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Becky: Hello, and welcome everyone to the First BanCorp 4Q 2025 and Full Year 2025 Financial Results. My name is Becky, and I will be your operator today. All lines will be muted throughout the presentation portion of the call, with a chance for Q&A at the end. I will now hand over to your host Ramon Rodriguez, Investor Relations Officer, to begin. Please go ahead. Ramon Rodriguez: Thank you, Becky. Good morning, everyone. Thank you for joining First BanCorp's conference call and webcast to discuss the company's financial results for the fourth quarter and full year 2025. Joining you today from First BanCorp are Aurelio Aleman, President and Chief Executive Officer, and Orlando Berges, Executive Vice President and Chief Financial Officer. Before we begin today's call, it is my responsibility to inform you this call may involve certain forward-looking statements such as projections of revenue, earnings, capital structure, as well as statements on the plans and objectives of the company's business. The company's actual results could differ materially from the forward-looking statements made due to the important factors described in the company's latest SEC filings. The company assumes no obligation to update any forward-looking statements made during the call. If anyone does not already have a copy of the webcast presentation or press release, you can access them at our website at fbpinvestor.com. At this time, I'd like to turn the call over to our CEO, Aurelio Aleman. Aurelio Aleman: Thanks, Ramon, and good morning to everyone, and thank you for joining our call today. Our results for this quarter represent a strong capstone to a year of outstanding performance and disciplined execution. Highlighted by record revenues, positive operating leverage, and a stable credit performance, we did deliver top-performing bank across multiple metrics. We produced $87 million in net income or $0.8055 per share, generated a top quartile return on asset of 1.8%, and prudently managed our expense base resulting in a 49% efficiency ratio for the quarter. Turning to the balance sheet, we continue to first and foremost deploy work capital to support our client by facilitating a $1.4 billion in loan origination during the quarter. Total loans grew by $80 million mainly reflecting growth across the commercial segments. Growth was slightly impacted by elevated commercial loan payoff and slightly lower consumer loan production. Core customer deposits increased by $267 million and more importantly, we achieved this while gradually continuing to reduce total deposit cost. In addition, government deposit decreased during the quarter as we continue to look for efficiencies in higher cost deposits in this part of the cycle. That said, we also see a pickup, a 3.2% pickup in core non-interest bearing deposit during the quarter. On the asset quality side, the ratio of nonperforming assets to total assets continued to decrease reaching an all-time low level of 60 basis points during the quarter. Consumer credit continued to stabilize, net charge off to average loans at 63 basis points, essentially flat to the prior quarter. And finally, this quarter, we repurchased $50 million in shares of common stock and declared $28 million in dividends. I think to put in perspective, since we began the buyback program in 2021, we have repurchased over 28% of shares outstanding. Still, given our excess capital position and meaningful capital generation, we're well positioned to further increase our return of capital to shareholders in 2026. As such, we were very pleased that our Board approved an 11% increase to the quarterly common stock dividend to $0.20 per share starting in 2026. Please let's move to Slide five to provide some highlights of the full year. Definitely, 2025 was a year of changes, geopolitical and the macro. But again, significant progress that we demonstrated the investment we're making are driving strong operating performance. We crossed $1 billion in total revenues, generated record net income of $345 million, grew earnings per share by 90%, and posted a strong 1.8% return on assets for the year. All while improving our capital and liquidity levels. Our strong profitability allows us to continue returning approximately 95% of earnings to shareholders while increasing tangible book value per share by 24%. Our consistent investments to advance our initial strategy and improve our interaction with customers with you know, multi across multiple channels, meaning digital branch continue to show encouraging results. In both channels, digital and personalized branch contact results were improved. Active retail digital users were up 5% when compared to last year. 95% of deposit transactions were captured through self-service channels. And our branch sales and service delivery efforts continue to pay off. In terms of the macro, I think the second half of the year showed, you know, slightly lower economy in our main market. In spite of this, we do remain constructive on the underlying trend to the economy for 2026. On one side, we do expect consumer confidence to moderate somewhat, you know, of tariff-related pricing inflationary pressures and geopolitical tensions will continue to develop through the year. On the other hand, we see multiple developments that will serve as important drivers of stability in the future. For the, you know, the future for the growth of the economy. Both in Puerto Rico and actually our second market, Florida. Resilient level market here, unemployment rate hovering above 5.7%. Another year with strong tourism activity, pass-through traffic at the airport up 3%, reaching a record height of 13.6 million passengers. Already over $2.2 billion in announced investment to expand manufacturing capacity on the island. Driven by the offshoring efforts. And the consistent flow of federal disaster relief funds that will support critical infrastructure development for the years to come. There's still $40 billion in the year. We don't have final numbers yet on the last quarter, but it seems it was basically flat to the prior year in terms of disbursement of the federal fund programs. Looking ahead to 2026, again, we have ample experience navigating dynamic environments. And we are definitely well positioned to continue growing within our markets and deliver consistent returns to our shareholders. Our guidance remains largely unchanged. We're focused on delivering 3% to 5% organic loan growth, sustaining a 52% or better efficiency ratio. Maintaining strong profitability metrics, and returning close to 100% of annual earnings back to shareholders. Asset quality is expected to remain stable, with consumer credit quality rather returning to the pandemic levels that we have seen driven by basically, you know, inflationary pressure to the consumer. Even though compensation is better. And there is stable unemployment. We are in a great capital position, continue to make the right investments to modernize and help our franchise to drive both growth and efficiencies. And deliver strong performance in 2026. With that, I thank you for your continued trust. I thank our clients, and we are very grateful to our dedicated employees for their commitment and support and we're looking forward to another exceptional year for our institution. With that, I will now turn the call over to Orlando. Orlando Berges: Thanks, Aurelio, and good morning, everyone. As you saw in the release, this quarter, we earned $87.1 million, $0.55 per share, which compares to the $100.5 million or $0.63 a share we had in the third quarter. Last quarter results included the reversal of $16.6 million valuation allowance on deferred tax assets related to net operating losses of the holding company. And we also had a $2.3 million employee tax credit that if we exclude represent both of them represent about $0.12 per share for the quarter. If comparing the quarters, excluding these items, earnings per share was 8% higher this quarter from the amounts in the third quarter. Adjusted pretax pre-provision income was $129.2 million, compares to $121.5 million in the third quarter. For the full year '25, net income was $344.9 million, which represents $2.15 per share. And adjusted pretax pre-provision income reached an all-time high of $499.2 million which is 10% higher than 2024. On a non-GAAP basis, adjusting for the items I mentioned before, net income reached $325.3 million for the year. Which is $2.02 per share, which is 8.6% higher than 2024. Return on average assets for 2025 was 1.81%, which compares to 1.58% in 2024. And on a non-GAAP adjusted basis, a return was 1.71% for the year. 2025 marks the fourth consecutive year that we surpassed our return average target return average assets target of 1.50%. Again, you know, strong year, and we are very pleased with that. In terms of net interest income for the quarter, we have an increase of $4.9 million reaching $222.8 million. This includes $800,000 we collected on a non-accrual loan that was paid off as well as $500,000 collected on a prepayment penalty on a loan that also was paid off in the Florida region. Net interest margin for the quarter was 4.68%. But adjusted for these items would have been 4.65% or eight basis points higher than last quarter. You recall, we were expecting that margin would be sort of flat for the quarter. But we were able to achieve a $2.2 million reduction in interest expense on deposits largely due to a 31 basis points reduction in the cost of government deposits. This was higher than we had anticipated. We were able to reprice some of the accounts based on market rates and the reduction we had in government deposits that Aurelio mentioned was mostly seen on the higher cost account. Also, the cost of other interest-bearing checking and savings accounts decreased four basis points during the quarter. We combine all of these items with the fact that we grew noninterest-bearing deposits by about $170 million in the quarter, this helped reduce the overall funding cost the quarter by five basis points. Meanwhile, we continue to see the pickup in the investment portfolio yields through the reinvestment of cash flows that we have been mentioning. During the quarter, we registered a $4 million increase in income from investments as we continue to replace lower-yielding maturing securities with higher-yielding ones. This resulted in a 33 basis points improvement in the yield. A little bit offset by a $0.4 million decrease in income from cash accounts, due to the reduction on the Fed funds rate and lower average balances in the quarter. On the lending side, the yield on the C&I portfolio came down 27 basis points as compared to last quarter. As the floating rate portion of the portfolio repriced tied to the reduction in prime rate and the reduction in SOFR. But the yields on the other loan portfolios remain at very similar levels. Resulting in an overall reduction of only eight of the loan portfolios of only seven basis points. This reduction in yields was in part partially compensated by an increase of $155 million in the average balance of loan portfolios. We expect that some of the same dynamics in 2026, some of the same dynamics that drove margin for 2025. We have approximately $848 million in cash flows during 2026 coming from securities that have an average yield of 1.65%. That would definitely be repriced at higher rates. Out of this amount, $494 million are expected in the first half of the year, you know, benefiting the second part of the year. Based on current expectations that we have for interest rate changes in the year and 2026, and our projected loan and deposit movement. We expect that margin will grow two to three basis points per quarter during 2026. Other income items, we had a $3.5 million increase against the prior quarter. Part of it was related to a $1.8 million gain from purchase income tax credits, and we also had an increase of $1.6 million in mortgage banking revenues and card processing income based on volumes of sales and transactions. Operating expenses for the quarter were $120.9 million, which is $2 million higher than last quarter. Employee compensation was $3.4 million higher, but this was related to the $2.3 million employee retention credit that was recorded during the third quarter. The actual increase was $1.1 million which was due in part to the full quarter effect merit increases that were granted in the third quarter. We also saw during the quarter an increase of $2.1 million in business promotion which is mostly related to seasonal marketing efforts. These increases were partially compensated by an improvement in OREO operations. Since you might remember that during the third quarter, we booked a $2.8 million valuation allowance on a repossessed property. That we didn't have this quarter. And we also had this quarter a reversal of $1.1 million part of the accrual for the FDIC special assessment. Expenses before OREO results and the reversal of the accrual of the FDIC special assessment were $128.8 million for the quarter, which compares to $126.2 million in the third quarter. Adding back the employee retention credit, it is slightly higher than our guidance and reflects the investments we're doing in technology. But the efficiency ratio remained strong coming down to 49% in the quarter. At this point, based on the projected trend, ongoing technology projects, and some of the business promotion efforts we were undertaking at the beginning of the year, we expect that the quarterly expense base for 2026 would be in the range of $128 to $130 million excluding the OREO losses. Gains or losses, I mean, however, we do believe that our efficiency ratio will still be in that range 50 to 52% considering the changes on the expense side, but also on the income component. In terms of asset quality, we saw a stable quarter and NPAs decreased by $5.3 million. Basically, we had two commercial cases, non-accrual cases that amounted to $15 million that were collected in the quarter. And we had a reduction of $1.8 million in OREO other real estate owned assets, the result of sales we achieved during the quarter. On the other hand, we had two C&I loan cases amounting to $12 million that migrated to nonperforming in the quarter. Overall, nonaccrual loans represent 70 basis points of total loans compared to 74 basis points at the end of the third quarter. In terms of inflows to non-accrual, they were $14 million higher this quarter, $46 million, but it related to these two cases that I mentioned that went into nonperforming. The two C&I loan cases. In terms of delinquency, we saw loans in early delinquency which we define as thirty to eighty-nine days past due. Increased $2.1 million. It was mostly on the auto portfolio that increased $7 million, but we had some reductions of $6 million in the Florida C&I loan delinquencies. The allowance for credit losses on loans increased $2 million in the quarter to $249 million representing 1.9% of loans compared to 1.89% in the third quarter. This increase mostly relates to the growth we had in the commercial and residential mortgage portfolios. Net charge off for the quarter were $20.4 million or 63 basis points of average loans. Fairly in line with the 62 basis points we had in the prior quarter. On the capital front, we obviously, our strong profitability allowed us to continue the repurchase. We did $50 million in repurchase of shares in the quarter. And we declared $28 million in dividends. Regulatory capital ratios continue to build up as these capital actions were offset by the earnings we generated in the quarter. We also registered a 4% increase in tangible book value per share to $12.29 and the TCE ratio expanded to 10% mostly due to the $38 million improvement in the fair value of available for sale investment securities. The remaining, AOCL now represents, the $2 and $22 intangible book value per share and slightly over 160 basis points in our tangible common equity ratio. Again, this year, we sustain our commitment to deliver close to the 100% of earnings, as Aurelio mentioned. Through capital actions, we repurchased a year, we repurchased $150 million in common shares. We paid $150 million in dividends. And redeem, the remaining $62 million in subordinated debentures. While growing our tangible book value per share by 24%. As we announced yesterday, our Board of Directors approved an increase of $0.02 per share quarterly dividends. And, again, our intention is to continue the approach of executing our capital actions based on market circumstances with our base assumption of repurchasing approximately $50 million in shares per quarter through 2026. But again, as we have done so far, we will continue to deploy our excess capital in a thoughtful manner. Always looking for the long-term, best interest of the franchise and our shareholders. This concludes our prepared remarks. Operator, please open up the call for questions. Becky: Thank you. If you wish to ask a question, please press. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Brett Rabatin from Hobday Group. Your line is now open. Please go ahead. Brett Rabatin: Hi, guys. This is Anya Pulsar speaking on behalf of Brett. You know, we were just wondering if you feel there's any more mix shift change with lower liquidity and any other levers that might aid the NIM going forward from here? Orlando Berges: The levers would be similar. I think it's gonna come from this cash flows on the investment portfolio. We still have those low-yielding securities that are coming due. And again, as Aurelio mentioned, we see the loan pipeline on the commercial side and residential being really strong. Not so much on the consumer side. Which are higher-yielding assets, but still the mix of these items with the options to reprice some of the deposit components as rates come down, those would be the key drivers. That's you know, the mix the two to three basis points, we just mentioned, it's that mix that we expect happening. Right now, we're assuming there is gonna be probably two more rates toward the end of the year. And two more cuts. I mean and that would have some impact. But clearly, the repricing of the commercial portfolio, the floating side, you know, does have some impact, and that's included in our numbers that you know, the rate reduction we had in mid-December obviously, it's going to reflect more on that portfolio now in the first quarter. But overall, we still feel that there should be an improvement in margin. Brett Rabatin: Thank you. And, you know, what are you guys seeing as far as competition goes? You know, how much more do you think the cost of funds could be lower with lower rates? And, yeah, I mean, what are you seeing as far as the competitive front? Orlando Berges: Well, we haven't set a specific number, but you have to look at components. Number one, we do have still some wholesale funding through broker CDs mostly. Those are repricing with market and you know, we don't have long-term issues of brokers mostly eighteen months. So those are coming they were originally issued somewhere between nine months and coming due and are being reissued to fund our Florida operation at a lower rate. The other component, it's the time deposit side. Obviously, with rates coming down, we are seeing some of the ones that were issued at higher rates now being repriced at slightly lower rates. And as rates come down, some of the other, government deposit accounts will have some repricing. Some of them are tied to market indexes. So those are where we see most of it. The regular transaction accounts they could come down a little bit, but not so much as if you go back, you'll see that didn't go up as much either when rates were going up. So we'll expect similar trends. Those accounts had, like, a 14% beta. So we don't see that changing that much, but the other components are expected to come down. Brett Rabatin: Thank you. And, you know, you guys touched on credit quality a little bit, you know, during your talk, but I was just wondering if you could expand on it's obviously fairly stable, but is there anything that you see might change that for better or for worse? Aurelio Aleman: No. You know, in reality, you know, we believe there's stability. We don't see any specific noise. You know, we saw some deterioration on the consumer delinquencies, which is normalized. Also charge off. So, you know, I think we call it stable when you look at the mix of assets. You know, mortgages, at least. Lowest ever point. And commercial, you know, similar to that. So we don't see potential disruptors on that and closely monitoring the unsecured market and the consumer. But, you know, we're encouraged by the recent trends. That we see in the portfolio. Brett Rabatin: Thank you. That's all for me. Ramon Rodriguez: Thank you. Becky: Thank you. Our next question comes from Steve Moss from Raymond James. Your line is now open. Please go ahead. Steve Moss: Good morning. Good morning, Steve. Starting here with morning. Maybe just you know, on the loan growth part, just curious regarding auto, if you have any updated thoughts about what you're seeing in that market. I heard Aurelio, your tariff comments earlier, but just kind of curious any new thoughts or incremental call you may have. Aurelio Aleman: Yeah. When we look at what happened last year, the overall market retail on the retail side, was down 10%. And most of that contraction happened after the tariff were implemented. So if you consider that it's actually the second half of the year, the reduction was over 15%. Compared to the prior year. So we believe we have seen months of stabilization, you know, at a level at a level you know, that would be around, you know, an additional 5% this year. Contraction. Considering that their normalization in the last quarter. Unless, you know, there's some reversion on the pricing, you know, it's very fluid because some of the manufacturers are still looking to adjust pricing down. Some of them implemented the tariff immediately, others didn't. The ones that didn't, you know, obviously, regain some of the share. The other lost shares. So this is you know, the percentage that I provided you is a combination of all. The industry. So we saw the quarter. You know, we saw a contraction in the portfolio of about $6 million. Overall. In the two segments, a little bit probably seven in that range. So obviously, we're looking forward to stable the portfolio, to stabilize the portfolio. And recuperate that contraction, but we don't expect any growth. At all in the segment. So unless there's adjustments on tariff or excise tax on the island. That could help that industry. Still a pretty good year for the auto sector. We're just coming from exceptional years, so everything is relative to the prior period. But, you know, it will be stable if we compare to other cycles of the auto sector. Okay. And then the consumer demand consumer demand demand on the other products is kind of stable, but we don't expect we don't see we don't see growth as you continue to focus on underwriting in a sound manner. Steve Moss: Okay. That's helpful. And then on the security cash flow, just kind of curious as to how you're thinking about the reinvestment of the proceeds here. Is that largely continued new investment securities purchases? And just maybe curious as to what you're assuming for the yield on those cash flows. Orlando Berges: Well, you know, we don't take credit risk on the portfolio. So it's a market-driven kind of situation, but we're expecting that we can see somewhere between two and three basis points pick up on those cash flows depending on the securities and the loan side. Both of them. But we'll continue to, you know, to see agent investments, CMO investments that agency pass through. That's the kind of things that we typically do most. So, you know, the first half of the year, at this point, we're not expecting significant changes on rates. Probably, you know, June, early July, it's where we are expecting that. I think that you know, the market is somewhere in there also. And that allows us to maximize some of the reinvestment of these items. But you know, I would see I see it always as a two to three basis points pickup. On those one sixty-five that matures on the first half of the year. Steve Moss: Okay. Appreciate that, Orlando. And then on the telecom NPL, was that a club deal? Just kind of curious any color you can give there and kind of thoughts on maybe timing of potential resolution. Aurelio Aleman: Yeah. You know, there's not a lot of new information on it. Know, I think, all banks continue to work with the lead bank on understanding with the resolution. There's, you know, a lot of value behind it. So obviously, you know, I think it's just waiting as we manage any other NPA towards resolution. That's the main goal. It's just a matter of time and progress. Steve Moss: Yeah. It us, it's a small very small. Participation. Yeah. Right. Okay. And then just one last one for me here, you know, on capital, you guys been growing, you know, steady with your capital ratios here. Just kind of curious, you know, definitely on the mainland, there's more of an attitude towards greater return on capital to shareholders and reducing, you know, common equity Tier one ratios. Just kind of curious if you guys are thinking about anything along those lines being based. Aurelio Aleman: You know, obviously, our priorities are to, you know, organic growth as much as we can. You know, we continue organic expansion in Florida also. Like, we just opened in the last quarter, you know, a bump in an office in Boca Raton. We and then, you know, obviously, there could be non-organic opportunities always open and looking unless yeah. But if nothing comes to the table that meets our, you know, our accretion and value strategic value, we continue, you know, using the capital to continue deploying to shareholders buying by the shares. So we always have the three options. Organic, the most efficient. In terms of returns. The others, you know, we continue to play them both as market show opportunities. You know, we try to be as opportunistic as we can. So. Steve Moss: Okay. Great. I appreciate all that color, and step back in the queue. Nice quarter. Thank you. Becky: Thank you. Our next question comes from Kelly Motta from KBW. Your line is now open. Please go ahead. Kelly Motta: Hi. This is Charlie on Kelly Motta. Thanks for the question. Just a point of clarification. I was wondering I'm good. I was just wondering specifically, how you guys are calculating efficiency ratio. You're guiding to 52%. Is that ex OREO gains or just one clarification there. Thank you. Orlando Berges: The efficiency ratio is typically calculated with everything. As you saw, the number this quarter was included in everything. So we tend to calculate it on a GAAP basis so that it's reported consistently. You know, that number has been coming down as we have continued to, you know, sell some of those OREO properties we've had on the market. And on the older properties that we had repossessed, you know, were taken at lower values and that being compensated. So we do include it as part of the guidance of 52%, even though we do include the expense guidance without it. Because of the volatility it could present on total expenses. But the fifty-two to fifty-two guidance is on a GAAP basis considering movements and expenses and earnings and revenues. Kelly Motta: Great. Thank you. And then you saw some great non-interest bearing deposit flows this quarter. Wondering if you could dig into that a little and remind us of any seasonality or changes in go-to-market strategy that drove this? Thank you. Aurelio Aleman: Well, that is, you know, that is a goal. You know, that's the value of the franchise, and you know, we have multiple initiatives always in play to achieve that. And build, you know, core relationships that bring that. So, you know, it's a core strategy that we put a lot of emphasis across our regions. And, you know, for this year, we know, it's the inefficiency ratio Orlando mentioned, for example, we will be opening a new branch on the West Coast in a town that there's only one bank. Competing. So that's an area that we've been expanding. So and that obviously the goal is to, you know, grow customers, grow non-interest bearing deposits, and grow loans in the same regions. Which the branch also is a vehicle for small business lending. And all types of loan origination. So, you know, it's a good strategy and, you know, obviously, you have to look for tactics and sales strategies. And products to achieve it. Kelly Motta: Great. Thanks for taking my questions. I'll step back. Thank you. Becky: Thank you. That's star followed by one. Currently have no further questions. So I'll hand back over to Ramon for closing remarks. Ramon Rodriguez: Thanks to everyone for participating in today's call. We will be attending BOA Financial Services Conference in Miami on February 10, KBW's conference in Boca on February 12. We look forward to seeing a number of you at these events, and we greatly appreciate your continued support. Have a great day. Thank you. Becky: This concludes today's call. Thank you all for joining us. You may now disconnect your lines.
