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Chris McGratty, KBW head of U.S. bank research, joins 'Closing Bell' to discuss the earnings from the big banks, the outlook and much more.
Operator: Good afternoon, and welcome to Compass Diversified's Fiscal 2025 Third Quarter Conference Call. Today's call is being recorded. All participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question, please press 11 on your telephone, and wait for your name to be announced. To withdraw your question, please press 11 again. At this time, I would like to turn the call over to Ben Tapper, Vice President, Investor Relations. Ben, please go ahead. Thank you, and welcome to Compass Diversified's third quarter 2025 conference call. Ben Tapper: Representing the company today are Elias Sabo, CODI's Chief Executive Officer, and Stephen Keller, CODI's Chief Financial Officer. We are also joined by Zach Sautel, Chief Operating Officer for Compass Group Management, and Pat Maciariello, who recently retired after twenty years with CGM. Before we begin, I'd like to remind everyone that during the course of this call, Compass Diversified will make certain forward-looking statements, including discussions of forecasts and targets, future business plans, future performance of CODI and its subsidiaries, and other forward-looking statements regarding CODI and its financial results. Words such as believes, expects, anticipates, plans, projects, should, and future or similar expressions are intended to identify forward-looking statements. These statements present our best current judgment about future results, performance, and plans as of today. Our actual results and operations are subject to many risks and uncertainties that could cause actual results and operations to differ materially from what we expect. Except as required by law, CODI undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise. In addition to any risks that we highlight during this call, important factors that may affect our future results, performance, and plans are described in our recent SEC filings and press release. During the call, we will refer to certain non-GAAP financial measures. Please note that references to EBITDA in the following discussions refer to adjusted EBITDA as reconciled to net income or loss from continuing operations in CODI's press release and SEC filings. At this time, I would like to turn the call over to Elias Sabo. Elias? Elias Sabo: Thank you, Ben. And good afternoon, everyone. With today's filing, we are now current with our SEC filings for 2025. We're also back in compliance with the reporting requirements under our credit facility and bond indentures, and we're returning to a more normal operating cadence. It's been a long road thus far, and I want to thank everyone for their patience throughout this process. We appreciate the support you've shown as we've worked through it. Before I discuss our performance, I want to give you all a quick update on some organizational changes that have occurred at Compass Group Management, our external manager. After twenty years of dedicated service, Pat Maciariello retired at the end of 2025. Pat has been an integral member of CGM's senior leadership team, and it's been a pleasure to work alongside him over the years. Stepping into the role of COO for CGM is Zach Sautel. Zach has been with CGM since 2009, most recently as the leader of our East Coast office. He's been instrumental in many of CODI's most successful acquisitions in his tenure and currently chairs the boards of BOA, Primaloft, Altor, and Sterno. I'm thrilled to have him take on this role, and I'm confident his leadership will support continued execution by all of our subsidiaries. Before we move on, I'll pass the call to Pat to say a few words. Pat? Over to you. Pat Maciariello: Thanks, Elias. It's hard to put twenty years into a few words, but I'll try. Working with the CODI team has been one of the most meaningful chapters of my life. I want to thank each and every employee, manager, and partner at Compass. I'm also grateful to the employees at each of our current and past subsidiaries. Your professionalism and hard work are evident every day. I would also like to express my gratitude to the executive teams at each subsidiary business. I have learned and continue to learn from each of you as you have modeled drive, leadership, and character. Working with you has been the highlight of my career, and I will be forever grateful for the opportunity. I look forward to watching all of your continued successes from afar. Thank you. Elias Sabo: Thank you, Pat. On behalf of everyone at Compass, thank you for your leadership and partnership over the years. Best of luck in your next chapter. I'll now turn to our year-to-date results and share a few operating highlights from our subsidiaries. Then I'll close with the steps we're taking to drive long-term shareholder value. From a macroeconomic perspective, 2025 was a year marked by uncertainty driven by geopolitical risks and a fluid tariff environment. Despite that volatility, our subsidiaries, excluding Lugano, delivered mid-single-digit growth in subsidiary adjusted EBITDA through 2025. That's consistent with the expectations we laid out at the beginning of the year. And while Lugano remains included in our reported results for the period, our focus today is on our eight other subsidiaries. Our solid performance reflects the disciplined execution of our subsidiary management team, as well as the attractive positions our businesses hold in their respective markets. Across CODI, we own and operate high-quality, well-managed, middle-market businesses that can perform through a range of economic environments. Now let me walk through what we're seeing in each vertical and share a few examples of how our teams are driving results. Year-to-date, sales in our consumer vertical grew low single digits. While we'll continue to drive significant penetration in multiple applications, including snow sports, cycling, workwear, and protective headwear. The precision and performance of the BOAFit system are unmatched. The Honey Pot is now one of the fastest-growing feminine care brands, driving continued share gains and category growth. The team has successfully launched innovative products and is taking share from legacy brands in the feminine care category. We believe this reflects the long-term appeal of better-for-you products, as well as the strength of our brand, supporting strong double-digit EBITDA growth. 5.11 moved quickly to adapt to the evolving tariff environment, using supply chain action and targeted pricing to protect performance while continuing to invest selectively to broaden the brand's reach. Year-to-date, our industrial vertical delivered mid-single-digit sales growth supported by Altor's 2024 acquisition of LifePhone. In 2025, the rare earth magnetics market saw meaningful disruption that we believe creates a compelling long-term opportunity for Arnold. Demand for a more geopolitically rare earth supply chain continues to rise, while intermittent export restrictions have increased volatility. These export restrictions created short-term headwinds in 2025, but we believe they also reinforce the long-term tailwinds for the business, as reflected in Arnold's growing backlog. Today, Arnold is one of only a handful of companies producing samarium cobalt magnets in the US. These magnets play an essential role in the most demanding aerospace and defense applications where supply chain security and performance reliability are critical. Finally, Sterno continues to deliver double-digit EBITDA growth, driven by strength in its core food service offering. The Sterno management team continues to drive efficiency, including optimizing sourcing and production locations to navigate the tariff environment. These are just a handful of the accomplishments across both verticals. Before I hand it over to Stephen, I want to reiterate our commitment to all of our stakeholders. Now that we have completed the Lugano investigation and restated our financials, we are focused on execution and on delivering consistent, long-term shareholder value. While our priority remains reducing leverage to mitigate risk and ensure long-term financial flexibility, we recognize the need to drive shareholder returns, and we are taking steps to position ourselves to be able to efficiently and prudently return capital to shareholders. We believe that our current valuation represents a significant discount to the intrinsic value of our underlying businesses. If this disconnect persists, we will factor that in as we consider the greatest risk-adjusted return opportunities, including the efficient return of capital. The bottom line is that we are committed to a better outcome for all of our stakeholders. With that, I'll now turn it over to Stephen. Stephen Keller: Thanks, Elias. As a reminder, our reported results still include Lugano Holdings, unless otherwise stated. Lugano will be included in our consolidated results through November 16, 2025, the date that it entered Chapter 11 bankruptcy proceedings, and will be deconsolidated thereafter. For the third quarter, net sales were $472.6 million, up 3.5% year over year. GAAP net loss for the quarter was $87.2 million, which includes expenses related to the Lugano investigation, as well as Lugano's operations. Now, given the timing of this call, and because this is the first time we publicly discussed our 2025 results, I'll focus my commentary on year-to-date performance. This captures the first three quarters in full and helps normalize for interquarter shifts as customers prepared for and then reacted to changes in the tariff landscape. Year-to-date, consolidated net sales were $1.4 billion, an increase of 8.6% over the prior year, or 6.1% excluding the impact of Lugano. In our consumer vertical, sales were up 3.1% driven by very strong growth at the Honey Pot, with additional contribution from 5.11. Year-to-date, BOA declined slightly, as the team exited a lower value, less performance-oriented business in the children's market in China. This planned exit supports BOA's long-term strategy, excluding the children's business in China, 10.5% driven primarily by Altor's acquisition of LifePhone. Growth was partially offset by near-term headwinds at Arnold, due to the geopolitical uncertainty and disruptions in the rare earth supply chain. As discussed, while that disruption creates short-term challenges, we believe it also reinforces the long-term strategic relevance and growth opportunities of that business. Excluding Lugano, year-to-date subsidiary adjusted EBITDA was $257 million, an increase of 5.8% over 2024. The growth in subsidiary adjusted EBITDA was primarily driven by double-digit growth at the Honey Pot and Sterno, as well as Altor's acquisition of LifePhone. This growth was partially offset by short-term challenges at Arnold as it deals with the rare earth supply chain disruptions and broader tariff-related uncertainty. Our consolidated net loss year-to-date was $215 million, which includes the $155 million loss at Lugano. Public company costs and corporate management fees were $99.5 million year-to-date. Included in that amount is more than $37 million of one-time costs associated with the Lugano investigation and restatement. CODI and our board continue to work with the manager to fully recoup overpaid cash management fees from prior periods affected by Lugano's results as originally reported. The overpayment of which will be partially offset by voluntary cash management fee reduction made by the manager during 2025. In the fourth quarter, we expect to reconcile these items through a significant true-up related to the restatement. We expect this to result in a one-time noncash benefit in CODI's P&L and the recognition of a current asset that will be used to offset future cash management fees. CODI expects to fully recoup the overpaid cash management fees by 2026. Turning to our cash flow, year-to-date we used $54 million of cash in operating activities, primarily due to costs associated with Lugano's operations and its disposition. Year-to-date, we've invested $34 million in capital expenditures, in line with the prior year. As we continue to protect and invest in our eight subsidiaries to support sustained growth. We ended the third quarter with $61.1 million in cash and cash equivalents and less than $10 million used on our revolver. As a reminder, due to the credit agreement amendment we signed in late 2025, we have restored access to the full $100 million capacity on our revolver. As Elias discussed, reducing leverage is our priority, and we are focused on deleveraging both organically and through value-accretive strategic transactions, including the potential opportunistic sale of one or more businesses. The credit agreement amendment we signed in December gives us the time and flexibility to deleverage in an orderly way. Under the amended agreement, our leverage covenant is relaxed through 2027, with milestone fees paid to the lender beginning June 30, 2026. If our leverage ratio is not below 4.5 times, which serves as an incentive for faster deleveraging. That structure allows us to deleverage organically while remaining in compliance. It also preserves the flexibility to accelerate deleveraging through a value-accretive sale of one or more businesses. As a reminder, our year-end leverage ratio, excluding the deconsolidated Lugano results, is expected to be around 5.3 times. Finally, we expect to continue to fund the growth of our subsidiaries alongside our debt reduction and to maintain appropriate liquidity as we execute against our plans. Turning to our outlook for 2025, consistent with previously communicated guidance, we are tightening our expected subsidiary adjusted EBITDA range, excluding Lugano, to between $335 million and $355 million. We'll provide an outlook for 2026 when we hold our fourth quarter call. However, we do expect to organically deleverage in 2026 through solid growth in our subsidiary adjusted EBITDA. As has been in practice, our outlook does not include the impact of any potential acquisitions or divestitures and assumes no incremental material impact from changes in the tariff environment or other macro and geopolitical developments. Finally, we know many investors have inquired why members of management and the board have not yet purchased shares following the completion of the restatements. The main reason is timing and process. Given the cadence of our SEC filings this year, we expect our insider trading window to remain closed until after we file our 2025 Form 10-Ks and complete the annual audit. When the window does reopen, any purchases would be subject to our normal preclearance and compliance procedures. With that, I'll hand it back to Elias for closing remarks. Elias Sabo: Thanks, Stephen. Before I wrap up, I want to share one additional thank you from our board and everyone at CODI. James Bottiglieri retired from the CODI board at the end of last year. For over twenty years, Jim was a key member of both the management team and eventually our board. Jim was instrumental in our initial public offering and has been a valued board member, providing deep institutional knowledge, financial expertise, and wise counsel to the board and management. We truly appreciate everything he contributed to CODI. Now as I conclude today's prepared remarks, and we look ahead, I want to reiterate our commitment to generating sustained, long-term shareholder value. This objective is reflected in our capital allocation priorities: to reduce leverage, invest for growth and long-term value creation, and at the appropriate time, return capital to shareholders. With 2025 in the rearview mirror, we're ready to get back to what has historically defined CODI. We believe we have a battle-tested business model strong enough to withstand the unprecedented events of this past year. We offer a permanent capital approach that allows us to acquire, manage, and grow attractive businesses that are leaders in their space. We provide shareholders access to high-quality middle-market businesses backed by engaged ownership, strategic resources, and a long-term approach, while empowering strong management teams to run and grow our subsidiary businesses. We know 2025 was challenging, and trust is earned through consistent execution. That's our focus as we enter 2026. With that, Stephen and I will now take your questions. Operator? Please open the lines. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment for questions. Operator: And our first question comes from Lance Vitanza with TD Cowen. You may proceed. Lance Vitanza: Thanks, guys, for taking the question, and congratulations on getting the restatement done. My question would be with respect to the Honey Pot. My recent channel checks seem to suggest both more shelf space and also faster inventory turns than at least I had expected. And I'm wondering if you could comment on how the performance has been shaping up relative to your internal expectations and to the extent there's been outperformance on that basis, what do you think the drivers of that have been? Elias Sabo: Sure. And thank you, Lance. It, you know, first feels good to be back up to date with all of our filings and the company getting back to a more normal operating result level. With respect to the Honey Pot, you know, this is really an extraordinary brand. You know, I think we told you when we bought this business that this was a company that was founded by an extraordinary woman and that she was really changing kind of the entire industry and using better-for-you products. It was mostly a business that was in kind of more of the hygiene side, and it was not in the broader part of the feminine hygiene market. It was in more of the washes and wipes. And so that's a very small market. One of the things the company has been able to do, and it was always part of the plan, was to extend the brand into other categories. And in this case, the company has been able to get into the menstrual category, which is a mass market compared to the market they were entered into before. And we've had very successful execution. Our product really does stand for something, and our brand, and with our customers, it's extendable into other adjacent categories. And so what we've seen is more shelf space being dedicated to us in this new category. And our turns are doing really extraordinarily well. So relative to expectations, I can tell you the company is significantly outperforming expectation, given kind of the additional shelf space that we continue to talk to our retailers about as the next year gets set. We expect that growth to continue, and we're investing in the brand. You just see a lot more marketing. It was always our strategy. So everything's coming together, and it is really producing wonderful results. And I think 2026 is shaping up to be a great year. Lance Vitanza: Thanks. That's really helpful. I appreciate it. If I could just squeeze in one last question. On the divestiture front, and I know you've talked about this previously, but could you just sort of remind me, like, are there any assets that are, you know, off the table there that you would just simply not consider selling at any price, or should we just consider this, you know, you're gonna look to maximize shareholder value. And if that's, you know, subsidiary x y z, it's subsidiary x y z. Elias Sabo: Yeah. I would say everything, you know, our model has always been everything is for sale at all times. It all comes down to the value that you're willing to pay, and, you know, to the extent that's attractive to us, we would always be a seller under those circumstances. Nothing has changed with respect to that, Lance. So absolutely, all of our businesses remain, you know, available for sale because that's the basic, you know, kind of business model that we have. Now I would tell you that some of our companies that are growing really fast and have great dominant market positions, and I think, you know, we all know kind of some of those businesses that we have. Look. The valuation expectations are gonna be really high. If they fail to materialize, we are in a position where, you know, although we would like to divest the business, we don't have to. And what we won't do is take a, you know, big discount on a premium asset. And so I would just say, you know, yes. Everything remains available for sale. That's always been the case. We do have a, you know, a firm-wide desire to be in divestment mode in order to shrink our balance sheet. To get back to normal leverage and then have capital allocation available to us again. Stephen mentioned, you know, part of that is clearly looking at, you know, buying back stock as a capital allocation opportunity. And at these prices, we would think that's pretty attractive. So divestment is what we would like to achieve. But it is not without, you know, kind of respect to valuation, and we'll be, you know, very disciplined in executing that. Lance Vitanza: Thanks so much. Stephen Keller: Thank you, Lance. Operator: Thank you. Our next question comes from Larry Solow with CJS Securities. You may proceed. Larry Solow: Great. Good afternoon, everybody, and welcome back, I guess, to the current financial world. Also, just want to send my best wishes to both Pat and Jim. Great working and personal relationships with both of them. So I wish you guys both the best of luck. I guess first question, Elias, just kind of broad brush. I know you called out good growth in all your holdings, quite frankly. But growth seems like it slowed a little bit. I think you grew kind of 8% in the first quarter and 2% or 3% this quarter. It looks like it's probably more just timing and some of your bigger holdings like BOA, I think, maybe timing there and also the Chinese exit. So just put it just from a broad brush, you know, how do you see the economy, like, today versus, you know, I know you had a lot of other things on your mind, but maybe at the start of the year. I'm just, you know, you're... Elias Sabo: Yeah. Thank you, Larry. Thank you for the warm wishes for Pat and Jim. They've both been really valuable participants here in building Compass and have become friends with us all, and we wish them the best in their future endeavors. With respect to the economy and kind of how we see things, you know, or saw things unfold, we did have a really strong Q1. And things moderated in Q2 and Q3. We saw a little bit of a pull forward of some demand that we think otherwise would have materialized on a more normalized pattern with the, you know, kind of Liberation Day announcement. And there was, you know, a period of time where you could still bring some goods in, I think everybody kind of rushed to do that. So there's a bit of distortion, I would say, quarter to quarter because of that. But look. We're gonna normalize for that, there still is a bit of a slowdown that occurred after Liberation Day. And as you'd anticipate, you know, there's, look, a lot of inflation. There was some inflation that came through. Still, and, you know, it was very disruptive for a lot of companies. And I think consumers, you know, just got to the point where they weren't willing to take any additional inflationary pressures. So that's been a very difficult environment in which to operate. I would say 5.11 has probably had, you know, the biggest impacts from that because, you know, we produce in Southeast Asian countries, not China. We were, you know, I think, quick enough to get out of China when the president was in his first term and there was a lot of rumblings. But, you know, in adjacent markets where you produce a lot of apparel, there's still 20% tariffs. And you have a customer set that is, you know, very reticent to take any incremental price increases, that's a, you know, tricky spot that companies, you know, I think, are across a lot of different industries are finding themselves in. So, you know, it may not impact directly a BOA or a Primaloft, but if our customers are feeling those same headwinds, then that impacts us. And so I'd say broadly, Larry, these tariffs have, you know, kind of slowed down at least the consumer side of the business. The industrial side of the business clearly had, you know, a very unique kind of impact from the export restrictions that China put on rare earth minerals. As a result of that, there's, you know, as you see in Arnold's results, millions of dollars of EBITDA reduction that occurred. I think that is a little bit more, you know, kind of a one-off, and we expect that to revert back to normal in 2026. Yep. And so that had some impact on kind of the weaker results in the back half of the year. But I would just say broadly, things slowed a little bit, but still feel like they're growing. Larry Solow: Yeah. And I know, listen, you're not giving guidance for next year yet, but you have spoken about sort of getting your leverage down organically with into the mid-fours, so that would imply some growth. And it does feel like even if consumer slows a little more, Altor sounds like it's gonna, you know, I know it's basically flat this year, maybe organically, but it seems like that's not really a lot of that's non-economically related with the cold storage and as you mentioned, Arnold should bounce back a little bit, right, next year, hopefully. So it feels like your outlook is you're kind of holding into that outlook, you know, continue to at least grow somewhat next year without getting ahead of our skis. Elias Sabo: Yeah. We're gonna give an outlook for next year here, I guess, sooner rather than later because we're gonna have our year-end call more quickly than normal. But I would say, Larry, we have very strong expectations that we will have a growth year next year. And that our free cash flow is going to be very strong. And, you know, heretofore, have not produced actual free cash flow because it's been invested in, you know, growth in working capital and other assets. In 2026, you know, when you talk about deleveraging path, there's two forms that it comes in. One is we expect growth of the portfolio. And number two, we expect to gain to grow and have actual free cash flow that repays indebtedness and has a lower gross amount of debt at the end of the year. So, you know, when you so that is going to be something, and we're not giving guidance today, but I would tell you when we do give it in, you know, five, six weeks or whatever the timing is, you know, it's going to include that kind of, like, foundational tenets. Larry Solow: Awesome. That sounds great. If I could just one more housekeeping question. Stephen, just on can you give us a sense of sort of, like, a normalized management fee today? I guess it sounds like there'll be some noncash accounting true-up in Q4 that'll kind of roll through at the P&L next year. But so maybe as we enter '27, obviously, your company may look a whole lot different. But based on what the current holdings and net asset value is, like, can you give us an idea, you know, what that normalized number would be? And then... Stephen Keller: Yeah. So I think it's so, look, obviously, we need to do a little bit of work to true up all the kind of overpaid management fees. And, like, as you mentioned, there will be some adjustments in Q4 from a management fee cost perspective, noncash. I would say for next year, I think it's probably around you can probably assume within the around $55 million, including what's paid directly by the subsidiaries. That's probably a good number based on our current portfolio of businesses and excluding any impact from Lugano. Okay. And then so excluding any fees, obviously, Lugano, we can consolidate, and those assets won't be under management. Right. From a cash perspective, next year, it'll be substantially less as basically, CODI will have lower cash payments to CGM to make up for the overpaid management fees that have been paid historically. So cash would be a lot less, from an accounting perspective, you'll see more of $55 million. Larry Solow: Yep. Okay. Oh, that's fair. Great. I appreciate it. Thank you, guys. Stephen Keller: Thank you, Larry. Operator: Thank you. Our next question comes from Timothy D'Agostino with B. Riley Securities. You may proceed. Timothy D'Agostino: Yeah. Thanks for taking the question. Congrats on being current in everything. Really big accomplishment. I guess my first question kind of goes back to asset sales. It would be great to get some color on, you know, who might be interested or how you might go about a sale. Not necessarily what you're selling. The reason why I ask is, you know, I think back to Fox Factory, and I wonder if there's any potential of, like, maybe like, bringing a company public and that being a way of sale. So I guess my question is, what are the different avenues you can explore when going to sell one of these assets? Elias Sabo: Yeah. Tim, thank you for the question. This is Elias. You know, in selling an asset, I mean, I think there are a number of avenues. Fox was an example of an IPO. If you remember not too long ago, we filed actually right before the market kind of took a turn for the worse in 2022 on an IPO for 5.11. And we withdrew that just because of market conditions. But that's a company that is, you know, kind of of a size that potentially could explore that kind of pathway. And in fact, you know, other companies are, you know, at that size or getting to that size as well. So IPO becomes an absolute route for which we can, you know, monetize the position. I think that route has the benefit of unlocking value and demonstrating that to the market. But it does not have the benefit of quick deleveraging because inevitably, we become a large holder of those shares. And we have to, over a series of years, make orderly sales to be able to monetize that. So although I think that is a great way for us to monetize assets, and we have that in our portfolio of things we would do, I would say it comes at the cost of not having quick liquidity. You know, for faster liquidity, you know, I'd say the routes are, you know, through investment banks, typically that we engage, and they go out and talk with, you know, kind of strategic buyers, private equity buyers. You know, Tim, understand because we're in the market all the time and we're engaging in the market, we're getting inbounds, and we are talking with bankers constantly about strategics or other PE firms that may have interest in our assets. And then conversely, assets that we may have interest in. Now 2025, we weren't doing really the latter looking for, you know, assets clearly. But, you know, there's always kind of that chatter that is going on. So I think just in the normal operations, we have a pretty good understanding of where strategics are right now by our different companies and their acquisition cycles, who's expressed interest, who has not, where PE firms are in that process, what we try to do is get a sense of what is the demand for an asset like this typically using investment banking partners to help us do that. And the ones that we feel we can get the greatest amount of interest and demand for are assets that we're, you know, kind of bringing out to market. Now I will say we've said this before, you know, we have a couple assets. A few that we are looking at this. You know, we don't we're not saying we're gonna sell multiple assets this year. But we do want to execute against a sale, and we don't want to give leverage to any potential buyer. And so in that process, we'll look at a few different businesses that we feel there's sufficient demand in the marketplace to warrant a good value. And then we'll, you know, determine which one that we will want to divest based on how the market materializes. Timothy D'Agostino: Okay. Great. That's super helpful color. And then if I can just ask another. Going forward in '26, the way you oversee the portfolio companies, has your oversight changed or how you go about it? If you could just provide any color there. Stephen Keller: Yeah. So I mean, I think what we talked about on the restatement call is that from an internal audit perspective and a compliance perspective, we have made some changes. We did decide to outsource our internal audit function with the idea that using a third party would allow us to do two things. One, it allows us to easily scale up and down the size of the team based on the assets that we have and the companies that we're running. And the second thing is also when you use an outsourced team, when you get businesses that have unique characteristics, it's easy for you to get industry-specific experience and quickly flex it up and down. And so we think the changes in internal audit and compliance moving to an outsourced model will be a better model. That's the primary change that we are making in terms of the oversight. There's also some other internal processes that we'll be looking at, but we do want to recognize the situation with Lugano was very, very terrible. It was unprecedented. It was also very unique, very unique, that situation. So as we talked about on the other call, we will probably change a little bit of some of our criteria. We would not necessarily want to have someone who is a founder still CEO, still owns 40%, and a key man, that's probably a risk that we, in retrospect, would like to structure differently if we had another deal. So we will make some changes like that. But overall, we have to remember that the situation of Lugano was very, very isolated to Lugano. And so generally speaking, the model that we have had and the oversight we've had of these have worked very, very well for twenty years. And this is a very unique situation driven by a very unique individual. Timothy D'Agostino: Great. Thank you so much for your time, and congrats again. Stephen Keller: Thank you, Tim. Operator: Thank you. Our next question comes from Matt Koranda with Roth Capital. You may proceed. Matt Koranda: Best wishes to Pat. You'll be missed. I guess, I wanted to make sure I understood, it sounds like we're motivated to sell an asset at some point this year, but we don't feel a whole lot of pressure given you have multiple good assets that you could potentially sell. The 4.5 leverage covenant that you have by midyear, is that something you could actually attain organically even just given the cash unlock from working capital that you could get this year? Stephen Keller: So first of all, it's not a the there's an incentive to get below four or five. If we're not below four or five, there's a payment. We won't be out of covenant. The covenant is actually higher. So we will be we will be in covenant the we are now and will continue to be all next year. There is a look. With some recovery from Lugano, you know, assuming that we have there would be a path to getting below four and a half organically, but it would be tighter than we would like, which is one of the reasons why we're trying to operate in a sense that we will be able to organically delever and therefore, that allows us to know, any asset sales to accelerate it and gives us more comfort. So we'll go down both paths. We're not gonna sell we do not want to sell a business at a discount. That we don't that will destroy shareholder value. So we're focused on being able to get below if you know, if a sale at the right valuation doesn't materialize. We do, however, expect to sell a business. Matt Koranda: Okay. Alright. That's fair. That helps. And then just wanted to hear a little bit more about Arnold and supply chain disruption. How long that sort of should be playing out or if it's already essentially solved in your mind and that just is gonna take a little time to percolate through the business. An update there. Elias Sabo: Sure. So as we all know, the trade liberation day and the tariffs on China caused a lot of global issues and retaliation by China in certain areas. You know, Matt, the area where China has the most leverage is over rare earths currently. Something like 90% of all Neo Neomagnets are produced in China, and I think something like 70% of all samarium cobalt is what we produce, is produced in China. So they're just a player. They obviously have a lot of the raw material that's there. And these are absolutely integral as we think about the AI economy, you know, alternate energy, you kind of production, to serve the AI partly, and then robotics and electric cars, all of these things require rare earth magnets. And so, you know, the future growth of economies is dependent on this. Clearly, China flexed their muscle. And put export controls that we were not able to comply with no company would have been able to comply with them. And as a result, that shut down pretty much all the business that we had that we could export out of China. You know, it's kind of a, you know, $6 to $8 million EBITDA disruption that we got hit with there. Now what's happened is China has loosened export controls. And we're seeing products start to flow back out of China. But the longer term so we expect normalization and that's already happening in the fourth quarter. And we have a backlog that we need to obviously catch up so that, you know, provides a good tailwind going into 2026. Now the global landscape has really shifted. Because these are we work mostly with aerospace. And defense customers. That's where samarium cobalt magnets kind of really shine. And so that part of the market is very sensitive to just-in-time inventory ordering, and we deal with, you know, customers that are, you know, very the economy is dependent on them. Our national security is dependent. You know, on these customers. And so the stakes are very high. Clearly, our customers were rattled. When we were not able to deliver product on schedule because of these export restrictions. And it wasn't just us. It was everybody they were buying from in China. And so what we've seen, and this is where we believe there's a lot of bullishness around Arnold, and we think the upside trajectory for this company over the next few years is well above trend. There is a desire for a lot of our global customers to source their material in a more stable, geography. And they're looking for US or European or, you know, other Southeastern Asian countries. Like, Indonesia has got a neomine that's coming on. There's a big effort to diversify the supply base. Out of Mainland China, which is where it exists today. As we said in our prerecorded script, there's only a handful of us that can do that. And so we sit in a pretty good position to be able to secure a lot of additional business and drive our business growth much faster than it otherwise would be. And that's why, notwithstanding the short-term pain, we suffered in 2025, I think in terms of underlying enterprise value, of the Arnold business, this was a massive positive to that. And we expect it to manifest in future growth rate of earnings. Matt Koranda: Okay. Super helpful. Leave it there. Thanks, guys. Elias Sabo: Thank you. Operator: Thank you. Please press 11 on your telephone. One moment for questions. And I'm not showing any further questions. I would now like to turn the call back over to Elias Sabo for any closing remarks. We do have one question, all for I'm sorry. One moment, please. Our next question comes from Chris Kennedy with William Blair. You may proceed. Chris Kennedy: Great. Thanks for fitting me in and congrats on Pat's retirement. Just wanted to follow-up on the last comment you made about Arnold. I mean, it was almost a year ago when you had the Investor Day. And you kind of gave long-term organic revenue growth targets for each of the subsidiaries, any updated thoughts on that framework that you provided previously? Elias Sabo: Yeah. I would say obviously, clearly, Chris, we're wrong with Arnold in 2025. And so let's assume that we kind of get back to a normal base. Which '24 would serve as a normal baseline year. I think we would expect those growth rates temporarily I don't know if this is a long-term shift. That actually looks into, you know, use of robotics and other things that may have longer-term demand generation that is outside of what we are seeing today. In the short term, though, let's say three to five years, we would expect a materially higher growth rate from Arnold given the supply chain disruptions that we talked about and the resourcing of production. Chris Kennedy: Okay. And how about the other subsidiaries now that you have more working capital to allocate potentially? That Lugano's gone. Elias Sabo: Yeah. No. It's, you know, we'll obviously talk more about that on our, you know, Q4 call and about our 2026 guidance. But I would say, you know, largely, our companies outside of Lugano are performing with the exception of Arnold that we mentioned are performing in line with expectation. Where we've noted, we find things that are doing a little bit better is the Honey Pot and I would say 5.11 is struggling a little bit because of tariffs. But largely, BOA, Primaloft, the other businesses, Sterno, you know, they're performing in line with where our expectations are, and I'm not sure if you just went one year hence from last year's Investor Day, there'd be a lot of change. It probably would be more maybe 5.11's growth rate is a tad lower. And Honey Pot's is a tad higher. Chris Kennedy: Got it. Okay. And then, understanding you're not gonna give commentary in 2026, but can you just remind us of kind of what free cash flow conversion is of the business or how we should think about that? Thank you. Stephen Keller: That's a thanks. It's a great it's a great question. I think it's really important to think about because two things have really changed since, you know, last year, which is one is Lugano no longer in the portfolio, which is a significant user of working capital. Our underlying businesses now generate a substantial more amount of cash. That coupled with the elimination of a common dividend, suggests that we will, from a free cash flow perspective, be creating pretty significant free cash flow. We actually expect depending on working capital usage and the timing, expect that in 2026, that we should generate between $50 to $100 million of free cash flow. After, you know, after everything, after interest, after dividend, after preferred dividends and all and capital CapEx, etcetera. So that is a marked change from, I would say, where we have been historically. And so that is something that we're that's one of the reasons why we're very confident in the fact that we will be able to organically delever. On top of looking at these more strategic, more rapid delevering activities. Chris Kennedy: Great. Thanks for taking the questions. Elias Sabo: Thank you, Chris. Operator: Thank you. I would now like to turn the call back over to Elias Sabo for any closing remarks. Elias Sabo: Thank you, everyone, for joining our call today. We understand this has been a very difficult, you know, last almost year for all of us. We are really excited to be caught up, and we look forward to speaking with you all again in another couple of months. And previewing our 2026 expectations. Thank you, and have a great day. