrating AI into all our customer-facing acquisition and service applications. We are committed to deploying personal productivity tools company-wide aiming to achieve 5% improvement in productivity over the medium term. Regarding process efficiency, ongoing initiatives across back, middle and front office focused on integrating AI gen applications into our banking operations. Coupled with leveraging AI tools for software development, we anticipate a 10% increase in capacity equivalent to approximately 1 million hours over the next few years. However, AI for Bankinter is not just a plan, it is a reality with substantial progress achieved in 2025. On Page 37, you can see the measurable improvements in productivity and efficiency thanks to the bank's digital transformation and the pragmatic and effective use of artificial intelligence in operational and commercial processes. We remain committed to investing 10% of our gross income in technology. On the lower left-hand side of the page, we have highlighted several examples of our use of AI in 2025, which have contributed to enhanced employee productivity. With EUR 36 million managed per employee, we compare very favorably to our peers with EUR 21 million per employee. And if we measure efficiency in terms of operating cost per billion managed, we also stand out. We allocate EUR 4.6 million of expenses per EUR 1 billion managed for our clients while our competitors require EUR 6.5 million for the same volume. Naturally, this is reflected in the efficiency ratio, which has improved year after year and now stands at 36%. Finally, I would like to highlight that all these gains in efficiency and productivity are not being achieved at the expense of service quality. In fact, service quality, measured in NPS, has improved by nearly 10 points since 2020 and now stands at 51%. Turning to the financial page -- the final page of our presentation. We report a ROTE of 20%, 100 bps above 2024, together with continued value creation for shareholders through both dividends and growth in book value. We are presenting another year of historical results driven by recurring customer activity and the disciplined execution of a long-term strategy that preserves our risk appetite while strengthening the balance sheet as reflected in the ongoing improvement of our NPL ratio. We continue to invest in initiatives that support business growth while at the same time improving efficiency. The drivers behind our performance, diversified growth, disciplined pricing, strong fee income engines and best-in-class efficiency are structural and provide strong visibility into continued profitable growth. In conclusion, 2025 demonstrated the resilience and strength of our business model even in a year of declining rates, geopolitical volatility and intense competition. Bankinter expanded volumes, protected margins and delivered record profitability. It was not just a record year, but a clear demonstration of the strength of our franchise, the quality of our growth and our ability to generate attractive returns and create long-term value for our shareholders. Back to you, Laurie. Laurie Shepard Goodroe: Thank you, Gloria, and thank you, Jacobo. We'll now open up for questions. [Operator Instructions] Our first caller is Maks Mishyn from JB Capital. Maksym Mishyn: Two questions from my side. The first one is on the competitive environment in lending in Spain. Your retail book is growing below the sector, and my question is whether it is intentional, why and when can this change? And the second question is just a clarification on the cost of risk guidance. You mentioned upside risks. What has to happen for them to materialize? And what kind of upside risk are we talking about? Could you please quantify them a bit more? Gloria Portero: I will answer you the first question, regarding competitive environment in Spain. Listen, I actually -- I think I pointed it out last quarter. We are seeing some irrational behaviors, particularly in the mortgage business, although also in other segments, but mainly, I would say, in the mortgage business. And you will understand it very, very quickly. I mean, there are offers, and I'm not talking to private banking clients. I'm talking to very standard clients, where they can get a 30-year mortgage at 2.20% for 30 years fixed, I'm talking. And as you know, the swap curve for the 30-year is over 3%. So basically, it's like selling a mortgage with Euribor minus 80 or even more. That is absolutely rational because even if that rate has a positive margin this year, obviously, you are building a portfolio that is not sustainable. And in 30 years, rates can do many things. So we are not into that world. We are not going to sell mortgages at 2.20% because we want to build a sustainable portfolio in any environment -- well, probably not in any environment, but in most of the environments, and we are not going to enter in that war. So we are producing with our clients, and we are competing in those clients where we think they deserve better rates. But we are not going to enter in that war. Jacobo Díaz: Maks, this is Jacobo. I'm going to answer your second question, and maybe there's a misunderstanding. The cost of risk that we're expecting for 2016 is quite similar to the current levels that we've seen here at the end of the year, which is around 30 bps -- 33 basis points. I think the word upside risk means -- it's meant in a positive way. That means that it could be even a little bit lower, not a little bit higher. So it's the way we can interpret that word. I think we think that we are under a good macro outlook for Spain, Portugal and Ireland. As you know, we are reducing our exposure to the consumer finance business with non-Bankinter client. We are reinforcing of being more prudent in all our activity. So the sense of the sentence that I mentioned of the upside risk doesn't mean this might go up in terms of cost of risk. I was trying to say that it can be even better than the current levels of cost of risk. I hope that I have clarified my point, and I expect that this was your question. Laurie Shepard Goodroe: Our next question comes from Francisco Riquel in Alantra. Francisco, go ahead. Francisco Riquel Correa: Yes. So my first question is I wanted to ask about your guidance of mid-single-digit growth in loans, if you can, please share indications by country. It seems to me that your guidance could be conservative if just the sector in Spain grows 4%, 5% in '26, which is nominal GDP growth. So you have grown a bit less than the sector in Spain. You were commenting that. So I wonder if you are willing to continue losing market share, particularly in retail mortgages in '26 or if you -- we could have upside risk to your volume guidance overall? And then my second question is regarding the guidance for cost inflation. So you have given cost-to-income reducing 1 percentage points, which means 2 percentage points cost inflation below revenue growth, meaning also cost inflation lower than in '25, but you need to invest in Ireland to become a full universal bank, also in Portugal. So that probably means very little cost inflation in Spain. So if you can, please elaborate on the cost guidance, the longer-term ambitions that you have presented for 2030, how do you plan to leverage technology to achieve that? I see other banks are still investing in technology. So if you can please elaborate. Gloria Portero: Thank you, Paco, for your question. I will try to answer the last question and maybe give some indications about the first one, but Jacobo will complete what I say. Okay. With respect to costs, obviously, technology is going to help, but this is not -- it's not a miracle. So we are not going to attain obviously, all that efficiency only with technology. I remind you that last year, we integrated EVO Banco. This year, 2025, we only had synergies for the half of the year. Next year, we will have the synergies of this operation for the full year. On the other hand, we just announced, I think, in December that we were absorbing consumer finance -- Bankinter consumer finance into Bankinter. And obviously, this means a simplification of the corporate structure that also brings some synergies. So it's a question of the traditional cost management technology and also all the simplification that we are undergoing in the corporate structure. And with respect to lending growth, listen, if the competitive dynamics continue to be in the mortgages -- in retail mortgages, the ones that we have seen during 2025, we are happy to be prudent and not to grow at the same pace as the market grows. But I hope because it doesn't make any sense that the market reacts and that we come back to a logic dynamic in pricing. Another thing where we are also reducing our growth rates is in everything that has to do with consumer credit in the open market. This means outside Bankinter clients in Spain because we are seeing already, as you can -- you know, there have been many announcements with regards to -- with regard to the new law, and well, there are a lot of problems in this -- I would say, a lot of compliance risks in this business. Do you want to complement? No? Jacobo Díaz: Yes, yes. Paco, good morning. No, no, I think in addition to -- I mean, basically, what Gloria is trying to say is that we are sticking to the same type of client or target of client that we've been sticking in the past, even with this exclusion of the consumer finance business in the open market activity. So this is one of the reason. We are targeting selective origination of lending. And even though we are able to keep the similar level of growth even if the market might grow a little bit more. But we prefer and we prioritize a good return and risk combination instead of volumes. Ireland is going to grow, again, quite strongly, double digit. Portugal is going to grow again strongly, double digit. And Spain behavior is going to be very positive. But always, we are prioritizing the combination of risk and return. Laurie Shepard Goodroe: Our next question comes from Marta Sánchez from JPMorgan. Marta Sánchez Romero: The first one is a follow-up on cost. So you're mentioning a commitment to positive jaws every year. You're going to be below 35% cost-to-income. What do you think is the right level to run the bank? And do you see a 1% positive progress every year for the next 3 to 5 years? And the second question is on the customer spread. You are committed to that 270 basis points. This quarter, we are a bit far from that level, 261. How are you going to be rebuilding that margin? And what is the outlook for net inflows into your digital account for next year? Jacobo Díaz: Marta, I'm going to start answering your second question about the customer spread. So Gloria has already mentioned that we are updating the cost of the digital accounts. This is going to be a good behavior in the first quarter of this year, and this is going to instantly recover part of the client margin, again, targeting the 270 in average that we've mentioned for the entire year. So for the year -- I mean, the cost of deposits are the ones that we will expect more contribution to this building up the 270. Loan spread that have ended the year at 3.48% last quarter also is intended to recover across the year. We expect or there is expectation of a steepened yield curve that will provide more upside in the second half of the year than in the first one, especially with mortgages. So we do expect that the contribution of the asset yield might be a little bit lower in the -- to recover that position. So maybe a couple of bps in average. But definitely, the cost of deposit is the one that will drive the most -- the majority of the building up of this 270s across the year. And in terms of cost, yes, I think one -- always it's very difficult to tell if it's 1 or 1-point-something point every year. But definitely, the message of Gloria is that we have a strong ambition to reach very low levels of efficiency. We think that we should aim to reach 30% not too far ago. This is where we want to be in terms of efficiency ratio. And this is something that we want to build in the next 3, 4 years, maybe. Laurie Shepard Goodroe: Our next question comes from Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: I have 2 questions. The first one is on fees, looking to insurance fees and distribution fees related to insurance products. I mean, I just wanted to see if there could be any acceleration of that into 2026, if there is chances to rethink about the JVs that you had in the non-life business. What could be the strategy on the insurance business? And the second question is on the capital front in the quarter, that has been like 19 basis points positive effect from intangibles and other adjustments, if you could elaborate a bit what was the driver of that? Gloria Portero: Ignacio, I will try to answer your first question. As you know, we have to -- well, we have a JV with Mapfre that's in life insurance, but also in non-life in all segments but auto and home insurance. In home insurance, we are growing very nicely, actually, and also, in life insurance. But where we think that we could grow more is in all the other segments that are outside life and home insurance. And yes, we are working. We are working with Mapfre to see how we can give a greater push to this business. But we have no plans for the moment to make any changes in the JVs that we have. But as I mentioned, we are working with Mapfre to see how to improve this 7% growth rate. Jacobo Díaz: Ignacio, I'll answer your questions. Yes, I mean, at the end of the year, we reduced the deduction of intangibles just because all the IT assets that have been developed come into production in this fourth quarter. Therefore, we reduced the deduction as intangible, and then, we start the amortization of these IT assets. Laurie Shepard Goodroe: Our next question comes from Pablo de la Torre from RBC. Pablo de la Torre Cuevas: I had a first question on the potential uses of the excess capital that you're expected to generate going forward. So beyond organic growth in existing markets, how do you envision to use this excess capital? And I know Gloria has already commented on this last quarter, but you continue to be linked to a potential transaction in Ireland. What is kind of your latest thinking there? And given the outlook more generally for the bank, have you discussed plans to change the ordinary payout going forward? Then, it's more of a -- my second question is a follow-up on the corporate structure simplification point in consumer finance that you have already discussed. But I wanted to invite you to comment on the revenue opportunity from this change. Payments and collection services is already a large contributor to fee income for the bank, but it seems that the revenue growth there has been decelerating a little bit over recent years. And so can you just please provide a bit more color on how this change can -- how the change you have announced can contribute to revenue growth going forward? Gloria Portero: Thank you, Pablo. With respect to Bankinter consumer finance, and you are talking more about the payments, the new payments area, I suppose, that we announced at the end of the year. We have done this -- well, first, payment income is not growing so strong because the regulation with regard to payments for instant payments, well, is such that has an activity that was fee-generating, what has become an activity where you charge no fees at all. So that has had an impact this year. It won't have an impact next year because, obviously, we are already comparing equal things. But with respect to payments, we have started a strategic thinking about this because this is an area that is really being transformed by technology with everything that has to do with stablecoins, digital euro with request to pay in the transactions between businesses. And we need to have a strategy and a value proposition. We need to understand what will be value-creating in the future, what is just a bluff, as we say, because there is a lot of noise, and we have to take the noise out of the room. I think payments can be -- there is a side of this strategy that is going to be protecting our business and the other one is going to be how can I make my business