Todd Ernst: Thanks, Josh, and good morning, everyone, and welcome to Northrop Grumman's fourth quarter 2025 Conference Call. Before we start, matters discussed on today's call, including guidance outlooks for 2026 and beyond, reflect the company's judgment based on information available at the time of this call. They constitute forward-looking statements pursuant to safe harbor provisions of federal securities laws. Forward-looking statements involve risks and uncertainties, including those noted in today's press release and our SEC filings. These risks and uncertainties may cause actual company results to differ materially. Today's call will include non-GAAP financial measures that are reconciled to our GAAP results in our earnings release. In addition, we will refer to a presentation that is posted to our Investor Relations website. On the call today are Kathy Warden, our Chair, CEO and President John Green, our CFO and Ken Crews, our CFO prior to January 7. At this time, I'd like to turn the call over to Kathy. Kathy? Kathy Warden: Thanks, Todd. Good morning, and thank you for joining our fourth quarter and full year 2025 earnings call. The Northrop Grumman team delivered another quarter of strong operating results, generating the highest quarterly sales growth of 2025 and exceeding expectations across our key performance metrics. Throughout the year, we kept a disciplined approach in executing our strategy. Remaining true to our technology leadership and ensuring our company moves at the speed of relevance. Particularly as our customers transform the way they acquire defense capabilities. This business strategy includes our capital deployment plan. Prioritizes investments in value-creating growth opportunities of which there are many in this current environment. Northrop Grumman's portfolio is aligned to what US and customers need right now. And we see a clear path to continued solid growth in the future. We ended the year with over $95 billion in backlog, a new company record. Driven by over $46 billion in net awards in 2025. Our backlog has grown by nearly $20 billion since 2021, and our five-year average book-to-bill ratio has been 1.1 times. Our 2025 sales and EPS both exceeded the high end of our guidance range. And free cash flow was $3.3 billion for the year. This represents a 26% increase in free cash flow compared to 2024. The third consecutive year of at least 25% growth. This strong performance provides momentum for our company in an increased demand environment. And gives us continued confidence in our outlook This confidence is rooted in our conviction that we have a talented engineering and operations team and a portfolio uniquely designed to deliver the capabilities needed by our US and international customers. In The US, we are aligned with the administration's and congress's focus on expanding American manufacturing capabilities and capacity on critical program. Ensuring technological superiority. We have purposely built and shaped our portfolio with a focus on our customers' demand signal. We are a leader in developing and delivering advanced and often considered exquisite capabilities, which are at the core of US war fighting today. However, we have also demonstrated that we can design and develop more affordable solutions that can be produced en masse and fielded quickly. One example of this is high volume space assets that we are building for the space development agency. Including our fourth quarter award for 18 Tranche three tracking layer satellites which brings our total SDA satellite backlog to 150. Our missile tracking solution leverages our broad set of missile defense capabilities, to provide global detection, warning, and tracking of hypersonic weapons, and advanced missiles from the earliest stages of launch through interception. Protecting the homeland is a top priority for the Trump administration, as outlined in the recently released National Defense Strategy. In alignment with the Department of War's focus on acquisition transformation, we are transforming Northrop Grumman. We are moving with urgency and proactive bringing innovative solutions to our customers. An example of this includes the latest advancements in our uncrewed portfolio. The first of which is project Talon. An evolution of our collaborative combat aircraft increment one design that strikes a balance between capability, and affordability. Project Talend was designed and built in under twenty four months. To accelerate the development, we leveraged our autonomous test bed ecosystem Beacon, which is now known as Talend IQ. Project Talon built on Northrop Grumman's seven decades of experience with advanced battle tested uncrewed systems. In December, the same month that we unveiled it, the US Air Force awarded our aircraft with a designator. The YFQ 48 a. This is only the third CCA platform to have the type of designation. Beyond the interest the Air Force has shown in this system, we also believe Talend will have broad global appeal. I want to highlight a second example in our uncrewed market. Which speaks to our partnership approach. We team with Kratos to develop a collaborative combat aircraft for the marine, and received a $231 million award late last year. The expeditionary uncrewed aircraft combines our batch experience in multifunction mission systems with Kratos' proven platform, the Valkyrie. We've completed more than 20 successful demonstrations in operationally relevant environments, and we are working to wrap fill this capability to work alongside crude fighters. Our focus extends well beyond developing the next generation of space and airborne uncrewed platforms. We are equally dedicated to scaling our operations across our portfolio to meet rapidly increasing demand including critical areas like munitions. To address the growth in munitions, we have made significant investments to expand capacity for existing programs and in support of second source initiatives. Since 2021, we have successfully doubled our production capacity for tactical solid rocket motors at our ABL facility in West Virginia and are now advancing efforts to further increase that capacity by another 50%. Effectively tripling our tactical SRM production capabilities at that facility by early twenty twenty seven. And we are making similar investments to expand capacity at our Elkton, Maryland site to triple capacity there by 2030. This proactive approach places us in a strong position as the weapons market continues to expand. On one end of the spectrum, we are developing cost effective solutions that can be quickly designed, produced, and deployed at scale. On the other end of the spectrum, for our nation. we are also developing and producing unmatched strategic deterrence assets This includes executing on normal numerous programs in the restricted arena comprises over 30% of our business. It also encompasses emerging areas and space, which has evolved into a warfighting domain. Space security or capabilities to protect space assets represent a tremendous growth opportunity for our company given our proven technology and experience in this domain. And these capabilities are fundamental to maintaining the most advanced military in the world. And, of course, our contribution to strategic deterrence also includes our work. On modernization of the triad. Regarding status of our work on the triad, the b 21 program is meeting key milestones, including first flight of the second aircraft in 2025. In the fourth quarter, as expected, we were awarded the LRIP Lot three contract. As well as advanced procurement funding for lot five. We continue to work closely with the air force on plans to increase the production rate of the program. Our priority is to establish a mutually beneficial agreement that accelerates the delivery of this game changing capability to our nation. Funding for this acceleration has been approved as part of the reconciliation bill, and I am optimistic that we will come to an agreement with the air force this quarter. We also continue to make progress on Sentinel, advancing key aspects while partnering with the Air Force to restructure the program. In addition, to continued progress on the missile, we are maturing launch silo designs moving forward with prototyping activities in the command and launch segment of the program. In The United States, our customers are turning to industry to move beyond traditional business models, breakdown bureaucracy, and increase deliveries of capabilities at a faster pace. Importantly, they have backed this request with funding. And this creates an immense opportunity for Northrop Grumman. We are encouraged by the recent 1 and a half trillion dollar FY twenty seven budget recommendation which indicates the potential for historic growth in defense spending. And in support of this approach, we are bringing proposals forward to accelerate our program, embrace new ways of working, and partner more effectively with our customers. Our company is well aligned with the administration administration and congress's focus on speed, capacity, and performance all in support of national defense. We are hopeful that FY '26 defense appropriations will be completed soon, and we see strong support for the capabilities we deliver to the warfighter in the bill moving through Congress now. We also expect reconciliation reconciliation investments to move forward this year. Internationally, we are experiencing strong momentum as allied nations increasingly invest in enhancing their national security capability. Our international growth strategy focuses on both x exporting products manufactured in The United States and forming industrial partnerships. To develop indigenous capabilities in these nations. We are successfully executing this strategy. With international sales growing by 20% in 2025. Demand signals remain strong. And we anticipate continued growth in 2026 and beyond. The global appetite for our technology is fueling this demand, particularly in air and missile defense systems, advanced munitions, radars, and a diverse array of airborne capabilities. We've now received formal requests to acquire IDCS from over 20 countries, and we are seeing notable progress on multiple other opportunities including ground based radars where we are expecting contracts from customers in The Americas, Middle East, and Asia Pacific. The robust global demand environment supports our 2026 guidance. Which is consistent with the outlook we provided you in October. We're positioned to deliver another strong year of sales and margin growth, enabling our ability to generate cash, and invest in our business. As a result, we expect to increase capital expenditures this year. Our focus will be on a variety of high impact value generating initiatives in areas such as solid rocket motors, missile defense, advanced technologies, and restricted capability. These investments are intended to create long term value for both our customers and shareholders by delivering advanced solutions quickly. Enabling our military to maintain its competitive edge. 2025 was a strong year for our company, and we are well positioned to continue this success into 2026 and beyond. I'd like to thank the entire Northrop Grumman team for their contributions to our results and your dedication to our customers. We are proud of the impact our products have on global peace and stability. And we share the sense of responsibility and urgency our customers have to provide our nation and allies the best products in the world. Before turning the call over to Ken, I wanna welcome John Green, who joined our team as CFO earlier this month. John is an experienced CFO and has a proven track record of driving growth and operational excellence and I look forward to working with him. I also want to extend my deepest gratitude to Ken for his leadership and significant contributions during his more than twenty year career with Northrop Grumman, He was instrumental to our strong finish to 2025 and he has ensured a smooth transition to John. Thank you, Ken. I'll turn the call over to you. Ken Crews: Morning, everyone, and thank you, Kathy. Today, I'll walk you through our 2025 results, after which John will discuss our outlook for 2026. 2025 marks another year of strong financial performance. Reflecting robust demand for Northrop Grumman capabilities and our continued focus on operational excellence. I will begin with top line results on slide five. Fourth quarter sales were $11.7 billion up 10% compared to the prior year. On a sequential basis, Q4 sales accelerated 12%. Consistent with the expectations we outlined on prior earnings calls. With Q4 representing 28% of our full year sales volume. Aeronautics Systems was the fastest growing segment in the fourth quarter, with sales of $3.9 billion up 18% compared to the prior year. The increase was driven by material timing on the F-thirty five program, continued ramp on Takimo, and higher volume on the B-twenty one program. Enabled by the liquidation of inventory associated with LRIP Lot three and Lot five advanced procurement awards received in the quarter. At DS, Q4 sales grew by 7% on a GAAP basis 12% organically, with broad based growth throughout their portfolio. This included higher volume, producing solid rocket motors for the guided multiple launch rocket system, higher sales in the missile defense portfolio, primarily IPCS, and an increase on the Sentinel on Sentinel as the program continues to ramp. Mission Systems achieved double digit growth in Q4, driven by strong production volume on restricted programs, F-thirty five, CWIP, and international radar systems. And as we expected, the space segment returned to growth in the period, with sales up 5% compared to fourth quarter of last year, Higher sales were driven by increased production of Gen 63 motors, for Amazon's Project LEO and increased volume on certain restricted programs. In total, 2025 sales were $42 billion up 3% organically compared to the prior year. And above the high end of the guidance range we provided in Q3. Moving to bottom line on slide six. Strong operational performance continued in Q4. With segment operating income up 10% year over year and a segment operating margin rate of 11.2%. AS operating income increased by 20% driven by higher sales volume and sound program execution. And there were no significant changes to the b 21 EAC in the quarter. Defense Systems operating income was down modestly, principally due to lower net EAC adjustments in the period. Higher sales volume at MS, coupled with favorable mix in the quarter, led to a 9% increase in operating income. And the space segment had an outstanding quarter of operational performance. With operating income up 17% and an operating margin rate of 11.3%. These results were driven by higher net EAC adjustments, and a more favorable contract mix. Turning to EPS on Slide seven. Q4 mark to market adjusted earnings per share were $7.23 up 13% compared to last year. The increase was driven by higher sales and strong segment performance. Lastly, I'll take a moment to discuss our cash performance. We had a particularly strong quarter of cash generation in Q4. As is our seasonal pattern. For the year, we generated $3.3 billion in free cash flow, near the high end of our guidance range, up 26% compared to 2024. I would like to conclude by expressing my appreciation for the Norfolk Grumman team. It has been an honor to work with so many amazing people over my twenty two year tenure. I wanna thank this team for their partnership and unwavering commitment to our customers, shareholders, and fellow teammates. I would also like to congratulate John. I've enjoyed working with him over the transition period. And I am confident that the Norfolk Grumman team continue to achieve great things moving forward. John, over to you. John Green: Thank you, Ken, and good morning, everyone. It's an exciting time to join Northrop Grumman as we enter 2026 with strong momentum across our portfolio. I'll begin on Slide eight. By walking you through our guidance for 2026 including expectations for a year of broad based growth across the portfolio. Notably, our guidance is consistent with the outlook provided in October and does not yet include an accelerated B-twenty one production rate. For 2026, we expect sales to be between $43.5 billion and $44 billion representing mid single digit growth at the company. This is supported by strength across all four business segments and builds upon our disciplined execution and market demand. We expect Q1 sales to be up low single digits partially driven by fewer working days in the quarter, Growth is expected to accelerate throughout the year, similar to the cadence experienced in 2025. On the bottom line, execution and margin expansion over time. we remain focused on disciplined program execution Driven by cost efficiencies, operational leverage, and mix. 2026 segment operating income is projected to be between 4.85 and $5 billion reflecting continued strong performance and a low to mid 11% segment operating margin. 2026 mark to market adjustment adjusted earnings per share are expected between $27.4 and $27.90 up mid single digits. This includes our latest estimate for pension income. An effective tax rate of low to mid 17% and $620 million in interest expense. We expect roughly $280 million in other unallocated corporate expenses in 2026. A level that is reflective of our normal run rate excluding unique and extraordinary items. We are assuming our share count will remain relatively flat. In 2026, free cash flow continues to be estimated between 3.1 and $3.5 billion We are offsetting a higher capital spend outlook with strong operational cash flows. Moving to segment level guidance on Slide nine. AS sales are expected to grow to mid $13 billion This growth is supported by increased volume on programs like b 21 and taco mo. Partially offset by lower materials volumes and stable production rates on the F-thirty five and E-two programs. We also expect a modest headwind on the FA 18 program with the final production locked completed in the 2025. Margins are projected to be low to mid-nine percent. Reflecting the higher mix of development programs. DS remains our fastest growing segment. With sales expected to rise in the low double digits organically to the mid to high $8 billion range. Growth will be broad based, driven by strong demand across weapons, missile defense, and strategic deterrence programs. Operating margins are expected to remain steady at around 10% comparable to the performance in 2025 absent the $76 million favorable EAC adjustment on Sentinel. MS is projected to deliver sales in the high $12 billion range building on double digit growth in 2025 with broad based demand across their diverse portfolio. Investments in digital technology, and factory utilization continue to drive efficiency improvements with margin expected to improve further into the high 14% range this year. Space segment sales are expected to grow to approximately $11 billion in 2026. Growth drivers include higher sales on multiple restricted space and missile defense programs, We expect stable GEM 63 volumes and modest headwinds on NASA programs. Operating income is forecasted to be in the 11% range. Consistent with the prior year. Lastly, intersegment eliminations are projected to be approximately $2.4 billion with a high 13% OM rate. Turning to pension performance on slide 10. 2025 ended on a strong note. With asset returns of 11.3%, improving our funding status to 106%. This year, cash recoveries are forecasted at $245 million slightly lower than prior projections due to our favorable funding status. We expect to make minimal annual cash contributions over the next several years. Consistent with prior guidance. I'll end my prepared remarks with a few comments on capital deployment. First, $527 million of fixed rate debt will mature in March, and we in intend to pay down the note with cash on hand. Our capital deployment strategy remains focused on driving growth and reinvesting in the business to maximize shareholder value In 2026, capital expenditures are projected to be $1.65 billion approximately 4% of total sales. This represents an increase compared to prior expectations based on the strong demand environment we see ahead. These investments will enhance production capacity and support the industrial base, ensuring we're positioned to deliver growth well into the future. Before I close, I wanted to share some personal thoughts. I'm honored to join Northrop Grumman in support of its mission at such an important and exciting time. In the coming years, I look forward to working with this outstanding management team to on our strategy and deliver value for our stakeholders. In summary, 2026 is shaping up to be another year of strong growth with continued momentum across our portfolio. Before I open up the line for Q and A, I also want to thank Ken for his tremendous support during our transition. With that, let's open the call for Q and A. Operator: To ask a question, please press 11 on your telephone. And wait for your name to be announced. Again, press 11 to ask a question. Please limit yourself to one question and one follow-up. One moment for questions. Our first question comes from Ronald Epstein with Bank of America. Ronald Epstein: Good morning, we could just pick up on your remarks your prepared remarks on transforming Northrop Grumman I mean, how are how are you broadly thinking about the how a company would breadth and depth and legacy of Northrop Grumman and how that jives with this push towards, you know, the the nontraditional I mean, you you pointed out a couple of the the CCA programs and unmanned stuff that you've done. But, I mean, kinda strategically broadly, how are you thinking about it? Because it seems like you all are doing quite well at it. But just if we could maybe you know, however the cliche is, double click on that or peel back the onion on Kathy Warden: Yeah. Thanks, Ron, for the question. As you said, we have been transforming the way we are meeting our customers' needs. I talked about it somewhat in my prepared remarks, how our strategy for technology leadership has not changed. But we are directing that talented engineering and operations team to be able to design products that can be fielded more quickly. Or balancing the need for performance with affordability and speed to market. And so we believe that we have all of the foundation to meet this moment, but we are directing that talent in ways that are more applicable what this administration has a strong sense of urgency to do, which is field capability quickly. And I'd also say that we have been investing This is not something we've just started doing this year as you know, we have been investing in our business to build capacity and capacity is critical to fielding capability quickly. And we have that capacity ready to go in many areas. I talked about solid rocket motors and how we have already doubled capacity and will have tripled by early next year. I talked about the work that we are doing in space we've gone from producing tens of satellites a year to hundreds. And we are also obviously looking to accelerate programs like B21 and so across this entire portfolio, we have the opportunity to lean into moving faster and we're organizing ourselves to be able to do that. Ronald Epstein: Alright. Thank you very much. Operator: Thank you. Our next question comes from Sheila Kahyaoglu with Jefferies. You may proceed. Sheila Kahyaoglu: Good morning, everyone, and thank you. Kathy, maybe expanding on the Ron's question a little bit and your answer, You know, the fiscal twenty seven budget provides a lot of money out there to be contracted and you know, as you think about your '26 plan and thinking about the longer term trajectory of growth, where do you see the biggest opportunities for acceleration? And how do you balance that with some of the investments that you need with that capacity? Kathy Warden: Yes. Thank you, Sheila. We are absolutely taking a balanced approach to what we have incorporated into our guidance. And what we still see as opportunity ahead. So what is incorporated into our guidance is where we see clear funding and where we have accumulated backlog or we have a high expectation of award. There are a few areas that we've specifically called out, like B21 and Apex, where we have not incorporated that yet into our guidance. FAXX is the name that we use for APeX. So that is really how we are thinking about our 2026 guidance There is a good bit of opportunity out there for our team to go capture in this opportunity rich environment but we have incorporated into our guidance what we clearly believe is headed toward contract or already in our backlog. Sheila Kahyaoglu: Got it. So maybe my follow-up is, as we think about '26 growth in the mid single digit range, does it accelerate from there in '27 as we think about international coupled on to that? Kathy Warden: We believe that it does based on what signals we are receiving regarding the FY27 US budget. And the fact that we see continued acceleration of demand to a few of the areas of growth that we expect to see. We believe we will have a book to bill internationally well above one again this year. And that positions us for growth into 2027. Thank you. Operator: Thank you. Our next question comes from Christine Lewand with Morgan Stanley. You may proceed. Kristine Liwag: Maybe, Kathy, going back into the 2026 revenue outlook, backlog is at a new record $96 billion as you called out, and the midpoint of your outlook provides 4% year over year growth. Can you talk about what's driving the significant conservatism in your outlook What are the key variables that convert more of this backlog into revenue? And can you size the B21 and the FAX that's not in your guidance if those contracts were to firm up how could that change your '26 outlook? Thank you. Kathy Warden: Mhmm. So, Christine, you call it conservatism. I'll call it a balanced approach. It's a dynamic environment And so as we look at 2026, we believe we have invested in the areas that will see significant growth in the coming years. Munitions, which I spoke to with our solid rocket motor capacity. Golden Gelm and associated opportunities for homeland defense, the FAXX program, our collaborative combat aircraft offering, Yet, as we sit here in January, we have not yet seen those opportunities progress toward contract. And we believe that will happen over the next twenty four months. The timing of that is what is much more difficult to predict as we sit here. And so in terms of translating into 2026 sales upside, we believe there is opportunity there. But difficult to put our finger on. As we look to 2027, we feel much more confident that those opportunities will lead to increasing sales. And we're taking the long view as we always have both in how we think about investment, but also the long term growth trajectory of the enterprise. Thank you, Kathy. Kristine Liwag: Thank you. Operator: Our next question comes from Scott Duchall with Deutsche Bank. You may proceed. Scott Deuschle: Hey. Good morning. John or Ken, you you got a big award on Gen 63 here in the quarter. But I believe in your prepared remarks, you called for flat volumes on that program. So can you just clarify why the volumes are flat? On gen 63 in light of that award? And should we expect growth there to reaccelerate in 2027? Ken Crews: Yes. As you know, Scott, this is Ken. Historically, this is an area where we've been investing in capacity. And so when we think about 2026, it will be flat year over year as we continue to expand that capacity. To your point, in 2027, we do expect 63 to continue to grow. And over the long term, will continue to be one of the growth drivers for our space systems segment on top of other activities, including the restricted, space security. Scott Deuschle: Okay. And then, Kathy, sorry if I missed this, but if the b 21 acceleration of work hits in the quarter, should we think about that as being potentially additive to 2026 EBIT? Dollars? Or is it more of a wash in 2026? Kathy Warden: So as we sit here today, we are still working through the finer points of that deal and its financial implications for the company, we do expect to invest 2 to $3 billion over a multiyear period. We do expect to have a better opportunity for returns on the program, again, over multiyear period. And we do expect accelerated revenue as a result again, ramping over a multiyear period. So you won't see a tremendous amount of impact in 2026 The greater impact of all of those components that I just outlined will have happen 'twenty seven, 'twenty eight and somewhat into 'twenty nine. Hopefully that gives you a better sense for modeling. Scott Deuschle: It does. Thank you. Ken Crews: Mhmm. Operator: Thank you. Our next question comes from Robert Stallard with Vertical Research. You may proceed. Robert Stallard: Thanks so much. Good morning. Kathy Warden: Good morning. Robert Stallard: If I'm correct, I don't think your prepared comments had any mention whatsoever of dividends or buybacks. So I was wondering if you could give us an update to what your thoughts are there, particularly given recent commentary from the U. S. Government. John Green: Yes. I'll be happy to take that. So when the team built the plan, we took a look at our capital allocation strategy and what we're seeing and what the team saw was robust robust opportunity to deliver future earnings through through investment. So we made a decision to keep the share count flat and increase our spending on property, plant, and equipment in order to build out the industrial base similar to what I commented in my prepared remarks. So you know, the plan at this point is is not to execute on additional buybacks beyond the end of of of this month, January. And the dividend will be agreed with the board in the May time frame. So we expect associated with the second quarter earnings that we'll have an update on that. Robert Stallard: Okay. And then a quick follow-up, she links into that. In terms of the growth going forward, how much of this is dependent on the supply chain? Are they a pacing item here? And do you expect, Northrop Grumman to have to invest, its own money in the supply chain? Kathy Warden: So as I mentioned, we are already partnering with our supply chain as we look at capacity expansion. We do detailed operations planning with our supply chain, and in most cases, they are investing along We do see areas that we work with federal government that need to be shored up not just for our contracts, but more broadly, this tends to be at lower levels of the supply chain areas like raw material, including rare earth, and in those cases, the government often is directly engaging with those participants in the supply chain to address any shortages that we see. But most of the activity is through us and our direct work with our supply chain. Robert Stallard: Okay. That's great. Thank you very much. Mhmm. Ken Crews: Thank you. Operator: Our next question comes from Seth Seifman with JPMorgan. You may proceed. Seth Seifman: Hey. Thanks very much, and good morning, everyone. Just wanted to maybe clarify on that last question. I mean, I think the assumption is that Northrop will continue to be paying dividends, I I assume. Right? John Green: Yes. Yes. 100%. Yes. Okay. We're simply talking about the May time frame is when our board looks at our annual increase in the dividend. And so it would be premature to speculate on that. Seth Seifman: Okay. Okay. Alright. And and then with regard to the the remainder of the cash, I guess, we, you know, is three let's say, 300 million or so cash and then we think about the dividend. And so probably left with about $2 billion and I think you talked about repaying $05 billion of debt. You know, well over $4 billion on the balance sheet. Do you anticipate holding more cash on the balance sheet? Do you anticipate that there might be opportunities that emerge within you know, the year or or shortly after that would require significantly more near term capital investments? Or or what would happen to the balance of of this year's cash flow? John Green: Yeah. Seth, why don't I try to hit it and then I'll get some support from Kathy. So in terms of the overall cash position of the company, we're in a situation where we see great to invest. So I mentioned the increase in in the capital deployment. Certainly, some cash be allocated to that. We also as we look at our day to day cash position, I think there's an opportunity to maybe scale that up slightly given given the growth of the business over the past four or five years. So so we'll be looking at that And then in the debt stack, there is there's some at least one note that the coupon's over 7%. So we'll we'll take a look at at the analysis around that, and see if it makes sense to deploy some cash that way. But, you you know, the great thing is to summarize, is the the cash conversion cycle of the business is Yeah. Is outstanding. And, you know, we'll have an opportunity to make smart decisions terms of how we're gonna deploy cash and make sure we're we're efficient with it. Seth Seifman: Great. Thanks very much. Operator: Thank you. Our next question comes from Gavin Parsons with UBS. You may proceed. Gavin Parsons: Hey. Thank you. Good morning. John Green: Good morning. Gavin Parsons: Looks like you're absorbing higher CapEx in your free cash flow guidance this year, but do you still have line of sight to $4 billion in 2028? Kathy Warden: Gavin, it's a little early to project 2028 at this point based on the set of opportunities that I mentioned earlier. So with B-twenty one, if we are afforded the opportunity to accelerate that program, it will be good for our shareholders in terms of long term revenue profile and earnings, but we will need to invest more in facilitating for that acceleration. We also have a number of opportunities, and I shared some of those that