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Greetings. Welcome to the RF Industries Fourth Quarter Fiscal 2025 Financial Results 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, this conference is being recorded. I will now turn the conference over to your host, Donni Case, Investor Relations. You may begin. Donni Case: Well, thank you, and good afternoon, everyone, and welcome to RF Industries Fiscal Fourth Quarter and Year-End 2025 Earnings Conference Call. With me today are RFI's Chief Executive Officer, Robert Dawson, President and COO, Ray Bibisi, and CFO, Peter Yin. We issued our press release after market today, and that release is available on our website at rfindustries.com. I want to remind everyone that during today's call, management will make forward-looking statements that involve risks and uncertainties. Please note that information on the call today may constitute forward-looking statements under the Securities Exchange laws. When used, the words anticipate, believe, expect, intend, future, and other similar expressions identify forward-looking statements. These forward-looking statements reflect management's current views with respect to future events and financial performance and are subject to risk and actual results may differ materially from the outcomes contained in any forward-looking statements. Factors that could cause these forward-looking statements to differ from actual results include the risks and uncertainties discussed in the company's reports on Form 10-Ks and 10-Q and other filings with the SEC. RF Industries undertake no obligation to update or revise any forward-looking statements. Additionally, throughout this call, we will be discussing certain non-GAAP financial measures. Today's earnings release and related current report on Form 8-Ks describe the differences between our GAAP and non-GAAP reporting. With that, I'll now turn the conference call over to Robert Dawson, Chief Executive Officer. Please go ahead, Robert. Robert Dawson: Thank you, Donni, and welcome, everyone, to our fourth quarter and fiscal year-end 2025 conference call. I'll start with our fourth quarter highlights and observations of what our team achieved in fiscal '25. Ray will then provide a progress update on our go-to-market strategy and Peter will cover our financial results before opening the call to your questions. In the fourth quarter, our team kept building on the momentum we delivered throughout the year. Net sales grew 23% year over year to $22.7 million. Over the past several quarters, I highlighted how our strategic transformation was driving profitable growth. And the operating leverage from executing our plan really showed in Q4. Gross profit margin of 37% exceeded our 30% target. And adjusted EBITDA was 11.5% of net sales, above our stated goal of 10%. We controlled our fixed costs while driving strong sales growth, and that execution delivered a significant increase in profitability. As I mentioned, our results steadily accelerated throughout the year and for the full fiscal year, net sales were $80.6 million, an increase of 24% compared to fiscal 2024. Gross profit margin for the year was 33% compared to 29% in the prior year. And we delivered adjusted EBITDA of $6.1 million, a huge increase compared to $838,000 in adjusted EBITDA in fiscal 2024. From both the top line and bottom line perspective, fiscal '25 felt like a breakout year for RFI. And going forward, our goal is to prove what our operating model is capable of producing. While the general overall environment continues to have its share of uncertainty and increased costs, our team will continue to execute our long-term strategic plan. To further transform RFI from a product seller to a technology solutions provider. In fiscal '26, we remain intensely focused on diversifying end markets, driving further customer and market penetration, and launching new products and solutions that we believe will help deliver another year of strong sales growth and profitability. Now I'd like to walk you through how some key initiatives contributed to a successful fiscal '25. And how they set up RFI for future growth and profitability. The baseline story is the difference between being a solutions provider with technologically advanced products and systems versus our historical position as a downstream component supplier. Being a solutions provider, coupled with RFI's reputation and product approvals from key customers, has opened many new channels for growth and has resulted in considerable diversification of both customers and end markets. Ray will go into more detail on trends we're seeing in key end markets, including aerospace, stadiums and venues, and transportation. What I want to point out is that diversification not only expands opportunity, also mitigates the risk of customer concentration. In the past, there were times when a single customer accounted for a large part of our growth during the fiscal year. While this was good for our top line and is not abnormal in a growth story, we also recognized it could be seen as a vulnerability. Since then, our team has been heavily focused on widening our horizons by innovating our product applications into new end markets, engaging new customers to drive diversification. Now our results are healthier, with diversity by product, customer, and market. Three key initiatives are helping our story evolve. First is deepening our relationships with existing customers. We want to partner more closely with our customers, which allows us to add more value and likely gain a larger share of their annual spend. With our high-value proprietary offerings, we can provide tremendous performance and cost benefits to our customers. We've become very adept at partnering with our customers to identify a need, and then using a key solution as the tip of the spear to elevate our relationship. Once we began working more collaboratively with the key technical and market resources within our customers on solving their pain points, we saw more opportunities to cross-sell and expand the value proposition of our relationships. Second, leveraging our successes in markets where we have a long history helps us identify needs similar applications in other new end markets. Once we've proven our value to key current customers, our team has become skilled at aligning with new customers and partners to penetrate new market segments. We believe over time that these new markets and customers will build into healthy contributors to our sustainable growth and profitability. Finally, we're expanding the value proposition we offer to our channel. A solid portion of our revenue comes from partners in our distribution channel, and we continue to foster very close relationships with these key companies. As our portfolio of high-value innovative products and solutions grows, our partners' product offerings to their customers are further enhanced. This has resulted in steady recurring sales for RFI. Also, our distribution partners help open the doors to customers we're targeting. Just about every key contractor and integrator buys from distributors. And we appreciate being well aligned with each of those groups. In addition to our key distributors, we also made a strategic decision to partner with certain manufacturers that act as a channel to take us to new customers and markets. As I mentioned on last quarter's call, a major manufacturer of electronic cabinets and enclosures identified our thermal cooling systems as a solution for edge data center installations. And we're starting to see some real traction in these applications. Both of our organizations believe our combined solution the critical role that cooling systems play in the performance and reliability of edge equipment. While still in its early stage, this collaboration can result in a significant new opportunity for us. It's a great example of where a customer sees a problem and comes to RFI for a solution. We look forward to sharing more about these stories in coming quarters. These go-to-market initiatives along with our continued focus on constant improvement in operational excellence. Provided great results in 2025. And we have solid momentum as we enter fiscal year 2026. While we expect some of the normal seasonality in Q1, we also expect to accelerate throughout the year in a similar trajectory to fiscal 2025. And with what we know today, we anticipate another year of sales growth. As I've noted before, we look at our business opportunity over the long term. Because results can flex from quarter to quarter depending on when orders are shipped out the door and a small movement of a shipment even by a day or two could have a large impact on a single quarter. Our leading indicator is having a strong and diversified pipeline to help fuel top-line growth. Which in turn can deliver profitability from our operating leverage. Most important, we have a great team that's firing on all cylinders. Their enthusiasm and commitment to maximizing the opportunities ahead is driving RFI forward to our full potential. Now I'll turn the call over to Ray for more detail on the tremendous progress our team has made in executing on our strategic plan. Ray Bibisi: Thank you, Robert, and good afternoon, everyone. Across our business, Q4 reinforces the progress we've made throughout fiscal 2025. What stands out most is not just where we're seeing growth, but the consistency and discipline behind our execution. Across our targeted end markets, demand remains supported by long-term infrastructure and connectivity investments. In large infrastructure markets, including stadiums, venues, and transportation, activity remains strong throughout the year. We supported more than 130 projects across these categories delivering a meaningful contribution to revenue compared to prior years. More importantly, this work strengthened our credibility and visibility positioning us for future multiyear opportunities including major global events such as the LA Olympics, and the US World Cup. As well as continued airport modernization programs. Our pipeline continues to provide strong visibility across a wide range of infrastructure-related opportunities reinforcing our confidence in demand stability. The aerospace and defense market also remained solid. Performance here continues to be driven by close collaboration between engineering operation, and customers to deliver solutions that meet stringent performance quality, and compliance requirements. In telecommunications and broadband, investment remains focused on densification, coverage expansion, and network reliability. Our small cell, direct air cooling, and RF passive solutions continue to see consistent traction across both OEM and carrier-driven programs. Across all these markets, our distribution channels continue to perform well, delivering consistent contributions based on improved product availability, strong partner engagement, and more disciplined commercial cadence. From an operational standpoint, Q4 reflected continued progress towards more predictable execution and tighter operational controls across inventory, cost, and delivery. Inventory actions were focused on aligning the supply chain with demand while managing tariff and supply chain uncertainty. And our cost reduction initiatives continue to deliver tangible benefits. Process and IT improvements are strengthening forecast accuracy, visibility, and scalability across the organization. From an engineering perspective, our focus continues to be innovation aligned with market demand. A more disciplined stage-gate process, and cross-functional prioritization are improving on how we allocate resources to the highest value opportunities. Customers are increasingly engaging with us early in their design cycle. Reflecting our evolution from a component supplier to a problem-solving partner. As Robert noted, RF Industries looks very different today than it did a few years ago. That change reflects clearer accountability, stronger cross-functional alignment, and a more disciplined operating rhythm. Looking ahead to 2026, our priorities are to build on this foundation. Executing reliably, advancing our product roadmap, strengthening leadership, and improving predictability across the business. There are plenty of external variables we continue to manage. But our strong pipeline, disciplined operations, and aligned teams position us well moving forward. What gives me confidence today is the progress we've made in building a more predictable and scalable business. With stronger execution, better visibility, and clear accountability. RF Industries is well-positioned to carry momentum into 2026 and continue creating value for our customers and shareholders. Now I will turn the call over to Peter. Peter Yin: Thank you, Ray, and good afternoon, everyone. As Robert mentioned, we're pleased with our fourth quarter and full-year results. Starting with our fourth quarter, sales increased 23% to $22.7 million year over year and 15% on a sequential basis. Gross profit margin increased to 37% from 31% year over year. That is an improvement of approximately 600 basis points that was driven by both higher sales and a more favorable product mix. Fourth quarter operating income was $903,000, a considerable improvement from the operating income of $96,000 we reported last year. Consolidated net income was $174,000, or 2¢ per diluted share and our non-GAAP net income was $2.1 million or 20¢ per diluted share. Compared to a consolidated net loss of $238,000 or 2¢ per diluted share year over year and non-GAAP net income of $394,000 or 4¢ per diluted share for Q4 2024. Fourth quarter adjusted EBITDA was $2.6 million compared to adjusted EBITDA of $908,000 for Q4 2024. Turning to fiscal year 2025 results. Full-year revenue increased 24% to $80.6 million year over year. This included finishing the year strong, with shipments from our custom cabling offering to a leading aerospace company. Full-year gross profit margin increased to 33% from 29% year over year. That is an improvement of approximately 400 basis points which was primarily driven by both higher sales and a more favorable product mix. Full-year operating income was $1.8 million, a significant improvement from an operating loss of $2.8 million in fiscal 2024. Full-year consolidated net income was $75,000 or 1¢ per diluted share, and our non-GAAP net income was $4.4 million or 40¢ per diluted share compared to a consolidated net loss of $6.6 million or 63¢ per diluted share year over year and a non-GAAP net loss of $990,000 or 9¢ per diluted share for fiscal 2024. Full-year adjusted EBITDA was $6.1 million, a substantial improvement compared to adjusted EBITDA of $838,000 in fiscal 2024. Moving to the balance sheet. Our working capital and overall liquidity remain very strong. Our improved results allowed us to reduce our net debt by $4.6 million compared to last year. As of 10/31/2025, we had a total of $5.1 million of cash and cash equivalents and we had working capital of $14.1 million and a current ratio of approximately 1.7 to one. With current assets of $35 million and current liabilities of $20.9 million. As we discussed on the last call, we have been exploring ways to reduce our overall cost of capital. As a result of our significantly stronger financial results and outlook, I'm pleased that we were able to negotiate more favorable terms and flexibility for our revolving credit facility. Reducing the minimum outstanding loan balance, interest rate, and reporting requirements. As of 10/31/2025, we had borrowed $7.8 million from our revolving credit facility. Our inventory was $13.7 million, down from $14.7 million last year. The decrease in inventory reflected further operational excellence. We continue to manage our inventory levels with discipline. Balancing our ability to meet strong customer demand while optimizing supply chain operations to maximize efficiency. Moving to our backlog. As of October 31, our backlog stood at $15.5 million on bookings of $18.5 million. As of today, our backlog currently stands at $12.4 million. Our backlog is a snapshot in time, and can vary based on when orders are received and when orders are fulfilled. While we view backlog as a general gauge of health, it can swing significantly at times, making it a less predictable indication of our near-term sales. We are incredibly proud of the breakout year that we achieved in 2025. While understanding there is still work ahead of us, as we see room for further improvements. We enter fiscal 2026 with strong momentum and we are optimistic about the future and our ability to drive improved profitability as we continue to grow. With that, I'll open up the call for your questions. Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Once again, please press 1 if you have a question or a comment. First question comes from Josh Nichols with B. Riley. Please proceed. Matthew Maus: Hi. This is Matthew Maus on for Josh. Thanks for taking my questions and great quarter. Guess, let's start off. Yeah, I guess to start off, I mean, fiscal 2025 came in above our expectations. You had strong momentum exiting the year. I'm just wondering how we should think about the growth trajectory for fiscal '26, especially now that we're almost through the '6. So I'm just wondering how things are tracking. Robert Dawson: Yeah. Appreciate that. Thanks for the question and the comment. So I think as I said in my commentary, our expectation for '26 is another year of growth. I think the trajectory of how we get there is gonna look similar to what it was in '25. You know, the joy of having a first quarter that includes November, December, and January means you're always gonna have seasonality almost regardless of what industries you're selling into. So we expect our first quarter probably to be our platform to start from as our lowest quarter of the year. Again, if you look at what we did in 2025, you can see how quickly that accelerates and how the profitability really ratchets up. So while we're not giving specific guidance, I think if you look at our normal sort of our normal quarterly quarter-over-quarter growth that we see in a given year, we expect something similar in 2026. Matthew Maus: Got it. And, yeah, I mean, this fourth fiscal fourth quarter was really strong, and you had gross margins that expanded to 37%. So I'm just wondering, like, can you break down how much of that was mix versus operating leverage or pricing? Robert Dawson: Yeah. I think it's really a nice combination of product and solution mix, which we're starting to see a solid impact and contribution from some of the higher margin product lines that we sell. But I can't really understate the strength of a sales number that starts to get up above $20 million a quarter. I mean that's a we really saw it in Q4, and that's not something that we've been able to even model perfectly and say, hey. What's this gonna look like if our mix does what we think it's gonna do and sales go above a certain level? You know, once we fully absorb our fixed overhead and our labor we start to throw a lot of cash to the bottom line. And so I think that was as much the story in Q4 as anything else was our sales came in a little higher than even what we expected. We had some orders that were requested to be moved in a little bit, which was great. So we benefited from that. But, certainly, you can really see what happens when sales creep up above $19-20 million bucks. How much of that becomes a bottom line impact. Matthew Maus: Yeah. Actually, expanding on that bottom line impact, I mean, similarly, EBITDA margin was, you know, like, 11.5%, and that was above your 10% target. Is there sort of, like, a new target that you think you can hit? I mean, you're expected to grow this fiscal 2026, so I'd only imagine that as you continue pushing past $20 million, it'll continue to be above that 10% target on a strong quarter. Robert Dawson: Yeah. I appreciate that. I think, I mean, one, I wanna celebrate how great the team was to get us there in Q4. We put a goal out there of getting 10% EBITDA as 10% as a percentage of sales. We put that out not long ago and said, yeah. We see an opportunity to get there. We've got to really work hard to do it both on the cost and operational excellence side, but also on the sales side. And everything kinda came together in Q4. I think the expectation for us is we got to find ways to keep it above that 10% number. That's not an easy feat. I mean, if sales are up, that's great. But we're also up against, you know, continued cost increases and other things that are being thrown at us. So not putting out a specific different goal than what we already have. Our job is really to keep the profitability as high a level as we can. Again, looking at it over the long term. I mean, if you look at what we did in Q1 through '4 in 2025, you saw that number adjusted EBITDA as a percentage of sales start to crank up each quarter. Even as sales didn't grow a ton until you really saw in Q4 with a higher sales number. So I anticipate sort of a similar approach to 2026. And how that's gonna go. I mean, the quarters are hard for us to dictate specifically based on customer demand and timing of shipments around projects. Specifically, But I think, we just wanna celebrate that we exceeded that 10% a little while before we get into what are we gonna do next. Matthew Maus: Got it. Thank you. And last one for me. It'd be helpful if you could expand on those cost increases you mentioned. And how much of those increases do you think can be mitigated with the new products and solutions you're looking to launch this year? Robert Dawson: Yeah. So I think, I mean, look. It's nominal increases. It's the things that everyone's up against. We do have a lot of people building products in The United States. We've got a healthy production team that's north of 200 folks. Building things in multiple locations. We're proud of that. And because of that, we need to keep those folks, you know, wages keeping up with the world and with great benefits. For a company our size, we provide what we believe are really strong health care and 401(k) match and other things like that that in a lot of cases, are better than companies much larger than we are. So those are the things that we see increases on sort of annually. And the team's done a good job of managing those. We go in eyes wide open every year knowing that there's these annual renewals of certain things. And we have to do our best to mitigate that where we can. Some of that can be done with pricing, but to your point, some of that can be overcome with just a slightly better sales number with a solid product and solution mix. And so we, you know, we attack an annual budget with that idea that we have some increases, and we expect that we have to overcome them because that's what we're supposed to do. So it's the normal thing that you would see and then throw in just the general global chaos of things can change with one quick text message or tweet at this point. And so have to always be on our toes and ready for changes to things like logistics costs and other product costs that might be unexpected at this point. Matthew Maus: Got it. Thank you. And actually, just a quick follow-up on that. Can you maybe give us I guess, in terms of those new products and solutions, like, maybe a couple that you think are gonna be the most impactful this year? Robert Dawson: Yeah. Look. We continue to feel really good about our integrated systems product line stack and small cell are both things we've talked about for a long time. That we're having minimal impact on our sales and have started to really contribute more. We also still feel really good about our legacy product lines. I mean, our custom cabling business is strong and performing extremely well in things like the defense market and other, you know, industrial and OEM kind of markets. We're seeing nice steady growth there and some great customer wins that, you know, in some cases, we're putting out news on when those things come in. In the aerospace and defense market. So I think, you know, those three areas are probably items that are more project-centric and can be kind of a meatier piece of our total sales. The everything else, which has in many cases, you know, a distribution flavor to it as well. We expect those to continue growing and being a nice workhorse in the background putting up solid growth and profitability there. So it really has become for us sort of the combination of firing on all these different pistons not expecting every single product line to be perfect every quarter. But expecting a nice balance from them. And when there's contribution from multiple product and solution areas that are, you know, project-centric and less seasonal that starts to give us some predictability and smooth things out where it can. Matthew Maus: Got it. Thanks for taking my questions. I'll hop back into the queue. Robert Dawson: Thanks, Matthew. Operator: Next question is from Howard Root, Private Investor. Howard, please proceed. Howard Root: Great. Thanks for taking my questions and congratulations. Not just on the quarter, but really the transformation you've done over the last couple of years here with RF Industries. It's really a great job. Thank you. First, I got a couple of questions for Peter. The income taxes and the noncash onetime charges, can you kind of give a quick explanation of what those were in the fourth quarter? Peter Yin: Sure. I'll tackle the tax first. Tax relates to a valuation allowance. There. So not sure if that answers your question or you want me to get into a little more detail here in our footnotes to the K. There we kind of have a tax provision footnote that kind of highlights that in a little more detail. Howard Root: I'm just kinda looking going forward. The $478,000, obviously, a huge number for the income taxes. But what is that, you know, if you strip out the unusual stuff, what's your tax rate going forward? Peter Yin: So tax rate going forward, it's kind of hard to predict. They're probably in the mid-twenties if that's kind of standard corporate tax rate, from state and federal. There, but we have some nuances with valuation allowance items kicking in, for us. Howard Root: Okay. And then the noncash, is that part of that was on the taxes side too, or is that something else? Peter Yin: No. The noncash items are not part of the valuation allowance or the tax provision. So those items are kind of pointed out there. The $855 you're seeing there, we talked a little bit about it's related to an accrual for a settlement. Howard Root: Okay. And then the interest rate, what do you see as a decline in your interest rate kinda going forward from this new rework plan of credit? Peter Yin: Yeah. So we're, you know, obviously, the refinance we've disclosed there, so it's drop. But from a cash perspective or interest, savings, we're expecting kind of at least a quarter million in interest savings. For the next year. Howard Root: Okay. Great. So then more for Robert on the, you know, the just diversification that you've gone through. It's amazing. And it could you put some numbers kind of around on what percentage of your revenue and just really ballpark, Robert, is coming from, you know, transportation, aerospace, you know, stadium, data centers, can you tell us in terms of where you are and types of the revenue growth from there? And getting away from your base telecommunications business? Robert Dawson: Yeah. I appreciate the question. I think it's hard to slice that up simply because the numbers get they share a lot of information. I think for a company our size, trying to slice into the various details. What I can tell you is, you know, on prior years where we had major growth happening, we were seeing the, you know, wireless and telecom market in the 70% range of total sales. We're now seeing that more like 50%, about of our sales are coming from things that I would call telecom and wireless. The remaining half is coming from, you know, in many cases, similar applications maybe, but transportation, aerospace, and defense, industrial, and other OEM, public safety, things like that. So I think the way that we disclose those results is a slightly higher level than maybe what you're asking, but, hopefully, that gives you some color around just the way we've seen the overall impact and contribution from those different markets. Howard Root: Great. Yes. And then in the backlog, just to kind of explain, I mean, what part of that is seasonal? I mean, both the bookings and the backlog took a pretty big drop from Q3 to Q4. And I understand being a shareholder for a bunch of years, is that part of that is seasonal. But what part of that is seasonal? What part of that might be from the transformation of the business changes, how long you have backlog or what your overall level of backlog would be and when your bookings are coming in. What can you say about that in terms of what that means for your business? Robert Dawson: Yeah. Great question on backlog. I think it's, you know, for us, it's a as we've said for years, it's, you know, it's a good health indicator that we have a backlog, and we've got stuff coming in there. I think we also disclose it deeper than most companies where we talk about, you know, end of quarter and based on the bookings that we had, what got us to that number, and then we give an update at the time of our call to make sure people are clear to elaborate a little bit on how the business does work. And you're right. With the way you're thinking about it is, you know, seasonally, we expect to have a solid booking quarter in our fiscal fourth quarter. Just around the seasonality of sort of the way we also expect to start eating through some of that backlog in our Q1. most markets work. We also are trying to get better at moving our backlog out the door. You know, it doesn't hurt us to have long-standing backlog, but it also, at times, some of that backlog can get old and tired. We wanna keep that moving similar to the way we've managed our inventory by bringing it down to a, you know, a more manageable, healthier level and being faster with replenishing when we need to. Our expectation on backlog is that it sort of hits a low point in our first quarter and then starts to work its way back up as we see the project-based work on the calendar year start to kick in when people's budgets get finalized and everyone gets settled back into their seats. This was a, you know, I think everyone probably felt that this was a strange holiday season because you had Christmas and New Year both falling on a Thursday. Which means you basically had two dead weeks from a people coming to work and everyone being engaged perspective. We're finally seeing the world get back to a little more normalcy. Our expectation is that that backlog will, you know, start to move back up as it normally does this time of year. But at the same time, you can see that we've been moving some of that out the door to get to a fresher level as well. Howard Root: Right. And then bookings, the $18.5 million in bookings for Q4, was that kind of according to your plan? Was that ahead of your plan or a little under your plan? How did that fit with your expectations? Robert Dawson: Yeah. I would say it's around our plan-ish. I think it's hard to Q4 is a tough one because of where our, you know, October year-end doesn't really align with other people's budgets. So we generally see a larger booking level happen in our third quarter. It's kinda just seasonally. That's what we've historically seen. It's starting to smooth out a bit. But the, you know, October, November, December, January time frame is always any order that we expected in any of those months could be in another one. And that's just that's just how it falls around the year-end and the year beginning. So it was fine. I think we were happy with that number, and, you know, and the thing that we're even happier about, though, is we've got in our pipeline that still looks super healthy. Ray talked some about that. The different application areas and the different customer areas where we're seeing, you know, growth in the last couple of years, we've still got a really solid pipeline of opportunities that aren't going away. While those move around in those various months, as I just said, we only see us adding to that pipeline of opportunity and feel really good about it. Howard Root: Great. Well, I appreciate all the extra color there. And again, congratulations to you and the whole team on outstanding performance from where you were four years ago to where you are today. Thanks a lot. Robert Dawson: Great. Thank you, Howard. Operator: Once again, if you have a question or a comment, please indicate so by The next question comes from Steve Cole with Bantgrove. Please proceed. Steven Kohl: Hey, good morning, guys. And too would like to reiterate that it's congrats on a great performance. I'm sure I agree that you should at least savor the victory at least for a day or two, maybe even a week before we start looking at the next set of targets. But wanted to talk about a couple of things. One thing on the balance sheet, I noticed if I'm doing my math right, we're down to $3 million in net debt, which has probably been the best we've been in quite a while. How has that changed our priorities on capital allocation? Do we see we haven't done any acquisitions in a while? Do we look at share buybacks, acquisitions, dividend? Has the thought changed at all on that or what is the thinking today on capital allocation? Robert Dawson: Yes. Steve, thanks for the question. I think at the moment, our priority is the same as it has been. You know, we wanna get that net debt as low as we can. Obviously, the performance of the business helps. But at the same time, every time the board meets, we talk about, you know, best shareholder value. And at the moment, we think the best thing for us short of having a strategic opportunity in front of us that makes sense, we wanna continue paying down that debt. That is job one. Now we're also always looking at other opportunities to drive shareholder value and give a nice return. So all of the items that you brought up are up for discussion. Every time the board meets, we talk about those. We haven't done an acquisition in a few years that's been on purpose, and some of that the market, and some of it was us getting to a point where we could actually, you know, finish the integration, of the ones that we had done. We finally got a chance to do a lot of that work, which is showing through now in our operating leverage and, you know, getting our costs as low as we can. So I think if there were an opportunity that presented itself, from an M&A perspective, we might alter those priorities. But at the moment, our priority continues to be debt service and getting that to a, as low a point as we can. Steven Kohl: Right. And if I one follow-up just on margin for a sec. So I know obviously margin is doing very well. I guess I'm curious we look across the base, how much of the improvement in margins coming on the book to inside versus just volume running through the plant? I know you've keyed in on, again, today kind of on a I know it depends on mix. And we get to a certain level, a lot comes to the bottom line. But are we seeing is that split fifty if you look at it, I know how to phrase the question, but are we seeing a better book? Because I presume as you're getting aerospace defense stuff, you're getting better booked in margins there. I would think. But can you put some color around that or some granularity? Robert Dawson: Yeah. I think the best I can do there is, you know, look. Having a better product mix and solution mix with some of our newer higher high-value much more technology-centric product areas. Really helps. I mean, that mix just as those areas perform better, Matt will tell you that that'll start to drag your gross margins up. Once we cross, you know, $18-19, $20 million in sales, now you start to see the impact of, you know, you fully absorb all the labor, much of which for us hits above that gross profit line. So the better we perform top-line wise, almost regardless of product line, and the mix, you're gonna see more profitability, which for us, we live and die by the gross profit line. You know, we manage our really well below the line. It is a function of those things. Can we sell more valuable products? And solutions to our customers and can we get that high as possible? Because when we do, you really see the impact of it. So it's, yeah. As it's hard for you to ask the question, it's hard for me to give a specific answer on which percentage causes which. I can tell you that it's both those things help. Although, you know, we would see a solid margin improvement just with a higher sales number and a similar product mix than what we've had historically. Wouldn't be as high as 37%, but it certainly would be better. Steven Kohl: And last question, just touching on you alluded to DAC and small cell. Obviously, it's taken a little while for them to get some traction. But talking about public safety for a minute and density, I know for a long time we're talking about, you know, these buildings and venues, you know, and even elevate people had coverage. Are we seeing is the regulatory landscape there changed? Is it still a local thing? Or is there anything from a bigger picture? Is that market becoming more lucrative and getting more traction as people have put requirements on the books that they're actually enforceable? Robert Dawson: Yeah. We like the public safety market. I mean, we have a great product offering, not just with our RF passives and some RF active gear that, you know, we have under the Microlab brand. But also our kinda core connectivity product line fits in there as well with fiber and coax. So we like it. We've sold to it for years. Most of that gets serviced through the distribution channel. Which, again, we appreciate those partnerships and getting to markets like that. I think how those decisions are made and who really dictates what, though, it's still really fragmented. You've got localized ordinances that sometimes are hard to enforce. There's certain cities in the country that have mandated public safety coverage inside buildings, and that mandate is hard to force people to do when they're unwilling to find these building owners to make it happen. It just becomes a really challenging sort of environment. That's not new. We take part in public safety forums all year long. All the time, and have conversations about it real-time. It's similar to kind of bead funding, the federal government says, hey. We need this. And then it gets left up to states and local governments, and then it just becomes a revolving door of people making decisions. And it's been challenging to pin down, you know, sort of a final addressable market there short of saying, for us, it falls into our in-building coverage, our distributed antenna system product areas and those the way we service those applications. So I think it'll continue to get better. New buildings being built tend to have an opportunity to put in some better public safety-based, you know, RF solutions, and we're right in the middle of many conversations around that. And I think our offer is really strong there. So we expect that to be an opportunity for us going forward, but it continues to be extremely fragmented from an ordinance and decision-making perspective. Steven Kohl: Thank you guys very much. Robert Dawson: Thanks, Steve. Operator: We have no further questions in the queue. I will now turn the call back over to Robert Dawson for closing remarks. Robert Dawson: Great. Thank you, and thanks, everyone, for participating in today's call. We truly appreciate your support and look forward to reporting on our progress throughout fiscal 2026. Have a great day. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome to today's session. [Operator Instructions] Please note that today's call is being recorded. I would now like to turn the call over to John Campbell, Director of Investor Relations. Sir, you may begin the conference. John Campbell: Good morning, everyone. Thank you for joining our call today where our CEO, Charles Scharf; and our CFO, Michael Santomassimo, will discuss fourth quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our fourth quarter earnings materials, including the release, financial supplement and presentation deck are available on our website at wellsfargo.com. I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8-K filed today containing our earnings materials. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can be found in our SEC filings and the earnings materials available on our website. I will now turn the call over to Charlie. Charles Scharf: Thanks, John. I'm going to provide an overview of our 2025 results and update you on our priorities. I'll then turn the call over to Mike to review fourth quarter results as well as our net interest income and expense expectations for 2026 before we take your questions. Let me start with our 2025 highlights. Our strong financial results reflected the significant momentum we're building across the company. Our net income increased to $21.3 billion and our diluted earnings per share grew 17% from a year ago. Our continued investments in our business helped drive revenue growth with fee-based revenue up 5% from a year ago. This growth was broad-based with increases in both our consumer and commercial businesses. Much of the investments we have been making have been funded by our disciplined approach to managing expenses. We had positive operating leverage in 2025, and we continue to have opportunities to generate efficiencies. Our ongoing focus has resulted in 22 consecutive quarters of headcount reductions, with headcount down over 25% since second quarter 2020. Since the lifting of the asset cap, we've been growing our balance sheet, and our assets grew 11% from a year ago including broad-based loan growth and higher trading assets to help support our markets businesses. We also grew deposits with higher balances in both our commercial and consumer businesses. Credit performance was strong and net charge-offs declined 16% from a year ago. The economy and our customers remain resilient, but we continue to closely monitor our portfolios for signs of weakness. In addition to tracking credit metrics in our loan portfolios, such as early-stage delinquencies, we also monitor consumer behavior more broadly to help us understand consumer health. For example, we look at things like checking accounts with unemployment flows, direct deposit amounts, overdraft activity and payment outflows and we've not observed meaningful shifts in trends. Our capital levels remain strong, while returning $23 billion of excess capital to shareholders. During 2025, we increased our common stock dividend per share by 13% and repurchased $18 billion of common stock. Given we have many opportunities to grow organically, we currently expect share repurchases to be lower in 2026. We will continue to focus on optimizing our capital levels as we manage to a CET1 ratio of approximately 10% to 10.5%. Let me turn to the progress we've made throughout the past year on our strategic priorities. The removal of the asset cap by Federal Reserve was a pivotal moment for the company. This milestone combined with successfully closing 13 regulatory orders since 2019 underscores the significant progress we've made in transforming the organization. We are incredibly proud of our success and understand the importance of continuing to build on that work and sustain the culture that supports it. While executing on our risk and control initiatives, we simultaneously worked to position the company for stronger growth and improved returns. Let me walk you through how these actions are improving our business drivers, beginning with our consumer business. We have been investing in our credit card business since I joined Wells Fargo and our focus has been driving strong outcomes. We opened nearly 3 million new credit card accounts in 2025, up 21% from a year ago. Credit card balances were up 6% from a year ago. And importantly, we've maintained our credit standards. After 2 to 3 years of absorbing the upfront costs of our new products, we are beginning to see the early vintages contributing to profitability. Our auto business returned to growth in 2025 with stronger origination volumes and 19% growth in loan balances from a year ago. Our results reflected growth across our portfolio including benefiting and becoming the preferred financing provider for Volkswagen and Audi brands in the United States in the spring of last year. The auto business goes through cycles, and we have intentionally scaled back growth in recent years. With the investments we have made to improve our capabilities, we are now well positioned to methodically return to broad spectrum lending. Importantly, we're focused on making sure we have the right level of profitability in this business not just growth. We have made good progress in transforming and simplifying the Home Lending business. Over the past 3 years, we've reduced headcount by over 50% and the amount of third-party mortgage loans serviced by over 40%, including reducing the servicing portfolio by $90 billion in 2025 alone. We are continuing to reduce the size of this business while focusing on serving our bank and wealth management customers, which will help improve profitability. Within consumer, small and business banking, we had stronger growth in net checking accounts in 2025 than last year driven by digital account openings and an increase in marketing. We continue to refurbish our branches, completing approximately 700 branches in 2025. Over half of our network is now refurbished and we are on track to complete the remaining branches over the next few years. We continue to make enhancements to our mobile app, including making it significantly easier to open accounts. And in 2025, 50% of our consumer checking accounts were opened digitally. We grew mobile active customers by $1.4 million in 2025, up 4% from a year ago. Wells Premier are offering to serve our affluent clients, continue to build momentum in 2025. We increased the number of licensed bankers and grew branch-based financial advisers by 12% from a year ago, with a focus on increasing the number of bankers and advisers in the locations where we have the most opportunities. Premier deposit and investment balances grew 14% during 2025. This remains a significant area of opportunity for us. We also had continued momentum in our Wealth and Investment Management business with total hires increasing, attrition declining and net asset flows accelerating in the second half of 2025. Turning to our commercial businesses. In the Commercial Bank, while we are the market leader with strong returns, we still have plenty of opportunities for growth. We have hired 185 coverage bankers over the last 2 years with over 60% of the bankers hired in 2025. We are starting to see early signs of success from these hires with higher new client acquisition as well as loan and deposit growth. We also continue to be focused on providing investment banking and markets capabilities with fees from providing these capabilities to our commercial banking clients growing over 25% in 2025. [ Overland Advantage ], our strategic partnership with [ Centerbridge Partners ] has enabled us to better serve our Commercial Banking customers with a direct lending product and since inception, we have helped our clients raise approximately $7 billion in financing. As I highlighted on our last call, our goal is to be a top 5 U.S. investment bank. We grew our share in 2025, and we're confident that we can continue to make progress over time by using our competitive advantages including our long and deep relationships with large corporate and middle market companies, a complete product set, significant existing credit exposure, strong risk discipline and the capacity to support our clients through cycles. In M&A, we're winning increasingly bigger and more complex assignments. We advised on 2 of the largest M&A deals of 2025 increasing our announced U.S. M&A ranking to 8th in 2025, up from 12 in 2024. We entered 2026 with our deal pipeline meaningfully greater than it has been at any point in the last 5 years, although market conditions can always change. And with the lifting of the asset cap, we've been able to utilize our balance sheet to accelerate growth in our trading businesses, including increasing trading-related assets by 50% in 2025 to accommodate customer trading flows and financing activities. While many of the assets have been added recently are lower margin, they also have lower risk and are less capital intensive. Our ability to support this client activity increases engagement and should lead to more business. In summary, our strong performance in 2025 reflects the meaningful progress we've made to transform Wells Fargo and our actions position us for continued higher growth and returns. Our ROTCE increased to 15% in 2025. To put this in perspective, when we first started talking about increasing our returns in the fourth quarter of 2020, our ROTCE was 8% and we set a goal of reaching 10%. Once we establish that goal, we raised our target to 15%. As we discussed on last quarter's call, we have a new medium-term ROTCE target of 17% to 18%. While both the path and the timing to achieve our target is dependent on a variety of factors, including interest rates, the broader macroeconomic environment and the regulatory environment, we are confident that we can reach this goal by maintaining our expense discipline, realizing the benefits of our investments to drive stronger revenue growth and further optimizing our capital levels. As a reminder, 17% to 18% is not our final goal, but another stop along the way to achieving best-in-class returns by business and ultimately, our returns should be higher than this target. I want to end by thanking everyone who works at Wells Fargo for their hard work and dedication last year. Their unwavering commitment to our customers and to our transformation is what positions us to become a best-in-class company. I'm excited about our momentum and look forward to building on our success as we enter the new year from a position of strength. I will now turn the call over to Mike. Michael Santomassimo: Thanks, Charlie, and good morning, everyone. We are in $5.4 billion in the fourth quarter, up from 6% from a year ago. Diluted earnings per common share was $1.62, up 13% year-over-year, and excluding the severance expense, our diluted earnings per share was $1.76. Fourth quarter included $612 million of severance expense, primarily for actions we will take throughout 2026. We also had severance expense in the third quarter for a total of $908 million in the second half of 2025. As Charlie highlighted, we have reduced head count every quarter since the third quarter of 2020 and we continue to have opportunities to further streamline the company and become more efficient. Turning to Slide 4. Net interest income increased $381 million or 3% from the third quarter driven by higher market NII. Net interest income, excluding markets, increased $167 million from higher loan and deposit balances as well as fixed asset repricing partially offset by changes in deposit mix. I will update you on our expectations for 2026 net interest income later in the call. Moving to Slide 5. We had strong loan growth with both average and period-end loans increasing from the third quarter and from a year ago. Period-end loans grew 5% in the third quarter, the strongest linked quarter growth since the first quarter of 2020 when we had COVID-related growth. Average loans increased $49.4 billion or 5% from a year ago, driven by growth in commercial and industrial loans, in Corporate Investment Banking as well as growth in Commercial Banking. As you can see on this slide, one of the industry categories driving commercial loan growth has been financial [indiscernible] banks. While it is often referred to as one category, it's actually fairly broad. In our 10-Q's and K, we have traditionally broken down these loans in 4 types: lending to asset managers, commercial finance, consumer finance and real estate finance. Let me walk through each of these categories briefly to give you a better understanding of what they include asset managers and funds. The biggest piece of this category as well as the driver of most of the growth is from our fund finance group, which is largely subscription or capital call facilities for alternative asset managers, targeting larger funds with strong investment track records where we have long-standing strategic relationships and that are generally backed by a diversified pool of limited partner commitments to the fund. Within Commercial Finance, the biggest piece is our corporate debt finance business, which is secured lending to asset managers and private equity funds that is typically backed by middle market and broadly syndicated loans. We underwrite, approve and monitor the performance of each underlying loan. Consumer Finance, the smallest category lends to clients engaged in auto lending, credit card issuers and other types of consumer lending. Finally, the real estate finance portfolio includes both secured lending to mortgage REITs and private equity funds that originate or purchase commercial real estate mortgage loans and secured lending to asset managers and specialty finance companies backed by agency residential mortgage loans and residential mortgage-backed securities. Since this portfolio has been growing, we are now providing additional detail by category earnings rather than just in our 10-Q filings as we've done in the past. While this type of lending has picked up across the industry recently, we have made these kinds of loans for many years, they are generally secured and have features to help manage credit risk, such as structural credit enhancements and collateral eligibility requirements as well as collateral advance rates that generally get us to the equivalent of investment-grade risk. Given these features and our experienced underwriting these loans as well as the collateral that supports them, we have found this type of lending to offer an attractive risk return. Now turning to consumer loans, which also grew from a year ago with growth in auto, securities-based lending and wealth and investment management and credit cards. While residential mortgage loans continued to decline driven by our strategy to primarily focus on our bank and wealth management customers, the rate of decline slowed. Turning to deposits on Slide 6. Average deposits increased $23.9 billion from a year ago as growth in consumer and commercial deposits more than offset declines in higher-cost corporate treasury deposits. We achieved this growth while reducing average deposit costs by 29 basis points from a year ago, with lower interest-bearing deposit yields across all of our businesses. Turning to Slide 7. Noninterest income increased $419 million or 5% from a year ago. Our results a year ago included losses from the repositioning of the investment securities portfolio as well as strong results from our venture capital investments. We grew fee-based revenue across multiple of our business related fee categories, including 8% growth in investment advisory fees and brokerage commissions our largest category, driven by growth in asset-based fees reflecting higher market valuations and wealth and investment management. Turning to expenses on Slide 8. Noninterest expense declined $174 million from a year ago. Let me highlight the primary drivers. We had lower FDIC assessment expense, lower operating losses, and we benefited from the impact of efficiency initiatives. Partially offsetting these declines was higher revenue-related compensation expense, primarily in Wealth and Investment Management, driven by strong market performance. We also had higher advertising and technology expense driven by the investments we are making in our businesses to generate growth. I would note that while our fourth quarter 2025 expenses included the $612 million of severance expense I highlighted earlier in the call, severance expense was slightly lower than a year ago. Turning to credit quality on Slide 9. Credit performance remained strong. Our net loan charge-off ratio declined 10 basis points from a year ago and increased 3 basis points from the third quarter. Commercial net loan charge-offs increased 4 basis points from the third quarter, driven by higher commercial real estate losses predominantly in the office portfolio. Office valuations continue to stabilize and although we expect additional losses which can be lumpy, they should be well within our expectations. Consumer net loan charge-offs increased modestly from the third quarter to 75 basis points of average loans with higher losses in credit card and auto. Since there is seasonality in these portfolios, I would note that both credit card and auto losses were lower than a year ago. As Charlie highlighted, we closely monitor our portfolio for signs of weakness, and consumers continue to be resilient as income growth has generally kept pace with increases in inflation and debt levels. Our nonperforming asset ratio declined modestly from a year ago and increased 3 basis points from the third quarter, driven by higher commercial real estate and commercial and industrial nonaccrual loans. The drivers of this increase were borrower specific, and we do not see any signs of systemic weakness across the portfolio. Moving to Slide 10. Our allowance for credit losses for loans was relatively stable from the third quarter. Our allowance coverage ratio was down modestly and included a decline in the coverage ratio for our corporate investment banking, commercial real estate office portfolio to 10.1% in the fourth quarter. Turning to capital and liquidity on Slide 11. Our capital levels remain strong with our CET1 ratio at 10.6%, down from the third quarter but well above our CET1 regulatory minimum plus buffers of 8.5%. We added approximately 45 basis points from earnings, which was more than offset by approximately 40 basis point reduction from common stock repurchases and an approximately 45 basis point decline from risk-weighted asset growth. We repurchased $5 billion of common stock in the fourth quarter. Average common shares outstanding were down 6% from a year ago and have declined 26% over the past 6 years. Moving to our operating segments, starting with Consumer Banking and Lending on Slide 12. Consumer Small and Business Banking revenue increased 9% from a year ago, driven by lower deposit pricing and higher deposit and loan balances. Home lending revenue declined 6% from a year ago due to lower net interest income from lower loan balances. Credit card revenue grew 7% from a year ago from higher loan balances and an increase in card fees. Our new account growth has been strong and approximately 50% of our loan balances are now from the new products we've launched since 2021. Auto revenue increased 7% from a year ago due to the higher loan balances with auto originations more than doubling from a year ago. The decline in personal lending revenue from a year ago was driven by lower loan balances and loan spread compression. Turning to Commercial Banking results on Slide 13. Revenue was down 3% from a year ago as lower net interest income was partially offset by growth in noninterest income driven by higher revenue from tax credit investments and equity investments. Average loan balances in the fourth quarter grew $4.6 billion or 2% from the third quarter, driven by higher client activity. Turning to Corporate and Investment Banking on Slide 14. Banking revenue declined 4% from a year ago, driven by lower investment banking revenue and the impact of lower interest rates. I would note that while investment banking revenue declined in the fourth quarter, it was up 11% for the full year. Investment banking revenue will vary from quarter-to-quarter based on the timing of when deals close, so looking out over a longer time frame in a more meaningful way to see the momentum we are generating in this business. Commercial real estate revenue was down 3% from a year ago, driven by the impact of lower interest rates, reduced mortgage banking servicing income resulting from the sale of our non-agency third-party servicing business in the first quarter of 2025 as well as lower loan balances. Markets revenue grew 7% from a year ago, driven by higher revenue and equities higher commodities related revenue from increased market volatility as well as higher revenue and structured products. Average loans grew 14% from a year ago and 6% in the third quarter with growth in markets and banking driven by new originations as utilization rates on existing facilities were relatively stable from the third quarter. On Slide 15, Wealth and Investment Management revenue increased 10% from a year ago, driven by growth in asset-based fees from increased market valuation and as well as higher net interest income due to lower deposit pricing and the growth in deposit and loan balances. Underlying business drivers continue to show momentum in the fourth quarter with growth in loan and deposit balances as well as growth in total client assets, which benefited from the market valuations as well as net asset flows. As a reminder, the majority of wind advisory assets are priced at the beginning of the quarter, so first quarter results will reflect the higher January 1 market valuations. Turning to our 2026 outlook on Slide 17, we provide our expectations for net interest income. We reported $47.5 billion of net interest income in 2025, and we currently expect total net interest income to be $50 billion, plus or minus, in 2026. Additionally, for the first time, we are providing our net interest income expectations for our markets business. We also enhanced our disclosures related to this activity in our financial supplement by providing more details on trading assets and liabilities on Pages 6 and 7 and including disclosures in the Corporate & Investment Banking segment on Pages 14 and 15 as well as providing net interest income, excluding markets on Page 27. We believe these disclosures will provide additional transparency and insight. As you know, we've been investing in the markets business. And while it is still a relatively small contributor to our total net interest income, its contribution has grown and it can cause volatility in our NII outlook given changes in interest rates and other market factors. We currently expect markets NII to grow to approximately $2 billion in 2026 driven by lower short-term funding costs and balance sheet growth, including increased client financing activities, which as Charlie highlighted, tend to be lower margin and lower risk assets but are accretive to net interest income. As a reminder, while markets NII is expected to be higher, this growth is expected to be partially offset by lower noninterest income. Our focus is on growing markets revenue, which we expect to increase in 2026. Net interest income, excluding markets, was $46.7 billion in 2025, and we currently expect NII, excluding markets to be approximately $48 billion in 2026. Key assumptions used for our expectations include 2 to 3 rate cuts by the Federal Reserve in 2026 with 10-year treasury rates remaining relatively stable throughout the year, which would be a modest headwind to NII. However, this expected headwind should be more than offset by loan and deposit growth as well as continued fixed asset repricing. Average loans are expected to grow mid-single digits from fourth quarter 2025 to fourth quarter 2026 driven by growth in commercial, auto and credit card loans, all else equal, our provision expense would increase in 2026 as we set outside reserves to support this expected loan growth. Average deposits are also expected to grow mid-single digits over this period with growth in all of our operating segments, with stronger growth in interest-bearing versus noninterest-bearing deposits. We currently expect net interest income, excluding markets to decline in the first quarter due to the impact of 2 fewer days. Ultimately, the amount of net interest income we earned in 2026 will depend on a variety of factors, many of which are uncertain, including the absolute level of interest rates, the shape of the yield curve, deposit balances, mix and pricing, loan demand and the ultimate mix of activity and volatility in markets. Turning to our 2026 expense expectations on Slide 18. We continue to focus on efficiency as we simplify the company for our customers' employees while at the same time investing for the future. Following the waterfall on the slide from left to right, our noninterest expense in 2025 was $54.8 billion. Looking at the next bar, our assumptions do not include significant additional severance for 2026, which would result in an approximately $700 million decline in severance expense. We expect revenue-related expenses in 2026 to increase by approximately $800 million in our Wealth and Investment Management business. As a reminder, this is a good thing as these expenses are more than offset by higher noninterest income actual revenue-related expenses will be a function of market levels with the biggest driver being the equity markets. Our outlook assumes the S&P 500 will be up modestly from current levels, but clearly, the ultimate performance of the market is uncertain. We expect our FDIC assessment expense to increase by approximately $400 million in 2026 driven by expected deposit growth and the absence of the approximately $200 million special assessment credit that reduced FDIC expense in the fourth quarter. We expect all other expenses to increase approximately $300 million in 2026 with the impact of efficiency initiatives more than offset by higher investments in other expenses. We expect approximately $2.4 billion of gross expense reductions in 2026 due to efficiency initiatives. We successfully delivered approximately $15 billion in gross expense saves since we started focusing on efficiency initiatives 5 years ago, and we continue to believe we have opportunities to get more efficient across the company. There are 3 primary expense drivers that we expect will more than offset the gross expense saves in 2026. First, we expect approximately $1.1 billion of incremental technology expense, including investments in infrastructure and business capabilities. Second, we expect approximately $800 million of incremental other investments, including in the specific areas highlighted on the next slide. And finally, we expect other expenses to increase by approximately $800 million including expected merit and benefit increases as well as performance-based discretionary compensation. Additionally, other expenses reflect approximately $400 million of lower expense following the sale of our railcar leasing business in the first quarter of 2026. However, this benefit will be offset by a reduction in noninterest income. Putting this all together, we currently expect noninterest expense to be approximately $55.7 billion in 2026. And as a reminder, the first quarter personnel expenses are seasonally higher and are expected to be approximately $700 million. On Slide 19, we provide our key areas of focus for our 2026 investments across the company. And in summary, our results in 2025 reflected continued momentum in improving our financial performance. We generated strong fee-based revenue growth, maintain strong expense and credit discipline grew our balance sheet, returned significant amounts of capital to shareholders, retained our strong capital position and increased our return on tangible common equity. I'm excited about the opportunities ahead as we build on our momentum and further improve our results. We will now take your questions. Operator: [Operator Instructions] The first question will come from Scott Siefers of Piper Sandler. Robert Siefers: Mike, I was hoping you could just expand a little on your thoughts on NII, particularly ex markets. It looks like 2026 should be basically flat with the fourth quarter annualized level despite the outlook for a pretty good loan growth. It sounds like from what you said, that's mostly going to be a function of the rate outlook, but would just love to hear your expanded thoughts on sort of the puts and takes. Michael Santomassimo: Yes. Sure, Scott. Thanks for the question. You do need to adjust for day count. So it's -- I mean it's a little bit up from when you annualize the fourth quarter. But as you said, you really got 3 things going on. You've got rates coming down, which will be a headwind for NII x-markets. And then you've got the continuation of deposit and loan growth coming throughout the year, and it's about a build as you go. And so the results will look better as you get towards the latter part of the year. And at this point, the rate curve is -- our assumptions are pretty similar to what's in the forward curve at the moment. It's really 2 rate cuts with maybe another one right at the end of the year, which doesn't have much of an impact. And then you've got the loan growth that we've been seeing across the book. I would point out like some of the loan growth in places like cards will be coming in at either intro APRs or 0 rate as we continue to grow the book. But when you look at the rest of the portfolio, we're seeing good growth, and that should continue as we look through the year. So it's really just those 3 things. When it comes to like deposits and pricing, we're not seeing anything different than what we expected to see as we come into the year on the commercial side. The betas are what we expected as rates have been coming down, the betas are high. We don't have -- we don't -- our rates on the consumer side are already -- have already been adjusted downward. And so and we're not seeing any substantial like change in trend relative to what we expected. So those are the drivers that go into it. Robert Siefers: Perfect. And then I guess to the extent that you can, given how new this issue, I was hoping you could please maybe address sort of this increased volume around credit card rate caps, how you're thinking about this newer issue. It doesn't sound like it's affected your appetite for growth here at all, but I would just love to hear how you're sort of framing that internally. Charles Scharf: Well, I think -- listen, I think, first of all, I think we all agree that the underlying issue of focusing on affordability which is people have been experiencing for some time, which we pointed out multiple times when we look at those who have less savings with us than others is a real issue. And so what the right response to that is, is something that we do think should be carefully considered. And so relative to what all this means for us, it's just -- it's too early to know because we're not quite sure what the ultimate actions, whether it's the administration or of Congress choose to go down, and that's something we hope to engage in. But we're very much aligned with trying to find solutions to help as many as we can and just do it in a way that doesn't have adverse impact. Operator: The next question will come from Ken Usdin of Autonomous Research. Kenneth Usdin: Guys, good morning. Good to see the expected balance sheet growth. One of the base is on how much you're going to continue to be able to -- or desire to grow the lower NIM over spread type of assets and RWA growth vis-a-vis your buyback opportunities and your use of CET1 capital. Can you just kind of help us understand how you're thinking through those trade-offs? And when -- and what's the balancing act between the types of balance sheet growth that you're aspiring to as you think through the overall balance sheet mix? Michael Santomassimo: Yes. Sure, Ken. I'll take a shot at that because there's a few pieces that I'll try to disaggregate for you. When you look at what's happening in the markets business and adding some of the lower ROA financing repo trades I think that -- those don't attract a lot of capital or RWA because the collateral that sits behind them, right? So a lot of treasury collateral and other general collateral that sits there. And so -- and those are an important piece of the puzzle as you look to do more across the client base in the markets business. And so you'll see that grow throughout the year, for sure. But again, it doesn't attract a lot of capital to bring with it. What you're seeing across the rest of the balance sheet is growth in loans. And I think those bring varying degrees of capital depending on what they are. And even when you look at some of the growth that we've seen in the nonbank financial space, again, given sort of the way they're structured and given the collateral is behind them, they don't necessarily attract as much capital as a regular way, commercial loan. And so I think as we look at the opportunity there, we want to be able to support clients across the broad spectrum of businesses we have. We're going to continue to focus on the consumer side in the card space and in the auto space where we think we -- within our risk appetite there. And then I think on the commercial side, we'll continue to be very thoughtful about what we go after. But just to point out something we've said a lot is our risk appetite really hasn't changed and we're not looking to change that in a significant way. But now that the asset cuts gone, we've got more opportunity to continue to do more with clients. And that should create this good virtuous circle where they do more fee-based business with us as well. Charles Scharf: Let me just add a couple of things, if I can, Ken. First of all, just agree obviously, with everything that Mike said. But as we increase the financing that we do in markets business, our expectation of doing that is because we will wind up getting paid in other ways as well. And so that's not -- those don't happen concurrently, but it's something that we track by client to ensure that we're actually seeing that payoff. And we'll do our best to share that as time goes on. And that will determine ultimately how much we're willing to grow the financing business, right? The assumption is, as we've seen up until now that we do get paid for it. But the card is a little bit ahead of the horse on that one kind of period by period, we need to see that play out. And then the only other thing I would add on what Mike said in terms of just the rest of the balance sheet, just to be really clear is this is not an either/or for us at this point, right? We have significant opportunities to be able to extend loans and use our balance sheet for customers and to continue to buy stock back. We're not -- on the margin, we're making the trade-off decision but just given the amount of capital that we generate, the amount of opportunity that we have on both is significant. And so it's a good problem to have because is in the past, all we could do is buy stock back because we were limited in what we can do for clients. Now we can do both, but there's significant capacity and as you well know, we're still above what we've said our targeted range of capital should be. And we've also said that our targeted range still has significant buffers on top of the regulatory buffers, and that's something that we'll evaluate as the regulators finalize the capital proposals and the other things that we would be able to step back and say, okay, what do we think that means for us going forward, but it's all positive for us to have flexibility. Kenneth Usdin: And Charlie, my follow-up just on that last point, [ 106 ] exiting the year and you mentioned you have the 10, 10.5 range outlook. Does that mean that you're also comfortable guiding towards the lower end, which would still give you a lot of buffer to your earlier point? Michael Santomassimo: Yes. I mean, look, we gave a range, Ken, of 10%, 10.5%. And so that would mean we're comfortable operating in the range, right? Operator: The next question will come from Ebrahim Poonawala of Bank of America. Ebrahim Poonawala: Good morning. I just want to follow up. I think there's -- so I completely appreciate what you're saying in terms of focus on profitability while you're growing the businesses. Like we heard JPMorgan talk about investing in businesses and investing capital where the returns are probably sub-17%. I think maybe, Mike, Charlie, to the extent, I think that's one concern that you hear persistently over the last few months is how do you grow the business while improving the ROTCE capital leverage aside maybe if you don't mind, double-clicking on some of the expense and the efficiency initiatives you laid out on Slide 18. And I think you mentioned that even beyond 2026, you see that, just trying to get a better sense of the outsized efficiency opportunity that Wells has to achieve that ROTCE while delivering superior growth. Charles Scharf: Yes. Let me just start out, Mike, and then I'll hand it over to you for like some real facts. But just what we have been doing -- I mean, what we're talking about doing is a continuation of what we have been doing, right, which is we believe that we continue to have opportunities going forward. And if you look at what we've been able to do, we've cut $15 billion of expenses out of the company. Our -- as we've said, we a couple of years ago, we had increased our regulatory expenses by $2 billion to $2.5 billion on an annual basis. And our expenses have come down. And so if you look at what that difference and all that is, that is a significant amount of money that we've been able to use to reinvest to position ourselves for growth. And that's very much of the way that we continue to think about what we want to accomplish here, which is we think we have more tools on a going-forward basis to get more efficient than we've ever had and especially with AI. And we're going to continue to figure out what we think the right trade-off is to reinvest those savings into driving growth inside the company as we've done in the past. But as we think about what we've done to be able to increase the returns of the company it is either -- what we've done is we've reduced the expense base of the company while we've grown revenues. And so there's not a lot of rocket scientists to what we're trying to accomplish here, it's more of the same. And we feel like we're in a great position to both use the benefits that we get by driving increased efficiency to contain any expense growth at this point and to see the benefits of those investments come through to increase revenue growth. Michael Santomassimo: And Ebrahim, maybe I'll just point out some things we saw in 2025 that sort of go at what Charlie said. The credit card business new accounts up 20% year-on-year. Auto lending balances up 19%, loans in the commercial side, up 12%. Growth in Investment Banking, 12% investment banking fee growth, win fees up significantly. And then if you look at it over a slightly longer time period, you also see trading up substantially. And so a lot in banking -- and so a lot of what Charlie talked about is coming through in the results while we're getting more efficient. And I think as we've said a number of times, but also in sort of the prepared remarks is that we're just getting started in terms of really realizing the opportunity we have across each of the businesses. Ebrahim Poonawala: That is helpful. And I guess maybe just a separate question on capital. M&A comes up a lot in the context of well rightly or wrongly now. And I appreciate you're going to be disciplined and you should be looking for sort of strategic opportunities. But just remind us when you think about M&A, either Wealth Management or bank M&A, just how you're thinking about it what do you think makes strategic sense where it would not be a distraction from what you're trying to achieve organically? Charles Scharf: Yes. I mean, I'll start with probably the most important thing is, which is we feel no pressure to do any M&A whatsoever in any of our businesses because we feel so good about the quality and the completeness of our franchise is -- and the opportunities that we have. And not everyone is in that position, and we feel blessed to be in that position. But as you point out, it's wrong not to say we would never think about something. We, of course, would think about anything that made sense. But I would just say the bar would be high for us, both in terms of what we would expect financially, and it should be something that would have some kind of material -- make us materially more attractive for investors. So we're not just looking to buy things for the sake of buying things. In fact, it's just the opposite. We spend our time focused on driving the organic opportunities that we have. Operator: The next question will come from John McDonald of Truist Securities. John McDonald: Mike, one follow-up on the NII. Does the growth in markets NII that you expect in '26 have a trade-off in the trading fees? Or maybe said differently, the base of trading fee revenues in '25 looks like about $5.1 billion? Is that a good starting point that you feel like you can grow off of? Or is there any kind of trade-off with markets NII? Michael Santomassimo: Yes. No, John, it's a good clarification. And I tried to address that in my remarks, but there is a trade-off the growth in NII is partially offset by a reduction in the fee line, not entirely, but partially offset by the fee line given the dynamic we have in terms of overall growth. But as I said in the remarks, if you look at overall revenue, overall revenue, we expect to grow in the markets business this year. And you should see some normal seasonality in there as well, right, where you see a low point in the fourth quarter, and you see a little bit of a snapback in the first quarter. And so I think you'll see some of that -- you'll see that normal pattern. But overall, revenue in the markets business, we would expect to be higher. Charles Scharf: Yes. So to that point, we do disclose that, and so we would encourage everyone to look at disclosure and as you project forward to think about that number as opposed to just the pieces because it will -- the mix will change depending on the rate environment. John McDonald: Yes. And maybe just pulling back then, just thinking about total revenues, you've got the NII growing maybe about 5% this year. Are you thinking about total revenue growth also in kind of that mid-single-digit kind of growth category, and you've got 1% to 2% expense growth and a couple of hundred basis points of operating leverage this year? Michael Santomassimo: That's not a number we guide to, John. But -- and obviously, in the markets business, it's going to be a function of what we see throughout the year in terms of the opportunity set that's there, the volatility and all the right caveats that go there. But we would expect the overall to be up, and we'll see by exactly how much. Charles Scharf: Yes. Just listen, just -- we're not trying to be coy and not give you something that we think we should be giving you. But it's just the reality is a significant number of the items that are embedded in noninterest income, are highly dependent on the world and on the markets, which as we know can be very, very volatile whether it is the trading numbers or the revenue items related to our wind business. And so we're long-term believers that those -- that the underlying business grows that we can take share, and so we would expect to see growth in those numbers. We just want to be really careful about providing any kind of guidance in any way, shape or form that boxes any of us in relative to our inability to predict that. John McDonald: Okay. Great. Fair enough. And Mike, one quick follow-up on the commercial nonperformers. It did move up. You mentioned it in the opening comments. Any more color on just what drove that? It's off a low base, but lost content or any thoughts about the drivers there? Michael Santomassimo: Yes. A couple of thoughts. I mean, look, I mean, if you look at it over a long time period, the number can be quite volatile like period-to-period. So I wouldn't read too much into that. There's really nothing systemic that we're seeing come through. And when you really look back at nonperforming assets, they're actually not a very good predictor of loss. And the vast majority of them are performing both on principal and interest. And so it's some individual names that sort of move around quarter-to-quarter, but nothing systemic as you sort of look at it that we can see. Operator: The next question will come from Betsy Graseck of Morgan Stanley. Betsy Graseck: A couple of questions, follow-up here. One is just on the markets commentary that we were discussing earlier around its lower ROA business. Can you talk to us about how you're thinking about the impact on ROTCE? And is there a limit to which you would go because if it's dilutive to ROA, it's dilutive of ROTE, I realize that regulatory capital is low. But [ GAAP ] capital still there. So help us understand how you're navigating that? How large are you okay? With it becoming? Michael Santomassimo: Yes. Betsy, I don't anticipate it's going to have any kind of negative impact on where we think returns go. The returns given the nature of it, the returns are fine, and it's not going to be going to have be dilutive relative to the overall returns of either the segment or the overall company. And as Charlie mentioned, the financing opportunity that you get through doing this -- kind of the -- or the additional opportunity you get by providing financing capacity to clients should start to build more meaningfully over time as well that sort of builds up the kind of the full set of revenues for each of those clients. Charles Scharf: And Betsy, if I can just say a couple of things. Just number one is we are not going to grow our trading business in any kind of outsized way, which would have a negative impact on our ability to produce the kind of returns that we want and you would expect. So there's nothing outsized in our minds about where that goes. I think we're starting from a low base. So it looks like it's -- it sounds like it's significant, but it shouldn't be significant to the impact to what we can produce as a company. And the other thing I would point out is a big part of why we're in the markets business, it's not for the sake of just making money and trading on its own. These are corporate relationships and these -- in which we have a broader set of business activities and as you grow your secondary business, it helps with your primary business. They're very, very much related. And so as we think about returns, we are very focused on returns overall and specifically ROTCE and weather going to see it or will slow it. And again, just the size is relative to like who we are not relative to what everyone else is out in the marketplace and we are driven by where we intend to move the firm from an overall return standpoint. Betsy Graseck: Okay. That's helpful to understand how you think through that. And then just separately, when I think about -- first of all, loan growth accelerating this quarter, very nice to see and heard all of the commentary around how you're expecting trajectory from here. Charlie, I had a question just on what kind of kind of loan growth firm credit quality should we be anticipating as you build out this loan growth over the medium term. The reason I'm asking the question is before the asset cap, before GFC Wells was very well known as a full spectrum lender, both on the consumer side and in the corporate side as well, SMBs, a lot of middle market et cetera. And so I'm -- where are you looking to take the organization as you have the opportunities to lean into growth? Charles Scharf: So yes, so if we separate the business into the wholesale side and the consumer side for a second, where we are going on our wholesale credit business is no different from where we've been, specifically in the commercial bank. The business -- the risk appetite that we've had continues to be the same level of risk appetite. And what we're focused on is getting stronger in geographies where we have more opportunity, where there are more opportunities to grow and grow with the clients in the rest of our business. So there, it is more of a market share gain than any kind of change in where we're looking in terms of what the credit opportunity is. On the CIB side, we have done more to support our corporate client base. But again, very, very focused on not taking risks that go beyond the way we've thought about risk appetite as a company. So very, very consistent there. When we look at our consumer businesses, I put it like there are different phases. There's the way we operated historically, where we were historically, we were very, very good at credit. In different businesses, we were more of a full-spectrum lender across different segments, but more weighting towards the higher FICO customers, as we've gone through the last bunch of years is we've had to focus on different things and there have been different economic circumstances there, it's been much more focused on the higher credit quality. So I would say the opportunity for us, and we referred to this when we talk about our auto business specifically, is to be more full spectrum but not in a way that materially changes what you've ever thought of us as. In fact, it's probably much more of way you've thought about us in the past. So again, just go back to what the North Star is, is that we're very, very focused on returns in places like the auto business in order to get the right returns being a full-spectrum lender is helpful, but we're not going to do it in a way that creates a tale of