grow more. For the moment, I cannot tell you anything because we are working on the strategy, as I mentioned, but I'm sure that we will have some news in the next quarter or maybe in June. With respect to capital, well, we are not changing. We are not going to change our dividend policy just because we have 30 basis points more capital than our objective level. And we are not building up capital for any purchase in Ireland. I mean, I've mentioned already we have -- our strategy there is organic growth. We are building a bank from scratch, and that is what we are going to do. We are not looking at PTSB. And -- I don't know, I cannot be any clearer here. So I think I've answered Pablo. Laurie Shepard Goodroe: Our next question comes from Borja Ramirez from Citi. Borja Ramirez Segura: I have 2 questions. Firstly is on Ireland. I would like to ask if -- given the ongoing sale of PTSB, if this is an opportunity for you to gain market share organically in the country? And then my second question would be if you could kindly provide the average cost of your digital accounts, which I think was 1.6% in Q3 and also the average duration of this, please? Gloria Portero: Okay, Borja. I will answer you with regard to Ireland. Well, as I've mentioned, we are not interested in acquiring any operations in Ireland. But obviously, as I have always said, when there is a corporate transaction, there is noise, and this is always an opportunity for the other established banks in the country. We have seen that in the past in Spain. And I'm sure that, that will be the same in Ireland. So yes, this could be obviously an opportunity to acquire clients there. And I pass the second question to Jacobo. Jacobo Díaz: Borja, yes, there is -- the current price is -- the current average cost is 20 bps lower then I think you mentioned the 1.6%. So now we are at 1.4% more or less. Laurie Shepard Goodroe: Our next question comes from Carlos from Caixa, BPI. Carlos Peixoto: So the first one was actually -- first one would actually be on fees. You have -- in this quarter, in the other fees caption, you have a substantial increase quarter-on-quarter and year-on-year. I'm guessing that this relates to the roughly EUR 10 million success fee on a transaction that you had mentioned in the previous quarter. Just wondering whether you see scope for similar fees of this nature in 2026 and whether the high single-digit guidance that you conveyed is with -- on the reported fee income or adjusted for that specific item. Then on -- well, you mentioned you expect ROTE to be above 20%. What type of net profit income growth are you expecting for 2026? Should we think about double digit or below that? Gloria Portero: Carlos, regarding the guidance on fees that we mentioned, it includes -- I mean, we are not -- we are considering the total fees of 2025, and then, we are -- our guidance is on the top of it. So we are not excluding these one-off fees because the volume is not huge, it's not relevant for the entire year. So we are not considering -- I mean, it's like it was usual BAU. And regarding the net income, I think we've provided enough guidance to provide you an idea of this increase. I mean, the level of efficiency is going to improve. Cost of risk is going to stay or even can perform a little bit even better. So yes, as you can imagine, the net income is going to grow. And again, it's going to be a new record year. Laurie Shepard Goodroe: Our following question comes from Ignacio Cerezo from UBS. Ignacio Cerezo Olmos: One is a follow-up from Marta's question on the digital account growth. So how much of your mid-single-digit deposit growth is explained this year by digital accounts? And the second one, I think, Jacobo, you mentioned that you're not expecting any impact from the banking tax in '26 and '27. So is that comment constraint to those 2 years? And that means that '28 onwards, you're going to start booking the levy actually in the P&L or you just wanted to constrain the comments actually to the next 2 years? Gloria Portero: Ignacio, I will answer you the second one. Actually, the banking tax is a temporary tax. So it is not expected to go beyond '28. Obviously, that is what I can say today. I don't know if they will again extend this stack. So it is not -- it is temporary. And with the figures we have in hand, we think that it will be 0 or absolutely immaterial because we have a cash tax rate that is very high and that absorbs very comfortably the figure that comes out from the theoretical banking tax. And I'll pass back to Jacobo for the first question. Jacobo Díaz: Yes. Ignacio, I think the digital accounts have played a relevant role in 2025. But again, it's a combination of many things because the level of term deposit has gone down, which is very important. Treasury accounts has also had a very good behavior because our business or the growth in our corporate banking business has also been very, very positive. And of course, digital accounts had a quite relevance, but it's not the only catalyst of the growth of deposits during 2025. We've been able to attract the deposits. Then afterwards, we've been able to convert into 2 assets under management that have brought a lot of fees. Digital accounts are very important in our commercial strategy. That's what can I tell you, but it's not the only thing that we have. We have salary accounts that also have a very good behavior. So it's important, but it's not the only driver of growth in our deposit base. Laurie Shepard Goodroe: Our next question comes from Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: Sofie from Goldman Sachs. So just going back to the digital accounts, we have seen almost a tenfold increase in digital accounts. Like could you give us the split of the digital client acquisition by country? So how much is coming from Spain, how much from Portugal and how much is coming from Ireland? And then my second question would be on the fee income side. When we look at the fee growth in Q4, which was very strong, we see a lot of the increase actually came from other fees, I believe around EUR 17 million quarter-on-quarter, which is almost a doubling quarter-on-quarter of this fee line. Could you just elaborate what that other fee income line includes? Gloria Portero: Sofie, I will answer the first one. Almost 100% of the client acquisition with digital accounts is Spanish. It comes from Spanish clients. We have actually acquired digitally in Spain around 130,000 new clients, and we have attracted around EUR 5 billion of new money from these clients. This has allowed us to do something, which is actually not be -- not have -- we have made -- changed these deposits with corporate deposits that were even more expensive. So actually, we prefer to pay an acquisition cost to acquire clients where we can cross-sell and make more money than to our corporate clients for the treasury excesses. We won the operative accounts from our corporate clients, which are much lower cost. But just to give you an idea, we have already cross-sell to these clients. It's very, very, very early to say, but we have already cross-sell payroll accounts. We have cross-sell lending, and we have cross-sell investment products. We are at around a 7% cross-sell. But another thing that I want to -- well, to say is that around 10% to 15% of these clients that we have acquired are in the maximum level of the digital account, which is EUR 100,000. And this means they are probably more in the affluent segment or the private banking segment, and we are going to concentrate on those clients where we see potential to develop them. Actually, we are doing some tests to see in which area of the bank, whether it is the branch network, whether it is the telephonic managers or whether it is digitally that we can actually develop these clients. And for the moment, we are having quite good results. I will pass you through to Jacobo to answer you the fee income question. Jacobo Díaz: Good morning, Sofie. Yes, I mean the fee -- we have recorded the EUR 10 million of success fee of alternative investment funds in that line. That's why you see in the other fees that amount. I must say that the alternative investment funds activity is performing very well. You've seen also that in the line of the equity method, we have recorded very good results. And I believe this is something that is going to be sustainable over time. We have 31 vehicles. We have a good average fees. We have quite strong expectations in the future. And as we mentioned during the call, we have brought to the bank around EUR 10 billion of net new money, and some of them flies to the alternative investment fund. So this is a business that is quite relevant for us. It's going to be another priority in coming years. And you should expect more fees to come from this business and more equity method income from this business in the future. Thank you, Sofie. Laurie Shepard Goodroe: Our last question comes from Britta Schmidt from Autonomous Research. Britta Schmidt: I have a question on the digital account. How should we think about the adjustment on the pricing of the stock and versus the flow? So maybe you can give us some sort of indication as to what basis point reduction in deposit cost you expect from this initiative? And on the acquisition cost of these customers, I think given that you just explained that these are mainly affluent, it's probably clear why the acquisition cost will be lower than for other channels, but maybe you can give us some sort of quantification of how much lower these acquisition costs are? Gloria Portero: Well, I will give you, for instance, the campaign where we acquired most was more successful this summer, summer in September, which was also after the acquisition of EVO. So it's really the digital organization. The acquisition cost was EUR 20 per client. So really, the acquisition cost is more the cost of the actual account. What we want to do is -- I mean, as you have seen, we have already reduced by 50 basis points every single account in the digital organization. And we will go on with this trying -- doing trials and reducing the cost. Obviously, the front -- so the front, the new production, the new acquisition, will have to be higher, and we will be always in the order of the reference, ECB reference rate or somewhere around there, obviously, depending on how the competition is behaving. And the second question... Laurie Shepard Goodroe: Thank you very much all for attending today. That has ended our Q&A. And on behalf of the entire Bankinter team, we definitely thank you for your interest and participation. As a reminder, the Investor Relations team will be available after the webcast to answer any questions that you may have. Thank you, and have a wonderful day and start to the new year. Jacobo Díaz: Thank you very much. Goodbye.
Operator: Good morning, ladies and gentlemen, and welcome to the Currency Exchange International Q4 Year-end 2025 Financial Results. [Operator Instructions] Also note that this call is being recorded on Thursday, January 22, 2026. And I would like to turn the conference over to Bill Mitoulas, Investor Relations. Please go ahead, sir. Bill Mitoulas: Thank you, Sylvie. Good morning, everyone. Welcome to the Currency Exchange International conference call to discuss the financial results for the fourth quarter and 2025 fiscal year. Thanks for joining us. With us today are President and CEO, Randolph Pinna; and Group CFO, Gerhard Barnard. Gerhard will provide an overview of CXI's financial results, his latest perspective on the company's operations and Randolph will then provide his commentary on CXI's strategic initiatives, sales efforts and business activities, after which we'll open it up for your questions. Today's conference call is open to shareholders, prospective shareholders, members of the investment community, including the media. For those of you who may happen to leave the call before its conclusion, please be advised that this conference call will be recorded and then uploaded to CXI's Investor Relations website page, along with financial statements and the MD&A. Please note that this conference call will include forward-looking information, which is based on a number of assumptions, and actual results could differ materially. Please refer to our financial statements and MD&A reports for more information about the factors that could cause these different results and the assumptions that we have made. With that, I'll turn the call over to Gerhard. Gerhard, please go ahead. Gerhard Barnard: Good morning, Bill, and thank you, everyone, for joining today's call. My overview of the company's performance, CXI will also include the results of the discontinued operations of Exchange Bank of Canada, or EBC. These results are presented in U.S. dollars. As a reminder, on February 18, 2025, the group announced its decision to discontinue the operations of it's wholly owned subsidiary, Exchange Bank of Canada. Now EBC ceased operations as of October 31, 2025. And on December 19, EBC issued its year-end audited financial statements to its regulators. EBC has formally applied to OSFI to recommend approval from the Minister of Finance for the discontinuance from the Bank Act. Following final regulatory approval, management and the directors will liquidate the remaining assets and liabilities and distribute EBC's net assets to CXI, its sole shareholder. Management anticipates that all required regulatory approvals for discontinuance will be granted during the second quarter -- second fiscal quarter of 2026. Now starting the second quarter of 2025 and following the Board's decision to discontinue the bank's operations, the group updated its financial statements presentation to present continuing and discontinuing operations separately in accordance with IFRS accounting standards. Therefore, included in the group's financial statements are the results of the U.S. or United States operations, that's CXI, which is under continuing operations and the results of Exchange Bank of Canada, EBC under discontinued operations. Before we go into the detail of the various results, I'd like to note that the group measures and evaluates its performance using several financial metrics and measures, some of which do not have standardized meanings under general accepted accounting principles or GAAP and may not be comparable to other companies. We call these measures non-GAAP financial measures and/or adjusted results. Management believes that these measures are more reflective of its operating results and provide a better understanding of management's perspective on the performance of the company. These measures enhance the comparability of our financial performance for the current period with the corresponding period in 2024. Management included a full reconciliation of the key performance and non-GAAP financial measures in the MD&A. I think it's Page 24, 25. When we refer to reported results, we refer to results as reported in the financial statement based on IFRS, the audited results. Whether we refer to adjusted results such as adjusted net income, we refer to performance non-GAAP measures. Now the group reported net income of $10.3 million for the year ended October 31, 2025, an increase of $7.8 million or 317% over the prior year with yearly revenue growth of 5%. This 2025 reported net income reflected $14 million of net income from continuing operations at CXI and a net loss of roughly $3.7 million from discontinued operations, Exchange Bank of Canada. Reported unadjusted results for the continuing operations included nonrecurring items restructuring charges, roughly $300,000, $400,000 related to the closure of CXI's Miami vault and about $200,000 related to the discontinued operations in Canada. Now it is important to note that the reported results of the prior year 2024 included nonrecurring items related to the discontinued operations and represented impairment losses, regulatory compliance charges, other tax items, and that totaled $7.7 million. Now excluding restructuring and nonrecurring charges, adjusted net income from continuing operations increased to $14.5 million, a 10% increase, and the group's adjusted net income increased to $10.8 million, an increase of 6% -- the group's adjusted diluted earnings per share