pending award, we want to be in a position to have cash on hand to invest more in supporting those because, again, they're well aligned with the administration's priorities and homeland defense, crude fighters, and uncrewed vehicles to name just a few. And so as we look at those sets of opportunities likely being determined later this year into early twenty twenty seven that will really set our CapEx profile. And any increased sales and earnings that we would expect to achieve as a result of those opportunities flowing into the plan. So, you know, I would just simply tell you our capital deployment strategy has not changed. The discipline around where we choose to invest has not changed. And as we factor those new opportunities in, we'll update twenty seven and twenty eight accordingly. Gavin Parsons: Okay. Appreciate it. And do you mind clarifying the b '21 investment comment you made, the the 2 billion to $3 billion Is that before or after an acceleration? Kathy Warden: That is for the acceleration. So that's only if we agree to an acceleration and it is over a multi year period of time. That's why I outlined for you that would be our expectation for total investment to get to the accelerated rates. Gavin Parsons: Thank you very much. John Green: Mhmm. Ken Crews: Thank you. Operator: Our next question comes from John Godden with Citi. You may proceed. John Godden: Hey. Thanks for taking my question. I I wanted to revisit the quarterly cadence in inorganic growth. I I think I I heard you say that it's going to accelerate throughout the year. you know, 1010% organic growth. That's on the back of a very big four q number And I wanted to just square that up a bit, and explore the possibility of of maybe a starter strong, a starter stronger start to the year than, a sharp desal Because it seems like you've got a lot of momentum exiting the year. Kathy Warden: We did have a lot of momentum the year. There are a few factors that are contributing to that profile that we talked about, which will look similar to what we experienced in 2025. One is we did have a very strong Q4 and part of that was material timing and delivery, which naturally will not reoccur in the first quarter. The second, probably most material is that the enterprise level, we have sixty one working days in the first quarter. That is a very low profile. Typically, our quarters have sixty two, sixty three, or even sixty four days. This year, that profile climbs. Usually, Q4 is And then we recover that in Q4. So those Our least number of working days this year is Q1. two things are primarily the driver for the profile this year and we expect Phil to have a good growth quarter in the first quarter It's not as strong as what we expect to have later in the year. John Godden: That that's really helpful. And and if we just kind of think through that throughout the year at the '26, you guys will be putting up the largest organic growth on the 10% comp this year. So the two year over year rate is gonna be quite dramatic. You you've talked about you know, positivity into '27, but but it seems like you know, you'd be exiting '26 with a lot of momentum and and and maybe the step up there could be quite significant. Is that the way to think about it at a high level? Kathy Warden: It absolutely is. The backlog growth that I talked about in 2025 that takes time to ramp as we progress through the year. In 2026, particularly our space business that had a very strong book to bill last year. Now we expect to see in the 2026 those opportunities really ramp top line and carry that momentum into '27, but that is true across the portfolio. John Godden: Appreciate it. Thank you. John Green: Mhmm. Operator: Thank you. Our next question comes from Myles Walton with Wolfe Research. You may proceed. Myles Walton: Thanks. Good morning. I was curious was there any net effect in the shutdown on the numbers whether in the p and l or the cash statement in the fourth quarter? And then, Kathy, bigger picture, if you know, suspending disbelief that the defense budget did climb 50%, that kind of seismic shift would suggest maybe a seismic shifts in a in a company strategy as well. Perhaps. And so what, if anything, would you kinda revisit if you did have that level of step function in terms positioning the portfolio, investing in the portfolio, maybe just communicating what investors should be looking at period. Ken Crews: Miles, I'll answer the first part of that, and I'll turn it over to Kathy. In terms of impact from shutdown, though, no major impact from shutdown, and that was reflected just due to the strong year over year growth and us exceeding the top end of our guidance range on sales but then also the $3.3 billion of cash in Q4, creating that 26%. So overall, to the first part of your question, no material impact 2025 based on the shutdown. Kathy Warden: And, Miles, to answer the second part of your question, we are already thinking about this accelerated growth environment. Certainly, trillion and a half defense budget would be a significant acceleration in national security spending, one unlike any we seen before, but the things that we are doing as a company to prepare ourselves moving the speed, building capacity, preserving cash, to ensure we can continue to deploy it back into the business to support this unprecedented growth opportunity, both in The US and abroad happening simultaneously, which is the most robust demand environment I've seen in my career. So it does have us thinking very differently as I outlined both in my prepared remarks and in answer to Ron's about how we're transforming the company. This organization is well positioned because we have been working towards this moment for years, but at the same time, there is more for us to do. And we are focused on our engineering and operations talent helping to design the right solutions so that we can be competitive. We are focused on performing against all of our commitments to earn the right to win new business, and then, of course, positioning ourselves with the capacity to deliver and to put that capacity to work. Myles Walton: K. Thank you. Operator: Thank you. Our next question comes from Ken Herbert with RBC. You may proceed. Ken Herbert: Yes. Hi. Good morning. Thanks for the question. Hey, Kathy. Maybe just can you talk about what the guidance implies for international growth in 2026? And specifically, you've called out a number of quarters now. It seems like an accelerating opportunity for IBCS particular. When could we maybe expect to see some contract announcements out that beyond beyond, obviously, the the customers you've already talked about? Kathy Warden: Mhmm. Yes. So for international, we expect 2026 to be a particularly strong year in awards, setting us up for 2027. As I noted in my prepared remarks about we do have 20 countries that have expressed interest. We expect The US and Poland to continue to expand deployment this year, and then we have another two or three that we expect to announce awards this year. And then others to follow out of that pipeline of 'twenty. What I will also say, is our international sales growth is widespread. So munitions is another area where we see significant growth and double digit, and we expect that to continue. I noted some airborne radar programs that we anticipate awards on this year. We won't see so much sales impact in 'twenty six from those The awards will come this year and then sales more in '27. And we also see just our base business continue to ramp in international content. If we look at E2D and Triton, we have international opportunities in the pipeline that will feed those production lines as well. Ken Herbert: Great. Thank you. Kathy Warden: Thank you. Operator: Our next question comes from Richard Safran with Seaport Research Partners. You may proceed. Richard Safran: Thank you. Good morning, everybody. I just have one two part question on backlog, if I might. Could you discuss the quarter over quarter changes in backlog at Space? I think is roughly up about $2.3 billion Taffy, was that all from the constellation you mentioned in your opening remarks? Or was there anything else Second part, and just to get specific on your remarks, given the strong bookings for the company, in '25, book to bill of about 1.17. Should the expectation be better than 1.17 for 2026, given your backlog growth comments and what you've been saying this morning? Ken Crews: So this is Ken. I'll take that question. The drivers of space backlog was threefold, really fourfold. It was we were able to secure the award for Gen 63, which is Amazon Project LEO, which will take deliveries well into the twenty thirties. We were also successful from a competitive award on t three track with the additional 18 satellites. We secured another launch for CRS, and then we had, significant growth in awards for on our restrictive portfolio. And, again, as you mentioned, very strong backlog, and that's two quarters in a row for space where they've been at 1.8 times sales or greater, which positions us well for the for the long term. When we think about 2026, given the strong backlog and the fact that we have some large significant programs with existing backlog, you should anticipate that book to bill around onetime sales for 2026. Richard Safran: Well, thank you very much. Ken Crews: Absolutely. Richard Safran: Thank you. Operator: Our next question comes from Gautam Khanna with TD Cowen. You may proceed. Gautam Khanna: Yeah. Thanks. Good morning, and congratulations Ken. Wanted to just ask about your perspectives on LHX entered into this transaction with their missile portfolio and the government. You guys obviously have orbital ATK. Does that does that transaction with LHX disadvantage Northrop in any way? And are there opportunities that you see within the portfolio for a similar type of government led investment. Thank you. Kathy Warden: So we have been investing in our solid rocket motor capacity, and we feel we are well positioned positioned with the capacity that we've brought online to deliver on both our commitments and additional second source initiatives that the government has asked us to be involved in. So we are funding that capacity invest We're not in discussions with the government about an arrangement similar to what they've entered into with L3Harris. And I would say that as we think about being positioned to compete, it's all about the munitions that you can support with your capacity feel good about that. It's about your performance. We feel good about that. And it's about your commitment to continue to invest, and we have shown that we will do that. So we feel well positioned to compete for what is a very broad set of opportunities in this space. I think there's room for growth for many companies. Gautam Khanna: Thank you. Operator: Thank you. Our next question comes from Douglas Arnaud with Bernstein. You may proceed. Doug Harned: Good morning. Thank you. On Sentinel, So the center of services committee has talked about now a an IOC sort of at the 2033. This this has continued to push out, and I know a lot of this is related to Air Force infrastructure. But can you talk about how we should look at the trajectory for Sentinel revenues and then also, ultimately, margins since it has to affect the timing you're going from development into more fixed price work. Kathy Warden: So, Doug, as I've noted, we are in the middle of supporting the US Air Force as they restructure the Sentinel program. And coming out of that, they will firm a schedule that both locks in new time ranges for milestone b, initial operating capability, final operating capability. And so I don't wanna get ahead of the Air Force in talking about that, but, certainly, as I have shared and the Air Force has as well, we are working to accelerate the timelines that were published coming out of the Nunn McCurdy breach two years ago. So that is the goal and we're making good progress to identifying options to do so. We still believe that the program will be in development for several years and not transitioning into production until later in the decade. And that production will very much be guided by the milestone achievement during development. So that has not changed from what we've been talking about it doesn't really impact our guidance or outlook because our outlooks only go out a few years and so we believe that that transition to production is outside of that two to three year window at this point. Doug Harned: Okay. And then on on aeronautics, you know, the the margin guidance, the load of mid single digit. Digit guidance for this year was a little lower than I think many of us expected. And I know you talked about there being, fixed, more development work. But you think of the outlook for aeronautics margins, I guess, first, what are the you talked about the development work that is sort of weighing on that margin a little bit the near term. And then should we still see the path to 10% margins in aeronautics over the next few years? Ken Crews: So, Doug, this is Ken. I'll take that question. When you look at the margin rate that we guided to for 2026, it's really driven by two factors. The first one is what's creating the growth for AS in 2026. It's b '21 where we you know, the market profile on that where it's 0%. And then it's also driven by development programs like Takimo. Our mature production activities with the higher rates are relatively stable flat when you think about F-thirty five and E-2D. So that is creating more of the growth is driven by those development programs driving that rate to the low to mid 9%. When we think about long term, it's absolutely, you know, as we have the opportunities to exit the LRIP activities on b 21 and add these other development programs shift to production, we do see AS being able to continue to create accretive margins and get back to that 10% again over the long term. Doug Harned: Okay. Very good. Thank you. You're welcome. Alright, Josh. We're gonna have to leave it there. I'll turn it back over to Kathy for closing comments. Kathy Warden: Great, Ted. So thanks. In closing, I just want to summarize that I am optimistic about the positioning of our company as we experience the significant growth in global demand This team is committed to meeting the needs of our customers for robust and scalable solutions that can be deployed rapidly and provide the strategic deterrents and decisive advantage they need. And we're equally committed to turning those opportunities into value creation for our shareholders. So thank you again for joining us on the call today. I also want to thank Ken as this is his last call with us, and the entire Northrop Grumman team for their service to the nation. And have a good day. Ken Crews: Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. You for your participation.
Operator: Good morning, and welcome to World Acceptance Corporation's Third Quarter 2026 Earnings Conference Call. This call is being recorded. At this time, all participants have been placed in a listen-only mode. Before we begin, the corporation has requested that I make the following announcement. The comments made during this conference call may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that represent the corporation's expectations and beliefs concerning future events. Such forward-looking statements are about matters that are inherently subject to risks and uncertainties, statements other than those of historical fact, as well as those identified by words anticipate, estimate, intend, plan, expect, believe, may, will, and should, or any variation of the foregoing and similar expressions are forward-looking statements. Additional information regarding forward-looking statements and any factors that could cause actual results performance to differ from the expectations expressed or implied in such forward-looking statements are included in the paragraph discussion forward-looking statements in today's earnings press release and in the Risk Factors section of the corporation's most recent Form 10-Ks for the fiscal year ended 03/31/2025, and subsequent reports filed with or furnished to the SEC from time to time. The corporation does not undertake any obligation to update any forward-looking statements it makes. At this time, it is my pleasure to turn the floor over to your host, Chad Prashad, President and Chief Executive Officer. Chad Prashad: Good morning. Thank you for joining our fiscal 2026 third quarter earnings call. There are a few important aspects of the portfolio to cover in more detail. While we originated 16% more in new customer volume during the quarter, we actually ended the quarter with 25% more outstanding ledger. Our active new customers than the same quarter of last year. And our new customers are, again, our riskiest customer segment. This 25% increase in the new customer outstanding portfolio required around an $8 million additional provision for this customer segment in the same quarter last year. The third quarter had the highest new customers since the same quarter of calendar 2021. Already, early performance indicates that these continue to be good investments in line with expectations. Compared to the prior high volume mark, of the 2021, the first pay defaults are already 19% lower relatively speaking. In addition, we continue to make credit box improvements on a regular basis. In some cases, we changes are due to credit performance in small credit and geographical pockets. But the majority of improvements in underwriting are to drive a faster return on the initial investment, and increase long term ROI with our most loyal customers. This is a long term investment that will continue to improve both credit performance as well as customer retention. When combined continue to improve long term yields. As we noted, yields improved 84 basis points year over year, as income has also improved. We expect this trend to continue due to improved rates in a few states, continued discipline with credit limits and underwriting, improving customer retention as longer tenured customers are also lower risk for us, and continued smart investments in our customer base and overall ledger. Our customer base has grown substantially around 5.4% organically year over year. To put that in perspective, last year we grew 2.2%, year over year. And declined in the two years prior to that. One of our largest growth years was in fiscal year 2022, where we experienced a 5.6% increase in our customer base organically. As mentioned earlier, the first pay default rates on our new customers made during the third quarter of this year already 19% lower, relatively speaking, than new customers of that same year of fiscal 2022. Organic growth in ledger is 2.4% year over year compared to a decline of 2.4% last year. Our average outstanding loan has declined around 2.5% in average balance year over year. That's due to the increased discipline around our underwriting, and larger investments in new customers who are typically at lower balances. Again, this all combines to improve gross yields. Year over year earnings comparisons are complicated with the headwinds during this quarter of increased share based comp expense, personnel expense, as we have temporarily overstaffed to improve our branch team members. Investments in new customers as well as our provision for loan losses. However, we remain committed to the long term soundness and profitability of the portfolio and operations. We're most excited about putting several years several years of shrinking the portfolio behind us. And continuing to see these gross yields grow. The customer base continues to expand and customer retention and tenure continues to improve. As one of our largest investments, we continue to be focused on improving branch operations and personnel management. This year, we've already repurchased nearly 600,000 shares. Reducing our outstanding shares by 11% the first nine months of the year. We have over $60 million of remaining capacity for repurchases, is approximately 9% of the outstanding shares as of yesterday's closing price. Would a total of around 20% of outstanding shares this year. As a mid quarter update, which very early in our tax filing season, and we've already seen substantial improvement year over year in both the volume of filings as well as the revenue. While the current ice storm has affected approximately 10 of our states so far this week, by some portion of their branches being closed we are optimistic and continue to be optimistic that we'll experience an increase in tax filing volume and revenue throughout this quarter. I'd also like to take a moment to thank Clint Dyer his incredible contribution to the company over the last thirty years. To celebrate his upcoming retirement. Clint's added tremendous value to our branch leadership over the decades and has produced many of our key leaders under his mentorship. We wish him the best his upcoming adventures. I'm also grateful to our branch leadership under Clint for their commitment to world and embracing the new style that Tovin Turner has brought in and stepping in to lead branch operations during the transition. Sylvan brings his deep knowledge of of analytics and marketing as well as retail operations to his approach of the management structure. We are excited about the current portfolio and its trajectory again includes substantial customer base expansion, strong loan growth, improved loan approval rates while maintaining credit quality. Stable and improving delinquency lower cost of acquisitions and improving yields as well as declining share count. All of which ultimately returns value to our shareholders through strong earnings per share growth. At this time, Johnny Calmes, our Chief Financial and Strategy Officer, and I would to open up to any questions you Operator: Thank you. We will now begin the question and answer session. And the first question today will come from Kyle Joseph with Stephens. Please go ahead. Kyle Joseph: Hey, good morning. Thanks for taking my questions. I totally get the dynamics of the portfolio growth and and particularly related to to new consumers. But just looking for an update on kind of the health of the underlying consumer aside from that. Obviously, there were concerns in the fall. Particularly related to the auto segment. But just any any trends you kinda seen in the consumer since then, and and then how you're thinking about the outlook in the tax refund season with all the headlines that the consumers are expected to get larger tax refunds. Chad Prashad: Yeah. I would say from the overall consumer perspective, we haven't seen a degradation in in collections or in credit quality. There has been a I would say, a slight increase in demand There's also been a a significant decrease in our cost of acquisition for our higher credit quality new customers, which may be related to that. May not not really super sure on that one. But we haven't seen a significant change in our consumer behavior whether it's due to you know, tariffs or, you know, other expenses. On the the tax filing side, we are seeing definitely an increased demand in taxes and tax filings. We are expecting to see larger returns or larger refunds this year a lot of those are probably due to some of the tax law changes last year that would affect our customer base in particular We have also changed marketing sort of last minute early in January, late December to to really attract customers who are gonna be in some of those segments, customers who are either paid but through tips so there's a you know, might be experiencing refunds this season or other sort of changes in the tax code from last year. But on the tax filing side, we we do remain optimistic this will be a very strong tax year for us. Kyle Joseph: Got it. And then, yes, just shifting to G and A. The growth there, get the sense it was largely incentive comp and and, you know, the majority of that was stock based comp. I I think a a couple calls ago, you gave us kind of a a little bit of a schedule in terms of, you know, how long it would be elevated. Can you just, you know, walk us through if there's any sort of if it should be elevated in the coming quarters or how you would expect the personal line personnel line item to to trend coming first. Johnny Calmes: Yeah. So you you you should start to see that incentive line come down starting with Q4 There was a share based comp grant last December has been fully expensed to this point. And there'll be another sort of cliff in December year. And but also, the sort of the field level incentives could start to tighten a little bit as we move forward as well. So I do expect to see some some decent decreases in in that incentive comp expense going forward. Kyle Joseph: Got it. That's it for me. Thanks for taking my questions. Operator: And the next question will come from Guy Riegel with Ingalls and Snyder. Please go ahead. Guy Riegel: Hi, guys. Question, in the report earnings report, you had talked about an increase in headcount in the field level offices branch offices. And then and you spoke about deciding to have a reduction in headcount going forward of of 3% to 5% Why the increase? And then why the decision to decrease? Chad Prashad: Yeah. Great question. So first, the decision to increase was building up a quality team in anticipation of some reduction in some underperforming team members and also some underperforming parts of the company. So really, it's it's building up in advance of turnover. We've done it across, I would say, roughly 80% of the company and about 50% of that was done very quickly. There's still sort of a a lagging period where in anticipation of of turnover or some underperforming team members, we're we're holding on to some of our underperforming team members a little longer than anticipated as we're building up the base there, if that makes sense. So really, it's just building up in anticipation of that turnover. So should expect to see the reduction pretty quickly within this quarter. Guy Riegel: I see. And the underperformers, is it related to their ability not to collect or just any color on that? Chad Prashad: Yeah. It's it's it's related to a number of things. One of those is their ability not to collect. I think just just overall performance in general, engagement, that sort of thing in in the current operating environment. Guy Riegel: Okay. And one last question. I don't know if you have a crystal you don't have a crystal ball, but the headlines related to a 10% cap on credit cards. Was any of that related to underwriting? I mean, you guys underwrite your the loans you you make. Was there any discussion about your area Chad Prashad: So as far as I know, there's been no discussions how that would relate to installment loans. But I would imagine with a 10% rate cap with the current cost of capital in the environment, there would be a severe reduction in access to credit cards. And, you know, my rough estimate would be somewhere around the seven fifty to seven eighty credit score. Anyone who's below that would probably see a sort severe reduction in their access to credit. I think it would it would definitely drive up demand for our product or for installment loans in general. But you know, aside from that, in in the our own credit card portfolio currently is still very small. I believe we currently have expanded with active customers, and I believe it's 46 states. But, again, we're we're still very small in general, just a few million dollars outstanding. So we we can pivot very quickly on that end if needed, but I I don't think for now there's there's really any serious implications negatively for our major portfolio. Guy Riegel: Great. Okay. Thanks, guys. Operator: This will conclude our question and answer session. I would like to turn the conference back over to Mr. Prashad for any closing remarks. Chad Prashad: Yes. Thank you for joining our third quarter fiscal 2026 earnings call. And this concludes the earnings call. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day. And welcome to the Polaris Fourth Quarter 2025 Earnings Call and Webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the After today's presentation, there will be an To ask a question, you may press star, Please note this event is being recorded. I would now like to turn the conference over to J.C. Weigelt. Please go ahead. J.C. Weigelt: Thank you, Betsy, and good morning or good afternoon, everyone. I'm J.C. Weigelt, Vice President of Investor Relations at Polaris. Thank you for joining us for our 2025 fourth quarter and full year earnings call. We will reference a slide presentation today, which is accessible on our website at ir.polaris.com. Joining me on the call today are Mike Speetzen, our Chief Executive Officer, and Bob Mack, our Chief Financial Officer. Both have prepared remarks summarizing our 2025 fourth quarter full year results as well as our expectations for 2026. And then we'll take your questions. During the call, we will be discussing various topics which should be considered forward-looking for the purpose of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projections in the forward-looking statements. You can refer to our 2024 10-Ks and other filings with the SEC for additional details regarding risks and uncertainties. All references to 2025 fourth quarter and full year actual results and future period guidance are for our continuing operations and are reported on an adjusted non-GAAP basis unless otherwise noted. Please refer to our Reg G reconciliation schedules at the end of the presentation for the GAAP to non-GAAP adjustments. Now, I will turn it over to Mike Speetzen. Go ahead, Mike. Mike Speetzen: Thanks, J.C. Good morning, everyone, and thank you for joining us today. I'd like to start by acknowledging the resiliency of our Polaris team and the discipline of our strategy. These are qualities that transformed a challenging year and one that truly reflects the strength and resolve of our business. While tariffs represented the most significant challenge we have seen since the pandemic, we delivered nearly everything we said we would do and then some. We navigated difficult headwinds in 2025 while still delivering share gains, innovation, quality and operational improvements, portfolio realignments and strategic milestones that position us for long-term success. We achieved share gains in all segments last year, including off-road vehicles, snowmobiles, pontoons and motorcycles. This reflects both our commitment to innovation and the strength of our dealer partnerships. In ORV, we launched several new products from the RZR XPS to the all-new value tier Ranger 500. We also launched the industry's largest touchscreen in the new Razer Pro R and our factory racing team had an impressive year of top podium finishes. In fact, earlier this month, our Polaris factory racing team proved once again what our vehicles and drivers are capable of, standing at the top of the Dakar podium for the third consecutive year. A truly amazing and incredible achievement. In marine, we refreshed our flagship Bennington QX line and the all-new Godfrey sandpan models earned Boating Magazine's Pontoon of the Year. The last few years of product launches across our business have demonstrated our commitment to innovation and further solidified our leadership in powersports, and our future product innovation pipeline remains full. Next, we made progress in executing against our decision to significantly reduce our exposure to China. We set a goal of lowering China-based spend by 80% from roughly 18% of material cost of goods sold in 2024, to below 5% by year-end 2027. This transformation has three key benefits. It lowers tariff expense under the current policies, minimizes the risk associated with dramatic swings in regulatory policy, and creates a more localized supply chain with improved working capital and faster response times. We ended 2025 with China-based spend of approximately 14% of material cost of goods sold and are on track to drive our exposure down even further in 2026. Operationally, we delivered more than $60 million in savings as our manufacturing transformation continues. We're seeing the impact in areas like improved clean build, lower levels of rework, improved labor efficiency and reduced inventory. I'm incredibly proud of our operations team for everything they've done to get us to this point. The team and I visited our Monterey plant earlier this month, and it is truly impressive to see how the plant is operating now compared to just two years ago. The improvements across our plant network position us well as the industry normalizes. Quality is also meaningfully improved. We take exceptional pride in our product quality and we've invested heavily in our quality systems to ensure we meet and exceed the expectations our customers have come to expect for industry-leading products. We've seen improvements in key aspects of manufacturing, supply and design quality that resulted in a reduction of $25 million in warranty expense last year. And initial model year '26 metrics have improved versus last year and dealer feedback is encouraging. Finally, we made progress on our longer-term strategy to improve profitability while maintaining leadership in the powersports industry. The separation of Indian Motorcycle remains on track to close by the end of this quarter and we will be immediately accretive to EBITDA margins and adjusted EPS. As I've said many times, when we stay focused on what we can control, our teams deliver. Our people and our strategy have consistently proven that Polaris is well-positioned to meet its mid-cycle targets and maintain leadership through innovation and strong dealer partnerships. In Q4, sales were up 9% North American retail was also up 9%. Excluding youth. Driving share gains across our main segments. We continue to emphasize retail excluding youth for two reasons. First, while Youth contributes to share in retail figures, it has very little impact on profitability. Second, we're in the final stages of transitioning our youth manufacturing from China to reduce our long-term tariff exposure. That shift temporarily impacted both retail and share this quarter, simply because dealers didn't have the inventory to meet demand. We expect this to reverse in 2026. Moving forward, we believe excluding youth retail remains the best indicator of the health of the business. As expected, we couldn't overcome $37 million of tariff cost in adjusted gross margin in the quarter. However, we did see a meaningful mix benefit in ORV driven by higher Ranger North Star shipments tied to strong demand for our agriculture and ranch promotional programs. Adjusted EBITDA saw additional pressure in the final quarter as a result of incentive compensation normalization. We accelerated R&D activity in support of key programs, which increased expense in the quarter. All in, this resulted in an adjusted EPS of approximately $0.8 slightly ahead of the implied Q4 guidance we provided in October. Stepping back, while 2025 was a challenging year, our team did an outstanding job of remaining focused on what we could control. I think it's important to note that if you adjusted out the tariff impact which was unknown when we provided guidance in January 2025, we expect we would have exceeded the original guidance. Turning to what we're seeing at dealerships. ORB retail continues to trend positively led by utility. Strength in utility, the utility category was across the board and with strong contributions from the value to premium models. Our data shows that the new Ranger 500 was the highest retailing midsize side by side in the industry during the quarter and it wasn't even close. With roughly 60% more volume than the nearest competitor. On the premium side, our Ranger XP1000 NorthStar had its highest retail month ever in December. The success across the lineup demonstrates the strength of our brand and product portfolio And while recreational consumers remain somewhat on the sidelines, we continue to take multiple points of share and crossover powered by the category-defining Polaris Expedition. On road retail was down low double digits as expected as we lapped the 2024 introduction of the new Indian Scout motorcycle. Marine, retail declined approximately 13% though our pontoon brands Bennington and Godfrey outperformed the industry. For snowmobiles, the season started strong thanks to early snowfall in the flatlands. Something we haven't seen in the prior two years. Which helped reduce non-current dealer inventory. However, the industry has moderated a bit due to lack of mountain snowfall and lighter coverage in parts of the Midwest in recent weeks. We remain cautious on the remainder of the season and plan to keep our snowmobile build schedule lower as we prepare for the 2026-2027 season similar to our approach last year. We noted last quarter, we believe dealer inventory is at a healthy level with just under one hundred days inventory on hand across the network. Only is dealer inventory at the lowest levels it's been outside of the pandemic, but the mix of inventory is in great shape as well. We believe Polaris has the healthiest mix of current versus non-current inventory of any OEM. With ORV and marine inventory in good shape, we're continuing to let retail drive our build and ship plans This is exactly where we want to be. In a place we haven't consistently been since before the pandemic. It aligns with how we manage the business and we believe is also best for dealers in this demand environment. Our teams will remain agile and we will closely monitor retail trends. We will adjust build and shift schedules in response to market conditions help ensure dealers have what they need to be successful. I'm now going to turn it over to Bob to provide you with more details on the financials. Bob? Bob Mack: Thanks, Mike, and good morning or good afternoon to everyone joining us today. Let's start with fourth quarter financial results. Adjusted sales for the quarter were up 9%, Similar to Q3, we saw higher shipments year over year with a notably stronger mix toward Ranger North Star side by sides. Net pricing was a modest headwind as elevated promotions continued to outpace price. International sales grew 9% with all regions contributing driven by double-digit growth in PG and A and on road. Globally, PG and A sales were up 20% supported by strength in factory-installed accessories and oil. Our ridership indicators, average miles per unit and dealer repair orders continue to trend positively which aligns with the growth we're seeing in oil revenue. Mix and volume are once again positive contributors to gross profits. However, those benefits were more than offset by $37 million in new tariffs and the normalization of incentive compensation relative to last year's unusually low level. Given these headwinds, adjusted EBITDA margin contracted year over year as expected. The primary drivers were the impact of tariffs on gross profit and incentive compensation flowing through both gross profit and operating expense. As Mike mentioned, we also incurred higher R&D costs in the quarter as we support work on our innovation pipeline. Stepping back, after backing out the impact of tariffs, our full year 2025 results would have exceeded the expectations we set last January. That's a testament to strong execution and controlling what we can control in an extremely dynamic environment. Off-road sales rose 11% in the quarter, supported by higher ORV shipments a richer mix of vehicles 22% PG and A growth. Dealer inventory was down 9% excluding youth in ORV, and more than 40% in snow. While we still have some work to do in snow, the volume of non-current sleds sold in Q4 should help ease some of the challenges from the last two poor snow seasons in the Flatlands. As Mike noted, dealer inventory overall is in a strong position across all metrics including day sales on hand, current versus non-current mix, and the split between utility and recreation products. We gained modest ORV share in the quarter excluding youth and multiple points in snow. Within ORV, utility and crossover remain our strongest categories, led by Ranger and Polaris Expedition. Without tariffs, gross profit margin would have improved supported by a richer shipment mix aligned to retail continued operational improvements across our plants. Moving to On Road, Sales during the quarter were up 4% driven by positive mix within Exim and GUPEEL overcoming softness in Indian Motorcycle and our Slingshot business. Adjusted gross profit margin was up 186 basis points driven by mix with a modest offset from tariffs. Marine sales rose 1% For Q4, the key indicator is next season order book strength, and we saw exactly that. Demand increased for our entry-level Bennington models, as well as our redesigned flagship Bennington QX pontoon lineup. Thanks to our dealer inventory actions over the past eighteen months, we believe marine inventory is now aligned with demand and we expect shipments in 2026 to be more closely aligned with retail. December SSI data showed the market share gains across our pontoon brands, The broader industry continues to face pressure from higher interest rates and macro uncertainty, but our positioning remains strong. Gross margin declined due to mix partially offset by positive net pricing. Moving to our financial position. Generated approximately $180 million in operating cash flow this quarter translating into $120 million of free cash flow. For the year, we generated $6.5 million of free cash flow. Our progress on working capital in 2025 is important to highlight. We reduced finished goods supported by clean build, lean initiatives improved forecasting tools that allow for more predictable build schedules, and stronger than planned retail. We believe these working capital levels are sustainable with further opportunity on the raw material material and payable sides. We remain committed to maintaining investment-grade metrics. We ended the year well below our covenant thresholds due to strong cash generation about $530 million of debt pay down in 2025. For 2026, we expect our leverage and interest coverage ratios to remain within covenant requirements even with the higher tariffs in the first half. Our capital allocation remains balanced between core growth investments with attractive returns and debt reduction. And we remain firmly committed to the dividend and our dividend aristocrat status as we just completed our thirtieth consecutive year of dividend increases. Today, we are introducing our full year 2026 guidance. There are two important assumptions. One, that the Indian Motorcycle separation closes by the end of this quarter Annualized, the benefit is about $1 of adjusted EPS but with a closing expected to occur near the end of the first quarter, the 2026 benefit is expected to be between $0.75 and $0.80 with the balance of EPS savings to equate to the annualized dollar being attributed to the Indian Motorcycle Q1 loss under our ownership. And two, that there are no changes to regulatory policy, including tariffs, relative to the policies in place today. With those assumptions, we expect total company sales to grow 1% to 3%, This incorporates a more challenging year over year comparison to more than $300 million from Indian Motorcycle sales that were included in last year's second, third and fourth quarters, but will not recur in 2026. That tougher comparable is offset by over $400 million of tailwinds from aligning shipments in retail. In addition, we expect a net pricing benefit to offset negative mix The net pricing benefit is due to normal model year price increases and a lower promotional environment. If you were to remove Indian Motorcycle sales from our 2025 expected 2026 results, this guidance would equate to 7% to 9% organic sales growth. We expect adjusted EBITDA margin to expand 80 to 120 basis points year over year driven by the aforementioned volume benefit and lean improvement initiatives across our facilities. While being partially offset by approximately $90 million in incremental tariffs. Other big pieces moving pieces impacting the year include the adjusted EBITDA benefit of three quarters without Indian Motorcycle, over $30 million of absorption benefit from operational efficiency improvements, Operating expenses are expected to be down approximately 4% due to the separation of Indian Motorcycle. We are also planning for modest increases in strategic investment across IT and innovation there should not be any material change in year over year compensation expense following normalization in 2025. In other income, we expect $30 million to $35 million of income due to transition service agreements or TSAs will be put in place to help ensure the smooth separation of Indian Motor Cycle into an independent company. Some examples of TSAs that are expected to be in place are for IT systems, supply agreements and freight. These TSAs are in place to neutralize the cost we are incurring within cost of sales and operating expenses to help stand up Indian Motorcycle independently with the majority of the agreements expected to expire in nine to twelve months. Putting this all together, we expect adjusted EPS of 1.5 to $1.6 for 2026. This includes a modest benefit from FX and interest expense. For Q1 specifically, Indian Motorcycles is expected to be included in our results for a significant portion of the quarter. Sales are expected to grow more than 10%. Tariffs will represent a significant headwind of approximately $45 million Adjusted EPS is expected to be approximately negative $0.45 In summary, Q4 played out largely as expected. Excluding the impact of tariffs, we exceeded what we said we would do in 2020 including share gains and healthier dealer inventory. Operationally, we gained efficiencies within our manufacturing facilities, generated $741 million in operating cash and paid off approximately $530 million in debt. Much of this was overlooked in such a dynamic macro environment last year. But as Mike said, it's good to close the book on 2025 It was a uniquely challenging year, but I'm incredibly proud of how our team executed, stayed focused delivered against our long-term objectives. We entered 2026 playing offense. We expect this year to reflect the start of what is to come as we continue to on our longer-term initiatives of mid-single-digit sales growth mid to high teens EBITDA margin double-digit EPS growth and mid-20s ROIC. I look forward to sharing our progress with you as we move into the spring and throughout the year. With that, I will turn the call back over to Mike to wrap up. Go ahead, Mike. Mike Speetzen: Thanks, Bob. We've been clear and consistent about our strategy over the past several years. Strengthen our global leadership in powersports while improving the profitability and returns of the business. Our strategy is designed not just to make us more profitable, but to make us more resilient across cycles. So as Polaris succeeds, our dealers succeed and our customers continue to enjoy the best products in the industry. A major part of our strategy has been delivering the best customer experience and rider-driven innovation through our portfolio of iconic brands. With our recent share gains and the success of products like RZR Pro R, Polaris Expedition and the Ranger 500 and XD platforms, we firmly reestablish ourselves as the innovation leader in powersports and we're not slowing down. We have a strong pipeline of new products scheduled to launch over the next several years. We've also brought you along on our journey to strengthen our operations. With new leadership in place, we've removed more than $240 million in structural costs from our plants over the last two years. From procurement through final shipment we've embraced lean across our factories and the benefits are clear. While the full impact of this work has not yet been realized, even with a modest up in production in 2026, we expect over $30 million in absorption benefit demonstrating the operating leverage we are building in our network. Last year, we operated our Monterey and Huntsville plants at roughly 60% capacity. As the industry normalizes and with the infrastructure and lean discipline we now have in place, we believe we can support a substantial improvement in industry volumes with minimal fixed cost investment, while maintaining our quality standards. Another important part of our resiliency is the strength of our dealer network. With approximately 2,000 of the best off-road and marine dealers across North America, coupled with our close relationships, leading products, integrated programs and appropriately sized inventory both Polaris and our dealers are well-positioned to benefit when demand improves. It's also important to acknowledge the work we've done to sharpen our focus. Over the past few years, we've strategically pivoted our business towards a more profitable and focused core with the sale of businesses such as TAP, JEM, Taylor Dunn as well as the soon to be completed separation of India Motorcycle. We also realigned the organization in '24 with the goal of reducing complexity and improving decision-making speed. I've been with Polaris over ten years, and I've never seen the organization more focused, and energized than it is today. We're focused on the important elements to ensure we remain number one and to meaningfully improve profitability of our business model. Looking back, we've made tremendous progress, which I'm proud of, but what excites me most is what lies ahead as we continue to lead the powersports industry. Let me close with this. 2025 was a challenging and unique year. A regulatory environment that shifted constantly and the consumer remains pressured by higher interest rates, lower confidence and macro uncertainty. Despite all of that, Polaris executed incredibly well. Dealer inventory is right-sized, we delivered innovative new products on time, and we continue to improve our operations and quality. This is exactly what we set out to do and the best team in powersports delivered. And lastly, we made the difficult decision to separate India Motorcycle. A move that we believe is best for Polaris and India Motorcycle. As we enter 2026, our priorities are clear. We are prepared to manage through a flattish retail environment, Like the last few years, we expect utility growth to offset ongoing pressure in recreation. Dealer inventory is healthy we expect to operate our facilities so that build, shipments and retail all align. If we see any shift in demand through dealer feedback or data, we are ready to adapt production accordingly. With the expected closing of the Indian Motorcycle separation later this quarter, we've allocated the right resources to support the transition and help set the business up for long-term success. Our lean journey continues as well. With additional lean lines coming online this year, we will further strengthen our operations and improve our ability to make fast informed decisions as demand changes in real-time. Finally, we remain committed to executing our tariff mitigation strategy. Our goal is to reduce our reliance on China source components to less than 5% of material cost of goods sold by year-end 2027. Have a dedicated team in place and I'm confident we can achieve this goal. We're entering 2026 from a position of strength, Internally, we are aligned on the priorities that can drive another successful year as we sustain our leadership in powersports and deliver on our long-term goals of higher sales growth, greater earnings power and stronger returns. We appreciate your continued support. And with that, I'll turn it over to Betsy to open the line for questions. Operator: Thank you. We will now begin the question and answer session. On your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. And you would like to withdraw your question, please press star then 2. The first question today comes from Joe Altobello with Raymond James. Please go ahead. Joe Altobello: Thanks. Hey, Good morning. I guess first question for you, Bob. I think you just mentioned that the revenue lift in 'twenty six from wholesale and retail being in alignment north of $400 million I think that number was around $300 million last quarter. So did something change? Or is that just more visibility there? And should we assume some sort of flow through of around 25%? On that number? Bob Mack: Yes, Joe. Yes, so the number did increase where we thought it would be last quarter because we had a really strong Q4 and although we expect retail to be relatively flat, you're obviously off of a bit of a higher base. And you know, as you as you think about the flow through, it's, the math gets complicated. Because you gotta look at it sort of ex tariffs. But if you took the tariffs out, and we've got about $20 million of commodities headwind, So if you sort of added back the impact of $90 ish million of incremental tariffs and 20 million of commodities the flow through would actually be closer to 40%, which I really think shows how much progress we've made in our plants over the last couple of years. As Mike said in his prepared remarks, we were down in Mexico a week or two ago, and it was really heartwarming to see how great the plants are running now. Yes, Joe. I mean, I would want to stress that 40% incremental. I worked in industrial companies pretty much my whole career. And that's not a number that happens easily. And I think when you look at our operations, we effectively have one lien line at each factory. And that doesn't mean that we're not getting lien benefits in other parts of the factory, but we are still early in journey. Our first pass yield in terms of getting product through the line cleanly is still it's much better than it has been historically, but we've still got significant improvements sitting in front of us. And while our quality has improved, and a 20% reduction in cost is nothing to blink an eye at. I'm still not happy with where we stand, and I think there's a lot more that we can do. So the opportunity in front of us, it's frustrating because a lot of it gets blurred by the massive tariff load that we've got on the business. The good news is we've got an incredible team focused on moving us away from high tariff countries That doesn't mean that all the cost comes out of the system. Because you're likely not moving to someone who's priced at the same level supplier out of Asia. But the team can then start working value engineering projects and really put us in a good position over the long term to get our margins up into that mid to high teen EBITDA. Range. Joe Altobello: Got it. Very helpful. Maybe just a follow-up. You've given us a lot of building blocks for twenty six. But it does seem like your guidance implies some level of cost saves. I know you mentioned 30 million of absorption, for example. Is there anything beyond the $30 million that's built into that guidance? Bob Mack: In terms of cost takeout, obviously the math with Indian starts to get relatively complicated with it coming out in the first quarter. But ex Indian, we're expecting GP to be down slightly. And a lot of that is driven by the accounting for the TSAs. And I know that's kind of been confusing to everybody. But the way these things are accounted for under GAAP there's about $90 million that'll float through COGS. And about 20 that'll go through ops. Or 15 that'll go through OpEx. And we'll recover that in different lines. So we'll get about $60 million of it in sales, about 10 million of it in COGS and about 35 million in other income. Really what flows through other income are things like if we're billing them for providing IT services or even freight sometimes because it's commingled the GAAP rules work, it has to go through other income. So that's kind of about a 30 bps headwind to our GP. Ex Indian, But that stuff will all fall off you know, through the course of the year and going into '27 should be relatively clean It's not like those costs will not the recoveries won't continue and the costs won't continue. So there's not a really a go forward impact there, but it will sort of distort GPs in 2026. And but if you think about the fact that the what we've got for incremental tariffs, nearly $90 million ex Indian 100 million as reported with Indian in Q1. Plus we talked about $20 million of commodities inflation that we see right now. Being able to offset that and effectively being flat, I think is better performance than it looks like on paper. Yeah. I think, Joe, on the TSA front, we didn't have them to the extent that we do with Indian with some of the prior divestitures, those businesses were really somewhat self-contained Indian was so incredibly embedded and the teams have done significant work to extract as best we can. The management team will be leaving the facility. They've got a new facility. We've cordoned off engineers. But the reality is to get it done right, we want to make sure the business is set up. So we've got a variety of these things that span largely six to twelve months. And a really skilled team that's helping manage that And our number one priority is we want to make sure that there's minimal disruption as the business comes out. And that it's set up in a way that it can sustain and continue to grow. Joe Altobello: Got it. Okay. Thank you. Operator: The next question comes from Craig Kennison with Baird. Please go ahead. Craig Kennison: Good morning. Thanks for taking my question. So, Bob, in a year when you needed to generate cash, you generated quite a bit On Slide 30, it shows adjusted free cash flow over 600 million I'm wondering what your thoughts are on 2026 free cash flow and maybe if you could shed some light on working capital and CapEx expectations. Bob Mack: Yeah. So obviously, a ton of progress on working capital in 2025. I think for 2026, we're going to have some kind of competing issues. Finished goods will probably go up a little just because revenue is going up and shipments are going up. We're going to look to try to hold raw flat to down then continue to make some progress on payables to drive working capital a little bit lower. I don't think you'll see we won't be able to sustain the massive progress that was made in 'twenty five. And the progress in 'twenty five really was combination of a lot of things, right? It was all the lean stuff we're doing at the plants. So we put in a lot of new forecasting tools in '24, which helped us better forecast the model mix, which again helped control inventory. Also really just kind of cleaned up a lot of the stuff coming out of COVID, right? Just the the craziness of COVID and the builds and and all the volatility in '24. As you recall, we shut down really slowed in the back half of '24, so we exited with high level of finished goods. We corrected that in '25, which we had committed to do. So we really executed on the things we said we do with working capital. So 2026 you know, that benefit probably won't be quite as high. But you know? So we're looking a cash flow standpoint Really to be more in the range of about $160 million of operating cash flow. And about 120 million of free cash flow. So we'll continue to work to improve that. It's just going to be tough to repeat the performance from 2026, but working capital will continue to be a big focus. We're getting close to being back to some of our kind of historic best working capital levels. But I think there's opportunity there as we continue to invest in our IT systems, improve our forecasting and Mark and the team continue to improve the operations of the factories. Craig Kennison: Yes. Thanks, Bob. And as a follow-up could you give us a sense of your goals for financial leverage at the '26 Yes. So as you guys know, we went out in about the midyear last year, renegotiated our covenants. We got a year of covenant relief. So we're sitting with covenants in the fives for the first February. And we knew all along that the most challenging quarters from a covenant standpoint were going to be Q1 and Q2 this year because we're starting to pull in some of the lower tariff impacted EBITDA last year and the unimpacted quarters. That we had in 2025 are rolling off And obviously, we've got about a $90 plus million tariff headwind in the 2026. So we knew those were gonna be the most challenging. We were able to pay down a lot more debt obviously in 2025 than we had originally anticipated. So as we get through the year, we expect to be able get to be under our normal covenants that are in the the three five. Range. Through the back half of the year, and then we'll continue to pay down debt from there. I mean long term, as as EBITDA recovers through tariffs reduction and price, and debt comes down, we'd like to be back in that 1% to two range, which is our goal for being investment grade rated. But got a great relationship with our banks. We spend a lot of time with the rating agencies. Conversations have all been productive. Everybody understands the short-term impacts of the tariffs that can be offset with the moves out of Asia that Mike talked about. It just is gonna take some time. And so we'll continue to make progress on that in 2026 and start to really see the benefits of all those moves more in '27. Craig Kennison: Thanks, Bob. Operator: The next question comes from Tristan Thomas-Martin with BMO. Please go ahead. Tristan Thomas-Martin: Hey, good morning. Just want to make sure I'm thinking about Indian the right way in '27 So it sounds like just about, like, TSA, a lot of this stuff drops off. And then the only thing we have to think about is that 20 to 25¢ of the dollar incremental in '27. Is that right? Bob Mack: Yes, that's right. I mean the TSAs might be a little bit of IT stuff that hangs on longer, but it won't be material. It'll be really easy to to show you guys when we get there. We just don't know Obviously, we're pushing to get out of the TSAs as fast as we can, and and the Indian team is doing the same. So everybody's goals are aligned there. Trying to be separate companies as soon as possible. So really, the only impact in '27, obviously, is the is the dollar, and it'll be we'll get all of it in '27 where we won't in '26 because we'll sell the business sometime in the quarter. Tristan Thomas-Martin: Okay. And then just one more. You called out can't remember that, seven to 9% organic sales growth. I kind of adjust for Indian and the $400 million it implies it $200 million at the midpoint. Can you maybe just talk to what's driving that then also maybe give us a little help around how you're thinking about off-road versus on-road versus marine? Thanks. Bob Mack: Yes. I mean, look, the big block math, when you strip Indian out on both sides is our revenue is up somewhere in that $400 to $500 million range. And we've got a little bit of price in there. That's our normal model year pricing that will that we put in place. The majority of that is really just simply the math of not under shipping retail. Which is essentially where we've been for the last couple of years. We pulled our dealer inventory down 17% overall with an off-road down 9%. And as we talked about, we've got the mix of that healthy, all those things. So we feel like our inventory