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Operator: Good morning. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Avidbank Holdings, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Thank you. I'd like to introduce the presenters, Chairman and CEO, Mark Mordell; Chief Financial Officer, Pat Oakes; and Chief Operating Officer, Gina Thoma-Peterson. You may begin your conference. Gina Thoma-Peterson: Good morning. Thank you for joining us today for Avidbank Fourth Quarter 2025 Earnings Call. Before we begin, let me remind you that today's call is being recorded and is available in the Investor Relations section of our website at avidbank.com, along with our earnings release and presentation material. Today's call contains forward-looking statements, which are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from those discussed. These statements are intended to be covered by the safe harbor provisions of the federal securities law. For a list of factors that may cause actual results to differ materially from expectations, please refer to our earnings release under the heading Forward-Looking Statements as well as the disclosures contained within our SEC filings. We will also reference non-GAAP financial measures alongside our discussion of GAAP results. We encourage you to review the GAAP to non-GAAP reconciliations provided in our earnings release. With that, I'd like to turn the call over to our Chairman and CEO, Mark Mordell. Mark Mordell: Now thank you, Gina. Thank you, Jordan, and thank you all for joining us for our second actual -- as second earnings call for being a public company. And I apologize for my voice. I'm just getting over a little bit of a flu from the beginning of this week. So we had a great quarter, I think, a real strong quarter of growth, which is really what we've been striving for really since the crisis in '23, and we're leaning into being that growth bank again, and we've been demonstrating that for the last couple of years at this point. Loans were up $190 million for the quarter. And $283 million for the year, which is a 15% annualized growth rate. Deposits were up $92 million for the quarter and $241 million for the year, again, a 13% growth rate for the year. When you look at the loans, they were led significantly by our sponsor finance and corporate banking team for the quarter, but really every vertical with the exception of construction contributed to that growth in terms of loan growth for the quarter. Deposits were similar. It was led by corporate banking and venture lending, but all divisions contributed to those growth in core deposits, which is really setting us up for a strong 2026 for sure, given those balances are -- met our goals and are setting us up for a better earning engine for '26. Talking about the elephant in the room, NPAs did go up. That's clear. But that centered around as the earnings release mentioned about around 2 construction loans and 1 sponsored finance loan. The good news is that we said that we're well collateralized in those 2 construction loans and one is already taken care of itself because we've taken care of it, it has already been paid off. And that was about a $3.7 million construction loan because we were well collateralized, it didn't have to go to NPA and they took care of that. The other loan is a $16 million construction loan, multiunit mixed-use in Palo Alto. And that's been a hangover from COVID, a lot of delays. We feel we're well collateralized there as well. We have houses and guarantees, and we just have to work through this. It's going to be on our books for anywhere from 4 to 6 months probably, unless we can find a softer landing. So we feel we're well collateralized. So credit migration has not changed all that much when you consider that criticized and classifieds are pretty much holding steady at $37 million and $38 million, respectively. So we don't see any trends in credit. These are -- we don't take credit for granted here, as you all know, very well. We're always anxious about credit, but I think the -- where we sit with these loans, we feel that we'll have to work through them, but we'll get out of them and it shouldn't result in any losses as we can see at this point. I'll turn it over to Pat to talk about some of the income items and some of the metrics. Patrick Oakes: Thanks, Mark. Good morning, everyone. So we reported net income of $6.9 million or $0.65 per diluted share for the fourth quarter and adjusted net income for the full year of $24.9 million or $2.80. Pre-provision net revenue for the fourth quarter was $12.9 million compared to $10.7 million for the third quarter. The NIM expanded to 4.13% in the fourth quarter compared to 3.90% in the third quarter, and net interest income increased to $25 million from $22.7 million as we benefited from the strong growth in loans and core deposits, the full impact from the IPO and repositioning of the investment portfolio, a 32 basis point decrease in the cost of interest-bearing deposits and the $44 million increase in average noninterest-bearing deposits. These items helped offset the impact of the $726,000 interest reversal on the 3 new nonperforming loans. We purchased an additional $62 million in investment securities during the fourth quarter at an average yield of 4.48%, increasing the total available for sale balance to $218 million at the end of the year with a yield of 4.61% compared to 2.55% in the third quarter. The provision for credit losses was $2.8 million in the fourth quarter compared to $1.4 million in the third quarter. The increase in the provision expense was primarily driven by the $190 million in loan growth, along with a $1.2 million specific reserve on the downgraded commercial loan. Charge-offs totaled 30 basis points in the fourth quarter and 7 basis points for all of 2025. Noninterest expense rose to $13.9 million, an increase of $372,000 from the third quarter. The increase was primarily due to higher credit-related legal fees, an increase in our FDI assessment due to the impact of the net income loss in the third quarter and an increase in consulting and professional fees. These increases were partially offset by lower salary and benefits expense, driven by an increase in capitalized loan origination costs from the strong loan growth in the quarter, and that was offset by a higher incentive accrual. Our adjusted efficiency ratio improved to 51.72% from 55.72% in the third quarter. The tax rate in the fourth quarter increased to 31.1% compared to 28.9% in the third quarter. The increase was primarily due to a decrease in the California tax rate as we finalize the impact from the change in the California tax law earlier this year. Since we reported a loss for 2025, the decrease in the California tax rate caused an increase in our effective rate for the fourth quarter. In 2026, I expect the tax rate to move back to around 28.5%. Mark, I turn it back over to you. Mark Mordell: Well, I think we're -- again, as I mentioned earlier, we're kind of pleased with the progress that we've been making, getting the noise of our balance sheet from the securities restructuring and really looking to having more of an even down earnings projection for '26. So with that, I'm sure there are questions out there. We're happy to open it up for questions at this time. Operator: [Operator Instructions] Your first question comes from the line of Matthew Clark from Piper Sandler. Matthew Clark: Yes, I just wanted to start on the margin, if you had the spot rate on deposits at the end of the year. Patrick Oakes: I'm sorry, the -- spot rate, yes. So for interest-bearing deposits at year-end was 2.91%. Matthew Clark: Okay, good. Yes, so your beta -- your deposit beta this quarter was 80%, pretty high and the spot rate is encouraging. So how do you think about your deposit beta from here? I assume you can't hold 80%, but how are you thinking of managing that? Patrick Oakes: Yes. So a couple of pieces there, right? We do have some of our deposits, about 20% of our interest-bearing deposits that are indexed that will move down directly. And then with every Fed rate cut, so far, we're pretty successful lowering deposit costs that's kind of higher than we model, probably 60% beta on the rest of them for the December rate cut. Without a rate cut, it's hard to reduce deposit costs. In fact, there could be a risk it could go up a little bit because of where we put on new deposits. But with every Fed rate cut, hopefully, we can -- I don't know if we can get 60% on the nonindex. But hopefully, we can get -- it appear to get a pretty good deposit beta down. Matthew Clark: Okay. Good. Good. And then just update us on the sub debt that's outstanding and what your plans might be there? Mark Mordell: That's a 2026 thing for sure, Matthew. We have been working on in our investment-grade rating, and we'll do something certainly before another 20% burns off given where rates have been and what we expect rates to happen. We'll take care of that in '26 here. Matthew Clark: Okay. Good. And then just on the deposit growth, noninterest-bearing, really, really strong. It looks like venture contributed some of it. But where else is that coming from? And was there anything lumpy in there or transitory? Or is it all sticky? Patrick Oakes: Some of it can be a little bit lumpy for us and especially with the growth that we had. I mean it was across the board, right? So for the fourth quarter, yes, venture had a good quarter. They had a great year in DDA. So did our finance group, so did corporate banking. So it was across the board. But this number is going to bounce around for us as a commercial bank, right? We're not going to get the same level of growth in '26 that we saw in '25. The goal will be, hopefully, we can grow it at a similar pace to overall growth in deposits. That will be our goal at this point. But it does bounce around quite a bit. Operator: Next question comes from the line of Andrew Terrell of Stephens. Andrew Terrell: If I could just stick on the margin quickly. Just with the nonaccrual migration this quarter, was there any kind of interest reversal headwind that impacted the loan yields in the fourth quarter? Patrick Oakes: Yes.So yes, the 3 loans we put on nonaccrual, the $726,000 interest reversal impacted the margin about 12 basis points. So it would -- for the quarter, probably would have been closer to 4.25% without that. Andrew Terrell: Okay. So I guess once you normalize that, if it's kind of 4.25% level post normalizing the interest reversal and then you've got what sounds like really strong repricing at the end of the period that I think should carry forward on the deposit side. I mean, could you help us with maybe near-term margin expectation? I mean it feels like it should go like 4.30-ish plus. Is that an unfair assumption? Or any color on where you think the margin can go kind of near term, Pat? Patrick Oakes: So yes, I mean it's -- you can put the math together and see that the headwinds that we just got to be careful of for us is where we're putting on new deposits as we cut existing deposit rates. And look, we're trying to fund loan growth here. So it's possible that new deposits come on at a higher rate than our existing deposit portfolio that could put a little bit pressure on the deposit costs, not significant, but that's a headwind. And then look, we're benefiting from a lot of flowing floors at this point, right? We have $240 million at floors. About 60% of that are maturing in 2026. So we know when those loans renew that we're going to be resetting those rates. So that's going to put a little bit of pressure on there. So there is a few things that are headwinds that offset it from going up too much, but we can keep at that 4.25%, maybe a little bit higher than that, that would be great, right? But I don't expect it to go up significantly from here. Andrew Terrell: Got it. Okay. No, that makes sense. I appreciate it. And just overall, I mean, Mark, you kind of -- you touched on it a bit in your comments. Just you guys have a banner year in growth for the balance sheet, both loans and deposits. Just maybe send yourselves a high bar for 2026, but any kind of initial thoughts on pipelines for both loans and deposits and kind of your growth expectations for the year? Mark Mordell: I'm not a big believer in cycles, but if you do look historically, Q4 has always been one of our stronger quarters and first quarter has always been a little bit softer. I think based on the pipeline we saw in the second half of the year and what closed in Q4 and what's closing in Q1, that we do have good momentum and good pipelines throughout the bank, virtually in all divisions going forward. So we're still targeting that double-digit loan and deposit growth. I mean, that's what we are. We need to be that growth bank. Bringing everybody back around again. I mean we have high velocity and churn in our portfolio. I mean we have to do almost $2 of new loans to net $1 new loans for the year given the portfolio churn. This year was exceptional in construction. We had a significant amount of payoffs in our construction division, and that really held our loan growth down. So I think we always are targeting this 10% to 15% type of asset growth every year. So that's what we're targeting this year and feel that it's very accomplishable. Operator: [Operator Instructions] Your next question comes from Ross Haberman from Rlh Investments. Ross Haberman: Pat, could you just talk about your expected loan growth in '26? And how is your backlog today? Mark Mordell: Yes, we're expecting -- again, we're expecting loan growth for '26 to be something between 10% and 15%. And we feel that the team that we have as well as what we're seeing in the pipeline and even the things that are cyclical that's an achievable number for us. Ross Haberman: And just one follow-up question about the loan quality. Anything else on the delinquent or criticized that's keeping you up at night besides the ones you've described earlier? Mark Mordell: Ross, they all keep me up at night because they can go one way or the other. And just as we -- that criticized and classified is pretty dynamic, both positive and negative, and that's why we keep a pretty strong eye on it. But those ones are obviously -- we feel good that we're going to get out of the ones that we mentioned because we are well collateralized, but it is going to be a process, and that's a distraction for all of us in order to kind of work through that. So there's nothing else in credit of any trend that we're concerned about. It's kind of business as usual at this point with migration happening both positive and negatively. But this was a big one. This is a $16 million one that really drove that number significantly up from where it was at the end of Q3. Operator: Next question comes from the line of Timothy Coffey from Janney. Timothy Coffey: Is it a reasonable expectation to think that the loan-to-deposit ratio is either flat to slightly down this next year? Mark Mordell: Yes. I think we're going to -- I think we'd like to drive it down, but I think we'd like to drive it down. We're 100% core funded at this point, which is great. But I don't expect it to come down substantially. Timothy Coffey: Okay. Yes, because of the cost that Pat was talking about earlier. And then looking at kind of the noninterest expense run rate these last 2 quarters, obviously, elevated for specific reasons. Is that the kind of go-forward run rate where we're talking $13.5 million plus? Patrick Oakes: Yes. In fact, look, first quarter is always a little bit higher in the first place. So it will go up from there in the first quarter from where we were in the Q4, right, with higher taxes, insurance costs going up. But we'll get a little bit of reset on the bonus accruals since that was high in the fourth quarter. And hopefully, we'll -- legal credit-related costs will come down a little bit, but it will creep up here from the fourth quarter and the first quarter and then hopefully back down a little bit. But it's -- that run rate is definitely going to be higher than the $13.5 million. It will be $14 million plus at this point going forward. Timothy Coffey: Okay. That's helpful. And then, Mark, just kind of talk about the opportunities in the market. Obviously, you've been benefiting from the dislocation that happened almost 3 years ago now, plus we've got Comerica exiting the market. Do you feel more optimistic about the opportunity to take business from other banks that you have in probably the recent past? Mark Mordell: I don't know if it's any more opportunistic, Tim, than it has been over time. I do think we've benefited from a lot of disruption because of our consistency and the way we are this high-touch bank, big bank council with small banks service type of thing. There's going to be opportunity for us. And I don't -- I think if our bankers are out there doing what they should be doing, they're going to uncover more and more opportunity. But I don't think it's a significant change with the disruption that happened in the second half of last year to what our plan is for this year. We always are opportunistic on people as well as clients. Operator: There are no further questions. I'd like to turn the call back over to the presenters for their closing remarks. Mark Mordell: Well, again, thank you all for attending our earnings call, and we're pretty optimistic going into '26 here. We're pleased with how we ended the year in '25 and are going to do our best to take advantage of our IPO, take advantage of our restructuring and manage our balance sheet the best way we possibly can and continue to grow at a double-digit rate. So hopefully, in Q2, that we have this -- end of Q1 earnings, we have an earnings call that kind of matches up with us. So I appreciate everybody's interest and support over time. Operator: This concludes today's conference call. You may disconnect.
Operator: Welcome to Franklin Resources Earnings Conference Call for the Quarter Ended 12/31/2025. My name is Rob, and I'll be your call operator today. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Selene Oh of Investor Relations for Franklin Resources. You may begin. Good morning, and thank you for joining us today to discuss your quarterly results. Selene Oh: Statements made on this conference call regarding Franklin Resources, Inc., which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of known and unknown risks, uncertainties, and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. These and other risks, uncertainties, and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the risk factors and the MD&A sections of Franklin's most recent Form 10-K and 10-Q filings. Now I'd like to turn the call over to Jenny Johnson, our Chief Executive Officer. Jenny Johnson: Welcome, everyone, and thank you for joining us today as we review Franklin Templeton's first fiscal quarter results. I'm joined today by Matt Nichols, our Co-President and CFO, and Daniel Gambach, our Co-President and Chief Commercial Officer. We'll answer your questions momentarily, but before we do that, I'd like to review some key themes. We are operating in a period of continued transition for investors, marked by significant market turbulence globally resulting from heightened geopolitical trade policy and consequently economic uncertainty. Markets are adjusting to a more persistently volatile environment, shifting capital flows, and a growing need for resilience in portfolios. Across regions and client segments, investors are focused on the same fundamental questions: how to generate durable returns, how to manage risk through uncertainty, and how to position portfolios for long-term outcomes rather than short-term noise. That environment is reshaping what clients expect from asset managers. Over the past few months, I've traveled overseas across Europe, the Middle East, and Asia. In my conversations with clients, it's clear they are no longer looking for individual products in isolation. They're looking for partners who can help them construct portfolios across public and private markets, deliver personalization at scale, and navigate complexity with discipline and insight. Franklin Templeton is well-positioned for this moment. Over years of deliberate planning combined with the strength of a global brand, we have earned the trust of investors around the world. At Franklin Templeton, we bring together specialized investment expertise across public markets, private markets, and digital assets, supported by a global platform with reach in more than 150 countries. Clients are increasingly engaging with us across multiple asset classes, reflecting a shift toward integrated solutions and long-term strategic relationships. This alignment between client needs and capabilities is driving growth. Our diversified platform, continued innovation, and focus on scale and efficiency position us to capture opportunities across market cycles and deliver long-term value for our clients and shareholders. Now turning to our results for the quarter, which marked another important step forward with tangible progress across the firm. We continue to deepen client partnerships, broaden our investment in solutions capabilities, and strengthen our global platform. Key priorities that remain central to our strategy. Our first fiscal quarter continued the momentum we built last year with strong client activity across Franklin Templeton's diversified global platform with positive net flows in both public and private markets. We had record long-term inflows of $118.6 billion, up 40% from the prior quarter and 22% from the prior year quarter. Long-term net inflows were $28 billion with record AUM and positive net flows across equity, multi-asset, alternative strategies as well as ETFs, retail SMAs, and Canvas. Excluding Western Asset Management's long-term net inflows totaled $34.6 billion, nearly double the prior year quarter, extending our track record to a ninth consecutive quarter of positive flows on a comparable basis. Assets under management ended the quarter at $1.68 trillion. AUM increased from the prior quarter due to long-term net inflows and the acquisition of Apira, partially offset by the impact of net market change distributions and other. Excluding Western Asset, long-term net inflows were $34.6 billion compared to $17.9 billion in the prior year quarter, with nine consecutive quarters of positive net flows. We continue to see strong momentum across our platform with record AUM in three of our four asset classes. Public markets remain a key strength, an important source of growth. Equity, multi-asset, and alternatives generated positive net flows totaling $30.4 billion for the quarter and excluding Western Asset, fixed income delivered its eighth consecutive quarter of positive net flows. Equity net inflows were $19.8 billion for the quarter, including reinvested distributions of $24.6 billion. We saw positive net flows across large-cap value and core, all-cap growth, and value sector international equity, equity income, and infrastructure strategies. Fixed income net outflows were $2.4 billion. Excluding Western Asset, fixed income net inflows were $2.6 billion driven by Franklin Templeton fixed income. Positive momentum continued in multi-sector municipal, highly customized, stable value, government, and emerging market strategies. Our institutional pipeline of won but unfunded mandates remains strong at $20.4 billion, underscoring sustained demand for our investment capabilities. The pipeline remains diversified by asset class, and across our specialist investment teams. Trade and private markets, Franklin Templeton is a leading manager of alternative assets with $274 billion in alternative AUM. Alternatives fundraising has been a key contributor to our growth, with $10.8 billion raised during the quarter, including $9.5 billion in private market assets. Fundraising was diversified across our alternative specialist investment managers, reflecting client demand in secondary private equity, alternative credit, real estate, and venture capital from institutions as well as from the wealth channel. Aggregate realizations and distributions were $4.8 billion. Lexington Co-Investment Partners VI, one of the largest dedicated global co-investment funds, closed in October with $4.6 billion in committed capital. Today, Lexington's AUM stands at $83 billion, up 46% since its acquisition in 2022. In addition, we continue to expand our private credit platform with the October 1 closing of the Apira Asset Management acquisition. This strategic acquisition enhances our direct lending capabilities in Europe, growing lower middle market. In January, BSP Real Estate Opportunistic Debt Fund II closed with $10 billion of investable capital, including related vehicles and anticipated leverage across $3 billion of equity commitments. Franklin Templeton's US and European alternative credit businesses are now aligned under an updated Benefit Street Partners brand with $95 billion in private credit AUM at quarter end. Clarion Partners continues to be well-positioned with a large diversified portfolio and positive returns despite a challenging capital raising environment. Capital flows remained well below averages largely due to clients seeking more liquidity in private equity overall. Recent M&A activity in the industry underscores the importance of alternative assets, reinforcing the strategic rationale behind our acquisitions and investments, and further highlights our ability to grow our alternative asset platform at scale. Franklin Templeton Private Markets, our alternatives wealth management offering, continues to gain traction and generated over $1 billion in sales for the quarter, underscoring the strength of our global distribution partnerships and client reach. Lexington Partners, Benefit Street Partners, and Clarion Partners each have scaled perpetual funds totaling $700 million in AUM. These are semi-liquid perpetual vehicles open to ongoing subscriptions, giving investors efficient access to long-term private market exposure. Taken together, these capabilities are driving increased client adoption and strengthening our position as demand for private market solutions continues to grow globally. As investors continue to seek enhanced diversification and differentiated sources of return, private assets have taken on a more prominent role within traditional mutual fund structures. We've been incorporating private assets into traditional mutual funds for over a decade. Today, we manage approximately 60 products representing about $160 billion in traditional mutual fund assets that have exposure to private markets. Liquidity is closely and continuously monitored to ensure these products remain aligned with our traditional fund objectives. Multi-asset AUM is nearly $200 billion and had net inflows of $4 billion during the quarter, the eighteenth consecutive quarter of positive net flows led by Franklin Income Investors, Franklin Templeton Investment Solutions, and Canvas. These flows underscore clients' increasing preference for outcome-oriented diversified solutions across public and private asset classes, an area that Franklin Templeton continues to focus on and evolve through innovation. Clients are increasingly turning to Franklin Templeton for a broad and differentiated set of investment vehicles, and we're seeing that demand translate into sustained growth across our platform, with record AUM across ETFs, retail SMAs, Canvas, and investment solutions. Our ETF platform continues to grow at a faster rate than the industry and reached a new high with $58 billion in AUM and generated $7.5 billion in net flows, marking its seventeenth consecutive positive quarter. The net flows were inclusive of $3.5 billion in mutual fund conversions. Our focus on active ETFs produced strong results this quarter. Active ETF net flows were $5.5 billion or approximately 70% of total net flows. Today, we have 15 ETFs that exceed $1 billion in AUM. The industry conversation continues to shift toward delivering personalization at scale, and we see this as a durable long-term opportunity. Advancements in technology are allowing features of separately managed accounts, such as tax-loss harvesting, which were historically underutilized, to be implemented efficiently and consistently across a broad client base. We are well-positioned in retail SMAs with our breadth of capabilities, along with our custom indexing technology, Canvas. As a leader in retail SMAs, AUM increased to $171 billion with $2.4 billion in net inflows driven by Putnam Franklin fixed income and Canvas. Canvas generated $1.4 billion in net flows and reached $18 billion in AUM, reflecting strong client interest in personalization and tax efficiency. Canvas has been net flow positive since its acquisition in 2022. We are also seeing increased demand for multi-asset model solutions, including portfolios that combine both public and private asset classes. This trend is extending into retirement channels where investors are increasingly seeking diversification, income, and risk management through more holistic portfolio construction. Investment solutions leverage our capabilities across public and private asset classes to pursue strategic partnerships. This quarter, Investment Solutions enterprise AUM surpassed $100 billion. Digital assets also continue to play an important role in modernizing financial infrastructure, and Franklin Templeton remains at the forefront. Earlier this month, the state of Wyoming debuted the nation's first state-issued stable token with Franklin Templeton-managed reserves, further demonstrating our leadership in blockchain-enabled investment solutions. Our digital asset AUM is $1.8 billion, inclusive of approximately $900 million in tokenized funds and approximately $800 million in crypto ETFs. Turning to artificial intelligence, we've made significant progress in advancing our AI efforts. Yesterday, we announced the launch of Intelligence Hub, a modular AI-driven distribution platform powered by Microsoft Azure. Building on the advanced financial AI initiatives announced in April 2024, Intelligence Hub delivers our vision for US distribution by modernizing core activities, improving sales effectiveness, and enhancing the client experience. One of Franklin Templeton's strengths is our global presence, and international markets are an integral part of our growth strategy. We currently operate in over 30 countries, and our international business continues to expand with positive net flows for the quarter with strength in EMEA. Now in terms of investment performance, over half of our mutual fund and ETF AUM is outperforming its peer medium across the three, five, and ten-year periods. Similarly, over half of strategy composite AUM is outperforming its benchmarks over the same time periods. Compared to the prior quarter, mutual fund investment performance increased in the five and ten-year periods and declined modestly in the one and three-year periods due to select U.S. equity strategies. On the strategy composite side, investment performance improved in the ten-year period, was stable in the three-year period, and declined in the one and five-year periods. The one-year decline was primarily driven by the liquidity strategies. Overall, long-term performance remains competitive and continues to support both organic growth and client retention. Turning briefly to financial results, adjusted operating income was $437.3 million, reflecting lower performance fees and the annual deferred compensation acceleration for retirement-eligible employees, partially offset by the impact of higher average AUM and realization of cost savings initiatives. We remain disciplined in managing expenses while continuing to invest strategically in areas of growth and innovation for the benefit of all stakeholders. We are confident that our diversified business model, global scale, and client-first culture positions us well to capture the long-term trends reshaping our industry across public and private markets. Finally, in December, Franklin Templeton was once again recognized by Pensions and Investments as one of the best places to work in money management. I'm proud to lead such a talented and dedicated team, and I want to thank our employees for their continued hard work and commitment to serving our clients. Now let's open up the calls to your questions. Operator? Operator: Thank you. If you'd like to ask a question, please press 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. If anyone should require operator assistance, please press 0. We request that you limit yourself to one question to allow as many additional participants on the call as possible. Thank you. And the first question is coming from the line of Bill Katz with TD Cowen. Please proceed. Bill Katz: Thank you very much for taking the question and all the update. Thank you for the extra disclosure in the supplement around expenses. I think that was quite welcomed, for sure. Maybe on that, just a two-part question. To the extent that the market were to be a bit under pressure as the year goes by, how much flex do you have to sort of bring that number down? And then secondarily, I think in there, you sort of affirmed you're going to get to $200 million of cost savings. Could you speak to maybe the residual amount yet to be realized and the timeline against that? Thank you. Matt Nicholls: Yeah. Hi, Bill. Good morning. It's Matt. So as outlined on that page, thanks for highlighting it in the investor deck, at flat markets, as we mentioned the assumptions and excluding performance fee comp, we do expect expenses to be in line with 2025. This is inclusive, again, as we also outlined on that slide, about key investments that are essentially offset by the expense savings. From a modeling perspective, if you take the guidance, which I can give on the second quarter and then you add that to the first quarter, take those take that sort of combined number for expenses and then take the last two quarters and divide it roughly evenly between the last two, that'll get you where we believe we'll be at this point in time. It may be that the expense saves shift a little bit between the third and the fourth quarters, but that's how we expect things to play out in terms of our cost savings. And that is, of course, as I've mentioned in the past, in conjunction with margin expansion, in particular, going into the third and fourth quarter. So I think for the second quarter, you won't see much of margin expansion. You'll see that going into the third and fourth quarters where we expect to be again, given current markets, given current AUM levels, we expect our margin to be getting into the high 20s at that point from where we are today. Jenny Johnson: Thank you. Operator: The next question is from the line of Craig Siegenthaler with Bank of America. Please proceed with your question. Craig Siegenthaler: Thank you. Good morning, everyone. My first question is on the M&A activity. I know you've been very active, and I wanted to see if you had an update on potential contingent consideration liabilities because I see there's only about $20 million in the new 10-Q that you put out today. But I actually thought it was larger than that. So is that really it? And or could there be more, especially with the deal you just closed last quarter? Matt Nicholls: No. That's the contingent consideration around specific transactions that we've done. So it's really virtually nothing at this stage. What that doesn't include is some compensation related to transactions, but that's all that compensation line and all included in our guidance. So and some of that, you can see in the GAAP versus non-GAAP disclosures for specifics. But for transaction-related consideration, it's a very low number that's left, and that's probability-weighted, Craig. So yeah. Got it. Nothing additional to report there. Craig Siegenthaler: Okay. Thanks, Matthew. And it's just one question. Right? Matt Nicholls: Yes. Well, I think you had you want to ask something else about M&A. I think Jenny, do you want to cover the M&A question? Jenny Johnson: Yeah. Yeah. I'll be that. Great. Matt Nicholls: Yeah. Do you want to just Jenny Johnson: Sorry, Craig. Are you asking about what kind of our view is on M&A? Or what's your question on that? Craig Siegenthaler: Actually, I did in the first part, but, you know, if you want to kind of update us in your M&A priorities, product gaps, kind of where you're looking, where you kind of strategic benefits, that'd be helpful too. Jenny Johnson: Yeah. Sure. So it hasn't really changed. I mean, you know, what we've always said is we do M&A for strategic purposes, and they're usually around whether we need to fill out an obvious product gap. Today, honestly, we are pretty full. I mean, the one area that we had said was infrastructure. You need a lot of scale for infrastructure. And we feel like we've filled that, at least for now, with the partnerships that we've done with the three infrastructure managers. And we're focused on the wealth channel there. Any kind of M&A we do going forward is going to really be in three areas. It will be like what we did with the Apira, which is to fill in a specific bolt-on area, either geographically or capabilities to our alternatives manager. So in that case, they gave us European direct lending, which we are able to combine with Alcentra's direct lending group. And I think we're now at $10 billion in European direct lending there. So that's kind of a bolt-on both geographically and capability. And then the second area would be if it somehow furthers distribution. So we've done either investments or actual M&A that help us like the Putnam deal where we also brought with it some sort of distribution capability. And then the third area is really in high net worth. We've said we want to grow we want to double the size of fiduciary in our five-year plan, and that can be both that will be both organic as well as inorganic. So those are the kind of three areas that we're focused on. Matt Nicholls: And I'll just add something to this, Craig, that you know, it's almost reiterating what we said in the past, but what we've done in 60% of our operating income that's been added over the last several years through M&A. And I think the know, we're a bit of a modest company at the end of the day, but the timing of our private markets acquisitions was quite good. And as you know, we've been growing the multiple down very substantially in terms of those transactions. So we're very comfortable with M&A. And as Jenny mentioned, we've got some things that we're reviewing. We're kind of in the strategic flow. It would probably be an understatement. But right now, the return on M&A is very important to us. We have high bars and obviously given where our equity is trading. You know, the bar is even higher for M&A. So first thing we look at is, you know, the return on buying back our shares relative to what we could get from M&A or providing more seed capital and these other things around capital management. Operator: Thank you. The next question is the line of Brennan Hawken with BMO Capital Markets. Please proceed with your question. Brennan Hawken: Good morning. Thanks for taking my question. Matt, I didn't don't think I heard it in the prepared remarks. So I figured I'd drill in. Would you have any expectations for EFR, either both in the coming quarter and then if you have a view maybe for the balance of the year. I know you've got Lexington the Lexington Flagler is expected to start. I'm guessing that'll help. Matt Nicholls: Yeah. I'd say that for the next quarter, we expect EFR to be stable, where it is today. And then in the following two quarters, there could be some, you know, upside to that based on fundraising around alternative assets as you've, as you've just highlighted. Brennan Hawken: Great. Thanks for taking my question. Operator: Next question is from the line of Alex Blostein with Goldman Sachs. Please proceed with your question. Alex Blostein: Hey, good morning, everyone. Thank you for the questions. Well, Matt, I was hoping you could expand the margin discussion a little bit longer term. Franklin's done a really nice job integrating a number of assets over the years. Good to see the expense flex come through. But when you think about the operating margins for the firm as a whole, kind of running in the mid-twenties, to your point, maybe entering high twenties towards the end of the year. Where do you see the profitability over time? Many of your peers are well in the thirties, kind of mid-thirties, percent range. So, no one would you know about the business. Knowing what else might be on the come with respect to integration. Of some of your managers. How should TheStreet think about profitability over kind of a multiyear basis, and what's kind of the goalpost there? And maybe just a clarification. I know you said high twenties margin exiting 2026. Is that with market, or is that also assuming flat markets? Matt Nicholls: The latter one is flat markets. So it's part of our guidance from where we are today. In terms of the first question, you know, we put out there a five-year plan where and we've got four years well, three point seven five years to go of that plan. And we said we'd be in excess of 30% by the time that's finished. The reality is we are well on our way to 30% margin, all else remaining equal, going into '27, let's say, fiscal twenty twenty seven. So sometime in 2027, we'll be there. And then if all else remain equal around the market, as we've said, you know, there isn't any other reason why we couldn't be somewhere between 30-35% if we achieve all the goals that we put into our strategic plan that we've highlighted to all of you and as we highlighted where we're at against that. End of last year. So yeah, that's where we're at on the margin. As I mentioned, where we should end this year, all else remain equal, in the high 20 nines going into 2027 fiscal at some point would be 38. And then if the market stays where it is today, we should go in excess of that in future years where we thought we'd be more like 30%. So we have some upside there. Remember as well, we do have the highly episodic situation around Western where we've been providing support to the Western expense structure since August 2024, which has had an impact on our overall margins of probably several points. So we'd already be in the high twenties, or 30% now. Excluding that, but we've done the right thing in our opinion by providing that support. And it definition, also supports future growth opportunities that we've highlighted in our five-year plan. Alex Blostein: Yep. All makes sense. Thanks so much. Operator: The next question is from the line of Glenn Schorr with Evercore. Please proceed with your question. Glenn Schorr: Thank you very much. Jenny, it felt like you had strong conviction in how you talked about you said something like no longer people are no longer looking for products in isolation. Curious how much you were leaning towards the institutional versus the wealth side and more importantly, how you're organizing around that? Have you deliberate Is it your own models? Is it getting on other people's models? And is it also bigger strategic, broader relationships with LPs? I'm just curious to flush that out a little bit. Thank you. Jenny Johnson: Yeah. No. Great question. So that comment is both a wealth comment as well as an institutional comment. So you talk to any of the big wealth platforms, and what they're basically saying is, there's more demand from their clients to offer truly what used to be just available to high net worth people. So it's financial planning, tax efficiency, education, education of the heirs. And so what their message is look. We're going to consolidate to fewer managers we're going to look at the ones that have scale, that have breadth of capabilities, and can offer these additional services to us. And part of that and so I'm talking first on the wealth side. And part of that on the wealth side is if you have traditional and private show me that you can support us on the education of the sale of our private. That's why we have 100 people whose sole job is to support our market leaders out there as they meet financial adviser by financial adviser from an education standpoint. And so really focusing on streamlining on the wealth channel. We're having the same discussions on the institutional side where the conversations are around, okay. Show me your broad breadth of capabilities. I want to be able to second some of my more junior folks. Show me how you can build a program around that that goes cross market, so fixed income equity secondary private credit. Like, we want that education across. And that you will support those types of programs. And again, they're consolidating the number of managers. And you have to remember, you have a blow up with one manager, it taints your firm's reputation. There's as much due diligence on a multitrillion dollar manager as there is on a single $20 billion manager. And so the amount of time that they have to do and do due diligence on the managers making them want to consolidate, just use larger managers and expect more from the managers. So that's both, like I said, institutional retail. We've seen it on the insurance side. Where as they're looking, you have this trend towards leveraging sub-advisors. They want broad breadth of capabilities there. So we're seeing it on as you talk to retirement managers, me the breadth of capabilities that you have and show me how you can help support the business. So I would say this trend has been going on for the last few years. And it continues. We feel really well positioned for it. Glenn Schorr: Thanks so much, Jenny. Daniel Gambach: I wanted to add a comment into Glenn's comment on actually our success, especially on the wealth space. Which you mentioned, we have over 100 our specialists that complement the field and the wealth people on the ground. And the success that we've seen, actually over the past year alone, we've increased substantially the amount of AUM that we fundraise in the wealth space. And we expect that that's going to be, you know, between 15-20% in 2026. But also importantly, 40% is coming outside The US. So it's also growing outside The US, both in Europe and Asia. And the other part that is important is over the past two years alone, we built seven perpetual funds that are close to $5 billion in fundraising and the fundraising is just going up every quarter. So this quarter is 50% higher than the quarter before, and the momentum continues because we continue to sign up new wealth groups. And to your question, Glenn, we're also starting to build those model portfolios of perpetual funds that will continue to accelerate the growth on the wealth. So that's an area of focus, and I think that's an area of a lot of success from frankly. So I just wanted to add that to the conversation. Jenny Johnson: Well and you just reminded me, Daniel. Glenn, you asked the question about do we also try to get in other people's models? Yes, the answer is we do. If other people have OCIO and they're open architecture, and we are, in that case, in other people's models. So our goal is to meet the client and however the however we can meet the client, whether it's whatever vehicle or vehicle agnostic, I think that you would see that all of our flagship products are being sold in multiple vehicles. So some form of ETF mutual fund, CIT, SMA, We're adding tax efficiency to our active SMAs. And so having that flexibility is really important as they select you as one of their core providers. Operator: Our next question comes from the line of Dan Fannon with Jefferies. Please proceed with your question. Dan Fannon: So Matt, wanted to follow-up on some of your comments around long-term margins and the expenses. So just thinking about expense growth beyond this year, are you can you give us a sense of how you're thinking about that? And do you anticipate in those longer-term targets for margins additional cost savings and or cost programs that will help you get there. Matt Nicholls: I mean, it's possible that we're deep in on AI. We're deep in on how to maximize our presence that we have. In India or in Poland, for example, where we've got very large operational capabilities and great talent in these places. We're working on meaningful integration across the firm to maximize and capitalize on what we've and what we've, what we've got here. Every time when we progress down one of those paths, we find other places that can frankly absorb areas that we need to invest, at least absorb. What we're demonstrating this year is a meaningful increase in margin or else remaining equal and an acceleration of our plan to get to 30% plus. And, you know, we're doing that through very disciplined expense management whilst continuing to invest the business at the same time as the market going up. So we've got meaningful investments for growth. We've got the market that's meaningfully up. Yet our expenses are staying flat to last year. I think going into 2027, obviously, look, we're not we're only a quarter through 2026 fiscal. But I feel, I feel confident that going into 2027, that, a lot of the other initiatives we have going on will help to continue to absorb the additional expenses that are required to grow and invest in our business. But, obviously, we can't comment on, you know, reliably on fiscal twenty twenty seven when we're not even through '26. But I hope through these comments when you look at how we've performed from the expense perspective, '25 versus '24 and now what we're guiding in '26 versus '25 that, you know, we've mostly achieved what we said we're gonna achieve even with upward momentum in the market. So I do think we've got some room in the numbers, in terms of further cost saves going into fiscal twenty seven based on everything that we know. But right now, we're focused on delivering on fiscal twenty six as we've highlighted. Jenny Johnson: And I'm just going to add, Matt. Like, when we think about where is there upside opportunity and margin, I'm going to throw it into kind of three categories in the shorter term. But sort of a '27 on. One is streamlining the products. We've done a lot around, I think almost a third of our product we've looked at and either repositioned merged a few cases closed, and in some when I think about repositioning, it's like turning them into ETFs. We did big ETFs conversion where we think they'll get more upside potential. So as we determine that, there's opportunity there. The second is it always takes a lot longer. And you think about all the acquisitions that we've done, kind of say, I think, 11 acquisitions in the last five or six years, but the reality of Legg Mason was like an acquisition of five companies or six companies, not one company, because they were all on their own systems. They had own versions of CRM, different CRM systems. That is still ongoing. And those and some of that's built into the projections that we have. But some of it, you continue to uncover more opportunities there as you integrate. And it takes multiple years to do the full integration. And so that's still working. And then finally, like AI and technology, I think we think blockchain is going to be a great efficiency adder as it as it's adopted out there. But like AI, just you may have seen that we announced this intelligence hub. It's one area that we're working on AI to make our distribution people more effective. What we saw is the time to finalize call lists dropped 90% when we rolled this out. Now what is that? It's you know, it went from three to four hours to fifteen minutes. And the prepping for meetings dropped you know, from six hours to two hours or something per week. Those are small little incremental cost savings or hope more importantly, what it's done is actually added 9% to 10% increase in the number of meetings that our distribution team has. So hopefully, that translates into more sales. But think about that as you're rolling it out. We've already talked in the past about AI and the improvement in our RFPs. We're doing a lot of work on our investment side. It will either translate into growth opportunities or it will translate into cost savings. But honestly, it's a bit hard today to build that into direct cost savings opportunities that expand into margin. But those are big opportunities, we think, going forward. And we are very focused, we think, on the AI side. We're actually the leaders in that space. So I just want to add that to kind of Matt's comments. Matt Nicholls: And then finally, Jenny, thank you for that. And then finally, most of the stated growth areas that you can see as demonstrated by our positive flows in them scaling. They're scaling up. And in particular, ETFs, Canvas, and Solutions, for example, each of those three areas for us obviously, they're lower fee. And when they're smaller AUM and when you're growing, overall is a business, you have a lower margin. As a result of that of that investing to grow the business to a scaled position. What's happening now in terms of ETFs Canvas, and solutions in particular, notwithstanding that the lower fee rate associated with those vehicles, those businesses, let's call it. They're getting to the point now where the size of them and certainly going into later into 2627, all else remaining equal, we expect the scale of scaling of those businesses to create higher margins overall. So you have a lower fee rate. I know everybody's very focused on the fee rate. But at a certain point, when you get above a certain AUM, expenses are very managed and you've done all the investments. You've got the team you need, and then you could be two, three times as size of AUM and therefore have a much higher margin. Similarly, in our alts areas, we continue to grow significantly across all three of our three, four of our primary alternative assets businesses. We're getting more margin from that. I mean, the $10 billion that Jenny talked about earlier on, the $9.5 billion of fundraising doesn't include, for example, Lexington Fund 11. So it's important to note that. Operator: Our next question comes from the line of Ken Worthington with JPMorgan. Please proceed with your question. Ken Worthington: I guess pressing AI further, Jenny, you've been in the press talking about the impact that AI has on asset management. Suggesting that it could drive, if not accelerate, more consolidation in the asset management industry. So maybe one, how does AI drive consolidation? And then two, from Franklin's perspective, how would AI sort of alter your ability and willingness to do the M&A transactions and fill in the gaps that you mentioned sort of earlier in the call? Jenny Johnson: Yeah. So a couple things. So one of my comments on M&A consolidation has been really what I said is look. If you haven't if you're a traditional manager and you haven't already purchased scale in alternative managers, it's going to be really difficult to compete going forward, especially because one, that comment on distributors trying to consolidate, so they're demanding more from you. Two is, as Matt pointed out, we were fortunate that we were very early in these acquisitions. Traditional alternatives managers have gotten incredibly expensive since we did our acquisition of BSP and Clarion. And it will be very, very difficult to be able for a traditional manager to be able to go and acquire. Number two, this convergence particularly in fixed income, you're going to see, but across the board with products that are that contain both private and public in them, you don't have that under the same roof, we don't think you're going to get the same kind of just synergies that you get from learning and managing and research. We have over 50 products between Western ClearBridge and Western and, frankly, Franklin's been doing private markets in their traditional mutual funds for over a decade. So over 50 products actually have privates in them today. So we already have that in our mutual funds. So one is in the alternative space. The second is AI. AI the amount of data required to truly train a model is really significant. And if you're a smaller manager, one is you won't be able to buy you won't be able to buy the kind of data. We spent hundreds of millions of dollars on data. And so to be able to scale that data, plus the data you generate internally across all of your different capabilities is really important in training models. And it's just going to be hard to compete on training those models if you don't have a scale. So that's where why my comment was, think that's going to drive some consolidation because I think over time, we're already seeing it. Now look. Anytime you have technology breakthroughs, first thing people do is just make more efficient what they do today. That's why we give you quotes like, hey. We're more efficient on the call. Because it's hard to measure the actual value-added output because that doesn't happen right away. It doesn't happen until you start to put in the hands of your people so that they can build those ideas. I wanted to say it's like, you know, when the iPhone came out, we all looked at it as this is a pretty cool camera. And, you know, and flashlight and whatever. It was unleashing the hands of the public that came up with all these credit applications. Applications. As you start to train your workforce on how to leverage Agenic AI, which we were very early adopters of broadly rolling out ChatGPT, and we do training on how to create a genetic AI. We do hackathons with our investment teams. And it's a cross-functional hackathons. We put people together that are across various sins to say, go build a Genic AI. And they're doing things that are built one on top of the other, and then we take them and we test them across others. So to me, the ability to do that and compete is going to be very difficult. If you are small, and in particular, if you are singly focused on, you know, kind of one area of the capital stack. Ken Worthington: Got it. Okay. Thank you. That's very helpful. Operator: Our next question comes from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question. Michael Cyprys: Morning. Thanks for taking the question. Just wanted to come back to your commentary Jenny on blockchain and tokenization. Just curious if you could talk about your objectives for that over the next couple of years. What steps are you looking to take here in '26 to enhance your positioning? To help improve adoption, for example, of your existing tokenized funds? And then to your point on efficiency, I guess, how do you see blockchain contributing to improve efficiency at Franklin? How much lower cost is it to operate tokenized funds versus your traditional funds in rails? Jenny Johnson: Sure. So I'll tell you, like, this is just an incredibly efficient technology. And my the best example to give you an idea of how it become how I think it's from a cost savings standpoint, how significant it is I'll start there. And then kind of what the opportunities and the hurdles are to more broad adoption. So the first thing is, when the SEC approved our money market fund, they had this parallel process. It was something like we did over a six-month period between our old agency system and our blockchain system. And we were one of the few firms that were still running that the transferring C systems in-house. So we got to see that comparison. And we did about 50,000 transactions that cost us about a dollar 50 per transaction. Cost us a dollar 13 to run it. Total. To run those 50,000 transactions on the Stellar blockchain. We picked the right chain. There's a lot that goes into that. But it showed us the dramatic difference in cost. And today, if you open an old money market fund, you need $500 open up because below that, we probably lose money and the other shareholders subsidize you. In the case of blockchain, you could open a Benji. You downloaded the Benji app and open a money market fund, you would you would you only need $20. So we could probably go less than that. So it's cost savings. The second thing is there's a huge amount of cost in financial services that's just reconciling data between your own systems and then reconciling with your counterparty. All that goes away when you have a single source of truth that is updated immediately. So those that's you're going to have cost savings, which is why I believe it will fundamentally replace all of the rails. There's a lot of toll takers in the system today. That will slow that down as much as they can because it threatens their business model. But you know, water runs downhill no matter how many obstacles you put in it. It will it will become very significant. So why the slow adoption? You cannot hold a tokenized product without having what's called a wallet. Okay? Now it's a blockchain wallet. It's merely an encryption key that's your own personal one, but you can't hold any of those. And in The US in particular where you had you didn't have regulatory clarity until the Genius Act came in, there was no point in any of these big wealth advisors on the traditional side to even think about it because it was kind of like the third rail from a regulatory. I can tell you this year, I feel like is completely changed. You now have the large crypto exchanges interested in trying to offer traditional types of funds, ETFs and others that would be tokenized. And you have the big traditional managers who are saying, can you please educate us on how we access this space? How do we build a wallet? What's required there. And so I think you're going to start to see much greater convergence between TradFi and DeFi. We our tokenized money market fund, what we see is if anybody's been involved in securities lending, you know that people will move who they they'll borrow where they can get the highest collateral return even if it's a basis point. Why would you keep their $300 billion in stablecoins? Why would you park your money in a stablecoin that doesn't give you yield when you could move into a Benjie money market fund earn that yield, and when you want to do a payment transactions convert into a stablecoin. We think by the March, we will have the ability for somebody who has a stablecoin. We're Benjie has been integrated with multiple different stablecoins, where on these crypto platforms, we now a partnership with Binance. We have with OKX and Kraken and others where you'll be able to convert from your stable coin into our money market fund. And on a Saturday, convert out if you want to leverage it for payment and earn that yield. And, again, because it's on blockchain, we actually pay you that yield in your account every day. If you're a corporate treasurer, and you can get use of those funds every day versus accruing and waiting for that capital to be paid to you at the end of the month on a money market fund. That's going to be a benefit. And so that's we think there's an opportunity. But Benjie is just the beginning of where we think this goes. Michael Cyprys: Great. Thanks so much. Operator: Our next question is from the line of Patrick Davitt with Autonomous Research. Please proceed with your question. Patrick Davitt: Hi. Good morning, everyone. Following up on the expense guide, I don't think you've ever talked about the scale of the third-party performance-related expenses you're excluding. So could you give how much that runs each year? And then I think, Matt, you hinted you have a detailed rundown of next quarter expenses you can give. Thank you. Matt Nicholls: Thanks, Patrick. That should be the third-party piece should be relatively small. I'll check with the team quickly just in case. But that larger performance fee that we had to run through G&A last quarter was associated with a large performance fee we got from BSP and it was for previous employees. So, but I'll get what that number could be going forward. In terms of but it'll definitely be smaller. In terms of the third quarter or sorry, second quarter guide, I already mentioned EFR we expect it to be in line with this quarter. And as I mentioned, the last two quarters, we had some upside potential in EFR related to potential fundraisings in alternative assets. Comp and benefits, we expect to be around $860 million. This includes $30 million of calendar year resets, you know, for 401k payroll. Salary increases, and so on. It also assumes $50 million of performance fees. And a 55% performance fee compensation ratio on that. IS and T, we expect to be $155 million consistent with last quarter. Occupancy, $70 million, again, consistent with last quarter and as we've guided in the past. G&A, $190 million to $195 million again, in line with the previous quarter. This assumes a little bit higher fundraising expenses and a little bit higher professional fees. And then the tax rate, we guided last time for year 26-28%. We're keeping that guide, but we're now on the lower end of the guide or low to mid let's say, in that guide. So we're bringing the guide down on taxes for the year from the higher end, which I think I said last quarter to the lower to mid part of that guide. And then really importantly, I want to reiterate the '26 because I know you'll be calculating back what should how do we to the flat expense guide or remaining equal and excluding performance fees and the other assumptions we put in the deck, how do we get to that guide? I would add the quarter I just gave you to the first quarter and then look at the last two quarters. And just spread the expense savings over those two quarters. We recognize about 20% of the 200 in the first quarter. And we expect to spread the rest of it out over the next three, but there'd be larger amounts of it in the last two quarters. And, again, we expect to end the year in a very similar expense position as we were to twenty five. Notwithstanding all the investments that we've talked about, making in the company and at a higher margin, as I mentioned when I answered Alex's question. Operator: Thank you. Our next question comes from the line Ben Budish with Barclays. Ben Budish: I was wondering if you could maybe talk a little bit about the equity flows in the quarter. I know calendar Q3 is typically seasonally stronger. And obviously, there's been a trend of improvement over the last couple of years. But this quarter looked particularly strong. Anything unusual or one time you'd call out or was it more, you know, broad-based and, you know, I know it's still a bit earlier in the fiscal year, but you know, any thoughts on how the rest of the year may shake out, would be helpful. Thank you. Jenny Johnson: I'll start, and then I know Daniel will want to jump in. I mean, obviously, it's a quarter that you have a strong reinvested dividends. So that is part of the flows, which is important. But I have to tell you, I mean, Putnam continues to have excellent performance and continues to have very, very strong flows. And honestly, that has even continued into January. I don't want to steal the thunder here, and January hasn't closed yet, but we actually are looking like we will be positive net flows inclusive of Western, which has been a long time since that in January. Now again, I caveat that since it hasn't actually closed today. But part of that has just been the strike in Putnam. Daniel, do you want to add? Daniel Gambach: I think you got it. I will say it's a combination of platinum, clearly, large-cap value, on research. Also, on emerging markets, we got some institutional flows from our temples and emerging markets capability. Which is very, very encouraging. And I will also say our ETF franchise had excellent results. Especially on the active ETFs, which is also a combination of the results from our Boston affiliate, but also a couple of ClearBridge funds did also very well on that. And the momentum continues to be we own ETFs. We had a great quarter. 75% of the quarter was on active ETFs. So it continues to actually show that that's where the industry is going, and we have a very ambitious plan to continue that growth. Ben Budish: Alright. Thank you very much. Operator: Next question is from the line of Bill Katz with TD Cowen. Please proceed with your questions. Bill Katz: Great. Thanks for taking the extra question. Just a couple of cleanups for me. One, can you just remind us what the variable expenses against net asset value were happening by the incremental margin on market action. Number two, maybe just on the WAMCO side, I haven't asked about this in a while, but it seems like volumes there are stabilizing. How are conversations progressing with the investment community given that some, but not all the overhang with the regulatory investigation is sort of winding down? And then finally, was wondering if you could talk a little bit about broadly, you mentioned that Lexington was not in this most recent quarter. How do we think about maybe the pace of opportunity on Lexington and maybe broadly where you see the big opportunities for growth in fiscal twenty six? Thank you. Jenny Johnson: Great. So I'll take the Western and Alts, and then I'll turn it back to Matt on the variable expense there. So just one on Western. I mean it helped a lot, obviously, The DOJ came out and said that they're not going to pursue criminal charges and it'll be resolved through disposition and acknowledged. I think this was also important that the additional time needed was not due to Western. So I think that gave clients a little bit of a breather of an uncertainty. And you have the benefit. The investment team is incredibly stable. They have very, very good performance. We've been integrating the corporate functions. We've been integrating the institutional sales and the client service that's going very well. And so I think that with clients that is that essentially calm them a bit. I mean, we did while there's still an outflows, it did have, I think, was $6.6 billion in gross sales. In the last quarter. So there's obviously clients that are still allocating to Western. With respect to Alts, as Matt said, so we had a very strong quarter. Our target for the year is 25% to 30%. We're going to it's still early, so we're going to maintain that target. But obviously, at $95 billion coming into the private markets, and that is across all private credit secondaries, real estate and venture. So it's nice and diverse. A little over half of it is in the private credit area. None of it was Lexington's flagship fund 11. Lexington did have it was a combination of its co-invest flex middle market. There were over 33 vehicles that had inflows in our private markets this quarter. So tells you it's really broadly distributed, which for us is exciting. Lex flagship Fund 10 are active or 11, they're actively fundraising in the market right now. Their target is to be about where they were on their last fund. They would expect to first close this year, but it'll depend. Secondary continues to be just a great space to be. Last year was a record number in secondaries transactions. Lexington is considered one of the trustiest trusted and long-term partners with experience, and they're not affiliated to any single PE firm. So that also gives them an advantage. So they're having very good strong conversations. But we're pleased to see the extent of inflows and growth even without the Lexington flagship fund. So Matt, and I'll turn it over to you again for the last part of that. Matt Nicholls: Sure. Thanks, Jenny. So Bill, on the variable question, about 30 between 35-40% of our expenses are variable. And I'm sorry I didn't address the I remembered you asked that this question at the end of your previous question. Where you said if the market goes down, do we have flexibility now? Expense base? The answer is yes. We always have variability in our expense base in the event the market goes down. So that's the answer to that. And then to answer another expense question Patrick had. Patrick, just to make sure I fully answer your question. As it relates to the geography of performance fee-related compensation, first of all, we would always, guide to apply 55% to the number of performance fee overall. So 55% is the correct application whether it's in our computation line or the G&A line. And we do, as I mentioned, in the answer to the question initially, we expect that number to be quite low in the GNA segment. The G&A segment is just literally for former employees that where we have to where we're paying a, you know, a portion of the company out that they owed. But that's de minimis at this point. It was just larger that one quarter. I think it was $24 million to be specific. Last quarter and was because it was a large older fund that had a number of folks that are no longer they're retired from the company that had interest in the performance piece. Patrick Davitt: Thank you. This concludes today's Q&A session. Operator: I'd now like to hand the call back over to Jenny Johnson, Franklin's President and CEO for final comments. Jenny Johnson: Great. Well, I'd like to thank everybody for participating in today's call. And more importantly, once again, we'd like to thank our employees for their hard work and dedication delivering this strong quarter. And we look forward to speaking with all of you again next quarter. Thanks, everybody. Operator: Thank you. This concludes today's conference call. You may now disconnect.
Operator: Good morning. My name is Katie, and I will be your conference facilitator today. Welcome, everyone, to Chevron's Fourth Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' remarks, there will be a question and answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I will now turn the conference call over to the Head of Investor Relations of Chevron, Mr. Jake Spiering. Please go ahead. Jake Spiering: Thank you, Katie. Welcome to Chevron's Fourth Quarter 2025 Earnings Conference Call and Webcast. I'm Jake Spiering, Head of Investor Relations. Our Chairman and CEO, Mike Wirth, and our CFO, Eimear Bonner, are on the call with me today. We will refer to the slides and prepared remarks that are available on Chevron's website. Before we begin, please be reminded that this presentation contains estimates, projections, and other forward-looking statements. A reconciliation of non-GAAP measures can be found in the appendix to this presentation. Please review the cautionary statement and additional information presented on slide two. Now, I will turn it over to Mike. Michael K. Wirth: Thank you, Jake. 2025 was a year of execution. We set records, started up major projects, and strengthened our portfolio. Production reached record levels globally, and in the US, supported by key milestones and strategic actions. Including completion of the Future Growth Project at Tengiz, 260,000 barrels of oil per day. Start-up of Valleymore and Whale and the ramp-up of Anchor in the Gulf of America. Advancing toward our goal of 300,000 barrels of oil equivalent per day in 2026. Achieving 1,000,000 barrels of oil equivalent per day in the Permian, and shifting focus to free cash flow growth. And closing the Hess acquisition. Creating a premier upstream portfolio with the highest cash margins in the industry. Additionally, in the downstream, we delivered the highest US refinery throughput in two decades reflecting recent expansion projects and higher efficiency. This performance drove strong results. Including industry-leading free cash flow growth, excluding asset sales, adjusted free cash flow was up over 35% year over year even with oil prices down nearly 15%. And for the fourth consecutive year, we returned a record cash to shareholders. Delivering on our consistent approach to superior shareholder returns. Chevron has been in Venezuela for over a century. And we remain committed to leveraging our deep expertise and long-standing partnerships for the benefit of our shareholders, and the people of Venezuela. Since 2022, in full compliance with US laws and regulations, we've worked with our Venezuelan partners to increase production in our ventures there by over 200,000 barrels per day through a venture-funded model to recover outstanding debt. We see the potential to further grow production volumes by up to 50% over the next eighteen to twenty-four months. We're reliably delivering Venezuelan crude to the market including our own refining system. There is significant potential in our assets, and in the country. We're optimistic the future holds a more competitive and robust pathway to deliver value to Venezuela, the United States, and Chevron. We've been a pivotal part of Venezuela's past. We're committed to the present, and we look forward to a continued partnership into the future. Our advantaged assets in the Eastern Mediterranean continue to grow. And we're advancing multiple high-return projects to bring world-class gas to regional markets. Leviathan recently reached FID to further expand production capacity. Combined with a near-term expansion, gross capacity is anticipated to reach roughly 2,100,000,000 cubic feet per day at the end of the decade. Contributing to a doubling of current earnings and free cash flow. At Tamar, the optimization project start-up is in progress, increasing gross capacity to approximately 1,600,000,000 cubic feet per day. An Effort ID has now entered feed. Working toward developing a competitive investment in Cyprus. We expect these projects to build on the existing assets' top quartile reliability and unit development costs further expanding our differentiated position. Before concluding, I want to provide a brief update on TCO. Earlier this month, TCO experienced a temporary issue on the power distribution system. Production was safely put in recycle mode while the team identified the root cause. Early production has now resumed. We expect the majority of the plant capacity to be online within the coming week and unconstrained production levels within February. Our full-year 2026 guidance of $6,000,000,000 of Chevron share free cash flow from TCO at $70 Brent is unchanged. I want to reiterate our message from Investor Day. Chevron is bigger, stronger, and more resilient than ever. We're entering 2026 from a position of strength, and will continue building on our momentum in the years ahead. Now, to Eimear to discuss the financials. Eimear Bonner: Thanks, Mike. Chevron reported fourth-quarter earnings of $2,800,000,000 or $1.39 per share. Adjusted earnings were $3,000,000,000 or $1.52 per share. Included in the quarter were pension curtailment costs of $128,000,000 and negative foreign currency effects of $130,000,000. Cash flow from operations was $10,800,000,000 for the quarter, and included a $1,700,000,000 from a drawdown in working capital. In line with historical trends, we expect to build in working capital in 2026. Organic CapEx was $5,100,000,000 for the quarter, and full-year organic CapEx was in line with guidance. Inorganic CapEx related mostly to lease acquisitions and new energies investments. We repurchased shares at the high end of our fourth-quarter guidance range at $3,000,000,000. Our balance sheet remains strong ending the year with a net debt coverage ratio of 1x. Compared to last quarter, adjusted earnings were lower by roughly $600,000,000. Adjusted Upstream earnings decreased primarily due to lowered liquids prices. Adjusted Downstream earnings were lower largely due to lower Chemicals earnings, and Refining volumes. Adjusted free cash flow was $20,000,000,000 for the year, and included the first loan repayment from TCO and $1,800,000,000 in sales. Share repurchases combined with the Hess shares acquired at a discount were over $14,000,000,000. Looking ahead, we expect continued growth in cash flow driven by low-risk production growth ongoing cost savings and continued capital discipline. 2025 marked the highest full-year worldwide in US production in Chevron's history. Excluding impacts of the Hess acquisition, net oil equivalent production growth at the top end of our 2025 guidance range of 6% to 8%. Production of TCO, the Permian, and the Gulf of America was in line with or better than previous guidance. Due to strong performance and disciplined execution. We expect volume growth to continue in 2026. As we see the benefits of project ramp-ups, a full year of Hess assets, and continued efficiency in our Shield portfolio. A full year of Permian above 1,000,000 barrels of oil per day and back in production underpins the expected growth in Sheel and Tite. Recent and upcoming project start-ups in Guyana, the Gulf of America, and the Eastern Mediterranean are anticipated to increase offshore production by approximately 200,000 barrels of oil equivalent per day. We expect TCO to grow 30,000 barrels of oil equivalent per day delivering near its original plan as the 2026 maintenance schedule has been optimized. In total, growth in these high-margin assets is anticipated to contribute to a 7% to 10% increase in production year over year, excluding the impact of asset sales. Last year, we launched our structural cost reduction program as part of our continued commitment to cost discipline. Execution has exceeded expectations, $1,500,000,000 delivered in 2025, and $2,000,000,000 captured in the annual run rate. These results reflect a broad organization-wide effort to operate more efficiently. Challenging high and more work gets done, streamlining processes, integrating advanced technology, and leveraging our scale across the supply chain. We've restructured our operating model to be leaner and faster, with a more intense focus on benchmarking and prioritization. And we're not done. We expect this momentum to continue as we aim to deliver on our expanded target of $3,000,000,000 to $4,000,000,000 by 2026. With more than 60% of savings coming from durable efficiency gains. As Mike referenced, entering 2026 a position of strength. Our diversified portfolio has a dividend and CapEx breakeven below $50 Brent, and a deep opportunity queue with lower execution risk. Capital discipline remains at the core of our strategy, as we focus on only the highest value opportunities. Our balance sheet is in excellent shape, with significant debt capacity that provides additional resilience and flexibility. This disciplined approach allows us to manage through cycles, invest for the future, and consistently reward shareholders. Over the last four years, we've returned more than $100,000,000,000 in dividends and buybacks. As we showed you at our Investor Day, our track record of growing the dividend is unmatched across decades. Today, we announced a 4% increase in the quarterly dividend, in line with our top financial priority. I'll now hand it off to Jake. Jake Spiering: That concludes our prepared remarks. Additional guidance can be found in the appendix to this presentation. As well as the slides and other information posted on chevron.com. We are now ready to take your questions. We ask that you limit yourself to just one question. We will do our best to get all of your questions answered. Katie, can you please open the lines? Operator: Thank you. If you have a question at this time, please press 1 on your touch-tone telephone. To allow for If your question has been answered or you wish to remove yourself from the queue, please press 2. If you are listening on a speakerphone, we ask you please lift your handset before asking your question to provide optimum sound quality. We'll take our first question from Arun Jayaram with JPMorgan. Arun Jayaram: Good morning, Mike. I was wondering if you could elaborate on a few of the moving pieces around TCO volumes in 2026. Including the optimized maintenance schedule, and perhaps, Mike, you could just discuss the issue on the power distribution system and where you stand with some of the debottlenecking activities that could potentially result in an increase in your productive capacity at TCO? Michael K. Wirth: Sure. Let me start with the power issue since that's been the most recent information there. The team proactively suspended production at the facility when an issue was identified in the power system. I'm really proud of the organization for taking that step being willing to reduce production when they identified a condition that created a risk and focusing on the safety of people, assets, the environment. They acted with urgency to get the facility into a safe posture. Immediately, began working on root cause identification and very quickly began implementing solutions to get production back online. Production has been resumed at the Korolev field. A number of the assets or power distribution assets have been taken out of service, have been brought back into service. We've actually got power now to one of the pressure boost facilities. And are in the process of beginning to ramp things back up to higher rates, through the processing plants as I outlined in my opening comments. Also, you know, in the news, just to close the loop on it, you know, we have two morning births back in service at CPC. We've been working for the last thirty plus days, maybe thirty to forty-five days, through a single mooring berth. So back into, you know, start-up mode on TCO, and as I indicated, full field production capacity is not far away. When you look at the full-year guide where we said we expect to be near our original production expectations, two things I would point to. One is a maintenance optimization, which is timing of activity. And optimizing downtime. And so as we've looked at the schedule for this year, we've got a more optimal plan that will accomplish the maintenance objectives and reduce the amount of planned downtime that goes with those. And then the second thing gets to your question about debottlenecking. At our investor day, we shared some history at TCO. That demonstrated over our years there in multiple projects, we've been able to steadily improve plant capacity beyond nameplate. We're working on that again now with the new project. And in fact, one of the pit stop turnarounds that we took late in 2025 was to address to retray a column or a portion of a column and address some issues that have been identified that we believe will allow us to push some more throughput through the plant. We've actually not run that at full capacity long enough to be able to speak to exactly what the impact of that is because of some of these other constraints that I just mentioned. But as we're back up and running, we'll certainly have a chance to test that. And I would expect, that and other steps that we take will lead to gradual debottlenecking, and we'll look to try to creep capacity further upward. And we'll advise you as we've got, you know, run time and confidence that we can demonstrate that we'll let you know what that looks like. Thanks, Arun. Operator: We'll take our next question from Neil Mehta with Goldman Sachs. Neil Mehta: Morning, Mike and team, and thanks for the comments. Just Mike, if you could unpack Venezuela a little bit more, specifically, your just thoughts on the conditions of the assets on the ground and how much running room there is in terms of the resource there. You know, how big could this be in the context of Chevron's portfolio? And I think Mike, you alluded to the fact that might be thinking about this more in a self-funding model type of way. So anything you can unpack there too be great. Michael K. Wirth: Yeah, Neil, maybe I'll put a little bit of a context around this just because I had different discussions with people over the years, and I'd like to get everything kinda level set on it since it's been more front and center recently than it has been historically. First of all, our operations there through the last month and all the things that have happened on the ground have continued uninterrupted. Our people are safe. We continue to work closely with our partners in Venezuela to get crude to the market. So we've not been impacted by any shipping issues or anything else. Have been in the media. We're actually in four different joint ventures with Petabesa, three of which are producing assets. Since 2022 when there were some changes in the licenses out of OPEC under the Biden administration, we've grown production by over 200,000 barrels a day. Gross production now is up around 250,000 barrels a day. And as Mark mentioned during the White House meeting, there's the potential for up to an incremental 50% production growth over the next eighteen to twenty-four months as we get some additional authorizations from the US government. The activity on the ground right now is entirely funded through the cash within those ventures. And so the current license agreement requires us to pay certain tax and royalties that we're legally obligated to pay. It enables repayment of debts that, that we have you know, still have debt balances that were owed, and we've been gradually working those down. And then the additional cash goes back into the operations for normal operating costs. That has funded, things like well work workovers, basic maintenance on pump and pipelines and compressor stations and the like. Which have allowed us to improve production. As we have and would continue to, as I indicated, up to maybe 50% additional growth. So that's the current state of things. As I think everybody on the call knows, the resource potential in Venezuela is large. It's well established, and there's a lot of running room ahead. I can speak to the state of our assets, and we have worked hard to keep them safe and reliable and maintain them during this period of time. I think as you look at the performance out of other assets that we're not involved in, you can see that that may not be the case across the rest of the industry in the country as, you know, the production has kinda steadily eroded over, you know, the last decade or so. And so I think the opportunity to do some of the things we've done in some of these other operations is probably there. I think it's a little early to say what our longer-term outlook is Neil. You know, should expect us to remain focused on value and capital discipline. It's a large resource that has the opportunity to become a more sizable part of our portfolio in the future. But we also need to see stability in the country, we need to have confidence in the fiscal regime. There was a hydrocarbon law that was passed just yesterday. They were in the process of reviewing to understand how that applies. And so there'd be a number of signposts that we'll be watching, you know, and, you know, as I try to remind people always, like anywhere that we invest, fiscal terms, stability, regulatory predictability are important. And so it'll have to compete in our portfolio versus attractive investments in many other parts of the world. The right changes, we certainly could see our operations and footprint expand in Venezuela. And, you know, we're working with the US government and the Venezuelan government to try to create circumstances that would enable that. Jake Spiering: Thank you, Neil. Operator: We'll take our next question from Doug Leggate with Wolfe Research. Doug Leggate: Good morning, everybody. Mike, I wonder if I could just quickly take you back to Tengiz. And it's I guess it's really more of a macro question because I think you're aware that Kazakhstan seemingly has some fairly substantial compensation cuts planned in the summertime. And I don't know how much of that was supposed to be Tenge's. I think it was a previous question from one of the guys asking about maintenance, but now that you've had this unplanned downtime, I'm wondering does that kind of meet the compensation if you had any contribution to that? In other words, we should not expect any further cuts later in the year. I don't know if you can speak to that both on a macro and a Chevron specific level, please. Michael K. Wirth: Yeah, Doug. I really can't. You know, that's a matter for the Republic and obviously OPEC plus as they engage in their discussions, which we're not privy to. I'll point out that historically, because the TCO barrel is a pretty attractive barrel from a fiscal standpoint to the republic, that, what we've seen historically is if there are restrictions on production in the country, you know, those tend to affect the barrels that are less fiscally attractive to the government, and TCO doesn't have a history of being, you know, impacted to a great degree by that. And so you know, I would point to that. I know history is not always a prediction of the future, but that's how things have historically worked. And I just don't know what agreements or understandings there are within the country relative to OPEC. Thanks, Doug. Operator: We'll take our next question from Ryan Todd with Piper Sandler. Ryan Todd: Great, thanks. Maybe on the Eastern Med, you've made a lot of progress in the Eastern Mediterranean over the last six months. Can you walk through kind of the drivers of the progress in the region, keys to Aphrodite development, getting that to FID, and then maybe additional opportunities in the region, including places like Egypt where we've seen some headlines, involving yourselves of late. Michael K. Wirth: Yeah. Thanks, Ryan. We continue to be very excited about the resource potential in the Eastern Mediterranean. You know, I used to get some questions back during, you know, the last year or so when there was a lot of, kinda geopolitical, uncertainty in the region. But you know, this is a tremendous resource. All credit to Noble Energy for the way they developed both tomorrow and Leviathan. And, you know, across our core assets, on a gross basis, we've got over 40 TCF of resource. This is comparable to our assets in Australia, have been the focus of investors for a long time. But this is similar scale. In the near term, we're focused on safely bringing online projects at both tomorrow and later this year. Tomorrow, we'll add about 500,000,000 cubic feet a day of capacity. Leviathan, about 200. And then the Leviathan expansion, just took FID on, will take gross production there to 2.1 BCF by the end of the decade. So steady growth, combined those projects should increase production about 25% and double earnings and cash flow by 2030. And then as you mentioned, Aphrodite just entered FEED. We're working towards a competitive project in Cyprus. This is one that's been, kind of on the drawing board for quite some time, and we've reached, I think, a good understanding with Cyprus on the development concept there. And so all of these, you know, lead to our confidence in the region. Last thing is we've got at least one exploration well I know that is going to go down offshore Egypt. We've got a large position in a number of blocks offshore Egypt further to the West in areas that are relatively underexplored and have been under some military exclusions. Historically, working petroleum systems onshore, and, you know, we've got reasons to believe they could extend offshore. So we're gonna be testing that. We shot seismic and gonna be getting some wells down. So an important part of our portfolio, good things underway now, and I think you know, the running room on this one continues well into the future. Jake Spiering: Thank you, Ryan. Operator: We'll go next to Devin McDermott with Morgan Stanley. Devin McDermott: Hey, good morning. Thanks for taking my question. Eimear, you had some helpful comments and details in the slides on the cost reduction progress so far. And if we look at what's on deck for 2026, what's ahead still, I think some of the remaining improvement is really driven by some of the fairly material organizational changes that Chevron implemented last fall. And now that you're a few months into this new operating model, was wondering if you could talk about some of the early results that you're seeing so far, both on cost and operations? So any positive surprises or conversely, kind of lessons learned or areas that are still a work in progress. Eimear Bonner: Okay. Thanks, Devin. Yeah. We've hit the ground running, and we went live with the new organization in October. And, the new operating model is live and well, and, you know, we're seeing that reflected in the early results that we've shown you today in the prepared comments. So we've saved $1,500,000,000 thus far on the cost reduction program. So some of that's coming from divestments. Some of that's coming from efficiencies and technology, and so you see the early results of the organizational impacts in the results already. The run rate's greater than $2,000,000,000. You know, at the end of the year. So, we are expecting the organizational efficiencies to add to the results that we're seeing thus far. So we're very confident in the target that we've set and delivering that over the course of this year. And just a reminder, that's three to four billion dollars. Look. In terms of the lessons learned, what I'd say is we're seeing results everywhere. Every team as part of this program has been benchmarking, has been looking for areas of improvement. So we've got a lot of programs that are looking at improving our competitiveness across every metric. Some of the examples that I would call out, production chemicals, now that we have our shale and tight portfolio and assets altogether in one business, we've been able to look at that from an operational efficiency perspective not only the optimized operationally, know, the chemical treatments, but also the cost, and the dose. So that would be an operational lessons learned, word of the scale, and the design of the new organization makes that easier to do, and the results speak for themselves. Another area, maybe in the technology space, you know, we've talked about this for a number of years, but AI, is really starting to take off in terms of being used in every part of the business. And in the new organization, our supply chain team is set up a little bit differently, and they've really been using AI in a neat way to glean more intelligence around how to approach certain negotiations, and so that would be an example as well. So all in all, we're on track to deliver the 3 to 4,000,000,000 I'm very confident in that. This is overall OpEx reduction while we significantly grow. So we'll keep you updated on the progress. Thanks for the question. Operator: Thank you. We'll take our next question from Sam Margolin with Wells Fargo. Sam Margolin: Hi, good morning. Thanks for taking the question. Maybe revisiting the Permian you know, I think it was, like, the '23 where you called out that productivity well, productivity in the Permian on the operated side was inflecting higher and you know, now two years later, seems like we're really seeing it flow through in capital efficiency. And so the question is, like, when you get this kind of momentum in short cycle capital efficiency, you know, does what does it do to your decision-making process? Not you know, I wanna spin you around on Permian Plateau, but just given the cost and productivity structure of your operation there, feels like it's getting incrementally capital efficient to accelerate. So just in the context of what you're seeing performance-wise, you know, how do you feel about the Permian strategy? Eimear Bonner: Hey, Sam. I'll take this one. Yeah. Well, what we're seeing is exactly what we set out to achieve, and that was to hold Permian at a million barrels a day. We've seen that for three quarters and optimize on cash generation. And we're already seeing cash efficiency improve. We're at $3,500,000,000 of CapEx, already, and that was something that we thought that it was gonna take us some time, but the team has just done a terrific job. Every aspect of the factory there has seen efficiency and improvement. And now, you know, we're taking that further given that our shale and tight portfolio is together as part of the new organization in one business. And so we'll see we'll see in that capital efficiency extend to the back end extend to, the DJ, and extend to Argentina. You know, one data point I'd give you just to illustrate it clearly is drilling rig efficiency. And since 2022, you know, we've more than doubled our drilling efficiency from that point. And so we're drilling, the development areas for much less. In terms of our decision-making, right now, I know change to our decision-making. I mean, Permian plays a role in our portfolio. We're focused on growing cash flow. Not growing production. And, you know, the capital efficiency, enables that. So, I just finished by emphasizing, you know, all of these actions are improving returns. Jake Spiering: Thank you, Sam. Operator: We'll take our next question from Paul Cheng with Scotiabank. Paul Cheng: May can you discuss how you see the opportunity set in two of the OPEC countries Libya, and Iraq, where a lot of your competitors seems to be believe that the opportunity sets have margin improved and making wave. We haven't heard from Chevron. And also that comparing to your peers, your LNG size or portfolio size is much smaller. And how that fit into your long term? Do you have a different view comparing your peer, on the LNG business? Thank you. Michael K. Wirth: Hey, Paul. Couple of questions there, I guess. First of all, you might have seen we recently signed an MOU in Libya. You know, we're a little bit underweight, relatively speaking, Middle East. Versus some other parts of the world, and that's been intentional. The types of contracts and the terms have been on offer in The Middle East broadly speaking, for the last decade or more, have not been very competitive versus some of our alternatives. And so you've had a lot of service type contracts. And, you know, in a world of limited human resources and limited capital resources, we need to deploy these to what we believe are the highest return opportunities. And it's been tough for a lot of those to compete within our portfolio. So we've not gone into Iraq. You know, it's been a decade or more than since we've last really had any kind of a serious look at Libya. Those things are changing. And I think in part, you know, when we saw President Trump make a visit through the region earlier this year, we saw a notable uptick in inbound inquiries and a desire to engage not just in those two countries, but in any number of other countries that would like to see American companies invest in their economies. And so, you know, we you know, the resource potential in some of these countries is undeniable. They're two of the largest resource holders. In the world. And so we're engaged in discussions in both of those countries. They've been reported in the media. To look at everything from existing producing fields and coming into those to operate and grow. Also looking at exploration opportunities as well. Improvements in fiscal terms have been critical. Pairing discovery resources with exploration opportunities to make things more attractive. And so we need to see compelling value opportunities there if we're going to invest. We intend to stay disciplined on capital and seek the highest returns. My quick response in LNG, Paul, I think I've spoken to this before is you know, we're a global player. We need to be in projects that compete. And, a lot of things that we've passed on around the world similarly, to my comments about, some of these Middle East opportunities. They also don't deliver the returns that we're looking for. And so got some US offtake where we don't need to put capital to work because we have a large gas position. We got strong, you know, credit position, and we can get attractive throughput rates and let somebody else deploy the capital into those so we'll have some LNG offtake from US. And, you know, we'll continue to look at opportunities. We're not opposed to adding, but it's got to deliver competitive returns. Thanks for the question, Paul. Operator: We'll take our next question from Stephen Richardson with Evercore ISI. Stephen Richardson: Hi. Thank you. I was wondering if we could maybe just dovetail on those the comments just there on changing fiscal terms internationally and the opportunity. Just feels like you've positioned the company arguably really well to win in a low commodity price environment. And with a ton of leverage to the upside as your sensitivities suggest. So that's it, but the opportunity set just keeps on getting bigger. I mean, we're just talking about Venezuela. Talking about some of these opportunities in The Middle East. You've got a revamped exploration program. So can you just follow-up on that in terms of how do we think about maintaining that leverage to the upside while developing some of these future opportunities? And how do you instill that discipline in the organization, if you could? Michael K. Wirth: Yeah. Steve, I mean, we've steadily worked to high grade our portfolio. We've looked to add very strong and competitive assets to our business. And we have divested ourselves of positions that are not bad assets but they fit better for somebody else than they do for us. And so in doing so, I think we've strengthened the company. You've seen our breakeven has come down. You see that, you know, we've we're able to operate at lower cost because we're actually in fewer positions that have more scale. They've got longevity, so we can apply technology to these assets. And, and I think you can expect us to continue to do so. We want to grow, you know, gradually over time. The demand for our products isn't growing at an enormous rate. You know, demand for us is growing arguably 1% a year, give or take. Gas is growing a bit more strongly than that. And so, you know, we've got a volumetric growth a little bit above that. Last year, this year. We got some acquisitions and project start-ups. But over time, we've got to grow cash flow. And that's the focus. We got to drive breakevens down because we're in a commodity business. We can never forget about that. We've got to apply base business excellence to everything that we do. So we got to drive value out of these assets. We got to work them better. I'll give you and Eimear talked earlier about bringing all of our shale businesses together. As you look now at what we're doing with, the Permian, the DJ, the Bakken, and Argentina, all as part of one organization. And I see people, practices, technology, standards being shared across those businesses, we're steadily driving the kind of improvement that Eimear was addressing in her response to Sam across that entire portfolio. And so we've consciously positioned the company as you say. To have the resilience that I talked about. I said we're bigger, better, and more resilient than ever. That means we can ride through the cycles in even better position than we could in the past. And we've got you know, a balance sheet that provides ballast if you get into a long cycle. And, you know, we've got this track record of continually raising the dividend, steadily buying shares back through the cycle, and being able to reinvest in the business to strengthen it over time. And that's the playbook going forward. Jake Spiering: Thank you, Steve. Operator: We'll take our next question from Biraj Borkhataria with RBC. Biraj Borkhataria: Hi, thanks for taking my question. Just a follow-up on portfolio. Been touched on a couple of times, but we've seen a bunch of headlines on you maybe looking to sign deals in various countries. I was just wondering is this a concerted step up in your efforts or is this largely initiated by resource-rich countries and reverse inquiry some perspective there would be helpful. And one of the things just to note on is your portfolio has become more concentrated over time. Which is good and bad depending on the situation. So I was just wondering if that part of your thinking is looking to diversify and how you're thinking about the portfolio there. Thank you. Michael K. Wirth: Yeah, Biraj. So look, business development is part and parcel of what we do every day, week, month, and year. There are times you're in a pretty sparse environment in terms of opportunity, and there's times when it's more target-rich. What I would say is and this tends to kinda work on a long cycle sometimes. What we see today are more attractive opportunities, frankly. Than I think we've seen in the past. And I spoke to The Middle East, so I won't repeat that. But you know, we do see a lot of interest in that part of the world and it's reflected in these more competitive fiscal terms. And so I don't think we've necessarily changed our appetite or our level of diligence and activity in the BD environment. We just see a more attractive suite of opportunities out there. We'll continue to be very selective and pick and choose. I hear your comment about portfolio high grading and concentration, if you will, at the core, you know, we run big things big. We like long large positions that have lots of running room. We like to apply technology and base business excellence to drive value through those assets. When you're in a position with a lot of smaller assets spread all over the world, your safety exposure, you've got a lot more surface area on safety, environmental issues, compliance issues. You just go down the list. So you deploy a lot of your great people to manage those things across assets that can be small and out there kind of in the tail of a portfolio having large positions where you can put your best people to work on assets that really matter is something that I believe is important. And so I recognize you could get too concentrated. I don't believe that we are. And as I mentioned earlier, we're a little underweight in The Middle East, which is an area we wouldn't mind having some more exposure if we can find it in a competitive financial standpoint. Jake Spiering: Thank you, Biraj. Operator: We'll take our next question from Manav Gupta with UBS. Manav Gupta: Good afternoon. You have a very strong refining portfolio, and there are two tailwinds we see to that refining portfolio. One is your competitor closing capacity in California, leaving you with one of the biggest footprints out there. Above mid-cycle margins. And second is the possibility of using some of those Venezuela and heavy sour barrels in your refining systems, the Gulf Coast and other places. Can you talk a little bit about those two possible tailwinds to your refining margins? Thank you. Michael K. Wirth: Yeah, Manav. Thanks for bringing up something near and dear to my heart, the downstream business where I spent a lot of my career. First off, on where you ended on Venezuelan crude, we've been bringing about 50,000 barrels a day, give or take, into our Pascagoula, Mississippi refinery on the Gulf Coast. We can take another 100 barrels a day into our system, both at Pascagoula and on the West Coast where we've got coking capacity at El Segundo. So I think you should expect to see us assuming it competes, against alternatives, to be running more Venezuelan crude in our system. Over time. In California, it's an interesting situation. We have a very strong downstream position there. We've got scale. We've got complexity in terms of conversion capacity. We've got flexible crude sourcing, advanced logistics, a very strong retail brand to integrate the business. And so we're as competitive as anybody, and I would argue advantage really versus the rest of the competitors in California. You're seeing some refineries close. That is going to take capacity out of the system. And, already, you know, we've got a market there that is geographically and logistically isolated. So isolated by specification as well. And as a result, California pays higher fuel prices than the rest of the country. By simple market forces being at work there. We've seen decades of what, in my opinion, has been, you know, poor energy policy making that has made it more difficult to invest. The irony is we have places in the world like Venezuela that are trying to become more attractive to investments as, places like California enact policies to become less attractive to investment. All of that is unfortunate as someone who spent a lot of time in that state, but it highlights the need, for policy that enables investments and, and for, competitive terms and regulatory environment. And so we'll see how things play out in California over time. Jake Spiering: Thank you, Manav. Operator: We'll take our next question from Alastair Syme with Citi. Alastair Syme: Thanks very much. Reserve replacement this year obviously benefits from Hess, but you'd also take on the new production. And, you know, that means reserve life has dropped again. And it's now a lot lower than it was five to six years ago. You know, the question is how do you think about the suitability of this metric to your business and really as a guide for investors in your business? Thank you. Eimear Bonner: Hey, Alastair. I'll take this one. Yes. I mean, triple R, our reserve replacement ratio, in a business that has depletion is an important metric. It's not the only metric that we look at when we think about the depth of our inventory or the quality of the portfolio. And last year, in addition to the triple R that was associated with the inorganic growth you know, with closing Hess and bringing Guyana and back into the portfolio. They're also, you know, some of that did come from organic ads as well, so extensions, discoveries, and project sanctions. So it's a blend it's a blend of both. Look. With triple R, it can be lumpy. So some years, you know, you can get a kind of a flurry of things happening at one time. So what we look at is we look at the one year, but we also look at the longer-term trends as well. We look at the competitive, metrics too. And, you know, when we take all of that into consideration, we had a great year in 2025 on triple R, and we lead the peer group in both five and ten year. Thanks for the question. Operator: Thank you. We'll take our next question from Jean Ann Salisbury with Bank of America. Jean Ann Salisbury: Hi, good morning. You all had said at the Investor Day that you had started to test the chemical surfactants in other basins outside of the Permian. Have you gotten any early results back from the DJ or Bakken? And anticipate that it's going to work as well there? Eimear Bonner: Yeah. Thanks. I'll take this one. So we've been primarily focused on, Permian, and in fact, we've increased the treatments from about 40% of the new wells being treated at the first half of 2025 to, almost 85% will be treated this year, and we're striving to 100% in 2027. So it has been more of a focus, in the Permian, and, I just point out we're testing our proprietary chemical technology, but we're also testing the combination of that with other commercially available chemicals. So cocktails as such, we're trying out different things depending on the development area. We showed in Investor Day some of our results. What I'd say is we're now realizing 20% improvement in ten-month cumulative recovery on the new wells. So we have even more information than what we shared and said. So we're really excited and we expect that's at least a 10% recovery uplift when we think about it over the full life of the well. What we've also learned is we can apply these technologies not only to the new wells, but the existing wells. And what we've seen in almost 300 of the treatments that we've done in existing wells that we've declined by five to 8%. So all in all, very encouraging. The programs to scale and other parts are underway, though. We don't have results that we can share with you today. We did do some treatments in Bakken in the fourth quarter. We expect to see some of that soon. We have pilots underway in the DJ as well. And so we'll share the results. I mean, we publish the results. They're verifiable. We give you the paper references, so that you can see for yourself. But we will share all of that in due course. But we're really excited. And what I would also say, this is one technology program amongst a set of programs that's really focusing on doubling shale and type recovery. We've got a stimulation program that it's very deep. We've also got, an effort to leverage the unmatched data position we have around our shale and tight wells using AI to clean insights into how to design wells, develop wells, and increase recovery. So very comprehensive. We anticipate we'll have some results for you this year, but right now, we're just focused on getting the treatments out to those other shale and tight basins. Jake Spiering: Thank you, Jean Ann. Operator: We'll take our next question from Betty Jiang with Barclays. Betty Jiang: Good morning. This is a good follow-up to Jean's question. Wanna ask about the Bakken specifically since you've been there for a couple of quarters now. How is it performing relative to your expectations with the cross-learning between the two teams? And how do you think about the Bakken position overall today? Michael K. Wirth: Yeah. Thanks. Thanks, Betty. Look, we're pleased with the Bakken. We're applying best practices as Eimear mentioned, from other parts of our portfolio. We're looking at things that Hess had been doing in the Bakken to apply those in the DJ, the Permian, or in Argentina. We've already optimized our development program to reduce capital spending better utilize existing infrastructure, maximize value. We've moved from four rigs to three with a similar drilling output. We've optimized the workover fleet, renegotiated some of the key supplier contracts, working on advanced chemicals with some optimism. We're implementing long lateral development in 60% of the wells this year and up to 90% in 2027. So driving value there, we're gonna you know, Hess had a target, and we will hold that to, you know, level it out around 200,000 barrels a day plus or minus and really focus on cash flow. So similar to the way you've heard us talk about the DJ and the Permian, we think we can drive a lot of asset productivity efficiency technology and free cash flow growth in this asset as well. Operator: Thank you. We'll take our next question from Geoff Jay with Daniel Energy Partners. Geoff Jay: Hi, guys. I was just really struck by the margin improvement sequentially in US upstream. And I know there's a lot of moving parts, but it looks like realizations were down over $3 on a BOE basis, but, you know, costs you know, the margin was actually up. And I guess I'm wondering if there's a way you can help me understand how much of that are those structural cost savings or and optimization efforts you guys are doing and kind of what the pathway for that looks like going forward over the next year or so. Michael K. Wirth: Yeah, Geoff. I'd point to a couple of things. Number one, you know, we've been bringing on new production in the Gulf of America. These are high-margin barrels. And so when you bring that into the mix, you start to see the margin expand. Number two, as we've moved to plateau in the Permian, and I also mentioned the DJ in the Bakken. That's 1,600,000 barrels a day. As you start to drive efficiency and productivity and technology across that kind of a production base, you can see a real impact of that. The third contributor then are some of these structural reductions that we're making. In our organization, in a more efficient support of people, to these businesses, consolidating all of our shale assets into one organization. So I'd say there are multiple levers there. But your broader point is one, that I think is important. I mentioned earlier that, you know, we're in a relatively low grow it's a growth business. No doubt about it. But the band for energy globally grows gradually. We need to focus not only on growing volumes in order to meet that demand, we've got to continually work on expanding margins. And that's your value chain optimization. That's through all these other things that I just talked about. And so margin expansion is something that in my background in the downstream, we worked hard to expand margins through things we can control. You can do that in the upstream too. I've got we've got people focused on that. And we're seeing the results as you point out. Jake Spiering: Thanks, Geoff. Operator: Thank you. We'll take our next question from Bob Brackett with Bernstein Research. Bob Brackett: Good morning. A follow-up around Venezuela. You mentioned bringing Venezuela heavy into Gulf Coast refineries and having some capacity on the West Coast. Do you have a sense of how much heavy from Venezuela could be absorbed by The US without impacting heavy light dips or without backing up Canadian heavy? Michael K. Wirth: You know, Bob, good analysts do great work on that. Markets are wonderful things. And what's gonna happen as you bring more of these barrels in, as you say, you're gonna kinda back out what's currently feeding the system. They're gonna redistribute around the world and kind of a new equilibrium will establish. And light heavies will reflect that. Flows will reflect that. I don't have a simple rule of thumb I can give you or a kind of a simple way to describe that. I'm pretty sure you can get down into the details and model that better than I'm gonna be able to describe it to you. But you're right. It's gonna shift these things around. Eimear Bonner: Thank you. We'll take our next question from Phillip Jungwirth with BMO. Phillip Jungwirth: Thanks. Good morning. On chemicals, you made no secret about wanting to get bigger in this area. Obviously, you need a willing buyer and seller price that works, plus it's tough to do deals at the bottom of the cycle. But the question is, how do you view the benefits to Chevron of owning more of CPChem? Are there things you could do differently whether versus the current JV structure, whether it's operational or strategic? And are there other avenues to get larger in pet chems beyond this? Michael K. Wirth: Yeah. So look, CPChem is a well-run company. And wanna give them full credit. And it's been a well-run company for a long time. We've been very pleased with our investment in that company. We've been pleased with our relationship with our partner and it's been a good vehicle for us. We think the long-term outlook for chemicals is positive. We're in a tough part of the cycle right now. But with the growing middle class and the growing global population, the products CPChem needs are increasingly going to be in demand around the world. We got a couple of projects underway that will be highly competitive when they come on next year. We'll see how this cycle plays out. I think it's still got some time to go. We would like more exposure to the sector. But, you know, as you say, you gotta have two people that want to do a deal. Are there other ways we could do things, you Yes. We can look at things. I'd remind you, we also have a very large aromatics position in North Asia at GS Caltex. One of the largest aromatics plants on the earth. And so we'll look for the right ways to increase our exposure to petrochemicals. Over time. Jake Spiering: Thank you. Thank you, Phil. Operator: Thank you. We'll take our next question from Paul Sankey with Sankey Research. Paul Sankey: Morning, Mike, good to hear that you're not modeling the heavy lights spread constantly. Mike, if I could ask you a couple of specifics. On Kazakhstan, which you've already referenced, but was the power outage what caused that? Was that just an upset? And secondly, the specifics of the loading was that owing to military activity, I guess? Michael K. Wirth: Yes. So look, the investigation is ongoing on the power outage and I don't want to speculate on it. The team is gathering new information each day. We've got our subject matter experts from in-country, from outside the country. We've got OEMs from all the various vendors that we work with. Involved in this, and they're making good progress. But I'm not gonna comment on it at all. I think it's a mechanical issue, I can say vast. But beyond that, I don't want to say anything more. It's not a sabotage or cyber or anything like that. On the loading birth, it's been well publicized. You know, one there's three offshore single point moorings at the Nova Resisk Terminal or offshore at Nova Resisk. One of those was out for maintenance. Two were in service. One of those two was hit by a submarine drone back in December as part of the military activity in the Black Sea. So that's what took CPC down to one loading berth. It is you know, we're back up to two loading births now, and there's a third one that is slated for some big maintenance work, and we'll be back later this year. Historically, the Caspian pipeline and that terminal have been very, very reliable. And I think if you look at it in the fullness of time, the uptime and the reliability record has been very good. Notwithstanding that, when it's you know, when you're pinched back like that, it's frustrating, and a lot of people have been working very hard at TCO and all the shareholders at CPC to address these issues. Jake Spiering: Thank you, Paul. Operator: Thank you. We will take our final question from Jason Gabelman with TD Cowen. Jason Gabelman: Yes. Hey, thanks for taking my question. I wanted to ask about the balance sheet as it relates to M and A. In the past, funded acquisitions primarily through shares, and there are some assets on the market in Kazakhstan that can make sense to acquire though it seems like maybe that acquisition would need to be funded by cash instead of stock. So with that in mind and maybe in a broader sense, how do you view using cash to fund acquisitions, you know, not of the Hess size, but of some of a smaller size like Reggie and Noble. Versus using equity given the current balance sheet. And kind of related to that, I noted that, on the front of the earnings release, you put debt to cash flow instead of, net debt to cap. It looks like that's maybe a preferred debt metric. Is that so? And if so, why the change? Thanks. Michael K. Wirth: Yeah. Jason, let me talk about transactions, and I'll let Eimear talk about ratios and metrics. When we do a deal, you're negotiating with a counterparty. And the consideration is part of the negotiation. And there are times when your counterparty prefers cash. There's times when they prefer equity. There's times when they may want a mix. And so that's a matter of negotiation. On large-scale M and A in our sector, where you're gonna have a long time between deal signing and close. I e, a deal we just closed after a pretty long cycle. Using equity hedges commodity price risk on both sides of the transaction. And if you enter into a deal on one commodity price environment and you close it in another and you've got a lot of cash in the deal, you can find out that you know, you find yourself where one party feels like the deal got a lot better for them and the other feels like it got a lot worse. And so, equity and transactions like that tend to be preferred by both counterparties because the way to hedge out some of the commodity price risk. Smaller deals that close faster and are of a different nature, you can find cash is preferable. And so we'll work with whatever consideration makes sense in a negotiation. We're flexible, and, you know, we've bought things with cash over the last many years, and we've done equity deals. So it really depends on circumstances. Eimear, do you want to talk about metrics, debtors? There's a number of metrics out there to look at the debt. Ratios. And so what we've done here is we've just moved towards what our rating agencies look at and what, many of you look at in terms of. So we're just trying to be consistent. I mean, we still look at net debt ratio, but overall, the message is our balance sheet is in really good shape, and we're in a position of strength. Thanks for the question. I would like to thank everyone for your time today. We appreciate your interest in Chevron and your participation on today's call. Please stay safe and healthy. Katie, back to you. Operator: Thank you. This concludes Chevron's Fourth Quarter 2025 Earnings Conference Call. You may now disconnect.