increased to $1.77 or $1.77, which is a 14% increase over the prior year. Now certain operating expenses and personnel costs previously shared with EDC were fully assumed by CXI during the year. The annualized estimate of these costs, we call the stranded costs, was initially approximately $3 million after tax. However, it is now expected that the actual figure will be closer to 90% of this original estimate once the full 12-month period has been completed. With that, here is a summary of our current fourth quarter's results compared to the same quarter in 2024. Revenue grew to $19.8 million, up by $1.4 million or 8%. Operating expenses increased to roughly $13 million, up by $743,000 or 6%. So revenue up 8%, expenses up 6%. Reported EBITDA grew to $6.4 million, roughly 4% and adjusted EBITDA grew to $6.8 million by close to $0.75 million or 10% over last year. Adjusted group net income grew to $3.3 million or by close to $0.5 million or 19% as a result of restructuring charges related to the closure of the Miami vault and charges related to EBC discontinued, which were partially offset by a recovery related to the judgment by the Federal Court of Canada, which reduced EBC's administrative monetary penalty by $1 million or CAD 1.4 million as agreed by both parties. Revenue growth was driven by 31% growth in the payments product line, 17% of CXI's total revenue is now from payments and a 4% growth -- in the banknotes revenue, 83% of CSI's total revenue is in the banknotes product line, primarily through direct-to-consumer channels. Now payments grew $800,000 or 31% of -- and it's roughly 17% of the total revenue. This growth was supported by a 40% increase in business trading volume and almost $2.1 billion due to the increased activity from existing financial institution customers and the onboarding of new customers. So that trading volume literally up 40% in this quarter. Wholesale banknotes revenue remained fairly flat year-over-year, presented roughly 40% of our revenue. Trading volumes declined slightly due to the impact of the U.S. federal government shutdown in October 2025, impacting several airports across the nation as well as a slowdown in inbound international travelers, especially from Canada. This slowdown of inbound international travelers has been substantially offset by an increase in outbound travel by U.S. citizens to Europe and Asia. Now let's look at direct-to-consumer banknotes revenue growth of roughly $600,000 or 8% and DTC represents 43% of our total revenue, with growth mainly in the online FX platform due to the increased demand for exotic foreign currencies. During the current quarter, CXI added South Carolina to the states in which CXI's online FX platform operates. Added more than 51 new non-airport agents in several locations and opened a new company-owned branch in New York. Now the following is a highlight of the operating expenses from continuing operations for the fourth quarter of 2025 compared to the prior year's fourth quarter. As I mentioned, CXI's operating expenses increased by roughly $0.75 million or 6%. Variable cost, postage shipping, bank charges, sales commission and incentive compensation totaled $3.4 million, an 8% increase, mostly attributable to shipping costs and bank service charges, partially offset by a decrease in variable compensation costs. Salaries and benefits remained fairly flat compared to the previous quarter, primarily due to general inflationary adjustments. This increase was partially offset by a reduction in headcount resulting from the closure of the Miami vault. Now bank service charges are related to processing payments and banknote transactions with the majority arising from the payments product line, where we realized 40% increase in volume. During the current quarter, CXI fully transitioned its check clearing and payment processing activities away from EBC, eliminating the use of EBC's correspondent bank for such transactions. As a result, 100% of CXI's bank fees for the current quarter were reported in continuing operations. Now in the same period last year, bank charges incurred through EBC's correspondent banking relations were reported under discontinued operations. So you can see a bit of a change there and where we reported it. This transition accounted for roughly $150,000 of the variance reported above, and you'll see the variance in the financial statements and the growth in that cost. The remaining difference was primarily attributed to the 40% significant increase in payment transaction volume and the associated processing costs compared to the prior year. Marketing and publicity efforts grew mainly, and there, we spend a lot of money on growing this marketing and publicity mainly because of CXI's strategic emphasis on target marketing initiatives, comprehensive campaigns, retail investments and the development of our customer referral programs. To align with our corporate objectives, partially supporting the growth of the direct-to-consumer business line. Online FX, DTC marketing campaigns were on Instagram, and social media, really making sure we get the word out. Restructuring impairment charges represented the closure of CXI's Miami vault, and that was roughly $400,000 and impairment charges of assets related to some of our company-owned branches of close to $270,000. Now interest revenue generated from excess cash holdings is noteworthy at the end of October 31, 2025. CXI maintained nearly $25 million in AAA-rated money market funds compared to 0 in the prior year. This was supplemented by interest earned on other investment-bearing bank accounts in the ordinary course of business. The increase in interest income reflects a substantial rise in available excess cash attributable to the decreased working capital requirements as a result of EBC's discontinuance and a well-executed exit plan. Income tax expense in the current quarter reflected an effective tax rate of roughly 18%, where the majority of the decrease below the statutory rate was reflected -- related to the tax benefit from a large amount of stock options exercised during the current quarter and accounted for roughly 9% of this effective tax rate. Now let's look at the year. Summarizing the results of the group for the year 12 months ended October 31, 2025, compared to 2024. Revenue grew to $72.5 million, up by about $3.5 million or 5% and expenses only grew by 3% or $1.2 million to a total of $48.5 million. That gave us net income from continuing operations that grew to $14 million or close to $1 million, $800,000 or 6%. Now reported EBITDA grew to $23.3 million, up $1.6million or 7% and adjusted EBITDA grew 10% to $24 million compared to the previous year, up by $2.2 million. Now it's important to note that adjusted reported group net income, as I said, grew to $10.8 million. That's an increase of $600,000 or 6% as CXI's restructuring charges related to the closure of Miami as well as some legal and advisory fees were adjusted as nonrecurring items. This is for the year now. Now looking at the group's results, EDC's adjusted adjustments almost netted out with recovery from the Canadian Federal Court's judgment reducing EDC's administrative monetary penalty, resulting in a benefit of USD 1 million, together with a net gain related to the lease terminations of roughly $360,000. These benefits were partially offset by severance costs, nonrecurring legal and advisory charges of $650,000 as reported in net discontinued operation results. Now let's look at continued operations consolidated performance for the year compared to the prior year. For the year, the revenue growth was driven by 19% growth in payments product line and a 3% growth in banknotes revenue, primarily through, as mentioned, for the quarter as well, the DTC channels that we have. Now payments revenue grew an impressive 19% or $2 million. As I mentioned, it's now 17% of our total revenue. The growth was supported on a yearly basis by a 31% increase in trading volumes. For the quarter, that was 40%. For the year, we're at 31% increase in trading volumes, primarily from new customers and a slight increase in volume from existing customers to almost $6.7 billion, up from $5.1 billion a year ago. Very proud of the team there. Wholesale banknotes revenue maintained relatively flat year-over-year, representing 42% of the total yearly revenue. Revenue growth came from both existing and new domestic financial institution customers with declining volume from monetary services businesses and international financial institutions. Our international travel levels were generally lower than last year, offset by an increase, as mentioned in the outbound U.S. travel to popular destinations in Europe, Asia and Mexico. Consumer demand for euros and Mexican pesos drove growth, while the Canadian dollar volumes remained lower. DTC direct-to-consumer banknotes revenue grew by $1.1 million or 4%, and that represents 41% of our yearly revenue with growth mainly from our online FX platform due to the increased demand for exotic currencies and the addition of 3 new states during the year. At October 31, 2025, CXI had 39 company-owned branch locations and operated in 50 airport agents, 3 more locations compared to last year, and we had 468 non-airport agent locations, almost 245 more locations than the prior year. The following is a highlight of our operating expenses for the continuing operations for the year. CXI operating expenses increased by $1.2 million or 3% year-over-year. Now that's an important number because variable costs posted shipping, bank charges, sales commission and incentive compensation totaled $11.8 million, only a 1% decrease due to a slight decline in variable compensation cost. The ratio comparing total operating expenses to revenue for the current year improved to 67% compared to 69% last year. Now stock-based compensation declined due to a 5% decline in share price throughout the year in comparison to last year where the share price grew roughly 25%, which in turn reflected the increase in debt expense last year. Foreign exchange gains for the current year were primarily driven by the U.S. dollars depreciation against major currencies during the second quarter and the first half of the third quarter. The euro and British pound strengthened notably against the dollar, while the Mexican peso recovered from early year weakness, contributing to the favorable revaluation of banknotes holdings. Gains on euro and a basket of unhedged currencies exceeded losses on Mexican peso inventory for the year. Foreign exchange losses in the same period in the prior year were largely driven by the weakening of the Mexican peso against the U.S. dollar compounded by higher overall hedging costs. Now let's look at discontinued operations related to Exchange Bank of Canada, where the bank had a net loss of $1.1 million in the fourth quarter of 2025 compared to a loss of roughly $6.1 million in the same period last year. For the year, the bank added a net loss -- the bank had a net loss of $3.7 million compared to a net loss of $10.7 million for the same period in the prior year. That's where all those adjustments and write-offs happens. Diluted loss per share from discontinued operations was a loss of $0.18 for the fourth quarter and a loss of $0.61 for the year compared to $0.97 and $1.70 for the same 3- and 12-month periods in the prior year. Once final regulatory approval has been obtained, the Board of Directors, as I said, plan to liquidate the remaining assets and liabilities of EBC and distribute those net assets to CXI, its sole shareholder. As of October 31, the net assets directly associated with the disposal group, EBC, were approximately USD 5 million. Now let's review the balance sheet at year-end. Due to the company's business being subjected to seasonality, CXI uses a 12-month trailing net income amount to calculate ROE, which has been relatively consistent at 13% over the last 12 months and includes the discontinued operations results. CXI had net working capital of $73 million and a total equity of $85 million and 100% available unused line of credit amounting to $40 million. As indicated on Page 22 of the year-end financial statements, CXI reported a cash balance of $95.5 million. Additionally, approximately $5 million, as I mentioned, is held in EBC, resulting in a total cash position slightly exceeding $100 million. Now it is important to note that cash serves as CXI's primary product. It is our widgets, primarily used for transactional activities within the banknote segment. CXI had $53.2 million cash held in the form of banknote inventory in transit in vaults, tolls and on consignment locations at year-end. CXI maintains cyclical banknote inventories with optimal levels ranging from $50 million to $70 million, depending on the travel season. Now cash deposited in bank accounts totaled $42.2 million. This total $42.2 million includes the $25 million of excess cash designated for investment purposes. So that's the $25 million that we had at the end of the year in AAA-rated money market funds. The remaining balance of this $42 million is comprised of minimum cash reserves maintained by CXI in bank accounts with select banking partners to support our banknote settlement operations as well as operating cash balances corresponding with customer holding accounts. Maximizing shareholder returns through share buybacks under the normal course issuer bid, NCIB or share buyback continues to be a primary objective. Over the past year, CXI acquired or acquired and canceled 312,300 common shares at prevailing market prices on the TSX totaling $4.75 million. On November 26, 2025, the TSX accepted CXI's notice of intention to make another NCIB and an automatic share purchase plan to purchase for cancellation, a maximum of 360,000 common shares, representing 10% of the company's public float as of November 18, 2025. As of yesterday, CXI purchased for cancellation approximately 170,000 common shares. Now at this time, I will turn the call over to Randolph Pinna, our CEO, to provide his perspective. Thank you, Randolph. Randolph Pinna: Thank you, Gerhard, for the detailed review. And thank you, everybody, for joining, especially those out West since I know it's quite early there. To give you guys time to ask questions, I'm going to try to keep this as short as possible, but I do want to highlight the main things from my perspective, please. So to begin with, as usual and top of mind is Exchange Bank of Canada's discontinuance. As you know, we executed on a discontinuance plan to the point where we are now, which is we have closed all operations last fiscal year. We took care of all the employees. So there -- most of them have all found new homes. All of our customers have been referred to the 2 referral relationships we have and the feedback has been good that the customers have switched and they are trading with those new providers. So therefore, in layman's term, I would say we're pretty much done. and we're just now waiting on the paperwork final process. But all dealings with regulators, employees, customers has all been satisfied, and it is just now in the final approval process for full discontinuance and our complete exit from Canada, which is expected in this second quarter that we're now just starting. Turning and my focus has been now 100% on CXI. And by the way, on Exchange Bank, I do want to just do a hats off to Katie Davis, our CFO of the bank and our Group Treasurer, who led the execution of that detailed discontinuance plan to a key. And I want to thank all of the parties, both regulators, employees, legal advisers, everyone involved for their contribution to sticking to the plan so that we can discontinue as expected. So back to CXI. The main business, as we all know, is banknotes. And I will address that at a high level after I just covered the consumer unit and the wholesale unit and what we're doing. The consumer unit is what has shown continued growth primarily because of our e-commerce channel. We now have the ability to deliver currency to homes or businesses in 46 states, representing over 93% of the entire U.S. population. We see tremendous growth in this. In fact, we've done a survey -- a qualified survey confirming that there is a huge upside potential to continue to be able to sell currencies