is in a really good spot. So as we look through 2026 and we talk about a flat industry that puts us in a spot to be able to have build, ship and retail all aligned. And as a result of that, we pick up revenue on an incremental basis. I'd point you back to the comments we made We expect the strength really to maintain in utility We think the rec side is going to continue to be challenged. I think we're going to need more relief from an interest standpoint. I think we're going to need to see continued inflation reduction. And I do think that there's a lot going on in our country right now. And I think that that just has people kind of standing back and waiting if they if they don't absolutely have to make a purchase, they're not going to make it. The good news is, as we talked about, I mean, you've seen it show up on our PG and A results. I mean, we're moving a lot of wheels and tires and oil and parts and components And we know because we track RO activity, miles driven, people are still out using our products. So we know people are riding. And the good news is at some point in time, they're going to want to come in and get our latest and greatest on the rec side and got some pretty cool stuff there. And we feel good about what we're doing to set us up for the long term. Tristan Thomas-Martin: Great. Thank you. Operator: The next question comes from James Hardiman with Citi. Please go ahead. James Hardiman: You guys have done a great job of sort of helping us bridge. I just want to make sure I have these pieces right, because, certainly, the the the wholesale piece is is bigger than, I think, most of us thought. So you're talking about four mill $400 million top line 40% flow through on that. That's a $160 million. So that's almost $2 right there. You've got another, call it, $75.80 cents coming from Indian, and then you've got some cost savings, some commodities that may be offset And then the rest is ultimately to to get to that, call it, buck 55 bridge from 25 to 26. The rest of that is just tariffs. Correct? Like, not missing any pieces there? And commodities. Tariffs, commodities, and a little bit of lift in OpEx as we invest more in engineering and IT IT. Once you pull Indian out. James Hardiman: Got it. And then sort of that $90 million tariff number, maybe I was doing the math wrong, last quarter. That's a little bit higher than what I thought you guys were saying a quarter ago. Did that number change at all And I guess to this obviously, you don't have a crystal ball in terms of where things are gonna go. But, specifically, the the the tariffs that Mexico has put on China doesn't seem like you think that's gonna be particularly impactful to your numbers. Maybe walk us through sort of what the the latest is there, what your lawyers are saying, and and if you feel confident that that's never gonna be a piece that ultimately gonna impact you. Thanks. Yes. Well, so look, I we're obviously still awaiting what the Supreme Court may come through. And obviously, the team's got a plan of action because there's a lot of complexity they were to rule against president Trump We are obviously off still working the lobbying angle as aggressively as we can or look, I give our team a lot of credit for we're small compared to the majority of these companies that are up getting air time, in DC. And, you know, I think our team has done a really good job of getting in front of USTR and commerce and the executive team there. So, you know, we're we're not backing off. We're gonna continue to put on it. As best we can. And certainly, if something were to break there, that would be tremendous. I mean, got over $200 million worth of tariff in our business right now. And when you add all that together, it's darn close to $3 worth of earnings. That's really frustrating for us when we see all the benefits and the operational improvements and they just are getting dwarfed. So we're going to take matters into our own hands like we always do. We'll keep working all those angles that require someone else to act on. But we've got a team. We've quoted pretty much 100% of what comes out of China. And now we're working and we've got we got meetings every couple of weeks. We're looking at the amount of transition that we've got. Getting that material cost of goods sold from China, from 18% down to less than five by the time we get into 2027 is that's not easy work. There's a fair amount of revalidation and things that have to go into that and the team is aggressively going after it. I actually think we're going to turn it into a net positive. I think we're going to find opportunities for localizing the supply chain Back to the earlier question about cash flow, that's going to give us working capital and quite frankly, flexibility in responsiveness that we don't have today because the lead times are so long with product being on on the ocean for, you know, four to six weeks. Making its way over here. So I think we'll be able to turn into a positive, but it is it's a very real load on the business financially and we're working every angle we can to mitigate that. James Hardiman: But to clarify, you don't think I'm sorry. Go ahead. Bob Mack: We thought it would be about $100 million of incremental tariff impact. So in our view, it's come down a little bit. But the $20 million of commodities is new and that's obviously where commodities sit today and that moves around and we do hedge But there just has been a lot of pressure on commodities. A lot of that is tariff driven, right, There's different tariffs on steel and aluminum and other commodities, you know, that that puts pricing pressure on stuff that you're sourcing out of The US. Which is primarily where we buy all that stuff. So total for the year ex Indian, we're looking at at $215 million of tariffs on the business. In so it's still a big drag when you include the old three zero one stuff that came in last year. James Hardiman: But you guys, just to clarify, don't think that the Mexico tariff on China will ultimately gonna impact you. No. We don't. You know, this they put tariffs on, you know, a pretty defined group of parts. And as of right now, that hasn't impacted us. I mean, there's we it's hard to foresee the future in this tariff environment. But we don't believe right now that's going to be a significant impact. Mike Speetzen: No. And we're in we're participating in the comment process for the USMCA and knock on wood, there hasn't been a whole lot of drama associated with that. So I think think the administration understands the importance of the relationship with Mexico. And to Bob's point, Mexico, this isn't new. They've always had some level of restrictions, maybe not always tariffs, but employment requirements. And etcetera that they've tried to slow down some proliferation of the Chinese suppliers in Mexico. James Hardiman: Got it. That's really helpful. Thanks, guys. Operator: Thanks. The next question comes from Noah Zatzkin with KeyBanc. Please go ahead. Noah Zatzkin: Hi, thanks for taking my questions. I guess first in terms of, kind of inventory levels across the industry, I think this time last year there were really, like, kind of a couple offenders in terms of making the channel heavier. So if you could just kind of speak to what the channel looks like maybe relative to last year and just expand on on how you guys are feeling about your position? Thanks. Yes. Look, I feel really good about where we're at. When you look at us and the next largest competitor together, we make up probably 60% of the industry. We are both pretty much in parity from a day's sales outstanding or inventory on hand, current, non-current, the data we have would suggest we probably have the healthiest mix. But with 60% of the industry in a good spot, that is certainly helpful to dealers. That said, we still do see some pockets, where some of the Japanese competitors are struggling. It tends to move around quarter to quarter as to exactly who that is. I don't want to get into naming names. We know who they are. We know where our overlaps are. It's more of a nuisance to the dealer. The volumes that those products have, most of them are less than 10% market share. So it's not creating substantial financial headwinds for the dealers. It's just more of something that they've got to deal with. We know we spend every quarter we meet with our dealer council and they are incredibly appreciative of the work that we've done, the fact that we set expectations August '4 and drove hard to get there By the '4 and then to 'twenty five, we've held we've stayed consistent with what we told them. We've done a lot of work. When we talk about health of dealer inventory, there's been tremendous work done during the course of 2025 to make sure that we have the right inventory. Having the day sales at 100 or less is one thing, but it's the mix of inventory, making sure we get the right stuff at the right dealership, We've talked about the aged inventory We've taken the inventory that's greater than one hundred and eighty days down almost 60%. That's all helpful because it's not just taking the interest burden off, but allows them to focus on being able to move product and make healthier margins. And so we feel good about that setup and still a couple of players out there that got a little work to do, but thankfully they're a relatively smaller part of the industry. Noah Zatzkin: Great. Maybe just one more. Obviously, we've kind of talked about this, but if you could just remind us kind of what of what are the pieces to consider when we're thinking about kind of 400,000,000 plus volume benefit a flat retail environment, like, we're kind of the pockets of kind of lighter inventory. Thanks. Well, I mean, I I guess I'd step back and say we feel good about the inventory level at the dealers for both ORV and marine. And so both businesses have an opportunity as we move forward even in a flat environment to have growth. Because we're now at a build ship retailer all equal. And so largely, it's driven off of that And then I would just say that the utility segment remains strong. So don't expect big things from the rec side, but we do think that the utility will have enough growth to help offset any weakness that we see on the on the rec side. Noah Zatzkin: Really helpful. Thank you. Operator: The next question comes from Robin Farley with UBS. Please go ahead. Robin Farley: Great. Thank you. Just it's interesting with the benefit here to your EPS from the Indian sale. Can you help us think about you're still going to have Slingshot in your on-road business. What kind of EPS drag is Slingshot? If we think about what you'll have when everything is fully separated from Indian, just to kind of think about what the EPS impact from Slingshot is. Thanks. Mike Speetzen: Yes. And Robin, I'm going to take the opportunity to answer your question a little more broadly because you're introducing kind of the thoughts around the portfolio. And I'm going get to the slingshot answer here in a second. But we've heard a fair amount of noise out in the environment around our marine business. And I just want to go on the record that we have zero intention of divesting the Marine business. We know that many of our competitors tried to wade into the marine space and struggled. We have an excellent business and it's an excellently run business. And I'll remind you that back in 2020, when the pandemic first hit, we took the opportunity and we shed three brands that were underperforming. Leaving us with Bennington, Godfrey and Hurricane, which are all number one or number two in their category. And you've seen the performance over the past couple of years, in terms of refreshing the portfolio and the share gains that we've had The business has returned over 80% of the original purchase price. And even at low points that we've been in the industry, the business is still making a lot of cash flow. And so I just want to I want to quell some of the noise that's been out there. And largely we feel good our portfolio now. We've gone through and really pulled out a lot of underperforming businesses. There's always going to be things within the portfolio. We've got far more refined at how we look at things financially. Slingshot has been heavily impacted over the past couple of years. It is our most interest rate sensitive business, highest level of financing and with interest rates being high as well as consumers being somewhat stretched with inflation and just other interest payments. That business has slowed down. Significantly. And so we have been losing money. I'm not going to get into the specifics. It's not material. To the company. And we have an aggressive plan on how we're going to resolve that moving forward. And similar to what we've talked about in the past, if we can't get things to where they need to be, then we'll obviously take action. But I'm not ready to make any declaration relative to that. Slingshot's a really neat business. It's an important component of our adventures. Offering. Those Those products tend to rent really well. On both coasts. And so, we're in a product refresh cycle. And so, over the next couple of years, I think you're to see improved performance coming from that business. And we'll continue to look in different aspects of our company, aftermarket brands etcetera, and make sure that we've got the right level of returns across portfolio. But I think you can rest assured there are no big remaining moves left for us to make this point. Robin Farley: Great. Thank you for that super thorough Appreciate that. Maybe just one small follow-up. And maybe more one for Bob. Just a small one on your guidance for margin. Are you assuming that mix is going to be a benefit or a drag this year? I'm just thinking specifically in the ORV business with Ranger 500 a little bit more mid-sized. Just how is that factored into your guide, a higher mix of that? Thanks. Bob Mack: Yes, I would we think mix is going to be a headwind this year. We had really strong NorthStar retail and NorthStar shipments to kind of get, you know, keep up with that demand. In Q3, Q4. And so we'll we'll see how that the North Star mix plays out going into into 2026, but it's certainly a strong tailwind in 2025 and I don't know if it'll sustain quite that well in 2026. The Ranger 500, to your point, selling really well, really popular with customers and dealers. But that is a bit of a a margin headwind. And then we've got a little bit just in the mix in Rec. We've also got some kind of inter product mix headwind Marine starts to shift to retail which will recover and that's a headwind to GP. It's really not EBITDA, but it's definitely a headwind to GP as Mike was saying, it's a strong business, but it's structurally the GPs are lower because the OpEx is significantly lower. EBITDA margins in the business are actually pretty good. But it will be an a mix headwind to GP and then snow. You know, snow while improving snow is just structurally a little bit lower GPs than, than off road. And so as snow starts to recover, we're not gonna have a huge snow build year in 2026. We said that in our prepared remarks, we're going to be cautious going through 2026 into the 2027 season and really try to make sure we get inventory where we want it. We've made good progress this year, but there'll be a little bit of headwind from So you'll see some headwinds in mix, but some of that's offset by we expect the promotional environment slow down a little bit. As, you know, a lot there's a lot of promo in the channel in '25 as it related to clearing inventory, and now we're kind of more just into trying to get retail because everybody the Japanese are a little heavy, as Mike said, but inventory is in a better place. So we'll see some positive there. And then also which is our normal price increases that we hadn't put through in a few years. So, you know, we've got a little bit of price going in also to help offset that mix. Robin Farley: Okay, great. Thank you very much. Operator: The next question comes from Johnson with Seaport Research Partners. Please go ahead. Johnson: All right. Thank you. Good morning, everybody. In the past, you've given us explicit guidance on the segments. Top line up or down low single digits whatnot. I know you've given us a lot of bits and pieces to kind of put the puzzle together but can you give us sort of guidance for 2026 on the three segments and how you expect top line? To perform? Bob Mack: We're not ready to do that, Gerrick. Just with the complexity of Indian moving out and we will be reevaluating our segments in the first quarter and we may make some changes to how the segments fall. So our our plan would be to update that guidance either on the the Q1 call in April or, if the opportunity presents itself, we may do it at a conference ahead of that depending on the timing of the Indian sale. But we've given the guidance we're gonna give right now for 2020. I mean, Gerrick, the way the way to think about it is, you know, we're we're trying to get the Indian transaction closed sooner rather than later. So whenever that happens, there's obviously going to be updates to guidance in terms of we've made the assumption that's a full quarter worth of revenue and loss. And if I were a betting guy, I'd say it's probably going to be something less than that. So when we are able to come out with that, we'll also share the new segmentation of the business and be able to provide more color at that point in time. Johnson: Okay. Okay. And then on utility, you mentioned utility strength, and that's been ongoing. But next year or actually, should say this year, it looks like there's some benefits to small businesses, construction, farmers, ranchers with bonus depreciation and other goodies out of the one big beautiful bill. So what kind of impact you're anticipating from the incentives there? Mike Speetzen: I mean, that's largely what we think is going to keep that utility segment. I mean there's other aspects, obviously, with all the innovation. But we do think that those are the utility segment is where most of that benefit comes through. And so we've got programs that are specifically targeted that What we have not assumed is some significant uptick across the rec side from higher tax returns, etcetera. We've scoured the data and it's tough to know exactly where and how that's going to come through. And which customer segment it could potentially impact. Whether or not that money actually goes to buying discretionary products as opposed to people deleveraging and cleaning up credit card bills and things like that. So we've got the factories in a much better spot so we can respond. Hopefully, we're responding to an uptick in volume, but at this point, we're we're not making that call. Yes. I mean, if you look at data, you would think that rec this should be about the time, the buyers from kind of the COVID era start to rebuy and we see in the data that they're still riding their vehicles. Oil sales have been strong. We talked about that earlier in the call. But we're not baking that in. We've got some great new products out there, the XPS, the updated ProR, But until we see data different, we expect rec to continue to to, you know, be a challenge side of the industry with better opportunity in utility. Johnson: Okay. Thank you. Operator: The next question comes from Scott Stember with ROTH Capital. Please go ahead. Scott Stember: Morning. Thanks for taking my questions, guys. Questions on off-road outside of Indian, it looks like Gupheel and Aksum are really doing well. Could you talk about how that fits into your guidance for '26 Yes. I mean they look, I missed part of your question. It sounds like it was on the GUPEL exome business. Yes, yes. That the share could have. Majority of the guidance move is our ORB and marine. Businesses. Okay. And then, on the retail financing side, obviously, doesn't seem like we've gotten a lot of help. But have you seen through your relationships any budging on lending rates with with the banks? Anything on the margin that you could share? Not really. Credit stats for the for the quarter and really for the full year were pretty consistent. When we ran aggressive promo financing, it it had the intended impact. So consumers are still looking for lower rates. Rates have come down a little certainly at the better end, you know, if you're in the you know, seven hundred plus credit score range. But nothing nothing dramatic yet. And, you know, I think it's a it's tough to plan what the Fed's gonna do. It's bounced all over the map. So we're we're assuming not a lot of help fed wise in the year and that '26 will kinda be a lot like '25 where you know, promo rates will will help and people will choose between rebates and promo. Scott Stember: Gotcha. All I got. Thank you. Operator: Thank you. This concludes our question and answer session. And concludes our conference call today. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the Northeast Bank Second Quarter Fiscal Year 2026 Earnings Call. My name is Marvin, and I'll be your operator for today's call. This call is being recorded. With us today from the bank is Rick Wayne, President and Chief Executive Officer; Santino Delmolino, Chief Financial Officer; and Pat Dignan, Chief Operating Officer and Chief Credit Officer. Prior to the call, an investor presentation was uploaded to the bank's website, which will be referenced in this morning's call. The presentation can be accessed at the Investor Relations section of northeastbank.com under Events and Presentations. You may find it helpful to download this investor presentation and follow along during the call. Also, this call will be available for rebroadcast on the website for future use. [Operator Instructions] As a reminder, the conference is being recorded. Please note that this presentation contains forward-looking statements about Northeast Bank. Forward-looking statements are based upon the current expectations of Northeast Bank management and are subject to risks and uncertainties. Actual results may differ materially from those discussed in the forward-looking statements. Northeast Bank does not undertake any obligation to update any forward-looking statements. I'll now turn the call over to Rick Wayne. Mr. Wayne, you may begin. Richard Wayne: Thank you, Marvin. Good morning. I want to start off with just an administrative matter as we're going through the material this morning. During the course of the year and in fact, years we get input from shareholders and others about our slide deck, and we take that input very seriously and appreciate it. This slide deck is mostly the same format and information updated, of course, for the quarter as we've used in prior periods, but there are some differences. We have deleted a few slides. And for -- to make it easier for you, we have taken some of the slides and moved them into the appendix. There's also a new slide, which I just want to start with on Page 5 that those of you familiar with our company, of course, will know this. But as we meet new investors, which we do and enjoy doing, it kind of explains a little bit about our bank, which has been around for 150 years, most of which time it was a traditional community bank. And then when starting at the end of 2010, evolved into a national commercial real estate and small business lender. And on Page 5, you can see there are three pillars. One is the purchased commercial real estate, which is -- at this point, is the largest amount of our commercial real estate loans, those that have been purchased. Secondly, originated commercial real estate loans, which is about -- with a lot of rounding here, about 25% of our loan book. And finally, we have started to do a couple 3 years ago, or maybe even starting with PPP, doing small business lending. Some of the stats over a 3-year period are an average return on equity of 17.7% and a return on assets of 2%. Our 3-year loan growth has been 76%. And our 3-year small business originations are 600 -- over that time period of $653 million, of which most of it has been SBA loans under the 7(a) program, where we have sold $448 million. Two other points. One, our 3-year average NIM is 4.9%. And in our 7 branches, in Maine, deposit growth over a 3-year period has been 40.3%. I point this out for a couple of reasons. One is I want to show you in a really understandable form exactly what we do. We're not a traditional community bank, as I mentioned. And I think it's helpful to see how these three pillars contribute to very strong returns for the bank. The second point is that we have a long history of achieving above-market returns, very much above market returns. And while we present quarterly numbers and get judged on a quarterly basis, this quarter, our operating results were a little bit lower than they have been in the previous quarters. But I want you to consider kind of the -- not thinking about us at a quarter at a time, but thinking over just a slightly longer time frame. And with that, I want to turn to Page 3 in the slide deck and point out that I would say the highlight of this quarter for us is the very significant loan volume that we put on our balance sheet, which is for the quarter, just a little bit under $900 million of loans, total loans, we put on our balance sheet. And consisting of purchased loans with a UPB of $575 million at a basis of $532 million, or we bought them for 92.6% discount. Mostly -- maybe all, call it 95%, is all an interest rate mark, not a credit mark that we took. And so that will be income that will come in over time. On the originated loans, this was a record quarter for us. $252 million of originated loans at a weighted average rate of origination of 7.6%. And I want to just point out just a few other items. One, we originated $39.8 million of SBA loans, which we'll talk a little bit about more in this call, of which we sold $25 million, and we had gains of $2.1 million on our sold SBA loans. And finally, in the small business space, we originated during the quarter $70.6 million of our insured loan product, which we have talked about in the past. The net income was $20.7 million. This I alluded to earlier about being a little bit lower than we have had in some past quarters. But I want to explain now what contributed to that, which was mostly the SBA activity. As you all know, the SBA program as part of the government shutdown from October 1 through November 12, during that time period, we were very limited in loans that we could originate. We could only originate loans that we had previously gotten an SBA number for and had a tax return transcripts and a bunch of other things that we needed to be able to originate fund those loans and then sell them. So most of the loan activity took place between November 12 and December 31. And I also want to make the point which we've talked about in the past that on July 1, the SBA restructured the small balance program such that underwriting a small balance loan took more time and more documentation than it previously had. And so if we compare the SBA gains for the quarter ending June 30 with the quarter that just ended, that's a $6 million difference in gains. $8 million for the June 30 quarter and $2 million for this quarter. And if you convert that on an after-tax basis to earnings per share, it's $0.50. So -- and then one other point I want to make about our loan book. Most of the purchases occurred at the very end of December. And as a result, our ending loan balance, I have it here, $3 billion or $4 billion, was about $500 million higher than the average loan balance in the December 31 quarter. What's the point? The point is that we're going to have -- we have some tailwinds going into the next quarter and subsequent quarters because we have a much higher loan book than we had for the 12/31 quarter, which should -- you heard Marvin read the forward-looking statement to you. So keep that in mind. But the arithmetic would say that we should have significantly more net interest income in the following quarters than we had in this quarter. I also want to point out that our NIM was 4.49%. And in terms of just some other numbers, EPS diluted was $2.49. Return on equity was 15.6%. Return on assets were 1.87%. And if we're correct that we expect SBA loan originations to increase, and sales to -- of loans to increase and more net interest income, we would expect those numbers to be higher in subsequent quarters. On that note, I'm going to turn it over to Tino, who's going to give you much more granularity on the financial numbers, and then Pat will discuss our commercial real estate originations and purchases, and we'll probably touch on our SBA and insured loan business. And then after all of that, we will be very happy to answer any questions that you might have. Tino? Santino Delmolino: Thanks, Rick. As Rick mentioned, despite some headwinds we had this quarter, it was still a strong quarter for the bank. We reported net income of $20.7 million, or $2.47 per diluted share for the quarter. $43.3 million, or $5.14 per diluted share for the year-to-date. Return on average assets was 1.87% for the quarter and 2% for year-to-date, and return on average equity was 15.6% for the quarter and 16.6% year-to-date. As Rick mentioned, the story this quarter really was focused around balance sheet growth. Total assets ended the quarter a shade under $5 billion at $4.95 billion, and loans ended the quarter at $4.4 billion, up from $3.7 billion as of September 30. This incredible loan growth is attributable to both the purchase and originated side of the house, as Rick had mentioned. For the quarter, we had purchases of $533 million, and originations of $252 million in our National Lending division. Timing of this was heavily weighted towards the tail end of the quarter and had a muted impact on net interest income, but will be accretive to earnings on a go-forward basis. Purchases were funded through a combination of both brokered CDs as well as borrowings from the FHLB, had a weighted average cost of funds of 3.8%. Our banking centers also continue to be a strong source of liquidity to fund our origination volume as we grow our deposit franchise in Maine. Net interest margin for the quarter was 4.49%, down from 4.59% in the linked quarter, resulting in net interest income of $48.8 million for the quarter-to-date, and $97 million year-to-date. The decrease in NIM is largely due to a lag in timing of liabilities repricing as we have approximately $1.25 billion in CDs maturing over the next 6 months at a weighted average rate of 4.05%. Transactional income was flat quarter-over-quarter, coming in at $2.8 million for the current quarter, compared to $2.7 million for the linked quarter. As Rick mentioned, activity in our SBA business was heavily impacted by the government shutdown. However, we were happy to see it snap back a bit during the month of December, and appears to be on a favorable trajectory going forward. During the quarter, we originated $40 million SBA 7(a) loans, sold $25 million for a gain on sale of $2.1 million. The timing of the shutdown did, however, provide a tailwind for the launch of our new small balance insured business loan program, which saw originations of $70 million during the quarter. Despite this growth, asset quality remains strong with delinquencies, nonaccruals and classified loans all remaining relatively flat quarter-over-quarter. The allowance for credit losses did increase during the quarter from $46.7 million, or a coverage ratio of 1.24% at September 30, to $63.8 million, or a coverage ratio of 1.47% at December 31. This was