Operator: Hello, and welcome to the LyondellBasell Teleconference. At the request of LyondellBasell, this conference is being recorded for instant replay purposes. [Operator Instructions] I would now like to turn the call over to Mr. David Kinney, Head of Investor Relations. Sir, you may begin. David Kinney: Thank you, operator. Before we begin the discussion, I would like to point out that a slide presentation accompanies today's call and is available on our website at investors.lyondellbasell.com. Today, we will be discussing our business results while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are also available on our Investor Relations website. Comments made on this call will be in regard to our underlying business results using non-GAAP financial measures, such as EBITDA and earnings per share, excluding identified items. Additional documents on our Investor website provide reconciliations of non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1 p.m. Eastern Time today until March 2 by calling (877) 660-6853 in the United States and (201) 612-7415 outside the United States. The access code for both numbers is 13746215. Joining today's call will be Peter Vanacker, LyondellBasell's Chief Executive Officer; our CFO, Augustine Izquierdo; Kim Foley, our Executive Vice President of Global Olefins and Polyolefins, Aaron Ledet, our EVP of Intermediates and Derivatives; and Torkel Rhenman, our EVP of Advanced Polymer Solutions. During today's call, we will focus on fourth quarter and full year 2025 results and progress on our strategic initiatives. We will also discuss current market dynamics and our near-term outlook. With that being said, I would now like to turn the call over to Peter. Peter Z. Vanacker: Thank you, Dave, and welcome to all of you. We appreciate you joining us today as we discuss our fourth quarter and full year 2025 results. I am proud of our people and how they continue to navigate cycle in 2025, while maintaining focus on our long-term strategy, despite some of the most challenging market conditions I have seen in my career. . The team delivered exceptional results in our cash improvement plan, while keeping safe and reliable operations at the center of everything we do. So with that in mind, let's begin, as we always do with our safety results on Slide 3. LyondellBasell delivered exceptional safety performance in 2025. Our total recordable incident rate reached a historic low, slightly surpassing even our record-setting performance in 2022, making 2025 the safest year in our company's history. These results are especially meaningful given the significant volume of maintenance and turnaround activity we executed across our sites in 2025 in Europe and U.S. Despite this elevated activity, our teams demonstrated operational excellence and an unwavering commitment to safety, even under challenging conditions. Safety remains our top priority. This consistent industry-leading safety performance reflects the discipline and care our employees and contractors bring to every aspect of our operations. I want to thank everyone across the organization for their dedication in keeping our colleagues and communities safe. Now let's turn to Slide 4. As we navigate one-off, if not the longest long term in our industry, LyondellBasell continues to execute on our 3-pillar strategy in a way that creates and protects value even when this means adjusting the timing for implementing our plans. In our first strategic pillar, we continue to grow and upgrade the core. In 2025, we prioritized safe and reliable operations. We advanced our portfolio transformation with material progress on the divestment of 4 European assets which is on track for completion in the second quarter of 2026. We also moved forward on strengthening our cost advantage position in the Middle East, with a new allocation for cost-advantaged feedstocks in Saudi Arabia. In our second pillar, we're building a profitable circle and low carbon solutions business. Construction on MoReTec-1 is progressing well and is on track for a 2027 startup. We're also advocating for supportive policy frameworks which will enable the successful and profitable transformation of our industry while we executed on low-cost and no-cost energy efficiency initiatives across our sites. In our third pillar, we're stepping up performance and culture. Our team is laser-focused on value and cash generation. I'm pleased to report that the value enhancement program exceeded our original target and achieved $1.1 billion of recurring annual EBITDA in 2025. This program has been a critical enabler of our cash improvement and cost discipline efforts, helping offset inflation, improve reliability and fund profitable growth. Building on this momentum, we are extending the value enhancement program and targeting $1.5 billion of recurring annual EBITDA by 2028. Importantly, these recurring earnings are based on mid-cycle margins and operating rates. We expect the benefits of the value enhancement program would become more prominent once volumes and margins recover from this prolonged downturn. Given the current market environment, we have focused our investments on the immediately profitable projects aligned with our long-term commitments, and we are reviewing the timing of achieving certain 2030 sustainability goals. We have also materially reduced our capital expenditure plans for circular solutions and prioritized markets that provides supportive regulation and resilient proven demand such as Europe. We will update the market on our progress over the coming months, including the April publication of our 2025 sustainability reports. Even as we accelerate select initiatives and adapt the timing of others, our strategic priorities remain intact. Our disciplined execution positions us to capture substantial value once the cycle turns, and we remain confident in our ability to deliver sustainable growth for our stakeholders. Let's turn to Slide 5 and take a moment to reflect on where LYB in the industry or in the current cycle. 2025 was another exceptionally challenging year with industry margins remaining deeply depressed across all of our core businesses. Industry margins were approximately 45% below historical averages, even worse than the already difficult conditions we saw in 2024. In North America, Polyolefins margins reached their lowest levels in more than a decade. This margin erosion has weighed heavily on LYB and the entire sector. Several factors are pressuring margins. These include global trade disruptions, low demand for durable goods, a lower oil-to-gas ratio, ongoing lower capacity additions and in Europe, increased competition from imports and structurally higher energy costs. Even under these conditions, LyondellBasell continues to generate positive free cash flow at the bottom of the cycle. While the environment remains tough, the market is responding with an increasing rate of capacity rationalization, which is accelerating the rebalancing of supply and demand. Once margins begin to normalize, LYB is well positioned to capture significant upside supported by our low-cost positions, world-class technologies and a disciplined approach to generating value and cash. Let's now turn to Slide 6 to discuss our 2025 full year highlights. Despite this backdrop of weak margins, our teams remained disciplined and focused on the actions within our control. We generated $2.3 billion of cash from operations during the year. This performance reflects strong working capital discipline, focused cost management and our ability to operate safely and reliably through a prolonged industry downturn. Our excellent cash conversion ratio of 95% demonstrates the resilience of our operating model and the additional focus provided by the cash improvement plan, even in an environment of compressed spreads. Full year earnings were $1.70 per diluted share and EBITDA totaled $2.5 billion. Throughout the year, we remain focused on maintaining financial flexibility, prioritizing safe and reliable operations and low-cost investments in VEP projects while preserving the ability to pursue selective investments in high-value growth once cash flows improve. Now we will continue to maintain strong capital discipline to ensure we are making the right decisions for the long-term strength of our company and all stakeholders. Now with that, I'll turn it over to Augustin to walk through our 2025 achievements in the cash improvement plan. Agustin Izquierdo: Absolutely, Peter, and good morning again, everyone. Let's continue with Slide 7. Our disciplined execution throughout 2025 enabled us to surpass our initial targets for the cash improvement plan. We set a goal to conserve $600 million of cash relative to our 2025 plan, and we exceeded that goal by roughly $200 million to achieve $800 million. This outperformance was driven by a $400 million reduction in working capital relative to our 2025 plan. We also reduced our global workforce by 7% or approximately 1,350 employees to the lowest levels the company has seen since 2018. Capital spending remained disciplined as we took advantage of opportunities to realign project schedules across the portfolio. While we achieved our capital reduction goals on an accrued basis, cash realization lagged due to the timing of payments. Our teams executed on these priorities, while maintaining focus on safe and reliable operations, reinforcing the culture of value creation we have been building over the past several years. Looking ahead, we expect to deliver an additional $500 million of incremental cash in 2026 relative to 2025 actuals. This increases the cumulative target for our cash improvement plan from $1.1 billion to $1.3 billion through the end of 2026. We are not considering any potential benefits from our European asset sale in these numbers. This higher target reflects not only the strong progress we delivered in 2025, but also cost efficiencies we expect to achieve in 2026 and the lower capital expenditure plans, which we have already announced. These efforts strengthen our ability to generate cash through the bottom of the cycle, while protecting our financial flexibility and liquidity. Moving on to Slide 8, I will review the details of our capital allocation. Maintaining an investment-grade balance sheet remains foundational to our capital allocation strategy. During 2025, we generated $2.3 billion from operating activities, supported by strong working capital execution, which released over $1 billion in working capital during the fourth quarter alone. This strong performance enabled us to sustain excellent cash conversion, even at the bottom of the cycle. We also took proactive steps to preserve liquidity, including issuing $1.5 billion in bonds to help address 2026 and 2027 maturities. As a result, we ended the year with $3.4 billion of cash and short-term investments and $8.1 billion of available liquidity. Throughout the year, we prioritized safe and reliable operations while advancing strategic growth projects like MoReTec-1 and low to no cost projects in the value enhancement program while appropriately realigning other growth investments in response to current market conditions. As markets recover, we will be ready to advance an attractive portfolio of opportunities, including Flex-2 to balance olefin production, MoReTec-2 to expand our circularity capabilities at the former Houston refinery site and cost advantaged investments in the Middle East. In addition, the positive impact from completed VEP projects is expected to grow when sector margins and operating rates recover, and we continue to provide cash returns to shareholders, returning $2 billion in the form of dividends and share repurchases during 2025. Our capital allocation strategy aims to preserve flexibility while positioning LyondellBasell to unlock value as industry conditions improve. On Slide 9, we highlight the cash performance from our business during 2025. One of the strongest indicators of our resilience is our ability to consistently generate cash from operations, even at the bottom of the cycle. In 2025, LyondellBasell delivered $2.3 billion of cash from operating activities. Our cash conversion ratio remained exceptionally strong at 95%, well above our long-term target of 80%. We achieved this level of conversion through strong cost control across all segments, tightly managing receivables and inventories, while facing maintenance where appropriate to help ensure that earnings efficiently translated into cash even with lower operating rates. This consistent cash performance positions us well to fund essential investments in maintenance and advanced critical projects, while remaining ready to accelerate strategic value creation once margin begins to recover. Now let's turn to Slide 10 for an overview of our fourth quarter segment results. In total, our business delivered $417 million of EBITDA during the fourth quarter. Across most segments, we saw the typical year and seasonal pressure on volumes, coupled with elevated costs for feedstocks and energy. Maintenance downtime contributed to lower operating rates in both our U.S. and European operations. Oxyfuels performance softened sequentially as margins trended downward from unusually strong levels toward the end of the third quarter, once industry outages eased and gasoline blend stock premiums normalized to typical winter levels. The fourth quarter included identified items of $61 million net of tax, primarily associated with closure costs for the Dutch joint venture and the APS Specialty Powders business. Across the portfolio, noncash LIFO inventory valuation charges reduced fourth quarter results. These charges were partially offset by a reduction in bonus compensation accruals that benefited fourth quarter results. The net amount was quarterly impact of $52 million. As a reminder, our fourth quarter LIFO changes reflect movements in inventory valuation over the full year and are not necessarily linked to fourth quarter valuations. Before we review our segment level results in detail, let me discuss our capital expenditure plans for 2026. As we've previously announced, we are deferring some growth investments until later in the decade given the difficult operating environment. For 2026, we expect our CapEx will be approximately $1.2 billion. Our 2026 capital plan includes approximately $400 million for profitable growth and $800 million of sustaining investments. The reduced capital plan prioritizes safe and reliable operations and the ongoing construction of MoReTec-1. We expect our 2026 effective tax rate will be approximately 10% with a cash tax rate approximately 10 percentage points higher than the effective tax rate. We have provided additional 2026 modeling information in the appendix to this slide deck describing the expected impacts from major maintenance and other useful financial metrics. With that overview, I will turn the call over to Kim. Kimberly Foley: Thank you, Augustin. Let's move to Slide 11 and discuss the performance of the Olefins and Polyolefins Americas segment. Fourth quarter EBITDA for the segment was $164 million, down from the prior quarter. The sequential decline was primarily driven by higher feedstock costs and lower polyethylene margins as well as planned and unplanned maintenance across several sites. . In olefins, ethylene margins weakened as ethane and natural gas prices increased coupled with lower ethylene and propylene prices. In polyethylene planned and unplanned maintenance across several facilities and seasonally lower domestic demand contributed to lower volumes and pressured margins sequentially. Industry inventories fell roughly 3 days or 500 million pounds as customers continue to draw down stocks ahead of year-end. Polypropylene continues to face challenges with subdued demand and weak margins. During the quarter, we successfully completed the turnaround at our Matagorda polyethylene plant and implemented reliability improvements at our Hyperzone plant. These actions strengthened our asset performance and position us to capture value as demand returns. Our fourth quarter operating rate for the segment was approximately 75%, with our crackers operating at approximately 90%. During the first quarter, we expect tight year-end inventories reduced supply due to winter storm Fern and stronger seasonal demand will all be supportive of our polyethylene price increase initiatives in the market. We expect to operate our O&P Americas assets at an average rate of approximately 85% in line with demand. Now let's turn to Slide 12 and review the performance of our Olefins and Polyolefins Europe, Asia and International segment. Fourth quarter EBITDA was a loss of $61 million. Seasonally lower prices and higher levels of planned and unplanned maintenance pressured profitability. In Olefins, volumes were significantly impacted by weaker demand, year-end inventory control measures and maintenance events at several of our sites. Polyolefins markets in Europe continue to face soft demand driven by increased competition from low-cost imports and ongoing destocking across the value chain. As a result, polyolefin margins remain under significant pressure and volumes were seasonally lowered. In the fourth quarter, we proactively aligned our inventories with market demand through targeted rate reductions. These actions helped reduce our working capital and generated positive cash flow from this segment even in a highly challenging environment. Our teams executed safely and deliberately to provide a reliable supply of products for our customers while supporting our balance sheet. We continue to make steady progress on the planned divestiture of our 4 European assets. Regulatory reviews, work council consultations and transition plans are all advancing as expected, and we remain on track to complete the transaction in the second quarter of 2026. This is a significant milestone in reshaping the regional footprint of our global O&P portfolio. As we move into 2026, our O&P EAI segment has no major turnaround scheduled for the coming year and expect improved volumes with lower maintenance activities. We expect to operate our European assets at a rate of 75% during the first quarter. With that, I will turn it over to Aaron. Thank you, Kim. Aaron Ledet: Please turn to Slide 13 as we take a look at our Intermediates & Derivatives segment. Fourth quarter EBITDA was $205 million. The typical seasonal decline in Oxyfuels margins was delayed due to planned and unplanned industry outages that tightened supply early in the quarter and supported stronger blend premiums. Additionally, propylene glycol demand improved due to aircraft deicing demand, while acetyls results were negatively impacted by the turnaround. . During the quarter, the team completed the turnaround at our La Porte acetyls unit. This turnaround included key initiatives to begin converting our vinyl acetate monomer production to an innovative LYB catalyst system that improves margins and helps reduce our reliance on costly precious metal catalysts. The turnaround was completed on time, but we kept the asset down longer to help manage inventory levels. We began the start-up process in early January, and the asset has come back down due to cold weather. We expect the January downtime to impact first quarter EBITDA by approximately $20 million as seen in the modeling information in the appendix to our slides. To align with maintenance and softer year-end demand, we operated our IND assets at a rate of approximately 75% during the fourth quarter. As we began the first quarter, we expect to see positive trends in our [ PO&D ] business with additional glycol sales into the DIC market and capacity rationalizations in both Europe and the United States, improving LYB's market share. Acetyls volumes are expected to improve following the fourth quarter report turnaround and oxyfuels profitability should exhibit typical seasonal margin improvements towards the end of the quarter. Our plan is to operate our assets at approximately 85% during the quarter. With that, I will now turn the call over to Torkel. Torkel Rhenman: Thank you, Aaron. Now let's review the results of our Advanced Polymer Solutions segment on Slide 14. Fourth quarter EBITDA was $38 million. EPS volumes were lower due to typical fourth quarter seasonal demand patterns, including softer automotive production across all regions. Even with the softer backdrop, year-over-year APS delivered 55% higher EBITDA, along with substantial improvement in cash generation, reflecting meaningful progress in our commercial execution and cost discipline. I'm extremely proud of the progress the APS team is achieving in our transformation. Throughout 2025, we delivered substantial operational and financial improvements drove exceptional fixed cost discipline and strengthened customer centricity despite a challenging market. Looking ahead, we expect seasonal demand improvement across our key markets, and we will continue to regain market share with our renewed focus on customer centricity, reliable service and differentiated solutions. With that, I will return the call to Peter. Peter Z. Vanacker: Thanks, Torkel. I agree with you. The APS team is doing excellent work in managing their business turnarounds, despite all the market challenges. To close out on the segments, let's turn to Slide 15 and discuss the results for our technology business on behalf of Jim Seward. During the fourth quarter, the segment delivered solid results. Catalyst demand strengthened across key regions and revenue increased as a higher number of previously sold licenses, reached revenue recognition milestones. Together, these factors contributed to segment EBITDA of $80 million in the quarter. Looking ahead, we expect first quarter results for the Technology segment to trend lower, potentially approaching levels seen in the second quarter of 2025. While we anticipate a typical seasonal uplift in catalyst sales, licensing revenue is expected to decline as fewer revenue milestones are expected in the quarter. The substantially lower demand for licenses is an indication of the ongoing trends of reduced global investments in petrochemical capacity additions at the bottom of the cycle. Now let's turn to Slide 16 for our near-term market outlook. Following pronounced fourth quarter seasonality, we expect modest improvements as we move through the first quarter, and we're likely to consume some working capital as normal. In North America, we expect typical seasonal demand recovery. Additionally, our polyethylene price increase initiatives are supported by low industry inventories, while exports continue to play an essential role in balancing markets. In Europe, demand should also seasonally improve, although the impact of imports into the region continue to pressure pricing. Supportive regulatory frameworks for circularity along with the continued asset rationalizations in the region remain a helpful tailwind over the medium term. In Asia, near-term capacity additions continue to weigh on margins, while medium-term rationalization announcements are an encouraging trends that should eventually help to balance global supply. In the packaging sector, demand remained stable and driven by essentials. Consumer continue to be value focused, and we're seeing a sustained shift towards private label brands across both North America and Europe. In Building and Construction, sentiment remains cautious. Low interest rates should provide some support, but we expect the environment to remain soft in the near term. In the automotive sector, North America continues to reflect challenged affordability dynamics even as interest rates decline, while Europe is showing signs of stabilization. For oxyfuels, geopolitical uncertainty is expected to keep markets volatile. We continue to monitor supply developments closely. Overall, while macro conditions remain mixed, we expect modest sequential improvements from the seasonal lows of the fourth quarter. Our teams remain focused on execution, cost discipline and value-driven growth as markets gradually strengthen. Even in this challenging environment, I'm confident that LYB continues to be well positioned, and I'm proud of how our team continues to execute with discipline. Now with that, we're pleased to take your questions. Operator: [Operator Instructions] Our first question comes from the line of David Begleiter with Deutsche Bank. David Begleiter: Peter, just on the dividend, your yield is twice that of your closest peer, you trade at a full turn multiple discount on EBITDA to that peer. So investors aren't really giving you a credit for the higher yield. But why not just cut dividend, invest that cash into your project pipeline because investors do pay for growth and move on from there? Peter Z. Vanacker: Thanks, David. Of course, I mean that's the core question, very good question, I mean to start with. What you have seen what we have accomplished during the year 2025, yes, they're very difficult market environments, but the team delivered cash from ops of $2.3 billion in such a market environment. We overperformed on our cash improvement plan, $800 million. I give you a couple of data points. We're running the entire company at the end of 2025 with 18,700 people. That's a very lean organization that we have, and that's 1,350 people less than at the end of 2024. It doesn't mean, I mean that we don't continue to work on that as we announced also that we will continue to focus on our cash improvement plan during 2026, with a target of an additional $500 million. Of course, all that in the context of navigating the cycle. Needless to say, we've said it multiple times that our investment-grade balance sheet is the foundation of our capital allocation strategy. And of course, when we are focusing on our cash improvement plan, we will continue to prioritize, I mean, safe and reliable operations. I said it in the prepared remarks, this has been the safest year 2025, I mean, at LyondellBasell. So it's a clear evidence that we prioritize safe and reliable operations, continue to work also on our value enhancement program, but we focus on projects that have a no cost or low cost and immediate return on investments. It's clear that at the bottom of the cycle, we are evaluating the balance between cash returns to shareholders and growth investments, as you alluded to, and that in the context of a lower cash generation and, of course, also considering the metrics that are required for an investment-grade balance sheet. You know that we have delayed, I mean, certain growth investments, Flex 2, MoReTec-2, some other smaller growth initiatives. We continue to work on the projects that we have in Saudi Arabia, where we continue to get, I mean, quite a lot of support from the local authorities. And definitely also, the last thing that I want to say to that is we have, of course, regular robust conversations on our capital allocation strategy with our Board and decisions on whether we recalibrate the dividend to maintain our investment-grade metrics, they are decided by our Board, and they are regularly being reviewed during our scheduled Board meetings and the next one will take place in February Operator: Our next question comes from the line of Patrick Cunningham with Citi. Unknown Analyst: This is Alex on for Patrick. I had a question on your CapEx guide for $26. You're guiding about $1.2 billion. Now historically, Lyondell was around somewhere between $2 billion. So I'm just wondering if the reduced CapEx guide is a function of just recent asset sales or if there's a change in your maintenance CapEx or if the new $800 million on maintenance is the normal baseline for Lyondell? If you could help us understand your CapEx outlook for '26 and maybe the years beyond that, that would be helpful. Peter Z. Vanacker: Yes. Let me start with your question, Patrick. Thank you for your question. Indeed, I mean, $1.2 billion in 2026 is the CapEx that we have communicated that we are planning. And out of that, I mean, $0.8 billion in maintenance. Let me put that a little bit into the context. We've been investing in our company in growth, in reliability, in productivity, also through our value enhancement program, but also big investments like our PO/TBA facility that ran above nameplate capacity, as you know, very successfully above depreciation during the last years. So we have invested in growth. Also last year, Cash CapEx, $1.9 billion, accrued CapEx, $1.7 billion is well above, I mean, our depreciation level. So also here, in 2025, I mean, we have continued to invest in growth, reliability, safety and productivity. So in that context, when we revisited our plan for 2026, we came to the conclusion that in 2026, we can actually postpone a couple of turnarounds because of all the work that we have done already in '24 and '25. We could, of course, also limit the maintenance CapEx [ safety ] and maintenance CapEx for '26, I mean to that $800 million. And then the delta is a couple of the growth projects. But of course, important in that is our continued progress that we have on the MRT-1 investment in Cologne. Anything you want to add, Augustine. Agustin Izquierdo: Peter, that was a very comprehensive answer. I would say just, Alex, that the other point is also a fairly light year in terms of turnaround. We only have the turnaround on the Midwest land. Then we have also a smaller one for IND. And as Peter alluded, we have been very diligent on managing our maintenance CapEx. And this time, that's why we can achieve now this $800 million for maintenance CapEx, and as Pete mentioned, $400 million for growth projects. Peter Z. Vanacker: Just to be clear, I mean, normally, I mean, we have turnarounds, I'd say, in the environment of 3 to 4 per year. So we only will have, I mean, 2 in 2026. It doesn't mean that you can take, I mean $800 million as safety and maintenance CapEx and extrapolate for the foreseeable future. You know that we have $1.2 billion in the past in safety and maintenance CapEx. Once we have fully executed our European assessments, we expect that number to go down to something around, let's say, $1.1 billion. But you can always steer it a little bit, I mean, from 1 year to the other, just like we do in the cash improvement plan then for 2026 with $800 million Operator: Our next question comes from the line of Frank Mitsch with Fermium Research. Frank Mitsch: So you shut down the Houston refinery a year ago. And some may argue that things have changed with respect to the outlook in the midterm, given the events at the beginning of this year, in terms of Venezuela. And as you know, that Houston refinery was perfect for running [ Ven ] crude. I'm curious as to what your thoughts are. Obviously, this was something that you were looking at possibly doing with MoReTec, et cetera. But given that it's only been shut down a year, what might be the possibility that Lyondell would look to monetize that asset should some of the refiners look at, hey, the Ven crude becomes more plentiful down the line , that asset could be rather valuable. What are your thoughts there? Peter Z. Vanacker: A good question. I mean on the refinery in the context of what happened in Venezuela. I mean our plan with the refinery continues to be, as we explained before. Of course, we look at in the context of the cash improvement plan. You know that we have delayed, I mean, the investment in MRT-2. One thing that I want to highlight as well, remember, I mean, when we decided to shut down the refinery, we avoided CapEx of, I would easily say, I mean, $1.5 billion because we hadn't done a turnaround anymore on the refinery since, what, about 8 years in total. So in order to continue to run the refinery at that time, we would have taken the decision, of course, to do the turnaround, which would have been quite costly. Of course, I mean, the [ Holt ] refinery is not the only one in the United States that can take that kind of crude quality from Venezuela. There is quite a lot of refineries that can take that crude. So our plan, I mean, continues to be, as we have explained, I mean, transform, I mean, the refinery in the context, of course, from a time line perspective of the cash improvement plan. And as such, I mean we continue to remain very open in what we can do, I mean with the existing assets that we have there. Operator: Our next question comes from the line of Jeff Secoskus with JPMorgan. Unknown Analyst: The balance sheet was managed very, very well at the end of 2025 with your receivables and inventories really coming down. Do those need to be built back up in 2026? And what do you think your working capital benefit or use will be in 2026? Peter Z. Vanacker: Jeff, good question. I'm going to start with some comments and then hand over to Augustin. I heard you saying that was very well managed at the end of 2025. Thank you for your comments on that. But of course, I would like to point out that we managed it very well also during the last, I mean, 4 years. . If you look at our cash conversion since 2022, we have been consistently above 90%. And yes, I mean, 95% in 2025. I think that's fantastic work. You see the discipline in our organization, fantastic execution by our people. And it was not just, I mean, in Q4, again, in the cash improvement plan I alluded to that already before, partly because of our portfolio management partly before -- because of further streamlining our organizations we reduced, I mean, our headcount by 1,350, which is quite substantially if you take that from a 20,000 number approximately. It's quite an accomplishment that has been delivered by our people. Working capital also over revenue. If you look at it, I mean, and you exclude, I mean, the revenue of the refinery that we had historically, so apples-to-apples, I mean [indiscernible] trade working capital, running the entire company at somewhere between -- over the year between 12% and 13%, which also in my history, having worked in different companies is extremely low, especially if you also consider that we don't do any factoring. So with that, Augustin? Agustin Izquierdo: Yes. Thank you, Peter, for the answer. Jeff, so you're absolutely right. Actually, the working capital level on an absolute value is the lowest we've had since 2020. And again, I commend the teams really for the excellent work they did on managing working capital, especially here in the second half and most importantly during Q4. To your point, yes, we will have to rebuild some working capital as we go into 2026. . But this has all been factored now into our cash improvement plan and allows us -- we have enough offsets and initiatives in place to allow us to deliver the $1.3 billion cumulative in '25 and '26. But yes, you should see some moderate build as we go through the year in working capital terms. Peter Z. Vanacker: It would not be surprised, Jeff, I mean, just like what we said on the cash improvement plan, $600 million target for 2025, and we over-delivered that $800 million. That means that the entire team is, of course, very, very much focused in also finding ways and how can we overdeliver the $500 million in 2026. That's the way how we work. . Operator: Our next question comes from the line of Vincent Andrews with Morgan Stanley. Vincent Andrews: Just wondering if you could give us your assessment of the oxyfuels market for 2026. I know '25 had some peculiarities with another competitor asset startup or refinery startup as well as maybe some volatility negative in the oil market. But how would you assess your opportunity there in '26 versus 2025. Peter Z. Vanacker: Two points, and I will hand over. I mean, to Aaron. I mean, first point, you're right. I mean, Vincent, was quite volatile in 2026. But the second point I also want to make is that, if you look at average margins and you compare them historically, they were slightly above and you saw that in the one slide that we showed. So with that, Aaron? Aaron Ledet: Yes. Thanks, Peter, and thanks, Vincent, for the question. I think the short summary is that we are expecting Oxyfuels to normalize following a pretty volatile 2025 to your earlier comment, with typical seasonal improvements during the summertime. We're watching crude along the comments that you made as well, just all the geopolitical unrest that we've seen here in the first quarter. We've seen a lot of volatility in crude itself, whether it's Brent or WTI is up $8 a barrel over the month. So obviously, that's going to impact our profitability looking forward. We did start the year with pretty low inventories consistent across all of our businesses and with some of the freeze outages here in the U.S. Gulf Coast, it created a little bit of upward price movement, but demand does remain seasonally low here in the first quarter. Operator: Our next question comes from the line of Matthew Blair with TPH. Matthew Blair: Great. Could you talk a little bit more about the polypropylene market. is it safe to say that polypropylene is actually weaker than polyethylene due to higher exposure to areas like autos and construction. And over the next couple of years, are you more optimistic on recovery in polyethylene or polypropylene? Peter Z. Vanacker: Very good, Matthew, good question. I mean clearly, I mean, polypropylene, if you look at the different sectors and applications at polypropylene go in, which is, let's say, also for propylene oxide, a bit the same. It's more, I mean, dependent on demand in durable goods and how demand and durable goods is actually behaving if it is growing or not. Now let me go back a little bit in history. Everybody knows that in 2021, the demand for durable goods after the pandemic 2020 was exceptionally high. And since then, it has been quite weak, which is a quite long period that demand for durable goods has been weak. In addition to that, I mean, everybody sees and knows that the inflation rates are coming down, interest rates little by little, but they are coming down. Yes, consumer confidence is not yet up to the level that we would like to see. But if that leads, I mean, to consumer confidence also moving up, then one may expect that both for polypropylene and propylene oxide that demand would also recover. With that, let me hand over to Kim. Kimberly Foley: Okay. Yes. Peter has alluded to the demand side of the equation. I'll just make a couple of comments about the supply side. We've mentioned in other calls, and I'm sure you've heard from others, the polypropylene cost curve globally is pretty flat. So most players don't export. I say most. For example, North America doesn't export polypropylene, but the Middle East and China because China is so heavily oversupplied in polypropylene, they are exporting. And what you are seeing in the margin charts in the slides that we showed today is just that. We believe polypropylene is at the bottom based on the combination of oversupply and the demand factors that Peter alluded to. So as Peter alluded, as demand would come back. And as people are rationalizing, it could have to your question about which may bounce more, it may bounce higher initially. Peter Z. Vanacker: And you see quite some activities also going on in consolidation, rationalization, not just I mean of crackers, but of course, also linked to that, I mean, polypropylene. And I would even say probably more heavy weighted I mean to polypropylene today than it is to polyethylene. . Kimberly Foley: Agreed. Operator: Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: I'd appreciate your updated thoughts on the U.S. Gulf Coast market for polyethylene. So maybe for Kim, I love your thoughts on kind of the contract pricing opportunity as you see it. I know some of the consultants are inclined to give pretty good credit for price realizations. Maybe you could talk through what you would anticipate on a gross basis and also net of any changes in annual contract discounts this time of year. February pricing that may be on the table? And then maybe on the other side of the coin, ethane feed has been quite volatile, so on the back of natural gas. So would love your thoughts on how you see that flowing through on a unit margin basis. Kimberly Foley: Okay. Kevin, a lot of moving parts in that question. And let me just kind of talk through how I think about it. So if you think about the ACC data that many of us look at on the inventory side, second quarter of '25 probably was one of the high points with the 44 days right after liberation. You saw the industry kind of lower inventories in third quarter to [ 43.5 ]. Now while we don't have December data yet. November data shows for the fourth quarter down to [ 40 ]. So big pool in the fourth quarter. I would anticipate December probably even took that lower. So you're coming into the year on very, very low inventories in the industry. Number two, you had higher pricing in the fourth quarter. So on the upstream side, you had ethane that was higher, you had natural gas that was higher. So people were not making the profitability that they wanted to in the fourth quarter. Now here comes winter storm Fern, and you've seen the variability in ethane and natural gas price, and you've seen industry producers like ourselves proactively take down derivative units through the storm. Now that enabled an ease or seamless restart, but nonetheless, it took even more capacity off short term. So inventory or available inventory is very scarce. You also see export pricing increasing as we enter into the January time frame. And you're now starting to see downstream converters announcing price increases. So I think when you put all those factors together, the price initiatives that are out in the market today are very supported. Peter Z. Vanacker: Yes. Good answer, Kim. I mean, so you can clearly hear I mean that we are seeing lots of indicators that are supporting, I mean, our announced price increases, and we expect that integrated margins as a consequence, should go up. I mean demand has been very robust. Operator: Our next question comes from the line of Aleksey Yefremov with KeyBanc Capital Markets. Aleksey Yefremov: You have a good window into China and the local policy. What's your latest thinking in terms of anti-involution policies, what we would have -- any more specific news maybe in the next few quarters there? Has your thinking changed at all over the last 3 months? Peter Z. Vanacker: Thank you, Aleksey. It's a good question. I mean on China, mean a couple of points that I want to make. I mean, we've seen, I mean, in China that there has been also some price increases on a modest level, but there has been some price increases in January. And that probably also has to do, I mean, with the fact, I mean, there was some inventory depletion and growth, I mean, continue to be at around a 4% level for polyolefins. . When we look at the anti-involution, with our people that we have on the ground and all the relationships that we have in our technology business unit, there is a lot of movement. There is a lot of discussion. And we're waiting to see, of course, what the decision will be. But we believe, I mean, that because of all the discussions that are happening that there is a very diligent and very serious evaluation that is going on by the NDRC. So we expect that something will come out. Will it be in Q2 remains to be seen. But I mean, there is lots of pressure, I mean, behind it. And we hear, I mean, for example, criteria for asset rationalization, not at 300 kt for a cracker but 500 kt these kind of discussions. Another thing I want to point to is you see some other policies that are being put in place, like we heard, I mean, from a new naphtha consumption tax that is being put in place not small. I mean, for emerging domestic transactions, [ $300 per tonne ]. Yes, refundable, but it would have to be paid, first of all, upfront, which means, I mean, cash flow and especially, if you have nonintegrated players, nonintegrated ethylene cracker capacity in China is about [ 11 million tonnes ]. Remember that. So that's not -- it's not small. They would have to then pay upfront, I mean that new naphtha consumption tax. So what I want to say is there is a lot happening, I mean, in China that all points in the same direction. And that is making sure that there is also a rationalization going on in that market. I've had another look, I mean, also at the numbers that we presented on a global basis in terms of capacity rationalization. Remember the slide that we showed during the third quarter earnings results. At that time, we talked about a little bit more than [ 21 million tonnes ] of ethylene capacity rationalization, and that did not include the anti-involution. When we look at the further announcements, here and there, news on the ground, we're now looking more at a bit more than 23 million [ tonnes ] of capacity rationalization, again, ethylene capacity rationalization and still that does not include I mean, the anti-involution. Operator: Our next question comes from the line of Mike Sison with Wells Fargo. Michael Sison: In OP Americas, how much of that capacity do you export? And export margins have been noticeably kind of [ zippo ] or very low relative to domestic. What do you think needs to happen to get that part of those margins up over time? And should you reduce your exposure to export given it seems like it's more structurally impaired than the domestic profitability? Peter Z. Vanacker: Mike, historically, I mean, we always had, I mean, lesser exports. I mean, because your question mainly goes, I assume into polyethylene. We always have lesser exports because of the portfolio of products, I mean that we have that are more differentiated. So we are selling more in the domestic market as a consequence and therefore, lesser dependent on polyethylene exports. With that, Kim, anything you want to add? Kimberly Foley: Yes. I would just say, in general, I think we've typically said to the investment world that we're 10% to 15% lower than the industry on exports. So if you look at LIBs exports in '24 and '25, we were 34% and 38% versus an industry number of closer to like 48%. The other thing I would say is you asked kind of about pricing and how to make that a better margin. I think '25 is a very difficult year to look at export pricing and actually, I would even say domestic regional pricing. There were so many changes and thoughts around tariffs and supply chains were constantly changing. I think an upside to '26 is that tariffs normalize, supply chains will normalize and everybody will have an opportunity to have the best netback to their individual regions. Operator: Our next question comes from the line of Josh Spector with UBS. Joshua Spector: Just a quick one. I was wondering on the Olefins EAI, I know there are a number of shutdowns and outages, some outside of your control from a supplier perspective. How much of a detriment was that in the fourth quarter? And how much of that do you expect to come back in the first quarter? Kimberly Foley: So the olefins impact for EAI in the fourth quarter was $35 million. Operator: Our next question comes from the line of Hassan Ahmed with Alembic Global. Hassan Ahmed: Peter, I just wanted to get a little more granular about a couple of comments you made earlier about rationalizations. You talked about that [ 20 million tonne ] figure of rationalizations that you guys highlighted in your Q3 presentation going up to 23 million. And obviously, that's not including the Chinese anti-involution potential. I mean as I sort of sit there and run the numbers and try to sort of identify announced rationalizations where an actual facility, name facility, has been identified. The number comes up closer to around 10 million. And I know that obviously, the Koreans are talking about 2.5 million to 3.5 million. But again, some of the facilities have not been identified. So I guess, long-winded way of asking you, how comfortable are you with that [ 23 million tonne ] figure, clearly with some of the facilities not having been identified as yet. Peter Z. Vanacker: It's a good question, Hassan, and thanks for asking that question. I mean, first of all, I am comparing my baseline is 2020. Just to be clear on that, if -- to your questions on South Korea, I have nothing included in those numbers on closures to date since 2020 or announced closures. But it is, in my number as an anticipated closure of around, I mean, 3.7 million tonnes of ethylene in capacity. So the vast majority clearly continues to be in Europe, where we see closures to date of around 5 million tonnes announced closures on top of the 5 million tons of 2 million tonnes, and I have not included yet any anticipated closures on -- in the European region. But if you ask me, I think we're going to see more. I think we have not seen everything there may be more, I mean, to follow. There has been some closures, I mean, of course, also in China that maybe not a lot of people talk about since 2020, which adds up, I mean, to around 5 million tons. And there have been some closures in the meantime smaller number that have been announced. And as I said, I mean, anti-involution is not included in that. And then, of course, in Southeast Asia, there have been closures announced by our peers like in Singapore. So you need to add them up as well. It's about 3 million tonnes in Southeast Asia closures to date and then another 1 million tonnes of announced closures and then I haven't talked about Japan, but also in Japan, you already have closures that have been executed to date and then you also have announced closures. So in total, that adds up to about we've anticipated another 1.5 million tons. So I hope that helps you, Hassan. Operator: Thank you. Ladies and gentlemen that concludes our question-and-answer session. I'll turn the floor back to Mr. Vanacker for any final comments. Peter Z. Vanacker: Thank you again for all your excellent questions. And as I said in my prepared remarks, this is one of the most challenging and longest downturns in our industry. but we see clear evidence of reduced rates of capacity additions and rationalization of all their assets being implemented globally that should help, I mean, to accelerate recovery. Our LYB team has over delivered on our promises to control the controllables by outperforming in safety, operational excellence, our cash improvement plan and our value enhancement program during 2025. And that resulted in the fourth consecutive year delivering an industry-leading cash conversion that exceeded 90%. I want to thank, I mean, the global LYB team for delivering value and maximizing cash conversion during these challenging times while operating safely and reliably. This performance has convinced us to target another $500 million cash improvement in 2026 compared to 2025 and continue to progress on our value enhancement program by raising the bar to $1.5 billion of recurring annual EBITDA by 2028. We remain committed to our long-term strategy but have focused our investments on projects that are immediately profitable. Another way to look at this prolonged downturn is as follows: I mean, the longer we are at the bottom of the cycle, the closer we get back to an up cycle and LYB will be ready to capture value accordingly. I wish you all a great weekend, stay well and stay safe. Thank you. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day and thank you for standing by. Welcome to the First Hawaiian, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Haseyama, Investor Relations. Please go ahead. Kevin Haseyama: Thank you, Kevin, and thank you, everyone, for joining us as we review our financial results for the fourth quarter of 2025. With me today are Bob Harrison, Chairman, President and CEO; Jamie Moses, Chief Financial Officer; and Lee Nakamura, Chief Risk Officer. We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available for downloading and viewing on our website at fhb.com in the Investor Relations section. During today's call, we will be making forward-looking statements. So please refer to Slide 1 for our safe harbor statement. We may also discuss certain non-GAAP financial measures. The appendix to this presentation contains reconciliations of these non-GAAP financial measurements to the most directly comparable GAAP measurements. And now I'll turn the call over to Bob. Robert Harrison: Hello, everyone. Thank you for joining us today. I'll start with some local economic highlights. The state unemployment rate continued to fall and was at 2.2% in November compared to the national unemployment rate of 4.5%. Through November, total visitor arrivals were down 0.2% compared to last year, primarily due to fewer visitors from Canada. Japan remained a bright spot, up 2.8% on a year-to-date basis. However, year-to-date spending through November was $19.6 billion, up about 6% compared to the same period of last year. Housing market remains stable with the median single-family home price on Oahu in December was $1.1 million, up 4.3% from the prior year. The medium condo sales price on a long in December was $512,000, down 5.2% from last year. Turning to Slide 2. We had another strong quarter. Our NIM expanded Net interest income grew, expenses were well contained and credit quality remained strong. Our profitability measures remained solid with return on average tangible equity of 15.8% in the fourth quarter and 16.3% for the full year. The effective tax rate in the fourth quarter was 24.8%. This was due to the reversal of our previously cure tax benefit. We expect the effective tax rate to return to about 23.2% going forward. Turning to Slide 3. Balance sheet remains solid. We continue to be well capitalized with ample liquidity. We had good growth in C&I loans as well as retail and commercial deposits. During February, we repurchased about 1 million shares, which used the remaining $26 million of our $100 million purchase authorization for 2025. Our new stock repurchase authorization is for $250 million. And unlike prior authorization, the current authorization is not for a specific time frame. Turning to Slide 4. Total loans grew $183 million in the quarter or 5.2% on an annualized basis. We had good growth in C&I loans primarily due to draws on existing lines as well as the addition of a new auto dealer customer. The CRE growth and decline in construction was primarily due to a couple of construction deals that were converted from construction to CRE. Outside of those conversions, balances in both portfolios were relatively flat. Now I'll turn it over to Jamie. James Moses: Thanks, Bob. Turning to Slide 5. We saw good growth in retail and commercial deposits, while a lot of the public operating deposits that came in during the third quarter flowed out in the fourth quarter as we expected. Retail and commercial deposits increased $233 million, while public deposits declined by $447 million. That dynamic resulted in a net increase in deposits of $214 million in the fourth quarter. The total cost of deposits fell by 9 basis points to 1.29% and our noninterest-bearing deposit ratio was 32%. On Slide 6, Net interest income was $170.3 million, $1 million higher than the prior quarter. The NIM in the fourth quarter was 3.21%, up 2 basis points compared to the prior quarter. The increase in the margin was primarily driven by lower deposit costs and the full quarter benefit of the borrowing that matured in September, partially offset by lower loan yields. The exit NIM for the month of December was 3.21%. Turning to Slide 7. Noninterest income was $55.6 million. Noninterest expense in the fourth quarter was $125.1 million. And now I'll turn it over to Lea. Lea Nakamura: Thank you, Jamie. Moving to Slide 8. The bank continues to maintain its strong credit performance and healthy credit metrics. Credit risk remains low, stable and well within our expectations. Overall, we're not observing any broad signs of weakness across either the consumer or commercial books. Classified assets decreased by 7 basis points, while special mention assets increased by 16 basis points. Quarter-to-date net charge-offs were $5 million or 14 basis points of total loans and leases. Year-to-date net charge-offs were $16.3 million. Our annual net charge-off rate was 11 basis points, unchanged from the third quarter. Nonperforming assets and 90-day past due loans were 31 basis points of total loans and leases at the end of the fourth quarter, up 5 basis points from the prior quarter, primarily driven by a single relationship. Moving to Slide 9, we show our fourth quarter allowance for credit losses broken out by disclosure segments. The bank recorded a $7.7 million provision in the fourth quarter. The asset ACL increased by $3.2 million to $168.5 million with coverage increasing to 118 basis points of total loans and leases. We believe that we continue to be conservatively reserved and ready for a wide range of outcomes. And now I'll turn it back over to Bob. Robert Harrison: Thanks, Lea. Turning to Slide 10. We have summarized our current full year 2026 outlook for some of our key earnings drivers. Starting with loans, we expect full year loan growth to be 3% to 4% range. The growth will be driven primarily by CRE and C&I loans. We anticipate that the full year NIM will be in the 3.16% to 3.18% range. We continue to expect tailwinds from fixed asset repricing and with additional Fed rate cuts and a decreasing deposit beta will remain headwinds. We expect noninterest income to be stable and to come in at about $220 million for the year. And finally, we expect expenses to be about $520 million in 2026. That concludes our prepared remarks and now we'll be happy to take your questions. Operator: [Operator Instructions] Our first question comes from David Feaster with Raymond James. David Feaster: I wanted to start on the loan growth. It was really encouraging to see some of the trends that you guys had and especially to see the C&I growth. I was hoping to maybe just get some color on, I guess, first of all, how pipelines are shaping up? And how much of the growth in C&I was increasing utilization versus new relationship growth? Just kind of some of the underlying trends you're seeing there. And then just some commentary too, on mainland versus Hawaii as well. Robert Harrison: Sure. Great question. Thanks, David. This is Bob. So on the loan growth, when we looked at it, it really was more -- as far as what happened in the quarter. It wasn't quite what we thought it would be. We had some payoffs in the CRE portfolio that we anticipated to come in later, which is why we didn't quite hit the number we had talked about on the third quarter call. But having said that, it really was pretty broad-based in local, primarily in some mainland draws underlines and then a new dealer relationship helped out as well. We'll see more of that, I think, in the quarters to come. So as we look forward, we're really looking towards as far as the pipeline of multifamily is still there. We're very, very busy and. And of course, when you book those deals, it will take a while for them to fund, we're still a little bit outrunning the payoffs that happened in that gap period we talked about on the last call of SVB kind of slowing down production for a while a couple of years ago. So that's behind us mostly in the first half of the year, and we expect the second half of the year to start to see more normalized growth in the CRE on the Mainland. We are still seeing activity here in Hawaii, a good amount of the activity this past quarter in Q4 was Hawaii-based but not exclusively. Does that cover what you're thinking about? David Feaster: That's extremely helpful. And could you maybe talk about the -- payoffs and paydowns have been a real headwind in the industry. Could you maybe touch on what led to maybe some of the payoffs and paydowns coming sooner than expected? And as you think about your outlook that you guys have laid out for loan growth, does that contemplate a continuation of payoffs and pay downs? Or is that a risk that you all are concerned about? Just kind of curious your thoughts on that side. Robert Harrison: Sure. I think there's 2 pieces to that. The first piece are the payoffs coming sooner than we expected. They have been a bit this year. I think all the permanent lenders are just as hungry for assets as the banks are. And so they're coming in maybe a little bit earlier than normal, not like we saw a few years ago when they were coming in before properties were even completed construction. But maybe before full stabilization, you're seeing permanent lenders come in on some of those multifamily projects. So that's kind of a men up the calendar a bit but not really a big difference. The paydowns in the industry, as we talked about before, I think we're in that belly of the part of the curve that -- where deals didn't get done a couple of years ago, after the concerns about liquidity with SVB, First Republic, Signature, et cetera. So we think that should be kind of burning through in the first half of this year and the back half of the year, that should give but there is still a high desire for assets out there and a good quality assets, which are the ones we like to fund, people are looking for that. David Feaster: Okay. And then maybe just shifting to the side of the balance sheet. I mean core deposit for instance has been really good. It's not -- you already have a low cost of deposits and you're continuing to take it down further, A lot of the NIM expansion that we've seen has come from reduction in funding costs. I know your margin guide has, I think, 2 cuts in there. As you think about margin expansion going forward, is on the funding cost side and the back producing really the tailwind there. And just how is the to reducing deposit costs thus far. Like have you seen any attrition or much pushback as you work through that? Robert Harrison: So Dave, you kind of cut out there a little bit, but I'm going to answer the question as I think you asked it. And then you can let me know if I missed something for you. I think the margin guide reflects both an ability to continue to cut deposit rates when the Fed cuts as well as that fixed asset repricing that we continue to talk about, and we've seen those trends over time. We think the beta is probably going to be a little bit lower go forward than where we were before. So fourth quarter interest-bearing deposit beta around 35%. And we would anticipate with 2 rate cuts that the interest-bearing deposit beta on that somewhere between 30% and 35%. So less than where we've been, but still pretty healthy for now at least. And then on the fixed asset repricing side, we kind of summarize that for you. So inclusive of all of the paydowns in the securities portfolio as well as fixed rate cash flows coming out of the loan portfolio. We think that's about $400 million a quarter or so with about 150 basis point repricing accretion on that. So we -- all of those things suppose a particular set of loan growth and obviously the way that the pace and timing of Fed rate cuts will impact that as well. But yes, that's kind of where we're at on the NIM. Operator: Our next question comes from Andrew Terrell with Stephens. Andrew Terrell: Just to start and just to clarify, the $385 million of fixed cash flows, that's on a quarterly basis, so kind of checks with the -- I think we've talked about like $1.5 billion in the past on an annual basis? James Moses: Yes. That was the fourth quarter to be very specific, Andrew, Yes. Robert Harrison: We did put that in the deck. Clarify that was in the quarter and not some of the annual assumptions we had in there in the rest of that page. Thank you for clarifying. Andrew Terrell: Yes. No worries. Could you maybe help me just bifurcating that out a little bit? And I think we have a good sense of relative dollars on other side that you've given. But just -- I want to talk about maybe spread competition you're seeing for new assets today. How much in marginal pickup would you expect from securities cash flow versus where loans are running off versus where you're kind of able to reprice that today? Just we've heard a lot on competition recently from other banks, and I'm curious if you're seeing the same thing on new loan growth James Moses: Yes, I would say that there is some spread competition. We've definitely seen that. We still think it's 180, 200 basis points on the securities portfolio, and that's that's pretty fixed. That's pretty well known. And so again, that's about $600 million for the next year and then about $1 billion on the loan portfolio. So a little bit less than that, maybe 100 basis points, somewhere like 80, 100 basis points pickup on the loans versus the $200 million or so on the securities. Andrew Terrell: Yes. Okay. And then on the -- just on the full year loan growth guide of 3% to 4%. It sounds like you might expect some payoffs maybe in the first part of the year, but then better on the second half of the year. And I guess the question is, is it fair to think you could start at the low end or even below the guide in terms of loan growth and then it picks up throughout the year? Or should we just think about it as kind of ratable 3% to 4% throughout the year? Robert Harrison: Yes. I think it's not so much more payoffs than the first half of the year. I think it's a normal payoff activity. There's just were fewer loans that are going -- that were done 1.5 years, 2 years ago that are going to be funding now. So it's really less of the new production from that multifamily portfolio, and that should be through that back half of the year. So yes, a fair assumption that it should be probably lower in the first half and a pickup in the second half. Operator: Our next question comes from Janet Lee with TD Cowen. Sun Young Lee: To clarify on your deposit beta expectations for 30% to 35% and after 2 cuts. So I see 40 -- if my calculation is correct I think I see 47% interest-bearing deposit beta for fourth quarter. So starting in the first or second quarter, does that step down at 30% to 35%? Is that the right way to interpret? James Moses: Yes. I think that's the right way to interpret it is that the interest-bearing deposit beta is going to step down over time. But we're -- I think we're okay with -- like with the 2 rate cuts, it should be -- it should continue to be close to what we've had in the past. Robert Harrison: And that goes to -- we've got a very low deposit cost. So at some point, you just can't keep cutting rates, even though rates are coming down. Sun Young Lee: Yes, definitely. And for the expenses. You've had, I guess, 2 years of flattish expense growth. It looks like it's going up about 4%, 5%. Is there -- is this just a normal adjacent of expense? Or are you hiring a little more in 2026? Or I mean it's a pretty specific number for the expense guide. How should we think about potentially you beat 520 or coming in above how should we think about your expense trajectory? Robert Harrison: Yes. Great question, Janet. Let me kind of back up a little bit and tell you one of the primary reasons why we've been able to hold costs down in the last year or 2 has been we're still going out and trying to hire people. Just to answer that part of your question, it's difficult to find the people we want to hire. So we haven't been able to staff all the people we want. But the reason for our good expense control over the last couple of years has been some of the investments we weighed in the past in technology enabled us to exit higher cost delivery, whatever it was, higher cost ways of doing business as we've brought things in-house. And so that's really been a huge help for us over the last couple of years as we've terminated expensive vendor relationships and been able to take that in-house. So -- we -- our rate of growth has been increasing over the last couple of years but it's been held down by our ability to reduce costs in other areas so far expense base. So as go forward into 2026, we see that most of that we've captured still be a little bit of it. And we will go back to a little bit more of a normalized expense growth number. Operator: Our next question comes from Kelly Motta with KBW. Kelly Motta: On capital return and the buyback, you've been pretty diligent with executing the $100 million you had for 2025. And you noted the 250 doesn't have any time period associated with it. I'm just wondering your appetite for continuing on at a similar pace here and how you're thinking through that versus some other maybe M&A aspects of the capital. James Moses: Thanks, Kelly. I think that we have a pretty good appetite to continue the pace that we had set last year. I think there always will be other considerations as well. There will be some -- potentially some opportunism baked into the program that we've set out but we haven't really made any firm commitment, I would say, internally, even around exactly the pace and timing of the share buyback other than that we recognize we have plenty of capital to do any number of things with, I think that Obviously, organic growth is what we're really looking for. And then the share buyback is a way for us to return some of that capital. So I think it's kind of a combination of all the things that we are looking at and that will determine that sort of pace. Robert Harrison: And just to add to Jamie's comments. We've messaged for a couple of years now a 12% CET1 target, and we're certainly well above that at 13 plus. So I think this larger buyback capacity, it's just an acknowledgment of that and it just gives us flexibility to bring it back closer to what we had targeted -- or what we had messaged in the past. . Operator: Our next question comes from Matthew Clark with Piper Sandler. Matthew Clark: Can we get the spot rate on deposits at the end of the year? James Moses: Spot rate on deposits at the end of the year, 124 in December. Matthew Clark: Okay. In December or at the end of December? . James Moses: It -- that's December. I'm not sure my calculus is good enough to give you that derivative at the moment. Matthew Clark: Okay. Just wondering if it was lower at the end of the year. Okay. And then on the -- on expenses, as sort of -- for the first quarter, can you remind us how the seasonality works, whether or not it's more in the first quarter or second or a combination of both? Just trying to get a sense for the run rate to start the year. James Moses: Yes. For the most part, the expenses are pretty flat throughout the year. We do see a pickup a little bit in the first quarter. You can see that in our numbers last year and the year before, and then they kind of declined a little bit from that. But in general, I think we're thinking about it pretty flat at the moment. Matthew Clark: Okay. Okay. And then just your updated thoughts on Mainland M&A any discussions you've been having and whether or not things are more active? And maybe just remind us what your ideal target would look like? . Robert Harrison: Yes. No, we're -- as Jamie mentioned, our focus is still on growing our core business, but still an option for us to consider for M&A. Some of the things we've talked about in the past, just to reiterate, we'd be looking for a strong management team, will stick around, be good partners with us. obviously, a disciplined lending culture, which is similar to the way we look at the business, strong deposit franchise. And I guess it's a little more touchy feely, but we want it well managed. We're not looking for fixer upper if we were looking to partner with somebody. And just for location, west of the Rockies is more what we're familiar with as an organization and where we've had people on the ground and where we have have a lot of relations already. And as far as size, probably somewhere between $2 million and $15 million would be the range. Operator: Our next question comes from Anthony Elian with JPMorgan. Anthony Elian: On deposits, Jamie, how are you thinking about balances in 1Q? If I look at your past couple of 1Qs, you typically see a seasonal decline. James Moses: Yes. I think that's fair. Again, that's probably something that we should expect in the first quarter. And then in totality, throughout the year, I think we're sort of mostly focused on what we can do with commercial and retail deposits. And so we're expecting kind of low single digits on that for the for the entire year. And then for us, it's tough in totality, the public deposits that we have, the kind of fluctuate, generally speaking, quarter-by-quarter, week by week even. But I think those -- in general, we should probably see some normal like state, like a GSP type increase for those things. So I think that's how we're thinking about balances. Anthony Elian: Okay. And then on the full year NIM guide of $3.16 to $3.18, so that's a pretty tight range. Do you expect each quarter to be within that range this year? James Moses: Probably -- that's maybe a little -- taken a little too far. But I think it's going to -- it really will depend on the amount of rate cuts that we see and the timing of those and whether they're 25, or whether they're 50. So this contemplate sort of a May, September version of that. And so I guess that's how I'd answer it. Anthony Elian: Any direction for the 1Q NIM, specifically relative to the $321 million you printed for 4Q? James Moses: Yes. I think we think it's going to come down a little bit. We had 2 cuts -- 2 rate cuts in the quarter, obviously, 1 in December. So we think it's probably going to come down a few basis points off of the December number. Operator: Our next question comes from Timur Braziler with Wells Fargo. Timur Braziler: Maybe just going back to the loan growth and trying to bifurcate how much of it is expected to come from some of the increased draws on production in years past versus what the opportunity to kind of reengage on the Midland with seemingly some better momentum starting there. Robert Harrison: Timur, I'm not sure 100% I understand your question, but there has been -- for our existing lines, it's a little hard to predict with our larger corporate and commercial customers exactly when an opportunity to come up that they need to fund versus their line versus new production. We are seeing while still continued activity here in Hawaii for sure and in Guam, there's just a broader economic base on the West Coast where we operate, and there's a lot of opportunities up there. So we're continuing to pursue new dealer opportunities as well as commercial real estate opportunities on the Mainland U.S., primarily on the West Coast. So I don't have a breakdown for you per se, but I guess that's broadly how we're looking at it. Timur Braziler: Okay. And maybe another way of asking that, just if you can kind of frame the opportunity set of -- I think you had mentioned the multifamily production that was booked 12, 18, 24 months ago that is going to start funding up, just how much of an opportunity that's going to be? Robert Harrison: Yes. I don't have that number handy, but we can look into that. Timur Braziler: Okay. And then during the prepared remarks, you had made a comment that you had a couple of construction deals that were converted to commercial real estate. I'm just wondering, is that pretty normal to have kind of the construction piece of it and then do the permanent financing in-house? Like is that a pretty normal kind of continuation for you guys? Robert Harrison: It depends on the sector. For customers kind of within the footprint, that is very normal. For the multifamily construction activity we're doing primarily in the Mainland on the West Coast, but it's not. And so it wasn't those deals. It was really more of our other customers within the footprint. So it really depends on the customer segment, if that's normal or not. Timur Braziler: Okay. Got it. And then just last for me. The C&I yields held up really well this quarter. I'm just wondering, is that kind of new production maybe offsetting some of the decline in the variable rate portfolio? Or maybe just kind of talk me through internally, if you were maybe surprised or that was kind of an expected decline within the C&I book because it seemed to hold up pretty well relative to the type of decline we saw during the 2024 rate cutting cycle. Robert Harrison: I think a little bit -- well, I'm not -- I don't have a perfect answer for you, but given that the draws were under existing lines, so I think that speaks to why the rate -- the yield didn't change as much in the fourth quarter. I think if you go back to, right, when the pandemic happened, you had a lot of backup lines with very highly rated customers that just had lower pricing at the time. And so when they were drawing that pricing structurally in those agreements was lower than more of our "normal base." -- but I need to do more analysis to make certain of that. Operator: And I'm not showing any further questions at this time. I'd like to turn the call back over to Kevin for any further remarks. Kevin Haseyama: We appreciate your interest in First Hawaiian, and please feel free to contact me if you have any additional questions. Thanks again for joining us, and have a good weekend. Operator: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.