risk in our lending book which is not consistent with how we think about our risk appetite. Operator: The next question will come from Erika Najarian of UBS. L. Erika Penala: Just one follow-up question. You mentioned $800 million in higher revenue-related expenses for the year and considering the S&P up a little. I'm just wondering in this period of what Charlie mentioned, not putting in a box, is the expense number of 55.7 contemplating a pretty robust capital markets environment that the investors are expecting? Michael Santomassimo: Erika, this is Mike. The $800 million is exclusively in our Wealth Management business. And that -- and that is based primarily on sort of where the overall equity market will land. And we do expect it to be up modestly from where it is today. I think more broadly, we do include in that -- in the bottom of our expense expectation slide in the other category, there is performance-based compensation included there, and that would include anything we expect for the market, and we do expect to have a pretty active market this year. Operator: The next question will come from Steven Chubak of Wolfe Research. Steven Chubak: So I wanted to ask on the assumptions underpinning like the '26 NII guidance, specifically around loan and deposit growth. You guys saw a really nice acceleration in some of the balance sheet KPIs to close out the year. Lending and deposit growth both grew mid-single digits sequentially. That's essentially the level of growth that you guys are contemplating for the full year for '26, so it does imply a pretty meaningful deceleration. And I recognize mid-single-digit growth is nothing to scoff add. But just what informs the slowdown? Is that a function of conservatism? ADO sources of lending strength in the fourth quarter or something else? Michael Santomassimo: Yes. Steve, look, I think you got to be careful to extrapolate from 1 quarter and you can see quite some seasonality that's in there. So in our Commercial Bank as an example, there's some trade finance type loans that are seasonally there at year-end. It's a lot of roll down a bit in the first quarter. So there are some elements that sort of -- that offset it. And it can be pretty volatile quarter-to-quarter in terms of the growth you see there. But what I would say is like what we're not -- and I try to get this across in the remarks, what we're not assuming is some like big broad-based increase in utilization across the commercial bank. So there could be more loan growth if we start to see utilization rates tick up. There's lots of factors that could drive it higher from what we have there. But I think as we sit here today, we think this is an appropriate place to be based on all of what we're seeing. Steven Chubak: Okay. Great. And then for my follow-up, Charlie, I did want to ask on the 17% to 18% ROTCE target. So it's pretty clear based on our investor conversations that no one is really questioning the potential for the franchise to get to the 17% to 18%. You even noted that's not the extent of your longer-term ambitions but you've been reluctant to commit to timing. It does appear that's driving a wider range in terms of earnings expectations. I was hoping you could just contextualize what are some of the milestones you're looking for or areas where you might need better visibility in order to get sufficient comfort to offer a more explicit time line for that 17% to 18%? Charles Scharf: Yes. Come on -- I mean let's just be a little reasonable here. Like you're all very smart people right? And you traffic in the same world that we traffic in, which is we don't know what the credit environment will be over the next 1, 2, 3, 4, 5 years. We don't know what the interest rate curve is going to be. We don't know what the market levels will do. And so asking for a very specific time line where there are just a huge amount of variables that impact that end result it's just not a -- certainly -- we don't think it's a smart thing for us to be able to predict because we don't know those things. But what we've said historically is what we continue to say, which is those things can be volatile. Those things will go up or down. But what we're focused on is ensuring that we are building a business which will drive higher revenue growth reasonable expenses where we see the payoffs for the investments that we're making. Very, very focused on ensuring that we're getting the right returns for what we're doing. And so as you see the underlying growth metrics that we pointed out in our remarks that you'll be able to tie that to the underlying revenue captions, and look through the impact of volatility. And so as we grow accounts, as we grow balances, as we grow market share, you see it coming through revenue, you see control of expenses it will be -- like is it a straight line in these businesses, which is why we want to stay away from putting any specific time frame on it. But we've also been tried to be helpful in saying, it's not what's midterm, meaning it's not tomorrow, but it's also not over an extended period of time. And we know that we should be able to show you that we're making progress to get there, and you should feel like it's possible. And we've shown up to this point that we've been able to do that. And hopefully, you'll see that in the underlying results in you'll have the confidence that will have the confidence that it continues. But you'll either see it in the results or you won't. Steven Chubak: All right. Well, Charlie, your peers do provide a time line. So I don't think it's an unreasonable expectation for us to ask for that. If I understand your perspective, there is a lot of uncertainty. If I could just squeeze in one more. Just you listed various sources of efficiency initiatives in the slides, you're making good progress there. You didn't explicitly mention how much of that reduction in the excess regulatory cost of 2% to 2.5% is contributing to some of those efficiency gains. So just wanted to understand how much relief should come from that this year? Is that should also drive incremental efficiency gains beyond 2026, which informs that improvement in returns you just alluded to? Michael Santomassimo: Steve, it's Mike. Yes, we continue to work to streamline and bring better technology to some of what we've implemented over the last number of years. So I'd say there's a little bit of impact from that in the efficiency work this year but that will likely continue to come over a slightly longer period of time. And I would just kind of also reinforce just on the efficiency stuff. It's like there's -- there's no new silver bullet here. It's continuing to peel back the onion in each of the areas, drive better automation, reduce real estate costs, reduce third-party spend. And so -- so there's hundreds of things that happen across the company in any given quarter to sort of help drive that. But we would expect to be able to continue to optimize some of that over a slightly longer time period, but there is a little bit of impact this year. Operator: The next question will come from John Pancari of Evercore ISI. John Pancari: Mike, just on the margin dynamics for the fourth quarter. I know your loan yields declined by about 19 basis points linked quarter. Can you maybe give us a little more color of the driver? How much of that was -- I know you cited the trade finance dynamic, maybe securities lending and the markets business. Curious what really were the bigger drivers behind that? And maybe if you can kind of dovetail that into how you think about the underlying margin trajectory as you look at 2026, given these dynamics? Michael Santomassimo: Yes. No. On the loan side, the biggest driver is rates coming down, right? So you've got a big variable rate portfolio there on the commercial side. So that's going to be the biggest driver. In some of the areas, it's very competitive. And so you see a little bit of spread compression across some of the commercial book as well, but the biggest driver in the sequential quarter is going to be rate. And then when you just look -- as we come into next year, as we said, you'll be growing a little bit of some of the lower ROA exposures. So that will have an impact on overall margin. And then you'll also have rates coming down again this year if the forward rates materialize. And so -- and then you -- then that will be offset by new activity that we put onto the books and some of the fixed asset repricing, particularly in the securities portfolio. John Pancari: Got it. Okay. And then one follow-up, just related to that on the deposit side. Maybe if you could help us update us on your deposit gathering strategy overall. I know you cited the mid-single-digit deposit growth for '26. Maybe can you talk about the mix shift that you would expect between interest-bearing and noninterest-bearing. And what businesses do you see driving the bulk of growth? It looks like you saw a pretty good leg up in your deposit volume through the wealth management business, for example, this quarter. So I just want to see if we can get some color there in terms of the businesses that are driving the growth. Michael Santomassimo: Yes. No, it's going to be a bit of each of them, and I'll kind of go through each. But on the Wealth Management side, it's continuing to focus the lending and banking products, bringing focus to those across the adviser base that we've got. And that will -- and we're seeing good uptake there. And so that will continue to grow. Won't be a straight line, but it -- but we do expect to see some growth in the wealth business. Now that we can compete more effectively with the asset cap on, on the commercial side, you're seeing good loan growth there. And on the commercial side, those are going to be mostly interest-bearing, even though there'll be some noninterest-bearing component of it with it. And so that's why in my remarks, I said, you'll see a little bit more interest-bearing than noninterest-bearing because you'll see more growth on the commercial side. And then on the consumer side, it's just continuing to see better execution across both our digital marketing and branch channels to drive more checking account growth and deposit growth there. So it's really going to be a function of executing across each of the businesses there. Operator: The next question will come from Matt O'Connor of Deutsche Bank. Matthew O'Connor: I was wondering if you could just talk about the environment for commercial real estate, broadly speaking. I mean you mentioned on credit obviously past the work. You have a lot of reserves. You could have some lumpy losses. But the industry and you grew loans for the first time in a really long time this quarter. And there's just been a lot like anecdotal kind of articles out there in the media talking about parts of CRE kind of coming back. So just wondering how meaningful recovery you guys think this could be and how well levered you are to that? Michael Santomassimo: Sure. I'll take a shot. And if you look at the commercial real estate book, excluding office for a second, just put that to a side and I'll come back to it. There's been good demand there for a while across a lot of different sectors, whether it's multifamily, industrial, data centers on and on. And so -- and the fundamentals there haven't shifted that much as we go into this year. So we do expect to see some continued demand come through in some of those subsectors. I think when you look at office, I think there's where you're definitely seeing stabilization in valuations. But you do have a bifurcation there between really good office space, kind of newer Class A or better space in vibrant cities that are doing really well and demand is up substantially. And you can see that just even through some of the CMBS market executions that have happened over the last number of months. And then -- and then I think on the older inventory and older stock, I think things have stabilized there. And we continue to work through that portfolio. But I think overall, if you look at everything other than kind of the older office stock, there seems to be good demand and activity levels. Operator: The next question will come from Saul Martinez of HSBC. Saul Martinez: I just have one as well. Totally get the reluctance to give specific revenue guidance. And as you indicated, a number of the fee line items are tied to market conditions and can vary. But I'm curious what -- if you can just give us some color on what your expectations directionally are for some of the major fee lines, deposit fees, investment advisory, card fees, trading IP. And part of the reason I ask is that if you do look at some of these lines deposits, advisory cards, they're tracking at mid- to high single-digit growth. banking. There's reasons, obviously, for optimism there, and you mentioned trading, you expect to grow even with some of the headwinds from the offset to trading-related NII. So it does feel like there is reason to be optimistic here. But just curious if you can -- maybe just give us some color on how to think about these line items and what some of the major drivers are that could move them one way or another. Michael Santomassimo: Yes, sure. So if you start with the biggest one, which is investment advisory and other asset-based fees, that's really going to be driven by how the markets hold up. Charles Scharf: In the short term. Michael Santomassimo: In the short term, yes. And I think as long as the equity markets hold, which is the bigger driver, you also have some impact on fixed income markets there as well. If rates come down, you get a benefit as asset prices go up. But you will see the equity markets in the short run, drive that the most. So as long as we have a pretty stable growing market there, I think you should be able to model that relatively easily in the jumping off point, this year is much better than where we entered last year. So that -- I think that's what you're alluding to. When you look at then deposit-related fees and card fees, I'll kind of lump them together. It's really going to be a function of just the overall macro picture in the economy. And at this point, what we're seeing and what's happening across the consumer base is just very consistent activity. And so I think as long as that continues, that should support those fee lines. And between the 3 of those, that's over half of the fee line just right there alone. And then I think Investment Banking fees, it appears like I think everybody thinks that we're going to have a pretty active deal make, both on the M&A side, but also sort of the maybe even more active equity capital markets outlook as well. And so -- and then the debt market, I think, has been holding up quite well over the last couple of years. And so assuming that's the case and given our investments, we should be able to continue to grind out share gains as we go over time. And then the last one I'll sort of maybe highlight is just trading. Again, we talked about it earlier, but you will have an impact of rates come down, you'll have higher NII in the markets business, lower fees, but we should continue to be able to grow overall revenues in the markets business. So I think as long as the kind of macro picture sort of holds, then it should be quite constructive for a lot of the fee lines as we look at them. Operator: The next question will come from Chris McGratty of KBW. Christopher McGratty: Mike, on the consumer deposit growth, just to follow back on the prior question. It was about 1% year-on-year. I'm interested now that rates have come down and excess liquidity has kind of been pulled. Like is this a GDP or GDP plus opportunity for deposit growth over the medium term? Michael Santomassimo: Yes. I mean, look, I think for us, it's now that we're able to kind of more aggressively in a much more front-footed way, deploy marketing and get our branch system to be more productive, hopefully, over time, we'll be able to see outsized growth there. But I do expect that we'll -- that will not be kind of a linear path up. But I do expect us to see some growth in the consumer deposit base. And I think you'll start to see that relationship between deposits and GDP start to move in sync again hopefully over time. It's been a lit bit... Charles Scharf: Like remember, our -- we believe based upon who -- what the franchise is and the benefits that we bring that we should be able to grow faster than the market over time. And we're working hard to reinvigorate the business, which was really hard hit by all the issues that we've been that we've gone through, not just the actual cap itself, but like how it limited the things that we could do internally. And so that's something that you build up over a period of time. But we think the opportunity is to be able to, over time, grow faster than the market and to take share in a profitable way. Christopher McGratty: Great. And then just coming back to the -- I think you said 185 coverage bankers over the past 2 years. Is the pace of -- or the opportunities for hiring '26 greater or less? Is it slowing? Any coverage kind of company question there. Michael Santomassimo: It's about the same per year. Charles Scharf: Which, again, I would just say, as we think about it, these efforts that we have underway, these are multiyear plans where we've looked at whether it's geographies, industry coverage within our CIB is what you want to accomplish in a year, you want to see the payoff and then we'll keep going. And so we still see materially more opportunities to grow in both the commercial bank and the corporate investment bank as well as in our consumer banking system for a whole bunch of different reasons. Operator: And the final question for today will come from Gerard Cassidy of RBC Capital Markets. Gerard Cassidy: Guys, when we take a look at your average balance sheet on Slide 7 in the supplement, you show that you've had some nice growth, obviously year-over-year in the balance sheet. And the funding of that, you've had real good strong growth in the Fed funds purchase and short-term borrowings on a year-over-year basis. Can you share with us you're thinking the strategy of using that source of funding to grow the balance sheet as we go forward and what the outlook could be for this going in 2026? Michael Santomassimo: Yes, Gerard, that's just funding the growth in the markets business, very similar to the way the other investment banks do it. So there's nothing too exciting there, to be honest. And when we came out of -- and I think we mentioned this maybe coming out of the second quarter, we did move some funding to the repo line that we had internalized while the asset cap is in place. And so this is just normal funding of the markets business. Gerard Cassidy: Very good. And then just a quick follow-up. You talked a lot about the success you're having in investing in Investment Banking and markets and you just commented about the hiring if it's about the same or more challenging. When you look at the team on the field, I think there was a Financial Times article, Charlie, talking about some areas that you may want to add to. But when you look at this team, are you 75% there in terms of you got all the people you need? Or where do you stand on both markets and then Investment Banking? Charles Scharf: I would say, well, first of all, I think what's really important is just the quality of the people that we've hired, not just the numbers. And so I didn't say that before. But what our team has done just a great job of attracting some of the most talented people from great institutions out there that have just done a great job of building talent. So we're not just focused on growing the numbers. It's about the quality and then making sure that we're seeing the payoff. Listen, I think it's -- I don't really want to put a percent number on it because it's a journey. And we've seen -- as we've added resources this year, it's so much a moving target because other companies aren't standing still either, and they've grown their resources as well. And so I think let's just -- we'll try and provide a little bit more context as time goes on to give you a sense. But I'm just kind of going to leave it at that, that we think the opportunity to continue to add resources to see the continued growth is as strong as it's ever been for us. Michael Santomassimo: All right. Thanks, everyone. We appreciate the questions. We'll talk to you next time. Bye. Operator: Thank you all for your participation on today's conference call. At this time, all parties may disconnect.
Operator: Good morning, and welcome to United Community Bank's Fourth Quarter 2025 Earnings Call. Hosting our call today are Chairman and Chief Executive Officer, Lynn Harton; Chief Financial Officer, Jefferson Harralson; President and Chief Banking Officer, Rich Bradshaw; and Chief Risk Officer, Rob Edwards. United's presentation today includes references to operating earnings, pretax, precredit earnings and other non-GAAP financial information. For these non-GAAP financial measures, United has provided a reconciliation to the corresponding GAAP financial measure in the financial highlights section of the earnings release as well as at the end of the investor presentation. Both are included on the website at ucbi.com. Copies of the fourth quarter's earnings release and investor presentation were filed this morning on Form 8-K with the SEC and a replay of this call will be available in the Investor Relations section of the company's website at ucbi.com. Please be aware that during this call, forward-looking statements may be made by representatives of United. Any forward-looking statements should be considered in light of risks and uncertainties described on Pages 5 and 6 of the company's 2024 Form 10-K as well as other information provided by the company in its filings with the SEC and included on its website. At this time, I'll turn the call over to Lynn Harton. Herbert Harton: Good morning, and thank you for joining our call today. The fourth quarter was a solid end to a great year. During the quarter, we had 11% year-over-year revenue growth, led by continued margin expansion and 4.4% annualized loan growth. Nonperforming assets, past dues and substandard loans remained stable at low levels. Our operating earnings per share for the quarter was $0.71, a 13% year-over-year improvement. Our fourth quarter return on assets was 1.22%, and our return on tangible common equity was 13.3%. For the year, our operating earnings per share grew by 18% from $2.30 to $2.71. 2025 saw solid improvements in all of our key performance ratios. Margin was up 23 basis points. Efficiency ratio improved by 264 basis points. Credit losses declined and our return on assets improved by 18 basis points. We topped $1 billion in revenue for the year with 12% year-over-year growth. We put extra focus on our retail and small business lending efforts in both of those lines passed $1 billion in annual production for the first time. Our Navitas equipment finance team also crossed $1 billion in originations for the first time. Executing on our capital plan, we increased our dividend in the third quarter to an annualized rate of $1 per share. We took advantage of the opportunity to repurchase 1 million shares of our stock in the fourth quarter at an average price below $30 per share. During the year, we also redeemed our preferred stock, further increasing our returns to common shareholders. Our return on tangible common equity reached 13.3% for the year, and our tangible book value per share grew by 11% year-over-year. Culture remained a focus during the year as well. As a result, we were recognized for being #1 in retail client satisfaction in the Southeast for the 11th time by J.D. Power. American Banker recognized us for the ninth time as being one of the top banks to work for in the country. And the American Bankers Association awarded us with a Community Commitment Award for our Financial Literacy month program. For Financial Literacy month in 2025, our team led 154 workshops reaching more than 13,400 students. That's just a small example of the tremendous energy the United team personally invest in our communities. 2025 was a great year, but we want to be better. To improve the durability of our earnings and multiple interest rate scenarios, we reduced our securities duration. We upgraded both our talent and our systems that manage interest rate risk and deposit pricing. We continue to invest in growth. 2025 saw the successful conversion of American National Bank in Fort Lauderdale to the United Systems and brand expanding our presence in this dynamic market. We opened a new office in Cary, North Carolina and began work on new offices in South Miami and Winston-Salem, North Carolina. We committed to the expansion of our Florida private banking model to the rest of our footprint. We expanded our product set and treasury management to help us continue to grow our commercial line of business and we added talent and risk management to prepare us for continued success. It's been a great year. Jefferson, why don't you cover our performance in more detail. Jefferson Harralson: Thank you, Lynn, and good morning to everyone. I will start on Page 6 and talk about our deposit results. We experienced a positive seasonality we expected with regard to public funds in the fourth quarter with an increase of $293 million. We were also very pleased that our cost of deposits improved 21 basis points to 1.76% and that our cumulative total deposit beta moved to 40% from 37% as we discussed last quarter. Excluding public funds, our average balances were down slightly for the quarter, but similar to last year, we did see a greater decline in end-of-period balances. This end-of-period decline was partially due to seasonality with customers moving cash in and out during the last 2 weeks of the year. And it was also the result of our strategy where we lowered rates on some of our highest cost single-service customers. For the year, our deposits grew by 1%, and we continue to grow customers and accounts. On Page 7, we turn to the loan portfolio, where our growth continued at a 4.4% annualized pace. Our growth came primarily in the C&I and HELOC categories, which are 2 of our current areas of focus for growth. Turning to Page 8, where we highlight some of the strengths of our balance sheet. We believe that our balance sheet is in good position from a liquidity and capital standpoint to be ready for any economic volatility. We have very limited broker deposits and very limited wholesale borrowings of any time. Our loan-to-deposit ratio remained low but increased for the third quarter in a row and is now at 82%. Our CET1 ratio was relatively flat at 13.4% and remains a source of strength for the bank. On Page 9, we look at capital in more detail. As I mentioned, our CET1 ratio was 13.4% and our TCE increased by 21 basis points to 9.92%. As Lynn mentioned we were active in our buyback in the fourth quarter, buying back 1 million shares at just under $30 per share. Moving on to spread income on Page 10. We grew spread income 7% annualized in the quarter. Our net interest margin increased 4 basis points to 3.62%. Excluding loan accretion, our net interest margin increased by 6 basis points as compared to the third quarter. The driver was mainly a lower cost of funds, but we also benefited from the loan-to-deposit ratio moving to 82% from 80% last quarter. We continue to experience a NIM tailwind from our back book repricing and from the mix change towards loans and away from securities. In 2026, using just maturities, we have about $1.4 billion of assets paying down in the 4.90% range. And because of this continued impact, I would expect the NIM to be up between 2 and 4 basis points in the first quarter. A key will be how we are able to reprice the $1.4 billion of CDs we have maturing in the first quarter at 3.32%. Moving to Page 11. In noninterest income was $40.5 million, down $2.8 million from the elevated result of the last quarter. We had good growth in our wealth business and continued strong growth in our treasury management and customer swaps businesses within the other category, while mortgage softened as expected due to seasonality. Operating expenses on Page 12 were $151.4 million, an increase of $4 million on an operating basis. The main reason for the increase is $1.5 million in higher group health insurance cost. Moving to credit quality on Page 13. Net charge-offs were 34 basis points in the quarter. an increase compared to last quarter. The primary reason for the $9 million increase was charge-offs on 2 C&I loans, of which $5 million was already specifically reserved for. NPAs improved and past dues were flat as credit quality remains strong. I will finish on Page 14 with the allowance for credit losses. Our loan loss provision was $13.7 million in the quarter and included the release of the final $1.9 million of Hurricane Helene special reserve. Net-net, ROL coverage of credit losses moved down slightly to 1.16%. With that, I will pass it back to Lynn. Herbert Harton: Thank you, Jefferson. As we move into 2026, we're optimistic for continued growth and improvement. The economy in our markets remain strong and will support continued growth in our business. Before we turn to questions, I'd like to recognize and congratulate our teams for a great performance this past year. I'm looking forward to another great year with them in '26. And with that, let's open the floor for questions. Operator: [Operator Instructions] The first question today comes from Russell Gunther with Stephens. Russell Elliott Gunther: Starting on the balance sheet, if I could. We got a favorable average earning asset remix this quarter out of securities and into loans. How should we think about the overall balance sheet growth in '26? Should we expect this dynamic to continue? Or just on the investment portfolio front, could that flatten out or grow going forward? Jefferson Harralson: All right. Thanks, Russell. I'll take that one. The -- I would expect our balance sheet growth to be really dependent upon our deposit growth. Generally, we're modeling that it would be a couple of hundred basis points below our loan growth for both deposit growth and the balance sheet growth. So yes, I would expect this continuation towards a higher loan-to-deposit ratio throughout 2026. Russell Elliott Gunther: Okay. Excellent. And then just maybe isolating for the loan growth piece, Jefferson, you guys talked about C&I and HELOC remaining a focus. But if you could just touch on sort of anticipated asset class and geographic loan leaders for the year ahead. And then lastly, just Navitas as well, strong production in '25. How are you thinking about that and as a contributor to the overall loan mix? Richard Bradshaw: Russell, this is Rich. I'll take that one. So first of all, to address the production, this was the largest bank production quarter ever. So we felt great about that, did have some senior care headwinds and a couple of large loans that we chose not to defend. To your point, very pleased that Florida, which had our 2 newest acquisitions led in production for the bank. As you said, C&I grew. We grew that 12%. Owner-occupied CRE did well. Navitas had a strong quarter. As I said earlier, retail crossed the $1 billion mark and had a great quarter. And SBA, even with the government shutdown had the largest quarter in commitments that they've ever had. So we feel very good about that. And we look forward to 2026. We've got a lot of good conversations going on the hiring side throughout the footprint. We continue to focus, as you said, an asset class, we continue to want to do more in C&I and owner-occupied CRE as well as the HELOCs have done well for us as well. Operator: The next question comes from Stephen Scouten with Piper Sandler. Stephen Scouten: Yes. Obviously, really nice opportunistic trade on the share repurchase in the quarter. I'm wondering if there's any kind of mindset change at all around that opportunistic nature of the repurchase moving forward? Or if you could be a little more aggressive given capital looks like it will continue to build pretty aggressively based on the strong earnings. Herbert Harton: Yes. I would say we would intend to be more assertive on buybacks as we look into '26. As you mentioned, capital build is there. Credit quality is great. So no really reason to hold anything there. M&A opportunities are light. We've kind of built the foundations of the footprint that we want. And so we're very satisfied with what we've got. So that really puts buybacks in the crosshairs. And frankly, we think there continue to be at a good value and a good earnback as we sit. So yes, I would expect to see more. Stephen Scouten: That's great. Okay. And then if I'm thinking about -- I think, Jefferson, you had said last quarter, I believe, like in the medium term, felt like you saw some upside to the NIM. And obviously, we saw that this quarter on that remix and it sounds like next quarter as well. Can you -- I don't know if you have any data like this, but give us a feel for as these loans reprice and mature and maybe as the CDs, in particular, renew, like what sort of retention rates you tend to get on those pools of assets and deposits just as we think about the upside potential there? Jefferson Harralson: That's great. So I'll start on the CD side. I mentioned the amount of CDs that were repricing in Q1 at 3.32% maturing. They've been coming on around 3.13%. We've been seeing that trend continues. So we are still seeing more tailwind from the cost of funds or cost of deposits angle. We were at 1.69% at quarter end there. So we are set for some nice improvement if the current trends stay in place in the first quarter. On the loan side, excluding Navitas, we have $6 billion of fixed rate loans at 5.19%. That fixed book was up 9 basis points in Q4, and it's been increasing about 6 to 8 basis points a quarter. In the fourth quarter, we were putting on new fixed rate loans at 6.45%, excluding Navitas. And with the long end of the curve staying relatively high that may be able to stay in that 6.45% range, but we're also seeing spread compression there. But either way, we're putting them on at a much higher rate than 5.19%. So we have this longer-term trend on the asset side. That's a tail end, and we have a shorter-term trend on the liability side that should help our margin too in the near term. Stephen Scouten: Got it. That's helpful. And kind of specifically around those fixed rate loans, like as they reprice, do you -- or mature, I mean, can you give us a feel for how much of that you retain? I mean is it -- I'd assume just given the continued loan growth, it's a pretty high percentage. But just kind of curious if you have a metric there and if there's any change in competitive factors with rate cuts that you think that 6.45% could get pushed lower. I know you spoke to the curve staying where it is, but just curious there. Jefferson Harralson: So I'll go back and answer your question, too, because you had asked me about the retention of the CDs. That's been in the 90% range. We understand that's much generally higher than where the industry is. I don't have the data in front of me on the loan side. I can come back to you on that. I don't know if retention of loans is a number you guys have, but I'll come back with you on -- I don't have that at the table. So we'll come back to you on that one, Stephen. Operator: The next question comes from Michael Rose with Raymond James. Michael Rose: Just wanted to get a sense from you guys. I think Rich mentioned just some of the efforts on the hiring front. Can you just talk about the competitive landscape? We've had some deals in and around your markets closed here recently. It feels like it's more competitive, both on the loan and deposit side. Can you just kind of walk us through that? And I think last quarter, maybe you talked about kind of a 3% to 4% expense growth rate, but I've heard some other banks talk about maybe accelerating that just given some of the hiring opportunities. Can you just kind of walk us through the puts and takes to the hiring and the expense outlook and then just the competitive aspect, as I mentioned earlier. Herbert Harton: Yes. Sure, Michael. This is Lynn. I'll start on the competitive side and then turn it over to Rich for further details. But I mean, look, we're in fantastic markets, as you know. And so it is a very competitive environment, and there's always deals going on. So I don't view the current deals as being anything unusual or change in the competitive dynamic. I just think we're in a great place to be. And so what matters is how our brand plays in the market. And that's why we're really focus on client service. We really focus on J.D. Power. We got an extra focus on Greenwich this year. We won 5 awards last year for commercial service. We'd like to win 10 this year and the employee culture. So we're having opportunities to hire not from the deals that are coming up, but just from people who want to be with a bank that's focused on the community where they feel like they can make a difference and be in this environment with a balance sheet that's big enough to take care of their clients. So competition is going to always be there. We don't overly focus on it. We just focus on what we can do to be the kind of bank that attracts the right people here. And Rich, what would you add to that? Richard Bradshaw: So yes, on the competitive front, I would say that in the last 2 quarters, it probably has gotten a little more competitive. The good news only on interest rate, not on structure. So that feels pretty good. And then along the lines of Lynn's comments on the industry and hiring, what I would say is more than ever, as I've been here almost 12 years, it's never -- culture has never mattered more. It comes up in every discussion. I'm talking with when you're hiring a senior lender. And so that's -- I think that plays in our favor, and that's what we're working towards. Michael Rose: Really helpful. Any commentary on kind of the expense outlook for the year, just maybe given some of those opportunities? Jefferson Harralson: Yes. We don't budget significant hires or lift outs. We're really trying to stick to this 3% and 3.5% growth rate. It's a very difficult environment to maintain that, but that is what we are targeting and what we think we'll get in 2026. Michael Rose: Okay. Great. And then maybe just finally for me. Last quarter, you did talk about maybe some more opportunities here for M&A potential as we move forward. Has any of that changed? We've obviously seen some pretty quick deal approvals here. And it seems like if you want to do a deal, there's -- you can get it done. Can you just talk about the opportunity set? I know over the past year or 2, you've talked about maybe a relative dearth of opportunities. But last quarter, you talked about maybe seeing more banks raising their hands versus the prior couple of quarters. Just would love to, Lynn, just to hear your outlook and view on how the M&A landscape plays out this year? Herbert Harton: Yes, sure, glad to, Michael. So I mean I would start with kind of what's our overall strategy, what has been -- like I said, we like our footprint. We're not looking to expand that. We like smaller deals where we can be more additive and the cultures are better fit. And really, the honest truth is, and we want quality organizations. We're not interested typically in fixers. And so there's literally -- I was counting them up yesterday when we were talking about this call, and there's literally less than 2 handfuls. I mean, less than 10 in our markets that we would be interested in. So we have ongoing conversations with those. Right now, I would say most of them, like I said, they're quality banks, the whole industry, we believe, is set up for great performance in '26. And so most of them are saying, "You know what, I think I'm going to perform in '26, and I'll think about selling it sometime down the road." So it's really, at this point, our focus is more -- much more internal and building it out. And these other -- these 8 companies that we really like, we just kind of wait for the popcorn to pop and grab them that because it is hard to predict. So that's probably why my conversation -- my comments, maybe the last 2 quarters haven't been as consistent as they should have been because it's just really hard to predict. It's just based on those -- that small number of quality companies and what they want to do. Operator: Next question comes from Gary Tenner with D.A. Davidson. Gary Tenner: I just wanted to ask a follow-up on the expense question. I know you mentioned Jefferson targeting 3% to 3.5% growth. Obviously, expenses were a bit higher this quarter, and I think with the kind of the bigger delta between expectations and where you came in. Can you give us some thoughts on the first quarter kind of as a jumping off point from the expense levels you might expect? Jefferson Harralson: Yes. Great. Thanks for the question. Gary, number one, we put in the deck that the main driver was the -- a bit of a catch-up on the group health of $1.5 million. I don't expect that to be at that level next quarter. The other delta there was the impact of what Rich was talking about, the biggest record loan production in our history that moves our incentives up by about $1 million versus last quarter. We also had some assorted year-end things. In some cases, it was a little bit unusual with some small write-ups. And I would say that our run rate of expenses is a little less than we printed in the fourth quarter. That said, Q1 has some seasonality in there, things hitting like the FICA restart at $1.5 million. And if you put all that together, I think that our expenses should be flat in Q1. Gary Tenner: Okay. And then a quick question on credit. Excluding Navitas, your charge-offs were about 26 basis points, highest they've been in a couple of years, really, excluding the manufactured housing loss recognition in 2024. Could you provide any color just on those 2 specific C&I credits charged off during the quarter? I know there was some specific reserve associated with them already, but just curious about any thoughts around those 2 credits, particularly and kind of bank level charge-offs as you're looking into 2026? Robert Edwards: Gary, this is Rob. I'd be glad to share with you about the credits. The first one was a $14 million franchise loan for one of the largest franchisees in a national well-known franchise system. Some of the units were struggling. And while normal resolution would be the sale of the stores, the franchisee and the franchisor could not find an agreeable path forward. So the loss is really greater than what we think should have been appropriate because the stores ended up being closed, but that was a $6 million charge-off we took on a $14 million franchise loan. The second one was a $4 million owner-occupied SBA loan where we had a documentation error in the underwriting and decided to not pursue the guarantee. In the last 12 years, that's really the first time we've originated a credit that we decided to not pursue the guarantee. We have done an after-action review and feel confident in some of the tweaks that we made to the program and confident in the ongoing performance of the SBA portfolio. In terms of looking forward to 2026, when I look back, I think you mentioned sort of taking out the manufactured housing. So if I do that in 2024, the loss rate was 24 basis points. If I look at 2025, the loss rate was 22 basis points for the full year. And I expect 2026 to fall in that 20 to 25 basis point range again. Operator: The next question comes from Catherine Mealor with KBW. Catherine Mealor: One follow-up just on the margin. Jefferson, you mentioned, I think you said $1.4 billion in assets are at 4.90% and so that's going to be repricing this year. Do you have the break between that 1.4 million in securities and loans? Jefferson Harralson: Yes, I can get that for you. I could have a guess now, but let me get that -- let's talk offline and I'll get you the details on that. But it's a little bit of a guess to break that down with the information I have right now. Catherine Mealor: Cool. Okay. I think I was just trying to get a sense as to the upside, maybe in just the bond book repricing