largely provided for as part of the purchase loan activity during the period. Net charge-offs during the quarter were up $2.9 million, compared to $1.9 million in the linked quarter. This was largely due to a charge-off on a single purchase loan of $1.2 million. That loan was previously reserved for, so there was no impact of that in the provision during the quarter. So our provision came in at $875,000 for the quarter. On the expense side, we continue to be disciplined while strategically investing in our people and in technologies that are going to set the bank for long-term success. Noninterest expense for the quarter is down from the linked quarter, coming in at $20.8 million, compared to $21.9 million. This decrease was largely due to lower professional fees, as well as less loan acquisition and collection costs. Tax expense for the quarter was $9.4 million, representing an ETR of 31.1%, compared to $8.9 million in the linked quarter. Capital remains strong with our Tier 1 leverage ratio coming in at 12.2% and tangible book value of $62.65 a share. This strong capital position provides us with just under $1 billion of loan capacity as of December 31. Pat, over to you. Patrick Dignan: Thanks, Tino. This is a big quarter for loan volume. We purchased 152 loans in 5 transactions with $576 million of balances at a purchase price of $533 million, or 92.6%, and with weighted average yield to maturity of 10.8%. These were geographically diverse portfolios but with significant concentrations in New York and New Jersey. Three of the five transactions were from banks, but 80% of the balances were from loan funds exiting previously purchased bank portfolios. The current pipeline is as full as we've ever seen, and we're aware of several large transactions that will be coming to the market soon, fueled mostly by M&A. Interestingly, I learned from Sandler that bank M&A is up 45% in 2025 over '24, and '26 is shaping up to be even bigger. You never know in this business, but at least for the next several quarters, there appears to be a lot of opportunity growing. In our Origination business, we closed $252 million. This included 32 loans, of which 2/3 were lender financed with an average balance of $7.5 million, LTVs just over 50%, and an average interest rate of just over 7.5%. There's a lot of inbound loan requests right now despite increasing competition from private lenders. Given our funding costs, ability to close quickly, and sweet spot in the middle market space where there's less competition, we could still be picky on credit without sacrificing too much in yield. I hope that continues. Finally, with respect to our small balance program, we originated 537 loans for $111 million this quarter. SBA loans accounted for $40 million, as previously mentioned. We had some good momentum going into the quarter, but the government shutdown cost us. Looking forward, $20 million a month or so seems like a reasonable run rate for SBA loan volume before any consideration for new product offerings, which we are considering. We also closed $71 million of small balance insured loans during the quarter. As a reminder, these loans are very similar in most characteristics to SBA loans we originate, but carry private insurance instead of an SBA guarantee and with higher rates. Our intention is to sell these loans into the secondary market while retaining residual economics. More to come on that. That's it for loans last quarter. We're already knee-deep into the current quarter, so we hope to keep it going. Rick? Richard Wayne: Thank you, Pat. Marvin, we're ready for any questions out there. Operator: [Operator Instructions] And our first question comes from the line of Mark Fitzgibbon of Piper Sandler. Mark Fitzgibbon: First question, maybe for Tino. I guess I was surprised to see that the share count went down this quarter. Did you guys buy some stock back in the fourth quarter? Santino Delmolino: No, we did not buy any stock back during the quarter. That was purely a result of stock compensation activity and cancellation of shares to cover taxes. Mark Fitzgibbon: Okay. But you didn't exercise the ATM at all. Is that correct? Santino Delmolino: We did not utilize the ATM, no. No share activity this quarter besides stock compensation. Mark Fitzgibbon: Okay. And then based on your comments before, Tino, it sounds like we should see a bit of lift in the net interest margin going forward given the downward liability repricing that you anticipate over the next 2 quarters. Is that fair? Santino Delmolino: Yes, I think that would be fair to say. Mark Fitzgibbon: Okay. And then next, I wondered if, strategically, sort of, how do you think about evolving the funding mix over time as you grow as the balance sheet continues to grow? Will broker deposits continue to be the main source of growth? Richard Wayne: I would think so. We're making a real effort to grow our deposits in Maine, which tend to be less expensive than brokered and generally, stickier. And we've had great success in municipal deposits, which have grown meaningfully over the years. And we are also taking a look at other niche possibilities where we could grow deposits as well. But I just think our reality is, because our loan growth is at such a great pace that in order to fund that we'll probably be looking at brokered deposits to do a lot of that. I would also add that broker deposits, I know you would know Mark better than I would, but for a while, had a bad name. But I don't think it's really the case any that it deserves it now. It's a very efficient way of funding without all the cost of either an online presence and marketing, or brick-and-mortar space. And so you pay a little bit more for it, but it's not a problem at all as long as you stay well capitalized, which we certainly do. We have very high capital ratios. You can get the money, you can get it efficiently. And so it's -- I know that it's not -- investors tend to love cheap liabilities. We love that, too, if we can get it, but that's kind of a brick-by-brick building process. But in order to fund ourselves with the kind of growth we have had, broker deposits work well. Mark Fitzgibbon: Okay. And then lastly for me, can you give us a sense for what percentage of the purchase loans you have that typically sort of you retain at maturity? Richard Wayne: You know, we don't have that number right off hand. I mean we -- it's knowable somewhere, but three in this room don't have that. And we can get that and provide that information on another call, for the next call. But I could say to you, anecdotally, we try and keep a lot of the loans when we have them. And the case we make to the borrower is that they can extend it without any friction within, with no cost really, essentially signing an agreement that's 3 pages long or so. And it's easy. And I would say also, it's easier for us to keep them when rates are higher because their refinancing alternatives are not as great when rates come down as they're probably going to be now, the runoff may be greater, because you have a lot of local banks that would be chasing these borrowers. The kind of good and bad news. The bad news is you lose the loan. The good news is you accelerate the income that has not been recognized and you get back on the treadmill again. I guess that's the bad news for those of us who don't like to exercise. I know you're not in that camp, Mark. I know you do. Operator: Our next question comes from the line of Matt Renck of KBW. Matthew Renck: Matt Renck filling in for Damon DelMonte. My first question, just with the SBA gain on sale income. It looks like you're projecting like $20 million more of SBA loans for the quarter. Is there any catch-up next quarter from the government shutdown and fee income? Like will more things flow through? Or is it more just a return to normal fee income levels? Santino Delmolino: One clarification, that's $20 million a month, so roughly in the ballpark of $50 million to $60 million a quarter. Matthew Renck: Okay. Got it. And you did $40 million this quarter, right? Santino Delmolino: Yes, correct. So we expect it to increase next quarter. In terms of the -- you're asking about the percentage gain on sale? Matthew Renck: Yes, yes. Santino Delmolino: Yes. We anticipate that to stay somewhere in the realm of 8% to 9%, compared to the balance of guaranteed balance being sold. Matthew Renck: Okay. Got it. And then just on the insured small business product. How much -- how like do you see that growing over the course of the year? Was there any benefit? I think you mentioned from the shutdown driving some outsized demand there? Or is that run rate kind of sustainable into the future? Richard Wayne: I think the run rate is sustainable. The demand for it is gigantic. The reality for us is we got to be able to sell it. To date, we haven't sold what we have originated, and we don't want a portfolio, an uncomfortable level of these on our balance sheet. Not because they're bad loans, they're good loans with the insurance protection. I'll remind -- I said this in our last call, but I'll remind anybody who may have forgotten, or those that don't know it, which is these -- when they're insured, the loans have a 4% deductible and 10% of insurance. So the 14% -- with the deductibles funded. So there's 14% of protection on these loans and -- which is significantly higher than the losses on an SBA loan, with loans that are -- the profile is reasonably similar. Matthew Renck: Okay. But even when you guys do start to get to sell them, it should be lower than that like 8% to 9% gain you're seeing on the SBAs? Richard Wayne: No, because these are different. The SBA loans are -- it's agency paper that that's just the market for selling them. These loans would be sold to a private buyer and the economics of how much is the premium, if any, will there be some, but premium on the sale is not going to be like the SBA. It's going to be much, much smaller than that. But the benefit is once we sell them, we're going to keep a spread, and we split this with annuity, but keep a spread on assets that we don't hold anymore. So it could be -- these are very rough numbers. I'll reference again the forward-looking part of the presentation. But it could be -- we wind up making 2% or 2.5% while the loans are on the outstanding balance when we don't have the loans on our balance sheet, that's our share. [indiscernible] the same. So it's a different kind -- economics are different on this. But if we're able to sell these, the economics will be terrific. Santino Delmolino: And one thing to note on the accounting side of the house here. It's largely going to depend on how the agreements are structured, but we may very well end up with mortgage servicing assets that get recorded on the balance sheet, and that will flow through the gain line. So until we have the contract finalized and in front of us, it's hard to say what exactly to expect from a gain on sale versus how much will be some sort of spread income that's recognized over time. Patrick Dignan: We have to go through a loan sale, a couple of loan sales first. And on loan volume, we have -- it's been -- we've kind of described it as a fire hose, as Rick pointed out, but we've got to intentionally kink in that firehose. We're really slowing the incoming volume down until we can prove to ourselves that we could sell these loans and see what the real return will be. Operator: We have no further questions at this time. I'll now turn the call over to Rick Wayne for closing remarks. Richard Wayne: Thank you, Marvin, and thank all of you for calling in and listening. And I know we get a lot of listeners after the call will go on our website to hear a replay. And to those, I thank you as well. I wish you all a happy week in this snowy time of the year. As you know, we're in Boston, a lot of snow here. I assume most of you are in New England somewhere in the tri-state area. So you probably have a lot as well. Thank you. Thank you, Marvin. Operator: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
Operator: Welcome to the Getinge Q4 Report 2025 presentation. [Operator Instructions]. Now I will hand the conference over to the speakers, CEO, Mattias Perjos; and CFO, Agneta Palmer. Please go ahead. Mattias Perjos: Thank you very much, and welcome, everyone, to today's earnings call. With me, I have our CFO, Agneta Palmer. We will start the conference today with our performance in the fourth quarter and then reflect a bit on the full year and our expectations for 2026 and onwards before ending with a Q&A. So we can move directly to Page #2, please. So let's first look at the development of our longer-term strategic KPIs. You can see that we continue to clearly track in line with our plans to increase the share of sales from recurring revenue, accelerating the share of sales from high-margin products like our Paragonix offering, our ECLS portfolio, the consumables with infection controls and also data bags inside our Cell Transfer segment in Life Science. This is all supported by solid and effective quality processes as well, which is extremely important in our industry. So sales from recurring revenue now makes up about 2/3 and high-margin products a little bit more of total revenue. When it comes to quality, the number of field actions in relation to sales has decreased significantly, and we see this positive trend also sequentially continuing in the fourth quarter. This improvement should, of course, be achieved through responsible leverage and an attractive long-term return on invested capital. If you move to Page #3. If we then zoom in on the fourth quarter of last year and some of the key takeaways from the quarter, we managed to beat last year's record quarter and grow top line organically, which I think is really good. Net sales grew by 1.2% organically with positive developments in most BAs and regions, and our order intake increased 2.3% organically. If we then look at adjusted gross and EBITDA margins, they were down in the quarter, mainly due to the strong headwind from currency and tariffs. And adjusting for the over SEK 1 billion in currency and tariff headwind in 2025, the EBITA margin for the full year was considerably higher than 2024, signaling that the underlying performance of the business is strong and developing according to plan. We have solid cash flow, and we remain in a very strong financial position with our financial leverage well below 2.5x EBITDA. And the Board has -- the Board of Directors have proposed a dividend of SEK 4.75 per share. We can then move to Page #4, please. So if we then look at some of the key activities and events in the quarter and start with our -- what we offer our customers, we -- it's usually our strongest quarter than last year's significant amount of shipments that went out in the last week of the quarter -- last week of the year. So really good collaboration with our customers overall, and that this is the reason we managed to reach record high organic sales in the quarter as well. I'm also very happy to see that our intense product development efforts have resulted in several important product launches during the quarter. In Life Science, we have announced the integration of Siemens open and flexible user interface in the new generation of washers and sterilizers, and this will support streamer operations, efficient data management and secure data integrity for our customers. And also in Surgical Workflows, we launched the utility-efficient Aquadis 44 washer-disinfector, which helps hospitals reduce cost and meet environmental -- their environmental targets. And within Surgical Workflows, we also launched Automatiq, which is a new family of next-generation automated solutions, which combines smart robotics, intelligent conveyor systems and advanced software to achieve both safer, more consistent and less labor-intensive sterile reprocessing. If we then look at the sustainability and quality aspect of this, we continue to make good regulatory progress in the quarter. In our Implants business, we received premarket approval for the iCast covered stent in large diameter lanes. So this will help us become more competitive in the U.S. market. Our PLS set which is used in extracorporeal circulation for cardiac and pulmonary support received CE certificate under the EUR MDR. And also happy to see that PiCCO, our minimally invasive hemodynamic monitoring system is now included in the European Society of Intensive Care Medicine's guideline on circulatory shock. I also want to highlight again that our quality KPIs such as audit finance per audit for quality systems and also field actions in relation to sales continue to trend positively. So those are the main activities and events for the fourth quarter, and we can then move to Page #5. So looking at then our top line performance, we can see that we had solid progress in Acute Care Therapies and in Surgical Workflows. Order intake grew 2.3% organically. And in Acute Care Therapies, this increase was mainly attributable to good performance in ECLS Consumables, in Transplant Care, and we also saw growth in endoscopic vessel harvesting and in product [indiscernible]. Life Science organic order intake declined in the quarter due to softer development in WIS, which is our washers, isolators and sterilizer business and also within Bio-Processing. The organic order intake for Surgical Workflows grew strongly in the quarter, mainly on the back of strong development in infection control consumables and also operating room equipment generally within Surgical Workflows. From a sales perspective, we had a 1.2% organic increase in sales, and we have both Acute Care Therapies and also Surgical Workflows showing low single-digit growth in organic sales. Acute Care Therapies, the growth came mostly from good performance when it comes to ventilators globally. We saw Transplant Care with good momentum and also ECLS therapy. In Surgical Workflows, organic net sales increased primarily, thanks to growth in operating tables and in infection control consumables. And when we look at Life Science, we had an organic net sales decrease mainly due to lower sales in Bio-Processing and in the WIS business that I mentioned also on order intake. Growth in sterile transfer, which is our most important subcategory in Life Science continued strong. We can then move over to Page #6, and I'll hand over to Agneta. Agneta Palmer: Thank you, Mattias. It's positive to see that our activities come through a strong underlying performance. Despite negative impact from tariffs and FX in the quarter, we managed comparatively well with decent margins. On adjusted gross profit for the group, adjusted gross profit amounted to SEK 5.037 billion in the quarter, primarily on the back of currency and tariffs. Adjusted gross margin was down by 1.1 percentage points in total despite a healthy contribution from price and mix. On adjusted EBITDA, adjusted gross profit effect on the EBITDA margin was minus 0.5 percentage points due to what I just mentioned. Adjusted for currency, OpEx had a slight impact on the margin in the quarter. FX impacted severely by minus 1.2 percentage points in the quarter. And all in all, this resulted in an adjusted EBITDA of SEK 1.809 billion and a margin of 17.8%. Let's move to Page 7, please. We remain in a solid financial position. Free cash flow amounted to SEK 1.2 billion in the quarter. Compared with last year, free cash flow was impacted by changes in working capital. At the end of Q4, net debt was SEK 9.8 billion. If we adjust for pension liabilities, we are at SEK 7.5 billion. This brings us to a leverage of 1.5x adjusted EBITDA, which is well below the 2.5x, which we have set as an internal threshold. If we adjust for pension liabilities, leverage is at 1.1x adjusted EBITDA. Cash amounted to approximately SEK 3.4 billion by the end of the quarter. So all in all, we can conclude that the financial position continues to be strong. Let's move to Page 8, please, and back to you, Mattias. Mattias Perjos: Thank you, Agneta. Before looking at the full year and ahead, I'd just like to take the opportunity to quickly shift from financial KPIs to some other impactful figures. So at Getinge, my colleagues and I have a lot to be proud of, I think. If you look at our products and services in the hands of clinicians and pharmaceutical staff, they really make a true life-saving impact globally every minute. So this slide just lists a few figures describing some of that impact. And it really explains some of the reasons for the strong customer loyalty that we see year in and year out. So for example, if you look at our Operating Table business, every fourth operating table globally is from Getinge. These are used in million major surgeries annually. Look at our new washer in Life Science, it uses 32% less water, 25% less energy, so reducing cost and the climate footprint for our customers. And furthermore, if you look at our unique NAVA ventilation technology, this can cut hospital stays by roughly 1/3 for adult ICU patients. So this is a significant win-win, both for patients for their health and for hospital finance. With that, we can move to Page #9, please. So we take a step back and look at 2025. Overall, it was certainly an interesting year in many, many aspects here. If I sum up the year, it will be in 4 main themes. So first, we have the geopolitical friction such as tariffs and the strong currency headwind that we have seen throughout the year. So this has been a wet blanket not only for Getinge, but for most companies globally. And this is something we expect to continue also to have to deal with in 2026. Secondly, more specific to Getinge, we've seen really good progress in our important quality remediation work. And thirdly, I'm happy to note that our organic innovation focus has resulted in several product launches throughout the year, which will help us further strengthen our competitive position and the support from our customers. All in all, we continue to show strong underlying performance, thanks to our industry-leading products and our team's enduring efforts together with our customers navigate through ongoing political turmoil. We can then move over to Page #10, please. I just wanted to take a moment to zoom in on the headwind from tariffs and FX as well since this was a significant drag on adjusted EBITDA in Q4 and almost -- it was almost SEK 500 million and also, of course, a drag on full year adjusted EBITDA by over SEK 1 billion. So tariffs made up almost SEK 150 million in the quarter and about SEK 370 million for the full year, which for last year was Q2 to Q4. If we exclude the impact of tariffs and currency, our adjusted EBITA margin in Q4 would have been 20.3% and 16% for the full year. So this is right at the beginning of our longer-term guidance plan of 16% to 19% set for the end of 2028. So this really shows that the underlying improvement work is really having good momentum here, and that's something we look forward to continue working with and implementing in the coming years. We can then move over to Page 11. Thank you. Just a few comments on the regulatory uplift plan as well with some of the major milestones coming up during the year. So at the end of 2024, if we take a step back, we reached the important milestone of clearing the quality record backlog. During 2025, several other regulatory milestones have been reached. I mentioned some examples from Q4 at the beginning of this presentation. We've also made progress in the important regulatory product uplift of our market-leading devices, CardioSave, which is our intra-aortic balloon pump in cardiac assist and Cardiohelp, the hardware for ECMO therapy within our Cardiopulmonary business segment. When it comes to CardioSave, in CE markets, the CE approval is reinstated with conditions since last fall. We hope to initiate sales by the end of last year, but due to some delay in shipment of critical components, we have pushed of deliveries now to the second quarter of 2026. In the U.S., we're currently only selling replacement pumps to existing customers. And due to the delay with critical components that I just mentioned, we've also pushed the 510(k) submission to Q2 2026. We had strong order growth for pumps in the quarter, which confirms the leading position in this segment and the trust that our customers have in us, and this is why the submission and the start of deliveries is really a key priority for us. If we then move to Cardiohelp, there are no sales restrictions in key markets for the existing Cardiohelp. We and our customers are very excited about the next-generation device here, the Cardiohelp II . For this one, we sent in the submission for CE-mark approval in Q4 of 2025, so last year, and we expect to be able to initiate the first shipment in Europe during the beginning of this year. In the U.S., we're only selling to existing customers or customers confirming that they don't have any other viable alternative. The work with the 510(k) submission for the complete Cardiohelp II system is going according to plan and is set for the second half of this year. We can then move to Page #12. At the Capital Markets Day in our Capital Markets update in May 2024, we guided for an adjusted EBITA margin of 16% to 19% by the end of 2028. And I think we're on a steady path of reaching that, and that's despite the very different norm that we have today compared to 18 months ago. The main drivers which will enable this is related to growth, it's related to product mix and it's related to productivity. So if you look at the growth angle of this to begin with. So from the perspective of regulatory approvals and key strategic product launches, we have mentioned some of them here. We have the next-generation ECMO therapy with Cardiohelp II having no sales restriction for CardioSave intra-aortic balloon pump and also our low temp sterilization is something that will materialize during this guidance period. We also expect to get our share of the announced U.S. pharma investments and a recovery in Bio-Processing. And we will, of course, continue our diligent and successful work with realizing price increases every year. From a mix perspective, it is our strategic intent to steer our business towards a continued rotation to high-margin products and consumables. And if possible, we prefer to have products that are made up of a competent hardware and with captive consumables attached to this. Our strong R&D and innovation pipeline is set to contribute to this development. And then from a productivity perspective, we've already done a lot in several parts of the business with remaining opportunities in other parts of the company. The heightened extraordinary quality costs connected to the product uplift in CardioSave and Cardiohelp is expected to go down from the second half of 2026 and then be significantly lower in 2027 and '28. So this will also support the margin expansion. Furthermore, we will continue with our production excellence efforts, helping us to further optimize our supply chain and remain with a tight cost control across the company. So all in all, this supports our assessment that our target for 2028 is well within reach. We can then move over to Page 13, please. So what does this mean for 2026 then? And here, we see primarily 3 themes. First, unfortunately, we expect the geopolitical friction and the FX headwind to continue in 2026. And so of course, will our mitigating efforts. Secondly, a key this year will be to hit the critical quality remediation milestones to enable the product launches that we have in the pipe as soon as possible. And thirdly, we do expect the solid underlying performance to continue, and we have good momentum across large parts of our business when it comes to this. So in many aspects, a year quite similar to 2025 and setting us up for an acceleration in 2027 and '28. Can I move to Page 14. This takes us to our financial outlook for 2026. As we all know, there are some geopolitical uncertainties that we will need to navigate in the coming years. But based on the underlying demand that we see, our expectation is for an organic net sales growth to be in the range of 3% to 5%, adjusted for the phaseout of our Perfusion product category. Surgical Perfusion is expected to have a net sales in 2026 declining from about SEK 250 million to SEK 50 million. We move then to Page 16, please. So summarizing the quarter, we had organic growth in top line, resulting in record high sales for the quarter. Tariffs and FX continue to be a significant headwind, but we still managed to have margins in line with the 2024 level, really confirming that the underlying performance is developing according to our plans. Our financial position remains solid. We had a good end from a cash flow perspective for 2024 -- sorry, '25. For 2026, we guide for organic net sales growth of 3% to 5% adjusted for the phaseout of Surgical Perfusion. And our priorities remain the same for 2026. So key here is addressing the remaining challenges that we have in our Acute Care Therapies business area. We continue to focus on sustainable productivity improvement and cost consciousness when navigating the geopolitical uncertainty and addressing the impact from tariffs. And key focus, of course, as always, is to continue creating added value for our customers and really help them serve patients better. With that said, I open up for questions. Operator: [Operator Instructions] The next question comes from Oliver Reinberg from Kepler Cheuvreux. Oliver Reinberg: Three, if I may. I'll probably take them one by one. Mattias, can you just say a word on 2026? I mean, you alluded to the fact that there's obviously still the kind of headwinds from currencies and I guess also tariffs maybe a certain annualization effect. Can you just help us to get a kind of feeling for the magnitude of these headwinds? And I think the Street is currently expecting 60 basis points of margin expansion. Is that something you feel comfortable with? That would be the first question, please. Mattias Perjos: As usual, we never comment on expectations from the capital markets here. But the -- from the tariff situation, assuming that they remain the way they are now, I think the math that we have from 2025 will apply in 2026. So we will have a slightly higher level of tariffs up to a couple of hundred million. So that's something we will need to mitigate. And so we are fingers crossed for some tariff stability at least. The best thing will be if they went away, but we expect to have to live with tariffs now for 2026. So they will continue to be around SEK 0.5 billion headwind at least. On the currency side, we do expect the dollar to continue to depreciate, but we're really in no position to make any estimates forward-looking on this. So that's an additional headwind that we will need to find ways of mitigating. Oliver Reinberg: Okay. But would it be fair that you still feel that you can mitigate both and there will be net margin expansion at the end? Mattias Perjos: Yes, that's our ambition. Oliver Reinberg: Okay. Perfect. And then just secondly, on this kind of midterm guidance, which you also already gave within the last call. I mean, can you just give any kind of flavor is the upper end as likely as the low end, so the full range of the whole guidance still applies? Mattias Perjos: I'm not really in a position to dissect the guidance spend now and narrow it down. But I think it's really encouraging to see that without the negative effect from the geopolitical consequences of tariffs and headwinds, we would already be within our guidance range. So the