Operator: It is time to start the ZOZO Q&A session for institutional investors for the third quarter of FY '25 ending in March 2026. We have on the call Director, Executive Vice President and CFO, Koji Yanagisawa, who presented the earnings results. And there will be Director and COO, Fuminori Hirose; and General Manager of Corporate Planning Office, Yusaku Kobayashi. The session will last until 6:00 p.m. Operator: [Operator Instructions] Yoneshima-san, go ahead. Unknown Analyst: My name is [indiscernible] Securities. I have 2 questions. One, is about ZOZOTOWN consignment business. I feel like it was a bit weak. That's my impression. And then you did mention that the fall and winter merchandise was slower. And then from January to March, you undershot plan. So my question is, do you think it is possible for you to reach to a 5% level for your growth? . And my second question, it's not so much about the earnings results, but it's really about your future direction. So inflation is happening. Cost of goods is also increasing as well. And I believe that costs are coming up as well. So cost of goods and also easing of taxes, how would they affect you? So, yes, it is true that, that could be both a headwind and tailwind for you. So what do you think about the country's financial situation and how that will affect you? Koji Yanagisawa: Okay. So the first question will be answered by Hirose and I will answer the second question. First of all, thank you for your questions. So this Q3, it is true that November and December were big -- were weak. And then last year, Black Friday took place, and then we also had the sales. So we started off from quite a high benchmark and then the situation changed quite dramatically. Last year, we didn't have so much outerwear. And then in the third quarter, we sold a lot of outerwear in order to accelerate the growth. On the other hand, this year, we did have outerwear inventory, but the brand did not do markdowns. And then we couldn't really sell down the inventory. And you asked about the fourth quarter as well. So the inventory of outerwear, we have plenty of that as we got into the winter sales in January. So, so far, January has been doing well. So there has been some time difference. So there is the GMV budget, so consignment business for ZOZOTOWN as well as LINE Yahoo! So what we'd like to do is to continue to aim so that we can achieve the target. So we've been talking about the increasing cost of goods. So in that context, the salary is not coming up. The actual income needs to come up. I believe that, that is the fundamental event that we need to see happening. And how does cost -- increase of cost of goods affect us, our business? So, so far, it hasn't affected us much, but we are starting to see that the young segment is starting to be affected slightly by the increase in cost of goods. So there is a young segment that loves apparel. So it seems as though that segment is starting to be impacted slightly by this And then -- and we hope that the lower tax will affect us positively if it happens. Unknown Analyst: So just kind of building on my question about increase of cost of goods. As you mentioned, the young segment is being affected by this. Do you have numerics that proved it? Maybe that is showing in LYST. But for ZOZOTOWN, when you look at your overall business, do you feel like young people are starting to be more hesitant to make a purchase? Unknown Executive: LYST doesn't have so much -- LYST doesn't have to do with it, but for ZOZOTOWN. And it's not actually evident or prominent impact, it seems like that is starting to show a little bit but may be starting to show. Operator: Okay. Let's go to Nagao-san. Yoshitaka Nagao: Nagao from BoA. I have 3 questions. First, just kind of building on Yoneshima-san's question, I think this is a really interesting topic. So if young segment is starting to have an effect of that, what is the evidence of that? Do you think that's going to affect you in the average retail price or frequency of purchases? What would that show in? And my second question is GMV growth rate fell short of plan, but EBITDA achieved the highest to date number. So do you think that you'll be able to sustain this momentum for EBITDA? Or do you think that this was a one-off result? And my third question is, so there's outerwear, so heavy garments and you will be affected by the inventory level of heavy garments. Do you think that your strategy was not enough to meet the demand because of your product mix? Or do you think that you're starting to see structural change there? So that's 3 questions from me. Unknown Executive: Okay. So I would like to answer them. So demand of the youngsters -- well, I actually didn't want the investors to react too much to that comment I just made. But the image that I have, the impression that I have is that it's not really going to the area of us seeing an impact on average retail price, but it's more about the sensitivity. So I'm not saying that the average retail price or the frequency or conversion are coming down significantly among the young people. But it seems like it's getting. We're seeing like little signs of these -- this segment weakening. That's my nuance. I'm sorry, that was a little ambiguous, no problem. And the second question is about the delivery cost. I think that's going to continue. Okay. The third question, I'd like to answer that. So changes in the product mix, the lineups. So compared to last year, the amount of outerwear did increase. But when it comes to the number of SKUs, we're seeing a decrease in the breadth of SKUs. So basically, brands are giving us more volume of the same SKU. So that is the change we're seeing this year from last year. Yoshitaka Nagao: Sorry, can I ask additional questions? So what you're saying is that you're getting more volume of some SKUs, but it still didn't contribute. Unknown Executive: So basically, we are -- our strategy was to sell down the inventory with the same strategy as last year, but the SKUs that had -- that were offered with markdown prices, the number of those SKUs came down for this year. Operator: Okay. Let's go to Kazahaya-san. Takahiro Kazahaya: Hello. This is Kazahaya from UBS. My first question is about ZOZOCOSME update. May I ask Hirose-san to give me an update on ZOZOCOSME? Fuminori Hirose: Sure. So it's going well. So third quarter, we have the holiday season. It's going quite well. It's had a good start for the third quarter. And then the brands are starting to understand how they can better sell on our platform. So they're doing discounts, markdowns. So it's going quite well. Takahiro Kazahaya: I see. So ZOZOCOSME, is it growing faster than the plan? Fuminori Hirose: Yes -- it's going well. Takahiro Kazahaya: Okay. My second question is about LYST. So you mentioned before that adding a card function is going to be important. How is that going? Unknown Executive: Sure. I'd like to answer that. So about the card function. So we are working to implement that feature. And in the third quarter, we've been able to implement that in to some companies or brands. So this is something that we need to continue to work on in the next period as well. Takahiro Kazahaya: So about LYST, you mentioned when you purchased the company that you wanted to be in profit from the next -- from next fiscal year in the long term? Unknown Executive: So I think what I said was that it will be flat for this year and next year. So there might be a recording of a slight loss. Takahiro Kazahaya: So is it correct for me to understand that, that outlook hasn't changed? Unknown Executive: Right. Operator: Let's go to Yamaoka-san. Hisahiro Yamaoka: Hello. Yamaoka from Nomura Securities here. I have 3 questions I'd like for you to answer. My first 2 questions is about SG&A. The logistic-related personnel costs improving and then the inventory operation improving. Do you think you'll be able to sustain this momentum going into the future periods? Unknown Executive: Thank you for your question. So yes, it is continuing into the third quarter. And then I believe that we can sustain this momentum as well. I may have mentioned this before, but in our warehouses, there is slow-moving inventory. And with the permission from the brands, we are engaged in the operation to return such inventory. So that we can optimize our inventory, and we believe that we'll be able to continue to do this. Hisahiro Yamaoka: Got it. And my second question is about your shipping costs. And then in your handout, it said that as a result of the delivery cost improvement, the financial terms have improved. Could you elaborate on this? Koji Yanagisawa: Sure. So I won't be able to go into details, but basically, at ZOZO's logistic basis, we have implemented the facility and then Yamato has been using that. And then now the load efficiency of the Yamato trucks has improved significantly, and then they were able to -- and then we were able to improve the financial terms. Hisahiro Yamaoka: So what you're saying is that your operational efficiency has improved and then it had a positive impact onYamato? Koji Yanagisawa: Yes, I think that's the right image. So it was not an effort made just by us, they also collaborated. Hisahiro Yamaoka: Okay. My third question is about the effect of MUSINSA and how you see the future -- next fiscal period? Unknown Executive: So MUSINSA is not strong enough to have an impact on the overall GMV yet. Hisahiro Yamaoka: Where should I expect positive value impact of GMV will show up in? Koji Yanagisawa: So MUSINSA, the impact to the overall GMV, I think you asked the same question in the second quarter. So obviously, the GMV generated with MUSINSA is not big enough to have an effect on the overall GMV, but there is Korean business customs, and we're still kind of learning our way to work with them. So we'd like to continue to communicate with the Korean brands so that we can explore the best way to work with them. And then in terms of website UI. I believe that there is a lot of room for us to improve. So by working on that, we are going to work to generate more sales -- more GMV with MUSINSA. Hisahiro Yamaoka: So what you're saying is that the third quarter -- in the third quarter, this has just started. So is it correct for me to understand that I can accept a little more positive effect of MUSINSA in the fourth quarter and onward? Unknown Executive: Yes, I mean, we just started our collaboration with them in the third quarter. So we want to make it full throttle in the fourth quarter and onward. Operator: Okay. Let's go to Kanamori-san. Kuni Kanamori: Hello, Kanamori from Nikko. I just have one question about LYST. If you can kindly tell me about list. So during the earnings call, you said that there was industry headwinds and the changes in the U.S. tariff. What do you exactly mean by that when you said headwinds of the industry and changes of the U.S. tariffs? I mean, if it's U.S. tariffs, do you think that, that's going to continue? And we also have to ask ourselves whether that's actually legal anyways. Earlier, you said that LYST was not going so well. Do you think that we are in a situation where we need to start reviewing and changing our strategy for LYST? Unknown Executive: I'd like to answer that. So the situation of high fashion MUSINSA I mean, some are doing well. But actually, when it comes to luxury industry, my understanding is that it's not going so well, and then we are negatively impacted by that. So there are luxury EC sites that are on LYST. They are not doing so well and some have decided to exit from the business. And then U.S. tariff has changed when they're exporting to the U.S. and then LYST is negatively impacted by that. So GMV is doing below the plan. And then we believe that in terms of GMV, it's going to continue to struggle. But in terms of profit, we believe that that's going to be flat. But for LYST the advertising fee makes up for most of the promotion fees. So we can control that to control profitability or margin. So what I mean by that is that GMV is not growing as much as we hope. So what we'd like to do is control the advertising cost so that we can have a certain level of profit. Any other questions? Operator: Nagao-san go ahead, please. Yoshitaka Nagao: So Yamaoka-san asked this partially. I wanted to also ask about MUSINSA. So you mentioned that it could have about 1,500 brands, but I think you had a really great vertical start. Now you have 2,015 brands. And then that -- and then from the fourth quarter, you'll be able to enjoy the effect of that for the full term. So I'd like to ask you about how you plan to spend advertising expenses for that? And you also talked about exploring ways to work better with a Korean company. So is it correct for me to understand that MUSINSA continues to be positioned in your company as something that you'd like to continue to focus on? Unknown Executive: It is definitely a focal area for us. And this is one of our efforts in enhancing different categories. So the pillar of what we are doing is to strengthen different categories. And then MUSINSA is one of the things that we are doing in order to enhance categories. And then for MUSINSA, it doesn't mean that the more number of brands we have, the more successful because some brands do not have traction power. So what we'd like to do is to work with those Korean brands and collaborate in a better way so that we can generate more GMV. Operator: Sato san, go ahead. Hiroko Sato: Sato from Jefferies. I just have one single question about the number. So Korean brands, so you started out with 140 brands. And then did you say that you have 250? No, no, no. Did I hear it wrong? Unknown Executive: Yes, you heard it wrong. So we started out with 140, and then we have 2,015 brands. Hiroko Sato: Oh, I'm sorry, 2,015. I understand. And then the contribution of sales, when is that going to show in a prominent way. Do you think that, that can show up not in the next term, but afterwards because there are many things that you need to make adjustments? Koji Yanagisawa: Well, I'd like to answer this, sorry. So the question is how much impact do you define as a prominent impact? If your expectation is that MUSINSA does JPY 20 billion or JPY 30 billion, if that is your outlook, that's not the level that we are expecting. It is true that they have a lot of number of brands. But I wouldn't call it just a single shop, but it is an addition of one incremental category. I want to use COSME as an example to explain this. So this is our fifth year. And then finally, in the sixth year, we generate JPY 15 billion with this category. So that's the type of speed. Hiroko Sato: So for some reason on my app, it's not showing up. MUSINSA is not showing up maybe because I'm older, I don't know. So I was wondering how that was like. And then before, previously, you -- you were saying that you're considering to increase the number of categories that you handle. Can you give me an update on that? Unknown Executive: So MUSINSA is the first addition of a new category. And -- so increasing the number of categories in terms of that, so MUSINSA is the very first example of marketplace model that we implemented. And now we have the right foundation in place for such business model, a marketplace model. So -- and then now we're able to have companies and brands do business without sending their inventory to our warehouse. Hiroko Sato: My third question is that when you do shopping on ZOZOTOWN, you oftentimes come across like announcements, notifications, pop-ups that said, we'll give you 10% discount if you buy apparel and cosmetic at the same time. Do people buy that way? Unknown Executive: Yes, there's a lot of cross purchases. So there are users that are willing to buy an apparel item, and then we engage in a promotion to promote cosmetics so that they can buy cosmetics with apparel. So it's not the other way around. Right. So that's what we need to strengthen for ZOZOCOSME because now apparel plays the main role and then -- and COSME comes as a secondary category. So what we want to do going forward is to create a cycle so that the users can start to come to our platform looking and wanting to buy cosmetics. Hiroko Sato: Okay. So you started out with guidance of 2% and then your -- you've been making upward revision. So for sales and GMV, it's a little bit lower. So is it correct for me to understand that this is something that you want to enhance? Or is it more going to be organic growth? Unknown Executive: You said 2%, where is that? Hiroko Sato: Well, your annual guidance was at 2-point-something percent. That's only for advertising business. Unknown Executive: Oh, no. It's the advertising revenue. Okay. Sorry, yes, you're right, 2%. Sorry, what was your question? Hiroko Sato: So in the fourth quarter, do you want to step on the gas for advertising business? And then in the Q&A section, when you came up with the guidance, I think someone mentioned that this was a little conservative or weak. So I thought that and then some thought that -- this is something that you could strengthen by to reply that, you said that there aren't so many places you can place an add. So it seems as though the number is growing more than we expected. Although it's in the later part of the single digit. So is this something that we can have high expectations. So -- like sorry, spots to place in ad. Unknown Executive: I mean we don't have so many places to put as I mean -- because it's basically listing ad. So the number of places -- placements -- places we can have those ads is limited or it's fixed. And it is true, but as you mentioned, that it's going well. It's going steadily. So far, we don't expect to see a prominent growth of our advertising business because -- and then we need to find another opportunity. Otherwise, I don't think we can have a significant growth there. Okay. We're getting close to the closing time. Let's go to the last question. Operator: [indiscernible] san go ahead. Unknown Analyst: So I just wanted to ask one question. So when you divide this November -- sorry, October, November and December. So I believe that for a particular month, there are colder days. Shimamura and other players have had weaker results. So if you separate October, November and December, how does demand look like? And then you said that the number of SKUs came down. I'm sorry, I'm not so good in Japanese and Korea. So I didn't quite understand that part. So coats and like heavy garments, you carried them as your inventory, but the product mix was different. Is that what you're saying? Or are you saying that some SKUs turned out to be weak. Unknown Executive: Okay. So to answer your first question, which is about the situation of October, November and December. So in -- so November, we were on plan. And with October and December where we undershot the plan. So in November, we had ZOZOWEEK, so that's a sales event. And -- we didn't -- we had lower-than-expected GMV from that. And then in December, it did pick up in the latter part, but it wasn't enough to offset. And you asked about the SKU. So let me rephrase it so in a way that it's easier to understand. So the number of styles, I guess, of outerwear turned out to be less. But the inventory volume was higher. Does that make sense? Unknown Analyst: Yes. Unknown Executive: Really, did you. Did that make sense? All right. Thank you. Operator: It is time to end the Q&A session. Thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, thank you for standing by. My name is Tajiri, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oxford Lane Capital Corp. Third Fiscal Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Jonathan Cohen, CEO. You may begin. Jonathan Cohen: Thank you. Good morning, everyone, and welcome to the Oxford Lane Capital Corp. Third Fiscal Quarter 2026 Earnings Conference Call. I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our CFO; and Joe Kupka, Managing Director. Bruce, could you open the call with a disclosure regarding forward-looking statements? Bruce Rubin: Sure, Jonathan. Today's conference call is being recorded. An audio replay of the call will be available for 30 days. Replay information is included in our press release that was issued earlier this morning. Please note that this call is the property of Oxford Lane Capital Corp. Any unauthorized rebroadcast of this call in any form is strictly prohibited. At this point, please direct your attention to the customary disclosure in this morning's press release regarding forward-looking information. Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, future events and financial performance. We ask that you refer to our most recent filings with the SEC for important factors that can cause actual results to differ materially from those indicated in these projections. We do not undertake to update our forward-looking statements unless required to do so by law. During this call, we will use terms defined in the earnings release and also refer to non-GAAP measures. For definitions and reconciliations to GAAP, please refer to our earnings release posted on our website at www.oxfordlanecapital.com. With that, I'll turn the presentation back to Jonathan. Jonathan Cohen: Thank you, Bruce. On December 31, 2025, our net asset value per share stood at $15.51 compared to a net asset value per share of $19.19 as of the prior quarter. For the quarter ended December, we recorded GAAP total investment income of approximately $117.8 million, representing a decrease of approximately $10.5 million from the prior quarter. The quarter's GAAP total investment income consists of approximately $114.3 million from our CLO equity and CLO warehouse investments and approximately $3.5 million from our CLO debt investments and from other income. Oxford Lane reported GAAP net investment income of approximately $71.8 million or $0.74 per share for the quarter ended December compared to approximately $81.4 million or $0.84 per share for the quarter ended September 30. Our core net investment income was approximately $108.9 million or $1.12 per share for the quarter ended December compared with approximately $120 million or $1.24 per share for the quarter ended September 30. As of December 31, we held approximately $263.1 million in newly issued or newly acquired CLO equity investments that had not yet made initial distributions to Oxford Lane. For the quarter ended December, we recorded net unrealized depreciation on investments of approximately $305.4 million and net realized losses of approximately $7 million. We had a net decrease in net assets resulting from operations of approximately $240.7 million or $2.47 per share for the third fiscal quarter. As of December 31, the following metrics applied. We note that none of these metrics necessarily represented a total return to shareholders. The weighted average yield of our CLO debt investments at current cost was $17.3 million -- 17.3%, down from 17.4% as of September 30. The weighted average effective yield of our CLO equity investments at current cost was 13.8%, down from 14.6% as of September 30. The weighted average cash distribution yield of our CLO equity investments at current cost was 19%, down from 19.4% as of September 30. We note that the cash distribution yields calculated on our CLO equity investments are based on the cash distributions we received or which we were entitled to receive at each respective period end. During the quarter ended December, we made additional CLO investments of approximately $97.2 million, and we received approximately $85.5 million from sales and from repayments. On January 29, our Board of Directors declared monthly common stock distributions of $0.20 per share for each of the months ending April, May and June of 2026. We note that the Board has historically considered a range of factors in setting our monthly distributions, including the company's GAAP and core NII and the distributions necessary to maintain our qualifications as a RIC under the Internal Revenue Code. At the current time, and given the opportunities that the company sees in the market for CLO equity and junior debt tranche investments, the Board has concluded that it would be beneficial for the company and its shareholders to have additional capital to deploy in those markets. We support the idea of a stable or growing net asset value as a meaningful component of the return we seek to generate for shareholders. The Board believes that this reduction in distributions will support that objective, while complying with the company's requirement to distribute to shareholders each year and at least 90% of its investment company taxable income as defined in the code to maintain its RIC status. With that, I'll turn the call over to our Managing Director, Joe Kupka. Joseph Kupka: Thanks, Jonathan. During the quarter ended December 31, 2025, U.S. loan market performance declined versus the prior quarter. U.S. loan price index decreased from 97.06% as of September 30 to 96.64% as of December 31. The decrease in U.S. loan prices led to an approximate 2-point decrease in median U.S. CLO equity net asset values. Additionally, we observed median weighted average spreads across loan pools within CLO portfolios decreased to 311 basis points compared to 318 basis points last quarter. The 12-month trailing default rate for the loan index decreased to 1.2% by principal amount at the end of the quarter from 1.5% at the end of December 2025. We note that out-of-court restructurings, exchanges and subpar buybacks, which are not captured in the cited default rate remain elevated. CLO new issuance for the quarter totaled approximately $55 billion reflecting an approximate $2 billion increase from the previous quarter. Additionally, the U.S. CLO market saw approximately $74 billion in reset and refinancing activity in Q4 2025, compared to approximately $105 billion in the previous quarter. Oxford Lane remained active this quarter, investing over $97 million in CLO equity and warehouses. During the quarter, we also led or participated in more than 10 resets and refinancings, taking advantage of tightening liability spreads to lower the cost of funding and lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio from May 2029 to August 2029. We continue to evaluate existing investments for opportunities to improve the economics of our CLO equity positions. Our primary investment strategy during the quarter was to engage in relative value trading and seek to lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio. In the current market environment, we intend to continue to utilize our opportunistic and unconstrained CLO investment strategy across U.S. CLO equity debt and warehouses as we look to maximize our long-term total return. And as a permanent capital vehicle, we have historically been able to take a longer-term view towards our investment strategy. With that, I'll turn the call back over to Jonathan. Jonathan Cohen: Thanks, Joe. Additional information about Oxford Lane's third quarter fiscal quarterly performance has been uploaded to our website at www.oxfordlanecapital.com. With that, the operator can now open the call for any questions. Operator: [Operator Instructions] And our first question comes from the line of Mickey Schleien with Clear Street. Mickey Schleien: Jonathan, CLO equity funds have been very weak over the last year, even on a total return basis. And over that time, we've seen tighter loan spreads and while CLO liability spreads have been relatively stable, and that's pressured the returns on CLO equity. Some of that trend is being attributed to captive CLO funds, which are accepting lower stand-alone equity returns because they internalize the management and incentive fees. Could you give us a sense of what share of the primary market is represented by these captive funds? Jonathan Cohen: Joe, do you want to take an estimate of that? Joseph Kupka: Yes. It's hard to say, given we don't have specific insight into that. I would say 2025 was probably a more balanced year since the arbitrage was still relatively attractive. Some third party continue to issue primary. I expect in 2026, the majority of that issuance if it continues, will be from these captive funds just given the compressed arbitrage. Mickey Schleien: And how do you assess the impact of those funds on the outlook for CLO equity returns for third-party investors like Oxford Lane? And do you think this is a secular trend, which permanently reduces expected returns for the equity tranche? Jonathan Cohen: I mean it's really impossible to know, Mickey. The behavior of the world's largest credit investors, and whether they're manifesting a portion of their strategies in these captive CLO funds, these captive equity funds is just extraordinarily difficult to try to predict. That is certainly a potential factor in terms of future likely performance for CLO equity tranche investments, but I think there are a great deal of other factors that are equally or perhaps even more important. Mickey Schleien: Okay. If I could follow up, looking ahead, it seems like the constructive case for CLO equity would require more new money loan issuance from improved M&A activity which could help balance the loan market and perhaps widen loan spreads without a recession. So with that in mind, what's your outlook on the balance of supply and demand in the loan market this year and maybe next year? Jonathan Cohen: We would like to think, Mickey, based on historical norms that, that balance will be restored, at least to some extent, over that time frame. Operator: Our next question comes from the line of Erik Zwick with Lucid Capital Markets. Erik Zwick: I wanted to start with a question just on the kind of reduction in the dividend level. And the way I hear you, Jonathan, is one of the big opportunities you see for Oxford Lane going forward is to continue taking advantage of the secondary market and attractive pricing and returns there. And that's one of the driving factors for the magnitude of the dividend cut and not so much your view into where the earnings power of the fund is going. Is that correct? Jonathan Cohen: It's an interesting question, Erik, because we have never adhered to the dictum that we need to focus solely on the primary market or solely on the secondary market. For the last 15 years or so, we've had the flexibility, the investment flexibility to vacillate between those 2 opportunity sets. And at the moment, we are seeing what we consider to be generally strong opportunities in the secondary market for a host of reasons, many of which are related to what may be a fundamental supply-demand imbalance in the secondary market on a flow of funds basis. But to answer your question, the answer is we see probably more opportunities in the secondary than in the primary market. And given that we believe we are one of the world's largest market participants in the secondary market, we are trying to position ourselves to take advantage of those. Erik Zwick: And just a bit of a follow-up on that one. The opportunities that you're seeing in the secondary market, I would assume, but opportunities buying things at discounts that if they perform well, would have a pull-to-par effect, which would kind of help in terms of your goal of supporting the NIM -- I'm sorry, the NAV and potentially [indiscernible] as well. Is that right? Jonathan Cohen: Yes. Erik, I think that's definitely one of the profiles we're focusing on previously in times of more benign environments, you see a healthy premium to NAV based on trading levels in this environment with the arbitrage add or near historic types, you see that NAV compress or sometimes even flip. So the optionality -- you really see that optionality in terms of capturing the NAV, whether that's through a reset plays or just liquidation of the CLO [indiscernible]. So yes, there's definitely potential to support the NAV with those profiles. Erik Zwick: And then for my next question, I haven't fully gone through and fine-tune my forward estimates, but just kind of quick back to the calculations would suggest that the earnings power of the fund is still in excess of the distribution -- the new distribution level that you've disclosed. So is there a potential then for a special dividend at some point over the next year or so? And if so, does -- would that be on a calendar year? Or based on your fiscal year, which ends March of each year, how would you think about that? Jonathan Cohen: We think about that, Erik, principally in terms of maintaining compliance with the RIC test under the code, under the tax code. So to the extent necessary or to the extent that we want or need to reflect the earnings level of the fund in the distributions yes, we -- it is certainly possible that we declare a special dividend or modify the existing rate of distribution to comport with those fundamentals. Erik Zwick: Got it. And timing on that when you do your RIC test, is it the calendar year? Or is it based on your fiscal year reporting? I can't recall how that's done. Jonathan Cohen: Fiscal, so March. Erik Zwick: Fiscal. Got it. And last one for me. Either Jonathan or Joe, if you could just kind of frame the current opportunity for resets and refis in your portfolio and how that could potentially support cash flow going forward? Joseph Kupka: Yes, this year should be a very active year in terms of resets and refis for us this past year. 2025 was also very active. We participated or led about 70 resets of refinancings. We have a few in Q1 and Q2 that are rolling off non-call. And starting in July, we have a lot of our portfolio rolling off that we see AAA spreads generally in the 130s or 140s just based on where AAAs were 2 years ago when we initially issued those deals. So just based on the timing, we see a lot of take some kind of action. Jonathan Cohen: Right. Market fundamentals permitting. Operator: There are no further questions at this time. I would like to turn the call back over to our CEO, Jonathan Cohen for closing remarks. Jonathan Cohen: Thank you very much. I'd like to thank everybody on the line and everybody who's listening to the replay for their interest in Oxford Lane Capital Corp. and their participation on this call. Thank you very much. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.
Operator: Good day, and welcome to the Ameris Bancorp Fourth Quarter Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nicole Stokes, Chief Financial Officer. Please go ahead. Nicole Stokes: Thank you, Megan, and thank you to all who have joined our call today. During the call, we will be referencing the press release and the financial highlights that are available on the Investor Relations section of our website at amerisbank.com. I'm joined today by Palmer Proctor, our CEO; and Doug Strange, our Chief Credit Officer. Palmer will begin, and then I will discuss the details of our financial results before we open up for Q&A. But before we begin, I'll remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties. The actual results could vary materially. We list some of the factors that might cause results to differ in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements as a result of new information, early developments or otherwise, except as required by law. Also during the call, we will discuss certain non-GAAP financial measures in reference to the company's performance. You can see our reconciliation of these measures and GAAP financial measures in the appendix to our presentation. And with that, I'll turn it over to Palmer. H. Proctor: Thank you, Nicole. Good morning, everyone. I appreciate you taking the time to join our call this morning. I'm proud of our fourth quarter performance and our record-setting results for the full year of 2025. We continue to operate at a high level of consistent core profitability while remaining focused on capital returns and accretive growth to enhance our shareholder value. We're positioned extremely well going into 2026, both from a growth and profitability level. Not only are we in the best southeastern markets that are growing faster than the national average, but we also have as bankers who are focused on servicing our customers and growing our franchise organically. The call is going to talk about the details of our financials in just a minute, but I did want to give you just a few top-level comments about our core profitability. . We reported record earnings for 2025 at over $412 million for the year with our diluted EPS hitting $6 per share for the first time in our history. That's a 15% increase in EPS year-over-year, and we did it organically. Our PPNR ROA was consistently above 2% this year. Our margin expanded every quarter, and our efficiency ratio improved throughout the year. We remain focused on generating revenue growth and positive operating leverage. We reported a 6% growth in revenue for the year, while our expenses declined by 1%. Combined, this positive operating leverage pushed our efficiency ratio to 50% for the year. This core profitability led to tangible book value growth of over 14% for this year. We remain diligent with our capital planning and are focused on generating shareholder returns. We paid off all of our sub debt during 2025, and as a result, have a very simple common stock capital structure going forward. During the fourth quarter, we announced an increased share purchase repurchase program, and we were active in the fourth quarter buying back almost 1% of our stock at an average price of $72. For the year, we repurchased $77 million or 2% of the company at an average price under $67. Capital ratios remained strong, ending the year with common equity Tier 1 at 13.2% and tangible common equity ratio growing to 11.4%. Capital at this level positions us well for future growth expectations. On the growth front, we were very pleased with our asset generation during the fourth quarter, growing earning assets by almost 6%. We experienced unusually high payoffs in the CRE portfolio this quarter, which is indicative of a healthy economy, but does affect our net loan growth. Notwithstanding, we grew loans almost 5% in the fourth quarter, even with the elevated CRE payoffs of over $500 million. Under normal CRE payoffs, our loan growth would have approached double digits. Our pipelines remain strong, and we saw the highest level of loan production since 2022, coming in at $2.4 billion for the quarter, which was a 16% increase above third quarter levels. Asset quality for the year remained strong with net charge-offs and NPAs improving from the prior year. Our allowance remains healthy at 1.62% of loans. CRE and construction concentrations were consistent at 262% and 43%, respectively. On the funding side, we remain focused on core deposits and relationship banking. Our noninterest-bearing deposits represent a strong 29% of total deposits, even with typical seasonality of the fourth quarter. We're well positioned for future growth, both from the strength of our balance sheet and our fundamental operating model. We have strong momentum into 2026 on our organic growth strategies, which will be complemented by the disruption with our growing Southeastern markets. We have strong core profitability with diversified and durable revenue streams. These will continue to grow tangible book value, franchise value and shareholder value in 2026 and beyond. I'll stop there and turn it over to Nicole to discuss our financial results in more detail. Nicole Stokes: Thank you, Palmer. We reported net income of $108.4 million or $1.59 per diluted share in the fourth quarter. Our return on assets was 157%. Our PPNR ROA was 2.38%, and our return on tangible common equity was 14.5% for the quarter. For the full year 2025, we reported record net income of $412.2 million or $6 per diluted share. That brings our full year ROA to $1.54 compared to $1.38 last year. Our year-to-date PPNR ROA was $2.25 compared to $2.05 in 2024, and our full year ROTCE improved to [ 14.51 ] from [ 14.41 ] last year. Tangible book value increased by $1.28 during the fourth quarter to end at [indiscernible]. For the full year, we grew tangible book value by $5.59 per share or 14.5%. As Palmer mentioned, our capital levels remain strong. We were active in our buyback, buying back $40.8 million of common stock or about 564,000 shares at an average price of $72.36 during the quarter. Our remaining share repurchase authorization was $159.2 million at the end of the year. On the revenue side, our net interest income increased $7.3 million in the quarter or 12.2% annualized. The core bank grew by about $8.7 million, while mortgage and premium finance both saw some seasonal declines in spread revenue. For the first time this year, we saw improvements on both components of spread revenue, not only did our interest income grow by $3 million, but our interest expense also improved by $4.3 million. Our net interest margin expanded 5 basis points to a robust 3.85% for the fourth quarter, and that expansion came from a 10 basis point positive impact on the funding side and more than offsetting the 5 basis point decline on the asset side. For the full year, net interest income increased $87.7 million or 10.3% from 2024 and our margin expanded from 3.56% last year to 3.79% for the full year. Although we have positioned ourselves to be mostly neutral from an asset liability sensitivity perspective, we anticipate we could see some slight margin compression over the next few quarters due to the pressure on deposit costs. As we see loan growth increasing, we believe there will be additional deposit pressure as we fund that growth in '26. During the fourth quarter, we reported $23 million of provision expense with $6.3 million of that relating to reserves for unfunded commitments. That's a real positive signal for future loan growth. And our reserve remained strong at 1.62% of total loans, which was the same as last quarter. Annualized net charge-offs this quarter normalized to 26 basis points. For the full year, net charge-offs improved from 19 basis points down to 18 basis points. We anticipate net charge-offs in the 20 to 25 basis point range in 2026. Overall, asset quality trends remain good with nonperforming assets, net charge-offs and both classified and criticized remaining low for the quarter. Moving on to noninterest income. Adjusted noninterest income decreased $10.5 million this quarter, mostly from seasonal declines in mortgage. And for the full year 2025, adjusted noninterest income actually increased $1.4 million year-over-year. Total noninterest expense decreased $11.5 million a quarter, mostly driven by lower compensation costs and also some lower marketing and advertising costs. For the full year 2025, our total noninterest expense declined $3.8 million or almost 1% year-over-year. The majority of this decline is from the mortgage division as variable cost declined with the decreased production due to the current interest rate environment. For the fourth quarter, our efficiency ratio improved to 46.6%, and for the full year '25, our efficiency ratio was 50%, an improvement from the 53.2% reported last year. I do anticipate the efficiency ratio to return above 50% in the first quarter especially when you consider our seasonally heavy first quarter payroll taxes and 401(k) contributions. Looking at our balance sheet. We ended the quarter with $27.5 billion of total assets compared to $27.1 billion last quarter and $26.3 billion at the end of Q4. For the year, that reflects a 4.8% balance sheet growth, and we had a 5.5% earning asset growth. Profitability, looking at NII and EPS, they grew over 10% during that same time, really reinforcing our focus on profitable growth and positive operating leverage. Deposits increased $148 million with strong seasonal growth in our public funds, partially offset by some usual seasonal outflows of mortgage-related escrow deposits that will sit back over the year. Because of the seasonality of deposits, our NIB to total deposit ratio is usually lowest at year-end. And this year, it remains at a strong 28.7%. And then broker deposits were stable in the quarter, representing only 5% of total deposits at the end of the year. We continue to anticipate loan and deposit growth going forward in that mid-single-digit range and expect that longer-term deposit growth will be the governor of loan growth. And with that, I'm going to wrap it up and turn the call back over to Megan for any questions from the group. Megan, go ahead, please. Operator: [Operator Instructions]. The first question comes from Stephen Scouten with Piper Sandler. Stephen Scouten: Great quarter on loan production, obviously. And Palmer, you noted if payoffs have been more normal, you think loan growth could have been in the double-digit range. Can you talk about what sort of visibility you have into future payoffs and maybe how those are -- maybe how they were surprisingly high this quarter and kind of what you're seeing as loans maybe mature and renew or are those maturing and renewing at the same pace or kind of what caused some of the elevated paydowns and how we can think about the progression of that into the new year? H. Proctor: Yes, 2 things there, Stephen. We are encouraged by the pipeline we continue to see building. And then more importantly, too, when you look at the payoffs, fourth quarter is typically for us, one of the busier quarters in terms of payoffs, and I think that's reflected in a lot of banks that have reported. So we see that moderating as we move into the first quarter and second quarter of the year. So that's encouraging. I will tell you, activity is -- continues to improve. And we like what we're seeing throughout the entire bank, not just in certain pipelines, but all the pipelines across the board. . Now mortgage, we'll see what happens there within 10-year. So that could be a real tailwind for us depending on what transpires. But all in all, we feel pretty bullish. Stephen Scouten: Okay. And with rates kind of -- well, we'll see -- if they continue to trend down, I guess, would you think that would accelerate paydowns even further? Or would you be more excited about for a pickup in production and activity kind of to ofset potential phenomenon? H. Proctor: Yes. I think for us, where we are in our business development stage, I don't think the -- I think the increase or decrease in rates would actually accelerate our opportunity. And in terms of payoffs, I don't see that causing any migration out refinance and elsewhere because most people either depending on the conditions of the loan or the term loans are locked in. And like a lot of banks, we've got prepayment penalties, refinance penalties and so forth. So I don't see that being a big contributor to outward movement. . Stephen Scouten: Got it. Makes sense. That's great. And then I guess, in terms of thoughts around new hiring activity, I mean this has come up on every earnings call. I think I've been on the Southeast this quarter and people are calling it somewhat of a generational opportunity. I think your approach to it maybe has sounded different in terms of just improving your talent throughout the spectrum of your bank, but maybe not adding just pure head count quite as aggressively. Can you talk a little further about that if I'm hearing you right when I summarize that and kind of how you're thinking about it in the new year with the opportunity set? H. Proctor: Yes. I think ours is very different. And like we've said for several years, when I look at the budget and our expectations, we do not have the compulsion and the need to have to go out and hire massive amounts of people to accomplish what we want to do here. We've been very fortunate with the level of talent that we have. We've been very fortunate with the retention, and we stay focused on that. But in perspective, I mean, we hired 21 lenders this year. But net-net, we were up 3. So what we do a constant view of is looking at the talent how it's progressing or not. And so what we've been able to do is upgrade talent on a consistent basis, thereby eliminating a lot of the churn and the constant need to have to add additional bankers. We've got a -- we've got great bankers and they can help us deliver on what we need to deliver on. And that being said, we obviously will remain selective and if there's opportunities out there. But in terms of having a need to drive up noninterest expense and add on a bunch of bankers each quarter, we're in a very fortunate position, which we don't have to do that. Operator: The next question comes from Catherine Mealor with KBW. Catherine Mealor: I wanted to ask about the margin. Nicole, appreciate your caution on just thinking that the margin will come down next year just as deposit costs accelerate, but we're coming from such a higher level than maybe your -- historically, I think you've kind of talked about a margin like a 360 to 365 range, but we're a lot higher than that today. So just kind of curious if you could put a range on your margin expectations for the year. . Nicole Stokes: Yes, absolutely. And I know this is yet another quarter of saying that it's going to go down and then it went up. But real quickly on that 5 basis points of expansion, 2 basis points of that expansion really came from our sub debt payoff. So really, we only had kind of 3 basis points from both the loan and deposit side. So when I look out over the next few quarters, so much of our guidance is dependent on those deposit costs and the deposit pressure that we see as we see growth accelerating. So I feel like 5 to 10 basis points over the next few quarters. And then longer term, it's really going to depend kind of on growth and interest rate environment and where we are after that kind of 1-year horizon. Catherine Mealor: Okay. And that's 5 to 10 basis points from today's level or the full year '25? Nicole Stokes: That would be kind of where we are today. . Catherine Mealor: Got it. Okay. Great. And then maybe on expenses, I know there was a big reduction in expenses this quarter just from personnel. Can you help us get a range as for where a good starting point is for 1Q just given the increase in payroll taxes and things like that? Nicole Stokes: Absolutely. So when you look at the fourth quarter and the first quarter, there's always some big wins. So when you look at the fourth quarter, the difference in payroll taxes and 401(k) match. We have -- a lot of that is kind of front loaded in the first quarter. And so that's about a $5 million swing that we expect to come back in, in the first quarter. And then we also had some less incentive accrual in the fourth quarter based on truing up all those accruals based on end of year numbers. So that's about another $2.5 million. So I know that the fourth quarter, we were at $143 million. If you add back in that $7.5 million, you kind of get us back in that $150 million, $151 million range. And then I think kind of a guide is probably for the year, I think consensus is really good, but I feel like maybe the first order might be a little bit heavy. So maybe the year-to-date consensus number is good, but it might be a little bit heavy in the first quarter. Some of it may come in later in the year as we see growth accelerate throughout the year. Some of those expenses, commissions, et cetera, could come in as well. So probably $154 million, somewhere between $154 million, $155 million is a good starting point for first quarter. Operator: The next question comes from Russell Gunther from Stephens. Russell Elliott Gunther: I wanted to start with just a margin follow-up, if I could. Nicole, could you give us a sense of where kind of new production is coming online relative to the incremental cost of deposits and sort of along that question set, just the cadence of the fourth quarter margin over the course quarter of that quarter, kind of where we exited? Nicole Stokes: Sure. So the fourth quarter kind of when you look at loan production, it came in right at about $635 million for the quarter. And that's with all divisions. That's with the bank, premium finance, warehouse, all of that kind of blended yield was about $635 million. And that's compared to the deposit production, all deposits came in right around 2%. So we're looking at about a [ 435 ] spread on production, which is accretive to growth -- I'm sorry, which growth is accretive to margin. . However, if you look at that loan spread compared to the interest-bearing deposits only, it was a little bit dilutive. And so that really says where the -- where our focus continues to be on the growth in NIB and really those core deposit growth to be able to help with the interest-bearing spread that we see the pressure on. And then I think the second part of your question was kind of the quarter -- we were very consistent the $385 million for the quarter. I mean it was up or down each month by 1 or 2 basis points, but there were no significant swings over the quarter. Russell Elliott Gunther: Okay. Very helpful, Nicole. And then maybe just switching gears to capital. Very robust position here. You got reserve levels that are incredibly healthy. Just level set us in terms of your kind of CET1 bogey in order to get a sense of what you guys might consider excess? And then given how quickly you accrete capital, how do you guys plan to put a dent in that over the course of the year? H. Proctor: Our capital priorities have not changed. I mean obviously, first and foremost, it's growing into organic and levering it up. Then as you saw, we were active in the buybacks, we will remain opportunistic there. Then the dividend and then obviously, last would be any sort of external activity. But given the markets we're in now and the opportunities we see, that would be far, far down the list. In terms of target for us, I think we would be looking more on the TCE level, probably around 10%, 10.5%. And then on the CET1 target of around 12%, if you wanted to look at longer term. . Russell Elliott Gunther: That's really helpful, Palmer. And guys, just last one for me. Curious on the charge-off guide for the year. Fourth quarter results were kind of at the high end of that. Could you just discuss quickly the drivers of the net charge-off activity this quarter and perhaps [indiscernible] contribution specifically? Douglas Strange: Well, Russell, this is Doug. First of all, Equipment Finance really was -- they were in line and consistent for the whole year. We did have some consumer medical notes that we charged off, but our charge-offs, they tend to ebb and flow from quarter-to-quarter and fourth quarter was preceded by 2 very low charge-off quarters, that being at 14 basis points. But as Nicole framed it, when you look at it for the year at 18 basis points, we were below the prior year and below consensus. And just to reiterate, for this year, we're still in that 20 to 25 basis point guidance. Operator: The next question comes from John McDonald with Truist Securities. John McDonald: Nicole, I was wondering if you could give us a little more color on the puts and takes on deposit trends in the fourth quarter. There's a little bit of a decline in NIB and wondering if you've seen some of that come back? And then just as you think about your mid-single digit outlook for this year, what kind of mix evolution are you planning for in the overall deposit mix? Nicole Stokes: Sure. So we did have, and there is some cyclicality in our balance sheet every year, and this year was no different. We have kind of the fourth quarter, we have public funds that roll in. And then at the same time, we kind of have the mortgage escrow deposits that roll out. So fourth quarter is always kind of our lowest point for that NIB mix. So we were pleased that it ended up close to 29%. What we also saw this year was a little bit different to your point about how any of it come back? And the answer is yes. So from a noninterest-bearing perspective, our number of accounts has continued to increase. And so what we saw in that decline of NIB were 2 things, some of that mortgage escrow deposits. And then also, we had some customers, and I'm not talking about 2 lumpy customers. It's spread across 20 to 30 customers that moved money out at the end of the year. And some of that, we believe, was used for some tax planning purposes with some of One Beautiful Bill items. And then also some of it was used because -- do their balance sheet management at the end of the year. And we've seen a lot of that come back in already. So while it looks a little bit like an anomaly, I think it's -- our underlying focus continues to be on noninterest-bearing. And based on the number of accounts that we're opening and that net growth in number of accounts, we still feel positive about NIB growth. So that kind of leads right into the second part of your question is where do we see that growth. We are so focused on growing core deposits and being the relationship banker. And that's where we see some of the excitement of the market potential market disruption or the potential from the market disruption where we continue to grow those core deposits with the relationship. So we would focus on the operating accounts as well as their money market accounts. And then backfill any of that was broker, but we're pleased to be able to keep brokered at 5% year-over-year. John McDonald: Great. And just to follow up on the idea that deposit growth is a governor of loan growth. Are they -- if you're looking at mid-single-digit growth on both, is it a related forecast? Or are they impendent -- because as Palmer mentioned, it feels like the loan growth paydowns normalized would be better than mid-single digits. Just kind of wondering if those are connected as a forecast. Nicole Stokes: So we do actually forecast -- I mean we budget and we forecast for core deposit growth. But when you look at our balance sheet, there's several components of our loan portfolio that don't necessarily have a deposit feature with it. So really one of the -- if you kind of look at where we get core loan growth for the bank, core deposit growth and then some of the other lines of business. So if we ended up funding some of those other lines of business with either brokered or wholesale, as long as we are continuing to focus on that margin. So that's where you may see from our kind of forecast perspective. But from a core bank, core growth, we are definitely focused on funding that with core deposits. John McDonald: Great. And one last follow-up. On the provision build this quarter, some of it was for unfunded commitments. Is that relationship of growth to provision build something that had anything unique about it this quarter? Or is that how we should think about it going forward? Nicole Stokes: So I think a lot of that unfunded commitment and this is actually the second quarter in a row that we've seen that. And when you look back over our -- we kind of put a governor on our -- some of our CRE and some of -- all of our constructions whether that was homebuilder as well as CRE. So that bucket of unfunded kind of hit a wall. And now we're building that bucket back up. So as we're building that bucket, in a normal environment that, that stays consistent, you don't have that refill. So kind of we're starting from a much lower point of filling it, and we've got it about full. Now if we had a really big quarter of production that unfunded, you could see it go up, but we also see that as opportunistic. That means we've produced loans. We've closed loans. They just haven't funded. So every time we see a growth in unfunded, we feel like that's a good driver for future loan growth because we know we have those in the pipeline. Operator: The next question comes from Gary Tenner with D.A. Davidson. . Gary Tenner: I've got a couple of questions on the mortgage segment. You had the $2 million net revenue decline from the MSR sale and the valuation change. But given the flattish production and gain on sale margins. Can you talk about kind of what draw the remainder of that $10 million quarter-over-quarter decline in fee income in the division? Nicole Stokes: Absolutely. So while mortgage production and gain on sales were fairly stable. The fourth quarter had a heavier mix of wholesale production, and that's a little less profitable than the retail origination. And you always have a little bit of cyclicality in the fourth quarter because your pipelines are down. So that gain on -- I'm sorry, your market value of your pipeline is as well. So -- but when you look at the year-to-date, if you take out that MSR gain last year, you kind of level the playing field for that noise. And you look, mortgage revenue was down about $13 million or about 8% from '24 to '25. And that our expenses were down $6 million or about 4%. So it's right in line with our expectations of running kind of that additional road or pullback in the mortgage group at that 50% efficiency ratio. So while there were some anomalies in the fourth quarter, it evens out for the year. Gary Tenner: Okay. Great. And then the second mortgage question, I guess, is can you give us -- because I didn't see -- and I apologize if I missed it, but the unpaid principal balance of the servicing portfolio at year-end? Nicole Stokes: Yes, at the end of the year, our unpaid principal balance was about $8.7 billion, which is about 4% of Tier 1 capital. So well below the 25% regulatory threshold. . Gary Tenner: Great. And then last question for me, just a follow-up on the capital side. Proctor, you talked about your remaining opportunistic there. I'm just curious if you're willing to talk about any kind of sensitivities around price levels. I mean the stock is up 15% from where you repurchased in the fourth quarter. Obviously, the capital accretion outlook remains very strong. So just wondering how you balance kind of the relative price versus your appetite there? H. Proctor: Yes. No, it is a balancing act. But the way we look at it right or wrong is if you see a lot of M&A out there in the market. And if there was a mini Ameris Bancorp sale out there, what would we be willing to pay for it is another way to look at it and who better to invest in than yourself. So we'll still be selective there in terms of buyback opportunities. . Operator: The next question comes from David Feaster with Raymond James. David Feaster: I wanted to circle back to the production side. I mean, [Audio Gap] was real the strongest in the past 3 years. I wonder if you can give us a sense of how that is increase [Audio Gap] productivity from your bankers versus the shift in demand. And just curious if the [Audio Gap] markets that you're maybe more shift [Audio Gap] more opportunities? . H. Proctor: David, this is Palmer. I'll try and answer your question. You're kind of coming in and out. There's a bad connection. But I would answer it this way. I would say it's all of the above. We've got a lot of focused individuals that are here and generating great production regardless of additional market disruption from M&A. And then you compound that with recent activities that I think will continue to deliver additional opportunities for us. And then also given how we're positioned in just high-growth markets, that bodes well for us as we look out. And if the macro environment continues to improve, what you'll see is our -- we're well positioned to grow at a faster pace. And we're not going to stretch on our assumptions because to put another way, we prefer to earn the upside rather than promise it. David Feaster: Yes Okay. And maybe just staying on the loan side, I mean, anecdotally, we hear a lot about increasing competition. It [Audio Gap] primarily on the [indiscernible]. But I'm just curious, what's the competitive landscape lending like from your standpoint? Has it primarily just been on the prior [Audio Gap] or are you starting to see more pressure on standards and structures as well? H. Proctor: No, it's mainly been on pricing. I mean structure, fortunately for us and for the industry, which is a good sign, has held up relatively well. You'd have some folks get a little more aggressive than others. But good for us. We've grown up in a very competitive environment when you're in these high-growth markets. So the competition is nothing new to us to have to adapt and adjust to, and we will get our fair share of the opportunities. David Feaster: Okay. And then premium finance. You talked about -- this is a segment I know you all have been pretty excited about. You talked about some of the seasonality in the prepared remarks. Just kind of curious what are you seeing about within that segment and growth expectations and any other opportunities there? H. Proctor: No. Thank you for the question. Premium Finance has been a good, steady, stable performer for us. I don't think you're going to see -- in terms of balance sheet composition, it's not going to consume a lot more of the balance sheet, but what it will do is continue to provide meaningful earnings to the company on a go-forward basis. And the pipelines there remain full. There are additional opportunities, I think, that we will see in the market, but we're -- we like that space and are committed to that space, and it's obviously delivered for us. . Operator: Our next question comes from Christopher Marinac with Janney Montgomery Scott. Christopher Marinac: Palmer and Nicole, I wanted to look at just the growth over the last couple of years in terms of the accounts of DDAs and noninterest and the NOW accounts. It seems that you're up about 4% or 5% in both those categories and in money markets, too. And I'm curious, as you look at new -- net new accounts being higher, is there a way that you are incenting to get balances to grow faster? And does it start with getting the account in the first place on a net basis? Nicole Stokes: Yes, Chris, sorry. We had a little technical difficulty here. So we do focus on -- I mean, you're exactly right. The first part is getting a customer in the door and getting the account opened. And then the second aspect is how do you grow that relationship and you start with one account and then how do you get more. And I think that's where we look forward to some of the disruption in our markets because maybe right now, we're we have one account, but not the whole account. And so as they maybe have some disruption in their banking relationship with the other bank, we might be able to pick up some of those other deposits as well as grow the current relationship. So we see it as 2 to -- kind of 2-pronged. One, you have to grow the number of accounts and you have to grow the number of relationships and then you also have to grow those relationships within it -- within it -- within the relationship. So yes, it's absolutely both of those. H. Proctor: And Chris, just to add a further comment, our incentive plans are geared around that, too, and motivate that type of behavior. And one of the things I think that a lot of folks in the industry, the exception of a few, overlook is a lot of the value of the consumer accounts. And while they may not add as much in the way of total deposits and funding, what they do add are meaningful, sticky, stable relationships. So we have not lost focus on the consumer, and we're able to leverage our branches and the retail land extremely well, and we'll continue to do that. And then a lot of the additive to with us is the investments we made in treasury management over the last several years. A lot of people talk about lenders that they've hired, but we like to focus on the deposit side and on the treasury side, equally, if not more. And so I think that's been a big driver for us as we look forward into opportunities for good commercial deposit growth. Christopher Marinac: Is the treasury success going to show up in just the NOW accounts or will it show up in money market to some extent, too? H. Proctor: Both. You're right, both. I mean you got your operating payroll accounts. And then obviously, any excess funds will be swept into a money market type of account or higher interest-bearing account. . Christopher Marinac: And you've had success dropping the cost of funds we see every quarter here. And I'm just curious, do you have any opportunity to kind of tweak deposit pricing to get more dollars in and still keep your margin where you are trying to manage? H. Proctor: It's becoming more and more competitive. Obviously, when you look out there at the rates that are being offered by banks and nonbanks, and you compound that with the fact that we've got a lot of new entrants coming in with splashy rates. But most of those are going to be at your -- those are going to be more your, I call it, hot money where people are just chasing the yield. What we try and stay focused on is garnering opportunities to bring in more core relationships and less on that. But that doesn't mean at some point, we don't have to participate and have to be competitive. But our focus remains on the relationship side. And then I'd rather pay an existing relationship customer, a higher rate on their CD than just lower people then with high rate funding. Operator: This concludes our question-and-answer session. I would now like to turn the conference back over to Palmer Proctor, CEO, for any closing remarks. H. Proctor: Great. Thank you, Megan. Finally, I'd like to also thank all of our Ameris teammates for their contributions to a record year 2025. I'd also like to thank everybody again for listening to our fourth quarter and full year 2025 earnings call. We're proud of another solid quarter of performance, and we're really looking forward to 2026. And please note that we remain focused on core profitability, organic growth and enhancing value through our core deposit base and tangible book value growth. We appreciate your continued interest in Ameris Bank. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: It is time to start the ZOZO Q&A session for institutional investors for the third quarter of FY '25 ending in March 2026. We have on the call Director, Executive Vice President and CFO, Koji Yanagisawa, who presented the earnings results. And there will be Director and COO, Fuminori Hirose; and General Manager of Corporate Planning Office, Yusaku Kobayashi. The session will last until 6:00 p.m. Operator: [Operator Instructions] Yoneshima-san, go ahead. Unknown Analyst: My name is [indiscernible] Securities. I have 2 questions. One, is about ZOZOTOWN consignment business. I feel like it was a bit weak. That's my impression. And then you did mention that the fall and winter merchandise was slower. And then from January to March, you undershot plan. So my question is, do you think it is possible for you to reach to a 5% level for your growth? . And my second question, it's not so much about the earnings results, but it's really about your future direction. So inflation is happening. Cost of goods is also increasing as well. And I believe that costs are coming up as well. So cost of goods and also easing of taxes, how would they affect you? So, yes, it is true that, that could be both a headwind and tailwind for you. So what do you think about the country's financial situation and how that will affect you? Koji Yanagisawa: Okay. So the first question will be answered by Hirose and I will answer the second question. First of all, thank you for your questions. So this Q3, it is true that November and December were big -- were weak. And then last year, Black Friday took place, and then we also had the sales. So we started off from quite a high benchmark and then the situation changed quite dramatically. Last year, we didn't have so much outerwear. And then in the third quarter, we sold a lot of outerwear in order to accelerate the growth. On the other hand, this year, we did have outerwear inventory, but the brand did not do markdowns. And then we couldn't really sell down the inventory. And you asked about the fourth quarter as well. So the inventory of outerwear, we have plenty of that as we got into the winter sales in January. So, so far, January has been doing well. So there has been some time difference. So there is the GMV budget, so consignment business for ZOZOTOWN as well as LINE Yahoo! So what we'd like to do is to continue to aim so that we can achieve the target. So we've been talking about the increasing cost of goods. So in that context, the salary is not coming up. The actual income needs to come up. I believe that, that is the fundamental event that we need to see happening. And how does cost -- increase of cost of goods affect us, our business? So, so far, it hasn't affected us much, but we are starting to see that the young segment is starting to be affected slightly by the increase in cost of goods. So there is a young segment that loves apparel. So it seems as though that segment is starting to be impacted slightly by this And then -- and we hope that the lower tax will affect us positively if it happens. Unknown Analyst: So just kind of building on my question about increase of cost of goods. As you mentioned, the young segment is being affected by this. Do you have numerics that proved it? Maybe that is showing in LYST. But for ZOZOTOWN, when you look at your overall business, do you feel like young people are starting to be more hesitant to make a purchase? Unknown Executive: LYST doesn't have so much -- LYST doesn't have to do with it, but for ZOZOTOWN. And it's not actually evident or prominent impact, it seems like that is starting to show a little bit but may be starting to show. Operator: Okay. Let's go to Nagao-san. Yoshitaka Nagao: Nagao from BoA. I have 3 questions. First, just kind of building on Yoneshima-san's question, I think this is a really interesting topic. So if young segment is starting to have an effect of that, what is the evidence of that? Do you think that's going to affect you in the average retail price or frequency of purchases? What would that show in? And my second question is GMV growth rate fell short of plan, but EBITDA achieved the highest to date number. So do you think that you'll be able to sustain this momentum for EBITDA? Or do you think that this was a one-off result? And my third question is, so there's outerwear, so heavy garments and you will be affected by the inventory level of heavy garments. Do you think that your strategy was not enough to meet the demand because of your product mix? Or do you think that you're starting to see structural change there? So that's 3 questions from me. Unknown Executive: Okay. So I would like to answer them. So demand of the youngsters -- well, I actually didn't want the investors to react too much to that comment I just made. But the image that I have, the impression that I have is that it's not really going to the area of us seeing an impact on average retail price, but it's more about the sensitivity. So I'm not saying that the average retail price or the frequency or conversion are coming down significantly among the young people. But it seems like it's getting. We're seeing like little signs of these -- this segment weakening. That's my nuance. I'm sorry, that was a little ambiguous, no problem. And the second question is about the delivery cost. I think that's going to continue. Okay. The third question, I'd like to answer that. So changes in the product mix, the lineups. So compared to last year, the amount of outerwear did increase. But when it comes to the number of SKUs, we're seeing a decrease in the breadth of SKUs. So basically, brands are giving us more volume of the same SKU. So that is the change we're seeing this year from last year. Yoshitaka Nagao: Sorry, can I ask additional questions? So what you're saying is that you're getting more volume of some SKUs, but it still didn't contribute. Unknown Executive: So basically, we are -- our strategy was to sell down the inventory with the same strategy as last year, but the SKUs that had -- that were offered with markdown prices, the number of those SKUs came down for this year. Operator: Okay. Let's go to Kazahaya-san. Takahiro Kazahaya: Hello. This is Kazahaya from UBS. My first question is about ZOZOCOSME update. May I ask Hirose-san to give me an update on ZOZOCOSME? Fuminori Hirose: Sure. So it's going well. So third quarter, we have the holiday season. It's going quite well. It's had a good start for the third quarter. And then the brands are starting to understand how they can better sell on our platform. So they're doing discounts, markdowns. So it's going quite well. Takahiro Kazahaya: I see. So ZOZOCOSME, is it growing faster than the plan? Fuminori Hirose: Yes -- it's going well. Takahiro Kazahaya: Okay. My second question is about LYST. So you mentioned before that adding a card function is going to be important. How is that going? Unknown Executive: Sure. I'd like to answer that. So about the card function. So we are working to implement that feature. And in the third quarter, we've been able to implement that in to some companies or brands. So this is something that we need to continue to work on in the next period as well. Takahiro Kazahaya: So about LYST, you mentioned when you purchased the company that you wanted to be in profit from the next -- from next fiscal year in the long term? Unknown Executive: So I think what I said was that it will be flat for this year and next year. So there might be a recording of a slight loss. Takahiro Kazahaya: So is it correct for me to understand that, that outlook hasn't changed? Unknown Executive: Right. Operator: Let's go to Yamaoka-san. Hisahiro Yamaoka: Hello. Yamaoka from Nomura Securities here. I have 3 questions I'd like for you to answer. My first 2 questions is about SG&A. The logistic-related personnel costs improving and then the inventory operation improving. Do you think you'll be able to sustain this momentum going into the future periods? Unknown Executive: Thank you for your question. So yes, it is continuing into the third quarter. And then I believe that we can sustain this momentum as well. I may have mentioned this before, but in our warehouses, there is slow-moving inventory. And with the permission from the brands, we are engaged in the operation to return such inventory. So that we can optimize our inventory, and we believe that we'll be able to continue to do this. Hisahiro Yamaoka: Got it. And my second question is about your shipping costs. And then in your handout, it said that as a result of the delivery cost improvement, the financial terms have improved. Could you elaborate on this? Koji Yanagisawa: Sure. So I won't be able to go into details, but basically, at ZOZO's logistic basis, we have implemented the facility and then Yamato has been using that. And then now the load efficiency of the Yamato trucks has improved significantly, and then they were able to -- and then we were able to improve the financial terms. Hisahiro Yamaoka: So what you're saying is that your operational efficiency has improved and then it had a positive impact onYamato? Koji Yanagisawa: Yes, I think that's the right image. So it was not an effort made just by us, they also collaborated. Hisahiro Yamaoka: Okay. My third question is about the effect of MUSINSA and how you see the future -- next fiscal period? Unknown Executive: So MUSINSA is not strong enough to have an impact on the overall GMV yet. Hisahiro Yamaoka: Where should I expect positive value impact of GMV will show up in? Koji Yanagisawa: So MUSINSA, the impact to the overall GMV, I think you asked the same question in the second quarter. So obviously, the GMV generated with MUSINSA is not big enough to have an effect on the overall GMV, but there is Korean business customs, and we're still kind of learning our way to work with them. So we'd like to continue to communicate with the Korean brands so that we can explore the best way to work with them. And then in terms of website UI. I believe that there is a lot of room for us to improve. So by working on that, we are going to work to generate more sales -- more GMV with MUSINSA. Hisahiro Yamaoka: So what you're saying is that the third quarter -- in the third quarter, this has just started. So is it correct for me to understand that I can accept a little more positive effect of MUSINSA in the fourth quarter and onward? Unknown Executive: Yes, I mean, we just started our collaboration with them in the third quarter. So we want to make it full throttle in the fourth quarter and onward. Operator: Okay. Let's go to Kanamori-san. Kuni Kanamori: Hello, Kanamori from Nikko. I just have one question about LYST. If you can kindly tell me about list. So during the earnings call, you said that there was industry headwinds and the changes in the U.S. tariff. What do you exactly mean by that when you said headwinds of the industry and changes of the U.S. tariffs? I mean, if it's U.S. tariffs, do you think that, that's going to continue? And we also have to ask ourselves whether that's actually legal anyways. Earlier, you said that LYST was not going so well. Do you think that we are in a situation where we need to start reviewing and changing our strategy for LYST? Unknown Executive: I'd like to answer that. So the situation of high fashion MUSINSA I mean, some are doing well. But actually, when it comes to luxury industry, my understanding is that it's not going so well, and then we are negatively impacted by that. So there are luxury EC sites that are on LYST. They are not doing so well and some have decided to exit from the business. And then U.S. tariff has changed when they're exporting to the U.S. and then LYST is negatively impacted by that. So GMV is doing below the plan. And then we believe that in terms of GMV, it's going to continue to struggle. But in terms of profit, we believe that that's going to be flat. But for LYST the advertising fee makes up for most of the promotion fees. So we can control that to control profitability or margin. So what I mean by that is that GMV is not growing as much as we hope. So what we'd like to do is control the advertising cost so that we can have a certain level of profit. Any other questions? Operator: Nagao-san go ahead, please. Yoshitaka Nagao: So Yamaoka-san asked this partially. I wanted to also ask about MUSINSA. So you mentioned that it could have about 1,500 brands, but I think you had a really great vertical start. Now you have 2,015 brands. And then that -- and then from the fourth quarter, you'll be able to enjoy the effect of that for the full term. So I'd like to ask you about how you plan to spend advertising expenses for that? And you also talked about exploring ways to work better with a Korean company. So is it correct for me to understand that MUSINSA continues to be positioned in your company as something that you'd like to continue to focus on? Unknown Executive: It is definitely a focal area for us. And this is one of our efforts in enhancing different categories. So the pillar of what we are doing is to strengthen different categories. And then MUSINSA is one of the things that we are doing in order to enhance categories. And then for MUSINSA, it doesn't mean that the more number of brands we have, the more successful because some brands do not have traction power. So what we'd like to do is to work with those Korean brands and collaborate in a better way so that we can generate more GMV. Operator: Sato san, go ahead. Hiroko Sato: Sato from Jefferies. I just have one single question about the number. So Korean brands, so you started out with 140 brands. And then did you say that you have 250? No, no, no. Did I hear it wrong? Unknown Executive: Yes, you heard it wrong. So we started out with 140, and then we have 2,015 brands. Hiroko Sato: Oh, I'm sorry, 2,015. I understand. And then the contribution of sales, when is that going to show in a prominent way. Do you think that, that can show up not in the next term, but afterwards because there are many things that you need to make adjustments? Koji Yanagisawa: Well, I'd like to answer this, sorry. So the question is how much impact do you define as a prominent impact? If your expectation is that MUSINSA does JPY 20 billion or JPY 30 billion, if that is your outlook, that's not the level that we are expecting. It is true that they have a lot of number of brands. But I wouldn't call it just a single shop, but it is an addition of one incremental category. I want to use COSME as an example to explain this. So this is our fifth year. And then finally, in the sixth year, we generate JPY 15 billion with this category. So that's the type of speed. Hiroko Sato: So for some reason on my app, it's not showing up. MUSINSA is not showing up maybe because I'm older, I don't know. So I was wondering how that was like. And then before, previously, you -- you were saying that you're considering to increase the number of categories that you handle. Can you give me an update on that? Unknown Executive: So MUSINSA is the first addition of a new category. And -- so increasing the number of categories in terms of that, so MUSINSA is the very first example of marketplace model that we implemented. And now we have the right foundation in place for such business model, a marketplace model. So -- and then now we're able to have companies and brands do business without sending their inventory to our warehouse. Hiroko Sato: My third question is that when you do shopping on ZOZOTOWN, you oftentimes come across like announcements, notifications, pop-ups that said, we'll give you 10% discount if you buy apparel and cosmetic at the same time. Do people buy that way? Unknown Executive: Yes, there's a lot of cross purchases. So there are users that are willing to buy an apparel item, and then we engage in a promotion to promote cosmetics so that they can buy cosmetics with apparel. So it's not the other way around. Right. So that's what we need to strengthen for ZOZOCOSME because now apparel plays the main role and then -- and COSME comes as a secondary category. So what we want to do going forward is to create a cycle so that the users can start to come to our platform looking and wanting to buy cosmetics. Hiroko Sato: Okay. So you started out with guidance of 2% and then your -- you've been making upward revision. So for sales and GMV, it's a little bit lower. So is it correct for me to understand that this is something that you want to enhance? Or is it more going to be organic growth? Unknown Executive: You said 2%, where is that? Hiroko Sato: Well, your annual guidance was at 2-point-something percent. That's only for advertising business. Unknown Executive: Oh, no. It's the advertising revenue. Okay. Sorry, yes, you're right, 2%. Sorry, what was your question? Hiroko Sato: So in the fourth quarter, do you want to step on the gas for advertising business? And then in the Q&A section, when you came up with the guidance, I think someone mentioned that this was a little conservative or weak. So I thought that and then some thought that -- this is something that you could strengthen by to reply that, you said that there aren't so many places you can place an add. So it seems as though the number is growing more than we expected. Although it's in the later part of the single digit. So is this something that we can have high expectations. So -- like sorry, spots to place in ad. Unknown Executive: I mean we don't have so many places to put as I mean -- because it's basically listing ad. So the number of places -- placements -- places we can have those ads is limited or it's fixed. And it is true, but as you mentioned, that it's going well. It's going steadily. So far, we don't expect to see a prominent growth of our advertising business because -- and then we need to find another opportunity. Otherwise, I don't think we can have a significant growth there. Okay. We're getting close to the closing time. Let's go to the last question. Operator: [indiscernible] san go ahead. Unknown Analyst: So I just wanted to ask one question. So when you divide this November -- sorry, October, November and December. So I believe that for a particular month, there are colder days. Shimamura and other players have had weaker results. So if you separate October, November and December, how does demand look like? And then you said that the number of SKUs came down. I'm sorry, I'm not so good in Japanese and Korea. So I didn't quite understand that part. So coats and like heavy garments, you carried them as your inventory, but the product mix was different. Is that what you're saying? Or are you saying that some SKUs turned out to be weak. Unknown Executive: Okay. So to answer your first question, which is about the situation of October, November and December. So in -- so November, we were on plan. And with October and December where we undershot the plan. So in November, we had ZOZOWEEK, so that's a sales event. And -- we didn't -- we had lower-than-expected GMV from that. And then in December, it did pick up in the latter part, but it wasn't enough to offset. And you asked about the SKU. So let me rephrase it so in a way that it's easier to understand. So the number of styles, I guess, of outerwear turned out to be less. But the inventory volume was higher. Does that make sense? Unknown Analyst: Yes. Unknown Executive: Really, did you. Did that make sense? All right. Thank you. Operator: It is time to end the Q&A session. Thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Sophie Arnius: A warm welcome to this call focusing on SKF's performance in Q4 2025. We are ending the year with improved adjusted operating margins, both at the group level and in our large industrial business area. And this was mainly driven by strong cost management, but also solid commercial execution. I'm Sophie Arnius, heading up Investor Relations. With me, I have our CEO, Rickard Gustafson; and our CFO, Susanne Larsson. After their presentations, there will be opportunities for you to ask questions. And there are 2 ways to do that. [Operator Instructions] So without further ado, it's a great pleasure to hand over to you, Rickard. Rickard Gustafson: Thank you very much, Sophie, and good morning, and thank you for joining us for this earnings call. I am pleased to once again report an improved adjusted operating margin year-over-year despite very challenging market conditions and headwind from currency. As you can see from the chart on the right-hand side, in the quarter, we do report flat organic growth, which is in line with our guidance. It's important to stress that this does not imply we compared to Q3 that we have deteriorated market activities in Q4 versus Q3, but rather a consequence of tougher comparisons. We do report organic growth in our Industrial business, while we still see some softer demand in our Automotive that are still in a declining organic growth territory. The Automotive separation, of course, continues at high pace and strong momentum. And I am very pleased to say that we have identified an opportunity to further accelerate the phaseout of the automotive contract manufacturing that will benefit both businesses. It will require some additional transfers of assets, which means that we now plan to list our Automotive business during Q4 2026. And clearly, I will come back to more details around this later in my presentation. I will also take this opportunity at this call to reiterate some of the key messages from our Capital Markets Day in November, really outlining the foundation for how we see long-term value creation in both our future businesses. So with that then, if we move in and start by taking a look at the full year 2025. Net sales came in just south of SEK 92 billion, representing a flattish organic growth or to be specific, negative 0.4%, where Industrial grew some 1% and Automotive negative organic growth at around 4%. The adjusted operating margin actually improved to 12.7% in the year despite very challenging market conditions, geopolitical tensions and significant headwind from currencies. The net cash flow from operations ended at north of SEK 8 billion at SEK 8.4 billion, which is somewhat lower or SEK 2.5 billion lower than the year before. And the reason for this is spelled items affecting comparability, which amounted to almost SEK 3 billion in the full year. And the main drivers there was our rightsizing initiative that we initiated in 2025, our ongoing footprint optimization activities and of course, our efforts to separate our Automotive business. When it comes to dividend, the Board will propose to the shareholders at the AGM a maintained dividend at SEK 7.75 per share, which actually represents or reflecting our strong financial performance. They will also recommend that this year, it will be paid out in 2 tranches, one in April and one in October. If we then turn to the fourth quarter and take a brief look at that, we have net sales at SEK 22 billion, which is a flat year-over-year organic growth, in line with our guidance. We do have organic growth in our Industrial business, as I will talk to more shortly, while we have still a negative demand environment or slow demand environment in Automotive. The adjusted operating margin moved up to 11.8%. And the main drivers for this improvement comes from a good price/mix activities to compensate for tariffs. The rightsizing program contributes with almost SEK 200 million in the quarter. We have finalized our world-class manufacturing program that is also contributing in the quarter. And we also have had generally a very efficient cost management, not at least within Automotive and also when it comes to material costs. Net cash flow in the quarter, SEK 2.7 billion. This is some SEK 0.5 billion roughly less than what we reported the same quarter last year. And again, items affecting comparability is part of this. The main cash drain though has been the auto separation, and that's ongoing. Costs related to our rightsizing is coming in here. And then we have also in the quarter, closed our manufacturing operations in Argentina. But you're going to hear from Susanne, who will give you some more color to this as well shortly. If we then move on to our sales by region. And let's start from the top with our largest region, EMEA, where you can see we have flattish organic growth. But if we then break it up by the different segments, we see positive organic growth in our Industrial business, primarily driven by aerospace, magnetics and also off-highway. In general, I would say that for Industrial in Europe, we see that the market has bottomed out, but we don't really see any significant signs of a significant bounce back or uptick in the market, but a sound and solid bottoming out is clearly there. When it comes to Automotive, it's more challenging, still rather soft market environment and is reflected in low demand for light vehicles and also commercial vehicles in Europe, while the aftermarket business is holding up a bit better. Turning to Americas, also flattish growth in general. Here as well, we have positive organic growth in our Industrial business, to a large extent driven by tariff-related price increases to compensate for tariffs. But if we break out some geographies -- or sorry, some Industrial verticals that actually seems good development is aerospace. It's also high-speed machinery and automation. When it comes to Automotive, it's also a challenging market with soft demand and particularly in commercial vehicles for us in this region. China, Northeast Asia, single-digit organic growth on the holistic view. Again, here, we have organic growth in our Industrial business, and that was primarily driven by distribution, which actually had a good ending of the year. We also saw that the wind-related prebuys, they did end in Q3 as we expected. We actually have a negative organic growth in Automotive, but that is driven by a tough comparison, especially for light vehicles in the quarter. So if we break that apart a bit, I'm pleased to say that our EV business continues to grow at high pace in the region as well as solid development in commercial vehicles. And finally, India and Southeast Asia, flattish on a total level on the Industrial side, so also actually flattish growth. Here, we are facing tough comparisons, which is the main driver. In general terms, we see good demand development in India and Industrial verticals such as heavy industries, agriculture and automation contributes to growth. We are flattish in Automotive in the region, where we see good development in commercial vehicles, while actually it's been a bit soft in the aftermarket business in this particular region. If we then turn to our segments and start with the Industrial business, as you can see on the top hand of this chart, represents some 73% of our net sales in the quarter and 96% of the adjusted operating profit in the quarter. As I said, we are reporting organic growth here just north of 2%, driven by Europe or EMEA, Americas and China and Northeast Asia. The adjusted operating margin is strong, 15.6%, up versus 14.6% the year before, driven by the price/mix activities that I mentioned to compensate for tariffs. The rightsizing benefits of almost SEK 200 million hits here -- contributes here because it's targeted towards our Industrial segment, as you know. We also have the world-class manufacturing program that is helping and contributing in the quarter. And all of this enabled us to actually offset a rather significant currency headwind that is eating some 1 percentage points into our earnings in the quarter. Then on Automotive, representing 27% of net sales and 4% of the adjusted operating profit in the quarter. As I mentioned, more soft demand development, negative organic growth of close to 6%. Here, main drivers we find in EMEA and Americas. But as I mentioned, also in China, but it's more kind of a comparison to last year on the light vehicle side. Again, EVs are continuing to perform well for us in China. The adjusted operating margin is weak, only 1.7% in the quarter despite very strong development in cost takeout when it comes to material costs, but it struggles to fully compensate for a rather significant currency headwind, as you can see here of almost 3 percentage points in the quarter. I think it's important to zoom out a bit and reflect on the auto business for the full year. And for the full year, the adjusted operating margin is relatively unchanged, just north of 4% despite this turmoil, low-demand environment and significant currency headwind. It's also comforting to mention that throughout 2025, we have won a number of strategically and margin-accretive contracts that builds a strong foundation for our Automotive business as we move into the future. And some of those contracts are also related to the aftermarket business, which means that they will also start to contribute already in 2026. If we then leave the numbers and start to zoom in on some of the strategic initiatives, I want to focus today on the automotive separation, where the program as such continues at high pace with a very, very good momentum and we're delivering according to our plans. But we have recently identified an exciting opportunity to actually faster reduce the contract manufacturing between the entities by moving or releasing some additional assets to Automotive. This will be beneficial both for our future Industrial business and our Automotive business. It will drive further competitiveness. And what are those benefits then? Well, as I mentioned, it's clearly we can reduce the contract manufacturing faster. But it's also for Industrial, we can improve the capacity utilization. For Automotive, they will have a better control of a larger part of their value chain that will drive competitiveness for them. And longer term, this will also further reduce the CapEx need in our Automotive business. But these additional transfers will take us some additional efforts, and that means that we now plan to list our Automotive business during Q4 2026. But it's also important to stress that this additional asset transfer will be managed within the already announced cost and capital expenditure for the automotive separation as we presented it at the Capital Markets Day in November. And the contract manufacturing will, at point of separation, be roughly the same as we mentioned also in November, however, though, with a much steeper decline trajectory thereafter. So we're excited about this, and this will create an even stronger starting point for both businesses. Finally, before I hand over to Susanne, just to reiterate some of the key messages from our Capital Markets Day. How do we build -- laying the foundation for long-term value creation. As we have said, since we embarked on this journey, there are very different dynamics between Industrial and Automotive. And we laid out the plan for the value creation of Industrial that rests on 3 pillars and 7 levers, where the 3 pillars were reignite growth, innovation leadership and business-driven value chains. And for Automotive, their value creation plan rests on 2 pillars and 5 strategic levers, where the pillars are accelerate growth and then build lean and fit-for-purpose organizational and supply chain structures. For Industrial, we also named the long-term targets that you can see here on this chart, while we were a bit more vague on the Automotive side. And the Automotive team will come back during 2026 closer to the listing with their own Capital Markets Day and again then be more specific on their long-term targets. So more to come here during 2026. And for those of you that may have missed the information at the Capital Markets Day, are curious to learn more, please visit skf.com, where you find all the information. So with that, it's time to hand over to Susanne to take you through the more details in the numbers. Susanne? Susanne Larsson: Thank you, Rickard, and good morning, everyone. I'm pleased to be here with Rickard today and announce our quarter 4 results. So the financial summary. So as you have heard, net sales was down 11%. So while we finished the year with a flat organic growth, there was a significant and continued FX headwind. The gross margin was 25.7%, which is then slightly below last year. But if you then adjust for the one-off costs, the gross margin stands at 28.7% and slightly better than last year. The adjusted operating margin ended at 11.8%, again, a proof of our improved margin resilience. And I will further comment on that on the following page. The one-off costs in the quarter added up to approximately SEK 1 billion, where half was related to the ongoing automotive separation and the other half was related to our footprint optimization where the closure of our Argentinian manufacturing operation in October was the main one. Let me try to explain the result in quarter 4 year-over-year, elaborating on the organic cost currency and structural explanations. Starting off from left to right. So although we had a flat organic growth, we had a positive result impact of SEK 113 million and improved our margin with 0.5 percentage point. This positive margin effect was mainly generated by the positive price/mix actions within Industrial business, compensating for an overall weaker Automotive. Our cost management generated a strong contribution to the profit and a 1.7 percentage point improvement to the margin. And there are some main drivers of that. The first one to talk about is the rightsizing activities that are now starting to give a positive contribution year-over-year of some SEK 190 million. This impact falls positively through our results as the dissynergies of automotive separation will come from the start of next year, where Automotive will be operating more independent within the SKF Group. The main dissynergies will be derived from IT and their management structures and consequently offset the impact of the rightsizing activities. By that, I still reconfirm the positive impact of the rightsizing activities of some SEK 2 billion and the relatively linear effect until the end of 2027. Moving on, we also have a positive impact of the world-class manufacturing savings that now have come to an end, and we have finalized the program. And we have continued positive material cost effects, and this comes mainly from Automotive, but also from our product mix. And as you heard Rickard say, when it comes to tariff, we continue to largely compensate for those also in this quarter, and we do expect that this is the case also moving into quarter 1, given what we know today. Currency effects continue to be significantly negative and reduced our reported sales by 10.6% and impacted our operating margin by 1.4 percentage points of negative effect. And the main currencies are the same. They are dollars, CNY and Turkish lira. Structure is minor and referred to last year's acquisition of John Sample Group, net of the divestment of aerospace handover that we completed in the spring. Moving on to cash flow. In quarter 4, we delivered a solid cash flow, where one-off charges impacted cash flow by SEK 1 billion. In this picture, the starting point is the operating profit for the quarter, and that ended at SEK 1.6 billion, which is some SEK 0.8 billion lower than last year, and this is mainly explained by the higher amounts of one-off costs and the negative currency effects. The noncash items is higher than last year as a consequence of reducing the provisions related to the rightsizing program from now payouts. Taxes paid in the quarter was SEK 685 million, higher than last year, while in line with the full year last year, if we look at the full year values. Changes in working capital was good, and we ended at a positive SEK 1.4 