that we might see this year. So that's maybe another way to ask it. Jefferson Harralson: So if you ask it like that, I can come back -- I can do it better. So if you look at just the HTM book, it's at $190 million, and I would expect about $150 million of that to cash flow in 2026. And on the AFS portfolio, that is going to be -- I want to come back to you on the repricing of what's coming -- what's maturing out of the AFS. So let's -- I can talk about that one offline too. Catherine Mealor: Okay. Cool. Yes, that's great. And then maybe just another question on fees, just the fee outlook, the back end of the year run rate on fees for third and fourth quarter were higher than the first 2. And so can you just kind of remind us of the seasonality to be aware of as we go into the first quarter of the year? And then maybe just your outlook, particularly for kind of Navitas and SBA fee growth into '26? Jefferson Harralson: All right. So I think about the fee income items, the biggest items would be wealth where we expect nice growth in 2026. Within other, we also have our treasury management, which is growing well. So I think those are the 2 items where you're going to see nice kind of upper single-digit growth. We also have, I think, with the volumes that we're expecting next year, you're going to see strong growth in our customer swap businesses. Service charges aren't really a growth business for us or banks these days. For mortgage, we're pretty optimistic, and I'll pass it over to Rich here. The Mortgage Bankers Association is expecting 6% to 6.5% growth. We're seeing a lot of optimism from our mortgage team. And I'll pass it over to Rich to talk about the seasonality and our outlook for mortgage. Richard Bradshaw: Yes. And I'd just -- I'd echo what Jefferson said on the mortgage side, I feel good about where we're going on that. And with interest rates going down just a little bit, and we've seen a pickup in applications. So we hope that will continue. With regards to SBA, the one thing you didn't discuss pricing remains consistent on that. I do feel that we have some momentum going in SBA just with the large Q4 and some hiring going on there. So I think we'll do the same or better on the SBA fees for 2026? Jefferson Harralson: On the seasonality, you get one more weak seasonal quarter from mortgage before they're stronger second and third quarters and SBA tends to build up throughout the year. Catherine Mealor: Great. And then on Navitas? Jefferson Harralson: Navitas tends to also build up throughout the year. Now they've had a it had good momentum all year, but typically, their seasonality is a little bit weaker first and then stronger throughout the year. Richard Bradshaw: I would say that they had a great Q4, and they're going to have a good Q1, but there is seasonality associated with it. Catherine Mealor: Yes. And then I mean typically, I mean, do you feel like you'll still be portfolioing as much on Navitas? Or just given that your balance sheet growth feels like it's getting things really strong, maybe you sell a little bit more of that? How do you think about the balance between those 2 things? Jefferson Harralson: Yes. So as 2025 unfolded, we ended up selling more and more Navitas loans. I would expect that to continue. They're at 9.5% of our total loans. We want to keep that at 10% or under. They're going at a faster rate. They were 18% annualized growth this quarter before sale. So that translated into us selling more. So I think Navitas selling more loans is the most likely outcome for 2026. Operator: The next question comes from David Bishop with Hovde Group. David Bishop: Just curious, we got some calls inbound lately about catching up in terms of the impact of tariffs on credit quality. Are you starting to see any of that bleed into the borrower financial statements sort of impacting them negatively in terms of debt service coverage, et cetera? Any sort of problems you're seeing starting to emanate around the edges there on credit quality from tariffs? Robert Edwards: Yes. David, this is Rob. Really, the short answer is that we're not seeing any impact from tariffs in terms of asset quality. We continue to have discussions with customers around the impact of tariffs and people seem to be finding a way to work through that, whether it's passing it on, reducing margins. But we're not -- there isn't anything we're looking at in the problem loan workout area or -- and through the annual review process that would indicate that there's something that's pushing back to singly this tariff concern. Jefferson Harralson: The next question, I want to follow up on Catherine's, which was of the $1.4 billion fixed securities. Now this would be an AFS and HTM would be $285 million at [indiscernible]. David Bishop: Got it. I guess 1 follow-up question, Jefferson. I think you noted in the preamble, another, call it, 200 basis point improvement in the efficiency ratio this year. Do you think you can continue to lean on sort of that ratio as you look out and budget through 2026? Can we expect additional efficiency improvements? Jefferson Harralson: Yes. Thanks, David. The -- I do think that we are budgeting for operating leverage improvement in 2026. We see that with our -- on the revenue side, with our expectation for solid loan growth, a little bit of margin expansion in combination with expenses being managed, I think that we should have some efficiency ratio improvement next year -- this year. Operator: The next question comes from Christopher Marinac with Janney Montgomery Scott. Christopher Marinac: I wanted to ask Rob a few points on just charge-offs in general. We saw higher charge-offs in Q4, particularly on the commercial side. Is any of that just related to year-end cleanup? And does the outlook change at all for what you see in the next few quarters? Herbert Harton: Yes. So the outlook really, I would just go back to the previous comment. The outlook for 2026 is stable and consistent with what we saw on the bank side for 2024 and 2025. So not really seeing any change there. We did have higher charge-offs in the fourth quarter and lower charge-offs in the third quarter. I think you got to look at the overall mix as sort of an annual thing versus a quarter-to-quarter thing. We did see nonaccruals come down $4.5 million in the quarter. We were able to exit 2 substandard credits during the quarter that were really we thought problematic, and so we were pleased with that. So overall, we continue to feel good about the shape of the portfolio and performance going forward. Christopher Marinac: That makes sense on looking broader on losses. So I appreciate that. It seems that the back and forth on the criticized ratio is more of a good thing for you than not. That, if you will, volatility is normal. And it doesn't seem like the overall level is changing a whole lot. Is that a correct read to kind of what to expect and just the criticized combat combined on the graphic we see every quarter? Herbert Harton: Yes. Two points you made that I would just agree with. One is the overall levels aren't really changing. And the second point you made was we would prefer special mention to substandard. So yes to both. Christopher Marinac: Okay. And then a last question for Lynn, just on the big picture. I mean, it seems that UCB is really focused on the organic growth and much less on M&A. Does anything out there possibly change that for you? Or is simply the kind of buying business less attractive for you in general? Herbert Harton: Yes, I don't think there's anything that changes that. We are -- it changes the fact that we are focused more on organic now. If you look back in history, to me, the only thing that scale really gets you, it's not technology. We can fund whatever technology we need. In fact, at our size, it's probably easier to implement than it is if you're larger. But what scale does get you is a bigger balance sheet, product set, particularly for your commercial clients and then the ability to attract better talent and better talent throughout the company. So whether it's in risk, whether it's in treasury, whether it's on the lending side. So our focus going back 10 years, was let's build out, let's get the scale needed to be able to compete for these small business, small commercial, middle market clients in our markets. And look, would I like to be bigger? Absolutely, but are we big enough? Absolutely. And combined with that, then is both fewer targets out there and honestly, fewer quality targets. And whereas in the past, we took a couple of fixers on. It's really hard with all the momentum we've got now, the number of technology projects we're able to do without having to worry about integrations and conversions. The bar on what kind of bank I would want to bring into this franchise has honestly gone up. So that, to me, is more of a natural move, as we've built out and executed our strategy than any kind of change in the market or change in anything else. So as I've mentioned earlier, there's a very limited number of high-quality franchises in our current market that we'd be interested in. And as you would expect, those are the ones that are less needful or less interested in selling near term. And so it's more of a long-term calling game. And as they get ready, we'll do our best to be their preferred acquirer. But in the meantime, we've got great momentum and really focused on just executing what's in front of us. Operator: The next question comes from Gary Tenner with D.A. Davidson. Gary Tenner: I just had a quick follow-up. Just as it relates to loan growth, Jefferson, you kind of mentioned expecting solid loan growth in your answer to the question about the efficiency ratio and operating leverage. So you were right at 5% this year, excluding the Florida deal. Does that kind of translate to more -- kind of more of a 5% plus or 5% to 7% number, do you think in 2026? Or would you anchor expectations closer to that 5% mid-single-digit type of number? Richard Bradshaw: Gary, this is Rich. I'll take that one. For Q1, we kind of expect similar result as to Q4, probably because of seasonality, there'll be a little less production, but there'll also be less payoff headwinds. So we figure that's about the same. And then I covered a lot of areas in terms of momentum going into 2026. I think it's still too early to call, but we feel very positive, very optimistic because of all the momentum we have rolling into 2026. Operator: This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks. Herbert Harton: Great. Well, once again, thank you all for joining the call. I appreciate the comments, the conversation. I thought they were great today and look forward to any follow-up you might have, just reach out directly, and we look forward to talking again soon. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome to Citi's fourth quarter 2025 earnings call. Today's call will be hosted by Jennifer Landis, Head of Citi Investor Relations. We ask that you please hold all questions until the completion of the formal remarks, at which time, you will be given instructions for the question and answer session. Also as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Miss Landis, you may begin. Jennifer Landis: Thank you, operator. Good morning, and thank you all for joining our fourth quarter 2025 earnings call. I'm joined today by our Chief Executive Officer, Jane Fraser, and our Chief Financial Officer, Mark Mason. I'd like to remind you that today's presentation, which is available for download on our website, citigroup.com, may contain forward-looking statements which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our earnings materials as well as in our SEC filings. And with that, I'll turn it over to Jane. Jane Fraser: Thank you, Jen. And good morning to everyone. This morning, we reported another strong quarter to close out what was a very good year of progress indeed. We got a tremendous amount accomplished in 2025, and I am proud of our team. That said, and we've always been clear about this, we are on a multiyear journey. We remain focused on executing our strategy and transformation. I'm excited to update you on our progress in greater detail and to outline the next phase of our journey at our Investor Day on May 7. In terms of the quarter, excluding the impact of a notable item, our adjusted EPS was $1.81, and our adjusted ROTC was 7.7%. For the full year, our returns improved to 8.8%, a 180 basis point improvement after adjusting for Banamex and Russia, and adjusted net income surpassed $16 billion. With adjusted revenues up 7%, we delivered positive operating leverage in every one of our five businesses, as well as the firm overall for the second straight year. Each business had record revenues and improved their returns by between 250 and 800 basis points. Services continued to deliver with revenues up 8% and an ROTCE of over 28% for the year. Fee revenue grew by 6% and cross-border transaction value by 10% as we deepened client relationships and supported them across our global network. Security services assets under custody and administration grew 24% as a result of existing client growth and the onboarding of new client assets. We continue to innovate to provide our clients with always-on, cross-border multi-bank solutions. In 2025, we integrated Citi Token services with $24.07 US dollar tiering, launched in Hong Kong and Dublin, and added euro as a transaction currency. We also expanded our industry-leading Citi Payments Express to 22 markets, and it processed 40% of TTS's payments during the fourth quarter. In October, we began the journey to a unified custody infrastructure and enabling near real-time asset servicing by launching single event processing. All the investments we have made translated to growth and robust market share gains. Markets delivered record revenues even surpassing our 2020 performance. Combined with better capital efficiency, ROTCE increased to 11.6%. Fixed income was up 10% despite a challenging year for us in commodities. Equities revenues of $5.7 billion were also a record, with an over 50% increase in prime balances as that business continues to gain share. Banking had a record year, including the best quarter and year for M&A revenues in Citi's history, as we gained share in our target sectors as well as in leveraged finance and with sponsors, resulting in an 11.3% ROTCE. Citi had a role in 15 out of the 25 largest investment banking transactions of the year and advised Boeing, Pfizer, Nippon Steel, Mars, Johnson & Johnson, Blackstone, and TPG. This all drove a 30 basis point year-over-year increase in our investment banking wallet share. Overall, revenues were up 32% whilst keeping expenses flat, showing the discipline we are applying to this business. Wealth delivered another year of strong performance in 2025, including 14% revenue growth, 8% organic NNIA growth, and an ROTCE of over 12%. It's a direct result of the strategy we've executed over the past two years, attracting and retaining industry-leading talent and driving better operating efficiency that's allowed us to invest in key growth areas. That includes notable partnerships with industry leaders such as BlackRock, that have enhanced our open architecture platform and are elevating the client experience. The integration of the retail bank into wealth makes it easier to deepen share with existing clients and unifies our US deposit franchise. USPB's returns more than doubled for the year, reaching mid-teens driven by continued product innovation, solid customer engagement, and our high-quality card portfolio. Branded cards revenue grew 8% driven by robust engagement from customers in spend, borrowing, and new account acquisitions across our proprietary offerings, and our American Airlines and Costco partnerships. While retail services showed some revenue softness, businesses' returns remained solid. In terms of capital, we repurchased over $13 billion in common shares during the year, including $4.5 billion in the fourth quarter, as part of our $20 billion plan. Increasing our dividend resulted in a total capital return of over $17.5 billion, the most since the pandemic. We entered the year with a CET1 ratio of 13.2%, which is 160 basis points above our regulatory capital requirement. So we have ample capital to support our growth, and we will continue to return excess capital to our shareholders. We've reached some significant mass in terms of our simplification as we near the end of our international divestitures. We signed an agreement to sell our consumer business in Poland, and we are receiving final approvals to sell our remaining operations in Russia. And just three months after announcing it, we closed the sale of a 25% stake of Banamex to one of Mexico's most prominent investors. We have made significant progress in terms of our transformation. Over 80% of our programs are now at or nearly at our target state. And while there is more work to do, I'm very pleased with how far we've come, as evidenced by the OCC's termination of article 17 of the consent order in December. When combined with how we're deploying AI, this bank is being truly transformed in terms of its operational capabilities, its controls, and its tech infrastructure compared to five years ago. But we're also building AI into the processes that move money, manage risk, and serve clients. Colleagues in 84 countries have now interacted with our proprietary tools over 21 million times, and we continue to see adoption increase. It's now above 70%. With much of our transformation behind us, we are shifting our focus to how we can use AI tools and automation to further innovate, reengineer, and simplify our processes beyond risk and controls to improve client experience whilst reducing expenses. We have started with just over 50 of the largest and most complex processes in the firm, ranging from KYC to loan underwriting. And we're moving with speed to systematically implement modern and efficient solutions. Turning to the macro, the global economy has powered through many shocks over the past few years, creating optimism and confidence that economic growth is poised to continue. With inflation now at normal levels globally, almost every central bank is becoming more accommodating. And while the labor market in the US has softened, capital investment remains strong, especially in tech. It's the combination of that CapEx, the health of the consumer, and the tax bill benefit from anticipated rate cuts that should be enough to sustain growth. China's relying on exports to grow and compensate for slower domestic consumer demand. Europe has taken some steps to accelerate its anemic growth, and we're hopeful that Germany can create a meaningful stimulus. We have shown that our strategy can deliver results in different environments. As you know, our corporate clients are in great financial shape and are predominantly investment grade in terms of credit quality. We are very well positioned to continue to help them navigate, whether through our balance sheet or expertise developed from being on the ground in almost 100 countries. So we enter 2026 with visible momentum across the firm. You see it quarter after quarter in the business performance, the improvement in our risk and control environment, the innovation, our ability to attract top talent, and the pace of capital return. As I told our people at a town hall in December, this was the year we changed the conversation around Citi. We are now decidedly on the front foot. But we aren't taking any victory laps. We are intensely focused on completing our transformation and maintaining our trajectory to deliver the 10 to 11% ROTC we have spoken to you about, as well as another year of positive operating leverage. Those are our top priorities for this year. We are really looking forward to hosting you for Investor Day, where we will lay out how we will take our strategy forward and our path for improving our returns in a sustainable manner. As you'll see, we are just getting started in capturing the upside in front of us. Now before I turn over to Mark, I want to say a few things about him. As you know, this is Mark's last call as CFO, and he has done a fantastic job for us. As I know you would all agree, he helped guide the bank through the pandemic, provided continuity during my transition to CEO, and has driven a significant part of the remediation work for the consent orders. Through it all, he has been a level source of strength and wisdom. There are few people as responsible for where Citi stands today, especially in terms of its financial performance, as Mark. I wanted to take a moment to thank him for all he has done for our firm. Gonzalo has big shoes to fill indeed. And with that, I will turn it over to Mark, and then we will both be happy to take your questions. Mark Mason: Thanks, Jane, and good morning, everyone. I'm going to start with the firm-wide fourth quarter and full-year financial results, focusing on year-over-year comparisons unless I indicate otherwise. Then review the performance of our businesses in greater detail, and close with our current expectations for 2026. On slide seven, we show financial results for the full firm. This quarter, we reported net income of $2.5 billion, EPS of 1.19, and an ROTCE of 5.1% on $19.9 billion of revenues, generating positive operating leverage for the majority of our five businesses. On an adjusted basis, which excludes the notable item consisting of the impact of the held-for-sale accounting treatment of Citi's remaining operations in Russia, we reported net income of $3.6 billion, EPS of 1.81, and an ROTCE of 7.7%. Total revenues were up 2% driven by growth in banking, services, USPB, and wealth, primarily offset by a decline in all other. Adjusted for the Russia notable item, revenues were up 8%. Net interest income excluding markets, which you can see on the bottom left side of the slide, was also up 8%, driven by services, USB B, legacy franchises, wealth, and banking, partially offset by a decline in corporate other. Noninterest revenues, excluding markets, were down 17%. However, adjusted for the Russia notable item, noninterest revenues excluding markets were up 23%, driven by better results in banking and all other, partially offset by declines in services, USPB, and wealth. Total markets revenues were down 1%. Expenses of $13.8 billion were up 6%, driven by increases in compensation and benefits, tax charges, legal expenses, as well as technology, partially offset by productivity savings and lower deposit insurance expense. Cost of credit was $2.2 billion, primarily consisting of net credit losses in US cards. For the full year, we generated positive operating leverage for the firm and each of our five businesses, with $14.3 billion of net income up 13%, with an ROTCE of 7.7% on a reported basis. Adjusted for the Russia notable item this quarter, as well as the goodwill impairment related to Banamex in the third quarter, we delivered $16.1 billion of net income up 27% versus the prior year, with an ROTCE of 8.8%. On slide eight, we show the full-year revenue trend by business from 2021 to 2025. This year, we reported revenue of $85.2 billion. Adjusted for the Russian notable item and excluding divestiture-related impacts, revenues of $86.6 billion were up 7%, our strongest growth in over a decade. With each of our businesses achieving record revenues, 2025 demonstrates another year of our investments in the franchise driving solid top-line growth. It's worth noting that since 2021, we have generated a compound annual revenue growth rate of 4% on a reported basis, 5% adjusted for the Russia notable item this year, and excluding divestiture-related impacts, and 6% excluding legacy franchises, which has declined by over $2 billion over that period. On slide nine, we show the full-year expense trend from 2021 to 2025. This year, we reported expenses of $55.1 billion. Excluding the Banamex goodwill impairment in the third quarter, expenses were $54.4 billion. The increase in reported expenses was driven by higher compensation and benefits, the Banamex goodwill impairment, technology and communication, and transactional and product servicing expenses, partially offset by lower deposit insurance expenses and restructuring charges. As you can see on the bottom right side of the slide, the increase in compensation and benefits was driven by performance-related compensation, higher severance, which totaled approximately $800 million for the year, and investments in technology, with productivity and stranded cost reduction partially offsetting continued investments in the businesses. As you can see on the bottom left side of the slide, we have been reducing headcount, and we expect that trend to continue. As we take a step back and look at the trajectory of our expense base, over the past five years, we've invested significantly in the transformation and technology to modernize our infrastructure, simplify and automate our processes, and enhance and streamline our data. At the same time, we've incurred restructuring and severance charges to simplify our organizational structure and invested in the businesses to drive top-line revenue growth in a disciplined way. We continue to see the benefits of these investments play through this year, with continued productivity savings, as well as revenue growth both contributing to an improvement in our firm-wide efficiency ratio to 63% on an adjusted basis. On slide 10, we show consumer and corporate credit metrics. As I mentioned, the firm's cost of credit was $2.2 billion, primarily consisting of net credit losses in US cards. Our reserves continue to incorporate an eight-quarter weighted average unemployment rate of 5.2%, which includes a downside scenario average unemployment rate of nearly 7%. At the end of the quarter, we had over $21 billion in total reserves, with a reserve to funded loan ratio of 2.6%. We continue to maintain a high credit quality card portfolio with approximately 85% to consumers with FICO scores of 660 or higher, and a reserve to funded loan ratio in our card portfolio of 7.7%. It's worth noting that across our US cards portfolios, delinquency and NCL rates continue to perform in line with our expectations. Looking at the right-hand side of the slide, you can see that our corporate exposure is primarily investment grade, and in the quarter, corporate non-accrual loans as well as corporate net credit losses remained low. We feel good about the high-quality nature of our portfolios, which reflect our risk appetite framework and our focus on using the balance sheet in the context of the overall client relationship. Turning to capital in the balance sheet on slide 11, where I will speak to sequential variance. Our $2.7 trillion balance sheet increased 1%, driven by growth in loans, partially offset by a decline in investments. Net end-of-period loans increased 3%, driven by growth in USPB and markets. Our $1.4 trillion deposit base remains well diversified and increased 1%, driven by growth in services, partially offset by a decline in corporate other. We reported a 115% average LCR and maintained over a trillion dollars of available liquidity resources. We ended the quarter with a preliminary 13.2% standardized CET1 capital ratio, approximately 160 basis points above our 11.6% regulatory capital requirement, which reflects a 3.6% stress capital buffer. As we've said in the past, we remain very focused on the efficient utilization of both standardized and advanced RWA, while providing the businesses with the capital needed to pursue accretive returns. We will continue to prioritize returning capital to shareholders through buybacks, as evidenced by the $4.5 billion of buybacks in the fourth quarter and over $13 billion for the year, against our $20 billion buyback program. Turning to the businesses on slide 12, we show the results for services in the fourth quarter and full year. Reported revenues were up 158% adjusted for the Russia notable item, driven by growth across both TTS and security services. NII increased 18%, primarily driven by higher average deposit balances and deposit spreads. NIR increased 10% on a reported basis and declined 11% adjusted for the Russia notable item, as higher lending revenue share outpaced total fee growth of 13%, which you can see on the bottom left side of the slide. We continue to see strong activity and engagement with corporate and commercial clients, and momentum across underlying fee drivers. Cross-border transaction value increased 14%, US dollar clearing volume increased 3%, and assets under custody and administration increased 24%, which includes the impact of market valuation, as we continue to deepen with existing clients and onboard new clients and assets. Expenses increased 9%, primarily driven by higher technology expenses, compensation, benefits, as well as volume-related expenses. Average loans increased 10%, driven by continued demand for trade loans, in particular export agency finance, and working capital loans. Average deposits increased 11%, with growth across both international and North America, largely driven by an increase in operating deposits. Services delivered net income of $2.2 billion, with an ROTCE of 36.1% in the quarter and 28.6% for the full year. Turning to markets on Slide 13, revenues were down 1% against the best fourth quarter in a decade last year. Fixed income revenues were down 1%, with rates and currencies flat, and spread products and other fixed income down 1%. Equities revenues were also down 1%, as growth in prime services with balances up more than 50%, which includes the impact of market valuation, as well as derivatives, was more than offset by a decline in cash against a strong prior year quarter. Expenses increased 14%, primarily driven by higher legal expenses, compensation and benefits, technology, and volume-related expenses. Cost of credit was a benefit of $104 million, primarily consisting of a net ACL release resulting from a refinement of loss assumptions for certain portfolios and spread products. Average loans increased 25%, primarily driven by financing activity in spread products. Markets delivered net income of $783 million, with an ROTCE of 6.2% in the quarter and 11.6% for the full year. Turning to banking on slide 14, revenues were 78% driven by growth in corporate lending and investment banking. Investment banking fees increased 35%, M&A was up 84%, reflecting a record quarter that closed a record year with momentum across several sectors and continued share gain. DCM was up 19%, driven by investment grade and leveraged finance debt, partially offset by lower participation in loans. While ECM was down 16%, driven by lower participation in follow-on, this was partially offset by a continuation of the IPO market recovery supported by favorable market conditions. Corporate lending revenues, excluding mark-to-market on loan hedges, increased significantly, driven by an increase in lending revenue share. Expenses increased 10%, driven by higher compensation and benefits, which includes recent investments we've made in the business. Cost of credit was $176 million, which included a net ACL build driven by changes in portfolio composition, including credit quality and exposure growth. Banking generated positive operating leverage for the eighth consecutive quarter and delivered net income of $685 million, with an ROTCE of 13.2% in the quarter and 11.3% for the full year. Turning to wealth on Slide 15, revenues were up 7%, driven by growth in Citi Gold and the private bank, partially offset by a decline in wealth at work. NII, which you can see on the bottom left side of the slide, increased 12%, driven by higher deposit spreads and average balances, partially offset by lower mortgage spread. NIR decreased 1%. Net new investment asset flows slowed to $7.2 billion in the quarter, consistent with typical seasonality, and we continue to see growth in client investment assets, which were up 14%, including the impact of market valuation, with net new investment assets for the full year representing approximately 8% organic growth. Expenses increased 6%, primarily driven by investments in technology, and volume and other revenue-related expenses. End-of-period client balances continued to grow, up 9%. Average loans were up 1% as we continue to grow security-based lending and deploy balance sheet to support clients with a focus on shareholder returns. Average deposits were also up 1%, as client transfers from USPB as well as net new deposits were primarily offset by operating outflows and a shift from deposits to higher-yielding investments on Citi's platform. Wealth had a pretax margin of 21%, generated positive operating leverage for the seventh consecutive quarter, and delivered net income of $338 million, with an ROTCE of 10.9% in the quarter and 12.1% for the full year. Turning to US personal banking on slide 16, revenues were up 3%, driven by growth in branded cards and retail banking, partially offset by a decline in retail services. Branded cards revenues increased 5%, driven by higher loan spread, interest-earning balances, which were up 4%, and gross interchange fees largely offset by higher rewards costs, as customer engagement remained robust with acquisitions up 20% and spend volume up 5%. Retail services revenues were down 7%, primarily driven by lower interest-earning balances and lower loan spread. While growth has been impacted by foot traffic and sales at some of our partners, we continue to see strong returns across the retail services portfolio. Retail banking revenues increased 21%, driven by the impact of higher deposit spread. Expenses increased 2%, driven by higher transactional and marketing expenses, to support acquisitions and customer engagement, partially offset by a reduction in other expenses. Cost of credit was $1.7 billion, driven by net credit losses in card. For the full year, net credit losses in each of our cards portfolios were at or below the low end of our guided ranges, with branded cards at 3.6% and retail services at 5.73%. Average deposits increased 2%, as net new deposits were primarily offset by the client transfers to wealth that I mentioned earlier. USBB generated positive operating leverage for the thirteenth consecutive quarter and delivered net income of $845 million, with an ROTCE of 14.3% in the quarter and 13.2% for the full year. Turning to slide 17, we show results for all other on a managed basis, which includes corporate other and legacy franchises, and excludes divestiture-related items. Revenues declined across legacy franchises and corporate other. The decline in legacy franchises was driven by the impact of the Russia notable item, as well as the continued reduction of revenue from our exit and wind-down markets, partially offset by growth in Mexico. The decline in corporate other was driven by lower NII due to a lower benefit from cash and securities reinvestment, driven by actions taken over the last few quarters to reduce Citi's asset sensitivity in a declining interest rate environment. Expenses were down 6%, with a decline in legacy franchises, partially offset by growth in corporate other. Cost of credit was $449 million, primarily consisting of net credit losses of $341 million, driven by consumer loans in Mexico. Turning to our current expectations for 2026, starting with net interest income excluding markets on slide 19. Following solid growth of nearly 6% in 2025, we expect NII ex markets to be up between 5-6% in 2026. As you can see on the left-hand side of the page, we expect most of the increase to come from volume growth and mix, primarily driven by higher loan volumes in cards and wealth and deposit volumes in services and wealth. We expect a continued benefit from our investment portfolio, including fixed-rate securities and derivatives, rolling into higher-yielding instruments, partially offset by declining US and non-US short-end rates. Overall, we expect the drivers of NII markets growth in 2026 to be consistent with those in 2025. Turning to slide 20, we show our outlook for operating efficiency and the drivers of our expense base in 2026. In terms of expenses, we will continue to invest in our businesses to support continued top-line revenue growth and expect higher volume and other revenue-related expenses, with capacity generated from productivity savings from our prior investment, reduction of transformation expenses, continued reduction in stranded cost, as well as a lower level of severance versus 2025. We expect our disciplined expense management combined with top-line revenue momentum will drive another year of positive operating leverage as we target an efficiency ratio of around 60% for the full year. On slide 21, we show a summary of our expectations for 2026. In addition to our outlook for NII ex markets and efficiency ratio, we expect continued fee momentum across the businesses to drive growth in NIRx markets. In terms of credit, we expect card NCLs to remain within the ranges that we gave for 2025. We will continue to provide the businesses with the capital needed to pursue accretive returns while we optimize our standard and advanced RWA and capital usage. We will, of course, continue to buy back shares against our $20 billion buyback program. Now before we take your questions, I want to say a few words as this is my last earnings call as the CFO of Citi. I've been with Citi for nearly twenty-five years, and I've been the CFO for the last seven. During my career here, I've seen Citi go through many different evolutions and faced some very challenging times. Yet I've shown up every day for the last twenty-five years wearing my one Citi jersey, surrounded by colleagues who have the same mindset. I've always believed that what sets Citi apart is the heart and determination that it takes to drive real change and deliver for all of our stakeholders: our clients, employees, regulators, and, of course, our shareholders and analysts. As I said in our 2022 investor day, it was a lot to do and there were no quick fixes. But we had a clear strategy to set the company up to have a higher quality earnings mix and higher sustainable returns. To achieve these financial goals, we were going to do three things. First, invest in our businesses to grow our revenue. Second, become more efficient by investing in the transformation and technology and simplifying our operating model. Third, manage our capital to drive improved return. While there is still a lot more work to be done, as I sit here today, I could not be prouder of the progress that we've made as a firm in terms of executing on our transformation and improving the performance of our firm and each of our five businesses. Since Jane took over, she has built a truly impressive team, and one that I have been incredibly proud to be part of. I want to thank Jane, my colleagues, and all 226,000 employees for the privilege of serving as your CFO over the last seven years. It has been the most exciting and rewarding time of my career, and it has been an honor to be part of one of Citi's most significant chapters. Looking ahead, I remain fully committed to supporting Jane, Gonzalo, and the broader leadership team as the firm continues its path towards achieving its ROTCE target of 10 to 11% this year and delivering higher returns over time. So I am leaving the role not at the peak for Citi, but on the upswing, with nothing but upside from here. And with that, Jane and I would be happy to take your questions. Operator: At this time, we will open the floor for questions. If you would like to ask a question, please press 5 on your telephone keypad. You may remove yourself at any time by pressing 5 again. Please note you will be allowed one question and one follow-up question. Again, that is 5 to ask a question. And we'll pause just a moment. Your first question will come from Glenn Schorr with Evercore. Your line is now open. Please go ahead. Glenn Schorr: Hi, thank you. And, Mark, you're the best. You deserve a sit on the beach for a little while. Mark Mason: Thank you, Glenn. Not yet. Not yet. Not yet. But exhale at some point. Thank you. Glenn Schorr: Okay. I have a question in markets, and I feel like markets is one of the big pieces of the puzzle to get to improved returns. It could be just one quarter, but I see the flattish revenues in the quarter. You talked about a tough year-on-year comp. Let's more focus on the interesting PV balances up around 50%, allocated capital about the same. Trading assets are up like, 23%. Loans are up a bunch. I'm curious on how those things are growing while allocated capital is the same. And yet, the ROTC in the quarter is like 6%. So this is just a couple of things that make my head scratch a little bit, so I just need a little help there. Mark Mason: Thanks. Yeah. Look. I'd point to a couple of things. So first of all, you can see the top-line revenue for the full year up 11% for market. So very strong performance. The fourth quarter was very strong last year, so it was a tough year-over-year comp. But we're seeing particular momentum over the course of the year and parts of the franchise, you know, like spread products where we've been doing more around financing and lending activity, and that is a very optimal use of RWA. It's very high returning, low RWA for us. Similarly, that momentum, you know, in equities is supported by prime with equities up 13 for the full year. And a lot of the action that we see in 2025 is on the heels of having spent a lot of time optimizing RWA in the prior years. Ensuring that we're deploying it where we get the highest return for it. So we come into the year with lower levels of capital. We set that once for the year. We've allocated more GSIB capacity towards the business. Allocated more higher returning use of balance sheet towards lending activity, and those things have contributed to the higher ROTCE that we see here for all of '25. So a combination of optimization of balance sheet and deploying balance sheet in higher returning areas of the franchise. Glenn Schorr: Okay. Well, all helpful and good perspective. And then this is a small one. But on the expense and efficiency, slide 20, and correct me if I'm wrong, I thought the last look was efficiency ratio below 60%, and now it's we're targeting around 60. It's in the grand scheme of the Citi story, I don't think it's a big deal. I'm just curious if it changed, if it meant to change, or am I reading that wrong? Mark Mason: No, you're reading it right, Glenn. I think, look, I think a couple of things. Your last point is well taken as well. In the grand scheme of Citi, like, what are we talking about? But let me make the bigger point, which is in '26, as you know, we are focused on ensuring we deliver on the 10% to 11% return. Right? That means top-line momentum, good expense discipline. But in that expense discipline, is both creating capacity through greater productivity, bringing down our transformation cost, etcetera, and investing in the business. Right? And that investing in the business point is a really important one because Jane has said a number of times now, that 2026 is just a waypoint. In order for us to ensure we're delivering greater returns in '27, '28, etcetera, we have to continue to invest in the franchise. So what you highlighted as a less than 60 moving to an around 60 is giving us the flexibility to ensure that where we see the opportunities to invest beyond '26, that we're taking advantage of those. Does that make sense? Glenn Schorr: Yeah. Yeah. It makes sense, and I appreciate it. Yeah. Thanks. Operator: Your next question will come from Mike Mayo with Wells Fargo. Line is now open. Please go ahead. Mike Mayo: Hi. Jane, if you could elaborate on the new data point that over 80% of your progress with transformation is at the target state or near the target state, what remains and out of what remains, much of that relates to safety and soundness? Thank you. Jane Fraser: Yeah. Thanks, Mike. Well, while we have some more work to do, let me just say I do feel really good about where we are. As you remember, the audit mainly revolved around four areas: compliance, risk, controls, and data. We're operating at almost as our target state. These are the Citi defined ones for compliance, risk, and controls. In data, we've significantly accelerated progress over