across America, and this will remain a focus. We are also continuing to have brick-and-mortar stores. Some of our stores are very good, and we've identified new stores like in New York, Carolina and others to be announced. We will continue to invest in our direct-to-consumer business by adding agent locations. As you saw and Gerhard pointed out, we've grown our agents -- non-airport agents from 225 to 468, and we see a tremendous amount of opportunity going to existing retailers across the country and adding a significant value service like currency exchange to complement their current offerings. So we do see upside potential in all of the consumer area. While the wholesale banknote business was flat, this was primarily due to a reduction of a few customers and overall inbound travel being affected. We see upside potential in wholesale because our pipeline is full. We do have other financial institutions in the pipeline, both credit unions as well as banks, and we do have a renewed focus on banknote sales as a company. Before I go to payments, I do just want to talk about what some have called the melting iceberg. Reality is, if you look around the whole world, 5 of the major countries, America, Canada, Australia, Germany and England have all shown for the last 3 years that cash usage is slightly going up. Looking at cash providers such as the ATMs, Euronet, the largest operator of ATMs in the world continues to show growth in ATM output, cash output. So cash will be still king. Just as I'm looking at my notes on paper, people thought we would be paperless by now. Cash is here to stay. Central banks wanted to have digital currency. The U.S. abandoned its digital dollar project that was being led by the Federal Reserve and realized that cash is king. On a marketing front, I had verbal commitment from many of our customers as well as even competitors, banks, currency exchanges in Europe, Canada and America, including CXI, have already all verbally committed to putting marketing dollars towards educating younger consumers about cash as well as pushing for legal legislation to ban the stores that are going cashless. Not only are the currency exchanges and select banks willing to participate, there's been good support from the armored car companies who move this cash around the world as well as the manufacturers of note acceptance machines and cash processing machines. So there will be a unification soon of all of these -- a coalition, if you will, of all of these people that have a pro cash interest. And we feel that you will see an improvement in cash usage, and we will be a part of that trying to drive the cash is king movement because cash is freedom. So moving over to payments. We will continue to diversify our revenue sources in payments. You can see that our focus in the last few years in growing our payments business is compounding. We are continuing to see incredible demand for our payment offerings. While our investment with Jack Henry and Fiserv and the other core bank software providers is working well. We will continue to grow those relationships doing our service of international payments as well as U.S. dollar payments internationally and even potentially domestically. We will continue to invest into this business. We are now, as you know, EDC closed, so we gave up our Swift membership there. CXI is now fully a Swift member using the full services of Swift and that capabilities integrated with our technology has enhanced banks and credit unions' ability to offer international payments to their clients. We are also current with the new stablecoin movement. We have -- are in the final stages of onboarding with a major stablecoin operator to test a USDC capability for moving domestic dollars in America. So our focus is going to continue to invest into payments. And we are -- as I said, our pipeline is full, and we will continue to quickly grow this business as we focus our overall growth efforts for financial institutions credit unions and nonbank customers. Well, that turns us to the M&A area. We have a lot of cash. We are looking to do a strategic accretive type of transaction in the payment spaces, the prices are too high. We will not overpay for an asset, but that looking for strategic opportunities is a main focus of myself, the management team as well as the Board of Directors. Lastly, I just want to remind everyone in March is our Annual Shareholder Meeting since we're no longer really in Canada, even though we're on the TSX for now, we will be having our Annual Shareholder Meeting at our head office, our headquarters in Orlando. And so we really hope you can come in person. We are working on the technology capability so that you can video in should you not be able to physically attend, but I look forward to seeing you in person ideally in March. So I'll end it there and open it up for questions. Thank you. Operator: [Operator Instructions] And your first question will be from Robin Cornwell at Catalyst Research. Robin Cornwell: It's nice to see these results are perking up very well. My first question is with Gerhard. Gerhard, the $3 million expenses that we're talking about, are they now kind of fully reflected in the expenses? Gerhard Barnard: Robert, a lot of them are in there. Obviously, as we exited EBC, it moved from discontinued operations into continued operations. Bank charges are fully there in the fourth quarter, salaries and wages for the people that transferred are fully incorporated in the fourth quarter, not on the yearly numbers. As you know, we exited EBC during the 2025 financial year. But in our Q1 '26, it will be fully incorporated. Robin Cornwell: Okay. And Randolph, when you were looking for your future -- discussing your future growth, what about the software for as a service? I think I've asked this before, but where do you see that now because you've sort of got a new lease on life here going forward. And that's a very important part of your structure, your software. What are your thoughts on that? Randolph Pinna: We -- before we roll out nationally, we have done a pilot with 4 financial institutions in the U.S. utilizing our relationship with the Federal Reserve, part of what's called the Fed Direct program. And so we do have a direct connection to the Federal Reserve, and we are receiving monthly fee income for the usage of our software. Again, the domestic processing in America is not CXI actually touching the U.S. dollar moving from, let's say, a Florida bank to a California bank. We are actually using the connection, which is our software that is often in these 4 cases, we're already in the bank because they use us for either international wires and cash services. And they will -- it connects that bank to their own account at the Federal Reserve by using this one platform and us as the one provider. And so we do see that revenue from Software as a Service for this service will grow. At this point, it is not a material item to have a separate line item on it, but that is another way of growing our payments business. So we do, as I said, see that these growth rates in payments is sustainable this year and hopefully even larger based on the success of our previous investments and integrations that we've done. Does that answer your question, Robin? Robin Cornwell: Yes. Thank you. And the payments to grow that payments business, are you continually adding more people to drive that? Randolph Pinna: Well, we have been conservative on our hiring. We -- controlling our costs is critical, especially in this last year where there's been a lot of layoffs. We are, again, just using the existing integrations we have. So if you're familiar with how that works is the software providers that provide core banking systems have a whole variety of banks and credit unions using their software, and we have continued to grow that. So it's just a matter of working these lists, and we have a sales team of about 10, and we feel that's sufficient. We are adding one more person dedicated for banknote sales. But as far as payment sales, we are -- our pipeline is good, and we are executing on adding new clients every week doing new payments. And so therefore, I'm comfortable with the current team and our marketing to the existing customers we have that haven't switched to the wires to us yet or the new clients that are on these lists because of the integrations with these core software providers. Operator: [Operator Instructions] The next question will be from Jim Byrne at Acumen Capital. Jim Byrne: Randolph, maybe just on the online FX and direct-to-consumer, just thinking you're pretty much in all 50 states now. You mentioned some agency adds and some new stores as well. But I mean, when you go into a new state, can you talk about kind of the ramp-up of revenue and profitability on a new state versus something that's been operating for a couple of years? I mean is it -- you kind of see an immediate impact and then profitability grows after a certain level of revenue? Maybe just talk about that ramp up. Randolph Pinna: Yes. I'm not -- at least in my connection, your question was a bit faint. So hopefully, I got it. Basically, I think it is what do we expect when we go into a new state that we didn't have a license in. And so I've required that we have a business case to support why we're going to get a license in a certain state. For example, to take an extreme one, we don't have yet the business case to support having a license in Alaska. There are several states that we are still applying to because we do have a business case, and that is driven not just by the online home delivery service. So a business case that supports a new state license is usually a combination of the online home delivery, so the population of that state, but also the opportunity for agents. As you know, we are probably the primary provider to the largest automobile club in America, AAA. And they have what they call their AAA clubs in each of these states. And so that between the home delivery and the agent possibilities support us going in through the state. As far as the dollars and cents, each state is different, and Gerhard is probably closer to the numbers to answer it fuller if you need that. But basically, we do enter a state based on the projected expectation we see in a state, which will cover your administrative costs, the fees and all of that to do it. So did that answer your question, Jim? Jim Byrne: Yes. Sorry about that. I was kind of just thinking, as I said, you're kind of maxing out the number of states you're going to penetrate here. You still expect growth on the online platform as newer states kind of ramp up? Like have you got mature states that have kind of plateaued in terms of growth rates? Randolph Pinna: No. So that's -- okay. And one, I hear you much better now. Thank you. The online is where we see the most growth in the consumer unit. New stores will add growth as well. But the online, we spent a pretty penny doing a qualified survey of well over -- I think, over 1,000 proven international travelers -- and it shows that there's still about a 50% increase in capability of our home delivery, and we are refining our group marketing plan. The Cash and King campaign is a piece of that. But yes, we do see that there is still upside in every state we're in, and there's still 1 or 2 states that we are applying to now to have that. Eventually, we will probably be licensed in all 50 states. But again, I won't approve a new state approach until we have enough reason, financial incentive to do so. But I think overall, the consumer unit as well as the wholesale unit will show increased growth this year. And that's contrary to this perception of a melting iceberg. Gerhard Barnard: Nevada right now has allowed us an exemption. So we are operating in Nevada. Tennessee requires GAAP financial statements, which means we're reporting under IFRS. So that one will have to sit out until we get the approval to send them IFRS statements. And as Randolph said, Alaska and North Dakota, we are currently deferring just due to that, we call it that management case of determining what the return would be. And as Randolph mentioned, online FX is the scalability of that product is significant. If you think of we've doubled our marketing spend in the last year on driving that revenue growth. And in our planning, that is a very important product line, online FX payments. Jim Byrne: Okay. That's great. And then maybe just lastly, you mentioned the NCIB and the capital allocation priorities through M&A. You are sitting on quite a bit of cash and potentially more cash coming in the door here with the EBC closure. Any thoughts on maybe an SIB or a special distribution or anything like that? Randolph Pinna: Yes, that is a topic that has to be considered every quarter by the Board. Again, we have some -- our eyes set on 1 or 2 opportunities strategic, but because the owners of that business are incredibly large, that process is a very long and slow process. We've even got a focused team to help us try to carve out an asset. However, I can't say it's imminent. Nothing has been signed. As soon as it is, we would tell you, but we are continuing to look for the best use. And right now, the best use is to acquire our stock and retire it. There are restrictions. So an SIB is a next step of that. But as of this quarter, we have not chosen to do that. We do feel that cash -- capital allocation is critical and dividend or an SIB is definitely a good use of cash as well. However, the best use will be to continue to grow our payment and banknote business. But I do not have anything that I can announce today. Operator: The next question will be from Robin Cornwell at Catalyst Research. Robin Cornwell: I just have one quick follow-up. And have you considered changing your year-end back to December 31? Randolph Pinna: That's a good one, Robin. We have discussed that among the accounting team, we would really like to just finish this year-end at October. And then we'll revisit that because we've also, as you'll understand, just want to get through the discontinued operations, make sure we get our focus on the operating entity, CXI. And yes, that's a good point. I'm laughing because it came up in the last week in one of our discussions and say it would allow us to have a better Christmas than dealing with auditors. Operator: Next question will be from Peter Rabover of Artko Capital. Peter Rabover: Congratulations on a nice quarter. Randolph, I wouldn't be doing my job if I didn't ask you on the little thing that I caught when you were describing your listing on the Toronto Stock Exchange as for now. Any comment that you would like to share on your future listing plans? Randolph Pinna: We have been happy with the Toronto Stock Exchange and the Ontario Securities Commission. However, our exit from Canada does invite us to consider NASDAQ. Ironically, one of our employees that worked for me for several years is working there. So we have been in talks with them in sizing up that move. But as Gerhard just said, our focus right now is to really fully exit Canada, get -- which we are 100% focused on America and get some nice clean quarters going forward. But in like a '27, you could see a potential move of our listing from the TSX to NASDAQ. But as of right now, we are not -- just like the SIB, these are all topics that the Board do discuss each quarter, but we have not chosen to hurry up to do that. We don't think anything is on fire. And therefore, running our business as efficiently as we can, generating the highest return for our shareholders and having that cash in our business and growing the value of our business is our #1 priority. Peter Rabover: Great. I appreciate the color. And maybe my second follow-up is on the color for the payments business. I know you guys had a great quarter, 31% and I know it's now 17% of the business because you've exited Canada. Any I guess, how should we think about that 31% in terms of run rate? Is there -- I know you added a state and et cetera. But what do you think the natural growth rate of the market is and what your share is in that market? Maybe that's the way to ask that without asking for future growth guidance. Randolph Pinna: Thank you, Peter. And I do want to highlight which another shareholder