billion, which is some SEK 300 million better than last year and explained by less buildup of AR and more AP at year-end than last year, but also with a minor improvement in inventory. This led us to a quarter 4 cash flow from operations of SEK 2.8 billion. From that, we deduct SEK 1 billion of CapEx and ended with a cash flow after investments of SEK 1.8 billion. For the full year, the operating cash flow amounted to SEK 8.4 billion compared to SEK 10.8 billion last year. And in 2025, we then have a cash outflow from IOCs amounting to SEK 3 billion. Balance sheet and return on capital employed. Our net debt, excluding pension, declined from SEK 7.5 billion in the end of quarter 3 to SEK 5.7 billion this quarter end and the full year-end. And this is due to positive cash flow, but also a stronger Swedish krona. Net debt in relation to equity, excluding pension, reduced from 13% to 10%. Net debt in relation to EBITDA, excluding pension, reduced further to 0.5. Including pension, we ended at 1. The adjusted return on capital employed remained stable at 14.3%. So as Rickard said, SKF ended the year with a good cash flow, with a strong liquidity and a low net leverage. Hence, the Board has decided to propose to the AGM a dividend of SEK 7.75 per share to be paid in 2 installments, one in April and the other in October. And this corresponds to 45% of the adjusted net profit. Now I come to my last slide related to the outlook. So we expect the market demand in quarter 1 to remain at a similar level of quarter 4. Consequently, we expect an organic sales to strengthen somewhat in quarter 1 year-over-year, supported by also more favorable comparisons. The guidance for quarter 1 with respect to FX, we anticipate a further negative impact of earnings sequentially in quarter 1. This is driven by a continued weakness of dollar against Swedish krona alongside with mainly Turkish lira. So we now estimate the impact to be minus SEK 800 million year-over-year for quarter 1, given the rates we had by the end of the year last year. When it comes to guidance for the year, the tax rate is expected to be 28%. And there, we exclude both automotive separation implication as well as divestments. CapEx, we estimate to end next year at some SEK 5 billion, where the industrial part is in line with what we communicated at the Capital Market Day of 5% in relation to sales, while we, for Automotive, have some further separation-related investments that are also included. We have also decided to guide for one-off items related to the automotive separation and footprint optimization as we also communicated those at the Capital Markets Day. So we anticipate this to be in the range of minus SEK 2.5 billion to SEK 3 billion for this year, and this is fully in line with the SEK 6.5 billion guidance for the period of quarter 4 2025 up until 2028. Finally then, the guidance for the full year NIAC does not include capital gains from the divestment of [ LTM ] and that we expect to soon close. So by that, over to you again, Rickard. Rickard Gustafson: Thank you, Susanne. And before we move into the Q&A session, let me just take a few minutes to summarize the quarter and the full year. We have navigated throughout 2025 and also, of course, end the fourth quarter in a rather challenging waters in terms of geopolitical uncertainty, a lot of volatility and a lot of tension in the world. Unfortunately, I do not think that 2025 will be in the history books a unique year, but rather a new norm. So we need to continue to navigate in a volatile environment. Therefore, I'm very pleased that we can report an improved adjusted operating margin improvement, both in the fourth quarter and for the full year, demonstrating the margin resilience that we have dragged so hard in the last few years. Strategically, we are excited about the future. There will be a lot of activities in 2026 to finalize the separation that is planned now, as you heard, for Q4 2026 and that we have found a way to strengthen the starting point even further for both the Industrial and Automotive business that we are very excited about. But then we'll not just focus on the separation in 2026. We will also -- and the organization is fully charged to work on delivering on those strategic pillars that I mentioned that will be the foundation to unlock the full potential of both our Industrial and Automotive business. So these 2 things will be the main focus in 2026 to finalize the separation and gear up for profitable growth in both our businesses. So with that, I thank you so far for your attention and turn over to the Q&A session. Sophie Arnius: Yes. Thank you. And we will now open up for questions. And there are 2 ways to do that. [Operator Instructions] And we will start with a question here from the telephone line. And before we do that, I can see that there are quite many of you that want to ask questions. So please, if you can ask one question and then if there is time, you can happily join the Q&A queue again. So -- but we will start with a question from Klas Bergelind at Citi. Klas Bergelind: Klas Bergelind at Citi. So I just want to zoom in a bit on the dissynergies versus the rightsizing here into the first quarter. First, on the savings, you did SEK 190 million already in the fourth quarter. And Susanne, you're still saying the savings would be linear and that will reach the SEK 2 billion run rate end of '27. But if it's linear, I get this to a SEK 2 billion level earlier than end of '27? Or do you expect the pace to slow here into the first quarter, i.e., do we have an abnormally high savings quarter. And then obviously, the other side of it is the cost side, out of the around SEK 1.5 billion of total dissynergies that we can read from your Capital Markets Day slides, how much of those dissynergies do you expect here in the first quarter? And that was, I realize now, a very long way of asking what is the likely net effect that we should look at here from dissynergies to savings into the first quarter? Sophie Arnius: And Susanne, do you want to shed some light? Susanne Larsson: I will do my best. So you're right. Starting off with the savings then. So we have had a good pace in settling with employees, as we have said, and we have come to more than 80% of agreements before the end of the year. So we had slightly more positive impacts in this quarter falling through our P&L, while we now, from now onwards, anticipate it to be a linear path up until the SEK 2 billion by the end of 2027. So that's the benefit part of it then. And when it comes to the cost and the dissynergies then, so as from 2026, by design, you could say, we will operate Automotive as an independent organization within SKF, allowing them to have a fully dedicated management that is now being onboarded and also having own IT structures, et cetera. So that will start to come in play already from next quarter. And we believe that the positive implications will be offset by these negative dissynergies that we will take on. So that's what we will say about that. Klas Bergelind: So just to clarify, Susanne, you say from the second quarter, this will [indiscernible] turn and then... Rickard Gustafson: Next quarter. Susanne Larsson: From the next quarter, I mean, sorry. Rickard Gustafson: Next quarter is actually in Q1. So starting from Q1, sorry. Susanne Larsson: Next quarter is quarter 1. Sorry for confusing. First quarter. Klas Bergelind: Okay. But -- yes. But the dissynergies in the first quarter will still be greater than the savings from the rightsizing because that is, I think, what you write in the report, right, in the first quarter. Susanne Larsson: That's correct. That's correct. Sophie Arnius: It will be somewhat larger. And of course, then the pace of the rightsizing savings will, of course, increase in the coming quarters, Q2 and onwards. Klas Bergelind: Can I squeeze in just a very, very quick final question on the outlook just very quickly. When you say somewhat higher sales growth, is it 1%, 2%, 3%? Because consensus is around 3%. And the reason why I ask that is, if you look at Automotive, it's down 5.8% year-over-year. But if you look at light vehicle production forecast into the first quarter, it can get much worse than that. So it would imply to reach expectations that Industrial is growing mid- to high single, and that looks quite high. So I'm just curious, Rickard, sort of between Industrial and Automotive, how we should think about the growth within the guide? Rickard Gustafson: Right. Somewhat, we will not quantify what that means in numbers. But you should think about it that, as we said, that the activity levels will remain roughly the same as we have had in Q4. That will mean that from a comparison point of view, Q1 over Q1, we will report a somewhat organic growth in Q1. And as we had in Q4, you're right, we have seen an organic growth in our Industrial business, while Automotive has still been in a softer market environment. And that's what we imply also when we say that the market activities will roughly remain the same. Sophie Arnius: We will now move on to the next question, and that comes from Daniela Costa at Goldman Sachs. Daniela Costa: I wanted to ask on 2 upcoming regulations, I guess, that are coming and then how do you see them impacting the business and how you deal with that. First, I guess, sort of the steel import quotas into Europe, maybe if you can give us a little bit of an idea how you source into Europe and if that means something or nothing for you and then CBAM and how you would reflect that going forward? Sophie Arnius: Rickard, it's a question for you here. Rickard Gustafson: Right. When it comes to steel in Europe, we primarily source our steel that we consume in Europe within Europe. So that is not a major headache for us. CBAM can have some implications, and there are -- lobbying still ongoing on how to fully implement this because it may impact -- I'm not talking about SKF in Pacific, but European companies rather, that there might be some disadvantages versus other companies that originate in other parts of the world than Europe. So I think the -- we watch that one closely, and we are engaged in with those channels that we can to find a good implementation of that legislation. Sophie Arnius: We move on to John Kim at Deutsche Bank. John-B Kim: I'm wondering if we could focus a bit on the separation time line. You did cite the changing nature of the contract manufacturing relationship. Can you confirm for us that the time line is not being impacted by external parties, whether it be tax authorities, unions, regulatory bodies? Rickard Gustafson: I can answer that one. Yes, I can confirm that. It has nothing to do with that. The program as such is actually running extremely efficient. I dare to stick out my neck and say where we're really holding the timetable we set up from the beginning with a lot of the heavy lifting in terms of IT cutovers and legal restructuring and all of that. I'm rather impressed how well the organization has stepped up to this challenge and the efficiency in how we drive this program. But as we have -- as market has evolved and so forth, we have identified this opportunity to actually faster reduce the contract manufacturing by reallocating some of the assets in a different way than we originally planned. And when we saw that and we saw the benefits and we realized that this will actually create an even stronger starting point for both businesses, we were very eager to go after that opportunity. And therefore, we feel confident with the planned listing timing now for Q4 2026. So it's not driven by any conflicts internally, not at all. Sophie Arnius: And we will continue with a question from Seb Kuenne at RBC. Sebastian Kuenne: Again, on the separation, I mean, you talk now about value creation for both businesses. But the way I understand it, you simply shift some production lines into Automotive to deepen the value chain and to buff up the margin for Automotive. But at the same time, you take business away from Industrial. So how does that create value for both businesses? I still don't understand the logic behind it. To me, it's just helping Automotive to float in the market, but at the detriment to Industrial. Where am I going wrong here? Sophie Arnius: Rickard, could you please respond to this? Rickard Gustafson: Sure. I think maybe where you might struggle a bit is that at the moment and given the low demand environment that we experienced for quite some time, we have said before that we are far from maximizing our utilization. So we have found a way to shuffle some of the assets around a bit and free up more capacity. So we're not taking any business away from Industrial, but we are avoiding to having a lot of undercapacity -- unnecessary capacity. So that's kind of the main benefit for the Industrial side and also reducing -- thereby reducing contract manufacturing will also be a positive contributor in long term also for Industrial. So there are a number of good things for Industrial here as well. So we truly believe that this is a good thing. And if I may, I don't want to be criticized here in any shape or form, but just saying more likely just shuffling around some assets. It is a little bit more complicated than that, I must say. So to just say so -- tell you about the reality that we face as well. Sebastian Kuenne: But you can't create business out of thin air. So the business is what the business is -- demand is what demand is. And by moving assets from right to left, how does that increase capacity utilization? I can only explain it by you basically taking out some more capacities and just make the business a bit more streamlined, right? Rickard Gustafson: That is true. That is true that we do get a stronger, better asset utilization. And also, we are then believing that longer term, we will continue to also increase growth and improve growth in our Industrial business that will further utilize assets. But as a starting point, you're right. It's really to set the utilization at a better rate from starting point. Sophie Arnius: And we will continue with a question from Rory Smith at Oxcap. Rory Smith: It's Rory from Oxcap. I was going to ask on the Q1 guidance, but I guess I'll stay on the topic of this contract manufacturing piece. Maybe coming at it from a different angle here. If the separation is going to take a little bit longer and the jumping off point is the same at 5% of Industrial sales, but the phasing down is going to be more aggressive. A, can you give any kind of indication or comment on how quickly you do expect that 5% to go to 0%? And then thinking that through, does that put some upside risk to the medium-term margin target for Industrial if we're going to get there quicker? That would be my question. Rickard Gustafson: Right. I can't give you -- quantify any of this, but you're right. We do see, as I said, that this will be a steeper reduction of contract manufacturing than we planned originally. You mentioned that it will go to 0. I hope that we've been very clear. The plan is not to take it to 0, but it's going to be a rather low final amount. There's a tail assortment that will make no sense to shift around. So there will be some trading also longer term, but that will not have any material impact. So the vast majority will disappear. And you're right, we did say at the Capital Markets Day that we needed this midterm -- in the midterm -- at that time, we said for the next 2 to 3 years to finalize this, to reach our midterm target. That has not changed. We're now saying that there are 2 years left on that, and that's kind of where we're aiming to. And exactly the difference and how much faster, we will not go into any details, but it will not have a negative risk in terms of delivering on our midterm target, no. Sophie Arnius: And we will continue with a question from Alex Jones at Bank of America. Alexander Jones: Maybe continuing on the auto spin. Is there a critical mass of profitability in terms of margins or absolute profits that you think you need before the spin in order to ensure sufficient liquidity and size in the new company? And therefore, do the low margins this quarter influence in your mind, the spin time line going forward at all? Rickard Gustafson: Right. Of course, we have very sound plans for our Automotive business that will take it to a certain profitability level and cash generation level. We cannot really disclose any details of those. But as I said during my comments -- during my presentation part, in Q4 -- sorry, for the full year, the margin is relatively unchanged and that we have throughout the year, won a number of strategically important contracts that are margin accretive. The business that we want to win, we normally win. That indicates a strong respect and trust among our customers and that we have a very competitive offer, both technology-wise and price-wise. So that is building a strong foundation. So we have very positive views on the long-term buildup of Automotive. And the Q4 in isolation, that we had a tough quarter also with a lot of impact from FX, as I mentioned, has not made any influence on our decision to plan for the spin in Q4 2026. Sophie Arnius: We will continue to Andre Kukhnin at UBS. Andre Kukhnin: Yes. Can I just start with the clarification on the dissynergies versus savings and to make sure we kind of have the right math. So if you said we're going to go from SEK 750 million run rate to SEK 2 billion during 2026 and '27, that's SEK 1,250 million over 2 years and hence, SEK 625 million per annum, so round down to SEK 600 million. Are we right to think that during 2026, you were expecting dissynergies to be around that SEK 600 million equivalent to the savings, but the run rate will be higher in Q1 and Q2. And then in Q3 and Q4, you'd expect the savings to start exceeding dissynergies. Is that the right way to think about it? Sophie Arnius: Susanne, do you want to comment on this? Susanne Larsson: I'm sure we will be able to disclose this by quarter because I realize the importance of both the rightsizing and the dissynergies. So we are prepared to do that. But as we said, then you're right, with a run rate of this year of SEK 750 million, we will end 2027 with a run rate of the SEK 2 billion we are committed to save. And we will now have relatively linear throughout these 2 years, and we are taking on dissynergies that will more than offset now already in quarter 1. And I think that means that we will have dissynergies in line with the savings throughout this year until we spin the business. And then we will have, of course, the leverage of the rightsizing program that will more than compensate for dissynergies and contract manufacturing as we stated at the Capital Markets Day. Andre Kukhnin: Great. That's really helpful. And if I may, just a much broader question on pricing and your ability to price up and to pass through headwinds. In 2025, you're clearly surprised positively on that. Do you think from that experience, are we -- should we be more confident on your ability to do that in 2026 as well? Or should we worry about kind of price exhaustion and customer tolerance to that, that's starting to fade and hence, it becomes a bigger challenge as I'm sure there will be other headwinds to pass through as we go through 2026. Sophie Arnius: Rickard, could you answer this one? Rickard Gustafson: I'd be happy to. Given the tariffs that we know today, we are confident that we will be able to largely compensate for that also in 2026, where the net negative impact will be found in Automotive, but we will largely compensate. And I do believe -- if I leave tariffs aside for a second, I do believe that 2026 will not be a year of large general price increases. I don't think there is room for that in the market. However, though, we will always do specific or targeted price increases where possible. And clearly, when we deliver new solutions or engage with new customers, we also focus on the value that we provide rather than just the cost of manufacturing the bearing. So that will continue clearly throughout the year. If tariff landscape will change materially during 2026, we will have to take that on and find a way to mitigate that as well. It's hard to second guess because there might be a limit at some point how much you're able to push through. But no one really knows -- and really, no one really knows what might come. So I feel confident that we have demonstrated that when things happen, we are fast, reacting fast. Our organization takes the right measures, and we're able to compensate. And we're going to do everything in our power to maintain that regardless what they throw at us. Sophie Arnius: We will continue with a question from Andreas Koski at BNP Paribas. Andreas Koski: I also have a question on cost savings, but not related to the rightsizing program, rather to the world-class manufacturing program that you've been running for, I think, 5 years now. And when it was launched, you said that you were going to save like SEK 5 billion on COGS, which implies that, that has generated cost savings of about SEK 1 billion a year. So I just want to check if that was sort of the savings number that you had in 2025 and if there will be any carryover effects in '26 or if the savings from the world-class manufacturing will be 0 now from now on and forward? Susanne Larsson: I confirm your assumptions. So we have finalized the program. This autumn, we have the SEK 5 billion ambition level that we delivered on, and we will expect continued benefits of that as we move along into also '26. Yes. Sophie Arnius: So there will -- yes, it will be a bridge effect, you can say, primarily the first half of this year. Good. Let's continue with a question from Rizk Maidi at Jefferies. Rizk Maidi: Yes. It's just really a clarification and maybe it's something that I misunderstood. So on the rightsizing savings, we're talking about roughly SEK 600 million to be achieved in 2026. And I think at the Capital Markets Day, you talked about dissynergies to be roughly around SEK 1.5 billion. As you -- my understanding this morning is you're trying to scale the dissynergies closer to the savings number, but it's still a big number. It's SEK 1.5 billion. And I think Automotive needs to stand on its 2 feet by the end of this year because that's when the listing is going to happen. Can you just help us sort of bridge that gap between the SEK 600 million and the SEK 1.5 billion this year. I think this is really what the market is struggling with this moment. Susanne Larsson: So when we have talked about the rightsizing program that we initiated last summer, we have said that we will have an annual benefit of that of SEK 2 billion, and that will more than compensate for the dissynergies and the contract manufacturing. So that's what we said as a general remark then. When it comes to the savings, that will now be linear as you imply. And if we talk about the dissynergies then, that will then -- and that is again why we actually launched the rightsizing program is to rightsize the industrial organization, and that work is ongoing, but it's also to cover up for the independence of Automotive that we are taking on now to be able to spin by the end of this year. So we are now trying to say how that benefit is offsetting the dissynergies and how we will then -- when we have left Automotive, be in a better place still with the contract manufacturing from the takeoff. Rizk Maidi: Okay. Okay. And then just very quickly, does the CapEx plans for the Industrial business now changing given the transfer of assets that you're going from Industrial to autos? Susanne Larsson: No, no, it will not. So we remain with the 5% of sales for Industrial in spite of this scope change of the transfer. Sophie Arnius: Good. And that is at the point of departure and then it will decline faster as we talked about here. We have time for a final question, and that will come then from Daniela Costa at Goldman Sachs. Daniela Costa: I wanted to follow up on the point on tariffs. You've been very clear you're going to compensate that, I guess, from a margin perspective and passing that through. Have you observed sort of any trends in terms of market share or everyone is doing the same price increase pretty much in the market? Just wondering when you talk about compensating fully, if you are willing to give up on market share as part of that or the industry is just all increasing by the same? Rickard Gustafson: I would say that so far, it seems like the industry has gone down the same path. So it's a bit too early to tell, but we have no indication that we have lost market share in any general terms. But rather, as you say, that our competitors, they also safeguard their earnings and reacting and trying to compensate themselves for these tariffs. So maybe a bit premature to be too specific, but we have no indication that we are losing market share. Sophie Arnius: Thank you. And that was our final question. And before we end, Rickard, do you want to give some concluding remarks here? Rickard Gustafson: I'd be happy to. And thank you for joining us this morning. I am pleased that we are able to navigate in rather challenging environment and maintaining a resilience and even improved adjusted operating margin. That demonstrates a shift in behavior and capabilities in SKF over the years. And that to me, it's also a proof point that our strategy that we launched a few years back is delivering in line with what we anticipated. We are eager to gear up for growth. Clearly, we have been in a long period in a negative demand environment. We foresee that, as we said, that Q1 will be roughly in line with Q4, but we are preparing for an uptick. And given what we have done in the past, I'm again very convinced that we will have a very strong starting point and some good leverage once the market turns back up again. We are committed and confident about our plans for Automotive. We're excited about this small shift in the asset reallocation that would drive -- create an even better starting point. And as I mentioned, the organization is now really gearing up to deliver on those strategic pillars that will unlock the full potential of our business. So we're excited about the future. More to come, and I thank you so much for your attention today and wish you a lovely weekend once you get to that. Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Orchid Island Capital Fourth Quarter 2025 Earnings Conference Call. At this time, all presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Melissa Alfonso. Please go ahead. Melissa Alfonso: Thank you, Debbie. Good morning, and welcome to the Fourth Quarter 2025 Earnings Conference Call for Orchid Island Capital. This call is being recorded today, 01/30/2026. At this time, the company would like to remind the listeners that statements made during today's conference call relating to matters that are not historical facts are forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Listeners are cautioned that such forward-looking statements are based on information currently available on the management's good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in such forward-looking statements. Important factors that could cause such differences are described in the company's filings with the Securities and Exchange Commission, including the company's most recent annual report on Form 10-Ks. The company assumes no obligation to update such forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking statements. Now I would like to turn the conference over to the company's Chairman and Chief Executive Officer, Mr. Robert Cauley. Please go ahead, sir. Robert Cauley: Thank you, Melissa, and good morning. I hope everybody's had a chance to download our deck off of our website. As usual, that's what we will be using for the basis of the call today. And, again, as usual, I'll just walk you through the deck. I'm joined here today by Jerry Sintes, our controller, and Hunter Haas, our chief financial officer and chief investment officer. Starting on the third page, I'll just kind of give you an outline. Jerry will quickly go through our results and discuss our liquidity position. I'll then go through the market developments, which basically shape the market that we operated in and the impact that that had on both our results for the fourth quarter and then also our outlook going forward into 2026. Then Hunter will spend some time discussing the portfolio, hedge positions and so forth, developments during the quarter, positioning in the portfolio as of today. And then we'll have a few concluding remarks. We have some information in the appendices that we want to share with you. And then we will take your questions. So with that, I'll turn it over to Jerry. Jerry Sintes: Thank you, Bob. If we go to page five, I'll begin with financial highlights for the fourth quarter. During the fourth quarter, we earned $103.4 million in net income, which equates to 62¢ per share compared to 53¢ in Q3. Our book value at the end of the quarter was $7.54 compared to $7.33 at the end of Q3. Stockholder's equity at the end of Q4 was approximately $1.4 billion. We paid dividends during the quarter of 36¢, which has been the same rate for a couple of years now. Total return for the quarter, taking into account the change in book value and the dividend, was 7.8% for Q4 compared to 6.7% for Q3. During Q4, we had average MBS of $9.5 billion compared to $7.7 billion in Q3. The actual balance was $10.6 billion, so we grew a lot, approximately 27% during the quarter. Leverage for Q4 was 7.4%, which is the same as Q3. Liquidity during the quarter at the end of the quarter was 57.7% and 57.1% at the end of Q3. That's a little higher than our historic numbers, which are usually around percent. The reason for that is primarily because of lower haircuts, which are around 4% at the end of the year. Prepayment speeds for the quarter were 15.7% compared to 10.1% in Q3. On pages seven and eight are our financial statements, which you can read in the deck or in our earnings release last night. And now I'll turn it back over to Bob. Robert Cauley: Thanks, Jerry. I will start with the market developments on page 10. I always do. The top left, this treasury curve here, this curve is actually a very good place to start because it basically encapsulates what went on during the quarter, recognizing that these three lines just represent snapshots, if you will, of the cash curve as of 09/30, 12/31, and 01/23 or one week ago. In fact, rates were more or less steady throughout the quarter, and rates traded in a very tight range, realized interest rate volatility obviously was in for low, and implied vol in the swap ship market was declining throughout the quarter and really has declined for quite some time. What's behind this? Well, typically, economic data for one as it comes out tends to drive interest rate movements. Prior to the quarter, the data was basically considered to be suspect because of well-discussed issues at the various entities that collect the data. Then we had the government shutdown on 10/01. So, basically, we went from having suspect data to no data at all. And then when the government reopened, you had very much delayed data that was still considered suspect. So, basically, there was not much to drive interest rate other than geopolitical events, or political events, which did, but not meaningful. So. If you look to the right, you can see the swap curve is fairly similar but it did move more, and that's all swap spreads. And I'll discuss in a few moments why that is, but we basically had swap spreads moving up as in less negative and that's why you see movement in the curve from the red line up to the blue and the green line. If you look at the spread between the three-month treasury and the ten-year bill, really hasn't changed much over for over a year, but there's been movements elsewhere in the curve. Moving on to slide 11. This is very germane to what's going on. The spread of the current coupon mortgage to the ten-year treasury you can see, this is a very long look back period. This goes all the way back to 2010. And the thing that sticks out very obviously is how much we've tightened of late and especially since year-end. The most recent data point there is last Friday, you can see it's at about 80 basis points. You look back to the period, say, between the taper tantrum and '13, up until the outbreak of the COVID pandemic, mortgages trade in a very tight range centered at approximately 75 basis points, say. We're basically there. And, obviously, the most recent development which just becomes evident on the bottom left, when you just look at these prices. This is, again, the same chart we always use. These are selection of thirty-year fixed-rate mortgages 3%, four, five, and six, and these are normalized prices. So this basically shows you the price movement relative to the starting point the beginning of the quarter. And as you can see, especially with respect to lower coupons, they had a very good quarter. And then if you kind of try to focus in on what happened around January 8 when the administration announced that the GSEs would be buying up to $200 billion of mortgages performance was affected. In the case of lower coupons, they went materially higher. In the case of higher coupon, sixes, they gave up performance. And the reason Operator: As reflected in the rural market, for any of the higher coupons five, five and a half, and six and above. Are for very, very fast speeds. And lower coupons did very, very well. Looking to the right, you can see in the rural market, especially the four roll and the three and a half have been really much on fire very strong. And this reflects the relative value trading because these coupons are below par, not gonna be cited to prepayments. And if the markets rallied, these will be obviously the targets for purchases. So they've done extremely well. So the technical they're strong. And that being said, going forward into 2026, to the extent that plays out and those coupons are produced because rates are lower, then the supply will overwhelm the demand and that probably relative performance will delay. But that very much remains to be seen. Moving on to slide 12, I talked to Moe and Bill about swaption volatility. You can see that this trend is very, very clear and strong past year-end even today. Vol continues to decline. The peak that you see there on the top left, that's day, 2025. We all know what happened that day. But ball has done nothing but come off and continues to do so. And if you kinda look at it in a historical context, going on the bottom of the page, we go back to you know, ten plus years now, pretty much back to the levels that we were at, back during the days of the Fed rate suppression regime when the Fed was using QE to keep rates artificially low and doing so, obviously, based suppress volatility, and it was indeed suppressed very low for many years. And we're basically turning to the next slide. On slide 13, we see a sample of swap spreads. The blue line is the two-year swap. And the purple line is a ten-year. And as you can see, going back to the quarter and really since the second half of the year, these have been moving higher or less negative. Why is that? Well, the Fed announced at the October meeting that they were going to end QT. The market anticipated that. Swap spreads started to move. And then they announced in December that they're meeting reserve management program in which they are going to be buying up to $40 billion of bills. And so the logic behind that is the recognition on the part of the Fed as the economy grows, that their balance sheet should grow in proportionate fashion. As a result, they will be growing, so they're taking out bills which also helps bring the Fed treasury holdings in line with the outstanding universe of treasuries because historically, they have not owned bills. And also has implications for the funding market because bills are an investment option for money market lenders. And to the extent that the Fed is buying them, that allows more funding available for repo. Such as ourselves, repo borrowers. Our hedge position, and Hunter will discuss this in greater detail later, but as you can see, we look at our hedge positions from the perspective of DVO one. That's just our sensitivity of our hedge instruments the movements and rates. And you can see it's very heavily concentrated in swaps. And this is the reason why, what we just discussed. We had expect that this may continue for some time. Moving on to Slide 14. These are the same trucks we've had for a while. As you can see, something has changed, but not much. On the top left, the red line is in the mortgage rate. But it's still at 6.38%. And the refi index while it's higher, it's not high. It's still quite low. I think if you look on the right-hand chart, you get an idea why while mortgages have tightened substantially, and we mentioned that the current coupon mortgage spread to the ten-year treasury was 80 or 90 basis points. The ten year's about $4.25. And these spreads and available mortgage rates to borrowers are still north of six. So the spread for the borrower, not for mortgage-backed security, but for the borrower is still relatively wide. It has not tight as much as mortgage-backed securities have. As a result, mortgage rates available to borrower are still close to 200 off the ten year. And therefore, refinancing activity involves picked up some, it's still not particularly high. Chart 15, just basically the same picture I like to show. The red line just shows you the supply of money M2, and the blue line is just the economy, GDP, and nominal terms. And as the chart implies, the economy is still awash in liquidity. The takeaway from my list, I believe, is that it's hard to say that financial conditions are overly tight. And if you look at the economy, the GDP data, retail sales, you know, there's not really weakened precipitously, and this might be help explain why that might be. With that, that's the end of my discussion of the MAC backdrop. I will turn it over to Hunter to discuss the portfolio. Hunter Haas: Thanks, Bob. Turning to slide 17. Just a few highlights for the quarter. During the quarter, we purchased $3.2 billion of agency expenses agency specified pools. The breakdown of the purchases is $892 million in Fannie fives, $1.5 billion in Fannie 5 and a halfs, $600 million in Fannie sixes, and $283 million in Fannie 6 and a halfs. All these pools had some form of call protection. Primarily, lower loan balances, loans that were originated in refined challenged states like New York or Florida, and loans backed by borrowers with low credit scores high LTVs, or high DTIs or the like, some sort of credit impairment that would keep them from being able to refinance as readily as borrowers that didn't have those constraints. On a modeled yield, our acquisitions were in basically the low 5% range. And we did sell some assets that were yielding us mid fours, at the time we sold them. The model yield on I'm sorry. The repositioning enhanced our carry profile while mitigating our exposure to higher rates. And spread widening as the higher coupon mortgages, have much less spread duration sensitivity than the lower coupons that we sold. 18 is a new chart we just put in to kind of recapture what happened throughout the course of the year. Over 2025, we experienced substantial growth, doubling both our equity base and MBS portfolio. Important to note that this growth occurred at a time when MBS spreads were at wides, allowing us to build a portfolio with strong long-term return potential. The line on slide shows a time series of Morgan Stanley index that tracks zero volatility spread over the treasury curve. For a hypothetical thirty-year, MBS priced at par. And the green shaded area highlights the timing of our asset purchases during 2025 and into early 2026. Over 75% of the $7.4 billion in acquisitions that we made during the last year and a month or so occurred at a time when me and Nick's when this index was well over 100 basis points. On average, the spread level of all of our was 108 basis points. And, that's the weighted average of the Morgan Stanley index at the time we made the acquisitions, I should say. So turning to slide 19. As you can see, we've talked about this in the past, our portfolio evolution. As mortgage spreads tightened throughout the year, we increased our allocation to production and premium coupons. Primarily fives through six and a halfs. This strategic shift reflects the fact that lower coupon MB Edge which carry greater spread sensitivity, I. Duration, significantly outperformed higher coupon assets during the course of the last year. Initially, we executed this sort of strategic portfolio shift through acquisitions deploying new capital into higher coupons. And then in mid-December, we took more active portfolio, management approach by actually selling lower yielding threes, three and a halfs, and fours, reallocating that into higher carrying, lower duration, spread duration pools, the five to six and a half percent range as I previously discussed. Turning to slide 20, just to make a few quick notes about our funding costs. Our funding costs saw meaningful improvement over the quarter, driven primarily by Federal Reserve policy actions. Benefited from two rate cuts and the Fed's announcement that it would begin purchasing $40 billion in treasuries per month plus an additional roughly $15 billion tied to MBS paydowns, through its reserve management purchase program. Oregon's average repo rate declined from 4.33% at the beginning of the quarter to 3.98% by quarter end. After the December 10 FOMC meeting, SOFR initially settled in to the upper three sixties. Before spiking to three eighty seven into, year end. During that time, repo spreads to SOFR also widened kind of pushing from the mid teens into the low to mid 20 basis point range. So we've had a little bit of funding pressure going into year end. Since year end, the funding environment improved markedly SOFR settled in the $3.63 to $3.65 range. And Orchid's repo spreads have trended to the to the 14 basis point area, call it, so we're kind of on track to turn over the repo book in sort of the 3.8% range, going into next few months as we don't really expect any Fed cuts before the next governor's sworn in. Turning to slide one. I just wanna do a overview of the hedges. Our hedge notional remained relatively stable. Over the quarter. At the end of the quarter, were 69% of outstanding repo, just slightly lower than the 70% it was in at the end of the third quarter. The unhedged notional portion of the portfolio stands to benefit from a material decline in short-term rates. And tighter repo funding spreads as monetary policy continues to ease. As roles weaken and mortgage spreads tighten, we also adjust our hedges positions by, increasing our TBA shorts. Primarily in fives through six and a halfs. As mortgages tighten, we put on a little bit of basis hedge. It's not material, but, you know, just sort of legging in as as as we saw mortgages that tightened for several months in a row. We added pay fix swaps on the very front end of the curve, further improving our, downside. Rate protection? Slide 22, in a little more detail, this slide helps visualize the hedge adjustments I just discussed. The end of the third quarter, we had virtually no outright TBA hedges. The short positions you see here reflected a fifteen thirties coupon swap we had in place, which we've maintained for several months. Now as shown here, we're outright short five and a halfs and six and a halfs. And we put on a small short of fives, in early January. On the treasury hedge side, we continue to reduce our exposure there. And it's reflected in the top left table. And then as we require as we acquired new specified pools, we hedged them almost entirely with interest rate swaps. And we were focused more on the very front end of the curve. As rates come down to duration of the portfolio is shortened, and we put these hedges on, at a time when there were still several rate cuts, baked into 2026. Which is on around a little bit since. Net of the unwinds that we did during the quarter, we added $950 million to your pay fixed swaps $800 million three years, $90 million five years, and $75 million in seven years. Strategy is aimed at locking in, as I said, the market predicted rate cuts will fine-tune the hedge book to account for shorter net duration of the portfolio. On slide 23, just gonna kind of quickly go over some of the risk metrics in the portfolio. We'd like to follow these measures. You'll notice portfolio duration remains low at two point o eight. That's a direct result of our higher coupon SKU, which carries less duration of exposure than the lower coupon alternatives. The shorter duration profile is a key part of our risk management strategy. Perform better in a sell-off or spread widening event, which we think could occur. It offers us more defensive positioning than the threes, three and a halfs, and fours, which we sold in December. On the other hand, this profile, is will benefit less from further tightening, which we've actually seen in January. Which is consistent with our modestly lagging performance versus so what some of the other for some of the peer group has reported since Trump's announcement in January, how they wanted the GSEs to purchase $200 billion more MBS in their retained portfolios. Also, just wanna note that OAS shown here So for OAS for fives, to six and a half remains quite attractive, and the fifty sixty basis point range, reflecting strong call protection in our portfolio. For comparison, when we published Q2 Q2 earnings call deck, the same OAS levels were at least 20 basis points wider. This tightening reflects improved technicals and more constructive tone in agency MBS markets. But also speak to still how, well-timed our 2025 purchases were. Slide 24 I'll discuss the interest rate risk profile. You see we continue to maintain a very flat interest rate profile. You know, this portfolio has some negative convexity. This is reflected in the fact that both the plus digit and minus 50, interest rate shocks show small mark to market losses. It's a natural result of hedging and a convex agency MBS asset with more linear instruments like swaps and futures. December 31, our DVO one stood at a 122,000 long. As of now, more recently, it's increased slightly to a 178,000. The duration gap also moved modestly throughout the fourth quarter. It was negative point o seven years at nine thirty. Point one two positive point one two years at twelve thirty one, and currently sits at approximately point one seven years. Turning to slide zero twenty five. Prepayment speeds were a major focus during the fourth quarter, especially given a relative underperformance of up in coupon TPAs. However, as we've emphasized in the past, Orchid's is exclusively invested in specified pools with call protection. This and this positioning insulated us from the more dramatic impacts seen in the TBA markets. That's been that said, she did trend a little bit higher in the quarter, particularly for six sixes and higher coupons. Which reduced carry slightly and trimmed yields in those positions. Looking forward, we expect prepay speeds to moderate modestly, which would improve carry. We continue to closely monitor in light of the potential Fed actions and influence of GSU related policy headlines that could put a little bit of upward pressure on speeds. But think that most of that is probably baked in at this point. To wrap it up, 2025 was a was a great year for us. We took advantage of the dislocated market. And stay while staying very disciplined with respect to risk and liquidity. We raised capital when spreads were wide. Put it to work in production, coupons, and call it protected pools that should deliver great carry with lower interest rate sensitivity. Continue to manage our leverage tightly. With a year with the we ended the year with a very flat duration profile. And, our hedging where we see the most risk, which is continued to be sort of into a reignition of inflation type of bear steepening rate shock scenario. That's where we think that companies like ours get pinched the hardest. So with that, I'll turn it back over to Bob for his concluding remarks. Robert Cauley: Alright. Thanks, Hunter. Thank you very much. Just a couple of things I wanna go over. Just kinda spend a few moments just talking about our outlook. Hunter did a very good job of disclosing how discussing how we're positioned in our hedge outlook and so forth. But it seems even though mortgages have tightened quite a bit, based on what you see in the market and the sentiment in the market, it seems that it could continue. Especially if you look at alternative assets available to multi-sector fixed income investors. Investment grade corporate spreads are at or near the tightest levels we've seen since the late nineties. High yield spreads, tight as well. And there's at least a prospect of the GSEs, you know, becoming more active, guess debatable. How much $200 billion per year represents in terms of an increase because from what we see, their current run rate's not far from that. But in any event, to the extent they become stay there or become more active, you could see mortgages tighten further from here. And then with respect to just the rate outlook, generally speaking, and, you know, with what would be on the horizon that would thank you you think we're gonna see a meaningful change. You know, there isn't anything really there now, although, as know, those are famous last words. So to the extent we kinda stick around here, mortgages continue to grind tighter, the portfolio should do well. You know, we everybody in our space is benefited from the benign rate environment in the fourth quarter and really two twenty five generally. We could see a continuation of that. And until we get the next black swan event or shock, it should remain a decent environment. Certainly, compared to a year ago, mortgages aren't as attractive. But that being said, I don't think it's unrealistic to think we could see some further tightening. One thing I do wanna point out though, which is I think very important, I wanna turn your attention to slide seven. And we discussed this. Jerry went over this brief. But what I want to point out, if you look on Slide seven in our balance sheet, you can see that the company basically doubled over the course of the year size-wise. So whether it's shareholders' equity, or our total assets, they basically increased by a little over 100%. If you look at the income statement for the year, on slide eight, you see that our expenses were up much less than 100%. Now you could argue that that's somewhat misleading because the growth occurred over the year. And what's more relevant is kinda your run rate at the end of the year, which would be consistent with the current size. That's a valid point. So if you look at the income statement on the prior page, page seven for the fourth quarter, you compare the '25 to the '24, that should capture the lion's share of that growth. And indeed, our expenses did go up but certainly far far less than double. And so now I wanna turn your attention to a slide in the appendix which is if I can get there. Slide 33. In slide 33, this is what we kind of our expense ratio. So, this is all of our G and A expenses. Inclusive of our management fee in relation to our shareholders' equity. And as you can see, you know, back pre-COVID, we were running in the high twos close to 3%. Then we had the COVID breakout, and then, of course, this prolonged Fed tightening cycle, which forced some deleveraging in our expense ratio got up over five. But now we're running our current run rate as of the 2025 is 1.7%. I'm not gonna name names, but we all know that there are two other agency REITs out there that are substantially larger than us and their expense ratios are not meaningfully below that. So when you get our 10-K next month, you will see, for instance, that our management fee did go up in fact, over the course of the year. The rest of our G and A expenses only increased very marginally. So we have been controlling expenses and allowing the company to grow obviously, and this is the byproduct. This is the benefit of that is bringing the expense ratio down so that just makes the company more profitable on a go forward basis, all else equal. And then the final thing I wanna bring your attention is, given that it's year-end, on slide 42, this information has been lifted right off of our website. And on the bottom of the page, or on the top of page, you see the dividends for 2024. And 2025. As you can see, for every month, the dividend was 12¢. The next column, tax total ordinary dividends. That's basically taxable income derived dividends and then the nondividend distribution in the second to last column, that is just the return of capital. So that basically tells you that in the case of nine 2024, that 95.2% of our dividends were derived from taxable income, and in the case of 2025, 95% were derived from taxable income. The dividend was 12¢ per month for the year. Basically, we were distributing all of our taxable income. Had the dividend been, say, for instance, 11¢ instead of 12 we would have slightly under distributed our taxable income and either had to make a special dividend at the end of the year or opted to potentially pay tax on the undistributed earnings. So wanna, you know, bring this to your attention, show you that the dividend policy does reflect current taxable income. Both for the 2025 and 2024. And that our dividend in relation to the taxable income is very slightly over distributed, less than five last year and 5% this year. So with that, I will turn the call over to questions, operator. 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. And our first question comes from Mikhail Goberman of Citizens. Your line is open. Mikhail Goberman: Is doing well. Hi. How are you, Joe? Well. Thank you. A little cold here, but it's alright. Couple of questions. I guess we could start and forgive me if I missed this. I dialed in maybe three or four minutes after ten. Any update on current book value? I will not give that. We have accrued and reflected the dividend in our current book. So our book is up just ever so slightly reflective of the dividend. After the dividend accrual, we'd be up I think, 1.6%. Robert Cauley: Okay. So we're basically up just slightly. Inclusive of the accrual of the dividend. Mikhail Goberman: Inclusive of the dividend. Okay. I was wondering if you could get your thoughts on prepays. Going forward, obviously, the CPR went up quarter over quarter given the portfolio construction. But also, prepays with respect to your prepaid protected portfolio. And what kind of what kind of premiums you guys are paying on those on those prepaid protected pools. Especially. Robert Cauley: I'll say a few words, and then I'll turn it over to Hunter. I would say that this the securities in the portfolio, targeted par to slight premiums. As you can see on the charts, five and five and a half six, and lesser extent, six and a but it's mostly five and a halfs and sixes. And those are modest prepays. We're not paying up for the highest forms of protection. So the premiums have been tried, you know, mindful to keep the premiums kind of from too being too high. I'll turn it over to Hunter, and I wanna say a few words about the prepay outlook beyond the next few months. Hunter Haas: Yeah. So over the last couple of years, we've really tried to focus on I'd say the bulk of our acquisitions have been in just sort of, like, the first premium coupon or the first discount coupon. And we were you know, at times, able to you know, even add sevens with, you know, using that strategy. So from a historic cost perspective, we've always been very tight, not getting too far out in the premium land. And we focused really more on kind of the mid-tier call protection. We think that the the old low load balance you know, eighty five one ten k's, you know, those are really expensive stories. New York's have gotten pretty pretty expensive. We really focused a lot more on, sort of leaning into this so-called k-shaped recovery by focusing on more credit-sensitive borrowers. You think that they have a hard time refinancing, doing buying things like high LTV, first-time homebuyer, type of pools. You know, we've focused on geos like state of Florida is great. There's it is an there's a tax that's punitive for refinancing, but also home price depreciation is really sort of, helping out with the portfolio there. So we've seen very good performance, especially after the Trump announcement about the the GSEs. The sort of the knee jerk reaction was that the higher coupon MBS TBAs didn't perform very well at all. But you know, once things kind of stabilize, we've really seen good appreciation in all of those specified pool stories underlying those coupons. And as I alluded to in my prepared remarks, we've taken advantage of the fact that roles have weakened in order to shed a little bit of basis exposure because those roles are so cheap now, it actually makes a little bit of sense to be short the TBA and long the specified pool. So kinda how we're thinking about things. Robert Cauley: Yep. Just to add some one number to that, if you go on slide 34, and you can do this. I'll just try the numbers. You don't have to do it right now. But the weighted average current price at year-end was basically one of two and a half. So that would be all in price. Yep. By comparison, the price at the September was, you know, a little over $1.00 1. Call it $1.00 1 and two ticks. So we shifted the portfolio up in couponing the weighted average coupon at the end of the third quarter was $5.50. It's now $5.64. So slightly higher. But, of course, the market has moved. So the price is at one of basically, $1.00 2 and eighteen. Is the is the price. Yeah, it's a premium, but we've tried to avoid real high premiums. Just not that kind of market. I mean, we going back to post-COVID, you know, we were buying New York's threes with, like, dollar prices of $1.10 and change. Right? So you know, we just don't have the kind of premium in the marketplace now that owing to the kind of the relatively high nature of of of interest rates. So it will compress earnings to the extent that we see an acceleration in speeds. And, but we could think the combination of the call protection we have in the portfolio and the fact that we just don't have huge premiums on is not gonna remove the needle too much. Hunter Haas: Yeah. I would just add that look at the roll market, you know, five and a half, sixes, and six and a halfs, the speeds implied in those rolls for the next few months are extremely high, 55, 60 CPR. That's fine for the next few months. But if you kinda step back and look at the balance of the year, I think a number of market participants, ourselves included, don't really think we're gonna see a lot more Fed cuts. I think the economy is quite strong. The inflation's good sell ups. Now let's think about that. So the current Fed funds rate is three four and the two-year yields, like, three fifty four. So if you don't think the Fed's gonna cut rates much over the next two years, you really think the two-year should be yielding loaded Fed funds? Second question you might ask is, given that, do you think that for instance, twos tens is going to invert? I don't think so. So the current ten years at four and a quarter, if the two-year moves higher, unless that curve flattens, the ten years should also move higher. So now you've gone to till your tenure's going from four and a quarter to whatever, four fifty. The current mortgage rate available to borrowers is six or low sixes. Right? And so if rates are gonna go higher over the next year, I don't that rate's not going down unless mortgage rates to borrowers tighten substantially. I don't know how likely that is. So if you have to available borrowing rate at six, six and a half pushing up to 7%, know, a 6% mortgage-backed security implies basically a 7% gross WACC. Know, that's not that in the money. Especially if mortgage rates push to six fifty and higher. So are they gonna sustain fifty and sixty CPR? Don't know. But I think there's kind of an inconsistency in market pricing between the mortgage dollar roll market and the, say, for instance, market pricing of Fed cuts. There's they don't seem to jive. Anyway, that's my 2¢. Mikhail Goberman: Thank you. That's very helpful. If I can squeeze in one more, I appreciate the good work done on getting expenses down. How much more do you, you know, available capacity you guys have for driving that down further going forward? Do you think? Robert Cauley: Well, it's the I don't I get you the numbers. Maybe we'll try to work on it for next quarter, but almost all of the increase in our expenses was management fee. Unfortunately, we don't have detailed line item expenses here, but I know, from memory, like, reading through you know, drafts, nonmanagement fee expenses were only up in the few $100,000. So it's gotten to the point that pretty much it's the management fee, and our and our marginal management fee is a 100 basis points. Yeah. Right? And, you know, our management fee is $2.50 to first layer is up to $250 million, and there's a lay that's a 150 basis points. Then from $2.50 to $500 is a 100 and a quarter, and everything over $500 million is a So now every dollar of capital we raise, the manage marginal management fee is a 100 basis points. And the nonmanagement fee expenses are going up very modestly and low percentage points. So know, just as we if we double from here, don't I don't have I have to run the numbers, but it's that trend would continue. I don't know how much lower it goes, but it should be asymptotic towards 1%. Right? Mikhail Goberman: Gotcha. If the capital were $500 billion, our math deal that we have. Pay ourselves something. But, I mean, management fee would be basically a 100 basis points plus whatever your, you know, audit fee and your legal fee and whatever. So that's that's kind of where it could go. Robert Cauley: That makes sense. Thank you, guys. Appreciate it. Operator: Thank you. I'm showing no further questions at this time. I'd like to turn it back to Robert Cauley for closing remarks. Robert Cauley: Thank you, operator. I hope we didn't scare everybody off the call with the length of that answer. But to the extent anybody has call or questions that come up either because you didn't have time to answer them, ask them now, or you didn't listen to the call and you wanna catch us later. Please feel free to do so. The number in the office is (772) 231-1400. Otherwise, we look forward to talking to you again in next quarter. Thank you. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Sophie Arnius: A warm welcome to this call focusing on SKF's performance in Q4 2025. We are ending the year with improved adjusted operating margins, both at the group level and in our large industrial business area. And this was mainly driven by strong cost management, but also solid commercial execution. I'm Sophie Arnius, heading up Investor Relations. With me, I have our CEO, Rickard Gustafson; and our CFO, Susanne Larsson. After their presentations, there will be opportunities for you to ask questions. And there are 2 ways to do that. [Operator Instructions] So without further ado, it's a great pleasure to hand over to you, Rickard. Rickard Gustafson: Thank you very much, Sophie, and good morning, and thank you for joining us for this earnings call. I am pleased to once again report an improved adjusted operating margin year-over-year despite very challenging market conditions and headwind from currency. As you can see from the chart on the right-hand side, in the quarter, we do report flat organic growth, which is in line with our guidance. It's important to stress that this does not imply we compared to Q3 that we have deteriorated market activities in Q4 versus Q3, but rather a consequence of tougher comparisons. We do report organic growth in our Industrial business, while we still see some softer demand in our Automotive that are still in a declining organic growth territory. The Automotive separation, of course, continues at high pace and strong momentum. And I am very pleased to say that we have identified an opportunity to further accelerate the phaseout of the automotive contract manufacturing that will benefit both businesses. It will require some additional transfers of assets, which means that we now plan to list our Automotive business during Q4 2026. And clearly, I will come back to more details around this later in my presentation. I will also take this opportunity at this call to reiterate some of the key messages from our Capital Markets Day in November, really outlining the foundation for how we see long-term value creation in both our future businesses. So with that then, if we move in and start by taking a look at the full year 2025. Net sales came in just south of SEK 92 billion, representing a flattish organic growth or to be specific, negative 0.4%, where Industrial grew some 1% and Automotive negative organic growth at around 4%. The adjusted operating margin actually improved to 12.7% in the year despite very challenging market conditions, geopolitical tensions and significant headwind from currencies. The net cash flow from operations ended at north of SEK 8 billion at SEK 8.4 billion, which is somewhat lower or SEK 2.5 billion lower than the year before. And the reason for this is spelled items affecting comparability, which amounted to almost SEK 3 billion in the full year. And the main drivers there was our rightsizing initiative that we initiated in 2025, our ongoing footprint optimization activities and of course, our efforts to separate our Automotive business. When it comes to dividend, the Board will propose to the shareholders at the AGM a maintained dividend at SEK 7.75 per share, which actually represents or reflecting our strong financial performance. They will also recommend that this year, it will be paid out in 2 tranches, one in April and one in October. If we then turn to the fourth quarter and take a brief look at that, we have net sales at SEK 22 billion, which is a flat year-over-year organic growth, in line with our guidance. We do have organic growth in our Industrial business, as I will talk to more shortly, while we have still a negative demand environment or slow demand environment in Automotive. The adjusted operating margin moved up to 11.8%. And the main drivers for this improvement comes from a good price/mix activities to compensate for tariffs. The rightsizing program contributes with almost SEK 200 million in the quarter. We have finalized our world-class manufacturing program that is also contributing in the quarter. And we also have had generally a very efficient cost management, not at least within Automotive and also when it comes to material costs. Net cash flow in the quarter, SEK 2.7 billion. This is some SEK 0.5 billion roughly less than what we reported the same quarter last year. And again, items affecting comparability is part of this. The main cash drain though has been the auto separation, and that's ongoing. Costs related to our rightsizing is coming in here. And then we have also in the quarter, closed our manufacturing operations in Argentina. But you're going to hear from Susanne, who will give you some more color to this as well shortly. If we then move on to our sales by region. And let's start from the top with our largest region, EMEA, where you can see we have flattish organic growth. But if we then break it up by the different segments, we see positive organic growth in our Industrial business, primarily driven by aerospace, magnetics and also off-highway. In general, I would say that for Industrial in Europe, we see that the market has bottomed out, but we don't really see any significant signs of a significant bounce back or uptick in the market, but a sound and solid bottoming out is clearly there. When it comes to Automotive, it's more challenging, still rather soft market environment and is reflected in low demand for light vehicles and also commercial vehicles in Europe, while the aftermarket business is holding up a bit better. Turning to Americas, also flattish growth in general. Here as well, we have positive organic growth in our Industrial business, to a large extent driven by tariff-related price increases to compensate for tariffs. But if we break out some geographies -- or sorry, some Industrial verticals that actually seems good development is aerospace. It's also high-speed machinery and automation. When it comes to Automotive, it's also a challenging market with soft demand and particularly in commercial vehicles for us in this region. China, Northeast Asia, single-digit organic growth on the holistic view. Again, here, we have organic growth in our Industrial business, and that was primarily driven by distribution, which actually had a good ending of the year. We also saw that the wind-related prebuys, they did end in Q3 as we expected. We actually have a negative organic growth in Automotive, but that is driven by a tough comparison, especially for light vehicles in the quarter. So if we break that apart a bit, I'm pleased to say that our EV business continues to grow at high pace in the region as well as solid development in commercial vehicles. And finally, India and Southeast Asia, flattish on a total level on the Industrial side, so also actually flattish growth. Here, we are facing tough comparisons, which is the main driver. In general terms, we see good demand development in India and Industrial verticals such as heavy industries, agriculture and automation contributes to growth. We are flattish in Automotive in the region, where we see good development in commercial vehicles, while actually it's been a bit soft in the aftermarket business in this particular region. If we then turn to our segments and start with the Industrial business, as you can see on the top hand of this chart, represents some 73% of our net sales in the quarter and 96% of the adjusted operating profit in the quarter. As I said, we are reporting organic growth here just north of 2%, driven by Europe or EMEA, Americas and China and Northeast Asia. The adjusted operating margin is strong, 15.6%, up versus 14.6% the year before, driven by the price/mix activities that I mentioned to compensate for tariffs. The rightsizing benefits of almost SEK 200 million hits here -- contributes here because it's targeted towards our Industrial segment, as you know. We also have the world-class manufacturing program that is helping and contributing in the quarter. And all of this enabled us to actually offset a rather significant currency headwind that is eating some 1 percentage points into our earnings in the quarter. Then on Automotive, representing 27% of net sales and 4% of the adjusted operating profit in the quarter. As I mentioned, more soft demand development, negative organic growth of close to 6%. Here, main drivers we find in EMEA and Americas. But as I mentioned, also in China, but it's more kind of a comparison to last year on the light vehicle side. Again, EVs are continuing to perform well for us in China. The adjusted operating margin is weak, only 1.7% in the quarter despite very strong development in cost takeout when it comes to material costs, but it struggles to fully compensate for a rather significant currency headwind, as you can see here of almost 3 percentage points in the quarter. I think it's important to zoom out a bit and reflect on the auto business for the full year. And for the full year, the adjusted operating margin is relatively unchanged, just north of 4% despite this turmoil, low-demand environment and significant currency headwind. It's also comforting to mention that throughout 2025, we have won a number of strategically and margin-accretive contracts that builds a strong foundation for our Automotive business as we move into the future. And some of those contracts are also related to the aftermarket business, which means that they will also start to contribute already in 2026. If we then leave the numbers and start to zoom in on some of the strategic initiatives, I want to focus today on the automotive separation, where the program as such continues at high pace with a very, very good momentum and we're delivering according to our plans. But we have recently identified an exciting opportunity to actually faster reduce the contract manufacturing between the entities by moving or releasing some additional assets to Automotive. This will be beneficial both for our future Industrial business and our Automotive business. It will drive further competitiveness. And what are those benefits then? Well, as I mentioned, it's clearly we can reduce the contract manufacturing faster. But it's also for Industrial, we can improve the capacity utilization. For Automotive, they will have a better control of a larger part of their value chain that will drive competitiveness for them. And longer term, this will also further reduce the CapEx need in our Automotive business. But these additional transfers will take us some additional efforts, and that means that we now plan to list our Automotive business during Q4 2026. But it's also important to stress that this additional asset transfer will be managed within the already announced cost and capital expenditure for the automotive separation as we presented it at the Capital Markets Day in November. And the contract manufacturing will, at point of separation, be roughly the same as we mentioned also in November, however, though, with a much steeper decline trajectory thereafter. So we're excited about this, and this will create an even stronger starting point for both businesses. Finally, before I hand over to Susanne, just to reiterate some of the key messages from our Capital Markets Day. How do we build -- laying the foundation for long-term value creation. As we have said, since we embarked on this journey, there are very different dynamics between Industrial and Automotive. And we laid out the plan for the value creation of Industrial that rests on 3 pillars and 7 levers, where the 3 pillars were reignite growth, innovation leadership and business-driven value chains. And for Automotive, their value creation plan rests on 2 pillars and 5 strategic levers, where the pillars are accelerate growth and then build lean and fit-for-purpose organizational and supply chain structures. For Industrial, we also named the long-term targets that you can see here on this chart, while we were a bit more vague on the Automotive side. And the Automotive team will come back during 2026 closer to the listing with their own Capital Markets Day and again then be more specific on their long-term targets. So more to come here during 2026. And for those of you that may have missed the information at the Capital Markets Day, are curious to learn more, please visit skf.com, where you find all the information. So with that, it's time to hand over to Susanne to take you through the more details in the numbers. Susanne? Susanne Larsson: Thank you, Rickard, and good morning, everyone. I'm pleased to be here with Rickard today and announce our quarter 4 results. So the financial summary. So as you have heard, net sales was down 11%. So while we finished the year with a flat organic growth, there was a significant and continued FX headwind. The gross margin was 25.7%, which is then slightly below last year. But if you then adjust for the one-off costs, the gross margin stands at 28.7% and slightly better than last year. The adjusted operating margin ended at 11.8%, again, a proof of our improved margin resilience. And I will further comment on that on the following page. The one-off costs in the quarter added up to approximately SEK 1 billion, where half was related to the ongoing automotive separation and the other half was related to our footprint optimization where the closure of our Argentinian manufacturing operation in October was the main one. Let me try to explain the result in quarter 4 year-over-year, elaborating on the organic cost currency and structural explanations. Starting off from left to right. So although we had a flat organic growth, we had a positive result impact of SEK 113 million and improved our margin with 0.5 percentage point. This positive margin effect was mainly generated by the positive price/mix actions within Industrial business, compensating for an overall weaker Automotive. Our cost management generated a strong contribution to the profit and a 1.7 percentage point improvement to the margin. And there are some main drivers of that. The first one to talk about is the rightsizing activities that are now starting to give a positive contribution year-over-year of some SEK 190 million. This impact falls positively through our results as the dissynergies of automotive separation will come from the start of next year, where Automotive will be operating more independent within the SKF Group. The main dissynergies will be derived from IT and their management structures and consequently offset the impact of the rightsizing activities. By that, I still reconfirm the positive impact of the rightsizing activities of some SEK 2 billion and the relatively linear effect until the end of 2027. Moving on, we also have a positive impact of the world-class manufacturing savings that now have come to an end, and we have finalized the program. And we have continued positive material cost effects, and this comes mainly from Automotive, but also from our product mix. And as you heard Rickard say, when it comes to tariff, we continue to largely compensate for those also in this quarter, and we do expect that this is the case also moving into quarter 1, given what we know today. Currency effects continue to be significantly negative and reduced our reported sales by 10.6% and impacted our operating margin by 1.4 percentage points of negative effect. And the main currencies are the same. They are dollars, CNY and Turkish lira. Structure is minor and referred to last year's acquisition of John Sample Group, net of the divestment of aerospace handover that we completed in the spring. Moving on to cash flow. In quarter 4, we delivered a solid cash flow, where one-off charges impacted cash flow by SEK 1 billion. In this picture, the starting point is the operating profit for the quarter, and that ended at SEK 1.6 billion, which is some SEK 0.8 billion lower than last year, and this is mainly explained by the higher amounts of one-off costs and the negative currency effects. The noncash items is higher than last year as a consequence of reducing the provisions related to the rightsizing program from now payouts. Taxes paid in the quarter was SEK 685 million, higher than last year, while in line with the full year last year, if we look at the full year values. Changes in working capital was good, and we ended at a positive SEK 1.4 billion, which is some SEK 300 million better than last year and explained by less buildup of AR and more AP at year-end than last year, but also with a minor improvement in inventory. This led us to a quarter 4 cash flow from operations of SEK 2.8 billion. From that, we deduct SEK 1 billion of CapEx and ended with a cash flow after investments of SEK 1.8 billion. For the full year, the operating cash flow amounted to SEK 8.4 billion compared to SEK 10.8 billion last year. And in 2025, we then have a cash outflow from IOCs amounting to SEK 3 billion. Balance sheet and return on capital employed. Our net debt, excluding pension, declined from SEK 7.5 billion in the end of quarter 3 to SEK 5.7 billion this quarter end and the full year-end. And this is due to positive cash flow, but also a stronger Swedish krona. Net debt in relation to equity, excluding pension, reduced from 13% to 10%. Net debt in relation to EBITDA, excluding pension, reduced further to 0.5. Including pension, we ended at 1. The adjusted return on capital employed remained stable at 14.3%. So as Rickard said, SKF ended the year with a good cash flow, with a strong liquidity and a low net leverage. Hence, the Board has decided to propose to the AGM a dividend of SEK 7.75 per share to be paid in 2 installments, one in April and the other in October. And this corresponds to 45% of the adjusted net profit. Now I come to my last slide related to the outlook. So we expect the market demand in quarter 1 to remain at a similar level of quarter 4. Consequently, we expect an organic sales to strengthen somewhat in quarter 1 year-over-year, supported by also more favorable comparisons. The guidance for quarter 1 with respect to FX, we anticipate a further negative impact of earnings sequentially in quarter 1. This is driven by a continued weakness of dollar against Swedish krona alongside with mainly Turkish lira. So we now estimate the impact to be minus SEK 800 million year-over-year for quarter 1, given the rates we had by the end of the year last year. When it comes to guidance for the year, the tax rate is expected to be 28%. And there, we exclude both automotive separation implication as well as divestments. CapEx, we estimate to end next year at some SEK 5 billion, where the industrial part is in line with what we communicated at the Capital Market Day of 5% in relation to sales, while we, for Automotive, have some further separation-related investments that are also included. We have also decided to guide for one-off items related to the automotive separation and footprint optimization as we also communicated those at the Capital Markets Day. So we anticipate this to be in the range of minus SEK 2.5 billion to SEK 3 billion for this year, and this is fully in line with the SEK 6.5 billion guidance for the period of quarter 4 2025 up until 2028. Finally then, the guidance for the full year NIAC does not include capital gains from the divestment of [ LTM ] and that we expect to soon close. So by that, over to you again, Rickard. Rickard Gustafson: Thank you, Susanne. And before we move into the Q&A session, let me just take a few minutes to summarize the quarter and the full year. We have navigated throughout 2025 and also, of course, end the fourth quarter in a rather challenging waters in terms of geopolitical uncertainty, a lot of volatility and a lot of tension in the world. Unfortunately, I do not think that 2025 will be in the history books a unique year, but rather a new norm. So we need to continue to navigate in a volatile environment. Therefore, I'm very pleased that we can report an improved adjusted operating margin improvement, both in the fourth quarter and for the full year, demonstrating the margin resilience that we have dragged so hard in the last few years. Strategically, we are excited about the future. There will be a lot of activities in 2026 to finalize the separation that is planned now, as you heard, for Q4 2026 and that we have found a way to strengthen the starting point even further for both the Industrial and Automotive business that we are very excited about. But then we'll not just focus on the separation in 2026. We will also -- and the organization is fully charged to work on delivering on those strategic pillars that I mentioned that will be the foundation to unlock the full potential of both our Industrial and Automotive business. So these 2 things will be the main focus in 2026 to finalize the separation and gear up for profitable growth in both our businesses. So with that, I thank you so far for your attention and turn over to the Q&A session. Sophie Arnius: Yes. Thank you. And we will now open up for questions. And there are 2 ways to do that. [Operator Instructions] And we will start with a question here from the telephone line. And before we do that, I can see that there are quite many of you that want to ask questions. So please, if you can ask one question and then if there is time, you can happily join the Q&A queue again. So -- but we will start with a question from Klas Bergelind at Citi. Klas Bergelind: Klas Bergelind at Citi. So I just want to zoom in a bit on the dissynergies versus the rightsizing here into the first quarter. First, on the savings, you did SEK 190 million already in the fourth quarter. And Susanne, you're still saying the savings would be linear and that will reach the SEK 2 billion run rate end of '27. But if it's linear, I get this to a SEK 2 billion level earlier than end of '27? Or do you expect the pace to slow here into the first quarter, i.e., do we have an abnormally high savings quarter. And then obviously, the other side of it is the cost side, out of the around SEK 1.5 billion of total dissynergies that we can read from your Capital Markets Day slides, how much of those dissynergies do you expect here in the first quarter? And that was, I realize now, a very long way of asking what is the likely net effect that we should look at here from dissynergies to savings into the first quarter? Sophie Arnius: And Susanne, do you want to shed some light? Susanne Larsson: I will do my best. So you're right. Starting off with the savings then. So we have had a good pace in settling with employees, as we have said, and we have come to more than 80% of agreements before the end of the year. So we had slightly more positive impacts in this quarter falling through our P&L, while we now, from now onwards, anticipate it to be a linear path up until the SEK 2 billion by the end of 2027. So that's the benefit part of it then. And when it comes to the cost and the dissynergies then, so as from 2026, by design, you could say, we will operate Automotive as an independent organization within SKF, allowing them to have a fully dedicated management that is now being onboarded and also having own IT structures, et cetera. So that will start to come in play already from next quarter. And we believe that the positive implications will be offset by these negative dissynergies that we will take on. So that's what we will say about that. Klas Bergelind: So just to clarify, Susanne, you say from the second quarter, this will [indiscernible] turn and then... Rickard Gustafson: Next quarter. Susanne Larsson: From the next quarter, I mean, sorry. Rickard Gustafson: Next quarter is actually in Q1. So starting from Q1, sorry. Susanne Larsson: Next quarter is quarter 1. Sorry for confusing. First quarter. Klas Bergelind: Okay. But -- yes. But the dissynergies in the first quarter will still be greater than the savings from the rightsizing because that is, I think, what you write in the report, right, in the first quarter. Susanne Larsson: That's correct. That's correct. Sophie Arnius: It will be somewhat larger. And of course, then the pace of the rightsizing savings will, of course, increase in the coming quarters, Q2 and onwards. Klas Bergelind: Can I squeeze in just a very, very quick final question on the outlook just very quickly. When you say somewhat higher sales growth, is it 1%, 2%, 3%? Because consensus is around 3%. And the reason why I ask that is, if you look at Automotive, it's down 5.8% year-over-year. But if you look at light vehicle production forecast into the first quarter, it can get much worse than that. So it would imply to reach expectations that Industrial is growing mid- to high single, and that looks quite high. So I'm just curious, Rickard, sort of between Industrial and Automotive, how we should think about the growth within the guide? Rickard Gustafson: Right. Somewhat, we will not quantify what that means in numbers. But you should think about it that, as we said, that the activity levels will remain roughly the same as we have had in Q4. That will mean that from a comparison point of view, Q1 over Q1, we will report a somewhat organic growth in Q1. And as we had in Q4, you're right, we have seen an organic growth in our Industrial business, while Automotive has still been in a softer market environment. And that's what we imply also when we say that the market activities will roughly remain the same. Sophie Arnius: We will now move on to the next question, and that comes from Daniela Costa at Goldman Sachs. Daniela Costa: I wanted to ask on 2 upcoming regulations, I guess, that are coming and then how do you see them impacting the business and how you deal with that. First, I guess, sort of the steel import quotas into Europe, maybe if you can give us a little bit of an idea how you source into Europe and if that means something or nothing for you and then CBAM and how you would reflect that going forward? Sophie Arnius: Rickard, it's a question for you here. Rickard Gustafson: Right. When it comes to steel in Europe, we primarily source our steel that we consume in Europe within Europe. So that is not a major headache for us. CBAM can have some implications, and there are -- lobbying still ongoing on how to fully implement this because it may impact -- I'm not talking about SKF in Pacific, but European companies rather, that there might be some disadvantages versus other companies that originate in other parts of the world than Europe. So I think the -- we watch that one closely, and we are engaged in with those channels that we can to find a good implementation of that legislation. Sophie Arnius: We move on to John Kim at Deutsche Bank. John-B Kim: I'm wondering if we could focus a bit on the separation time line. You did cite the changing nature of the contract manufacturing relationship. Can you confirm for us that the time line is not being impacted by external parties, whether it be tax authorities, unions, regulatory bodies? Rickard Gustafson: I can answer that one. Yes, I can confirm that. It has nothing to do with that. The program as such is actually running extremely efficient. I dare to stick out my neck and say where we're really holding the timetable we set up from the beginning with a lot of the heavy lifting in terms of IT cutovers and legal restructuring and all of that. I'm rather impressed how well the organization has stepped up to this challenge and the efficiency in how we drive this program. But as we have -- as market has evolved and so forth, we have identified this opportunity to actually faster reduce the contract manufacturing by reallocating some of the assets in a different way than we originally planned. And when we saw that and we saw the benefits and we realized that this will actually create an even stronger starting point for both businesses, we were very eager to go after that opportunity. And therefore, we feel confident with the planned listing timing now for Q4 2026. So it's not driven by any conflicts internally, not at all. Sophie Arnius: And we will continue with a question from Seb Kuenne at RBC. Sebastian Kuenne: Again, on the separation, I mean, you talk now about value creation for both businesses. But the way I understand it, you simply shift some production lines into Automotive to deepen the value chain and to buff up the margin for Automotive. But at the same time, you take business away from Industrial. So how does that create value for both businesses? I still don't understand the logic behind it. To me, it's just helping Automotive to float in the market, but at the detriment to Industrial. Where am I going wrong here? Sophie Arnius: Rickard, could you please respond to this? Rickard Gustafson: Sure. I think maybe where you might struggle a bit is that at the moment and given the low demand environment that we experienced for quite some time, we have said before that we are far from maximizing our utilization. So we have found a way to shuffle some of the assets around a bit and free up more capacity. So we're not taking any business away from Industrial, but we are avoiding to having a lot of undercapacity -- unnecessary capacity. So that's kind of the main benefit for the Industrial side and also reducing -- thereby reducing contract manufacturing will also be a positive contributor in long term also for Industrial. So there are a number of good things for Industrial here as well. So we truly believe that this is a good thing. And if I may, I don't want to be criticized here in any shape or form, but just saying more likely just shuffling around some assets. It is a little bit more complicated than that, I must say. So to just say so -- tell you about the reality that we face as well. Sebastian Kuenne: But you can't create business out of thin air. So the business is what the business is -- demand is what demand is. And by moving assets from right to left, how does that increase capacity utilization? I can only explain it by you basically taking out some more capacities and just make the business a bit more streamlined, right? Rickard Gustafson: That is true. That is true that we do get a stronger, better asset utilization. And also, we are then believing that longer term, we will continue to also increase growth and improve growth in our Industrial business that will further utilize assets. But as a starting point, you're right. It's really to set the utilization at a better rate from starting point. Sophie Arnius: And we will continue with a question from Rory Smith at Oxcap. Rory Smith: It's Rory from Oxcap. I was going to ask on the Q1 guidance, but I guess I'll stay on the topic of this contract manufacturing piece. Maybe coming at it from a different angle here. If the separation is going to take a little bit longer and the jumping off point is the same at 5% of Industrial sales, but the phasing down is going to be more aggressive. A, can you give any kind of indication or comment on how quickly you do expect that 5% to go to 0%? And then thinking that through, does that put some upside risk to the medium-term margin target for Industrial if we're going to get there quicker? That would be my question. Rickard Gustafson: Right. I can't give you -- quantify any of this, but you're right. We do see, as I said, that this will be a steeper reduction of contract manufacturing than we planned originally. You mentioned that it will go to 0. I hope that we've been very clear. The plan is not to take it to 0, but it's going to be a rather low final amount. There's a tail assortment that will make no sense to shift around. So there will be some trading also longer term, but that will not have any material impact. So the vast majority will disappear. And you're right, we did say at the Capital Markets Day that we needed this midterm -- in the midterm -- at that time, we said for the next 2 to 3 years to finalize this, to reach our midterm target. That has not changed. We're now saying that there are 2 years left on that, and that's kind of where we're aiming to. And exactly the difference and how much faster, we will not go into any details, but it will not have a negative risk in terms of delivering on our midterm target, no. Sophie Arnius: And we will continue with a question from Alex Jones at Bank of America. Alexander Jones: Maybe continuing on the auto spin. Is there a critical mass of profitability in terms of margins or absolute profits that you think you need before the spin in order to ensure sufficient liquidity and size in the new company? And therefore, do the low margins this quarter influence in your mind, the spin time line going forward at all? Rickard Gustafson: Right. Of course, we have very sound plans for our Automotive business that will take it to a certain profitability level and cash generation level. We cannot really disclose any details of those. But as I said during my comments -- during my presentation part, in Q4 -- sorry, for the full year, the margin is relatively unchanged and that we have throughout the year, won a number of strategically important contracts that are margin accretive. The business that we want to win, we normally win. That indicates a strong respect and trust among our customers and that we have a very competitive offer, both technology-wise and price-wise. So that is building a strong foundation. So we have very positive views on the long-term buildup of Automotive. And the Q4 in isolation, that we had a tough quarter also with a lot of impact from FX, as I mentioned, has not made any influence on our decision to plan for the spin in Q4 2026. Sophie Arnius: We will continue to Andre Kukhnin at UBS. Andre Kukhnin: Yes. Can I just start with the clarification on the dissynergies versus savings and to make sure we kind of have the right math. So if you said we're going to go from SEK 750 million run rate to SEK 2 billion during 2026 and '27, that's SEK 1,250 million over 2 years and hence, SEK 625 million per annum, so round down to SEK 600 million. Are we right to think that during 2026, you were expecting dissynergies to be around that SEK 600 million equivalent to the savings, but the run rate will be higher in Q1 and Q2. And then in Q3 and Q4, you'd expect the savings to start exceeding dissynergies. Is that the right way to think about it? Sophie Arnius: Susanne, do you want to comment on this? Susanne Larsson: I'm sure we will be able to disclose this by quarter because I realize the importance of both the rightsizing and the dissynergies. So we are prepared to do that. But as we said, then you're right, with a run rate of this year of SEK 750 million, we will end 2027 with a run rate of the SEK 2 billion we are committed to save. And we will now have relatively linear throughout these 2 years, and we are taking on dissynergies that will more than offset now already in quarter 1. And I think that means that we will have dissynergies in line with the savings throughout this year until we spin the business. And then we will have, of course, the leverage of the rightsizing program that will more than compensate for dissynergies and contract manufacturing as we stated at the Capital Markets Day. Andre Kukhnin: Great. That's really helpful. And if I may, just a much broader question on pricing and your ability to price up and to pass through headwinds. In 2025, you're clearly surprised positively on that. Do you think from that experience, are we -- should we be more confident on your ability to do that in 2026 as well? Or should we worry about kind of price exhaustion and customer tolerance to that, that's starting to fade and hence, it becomes a bigger challenge as I'm sure there will be other headwinds to pass through as we go through 2026. Sophie Arnius: Rickard, could you answer this one? Rickard Gustafson: I'd be happy to. Given the tariffs that we know today, we are confident that we will be able to largely compensate for that also in 2026, where the net negative impact will be found in Automotive, but we will largely compensate. And I do believe -- if I leave tariffs aside for a second, I do believe that 2026 will not be a year of large general price increases. I don't think there is room for that in the market. However, though, we will always do specific or targeted price increases where possible. And clearly, when we deliver new solutions or engage with new customers, we also focus on the value that we provide rather than just the cost of manufacturing the bearing. So that will continue clearly throughout the year. If tariff landscape will change materially during 2026, we will have to take that on and find a way to mitigate that as well. It's hard to second guess because there might be a limit at some point how much you're able to push through. But no one really knows -- and really, no one really knows what might come. So I feel confident that we have demonstrated that when things happen, we are fast, reacting fast. Our organization takes the right measures, and we're able to compensate. And we're going to do everything in our power to maintain that regardless what they throw at us. Sophie Arnius: We will continue with a question from Andreas Koski at BNP Paribas. Andreas Koski: I also have a question on cost savings, but not related to the rightsizing program, rather to the world-class manufacturing program that you've been running for, I think, 5 years now. And when it was launched, you said that you were going to save like SEK 5 billion on COGS, which implies that, that has generated cost savings of about SEK 1 billion a year. So I just want to check if that was sort of the savings number that you had in 2025 and if there will be any carryover effects in '26 or if the savings from the world-class manufacturing will be 0 now from now on and forward? Susanne Larsson: I confirm your assumptions. So we have finalized the program. This autumn, we have the SEK 5 billion ambition level that we delivered on, and we will expect continued benefits of that as we move along into also '26. Yes. Sophie Arnius: So there will -- yes, it will be a bridge effect, you can say, primarily the first half of this year. Good. Let's continue with a question from Rizk Maidi at Jefferies. Rizk Maidi: Yes. It's just really a clarification and maybe it's something that I misunderstood. So on the rightsizing savings, we're talking about roughly SEK 600 million to be achieved in 2026. And I think at the Capital Markets Day, you talked about dissynergies to be roughly around SEK 1.5 billion. As you -- my understanding this morning is you're trying to scale the dissynergies closer to the savings number, but it's still a big number. It's SEK 1.5 billion. And I think Automotive needs to stand on its 2 feet by the end of this year because that's when the listing is going to happen. Can you just help us sort of bridge that gap between the SEK 600 million and the SEK 1.5 billion this year. I think this is really what the market is struggling with this moment. Susanne Larsson: So when we have talked about the rightsizing program that we initiated last summer, we have said that we will have an annual benefit of that of SEK 2 billion, and that will more than compensate for the dissynergies and the contract manufacturing. So that's what we said as a general remark then. When it comes to the savings, that will now be linear as you imply. And if we talk about the dissynergies then, that will then -- and that is again why we actually launched the rightsizing program is to rightsize the industrial organization, and that work is ongoing, but it's also to cover up for the independence of Automotive that we are taking on now to be able to spin by the end of this year. So we are now trying to say how that benefit is offsetting the dissynergies and how we will then -- when we have left Automotive, be in a better place still with the contract manufacturing from the takeoff. Rizk Maidi: Okay. Okay. And then just very quickly, does the CapEx plans for the Industrial business now changing given the transfer of assets that you're going from Industrial to autos? Susanne Larsson: No, no, it will not. So we remain with the 5% of sales for Industrial in spite of this scope change of the transfer. Sophie Arnius: Good. And that is at the point of departure and then it will decline faster as we talked about here. We have time for a final question, and that will come then from Daniela Costa at Goldman Sachs. Daniela Costa: I wanted to follow up on the point on tariffs. You've been very clear you're going to compensate that, I guess, from a margin perspective and passing that through. Have you observed sort of any trends in terms of market share or everyone is doing the same price increase pretty much in the market? Just wondering when you talk about compensating fully, if you are willing to give up on market share as part of that or the industry is just all increasing by the same? Rickard Gustafson: I would say that so far, it seems like the industry has gone down the same path. So it's a bit too early to tell, but we have no indication that we have lost market share in any general terms. But rather, as you say, that our competitors, they also safeguard their earnings and reacting and trying to compensate themselves for these tariffs. So maybe a bit premature to be too specific, but we have no indication that we are losing market share. Sophie Arnius: Thank you. And that was our final question. And before we end, Rickard, do you want to give some concluding remarks here? Rickard Gustafson: I'd be happy to. And thank you for joining us this morning. I am pleased that we are able to navigate in rather challenging environment and maintaining a resilience and even improved adjusted operating margin. That demonstrates a shift in behavior and capabilities in SKF over the years. And that to me, it's also a proof point that our strategy that we launched a few years back is delivering in line with what we anticipated. We are eager to gear up for growth. Clearly, we have been in a long period in a negative demand environment. We foresee that, as we said, that Q1 will be roughly in line with Q4, but we are preparing for an uptick. And given what we have done in the past, I'm again very convinced that we will have a very strong starting point and some good leverage once the market turns back up again. We are committed and confident about our plans for Automotive. We're excited about this small shift in the asset reallocation that would drive -- create an even better starting point. And as I mentioned, the organization is now really gearing up to deliver on those strategic pillars that will unlock the full potential of our business. So we're excited about the future. More to come, and I thank you so much for your attention today and wish you a lovely weekend once you get to that. Thank you.
