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Operator: Good day, and thank you for standing by. Welcome to Ally Financial Inc. Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised, today's conference is being recorded. I will now turn the conference over to your speaker host for today, Sean Leary, Chief Financial Planning and Investor Relations Officer. Please go ahead. Sean Leary: Thank you, Lydia. Good morning, and welcome to Ally Financial Inc.'s fourth quarter 2025 Earnings Call. This morning, our CEO, Michael Rhodes, and our CFO, Russ Hutchinson, will review Ally's results before taking questions. The presentation we'll reference can be found on the Investor Relations section of our website ally.com. Forward-looking statements and risk factor language governing today's call are on Page two, GAAP and non-GAAP measures pertaining to our operating performance and capital results are on pages three and four. As a reminder, non-GAAP or core metrics are supplemental to and not a substitute for U.S. GAAP measures. Definitions and reconciliations can be found in the appendix. And with that, I'll turn the call over to Michael. Michael Rhodes: Thank you, Sean, and good morning, everyone. I appreciate you joining us today for our fourth quarter earnings call. Before we cover our results, I'd like to take a moment to reflect on the year. After my first full year as chief executive, I am grateful and optimistic. Grateful for what has been built before I joined, and optimistic for what's ahead. My optimism is shaped by the strategic refresh we undertook in 2025. Deliberate choices backed by disciplined execution have delivered solid results. At the heart of our refresh was the focused strategy we rolled out to start the year. Focus means we are investing in businesses and segments where we have clear competitive advantages and a reason to win. That is areas where we are unique and special. Our results validate that we are on the right path. 2025 marked a shift where results demonstrated tangible progress, including delivering on the detailed guidance we provided in January. With that, let me recap full year performance on Page five. Adjusted EPS of $3.81 was up 62% year over year. Core ROTCE of 10.4% was up more than 300 basis points versus 2024. Encouraging progress with room to expand further. The three drivers for sustainable mid-teens returns have been consistent and the progress we are making is clear. We have executed against two of the three drivers. And remain positioned to deliver on the final as we progress forward. Retail net charge-offs ended the year below 2%. Importantly, we see further opportunity as we continue to benefit from vintage rollover, and dynamic approach to underwriting and servicing. Clearly, the macro will play a role in how losses materialize in any given year. But we remain confident in the direction of travel over time. Expense and capital discipline remain a top priority. We have been and will continue to be prudent stewards of shareholder capital and make investments to position Ally for durable long-term performance. And we remain on track to deliver NIM in the upper 3% range. NIM increased more than 30 basis points in 2025 when you adjust for the sale of card. That progress along with embedded tailwinds across the balance sheet give me confidence in our ability to drive further margin expansion for full year 2026. Adjusted net revenue of $8.5 billion was 3% year over year, and up 6% when adjusting for the sale of card. Finally, 10.2%. Taking into account AOCI, fully phased in CT one was up a 120 basis points in 2025. Ending the year at 8.3%. These financial results reflect the impact of a handful of deliberate choices including exiting noncore businesses, repositioning a portion of our investment securities portfolio as we continue migrating towards a more neutral rate position. Maintain expense discipline to create capacity for appropriate investments or reducing controllable expenses by 1% versus 2024. And executing two credit risk transfer transactions for a total of $10 billion in notional retail auto loans, sourcing highly efficient capital. Together, our actions have resulted in lower credit risk, lower interest rate risk, higher capital levels, a more efficient expense base, and in aggregate, a stronger foundation. And we grew in the core businesses that we want to grow with a sharp focus on risk and returns. Retail auto and corporate finance loans were up 5% in 2025, on the back of strong momentum in these core franchises. As a result of this progress, we announced a $2 billion open-ended share repurchase authorization in December. The resumptions of repurchases is not a declaration of victory. But a clear indication of the progress we've made and our confidence in the path ahead. And as we've said before, we will start low and slow with share repurchases. The opportunities for growth across our core franchises are encouraging and accretive. Organic growth remains our priority when allocating capital. However, adding share repurchases provides another option for capital deployment as we maintain an unwavering focus on risk-adjusted returns. With that, let's turn to page six and discuss those core franchises. Execution within each of our core franchises has been strong and momentum positions us for sustainably higher returns. Dealer Financial Services delivered an exceptional year of performance, reflecting the benefits of our scale, the breadth of our products and services, and the depth of our relationships with our dealer customers. 15.5 million applications were an all-in record and allow us to be selective in what we originate. Given the strength at the top of the funnel, we originated $43.7 billion of consumer loans. That's up 11% year over year. With a 9.7% origination yield while 43% of volume was concentrated within our highest tier of credit quality, We continue to see opportunities for responsible growth at attractive risk-adjusted spreads based on the uniquely strong partnership we with our dealer network. Beyond headline origination figures, I'm encouraged by the continued growth across smart auction and our pass-through programs. Are expected to contribute durable fee growth moving forward. Moving to insurance. Written premiums exceeded $1.5 billion, a record for Ally. Synergies between auto finance and insurance continue to strengthen our all-in value proposition, enables us to support our dealer partners, across all aspects of their business. In corporate finance, we delivered 28% ROE with strong year over year growth in the loan portfolio. Managing credit risk remains a top priority, and its second consecutive year with no charge-offs reflects the strength of our underwriting. We have the benefit of being a lead agent in virtually all of our transactions, giving us the ability to own the diligence process and structure transactions appropriately. Turn to digital bank. Our customer-first approach continues to set us apart. We ended the year with $144 billion in retail deposit balances. Reinforcing our position as the largest all-digital direct bank in The U.S. We saw solid growth in the fourth quarter and on a full-year basis balances were roughly flat. That's in line with our expectations to start the year. Our focus remains on providing best-in-class products and services to drive customer growth and retention. We now serve 3.5 million customers, as 2025 marked our seventeenth consecutive year of customer growth. Over time, this will continue driving a less rate-sensitive portfolio with lower average account balances. The strength and stability of what we've built is a valuable component of our enterprise. and 92% are FDIC insured. Retail deposits continue to represent nearly 90% of total funding, Before passing to Russ, I want to share a few high-level thoughts. Our core franchises are well positioned. And their success is fueled by our strong do-it-right culture. And leading brand. I am energized by how our 10,000 teammates deliver for our customers every day. And how they've rallied around the focus strategy. Our engagement scores remain in the top 10% of companies globally, for the sixth consecutive year and we were eight points higher than the industry average. Demonstrating Ally's purpose-driven culture, remains a key differentiator. Our brand continues to resonate in the market and serves as a key reason customers come to Ally and want to do more business with us. Overall, 2025 marked a meaningful step forward for Ally. I'm encouraged by the progress we've made, but more importantly, I'm excited for what remains ahead. And with that, I'll turn it over to Russ to walk through the financials in more detail. Russ Hutchinson: Thank you, Michael. I'll begin by walking through fourth quarter performance on Slide seven. In the fourth quarter, net financing revenue excluding OID of $1.6 billion was up 6% from the prior year. We continue to benefit from the momentum in our core franchises, disciplined deposit pricing, and ongoing optimization of the balance sheet toward higher-yielding asset classes. Adjusted other revenue of $550 million in the fourth quarter was down 2% year over year, and excludes a $27 million loss as we move nearly $400 million of legacy mortgage assets to held for sale. This move reflects ongoing optimization of our balance sheet, and is consistent with our focused strategy. We are taking advantage of a strong bid for mortgage credit, to sell portions of our portfolio which carry more complexity and higher servicing costs. Following the expected sale of these mortgage loans, our portfolio will be entirely first lien, fixed rate mortgages, which will continue to run off over time. Full year adjusted other revenue was up approximately 2%. Despite the headwind from the sale of credit card and the exit from mortgage originations. Excluding that headwind, other revenue was up 5%, reflecting the momentum across our core franchises. Diversified other revenue streams, including insurance, smart auction, and our auto pass-through programs are capital efficient and less sensitive to consumer credit cycles. Positioning them to remain tailwinds into 2026 and beyond. Fourth quarter adjusted provision expense of $486 million was down $71 million year over year. Largely driven by continued improvement in retail auto NCOs as well as the exit from the credit card business. The year over year net charge off comparison includes million dollars of credit card activity in 04/2024. The fourth quarter retail auto NCO rate declined 20 basis points year over year to 2.14%. Adjusted non-interest expense of $1.2 billion excludes a $31 million restructuring charge associated with a reduction in force. These decisions are never easy, but reflect our unwavering focus on balancing investments with expense discipline. Our strategic pivot has created a more focused, efficient organization, and these actions create capacity to continue investing in our core businesses in areas like cyber and AI. Full year adjusted noninterest expense was approximately flat year over year while controllable expenses were down 1%. Demonstrating our commitment to cost discipline that will continue going forward. GAAP and adjusted EPS for the quarter were $0.95 and $1.09 respectively. Moving to slide eight. Net interest margin, excluding OID, of 3.51% decreased four basis points from the prior quarter resulting in full year NIM of 3.47%. That is in the top half of the net interest margin guide we provided at the beginning of the year. Continued expansion of the retail auto portfolio yield, and decreasing deposit costs were offset by the repricing of floating rate exposures and lower lease yields during the quarter. Retail auto portfolio yield, excluding the impact from hedges, increased six basis points sequentially as we continue to originate above the portfolio yield. Resilient yields while maintaining consistent risk appetite reflect the benefit of record application flow enabling selectivity in what we ultimately originate. Given the forward curve, we expect the portfolio yield has peaked. And will remain relatively flat throughout 2026, as lower benchmarks are reflected in originated yields. While used values were stable in aggregate, we recognized losses of $11 million on lease terminations concentrated in a subset of weaker performing models. Residual values on plug-in electric hybrids have been pressured following the elimination of the EV tax credit, and OEM recall and increased OEM incentives on new models. Pressure on these models increased later in the quarter, and we'll continue to monitor trends as we move throughout 1Q and into the used vehicle selling season. Our lease portfolio mix is shifting. About half of the leases we originated over the past two years have OEM residual value guarantees. And the leases we have originated without the benefit of residual value guarantees reflect a more diversified mix of OEMs. While we may see pressure moving forward, the ongoing remix of the portfolio should reduce gain and loss volatility over time. Cost of funds decreased 11 basis points quarter over quarter driven by a 12 basis point decrease in deposit costs. Last quarter, we spoke about deposit pricing data starting low as we began another easing cycle. Over time, we expect deposit pricing data will increase driving NIM expansion. We believe a through the cycle beta in the sixties which we continue to expect, is sufficient to reach our high threes NIM target. Importantly, we have strong momentum on both sides of the balance sheet from our multiyear transformation and remain confident in our path to an upper threes margin over time. Average earning assets on a full year basis ended down 2%, consistent with the outlook we shared during second quarter earnings. Importantly, ending asset balances were up 2%, reflecting the growth we've seen in the places where we want to grow and demonstrating our momentum as we head into 2026. In aggregate, ending balances across retail auto and corporate finance were up $5 billion or more than 5% year over year. On a fully phased in basis for AOCI, CET1 for the period was 8.3%. An increase of approximately 120 basis points during the year. During the quarter, we executed our second credit risk transfer of the year issuing a $550 million note on $5 billion of high-quality retail auto loans. Which generated approximately 20 basis points of CET one at issuance. Following our announced share repurchase authorization in December, we repurchased $24 million in common stock reflecting the low and slow approach we've outlined. Moving forward, we'll be dynamic with our level of buybacks in any given quarter. We're encouraged by our ability to execute a story of and, not or. We are prioritizing organic growth across our core portfolios, while maintaining our competitive dividend continuing to build our fully phased in capital levels, and returning capital to shareholders through share repurchases. At the bottom of the page, we ended the year with adjusted tangible book value per share of $40 up nearly 20% in the past year. Earnings expansion and AOCI accretion will support further book value growth over time. Additionally, we updated our calculation of core return on tangible common equity. This new methodology does not alter our earnings outlook in any way. It improves transparency and creates alignment between returns, book value, and ultimately earnings per share. We have added incremental disclosure clearly outlining the changes in supplemental slides of this presentation. In short, we have eliminated the deferred tax asset adjustment from our prior methodology to streamline calculation as well as increase transparency and comparability. As we approach our 9% management target for fully phased in CET1, we believe this new core ROTCE metric is appropriately aligned to our mid-teens target for sustainable return. Let's turn to slide 10 to review asset quality trends. Consolidated net charge-offs of 134 basis points were up 16 basis points quarter over quarter driven by seasonality. We continue to see strong credit performance in our commercial portfolios, resulting in zero net charge-offs for the second consecutive year. Full year consolidated NCOs finished below the range provided a year ago driven by continued improvement in retail auto credit and the aforementioned strength across our commercial portfolios. Retail auto net charge-offs of 214 basis points were up 26 basis points quarter over quarter reflecting seasonal trends. But down 20 basis points compared to a year ago. Year over year improvement across all quarters of 2025 reflects the tailwind from vintage rollover dynamics and the benefit of enhanced servicing strategies. Our full year retail auto net charge off rate was 1.97%, below the bottom end of our guide and notably below the 2% mark we referenced as a key pillar, to achieve our mid-teens return target. Moving to the top of the page, 30 plus all in delinquencies of 5.25% were down 21 basis points from the prior year. Marking the third consecutive quarter of year over year improvement on an all in basis. This continued improvement further reinforces our constructive view on the near term loss trajectory within our portfolio. But we remain mindful of the macroeconomic environment particularly the labor market and used vehicle values. Turning to the bottom of the page on reserves, consolidated coverage decreased three basis points this quarter to 2.54%. While the retail auto coverage rate remained flat at 3.75%. Our retail auto coverage levels continue to balance favorable credit trends within our portfolio against macroeconomic uncertainty. Moving to slide 11 to review auto segment highlights. Pretax income of $372 million was lower year over year primarily driven by lower commercial balances, lease mix dynamics, and reserve build and higher servicing related expenses given growth in the retail portfolio. On the bottom left, we've highlighted the trajectory of retail auto portfolio yields. Excluding the impact from hedges, yields were up six basis points quarter over quarter and 18 basis points year over year. Our scale and record application volume led to another strong quarterly vintage with attractive risk adjusted spreads. Fourth quarter originated yield of 9.6% was down quarter over quarter but demonstrated resilience given the move in underlying benchmarks. Our ability to actively calibrate our buy box with the evolving market supports risk adjusted returns through the cycle. On the bottom right of the page, $10.8 billion of consumer originations were up 6% versus the prior year period. And were enabled by the 10% increase in application volume that we saw. Our established dealer relationships and full spectrum approach enabled this accretive growth despite headwinds. Last year, we faced elevated competition, significant pull forward demand in 2Q and 3Q tied to tariffs and EV tech credit expiration. And fourth quarter new light vehicle sales that were down more than 5% year over year. Record application volume throughout the year has supported our ability to remain selective driving accretive growth while also providing opportunity to monetize declined applications through our pass through program. Turning to insurance on slide 12. Core pretax income was $89 million roughly flat year over year. Total written premiums of $384 million were also relatively flat versus 2024. While insurance losses of a $111 million were down $5 million year over year. Insurance provides a durable, capital efficient revenue source and remains a key driver of our long term growth strategy. As Michael noted, we continue to leverage synergies with Auto Finance to drive momentum within the business and deepen our all in value proposition. As we support our dealer partners in all aspects of their business. Turning to corporate finance on slide 13. The business delivered another strong quarter with core pretax income of $98 million Fourth quarter ROE of 29% and a full year ROE of 28% underscore the strength of the franchise and the durable accretive profile of the business as we continue to look for growth opportunities within the markets we compete in. On a year over year basis, we grew the portfolio by just over $3 billion. Spot portfolio balances can move considerably given the timing of new deals, pay downs, and capital markets activity. Taking a step back, the portfolio has grown at an 8% CAGR since 2022. Reflecting the disciplined approach that continues to guide our growth philosophy and is reflected in the credit characteristics of the portfolio. 2025 marked the second consecutive year with no new nonperforming loans. While criticized assets and nonaccrual loan exposures were 101% of the portfolio, remaining near historically low levels. Leveraging long standing relationships with key partners in the industry remains critical to maintaining our culture of strong risk management. I will discuss our financial outlook on slide 14. We expect full year NIM between 3.63.7%. The range for NIM reflects the evolving path of interest rates as the Fed easing cycle continues. With two cuts assumed for 2026. As we have consistently messaged, we are liability sensitive over the medium term, and asset sensitive in the very near term. We'd expect early beta to drive a relatively flat margin through through 1Q, but given current trends on lease residuals, we expect NIM to be slightly down on a sequential basis. Looking beyond 1Q, we remain confident in NIM migrating to the upper threes over time supported by continued optimization on both sides of the balance sheet. Deposit repricing and continued remixing of the balance sheet towards higher yielding assets will support margin expansion. In aggregate, retail auto and corporate finance are expected to grow in the mid single digits while mortgage loans and lower yielding investment securities will continue to run off. In total, margin expansion will accelerate as deposit pricing data increases toward our through the cycle target consistent with what we observed in 2025 following Fed easing in 2024. Given the fourth quarter NIM of 3.51%, and expectation for NIM to be down a bit in the first quarter, the full year guide implies we expect to be approaching our upper 3s NIM target exiting 2026. As a reminder, our NIM progression will be choppy on a quarter to quarter basis, but we remain confident in the destination. Moving to other revenue. We expect continued momentum across insurance, smart auction, and auto pass through programs to drive low single digit percent growth year over year which includes a roughly $25 million headwind from the loss card fees earlier this year. On credit, we see retail auto net charge offs between 1.82% for the year. 2025 performance showed tangible results from the dynamic underwriting and enhanced servicing capabilities we have implemented over the past two years. Our outlook reflects a balance between continued improvement from the remaining vintage rollover with ongoing macro uncertainty. Last year, we highlighted the continuation of existing trends across delinquency, flow to loss rates, and used values provided a potential path to the low end of our guidance range. Those dynamics largely played out, and we achieved a full year NCO rate just below the low end of our guide. This year, a continuation of these same trends would support performance around the midpoint of our guide. And achieving the lower end of the range would require incremental favorability within these drivers. Looking beyond retail auto, we expect consolidated net charge offs between 1.21.4%. As we have noted, we are pleased with the performance of our commercial portfolios. However, these are not zero loss businesses. Nor do we price for that and our full year guide assumes a return to more normalized losses. On expenses, we expect 2026 to be up approximately 1% with investment focused on our core franchises fueling revenue growth while also investing in areas like AI, cyber, servicing, and customer experiences. This disciplined expense management along with top line revenue growth positions us for positive operating leverage this year and over the medium term. Building upon the momentum we saw throughout the 2025, average earning assets are expected to be up between 24% year over year. Importantly, our growth is focused on the areas where we wanna grow for attractive returns. Retail auto and corporate finance. Finally, we expect an effective tax rate between 2022%. We are encouraged by the momentum we've established across the businesses. We have said that achieving our mid teens return target requires one, an upper threes NIM, two, a sub 2% retail auto NCO rate. And three, capital and expense discipline. As Michael noted, we have achieved two of the three and see a path to achieving the third. That said, it remains a dynamic operating environment, while reaching our targets continues to move closer, we don't feel it's prudent to call a specific quarter. We'll remain nimble and ready to pivot as the macro and competitive landscape evolves. Our focused strategy is working. I'm confident in our ability to deliver improved returns and drive long term shareholder value. And with that, I'll turn it over to Michael for a few closing remarks. Michael Rhodes: Thanks, Russ. Before hanging into Q and A, I want to reiterate what we've accomplished over the past year. And how that positions us for the future. First, our focused strategy has created clarity on where we will compete and how we will win. Second, we have a much stronger foundation. Our balance sheet and risk position are stronger today, giving us greater resilience, and flexibility as we move forward. Our core franchises each have relevant scale and a refined focus has streamlined resources, and strengthened our competitive positioning. Third, we are executing. That means we are operating smarter, moving faster, and delivering improved efficiency and effectiveness. Earnings growth, credit performance and capital metrics all showed meaningful progress. And momentum as we head into 2026. Fourth, authorizing a $2 billion buyback program is an important step. Resuming share repurchases underscores the progress we've made and our confidence in our ability to execute moving forward. Finally, while we were encouraged by our progress, we remain focused on the road ahead. There is more work to do, but I'm certain we are on the right path. And excited for what's ahead as we continue to execute and deliver compelling long-term value for our shareholders. With that, I'll turn it back to you, Sean, so we can head to Q and A. Sean Leary: Thank you, Michael. As we head into Q and A, we do ask that participants limit yourself to one question and one follow-up. Olivia, please begin the Q and A. Operator: Thank you. Star one one on your telephone and wait for your name to be announced. To withdraw your questions, simply press 11 again, Please stand by while we compile the Kenny roster. Our first question coming from the line of Robert Wildhack with Autonomous Research. Your line is now open. Hey, guys. Maybe just to start on the NIM. Ross, I appreciate the commentary that you gave. You said down quarter over quarter in 1Q and then sounded pretty strong on the exit trajectory. Just want to double check that I heard that correctly. And then is there any more detail that you could give on what exactly drives the NIM sort progression through the year and how it ramps from kind of down quarter over quarter to what sounds like a, pretty strong exit rate? Russ Hutchinson: Yeah. Sure. Sure, Robert. Thanks for your question. I appreciate it. When you kind of look at the quarter to quarter NIM dynamic between fourth between third quarter and and fourth quarter last year and and heading into first quarter of of this year, it really comes down to mainly early beta as well as some pressure from, from lease terminations and maybe I'll start on early beta. This is the same thing that we saw last year. Right? We saw soft early beta exiting 2024 and starting 2025. And then we saw some nice catch up in the 2025 with some healthy NIM expansion. Our expectations are to see similar dynamics play out this year. Right? And and as I kinda get underneath what leads to that, rate cuts are beneficial to Ally over time. And we've talked about that before. But we've also talked about near term asset sensitivity. That impacts us on a quarter to quarter basis. So our our NIM progression is not a straight line, and and and we've talked about that before. And it's it's part of why we, you know, we we we don't guide for NIM on a quarter to quarter basis. We we guide on a full year basis. The beta catch up dynamics are strong. The ongoing port mix dynamics that we mentioned earlier are strong and give us confidence in in driving meaningful and sustainable improvement both in profitability and NIM expansion. You know, you you pointed to the NIM guide at at three sixty to three seventy for the year. Yeah. I think as you dig in, and, you know, you think about where we're we're starting the year, it's it's it's pretty clearly implied that we expect some meaningful NIM expansion through the course of the year. You know, again, this kind of NIM expansion that looks looks kinda like the dynamics that we saw play out last year. And, you know, obviously, on a on a quarter to quarter basis, we could get some impacts as no doubt, you know, our expectation is there will be some some kind of ongoing movement in the Fed funds rate throughout the year. But again, we feel confident in terms of the medium trajectory around NIM And I think as you kinda do the know, kinda you know, as you dig in, on on on, you know, our our full year NIM expectation, and then where we're starting the year, I think you'll see that you know, we expect to end the year you know, above the high end of our guide or or you know, approaching our high threes medium term target. You know, the pressure from on the lease side, as as we mentioned earlier, it's it's driven by a few hybrid electric vehicle models, the the plug in hybrid models. Those those specific vehicles were impacted by an OEM recall, as well as significant OEM incentives on new vehicles that that came with the expiration of the EV lease tax credit. And so that's that's kind of what we're dealing with in terms of some of this near term NIM pressure. But, again, I just reiterate our confidence in the medium term and and in terms of the destination in the high threes. Robert Wildhack: That's great. Thank you. And then just quickly on credit and the retail auto coverage ratio specifically. You talk a lot about the tier mix, vintage remixing, net charge offs coming down, etcetera, etcetera. The retail auto coverage ratio, though, hasn't budged in, like, a year. Just curious what you think it would take for you to actually start releasing some of the reserves there in in retail auto? Russ Hutchinson: You know, it's a fair question, Robert. We we get that question from time to time. We've often said, you know, when when we think about our our returns over the medium term, as we think about our targets, we don't include reserve releases. You know, those are more of an output than an input from our perspective. And our our focus is on know, just kinda managing the credit in a prudent way in in terms of how we underwrite, and how we service you know, kinda just our overall approach to the portfolio. As I think about where our reserve is set today, it's really balancing a few things. You know, on the one hand, we're seeing clear benefits as you said, from vintage rollover to vintages that were originated towards the 2023 through '24 and now '25 that are clearly stronger vintages from a from a credit perspective than than what we saw in early twenty three and and and in 2022. So that vintage rollover is a clear benefit. You know, we've made improvements to our underwriting. We've made improvements to our servicing. And we're seeing that that benefit over time. And and and that's certainly something that that we're seeing in terms of delinquency improving, strong photo loss rates, And and, also, we also were seeing good support from from the used vehicle market in terms of of used car prices and severity. So, you know, all those things are are incorporated in terms of how we think about reserves. But at the same time, we're also looking at at at, you know, some of the macro and uncertainty out there, you know, in particular focused on the labor market and use vehicle prices. Our current expectation is that, you know, unemployment over the course of 2026 is gonna be higher than the unemployment that we saw over the the full year of 2025. And there's obviously some uncertainty around that, and that's factored into how we think about reserves. As well as how we think about our forward NCO guide. And then similarly, you know, we we've got we've got a careful eye on the used vehicle market. We're watching what we see on smart auction as well as in the auction lanes. Been very much paying attention to to to used car prices overall. So are a number of things that factor in, but, again, I I just reiterate, reserve releases is not something that we factor into you know, how we think about the business from a a return perspective, and it's not factored into our mid teens return guide. Robert Wildhack: Okay. Thanks a lot. Thank you. Operator: And our next question coming from the line of Sanjay Sakhrani with KBW. Your line is now open. Sanjay Sakhrani: Thank you. Good morning. Maybe, Michael, can we start with contextualizing 2026 as you look ahead to the year? Obviously been a bumpy ride so far. But curious, as you look at the guidance as a whole, where do you think the biggest risks lie, the opportunities as well? Russ, you you could all also chime in. Michael Rhodes: Yeah. Sanjay, thanks for the question. I think about '26. Look, I can't think about '26 without reflecting a bit on '25. And, like, really proud of what this team did in '25, you know, on page five of our material, we call our notable items, and and a lot of good work has been done. And, you know, I started out by talk talking about, you know, both gratitude for what's been built and optimism for what what what's in the future. And so I do feel a lot of optimism for '26, and it's it's anchored on the fundamentals of the business. And so while while '25 was a year where we made a lot of shifts and pivots you know, '26, the the the rhetoric we have inside the organization is really about bridging strategy and execution. And so it's really we we've set the table, I think, quite nicely for ourselves. And '26 will be about building strong volumes with the right margins, the right pricing in the auto franchise. Continue with the momentum we have in the corporate finance business, continue with our customer acquisitions, the strength that we have in our retail bank and our consumer bank, which, you know, again, our balance been relatively flat, but we're attracting a less rate price a less rate sensitive customer. So we like that dynamic, more of that. And then, of course, you know, from a technology perspective, continue to deliver the capabilities that ensure that we win here in the twenty first century and certainly for next year. And so if I take a step back, I feel really good about the fundamentals of the business. In terms, know, when I think about the guide for '26, you can kinda go line item by line item. And, you know, like like, on the expense side, like, you've seen a lot of discipline from this team in terms of how we manage expenses. So, you know, continue to expect to see some discipline on expense management. You know, on revenue, look. There's you know, we have NIM. We have fee income, and I think Russ did a nice job of talking about what's going on with NIM. And hope you took away from that some optimism on the exit rate. Recognize there's probably some bumpiness as we go along. But the balance sheet dynamics are playing out the way we would expect and so I'd expect a continuity of that in 2026. Then, again, on the fee income side, we like what we're seeing. And then credit, look. The dynamics playing out pretty much like we said it would. Last year, beginning of the year, we said if certain things happen, we'd be the low end of the guide. We end up being below that low end. And so, you know, assuming the macro holds, we feel good about that. Consumer behavior right now, I mean, we're pleased with what we're seeing at the consumer. There's a bit of this disconnect between kind of the the rhetoric and some of the headlines. What we're seeing consumer behavior, but we're pleased with what we're seeing on the consumer side. So overall, I feel good about the estimate that we put out for '26 in terms of what we're going to do kind of by line item feel good about the foundation of the business. And I was gonna say, you know, what I worry most about, it's really about the macro. And, you know, if there's something gonna happen that's gonna affect, you know, a lot of financial institutions, not just us, from an unemployment perspective or or some other, discontinuity. But, start up I talk about optimism. I'll probably end this this narrative on optimism. I feel very good about how we're positioned. Russ Hutchinson: Yeah. I mean, I I might just okay. I got Ross. Add add just sorry, Sanjay. You you did say that I could, I could comment as well. Absolutely. Absolutely. Got I mean, might just add just as I kind of cut across the the three main franchises, I just I feel really good about the level of dealer engagement we have. You know, in a in a in a quarter where, like, vehicle sales were down and and there were all sorts of reasons for you know, there are all sorts of reasons and pressures, but but our applications were up, and it supported our ability to be selective and underwrite a really great vintage. You know, similarly, when I look at the consumer bank, you know, we added customers. We kinda hit our expectations on the pin in terms of flat balances for the year. We continue to to affect a nice migration of customer base towards you know, more favorable demographics. On the corporate finance side, we continued with with with disciplined growth, and and we really like what we see in the portfolio in terms of nonaccruals and criticized assets. So, you know, as I look across all three of the franchises, just a lot of really good things going on in in in each of those franchises. And then I turned to the balance sheet as a as a CFO And, you know, I think we've taken deliberate steps to reduce credit risk, to reduce rate risk, and to increase capital. We've we've put a lot of capital on the balance sheet over the course of 2025. And so you know, again, I I feel good about all those things. And so it's really just watching that macro, particularly the labor market and, and the rate of prostate used to be up prices? Sanjay Sakhrani: No question. You guys had a good 2025, and it seems like good momentum in 2026. Just one clarification on some of the questions Robert was asking on credit. Just as we look at the performance of credit, it would seem like the momentum you have on delinquencies suggests further improvement in the charge off rate. And I know, Russ, you mentioned that you would probably need further improvement in delinquencies or momentum in the delinquencies to get to the low end of the range, but seems like there's a progression there. Is there anything sort of weighing against that that we need to think about? Russ Hutchinson: Yeah. I mean, I I I kinda point back to unemployment. You know, our expectation for thousand twenty six is that you know, over the course of the year, unemployment is is gonna be higher than it was in in 2025. And I know some of the data a little up and down with, you know, with some of the stuff that happened later last year, but our our general expectation is that it's that it's higher. And so that is something that weighs on on kinda how we think about it. In terms of our overall NCO guide, you know, at the the the at at the one eighty to to 2% level that that we mentioned earlier, Yeah. We we've effectively kinda priced into that guide the vintage rollover, You know, the the strong indicators we've seen in terms of delinquency, flow to loss rates, used car pricing, you know, as as well as, as well as somewhat weaker a weaker labor market. Versus what we saw in in 2025. So as I kinda think about the range and what takes us you know, above the midpoint or below the midpoint You know, I think we we'd actually have to see you know, some improvement in terms of in terms of delinquency. In terms of photo loss, or in terms of of used vehicle pricing to to get us certainly below that midpoint, you know, that could happen in the context of of a labor market that's certainly stronger than we anticipate. Know, on the other hand, you know, we could see things going the other way in terms of of labor market, used vehicle prices, delinquency, flow to loss, severity, you know, kinda moving in a different And so I I think the outlook that we provided is is, is balanced. Know? And and where last year, we pointed to a continuation of of some of these favorable indicators we were seeing getting us to the low end this year, I'd say you know, given the persistence of of those variables over the last fifteen months or so, we're pricing that into the into the midpoint. Sanjay Sakhrani: Okay. Perfect. You so much. Operator: Thank you. And our next question coming from Delina Mark DeVries with Deutsche Bank. Your line is now open. Mark DeVries: Yeah. Thanks. I had a follow-up question on some of the NIM commentary. I was just wondering if we could get you to maybe quantify kind of the upper bound on what you mean by kind of the upper threes or high threes. And then just a follow-up on that, I think, Russ, you indicated you expect to be the guide, I implies you're kind of near that run rate at the end of 2025. Does that imply you're kind of by then given charge off guidance below 2% range from retail auto that you're you're near kind of a a 15% ROE run rate by the end of the year. Are there other things you need to do around capital efficiency or operating leverage to get there? Russ Hutchinson: It's a fair question. You know? As you can imagine, you know, we've stayed away from calling quarters. And providing, you know, quarterly guidance just you know, just kinda given some of the the choppiness that we've talked about in our business in terms of you know, the the near term impacts of of rate moves and and and things like that. You know? But I but I think as I as I think about your math, you know, upper threes, I think we we we we've talked about it previously as being We talked about kind of 4% back when we still had the card business, and we talked about about a 20 basis point impact to NIM as a result of selling card. And so obviously, we've sold card. And so think that kinda gives you a sense for how we dimension, what we mean by by upper threes. You know, you know, given that that we no longer have that that card business. You know, as as you as you kinda think about the guide for the year at at 60 to $3.70 and you look at kinda where we're starting the year, I mean, I I think the the progression math as you as you parse through that is pretty clear. But, again, I just I just reiterate, you know, obviously, you know, in any given quarter, we have impacts from from just just rate moves that are kind of very near term. You know? But it but in terms of of the medium term, don't don't really have a real impact. And so we don't call the quarter, you know, but I I think the the basic arithmetic around kinda what you need to see over the course of the year is pretty clear. Yeah. We've talked about mid teens in terms of three things. Those three things are unchanged. It's high three NIMs. It's sub 2% retail auto NCO rate, and it's continued discipline around capital and expenses, we don't think we need to make a change to to how we're running the business or what we're doing You know, it's consistent, and we continue to see our our path to mid teens. And so I would characterize us right now as having checked off two of those things. With retail auto NCOs now sub 2% and with the capital and expense discipline that we currently have in place, You know? And I'd say the the kind of one outstanding item is getting them to the to the high threes, and and there's nothing that's changed with respect to that. Mark DeVries: Great. Thank you. Operator: Thank you. Our next question coming from the line of Jeff Adelson with Morgan Stanley. Your line is now open. Jeff Adelson: Hey, good morning. Thanks for taking my questions. Ross, maybe just to follow-up on the discussion around retail auto yields peaking. Is that assuming that you're keeping the yes tier origination mix consistent with these 40% plus levels you've been doing recently? And you know, I know you're still mindful of the macro environment, but you know, how are you thinking about the opportunity to maybe step down a little bit into your pickup of some extra yield, you know, as you talked about in the past and and when would you maybe think about actually doing that if if if at some point? Russ Hutchinson: Yeah. Look. I I'd I'd say yes to your kinda overall question around s tier consistency in in kind of the 40% area. You know, obviously, we don't kinda micromanage that on a quarter to quarter basis, but you know, you know, overall, as we look at flat portfolio yields, I think that's kinda consistent with that level of s tier. I would point out, though, we don't have a set it and forget it approach to credit, and there's a lot going on you know, underneath the surface. And so, you know, even at s tier in that you know, 40% range, as you can imagine, we're doing a lot of work at the microsegment level you know, kind of, you know, analyzing kinda different combinations of of credit characteristics that have over or underperformed our expectations over the last over the last year or two. And so, you know, we're we're continuously tweaking our approach to underwriting, to make it better. And and and our approach to to kinda how we take risk. You know, I would say as you kinda think about that that kinda flattish portfolio yield over the next year. So the the way to kinda think about that is, you know, you know, we're we're running you know, at at about our expected 80% pricing beta on originated yield. And so as you think about, you know, our expectation of of kind of roughly two Fed cuts, over the course of of this year, and you you kinda put on that portfolio beta, and you look at where our originated yield goes versus where our portfolio yield is, I think you kinda get a good sense for why we're pointing to flattish, flattish portfolio yield over the course the year. Jeff Adelson: Okay. Great. That's that's helpful. I'd also just point out while I while I've got you. You know, we're also obviously looking at, you know, continued improvements to deposit pricing. You know, one is early beta catches up and and then two, obviously, as as we get further cuts. You know, we'll look we'll look forward to further benefits terms of deposit pricing there. And so that flattish port portfolio yield is mated to declining cost of deposits. Which is obviously an important driver of of NIM expansion. Jeff Adelson: K. Great. Thank you. And and just in terms of the capital with the slow and slow approach to start here, it was, I think, nice to see you highlight the 9% fully phased in target. I know that's the old historic target overall. Is the way to be thinking about here is, like, once you get there, you know, you can to think about being a little bit more aggressive on the cadence of buyback. And I don't believe you disclosed, but in terms of the securities repositioning, could you just quickly remind us how much capital that consumed? And, you know, I think previously, you were talking about an AOCI accretion of about $350,000,000 per year. How did that perhaps change on the latest repositioning here? Russ Hutchinson: Yeah. So let me you know, let let let me let me try and dissect that. There's yeah, there's there's there's a lot there. I mean, maybe just starting on the AOCI accretion. Yeah. We currently expect, call it, 400 to $450,000,000 per year after tax benefit, from OIC, AOC AOIC our reported accretion going forward. And so that's, you know, that's on top of our our earnings level, and it's a good guy in terms of building tangible book value going forward. You know, on the securities repositioning, you know, that was kinda towards the end of the first quarter. And beginning of second quarter of last year. I'd I'd be happy to have our IR team follow-up with you and spend some time just kinda going through what we disclosed at that time about about the securities repositioning. Yeah. That's obviously been kind of kind of baked into our numbers and and, you know, from our perspective is is is a bit in the past, but we're happy to go through and and kinda go through the dynamics of that from last year if that's helpful to you. Jeff Adelson: Sure. Thank you. Thank you. Operator: And our next question coming from the line of Ryan Nash with Goldman Sachs. Your line is now open. Ryan Nash: Hey. Good morning, Yes. Hey, Ryan. Hey, Ross. Maybe as a follow-up to Jeff's question, maybe help us think a little bit about the pacing of buyback until we reach that 9%? Obviously, understand that, know, it's an open ended authorization, and I I know you've been saying we're gonna start slow and leg into it. Maybe just sort of contextualize how do you think about the pacing of buyback over the medium term. Russ Hutchinson: Yeah. It's a, you know, it's a it's a fair question, Ryan. You know, maybe I just kinda reiterate our our capital priorities, right, which which is first and foremost, organic growth in the places we wanna grow. You know? Predominantly our our retail auto book and our corporate finance book. Those are our highest returning assets. We saw some nice growth in those books over the course of of 2025, and we've got good momentum going into 2026. And so our first priority is is gonna go to to to to growing those businesses, and we think that's the best outcome for our shareholders in terms of driving an improvement in our profitability going forward. And driving some really good IRRs for the investor. You know? And and then, obviously, you know, we've got our dividend As you mentioned, we've got our capital built to 9%. You know, we really see, you know, having this share repurchase authorization in place as something that gives us flexibility. It's another lever to do as we say to, you know, to to, to not chase growth for growth's sake. To continue to be disciplined stewards of our shareholders' capital. And that's, you know, that's important to us. And and, you know, you you pointed out the the 9% fully phased in CET one target. You know, obviously, as as we're approaching that, we will do share repurchases while we're growing capital. We are we are not gonna be, subject to the tyranny of ore. Our story is a story of and, and we think we can build capital, support the organic growth of our core businesses, maintain our our dividend, and do share repurchases. And I think as you and Jeff both pointed out, I I think it's a fair expectation that you know, obviously, as we get through that 9% build, our our share repurchase level will accelerate. And so you kinda think about it, low and slow, but doing share repurchases alongside all the other capital priorities. Kinda getting through that 9%, and then, obvious, you know, it's our expectation that know, getting through the the 9% and and with our earnings levels continuing to improve, that is obviously gonna support, higher levels of share repurchases going forward. Ryan Nash: Gotcha. May maybe just as my follow-up, Russ, On on slide 21, where you show the new core ROTC methodology change, You know, just so I'm looking at it, it doesn't seem like there's any big change here, but I'm curious does, you know, does this change impact the timing or the level of returns that you view as the destination return for for the company? Russ Hutchinson: No. And and this is an important point. This is an updated methodology. It in no way alters our mid teens return target, our timing, or our conviction in our ability to to sustain that target over time. This is a simplification In our view, it increases transparency and comparability It has the benefit of aligning how we think about returns, book value, and earnings per share And so, you know, we think this is this is helpful to our investors in a in a number of ways. Know? But, importantly, we we we remain confident in sustainability of our mid teens return targets. You know? And and and as we kinda pointed out earlier, you know, I just might point out the the the burn off of of AOCI obviously adds to our tangible book value share trajectory over time. On top of what we show in terms of reported EPS. Ryan Nash: Awesome. Thank you. Operator: Thank you. Our next question coming from the line Moshe Orenbuch with TD Cowen. Your line is now open. Moshe Orenbuch: Most of my questions have been asked and answered. But maybe Michael or Russ, could you talk a little bit about the competitive dynamic we've you know, there there have been some players that have come back into the market over the last year, some particularly hard by the end of the year. Anything that that kind of makes you do, I obviously, you noted the 10% growth in applications, but I mean, does it does it make you kind of look at anything different from different credit tiers or anything like that? It just discuss that a little bit. Thanks. Russ Hutchinson: Right. Yeah. Maybe I'll I'll jump in first. You know, I I I kinda added this in the response to Sanjay's question earlier, but I you know, I I feel really good about where the franchises are, in in particular, our dealer financial services franchise. You know, when you look at just the level of dealer engagement we're seeing, you know, there are lot lot of pressures, a lot of headwinds that we saw at the end of the year, you know, between light vehicle sales, the end of the EV lease tax credit, you know, some of the dynamics around pull forward that that probably reversed a little bit in the fourth quarter. But as you pointed out, our application volume was strong. And it supported our credit selectivity and our ability to to get what I think is a really great vintage in the fourth quarter. And and that that really comes from just the strength of the overall franchise. You know, we we are consistent supporters of our dealer partners over time and across all aspects of their business. We we have a, you know, a value proposition that's attractive and helps them in the many aspects of of running a better dealership. And and that, you know, that the strength of those relationships and that engagement directly into the application volume that really is the lifeblood of that business. And so you know, I I you know, it isn't at this this this is an attractive business. And, you know, if anything surprised us, it it's that it took until this year be before a number of our competitors realized how attractive it is. And so we expected that competition and, you know, we're pleased with how the business has responded and continued to to really excel in the face of it. Michael Rhodes: Russ and thanks for that, Russ. And, Moshe, know, great question. And yeah. Yeah. Look. Yeah. This competitive marketplace just a sign of how great the business that we have, like, if you take away, there's been a lot on this call, and I'm gonna take your question and and and kind of frame it. With respect to a lot of what's going on. The competition was more intense this year, but incredibly proud of this team. This team showed up in a big way to strengthen relationships that we have certainly in the auto business and the corporate finance business and the way we've delivered. This whole year has been about strategic pivots backed by disciplined execution. We talk about the fact that we have seen solid results This was a very good year. And, I use the word solid because, you know, as good as we've done, we know there's a path to better. You know, I think, Russ, you talked a lot about that, but we have momentum. We feel good about, how this business playing out. And just a real thanks and a shout out to this team for, for delivering a really, really strong a solid year. And and for the momentum they built going to 26. Sean Leary: Thank you, Michael. Seeing we're a little bit past time, we'll go ahead and wrap it there today. If you have any additional questions, please feel free to reach out to Investor Relations. Thank you for joining us this morning. That concludes today's call. Operator: Goodbye. This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, ladies and gentlemen. And thank you for standing by. Welcome to the Fourth Quarter 2025 Halliburton Company Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question, simply press star 11 on your telephone keypad. As a reminder, this conference call is being recorded. At this time, I would like to turn the conference over to Mr. David Coleman, Senior Vice President of Investor Relations. Sir, please begin. Hello. David Coleman: And thank you for joining the Halliburton Fourth Quarter 2025 Conference Call. We will make a recording of today's webcast available for seven days on Halliburton's website. Joining me today are Jeff Miller, chairman, president, and CEO, and Eric Carre, executive vice president and CFO. Some of today's comments may include forward-looking statements that reflect Halliburton's views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. These risks are discussed in Halliburton's Form 10-Ks for the year ended 12/31/2024, Form 10-Q for the quarter ended 09/30/2025, recent current reports on Form 8-K, and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason except as required by law. Our comments today also include non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures are included in our fourth quarter earnings release and in the quarterly results and presentation section of our website. Now I'll turn the call over to Jeff. Jeffrey Miller: Thank you, David, and good morning, everyone. I am pleased with Halliburton's fourth quarter performance and the way we closed out 2025. We outperformed our expectations with stronger than anticipated activity and solid execution in both our North America and international completion and production businesses. It is clear that Halliburton's strategy and value proposition deliver differentiated results. Here are some of the highlights from 2025. We delivered total company revenue of $22.2 billion and adjusted operating margin of 14%. International revenue was $13.1 billion, down 2% year over year. North America revenue was $9.1 billion, a decrease of 6% year over year. During the year, we generated $2.9 billion of cash flow from operations, $1.9 billion of free cash flow, and repurchased $1 billion of our common stock. Finally, we returned 85% of our free cash flow to shareholders, reducing our share count to its lowest levels in ten years. These results reflect hard work and dedication by the men and women of Halliburton all around the world. I want to thank each Halliburton employee for your dedication to safety and our value proposition, maximizing value for our customers and delivering returns for our shareholders. Now let's turn to our macro outlook for 2026. We believe 2026 will be a year of rebalancing. The return of OPEC spare capacity and higher non-OPEC production have created a market with abundant supply. We expect supply increases to moderate this year as demand continues to rise. Near term, absent geopolitical disruptions, we expect commodity prices are unlikely to rise. We anticipate moderate softness in some key markets, particularly North America. We expect international activity to be stable year over year. Medium term, we believe supply and demand will rebalance, expect the combination of steeper decline rates, diminishing reservoir quality, and limited exploration success to create favorable tailwinds for oilfield services. I expect the next cycle to begin where it always has, in North America, followed by a global push to meet the growing demand. Let me close our macro outlook with this. I am confident in the future of oilfield services and excited about Halliburton's opportunities now and in the years ahead. Let's turn to our international business. Halliburton delivered another solid quarter under the strength of our global franchise and the resilience of our strategy. For the full year, international revenue was $13.1 billion, a decrease of 2% year over year, outperforming a 7% decline in rig count. While we experienced notable declines during the year in Saudi Arabia and Mexico, the remainder of our international business demonstrated strong growth of about 7%. Looking ahead to 2026, we expect total international revenue to be flat to up modestly. I am confident in the outlook for our international business. First, our collaborative value proposition is winning. What began as alliances with independents has expanded to include IOCs and NOCs across all of our regions. Today, this collaborative approach consistently drives outperformance for Halliburton and our customers. Deep collaboration is in our DNA and we believe it is the future of oilfield services. I am confident Halliburton is uniquely positioned to lead and thrive through this collaborative strategy. Second, our drilling information evaluation technology is now a differentiator for Halliburton in all markets. The depth of our drilling portfolio allows us to compete and win in the most technically demanding integrated projects worldwide. Finally, I believe the market's structure is evolving in a way that differentially favors Halliburton. We see consistent international growth in unconventional development drilling, and intervention, all of which are directly aligned with Halliburton's strengths. Let's take a closer look at our international growth engines. Unconventionals, drilling, production services, and artificial lift. Where we have a clear line of sight to outperform the overall market. We continue to make great progress. In unconventionals, Halliburton uniquely brings North America technology to the international market. Today, we operate in seven countries, and see growing adoption of simulfrac and continuous pumping operations along with our auto frac and sensory technology. In drilling, we completed the first fully autonomous geosteering run for a customer in The Caribbean. Where we maximized reservoir contact and delivered outstanding performance for the customer. Finally, artificial lift delivered record international quarterly revenue and is now active in 15 countries. Turning to our international power business. Our strategic collaboration with Voltigrid continues to gain momentum. I am pleased with our progress so far. Customers recognize that Halliburton's global footprint and for execution are a strong complement to VoltaGrid's distributed power platform. The opportunity pipeline is expanding rapidly across the Eastern Hemisphere with several projects already in engineering review. During the quarter, Halliburton and VoltaGrid secured manufacturing capacity for 400 megawatts of modular power systems. I am convinced more than ever that these opportunities will manifest and provide a significant avenue for future growth. To summarize, Halliburton's international business is strong, Our collaborative value proposition is winning, Our technology is delivering, and our growth engines are aligned with the evolution of the market. I am confident that Halliburton will outperform in 2026. Before we leave international, here are a few of my views on Venezuela. I've always believed that oil and gas is the key to Venezuela's economic recovery. I'm excited about the tremendous opportunity for Halliburton in Venezuela. Halliburton entered Venezuela in 1938 and only exited in 2019 because we are an American company in compliance with US sanctions. Halliburton knows this market well. And we will grow our business there as soon as commercial and legal terms are resolved, including payment certainty. The early steps are already well underway. Now moving on to North America. Halliburton delivered a strong fourth quarter supported by less than anticipated white space and solid execution. For the full year, revenue was $9.1 billion, down 6% year over year. As we look towards 2026, we expect North America revenue to decline high single digits compared to 2025. This outlook reflects the full year impact of reduced customer activity in land operations, our decision to stack uneconomic fleets, and the timing of customer programs in the Gulf Of America. Here are three observations on North America that shape our view and strategy. First, attrition is accelerating at a time when new capital investment is falling. Equipment is working harder than it ever has, due to widespread adoption of continuous pumping and simul frac. This is why I believe a small increase in demand will tighten the market quickly. Second, the largest opportunity for the industry is to increase recovery and I believe that this is only possible with technology adoption. This is why I am so excited about Zeus IQ. Third, the commodity outlook improves, we believe North America will be the first to recover. We have seen this countless times in the past, and the same drivers are in place today. Our strategy in North America is to maximize value. This means that we prioritize returns over market share and we develop technology that addresses customers' most critical opportunities. Improving recovery and drilling longer, faster, more precise wells. Let's look at how we do that. First, with respect to return, as we have done in the past, we will continue to stack equipment that is uneconomic. Prudent stacking of equipment preserves it for the recovery in North America and becomes an avenue to feed our growing international unconventionals business. With respect to technology, our differentiated Zoosk platform is driving value through automation and subsurface measurement. Only Halliburton's ZEUS platform directly measures and automates the control of sand placement which I believe are critical building blocks for improving recovery. This quarter, customer adoption of Zoos IQ, sensory, and auto frac increased by 8%. Which tells me it is working. We are also differentiated with our iCruise rotary steerable and Logix automation. Which deliver precision and reliability in long laterals. No trend in unconventionals is more clear than the growth of lateral lengths along with complex geometries such as horseshoe wells. We see this trend in every major basin. The impact of iCruise has been dramatic on our North America drilling services business. Which grew meaningfully this year despite a 6% decline in rig count. The high performance of iCruise and Logix and the secular trend towards rotary steerable drilling in North America give me great confidence in the continued success of our drilling services business. To summarize North America, our priority is clear. We will maximize value, We have consistently executed this strategy and delivered differentiated results. I am confident this strategy will deliver value for our customers Halliburton, and our shareholders. Before I turn the call over to Eric, let me close with this. I've never been more excited about the future of Halliburton, and here's why. Oil and gas have a critical and recognized role to play in the energy mix of the future. The shift from idealism to pragmatism is refreshing, and consistent with the reality that there will be growing demand for oilfield services for decades to come. Our value proposition is clear. We collaborate and engineer solutions to maximize asset value for our customers. The proven outperformance of our strategy and the ongoing shift towards collaborative work means Halliburton is squarely where the market is headed. And finally, our differentiated technology delivers exceptional value for our customers and for Halliburton. I am confident Halliburton will deliver leading returns and capitalize on future growth opportunities. Finally, I'm also pleased to announce an important leadership update. Shannon Slocum has been promoted to chief operating officer effective January 1. Shannon's COO role will be important to our success as we our strategy and I look forward to him joining us on future earnings calls. With that, I'll turn the call over to Eric to provide more details on our financial results. Eric Carre: Thank you, Jeff, and good morning. Our Q4 reported net income per diluted share was 70¢. Adjusted net income per diluted share was 69¢. Total company revenue for Q4 2025 was $5.7 billion, flat when compared to Q3 2025. Adjusted operating income was $829 million and adjusted operating margin was 15%. Our Q4 cash flow from operations was $1.2 billion and free cash flow was $875 million. During Q4, we repurchased $250 million of our common stock. For the full year, we repurchased approximately 42 million shares at an average price of $23.8 per share. Now turning to the segment results. Beginning with our Completion and Production division, revenue in Q4 was $3.3 billion, flat when compared to Q3 2025. Operating income was $570 million, an increase of 11% compared to Q3 2025, and operating income margin was 17%. Revenue improvements were primarily driven by higher year-end completion tool sales globally, and offset by lower stimulation activity in the Western Hemisphere. Operating income increased due to activity mix improvements from completion tool sales. In our Drilling and Evaluation division, revenue in Q4 was $2.4 billion, flat when compared to Q3 2025. Operating income was $367 million, an increase of 5% sequentially and operating income margin was 15%. Revenue improvements driven by higher wireline activity in the Eastern Hemisphere and increased year-end software sales were offset by lower fluid services in North America. Operating income increased due to better activity mix from our wireline business in the Eastern Hemisphere, and the year-end software sales. Now let's move on to geographic results. Our Q4 international revenue increased 7% when compared to Q3 2025. Europe Africa revenue in Q4 was $928 million, an increase of 12% sequentially. This increase was primarily driven by higher completion tool sales in the North Sea and improved activity across multiple product service lines in Africa. Middle East Asia revenue in Q4 was $1.5 billion, an increase of 3% sequentially. This improvement was primarily driven by increased well intervention services and higher stimulation activity in the Middle East, and improved activity across multiple product service lines in Asia. Latin America revenue in Q4 was $1.1 billion, a 7% increase sequentially. This increase was primarily driven by higher completion tool sales in Brazil and The Caribbean, and higher software sales in Mexico. In North America, Q4 revenue was $2.2 billion, a 7% decrease sequentially. This decline was primarily driven by lower stimulation activity in US land and Canada, decreased fluid services in the Gulf Of America, and lower well intervention services in US land. Moving on to other items. In Q4, our corporate and other expense was $66 million. We expect our Q1 corporate expenses to increase about $5 million. In Q4, we spent $42 million on SAP Sfour migration, which is included in our results. For Q1, we expect SAP expenses to be about $45 million. Net interest expense for the quarter was $86 million. For Q1, we expect net interest expense to increase about $5 million. Other, net expense in Q4 was $25 million. We expect Q1 expense to be about $35 million. Our normalized effective tax rate for Q4 was 19.8%. Based on our anticipated geographic earnings mix, we expect our Q1 and full year 2026 effective tax rate to be approximately 21%. Capital expenditures for Q4 were $337 million, which is $100 million lower than expected due to late equipment deliveries. For the full year 2026, we expect capital expenditures to be about $1.1 billion, consistent with our prior guidance adjusted for the timing impact of late deliveries. This guidance excludes any capital spending necessary for a potential reentry into Venezuela. Now let me provide you with comments on our expectation for Q1 2026. In our Completion and Production division, in Q1, we anticipate a higher than normal roll-off of year-end completion tool sales and lower international activity. As a result, we anticipate sequential revenue to decrease 7% to 9% and margins to decline about 300 basis points. In our Drilling and Evaluation division, we expect sequential revenue to decline 2% to 4% and margins to decline 25 to 75 basis points. I will now turn the call back to Jeff. Jeffrey Miller: Thanks, Eric. Let me summarize the key takeaways from today's discussion. Halliburton delivered solid Q4 results and closed 2025 with strong execution. Despite the market environment. Oil and gas have a critical role to play in the energy mix of the future. I expect 2026 to be a rebalancing year which I am confident is followed by a period of sustained strong growth. Halliburton's international business is strong, Our collaborative value proposition is winning, our technology is delivering, and our growth engines are aligned with the evolution of the market. In North America, we will maximize value, meaning we will stack fleets that do not make adequate return and focus our investments on differentiated technologies that solve for our customers' greatest opportunities. I expect that as macro fundamentals improve, North America will be the first to respond. I am confident in the outlook for our business. And Halliburton's ability to deliver leading returns and capitalize on future growth opportunities. And now let's open it up for questions. Operator: Ladies and gentlemen, if you have a question or comment at this time, please press 11 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press the pound key. Again, if you have a question or comment at this time, please press 11 on your telephone keypad. Our first question or comment comes from the line of Saurabh Pant from Bank of America. Mr. Pant, your line is open. Saurabh Pant: Good morning, Jeff and Eric. Jeffrey Miller: Good morning. Saurabh Pant: Hey, Jeff, maybe I want to start with the topic which everybody has been bombarding us for the past two weeks, which is Venezuela, if you do not mind. I noted that you said that you said in your prepared remarks, right, that I know it's early days. Right? But you talked about early steps are well underway. Right? So my question is, maybe just help us think about how quickly can Halliburton, your customers, move into the country. What do you need to see to start doing that? And then secondly, ultimately, I know this is not certain. Right? But what is the potential size of the opportunity and how quickly can you scale up in Venezuela? Jeffrey Miller: Yeah. Thanks, Saurabh. Look, I think we could scale up fairly quickly. Yeah. We're working through the mechanics around license and things that we're certain will get in place. But as far as returning to the country, we move equipment around all over the world. So we can move equipment quite quickly. We still have a footprint there in Venezuela in terms of bases and whatnot. And so, you know, getting equipment there to work is fairly straightforward. There are operators in Venezuela today, and so I think there are opportunities for us sooner rather than later to get back to work. And so we're assessing what we would do and where we would start. My phone is ringing off the hook in terms of interest in Halliburton being there. And so confident that we could move fairly quickly in Venezuela. And excited about that. You know, as far as the size of the market, you know, small market today relative to what it was a decade ago. A decade ago, it was probably a half $1 billion business for us. Pretty consistently. Now, you know, as time dragged on, that market started to shrink and it got smaller. But I, you know, quite optimistic about longer term being a much bigger business. And I think in the near term, getting back to work and contributing to our business at Halliburton. Saurabh Pant: Right. No. That's a good update, Jeff. I think we need to keep we need to stay in tune on what's going on, but that sounds like a good opportunity. Just a very different pivot going back to 2026. Jeff. I know you gave some color on your expectations. For activity for revenue, which frankly, is in line to a little better than, I think, several people were thinking. So that's a good place to start. But on the margin side of things, Jeff, as we think about the pluses and minuses, pricing is part of it and not just NAAM, but international pricing, operating leverage, cost is part of it. And then, Eric, maybe a little color on SAP spending trajectory. If we put all of that together, what does the margin side of the story look like 26? Any preliminary thoughts on that? Jeffrey Miller: Well, look, I think the second half looks stronger than the first half, most certainly. You know, when we look around the world, it's pretty steady around the world with the, you know, obviously, larger tenders are gonna be more competitive. And we see some of those. But, you know, by and large, it's a stable market internationally. And so, you know, I see, you know, again, progress as we get certainly into the second half of the year around March. Saurabh Pant: Yes, sir. I've been is it relate Eric Carre: Go ahead, go ahead. Saurabh Pant: No. I was gonna jump to your SAP question, but if you have a follow-up for Jeff, go ahead. Saurabh Pant: No. SAP. Let's cover SAP first, Eric. Eric Carre: Okay. Yes. So SAP, we guided $45 million for Q1, and that's pretty much the run rate that you should be thinking about throughout 2026. So $40 million to $45 million. We anticipate the project to complete in Q4 of this year. Which is a little later than we had earlier guided. We've adjusted the plan slightly as we learn, you know, progressing through the rollout of the system. We've also brought on the scope of the project to include some of the adjacent processes such as outsourcing our payroll and redesigning our overall OTC process. So in summary, about $45 million, $40 to $45 million a quarter until the end of the year, and project completed in Q4. With expected savings of about $100 million a year, after the project is completed. Jeffrey Miller: Right. Sorry. I might go back to your first question a little bit here as well. So when if you if I look at all of 2026, as I said, I think the second half is better than the first half. But, you know, again, North America is taking a conservative posture. I think we've got some bright spots internationally. But I think the more important point is what's happening in terms of the rebalancing of the market. And that's really this pragmatic view of the world as opposed to idealistic. Barrels are being absorbed. Decline rates are higher now than they were in terms of because unconventionals are a larger part of the supply stack. And quite frankly, exploration success has been anemic. And while all that happening, demand is growing. So I think we're setting up for, you know, rebalancing year in '26 of supply and demand to be followed by very sustained strength. Saurabh Pant: Right. No. That makes a ton of sense. Jeff. Like you said, rebalancing here, and really the focus should be on 27-28, Right? And, hopefully, things go in the right direction. So thank you, Jeff, Eric. Thanks a lot. Jeffrey Miller: Thank you. Thank you. Operator: Thank you. Our next question or comment comes from the line of Neil Mehta from Goldman Sachs. Mr. Mehta, your line is now open. Neil Mehta: Hey, Jeff, and good morning, team. Quick question here first on the international breakout. You said up slightly, 26% versus 25%. Can you just go give us a tour around the world, Jeff, and give us perspective by market. Where do you see increments and decrements? Jeffrey Miller: Yeah. Look. And our outlook at this point is flattish to maybe up a little modestly. Look. I think Latin America leads the way. In terms of growth. Brazil, deepwater is powering ahead. Our Argentina, we see quite a bit of growth, and that's, you know, obviously right in our wheelhouse. Ecuador, Guyana, obviously. Guyana has been a strong business for us, and we'll continue to be. And so overall, Latin America, very much bright spot. You know, Middle East, think it's flattish, flattish, maybe even down slightly. And I say that just because I'm well aware of the activity growth in Saudi Arabia, but taking a bit more conservative view of the timing and pacing of that coming back. It likely will, but it's less clear to me sort of how impactful and how early that would be. But overall, the rest of The Middle East is very, very, very, you know, solid business. Pleased with that business. And then Asia Pacific, really looks fairly flattish to us. You know, a lot of gas demand in Asia. So positive things happening, but overall, flattish for '26 anyway. Neil Mehta: Yeah. That's a helpful break. And then, Jeff, maybe just take a moment to talk about VoltaGrid. I think we've gotten more comfortable as an investment community around that business and the potential, and you've announced an important joint venture in Melisa. From where you sit, how important is this business for you guys? How big can it be? Do you see yourself as a logical consolidator over time? Do you like minority today? Just your perspective. Anything you're willing to share about it. Jeffrey Miller: Yeah. Well, look. Well, what I'd say, I'm really excited about where we are and the outlook for that business and the international piece of that business. I won't comment on The U. I think that's well understood in the pace of growth there. Our role and ownership in VoltaGrid. As we look around the world, a lot of interest from customers around the combination of VoltaGrid technology and Halliburton's proven execution and footprint and capability. And so, you know, solid pipeline, like the volume. And so I think that this could be a very big business over time. I mean, it's, you know, like all businesses, we're starting. We're fairly very familiar with the business. It's gonna grow at the pace that it will, but we've already, you know, committed to 400 megawatts. So I think 400 megawatts is a good start. As we place those. And what we've seen historically is that we place a few 100 megawatts, and then that tends to grow over time. As data centers expand. And there's just no question that there's not enough electricity power generation in the world today in The US or anywhere else. So very confident in this, and I think it could be a very big business. Over time. Neil Mehta: Yep. Thanks, Jeff. Operator: The next question or comment comes from the line of David Anderson from Barclays. Mr. Anderson, your line is now open. David Anderson: Great. Thank you very much. Good morning, Jeff. How are you? Jeffrey Miller: Morning, Dave. David Anderson: You've talked about rebalancing of the market. Was wondering if you could talk more about North American stimulation market and how that's rebalancing. You talked about the attrition going on, but I'm not I'm wondering how pricing is holding up here and whether or not you see this firming up throughout the year. Because you're also seeing equipment moving out to Middle East I know you talked about you bringing some equipment down to Vaca Muerta. So how is that component kind of factoring into pricing? Do you expect pricing to kind of hold up here? And is this sort of a part of the rebalancing story? Jeffrey Miller: Yeah. Look. I think, Brett, pricing is fairly stable at this point. We didn't we Q4 is fairly stable. And as we go into Q1, we are Frac business stays very stable as well going into Q1. Now from a pricing standpoint, broadly, I think that, you know, given where pricing is and and and performance of companies in that market, we're fortunate that we outperform them by the market by quite a bit. But, you know, pricing reaches a point where it's, you know, it's not the companies aren't investing in it. We are moving equipment away from it. And so I think it's certainly stable at that level. And, yeah, I think there's incentives to move equipment outside The US, which we're doing in some cases. And so I think we're at a bottom, and I would expect that that improves over time. But I'm not gonna give you a date when it improves. But I think the bias is towards there's not investment in the market in terms of more equipment, and equipment is wearing out, which we know. And equipment, in some cases, is moving outside The US. And some equipment in ours, in some cases, is being stacked. So I think all of those are positive, and rational behavior in a market where, you know, we require returns. David Anderson: That makes a lot of sense. Of course, you do. On that side. I was wondering if you could talk Eric, maybe you could talk a little bit more about the C and P margin progression throughout the year. The guide for first quarter is more or less aligned with what we were looking for. But how should we think about kind of where the rest of the year shakes out in the margin side? And perhaps you could also just talk a little bit how MultiChem, the sale of MultiChem impacts that and maybe the decision to sell MultiChem. And does that provide an uplift for margins throughout the year? Eric Carre: So let me start with the MultiChem. So we think the sales should be completed this quarter. The impact on the margin will be positive, but frankly, it will not be material overall. Talking about the progression of CMP margin, we think the margin progress throughout the year. But let me give you some color as well to the guide of margins from Q4 to Q1. Because while it is not, you know, out of line with the differential in margin that we've seen in prior year, the actual makeup is a bit different. So if you look at the Q1, so we guided about 300 basis points down for C and P margin. So that is actually coming from three buckets. The first bucket, which is over half of the drop, is related to the roll-off of completion tool sales. That part is not unusual. What is a bit unusual is the amount of completion tool sales we had in Q4. If you look at the progression Q3 to Q4, our completion tool, revenue increase was three times what we saw in the prior two years. So that talks a lot to the strength of our completion business, but that's about over half of the drop. Then you get about 25% of the drop that's related to the typical seasonality in the international business for C and P. As our CNP business is increasingly has an increasingly large footprint in the international markets. And that's about 3% to 6% reduction in revenue. So that's kinda typical with historical decreases, and the rest is really a products geographic mix issue, which is really not structural, you know, as it relates to CMP. And then there is a bit of a kind of an optical view on Q4 to Q1, which is we typically have a lot of tailwind with the US frac business, which goes through seasonal factor I mean, seasonality in Q4. And benefits from an uplift going into Q1. We don't have any of that this year as our Q1 frac business in The US looks to be just straight flat to Q4. So again, a little bit of color as the makeup of the Delta is a bit different from prior years. David Anderson: Understood. Thank you very much. Eric Carre: Thank you. Operator: Our next question or comment comes from the line of Arun Jayaram from JPMorgan. Mr. Jayaram, your line is now open. Arun Jayaram: Yes. Good morning. Jeff and Eric. Appreciate the outlook for us on 2026. Wondering if we could maybe think about what your outlook comments around international and North America could mean for overall margins. You gave us some good color on where you expect revenues to kind of shake out. But just trying to narrow thoughts around, you know, the streets today sitting at just under $4 billion of EBITDA 'twenty six? And just trying to want to get just general comfort level of where the Street sits today based on your outlook comments. Eric Carre: Yeah. Go ahead, Eric. No. If you look at, just kinda margins overall as Jeff progresses, we think H2 is better than H1. So you're going to see some slight progression through the year. And, you know, why we typically don't comment on, you know, street estimates or provide guidance at this stage on margins, the $4 billion that you quoted is really within the range of outcomes that we are looking at. Arun Jayaram: Great. That's helpful, Eric. And just my follow-up, Jeff, in your prepared comments, you talked about Zoos IQ and some of the things that Halliburton's doing to help North American operators boost well productivity. I also wanted to talk to you a little bit about some of the updates we've gotten from the majors where they're talking about using lightweight proppant and surfactants. And I was wondering if you could discuss some of these efforts and maybe how you're helping clients maybe to use some of these emerging technologies? And could these be needle movers for Halliburton? Jeffrey Miller: Look. My comments are around our technology. And the technology that we produce, and very pleased with what we're doing. You know, And I think that the ability to place proppant and do things with proppant effectively is one of the really unique features of Zoos IQ. And I think that's, you know, under all conditions, a very valuable solution. And as I said, a building block to how recovery is improved because, quite frankly, where the sand goes has been an unknown in this business since it started in 1947. And, really, just in the last year, or two have we been able to directly measure sand placement and also control, and this is where sand goes. And this is primarily because of the Zeus setup and its ability to, you know, handle the pressure and the things in order to respond to the resume. Arun Jayaram: Great. Thanks. Operator: Our next question or comment comes from the line of James West from Melius Research. Mr. West, your line is open. James West: Thanks. Good morning, Jeff and Eric. Jeffrey Miller: Morning, James. Eric Carre: Hey, James. James West: So, Jeff, clearly, international outlook, second half better than first half, we get that. But as well, a little bit of a wild card, but curious where you think there could be pockets of, you know, strength that emerge knowing that, you know, neither you or I, as long as we were doing this, have a, you know, a crystal ball and the cycle is always gonna play out a little bit differently. But we've got a lot of things in the works here that could influence the oil price. And so could cause some markets to either inflect higher or lower, where do you think the maybe the surprises could come from if you think about a higher oil price environment in the second half and leading into, of course, as you described it, a solid upturn in 'twenty seven, 'twenty eight? Jeffrey Miller: Well, look. I think, Argentina is one that's gonna respond. It's already responding. But I think when I think about that market, the pace of interest in, you know, international investors in that market is high. I mean, that's become a very solid market that's gonna become more and more responsive to commodity price in a positive way. You know, kudos to the operators in that market today who have, you know, taken on the challenge of building infrastructure and back evacuating the hydrocarbons from the market. I mean, these are all of the things that a very dynamic market can do and will do and that's what we're seeing being done in Argentina. I think The Caribbean is another place where really excited about, you know, possibilities and what could happen sort of throughout The Caribbean. You know, as we look at next year, I think that, you know, West Africa is another where we're seeing sort of renewed interest in and better terms for operators and better terms for us where we're able to execute, you know, sort of all of our services in these markets. So I'm pleased with that. I think that's a bright spot. And then ultimately, Algeria I think, over time, you know, in '26 could become a brighter spot than we would expect. So I'm thinking about upside surprise. I think those are some of the places where we could see those. James West: Okay. That's very helpful, Jeff. And then just a follow-up for me. On the power markets broadly. You know, VoltaGrid is obviously you with your investment there and taking them into The Middle East and leveraging your platform is critical here. How are you thinking about other potential investments in power? Is VoltaGrid kind of your main objective here or you talking with others? I mean, how do you think about this, the build-out of, you know, the electrification theme and the data center theme and the power theme? As it relates to Halliburton. Jeffrey Miller: Well, thanks. It's one of the things that we take a step at a time is the bottom line. I mean, we're certainly aligned with VoltaGrid in The US. We're knowledgeable and have built out a team around power that's looking at our international business. Both in The Middle East and beyond The Middle East, most certainly. And so, you know, I think what we'll do, like we do in all things around here, is we take them a step at a time. We build businesses. We don't get ahead of our skis. And, you know, we look for the things that we think will be contributing to that. And so, you know, the outlook is really good in this area. We know a lot about it. And would expect that we continue to grow that business as we, you know, get deals done. James West: Got it. Thanks, Jeff. Operator: Our next question or comment comes from the line of Stephen Gengaro from Stifel. Mr. Gengaro, your line is open. Stephen Gengaro: Thank you. Good morning, everybody. Jeffrey Miller: Good morning. Eric Carre: Good morning, Stephen. Stephen Gengaro: So curious, Jeff, do you what do you think about, like, the fourth quarter was stronger than we had thought and there was less downtime '4. You know, more solid than we expected. I think, you know, the operators that we work for, they busy. I mean, we've got a solid group of customers that take a long view of unconventionals and technology for that matter. And so for that reason, you know, stayed busier certainly for us. And I think that, you know, that's probably how this market may look more this way over time, although I expect there probably will be, you know, solid inflection if commodity price gives us some help. Stephen Gengaro: Thank you. And then the follow-up is just around sort of your expectations for sort of completion of efficiency and sort of the impact on US production, just as we're thinking about, you know, kind of frac demand relative to some of the other high-tech services you provide and how that kinda impacts US production. And if you think we have enough activity right now to sustain production. Jeffrey Miller: Yeah. You know, outlook is we're probably at maintenance sort of levels today, if not below those. Is my view. Know? And I think that, you know, technology driving better recovery is really the key as we look ahead. I mean, the go faster, we are going faster, but we're pumping continuous pumping at rates that, you know, you really just can't pump any faster. And so I think the real hurdle is going to be how to better produce a fantastic resource. And I know that technology is at the core of that same as it has been everywhere. And so look, I think our frac fleets get bigger than they were in the past. You know? And so I think it takes more horsepower to do more work. It takes more technology to keep the both working, continuous pumping. Requires technology as does certainly the ability to place sand. That said, our drilling services business is continuing to strengthen into what has been a, you know, a slowing market, at least from a rig count standpoint. And I think that's a reflection again of technology. You know, what we do with Logix, which is our automation platform for drilling, what the tools themselves are able to do. We see somewhat I mean, that the uptake on that's been fantastic, and I think that's all driven by, you know, the real drilling, requirements to, you know, drill longer wells, longer wells, more complex wells. And so look. I'm just pleased with the growth of technology for both of our divisions today. Stephen Gengaro: Great. Thanks for all the color. Jeffrey Miller: Yep. Thank you. Operator: Thank you. Our next question or comment comes from the line of Scott Gruber from Citigroup. Mr. Gruber, your line is now open. Scott Gruber: Yes. Good morning, Jeff and Eric. Jeffrey Miller: Morning. Eric Carre: Morning. Scott Gruber: I wanna come back to Power as the growth prospect. Are certainly exciting and exciting to hear that they're bubbling to the surface internationally. How do the prospective returns on these power projects compare to your organic investments? You know, you also have pockets of growth, obviously, within your core, and maybe that expands with Venezuela. So just curious how the power project returns kind of compare. Are they higher, lower, broadly in line? And more importantly, kinda how does that shape, you know, the vigor with which you could deploy capital into the power opportunities? Eric Carre: Yeah. Yeah. It's Eric here. So I think it will depend on the opportunities, the country, what type of other potential power sources we would be competing with. So it's really early to tell you that it's, you know, accretive, dilutive to our current return. It will depend. But overall, these are typically very long-term contracts, you know, where you enter in it with a fairly low-risk long-term, very good view of what you have to deliver. And if we look at the comparison of what's been happening in North America, then you could say the returns are probably higher than what we have today. Scott Gruber: I got it. Thank you, Eric. And then, Eric, maybe if you could walk through some of the items that will impact cash conversion this year. You know, thinking about working capital, do you anticipate continued catch-up payments? You know, from your customer in Mexico? Anything to note on cash taxes and, you know, any comment on SAP spending, you know, for the full course of the year? Would be appreciated. Eric Carre: Yeah. I mean, look. There is a lot of moving parts in what you're describing. It's a bit early to comment on working capital impact, collections, etcetera. I mean collections have been great throughout the year. It was a bit challenging as we talked on several calls. Collecting from Mexico. The situation seemed to be going a lot better. So look, we'll give more details and we'll update our thoughts overall on all the kinda ins and outs, that that touches, you know, the projection around free cash flow. Scott Gruber: Okay. Thank you. Operator: Our next question or comment comes from the line of Derek Podhaizer from Piper Sandler. Mr. Podhaizer, your line is now open. Derek Podhaizer: Hey. Good morning. I just wanted to go back to the attrition discussion in US land. Obviously, a lot of moving pieces here between equipment high grading, idling, stacking legacy diesel fleets, redeploying some of those fleets international. Unconventional markets. But just when you look at your fleet, maybe Kansas, the market, is everything deployed that could be, or are there a few fleets that could be thrown together? Just trying to think through the tangible attrition in your comment around the small increase in demand could tighten this market quickly. What does that look like for you? And the market, and what could it mean for C and T specifically this year? Jeffrey Miller: Well, we have consciously stacked fleets. We stacked fleets in Q3. And we stacked some more fleets in Q4, all of which could go back to work for returns that are acceptable to us, and some of those may go. But, you know, from our standpoint, our fleet's in really good shape. And, there are things that could go to work that aren't working. And they will go to work when we see, you know, the appropriate level of pricing for those. But when I look at the whole market in terms of attrition, I'll just use, you know, an observation, in terms of fleet size. You know, we've got let's say, 65,000 horsepower out for a simul frac, we see a number of fleets in the market running 120,000 horsepower to do similar work that tells me that, you know, equipment is being repaired and put together and an effort to keep it working, which tells me that expanding or taking those apart, would be really a challenge. And so the market is moving more towards bigger fracs that require more equipment, and I think the ability to add fleets is just really not there. And so it doesn't take much in my view to create tightness just because the performance requirements are high. The technology requirements are increasing, and all of those things create quite a bit of tightness. Derek Podhaizer: Got it. That's helpful. Moving over to The Middle East, I know in your comments, you talked about a flattish outlook, even slightly down. Can you just maybe walk through some of the regions for us and what you're seeing specifically Saudi, UAE, Kuwait, Oman, Iraq, anything else you'd like to highlight? Jeffrey Miller: Look. I see fairly stable in most of those markets. You know, there's always shifting from completion to drilling and drilling to completion in some. I'd say, you know, UAE is strong. Kuwait is very strong for us. I think Iraq is a good story in terms of activity that we see coming up. And so look, I think as I look across the entirety of The Middle East, fairly stable. See, again, rigs being added in Saudi Arabia, very positive. But taking a bit of a more cautious view around the timing of that. Derek Podhaizer: Got it. Great. Thanks, Jeff. I'll turn it back. Eric Carre: Thank you. Operator: Our next question or comment comes from the line of Marc Bianchi from TD Cowen. Mr. Bianchi, your line is now open. Marc Bianchi: Hey. Thank you. Jeff, I was hoping you could comment on the offshore market outlook in a little bit more detail. I think everybody is sort of anticipating some sort of uptick in the '6. But there have been prior calls for upticks that didn't materialize. So just kind of curious what your view is on that. Jeffrey Miller: Look, I'll leave a lot of that to the rig contract in terms of rig placements, etcetera, but we've won a lot of offshore work. It's very strong for us. Continues to be a significant part of our international business. And I'd say the bias towards integration and our value proposition in offshore is important, and it's one of the reasons that we're winning work in offshore. It's really strong in Norway, Latin America, West Africa. All of those will be busy for us. And I think the other indicator is our completion tool order book is at an all-time high, which, you know, tends to be, again, biased towards deepwater and offshore work. So, you know, from our perspective, that's a strong business for us, and expect it, where we are for it to stay strong in 2026. Marc Bianchi: Okay. Great. Thanks. And then the other question I have was on Venezuela. Going back to that. So you had mentioned that you're looking to grow the business as soon as commercial and legal terms are resolved. And including payment certainty. Can you maybe level set for us what that timeline might look like? And is this going to be led by the IOCs and then Halliburton will follow? Or do you anticipate Halliburton moving in either coincident or perhaps before some of these IOCs make up their mind? Jeffrey Miller: Well, I think there's, you know, paths to both of those. And, you know, as we work through what payment certainty looks like and how we solve for that, obviously, IOCs are an important part of that, but we also there are companies operating there today that we can work for under the right conditions and circumstances. And so, you know, from a timing perspective, as we solve those, which I don't think there's a lot of will to solve for these things. And so, you know, this is, you know, we can mobilize in weeks. I think it's in months. That we, you know? But, again, we work through those things, but I feel confident we can move fairly quickly as opportunities arise. And, again, talking with lots of customers, some operating, some wanting to operate, and, you know, and this will all be a continuum of getting back to work in Venezuela. Marc Bianchi: Okay. Very good. I'll turn it back. Thank you. Operator: I'm afraid that's all the time we have for questions. At this time. I would like to turn the conference back over to Mr. Miller for any closing remarks. Jeffrey Miller: Yes. Thank you, Howard. Before we wrap up today's call, let me close with this. I'm excited about Halliburton's opportunities now and in the years ahead. Our differentiated technology delivers exceptional value for our customers and for Halliburton, and the ongoing shift towards collaborative work means Halliburton is squarely where the market is headed. Look forward to speaking with you again next quarter. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.