the past year, and some of that really been helped by AI as well. We're seeing this translate quickly into both outcomes, and that's including the detailed accuracy of our most critical regulatory reports and in the modernization of our underlying data. We're focused on completing the work, and we have a finely tuned execution machine that's delivering on time and at the appropriate quality. I am highly confident in our ability to get the remaining work done. I think we all took it as a positive sign that our regulators are also seeing demonstrable improvement in Citi's safety and soundness, and that's publicly evidenced by the OCC's termination of the July 24 amendment. Ultimately, the timing's up to the regulators. Getting the work completed is just the beginning of the end as it were. We need to get comfortable that the work's delivered desired outcomes. It needs to get validated by our independent audit function. Then the regulators go through their assessment and closure process. That all takes time. But from the shareholder perspective, we're beginning to see the benefits of the investments we've made in our transformation. We're becoming more efficient, as you can see on the back of many of these investments with far better control. As we complete each body of work, we're beginning to bring our expenses down. To Mark's point earlier, that creates the capacity for additional investments. It creates capacity for higher returns in 2026 and beyond. I'd also say it frees up some more management mindshare for growth and innovation. Mike Mayo: And correct if I'm wrong. I think you were at the end stage for risk and compliance, but now you're saying it controls your mostly there. Well, so that's new. So we're really left with regulatory data, which and, again, correct me. To me, that sounds like regulatory box checking. The sort of thing regulators have talked about. They're deemphasizing. So if you've addressed the substance, and what remains has nothing to do with regulatory box, anything to do with safety and soundness or customers or anything like that. I don't know why the regulators would still have the consent order on after six years. So I guess are you the bottleneck in the process then? You just have to kinda validate what you've done in internal audit and then turn it over to regulators? If that's the case, how long does it take you to validate your internal? Jane Fraser: Yeah. I wouldn't go quite as far as you've jumped to. We still do have some work to do. We're very focused around it, and we're making good accelerated progress with it. But, yes. We have to get the work done, validate it, and then hand it over to the regulators in the process we talked about. So, those things have to happen. I'm confident that we'll get there in good shape. Mike Mayo: And one little attempt, when you hand it over to the regulators, are we talking months, years, what do? Jane Fraser: That's up to them. They have to answer that one. That very much lies in their hands. Mike Mayo: Got it. Thank you. Jane Fraser: Thank you, Mike. Operator: Your next question will come from Ebrahim Poonawala with Bank of America. Good morning. Ebrahim Poonawala: Good morning. Maybe two questions. One, Jane, just following up beyond the regulatory piece, what would you say? I think one of the concerns investors have is Citi was behind the curve in terms of franchise investments. You've done a tremendous job over the last five years. Where would you respond to that there is a gap between Citi and best-in-class peers? When we think about investment banking, capital markets, etcetera, how would you size that gap and what is needed, and how long to narrow that gap? Or if in fact eliminate that? Jane Fraser: So you're right. Over the past five years, not only we've been investing in technology and the transformation, but also in innovations and making sure that we are positioned to drive our growth and our returns and our competitive position. In terms of services, we are the leading firm in a number one position. We've been building out digital asset capabilities, really expand product innovations as you've heard us talk about. Payments express, real-time liquidity, and other always-on digital solutions. We're investing in scaling our security services platform and broadening capabilities there, and you saw the huge growth in the assets under custody and management this year that we've achieved as a result. Service is in a very strong position. Markets where we've been investing as we continue filling product capability gaps, we're improving capacity, reducing latency, increasing resiliency to support the 11% growth that you saw this year, and in particular areas like prime, which had huge growth of 50%. But we're always looking at where are the new capabilities that can get added on in FX and equities spread products, rates across the board. Now in banking, you saw our prior talent investments driving share gains, so we saw sponsors an area of focus, up 180 bps. Levin up 100, M&A up 90 bps, and we're gonna continue to bring in top talent to fill remaining gaps that we have notably in North America. Wealth retooling key areas of investment product platform with the open architecture as the key operating principle. So you've seen us retool the research product. We've been investing in deploying new AI-powered capabilities to drive continued momentum in client investment assets and investment fee revenues. Finally, in cards, we're driving engagement and growth with new innovative products, our commerce platform launches, and refreshing various refreshing of different offerings so that we can complement the suite of proprietary cards. We can broaden out our marquee partner relationships. All of this investment is making us feel that we're in a very good place to compete. Our goals, as we talked about, is to be the, you know, be the leading player, top three or top one in all of the businesses that we're engaged in. It's very important for us that we invest for the long term and not just looking at this on a year-by-year. So that's the mindset we have if that helps you. You can see we're making progress. Ebrahim Poonawala: No. That's helpful. And maybe, Mark, one for you. Appreciate you moving away from revenue guidance. But maybe help us fill in the blanks a little bit around when we think about fee growth maybe was about 6% ex markets. When we look at 2025. Just how we should think about fee revenue growth embedded in your expectations around that 60% efficiency ratio. Any color on markets NII of at least what the puts and takes should be in terms of delta versus the $10 billion-ish that we saw in 2025? Thanks. Mark Mason: Yeah. Sure. So first thing is, we did have good fee growth this year. We'd expect that to continue as we think about 2026. Now keep in mind, the 2026 banking wallet was north of $100 billion, and so we expect a constructive wallet. We'll see what that looks like, but we also expect continued share gains against that constructive wallet. We've got a rich pipeline as we go into the beginning of the year. As Jane mentioned, we've been investing in key parts of the franchise that will continue to pay dividends for us in '26 and beyond. So that'll be a positive contributor to fees as we think about 2026. Similarly, we're expecting continued momentum on the investment revenue side of wealth, as well as on deposit, but in investment revenues, specifically as it relates to your fee point. We saw good growth in client assets up about 14%, good growth in NII up about 8%, and that momentum is expected to continue in '26 as well. So that'll be a contributor to fees. Then, you've seen throughout the year, good KPIs in our services business. In both security services as well as in TTS with US dollar clearing volumes and cross-border transaction value. But also on the securities side with growth in acts under custody and assets under administration, and we'd expect that momentum to continue particularly with some of the big wins we've seen on the security services side in North America in particular. So the combination of those things, I think, will be positive contributors to NIR, as we think about 2026. I've been pretty consistent in stressing the importance of thinking of the markets business from a total revenue perspective. I would stick to that point. With that said, I think that, you know, one way to think about market is probably relatively flat year over year. Subject to what the wallet is. Revenues should be somewhat flat year over year but, again, off of strong momentum that we've seen in 2025, and, obviously, mix will matter there. What I will point out is that we have seen meaningful growth in the spread products and financing side of the business, and that obviously does show up in part through NII inside of markets. So hopefully, that gives you some sense, but again, feel good about the NIIX market's outlook by to 6%. That'll be both volume and mix. On the volume side, I'd expect to see loan growth in cards and wealth probably in the mid-single digits in terms of loans and deposit growth and services and wealth, probably in the mid-single digits in the way of volume there as well. Ebrahim Poonawala: That's great color. Thank you, Mark, and all the best. And with the next adventure. Bye. Mark Mason: Thank you. Thank you so much. Operator: Next question will come from Betsy Graseck with Morgan Stanley. Betsy Graseck: Hi. Good morning. Jane Fraser: Good morning. Betsy Graseck: Hi. Good morning, Betsy. So, Mark, I had a question for you on the NII outlook. Coming into this print, I think you were looking for a slowdown in NII growth from 2025 levels of 5.5%. But you actually increase the NII outlook to 5% to 6%. I know you mentioned also that you took some actions to reduce asset sensitivity. So, we could wrap this all up into what drove that better NII outlook? Mark Mason: Yeah. Look, it was the NII guidance that we gave last year, we came in a lot better than that in 2025, and that was in part due to the higher loan volumes that we saw, the higher deposit volumes that we saw throughout the year. In fact, that is what is informing the five to six percent ex market NII guidance that I've given for 2026. We'd expect the loan volume to continue. As I mentioned, you are correct what I said earlier. I expect loan volumes to probably be up mid-single digits for total ex markets loans, and, you know, that'll be a again, a combination of growth that we see in cards. We saw good volume growth in cards, you know, this year, particularly on the branded side. We had good purchase sale activity up 5% in the quarter. All signs of that we should see that continue. Good loan growth on the wealth side, particularly in security-based lending type activity, which is tied to some of the investment momentum. Then really impressive, you know, growth in deposits average deposits for TTS for the year, were up 6% and good operating deposit growth. They are a nice healthy balance between North America as well as internationally. The momentum that we've seen in cards, in loans, we expect to continue into 2026, and that's a big driver big factor in that NII momentum we're showing on the page. Then as you mentioned, you know, I've been mentioning pretty consistently quarter over quarter. You know, the way we've been managing the investment portfolio that we have is such that we have this case, in '26, about 30% of those securities maturing. They're maturing at lower rates than we're able to redeploy them at including in loans and cash and securities and other instruments. So that's gonna give us a bit of a lift as well. So it's the combination of those things that give me confidence around the five to 6%. Betsy Graseck: Okay. Great. And then just on the actions to reduce that, so sensitivity, does that play into this at all? Or what actions did you take? Mark Mason: We took some You can look at our IRE analysis, and if you look at it pretty it's been pretty consistent in that you know, we've been managing the portfolio in a very dynamic way. If you look at it as of the third quarter, you know, our US dollar, for 100 basis point drop is $300 million right? So we've taken a number of as it relates to the nature of securities that we hold and exiting those in some instances to make sure that we're reducing the asset sensitivity given that we know that rates are likely to go down. Most of that sensitivity you know, is in the non-US dollar. Part of the portfolio, which as you know represents, you know, more than 65 currencies or so. So it's active management of the balance sheet things you'd expect that we would be doing in order to manage the direction of things that we expect. Betsy Graseck: Awesome. Okay. Thank you so much, Mark, and congratulations from me as well, and enjoy your 2026 into '27. Mark Mason: Thank you so much, Betsy. Operator: Your next question will come from Jim Mitchell with Seaport Global. Jim Mitchell: Good morning. And, Mark, I think everyone appreciates your efforts over the years. So, you know, good definitely good luck with your new chat. Next chapter. Mark Mason: Thank you, Jim. Appreciate that. Jim Mitchell: Yep. Yeah. You're welcome. Just maybe on the capital return side, you're 160 bps above your minimum CET one. I guess, number one, are you still targeting a buffer around 100 bps? And if so, how quickly are you looking to get there? Just trying to get a sense of the pace of buybacks from here over the next few quarters in the year. Mark Mason: Yeah. No. Thanks for the question. You know, we are, as say, about 160 basis points above. We are still targeting a 100 basis point management buffer and as what that would obviously equate to is us getting, you know, closer to a twelve six. As I think I said in my prepared remarks, we're over the course of the next number of quarters, we'll be our way down towards you know, kind of a twelve six, which would represent that 100 basis points. We're not giving guidance on buybacks quarter to quarter as you know. But as you look at what we've done you know, in the year at $13 billion or so, I think you can expect that we would look to do more in 2026. In the way of buybacks. Jim Mitchell: Okay. That's helpful. And just maybe on just the deposit growth and service it has been very strong. It sounds like you're pretty confident in the outlook there. Can you maybe kind of just dive into a little bit more on the drivers why you think that should be sustainable going forward? Mark Mason: Sure. Look, I think the team has done a really, really good job in TTS, in security services at first. Ensuring that our clients, you know, appreciate that what we bring to bear is more than just deposit taking in the breadth of our offering, particularly around multinational clients. The second thing that I'd say is there has been a focus on you know, as we work with those clients around the world and they look at new markets to enter you know, that we are right there by their side, ensuring that we can help them move and manage their cash and liquidity needs. In an effective way. That focus and continued dialogue has manifested itself as more in growth and operating deposits you know, for our business, particularly this year. The third thing I'd mention is that, there's still, I think, a significant as it relates to commercial and middle market clients and the team is very focused on, you know, with a I think a very a growing front end on how we capture more share with that client base. So the combination of doing more with our existing multinational, bringing on new clients, and targeting what is, you know, relatively nascent segment for us gives me confidence not just in '26, but in beyond '26 and our ability to have some continued momentum here. Jim Mitchell: Okay. Got it. Thank you. Operator: Next question will come from Erika Najarian with UBS. Erika Najarian: Hi. Thank you for taking my question. I didn't plan to ask this question with this literally just hit the Bloomberg. BILT just unveiled credit cards cap at 10%, and will maintain those rates for a year. And it'll be applicable only to new purchases. Obviously, a tiny player. But I'm just wondering obviously, we all know the many reasons why this shouldn't be capped in perpetuity, including really curtailing credit to those that need it the most. But is this going to be the endgame you think, Jane, in terms of these demands and sort of the push for affordability? I know this is all new, but Jane Fraser: Yeah. Happy to talk with that, Erica. Look. Let's start with have drawn the presence focused on affordability. Everyone agrees that many for many Americans are oppressing concerns and escalating costs that immediate attention. We're always interested in collaborating with the administration to put in place more effective solutions that are gonna foster the expansion of accessible and affordable credit to those who need it most. Today, we provide our card customers with lower cost products. Think of the no fee simplicity card or our balance of, transfer offers. I'd also note we were the only big bank to eliminate overdraft fees amongst other measures, and we're very proud of our role as the leading finance of affordable housing in the country for the past fifteen years when you look at the bigger picture. But to your point, a rate cap is not something, that we can reception from the hill, also seemed less than enthusiastic from what we could tell. Just to be clear, the impact to us and other banks would just be dwarfed by the severe impact on access to credit and on consumer spending across the country. These things just don't work out as intended. Think back when the Carter administration put credit controls in place to reduce costs. The impact was so severe, they were very swiftly rescinded within two months. I think it's helpful to have a few pieces of data, for context, US consumers spend $6 trillion on their credit cards year, and outstanding US credit card balances are over $1.2 trillion. They grow about $80 billion a year. There's over $4 trillion in untapped capacity at risk. If you make these products unprofitable, that spending will be drastically reduced, and that's British understatement. We've seen this in as other countries have when they've tried this, and also the studies in The US have shown a vast majority of consumers and businesses will lose access to credit cards. They'd be forced to pursue more predatory alternatives, and you'd only be left with the wealth having access to credit cards, and nobody wants that. We'd also see some of the domino effect ricocheting through retail, travel, hospitality sectors, much broader impact on GDP. So as I said, what we want to do is engage on how we can expand credit rather than restrict it to those who need it. That's our goal. Erika Najarian: Very clear. Thank you, Jane. My real and I'm gonna try to smush it into one, you know, you talked about the progress in the consent order amendment getting lifted. Jane, you talked earlier about as you hit your end state, your target end state expenses come off. As we think about the entirety of the Consent Order listing, is it a gradual, you know, savings or is there sort of a giant chunk that could be reinvested? The sort of follow-up question is just on EB's question on markets NII. Mark, I know that your markets NII is probably less volatile than that of your peers, and I know you want us to think of markets more broadly. But I'm just wondering as we sort of square your markets sorry, your NII X market guide with consensus, is it prudent to, as a placeholder, put in what you earned in 2025 and to 2026 in terms of markets NII, but perhaps with upward bias. Jane Fraser: Yep. But you stuck in a few different questions there, Erica. Sorry. Let me just get quickly touch on, what does it mean for our yeah. What does it mean as we get different bodies of work? I think different from some others. We begin to see the benefits of the investment we've made, and we begin and we more efficient on the back of the investment. But as we complete each body of work, we begin to bring the expenses down related to that. That's what creates the additional, investment capacity and will help us drive returns. So it's not as if it's a cliff at the end of the consent order. You're beginning to see doing this as we get work completed, bringing that expense down and then redeploying that either to the bottom line and as well as to the investments that we need for growth. Maybe just before I turn to Mark just in terms of long-term return trajectory because I think it's we haven't we haven't talked as much about it, and we're looking forward to doing certain best Day. But when we're looking at our longer-term performance, there's really gonna be three drivers of higher returns. The revenue growth, the expense efficiencies, and our RWA and capital efficiency. On the revenue side, you've seen us, and we're very proud of this. You've really seen us steadily grow revenues over the past few years. 2025 is the continuation of that, and that will continue going forward. Services will grow with new and existing clients, including the opportunity Mark just talked about with commercial clients, as well as further product innovations that opens up whole new revenue streams as we've seen in ecommerce. Market, continued to grow in prime where you've seen very high growth from us. Second leg to our derivative capability, as well as high return opportunities in financing and securitization that's now over 70% of our spread product business. We'll continue filling in some of the areas that we've got with different client base and others to continue driving growth. I would note that we now have four $5 billion businesses or over 5 billion in markets as opposed to the 4 billion ones we've talked about. Banking you saw the proof of the pudding this quarter, gaining a fuller share of our clients' wallet and just systematically building out the areas we've had gaps and driving, our productivity. Wealth is about scaling up investment penetration with existing and new clients. Also the value that we can see from the integration with US retail. Cards continue growing proprietary products and platform innovations. We have the American Airlines renewal. We're really excited about for next year. All the different expansion of the offering there and momentum in co-brand offerings, as Mark referred to in his introductory remarks. Then a lot of synergies between the businesses. Mark talked about where the expense efficiencies will come from. In the second leg, the benefits, the investments in our transformation and the technology that we've been doing. As well as the increased productivity the stranded cost removal, etcetera. He's run through where you'll continue to see the expense efficiencies coming through whilst we also make, the long-term investments. I'm very proud of our business leaders. They've been really unrelenting in the optimization of resources in RWA and capital. We're hoping to see some reductions in our requirements as we saw with the STB results going forward. So there's a lot of potential both for the continued revenue growth, the durable return in improvement in the years ahead, and you'll obviously get a lot more detail Investor Day. But I think it's important to put this in the context of the long term where we're headed rather than just the nitty gritty of the short term. Pieces here. Mark Mason: Erica, if you're not excited about Investor Day, after that, I don't know what will excite you. Erika Najarian: We're excited about that. I know. I need to pick out my outfit right now. Mark Mason: That's right. That's right. I mean, all five of these businesses are humming, we're pretty excited. To your question on market, here's how think about it, Erica. What I said earlier, was that total revenues, you can assume that market's revenues will be flat in '26. I think that's pretty consistent with what consensus has right now. If you wanted to try and parse it within that flat I think your instincts are probably right that NII, I would forecast to be up within a total revenues of flat if for no other reason, as Jane mentioned and I mentioned earlier, the more work we're doing in financing and securitizations are likely to lead to higher NII's in market as we think about twenty six. I appreciate your starting point in the question, which was that our market's revenues tends to be more steady. I think that is true in a byproduct of our model, our client coverage, and our business mix. But thank you. See you at investor day. Erika Najarian: Yes. And, good luck, in your for your next adventure. Hopefully, you don't spend too much time at the beach before we see you at another leadership role, at another financial institution? Mark Mason: You're gonna see you're gonna see as investment day. That's for sure. Erika Najarian: Fine. Fine. Bye, guys. Thank you. Bye bye. Operator: Your next question will come from John McDonald with Truist. John McDonald: Hi. Yes, thanks. Just follow-up on the last thing, maybe to summarize it. On the efficiency journey. Fair to say that you know, both you have plenty of expense flex to deliver the efficiency improvement to 60 this year? Also that the 60 is a is a waypoint itself. It's not the destination for efficiency ratio. Is are both of those fair? Mark Mason: Yeah. Look. Look. The way I think about it, yes. We have flex. Is the bottom line. So revenues come in come in softer, we will dial back expenses, you know, accordingly. Importantly, to make sure we get to 10% to 11%. Right? So I don't wanna I don't wanna lose sight of that point. John, I'm not avoiding your question. The answer is yes in terms of flex point. But we're focused on ensuring we deliver the returns of the 10 to 11%. In terms of the long-term operating I I'll leave that for Investor Day to talk about. The reason I'm saying that is because we want to invest. We need to invest in this franchise. The earlier question that was asked in terms of closing the gap versus peers. You know, these are not businesses that you can invest once and be done with. They continue to evolve. They require continued investment and working of them. So I don't wanna, you know, sit here with you today and tell you that operating efficiency goes to some number that's significantly lower without giving you the full context of how we think about the next couple of years. That's what Investor Day is about. Jane Fraser: I don't know if you wanna add anything. I think you're also hearing confidence from us on our ability to do both. Yes. AI is been an additional benefit. Interesting. I met yeah. We talked I talked a little bit about what we're doing with our over 50 processes on in the prepared remarks. That will be driving new sources of efficiency that three, four years ago, we didn't you know, we couldn't have imagined. We see that ability then to bring the efficiency down and drive our returns up and grow the franchise going forward. You're hearing the confidence from us to be able to do that, and, frankly, they're excited. John McDonald: Okay. Thank you. That's fair. Then one quick follow-up. Mark, could you give a little more color on the outlook for the card NCLs? The range is the same as last year, but the mid-upper end of the range implies a little bit higher losses than the actual 2025 loss rates, particularly on retail service. Are you just allowing for some macro uncertainty by keeping the ranges, or is there in the delinquency roll rates that you're seeing? Mark Mason: Yeah. Look, there's to answer your question with the latter part of it, as we look at delinquencies, we're not seeing anything unexpected. In either of the portfolios. Even when we cut it by different FICO scores and income brackets and the like. Are there things out there that could have an impact you know, over the course of the next year? Sure. Does the range give us, you know, some cover around some of those things from an NCL point of view? It does, which is why we're sticking to the range, but there's nothing that I see right now. John McDonald: Got it. Okay. Great. Thank you. Operator: Your next question will come from Ken Cassidy with RBC. I'm sorry, Ken Usdin with Autonomous Research. Ken Usdin: Thanks. Just one for me. Know we're going long here. Mark, the services deposits last year were just really strong, and I'm just wondering if you could tie that into just the broader macro economy and rates and are you continuing to still expect that that part of the business can still generate down that level of deposit growth? Thanks. Mark Mason: Yeah. Sure. So for deposits, total deposits for the firm, next year, we're expecting mid-single digits. As I look at services for 2025, as you said, we were up about 7%. Big part of that TTS was up about six year over year, and security services were up about 12%. I do expect to see continued strength there despite you know, as I think about growth from as I mentioned earlier, more with the large multinationals more with some of our commercial middle market clients, I think a particular emphasis in growth in North America is what I would expect. We've been very thoughtful around pricing. Obviously, as rates have declined, remember, we've got good loan growth, and so we want these deposits to come in. It's a lower cost of funding for us. We see opportunities to deploy it in that good at good margins and help drive our returns. So this has been about ensuring that we're managing these clients with a client relationship mindset, which includes the deposits, but also all the other things we bring to bear for them. Ken Usdin: Thank you. Operator: Your next question will come from Gerard Cassidy with RBC. Gerard Cassidy: Thank you. Hi, Mark. I'm Jean. Hey, Mark. You're leaving big shoes to fill, so good luck in your future endeavors. Mark Mason: Thank you so much, Gerard. Gerard Cassidy: Jane, you guys have done a good job moving the ball down the field in divesting your presence in Mexico. You talked about it today. Can you share with us where we are in terms of I know market conditions will play a factor once you get all the regulatory approvals to do the IPO. Can you share with us where we are on the regulatory part? Then second, will you guys give us the announcement that all the regulatory approvals are in and now it's just market conditions that you've got the green light and you're going to wait until you think it's right? Jane Fraser: Right. Okay. Well, look. First of all, we had a great outcome for all parties involved with the accelerated closing of the sale of the 25% stake to Fernando Chico Pardo. The Mexican president and her government have been publicly and privately very supportive of both our path forward and of Fernando as the anchor investor. I think we saw that with the record closing of that state. Normally, it would take nine to twelve months to do. So we're very pleased with that. We are focused on the next step in the exit process, and we're actively looking at selling some additional smaller stakes as we lead up to an IPO. As we said, you know, when you referred to, the actual timing and structure of what we do is all going to be guided by several that includes market conditions with the ultimate goal of maximizing value for shareholders. But that 25% stake that we've just closed is far is a much bigger opening position than we would be if we had IPO ed. So I think the next step is going to be some smaller stakes and we'll keep going from there. Gerard Cassidy: Very good. Then just a real quick follow-up. Mark, you talked about markets talked about equities, the strong comparison to a year ago. How prime balances were up nicely this quarter. But in the cash equities business, what was the weakness there? I know you identified it, but what was it inside cash equities? Mark Mason: Again, I think it was it was more of a year-over-year comparison. We had a really strong fourth quarter in equities last year, and that was a big driver. Jane Fraser: We had a very big we had a couple of very big alpha trade. Yes. So if you strip that out, it looks much more in line with what you would expect. Gerard Cassidy: Okay. Thank you. If you have a great fourth quarter, it comes back and bites you. Operator: Your next question will come from Saul Martinez with HSBC. Saul Martinez: I just have one, and I'll you some love as well, Mark. The best of luck, and we will miss you on these calls. Mark Mason: Thank you, Saul. Saul Martinez: The wealth business, net interest NIR was down 1%. I know that there was you know, that that reflected the sale of a trust business. But op leverage you know, was minimal. The EBIT margin was pretty much the same as last year. Net new assets, still good, but a little bit softer. I'm just, you know, just curious how you how you're thinking about the progress there. Your level of confidence that you're on track to continue to drive higher op leverage. If you can just remind us what the you know, what the end goal is for for op leverage for for EBIT margin, I should say, and over what time frame do you expect to get there? Jane Fraser: Yeah. Let me kick off, and I'll pass it back to Mark. Look. We had a good quarter in Wealth. It was capped off a year of real continued improvement and our revenues are up 14%, the ROTCES is over 12%. We grew client investment assets 14% on the back of percent organic growth. So a lot to like there. What's the strategy in the direction that Andy is taking this? Right? It's to be the lead investment adviser for our clients as been a lot of our focus. So we've been attracting, retaining industry-leading talent, strengthening the CIO research product, with Kate Moore doing a fabulous job there. A lot of retooling of key components to the investment product and some impressive partnerships. That are really going to differentiate us with industry leaders like BlackRock, I Capital, Palantir. Which means we're we're going to have a we we have a really superb open architecture platform and a far better client experience. All of this is helping us drive and accelerate growth in investment fee revenues over the next few years. That's the famous $5 trillion of opportunity, $3 trillion of that is with clients in our US retail and CityGold which is why the integration, the retail bank makes so much sense. But we're clear there's still more work to be done. There's room to grow and revenues from here. Andy's gonna lay out the path at investor day. So you have the clear sets of KPIs and different elements that are needed, to continue to drive that growth forward. But we remain committed and we see the path to improving the returns of the overall business to above 20% in the long run. Mark, what else would you add? Mark Mason: The only thing I'd add, and I do think as you pointed out, Jane, we are seeing good momentum and feel very good about the momentum we're seeing on the investment side and, frankly, the opportunity with the wealth of our clients that sit in our retail banking footprint is still a significant sit opportunity for us that is largely not yet tapped. Your question around margins, you know, the medium-term EBIT margin that we set for the business was about 20%. So when you look at 2025, we're there. The longer term is 25% to 30%, and so we still have some headway to make. As Jane mentioned at Investor Day, we'll be mapping out how we intend to get there. Saul Martinez: Got it. That's helpful. Thanks so much. Operator: Your final question will come from Chris McGratty with KBW. Chris McGratty: Chris, we're leaving the best till last. Chris McGratty: No pressure. Thanks, Jean. Related to Investor Day, I'm interested. When the management team is getting together in the room and discussing the communication of the new targets, does the level of profitability or the timing to which you get there carry more weight? I ask because the market seemingly wants a little higher and sooner, but I'm also sensitive to the bar you set and growing into the targets. Thank you. Mark Mason: I would say both are important. Yeah. Right? I mean, look. Clearly, 10 to 11 is not sufficient. It shows progress since the last investor day. But we're clear-minded that when we're creating value, we're doing so with returns that are well above our cost of equity. So being able to grow the return level is critically important, and, you know, if you know anything about Jane, you know this. Sense of urgency in kinda making things happen quickly. So, you know, without committing in any way, I would say both are as we think about the forward look. You know, for the firm. But, Jane, why don't I? Jane Fraser: Yeah. I mean, we want to have a cake eaten, not good on calories. What can I say? Chris McGratty: Okay. Thank you. Operator: There are no further questions. I will turn the call over to Jennifer Landis for closing remarks. Jennifer Landis: Thank you for joining the call. But before we wrap up, I just wanted to briefly echo what Mark shared earlier about Citi. Thank him for his leadership as the CFO of Citi. His focus on transparency, performance, and long-term value creation has set a very high standard for Citi. I personally want to thank Mark for his mentorship and guidance over the years. Thank you. Thank you all for joining, and I'm sure I will talk to you this afternoon. Operator: This concludes the Citi fourth quarter 2025 earnings call. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss Rocky Mountain Chocolate Factory, Inc.'s Financial Results for the Third Quarter 2026. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. Joining us on the call today is the company's Interim Chairman, Jeffrey Geygan, and CFO, Carrie Cass. Please be advised that this conference will contain statements that are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements, which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements. And now I'll turn the call over to the company's interim CEO, Jeffrey Geygan. Jeff, please go ahead. Jeffrey Geygan: Good morning, and thank you for joining us. During the third quarter, we continued to execute our margin-first transformation strategy, making deliberate decisions to prioritize profitability and long-term value creation over lower quality revenue. While these actions resulted in near-term revenue pressure and a modest net loss for the quarter, they are foundational to restoring long-term sustainable growth and shareholder value creation. The results from this quarter reflect important progress in our efforts as we delivered meaningful improvement in gross profit and margin. We continue to believe there's a clear path to maintain and further expand margins as we strengthen the foundation of our business. Our business transformation is focused on disciplined execution, improving product mix, implementing thoughtful price actions, simplifying our SKU portfolio, and building the operational and technology capabilities required to support long-term growth. While we are still navigating some persistently higher input costs and near-term inefficiencies related to our production transition, the actions we've taken are now showing in our financial results. We are also very encouraged by the momentum we are seeing with our franchise development pipeline. We currently have two new stores under construction and 34 stores under recently negotiated area development agreements, demonstrating interest from well-capitalized, financially sophisticated, new, and existing operators. Our franchise development team is working on building an additional backlog of new franchise opportunities supported by our clear messaging with a refreshed brand direction and targeted digital marketing efforts to identify the right partners to grow and succeed with our brand. I'll now step through several highlights from the quarter, including our operational progress, franchise development momentum, and continued execution across technology and e-commerce initiatives. During the quarter of the past year, we continued to make intentional decisions to exit lower margin special and wholesale revenue streams. While this resulted in a modest year-over-year decline in total revenue, it predictably contributed to a significant improvement in gross profit dollars and margin. We reported a 21.4% gross manufacturing margin for the quarter ended November 30, 2025, compared to 10% for the same quarter of the prior year and a negative 0.6% for the previous quarter ended August 31. We are pleased with this progress while recognizing there's room for further improvement. We've implemented a series of targeted price adjustments over the past year and as recently as January 2. All designed to achieve a specific margin objective across our four core franchise categories, including bulk candies, packaged goods, supplies, and ingredients. These adjustments were not uniformly upward. In fact, some prices remained unchanged while others were reduced. As we attempt to optimize our sales mix and throughput across our network of over 250 franchised and licensed locations. Collectively, these adjustments are expected to support margin expansion over time in a balanced way that enables strong economic results for our franchise and licensed partners as well as the company. In addition to price adjustments, we are beginning to realize the benefits from SKU rationalization and production labor efficiencies. This includes the elimination of hundreds of low-contributing SKUs, the elimination of temporary labor, and a large reduction in overtime hours and improved production scheduling. We also added a second production shift at the Chocolate Factory to provide greater flexibility and efficiencies in scheduling and maintenance. We believe there's an additional $500,000 to $1,000,000 of savings that can be realized in our current cost structure. This disciplined rationalization highlights the cornerstone of the new company culture: simplify production, reduce operational complexity, and improve manufacturing throughput. Looking ahead, we expect to recognize the benefit from lower input costs, including the recent elimination of an approximate 10% tariff on cocoa. As cocoa prices have come down in recent months, we have executed a thoughtful and timely purchasing strategy that directly impacts our cost of chocolate and have locked in nearly 20% of our expected annual consumption volume at recent favorable prices. Franchise development remains a key strategic revenue pillar of our long-term business plan, as momentum continued to build during the quarter and beyond. We currently have two new stores under construction and 34 stores under area development agreements. Reflecting growing interest from experienced multi-unit operators aligned with our refreshed strategy and brand direction. These agreements generally contemplate a four to five-year build-out period with the initial store construction required within the first year and sequenced annually thereafter. We'll provide ongoing details as leases are signed, and construction is initiated. Our focus remains on quality over quantity as we partner with operators who are well-capitalized, operationally sophisticated, and committed to building long-term value within the Rocky Mountain Chocolate Factory, Inc. network. At the same time, we are rationalizing our current store base by allowing the closing of underperforming locations that contribute minimal revenue and can negatively impact our premium brand image. While new store openings are conducted at a measured pace, our team is working to reduce overall development costs and shorten the timeline from lease signing to opening, which currently stands at about six months. We believe this disciplined approach positions us well to expand thoughtfully into both existing and new markets over time while improving average unit performance across our network. We hired a new VP of franchise development in August. He attended our September national franchise convention and engaged with well over a dozen current franchisees to lay out a vision for future growth and area development agreements. Our franchise development team is working actively through a sizable backlog of new franchise opportunities supported by improved digital marketing capabilities and a rigorous selection process with prospective partners. We are entering a new era of growth but not growth for growth's sake. We will be very intentional with every move we make and every franchisee partner we