Vesa Sahivirta: Good morning, everyone, and welcome to Elisa's Fourth Quarter 2025 Conference Call. I'm Vesa Sahivirta, Head of Investor Relations. This is now a purely conference call. We don't have audience today here. So we start with the presentations, and the team is here, CEO, Topi Manner; and now as first time, CFO, Kristian Pullola. And I think we are ready to start. So I give the word to Topi. So please go ahead. Topi Manner: Thank you, Vesa, and good day, everybody. Welcome to this Q4 Elisa earnings call. And let's get right down to business and go through the Q4 highlights. During Q4, our revenue increased by 1.5%. That was predominantly driven by mobile service revenue growth but also related to growth of revenue in international software services. Mobile service revenue growth amounted to 2.4% and the telecom service revenue, to 2.2%. And to telecom service revenue, we include both mobile service revenue as well as fixed service revenue. In international software services part of the business, the Q4 total revenue growth was 11.3%. The comparable organic revenue was flat, predominantly driven by projects being postponed to 2026. Importantly, in this part of the business, the full year EBITDA was positive, as we stated at the start of the year. So in that sense, we delivered according to our plans. Looking at the total company, comparable EBITDA was at the previous year's level despite quite intense competition during Q4, leading to increased temporary sales cost. The amount of those sales costs was EUR 5 million to EUR 6 million during the quarter. Comparable cash flow was very strong during Q4, especially driven by net working capital efficiency. Comparable cash flow grew by 37.6%. In Finland, postpaid churn was 23%, reflecting also Q4 being seasonally, typically, the highest in terms of churn. But then again, if you look at Q3, Q4 churn in total, that is a reflection of intense competition in mobile services on the market during those quarters. Postpaid subscriptions decreased by some 2,000, and then M2M and IoT subs grew by some 19,000 pieces. The fixed broadband subscription base increased by 6,000. So we are seeing a gradual pickup in those subscriptions, which is positive. And then importantly, during the quarter, we maintained our market share in consumer postpaid subscriptions in Finland, as we stated in connection to our Q3 report. So in the intense competitive environment, we showed competitiveness by maintaining our market share. The transformation program that we launched in connection to the Q3 report proceeded well during the remainder of the year. We have been conducting the first phase of that transformation program, leading to reducing 360 jobs in the company. And that means that majority of the cost savings that we are targeting has already come into force from 1st of January onwards. So we are well on our way of delivering according to the plan and realizing EUR 40 million of cost savings on the back of the transformation program during the course of 2026. And then finally, our Board of Directors proposes a dividend of EUR 2.40. And assuming that the AGM so decides, this would be a 12th consecutive year of continuously increasing dividend in Elisa. Looking into the numbers a little bit more deeply. As stated, revenue landed at EUR 588 million during the quarter, and we saw 1.5% increase in that one. On top of the international software services and mobile services, we also saw equipment sales picking up a bit. In terms of EBITDA, the EBITDA for the quarter was impacted by the mentioned temporary sales cost. These costs would be related to the competitive situation in the sense that we have been having marketing costs like gift cards, related to our mobile services business, and also investing to promotional sales force, for example, in shopping malls, in fairs and these kinds of events -- also in telemarketing. And when you look at the EBITDA margin on a year-on-year basis, the impact of these temporary sales cost was approximately 1% unit, as stated, amounting to some EUR 5 million to EUR 6 million during the quarter. Mobile service revenue, 2.4% up with continued 5G upselling. I will come back to that in a minute. And then when we look at the ARPU development, the ARPU grew 3% on a year-on-year basis, also driven by the upsells, but also the value-added services in the form of the security features that we have been introducing to the part of our customer base during the year. Now when we look at what has happened on the market after Q4, we have seen, in January, some front-book price increases taking place on the market. We were the first mover on that as a market leader. And this leads us to think that our operating environment will gradually improve during the first half of '26. Going into the segment-specific reporting. Consumer customer segment was impacted by the competition during the quarter. The temporary sales costs that I mentioned were impacting in full the consumer segment, and that is visible in the comparable EBITDA development for the segment as well as the EBITDA margin for the segment. The revenue growth for the segment was 1.9%. In corporate customers, we saw some quarterly fluctuation in terms of revenue. But if we even that out and especially if we look into EBITDA development, corporate customer segment developed in a stable fashion and the EBITDA margin actually increased with 1% unit on a year-on-year basis to EUR 63 million. In international software services, the profitability picked up during the quarter and landed at EUR 4 million in terms of EBITDA. On the back of that, as stated, the full year EBITDA for that segment was positive. And then the EBITDA margin for Q4 stand-alone was 9%, reflecting that we are taking steps gradually to improve the profitability of that business as the scale of the business grows. Just shortly looking into Estonia. In Estonia, during the quarter, the revenue increased by 3%. In EBITDA, we also saw some quarterly fluctuation in EBITDA that was largely flat in Estonia, but then especially looking into the full year development, in Estonia, EBITDA increased by 5%, so above the company average of Elisa. And therefore, we can conclude that the market was performing well, and job well done in Estonia. And at the same time, in connection to the Q4 results, we are wrapping up the full year of 2025, and it was a record year in terms of comparable EBITDA development and in terms of revenue as well as cash flow. I think that the high point was that we increased our cash flow during the year with 15%. Revenue increased 3%. Comparable EBITDA increased 3.2%. And in the intense competitive environment, we kept our base of mobile subs largely intact. Postpaid churn during the year was 20.3%, increasing 3.5% in comparison to previous years. This is a reflection of a competitive situation. But at the same time, this is clearly something that we would want to improve for '26. And now as stated, in the first weeks of the year, we have been seeing positive signals on the market related to this. Our strategy, Faster Profitable Growth, is on track, and we stay the course. We have our 4 growth pillars: 5G and fiber, telecom service revenue in effect; home services; corporate IT and cyber; international software services, enabled by simplicity and productivity, that we are especially tackling with the transformation program that we have been introducing. When executing the strategy during the year, we will be putting more focus on customer centricity and AI-enabled growth as well as AI-enabled productivity. And steps are being taken on all of those fronts as we speak. So the bottom line being, we stay the course, we focus on implementing the strategy. During the quarter and at the end of the year, we reached a milestone related to 5G penetration, now hitting the 50% mark in 5G penetration. And with that, we are now disclosing a bit new information to you in this presentation. Previously, we have been discussing about high-speed penetration of mobile services, namely above 200-megabit speeds, including all of our 5G subscriptions, but also some 4G subscriptions. And now this graph is only about 5G subscriptions. As we can see, the 5G smartphone penetration in the market has been increasing to 74%. And as stated, our 5G subscription penetration now hit the 50% mark at the end of the year. And it is a nice, linear trend over the years from one quarter to another, that we also expect to continue from here onwards. What is worthwhile to mention is that 5G stand-alone subscriptions are today already a significant part of all of our 5G subscriptions and the number of those subscriptions is growing steadily. We also have the highest customer NPS score for the 5G stand-alone users. And that is basically signifying that we are already quite well into taking next steps in terms of network technology, providing value to our customers and also being able to monetize that value. In other part of telecom services, in the fiber business, the strong revenue growth continues and then clearly is picking up. We are also transforming to modern technologies in there and ramping down the ADSL technology. Then just quickly taking a look at the domestic services a little bit from a customer and product perspective. In terms of home services, during the quarter, we launched Elisa Entertainment Sound, bringing home theater quality to our entertainment services. This has been well received by customers, and it is clearly boosting the sales of entertainment services. Another development on the product front was that we launched licensed home security services, Elisa Kotiturva service, to customers. It is early days for this product, but clearly, the reception from customers has been upbeat. In corporate IT and cyber part of the business, we launched a new feature to customers, Who's Calling feature. Basically, technologically, we were the first one to be able to crack the code and be able to deliver this information to customers without a separate app being used. So this is a nice feature that the customers seem to appreciate, and the penetration is growing as we speak. On the same space, we also won European Crime Prevention Award for our scam call prevention solution. In Finland, this has effectively meant that on a yearly basis, we are preventing 3 million scam calls on the market, effectively erasing this category of fraud altogether in the market and protecting vulnerable groups, like elderly people. And this is a nice innovation, having societal significance, also something that -- where we have patents and where we can help other telcos in Europe to do similar kind of crime prevention in their respective markets. In terms of international services -- software services, as I mentioned, some of our projects during the quarter were postponed to 2026. We did not lose any deals. We did not lose any customers. This is a timing issue. And therefore, at the end of the year, we had a record high backlog in international software services. The new sales was impacted during the year related to the tariff concerns, and that was very similar phenomenon that we have been seeing all across the software industry globally. During Q4, the order intake, however, picked up notably. And Q4 was a record quarter in terms of order intake for the software part of the business. And on that note, we won a big deal from Ooredoo Group, a big Middle Eastern telco, also reflecting that our product offering and our product strategy is very competitive on the marketplace as we speak. And we have been winning new customers in that telco vertical during the course of '25, which will be supportive of our revenue during '26. And this brings me to the outlook and guidance for '26. In terms of revenue, our guidance is that we see revenue being at the same level or slightly higher than in 2025. In terms of comparable EBITDA, we are introducing an EBITDA range from EUR 815 million to EUR 845 million, the midpoint there being EUR 830 million. CapEx, 12% of revenue. And then related to our outlook and guidance, we introduced certain assumptions. And these assumptions are that we expect our economic and operating environment to gradually improve during the year. And then secondly, we expect telecom service revenue growth being in the bracket from 1% to 3%, where mobile service revenue growth is the main part and main driver of telecom service revenue growth. In International Software Services, we expect an organic revenue growth to be above 10%. So I guess this covers my presentation, and now I will hand over to Kristian before we go to the Q&A. Kristian Pullola: Okay. Thank you, Topi. As Topi said, the intense competition did negatively impact both growth as well as EBITDA in the quarter. We did especially see temporary sales costs increased during the quarter, partly as a result of increased kickbacks in the form of vouchers, for example. This decreased EBITDA margin by approximately 1 point. I want to highlight that these costs are temporary in nature and can be avoided if the market situation changes. Also an additional note here. When it comes to the costs related to kickbacks, we have a conservative policy as we book these costs upfront, even if, in most cases, the costs relate to fixed-term contracts with a maturity of 1 year. When it comes to CapEx, the strict discipline continued, and our investments were focused into areas that further improve our technology leadership and allow us to continue to upsell both 5G and fiber. We are also making investments into IT systems to drive simplification and productivity longer term. Our fiber investments did ramp up. And as discussed earlier, these mainly take place through the JV structure we established during the first half of '25. And thus, the investments are visible through the increased IFRS 16 liabilities. Then into an area which is very important to me, cash flow. We continued strong cash flow momentum in Q4, delivering 38% growth compared to last year. For the full year, cash flow was up 15%, driven by good net working capital development, especially in inventories where the focus have been during the year. Also lower CapEx continued -- contributed positively, while this was also -- this was somewhat offset by higher cash outflows related to financial expenses. Going forward, we will further focus on cash and cash flow, and I do see possible areas of improvement in net working capital, especially in accounts receivable and accounts payable going forward. Then a few words on capital structure and our returns. Elisa continues to have a solid capital structure, and in the quarter, we took proactive steps to refinance the maturities we have this year. Both the bond transaction as well as the increased loan from the Nordic Investment Bank further improves the maturity profile of our debt. Elisa continues to have industry-leading returns, both on equity as well as on investments. The proactive financing that we did during Q4 resulted in us having somewhat higher cash balances at the end of the year, which temporarily negatively impacted the return on investments. With the cash flow focus and the continued strict CapEx discipline, we want to continue to produce industry-leading returns also in the future. And then finally, to shareholder remuneration. The Board proposes to pay an increased dividend of EUR 2.4 for the financial year '25. The proposal is supported by the earnings development, the strong cash flow generation and the solid capital structure of Elisa. The dividend has been and continues to be our main distribution mechanism. By making payments quarterly going forward, we make the dividend even more continuous to our shareholders. Quarterly payments also give us the flexibility from a financing and a liquidity management point of view. We are committed on our dividend policy, and we will continue our competitive shareholder remuneration. And as I said earlier, strong cash flow focus is a key enabler for this also going forward. With that, Vesa, over to you for Q&A. Vesa Sahivirta: Thank you, Kristian. And now we move on to Q&A, and we ask first question from the conference call lines, please. Operator: [Operator Instructions] The next question comes from Andrew Lee from Goldman Sachs. Andrew Lee: I had just 2 questions. The first was on -- thanks for the great color you've given in the guidance for 2026 around the total service revenue growth. Could you just help us understand the contribution of mobile service revenue growth within that guide? Just you've given us some help on that in the past, especially on the midterm guidance. And maybe just give us a bit more of an insight into how important you see the price rises that you made followed by DNA and Telia last week. How important are they in getting the pricing environment back on track in Finland? Is it quite important or very meaningful? And how have you seen responses to that? And then just second question, you've guided to medium-term EBITDA growth of 4% CAGR. You obviously fell a little bit short of that last year in 2025 and are guiding to be falling short of that again in 2026, so certainly in the midpoint. That puts a lot of pressure on 2027. What are you thinking about in terms of your ability to actually deliver to that midterm EBITDA growth? Topi Manner: Yes. Thank you, Andrew. If I start from the last one, related to the midterm targets, we are committed to our midterm targets, 4% revenue growth, 4% EBITDA growth. We are targeting that, and these targets are valid. Now in our guidance, we, of course, now need to take the prevailing economic environment and the operating environment into account. And that we have done. But as stated, we will be staying the course with the strategy and targeting the midterm targets by '27. Then coming back to your first question that was around mobile service revenue. As stated in our guidance assumption, we now speak of telecom service revenue, including mobile service revenue and fixed service revenue. And the range for that is from 1% to 3%. And in that, we see that mobile service revenue will be a main contributor to the telecom service growth. And if you look at the development in Q4, the mobile service revenue development was 2.4% and telecom service revenue development, 2.2%. So they were basically going forward hand by hand. And then, Andrew, there was a little bit of interruption on the line when you said something about price increases as part of your second question. So could you please repeat that? Andrew Lee: What I was trying to understand was just there are some price rises last week, and it's difficult for us to get a sense of scale always in the Finnish market given promotions and below-the-counter pricing, et cetera, et cetera. So I just wondered your sense of how meaningful the price rises and DNA and Telia's response was last week in terms of the progress of the Finnish market, to trying to get back to some sort of rationality given the irrationality of Telia's pricing strategy over the last year or so? Topi Manner: Yes. Thank you for that. As stated, we have seen during the weeks of January positive signals on the market. And as the market leader, we increased some of our price -- front book prices a couple of -- 2 weeks back. And we have been seeing competitors following those moves. It's early days at this point of time. But when we look at the step-ups in 5G and 4G from the levels of experienced in Q4, those increases so far are noteworthy. Operator: The next question comes from Max Findlay from Rothschild. Max Findlay: I just wanted to ask a couple of questions regarding your OpEx. So at Q3, you guided to EUR 20 million of restructuring costs to deliver 450 personnel reductions, but actually delivered EUR 26 million restructuring costs for only 360 personnel reductions. Can you help us understand why restructuring costs were higher than expected and positions reduced lower than expected? And on that note, you suggest that savings not made up by headcount reductions, would include cost savings initiatives like reduced use of outsourced services and procurement efficiencies. Presumably, you need more savings from these reductions than initially expected given fewer headcount reductions. And I just wondered how you think about the net savings from such measures given you presumably will incur some costs by in-housing these services? And then finally, can we just get some color on the EUR 12 million in network dismantling and repair costs, which were also excluded from adjusted EBITDA. Are these costs that you've not incurred before? Kristian Pullola: Yes. So thanks for the question. So first of all, I think when we set out to simplify and rationalize our organization, we had some estimates in mind both in terms of what could be the potential headcount and the related costs. In the end, after also a thorough kind of negotiation with the personnel, we ended up with somewhat different numbers. And it is a somewhat different mix than what we set out. Of course, you always have buffers in also the numbers, particularly on the headcount side. And then on the cost side, yes, they were a bit higher, but still in the same ballpark. So no drama there. When it comes to the dismantling costs, this is really air cables, related to the copper business that we are now having to take down as the service will be ending and thus, costs that we haven't occurred in the past. And I don't see that we would have similar costs in the future either. And thus, we are dealing with them as a one-off item. Topi Manner: And just to continue on the transformation program. So we introduced it in connection to Q3. And now we are through the first phase of that transformation program, which included the headcount reductions. And we are proceeding well in accordance with our plan, meaning that with the headcount reduction, majority of the targeted cost savings for '26 has already come into force. But we will continue with the transformation program. And like you mentioned, we will be looking into outsourced services, for example, in the area of IT consulting and software development. We have opportunities there. We will continue our initiative of taking a long and hard look on the procurement of the company, materializing cost savings from there. And then we will be continuously working with AI-driven productivity going forward. The bottom line of all of this being that we are well on our way on delivering on the EUR 40 million target. Operator: The next question comes from Paul Sidney from Berenberg. Paul Sidney: I had 2, please. Firstly, you've stated that Elisa wants to maintain your #1 position in Finnish mobile, maintain your postpaid market share. I was just wondering, is this still the plan over 2026 and beyond? And just wondering how you sort of balance that with protecting your back book ARPUs? And just wondering if this volume strategy is the right one, given we're seeing some of your European peers focus more on price increases and not be obsessed about volumes? And then just as a second question on comparable cash flow. I think you generated EUR 411 million in the year. You've clearly got a very clear focus on free cash flow given your presentation remarks, but you have no targets for '26 and '27. So I was just wondering if you could help us in terms of the direction of free cash flow over the next couple of years? If you could give us a bit more detail around that? Topi Manner: Okay. Thank you. If I could take the first one and then Kristian will continue with the second one. So related to the mobile service business and our strategy on the Finnish market, we are a market leader. We want to maintain that position on the market. So we are committed to keep our market share, like we said in connection to the Q3 and like we delivered during Q4. At the same time, it is very important to note that we are a responsible market leader. We don't want to grow our market share, and we don't want to fuel irrational behavior in the market. And we have been striking that balance during the Q4. Our strategy in mobile services is a value strategy. We want to provide customers with value. We are a technology leader. We have 50% penetration in 5G. We have a significant portion of our subscriptions already in 5G stand-alone network, and our competitors have not started on 5G stand-alone as of now. And then we have, during the year, brought value-added services to our customers in the form of the security features. And our plan in '25 was that we roll out the security features to some 600,000 customers, and that we did before Q4. And then to start with Q4 rollout, was not planned to play a big role in that. We continue to do this during '26, building our ARPU, in our business. But the security features rollout, we will be pacing in accordance with the competitive situation on the market. But we definitely see possibilities to bring value to our customers with all the kind of innovations and features like Who's Calling service and others that we have innovated. Kristian Pullola: And on the cash flow question, you're right, we haven't provided any specific guidance or targets on cash flow. You need to give us a bit time to get back to that topic. But as I said, last year was strong. We had clear measures when it comes to inventories. I think inventories are now on a good level. We need to continue to maintain that level going forward. We will now look at additional areas and see how much cash conversion can we drive from those net working capital areas. And as we have clarity on that and as -- and if it makes sense, we'll then get back to more clear targets around cash flow. But rest assured, this is an important area of focus for me and the team. This is the enabler for us also, continue to pay dividends to shareholders and thus, we are on it. Operator: The next question comes from Ulrich Rathe from Bernstein. Ulrich Rathe: I have 3 questions, please. The first one is, the guidance is framed around the expectations of an improving trading environment. And you highlighted the ability to raise prices despite intense competition at the beginning of the year. What other reasons do you have to expect an improving trading environment, in particular, vis-a-vis the behavior of the MVNOs, which I understand, are a big part of this intense competitive environment that you're currently experiencing. My second question is, you highlighted postpaid subscriber momentum and also the business situation in postpaid with 5G. Now in your reporting, you always include M2M, machine-to-machine, as postpaid. Are the comments that you're making about the postpaid situation, including M2M as well, like in the reporting? Or are you looking at the sort of human subscriptions there? The reason I'm asking is that the subscriber base is actually shrinking, excluding M2M, and you're sort of pointing out KPIs there in the commentary that suggests the subscriber base is doing a lot better than that, also on Slide 8, when you're talking about 5G penetration? And my last question is, the ISS organic growth is guided at 10% versus flat last year. You mentioned deferred projects, which probably give you some visibility into the growth, into -- reaccelerating quite materially. But what was the visibility overall to go from flat to 10% for the year? Topi Manner: If I start from the first one and related to the mobile competition and MVNOs and the operating environment at large, I think that what we need to acknowledge is that MVNOs, of course, have entered the market. There has been 2, Giga Mobiili and [ OMI ]. But the impact of MVNOs on the market has been marginal. They they have not introduced that disruptive price points. So the competition that has been experienced in the market during Q3 and Q4 has been driven by competition between the established players on the market, first and foremost and some of the competitors changing their strategy in that respect. So I think that, that is important to note in terms of the market dynamics. And as a small nugget of information, what we have sort of observed on the market right now during the weeks of January is that Giga Mobiili, an MVNO that is a subsidiary of Gigantti Electric Stores, has actually clearly become more passive on the market. And Gigantti Stores are sort of reinitiating their collaboration with other players, established players, on the market. So clearly, things have not been easy for the MVNOs on the market so far, which is consistent with the historical evidence on the market when we go years back. So I think that, that is useful to say. And then related to the economic environment and the operating environment on the overall -- I mean, if we look at our home market economies, the GDP and consumer confidence, in particular, has been sluggish during '25 in Finland and Estonia, driven by many factors, one of them being the geopolitical situation. Now the forecast is that there would be a small improvement in the overall economy during the course of 2026. And as stated, when it comes to the operating environment, otherwise, we have been seeing -- in the market dynamics, we have been seeing positive signals during the first weeks of January. Then to your second question related to M2M subscriptions. I mean, when we say that our consumer postpaid subscriptions have been stable, and we have been keeping our market share during Q4, that is based on number portability statistics on the market. And M2M subscriptions are not included in that figure. So to use your terminology, this would be human [ postcriptions ] or people-based subscriptions. And then finally, your question related to the ISS revenue momentum. If I remember correctly, then indeed, the backlog at the end of the year is record high, given some of the projects being postponed. And then during Q4, we saw a record intake and the intake clearly picking up -- the order intake clearly picking up during the quarter. We have a competitive product. We have been winning customer deals in a more sizable category than we have been winning in the past. Ooredoo is one of those examples. And then this makes us optimistic about the revenue prospects during '26. Ulrich Rathe: That's very helpful. Can I just follow up really quick? I realize I'm stressing patience here with 3 questions. But on your first point, we're saying the MVNOs really didn't have an impact. But would you -- how would you frame this? I mean the MNOs have gone into this hyper-competition mode in 3Q and 4Q because the MVNOs came in, I would suspect, but correct me if I'm wrong in this, which then sort of leads to the MVNO impact being a bit muted simply because of this heavy competition of the MNOs. So to sort of simply say, oh, it's the MNOs, it's not the MVNOs that are driving the competition, seems to sort of -- seems to sort of ignore that dynamic a little bit. So I'm just wondering how I should look at that? Topi Manner: I mean, of course, competitive dynamics on the marketplace are driven by a number of factors. And certainly, the MVNOs entering the market sort of play into that equation as well. But our analysis of the situation is that, that has not been the main driver. The main driver has been competition between the established players and the balance between the established players being sort of -- or that equilibrium being rebalanced in the market. Operator: The next question comes from Ajay Soni from JPMorgan. Ajay Soni: Mine -- I've got a couple. One is on the EBITDA guidance. So I think comparable EBITDA for '25 is around EUR 810 million. And then if I just kind of take the building blocks of going into next year, you've got around EUR 40 million of cost savings. I think telecom revenue growth adds another EUR 10 million on EBITDA. You probably have some benefit from ISS as well. So that gets us to EUR 50 million to EUR 60 million higher, which is well above your guidance range. So maybe a nice to ask it would be -- what would need to happen within the market for you to deliver at the low end of your guidance of EUR 815 million for 2026 because it feels like there's quite a few tailwinds which push you above your current guidance range for EBITDA. And then the second one was just around, you mentioned accelerating fiber network construction. So do you still see this being within your current CapEx guidance of around 12%? Or do you see a need to maybe increase that in the short or medium term? Topi Manner: We'll start from the first one. The question about the lower end, what would need to happen? I think that we would need to see the kind of competition levels that were experienced during Q3 and Q4 to prevail during the course of '26 and even intensify. And then we would need to see in the B2B part of the business, both on the home market as well as in industry, the economic situation not picking up and then new kinds of geopolitical uncertainties materializing in the market, for example, impacting the software business and then on top of that, us not being able to move forward in cost efficiency-related measures in the planned way. Kristian Pullola: Maybe just an additional note there. So as we said after Q3, the EUR 40 million OpEx savings that we get from the restructuring and the savings that we have executed on, some of that will be invested back to growing the business. So that will not all be kind of visible as a net reduction of OpEx going forward. Some of that will be kind of reallocated to drive faster profitable growth going forward throughout the business. So that's also a good thing to keep in mind. Then on the fiber investment. So first of all, we are committed to the 12% CapEx target that I stated, and that is part of the guidance also. But then as I said, some of our fiber investment that was ramping up during last year is done through the JV structure that we have established and in that sense, is a more kind of capital-efficient way to ramp up. That's part of the EUR 200 million investment program that we have also talked about in the past. So we'll be dealing with parts of the fiber investment in that sense outside of the 12% target. Operator: The next question comes from Felix Henriksson from Nordea. Felix Henriksson: I have 2. One is on the dividend. You're now paying out more than 100% of your comparable EPS as opposed to your target of 80% to 100%. Is this something that you consider acceptable going forward? I know it's a Board decision, but any commentary around that would be great. And secondly, can you open up the dynamics in your fixed business for 2022 -- 2026, I mean, in particular, when it comes to the ramp down of the ADSL business and at the same time, growth in the fiber business? Overall, should we expect growth in fixed service revenues for 2026? Topi Manner: So when it comes to dividend, it is very important to note that our dividend policy stays intact. And when you look at the dividend proposal for the AGM now, EUR 2.40, our cash flow covers the dividend in full and more than that. So the focus on cash flow is and will be very important when it comes to the dividend considerations. Kristian Pullola: And then the second part, do you want to take that you want to take that on the fixed business? Topi Manner: Yes. Felix, could you please remind me, was that about ADSL? Or -- can you... Felix Henriksson: Yes. Just about the dynamics between ADSL ramp down and growth in fiber, should that overall lead to positive growth in the fixed service revenues for 2026? Topi Manner: Yes. I think that -- I mean, we are sort of seeing sort of a gradually changing momentum in the fixed service business. We are ramping down legacy technologies, PSTN, like we announced during the course of the year, other technologies, like ADSL as well. And at the same time, we are seeing fiber take-up -- picking up in terms of FTTH, FTTB and potentially going forward with new categories, like data center connectivity. So that is something that we are expecting in terms of future development. Operator: The next question comes from Sami Sarkamies from Danske Bank Markets. Sami Sarkamies: I have 3 questions. We'll take this one by one. Firstly, coming back to dividend. You've been previously raising dividend by approximately 4% per annum. Now that's been cut to half. You still keep your medium-term targets, which should indicate sort of 4% EBITDA growth and sort of covered dividend even with sort of the earlier increases. So can you explain what's, call it, broken that you're cutting back on the dividend growth? Kristian Pullola: I think -- so first of all, I think it's fair to say, as Topi said, we are sticking to our targets of 4% plus 4%. Then as was visible during this year, some of the line items below EBITDA are, from a cost point of view, growing faster than EBITDA, which is then reducing the growth of EPS. And that is a dynamic that we need to take into account. Having said that, growing the dividend by EUR 0.05 on the back of strong cash flow is a good performance. Sami Sarkamies: Okay. And then next question on campaigning. I think you said that the additional marketing and campaign costs can be avoided in the future. Why will it be different in the future than in Q4? So what are you thinking here? Topi Manner: So it is very much driven by the competitive situation, of course. So the temporary sales costs that were amounting to EUR 5 million to EUR 6 million during Q4 are related to, for example, gift cards that were used as kickbacks for fixed-term contracts. This is a market phenomenon. So again, we did not fuel that kind of competition on the market. We responded to competition to keep our market share. This is a variable cost that will -- it's basically a derivative of a competitive situation on the market. And the same goes to additional promotional sales force. During the Q4, we spent money to promotional sales force in shopping malls, in fairs, in telemarketing and so forth. These are typically part-time employees, variable cost and therefore, easily adjustable and yet again, a derivative of a competitive situation. Sami Sarkamies: Okay. And then lastly, I wanted to check what's been happening in January on the pricing front. So was it so that you did raise prices in January and then both competitors have been following these price increases? Topi Manner: By and large, so in big picture. And then as stated, as a market leader, we were the first mover in that one, and we have seen competitors following up. Different price points in different channels, but generally positive signals on the market. Operator: The next question comes from Artem Beletski from SEB. Artem Beletski: Topi and Kristian, so I still have 3 to be asked. And the first one is relating to ISS outlook for '26. So you do comment, what comes to revenue development and double-digit growth, what you're anticipating, is it fair to assume that we should see also some further improvement in terms of profitability? Could you provide some color on that front? Then the second question is relating to PSTN network shutdown during this year. Could you maybe talk about net impact in terms of earnings? So you will be losing some customers, but of course, there should be some savings associated to it. And the last one is maybe a bit more longer-term question. So how do you see business opportunities relating to data centers? So we have many projects being planned and ongoing in Finland. What is your business opportunity on that front? So those are my questions. Topi Manner: Thank you, Artem. So starting on the first one, related to the ISS business and especially the profitability outlook, on that one. I think that it's very important to note that during '25, amidst all kinds of tariff-related uncertainties that impacted our software customers business, we grew inorganic and organic growth. Together, we grew with more than 20% in terms of revenue. And we delivered on our soft guidance on profitability, so reaching positive EBITDA for the full year of '25. Then if you look at the Q4 ISS EBITDA margin, we reached 9% EBITDA margin. So we have been gradually improving the profitability as the scale of the business grows. There will be seasonality in ISS business also going forward. Q1 is typically relatively good. Q2 and Q3 are seasonally calmer. And then Q4 is typically the strongest in that business. Adjusting for the seasonality, we expect to see gradually improving profitability in that part of the business as the scale of the business grows and as we get our sales machine humming better and better all the time. Then if you take the PSTN... Kristian Pullola: I think on the PSTN, so yes, we still have some net sales headwind to work through. But as Topi said to the earlier question, we still see that, that will be more than offset by the growth that we can achieve in fiber. And then you're right, there will be kind of improvements on the cost side that will then also be coming through. So I think during next year, we'll start to move from a situation -- or during this year, we'll start to move from a situation where this is a headwind to one where we'll start to see benefits. Topi Manner: And then to your question related to the data centers, I think that -- now taking a longer-term perspective on this one. This is a longer-term business opportunity, 5 years onward, 10 years onward and more than that. Finland is a very attractive place for data centers. The cost of electricity is low. The electricity grid is probably of best quality in Europe at least. Climate is cool, stable earth and high-quality infrastructure in terms of telecommunications and other things. So it is clear that data centers -- more and more data centers will be placed in this country. And therefore, we see a longer-term opportunity in this one. We think that we are -- our business in data centers is related to the data center connectivity in particular, the fiber connectivity from data centers to the world. And we think that we are naturally advantaged in that business because we have the best backbone network in the country, meaning that if you build a mammoth data center on a more rural part of the country, you simply need to build less fiber to connect it to our backbone. And this is certainly an opportunity that we are eyeing on over the long term. Operator: The next question comes from Ondrej Cabejšek from UBS. Ondrej Cabejšek: Thank you for the presentation, all of the additional color that you are providing today. I also have 3 questions, if I may, and I'll also go one by one, please. So first of all, on the cost-cutting program, the EUR 40 million. So you mentioned that obviously, this is now a bit of a different structure, fewer or less of an impact from the FTE reductions, more of an impact from other things. So is it fair to assume that the impact under this new kind of structure will be more kind of phased into 2027 than before? And is there any reason to believe that because, again, the structure of the -- or the nature of the cost cutting is a bit different that the net impact from this new structure could be less or more than the previous one? Kristian Pullola: So I think, first of all, maybe it was my unprecise comments that might have triggered your question. And if so, apologies for that. We are on plan when it comes to our EUR 40 million cost reduction program. When we set out and when you set out to do a program like this, you naturally kind of indicate a higher headcount than maybe where you will end up. Our headcount-related costs and the related reduction is on plan. And as a result of that, we are on plan both when it comes to where is it coming from and the pace at which it will come through our P&L. So in that sense, everything is in order there. We don't see that there are kind of mix shift here. And again, there will be no spillage into '27 or anything like that. Having said that, of course, we then continue to work on other areas, areas that are non-headcount related, to find more efficiencies, to drive longer-term productivity. And that's business as usual, particularly in a market environment like the one that we are operating in currently. Topi Manner: Yes. I think that what Kristian is saying is very important to understand. Majority of the headcount reductions were related to Finland. And in Finland, there is a specific law that at the start of the so-called change negotiations, you need to announce the maximum amount of possible job reductions. That then will be negotiated with the unions. And that means that you cannot, under any circumstance, exceed that number, leading to companies typically announcing a bit higher number than in real life is in their plans. And that is really the case in this situation as well. So the bottom line is that there's no deviation in terms of mix from our plan, and we are well on our way on delivering on the targets of the transformation program. Ondrej Cabejšek: That's clear. Maybe a clarification. So you mentioned EUR 40 million for this year, the calendar year '26 clear, but surely the run rate of the impact would kind of at least on the non-FTE costs impact positively 2027, right? Kristian Pullola: I think the impact and the run rate is relatively close to each other. So no need to worry there. Ondrej Cabejšek: Okay. Okay. Cool. On Estonia, and apologies if you addressed this before and I missed it, but can you explain why EBITDA suddenly from like a -- usual decent growth rate is suddenly negative? Topi Manner: You mean on Q4? Ondrej Cabejšek: Yes, exactly, yes. Topi Manner: Yes. There's some quarterly fluctuation in that one. I mean, if you look at the full year EBITDA growth on the Estonian market, that was plus 5%. And in Estonia, given the structure, especially of the mobile services, and given the structure of the market, many players on the market have conducted inflationary price increases during the course of the year. And they were a little bit sort of more front-loaded during the year -- conducted during the first part of the year. This dynamic most likely will play out in '26 as well, leading to some quarterly fluctuation in Estonia in terms of EBITDA. So I think that in the case of EBITDA, instead of looking into -- in the case of Estonia, instead of looking into EBITDA development in Q4, it is more relevant to look at the longer-term development during the full year. Ondrej Cabejšek: That is helpful color. And final question for me, if I may. You flagged the extra commercial costs in Finland this quarter to the tune of EUR 5 million to EUR 6 million. I was just curious, number one, I believe this is the first time you're flagging these or at least the severity of these. So I was wondering, is that really -- like did 4Q really get so bad that the amount is high enough for you to flag? Or is it just a case of, in the previous quarters, there were other efficiencies that were maybe mitigating this and there was no reason to flag, but these extra costs have been there all along? Or is 4Q -- or was 4Q really that bad? Topi Manner: Q4 was very competitive. I mean Q4 is always seasonally the most active in the market with all kinds of Black Friday campaigning and Christmas campaigning. And Black Friday is not 1 day. It's these days, it's basically the whole of November and then continued with Christmas. So there would be a bit of that sort of seasonal campaigning cost on every year. But what we did see is intense competition Q4 -- during Q4, more intense than we have been experiencing in this market in many, many years. Kristian Pullola: And just to be clear, when we talk about the EUR 5 million to EUR 6 million or the 1% of EBITDA, that is costs above and beyond what we normally see in the fourth quarter. Topi Manner: Correct. Operator: The next question comes from Abhilash Mohapatra from BNP Paribas. Abhilash Mohapatra: The first one was just around the dividends. There's some language in the outlook around sort of the use of the word maximum. So you say you'll pay EUR 0.60, and then the Board could pay up to a maximum of EUR 1.80. If you could just sort of clarify that, if there's anything there? And then related to the dividend, you mentioned sort of improving working capital is a focus. It's going to be a key driver for dividends and sort of covering divids with cash flow. So when you say that, do you mean sort of covering dividends with cash flow, including net working capital contributions? Do you expect that to be a positive contribution going forward? And like would you be able to cover dividends without working capital, is my question. And then secondly, just around the sort of cybersecurity products bundling, which is presumably a big driver of the service revenue growth. What do you need to see that will make you go ahead and sort of execute this or hold back? What do you need to see changing in the market? Because I suppose the MVNOs are sort of now here. They've been launched, and Telia also seem focused on, I suppose, improving the commercial performance in the market. So what do you need to see changing which will allow you to sort of go ahead and execute these price changes? Kristian Pullola: So maybe if I start on kind of dividend and cash flow. So first of all, dividend, this is now a quarterly dividend, which will total EUR 2.4, so EUR 0.60 a quarter. That -- it's a technicality that we talk about the EUR 0.60 separate from the EUR 1.80, which is then the 3 next quarterly payments because the AGM will make the decision on the first one, give a mandate to the Board, which will then decide on the 3 next quarterly ones. So for all kind of purposes, this is a EUR 2.4 dividend, which is a EUR 0.05 increase from last year. Then when it comes to cash flow, will we be able to cover it without working capital improvements? I would say that we will drive strong cash flow overall and working capital is one lever that we have to being able to generate cash flow to continue to fund the dividend. So it's not the only lever. I'm just highlighting it because we do see that there are -- based on the learnings from this year, there are more opportunities for us to go after in other areas of working capital, and we will do that to continue to deliver strong cash flow going forward. Topi Manner: And on your last question related to the rollout of the security features and the progress of that, as stated, our original plan was to cover, during '25, those subscriptions where the terms and conditions allow us to make changes during the tenure, and those subscription types are of ongoing nature. And that part of the clientele has now been addressed. It was largely addressed already by the end of Q3. And now during the course of this year, we will be continuing and especially we'll be continuing with the fixed term contract base of our customers. And the terms and conditions of those contracts allow us to introduce the new offering when the term -- the fixed term for the customer expires. And that we will be doing. We will be basing our sales approach to the competitive dynamics on the market. Related to your point about MVNOs, the MVNO pricing has not been disruptive. And that is important to note. The price points that they are using are higher, and that creates us some possibility to continue the security feature rollout. At the same time, we do see that on the prevailing economic woes on our home market, there is a price-sensitive end of the market, price-sensitive end of the customers. And certainly, we will need to take that into consideration when we move forward. The bottom line being that we will be pacing the security features rollout to the competitive dynamics, and we will be gradually moving forward with that during the course of '26. Operator: The next question comes from Max Findlay from Rothschild. Max Findlay: I just had a question on mobile. So the midpoint of your mobile growth guidance is 2% despite delivering 3% this year. And as has been referenced several times in this call, your guidance assumes the economic and operating environment improves during the year. Does this imply that the first half of the year, we should expect growth below 2%? And are you factoring in better second half performance? And linked to that, I know we've just discussed facts, but it seems that your kind of value-added services strategy has been less supportive of growth than had hoped. And I was just wondering if this is a fair assessment. Topi Manner: So first of all, we are not giving assumptions related to the mobile service revenue. We -- related to our guidance, our assumption is that telecom service revenue, mobile service revenue and fixed service revenue together will grow in the range of 1% to 3%. So that is an important note. Having said that, we do expect mobile service revenue to be the main driver of telecom service revenue during the year. And then when it comes to competitive dynamics impacting the security features rollout and the value-added services rollout, during '25, we proceeded according to our plans. And Q4 was planned to be a calm quarter in that respect in any case. Going forward, we will need to take the competitive dynamics into account. And as stated, we will be pacing the rollout in accordance with the competitive dynamics. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Vesa Sahivirta: Thank you for participating in this conference call, and we wish you a nice weekend when it comes. Thank you now and bye-bye. Topi Manner: Thank you very much. Kristian Pullola: Thank you. Topi Manner: Bye-bye.
Operator: Good day, and welcome to the Imperial Oil Fourth Quarter 2025 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Peter Shaw, Vice President of Investor Relations. Please go ahead. Peter Shaw: Good morning, everyone. Welcome to our fourth quarter earnings conference call. I am joined this morning by Imperial's senior management team, including John Whelan, Chairman, President and CEO; Dan Lyons, Senior Vice President of Finance and Administration; Cheryl Gomez-Smith, Senior Vice President of the Upstream; and Scott Maloney, Vice President of the Downstream. Today's comments include reference to non-GAAP financial measures. The definitions and reconciliations of these measures can be found in Attachment 6 of our most recent press release and are available on our website with a link to this conference call. Today's comments may contain forward-looking information. Any forward-looking information is not a guarantee of future performance and actual future performance, operating results can vary materially depending on a number of factors and assumptions. Forward-looking information and the risk factors and assumptions are described in further detail on our fourth quarter earnings release that had be issued this morning as well as our most recent 10-K. All these documents are available on SEDAR+, EDGAR and our website. I would ask you to refer to those. John is going to start this morning with some opening remarks and then hand it over to Dan, who's going to go through the financial update, and then John will provide an operations update. Once that is done, we will follow with the Q&A. So with that, I will turn it over to John for his opening remarks. John Whelan: Thank you, Peter. Good morning, everybody, and welcome to our fourth quarter and full year earnings call. I hope everyone is doing well and that your year is off to a good start. And as always, we appreciate you taking the time to join us this morning. Let me start by saying I'm very pleased to report another strong quarter. We generated just over $1.9 billion in cash flow from operations in the quarter and $6.7 billion for the full year. At year-end 2025, our cash on hand exceeded $1.1 billion after funding our capital program and returning $2.1 billion to shareholders in the quarter and $4.6 billion over the year including dividends and the completion of our normal course issuer bid. Our integrated business model continued to demonstrate resilience with stronger downstream profitability in the quarter, and we continue to generate substantial free cash flow over a range of oil price environments with nearly $1.4 billion generated in the fourth quarter when WTI averaged less than USD 60 and $4.8 billion generated throughout 2025. While our financial results in the quarter were very strong, operationally, we encountered extremely wet conditions at Kearl in October and additional maintenance in our Eastern manufacturing hub in December. I'll touch further on these events and how we've moved past them during the asset updates. On the project front, we achieved first production from the Cold Lake Leming SAGD project in the beginning of November. As expected, production is currently ramping up to a peak of around 9,000 barrels per day. Now I'd like to briefly highlight 2 identified items that affected the quarter's results. First, we announced our decision to cease production at our Norman Wells asset in the Northwest territories, by the end of the third quarter of 2026, as it reaches the end of economic life after several decades of successful operations. This somewhat accelerated end of field life versus the end of the decade, resulted in a onetime charge of $320 million after tax, which is included in our fourth quarter identified items. I would like to take a moment to thank our Imperial team members and our partners that have continued to and are still supporting our efforts at Norman Wells. As we continue to supply central energy products to the North and as we move forward with the decommissioning at Norman Wells, our focus will remain on strong relationships and working closely with local communities. Separately, we completed a comprehensive review of our inventory practices across the company, informed by external benchmarking and inventory management best practices. Based on the review, we identified opportunities to further enhance our inventory management such that we can run more efficiently with optimized inventory levels while maintaining critical supplies. While we have recognized a onetime charge of $156 million after tax in our fourth quarter earnings to reflect the optimization of materials and supplies inventory, we expect to realize significant operating and working capital efficiencies going forward. Moving back to the overall results. The fourth quarter saw us continue our long track record of delivering industry-leading returns to shareholders. We paid $361 million in dividends and completed the accelerated share repurchases under the NCIB in mid-December, with share repurchases totaling $1.7 billion in the quarter. In total, we returned $4.6 billion of cash to shareholders in 2025. We and exceeded $23 billion over the past 5 years. I'm also pleased to share that this morning, we declared a dividend of $0.87 per share, payable on April 1, 2026. The increase of $0.15 per share is the largest nominal dividend increase in company history. To provide some context, 10 years ago, our quarterly dividend was $0.14 per share. As we move into 2026, we remain focused on our core strategy of being the most responsible operator, maximizing the value of existing assets, progressing our restructuring plan and continuing to deliver industry-leading shareholder returns. This strategy has allowed us to increase our quarterly dividend per share by 295% and repurchased 34% of our outstanding shares since 2020. With that, I'll now pass things over to Dan to walk through the financial results in more detail. D. Lyons: Thank you, John. I'll begin by covering the fourth quarter identified items that John just mentioned and provides additional context. First, consistent with our economic decision to accelerate the cessation of production at Norman Wells by several years, we have booked an earnings charge of $320 million. This charge includes a $108 million impairment charge to reduce the net book value of the asset to 0, the remaining $212 million reflects related contractual obligations with about half expected to be paid later in 2026 and the other half payable over a number of years going forward. Second, the optimization of our materials and supplies inventory resulted in an unfavorable earnings impact of $156 million after tax. While this onetime charge in the fourth quarter did not impact our operating cash flow, it did impact our simplified non-GAAP measures of unit cash operating cost at Kearl and Cold Lake. John will discuss these impacts in his asset updates. Turning to our underlying fourth quarter results. We recorded net income of $492 million. Excluding the 2 identified items I just described, net income for the quarter was $968 million, down $257 million from the fourth quarter of 2024, driven primarily by lower upstream realizations. When comparing sequentially, fourth quarter net income is down $47 million from the third quarter of 2025. When excluding identified items, net income is down $126 million, again, primarily due to lower upstream realizations. Now shifting our attention to each business line and looking sequentially. Upstream lost $2 million, down $730 million from the third quarter. However, excluding identified items, net income of $418 million is down $310 million, primarily due to lower realizations. Downstream earnings of $519 million are up $75 million from the third quarter. Excluding identified items, net income of $564 million was up $121 million, mainly due to higher margins. Our Chemical business generated earnings of $9 million, down $12 million from the third quarter. Excluding identified items, net income of $20 million is essentially flat as we continue to operate in bottom cycle margin conditions. Moving to cash flow. In the fourth quarter, we generated $1.918 billion in cash flows from operating activities. Excluding working capital effects, cash flows from operating activities for the fourth quarter were $1.260 billion, which included an unfavorable $325 million related to the identified items previously discussed. Taking this into account, normalized cash flow from operating activities, excluding working capital effects, was about $1.585 billion in the quarter. As John mentioned, we ended the quarter in a strong cash position with over $1.1 billion of cash on hand. Shifting to CapEx. Capital expenditures in the quarter totaled $651 million, $228 million higher than the fourth quarter of 2024 and $146 million higher than the third quarter of 2025. Full year CapEx was $2 billion, consistent with our guidance, up from $1.9 billion in 2024. In the upstream, fourth quarter spending of $508 million focused on sustaining capital at Kearl, Syncrude and Cold Lake. In the downstream fourth quarter CapEx was primarily spent on sustaining capital projects across our refinery network. Shifting to shareholder distributions. We continue to demonstrate our long-standing commitment to distribute surplus cash to shareholders returning $4.6 billion over the course of 2025, including $1.4 billion of dividends and $3.2 billion in share repurchases. Looking ahead to 2026, and as John already mentioned, we announced a first quarter dividend of $0.87 per share this morning. This increase of just over 20% reflects our confidence going forward and demonstrates our long-standing commitment to deliver a reliable and growing dividend. Now I'll turn it back to John to discuss the company's operational performance. John Whelan: Thanks, Dan. I'll now take the next few minutes to share the key highlights from our operating results. Upstream production for the quarter averaged 444,000 oil equivalent barrels per day, down 18,000 oil equivalent barrels per day versus the third quarter and down 16,000 versus the fourth quarter of 2024. That said, for the full year, we achieved the highest annual production in over 30 years at 438,000 oil equivalent barrels per day. And in fact, our liquids production was the highest ever. I'll now cover each of the assets, starting with Kearl. Kearl's quarterly production was 274,000 barrels per day gross, down 42,000 barrels per day versus the record quarterly production in the third quarter. As I mentioned in my opening comments, we experienced some extremely wet conditions in October that prevented us from mining per the optimized sequence in our plan. This temporarily impacted our ability to access some of the higher quality ore we were planning to mine in the quarter. However, as conditions improved, the team was able to return to normal operations. In December, Kearl produced 298,000 barrels per day, achieving its second highest monthly production ever. I was pleased to see those production levels even as temperatures dropped for the last 2 weeks of the year. Given the performance in December, the fact that 2025 had more days over 300,000 barrels per day than any previous year and the good start to 2026, I have high confidence in our annual guidance for the year and in the path to our target of 300,000 barrels per day. Turning to Kearl's unit costs. Kearl's fourth quarter unit cash cost of USD 23.84 included approximately USD 4.50 impact due to the inventory optimization. Kearl's 2025 full year unit cash costs of $19.50 was also impacted by the inventory optimization by about USD 1. Excluding these impacts, Kearl's unit cash costs were well below USD 20 for the year, and well on our path of achieving USD 18 per barrel. This year, we completed the K2 turnaround, advancing our plan to double our turnaround intervals to an industry-leading 4 years. In 2026, we will complete the program by undertaking comparable work on the other train at K1. In turnaround, interval extension, along with other initiatives such as the productivity and reliability projects and secondary recovery investments underpin our strategy to maximize value from our existing assets. Moving next to Cold Lake highlights. Cold Lake's quarterly production averaged 153,000 barrels per day, up 3,000 barrels per day versus the third quarter of 2025. First production from the Leming SAGD project was achieved in November. As we speak, the project is producing approximately 4,000 barrels per day, which gives us confidence in the ramp towards 9,000 barrels per day over the course of the year. Moving to Cold Lake unit cash costs, which were USD 16 during the fourth quarter, and impacted by approximately USD 1 per barrel due to the inventory optimization. On a full year basis, Cold Lake achieved a unit cash cost of USD 14.67, which was impacted about $0.25 due to inventory optimization. The Grand Rapids SA-SAGD continues to perform well, Leming SAGD is ramping up and continuous efforts to improve our unit cost structure, give us the confidence in reaching our unit cash cost target of USD 13 per barrel in 2027. Activities in Cold Lake in 2026 include high-value infill drilling and early development of our next SAGD project, which will be at Mahihkan. This will be our second commercial solvent-assisted SAGD operation and follows the successful startup of Grand Rapids in 2024. Mahihkan SA-SAGD start-up is anticipated in 2029 with a peak production of 30,000 barrels per day. And to round out our Upstream, I'll cover Syncrude results. Imperial share of Syncrude production for the quarter averaged 87,000 barrels per day, which was up 9,000 barrels per day versus the third quarter and up 6,000 barrels per day versus the fourth quarter of 2024. Higher volumes reflect turnaround optimization and stronger mine performance. This quarter, the interconnect pipeline enabled Syncrude to produce approximately 7,000 additional barrels per day, our share of Syncrude suite premium production. Now let's move on and talk about the Downstream. In the fourth quarter, we refined an average of 408,000 barrels per day, equating to a utilization of 94%. Compared to the third quarter, refinery throughput was down 17,000 barrels a day due to additional maintenance in our Eastern manufacturing hub in December. The maintenance was completed in December and will have no impact on our 2026 throughput. For the full year, our refineries achieved a throughput of 402,000 barrels per day, equating to a utilization of 93%. That throughput was up versus the 399,000 barrels per day achieved in 2024. With the successful completion of the Sarnia turnaround in the fourth quarter, the execution of all downstream turnarounds in 2025 occurred ahead of schedule and below budget. We also started the Strathcona renewable diesel facility midyear. The facility is running well and has reduced our reliance on high-cost imported products and strengthened our competitive domestic supply. We continue to optimize production at the facility based on hydrogen availability. Looking ahead, we remain focused on delivering industry-leading operational performance while enhancing logistics and processing flexibility to further improve our competitive position and the long-term results. Turning now to Chemicals. Earnings in the fourth quarter were $9 million, down $12 million from the fourth quarter of 2024, impacted by the inventory optimization. Excluding this impact, earnings were consistent with the fourth quarter of 2024. And although market conditions remain challenging, our integration with the Sarnia refinery continues to add value and provides resilience in low price environment. In closing, 2025 was another strong year for Imperial. We generated approximately $4.8 billion in free cash flow and returned $4.6 billion to shareholders through dividends and buybacks. Operationally, we achieved record annual volumes in our upstream and made further progress on our unit cash costs at Kearl and Cold Lake. We also successfully completed our planned turnarounds across all business lines. As we look to 2026, our priorities remain clear and consistent, continue to profitably grow volumes, further lower unit cash costs and increased cash flow generation. We remain committed to optimizing production across our asset base, progressing towards our volume and cap cost targets, driving greater efficiency and delivering unmatched industry-leading shareholder returns. We continue to prioritize a reliable and growing dividend, and we will continue to return surplus cash in a timely manner. Our restructuring that was announced in September is progressing on plan and will advance our long-standing strategy of maximizing the value of our existing assets. In closing, let me say, the combination of our financial position, strong operating results and our strategic initiatives to further strengthen efficiency and effectiveness, gives me confidence in the future of Imperial, and our ability to further enhance our leading -- our industry-leading position. As always, I want to thank our employees for their hard work and dedication throughout the year. And I would like to thank all of you once again for your continued interest and support. And now we'll move to the Q&A session. I'll pass it back to Peter. Peter Shaw: Thank you, John. As always, we'd appreciate it if you could limit yourself to one question plus a follow-up. And with that, operator, could you please open up the line for questions. Operator: [Operator Instructions] Our first question will come from Dennis Fong with CIBC World Markets. Dennis Fong: I appreciate the thorough ops update in the prepared commentary. My first question is focused on Kearl. So you highlighted obviously wet conditions driving some of the production impacts early in the quarter. Do you mind discussing some of the learnings or even implementation of different, we'll call it, maintenance or standard operating procedures that could help mitigate kind of such, call it, downtime or inaccessibility to certain regions in the mine on a go-forward basis, especially as we think about obviously continued operations? John Whelan: Sure. Thanks, Dennis. Maybe let me step back a little bit. And I think you're right. I mean if you think about our winter operations and the steps we've made to improve performance in winter, and then wet conditions, it falls in the same category for us. So it is a good question. We look at all of these. Weather is a reality, and we need to operate efficiently and effectively through that. But let me step back a little bit to what happened in the fourth quarter. The root cause of that lower production, as we talked about, was these exceptionally wet conditions in the fourth quarter. And to give you a sense, we experienced more rain in a few days in October than we typically get all summer. So it was a significant event. And what happened there was that impacted the mobility of the equipment in the mine and it delayed accessing high-quality ore that we had planned to get to. And unfortunately, it took a little time to recover to that -- recover from that. So part of it did creep into November as well. But as I said, we recovered strongly in December with our second highest production of the -- in the assets -- monthly production in the assets history. And despite cold weather in the second half of December as well. And I would say there's no carryover from this event, but we will be stepping back for sure and looking at are there other things we can do around the way we design our roads, the drainage of our roads and those type of things to make sure that even in -- this was an extreme event, but even in those events that we can weather those better and continue to produce. But overall, I'd say still, it was an extreme event. We will learn from it. I feel really good about our plans at Kearl. Our guidance between 285,000 and 295,000 this year is -- we're very confident of that. Our path to 300,000 and the things we're doing around turnaround optimization, productivity and reliability improvements and higher recovery. And again, it was encouraging to see 2025, we had more days again above 300,000 barrels a day than we've experienced in the past. So we continue to see that metric improve, which is one we watch closely. So we'll definitely step down and learn from it, but we remain highly confident in Kearl and the path forward. Dennis Fong: Great. Really appreciate that, that thorough answer. My second question turns my attention, frankly, over to Cold Lake. You mentioned Mahihkan as the next project for SA-SAGD. Can you give us a little bit more of a background there? Are you targeting a similar reservoir to the Grand Rapids operation? How are you thinking about production ramp-up? And then what is the impact potentially to field SOR and operating costs once that project is wrapped up? John Whelan: Yes. Thanks, Dennis. I mean -- so a couple of things. I think the -- if you think about the Grand Rapids, SA-SAGD, that was a different reservoir. That was the Grand Rapids reservoir, which is shallower than the Clearwater where we've been producing for almost 50 years from at Cold Lake. So the beauty of that project was it was opening up a new reservoir and it was testing a new technology. And as we've talked about, that's gone extremely well. And it ramped up quicker than we anticipated and went to a higher plateau and that plateau is hanging in longer than anticipated. So that one kind of -- we're seeing the benefit of the technology, and we opened up a new reservoir. We talked about Leming SAGD. Of course, that goes back into the Clearwater back into the original reservoir that we started to produce from and where we produce most of our production from today. Beauty of that is, it's going back -- right back to where we've started the pilot at Cold Lake 50 years ago and capturing the remaining resource in that part of the field. Now Mahihkan, it uses the same SA-SAGD that Grand Rapids uses, but it will be in the Clearwater reservoir that will produce that. We're very encouraged by, of course, what we've seen from Grand Rapids and how the technology is playing out. We know the Clearwater reservoir extremely well, so we feel good about that. So we're highly confident when I think about Mahihkan SA-SAGD. We're starting to invest in that now. We plan to start up in 2029 and produce 30,000 barrels a day. So we feel very good about that and glad to see that we're getting started on that project. Operator: And our next question will come from Manav Gupta with UBS. Manav Gupta: Congrats on that almost 21% dividend hike, better than expected. So my first question is more on how you're thinking about shareholder returns and does that leave you enough cash for a possible NCIB later in the year? And then a quick second follow-up, which I'll ask straight up is refining came in much stronger than expected. Your refining earnings have been very resilient. And if you can talk a little bit about Imperial and the overall refining macro, and I'll turn it over. John Whelan: Thank you, Manav. First, so if we think about the dividend -- and thank you for the feedback on that. First and foremost, when we thought about that dividend, it reflects management and the board's confidence in the company's strategies and plans to create value. So as you know, we're working to maximize value and to grow profitability and lower our unit cost and increase our cash flow, and we are highly confident we will do that, and that's what you see reflected in the, as you say, a 21% dividend increase. And we're doing, of course, a lot of things to focus on that, and that's going to be -- and why could we do that? Well, I think it's -- we've consistently increased the dividend over the last 2 years. It reflects our financial strength, our low breakeven of our business. And of course, the use of surplus cash to buy back shares. And as we mentioned earlier, that's reduced our outstanding shares by 34% since 2020. We did a -- as you can imagine, a full range of tests against low price scenarios, and we continue to feel very good about this level of dividend and the resilience that's in our business. So our capital allocation approach won't change. This is consistent with that, growing -- a reliable and growing dividend remains a priority. And of course, we've been doing that for over 100 years, and this is a 32nd year of growth. And then we're going to continue to -- our plans see us generating with these low breakeven substantial free cash flow over a range of prices and scenarios, and we're going to continue to return that surplus cash flow in a timely manner, as we've demonstrated this year where we generated $4.8 billion of free cash flow and returned $4.6 billion to shareholders. So that approach and strategy continues. D. Lyons: Maybe I'll just add, Manav, we don't really see -- I mean, the dividend increase is a few hundred million over the course of the year. And the dividend increase is not really based on current market conditions. As John explained, it's a longer-term outlook and confidence in our business. It's not really driven by what's happening in the short term. The NCIB, obviously, our surplus cash is a result of what happens in the short term where prices, commodity prices are. So we still remain committed to the NCIB and expect to be able -- we renew that program at the end of June, and we expect to commence on that. The level of that and the level of additional cash distributions beyond that will be depending on what commodity prices do. But we don't see the dividend and NCIB is competing. We see them as quite complementary. John Whelan: And I'll jump over to your -- thanks for that, and I'll jump over to your downstream question. We feel really good about that part of our business. And we saw it in the results in the quarter. Overall, we continue to focus on further improving and maximizing the profitability of our downstream, leveraging our, as we've talked about before, our coast-to-coast network, our advantaged assets, our strong brand loyalty programs that enable us to move products into high-value markets. And we're continuing to invest in our flexibility and our logistics to continue to improve on our position and capture high-value markets. And when we look at the demand in the future, we see strong liquid demand in Canada as we go forward. The mix may change a little bit. Biofuels demand is growing. Of course, we feel really well positioned for that given our Strathcona renewable diesel project and the coprocessing of vegetable oil feedstocks at our refinery. So we feel good about that. We see a stable jet and distillate market moving forward, and we're well positioned for that. Gasoline, that could -- demand could moderate with EVs and things, but we've got plans to grow our gasoline market share in that regard. So overall, we feel really well positioned with the assets we have and really well positioned as fuel demand kind of evolves over time. So feel good about that. I'll hand it over to maybe to Scott, if just specifically on the quarter and your question around the performance in the quarter. Scott Maloney: Yes. Thanks, John, and thanks, Manav, for the downstream question. Yes, it's specifically just a couple of additional specific comments for the fourth quarter. We saw refining margins in general, fluctuate throughout the quarter. But generally, they were strong, and they were especially strong in the month of November. And that's when we had our highest utilization months. So that really helped generate some returns for us. The other notable item for the fourth quarter was not just strong refining margins, but we noticed that the distillate refining margins were actually quite strong. And so we used, as John mentioned, our flexibility and our operational capability to tweak our refining output to maximize our distillate production. So that allowed us to take advantage of the especially high distillate margins that we experienced in the fourth quarter. So those -- combination of those 2 events really enabled a strong refining earnings for us in the fourth quarter. Operator: And the next question will come from Menno Hulshof with TD Cowen. Menno Hulshof: My question. Maybe I'll just start with one on optimization of materials and supplies inventory. Can you maybe elaborate on the scope of this optimization work? And what practically changes in terms of procurement and inventory management looking forward? John Whelan: Thanks, Menno. Yes, thanks for that question. As you know, we did report this charge around inventory optimization in the quarter. I'll tell you, we see the optimization that we're doing here provides a significant opportunity for us in how we manage our materials and supplies across the company, doing that in a consistent approach and better leveraging technology. So we -- and this has all been informed by external benchmarking and a review of best practices, not just across the energy business, but beyond the energy business as well. So we took a very deep dive and based on that benchmarking and best practices review, we studied our inventory utilization, the movement of our inventory, the age of what we have in the inventory, the cost of maintaining each part versus the benefit of having it and what technology solutions were out there for us to better manage our inventory. And we found an opportunity for significant efficiency, capture and effectiveness to position ourselves to be industry-leading. So these improvements are the improvements we made. They involve enhanced analysis better optimization of materials that should be held in inventory while still maintaining the critical supplies that we need. So we're implementing this standardized approach across all of our sites, that's going to improve visibility of what's in inventory for our operations and improve the utilization of inventory, and it's going to be a simpler, more efficient process to run. We'll have fewer storage requirements, fewer warehouse requirements, fewer material accounts and that's enabled by technology and best practices because we have better improved visibility of the material, and it's going to reduce the overall complexity of the system, without losing in any way the reliability and integrity of having those that inventory available. So for me, this is kind of what we do. This is applying technology, best practices looking outside of our industry to drive us to be industry-leading and best-in-class. Menno Hulshof: Terrific. That's very helpful. And then maybe the second question, more so related to the outlook for Western Canadian heavy oil. There's clearly a lot of moving parts at the moment, including increased risk of Venezuelan supply and rising apportionment on the Enbridge Mainline, which is catching a lot of people by surprise. But what are you seeing on the ground in terms of shifting fundamentals for Canadian heavies since the Venezuelan news first broke, if anything at all? John Whelan: We are not seeing any big changes, to be honest. Of course, we're staying very well informed around everything that's happening in Venezuela. We're watching that closely. But we're not seeing any significant -- I mean the differential did kind of widen a bit originally when there was this talk at the 50 million barrels coming to the Gulf Coast, seem to be a little bit of overreaction that kind of came back down. It's pretty marginal, if any, impact that we're seeing right now. And then if we think longer term about this, obviously, I think the outlook around Venezuela does remain uncertain. There's a lot of things that need to happen before we probably see longer-term production increases there, stability, investment conditions like the legal and commercial constructs in the country, infrastructure and supply chain improvements and things. But we do -- we are watching that. We'll continue to watch that closely. But our real focus is when I think about Imperial is again, our balanced integrated business model, low breakevens that keep us resilient across a range of macro environments. And of course, we're not standing still. We're continuing to improve our competitive position, growing profitable volumes, lowering unit cost, increasing cash flow. And that's what we focus on. That's the part we control, and that's where we're putting our position. And as I look forward, I see Imperial being in a very strong competitive position. And I see a huge role, of course, for Canada when you think about global supply-demand balance as well, kind of regardless of what happens with Venezuela over time. Operator: And the next question will come from Patrick O'Rourke with ATB Capital Markets. Patrick O'Rourke: Maybe just to go back to Kearl here and you talked about the high output in December. How that has sort of continued on into January here? I know whether from time to time impacted this quarter, it's impacted quarters in the past. I think Fort McMurray has had about a 50-degree swing in temperature this month. And then if you could sort of benchmark those 300,000 barrels a day high output days, what's sort of the goal as a percentage of the days for 2026 or total nominal days you would be looking to hit this year? John Whelan: Thanks, Patrick. I'm going to -- I've got Cheryl here with me, and she's the expert on all things, Kearl. I'm going to pass this one over to Cheryl. Cheryl Gomez-Smith: Sure. So thank you for the question. And let me hit the first one, Patrick, around cold weather protocols. And we talked to you about this before and what I would start out saying is, we're applying those learnings and we're seeing the benefits. You heard John mention in December. We're seeing the same thing with January. So the protocols are working as intended. If I sit back and I think about what allowed us to recover in fourth quarter and as we're heading into the first quarter, technology. And what we're leveraging is our ore selectivity process. We're making sure we're being very deliberate and thoughtful in terms of prioritizing our shovels and making sure we're getting to that good ore. The other thing I'll highlight that we did in the fourth quarter is we did obtain regulatory approval to use a secondary process at chemical for fines management. So as we look forward, we're going to be looking for the secondary and tertiary recovery. So what gives me confidence as I look forward in the 300 days? So first of all, we've got a well-defined path. The second thing, and you've heard me mention this before, which is we're building on a strong foundation, and this goes back to being a culture of continuous improvement as well as most responsible operators. So continued focus on facility integrity, risk management, environmental stewardship. The second item, continued focus on productivity and reliability. So specifically, what that means is enhanced mine planning and fleet optimization. Third thing is turnaround interval optimization, so not only shortening the duration of each turnaround, but making sure we're advancing and getting to this one turnaround every 4 years schedule. The third thing -- or the fourth thing I'll mention is recovery projects. And in particular, at the end of this year, we're going to bring on our float column cell projects. So that will allow us, again, from a secondary recovery standpoint to get these -- the fines management and improve our bitumen recovery. The other thing I'll tell you is we don't see 300 barrels -- 300,000 barrels a day of the end state. So we always challenge our organization to do better. We do see opportunity for more than 300,000 barrels. We've got a road map. We have credibility, and we built the history at Kearl to outperform. So what I would say is this is the continuation of our journey. Patrick O'Rourke: Okay. Great. And then just on the downstream. I looked at, at least on my numbers, like market capture was up a little bit. You talked about the flexibility of the [ kit ]. As we roll into 2026 here, maybe if diesel and distillate gets a little bit softer. Just what you're seeing boots on the ground in terms of those local markets today looking out into 2026. John Whelan: Thanks, Patrick. I will hand that one off over to Scott. Scott Maloney: Sure. Yes. Thanks, Patrick. Yes, we have -- even throughout the fourth quarter, we saw some fluctuation in the refining margin. So it's down a little bit from the peak that we saw in November. But we're still seeing positive margins out there and running our units full to capture that margin. We've shared in the past with our Downstream business, in particular, we feel like we have assets located throughout the country to be able to go after the demand and especially demand where the margin presents itself in each of the markets across the country. And so that combined with our logistics network that allow us to efficiently get the product to the marketplace. We feel like that's a resilient business for us. And so even when the margins ticked down a little bit, we still feel like that's a profitable business that we will continue to generate positive returns. And then when the market based on global supply demand balances kind of blows out a little bit, we'll be there, and we'll be able to capture that enhanced margin like we did in the fourth quarter of this year. Operator: And the next question comes from Neil Mehta with Goldman Sachs. Neil Mehta: The first question I had is just around Syncrude. It was a good quarter here from a production standpoint. Just for perspective, on where we are on the journey at Syncrude. Any things that you and your partner are focused on there? And while we're on the topic of Syncrude, any thoughts on realizations in a pretty good distillate market right now? John Whelan: Yes. Not a lot to say on Syncrude. I mean, we're pleased to see the performance improvement over the last couple of years at Syncrude. And I feel that as a partner in that, we contribute to that. I think we look at the learnings we have at Kearl, and we contribute that to -- we kind of bring those learnings to bear at Syncrude. And I think the operator has been improving their performance. And of course, we've been involved in Syncrude from the beginning. The only owners that are in there today that have been. So we've learned from Syncrude over the years as well and been able to apply those things at Kearl. So I'm pleased to see the performance improvement, and we're a big part of that and supporting that going forward. And -- and maybe I'll ask Scott on the diesel question. Scott Maloney: Yes. Sure. Yes. As we look at the distillates market, the global supply-demand balance is really created supply/demand imbalances in certain locations. And so that's really what's pushed up a little bit more on the distillate margin even versus the gasoline margins that we've seen over the last several months. And so as I mentioned before, we're uniquely advantaged to be able to tune our refinery to make sure we're putting the output, matching the margins that are available in the marketplace and then leveraging our logistics to get there. The other factor that is starting to play into the Canadian marketplace is the onset of additional renewable diesel and our unique position there by producing renewable diesel at our Strathcona refinery has enabled us to bring that locally produced product to market and blend into our diesel sales throughout the year with our technology to be able to blend that year round. And so we're seeing the benefit of that versus having to import additional renewable diesel from other markets. And so that's the other thing that's supporting our distillate plans and margin capture in the downstream. Neil Mehta: That's helpful. And John, I'd love your perspective on where you stand in terms of continuing to drive efficiency and reduce costs, that's something that Exxon talked about this morning. But I think since the last call, you announced an update of the sale of the campus and relocation of some of the staff. And so just talk about organizationally some of the changes that you are making and how that fits into it in terms of driving some of the cost calls you have. John Whelan: Well, that -- yes, that is a big part of it. But I would say everything we've been doing over the last number of years to reduce our cost structure, we talked about the Kearl journey we're on and Cold Lake and so on, all of those things contribute to that as well. So it's not -- we've been part of that moving our cost structure down, and you see that in our results. The restructuring piece that we announced in September, of course, that really is consistent with our strategy to maximize value, use technology and leverage our relationship with Exxon Mobil. And so as we talked about at the time, that with data availability, processing capabilities, technology in general growing, and we see that all around us. It's moving in leaps and bounds at an accelerating pace. So with that kind of that aspect of it. And then in addition to that, we see these global capability centers growing both in terms of not just capacity but capability, the type of work that those global capability centers were doing. We saw an opportunity to move through a transformation, and we announced the reduction about 20% of our staff with a focus on our above field staff. And that -- so that's going to be a 2-year process. And then we said when we get down to that smaller size, we'll move the majority of our folks to sites, predominantly Strathcona and Edmonton. And we see that efficiency capture to be $150 million a year starting in 2028. That's the annual savings we would get from that just from the efficiency side of things, which is we are capturing efficiencies and getting smaller and then we're also outsourcing work to these global capability centers. The net effect of that is $150 million per year. But as we talked about, we also believe as we do that, we're going to be able to further accelerate the application of technology and leverage more a broader global fleet of learning that we can learn from, that's going to improve our effectiveness as well. So I would say it's -- we announced it in September. We're currently going through the staffing of the future organization. We're starting to outsource work to those -- more work because we've already been outsourcing work in the past, continuing to outsource work to those global centers. The restructuring is going to take place over a couple of years. We're going to manage that in a very rigorous orderly fashion to migrate work and capture the planned efficiencies, and it's going as per plan. And so it is going to contribute significantly to our -- again, our leading position and our foundation for growth going forward. Operator: And the next question will come from Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: I know a lot of stuff has been hit, so I want to try and come back to a couple of things to get some clarification. Obviously, a lot of focus on Kearl today. Maybe you could just help us with -- if you strip away weather, what do you think today is the sustainable production capacity, gross production capacity at Kearl? John Whelan: Thanks, Doug. And I mean, of course, our guidance is for -- 2026 is where we're focused, the 285,000 to 295,000 barrels per day. But I'll pass off to Cheryl to kind of put a little more color to that. Cheryl Gomez-Smith: Sure. And I'll go back to the 300 kbd is our target, for this year 285,000. Obviously, we're going to continue to focus on winterization and maybe a little bit more color on that, which is really around maximizing the reliability of our existing kit and closing the gap to targeted areas. One of the areas I've mentioned before is we're continuing to debottleneck our hydro transport line. That's building capacity on the front end. The other thing, as I think about mining and specifically for 2026, at the end of this year, we'll be moving into the East pit. So we've got opportunity both from the front end, we're debottlenecking the facilities and, of course, working on water management and tailings throughout this process. So what I would say is we've got good line of sight and a well-defined path to get to 300 kbd. I said that will be our target for this year. But like I said, at 285,000 and continue to grow 300,000 plus. Douglas George Blyth Leggate: So to be clear, there's nothing terminal or it was very much just a one-off weather in the fourth quarter? No reason to be [ yourself ] or anything like this. Cheryl Gomez-Smith: That's right. So wet weather in October is behind us. Yes, sir. John Whelan: No, we remain very confident, Doug. We remain very confident in the 285,000 to 295,000 target for this year, the path to 300,000. And as Cheryl said, we see potential upside beyond that. Douglas George Blyth Leggate: Yes. We're just trying to understand why the market has been so short cycled, I guess, is my issue, but thank you for the clarification. My follow-up, I'm afraid, Mr. Lyons, you're up. So 20% dividend bump, I think, Manav hit on it earlier. But -- so I've asked you this question multiple times, multiple different ways. Are you prepared to leave in your balance sheet? Are you prepared to allow your dividend breakeven to move up? Well, based on today's decision, you don't -- maybe I'm wrong in this, but you don't have a big step change in free cash flow capacity outside of what the commodity gives you. So can you help us reconcile which of those 2 is supporting the dividend growth? Is that the breakeven creeping up? Or is it the balance sheet a little bit or is there something in the outlook that we don't currently have into -- we're not currently taken into account? D. Lyons: Okay. Thanks, Doug. I appreciate the recurring question. I would say when we look at the dividend, we're not -- as I said a little bit earlier, we're not looking at the short-term environment or even the current strip, we're looking at a long-term outlook. And our goal is to grow the dividend robustly, but sustainably. So we obviously do stress tests and things. But what affects that long-term outlook is the work we're doing to reduce unit OpEx, the incremental volume growth we're pursuing at Kearl and Cold Lake, so the growth capital, the secondary recovery that Cheryl talked about and also the restructuring, which is improving our cost structure as well as generating more revenue over time. We roll all of those things into our outlook, then we run various cases, and we see what we think is we can handle sustainably. And that's how we get to the dividend. So we're committed to continue that process. And so, yes, you're right. As you increase the dividend, if nothing else happens, the breakeven moves up. But if you're running down your unit cost, as we are at Kearl and Cold Lake, that kind of offsets that. But we don't have a specific breakeven target, right? So if we have to go above a certain dollar breakeven, we won't increase the dividend. That's not really -- there's no set number of breakeven that we're trying to achieve. We're trying to grow the dividend sustainably robustly over time. So I don't know if it's a satisfying answer. And of course, the whole buyback is really about returning surplus cash as we generate it over time, which we'll continue to do. Douglas George Blyth Leggate: Yes. I think -- it does indeed. I'll congratulate you on lulling the market into a false sense of sub-10% dividend growth because I think this surprised a lot of people and it seems that a low dividend growth per share does correlate extremely well with your share performance. One month of wet weather seems to have overlook this very significant move you made today. So we'll continue to watch it. I'll continue to ask it, but a very impressive move, I guess, would be our conclusion. Operator: And that does conclude the question-and-answer session. I'll now turn the conference back over to Peter Shaw, Vice President of Investor Relations for closing remarks. Peter Shaw: Thank you. And so on behalf of the management team, I'd like to thank everyone for joining us this morning. If there are any further questions, please don't hesitate to reach out to the Investor Relations team. We'll be happy to answer your questions. With that, thank you very much, and have a great day. Operator: Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.