Operator: Please standby, your conference will begin momentarily. Thank you for your patience. Your conference will begin momentarily. Welcome, and thank you for standing by. All participants will be on a listen-only mode until the question and answer session of today's call. Today's conference is being recorded. I would now like to turn the conference over to Kristin Silberberg. Thank you. You may begin. Kristin Silberberg: Thanks, Julie. Good morning, everyone, and thank you for joining us. First this morning, our Chairman and CEO, Bruce Van Saun, and CFO, Annoy Banerjee, will provide an overview of our fourth quarter and full-year results. Brendan Coughlin, our President, and Don McCree, our Chair of Commercial Banking, are also here to provide additional color. We will be referencing our fourth quarter and full-year presentation located on our Investor Relations website. After the presentation, we will be happy to take questions. Our comments today will include forward-looking statements which are subject to risks and uncertainties that may cause our results to differ materially from expectations. These are outlined for your review in the presentation. We also reference non-GAAP financial measures, so it's important to review our GAAP results in the presentation and the reconciliations in the appendix. And with that, I will hand it over to Bruce. Thanks, Kristin, and good morning, everyone. Thanks for joining our call today. Bruce Van Saun: We were pleased to finish the year with another strong quarter. Our financial results were paced by net interest margin expansion of seven basis points, strong wealth and capital markets fees, positive operating leverage of 1.3% sequential and 5.2% year on year, favorable credit trends, and a robust balance sheet across capital, liquidity, and funding. We are executing well on our strategic initiatives. Our private bank finished the year with $4.145 billion in deposits, $10 billion in client assets, and $7.2 billion in loans. The business was 7% accretive to pretax income in 2025, ahead of our 5% target. Importantly, we managed this business to a 25% ROE for the year. We continue to grow nicely in New York City Metro, and our corporate banking expansion into new geographies, verticals, and sponsors is delivering good results. We made significant progress in running down non-core assets from $6.9 billion at the beginning of the year to $2.5 billion at the end, which included a sale of a student loan portfolio. Our top 10 program hit the mark with $100 million plus run rate benefits in Q4. For the quarter, our EPS was up 8% sequentially and 36% year over year. NII is up 9% year on year as net interest margin is up 20 basis points and spot loans grew 3%. Fees are up 8% year on year, paced by capital markets and wealth. Provision is down $25 million year on year as losses reduce on CRE office, and credit in general looks good. We retired 3% of our shares in 2025 and delivered an 80% return of capital to shareholders. For the full year, our EPS of $3.86 was up 19% relative to 2024. We hit most of our line items in the beginning of year guide, which is included on Slide 31. Our expenses were up 4.6% versus the guide of 4% given the fee performance beat and associated incentive compensation and our desire to keep building out private bank and wealth. We delivered positive operating leverage of around 1.25% for the year. As we think about 2026, our focus will continue to be strong execution of our strategic initiatives. The biggest new addition will be Reimagine the Bank, which has been launched and is creating real excitement at Citizens Financial Group, Inc. We've included a couple of slides in our presentation on this program. What I'd like to call out is that the deployment of new technologies and approaches under Reimagine the Bank will deliver meaningful enhancements to customer experience. This will drive some real revenue benefits in addition to the targeted expense efficiency improvements from the program. This program has around 50 initiatives at the outset, but we will add to this over time, providing further upside. Looking ahead, the macro environment for 2026 should be favorable. We see solid GDP growth, stable unemployment, and inflation falling by the end of the year. We project two more Fed rate cuts with the yield curve steepening as the ten-year stays anchored around 4.25%. We anticipate the regulatory environment to stay positive. We will look to take some basic steps on stablecoins; we do not see a big liftoff and impact in 2026. Notwithstanding several of our peers gauging on acquisitions, our focus for the foreseeable future remains on our attractive organic growth agenda. With respect to the 2026 outlook, we expect very strong revenue performance, controlled expenses, significant positive operating leverage, and lower credit costs. NII growth of 10% to 12% will be paced by strong continuing NIM expansion and solid loan growth, led by private bank and C&I. Fees will continue to grow off a strong year in 2025. The capital markets backdrop is highly favorable, and Citizens Financial Group, Inc. is well positioned. Our wealth business is in a great position to grow both with private bank customers as well as branch-based customers. Expense growth is projected to be comparable to this year as we seek to maintain the growth rate of the private bank. We have been disciplined in ensuring that the private bank achieves sustainable growth with attractive returns. The Reimagine the Bank impact in 2026 will deliver one-time costs of around $50 million versus benefits of $45 million, which are incorporated in this guidance. We do not intend to break out the one-time costs as notables as we've done in the past. Credit costs should continue to improve as the CRE office portfolio continues to be worked out. We continue to see mix improvements delivering benefits to the charge-off and provision rates over time. We will manage our CET1 ratio to 10.5% to 10.6% throughout 2026. We envision share repurchases of approximately $700 million to $850 million. We also are hopeful that the Fed modeling improvements will meaningfully lower our SCB. We've included some slides on our medium-term outlook and how the drag from our legacy swap portfolio will dissipate with time. We remain confident in our ability to achieve our medium-term 16% to 18% ROTCE target. To sum up, we are feeling very good about our positioning for the future. Our strategy rests on a transformed consumer bank, the best-positioned super-regional commercial bank, and the aspiration to have the premier bank-owned private bank. We continue to make steady progress and we'll continue to execute with the financial and operating discipline that you've come to expect from us. I'd like to end my remarks by thanking our colleagues for rising to the occasion and delivering a great effort in 2025. We know we can count on you again this year. And with that, let me turn it over to Annoy for his debut performance. Annoy? Annoy Banerjee: Thanks, Bruce. Good morning, everyone. I am excited to be part of Team Citizens and to help execute our well-planned strategy. Now turning to our performance. As Bruce indicated, we delivered strong results in 2025 that were in line with our expectations at the beginning of the year. The fourth quarter delivered continued good performance, and we are well positioned for 2026. Referencing Slides three to seven, I will provide some highlights for the full year and the fourth quarter. First, spending a moment on the full-year results. We delivered EPS of $3.86 for 2025, up 19% on an underlying basis, and that includes a $0.28 or just over 7% contribution from the private bank. Importantly, we also achieved full-year positive operating leverage of approximately 125 basis points on an underlying basis. Net interest income was up 4% as we delivered 13 basis points of margin expansion. Fees were up a strong 11% on an underlying basis, led by record results in both wealth up 22% and capital markets, which had a nice pickup in the second half. Up 9% year over year. Expenses were managed well, up 4.6% on an underlying reflecting the continued investment in the build-out of the private bank and wealth. We also managed credit well, maintaining strong reserve coverage levels with credit losses coming in line with our expectations at the start of the year. We ended the year in a very strong balance sheet position, maintaining robust capital, strong liquidity levels, and a healthy credit reserve. For the fourth quarter, we generated EPS of $1.13, up 8% linked quarter and 36% year on year. And delivered a 12.2% Roxy. The private bank continues to steadily grow its earnings contribution, adding $0.10 to EPS in Q4, up $0.02 linked quarter. Now I will talk to the fourth quarter results in more detail, starting with net interest income on Slide eight. Net interest income increased 3% linked quarter, driven by a strong expansion of our net interest margin and a 1% increase in average interest-earning assets. Our net interest margin continues to steadily expand, up seven basis points this quarter to 307%. Three basis points of the margin expansion was driven by the benefits of non-core run-up and reduced impact from the terminated swaps, what we refer to as time-based benefits. The rest was a combination of fixed-rate asset repricing and lower funding costs, which was partially offset by lower asset yields. We continue to do a good job optimizing deposits in a competitive environment. Interest-bearing deposit costs were down 15 basis points, while total deposit costs were down 12 basis points. Our cumulative interest-bearing deposit beta is about 48% through the end of the year. Moving to Slide nine. Fees are down 2% linked quarter but up 10% year over year on an underlying basis. Our wealth business delivered another record quarter, driven by continued progress in the private bank and strength in the retail network. Up 5% linked quarter and 31% year over year. These results reflected higher advisory fees with continued positive momentum in fee-based AUM growth, including strong inflows from the conversion of private wealth lift-outs as well as market appreciation. Capital markets delivered its third-best quarter ever, up 16% year over year, though down 16% compared with the exceptionally strong third quarter. Several M&A and equity deals were pushed into '26 given the impacts associated with the government shutdown. As a result, we expect roughly $20 million of related fees to be recognized in the first quarter. Despite deals pushing into '26, our equity underwriting performance was still up nicely linked quarter and up significantly year over year. Loan syndication fees were very strong this quarter, driven by refinance activity. And bond underwriting fees were solid, although lower than the very strong third quarter. We continued to perform well in the league tables, ranking second in the fourth quarter and fourth for the full year on both volume and number of deals for middle market sponsor loan syndications. And our deal pipeline across M&A, debt, and equity capital markets remains strong. On Slide 10, expenses are up 0.6% on a sequential basis, largely reflecting continued investment in the build-out of the private bank and private wealth, and higher incentive compensation. Disciplined expense management and strong revenues resulted in approximately 79 basis points of improvement in our efficiency ratio to 62%. Our top 10 program achieved $100 million of pretax run rate benefit exiting the year. And we have launched our Reimagine the Bank initiative, which I will discuss in more detail shortly. On slide 11, average and period-end loans were up 1% or up 2% excluding the non-core portfolio run-up of roughly $500 million in the quarter. We saw solid loan growth across each of the businesses as non-core runoff and balance sheet optimization impacts lessen. The private bank delivered solid loan growth again this quarter, with period-end loans up about $1.2 billion, driven by a pickup in sponsor line utilization, along with growth in multifamily and residential mortgage. Commercial loans were up slightly on a spot basis, driven by net new money originations in corporate banking and higher commercial line utilization, partially offset by CRE paydowns. We continued to reduce CRE balances, which were down about 4% this quarter and 10% for the year. And retail loans saw some nice growth, driven by home equity and mortgage. Next, on Slides twelve and thirteen. We continue to do a good job on deposits, with noninterest-bearing balances up 2%, maintaining a steady mix at 22% of the book. Even as our total spot deposits increased approximately 2% to $183 billion. Average deposits were also up 2% or $3.9 billion, driven by growth in the private bank, commercial, and retail. Private bank deposits reached $14.5 billion at the end of the year, including some larger flows towards the end of the quarter. We continue to focus on optimizing our deposit funding costs, reducing the average rate paid across all businesses, driving interest-bearing deposit costs down 15 basis points linked quarter. This combined with the growth in non-interest-bearing deposits helped to drive our total deposit cost down 12 basis points. And importantly, our non-interest-bearing and low-cost deposit mix increased to 43%, and our stable retail deposits are 65% of our total deposits, which compares to a peer average of above 55%. Moving to credit on slide 14. Credit continues to trend favorably, with net charge-offs coming in at 43 basis points, down from 46 basis points in the prior quarter. Non-accrual loans are down slightly linked quarter, driven by a decrease in commercial real estate. Criticized balances also continued to decline. Turning to the allowance for credit losses on Slide 15. The allowance was down slightly to 1.53% this quarter as the portfolio mix continues to improve due to non-core runoff, the reduction in the CRE portfolio, and lower loss contained front book originations across C&I and retail real estate secured. The economic forecast supporting the allowance is relatively stable with the prior quarter. And as we look broadly across the portfolio, the credit outlook looks good. The general office portfolio continues to work out as expected, and we maintain a robust allowance of 10.8% coverage. Importantly, the cumulative charge-off plus the current reserve translates to a total expected lifetime loss rate of about 20% against the March 23 loan balance. And that level has been consistent with our view for the past year. Moving to Slide 16. We maintained excellent balance sheet strength. Our CET1 ratio is 10.6%, and adjusting for the AOCI opt-out removal, our CET1 ratio increased to 9.5%. We returned a total of $326 million to shareholders in the fourth quarter, with $201 million in common dividends and $125 million of share repurchases. For 2025, we returned $1.4 billion or 80% of our 2025 earnings to shareholders. We repurchased $600 million of common stock at an average price of $44.55, representing about 3% of outstanding shares at the beginning of the year. Our tangible book value per share increased to $38.07, up $1.34 or 4% sequentially, with full-year growth of $5.73 per share, or 18% year over year. Moving to Slide 17 through 20. We are well positioned to drive strong performance over the medium term with our overall focused strategy. A transformed consumer bank, the best-positioned super-regional commercial bank, and our aspiration to build the premier bank-owned private bank and private wealth franchise. The private bank continues to make excellent progress, as you see on Slides nineteen and twenty. We exceeded our balance sheet targets and delivered full-year earnings of $0.28, contributing a little over 7% to EPS in 2025, well ahead of our original projection of 5%. The private bank delivered strong deposit growth again this quarter, ending the year at $14.5 billion. Importantly, the overall deposit mix continues to be very attractive, with about 36% in non-interest-bearing at the end of the year. We also delivered strong loan growth in the quarter, adding roughly $1 billion of loans to end the year at $7.2 billion. Since the launch of the private bank in 2023, we have added 10 wealth teams to our platform, with more in the pipeline. We ended the year with $10 billion of total client assets, reflecting the continued strong conversion rates of the wealth hires. We have more runway here, and we plan to continue adding top-quality teams in key geographies. Given the investments we have made and our plans to further expand the private bank in 26, we think deposits can grow to $18 billion to $20 billion, loans in the range of $11 billion to $13 billion, and client assets $16 billion to $20 billion. We expect this growth will help drive an increase in private banks' earnings contribution to mid-teens in the medium term, while maintaining a 20% to 25% ROE profile. Moving to slides twenty-one and twenty-two. We have launched our firm-wide Reimagine the Bank initiative. The objective is to position Citizens Financial Group, Inc. for long-term success by embracing a host of new innovative technologies across the bank and simplifying our business model, which will reshape our customer experience and drive a meaningful improvement in productivity and efficiency. Slide 21 will give you a sense of the scope of the effort, which spans nearly every part of the bank. Slide 22 lays out our financial targets for the program. For 2026, we expect to minimize the EPS impact of one-time cost and capital investments by prioritizing initiatives with faster paybacks. There will be about $50 million of front-loaded one-time cost that will be effectively offset by $45 million of benefits to be realized later in the year. The program will drive positive net benefits in twenty-seven that we expect will accelerate in 2028. And we are targeting fully phased-in pretax run rate benefits of approximately $450 million as we exit 2028. Roughly two-thirds of these benefits are tied to expense efficiencies, which equate to about 5% of our full-year 2025 expense base. Importantly, we are confident that the financial benefits of Reimagine the Bank will be additive to the 16% to 18% '27. Moving to Slide 23. I will take you through our full-year 2026 outlook, which contemplates a forward curve with two twenty-five basis point Fed cuts, one in June and another in September, ending the year with Fed funds approaching 3% to 3.25% and a ten-year treasury rate anchored around 4.25%. We expect NII to be up 10% to 12% with NIM expanding about four to five basis points a quarter towards 3.25% in 4Q twenty twenty-six. Loan growth is expected to pick up this year, with spot loans up 3% to 5%, average loans up 2.5% to 3.5%, and overall earning assets up 4% to 5%. Noninterest income is expected to be up 6% to 8%, driven primarily by wealth and capital markets. We are projecting expenses to be up 4.5% as we are confident in our revenue outlook and we plan to maintain our investments in growth initiatives. This translates to a 2026 full-year operating leverage in excess of 500 basis points. We have provided a walk showing the key components of our '26 expense growth on Slide 24. Credit is projected to continue to improve through the year with our outlook for net charge-offs in the mid to high 30s basis points. Along with these credit trends, the improving credit trends, the portfolio mix will also continue to improve. And finally, we expect to end the year with a strong CET1 ratio of 10.5% to 10.6%. We expect to generate a substantial amount of capital, which will put us in an excellent position to push forward with our strategic priorities while returning a substantial amount of capital to shareholders. Notwithstanding anticipated strong loan growth, we expect to repurchase $700 million to $850 million in shares this year. Full-year 2026 earnings incorporate a nice lift from the continued growth of the private bank. On Slide 25, we provide the guide for the first quarter. Note that the first quarter has seasonal impacts on revenue, with lower day count impacting net interest income. Taxes on the FICA reset and compensation payouts impacting expenses, Fees are normally softer in the first quarter, but we are expecting a strong performance from capital markets after incorporating the deals that were pushed from the fourth quarter. Moving to Slides 26 to 28. Looking out over the medium term, we see a clear path to achieving our 16% to 18% ROTCE target in 2027, with further momentum in 2028. Reimagine the bank benefits will be additive to returns. Expanding our net interest margin is a key driver, which we project to be in the range of 330% to 350% in 2027. Along with the impact of successful execution of our strategic initiatives, improving credit performance, and delivering a strong capital return to shareholders. To wrap up, we delivered a good performance in 2025 in line with our expectations. We have a strong outlook for 2026 with significant margin expansion, good momentum in wealth as we continue to grow the private bank, and we see our shift coming in on capital markets given the capabilities that we have built over the years. All of this puts us in a very good position to hit our medium-term 16% to 18% ROTCE target in the '27. With that, I will hand it back over to Bruce. Bruce Van Saun: Okay. Thanks, Annoy. And I think, operator, we're ready to open it up for Q and A. Operator: Thank you. Our first question comes from Ryan Nash with Goldman Sachs. Your line is open. Ryan Nash: Good morning, everyone. Good morning. Bruce, appreciate all the details on the reimagine the bank. I think you noted in the slides that this should add 2% on ROTCE. First, maybe just talk about how much of this hits the bottom line versus gets reinvested, and if it is reinvested, are the areas that you will invest in? And second, you know, the slide 28 says that you're not incorporating any of these benefits. Does this increase your confidence in getting to the high end? Do you think this serves more as a hedge in case other parts of the business don't perform? Thank you. And I have a follow-up. Yes. Okay. Bruce Van Saun: Garner the space for that follow-up. Nice move. So I would say that at this point, the program has taken shape. And we have about 50 work streams, and it's all signed out into a transformation office and people that are running with the ball on those streams. And Brendan's kind of leading the overall effort. He can comment as well. So I think, at this point, we have kind of quarter by quarter visibility into each of those work streams and how the kind of implementation cost flow and then how the benefits start to flow. One thing you'll notice there is that over time, the kind of revenue benefits start to pick up as we'll see improved customer experience resulting in less customer attrition, better usage of our products by the customer base. And we think that's really solid in terms of our ability to forecast that. So anyway, the program has taken shape. We're executing it well. As to the question of, you know, what do we expect to flow through, I think the first thing is you got to look at the gross number excluding the implementation costs because implementation costs really are just kind of one-time capital costs in our view. So the run rate will benefit by the full amount. And then I think it's still a bit of an open question as to how much of that flows through. And it kind of depends on kind of where we are at that point in time and what our investment needs and priorities could be. So do we keep investing at the same pace in the private bank? And is it worth investing to keep on that trajectory and to generate more medium-term revenue growth? I think that's a TBD. So at this point, we're kind of just flagging the numbers, here's what we think is possible. We have a lot of wood to chop to actually execute this program, but we'll be reporting on it all along. And then we'll have, I think, more visibility into the flow through as time goes by. If you look historically at all of our top programs, Ryan, we've had a significant flow through. And so we tend to be very disciplined on the remaining expense base. We have this mindset of continuous improvement if we want to invest new dollars try to figure out where to pinch the expense base to self-fund that. So I would expect that the flow through should be high, but we're not gonna make that call at this point. We're just going to give you the contours of what the program could deliver. Ryan Nash: Got it. And then if I look on Slide 27, your prior NIM walk had deposit betas in the low to mid-50s. I think now you're saying high 40s. Maybe just talk about what is driving the change? Is it competition or a change in your strategy? And what are some of the offsets that are allowing the NIM to still reach slightly higher levels versus prior expectations. Thank you. Bruce Van Saun: Yeah. So what I would say is that when the rates first started to fall, the market was very aggressive in trying to recoup some of the happened on the way up. And what's happened since then, I think, is that the market is kind of less aggressive in its pricing actions at this point. And so you could call that maybe a little more competition or you could just say, kind of a decision to share kind of some of those benefits with the customer and not be as aggressive. And so that high 40s to us is really the market. So we're not if we move down from mid-low to mid-fifties to high 40s, I think that's consistent with what we're seeing in the market. And the reason that I still think we're in a very good position to deliver on that NIM walk are several factors contributing to that. But one is our confidence in our net interest, our non-interest-bearing balance growth which has stayed robust in the private bank and in the consumer bank in particular and stable in the commercial bank. And so we, I think, score well on that dimension. You know that we're also slightly asset sensitive and our view is that rates will come down, but maybe not as much feared initially. So I think that is a helpful fact for us as well. And then over time, we've continued to, I think, be very disciplined in our hedging actions. And so we've been adding in hedges at attractive rates. So I think it's a combination of those three things. That kind of non-interest or balances the higher little bit of asset sensitivity and a higher rate outlook. And then addition, these attractive hedging actions that we've taken would offset that beta dropping from where it was to the high forties. Ryan Nash: Thanks for the color, Bruce. Kristin Silberberg: Thank you. Operator: Our next question comes from Erika Najarian with UBS. Your line is open. Erika Najarian: Hi, good morning. Just wanted to ask about the puts and takes on the loan growth guide. It feels like a bit of a sort of best in class relative to peers. Maybe remind us, Bruce, in terms of where you are in your balance sheet optimization journey. And as we come to a point where rates may come down, talk to us about you know, the push-pull in terms of optimizing CRE versus taking advantage of potential refinancing opportunities? Bruce Van Saun: Yep. So I'd say our confidence in that loan outlook stems from actually what we're seeing and what we delivered the second half of the year. So we had we have an idiosyncratic growth drive in the private bank as they scale up their business. That's something our peer banks don't have. And so that continues at a good clip. And then I think the focus of the commercial bank in terms of the middle market and our expansion markets plus some of the kind of private capital and sponsor lines. Also has been an area of opportunity for us. And then kind of in the consumer bank, we have the market-leading HELOC product and also mortgage. And so we've seen growth across all three of those areas in Q3 and in Q4. And we think that will continue. In kind of prior years that growth was offset by the accelerated rundown of non-core, but now we have non-core kind of at a kind of almost at a stub at this point from $14 billion down to like $2.5 billion. And then we've done a lot of work already on the commercial BSO on the commercial real estate kind of run down after the investors acquisition. And so there's a slide in the back, Erica, which you may have seen or may not have seen, but kind of lays down some of the reductions in the drag from those efforts which also contributes to positive sentiment on loan growth. So those are the kind of big things. I'll just maybe flip it over first to Don to talk a little bit about commercial and then Brendan to talk about the private banking consumer. Don McCree: Yep. I'll start, Erica, by just talking about the environment. I mean, across the board, we're seeing positive sentiment from the client base. So Bruce mentioned the expansion markets, they're growing. So think New York, California, Florida, they're growing extremely quickly. Those are core middle market relationships with full wallet realization. So not only is loan growth materializing, but we're also seeing from an ROE standpoint being very attractive business. We're seeing remember for most of the last two or three years, the market has been really a refinancing market. I think Annoy mentioned that. We're seeing new money demand both in our core client base, which is translating into utilization growth, and we're seeing it powerfully in the sponsor business where the sponsors finally seem to be coming alive and that will impact not only our capital markets businesses but also our NBFI lending as we engage with the private capital community both on the PE capital call lines and private capital leveraging line. So across the board, a pretty strong environment to be operating in. That should drive higher levels of loan growth as we look into 2026 and beyond. We were probably running close to $1 billion of C&I BSO over the last few years. That really is down to BAU. We're pretty much done with that. If it was going to be $500 million, I'd be surprised, but it'll be just a continuous kind of rhythm of cleaning out, under-returning relationships and replacing them with new relationships. And then the change in real estate, we're going to continue to trim the real estate exposures, but we're beginning to turn on the origination engine, and that's both private private bank and commercial bank. And we will be replacing some of the BSO that's happening with some attractive opportunities as we see them in the marketplace. So what was a pure drag in the past will be a little bit less of a drag in the future, although we'll continue to kind of trend that down. But BSO will become less of a drag in the overall loan growth. Brendan Coughlin: On my side, maybe three points here. One, similar to Don, the headwind on non-core is reducing. So just give you some numbers around it. Yeah. Six, seven quarters ago, we were dealing with a billion, a billion 1 in quarter on quarter, rundown of non-core that exited Q4 at a half a billion. That's going to continue to minimize as we look forward into 2026. So that's a real positive to see that wrap it's through the cycle. It was seen really strong growth in private banking at point number two, and it's been really balanced across private equity, residential lending, and, multifamily granular high-quality commercial real estate where we have access to full relationships with wealth management. One of the dynamics we were facing early in 2025 is with rates high. There was a lot of cash out in the system with this client base and they were hesitant to go in and finance things with debt with rates as high as they were. That is starting to change. And as the rates ease a bit, we expect loan growth demand to pick up in the private bank and our run rate to improve further. So we've got confidence there that the pace of growth in the private bank will continue to accelerate as we look into 2026. And then in consumer, as Bruce mentioned, we're getting $700 to $800 million in quarter on quarter growth in HELOC. We're number one in net balance sheet growth in The United States, number one in originated originations in The United States and HELOC in a very high credit quality book. With 95% plus the customers coming with DDA and deep relationship-based banking. We expect that to continue. And candidly with rates pulling back, but not so far to crater through a 5% mortgage rate, at least in the forward outlook. It's really a perfect time period for HELOC where there's not gonna be a ton of mortgage refinancing. Refinancing activity, but huge amounts of equity built up with consumers who are very, very well positioned. To continue to monetize the HELOC capability we've put in place. And of course, in the second half of last year, launched a credit card portfolio, which we expect will start to pay some dividends as we get into twenty twenty-six first half and second half with higher yielding, quality balances. So for all those reasons, I feel really good about continued pickup in net loan growth. The other thing I just mentioned wrapping up here is it's important to look at the net loan growth number. But under the covers, there's a quality story that you need to pay attention to of the balance sheet remixing to deep relationship-based customer lending, higher yielding, higher profitability, both on the balance sheet, but also the net customers we're bringing in, moving away from single service to a really, really deep relationship-based bank. So, you know, I think we're we've got confidence on winning both dimensions, quantity plus quality. Erika Najarian: Thank you. I'll step aside and let my peers ask questions. Brendan Coughlin: Okay. Thank you. Operator: Our next question comes from Manan Gosalia with Morgan Stanley. Your line is open. Manan Gosalia: Hey, good morning all and welcome Hanoi. I wanted to start on the fee side. Can you expand a little bit on the underlying assumptions in the fees? I mean, it feels like the private bank is doing well, capital markets are doing well. Pipelines are strong. Had a survey out recently talking about M&A expanding on the middle market side. There's also been some push out from the fourth quarter into 2026. Just given all of that, it feels like the fee guide is a little conservative. So can you help us with some of the underlying assumptions there? Yes. So I'll start and others can chime in. But we had a very strong fee year in 2025. So we'll start with that. We were up 11%. And then to guide up next year 6% to percent is still kind of good growth on top of very strong growth that we had in 2025. I'd say the outlook for 'twenty six is led by the capital markets where not only do we have strong pipelines, we have several things going for us. One is the carryover, so we have about 20,000,000 of fees that carries over that will close in the first quarter. And then in the 2025, we had kind of soft comparisons I would say because of the uncertainty in liberation day tariffs. There's a lot of pent-up demand to do deals that started to flow again in the second half of the year. So again, I think capital markets should have a strong relative year. And again, who knows about the uncertainty and the tariffs and it seems like Groundhog Day, we might be in that same movie replaying, but I think that's one of the reasons why overall, it's good to have a little bit of caution in that guide of 6% to 8%. You just don't know. But at this point, like capital markets look like it'll have an extremely strong year. Wealth has been having record quarter after record quarter. And that's a twofold benefit. It's not only kinda getting the teams in place of recruiting these lift outs and then connecting them to the private bank relationships and the corporate bank which creates its own growth dynamic. But then also in the branch-based system, we've got great leadership there, great product set we're really hitting our stride. So I think wealth would be another shining star. Across the rest of the patch, we don't see significant growth in many of the other areas like service charges on deposit accounts, mortgage, you know, our other income was flattered. We had a like moon and the stars aligned for a couple quarters that might not repeat in 2026. So I think just having a level of conservatism there seems like the way to play it. Manan Gosalia: Very helpful. And then maybe pivoting over to the capital side, it looks like your buyback guide is a little more front-end loaded. And then you spoke about the fact that you're hopeful that the SCB will come down this year. I guess the question is how important is the stress test in terms of your comfort level in bringing the CET one ratio closer to your medium-term targets of like 10% to 10.5%? How quickly can you do that? And where would getting into that range put you in terms of buybacks as you get into the back half of the year? Bruce Van Saun: Sure. Again, I'll take this one. I've been living it on this SCP frustration for years. But we are reasonably optimistic that there's some changes afoot down in Washington with the Fed. And so based on what we know, think we'll get a better outcome remains to be seen the timing of that implementation. But to me, it's less of an impact directly on where we set our capital targets just been it's almost a scarlet letter that we have this outsized SCB when our business model is the same as most of our peers and that just has been mismodeled and I won't get into all of it, but we've made those points clear to the new folks that are gonna be in charge of the stress test. So in any case, just falling back into the pack is good for us reputationally even if it doesn't affect exactly how we're going to manage the capital. I would say the reason that we're still on the high end of that 10 to 10 and a half range is just still the amount of uncertainty that's in the environment. We have an upsurge in our profitability projected but making sure that we get there and that get the CRE worked out when we feel the environment is in a better place and we've accomplished some of those aspects then think we could be in a position to start to migrate down within that range. But anyway, that's how we think about it. Manan Gosalia: Great. Thank you. Operator: Our next question comes from John Pancari with Evercore ISI. Your line is open. Gerard Cassidy: Hi, this is Gerard Cassidy on for John. Want to revisit the private bank build-up specifically. In that $11 billion to $13 billion private bank related loans in 2026, can you break down what loan categories in the private bank you're seeing growth? Any puts and takes there? And then longer term, how should we think about the loan to deposit ratio trending in the private bank? Thank you. Brendan Coughlin: Yeah. It's Brenda. I can take that. If it's pretty balanced growth. So about a third of it, I'd say, is coming from C&I equity-based lending. We have, yeah, about half of the balance sheet is, I'd say, residential and real estate. So mortgage and, granular multi-commercial real estate, as I mentioned before, tied into deep wealth management-based clients. And then there's, a smaller portion in sort of other consumer. So our, you know, HELOC capabilities are making their way over to these clients, some small credit cards, some specialty unsecured lending, loans in the private banking portfolio. The PLP, partner loans that we're leveraging to convert our private equity community into personal private banking relationships. So it's pretty broad-based, but the largest categories are C&I, granular multifamily CRE, and residential lending mortgage. We expect that to continue as rates to pull back with the traditional personal private banking should pick up. That would that's, again, gonna the portfolio will benefit from HELOC and continued residential lending. And as our card portfolio picks up, we've optimism that that can be a more meaningful player in the private bank over time. Bruce Van Saun: Yeah. I would just add to that that we've been in business now for a couple of years. Haven't had one I'm gonna touch wood here when I say this. We haven't had $1 of credit losses, and that historically was the track record of these bankers when they operated on the First Republic platform. So very strong credit discipline, very deep relationships lending the people that we know well and getting good credit. The you asked about the LDR too. Sorry, I didn't answer that. Our 25% ROE is certainly benefiting from a you know, little bit wider loan to deposit ratio than we probably would expect in a steady state. And so but you can also see in our guide, we don't expect dramatic, meaningful changes in the short term. We're going to expect pretty balanced growth across deposits and lending. So we expect a self-funding mechanism here where the not only is the LDR, led with deposits, but the lendable deposits also fully self-fund the loan growth that we're getting. Having said that over the medium-term outlook, I would expect LDR to tighten, you know, maybe from in the sixties where we are today into the 80% range, potentially. But, you know, that if rates pull back. Right now, we're we still think it will be in this range of you know, 60 to 70% for the next, you know, year to six quarters. Gerard Cassidy: Thank you. That's very helpful. Operator: Our next question comes from Matt O'Connor Deutsche Bank. Your line is open. Matt O'Connor: Good morning. A bit of a follow-up to comments you just made. I want to ask about the deposit growth assumption. I found it interesting. I think it's what's driving the higher net II outlook, but your earning asset growth is actually a bit above the loan growth. On Slide 23. So just trying to get a sense of deposit growth assumptions and obviously you give us a private bank which is the one piece, but just the overall assumptions there and the confidence in that level. Bruce Van Saun: Yeah. Well, we don't have a deposit guide here, but I think the expectation is that the LDR will stay relatively stable. Over the course of the year. So we brought it down. You may recall, we were operating back in 'twenty-three kind of in the high 80s. We brought it down in 2024 into the low 80s. We now have it down into the high 70s. Which is a place that I think we can sustain that and feel good about kind of the liquidity position there. And so that's kind of the overall forecast. I don't know, Anoye, if you wanna add anything to that. Yeah. I think the only other thing to add would be probably lower non-interest-bearing deposit growth has been very steady as well. Both coming from the private bank and as well as the consumer bank. We expect that 22% to be in the zone as we go through. Brendan Coughlin: The two points I'd add on the non-interest bearing would be, you know, what we've gone through a period post-COVID three years of consistent headwinds on spending out the excess surplus. 2025 was a year of that kind of running its course and flattening out. We started to see some very modest DDA growth in most benchmarks in the consumer bank. We were number one in our peer set on relative DDA performance versus peer banks. We expect that relative position to continue and move from a flattening to starting to see some very modest DDA growth and then the private bank you can see our DDA percentage in the high thirties, but important to also look at checking with interest the entirety of the personal banking deposits in the private bank or in checking with interest which is de minimis interest. When you add that in our actual low-cost mix is in the mid-40s and we expect that range to continue the combination of DDA plus checking with interest. So healthy, healthy growth in the private bank and noninterest bearing or low-interest bearing and continued number one performance or top quartile performance in the consumer bank on relative DDA. Matt O'Connor: And then just on, the interest-earning asset growth, it's kind of 1% to 2% of both loan growth and maybe deposit growth. Anything else driving that? I think you've expanded your swap business for customers. I don't know if there's something with trading assets or a rethinking of how you hedge the balance sheet? I would say the spot loans is three to five and earning assets kind of four to five. So there may be a little build in liquidity. We may be adding to the securities books. Part of that is looking at the lended full deposits and the kind of what we see is growth in private bank deposits, which have a little lower lendability than the consumer deposits do. And so it's really probably just a little mix in where we're building a bit of our liquidity. To go match what we're doing in terms of the deposit composition growth. Matt O'Connor: Okay. Right. Thank you. Bruce Van Saun: Yep. Operator: Our next question comes from Ebrahim Poonawala Bank of America. Your line is open. Ebrahim Poonawala: Hey, good morning. I guess just a couple of quick follow-ups. As we think about the 16% to 18% return, raw C exiting twenty-seven, it implies the margin probably being somewhere between around that three forty to three fifty. Am I thinking about that correctly? Annoy Banerjee: Yes. I would say think of that, in that zone. Yep. Ebrahim Poonawala: And then beyond that, as we think about the new growth that's coming on the balance sheet, on Slide 19 for private bank, call out the 4.1% spread. On that growth. I'm just wondering if you had to have a similar number for the entire balance sheet in terms of growth where would you say that new growth is coming? Is it close to 4%, close to 3%? I would love any color there. Bruce Van Saun: Yeah. That's an interesting question. I guess I would say the spread in the private bank and the consumer bank are relatively higher. The spread in commercial is relatively lower. Commercial, you're extending credit to build relationships and do the cross-sell to your fee-based complex. So that's a little bit of the dynamics there. Ebrahim Poonawala: Got it. And just one more Bruce on the private bank seven offices, four more to go. Why is that number not larger? Like is it is there only so much that you can do from a management bandwidth standpoint? Or do you think once you have these 10 to 15 private bank offices, you saturated the opportunity. Bruce Van Saun: Well, I'll start and flip it to Brendan. But you know, I'd say from a bandwidth standpoint, you want to make sure that these offices are really premium locations and premium fit out and premium high-quality people staffing them. And so we've done a lot and we have another big agenda for this year, but we're certainly not done when you get to exhaust the list that we have in front of us for '27. We have a couple more in the pipeline that are straddling between 2627 and then we have densification some of our East Coast locations in Florida still in front of us when we look out into '27. So I think ultimately you could see this number get up to something like 25 or 30. And when we've kind of reached maturity with the private banking locations that we have before we would think about potentially other geographic expansion. But Brendan, I'll flip it to you. Brendan Coughlin: Yeah. Our confidence is clearly increasing every quarter that gets behind us on our ability to drive sustainable growth and high quality. But if you kinda rewind the clock back to you know, four quarters ago, we were very committed to make sure we deliver the profitability profile that we shared with you all before we got too far out of our over our skis. So we've been very thoughtful in terms of where to put these locations. It's a very connected business model. I call it 1st Floor, 2nd Floor. 1st Floor being kind of retail banking for private banking customers. 2nd Floor being senior RMs and wealth teams that are not necessarily working the retail branch, but they're bringing in clients. We've gotta grow that in a connected way. So and we're keeping a very, very high bar on quality. We don't want to grow so fast that we compromise on having a best-in-market team. So we've got aspirations for more sites. We'll continue to add them as we get the right teams, as we get the right locations. We're starting to think about geographic expansion. We also have to think about filling in the rest of our citizens' footprint. You've got plenty of markets that we have high net worth individuals in today where we don't yet offer the private the full private banking package. And so in addition to adding more sites, may see a handful of very targeted either conversions or dual-branded sites with retail and private banking coming online where we can offer the full service of the bank, the full one citizens in the same market. So with commercial partnering as well. So a lot to do. We expect a steady diet of continued openings and, opportunistically, we find talent in good locations. We'll our ambition. Ebrahim Poonawala: That's great. Thank you. Okay. Operator: Our next question comes from David Shibarini with Jefferies. Your line is open. David Shibarini: Hi, thanks for taking the question. So I wanted to ask about the efficiency ratio outlook. It looks very strong. Mid-50s medium term versus the 62% in the fourth quarter. Can you talk about what could drive the high end versus the low end of the mid-50s outlook? Bruce Van Saun: Yes. Well, there's a couple dynamics here that right off the bat, if you overlay the kind of termination of these swaps and look at some of the built-in kind of active swaps and fixed asset pricing that we think is pretty assured, you can get from 62 into the high 50s. And if you overlay the RGB, that can further take you down into the mid-fifties. And then all along we're trying to run with positive operating leverage even if you strip out the benefit of the NIM expansion. So those are really the three things that are driving you back down to something in the mid-fifty. So I think it's a very target. David Shibarini: Thanks for that. And my follow-up is on AI. You've been front-footed on AI some of your peers. Can you talk about your AI spend and some of the use cases you're seeing? Brendan Coughlin: Yes. Our AI spend has I would call it backwards looking in 2025 has been a combination of very small targeted pilots and learnings and building the right control infrastructure to get ourselves ready for this, including moving completely to the cloud, in, in '20 in 2025. And big investments in data. So to actually take the AI capabilities and commercialize it, a lot of foundational things need to be true. So of this happened in 2025. Candidly, of this started back in 2020, 2021 where we're really getting, some bigger investments. In broadening our data capabilities, modernizing the tech stack to put us in a position for this. So, enabling investments has been high, very specific kind of last mile AI investments, I think, have been very relatively modest. But as we turn the page to 2026, the dial turns a little bit. So a couple of the use cases, of course, we highlight them on page I guess, it's '21 in the deck, and you can you can look at that, but I'll maybe highlight two or three of them. The call center as an example, we think that combination of modernizing the tech stack for the call center front to back plus introducing voice AI and other mechanisms, we can get in the range over the medium-term outlook 50% of our call center calls out of a human answering them. That is something we're very excited about. It's not hopes and dreams. We've seen this in, development and it action in smaller firms, tech banks and otherwise. So we're leaning in heavily there. Technology development, productivity of an engineer is a use case that we also have high confidence in that through leveraging AI, we can have, you know, a five to 10 x of productivity with our engineers that the AI is taking the first crack at writing the code where developers are now QA, QC ing the code, adding the last mile and then ultimately having the AI also work on the first round of testing and quality assurance of the code. And then maybe lastly or just analytics, fraud, credit risk. These are tried and true AI use cases that with particularly in the consumer bank relative to fraud and credit analytics where you're underwriting and on a cohort basis, leveraging AI to reengineer front tobacco. We think about credit analytics, portfolio monitoring, fraud detection, model enhancement. These are all very real use cases that are practical. In our sites, and we've got, you know, reasonable confidence that we can we can go out them. So you'll start to see in the reimagine the bank, effort, there's an overlay of tech spend in addition to our run rate tech spend we're spending on the franchise that will be principally pointed at AI deployment, for reimagine the bank. So we're carving out a meaningful chunk of overlay for tech spend that will wind up in our depreciation line, over time. Which is incorporated in our guide relative to the net benefits of Reimagine the Bank. David Shibarini: Very helpful. Thank you. Brendan Coughlin: Okay. Operator: Our next question comes from Gerard Cassidy with RBC. Your line is open. Gerard Cassidy: Hi, Bruce. Bruce, since going public, you've done a very good job of delivering on growing this organization that you head up and clearly you've done it in this wealth management area, most recently the private bank. Can you guys share with us the growth that you're planning for this year, the $16 billion to $20 billion of client assets? How much is that coming from existing customers of their portfolios versus just new customers coming in with, you're going to maybe hire more teams, And then, I don't know if you can parse how much of a benefit has this three-year bull market been on this business? Bruce Van Saun: Yes. I'm going to flip this to Brendan. Quickly. But what I would say is that what you are seeing on that private bank slide is simply the growth of $6 billion to $10 billion in kind of this kind of lift-out venue that's serving their private bank partners. And some of that comes from the continued acquisition of new teams, but the majority is going to come from just the kind of people that are on the platform kind of getting their full book converted in and then growing as they start to serve the private bank and private wealth. So that's part of the story. Beyond that, not shown on this page, we have our branch-based business that is going exceptionally well and then we have Klarfeld which was a legacy RIA that we acquired, which is working closely with the private bank at this point. But when you add that all together, the kind of AUM kind of assets that we have in what we refer to as client assets, which includes transactional balances is about $60 billion and kind of core AUM of that is about half of that. And so that now is a number that's growing very nicely across kind of all those three sectors. So we have the private bank growing, we're finding an ability to rejuvenate Klarfeld growth and then the branch business is running very, very nice and achieving strong growth. So we're excited that that wealth fee line can continue to hit new records kind of quarter after quarter as it did in 2025. Brendan, you can provide more color. Brendan Coughlin: Yes, sounds good. On the private, I'll unpack both of them very quickly. On the private banking side, you just want a strategic point to make. It's hard to totally separate the adding of new talent from the referrals coming from the banking teams that we hired because you need them both in place for either of them to happen. And once you get the new talent in, it is true that 80 to 90% of their previous book will follow them over. And we have seen that, and we've actually seen better performance than that on most of our teams that we've lifted out. But they also have new productivity bringing in their own clients on the wealth side, but then they're referring them back to the bank. So this is a by direct referral model. On the banking side, we have seen an acceleration of referrals as we've got high-quality wealth teams on through 2025. We expect that to continue, into 2026. At a healthy clip. So as the business gets more granular, as we convert some of the business banking clients into personal banking at the right wealth teams, we expect to continue the acceleration of new business flow coming from that into these new wealth teams. And we expect, you know, we've been doing one to two teams a quarter of new lift-outs. I would expect us to be in that range over the course of 2026 as well. So a supplement of accelerating referrals adding new teams, new teams bringing their back books plus new teams bringing new business and hitting the market hard. On the mass affluent front, about 55% of our fee income or our AUM, I should say, is actually in the branch-based business. And about 60% of our fee income is from the mass affluent business. So that business grew in 2025 by 15% on the AUM side and 25 on the fee income side. And the effective rate of revenue on the mass affluent business is roughly twice of that of the private bank. So you're getting significant profitability jaws by growing that business well. We had record referrals coming from our retail bank. We've had an overhaul of talent in our advisors that sit in the branches. We've grown that advisor base by above 50 advisors in 2025. We expect that to continue. So we're seeing sort of, all those rise of the rising tide, the wealth brand that we're building and the capabilities that we're building are coming through in all the client sent segments. We're getting a real strong uptick from Don's business as the commercial team has more confidence in the teams that we bring on. Your comment about the bull market, it is true. Bull market helps. Market betas help. About a third of our private banking revenue uplift was driven by market betas. But you can't capture that market beta unless you acquire the customers to begin with. So there's a bit of a virtuous circle here that's happening here as we're getting outsized new customer growth, outsized talent growth, and catching the market beta as it moves from whatever firm they exited over to. So we feel really pleased with where we're at and we expect continued positive momentum. Across all segments. Have another question, Gerard? Gerard Cassidy: Yes. As a follow-up, taking a step back, Bruce, for a second. Obviously, you've grown the company and you've painted a very strong organic growth picture for this year. But you've grown successfully through timely acquisitions, whether it was investors in 2022 of the HSBC branches as well as JMP, With the regulatory environment being very supportive of consolidation, can you give us your big picture view of how you think shaping up in opportunities for citizens over the next couple of years? Bruce Van Saun: Yeah, I'd say, and I said this in my open prepared remarks that right now we have such great organic growth opportunities that that's our focus. And so we're not going to run out and knee jerk up the windows open, it might close, we should try to hunt around and find a deal to do. I think the better course of action here is to make sure that, you know, the private bank stays on its trajectory and we really make that as sustainable great business. That in effect was our acquisition. When you look at the accretion that's coming from it, we took a risk and took spend some startup capital and it's working out spectacularly well. And then reimagine the bank as another big effort that is involving many of our top talent across the bank to make that work. And so just from a pure bandwidth standpoint, we wanna make sure that these things are hardening and maturing and on their way to success before we kind of step back and think about anything that would be inorganic. There might still be opportunities to do kind of some of the little kind of business line ads that we've done in the past, such as an m and a boutique. We have these lift-outs that we're doing, but that's pretty much where our focus will be this year. Gerard Cassidy: Appreciate the insights. Thank you. Operator: Our next question comes from Chris McGratty with KBW. Your line is open. Chris McGratty: Great. Thanks for fitting me in. Good morning. The 16% to 18% back half of next year ROE guide, looking at our numbers of consensus, we're call it, a little bit closer to 15. I hear you on the 50 basis points, and I and the combination of revenues, credit expenses probably gets you to the low. Interested in kind of a gut check on our math and also to get firmly into the range, is it about the expense growth rate from Reimagine the bank? Moderating or is it something else? Thanks. Bruce Van Saun: No, I'd say, again, we think we can hit get into that low end of that range kind of by the end of the year. It's not a full-year forecast for '27, just to be clear. And then when we look out to the next year in '28, that's when we can fully deliver that. So we're on the journey. We think we made some strides this year. I think the acceleration again you know, do the math on what the EPS growth is and it's very significant based on this guide that'll make another big step forward in '26 in that ROTCE performance and then we tend to peak in the fourth quarter of every year, it tends to be a very seasonally high year. So our like just like this year, we were above the year average with a twelve two exit rate in '26, we'll end up the fourth quarter will be a higher number than our year average and then '27 kind of the same thing. So, see a path getting there, and I think it's really just driving these initiatives, having the NIM continue to expand everything that we put in our guide. Chris McGratty: Great. And then just a quick follow-up on reserves. I hear you on the moderating credit costs. If we compare the reserves adjusted for the balance sheet optimization, I guess, are we relative to CECL day one? Bruce Van Saun: Yeah. I you know, there's a number of things. We had know, the non-core rundown. We had some loan sales within student. And then we did the investors acquisition. So like there's a whole series and then a lot of BSO, but I think Annoy, correct me if I'm wrong, I think it's about one ten ish. Yeah. Would be the CECL day one. So it actually was one mid-40s, 45 or so. The CECL day one. But the things that we talk about is really having a very disciplined risk appetite and continuing to improve the overall credit risk profile. We brought that 145 back down to about 110. And so to have to be in the low 150s at this point still it shows a fair amount of conservatism and a very healthy level of reserves. Chris McGratty: Great. Very helpful. Thanks, Bruce. Okay. Operator: Our last question comes from Ken Usdin with Autonomous Research. Your line is open. Ken Usdin: Apologize for just one quick one. Just bringing everything together on the private bank, you guys continue to point out Slide 24, the impact of the private bank on overall expense growth. So 1.8% of the 4.5 ish this year. To your points about where growth is and where growth comes from, do we get through this year and get to kind of a lower natural growth incremental rate from the private bank? Or do you just kind of see what the opportunity set is as you look further out and potentially then move that to other potential investments? Thanks. Bruce Van Saun: I think there's still more build for the private bank. And the other thing I would say Ken is not only do we have a very robust total revenue growth outlook for 2026, we have a similarly robust output outlook for '27. So when you think about, if you're growing your top line around 10% and you grow your expenses at 4.5%, you're delivering massive positive operating leverage. And the good news there is these are very prudent targeted investments in terms of building a great private banking franchise continuing to strengthen and invest in the commercial bank in these expansion markets and how we're covering private capital. And so you know, that seems appropriate to us. That we can kind of have our cake and eat it too as long as this really strong revenue outlook continues and you can deliver big positive operating leverage, big growth in EPS every year, big improvement in ROADSY and you're not shorting the pot and playing small ball, you're actually continuing to think about ways to grow your business and grow your franchises so that you have a medium term that continues to have a very positive outlook. So that's how we think about it. Ken Usdin: Got it. Thanks, Bruce. Bruce Van Saun: Okay. All right. I think that's all the questions that we have in the queue. So thanks for dialing in today. We really appreciate your interest and your support. Go out and have a great day. Thank you. Operator: Thank you for your participation. Participants, you may disconnect at this time.