add. We remain focused on increasing store ownership per franchisee, which improved from 1.34 to 1.39 stores when we first cited this number. We expect our disciplined approach to area development and franchisee recruitment will drive meaningful long-term results for our network performance. Turning to a rebrand, all stores have fully transitioned to our new packaging with legacy copper packaging phased out on November 30. For the new store layout and designs, full remodels are scheduled to begin after March 1, with the goal of completing the majority of remodels by October 2026 ahead of the holiday season, and virtually all stores aligned with our new brand identity within 24 months. Remodels will include new exterior signage, updated interior layouts, and enhanced merchandising designed to create a more consistent and engaging customer experience across all stores, whether new or remodeled. Our newer stores in Chicago, Illinois, and Charleston, South Carolina continue to meet our expectations. Chicago opened on December 11 and was well received in a community where we have good existing brand awareness, due to our multiple locations in the metro area. Daily sales trends are encouraging. Our Charleston location opened on June 3 and has developed nicely despite it being the first Rocky Mountain Chocolate Factory, Inc. store in the state of South Carolina. Sales are continuing to trend higher. Our company-owned store in Corpus Christi, Texas was remodeled in August and has since experienced consistent growth and on several occasions recognized daily sales results of over $4,000. As a reference point, we target $2,800 per day in sales as the benchmark for a $1,000,000 location. We've successfully experimented in both our Durango, Colorado, and Camarillo, California company stores with new merchandising strategies to improve store sell-through. The early results have been encouraging. As we learn more, the feedback will allow us to create a template for stores across the network. We work to deploy best practices in all locations as well as with each new store opening. Our goals continue to be increasing store sales and improving store-level profitability. We expect our average unit volume to increase again this year. We're also advancing our digital initiatives. DoorDash storefronts are now live, a white-labeled zero-commission model that enhances unit-level economics for franchisees. Each store now maintains its own branded online presence, supported by improved social media and digital integration. We recently created a new unique store website for 100% of our domestic locations. Those can be easily accessed from rmcf.com's store locator or directly through a web search. This development allows customers to buy online for local pickup or delivery while routing the customer to the store's own white-label DoorDash site. We plan to add additional customer functionality to store websites as we continue to develop this important revenue channel. In addition, our loyalty program remains under active development with vendor engagement underway, and an expected rollout in the 120 stores are now live on our new POS system, providing significantly richer data flows than we've historically had to. Including customer transaction activity, average ticket size, basket composition, and cross-selling activity. As POS penetration increases, we expect to have increased visibility into and near real-time awareness of customer behavior and store-level performance. Creating an opportunity to benefit from more informed data-driven decisions that enhance franchisee performance over time. Our ERP system implementation continues to evolve as we're realizing more efficient operational execution. There's more process improvement under development that we believe will reduce production costs. While we have seen some benefit to date, we continue to refine and customize the platform to better align with our operating model and internal reporting needs. These multiple technological initiatives are strengthening how customers experience our brand and how efficient we are at the chocolate factory. They represent the next stage of our development, a consistent, elevated engagement that supports long-term franchisee success and a memorable customer experience. Subsequent to quarter-end, we completed a $2,700,000 equity capital raise, allowing us to pay down $1,200,000 of debt and retain $1,500,000 in additional working capital. While this is not reflected in our financials as of November 30, it's important to note that our strengthened balance sheet provides greater flexibility for us to invest in our operations, franchise development, and technology initiatives moving forward. As we step back and look at the big picture, this quarter represents an important inflection point in our transformation. The decisions we've made over the past eighteen months, including exiting low-margin revenue sources, simplifying our business strategy, focusing on growing our franchise network, resetting our cost structure, and strengthening our balance sheet, are beginning to materialize with improved gross profit and margin and a more resilient operating model. There's still work ahead. However, we believe these actions have materially improved our positioning for sustainable long-term growth and return to profitability. We believe we have a stronger balance sheet in place to better manage our working capital and return to positive cash flow generation over the coming quarters. We continue to invest in our people as we add strategically important resources to both our team in and away from our Durango headquarters. People are our greatest asset and responsible for the ultimate realization of our long-term results. We are developing a culture of continuous improvement which is foundational to our success. In addition to ongoing executive team professional development, we're also committed to professional development and career advancement for a larger group. Our leadership team provides essential strategic support execution alongside our executive team. Our focus remains on returning to profitability through disciplined execution, supporting franchisees, and scaling our network thoughtfully with the right partners, as we continue to innovate and expand our premium confectionery franchise business model. Thank you for your attention. I'll now turn the call over to our chief financial officer, Carrie Cass, to walk you through our fiscal third-quarter financial results. Carrie? Carrie Cass: Thank you, Jeff. Please note that unless otherwise stated, all comparisons are on a year-over-year basis. For the 2026Q3, total revenue was $7.5 million compared to $7.9 million in the prior year. This decline reflects our intentional exit from low or negative margin revenue streams as part of our margin-first strategy. Total product and retail gross profit increased to $1.4 million in the 2026Q3 compared to $700,000 in the same quarter last year. Driven by pricing actions, improved product mix, and labor efficiencies. While these gains were partially offset by short-term operational inefficiencies related to higher material costs and freight costs, we're continuing to optimize our manufacturing and cost structure and expect to maintain these margins moving forward. Total costs and expenses improved to $7.5 million, down from $8.6 million in the same quarter last year, with savings realized across nearly all areas of operations. Net loss for the quarter was $200,000 or negative 2¢ per share, compared to the net loss of $800,000 or negative 11¢ per share in the prior year. EBITDA was $400,000 in the 2026Q3 compared to a negative $400,000 in the same quarter last year. With improvement driven by aforementioned increases in gross profit, lower costs, and expenses. This concludes our prepared remarks. Operator, back to you. Operator: Ladies and gentlemen, if you have a question or a comment at this time, one moment for our first question. First question comes from Doug Garber with West Alpha. Your line is open. Doug Garber: Hi. Good morning, and congrats on the good quarter. Jeff, can you talk a little bit about the 34 new stores, the agreement there? And the pace of deployment and what else you have in the pipeline for other areas and what you're targeting for store growth in the future. Jeffrey Geygan: Yeah. Good morning, and thank you, Doug. The 34 current area development agreements are across four unique franchisees, three of whom are existing franchisees, one of whom is new to the system. Our franchise development department has other prospective area development agreements in queue. We expect to add to the total over time. The rollout of these would be on a measured basis but accelerating into the later years. All of the agreements are designed to either have stores started within three or four years and the totals completed within four or five years. Doug Garber: How have you lined up the financing for these stores? Do the existing owners have liquidity or debt facilities or equity lined up to execute this plan? Jeffrey Geygan: They do. And as you have noted in our recent comments, we're focused on partnering with well-capitalized and financially sophisticated individuals, necessarily meaning that their need to put significant debt on to build a store is minimal. Doug Garber: Great. And on the profitability, it looks like your initiatives over the last year are starting to show in the P&L. I'm trying to understand the cocoa price impact because that has come down. And how much more of a margin tailwind that will be as the prices normalize from what's happened in the current market into your P&L over the next couple of quarters? How much more margin expansion do you expect? Jeffrey Geygan: Well, as we speak, the cocoa futures are trading at just over $5,100. Keep in mind that for many years, cocoa traded between $1,500 and $3,000 a metric ton. In a relatively short period of time, they spiked to close to $12,000. Then for the subsequent probably eighteen to twenty-four months, they held it between $8,000 and $12,000. When we began initiating a strategy to lock in future pricing, we really used $8,000 as a ceiling, and we've been successful with that. Recently, we were able to lock it in closer to $5,000 for roughly 20% of our expected production this year. Bear in mind, we consume chocolate, not cocoa, but directionally, our chocolate price moves with the cocoa price. I don't think we've rendered a view publicly in terms of the potential impact other than to say as cocoa prices come down, they represent chocolate represents a substantial part of our raw material cost. So I think you can expect we'll have a margin tailwind here. Doug Garber: Have you disclosed maybe, Carrie, what percent of your raw materials are chocolate, or cocoa, if you're able to break it down to the actual raw ingredient? Carrie Cass: That's something we have not disclosed. Doug Garber: Okay. Last one, Jeff, on the balance sheet, you've added equity now twice. Where are we in that journey of, call it, recapping the balance sheet since you've been the interim CEO? And where are you trying to take that in the future? Jeffrey Geygan: Yes. Of course. All these decisions are board decisions. But, we reducing debt think the next leg of our capital allocation plan will be investing in the company, all of which we presume will be coming from free cash flow as opposed to additional equity issuance. Doug Garber: Great. Well, it's good to see all your hard work in the P&L now. So congratulations to both of you. I know you've been working very hard. I'll turn it back. Jeffrey Geygan: Yep. Thank you very much. And there's more work to be done for sure, but we think directionally, it indicates that we're making progress. Operator: Moment for our next question. Our next question comes from Peter Sidoti with Sidoti and Company LLC. Your line is open. Peter Sidoti: Hi. Good morning. Could you just talk about when do you expect the accelerated franchise effort to begin affecting the top line? Jeffrey Geygan: And I'm sorry, Peter. You broke a little bit. Did you repeat that, please? Peter Sidoti: When do you expect the accelerated franchising effort to begin showing up on the top line? Jeffrey Geygan: Yeah. It's a great question. From opening to maturity, we assume a store will take roughly three years. From lease signing to store opening, that takes roughly six months. The lease process takes anywhere from two to four months. So there's somewhat of a lag in terms of a store being announced to it actually being fully productive. At this point, I think we've been fairly public. We would have very little interest in supporting the opening of a store that we don't think can generate at least a million dollars in annual sales at retail over three years in a three-year period. So I think you can back into any type of modeling you're doing based upon the flow of stores. Not knowing that it's critical for us to have new stores, not just to improve the quality of our network, but to drive long-term profitability. Peter Sidoti: Right. So is it fair to say you don't expect any dramatic revenue growth in 2026 at this point? And really expect the efforts to start showing up next year? Jeffrey Geygan: If you're talking exclusively about additional revenue growth from new stores, I would say yes. But we have a network of 140 stores where there is substantial opportunity for us to have more chocolate factory product being represented and sold through those stores. So we're hyper-focused on local store mix and increasing same-store sales. In addition, we do have an e-commerce channel and we also have specialty markets and intend to try to penetrate that further with the caveat being only where we make an appropriate margin. Peter Sidoti: Okay. And you've been there for a while and really have done an excellent job. What's the biggest obstacle you now feel that you're facing when looking at growing the business? Is it financial? Is it market? Is it just people? Execution. Jeffrey Geygan: Yeah. We just need to do a better job at executing profitably. Just as I cited in our call here, we think there's still more cost to come out. But this isn't a cost-saving story. This is a top-line story. So we have to be able to execute efficiently, but we need to grow our top line. And that's going to come primarily through our franchise system, principally from our existing franchise base, supplementally from the new stores. Peter Sidoti: Okay. Thank you very much. And congratulations on the financing. It was spectacular in terms of what you accomplished, so thank you. Jeffrey Geygan: Thanks, Peter. I appreciate that. Operator: And I'm not showing any further requests at this time. I'd like to turn the call back over to Jeff and Carrie to see if you have any closing remarks. Jeffrey Geygan: Thank you, operator. That's all we have for you today. Appreciate your dialing in. Look forward to updating you in the next three months. Operator: Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect, and have a wonderful day.
Operator: Hello, and welcome, everyone joining today's Bank of America Earnings Announcement. Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to Lee McEntire. Please go ahead. Lee McEntire: Thank you, Leo. Good morning. Thank you for joining us to review our fourth quarter results. During the quarter, we elected to change the accounting method related to our tax-related equity investments in order to better align our financial statement presentation with the economic and financial impact of those investments. As a result, we filed an 8-K on January 6 and a related mini supplemental package recasting the numbers for the quarters of 2024 and 2025 and the full year of '23 and '24. The primary impact of the accounting change was a reclassification between the income statement line items in our income statement, which had an insignificant impact on net income. Our discussion today is based on those recast numbers. As usual, our earnings release documents are available on the Investor Relations section of the bankofamerica.com website. Those documents include the earnings presentation that we will make reference to during the call. Brian Moynihan will make some brief comments before turning the call over to Alastair Borthwick, our CFO, to discuss more of the details in the quarter. Let me remind you that we may make forward-looking statements and refer to non-GAAP financial measures during the call. Forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties. Factors that may cause our actual results to materially differ from expectations are detailed in our earnings materials and SEC filings available on our website. Information about non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in our earnings materials and are available on our website. With that, Brian, I'll pass it over to you. Brian Moynihan: Thank you, Lee, and good morning, and thank you for joining us. This morning, Bank of America reported net income of $7.6 billion for the fourth quarter. That is up 12% from the fourth quarter of 2024. Our EPS was $0.98 per share. That's an increase of 18% from the fourth quarter of '24. We delivered 7% year-over-year revenue growth. This was led by a 10% improvement in net interest income, up to $15.9 billion on an FTE basis. For net interest income, we have delivered each quarter what we laid out across the year and finished a bit stronger than we expected. We grew average loans 8%. We grew average deposits 3%, we delivered 330 basis points of operating leverage in quarter 4 through continuing disciplined expense management. Alastair Borthwick will take you through the details of the quarter. But first, I want to highlight a few things about 2025 to close the year out. I'm working off of Slide 2 in the earnings presentation. Our fourth quarter topped off a strong performance by my teammates at Bank of America for 2025. We delivered on our commitments to shareholders across the year with solid growth across revenue, earnings and returns. We drove operating leverage and continued robust investments in people, brand, technology in both our physical and digital networks. Those results reflect the power of our diversified business model and our commitment to drive responsible growth. Some highlights of 2025, you can see here, revenue was a little over $113 billion, was up 7% year-over-year. We generated 250 basis points of operating leverage for the year. Asset quality was strong and net charge-offs improved from 2024. We grew net income year-over-year by 13%. In addition, we grew EPS year-over-year to $3.81 or by 19%. We also increased our profitability and returns during the year. Return on tangible common equity improved 128 basis points. Our return on assets improved to 89 basis points. Our results and prudent balance sheet management allowed us to distribute 41% more capital back to shareholders, more than $30 billion. We grew loans 8% and we grew deposits 3%. Loans outpaced the industry and average deposits now have grown for the tenth consecutive quarter. Our focus on all the markets we serve, whether they're domestic or international, has allowed us to grow our client balances at a faster pace than the industry. Dean described how we do this in the U.S. at our Investor Day, and we will cover it later in the program. As you look to Slide 3, we've also highlighted some organic growth highlights for the year and the quarter. We grew net new consumer checking accounts by [ 680,000 ] during the year. And that's while maintaining a strong average balance of $9,000 plus. This extended our consecutive quarter net growth to 28 or 7 years straight. We crossed over $6.5 trillion in client balances of investments, deposits and loans across Wealth and Consumer Banking. Our consumer investment totals reached $600 billion. Similarly, our workplace benefits totals, i.e., 401(k) balances related balances crossed over $600 billion also. It's worth noting that $28 billion of our year-over-year loan growth came through our wealth management clients. Global Wealth & Investment Management showed improved nominal profit growth, stronger pretax margin improvement and continue to draw net new assets within the combined consumer of $100 billion during the year. In Global Banking, average deposits increased $71 billion, up 13%. We saw treasury service fees increased 13% over '24 and ending loans go across each line of business year-over-year, good core customer organic growth driving that. Investment banking saw good activity. For the full year, our investment banking fees were the -- were the highest they've been since going back to 2020 and the outside pandemic period recovery. They were 7% higher than the prior year. Fees generated in the second half of 2025 were 25% greater than the first half. What does this show? It showed good momentum by our team. It also showed that our corporate commercial clients settled in during the year after tax policy being clear, tariffs became more understood, and they look forward and receive the benefits of deregulation. Global Markets under Jimmy's leadership saw continued growth in sales and trading with its 15th consecutive quarter of improvement and drove a record year of nearly $21 billion in sales and trading revenue. In addition to these stats, I commend you to review Slides 21, 23 and 25. Those highlight the continued progress of digital deployment and activation statistics for each of our businesses. You should note there the impact of Zelle and the continued usage growth and also note the impact of Erica, our AI agent and its use both across our businesses and with our teammates. A couple of high-level comments on what we see in the economy. It was a pretty good decent environment as we move through year 2025. Consumer spending grew 5% -- at $4.5 trillion grew 5% over the 2024 levels. Account balances in the consumer business, that broad base of the U.S. consumer were stable through the year. Delinquencies and charge-offs improved in 2025 consumer credit. Unemployment in the market remains stable, and the equity market appreciation benefit those consumers or investors in our Merrill Edge products or in our 401(k) platforms. This strong consumer health bodes well for the continued improvement in growth in 2026. When you go to our corporate commercial customers, again, as the tax law settled in, the tariffs appear to be manageable and deregulation kicked in. They had a pretty good year in good profits, including good credit quality and good money movement activity as we move through the year as they participate in the world economy. A world-class research team has the global growth rate for GDP at 3.4% in 2026 and U.S. at 2.6%. Risks remain out there. They always do, but we're encouraged and constructive on the head -- a year ahead. So I'll turn it over to Alistair to cover the quarter. Alastair Borthwick: Thank you, Brian. I'll start using Slide 4. And as Brian noted, the fourth quarter was a strong quarter for us with 7% year-over-year revenue growth and good operating leverage producing $7.6 billion in net income or $0.98 in earnings per share. Our EPS grew 18% compared to the fourth quarter of '24. Net interest income of $15.9 billion on a fully taxable equivalent basis was strong and a little better than expected, and we saw good momentum from market-based fees that complemented the NII growth. Of the $28.4 billion in total revenue, $10.4 billion came from Sales & Trading, investment banking and asset management fees. And those are 3 of the more highly compensable market-facing areas. It's these areas that grew revenue 10% year-over-year in the aggregate. On expense, the teams have shown good discipline across the businesses as we held headcount flat across the year despite the volume growth of clients and activity. Most of the year-over-year expense growth was a result of revenue-related growth in markets and wealth-based activities I just described and our continued investments in the franchise. We saw productivity improvements through AI and digitalization more generally, and those enabled us to add client-facing associates as we eliminated work and roles in our operational support areas. This year, we brought another 2,000 college graduates into the company, and we remain an employer of choice with progressive benefit programs for our employees. And even with those additions, we managed to hold our headcount flat for the year through good management. Provision and net charge-offs declined year-over-year. That's for a second straight quarter, driven by continued stabilization around credit card and lower losses in commercial real estate. The net charge-off ratio fell to 44 basis points and is down 10 basis points year-over-year. And lastly, we reduced our average diluted share count by about 300 million shares or 4% from the fourth quarter of '24. Slide 5 highlights the various earnings points that Brian and I have covered to this point. So let's transfer to a discussion of the balance sheet using Slide 6 where you see total assets ended the quarter at $3.4 trillion, a little change from Q3 as securities and cash reductions were replaced with loan growth. Deposits grew $17 billion from Q3 and we use those deposits to continue to reduce wholesale funding as part of the plan we've discussed previously to intentionally lower balances and drive a more efficient balance sheet. Average global liquidity sources of $975 billion remain very strong. Shareholders' equity of $303 billion was up less than $1 billion as earnings and a modest increase in OCI was mostly offset by capital return to shareholders. In the quarter, we returned $8.4 billion of capital back to shareholders with $2.1 billion in common dividends paid and $6.3 billion of shares repurchased, $1 billion increase in share repurchase from Q3 reflects increased earnings over the past 6 months and some reduction in excess capital. Tangible book value per share of $28.73 rose 9% from the fourth quarter of '24. Turning to regulatory capital. our CET1 level decreased modestly to $201 billion, driven by a $2.1 billion capital reduction from making the tax equity investment accounting change period, and we were not required to restate prior period regulatory capital. That capital reduction reflects the timing of equity and profitability in those investment deals and comes back into our capital over the next several years as those deals wind down. That accounted for roughly 12 basis points of CET1 reduction in the quarter, again, that we'll get back over time. Risk-weighted assets rose $22 billion from Q3, driven by loan growth. Our CET1 ratio then declined from 11.6% to 11.4%, and it remains well above our 10% regulatory required minimum. Our supplemental leverage ratio was 5.7% versus a minimum requirement of 5% as of December 31 and 3.75% under the new rule, which we are adopting starting in 2026. This leaves ample capacity for balance sheet growth and our $467 billion of TLAC, means our TLAC ratio remained comfortably above our requirements. On Slide 11, we show a trend of average deposits and the consecutive growth across those periods. Average deposits were up nearly [ 3% ] from the fourth quarter of '24, driven largely by commercial client activity. Mobile Banking grew average deposit $74 billion or 13% compared to fourth quarter '24. Our global capabilities, innovative solutions and our relationship managers continue to offer clients value and access to our award-winning digital platform in CashPro. Consumer Banking reported its third consecutive quarter of year-over-year growth and low and no interest checking was up $9 billion or 2%. Importantly, ending deposits improved sequentially in every segment. Team also showed continued discipline on pricing while achieving that growth, overall rate paid on total deposits of 163 basis points declined 15 basis points from Q3, reflecting lower rates and disciplined actions in our Global Banking and Wealth Management businesses. Global Banking and Wealth Management rate paid both declined 28 basis points from Q3. The rate paid on the roughly $945 million of consumer deposits fell 3 basis points to 55 basis points in Q4 and remains low driven by the operating nature of that account base and that client base. Let's turn to loans by looking at average balances on Slide 8. Loans in Q4 of $1.17 trillion improved $90 billion or 8% year-over-year, driven by 12% commercial loan growth. Consumer loans grew at a slower 4% year-over-year pace and importantly, we're up across every loan category of card, mortgage, auto and home equity. For the fifth quarter in a row, every business segment recorded higher average loans on a year-over-year basis. While commercial loan growth has been driven by our Global Markets Group, we've also seen year-over-year growth of 3% in Global Banking and strong custom lending growth of $18 billion year-over-year in Wealth Management as affluent clients borrowed for investments in assets like hospitality, sports, yachts, arts and business. In addition, small business saw its 12th straight quarter of year-over-year lending growth. Let's turn our focus to NII on Slide 9, where on a GAAP non-FTE basis, NII in Q4 was $15.8 billion. And on a fully taxable equivalent basis, NII was $15.9 billion. And as I said earlier, that's up 10% from the fourth quarter of '24. On a fully taxable equivalent basis, NII grew $1.4 billion year-over-year, and $528 million over the third quarter. Our growth was driven by several factors: First, we saw good core NII performance from loan and deposit growth and disciplined pricing; second, we benefited from asset repricing as higher-yielding loan growth, replaced loan and security maturities and paydowns; third, client activity in Global Markets drove more of the sales and trading growth through NII than fees this quarter compared to Q3. That was about $100 million more of a shift in global markets activity to NII from MMSA than we had originally anticipated. And lastly, we had a small benefit from an average Fed fund rate, which primarily impact our liabilities dropping more than the way average SOFR rates behaved on variable rate assets, so we had a slight benefit there. Our net interest yield, NIY, improved 7 basis points from the third quarter to 208 basis points, reflecting the growth in NII, while the earning balance remains stable as higher-yielding loan balances replaced lower-yielding securities. And as I said earlier, higher deposits allowed us to reduce wholesale funding while cash balances declined. Regarding interest rate sensitivity, on a dynamic deposit basis, we provide a 12-month change in NII for an instantaneous shift in the curve. That means interest rates would have to move instantaneously lower by another 100 basis points more than the 2 expected cuts contemplated in the curve. On that basis, a 100 basis point decline would decrease NII growth over the next 12 months by $2 billion. And if rates went up 100 basis points, NII growth would benefit additionally by approximately $700 million. With regard to a forward view of NII, let me give you a few thoughts. At Investor Day in November, we indicated our expectation that we would see 5% to 7% growth in net interest income in 2026 compared to 2025, and that's still our belief today based on the latest interest rate curve, which includes 2 rate cuts in 2026. To reiterate our expectation from Investor Day, we expect good core NII performance from loan and deposit growth that will additionally benefit from sizable fixed asset repricing and cash flow swap repricing to drive the 5% to 7% NII improvement. During 2026, we expect roughly $12 billion to $15 billion in combined mortgage backed securities and mortgage loans to roll off quarterly, and those will be replaced with new assets at 150 to 200 basis points higher in yield or they'll allow us to pay down expensive short-term debt. For Q1 NII expectations I would use Q4 as a base after excluding about $100 million or so for the shift in Global Markets client activity that I referenced, that is likely to be offset in MMSA. So simply a change in geography that's revenue neutral. I'd also note, we have 2 less days of interest in Q1 than Q4. And of course, we had a 25 basis point rate cut in December. Still we expect Q1 NII will grow roughly 7% from Q1 '25 based on the assumptions on Slide 18, in line with our full year guidance. Okay. So let's turn to expense and we'll use Slide 10 for our discussion. This quarter, we reported $17.4 billion in expense, up a little less than 4% year-over-year. When combined with our 7% revenue growth, this good expense management allowed us to generate more than 300 basis points of operating leverage, and that aligns to our target for the medium-term operating leverage range that at Investor Day. The increase in expense was mainly driven by incentives tied to revenue growth and higher brokerage clearing and exchange costs, or BC&E, costs from trading activity. Those BC&E costs reflect client activity shifting toward higher growth and higher transaction cost overseas markets. Now these costs are the ones that are generally reimbursed by the client, so they're included in our revenue essentially offset one another. If we isolate change in expense for the incentives tied to Wealth Management, and remember, that reflects a 13% year-over-year improvement in asset management fees and we isolate the BC&E costs that supported a 10% increase in sales and trading revenue. Then combined, they represented roughly 2% of our expense growth for the year and they came with good revenue. Beyond that, productivity improvements from AI and digitalization continued to help offset higher wages, benefits and technology investments. Headcount remains our key driver of expense from compensation and benefits to real estate and technology. And we manage this closely, not only in total numbers, but also an organizational structure aiming to strike the right balance of managers and teammates. Since the end of 2023, we've operated within a tight range of 213,000 employees. This year, we hired about 17,000 new teammates just to replace departures from what was a very low attrition rate. And every time someone leaves, we take the opportunity to evaluate whether the role needs to be replaced. [ Coming to ] the third quarter. Noninterest expense was up about $100 million, driven by technology investments and wealth management revenue-related costs. That was partially offset by a $200 million net benefit from the combined impact of the reduction of the FDIC special assessment accrual and some other settlements that modestly increased litigation expense. Looking ahead, our focus remains on delivering operating leverage for shareholders. We expect to generate about 200 basis points of operating leverage in 2026. Those expectations include a constructive fee environment that complements our expected NII growth. We've seen encouraging momentum in asset management fees, investment banking and Sales & Trading, and we look for that to continue. And importantly, if revenue comes in below our expectations, then obviously, revenue-related expense will be lower. As for Q1, we typically see seasonal strength in sales and trading activity and elevated payroll tax expense. Combined with the absence of the FDIC benefit we saw in the fourth quarter and combined with ongoing productivity improvements, we expect Q1 expenses to be about 4% higher than Q1 of 2025. And even with that, we still expect to deliver operating leverage. Let's now move to credit and turn to Slide 11. And where you can see asset quality remains sound with small improvements in several key indicators. It's not a great deal to cover here. Our net charge-offs were $1.3 billion, down about $80 million from the third quarter and driven by lower losses in commercial real estate. Total net charge-off ratio this quarter was 44 basis points, down 3 basis points from the third quarter and down 10 basis points from Q4 '24. Provision expense in the quarter was $1.3 billion and mostly matched net charge-offs. Focusing on total net charge-offs looking forward in the near term, we expect continued stability in total net charge-offs, given the mostly benign consumer delinquency trends and low unemployment data, the continued stability of C&I and reductions in our commercial real estate exposures. On Slide 12, in addition to the consumer delinquency statistics, note the modest changes in other stats for both our consumer and commercial portfolios. Let's now turn to the performance across our lines of business, beginning with Consumer Banking on Slide 13. Our Consumer Bank had a strong year. And for the full year, the team generated $44 billion in revenue and delivered $12 billion in net income. Net income grew 14% from 2024, and we earned a 28% return on allocated capital. In Q4, Consumer Banking delivered strong results, generating $11.2 billion in revenue, up 5% versus the fourth quarter of last year and $3.3 billion in net income up 17%. So a really strong finish to the year. These results reflect the value of our deposit franchise and underscore both the breadth of our platform and the success of our organic growth strategy and digital banking capabilities. Our focus on client experience and investments in both physical and digital capabilities, combined with more investment in product innovation and rewards drove the strong results. Business was also managed well for shareholders as we grew expense less than 2%, allowing us to improve our efficiency ratio to 51% and deliver nearly 350 basis points of operating leverage. This 2% expense growth reflects our continued investments in our brand, highlighted by our minimum wage increase to $25 earlier this year and incentives for more production. Digitalization and early utilization of AI helped offset some of the investments. Consumer investment balances grew $81 billion from Q4 '24 to nearly $600 million, supported by $19 billion in full year client flows and market appreciation. Average balance per investment account at $147,000 is up 12% from last year. And this investment platform serves as a great catch basin for first-time investors and for more experienced investors looking to manage some element of their own money. As mentioned, consumer net charge-offs improved again on a year-over-year basis, and we continue to see stability in asset quality metrics. Credit card net charge ratio of 3.4% improved nearly 40 basis points from Q4 and improved linked quarter. Finally, as shown in the appendix, this is Slide 21. You can see strong digital adoption and the engagement that all continued, and the customer experience scores remain strong, reflecting the impact of our ongoing investments in digital. Turning to Wealth Management on Slide 14. And you can see this is a business that has strong momentum right now, and we've improved growth as we work towards the medium-term targets laid out at Investor Day. For the full year, revenue of $25 billion grew 9% compared to 2024, and net income grew 10% to nearly $4.7 billion. Over the past 3 quarters, net income has gone from $1 billion in Q2 to nearly $1.3 billion in Q3 and to $1.4 billion in Q4. Return on allocated capital went from 20% in Q2, up to 28% in Q4. And the pretax margin has climbed back into the high 20% range as we ended the year. Underneath all that, client balances grew $500 billion across the year to $4.8 trillion and that included strong ending loan growth of nearly $30 billion or 13%. Within that, AUM flows were $82 billion and total flows of 80 -- sorry, [ $96 billion ]. And coupled with the flows of consumer investments, we saw $115 billion of well flows for the firm this year. And for the year, Maryland, the Private Bank added 21,000 net new relationships with the average size of new relationships continuing to grow across both businesses. Importantly, we're not just growing relationships, we're deepening them as we added 114,000 new bank accounts this year. And finally, I'd highlight the continued digital momentum as shown on Slide 23, where new accounts have increasingly opened digitally, underscoring the effectiveness of our digital investments and the evolving preferences of our clients. On Slide 15, you see the results for Global Banking. The team had a good year and generated $7.8 billion in earnings and that represented about 25% of the company's overall net income. Year-over-year earnings were down a modest 2% as a result of interest rate cuts impacting NII from the variable rate assets in the business. [indiscernible] grew average deposits $71 billion or 13% and grew loans $12 billion. This included the addition of roughly 500 new clients in middle market, banking and more than 1,000 in business banking that chose Bank of America as their financial services provider in 2025. For the fourth quarter, Global Banking delivered net income of $2.1 billion down 3% year-over-year with a 6% improvement in fees overcoming the NII pressure. Business remains very efficient with a 50% efficiency ratio and we earned 16% return on allocated capital in Q4. We generated $1.67 billion in investment banking fees, up modestly over Q4 '24. And we maintained our #3 position for the full year. And as Brian and I said earlier, investment banking fees showed good momentum, given all the regulatory and tariff announcements around the globe uncertainty settling in and our pipeline remains strong. Noninterest expense grew 6% compared to last year as we position the firm for the future with continued investments in technology and bankers. Switching to Global Markets on Slide 16. I'll focus my comments on results that exclude DVA as we typically do. The Global Markets team produced a record year of record -- sorry, a record year of revenue, improved earnings and solid returns. We generated $24 billion in revenue for the year, and that exceeded last year's revenue by 10%. Earnings of $6.1 billion for the year were up 8% and the business generated a 13% return on allocated capital. It's worth noting this is the 12th consecutive quarter of year-over-year net income growth. Q4 Global Markets generated net income just shy of $1 billion, up 5% from Q4 '24. Revenue, excluding DVA, grew 10% year-over-year driven by strong sales and trading performance. And focusing on Sales & Trading, revenue ex-DVA, rose 10% year-over-year to $4.5 billion. And it was equities trading that led the improvement, growing 23%, supported by increased activity in Asia. And that brought higher revenue, it also brought higher revenue -- sorry, higher cost in the form of transaction costs as the clients still reimburse us for those fees. [indiscernible] revenue grew 1% driven by improved performance in macro rates and FX products offsetting a modest decline in credit products. Loan growth continues to benefit from opportunities tied to highly collateralized pools of high-quality assets and clients value our expertise and in delivering these solutions. On Slide 17, all other shows a loss of $132 million in Q4, with very little to cover here. And as we wrap up, I would just note Q4 effective tax rate was 21%, and it was 19% for the full year. For 2026, we expect an effective tax rate of roughly 20%. And then finally, I'd just note on Slide 18, we provided a summary of the forward-looking guidance that we discussed today. So I'll stop there. Thank you. And with that, we'll jump into Q&A. Operator: [Operator Instructions] Our first question comes from Betsy Graseck with Morgan Stanley. Betsy Graseck: Thanks so much for all the detail here. I did just want to understand one thing on the outlook as we're thinking about the expense ratio. I know that you've got the accounting change, and you also have outstanding guidance for the expense ratio over the medium term, I believe it is 55% to 59%, is that right? Alastair Borthwick: Right. Betsy Graseck: Okay. I'm wondering, are you going to be adjusting that expense ratio guide given the accounting changes that you have made in this quarter? Alastair Borthwick: Well, I don't think -- so at this stage, Betsy, but similar to our comments at Investor Day, the numbers that we put out aren't a cap on our ambition. So obviously, as we go through the course of the next couple of years, if we improved our efficiency ratio by a couple of hundred basis points this year, we're going to keep driving towards that range. And once we get in that range, we'll reassess and we'll consider