Operator: Greetings, and welcome to the Weyerhaeuser Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Andy Taylor, Vice President of Investor Relations. Thank you, Mr. Taylor. You may begin. Andy Taylor: Thank you, Rob. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's fourth quarter 2025 earnings. This call is being webcast at www.weyerhaeuser.com. Our earnings release and presentation materials can also be found on our website. Please review the warning statements in our earnings release and on the presentation slides concerning the risks associated with forward-looking statements as forward-looking statements will be made during this conference call. We will discuss non-GAAP financial measures and a reconciliation of GAAP can be found in the earnings materials on our website. On the call this morning are Devin Stockfish, Chief Executive Officer; and David Wold, Chief Financial Officer. I'll now turn the call over to Devin Stockfish. Devin Stockfish: Thanks, Andy. Good morning, everyone, and thank you for joining us. Yesterday, Weyerhaeuser reported full year GAAP earnings of $324 million or $0.45 per diluted share on net sales of $6.9 billion. Excluding special items, full year 2025 earnings totaled $143 million or $0.20 per diluted share, and adjusted EBITDA totaled $1 billion for the year. For the fourth quarter, we reported GAAP earnings of $74 million or $0.10 per diluted share on net sales of $1.5 billion. Excluding special items, we reported a loss of $67 million or $0.09 per diluted share for the quarter. Adjusted EBITDA was $140 million. I'll start this morning by thanking our employees for their solid execution and resilience in 2025. Notwithstanding extremely challenging market conditions, we delivered on the multiyear targets we established back in 2021 and launched an ambitious company-wide growth strategy through 2030. Specific to 2025, we further optimized our timberlands portfolio, expanded our climate solutions offerings, broke ground on our new TimberStrand facility in Arkansas and captured additional operational excellence improvements. We also increased our base dividend by 5% and returned $766 million of cash to shareholders, including $160 million of share repurchase. These are notable accomplishments given the headwinds our industry faced in 2025, and they demonstrate the power of our integrated portfolio, deeply embedded OpEx culture and flexible capital allocation framework. Looking forward, we remain constructive on the longer-term fundamentals that support our businesses. And as we outlined at our Investor Day in December, we're uniquely positioned to accelerate growth and drive significant value creation for shareholders through the balance of the decade. Before getting into the business segments, I'll provide a brief update on recent actions to further optimize our timberlands portfolio, all of which were previously announced. During the fourth quarter, we completed 2 divestiture transactions covering non-core timberlands in Oregon, Georgia and Alabama for total proceeds of $406 million. In addition, we entered into an agreement to divest approximately 108,000 acres in Virginia for $193 million, and we expect this transaction to close next month. Moving forward, we will continue to evaluate capital-efficient opportunities that enhance the return profile of our timberlands while balancing other growth initiatives and levers across our capital allocation framework to drive long-term value for our shareholders. Turning now to our fourth quarter business results. I'll begin with Timberlands on Pages 7 through 10 of our earnings slides. Excluding special items, Timberlands contributed $50 million to fourth quarter earnings. Adjusted EBITDA was $114 million, a $34 million decrease compared to the third quarter, largely driven by lower sales volumes and realizations in the West. Starting with the Western domestic market. Log demand and pricing softened in the fourth quarter as supply remained ample and mills continue to carry elevated log inventories to navigate a very challenging lumber market. As a result, our average domestic sales realizations decreased moderately compared to the prior quarter. Our fee harvest volumes were lower, largely due to fewer working days in the fourth quarter and the pull forward of volume over the summer months given a relatively light wildfire season. Per unit log and haul costs decreased and forestry and road costs were seasonally lower. Despite a challenging fourth quarter, it's worth noting that regional log markets are trending towards a more balanced state as supply moderates into the winter months and mills work through elevated log decks. As a result, we expect stable domestic log pricing in the first quarter with upside potential if lumber prices further improve from current levels. Moving to our Western export business. In Japan, finished good inventories remained elevated in response to ongoing consumption headwinds. As a result, demand for our logs softened in the fourth quarter, and our sales volumes decreased compared to the prior quarter. That said, our average sales realizations for export logs to Japan were moderately higher, largely driven by freight-related benefits. Looking forward, we expect demand for our logs to improve over time as inventories normalize in the Japanese market and as our customers continue to take market share from competing imports of European lumber. Turning briefly to China. In November, the ban on log imports from the U.S. was lifted. As a result, we're in the early stages of reestablishing our log export program to strategic customers in the region. However, we expect limited shipments in the near term given the weakness in the Chinese real estate sector and the seasonal slowing of construction activity around the Lunar New Year holiday. For the fourth quarter, we delivered one vessel to China and expect to send a second vessel in the first quarter. Turning to the South. Adjusted EBITDA for Southern Timberlands was $69 million, a $5 million decrease compared to the third quarter. Southern sawlog markets remained muted in the fourth quarter as dry weather conditions kept log supply ample and mills continued to align capacity with lower takeaway of finished goods. In contrast, Southern fiber markets were relatively stable outside of a few localized regions impacted by recent mill closures. On balance, takeaway for our logs remained steady, given our delivered programs across the region. And our average sales realizations increased slightly compared to the third quarter, largely due to a higher mix of grade logs and export volumes to India. Our fee harvest volumes were moderately lower compared to the prior quarter, primarily driven by fewer working days. Per unit log and haul costs increased and forestry and road costs were seasonally lower. In the North, adjusted EBITDA was comparable to the third quarter. Turning now to Real Estate, Energy and Natural Resources on Pages 11 and 12. In the fourth quarter, Real Estate and ENR contributed $84 million to earnings. Adjusted EBITDA was $95 million, a slight increase compared to the prior quarter and approximately $19 million higher than our fourth quarter guidance. This outperformance was largely driven by the timing of transactions, including the completion of a conservation easement in May. Notably, our average price for real estate sales reached a record high in the fourth quarter at over $8,200 per acre. This was mostly attributable to some high-value development transactions in South Carolina. For the full year, Real Estate and ENR generated $411 million of adjusted EBITDA, moderately higher than our revised full year guidance and $61 million higher than our initial outlook. These results were largely driven by strong demand and pricing for HBU properties in our real estate business, resulting in high-value transactions with significant premiums to timber value. They also reflect a significant year-over-year increase in contributions from our Climate Solutions business. As shown on Page 19, full year adjusted EBITDA for Climate Solutions was $119 million, a 42% increase compared to 2024, primarily driven by strong contributions from our conservation, mitigation banking and renewables businesses. Importantly, we exceeded our multiyear target to reach $100 million of annual adjusted EBITDA by year-end 2025. And at our Investor Day this past December, we announced a new target to grow the business to $250 million of annual EBITDA by 2030. I'll briefly discuss some recent highlights today and would refer you to our Investor Day materials for a comprehensive overview of each Climate Solutions business, including growth projections through the balance of the decade. In the fourth quarter, we received approval for our fifth forest carbon project and have 4 additional projects in the development pipeline. In 2025, we generated approximately 630,000 credits, a significant increase relative to the prior year, and we sold 120,000 credits in the voluntary market. We continue to see growing demand and solid pricing credits given our commitment to developing projects that meet high standards for quality and integrity. And finally, on Climate Solutions, we announced an exciting new business opportunity at our Investor Day in December. We're partnering with Aymium, a global leader in biocarbon technology to produce and sell up to 1.5 million tons of biocarbon annually by 2030. We're advancing the first facility adjacent to our lumber mill in McComb, Mississippi, and the companies are working to identify additional sites to construct new facilities across Weyerhaeuser's footprint over the next 5 years. At full scale, the platform of biocarbon facilities will have the potential to convert over 7 million tons of wood fiber on an annual basis to be provided primarily by Weyerhaeuser. This is an excellent example of how we can leverage our scale and expertise to go on offense and create new pathways for growth across our integrated portfolio. Now moving on to Wood Products on Pages 13 through 15. Earnings for Wood Products was a $78 million loss in the fourth quarter, and adjusted EBITDA was a $20 million loss. These results reflect extremely challenging lumber and OSB markets in the quarter, with pricing hovering near historically low levels on an inflation-adjusted basis. Starting with lumber. The framing lumber composite began the fourth quarter on a slight upward trajectory, largely supported by improving Western SPF pricing and broader concerns around the Section 232 tariff, which took effect in October. As the quarter progressed, ample product supply and seasonally softer demand drove composite pricing lower through early December. By quarter end, the market improved slightly as buyers replenished lean inventories and lumber volumes from Canadian producers declined noticeably. Collectively, these dynamics supported increased pricing recently, albeit from a low starting point. In particular, Southern Yellow Pine prices have steadily improved over the past 2 months. For our lumber business, fourth quarter adjusted EBITDA was a $57 million loss. Production volumes decreased 14% compared to the third quarter, and this reflects our election to moderate production across our mill set in response to the softer demand environment as well as the volume impact associated with our Princeton sawmill, which we sold late in the third quarter. As a result, our sales volumes were lower in the fourth quarter and unit manufacturing costs were slightly higher. Our average sales realizations decreased 3% compared to the third quarter, which was favorable to the framing lumber composite, and our log costs were moderately lower. Looking forward, we are encouraged by the recent increase in lumber pricing and expect demand to improve into the spring building season. As a result, we anticipate stronger performance from our lumber business in the first quarter. Now turning to OSB. Fourth quarter adjusted EBITDA was a $10 million loss, primarily driven by weaker product pricing in response to the seasonal reduction in residential construction activity. I'll note that composite pricing stabilized in December after decreasing for most of the fourth quarter. And we've seen pricing move slightly higher here over the last several weeks. For our OSB business, average sales realizations decreased by 6% compared to the third quarter, largely in line with the composite. Our production and sales volumes were slightly higher and unit manufacturing costs were comparable. Fiber costs were slightly lower in the fourth quarter. Engineered Wood Products adjusted EBITDA was $49 million, a $7 million decrease compared to the third quarter. This was driven by a seasonal decline in sales volumes across products and slightly higher unit manufacturing costs. We continue to align our production with customer demand and single-family homebuilding activity, both of which moderated into the winter months. Notably, our average sales realizations were comparable to the third quarter. Raw material costs were also comparable. It's worth pointing out that both third and fourth quarter results included a small benefit from insurance proceeds associated with the early 2025 fire at our MDF facility in Montana. In Distribution, adjusted EBITDA decreased by $2 million compared to the prior quarter, largely driven by lower sales volumes for most products. With that, I'll turn the call over to David to discuss some financial items and our first quarter and full year 2026 outlook. David Wold: Thank you, Devin, and good morning, everyone. I'll begin with key financial items, which are summarized on Page 17. For the full year, we generated $562 million of cash from operations. Excluding a $200 million contribution related to pension liability management, cash from operations would be $762 million for the year. We ended the year with just under $500 million of cash and total debt of $5.6 billion. As Devin mentioned, we returned $766 million of cash to shareholders during the year. This includes quarterly base dividends, which we increased by 5% in 2025 and $160 million of share repurchase activity. It's worth noting that we completed our prior $1 billion share repurchase program and announced a new $1 billion authorization in 2025. This provides capacity for future opportunistic share repurchase activity and represents a meaningful lever for driving long-term value for our shareholders. Notwithstanding the challenging market backdrop in 2025, we continue to operate from a position of strength. In addition to returning a meaningful amount of cash back to shareholders, we made significant enhancements to our timberlands portfolio, grew our Climate Solutions business, deployed capital towards strategic growth opportunities and launched an ambitious multiyear growth strategy. As we've demonstrated over the last several years, we have a strong and proven track record of disciplined capital allocation and a cash return framework that's aligned with the cyclicality of our businesses. Looking forward, our balance sheet, liquidity position and financial flexibility remains solid, and we are well positioned to navigate a range of market conditions and execute our accelerated growth plan. In the fourth quarter, we took advantage of a favorable opportunity to complete the purchase of a group annuity contract that transferred approximately $455 million of our U.S. pension liabilities to an insurance carrier. This was funded with $440 million from our U.S. pension plan assets and resulted in a noncash $111 million after-tax settlement charge, which was included as a special item in our results. As previously mentioned, we also made a $200 million voluntary cash contribution to the plan in conjunction with this transaction. These liability management activities represent the latest in a series of actions we've taken to reduce our pension obligations, minimize the costs associated with servicing the liabilities and lower volatility. Since we began these efforts in 2018, our gross pension plan obligations have decreased approximately $5 billion to $1.9 billion as of year-end 2025, and we've improved our funded status by more than $1 billion as well. Key outlook items for the first quarter and full year 2026 are presented on Pages 21 and 22. In our timberlands business, we expect first quarter earnings before special items and adjusted EBITDA to be comparable to the fourth quarter of 2025. Starting with our Western Timberlands operations. As Devin mentioned, domestic log markets are trending towards a more balanced state, largely driven by a seasonal reduction in log supply, which is typical in the winter months. As a result, we expect increased demand for our logs and slightly higher domestic sales volumes compared to the prior quarter. Our average domestic sales realizations are expected to be comparable to the fourth quarter, but could see upside if lumber takeaway and pricing improve into the spring building season. Absent weather-related disruptions, fee harvest volumes and forestry and road costs are expected to be comparable and per unit log and haul costs are expected to decrease given the seasonal transition to lower elevation harvest operations. Moving to the export markets. In Japan, we anticipate steady demand from our customers and stable pricing for our logs in the first quarter. That said, we expect higher sales volumes compared to the prior quarter due to the timing of vessels. Our average sales realizations are expected to decrease slightly, largely attributable to freight-related impacts. Turning to China. As Devin mentioned, we are in the early stages of reestablishing our log export program and expect to deliver 1 vessel to China in the first quarter. As a result, our sales volumes will be comparable to the prior quarter, and we expect slightly higher average sales realizations. Moving to the South. Southern log markets are expected to be fairly stable in the first quarter. Mills continue to carry elevated log inventories and navigate lower pricing and takeaway of finished goods. That said, demand signals could improve as the quarter progresses, particularly if weather conditions limit log supply or if we see a strengthening lumber market into the spring building season. On balance, we expect our average sales realizations to decrease slightly compared to the fourth quarter, largely driven by a higher mix of fiber logs and lower export volumes to India. Our fee harvest volumes are expected to be slightly lower due to wet weather conditions that are typical in the first quarter. Forestry and road costs are expected to increase moderately compared to the prior quarter, and we anticipate slightly lower per unit log and haul costs. In the North, our fee harvest volumes are expected to be slightly lower compared to the fourth quarter, and we anticipate comparable sales realizations. Turning to our full year harvest plan. For 2026, we expect total company-wide fee harvest volumes of approximately 35.5 million tons. From a regional perspective, we anticipate the South will be slightly higher than last year. The West will be comparable and the North will be slightly lower. Moving to Strategic Land Solutions. As we announced at our Investor Day in December, this is the new name for our Real Estate, Energy and Natural Resources segment. Beginning with first quarter results, we will expand our disclosure for the segment to 3 business lines: Real Estate, Natural Resources and Climate Solutions. The new name reflects our broadening scope and growth focus across these businesses and the new reporting structure enhances the cadence of disclosure for our Climate Solutions activities. For the segment, we expect full year 2026 adjusted EBITDA of approximately $425 million. Basis as a percentage of real estate sales is expected to be between 25% and 35% for the year. Entering 2026, we anticipate steady demand and pricing for our real estate properties, resulting in a consistent flow of transactions with significant premiums to timber value. Additionally, we expect to deliver steady growth from our Climate Solutions business in 2026. First quarter earnings for the segment are expected to be approximately $75 million higher than the fourth quarter of 2025, while adjusted EBITDA is expected to be approximately $90 million higher. This reflects a very strong first quarter for our Strategic Land Solutions segment, largely driven by the timing and mix of real estate sales and the completion of a sizable conservation easement transaction in Florida. This transaction closed in January and involved approximately 61,000 acres of Weyerhaeuser timberlands. We received nearly $94 million of proceeds to convey our acreage into a permanent conservation easement, the largest of its kind in the state of Florida. The easement adds acreage to a larger Wildlife Corridor, protecting the land from future development. Importantly, the easement allows Weyerhaeuser to retain ownership of the land for continued sustainable forest management. This is an excellent example of how we can leverage our size, scale and sophistication to drive material value uplift opportunities across our timber holdings while also demonstrating our commitment to sustainable land stewardship and long-term conservation outcomes. Turning to our Wood Products segment. Excluding the effect of changes in average sales realizations for lumber and OSB, we expect first quarter earnings and adjusted EBITDA to be slightly higher compared to the fourth quarter of 2025. Benchmark prices for lumber have increased steadily over the last couple of months, and we've seen OSB composite pricing move slightly higher in January. As the quarter progresses, we expect demand for both products to improve seasonally into the spring building season. It's worth noting that a $10 change in commodity prices translates to approximately $50 million of annual EBITDA for lumber and approximately $30 million for OSB. For our lumber business, we expect higher production and sales volumes in the first quarter and lower unit manufacturing costs as we return to a more normal operating posture. Log costs are expected to be slightly lower. For our oriented strand board business, we anticipate slightly higher sales volumes and slightly lower unit manufacturing costs compared to the fourth quarter. Fiber costs are expected to increase slightly. In our Engineered Wood Products business, we continue to anticipate close alignment between product demand and single-family homebuilding activity. As a result, we expect relatively stable sales volumes for most of our products in the first quarter with some slight seasonal improvement as the quarter progresses. Our average sales realizations are expected to be slightly lower and raw material costs are expected to be comparable. For our distribution business, we expect adjusted EBITDA to increase compared to the fourth quarter, largely due to improved sales volumes. I'll wrap up with some additional full year outlook items highlighted on Page 22. In 2026, we expect our interest expense to be approximately $255 million. For taxes, we expect our full year effective tax rate to be between 8% and 12% before special items based on the forecasted mix of earnings between our REIT and taxable REIT subsidiary. Our noncash nonoperating pension and post-employment expense is expected to be approximately $60 million. We do not anticipate any required cash contributions to our U.S. qualified plan in 2026, but expect approximately $20 million of required cash payments for all other plans. Turning to capital expenditures. We expect our typical programmatic CapEx to be between $400 million and $450 million in 2026, in line with our new multiyear target. This excludes the investment required for the construction of our new EWP facility in Arkansas, which we expect to be approximately $300 million in 2026. As we've previously communicated, capital expenditures associated with this project will be excluded for purposes of calculating the company's annual adjusted FAD as used in our flexible cash return framework. With that, I'll now turn the call back to Devin and look forward to your questions. Devin Stockfish: Thanks, David. I'll make a few brief comments on the housing and repair and remodel markets. Starting with housing. Overall, housing activity was lackluster in 2025. While we don't yet have the most recent housing data, we do expect total starts to come in somewhere around 1.3 million units and single-family starts a fair bit below 1 million units. The combination of weak consumer confidence and ongoing affordability challenges continue to be headwinds for housing activity. While mortgage rates have declined in the low 6% range here recently, many potential homebuyers remain on the sidelines, given elevated uncertainty about unemployment and the economy. Based on conversations with our homebuilder customers, we've heard some modest optimism for 2026 in response to the administration's recent actions and commentary to support the housing market, most notably their decision to purchase $200 billion of mortgage-backed securities. While it's too early to gauge the full impact of federal housing-related policies, they should be directionally positive, especially if we see mortgage rates trend lower. And aside from federal policies, we're also seeing state and local governments expressing an increased level of interest in supporting the housing market. All of this should create some tailwinds for housing activity, but it will likely take some time to play out. In the near term, I suspect we'll continue to see choppiness in the housing market as consumers navigate ongoing affordability challenges and uncertainty around the economy. That said, our longer-term outlook on housing fundamentals remains favorable, supported by strong demographic trends and a vastly underbuilt housing stock. Turning to the repair and remodel market. Activity decreased somewhat in 2025, largely driven by many of the same factors impacting the residential construction market, namely lower consumer confidence, higher interest rates and concerns around the trajectory of the economy. And to some degree, the repair and remodel market continues to be impacted by the lower turnover of existing homes as a result of the lock-in effect. Looking out into 2026, we could see an uptick in R&R activity, especially if interest rates move lower and we get some improvement in existing home sales. In addition, the deferral of large discretionary projects over the last few years should ultimately serve as a tailwind, particularly as the macro environment improves. But similar to housing, a material pickup in repair and remodel activity likely will require an improvement in overall consumer confidence. Putting the near-term uncertainty aside, our long-term outlook continues to be positive as many of the key drivers supporting healthy repair and remodel demand remain intact, including favorable home equity levels and an aging housing stock. Finally, I'll make a few comments regarding the multiyear targets we set in 2021 and touch briefly on the accelerated growth strategy we outlined at our recent Investor Day in December. As highlighted on Page 19, we successfully delivered on the ambitious multiyear targets we announced at our previous Investor Day back in 2021. Starting with our portfolio, with the transactions we completed and advanced in 2025, we achieved our multiyear billion-dollar timberlands growth target. In the process, we offset a substantial portion of our acquisitions with divestitures of non-core acreage, effectively recycling capital to enhance the quality and value of our portfolio. In Climate Solutions, we exceeded our 2025 growth target by $19 million. We've built a world-class team. We've expanded our offerings and have a strong pipeline of future opportunities to drive incremental growth. In lumber, we made disciplined investments to reduce costs across the mill set, and these investments will ultimately enable production growth as market conditions improve. In terms of our operations, we maintained strong relative performance across our businesses and met our multiyear OpEx targets, a notable achievement given the inflationary and market-related headwinds we faced during this period. And finally, we continue to demonstrate our commitment to returning meaningful amounts of cash back to shareholders through 4 consecutive annual increases to our quarterly base dividend and over $6 billion of cash return from 2021 through 2025, including nearly $1.1 billion of share repurchase. I'm incredibly proud of these accomplishments, all of which enhance our strong foundation and position us for our next chapter, which is accelerated growth. Page 20 summarizes the key takeaways from our Investor Day in December, which is a target to deliver $1.5 billion of incremental adjusted EBITDA by 2030 measured against the 2024 base. Over the next 5 years, we intend to catalyze growth initiatives across the entirety of our integrated platform to significantly grow the value and cash generation capabilities of our company and further strengthen our competitive position. I'll note that most of our growth initiatives are, to a large extent, within our control and already underway. These actions will enhance our ability to maximize cash flow per share while maintaining a stable foundation across market cycles and ultimately, position Weyerhaeuser to deliver industry-leading shareholder returns. I'm very confident in our ability to achieve our 2030 growth plan and excited to deliver on this transformational program for our stakeholders. So in closing, our performance in 2025 reflects solid execution across our businesses, notwithstanding the persistent and significant headwinds in many of our end markets. Entering 2026, our foundation is strong, and we're well positioned to capitalize as market conditions improve. We remain focused on serving our customers and advancing our strategy to accelerate growth and drive significant long-term value for shareholders. So with that, I think we can open it up for questions. Operator: [Operator Instructions] Our first question comes from Hamir Patel with CIBC. Hamir Patel: Devin, on the pricing front, do you think the improvement we've seen so far this year for both lumber and OSB is largely a reflection of curtailments? Or is underlying demand actually picking up? Devin Stockfish: Yes. I mean I think the reality is it's primarily driven by curtailment activity. I think on the lumber side, a piece too, just the reduction in the volumes coming across the border from Canada. That being said, as we continue to approach the spring building season, you do typically start to see some level of pickup in demand. Obviously, across the South, we've had a pretty significant weather event here. So I'm not sure there's been a lot of construction activity. But that being said, every week that you progress towards spring building season, people are starting to ramp up. And so that's probably a small piece. But I do think at present, it's largely a supply side-driven increase. Hamir Patel: Okay. And then just given how much Southern prices have moved, it looks like they're quite comfortably above breakeven for the industry. Are there any constraints that would stop us seeing a more meaningful production response? Devin Stockfish: Yes. I mean a couple of things I would highlight. I mean, I think you're right. Obviously, we've seen a nice run-up in Southern lumber prices, and that's probably moved most of the industry above cash flow breakeven, whether it's all of the industry or not, open question, I suppose. But you can see some level of increase in production. I think overall, the industry has been pretty restrained in terms of running overtime shifts, running a full operating posture. So there's probably a little bit of flex in the system. But that being said, I do think you're going to continue to see less volume coming across the border from Canada. So part of this story is really about how quickly we can convert some of these traditional SPF markets to Southern Yellow Pine. And I will say on that front, I mean, we're encouraged by some of the early activity that we've been involved in, in making that happen. So there's a little bit of additional volume that we could see if the producers really start ramping up production. But I still think, particularly as demand picks up into the spring building season, it feels like there's still probably some room to run on Southern lumber prices. Operator: Our next question comes from Susan Maklari with Goldman Sachs. Charles Perron-Piché: This is actually Charles Perron in for Susan. I just wanted to follow up, Devin, on the last question that was asked about the demand. Considering the commentary and the increased optimism that we've seen over the past few weeks from the builders, I was wondering if you can talk about the thoughts on inventory and how you approach the spring and busy season here? And especially any thoughts on the retailers and how they're approaching this market given the potential for some inflation in commodity prices? Devin Stockfish: Yes. When you're talking about inventory, you're talking about home inventory or lumber and OSB inventory? Charles Perron-Piché: Sorry, lumber and OSB inventory. Devin Stockfish: Yes. I mean I think on balance, inventories across the channel are in a pretty reasonable state for this time of year. I wouldn't say for the most part, they're either lean or heavy. The one maybe minor exception to that would be in certain regions with OSB. I do think towards the end of last year, a lot of folks really ran their OSB volumes and inventory is pretty low. And so that might be a minor exception. But on balance, I think the inventory levels across the channel in all of the products are adequate for the level of building activity. Now clearly, as the weather improves and we start getting deeper into the spring, people will have to start building inventory because demand just seasonally picks up regardless of what you think is going to happen in terms of overall housing improvement. So I think we're pretty well set. And a lot of this will just depend on when people start building inventories, when the building season really starts ramping up, there's a weather component to that. But I think we're optimistic that we could see some nice pickup in demand as we hit the seasonal spring building season. Charles Perron-Piché: Got it. That's helpful color. And then switching to the timberland portfolio. How are you approaching your A&D decisions into 2026, considering the strong appetite that you noted for HBU properties in this environment? David Wold: Yes, Charles, you bet. This is David. I'll take that one. I mean right now, I think you're right, we continue to see a very solid market right now. I guess just reflecting on the market as a whole, we typically think about that being in somewhere the $2 billion to $3 billion range on the timber acquisitions and divestiture market, came in towards the upper end of that range for 2025. And I think as we move into 2026, expect to see a similar normal level of activity. There's plenty of capital that's pursuing these transactions, a significant amount raised over the last several years with a mandate to invest in this asset class. So I think we continue to expect to see that demand with the growing appreciation for all the alternative land-based value opportunities that are inherent. And I think you also see that in our HBU transactions over the course of the fourth quarter. Our real estate team did a great job capitalizing on a couple of transactions in the Charleston area. We talked about some of our real estate development opportunities at our December Investor Day, and those were some great opportunities for capitalizing on some high-value acreage, really unlocking the value of our portfolio. And so we're really pleased to be able to see that. Charles Perron-Piché: And just to follow up on the last comment. Is there any other opportunities you could see to make similar deals to the large conservation easement transaction that you've done in Florida? Is this something like that could happen again across your portfolio? David Wold: Yes, certainly. I mean we have a dedicated team that's focused in this area. Really, the transaction that we executed on in December was a really unique opportunity that our scale, sophistication, the talent that we built up uniquely positioned us to be able to execute on a transaction like that. And similarly, in the future, we'll evaluate all sorts of opportunities to do transactions such as those. Operator: Our next question comes from Anthony Pettinari with Citigroup. Anthony Pettinari: I was wondering if you could talk about operating rates in lumber and OSB. And then in the spirit of black at the bottom, what kind of steps you've taken to improve profitability ex-product price improvement? And if we stay 1.3 million starts, maybe single-family $1 million or below $1 million, if that were to continue for a few years, just kind of how you think about the footprint and the size and just sort of general thoughts there. Devin Stockfish: Yes. Well, first, on the operating rates, in Q4, in lumber, we were sort of in that mid-70% operating rate. As we noted, we took some steps to intentionally dial that back just given the dynamic in the market. OSB kind of in that mid-90% range was pretty typical for us. As we think about the overall market, obviously, the Q4 pricing environment for lumber and OSB was about as tricky and challenging as we've seen in a very long time. And so while we're certainly not pleased to have been underwater in Q4, we weren't alone. I think that was something that impacted the industry as a whole. I think over time, what you'll see is that we have navigated this better than the rest of the industry. We're always focused on OpEx. Certainly, in a market where you're at sort of trough pricing, that becomes pretty challenging. But over time, it all comes down to where are you on the cost curve relative to the rest of the industry and the work that we've been doing over the past decade, the focus that we've had on OpEx, I think, has positioned us very well on the cost curve. And that will show up over time. The reality is you're not going to see pricing at levels where the majority of the industry is underwater. We've seen that play out perhaps for a little bit longer period than we had expected. But you've seen a fair bit of mill closure announcement. You've seen mill capacity curtailments. You're starting to see the results of that activity and some of the pricing uplift. So I know it's tricky when you are at that trough. But when you look out over a broader period of time, certainly, I think we're going to be positioned well relative to the rest of the industry, and I expect us to get back to profitability here in the very near term. Anthony Pettinari: Got it. Got it. That's very helpful. And then just switching gears on EWP and Monticello -- like given the weakness in single-family housing construction, if you had all that capacity with Monticello if it was online today, is the performance of the product such and the market -- kind of the share gain such that you'd be able to kind of be sold out? Or I'm just trying to understand like if single-family starts continues to be kind of tepid and Monticello comes online, is the demand for the product such that you're just going to sell it out anyways? Or would the ramp be slower? Or just how should we think about that in the context of sort of different levels of single-family demand? Devin Stockfish: Yes. I think a couple of things to keep in mind with respect to timber strand specifically. Number one, we do think we can take market share from other products with the TimberStrand product line. It's got a cost structure and a performance structure that we think we can effectively go out and take market share from other products, whether that's lumber or other EWP products. Second, it is a pretty broad end-use opportunity, whether you're talking about single-family, multifamily, I think there's opportunities in commercial, in mass timber. So it's got a pretty broad set of opportunities beyond single-family. And so we're feeling very optimistic about this mill coming online and our ability to sell it out relatively quickly. Now obviously, when you're starting up a new mill, it's not going to come out of the box on day 1 at 10 million cubes, right? It takes a little time to ramp these up. But we've got a sales and marketing plan in place to be able to go out there and move this product. And it is, as we've mentioned previously, one of the top products in our suite of EWP products. So we're encouraged and excited about it. And even if we are in this kind of housing market, we feel good about our ability to move it. Operator: Our next question comes from George Staphos with Bank of America. George Staphos: So David, Devin and Andy, I guess the first question I had, you did a real nice job in the South on mix from what we were looking for. You had mentioned a lot of things that you were sort of challenged by. We had heard log decks were pretty full and the like, and yet you had nice mix. You were up. A lot of that you said was from fiber log sales in the quarter. I was wondering what else contributed to the mix benefits? I know you mentioned exports to India and why that doesn't continue into the first quarter? Because it sounds like mix will be down even though you're going to be selling a bit more on the side of fiber logs. Is it just that exports will dissipate sequentially into 1Q? And what are the risks to the upside on that front? And then I had a follow-on. Devin Stockfish: Yes. I mean the answer to your initial question is really just we have the scale and diversity of customers to be able to operate through a whole variety of different markets. And that's really what we've been doing here over the last several quarters where you've seen some headwinds, largely related to end markets in lumber and OSB. But as we think about Q1 and the mix, I mean, to a degree, these are all around the margins, right? And so in any particular quarter, your harvest plans might have a little bit more big logs versus small logs or vice versa. You may have a little bit more thinning activity in the mix. And so really in the South, the Q1 is -- we just have a little bit more thinning activity. So there's just a little bit more pulpwood in the mix. I don't think there's any sort of material change in how we're operating the business. You see those sort of minor fluctuations quarter-over-quarter, and that's really just a reflection of that. In terms of India export program, we're really excited about how that's going. In any particular quarter, just depending on how the shipping schedule plays out, you might have 1 break-bulk ship versus 2 or vice versa. And so that's really just the mix story is nothing material. It's just kind of those minor differences you see quarter time to time. George Staphos: And then a follow-on question in EWP, we're seeing at least some pickup in dimensional lumber markets. Again, as was discussed earlier, a lot of that at this juncture is probably more supply than demand driven. But nonetheless, prices are heading higher. We'll see what happens, but it sounds like construction markets will be stable or better this year. And just wondering why we're not seeing that yet show up in EWP pricing and it's not significant. You didn't say it would be down a lot, but you're signaling a modest decline in EWP pricing sequentially into 1Q. And just wondering how you see that market in terms of supply-demand, competition, mix this year and in particular, what's driving 1Q? Devin Stockfish: Yes. I mean, as you know, George, it's really all about what's going on in single-family. That's the primary driver for EWP. And we have seen 2025 was the fourth down year in a row in terms of housing starts. And so that just puts some pressure on EWP. Unlike OSB and lumber, you just haven't really seen mill shutdowns or the level of curtailments that you've seen in some of those other product lines. So on the demand side, we're expecting -- our base case is that housing is going to be up slightly in 2026 relative to 2025. And look, perhaps if we could see even more downward pressure on mortgage rates, perhaps there's even some upside. So that's just kind of where we are. And in an environment where housing has been going down for 4 years in a row, that puts a little bit of pressure on the EWP. But that being said, I think when you look at our performance relative to others, our realizations have held up better than others, and we're out there really trying to take advantage of the moment and pick up market share and really deliver value to our customers. And markets go up and down with housing, and you just got to be able to navigate both the highs and the lows, and that's what we're doing. So we're still feeling very good about the EWP business. The team is doing a great job, service model, product quality. We're going to be rolling out some new products at the Builders Show. So we're excited about the opportunities in that business. Operator: Our next question comes from Mark Weintraub with Seaport Research Partners. Mark Weintraub: Devin, lots of commentary on housing, single-family. Just curious, maybe a bit more in the way of detail what you're seeing in repair and remodel and what type of pull-through maybe you've already started to see and any indications that might suggest and what you're hearing from customers in terms of potential outlook for the year? Presumably, it's mostly important for your lumber business, but if this is important for anything else, maybe share that with us as well. Devin Stockfish: Yes, you're right. It's primarily a lumber play from us, although, I mean, there's still some OSB takeaway out of that market. And increasingly, and still around the margins, but a growing piece, I think there's an opportunity with EWP into that market as well. But I'd say right now, I don't know that we've seen any sort of material pickup in activity on the ground today. Obviously, the weather issue that we just had across the South has not been helpful for construction activity. But I would say, in terms of outlook, our customers in the R&R channel are expecting to see some level of growth year-over-year, probably in the low single digits. But certainly, that's an improvement over what we've seen over the last couple of years. Mark Weintraub: Okay. And I recognize it's a tough question, but what type of single-family starts or housing starts level do you think are required in the different businesses to sort of sustain balance in the markets for the course of the year at this point, keeping -- taking into account some of the mill closures that you've been seeing kind of begin to add up. Devin Stockfish: Yes. I mean I don't think we're really that far off in lumber. We've certainly seen a whole lot of mills closing down over the last several years. It doesn't feel like we're really all that far out of balance from a lumber standpoint. And I think from an OSB standpoint, we're probably not that far off there either. Obviously, one of our competitors announced a pretty large closure that's going to be taking effect in March. So we're probably not that far away in OSB either. EWP is a little different. You just haven't really seen any sort of meaningful curtailments or closures there. So when we think about housing starts, I mean, not that it's not relevant, of course, it is, but it's really what housing starts do we need relative to the supply that's available in the system. And those 2 things do balance out. Sometimes it's a painful period to get there. But what I would say, Mark, is the silver lining here is, at some point, we're going to see an improvement in housing activity. I really do believe that fundamentally. And as the overall supply base has worked its way down to be more appropriate for a 1.3-ish million housing starts scenario, as the housing demand picks up, you do typically have a run on the other side where demand gets a little bit stretched as that -- the overall housing activity picks up. So at some point, we'll hit that, and we should have a nice run in both lumber and OSB. Mark Weintraub: Great. And maybe one -- a little bit off the beaten track, but -- so Potlatch and Rayonier closes today. Have you guys given thought as to kind of any implications and maybe there's not much, but that you think having them as competitor instead of 2 -- just 2 timber REITs out there instead of 3? Any thoughts that you've been having about that? Devin Stockfish: Yes. I mean I can't see any sort of meaningful impact to us. We competed with them individually. We'll compete against them collectively. It's not really going to make a whole lot of difference in the marketplace with our customers. So I don't think it's going to have any sort of meaningful impact to us. Operator: Our next question comes from Kurt Yinger with D.A. Davidson. Kurt Yinger: I wanted to go back to the Investor Day targets. If we were to just kind of hone in on the next 12 or 24 months, can you talk about maybe a few of the main areas that you expect could be kind of more meaningful contributors? And any sense of kind of guideposts and thinking about how much of that $1 billion you might expect over that time frame? David Wold: Yes. You bet, Kurt. I mean, as we think about those targets, really, I'd have you look back at the growth in our Climate Solutions business over the last several years, right? It's not necessarily going to be linear, especially in the early portions of this growth. We got a lot of work done over the course of 2025. Of course, we laid out our targets publicly at the end of the year. But really over the course of 2025, we did a tremendous amount of work laying the groundwork, building out the project plans, identifying resources to go after these initiatives in a thoughtful and detailed aggressive way through 2030. So as we think about the larger buckets, we've already made some progress towards some of those growth areas, thinking about going back to the Climate Solutions space. That's an area that we demonstrated progress on from our 2024 baseline to 2025, growing that from $84 million to $119 million the growth that we've done with the timberlands optimization, that's going to contribute. Some of the other buckets, thinking about TimberStrand, some of the biocarbon initiatives, those are going to be a little bit more chunky as those facilities come online later into it. So again, I think it's not something we can necessarily give you granular guidance, but we're really pleased with the progress that we've made to date. We'll continue to report out on our progress as we progress through 2030. Kurt Yinger: Got it. Okay. That's helpful. And then on the acquisition and divestiture front, I guess, net of the deals that you did in 2025, with what you've added, is that expected to be like a net positive in terms of timberlands profitability in 2026? And then kind of looking at the Virginia transaction specifically, how would you have us think about what that property was doing from kind of an EBITDA or cash flow perspective? David Wold: Yes. Yes, sure, Kurt. I guess, first of all, just on the broader timberlands portfolio optimization, obviously, a lot of that can get lost in the noise of market dynamics with things being a little bit more challenging, particularly with Western log pricing over the past period of time. So it can be a little bit challenging to see that in the results at times. But really, I'd point you back to the materials that we presented at Investor Day. We showed that the portfolio optimization work going back to 2020 is going to drive $60 million on average of incremental cash flow in the timber space. So you got to slice and dice that a little bit to think about the '24 period onward in terms of the growth target, but very pleased at that. And absolutely, the activity that we did over the course of 2025 is going to be net positive to our cash flow generation capabilities. The Virginia properties, in particular, I don't know that we're going to get into specifics on the EBITDA levels there. But any time we're thinking about the candidate for divestitures, we're looking to continue our journey to improve the overall cash flow generation capabilities of the portfolio. So while these were high-quality assets in the broader market, great interest from other parties, they were certainly below average for our portfolio in terms of cash flow per acre, harvest tons per acre without significant integration. So not something that we anticipate having a meaningful impact on our timberlands EBITDA generation. Operator: Our next question comes from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Maybe a couple of questions on capital allocation, Devin or David. Leverage climbed to 5x this quarter, and it looks like it could move higher depending on what happens to lumber OSB prices in the coming quarters. Curious kind of where is your comfort level as we move through 2026? I know kind of having an investment-grade rating is very important for Weyerhaeuser. But I'm just curious kind of where is your comfort level so far as net leverage is concerned. David Wold: Yes. Look, Ketan, I would say a couple of things on the leverage topic. As we think about capital allocation, there's a couple of foundational elements. You mentioned the investment-grade credit rating, and that's foundational of holding the base dividend, that is foundational, so yes, we have tracked higher from a leverage perspective. But as you know, again, that 3.5x net leverage target that we have is a mid-cycle number. And so certainly, we would like to see our leverage number lower today. But just as we saw a couple of years ago when markets were really strong and we were hovering around 1x leverage, that's not necessarily something that's going to persist. I think you have to look at the commodity pricing environment and the impact that's having on the EBITDA portion of the net debt-to-EBITDA calculation. And I also think I'd point out a couple of things in terms of context on the work we've done on our balance sheet over the last several years. We paid down a significant amount of debt. If you go back to 2019 and compare our interest expense, we reduced our annual interest expense by $100 million during that time period. We've optimized our portfolio. So notwithstanding the current state with the denominator in that net debt-to-EBITDA calculation, we feel really good about the strength of our balance sheet and the work we've done to strengthen that. So we have a tremendous amount of flexibility as we think about the balance sheet moving forward. Devin Stockfish: And I'd even say, I mean, this is working exactly as we would have expected. When you tell me that -- you would have told me that at peak pricing, we'd be at 1 and at trough pricing, we'd be at 5, and we kind of bounced around in between over the course of the interim. I would say that's pretty much exactly how we would expect this to work. Ketan Mamtora: Got it. Okay. No, that's helpful. And then just one other question. Given sort of the disparity between public and private market values in timberlands, would you be open to doing more divestitures in addition to kind of the one that you are doing in Virginia out if the right opportunity presented? David Wold: Yes, absolutely. I mean, Ketan, we're going to do anything that we think drives long-term shareholder value. I think we've shown we've been open to divesting portions of our portfolio. The activity that we do in our real estate business also capitalizes on the value that we can unlock in our portfolio. So absolutely, we'd be open to anything that's ultimately going to drive value. I think that's something that we've demonstrated. We can be adding value any time we transact on our portfolio, whether that's on the buy or the sell side. So we'll continue to look for opportunities to optimize our portfolio. Ketan Mamtora: In the near term, though, would you say that you would be more of a net seller versus a net buyer or not necessarily? David Wold: Again, I think we're going to look at all the opportunities that are available. So we're going to look to optimize shareholder value for the long term. And so we'll look to be active in that portfolio any time that it makes sense to transact on our portfolio. Operator: Our next question comes from Matthew McKellar with RBC Capital Markets. Matthew McKellar: First, you talked about upside potential in Western sawlog markets if lumber prices pick up. Could you help us just give us a sense of what kind of increase in prices or sawmill demand, however you'd like to frame it, that you'd need to see to create real tension and price momentum there? And then from the supply side, it seems like a bit of a marginal change, but will you expect the expansion of buffer zones around the non-fish-bearing streams in Western Washington later this year to have an impact on log markets there in the West? Devin Stockfish: Yes. On your first question, the markets are fundamentally tension in the West. And what we've seen from a Western log pricing is really just a reflection of really weak lumber pricing. And you'll see periods of time where buyers will purchase logs at prices that put them under water, but they just can't do that for extended periods of time. So you typically see a pretty strong log price reaction as you see lumber prices move up. Now there may be a month or 2-month lag in that catch-up. But if you continue to see lumber prices move up in the West, we've seen a bit of that here recently, you'll see log prices follow along shortly thereafter. With respect to your second question, that relates to some regulatory changes happening in Washington state. Look, as with almost all regulations in Washington or Oregon or really any environment where we operate, we have the scale and expertise to navigate those pretty well. So I wouldn't expect that to have a meaningful impact on us. It may to others, particularly smaller landowners. There were some, I would say, flaws in the rule-making process to bring that forward, which is why there are several lawsuits underway. So it's not even entirely clear to me that those rules will ultimately come to fruition. But if they do, we'll manage through it, and it shouldn't be too impactful to us. Matthew McKellar: Great. That's very helpful. And then just quickly, you mentioned elevated log inventories at mills in the South. Can you maybe just give us a sense of how those inventories would compare to where they'd normally be this time of year? Devin Stockfish: Yes. I mean when we say that, we're talking about if a mill typically carries 7 or 8 days of inventory and maybe they're carrying 8, 9, 10. So you can -- in the South, it's not like in Canada where they're carrying really, really large log decks. You can work through these pretty quickly if you have either a weather event that limits log supply into the system or if you see a pickup in lumber demand and people start running full and picking up overtime shifts. So you can move through that pretty quickly. The impact in the near term is just if you're log decks full, you don't necessarily have to get too aggressive on pricing. You can take a little bit more risk around the margins. But again, that can reverse itself pretty quickly depending on circumstances. Operator: Our next question is from Hong Zhang with JPMorgan. Hong Zhang: I guess 2 questions for me. Number one, how are you thinking about the pace of share buyback activity given the recent rally in the stock? And for my second question, it's encouraging that export shipments are resuming in China. Do you expect export volumes to, I guess, normalize sometime this year? Or is that more of an outer year thing? Devin Stockfish: Yes. Maybe I'll take the export question and David can hit the share repo question. On the export piece, I do expect that to ramp up a bit over the course of the year, but I do not expect it to get back to where it was a handful of years ago. That's just really a reflection of the lower real estate activity that we're seeing in China until that picks up. I don't know that you're necessarily going to see the ramp back up to kind of those more teens -- 200 teens levels of China log demand. But nevertheless, super excited about getting that program ramped up. Any option for log customers is great for us, and that will be helpful for our Western system. David Wold: Yes. And then with respect to share repurchase, look, we've said that's a useful tool in the right circumstance to return cash to shareholders. We have a framework that we've used consistently to evaluate capital allocation decisions. Obviously, the factors that go into that, the math is dynamic, but the process is consistent. We've been very active over the course of 2025 in our share repurchase activity, completed $160 million. That was our highest annual level in a few years, closed out the prior $1 billion authorization, announced the new one. So yes, at recent trading ranges, we continue to view that as a very attractive lever. But of course, we're going to continue to weigh all the opportunities available, not just share repurchase. And so that includes maintaining the focus on ensuring we've got a strong balance sheet, capacity for future growth opportunities. So as always, we'll continue to look to allocate our cash in a way that creates the most value for shareholders. Hong Zhang: And I hope the weather treats you better over there than it's going to treat us over here. Devin Stockfish: Alright. We hope that too. Operator: Our final question is from Michael Roxland with Truist Securities. Niccolo Piccini: This is Nico Piccini on for Mike. Just starting off, the 1Q Timberlands EBITDA guide seems maybe a little light relative to history. I think there's usually a bump up from 4Q to 1Q. We've had some commentary so far, but I guess how does that reconcile with the comments that regional log markets are kind of trending more towards balanced supply/demand even if you have some inventory out of whack? Devin Stockfish: Yes. So the way I would frame that up for you is -- when you look at Q4 and Q1 to date, we've just seen largely because of what's happened in the lumber market, we've seen pretty soft log prices. And so to some degree, last year, we kind of saw that trending that direction. And so we pulled a little bit more volume into the summer months so that we could take advantage of higher pricing. And so what you saw is volume coming off in Q4 as well. As we've trended into Q1, when we entered Q1, and so for January and to date, log prices are still softer than we would like. And so you look at our Q1 volume in Western Timberlands it's down relative to what you'd normally see in Q1. Now we still have comparable volumes across the year. And so we're going to spread that out as the year progresses when we expect to see pricing a little higher. So quarter-to-quarter, you might have these little fluctuations in volume depending on what's going on in the market. But our primary goal, obviously, is to maximize profitability across the year. And so that's really the context around Q1 as we pulled a little bit of volume back, primarily because January and early February, we think pricing is going to improve as we get deeper into the spring and the building season. So we're going to put a little bit more log volume into the market when pricing is better. Niccolo Piccini: Got it. That makes sense. And then just following up, in your base CapEx target of $400 million to $450 million, excluding Monticello, what are some of the key projects there that you're looking to complete in 2026? David Wold: Yes, you bet. So yes, we did guide the $400 million to $450 million. That is in line with the guidance that we provided back in December at our Investor Day. Really thinking about it, it's the typical suite of projects. On the timberland side, that's reforestation, silviculture, roads, bridges, those kind of things. On the wood products side, it's thinking about the projects that we've successfully completed in some of our lumber mills, replicating those elsewhere, really with a focus on reducing cost, improving recovery, improving reliability. So really more of the same in terms of the themes that we've been working on in our CapEx program over the last several years. Niccolo Piccini: Got it. No one particular big project to call out or anything outside Monticello? David Wold: No. That's right. Operator: We have reached the end of the question-and-answer session. I would now like to turn the floor back over to Devin Stockfish for closing comments. Devin Stockfish: All right. Well, thanks, everyone, for joining us this morning, and thank you for your continued interest in Weyerhaeuser. Have a great day. Operator: This concludes today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning, and welcome to the SB Financial Fourth Quarter and Full Year 2025 Conference Call and Webcast. I would like to inform you that this conference call is being recorded. [Operator Instructions]. I will now turn the conference over to Sarah Mekus with SB Financial. Go ahead, Sarah. Sarah Mekus: Thank you, and good morning, everyone. I'd like to remind you that this conference call is being broadcast live over the Internet and will be archived and available on our website at ir.yourstatebank.com. Joining me today are Mark Klein, Chairman, President and CEO; Tony Cosentino, Chief Financial Officer; and Steve Walz, Chief Lending Officer. Today's presentation may contain forward-looking information. Cautionary statements about this information as well as reconciliations of non-GAAP financial measures are included in today's earnings release materials as well as our SEC filings. These materials are available on our website, and we encourage participants to refer to them for a complete discussion of risk factors and forward-looking statements. These statements speak only as of the date made, and SB Financial undertakes no obligation to update them. I will now turn the call over to Mr. Klein. Mark Klein: Thank you, Sarah, and good morning, everyone. Welcome to our fourth quarter 2025 conference call and webcast. The fourth quarter and full year 2025 results reflected continued strong execution across our franchise, delivering one of the strongest earnings quarters and year in our history. This includes a stronger presence in our core markets and steady progress in select expansion wins. Notably, we achieved this performance in a year where industry-wide mortgage activity include volume at State Bank remained clearly under pressure. Throughout the quarter and year, we focused on disciplined lending, balanced loan and core deposit growth, prudent expense management and maintaining strong credit fundamentals while navigating a fairly competitive environment. As we pivot from 2025, we believe our well-capitalized balance sheet, diversified business lines and revenue model, sound asset quality, and disciplined approach to capital management positions us well to support prudent growth and long-term value creation for our shareholders. Some highlights for the quarter and full year include net income of $3.9 million, diluted EPS of $0.63, up $0.08 or approximately 15% compared to the prior year quarter. When considering the service rights recapture adjusted EPS of $0.65, marking our 60th consecutive quarter of profitability. For the full year, our GAAP EPS of $2.19 represents the second highest per share earning performance in the last 20 years and a 27% lift over our 2024 EPS of $1.72 and 18% over our 2025 budget. Clearly, a very successful year for SB Financial. Tangible book value per share ended the quarter at $18, up from $16 last year or a 12.5% increase. Adjusted tangible book value now rests at $21.44 per share and drives our current market price to reflect an approximate 100% threshold. Net interest income for the quarter totaled $12.7 million, an increase of nearly 17% from the $10.9 million in the fourth quarter of last -- of 2024. From the linked quarter, net interest income increased 3.1% and for the year rose to $48.4 million, representing an increase of $8.5 million or 21%. Interestingly, 50% came from a larger balance sheet and 50% from wider margins. Recurring net interest margin revenue now represents nearly 75% of our total revenue, reflecting a larger balance sheet and expanded margins as fee-based business line revenue pulled back from our historical average of 35% to just 26%. Loan growth for the quarter was $70 million or an increase of 25% on an annualized basis. On a year-over-year basis, we delivered growth of $133.9 million or 12.8% and now marks 7 consecutive quarters of sequential loan growth. Our trajectory has enabled us to also outpace our peer performance and those at the 75th percentile. Driving our acceleration was our meaningful commercial lending activity in and around the Greater Columbus market of over $73 million this year with a solid contribution also from our new ag lender located here in Northern Ohio. Total deposits increased this quarter by $45 million or 14% on an annualized basis. On a year-over-year basis, our deposit growth escalated by nearly $155 million or 13%. This expansion includes $47 million related to the Marblehead acquisition. Strong organic deposit growth continued to support balance sheet expansion and liquidity. Deposit balances and client relationships at Marblehead have remained stable, and retention trends have been well in line with our expectations. Excluding acquired balances, deposits grew 9.3% compared to the prior year, reflecting continued engagement with our client base across all 7 of our regional markets. Importantly, our balance sheet remains liquid and well positioned for continued growth. At quarter end, we held approximately $50 million in excess liquidity and had ready access to $160 million in outstanding debt capacity, each providing meaningful flexibility to support organic growth, capital deployment and potential strategic acquisitions. Total assets under our care expanded this quarter by $62 million, representing annualized growth of 7%, this quarterly growth was a derivative of our annual trend that enabled us to reach now the $3.6 billion mark. This number includes bank assets of $1.5 billion, a nearly 9,000 household residential servicing portfolio of $1.5 billion and wealth assets of $566 million. Together, this diversified asset base provides meaningful revenue diversification and certainly supports performance across a number of varying market conditions. Mortgage originations for the quarter were $72.4 million, down from the prior year, but up compared to the linked quarter. We do still see a solid pipeline in the $25 million to $30 million range. Obviously, the pipeline can be extremely fluid as even a 0.25 point drop in rates would potentially move reluctant buyers off the sidelines into the market, albeit with limited housing inventory that we've discussed for a number of quarters. Operating expenses declined approximately 2.3% from the linked quarter and were up slightly compared to the prior year. Full year expense growth, excluding the onetime merger costs, was 7.7%, well below the 15.1% full year 2025 revenue growth, resulting in core operating leverage of 2x. Asset quality metrics remain -- continue to reflect the overall strength of the portfolio during the quarter with nonperforming loans to total loans declined to 0.39%, down from both the linked quarter and prior year period. Nonperforming assets also decreased on both a sequential and year-over-year basis, reflecting continued progress in resolving problem credits and maintaining disciplined credit oversight. While we did see some isolated pressure in certain credit relationships, we are actively addressing and resolving those exposures to continue to make progress to sustain our overall credit quality. Our strategy remains anchored in our key 5 strategic initiatives: Growing and diversifying revenue, greater footprint and scale for efficiency, a larger share of the client's wallet, which is all about scope, operational excellence and, of course, always asset quality. Looking a little closer at revenue diversity. As I mentioned, mortgage originations totaled approximately $72.4 million during the quarter. While activity remained slightly below the prior year period, production continues to improve compared to earlier quarters in the year, reflecting gradual softening in Freddie-Fannie fixed rate salable products. Clearly, we had higher expectations for the residential market this past year with a support team that has remained in place to deliver a far higher volume number. Overall, the $278 million in annual volume missed our budget level by approximately 28%, but we were pleased that compared to the prior year, volume was higher by over 8%. And most importantly, our loan sales volume eclipsed the 2024 level by nearly $34 million or 16%. Also, 2025 did not provide the historical boost to volume that we typically experience from refinance activity. For the year, 73% of our volume was purchase activity with another 6% from construction, supplemented by 20% from refinance from both internal and external clients new to State Bank. On a positive note, the fourth quarter's originations contained over 42% in refinance volume as clients took advantage of a window of several rate reductions during the quarter. Noninterest income was down by 18.6% from the prior year quarter at $3.7 million and down 12.6% from the linked quarter. For the entire year, our noninterest income was approximately $17.1 million and right at recent year's levels. The decrease from the fourth quarter of 2024 was primarily driven by decreased mortgage servicing rights as well as other fee-based business line revenue. Peak Title made great strides throughout the year to not only expand contacts outside of State Bank, but to also leverage internal referral resources, each contributing to a full year improvement in revenue of $413,000, up to $2 million or an increase of 25% and expansion in net income of $219,000, up 60% to $583,000. We have hinted at new initiatives within our Wealth Management group over several quarters that reflect the expanded resources and capabilities from our partnership with Advisory Alpha. We're excited to bring a number of their professionals, bench strength and talents to our markets to help build our client base as well as inform the public on market dynamics and investment strategies. The latter being just one example of the expanded advice and product knowledge that will be brought to bear throughout our footprint beginning in 2026. On the scale front, Marblehead team that we acquired is now fully embedded with State Bank platform and operating under one unified operating model, allowing us to deepen relationships and pursue new business opportunities in that market. The successful conversion of Marblehead's customers into our core system in October marked the final step in aligning operations and technology and positions us to scale efficiently going forward. As a result, the acquisition has transitioned from now integration to execution, providing us with an established presence in a new market with nearly 2,500 deposit accounts that bear a weighted average rate of just 1.35% and provides a solid foundation for organic growth beyond the initial transaction. As noted earlier, deposit growth, both inclusive and exclusive of acquired balances, was an important contributor to earnings performance in 2025 with total deposits improving to $1.3 billion. The strength of our deposit base continues to support balance sheet liquidity and provides flexibility to fund our ongoing loan growth. This funding profile remains a key element in our ability to support clients while maintaining disciplined balance sheet management. Again, we have grown loans now for 7 consecutive quarters with the 2025 annual growth rate of 12.8%, finishing well above our historical average of high single digits. Our continued success in the Columbus market is a model that we expect to translate more into our other 6 regions in 2026. Additionally, we have witnessed early success in the de novo expansions of Napoleon, Ohio and Angola, Indiana markets with nearly $15 million in loan growth during the quarter. Also, we are leveraging our strategic focus on the Fort Wayne, Indiana market with a new additional commercial lender. Fort Wayne continues to be a growth market that houses significant upside for organic balance sheet expansion in 2026 and well beyond. More scope in our relationships with our clients. During the quarter, we continued to build on our client-centric approach to growth, focusing on building durable relationships and expanding client engagement across all markets. As we continue to invest in both newer and established markets, we continue to evaluate how our physical presence, staffing and resources are best positioned to support sustainable growth and solidify long-term client relationships. As we've noted in prior quarters, ongoing consolidation across our markets has continued to create opportunities to engage clients. In fact, this quarter, we saw continued success converting that activity into meaningful relationships and growth that after just 8 months is boarding around $80 million in new loans and deposits to our company. Our focused calling efforts remain an important contributor to this growth initiative and continue to support both new and existing clients across our 20 community base. A center post of our operating model continues to rest in our ability to optimize interdependence and to ensure that no client in need of a full relationship is left behind. This past year, that optimization led to our 7 business lines identifying nearly 1,400 referrals with 53% or 734 referrals successfully closing that delivered $92 million in new business for our company. Operational excellence. As we indicated in previous quarters, we believe that agricultural lending opportunities have begun to surface in many of our markets. The new agricultural lender that we recently added is a highly seasoned professional with a sizable book and strong track record of production. When we combine this level of experience with our 25-year ag production leader, we further strengthen our potential and positions us well for continued growth in this sector. Interestingly, this initiative has already delivered funded loan growth of $19 million or 20% in that portfolio with another $3 million of core deposits. Finally, asset quality. Our asset quality remains one of our competitive advantages. It allows us to embrace measured credit risk opportunities by driving balance sheet growth while expanding margin revenue. As I mentioned, charge-offs rose to 4 basis points from 0 basis points in the third quarter, but were only 2 basis points for all of 2025. Nonperforming assets totaled $4.7 million. We remain focused on maintaining our strong asset quality as demonstrated by our continued management of our criticized and classified loans, which stood at $5.7 million, down from $5.8 million in the linked quarter and $6.4 million in the prior year. Our allowance for credit losses remained a robust 1.36% of total loans, now providing 352% coverage of nonperforming assets. We expect to make more progress in the first half of 2026 to further reduce our NPL portfolio. We have workout plans in place that should deliver improved metrics with certainly minimal losses. I'd like to turn the call over to our CFO, Tony Cosentino, for some additional comments on our quarterly performance. Tony? Anthony Cosentino: Thanks, Mark, and good morning, everyone. Let me outline some additional highlights and details of our fourth quarter and full year results. On the income statement, in the fourth quarter, total operating revenue increased to $16.4 million, representing a 6.3% increase from the prior year period and a 1% decrease from the linked quarter. As Mark mentioned, net interest income was the primary driver of revenue growth, up 17% year-over-year. The increase was supported by higher loan balances and continued portfolio repricing, while interest expense increased during the quarter at a more measured pace. Loan-related interest income totaled $17.3 million for the quarter, supported by continued growth in average loan balances and the ongoing repricing of the portfolio. Loan yields were consistent from the linked quarter at 5.94% and increased 19 basis points year-over-year. As a result, the yield on earning assets improved by 17 basis points to 5.32%. Our full year ROA was 93 basis points, up 11% from the prior year, with our pretax pre-provision ROA for the year increasing to 1.33%, a 21 basis point improvement over the '24 full year performance. Total interest expense for the quarter of $6.6 million was up $610,000 or more than 10% from the prior year. And for the full year, interest expense increased by $1 million compared with a $9.5 million increase in interest income, reflecting favorable balance sheet growth and pricing dynamics within our markets. Our average rate on interest-bearing liabilities was 2.34% for the quarter, declining by 1 basis point from the prior year, but up 1 basis point from the linked quarter. Funding costs benefited from continued core deposit growth and a favorable deposit mix shift across our markets. While funding costs may trend higher over time as rate dynamics evolve, we continue to see opportunities through ongoing asset repricing and the reinvestment of lower-yielding securities into higher-yielding assets to support net interest income. Our decline in noninterest income from the linked and prior year quarters was a reflection of a negative contribution from other noninterest income, driven by an OMSR impairment during the quarter. Core fee-based revenues remained relatively stable, though the stronger contribution from net interest income reduced our reliance on fee-based revenue that historically was required to drive our top quartile financial performance. Our total mortgage banking contribution this quarter of nearly $1.5 million was down compared to the prior year, but in line with the linked quarter. Aggressive sales and continued opportunistic hedging resulted in the highest level of gain on sale revenue since the peak pandemic year of 2021. We fully expect that volumes will climb in 2026 by low to mid-double digits while maintaining our traditional sales level of 85%. Operating expenses for the fourth quarter remained in line with recent trends, reflected continued discipline around cost management. Overall, noninterest expense declined 2.3% from the linked quarter, but increased 2.1% compared to the prior year. Headcount remained largely unchanged from the prior year as staffing additions in Marblehead and other select areas were offset by efficiencies elsewhere in the company. Reviewing the balance sheet. As Mark noted, loan and deposit growth continued to support earnings performance during the year. Entering 2026, we believe our balance sheet is well positioned to support ongoing organic loan growth that is expected to be funded primarily through continued deposit growth and reallocation of bond proceeds, consistent with our long-standing balance sheet strategy. We continue to benefit from a stable core deposit franchise that has historically funded the majority of our asset growth. Wholesale borrowings remain a complementary funding source, and our overall contingent liquidity position remains strong at over $550 million. All of our liquidity ratios are well within internal policy between 5% to 10%, and we continue to have access to the wholesale market should retail deposit growth lag expectations. Our loan-to-deposit ratio moved slightly higher compared to the linked quarter at 90.3%, but continues to fall within our targeted operating range of 90% to 95%. Given the stability of our deposit base and predictable deposit behavior, we believe our funding profile appropriately balances profitability, liquidity and risk as we move into the coming year. On capital management, during the fourth quarter, we purchased nearly 32,000 shares of our stock at an average price of just under $21, which was roughly 114% of tangible book and 96% of tangible book when adjusted for AOCI. For the full year, we repurchased a little over $283,000 for $5.5 million, using 40% of our earnings with an average price year-to-date of just over $19 per share. Tangible book value per share was up 12.5% year-over-year and was up from the linked quarter by 79% -- $0.79, driven by a $1.9 million benefit on AOCI, higher earnings and a reduction in share count from the buyback. Lastly, on asset quality. Total delinquencies increased 4 basis points from the linked quarter to 49 basis points. Compared to the prior year, total delinquent loans decreased by $1.6 million. Total classified loans also declined from the prior year by approximately $816,000 or 15%. Our allowance for credit losses increased approximately $171,000 during the quarter, reflecting continued loan growth and changes in portfolio mix, while the allowance as a percentage of total loans declined 8 basis points as loan growth outpaced our reserve build. Overall, reserve levels remain aligned with portfolio risk characteristics, recent loss experience and current credit quality trends. I'll now turn the call back over to Mark. Mark Klein: Thank you, Tony. We remain encouraged by our positioning as we enter 2026, supported by strong credit fundamentals, a growing balance sheet, larger footprint, disciplined expense control and capital management. We continue to see a healthy loan pipeline and benefits from a stable core deposit base that together provides a solid foundation to support performance improvement. As we look around the corner, we intend to focus on disciplined execution across all markets to optimize the production capacity of our entire lending team. Likewise, we intend to drive cross-sales in our 27 office retail footprint to grow core deposits as we balance projected growth metrics and identify the most prudent path to deliver long-term value for our shareholders. We recently announced a dividend of $0.155 per share, equating to approximately 2.8% yield and just 25% of our earnings. This will complete our 13th consecutive year of increasing our annual dividend payout to our shareholders. In summary, we continue to believe the current environment presents attractive opportunities to accelerate our growth. Our capital levels provide the flexibility, our collective knowledge of the path to a broader footprint and our attitude of persistent dissatisfaction with our performance, will deliver our short-term goal to build a high-performing $2 billion balance sheet. Now I'll open it -- open the call for any questions. Sarah? Sarah Mekus: Operator, we're now ready for some questions. Operator: [Operator Instructions]. Our first question comes from Brian Martin with Janney Montgomery. Brian Martin: Maybe just a couple of things for me. Maybe, Tony, can you comment a little bit on just -- or just elaborate on your comments on margin and just kind of your outlook here. I think last quarter, we talked, it seemed as though deposit pricing was a bit more of a concern given the environment, both for growth and the rates. And I guess in that context, and then also just remind us what repricing on the asset side you have that is maybe a bit of a tailwind to some of that deposit offset? Anthony Cosentino: Sure. I'll address the deposit side first, and Steve and Mark can comment on repricing, although a little bit of fact. I think we did see in the quarter, deposit pricing show some stress in terms of higher competitive pricing and more requests from our current client base for something in the mail that causes us to rethink where we are. So we ended the quarter with NIM at, call it, 3.51%. We're forecasting that, that's going to kind of gradually move down in 2026, probably 5 to 7 basis points, I would guess, by the time we sit here next year based exclusively on, I think, a higher funding cost mix. And we're going to start to see a little bit of pressure of deposits that we have on our books today that will be under pressure to move out, I think that will be relevant in 2026. We still do have a portion of our assets that are going to reprice. As we sat here last year at this time, it was probably $250 million of contractual repricing. Probably half of that has finished during 2025. I think we have about $125 million to $140 million of remaining loans that are contractually slated to reprice in the first 9 months of 2026. Mark Klein: Yes. From the loan side, Brian, and Steve can weigh in here. But certainly, the loans we're finding are of high quality, and we continue to price at or above the margin. So I would think those would be accretive to a NIM, Tony, and our total operating revenue. Certainly, continued pricing pressure out there because competition is stiff. But we found the deals that we've wanted, albeit with a certain level of concentration in and around that Columbus market. But in 2026, we're looking for more inertia from our other 6 or 7 markets that last year found it difficult to expand beyond their current level. But we're certainly optimistic this year that we'll continue to book more loans again, at or above the margin. And Steve, you might have some comments on what we're seeing, what the pipeline looks like and what those rates are on a variable basis? Steven Walz: Yes. Certainly, pipeline remains stable and expect continued performance that we've enjoyed here much of '25. And last comment on the repricing expectations, Brian, we kind of anticipated that we would retain those loans as they reprice when we were talking about this last year. That has proven to be the case as our spreads were appropriate to the market. We do examine upcoming loan reprices on a regular basis and get out in front of any that we think may be a challenge in effort to retain those. So our experience has been very good. We expect that to continue, as Tony said, in '26. Mark Klein: And Brian, that last comment. Obviously, the word of the year for '26 for us and maybe many other banks is deposits and making sure that we reap some of those relationships that have deposits at other banks that we're going to be making loans at the margin and greater is to fund it with progressively lower deposit yield. So we look to be making sure that that's a focus in '26 is delivering that lower cost funding that's going to keep and be accretive to that 3.51% margin, Tony. Brian Martin: Yes. And just the current pricing, I don't know, Steve, just in terms of the -- what you're seeing new production come on at, where is that at? Steven Walz: I think, Brian, typically, we're seeing that stay stable in the, I'll call it, 300 basis points over a corresponding treasury, for example. And we've enjoyed the ability to price up and down as those rates move. Anthony Cosentino: And we've traditionally priced at, call it, either the 3- or the 5-year treasury. That's probably where 90% of our loan volume is priced at relative to that index. Mark Klein: With the caveat that deposits need to come along with relationships. It's the same narrative, Brian, that's going on in all banks, but again, it's all about execution. Brian Martin: Right. No, understood. And maybe just on the mortgage side, Tony, just you made some comments in the call, but was it about 10% growth on mortgage production, I guess, is that how you're thinking about 2026 at this point? I know you said there's still a high sales volume or high sales percentage, but just in terms of actual volume or production, how do you feel about that? Anthony Cosentino: Yes. So kind of our $280 million, if you're 15% on my calculation gets us to about a $325 million, 10% is, call it, $310 million. So I think we're safely in a low to mid-single-digit growth rate for 2026. I think Mark would say that given our desire and our model to get additional lenders, we might push that on the upper end of that number to the $350 million to $375 million range. But I think with our current staff and process and what we're seeing on pricing, I think that $310 million to $325 million, $330 million range is well in hand for 2026. Mark Klein: The other thing, Brian, I'd add to that is that we're committed to finding about what, 4 or 5 additional mortgage lenders. We have 23 now. We're looking for a couple more in not only the Cincinnati, but the Indi market plus up in the Northwest Ohio footprint. And as we've indicated a number of times before, our backroom remains built for that something in that $400 million plus number. So we've got the capacity. We've retained the capacity to make sure that we can feel that additional volume when rates drop. And of course, we all know that if Trump had his way, we'd have a 5 handle on a 30-year mortgage. And we think that's going to be bullish for 2026, and we're going to be prepared to take the market as it unfolds. Brian Martin: Yes. Okay. And maybe just last 2, just on the expense side, Tony, I mean, you guys have done a great job there. I guess, just in terms of keeping a lid on cost this year, I guess, or just -- I guess, what are you thinking about in terms of type of expense growth, maybe annual expense growth or just big picture commentary on how you're thinking about expenses looking into '26? Anthony Cosentino: Yes. I think that's a great question. I mean I think we had really double luxury in '25 that revenue growth was really spectacular, but we were able to really get some efficiencies done on the expense side. We had some positions that left, and we were able to do more with less people and reallocate and do those kinds of things. I don't know that we've got some of those on the handle for '26 for more reallocation. I do think expense growth will be still pretty well maintained kind of in that 3.5% to 4% range on the back end. But I do think positive operating leverage will still be 1.5 to 2x in 2026. So that, to me, is the driver for us on everything that we look at. And Mark has tasked me with taking care of the expense side, and we're going to look at every opportunities. We got a number of things in '26 with our sub debt coming together and some other things that have the potential to help or hurt our, call it, bottom line. So we've got a lot of things that are in place that we need to work on. Mark Klein: We certainly, Brian, have been optimistic about improving that operating leverage on the revenue side, but I've challenged Tony in 2026 here to move the lever on the other side, which is the expense side. And and do some things that we think are going to widen that operating leverage and drive net income on up to the $15 million mark for 2026. Brian Martin: Got you. And you talked about the loan pipelines. They're still pretty healthy today. I think I heard that, that's just the -- that's the key driver here, just given maybe the margin stability or a little bit lower that you're talking about, that's really the driver of NII growth as we look to '26? Mark Klein: Well, as I mentioned in our little presentation there, Brian, half of our $8 million expansion in operating revenue, half came from a bigger balance sheet and half came from wider margins. So we're looking for more scale, try to constrain expenses to drive revenue and net income higher. But our pipeline, Steve, stands pretty good. We've certainly had options with a number of commercial lenders across our entire I don't know, 15-county footprint. We certainly had a plethora of opportunities, but I'm not sure where the pipeline stands like today. Steven Walz: Yes. As Mark referenced, Brian, certainly, Columbus is a great story for us and drove the bulk of growth for us, and we expect that demand to continue into '26. That said, as Mark noted, we added a strong ag lending presence in the latter half of '25 that we've seen benefits from and expect continued benefit as well as the addition very recently of more capacity in Fort Wayne, which is a great market. We expect increased participation from those other urban markets going forward as well as really the Marblehead story. We think there remains opportunity there for a little more commercial participation given our growth in that environment. Mark Klein: And Brian, last comment. Everyone is aware of the consolidating landscape, and we've launched a strategy to seize upon that disruption and the crack in the landscape. And as I mentioned, we're at about $80 million of incremental additional business on a goal of $500 million. So we set the bar really high. We may not get there because we'd have to drop maybe our credit standards to pull that off. But nonetheless, that's what we talk about, and that's what we're impassioned with, and that's going to be the crux of a lot of our growth in 2026. Brian Martin: Got you. And the last one was just on credit quality. It sounds like there's a bit of improvement coming. But just in general, is that kind of how to think about it? And just the reserve levels where they're at today, given the quality, how do you feel about that as you go into '26? Steven Walz: Yes. I think, Brian, on the credit quality standpoint, I've become a broken record on this admittedly. It has taken us longer than we would like to resolve some of these credits. So while we've seen improvement, it's been slower than we desired. The good news is that pace is not a function of resolving credits and then having new ones crop up is the time it has taken us to resolve existing. We do, as I've mentioned before, have a very robust internal loan review process. We think we have a good handle on our portfolio and know it well. So we do expect that continued improvement in '26 as we resolve credits that, again, frankly, have taken longer than anticipated. Anthony Cosentino: Yes. And I would just to add a little bit there, Brian. I think as we've talked about on a number of these calls, we feel positive about our review process and where we are from a credit quality standpoint. Obviously, we have a pretty robust loan growth level. We still expect to fund provision relatively flat to what we did in 2025. That probably trends down our reserve ratio 3 or 4 basis points by the time we get to this time next year, but we still feel a 130 reserve ratio puts us well at the top end of our peer group and in really good shape relative to our nonperforming profile that we're going to have at that time. Brian Martin: Congrats on a great finish to the year and look forward to '26. Mark Klein: Brian, thanks. Looking forward to catching up with you in a few days. Anthony Cosentino: Appreciate your support, Brian. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mark Klein for any closing remarks. Mark Klein: Yes. Thanks, everyone. Thanks for joining us this morning. Certainly, we look forward to speaking with you in April and giving you the details on our first quarter 2026 operating results. Have a good day, and talk soon. Operator: The call has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to Seacoast Banking Corporation's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Mark, and I will be your operator. Before we begin, I have been asked to direct your attention to the statements at the end of the company's press release regarding forward-looking statements. Seacoast will be discussing issues that constitute forward-looking statements within the meaning of the Securities and Exchange Act, and its comments today are intended to be covered within the meaning of the act. Please note that this conference is being recorded. I will now turn the call over to Chuck Shaffer, Chairman and CEO of Seacoast Bank. Mr. Shaffer, you may begin. Charles Shaffer: All right. Thank you, Mark, and good morning, everyone. As we move through today's presentation, we'll reference the fourth quarter and full year earnings slide deck available at seacoastbanking.com. Joining me today are Tracey Dexter, our Chief Financial Officer; Michael Young, our Chief Strategy Officer; and James Stallings, our Chief Credit Officer. The Seacoast team delivered another exceptional quarter, highlighted by the closing of the Villages acquisition and strong growth in loans. Loan outstandings grew at an annualized rate of 15% driven by the continued success of our commercial banking team and the additional mortgage volume contributed by the Villages acquisition. The addition of the Villages mortgage team expands our optionality for future portfolio decisions. The residential loans we added this quarter were very high-quality credits with high FICOs, strong yields and generally shorter expected lives than traditional mortgage products, given the unique characteristics of this borrower base. We also continue to see meaningful improvements in noninterest income with stronger performance across almost every major category. Wealth Management had an excellent year, adding $550 million in new AUM and treasury managed fee -- treasury management fees and other service charges also continue to grow as new clients were onboarded. On the expense side, overhead was well managed, and our expense ratio improved from the prior quarter and the ratio of adjusted noninterest expense to tangible assets declined to near 2%. Our plan to drive improved shareholder returns remains firmly on track. Excluding the day 1 provision and merger-related expenses associated with the Villages acquisition, our ROA for the fourth quarter was 1.22% and the return on tangible equity was 15.72%. These results demonstrate the strong return profile of the combined institution which will be fully realized following the Villages technology conversion in July 2026. The Villages acquisition also closed with materially higher tangible equity than initially projected, shortening the earn-back period. We are deploying a portion of this excess capital into the securities portfolio reposition that was executed this week and Michael will walk through these details here shortly. Overall, I'm very pleased with the progress we're making, and I remain highly confident in our outlook for 2026. As noted in the slide deck, we expect to achieve earnings per share for the full year in a range of $2.48 to $2.52 and anticipate exiting the year in the fourth quarter of 2026, after the Villages technology conversion with an ROA above 1.30% and a return on tangible equity of approximately 16%. And asset quality remains solid. Charge-offs were a modest 3 basis points for the fourth quarter and the full year average for 2025 was only 12 basis points. Our CRE and construction and land development ratios remain low following the addition of the villages. And as a reminder, our portfolio is composed almost entirely of franchise quality relationships. Long-standing borrowers across our footprint, which include consumers, businesses, nonprofits and municipalities. And lastly, capital and liquidity remain exceptionally strong. We continue to operate with a fortress balance sheet. We remain one of the strongest banks in the industry. And with that, I'll turn it over to Tracey Dexter to walk through our financial results. Tracey? Tracey Dexter: Thank you, Chuck. Good morning, everyone. Beginning with Slide 4 and fourth quarter performance highlights. The Seacoast team delivered a strong quarter with adjusted net income, which excludes merger-related charges increasing 18% year-over-year to $47.7 million. Consistent with the accounting requirements, this includes the initial provisions for loans and unfunded commitments on the Villages Bank Corporation acquisition, which totaled $23.4 million. Pretax pre-provision earnings on an adjusted basis rose to $93.2 million in the fourth quarter, an increase of 39% from the third quarter and an increase of 65% from the prior year quarter. The efficiency ratio improved and on an adjusted basis, is below 55%. I'll note that our presentation of the efficiency ratio now includes the amortization of intangible assets which added $10.4 million to expense in the fourth quarter. Loan production was very strong with organic growth in balances of 15% on an annualized basis. Higher commercial production, which increased 22% from the prior quarter reflects the success of a multiyear hiring strategy. Deposit costs were well managed and also benefited from the addition of VBI overall declining 14 basis points from the prior quarter to 1.67%. Net interest income was $174.6 million, an increase of 31% from the prior quarter. Net interest margin, excluding accretion on acquired loans expanded 12 basis points to 3.44% consistent with the guidance we provided. Our capital position continues to be very strong. Seacoast Tier 1 capital ratio is 14.4% and the ratio of tangible equity to tangible assets is 9.3%. We grew the branch footprint through 2 de novo openings in the fourth quarter, 1 in the greater Atlanta area and 1 on the Gulf Coast in Bradenton, Florida. For the full year 2025, we opened 5 de novo branches. We completed our acquisition of VBI on October 1, 2025, with the technology conversion planned for July of 2026. On to Slide 5. Tax equivalent net interest income increased by $42.3 million or 32% compared to the prior quarter and by $60.1 million or 52% compared to the prior year quarter. The net interest margin expanded 9 basis points to 3.66% and excluding accretion on acquired loans expanded 12 basis points from the prior quarter to 3.44%. Loan yields increased 6 basis points to 6.02%. Excluding accretion, loan yields increased 7 basis points to 5.68%. Overall cost of funds is down 16 basis points from the prior quarter. With strong momentum in loan growth, funding costs now lower, additional liquidity and accretive acquisitions, we expect continued expansion in the net interest margin. Turning to Slide 6. Noninterest income was $28.6 million, increasing 20% from the prior quarter. Fee revenue continues to benefit from our growth in commercial customers and with the addition of the Villages in the fourth quarter, service charges on deposits increased 4% from the prior quarter. Mortgage banking activities have expanded with the acquisition of VBI. This includes increases in saleable and portfolio production in the fourth quarter along with servicing income introduced by the Villages activities. Moving to Slide 7. Our wealth management team delivered another quarter of remarkable results with income growing 21% from the prior quarter, largely attributed to organic growth, bringing new assets under management in 2025. Total AUM increased 37% year-over-year with a 23% annual CAGR in the past 5 years. We're incredibly proud of our wealth team and their amazing success in 2025. Moving to Slide 8. Noninterest expense in the fourth quarter was $130.5 million, an increase of $28.5 million from the prior quarter. The fourth quarter included $18.1 million in merger and integration costs and $23.4 million in day 1 credit provisions for the Villages acquisition. Higher salaries and benefits and higher outsourced data processing costs reflect continued expansion and the addition of recent bank acquisitions as well as higher performance-driven incentives. Other categories of expenses were in line with expectations. Our adjusted efficiency ratio improved to 54.5%, demonstrating continued operating leverage. We continue to remain focused on profitability and performance and expect continued disciplined management of overhead and the efficiency ratio. As a reminder, looking ahead, the first quarter typically has seasonally higher expenses from FICA and 401(k) resets. Turning to Slides 9 and 10 on the loan portfolio. Loan outstandings, excluding the impact of the VBI acquisition, increased at an annualized 15%. We continue to see strong broad-based demand across our markets and commercial production increased by 22% during the fourth quarter. Loan growth was further strengthened by strong mortgage production at VBI, much of which we chose to retain in the portfolio. Loan yields increased 6 basis points and excluding the effect of accretion, yields increased 7 basis points from the prior quarter to 5.68%. The overall mix of loan types has remained generally consistent quarter-over-quarter. Portfolio diversification in terms of asset mix, industry and loan type has been a critical element of the company's lending strategy. Exposure is broadly distributed, and we continue to be vigilant in maintaining our disciplined, conservative credit culture. As we have for many years, we consistently managed our portfolio to keep construction and land development loans and commercial real estate loans well below regulatory guidance. These measures are significantly below the peer group at 32% and 216% of consolidated risk-based capital, respectively. We've managed our loan portfolio with diverse distribution across categories and retain granularity to manage risk. Moving on to credit topics on Slide 11. The allowance for credit losses totaled $178.8 million with coverage to total loans increasing to 1.42%. Loans acquired from VBI have coverage of approximately 2% as we take a conservative approach while transitioning to Seacoast portfolio management and monitoring practices. The allowance for credit losses, combined with the $150 million remaining unrecognized discount on acquired loans totaled $329 million or 2.61% of total loans that's available to cover potential losses. The acquisition of VBI added approximately $59 million in accretable purchase mark. That's included in the figures presented on the slide that if not needed to cover losses will be recognized through yield over time. Moving to Slide 12. Looking at quarterly trends and credit metrics, which remain strong. We recorded net charge-offs of $936,000 during the quarter or 3 basis points annualized bringing the net charge-offs for the full year 2025 to 12 basis points of average loans. Nonperforming and criticized and classified loans grew slightly with isolated additions from VBI but remain low as a percentage of total loans. Turning to Slide 13 and 14 on the deposit portfolio. Deposits increased to $16.3 billion, largely attributed to the acquired VBI deposits. Average balances in the fourth quarter were up 29% from the prior quarter, benefiting from the acquisition and the seasonal effect of higher public funds deposits. The cost of deposits declined to 1.67%, exiting the year at 1.64%. Seacoast continues to benefit from a diverse deposit base. Customer transaction accounts represent 48% of total deposits which continues to highlight our long-standing relationship-focused approach. On Slide 15, our capital position continues to be very strong. Tangible book value per share shows the initially dilutive impact of the VBI acquisition, which we expect to be earned back ahead of our original projection. The ratio of tangible equity to tangible assets remained strong at 9.3%. As expected, return on tangible equity decreased, reflecting the impact of the acquisition. Our risk-based and Tier 1 capital ratios remain among the highest in the industry. I'll now turn the call over to Michael to discuss recent strategic capital actions in the securities portfolio. Michael? Michael Young: Thank you, Tracey. I'll be referencing Slide 16 for the comments on the securities portfolio. With the closing of the VBI merger, our securities portfolio grew substantially to $5.75 billion in the fourth quarter, combining 2 low-cost granular deposit franchises, with a large, primarily agency-backed securities portfolio that has only further strengthened our balance sheet's liquidity position as we converted excess capital into low-risk earnings. Immediately following the merger close, we sold approximately $1.5 billion of the $2.5 billion securities portfolio at VBI with an emphasis on reducing risk throughout the liquidation of over $600 million in corporate debt that was sold. We patiently redeployed that liquidity throughout the quarter, avoiding periods of low rates, which resulted in higher cash balances for much of the quarter, creating a slight drag on the NIM. The net unrealized losses in the AFS portfolio improved by $18.5 million during the fourth quarter, leading to additional tangible book value accretion. This has been a hallmark of our 2025 performance with the unrealized losses on the securities portfolio improving by $137 million, adding nearly $1 to tangible book value and materially reducing the dilution from the acquisitions of Heartland and VBI. The portfolio yield increased 21 basis points to 4.13% in the fourth quarter with additional yield expansion expected in the first quarter of '26 with a full quarter benefit of the fourth quarter actions. Now turning to Slide 17. We have materially outperformed our conservative assumptions related to the VBI acquisition. The primary contribution came from lower marks on the securities portfolio at close with additional benefits from lower credit marks on the loan portfolio. These positive developments delivered significantly lower dilution and materially higher pro forma capital, as you can see. We have about 90 basis points of additional total risk-based capital or approximately $92 million compared to the 14.7% that we originally articulated at deal announcement. Given the significant capital outperformance, we are once again trending towards elevated capital levels. As a result, we elected to convert 1/3 of that excess regulatory capital generation into higher future earnings profile, delivering what we believe is a win-win for shareholders with no tangible book value dilution, but higher pro forma earnings and allowing us to exceed the $2.46 that we originally articulated at deal announcement. We sold $317 million in book value of available-for-sale securities with a projected book yield of below 2%, and we received proceeds of $277 million that were invested at a taxable equivalent yield of 4.8% for a pickup of almost 290 basis points as part of the securities restructure action we took this week. And finally, on Slide 18, we felt it important to provide some additional guidance around our expectations for 2026. Our guidance numbers reflect adjusted performance metrics largely calibrating for merger-related charges that may take place in 2026. We expected adjusted revenue growth of 29% to 31% for the full year 2026 compared to the full year 2025. We believe our adjusted efficiency ratio will be in the 53% to 55% range for 2026, with the primary driver being the pace of banker hiring during the year. We plan to increase our banker count by approximately 15% in 2026, and the benefit will be fully realized in 2027 and 2028. Most importantly, however, we plan to manage these outcomes within tight bottom line performance of $2.48 in earnings to $2.52 in earnings, an increase from our articulation of the $2.46 target last year. We expect to exit the year with a 1.3% adjusted ROA and a 16% ROTE in the fourth quarter post conversion activities as we balance the investments for future growth with strong current profitability. We plan to deliver all these financial outcomes while continuing the organic growth momentum that we've seen in 2025 and we expect to deliver high single-digit loan growth and low to mid-single-digit deposit growth as we move forward throughout the year. I'll now turn the call back to Chuck for final comments. Charles Shaffer: Thank you, Michael. And before we open the line for questions, I'd like to once again express my deep appreciation for our Seacoast associates, our customers and our shareholders. We closed out a truly transformational year, one marked by industry-leading loan growth, 2 exceptional acquisitions and meaningful investments across our company that position us for long-term strength. We operate one of the best banking teams in the Southeast and some of the strongest markets in the country. We have an exceptionally strong balance sheet. I remain very confident in our growth outlook and our ability to deliver upon our strong return profile in 2026. And it's especially gratifying to enter our 100th anniversary in 2026 with such a strong foundation. As we celebrate a century of serving our communities, we do so with confidence, momentum and tremendous optimism for what lies ahead. And with that, operator, we'll open the line for questions. Operator: [Operator Instructions] And our first question comes from the line of David Feaster with Raymond James. David Feaster: [indiscernible] Charles Shaffer: David, you're a little garbled. I think maybe you got a bad connection. Do you want to drop and come back in? Sorry. Yes. I think, operator, we'll go to the next one. David Feaster: Is that better? Charles Shaffer: Yes. Better, David. Good, perfect. David Feaster: Okay. Sorry. I was just saying I appreciate the guidance this quarter. That is super helpful. I wanted to start on the efficiency side. I guess, first, I just wanted to clarify, when we talk about an adjusted efficiency ratio, does that exclude intangible amortization like we have in the past. And then just looking at the efficiency, it is a bit higher than where the Street is. It sounds like there's some new hiring embedded in that. But just wanted to get your thoughts on how expenses are, specifically in investments kind of on the horizon. Tracey Dexter: Yes. David, I can take the first part. This is Tracey. Our adjusted efficiency ratio includes -- leaves in the expense for amortization of intangible assets. In the past, we had excluded that. We know that's been kind of a difference in the way you keep track of it. So it's in there. Michael Young: And David, regarding the investments, I think if you look back to the original deal deck, we had an efficiency ratio of about 52.5%. That was run rate post all the expense takeout with the acquisitions. We obviously won't have that impact until kind of the midway part of this year. So that naturally pushes the efficiency ratio up for 2026 guidance. But also, as articulated in the prior prepared remarks, we plan to be aggressive in hiring bankers. We've had a lot of inbound demand, as Chuck has referenced many times in the past, but we wanted to balance that growth in banker count with profitability. We're in a much stronger profitability footing now. And given the merger disruption that we see in the industry, we want to be on the front foot in hiring. We articulated a 15% increase in the banker account is the expectation. And some of the driver will just be how successful we are and how early in the year as to when we see the expenses ramp versus kind of the future production. David Feaster: That's helpful. And then maybe kind of staying on the hiring side. You've obviously had a lot of success. There's more opportunity on the horizon. I guess, first off, the loan growth, I mean, 15% was great. I wanted to get a sense of how much of that would you attribute to the new hires versus improving demand or just increasing productivity from your existing team? And then is the hiring investment that you're contemplating key to the achievability of that high single-digit growth guide or would that be additive just given the time it takes for these lenders to ramp up? Charles Shaffer: Yes. Maybe I'll take that one, David. So I think if you look back at the quarter, the way to break it down, and this is rough, so this isn't super precise. But out of the 15%, I'd say, roughly 10% came out of what was legacy Seacoast, so our commercial banking team. The hiring we've done over the last couple of years, that drove about 10% of that annualized growth. There's another 2% to 3% that came from the Villages acquisition, as we talked about in my prepared comments. When you kind of look at the opportunity there, it's really high FICO credit, a more senior borrower and typically shorter life duration assets. So we really like that paper. And as a result, we took the opportunity in the portfolio, and then there's probably another 1% to 2%. It's just a little bit slower paydowns. When you look into the coming year, we've contemplated arguably a little bit higher pay downs as we move into the coming year, but bake that into our model. And so we guided to that high single-digit growth rate. I would tell you that if you really think about the hiring profile, if we do exceptionally well here in the first half of the year and are able to add that 15%, while it will benefit late in 2016, really, we won't see the benefit until '27, '28. And the other thing that you have to sort of contemplate is the balance sheet will grow as we move through the year with a high single digit, call it, 8% to 9% growth rate. If we achieve that you got fairly sizable growth in the loan portfolio that we need to kind of continue to reoriginate to. And as we've talked about before, we're always going to be thoughtful about what our credit risk appetite is and what we're willing to take into the portfolio. We're going to do the loans we like in our credit profile and largely don't want to sort of be held to such a high growth rate that we wouldn't be able to continue to be thoughtful and selective on what credits we're willing to put in the portfolio. So I think if you're thinking about modeling sort of that high single-digit growth rate is the right way to think about it. We'll have optionality with the Villages portfolio to kind of move that in and out depending on where rates are and where the yield curve is. And as Michael mentioned, we still have a lot of opportunity to hire. So on the growth side, particularly loan growth side, I feel really confident about what's out ahead for us. David Feaster: That's exciting. Maybe just last one for me. Switching gears to capital. You talked about capital pro forma being higher than expected, deployed a portion of that into the repositioning here in the first quarter. But look, based on your pro forma profitability, you're going to be accreting a lot of capital even with high single-digit loan growth. How do you think about capital return going forward, just as maybe M&A is less of a focus like you talked about, would you expect to see more capital return or would you rather accrete capital back closer to maybe where you were previously? Charles Shaffer: Yes. We'll see how the year plays out, what opportunities emerge. We took the opportunity here this quarter to do the securities loss trade. And I think that was a good use of capital given the significant capital appreciation that we saw on the Villages transaction and the shorter earn back than what we originally put in the deal modeling. And so we will continue to monitor, David. I mean, obviously, we're going to have a lot of capital that's going to give us opportunities to think about things like dividends and buybacks over time. As you mentioned, there's a lot less opportunity for M&A. And at the moment, we're heads down, highly focused on getting this Villages deal done. I mean that's kind of the priority right now. We want to get through the middle part of the year, have an amazing conversion for our customers, deliver really solid experience in the Villages come out of that and then we'll see what opportunities present. But at the moment, we're -- I hear you, we're growing a lot of capital. That's a conversation we continue to have with our Board and something we'll continue to monitor. But yes, I mean we'll continue to look at other options as we go through the year here. And there's buybacks and dividends and other things we can do through time. Operator: And your next question comes from the line of Russell Gunther with Stephens. Russell Elliott Gunther: Maybe I'd like to start, if I could, on kind of margin and NII. I really appreciate the revenue guide for the year. Given the securities actions taken within 4Q and then again here in 1Q, kind of how are you thinking about where that first quarter margin could shake out? And then an adjacent question within the NII expectation for the year. Kind of what is your overall level of purchase accounting embedded in that guide? Michael Young: Russell, I'll take the first part of that and turn the second part to Tracey. Two key things to think about. One is the margin side, but the other is the average earning asset balances. In the fourth quarter, we have public funds balances that tend to fund up and fund back down as well as you mentioned kind of the -- taking our time on the repositioning. So we had some excess cash balances related to that as well. So both of those kind of weighed on the margin a little bit in the fourth quarter. We would expect the average earning asset base to be down in the first quarter by a couple of hundred million dollars, but the margin will expand pretty nicely probably in that 10 to 15 basis point range in the first quarter. So those are the dynamics you want to think about kind of the start of the year and then moving throughout the year to hit the guidance that we laid out. And I'll turn it to Tracey on the purchase accounting accretion question. Tracey Dexter: Yes. Russell, the expectations for accretion are always kind of difficult to predict, maybe more so with the addition of this portfolio. The base level of accretion is derived using the loan's contractual life and the maturities here in the villages portfolio are relatively long. So the accretion will be accelerated upon payoff that will create a lot more volatility in the accretion, and we've got that baked into our forecast, too. But our model uses the fourth quarter of '25 as the run rate for '26, but do expect volatility in that accretion number. Michael Young: Yes. Just one other point I wanted to make, we've been kind of calling this out a little bit more recently, but just the nature of our acquisitions being heavy core deposit franchises, there's more core deposit intangible expense. And so if you look at the net effect of the purchase accounting marks in both revenue and expenses, they largely balance one another. So if you take kind of a low 40 number on purchase accounting accretion and you see our kind of $38 million roughly number on core deposit intangible expense, you've got a pretty marginal contribution on a net basis to earnings. So we just want to call that our earnings guidance for the year has really not been contributed to on a net basis from purchase accounting accretion in a significant way. Russell Elliott Gunther: And then, I guess, next question for me would be, given the overall excess capital you guys discussed, how you're thinking about that in the context of the actions already taken within the securities portfolio. Is there room or appetite left for additional restructurings in '26 beyond what's currently contemplated in the guide? Michael Young: Russell, I think we don't expect to execute any additional securities restructures and that's certainly not reflected in the guide. So this is the only piece that's reflected in the guidance. And maybe zooming out more broadly, most of the other securities that are at loss positions or more material loss positions are in the HTM portfolio. We don't have any plans to pierce the HTM portfolio. So I think we're pretty much done with this capital action. Russell Elliott Gunther: Okay. Yes. Michael, helpful. And then you touched on another one I had earlier in terms of just average earning asset expectations. So as we think about the mix within securities and into this high single-digit loan growth expectations, beyond the step down you mentioned in the first quarter, how are you expecting average earning asset levels to trend over the course of the year? Michael Young: Russell, yes, it's pretty similar commentary to last quarter. The thing that's changed, we started the year with a little higher loan-to-deposit ratio because of some of the proactive actions we mentioned but we'll remix relatively slowly from here, and that's just going to be the delta between our loan growth versus our deposit growth really is going to be the driver of that. So if we're guiding to high single-digit loan growth and low to mid-single-digit deposit growth depending on where you shake out in that mix of ranges, that's going to be really the driver of our remix throughout the year. Russell Elliott Gunther: Okay. And if I could sneak one last one, guys. I appreciate it. The efficiency ratio guide is helpful. Maybe could you just give us a sense for the reminder of the cadence of the cost saves within the Villages acquisition. I think you mentioned the conversion in July. Just kind of where an exit expense rate might be for the year. And then perhaps more bigger picture, but how should we think about a normalized expense growth rate for Seacoast going forward? Michael Young: Russell. Yes, so in the acquisition deck, the base run rate for them was about $64 million at inflation year-over-year to that. That's kind of their base expense rate that would come out post the conversion in early third quarter. And so we would expect to see that kind of underlying drop. Now to offset, though, is we are investing into banker hires and ramping that during the year. And so one will kind of impact the other and could see a little more stability, if you will, in the expense base, but with much higher production and productivity going forward. And then I forgot the last part of your question was... Russell Elliott Gunther: I think really just -- yes, as I'm thinking about sort of '27 and even beyond, given your commentary around the benefits from hiring in '27, '28, just as we exit with a cleaner run rate post all the Villages expense saves, what is a decent normalized growth rate to think about that captures the franchise investment you guys are making? Michael Young: Appreciate you reminding me the last part of the question. I think as we zoom out, and this is hypothetical conversation, not guidance, obviously, but as a larger company today at $21 billion in assets, there's a lot of opportunity for us to drive scalability across the company. And a lot of our processes with investment into technology that leads to material expense rationalization and really our ability to grow into our existing expense base in many different areas. So I think we're really excited about that opportunity as we move forward into '27 and '28 and driving some of that scalability and operating leverage. But we obviously want to maintain our ability to invest into the company and into the future growth prospects. We're not running this for 1 year or 2 years. We're running it for continued growth and sustainable growth over a long period of time. And so we'll balance those 2 as we've done in the past and maintain a reasonable profitability level and efficiency level as we move forward, balancing those 2 key critical pieces. Charles Shaffer: Just to add a little bit there, just in a long-term sort of view on efficiency ratio is one way to think about things, it's probably low to mid-50s type efficiency ratio target is where we want to operate the company over the cycle. Operator: And our next question comes from the line of Stephen Scouten with Piper Sandler. Stephen Scouten: Just one point of clarification potentially. Do you guys have a good number for where the securities yield can kind of shake out the first quarter after all the actions completed. Michael Young: Stephen, this is Michael. It will be a little bit dependent on the pace of prepayment speeds. We have a lot of discount mortgage backs in the portfolio. But generally, it's going to be in that kind of 4.40% to 4.50% range. Stephen Scouten: Okay. I appreciate the context there. And then anything in terms of updates on the Atlanta market, just kind of curious what that may have contributed to growth maybe this quarter and how it plays into this 15% uptick in lenders? How much of those might be contemplated in the Atlanta MSA. Charles Shaffer: Yes. Thanks, Stephen. As we've talked in the past, we've got a team of roughly 10 or so bankers up in that market. It's gone exceptionally well. I've been really pleased with the success we've had over the last couple of years there. We entered with an LPO about 3 years ago, built a CRE team and program, moved a little further into C&I, opened a branch here recently. As we've said in the past, I would expect over the next, call it, 3 years or so to roughly have about a 5 branch footprint in the Greater Northern Atlanta market as we build out up in there and roughly to 20 bankers calling in that market with treasury support and the like. And so it was -- it's been helpful. We've definitely seen a lot of success there, and we do expect to continue to build in the Atlanta market in the coming years. Stephen Scouten: Okay. And just -- and can you contextualize that 15%? Or just remind me like what would that be ballpark on just FTE count perspective? Charles Shaffer: It's roughly about 15 bankers. Stephen Scouten: Okay. Perfect. Great. And then just kind of lastly for me in terms of -- and then, Chuck, you gave a lot of great color about the moving parts around growth. But the payoffs in particular, which you noted, you're kind of forecasting in higher payoffs next year. How do you think about the puts and takes of what you might see from a payoff perspective, especially within the context of rates. If we get lower rates, should that escalate payoffs? Or do you think kind of increases in production activity might kind of actually lead to a better environment if we get lower rates from here? Michael Young: Stephen, this is Michael. I'll take that one. Yes, I think it is somewhat pretty heavily rate dependent as we move into next year. We have a fair bit, as we've talked about, of low fixed rate maturities that are coming due as well. Some clients or customers may choose to pay off or refinance elsewhere. But generally, it's just going to be a nature of kind of where the rate environment heads, particularly in the middle of that curve, as to whether or not people pay off or refi or if they continue to refinance with us. Charles Shaffer: Stephen, I'll remind you, we really pulled back on lending and particularly construction lending in 2023. And so we didn't quite see the level of payoffs that others have dealt with probably here in 2025. And I think we'll probably still not quite see the level of payoffs that others may feel in early '25. Probably more of our challenge around that will emerge in '27, '28, '29 but we did take that pause back then when rates were really low, given what we viewed as a higher risk environment and didn't want to be delivering into potentially a weaker economy. Obviously, that didn't fully play out. The economy is pretty dog on strong at the moment. But it's nonetheless, that dynamic plays out for us. And so that issue hasn't been quite as strong for us as others in the industry. Stephen Scouten: Got it. Really helpful. And then maybe just one last for me actually. We're seeing more headlines about potential weakness in residential housing in certain pockets within Florida. Can you maybe contextualize that in any of your markets? Is there anything that you see that's concerning at all? I can't say that I'm really seeing it being that widespread or of a concern, but just wondering your context being in those markets. Charles Shaffer: Yes, really high level. And just to remind you, we don't have a lot of exposure to builder lines, just to kind of point that out. That's not something we've done a lot of, particularly post GFC. We've stayed out of the builder line sort of lending. It's not a real -- we do a little bit here and there, but it's not a big part of our portfolio. And -- but nonetheless, the way I'd characterize Florida is it is very market specific and then I'd start with saying the condo market has been weak, primarily driven by condo having to be retrofitted for new standards. And so that's put additional cost on associations that have to be passed on to backfill condo owners and therefore, new buyers have slowed down and buying into that market until you have that retrofit done. Once the retrofit is done, those condos move pretty quickly. But we're going through this cycle where you just kind of the have and have nots. Those have gotten done, you can sell your condo, those that haven't, it's a weak market. So you kind of got to pull that out. And then when you get to the residential market, there are pockets of weakness, and there's pockets of strength. I described Southeast Florida, Palm Beach County down to Miami-Dade being exceptionally strong. Prices have not come down much. Demand for housing remains really strong in those markets. But you move just directly over to the West Coast into that Fort Myers, Cape Coral area, and there was a lot of sort of post-COVID boom that happened with a lot of development, a lot of overdevelopment and now we're seeing prices come down. So it is very much sort of depending upon the market in Florida. But I'd say, generally, it's not as weak as probably advertised, but there are pockets of weakness where there's been some oversupply. Stephen Scouten: And really great quarter. Congrats on a great year. Operator: And our next question comes from the line of David Bishop with Hovde Group. David Bishop: Chuck, I'm curious, you guys also maybe got lost in the shuffle, had pretty strong core deposit growth this quarter. Just curious if there's any sort of breakdown you have commercial versus consumer inflows there? I'm just curious what the main drivers were. Charles Shaffer: I don't have that in front of me. We can pull that for you, David. We do have that table in the earnings release, but it's hard to get to the number because of the acquisitions in there. We can kind of pull that apart for you. I would say generally, we saw a little bit of -- just on the high level sort of we all saw some deposit outflow in Q4 primarily in CDs as we kind of backed off of the higher-priced CD options, just given all the liquidity we had, we didn't feel like we needed to compete there. But the underlying core dynamics, DDAs, the typical operating accounts continues to be really strong with the growth and onboarding of new clients particularly the commercial client base that continues to -- the C&I base continues to come on. So -- but we'll see if we can pull that apart a little bit for you and give you some detail after the call. David Bishop: Perfect. And then one follow-up. Most of my questions have been asked and answered. But just curious, it sounds like some of your peers new loan origination yields are quickly, actually more quickly than I thought they would approaching what's rolling off. Just curious what the spread is between new originations and what's maturing. Michael Young: David, this is Michael. Yes, our new originations in the quarter were kind of in the low 6s. Our roll off yields, it will depend. It's a little episodic throughout the year, given we have some periods of lower fixed rate maturities, and we have a lot of ARMs that are coming in to reset windows from the pandemic vintage. So we're still getting that positive back book dynamic on repricing, but those portfolios are a little lower in aggregate now pro forma. So -- but we're still probably picking up maybe 50 to 100 basis points kind of in terms of the new add-on rates versus the cumulative impact of the fixed rate, adjustable rate repricing and kind of fall off rates. Operator: And our final question comes from the line of Wood Lay with KBW. Wood Lay: I wanted to touch on fee income. Fees this past quarter came in pretty well above the guidance you provided, and I know there are some questions on especially villages mortgage unit and portfolioing that versus selling. So how do you think about the toggle between that going forward? And just any expectations on the fee income side near term? Michael Young: Woody, it's Michael. Yes, we did retain as we talked about, more of the mortgage production in the fourth quarter, which drove a little additional balance sheet growth as part of the restructure to move us a little faster there. I think we may still do that a little bit here in the first quarter, potentially but then we'll start to ease off of that as we move throughout the year, but it just remains a really important lever for us as we move forward to kind of manage the overall balance sheet. And as Chuck mentioned, just the quality of that paper is so strong given the high-quality borrowers that are in the market. We just -- it's a very attractive asset to have on the balance sheet. So that's kind of how we're thinking about it from that side. And that will obviously have flow-through impacts into fee income in 2026, depending on the level of sold volume versus retention of the volume on balance sheet, and that's kind of why we just gave a total revenue guidance. It could flip between NII or fee income a little bit depending on our optionality and how we lean into that. But we'll deliver the total revenue that we articulated. Charles Shaffer: Yes. Just generally, we probably will see mortgage banking income a little higher than we have in the past. We picked up a servicing portfolio there that the Citizens First Bank of the Villages was servicing that was fairly sizable. And so it's a nice revenue stream that will be continuing through the income statement. Wood Lay: Got it. And then maybe last for me. Again, on Villages. We touched on at announcement, there could be several revenue synergy opportunities. And I know we're still very early on in the process. But are you seeing any early signs of those synergies. Charles Shaffer: Yes, early on, we've built the wealth management team. We're starting to see opportunities there. That's been great to see. As we talked about the mortgage business has gone very well, really exceptionally well. We like everything we're seeing there at the mortgage business. Ultimately, with time, we'd like to get some insurance offerings in that market as we have an insurance agency just north of there, near Gainesville. So we're continuing to look at opportunities to expand our carrier rights into that market, and hopefully, with time, we'll find our way there. But the biggest driver that we've seen so far is just the wealth management side of the business is starting to get traction there. Operator: That concludes our question-and-answer session. I will now turn the call over to Chuck Shaffer for any closing remarks. Mr. Shaffer? Charles Shaffer: Okay. Thank you, operator. Thank you all for joining us today. We appreciate the support, and thank you to our team for another great quarter and on to an awesome 2026. So that will wrap up our call. Operator: This concludes today's conference call. You may now disconnect.