Operator: Good morning, ladies and gentlemen. Welcome to the Fourth Quarter Results Teleconference for The Travelers Companies, Inc. We ask that you hold all questions until the completion of formal remarks, at which time you will be given instructions. As a reminder, this conference is being recorded on January 21, 2026. At this time, I would like to turn the conference over to Ms. Abbe Goldstein, Senior Vice President of Investor Relations. Ms. Goldstein, you may begin. Abbe Goldstein: Thank you. Good morning, and welcome to 2025 results. We released our press release, financial supplement, and webcast presentation earlier this morning. All of these materials can be found on our website at travelers.com under the investors section. Speaking today will be Alan Schnitzer, Chairman and CEO; Dan Frey, CFO; and our three segment presidents, Greg Toczydlowski of Business Insurance, Jeffrey Klenk of Bond and Specialty Insurance, and Michael Klein of Personal Insurance. They will discuss the financial results of our business and the current market environment. They will refer to the webcast presentation as they go through prepared remarks, and then we will take your questions. Before I turn the call over to Alan, I'd like to draw your attention to the explanatory note included at the end of the webcast presentation. Our presentation today includes forward-looking statements. The company cautions investors that any forward-looking statement involves risks and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described under forward-looking statements in our earnings press release and in our most recent 10-Q and 10-Ks filed with the SEC. We do not undertake any obligation to update forward-looking statements. Also, in our remarks or responses, we may mention some non-GAAP financial measures. Reconciliations are included in our recent earnings press release, financial supplement, and other materials available in the Investors section on our website. And now I'd like to turn the call over to Alan Schnitzer. Alan Schnitzer: Thank you, Abbe. Good morning, everyone, and thank you for joining us today. We're pleased to report excellent fourth quarter and full-year results. A strong and broad-based performance across both underwriting and investments. For both periods, the bottom line results were driven by very strong underlying underwriting income. Particularly given their written margins remain attractive, this is a durable dynamic. For the quarter, we earned core income of $2.5 billion or $11.13 per diluted share, generating core return on equity of 29.6%. Underwriting income of $2.2 billion pretax increased 21% compared to the prior year quarter, benefiting from higher underlying underwriting income, higher favorable prior year reserve development, and a lower level of catastrophe losses. The underlying result was driven by strong net earned premiums and excellent margins. The underlying combined ratio improved nearly two points to 82.2%. Underwriting results were strong in all three segments. Our high-quality investment portfolio also continued to perform well, generating after-tax net investment income of $867 million for the quarter, up 10%, driven by strong and reliable returns from our growing fixed income portfolio. Our terrific underwriting and investment results, together with our strong balance sheet, enabled us to return $1.9 billion of capital to shareholders during the quarter, including $1.7 billion of share repurchases. Importantly, at the same time, we continue to make significant strategic investments in our business. Even after this deployment of capital, adjusted book value per share was up 14% compared to a year ago. Turning to the top line, through disciplined marketplace execution across all three segments, we grew net written premiums to $10.9 billion in the quarter. In business insurance, we grew net written premiums to $5.5 billion. Excluding the property line, we grew domestic net written premiums in the segment by 4%. As I shared last quarter, the declining property premium is a large account dynamic. We'll continue to be disciplined in terms of risk selection, pricing, and terms and conditions. Renewal premium change in business insurance was 6.1%. Renewal premium change in auto, CMP, and umbrella remained in the double digits. Excluding the property line, renewal premium change came in strong at just over 8%, including workers' comp, which continues to be low single digits positive. Given the attractive returns, we were pleased that retention in the segment remained strong at 85%. In bond and specialty insurance, we grew net written premiums to $1.1 billion with excellent retention of 87% and positive renewal premium change in our high-quality management liability. In our industry-leading surety business, we grew net written premiums from a very strong level in the prior year quarter. In personal insurance, net written premiums of $4.2 billion reflected continued strong renewal premium change in homeowners and higher new business in auto. You'll hear more shortly from Greg, Jeff, and Michael about our segment results. Before I turn the call over to Dan, I'd like to take a step back and talk about what's driving this performance and what's ahead. About ten years ago, we embarked on an innovation strategy designed to position our business to grow with industry-leading returns with low volatility. As you can see on Slide 18 of our webcast presentation, over the past decade, we've grown our top line at a compound annual rate of 7% while improving our underlying profitability by almost eight points. Notwithstanding a significant increase in our technology spending, that improvement in underlying profitability includes a three-point or 10% improvement in our expense ratio. As a consequence of all that, compared to ten years ago, underlying underwriting income was more than four times what it had been. Our cash flow from operations has more than doubled, and our investment portfolio has grown by 50% to more than $100 billion. As you can see on Slide 19, over that same period, core return on equity has averaged more than 1,000 basis points over the ten-year treasury at industry-low volatility, and we've grown earnings per share on average by 12%. In short, the execution of our strategy has been exceptional. We think about all we think about that chapter as innovation one point o. Our success with innovation one point o is the result of having done three difficult things very well. Identifying the initiatives that really matter, and passing on the merely good ideas that don't executing effectively, and capturing the value of what we built. Over the decade, we developed a competitive advantage of an innovation skill set. Now we're bringing all that hard-won know-how to innovation two point o at Travelers. Powered by AI, and not too far off quantum computing, the P&C industry is well-positioned to benefit from AI across the entire value chain. This generation of AI can understand and on the complex stakeholder interactions, well-defined processes, data-intensive workflows, and massive amounts of unstructured data that characterize our industry. It gains compound over many, many interactions. In that context, Travelers is particularly well-positioned. As an industry leader, we bring differentiating domain expertise. Because AI amplifies existing strength, leaders in the domain are best positioned to use it to drive improvement. In addition, we have decades of high-quality data from millions of transactions and interactions and the scale to invest at significant levels as AI and technology continue to segment the market. We have thousands of engineers, data scientists, and analysts building AI and other sophisticated technology solutions. Dozens of scale generative AI tools are already in production. Millions of transactions are now automated. Within 20,000 of our colleagues use AI tools on a regular basis. And AgenTik AI isn't a future aspiration. It's embedded in our business operations today. Last week, we at Anthropic announced a partnership to empower 10,000 of our engineers, data scientists, analysts, product owners with personalized context-aware and integrated AI assistance. This initiative will enhance and accelerate the development of software, analytics, and predictive models. In extensive testing, we achieved significantly improved engineering output, and meaningful productivity gains. We expect that this will result in faster and more cost-effective delivery of new capabilities across Travelers. Everything from product development, the new business prospecting, to underwriting speed and quality, agent and customer service, benefiting our business, our customers, and more, and our distribution partners. In our claim organization, more than half of all claims are now eligible for straight-through processing. With customers adopting straight-through processing about two-thirds of the time. Another 15% of all claims are processed with advanced digital tools. All of those percentages are growing. To accommodate customers who still prefer to call in to report a claim, just last week, we launched a natural language generative AI voice agent takes first notice of loss by phone. Early customer adoption is exceeding our expectation. The results are tangible. In our claim organization, investments we've made including in automation, straight-through processing, and analytics, refine indemnity payouts and drive operational efficiencies. It's worth pointing out that the efficiency gains in our claim organization come through loss adjustment expense benefiting the loss ratio. As just one example, our claim call center population is down by a third. And this year, we'll be consolidating four claim call centers down to two. And, of course, we're deploying AI broadly across the business. Other use cases enhance underwriting decision quality and efficiency, and improve the experience for customers, agents, brokers, and employees. You'll hear some examples from Greg, Jeff, and Michael. We're so early in this transformation, which means the benefits more effective underwriting, improved operating leverage, and profitable growth will continue to build. To sum it up, our results this year and over time reflect the power of our earnings engine. Fueled by the disciplined execution of our strategy. For the full year, core income was up 26% to $6.3 billion or $27.59 per diluted share. Generating core return on equity of 19.4%. And during the year, we grew adjusted book value per share by 414% after returning $4.2 billion of excess capital to shareholders and investing more than a billion and a half dollars in cutting-edge AI and other technology initiatives. Our operational and financial success in the face of another year of elevated catastrophe losses for the industry supports our ability to be there for our customers. In 2025, we handled a million and a half claims, that's about one every twenty seconds. And paid out more than $23 billion in claim payments. We also met our objective of closing 90% of claims arising out of catastrophes within thirty days. 2026 and in future years, we'll be there to help our customers and communities recover, and to enable individuals and businesses to thrive. Looking ahead, we're also very well positioned to continue generating substantial shareholder value. The durability of our strong underlying business performance provides a powerful foundation for continued strong bottom line results, leading returns, and strong cash flows. Operating from this position of strength, we remain highly confident in the outlook for Travelers in 2026 and beyond. And with that, I'm pleased to turn the call over to Dan. Dan Frey: Thank you, Alan. Core income for the fourth quarter was $2.5 billion and core return on equity was 29.6%. As we once again delivered excellent financial results on a consolidated basis and in all three segments. The full-year underwriting results were also excellent, on both an underlying and as-reported basis. And net investment income was once again higher than a year ago. The strong fourth-quarter finish brings full-year core income to $6.3 billion and full-year core ROE to 19.4%. In Q4, we generated higher levels of written and earned premiums compared to a year ago, while delivering excellent combined ratios on both the reported and underlying basis. At 82.2%, the underlying combined ratio marked its fifth consecutive quarter below eighty-five. The combination of higher premiums and the improved underlying combined ratio led to a 15% increase in after-tax underlying underwriting income. That brings the full-year after-tax underlying underwriting result to $5.5 billion, up 23% from the prior year. The growth in underlying underwriting income in recent years is worth an extra minute of commentary. In 2022, we reported a very strong $2.1 billion after tax. Through the successful and disciplined execution of our strategy, we grew that figure to $3.2 billion in 2023, and to $4.5 billion in 2024 and now to $5.5 billion for 2025. Those earnings are what drive strong cash flow from operations. Which, after averaging about $4 billion for the ten years from 2011 through 2020, surpassed $9 billion in 2024, and reached $10.6 billion in 2025. Expense ratio for the fourth quarter was 28.4%. Bringing the full-year expense ratio to 28.5% as expected. Continue to expect the expense ratio for 2026 to be right around 28.5%. Catastrophe losses in the quarter were $95 million pretax. Turning to prior year reserve development. We had total net favorable development of $321 million pre-tax in the quarter with all three segments contributing. In Business Insurance, net favorable PYD of $25 million was driven by favorability in workers' comp. In Bond and Specialty, net favorable PYD of $30 million was driven by better than expected results in Fidelity and Surety. Personal insurance had $86 million of net favorable PYD, with favorability in both auto and home. After-tax net investment income of $867 million increased by 10% from the prior year quarter. Fixed maturity NII was again the driver of the increase, reflecting both the benefit of higher invested assets and higher average yields. Driven by the strong cash flows I referenced earlier, during 2025, we grew our investment portfolio by approximately $7.5 billion to $106 billion. As of December 31, new money rates were about 70 basis points above the yield embedded in the portfolio. Terms of our outlook for fixed income NII for 2026, including earnings from short-term securities, we expect approximately $3.3 billion after tax. Beginning with about $800 million in the first quarter and growing to about $870 million in the fourth quarter. As with underwriting income, the growth in investment income over the past several years has been significant. Our 2026 outlook represents nearly twice as much fixed income NII as we delivered in 2021 just five years ago. Page 22 of the webcast presentation provides information about our January 1 catastrophe reinsurance renewal, and we're very pleased with the changes for 2026. Our long-standing CAT XOL treaty continues to provide coverage for both single cat events and the aggregation of losses from multiple cat events. The per occurrence loss deductible is unchanged at $100 million and for 2026 we dropped the attachment point to $3 billion compared to the $4 billion attachment point we had in 2025. We believe in all perils cat aggregate is the most efficient way to protect the balance sheet. And the combination of our industry outperformance refined reinsurance structures, and more favorable reinsurance pricing have allowed us to meaningfully improve our coverage with only a modest increase to our total ceded premium costs. We also renewed the enhanced casualty reinsurance program first introduced for 2025. We were once again able to purchase working layer coverage a roughly margin neutral basis. On page 23 of the webcast presentation, have again provided both a summary of the seasonality of our cat losses over the prior decade and a view of our cat plan by quarter for 2026. As you can see, the 2026 cat plan in terms of combined ratio points is higher than both the five and ten-year averages. As a reminder for your modeling in terms of seasonality, as you can see from the data, the second quarter has historically been our largest cat quarter. Also of interest for 2026, we continue to value our relationship with Fidelis. And are very pleased to have once again renewed our 20% quota share with them. The renewal includes the same loss ratio cap we've had in place since the quarter share began in 2023. Interest rates decreased during the quarter as a result, our net unrealized investment loss decreased. From $2 billion after tax at September 30 to $1.5 billion after tax at December 31. Adjusted book value per share, which excludes net unrealized investment gains and losses, was $158.1 at year-end, up 14% from a year ago. Turning to capital management. We returned $1.9 billion of capital to our shareholders this quarter. Comprising share repurchases of $1.65 billion and dividends of $244 million. In our prepared remarks last quarter, we indicated that we expected to execute roughly $1.6 billion of share repurchases in the 2026. Including the use of about $700 million from the sale of Canadian operations which did close as planned on January 2. Even with the increased level of share repurchases we just executed in Q4, given the strong finish to the 2025 year, we now expect repurchases of around $1.8 billion in Q1. Of course, the actual amount and timing of repurchases will depend on a number of factors, including cat events and other quarterly earnings impacts, as well as other factors we disclose in our SEC filings. I'd like to make one other comment on capital management to help with your models. Given the growth we've generated over the past several years, and the outlook for continued growth, we're now more likely to issue debt every year assuming we're comfortable with market conditions. Our recent history has been to issue debt every other year. Annual debt issuance allows us to maintain a more consistent debt capital ratio. Recapping our results for 2025, we're very pleased to have delivered net and core income of $6.3 billion and core return on equity of 19.4%. We ended the year with our all-time high in book value per share and with our largest investment portfolio ever. In short, we're extremely well-positioned for 2026 and beyond. And with that, I'll turn the call over to Greg for a discussion of business insurance. Greg Toczydlowski: Thanks, Dan. Business Insurance had another very strong quarter. Rounding out another terrific year in terms of financial results execution in the marketplace, and progress on our strategic initiatives. Segment income for the quarter was nearly $1.3 billion and up more than $100 million from the prior year quarter. Improvement from the prior year was driven by higher net investment income, higher favorable prior year reserve development, and lower catastrophes. The all-in combined ratio of 84.4% was a great result. About a point better than the prior year quarter. We're once again particularly pleased with our exceptional underlying combined ratio of 87%. The underlying loss ratio was the second-best quarterly result ever. Trailing only last year's fourth quarter record. Expense ratio remained excellent at 29.3%. Turning to the top line, net written premiums reached an all-time fourth-quarter high of more than $5.5 billion. We grew our leading select and middle market business by 43%, respectively. These two markets make up almost three-quarters of our net written premiums for business insurance in the quarter. We saw a decline in national property premiums reflecting our disciplined execution in terms of risk selection, pricing, and terms and conditions. Excluding the property line, domestic net written premiums were up 4%. As always, our focus is on writing business that meets our risk profile and underwriting standards. And where we can get an appropriate price with terms that reflect the exposures perils. As for production across the segment, pricing remained attractive with renewal premium change of just over 6%. Excluding the property line, RPC was strong at 8%. Renewal premium change was positive in all lines, including property. And double digits in CMP, umbrella, and auto. Retention remained excellent at 85% and new business of $675 million was up 6% from the prior year quarter. We're pleased with these production results and our field's execution of our proven segmentation strategy. Across the book, pricing and retention results this quarter reflect excellent execution, aligning price terms and conditions with environmental trends for each line. As for the individual businesses, in select, renewal premium change and renewal rate change both remain strong for the quarter and about flat with third-quarter levels. Retention was up two points from the fourth quarter of last year as we continue to wind down our CMP risk return optimization efforts. Lastly, new business was up 6% from the fourth quarter of last year to a healthy $139 million. In our core middle market business, renewal premium change remained attractive at 6.6%. Price increases remain broad-based as we achieved higher prices on about three-quarters of our middle market accounts. And at the same time, the granular execution was excellent. With meaningful spread from our best-performing accounts to our lower-performing accounts. To a large degree, the sequential decline in RPC was impacted by the property line. Where RPC remains positive healthy, and reflective of attractive returns. We're pleased that middle market retention remained exceptional at 87% and new business of $395 million was up 11% to an all-time fourth-quarter high. As we close out 2025, let me provide a little color on full-year results before turning the call over to Jeff. We're very pleased to report segment income of nearly $3.7 billion, an underlying combined ratio of 88%, and top line of $22.7 billion. This was the third year in a row where we delivered an underlying combined ratio of less than 90%. As for production, renewal premium change in retention both remained historically high. While new business premiums approaching $3 billion reached an all-time best. These sustained exceptional results are a direct reflection of our strong value proposition. As well as the successful execution of our thoughtful and deliberate strategies. Beyond our execution excellence, we're pleased with the contributions we're getting from our ongoing strategic initiatives. The decision support tools were put in the hands of our underwriters at the point of sale including models that derive risk characteristics, refined technical pricing, and summarize historical model loss experience results in better risk selection, pricing, and terms and conditions. In addition, we're encouraged by the impact we're seeing from our product and user experience initiatives. Including how well they've been received in the market. Our new BOP product is now fully rolled out and our new auto product is live in forty-six days. Both products contain industry-leading segmentation which contributes to profitable growth. We also continue to enhance the insights around our submissions based on quality and appetite that allow our underwriters to focus on those new business opportunities that we most want to add to the portfolio. We're pleased with our progress with GenAI. We're building and executing a robust portfolio of Gen AI initiatives that will enable enhanced risk assessment and selection ultimately improving loss experience as well as drive gains in productivity and efficiency and improve our industry-leading experience for our agents and brokers. As just one example, we've recently rolled out GenAI agents to efficiently mine both internal and external data sources to better understand and synthesize the risk characteristics and ensure appropriate business classification. This capability both accelerates the underwriting process and results in improved risk classification and segmented pricing. To sum up, we feel terrific about our performance and financial results in 2025. We're excited about what we're investing in for the future and we have the best people in the business. And they're not only executing with excellence in the market today, but they're also helping to shape the transformation of our industry. In short, we're well-positioned for continued profitable growth. With that, I'll turn the call over to Jeff. Jeffrey Klenk: Thank you, Greg, and good morning, everyone. Bond and Specialty ended the year with another strong quarter on both the top and bottom lines. In the fourth quarter, we generated segment income of $236 million and an excellent combined ratio of 83%. A strong underlying combined ratio of 85.7% was a little more than a point better than the prior year quarter. Turning to the top line, we grew net written premiums by 4% in the quarter to $1.1 billion. In our high-quality domestic management liability business, renewal premium change was 2.8%. While retention remained strong at 87%. We're very pleased with the progress we've achieved to improve pricing through our purposeful and segmented initiatives while continuing to deliver strong retention. As we expected, new business was lower than the '24. As a reminder, this is the final quarter of year-over-year new business impact from our Corvus acquisition. With most Corvus production now reported as renewal premium. Turning to our market-leading surety business, net written premiums increased from the very strong prior year quarter reflecting strong demand for our products and unparalleled value-added services. We're pleased to have once again delivered strong results in Bond and Specialty this quarter. Reflecting on the full year, we're also very pleased with the performance of our business in 2025. Our management liability business, we successfully navigated ongoing soft market conditions and were among the first carriers to drive higher pricing to improve product returns where needed. Despite market headwinds, we drove profitable account and premium growth by leveraging our investments in advanced analytics, including the automated delivery of next-generation sophisticated pricing models. Our AI investments to automate submission intake for new business, reduced our time to ingest submissions from hours to just minutes, and we recently extended automation capabilities to renewal workflows. We've also made important investments in sales effectiveness, and enhancements to our product offerings. In capitalizing on our Corvus acquisition, we've successfully extended cyber risk services to customers across our portfolio. This includes always-on threat monitoring with same-day alerts, continuous dark web surveillance, twenty-four seven to a tailored policyholder dashboard, and personalized security consultations from our in-house cyber experts. As we've expected, these capabilities are helping our customers to more effectively manage cyber risks and are mitigating our exposure to evolving cyber vulnerabilities. In our surety business, we drove solid growth by capitalizing on our industry-leading expertise, and premier value-added service offerings. We've entered into new and expanded distribution arrangements domestically and internationally, that position us for continued growth. We've more closely aligned and integrated our outstanding Canadian surety operation which contributes to our position as the leading surety in North America. And in our commercial surety flow business, we've leveraged AI to enhance distribution submission and fulfillment experiences, improving efficiency, and fueling growth. All of these investments and initiatives and the terrific execution by our outstanding team drove another strong year of profitable growth in Bond and Specialty and we're excited about the opportunities that lie ahead. And with that, I'll turn the call over to Mike. Michael Klein: Thanks, Jeff. I'm very pleased to share that personal insurance generated segment income of more than a billion dollars in the quarter, and a combined ratio of 74%. Both results reflect the strong underlying fundamentals of our business. For the full year, personal insurance generated over $2 billion of segment income and combined ratio of 89.5%. These results improved compared to the prior year, notwithstanding significant losses from the California wildfires. Reflecting the strength of our diversified book of business and our disciplined approach to selecting pricing and managing risk. Net written premiums in the fourth quarter were comparable to the prior year, reflecting strong renewal premium change in homeowners and other, and higher auto new business premiums. Full-year net written premium increased 2% to a record $17.4 billion. In auto, the fourth-quarter combined ratio was 89.4% reflecting a strong underlying combined ratio and favorable net prior year development. The underlying combined ratio of 92.2% improved just over four points compared to the prior year quarter. Driven by continued favorable frequency across coverages, with sustained moderation and severity partially offset by the impact of continued moderation in earned pricing. This quarter's underlying combined ratio included a three-point benefit related to the re-estimation of prior quarters in the current year. The full-year auto combined ratio of 85.7% represents improvement of over nine points compared to the prior year. As we experienced favorability in both frequency and severity. In homeowners and other, the fourth-quarter combined ratio of 60.3% improved by 7.5 points compared to the prior year quarter. Primarily as a result of improvement in the underlying combined ratio and lower catastrophe losses. The underlying combined ratio of 59.9% improved by 5.5 points compared to the prior year quarter, reflecting the impact of our actions to achieve target returns. The year-over-year favorability was primarily related to the benefit of property earned pricing as well as favorability in non-catastrophe weather, and non-weather losses. Stepping back, the 2025 full-year property combined ratio of 93% was a notable improvement compared to the prior year. This reflects our actions to manage exposures in high catastrophe risk geographies, along with favorable non-catastrophe weather losses. Turning to production. Our results reflect continued disciplined execution, to position our diversified portfolio to deliver long-term profitable growth. In domestic auto, retention of 82% increased slightly from recent quarters. Renewal premium change of 2.2% continued to moderate as expected. And will continue to do so in 2026. Reflecting our sustained profitability and our focus on generating growth. Auto new business premium was up year over year, as new business momentum continued in states less impacted by our property actions. In domestic homeowners and other, retention of 84% remained relatively consistent with recent quarters. Renewal premium change remained strong at 16.7%. As we concluded our efforts to align replacement cost with insured values. We continue to expect RPC to drop into the single digits beginning in early twenty twenty-six reflecting improved profitability, and values that have now largely aligned with replacement costs. Quarterly new business premium and policies enforced declined compared to the prior year. These production results reflected the deliberate choices we've made to improve profitability and manage volatility in property. Over the past few years, we've executed a granular strategy to reposition our portfolio to optimize our risk return profile. The results have been meaningful. We reduced property policies in force by 10% with most of that decrease coming from high cat geographies, reflecting disciplined risk selection, and concentrated actions to manage volatility and reduce local market aggregations of exposure. While these actions impacted auto policies in force, the impact was muted. As we grew auto in many of the markets less affected by our property actions, demonstrating our ability to sustain a competitive position where portfolio economics remain favorable. Overall, the net impact of our actions is shifting the portfolio back toward a better balance between auto and property. Looking ahead to 2026, as we wind down many of our actions in property, we're focused on maintaining this progress by deploying property capacity in support of writing package business. The strength of our 2025 results reflects years of disciplined execution and strategic investment. Since year-end 2020, net written premiums grew $6 billion to $17.4 billion while we generated an average combined ratio of 98%. Over that same period, our domestic auto grew both in terms of PIF and premium. And in our homeowners portfolio, our actions to address profitability, geographic distribution, and terms and conditions have meaningfully improved risk-adjusted returns. In addition, we continue to invest in and deploy strategic capabilities. As just one example, we're leveraging artificial intelligence to make our renewal underwriting process more effective and efficient. We start with a proprietary AI-enabled predictive model that scores every account in the property portfolio. Based on this score, accounts with the highest probability of loss are presented to underwriters for review. From there, our renewal underwriting platform leverages generative AI to consolidate data into summaries of relevant actionable information for our underwriters to evaluate. With early results showing more than a 30% reduction in average handle time. Net result is that our underwriters focus their efforts on decisions most likely to improve profitability, and do so more efficiently. To sum up, to the continued diligent efforts of our team and with support from our distribution partners, personal insurance continues to deliver on a long track record profitably growing our business over time. Now I'll turn the call back over to Abbe. Abbe Goldstein: Thanks, Michael, we are ready to open up for Q&A. Thank you. We will now begin the question and answer session. We also ask that you limit yourself to one question and one follow-up. For any additional questions, please re-queue. And your first question comes from Gregory Peters with Raymond James. Please go ahead. Gregory Peters: Good morning, everyone, and as you said in your comments, you did have a great year, so congratulations. Alan Schnitzer: Thanks, Chris. Gregory Peters: I wanted to thank you for the commentary around the technology. You know, I've been asking you about this off and on. Like others have for a couple of years now. In Dan's guidance for the expense ratio, I think he said it's gonna be flat in twenty twenty-eight point five versus what it was in '25 versus the same in '24. So I guess what I'm trying to reconcile is you know, the emphasis on growing the strategic investments. You're harvesting efficiencies, with these technology investments. Just wondering when the structural shift in the expense ratio might materialize. And maybe know, I was looking at you know, the responsible artificial intelligence framework section of your website, maybe you could talk about some of the regulatory and other considerations that might delay some of the expected benefits from your technology spend? Alan Schnitzer: Greg, thanks for the question. I appreciate it. In terms of the expense, I mean, we give you a sort of a year outlook of where we'd like it to be, and that's not something that happens to us. That's something we manage. And we talk a lot about trying to optimize operating leverage. So, you know, in other words, we want the gains from the efficiencies that we're generating and that just gives us a lot of flexibility in the way we run the business. We can let it fall to the bottom line if we want through lower expense ratio, we can continue to invest it in other capabilities. Just gives us the flexibility to manage the business. And as I shared in my remarks, the extent that some of these productivity and efficiency benefits are in the claim organization, you know, those come through loss adjustment expense in the loss ratio. Again, we've got the flexibility there to think about that as an operating leverage component. But just in terms of where those benefits are or where they might arise in the future. In terms of the regulatory environment, from our perspective, it's constructive. We know, we try to make sure that we're using the technology in ways that are thoughtful and careful. And, you know, frankly, we as a company and we through our trade association are on a regular basis working with policymakers to make sure that we're achieving, you know, smart public policy and regulations as it comes to the development and implementation of technology. Gregory Peters: I guess and thanks for the answer. I guess related on the regulatory front, you know, there are an increased example of more examples of regulators becoming more focused on the profitability of the insurance business and particularly the personal lines business. And I'm just curious if you have a view on any regulatory pushback you might be getting on the profit levels in your business and if you think there's anything, you know, bigger issues at play that's gonna spread throughout the country as it relates to that. Alan Schnitzer: Yeah. You know, Greg, we certainly understand the affordability issue and think it's an important one for all of us to be focused on and we are on it. Let me just put the profitability of our personal insurance business into some perspective. We had a good year in '25. We had a good year in 2024, but the two years prior to that our combined ratio was over a 100. And if you look at the last five years, you know, it was 98, I think. So, you know, that would be below our target returns. And so this really is a business that you need to look at and manage over a period of time. And I think when you think about personal insurance results over a period of time, I mean, certainly, in our case, you wouldn't say that we're over-earning. So we, you know, we are trying to get the right price on the risk and earn a fair return for helping customers manage their risk. Abbe Goldstein: Your next question comes from the line of Ryan Tunis with Cantor Fitzgerald. Please go ahead. Ryan Tunis: Hey. Thanks. Good morning. Alan, in your prepared remarks, I think you mentioned that in business insurance, renewal premium change ex property was a little over 8%. I think that number was 9% last quarter. Just curious how much of that one-point deceleration is attributable to rate versus exposure? Alan Schnitzer: Yeah. So we're looking for the exact breakout, Ryan. It's a little bit of both. Dan Frey: Yeah. I mean, Ryan, if you look at the middle market webcast, you can see exposure was down. You can do the math between rate and RPC. It's not perfect math. So to Alan's point, a little bit of an exposure and a little bit of rate. Got it. Ryan Tunis: And then, I guess, just on the property side, clearly, it was a bit of a challenging year in the large account space. Just from a trading standpoint. Just curious how you guys are thinking about overall rate adequacy in national property headed into 2026. Alan Schnitzer: Yeah. Ryan, it's a challenging year. I mean, you know, the pricing dynamic is what the pricing dynamic is, but to a very large degree, that's where reflective of the profitability of that business. I mean, that business has been achieving, you know, rate gains over a very long period of time and it's gotten to a point where the profitability was strong. So we don't really look at a macro level and look at it and say it was challenging and appropriate. It's you know, it's not you can certainly find examples of accounts and we'll scratch our head and say, gee, we're surprised that got priced that way or and, honestly, more than price, we're surprised sometimes with the terms and conditions that we see given away in the marketplace that we're not willing to do. But, you know, so writ large, we look at it and we say, like, it's not so crazy when you think about where the returns are. Abbe Goldstein: Your next question comes from the line of David Motemaden with Evercore. Please go ahead. David Motemaden: Hey. Thanks. Good morning. Dan, just had a follow-up just on the capital return. So hear you loud and clear on the $1.8 billion that's expected in the first quarter. But just given what sounds like a change in terms of just how you guys are managing the debt load, and what looks like, you know, a billion dollars of excess at the holding company now before the Canada proceeds and pretty healthy statutory capital levels. Any sort of thought in terms of how we can think about the buybacks throughout the rest of this year outside of 1Q into 'twenty-seven just given the current growth environment? Dan Frey: David, so I'd say not really. I mean, we can't really sit here at the very beginning of the year and give much guidance on what we think buybacks are going to look like in the second, third, and fourth quarters of this year? There's no change in our capital management strategy, and we made these comments, you know, last quarter when we alerted you to the fact that we did expect higher levels of buybacks in at least Q4 and Q1 because we had, as you recognize, reached a point where we're probably carrying a little more capital on the balance sheet than we needed to. But no change in the overall capital management strategy and the rest of the year is gonna be impacted by all the usual things that would impact buybacks. What do cat losses look like? What does overall profitability look like? How do we feel about the growth environment? And we're gonna responsibly manage the capital. Right? We're not looking to hoard capital. We're looking to hold the right amount. And when we have excess, it's not ours, and we're gonna give it back to the shareholders. Alan Schnitzer: The only thing I would add to that, David, is our first objective for every dollar of capital that we generate is to invest it back into the business. David Motemaden: Got it. No. Thanks. That makes sense. And then just as my follow-up, just looking at Slide 23 and the 7.8% expectation for catastrophe losses in 2026. If I just sort of do rough math on the 2025 premium levels, that implies, you know, a little bit above, I think, $3.435 billion, which is above, you know, where you guys have the retention at your XOL, your aggregate. So could you help me understand a little better the moving pieces there then just relatedly, just the cost of that, how much of a drag that might be on BI premium growth in 2026? Dan Frey: Sure, David. Thanks for the question. So I guess I'll start with the second part of it and say, we don't expect it to be much of a drag. In my prepared remarks, we talked about improvements in pricing in the reinsurance environment. And a couple of other things we're doing around the edges that, you know, we don't think the year-over-year impact of ceded premium is gonna be that big a deal in '26. It really importantly, though, what you were getting to in terms of cat load on a percentage point basis and what that might translate into dollars. The thing you gotta remember when you think about the attachment point of the treaty is the first $100 million of every event is ours. So you can't just say if we thought we were gonna have three-point x million dollar billion dollars of cat losses next quarter. Anything over three goes to the treaty. The first $100 million of every event is ours. We said with this treaty, historically, this is really where buy-in tail protection for the balance sheet. That's still true. Clearly, with the $3 billion retention compared to a $4 billion retention, we're a lot closer in on the tail of possibly being able to hit that book. But if we looked at if you look, for example, at if we had that treaty in 2025, we would not have attached that treaty. Abbe Goldstein: Your next question comes from the line of Michael Zaremski with BMO. Please go ahead. Michael Zaremski: Hi. Good morning. My question is around all the great color you gave on technology initiatives. Would you be able to share what you maybe roughly expect your organic headcount growth or shrinkage to be on a percentage basis this year versus, I mean, last year or so? Alan Schnitzer: Yeah, Mike. Yeah. We gave you an example of a narrow view of that in our claim organization in our call centers. We're not gonna get into projecting headcount beyond that. But what I would say is premium per employee is up, thanks to some productivity and efficiency initiatives. And we expect premium per employee to continue to go up. Michael Zaremski: Okay. Got it. That's helpful. Switching gears for my follow-up to you commercial lines. I think we can tease it out based on the comments in the prepared remarks, so maybe you can just tell us in casualty commercial, maybe non-workers' comp, was the change in pricing kind of sequentially? Or what's the trend line looking there? Thanks. Greg Toczydlowski: Yes, Mike. Good morning. That would predominantly be the GL line in the umbrella. And in my prepared comments, shared with you umbrella at double-digit in terms of renewal premium change. What I didn't include was GL. GL, I think, has been running in the mid-single digits in terms of renewal premium change. Those would be the two components outside of the comp. Abbe Goldstein: Your next question comes from the line of Katie with Autonomous Research. Please go ahead. Katie: Yeah. Thank you. Good morning. Alan, you mentioned in your prepared remarks that the strengths seen in underlying underwriting this quarter is a durable dynamic. Guess with pricing momentum seeming to continue to slow down here, can you map out for us what's driving your confidence that those underlying results hold in, in 2026? Alan Schnitzer: Yeah, good morning, Katie. So Dan shared and I shared the trajectory of underlying underwriting income in our prepared remarks, and you can see it in the slides in the webcast. We are a larger and more profitable company today than we have been historically. And thanks to investments that we've made in products, services, experience, capabilities, and so on, we are very confident in our ability to continue writing premium at substantial levels, and we're very happy with the business that we're putting on the book. So when you combine those premium levels with reasonably strong profitability, you get high levels of underlying underwriting income. And if you look at the trajectory, you get a sense of what it's done over the last several years and we're confident it'll continue to be a strong foundation for strong results in the years to come. Katie: And then as a follow-up, I think last year in the fourth quarter, the business insurance underlying loss results included some additional IBNR for casualty lines. Guess, with the net favorable reserve development results this year, that probably seems to be holding in fairly well. But could you give us any additional color there? And let us know if there were any similar additions to IBNR this quarter? Dan Frey: Hey, Katie. It's Dan. So we did say, as you recall from last year, that we were including in the accident year loss pick for 2024, you know, what we called sort of the load for uncertainty related to the casualty lines. I'm pretty sure we said we were doing that again in 2025, and we did do that again in 2025. And just to get the question out of the way, as we head into 2026, our planned loss ratio for 2026 once again includes an uncertainty provision in the casualty space. I would say the casualty loss is generally performed about as we expected, not really better than we had expected. You know, the business insurance workers' comp favorability has really been driven by workers' comp. But long-tail line still in the casualty space, a little bit of uncertainty, so we're gonna stay prudent and stick with that load again in twenty-six. Abbe Goldstein: Your next question comes from the line of Meyer Shields with KBW. Please go ahead. Meyer Shields: Great. Thanks so much, and good morning. I think this is probably for Dan. I know you talked about not having much of an overall margin impact from lowering the catastrophe reinsurance attachment point. Should there be any impact on a seasonal basis? In other words, is there any pressure on first-quarter combined ratio components? Dan Frey: Yeah. I don't think so, Meyer, again, because when we look at our reinsurance program in the aggregate in terms of what we're going to pay out for ceded premium given the pricing dynamic in the reinsurance space and, again, some other changes we made around the margins in a reinsurance program. We think it's gonna have much of an impact. Meyer Shields: Okay. Perfect. Thanks. And just a question for Michael. When you look forward to 2026 and beyond, are you comfortable growing the more capstone state policy counts in line with the overall book, or are we still constraining growth? Michael Klein: Yes. Thanks, Meyer. I think my point in my prepared remarks about deploying property capacity to support package growth but maintaining the progress that we've made implies that certainly at most we would grow pet-prone states in line with the rest of the portfolio, but we do still have some spots where we'll be constrained. So I'd expect in aggregate, the property PIF growth will continue to trail auto as it has been, but both the growth trajectories of both lines should improve. Abbe Goldstein: Your next question comes from the line of Alex Scott with Barclays. Please go ahead. Alex Scott: Hi. Thanks for taking the question. First one is on just capital deployment, maybe a little bit of a follow-up off the question earlier. How are you viewing prospects for M&A relative to organic growth at this point? I mean, the profitability seems really attractive, but the growth obviously, a bit lower. So I'm just trying to gauge if your organic growth isn't quite as attractive to you. Could M&A be a way that you go? Alan Schnitzer: Alex, I'm gonna give you the same answer I've given like, for ten years. I'm sorry for I'm not gonna be the satisfying answer you're looking for. But the answer to that for us is we're always looking for M&A opportunities. And, you know, we've got the capital and we've got the expertise to diligence the deals and find the deals and execute the deals. And we are always looking for attractive inorganic opportunities. But I would have answered that question the same way at any point in the last decade. Alex Scott: Okay. Understood. I guess second one for you on tariffs and just all of a sudden, it seems like maybe a wider range of outcomes again. How does that affect the way that you go about pricing maybe across all your businesses? But be particularly interested in personal auto. Alan Schnitzer: You know, a couple of quarters ago when we first started talking about tariffs, we shared our view that we thought that the impact was gonna be relatively mild for us. And you go back and look at the and we shared a fair amount of commentary about how we got there. And at the time, you know, for lines that are potentially impacted, we did provide a little bit of a little bit of in the loss pick for that. What we've seen so far hasn't even been the relatively modest amount that we expected. Now as the world changes and as the tariff are out there longer, certainly that dynamic could change, but we feel like the provisions that we've made in the loss picks for potentially impacted lines are there to cover it. Abbe Goldstein: Your next question comes from the line of Brian Meredith with UBS. Please go ahead. Brian Meredith: Yeah. Thanks. First one for Michael. I'm just curious, Michael, the personal auto insurance space is getting increasingly more competitive. Some new entrants in the agency space. Maybe you could talk a little bit about those competitive dynamics. And what is gonna enable, you know, Travelers to actually maybe recoup some of the market share you've lost over the last couple of years in personal auto? Given the competitive dynamics in that market? Michael Klein: Yes. Thanks, Brian. I would start with, you know, the marketplace is always competitive. And certainly, you know, I think a lot of the news that you see is around competition in the IA space. The first thing I'd say about that is I think it's a great validation of our strategy to be largely an independent agent carrier for personal lines. And the value of choice and advice in this type of a marketplace. The second thing I would say is we've competed successfully in the independent agent channel for years. We remain confident in our ability to compete successfully in that channel. And I think it really comes down to, you know, a handful of competitive advantages in the space. Certainly, and durability of our relationships with independent agents, our investments in digitization and ease of doing business, and then lastly, and again, I've been talking about this for the last several quarters, the value of our package value proposition for both agents and our ability to deliver balance sheet protection for consumers. Is another key advantage that we have in that space. And again, we're confident in our ability to compete going forward. Dan Frey: Yeah, Brian. It's Dan. I'll just add one more comment in there on the auto space particular. So, you know, last couple of years, we've seen policy count down, you know, but if you looked at the business now compared to what it was, say, five years ago, we're up one of only a very small number of carriers. It's actually got a higher PIF count now than we did five years ago. And our view always again on growth is how you think about growth over time, right? We're not really looking to influence a growth number in the next quarter or even necessarily the next year. What's the right balance of returns? And are you sure that you're growing over time? Brian Meredith: Great. That's helpful. And then Alan, just curious. I'll always welcome your thoughts on the tort environment and casualty trend and what you see here going forward. Anything positive that's developing here that maybe curves that kind of loss trend on tort inflation? Alan Schnitzer: Yeah, Brian. I mean, it continues to be a very challenging environment, and I wish I could say that we saw improvement. It continues to be a pretty challenging environment. What may be a little bit of a bright light is we do see more states reacting to a difficult tort environment. And, you know, certainly, the impact of tort cost is impacting affordability for businesses and consumers. And I think we're seeing that in some states. And so that's, you know, potential positive. The other thing we are seeing more of is disclosure requirements when it comes to third-party with litigation financing, and that's also a very good thing. So we are, you know, continue to put our shoulder into it, and there's more work to do. Brian Meredith: Thank you. Abbe Goldstein: That's all the time that we have for questions. I would now like to turn the conference back over to Ms. Abbe Goldstein for closing comments. Abbe Goldstein: Thanks, everyone, for joining. I know we left several analysts in the queue, but as always, please feel free to follow up with Investor Relations. Thanks, everyone, and have a good day. Operator: This concludes today's conference call. Thank you for participation, and you may now disconnect.
Operator: Welcome to the Old National Bancorp fourth quarter and full year 2025 earnings conference call. This call is being recorded and has been made accessible to the public in accordance with the SEC's Regulation FD. Corresponding presentation slides can be found on the Investor Relations page at oldnational.com and will be archived there for twelve months. Management would like to remind everyone that certain statements on today's call may be forward-looking in nature and are subject to certain risks, uncertainties, and other factors that could cause actual results or outcomes to differ from those discussed. The company refers you to its forward-looking statement legend in the earnings release and presentation slides. The company's risk factors are fully disclosed and discussed within its SEC filings. In addition, certain slides contain non-GAAP measures, which management believes provide more appropriate comparisons. These non-GAAP measures are intended to assist investors' understanding of performance trends. Reconciliations for those numbers are contained within the appendix of the presentation. I'd now like to turn the call over to Old National's Chairman and CEO, Jim Ryan, for opening remarks. Mr. Ryan? Good morning. Jim Ryan: Before we get started, I want to congratulate the Indiana Hoosiers for a perfect season in winning the National College Football Championship. You've made our state incredibly proud. Earlier today, Old National announced strong fourth quarter earnings, marking an exceptional year that set new organizational records for adjusted earnings per share, net income, and the efficiency ratio. Our 2025 results were driven by a focus on the fundamentals: core deposit growth to support loan expansion, positive operating leverage, disciplined credit management, and healthy liquidity and capital ratios. Once again, we showed our unwavering commitment to shareholders, clients, team members, and communities. Our peer-leading fourth quarter profitability was highlighted by an adjusted return on average tangible common equity of nearly 20%, an adjusted ROA of 1.37%, and an adjusted efficiency ratio of 46%. These outstanding quarterly results further reinforce the momentum behind our 2025 record performance that John will discuss later in the call. In 2025, we successfully completed the systems conversion and integration related to our Bremer Bank partnership. This was a major effort executed exceptionally well. I want to thank our team members once again for their relentless focus and hard work throughout this. The conversion reaffirmed the strength of our disciplined integration framework, which truly sets Old National apart. As we have stated, driving tangible value per share growth is a key priority. This past year, we grew tangible book value per share by 15% despite the impact of closing our Bremer partnership, the associated one-time charges, and repurchasing 2.2 million shares in the back half of the year. We remain committed to strengthening tangible book value per share while continuing to drive peer-leading profitability. Looking ahead to 2026, we will maintain the right balance between building capital organically and returning capital through share repurchases supported by our peer-leading return on average tangible common equity. As I mentioned last quarter, the best investment we can make is in ourselves. Our focus remains on organic growth and disciplined capital returns to maximize shareholder value. We started 2026 with strong momentum, and we will continue to strengthen our core fundamentals by investing in talent, technology, and client-facing capabilities. These efforts will ensure we remain strong, scalable, and positioned for long-term success. Thank you. I will now hand the call over to John to read the financial results in more detail. John Moran: Thanks. On slide five, as Jim mentioned, fourth quarter 2025 was a strong finish to a highly successful year marked by records in adjusted EPS and efficiency with peer-leading profitability improvement in already durable credit metrics, and significant capital generation despite closing Bremer, which solidified our position in Minnesota while adding attractive funding in North Dakota. Speaking of our latest partnership, I'd be remiss if I didn't mention that conversion of Bremer was one of our smoothest and most successful integrations ever. For the quarterly details on slide six, we reported GAAP 4Q earnings per share of $0.55. Excluding $0.07 of merger-related expenses, Bremer pension plan termination charges, and the reduction in our FDIC special assessment accrual, adjusted earnings per share were $0.62. A 5% increase over the prior quarter and a 27% increase year over year. Results were driven by stable margin, better than expected growth in fee income, and well-controlled expenses. Importantly, credit improved with an 8% reduction in total criticized and classified loans and low levels of non-PCD charge-offs. Our profitability profile as measured by return on assets and on tangible common equity remain top decile against our peers. Lastly, our capital position has rebuilt quickly with CET one over 11% and we grew tangible book value per share over 17% annualized. On Slide seven, you can see our quarterly balance sheet trends highlighting our strong liquidity and capital. Our deposit growth over the last year has continued to keep pace with asset growth and the loan to deposit ratio is now 89%. We grew tangible book value per share by 4% from 3Q and 15% over the last year even with the impact of the Bremer close absorbing approximately $140 million of merger charges year to date while repurchasing 2.2 million shares since we restarted the buyback in 2025. These liquidity and capital levels continue to provide a strong foundation as we head into 2026. On Slide eight, we show trends in earning assets. Total loans grew 6.4% annualized from last quarter. Production was up 25% and was strong throughout our commercial book. Despite strong production, our pipeline is up nearly 15% from the prior quarter. Higher production levels were again partly offset by strategic portfolio management as evidenced by our lower criticized and classified levels due to payoffs. The investment portfolio was essentially unchanged from the prior quarter with portfolio purchases offset by changes in fair values. We expect approximately $2.9 billion in cash flow over the next twelve months. Today, new money yields are running about 94 basis points above back book yields on securities. The repricing dynamics for both loans and combined with loan growth continued to support stable to improving net interest income and net interest margin over the course of 2026, with the first quarter impacted by two fewer days. Moving to slide nine, we show trends in deposits. Total deposits increased 0.6% annualized in core deposits ex brokered decreased about 3% annualized primarily driven by seasonally lower public funds balances. Noninterest bearing deposits grew to 26% of core deposits from 24% in the prior quarter. Our use of broker deposits increased in alignment with the aforementioned public funds seasonality. Even with that increase, our brokered levels remain below peer levels at 6.7% of total deposits. The 17 basis point linked quarter decrease in our cost of total deposits played out as we expected with Fed cuts in our offensive posture with respect to client acquisition. We achieved an approximate 87% beta on rates in our exception price book in conjunction with the Fed cuts in the quarter. These actions resulted in a spot rate of 1.68% on total deposits at December 31. Overall, we remain confident in the execution of our deposit strategy and we are prepared to proactively respond to the evolving rate environment. Slide 10 shows our quarterly income statement trends. As I mentioned earlier, adjusted earnings per share were $0.62 for the quarter, with all key line items in line or better than our prior guidance. Moving on to slide 11, we present details of our net interest income and margin. Both of which increased as we had expected and guided. Modest margin expansion was supported by deposit repricing. Slide 12 shows trends in adjusted noninterest which was $126 million for the quarter, exceeding our guidance. While most of our fee businesses performed in line with our expectations, we again saw better than expected performance within mortgage and capital markets. In both cases, this was driven by a somewhat more favorable rate backdrop for these businesses. Continuing to Slide 13, show the trend in adjusted non-interest expenses of $365 million for the quarter. Run rate expenses remain well controlled, and we generated positive operating leverage on an adjusted basis year over year with a record low of 46% adjusted efficiency ratio. We realized approximately 28% of the anticipated Bremer cost saves in the fourth quarter. And as a reminder, the saves from Bremer are expected to be fully realized in the first quarter. This is reflected in our 2026 guidance, which I'll get to in a few slides. On slide 14, we present our credit trends. Total net charge-offs were 27 basis points and were 16 basis points, excluding charge-offs on PCD loans. Criticized and classified loans decreased $278 million or approximately 8%, and nonaccrual loans decreased $70 million or approximately 12%. This improvement is reflective of the continued focus on active portfolio management. Notably, in our commercial real estate portfolios, we saw upgrades and payoffs exceed downgrades by a two to one ratio. The fourth quarter allowance for credit losses to total loans, including the reserve for unfunded commitments, was 124 basis points. Down two basis points from the prior quarter, primarily driven by the in criticized and classified loans. Consistent with the third quarter, our qualitative reserves incorporate a 100% weighting on the Moody's s two scenario with additional qualitative factors to capture global economic uncertainty. Lastly, given the increased focus on loans to nondepository financial institutions, we'd like to emphasize as we did last quarter that our exposure is de minimis. Slide 15 presents key credit metrics relative to peers. As discussed in past calls, we have historically experienced a lower conversion rate of NPLs to NCOs as compared to our peers driven by our approach to credit and client selection. That continues to be the case, and we remain comfortable around the credit outlook. On Slide 16, we review our capital position at the end of the quarter. All regulatory ratios increased linked quarter due to strong retained earnings partly offset by robust quarterly loan growth and Bremer merger-related charges. On the GAAP capital front, TCE was up about 20 basis points and tangible book value per share was up 4% linked quarter and 15% year over year. We expect AOCI to improve approximately 11% or $55 million by year-end. Our strong profitability profile continues to generate significant capital which opened the door for capital return earlier this year. As previously mentioned, late in the quarter, we repurchased an additional 1.1 million shares of common stock, taking our total to 2.2 million shares for the year. We don't view growing capital and returning capital as mutually exclusive in 2026. Slide 17 includes updated details on our rate position and net interest income guidance. NII is expected to increase with the benefit of fixed asset repricing and continued growth. Our assumptions are listed on the slide, but as we do each quarter, we would highlight a few of the primary drivers. First, we assume two additional rate cuts of 25 basis points each in 2026 which aligns with the current forward curve. Second, we assume the five-year treasury rate at 375 basis points. Third, we anticipate our total down rate deposit beta to be approximately 40%. Which is in line with our terminal up rate betas and our 4Q experience. And fourth, we expect noninterest bearing deposits to remain relatively stable. Importantly, our balance sheet remains neutrally positioned to short-term interest rates. As such, the path of NIM and NII in 2026 will depend on growth dynamics and the shape of the yield curve the absolute level of the belly of the curve, and continued deposit data management more than the absolute level of short-term rates. Slide 18 includes our outlook for the first quarter and full year 2026. We believe our current pipeline supports 1Q growth of 3% to 5% and full year loan growth of four to 6%. We anticipate continued success in the execution of our deposit strategy and expect to meet or exceed industry growth in 2026 and generally in line with our asset growth. We expect fee income to remain strong given a supportive rate backdrop for mortgage and capital markets as well as continued progress in wealth management and brokerage. Expense guidance incorporates a full quarter run rate on Bremer cost savings and typical seasonal factors in the first quarter. Other key line items are highlighted on the slide. You'll note that we expect full year results that yield significant growth in earnings per share and, again, feature positive operating leverage with a peer-leading return profile good growth in fees, controlled expenses, and normalized credit. In summary, echoing Jim's opening comments, 2025 was exceptionally strong. We completed the core systems conversion and integration associated with our Bremer partnership. That partnership created a leading bank franchise in Minnesota and added valuable funding with good market share in several markets in North Dakota. We compounded tangible book value per share despite closing that deal and advanced our peer-leading return on tangible common equity and efficiency. And we funded our loan growth with deposit growth while improving our already resilient credit metrics. In 2026, we remain focused on organic growth and returning capital to shareholders. Investing in ourselves to drive excellence in talent, operations, sales execution, and client-facing capabilities. This will ensure that we will remain strong, scalable, and positioned for long-term success. With those comments, I'd like to open the call for your questions. Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press you would like to withdraw your question, simply press star 1 again. Your first question today comes from the line of Scott Siefers from Piper Sandler. Your line is open. Scott Siefers: Good morning, Scott. Thanks, hey. Thank you for taking the questions. Let's see. I guess, John, maybe first question for you was something you can maybe help with how you see the margin trajecting through the year. Just noticed on the sort of the NII walk on slide 17, you've got a, you know, much bigger step up in NII in the second half versus what we see here in the next couple of quarters. Is that a function of sort of timing of asset repricing or your expectations for rate cuts? Just curious as to the nuance in there. Yeah. I think I think the bigger factor there, Scott, is actually day count. Right? So just remember the the first two quarters of next year, we got we got a couple less days in in each of those quarters. You know, I think I think when we think about the trajectory of margin in 2026, we're It's really four big factors on that. I think it's growth is number one, so we're we're sort of guiding four to 6% on on that side. The second would be steepness of the curve. And how that plays out. So knock on wood, the forwards actually come true. Number three would be belly of curve, on fixed asset repricing. And then number four would be our our continued ability to manage beta, on the on the downside. Which so far has gone really, really well. And so I think those are those are the big swings on on the margin. Okay. Perfect. Perfect. And then, you know, great to see the the strong kinda end to the year just in terms of proactiveness of of capital management. You know, maybe just sort of thoughts on pace of share repurchase throughout the year vis a vis the 1.1 million that you did in the kind of late in the fourth quarter? John Moran: Yeah, Scott. I I would say this year, we plan to be more active than we were last year. You know, we we obviously wanna make sure we have enough capital to support growth. And then, I think our next priority is making sure that we return it back to our shareholders. So, we're gonna see how the year plays out a little bit, but it would be a definitely more active year in 2026 versus versus last. Scott Siefers: Gotcha. Perfect. Thank you guys very much. Appreciate it. Thanks for the call, Scott. Your next question comes from the line of Brendan Nosal from Hoagroup. Your line is open. Brendan Nosal: Hey. Good morning, folks. Hope you're doing well. Good morning, Brendan. Maybe just to circle back to to the margin. Know, John totally get your your comments on on day count. I mean, if we strip out day count factors from margin, because I think you guys use a simple, you know, multiply by four to get to your margin presentation. Is it fair to say that like a day count adjusted margin is stable, if not a bit grinding as we move through the year? Very fair. I think you captured it. Okay. Okay. Then maybe moving to the the credit side of things. I think if I interpolate the kind of the the various pieces on the guide for loan growth, charge offs and provision, I think it implies a bit a reduction in your reserve coverage ratio versus loans. So I guess, just what are you seeing either in your own portfolio or the macro inputs that would let you slightly under provide for both gross growth plus lost content? John Moran: Yeah. It's really the migration in criticized and classified book and and improvement on those measures, you know, two or three now quarters of really, really solid improvement there. Close to $70 million lower on NPLs. In this quarter. And and when you've got that kind of fundamental improvement, it it's just you know, the model just spits out what it spits out. It kinda math math math. Right? And so, you know, clearly, I think we're we're through the peak. In in that, in those in those categories of of classification. Brendan Nosal: Okay. Perfect. Thank you for taking the questions. Your next question comes from the line of Jared Shaw from Barclays. Your line is open. Jared Shaw: Hey. Good morning. Good morning, Jerry. Hey. Just circling back on on the capital and hearing what you're saying about the buyback, how should we think about sort of a good core target CET1 for you as we move through 2026 with sort of all those assumptions? Behind it? Yeah. Yeah, Jared. Very comfortable with where we are in CET one today. You know? And Jim said it well. You know, first, first priority is ensure we got powder for organic growth. Right? But left unchecked, this is gonna grow quickly, arguably too quickly, and and we're not gonna let it go unchecked. But not a on shouldn't assume that you're trying to target back down to, like, a 10 and a half percent from from where we are right now. No. I I I don't think I don't think so. Not at this time. I I and, again, I think we we said we don't view it as mutually to grow a little bit of capital and return capital in 2026. Okay. And then, I guess shifting to deposits, you had really good growth in DDA on on average. And end of period, but then you call out sort of a relatively stable balance for '26. How should we think about sort of seasonality? And is that stable as a percentage of deposits? Or is that stable as sort of dollars of deposits from here? Yeah. I'm I'm thinking that it's stable as a as a percentage, We've got some seasonality, in the public funds book, but that other than that, to really talk about on the on the deposit side in terms of seasonality. Great. Thank you. Operator: Your next question comes from the line of Ben Gerlinger from Citi. Your line is open. Ben Gerlinger: Hey. Good morning. Good morning, Ben. Wondering if you could talk to the growth a little bit I know that some of your larger competitors in the area acquisitions pending, and maybe they're taking their eye off the ball or different markets. Or is it just hiring or potentially just kinda deepening relationships with kind of the new Bremer customers? I was just kinda curious where is the the growth coming from, like, existing or or new areas. Just kinda unpack that a little bit would be helpful. Jim Ryan: Sure. Good morning, Ben. This is Tim. You know, we're seeing broad-based growth from the C and I middle markets standpoint. We're also seeing enhancements from CRE demand drivers. And we're gonna continue to be opportunistic and and aggressive from a town perspective. So we think as the year unfolds and we continue to add talent that will also help drive consumer sentiment is showing that demand is growing. Ben Gerlinger: Gotcha. That's helpful. And then you could think about kind of the pricing. Is that is there any areas where it's become a little bit more overly competitive or any geographies where it's just like you're not getting the ROTCE adjusted, so rather not play? Or do you think I mean, it's always competitive, so I'm just kinda layering that in. And then you thoughts on just pricing within the phone categories or geographies? Jim Ryan: Yeah. You know, we continue to be very disciplined in our our pricing model. You know, obviously, where you see disruption, I think there is opportunity as banks are playing defense. With the disruption, but we're being opportunistic in certain high growth markets. But across the board, a very disciplined approach, to pricing as we look to grow loans. Ben Gerlinger: Got it. Okay. Thank you. Ben, I just I reiterate the point that Tim made earlier, and and we try to highlight that in our remarks. You know, our plan is to invest heavily in talent. You know, Tim's been around, you know, about six months now, got his feet wet, thinking about, you know, how do we how do we best organize for success and really get after it And I think you know, I think it will be like some of our past years where we're gonna highlight some real growth and talent. And so we're excited about what that what that might bring for us. Thank you. Operator: Your next question comes from the line of Terry McEvoy from Stephens. Your line is open. Thanks. Good morning, everybody. Good morning. Hey. Maybe start with just a question on fees. If I annualize the fourth quarter, it's kind of at the high end of your 2026 outlook. And I'm wondering, is there a bit of conservatism built into your outlook or maybe mortgage returns to more more normal levels? I was hoping to get your thoughts there. Terry McEvoy: Yeah. I think Terry, there's a little bit of seasonality, obviously, in first quarter on the on the mortgage line. Mortgage was good. Last year. I wouldn't say great, but good. We've got a constructive or more constructive anyway rate backdrop, on that line of business. So what I'd say we're cautiously optimistic on mortgage for twenty six. But, but what you see in the guide is, you know, if I were gonna pick on two places where where maybe we've got some upside, it it would be mortgage and cap markets. Both of which have been have been really good in the 2025. Yep. Agreed. And then as a follow-up, new production yields were 6% last quarter, I think, in the presentation. Could you just run through what's the incremental kind of repricing benefit that you're seeing? And John, can you run through the securities repricing as well? I couldn't get all those couldn't write everything down you were going through your prepared remarks. John Moran: Yeah. No problem. In total, there's there's, you know, on the loan side, 70 basis points. In in terms of spread to new yields against the against the portfolio, about $5 billion of, of that over the next twelve months. And then on the investment portfolio, $2.9 billion of cash flow, over the next twelve months. And those new money yields are 94 basis points above the, the back book yield. Terry McEvoy: Perfect. Thanks for taking my questions. Operator: Thanks, Terry. Your next question comes from the line of Jeanette Lee from TD Cowen. Line is open. Good morning. Jeanette Lee: Good morning, Jim. For your securities portfolio, the new money yields of 5%, it seems pretty solid. What's underlying the what's the underlying drivers behind the the security yields that you're earning? And is it fair to assume the securities investment portfolio is stays around this level or running down as your expectation for deposit growth appears to be in line with your loan growth for 2026? Jim Ryan: Yeah. I think securities as a percentage of earning assets or the way that we kinda look at it is cash and securities as a percentage of total assets. And and I think that that's gonna be pretty stable over 2020 So we we don't really intend to grow it nor shrink it. I think we'll just continue to invest cash flow. And in terms of where where we're going, it it's really plain vanilla stuff. I mean, we're we're we're targeting kind of a four duration and and Mike and his team do a good job managing that for us. So I I don't think there's gonna be big changes in our in our securities book. Jeanette Lee: Got it. Thank you. And just to follow-up on deposit cost. In your expectation for your NIM of stable to moving higher throughout 2026, So the spot rate of 1.60%, that seems I mean, given the strength of your deposit franchise, it seems lower than here's it. And it looks low or on an absolute basis. Is your expectation that the total deposit cost could creep down more from from the current level given the amount of exception pricing deposits that you have on your balance sheet, or is more of the benefit coming from the fixed rate asset repricing? Jim Ryan: I I think it's both. You know, look. Where where we manage all of our up beta in the deposit book was via that exception price book. That book today is 36% of total deposits, It's about 45% of our transactional accounts. And that price we think we still have room, to to pull down. And, you know, we're we're continuing to work that book really hard we've re realized almost a 90% beta on that one. Kind of point to point, and and we're ready to move proactively with Reg's. Thank you. Your next question comes from the line of Chris McGratty from KBW. Chris McGratty: Your line is open. Good morning. Thanks for the question. Good morning, Chris. Jim or John, one of your peers is made a comment recently that that said deposit pricing in particularly Chicago was was actually pretty reasonable, which is something I haven't really heard in my career. Any comments on deposit repricing by your markets, which span the Midwest? Jim Ryan: Yeah. Look. I I would I would suggest that, it's still competitive. But I think almost everywhere, it is it it has been very, very rational. There there are a handful of markets out there that are a little bit spicier, but, I I think for for the vast majority of our footprint, and certainly any place where we've got meaningful deposits and meaningful share, things have been very practical. Okay. And then just quickly on the ex on the expenses. Technology spend's gotten a lot of attention this quarter. I'm not sure if I've seen a number from you of what what piece of the expenses are going into tech investments, but any color there either percent of revenues, rate of growth, any kind of color to kinda give us a context there? Thanks. Jim Ryan: You know, maybe just let me give you a 50,000 foot view. I think we're spending as much time at this point in time. We're not underfunding new investments. We're thinking about, you know, innovation, you know, in the payment space, innovation in the the client facing capabilities. And and we're really good at self funding a lot of that. Even though we keep grinding on the efficiency ratio, we're really good about self funding those new investments. If there's anything that I think we're gonna continue to put pressure on, it's probably that salaries line item. As I said earlier, I wanna make John with the amount of people that we plan to hire, to really grow the the front line. So I'm very comfortable with our technology spend, and I'm I'm even more comfortable that we couldn't spend anymore really and handle the organizational change that comes out of that. So I I think we're at the right level and we're certainly not underfunding any opportunities that are in front of us. Alright. Great. Thank you. Operator: Your next question comes from the line of David Schiavirini from Jefferies. Line is open. Hi, thanks for taking the question. Good So wanted circle back to loan growth, the 4% to 6% guide. Can you talk about what could lead to the high end versus the low end and also talk about borrower sentiment on the commercial side. Sure thing. Good morning, David. This is Tim. Yeah. I'll start with the sentiment side. You know, we think customers are feeling more optimistic about 2026 than the prior few years. Know, part of the contributing factors would be lower rates you know, more experience dealing with, tariffs. Clarity on the tax bill, and certainly m and a heating up. So we think from a demand perspective, you know, things are sentiment is driving that higher. As far as some of the factors that could drive the higher end of that, you know, we're we're seeing middle market C and I picking up. We think our message of being a community bank, very client centric is one that that plays very well in that space. They continue to build on Jim's comment. Talent is a big factor in continuing to add bankers strategically. In high growth markets will help drive that. And I think our expansion markets continue to show really good loan growth and opportunity as we continue to build out those teams. Great. Thanks for that. And then on the outlook for M and A, so the Bremer integration has has gone well. Can you give us your latest thoughts on your appetite for M and A going forward? Jim Ryan: Yes. I think it's like we said last quarter, we're really focused in on investing in ourselves, being a better version of ourselves. I think the best the best return we can provide for our shareholders today is continue to to work on ourselves and and, grow organically. And, it's just not it's not a focus. It's not something we're spending a lot of time on today. And, you know, will make me happier if we finish the year. Just by by being a better version of ourselves. Helpful. Thank you. Operator: Thank you. Your next question comes from the line of Jon Arfstrom from RBC. Your line is open. Jon Arfstrom: Hey, thanks. Good morning. Good morning. Good to hear from you. Yep. John, the strategic portfolio management that you referenced earlier, how much is left to do there? John Moran: I think it's I think it's kinda constant ongoing John. It's it's just, like, the the, the inflow into the classified buckets that we saw starting kinda eighteen months ago. Really feel like we got our arms around that. I I you know, obviously, the lost content there has been de minimis, and, you know, I think we're we're through the worst of it. But ongoing active portfolio management like we always do, Yep. Okay. But maybe, Jim, can can you talk a little bit more about the wealth strategy and outlook and what kind of expectations you have for that business? Jim Ryan: Yeah. I think we're doing really well there. But again, I also I would reiterate my comments around the talent. That's really a talent play. You know, Tim's spending a lot of time with our wealth team In fact, he's meeting with the sales team here next week. Really trying to to ramp up expectations around ongoing hiring in that space. We've been successful and and probably more successful than than many of our peers you know, have been in that space, but I think we can do even better. I really see great opportunities for us there. So I think we've built the product capabilities to to be successful. We've got the right business model. I think we're organized for success. Really, what we can do is I think we're underpenetrated in some of our biggest markets with talent. I think if we can pull that part off, which which I believe we can, I think we can even see higher growth coming out of that business line? And one thing I would add, this is Tim. I think our partnership and collaboration with the commercial bank, you know, there's continues to be opportunities to to more fully deliver the entire bank. Into our wealth, clients and into our commercial clients. And we're seeing partnerships in those referral activities really drive good results there. Yeah. Okay. Fair enough. And, Jim, congratulations to the Hoosiers I I know you're pushing Moran on expenses, but hopefully, there's room for some Hoosier game day water. In the budget. I like it. I like it. We're we're very excited. And we're so proud of him. What what a great story, and can't wait for them movie Hoosiers two to come out soon. Great story. Thank you. Operator: Thanks. And there are no further questions at this time. I'd like to turn the call back over to Jim Ryan for closing remarks. Jim Ryan: Thank you all for your support and participation. The team will be available for calls all day today. Thanks so much. Exposures. Operator: This concludes Old National's call. Once again, a replay along with the presentation slides will be available for twelve months on the Investor Relations page of Old National's website oldnational.com. A replay of the call will also be available by dialing 807702030 Access code 939-4540. This replay will be available through February 4. If anyone has any additional questions, please contact Lynell Durkol at (812) 464-1366. Thank you for your participation in today's conference call.