told me that the foreign exchange market is probably one of the largest markets in the world because automotive, Toyota, there's a lot of foreign exchange, et cetera. So the payment business as well as cash the foreign exchange market is the largest market. And as I told you, our pipeline for the payments business is tremendous. And there was a good question from Jim saying, or Robin, whoever asked about, am I hiring more people? Right now, we have a sufficient team. We have improved our internal automation and onboarding. Our -- what we call our implementation team is geared up and ready to continue to add customers each week. And so while the new state helps us, it's really a matter of just getting through contract approval with the financial institution, training them, doing the testing and then going rollout, and that is underway. So that 31%, I'm confident to say is sustainable, if not even increasing because now that we're getting bigger, we have more reputation in the payment industry, and we can get even larger financial institutions than what we currently have. And so I feel that our payment business will continue to grow nicely each quarter. And our banknote business will continue -- will get back to growing like it used to do as we did just recently sign a very large financial institution for wholesale banknotes, which is going to be onboarded hopefully in this current quarter and start trading soon thereafter. So we are really doubling down on our sales and implementation of new clients across the United States. Peter Rabover: That's great. So maybe I'll sneak in one more. I know you mentioned Jack Henry and the Fiserv relationship. Any color out of that 31% or I guess maybe as part of your business. How big is that part of the distribution channel, I guess, or part of the growth and as part of the business? Randolph Pinna: So to broaden it than those 2, I named, we have about 5 or 6 integrations and the integrated relationship is well over the 50% mark for sure. So that is the significant component to our payments because, again, we do one provider, one product where we provide all the foreign exchange. And therefore, that allows a bank to use its platform that the tellers are already on and get all the benefits of our enhancements using the common denominator, their core banking system as we've integrated into it. So all the bells and whistles, the Swift lookup, the IBAN validation tool, all the functions that our -- the SWIFT gpi, all of the bells and whistles, if you want to use that term, are available to banks that are already using a core from a Jack Henry or Fiserv as an example. And therefore, that's where that pipeline is and the list of banks that say, yes, I'm already using them. And luckily, a lot of our -- some of these banks are using us for currency. So they're already familiar with us. So yes, that will continue to drive our payment growth. And then as Robin brought up that we soon will be having new opportunities with domestic payments as well, enabling the bank to use our software to do their own wires with the Fed. So we don't have the compliance cost of moving and touching the actual dollars. They will just use it and pay for the service by each login that they have, and that will generate new fee income to the business that's not dependent on international. And so that is an exciting expansion of our payment business this year. Peter Rabover: That's great. And then maybe -- sorry, I'll keep on. So what percent of the business -- or sorry, of your, I guess, distributor business, what you call the Jack Henry and the Fiserv relationships, what percent of that is penetrated relative to what's available? Randolph Pinna: What's available, every bank uses a core. So the entire market upside is there. We are still a very small provider. As you know, there's several large fintechs that have been acquiring other payment businesses and so forth. And so they're there. But the natural competitor are the 3 or 4 mega money banks up in New York example type that are correspondents for the smaller banks, and we are trying to pick those off because those banks are using a software like Jack Henry, and we are needing to convince them to switch to us as a boutique provider as opposed to being just using 1 of the 3 or 4 top largest banks in the country. So there's tremendous upside. And yes, to reiterate, it is because of that integration into these core software providers. Peter Rabover: Okay. Great. And I just want to say thanks for providing the really good color on the excess cash and the return on capital really good to see that as a shareholder. And have a great day. Gerhard Barnard: Thank you for always asking us to do a better job of that. As you see, we listen to our shareholders. Peter Rabover: Not unnoticed. Operator: Thank you. And at this time, gentlemen, it appears we have no other questions registered. Please proceed. Randolph Pinna: Okay. Thank you again for your support, for all the questions. We feel this year we just closed is a successful year. We're continuing to be strongly profitable as a business, all while executing on our strategic vision to focus on America and grow our core of banknotes as well as our payments business. So thank you for your support, and I look forward to hopefully seeing you at our Annual Shareholder Meeting in March. Operator: Thank you, sir. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.
Olof Svensson: Good morning, everyone, and welcome to the presentation of EQT's full year results. We have a lot to cover today. Per will start off by reflecting on our strategic positioning and today's announcement that we're entering the fast-growing secondaries market by joining forces with Coller Capital. Teaming up with Coller strengthens our ability to serve clients globally and it unlock growth opportunities for both firms. The transaction is accretive to our fee-related earnings. It accelerates our growth outlook and it will further diversify our platform. Before handing over to Per to share more details, let me share a few highlights on 2025. First, it was our most active exit year ever with fund exits and realizations for co-investors of EUR 34 billion. We invested EUR 16 billion across our strategies globally while providing a co-invest ratio for our clients of close to 1:1. It was a pivotal year for EQT's expansion into evergreens and open-ended strategies across the globe with new product launches and accelerating inflows. We continued to deliver on our fundraising agenda, more than doubling gross inflows to EUR 26 billion. All our key funds continue to develop on or above plan, and our more recent vintages in particular performed strongly. EQT delivered total revenue growth of 16%, while keeping head count largely flat year-over-year. So with those remarks, let me hand over to Per to go through things in more detail. Next slide, please. Per Franzén: Thank you, Olof. Good morning, everyone, from Davos. We have very exciting news to share this morning, and we'll come back to Coller shortly. I'll start by saying a few words about the private markets industry and our strategic positioning. EQT remains well positioned to navigate a fast-changing world and to capture the growth opportunity ahead. There are a number of forces shaping our industry. The geopolitical backdrop remains volatile. We continue to see private market investors wanting to rebalance their portfolios as they are looking to achieve a better global diversification. At EQT, we are well positioned to navigate this environment and to help our clients achieve their strategic portfolio objectives. We want to be the most attractive global provider of international alpha. Through our global sector teams, we engage with our clients to align on their pipeline priorities. And with the help of our local teams in more than 25 countries, we can move quickly in times of market dislocation to unlock attractive thematic opportunities. The combination of our global sector teams with our strong local presence helps us deliver structural uncorrelated alpha as often the sources of alpha across those various countries and regions are uncorrelated. A good example of the investments that we've made into our global platform and how it's paying off is Japan. We built our local presence in Tokyo over many years. And in 2025, we were able to reap the benefits of those investments. In our private capital strategies, we created 2 attractive public to private opportunities, and we continue to have a very attractive pipeline in Japan going forward. The second force, AI that I'd like to touch upon, that will have an impact on most sectors and businesses that we invest into, including, of course, also our own industry and how we run our business at EQT. At EQT, we keep on investing in our AI capabilities. On the investment side, we continue to back AI-driven tailwinds in our early-stage strategies. We make investments into native AI companies. Harvey and Lovable are 2 good recent examples. In our infrastructure platform, we keep on investing into globally leading data center platforms. One of our companies, EdgeConnex is a good example of that, but also into fiber assets and into energy platforms. We're also driving AI adoption across our organization, deploying advanced solutions that enable better decision-making and help us realize synergies across our platform. Over time, we believe that this will help us run our business in a better way, but also in a more efficient way. Private wealth and insurance remain 2 attractive growth opportunities where we see new capital pools emerging. We're making the necessary investments to build our capabilities in those areas, and we expect to see significant capital inflows in this part of our business. Coller will be a catalyst for the insurance segment as we will get access to their capabilities within structured solutions. The rise of secondaries continues, and this part of the market will also going forward, outgrow the rest of the industry. There's a number of structural forces driving that growth. Private markets have grown in size and in relevance. And in some regards, they've become more complex, and we also see public and private markets converging. Clients want to be able to ride the winners, and they want to stay invested in compounding open-ended structures. On the other hand, there's also been a lack of distributions in our industry post pandemic, we saw a slowdown in dealmaking. And as a result, many firms are not able to raise new funds, and that has created more and more zombie funds in our industry. And all of this drives a need for clients to be able to restructure their private market portfolios and to find good liquidity solutions. And in this context, Coller will be an important enabler and really further strengthen our ability to be that strategic partner for our clients. Finally, we see the consolidation of the industry accelerating. Not everyone in the private markets will be able to navigate this environment. We'll be able to make the necessary investments to capture that growth opportunity ahead. So size and reach matter more than ever when it comes to creating real alpha and when it comes to serving clients in the best possible way. And our global platform, our size, being the largest private markets firm in the world outside of the U.S., will continue to be a true differentiator for us. Next slide, please. At EQT, we remain committed to our long-term strategic ambition to keep on building the most attractive scaled private markets firm, delivering industry-leading performance and solutions for clients. By continuing to be that client-centric firm focused on delivering attractive risk-adjusted returns for investors, real alpha, we will also be able to attract the best talent in our industry to our organization and to our portfolio companies. And really that way, creating that virtuous circle that will give us the license to keep on scaling our firm and as a result, over time, also delivering attractive sustainable value creation for shareholders. Next slide, please. In 2025, we made good progress on our strategic ambitions, and we executed well in a volatile environment. We took the opportunity to simplify our organization to ensure that we can remain that entrepreneurial, fast-paced, high-performing organization. We successfully completed a number of leadership transitions. We streamlined our organizational structures and reinforced our focus on accountability, performance and efficiency across the platform. We also integrated our client relations, capital raising and capital markets teams, creating one unified platform well set up to deliver a seamless experience for institutional clients and private wealth distribution partners. And all of this makes us also well prepared to add Coller now as a new business line to the EQT platform. In 2025, we stayed disciplined in our investment pacing, producing a record year for co-investments. We facilitated EUR 14 billion of co-investment opportunities for our clients. That is up from EUR 12 billion in 2024. And we want to -- this is an important tool for us to also going forward, create those deep strategic relationships with the institutional investors. And we want to -- we remain committed to continue to produce that most attractive co-invest to fund commitment ratio in our industry. We did a superb job really in driving realizations in a tricky exit environment. 2025 was actually our most active exit year ever with EUR 34 billion in total of realizations, and that includes EUR 14 billion of realizations out of co-investments that were done together with our clients. And that is just massive outperformance compared to the wider private markets industry in terms of those realizations. A good example is our equity strategy, which is our oldest strategy at EQT. In that part of our business, we sent back close to 30% of NAV, which is approximately 3x the industry average. And notably, we set a new record for distributions and capital gains from a single investment. So in Galderma, in 2025 alone, we realized more than EUR 9 billion of proceeds for fund investors and for our co-investors. And this actually excludes the stake sale that we have announced to L'Oreal that is yet to close. And this investment has generated more than $20 billion so far in capital gains for investors. As a result of that strong performance, we saw a good fundraising momentum. We more than doubled gross inflows to EUR 26 billion. Our evergreen offerings targeting the private wealth segment saw inflows of approximately EUR 2 billion. And we also introduced our first open-ended institutional product, which is exciting. This is the second generation of our active core infrastructure strategy. And the portfolio in Fund I is performing very nicely, and we really see a strong client interest for this fund. Next slide, please. As you've heard me say, I think, many times before, we have actively been looking to establish a presence in the secondaries market for some time now, actually. And this is one of the fastest-growing parts of our industry and building our capabilities in this area is really critical so that we can become an even more stronger and attractive strategic partner for our clients. And so today, I'm just very, very pleased to announce that we have reached an agreement to join forces with Coller Capital. This is really a highly strategic and complementary combination. By joining forces with Jeremy and his team, we want to build a market-leading secondaries platform together. We really have a very high bar for any M&A that we do at EQT and the fit must be just very, very strong. And in this case, from a strategic, performance, culture perspective, Coller checks all the boxes. The strategic fit between our 2 firms is simply excellent. It's highly complementary. And most importantly, the cultural fit, the values fit is very strong. Similar to EQT, Coller is a performance-driven and entrepreneurial organization focused on delivering consistent long-term solutions and returns for investors. And just like EQT, Coller also has that constant improvement mindset and that relentless drive to continue to drive innovation and stay ahead of the curve. At EQT, we like to say everything can always be improved everywhere at all times. Coller's version of this is better never stops. I'm very excited to welcome Jeremy and the entire Coller team to our firm. And I really look forward to working closely with Jeremy as part of the executive leadership team. And together, we will be just incredibly well placed to deliver the most attractive solutions and the most attractive performance for private market investors and to really fully capture that growth opportunity ahead that we see in secondaries. I'll now hand it over to Gustav, who will cover the highlights from our 2025 results together with Olof and Kim, and I believe starting with fundraising. So next slide, please. Gustav Segerberg: Thank you, Per, and good morning, everyone. In 2025, we executed strongly on fundraising across the platform and more than doubled inflows versus last year. Starting with the key funds. Fundraising for BPEA IX continued with strong momentum, having raised $14 billion as of today. We expect to close at the $14.5 billion hard cap in the first quarter. Fundraising for EQT XI continues to be off to a strong start, further helped by the strong exit pace during 2025. Note that in our reporting fee-paying AUM, it does not include EQT XI until activation. And later this year, we expect to launch fundraising for Infrastructure VII. So moving over to our other closed-ended strategies. We are advancing our Healthcare Growth and transition infrastructure fundraisings, having raised approximately EUR 3 billion combined, and we expect to conclude fundraising for Healthcare Growth momentarily. In the fourth quarter, we activated our latest European real estate logistics fund. The fund is expected to close in Q1, and our reporting fee-paying AUM includes almost EUR 3 billion of commitments versus the size of the last fund at EUR 2.1 billion. And then finally, on evergreens and open-ended institutional strategies. In 2025, EQT launched 3 new evergreens, Nexus Infrastructure and Nexus ELTIF Private Equity distributed in Europe and APAC, and a U.S. domiciled private equity vehicle. Hence, our evergreen offering consisted of 5 vehicles at the end of 2025, and we raised close to EUR 2 billion in 2025, while reaching an NAV of around EUR 3.5 billion by year-end. And just last week, we launched a U.S.