Marta Noguer: Good morning, and welcome to CaixaBank results presentation for the fourth quarter and the full year 2025. We are joined today by our CEO, Gonzalo Gortazar; and by Matthias Bulach, our Chief Accounting Management Control and Capital Officer, who also sits at the Management Committee. Our CFO, Javier Pano, is temporarily away on sick leave, but he's recovering well and expected to return shortly. In terms of logistics, same as usual, we plan to spend about 30 minutes with the presentation and about 45 minutes to 1 hour with the Q&A. The Q&A is live, and you should have received instructions by e-mail on how to participate. Needless to say, my team and I will be at your full disposal after the call. And without further ado, Gonzalo, the floor is yours. Gonzalo Gortázar Rotaeche: Thank you, Marta, and good morning, everybody. Thanks for taking the time. And I will start with the highlights as it should be the case. A very good year for us. I think when I look back, it's probably the best year over the last 12, 13 years since the great financial crisis. And it is because we're really seeing a very balanced growth in the activity. Obviously, NII has recovered from June. And this quarter, you see again a 1.5% growth. But when I see a balanced growth is really that we are seeing volumes pretty much at 7%, both in the customer funds and on the lending side well above what we were expecting for this year, which was even at the time, you may remember when we presented the plan, it was seen as on the sort of too optimistic side. And in the end, fortunately, the economy has proved that actually that was possible, and we have our -- we have beat our targets with some ease and not just because the economy is growing also because we're gaining market share. Revenues from services are up, as we say, in line with the improved guidance. We started with low to mid single-digits growth for the year. And in the end, we have that 5.4% with a strong fourth quarter. Asset quality has been a trend for some time now, but the fourth quarter has shown an acceleration in terms of the reduction of nonperforming assets and the cost of risk has ended up at this 22 basis points. So when you look at it, it's been sort of very round in terms of capital creation, also a fairly positive year. It is allowing us to set the dividend per share, which is growing 15% and really establishing the payout at the upper limit of our 50% to 60% range. Very complete. And it also feels the year that is not just a one-off, but is part of a trend and a year which we want to capitalize on to 2026, which has started I'd say, in very -- with very good conditions and basically a continuation of what we have been seeing. Return on tangible equity at 17.5%. With all what I've said, we obviously have reconsidered our targets for now next year for 2027. I'm sure by this time now, you're all familiar with the new targets, but I think it's important to reiterate which they are. Return on tangible equity at 20%, give or take. That compares to the above 16% that we set a year ago. So it's obviously a remarkable 1 year, allowing us to increase 4 percentage points. Our guidance for return on tangible equity. And for the average of the period, now we expect it to be above 18%. So obviously, that's probably the headline, but the other important targets for us, cost income from low 40s to high 30s. NII now seeing EUR 12.5 billion as the reference figure for 2027, which means a 4% annual growth versus a flat that we had said in November last year, revenue from services and cost in both cases, we're maintaining our guidance, mid-single-digit growth for services. and 4% area for costs. Volume growth, we said 4% in the case of lending and above 4% in the case of customer funds. We're now rounding all that up to around 6% compared to that -- above 4%. And again, I think we have a pretty good traction here to be not necessarily just at or around 6%, but possibly slightly above that level. Nonperforming loans below 1.75% compared to below 2% and most importantly, cost of risk, which we feel confident now we can stay below the 25 basis points number compared to 30 basis points that we said a year ago. So this is our revised ambition for 2027 or for the 3-year period. In terms of capital, no real change, same payout, 50% to 60%, same capital target of 11.5% to 12.5% and the threshold for additional distribution, which for 2025 is 12.25%. And obviously, we are clearly above that level. And for 2026 and '27, it will stay at 12.5%. So this is a revised ambition. I'd say the strategy is very similar. It's just that we can do more, and we're obviously going to try to make it happen. Macro, we should be seeing they may be public already because I think it was expected at around 9:00, the GDP figure for Spain. We are expecting 2.9% for this year, 2.1% for 2026. I have to say this is a relatively old projection. And based on the most recent data, I think it's likely that this figure will be revised upwards, but that's subject to the information that we get on the fourth year economy for Spain. Portugal is doing fairly well, again, with pretty strong dynamics also in the Portuguese case. So we feel there's clearly some upside. In any case, since the pandemic, you see both Portugal and Spain as a very much leading growth in the Eurozone. And the factors behind that are still there. Population growth, employment growth. We had 600,000 new jobs created last year, 2.8% growth in employment, pretty impressive. Finally, the unemployment rate becoming a single-digit one, hopefully, will continue to go that way. At least that's what we are seeing an economy that is now powering ahead on the back of private consumption and investment. So the domestic strength is pretty relevant. And hence, it also gives us some protection of international environment, which despite all the risk is still doesn't look that bad either. High saving rates, growth in disposable income and a very low private sector leverage, which is still, as you see, 31 percentage points below the Eurozone. All of that gives us sort of room to grow, also comfort if or [indiscernible] if at some point, news are not as good. And the rate environment is obviously more positive than we had a year or not at year-end because our strategic plan was based on September figures as you see there. But obviously, the current yield curve is more attractive, is higher and steeper. And from that point of view, it's obviously a tailwind for our NII. So I start saying growth and had a very strong year for us compared to the previous decade, I would say. And this is why when you look at clients growing 390,000 in the year, look at market shares. And there, you have client penetration up to 40.4%, customer lending and customer deposits in both cases, 14, 12 basis points growth in market share. These are not huge growth, but with our size and also with our prudent approach, this is exactly the kind of market share gains that we're looking for savings insurance. And then on the life risk, you can see 158 basis points market share gains on the non-life. We've also had very significant market share gains across the board, really in health, in motor and in household. Now payroll deposits, very important, also up 27 basis points. So it's not only what you can see on the right-hand side, which is volumes doing very well, close to the sort of 7% area versus the 4% in general case by case, but I won't go through it because it's pretty visual for you. But it's not just volumes, it's also relative performance and market share that indicates that the organization is in really full shape with all engines working. Imagin continues to be a key part of our growth strategy, particularly in terms of number of clients, clients that bank with Imagine. They're not clients that just do 1 or 2 specific transaction categories, but have imagin as their bank. And you can see that because when you look at the business volume, it's actually fairly balanced and ample. Transformation, I talk about growth, but transformation was the other pillar of our 3-year plan. And obviously, a bit more difficult to measure. Growth is easier from that point of view. But just a few highlights, the new app, which we have deployed during the year actually gradually through small improvements rather than sort of a big one-off. And it's worked out very well because it hasn't created turmoil. The app is rated now #1 in Spain, and that includes sort of established banks and new entrants makes us obviously very happy with that, but we need to continue and we are continue working daily to make sure we keep improving it. And some of the onboarding and digital sales numbers that you see there are clearly results of that strategy. AI, we are making major efforts in adopting AI throughout the organization. Every employee has access to AI tools, namely Copilot. But we have obviously developed use cases throughout the organization in all areas. I would just highlight that we have, I think, an important progress this year when we get all commercial managers through the Salesforce platform to access AI, and that is going to lead one example to 75% reduction in the prep time for client interviews, which is obviously very significant productivity improvement. The quality, the depth of the interviews will also be improved as we obviously have more information. I didn't want to go through a very long list of things we're doing because obviously, this is affecting back office. It's affecting IT, client claims, client support, all areas in the organization. But some of these, I think, are going to bring results sooner. IT professionals, we remember in this transformation, we wanted to internalize and in-source many capabilities and that's what we have been doing, expanding our digital capabilities during last year. It's remarkable to have been able to hire 650 new IT professionals when there's obviously strong competition for talent, they like to come and work with us. And new solutions, you've seen the development of Facilitea Coches and on the car side of Facilitea Casa during this year. Both are, I think, very significant successes for us, working very well. And some of the results you see there in financing for vehicles has increased 30% this year. And we have developed this new portal with 1.6 million visits already. The cash back that we launched just in November already has 1.3 million clients. So certainly a pretty -- pretty significant sort of development of new solutions. So this is obviously something to continue for us. Lending growth, 7% on the performing side. And you can see residential mortgages, 6.5%; consumer lending, 12.4%; business loans, 7.6%, very strong growth across the board, very balanced. That 7.6% is both in Spain and internationally, but Spain is up 5.5%, again, basically gaining market share and defending profitability across the sector. And on the customer fund side, again, almost 7% growth, 6.8%. You can see that finally, market effect has been positive, almost EUR 10 billion, EUR 9.7 billion, but net inflows and growth of on-balance sheet deposits have been very significant as well. So again, outperforming, growing market share, and I'll get into some more detail, but obviously, this is a key strength and a key attraction of our business going forward. Wealth Management, we have grown net inflows almost 40%, a lot of it mutual pension funds, but also a strong performance in savings insurance with market share gains that as I said before, and basically a business that keeps doing very well. The figure for AUM at the end of December is already 7% higher than the average AUM during the year. So it gives you an indication that we're clearly seeing good potential and the market in January have been positive for -- certainly for our AUMs. Protection insurance has been stellar 13% growth. And you can see that both life risk with very strong mortgage market, but also with very strong MyBox Jubilación and our sort of stand-alone life risk products doing very well, but non-life has picked up to 11.7% as well. And here, you see on the right-hand side, precisely the gains in market share that I mentioned before in non-life and in life risk, even more significant. But it's pretty good outcome for the year. The speed at which we continue to grow this business is remarkable. And obviously, as you know, it adds quite a lot to our bottom line. And with that, comment on shareholder value creation and shareholder remuneration. Earnings per share up 5%, dividend per share up 15%, round number, EUR 0.50 per share. Look at growth in book value per share and dividends in the year, basically 16%. And obviously, on the share buyback front, we are not even half through the seventh share buyback with EUR 0.5 billion. And obviously, as our capital is at 12.56%, our threshold for 2025 is at 12.25%. We have excess capital, again to continue with this share buyback program, which, as you know, we'll announce when it is formally approved by the ECB and the Board. In the meantime, we still are -- have time before we conclude our seventh share buyback. Distribution plan for next year stays the same. The only difference is while the threshold for this year was 12.25% in capital, as you know, because of the countercyclical buffer, it will move to 12.5% in 2026 and beyond. So that's my part. And with that, Matthias, the floor is yours. Matthias Bulach: Thank you very much, Gonzalo. Good morning to everybody. Today it is up to me and to guide you through a little bit more detail on the income statement and on the main caption of the balance sheet. Starting with the income statement for fiscal year 2025. As Gonzalo said, EUR 5.9 billion of net income, up 1.8% in the year and actually checking on all the boxes of what was our guidance that we gave out and updated throughout the year 2025. NII down 3.9%, in line with the minus 4% guidance. Revenue from services in line with the mid-single-digit guidance, up 5.4%. Expenses up exactly 5.0%, in line with the guidance and cost of risk, we guided for below 25 basis points, and we are closing with 22 basis points, so clearly below that guidance with return on tangible equity standing at 17.5%, so on the higher end of the around 17% guidance that we updated. Looking into Portugal. Portugal net income reported of EUR 473 million on the back of very strong commercial dynamics, business volume up 7.5% and actually with a stronger dynamic than the group as a whole, gaining market shares across the products, but specifically on the liability side on deposits and on savings insurance, another year with strong market share gains, helping bringing down efficiency all the way to 42% on very solid levels. Profitability up to 19.2%, also above overall group levels and already a significant characteristic of BPI with a very strong asset quality, 1.5%, almost half of the sector average and with very strong coverage ratios. And that is also taken into consideration by the rating agencies, which are upgrading throughout the year or putting us an outlook positive in BPI. Moving to the typical quarterly income statement analysis, and we will be getting into the details of some of the income lines, obviously, NII up 1.5% in the quarter, another quarter of strong NII recovery. Results from services, revenues from services with a very strong quarter, up 6.3% Q-on-Q and 4.7% year-on-year, both on the back of a strong wealth management contribution, but this quarter, specifically on protection insurance, which is up 7.5% on the quarter. The expenses line down on the quarter, 0.2% to meet that 5% guidance on the fiscal year 2025. And net income pro forma the accrual of the banking levy of 2024 of a linear accrual up 5.5%. Maybe a couple of comments here on the tax line. The tax levy on the banking industry, we registered EUR 611 million throughout the entire year, which is a little bit higher than the EUR 600 million that initially we guided for basically on the back of stronger performance both in NII and in fees, and that is the basis for the calculation of the levy. And on DTAs, we wrote up EUR 171 million in the fourth quarter for a total of EUR 420 million of DTA write-up throughout the year, basically given the better visibility and the full visibility that we had in the last quarter, both on pretax income for the year as well as on future profitability, which is the basis of those write-ups. So a certain acceleration of the pace to an overall year of EUR 420 million. Going line by line, looking into NII, as I said, a strong quarter again, consolidating our recovery, leaving clearly behind the trough of NII in the second quarter of '25, up 1.5%, still obviously impacted by client yields and loan yields, which are still reducing, but on a less intensity, I would say, than the last quarters. So a fading impact from client yields compensated -- more than compensated both by a strong evolution of business volumes, both in the asset and the liability side, as Gonzalo was pointing out, and an increase of the contribution of the ALCO to EUR 45 million. We increased hedges on the quarter by almost EUR 10 billion to stand at EUR 68.4 billion, and the ALCO book was stable Q-on-Q to stand at EUR 76 billion by the end of the quarter. Customer spread down by just 4 basis points to 302 basis points if we adjust for hedges. And this is on the back of a positive evolution of our client fund costs, which go down 2 basis points from 49 to 47 basis points, again, ex hedges. And the reduction of the loan yield, as I said, is fading, 6 basis points down in the quarter to 349, and that compares to 20 basis points down last quarter. So clearly, fading impact from negative loan rate resets. Looking at the crown jewel of our balance sheet and hence, the supporting factor of that NII evolution of our noninterest-bearing deposits, up EUR 17 billion in the year, EUR 2.2 billion in the quarter with respect to -- or in contrast to interest-bearing deposits that are just up EUR 5.6 billion over the year, EUR 2.2 billion over the last quarter. The total average share of interest-bearing deposits is stabilizing at around 27%, and that is at lower levels than we initially expected in the strategic plan when we were guiding for around 30% of that share, which is now clearly stabilizing below those levels. I would like to point out also the reduction of 10 basis points of our deposit costs in that in a quarter, and I think this is remarkable, where the overnight rate actually was stable on average levels in the quarter and still the deposit cost is coming down. That means that the 50% of indexed rates was pretty stable, but the other part, which is term deposits, we still have been able to reprice them down by almost 20 basis points, leading to this 10 basis points of reduction of overall cost. So there's still some room of positive repricing downwards of our term deposit base. Moving to revenue from services. As I said, a very strong quarter and a very strong evolution year-on-year, focusing on the year-on-year, 5.4% up on the back of Wealth Management with 11% growth. Protection insurance, 4.8% up. And if we adjust for an extraordinary impact from BPI last year in 2024, that would be actually up 6.3%. And banking fees still subdued at 0.6%, but supported by CIB fees that are up actually 33% year-on-year on the full year number. So if we take only these driving forces in our growth engines, wealth management, protection and CIB revenues, actually, that composition would be up almost by 11% year-on-year. So putting a clear sign on the strength of our growth engines here. Costs, not much more to add to what was said already. Q-on-Q, stable, down by 0.2%. Cost to income remains at very low levels and is now below 40% at 39.4%, clearly below peer average in European peers and also with a much stronger evolution over the last 5 years, outperforming the evolution of European peers by 10 percentage points, as you see on the down -- on the bottom right side of the page. Moving to the balance sheet. Asset quality, very, very strong again in this quarter, down 20 basis points, our NPL ratio to 2.07%. And this is bringing forward actually by 2 years, what was our target set in the strategic plan where we wanted to be at around 2% by the end of 2027. So we're bringing forward the completion of that target by approximately 2 years, nice reduction across all the segments, as you see on the bottom left part. So there's no single segment. There's no single part of the portfolio actually that is not experiencing that positive evolution. Coverage up by 8 percentage points in the year to 77% and remarkable that we are still holding EUR 311 million of unassigned collective provisions. That is down EUR 30 million in the quarter and also in the year as in the end of the year, we've been assigning part of that provisions to specific provisions, but the bulk of it still available and still available to protect into the future and into 2026, our cost of risk. Cost of risk down to 22 basis points in this last quarter, down from 24 basis points in Q3, and that is basically on the back of slightly lower seasonality this quarter of provisions than we experienced last year. And hence, cost of risk standing at those 22 basis points, clearly below the 25 basis points that we guided for. Liquidity, I think already very structurally messaged here. Very strong LCR above 200%, NSFR just below 150%. Loan-to-deposit stable at 87% as both loans and deposits are growing approximately at the same speed and hence, loan to deposits still very comfortable, EUR 226 billion of liquidity sources with very positive comparison to peers and to peer levels as well as a very strong and stable deposit base based on transactional retail deposits and with a very high percentage of them being insured by the deposit guarantee fund. And moving typically to the annual review that we share on the MREL position, MREL standing at 28.18%, and that is 327 basis points or EUR 8 billion of M-MDA buffer over requirement mainly covered by subordinated MREL instruments, actually subordinated MREL stands above the total MREL requirement. After a year of very intense activity in the markets, EUR 9 billion of issuances across all the asset classes and 2/3 in euro, but 1/3 also in currencies that are not euro, specifically in dollars. We started 2026 already very successfully with a senior nonpreferred issue combined with the tender offer, EUR 1.25 billion of issue and EUR 0.5 billion from the tender offer, and that is supported by the positive and strong view of our rating agencies, which similar to what I explained in Portugal, actually upgraded us throughout the year or put us an outlook positive as the case of Fitch. And coming to capital. Gonzalo already went into some detail, 12.56%, 13 basis points up in CET1 and clearly above this 12.25% threshold that is in place for the end of year 2025. Capital accretion positive of 63 basis points. Organic RWA increase just 5 basis points, and this is supported by 3 SRT transactions, significant risk transfer transactions that we executed actually in this fourth quarter, impacting positively by just below 15 basis points on that caption. So positive evolution supported by market activity. Dividend accrual and AT1 coupons, obviously, then distracting 38 basis points and Markets and others coming down 8 basis points. And here, as every fourth quarter, we are updating our operational risk RWA models. That is a yearly update, and that impacts also just below 15 basis points on that part. That means that the remainder moving parts of this market and other bucket are slightly positive. On shareholder value creation distribution plan, nothing to add to what Gonzalo has been pointing out. And fiscal year '26 guidance, you've seen that all this morning already. Gonzalo mentioned 2027 view. And just to say that the 2026 view is fully consistent, obviously, in this journey towards 2027 targets. NII expected to be above EUR 11 billion. And that is bringing forward by 1 year the initial target that we had for the fiscal year 2027 clearly on the way then to move up to that around EUR 12.5 billion target for 2027. Revenue from services up 5% within that mid-single-digit range that we also are envisioning for the entire 3 years horizon. Operating costs up by approximately 4.5% after a 5% increase in 2025, 4.5% in 2026 and clearly on track, and we reiterate our commitment and our guidance of 4% CAGR for the entire 3 years of the strategic plan horizon. Cost of risk below 25 basis points on the back of that very strong asset quality and return on tangible equity at around 18% to fulfill that around 18% average return on tangible equity over the 3-year horizon and the approximately 20% in 2027. On capital targets and distribution, nothing more to add. This is all well known to you. And with that, I think we are ready for questions. Marta Noguer: Yes. Thank you, Matthias. Thank you, Gonzalo. Operator, we are ready for Q&A. So you can come in the next question please. Operator: Next question is from Antonio Reale, Bank of America. Antonio Reale: Antonio from Bank of America. A couple of questions from me, please. One on NII and one on use of capital. So starting with NII, you're guiding to be around EUR 12.5 billion in 2027, and you've added in the quarter, almost EUR 10 billion from structural hedges alone. Volumes are growing 6%, 7% a year. So just my question is, what are the key assumptions you've made that drives your NII outlook here, particularly if you could talk about rates and volumes assumptions, please? My second question is on use of capital. You are at 12.56%, just above the new go-to level, and you've been paying 100% of your excess capital out in the form of share buybacks. With the balance sheet that's growing and the returns that you're now making, you're guiding for 20% RoTE in '27. How should we think about sort of best use of capital for Caixa? What's your appetite for additional buybacks here? Gonzalo Gortázar Rotaeche: Thank you, Antonio. Let me start with the second question, and I let Matthias address the NII in some detail. There's nothing new about use of capital. You're seeing higher growth, which means obviously more capital that we can employ in the business. And as the business is targeting a 20% return on tangible equity, that's great news. Really, that's what we would like to see become -- we discussed this a year ago or become a compounder in terms of high RoTE and good growth. That's, I think, what will lead us to the best outcome for shareholders. And the reality is that as the growth is coming together with higher profitability, we still see the future as in a scenario in which we can have a high dividend per share as this year in that 50% to 60% payout, grow the business and grow faster than we were expecting at 6% rather than at 4%. But still in our numbers, we continue to generate capital. And obviously, one proof is that we already have excess capital at the end of 2025. So you know there's sort of cash in the bank for further share buybacks already. And going forward, we continue to see that despite higher growth, we will be generating excess capital between our targeted levels. Now we'll continue to monitor developments. We are using slightly more intensively SRTs as well. Matthias mentioned that we had some positive impact in the fourth quarter that will continue to be there. So no change in capital. This is higher growth, higher profitability, but also higher capital available for shareholders. So it looks too good, but it is really how we're seeing the business. It's very strong conditions. Matthias, NII, all yours. Matthias Bulach: Sure. Thank you very much, Antonio. What are the main drivers behind what we see for NII evolution both into 2026 and specifically beyond? I think on the one hand, obviously, it's volumes. We guided now for an update of around 6% CAGR, both on loans as well as on liabilities, up from that 4% guidance that we gave you back in the strategic plans Investor Day. Now that obviously volume growth that we've seen already this year at around 7%. The guidance is for a CAGR of 6%, that means we are positioning volume growth both in 2026 and 2027, probably around 5% to 6%. So that is, I think, the main driving force behind our expectation for NII evolution over the next couple of years or even beyond. Secondly, obviously, rates evolution. Rates has been a drag on our NII over the last quarters, obviously. We expect that drag actually to fade out over the next 2 quarters. The loan yield resets should move into positive territory from the third quarter onwards of 2026 and hence, still a certain drag over the next 2 quarters, compensating partially that volume effects that I was talking about. But then from the second half of 2026 onwards and specifically into 2027, and I would say, beyond into 2028, we see a clear positive evolution on the back of rates. On the back of rates because as you know, there's a significant part of our portfolio, which is actually on variable rates. And we do believe that we will be able and capable of controlling client fund costs, controlling and limiting growth of deposit costs, as we said currently at 47 basis points. We believe actually those levels of year-end to be quite structural. We should be able -- even though there might be some pressure from the index part of our deposits, we should be able to control that evolution of deposit costs over the next quarter. I would say if 47 basis points is our year-end number, we should be in the mid-40s probably during 2026 as the certain pressure that we might have from the index part, we should be able to control and to limit that both from still some repricing from the term deposit part as well as increasing the share of growing stronger in the noninterest-bearing deposit part than in the interest-bearing deposit part, and that should help us to control and to keep deposit costs down over the next quarters and also actually to very nicely control that once rates are picking up. So volume effects, which are already occurring and which we expect to keep on in that benign macroeconomic environment, rates should be picking up and helping us on that front. A small detail on what we see in the more quarterly evolution over the next few quarters. We do expect NII 2026 actually on a quarterly level to grow year-on-year in each and any of the quarters. But there might be a certain reduction -- a limited reduction in the Q1 NII respect to Q4, basically for some seasonal effects that typically happen in the first quarter. The first quarter tends to be somewhat weaker in terms of average fund balances as January tends to be clearly weaker month than December. We do have 2 days less in the first quarter than we do have in the fourth quarter. And also there's more negative loan repricing actually in January. There's a certain seasonality here. So what we would expect is Q1 to fall slightly against Q4, but then picking up growth right after and specifically accelerating growth into second half of 2026 and obviously into 2027. On the back of all those, let's say, more business and external rates factors, we do have also significant idiosyncratic factors, let's say, that are based on our -- the structure of our hedges. Recall in the Page 30 of the webcast presentation, you have got all the details, but recall that between the fourth quarter end of '26 and the first quarter of '27, actually, we do have around EUR 15 billion of legacy deposit hedges that are maturing. They're maturing actually at negative rates. So we would assume a rollover of that hedges at current market forward rates that would give us an uptick of about 2.5% on those EUR 15 billion of legacy deposit hedges, and that is annualized around EUR 400 million of NII boost that will be coming from this natural rollover of those hedges. So there's no external factor that is pretty much already in our balance sheet, and it's a natural and automatic thing to happen. So there's a clear boost for 2027 NII from that front. And on the other hand, we also disclosed the maturity profile of our ALCO book. Actually, in last year 2025, EUR 6.5 billion already matured at 0% rates. And you have seen that our ALCO portfolio actually grew by EUR 12 billion in 2025. So that is renewed and that generates obviously some support for the 2026 NII as this is maturities from 2025. And once they are renewed, obviously, they help in the year-on-year evolution into 2026. And that goes on in 2026, there is EUR 9 billion maturing at a 0.4% yield, and there might be a reinvestment capacity of increasing that yield by 2.2 percentage points, generating EUR 200 million of annualized NII through that 2026 maturities. And that goes on in 2027, there's EUR 8 billion maturing at 1.6% that would reinvest it would lead to EUR 100 million of annualized NII. And in 2028, also, there's EUR 14 billion actually maturing at 1.1% that also would give EUR 300 million of annualized NII support. So from all those factors, both external factors, let's say, business evolution and market rates, we feel very upbeat specifically in 2027 as we are guiding for this EUR 12.5 billion as well as beyond looking into 2028. And then there's those internal factors from the maturity of hedges as well as from the ALCO book. So we actually feel very strong in 2027, and we do feel similar also into 2028 based on all these factors that I was just explaining. Operator: Next question is from Ignacio Ulargui, BNP Paribas. Ignacio Ulargui: I have 2 questions. I mean one is on deposit growth. I'm coming a bit back on what you were commenting, Matthias. Looking a bit more on the volume. So you said 6% customer funds growing in the plan. If you could break that down between deposits? And how do you think kind of interest-bearing and noninterest-bearing could grow into 2026 and '27, that would be very helpful. And a second one on credit quality. I mean, asset quality has performed very strongly. I think it's the lowest 4Q gross inflows into NPLs in a decade. Your target of NPL is 1.75 which, I mean, if we extrapolate a bit the trends that you have seen in 2025, probably it still is very conservative. So I just wanted to get a bit of your views about cost of risk, asset quality dynamics so that to get a bit of comfort on the improvement of the 5 bps of cost of risk and how much generic overlays you have still? Gonzalo Gortázar Rotaeche: Thank you, Ignacio. I'll take the second question as well. I'll start with asset quality is -- starts from the economy. The economy, I was saying that the GDP numbers were about to be published. And in fact, they have been a very strong fourth quarter for Spain, 0.8% growth quarter-on-quarter on GDP. To give you an idea, we were more in the 0.5% expectation. We knew based on the numbers of the last few weeks that this was going to be higher. But clearly, a very good number. There's been some revision of previous quarters. So the overall growth has been 2.8%. But most important is just looking at 2026, the outperformance of the fourth quarter already gives us automatically just if we don't change any other assumption, just the rebase of the fourth quarter would mean that growth would be 2.3%. And looking at the numbers, private consumption is up 1% quarter-on-quarter. Gross fixed capital formation, so investments basically is up 2.2% in the quarter. Exports are up 0.8% is -- these are very, very strong numbers. And as long as the numbers continue to be there, there's absolutely no reason to think that asset quality is -- we're going to have any negative surprise. We -- Matthias mentioned, we have still this stock of non-assigned provisions above EUR 300 million. Economy is doing well. Our clients are less leveraged than ever. And we do not see any problem in any part of sort of big broad categories, be it mortgage or consumer segment. The statistics for January in terms of asset quality make it the best January I remember. January is typically a bad month, the famous Cuesta de Enero, as we say in Spanish, that's reflected. And this year, we're seeing a much lower impact than others. So we internally have all the confidence that, yes, that should make sense for us to be below 25 basis points. And we tend to be conservative, particularly in cost of risk because there's an element of unpredictability on it, and you cannot rule out completely. Obviously, the international environment and whether we have a sort of a major crash in markets or some other big impact elsewhere that eventually feeds into the economy and hence, changes things is always a possibility. It seems unlikely and in any case, something where we have pretty good cash. 175% may actually be conservative, I agree. I think if the trend continues, we will go beyond that number fairly soon. But you know we're a conservative organization when giving guidance. We look at guidance, and there's a very high percentage of cases where we have better guidance versus occasions that have happened where we didn't meet our guidance because something happened. So I would be pretty confident on these numbers on cost of risk for the next years as long as the economy stays where it is, which we have no indication that is changing from that position. We're seeing on the opposite sort of stronger numbers. Matthias Bulach: Thank you very much, Ignacio. On deposit growth, I think we have been guiding for overall customer funds to be growing at around 6% now during the 3-year horizon versus the initial target that we have of around 4%, of which we said 3% of that would be customer deposits. So I think it's -- 2025 might be a quite good starting point when thinking about composition. So obviously, we do still see significant upside on wealth management after 9.7% year-on-year growth in 2025. And we do see CapEx to grow in deposits over this 5.3% growth in 2025 also. We move that target to now 6% overall. That means, as I said before, we might be somewhere around 5% to 6% on the overall customer front. And the structure that we've seen in 2025, we expect that more or less to be also into 2026 and beyond. So having said that, we do think -- we do see deposit growth now very clearly in the mid-single-digit zone for the strategic plan horizon. That is outperforming our target of above 3%. And why? Because we do believe, and as Gonzalo was just pointing out on the macroeconomic evolution, we do still see a very strong disposable income growth and savings rates actually remaining at high levels. It is coming down slightly, but we still do see at very high levels with respect to historical average. Loan growth is strong and that multiplies also into deposit growth in the sector and hence, gives us opportunities to keep on growing significantly here. And as I said, we have a focus on growing nicely the client base, 390,000 clients this year, and that obviously also gives capacity to grow in deposits from new clients, and that means in transactional deposits and not shifting around the savings of our existing clients, but actually growing into new client base and growing into transactional deposits. So thinking then about what is the part of noninterest-bearing versus interest-bearing I would say, the current rate environment, which is stabilizing after the up and down over the last 3 years, stabilizing and with certain tendency to -- and the forward rates to increase, but clearly on a very gradual pace, we would expect that actually noninterest-bearing deposits being rather stable, and I would say rather stable even in absolute terms, not necessarily in relative terms, obviously, potentially growing slightly, but we would expect that the noninterest -- the interest-bearing part actually clearly growing slower than the noninterest-bearing part. And hence, we don't expect any shift from one to the other. As I said, growth should also come from new clients, new transactional relationships with our clients. And hence, we see strength in the growth of that crown jewel of ours, which are the noninterest-bearing part. Marta Noguer: Thank you, Ignacio. Operator, next question please. Operator: Next question is from Maks Mishyn, JB Capital. Maksym Mishyn: Two questions from me, please. The first one is on loan book growth. Your peers mentioned that mortgage market is less attractive due to competition at the moment, and you seem to be growing above the market. Could you share your thoughts on why it is attractive for you and not your peers? And then if you could also break down the upgraded loan growth target by segment, that would be very helpful. And the second question is on capital. Just wanted to hear your thoughts on the recent proposal by the ECB to simplify capital regulation. Operator: Maks, we are not hearing you properly. Can you -- maybe take the cellphone a little bit away and repeat the question because we lost you. Maksym Mishyn: Is it better? Operator: Yes.Yes, this is better. Maksym Mishyn: Sorry. So the first one is on loan growth. Your peer mentioned that the mortgage market is less attractive due to competition, and you seem to be growing above market. Could you share your thoughts on why it is attractive for you and other peers? And also, if you could upgrade the loan growth target for the next year, that would be super helpful. And the second, I just want to hear your thoughts on the recent proposal by the ECB to simplify regulation for banks in the Eurozone. Gonzalo Gortázar Rotaeche: Thank you, Maks. I will start. And Matthias, you want to complement anything you tell me. On the mortgage market, I would say there's a very strong competition. There's always been 10 years ago, 5, 15, 20, it has typically been more on the floating rate mortgages. The market has moved almost completely, but not completely, but to a large extent, on to fixed rate mortgages. And that means that different players find it more or less attractive. I think depending on the structure of the balance sheet, there are core liabilities, the liquidity position. I'm just saying this is an important factor to keep in mind. But whether it was floating or now on fixed rate, we have obviously very competitive margins. And what we are doing, our share of new production is pretty much in line with our stock, around 25%, slightly it's 26% in the figures up to November in terms of share of new production versus a 25% stock. So that's why we're gaining 12 or 10 basis points in market share. But it's basically, we're maintaining our position. I think that's reasonable for us. And what you see is some players have been much more aggressive than others. And I think it has something to do with the structural balance sheet. And then the other big factor, which obviously is also differentiating is to what extent you cross-sell because we know mortgages are now below funding costs after the various sort of subsidies that are given by banks and on average, the market rates that are being given to the ECB latest numbers I've seen in November is 2.4% for fixed rate mortgages, obviously, below the swap rate, but that's after the modifications for all kind of business that clients bring in. And on that front, we obviously have an insurance business that is absolutely different from what others have. I was just looking at the premiums on the non-life for our affiliate Adeslas is around EUR 6 billion. You look at the numbers of our 2 main competitors, the premiums for non-life are around EUR 600 million. So it's not just a bit more than our fair share. It's 10x more. And that gives an indication that with -- once a client is in the Universe Caixa, clients more profitable. And hence, when you incorporate that, you probably see that both because of our funding position and our ability, given our sort of 36% market share in payrolls, our ability to hold long-term fixed rate assets, number one, and our ability to cross-sell, the market has moved to an area where we have a competitive advantage versus others. But still, I think we're being very disciplined because, again, stock of back book and the market share in new lending is very much aligned. So that's the background. And in terms of simplification, we're watching and obviously would love to see moves from that point of view on simplification for banks. And I think something is going to happen. I'm a trading maybe less than we would have hoped for. And I think the progress we're seeing so far deals more with operational issues, which is great because it's going to lead us to sort of spend less time and maybe have less people sort of spending time on supervisory matters, and that's good, but that's not really going to change the game. I think sort of changing capital requirements is something that is unlikely. I personally don't find it desirable. I think the current capital requirements, yes, are very ample and solid and gives us as a system, a great degree of stability. And I think that's good over the long term. What I think is important is that we provide stability and that there's no doubt about capital levels going forward because the current levels are more than enough. I think supervision needs to be simplified. We have 27 supervisors, and we're not one of the most complex financial institutions in Europe. We're operating basically in the Eurozone and mostly in 2 markets. It gives you a sense of complexity and some of that should be addressed. There's obviously progress specifically on disclosure on topics affecting sustainability on securitization, which is very likely. I think the sort of development of instruments for saving and investment union, which is not exactly simplification, but it has a relationship with are also quite relevant. We'll have to watch and see. But this is, I think, going to take quite some time, and we may actually end up in a position that is not too far away from where we are now, barring sort of some, as you say, operational matters. And the other one, which I think is very important, is stopping the flow or significantly slowing down the flow of new rules, Level 2, Level 3, which is obviously, I think, more of a concern and easier to stop because it's more a political willingness to change the way future things are done to change the status quo is going to take time and may not be as significant as we would hope for. Matthias Bulach: If you allow me to complement Gonzalo on Maks. On your question on breakdown by segments of that loan outlook that you're asking for. 2025, we grew 7%, our performing loan basis, of which 6.5% was growth in mortgages, 12.4% in consumer lending and 7.6% in business lending. Now we are guiding for a 6% CAGR over the horizon of the strategic plan, and that implies somewhere between 5% and 6% for the remainder 2 years. And hence, let's say, the adjustment you would have to make to the 2025 numbers, I would say the structure of 2025 is a reasonable one that we would be seeing also in the future as basically the main driving forces macroeconomically speaking as well as from the market, we still see them holding true also for 2025 -- for 2026 and 2027. So let's take the structure of 2025. And as Gonzalo said, we want to be active in business lending, specifically in SME lending. We want to be active and gaining market share in consumer lending and typically be more in line with the market and hence, maintain our position for all the reasons that Gonzalo was commenting on mortgages. And that is more or less the structure that we had in 2025, and that is what we would be expecting in 2026. Why do we guide for slightly lower growth rates on the business volume? Even though macroeconomic performance is strong and keeps us strong, there is a certain reduction in the pace of growth, obviously, as Gonzalo said, 2.8% this year with the figures that were just published, and that might be slowing down slightly over the next 2 years, obviously. So together with that evolution of macroeconomic growth, obviously, we see nominal GDP growth as an anchor point both for growth in assets and liabilities. And this is why we are thinking that there might be a certain slowdown from 2025 levels. But then again, the future will tell. And obviously, we will do all the best to do better than that. But this is what is our current view. Operator: Next question is from Francisco Riquel, Alantra. Francisco Riquel: The first one is on fee income guidance that you are not changing, but wealth management and long-term savings volumes are growing ahead of expectations. So if you can explain what is the offset here, if it is, again, banking fees that you see weak trends? Or if you can please elaborate on the fee income guidance given that wealth management is ahead of expectations? And second is on the cost guidance that you have maintained also for -- in the new plan. I wonder if you are investing more in AI and in the technological transformation that what you were anticipating at the beginning of the plan? And what type of productivity gains shall we expect and when? Gonzalo Gortázar Rotaeche: Thank you, Paco. I would say, again, leaving the fees for you, Matthias. If you agree on cost and AI, yes, this is a key factor for our investment program, which is going according to plan. So in terms of the big numbers, we are reiterating the cost and the OpEx, CapEx spend last year, this year, 2027. And in terms of the efficiencies of the productivity that we expect here from AI, I think, is twofold. Most importantly, in a growing market and in an organization that is actually growing market share, it's going to allow us to have more revenues over the same platform basically. And I think this is very important for us. So that's the main factor. And the second one, obviously, is on the cost base. We -- and particularly when you look at sort of the engine room. I would say there are 2 places where we expect efficiencies. One is IT, and this is one where it's actually -- first, we need to invest more also in terms of people and with this Cosmos program, which is the whole sort of technology upgrade that we're doing, we now have over 2,000 people working full time on that. Now some of them are internal. Some of them are from partners and hence, call it outsourcing. And this is going up. It's going to come down. We said at the time of the plan, we will start with 6,000 people, of which basically 1,000 were internal IT employees and 5,000 external. We expect by the end of 2030 to have reduced that to 4,000 people, but to have more people internally. So we are basically in-sourcing, but the total FTE expense internal and external is going to come down. And this is something that you're going to start feeling really 2027 onwards because in the meantime, what we need to do is, as we transform, have actually more resources. And then there's operations as well where we have significant outsourcing, and I think that's likely to come down. So those are the sort of big areas to look for. But again, I'd say most of these efficiencies are coming into 2027 and beyond. That's why also if you look at our implied guidance for 2027 is more in line guidance of growth in order to make the numbers is more aligned to the 3% number compared to the 4.5% that we're doing this year. That's because not only, but among other things because we're having efficiencies already materialized in 2027. And obviously, that should continue beyond. Matthias Bulach: Thank you. On fees, Paco, I think, obviously, as you said, we are very upbeat on wealth management fees coming from that capital. As we said in the -- actually in the strategic plan, mid- to high single-digit growth here. 2025 has started very, very strong, and we do see strong growth also going into the future. As Gonzalo said, year-end balances in wealth management are 7% higher than average year balances of 2025. So we do see a very good starting point also here into 2026 and beyond. So that means that, yes, we are more cautious on banking fees. Actually, of our fee structure of our banking fees 20% more or less are CIB fees and 80% are recurring banking fees. We said CIB has a very strong dynamics. We've been growing 33% year-on-year full year 2025. So there's a very strong backwind and tailwind here, even though, obviously, those growth rates tend not to be sustainable. We do believe the levels are sustainable, and we should be able to grow still from there, but obviously at a certain lower pace. And that means that the drag we still do see coming from recurring banking fees and that 80% of fees, of which more or less half probably are in types of fees, which are basically exposed to quite some competitive pressure, namely speaking about account maintenance fees, payments and transfer fees or credit card fees, which obviously in that competitive environment and that profitability environment of client relationship are under pressure because they are lower value-added services. And in that capital, obviously, we still do believe that there is actually potential that these type of fees are still reducing over the next years as competition will be fierce in that area. And innovation in those areas, obviously, will also have an effect of bringing fees down. And that should then be compensated and this is our job by the other part of the fees on other transactional services, security trading, foreign exchange or loan-related fees, where we do expect a positive evolution, obviously, from the macroeconomic environment and from transactional increases. So there, we do see a positive way to partially compensate that reduction in recurring banking fees. Operator: Next question is from Cecilia Romero Reyes, Barclays. Cecilia Romero Reyes: The first one is on deposits. Obviously, the reduction in deposit cost is slowing and in part is because obviously, rates are stabilizing. Some competitors have standard attractive campaigns. How do you assess the current state of deposit competition in Spain? And are you seeing any incremental pressure from neobanks? And my second question is just a follow-up on the fee question. Could you remind us where are SRT costs included within your fee line? And is an acceleration of SRT making your view on banking fees more conservative if included there? Or is this not having a big impact? Gonzalo Gortázar Rotaeche: Thank you Cecilia. On deposits, I would say no change. We're not changing our strategy, and we are very comfortable about our position. We're not seeing any particular negative impact or difficult environment associated to neobanks. On fees? Matthias Bulach: Yes, the SRT Cecilia, the SRT part is in the banking fees. And hence, yes, there is a certain impact there. And as we are speeding up and as you have seen in the fourth quarter, SRT activity, there will be a certain drag also on banking fees, on other banking fees based on the SRT activity. Actually, in Q4 '25, there was EUR 12 million of impact, that is EUR 5 million down year-on-year, if you look at the quarterly data. And in the full year 2025, there was EUR 36 million, actually EUR 12 million more of fees paid on that capital. So yes, that is generating, obviously, as we are picking up activity here, a drag on banking fees. Operator: Next question is from Sofie Peterzens, Goldman Sachs. Sofie Caroline Peterzens: This is Sofie from Goldman Sachs. So my first question would be on your customer margin, which came slightly below 300 basis points. I know you talked quite extensively about kind of deposit costs and also lending rates. But how should we think about the customer margin? Is it fair to assume that the 297 basis points is a trough? Or could it kind of fall a little bit more in coming quarters? And then my second question would be the 20% return on tangible equity that you guide for in 2027. Is that sustainable to assume that will be the new run rate beyond 2027, so '28, '29, considering volumes are good. You mentioned cost efficiency should start to kick in post kind of '26. So how do you think about like the longer-term return on tangible equity level? Gonzalo Gortázar Rotaeche: Thank you, Sofie. On the profitability, I think we said and Matthias also mentioned NII and others, we see environment continue to be fairly positive beyond 2027. So by definition, that should be positive for return on tangible equity. You are somehow asking about our next 3-year plan, and that's a bit too early for us to get into the detail. But to be honest, my sense is this is not just a level that is sustainable, the 20%, but it should be actually the level on which we start working towards further improvement in profitability. But that's my qualitative sense based on all what I have seen. And obviously, we also have a very positive view for 2028 in particular. On customer margin, Matthias. Matthias Bulach: Yes. Thank you very much, Sofie. On customer spread, I'm afraid to say that the 297 or 302 depending on whether it's with or without hedges, has not yet been the trough. As I said, customer deposit cost at 47 basis points might be rather stable or we do see some potential here still for certain improvement, but probably a minor one. And yes, we do still see negative loan yield repricing specifically into the first quarter and the first 2 quarters of this year, 2026. So we would expect that to come down still slightly into the second quarter, but then we should be starting to see a recovery. And we still see the area of 300 basis points as our sustainable level once rates are picking up slightly over the next quarters. Operator: Next question is from Alvaro Serrano, Morgan Stanley. Alvaro de Tejada: It's kind of a follow-up, one for you, Gonzalo. The implied cost growth in '27 looks like around 2.5%. And with the revenue growth, your cost income is going to be in the mid-30s. And obviously, you've laid out both Matthias and yourself, how there's more to go for in '28. So the question is kind of where is the -- should we be thinking that 30% cost/income ratio over time is possible? Or the bigger question is at what point, Gonzalo, do you think that it's better to invest in the business because you think you might be missing out on growth or underinvestment? Just help us through think how you're thinking about the business and the long-term potential in the new world? And second, on the 6% loan growth CAGR, I realize it's a touch lower in the outer years, but still above what Spain is growing. And of course, there's some international growth there. But the question is, are you factoring further sort of market share gains? Or you're expecting the growth in the market to accelerate significantly or a bit of both? Just a bit of sort of color on your market share expectations. Gonzalo Gortázar Rotaeche: Yes. On the second one, market share, I'd say, yes, we are gaining market share now. We gained market share this year. It's likely if we have a position that I think is very strong on -- from a competitive point of view that, that process will continue. And we aim to do that subject to appropriate risk and pricing decisions. So if the profitability is not there, the risk criteria is not strict enough, we will certainly not grow faster than the market. But we have seen that the market is very big. And given our positioning, we can do that. And I think there is clearly a potential to see lending above nominal GDP, which is kind of the logical assumption to be made. But when we look at relative to our past and relative to Europe with 31 percentage points lower leverage of the private sector and an economy that is clearly outperforming, you can see obviously some cycle there. So I think 6% is reasonable. And yes, it includes some market share gains. But again, when we talk about market share gains, we're talking about 10, 20 basis points. Generally, this is the kind of market share gains that are consistent with good pricing decisions and good risk decisions, not something that is huge. And in terms of the cost income, I think it's important to say cost income for us is an output. It's not the target by itself. We -- now you look at our numbers and round numbers, we have 18% return on tangible equity this year, 40% cost income, a bit below the cost income. But our aim is not to bring down the cost income at our cost. Our aim is to create value. And obviously, if we can do the same volume with lower cost income, that's great. But very often, if you just focus on bringing down the cost income, you're not going to do investments at 18% return on tangible equity. So once you get to -- and many banks would dream in Europe, as you know well, Alvaro, to have a 40% cost income. And once you have a very profitable platform, you actually want to create value and that means growth. And that may mean doing and taking business initiatives at 40% cost income that create a lot of value, 18% return on tangible equity, but do not contribute to the objective of reducing further cost income down to 30%. Now as an output, if our strategy is successful and we continue to grow the business, the cost income should continue to go down. But it's not going to be our target. It's going to be a consequence of sort of management of revenues and costs to make sure that we produce sort of value when we make investments. So it will come down, but we're not targeting a given cost income. We're targeting shareholder value creation. I may just remind you of the case of Banco Popular 25 years ago, they were managing for ratios and return on tangible equities and cost income. And at some point, that doesn't make sense. And we're certainly going to be looking at NPV positive value decisions and that if our strategy is successful, will lead to lower cost income. We'll see when and to what extent. Operator: Next question is from Marta Sanchez Romero, JPMorgan. Marta Sánchez Romero: I got 2 questions, one on the structural hedge and the other one on capital. So on the structural hedge, you're adding receiver swaps, but you're reducing your holding of sovereign bonds. Can you explain the rationale of that? Any worries on the sovereign debt market? And also what is behind keeping the sensitivity still at 7.5% versus the 5% you had at the beginning of the year? If you could help us model how the ALCO portfolio size should expand going forward, that would be very helpful. And then on capital, 2 quick questions. What are you expecting in terms of RWA growth? In the previous plan, you were growing more slowly than loans. I think 3% CAGR you had at the time. Now you've got 6% growth in performing loans, how RWA should grow? And just quickly on the buyback, have you already put forward a request to pay that surplus capital to the ECB and the Board? Gonzalo Gortázar Rotaeche: Thank you, Marta. On the second point, capital, we are not -- we've made a policy out of it finally to say let's be consistently. We will not talk about when we do internal approvals and discussions with the ECB. We'll just communicate to the market when we have it and it's formally approved by the ECB and the Board. Absolutely no change in what we've been doing. We're talking about the seventh, eighth share buyback now. And you know how we behave that we're fairly quick, very disciplined. Look at all the banks in Europe, they say this is our target, but then you look at the capital, and it's way above that target. We are -- it's a bit like an ATM. As soon as we generate the capital, we give it back. So don't worry about that is something we're going to continue. RWA growth, obviously, it's going to be a bit higher if lending grows at 6% than at 4%. And I'll let Matthias elaborate on to it. Matthias Bulach: Yes. Thank you very much, Marta. As you said, we were guiding for a 3% performing loan growth in the -- back in the Investors Day, and that translated into about 2% growth in RWAs. Now we are guiding for 6% growth, and we do think that also helped by both the Basel IV impact that at the end of the day was more positive than we expected as well as an uptick most probably in SRT activity that we should be able to actually adjust that growth rate downwards and actually generate a sort of potential 2 percentage point gap between loan -- performing loan growth and RWA growth helped by these 2 factors. And on sensitivity, we do feel quite comfortable in that 7.5% sensitivity that we are managing right now. Recall that we are coming from ranges of 20% to 30% back in 2021 when obviously rates were negative or very, very low, bringing that down to 5% last year, and now we are hovering around those 7.5% levels in that environment where the ECB signals that the rate cutting cycle may have come to an end and the market expects certain increases from the current state. And the yield curve is actually pointing out to a steepening. We do think that, that 7.5% level is a level that we feel comfortable with in an environment in which we obviously would have been or are exposed to macro risks, both on the upside as well as on the downside. As to hedging strategy, we use both instruments, both ALCO book in order to invest and structural hedges. This quarter, we've been using approximately EUR 10 billion of structural hedges to hedge and to assure the sensitivity of 7.5%. And that might change depending on the size of the books, depending on sensitivity depending on opportunistic behavior also if sovereign spreads we feel are at the level they should be, we feel investment opportunities, we might be using more longer maturity instruments such as adding to our ALCO portfolio and picking up some of that sovereign spread or being more in the shorter range of maturities, which we typically do with the deposit swaps. So I would say we will see in the future. We want to keep some flexibility here to be able to react to market circumstances as they unfold and no clear guidance at that point on to which part of the portfolio should be growing more or we would be using more. Operator: Next question is from Ignacio Cerezo, UBS. Ignacio Cerezo Olmos: So I have 2 small ones actually and one slightly more qualitative. And the numerical ones are, if you can give us the NII in 2027 with no rate hikes. So we have actually flat as pancake type of yield curve. The second one is if you can give us actually the percentage of natural attrition you have on your headcount every year. And the qualitative one is on consumer lending, obviously growing quite strongly, 12%, I think it is at the end of the year. I mean, mimicking view on actually the trends we're seeing on a sector basis. I mean, does this raise any concern around asset quality about the kind of clients actually you're targeting or you're still within pretty tight kind of risk standards with your own client base preapproved like you have been doing in the last 3, 5 years. So if there is any change in terms of the risk profile of the clients you're acquiring on consumer? Gonzalo Gortázar Rotaeche: Thank you, Ignacio. Risk profile, no change in asset quality. We keep our standards. We're very comfortable with them. And that's perfectly consistent with good growth when you have such a large position and a lot of information with clients. Natural attrition for the headcount, I think we may actually want to come back to you, obviously, I want to make sure we give you the right number is small. NII? Matthias Bulach: Yes. NII, 2027 actually is not largely dependent on interest rate hikes. As I said, typically, the repricing of the portfolio is somewhat backloaded. And in the current interest rate curve, that increase that we are expecting slightly for 2026, but slowly and a little bit into 2027 actually would not have a significant impact on our EUR 12.5 billion guidance. As then the interest rate hike is much more backloaded and would much more positively affect 2028 and beyond. So I would see, obviously, that would have an impact, we would be below most potentially that 12.5%, but not far from guidance if interest stayed on current 2% deposit facility rate. Operator: Next question is from Andrea Filtri, Mediobanca. Andrea Filtri: You said consolidation will continue in Spain and that you're not interested in moving abroad. Can you elaborate on what you meant by that? And also, you made positive considerations on the U.S. as a market. What do you plan to do there? Gonzalo Gortázar Rotaeche: On the U.S. as a market? Operator: What you said -- last question, Andrea, we didn't hear it properly. Andrea Filtri: I also read positive comments on the U.S. What do you plan to do there? Gonzalo Gortázar Rotaeche: Yes. Consolidation, very clear, no change. We are not interested in consolidation. We have a very strong position in Spain. And we do not want to grow and we do not need to fill any product areas through consolidation. We want to grow organically. In Portugal, we have a great operation. We have a lower market share, but actually a business that is growing even faster than the Spanish one. So we're very happy with what we have. And what we see is increased value creation by combining the engines and the way we do business between Spain and Portugal with the whole, obviously, autonomy that BPA has because it's a great Portuguese and it needs to say as a Portuguese bank. And we're not seeing value creation in cross-border, to be honest, this is sort of a discussion that takes a very long time, but we don't see synergies. And as we look for shareholder value creation, we do not think we're going to find it in cross-border M&A. The U.S. is certainly even further away for us from the point of view of M&A, absolutely no interest there. Still it's a market where, obviously, we bank with many U.S. companies that are mostly operating in Europe. It's a market that we follow closely because it's relevant for the whole world. Operator: Next question is from Borja Ramirez, Citi. Borja Ramirez Segura: I have 2. Firstly, on the NII guidance, I would like to ask if you could provide the assumption on the deposit hedge growth? And also this EUR 10 billion of deposit hedges, could you remind me on which interest rate they have been acquired? And then my second question would be on the SRTs. If you could remind me what is the expected delay benefit and the fee cost, please? Matthias Bulach: On the deposit hedge growth, we don't give a specific guidance on what the volume is. But structurally thinking about what we should be doing is, obviously, we are adding, let's say, nonmaturing deposits on our liability side. And by the way that we are adding those nonmaturing deposits, we need a natural hedge on those, either through increase of the mortgage -- fixed mortgage portfolio, for example, or other fixed rate assets in the loan book or if that is not enough, then in order to manage the 7.5% sensitivity, obviously, other types of instruments should be used, namely being either hedging our deposit base or investing into fixed rate assets. So structurally, I would be thinking about the evolution that you're putting into your model in terms of noninterest-bearing deposits, which is our fixed rate liability side and then a combination of investing into fixed income assets, both on the loan side as well as on either of the 2 instruments, fixed income portfolio on the ALCO book or structural hedges. And -- sorry, on the interest rate acquired in the -- we do disclose the detail of the information of the next actually 4 to 5 years of the maturities of the ones that we acquired. So you have a very detailed portfolio evolution of those. Obviously, in the moment we acquire, as I said before, we typically tend to invest a little bit more long term when it is ALCO book and fixed income portfolio and a little bit more short term in duration when it comes to hedges. And this is already obviously then already -- and you can see that in the differences of those maturity rates that we have in the Page 30 of the disclosure. Marta Noguer: And then the SRT, Matthias mentioned that before, but it's also in the presentation, it's minus EUR 12 million in the fourth quarter and minus EUR 36 million for the full year '25. So for the cost of SRTs in the fees. Operator: Next question is from Miruna Chirea, Jefferies. Miruna Chirea: It was on costs, more specifically on your investments in digital. I think 1 year ago at the Investor Day, you were talking about EUR 5 billion of total investment in digital over '25, '26, '27. Could you remind us, please, what is the phasing of this in each of the 3 years? And how should we think about investment in digital going forward? So what is the run rate from 2028 onwards? Gonzalo Gortázar Rotaeche: Run rate from '28 onwards, we will obviously explain at the time. There's no decision made. But clearly, the effort that we're doing with '25 to '27 is a special effort that is not something we're going to repeat or planning to repeat in '28, '30. But again, specific numbers, we need to wait. And in terms of the breakdown of that investment, I think there's no change from what we said. But Matthias, do you want to... Matthias Bulach: Neither change in the breakdown nor on the phasing in of that. Obviously, there's a certain ramp-up phase when it comes to the investments in the first year in terms of incorporating the staff and incorporating the workforce that we wanted to incorporate, and this is obviously a phasing. On the other hand, there's a certain front-loading then with expenditure with our partners. So I would say the most reasonable assumption is that is in that 3-year horizon, rather stable in terms of investment needs over these 3 years. Marta Noguer: Okay. Operator, I believe we have time for one more question, please. Operator: The last question is from Lento Tang, Bloomberg. Lento Tang: I have 2 follow-ups, please. The first question is on structural hedges. On Page 30 of the slides, you have this maturity profile. In the past few quarters, they were mainly added in the second quarter of '27 to the third quarter of '28. But this quarter, you added significantly in 2029. So just wondering if you could give me your thought process why the change? And the second one is on SRT. So you previously guided EUR 6 billion by 2027. I just wonder if you have any change of view there given some of your peers have ramped up activity there. Matthias Bulach: Starting with the second one on SRT. We guided for the EUR 6 billion gross issuances by 2027. And as I said before, loan growth is stronger. We expect now 6% performing loan growth with respect to 4% that we expected in the strategic plan. So there will be an uptick most probably of volumes. We don't have a specific updated number on those as we will be making that dependent on market conditions. We want to be active in that market, but we also want to be very sure that we well manage maturities that we will manage the reinvestment risk of those and obviously, that we -- to some extent, don't go crazy about it in the sense of adding too much reinvestment risk in our CET1 capital ratio. So yes, expect us to be more active in that market, expect us to add some billions on that target, but not excessively neither. And on structural hedges, as I discussed before, we are typically taking those decisions to a certain extent on an operational basis each quarter when we see what is the interest rate curve environment, we are updating our business volume forecasts, obviously, into that 12- to 24-month horizon, which we are managing our sensitivities. And then depending on the structure of the curve, depending on the structure of the sovereign spreads, we are managing that more on an opportunistic basis. There's no such a very predefined strategy other than, as I said, on the long tail of the curve, we tend to be in fixed income instruments and for the rather short term, we tend to be in deposit hedges. And then we will be deciding quarter-by-quarter depending on business outlook and market conditions. Marta Noguer: Okay. Thank you, Lento. So that's all we have time for today. Anyone left out the queue, IR team will contact them later. Thank you all for joining us. Thank you, Gonzalo. Thank you, Matthias, and bye-bye. All the best. Gonzalo Gortázar Rotaeche: Thank you very much.