Operator: Good day, and welcome to the BankUnited, Inc. Fourth Quarter and Fiscal Year 2025 Results Conference 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, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Jacqueline Bravo, Corporate Secretary. Please go ahead. Jacqueline Bravo: Thank you, Nick. Good morning, and thank you, everyone, for joining us today for BankUnited, Inc.'s Fourth Quarter and Fiscal Year 2025 Results Conference Call. On the call this morning are Rajinder P. Singh, Chairman, President, and CEO; Jim Mackie, Chief Financial Officer; and Thomas M. Cornish, Chief Operating Officer. Before we start, I'd like to remind everyone that this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that reflect the company's current views with respect to, among other things, future events and financial performance. Any forward-looking statements made during this call are based on the historical performance of the company and its subsidiaries, or on the company's current plans, estimates, and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the company that the future plans, estimates, or expectations contemplated by the company will be achieved. Such forward-looking statements are subject to various risks, uncertainties, and assumptions, including those relating to the company's operations, financial results, financial condition, business prospects, growth strategy, and liquidity, including as impacted by external circumstances outside the company's direct control, such as adverse events impacting the financial services industry. The company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. These factors should not be construed as exhaustive. Information on these factors can be found in the company's annual report on Form 10-K for the year ended December 31, 2024, and any subsequent quarterly report on Form 10-Q or current report on Form 8-K, which are available at the SEC's website. With that, I'd like to turn the call over to Mr. Rajinder P. Singh. Rajinder P. Singh: Thank you, Jackie. Good morning, everyone, and welcome to our earnings call. Before I walked in here, I was looking at, I think, CNN or CNBC and realized that we're competing with President Trump's speech at Davos. So for those of you who are listening in, a special thank you because I know we have stiff competition this morning for your attention. Honestly, if it is up to me, I'd probably be listening to this speech as well more than our earnings call. But nevertheless, thank you, and I'm going to walk quickly through the earnings for the quarter. But before we get into the quarter, just a couple of minutes on how the year turned out to be. I'll talk about the year, talk about the quarter, give you some guidance for next year. And then I'll turn it over to Tom, who will then turn it over to Jim. By the way, Leslie sends regards from the beach. I believe she's on the call listening in. But coming back to our 2025, this was a great year for us. I mean, there is no other way to describe it. If I was to summarize everything in one sentence, I would say, double-digit EPS growth came from double-digit earnings growth, which came from double-digit PPNR growth, which came from double-digit NIDDA growth, which caused the margin to expand by, like, 22 basis points. I mean, there's a lot more nuance to it. There's fee income, this, that, and the other. But, you know, if I had to summarize it in twenty seconds, that's how I would. We pretty much hit everything we were trying to hit, and it just turned out to be an awesome year. Turning to the fourth quarter, again, this is a very strong quarter for us on just about every metric. Earnings came in at $69.3 million, $0.90 a share. There were some one-times, which Jim will walk you through. Some software write-downs that we took at the end of the year. But adjusted for that, I think our EPS would have been $0.94. I think consensus I checked last week was $0.89. PPNR for the quarter was $115 million compared to $109.5 million last quarter. I think it was $104 million in the fourth quarter of last year. Margin, you know, continued to expand, which has been a story with us. Last quarter, we were at 3%. Now we're at 3.06%. If you compare it to the fourth quarter of last year, we're up 22 basis points. Annualized ROA came in at 78 basis points. But if you adjust for that software write-down, it was about 81 basis points. Deposits and loans, this is, like, a really strong quarter on both sides of the balance sheet. NIDDA grew on a spot basis by $485 million, and for the year, it was up $1.5 billion. But to be honest, the right way to look at our balance, especially deposits, is always on an average basis because there's a lot of noise that comes seasonality. There's a lot of noise that comes in from just the last couple of days of the quarter. Our average NIDDA for the quarter was up about $500 million, about $505 million. And for the year, average NIDDA was up $844 million. Those are pretty solid numbers, and we're very proud of it. Now this quarter, we had guided to you that this is a seasonally slow quarter for us. And, you know, your question might be, so did the seasonality not show up? The answer is no. The seasonality very much showed up. NTS, which is our title business, was down as it always is in December. So that happened. What really made up for that and then some was all the other business lines came in very strong on deposit growth, especially on NIDDA growth. And we ended up where we did. So very happy with that performance. NIDDA now stands at 31% of total deposits. Last quarter, we were at 30%. And we want to recapture that peak that we hit during COVID years of 34%, and we are more and more confident of getting there soon. There was obviously a Fed rate move this quarter. Spot cost of deposits came down. Spot cost of deposits declined by 21 basis points to 2.10% at the end of the year, which was 2.31% in September. So just, you know, compared to December, spot cost of deposits is down 53 basis points. Quickly turning to loans. The last couple of quarters, we've been seeing a lot of payoffs, and some expected, some unexpected. But this quarter, we've made up a lot on the loan growth side. Core loans grew by $769 million. By core, I mean commercial and CRE and small business and all that stuff, excluding residential and, you know, that we've been running off. So the core loans growing $759 million, this is a very big quarter for us. We were very busy all through the end of the year. We're very happy about that, and Tom will talk a little more in detail about where that growth came from. Quickly turning to credit. Criticized classified loans were down a little bit by $27 million. NPLs were down a little by $7 million. We did see slightly elevated provision and charge-offs. We are in a lumpy business when these, you know, credit hit costs hit us. They do come in, you know, in large chunks. As an example, of the $25 million loan, which was a fraud that we got hit by in the fourth quarter, was $10 million. It's very hard to predict these things. It's very hard to protect yourself against fraud, but it did happen. And we had a complete write-off on a $10 million loan, and that's in the numbers. So, but overall, we're feeling good about credit and expect NPLs to continue to decline into the year. Capital CET1 was a little lower at 12.3%, partly because of growth, partially because of a little bit of buyback that we did in the fourth quarter. And on a pro forma basis, including AOCI, CET1 is 11.6%. Tangible common equity to tangible assets got to 8.5%. And tangible book value per share is now over $40 at $40.14. I think that's a 10% growth year over year. So the board met just yesterday, looked at our plan, looked at our numbers, and authorized us for an additional $200 million share buyback. Of the $100 million that they had authorized a few months ago, we've already used up about half that. So we will have about, you know, $50 million left over roughly from the previously announced buyback authorization and another $200 million to it. So we'll have $250 million or so of dry powder. Also, they increased dividends by 2¢ as they often do at this time. In terms of philosophy on buybacks, you know, I think you heard me say that in the past. We, you know, we want to stay in the middle of the pack of our peers. We think our middle of the pack is somewhere in the mid-eleventh. And that's what we're shooting for. Now that you know, where the herd moves, only time will tell. That number could go lower, and we will address it if it does. But right now, it feels like mid-eleventh is the middle of the pack. And we'll, you know, end of mid to low twelves and we're at the top of the end of that range. And the buyback will bring us in line. So before I hand it over to Tom, let me quickly talk about guidance. And you know, we put a deck out so you can look at it at your leisure. But I would just for guidance, I would ask you to look at page 14 and then page 15. Page 14 is sort of a look back of what guidance we gave last year. And what were we able to deliver in actual results. We gave you guidance about deposits and NIDDA and loans and expenses and net interest margin and so on. We pretty much got there on everything and did better. On most things, and I was up 8%. Margin, you know, we got it to ending the year at three. We ended at 3.06. Deposits, we said mid-single digits. We did mid-single digits. NIDDA, we said low double digits. We did, you know, period end, we did 20%. On the average, we did about 12%. The only one that we missed was core loan growth. We thought we would be in high single digits, but we ended up at 5%. And expenses, said, they'll be controlled or be mid-single digits, and we ended up at 3%. So very happy with what the guidance last year worked out to be. So with that in, you know, keeping that in perspective, our guidance for next year is on page 15. It might look like, you know, almost, you know, we were being too lazy or this is a little, you know, it's almost the same guidance that we gave you last year. You know? It's so boring that we think loan growth, deposit growth, the, you know, between NIDDA and total revenue growth, everything will be very similar to last year. The loan should grow, core loan should grow about 6%. Resi and others will shrink at about 8%. Total loan growth will be in the 2-3% range. Deposits NIDDA will continue to grow at the 12% rate that it has been growing at. Total deposits, excluding broker, will be at about six. Revenue, which grew last year at 8%, should grow again at 8%. Margin slightly more, fee income slightly less simply there's lease financing income and fee income that is coming down, which has dragged it down a little bit. And expenses will stay controlled. For provision, we're using an assumption that the provision will be similar to last year. Though it's a little hard to, you know, all to pinpoint that. But our best assumption is it will be the same. The difference this year is we're announcing capital actions, which we did not announce last year, like I just mentioned, the $200 million additional buyback, that's different this year. And all of our assumptions that everything was built on, you know, the economic environment staying pretty much what it is. And, spreads are tight. And tightening. So we did take that into account, which is why you see margin improvement only going from 3.06 to 3.20. It's largely because we're seeing much tighter spreads this time than we did twelve months ago. And two Fed rate cuts, but, you know, our numbers aren't very sensitive whether it's one cut or two cuts or three cuts. The balance sheet is fairly hedged. So with that, did I miss anything? Sure. Turn it over. Alright. Let's turn it over to Tom. Great. Thank you, Raj. Thomas M. Cornish: Just to follow-up on Raj's earlier comments on deposit growth. Total deposits increased by $735 million during the quarter. $1.5 billion for the year and NIDDA was up this quarter by $485 million and $1.5 billion for the year. As Raj mentioned, despite the normal seasonality, we have numerous business lines that contributed to strong growth in the fourth quarter, which was really good to see. Now I would also say if you look at the lending business that we did in the quarter, which was also up strong, the treasury pipeline, operating account pipeline going into the early part of the year, is very good because you tend to fund loans first, and then you tend to migrate the deposits afterward. So given the strength that we had in the lending teams, at the end of Q4 or during Q4, we'll see some lag time in the development of those operating account businesses. So we remain really optimistic about that. And as Raj said, core loans grew by net $769 million for the quarter. If you break that down, CRE was up by $276 million. The C&I segments were up by $474 million and mortgage warehouse was up by $19 million. We talked in the last few quarters about the fact that production throughout the year remained relatively strong, but we did have, you know, these headwinds of, you know, strategic exits and payoffs and sales of companies and whatnot. One of you asked me on the last call, you know, what inning we were in of the exit process. And I said we were kind of in the bottom of the ninth inning. I think if you look at the walk-through that Jim did on page nine of the deck, you know, you'll see that the production was very strong. And the level of exits was, you know, fairly minor compared to what it had been in previous quarters. So as we move into this year, you know, while there certainly will be, you know, one or two things we exit from for various reasons, overall, I think we're in a year where production will continue to be strong, and we've kind of finished the game of looking at things that we want to get out of. Overall, RESI was down by $148 million. While franchise equipment and municipal finance were down a combined $50 million. In aggregate, that gets you to your $571 million of total growth. The loan to deposit ratio finished the quarter at 2.7%. A few comments on the commercial real estate portfolio. It was a good year for CRE. We grew by 9%. On the team. Overall exposure totaled $6.8 billion or 28% of total loans. And as you can see from the supplemental deck, pretty well diversified across all major asset classes. Again, consistent with last quarter, at December 31, the weighted average LTV of the CRE portfolio was 55%. And the weighted average debt service coverage ratio was 1.82. So both very strong metrics. 48% of the portfolio was in Florida. 22% in New York, and, obviously, the remainder in other areas where we've emphasized growth in the Southeast and Texas over the last couple of years. Our exposure to CRE office was down $98 million or about 6% from the prior quarter end. Criticized and classified CRE loans declined by $36 million in the fourth quarter primarily as a result of payoffs and paydowns. I think at this point, we continue to see generally positive trends in the overall office book. Obviously, it's down significantly over the last few years. I think this will be a year where we see a lot of rent abatement improvements. And in most of the markets that we're in, when we kind of break it down submarket by submarket, we're seeing continued improvement in each of the submarkets. Page eight of the investor deck provides greater detail on the CRE portfolio. So with that, I'll turn it over to Jim. Jim Mackie: Thanks, Tom. Gonna tick through a couple of things for the quarter, try not to repeat too much what Raj and Tom mentioned, but I do want to highlight a few things. So as reported, $69 million, a little north of $69 million of net income for the quarter, $0.90 a share. We did call out for you a one-time write-down of previously capitalized software as we were going through our tech stack during our strategic planning. Determined to go in a different direction, so we took that charge during the quarter. If we adjust that net income, it would be $72 million or $0.94 a share. So that's roughly consistent with the prior quarter. Up about $3 million from a year ago. And importantly, we're seeing PPNR grow about 14% year over year. On NII and NIM, you know, where NII is up 3% from the prior quarter, 7% from a year ago. The NIM expansion story that Raj mentioned, six basis points up to 3.06%. It's really a pretty simple story. It's our cost of deposits is declining by more than our loan yields are declining. You know, we talked about the NIDDA growth of average balances of $505 million during the quarter. Interest-bearing deposits were down. Average bearing deposits were down about $347 million. So that brings our NIDDA mix up to about 31%. We were successful as we've been all year long passing along rate cuts timely. So that certainly helped margin. And our loan growth, timing of the loan growth during the quarter was helping us as loans were put on throughout the quarter. And then we're also helped by the RESI loans that paid down. We did see a favorable mix in the lower coupons, maturing. So all of that combined for the six basis point improvement. Just a reminder, NIM was up 22 basis points for the full year. NIDDA up a billion and a half. So our mix is, you know, up from 27 to 31 at the end of the year. Couple comments on credit provision and reserving. So our charge-offs were just shy of $25 million or 30 basis points for the quarter, slightly elevated from where we'd like to see it. You know, we sort of underwrite to about a 25 basis point charge-off rate over time. So a little elevated. You know, we remind you constantly, we are a little bit episodic. Raj talked about a couple of items during the quarter. Provision was $25.6 million for the quarter. Again, a little bit elevated, but it was really a function of the specific reserves that we booked and to a lesser extent, the previously reserved charge-offs. We provide a walk for you in the deck. Allowance for credit losses, roughly flat. Right around $220 million. The coverage ratio is slightly down, but it's really just a bunch of model noise and rounding. So it's, you know, I'm gonna call the coverage ratio flat as well. Again, on page 10, we lay out all the moving parts in a walk. As Raj mentioned, non-performing loans are down and criticizing classified loans are also down. On non-interest income and expenses, again, non-interest income is a very positive story for us. You know, we're up $30 million. I mean, we're up to $34 million growth quarter over quarter and over year. And, you know, that is despite our leasing income falling. Capital markets related revenue is continuing to steadily improve over time. So if we exclude that $13 million of leasing income that we saw in 2025, we had full year non-interest income grew by about 28%. So while the numbers are still small, it's definitely a positive growth area for us that'll continue to help us moving into the next year. On the non-interest expense side, we were up $6.6 million from the prior quarter. The majority of that was two things. One was the capitalized software charge that I mentioned earlier. And an employee compensation expense, the impact of the stock price movements, that impact on equity-based compensation. Makes up the other portion. For the full year, non-interest expense was up 3%. It's largely comp and bennies up as we've been hiring revenue-producing people, technology expenses as we continue to invest and grow our business. We also had a credit in '24 just to remind you of that that didn't repeat. Deposit costs are growing as we grow our deposit base. And that's being offset by lower FDIC premiums and lower leasing costs. So, sorry. Before I turn it back to Raj for some concluding remarks, I just want to make a quick comment on '26 guidance in addition to what Raj mentioned. Again, all that guidance is on page 15. It's a full-year view. Just want to remind you that we do have some seasonality in our results during the year. For example, loan volume is typically seasonally low for us early in the year. And our non-interest-bearing deposit balances are typically highest in the second and third quarter. You know, while we do think provision is gonna be flat year over year, you know, the timing of which in what and where, you know, will be determined as everything is a little bit episodic. That, I'll turn it back to Raj. Rajinder P. Singh: Yeah. You know, the one part that I usually talk about, and I forgot this time, is generally, you know, how's the economy and how's the stuff that we don't control. Right? So that's economy, that's rates. And the sort of the regulatory environment. So the regulatory environment is constructive. There's no surprising news over there. In terms of the economy, it feels very good. But at the same time, you know, if you watch the news too much, it can scare you a little bit. That's what has been the case for the entirety of 2025. You know? A lot happened, but it didn't really impact the economy. In fact, the economy is doing reasonably well. And we're gonna stay optimistic until proven otherwise. But it feels really good both in New York and over here. Business in New York also is doing very well. And it's not just Florida. So the economy is doing well. And as far as we can see it, it will continue to. Despite, you know, heightened geopolitical risk and noise. And rates, again, you know, the monetary policy looks pretty straightforward what'll happen this year. But you know, it's hard to predict too far out in the future what will happen with rates. We think two rate cuts might be one, might be two, might be three. Nobody's predicting, you know, eight rate cuts or anything crazy like that or for that matter, the rate start to go the other direction. We have hedged ourselves as best as we can and we're not worried about, you know, rate cuts being a little bit more, a little bit less. But if there's something crazy, if there are, you know, if it's let's go back to zero or something. Something like that. That'll impact our earnings and everyone's earnings. But outside of that, you know, the environment feels fairly straightforward. And we're running the business with those assumptions in mind. So with that, let me turn it over, and take some questions. Operator: Thank you. 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 are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. And the first question will come from Wood Neblett Lay with KBW. Please go ahead. Wood Neblett Lay: Good morning. Wanted to start on the fourth quarter non-interest-bearing deposit growth. As you mentioned, in your comments, you know, it's pretty remarkable to see the growth when you also saw the downward seasonality in the title business. I was just wondering if there were any specifics on what drove that growth and, you know, and what you would attribute it to. Rajinder P. Singh: So first, I will say, actually, just before this call, we might get this question. Tom and I were discussing this. I look at business line by business line, you know, where the growth came from. And to see if there were any outliers. Happy to report there are no outliers. Every business line contributed. It's pretty even. Small business, middle market, corporate, even CRE, everything brought in deposits. HOA, every, you know, the only one with the negative number was title, which we knew. Right? This is a seasonal time when NTS slows down, and then they pick back up, you know, in late first quarter. So it's not concentrated in any one place. However, we do see from time to time like, you know, last day of the quarter, some deposits may come in, which may leave, then a couple of weeks later. And I wouldn't call that core growth, which is why, you know, $1.5 billion of NIDDA growth for the year is probably not the way to look at it. I think the right way, the honest way to look at it is what happened to our average NIDDA. Our average NIDDA was up $844 million for the year. And our average for the quarter was $505 million. I'm very happy. Like, listen. I'm very happy that, you know, we ended the year where we did. But, average is the right way to look at this, not period end. Wood Neblett Lay: I would also add that when we look at this, we tend to think of dividing the world into two segments. One, I would call new wallets and one, I would call expanded wallets. So if we look at the quarter from a, you know, core operating account growth, I would probably say just roughly about two-thirds of the growth were new wallets, meaning new relationships. And about a third were expanded wallets in terms of deeper cross-selling across relationships that we're already in. So we thought that was a pretty healthy mix. Wood Neblett Lay: Got it. That's helpful color. And then embedded in the NII guide, could you just walk through some of the loan and deposit beta assumptions y'all are assuming there? Rajinder P. Singh: The beta assumptions for deposits are the same betas that we've realized so far. It's about 80%. So the two rate cuts that we have baked in here, we will achieve 80% just like we have been achieving. On loans, it's really a matter of which business line you're talking about. You know, we do a lot of fixed-rate, sorry, floating-rate loans. So we're more of a floating-rate shop than a fixed-rate shop. Even our CRE business has become predominantly floating rate. So, you know, it depends on if the floating rate, the beta is 100%. And if it's fixed, it's zero. So you'll be able to find in our disclosure the mix of floating and fixed. Jim Mackie: Yeah. You know, it's not until you see a significant number of rate cuts before you really start to see betas materially drop before repricing. You know, we talked about this before. We're modestly asset sensitive. So, you know, if you, you know, a few rate cuts up or down really doesn't move the needle for NII. And you know, I know there's a lot of talk now of, you know, is there gonna be less Fed rate cuts than what the Fords are. And so, again, we're pretty neutral, so we would be slightly benefited, but not much at all. Yes. Yes. Rajinder P. Singh: And always remember, a positively sloping yield curve is good for bank earnings, especially our bank earnings. Which is where we find ourselves today, and we have been over the last few, you know, few months. So we're happy about an upward sloping curve. Wood Neblett Lay: Got it. And then last for me, you know, it's positive to see the buybacks in the fourth quarter. You upped the authorization at, you know, I would expect the stock to react pretty well to the quarter. How do you balance sort of price sensitivity of the buybacks with wanting to get capital levels down to more peer-like numbers? Rajinder P. Singh: Yeah. I think there is still, we're still living in pretty volatile times. Stock prices can move for nothing that you do. Though something might happen in the market and prices can move a lot. I mean, I remember the day the administration said they were gonna cap credit card interest rates by 10% or to 10%. And our stock took it on the chin even though we're not even a credit card company. So on days like that, when you see, you know, overreaction, we'll lean in a little bit more. Other days, we'll lean in a little less. So we'll stay opportunistic like that. I do expect volatility to continue because this twenty-four-hour news cycle, you know, just stuff comes at you and then it distorts prices for a period of time, and then it gets better after a couple of days. People forget about it, life goes on. But it'll create those opportunities, which we will take advantage of. Wood Neblett Lay: Alright. That's all for me. Thanks for taking my questions, and congrats on the good quarter. Jim Mackie: Yep. Thank you. Thank you. Operator: The next question will come from Jared Shaw with Barclays. Please go ahead. Jared Shaw: Hey, guys. Good morning. Rajinder P. Singh: Morning. Morning. Jared Shaw: Hey, just following up on the deposit side, with the 80% beta. It's great that you think that you can maintain that. Can you just walk us through what percentage of the non-DDA are indexed or brokered and how, you know, I guess, how you feel that you can still keep that 80% beta? Rajinder P. Singh: I think the broker, we will have in our disclosures probably around 15% of our deposit. I don't have that number in front of me exactly. But in terms of index, I don't think we have disclosed that, and it's actually very hard to disclose because some of the indexing might be just contractual, but a lot of it is just handshakes. So I'm not sure we could actually give you an exact number. It does come down to, you know, pushing our salespeople who then push our clients. And sometimes it's just, you know, client to client sort of how much you can push. Overall, we feel we can get to 80%. We have been getting there. Without much trouble, and over the next couple of cuts, we'll do the same. Like Jim said, if, you know, if it's, you know, eight cuts, then this is a very different story. And while nobody's expecting that, we do run sensitivities along that as well. And while margin, you know, in an extreme scenario like that will be hurt, it's not like, crazy. We can manage even some pretty dramatic cuts if it comes to that. Jim Mackie: 16.6% for the fourth quarter. Rajinder P. Singh: Yeah. Broker to 16.6%. Actually, broker was up this quarter a little bit because we were, ourselves, not expecting this level of deposit growth. So we had expected deposits to be not as good, and we had bought some brokered. Which, you know, December turned out to be better than we expected. Jared Shaw: Then maybe shifting to CRE. You know, good to see, you know, that CRE growth, and you've spoken in the past about having a lot of capacity under the capital concentration. How should we think about CRE growth as a percentage of overall growth? Where you'd like to bring that? And maybe just comment a little bit about the competitive market on the CRE side. Rajinder P. Singh: I don't think we're constrained in CRE by, you know, room in the bucket. There's lots of room to grow. What we're constrained by is our assessment of, you know, the kind of business we want to do. We're still not doing much in office or any in office. We're contracting that. We're not doing much any in hospitality. But we are focused on, you know, we have room on the other asset classes, which is where the growth is coming from. So, Tom, you want to add to that? Thomas M. Cornish: Yeah. I would say if you look at the breakdowns in the supplemental package, you can see that virtually all of our asset classes today are kind of in the low 20% range. And I would get there by if you take the multifamily number at 14%, and add in the construction book. The construction book is almost entirely multifamily. You know, we kind of like to look at the major asset class as being under 25%. It's important for us from a risk perspective to keep the portfolio, a, to keep CRE, well balanced within the context of the total portfolio and risk-based capital and b, to keep the individual asset segmentation within the book, you know, at relatively reasonable and equal proportions. So you'll see their office or retail or industrial or multifamily, including construction, are all kind of in the low twenties. So, you know, we think we'll grow CRE mid-single digits in 2026, and it will be balanced, you know, across all asset classes to make sure we kind of stay any individual asset class is not above 25%. We do expect a more competitive market. Some of our folks from the CRE teams recently attended the Big CRE conference that was in Miami Beach last week, and we saw some of the notes from that. It's clear more banks are back involved in CRE. Some that may have been sitting on the sidelines due to asset concentrations and whatnot, you know, are back, and there will be probably more competition on the private credit side as well. So look. Every, you know, I was Raj and I talk about this all the time. We're always in search of a great market that's not competitive, and we can never find one. So there will be competition in every market, but I think we, you know, we have the balance sheet to be able to continue to work in the CRE space. I think we have the expertise and the teams to execute, and we're in a well-balanced position that allows us to be a consistent lender in the marketplace. Jared Shaw: Okay. And if I could just ask one more, just the final one on credit. You called out a fraud. Can you just give any, you know, what category of C&I, I guess, that was in? And as we look at the provision guidance, does that assume reduction in the ALL ratio as we move through the year? Or is that more a reflection of the growth in the portfolio? Rajinder P. Singh: No. I would expect ACL to stay, you know, fairly consistent. To give you any more color on that one loan, it was in New York. It was a contractor. And, you know, literally, the place shuttered, fired all those employees, and is out of business in a matter of days. You know? And there is no collateral to go after. So it was a complete write-off. Jim Mackie: As with most of the trends in non-performing and whatnot, I mean, we're just not seeing any, you know, broad systemic risk that, you know, everything is uncorrelated, unrelated industries, unrelated geographies. Rajinder P. Singh: Yeah. The only correlation is office, and which is getting better. Jared Shaw: Thank you. Again, if you have a question, please press 1. And the next question will come from Michael Rose with Raymond James. Please go ahead. Michael Rose: Hey, good morning, guys. Thanks for taking my questions. Good morning. Maybe we could just start on the deposit growth. I think you guys had previously talked about getting the DDA mix up to 34%. You're expecting pretty good average growth this year. It seems like a lot of the story is coming together here. Is that something that you think you can hit this year? Or is it kind of a multiyear trajectory? And then kind of what needs to, in your mind, happen to kind of get to that 34% level? Rajinder P. Singh: I think there's a good chance we'll get there this year. I mean, we're expecting, again, double-digit NIDDA growth. So if you just do the math, we're not expecting deposits, total deposits to grow that much. So the ratio should get there. Jim Mackie: 33-ish percent. Yeah. Maybe 33% is sort of our looking at our budget here in detail. So we're getting close to it. I mean, what's more important is that we keep driving NIDDA growth. Which we feel fairly good about. Michael Rose: Okay. Perfect. And then maybe just one follow-up. Clearly good core loan growth expected as we move through the year. How much of that is coming from some of the newer markets that you've more recently expanded into, and then it looks like you did have a bump up in NDFI exposure of about $200 million this quarter. How should we think about that growth as we contemplate the core growth guidance? Thomas M. Cornish: Yes. I would say if you look at growth across the franchise, a good portion of it came from the new markets we're in. I mean, we're continuing to invest more in the Atlanta market. We're investing more in the Texas market. We're investing in the North Carolina market. So we saw good growth across all of those markets. It was an important part of the growth of the portfolio, you know, for the year. So I think that's an integral portion of how we're gonna continue to grow. Florida will continue to grow as well. We've also just completed a major investment in the Tampa market. We're actually opening up our new office in Tampa next Monday in the downtown area and hiring more producers in that market. So it played, you know, a key role overall. Rajinder P. Singh: Just mathematically speaking, new markets always tend to show more growth because there's not much runoff. Right? Mature markets where you've been in for a long time, there's always runoff that is happening. So just mathematically, they'll contribute a little bit more. But we're very happy with the investments we've made and how they're paying off. So we want to invest more. We want to hire more people in Texas. We're expanding our office space there. In Atlanta, we actually already have doubled our capacity there in terms of our physical footprint. So we're happy with how these new expansions have worked out. We don't have any new market on the horizon because we think we can really double, triple the bets that we've already made. That's probably the best thing to do over the next couple of years. Thomas M. Cornish: Yeah. Michael, in response to your question about the finance and insurance category, probably the largest segment of that would be what we would call investment-grade subscription-type credit facilities. We, you know, we are opportunistic in that. You know, it's a good space to be in. But the quality and rate kind of has to be right. And when it is, we'll move a little bit more into it. When it's not, we tend to move away from it. There's also a fair amount of, there's a kind of a convergence between what is insurance and what is healthcare. We have a lot of, you know, reasonably large credit relationships that are healthcare insurance-related. That fills up a little bit of that bucket as well. Those would probably be, you know, kind of the two larger segments within it. I think there was a $200 million increase quarter over quarter, hundred-ish was the subscription lines that Tom referred to. And to be honest, the other 100 is just refining the methodology. You know, that last quarter was the first time we pulled this information together for you, and so it's just cleaning up data and getting it organized. But the 100 being an increase in the subscription amount is a big change. Jim Mackie: Yeah. We're not very active. It's kind of the often talk about lending to debt funds. World. That's really a small piece of the overall finance and insurance bucket for us. I do want to reiterate a comment Raj just made related to our investments. You know, we're leaning into the markets that we previously announced, not, you know, in our projections for next year. It's not new markets. It's not new things. It's our existing footprint. Rajinder P. Singh: Yep. Michael Rose: Yep. Totally got it. If I could squeeze in just one last one, is there any reason to think that you wouldn't use most of, if not all, of the remaining buyback authorization this year just given where the stock is and earned back on the buyback? Rajinder P. Singh: Not really. I'm a PC. Okay. Some massive opportunity for growth that we're not thinking about today, you know, we always want to use capital for growth first if we can deliver it safely. But based on the numbers we put in front of you, you know, that's what we end up doing. There is room for buyback and to fund that growth. But you know, I wish we'd be lucky enough to come back to you and say, oh, the growth is twice as much as we thought, and we needed capital. That would be a very happy problem to have. We have a philosophy. We want to be sort of middle of the pack in capital ratio CET1 ratios with the peer group. And we're, you know, generally targeting 11.5% CET1. And so we'll hit that through buybacks, dividends, and growth opportunities. Operator: Perfect. Appreciate you guys taking my questions. The next question will come from David Bishop with Hovde Group. Please go ahead. David Bishop: Hey. Good morning. Tom, quick question circling back to the loan waterfall. Just curious in terms of payoffs this quarter versus last. Were these sort of in line with last quarter? And just curious if you have a lot of sight, maybe what could be looming maybe into the first or second quarter of this year? Thomas M. Cornish: You know, it's that's always tough to say early, David. Because right now, a lot of the payoff activity that we are expecting would be unexpected. I'll say it that way. In terms of, you know, companies selling, is predominantly what I would expect to see if I look at 2026. I think I would say, you know, companies selling would be probably the number one exposure that we have to payoffs. I think number two would likely be relationships that may be exiting the standard commercial banking world and opting into the private credit world because terms and conditions are different. And then lastly would be what I would call strategic exit. So in 2025, kind of the order of that would have been reversed. We had more strategic exits and things from a pricing, deposit perspective, or, you know, type of lending that we exited those were easier to plan because you kind of knew what they were. You knew when the facilities matured, or you knew when they were gonna redial, you know, based upon the timing of the line of credit. So they were a bit easier to predict. This year, that number will be substantially reduced as you saw in the fourth quarter. It was a lot less than it was the previous three quarters. I would say strategic exits were probably triple what it was in the last quarter each of the three previous quarters. So I would expect that that number will probably be around what it was in the fourth quarter, the $80 million type number, maybe a little bit less. A bit harder to predict what's gonna happen in the M&A and refinance market. But when I put all of those together, our kind of base forecast is we'll still see continued quality production across all of the lines of business that we have. Rajinder P. Singh: And we will see less payoffs within the upper part of the C&I market. David Bishop: Got it. Appreciate that color. And then I don't know if it's Tom or Raj who said the preamble sounds like spreads are tightening. Just curious maybe what you saw in terms of average origination yields. This quarter? Thanks. Jim Mackie: Do we have that, Tim? Rajinder P. Singh: Yeah. Give us a sec. David Bishop: That's fine. I can... Thomas M. Cornish: Yeah. We look. Yeah. In the interest of time, we'll follow-up with you after. It'll be somewhere in our disclosure, but it's not popping up too early. Rajinder P. Singh: It was right now. I could certainly tell you from looking at volume that spreads did tighten. In Q4. If we looked at it, it didn't necessarily impact the total book greatly. If we looked at spreads in the total book for the entire year, it remained fairly stable. We did see more pressure kind of late third quarter early fourth quarter across the lines of business, I would will give you the exact number, but yeah. Or Jim will give me the exact number. Was this C&I was 617? And CRE was 570. Thomas M. Cornish: So that's new. That's new on production coming online. I would ballpark to probably say we saw 15 to 20 basis point compression in new production in Q4. It's different for different types of deals, but a bit more in Q4, and we'll probably see that going into the year. Jim Mackie: As we built our plans next year, we certainly assumed it would continue to tighten throughout the year. David Bishop: Got it. Thank you. Operator: The next question will come from Jon Glenn Arfstrom with RBC Capital Markets. Please go ahead. Jon Glenn Arfstrom: Thanks. Good morning. Jim Mackie: Good morning. Jon Glenn Arfstrom: Jim, maybe a question for you. Most of my questions have been asked, but just puts and takes on the expense outlook. You guys are flagging some investments in '26, but also talking about limiting growth. Just, you know, where are you spending? Where are you trimming? Jim Mackie: Yeah. I mean, honestly, the way we set our plan is I kind of think about it as sort of run the bank, grow the bank. You know, with our existing cost base, we're always looking to, you know, keep within inflation and generate operating leverage. And then we want to use that expense discipline to invest in the things that we want to invest in. The types of things that we're investing in are continuing to hire revenue-producing staff and the various support staff to support that growth. We also are focusing on technology modernization, you know, especially, you know, our payment systems and, you know, AI workflows. You know, all the things that continue to help us improve and grow our business. And as Raj mentioned, you know, in our existing footprint, you know, we are looking to expand in, you know, in Dallas, Tampa here, and in Florida, etcetera. So that's really, you know, really bread and butter using operational discipline to pay for, you know, as much of the expand and growth areas that we can. Jon Glenn Arfstrom: Raj, a bigger picture question for you. Can you touch a little bit more on your New York comments? I think, you know, it sounds like it's doing fine and it's, you know, maybe similar size to Florida in terms of C&I, a little smaller in CRE, but, you know, I think the narrative is New York is difficult and Florida's on fire and sounds like maybe you wouldn't agree with that. Rajinder P. Singh: Our Florida business is bigger than New York. So let me start by just saying that. Having said that, I just look at production numbers by geography, by division, and at least this quarter, sort of our lower-end middle market business, they had the best quarter ever in New York. Almost to the tune of that, look at the numbers, and my first reaction was I think there's a typo here. And they came back and said to me, no. That's not a typo. That is actually what we did this quarter. So but that's a quarter. Every, you know, over time, but they had a great year also. But our business is still very much Florida is the center of gravity. And New York is a, you know, a nice hedge, a nice sort of risk mitigation geography for us. But this notion that, you know, New York is just in a downward spiral and as an economy, and that's not true. New York is doing fine. New York CRE is doing more than fine. New York C&I, you know, there's business to be done in New York. So we're optimistic, and more than optimistic about both geographies that we're in. And then Dallas and Atlanta, they're, you know, you know those markets doing really well. So we're not pulling back on any geography. But having said all that, you know, the center of gravity of the company is and will remain South Florida. Thomas M. Cornish: Yeah. I would add we've invested in a new team in New Jersey. We're, you know, we have invested in resources in the Long Island market both on the C&I and on the CRE side. And although people, you know, sometimes when they talk about New York Point or the Tri-State area, you know, point to differences in growth rates, that's true, but you're also starting from a $2 trillion base. You know? It is a very, very large economy, and we're, you know, we're not the market share leader there. So regardless of really whether it's up 2% or down 2%, there's still a lot of great opportunities in the Greater New York area. It separately would be one of the largest economies in the world if it were a separate country. So you can't walk away from that. There's still a tremendous amount of opportunities for us to grow in a market where our model of high-quality service personalized business stands out among the competition in that market. So we have growth plans for that market as well. Rajinder P. Singh: Yep. Jon Glenn Arfstrom: Okay. Thank you very much. Appreciate it. Operator: This concludes our question and answer session. I would like to turn the conference back over to Mr. Rajinder P. Singh for any closing remarks. Rajinder P. Singh: I almost thought Leslie would ask a question. But now listen, guys. Thank you so much for dialing in and listening to our story. And, you know, we'll talk to you again in ninety days. And before that, we'll probably see some of you on the road. Thank you so much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings. Welcome to the Prologis Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note that this conference is being recorded. And I will now turn the conference over to Justin May, Senior Vice President, Head of Investor Relations. Thank you, Justin. You may begin. Justin May: Thank you, operator, and good morning, everyone. Welcome to our fourth quarter 2025 earnings conference call. Joining us today are Dan Letter, CEO, Tim Arndt, CFO, and Chris Caton, Managing Director. I'd like to note that this call will contain forward-looking statements within the meaning of the Federal securities laws, including statements regarding our outlook, expectations, and future performance. These statements are based on current assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings for a discussion of these risks. We undertake no obligation to update any forward-looking statements. Additionally, during this call, we will discuss certain financial measures such as FFO and EBITDA that are non-GAAP. And in accordance with Reg G, we have provided a reconciliation to the most directly comparable GAAP measures in our fourth quarter earnings press release and supplemental. Both are available on our website at www.prologis.com. And with that, I'll hand the call over to Dan. Dan Letter: Thanks, Justin. Good morning, and thank you all for joining us. We delivered a strong fourth quarter and closed the year with solid financial and operational momentum driven by disciplined execution and deep engagement with our customers across our markets. As we build on this momentum, I want to start by recognizing our teams around the world. Their dedication, creativity, and customer focus are central to Prologis' success. In a few minutes, Tim will walk you through the details of our results. Before that, I'd like to share a few observations about the business. Across conversations with customers, investors, business partners, and our teams, a consistent theme comes through. Prologis' leadership goes well beyond scale. It's about how we operate. Our commitment to excellence, the strength of our long-term relationships, and our ability to anticipate what's next. That mindset defines our culture and continues to guide how we lead. Looking ahead, we're building on that with a clear focus on three priorities. First, extending our leadership as a best-in-class operator. Whether it's using data analytics to drive better decisions, deploying site-specific energy solutions, or advancing venture initiatives that enhance our platform, our objective is straightforward. To continue widening the moat that differentiates Prologis. Do that through unmatched service, innovative solutions, and the mission-critical reliability our customers depend on. Second, capturing the significant value creation opportunities ahead of us in both logistics real estate and data centers. Our track record in warehouse development is well established. And we're positioned to deliver the next generation of modern, strategically located facilities. At the same time, advantage today is defined by location, power, and scale. With a growing power pipeline, deep customer relationships, and multidisciplinary expertise, we are well equipped to develop critical infrastructure few can match. We will approach data centers with the same discipline and long-term perspective that has defined our success over time. And third, enhancing shareholder returns through continued growth in assets under management. Our private capital partners are increasingly seeking fewer managers who can deliver consistent performance across geographies and strategies. And we are perfectly suited to serve as that partner of choice. We are developing new vehicles and strategies that build on our track record of performance, transparency, and partnership. And we're making strong progress. As we enter 2026, we do so from a position of strength, and with the strategic initiatives in place to extend our leadership and compound value for our shareholders. With that, I'll turn the call over to Tim to walk you through our results and outlook. Tim Arndt: Thanks, Dan. As mentioned, we are very pleased with our results and closed the year with strong momentum. Our teams performed exceptionally well, signing 57 million square feet of leases in the quarter and driving occupancy toward 96%, further widening our outperformance versus the market. Improved customer sentiment together with better than expected market conditions reinforces our view that vacancy has peaked and rents are beginning to inflect across many markets. Momentum extended across the growth areas of our business as well. Our development platform, particularly in build-to-suits, continues to outperform, exceeding expectations and capturing meaningful market share. In Strategic Capital, we formed two new investment vehicles in the U.S. and China. In our data center business, the power pipeline continues to grow and we expect a solid year of starts. Turning to our results, fourth quarter core FFO was $1.44 per share including net promote expense and $1.46 per share, excluding net promote expense. Finishing the year at the top end of both our most recent and inaugural guidance ranges. On an owned and managed basis, average occupancy was 95.3% for the quarter and 95% for the full year with period end finishing the year at 95.8%. Results were driven by strong new leasing and healthy retention of 78%. And in the U.S., we expanded our outperformance versus the broader market to 300 basis points reflecting the quality of both our portfolio and operating platform. Net effective rent change was 44% for the quarter, contributing approximately $60 million of annualized NOI and driving net effective rent change for the year to more than 50%. Our net effective lease mark to market ended at 18%, representing nearly $800 million of embedded NOI yet to be realized without any increase in market rents. The rate of decline in our lease mark to market has slowed considerably and many markets including several in the U.S. and most across LatAm and Europe are once again seeing expansion as market rent growth begins to outpace portfolio churn. Finally, same-store NOI growth was 4.7% on a net effective basis and 5.7% on a cash basis, each ahead of the midpoint of guidance. And for the full year, net effective same-store growth was 4.8%, hitting the top end of our range. Turning to capital deployment, it was another active quarter. We sold approximately $900 million of value-maximized assets and acquired $625 million at attractive discounts to replacement costs generating between them a positive 150 basis points spread in expected IRR. On the development front, we started $1.1 billion in new buildings in the quarter, which were all logistics projects and over 48% build-to-suit. For the year, we started $3.1 billion where build-to represented an impressive 61%. It's worth reemphasizing that this success is driven by a deliberate and differentiated strategy matching well-located entitled land with a strong customer franchise allowing us to generate attractive returns despite the derisked nature of the In our energy business, we delivered another strong quarter with lifting total installed capacity to 1.1 gigawatts achieving and surpassing our one gigawatt goal set four years ago. We will build on this progress adding additional capacity given the significant untapped potential across the portfolio. Before turning to market conditions, I'd like to highlight that recently led the creation of an industry snapshot developed in partnership with JLL, Cushman and Wakefield, and Colliers. This collaborative effort combines our proprietary research with timely and transparent brokerage data across 34 U.S. markets. You can find the report in the research section of our website. Overall, we are progressing through three stages of inflection we outlined last quarter. Evidence of enduring demand, resulting build in occupancy followed by an inflection in rents. We are now seeing all three at varying stages and paces across our geographies setting up a constructive 2026. Fourth quarter net absorption was 59 million square feet in the U.S., a strong finish to the year and further evidence that demand is both visible and building. Higher absorption levels, exceeded completions for the first time since 2022, resulted in a decline in U.S. vacancy to 7.4%. The result is that market rents declined at their slowest rates in 2023 with many markets posting positive growth. Across our portfolio, demand remained the strongest in large space formats but it's encouraging that occupancy increased across all of our size categories. The tone of our conversations with customers is increasingly forward-looking. While uncertainty is always top of mind, including tariff policy, it is now treated more as a planning assumption rather than an impediment. E-commerce remains a meaningful driver of this demand representing approximately 20% of our new leasing activity over the last year making 2025 its best year since 2021. Large retailers with significant e-commerce operations continue to expand and diversify their networks to shorten delivery times and improve efficiency. Their ongoing innovation and growth combined with the threefold multiplier in the space required for e-commerce continues to provide a powerful tailwind for our business. Finally, outside of the U.S., our international markets continue to outperform. In Latin America, consumption trends in both Mexico and Brazil remain robust supporting high occupancy and ongoing rent growth. Europe delivered another solid quarter maintaining strong occupancy and posting its first quarter of positive rental growth in two years. Japan also performed exceptionally well with occupancy above 97% and outperformance relative to the market of nearly 600 basis points. Together, these results highlight that our global footprint is not only strategic and valued by our customers, but also a key driver of the diversity and resilience of our platform. Turning to capital raising, we achieved two important milestones in strategic capital. First, the IPO of the China AMC Prologis Logistics REIT as we call it the CREIT on the Shenzhen Stock Exchange marking our third publicly listed vehicle. Similar to NPR in Japan and fever prologists in Mexico, the CRE broadens our access to capital diversifies our investor base, and strengthens our presence in one of the world's most dynamic logistics markets. Second, we added a new vehicle focused on development, redevelopment and value add opportunities a strategic complement to our open-ended funds focused on stabilized investments. In the fourth quarter, we held the anchor closing for the U.S. Agility Fund yet another endorsement of the Prologis platform in a competitive capital raising environment. We have a deep pipeline of capital raising strategies in various stages of formation for this foundational business line. We look forward to sharing additional updates with you as the year progresses. Moving on to data centers. At its core, this business is centered on four priorities. Procuring power, securing build-to-suit lease transactions delivering world-class facilities for our customers and harvesting value through asset sales. We continue to make clear progress on each front, During the quarter, we expanded our power access to 5.7 gigawatts, stabilized 72 megawatts of projects, and sold a state-of-the-art turnkey facility at compelling economics. In terms of leasing, demand is exceptional and every megawatt in our pipeline is in some stage of discussion. Including 1.2 gigawatts currently in LOI or pending lease execution. Our data center team and capabilities are expanding and executing at a very high level and we are extremely excited by the significant value creation opportunity ahead. Turning to guidance, which I'll review at our share. We are forecasting average occupancy to range between 94.75% and 95.75% which includes the expectation for a seasonal drop in occupancy in the first quarter before rebuilding over the year. Net effective same-store growth is forecasted to be in a range of 4.25% to 5.25% and cash in a range of 5.75% to 6.75% with rent change being the predominant and enduring component of this growth. Our G&A forecast is for $500 million to $520 million and our strategic capital revenue forecast calls for $650 to $670 million. As for deployment, we are forecasting development starts to range between $4 billion and $5 billion on an owned and managed basis. As mentioned earlier, we have increased visibility and confidence around new starts in our data center business we've included those volumes in this guidance at approximately 40% of the activity. Acquisitions will range between $1 billion and $1.5 billion and our combined contribution and disposition activity will range between $3.25 and $4.25 billion. In total, we are establishing our initial GAAP earnings guidance in a range of $3.7 to $4 per share. Core FFO, including net promote expense, will range between $6 and $6.2 per share while core FFO excluding net promote expense will range between $6.05 and $6.25 per share. In closing, 2025 brought unexpected challenges and periods of uncertainty. And we're very pleased with how the company performed throughout the year. Our teams once again demonstrated the strength and resilience of our platform and the discipline of our world-class operations delivering strong operational and financial results. Equally important, we used the year to strengthen the foundation of our business by advancing development entitlements expanding strategic capital, and accelerating our progress in data centers and energy. As a result, we entered 2026 from a position of strength with operating momentum and a setup that supports durable long-term growth. With that, I'll turn the call back to the operator for your questions. Operator? Operator: Thank you. We will now be conducting a question and answer session. We ask that you please One moment please while we poll for questions. And the first question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question. Blaine Heck: Great, thanks. Good morning, everyone. Dan, can you speak about any changes in strategic initiatives that may come with your leadership at Prologis? And specifically, any thoughts around the strategic capital side of the business and when you might expect to add additional strategies including a potential data center focused fund? Any information on the scope, potential timing, and earnings impact would be really helpful. Dan Letter: Yes. Thanks, Blaine. I highlighted our strategy pretty clearly in my opening remarks here. And what did I say there? First, our focus is centered on compounding the core logistics business. While continuing to broaden and strengthen the platform. Logistics is and will remain the foundation here. Serving the consumption centers around the world, capturing the embedded rent growth and lifting rents as markets recover. And then we'll start leaning more into development where supply is constrained. Data centers and energy high return adjacent businesses here. Where our land positions, our power access, and our customer relationships really give us that edge. We have a very strong customer franchise. And yes, I expect to grow the strategic capital AUM significantly both through existing vehicles and new vehicles And really, you know, at the end of the day, it it's it's all about hyper focus on execution for this team. Tim, maybe you want add on something on the new vehicles? Tim Arndt: Yeah. Hey, Blaine. On the, on the data center fund and its prospects, as you know, over the past weeks and months now, we've been dialoguing with some of world's larger investors and they are ones who would have interest in co in this business. And we've we've had a very productive couple of months in that regard. There definitely is a lot of interest such that we see capital isn't necessarily the constraint here. And what we're really after is determining what capital structure makes sense for this business that allows us to take full advantage of all the development opportunities in the portfolio, diversifying projects, but growing the AUM that we're talking about here and enhancing it with fee streams, etcetera, driving ROE. I'd say we're meaningfully through that process at this point. We expect to know more in the coming weeks and months. But it's something at the same time, I'll say we're taking care to get right given the scale of the opportunity. So in the meantime, the balance sheet has been comfortably carrying out the program that we have. It's been very profitable. So we'll compare these alternatives to that status quo. And, as we have more, more news for you, we will share it out in the coming months. Dan Letter: Thank you, Blaine. Operator, next question. Operator: The next question comes from the line of Michael Griffin with Evercore ISI. Please proceed. Michael Griffin: Great, thanks. Tim, I appreciated your comments kind of walking through puts and takes of your expectations in 2026. Wondering if you can dive a little bit deeper into your assumption around market rent growth and maybe if you're able to kind of quantify it for us in terms of what you're forecasting for the year ahead. It seemed like some markets are hitting an inflection point. You still got a healthy mark to market. So is this a scenario where maybe market rents are down in the first half of the year and then improve as we get to the second half? Just maybe walk us through some commentary there, that'd be great. Thank you. Tim Arndt: Yes. Let me pass that over to Chris. Michael, let me give you the full fundamental forecast for 2026. So that you have all the context you need to make that judgment. The key message here is market vacancies are poised to improve over the course of the year. Now that already began in the fourth quarter when net absorption outperformed completions and I anticipate '26 will play out the same way. New demand is a key variable here and we expect net absorption to approach 200 million square feet in 2026, versus 155 last year. Decline in supply is helping. Deliveries are on pace to be 185 million, 180 million square feet in 2026, down from 200 million square feet last So that'll take vacancies, were at 7.4% at the end of last year. Towards 7.1, 7.2% at the end of this year. And so you're right, markets are advancing at different rates. Tim described rent demand improving, occupancy levels beginning to improve across our rent a greater range of markets and ultimately rents. So we expect positive rent growth in aggregate to begin to emerge in a more clear way over the course of the year. Thank you, Michael. Dan Letter: Operator, next question. Operator: The next question comes from the line of Craig Mailman with Citi. Please proceed. Craig Mailman: Hey, good afternoon guys. Just want to hit on the data center piece real quick. I think Tim, you said that you have 1.2 gigawatts in LOI or advanced negotiations. Can you just walk through kind of how many projects that would be? And how that's reflected in the development start guidance? I noticed you guys for the first time aggregated warehouse and data center. So give us sense of, like, how much of that start guide into data centers versus warehouses? And if this 1.2 gigawatts is sort of a near term opportunity or twenty seven and twenty eight too? Tim Arndt: Yes. I won't break it down by project for you, Craig, but we have a small handful, I'll describe it that way, of starts that feel relatively imminent given the stage of leasing I just described. Them in. So I expect you'll see something this quarter in starts and certainly in the first half, maybe a couple there. In the guidance, I described that 40% of our overall owned and managed range of $4 billion to $5 billion we expect 40% of that roughly to be in data center. So you can unpack that understand the logistics piece. And I think, I will say I think there's we left some opportunity outperform this in a few ways, both in logistics and in the data centers. The logistics side, you know, I would say that what you infer there on logistics starts is still below what a very strong run rate would be for us. We could see that the environment for spec starts continues to improve and that would be a means for outperformance on those starts. And on the data center side, I would bear in mind that it's not only going to be in a project count, if you will, that we execute on, but also format. We have a mix that we think about between Powered Show and Turnkey and the appetite for Turnkey projects is quite high from our customers. And if we choose to execute to more in that format the aggregate dollars would rise as well. Dan Letter: Let me just pile on here We've often talked about a wide range of deployment that we can do throughout the year. We own land and over 70 markets around the world. And as we talked about $42 billion worth of opportunity in that land bank. Of which nearly 40% of that is ready to go. So we can really make a decision a moment's notice as it relates to starting So we have a lot of opportunity, as Tim mentioned. Thank you, Craig. Operator, next question. Operator: The next question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed. Caitlin Burrows: Maybe another data center question. So just a year ago on the 4Q24 call, you guys mentioned that you could 10 gigawatts of power in ten years. I guess now we're one year later and you're already at almost six gigawatts. So I was just wondering if there was any update on that kind of 10 gigawatt outlook or trajectory? And do you think the pace of increase could keep going? Might it slow down because future increases in power or increase increasingly more difficult? Or just how do you expect that to trend? Dan Letter: Caitlin, I would say when we talk about the 10 gigawatts of power, what we talked about is just the universe of opportunity that we have. We own 6,000 buildings adjacent to the world's most dynamic consumption centers. We own or control 14,000 acres of land And it's it's really lumpy as to when the sites will be ready, will be energized. And that's why we're updating you as soon as we know what's coming. But I'm very comfortable stating that 10 gigawatt of pipeline and there's just a lot behind that. That is further down the road, but no update further from that number. Thank you, Caitlin. Operator, next question. Operator: The next question comes from the line Vikram Malhotra with Mizuho. Please proceed with your question. Vikram Malhotra: Good morning. I wanted to just clarify two things. Just based on your comments, which seem like we're moving from this bottoming to an inflection phase. So one, guess it's been hard over the last three years to predict sort of this inflection in occupancy. So what gives you strength as you see this downtick in the first quarter to build a fair amount of occupancy to hit your guide? And then related to that, as you get this strong core growth, what can you walk through some of the offsets that limit the FFO growth this year? Thanks. Tim Arndt: Hey, Vikram. Well, look, on occupancy, I think the first thing that is worthy of remembering is that the past few years now of absorption is what has been the outlier. We've had very low years of annual absorption in our markets. So even with Chris's forecast of approaching 200, we'd still call that not fully normal normal or or robust. So I think that's useful context perhaps. The remainder is look, I think our guide is for about 25 basis points increase in average, also maybe not as extreme as you might be reading into. But finishing the year at 95.8% and building occupancy over the course of the year To answer your direct question is what gives us a good amount of confidence in the forecast. That we have here. Thank you, Vikram. Operator, next question. Operator: The next question comes from the line of Sameer Khanal with Bank of America. Please proceed. Sameer Khanal: I guess, Tim, occupancy had a nice pickup in in Europe and Asia in 4Q. I think you talked a little bit about Japan, but maybe can you provide some color on kind of the big pickup there in occupancy and sort of what's driving that? Thanks. Tim Arndt: Hey, Sameer. I would say, I would look back across the year probably 2025. The Europe story and definitely the Japan story are not new. We've tried to highlight that few times, in recent quarters. Occupancies there in the market have been pretty strong, in Europe at least. Japan is a different story at the market level. But our portfolio in both cases has been quite high and has been that way for for quite a while now. Anything you would add, Chris? Chris Caton: No. That's right. I'd say momentum is building. Around the world. Ex US has has more momentum healthy demand, lower vacancies. Thank you, Sameer. Operator, next question. Operator: The next question comes from the line of Ronald Kamdem with Morgan Stanley. Please proceed. Ronald Kamdem: Great. Just had a broader question on capital deployment both on the data center and the traditional sort of industrial side. If you could just walk us through just what that potential pipeline looks like in terms of the ramp and what you need to see to sort of increase the run rate specifically on the industrial side? Thanks. Dan Letter: Yes. Ron, I'll start and maybe Tim will chime in here. But as I mentioned, we have significant number of opportunities Good news is we saw this real estate cycle continue in the fourth quarter as as Chris mentioned in his prior remarks, we're seeing really starting to see better activity and really all size ranges. It's not just the big box story or at least fourth quarter wasn't just a big box story. So we can watch these markets literally by the week and month and and make decisions on the fly and and and ramp accordingly. Tim Arndt: Yes. I would only say, Dan, that's precisely right. And Ron, maybe I would to give a different context, it really is built up week by week at investment committee as teams are deciding conditions in their respective markets are appropriate. It's not something that we govern top down. Thank you, Ron. Operator, next question. Operator: The next question comes from the line of Nick Thillman with Baird. Please proceed. Nick Thillman: Hey, good morning. Maybe touching still on the development starts on the industrial side. Is it fair to assume that you still have a little bit more bias ex U.S. in that market? And then as we think of the land bank overall, you guys have alluded to the mark to market upside, but then replacement cost rents. I guess as we look at the bank, land bank overall, what percent of that bank do you think in the money when it comes to new construction, like barring or if the demand is there, like, how what percentage of that would you say is in the money at this point? Tim Arndt: On on new starts here? Well, I'll take the second part and Dan can pick up the the geographic mix maybe after. It's a challenging question to unpack the way you're phrasing. I guess what I would tell you is that we have value evaluate the valuation of the land bank every quarter and we continually read out you how we see that. Presently, we see that around 110% fair market value to book value. So that is going to be a mix of of projects that are more deeply in the money than others, but, I can only provide you the information on that aggregate basis. Dan Letter: And then as it relates to geographies, about two-thirds of the starts that we're assuming for the year on the logistics side are in the U.S. For 2026. That's that's up, about 10-15% year over year. And then we're seeing strong markets in Latin America between Sao Paulo, Mexico, I'd say not the border markets of Mexico, but Mexico City and And then if you go over to Europe, we're seeing we'll some starts in Germany, Netherlands, Northern Europe mostly. Thank you, Nick. Operator, next question. Operator: The next question comes from the line of Vince Tibone with Green Street. Proceed with your question. Vince Tibone: Hi, good morning. I have a few more questions on the data center opportunity. On the 1.2 gigawatts you mentioned are under LOI, would those be mostly powered shell or turnkey? I'm I'm just trying to get a sense of the total investment for that. And then could you also clarify just what exactly it means to be kind of an advanced stages of procurement for power? I mean, it's just everything we hear, the taking longer and longer to get power from the utility. So I'm curious, like, how far out that stuff that's in advanced stages may take before, you know, power could be delivered? Like, is it you know, because you have commitments for that power, but it may be, you know, three to five years, if not more, until it's actually delivered? Just trying to get a sense of both those points. Tim Arndt: Hey, Vince. I would I'm gonna answer your first question in a more generic way that we think of the program overall as likely being on the order of 60% to 70% powered shell. Having some amount in our forecast reserved for full turnkey. The deals that are in the near future are still working through those discussions. And we've seen it it may be surprising, but we've seen even in late stages or mid build customers decide to transition from powered shell to full turnkey. So that's why it's a little squishy right now. But to widen you out to think about the entire initiative, think about 60% to 70% power shell. Dan Letter: And, Vince, to your question around what defines advanced stages, what's secured, Advanced stages it 's the point when a project has a preliminary utility agreement that really signals progress towards a firm power agreement. It's really just pending the final design and construction with the utility. There's significant capital that's been outlaid at that point. And it's definitely a defined path to securing that from power. That often happens after many, twelve, eighteen, twenty four months of negotiations with these utilities. And then it typically takes another year to two to get to that secured stage. And then we consider secured power is when the data center project has a binding agreement through the form of an energy service agreement with the utility, and that's guaranteeing power delivery and committing to build that necessary infrastructure. Thank you, Vince. Operator, next question. Operator: The next question comes from the line of Michael Goldsmith with UBS. Please proceed. Michael Goldsmith: Good morning. Thanks a lot for taking my question. Despite what was a particularly volatile year in 2025, you still ended up at the high end of your initial core FFO like promote guidance, which suggests stability in the algorithm, but the spread for the outlook in 2026 is even wider. So there anything that would add more sensitivity or a wider range of outcomes this year? And then as well, Southern California lease percentage picked up a 140 basis points. So if you could touch on the health of that market, that would be appreciated. Tim Arndt: Hey, Michael, it's Tim. On your first question, I would think of it more as math, to be honest. We're just getting to earnings per share, FFO per share here. That's quite quite a high number crossing over $6 now. And if you just think of very variability in percentage terms, the penny range that we provide needs to move with that growth and widens out. It's just just natural. Chris Caton: Hey, Michael, it's Chris. On Southern California, great pickup. There has been a tone shift in Southern California worth discussing. So look, let's acknowledge Southern California has been a soft market and market vacancies are elevated there. But there is a new direction in customer customer demand and it's giving us confidence in the call that we've been consistent in making in terms of the opportunity for cyclical recovery to emerge. What I'm specifically looking at is in the back half of the year and so both in the third and fourth quarters, gross absorption and net absorption went in a different direction in an improved direction. Customers are engaging earlier in renewals There's broader discussion of new lease requirements across all submarkets from a wider range of customers. And as it relates to submarkets, we often get asked that question and there is still some nuances we pass as we approach this inflection point. Inland Empire is is clearly outperforming Los Angeles. There's great improving absorption in that geography. Class A over Class B is outperforming. That's a positive for our portfolio. And in fact, there are a couple of pockets where there's some scarcity and healthy customer demand that's that's leading to firming and improving pricing. So I'm thinking really big box in in Land Empire. Putting it together, the cycle is progressing and short term weakness is dissipating. Thank you, Michael. Operator, next question. Operator: The next question comes from the line of Mike Mueller with JPMorgan. Please proceed with your question. Mike Mueller: Yes. Hi, thanks. Do you have fund contribution expectations 2026 reflect just ongoing development activities for warehouses? Or does it factor in any contributions for the new vehicles? Tim Arndt: The only thing included in the contribution guidance is that we contemplate for the year is that the Agility Fund that I mentioned in my prepared remarks, before it starts some of the development activity it will undertake in the year, it will take some contributions of land from Prologis, marked up to fair value is the way that will operate. And that is reflected in the guidance. Thank you, Michael. Operator, next question. Operator: The next question comes from the line of Nicholas Yulico with Scotiabank. Please proceed. Nicholas Yulico: Thanks. Tim, in terms of the guidance on same store growth this year, I was hoping you could just unpack that a little bit. In terms of the acceleration in same store growth this year. Is that is that just being driven by easier occupancy comps? Or are you also expecting some improvement in mark to market that you can capture? Tim Arndt: Yeah. It's going to be let's break it apart. On the rent change piece or the mark to market, as you mentioned, that will be decreasing factor as rent change amounts get a little bit more normalized. We had 50% rent change in 2025, as I mentioned, and you can unpack and infer by looking through the supplemental will be in the high 30s. Or roughly 40% in 2026. As you evaluate market rents for our discussion of where they sit in our in our lease mark to market. So that'll be a smaller contributor, long way of saying occupancy drag will be a little bit less One of the predominant factors is just lighter FPLA. Really, from the Duke acquisition. That does have a long tail, I'll say that is still dragging net effective same store growth by 75 to 100 basis points. And it'll be with us for a few more years, but it does slowly reduce over time. Thank you, Nick. Operator, next question. Operator: The next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed. Todd Thomas: Hi, thanks. I wanted to go back to the capital deployment ask about something at a little bit of a higher level. You previously talked about deployment drag in '26 just given lighter levels of start and 2024 and 2025, which has impacted FFO growth to some extent in the near term? Can you talk about the cadence of stabilizations during the year? And comment on whether you see that accelerating or increasing as the year progresses. I'm just wondering if you can talk about the magnitude and impact of that drag within the '26 guidance and whether you expect that to begin alleviating as '27 approaches? Tim Arndt: Yes, Todd, I think the best disclosure on this is present in the sup with regard to the pipeline overall and we do demark what years of stabilization the projects fall into. We don't provide it out by quarter, That's just a lot of detail for one. But on the speculative side, that's going to be subject to when leasing is being achieved. Perhaps just to help you, if you wanted to unpack know, some breadcrumbs from, prior year starts, which we give you quarterly. I'd say our spec business is typically leasing up between seven and nine months. Long term average would be seven. Our recent years have been a little bit a little bit longer. I expect to see that tighten as market conditions do. And then build to suits, of course, come online immediately at project completion. Thank you, Todd. Operator, next question. Operator: The next question comes from the line of Brendan Lynch with Barclays. Please proceed. Brendan Lynch: Great. Thank you for taking my question. Another follow-up on the data center side. Can you discuss the five plus gigawatts of power that you have access to How fragmented that power is dispersed either geographically or even conceivably by asset? And where the largest blocks are that you have? Dan Letter: Yes, sure. So our our land and and the the power the the bank, if you will, it is distributed across Tier one and Tier two markets across The U.S. and Europe. That's Northern Virginia, That's Silicon Valley, Chicago, New Jersey, Dallas, Portland, in the in The US is tier one. It's it's the flap d. Markets. Literally, we've got Amsterdam, London, Paris, Frankfurt, Dublin, that we're working. And then Tier two, we've got a number of sites as well, Austin, Las Vegas, Phoenix, Salt Lake City, Boston, Denver. And then and then Madrid, Milan, and Berlin in in in Europe. So very dispersed, a wide range of opportunities here. Thank you, Brendan. Operator, next question. Operator: Our final question comes from the line of John Kim with BMO Capital Markets. Please proceed. John Kim: Thank you for squeezing me in. Wanted to follow-up on what's incorporated in same store guidance in terms of the occupancy growth of U.S. versus international market will that international outperformance continue? And also what we're expecting from solar contribution given there wasn't much contribution last year, but we're one year closer to the billion dollar Essentials revenue target that you're expecting by 2030. Tim Arndt: Yes, John. The occupancy gains that I would see in same store are relatively dispersed across our geographies. There's, more weight coming out of The US generally, of course, but, the levels of improvement even at the market level as we think about Chris' absorption, our kinda uniform in basis point terms between those geographies. Solar revenues, I'm glad you highlight It is It in NOI. We're very proud to have, surpassed that one gigawatt goal. By the way, I like to mention again, the growth you see there while in on its own, is just at a nominal level, to be frank, that it kind of pales in comparison to the $6.7 billion dollars of NOI from rental operations we have now, but that will continue to grow from here and become a much more meaningful contributor in future years. Operator: This now concludes our question and answer session. Now I'd like to turn the floor back over to management for any closing comments. Dan Letter: Thank you for joining us today. We appreciate your interest in the company. We look forward to connecting throughout the quarter or during next quarter's call. Take care. Operator: And ladies and gentlemen, thank you for your participation. That does conclude today's teleconference. Please disconnect your lines and have a wonderful day.
Operator: Thank you for your continued patience. Our meeting will begin shortly. Please standby. Your meeting is about to begin. Welcome to Metropolitan Commercial Bank Fourth Quarter 2025 Earnings Call. Hosting the call today from Metropolitan Commercial Bank, are Mark DeFazio, President and Chief Executive Officer and Daniel Dougherty, Executive Vice President and Chief Financial Officer. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode. The floor will be open for your questions following the prepared remarks. Lastly, if you require operator assistance, during today's presentation, reference will be made to the company's earnings release and investor presentation, copies of which are available at mcbankny.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to the company's notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release and investor presentation. It is now my pleasure to turn the floor over to Mark DeFazio, President and Chief Executive Officer. You may begin. Mark DeFazio: Thank you, and good morning, and thank you for joining our quarterly earnings report. We are pleased with our fourth quarter and full year 2025 performance. Sustained growth in net interest margin, net interest income, deposits, and loans, combined with continued improvement in our efficiency ratio, positioned us to close the year on a strong note. The momentum we generated in the fourth quarter sets a solid foundation for meaningful progress in 2026 and beyond. Our disciplined underwriting and our franchise-wide risk management culture continue to anchor our safety and soundness approach. For the year, we expanded our loan portfolio by $775 million, representing a growth of nearly 13%. Total loan originations reached approximately $1.9 billion. Loan growth was funded by deposits, which increased by roughly $1.4 billion or about 23%, supported by our strategic funding initiatives. These initiatives included deepening existing deposit verticals and identifying new opportunities to diversify and strengthen our funding base. In the fourth quarter, we opened a full-service branch in Lakewood, New Jersey, as a conversion of an existing administrative office. Additionally, we expect to open two new branches in Florida in 2026, one in Miami and one in West Palm Beach, all of which will enhance our presence in these key growth markets. Asset quality remained solid with no broad-based negative trends across loan segments, geographies, or sectors. We continue to engage closely with our clients to assess evolving market conditions, and feedback to date has not indicated any areas of concern. This is a reflection of our disciplined underwriting and proactive portfolio management. Looking ahead, we remain focused on managing asset quality, optimizing profitability, and expanding our presence in New York and other complementary markets. Our strategy for 2026 and beyond centers on capturing additional market share through traditional channels while positioning the franchise to capitalize on opportunities that enhance long-term shareholder value. Several new initiatives will enter the market in 2026, and we expect to see early returns in the form of low-cost deposits and growth in increased fee income. These efforts reflect our commitment to build a more diversified, efficient, and resilient institution. I want to express my sincere appreciation to our employees and directors for their dedication and contribution throughout the year. Their commitment to excellence has been instrumental in Metropolitan Bank Holding Corp.'s sustained performance and will continue to drive our success in years ahead. I will now turn the call over to Dan Dougherty, our CFO. Daniel Dougherty: Thank you, Mark. Good morning, everyone. And again, thanks for joining our call. This morning, we will cover the strong results of the fourth quarter and conclude with 2026 guidance, focused on the continuation and importantly, the leveraging of the foundational financial strength evidenced in our fourth quarter results. Let's begin with a few comments on the balance sheet. The loan book was essentially flat in the fourth quarter; however, we did achieve our annual target growth. In 2025, the loan book increased by $776 million or about 13%. The reason for the limited loan growth in the fourth quarter was related to prepayments of approximately $317 million, which is about $150 million above the trailing three-quarter run rate. Fourth quarter total originations and draws were approximately $599 million, printed at a weighted average coupon or WACC net of fees of 7.28%. The new volume origination mix was in line with historical performance at about 70% fixed and 30% float. Over the next six months, we have about $1.1 billion inventories with a WACC of 6.94%. We assume that we will retain about 75% to 80% of those cash flows. In our forecast model, we assume that renewals will reprice at about 25 to 50 basis points below our new volume origination rate. As the treasury curve three years and out has not moved very much since the Fed began its most recent easing campaign, our loan spread guidance price guidance continues to drive coupons well above 7%. Our loan pipelines remain strong. I will provide 2026 guidance for the loan growth and other related metrics at the end of this narrative. In the fourth quarter, we grew deposits by $34 million or approximately 4.3%. As noted in the press release, for the year deposits grew by $1.4 billion or about 23%. On a spot basis, quarter over quarter, the cost of interest-bearing deposits declined by 43 basis points. As our balance sheet remains modestly liability sensitive, and more than $2 billion of our indexed deposits repriced on the first business day of the month following a rate change, the benefit of the mid-December reduction in the Fed funds target rate will only become apparent in the first quarter. We have $1 billion of hedged indexed deposits, which just display positive carry downs with Fed funds effective rate of approximately 3.5%. In our forecast model, we are using a generic cost of funds of the Fed funds target rate minus 50 basis points. Comments on the net interest margin? The margin was 4.1% in the fourth quarter, up 22 basis points from the prior quarter. As you know, the Fed began the recent easing campaign mid-September last year. Over the course of the 75 basis point easing cycle to date, our deposit beta for unhedged interest-bearing deposits has been about 75%. Expect that we will be able to replicate this performance for the next 50 basis points of rate cuts at the minimum. Supported by our deposit growth, we were able to pay off all wholesale funding totaling $450 million during the course of 2025. Now let's move on to some high-level comments on our income statement. Our methodical balance sheet growth and NIM expansion continue to drive impressive top-line results. For the fourth quarter, net interest income was $85.3 million, up more than 10% on a linked quarter basis and up almost 20% for the year. Now let's talk briefly about the diluted EPS print of $2.77. As mentioned previously, we experienced elevated loan prepayments in the fourth quarter. As such, our prepay penalty and deferred fee income was about $1.7 million above our normal run rate. In addition, in the first quarter, we've sold bonds and realized a gain of about $675,000. As well, in the quarter, we had an insurance claim recovery related to a discontinued business line and a compensation accrual adjustment that totaled to about $2 million. All told, I estimate that non-core credits put it to about $4.6 million or about $0.30 per share. Our fourth quarter NIM adjusted for above-normal prepayment penalty and fee income was approximately 4.02%. Our fourth quarter ROTCE adjusted for all of the income items that I just listed was just north of 14%. Our noninterest income for the fourth quarter was $3.1 million. I touched on the securities gain earlier. We do not expect to recognize further gains going forward. We do, however, continue to seek new business initiatives, as Mark mentioned, to drive growth in noninterest income. Noninterest expense for the quarter was $44.4 million, down $1.4 million versus the prior quarter. The major movements in operating expenses quarter over quarter were as follows: a decrease of $1.3 million in comp and benefits primarily related to a reduction in the bonus accrual and restricted stock expense. A decline in professional fees of $649,000 primarily related to a reduction in legal and other fees. As mentioned, a portion of the decline in legal fees was related to the receipt of an insurance claim. And finally, a $668,000 increase in technology costs. The primary driver of this increase was related to the digital transformation project. In the aggregate, for the fourth quarter, digital project costs were about $3.1 million. The effective tax rate for the quarter was about 30%. Now, let's take a look at what we are laser-focused on today. The outlook for 2026. To start, some thoughts on our interest rate assumptions and the balance sheet. We have penciled in two 25 basis point rate cuts, one in June and one in September. Clearly, the timing of our rate cut assumptions reduces their financial impact on our forecast. Similar to 2025, we expect to grow loans by about $800 million or approximately 12%. We expect the new volume loan mix to be consistent with recent experience. We expect to fund all planned loan growth with deposits. The securities portfolio will be maintained at about 10% to 12% of balance sheet footings. Now some thoughts on earnings and other financial metrics. We expect the NIM to expand modestly over the course of 2026. The number and timing of additional rate cuts are a primary driver of new performance. As well, the slope of the yield curve is an important variable. In our forecast model, we do assume some modest loan spread tightening throughout the year as a reflection of our loan growth demand. Based on our current forecast, we expect to print an annual NIM of about 4.1% for the year. Importantly, we expect that our business model is well equipped to defend or even expand the NIM with or without additional rate cuts. As for the provision, I note that the current consensus is generally aligned with our thinking. I do note that we are progressing through the workout process on many of the credits for which we booked specific reserves in 2025. The final disposition of these credits could result in allowance adjustments that are outside of our business-as-usual planning. For non-interest income, I suggest a 5% to 10% growth assumption is reasonable. We do aspire, as I mentioned, to rebuild the fee income line through time, generally in line with our 2024 results as a benchmark. Now some thoughts on the outlook for operating expenses. We expect the annual operating expense line total to about $189 million to $191 million. The OpEx forecast includes a number of unique items. The first item relates to the Modern Banking in Motion project. Our annual expense guidance includes $3 million of first-quarter spend primarily related to the extension of the timeline for conversion. The second item relates to the premises expense line item. In 2026, we will be expanding our real estate footprint both at our New York City headquarters and in West Palm Beach, Florida. The associated new expense run rate is about $2.2 million annually. Due to timing, the increase for 2026 will total to about $1 million. Finally, our plan includes growth in deposit verticals that are expensed below the line. The annual run rate of these fees is expected to increase by about $6 million in 2026. Putting this all together, our forecasted ROTCE approaches 16% by 2026. Finally, before we open the floor for questions, I want to mention that Metropolitan Bank Holding Corp. is hosting an Investor Day at our headquarters in New York on Tuesday, March 3. In addition to Mark and myself, a number of our other senior leaders will be presenting. More information is posted on the Events page of our Investor Relations website. A limited number of seats are still available for in-person attendance. If you have questions or would like to attend in person, please contact our Investor Relations team at ir@mcbankny.com. I will now turn the call back to our operator for questions. Operator: Thank you. The floor is now open for questions. Our first question is coming from Feddie Strickland with Hovde Group. Please go ahead. Your line is open. Feddie Strickland: Hey, good morning. Just wanted to start on the loan mix. Appreciate the comments. Opening comments and good to see momentum on owner-occupied CRE last couple of quarters. But I'm just curious if we could start to see C&I start to grow again after a couple of quarters of decline here. Mark DeFazio: I don't think so, Feddie. Core C&I you're going to see grow substantially. You'll see C&I that has a medical implication to it. So we continue to expand our healthcare practices and how we lean into healthcare. But Core C&I, I think we continue to manage that risk at our existing pace or slightly higher or even potentially slightly lower. Feddie Strickland: Understood. That's helpful. And just sort of along that same line, obviously, CRE concentrations come up a little bit just as you've done some repurchases and whatnot over the last couple of quarters, even as owner-occupied has gone up. Do you expect that it will be kind of stable from here just as you continue to grow owner-occupied CRE going forward? Mark DeFazio: Yes, I think so. I think our concentration increase to risk-based capital will be fairly stable going forward for sure. Feddie Strickland: And one last one for me before I step back in the queue. I know you've opened some new branches in New Jersey and South Florida. It sounds like you got more in the pipeline there. And I was just curious how much of a contributor those were to the municipal deposit growth we've seen over the last couple of quarters? Mark DeFazio: With New Jersey, yes. Because they had a little bit of a head start with the branch, the administrative office being converted. Florida has really not yet contributed. We just converted the Miami office and we're under construction in West Palm Beach. So I would expect significant contributions in the future from Florida and even more so from New Jersey as we go forward. Feddie Strickland: Right, great. Thanks, Mark. I'll step back in the queue. Operator: Our next question comes from David Conrad of KBW. Please go ahead. Your line is open. David Conrad: Yes, good morning. Want to talk a little bit about asset quality. I know NPAs went up around $5 million, not pretty stable this quarter, but maybe talk about the two credits there and maybe just update us from last quarter on the bigger relationship, what any movement there, what's happening with that relationship on NPAs? Mark DeFazio: Yeah. The two loans were in-market multifamily loans that properties were up for sale. And we expect to have little or no loss associated upon the sale of those assets. As far as last quarter's specific reserves, we're still working through the workouts. I'm still cautiously optimistic. As I said last quarter, I think we'll have a resolution to those loans by the end of this quarter, and we are engaging with the owners and workouts take time. You need to have patience and maturity. And I think we're going to come out on the right end of this, hoping to report that in the first quarter. David Conrad: Great. Thank you. And then just a follow-up question on capital. I think your CET1 ratio is about 10.7% right now. Maybe walk us through maybe your targets there in the range where you'd want that to be as you grow the balance sheet kind of double digits? Daniel Dougherty: Yes, David. As I when I think about that, I kind of focus on TCE. And we expect to see that kind of trend from the current high eight, 8.8 or so to about low nine. And that's kind of where we feel comfortable running the institution. David Conrad: Okay. So you get back Thank you. You get back in back into CET1 from there. Daniel Dougherty: Yeah. Yep. Yep. Perfect. Thank you. Yep. Operator: Thank you. We will move next with Mark Fitzgibbon with Piper Sandler. Please go ahead. Your line is open. Mark Fitzgibbon: Hey guys, nice quarter. Daniel Dougherty: Nice first question I had, Dan, wondering if you could share with us when you expect the digital transformation cost to be fully done and that transformation to be completed. Is that in the first quarter? Daniel Dougherty: The conversion is anticipated still in the first quarter. In fact, Presidents' Day weekend. That's the big day. Okay. So when that's complete, most of the you know, that's when the explicit expense terminates, but know, then the run rate going forward and takes shape. And there's always trailing stuff, but that's when the end of that $3 million spend will be finalized. Mark Fitzgibbon: Okay. Great. And then I was curious, was there any interest recovery? I know you mentioned some prepayment penalty income in the fourth quarter, but any interest recovery in NII this quarter? Daniel Dougherty: No. Mark Fitzgibbon: Okay. And then I wondered if you could share with us which verticals really drove the demand deposit growth this quarter. I couldn't quite tell from the tables. Daniel Dougherty: Total growth for the quarter largest contributors were munis. And it really was across the board, really, really nice distribution. But munis and property managers. And then customers. Both borrowing customers and new deposits. We're the biggies. And of course, EB5 pitched in a bit as well. So, it really crossed the board. Communities would be outstanding. Bit of the stuff. Mark Fitzgibbon: Okay. And then lastly, maybe for Mark, Mark, your currency's improved somewhat. I know you still think it's it's inexpensive. But do you feel like M&A is more possible now likely given what's going on in the environment out there? Mark DeFazio: At this point, we don't see a lot of value there in the franchises that are in our markets. So we're going to stay very close to the best here. We have some very exciting rollout of new opportunities that you'll read about. Hopefully by the end of the first quarter. So we're going to just keep doing our blocking and tackling and materially outperform our peers here and let these other M&A transactions just sit out there and let them work themselves out. But for now, we're just our head is down and we're focused on organic growth. Mark Fitzgibbon: Great. Thank you. Operator: Thank you. Do have a follow-up from Feddie Strickland with Hovde Group. Please go ahead. Your line is open. Feddie Strickland: Hey, just one quick follow-up kind of along that same vein. I wanted to ask on overall growth strategy. I mean, is something like a team lift out in the new geographic area a possibility? Absent any sort of M&A, if you have the opportunity to bring on a good team in a new geography or in an adjacent geography? Would that be something that's more likely? Mark DeFazio: Likely not. It's really not part of our culture or DNA here. We've been acquiring a really good talent in the markets that we operate in without taking the risk, the financial risk and the burden of teams and the cultural challenges of integrating. So we're not a big fan of the team lift outs. Doesn't say that if one presented itself that was unique and could fit in. We would consider it. But there's a lot of independent talent out there, in the markets that we're in. So far, it has worked for us for twenty-seven years. I think we're going to stick to the growth strategy that we have. Feddie Strickland: Great. Thanks. Operator: Thank you. And this concludes the allotted time for questions. I would like to turn the call over to Mark DeFazio, for additional or closing remarks. Mark DeFazio: Thank you. Just want to end on suggesting that our results continue to show the foundational strength and stability of our business model. Metropolitan Bank Holding Corp.'s business strategy, which is based on strong underwriting, conservative risk management, and the leveraging of our market standing positions us well to continue to deliver prudent growth outstanding financial performance. We remain steadfast in our support of our clients and communities while achieving appropriate returns for our shareholders. Thank you again for attending the call, and we look forward to seeing and speaking to you at our Investor Day. Thank you very much. Operator: This does conclude today's conference call and webcast. A webcast archive of this call can be found at www.mcbankny.com. Please disconnect your line at this time. Have a wonderful day.