-domiciled evergreen structure for infrastructure. During the year, we've also introduced our first open-ended structure for institutional clients, as Per mentioned, with our active core infrastructure strategy. This fund is yet to be activated and is not in our fee-generating AUM number as of year-end. However, we continue to be very excited about the prospects of scaling this strategy in the coming years. We've also decided to pursue our first continuation vehicle based on EdgeConneX. This will be an open-ended structure that will allow us to continuously support EdgeConneX's long-term growth opportunity. And with that, I will hand over to Olof to cover investments and realizations. Next slide, please. Olof Svensson: Great. Thank you, Gustav. So looking at the investment activity in 2025, I'd say it reflects our global sourcing machine and our thematic focus. 45% of the EUR 16 billion of fund investments were invested in Europe, about 1/3 in North America and the remaining 20-ish percent across APAC. We invested in a number of high-quality businesses throughout the year, be it the cloud-based software companies such as Fortnox or NEOGOV; industrial tech businesses like Fujitec in Japan or as Per mentioned, AI native investments such as Lovable and Harvey. In real estate, we continue to see attractive risk/reward dynamics. And in our flagship and transition strategy, we invested in areas such as energy, grids, AI infrastructure and transportation companies. And on that note, please do make sure to take the Arlanda Express when you next come and visit us in Stockholm. In total, we provided a further EUR 14 billion of co-invest for our clients, a co-invest ratio of close to 1:1. EQT X and Infrastructure VI are now about 60% to 65% invested, while BPEA IX is 5% to 10% invested. We expect to activate EQT XI around midyear 2026 and Infra VII around year-end. Next slide, please. Turning to exits. It was a breakthrough year in 2025 for exits. Volumes in the EQT funds amounted to more than EUR 19 billion or 70% higher than last year's volumes. Around 2/3 of the fund exits were from funds in carry mode. In addition, we realized EUR 14 billion for our co-investors. The strong activity means that we reached the ambition communicated at the start of the year to execute more than 30 exit events across our key funds. Key fund exits were made at an average gross MOIC of 2.6x above our target return levels. Roughly 40% of the fund exits were minority sales and secondary buyouts. Early in the year, we announced a minority sale in IFS at a gross MOIC of 7x. This is an example of how we actively work with portfolio construction, sending back EUR 3 billion to fund investors while continuing to own an asset that is expected to have an outsized impact on the fund returns for EQT IX. 1/3 of the exits were equity capital markets transactions. And as a result, EQT retained its position as the most active private markets firm across global equity capital markets for the second year in a row. Looking ahead, we believe that fund exits in 2025 is a relevant proxy for '26 if markets continue to be favorable. Our gross pipeline for 2026 is, in other words, similar to 2025 when we had gross realizations of close to EUR 20 billion. And with that, I'll hand over to Kim. Kim Henriksson: Thank you. Thank you, Olof, and good morning, everyone. All of our key funds continue to perform on or above plan. And during the year, key fund valuations increased by 8% on an FX-neutral basis, but let's look at performance by vintage. 4 out of 5 funds raised in 2019 or before are performing above plan, and most of these funds are in exit mode and already derisked. Funds raised 2020 to 2021, which are still in value creation mode, performed predominantly well with value creation of 10% plus on an FX-neutral basis. We did face some headwinds related to idiosyncratic events in a few individual portfolio companies. But with 350 portfolio companies globally, we will always have certain underperforming assets. Risk-taking is part of our model. As a reminder, historically, about 10% to 15% of our investments have returned less than 1x gross MOIC, while the total portfolios have still delivered on or above target returns. In 2025, we also realized some assets with subpar performance, enabling us to refocus on the part of the portfolio where we can create more value. Overall, underlying operational performance was solid across the portfolio and particularly so in our latest generation of key funds, which increased by 15%, excluding FX. 1/3 of our investments in these funds are already performing ahead of plan. Next slide, please. In 2025, carried interest and investment income increased to EUR 448 million on the back of the strong exit activity in funds in carry mode. Looking into 2026, we expect that carried interest will continue to be paced by the key funds already in carry mode. And please note that the figures on this page are based on a simplified and illustrative on-plan scenario. To date, the 4 funds in carry mode have recognized EUR 1.3 billion of carried interest and roughly EUR 600 million remains, and we continue to expect the remaining carry from these funds to be recognized over a multiyear period. The next 2 funds expected to enter carry mode, Infra IV and EQT IX are currently executing on their value creation and realization plans. And we do not expect these funds to enter carry mode in 2026, in line with our previous communication. The final bucket includes the most recent key fund vintages, which are still in value creation mode. In total, the remaining illustrative carry potential in the key funds activated as of today is approximately EUR 9 billion. This is a simplified round number based on a number of assumptions, which are outlined in the appendix. Next slide, please. Let's now look at the financials in a bit more detail. In 2025, we grew fee-related revenues by 9% and delivered a fee-related EBITDA margin of 52%, reflecting also the continued investments we make in our business, for example, the build-out of the evergreen offering. As you know, we initiated and completed a number of efficiency measures during the second half of 2025. And as a result, the number of FTEs was broadly flat year-over-year. We expect to see the full year cost effects of this in 2026 and therefore, expect mid-single-digit total OpEx growth this year. Run rate savings from the efficiencies will, to a degree, be reinvested to support future growth in our priority growth areas, including focused geographies such as Asia and the U.S., focus areas such as AI capabilities, private wealth and of course, the build-out of our new secondaries business. We're ramping up marketing and brand spend, which will remain at meaningfully higher levels going forward. We remain committed to reaching a 55% plus fee-related EBITDA margin at completion of the current fundraising cycle. And we're highly focused on efficiency, scaling and automating parts of our work, including through increased AI adoption. We will continue to keep you posted on this progress and how we see the OpEx outlook beyond 2026. Let me also come back later in the presentation on how the combination with Coller impacts our financials. The Board has proposed a dividend of SEK 5 per share for 2025, representing a growth rate of 16%. And during 2025, we distributed approximately EUR 460 million in dividends to shareholders. And in addition, we repurchased shares for around EUR 300 million. Let me also spend a brief moment on our new revenue disclosures. We have, in our income statement, introduced the concept of fee-related revenues, which consists of the underlying management fees, fee-related performance revenues and transaction, advisory and other fees. Fee-related performance revenues are revenues from our evergreen products that are measured and received on a recurring basis and do not require the realization of underlying assets to materialize. Transaction, advisory and other fees include fees from, for example, debt and equity underwriting and other capital markets activities. With that, I will hand over to Per to cover the Coller combination. Next 2 slides, please. Per Franzén: Thank you, Kim. As I mentioned earlier, secondaries and solutions is becoming an increasingly important part of the private markets ecosystem. GPs are looking for ways to hold on to their best assets for longer, driving the growth of continuation vehicles or GP-led secondaries and LPs are seeking strategic liquidity tools and the ability to actively rebalance their portfolios where LP-led secondaries are a key enabler. And secondaries have now become one of the fastest-growing parts of our industry, and that the market actually grew by more than 40% in 2025 and is expected to more than double from now until 2030. And continuation vehicles are today driving close to 20% of global exit volumes. Next slide, please. With Coller, we're really happy that we found the right partner to enter this segment at scale. Coller shares our values-driven culture, a strong performance mindset and that drive to constantly innovate for clients with an entrepreneurial approach. As a pure-play dedicated secondaries firm, Coller is 100% complementary and a perfect match for us. I'll now hand it over to Gustav to tell you more about Coller's track record, Coller's offering and its client base. Next slide, please. Gustav Segerberg: Thank you, Per. As a pioneer in secondaries, Coller has led many of the first in the industry, such as leading the first ever GP-led transaction almost 30 years ago and continuing to innovate across product categories and client channels. Coller has 35 years of proprietary data from more than 25,000 companies has incorporated AI-enabled underwriting into its investment process. This enables faster and more precise investment decisions, aligning very well with EQT's data-driven investment approach and leading AI capabilities. Their strong investment track record and ability to innovate has allowed them to expand from a single flagship fund in 2021 to today having a multiproduct and multichannel offering investing across both private equity and private credit secondaries. The private equity secondary strategy recently held a successful final close of Fund IX at USD 10.2 billion of fee-generating commitments, up more than 35% compared to the last generation. Since launching the private credit secondary strategy in 2021, Coller has already been able to raise 3 funds with a total of close to USD 5 billion in fee-generating commitments. Next slide, please. The team also shares our strategic commitment to the private wealth opportunity, and their journey closely resembles ours. They -- like us, they have a very deliberate and disciplined focused on product development to launch and ramp up products across asset classes and geographies. Since 2024, Coller has launched 4 evergreen products in total with the current combined NAV of more than USD 4 billion. And expansion continues to show great momentum and inflows are around USD 200 million per month. Coller also recently announced a strategic partnership with State Street along with State Street's investment in Coller. Their partnership gives a unique opportunity to go after the 401(k) market in the U.S. We look forward to exploring what we can do together to strengthen the global distribution of the combined evergreen platform. Next slide, please. Insurance is 1 of the most interesting capital pools in private markets. However, insurance companies operate in a highly regulated environment with strict requirements around capital charges, duration matching, liquidity, ratings and asset-liability management. To participate at scale credit exposure, secondaries and strong structure capabilities are required. This is an area where EQT on a stand-alone basis has been limited on a structural basis, and where Coller today is the clear market leader. Coller is the preferred partner to insurance clients with deep relationships and in-house structuring expertise. They have reached over USD 5 billion in structured products in the last 2 years, including the largest CFO backed by secondaries at USD 3.4 billion. This is a significant growth opportunity for the combined platform and where EQT's scale will be a key enabler. Next slide, please. We believe that this combination and more diversified secondaries platform by bringing together complementary strengths, we can accelerate innovation, deepen client relationships across both institutional and private wealth clients. Together, EQT and Coller are very well positioned to accelerate insurance-related product -- and to Per. Next 2 slides, please. Per Franzén: Thank you, Gustav. In 2025, we took the opportunity to simplify our organization and to clarify our governance to put us in the best possible position to be able to accelerate our strategic M&A agenda. So today, we are very well prepared to add Coller to EQT and to support Jeremy and the team to accelerate their growth independent investment committee. Next slide, please. The Coller team has demonstrated strong fundraising momentum, most recently with the successful close of Fund IX and has earned the strong client trust to expand into new strategies such as credit secondaries over recent years. Today, Coller has around 600 clients and more than half of those will represent new client relationships for EQT. At the same time, EQT brings a base of around 1,400 institutional clients, of which more than 900 clients are not currently invested with Coller, representing a significant opportunity to accelerate growth across the combined platform. The client bases are also complementary. EQT has a strong footprint with sovereign wealth funds, while Coller is more heavily weighted towards private wealth and insurance. So together, we will be able to offer clients a broader and more flexible range of solutions from primary investments to tailored liquidity solutions within one global platform with a real focus on generating alpha and performance. I'll now hand it over to Olof to comment on the transaction structure. Next slide, please. Olof Svensson: Thank you very much, Per. So let me talk about how we have structured this to ensure alignment of interest and this growth orientation. The transaction entails 100% of Coller and EQT will be entitled to 35% of carried interest in all the future funds in line with the EQT setup. We are also acquiring 10% of the carried interest in Private Equity Fund IX that Per just referred to. The deal construct includes a base consideration of $3.2 billion with a growth-oriented contingent consideration in 2029 of up to $500 million. The contingent consideration is structured to incentivize strong growth in the business with full consideration dependent on delivering high 20s, almost 30% fee-related revenue growth until 2029. The base consideration of $3.2 billion will be funded in newly issued EQT AB shares, creating a strong alignment to drive value. At closing, the shareholders of Coller will own approximately 6.5% of EQT, where Jeremy is the main shareholder of Coller's business today. Closing of the transaction is expected in the third quarter of '26. And with that, I'll hand over to Gustav to give us the combined fundraising outlook. Next slide, please. Gustav Segerberg: Thanks, Olof. I'll start on the evergreen side, where the joint offering will compromise more than 10 vehicles distributed across U.S., Europe and Asia. In terms of inflows, Coller increases the H2 2025 annual run rate to around EUR 4 billion. As only 7 out of the 10 plus evergreens where operational during that time frame, we hence expect 2026 to be significantly higher than the H2 2025 annual run rate. We believe that there are significant revenue synergies for the evergreens through the strengthened combined private wealth organization. By leveraging EQT's banking relationships to further accelerate Coller's distribution reach and by jointly tapping into EQT's brand and marketing capabilities. For reference 100% of Coller's evergreen inflows are incremental to fee-generating AUM. Next slide, please. So we are now a bit more than 1 year into our current of that EUR 100 billion based on the funds activated. 