Joost Uwents: Good morning. Wolvertem calling. Welcome team WDP wherever you are in Europe. Welcome also to the readers of the TET and LeKo and of course, welcome to our investor community. And I think we can say it's a good morning with the happy team around me for the Presentation of the full year results, '25. If we look to, let's say, other operations and the operational results, we can say, we delivered again a clean sheet with an EPS of EUR 1.53. It's an underlying growth of 7% year-on-year, an occupancy rate of 97.7%, more than 0.5 million of square meters new leases, a portfolio growing to EUR 9 billion, all backed by a perfect balance sheet with a loan-to-value of 40% and a net debt to EBITDA of 7.5. And as an [ exam ], we could indeed -- we can also use our balance sheet now as a real value enabler with our new rating, our A3 rating of Moody's, which gives us a top 5 balance sheet within the quoted real estate world in Europe. And if we look then a little bit close into our operations, we can really say that we did a perfect job. About 550,000 square meters of new leases, we can say that the WDP platform can capture market demand more than our market share. We secured EUR 600 million of new investments at a net initial yield of 6.8%, which means also that we could keep our investment pipeline in execution at a very high level, up EUR 700 million with the same expected net initial yield. And of course, for all this, the funding is in place. So we can really say that we are in full execution and fully on track to reach our EUR 1.7 EPS target for '27. So yes, indeed, we see the EUR 1.7 in '27 at the horizon, and we are fully on track. Yes, we still have to lease further and to execute our investment pipeline, but we see that most of our new initiatives are already looking beyond '27 and are value creating beyond '27. So this makes that we have to look further and that we are ready to extend our horizon. So yes, we extend our horizon to 2030 with a clear goal and a clear focus. Our goal is to scale into an integrated EU platform, providing total supply chain infra solutions with our classical focus, delivering above-average growth with below average risk profile. And this brings us to BLEND&EXTEND2030 as from now so much more than just a financial hedging project, it becomes a real plan, a real plan based on our proven building blocks, yes, built. Yes, there is structural demand and we are able to capture it. Yes, we will continue to load it with selective acquisitions, new developments in existing and in new markets like Spain and Italy. Yes, we still can further extract value from our internal, from our existing portfolio with indexation, rental growth and active asset management. Yes, we will neutralize further by adding total energy solutions and keep on decarbonizing the logistics supply chain. And yes, of course, we will stay disciplined. What do you want with Mick. Besides me, I have to stay disciplined and create value with risk-adjusted capital allocation. So a proven, scalable, multi-driver model that brings us and let us grow further into the future. Mick? Mickaël Hauwe: Yes. Thank you, Joost. Now how does that strategic picture translate into our target setting for BLEND&EXTEND2030. We believe that we can continue the envisaged EPS growth rhythm of our '27 plan and roll forward the attractive plus 6% average growth rate towards 2030 translating into an EPRA EPS of at least EUR 2 by 2030. Also, considering that we already generate a very high recurring cash return on equity of 7%, 8% to start with, even with a minimum portfolio revaluation of just over 1% per year, we believe we are set for double-digit total returns throughout the period of at least 10% per year, measured as NAV growth plus dividends paid. The key assumption here is that we have a fully internally funded EUR 500 million CapEx per year. Why EUR 500 million? Because that way it is designed to be independent of external equity raisings considering the higher cost of capital versus the past so we can make the 5-year plan fully internally funded, which we believe is a very strong message and attractive. How can we do that? Well, we have a recurring yearly strengthening of our equity of EUR 250 million to EUR 300 million being a combination of retained earnings, stock dividends and the regular contributions in kind. Hence, that should enable us to achieve that growth and maintain a stable capital structure with net debt to EBITDA staying around 8x and a loan to value around 40%, fully in tune with our top-tier A3 credit rating. On the next slide, you can see our multi-driver approach at work. As we have been seeing over the last couple of years, we have adapted ourselves to the current environment and a more complex world and the way we create value. And what we try to do is build layers. We have a first layer of internal growth coming from indexation, rent reversion and active asset management initiatives, then we add the impact of external growth, a balanced mix between acquisitions and developments, and we add another layer of our energy investments. And yes, we can cope with the cost of debt reset, which is manageable and only gradual and for which you can find more details in the remainder of the presentation. But combined -- and that is important, it gives us an average plus 6% throughout 2030, leading to, as you said, above average growth for the below average risk. Now turning to the outlook for '26. We have an EPRA EPS guidance of EUR 1.60. So that's 5% growth year-on-year with the key underlying assumptions being in tune with the drivers just mentioned, a combination of internal and external growth. And that's important as well, operational and financial KPIs staying strong with occupancy rates above 97% and in line with the long-term average and also with stable leverage metrics. This figure is also looking robust already now at the start of the year as most of the work has been done, and our teams are now working in full force to get to that finalization of the EUR 1.70 in '27 and are very eager to start the work for the 2030 plan. Joost, over back to you. Joost Uwents: Thank you, Mick. So we can say that we are ready to build the platform of tomorrow from a regional leader in the past to a core EUR 10 billion plus European platform, where we can use our scale in order to help our clients with cross-border solutions. We can do it efficient and profitable. And so enabling total returns and indeed, very important for us as a real estate company, this gives us a superior access to capital. And for this growth, we will be supported further by the next-generation of the family, De Pauw, who showed again their long-term commitment as a reference shareholder by appointing 2 new directors in our board. And besides this, we're also strengthening our Board with more international knowledge. And this is also important in order to become a real European player. So yes, indeed, we are ready for delivering today with a vision for tomorrow. And this all will generate an above-average growth with a below average risk profile. And now I will give the floor to Alexander in order to answer all your questions. But before we do that, we give you just a little overview of some recent real estate projects. See you in a minute. [Presentation] Alexander Makar: [Operator Instructions] Before we address the questions, maybe the first important one, Joost, what's your take currently on the market? Joost Uwents: Indeed, I think the first question of you all is still demand. And there, we can be -- give you -- we can give you a clear answer. But more than 0.5 million of square meters new leases in '25, a normalizing occupancy range between 97% and 98% and a normalizing retention rate around 90%, we can say that demand for logistics real estate in Europe is normalizing from the exceptionally high during the pandemic years towards the multiyear pre-pandemic average with the market balance gradually improving as tenants optimized their inventory and operations and new developments remain disciplined. Why is the pickup of market demand still depends on consumer spending and business confidence? The last quarter, we really witnessed an improving leasing momentum by our commercial teams. Of course, demand is still more dynamic for smaller and high-end units up to 10,000 square meters, but it is now also selectively extending into larger-sized units, mainly for those clients that are able to take strategic decisions in the still volatile world. And this is an important sign. And more recently, we even see some cautious, bigger tenders in the market again. Demand is mostly originating from specific sectors, such as food, pharma, e-commerce as well as strong performing companies expanding their market positions. Our commercial platforms remains well positioned to capture that demand. Considering our high-quality portfolio, it's about having the right building at the right location besides, of course, our deep-rooted international network and our flexibility to adopt buildings to meet the client needs. Looking ahead, the medium- to long-term fundamentals for logistics and industrial real estate remains positive, underpinned by limited land availability, constrained supply and the continued need for more resilient and regionally diversified supply chains. As I said in my intro, a resilient supply chain is not a nice to have, it's essential infrastructure. Alexander Makar: Thank you. The first question is coming from Marios Pastou from Bernstein. Marios Pastou: Perfect. I do have two from my side, I'll ask one by one. So just firstly, on the capital allocation across our country mix, can you maybe give us an idea of the order of priorities as part of your plan 2030. Will France and Germany be a priority, for example, as that's been your target for the last couple of years. The Germany hasn't really ramped up yet? Or will his be purely opportunity-driven? Mickaël Hauwe: We never give that split of our intended capital allocation because the moment we say X, the next day, it will be Y., but so it will be a balanced mix across the geographies and yes, if we can do something more in the new markets, then it's always a plus of course. Marios Pastou: So this is not purely opportunistically driven. There's no kind of priority in terms of which market to enter. Mickaël Hauwe: Where we can generate the value measured as EPS growth with a good long-term solid total return. Marios Pastou: Okay. Very clear. And then just secondly, in terms of the establishing the presence in Spain and Italy, are you looking land bank. Are you looking for existing portfolios with upside potential? And maybe give us idea of how many opportunities you're currently tracking there? Joost Uwents: Well, I think there, we will look as to those countries as we did in the past and as we do in every other country. So we will go -- first, let's say, there will be 1 difference. Before we always said, we need first the portfolio and then we go for a team, and I think we learned from Germany, which is, of course, a very difficult country that it is better to have first a country manager than letting them make a plan and then indeed starting it. So we will first go for country managers, letting them make a plan, and then we will go into the countries with a plan and that will depend on -- and it will always be a combination like in blend. Yes, we will look for existing portfolios. Yes, we will do the developments. And it's all based on with what can we create value that can be with an existing site, with a development, it will always be the combination. That's the reason why our plans are called blend, a combination of internal and external growth. Alexander Makar: The next question in line is from Suraj from Green Street. Suraj Goyal: There's a couple of questions from me, I'll also do it one by one. First one is, I guess you touched on it a little bit, but just on the desire for a presence in Spain and Italy. I appreciate you can't necessarily give any sizing by 2030, and you did touch on your approach. But just taking a step back and thinking higher level, what's kind of drawing you into these markets, what do you really like from a supply and demand perspective? Joost Uwents: Well, I think, first of all, we add them to the portfolio because it's logic. We come from the Benelux added France and Germany and then we go down so that we can offer better more international solutions to our clients. That's the first idea. And then for the rest, yes, it will indeed depend on opportunities and possibilities. And yes, it is part of the 2030 plan, but within the capital allocation of the EUR 500 million per year. Suraj Goyal: Perfect. Very clear. And just a second one, again, it's quite broad just on the Benelux as a whole. I know you mentioned the demand drivers earlier and occupancy has been increasing within your own portfolio. Do you think the vacancy has peaked for a wider market within the Benelux? And what are your thoughts for future rent growth? Alexander Makar: Yes. Suraj, maybe just a small add-on on the overall market. So what we basically have seen over 2025 is a bottoming in take-up levels over the first half of 2025. Q3, Q4, that data that is still out, you currently see a quarterly take up in most markets, and that's in our core markets as well as in Romania. When it comes to vacancy, stabilizing between 4.5%, 5%. What you, every now and then, see is when you look at the key figures of country level, you might see an increase in outlier in France, for example, 6% or in Netherlands. It's around 5%. But when you look through to micro levels, you typically see that, for example, in the Randstad, it's closer to 3.5%. So there, we actually see that the underlying vacancy is also very low. And as Joost already mentioned, it's also supported by land scarcity, permitting grid connection, which is also creating challenging times to add new space. So that's in terms of the spot vacancy that we see in the existing markets. When you then look at new construction starts, it's also broad-based down with 50%. Typically, you have closer to 5% of total stock being delivered every year, that's already down to 2.5% as well. And it's also 80% plus pre-let. So that's in terms of vacancy and in terms of rental growth. Mickaël Hauwe: Yes, on the market rental growth, we think the most logical picture would be that -- and the logic that in last year was a bit more difficult markets that it stayed flat after years of a very strong increase. The good thing is that we can really achieve those ERVs. And in some cases, we can also improve them by improving further the buildings. And the most logic thing would be when the markets as we expect starts to further recover that ERVs would first grow back in line with inflation. And then afterwards, in the mid- to long term, they would grow with inflation plus given the scarcity element and the importance of having lands and also now more and more power available. Alexander Makar: The next in line is Wim from KBC Securities. Wim Lewi: Yes. Congrats on your BLEND30 programs, especially in these uncertain times come out with such a long-term view. I also got one question and a small follow-up. My question is really on the internal financing. And I fully understand that you now give an outlook of EUR 500 million CapEx, mainly internally financed. Now although the market I believe is expecting because of your premium [indiscernible] to NPA that you might consider also rating equity. Now Joost answer to this, and I've heard many times is that, and I think also Mick mentioned that in the presentation, your cost of equity is too high. Recently, you had participated in the Catena issue. So my question really is how much do you see or do you need your cost of equity to decline or your share price to increase before you start thinking of, let's say, becoming a bit more aggressive on raising equity and maybe then growing also faster in certain regions that you've been eyeing or where prices have been too high. Mickaël Hauwe: Well, that's something we will not comment on, Wim, because then we start the speculation. We think the most important thing is, Wim, that we can have the internally funded CapEx of EUR 500 million per year and that we can achieve 6% growth to at least EUR 2 per share. And yes, if we see attractive opportunities generating a return above our cost of capital at that moment because cost of capital moves every day, interest rates moves, share price move. And then we will, obviously, when we see an accretive opportunity, we will not hesitate to use our share like we have done in the past when needed. But the most important thing is we can get to the EUR 2 fully internally funded. And also do not forget that we manage -- do not forget that we manage the capital structure on a forward-looking basis. And so with the EUR 250 million to EUR 300 million of equity coming in each year, already reduces without investments 3% the loan-to-value and 0.5x the net debt to EBITDA. So that's a very strong machine we have going on. Wim Lewi: Let me try it another way because I fully appreciate that you want to avoid speculation, but there is now exact speculation on something that might come where you think differently. So as I reiterate it, so you recently participated at Catena. Can you confirm that your cost of equity would be around the same of Catena data that... Mickaël Hauwe: But I don't think the link to Catena is really of importance. We supported Catena as a reference shareholder and maintain our 10% strategic stake, and we support the company, which is doing very well. And with respect to WDP and equity raising, I will quote what the famous Belgian politician once said, "we will deal with it when the opportunity arrives and then we will look at what our return on that acquisition is versus our cost of capital at that moment." Joost Uwents: And that's what Catena also did. They had a big opportunity, and then they looked at it and then they use -- let's say, based on the opportunity they had, they raised equity in order to make a creative deal. That's it. Wim Lewi: Okay. Let's -- just for a short follow-up. You also mentioned contributions in kind. Can you give an indication of what size that could be? Is -- are you thinking EUR 20 million, EUR 30 million, EUR 50 million max or could that be also a bigger size? Mickaël Hauwe: No. For the EUR 250 million to EUR 300 million per year, we have around EUR 100 million of retained earnings, EUR 125 million coming from the stock dividend and EUR 70 million, EUR 75 million of contributions in clients like we do each year, around EUR 50 million per year. Alexander Makar: The next question is coming from Jamie from [indiscernible]. Unknown Analyst: Congratulations on the results and thanks for the update. I have just one question. What occupancy assumptions are embedded in the 2030 EPS target and how sensitive are these to occupancy falling given you're already operating at high levels today? Mickaël Hauwe: Well, what we foresee in the BLEND2030 plan is that the occupancy stays around these levels and above 97%, which is normal and fully in sync with the long-term average. Alexander Makar: The next one is coming from Pierre-Emmanuel from Jefferies. Pierre-Emmanuel Clouard: Actually, the first question is a follow-up of the previous one. So on the 2% like-for-like rental growth that you're targeting for 2026, so first one, how much is coming from indexation and reversion on top. And if I'm looking at your 2030 target, what is the average like-for-like rental growth that you took at the main assumption? Mickaël Hauwe: Yes. So on the like-for-like breakdown for '26. So you know we have a guidance of like-for-like rental growth this year of around 2%. And the composition is that the inflation component indexation is a bit less than 2%, and then we had 50 basis points through the rent reversion and then minus 50 -- around minus 50 basis points due to the occupancy rate, and that is solely linked to tenants moving in and also a bit of frictional vacancy because yes, we were used to fantastic pandemic years where when a tenant moved out, then the next -- there was the next tenant coming in, and the rent just continued. Now you have just the normal typically -- typical short void periods like you have in a normal market like in the past and actually going towards that 2030 target, the organic growth we foresaw is pretty much the same as in '26, apart from the occupancy part, of course, and that we can then have inflation plus -- capture inflation plus with 2% average indexation, and we can capture per year around 50 basis points of reversion above indexation. That's the assumption in the 2030 plan. Pierre-Emmanuel Clouard: Okay. That's clear. And my second question is on the vacancy for 2025. What would have been the impact on vacancy if you would have kept the empty assets that you sold at the beginning -- at the end of the year -- of last year. And on top, can we expect more disposals of empty buildings in order to keep the vacancy below 3% in 2026. Mickaël Hauwe: The first one, I'll take that one. Joost, the second part, the impact was around 30 basis points. Joost Uwents: And concerning, let's say, we are always looking for the best value creation and doing good asset management indeed, normally, we don't sell assets. But sometimes, when it is -- let's say, when you can do an interesting deal, we are always open when, let's say, it creates value for WDP. Like, for example, at the end of last year, there, we could sell -- okay, it was a big unit, but it was a small unit in the bigger port of Liege, where we have, let's say, a very small position where -- we're only the third player on that side. So there was not -- we had not a lot of power to create value and then we could sell it to the neighbor. An example of a strategic buyer who said, "look, this is probably a once in a lifetime moment. So I'm ready. And I, of course, will have to pay the right price." But when he pays the right price, we said, okay, you can have it and you can buy it instead of renting it and then we could directly reinvest it from local Port, the Port of Liege towards the Port of Paris with a new strategic investment and a new strategic client Seafrigo. And yes, if we can do similar deals in the futures, we are always open for that, but always with the idea that it has to create value for WDP and not just selling a building because we want to sell something. We don't need to sell anything, but active creative asset management, we are always open. Like I said, sometimes you need to be creative and sometimes also a little bit contrarian. Pierre-Emmanuel Clouard: Understand. And just a quick follow-up. In your 2026 guidance of vacancy below 2%, does it take into account potential disposal of empty buildings? And on top, maybe it would be interesting to guide us through the lease schedule in 2026, how many leases are at risk, how many tenants are -- may leave in 2026? Joost Uwents: Yes, we are back at a retention rate at a normal retention rate of 90% and today, from the 10% tenants with a break in '26. There is already, let's say, almost 2/3 are already prolonged. So -- which is more than the -- the long-term average of 50%. And now there are no further, let's say, sellings of buildings foreseen in the plan in order to keep the occupancy high or higher. Alexander Makar: The next in line is Francesca from ING. Francesca Ferragina: I have just a couple. The first one is about the assumption that you took about the cost of debt over the 2030 plan? The second one is about the... Joost Uwents: One by one. Mickaël Hauwe: One by one, please. Yes, for the cost of debt assumption, we took into first for the base rate, the forward interest rate curve. So with Euribor rising from 2% today to a bit less than 3% by 2030 and the swap rate rising from 2.5% to 3%. And then with the margin added, we are below 100 basis points, which is what we currently pay for 5 to 7 years debt. That's the assumption. Francesca Ferragina: That's fine. So I move to the second question. How much of the [ EUR 1 billion ] in investment spending that you have for 2030 is going to be devoted to the Energy division? And what type of hypothesis you took behind this type of investment? Mickaël Hauwe: Yes. So the -- for the Energy division, it's a bit less than 10% of the EUR 500 million per year, so around, let's say, EUR 40 million per year and it's composed of the further rollout of our solar panel program and will go to 350-megawatt peak by '27. And there afterwards, we -- it will further grow in line with new development projects. Then secondly, we have the on-site batteries we are installing. And then we also have by commissions, by '29 a big stand-alone battery projects for which we just obtained the grid connection, which you can see on this slide in the green area. And that's the bulk of those investments. And then we will also add some first pilot projects in EV truck charging in mobility hubs as it is foreseen that our clients will and transport will change towards electrification. But there, it's too early -- already too early to make bigger assumptions on that because of what is happening now in the world around geopolitics, energy, self-sufficiency. So we believe that, that could come for a later plan. But that is the assumption we took, and you should take into consideration as there's profitability of solar panels then, let's say, 8% IRR, 10%, 15% yield on cost for the battery, it's around 15% IRR and 20% yield on cost. And those elements should bring us to a doubling of the revenue towards EUR 50 million in 2030. So I hope that's sufficient color. Francesca Ferragina: Yes. And then maybe my last question in the development costs, an important part is the [indiscernible] development project, development pipeline. Can you share your feeling about development cost for [indiscernible]? Do you -- do you experience any [indiscernible] about the overall operating...? Mickaël Hauwe: Well, we would say that over the last years after COVID, they have declined towards a level which is now broadly stable depending a bit on where you have -- how much work the construction companies have or per project or how big it is, but in general, they are okay and stable. And we can generate -- we can with those with the current construction cost, we can generate the targeted returns and let's say, the most distinguishing factor to achieve return -- the desired return on a development project is the availability of land, the cost thereof and the availability of power. These are the most important determinants of a development project today, right, Joost? Joost Uwents: Yes. But the good thing is that, let's say, we can create value with a combination. It's not only that we need developments to create value or that we only can buy. No, it is the combination. And you can do an acquisition. And based on that acquisition, there can be an extra development. So it's really -- the value is in the combination. It's not about developing or doing acquisitions or entering a new country. No, it is that combination, that blend element, that is really we blend everything and then we can create value. That is the most important future looking. Alexander Makar: The next in line is Paul from Barclays. Paul May: Thanks for presentation. Just a couple of questions from me. Just first one on the depreciation of the solar and other energy. I think currently running about 45% of the revenue is depreciation, which given there's arguably 0 value on solar panels are used up and batteries are used up. Surely, that is a cost that should be included in your analysis and probably shouldn't be added back when looking at your net debt to EBITDA just rather you're only taking 100% of the positive and 0 of the negative in your debt metrics. So I just wonder your thoughts on that and how that is included and you talked about in your plans? Mickaël Hauwe: Yes, it will be reflected in the end in our balance sheet as these investments come in the balance sheet at their fair value as they are for the property. And we believe the income -- the recurring cash income should be included in the EPRA -- in the EPRA earnings and also to take into consideration that the solar panels last a long time in the last 20, 30 years; batteries, 15, 20 years, depending on the intensity of the usage. But if you use them faster, then the income will have been higher as well. So yes, there is no land component like in the buildings. But yes, buildings are, in essence, also depreciating and we take the view that, that is more a revaluation component, and that will be reflected in the balance sheet rather than in our EPRA earnings. Paul May: Okay. I mean it's quite different given the 0 value, but that's fair enough. Just coming back on the leverage question, leverage continues to increase, which is sort of counter to what we're hearing most investors want companies to do. They tend to want leverage to move in the right direction rather than the wrong direction there, which is the way you've been going. I appreciate your comments around the cost of equity, but have you or the Board considers it -- looking at your company more in the U.S. way, so looking at implied cap rates rather than necessarily a made-up cost of equity, which nobody really knows what the answer is. And if you compare you to Catena, for example, you're trading pretty much exactly the same implied cap rate and yet you are happy for them to issue equity but not happy to do ourselves other than a payment in kind, which is an issue of equity or a scrip dividend, which is effectively an issue of equity. So just wondering why you have a different view on sort of your equity to Catena or others? And why not looking at it from an implied cap rate basis? Mickaël Hauwe: Well, we look at it from an implied earnings yield, so in first price earnings perspective, because that's the metric we need to look at to generate earnings per share growth and then it will simply depend on the opportunities. We will not -- we have not said we won't do it, we said if we don't need it for executing the growth plan, which we believe is a fantastic statement and reassuring also for you, the investors, that it is self-funded to achieve already 6% growth throughout 2030. And we have said that we have -- when we see attractive opportunities, generating an accretive return above our cost of capital, then we will not hesitate to use the share. That's how we are in it. Joost Uwents: And the cost of equity between WDP and Catena, there is a big difference still today. We are at a 7% earnings yield and Catena was at or is at a 5.5%, let's say, cost of equity. So there is still a big difference. And so then indeed, they have a better cost of equity and it was in combination with an opportunity where they could create value. So there, let's say, we followed, and we also say indeed that, that was a good deal and the right moment to do that. But it's really still the difference in cost of equity is still very big, and we are still below the sector average, while price earnings are today at 17 around for our sector, and we are still around 14. So our cost of equity is still higher. Mickaël Hauwe: Yes, and we are aware about the comparison you mentioned that we are a bit higher in leverage than our U.S. counterparts, but then on the other hand, we are much lower in a debt-to-EBITDA, which is the metric that matters in a European perspective. And also, we believe that having the A3 rating also gives us somebody to -- as in a story an act of confidence in our balance sheet strength towards the generalist investors and also do note that our balance sheet is still based on values per square meter less than EUR 1,000 on average. Paul May: I hear that. I mean, I think, surely, that looking at it from an earnings yield basis, you should adjust for your current cost of debt, which is lower than it than marginal whereas Catena is more in line with marginal costs given the variable exposure. So that's a large reason why they have a lower earnings yield than you do is that their debt is already repriced, whereas your debt will reprice at some point in the future. Hence the reason looking at on an ungeared or implied cap rate basis where you're basically trading at the same level. Let's say, a U.S. company would be looking at your equity and saying, issue equity every single day because it's cheaper to use your equity to buy assets. The market is overvaluing you on an implied cap rate basis. I think your equity is cheap, by the way. So as a separate point, hence the reason I wanted you to... Mickaël Hauwe: We agree to disagree. That's no problem, and we appreciate having exchanging the opinions. Alexander Makar: The next in line is Fred from Kepler. Frederic Renard: Just a question on my end. Maybe the first one, can you describe a bit the evolution of the ERV in your respective market, please? And how do you see it evolving in 2026 and just to link on that, you described an uptick in leasing momentum, also potentially for larger unit. Do you see more incentive to be given? That's the first question. Mickaël Hauwe: I think on the ERV, you answered it. So short term, it was flat. And now as the market starts to pick up again, we believe it will move back in line with indexation and in the mid- to long term inflation plus because of the scarcity element and then on the leasing momentum. Joost Uwents: Indeed on incentives, we can say that it is not a matter of pricing, so not a matter of incentives, it's about, am I ready to jump, do I meet that building? Do I can create value? Our clients also have to create value in by renting a building? Can they use it in a positive way and let's say, when they say, if I can use it, then let's say if they pay the price, there are not so many possibilities most of the time in the building they want on the location. So it's not a price discussion on the contrary. And I would say it would be only a matter of incentives I give for every empty building, 3 months' rent free and if everything would be rented, then I'm a happy man, but it's not the case. It is, am I ready to jump and then people pay the price. And indeed, most of the time, those prices are higher than the tenant who was in before. So everybody accepts the new price levels. Frederic Renard: All right. And then the second question on Catena. What has the company brought to WDP excluding dividend since you have this 10% stake? Because it seems that -- I mean, to refer to the question of Paul, but the company trades at a higher multiple than yourself, which means isn't there a better use of your capital allocation today, just wondering? Mickaël Hauwe: We believe it's a strategic stake and are very happy with that. The company is performing very well as said, and we are happy with that long-term strategic stake because we could never cover that -- those markets by ourselves, and now we can also offer solutions in other countries through Catena, we can help and reinforce each other. And we recently also did a deal with ... Joost Uwents: Indeed. And I think now, I'd say we did that not as a short-term opportunity, but as a long-term partner in order to be able and to become, let's say, a company that can offer solutions, let's say, from Stockholm and soon from Helsinki up to Madrid and Rome. So then we can offer to our clients total solutions on a whole Western Europe. This is important, and it is over the short-term cycles. And indeed, for example, the deal in Le Havre with Seafrigo, well, that was also, let's say, Seafrigo is a client of Catena before. And so Catena could introduce us and there, we could use the combination of clients, for example. And for us, it's really about long-term helping clients and giving -- being able to give a total solution to our clients and core Western Europe. Frederic Renard: All right. And therefore, does it mean that if you find, for instance, like company in the private market, which is active in Spain and in Italy, would you be happy to take a minority stake in order to invest indirectly into the market? Mickaël Hauwe: No. That will not be the case. Joost Uwents: No, there we really set... Mickaël Hauwe: We said we do it by ourselves. Alexander Makar: The next question is coming from Steven from ABN. Steven Boumans: On a specific question on Le Havre where you added investments. Any comments on the region and more specifically on where we are with permitting for your land there. And we have this project contributing in '27 or in 2030 and adjacent to it, do you see risk on permitting as a result of the coming regional elections. Joost Uwents: Dunkerque, yes, there, let's say, we are still waiting for permits. We have had a problem with the permitting time due to a bird like it sometimes happens when their strikes down a bird during the right period, you can do nothing. They have to investigate. So we got a longer option. And normally, but yes, in France, it can take a long time. We will -- we should get the permit, let's say, by the end of the year. So it will take still a long time. But in the meantime, of course, it is only an option, and we are not owner of the land, so it doesn't cost us anything. But that's just -- there is no specific reason that just the normal procedure in France, it takes 2 year to get your permitting and here due to the bird, then it will be 3 year, but that can also happen, let's say, in the Netherlands or other regions, yes. Permitting is taking time everywhere. Steven Boumans: Any potential risk of the local elections, could that be risk in your view? Joost Uwents: I think no, not really. I'd say there are always everywhere elections in Europe, there has been elections that are also elections, if I'm right, in the Netherlands and in France. And -- but let's say, logistics is not politically sensitive, it is a strategic sector, the strategic infrastructure. So let's say, we don't depend on, let's say, the local or more political waves. Mickaël Hauwe: And we also invest in industrial zoned land. Alexander Makar: And then we have one more question from Alex [indiscernible]. You're currently unmuted. Just for the other questions that are in the activity feat in the chat. As we try to respect the time, it's getting close to 11:00, we'll address them, but we'll reach out to you directly. The floor is yours. Unknown Analyst: One question on the scrip dividend. What's your assumption in your EPS growth target there? Mickaël Hauwe: Yes, that we do it in line with the historical of minimum 50% take-up rate. Alexander Makar: All right. Thank you very much. So this currently concludes the Q&A asset. We'll address the other questions in the chat directly. Any concluding remarks, Joost? Joost Uwents: Yes, of course. Thank you, Alexander. And to conclude, I can say that indeed, and thanks to our platforms, our strong fundamentals and our DNA of being effective, creative, entrepreneurial. And now and then a little bit contrarian, that DNA that Tony and I created together the last 25 years, well, that DNA makes that we can deliver today with a vision for tomorrow. So we are ready and looking ahead to 2030. Thank you all, and see you soon.
Marta Noguer: Good morning, and welcome to CaixaBank results presentation for the fourth quarter and the full year 2025. We are joined today by our CEO, Gonzalo Gortazar; and by Matthias Bulach, our Chief Accounting Management Control and Capital Officer, who also sits at the Management Committee. Our CFO, Javier Pano, is temporarily away on sick leave, but he's recovering well and expected to return shortly. In terms of logistics, same as usual, we plan to spend about 30 minutes with the presentation and about 45 minutes to 1 hour with the Q&A. The Q&A is live, and you should have received instructions by e-mail on how to participate. Needless to say, my team and I will be at your full disposal after the call. And without further ado, Gonzalo, the floor is yours. Gonzalo Gortázar Rotaeche: Thank you, Marta, and good morning, everybody. Thanks for taking the time. And I will start with the highlights as it should be the case. A very good year for us. I think when I look back, it's probably the best year over the last 12, 13 years since the great financial crisis. And it is because we're really seeing a very balanced growth in the activity. Obviously, NII has recovered from June. And this quarter, you see again a 1.5% growth. But when I see a balanced growth is really that we are seeing volumes pretty much at 7%, both in the customer funds and on the lending side well above what we were expecting for this year, which was even at the time, you may remember when we presented the plan, it was seen as on the sort of too optimistic side. And in the end, fortunately, the economy has proved that actually that was possible, and we have our -- we have beat our targets with some ease and not just because the economy is growing also because we're gaining market share. Revenues from services are up, as we say, in line with the improved guidance. We started with low to mid single-digits growth for the year. And in the end, we have that 5.4% with a strong fourth quarter. Asset quality has been a trend for some time now, but the fourth quarter has shown an acceleration in terms of the reduction of nonperforming assets and the cost of risk has ended up at this 22 basis points. So when you look at it, it's been sort of very round in terms of capital creation, also a fairly positive year. It is allowing us to set the dividend per share, which is growing 15% and really establishing the payout at the upper limit of our 50% to 60% range. Very complete. And it also feels the year that is not just a one-off, but is part of a trend and a year which we want to capitalize on to 2026, which has started I'd say, in very -- with very good conditions and basically a continuation of what we have been seeing. Return on tangible equity at 17.5%. With all what I've said, we obviously have reconsidered our targets for now next year for 2027. I'm sure by this time now, you're all familiar with the new targets, but I think it's important to reiterate which they are. Return on tangible equity at 20%, give or take. That compares to the above 16% that we set a year ago. So it's obviously a remarkable 1 year, allowing us to increase 4 percentage points. Our guidance for return on tangible equity. And for the average of the period, now we expect it to be above 18%. So obviously, that's probably the headline, but the other important targets for us, cost income from low 40s to high 30s. NII now seeing EUR 12.5 billion as the reference figure for 2027, which means a 4% annual growth versus a flat that we had said in November last year, revenue from services and cost in both cases, we're maintaining our guidance, mid-single-digit growth for services. and 4% area for costs. Volume growth, we said 4% in the case of lending and above 4% in the case of customer funds. We're now rounding all that up to around 6% compared to that -- above 4%. And again, I think we have a pretty good traction here to be not necessarily just at or around 6%, but possibly slightly above that level. Nonperforming loans below 1.75% compared to below 2% and most importantly, cost of risk, which we feel confident now we can stay below the 25 basis points number compared to 30 basis points that we said a year ago. So this is our revised ambition for 2027 or for the 3-year period. In terms of capital, no real change, same payout, 50% to 60%, same capital target of 11.5% to 12.5% and the threshold for additional distribution, which for 2025 is 12.25%. And obviously, we are clearly above that level. And for 2026 and '27, it will stay at 12.5%. So this is a revised ambition. I'd say the strategy is very similar. It's just that we can do more, and we're obviously going to try to make it happen. Macro, we should be seeing they may be public already because I think it was expected at around 9:00, the GDP figure for Spain. We are expecting 2.9% for this year, 2.1% for 2026. I have to say this is a relatively old projection. And based on the most recent data, I think it's likely that this figure will be revised upwards, but that's subject to the information that we get on the fourth year economy for Spain. Portugal is doing fairly well, again, with pretty strong dynamics also in the Portuguese case. So we feel there's clearly some upside. In any case, since the pandemic, you see both Portugal and Spain as a very much leading growth in the Eurozone. And the factors behind that are still there. Population growth, employment growth. We had 600,000 new jobs created last year, 2.8% growth in employment, pretty impressive. Finally, the unemployment rate becoming a single-digit one, hopefully, will continue to go that way. At least that's what we are seeing an economy that is now powering ahead on the back of private consumption and investment. So the domestic strength is pretty relevant. And hence, it also gives us some protection of international environment, which despite all the risk is still doesn't look that bad either. High saving rates, growth in disposable income and a very low private sector leverage, which is still, as you see, 31 percentage points below the Eurozone. All of that gives us sort of room to grow, also comfort if or [indiscernible] if at some point, news are not as good. And the rate environment is obviously more positive than we had a year or not at year-end because our strategic plan was based on September figures as you see there. But obviously, the current yield curve is more attractive, is higher and steeper. And from that point of view, it's obviously a tailwind for our NII. So I start saying growth and had a very strong year for us compared to the previous decade, I would say. And this is why when you look at clients growing 390,000 in the year, look at market shares. And there, you have client penetration up to 40.4%, customer lending and customer deposits in both cases, 14, 12 basis points growth in market share. These are not huge growth, but with our size and also with our prudent approach, this is exactly the kind of market share gains that we're looking for savings insurance. And then on the life risk, you can see 158 basis points market share gains on the non-life. We've also had very significant market share gains across the board, really in health, in motor and in household. Now payroll deposits, very important, also up 27 basis points. So it's not only what you can see on the right-hand side, which is volumes doing very well, close to the sort of 7% area versus the 4% in general case by case, but I won't go through it because it's pretty visual for you. But it's not just volumes, it's also relative performance and market share that indicates that the organization is in really full shape with all engines working. Imagin continues to be a key part of our growth strategy, particularly in terms of number of clients, clients that bank with Imagine. They're not clients that just do 1 or 2 specific transaction categories, but have imagin as their bank. And you can see that because when you look at the business volume, it's actually fairly balanced and ample. Transformation, I talk about growth, but transformation was the other pillar of our 3-year plan. And obviously, a bit more difficult to measure. Growth is easier from that point of view. But just a few highlights, the new app, which we have deployed during the year actually gradually through small improvements rather than sort of a big one-off. And it's worked out very well because it hasn't created turmoil. The app is rated now #1 in Spain, and that includes sort of established banks and new entrants makes us obviously very happy with that, but we need to continue and we are continue working daily to make sure we keep improving it. And some of the onboarding and digital sales numbers that you see there are clearly results of that strategy. AI, we are making major efforts in adopting AI throughout the organization. Every employee has access to AI tools, namely Copilot. But we have obviously developed use cases throughout the organization in all areas. I would just highlight that we have, I think, an important progress this year when we get all commercial managers through the Salesforce platform to access AI, and that is going to lead one example to 75% reduction in the prep time for client interviews, which is obviously very significant productivity improvement. The quality, the depth of the interviews will also be improved as we obviously have more information. I didn't want to go through a very long list of things we're doing because obviously, this is affecting back office. It's affecting IT, client claims, client support, all areas in the organization. But some of these, I think, are going to bring results sooner. IT professionals, we remember in this transformation, we wanted to internalize and in-source many capabilities and that's what we have been doing, expanding our digital capabilities during last year. It's remarkable to have been able to hire 650 new IT professionals when there's obviously strong competition for talent, they like to come and work with us. And new solutions, you've seen the development of Facilitea Coches and on the car side of Facilitea Casa during this year. Both are, I think, very significant successes for us, working very well. And some of the results you see there in financing for vehicles has increased 30% this year. And we have developed this new portal with 1.6 million visits already. The cash back that we launched just in November already has 1.3 million clients. So certainly a pretty -- pretty significant sort of development of new solutions. So this is obviously something to continue for us. Lending growth, 7% on the performing side. And you can see residential mortgages, 6.5%; consumer lending, 12.4%; business loans, 7.6%, very strong growth across the board, very balanced. That 7.6% is both in Spain and internationally, but Spain is up 5.5%, again, basically gaining market share and defending profitability across the sector. And on the customer fund side, again, almost 7% growth, 6.8%. You can see that finally, market effect has been positive, almost EUR 10 billion, EUR 9.7 billion, but net inflows and growth of on-balance sheet deposits have been very significant as well. So again, outperforming, growing market share, and I'll get into some more detail, but obviously, this is a key strength and a key attraction of our business going forward. Wealth Management, we have grown net inflows almost 40%, a lot of it mutual pension funds, but also a strong performance in savings insurance with market share gains that as I said before, and basically a business that keeps doing very well. The figure for AUM at the end of December is already 7% higher than the average AUM during the year. So it gives you an indication that we're clearly seeing good potential and the market in January have been positive for -- certainly for our AUMs. Protection insurance has been stellar 13% growth. And you can see that both life risk with very strong mortgage market, but also with very strong MyBox Jubilación and our sort of stand-alone life risk products doing very well, but non-life has picked up to 11.7% as well. And here, you see on the right-hand side, precisely the gains in market share that I mentioned before in non-life and in life risk, even more significant. But it's pretty good outcome for the year. The speed at which we continue to grow this business is remarkable. And obviously, as you know, it adds quite a lot to our bottom line. And with that, comment on shareholder value creation and shareholder remuneration. Earnings per share up 5%, dividend per share up 15%, round number, EUR 0.50 per share. Look at growth in book value per share and dividends in the year, basically 16%. And obviously, on the share buyback front, we are not even half through the seventh share buyback with EUR 0.5 billion. And obviously, as our capital is at 12.56%, our threshold for 2025 is at 12.25%. We have excess capital, again to continue with this share buyback program, which, as you know, we'll announce when it is formally approved by the ECB and the Board. In the meantime, we still are -- have time before we conclude our seventh share buyback. Distribution plan for next year stays the same. The only difference is while the threshold for this year was 12.25% in capital, as you know, because of the countercyclical buffer, it will move to 12.5% in 2026 and beyond. So that's my part. And with that, Matthias, the floor is yours. Matthias Bulach: Thank you very much, Gonzalo. Good morning to everybody. Today it is up to me and to guide you through a little bit more detail on the income statement and on the main caption of the balance sheet. Starting with the income statement for fiscal year 2025. As Gonzalo said, EUR 5.9 billion of net income, up 1.8% in the year and actually checking on all the boxes of what was our guidance that we gave out and updated throughout the year 2025. NII down 3.9%, in line with the minus 4% guidance. Revenue from services in line with the mid-single-digit guidance, up 5.4%. Expenses up exactly 5.0%, in line with the guidance and cost of risk, we guided for below 25 basis points, and we are closing with 22 basis points, so clearly below that guidance with return on tangible equity standing at 17.5%, so on the higher end of the around 17% guidance that we updated. Looking into Portugal. Portugal net income reported of EUR 473 million on the back of very strong commercial dynamics, business volume up 7.5% and actually with a stronger dynamic than the group as a whole, gaining market shares across the products, but specifically on the liability side on deposits and on savings insurance, another year with strong market share gains, helping bringing down efficiency all the way to 42% on very solid levels. Profitability up to 19.2%, also above overall group levels and already a significant characteristic of BPI with a very strong asset quality, 1.5%, almost half of the sector average and with very strong coverage ratios. And that is also taken into consideration by the rating agencies, which are upgrading throughout the year or putting us an outlook positive in BPI. Moving to the typical quarterly income statement analysis, and we will be getting into the details of some of the income lines, obviously, NII up 1.5% in the quarter, another quarter of strong NII recovery. Results from services, revenues from services with a very strong quarter, up 6.3% Q-on-Q and 4.7% year-on-year, both on the back of a strong wealth management contribution, but this quarter, specifically on protection insurance, which is up 7.5% on the quarter. The expenses line down on the quarter, 0.2% to meet that 5% guidance on the fiscal year 2025. And net income pro forma the accrual of the banking levy of 2024 of a linear accrual up 5.5%. Maybe a couple of comments here on the tax line. The tax levy on the banking industry, we registered EUR 611 million throughout the entire year, which is a little bit higher than the EUR 600 million that initially we guided for basically on the back of stronger performance both in NII and in fees, and that is the basis for the calculation of the levy. And on DTAs, we wrote up EUR 171 million in the fourth quarter for a total of EUR 420 million of DTA write-up throughout the year, basically given the better visibility and the full visibility that we had in the last quarter, both on pretax income for the year as well as on future profitability, which is the basis of those write-ups. So a certain acceleration of the pace to an overall year of EUR 420 million. Going line by line, looking into NII, as I said, a strong quarter again, consolidating our recovery, leaving clearly behind the trough of NII in the second quarter of '25, up 1.5%, still obviously impacted by client yields and loan yields, which are still reducing, but on a less intensity, I would say, than the last quarters. So a fading impact from client yields compensated -- more than compensated both by a strong evolution of business volumes, both in the asset and the liability side, as Gonzalo was pointing out, and an increase of the contribution of the ALCO to EUR 45 million. We increased hedges on the quarter by almost EUR 10 billion to stand at EUR 68.4 billion, and the ALCO book was stable Q-on-Q to stand at EUR 76 billion by the end of the quarter. Customer spread down by just 4 basis points to 302 basis points if we adjust for hedges. And this is on the back of a positive evolution of our client fund costs, which go down 2 basis points from 49 to 47 basis points, again, ex hedges. And the reduction of the loan yield, as I said, is fading, 6 basis points down in the quarter to 349, and that compares to 20 basis points down last quarter. So clearly, fading impact from negative loan rate resets. Looking at the crown jewel of our balance sheet and hence, the supporting factor of that NII evolution of our noninterest-bearing deposits, up EUR 17 billion in the year, EUR 2.2 billion in the quarter with respect to -- or in contrast to interest-bearing deposits that are just up EUR 5.6 billion over the year, EUR 2.2 billion over the last quarter. The total average share of interest-bearing deposits is stabilizing at around 27%, and that is at lower levels than we initially expected in the strategic plan when we were guiding for around 30% of that share, which is now clearly stabilizing below those levels. I would like to point out also the reduction of 10 basis points of our deposit costs in that in a quarter, and I think this is remarkable, where the overnight rate actually was stable on average levels in the quarter and still the deposit cost is coming down. That means that the 50% of indexed rates was pretty stable, but the other part, which is term deposits, we still have been able to reprice them down by almost 20 basis points, leading to this 10 basis points of reduction of overall cost. So there's still some room of positive repricing downwards of our term deposit base. Moving to revenue from services. As I said, a very strong quarter and a very strong evolution year-on-year, focusing on the year-on-year, 5.4% up on the back of Wealth Management with 11% growth. Protection insurance, 4.8% up. And if we adjust for an extraordinary impact from BPI last year in 2024, that would be actually up 6.3%. And banking fees still subdued at 0.6%, but supported by CIB fees that are up actually 33% year-on-year on the full year number. So if we take only these driving forces in our growth engines, wealth management, protection and CIB revenues, actually, that composition would be up almost by 11% year-on-year. So putting a clear sign on the strength of our growth engines here. Costs, not much more to add to what was said already. Q-on-Q, stable, down by 0.2%. Cost to income remains at very low levels and is now below 40% at 39.4%, clearly below peer average in European peers and also with a much stronger evolution over the last 5 years, outperforming the evolution of European peers by 10 percentage points, as you see on the down -- on the bottom right side of the page. Moving to the balance sheet. Asset quality, very, very strong again in this quarter, down 20 basis points, our NPL ratio to 2.07%. And this is bringing forward actually by 2 years, what was our target set in the strategic plan where we wanted to be at around 2% by the end of 2027. So we're bringing forward the completion of that target by approximately 2 years, nice reduction across all the segments, as you see on the bottom left part. So there's no single segment. There's no single part of the portfolio actually that is not experiencing that positive evolution. Coverage up by 8 percentage points in the year to 77% and remarkable that we are still holding EUR 311 million of unassigned collective provisions. That is down EUR 30 million in the quarter and also in the year as in the end of the year, we've been assigning part of that provisions to specific provisions, but the bulk of it still available and still available to protect into the future and into 2026, our cost of risk. Cost of risk down to 22 basis points in this last quarter, down from 24 basis points in Q3, and that is basically on the back of slightly lower seasonality this quarter of provisions than we experienced last year. And hence, cost of risk standing at those 22 basis points, clearly below the 25 basis points that we guided for. Liquidity, I think already very structurally messaged here. Very strong LCR above 200%, NSFR just below 150%. Loan-to-deposit stable at 87% as both loans and deposits are growing approximately at the same speed and hence, loan to deposits still very comfortable, EUR 226 billion of liquidity sources with very positive comparison to peers and to peer levels as well as a very strong and stable deposit base based on transactional retail deposits and with a very high percentage of them being insured by the deposit guarantee fund. And moving typically to the annual review that we share on the MREL position, MREL standing at 28.18%, and that is 327 basis points or EUR 8 billion of M-MDA buffer over requirement mainly covered by subordinated MREL instruments, actually subordinated MREL stands above the total MREL requirement. After a year of very intense activity in the markets, EUR 9 billion of issuances across all the asset classes and 2/3 in euro, but 1/3 also in currencies that are not euro, specifically in dollars. We started 2026 already very successfully with a senior nonpreferred issue combined with the tender offer, EUR 1.25 billion of issue and EUR 0.5 billion from the tender offer, and that is supported by the positive and strong view of our rating agencies, which similar to what I explained in Portugal, actually upgraded us throughout the year or put us an outlook positive as the case of Fitch. And coming to capital. Gonzalo already went into some detail, 12.56%, 13 basis points up in CET1 and clearly above this 12.25% threshold that is in place for the end of year 2025. Capital accretion positive of 63 basis points. Organic RWA increase just 5 basis points, and this is supported by 3 SRT transactions, significant risk transfer transactions that we executed actually in this fourth quarter, impacting positively by just below 15 basis points on that caption. So positive evolution supported by market activity. Dividend accrual and AT1 coupons, obviously, then distracting 38 basis points and Markets and others coming down 8 basis points. And here, as every fourth quarter, we are updating our operational risk RWA models. That is a yearly update, and that impacts also just below 15 basis points on that part. That means that the remainder moving parts of this market and other bucket are slightly positive. On shareholder value creation distribution plan, nothing to add to what Gonzalo has been pointing out. And fiscal year '26 guidance, you've seen that all this morning already. Gonzalo mentioned 2027 view. And just to say that the 2026 view is fully consistent, obviously, in this journey towards 2027 targets. NII expected to be above EUR 11 billion. And that is bringing forward by 1 year the initial target that we had for the fiscal year 2027 clearly on the way then to move up to that around EUR 12.5 billion target for 2027. Revenue from services up 5% within that mid-single-digit range that we also are envisioning for the entire 3 years horizon. Operating costs up by approximately 4.5% after a 5% increase in 2025, 4.5% in 2026 and clearly on track, and we reiterate our commitment and our guidance of 4% CAGR for the entire 3 years of the strategic plan horizon. Cost of risk below 25 basis points on the back of that very strong asset quality and return on tangible equity at around 18% to fulfill that around 18% average return on tangible equity over the 3-year horizon and the approximately 20% in 2027. On capital targets and distribution, nothing more to add. This is all well known to you. And with that, I think we are ready for questions. Marta Noguer: Yes. Thank you, Matthias. Thank you, Gonzalo. Operator, we are ready for Q&A. So you can come in the next question please. Operator: Next question is from Antonio Reale, Bank of America. Antonio Reale: Antonio from Bank of America. A couple of questions from me, please. One on NII and one on use of capital. So starting with NII, you're guiding to be around EUR 12.5 billion in 2027, and you've added in the quarter, almost EUR 10 billion from structural hedges alone. Volumes are growing 6%, 7% a year. So just my question is, what are the key assumptions you've made that drives your NII outlook here, particularly if you could talk about rates and volumes assumptions, please? My second question is on use of capital. You are at 12.56%, just above the new go-to level, and you've been paying 100% of your excess capital out in the form of share buybacks. With the balance sheet that's growing and the returns that you're now making, you're guiding for 20% RoTE in '27. How should we think about sort of best use of capital for Caixa? What's your appetite for additional buybacks here? Gonzalo Gortázar Rotaeche: Thank you, Antonio. Let me start with the second question, and I let Matthias address the NII in some detail. There's nothing new about use of capital. You're seeing higher growth, which means obviously more capital that we can employ in the business. And as the business is targeting a 20% return on tangible equity, that's great news. Really, that's what we would like to see become -- we discussed this a year ago or become a compounder in terms of high RoTE and good growth. That's, I think, what will lead us to the best outcome for shareholders. And the reality is that as the growth is coming together with higher profitability, we still see the future as in a scenario in which we can have a high dividend per share as this year in that 50% to 60% payout, grow the business and grow faster than we were expecting at 6% rather than at 4%. But still in our numbers, we continue to generate capital. And obviously, one proof is that we already have excess capital at the end of 2025. So you know there's sort of cash in the bank for further share buybacks already. And going forward, we continue to see that despite higher growth, we will be generating excess capital between our targeted levels. Now we'll continue to monitor developments. We are using slightly more intensively SRTs as well. Matthias mentioned that we had some positive impact in the fourth quarter that will continue to be there. So no change in capital. This is higher growth, higher profitability, but also higher capital available for shareholders. So it looks too good, but it is really how we're seeing the business. It's very strong conditions. Matthias, NII, all yours. Matthias Bulach: Sure. Thank you very much, Antonio. What are the main drivers behind what we see for NII evolution both into 2026 and specifically beyond? I think on the one hand, obviously, it's volumes. We guided now for an update of around 6% CAGR, both on loans as well as on liabilities, up from that 4% guidance that we gave you back in the strategic plans Investor Day. Now that obviously volume growth that we've seen already this year at around 7%. The guidance is for a CAGR of 6%, that means we are positioning volume growth both in 2026 and 2027, probably around 5% to 6%. So that is, I think, the main driving force behind our expectation for NII evolution over the next couple of years or even beyond. Secondly, obviously, rates evolution. Rates has been a drag on our NII over the last quarters, obviously. We expect that drag actually to fade out over the next 2 quarters. The loan yield resets should move into positive territory from the third quarter onwards of 2026 and hence, still a certain drag over the next 2 quarters, compensating partially that volume effects that I was talking about. But then from the second half of 2026 onwards and specifically into 2027, and I would say, beyond into 2028, we see a clear positive evolution on the back of rates. On the back of rates because as you know, there's a significant part of our portfolio, which is actually on variable rates. And we do believe that we will be able and capable of controlling client fund costs, controlling and limiting growth of deposit costs, as we said currently at 47 basis points. We believe actually those levels of year-end to be quite structural. We should be able -- even though there might be some pressure from the index part of our deposits, we should be able to control that evolution of deposit costs over the next quarter. I would say if 47 basis points is our year-end number, we should be in the mid-40s probably during 2026 as the certain pressure that we might have from the index part, we should be able to control and to limit that both from still some repricing from the term deposit part as well as increasing the share of growing stronger in the noninterest-bearing deposit part than in the interest-bearing deposit part, and that should help us to control and to keep deposit costs down over the next quarters and also actually to very nicely control that once rates are picking up. So volume effects, which are already occurring and which we expect to keep on in that benign macroeconomic environment, rates should be picking up and helping us on that front. A small detail on what we see in the more quarterly evolution over the next few quarters. We do expect NII 2026 actually on a quarterly level to grow year-on-year in each and any of the quarters. But there might be a certain reduction -- a limited reduction in the Q1 NII respect to Q4, basically for some seasonal effects that typically happen in the first quarter. The first quarter tends to be somewhat weaker in terms of average fund balances as January tends to be clearly weaker month than December. We do have 2 days less in the first quarter than we do have in the fourth quarter. And also there's more negative loan repricing actually in January. There's a certain seasonality here. So what we would expect is Q1 to fall slightly against Q4, but then picking up growth right after and specifically accelerating growth into second half of 2026 and obviously into 2027. On the back of all those, let's say, more business and external rates factors, we do have also significant idiosyncratic factors, let's say, that are based on our -- the structure of our hedges. Recall in the Page 30 of the webcast presentation, you have got all the details, but recall that between the fourth quarter end of '26 and the first quarter of '27, actually, we do have around EUR 15 billion of legacy deposit hedges that are maturing. They're maturing actually at negative rates. So we would assume a rollover of that hedges at current market forward rates that would give us an uptick of about 2.5% on those EUR 15 billion of legacy deposit hedges, and that is annualized around EUR 400 million of NII boost that will be coming from this natural rollover of those hedges. So there's no external factor that is pretty much already in our balance sheet, and it's a natural and automatic thing to happen. So there's a clear boost for 2027 NII from that front. And on the other hand, we also disclosed the maturity profile of our ALCO book. Actually, in last year 2025, EUR 6.5 billion already matured at 0% rates. And you have seen that our ALCO portfolio actually grew by EUR 12 billion in 2025. So that is renewed and that generates obviously some support for the 2026 NII as this is maturities from 2025. And once they are renewed, obviously, they help in the year-on-year evolution into 2026. And that goes on in 2026, there is EUR 9 billion maturing at a 0.4% yield, and there might be a reinvestment capacity of increasing that yield by 2.2 percentage points, generating EUR 200 million of annualized NII through that 2026 maturities. And that goes on in 2027, there's EUR 8 billion maturing at 1.6% that would reinvest it would lead to EUR 100 million of annualized NII. And in 2028, also, there's EUR 14 billion actually maturing at 1.1% that also would give EUR 300 million of annualized NII support. So from all those factors, both external factors, let's say, business evolution and market rates, we feel very upbeat specifically in 2027 as we are guiding for this EUR 12.5 billion as well as beyond looking into 2028. And then there's those internal factors from the maturity of hedges as well as from the ALCO book. So we actually feel very strong in 2027, and we do feel similar also into 2028 based on all these factors that I was just explaining. Operator: Next question is from Ignacio Ulargui, BNP Paribas. Ignacio Ulargui: I have 2 questions. I mean one is on deposit growth. I'm coming a bit back on what you were commenting, Matthias. Looking a bit more on the volume. So you said 6% customer funds growing in the plan. If you could break that down between deposits? And how do you think kind of interest-bearing and noninterest-bearing could grow into 2026 and '27, that would be very helpful. And a second one on credit quality. I mean, asset quality has performed very strongly. I think it's the lowest 4Q gross inflows into NPLs in a decade. Your target of NPL is 1.75 which, I mean, if we extrapolate a bit the trends that you have seen in 2025, probably it still is very conservative. So I just wanted to get a bit of your views about cost of risk, asset quality dynamics so that to get a bit of comfort on the improvement of the 5 bps of cost of risk and how much generic overlays you have still? Gonzalo Gortázar Rotaeche: Thank you, Ignacio. I'll take the second question as well. I'll start with asset quality is -- starts from the economy. The economy, I was saying that the GDP numbers were about to be published. And in fact, they have been a very strong fourth quarter for Spain, 0.8% growth quarter-on-quarter on GDP. To give you an idea, we were more in the 0.5% expectation. We knew based on the numbers of the last few weeks that this was going to be higher. But clearly, a very good number. There's been some revision of previous quarters. So the overall growth has been 2.8%. But most important is just looking at 2026, the outperformance of the fourth quarter already gives us automatically just if we don't change any other assumption, just the rebase of the fourth quarter would mean that growth would be 2.3%. And looking at the numbers, private consumption is up 1% quarter-on-quarter. Gross fixed capital formation, so investments basically is up 2.2% in the quarter. Exports are up 0.8% is -- these are very, very strong numbers. And as long as the numbers continue to be there, there's absolutely no reason to think that asset quality is -- we're going to have any negative surprise. We -- Matthias mentioned, we have still this stock of non-assigned provisions above EUR 300 million. Economy is doing well. Our clients are less leveraged than ever. And we do not see any problem in any part of sort of big broad categories, be it mortgage or consumer segment. The statistics for January in terms of asset quality make it the best January I remember. January is typically a bad month, the famous Cuesta de Enero, as we say in Spanish, that's reflected. And this year, we're seeing a much lower impact than others. So we internally have all the confidence that, yes, that should make sense for us to be below 25 basis points. And we tend to be conservative, particularly in cost of risk because there's an element of unpredictability on it, and you cannot rule out completely. Obviously, the international environment and whether we have a sort of a major crash in markets or some other big impact elsewhere that eventually feeds into the economy and hence, changes things is always a possibility. It seems unlikely and in any case, something where we have pretty good cash. 175% may actually be conservative, I agree. I think if the trend continues, we will go beyond that number fairly soon. But you know we're a conservative organization when giving guidance. We look at guidance, and there's a very high percentage of cases where we have better guidance versus occasions that have happened where we didn't meet our guidance because something happened. So I would be pretty confident on these numbers on cost of risk for the next years as long as the economy stays where it is, which we have no indication that is changing from that position. We're seeing on the opposite sort of stronger numbers. Matthias Bulach: Thank you very much, Ignacio. On deposit growth, I think we have been guiding for overall customer funds to be growing at around 6% now during the 3-year horizon versus the initial target that we have of around 4%, of which we said 3% of that would be customer deposits. So I think it's -- 2025 might be a quite good starting point when thinking about composition. So obviously, we do still see significant upside on wealth management after 9.7% year-on-year growth in 2025. And we do see CapEx to grow in deposits over this 5.3% growth in 2025 also. We move that target to now 6% overall. That means, as I said before, we might be somewhere around 5% to 6% on the overall customer front. And the structure that we've seen in 2025, we expect that more or less to be also into 2026 and beyond. So having said that, we do think -- we do see deposit growth now very clearly in the mid-single-digit zone for the strategic plan horizon. That is outperforming our target of above 3%. And why? Because we do believe, and as Gonzalo was just pointing out on the macroeconomic evolution, we do still see a very strong disposable income growth and savings rates actually remaining at high levels. It is coming down slightly, but we still do see at very high levels with respect to historical average. Loan growth is strong and that multiplies also into deposit growth in the sector and hence, gives us opportunities to keep on growing significantly here. And as I said, we have a focus on growing nicely the client base, 390,000 clients this year, and that obviously also gives capacity to grow in deposits from new clients, and that means in transactional deposits and not shifting around the savings of our existing clients, but actually growing into new client base and growing into transactional deposits. So thinking then about what is the part of noninterest-bearing versus interest-bearing I would say, the current rate environment, which is stabilizing after the up and down over the last 3 years, stabilizing and with certain tendency to -- and the forward rates to increase, but clearly on a very gradual pace, we would expect that actually noninterest-bearing deposits being rather stable, and I would say rather stable even in absolute terms, not necessarily in relative terms, obviously, potentially growing slightly, but we would expect that the noninterest -- the interest-bearing part actually clearly growing slower than the noninterest-bearing part. And hence, we don't expect any shift from one to the other. As I said, growth should also come from new clients, new transactional relationships with our clients. And hence, we see strength in the growth of that crown jewel of ours, which are the noninterest-bearing part. Marta Noguer: Thank you, Ignacio. Operator, next question please. Operator: Next question is from Maks Mishyn, JB Capital. Maksym Mishyn: Two questions from me, please. The first one is on loan book growth. Your peers mentioned that mortgage market is less attractive due to competition at the moment, and you seem to be growing above the market. Could you share your thoughts on why it is attractive for you and not your peers? And then if you could also break down the upgraded loan growth target by segment, that would be very helpful. And the second question is on capital. Just wanted to hear your thoughts on the recent proposal by the ECB to simplify capital regulation. Operator: Maks, we are not hearing you properly. Can you -- maybe take the cellphone a little bit away and repeat the question because we lost you. Maksym Mishyn: Is it better? Operator: Yes.Yes, this is better. Maksym Mishyn: Sorry. So the first one is on loan growth. Your peer mentioned that the mortgage market is less attractive due to competition, and you seem to be growing above market. Could you share your thoughts on why it is attractive for you and other peers? And also, if you could upgrade the loan growth target for the next year, that would be super helpful. And the second, I just want to hear your thoughts on the recent proposal by the ECB to simplify regulation for banks in the Eurozone. Gonzalo Gortázar Rotaeche: Thank you, Maks. I will start. And Matthias, you want to complement anything you tell me. On the mortgage market, I would say there's a very strong competition. There's always been 10 years ago, 5, 15, 20, it has typically been more on the floating rate mortgages. The market has moved almost completely, but not completely, but to a large extent, on to fixed rate mortgages. And that means that different players find it more or less attractive. I think depending on the structure of the balance sheet, there are core liabilities, the liquidity position. I'm just saying this is an important factor to keep in mind. But whether it was floating or now on fixed rate, we have obviously very competitive margins. And what we are doing, our share of new production is pretty much in line with our stock, around 25%, slightly it's 26% in the figures up to November in terms of share of new production versus a 25% stock. So that's why we're gaining 12 or 10 basis points in market share. But it's basically, we're maintaining our position. I think that's reasonable for us. And what you see is some players have been much more aggressive than others. And I think it has something to do with the structural balance sheet. And then the other big factor, which obviously is also differentiating is to what extent you cross-sell because we know mortgages are now below funding costs after the various sort of subsidies that are given by banks and on average, the market rates that are being given to the ECB latest numbers I've seen in November is 2.4% for fixed rate mortgages, obviously, below the swap rate, but that's after the modifications for all kind of business that clients bring in. And on that front, we obviously have an insurance business that is absolutely different from what others have. I was just looking at the premiums on the non-life for our affiliate Adeslas is around EUR 6 billion. You look at the numbers of our 2 main competitors, the premiums for non-life are around EUR 600 million. So it's not just a bit more than our fair share. It's 10x more. And that gives an indication that with -- once a client is in the Universe Caixa, clients more profitable. And hence, when you incorporate that, you probably see that both because of our funding position and our ability, given our sort of 36% market share in payrolls, our ability to hold long-term fixed rate assets, number one, and our ability to cross-sell, the market has moved to an area where we have a competitive advantage versus others. But still, I think we're being very disciplined because, again, stock of back book and the market share in new lending is very much aligned. So that's the background. And in terms of simplification, we're watching and obviously would love to see moves from that point of view on simplification for banks. And I think something is going to happen. I'm a trading maybe less than we would have hoped for. And I think the progress we're seeing so far deals more with operational issues, which is great because it's going to lead us to sort of spend less time and maybe have less people sort of spending time on supervisory matters, and that's good, but that's not really going to change the game. I think sort of changing capital requirements is something that is unlikely. I personally don't find it desirable. I think the current capital requirements, yes, are very ample and solid and gives us as a system, a great degree of stability. And I think that's good over the long term. What I think is important is that we provide stability and that there's no doubt about capital levels going forward because the current levels are more than enough. I think supervision needs to be simplified. We have 27 supervisors, and we're not one of the most complex financial institutions in Europe. We're operating basically in the Eurozone and mostly in 2 markets. It gives you a sense of complexity and some of that should be addressed. There's obviously progress specifically on disclosure on topics affecting sustainability on securitization, which is very likely. I think the sort of development of instruments for saving and investment union, which is not exactly simplification, but it has a relationship with are also quite relevant. We'll have to watch and see. But this is, I think, going to take quite some time, and we may actually end up in a position that is not too far away from where we are now, barring sort of some, as you say, operational matters. And the other one, which I think is very important, is stopping the flow or significantly slowing down the flow of new rules, Level 2, Level 3, which is obviously, I think, more of a concern and easier to stop because it's more a political willingness to change the way future things are done to change the status quo is going to take time and may not be as significant as we would hope for. Matthias Bulach: If you allow me to complement Gonzalo on Maks. On your question on breakdown by segments of that loan outlook that you're asking for. 2025, we grew 7%, our performing loan basis, of which 6.5% was growth in mortgages, 12.4% in consumer lending and 7.6% in business lending. Now we are guiding for a 6% CAGR over the horizon of the strategic plan, and that implies somewhere between 5% and 6% for the remainder 2 years. And hence, let's say, the adjustment you would have to make to the 2025 numbers, I would say the structure of 2025 is a reasonable one that we would be seeing also in the future as basically the main driving forces macroeconomically speaking as well as from the market, we still see them holding true also for 2025 -- for 2026 and 2027. So let's take the structure of 2025. And as Gonzalo said, we want to be active in business lending, specifically in SME lending. We want to be active and gaining market share in consumer lending and typically be more in line with the market and hence, maintain our position for all the reasons that Gonzalo was commenting on mortgages. And that is more or less the structure that we had in 2025, and that is what we would be expecting in 2026. Why do we guide for slightly lower growth rates on the business volume? Even though macroeconomic performance is strong and keeps us strong, there is a certain reduction in the pace of growth, obviously, as Gonzalo said, 2.8% this year with the figures that were just published, and that might be slowing down slightly over the next 2 years, obviously. So together with that evolution of macroeconomic growth, obviously, we see nominal GDP growth as an anchor point both for growth in assets and liabilities. And this is why we are thinking that there might be a certain slowdown from 2025 levels. But then again, the future will tell. And obviously, we will do all the best to do better than that. But this is what is our current view. Operator: Next question is from Francisco Riquel, Alantra. Francisco Riquel: The first one is on fee income guidance that you are not changing, but wealth management and long-term savings volumes are growing ahead of expectations. So if you can explain what is the offset here, if it is, again, banking fees that you see weak trends? Or if you can please elaborate on the fee income guidance given that wealth management is ahead of expectations? And second is on the cost guidance that you have maintained also for -- in the new plan. I wonder if you are investing more in AI and in the technological transformation that what you were anticipating at the beginning of the plan? And what type of productivity gains shall we expect and when? Gonzalo Gortázar Rotaeche: Thank you, Paco. I would say, again, leaving the fees for you, Matthias. If you agree on cost and AI, yes, this is a key factor for our investment program, which is going according to plan. So in terms of the big numbers, we are reiterating the cost and the OpEx, CapEx spend last year, this year, 2027. And in terms of the efficiencies of the productivity that we expect here from AI, I think, is twofold. Most importantly, in a growing market and in an organization that is actually growing market share, it's going to allow us to have more revenues over the same platform basically. And I think this is very important for us. So that's the main factor. And the second one, obviously, is on the cost base. We -- and particularly when you look at sort of the engine room. I would say there are 2 places where we expect efficiencies. One is IT, and this is one where it's actually -- first, we need to invest more also in terms of people and with this Cosmos program, which is the whole sort of technology upgrade that we're doing, we now have over 2,000 people working full time on that. Now some of them are internal. Some of them are from partners and hence, call it outsourcing. And this is going up. It's going to come down. We said at the time of the plan, we will start with 6,000 people, of which basically 1,000 were internal IT employees and 5,000 external. We expect by the end of 2030 to have reduced that to 4,000 people, but to have more people internally. So we are basically in-sourcing, but the total FTE expense internal and external is going to come down. And this is something that you're going to start feeling really 2027 onwards because in the meantime, what we need to do is, as we transform, have actually more resources. And then there's operations as well where we have significant outsourcing, and I think that's likely to come down. So those are the sort of big areas to look for. But again, I'd say most of these efficiencies are coming into 2027 and beyond. That's why also if you look at our implied guidance for 2027 is more in line guidance of growth in order to make the numbers is more aligned to the 3% number compared to the 4.5% that we're doing this year. That's because not only, but among other things because we're having efficiencies already materialized in 2027. And obviously, that should continue beyond. Matthias Bulach: Thank you. On fees, Paco, I think, obviously, as you said, we are very upbeat on wealth management fees coming from that capital. As we said in the -- actually in the strategic plan, mid- to high single-digit growth here. 2025 has started very, very strong, and we do see strong growth also going into the future. As Gonzalo said, year-end balances in wealth management are 7% higher than average year balances of 2025. So we do see a very good starting point also here into 2026 and beyond. So that means that, yes, we are more cautious on banking fees. Actually, of our fee structure of our banking fees 20% more or less are CIB fees and 80% are recurring banking fees. We said CIB has a very strong dynamics. We've been growing 33% year-on-year full year 2025. So there's a very strong backwind and tailwind here, even though, obviously, those growth rates tend not to be sustainable. We do believe the levels are sustainable, and we should be able to grow still from there, but obviously at a certain lower pace. And that means that the drag we still do see coming from recurring banking fees and that 80% of fees, of which more or less half probably are in types of fees, which are basically exposed to quite some competitive pressure, namely speaking about account maintenance fees, payments and transfer fees or credit card fees, which obviously in that competitive environment and that profitability environment of client relationship are under pressure because they are lower value-added services. And in that capital, obviously, we still do believe that there is actually potential that these type of fees are still reducing over the next years as competition will be fierce in that area. And innovation in those areas, obviously, will also have an effect of bringing fees down. And that should then be compensated and this is our job by the other part of the fees on other transactional services, security trading, foreign exchange or loan-related fees, where we do expect a positive evolution, obviously, from the macroeconomic environment and from transactional increases. So there, we do see a positive way to partially compensate that reduction in recurring banking fees. Operator: Next question is from Cecilia Romero Reyes, Barclays. Cecilia Romero Reyes: The first one is on deposits. Obviously, the reduction in deposit cost is slowing and in part is because obviously, rates are stabilizing. Some competitors have standard attractive campaigns. How do you assess the current state of deposit competition in Spain? And are you seeing any incremental pressure from neobanks? And my second question is just a follow-up on the fee question. Could you remind us where are SRT costs included within your fee line? And is an acceleration of SRT making your view on banking fees more conservative if included there? Or is this not having a big impact? Gonzalo Gortázar Rotaeche: Thank you Cecilia. On deposits, I would say no change. We're not changing our strategy, and we are very comfortable about our position. We're not seeing any particular negative impact or difficult environment associated to neobanks. On fees? Matthias Bulach: Yes, the SRT Cecilia, the SRT part is in the banking fees. And hence, yes, there is a certain impact there. And as we are speeding up and as you have seen in the fourth quarter, SRT activity, there will be a certain drag also on banking fees, on other banking fees based on the SRT activity. Actually, in Q4 '25, there was EUR 12 million of impact, that is EUR 5 million down year-on-year, if you look at the quarterly data. And in the full year 2025, there was EUR 36 million, actually EUR 12 million more of fees paid on that capital. So yes, that is generating, obviously, as we are picking up activity here, a drag on banking fees. Operator: Next question is from Sofie Peterzens, Goldman Sachs. Sofie Caroline Peterzens: This is Sofie from Goldman Sachs. So my first question would be on your customer margin, which came slightly below 300 basis points. I know you talked quite extensively about kind of deposit costs and also lending rates. But how should we think about the customer margin? Is it fair to assume that the 297 basis points is a trough? Or could it kind of fall a little bit more in coming quarters? And then my second question would be the 20% return on tangible equity that you guide for in 2027. Is that sustainable to assume that will be the new run rate beyond 2027, so '28, '29, considering volumes are good. You mentioned cost efficiency should start to kick in post kind of '26. So how do you think about like the longer-term return on tangible equity level? Gonzalo Gortázar Rotaeche: Thank you, Sofie. On the profitability, I think we said and Matthias also mentioned NII and others, we see environment continue to be fairly positive beyond 2027. So by definition, that should be positive for return on tangible equity. You are somehow asking about our next 3-year plan, and that's a bit too early for us to get into the detail. But to be honest, my sense is this is not just a level that is sustainable, the 20%, but it should be actually the level on which we start working towards further improvement in profitability. But that's my qualitative sense based on all what I have seen. And obviously, we also have a very positive view for 2028 in particular. On customer margin, Matthias. Matthias Bulach: Yes. Thank you very much, Sofie. On customer spread, I'm afraid to say that the 297 or 302 depending on whether it's with or without hedges, has not yet been the trough. As I said, customer deposit cost at 47 basis points might be rather stable or we do see some potential here still for certain improvement, but probably a minor one. And yes, we do still see negative loan yield repricing specifically into the first quarter and the first 2 quarters of this year, 2026. So we would expect that to come down still slightly into the second quarter, but then we should be starting to see a recovery. And we still see the area of 300 basis points as our sustainable level once rates are picking up slightly over the next quarters. Operator: Next question is from Alvaro Serrano, Morgan Stanley. Alvaro de Tejada: It's kind of a follow-up, one for you, Gonzalo. The implied cost growth in '27 looks like around 2.5%. And with the revenue growth, your cost income is going to be in the mid-30s. And obviously, you've laid out both Matthias and yourself, how there's more to go for in '28. So the question is kind of where is the -- should we be thinking that 30% cost/income ratio over time is possible? Or the bigger question is at what point, Gonzalo, do you think that it's better to invest in the business because you think you might be missing out on growth or underinvestment? Just help us through think how you're thinking about the business and the long-term potential in the new world? And second, on the 6% loan growth CAGR, I realize it's a touch lower in the outer years, but still above what Spain is growing. And of course, there's some international growth there. But the question is, are you factoring further sort of market share gains? Or you're expecting the growth in the market to accelerate significantly or a bit of both? Just a bit of sort of color on your market share expectations. Gonzalo Gortázar Rotaeche: Yes. On the second one, market share, I'd say, yes, we are gaining market share now. We gained market share this year. It's likely if we have a position that I think is very strong on -- from a competitive point of view that, that process will continue. And we aim to do that subject to appropriate risk and pricing decisions. So if the profitability is not there, the risk criteria is not strict enough, we will certainly not grow faster than the market. But we have seen that the market is very big. And given our positioning, we can do that. And I think there is clearly a potential to see lending above nominal GDP, which is kind of the logical assumption to be made. But when we look at relative to our past and relative to Europe with 31 percentage points lower leverage of the private sector and an economy that is clearly outperforming, you can see obviously some cycle there. So I think 6% is reasonable. And yes, it includes some market share gains. But again, when we talk about market share gains, we're talking about 10, 20 basis points. Generally, this is the kind of market share gains that are consistent with good pricing decisions and good risk decisions, not something that is huge. And in terms of the cost income, I think it's important to say cost income for us is an output. It's not the target by itself. We -- now you look at our numbers and round numbers, we have 18% return on tangible equity this year, 40% cost income, a bit below the cost income. But our aim is not to bring down the cost income at our cost. Our aim is to create value. And obviously, if we can do the same volume with lower cost income, that's great. But very often, if you just focus on bringing down the cost income, you're not going to do investments at 18% return on tangible equity. So once you get to -- and many banks would dream in Europe, as you know well, Alvaro, to have a 40% cost income. And once you have a very profitable platform, you actually want to create value and that means growth. And that may mean doing and taking business initiatives at 40% cost income that create a lot of value, 18% return on tangible equity, but do not contribute to the objective of reducing further cost income down to 30%. Now as an output, if our strategy is successful and we continue to grow the business, the cost income should continue to go down. But it's not going to be our target. It's going to be a consequence of sort of management of revenues and costs to make sure that we produce sort of value when we make investments. So it will come down, but we're not targeting a given cost income. We're targeting shareholder value creation. I may just remind you of the case of Banco Popular 25 years ago, they were managing for ratios and return on tangible equities and cost income. And at some point, that doesn't make sense. And we're certainly going to be looking at NPV positive value decisions and that if our strategy is successful, will lead to lower cost income. We'll see when and to what extent. Operator: Next question is from Marta Sanchez Romero, JPMorgan. Marta Sánchez Romero: I got 2 questions, one on the structural hedge and the other one on capital. So on the structural hedge, you're adding receiver swaps, but you're reducing your holding of sovereign bonds. Can you explain the rationale of that? Any worries on the sovereign debt market? And also what is behind keeping the sensitivity still at 7.5% versus the 5% you had at the beginning of the year? If you could help us model how the ALCO portfolio size should expand going forward, that would be very helpful. And then on capital, 2 quick questions. What are you expecting in terms of RWA growth? In the previous plan, you were growing more slowly than loans. I think 3% CAGR you had at the time. Now you've got 6% growth in performing loans, how RWA should grow? And just quickly on the buyback, have you already put forward a request to pay that surplus capital to the ECB and the Board? Gonzalo Gortázar Rotaeche: Thank you, Marta. On the second point, capital, we are not -- we've made a policy out of it finally to say let's be consistently. We will not talk about when we do internal approvals and discussions with the ECB. We'll just communicate to the market when we have it and it's formally approved by the ECB and the Board. Absolutely no change in what we've been doing. We're talking about the seventh, eighth share buyback now. And you know how we behave that we're fairly quick, very disciplined. Look at all the banks in Europe, they say this is our target, but then you look at the capital, and it's way above that target. We are -- it's a bit like an ATM. As soon as we generate the capital, we give it back. So don't worry about that is something we're going to continue. RWA growth, obviously, it's going to be a bit higher if lending grows at 6% than at 4%. And I'll let Matthias elaborate on to it. Matthias Bulach: Yes. Thank you very much, Marta. As you said, we were guiding for a 3% performing loan growth in the -- back in the Investors Day, and that translated into about 2% growth in RWAs. Now we are guiding for 6% growth, and we do think that also helped by both the Basel IV impact that at the end of the day was more positive than we expected as well as an uptick most probably in SRT activity that we should be able to actually adjust that growth rate downwards and actually generate a sort of potential 2 percentage point gap between loan -- performing loan growth and RWA growth helped by these 2 factors. And on sensitivity, we do feel quite comfortable in that 7.5% sensitivity that we are managing right now. Recall that we are coming from ranges of 20% to 30% back in 2021 when obviously rates were negative or very, very low, bringing that down to 5% last year, and now we are hovering around those 7.5% levels in that environment where the ECB signals that the rate cutting cycle may have come to an end and the market expects certain increases from the current state. And the yield curve is actually pointing out to a steepening. We do think that, that 7.5% level is a level that we feel comfortable with in an environment in which we obviously would have been or are exposed to macro risks, both on the upside as well as on the downside. As to hedging strategy, we use both instruments, both ALCO book in order to invest and structural hedges. This quarter, we've been using approximately EUR 10 billion of structural hedges to hedge and to assure the sensitivity of 7.5%. And that might change depending on the size of the books, depending on sensitivity depending on opportunistic behavior also if sovereign spreads we feel are at the level they should be, we feel investment opportunities, we might be using more longer maturity instruments such as adding to our ALCO portfolio and picking up some of that sovereign spread or being more in the shorter range of maturities, which we typically do with the deposit swaps. So I would say we will see in the future. We want to keep some flexibility here to be able to react to market circumstances as they unfold and no clear guidance at that point on to which part of the portfolio should be growing more or we would be using more. Operator: Next question is from Ignacio Cerezo, UBS. Ignacio Cerezo Olmos: So I have 2 small ones actually and one slightly more qualitative. And the numerical ones are, if you can give us the NII in 2027 with no rate hikes. So we have actually flat as pancake type of yield curve. The second one is if you can give us actually the percentage of natural attrition you have on your headcount every year. And the qualitative one is on consumer lending, obviously growing quite strongly, 12%, I think it is at the end of the year. I mean, mimicking view on actually the trends we're seeing on a sector basis. I mean, does this raise any concern around asset quality about the kind of clients actually you're targeting or you're still within pretty tight kind of risk standards with your own client base preapproved like you have been doing in the last 3, 5 years. So if there is any change in terms of the risk profile of the clients you're acquiring on consumer? Gonzalo Gortázar Rotaeche: Thank you, Ignacio. Risk profile, no change in asset quality. We keep our standards. We're very comfortable with them. And that's perfectly consistent with good growth when you have such a large position and a lot of information with clients. Natural attrition for the headcount, I think we may actually want to come back to you, obviously, I want to make sure we give you the right number is small. NII? Matthias Bulach: Yes. NII, 2027 actually is not largely dependent on interest rate hikes. As I said, typically, the repricing of the portfolio is somewhat backloaded. And in the current interest rate curve, that increase that we are expecting slightly for 2026, but slowly and a little bit into 2027 actually would not have a significant impact on our EUR 12.5 billion guidance. As then the interest rate hike is much more backloaded and would much more positively affect 2028 and beyond. So I would see, obviously, that would have an impact, we would be below most potentially that 12.5%, but not far from guidance if interest stayed on current 2% deposit facility rate. Operator: Next question is from Andrea Filtri, Mediobanca. Andrea Filtri: You said consolidation will continue in Spain and that you're not interested in moving abroad. Can you elaborate on what you meant by that? And also, you made positive considerations on the U.S. as a market. What do you plan to do there? Gonzalo Gortázar Rotaeche: On the U.S. as a market? Operator: What you said -- last question, Andrea, we didn't hear it properly. Andrea Filtri: I also read positive comments on the U.S. What do you plan to do there? Gonzalo Gortázar Rotaeche: Yes. Consolidation, very clear, no change. We are not interested in consolidation. We have a very strong position in Spain. And we do not want to grow and we do not need to fill any product areas through consolidation. We want to grow organically. In Portugal, we have a great operation. We have a lower market share, but actually a business that is growing even faster than the Spanish one. So we're very happy with what we have. And what we see is increased value creation by combining the engines and the way we do business between Spain and Portugal with the whole, obviously, autonomy that BPA has because it's a great Portuguese and it needs to say as a Portuguese bank. And we're not seeing value creation in cross-border, to be honest, this is sort of a discussion that takes a very long time, but we don't see synergies. And as we look for shareholder value creation, we do not think we're going to find it in cross-border M&A. The U.S. is certainly even further away for us from the point of view of M&A, absolutely no interest there. Still it's a market where, obviously, we bank with many U.S. companies that are mostly operating in Europe. It's a market that we follow closely because it's relevant for the whole world. Operator: Next question is from Borja Ramirez, Citi. Borja Ramirez Segura: I have 2. Firstly, on the NII guidance, I would like to ask if you could provide the assumption on the deposit hedge growth? And also this EUR 10 billion of deposit hedges, could you remind me on which interest rate they have been acquired? And then my second question would be on the SRTs. If you could remind me what is the expected delay benefit and the fee cost, please? Matthias Bulach: On the deposit hedge growth, we don't give a specific guidance on what the volume is. But structurally thinking about what we should be doing is, obviously, we are adding, let's say, nonmaturing deposits on our liability side. And by the way that we are adding those nonmaturing deposits, we need a natural hedge on those, either through increase of the mortgage -- fixed mortgage portfolio, for example, or other fixed rate assets in the loan book or if that is not enough, then in order to manage the 7.5% sensitivity, obviously, other types of instruments should be used, namely being either hedging our deposit base or investing into fixed rate assets. So structurally, I would be thinking about the evolution that you're putting into your model in terms of noninterest-bearing deposits, which is our fixed rate liability side and then a combination of investing into fixed income assets, both on the loan side as well as on either of the 2 instruments, fixed income portfolio on the ALCO book or structural hedges. And -- sorry, on the interest rate acquired in the -- we do disclose the detail of the information of the next actually 4 to 5 years of the maturities of the ones that we acquired. So you have a very detailed portfolio evolution of those. Obviously, in the moment we acquire, as I said before, we typically tend to invest a little bit more long term when it is ALCO book and fixed income portfolio and a little bit more short term in duration when it comes to hedges. And this is already obviously then already -- and you can see that in the differences of those maturity rates that we have in the Page 30 of the disclosure. Marta Noguer: And then the SRT, Matthias mentioned that before, but it's also in the presentation, it's minus EUR 12 million in the fourth quarter and minus EUR 36 million for the full year '25. So for the cost of SRTs in the fees. Operator: Next question is from Miruna Chirea, Jefferies. Miruna Chirea: It was on costs, more specifically on your investments in digital. I think 1 year ago at the Investor Day, you were talking about EUR 5 billion of total investment in digital over '25, '26, '27. Could you remind us, please, what is the phasing of this in each of the 3 years? And how should we think about investment in digital going forward? So what is the run rate from 2028 onwards? Gonzalo Gortázar Rotaeche: Run rate from '28 onwards, we will obviously explain at the time. There's no decision made. But clearly, the effort that we're doing with '25 to '27 is a special effort that is not something we're going to repeat or planning to repeat in '28, '30. But again, specific numbers, we need to wait. And in terms of the breakdown of that investment, I think there's no change from what we said. But Matthias, do you want to... Matthias Bulach: Neither change in the breakdown nor on the phasing in of that. Obviously, there's a certain ramp-up phase when it comes to the investments in the first year in terms of incorporating the staff and incorporating the workforce that we wanted to incorporate, and this is obviously a phasing. On the other hand, there's a certain front-loading then with expenditure with our partners. So I would say the most reasonable assumption is that is in that 3-year horizon, rather stable in terms of investment needs over these 3 years. Marta Noguer: Okay. Operator, I believe we have time for one more question, please. Operator: The last question is from Lento Tang, Bloomberg. Lento Tang: I have 2 follow-ups, please. The first question is on structural hedges. On Page 30 of the slides, you have this maturity profile. In the past few quarters, they were mainly added in the second quarter of '27 to the third quarter of '28. But this quarter, you added significantly in 2029. So just wondering if you could give me your thought process why the change? And the second one is on SRT. So you previously guided EUR 6 billion by 2027. I just wonder if you have any change of view there given some of your peers have ramped up activity there. Matthias Bulach: Starting with the second one on SRT. We guided for the EUR 6 billion gross issuances by 2027. And as I said before, loan growth is stronger. We expect now 6% performing loan growth with respect to 4% that we expected in the strategic plan. So there will be an uptick most probably of volumes. We don't have a specific updated number on those as we will be making that dependent on market conditions. We want to be active in that market, but we also want to be very sure that we well manage maturities that we will manage the reinvestment risk of those and obviously, that we -- to some extent, don't go crazy about it in the sense of adding too much reinvestment risk in our CET1 capital ratio. So yes, expect us to be more active in that market, expect us to add some billions on that target, but not excessively neither. And on structural hedges, as I discussed before, we are typically taking those decisions to a certain extent on an operational basis each quarter when we see what is the interest rate curve environment, we are updating our business volume forecasts, obviously, into that 12- to 24-month horizon, which we are managing our sensitivities. And then depending on the structure of the curve, depending on the structure of the sovereign spreads, we are managing that more on an opportunistic basis. There's no such a very predefined strategy other than, as I said, on the long tail of the curve, we tend to be in fixed income instruments and for the rather short term, we tend to be in deposit hedges. And then we will be deciding quarter-by-quarter depending on business outlook and market conditions. Marta Noguer: Okay. Thank you, Lento. So that's all we have time for today. Anyone left out the queue, IR team will contact them later. Thank you all for joining us. Thank you, Gonzalo. Thank you, Matthias, and bye-bye. All the best. Gonzalo Gortázar Rotaeche: Thank you very much.