Operator: Certain statements made during today's event may be considered forward-looking statements within the meaning of the safe harbor provision of The US Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to inherent uncertainties, and actual results may differ materially. Any forward-looking information relayed during this event speaks only as of this date, and the company undertakes no obligation to update the information to reflect changed circumstances. Additional information concerning these statements is contained in the risk factors and forward-looking statements section of the company's annual report on Form 20-F filed with the SEC on 06/16/2025. Copies of these filings are available from the SEC or from the company's investor relations department. I would like to now turn over the call to Rajesh. Over to you, Rajesh. Rajesh Magow: Thank you, Vipul. Welcome, everyone, to our third quarter call for fiscal 2026. At the outset, I am pleased to share that Q3, which traditionally represents the high season for leisure travel in India, witnessed strong demand recovery, barring temporary disruption in December caused by new and stricter flight duty time limitation rules (FDTL) for pilots. The festive season and a series of long weekends fueled this demand momentum, reinforcing our belief in the emerging trend of Indian travelers' desire to spend more on travel. Our diversified product portfolio and market leadership continue to act as mitigating factors in case there is any macro disruption that happens in one of the segments. For instance, while domestic air was impacted in December, we were able to capture some of this demand on other means of transport like bus and cabs. We continue to believe the Indian travel market is poised to expand, driven by a confluence of economic, social, and technological factors. Our focus remains on delivering superior value and a seamless booking experience and support to our customers with constant product innovations leveraging AI. We see AI as a very welcome and positive tech evolution, opening up many new opportunities in our business. Leveraging AI, we are aiming to improve all aspects of the customer journey, right from inspiration, discovery, search, booking, and post-sales. One of the most significant impacts of AI is the ability to offer a highly personalized experience. We have developed AI models using LLMs and vast amounts of in-house proprietary data to power Myra, helping customers interact with it from planning to eventually booking their trips. We believe over time, our product will be more relevant and effective because of our own proprietary data for travelers. Myra has now scaled to over 50,000 conversations daily, with over 72% of conversations being termed as good conversations. Around 15% of the conversations happen during the early stage of trip planning, enabling us to influence destination and product choice earlier in the customer life cycle. Myra is also helping us drive penetration into smaller cities, whether it's vernacular voice capabilities, with over 45% of Myra users coming from tier two cities and beyond. Voice-led interactions are 50% higher in non-metro cities. AI is also helping us improve post-sales customer experience through a virtual assistant providing instant 24/7 support to travelers. Our AI voice and chatbots are now autonomously resolving about half of the customer queries across flights and hotels, significantly improving service scalability and efficiency in the system. We are also using AI to augment our data intelligence support to our supply partners. For example, to empower our hotel and host partners, we have introduced a Geni-powered digital performance analytics summary in audio playbook format in Hindi and English, significantly improving partners' engagement. Besides following our one-stop-shop strategy with a view to meet all travel and travel-related needs on our platform, we have now expanded our product offerings with the recent launch of tours and activities, giving Indian travelers access to over 200,000 bookable activities across 1,100 cities in 130 countries worldwide. Indian outbound tourists often struggle with dispersed information, foreign currency pricing, and disjointed planning tools when booking activities and experiences. By stitching all of it together, we aim to remove friction and make it convenient for travelers to book in-destination experiences also in advance before they start their travel. Let me now turn to business segments, starting with the air ticketing business. The air market supply and growth bounced back on the back of robust seasonal demand in October and November, with domestic daily departures growth of 25% year-on-year, respectively, from a degrowth of minus 4% in Q2. However, new flight duty rules caused disruption in December, leading to daily departures degrowing in December at minus 5% year-on-year as against the expected 5% growth year-on-year. Despite this disruption in the domestic market, we were able to deliver good performance aided by robust growth in international travel and our diverse portfolio of all modes of transport as some of the seasonal demand moved to other modes of transport. International outbound travel from India presents a significant growth opportunity. We remain focused on growing this segment. We have launched a new feature in the international flights funnel that provides users with end-to-end visa guidance for their destination. It covers visa types, processing timelines, permitted length of stay, required documents, and applicable fees. Users can also initiate their visa application directly on MakeMyTrip through this feature as well. Early results show strong engagement on the listing page, along with a positive impact on both conversions and visa attach rates. Our accommodation business, which includes hotels, homestays, and holiday packages, delivered a strong 20.3% volume growth year-on-year. Growth was driven by strong demand for leisure travel with the highest-ever check-ins recorded on December 25th, with wedding season demand and MICE events. The reduction of GST on hotel rooms under the rupees 7,500 category has also been a catalyst for the growth. We have seen a surge in booking volumes in this segment as customers responded to attractive pricing. It is important to note that this has led to a divergence between volume growth and gross booking value growth. The gross booking growth is more moderate as it reflects the lower tax component in the final price paid by the customer. Lower GBV growth is an arithmetic consequence of the tax change and not a sign of any weakness in the segment. We continue to drive deeper penetration into India. We now have 97,000 plus accommodation options available on the platform covering 2,050 plus cities in the country. We are also driving online penetration in this segment with strong demand coming from tier two cities and beyond. During the quarter, we sold properties in over 1,950 plus cities across the country, with almost 100 plus new cities selling for the first time in the last twelve months. On the product side, we have made GenAI-led interventions across the top 25 international cities, including prominent international beach destinations, to power beachfront discovery for beach holiday-seeking travelers. We are also using this knowledge graph information to determine and introduce clear beach proximity tags, like on the beach, beachfront, short walk to the beach, on listing pages, thus improving discovery and conversion. In addition, for women travelers, we now feature women-specific ratings, AI-generated review summaries, and safety scores derived from female travelers to support deep information-seeking behavior. By adding specific safety indicators and top-rated by women filters, we are building a confidence-driven ecosystem for a segment that travels 25% more in groups. These features are already live across 100 plus cities and 33,000 plus properties. This comprehensive approach ensures that the growing number of women travelers can explore with predictability and trust. Our holiday packages business witnessed strong seasonal performance as well. During the quarter, we successfully operated MakeMyTrip chartered flight packages to Phu Quoc in Vietnam, thereby unlocking the potential in an unexplored destination for our outbound travelers. This reinforces our belief that direct connection along with a simplified visa process helps open new destinations very well. The Philippines, for instance, is another such recent example. Our homestay business continues to scale well. During the quarter, we sold 27,600 plus unique properties covering over 1,050 plus cities. This business now contributes early double digits to the overall hotel volume. Our bus ticketing business witnessed strong growth in Q3, aided by festive and holiday travel with all regions growing in double digits. Inventory addition remained buoyant throughout Q3 fiscal year 2026, with private inventory crossing 45,000 daily schedules by the end of the quarter compared to 40,000 daily schedules during the same quarter last year. During the quarter, we strengthened our cross-sell strategy by introducing unified inventory on the rail search page, enabling rail users to discover available buses on their search routes. On our Southeast Asia Red Bus platform, we partnered with Grab to integrate intercity bus and ferry bookings into its platform, providing more options and making travel more convenient for users. Our corporate travel business, where both our platforms, MyBiz and Quest2Travel, are witnessing strong growth on the back of new customer acquisition. Our active corporate customer count on MyBiz is now over 77,500 plus, compared to 64,000 customers during the same quarter last year. And for Quest2Travel, the active customer count has reached 539 large corporates compared to 493 customers in the same quarter last year. You would recall that we had acquired the travel expense management platform, Happay, at the start of the year. I am happy to report that our integration with Happay is now complete, with flights and hotels resulting in Happay becoming a complete travel and expense management solution now. With this, let me now hand over the call to Mohit for the financial highlights of the quarter. Mohit Kabra: Thanks, Rajesh, and hello, everyone. The highlight of the quarter was our strong performance in October and November, wherein we capitalized on the improved sentiment by launching a first-of-a-kind festival travel sale called Travel Kamhurat Seed. It saw the widest travel participation from our suppliers across travel services as well as our non-trade partners. It helped us engage with our 75 million users during this same period of about thirty-three days. It also helped us build significant advanced purchase behavior, particularly for the upcoming peak holiday travel in December. It also helped us mitigate the impact from the low light of the quarter, which was the disruption of flight operations, particularly during the first fortnight of the December month. This significantly impacted travel plans and bookings during that period. While the situation has now stabilized, complete supply recovery is likely to get pushed out into the next fiscal year. We are pleased to report that despite the disruption in the month of peak seasonality, we were able to drive strong performance overall for the quarter. Moving on to our segment results, our air ticketing adjusted margin is $207.9 million, registering a year-on-year growth of 20.4% in constant currency. Robust performance was driven by strong growth in the international air ticketing business, which now accounts for about 43% of the existing margin within the ticketing segment. In the domestic air market, while the industry grew by just 0.9% year-on-year, we were able to deliver 2.2% year-on-year growth. On a flown basis, we saw slight market share gains, with our share now increasing to just over 31% during the quarter. On the hotels and packages segment, we recorded strong volume growth of 20.3% year-on-year, with standard hotels growing even faster at 20.6%. This was largely on the back of strong demand aided by the recent rationalization of GST rates for hotels priced under 7,500, where the GST rate has been reduced from 12% to 5%. This has resulted in strong room night growth of over 23% in the non-premium price segment. As a result of this mix shift, as explained by Rajesh, we saw slightly neutral gross booking growth year-on-year at about 15.9%. The adjusted margin in the standalone business was in line with the GMV growth. It is encouraging, this tax rationalization initiative of the government of India has had a positive impact on driving up volumes in the hotel segment. The mix of international hotels and packages revenue has also increased to about 24.2% in the quarter compared to about 23% during the same quarter last year. In our bus ticketing business, the consistent margin stood at $42.4 million, registering a strong year-on-year growth of over 26.1% in constant currency. Our ancillaries business, which is part of the other segment, is scaling up well. This is helping us get a larger share of the wallet of our customers by building the attach of a variety of ancillary services. As a result, the adjusted margin from the other segment came in at $27.5 million, witnessing a strong growth of 45.5% year-on-year in constant currency. Moving on to the expenses side, most expenses have come in line. Marketing and sales promotion expense for the quarter was at 5.6% of gross bookings, again, in line with high seasonality and improving mix coming in on the back of strong growth in higher-margin segments like hotels and packages, bus ticketing, and ancillaries. This improvement of the mix is also translating into marginally better profitability overall. The adjusted operating margin has improved from 1.76% of gross bookings during the same quarter last year to 1.82% of gross bookings during the current reported quarter. We are glad to report our first $50 million plus adjusted operating profit updates in the quarter, with the actual number standing at $50.7 million. The non-cash interest cost on our zero-coupon convertible bonds for the quarter was recorded at $28.3 million, and the translation-related foreign currency losses in view of the rupee depreciation stood at about $5.3 million. Our reported net profit for the quarter was $7.3 million. The adjusted net profit came in at about $51.4 million, with adjusted diluted EPS growing by about 33% year-on-year. You would recall that as part of our capital allocation strategy last quarter, we had increased the size of our buyback plan to $200 million and also included the recently issued 2030 convertible notes in the repurchase plan. We have repurchased 550,000 shares for an aggregate amount of approximately $41.5 million during the quarter. We also repurchased 2030 notes with a principal amount of $5 million for an aggregate amount of approximately $4.6 million. Accordingly, the total utilization for the buyback program was about $46.1 million, which has been our highest in-market buyback to date. We ended the quarter with cash equivalents of over $100 million. We continue to dial up investments in core growth capabilities like AI and other organic initiatives while scouting for potential strategic investment opportunities. With that, I'd like to turn the call over to Vipul for the Q&A. Vipul Garg: Thanks, Mohit. All the participants will now have the opportunity to ask a question from the management. Anyone who's looking to ask a question can click on the raise hand button on their screen, and we will take the questions one by one. The first question is from the line of Aditi Suresh of Macquarie. Aditi, you may please ask your question now. Aditi Suresh: Well, thank you for the opportunity. So two questions. The first is on the standalone hotels segment. There's clearly been a very strong acceleration in your number of hotel room nights booked. Could you further break down that by maybe a premium segment, the budget segment, and also in terms of the growth you're seeing there? And then in relation to that, are there any changes to the online take rate you're seeing as this mix is changing? Mohit Kabra: Thank you. Maybe I can take that. Like I just called out, the whole GST rationalization, which came in September, was expected to be a tailwind for growth in the hotel segment. And we have actually seen this coming through. While our overall standalone hotel room nights have grown at about 20.6%, the room night growth in the non-premium segment, which is the budget to mid-pricing, has been much stronger at about 23% year-on-year. So we clearly saw that benefit coming through. In terms of overall margins, I think our margins have largely stayed in line at about 17.7%. So there's no real significant change in the margin structure per se. Like we've been calling out, we want to keep the margins in the high teens category, and we're pretty comfortable in having a stable regime on the margin side. Aditi Suresh: Thanks, Mohit. And then the second piece is on ancillary services. Here you're seeing really strong revenue growth. Is it now possible for you to quantify the underlying margin you're seeing here? Because I assume that a lot of this is just a lockdown to EBITDA. Please, talk through and give us any color on the underlying margin for the growth you're seeing in ancillary services. Thanks. Mohit Kabra: Sure. The growth in the other segment or ancillaries has been a continuing trend if you look at it over the last few years. It is also coming in from the fact that we have been adding a lot of new services on the platform over the last few years. Over a period of time, each one of them is scaling up well. Just to give you an example, a couple of years back, we were running the capacity cap segment, dialing up the input transfers. We have started dialing up rail ticketing, particularly for the high-speed air-conditioned trains. There, our market share has gone up closer to about 4-5%. Apart from this, we've also been adding a lot of non-transport ancillaries, whether it is buy-side insurance, forex, sponsorships, and ad tech on the platform. Visa service is something that I just called out. All of these put together, we believe, and this year, we also added a new segment of tours and activities. This is interesting because a lot of these travel customers book their core travel bookings with us, but there is a requirement for in-destination services as well, largely on tours and activities. Building that on the platform helps us retain them even for these services. With this increasing spread of other travel or travel-related services, which we are going on adding, we do believe that the other segment will keep delivering good growth for us. At some point in time, maybe five to seven years down the line, some of these segments could become meaningful to be reported on their own basis. There are some segments that are more transport-related, and there the margins are in line with the industry. For some of the others, there's a significant fall down to profitability. When we look at profitability, we largely look at it at a platform level and therefore report margins at a segment level but report expenses and profitability at a platform level. Vipul Garg: Thanks, Mohit. Thanks, Aditi. The next question is from the line of Sachin Salgaonkar of Bank of America. Sachin, you may please ask your question now. Sachin Salgaonkar: Thanks, Hi, management. I have three questions. First question, a follow-up to Aditi's question. Mohit, when we look at the year-on-year growth in the hotel business, it was 17% last quarter. It's now 9%, which has gone below 10% this quarter. I understand the impact of GST. Also understand the impact of rupee depreciation. But how to think about it? Is there some kind of a one-off out here? How should one think about a normalized growth from this business? This business was growing at 20 odd percent plus in previous quarters. So, do we see the growth resuming back to that number? Should I say all three questions, or should I take one by one? Mohit Kabra: Yeah. Sorry. Let me just explain this a little better. Because there's something which is more like a one-off starting in this particular quarter onwards. Right? Because the GST rationalization almost happened at the end of the previous quarter. It's important to explain this. At a very high level, if you really look at it, we have reported more than 20% growth on the volume side. Now if you look at the price segment, which is below 7,500 rupees, there's been a GST reduction of almost 7%. And almost two-thirds or 70% plus of our volumes come from this particular price segment. So roughly about a blended impact of about 5% plus goes through purely on account of the GST-related impact on the gross booking value. Therefore, like I said, gross booking growth year-on-year in constant currency has actually come in at about 15.8%. If you factor in this additional 5% impact, which came in on the GST side, then our growth actually remains in line with the volume growth. So I thought I'd just share the overall impact with the GST rationalization. Otherwise, there's no real one-off impact. It's just going to be a different GST rate in the previous year. On a year-on-year basis, this looks slightly different. Sachin Salgaonkar: Sorry. Mohit, if I may just ask you to clarify. I heard you saying 9% number somewhere. Which number are you referring to? Sachin Salgaonkar: So, Rajesh, I was referring to the reported hotels and packages revenue, which is $133.2 million. In Q3 2025, it was $121.9 million. So it sort of implies a 9% year-on-year growth. Mohit Kabra: No. That's true. Therefore, I was just trying to bake in the currency impact as well. In calling out the constant currency growth. Sachin Salgaonkar: So no. I get it. Mohit, now that we end up seeing numbers on a reported currency basis, going ahead, we should sort of look at a similar kind of growth, sliding from these levels. Right? Mohit Kabra: Absolutely. Absolutely. At least for the four quarters, now, beginning this quarter that we reported, this GST impact would be there. Constant currency impact would largely be dependent on how the currency plays out in the coming quarters. The GST impact would largely remain on these lines. Sachin Salgaonkar: Got it. Second question on Indigo. We all know they've been asked to cut 10% of capacity. General checks in the market indicate that, till date, other airlines have not been able to fully offset that capacity impact. So as we head into calendar '26, how should we look at the domestic air traffic growth for the industry? Do we see that normalizing, or do we still have a bit of an out there for the full year '26? Rajesh Magow: So maybe I can take that, Sachin. Yeah. This particular disruption was not even factored in. It came from nowhere, to be honest. Because these rules were always there. But I don't think anyone anticipated that this would cause this kind of a disruption. Therefore, the reduction of supply will happen and largely happen with Indigo because that's the largest airline in the market. Now our sense is that at least the estimates that we see basis our conversations, while things might have just from a disruption standpoint stabilized, in this running quarter, JFM quarter, it should come back to, again, the positive territory. I'm talking about daily departures getting back to, because December, it was negative growth of minus 5% on daily departures on an overall basis. The estimates are now suggesting that it should be back to the positive zone, albeit at a flat or a one or 2% year-on-year positive growth. As things progress and more we get out of this particular issue where the rules settle down, the pilots come on board, etcetera, slowly and gradually, this will continue to keep improving. Outside of this, nothing else changes. Because the new plane schedules, whichever were coming, the supply that will continue to keep coming. We also learned that even with Air India, the refurbishment of the planes is also happening at an accelerated pace. Along with the fact that they also keep getting new planes on a regular basis as well. That is likely to continue. So I think the overall picture, in all fairness, will be more clear, I would say maybe the next seasonal quarter. Which is April, May, June quarter, when the summer schedules are filed. I think we will be in a better position to see overall what kind of supply schedules are being filed factoring in this temporary issue because of the new rules on flight duty travel for pilots. The new infusion or the refurbished planes that are coming in. So I think we'll have to wait net net one more quarter, and I've already given you this quarter's sort of estimates that the industry is talking about. Sachin Salgaonkar: Thanks, Rajesh. And my third question is on generative AI, maybe two parts to the question. One would love to understand the feedback on Myra since you guys launched. Yeah. And second, in a market like the US, we're actually seeing Google and ChatGPT launch their generative AI on travel. Now, hopefully, and subsequently, perhaps at some point, it might come into India. So as and when that comes, how should we think that from a MakeMyTrip perspective? Is it a new competition for MakeMyTrip where consumers now have an option to go towards these LLMs and book their ticket? Despite the fact that at the back end, fulfillment perhaps could be done by, let's say, MakeMyTrip only. Rajesh Magow: Yeah. So let's talk about that. Firstly, progress on Myra. Very encouraging, I must say. In fact, some of that I was sort of mentioned in the script as well, but I'll give you more color. There are a few metrics that we've been tracking. One is how the interactions, the number of interactions are growing. So from, let's say, a couple of months ago, about 20,000, 25,000 a day, we have now touched about 50,000 interactions a day, not transactions a day, but interactions a day on Myra. Which is two times growth in two months. We are seeing pretty much day-on-day, week-on-week growth on that. So clearly good traction coming up. On the quality metrics side, we also measure what we call good conversation and also the quality score of the interaction. That is also progressively improving. We now have a quality score of about 3.9 on a scale of one to five, and about 72% of the conversations are good quality conversations. Just to give you a sense of what the good quality conversation is, the interaction is happening with more and more back-and-forth question-answer rather than just asking a 30,000 feet level query and then just going off the interface. That number is about 72%. The other two very important and encouraging metrics that we are tracking, one is, and that was one of our hypotheses as well, one is about the new users. We are seeing out of these 50,000 interactions about 20% interactions are happening from the new users never transacted before. That is largely coming from tier three, tier four cities, which is exactly what we were aiming to get. Where the voice bot is being largely used in vernacular language or the spoken language that consumers prefer. Coming in from whichever city, whichever state that they're coming from. Last but not least, I would say, which will be a perfect segue to your second part of the question, the trip planning part, because that was another thing that the OTAs had not really been globally focusing on the top end of the funnel, which is the trip planning piece. On Myra, we have seen at least about 23 or 24% of the interactions are related to more trip planning and not necessarily immediate travel. All these metrics are pointing towards quite promising, encouraging trends, and we will continue to keep monitoring. In parallel, obviously, we are working very hard to further improve the product as well. That journey is also in progress. Now coming to your point on what Google might have launched in North America, and when it comes to India, etcetera. Our take is as follows. What is happening is, like I just mentioned earlier, that as far as transactions and fulfillment and the kind of traveler who's willing to, who's made up his mind or her mind and coming to just to book the transaction and get done with it. I don't think that is going to get anyway potentially disrupted. Trip planning was the piece which was not being done by OTAs in any case. Then it remains to be seen. If they launch, let's say, their own GenAI tool for trip planning, whether they will attract more traction. In all probability, there is a possibility that they will attract traction and that the customers from conventional search will move to using AI tools for doing trip planning. To my mind, a large part of that is going to be share shift happening from a conventional search to AI tools. Our counter to that to an extent will also be our own GenAI tool for trip planning as well. The thing to watch out for will be how do we continue to keep protecting our direct traffic, which is the majority of that is on our app, as you know. That they continue to keep coming to us directly. Or we end up sort of keep growing that direct traffic as a percentage of the overall traffic. The share of the paid traffic from any of these new avatars of the search engines, we don't end up sort of increasing the share of the paid traffic from there. I don't really see, at least at this point in time, this is our conversation and this is the kind of development that has happened, including the development that is in progress. That there is anyone who is trying to talk about getting really deep in the funnel and also looking at even the fulfillment, post-sales activities, etcetera. Because those are the modes that will continue to stay with the OTAs. I think trip planning is the only piece where there is definitely a possibility given the richness of the data that they will have based on the LLMs. They might get more traction. But the counter to that for that will be our live-to-date customer base and the direct traffic contribution that we already have. How powerful and popular is the brand that MakeMyTrip and RedBus are. I'll be able to protect that progressively or not. Our energies, investments, resources are channelized towards that as we continue to watch this space and then accordingly sort of tweak our strategies as we go along. We are seeing this as more of an opportunity than a threat. I don't think, even in the conventional search space, this debate was always that whether Google is our competition or Google is the competition for OTAs and all, OTAs or not. I don't think, and that debate might still come back. But the reality is that, like in the past, I think there are clear distinct modes and their advantages that the OTAs bring to the table. I think they have a very clear and distinct objective and the business model that the horizontals or the generic search engines have. I'm not sure that even with this evolution of new technology, there's going to be a significant overlap going forward either. Sachin Salgaonkar: Okay, Travis. Thanks for the detailed answer. Very clarification, Mohit. We saw the NCLT approval for MakeMyTrip and the RedBus merger, which in a way sort of removes any legal or overhang from a potential India IPO point of view. So any revised timelines should look from an IPO point of view? That's it from me. Thanks. Mohit Kabra: Not really. I think, should we think of that? We'll come back separately. As you know, we have been in this restructuring process. A couple of years back, we had done a legal entity restructuring wherein we got the OTA businesses to come together. Now all the key operating businesses have been brought under a single legal entity. But, yeah, it does facilitate an eventual IPO at some point in time. To that extent. But no real change in thought process over there. Vipul Garg: Thanks, Sachin. The next question is from the line of Manish Adukia of Goldman. Manish, you may please ask your question. Manish Adukia: Thank you, Vipul. Hi. Good evening, team. So wanted to just go back to the growth discussion we were having in the early part of the call. I understand, Mohit, what you explained and then the volume being strong, 20% plus, and GBV, 15% because of GST. Why should revenue growth get impacted? Do you get paid from the hotels based on the GBV or the actual revenue that they recognize? I would have imagined that if growth is faster in mid to premium, sorry, mid to budget hotels, technically, your take rate should expand because you typically would have higher take rates in mid to budget compared to premium hotels. So I'm unable to reconcile the revenue slowdown. I understand GBV slowdown there, but I'm unable to understand the revenue bit. So if you can just explain that, that'll be helpful. That's my first question. Mohit Kabra: Yeah. No. Just to repeat it, Manish. The idea, if you really look at our margins largely coming on the booking value. Right? Therefore, the impact in a manner of sort flows both into the booking value as well as into the overall margin absolute margin that we get. So the percentage doesn't change, but the absolute margin that we get gets impacted as well. But like we have been calling this out even last quarter, when this change had come in, we were calling it out as a significant positive because this just helps unlock volumes or demand particularly at the price point, which is very sensitive. Right? Customers are pretty price sensitive in the mid to budget segment. Therefore, this is an important unlock. Therefore, if you really look at it, the growth has actually accelerated very nicely through this quarter. In fact, not just only in hotels, but across segments. Despite domestic air being at a very marginal growth for us. And for the industry. Our overall segment growth across all segments that we report also stood at about 22%. I think I'm more taking encouragement from the fact that this segment growth or the volume line growth continues to be strong. The rest is largely a play out of the changes in the landscape. They will get normalized over a four-quarter period. Manish Adukia: Very helpful. And your air growth, of course, in the quarter was impacted by what happened with Indigo. Hotels were extremely strong, partly driven by the GST cut on volume. But would the hotel volume growth, in your opinion, have been even faster without the Indigo disruption? Like, I mean, I'm just trying to think that here on, even on volume, is there room to accelerate in the foreseeable future? Mohit Kabra: Needless to mention, Manish, actually, flights are a lead indicator. Right? It kind of, if you look at the entire travel plans, for most Indians, they start with a flight booking. And then everything else follows. Right? So I think what we are trying to do is that whatever is the significant adverse impact coming in from the disruption on the flight side, to a large extent, we are trying to mitigate it through modes of transport. Therefore, if you see, we have been dialing up or seeing good growth on the bus ticketing side, also on intercity cabs, etcetera. Clearly, we could have benefited with the only description on the flight side. If I really look at it, very briefly, in terms of how the growth has panned out between the months during the quarter, clearly, December was a month of much slower growth for us. Therefore, again, it indicates the same. It would have helped, but I think given the circumstances, the hotel growth was very, very encouraging. Manish Adukia: No. Absolutely. And just a couple of other follow-up questions from earlier. On the overall spend on marketing and promotion at 5.6%, one of the highest we've seen in recent periods. Is there some bit of a one-off there? I mean, should it go back to the sub-five number you in the past indicated? And, again, is that a function of the fact that, again, when budget or mid hotels grow faster and they probably have a higher component of promotion that impacted us. So I just want to understand the outlook also on that number, and then just have one last follow-up question after that. Mohit Kabra: Yeah. Yeah. Absolutely. No one-offs. In fact, two parts to it. One, I would say, is the very fact that low-margin businesses like air ticketing have seen an adverse impact on growth. Therefore, the growth has come in predominantly from higher-margin businesses. Now what that means is clearly, you're getting a much better improvement in the blended margin for the business as a whole. If you were to look at adjusted margins across segments, and then look at it probably as a percentage of gross bookings, then it would look much healthier. The customer acquisition cost also. So it's completely linked to the mix shift. Then within that mix shift, there's also the fact that there's slightly more accentuation towards the mid to mid segment of hotels, where, again, the customer acquisition cost tends to be slightly higher. I think purely reflective of the mix, and therefore, if you really see despite the 5.6%, there's no impact. In terms of the adjusted operating number. That continues to be 1.8% plus as a percentage of gross booking. So wanted to call that out. It's very difficult. Like I said, the mix and the blended margins were very different, say, until about a year back. Which were very different in this one-year period. Due to these one-offs that have got paid out. Manish Adukia: Thank you. And maybe just my last question, taking a step back and looking at the overall business, 20% constant currency revenue growth in the quarter, which was a fairly noisy quarter, which in my opinion, is a very good outcome. When we think about, let's say, over a one to three-year outlook, is it fair to say that to deliver 20% growth you have to continue to reinvest in business and margins don't expand, which means over a period of time, your EBITDA growth broadly tracks revenue growth. Because I would have thought that in a country like India, if revenues are growing at 20%, operating costs probably grow at a lower pace. Is that something that may not play out? I mean, is it not an operating leverage story anymore? And margins will largely be in line with where they are? Or how should we think about the growth outlook versus the EBITDA growth outlook, revenue growth versus EBITDA growth? That's my last question. Mohit Kabra: Sure. If you look at it over the last five, ten years, we've clearly called out a substantial portion of the margin improvement that was supposed to come in leveraging volumes and leveraging penetration, building in a market leadership in each of the segments of the business, that's largely played out by 2024. Thereafter, we have been calling out that in our customer acquisition costs are actually pretty efficient right now. We don't really look at dialing them down. We'd rather keep focusing on dialing up growth. Looking at growing in the twenties. That opportunity is getting delivered despite the market growth coming down very significantly. At least in this year, across quarters. I think the last part of our objectives in setting the mix where we are. For instance, where the accommodation mix is still in the forties. Till the time we remain in the forties and closer or the sub-50% mark, we do believe our adjusted operating margins are pretty healthy. I've always given the example of the global players and how their best-in-class margins play out. If you just superimpose our mix over there, this margin percentage looks very healthy. I think we will really need now the mix going beyond the 50% mark. For any significant improvement on the adjusted operating margins to play out. Until then, I think the operating leverage will likely come in more from the more fixed than variable cost. Which again is very small. In our case, the fixed costs are just about 20, 25% of the overall expenses. Therefore, the improvements are going to be much smaller in nature. In line with what we have seen in the last two years or so compared to what we have seen in the five years before that. Manish Adukia: Very helpful. Thank you, Mohit, for answering my questions. All the best. Mohit Kabra: Thank you. Vipul Garg: Thanks, Manish. The next question is from the line of Vijit Jain. Vijit, you may please ask your question now. Vijit Jain: Yeah. Hi. Thank you. So my question, in the hotel segment, with the GST cut, did demand somewhat shift also from higher ticket size to sub 7,500 category? Within that, given that you even called out that growth did accelerate here. Is that because, in general, you have better selection in that and therefore some market share shift might have happened from others or from offline or other channels to you? Is that something that happened here? Mohit Kabra: We, as you know, on the premium side, we pretty much have all the hotels that are available in the country on the platform. Most of our expansion actually keeps happening more in the mid to premium or more in the mid to budget or more in the budget segment. Right, from a price point of view. Where we keep adding more and more hotels on the platform. Because there's a much larger number of hotels in that particular price point, which still need to be contacted and put on the platform. For maybe new hotels which come across all price points. So that improvement in the booking of offerings in the budget segment will keep increasing. No doubt about that. But this is more, I think, what we saw during the quarter was more on account of the significant price differential, which is now emerged. The sub 7,500 versus, say, the 7,500 to 9,000 or 10,000 price range because there's suddenly a significant impact coming in from the steep change in the GST rates. So that's seeing a lot more of the volume coming through in the sub 7,500 price range. In fact, a lot of the hotels who were on the marginal side, just about the $7,500 price, would have also wanted to bring the prices in line for the overall customer benefit to play out. So that's what's playing out, and that's what we've seen. Largely on expected lines. Like I said, there has been a little bit of a share shift from a volume point of view we've seen roughly about 2 to 3% shift happening from premium, super premium to maybe more like the mid to budget segment. Again, on the overall mix also, roughly about four to 5%, whether in terms of gross booking value or in terms of adjusted margins. So yes. But this is very much on expected lines. Like I was saying, the real underlying benefit of it is it's really helped unlock demand in the overall hotel schedule. Vijit Jain: Got it. Thanks, Mohit. My second question, just reflecting on your comment earlier, Rajesh, on generative AI and LLMs and those things. I'm just wondering if trip planning is what moves to LLM. Trip planning is arguably on search versus LLM. LLM offers much better. Does that mean that it could accelerate further your online shift in categories like international or other packages and stuff where traditionally, people have used agents because it's complex and make it easier? Could that conversely actually help online shift in India? Rajesh Magow: No. I think it's an interesting take, Vijit, I must say. Quite possible. See, listen. In any case, overall, across the categories, not necessarily on travel and within travel also, all segments directionally going in that direction only, from offline to online. Can we say that the digital agents tomorrow or even on the trip planning when it is becoming more popular, I don't know whether the trip planning per se because, I could also argue that even historically, people were going to Google and searching and doing some bit of trip planning there, right, or going to TripAdvisor to do some trip planning. Specifically or coming to OTAs to do some part of trip planning, etcetera. I'm not sure whether that per se will trigger this shift. But I think what is potentially what can potentially trigger is actually what we have built. Which is Myra is a digital agent because you can ask the question in your own language that you are comfortable. You can look for complex itineraries, ask as many questions as you want, and you will get accurate answers. Then along with that, the booking will also be stitched. In a very smooth manner. That might actually help. Because the hypothesis is that you're going to a travel agent or human travel agent to ask for help specifically for customization. Right? Now you can achieve that customization on the digital agent as well. Almost as effectively, if not better, as you would do it with the other alternative, right, so that you were doing it or you were it earlier. I think that might actually help do the shift or accelerate the shift better. I'm not sure. Only trip planning. The only trip planning where trip planning could help is that where overall inspiration for travel goers, because if that, in any case, is the consumer behavior is changing and spending more and more on travel in any case. So you go on your preferred either the social media channel for inspiration and then come to, let's say, horizontal search or and or an OTA like MakeMyTrip to do trip planning and you find it easier and smoother, domestic or an easy travel use case or a complex travel use case. That potentially can definitely help. But specific to international travel, I think unlock might be the digital agent mode, which is answering all the and also stitching the booking experience together. Put and also post-sales and in-trip in a single interface, that might actually help trigger that shift. Vijit Jain: Alright. Thanks, Rajesh. And my last question, on the total marketing spend, which I think to Manish's question earlier, you mentioned how mix shift has contributed to it rising to 5.6. So as air recovers maybe from the summer season onwards or maybe even marginal recovery in the March, does it trend? Does your total spend trend back towards what you've previously said, five to 5.5%? Mohit Kabra: Most likely, Vijit. It should start reflecting the mix. Because, like I said, there's nothing in terms of a one-off over here. Therefore, it should start to play in the mix depending upon what kind of changes we see over there. Vijit Jain: Got it. Thanks, Mohit. Those are my questions. Vipul Garg: Thanks, Vijit. The last question we will take from the line of Gaurav Rateria of WFM. Gaurav, you may please ask your question now. Gaurav Rateria: Hi. Thanks for taking my question. So just a couple of questions. One is the net take rate on air is about 7% this quarter, 7.2% last quarter. Is that a normal number, or is it running higher than a normal range of, like, six and a half or so? Mohit Kabra: Yeah. I think we generally tend to range around this mark. It can be about half a percentage point lower or higher depending upon what kind of phase of prevailing, depending upon the kind of lag between booking versus flown, etcetera. So nothing exceptional over here, Gaurav. Gaurav Rateria: Okay. Got it. And then the second question is going back to the hotels and packages business. So when we think of the constant currency bookings growth of fifteen, I think you explained it as volume growth of 20 and then five points of impact from GST. But then apart from volume and GST impact, there's also pricing. With all these hotel companies reporting pretty decent ADR growth. So for you, the price net pricing growth is like zero almost. Right? So I guess there is some price growth and then negative mix impact. Which is canceling each other. But if I just think about going forward, let's say, next one year where you mentioned for the next four quarters, this GST impact will hit you. Are we thinking of broadly an algorithm where your constant currency GBV growth will be like five percentage points below your volume growth like it was this quarter, or does that gap sequentially keep reducing? Maybe if I can share a one-year view as well as a two, three-year view. That'll be helpful. Mohit Kabra: Directionally, it is only just a one-year impact because the comparable number for the previous year is at a different GST rate. Therefore, it's just more of an optical thing than anything actually impacting the business. So this is more optical and don't see any real impact as such over here. Sorry. I missed the first part of the call. Question, what was that? Gaurav Rateria: Yeah. I got that, Mohit. Maybe I'll just quickly address that. Then just Gaurav, to your point on hotel companies reporting higher price rise and all, you should just be mindful of one thing. See, what you are looking at, it is only a few data points. Like, let's say listed companies reporting some, and, again, their ADRs have also not significantly gone high. On our platform across the segments we are selling hotels. Right? On a blended basis where there is a possibility in one particular segment in certain cities, some because of the demand-supply gap, etcetera, some price movement would have happened. But as a general trend, on a blended basis, the segments, if we do and even if we sort of look at different segment hotels, whether it's a budget hotel segment or a mid-segment or a premium and then super premium kind of segment, we haven't really seen any price increase which is extraordinary or out of the ordinary now happening. So it's actually that era is over. It is actually pretty stable now, and you would only see either because of seasonality, there will be some movement or there will be an inflationary increase year on year. Right? So I don't think we should jump to the conclusion that the average selling price for a room night across the board, the rates have only gone up in pretty much every segment. I thought I'd just clarify that because, on our platform, we also have, out of our hotel and packages business, about 10% homestays. Now homestays pricing and year on year, and across segments, and therefore, on a blended basis, on a pan-India basis, if you would see, there is no significant price increase except for the seasonality impact that we've seen. Gaurav Rateria: Got it. Maybe just one last follow-up on the domestic hotels business. So at least among the listed OTA players, we don't see anyone else having any meaningful hotel business right now. So at least in the domestic segment, is that a fair conclusion that there is not really much competition? When we look at the broader industry data, hotel, domestic plus international, there we see I guess you have competition from these global players. But let's say, at least on the domestic segment, would it be fair to conclude that? You would be the one dominating and not one competition? Mohit Kabra: Reasonably fair to say, but just keep in mind that the overall online penetration in the segment is still in the early stages. So there's a long headroom over there. But fairly in the right direction. Gaurav Rateria: Thank you. Thank you. Vipul Garg: Thank you, Gaurav. In the interest of time, this was our last question. We'll now hand over to Rajesh for his closing comments. Rajesh Magow: Thank you, Vipul, and thank you, everyone, for your patience. We look forward to seeing you next quarter. Vipul Garg: Take care, everyone. You may now disconnect the call.
Operator: Good day, and welcome to the Dime Community Bancshares, Inc. Q4 Earnings Call. At this time, all participants are in listen-only mode. After the speakers' prepared remarks, we will conduct a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded. Before we begin, the company would like to remind you that discussions during this call contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contained in any such statements, including as set forth in today's press release and the company's filings with the U.S. Securities and Exchange Commission, to which we refer you. During this call, references will be made to non-GAAP financial measures as supplemental measures to review and assess operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP measures and for reconciliations to GAAP, please refer to today's earnings release. At this time, I would like to turn the call over to Stuart Lubow, President and CEO. You may begin. Good morning. Stuart Lubow: Thank you, Michelle, and thank you all for joining us this morning for our quarterly earnings call. With me this morning, as usual, are Avinash Reddy, our Chief Operating Officer and CFO, and also Thomas Reid, our Chief Commercial Officer. Today, I will touch upon the progress we made in 2025 as we executed on all aspects of our strategic plan. I will then touch upon some bank-wide goals for 2026. Thomas will talk about the progress we made in building out our commercial banking platform and industry verticals. Avinash will then provide some details on the fourth quarter and guidance for 2026. Our core earnings power continues its upward trajectory. Core EPS was $0.79 for the fourth quarter, representing an 88% increase versus the prior year. The growth in EPS was driven by record total revenues of $124 million for the fourth quarter. The NIM was up 10 basis points, and average earning assets were up over $650 million on a linked quarter basis. All our growth has been organic, built by our existing bankers and new hires. As you know, we do not have any purchase accounting in our numbers, which tends to inflate results at banks that have engaged in M&A. Core deposits were up $1.2 billion on a year-over-year basis. Deposit growth has been strong across all our channels. In addition, we have been successful in continuing to drive down our cost of funds and growing our non-interest-bearing DDA to 31% of deposits. As such, we have a core-funded balance sheet with a significant liquidity position, which will allow us to take advantage of lending opportunities as they arise. Speaking of loans, we continue to execute on our stated plan of growing business loans and managing our CRE concentration ratio, which is now below 400%. Business loans grew over $1.075 billion on a linked quarter and over $500 million on a year-over-year basis. We were very happy to be able to bring Thomas Reid in the first quarter of 2025 and have already made great progress in terms of building out various industry verticals that Thomas will talk about more in his remarks. Our loan pipeline continues to be strong and is more than $1.3 billion with a weighted average rate between 6.25% and 6.5%. As we mentioned on last quarter's call, NPAs moved down nicely in the fourth quarter and now represent only 34 basis points of total assets. Multifamily credit continues to be very strong with zero NPAs. Our capital levels are best in class with a total capital ratio of more than 16%. Disruption in our marketplace remains very high. As you saw, there was another merger transaction where an out-of-state bank bought a local thrift at year-end. We were not involved in this transaction in any way. We remain focused on our organic growth strategy and hiring teams. The environment for organic growth continues to be very strong with an extremely target-rich environment, and the execution of our strategy is now showing up in our quarterly results. Our Manhattan branch is up and running, and we expect the same for our Lakewood and Locust Valley locations toward the end of the first year. As we look forward to 2026, the momentum in our business continues to be strong. We are focused on the following. As we have discussed previously and as Avinash will mention in his remarks, we have a significant amount of repricing assets in the next two years, which provides a tailwind for revenue growth. As the loan repricing story plays out, Dime's inherent earnings power will be displayed. In 2025, we put in place the building blocks to create a more diversified balance sheet and loan portfolio. I expect to see significant growth in both in 2026. As we grow revenues faster than expenses, we expect to operate at a sub-50% efficiency ratio. Being efficient has always been a hallmark of Dime, and we expect to return to the sub-50% level in 2026. Lastly, we continue to attract talented bankers who can help us grow core deposits and grow business loans. In conclusion, Dime has clearly differentiated our franchise from our local competitors as it relates to our organic growth. We have an outstanding deposit franchise, strong liquidity, and robust capital, which bodes well for the future, driven by significant loan repricing opportunities over the next two years. I want to end by thanking all our dedicated employees for their efforts in 2025 and in positioning Dime as the best commercial bank in the New York Metro Area. With that, I will turn it over to Thomas Reid. Thomas Reid: Thank you, Stuart, and good morning. In my prepared remarks, I'll provide some background and color on our commercial banking initiatives. As many of you know, I was part of the leadership team at Sterling that helped transform that balance sheet from $5 billion to a $25 billion diversified commercial bank balance sheet. When I began speaking with Dime in 2024, it was apparent that Dime had a number of strengths that were attractive in recruiting talented bankers. First, an entrepreneurial and growth mindset, which is valued by commercial bankers. Second, the best deposit franchise in Metro New York, both from a cost perspective as well as a growth profile, which can be utilized for funding. Third, the back office was staffed with strong managers who had experience managing larger and more diversified commercial portfolios. And finally, Dime had developed a reputation in the marketplace as a company where talent wanted to work. It was perceived and is perceived as a winner. Even before I started, we outlined a strategy as to which industries and geographies we wanted to strengthen, build out, and focus on. Our goal was to create a platform that had all the industry expertise of a $50 to $100 billion bank, but that operated nimbly like a $15 billion bank with access to senior management and quick decision-making. Of note, right around the time I joined, we added a new chief credit officer, Rob Rowe, who was previously the chief credit officer at Sterling. Since I came on board in February, we have added the following capabilities: Fund finance, which is exclusively focused on capital call lines; Lender Finance, our focus is on lending to institutions that are focused on business credit. We do not intend to be active on the consumer credit side. Mid corporate, our focus is on companies that are larger than a typical middle market company. Sponsor finance. Our focus is on noncyclical industries with good risk-adjusted returns supporting sponsors and family offices. Operator: Syndications. We added a team to focus on syndicating Thomas Reid: self-originated loans, allowing us to service larger clients while staying within our established risk tolerances. And lastly, geographic expansion. Dime has always had a dominant presence on Long Island, and we are focused on expanding that to Manhattan and New Jersey. For example, in the fourth quarter, we hired a well-known banker to cover middle market relationships in New Jersey. All of our commercial bankers and industry specialists are focused on direct relationship lending with the occasional club deal to manage our exposure. We're not building a business based on SNCs or participations as many small to medium-sized banks often do. The bankers that we have hired have added significant industry knowledge and a high level of expertise to Dime's offerings. As we look to 2026, each of these new commercial banking teams will contribute to loan growth and operating leverage. We also have our eyes on one or two industries where we already have a presence, but where we could add some additional depth. With that overview, I'll turn it over to Avinash for his prepared remarks. Operator: Thank you, Thomas. Core EPS for the fourth quarter was $0.79 per share. This represents an 88% year-over-year increase. Core EPS excludes the impact of severance, which was approximately $2.4 million on a pretax basis, and a couple of discrete tax items, which were $2.7 million. These items have been described in the GAAP to non-GAAP reconciliation tables in our earnings release. Core pretax pre-provision net revenue of $61.5 million for 2025 represents approximately 163 basis points of average assets. The reported fourth quarter NIM increased to 3.11. We had approximately two basis points of benefit from prepayment fees. Excluding prepayment fees, the fourth quarter NIM would have been 3.09. As a reminder, the third quarter NIM excluding prepayment fees was 2.98. Avinash Reddy: Total deposits were up approximately $800 million versus the prior quarter. We saw strong inflows across all of our major channels. Deposit growth for the fourth quarter included approximately $100 million seasonal tax receivable deposits that typically arrive in the month of December and leave in mid-January, and approximately $225 million of deposits from a municipality tied to a bond offering that we expect to leave the bank in February. Excluding these items and typical seasonality in our branch network on the East End of Long Island, core deposit growth for the fourth quarter would have been closer to $400 million. Similarly, the overall balance sheet size and cash position was elevated at quarter-end by approximately $400 million due to the previously mentioned municipal deposits and seasonality. Our cost of total deposits was 1.85% in the fourth quarter, down 24 basis points versus the prior quarter. By maintaining a strong focus on cost of funds management, our NIM has now increased for a seventh consecutive quarter and has surpassed the 3% mark. We continue to have catalysts for growing our NIM over the medium to long term, including a significant back book loan repricing opportunity that I will talk about later. Core cash operating expenses, excluding intangible amortization of $62.3 million for the fourth quarter, was below our guidance of approximately $63 million. Noninterest income of $11.5 million was above our fourth quarter guidance of approximately $10 million to $10.5 million. The loan loss provision declined to $10.9 million, and the allowance to loans increased to 91 basis points, which is within our stated range of operating between 90 basis points and 1%. Capital levels continue to grow, and our common equity tier one ratio grew to 11.66%. Having best-in-class capital ratios versus our local peer group is a competitive advantage and will allow us to take advantage of opportunities as they arise and speaks to our strength and ability to service our growing customer base. Next, I'll provide some guidance for 2026. As I mentioned previously, excluding prepayment fees, the NIM for the fourth quarter would have been 3.09. We would use this as a starting point for modeling purposes going forward. We expect modest NIM expansion in the first half of the year and more substantial NIM expansion in the back half of the year as the pace of the back book loan repricing picks up. We believe our large cash position is a competitive advantage that will allow us to take advantage of lending opportunities as they arise and will help us create a sustainable NIM that is not subject to cyclical moves based on the trajectory of short-term rates. Given our current cash position, every future 25 basis point reduction or increase in short-term interest rates will not have more than a two to three basis point impact on our NIM. Our NIM expansion in future quarters will be driven more by the back book loan repricing as well as core deposit growth and business loan growth. To give you a sense of the significant back book repricing opportunity in our adjustable and fixed-rate loan portfolios, for the full year 2026, we have approximately $1.4 billion adjustable and fixed-rate loans across the loan portfolio at a weighted average rate of 4% that either reprice or mature in that time frame. Assuming a 250 basis point spread on those loans over the forward five-year treasury, we could see a 20 basis point increase in the quarterly NIM by 2026 from the repricing of these loans. As we look into the back book for 2027, we have another $1.7 billion of loans at a weighted average rate of 4.25%, that will lead to continued NIM expansion in 2027. Assuming a 250 basis point spread on those loans over the forward five-year treasury, we could see another 20 to 25 basis point increase in the quarterly NIM by 2027. In summary, assuming the market consensus forward curve plays out, we have a path to a structurally higher NIM and enhanced earnings power over time. Now that our NIM is at the 3.10 level, the next marker in front of us is 3.25, and after that, 3.50. With respect to the balance sheet, we expect a relatively flat balance sheet for 2026. The first quarter of the year is typically seasonally slow, and there's always a rush to get loans closed by year-end. In addition, we expect to continue to reduce our CRE concentration ratio lower to the mid-350% area driven by a reduction in transactional multifamily and transactional CRE. This will offset the strong growth we are seeing on the business loan side. We expect to reach an inflection point on CRE balances probably in the third quarter of the year. And once we reach this inflection point, the overall balance sheet should start growing again at a mid-single-digit growth rate. If we put that all together, our point-to-point total loan growth estimate for 2026 is in the low single digits with flattish balances in the first half of the year and growth in the second half of the year. For 2027, we are internally modeling mid to high single-digit end-of-period loan growth as business loans continue to grow and our industry verticals hit their stride. Next, I'll turn to expenses. We expect core cash operating expenses excluding intangible amortization for 2026 to be between $255 million and $257 million. This includes the full-year impact of our de novo locations in Manhattan, Lakewood, and Locust Valley, and all the private and commercial banking teams that we hired throughout 2025. With respect to the provision for loan losses, we expect the next couple of quarters to be in the $10 million to $11 million area as we move towards the midpoint of our allowance range of between 90 basis points and 1% and as we continue to aggressively work down NPAs and classified assets. For the second half of the year, we expect provisioning levels to trend down into the single digits and just cover charge-offs. Turning to noninterest income, we expect full-year 2026 to be between $45 million and $46 million. Factors that will determine the individual quarters will be the timing of swap fee income, which can be hard to predict, as well as SBA fees and title revenue. Finally, we expect the tax rate for the full year of 2026 to be approximately 28%. With that, I'll turn the call back to Michelle, and we'll be happy to take your questions. Operator: Thank you. If you'd like to ask a question, please press 11. If your question has been answered and you'd like to remove yourself from the queue, please press 11 again. Thomas Reid: And our first question comes from Mark Fitzgibbon with Piper Sandler. Your line is Stuart Lubow: Hi, Mark. Thanks. Maybe the first question is for Thomas. Thomas, Mark Fitzgibbon: could you share with us, you know, what industries accounted for the nice sequential quarter growth in the business loan balances this quarter? Just to give us a sense of where that growth is coming from. Thomas Reid: Yeah. All of those verticals are pretty much new, so we started out at a base of zero. Right? So I think Stuart mentioned we grew business loans about $500 million year over year, about $400 million of that came from these specialty groups that include healthcare, lender finance, fund finance, sponsor, and not-for-profit. The business that has probably most of the momentum in 2025 was healthcare. I think you know that Dime entered into healthcare probably about two years ago. And that portfolio has built over time. So I would say, probably out of the $500 million, about $400 million was the new specialized industries, and probably 50% of that was healthcare. Okay. Mark Fitzgibbon: And then secondly, I was curious, how much business do you have today roughly? And I won't hold you to the exact numbers, but roughly in New Jersey, you know, and deposit of sort of the, you know, the $10 billion of loans and call it $12 billion of deposits, how much of that is Stuart Lubow: is sort of Mark Fitzgibbon: Jersey domicile? Avinash Reddy: Yeah, Mark. So it's probably around, you know, somewhere between 8-10% of our portfolio is Northern New Jersey. A lot of clients that we followed over there. I'd say on the deposit side, it's less substantial than that. I mean, we're probably running at a, you know, 15 to 20% deposit to loan ratio for New Jersey. But in terms of overall loans, I'd say somewhere between 8-10%. But that's something that's been consistent at the bank, you know, for the last four or five years since Stuart got to the bank. Because, you know, Stuart ran a couple of banks in New Jersey, and a lot of relationships have followed since he got to Dime back in 2017. Mark Fitzgibbon: Okay. The last question I had, you know, loan sale gains were strong this quarter. I would have expected maybe they'd be a bit less given the government shutdown in 4Q. I guess I'm curious, are you sort of fully caught back up on the pipeline for these loans? Or maybe any thoughts you have on what 1Q activity levels might look like? Avinash Reddy: Yeah. I'd say the latter, Mark. We probably caught up at this point. We were very close to recognizing these gains in Q3. And then once the government opened up, we kind of did that. So it's kind of hard to predict that line. I think that one and the swap fee line, you know, it's just up and down based. So I wouldn't expect the first quarter to be as large as Q4. Q4 was probably two quarters into one, basically, is how I'd characterize it. Mark Fitzgibbon: Great. Thank you. Operator: Thank you. Our next question comes from Stephen Moss with Raymond James. Your line is open. Stephen Moss: Maybe just on the deposit growth here. Nice quarter for deposit growth. And I hear you, Avinash, in terms of some of the municipal deposits. Just curious, what the deposit pipeline kind of looks like? And kind of where are you pricing those deposits these days? Avinash Reddy: Yeah. So I'd say, you know, in terms of pricing, nothing's really changed there, Stephen, where you know, got a lot of influx of new deposits coming into the bank. So, you know, I'd say to get a new customer in the door, you probably gotta offer high twos to low threes on a money market. It's probably coming with 20-30% DDA. So the all-in cost is probably in the low twos of stuff coming into the bank. The actual cost of deposits or the spot rate on deposits at the end of the year was 1.68%. So that's, you know, lower than our overall cost of deposits, and that should help, you know, with the NIM going forward. I'd say just if you look back at our history, we just wanted to point out the seasonality just because we have a municipal business. We have an East End business. And then this quarter, we had the one, you know, transactional municipal deposit that did come. And so the point of that guidance was more along the lines of don't use our average earning assets for Q4 as a proxy for Q1 and grow it off of that base. You probably have to take out $300 to $400 million. But, you know, over the course of the year, if you look at year-over-year growth, we had a billion dollars of core deposit growth last year, and I think Stuart would attest to this as well that, you know, our teams haven't really matured yet, and we continue to see the pace of account opening pick up, basically. Stuart Lubow: Yeah. I mean, just to give you a little color, I mean, those teams that we brought on have crossed the, at year-end, the $3 billion mark, and opened up over, you know, in total, over 15,000 accounts. And we're still seeing monthly and quarterly growth in all our teams. So, you know, we're still very bullish on deposit growth. You know, we just had a, you know, a very outsized fourth quarter. Very happy with it. You know, all the channels from both the, you know, the commercial group, the private banking group, our retail bank, and our municipal group were all up. So, you know, we're excited about that and, as I said, very bullish. But, you know, the teams have really proven to be quite an asset, and we're still seeing quite a bit of new account openings. So, you know, we're expecting, you know, through this year continued growth in that market. Okay. Great. Really appreciate all that color there. Stephen Moss: On, you know, my other question here, just on the 100% rent-regulated piece. I know that was about $500 million at the end of the third quarter. Just and it came down pretty helpfully. At a pretty good pace in the third quarter. Wondering where that is now and if you have any color around like the scheduled maturities over the next year or two for that book? Avinash Reddy: Yeah. So, Stephen, we didn't have a lot of activity in that book in Q4, so it was, you know, relatively stable, you know, on a linked quarter basis. It's kind of hard to go, you know, quarter over quarter for some of these items. The way we really look at it is the pre-2019 book and the post-2019 book just because the stuff that was originated pre-2019 was prior to the rent-regulated rule changes. And, you know, as you know, and so we look at that book. That book's around $350 million at year-end 2025. That book used to be $450 million a year ago. That book was $500 million two years ago. Right? So that's the part that we had our eyes the most on. That book is fully reset at this point. You know, I think in terms of maturities and repricings in the entire multifamily book that's rent-regulated, both the 100% rent-regulated and the majority rent-regulated book, maturities and repricings are around $250 million for 2026. That's probably split $150 million and $100 million between the 100% and the 50 to 99% bucket. So look, we're not seeing any issues there. You know, as loans come up for maturity, they're, you know, paying off. As loans come up for repricing, I'd say, you know, a bigger proportion of them are staying with us and paying market rates, basically. But I think you'll continue to see, you know, attrition in that book. The one thing we've always pointed out is it's a very granular book. We don't have any big loans in that portfolio. You know, as opposed to the free market portfolio where you could see a few, you know, tens and fifteens in terms of size, in terms of credit. In terms of the rent-regulated book, it's very granular. So it's just gonna take time for that to continue to wind down. But, you know, we're pretty comfortable with what we have right now. Stuart Lubow: Okay. Great. Stephen Moss: Appreciate all the color there, and I'll step back in the queue. Thank you very much. Stuart Lubow: Yep. Operator: Thank you. Our next question comes from David Konrad with KBW. Your line is open. David Konrad: Yes. Thanks. Good morning. Just a follow-up question on the deposits. I know you have a lot of the municipality and seasonality this quarter, but noninterest-bearing deposits were, you know, almost 31% mix. Like, where do you think 2026, you know, will look like in terms of the mix of deposits, in terms of noninterest-bearing deposits? Thomas Reid: Yeah. Look. They have, you know, Avinash Reddy: if you go back in time, you know, this company had a noninterest-bearing deposit base somewhere between 35-40%. When we completed our merger. Obviously, you know, a lot of that was tied to PPP, and then we came all the way back down to 25%. Right? I'd say the starting point really should be, you know, in 2023, once you saw deposits leave the system, we were at 25%. We've built that up to 30 to 31% right now. I think we'd like to continue growing that over time. What we've really tried to do with the deposit base is focus on the low-cost deposits. And so I think what we really try to manage is getting the overall cost of deposits down. And right now, like I said, it's, you know, $1.68 plus or minus is the spot cost over there. But we're not really bringing on new relationships to the bank unless they bring us their full operating accounts and have 20 to 30% DDA. Right? So I think at a minimum, you know, seeing a floor of around 30% is probably, you know, reasonable, and we'd like to have that, you know, ratio creep up slowly over time. Stuart Lubow: Yeah. And, you know, you should note that, you know, again, getting back to the teams, you know, that $3 billion balance that they have, 38% of that balance is DDA. So, I mean, they really, you know, they really focus on the DDA side. And, obviously, while, you know, quarter-end was slightly higher due to some of the municipal deposits, those were not DDA deposits. Those were, you know, money market and whatnot. So, you know, I think there's a, you know, a good chance that we're gonna see 31% move up nicely during the year, and, really, that's what we've been focused on with our new team hires as well. Great. Thank you. Operator: Thank you. And our next question comes from Matthew Breese with Stephens Inc. Your line is open. Matthew Breese: Hey, good morning. Wanted to focus first maybe on just the, you know, the cash and then securities. Avinash, I heard you in your opening comments, but could you give us just some better idea of what the timeline and strategy is for deploying? Operator: Deploying that cash? And then what level do you think is kind of, you know, the normalized level, quote, unquote, Avinash Reddy: Yeah. So there's no specific timeline, Matt, in terms of us rushing out to buy securities. We probably bought around $150 million in the fourth quarter. You know, we're looking at rates consistently. I think we like having the flexibility on the balance sheet, like I said. At the start. What it really does is it creates a neutral balance sheet that's not tied to short-term rates. Right? Over time, as we, you know, make more business loans, have more floating rate assets, you know, that automatically will take care of the ALM profile of the bank. But in the near term, it just helps us having cash in that we don't have to go out and hedge the balance sheet in different ways. So I don't see that cash balance coming down significantly in the near term absent, you know, some of the seasonality that I talked about in Q4. I think if you read between the lines on the loan growth, we said, you know, loan growth's probably flat for the first half of the year and then growing in the second half of the year. So in terms of use of cash, in terms of loans, starting the second half of the year, there will be a use of cash for loans. First half of the year, it's gonna be, you know, in cash, and, you know, we're gonna look at the market for securities and where there's an opportunity to add some, we will. But we're not, you know, running out to put $500 million to work or, you know, $750 million to work overnight and something. This is we're building the balance sheet more for the longer term, and we're pretty happy with the, you know, liquidity position and our loan to deposit ratio. I mean, it's in the mid-eighties at this point, which is very consistent with what a national bank operates at. Obviously, the banks are not in our local peer group are, you know, much more over-leveraged and somewhere between 90 and 100%. But, you know, I think we're comparing ourselves really to a national bank, and we like the fact that we have this excess liquidity at this moment. Thomas Reid: Okay. Matthew Breese: I appreciate that. And then you'd mentioned in there adding floating rate loans. Could you just give me an update on where floating rate loans stand today as a percentage of total loans? These are, you know, loans priced off of SOFR or Prime. And the expectation for, you know, a year from now. Avinash Reddy: Sure. So, look, I think in terms of the new business and, you know, Thomas's verticals, you know, a majority of that is floating rate. So we think about, you know, the fund finance business, you know, that's a floating rate portfolio. When we're doing healthcare loans, those are priced off of SOFR. So anything coming on the books is likely more floating rate than fixed rate. Right now, floating rate's probably somewhere between 35-40% of the balance sheet. Fixed is probably around 25%, and adjustable is probably the difference over there. Matthew Breese: Got it. Okay. And then could you just comment on prepayment activity in 2025 was a big headwind for commercial real estate and multifamily growth. What did you see in the fourth quarter? And do you feel like there's some light at the end of that tunnel? Should we see or expect prepayment activity to start to decline? Avinash Reddy: Look. I think it really depends on its loan by loan, and it's whether we want to be, you know, in the market or not in the market for that type of asset. Right? And I think our guidance was we're focused on getting the CRE ratio to the mid-350s by, you know, maybe exiting some transactional multifamily and transactional CRE that doesn't have deposits. Right? Third quarter, we probably saw payoff rates in the 20-25% area. In the fourth quarter, it was probably 15%. Right? If you look over the cycle, it's somewhere between 15 to 20%. So, you know, I think rates, you know, short-term rates probably have to drop a little bit more for there to be a big payoff wave over there. Right now, it's kind of working in our favor because, you know, our goal is to get, you know, our CRE ratio down to the mid-350s. That being said, for relationship CRE that has deposits, we're very competitive with our rate. And we're able to retain them and their core customers at the bank. So I would delineate it between transactional and relationship CRE. And on the relationship CRE side, I think we are seeing pretty strong retention. Matthew Breese: Great. Appreciate it. Just last one for me. Muni deposit outflows you talked about, what categories of deposits will that impact? That's all I had. Thanks. Avinash Reddy: Yep. So the $225 million that I talked about and that Stuart mentioned, that's an interest-bearing deposit. It's probably in the 3% area, plus or minus, so that's interest-bearing. Some of the tax receivable money that comes in, that's in the DDA piece. So that's probably, call it, $60 to $70 million over there. So it's a split of categories. More of it in the interest-bearing side than on the noninterest-bearing side. Operator: Thank you. Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Stuart Lubow for closing remarks. Stuart Lubow: Thank you, Michelle, and thank you to all our dedicated employees and our shareholders for their continued support. We look forward to speaking with you at the end of the first quarter. Operator: Thank you for your participation. You may now disconnect. Everyone, have a great day. Thanks, Michelle.