whether it's time to consider a lower efficiency number in the future. Betsy Graseck: Yes, I was just thinking mechanically with the accounting change, the revenues improve, right? So with the denominator moving higher, shouldn't that target expense ratio of 55 to 59 move down a percentage point on each side? Alastair Borthwick: Well, remember, we recast the prior periods. So that's already in there when you use the comparative periods. And I think part of the reason that it was important for us just to recast all the numbers and adopt the accounting is because that's how our competitors showed their results. So now we feel like it's on a comparable footing. Operator: We'll now move on to Ken Usdin of Autonomous Research. Kenneth Usdin: So [indiscernible] just a follow-up, Alastair, you made the point about just your outlook for fees is strong, and obviously, there will be compensation aligned with that. So just coming back on expenses in an absolute sense with 4% year-over-year growth expected in the first quarter. And I know everyone is just thinking about just how do you get to this operating leverage algorithm. Is that around what you're expecting just absolute expenses to grow given your underlying base of good fee growth in there? Alastair Borthwick: Well, I think what we're trying to convey is, and we've said this over the course of the past several years. Ours is an organic growth company. We're investing for growth all the time. And when we perform the way that we believe we can, we're going to create operating leverage every year. That's what our North Star is in terms of the financial model. So we've guided you towards NII, up 5% to 7% this year. We've said in the first quarter, we believe the first quarter will be up 4% or so. We've said that we expect the operating leverage to be a couple of hundred basis points. So that should allow you to work backwards into the expense side of the equation, especially since we've given Q1 essentially. And then I think it would just depend on your revenue assumptions regarding assets under management fees, markets and investment banking because those will be the big drivers. And yes, we remain constructive on all 3 of those. Kenneth Usdin: Okay. Got it. And then so -- as you think about your -- when you talked about the Investor Day, you talked about a 200 to 300 basis point range. So obviously, each year is going to be different things, but you've got -- with a strong base of NII growth and fee growth and we're on the 200 side, what are the things you could do to kind of longer term expand that and potentially get back -- to get up to the 300 side of that 200, 300 range that you had given us in November? Alastair Borthwick: Well, I think one of the things we've talked about when we went back to Investor Day, and this gets back to driving return on tangible common equity over time. You think about the fact that we've just gone from 13% to 14% last quarter. Prior quarter, we were at 15%. We Said we're going to get in that 16% to 18%. If you think about the organic growth opportunity we have around deposits and loans, and then you add the fixed rate asset repricing that drops to the bottom line. And then you combine it with the fee growth that we've talked about. When we manage expense carefully as we have done this year and headcount flat, sort of the core expense minus BC&E and incentive comp closer to 2% type growth. Then you'd look at something that gets pretty interesting over time. So that's what we're trying to drive over a period of time. And you're right, it won't always show up every year where it's exactly the same. But what we're trying to do, most importantly, drive organic growth, keep our expense discipline. That's it. Brian Moynihan: So Ken, the number one thing is to continue to let the headcount -- work the headcount through operational excellence and applications of new technologies, including AI that we gave you some sense for. So as we told you at Investor Day, today's activity in Erica in our consumer business alone is worth thousands of teammates that we don't have to have to do the great work we do for the customers. So we've applied digital, and that's why I put the pieces in the deck that you can see in the Pages 21 and beyond. We apply the digital capabilities now AI capabilities. And you saw during the year, the headcount was basically flat while we added more people in the field facing off the clients and generating new client flows. And that's why when Alastair talked about the middle market business, particularly in the private bank business, why we're seeing strong growth there. So it's going to be about bringing up the numbers of people down over time, and we expect the headcount to come down during this year. And each month, we get the -- to maintain neutral headcount, we have to hire at a 7%, 7.5% turnover rate, you got to think it's higher than 1,000-plus people so we can just make decisions not to hire and let the headcount drift down. The team has done a good job of we ended the year basically flat. And we absorbed, as Alastair said, 2,000 very talented teammates from colleges in July. And by the end of the year, we were down to 2,000 people and end up back net neutral. So that's what you're going to get there. If you look at the expense load, it comes from people and it comes from the benefits and compensation, and it ultimately comes from the buildings and computer systems to allow them to do the great job for clients. So that's what we're working on. Operator: We'll now move on to Mike Mayo with Wells Fargo Securities. Michael Mayo: If you could just give more of an update on technology. What do you expect your spend to be this year versus last year, your spend on AI? And then Slide 21, again, we -- I think everybody appreciates the data you provide on your digital engagement, which is more than others. But no good deed goes unpunished. I'm just looking at Slide 21 and your interactions in consumer with Erica took a dip down in the last year, even while your users go up. So if you can talk about the spend investments and the results from Tech and especially AI. Brian Moynihan: Yes. So Mike, we'll be up on initiatives this year, 5%, 6%, 7%, I think, types of numbers. Total spending [ $13 billion, plus $4 billion ] plus in initiatives, that's all new code. And in that spending, remember, also we get the advantage of all the other people. So for example, under the 365 CoPilot rollout, which is now out across a total of 200,000 teammates and using it and learning from it, we expect to get good leverage of that. So that's an increase in the run rate year-over-year. So that's -- the technology is increasing, the technology number is sizable and the team does a good job in implementing change every weekend, frankly, except for 1 a year. So we feel good about that. One of the things that you'll note is you use these technologies and combinations. So your point on Erica, I asked the same question, Mike, because it's pretty straightforward why would the interactions of the Erica could go down. The reality of that is -- well, we don't show is the amount of alerts that we deliver. So you can set up alerts which then has slowed down the need for Erica because the alerts are up to, I think, billions a quarter that are telling you when you're balanced low and things like that, that avoid you go in and asking the question. So that combination of things is growing very quickly. So again, what you always try to do is look at a process from a customer to you and figure out how you can get that customer the best client -- the best customer experience at the lowest cost so you can plow that back into the low fee structures, which help us grow the business for, as we said, for 7 straight years in [ checking ] accounts. So there's a technical explanation on the Erica that is a little bit different. But thematically, you can see just the digital enablement just continues to grow and continues to help us leverage our franchise and frankly, consumers now pushing through 50% profit margin, and it will continue to go up. Michael Mayo: Okay. And specifically on AI investments, like how much do you spend on that? Or the number of people, if you could dimension that and kind of what kind of outcomes you're looking for, especially as we say here at the start of the year? Brian Moynihan: Yes. Well, we're looking for -- we have the -- we have -- to give you an example, we have 18,000 people on the company's payroll who code. And we've using AI techniques. We've taken 30% out of the coding part of the stream of introducing a new product to service or change that saves us about 2,000 people. So that's how we're applying it. That was this year's statistic, meaning '25. Next year, we should get more out of it as we figure out and apply it across. So there's different projects going on in the company. I don't know off the top of my head the total expenditure, but it's several hundred million dollars. Importantly, we're going through the company to generate more ideas how to apply AI. And I use example like our audit team has built a capability they think a series of prompts around doing audits and stuff to allow them to shape the head count back down that they had to grow during the regulatory on side over the last few years. They're going to be able to bring that down in AI, they'll be able to bring it down further, and they've laid out plans to do that. And so that's going on everywhere. But that was organic from there starting to use the copilot capabilities and then learning how to do the prompts and then using it to set up audit practices. So you're seeing it everywhere in the company. So there's, I don't know, 15, 20 projects going on, and there will be a laundry list of much bigger size as we go through the company now and are generating ideas now that people are using it and getting used to how to use it. Operator: We'll now move on to John McDonald with Truist Securities. John McDonald: One of the other levers for the ROTCE ambitions that you guys have talked about is the denominator with the CET1 ratio. Could you talk a little bit, Alastair or Brian, about the time line for kind of where you are today with [ 11.4% ] to the target you laid out, which I think was around mid-10s? Brian Moynihan: Yes. I think, John, if you think about that we're still, as you well know, and your colleagues will now, we're still waiting for the rules to get finalized and they're multifaceted rule set that we got to make sure how it applies. But our goal, we appealed from 11.6% to 11.40%. And you're going to keep peeling that number down through expansion of our markets business, expansion of lending and other uses of RWA and so -- and we bought back a little more stock than in dividends than we earned. And so we'll keep working that down. But the idea is not to take the $200 billion-ish nominal and reduce that a lot. The idea is to use the excess to grow the balance sheet and let that work down as we see the final rules, the constraint may be sort of to common equity ratio stuff or $6.20. Could you be in the mid- to high 5s or something like that, that might be possible. And if you -- so we'll let this all drift down over time. And so just expect us to keep buying back -- to paying the dividend, increasing it and buying back the stock. And remember that as you said, we've drifted down a little bit by growth, but also the accounting change hit it, which will repeat. So the next quarter we'll keep walking it down. Just the idea is as this will settle in, then maybe we can be more aggressive, but we got to know exactly what we're dealing with. John McDonald: Okay. And then maybe if we pull back just the broader timeline on the ROTCE path. It looks like for 2025, you kind of ended in the 14, low 14s. What's the ambition to get to the lower end of the 16 and then the 18 over time. Brian Moynihan: I think we made it clear that you had -- and by the 8th quarter to the 12th quarter, you move in the lower part of the range and then the upper part of the range given a core economy growing it to 2.5% type of number. So -- and all the other attributes. So we made that clear. So that's basically 8 quarters from -- including this quarter, obviously, first quarter '26 and then we move into the 16 level, and then we move to the upper end of the range as we move through the third year. Operator: We'll now move on to Matt O'Connor with Deutsche Bank. Matthew O'Connor: I was hoping you could elaborate a bit on your outlook for loan growth and some of the drivers. You've obviously been bringing loans quite a bit. And just well in excess of the industry and how sustainable is that? And what are some of the drivers? Alastair Borthwick: Yes. So embedded in our NII assumption is loan growth in the mid-single digits Matt. Obviously, we've had pretty good loan growth this year, kind of $20 billion a quarter or so. A decent amount of that has been on the commercial side. And we highlighted that in our financials and in our commentary earlier. So we're still seeing the growth in each of the consumer categories. And that feels like it's in a position where it's likely to continue to grow from here. So we feel pretty good about those 2. I don't see any reason that it would be a whole lot lower necessarily than it was last year, but last year was a good 1 year, no question. So that's why we're saying mid-single digits. I think it will still be led by commercial. But you see the consumer categories picking up. Matthew O'Connor: Okay. And then I guess, specifically in credit card, the spending was good, up 6% year-over-year or the balances were up just a couple of percent, fees were down. I know at Investor Day, you talked about accelerating the growth there. Maybe just update a little on kind of the initiatives there and the timing. Alastair Borthwick: Yes. So [indiscernible] was very clear about this at Investor Day. It's our intention to continue to accelerate the growth in card. I think we've seen that in the last 3 or 4 quarters. It's picked up sequentially quarter after quarter. And if you were to look at what the team is doing right now, they're investing a little more for future growth. So you can see that in some of the things we're doing around the World Cup this year. You can see it in some of the things we're doing around more rewards in November. You can see it in our rewards program with our co-brand partners. And you could see it in the June cash back rewards offering. So we've got a lot of things going on right now that we're excited about. We know what we've committed in terms of higher credit card growth, and we feel like we're on the right path. Operator: We'll now move on to Erika Najarian with UBS. L. Erika Penala: I just need to reask this question, Brian, Alastair because as I speak with investors, I think the communication on efficiency and expenses is a big part of what's holding down the stock. So just to clarify in terms of what Betsy was asking, she was asking, well, given the restatement and thereby higher fees, shouldn't you adjust the efficiency ratio range to 54% to 58% because you shouldn't get credit for the restatement, right? So that's why she was asking that. And I think what Ken was asking was, everything that Alastair mentioned, the curve, the growth capital markets, it's hitting this year, right? And so you're on the low side of the 200 basis point -- of the 200 to 300. And so I guess the question here is what should we take away in terms of the expense messaging? Is it sort of what Brian alluded to that the headcount just needs time to work through and then you'll hit 250 to 300, and we just need to be patient. Is there more investment spend like you told Mike Mayo that you wanted to front load in a great revenue year. Like what exactly do you want your investors to take away in terms of how you're viewing the expense growth relative to your -- the revenue side because, for example, for your closest peer at JPMorgan, they grow expenses to $105 billion, no one really links, right, because of the revenue side. So what is the underlying message for operating leverage for Bank of America over this year and over the 3 years that is underpinning that 16% to 18%? Brian Moynihan: Let's back up to it. We -- as Alistair said, we are driving these numbers and they have improved on a recast basis by a couple of hundred basis points, and they'll continue to improve. And so the range will move down to lower numbers. And when we get into the range, we'll reset the range. But I think we're focused on the wrong thing. The question is, what are you doing now as opposed to what you say you're going to do. We have a tendency to actually deliver as opposed to talk about what we do in the future, and that's what we focus on. So what have we done? The efficiency ratio came down a couple of hundred basis points on an apples-to-apples basis with the parts of the revenue stream that are least efficient, the wealth management revenue growing very strong in the capital markets revenue. So when the consumer bank revenue grows in and Global Banking revenue grows at the efficiency ratio there at, they produce a lot more pop than wealth management, which has, obviously, the financial advisory tariffs. So you have to also think of where the revenue growth is coming from to see the improvement, but we moved to 200 basis points. We've moved in past years when rates stabilize, we'll move it into the 50s. As you get the lower efficiency ratio, the operating leverage can be narrow and you still get a bigger earnings spot. One thing that we've been telling you and that we want to make sure people understand is our goal is to keep driving all the extra NII to the bottom line meaning the difference between sort of the core and the repricing because we owe that to drive the returns up and the rest of it will have more normalized attributes to it. So we've driven the efficiency down, and we expect to continue to drive it down. It is all going to be due to headcount because that's 60-plus percent of our expenses. We've absorbed inflation and everything while we're doing that. The expense growth Alastair just told you first quarter, 4% with expense increases and base increases and third-party inflation coming through, et cetera. So we're very -- we're very efficiently to our businesses, and we're very efficient relatively to our peers, and that will continue to improve. And that's -- I don't know how to do it. One of the things when I talk to investors and I actually talked to people own a lot of stock every quarter. Their view is stay away from -- focus people on the operating leverage in the company because at the end of the day, we've got to grow expenses at a faster rate, which we have been doing than a slower rate than revenue -- excuse me, revenue at a faster rate than expenses for operating leverage. We produced that for our last 5 quarters. We had 5 years of it leading up to the pandemic. You should expect us to get back on a streak. But the reason why they want us to focus on that, the people that own the stock is to get away from the nominal dollar debate every quarter and get more focused on how the team is doing a great job of driving the revenue and driving the expense. The revenue growth slows down because the dynamics outside our company, the expense growth will slow down. Operator: We'll now move on to Jim Mitchell with Seaport Global Securities. James Mitchell: Maybe just a question on deposits. We've seen 3 rate cuts in September. Can you speak to what you're seeing in terms of deposit pricing whether betas are worse, better or worse than expected? And just also what you're seeing with respect to client behavior would just be helpful to? Alastair Borthwick: Okay. First, with respect to our pricing discipline, really when you talk about pricing, we're most focused on the upper end of the corporate banking, commercial banking, a very large global banking deposit base where we're passing on rate cuts essentially the moment that they take place and in full. And so that's why you see the beta there, obviously quite high. Same thing in the upper end of wealth management. Consumer, you see much less in the way of pricing coming down because we have so much in the way of noninterest-bearing and checking and so much in the way of low interest-bearing. So we feel good about the team's pricing discipline overall. In terms -- and you should expect that to continue in Q1, recognizing that the rate cut was late in Q4. In terms of growth, I think if you were -- to look at Page 7 in the earnings materials, it sort of tells you the picture. On the bottom right, you can see Global Banking. That's had a very good period of growth. Not sure that sustains at that sort of level. But we've had good growth in Global Banking. And most importantly, on the top right, consumer has begun to turn and is growing. And that's the most powerful engine for us. Those are the most valuable balances. We've now got 3 quarters of year-over-year growth. It's poised to grow, place to accelerate. So that's very important and wealth management is bottoming here. So we feel good about the mix of deposits changing in our favor this year. I won't just need to make sure that we keep track of that through the course of the year, but we're pretty optimistic on that, Jim. James Mitchell: Right. So I guess when you think about maybe inflection [indiscernible] in deposits growing loan growth still strong. You have an NII target of 5% to 7% for this year. Could we just drill down and look at NII ex markets, it's grown about 5% over the past 2 quarters. Is that a reasonable growth rate for this year? Or do rate cuts make that a little more challenging? Just how do we think about the markets versus ex markets NII dynamic? Alastair Borthwick: Yes. So markets is going to benefit from a couple of different things. First, we obviously invested 10% plus into the Global Markets balance sheet. So that tends to mean that we're likely to grow NII, okay? Second, a big portion of that growth has been in loans. They're totally about NII. So that obviously is helpful. Third, when rates are cut, because markets tends to be liability sensitive that tends to be good for markets NII, okay. All those things are true. And the only thing, Jim, that I was just making sure that I pointed out in my comments earlier was we ended up at $15.9 billion. That is what I would consider to be mostly all core NII. It just happens that we had about $100 million or so of Global Markets NII that I think will revert back to MMSA next period. So that's the 1 part that I just feel like is important for us to note, but otherwise, I think Global Markets NII will grow with the continued investment in loans and in the business over time. Operator: We'll now move on to Chris McGratty with KBW. Christopher McGratty: Alastair, on the funding remix. I guess what's left to go in your view based on your core deposit trends? And how much of that is baked into the guide, the liability optimization? Alastair Borthwick: You're talking how much of the wholesale funding can we take down over time? Christopher McGratty: Yes, that's right. Alastair Borthwick: I'd say probably at this point, somewhere around $50 billion to $100 billion just on ballparking that between repo CP, some of the short-term wholesale funding institutional CDs that we put out there that are just quietly rolling off now quarter after quarter after quarter. So that's the sort of number I would use. Christopher McGratty: Okay. Great. And then just piggybacking on the loan growth comment. The optimism I heard on the commercial growth. I guess any asset class is perhaps not as optimistic into '26? And if I missed it on the card expectations with the proposal, any comments there about either growth or expectations for -- to offset that would be great. Alastair Borthwick: Just restate the question one more time for me. Just say it again. Christopher McGratty: Sure. Expectations for loan growth, anything you're not pushing on for growth? And then given the President's proposed 10% cap on card yields, any comments related to that related to your current strategy? Alastair Borthwick: Okay. So on loans, I don't -- I mean, I'd say we're pushing for loan growth everywhere we can find good high-quality loan growth. So there is no place that we're not pushing. We obviously have substantial excess of deposits above our loans. So we've got a lot of capacity there. We've got a lot of excess capital, we'd like to continue to deploy if we can find productive uses with our client base. So pushing everywhere I think commercial has obviously had a good period. Wealth Management has had a good period, too. Some of that relates to things like traditional securities-based lending, but some relates to wealthy people looking to purchase expensive assets, and we're there to help them with that, obviously. The consumer piece had been quieter last year, maybe picked up a little more this year. We can see the growth now in a variety of categories. Interesting to see home equity beginning to grow and right in across time. Mortgage, a little more activity this past quarter, if you see our originations, so we had more there in resi mortgage. So we're looking to continue to see pickup in consumer activity broadly. And again, we're trying to drive more card balances. So that's really important for us. That remains the front of our strategy. Brian Moynihan: Chris, on the rate cap, obviously, you're here -- there's a good public debate going out there on the -- if you have unintended consequences of capping rates as has been proposed over many years by various components in Congress and stuff like that. The explanation we've always made sure people understood is that the if you bring the caps down, you're going to get strict credit, meaning less people will get credit cards and the balance available to them on those credit cards will also be restricted. And so you have to balance that against what you're trying to achieve on the affordability. We're all in for affordability. You all know how we run our consumer business. It's the most fair to the consumer, and that's why we get good growth in high customer scores and those increasing. So we build a product to stop people from going to payday lenders. It's called Balance Assist. We've had 1 million -- 2.5 million to 2 million plus consumers have used that product to borrow a short-term loan for $500 or -- up to $500 for a $5 fee. We have a no-frills credit card with lower rate structure to it, and we've had [ 700,000 ] clients this year took that card. And so we believe in affordability. But if you -- with instruments that cap, you will see unintended consequence of that, and I think that's what you're seeing a debate going on is people are making our points to the various -- the administration and Congress and others involved. Operator: We'll now move on to Glenn Schorr with Evercore. Glenn Schorr: I think you brought up an interesting point getting people to focus on away from the nominal expense sales. And you obviously mentioned the less efficient revenues are growing good from Wealth and Capital Markets revenues. So my question is in a good backdrop like we're in, good economy, strong economy. Everybody's got a job, markets are doing well. If you take a step back, and you see flattish consumer deposits and down [indiscernible] deposits, it's not what maybe you would have expected. And that's not a you thing. That's an everybody thing. So I'm just wondering if you could address that, even with 680,000 new checking accounts, like why do you think we see this sluggishness in deposits? And do you think we'll see a turn at some point in '26? Because that would help the operating leverage story as well? Brian Moynihan: Yes. So I think you have to think about what the consumer, especially in the -- even the wealthy consumer, they come to us for the transactional accounts and they come to us, whether they're savings money. And as market alternatives off-balance sheet alternatives, money market funds, et cetera, ran up in rates, you saw a fair amount of money move in that, especially in the wealth management business. What Alastair explained earlier is that's kind of all behind us now the consumer has been stable and and bumping along. The wealth management actually grew in the last part of the year. And so you're seeing it -- and these have settled into much higher levels than they were traditionally. So I think wealth management was maybe $200 billion before the pandemic, maybe $230 billion, something like that $240 billion maybe, and it's moved to $280 billion type of level. So you're seeing a lot more cash towards. So on the wealth side, it's people putting money into the off balance sheet yielding things because, frankly, we don't need the cash, as Alastair explained on some of the things and the early on the rates paid in CDs and things like that. And then secondly, it's actually the risk on trade of when the market. And on the general consumer side, what's happened is that they fine-tune some of the higher pieces. And a lot of the decline in balances that we experienced up until the last -- about a year ago, most of that decline was driven by wealthy consumers and our consumer franchise. In other words, the balances for the people had less than $10,000 average balance before the pandemic or that were multiples of what they were pre-pandemic and then have been stable for the last few years. But the people who had $50,000, $100,000, $500,000 and average collective balance is pre-pandemic were down 20%. And with the percentage of total deposits there that drove it down on a relative basis, but again, that has stabilized. So we feel good where it's going. It's a lot of leverage. You have a consumer business, which has a 50% profit margin round numbers. And so it contributes to that. And if you go back and look historically, we have gotten that number down pretty far. And that has the biggest profit engine in the company is core to us driving that expense efficiency across the whole place. Glenn Schorr: Okay. I appreciate that, Brian. Maybe just a little more color on your comment on the IB pipeline looks good. There's moving parts in the fourth quarter, so I don't want to overemphasize the revenue environment. But maybe you could talk about the outlook, it's expected to be a pretty strong year. The underlying conditions are pretty strong for cap markets activity. So my question is, do you feel like you've made enough investments to capture more than your fair share, pick up share? And do you expect as good as the year as I do. Alastair Borthwick: Well, I mean, I think we feel good about both of those. We feel good about the deal environment. Brian noted earlier, second half of the year, investment banking fees were 25% higher than the first half of the year, and that's largely based on more and more certainty around tax and trade and some of the things that really matter to and CFOs and Boards of Directors. So we feel good about the investment banking environment. We feel good about our pipeline. And yes, on the second question, we feel good about our investments. So you know this, Glenn, but for the benefit of everyone, we've expanded our local banking presence around the United States to improve our client coverage. Today, we're in 24 different cities. We've got over 200 bankers in a group that really focus on middle-market clients. We've seen the benefit of that. We expect to see that continue as their relationships continue to grow. We're covering newer and emerging companies in things like technology and health care in a different way, earlier in their life cycle, and we're covering more clients internationally. So all of those places, we feel like are sorts of places that we should perform well. So yes, we feel good about that. And then I'd just say when you look at performance overall. Yes, we're at the top with some of the very largest transactions. So we feel like the franchise is in good shape. Operator: We'll now move on to Steven Chubak with Wolfe Research. Steven Chubak: So wanted to ask Alastair -- so I wanted to ask on the GWIM targets that you had outlined at Investor Day. You saw some good momentum exiting the year. You outlined the 30% margin target with accelerating growth expectations on the organic side, but new recruitment does require some upfront investment. So I just wanted to understand what gives you confidence you can deliver both the acceleration in organic while still driving better operating leverage. Alastair Borthwick: Yes. So I think if you were to ask Lindsay and Eric, they'd tell you, and if you ask [indiscernible], they tell you that they enjoy significant competitive advantage as it relates to covering our clients. So obviously, we're in the wealth business, but we're also in the banking business. We have high tech and we have high touch. We are digital, but we're also local, and we offer scale. And then in terms of prospecting for wealthy families to add net new -- we've got consumer, business banking, commercial banking, corporate investment banking, all helping that group working together. So that franchise is one then that can deliver. And if you were to look at what -- if you were to look at, for example, competitive attrition this quarter, the lowest we've seen in years. I think the Merrill FA see the value of our franchise and how they can help their own clients over a long period of time, and we're picking up the recruiting of experienced advisers. That isn't an enormous part of our strategy, but it's a training program so that we're training people in wealth management, Bank of America and Merrill and that is what that's ultimately what we believe we can just keep driving in order to improve the net new flows. Steven Chubak: That's great. And then just one ticky-tack question on the tax rate. First off, thank you for implementing the accounting change. It certainly makes our lives much easier from a modeling standpoint. I know that it appeared at least in the 8-K that there was a small stub of tax advantage investments where you didn't adjust the treatment. So I wanted to just understand if that 20% tax rate is expected to hold going forward beyond 2026 or if there's any potential for very modest but still a little bit of upward drift as earnings continue to ramp? Alastair Borthwick: For now, I'd use the 20% -- I mean, obviously, hence the guidance earlier. You're right, there are a small number of deals that don't qualify for the treatment. Now over time, all of those are going to burn down and burn off. And then in addition, you've got the question of whether or not some of the tax credit equity deals will end up expiring after 2027. So I think over a very long period of time, it's possible that the effective tax rate drifts up. But we'll be able to give you more guidance on that as we go through the various years. Operator: We'll now move on to Gerard Cassidy with RBC. Gerard Cassidy: Can you guys share with us, as you know, the Genius Act was passed and there's a lot of talk about stablecoin deposits. I think they're now trying to figure out how to close a loop hole so that the stable coin deposits cannot pay interest. If they are not -- meaning Congress, if they're not successful in closing that loophole, what's kind of the impact that you guys are thinking that could happen from this trend in stablecoin deposits? Brian Moynihan: So I think I would not -- look, we'll be fine. We'll have the product. We'll meet customer demand, whatever may surface. And so I don't worry about it. But the point we've tried to make, and if you look at some studies, I think, were done by treasury is that they say you can see upwards of $6 trillion in deposits flow off the liabilities of a banking system to as the deposits into the stablecoin environment. And the key of that is to think that the restrictions to be a stablecoin is basically think of it as a money market mutual fund concept that has to be invested in only deposits, banking Fed or treasuries in short term. And so when you think about that, that takes lending capacity out of the system. And that is the bigger concern that we've all expressed to Congress as they think about this, is that if you move it outside the system, you'll reduce lending capacity of banks that particularly hurts small-, medium-sized businesses because they're largely lent to end consumers by the banking industry where capital markets-oriented companies go off into the market. So I think in the end of the day at the margin, the industry gets loaned up. And if you take out deposits, they're not going to -- they're either not going to be able to loan or they're going to have to get wholesale funding and that wholesale funding will come at a cost that will increase the cost of borrowing. And so that's the issue that people have to struggle about. Do I think it affects the course of history of Bank of America, no, we'll be competitive and drive it. But I think in the industry overall, I think it's something that we've expressed concern as an industry, and we continue to make sure that they see those issues as they are trade groups and others as they work through the funnel legislation. What will come out of it? I don't know in terms of adjustments or thoughts about that and are working on as we speak. Gerard Cassidy: Very good. And then just as a follow-up question. Obviously, you guys have presented a positive outlook for yourselves for 2026. The industry appears to be setting up very well with deregulation, steepening yield curve, healthy economic growth. Loan growth is picking up according to the H8 data. And as bank investors, we've learned to always look over our shoulder, but it seems like the worry now is there aren't many worries out there. Do you guys -- when you look at -- other than the geopolitical risk, of course, which is always a risk, what do you guys focus on just to keep an eye on in case something goes off the rails or something? Brian Moynihan: Yes, don't be a [indiscernible] there, Gerard. At the end of the day, think about the structure. We are always doing stress tests that reflect a 50% decline in house prices and market declines and all that kind of stuff and we test ourselves every quarter. We have trading stresses run every day. And so you're always trying to see, at the end of the day, whatever configuration of activities that produce as a result, the result that's going to reverberate into the global financial system and the U.S. financial system and the U.S. banking system is going to be the economy, right, in a recessionary environment, a high unemployment, those types of things. So what we do is we stress scenarios that produce those characteristics. But really, if you think about it, the stress test is going from where we are today up to 10% plus unemployment, house prices are down, as I said, they don't -- the way the methodology doesn't really allow you to adjust your operating expenses, which we know we would adjust. And you can see the industry passive stress tests, and that's, I think, 1 of the most valuable things that came out of the regulation. And our goal is to get those fine-tuned a little bit so they don't swing back and forth depending on who is supplying to test, but the reality is it's a good thing, and we all support that. So I think that's the way to measure it. Is there [indiscernible] that you can outline you started rattling off and I could [indiscernible] off, yes. But you sat there and said last year at this time, those same dimensions were in place 2 years ago, 3 years ago, 4 years ago, but we just don't see what we see differently than this maybe 3 or 4 years ago is the momentum in the market -- the capital markets activity in the investment in AI and the consumer spending is 150 basis points higher than it was back then -- our customer base, the credit quality is -- we're running at 40 basis points level. That's a level that is among the lowest in the history that we could find in a company going back 30, 50 years, these are good setups, but we're always worried about what could happen next as you say, and that's why we did the stress testing. That's why we have to balance. And effectively, that's why we drive responsible growth. We have a balance in lending. We're not overlent in any 1 industry. We manage those things. We make sure that we take the credit risk. We don't have a lot of stored risk that the industry had leading the financial crisis, meeting CDOs and things like that. So the industry is in pretty good shape, yet there'll be something that will happen and we'll all have to adjust to it. Let's just hope it takes us longer the next year to happen. Gerard Cassidy: Yes. No, no, I totally agree with you. Operator: We'll now move on to Saul Martinez with HSBC. Saul Martinez: I wanted to follow up on credit. And I apologize if you addressed this in the prepared remarks, but it's been a busy morning. But your loan loss provisions and charge-offs have been particularly low in the last couple of quarters. And Brian, you just mentioned the 40 basis points being historically low. Wholesale also very low. I'm just curious your thoughts on whether you think we're at below trend levels of losses and in what categories? And is there a way to think about what more normalized levels of losses would be even in an economic environment that remains benign as we have now. Alastair Borthwick: Well, you're right, asset quality has performed quite well. You can see that in consumer. You can see that in commercial. At Investor Day, we gave an idea of what we thought through the cycle might be. I think we said at the time, 50 to 55 basis points. So you can see right now the last 2 quarters, we were at 47 and 44 overall. So we're obviously happy to see that. We feel like we underwrite the right risk. We feel like we select the right clients. We feel like we've earned that and it happens to be a good environment right now. But maybe the 50% to 55% is the right number or through the cycle. No change to investment. Saul Martinez: Okay. Okay. That's helpful. And I guess in consumer deposits, you expressed some optimism that you're seeing an inflection there and some acceleration. Just curious where you think the growth can get to? Do you think we can get to mid-single-digit types of growth in consumer deposits? And what are some of the variables that would drive that? Does it depend on additional rate cuts? And just kind of curious what you think a more normalized level of -- or not on a more normalized level of growth. But where do you think it could go to as rates come down and deposit growth starts to materialize? Alastair Borthwick: Well, look, Brian did a nice job of sort of setting the historical context. We've had an enormous pandemic bump followed by normalization back towards something that would be more just normal for consumers in terms of what they would have in their checking accounts. That has taken years. But what we're seeing right now, Saul, is if you look at the checking account balances, for example, they're up a couple of percent now year-over-year, not 0. So do I think it can go higher again next year? I believe we do. Historically, we might see consumer deposit growth at GDP to GDP plus type levels. Now that would put you in the sort of 4% to 5% type of range. Maybe we don't get all the way there this year, but we just come off a year where we added 3%. So we're obviously expecting and hoping for something slightly higher again in 2026 as we move to something more normal. Operator: Thank you. At this time, there are no further questions in queue. I will now turn the meeting back to Brian Moynihan. Brian Moynihan: Well, thank all of you for joining us. And just in summary, it was a good quarter and a good year, and I want to thank our team at Bank of America for producing it. We've laid out at Investor Day, that world-class franchise we have across all these businesses their performance continues to make good progress in '25, both on revenue profitability and returns. The organic growth that I outlined earlier remains strong. The credit is very stable and very good quality. And we continue to manage head count and expense as we talked about to drive operating leverage. So thank you. We look forward to talking to you next quarter. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
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