2026 is set up to be a very active fundraising year for EQT with 3 flagship funds, a number of other closed-ended strategies and of course EUR 25 billion to EUR 30 billion to the total amount effectively increasing it to roughly EUR 125 billion to EUR 130 billion. And with that, I will hand over to Kim. Next slide, please. Kim Henriksson: Thanks, Gustav. First, a few words on the latest flagship fund, the introduction of credit secondaries and the expansion into private wealth evergreens and structured products. Fee-related revenues were approximately $330 million, nearly all of which were management fees. This number includes catch-up fees as Fund IX was activated in July 2023 and closed on 31st of December 2025. However, it does not reflect the run rate management fees from evergreens due to fee holidays for some products in 2025. From 2026 onwards, all private wealth evergreens will be charging full fees. Across funds, the average fee rate is about 1% and in general, charged on committed capital. It's worth noting, though, that the private wealth evergreens in general charge somewhat higher fee rates with NAV as the fee base and that we see this channel growing faster than the closed-ended funds. Expect Coller to generate fee-related revenue of between $350 million to $375 million. Adjusting for catch-up fees, fee-related revenue is expected to grow in the range mentioned, the 2029 contingent consideration is based on growth in the high 20s. On costs, Coller has a similar profile to EQT, where the majority of operating expenses are salaries and other personnel-related costs. Then fee-related EBITDA margin at around 50%. Next slide, please. So what does the above then mean for the combined platform? We expect Coller to accelerate our fee-related revenue growth from day 1. In terms of carry, the acquisition will not impact our outlook for a number of years since the first fund where EQT has right to carry is a 2024 vintage. As I mentioned, today, Coller has a somewhat lower fee-related EBITDA margin than EQT. But in the near to midterm, however, we expect Coller to be in line with EQT's margin and to grow fee-related expenses. As a result, we maintain our ambition to reach a 55% fee-related EBITDA margin at completion of the current fundraising cycle. I'll now hand over to Per for some concluding remarks. Per Franzén: Adding Coller to EQT is a significant milestone in the development of our firm. Secondaries represents one of the fastest-growing parts of the private markets industry. We're confident that Coller is the best possible platform to build a market-leading secondaries franchise being a pioneer in the space with more than 3 decades of track record and experience. Next slide, please. The combination really means a step change for EQT in terms of scale, growth and revenue profile. Coller will add approximately EUR 28 billion of fee-paying assets under management and EUR 42 billion of total AUM. We will have a combined AUM of approximately EUR 312 billion. And to our business, we also significantly diversify our fee-related assets under management. Secondaries will represent about 15% initially of that fee-related fee-based assets under management, but it is expected to represent a significantly larger share over time. The acquisition will enhance our growth profile, and we aim to double Coller's fee-generating assets under management in less than 4 years. This means that 5 years from now, the mix of EQT's business will be much more well balanced across our business lines, private capital, infrastructure, real estate and secondaries. And we also see a very attractive opportunity to accelerate growth and scale of our real estate platform in the years ahead. Finally, we now manage strategies that, to some extent, are somewhat also countercyclical, if you will, creating an even more resilient and well-diversified revenue profile. As we look ahead with this transaction, we have created a platform that is even better positioned to attract and retain the best people in our industry and to continue to serve our clients, a more attractive, resilient and higher growing platform. With that, I open up for questions. Operator, please. Operator: [Operator Instructions] Olof Svensson: Operator, can I say a few words before we have the first question? Operator: Yes, please proceed. Olof Svensson: Thank you. So as you can imagine, Per is on a tight schedule in Davos today. So our suggestion is that we keep the Q&A open for about 45 minutes. And to make sure that everybody has time to ask questions, I would very humbly and politely suggest that you keep it to 2 questions each. And as always, we're, of course, available for any follow-ups after the call today. So let us aim for that and really looking forward to the Q&A session. Operator: And now we're going to take our first question, and it comes from the line of Oliver Carruthers from Goldman Sachs. Oliver Carruthers: Oliver Carruthers from Goldman Sachs. Two questions on Coller, please. So I guess you're acquiring a revenue fee stream in a growing asset class that's accretive to EQT, but you've also acquired this knowledge base in wealth. So can you talk to how you think this might help as you build out your existing wealth and evergreen business? And do you think this will accelerate the uptake of your existing Nexus products? So that's the first question. And the second question on this transaction. I may be wrong, but I don't think Coller has a dedicated infra secondary strategy. And so my guess would be that EQT is one of the largest global value-add infra managers, could add value here? And is this a kind of white space that you could go after? Because it feels like the use case for GP-led secondaries in infra could be even higher than it is in private equity over time because you have these platform build-outs like EdgeConneX that are very long-term assets that need capital and maybe don't fully belong in drawdown funds. So any thoughts there would be helpful as well. Per Franzén: Good questions, Oliver. I think the answer is that in both of those areas, on the private wealth side, evergreen side as well as on the infrastructure side, we see attractive growth opportunities ahead and are both good examples of why we're stronger together. But Gustav maybe you want to elaborate? Gustav Segerberg: Yes, happy to do that. And just echoing what you said, Per, so to speak. I think on the evergreen side, of course, this -- what this enables us, we get 2 strong evergreen organizations, both from a sales perspective, from a product development perspective, where we get to a completely different scale on a combined basis. So I think there's a lot of opportunity there, including joint products going forward in at least a midterm perspective. I think same on the infra side. This is, of course, one of the key areas where we see that there are complementary capabilities in terms of that Coller is very, very strong on the secondary side. We are very, very strong on the infra side and as well on the real estate side. So going forward, we see that this is, of course, a very interesting growth opportunity for us to attack on a joint basis and where we combined will have a very good right to win in that aspect. Operator: Now we're going to take our next question. And the question comes from the line of Arnaud Giblat from BNP Paribas. Arnaud Giblat: I've got 2 questions, one on Coller and one on your infra business. On Coller, could you -- when I step back and just look at who are the largest GP-led secondary fund, typically, there are quite a few, including Coller before the acquisition, being independent and not having a very large direct business. So I'm just wondering how you're thinking about that? Do you see a need to operate a bit at arm's length? How is that going to be pitched to investors? I'm just wondering if there's any risks around that and how you intend to put that to investors. My second question is -- thanks for the update on -- in terms of what you intend to do with EdgeConneX and wrapping that into a longer-term structure. I'm just wondering if you could give us a bit more detail in terms of the mechanics, how much of enterprise value would EdgeConneX come into this continuation or long-term fund? And how you're thinking about fundraising around that? Per Franzén: Good questions. I'll let Gustav talk about EdgeConneX and provide more details on that transaction. In terms of the combination with Coller. As I mentioned in my presentation, right, I mean, we've really organized ourselves in a way so that it's very easy to add on a platform such as Coller and also to have that platform continue to be run in a very independent way so that the Coller team can serve clients and its stakeholders in the right way and in the best possible way going forward. And that's the intention also with the combination. That's how we'll organize ourselves. As I said, Coller will have an independent investment committee going forward and will be a separate business segment of EQT, where we will, of course, collaborate as was mentioned earlier, is in the areas around branding, marketing, also on the client relations side, where we can leverage the strong combined sales force that we have, both on the institutional side and on the private wealth side, right? And that's also how previous transactions have been structured and done in this space in the past, and that's what we intend to do also here when it comes to the combination between EQT and Coller. And Gustav, why don't you address the question on EdgeConneX? Gustav Segerberg: Absolutely. So due to where we are in the process, I can't go into, let's say, details about the size or the terms at this point in time. So we'll come back to you on that at the right time. I think what we can say in general is, so to speak, that we're super excited about this opportunity because, of course, it allows us to really continue to support the company for the long term as there is a very, very significant growth opportunity here in the data center area, so to speak. And therefore, it was also important for us to create this into an open-ended structure. Operator: Now we're going to take our next question and it comes from the line of Hubert Lam from Bank of America. Hubert Lam: I've got 2 of them. Firstly, I just wanted to check your expectations for exits in 2026. I think you said you expect it to be similar to 2025. Just wondering why not better? And also, does this mean that we should expect a similar carried interest as in 2025? The second question is on Coller. Can you talk about the opportunity you see with State Street and the partnership there? And do you see this as a way to enter the U.S. target date funds and maybe the outlook for this partnership going forward? Per Franzén: Thank you for those questions. I'll start by addressing the first one, then I'll hand over to Kim to provide more details, and Gustav can talk about the partnership opportunity with State Street going forward. So when it comes to exit volumes, right, I mean, it's important to keep in mind that 2025 was a record year in the history of EQT for us, right? I mean we sent back EUR 34 billion of proceeds to clients, 3x industry average in our equity strategy. So the beauty, of course, the benefits of having a truly global diversified platform the way we have it at EQT is that in certain years, there will be higher amounts of distributions in relation to NAV in certain strategies. And then in other years, there will be a step-up in other parts of the business. And so that's what you should expect in 2026, right? In 2026, we do expect a pickup in distributions coming out of our infrastructure platform, for instance. And yes, I just wanted to provide a little bit of that background and color as to the outlook for 2026. And Kim, maybe you want to elaborate a little bit on the details and carried interest. Kim Henriksson: Yes. And what Per just said, how that sort of translates into carried interest really then goes into the framework I talked about earlier, where the carry will predominantly come from the funds that are in 2019 vintages or before. And you saw yourself that there's about EUR 600 million of carry left in those funds to be recognized, whereas the 2 flagship funds not -- next to come into carry mode are not expected to -- with the current exit plans it being carry mode still in 2026. So that's the guidance we can give you at this point in time. Gustav Segerberg: And maybe I'll touch upon the State Street partnership. I think, first of all, we're super excited about having State Street as a shareholder in EQT and the partnership that they already have in place with Coller. Of course, there is a lot happening in the private market side connected to private individuals and in the U.S., especially the target date funds and the 401(k) opportunity. We think that there is tremendous opportunities here, both in the form of over time broadening the partnership with State Street, and that's something that we look forward to having a positive dialogue with them around. But also when you think about how the target date funds operate and what's required to be able to win in that channel, it's very clear that secondaries is going to be a very attractive and key component of that solution, also given the need to trade on a daily basis which when you think about it from a primary versus secondary perspective, would just make it easier. So I think all in all, we're very excited about it. As we've talked about, we think that the 401(k) opportunity is very significant, but then it will also take time. And this, of course, is an important step for us in that journey to really create products that fit into that type of client base. Operator: Now we're going to take our next question. And it comes from the line of Ermin Keric from DNB Carnegie. Ermin Keric: Do you hear me now? Per Franzén: Yes, we can hear you. Ermin Keric: Maybe just you mentioned that you expect an increase in evergreen flows in 2026. Could you quantify that? And sorry, then the second question would be on branding. You're saying that you're increasing your spending on that. Could