Operator: Good morning, and welcome to Johnson & Johnson's Fourth Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode until the question and answer session of the conference. This call is being recorded. If anyone has any objections, you may disconnect at this time. If you experience technical difficulties during the conference, you may press 0 to reach the operator. I will now turn the conference call over to Johnson & Johnson. You may begin. Darren Snellgrove: Hello, everyone. This is Darren Snellgrove, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company's review of business results for the fourth quarter and full year 2025 and our financial outlook for 2026. First, a few logistics. As a reminder, today's presentation and associated schedules are available on the Investor Relations section of the Johnson & Johnson website at investor.jnj.com. Please note that this presentation contains forward-looking statements among other things, the company's future operating and financial performance, market position, and business strategy. You are cautioned not to rely on these forward-looking statements which are based on the current expectations of future events using the information available as of the date of this recording and are subject to certain risks and uncertainties that may cause the company's actual results to differ materially from those projected. The description of these risks, uncertainties, and other factors can be found in our SEC filings, including our 2024 Form 10-Ks, which is available at investor.jnj.com and on the SEC's website. Additionally, several of the products and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies. This slide acknowledges those relationships. Moving to today's agenda. Joaquin Duato, our Chairman and CEO, will discuss our business performance and growth drivers. I will then review the fourth quarter sales and P&L results, as well as full year 2025 results for the enterprise. Joe Wolk, our CFO, will then close by sharing an overview of our cash position, capital allocation priorities, and guidance for 2026, as well as key milestones and qualitative considerations for 2026. Jennifer Taubert, Executive Vice President, Worldwide Chairman, Innovative Medicine, John Reed, Executive Vice President, Innovative Medicine Research and Development, and Tim Schmid, Executive Vice President, Worldwide Chairman, MedTech, will be joining us for Q&A. To ensure we provide enough time to address your questions, we anticipate the webcast will last up to seventy-five minutes. With that, I will now turn the call over to Joaquin. Joaquin Duato: Good morning, everyone, and thank you for joining us. I'm excited to discuss our very strong full-year results. We said 2025 would be a catapult year for Johnson & Johnson, and that is exactly what it was. It was a year that launched us into a new era of accelerated growth, fueled by the strongest portfolio and pipeline in our history. Johnson & Johnson today has a leading and expanding position in each of our six key businesses: oncology, immunology, neuroscience, cardiovascular, surgery, and vision. In each of these areas, we have multiple differentiated assets to drive growth and a strong competitive advantage, which you can see in the success of our recent launches. In recent years, we have increased our focus on areas of high growth and high unmet need, and we will continue this transformation with the planned separation of our orthopedics business. In 2025, we invested over $32 billion in R&D and M&A, including the acquisitions of Intracellular Therapies and Halda Therapeutics. We also initiated billions of dollars in new state-of-the-art manufacturing facilities in the US, which will accelerate the delivery of our next wave of innovation. These moves fuel our confidence that growth in 2026 will be faster than in 2025. And we have line of sight to double-digit growth by the end of the decade, which is notable as Johnson & Johnson is the only healthcare company that will soon deliver more than $100 billion in annual revenue. How is that possible? It's possible because we have tremendous strength and depth both in innovative medicine and in medtech. We are different from other companies. We are not focused on one or two growth drivers. In fact, we now have 28 platform-sold products that generate at least $1 billion of revenue annually, and that makes our growth more sustainable. This, together with our strong balance sheet and free cash flow, creates the resilience and durability that will power our future. Turning to our results, over the full year, we delivered 5.3% operational sales growth. The strength of our commercial execution and relentless focus on innovation drove strong momentum throughout the year, firmly placing the STELARA LOE in the rearview mirror. In innovative medicine, we reported operational sales growth for the year of 5.3%. Full-year sales for our Pharmaceutical business exceeded $60 billion for the first time, with 13 brands growing double digits. The foundation for these results and for the acceleration we see ahead is our unrivaled portfolio and pipeline. In 2025 alone, we secured 51 approvals and filed 32 submissions across major markets. We delivered positive readouts from 17 key studies and initiated 11 new Phase III programs. These milestones are not just numbers. They are the seeds of our best-in-class medicines that are improving and extending lives. Let me now talk about our key areas of focus. In oncology, we are working to cure cancer, and our depth of expertise is unmatched. In 2025, we delivered 21% operational sales growth, and we expect to exceed $50 billion in annual sales by 2030. We are the number one company in multiple myeloma, where eighty percent of patients are treated with at least one of our four medicines over their treatment journey. DARZALEX is the largest medicine by sales in our pharmaceutical portfolio and is considered the foundational gold standard treatment in multiple myeloma. With annual sales over $14 billion, DARZALEX grew an impressive 22% across the full year. Carvicti is the leading CAR T cell therapy in multiple myeloma, with more than 10,000 patients now treated across 14 markets. And we are not stopping there. Last month, we published and presented results for TegVyle plus Darzalex that show reduced risk of progression or death by eighty-three percent in relapsed refractory multiple myeloma as early as the second line. We also recently announced top-line findings from a second Phase III study, MAJESTIQ-nine, which showed monotherapy to reduce the risk of disease progression or death as early as first relapse in patients with multiple myeloma who are predominantly refractory to anti-CD38 and lenalidomide therapies. We're also seeing significant momentum in our solid tumor portfolio. In Q4, we received FDA approval for Ribram and Faspro as the first subcutaneous therapy for EGFR-mutated non-small cell lung cancer, reducing administration time from hours to minutes and improving patient experience. We are making strong progress in bladder cancer with the introduction of Inlexo, our novel drug revision system, which received its initial FDA approval in September. This is a revolutionary treatment that offers a life-changing alternative for patients who otherwise would have lost their bladders to radical surgery. Future approvals addressing larger patient populations are anticipated. And our Q4 acquisition of Halda Therapeutics added a promising clinical-stage treatment for prostate cancer with potential across multiple tumor types. In immunology, we are focused on transforming the standard of care by increasing remission rates in immune-mediated disease. In 2025, Tremfya became the first and only IL-23 inhibitor with a fully subcutaneous treatment regimen for both ulcerative colitis and Crohn's disease. It is now the fastest-growing IL-23 therapy in the US, delivering Q4 operational sales growth of 7565% worldwide. And with global full-year sales of Tremfya accelerating to more than $5 billion for the first time, we're increasingly confident that Tremfya will exceed $10 billion in peak year sales. But in healthcare, leadership means continually raising the bar. Which is why we are focused on what's next in immunology. In the coming months, we look forward to the anticipated US approval of icotrokinra. To be marketed as icotide, which will expand our immunology innovation beyond injectable medicines. We believe Icotide positions Johnson & Johnson to lead the next wave of treatment for psoriasis and inflammatory bowel disease. Turning to neuroscience, where 2025 operational sales grew 10%. Spravato continues its strong trajectory with 57% growth in the year, with more than two hundred thousand patients now treated worldwide. In November, we solidified our leadership with the US launch of CAPLYTA for adjunctive major depressive disorder, further strengthening our confidence in its $5 billion peak year sales potential. Now turning to MedTech, where operational sales for the year grew 5.4%. In 2025, we delivered nearly $4 billion in sales, with strong performance in cardiovascular and accelerating momentum across surgery and vision. Our success over the last year was supported by 15 major launches and more than 40 regulatory approvals in major markets. And with more than 60 active clinical trials, we have significant momentum going into 2026. Johnson & Johnson today is a leader in three cardiovascular segments, with the portfolio delivering 15% operational sales growth in the year. Abiomed and Shockwave performed particularly well, delivering operational growth of approximately 1823% in the quarter. We remain the market leader in electrophysiology, and we plan to expand our position in pulse field ablation. BariPulse has now been used to treat nearly forty thousand atrial fibrillation patients globally, and we look forward to submitting our dual energy thermo cool SMARTouch SF catheter for use in the US market in 2026. We are also seeing positive data for our Omnipulse catheter, which has the potential to further redefine post-field ablation. In fact, we anticipate launching a new catheter every year through the end of the decade as we build an industry-leading portfolio in PFA complemented by at least two Carto updates each year. In surgery, we are reinventing procedures through robotics and digital. This year, we will launch a first-of-its-kind robotics platform for urology with Monarch. Technology was first to market in bronchoscopy, helping diagnose and treat lung cancer. And this year, we'll create another first with Monarch, becoming the only robotic endoluminal and percutaneous platform for the treatment of kidney stones and other renal conditions. We also recently announced the FDA de novo submission of our Optava robotic surgery system. And with continued innovation in surgical instrumentation, including our recent launch of the Ethicon 4,000 stapler, we anticipate continued growth as we reduce complications and elevate the surgical experience across specialties. And finally, vision, which delivered robust annual operational sales growth of 5.3% with particularly strong momentum in surgical vision. In 2025, we launched IQVIA OASIS MAX disposable lenses for astigmatism and presbyopia and completed the full market release of Technis ODC IOL, which is the fastest-growing intraocular lens in the US. Looking ahead, we are planning to launch Tecnix Pure C in the US later this year. As you can tell, we are starting the year from a position of strength. You have heard me talk about the unmatched depth and strength of our business. In 2026, that will translate into accelerated growth and impact with game-changing innovation, reaching more patients more quickly than ever before. Darren Snellgrove: I will now turn the call back over to Darren. Thank you, Joaquin. Moving to our financial results. Unless otherwise stated, the percentages quoted represent operational results and therefore exclude the impact of currency translation. Starting with Q4 2025 sales results. Worldwide sales were $24.6 billion for the quarter. Sales increased 7.1% despite an approximate 650 basis point headwind from STELARA. Growth in the US was 7.5%, and 6.6% outside of the US. Acquisitions and divestitures had a net positive impact on worldwide growth of 100 basis points, primarily driven by the Intracellular acquisition. Turning now to earnings. For the quarter, net earnings were $5.1 billion, and diluted earnings per share was $2.1 versus $1.41 a year ago. Adjusted net earnings for the quarter were $6 billion, and adjusted diluted earnings per share of $2.46, representing an increase of 21.5% compared to 2024. Items of note include a $0.22 IPR&D charge associated with the VWave acquisition in 2024, and $0.10 of dilution due to the acquisition of Halda Therapeutics in 2025. For the full year 2025, worldwide sales were $94.2 billion. Sales increased 5.3% despite an approximate 620 basis point headwind from STELARA. And if you do the math, Johnson & Johnson grew double digits for the full year, excluding STELARA. Growth in the US was 6.9% and 3.4% outside the US. Acquisitions and divestitures had a net positive impact on worldwide growth of 110 basis points, primarily driven by the Intracellular and Shockwave acquisitions. Turning now to earnings. Net earnings for full year 2025 were $26.8 billion, and diluted earnings per share was $11.3, including the $7 billion talc reserve reversal from Q1. This compares to diluted earnings per share of $5.79 a year ago, which included $0.67 of dilution due to acquired IPR&D charges on various transactions. Full-year 2025 adjusted net earnings were $26.2 billion, and adjusted diluted earnings per share was $10.79, both representing an increase of 8.1% compared to full year 2024. I will now comment on business sales performance in the quarter, focusing on the six key areas where meaningful innovation is driving our performance and fueling our long-term growth. Beginning with innovative medicine, worldwide sales of $15.8 billion increased 7.9% despite an approximate 1110 basis point headwind from STELARA, illustrating the continued strength of our key brands and new launches. Growth both in the US and outside of the US was 7.9%. Acquisition and divestitures had a net positive impact of 170 basis points on worldwide growth, primarily due to the Intracellular acquisition. In oncology, starting with multiple myeloma, DARZALEX growth was 24.1%, primarily driven by strong share gains of 6.5 points across all lines of therapy and nearly 12 points in the frontline setting, as well as inventory dynamics and market growth. Carvictee achieved sales of $555 million with growth of 63.2%, driven by share gains and site expansion. Tegveli and Talve growth was 18.9% and 73.1%, respectively, driven by continued expansion in the community setting. In prostate cancer, ELEDA delivered strong growth of 18%, due to market growth and continued share gains, partially offset by the impact of Part D redesign. In lung cancer, Ribrovant plus Lascluse delivered sales of $216 million and growth of 76.5%, driven by continued launch uptake in all regions. We continue to see share gains in both first and second lines of therapy. Within immunology, Tremfya delivered remarkable growth of 65.4%. We continue to see share gains across all indications, with particularly strong momentum from our IBD launch as well as market growth. STELARA declined 48.6%, driven by share loss due to biosimilar competition and Part D redesign. In neuroscience, Spravato grew an impressive 67.8%, driven by continued strong demand from physicians and patients. CAPLYTA, which was acquired in Q2 as part of the Intracellular acquisition, delivered sales of $249 million for the quarter. Since AMDD approval in the US, CAPLYTA has had its highest-ever new patient start volumes across all indications. Now moving to medtech. Worldwide sales of $8.8 billion increased 5.8%, with growth of 6.6% in the US and 4.9% outside of the US, driven by strong performance in our three focus areas: cardiovascular, surgery, and vision. Acquisitions and divestitures had a net negative impact of 10 basis points on worldwide growth. In cardiovascular, electrophysiology delivered growth of 6.5%, driven by procedure growth within our comprehensive portfolio, commercial execution, as well as VariPulse and other new products, partially offset by competitive pressures in PFA. Abiomed delivered growth of 18.3%, with continued strong adoption of Impella technology. Shockwave grew 22.9%, driven by continued adoption of coronary and peripheral products, becoming our thirteenth billion-dollar medtech platform. Surgery grew 3.7% despite divestitures negatively impacting results by approximately 60 basis points. Growth was driven by accelerated launches of new products in biosurgery, technology penetration in wound closure, and strong commercial execution, partially offset by competitive pressures in energy and endocutters as well as VBP in China across the portfolio. In vision, contact lenses and other products grew 5.3%, driven by category growth, strong performance in the AccuView ONEday family of products, and continued strategic price actions, further solidifying our leadership position. Surgical Vision grew 10.8%, driven by new product innovations, robust demand for premium IOLs, and strong commercial execution. Orthopaedics growth this quarter continued to gain momentum and increased to 3.5%, primarily driven by new product launches and strong commercial execution, partially offset by the orthopedics transformation and VBP in China. Now turning to our consolidated statement of earnings for 2025. I'd like to highlight a few noteworthy items that have changed compared to the same quarter of last year. Cost of goods sold deleveraged by 80 basis points, driven by unfavorable product mix in Innovative and the impact of tariffs in medtech. This was partially offset by the one-time prior year fair value inventory step-up associated with the Shockwave acquisition. Selling, marketing, and administrative expense leveraged by 110 basis points, driven by lower administrative expense across the enterprise. Research and development leveraged by 620 basis points, primarily driven by prior year acquired IPR&D expense from the VWave acquisition in MedTech, as well as pipeline investment timing in Innovative Medicine. Interest income and expense was a net income of $23 million as compared to $144 million of income in 2024. The decrease in income was primarily driven by a higher average debt balance. Other income and expense was a net expense of $483 million as compared to $161 million of income in 2024. This increase in net expense was driven by higher litigation costs of $900 million, primarily related to the Aura shareholder resolution and a $200 million nonrecurring charge related to Holder Employee Equity Awards. This was partially offset by a $300 million contingent value right reduction associated with the Abiomed acquisition. Tax rate on a GAAP basis in 2025 was a benefit of 3% compared to an 11.7% cost in 2024. The decrease in the effective tax rate is primarily driven by a nonrecurring tax benefit related to a loss on certain international subsidiaries. More information can be found in the company's forthcoming Form 10-K. Lastly, I'll direct your attention to the box section of the slide, where we have also provided our income before tax, net earnings, and earnings per share adjusted to exclude the impact of intangible amortization expense and special items. Now let's look at adjusted income before tax by segment for the quarter. Innovative medicine margin improved from 32.5% to 36.3%, primarily driven by administrative expense leveraging and phasing of R&D expense, partially offset by unfavorable mix in the cost of products sold. MedTech margin improved from 10.8% to 17.4%, primarily driven by prior year acquired IPR&D expense from the VWave acquisition, partially offset by the impact of tariffs and cost of products sold. As a result, adjusted income before tax for the enterprise as a percentage of sales increased from 24.1% to 28.7%. This concludes the sales and earnings portion of the call. And I will now turn the call over to Joe. Joe Wolk: Thanks, Darren. Hello, everyone. We appreciate you joining us today. As you've heard from Joaquin and Darren, the employees of Johnson & Johnson delivered impressive results in 2025, driven by strong execution, important new launches, and significant pipeline progress that launched a new era of accelerated growth. Our performance demonstrates the depth and strength of Johnson & Johnson's business centered on six core areas: oncology, immunology, and neuroscience in innovative medicine, and cardiovascular, surgery, and vision in medtech. This has enabled us to exceed financial expectations at the beginning of 2025 on both the top and bottom line. We enter 2026 with powerful momentum and anticipate another solid year ahead. Let me briefly address yesterday's Albert rulings in the Talc MDL. The special master correctly decided to exclude the opinions of certain plaintiff's experts who propounded junk science. In other parts of the ruling, the court did not uphold its proper gatekeeping duty with respect to the reliability of plaintiff's experts' opinions, and we will appeal. The decision only serves to bolster our overall litigation strategy. We will continue to defend against these meritless claims at trial and through the appeals courts where we have largely prevailed. Before we move into 2026 guidance, let's address cash and capital allocation. We ended 2025 with approximately $20 billion in cash and marketable securities, $48 billion of debt for a net debt position of approximately $28 billion. The company generated $19.7 billion of free cash flow during 2025, on par with 2024 despite increased capital investment in the US and the impact of tariffs. Our financial strength is a competitive advantage that allows us to both invest in our future and return value to our shareholders. As we move forward in 2026, we expect to elevate free cash flow generation to approximately $21 billion. As it relates to the separation of our orthopedics business, we are making good progress towards a mid-2027 separation and look forward to providing updates later this year. Turning now to guidance for the full year 2026. We anticipate operational sales growth in the range of 5.7% to 6.7% with a midpoint of $100 billion or 6.2%. Acquisitions and divestitures are expected to favorably impact operational growth by approximately 30 basis points, resulting in an adjusted operational sales growth midpoint of 5.9%. We do benefit in 2026 as our financial calendar includes a fifty-third week, which is worth approximately 100 basis points. As you know, we do not speculate on future currency movements. And last quarter, we utilized the euro spot rate relative to the US dollar of 1.17. As of last week, the US dollar has stayed relatively flat to the euro spot rate, and as a result, we expect reported sales growth between 6.2% to 7.2% with a midpoint of $100.5 billion or 6.7%. 2026 sales growth across our Innovative Medicine business will be driven by Tremfya, DARZALEX, CARVICTI, ERLEADA, and SPRAVATO, as well as new launches of Ribrovant plus Lascluse in lung cancer and CAPLYTA as adjunctive therapy for major depressive disorder. In medtech, we expect growth to be driven by continued uptake and market expansion of new product launches across our cardiovascular, surgery, and vision portfolios, including VariPulse in electrophysiology, Ethicon 4,000 in surgery, and the Oasis Max family in vision. Turning next to other items on the P&L. In 2026, we expect to drive continued operating efficiencies, the majority of which we plan to invest in our business to power our new product launches and pipeline with heavier investment at the outset of the year. Despite that increased investment, we are planning for our 2026 adjusted pretax operating margin to improve by at least 50 basis points. Our pretax operating margin guidance takes into account the costs from the fifty-third week of operations and full-year medtech tariffs of approximately $500 million, which is significantly above the 2025 amount. It also includes the impact of the recently announced voluntary agreement with the US government to improve access to medicines and lower costs to US patients. We expect net interest expense between $300 million and $400 million. We anticipate net other income to be $1 to $1.2 billion for 2026, relatively flat to last year. Finally, we are projecting an effective tax rate in the range of 17.5% to 18.5%, with the increase largely due to a mix change with income in higher tax jurisdictions. Turning to adjusted operational earnings per share, we expect growth of 5.5% at the midpoint for a range of $11.28 to $11.48. By utilizing the exchange rate we mentioned earlier, for our reported adjusted earnings per share for the year, we estimate a positive impact of $0.15. As such, we expect reported adjusted earnings per share of $11.53 at the midpoint. Regarding our share count, due to the rapid share price appreciation in 2025, into early 2026, our diluted share count is increasing to approximately 2.44 billion shares based on US GAAP accounting rules for the diluted share count calculation, in line with how 2025 landed. The incremental dilutive shares for next year are worth slightly more than a $0.05 headwind versus 2025. Relative to current analyst expectations, our EPS and margin outlooks absorb the previously referenced incremental tariffs, the impact of the voluntary US government agreement, and a higher share count. We will now shift to some 2026 phasing considerations to help inform your modeling. We are well-positioned to build upon our accomplishments in 2025, continuing to make advancements across our innovative medicine and medtech portfolio and pipeline. We anticipate fairly consistent operational sales growth throughout the year, with a higher fourth quarter due to the benefit from the fifty-third week referenced earlier. Regarding Innovative Medicine, we expect a more pronounced impact from newly launched products throughout the year. We anticipate STELARA to continue to follow the HUMIRA erosion curve, which accelerated as we moved to 2025 compared to the start. While not nearly as impactful as STELARA, we do anticipate generic impact for both Symphony and OPSUMIT to begin in 2026, both of which are contemplated in our full-year guidance. In medtech, we will continue to accelerate our newly launched products and expect normalized seasonality. The surgery transformation progress will accelerate throughout the year, and we anticipate some additional rounds of volume-based procurement in China, all of which has been incorporated into our 2026 guidance. Regarding the P&L, it is important to consider one-time items that impacted our EPS results in 2025. Specifically, in Q1 2025, the impact from STELARA biosimilars was less pronounced given that the erosion accelerated starting in Q2. The Intercellular acquisition anniversaries in Q2. And tariffs will be relatively linear in 2026, unlike last year where the P&L cost was largely recorded in Q4 2025. Given these factors, we expect higher earnings per share growth in the second half of the year versus the first half. We are excited about how our pipeline is anticipated to advance in 2026. For example, in Innovative Medicine, we expect regulatory approvals for icotide in psoriasis, Tekveli in combination with Darzalex in relapsed refractory multiple myeloma as early as second line, and TREMFYA for the innovation of structural joint damage for patients with psoriatic arthritis. As this chart indicates, we also have many important regulatory submissions and data presentations across oncology, immunology, and neuroscience. In medtech, we anticipate the following approvals and regulatory submissions: Otava robotic surgical system, Aesthesia in biosurgery, and the dual energy thermal cool smart touch SF catheter in the US. Here too, we are also excited for new launches and continued expansion of new products as seen in the chart. To close the prepared remarks, I hope it's evident that Johnson & Johnson is entering 2026 with significant momentum. We are positioned to lead where healthcare is going to tackle areas of critical unmet need. Our strong financial position enables us to invest in our business and the next generation of scientific breakthroughs that will help improve patient outcomes while simultaneously delivering value for our shareholders. None of this would be possible without the hard work and dedication of our incredible colleagues worldwide who always keep patients at the center of everything we do. With that, we are happy to take your questions. So I will now turn it to Kevin to provide instructions for those seeking to participate in the Q&A. Operator: Thank you. Ladies and gentlemen, if you'd like to withdraw your question, please press star then 2. Please limit yourselves to one question only. First question is coming from Asad Haider from Goldman Sachs. Your line is now live. Asad Haider: Great. Congrats on the quarter and thanks for taking the question. Joaquin, maybe just a big picture question for you. You're entering this year in a clear position of strength following what's been one of the best performance years for the stock in about twenty years. You've had momentum in both business segments. You're generating tremendous free cash flow, and you're saying that's gonna continue to elevate. And you've now started to talk more about double-digit revenue growth by the latter part of the decade, although street consensus is currently modeling something in the 6% range. So if you could just maybe double click a little bit more on what the key levers are to bridge to that double-digit growth profile from where we sit today, particularly in the context of the current revenue base that's now approaching $100 billion and remains sizable through the end of the decade even with the ortho spin. And I guess what we're really trying to understand is how much of that acceleration comes from the organic pipeline versus acquisitions versus portfolio pruning. And I guess related, what innings are we in of the strategic repositioning away from lower growth segments like you're doing with Ortho towards higher growth segments? Thank you. Joaquin Duato: Thank you. Great question. And I'll share, I mean, we come out of a really successful 2025, leaving the STELARA biosimilars in the rearview mirror and initiating a cycle of accelerated growth for Johnson & Johnson. And you have seen that we have provided guidance for 2026, which is strong and ahead of expectations. And as I said before, we have line of sight to double-digit growth in the later part of the decade, which is especially remarkable for a company that, according to our guidance, would be $100 billion in sales in 2026. So what are the reasons to believe? The reasons to believe are focused on the strength of our portfolio and pipeline. Let me now take you through the six areas of focus that we are investing into the future. Let me start with oncology. Our ambition with oncology is to become the number one oncology company, reaching $50 billion by the end of the decade, sustained by our success in multiple myeloma and also in solid tumors with lung cancer, prostate cancer, and bladder cancer. We are very confident in our progress there in the pipeline, and I'm sure we'll have some time to discuss that later in the call. In our second area in innovative medicine, which is immunology, we are focusing on three major blockbusters. One is Tremfya, which has been very successful in IBD. You have seen the growth in the fourth quarter, really spectacular, 65%. TREMFYA and IBD launch is doing really well. And as a reminder, in the case of STELARA, IBD was 75% of the sales. So there is significant growth for Tremfya ahead of us. We see Tremfya as more than a $10 billion asset. The second one is icotide. Icotide is a trademark of icotrochimbra, our oral IL-23 blocker. We see the oral IL-23 blocker expanding the market, becoming a new blockbuster for us. We expect to have the launch of icotide in 2026, initially in psoriasis. This is going to be a transformational change for the treatment of these diseases, and we plan to continue to develop ICOTY-two in IBD, in inflammatory bowel disease. And finally, the third blockbuster in which we will see data this year is our co-antibody therapeutic for patients that are refractory to biologics. I think that's a great solution for these patients. Many of them relapse. So three major blockbusters in immunology, which are largely derisked. Some of them are a profile you're going to see data very, very soon. To end in innovative medicine, we are very encouraged by the progress of SPRAVATO, more than 60% growth, and also the very successful launch of CAPLYTA in adjunctive treatment of major depressive disorder. We're seeing the first data coming in very, very encouraging. We see CAPLYTA, as we discussed, as additive to our growth and more than a $5 billion business. So all positives in our Innovative Medicine group clearly driving this line of sight to double-digit growth by the end of the decade. If I move to our MedTech business, our cardiovascular sector, very strong growth in 2025, double-digit growth is reaching $9 billion, is one of the cardiovascular franchises in the industry. We are in three major markets, which are specialty markets with high growth, cardiac ablation where we are the leaders and we plan to expand our leadership in PFA with our launch of a new catheter every year and new carto versions. Tim will explain later. Our strong position both in with BioMed and Shockwave in heart recovery and in calcified arterial disease. So that's going to be a growth driver for us into the rest of the decade. In surgery, we have had strong results both in wound closure and in biosurgery, which are high single-digit in both areas. We just filed for OTAVA, which is going to make us a relevant player in the surgery robotics, which is an area in which we have all the right to compete. Let me remind all of you that we are in all hospitals in the world, and we already participate in all surgeries, and we plan to be a relevant player in robotic surgery with Ottava and also with the launch of Monarch in urology, in which we are going to have a unique position. Then finally, in vision, you see our results in vision. It's a market with growth. We're gaining share, and it's an area of innovation in which we continue to invest. So, you know, we have about a dozen new product launches for the company. Some of them are already approved, most of them submitted. So I would say that in that sense, it's essentially what I would call derisked, and some of you have called our story of growth in the second half of the decade as one of the cleanest stories of growth for the healthcare sector, for the healthcare entire sector overall. So we feel very confident about our outlook, as reflected in our guidance for 2026. And I can assure you that everybody here at Johnson & Johnson is focused on doing exactly what we do best, which is looking for innovation in medicines and medical technologies to improve the standard of care of the millions of patients that we serve. We are convinced that will translate into strong business results. Operator: Thank you. Our next question is coming from Larry Biegelsen from Wells Fargo. Your line is now live. Larry Biegelsen: Good morning. Thanks for taking the question, and I'll echo my congratulations on a nice end to the year here. So, Tim, there's some dynamics in the medtech market that you called out in the slides as well as the loss of coverage in the US from the enhanced subsidies expiring. How are you thinking about the medtech market in 2026 relative to 2025? How are you thinking about J&J's adjusted operational growth in 'twenty-six versus 'twenty-five? Do you expect an acceleration? It'd be helpful if you could touch upon the outlook for your EP business, which is growing below market. Thank you. Tim Schmid: Larry, thank you for the question. Let me touch quickly on the first question around ACA subsidies and put that one to bed. Firstly, based on what we know today, we do not expect the loss of ACA subsidies or any potential policy changes under the big one big beautiful bill to have a material impact on our medtech performance. And, you know, while we'll continue to monitor how coverage dynamics evolve, at this stage, we see no indication of an impact on our growth trajectory. The primary constraint, as you know, Larry, in our business is really more about clinical capacity, not coverage levels. And procedure demands remained very robust across our portfolio, which I think really speaks to the resilience of the businesses that we've decided to participate in. Turning to your question about the year, we do expect to see acceleration. We expect the year to be better in 2026 than it was in 2025. And I think it's important to maybe hedge this question on really our strategy. And I think, you know, for the last couple of years, we've been very clear in articulating our strategy focused on shifting our portfolio into higher innovation, higher growth, and higher margin markets. And as you just heard from Joaquin, we have deliberately chosen to focus on our three focus areas of CV, surgery, and vision. And I think our results, Larry, speak for themselves. Our strategy is working. We said we would accelerate our performance in 2025, and we did exactly that, beating consensus for the third consecutive quarter. And what we're most proud of, Larry, is that we saw acceleration across the board. As you heard from Joaquin, cardiovascular, now one of our largest businesses at $9 billion, grew 15.2% operationally in 2025, driven by the success of Abiomed and Shockwave, both double-digit growers, and increasing performance in EP, which I'll touch on a little later. Vision, strong mid- to high single-digit performer, double-digit growth in Surgical and Vision, and, of course, we couldn't be more excited by the growth opportunity that will come with Otava as we look to commercialize that first in the US, hopefully this year. We've also seen continued improvement of ortho. You would have maybe some distraction as a result of the announcement we made. We've seen exactly the opposite with sequential growth during the quarter and 3.5% in Q4. And so I'll finally reinforce, Larry, that our portfolio transformation is working. If you look at the $34 billion business today, we have roughly half of our assets participating in higher growth markets growing north of 5%. That's compared to about 20% in 2018. And this will catapult to north of 70% following the ortho separation. So as a result, we believe, frankly, that our best days are ahead, and we remain very confident in our ability to drive accelerated operational growth as we further push into higher areas of innovation, growth, and margins. Let me touch quickly on EP because I think that was another part of your question. The results speak for themselves, and they're speaking loud and clear. We're seeing continued acceleration in the markets that matter most, especially here in the US and in Europe. You will have seen that in the fourth quarter, our growth accelerated to 9.5%. We're on the cusp of once again double-digit growth here in the United States, which is by far and away the most important market. We're seeing this driven by the success of Verapulse, more than 40,000 cases today, Larry, with a benchmark safety profile that you heard from Joaquin. We've made a commitment to an additional catheter each year for the foreseeable future, starting with dual energy STSF, followed by Omnipulse, which is a large diffocal catheter, and we're also doubling down on our leadership position in mapping. And we now see really customers shifting back to Cardo based on the integration we have across our portfolio. And just to put a point on this, Larry, for example, our COTO3 system is widely recognized as the industry benchmark in mapping. In fact, in a recent study, it found that patients treated with PFA devices, whether that be ours or the competition's, using CARTO were sixty-one percent less likely to experience AFib-related readmissions, which I think further reinforces the competitive advantage we have in this portfolio. And so I've said this before, Larry, and I'll end by saying that we are not rolling over. J&J's strength lies in our comprehensive portfolio of integrated EP solutions, mapping, ablation, and cardiac imaging technologies combined with our best-in-class mappers, and we remain resolute and confident that our deep EP expertise earned over thirty years and our robust pipeline position us well to continue to drive global leadership in this important space. Thanks, Larry. Operator: Thank you. Next question today is coming from Chris Schott from JPMorgan and Company. Your line is now live. Chris Schott: Great. Thanks so much, and congrats on the results. Joe, can you just elaborate a little bit more on how to think about margin progression over time at J&J? You've obviously highlighted potential for accelerating top-line growth over the next several years. Should we think about that higher level of top-line growth being associated with greater margin expansion? Or is this kind of 50 basis point year type improvement you're seeing this year a reasonable proxy to think about margin expansion for J&J over time? Thank you. Joe Wolk: Yeah. Good morning, Chris. Thanks for the question. Yes, it's a great question. As we look at the margin expansion, the idea would be to continue to improve our infrastructure. What gives me confidence with respect to the 2026 outlook of at least 50 basis points is, as you know, with the orthopedic separation, much like we did with the consumer health separation, we're gonna take this opportunity to look and see where there's areas of opportunity efficiency to eliminate stranded cost. While that will probably need to be in place for 2027, we're gonna get a jump start on that in 2026. There's also, as you know from recent calls, efforts underway to improve our operating margins, our gross margin specifically in our manufacturing footprint, largely in the medtech space. And then lastly, while we will have continued STELARA erosion, it'll be off a smaller base, so that will have less of an impact going forward. And so, I wouldn't wanna give you a longer-term outlook. What I can say is I'll harken back to our last Investor Day where we said that earnings would be commensurate with sales growth. So you can expect that the margin profile will improve in conjunction with the sales growth profile as we move out to the next couple of years and to the back half of this decade. Operator: Thank you. Next question today is coming from Joanne Wuensch from Citibank. Your line is now live. Joanne Wuensch: Good morning. Thank you for taking the question. And I'll add my congrats on a good quarter. I just want to spend a minute or two talking about Vision Care. You highlighted that as one of the three growth areas in medical technology. It looks like in your Surgical business, it was a little bit slower during the quarter versus what we saw in the United States versus what we saw outside the United States. If you could tease that apart a little bit and your views on the health of the contact lens market would be really welcome. Thanks again. Tim Schmid: Joanne, thank you for the note. Once again, we have doubled down and really focused on Vision as one of our three priority areas within medtech. And as you highlighted, a strong fourth quarter at growth of just under 7%. So strong underlying performance within our contact lens category, while we did see a little softness, Joanne, in Asia Pacific, underlying demand is strong, and we saw tremendous growth at roughly 5.3% with share gains driven by the continued rollout of our AccuVue Oasis one-day family, which I think you probably know that we've added to with the addition of a product focused on multifocal astigmatism, an only product or only daily disposable available for patients suffering with both presbyopia and astigmatism. And so we believe that's going to be a growth driver for the future. Turning to surgical vision, growth of close to 11% in the quarter, and that's all driven by our doubling down of our focus on premium intraocular lenses, both with the Tech Odyssey launch here in the US last year and PURE C more broadly globally. As you look to 2026, we're going to be further enhancing that performance by building out the portfolio specifically with the launch of Piercy here in the United States. You touched on our fourth-quarter performance, underlying performance of our premium IOLs here in the US was outstanding. We did see that offset somewhat by some ongoing market declines in some of the legacy categories, which we're working to address, but we're confident that our Surgical Vision business can continue to be a strong double-digit growth for the foreseeable future. A couple of other areas I'll focus on here is that we are expanding global market share both in contact lenses and surgical vision, not just winning here in the States, but more importantly globally. We're focusing very much on portfolio optimization. I do think the ortho separation enables greater capital allocation to vision, supporting both R&D, commercial execution, and digital transformation. And so we're thrilled with the continued improvement in Surgical Vision and have great confidence in that continuing. Operator: Thank you. Next question is coming from Terence Flynn from Morgan Stanley. Your line is now live. Terence Flynn: Great. Thanks for taking the question. Appreciate it. Congrats on the quarter. Obviously, multiple myeloma is another one of your key growth drivers here. I was wondering, post a lot of the earlier stage data, earlier line data we've seen for TechValley, if you could speak to how you're thinking about positioning here of that franchise relative to CarVictee? And then the related question is, I know FDA published some final guidance regarding MRD negativity and CR's endpoint. So just thinking about how you might implement that across your development portfolio and what that could mean for timelines. John Reed: Thanks for the question, Terrence, and good morning, everyone. Yeah, for multiple myeloma, we were absolutely thrilled with the data that we saw for TekVeili plus Jarzalex in the second line plus setting as well as most recently the TekVeili data in patients who are refractory to anti-CD38 lenalidomide therapy. And maybe if I take a step back over the past twenty years, J&J therapies have dramatically improved survival for people with multiple myeloma. You know, from three to five-year survival rates to ten to fifteen years now or more. Despite these advances, multiple myeloma is still a complex disease, a heterogeneous disease, and about forty percent of patients are currently in the second line and third line settings. So how do all of these agents fit and why do we see that this is such an extraordinary opportunity? Well, first, if we start off with the Tech DERA information, plus Tech nine and CarVictee, together, they really provide highly effective agents that allow treatment that's tailored to the treatment goals, the patient setting, access, the patient status, and the prior therapy. So there's a number of things that get taken into account. So we start off with tech plus DARE Up. This is really community-ready therapy that's proven in unprecedented efficacy rate in the second line plus setting that the hazard ratio was zero point one seven. And so this is for patients who are CD38 naive or are CD38 experienced. And this is about seventy percent of the population in that second line and in a third line setting. If you take a look at Tekdara, the data, again, extraordinarily impressive, seventy-one percent reduction in the risk of disease progression, forty percent reduction in overall survival, and this is for patients who are refractory to anti-CD38 therapy and therapies. And so you can see the seventy percent Tekdara and then the thirty percent for the TECH nine data. And then when you bring CARVICTI in, Carvictee is really the most successful CAR T therapy. We just announced we're over ten thousand patients who've been infused with this, and this is a single-dose therapy with really a tremendous shot at what we would count as a cure. And we're the only CAR T therapy that's got that superior overall survival versus the standard of care. And so, when you take a look at what the goals are for that patient, what their prior lines of therapy would be, and what the practice setting is, J&J now has an option for really every one of those patients in that second line, third line setting. So we see a lot of growth potential ahead for these agents as well as DARZALEX in the frontline setting. Maybe to get into your MRD, but first, just to supplement a little bit, I've also noted that the tech Bailey regimens, whether it's monotherapy in CDA refractory patients or the combo with DARZALEX in patients who are 30 naive or have been exposed but still remain sensitive, these are dexamethasone-free regimens, which means the patients are on high-dose steroids, which really is an improvement on quality of life. The other thing I wanted to note is that the FDA, in fact, was so impressed with our REJESTIQ-three data that unsolicited, they contacted us and offered a priority review voucher to accelerate bringing this new regimen to patients. So really excited with that recent interaction with the FDA. Indeed, on MRD, that is exciting for us. Last year, there was an ODAC that endorsed that concept of using this biomarker, if you will, approach to finding those rare residual malignant cells. Much of the evidence behind that, frankly, was pioneered by J&J over the years. So we're excited that that is an option. We are mindful, however, that it's only an option in the United States. So we, at this point, will still have to deliver progression-free and overall survival data for other territories. So I suspect that will continue to be an element of our protocols. But indeed, we will be speaking with the agents to be on opportunities to accelerate some of our development. And in that regard, I think a place where this could be particularly apropos is with our new tri-antibody for myeloma, romantamig, which brings the features of both tec and tau into a single molecule with unprecedented efficacy, improved tolerability as well, fewer, for example, of the taste effects that you might see with Talvi, less weight loss, etcetera, really improved tolerability and then great convenience that makes it apropos for the community setting with only one step-up dose and Q4 week dosing per monthly dosing. Really excited about the pilot data we're seeing in newly diagnosed myeloma in combination with DARA, with that tri-specific, and that could be a really apropos place to discuss with the FDA using MRD negativity. Operator: Next question today is coming from Danielle Antalffy from UBS. Your line is now live. Danielle Antalffy: Hey, good morning, guys. Thanks so much for taking the question. I'll echo everyone's strong end to the year, and Happy New Year. Just a question on this move to higher growth end markets. Appreciate that you've done a lot of and are doing a lot of pruning now. You mentioned the 70% in a few years here. I mean, ultimately, I guess it's too. Do you see that seventy percent moving higher, or do you think that's, like, sort of the aspirational peak? That's the first part. And the second part is what are some other growth markets, whether it's in innovative medicines or medtech, where you guys aren't participating today that you see an opportunity to participate over that time frame, whether it's via organic or inorganic moves. Thanks so much for taking the question. Tim Schmid: Daniel, thank you. I mean, our aspiration is not to put a limit on the high-growth markets in which we participate. And I think we can conservatively say that once we separate ortho, we'll be at least at 70%. And there is tremendous opportunity even just focused within the three business units we've decided to focus on within MedTech, both in cardiovascular, in surgery, and in vision. I think we've built your confidence around cardiovascular continuing to be a strong double-digit grower, surgery, one of our profitable businesses where we maintain leadership positions both in contact lens and surgical vision. We believe it's gonna be a strong middle to high single-digit grower. And then surgery is the major opportunity to really catapult our growth, and that comes down to our belief in Ottava. As you heard from Joaquin, we are absolutely resolute in our commitment to play a bigger role beyond open and laparoscopic surgery in robotics with Ottava. And what we are most confident about is that we have something that is unique and different and something that surgeons and health system CEOs tell us every day that they need. So while we're excited by the recent milestone and the submission for approval, we're just getting started. And what really highlights the fact that this is different is you'll recall that this is a very different regulatory pathway we chose. This is a de novo pathway. And the reason we chose this pathway is that there is no predicate device, nothing that could be compared against. And so this is a novel platform where there's no reference or predicate device. And so that, coupled with the fact that we're going after the US, should further reinforce our confidence in the fact that we believe we have something that is really different. Now we're not stopping just in the US. We're building our submissions in a parallel path fashion outside of the US, with a focus on Japan and some select US markets. You will have recalled from the announcement we made two weeks ago, we're also already expanding into our next IDE clinical study in the lower abdomen. And so make no mistake that we believe that we can be a formidable player in surgical robotics. We don't take the current incumbent for granted by any means, but we do think the presence we have in open laparoscopic and soon-to-be robotic surgery gives us a right to play and a tremendous opportunity to drive to those high levels of growth that we've committed in the back half of the decade. John Reed: And then in Innovative Medicine, we are looking to expand in a number of really exciting areas. Right now, we've got clinical work already underway. And so to give maybe a few examples, Ribrovant in head and neck cancer and colorectal cancer, which is clinical trials underway. AMAVE, which we haven't spoken about yet today, but areas such as Sjogren's disease and SLE, lupus, areas of really high unmet medical need. Atopic dermatitis, of which we made a number of key acquisitions and licensing at the 2024 that give us a stable of assets there that we're working towards. B cell malignancies with our Bi CAR that's in development and even Milvexian that we're developing in partnership with Bristol Myers Squibb that we're very, very excited about for atrial fibrillation and secondary stroke prevention. A number of additional really key diseases that could be growth drivers for us in the future. Operator: Thank you. Next question today is coming from Vamil Divan from Guggenheim Securities. Your line is now live. Vamil Divan: Great. Thank you so much for taking the questions. I just want to ask on Inlexo. It's a couple of questions here. Just want any initial feedback you can share with us in terms of the initial launch and what doctors and patients are saying? Is there any update on when you expect to get a permanent J code? And then finally, just I see you listed Sunrise five data and potential submission on your events list for 2026, so that's good to see. I'm curious if you can just talk about how that data and that population might impact the addressable population for the product, and then to that Sunrise three, I thought might come this year. You didn't include that one on the list. So I'm just curious. Any update on timing when we might see data from Sunrise three. Thanks. Jennifer Taubert: Great. Thanks so much for the question on Inlexo. We are really pleased with the launch and what we're seeing in terms of interest and receptivity by both urologists as well as the patients who've had application of the device. As you recall, we've really launched into the BCG unresponsive population, and as you noted, we're actually looking to further expand that through Sunrise five, the BCG experience, and then SUNRISE III population on the BCG naive population. So far, the interest and enthusiasm on this has been really, really robust. We are anticipating the permanent J code at the beginning of the second quarter, sort of in that April timeframe, which we think is going to be a really nice catalyst for utilization. And so we do continue to believe strongly that this is one of our $5 billion plus assets and really look forward to getting that permanent J code in the second quarter. John Reed: Yeah. Just to supplement a little bit, I've also noted that the tech Bailey regimens, whether it's monotherapy in CDA refractory patients or the combo with DARZALEX in patients who are 30 naive or have been exposed but still remain sensitive, these are dexamethasone-free regimens, which means the patients are on high-dose steroids, which really is an improvement on quality of life. The other thing I wanted to note is that the FDA, in fact, was so impressed with our REJESTIQ-three data that unsolicited, they contacted us and offered a priority review voucher to accelerate bringing this new regimen to patients. So really excited with that recent interaction with the FDA. Indeed, on MRD, that is exciting for us. Last year, there was an ODAC that endorsed that concept of using this biomarker, if you will, approach to finding those rare residual malignant cells. Much of the evidence behind that, frankly, was pioneered by J&J over the years. So we're excited that that is an option. We are mindful, however, that it's only an option in the United States. So we, at this point, will still have to deliver progression-free and overall survival data for other territories. So I suspect that will continue to be an element of our protocols. But indeed, we will be speaking with the agents to be on opportunities to accelerate some of our development. And in that regard, I think a place where this could be particularly apropos is with our new tri-antibody for myeloma, romantamig, which brings the features of both tec and tau into a single molecule with unprecedented efficacy, improved tolerability as well, fewer, for example, of the taste effects that you might see with Talvi, less weight loss, etcetera, really improved tolerability and then great convenience that makes it apropos for the community setting with only one step-up dose and Q4 week dosing per monthly dosing. Really excited about the pilot data we're seeing in newly diagnosed myeloma in combination with DARA, with that tri-specific, and that could be a really apropos place to discuss with the FDA using MRD negativity. Operator: Thank you. Next question is coming from Shagun Singh from RBC Capital Markets. Your line is now live. Shagun Singh: Great. Joaquin and Joe, could you spend some time and elaborate on your next step with respect to the tax litigation, you know, implications of the initial Robert decision? You know, I know you indicated it'll be appealed. You know, if the reserves need to be stepped up. And then most importantly, what are your plans for an eventual resolution and risk mitigation here? You know, I think this may be contributing to the modest top-down today even though you know, you reported strong results and you have a very strong outlook to the end of the decade. Thank you for taking the question. Joe Wolk: Yes. I'll start, Shagun, and then Joaquin, I'll turn it over to you. So thank you very much for the question. And, I want to thank you for acknowledging just the strong results and outlook of the business, which is really what is at the heart of Johnson & Johnson. So last night, the special master reviewing the Daubert motions in the talc MDL issued what is known as a report and recommendation. So that really has no legal import until the judge actually accepts this recommendation. The recommendation itself excluded certain aspects of the plaintiff's expert witnesses and their opinions. And simultaneously, the recommendation also endorsed virtually all of our opinions of our experts. However, there were other parts of the recommendation where the special master clearly failed to apply the new federal rules of evidence known as Rule 702, which really reinforced starting in December 2023, the gatekeeping responsibilities that the special master should have had. We will certainly appeal those erroneous parts of the recommendation to the district court. Again, this recommendation from the special master has no legal consequence until the appeal is resolved. The bottom line is this is not going to change our strategy. We will continue to aggressively fight in the court system each and every one of these meritless claims. We will do so whether it's at original trial or through appeal. And we will continue to really bring to light the actions of the plaintiff's bar, the tactics that they use, the third-party litigation financing, all of which is really undermining US business and US competitiveness overall. Joaquin Duato: Thank you, Joe. So, I would tell you and I would tell investors we have been navigating this talc issue already for a decade. And we have been able to continue to deliver excellent results, invest in our business, and continue to return value to shareholders. So let's focus on the real story here. The real story is our successful 2025, the strong guidance for 2026, and what you said before, our line of sight for double-digit growth in the later part of the decade. This is a clean story for us, one of the cleanest stories in the entire healthcare sector. And we are in a position of strength today. And as Joe said, we are going to continue to fight these meritless claims, and we are going to continue with our strategy of litigating every single one. What I can assure you and all investors is that every single employee of Johnson & Johnson does not get distracted. They wake up every day with the intent to bring new medicines and medical technologies that improve the standard of care of the millions of patients that we serve every day, and that's really our goal. Let's focus on what really matters. Let's not get distracted. Operator: Shagun. And I think we probably have time for one more question. So our final question today is coming from Alexandria Hammond from Wolfe Research. Your line is now live. Alexandria Hammond: Thanks for taking the question. On Milvexian, can you talk a little bit about confidence in this asset? What do you think you'll need to show to be competitive in what's already a pretty crowded space with another potential next-generation factor 11 from Bayer? And I guess as a quick follow-up, how can you leverage your past experiences commercializing to make another multibillion-dollar opportunity for J&J? John Reed: Yeah. So on Milvexian, we're expecting data readouts later this year for both secondary stroke as well as atrial fibrillation. We often get asked about atrial fibrillation because the competitor molecule had failed in that indication, and we cite a couple of things. One is that MILVEXIAN, at least in vitro, is about 10 times more potent than the other molecule that is being developed by another company. And we know from monitoring the APP APTD biomarker, the thromboplastin time, that we have very effective reductions in clotting at the dose that we have selected for atrial fibrillation, which is one hundred milligrams twice a day. So we feel that we've got the right dose and the right study design. So we'll be looking forward to those data later this year. Jennifer Taubert: We're really excited about the opportunity with Milvexian. And what we're really looking to show there is clear superiority in terms of safety and bleeding risk. We know from all of our experience in the market with Xarelto that there are a lot of patients that are not treated or are undertreated because of fear of safety risk. And so we think there's extraordinary need for a highly efficacious and highly safe with low bleeding risk product in the market, both for atrial fibrillation and then we're very excited about the possibilities in secondary stroke as well. So we're looking forward to this product that we're developing in collaboration with Bristol Myers Squibb. It is absolutely one of our $5 billion plus assets on our list. Operator: Thanks, Alex. And thanks to everyone for your questions and your continued interest in our company. I will now turn the call over to Joaquin for some brief closing remarks. Joaquin Duato: Thank you to all of you for joining the call today. As we have commented in the call, we are starting the year from a position of strength. We have the strongest portfolio and pipeline in our history, and we have a leading and expanding position in our six key business areas of focus. 2026 will be a year of accelerated growth and expanded impact, and I look forward to sharing our progress with you in the remaining of the year. Thank you very much. And this finalizes the call. Operator: Thank you. This concludes today's Johnson & Johnson's fourth quarter 2025 earnings conference call. You may now disconnect.
Operator: Greetings, ladies and gentlemen. And welcome to the Truist Financial Corporation Fourth Quarter 2025 earnings conference call. Currently, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this event is being recorded. It is now my pleasure to introduce your host, Mr. Brad Milsaps. Brad Milsaps: Thank you, Betsy, and good morning, everyone. Welcome to Truist Fourth Quarter 2025 Earnings Call. With us today are our Chairman and CEO, William Rogers Jr., our CFO, Mike Maguire, our Chief Risk Officer, Brad Bender, as well as other members of Truist's senior management team. During this morning's call, they will discuss Truist fourth quarter and 2025 results, share their perspectives on current business conditions, and provide an updated outlook for 2026. The accompanying presentation as well as our earnings release and supplemental financial information are available on the Truist Investor Relations website, ir.truist.com. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on Slides two and three of the presentation regarding these statements and measures as well as the appendix for appropriate reconciliations to GAAP. With that, I'll turn it over to Bill. Good morning, and thank you for joining our call today. Before we discuss our fourth quarter and 2025 results, let's begin like we always do at Truist with purpose on Slide four. At Truist, our purpose to inspire and build better lives and communities remains at the heart of everything we do. William Rogers Jr.: It drives our strategy and fuels our commitment to our clients and the communities we serve. Despite market volatility early in 2025, we stayed focused on supporting our clients and executing our growth and profitability agenda. This discipline drove higher earnings, stronger client relationships, and attracted new business. A key to delivering on our purpose and performance is the investment in our business, markets, and teammates. Some of these significant investments include enhancing our tech and digital capabilities in areas like AI, improving the client experience, recruiting and developing talented teammates to advise and serve clients with more complex and industry-specific financial needs, announcing plans to open 100 new insight-driven branches in high-growth markets, as well as enhancements to more than 300 branch locations in all markets. These investments underscore our commitment to the communities we serve and position us to deliver more personalized advice and create opportunities for outsized growth. As we enter 2026, our purpose continues to guide our focus on growth, profitability, and deeper client relationships. We're expanding our presence and delivering more differentiated advice-driven experiences. I look forward to sharing more of these priorities during today's call. Let's turn to slide five. We closed 2025 with strong results and clear momentum heading into 2026. We delivered net income available to common shareholders of $1.3 billion or $1 per diluted share for the fourth quarter and $5 billion or $3.82 per diluted share for the full year 2025. These results include certain charges such as severance and an accrual related to a specific legal matter that was settled in 2026, which totaled $0.12 a share for the quarter and $0.18 per share for the year. At the start of last year, we outlined five strategic priorities aimed at accelerating our performance and improving our profitability in 2025 and beyond. While there's more to accomplish, I'm proud of the progress we made as a company in 2025 and excited about the momentum we have entering this year. First, we continue to generate strong broad-based loan growth in both wholesale banking and consumer and small business banking driven by new loan production and increased client acquisition. Second, strong loan growth, better second-half results in investment banking, trading, and wealth, along with continued expense discipline, drove 100 basis points of positive adjusted operating leverage in 2025. Third, we made significant investments across our business in talent and technology, laying the foundation for future growth, which we expect to accelerate in 2026. Fourth, we maintain strong asset quality metrics as net charge-offs declined versus 2024, and nonperforming loans remain relatively stable. Finally, we returned $5.2 billion of capital to shareholders through our common stock dividend and the repurchase of $2.5 billion of our common stock. Our total capital return in 2025 reflects a 37% increase over 2024. Looking ahead, our strategic priorities remain unchanged, and our focus is clear: accelerate revenue growth, drive greater positive operating leverage, continue to invest while maintaining our expense and risk discipline, and return capital to shareholders at an accelerated rate. Executing on these strategic priorities is central to improving profitability and achieving our long-term goals, including our commitment to deliver a 15% return on tangible common equity in 2027. So in summary, we closed 2025 on a strong note and entered 2026 with significant momentum and confidence in our ability to deliver revenue growth at least twice the pace of 2025, greater positive operating leverage, higher levels of capital return, and improved profitability. Before I hand the call over to Mike to discuss our quarterly results, I want to spend some time discussing the positive momentum we're seeing within our business segments with our digital strategy on slides six and seven. First, let me start with consumer and small business banking. CSBB delivered consistent strong performance throughout 2025. As shown on the slide, we generated 5% growth in average consumer and small business loans and 1% growth in average deposits. This momentum was fueled by our market-leading consumer lending businesses, another year of net new checking account growth, and deeper relationships with our premier banking clients. Loan growth was broad-based across the portfolio with especially strong contributions from indirect auto and our specialty niche lending platforms Sheffield, Service Finance, and LightStream. These businesses continue to produce market-leading growth with attractive risk-adjusted returns. As part of advancing our consumer lending strategy, we've fully integrated our digital end-to-end lending platform, LightStream, into our Truist mobile app experience and our branch banking account opening experience. This expanded scale is improving efficiency, broadening distribution, accelerating growth, and meaningfully enhancing the client lending experience. Beyond our national consumer lending platforms, Premier Banking also delivered strong results. With 2025 production up 22% in deposits, 32% in lending, and 12% in financial plans. This performance was driven by higher adviser productivity and strong branded mortgage and branch-led lending. We continue to see strong outcomes from our strategic investments in digital, delivering year-over-year growth across all core metrics. In 2025, we added 77,000 digital new-to-bank clients, up 10% from the prior year quarter, capping a solid full-year performance with digital production up 9%. We also took meaningful steps to deepen self-service adoption, expanding capabilities within our AI-powered Truist Assist mobile experience. The launch of Ask Truist Assist universal search capability now delivers client quick intuitive access from any screen. This drove a 97% increase in digital chat engagement in 2025 and is helping us improve efficiency and strengthen client connectivity as more activity naturally shifts to digital. Let's turn to wholesale on page seven. In wholesale, we delivered a strong finish to 2025 driven by meaningful improvement in the second half of the year in both loan and deposit growth, investment banking and trading revenue, and continued progress in strategic focus areas, such as payment and wealth. We onboarded twice as many new corporate and commercial clients versus last year, spanning a diverse range of industries and markets. Building on these new client relationships and our focus on deepening existing ones, we saw our loan and deposit momentum strengthen as the year progressed. Average wholesale loans increased 3% in '25 with momentum accelerating in the second half. Fourth quarter average loans were up 8% compared to the fourth quarter of 2024, fueled by new client acquisition and supported by focused talent investments as our strategy continues to gain traction. End-of-period wholesale deposit balances rose 6% linked quarter. While seasonal public funds contributed to this growth, we saw growth from all of our industry banking teams and geographies. Full-year investment banking and trading income declined 6% versus 2024, due to first-half market volatility. However, activity rebounded strongly in the second half with fourth quarter revenues up 28% versus '24 driven by increased M&A, trading, equity, and debt capital markets activity. In wealth, net asset flows remained positive supported by an 8.5% increase in new clients last year, with almost 30% being generated by CSPB. Wholesale payment fees, which include merchant services, commercial card, and treasury management fees rose 8% in 2025. Treasury management fees, a key strategic focus, grew 13% on the strength of new client acquisition and deeper relationships within our existing base. Importantly, our payments pipeline is up significantly year over year, positioning us for continued growth in 2026. So now let me turn over to Mike to discuss the financial results in a little more detail. Mike Maguire: Thank you, Bill, and good morning, everyone. Before I start with our performance highlights on slide eight, I do want to briefly mention certain changes to the presentation of our earnings materials today and on a go-forward basis. On January 12, we filed an 8-K detailing changes to the presentation of certain noninterest income and noninterest expense items. Effective December 31, 2025, we changed the reporting line labeled card and payment fees to a new reporting line called card and treasury management fees. This line includes debit card, retail card, and commercial card fees, merchant discount fees, and treasury management fees. Previously, treasury management fees were included in the service charges on deposits line, which we renamed other deposit revenue. Other deposit revenue includes NSF and overdraft fees and other service charges. We believe these changes more accurately reflect how we're managing our business and will give investors more insights into how we're progressing with important fee income-generating initiatives. In terms of expenses, we will no longer disclose adjusted expense in our earnings materials. Instead, we will provide context on material items impacting results. For today's discussion, I'll provide you with adjusted expense for comparison purposes. But going forward, our expense commentary and guidance will be based on GAAP expense. As a result of this change, we moved restructuring charges, which typically included expenses related to severance and facility charges, back to their respective reporting lines such as personnel and occupancy expense. Okay. With that said, I'll now turn to the full year 2025 and fourth quarter results, which start on slide eight. We reported 2025 GAAP net income available to common shareholders of $5 billion or $3.82 per diluted share and fourth quarter 2025 net income available to common shareholders of $1.3 billion or $1 per diluted share. Our fourth quarter 2025 results included a charge of $130 million or $0.08 per share after tax due to an incremental accrual related to Truist executing a settlement agreement on 01/20/2026 in the matter of Bickerstaff versus SunTrust Bank. In addition, our fourth quarter results included $0.04 per share of charges primarily related to severance. Revenue increased 1.1% linked quarter, due to 1.9% growth in net interest income partially offset by a modest decrease in noninterest income. GAAP noninterest expense increased 5.2% linked quarter primarily due to the legal accrual and higher personnel expense. Excluding the legal accrual and severance, noninterest expense declined approximately 0.3% on a linked quarter basis. Net charge-offs increased nine basis points on a linked quarter basis, reflecting normal seasonality in our consumer portfolio. Nonperforming loans remained relatively stable on a linked quarter basis. Our CET1 capital ratio declined 20 basis points to 10.8% and our CET1 ratio, including AOCI, increased 10 basis points linked quarter to 9.5%. During the quarter, we repurchased $750 million of common stock and announced a new share repurchase authorization of up to $10 billion with no expiration date. Next, I'll cover loans and leases on slide nine. Average loans held for investment increased $4.3 billion or 1.3% on a linked quarter basis to $325 billion due to growth in both commercial and consumer loans. For the full year, average loans held for investment increased 3.6% to $316 billion due to 5.4% growth in average consumer and card loans, and 2.4% growth in average commercial loans. Based on our current pipeline and economic outlook, we expect 3% to 4% average loan growth in 2026. However, average loan growth in 2026 will primarily be driven by growth in commercial loans and other consumer loans with relatively slower growth in residential mortgage and indirect auto compared with 2025. Other consumer loans, which include our specialty lending businesses, Sheffield, Service Finance, and LightStream, are expected to grow at a similar pace as these businesses continue to offer attractive risk-adjusted returns. Moving to deposit trends on slide 10. Driving client deposit growth is a key priority for Truist, and we are seeing improved momentum with clients in both consumer and wholesale. Average deposits were relatively stable on a linked quarter basis, as a decline in higher-cost broker deposits was offset by growth in lower-cost client deposits. This improving mix, along with recent reductions in the federal funds rate, resulted in a 27 basis point decline in average interest-bearing deposit costs to 2.23% and a 20 basis point reduction in our total cost of deposits to 1.64%. As shown in the chart on the bottom right-hand of the slide, our cumulative interest-bearing deposit beta improved from 38% to 45% and our total deposit beta improved from 24% to 30% on a linked quarter basis. These improvements reflect stronger client deposit growth and disciplined efforts to reduce rate pay. Moving now to net interest income and net interest margin on slide 11. Taxable equivalent net interest income increased 1.9% linked quarter or $69 million primarily due to loan and client deposit growth and fixed-rate asset repricing. Our net interest margin increased six basis points linked quarter to 3.07%. For full year 2026, we expect net interest income to increase by 3% to 4%. This outlook is based on 3% to 4% average loan growth, which implies low single-digit end-of-period loan growth. We also expect low single-digit end-of-period deposit growth. Average earning assets will grow at a slower rate in '26 than average loans as average investment securities and other earning assets are expected to decline by 4% to 5% on an annual basis. Lastly, we expect two twenty-five basis point reductions in the fed funds rate, one in April and one in July, and we will continue to benefit from fixed-rate asset repricing. Although we expect modest net interest margin compression in the first quarter, we anticipate full year 2026 average net interest margin will exceed the 2025 average of 3.03% due to the benefits of fixed-rate asset repricing and improved earning asset mix and lower deposit costs. As you can see on the right-hand side of the slide, we've also updated our fixed-rate asset repricing outlook and our swap disclosure. Turning now to noninterest income on slide 12. Noninterest income decreased $12 million or 0.8% versus 2025 reflecting modest declines across several fee income categories, partially offset by higher investment banking and trading income. Investment banking and trading increased $12 million or 3.7% linked quarter to $335 million reflecting stronger M&A-related fees, partially offset by lower trading activity. Our new reporting line for card and treasury management fees was down slightly linked quarter due to seasonality, but grew 3.7% year over year as double-digit growth in treasury management fees was partially offset by lower merchant and corporate credit card fees. Next, I'll cover noninterest expense on slide 13. On a linked quarter basis, noninterest expense increased 5.2% driven by higher other expense related to the legal accrual previously mentioned, and higher personnel expenses due to increased incentives and severance. These increases were partially offset by lower regulatory costs due to an FDIC special assessment credit. Excluding the impact of the legal accrual and severance costs, noninterest expense declined by 0.3% linked quarter. Adjusted noninterest expense increased 1% in 2025, reflecting our commitment to expense discipline and to driving positive operating leverage during the year. Moving to asset quality on slide 14. Our asset quality metrics remain strong on both a linked and like quarter basis, reflecting our strong credit risk culture and proactive approach to quickly resolving problem loans. Nonperforming loans held for investment remained stable at 48 basis points of total loans, while the ALLL declined one point to 1.53% of total loans. Net charge-offs increased nine basis points linked quarter to 57 basis points and were down two basis points versus 2024. The linked quarter increase in net charge-offs reflects higher C&I seasonally higher consumer losses, partially offset by lower CRE losses. For the full year 2025, net charge-offs declined five basis points to 54 basis points. And now I'll turn to guidance for 2026 on Slide 15. For full year 2026, we expect revenue to increase 4% to 5% relative to 2025 revenue of $20.5 billion driven by 3% to 4% growth in net interest income and mid to high single-digit growth in noninterest income. We expect full year 2026 GAAP noninterest expense to increase by 1.25% to 2.25% in '26 versus GAAP '25 noninterest expense of $12.1 billion. Our '26 GAAP revenue and expense outlook implies positive operating leverage of 275 basis points in 2026. As I mentioned earlier, our noninterest expense guide will be based on GAAP noninterest expense. As we will no longer provide guidance on adjusted noninterest expense going forward. For comparison purposes, 2026 noninterest expense growth would be approximately 2.35% to 3.35% and operating leverage would be approximately 165 basis points if you were to exclude the impact of the fourth quarter 2025 legal accrual that I discussed earlier in the call. In terms of asset quality, we expect net charge-offs of about 55 basis points in 2026, which is relatively stable compared with net charge-offs of 54 basis points in 2025. Finally, we expect our effective tax rate to approximate 16.5% or 18.5% on a taxable equivalent basis in '26, versus 16.4% to 18.9% in 2025. As it relates to buybacks, we're targeting approximately $4 billion in share repurchases during the year. Looking into 2026, we expect revenue to decrease approximately 2% to 3% relative to fourth quarter revenue of $5.3 billion. We expect net interest income to decrease approximately 2% to 3% in the first quarter primarily driven by two fewer days in the first quarter relative to the fourth quarter and a seasonal decline in public funds deposit. We expect noninterest income to decline 2% to 3% linked quarter, due to lower other income. GAAP noninterest expense of $3.2 billion in the fourth quarter is expected to decrease by 4% to 5% linked quarter due to lower other expense and personnel costs, partially offset by higher regulatory costs. If you were to exclude the impact of the fourth quarter 2025 legal accrual, noninterest expense would be flat to down 1% linked quarter. Finally, we're targeting $1 billion of share repurchases in 2026. So with that, I'll hand it back to Bill for some final remarks. Great. Thanks, Mike. William Rogers Jr.: As we close, I want to emphasize the confidence I have in Truist's direction. We're seeing tangible results across key businesses with strong momentum, client engagement, and revenue growth. As shown on slide 16, our goal of achieving a 15% ROTCE in 2027 is locked in and reflects our confidence in Truist's long-term earnings power and strategic direction. We see and have invested in multiple paths to stronger revenue and profitability, and with disciplined execution, we expect meaningful improvement over the next two years. Much of this progress will come from deepening client relationships in consumer and wholesale, especially in wealth, payments, premier banking, investment banking and trading, small business, and corporate and commercial banking where momentum is already strong. This is highly accretive to our ROTCE commitment. Our expectation is that our revenue growth will double in 2026 and when combined with our expense discipline, should lead to even greater operating leverage and profitability improvement this year. Like 2025, we enter 2026 in a strong capital position enabling us to support client growth and accelerate capital return through increased share repurchases. As Mike mentioned, we're targeting $4 billion of share repurchase this year, which represents a 60% increase versus last year. In summary, I am confident in our future. I'm encouraged by the results and momentum we're seeing across our company and remain focused on executing with discipline, delivering for our clients, and creating value for our shareholders. Thank you to our teammates for their incredible focus, productivity, and purpose-driven commitment to moving Truist forward. As always, we appreciate your continued interest and support. And we look forward to updating you on our progress in the quarters ahead. With that, Brad, let me turn it back over to you. Brad Milsaps: Thank you, Bill. Betsy, at this time, will you please explain how our listeners can participate in the Q&A session? As you do that, I'd like to ask the participants to please limit yourself to one primary question and one follow-up in order to accommodate as many of you as possible today. Operator: We will now begin the questions and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed, and you would like to withdraw your question, please press star then 2. We ask that you limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question today comes from Ryan Nash with Goldman Sachs. Please go ahead. Ryan Nash: Good morning, Bill. Good morning, Mike. Morning. William Rogers Jr.: Morning. Ryan Nash: Bill, can you maybe talk a little bit more about loan growth where you ended the year at up eight year over year and you're guiding to three to four. It seems like if you think about the exit run rate, you're already running at about 3% average growth. So it implies, you know, as you said, low single-digit growth. So maybe just unpack the loan growth a little bit further between commercial and consumer, you know, and how are you thinking about growth across each of those areas? Thank you. William Rogers Jr.: Yeah. Thanks, Ryan. Great to hear from you. You know, as you noted, we're entering with some good momentum. And if you think about the mix, so we sort of talk about how I think this year will pan out. C&I had its strongest quarter. I mean, production was up really, really significantly. And just high-quality business. I mean, high-quality, advice-driven business, tied with treasury management, 62% plus had some type of treasury management products. So really, really good momentum on the C&I side. I think overall, we're really sort of focused on places where we have great client demand, clients still healthy, we're going to rebalance a bit, focus on higher client value and optimizing our return and our mix. And so I think the result of that's going to be a little more wholesale. The consumer businesses like Sheffield and LightStream and service finance continue to see great opportunities there. Probably in areas like indirect auto and some of those, probably a little less. In terms of exposure, margins being a little bit tighter. You know, a little bit lower client value. So I think think about it in two ways. One, continuing the momentum and things that have high client value, long-term return characteristics. And optimizing that return and mix over time. All of that, though, contributing to three to 4% I would consider sort of, like, really, really high-quality consistent growth. And, again, building on momentum that we already have. Ryan Nash: Got it. And, if I can ask a follow-up, Mike, on the net interest margin, I think you noted it would exceed last year's 3.03%. Now given that you're currently at 3.07, can you maybe unpack what is included within the margin for deposit pricing? And do you expect the NIM to expand from current levels, and what is the cadence behind that? Thank you. Mike Maguire: Yeah. Sure. Good morning, Ryan. Yeah. So it was nice to see the uptick obviously in the fourth quarter, which was largely driven by some of the seasonal deposit mix and the benefit of the cuts. You know, that'll go the other way on seasonality in the first quarter. So while we sort of enter the year at 3.07, we would expect to back up just a touch throughout the course of the rest of the year, we would expect to see margin expansion, especially in the second half where we see the benefit of the cuts. You asked around deposit pricing. Our expectation coming into the year is we'll grind a touch higher on the betas in the first quarter. We would expect to be in the kind of low fifties neighborhood by year-end. So, you know, you've got the lower cost of deposits. You've also got the fixed asset. The fixed-rate asset repricing engine happening in the background as well. And I think those are factors that are going to really help us make really, I think, significant progress on the margin relative. I know previously, we've talked about sort of a three-teens level in '27. We're going to make significant progress towards that level in '26. And, frankly, see ourselves exiting '26 in kind of that three-teens area, which I think is a really nice setup for 2027. Ryan Nash: Thank you. Appreciate all the color. Operator: The next question comes from John Pancari with Evercore. Please go ahead. John Pancari: Morning. Morning. Good morning. On your 2027 ROTCE target of 15%, I appreciate you reiterated your confidence and the attainability there. And could you possibly help kind of unpack the components that give you that confidence? You mentioned the three-teens in NIM, and you might be able to hit that by the end of '26. Just curious on maybe your efficiency expectations underneath that. Balance sheet growth, how we could think about the pace there as you approach that in 2027 and then also I think common equity tier one, you've alluded to the 10%. But how are you thinking about capital underneath that 15% ROTCE? Thanks. William Rogers Jr.: Yeah. Sure, John. So think about it maybe in its simplest term is the concept of holding the denominator of capital and dollars steady. And then improving momentum and return from the numerator. So think about that as sort of the basic mantra that we're operating from. I'll also say that this is going to be, we see this as more of a straight line. So in addition to 15, we're locked in on 14 for this year. So we don't this isn't going to be an all-at-the-end parabolic curve. This is going to be a straight line continued improvement. So again, think about that denominator in dollars holding steady. And then the part on the numerator that really is accretive and not necessarily in order, but I'll go down a few of these. Payments is really significant. So think about the growth in payments. We're seeing a 13% kind of growth. We expect that growth to continue in the double-digit kind of basis. So that's really accretive to not only deposits but also to NIM and that's sort of the overall ROA. Our middle market expansion, we two x the number of clients we're seeing in that business. So we see that as really, really positive to that growth. Premier, and our wealth production, net asset flows of wealth really positive. Premier, I talked about the deposit production and loan production, those 20 plus percent kind of activity. And then think about all the things that are deepening client relationships, and all of those categories. Those are things that are really most accretive because if you think about we've already committed talent. We've already committed capital to those businesses, and what we're doing is increasing the return against that. Mike mentioned fixed asset repricing is a component of it. There's all sorts of RWA maximization efforts to ensure that we're running our RWA engine really, really effectively. We talked about the improving operating leverage, so that's also a component of that as we'll run this revenue increase off a more efficient platform. And then your point on CT1, we're building this model on a 10% CT1. I think that's probably sort of the right ZIP code. And then looking, you know, this year to $4 billion in buybacks to accelerate all that. So again, my high degree of confidence is everything I mentioned in there has got momentum against it. Initiatives against it. We're starting nothing flat-footed, everything on our toes. Which is why I sort of say locked in for 15%. John Pancari: Got it. All that's helpful, Bill. And then staying along the same lines, I mean, no good deed goes unpunished. So you set out that 14. You gave us the fifteen. Last quarter on 2027, getting, you know, a lot of interest now on where you could ultimately go longer term. Your peers are flagging the mid to upper teens in terms of ROTC over time. Can you possibly talk about that, help us frame is Truist positioned to operate in that range? And is that a reasonable range, and how do you think about that time? William Rogers Jr.: Yeah. You know, John, our business model, we sort of look at our business model, look at our level of capital, and, you know, past 2027, I just don't want to speculate as to what all those things might be. We might be in a different capital position. The business model resulting from the momentum that we're generating, quite frankly, the economic environment that we might or might not be operating at, at that particular time. And if you think about, like, for now, the ascension to 15% so think about we start at 13, going to 15% plus our dividend. I think that's a really attractive path to that level. And as we get to the 15 and as we evaluate all the things I've talked about, then we'll look and see where we are at that particular juncture. Right? I think it's sort of premature to sort of lay something out there that isn't as, quote, quote, locked in as we think we are on the fifteenth. We want to have confidence when we say a number. We don't want to sort of throw caution to the wind. We want to really be focused just like we are today. John Pancari: Okay. Great. Thanks, Bill. Operator: The next question comes from Scott Siefers with Piper Sandler. Please go ahead. Scott Siefers: Let's see. I think you've touched or at least alluded to briefly a couple of times. But just on the capital markets, I think there's plenty of optimism about the industry's potential this year. That's, of course, an area where you all have invested really, really heavily. Maybe you could just sort of expand on your thoughts about momentum and potential there for the coming year. William Rogers Jr.: Yeah. Scott, I think as you pointed out, I mean, this is a business we've been investing in for decades. And I think we're in a really good position. We have really good momentum coming out of the second half of the year. And quite frankly, on a lot of cylinders. So debt capital markets, leverage finance, M&A, all of our derivatives, FX, all of those things are hitting on really good cylinders. And we come into it with a good pipeline. So we come into it with a good pipeline and not only the pipeline from the investment banking, but really the pipeline that's generated from our middle market and commercial client base. I mean, probably what I'm most excited about is this organic activity that we're building. We put talent on the field that really knows how to leverage all of our industry specialties, understands how to leverage our product and capabilities, and position those and great advice for our clients, with the appropriate teamwork that goes on and the technology that we built to support all that. So the part of the double revenue story for us is we think we continue with a low double-figure kind of compound growth in this business. I mean, I have every reason to be confident. It's organically built. We've hired some really good talent. You'll continue to see that, some really good talent. We've developed talent over a long time. We've got some senior leaders who've been in our business for quite a while. So this is a business I feel really confident in. I think we have a full capability and long-term continued high growth potential. Scott Siefers: Terrific. Thank you. Thank you, Bill. And then, Mike, so, you know, on capital management, you have really robust repurchase plans and capacity. I guess, I think about sort of calls on capital or uses of capital, you know, the loan growth outlook seems very prudent. You got some things accelerating while you sort of dial back others. So I would guess the overall repurchase plan is a very sturdy one. But just as you think about the coming year, any factors that would cause you to toggle down or up that pace of repurchase to get to the sort of net $4 billion? Mike Maguire: Yeah. No. Good morning, Scott. You know, the way we're thinking about this is we believe that that 10% operating target or level is appropriate. We've sort of laid out a trajectory that gets us there by the '27. And so there are going to be moving parts as we go. You know, if loans or the balance sheet grows a little faster, one quarter versus another, make a little more or a little less money. One quarter versus another. And, of course, just the overall, I guess, economic backdrop, you wouldn't want to dismiss. But, you know, in a stable operating environment, we're going to trend to that 10% over the next eight quarters. So if you look at the math, you know, that gets you to about a billion a quarter this year, you know, frankly, perhaps maybe a touch higher. And so that's really how we're thinking about is kind of retrending to 10 during that period. Scott Siefers: Gotcha. Okay. Perfect. Thank you guys very much. Operator: The next question comes from Ebrahim Poonawala with Bank of America. Please go ahead. Ebrahim Poonawala: Hey. Good morning. Good morning. Morning. Two questions. One, I think just on deposits. Talk about like, do you expect both as you move towards this wholesale mix on the lending side, what does that mean for deposits? And deposit growth as we look forward, both in terms of the mix? So when we think about DDA noninterest bearing balances and just the pace of overall deposit growth, do you think that kind of shifts for growth, and how strong could it be? Thanks. William Rogers Jr.: Yeah. You know, Ebrahim, you and I talked about this. You know, if you think about where we were a year ago with loans, could we build the momentum and sort of the asset-generating part of our franchise? And you see us deliver on that. And then we pull that into this year. We pull that in the momentum, and we optimize that. I agree with the exact same place on deposits. I mean, we're sort of same place. We're building that momentum. We're building that consistency. You know, it's part of, you know, core to what we do. And then I look at the leading indicators on deposits sort of think about, okay. What should give us confidence that we have deposit growth? First, I think there's the, you know, for the industry, it's a little bit of a natural tailwind with QE and lower rates. So just sort of put that on one side. But then, you know, idiosyncratic and specific to us, you know, think about the momentum. We saw wholesale deposits grow 400 basis points faster in the latter part of 2025 versus 24. I mentioned earlier, you know, 62% of our new clients came with deposits, and we've had two times the number of clients. So we have a lot more clients, a lot more clients with treasury management products and some of those are still funding. So they're in the, you know, they're in the funding base. So, you know, deeper penetration and the middle market base. We still have some loan-only clients that we're penetrating in that base. So in addition to the new, we look at the back book. End-of-period client deposits, you know, we're up almost $7.5 billion. The other leading indicator is that treasury management fees up 13%. Then you go to the consumer side, and we look at sort of the leading indicators there. And the first is net new. You know? So we're adding net new clients, and the quality of those clients increased year over year. So the amount of deposits that they're bringing to us increases year over year. The focus on Premier I talked about the deposit production being up significantly in Premier. The amount of off-us deposits from our Premier client base is actually quite significant. So their capacity to use great tools to approach those clients has been really significant. Technology, digital, account opening our branches, branch expansion, more marketing, related to deposit generation, deposit generation in expansion markets for us like Texas and Pennsylvania. So just my net summary is have really good momentum, in the deposit side. It might sort of outline the deposit and loan correlation for this year. So we feel good about deposit growth. We feel good about that opportunity. Headed into this year. Ebrahim Poonawala: That's good color, Bill. Thank you. And I guess maybe just a separate question. Around the whole wholesale strategy. On paper, half a trillion-dollar balance sheet, you've been in the investment banking for a long time. Truist should be winning in terms of and we think about fee revenue growth, financing. Just give us a sense. One, do some of the changes by the OCC around leveraged lending does that create a slightly better opportunity to compete in terms of risk-adjusted returns? And, remind us where you think the sweet spot for Truist is on the wholesale slash capital market side? Is it against the Wall Street banks? Is it against middle market investment banks? Would love some color there. Thank you. William Rogers Jr.: Yeah. Let me try to unpack that question. So on the leveraged lending specifically, remember that's been a core competency for us for a long time. So I don't see the guidance significantly changing our approach. Maybe there's something around the edge or that not, but we've been good in that business for a long time. And as you know, it's a really strong driver of our investment banking business as well. So I think sort of steady-ish she goes continue on that front. And in terms of our competitive position, the answer is to both. It really relies on a couple of things. I mean, I think what we want to be is sort of a couple of things. One is the premier middle market investment bank. So think about that as sort of like the high bar in terms of standard. And then really focused on places where we have specialization and a really strong right to win. So think about those combinations. So core middle market, leveraging our franchise. I mentioned earlier, I've been really excited about the teamwork that the team that we have on the field, the training we put in place, the partnerships we have, the new talent we have that really know how to leverage the tools and capabilities for our core commercial and middle market clients. And then anywhere on a specialty business, we have the right to win against anybody along that spectrum. Hope that clarifies it. Ebrahim Poonawala: That's good color. Thanks, Bill. Operator: The next question comes from Ken Usdin with Autonomous Research. Please go ahead. Ken Usdin: Hey. Thanks. Good morning. Mike, just coming back to a prior comment you made, Bill had mentioned getting to the three-teens NIM by year-end '26. And you had mentioned kind of remixing average earning assets with loans growing in some of the other categories. Coming down as an offset. So just wondering how you expect average earning assets to traject off of the mid-480s exit. And also, like, where is your landing spot in terms of securities and cash as a percentage of total assets as you do that remixing? Thanks. Mike Maguire: Yeah. Sure, Ken. If you think back to '25, you'll remember throughout the course of the year, we brought the securities portfolio down really in the second half of the year from, I think, maybe the $125 billion ballpark down to the $117 billion, $118 billion. And so we would actually, I think, expect that to be relatively consistent in '26 at that $117 billion, $118 billion level. And so if you just do that sort of math on the year-over-year average, you've got essentially the securities and a few of the other earning assets categories down at five to 6%. So you couple that with the loan growth in the three to 4% area, get to maybe, I don't know, ballpark, half that growth rate for earning assets. Now the good news is at half the earning asset growth rate of loans, coupled with net interest margin expansion, that's what sort of gets you to the three to 4% outlook on NII for the year. In terms of mix, I think relatively stable again is kind of how we exit '25. So, you know, we think about the securities and cash combined and the $140 to $150 billion area. And so I think you'll see us there. That helps us sort of more than satisfy our sort of lab and ILST requirements. And we think it's sort of the right sort of place on the efficient frontier from an earnings perspective as well. Ken Usdin: Okay. Got it. And then just on that updated slide you gave us on the fixed-rate repricing and the swaps book, you still obviously have a lot of forward-starting swaps relative to the size of the portfolio. Can you just help us understand like how that layers in and how much of a benefit will just the former drag be in terms of a year-over-year helper this year? On the swaps? Mike Maguire: Sure. Yeah. In terms of the active receivers, Q3, Q4 was actually flat. Around $50 billion and you see that sort of gradually phase in throughout the course of '26. So I think we go to, like, $57, $58 billion in the first quarter then to $80 and $100. I think we end the fourth quarter a little over $100 billion. So you do have a much more significant proportion of the swaps effective. Now at the same time, you know, at least based on forwards, you've got the policy rate lower at almost sort of a similar rate. So what you start the year with less notional active out of the money you end the year with more notional active and even slightly in the money. So answer your question on, like, what's the impact year over year is it's a helper. You know, of my head, maybe it's a $100 million. But, obviously, that's just one component of the balance sheet. And so you're thinking about with the policy rate lower, you know, 50 basis points at least as we see it. You know, you've also got, you know, the floaters, the cash loans, etcetera, going the other way. So all that gets taken into consideration in our outlook and how we're positioned. Ken Usdin: Yeah. Okay. Thanks, Mike. Operator: The next question comes from Mike Mayo with Wells Fargo. Please go ahead. Mike Mayo: Hi. Lot of talk about NIMs and returns. And I was more focused on growth. And I know you're not satisfied with the growth and that you expect growth to be 2x in 2026 and 2025. So directionally, I think you're moving where you want to be. So when you give your revenue guide of four to 5%, that seems kind of in line. Maybe below a couple peers. 2026, yet the population growth in your footprint is, what, two x? So I'm just wondering, and you're talking about the momentum you have in a lot of businesses for that growth. But do you need to increase your investments even more than you've you're already doing just to keep up with the bigger banks that are increasing their investments? And in the 100 new De Novo branches, why now? Where are they going to be? It's just a contrast versus in the prior five years of the merger when you're closing a lot of branches. William Rogers Jr.: Yeah. Mike, I think your basic question is, are we investing enough? Are we investing in the right places for growth? Let's sort of start with the concept of, as you pointed out, we're doubling revenue. So we are building momentum, building capacity to move forward. So the investments that we've made are reflected in that doubling of revenue. So let's sort of start as that premise is we are making investments that matter. The things that are significant, accretive market share, accretive growth. If you think about investment banking, treasury management, sort of in these low double-digit kind of categories, I mean, I think those are reflective of the fact that we're growing disproportionately and taking advantage of the opportunity that we have with our client base and with our markets. And then, when we unpack the expenses and unpack sort of where we're investing, it's a netting process. So remember, we're also continuing to create efficiencies in the company. So when we look at our overall expense level, that's a net number. We're creating efficiencies not only came out of the merger, really came out of the work that we did in the end of 2023 when we, as you duly noted, by the way, when we needed to really bend the expense curve, we've bent that significantly, but we're still harvesting some of those savings. And then we look at the risk infrastructure that we've built at our company, that's been a really significant part of the expense growth base over the last several years. While that can will continue to be high and appropriately so, the rate of increase will lower. So again, creating to redeploy in things that matter. And then you've seen the things that we're investing in. I mean, go down the list, investment banking talent, corporate banking, all the investment we're making in wholesale payments. I mean, we're rolling out literally new products and capabilities every month. You've seen the investments we're making in digital, the growth we've seen in digital marketing, premier banking, deposit growth, tech investments to create efficiency and effectiveness. And then on the branch side, this is a long-term game. So this isn't a quarter-by-quarter game. So, for the past six years, we've effectively not invested or added net new branches into our branch network. So as the population shifts in our markets, as our focus really clear on things like Premier, we're going to open these branches in places that have the highest return for our franchise long term. So think about expansion markets. Think about Texas in terms of examples. Think about market demographics that have changed in markets like South Florida and markets like Atlanta where we're continuing to invest. And then overall, in all of our markets, refurbishing. So I'm very confident that we're investing in the things that are delivering results. And I think you see that in the momentum we're building. Then we're putting a stake in the ground for continued momentum, doubling that revenue and creating this 15% return, which obviously has those characteristics attached to it. So I'm satisfied and excited about the opportunities. And then put on top of that AI, other efficiencies, and other opportunities, we're going to open up the aperture to continue to invest even more and with lots of clarity. We know the next place to invest, the next dollar to save, the next dollar to invest with a lot of clarity. Thanks, Mike. Mike Mayo: Yeah, sure. And just, you keep mentioning the 15%. It seems like you're really hyper-focused on the 15% return. Is that for the year 2027, or is that reaching 15% at some time in '27? Thanks. William Rogers Jr.: Thank you. Mike Maguire: For the year 2027. Mike Mayo: Yep. Okay. I guess that's not a final destination. When you announced the merger seven years ago, you were talking over 20%. So I imagine you'd want to go higher after that. William Rogers Jr.: Yeah. I mean, different business model in fairness. Right? When we announced the merger, we had different businesses at different return characteristics. So I think that, as I answered previously, I mean, that 15% is not the final destination. But the path from here to 15% is actually quite attractive from a shareholder perspective. I think as we get closer to that 15%, as we understand as I mentioned for economic environment, business model, where we see momentum, where we see a chance to put our foot on the accelerator, what we're seeing the return on the branch investment, just talking about that as an example. Then we'll start to hone in a little bit better about where that next stage of the destination is. I think I'm careful in saying final destination. I mean, I don't think there's a finish line. I mean, I think sort of constantly want to be improving and moving forward. The 15% was just to declare from here to there, and the slope is, I think, actually quite positive from a shareholder perspective. Mike Mayo: Alright. Thank you. Operator: The next question comes from Betsy Graseck with Morgan Stanley. Please go ahead. Betsy Graseck: Hi. Good morning. William Rogers Jr.: Morning. Betsy Graseck: Just continuing along those lines, the question I have is trying to understand how the efficiency ratio trajects as you manage through this process. Of driving up Rozzi and specifically also looking to understand the impact of the severance that we had this quarter, when that flows through into the P and L from a headcount perspective. And how do you see headcount trajecting and the efficiency ratio trajecting as you move towards the 15%? Thank you. Mike Maguire: Hey, Betsy, it's Mike. I'll get us started. So on the efficiency ratio, look, we do expect to see incremental improvement over the course of the next couple of years. I think that kind of mid-50s area is probably a reasonable expectation. That's lined up to improving. Bill sort of talked about the numerator and sort of more throughput, more sort of, I'll call it, capital-efficient revenue that's going to drive our ROA higher with sort of a similar level of capital over time. So it gets you to that kind of off that 1% ROA higher. And more in line with what's what it's going to take to get to that 15 level. In terms of severance, the charges we took in the fourth quarter would have been related to actions in the fourth quarter. You know, FTEs a little bit of noise in that, Betsy, because we've got contractor conversions happening. You know, we've got headcount coming in, coming out. So in fact, you might actually see headcount higher throughout the course of a year as we move from contractor to full-time employees. Now cost per FTE would go down. Assuming we do a good job executing that strategy. And we can, maybe throughout the course of this year, maybe give you a little bit more detail around how that's playing out. Betsy Graseck: Okay. Thank you. Operator: Ladies and gentlemen, in the interest of time, we ask that you limit yourself to one question. The next question comes from Matt O'Connor with Deutsche Bank. Please go ahead. Matt O'Connor: Good morning. A little bit of a follow-up on the last question here. Just as you think about the restructuring and severance costs, for '26, do you think there'll be anything meaningful? I think there's about $150 million this year. And I appreciate the guidance on a reported basis. Just trying to adjust for some of these items and see what the underlying operating leverage is. Thanks. Mike Maguire: Yeah. Got it, Matt. Look. I mean, first of all, appreciate the comment on sort of going to GAAP. You know, this is something that we've gotten some good feedback on from investors. And think it's going to be a more simple way to present our results. At the end of the day, the restructuring charges and sort of thinking about the originally, you recall sort of the MRCs, they've just become sort of less significant relative to our overall story. That doesn't mean they'll go away, we'll continue to have severance expense. We'll continue to have facilities-related charges and the like. But I do think that there is an expectation that they'll be lower over time. Difficult to necessarily forecast just given their nature. You know, we do have an expectation that they'll be lower in '26, modestly. And, again, it'll be sort of up to us to do a great job, you know, trying to create more opportunity there and beyond. So hopefully, that helps. Matt O'Connor: That's alright. Thank you. Operator: The next question comes from Gerard Cassidy with RBC. Please go ahead. Gerard Cassidy: Good morning, Bill. Good morning, Mike. William Rogers Jr.: Morning. Gerard Cassidy: Can you share with us, Bill and Mike as well, I guess, obviously, the outlook for yourselves and your peers this year looks really strong based upon the outlook for the economy, the yield curve, loan demands picking up across the board. And you have to look around corners, aside from the big geopolitical risk we all see. What are you guys keeping your eye on that could kind of surprise us later in the year? Because, again, the outlooks across the board look pretty darn good. William Rogers Jr.: Yeah. Mike, we can each talk about what keeps us up at night. In terms of looking around corners, I mean, Gerard, this is what we get paid for. We look around a lot of corners. We stress for a lot of things within the business environment. I think to your point of your question, you know, if you sort of said, you know, number one would be a more macro concerns and issues, you know, does the economy hold up? Are we able to deploy all our strategies and our initiatives against the backdrop of an expanding and growing economy. So I sort of start with that because on the micro side, you know, I feel really confident about the things that we're doing. You know? So in terms of looking around our own corners, you know, again, we'll stress for everything. We'll stress for credit. We'll stress for idiosyncratic things. We'll stress for geography, specialties, all that kind of stuff. So we're always going to be looking at it. But given the diversity of our franchise, you know, those aren't my number one concerns. They really are on the macro. Do we have the overall capacity to grow our business? And right now, the client sentiment's pretty good. And I would say in the macro, if you even break it down, my probably number one focus is employment. If I look at a number every day as, you know, is employment, the index of risk to financial services, I think we all learned in the financial crisis was related to employment. So that's what I stay really focused on. Will businesses still be confident to continue to hire if consumers are confident that they have a job or can get a job or have a job and a gig job, then that confidence will stay in and elevate it. So most of mine are macro. Mike, you might have Mike Maguire: Yeah. I mean, this might, you know, air a touch too tactical but, I mean, one thing that's on our mind here is, credit spreads are still at tights and so that's I think, sort of the longer that stays that way that you know, in some respects, is a risk that we're absorbing. You know? You know, we talked a little bit about just the competitive nature of things. Right? A fierce marketplace. And so we should all be up at night, you know, worrying about that. But I think you covered it well. Gerard Cassidy: Thank you. Operator: The next question comes from Saul Martinez with HSBC. Please go ahead. Saul Martinez: Hey. Good morning. Thanks for taking my question. I just have a real quick one follow-up. To Matt's question. Just to clarify Mike. The guidance implies $12, call it, $12.02 to $12.3 billion of expenses. That does have some level of restructuring expenses embedded in it. That are maybe slightly lower than this year. Is that right? Because, obviously, if it doesn't, it would imply something like three and a half to four and a half percent growth. Versus the adjusted number based on how you have been doing it. So I just wanted to clarify that. Mike Maguire: Yeah. No. That's right. The outlook so the one and a quarter to two and a quarter off the GAAP base includes, you know, what previously would have been outlined as restructuring charges or severance. Ex legal, that would be closer to, you know, two, three and three three. Year over year. Saul Martinez: Okay. Alright. So it does include a similar number. Than this year. Okay. Alright. I just wanted to make sure. Thank you. Mike Maguire: Yeah. Operator: Lower. Lower. Sorry. Mike Maguire: To clarify. Yeah. Understood. Understood. A little bit lower. Yeah. Operator: Understood. The last question today comes from Chris McGratty with KBW. Please go ahead. Chris McGratty: Oh, great. Good morning. Look at Slide six, looks like you grew net new checking accounts about 72,000 during the year. I guess two parts. Do you have that number for 2024? And then more broadly, you know, consumer and small business checking accounts were modestly negative year on year. I'm interested in kind of the impact of the branch openings in reversing this and when you might start to see a kind of a tangible progress in those trends? Thank you. William Rogers Jr.: Yeah. Chris, the net new 2024 was about 100 if I'm going to sort of go from memory, so, like, right in that zone. But as I mentioned earlier, the quality of the 70 plus this year is much higher. So higher average deposit in those. And what we're seeing also is our pull-through is really higher with that. So the quality is really, really strong. And the diversity of where it comes from, so it comes from the digital channels. I talked about the significant and the investment there and also the branch. And that leads to your next question as sort of the what are we going to see from the branch investment or employment? Keep in mind, we're just getting started. So like, that day will come. We'll talk more about that, but the capabilities that we have now in our branches, I think some of the models that we used to use, I think we can sort of bend some of those curves because our ability to open accounts digitally and branches do more in the branch than we could do before, I think, allows us to have a little more confidence and the return characteristics of those investments. But that's too early to tell right now. So we're building the models. We're getting started, great site selection, great markets, and we'll keep you updated on where we go there. But overall, net new is continues to be strong, and the quality is improving. Chris McGratty: Great. Thanks, Bill. Operator: This concludes our question and answer session. I would like to turn the conference back over for any closing remarks. Brad Milsaps: Okay. Thank you, Betsy. That completes our earnings call. If you have any additional questions, please feel free to reach out to the Investor Relations team. Thank you for your interest in Truist, and we hope you have a great day. Betsy, you're now free to disconnect the call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Bank OZK Fourth Quarter and Full Year 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, Jay Staley, Managing Director of Investor Relations and Corporate Development. Please go ahead. . Jay Staley: Good morning. I'm Jay Staley, Managing Director of Investor Relations and Corporate Development for Bank OZK. Thank you for joining our call this morning and participating in our question-and-answer session. . In today's Q&A session, we may make forward-looking statements about our expectations, estimates and outlook for the future. Please refer to our earnings release, management comments, financial supplement and other public filings for more information on the various factors and risks that may cause actual results or outcomes to vary from those projected in or implied by such forward-looking statements. Joining me on the call to take your questions are George Gleason, Chairman and CEO; Brannon Hamblen, President; Cindy Wolfe, Chief Operating Officer; Tim Hicks, Chief Financial Officer; and Jake Munn, President, Corporate and Institutional Banking. We'll now open up the lines for your questions. Let me now ask our operator, Shannon, to remind our listeners how to queue in for questions. Operator: [Operator Instructions] Our first question comes from the line of Stephen Scouten with Piper Sandler. Stephen Scouten: I wanted to start with one kind of around the loan sale in the quarter and kind of your outlook on credit, net charge-offs and such. And maybe wondering what could lead you all to potentially lean further into the potential loan sales like you had on that 1 credit this quarter? And kind of given the commentary and the management comments around 2027 loss trends and a belief that those will improve kind of what gives you confidence to that end? And in that kind of positive outlook as we get beyond the CRE cycle? George Gleason: Yes. Great question. Thank you, Stephen. I appreciate it. Brannon, do you want to talk about the loan sale first, and then I'll take the second part of his question. . Paschall Hamblen: Absolutely, Stephen. Good morning. Great to have you, great to have the question. Appreciate it. Yes. We would be happy to say that contrary to some speculation that was out there. We sold that loan at par. We collected all our outstanding principal, all our accrued interest on the note sale, but I would reiterate what we said in our comments, Stephen, that the note sale does not reflect any change in our strategy. We've sold our ESG loans from time to time in the past in this particular case, and I would say that our note sales historically have been sort of one-off unique cases. In this case, there was an overlap between the project that was -- that secured that loan in multiple situations where the sponsor there and its equity partners were no longer willing to or able to support those projects. And that would include the large land development in Lincoln Yards that we sold in the third quarter, the Lincoln Yards life science project that's classified of standard nonaccrual so it's a particular fact pattern. It doesn't happen often. It's not a change in strategy. It's just the normal course of business as those occur. George Gleason: All right. And Stephen, on the other question you asked, we've given guidance in our management comments that we expect our 2026 results to look a lot like our 2024 and 2025 results in various respects. We've also detailed in considerable length in the comments there, the challenging environment that our sponsors have been operating in for a number of years. And that should be no surprise to anyone because we've talked about it, particularly at length over the last 14 quarters as we have built that ACL up, and we've depicted that ACL build in a chart in figure 23 of our management comments. So there was a build based on the expectation that the longer this challenging cycle drag on for our sponsors, the more likely it would be that individual sponsors on some individual projects would run into trouble and either choose to no longer support their projects or become unable to support their projects. And we've seen that over the last couple of years. And I think we've managed that really well and the ACL build was a prudent preparation for the environment we're in. I think we're getting towards the later stages, really in the later stages of the CRE cycle. We're seeing a lot of green shoots out there on leasing and property sales, we're seeing a lot of refinances because of the surge in credit availability, liquidity that has really manifested itself in the sector in the last couple of quarters. And obviously, the 100 basis points of Fed fund rate reductions in late -- in the last 4 months of 2024 and the 75 basis points of additional Fed fund rate reductions in the last 4 months of last year are providing some relief to sponsors on the interest cost. So we're not all the way through the cycle, but we think 2026 is pretty near the end of working through that cycle. And we think we see a decided upturn in not just improvements in the conditions for our sponsors, but also new volume and so forth. There's been a real constraint on new origination volume in recent years, and a lot of that is just the lack of equity and the fact that the market needed to balance supply demand, we're seeing that come more and more into balance in various markets on various product types across the country. So we think our guidance is good, and we're very optimistic about 2027. We think 2026 is another year like 2025 where we're just working through the environment with our sponsors. Stephen Scouten: Got it. Very helpful context there. And then just one other one for me around fee income growth potential. I mean, I know that it's never really been a big part of the story or a demonstrable proportion of kind of income at OZK, but it sounds like there's a lot of tailwinds there with the investments that have been made in CIB. So I just kind of curious what that could look like, not only in 2026, but kind of beyond and if there -- if you feel like there's really longer-term tailwinds there on the fee income side of things and if that could be a multiyear kind of growth pattern. George Gleason: Stephen, we're early in the process. So we haven't talked about it a lot. But clearly, if you read our comments closely, not only do we want to continue to achieve this diversification in our earning assets, which is well in tow and clearly evident. But we also want to see longer term. And you won't see huge strides in this in the short term. But longer term, we want to see fee income become a much larger part of our revenue. So we're so early in it. We've not talked about it a lot. We've given some general hints about it. But perhaps Jake could comment on CIB and then I'll comment on a couple of other items. Jake, do you want to talk about the fee income pieces of what you're doing. Jake Munn: Yes, happy to, George. I appreciate it, Stephen. Good question there. As you all know, we've discussed on previous earnings calls, our loan syndication and Corporate Services business line within CIB was planted about 18 months ago and continues to build. Those services provide kind of shared services bank-wide, including our capital markets program. It includes our interest rate hedging program, our loan syndications desk, our permanent placement solutions and also include some foreign exchange capabilities and some additional capabilities in cities that George alluded to that we'll be rolling out here over the course of the next couple of quarters. All of that will continue to grow in line with CIB. CIB is their primary customer base for those shared services. But that being said, we're starting to see some nice penetration, for instance, with the interest rate hedging providing caps to our RESG customers, whether that be that or swaps that we're providing to some of our community bank customers. We are starting to see some nice growth and lift there through LSCS and some of those noninterest income initiatives that we're rolling out. George Gleason: And then -- thank you, Jake -- outside of CIB, obviously, we're into now or about to start our third year in the mortgage business. It was a very slow rollout. In year one, we gained traction in this last year, and we expect to continue to gain traction. So mortgage lending fee income by originating loans as many, many banks do, most banks for resell in the secondary market is a good source of fee income for us. And then we've really put an increased emphasis on growing our trust and wealth business, really venturing into the wealth sector more so than just the fiduciary trust business that has historically been what we've done, but we're growing both those parts of that business. And then we've also launched a private banking business. It's small. We're just really working with the first group of customers that we've carefully selected to help us work out all the bugs and make sure that we're delivering the quality of service and enhanced experience that those private banking customers need but that is a good opportunity for revenue. And of course, we're enhancing and working really hard to increase our treasury management services, which is a large lift because we really want to improve that because of the fact that a lot of our CIB customers have needs in that regard for specification and products that we've not had in the past that we did not need for our smaller commercial bank C&I customers. So we've spent a lot of money, hired a lot of people, built a lot of technology, acquired a lot of technology to launch all of these different lines of business. I think you'll see some incremental improvements in the noninterest income line in '26. As a result of that, I think you'll see the real impact of that in 2027 and subsequent year. Operator: Our next question comes from the line of Manan Gosalia with Morgan Stanley. Manan Gosalia: So I wanted to start on credit. You called out uncertainties, particularly in office and life sciences in the management comments. Can you give us some more color on what you're seeing there? I guess, especially on the life sciences side, how long do you think it will take for the life sciences market to rebound? What you're hearing from sponsors? How have those conversations changed? And if you could also remind us on the levels of protection that are built into some of the larger life sciences loans. George Gleason: Brannon, you want to comment on life science and office as well, if you would like to? Paschall Hamblen: Absolutely. Thanks for the question. And as we've said in the past, we've seen different results, different projects, different markets. We've got some that have had great success and others that have been slower. I think the segments obviously faced some strong headwinds, you've had all the different macroeconomic factors that we've experienced and very specifically cuts to funding from NIH and its impact on demand for space over the last couple of years, a lot less in sort of the venture capital raise space. But the good side of that coin is there hasn't been really any additional spec life science start across the country. There have been starts with pre-leasing in them. And we actually see that our originators see those out there. And we've got -- we see tenants expanding so it's a little bit of a dichotomy in some of those outcomes. But again, the good news is not additional supply being added to the challenge and you've got continued, albeit muted demand in some markets chewing into that. It's going to take time. You see a great impact from -- in certain markets, demand that's really stimulated capital investment in AI that's starting to push in to Life Science as you've got markets that have a dearth of traditional office space. And as we've said, life science provides a great alternative for those users. So you've got some winners, you've got some losers, but you've got absorption slowly moving forward. It's going to take some time. As George said, we've seen this coming for a while. We've appropriately managed our ACL in anticipation of that. And we, as we've said, enter these deals at low leverage and with strong sponsorship. And we're pleased to see a number of those sponsors continue to support those. You've seen some, obviously, that are no longer willing or able to support them. And we've been clear reporting on those. But it's going to take some time, the bottom line, with life science. And we're, again, pleased to see the support in the interim. Office has really been a positive story for us. Really pleased with the trends that we're seeing in some office markets in our portfolio, in particular, especially some projects that had more limited activity over the last 12, 18 months are starting to see benefit. Office leases are 5- to 7- to 10-year leases frequently, and it takes a while for the portfolio of leases in any market to roll. And then again, there's continued sort of incremental positive impact from return to office. And as these tenants begin to look around, making leasing decisions about where their new home is going to be, that flight to quality that we've talked so much about historically remains very apparent. We saw good lease connectivity on a number of our projects in various markets during the fourth quarter. And we're tracking a number of other leases that are nearing lease execution in the near term. So on the whole, really good quarter for office leasing in many of our projects in many markets and more to come based on what we're seeing. And beyond that, office is showing a great deal of liquidity. As I reviewed the last 12 months, I realized that in terms of projects paying off, office was second behind multifamily. And I think that's true of the last six months as well. So we've continued to see good liquidity in the market, in particular on the credit side that is supporting refinance activity. So not just from a leasing perspective, but from a capital investment perspective, we've seen good results on the office side. George Gleason: And to put an emphasis on Brannon's point about the liquidity returning to the office space, I think we had four office projects refinance in the last quarter. One of our mixed-use projects that refinanced out had a significant office component within it. Some of the office projects we've seen refinance in the last year, a lot of them, in fact, have had no leasing. The liquidity is there, and people recognize the value in these high-quality buildings. The fact that the supply-demand metrics are normalizing and these things that have been slow to lease are getting to the point that leases are very likely to be in the near term. That's providing some support for the space and a lot of liquidity and new investment in refinancing product that is out there. And similarly, in some markets around the country, you're beginning to not have the office available in the market that's built that meets the needs of some of the sponsors. And that really is providing an opportunity for life science projects to fill with space that's office-use space or another alternative-use space. And Brannon mentioned, particularly in the San Francisco Silicon Valley area, AI is driving a lot of demand for that space and creating guys that are kicking the tires and walking and looking at some of the projects we've got in the life science space there for AI usage. So the environment is getting more constructive in a noticeable way. Manan Gosalia: Got it. . So your conversations with the sponsors there on the life sciences side kind of indicate that they're in for the long haul. They're willing to support the properties for more time. And any thoughts on, I guess, the protections that are built into some of the larger life sciences loans that you have out there? George Gleason: Well, we are dependent upon sponsor support to your point. I think the mood and the attitude is generally every sponsor is different. Every project is different. The mood and the attitude is somewhat improved. Our guys had a meeting with our largest life science loan, our largest loan, the leadership team, the management team on that. That group came to Dallas to just give us an update and a report on where they were. I was not part of that meeting, but my understanding that was a very constructive, very positive meeting with plans and commitments in place to really push that project on to a higher level of leasing and activity. So we're cautiously optimistic. Will every life science project get to the finish line and have a successful outcome with its current sponsorship and capital partners? Maybe not. There may be a casualty or two along the way. But I think generally it reflects what we've seen from our sponsors. And let me explain what I mean in that. In this cycle, we've had 4 RESG assets that went into foreclosure or we acquired title to. Really didn't, I think, foreclose on any of them, but acquired title to them in satisfaction of the debt. Three of those were liquidated in the last year, one in the third quarter, the largest at Chicago land. Two were liquidated in the fourth quarter. And the one project we had that didn't sell was under contract for a couple of years. And the sponsor paid us $12 million in contract extension fees and forfeited earnest money on that, that Los Angeles land. So a relatively small number of projects. Now, I will comment. Someone wrote that we had taken a charge-off on that LA land. That is not correct. We moved it to OREO at our book value, and the reduction in the value of that -- on our carrying value on that over the last couple of years is a result of forfeited earnest money, not any charge-off, so we've never taken a charge on that asset and feel like we're appropriately valued on it now. But we've got four loans in non-accrual, so a relatively small number of RESG assets where the sponsors have been unable or unwilling to continue to support the asset. The flip side of that is detailed, and we've been giving you this information for most of the last 14 quarters on figure 28 of our management comments. Just to give you a data point, last quarter we had 49 loans that had an extension of their term. We collected $56.7 million in reserve deposits, $7.6 million in modification fees, $45.1 million in unscheduled principal paydowns in connection with those loans. If you look over the last 14 quarters since the Fed started raising rates, that is $1.3 billion in additional equity contributions, $866 million of reserve deposits, $429 million in unscheduled principal paydowns. I don't know the fee number, but tens of millions of dollars in fee income to us on those loans. What that tells you is that 95% plus or minus of our RESG loans are experiencing and continue to experience good sponsor support. Will there be a few more fallout before we get to the end of the cycle? Probably so. But we built our ACL from $300 million to $632 million in anticipation that there would be a few bumps in the road. So we feel like we've prudently prepared for this. We feel like we're doing a really good job of working through and liquidating these assets when we've had cases where the sponsors have given up. And we're well-positioned to get through the rest of this cycle in good form. Operator: Our next question comes from the line of Brian Martin of Janney. Brian Martin: Thanks for all the commentary thus far. Maybe just in terms of it doesn't sound like much in the way of additional sponsors likely to maybe not be supporting these based on kind of your commentary. But just in terms of the resolution of the current level of non-performings, can you talk about maybe the timeline in terms of any big chunks you expect to see get resolved in time frames, just kind of how you expect to work some of that down as you go forward? George Gleason: Well, on the Boston property, for example, the sponsor on that project would have done an extension renewal and put up their part of the required capital to do that. Their two equity partners in that transaction really decided that they were not going to put up more capital until they got a lease, and our rule is you pay, you stay. You don't pay, you don't stay. So when they ask us to give them nine months or so, six months, whatever to work through the lease without making any payments on the loan, we just said that's not the way we operate. If you want time, you have to pay for the time. If you don't pay for the time, then we're going to move to resolve the asset, so the resolution of that asset can occur several ways. Number one is the sponsor in that transaction is out trying to put together new equity partners to continue with the successful outcome of that project. We're hopeful they'll be successful, but we're also dual-tracking our acquiring title to that property so that if they're not successful, we're ready to take that asset over and continue to move that asset forward in a constructive way, so obviously, if they raise new capital, that could get resolved, and our view on that could change dramatically and quickly. On the flip side, if we have to take that over, then we'll look for opportunities to sell it. If we can get a favorable price on a sale, we would sell it. If not, we'll lease it up and then sell it when we get it into better shape. I would comment also on that property. There was some commentary out there that the lease situation has blown up and gone. That is not our understanding of the situation. The sponsor continues to be actively engaged with the prospective tenant. The prospective tenant, our understanding is they just delayed their process for about six months and instead of making a decision early in the year, expect to make a decision mid-year, third quarter, or so forth. And I think our building is still in kind of the inside lane on the opportunity there to work out a lease with that sponsor. It's still early, but that activity is still ongoing, and we're working with the sponsor, and whether we acquire title or the sponsor recaps, we'll work very collaboratively with the sponsor. We have a good relationship with the sponsor. We'll work very collaboratively to make sure that those ongoing leasing efforts are maximized the opportunity. The office building that's on non-accrual in Santa Monica, we're pursuing opportunities that would result in a sale of that asset fairly quickly. The Chicago life science deal, the sponsor is working on a short sale opportunity on that. We've written it down based on our understanding of the financial metrics of that short sale. If they accomplish that, then we could be paid off quickly over the next couple of quarters, however long it takes to close that. If they don't accomplish that sale at a price that's satisfactory to us, then we'll take that property and sell it. The Baltimore land, we've talked about at length in previous conversations. We're working on a potential sale of that property right now. We're also working, continue to work with the current sponsor on our taking title and continuing to integrate our development and liquidation of that property with the other developments that the sponsor successfully achieved in that area. So it's hard to know when these things actually come to fruition. There are multiple paths that each of them could take, but we're working those things diligently, and sometimes you resolve things fairly quickly. The three pieces of OREO we sold last year that were RESG assets, all those were resolved in a pretty short time frame for sale of a piece of foreclosed real estate. The flip side of that is the one we've still got there while we've made a lot of money on extension fees over the last couple of years with that and got a nice paydown on our carrying value of that OREO through the forfeited earnest money. We worked on that thing two to three years with that prospective buyer. And it didn't come to fruition. And now we're back in the market with it. So some of them will work out fairly quickly. Some of them, for one reason or another, will take a bit longer to work out. We try to be very constructive about the way we approach these things. And I'll give you a good example. Our oldest substandard accrual asset in the RESG portfolio is that development near Lake Tahoe, California. And that thing has been substandard accrual since 2019 and was special mention for some number of quarters, I believe. But before that, I don't remember when it went on special mention. But you hear the adage a lot of times about problem assets. And the old adage that everybody seems to quote is, "Your first loss is your lease loss." Well, a lot of times, maybe a majority of the times, first loss is your lease loss. But as we looked at that asset, we said, "The sponsor's not going to put new capital in this, but the sponsor remains engaged." We can work out an opportunity here where we don't have to put new money in it, but we can work with the sponsor and help them chart a path to a successful resolution of that. So instead of blowing that asset up in 2019 when it went on substandard and probably taking a 10 or 20 or million dollar loss on it, we worked with the sponsor, developed a plan to address that. And we've earned $43 million in interest and fees on that loan. And our total commitment today is $43 million. And our outstanding balance is about $34 million on that. So we've earned more in interest and fees than our outstanding balance on that loan. And there's a very high probability that we get through that all the way to payoff with a successful resolution of that asset, earning money all the way and never taking a loss on that. So you've got to be thoughtful and constructive in the way you approach these and understand what the assets are and understand how to maximize the value from them. Brian Martin: Got you. Maybe just let me ask one follow-up and I'll hop off. Just in terms of the -- the margin came in better than expected, I guess, in the quarter. Just wondering if you could give a little bit of thought about that given the rate cuts that have already occurred and just kind of how you see the margin in a relatively stable environment here. And then just on the buyback, any commentary from Tim on kind of the outlook of the buyback here prospectively . George Gleason: Tim, you want to take the buyback first, and you're welcome to take the margin if you want to as well. Tim Hicks: Sure. Thanks, Brian. Yes. I mean, our buyback, obviously, we started a new authorization July 1. We said all along that we would be opportunistic in using that. And certainly, during the fourth quarter, as we were trading below tangible book value, that was just too good of a value to pass up. So we bought 2.25 million shares for an average price of $44.45. That was well below or a couple of dollars below our current tangible book value. So very accretive to not only EPS, but certainly accretive to tangible book value as well. We still have just under $100 million left in that authorization. And we'll be opportunistic if we're trading in similar ranges. I think we'll be pretty active in this quarter and could use it all this quarter. It expires at the end of June. And so either this quarter or next, depending on how we're trading. So at the same time, you may have noticed we increased our dividend for, I believe, the 62nd quarter in a row and also had our capital ratios increase. I think, Brian, you pointed out in your note, our tangible common equity increased 35 basis points during the quarter at the same time of buying back $100 million of common stock. And our preferred and common dividend combined is roughly $55 million. So very pleased about being able to grow capital ratios, grow capital in dollars, and still return a lot of capital to our shareholders during the quarter. On the margin, yes. You may remember, Brian, I mean, our margin held fairly well during the quarter. Our rates on most of our RESG loans reset on the tenth of the month. So on December 10 is when they're reset. That did not reflect the full impact of the move in SOFR. And there were still eight or nine basis points left that SOFR has moved down already from the tenth of December to January 10 when they reset again. So we benefited from that during the quarter. And Ottie and the deposit team did a really good job on really managing our deposit costs. I think those came in very favorably as well. So we were pleased with how our margin performed during the quarter. We did mention a few things you may remember. In the first quarter, we have two fewer days. So that certainly is a headwind to net interest income for Q1. We gave you a range there of where we thought we would land for Q1 net interest income. And we'll do -- our deposit team will continue to work really hard on getting the best execution on our deposit costs as well. So I think we were really pleased with how our margin was for Q4, but we'll continue to work hard on managing that moving forward. Operator: Our next question comes from the line of Janet Lee with TD Securities. Sun Young Lee: Starting off with credit. So you've mentioned that your 2026 trends on credit would be similar to what you experienced in 2025. You probably have a better line of sight into your credit and the situations with sponsors. So just to level set, are we expecting a similar range of net charge-offs that you experienced in 2025 into 2026? So call it 50 basis points. And if I were to extrapolate the NCO expectations for 2026 into what you would be willing to do on your provision and allowance for loan losses, it's more than doubled over the past three years. So, is a plan that you would draw down on your reserves in anticipation of any potential credit losses in 2026, given that you've built reserves for so long for a few years, or similar to what you did for full year 2025, you would be taking a similar amount of provision for whatever expected credit losses are for '26? George Gleason: Great question. And Janet, I would start off by telling you we're going to do the right thing, whatever that is. And that will depend on where the global economy goes, where the U.S. economy goes, where the quality metrics and risk ratings of our portfolio go. So if we need to build a reserve further, which is probably not my base case, but if we need to do that, we'll do that. We're going to do the right thing, whatever the economy and the models and the risk ratings tell us is the appropriate thing. We talk about this at length in the management comments. We've prudently built the reserve. So when we incurred the charge-offs that we incurred in the quarter just ended, a large part of that was already provided for. So we were able to absorb that and still run with all the models and put up all the reserves we needed to put up. And we carefully looked at that and rolled all those numbers forward and really validated that our decisions in that regard were correct. So I would anticipate that if the economy plays out as we think it does and as this CRE cycle sort of winds down in 2026 and early 2027, as we think it will, that ACL percentage may continue to do what it did in the fourth quarter. And that has come down modestly as we absorb losses that we've provided for, the likelihood and potential of. And we'll see where that goes based on where the economy goes and how the portfolio performs. But I think we were very prudent. The risk events build over time. Clearly, just the prolonged series of challenges that our CRE sponsors have faced going all the way back really to the COVID pandemic. For our purposes today, mostly from the last 14 quarters when the Fed started raising rates and sponsors were dealing with the aftereffects of COVID and inflation and work from home and all of that and then got into a higher rate scenario, it was a challenging time. As I said in the management comments, we think we are really in the late stages of working through that. If that bears out, then that reserve ACL percentage could continue to ease lower over the next year. Sun Young Lee: Got it. That's helpful, color. And I know it's hard to exactly comment on this, but I'll still try. So when you say 2026 will be similar to 2025, working through some of the credits in the latter cycle of CRE, is your expectation that you're going to see more of the migration into substandard non-accrual from special mention and maybe substandard accrual into the non-accrual category within that classified and criticized asset that you have, which have been pretty stable overall over the past year? Or are you anticipating more of the new credits that could be migrating over to the classified and criticized category over time? So basically, do you have a line of sight into some of the potential credits that could be migrating into special mention or substandard overall, or more of a potential credit migration within that classified category into non-accrual based on what you're seeing now? George Gleason: Well, a lot to unpack there. So let me start with this. The special mention category tends to be a fluid category. A lot of times, if we're having a very challenging extension modification negotiation with a customer, a loan may get into special mention while we're involved in that negotiation because our challenges to the customer may be, "You got to put up X dollars in reserves. We want to pay down on this. You've got to make these other enhancements and changes to protect our position." The customer may resist that because they've got other things they're dealing with too. And those negotiations may become very challenging and intense. And usually, we get those resolved in a favorable manner. So a loan that is in the midst of intense negotiation and we're unsure how that's going to play out may find itself in special mention. And then a lot of those get resolved. We get a nice paydown. We get reserves reposted. We earn a nice fee on the extension. It's kind of put back into a very healthy state, and it migrates back out into some level of pass rating. Then you have loans that migrate in that you're not successful in negotiating that, or maybe there was an issue with it that caused it to be in special mention, and that doesn't work out well. That will migrate into substandard or substandard accrual, and we'll give you more disclosure on that. So the special mention is not just a stepping stone to substandard. Loans come in that and go back out the other way, back into a pass status as well. And that happens very frequently. So there's a fair amount of churn in the special mention category. I would repeat what we said in the management comments. We've had a handful of sponsors who have been unable or unwilling to continue to support their project over the last 14 quarters, particularly the last couple of years. We expect that our experience in 2026 is going to be similar to our experience in 2024 and 2025. So sort of giving you a couple of years to look at as a comparison for our expectations for 2026. So I think we very likely will have a handful of additional sponsors who give up on projects. We have an ACL built for that expectation. And it's a case-by-case basis. And in dealing with sponsors, you're not just dealing with the sponsor, but you're also dealing with the sponsor's capital partners in a lot of these cases. So there are multiple variables at play, and we're really good at working through those. We have a great team that works through these negotiations and arrangements. I feel very good about that. But I think we've given you as good a guidance as we can give you at this point in time. Operator: Our next question comes from the line of Jordan Ghent with Stephens. Jordan Ghent: I just had a question on kind of the capital. It looks like you guys have $350 million in sub-debt that moves from fixed to floating this coming October. I think you guys have previously said you could redeem in whole or part beginning in October. If that's still the case, and then with that, how does that affect your buyback up until that point? Tim Hicks: Jordan, you're right. We do have sub-debt that goes from fixed to floating October 1. We've not made any decision regarding what we'll do on that right now. I mean, we'll make that decision as soon as we need to, but too early to comment on that. Our buybacks, we have a lot of capital. And you saw our CET1 ratio increase and our earnings -- we haven't talked about earnings a lot on this call, but we earned a lot of money. Earned almost $700 million, almost a record again this year, almost equal to what we earned, which was a record last year. So that earnings power does allow us to have a lot of capital that we can use opportunistically. In some years, we're going to have a lot of a strong amount of growth. Some years, we're going to have mid-single digits. When we have mid-single digits and we have levels of earnings that we're expecting in the coming years, we're going to increase our capital levels, and we'll look for opportunities to deploy that, just like we did in the last quarter. Too early to comment on sub-debt. We've had sub-debt outstanding really since for the last 10 years. Some level of Tier 2 capital is a part of our capital structure. That's over the long term. I would expect us to have a decent amount of Tier 2 capital. That's really kind of our long-term strategy there. Jordan Ghent: Got it. And then maybe just one more. Last quarter, you guys guided for loan balances to move lower in the fourth quarter in 2024, 2025. We didn't see this in management comments. Could you provide any commentary on what's going to happen maybe in the near term or kind of the trends you're seeing? George Gleason: Tim, you want to take that or I'll be happy to. Tim Hicks: Sure. Yes, we gave you loan guidance for the year. In Q1, I think we're expecting to be positive and not have a quarter like Q4, obviously, the payoff velocity sometimes moves around a little bit on us. And so -- but I think our growth will be -- will come mid- to late year Q1, I think, is still a positive quarter of growth but you could have a payoff or two that comes in or pushes out that can move that around a little bit. But I think we'll have growth that comes in throughout the year, but probably second quarter, third quarter, fourth quarter will be stronger than first quarter. George Gleason: Yes, I would agree with that. Our mid-single-digit loan growth guidance that we've given for the year is probably going to be loaded into the -- more in the final 3 quarters than the first quarter of the year. We've got -- we had a lot of payoffs that we are expecting in Q1. Operator: Our next question comes from the line of Catherine Mealor with KBW. Catherine Mealor: One follow-up on the credit conversation. As we look at the special mention category, and I know, George, you talked about how this is a fluid category where loans come in and out. But it was interesting to see that a number of the loans that are in special mention were highlighted on the appraisal chart, Figure 29. And it feels like a couple of them have pretty LTVs that are nearing 100. And so just curious if you could provide any commentary on some of those larger office special mention loans. And are there maturity dates coming up near term, or are there things that we should be aware of in the next couple of quarters that could perhaps drive some of those to move into substandard? George Gleason: Well, in respect for our sponsors, we really try to not talk about loans that we don't need to talk about, and special mention loans fall in that category, so I don't know that we have a lot to really add on that, Catherine. There's a balancing act between being totally transparent and providing full and accurate disclosure to our investors, and then going beyond that and providing disclosure we don't need to provide that's challenging, detrimental to our sponsors, so I don't have a lot of comment on that. Those loans we feel like are appropriately risk-rated special mention. That risk rating is reflective of the appraised values on them. We've talked a lot about how fluid and in and out our special mention is, so if those loans merited a substandard rating, we would have them substandard rated. If they merit a substandard rating in the future, we'll rate them there at the appropriate time. And we think special mention is correct. We gave you those notations there because we didn't want to convey the impression that, gosh, we had loans that were higher loan-to-value loans that we had gotten an appraisal that said the loan-to-value on it is a lot higher than where it previously was. And we weren't taking that into account in the risk ratings on them. So I think we're doing the appropriate and proper thing, prudent thing on those loans. Catherine Mealor: Got it. No, that's clear. I appreciate that. And then maybe another question. It might be the same answer, but I'll try it. But any update on the larger life science line out in San Diego, the RaDD property, just any leasing update or anything that you can? It's been a few quarters since we've had an update on that. Just curious if there's anything you can provide on that larger credit. George Gleason: Yes. I'll let Brannon comment on that. But you -- when I mentioned meeting with the management team on our largest loan in Dallas that was that loan. So Brannon, I know you don't want to get into too many details, but you might sort of give you a flavor and take on that. Paschall Hamblen: Sure, Catherine. Thanks for the question. And yes, I would just reiterate what George said around sponsorship and management. They have pulled in some new leadership that is extremely experienced in the segment. And you may recall that over the last couple of years, the sponsor has injected a significant amount of capital in that project specifically. But the company and its capital partners, I think they had a -- I want to say it was a $900 million capital raise. So with respect to the wherewithal, the sort of can do, they've got it with respect to capital, and they've got it with respect to expertise. We did have a great meeting. There has not been a lot of executed leasing activity. There are a number of proposals out, predominantly on the office side. That's probably all the detail I'll get into there as it relates to the leasing part of it. But this new management team is very impressive. The plan that they've laid out starts at the ground level. They are very much at the ground level and on a daily basis. And the exciting thing now is activation. You have tenants with their leasing improvements or tenant improvements wrapping up and starting to open here in the near term. So you'll start to get some good activation. And so we feel very good about where they are in their commitment to the project, obviously of outstanding assets. And we think these guys are going to have success in putting tenants in that asset. Operator: Our last question comes from the line of Timur Braziler with Wells Fargo. Timur Braziler: My first question's on the Boston property. It looks like in the third quarter, the reappraisal was done on an as-stabilized basis and implied a level that was much higher in 4Q, where it looks the appraisal was done now on an as-is basis. Can we just maybe talk through kind of what transpired between 3Q and 4Q that drove the more punitive appraisal? George Gleason: Well, it was the same appraisal, and it was using the as-stabilized versus the as-is value. And our approach on this is we use as-stabilized value when the sponsor is engaged in the project, supporting the project, and the expectation is that the project's going to achieve stability. If the sponsor is, in this case, then indicates that they're not going to continue to support the project and contribute capital and keep it current and keep it performing, then, as I said earlier, you pay, you stay. You don't pay, you go. And we're going to take property, then we shift to a liquidation value or an as-is value of the property. So we detail that in the footnote at the bottom of Figure 26, all of those substandard assets because sponsor support seems unlikely or is clearly not going to happen. All those substandard non-accrual assets are reflected at as-is values. The assets that continue to have sponsor support are reflected as as-stabilized value. So to specifically nail down the point, you asked what was the change. The change was we expected the sponsor when we were talking in October would continue to support the project to some degree. And they seem to be close to a resolution and a favorable resolution on the pending lease project because the prospective tenant extended their timeline to make a decision on their lease by six months plus or minus. The sponsor indicated they were not going to continue to support the project without a lease, or the capital partners did. The sponsor was still willing to support, but not the two capital partners. That lack of support and the elongated timeline on the lease decision led to the change in our appraisal selection for that asset. Timur Braziler: Okay. Got it. And then maybe just one more on the allowance. George, you had made the comment in one of the earlier questions on kind of working through the environment. I'm just wondering, in terms of allowance and the ability to maybe drive that lower, is that just working through the existing known problems? And I'm just wondering to the extent that we do get additional risk migration into categories beyond special mention, is that going to warrant additional allowance actions, or do you feel like the existing reserve that's in place today is going to be sufficient to work through whatever issues might surface over the course of the next 12 to 18 months? George Gleason: The ACL reflects our expectations for all of the current portfolio for the life of those loans. That's what CECL is all about. You calculate your expected loss for the life of those loans, so we have an expected level of migration that is embedded within that ACL. Even before, early in the interest rate raising cycle, we were building the ACL because of expectations. If this trend continues and goes on long enough, there will be some losses that will result. And obviously, the longer the cycle went on and the higher interest rates went, and then all of the other various macroeconomic challenges and uncertainties and impacts that occurred, that resulted in that full ACL build to a $680 million level where it stood at September 30. The environment is getting slightly more constructive, and we're resolving some of those specific losses by taking charge-offs on them and resolving them in the last quarter. So that's why the ACL came down. So based on our current expectation, there will be some migration in the portfolio. We don't know what specific loans are going to migrate, but we've got probability analysis basically on every loan, a probability of default or loss-given default. Some that we have loss reserves for will never become an issue, which will free up those reserves. Some that we have a loss reserve on will possibly migrate adversely and will need more reserve. But on average, I think we're in a really good position. And that's what your ACL does. It reflects your expectations for the whole portfolio. And you do it on a loan-level basis and sum all that up. But some of the vast majority of those reserves are not going to be needed for the specific loans they're on, but other things will get migrated to a more adverse status, and you'll need some of that reserve that's freed up from others to meet that. So it's an average process. Operator: Thank you. I would now like to turn the call back over to George Gleason for closing remarks. George Gleason: All right, guys. Thank you so much. We appreciate all your time today, your interest in OZK. We look forward to talking with you in about 90 days. Have a great rest of the day. Thank you. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Daniel Baker: Good afternoon, and welcome to the NVE Corporation Conference Call for the quarter ended December 31, 2025. I'm Dan Baker, NVE's President and CEO. I'm joined by Daniel Nelson, our Principal Financial Officer; and Pete Eames, Vice President of Advanced Technology. This call is being webcast live via YouTube and Amazon Chime and being recorded. A replay will be available through our website, nve.com, and our YouTube channel, youtube.com/nvecorporation. [Operator Instructions] After my opening comments, Daniel Nelson will present our financial results. Pete will cover new products and R&D. I'll cover sales and marketing and then we'll open the call to questions. We issued our press release with financial results and filed our quarterly report on Form 10-Q in the past hour following the close of market. Links to the press release and 10-Q are available through our website, the SEC's website and X, formerly known as Twitter. Please refer to the safe harbor statement on your screen. Comments we may make that relate to future plans, events, financial results or performance are forward-looking statements that are subject to certain risks and uncertainties, including, among others, such factors as uncertainties related to the economic environments in the industries we serve, risks and uncertainties related to future sales and revenue and risks and uncertainties related to tariffs, customs duties and other trade barriers as well as the risk factors listed from time to time in our filings with the SEC, including our annual report on Form 10-K for the year ended March 31, 2025, as updated in our just filed 10-Q. Actual results could differ materially from the information provided, and we undertake no obligation to update forward-looking statements we may make. We're pleased to report a 23% increase in revenue and an 11% increase in earnings for the third quarter of fiscal 2026 compared to the prior year quarter, driven by broad-based growth across our revenue lines, including defense and nondefense sales as well as distributor and direct channels. Daniel Nelson will cover details of the financials. Daniel? Daniel Nelson: Thanks, Dan. As Dan said, revenue for the third quarter of fiscal 2026 increased 23% year-over-year. The increase was due to a 16% increase in product sales and a 335% increase in contract R&D revenue. The increases were across most of our product lines and channels. Gross margin for the third quarter of fiscal 2026 was 79% of revenue compared with 84% in the prior year quarter. The decrease in gross margin percentage was due to a less profitable product mix and increased distributor sales for the quarter. The increase in distributor sales is positive, although distributor sales typically have lower gross margin than direct sales. Total operating expenses decreased 12% for the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025 due to a 9% decrease in R&D expense and a 19% decrease in SG&A. The decrease in R&D was due to completion of some of our wafer level chip scale packaging activities and reassignment of some R&D resources to manufacturing. The decrease in SG&A was primarily due to the timing of selling and marketing activities and reassignment of some SG&A resources to manufacturing and new product development. Interest income decreased 3% due to a decrease in our marketable securities portfolio as proceeds from bond maturity, partially funded dividends and fixed asset purchases. Other income decreased by $135,000, which is primarily from reclaiming precious metals used in our manufacturing process in the prior year quarter. Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes increased to 20% for the third quarter of fiscal 2026 compared to 15% for the third quarter of fiscal 2025. The increase in our effective tax rate was primarily due to the noncash impact of tax law changes on certain tax deductions this fiscal year. We currently expect a full year tax rate of 16% to 17% in fiscal 2026 because we expect advanced manufacturing investment tax credits of between $700,000 and $1 million to offset the impact of other tax law changes. And net income increased 11% to $3.38 million or $0.70 per diluted share from $3.05 million or $0.63 per share. The increase was primarily due to increased revenue and decreased operating expenses, partially offset by decreased gross margin, a decrease in other income and an increase in our effective tax rate. Our profitability metrics remained strong. Operating margin was 60%. Pretax margin was 68% and net margin was 54%. For the first 9 months of fiscal 2026, total revenue increased 0.4% to $18.7 million from $18.6 million for the 9 months of the prior year as growth in the most recent quarter more than offset year-over-year decreases in the first 2 quarters of the fiscal year. The revenue increase for the first 9 months was due to a 0.8% increase in product sales, partially offset by an 8% decrease in contract R&D. Net income for the 9 months decreased 8% to $10.3 million or $2.12 per diluted share. Turning to cash flow items. Cash flow from operations was $12.2 million in the first 9 months of the fiscal year. Accounts receivable decreased $1.1 million during the first 9 months of fiscal 2026 primarily due to the timing of customer payments. Inventories decreased by $177,000 due to increased product sales. Prepaid expenses and other assets increased $323,000 primarily due to increased accrued bond interest and a decrease in federal and state taxes due. The decrease in taxes due was because we deducted previously unamortized research and development expenses in the quarter ended December 31, 2025, and as permitted under the federal budget reconciliation bill enacted July 4, 2025. We expect accelerated deductions of previously unamortized research and development expenses to reduce our cash taxes for the full fiscal year ending March 31, 2026 by approximately $1.1 million. Accrued payroll and other current liabilities decreased $366,000 primarily due to the payments of federal and state taxes balance due as of March 31, 2025, and decreased accrual for performance-based compensation. Fixed asset purchases were $2.18 million for the first 9 months of the fiscal year, including $1.05 million in the December quarter. We substantially completed spending on our 2-year multimillion dollar expansion. We expect to put the equipment into service in the current quarter. Pete Eames will discuss the new equipment. Now I'll turn the call over to Pete Eames, our Vice President of Advanced Technology to talk about our plans for the new equipment and to cover new products and R&D. Pete? Peter Eames: Thanks, Daniel. I'll cover new equipment and R&D. New equipment in the past year has increased our capacity, increased our capabilities and allowed us to do smaller and more precise wafer-level chip scale package parts in-house. We completed installation and calibration of a new equipment cluster in the past quarter in an expanded production area on the east end of our building. The new equipment allows extremely precise control of spintronic materials deposition to well within 1 atomic layer. This capability translates into more precise spintronic devices and expands our capacity with existing products. We've made good progress developing new advanced spintronic processes on the equipment. And as Daniel said, we expect to place new equipment into service by March 31. Our R&D strategy is to make the world's best electronics for high-value markets such as medical devices, electric and autonomous vehicles, advanced factory and humanoid robotics in highly automated Fourth Wave Factories using the artificial intelligence of things. We've had a continuous flow of new products as part of that strategy. Just yesterday, we announced a new wafer-level chip scale sensor a part that's just 0.65 millimeter square, about the size of the period at the end of our quarterly report and about as thick as the paper that it's printed on. The sensor is about 1/3 the size of the conventionally packaged version, and this tiny size allows for unmatched miniaturization and special sensitivity. There are demonstrations of our new products on our website and our YouTube channel. Now I'll turn it back over to Dan Baker. Daniel Baker: Thanks, Pete. I'll cover customers sales and marketing. Starting with customers. We're proud to supply products to some of the world's most demanding customers, including Abbott Laboratories. Abbott is a leading supplier of implantable medical devices. In the past quarter, we executed an extension to our supplier partnering agreement with Abbott. In recent years, the extensions have been for 1 year, but this extension is for 2 years through December 31, 2027. It provides for price increases for 2026 and 2027. The agreement was filed with the Form 8-K and their links in our just filed 10-Q on our website and the SEC's website. Turning to sales and marketing. We exhibited at the Medical Design & Manufacturing Trade Show in the past quarter. Medical devices are an important market for us. We have a convincing benefit proposition for medical devices with small size, low power and superb reliability. At the show, we highlighted new wafer-level chip scale parts for miniaturization of implantable medical devices and surgical robots, high-field sensors to enable MRI-tolerant medical devices, high-sensitivity sensors for medical device navigation and our best-in-class electrical isolators to ensure the safety of medical instruments. The show generated good leads, and we believe our investments and shows payoff and future sales. With the success of that show, we'll also exhibit at Medical Device & Manufacturing West for the first time. The exhibition starts February 3 in Anaheim, California and host attendees from all over the world. Now we'd like to open the call for questions. Daniel Baker: [Operator Instructions] Jeffrey Bernstein: Dan, it's Jeff Bernstein from Silverberg Bernstein Capital. So we talked during the quarter about this idea of magnetic navigation in GPS compromised areas and whether you're magnetometer sensors were appropriate for that kind of application. Can you just talk a little bit about that and if you made any contact with anybody in the BOW about this? Peter Eames: Jeff, this is Pete Eames. I'm happy to answer that question. We have looked at MagNav. And for those who aren't familiar with it, this is a new technology that replaces GPS in the defense applications that are susceptible to GPS jamming. So typically, NVE sensors are lower power and much smaller than the sensors that are used to detect the magnetic field anomalies and magnet systems. But it is an interesting application for us. It's evolving and it's one of the things that we keep an eye on in the defense community to see how it evolves. And hopefully, we have an opportunity there in the future. Jeffrey Bernstein: So do you have a part that you would deem appropriate for that application today or now? Peter Eames: Not exactly. MagNav is pretty new. It's still a relatively nascent technology. One of the problems with MagNav is that the maps that are being generated and used by sensors for this technology are still too imprecise. So it's still -- it's not a mature enough technology that we would chase it for example. But it's something that is interesting and fits within our defense systems and something that we think has a bright future. Unknown Analyst: Dan, this is [ Pete Prevett ] in Florida, how you guys. A couple of quick questions. Your new equipment up and running in March, I recall being at the shareholders meeting in '24, it'll be almost 2 years. Is that pretty much on the expected schedule that you thought? Daniel Baker: It is. Thanks for the question, Pete. As you saw, we just had a blank space when you were here and at the annual meeting in 2025, we had a much more finished blank space. And now we've got a piece of equipment that's up and running, and as Daniel and Pete both mentioned, we plan to deploy it in an accounting sense this quarter. So things are going well, and we were -- it's a complicated piece of -- set of equipment and a complicated process, but our guys have done a great job of getting it done on schedule. So we're pleased with how it's going. Unknown Analyst: That's great to hear. With that, is there an expectation that, that new equipment will help with new product sales like adding to new revenue and/or I guess, better profitability because it's packaging, right? Some of it's for packaging, so you don't have to outsource the packaging? Peter Eames: Yes. This is Pete Eames again. Yes, Pete, I think there is a lot of optimism surrounding the technology that we're developing with the new equipment. I talked about one of the sensors in our earlier remarks. We're definitely selling samples of those parts. And we're -- again, we're looking forward to continued sales there. So I think the optimism continues. Unknown Analyst: And do you guys see the distributors building up inventory? Again, I know that, that was an issue that they had lots of inventory and had sell that down. Is that starting to pick up again? Daniel Baker: Yes, it is. It's very positive. And Daniel mentioned that in the prepared remarks that our distributor sales are picking up and have been through the fiscal year. And that's an indication that some of those inventories that had built up during the semiconductor slowdown the last fiscal year and prior to that, have been depleted, burned off and end user demand is increasing. So we feel like we have the wind at our backs and we've got excellent products. and the inventory situation in the semiconductor industry as a whole is much better than it was. Unknown Analyst: That's fantastic. And let me ask you about the other company or one of the other companies in your space, Everspin. There seems to be a lot of interest in them lately and some talk about their intellectual property being valuable for quantum computing, possibly. How does NVE's intellectual property compare to what they have? And have you had any discussions with other companies about licensing your IP? Daniel Baker: We have had discussions about licensing from time to time over the years, including we had a license agreement with predecessors of Everspin technology, including Motorola going way back. So we believe we have excellent intellectual property. We deploy it mostly for anti-tamper and HUF. So we are in a different market than ever spin, but we do have technology that applies to MRAM. We continue to develop MRAM. And we've talked about it from time to time. Pete didn't talk about it on this call in the prepared remarks, but we continue to work on developing advanced MRAM mostly for defense applications, defense and anti-tamper applications. And we believe that the intellectual property has significant value, and we'll look for opportunities to monetize that through licensing or other means. Unknown Analyst: And I don't know too much about it, but with Flash memory, is MRAM a replacement of Flash? I on someone who mentioned something about memory and MRAM being a lot better with spintronics. Is there anything you could talk about there? Peter Eames: Yes. In general, MRAM is a nonvolatile memory, meaning it retains its information when the power is removed. And for some applications, that's a very powerful technology, and it's something that's already used in some embedded computing systems today. So it is very useful, and that's one of the things that, as Dan said, makes us believe that our IP is very valuable here. Unknown Analyst: Okay. Great. And last question. Dan, we love your post on Twitter. Do you employ or have a meeting company? Is there any plans to expand marketing? Not that we don't love your videos and stuff, but just curious about how you guys look at marketing to promote the company. Daniel Baker: Well, we've been spending more on marketing, doing more marketing. So we try to do more of what works and what's been working, as I mentioned in the prepared remarks, our trade shows work very well for us. So we're going to more trade shows than we ever have. And we are working more and more on demonstrations. So the videos are one manifestation of demonstrations, but we also provide demonstrations at trade shows and for a specific customer targeted applications. The newsletters are also very effective. We have a very high click rate, a very high response rate. So we measure our marketing activities, and we continue to boost the ones that work. So those are the kinds of things that we've been doing and we do get some response from Twitter. However, it's not a huge sales driver. Some of that is more fun and content that we have from other sources or for other targets such as trade shows. Unknown Analyst: Keep up the good work. I appreciate it. Jeffrey Bernstein: Dan, it's Jeff Bernstein again. Just wanted to check in on the application for rare earth magnets for position sensing? And what kind of traction you've gotten there? And have we seen any revenue actually come through from any design wins? Or what's the design win situation looking like? Daniel Baker: Yes, that's a good point. There's still a lot of concern in the supply chains about rare earth elements. And our sensors are uniquely positioned to use rare earth free ferrite magnets because of their high sensitivity. And we continue to offer ferrite magnets they do not use rare earth elements. They use iron and oxygen, which are 2 of the most abundant elements in the earth's crust. So we're well positioned in that, and we have gotten some sales, and we've gotten some interest in both the magnets and in the sensors that go with them. So we do see it as a promising application. And the concern about rare earth magnets has done nothing but increase. So it's hard to quantify exactly how many are targeted at rare earth replacement and how many we're getting or we wouldn't have gotten, if it were for the concerns about rare earth, but it certainly helps us. [Operator Instructions] Unknown Shareholder: Can you hear me? Daniel Baker: Yes. Unknown Shareholder: This is [ Christopher Chevski ], a private investor. I was just wondering if there's any comments you can make on the current quarter, especially I'm wondering about your defense business, which happens to be a little bit more volatile? Peter Eames: Yes. I can try to add a little bit there, Christopher. I think we've talked fairly about some of the past quarters and explained that things have been relatively weak there. And in general, I think we're optimistic going forward. I think it's safe to say that we'll be returning to somewhat of a more normal flow there if that's of any help. Unknown Shareholder: Yes. That's very helpful. And the rise in NRE revenues, does that pretend for additional future nondefense business? Daniel Baker: That's certainly the goal. When we invest in R&D. We invest heavily in R&D. Pete talked about some of the programs. We talked about some of the things that we're doing in the medical space for new products and for advancements especially in miniaturization. So that's been a significant portion of our R&D, and we've been pleased with the response of customers and prospects to those products. And we believe they're going to pay off in future sales, and that's why we make the R&D investments. Unknown Shareholder: Okay. And your 2-year agreement with Abbott, are there any market gains in that? Are you in any new devices? Daniel Baker: Unfortunately, we can't talk about what devices they use our parts in, they use our sensors and we're bound by confidentiality. However, they make some remarkable devices, medical devices, and we're pleased to be a partner with them. We've been a partner with them for many years. And we're proud of the role that we play in making devices that can change people's lives. We also have other medical customers that sometimes we can't talk about. And we're promoting and meeting more of them, promoting our products and meeting more of those prospects and customers at the trade shows such as MDM here in Minneapolis recently and in early February, MDM West. Unknown Analyst: Dan, this is Pete again. Just one last question. The company, obviously, has been very, very solid over many years of delivering good performance. Can you talk a little bit about what the potential of customers being recurring, right? So rather than kind of sawtooth revenues quarter after quarter, year after year, where you're going to eventually have recurring orders from the same customers and then revenues might hit $6 million, $8 million, $10 million, $12 million per quarter because you've got repeat orders from the same customers, can you just give some clarity as to what the product mix looks like and if there's potential of that type of expectation from these customers that would order consistently so all investments are just adding on to revenues quarter after quarter? Daniel Baker: Yes, that's a good point and a good question, Pete. So we look to increase our sales to our current customers with existing products and then we look to add new products to existing customers because we feel like our existing customers are our best prospects. They know us. They've seen the quality of the product we produce and the quality of the support that we provide. So we work on both. Our goal is to grow faster than our customers. We have to add customers we have to continue to add products and expand the products that we sell to existing customers. And so I just mentioned Abbott, which is a great example of a customer that we've had for 20 years at least and they continue to buy our products, and they've expanded over years, the number of products that they use. So that we see is driving growth. And then we've added additional new customers, and then we add products for existing customers, new products for existing customers. Jeffrey Bernstein: Jeff Bernstein. Just a follow-up question. As far as you guys have talked about in the past that at Abbott, you have exposure in the cardiac rhythm management area. You have exposure in the, I guess, neuromodulator area. In terms of the other medical customers that you're talking to, are these very similar kinds of applications? Or are there other applications I think you discussed medical robots and I'm kind of curious about why a big piece of equipment like that would need tiny parts like yours unless it's a sensitivity issue. But can you just flesh through that a little bit? Daniel Baker: Yes. So we cover a variety of medical products. We cover life support medical devices, which are the types of pacemakers and ICDs that Abbott makes. We cover non-life support medical devices, and we cover medical instruments. We sell products for medical instruments, which would be monitors, pumps and things of that nature. They require different types of products. They have different design cycles, but they share a common goal of miniaturization of low power high sensitivity, high accuracy. As far as the medical robots, which we talked about before, Pete touched on that with our wafer-level chip scale parts that the smaller parts Well, you're right, they might not need them because it's a relatively -- the robots are relatively large, but they offer more special sensitivity, which means that the robot can detect smaller displacement more precisely. And for medical robots, being able to do delicate operations is a key benefit, and our sensors enable that. Unknown Analyst: This is [ Ittai Abraham] from [ Principal Global ]. I just wanted to come back to the MRAM point. I'm curious if you can talk a little bit more if that's really just kind of an IP opportunity or if the added capacity can actually help you sell into some of MRAM and customers as well? And then I have one more. Daniel Baker: Okay. Thanks for the question, Ittai. Our strategy has been to not make large-scale memories. That often requires multibillion-dollar fabs. So what we've been doing is specializing in high value-added memories that are used in specialized applications such as crypto keys for anti-tamper devices but we believe that the intellectual property is applicable to larger MRAMs that would have broader applications. So that's how we would participate in that market by licensing intellectual property that we've developed over the years. Unknown Analyst: Got it. That's super helpful. And then my second question is on the new capacity, I'm curious if you could give us a high-level view on the current mix shift may shift in terms of end market and how the new capacity might change the end market mix? Daniel Baker: Right. So the new capacity is targeted at applications such as the Internet of Things and the artificial intelligence of things, which are emerging markets for industrial automation, merging the Internet of Things with artificial intelligence. So we see those as tremendous opportunities. They require inputs, which is what we do. We make sensors. And the future appears to have ubiquitous sensors, many very small sensors distributed in many robots and other locations in order to provide the information for smart factories that are that are self optimizing. So we see a historic opportunity there, and that's part of the reason why we were confident making such a large investment. Unknown Analyst: Got it. And congrats on the results. Daniel Baker: Well, if there are no other questions, we were pleased to report strong increases in revenue and earnings driven by broad-based growth. We look forward to speaking with you again in early May for our fiscal year-end call. A replay of this call will be available on the Investor Events page of our website, that's nve.com and our YouTube channel, that's youtube.com/nvecorporation. Thank you for participating in this call.