you give us any more kind of details on how much you expect to spend on branding and put it in context to what you spent before and also how the success of those efforts are measured? Per Franzén: Good questions. I'll leave both of them to Gustav and Kim. Gustav Segerberg: Yes. Maybe I'll start with the first one. I'm not going to quantify it into a number. I think that if you think about -- if I were you, I would think about it in 2 aspects. First of all, as I talked about, during that time frame, 7 out of the 10 or 10-plus were operational. So that kind of gives you, I think, a first piece of the puzzle of seeing how that could then be in the 2026 flow. I think the second piece of it is -- it's really that out of the 7 and of course, the remaining 3, 4 products, we still see an acceleration of the flows as we're ramping it up, so to speak. So I think what we're saying is that we expect that number to be significantly above the EUR 4 billion in 2026. Kim Henriksson: On the brand and marketing topic, in order to have a successful spend of brand and marketing, you first need to build a sort of organization and have the processes, et cetera, in place. And that is what we have been doing over the last few years, and we now have that foundation, which allows us to spend money efficiently externally on marketing campaigns and on brand events and branding more generally. The -- we're not going to go into the specific numbers here on a line-by-line basis, but it's -- the amount we will spend is a multiple of what we have done historically, but from a fairly low base to start with, I would say. Then it is a science of its own in terms of how this money will be measured, and it's quite different from a directed marketing campaign where you can sort of measure the exact clicks, et cetera, where from a more branding campaign where it's more about brand awareness, et cetera, in the market. But we have a great team focused on that with very specific sort of follow-up processes that are going to be in place. Operator: And the question comes from the line of Isobel Hettrick from Autonomous Research. Isobel Hettrick: Isobel Hettrick from Autonomous Research. So in your presentation, you touched on the significant number of new LP relationships the transaction opens up for both you and Coller. Can you provide some color on how you're thinking about the cross-selling opportunity from both ways, so existing EQT clients investing in new secondary funds and vice versa over time. So perhaps with reference to BPEA, how have you seen cross-selling develop since you acquired that manager? And what can we read across to Coller? Per Franzén: Good question. I'd say it's not only that we have a track record in terms of achieving cross-selling synergies on the institutional side from the merger with Barings. And we, of course, also acquired Exeter before making the Baring's transaction. And I think we have good data points and evidence from both of those transactions in terms of the synergies that we can generate. Gustav can provide more details. And then, of course, what's different also this time around is that the private wealth opportunity has developed further. And here, we really see an opportunity for us to leverage all of the investments that we've been making into our capabilities, into our brand, into our marketing in those areas, right? So -- but Gustav, why don't you elaborate? Gustav Segerberg: Yes. No. But I think as you say, Per, there, we have experienced from it both from Exeter and BPEA. Of course, BPEA is not fully closed yet, but what you will see in the appendix is that around 25% of the capital in BPEA IX is from, let's say, original EQT clients. I think the equivalent number for Exeter on the latest U.S. fundraise there is about 15%. So we -- I think we have good track record of showing that there is significant cross-selling opportunities in these transactions, of course, going both ways in it. And in this specific transaction, as Per points out, the private wealth opportunity, there is significant cross-selling opportunities there. And then, of course, we also have the insurance side where over time, there can also be, let's say, some joint opportunities going forward. Operator: Now we're going to take our next question, and the question comes from the line of Magnus Andersson from ABG Sundal Collier. Magnus Andersson: Just first of all, on the transaction, if you could, in any way, quantify potential income and cost synergies and any potential structural charges related to this transaction in 2026? And secondly, just on your fundraising, there seems to be very strong demand for infrastructure according to market data. So I was just wondering whether we eventually should expect your flagship infra funds to become larger than your traditional key funds and if we could see that already in the generations that will be on the fundraising in 2026? Per Franzén: Yes. Good questions. I think we're incredibly -- I think as we've mentioned in the past, we're incredibly excited and optimistic about the growth potential across our infrastructure strategies, and we see very good momentum here in the ongoing fundraises that we have. I'm not sure we're going to comment on or give guidance in terms of the sizes for the next generation of these funds. But I leave that to Gustav to comment on further. And then on Coller and the income and cost synergies in '26, maybe, Kim, you want to take that question? Kim Henriksson: Yes. Well, first of all, on Coller, as you heard, we gave the guidance that we intend to more than double the business in the next 4 years. That's really the income guidance we can give you. And that is based on all of the strengths that we just talked about of the combined business. And this is not a transaction that is done because of cost synergies. Having said that, as I mentioned, there's a number of, let's say, costs that are of a nature where you can spread them out over a larger base, and that will become more efficient. Then there are some areas of overlap on the back end that we will work together to solve in the most efficient ways, but that's not the reason for the transaction. There's likely to be some transaction costs associated with it, of course, but they are not in the big scheme of things of a magnitude that will move any needle. Gustav Segerberg: And then maybe on the infra side, I think we fully agree with you on the infra opportunity in general terms, so to speak. And that's also why we, in the last couple of years, have been very focused on broadening the infra offering which you've seen both with the Active Core, especially now going open-ended. You've seen it with Transition Infra. We talked today about the EdgeConneX opportunity on the [ CV ] side. So I think you should think about it that -- and I'm not going to comment specifically on Infra VII, so to speak. But we probably think that the large opportunity here is continuing to broaden the infra scope and scaling those things in a way that we can really be a market leader across from, let's say, more infra growth opportunities all the way to core plus. Operator: Now we're going to take our next question and the question comes from the line of Jacob Hesslevik from SEB. Jacob Hesslevik: So my first question is on the culture fit. When you acquired both BPEA and Exeter, you talked a fair bit about the strong culture and how EQT and the related partner would fit together. But you have said very limited today with the acquisition of Coller. So what are the key culture and operational integration priorities over the next 12 to 18 months? And how will you maintain both EQT and Coller's entrepreneurial culture while achieving the synergies? That's the first question. The second one is you highlighted a particularly strong pipeline for Japan for 2026. What makes Japan distinctive from other Asian markets in the upcoming year? And do you need to change your approach to capture the market potential? Per Franzén: Yes. I'll start with the second one. On Japan, the reason why we are particularly excited about the pipeline that we see in Japan right now is because of some of those corporate governance reforms that have been implemented in Japan and that just enable us to pursue opportunities where we can really unlock value creation opportunities. And it allows us to create sources of alpha that are uncorrelated to the type of value creation opportunities that we see elsewhere in Asia. So for instance, in India, there's a lot of tailwind from demographics, capital markets-related tailwinds, whereas in Japan, the alpha-generating opportunities really around unlocking that value creation opportunity, thanks to some of those corporate governance reforms. And of course, we are very well positioned to capture that. Why? Because we have a best-in-class value creation toolbox that we've developed over 30 years. We have best-in-class sector-based strategies and value creation playbooks that we can apply. And then, of course, in Japan, our brand resonates very well. We've been present in the country for 20 years, thanks to the Wallenberg connection. We were also seen as a very credible long-term player, which is particularly important in a market such as Japan. So for all of those reasons, we're very excited about the opportunity ahead in that country. When it comes to Coller and the cultural values fit, right, it is as strong as we have seen in previous combinations. We've spent -- Jeremy and I have spent a lot of time together to get to know each other. I'm sure we're going to have an excellent partnership. And we've also spent significant of time together at the next generation of the leadership team between Coller and EQT, exactly like we did it in the combination with Barings and also in the transaction with Exeter, right? So that's a good way to get to know each other, and that's why we can with confidence say that this fit from a values perspective, culture perspective, the entrepreneurial, the innovation drive, the performance drive, all of that is exactly similar as it is in EQT. And the way, of course, we maintain and retain that culture, that's how we run our business, right? And that's why it was so important that we took those steps in 2025 to simplify our organizational setup. What I spoke about in my presentation and what I've also talked about in previous instances. So today, we have organized ourselves around a number of highly accountable high-performing business lines. And then we have simplified our governance, our structure in a way so that we have one combined capital markets client relations team on the institutional side that will be very well positioned to serve all of these business lines going forward, including Coller EQT. And then finally, of course, we have a clear governance around how we run our backbone, our business on the operations side. And those would also then be areas where we can achieve synergies together, right? And so by having those highly accountable business lines, that's also how you can ensure that you retain that entrepreneurial performance-driven culture. Kim and Gustav, anything else you want to say on the synergies? Gustav Segerberg: No, I think maybe one more point, and that's we just had a partner meeting earlier this week where, of course, the real estate and the Asia team was there. And I think it's so clear to see how well those integrations have gone, how much they feel like part of EQT in a real way. There is only one company. And I think it also shows that the model works, and also that we're ready to do the next one. So I think from all of those perspectives, this timing is also a good one, I would say. Operator: And now we'll go and take our last question for today. And it comes from the line of Nicholas Herman from Citi. Nicholas Herman: Congrats on the deal. Two questions from me, please. One on accretion and synergies and one on cash. On the accretion and synergies, you referred to a doubling of fee-paying AUM in Coller over 4 years. Is that the time frame for the mid-single-digit FRE accretion? Or is the accretion time frame shorter? And related to that, what synergies are in that guidance? And how should we think about the sequencing of adjacencies and synergies. And then a quick one on cash. I guess given this transaction is almost entirely equity, should investors now have greater confidence that you will announce share buybacks over time? And I guess for avoidance of doubt, I'm assuming you have no ambition for further deals or especially larger deals for now at least? Per Franzén: Thank you. Olof and Kim, do you want to take those questions? Olof Svensson: Yes. Do you want to go ahead? So I mean, if you think about the accretion, we're buying, first of all, 100% management fees, right, over the next several years. And as we talked about before, the earn-out mechanics is based on a fee-related growth of close to 30% or high 20s, right? And to Kim's earlier comments on the margins, that means that you're going to have a very rapid top line growth, and that means that our margins are going to scale quite meaningfully over the next several years in this business. So if you think about this from a fee-related EBITDA multiple, it's based on the guidance that we gave, it's about 16 to 18x multiple that we're paying in '26, but that's not then capturing this significant ramp-up that you have in '27 and '28, right? So to your question, if you think about this transaction in, say, a couple of years' perspective, I'd argue it's high single-digit accretive to our earnings. And that means that this mid-single-digit guidance, that's an average over the next few years. Kim Henriksson: And in terms of cash and buybacks, yes, you're absolutely right. This is an all-share transaction and will, if anything, strengthen our balance sheet further over time. There's -- last year already, we did about EUR 300 million of share buybacks in 2025. So it's not that we haven't been doing share buybacks already. And what we have said in terms of guidance is that we will use share buybacks or extraordinary dividends for that matter as a tool if we, at any point, become overcapitalized, for example, if cash carry comes in at scale, but I can't give you any specifics around that in terms of timing or how that's going to look. But right now, we have a solid balance sheet, but we're not overcapitalized given the opportunities we have, both organic and inorganic going forward. Nicholas Herman: That's really helpful, guys. If I could quickly follow up on the synergies. Just what synergies, as you said, are in that guidance? And how should we think about the sequencing there from, I guess, from a -- presuming is it wealth first, then insurance then Asia, I mean how should we think about the way you're going to be tackling those -- the numerous opportunities there? Gustav Segerberg: Yes. And I think we're not going to go into specifics of it. Of course, as always in this, it's going to be evolving development in it. And there are a number of opportunities. But I think we also feel that we're very well equipped, both from a Coller perspective and from an EQT perspective in order to capture many of this. I think you should think about the guidance on, let's say, doubling the business on -- in less than 4 years that, that does not include a very significant new initiatives in that. It's, of course, a development of the business. It's continuing to scale of the PE and credit side. On the institutional side, it's maybe 1 or 2 new initiatives on the institutional side. And then, of course, it's a development of the evergreen as well as the insurance side. But it's a base case that we feel and the Coller team feels comfortable, which I think is good. Operator: Dear speakers, there are no further questions for today. I would now like to hand the conference over to management for any closing remarks. Olof Svensson: Okay. Well, everybody, thank you very much for great questions and for the discussion. As you can hear, we're extremely excited about this combination with Coller, and we are very pleased with the results that we delivered for 2025. As always, you know where to find us, we're available for any follow-up questions. So thank you very much. Kim Henriksson: Thank you all. Gustav Segerberg: Thank you. Olof Svensson: Thank you.