Operator: Good afternoon, and thank you for standing by, and welcome to the Fourth Quarter 2025 Earnings Results Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. It is now my pleasure to turn the call over to Mr. Rich Kinder, Executive Chairman of Kinder Morgan. Richard Kinder: Thank you, Michelle. Before we begin, as usual, I'd like to remind you that KMI's earnings release today and this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities and Exchange Act of 1934 as well as certain non-GAAP financial measures. Before making any investment decisions, we strongly encourage you to read our full disclosures on forward-looking statements and use of non-GAAP financial measures set forth at the end of our earnings release as well as review our latest filings with the SEC for important material assumptions, expectations and risk factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements. I have only 2 comments before turning the call over to our CEO, Kim Dang and the team. First, we believe our bullish outlook on natural gas demand remains grounded in reality, and we expect to see very strong growth over the rest of this decade and beyond. Now while there are several important drivers of that growth, the largest and most certain driver remains the need for additional LNG feed gas to service both expansions of existing export facilities and new greenfield projects coming online. We now estimate feed gas demand will average 19.8 Bcf per day in 2026, which is an all-time record, an increase of 19% from the daily average of 16.6 Bcf per day in 2025. And we see that demand increasing to over 34 Bcf per day by 2030. This astounding growth is enormously beneficial to the midstream sector and especially to companies like Kinder Morgan that have extensive pipeline networks along the Texas, Louisiana Gulf Coast, which is the location of most of the export terminals present and future. Our throughput agreements for delivery of the feed gas are essentially take-or-pay in nature which gives us great confidence in the resulting cash flow. My second comment is specific to Kinder Morgan. You will hear from Kim and the team that we finished 2025 very strong compared to 2024 and to our budget for 2025. And as you know from our earlier release of the budget for 2026, we expect more good performance this year. Once again, the chief driver of our success in both years is the extraordinary strength of our natural gas assets. And with that, I'll turn it over to Kim. Kimberly Dang: Okay. Thanks, Rich. As Rich said, we had a fantastic fourth quarter, producing record results for the quarter and the year. Much stronger than we anticipated when we announced our Q3 results. For the quarter, adjusted EBITDA was up 10% compared to the fourth quarter of last year and adjusted EPS grew 22%. Those are big numbers for a stable midstream business like ours. The biggest driver of the outperformance was natural gas. It had an outstanding quarter and year. Our project backlog has increased by approximately $650 million to $10 billion. We added a little over $900 million in new projects which was offset by $265 million of projects placed in service. The most 2 significant additions are Florida Gas Transmission projects, both supported by long-term shipper contracts. Our backlog multiple remains below 6x, which will drive very nice growth over the next few years. In addition, we're working on greater than $10 billion in project opportunities beyond the backlog. While we won't be successful on all of those, it gives you a sense of the tremendous market opportunity. We believe we will continue to find attractive opportunities for years to come. Wood Mac currently projects the U.S. natural gas market will continue to grow over the longer term, with an incremental 20 Bcf a day of demand growth between 2030 and 2035. Now a quick update on our 3 largest projects, MSX, South System 4 and Trident. We started construction on Trident last week. And for MSX and South System 4, we received our FERC scheduling order. The FERC anticipates issuing our final certificate by July 31, which is a schedule we requested, but ahead of our original expectation. There's still a lot of work ahead, but all 3 projects are on budget and on or ahead of schedule. Another positive last week, S&P upgraded KMI to BBB+. That shows our balance sheet is in great shape. On the management front, I want to take a moment to recognize Tom Martin, who will retire at the end of this month, for his wise counsel and the value he has helped delivered to our shareholders over his 23 years with the company. As we have previously announced, Tom will continue to serve as an adviser to the OCC and the Board, so we'll continue to benefit from his perspective. We're excited to have Dax, who many of you know from his long tenure at the company, step into the President's role. I'm looking forward to working with him closely as we continue to execute on our strategy. To sum it up, we had a great quarter and year. We also strengthened our balance sheet and advanced key projects with a $10 billion backlog and tremendous potential beyond that we are set up for a very exciting future. And with that, I'll turn it over to David -- Tom? Thomas Martin: Thanks, Kim. I appreciate the kind words. Starting with the natural gas business unit, transport volumes were up 9% in the quarter versus the fourth quarter of 2024, primarily due to increased LNG feed gas deliveries on Tennessee Gas Pipeline. For the full year transport volumes were up 5% over 2024. Natural gas gathering volumes were up 19% in the quarter from the fourth quarter of 2024 across all of our G&P assets with the largest impact being from our Haynesville system. Sequentially, total gathering volumes were up 9% and the full year 2025 gathering volumes were up 4% versus 2024. We experienced a significant ramp-up from our producer customers during the quarter to meet the growing LNG demand. Our Haynesville gathering system, for example, set a daily throughput record of 1.97 Bcf a day on December 24. Looking forward, we continue to see significant incremental project opportunities across our natural gas pipeline network. For example, we are in various stages of development to potentially serve more than 10 Bcf a day of natural gas demand in the power generation sector. In our Products Pipeline segment, refined products volumes were down 2% in the quarter compared to the fourth quarter of 2024. For the full year 2025, refined products lines are about equal to '24. Crude and condensate volumes were down 8% in the quarter compared to the fourth quarter of 2024. More than all of that decline is driven by taking HH out of service for the NGL conversion project early in the third quarter of 2025. Excluding HH volumes in both periods, crude and condensate volumes were up 6% in the quarter compared to the fourth quarter of '24. On January 16, 2026, KMI and Phillips 66 announced the start of the second open season on their proposed Western Gateway Pipeline system. Western Gateway Pipeline will connect Midwest and other refinery supply to Phoenix and to California with connectivity to Las Vegas, Nevada via KMI's CALNEV Pipeline. The second open season, which concludes on March 31, 2026 is for the remaining pipeline capacity and adds new access to the Los Angeles market via a joint tariff supported by the planned reversal of one of KMI's existing SFPP lines between Watson and Colton, California. In addition to expanding the offered destinations, the second open season adds additional origin points to enable supply diversification and optionality for our customers. We believe this project provides an attractive supply alternative for markets in Arizona and in California. In our Terminals business segment, our liquids lease capacity remained high at 93%. Market conditions continue to remain supportive of strong rates and the utilization of tanks available for use is 99% at our key hubs on the Houston Ship Channel and at Carteret, New Jersey. Our Jones Act tanker fleet remains exceptionally well contracted, assuming likely options are exercised. Our fleet is 100% leased through 2026, 97% leased through 2027 and 80% leased through 2028. We have opportunistically chartered a significant percentage of our fleet at higher market rates and have an average length of firm contract commitments of more than 3 years. The CO2 segment experienced 1% lower oil production volumes, 2% lower NGL volumes and 2% lower CO2 volumes in the quarter versus the fourth quarter of 2024. For the full year 2025, oil volumes are about 2% below '24 but finished strong in the quarter to be slightly above our plan for the year. With that, I'll turn it over to David. David Michels: Thank you, Tom. This quarter, we're declaring a quarterly dividend of $0.2925 per share, which is $1.17 per share annualized, up 2% from 2024. For the fourth quarter, we generated net income attributable to KMI of $996 million and EPS of $0.45, 49% and 50% above the fourth quarter of 2024. This quarter's results included a gain on an asset sale which we treat as a certain item. Excluding certain items, our adjusted net income and adjusted EPS still grew very nicely, both 22% above the fourth quarter of 2024. Our growth was driven by newly placed in service natural gas expansion projects, contributions from our Outrigger acquisition and continued strong demand for natural gas transport, storage and related services. For the full year 2025, we beat our budget by more than the contributions from our Outrigger acquisition. Outperformance came from our natural gas business, driven by greater value on transport capacity and ancillary services. Our Terminals segment also generated better-than-budgeted contributions. We budgeted to grow adjusted EBITDA by 4% and adjusted EPS by 10% from 2024. We actually grew adjusted EBITDA by 6% and adjusted EPS by 13%. Our 2025 EBITDA and net income were at all-time record levels for Kinder Morgan. Moving on to the balance sheet. As we continue to grow our cash flows and take a disciplined approach to capital allocation, our balance sheet continues to strengthen. Our net debt to adjusted EBITDA ratio improved to 3.8x, down from 3.9x last quarter and down from 4.1x at the end of the first quarter, which was immediately following the acquisition of Outrigger. Since the end of 2024, our net debt has decreased $9 million despite nearly $3 billion of total investments in growth projects and the acquisition. So we'll go through a high-level reconciliation. We generated cash flow from operations of $5.92 billion. We've spent -- we've spent $2.6 billion in dividends. We invested $3.15 billion in total CapEx, including growth sustaining and our contributions to joint ventures. We spent approximately $650 million on the Outrigger acquisition. We've received $380 million on divestitures, primarily the EagleHawk sale. And then we had all other items as a source of cash of about $100 million. That gets you close to the $9 million decrease in net debt for the year. The rating agencies have recognized our strengthened financial profile. Last week, S&P upgraded us to BBB positive. Fitch upgraded us to BBB+ during the summer of 2025, and we're on positive outlook by Moody's. So as has already been mentioned, but I'll mention it again, 2025 was an exceptionally strong year, a record setting year, in fact. We beat our budget and delivered double-digit earnings growth. We grew our backlog from $8.1 billion to $10.0 billion despite placing $1.8 billion of projects into service, meaning we added $3.7 billion of projects to the backlog during the year. We improved our balance sheet. We achieved credit rating upgrades and expect meaningful cash flow benefits from tax reform which will generate additional investment capacity. We have very positive momentum heading into 2026. And with that, I'll turn it back to Kim. Kimberly Dang: Okay, Michelle, if you'll come back on, and we'll take questions. Operator: [Operator Instructions] Our first caller is Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Look, if I can kick it off more on the data center front. You guys talk about the 70% number with respect to where you have exposure and aligned with data center opportunities. Can you talk a little bit about what you're seeing actively on that front? Obviously, we saw the FTC announcement here, perhaps that speaks to that a little bit. But how do you think about that regionally in terms of further data points we should be seeing through the course of the year? And I've got a quick follow-up. Kimberly Dang: Okay. I'm not exactly sure about the 70%. But if you look at our $10 billion backlog, about 60% of our backlog is associated with power projects. That's not just data center, that's anything associated with power. And if you think about the opportunities on the power side, I think a great example is if you look in the state of Georgia, where Georgia Power, recently, I think the end of November filed a revised IRP. And they're projecting 53 gigawatts of power demand between now and the early 2030s. And so from a gas perspective, if that was 100% gas, that would be like 10 Bcf a day, roughly, depending on the conversion metrics you use. And we expect that a significant portion of that will be gas, and that's just one utility in one state. And so what we're seeing across our network, whether that's in Georgia or South Carolina or Louisiana or Arkansas or Texas or New Mexico, Colorado, mean we are seeing similar stories just across our network. And the other thing is you look at power demand, we've got a higher power demand growth between 2025 and 2030. Wood Mac has in their most recent estimates increased theirs. And if you look at Wood Mac between 2030 and 2035, they think the power growth, at least in their projections, is greater between 2030 and 2035, than it is in their projections between '25 and '30. So this is something that is driving significant amount of projects. It's also a significant driver of the potential opportunities that we have, and we think will last for a decade. Julien Dumoulin-Smith: Excellent. If I can just firm up a little bit more on the SSE5 setup and timing. What are you looking to move forward on that? How are you thinking about timing? And then even more specifically, if you could speak to -- are you thinking about this as being a compression first or looping kind of project initially? And what level of signed utility load would unlock a more formal filing? Sital Mody: Yes, Julien, this is Sital. So look, in terms of timing, we see strong interest in the Southeast, and we continue to work with the customer base. In terms of what the final scope looks like, that all depends on final subscription. I do see it more than just compression. I think there could be some more brownfield looping. But once again, it's early. We're working through the demand dynamics with our customer base. We do see opportunity there, and it is competitive. So we will continue to report as we go along. But ultimately, the signed deal is what drives the announcement. Operator: Our next caller is Jackie Koletas with Goldman Sachs. Jacqueline Koletas: First, I just wanted to start on the next steps on the Western Gateway following the second open season launch last week. How do you think about allocating capital towards this project versus natural gas opportunity set? And how do those returns compare? Kimberly Dang: Yes. I mean on every project, we look at based on risk and return. And so I think we have a middle-of-the-road return that we expect and then we vary off that based on the stability, the duration and the creditworthiness of the cash flows. And so it's -- you've got stronger creditworthy parties and longer cash flows and take-or-pay, then you come off that return -- down from that return a little bit. And if you have those things are less and you go above that return. All these returns are significantly above our cost of capital. And so I think if we proceed on Western Gateway, we will have long-term shipper contracts there. And I expect those shipper contracts will be largely from creditworthy counterparties. And if not, we would have some credit support. So we don't, at this point, have limited capital. I think we can easily fund this project and do all the natural gas projects that we're talking about. Another point I'd point out on Western Gateway, which is we are contributing assets to that. And so our cash contribution will be less than we're going to -- we're setting up a 50-50 joint venture with P66. It would be less than half of the cost of the overall project because we're contributing value for -- contributing assets for part of our contribution. Jacqueline Koletas: Got it. That's helpful. And then just as a follow-up, leverage ended around 3.8x in the quarter. How do you think about maintaining leverage levels towards the midpoint of your long-term guide of 3.5 to 4.5x range versus leveraging up towards that high end if there are multiple CapEx opportunities? Kimberly Dang: Well, I'd say right now, what we've said is we're going to spend about $3 billion per year in CapEx. Now that won't be a perfect ground, $3 billion because you just have timing of spend, but roughly $3 billion a year. And we have the ability to fund that 100% out of cash flow. The other thing I'd point out is that as our $10 billion backlog of projects come online that our debt-to-EBITDA actually declines over time. And so that creates more balance sheet capacity. So for every 0.1x of leverage, that's $850 million of capacity. So I think we've got a ton of capacity even without leveraging up closer to the 4.5x. And I don't think we have intention of getting close to that level. So I think we've got plenty of capacities to accommodate the opportunities that we see out there. Operator: Our next caller is Theresa Chen with Barclays. Theresa Chen: Kim, I hear you loud and clear on the less than 50% of capital contribution on Western Gateway because you're contributing SFPP. When we think about the net EBITDA impact to Kinder, and I'm assuming this project moves forward, how should we quantify the displacement of existing SFPP EBITDA? How much is that contributing currently? Kimberly Dang: Well, I think, 2 things. One, Theresa, I think we're really early. And so we've got to get through the open season, we've got negotiations to do with our partner on the specifics. So I think -- and so I think we've got to finalize costs, et cetera. So I think it's too early to go through that at this point. Theresa Chen: Understood. Maybe turning to a different portion of your liquids business. Could you provide an update on the progress of the HH conversion? And in light of recent upstream developments in the Bakken and the increasingly challenged near-term outlook for the basin, how are you thinking about the expected NGL throughput and EBITDA contribution from this project? Kimberly Dang: Sure. I mean the project is going to come on probably late first quarter, early second quarter and that's Phase 1. And then with respect to the future phases, that's something we continue to work on. Sital Mody: Yes. I mean, Theresa, Broadly, though, I mean, we still -- given the recent pullback, it's just a matter of time. I think our initial phase is well contracted. We see the volumes behind it. These are coming from our plants, and so we have visibility there. So I don't think, as far as Phase 1 is concerned, and that is probably on the earlier side of the time frame that Kim gave you in terms of where we come in. I think as we look to the next phase, we continue to have discussions, positive discussions with our customers. We'll monitor the overall macro situation, and we'll make the investment decision accordingly. That being said, we still have that in front of us. Kimberly Dang: Right, and I think the other thing is GORs are growing in the Bakken. Operator: Our next caller is Michael Blum with Wells Fargo. Michael Blum: Yes, maybe if I could just ask maybe a different way at the same question to some degree, with Continental Resources effectively saying they're going to stop drilling in the Bakken. I'm wondering if you can talk about, at least for now, can you talk about how meaningful a customer they are, either your current business? Or where they were contemplated to be for HH and if that has an impact on the further expansion? Kimberly Dang: So yes, if you look at the EBITDA that we get from Bakken or EBDA, it's about 3% of Kinder Morgan overall. Obviously, Continental makes up a piece of that. We don't think that there's going to be any material impact from the Continental news. We think that the impact is very manageable, that's one because it's 3% of our EBITDA. But it's also because volumes came into the year a little stronger than we were expecting. And it's also because they're going to continue to complete wells through August and because they are just one of a number of customers we have up there. Michael Blum: Okay. Great. That makes sense. And then I just wanted to ask, in light of the asset sale that you did here in late 2025. Are there more noncore assets that you're actively looking to sell? And strategically, are there segments or areas of the business that you're more inclined to reduce your exposure to? Kimberly Dang: Okay. Yes. Let me talk about the EagleHawk sale first. First of all, on that, that's not an asset that we were looking or planning to sell. Our partner approached us because they were selling at least a portion of their interest and based on the price that we could achieve it made sense to sell. It's an 8.5x multiple on a nonoperated minority interest in the GMP asset. And when we looked at the reinvestment opportunity, meaning if we were buying at the price that we propose to sell and we look at the cash flows, those were going to be below our cost of capital. So -- and that included taking in into account any tax impact from the sale. So we thought it made sense. It was a good economic decision to sell that asset and recycle that capital. And so that's generally the way that we have been approaching sales of assets, which has been more opportunistic. As we say, our assets are for sale every day at the right price. And so we want to make good economic decisions about that. We like the portfolio of assets that we have today, 60 -- it's 2/3 natural gas and 26% is products, pipelines and terminals, very similar pipeline and storage business. So similar -- and then 7% is CO2, which is a little bit different, but we get great returns on that business, and we have an expertise that a lot of people don't have. So I think we're very comfortable with the suite of assets that we have, and this was just an opportunistic sale that made sense. Operator: Our next caller is Jeremy Tonet with JPMorgan. Jeremy Tonet: I was just curious for your thoughts, I guess, industry at large and what opportunities it could present to you down the road just if we think about Waha egress. One, we have some pretty cold weather coming up in -- during Uri, that presented opportunities for Kinder last go around. So just wondering if you could share any thoughts there. Sital Mody: Well, look, we -- as always here, when we look at the footprint, given our footprint, we're able to leverage basis dislocations that occurred. First and foremost, we want to serve our customers. And then to the extent that these opportunities present themselves, we've been taking a little more of a proprietary view on certain things in certain areas, strategically, small amounts. And so to the extent that, that presents itself, we'll be able to leverage that. Kimberly Dang: Yes. But I don't think -- this storm is not a Uri. Sital Mody: It's not a Uri. Kimberly Dang: I mean it's much shorter in duration and it's not going to be as significant. So... Jeremy Tonet: Understood. It seems like there might be another one on its heels. So we'll see what happens this winter again. Kimberly Dang: Generally, what I would say is that the gas transportation market is very tight. And so whenever you see dislocations in supplier demand in and around our assets, that is going to present opportunities for us. And that's part of what you saw in the fourth quarter of this year. Sital Mody: Yes. I mean a key component of that is storage for us, and we have a significant storage portfolio that will allow us to leverage some of that to the extent that it presents itself. Jeremy Tonet: Got it. And then just wanted to dial in on NGPL a little bit here, hearing more data center-driven opportunities in the Midwest, coal to gas switching as well, some of the other nat gas pipeline operators are seeing a lot of activity there. I'm just wondering if you could talk about what that could mean for Kinder -- for NGPL. Sital Mody: Yes. So look, we've -- we're quite a bit of -- there's significant discussions. You've been seeing some of the EBB postings we've been making out there. We've got interest along the pipeline in terms of not only just from power customers but also from organic markets that are trying to grow. Still early on some of these projects. We've got some binding commitments that we're looking to convert into full-fledged FID projects, as these develop, we'll bring them. But I mean, when you think about the corridor itself, we see a concentration up in the market area. We have some in the producing regions where folks are looking to site themselves. And so I think the opportunity set is there. It's just, once again, we're in this mode where folks are looking -- there's -- it's a competitive landscape, and so we want to make sure we secure the returns that we need to progress the projects to FID. Operator: Our next caller is Jean Ann Salisbury with Bank of America. Jean Ann Salisbury: You said in the prepared comments that MSX could be in service a couple of quarters early, I think. Is there any read across to a faster permitting process across the board? Or was that project specific? Kimberly Dang: No. I mean I think a couple of things on these projects. One is 871 is gone, and that happened, I don't know, 6 or 9 months ago. And that basically required us to wait 5 months between when we got our FERC certificates and when we could start construction. So that's gone. And then the FERC has acted within -- is going to act within roughly 1 year on our filing. And so previously, we've been seeing that take a little bit longer than that on big projects. And so the fact that the FERC process only took 12 months and we don't have 871 is speeding up our in-service on MSX from, call, the fourth quarter of '28 to the second quarter of '28. Jean Ann Salisbury: Great. That's very clear. And then one of your peers took an equity stake in a U.S. LNG terminal a few months ago. Is that something that KMI is actively looking at or would have interest in, especially, I guess, if you could back to back it with another counterparty to make it take-or-pay equivalent? Kimberly Dang: To make it -- well, I'll say a couple of things on that. Generally, what we've seen on the LNG front is the returns haven't been where we needed them to be to make those investments. And it's not something that we are accustomed to building. We do a small one, obviously, at Elba, but that was a relatively small facility. And so I think in general, what you should expect from us is that we are kind of sticking to our knitting, we're staying in our lane. We are serving those LNG -- that LNG demand through our pipelines. And right now, we serve 40% of that demand. As Rich said, that demand is expected to grow significantly, and we expect to get our fair share of that future demand, and that's driving very nice project opportunities for us. So I'm not saying we would never step out. It's just there hasn't been the opportunity where we thought the risk return profile was appropriate. And we haven't wanted to build these on our own. Richard Kinder: I think another thing we like on a risk-return basis is the fact that both on the LNG terminal side for feed gas and on the service to -- for electric generation purposes, we have, in general, take-or-pay contracts with utility grade -- investment-grade utilities. And that, we think, is a very good way to look at the risk that we are taking. And we think that minimizes any risk that we have as opposed to contracting directly with AI developers, for example. Operator: Our next caller is Keith Stanley with Wolfe Research. Keith Stanley: You updated the messaging on CapEx to at least $3 billion a year of growth CapEx for the next few years, up from $2.5 billion. Wanted to clarify, is that solely based on the sanctioned project backlog today? So if you keep FID-ing new projects and the backlog grows, CapEx could be above $3 billion a year for the next few years? Or is that already reflecting your best estimate over the next few years? Kimberly Dang: I'd say it's largely based on the $10 billion approved project backlog, but there is some view, there is a small portion that is based on getting some of the $10 billion in the opportunity set. So -- and look, I think that we updated it from $2.5 billion to $3 billion, given the $10 billion, given we continue to add to the backlog even after putting projects in service. So this year, when we were putting all those projects in service at the beginning of the year, we thought it might come down. It's continued to increase natural gas demand, we continue to see it grow between '25 and '30, but also beyond that. And so there may be the opportunity to extend that further, but we're not ready to do that -- or make it higher, but we're not ready to do that at this point in time. Keith Stanley: Got it. Second question, just wanted to follow up on the earlier one on Mississippi Crossing. So if you're 6 months early on that project and on -- potentially on some of the other bigger ones given the regulatory environment. Would your contracts kick in and you'd have pretty close to a full financial contribution right away at that earlier date? Or is that not the case? Kimberly Dang: It's a project-by-project analysis. In this case, the answer is no, the customers don't have to take it at that point in time. They can. I mean, they can elect to take it, but they don't have to. And I would say that being early on the regulatory front does not directly translate into day for day on the in-service. It's going to depend on the projects because once you move back that regulatory, once you get sooner approval from a regulatory perspective, you have to think about when you're getting pipe and when you're getting compression. And so, for example, we haven't seen that translate into much of an earlier date on South System 4 at this point in time. So it's project by project. But if our customers don't want that capacity, it will be available for us to use during that time. Sital Mody: And given the macro environment, Keith, I mean, you just think about the demand profiles that are coming our way, it's just -- you look at that as an opportunity to sell in the secondary markets. Operator: Our next call is Manav Gupta with UBS. Manav Gupta: Firstly, congrats on all the upgrades from rating agencies, reflects the strong quality of the management and execution. I wanted to ask you about the Florida Gas Transmission projects, both the projects. How did these come about? Can you give us more details? And then the last one year, what you have seen is you announced the project and then end up upsizing it. So if you could talk about the possibility of some upsizing here for these projects. Sital Mody: So Manav, this is Sital. So just in terms of the project itself, as you know, we're not the operator. Energy Transfer is the operator. So we'll let them talk about how it came about on the call. We've been working with them closely. Thematically, it's the same themes we've been talking about in the Southeast. We see that as a growth area, just broadly. And this is just another example of us getting incremental infrastructure to an area where there is significant growth. There's also a resiliency component there with the 2 projects. We think it makes sense in terms of whether or not the project gets upsized. We're in the process of having an open season right now. That open season closes here, I think, Feb 5, if I'm not mistaken. And based on the interest there, is it possible to upsize? Yes, if there's a demand for it. Kimberly Dang: Yes. I'd say both those projects are backed by long-term contracts with creditworthy counterparties. And so I mean, they are right down [Technical Difficulty]. Manav Gupta: Perfect. And my quick follow-up here is, at the start of the call, you mentioned that the 4Q turned out to be stronger than what you thought when you announced your 3Q results. So help us understand some of those tailwinds which help you drive the beat in 4Q? And are those still persistent out there? So should 1Q also turn out pretty strong, if you could talk about that. Kimberly Dang: Sure. So I mean, it was across the gas network. So it was our intrastate business, it was our interstate pipes and it was our gathering assets. And so as we said before, when you [Technical Difficulty] and this goes more to the outperformance on the intrastate. Operator: This is the operator, please standby. And speakers, please go ahead. The next question comes from Jason Gabel. Jason Gabelman: It's Jason Gabelman from TD Cowen. Hopefully, the storm isn't hitting you too hard down there. Maybe to start and to help everyone out, maybe we could just replay Manav's question because I was interested in the answer to it. I didn't quite hear. So just wondering what drove the earnings upside on the natural gas segment in 4Q. It sounded like some of it was driven by pull from LNG plants. So did some of these plants start up earlier than you had expected in the plan? Or were there other factors at play? Kimberly Dang: I mean, it was -- look, it was across the entire gas business. So it was a lot in our Texas intrastate market. It was in the Eagle Ford and the Haynesville on our gathering assets. And then it was also on the interstate markets more so in the Northeast than other areas. And so it's a function of having a very tight pipeline and storage network and that's going to create opportunities when you have supply or demand dislocations that could be weather, that could be LNG coming on or off, it could be a variety of factors, but that leads to volatility and upside for us. And there is the potential for that to happen again in 2026. Jason Gabelman: Great. And my follow-up maybe staying on the topic of LNG. It seems like the market is facing this upcoming global supply glut and maybe you get a bit of a slowdown in the pace of new liquefaction project sanctions here in the U.S. Gulf Coast. So just wondering how much of that project backlog, if any, is tied to servicing incremental projects? And I guess it's not the project backlog. It is the shadow project backlog and projects -- LNG projects that are associated with that shadow backlog. Kimberly Dang: Yes. So a couple of things. I'd reiterate the point Rich made a minute ago, which is -- the -- we have long-term take-or-pay contracts with these LNG facilities. And so those typically are 20- to 25-year contracts, and they pay whether they use that capacity or not. In our current backlog, about 12% of the $10 billion actual approved project backlog -- 12% of the shadow backlog is associated with LNG. So it's not a huge percentage. I think a lot of the shadow backlog, again, is going to be more on the power front. But the other thing I'd say is that when you look at these LNG projects, it's not always about adding a new facility. A lot of times, it's about an existing facility has some capacity and they want to reach further back to get more competitive supply. So to have incremental project, you don't have to have a new facility come online. It could be a need from an existing facility to try to get more competitive supply. Operator: And at this time, we are showing no further questions. Kimberly Dang: Okay. Thank you, everybody. Richard Kinder: Thank you. Have a good day. Operator: Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.
Operator: Good afternoon. My name is Constance Constantine, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Knight Swift Transportation Fourth Quarter twenty twenty five Earnings Call. All lines have been placed on mute to prevent any background noise. If at any time during this call you require immediate assistance, please press 0 for the operator. Speakers from today's call will be Adam Miller, Chief Executive Officer Andrew Haas, Chief Financial Officer and Brad Stewart, Treasurer and Senior VP of Investor Relations. Mr. Stewart, the meeting is now yours. Brad Stewart: Thank you, Constantin. Good afternoon, everyone, and thank you for joining our fourth quarter 2025 earnings call. Today, we plan to discuss topics related to the results of the quarter, current market conditions and our earnings guidance. We have slides to accompany this call, which are posted on our investor website. Our call is scheduled to last 1 hour. Following our commentary, we will answer questions related to these topics. In order to get to as many participants as possible, we limit the questions to 1 per participant. If you have a second question, please feel free to get back in the queue. We will answer as many questions as time allows. If we're not able to get to your questions due to time restrictions, you may call (602) 606-6349. To begin, I will first refer you to the disclosures on Slide 2 of the presentation and note the following. This conference call and presentation may contain forward-looking statements made by the company that involve risks, assumptions and uncertainties that are difficult to predict. Investors are directed to the information contained in Item 1A, Risk Factors, or Part 1 of the company's annual report on Form 10-K filed with the United States SEC for a discussion of the risks that may affect the company's future operating results. Actual results may differ. Now please turn to Slide 3, and I will hand the call over to Adam for some opening remarks. Adam Miller: Thank you, Brad, and good afternoon, everyone. During the fourth quarter, the truckload market saw demand that was generally stable, but lacking the typical broad-based seasonal lift in demand until late in the quarter. Seasonal project activity occurred in October, but wound down quickly in early November. As a result, truckload volumes were lower than we expected. While we did see some improvement in overall demand and a tightening spot market in December, it was a reduction in available capacity that seemed to be the primary driver of the tightening market. The pressure on capacity also may be affecting the secondary equipment market as we experienced slowing equipment sales trends and falling average prices during the quarter. Developments such as these are often a precursor to a more healthy market. Thus far in January, network balance is running better than typical seasonality as capacity continues to be under pressure. We are pleased that our people were able to deliver meaningful sequential operating margin improvement in our Truckload segment, even while demand was short of our expectation for much of the quarter. For the full year, our progress on structurally cutting costs out of the business helped us overcome a $125 million decline in truckload revenue, excluding fuel surcharge, but grew adjusted operating income $28 million in this segment. At the same time, the Truckload business overcame inflation pressures to hold its 2025 cost per mile flat with 2024 despite miles declining 3.6%. Our LTL team was able to produce year-over-year shipment growth for the fourth quarter in a lower demand environment even after lapping the DHE acquisition in the prior quarter as our expanding network continues to help us create new opportunities. This team also responded quickly to the changing environment, stepping up the intensity of our cost initiatives to deliver operating margin within 60 basis points of the prior year levels, even while shipment count growth fell well below that of the growth in facilities and door count year-over-year. As we move into a new year and with anticipation building for a turn in market conditions, we felt it would be helpful to review our company's profile and to highlight some of the things we are focused on to better position ourselves for earnings growth moving forward. I won't touch on every part of our business here, but I wanted to share a few thoughts. First, we operate the largest fleet in the truckload industry and roughly 70% of our fleet is deployed in one-way or over-the-road service. It is true the one-way market has been the most difficult place to be over the past 3-plus years as this market has felt the brunt of the influx of capacity since the pandemic, but one-way service is what typically improves first and most in a tightening market. Our unique ability to deliver responsiveness at scale and with industry-leading trailer pool flexibility are competitive differentiators that attract opportunities, especially in a tightening market. Second, the significant progress we have made cutting costs out of our truckload business has driven year-over-year earnings growth despite lower revenue. Further, while the deleveraging effect of lower miles has masked some of our progress in reducing cost per mile, we believe most of the fixed cost reductions are permanent and position us for better incremental margins as volumes and pricing recover. The incremental margin opportunity is further enhanced by the room to improve utilization on the existing fleet. While we have made meaningful progress on cost to date, there are still a number of opportunities to further improve and to scale our business efficiently. We have been investing in internal development and external products to facilitate tech-enabled efficiency gains as well as better revenue capture, including through AI and other methods. We expect the benefits to begin to be realized in 2026 as we more fully roll out these technologies and as an improving marketplace provides us opportunity to scale more efficiently. Finally, our entry into the LTL industry and subsequent expansion over the past few years is just the beginning of what we believe will be a multiyear journey with an attractive runway for reinvesting free cash flow towards improving revenues, margin and earnings stability. As we have grown our facility count faster than our shipment count over the past 2 years, this has weighed down margins, but we expect a more deliberate pace of network expansion in the near term will allow us to restore margins as we continue to grow into these investments. We believe the existing infrastructure has capacity to support annualized revenue of $2 billion. As we continue growing into these investments, the operating leverage will be further enhanced by building density and optimizing our cost structure to help us reach our goals of steady margin improvement. Then, when we look externally, there are a number of factors that increasingly indicate the truckload market could begin to grow stronger in 2026. Capacity reduction is clearly underway. Regulatory enforcement of qualifications and safety standards was arguably the most welcome development in 2025 for our industry. The influx of capacity from 2021 to 2024, much of which was played by a different set of rules and operating with different cost structures has distorted pricing behaviors and cyclical patterns. The ongoing efforts of the FMCSA and DOT to prevent and revoke invalidly issued CDLs, shut down noncompliant CDL schools and address hour of service abuses should, in our view, have an outsized impact on the lowest priced capacity in the one-way truckload market. Aside from the regulatory cleanup, capacity continues to erode, especially in the one-way truckload market where struggling carriers are running out of liquidity and large players continue to shift towards dedicated services. Second, market data trends have improved of late. Despite muted demand, rejection rates climbed in recent months and are hanging in above year ago levels in early January. Similarly, market spot rates and the spot versus contract spread improved exiting 2025 to the best level seen since early 2022. These market trends align with those seen within our own businesses. And finally, the inventory pull forward appears largely worked off as a result of solid holiday sales, and there is a potential for stimulative support for demand from the tax bill and Fed rate cuts. It appears the market has progressed to a point where even small increases in demand can cause disruption and our industry-leading over-the-road capacity is uniquely positioned to create value for our customers and capture opportunities for our business. The market and regulatory developments in the back half of 2025 give us increased confidence in the path to return our Truckload segment back to mid-cycle margins. We are not here to call the turn by any means, but we are closely monitoring market trends, bid developments and signals from our multiple nationwide truckload networks and are prepared to execute our playbook for deploying capacity towards the most valuable opportunities as the landscape shifts. We remain committed to thoughtfully deploying capital, intentionally leveraging our strengths and creatively unlocking synergy opportunities across our business. And with that, I will turn the call over to Andrew and Brad to review the results of the quarter and our guidance. Andrew Hess: Thanks, Adam. The charts on Slide 4 compare our consolidated fourth quarter revenue and earnings results on a year-over-year basis. Before getting into the comparisons, it's important to note that our GAAP results for the current quarter include $52.9 million of noncash impairment charges, primarily related to our decision during the quarter to combine our Abilene Truckload brand into our Swift business. Impairments have been adjusted out of our non-GAAP results as shown in the reconciliation schedules following this presentation. Revenue, excluding fuel surcharge, decreased slightly by 40 basis points and operating income declined by $51.5 million year-over-year, largely due to the $52.9 million of impairment noted above. Adjusted operating income declined 5.3% year-over-year as a result of lighter truckload and LTL demand environments compared to the fourth quarter of 2024. GAAP earnings per diluted share for the fourth quarter of 2025 were a loss of $0.04, primarily related to the impairments noted above. GAAP earnings per diluted share in the prior year quarter were $0.43, which included a $36.6 million benefit for a mark-to-market adjustment of certain purchase price obligations associated with the U.S. Xpress acquisition. Adjusted EPS was $0.31 for the fourth quarter of 2025 compared to $0.36 for the fourth quarter of 2024. Our consolidated adjusted operating ratio was 94%, up 30 basis points year-over-year and 20 basis points sequentially. The effective tax rate of 21.6% on our GAAP results was 820 basis points higher year-over-year. The effective tax rate of 23.1% on our non-GAAP results was 460 basis points higher year-over-year. Slide 5 illustrates the revenue and adjusted operating income for each of our segments for the quarter. Overall, truckload grew as a share of our consolidated revenue quarter-over-quarter as the fourth quarter is typically the strongest season for this business, while it is the softest [indiscernible]. We would anticipate LTL returning closer to its recent 20% share next quarter as LTL seasonality begins to improve. We have been enhancing our ability to generate revenue synergies across brands and lines of service. The key levers are intentional leadership to drive powerful collaboration and deploying technology to foster seamless connectivity. Leveraging excess capacity in one brand against excess demand in another effectively increases our ability to search and capture a greater share of market opportunities while solving internal network imbalances. To be certain, we have leaned on each other before, but for these advances -- but these advances make such practices systemic, more responsive and scalable. These are calculated investments designed and prioritized based on their ability to propel our business. Now we will discuss each of our segments, starting with our Truckload segment on Slide 6. As Adam mentioned, volumes in the Truckload segment were lower than expected with generally lower demand than the prior year period until late in the quarter. Additionally, seasonal project activities in October had shorter duration than in the prior year, likely due to some freight having been moved earlier than normal given trade and tariff disruptions throughout 2025. Additionally, blockades of the Mexico border during the quarter were a headwind to productivity, especially for our TransMex division. While demand did show some improvement late in the quarter, which helped support spot rates, this could only partially overcome the muted November results. The secondary equipment market weakened during the quarter, which appears to be at least partially related to the impact of regulatory enforcement on smaller carriers, which caused gains on sale to come in roughly $4 million below the prior quarter level and our expectations. On a year-over-year basis, revenue excluding fuel surcharge declined 2.4% and adjusted operating income declined $9.2 million or 10.7% year-over-year, largely as a result of the 3.3% decline in loaded miles. Revenue per loaded mile, excluding fuel surcharge and intersegment transactions increased 0.7% year-over-year and sequentially improved 1.4% over the quarter. The fourth quarter combined adjusted operating ratio was 70 basis points higher year-over-year. Excluding U.S. Xpress, the Legacy Truckload brands operated at a 91.6% adjusted operating ratio, while U.S. Xpress improved its adjusted operating ratio 430 basis points year-over-year to the mid-90s as the seasonal project participation was at its highest since the 2023 acquisition. Finally, during the fourth quarter, we decided to combine the Abilene trucking operations into our Swift business to improve efficiency and enhance the productivity by incorporating these assets and freight flows into a more robust network with more freight opportunities. We continue to make tangible progress improving our cost structure to position our business to generate meaningful returns as market conditions recover. Moving on to Slide 7. Our LTL business grew revenue excluding fuel surcharge 7% year-over-year with shipments per day up 2.1%, a lower growth rate than the previous quarter as we lapped the acquisition of DHE on July 30 and as market demand moderated at the beginning of October. Revenue per hundredweight, excluding fuel surcharge, increased 5% year-over-year. Adjusted operating income decreased 4.8% and adjusted operating ratio increased slightly by 60 basis points year-over-year. As Adam noted, in response to the moderating demand environment during the quarter, we stepped up the cost initiatives we had announced last summer to mitigate pressure on margin. We are taking action where prudent in the short term, but without sacrificing our ability to respond to growth opportunities through ongoing bids as discussions around bids currently in process are encouraging. During the fourth quarter, we opened one new service center and replaced another with a larger site, bringing our growth in door count to 10% year-over-year. We have opportunities to optimize our operations and cost structure as our network and business mix mature, and we have confidence in our plans to achieve this. Our solid service levels, growing customer base and ground to make up on pricing provides a compelling runway for the value to be generated by this business. Now, I will turn it over to Brad for a discussion of our Logistics segment on Slide 8. Brad Stewart: Thanks, Andrew. Logistics revenue for the fourth quarter declined 4.8% year-over-year as volumes were down 1%, while revenue per load was 4.1% lower due to mix change. Third-party carrier capacity grew noticeably more difficult to source during the quarter, which pressured gross margins. Gross margin of 15.5% for the fourth quarter declined 230 basis points from third quarter levels and 180 basis points year-over-year. Adjusted operating ratio was 95.8% for the quarter. Another recent trend is the increase in cargo theft in the industry. While fraud and theft in the industry has been on the rise over the past couple of years, channel checks indicate a rash of theft in the quarter, some of which appear to be related to operators being forced out of the business through either financial struggles or regulatory enforcement. If these trends continue, it could further encourage shippers to allocate more business to direct asset-based carrier relationships. For our part, we have been further tightening our already rigorous carrier qualification standards and narrowing the existing carrier base that we tender loads to. Also, if upward pressure on third-party capacity cost continues, this could cause further pressure on gross margin in the near term as capacity continues to erode. However, given the relationship between our Logistics segment and our Asset-Based Truckload segment, we believe these dynamics would ultimately benefit both our asset and logistics businesses over time. Our Logistics business has demonstrated its agility in navigating a volatile market the past few years by maintaining its operating margin close to target levels through disciplined pricing and cost management. This team is now further leveraging technology to take cost efficiencies to a new level as well as to improve our responsiveness and ability to capture opportunities in the market, which we expect will contribute to earnings in 2026. These enhancements, combined with its complementary relationship with our asset business, position our Logistics business to accelerate revenue growth and the return on our trailer assets in an improving market. Now on to Slide 9 for a discussion of our Intermodal business. The Intermodal segment improved its adjusted operating ratio 140 basis points year-over-year to 100.1%, driven by a 2.8% increase in revenue per load as well as structural cost reduction and improvement in network balance, which led to significant year-over-year reductions in empty repositioning, trade and chassis costs. Revenue declined 3.4% year-over-year on a 6% decrease in load count, partially offset by the increase in revenue per load. On a sequential basis, revenue grew 1.7% up 2.6% increase in load count, with both measures reaching their highest marks for the year. We look forward to leveraging the new chapter in our rail partnerships in an improving market. And in the meantime, we remain focused on delivering excellent service and driving appropriate returns through growing our load count with disciplined pricing, cost control, network balance and equipment utilization. Slide 10 illustrates our all other segments. This category includes support services provided to our customers, independent contractors and third-party carriers such as equipment sales and rentals, equipment leasing, warehousing activities, insurance and maintenance. For the quarter, revenue increased 17.7% and the operating loss in the seasonally slow period for this category improved $5.9 million or 37.3% year-over-year, primarily driven by growth in our warehousing and leasing businesses. Now on Slide 11, we have outlined our guidance and the key assumptions, which are also stated in the earnings release. Actual results may differ from our expectations. Based on our assumptions, we project our adjusted EPS for the first quarter of 2026 will be in the range of $0.28 to $0.32. In general, this guidance for the first quarter assumes current conditions remain stable and that we experienced some seasonal slowing in the truckload market and seasonal recovery in the LTL market. The key assumptions underpinning this guidance are listed on this slide. I won't take time to read through all of our assumptions here, but I do want to touch on a couple of the more significant moves other than the typical seasonality in truckload. We expect a strong bounce back in our all other segments category after its seasonal slow period in the fourth quarter, and we have significantly reduced the range for expected gain on sale based on the secondary equipment market trends that we noted in our earlier comments. Now this concludes our prepared remarks. And before I turn it over for questions, I want to remind everyone to please keep it to one question per participant. Thank you. Constantin, we will now open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Richa Harnain from Deutsche Bank. Richa Talwar: I guess maybe we can start with the outlook. Adam, you walked through some various items to be -- look forward to in 2026, some tailwinds. Maybe you can just elaborate on like in light of those tailwinds, why we're not seeing maybe a more robust outlook for Q1? And I understand that there's some seasonality, but maybe you can just talk about that. And then just generally speaking, like any sort of guidance on how we should think about Q1 relative to the entirety of the year? Has seasonality shifted at all? And given the incremental margin should maybe be better, given all the good work you did on costs, like how should we think about how margins could progress as the year goes on? Adam Miller: Yes. Okay. Thank you, Richa. We'll count that as one question. So just to go through the outlook here. Maybe I'll start with just maybe walking through Q4 and then how that kind of sets up in Q1 and then maybe how we're looking out beyond that. I won't give any guidance in terms of EPS beyond Q1, but I can give you my view of how I think the market may progress. When we came into the fourth quarter, I think on our last earnings call, we talked about having some projects in the queue, some of them we haven't seen in several years. And those did materialize in October. And typically, when you see projects like that materialize, you have other types of projects that just kick off during the fourth quarter where you have customers that have acute needs and those typically drive a stronger November and build up through Thanksgiving and then you have a little bit of a lull coming out of that and then you could finish the quarter strong. Once we got through our projects in October or maybe early November, we did not see the strength continue. And it was a bit disappointing the volumes in November, and it was just tough to overcome that even with some of the strength we saw in the back half of December. And we don't get too wrapped up in the spot market jumping up for a couple of weeks because we're still largely contractual, but we did see some of the lift, but it wasn't enough to overcome the slower November and then just the disruption you get in productivity during the holidays. But as we saw that market kind of continue in or bleed into the first part of -- the first couple of weeks of January, I think we became a bit more constructive on maybe the balance between supply and demand. And so as we sit in early January, we're feeling a bit better about our ability to push rates in the bid season and maybe find some ways to even get some spot -- some premium spot opportunities early in the first quarter, which has been some time since we've been able to do that. But when I look out to what that means for the first quarter, a lot of the work that we do in the bids, we don't really feel the benefit of that or see the benefit of that until you get into the second quarter, earlier or mid-second quarter and then throughout the back half of the year. So I think the first quarter, we may be in a period where we feel better than we look in terms of the results, but the confidence in our ability to start to push rates higher and to restore or begin to restore our margins. And I think we've started off the bid season with far more constructive conversations with customers where the discussions are starting around securing incumbent lanes with positive rates. Now I think what we'd be pushing for would be low to mid-single digits and improvements in contract rates and maybe closer to mid than low. And maybe that may not align with what our customers want to see in a prebid. And so some of this stuff is going to go into a bid to see where the market is from a balance standpoint. And we've already heard from several customers about wanting to shift a bit more volume from brokers to assets because of the spot market trends that we've been seeing and then some of the capacity that's been coming out of the market from a regulatory perspective. So I think that gives us more confidence in where this market is headed. But I don't know that we really feel the full benefit or see the full benefit of that in the first quarter. But again, we're not trying to call the inflection yet. It's -- we've seen head fakes before, but I think we're feeling better about where this market is headed. And we do feel better about what the DOT and the FMCSA are doing to clean up capacity in our industry. And I could tell you our Knight, our Swift and especially now our U.S. Xpress business is well positioned and prepared with the tools, even the culture around what we're going to do to find opportunities to really leverage the scale and the flexibility that we have in our network. And so we're encouraged about what that could mean here in the back half of this year. Andrew Hess: Richa, I mean, Q1s are always a hard quarter to really flex, right, just based on that seasonality. I -- you rarely and I don't expect rate will be much of a lift for us year-over-year in Q1. And we're operating on a smaller fleet than we were last year. So I think all those go together, we do expect continued progress on cost. And I think that's our expectation here in the first quarter, improvement in cost per mile year-over-year. And I guess the other side, we talked a lot about truckload but LTL, I mean, I think there's -- we're still watching how the volumes build back. And that's, to some degree, going to determine how this quarter plays out. We're encouraged as kind of we're watching the early build back of volumes here in January, but there's still a lot of kind of runway ahead of us to see really where volumes build to in the quarter. So our guidance range that we've provided does not -- we think reflects a reasonable kind of middle lane view of how the quarter plays out. But certainly, if market conditions improve or worsen, there is a degree of variation around the guidance we're providing here. Operator: Your next question comes from the line of Jonathan Chappell from Evercore ISI. Jonathan Chappell: Adam, as it relates to the priorities and the strategic goals, almost every single segment you highlight cost to serve, technology, automation, optimization, et cetera. So when we think about your margin progression from 1Q, do you kind of view this as all the things you're doing on the cost side and the efficiency side could make margins improve even without a true inflection of the market? Or is it more you need price, price kind of drives an exacerbated move in margins and kind of higher highs and higher lows. Adam Miller: Yes. I mean, really, John, we really want to see both. But if the market doesn't play out on the revenue side, like we're maybe expecting in the back half of the year. We're not going to be a victim of that. We're going to go after as much as we can on the cost side to improve margins on a year-over-year basis. But certainly, when you have a lift in rates in the spot market, that mean that's going to help you get to kind of normalized margins. I don't think you get to normalized margins just on cost alone. You'll need some lift in the market. But we look at it as, hey, we fight both battles on a regular basis. And really, the wins we've had have been more on the cost side in the last couple of years. And I think we're due on the revenue side, but our goal is to get -- to make progress on both. Andrew Hess: It's really a 3-pronged approach, right, to full repair margins. It's capturing price. It's bringing volume back into the business, and reducing our cost per mile. We expect each one of those independently to contribute in 2026 to margin improvement. And the price, obviously, is going to be very much market dependent and to some degree, the miles, but we expect cost alone should drive margin expansion in 2026. Operator: Your next question comes from the line of Brian Ossenbeck from JPMorgan. Brian Ossenbeck: Maybe if you can expand a little bit more what you're seeing in the LTL market. It sounded -- I mean, you guys called out things were softer than I think most others saw last quarter. So that seemed to play on October, but it hasn't really built back the way you might have thought. So I wanted to see if you can elaborate on that, if it's more of a market perspective or maybe something with the network as you expand it? And then just some quick color on, you mentioned expanding the length of haul for the network like how does that -- how long does that take? And what does that really mean from a margin perspective as you go throughout this year? Adam Miller: Yes. So I think we talked about how we saw a shift downward of demand starting early in October, and that really progressed throughout the quarter. And so we've had to make some adjustments on the cost side of the business to adjust for that. But also factoring in that with our expanded network now, we're now going to have an opportunity to bid with larger shippers that we just hadn't had an opportunity with before because we didn't have the breadth of the network that would support what they're looking for in a carrier. And so a lot of those loads may be heavier loads, may have a longer length of haul. And this is where we tap into the relationships that we have on the truckload side of the business to provide opportunities for our LTL business to bid on that volume. So it's kind of still a little too early to tell how is volume really -- is it really picking up? Are we seeing a shift from Q4 into Q1? I think the margins were okay to start, but we're looking for a greater lift. But we have a lot in the pipeline right now in terms of bids that we think could be impactful to the shipment volume of our LTL business because we just have new customers that we have opportunities to grow with. So we're kind of working through those, still early progress on that, and I think more to come. But we're just kind of balancing what you do on the labor front to manage your expense in a market where you have volumes lower than I know what we can handle, knowing that we could have an opportunity to see those volumes shift up, and we want to be prepared to handle that with a high level of service. Andrew Hess: Yes, Brian, maybe one point I would add to that is one of the things we identified last year was even though we had integrated from a back-end perspective and systems between the 3 businesses that we have combined, it was creating confusion in our sales efforts and as we took our business to the market. And so we announced in the third quarter, we're moving to a unified brand. We've already seen that really help us in our sales efforts that we can present a single face to our customers and get them comfortable with our ability to deliver across our network in a way that meets their needs. So we think that is enhancing our sales efforts. We think that's going to help in addition to just the design of our network that we're going through. I mean it is a process to really put our network as we understand how our freight is flowing with these customers, there's been a process of doing that network design that we've been going through. And I think we're getting to the point where we've managed a lot of those bottlenecks. It's really put in a position on bid on business that we have not been able to participate on before. And so there's a lot of tailwind here in terms of we think the strength that's going to build in our ability to sell and build volume into the business that we built this structure on. Operator: Next question is from the line of Ravi Shanker from Morgan Stanley. Ravi Shanker: Maybe as a follow-up to that, kind of in the past, I think you've said you're keeping the brands that you've acquired, protecting them so that you don't have any customer losses, driver losses and kind of other negative implications in taking those brands away. So, a, how do you protect against that? B, what does this mean for the other separate brands in your portfolio? And if I can squeeze a really quick one in, kind of you spoke about LTL bid season going well. Any early comments on TL bid season would be great as well. Adam Miller: Sure. I touched on TL already, but I'll come back to that to Ravi. Yes. So if I look over the last 2 quarters, we've made a couple of adjustments to our strategy around some of our brands. On the LTL front, I think what we realized going into the strategy we had with buying multiple brands is the outsized benefit you get on the LTL front when you have one distinct network, 1 pro number, just 1 voice to the customer. I mean that is what they long for. They don't like the interline approach. And even though we had the systems integrated, we had -- the visibility was similar across the different brands regardless of the website, it still didn't feel like one company and one carrier to them. And so we felt like we needed to shift that strategy around LTL to provide one brand, one voice to the customer in order to really maximize the potential of the network that we've built. And so that wasn't an easy decision. We put a lot of thought into it, but we still think that was the right approach. Now you may have seen or we did comment on rolling Abilene Motor Express into our Swift Transportation business. Abilene Motor Express was a smaller company that we purchased in 2018, and it had gotten down to around 300-plus trucks and was really struggling. And what we found was given the size of that company and maybe the lack of brand recognition with some of our customers, it was really tough for them to break through with freight opportunities that was going to support their network. And we had some change in leadership that came from the Swift business to help right the ship at Abilene. And ultimately, we made the decision that it would be best for the Abilene employees, the drivers in particular, to run under a more robust network under Swift, we're trying to convert as many of the Abilene customers that went direct with them to the Swift network. And we had a lot of overlap of customers. So we're in that process right now of keeping that freight within Swift, but then supporting Abilene with backhauls and things that allow them to be far more efficient from a network perspective. I would not -- we don't have another brand out there that we own that we believe we would ever need to take this approach with. This was one that really saw margins degradate over the last several years and didn't have a clear path to profitability, and we felt like this was the fastest way to get that business back to generating a reasonable turn for the assets that we have and then allow us to reduce some overhead and put our drivers in a position to be successful. So again, it wasn't -- this isn't something that we would take lightly, but this was the right decision for the situation we were in. And on the TL bid, again, it's early, but we've had constructive conversations with our customers around rates being positive. And we're not having discussions about having to reduce rates to retain volume. And now it's just a matter of where can we get comfortable about where rates need to settle out in the bids. And some may be done in pre-bid negotiation,s, others, it will probably have to go to the bid, so the customers can really vet where the market is. But I feel more confident going into this bid season that rates are -- contract rates are going to be up. And I think that will build as capacity continues to exit. I mean we have some cliff events coming potentially with capacity, Ravi, where we've already seen with English proficiency, nearly 12,000 drivers who've been put out of service since June. We have -- with California, there's 17,000 non-domicile CDLs potentially expiring in March. New York has a similar number that isn't further that far out from there. Really all states other than, I think, one are not issuing non-domicile CDLs. So you kind of shut off that funnel of capacity coming in. And then there are several countries where the temporary protective status is ending as well in Somalia, Epiopia, in Haiti, where I would believe actually, you're going to have some of those individuals that are driving the truck. That may not be legal to be able to do that any longer. And then I mentioned just in my opening remarks about all the schools that are being shut down. I think there were 3,000 schools recently removed because of noncompliance and another 4,000 schools that have placed on notice for noncompliance. And there are audits out there being completed. I mean we -- 2 of our schools at Swift were audited and hey, we passed with flying colors as we'd expect. So it is real. It is happening. And so I think, again, constructive on early bid, but I think we'll start to see rate improve as the bid season progresses. Andrew Hess: And I think maybe just one note to add to that is we've had customers share with us that one of their objectives out of the bid season is to increase their asset coverage -- and we are -- I think we're seeing customers looking at the market, looking at the regulatory changes and realizing that this could be particularly more strategic procurement organizations are looking at this as a chance to increase their coverage of asset. And I think that's helpful in our conversations in the bids. Operator: Your next question is from the line of Dan Moore from Robert W. Baird. Daniel Moore: I think everyone realizes that you're positioned -- first of all, that you're under-earning along with everybody else in the space. And secondly, that you're well positioned here from the standpoint of starting to get some momentum in terms of rate. I guess 2 questions, I'll call it one, 2 things that I'd like to get some perspective on is one, cost-out story. You guys have been very focused on cost, lane balance, improving your landed cost. Where are you with that? And then, i.e., how much is left? Or are you at a pivot point there where you really need to be more focused on rate? And then to the extent that the rate environment improves over '26, is there an opportunity to go back to customers in the early innings that try and lock in at rates that are noncompensatory? That's it. And I appreciate the time again. Adam Miller: Yes. So Dan, maybe I'll hit on rate, and I'll let Andrew talk about cost. Rate is pretty fluid in terms of how it works in our markets because you got to realize we're not locking up with guaranteed volumes with a customer on the over-the-road space. Now dedicated is a little bit different, but the 70% that we do over-the-road is pretty fluid. And when the market begins to shift and it becomes tougher to find capacity, even if we've done contractual rates, we're managing commitments. We start to get overflow volumes, which sometimes can be at a premium. You get backup rates where in a market like this would typically be higher than your contractual rate. You'll have spot opportunities that are ad-hoc on our customer load boards that sometimes can be a premium. And so we can move pretty quickly to adjust to the market if we see it changing. And so even if you've kind of locked up rates early in the bid cycle, there's still opportunity with that customer, even if it's not going back and changing what you've already agreed to, it's just doing more for them because it's tough for them to find capacity in a more challenging market, and that's where you can at times charge a premium. And so you've got to know what your commitments are, be able to adjust those, manage it very closely. And that's what Knight historically has always done. We brought that logic to Swift, and they've employed that extremely well. And that logic is there with U.S. Xpress now. And so I think we're well equipped to be able to react to the market. And again, we're watching this every single day. We have the network maps that are unique to each brand that we see trends before probably many in our space would see those trends. And we have API, we have algorithms that we can adjust on the fly if we see the market changing. And so I feel like we are -- we will be well positioned to get the most value out of the market if it does indeed does change. Andrews, do you want to hand the cost? Andrew Hess: Yes, maybe I'll give you a little perspective on cost and kind of how I rate our performance as I look back on 2025 and give you a sense for how much more ahead of us is in 2026. So when you look at an environment like 2025 when we got less than 1% on rate, you're not even covering inflation, which probably wants to be 3% to 4%. So you're not getting a lot of help from the market. And so if you look at our Truckload segment, where our costs are down something like $150 million, probably 2/3 of that reduction is variable, maybe 1/3 of that is fixed. And so you put that all together and you get about, I think, an 80 basis points improvement on OR year-over-year. And so when you think about the variable costs, it probably drove half of that OR improvement. So you've covered inflation plus some margin expansion from these areas. So at the beginning of the year, we put initiatives in place to drive cost out of what we viewed as the biggest opportunity, 3 variable cost areas of maintenance, fuel and insurance. And those -- all of those areas improved, obviously, from a dollar perspective. But I think even more meaningful is that each one was lower in 2025 as a percentage of revenue in 2024 and on a cost per mile basis. So real improvement, not just volume-driven reduction. So those projects are continuing. And just to give you a sense for some of the work we're doing there is we're working with our drivers to create new routing and fuel optimization processes to really get more efficient in our routes and identify the lowest cost fueling solutions. So we have technology that we are deploying that is largely going to benefit us in 2026. I would -- but also another project that we're really encouraged by some additional tools to drive advanced auto planning technology to just help us optimize our freight routing and load assignments. We think this has a chance to really help us drive driver and asset utilization and reduce deadhead and just improve our overall network efficiency. So we're going to continue to deploy these tools to drive variable cost per mile down. On fixed costs, gosh, we made so much progress there. Obviously, you lose 3% or 4% miles are really, it's hard to show up in your P&L because of the fixed cost leverage. But as a percentage of revenue, it also declined in 2025 versus 2024 even with that loss in volume. So we view these as structural in nature that won't come back. It will lever really well. And I think it's going to come in 3 areas: equipment and cost and productivity. There, you saw that in our utilization improving 2 or 3 percentage points last year over the year before. Our real estate costs, look, we've done some really smart, in my view, facility rationalization, we exited and sold, I think, 13 locations that we don't think -- we're looking at this very long term. These aren't things that are going to impair our ability to capture opportunities, but drove -- are going to drive cost out of our business just in how we manage our facility costs. Our facility maintenance costs are down about 4% last year. We want to do that again in 2026. Our overhead costs are the other big area we're focusing, I think our -- in the truckload space, we're about 5% down on nondriver headcount after doing 5% or so the year before. So a lot of the AI initiatives that we've made reference to or we're rolling out in 2026 are really going to help us identify opportunities in G&A. And we talked about Abilene. That's going to be an area that's also going to create some opportunity for more efficiency in the cost of our business. So the costs are a huge area of focus for us. We're attacking it from a lot of different angles, and we're optimistic about the momentum we're building on our strategy and costs. Operator: Your next question is from the line of Chris Wetherbee from Wells Fargo. Christian Wetherbee: I guess maybe kind of curious if you could elaborate a little bit on what you're hearing from shippers as you're going through the beginning of bid season here. I guess maybe specifically around capacity reductions, I guess, is there any sense of urgency from the shipper community to kind of think about covering some capacity needs as we -- and maybe doing that on the earlier side? Just kind of thoughts about how they're thinking about it. And then maybe related to that, I know you're doing a lot of work on the cost side. But as you think about the potential for driver wage increases through the cycle, obviously, the enforcement focus is on the driver side, and we're seeing that pool shrink. Do you think there's risk to the upside in terms of the traditional relationships that we think about a point of price getting a portion of that to the driver? Does that change at all as we go through the cycle given what this enforcement action looks like? Adam Miller: Well, so Chris, on the shipper commentary, I mean, look, we're in early bid season. So everyone is always negotiating at this point. So I think there are certainly some that acknowledge that there's potential risk. Some would push that risk out a little bit further into the year and may not feel some of that pain today. There's others that recognize that they most likely want to get ahead of it, especially if they have a higher percentage of their freight running through brokers where their real exposure is. But again, it's still kind of early on where it's more of a discussion point rather than then taking real action on it right now. So I think we'll -- again, we're going to watch that. We continue to have dialogue. And again, they may not always be so upfront with us because we're in the process of negotiating rates. On the driver front, this is always the question we get, hey, when rates go up, do you have to share that with driver wages? And I think historically, we would typically share -- it's probably around 25% to 30% of our revenue per mile would go to drivers. Now in this cycle, it may feel a little different. There's a lot of margin to restore given how low that margin has gotten over the last few years. And so I think we've got to take some of that margin to the bottom line before doing a blanket driver wage increase unless we feel like there's enough momentum where we're going to have plenty of revenue per mile to share. But we just watch, are we able to hire? Are we able to retain? I think our drivers get just a noticeable increase in pay just from running more miles on the truck. And so typically, when in an environment that's improving, you're going to get better utilization, which we're already seeing that out of our trucks, which is naturally raises the wages for our drivers. But hey, if we find the driver market gets really tough kind of given the -- where the -- with the tightness of capacity and we are compelled that rates are going to be improving, then yes, we may share with the drivers so we can ensure that we have enough capacity to meet the needs that our customers have in terms of operating loads. So it's pretty dynamic. And hey, we wouldn't -- we would look at it in pockets, and we would look at it specific markets rather than historically, we've done across-the-board approaches. We would be very dynamic based on the region and where we have challenges retaining and hiring, and that's where we put our resources. Operator: Your next question is from the line of Ken Hoexter from Bank of America. Ken Hoexter: Adam and team, just want to revisit a couple of your comments, right? So you said recent trends in truckload have continued into the early part of January, modestly better than typical seasonality. So I just want to understand, is that -- are you making a comment on anything demand led? Is that just the capacity side? Is that weather? So maybe dig into -- if there's anything in there on demand side as we go into the first quarter and your thoughts as we go forward. And I guess the same for LTL, it seems like you said same thing, modest volume improvement. Is that just share gains? Or are you making a demand commentary there, too? Adam Miller: Yes. I think on the truckload side, what I'm referring to is every day, we'll come in to the office, and we get a look at the market in terms of the relationship of number of loads versus number of trucks that we have available. And in the first quarter, a lot of times, you're having to dig out every morning needing additional loads to feed the trucks that are available to operate a load. And so every morning, we get these maps, we have -- it gives us an idea of the kind of the balance in the network. And so early part of January, those maps are far more balanced than we would typically see in the first quarter, meaning you have -- you're very close to relationship of having enough loads for every truck that you have available and you're not having to book as much same-day freight. It's hard to know if that's demand or capacity. I would lean towards capacity, Ken, simply from the third-party data that we have that's available out there where load tenders are still relatively low, even if you look at the last 3 years, yet rejections are higher. And that would align with what we're seeing in our rejections as well. Now our load tenders are still better. So I do feel like there's maybe a flight to quality in terms of customers shifting loads to the Asset-Based carriers. But from an industry perspective, I think it's more driven by capacity tightness versus demand, which I think is encouraging because that tells me any uplift in demand is just going to be that much stronger for the market. It will be that much more disruptive potentially. And then on the LTL side, I would say, I think it's just the -- we always see some real softness at the tail end of the fourth quarter, particularly with our customer base. We're a bit more retail than maybe some of the larger peers out there. And so we're just seeing that shipment count restore to kind of more normalized levels. But I don't know that we've really seen a big shift in demand that I would call out. And so for us, we're looking at through the bid season, can we pick up share through the customers that are newer to us, but again, that the larger shippers that now we have an opportunity to participate with. Operator: Your next question comes from the line of Scott Group from Wolfe Research. Scott Group: So Adam, just a bigger picture. If you look back at prior cycles, you've gotten a lot of price, but utilization usually goes down, maybe seated tractor counts go down or something like that, driver pay goes up a lot. It sounds like from one of the last questions, you don't think we have to give up maybe as much driver pay this time. And then maybe the other piece, like do you think you can get a -- can we get a pricing cycle where we also get utilization at the same time? And so if we have good price and utilization, maybe we don't have as much driver pay, it sounds like you're doing some stuff on technology productivity. Like could that relationship between price and margin be much better? Meaning like if historically, 10 points of price is 5 points of margin, do you think it's a lot better this time around? Adam Miller: So Scott, I mean, our goal, what we intend to accomplish is to get some utilization along with price. So then, yes, that price goes a lot further because you've got that utilization that also helps cover your fixed costs. And so I don't think we -- like if I look at the last cycle with COVID, I mean, the labor market was totally disrupted. And so I think that made it very challenging to source drivers. And so then obviously, rates were incredibly high. And even that shifted our network to where we were doing shorter length of haul at higher rates because that's where the needs were with the customer. So I think it really distorted the metrics if you're trying to look at it historically. I look at this as maybe a more typical cycle and the adjustment up. And I would think that we would be able to achieve better utilization with our equipment, the key is going to be what happens in the labor force. But we believe that with the academies that we have, the ability to train drivers at a very high level and reducing competition from other academies that I think are not compliant, that we'll be in a good position to source drivers, get volume while rates are improving. Andrew Hess: Scott, I would just make one point that one thing we've not had in prior cycles is we spent most of 2025 developing the capability to match up our demand between our different brands, between our large truckload brands and even LTL and truckload to find efficiencies where there's excess capacity in one place and demand, we can match them up. That is not a toolkit we've had at scale with the level of sophistication that we're going to go into this next cycle with. So I think that's going to help in filling some of those gaps to drive utilization up. Adam Miller: Scott, we appreciate you sticking to one question. So that will conclude our call. We appreciate all the interest and all the questions. If we didn't -- if we weren't able to get to your question, you can dial (602) 606-6349, and we'll try to get back to you as soon as possible. Thank you, everyone. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
President Donald Trump said Wednesday he is nearing the end of a search to replace Federal Reserve Chair Jerome Powell and hinted he has his candidate in mind. "I'd say we're down to three, but we're down to two.
President Donald Trump announced Wednesday on social media that he would refrain from imposing tariffs on goods from European nations opposing his effort to take possession of Greenland, citing a “framework of a future deal." Mike McKee reports.
The potential market fallout loomed over oral arguments held on Wednesday.
Major stock indexes popped late in the trading day on Wednesday after President Donald Trump announced a “framework of a future deal with respect to Greenland” with NATO and the cancellation of planned new European tariffs, just one day after markets slid following threats of tariffs and trade wars over the Arctic territory.