momentum underlying in our business is good. We do feel okay about investment climates among our customers as well. I think treatment needs will continue to grow slowly, but that support our business growth. And like I mentioned in the presentation page, our productivity measures across the business is also really showing good momentum. So overall, we feel good about the traction towards the margin, but I'm not prepared to make any more detailed analysis or break this down with the probabilities right now. Oliver Reinberg: Okay. Fair enough. And the last question, just because we're full, it's always probably a kind of good opportunity to discuss capital allocation. I mean, you brought the leverage down quite significantly. Can you just talk about priorities? I mean, in the past, you were more leaning towards M&A. Can you just provide some kind of color how open you would be to any kind of share buybacks at this kind of point? And I think there was some time ago also you did this kind of discussion to what extent Life Sciences is a kind of long-term fit given that the industry is going to normalize. I mean, do you feel that there's a lot of people knocking on your door for any kind of potential offer? Any kind of flavor here would be great. Mattias Perjos: Yes. I think we definitely have continued inbound interest regarding the Life Science business, but it's not something that we have on the divest list here. We feel like good owners. We like the exposure to this end market, and we continue to invest in this part of the business as well. When it comes to capital allocation in general, M&A remains one area, but we have a mandate to do share buybacks as well. It's a discussion that is continually going on in the Board. Given the uncertainty that still remains, I think we've seen some examples of this already in this year with tariffs coming in or the threats of tariffs coming in and so on. So I think it's good to be a little bit prudent with how we allocate capital. Operator: The next question comes from Mattias Vadsten from SEB. Mattias Vadsten: I have 3. I'll take them one by one as well. First one, if you could talk a bit about the sort of phasing for the year, for example, assuming perhaps Q1 is one of your tougher comps during 2026 from the perspective of a couple of things? And also quality cost, it sounds like it should come down foremost towards the second half. So maybe if you could give your view there. That's the first one. Mattias Perjos: Yes. No, we're not prepared to make any kind of quarterly guidance here, but the dynamics that you described, we agree with, it's maybe the best way of putting this. But we've guided for 3% to 5% growth in 2026. Our ambition is to continue to expand the margin, but I can't really break it down by quarter. Mattias Vadsten: Okay. Then it appears ventilators has been very strong, of course, and strength continued also into Q4, perhaps driven more by outside U.S. markets. But could you give us your overall sort of thinking for the business in 2026, perhaps without going into too much of a detail, but more how you think about it going forward? Are accounts sort of tougher? Or is the momentum strong enough to make it continue to grow strongly also in '26? Mattias Perjos: Yes. I think I'll describe it the way we've done it during 2025. We've had over a year of good momentum now in this business. I think definitely compared to our market share pre this shift, we've been net beneficiary when it comes to market share grab. So very thankful for the support from our customers and the great work by our teams to make this happen. I think that there is a mix of replacement cycle, normal replacement cycle going on in this business, and there is the continued withdrawal of some of the remaining incumbents in this business as well. But needless to say, the tailwind will be much, much milder than it was during end of '24 and the whole of 2025. Mattias Vadsten: Okay. And then on the situation -- on the supply side in IABP, what is your sort of level of confidence to have that sorted in Q2? And also, is it fair to say that sort of CardioSave in the U.S. will be sold without restrictions towards the end of 2026? Or how do you view that? Mattias Perjos: I don't think we will be able to sell towards the end of 2026. This is now first about submitting the updated 510(k) that we said now is in the second quarter. It still hinges on making sure that we have the critical components fully available that we can do the validation and testing needed and we prepare for this. So there is still some uncertainty related to this, but we feel obviously more confident about Q2. Otherwise, we would have said something different. So there's some remaining work, but also steady progress towards this. Operator: The next question comes from Kristofer Liljeberg from Carnegie. Kristofer Liljeberg-Svensson: I will also take my questions one by one. First, are you able to comment on Paragonix sales level here for 2025, maybe how much it's growing right now and margins? Agneta Palmer: I don't think we will disclose the exact growth figures of Paragonix, but we are very happy about this development. And as is visible in our report, we will end up with a bit of a higher earn-out also based on this. And margin-wise, it is also developing according to our expectations or a bit better. Kristofer Liljeberg-Svensson: But would you say it's still dilutive on margin? Agneta Palmer: It's slightly dilutive on margin overall on the... Kristofer Liljeberg-Svensson: Okay. For the group or for ACT? Agneta Palmer: For the group. Kristofer Liljeberg-Svensson: Okay. Then my second question, Mattias asked before about phasing effects. Just wondering about Q1 and the flu season. I think that was quite a good benefit for you last year and it seems the number of cases is dropping quite fast in the U.S. Could you maybe give a little bit of flavor how much a good or a strong or weak flu season impacting sales in a given quarter? Mattias Perjos: No, the short answer is no. It is difficult to break it down. I mean there's been a couple of years after the pandemic where we had no flu season effect and now we saw last year that there was some and this year, if you look at 2025, '26, hospitalizations increased a little bit earlier than they did before. So there was maybe a bit more of a December effect, but it's impossible for us to speculate about the impact of this in... Kristofer Liljeberg-Svensson: Okay. And finally, when it comes to the quality cost, is it possible to say approximately how much lower they were in 2025 versus '24 or if they were still at this SEK 800-plus level? Agneta Palmer: No, I think we will stick to the information that we have provided before. We had sort of a peak level that is -- we are remaining on high levels, and it will slightly then come down, but we will not give any exact amount. Kristofer Liljeberg-Svensson: But you can confirm it was less than SEK 800 million in 2025? Agneta Palmer: Yes, that we can confirm. Operator: The next question comes from Ludwig Germunder from Handelsbanken. Ludwig Germunder: Ludwig Germunder from Handelsbanken. I would like to start with touching upon ventilators again, like we've been talking about a bit before already. But would you be willing to give some flavor around the ventilator sales? We knew that comps were tough going into this quarter and yet the sales come out strong now. What does the strong mean? What are the main drivers? And how should we think about this going into Q1, where dynamics are very similar? Mattias Perjos: I think the strength comes on the back of some continued competitive conversion, possibly some of the normal replacement cycle kicking in and also some fee effect positively. But we can't break this down even if we wanted to unfortunately. Ludwig Germunder: Did it surprise you? Or was this in line with what you saw coming? Mattias Perjos: I wouldn't say surprise, mild surprise, maybe it was a mild positive compared to expectations. Ludwig Germunder: Okay. And then a quick one on Paragonix as well. It seems like it's doing well there, another quarter of strong growth. What are the main drivers you're seeing in Paragonix? And what are you expecting for this in 2026? Mattias Perjos: The drivers have not changed. I mean there is this conversion from ICE, it's still one of the ongoing things. And then, of course, we had a good launch of the KidneyVault during 2025 as well. So I'd say these are the main contributors. Ludwig Germunder: Okay. And then just final one on the outlook given the updated definition. If my math are correct, you're adjusting for an estimated headwind of around 57 basis points. How should we think about this in relation to the other? Has anything changed given the, let's say, the estimated rest of the business? Or is it the same as before? Agneta Palmer: The same as before, we have not guided before on 2026. Would you care to elaborate the question? Ludwig Germunder: No. Yes, sorry. I'm thinking the development, for example, when you guided to 3% to 5% in 2025, you did that on the base of something. Do you see the same market development excluding the Surgical division? Agneta Palmer: There are a number of dynamics in the market development, of course. If you look at our market presence, it is the same trajectory as in 2025 and strong in our key position. Then we have different dynamics such, for example, as the one described by Mattias when it comes to ventilators and the conversion effect that is a tough comparison now moving into 2026. Operator: The next question comes from Philip Omnou from JPMorgan. Philip Omnou: Firstly, on Section 232, I would love to get your thoughts on that program and the implications of that and what you anticipated in terms of its outcome for 2026? Agneta Palmer: Yes. So I have hopes, but I will not speculate on the outcome. What we can say about Section 232 is that we have submitted our opinion along with our industry colleagues, and we are expecting clarity on this in Q1, this is what has been said before. So let's hope for some clarity. And as Mattias mentioned before, the very least stability on tariffs. That's all we can say on this one. Philip Omnou: Okay. Perfect. And then maybe can you remind us of your tariff mitigation actions that you've gone through and what sort of impact do you expect they can have in 2026? Agneta Palmer: We can just reiterate what we have mentioned before. So we work with it -- we always work very actively with pricing, but we intensify these efforts to mitigate for tariffs. We also intensify our productivity agenda that has been very strong also, but we have accelerated some areas of that to compensate for the increased cost of tariffs. And then the third bucket is that we review our structure, both in terms of our business partners, so to speak, with suppliers, et cetera, and in some cases, also our own footprint. Philip Omnou: Right. Okay. And then just the last one from me, please. I'm not sure if someone has really asked this because my line cut out. But we saw the corporate warning from Teleflex a few weeks ago, and they were talking about weakness in demand for intra-aortic balloon pumps and catheters in the U.S. and Asia. So just wondering if you had any thoughts on that and if you were seeing anything in your existing customers? Or does it change anything with planning for CardioSave? Mattias Perjos: Yes. I think we've seen that as well. We can only comment on our reality. And I think our view is a bit muddled by the fact that we have supply restrictions here, but the order intake and the optimism from our customers in terms of getting shipments of balloon pumps started in [indiscernible] is positive, I'd say. So we have a somewhat positive picture of the demand situation and the desire from our customers to have access to this therapy. Operator: The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: I have a question regarding the margin outlook for the year. You expect to compensate the tariffs and FX and expand margins. I think I understood you correctly. It would be good to hear what assumptions you made on tariffs and also on what type of FX headwinds you expect on EBIT for the year? Have you -- on the tariff side, have you assumed the tariffs to remain unchanged? Or coming back to the Section 232, which I think at least partly assumes higher tariffs, so if you could provide some clarity on what you have included in your sort of internal thinking for the year, that would be helpful. Mattias Perjos: Yes. When it comes to the tariffs, we have assumed the same level as we ended in 2025. We have made no predictions on the outcome of any 232 investigation here. So it's the same tariff that we left 2025 with that we have assumed for this year. Sten Gustafsson: And in terms of FX headwinds, I think it was 1.2 percentage points in Q4 on EBIT? Agneta Palmer: Yes. So we -- again, we don't speculate in the FX development, and we will not give any specific guidance on this. But overall, as you know, a weakening dollar is negative for us, and we will do everything that we can to mitigate and compensate for that in the case that, that continues, which has been the trend in the start of this year. Sten Gustafsson: Okay. But you're not -- do you think it will be higher than 1.2 for '26? Or is that sort of a proxy or what you have assumed the impact will continue to be during the year? Agneta Palmer: Again, we will not speculate on the development of the U.S. dollar. So we work with a number of scenarios and mitigation activities, and we adjust accordingly. Sten Gustafsson: Sure. And finally, on price, you were successful last year raising prices. I think you talked about previously 2 to 3 percentage points. Do you think you can do the same thing this year, raise prices by 2% to 3%? Mattias Perjos: The ambition is more closer to 2% than 3%, I'd say, is realistic. But the price work continues actively as it has done since 2018 for us. So we will continue this work. And I think you already know the dynamics with long contracts in our industry and so on and the limited ability to maneuver in the beginning of this phase. But hopefully, there'll be some opportunities there. But yes, ambition is still to continue to improve prices in 2026. Operator: The next question comes from Erik Cassel from Danske Bank. Erik Cassel: First, I want to sort of touch upon the guidance as well. I mean, as you alluded to, Mattias, excluding headwinds from FX and tariffs, you've sort of already reached the low end of the targets you set. Would you say that you've sort of managed to achieve all the improvements you set out to do earlier than planned, sort of meaning that there's not much left to do? Or would you rather say that you sort of underestimated the level of margin improvement you could achieve over time? Mattias Perjos: We have definitely not run out of improvement initiatives. There's plenty to do still. I don't want to reply that we had underestimated the potential either. We know that there's a lot of potential in the business. And we've made some good progress now as you've seen in 2025, but there's a lot still to do there. Erik Cassel: Okay. I guess that sounds good that you're not done. Then I sort of want to ask what's happening with the Perfusion business in terms of drag on margins. I mean, do you sort of keep the organization there to support customers in '26 and sort of see it become loss-making? Or have we already moved a lot of the people over to ECMO so that there is not much of an effect for ACT as a whole? Agneta Palmer: We do expect a slight marginal improvement effect coming from the gradual Surgical Perfusion in 2026. Mattias Perjos: We have moved out people already from this business, both to grow the [indiscernible] business, but also there is a reduction of people related to this that we implemented in 2025. Erik Cassel: Okay. Great. And then lastly, on ECMO, it seems to be doing pretty well. How much would you attribute that to just the underlying market doing well, perhaps the effect of influenza season coming early? Or is there some sort of aspect of you maybe gaining back some market share that is driving the maybe above-market growth? Mattias Perjos: It's not possible for us to dissect this. It's very difficult to monitor competitor performance in detail, I think. So we've definitely benefited from good overall market momentum, a little bit of a flu effect in there as well. I think it kind of confirms our competitive products and that they do really life-saving work every day. That's something that's appreciated by the clinicians who are our customers. So this is the main reason why we continue to see growth. But what the market growth was exactly in Q4 it is not possible to say right now. Erik Cassel: Okay. Just lastly, do you have any comments or thoughts on the sort of long-term prospects of ECMO now? I recall you saying that there's still a risk that you're going to lose out on customers from them switching. Have you seen any more evidence of that to sort of provide support that you're really going to lose market share going forward or sort of maintain or even improve? Do you have a different view now? Mattias Perjos: No, I think nothing has changed in our view. I think we believe still in a longer-term market growth of mid- to high single digits for this segment. And looking at the competitive dynamics right now, it doesn't appear that we are losing anything to competitors. So we remain strong with us in this segment. And all the work now that goes into both launching Cardiohelp II in CE markets and also getting the 510(k) submission into the U.S. is really key milestones now to continue to grow this business. Operator: The next question comes from Filip Wetterqvist from SB1 Markets. Filip Wetterqvist: I just have one question on Life Science and then a follow-up. Would you say that the weak quarter in Life Science is an effect of like a big pharma production ramp-up last year ahead of tariffs leading to some cooler demand this year? Or is it just lumpiness of the business? Mattias Perjos: I think it is partly natural lumpiness of the business, we have seen also throughout 2025 that there's been a lot of delayed decision-making when it comes to projects. So a lot of companies now have announced expansion plans, but they've not really started to implement projects. So we can see that we have a similar win ratio like we've had before, but there's been less fewer big opportunities in 2025 due to customer hesitation on the back of geopolitical uncertainty. Filip Wetterqvist: All right. And then do you have like any idea how much the government shutdown affected Life Science in the quarter as no NIH funding was paid out during the period? Mattias Perjos: No, we cannot quantify that, unfortunately. Operator: The next question comes from Delphine Le Louet from Bernstein. Delphine Le Louet: I go again one by one. Just a clarification on the Paragonix and just willing to know how big Paragonix is now into the ACT business, how much does that represent? I know you don't want to disclose that, but probably you can give us sort of a sense and the range of how big it is? Second question to deal with Paragonix because I didn't catch. You mentioned it was not dilutive at the group level. And so if I'm hearing well, I just -- I need a confirmation. And so my question here would be, what is missing or when can you achieve sort of the ACT margin for that specific range of products? And then I will continue. Mattias Perjos: I think from a volume perspective, we don't have enough details for subsegment, but it's well over $100 million now the Paragonix business. And what Agneta said earlier is that it's slightly dilutive to group margins and consequently also dilutive to ACT margins. We don't guide for when it's going to be accretive to margins, and this is more about how we pace the expansion of the business with it. So we're happy with the performance right now, both from a growth perspective, and we can see that there is operating leverage in the business, but we're also continuing to invest quite a lot both in the U.S., in the old U.S. expansion and in the future R&D pipeline. Delphine Le Louet: All right. Moving on probably to what's going on in China and any feedback you may give us regarding the grounds that you have in China on the hospital activity, on the evolution of the commercial interaction over the course of '25, have you anything specific to tell us about that? Mattias Perjos: I think it's a year or more of the same. I think the hurdles continue to be the same ones that we have battled for a number of years now. We have some really strong positions in China. And I think one of the bright spots is that we actually did grow in China also in 2025. That's not something we take for granted in our industry anymore. So that's really positive and confirms the strong positions that we have. 0Going forward, I think, again, I think the geopolitical friction and impact here will continue to be somewhat of a hurdle. And of course, there are barriers when it comes to having local presence and so on. And there's also, of course, an evolving competitive landscape in China. So basically, we stand by the comments that we've made before that we have a long-term positive view on China. But it has changed quite a lot from 5 years ago when we had good double-digit growth in that market. Delphine Le Louet: Okay. Moving on to the Life Science. Obviously, we hear from the competition and on the biomanufacturing side, speaking about that, back to a very nice normalization and back to high single-digit, low double-digit growth. So I was wondering on your side, if you are feeling about any traction from the clients, if you confirm because you're probably a bit more late stage that the normalization has happened and that you're hearing probably more positive coming out from the U.S. versus Europe or any comment here either on a product or on a region would be interesting? Mattias Perjos: I think bioprocessing, we highlighted was a weak spot for us in Q4. It has been a weak spot throughout 2025. And we have relative to many of our peers in the market, a higher exposure to China, which is a more difficult market, both from an investment and competitive standpoint. But we do see on a broader basis, the comeback in other markets in China like the U.S., for example. So that market dynamic, we do see as well, but we have a slightly different exposure than our peers. Delphine Le Louet: Yes. Okay. And just probably to be back into the tariff and into a mitigation measure that you are currently implementing. Can we get your first feedback, clients reaction about the price increase? And can you probably more specify over the course of the '26, how you're going to mitigate exactly the tariff? And what would be the ideal target by the end of the year for '26 when it comes to the mitigation of the tariff? Would that be 50%, 70% and then thinking about '27 and '28? Mattias Perjos: I think we've continued -- worked actively with pricing since 2018 when we were able to reverse a downward trend through price improvement, and we've been able to do that ever since. So it's really not something new for us. So there's no new -- we can't talk about new customer reactions to this. Customers understand our perspective when it comes to the impact of tariffs, but they also have, of course, a reality with their challenges. So it's a dialogue with customer by customers and very different reactions and understanding of this. But we feel that we can continue to work with pricing the way that we have done in the last 2 years successfully. So that's really the main way. And we take a couple of percentage points price increases, we can calculate the mitigation effect of that when it comes to tariffs and of course, currency. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: So I have 2, and I'll take them one by one. First on Life Science. So yes, weaker order intake here in Q4. So I just wonder what the lead times typically are for these products? And how much one should look at this Q4 order intake number when predicting sales for H1? Mattias Perjos: I think on average, the lead time in Life Science is 9 to 12 months. Having said that, I think in cell transfer, it's much, much quicker given the data bags, for example. And -- but when it comes to the weak business, it's obviously often over a year in lead time. So the average is 9 to 12 months. Ludvig Lundgren: Okay. Great. And then second one on this critical component delay, which made you push the 510(k) submission and CE mark get launch for CardioSave, I just wonder if you can elaborate a bit on your confidence in this new time and if there's any uncertainty in this? Mattias Perjos: There is some uncertainty still in this. So we still need to make sure that we have the adequate supply of the critical components and that we are able to do the remaining test validations and that is required. So it's our best estimate right now, the second quarter for submission. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Mattias Perjos: Thank you very much. I think we already made a summary before the Q&A. So nothing in addition to say from me. I just thank you for your attention today, and wish you a good rest of the day. Thank you.
Operator: Good morning, and welcome to the FirstSun Capital Bancorp Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Also, as a reminder, this call may be recorded. I'd now like to turn the call over to Ed Jacques, FirstSun's Director of Investor Relations and Business Development. Ed Jacques: Thank you, and good morning. I'm joined today by Neal Arnold, our Chief Executive Officer and President; Rob Cafera, our Chief Financial Officer; and Jennifer Norris, our Chief Credit Officer. We will start the call with some brief remarks to highlight commentary around the fourth quarter and full year results and then move into questions. Our comments will reference the earnings release and earnings presentation, which you will find on our website under the Investor Relations section. During this call, we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures. Important information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures, is included in the appendix to our earnings presentation and in our earnings release. During this call, we will also make remarks about future expectations, plans and prospects for the company that constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors. Please refer to our earnings presentation, our annual report on Form 10-K and our other SEC filings for a further discussion of the company's risk factors and other important information regarding our forward-looking statements. We undertake no obligation to publicly revise or update any forward-looking statement, except as required by law. During our comments today, we will also discuss our pending merger with First Foundation. In connection with the proposed merger, we filed a definitive joint proxy statement and prospectus with the SEC on January 15, 2026, which we urge you to read. Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of FirstSun and First Foundation stockholders in connection with that proposed transaction is set forth in such definitive joint proxy statement and prospectus. I will now turn the call over to Neal Arnold. Neal Arnold: Thank you, Ed, and thank you all for joining us this morning. We are pleased with our strong operating results in the fourth quarter. For the quarter, we achieved adjusted net income of $26.9 million, representing adjusted diluted EPS of $0.95 and a 1.27% adjusted ROAA. This quarter was highlighted by strong revenue growth, which was up 10.8% annualized over last quarter and the growth in our net interest margin to a very strong 4.18%. We also achieved healthy average loan growth of 8.5% annualized while maintaining a strong revenue mix with noninterest income to total revenue of 24.3%. Overall, this performance underscores our emphasis on relationship-based banking across all our businesses. In addition, we've continued our focus on reinvesting in the franchise, and it has positioned us well and resulted in $11.5 million of positive adjusted operating leverage for the full year. We plan to continue to invest in our growth markets and add to our portfolio of products and services to support our relationship-based model with a continued focus on generating operating leverage and maintaining a healthy revenue mix. On the asset quality side, we took a charge on a telecom loan, which we partially charged off in prior quarters, which resulted in the biggest driver of our total charge-offs in the fourth quarter. While we have not seen pervasive credit issues in any sector or geography within our portfolio, we do continue to monitor carefully the credit conditions of our portfolio. Given our heavy C&I nature of our loan portfolio, I've always said that at times, credit will be lumpy. But all in all, we remain focused on driving healthy returns for our shareholders as we have this year. Overall, I'm very encouraged by our performance this year. Given our franchise footprint in 7 of the 10 fastest-growing MSAs in the Southwest, we believe we're well positioned to continue to grow our customer base. We see great growth potential across all markets and believe we have the right team to continue to drive our long-term growth and profitability in these markets. Touching briefly on the pending merger with First Foundation, we are encouraged by the progress our teams are making on all the integration planning, the balance sheet optimization, and we look forward to working together in the year ahead. I want to thank our entire team for their relentless focus on our businesses and our clients. Our teams remain focused on building a best-in-class bank while delivering value-added solutions to all of our clients throughout our footprint. I'll now pass the call over to Rob for a more detailed review of our financial results. Robert Cafera: Thank you, Neal. I will touch on several highlights this morning in regards to our fourth quarter and full year results. In addition, please note that when I refer to our financial outlook for the full year '26, I'm referencing FirstSun on a stand-alone basis and not reflective of the financial impact of our proposed merger with First Foundation. Starting on the balance sheet side. For the fourth quarter, on an average balance basis, we achieved healthy loan growth of 8.5% annualized. New loan fundings totaled approximately $350 million in the fourth quarter. And while this has historically been our seasonally slowest quarter for new loan fundings each year, this year's new funding level was up 30% over the fourth quarter of last year. While we saw healthy average balance growth, period-end loan balances were flat given some late quarter paydowns and as we saw overall line utilization drop 3 percentage points. For the full year, we saw net balance growth of approximately $300 million or almost 5% with the bulk of that growth in our C&I portfolio. As Neal noted, we plan to continue to invest in our franchise, including adding to our C&I teams in several of our higher-growth markets in ''26. On the deposit side, for the fourth quarter, on both an average balance and period-end basis, balances were relatively flat. Although not exactly the outcome we were looking for on the deposit side, we continue to be focused on mix and we remain pleased with our trending there. We saw average balance growth in transaction products and period-end growth in our money market accounts with a noticeable decline in consumer CD balances. Rates in many of our markets on the CD side seem to be staying higher, and that isn't our focus. We will remain focused on operating account and money market account growth across our customer base. For the full year, we saw total deposits increase over $400 million or approximately 6.5% with strong overall growth in our money market, noninterest-bearing and interest-bearing accounts, partially offset by a drop in consumer CDs. We finished the year with an approximate 93.9% loan-to-deposit ratio, a slight improvement from the third quarter. Overall, for loans and deposits, we finished the year roughly where we expected to be on a growth basis and our growth expectations on a stand-alone basis on the loan and deposit side for '26 are much the same, growing at a ratable basis throughout the year with average balance growth in the mid-single-digit level. Flipping to the P&L side, as Neal noted, we're quite pleased with the fourth quarter EPS performance as our adjusted diluted EPS of $0.95 was our best EPS quarter of the year. Our net interest margin in the fourth quarter was quite strong at 4.18%, up 11 basis points from the third quarter and has now been above 4% for the last 13 consecutive quarters. Overall, net interest margin and net interest income trending in the fourth quarter was largely driven by improved funding costs with interest-bearing deposit costs down 21 bps and wholesale borrowing costs favorably impacted by a sub debt payoff we completed at the very beginning of the quarter. All in all, we're pretty pleased with our margin performance and 7% NII growth on the full year. It's a testament to our focus on our loan and deposit product and business mix. Looking ahead to the full year '26, we expect mid-single-digit growth in our net interest income with NIM remaining stable relative to full year '25 performance. Shifting to the service fee revenue side, we had a really nice quarter with noninterest revenue totaling $26.7 million or roughly $400,000 more than Q3 and up almost 24% over the fourth quarter of '24. The sequential growth in the fourth quarter of '25 was largely driven by our loan syndication and swap revenue streams, partially offset by a nominal decline in our mortgage revenues, which certainly showed strong given the season. We also saw growth in our treasury management and interchange service fee revenues in the fourth quarter. For the full year, we saw growth of approximately $12.1 million over '24 or approximately 13%, driven mostly by service fee revenues in our mortgage and treasury management lines of business, which were up 21% and 18%, respectively. Our results on the noninterest revenue side really highlight the diversity across all our fee businesses, contributing to our achieving the 13% full year growth in '25. For '26, we expect noninterest revenue percentage growth in the low double-digit to low teens range. Our total adjusted noninterest expense in the fourth quarter, which excludes merger-related expenses, was up from the third quarter by approximately $1 million, primarily related to increases in other noninterest expenses. The increase there was primarily the result of the write-off of the remaining deferred expenses associated with the sub debt redemption at the beginning of the fourth quarter as well as some maintenance expenses related to some OREO properties. That said, the adjusted efficiency ratio for the quarter was slightly down from the prior quarter at 63.36%, resulting from the net revenue growth for the quarter. As Neal noted earlier, we saw nice operating leverage this year in both the fourth quarter and for the full year. For 2026, we expect to see our adjusted noninterest expense percentage growth in the mid- to high single-digit range. On the asset quality side, provision expense for the fourth quarter was $6.2 million, resulting in an ending allowance for credit loss as a percentage of loans of 1.27%, an increase of 1 bp from Q3. Our provisioning this quarter was due primarily to impacts from net portfolio downgrades. Our classified loan balances were down about 5% from the prior quarter, while nonperforming loan balances also decreased from the third quarter by about 13%. As Neal referenced earlier, credit on the C&I side can be lumpy at times. We finished the year with an approximate 43 basis point charge-off ratio on the full year with approximately 75% of the charge-off dollars related to 2 loans in our C&I portfolio, the telecom credit and the cross-border credit that we've referenced earlier in the year. For 2026, we expect our allowance for credit losses to loans to stay in the mid- to high 120s in basis points with a net charge-off ratio in the mid- to high 20s in basis points. On the capital side, we continue to strengthen our position as we closed out the year with our TBV per share improving by $3.89 or roughly 11.5% over 2024 year-end to $37.83 and CET1 ratio ending at 14.12%. I will now turn the call back to the moderator to open the line for questions. Operator: [Operator Instructions] The first question comes from Woody Lay of KBW. Wood Lay: I wanted to start on deposit costs, and we saw the deposit betas kind of reaccelerate, which was great to see. I was just looking for some -- maybe some additional color on the deposit pricing strategy in the quarter? And then how do you think about betas from here? Robert Cafera: Thank you, Woody. Yes, we certainly saw favorable movement as I commented on earlier with overall interest-bearing costs going down by about 21 basis points. Certainly pleased with that. And we moved rates when macro rates moved, and we'll continue to do that. We look at -- kind of looking forward, we do look at the environment. It's tougher out there, certainly when you're pushing for growth like we are. And so we acknowledge that we do have a lot of flexibility given the C&I variable nature of the asset side to our sheet. So we have a lot more flexibility to engage in some of the pricing that's going on out there. And we don't see that changing by and large. I've mentioned CD pricing across a lot of our markets is pretty aggressive. We're seeing it hang pretty high. Now CDs isn't really where we play. But we'll continue to be focused on operating account growth through all of our C&I business development efforts across our sales teams and certainly on the consumer side with money market account growth and our emphasis there. How does that translate to betas? I think our beta is going to be tracking a little lighter than it historically has tracked because of all the deposit competition out there. Having said that, I don't expect it to be terribly lighter than it has been in the past, but we do expect it to be less than the 40% plus betas that we've been able to enjoy historically. Wood Lay: Got it. That's helpful color. Next, I wanted to shift over to expenses, and I appreciate the stand-alone guide. I was just curious sort of what level in that stand-alone guide is baked into investments in the West Coast, knowing you've been kind of doing that independently? And then once the deal closes, how are you thinking about sort of the incremental expense investment needed? Robert Cafera: Yes, good -- yes, thank you Neal. Neal Arnold: I would say we -- the opportunity to add to our sales force is probably across the footprint, and we're seeing more activity in Texas, certainly as a result of the merger side. So I would expect us to add to our C&I team in both Texas and Southern Cal, specifically some of the newer markets that First Foundation brings. But I'd say I still think we, by and large, built a lot of what we're trying to do ahead of the merger. So with that, I'll turn it over to Rob. Robert Cafera: Yes. And I would just add to Neal's comment to say, aside from the sales force, Woody, in your question, our cost save synergy disclosures in our investor presentation, all took into consideration the infrastructure needs for the combined company. So we don't expect that there's anything else on the infrastructure side. Wood Lay: All right. I appreciate that. And then last for me, just real quick. Any color on what drove the special mention increase in the quarter? Robert Cafera: Yes. Fair question. I mean, ultimately, I think -- and Jennifer could certainly add to this, maybe I'll just offer that we continue to see a little bit of pressure just from macro interest rates and how that's reverberating in the portfolio. And that's the general trend that we've seen throughout '25. Of course, we do expect, given how interest rates have come down towards the latter half of '25, we do expect to see as we get financial statements through the end of the year, we expect to see some of that interest rate pressure on the business side abate a bit. But generally, that's a trend that -- net downgrade trend that we have been seeing throughout the year and particularly on interest costs. Jennifer, I suspect you may have something to add there. Jennifer Norris: Yes. And I think your comment is spot on as we've seen the interest rate -- well, the interest rates play out for a longer period of time. There were certainly, as it's been said multiple times, no pervasive themes in the increase in special mention. It was, again, a lumpy component there, primarily with one particular name. Operator: The next question comes from Matt Olney of Stephens. Matt Olney: I was looking for any commentary on loan pricing? Are C&I spreads holding in? Or is competition coming in more aggressively? Just trying to forecast loan betas, I guess, over the next few quarters. Robert Cafera: Yes. Maybe I'll kick it off there. I mean, pretty consistent really, Matt. I mean, no material changes in what we're seeing in terms of trends on credit spreads. And certainly, credit spreads have some slight differences from one market to another across our franchise footprint. But by and large, credit spreads have been holding in the spaces that we are focused on have been holding pretty well. Matt Olney: Okay. I appreciate that, Rob. And then I guess as a follow-up, I just want to ask about the pending acquisition and any kind of impact you can see on that from the recent interest rate cuts and potentially, I guess, additional rate cuts until closing. Will any of those rate changes over the last few months impact the financial metrics of the acquisition? And then maybe just strategically, as we get more rate cuts since deal announcement, what does that mean for the asset and liability repositioning that we've talked about previously? Robert Cafera: Yes, absolutely. And maybe I'll start off. I know Neal will have some items -- some additions here as well. I would just start off by saying, certainly, we remain very excited about the prospects ahead of us post-merger closing as we look forward here in '26. As it relates to macro rates, both balance sheets operate a little differently, as you know. But all in all, we're not seeing anything that is causing us any pause or having any change in our expectations. As it relates to the balance sheet repositioning, loan downsizing there, as Neal had mentioned a little bit earlier, we're making great progress on -- well, actually all integration planning efforts, including the balance sheet repositioning. So certainly, macro rates have moved around a little bit. But as it relates to the balance sheet repositioning, we think we're right on schedule for our execution plan. Neal Arnold: Yes. I'd say in general, I think people understand that First Foundation's balance sheet is a term asset, short-funded kind of structure. We're certainly taking action to reduce some of that. But I think as Rob said, we -- both with hedging and with the activity that we're working on together, I think we feel good about the progress being made. Operator: The next question comes from Michael Rose of Raymond James. Michael Rose: Maybe we can just start -- certainly appreciate the prior questions regarding loan and asset betas. How should we think about, obviously, excluding the deal, just the trajectory of the margin from here. So obviously, not much balance sheet growth this quarter, looks to reaccelerate into next year given kind of the guide. Obviously, a fair amount of fixed -- or excuse me, floating rate loans. Just walk us through just kind of the puts and takes on the margin, assuming the 2 cuts and then if we don't get any. Robert Cafera: Yes, absolutely, Michael. Maybe I'll kick off on this one. I mean, all in all, we do expect net interest margin to remain relatively stable. Very pleased with the 11 basis point expansion that we saw in the fourth quarter. But on the deposit pricing side, we see the environment tightening up. And so as I mentioned earlier, we do see or we are expecting that some of the deposit pricing is going to get a little tougher. We have a little room to play with there given the -- that we are a little bit stronger on the asset side. But we think we're going to be able to maintain margins with the contributions on both sides. We do have 2 rate cuts as we had indicated baked into our expectations, and I think that's largely consensus. So we're not really strained from consensus there. But we do see -- there's going to be quite a bit of price competition on the deposit side, we think, again, here in '26. And that's going to directionally drive where we land on net interest margin. But we do feel pretty good about the stand-alone legacy Sunflower, FirstSun franchise operating at a pretty stable level in comparison to what we saw in '25. Michael Rose: Very helpful. And then maybe one for you, Neal. I think in prior calls, you've kind of talked about the opportunity being a little bit larger or maybe much larger in the Southern California market relative to Texas. It seems like maybe there's -- if I'm reading your comments earlier correctly that there may be a little bit more in terms of opportunity in Texas than maybe you might have thought a couple of months ago. If you can just kind of square those comments and as it relates to the expense guide, how much of that is just kind of like normal kind of inflationary aspects, bonuses, raises, things like that versus hiring -- incremental hiring efforts, both in Texas and in Southern California? Neal Arnold: Sure. No, thank you. I guess I'd say broadly, our priority in the last 1.5 years was certainly to build out Southern Cal. I think we are ahead of the curve. I think we have a couple of, I'll call it, minor holes that we'd add as the First Foundation acquisition comes together. I would say, given all the M&A activity in Texas, we have seen more opportunity than we originally thought to pick up solid bankers with good relationships. I think everybody has heard me, Houston has been a priority. We continue to add in Dallas. So I think you'll see us continue to be opportunistic on the HR side. Texas has been [indiscernible] on the M&A side. We aren't going to use our currency to play on the M&A side in Texas. So our opportunity is really to grow by building teams. Michael Rose: All right. Very helpful. And then maybe if I can just squeeze one last one in. Once the deal hopefully closes here by the end of the second quarter, it looks like the loan-to-deposit ratio will come down into kind of the mid-ish 80s range, which will give you a little bit more flexibility. At that point, does the deposit narrative or beta narrative change insofar that you might have a little bit of flexibility to maybe let some of those higher cost deposits go, and that could actually be supportive of kind of NIM expansion on a combined basis. And if it's too early to answer, I certainly understand, but that was my read. Neal Arnold: No, I'll let Rob... Robert Cafera: No, absolute -- Yes. No, absolutely, Michael. As you know from our IR deck on the deal, we're certainly very focused on the liquidity equation, and that's certainly part of -- a big part of the overall balance sheet repositioning, not only immediately following close and up too close, but also in the several quarters following close. We'll continue to address and reposition as some of the term funding items continue to hit maturity dates. And by that, I mean in higher cost areas. So we'll continue to look to bring down overall costs for the pro forma company as we get there. From an overall beta perspective, I mean, our interest is always in relationships. That's what we're looking to drive. Relationships have more than one element, of course. So we know it's competitive out there. So we expect competition on pricing, but we also expect the balance through the relationship and it being more than just an one product. So our focus will be on continuing to build out on the relationship side there. We think that will have some beneficial impact in margin as we think of things not only for legacy, but looking into the future, but that's how we would be attacking it. Neal Arnold: Michael, the only thing I would add to your question because I think it is important, we look forward to running our retail strategy play in Southern Cal in their branches. I think there's great opportunity, as I've said in the past, in Southern Cal, running our play. I think it's a very robust deposit opportunity. And secondarily, as we've got into the multifamily portfolio, a lot of these clients have -- are sitting on a lot of cash because they're investors, not necessarily just developers, like we sometimes think about on the space. So I think we have -- as we've spent more and more time with First Foundation team, I think there's a robust treasury management opportunity on that multifamily portfolio, not just property counts, but actual deposit relationships. So kickstarting that will also be additive, I believe. Operator: The next question comes from Matthew Clark of Piper Sandler. Matthew Clark: Do you happen to have the spot rate on deposits at the end of December to give us some visibility into 1Q? Robert Cafera: Yes. On the deposit side, as we were talking about, certainly very pleased with what we saw in the fourth quarter. I think we were -- total cost of deposits around 1.98% for the quarter. At the end of December, we were closer to 1.90%, that neighborhood, Matthew. Matthew Clark: Okay. That's helpful. And just on the money market side, I mean, is there -- I guess, what is your current offering there? It may be customized to some degree, but I guess what's kind of the range that people are getting these days? And do you feel like there's pressure to potentially increase that rate? Or do you feel like it's just not going to come down as much as you'd like? Robert Cafera: Yes. Great question. Yes, I mean, it's very competitive out there, definitely. Our promo offerings on the MMDA side, and it's -- there's always asterisks, there's balance qualifiers. But at the top tier, we're around the [indiscernible] handle on the consumer side for that MMDA product. Matthew Clark: And then just on the pro forma -- the guidance you gave today or last night was on a stand-alone basis. But any update on your pro forma guidance relative to at the time when the deal was announced, whether -- plus or minus, whether or not you think there have been any material changes there. Obviously, put up a better-than-expected quarter, so that's helpful. But any thoughts there? Robert Cafera: Yes. I mean we don't have any updates at this time on pro forma projections. We're certainly, as we mentioned, very encouraged about the prospects looking forward. And you're right, a lot of information in our IR deck around expectations. I mean there's always some pluses and minuses. But all in all, yes, we continue to remain extremely excited about the prospects as we look forward on that side. Operator: We currently have no further questions. So I'd like to hand back to Neal for closing remarks. Neal Arnold: Thank you. Thank you all for joining our call this morning. As always, we appreciate your continued interest in FirstSun. We hope you all have a great day, and thanks for listening. Operator: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Welcome to the Getinge Q4 Report 2025 presentation. [Operator Instructions]. Now I will hand the conference over to the speakers, CEO, Mattias Perjos; and CFO, Agneta Palmer. Please go ahead. Mattias Perjos: Thank you very much, and welcome, everyone, to today's earnings call. With me, I have our CFO, Agneta Palmer. We will start the conference today with our performance in the fourth quarter and then reflect a bit on the full year and our expectations for 2026 and onwards before ending with a Q&A. So we can move directly to Page #2, please. So let's first look at the development of our longer-term strategic KPIs. You can see that we continue to clearly track in line with our plans to increase the share of sales from recurring revenue, accelerating the share of sales from high-margin products like our Paragonix offering, our ECLS portfolio, the consumables with infection controls and also data bags inside our Cell Transfer segment in Life Science. This is all supported by solid and effective quality processes as well, which is extremely important in our industry. So sales from recurring revenue now makes up about 2/3 and high-margin products a little bit more of total revenue. When it comes to quality, the number of field actions in relation to sales has decreased significantly, and we see this positive trend also sequentially continuing in the fourth quarter. This improvement should, of course, be achieved through responsible leverage and an attractive long-term return on invested capital. If you move to Page #3. If we then zoom in on the fourth quarter of last year and some of the key takeaways from the quarter, we managed to beat last year's record quarter and grow top line organically, which I think is really good. Net sales grew by 1.2% organically with positive developments in most BAs and regions, and our order intake increased 2.3% organically. If we then look at adjusted gross and EBITDA margins, they were down in the quarter, mainly due to the strong headwind from currency and tariffs. And adjusting for the over SEK 1 billion in currency and tariff headwind in 2025, the EBITA margin for the full year was considerably higher than 2024, signaling that the underlying performance of the business is strong and developing according to plan. We have solid cash flow, and we remain in a very strong financial position with our financial leverage well below 2.5x EBITDA. And the Board has -- the Board of Directors have proposed a dividend of SEK 4.75 per share. We can then move to Page #4, please. So if we then look at some of the key activities and events in the quarter and start with our -- what we offer our customers, we -- it's usually our strongest quarter than last year's significant amount of shipments that went out in the last week of the quarter -- last week of the year. So really good collaboration with our customers overall, and that this is the reason we managed to reach record high organic sales in the quarter as well. I'm also very happy to see that our intense product development efforts have resulted in several important product launches during the quarter. In Life Science, we have announced the integration of Siemens open and flexible user interface in the new generation of washers and sterilizers, and this will support streamer operations, efficient data management and secure data integrity for our customers. And also in Surgical Workflows, we launched the utility-efficient Aquadis 44 washer-disinfector, which helps hospitals reduce cost and meet environmental -- their environmental targets. And within Surgical Workflows, we also launched Automatiq, which is a new family of next-generation automated solutions, which combines smart robotics, intelligent conveyor systems and advanced software to achieve both safer, more consistent and less labor-intensive sterile reprocessing. If we then look at the sustainability and quality aspect of this, we continue to make good regulatory progress in the quarter. In our Implants business, we received premarket approval for the iCast covered stent in large diameter lanes. So this will help us become more competitive in the U.S. market. Our PLS set which is used in extracorporeal circulation for cardiac and pulmonary support received CE certificate under the EUR MDR. And also happy to see that PiCCO, our minimally invasive hemodynamic monitoring system is now included in the European Society of Intensive Care Medicine's guideline on circulatory shock. I also want to highlight again that our quality KPIs such as audit finance per audit for quality systems and also field actions in relation to sales continue to trend positively. So those are the main activities and events for the fourth quarter, and we can then move to Page #5. So looking at then our top line performance, we can see that we had solid progress in Acute Care Therapies and in Surgical Workflows. Order intake grew 2.3% organically. And in Acute Care Therapies, this increase was mainly attributable to good performance in ECLS Consumables, in Transplant Care, and we also saw growth in endoscopic vessel harvesting and in product [indiscernible]. Life Science organic order intake declined in the quarter due to softer development in WIS, which is our washers, isolators and sterilizer business and also within Bio-Processing. The organic order intake for Surgical Workflows grew strongly in the quarter, mainly on the back of strong development in infection control consumables and also operating room equipment generally within Surgical Workflows. From a sales perspective, we had a 1.2% organic increase in sales, and we have both Acute Care Therapies and also Surgical Workflows showing low single-digit growth in organic sales. Acute Care Therapies, the growth came mostly from good performance when it comes to ventilators globally. We saw Transplant Care with good momentum and also ECLS therapy. In Surgical Workflows, organic net sales increased primarily, thanks to growth in operating tables and in infection control consumables. And when we look at Life Science, we had an organic net sales decrease mainly due to lower sales in Bio-Processing and in the WIS business that I mentioned also on order intake. Growth in sterile transfer, which is our most important subcategory in Life Science continued strong. We can then move over to Page #6, and I'll hand over to Agneta. Agneta Palmer: Thank you, Mattias. It's positive to see that our activities come through a strong underlying performance. Despite negative impact from tariffs and FX in the quarter, we managed comparatively well with decent margins. On adjusted gross profit for the group, adjusted gross profit amounted to SEK 5.037 billion in the quarter, primarily on the back of currency and tariffs. Adjusted gross margin was down by 1.1 percentage points in total despite a healthy contribution from price and mix. On adjusted EBITDA, adjusted gross profit effect on the EBITDA margin was minus 0.5 percentage points due to what I just mentioned. Adjusted for currency, OpEx had a slight impact on the margin in the quarter. FX impacted severely by minus 1.2 percentage points in the quarter. And all in all, this resulted in an adjusted EBITDA of SEK 1.809 billion and a margin of 17.8%. Let's move to Page 7, please. We remain in a solid financial position. Free cash flow amounted to SEK 1.2 billion in the quarter. Compared with last year, free cash flow was impacted by changes in working capital. At the end of Q4, net debt was SEK 9.8 billion. If we adjust for pension liabilities, we are at SEK 7.5 billion. This brings us to a leverage of 1.5x adjusted EBITDA, which is well below the 2.5x, which we have set as an internal threshold. If we adjust for pension liabilities, leverage is at 1.1x adjusted EBITDA. Cash amounted to approximately SEK 3.4 billion by the end of the quarter. So all in all, we can conclude that the financial position continues to be strong. Let's move to Page 8, please, and back to you, Mattias. Mattias Perjos: Thank you, Agneta. Before looking at the full year and ahead, I'd just like to take the opportunity to quickly shift from financial KPIs to some other impactful figures. So at Getinge, my colleagues and I have a lot to be proud of, I think. If you look at our products and services in the hands of clinicians and pharmaceutical staff, they really make a true life-saving impact globally every minute. So this slide just lists a few figures describing some of that impact. And it really explains some of the reasons for the strong customer loyalty that we see year in and year out. So for example, if you look at our Operating Table business, every fourth operating table globally is from Getinge. These are used in million major surgeries annually. Look at our new washer in Life Science, it uses 32% less water, 25% less energy, so reducing cost and the climate footprint for our customers. And furthermore, if you look at our unique NAVA ventilation technology, this can cut hospital stays by roughly 1/3 for adult ICU patients. So this is a significant win-win, both for patients for their health and for hospital finance. With that, we can move to Page #9, please. So we take a step back and look at 2025. Overall, it was certainly an interesting year in many, many aspects here. If I sum up the year, it will be in 4 main themes. So first, we have the geopolitical friction such as tariffs and the strong currency headwind that we have seen throughout the year. So this has been a wet blanket not only for Getinge, but for most companies globally. And this is something we expect to continue also to have to deal with in 2026. Secondly, more specific to Getinge, we've seen really good progress in our important quality remediation work. And thirdly, I'm happy to note that our organic innovation focus has resulted in several product launches throughout the year, which will help us further strengthen our competitive position and the support from our customers. All in all, we continue to show strong underlying performance, thanks to our industry-leading products and our team's enduring efforts together with our customers navigate through ongoing political turmoil. We can then move over to Page #10, please. I just wanted to take a moment to zoom in on the headwind from tariffs and FX as well since this was a significant drag on adjusted EBITDA in Q4 and almost -- it was almost SEK 500 million and also, of course, a drag on full year adjusted EBITDA by over SEK 1 billion. So tariffs made up almost SEK 150 million in the quarter and about SEK 370 million for the full year, which for last year was Q2 to Q4. If we exclude the impact of tariffs and currency, our adjusted EBITA margin in Q4 would have been 20.3% and 16% for the full year. So this is right at the beginning of our longer-term guidance plan of 16% to 19% set for the end of 2028. So this really shows that the underlying improvement work is really having good momentum here, and that's something we look forward to continue working with and implementing in the coming years. We can then move over to Page 11. Thank you. Just a few comments on the regulatory uplift plan as well with some of the major milestones coming up during the year. So at the end of 2024, if we take a step back, we reached the important milestone of clearing the quality record backlog. During 2025, several other regulatory milestones have been reached. I mentioned some examples from Q4 at the beginning of this presentation. We've also made progress in the important regulatory product uplift of our market-leading devices, CardioSave, which is our intra-aortic balloon pump in cardiac assist and Cardiohelp, the hardware for ECMO therapy within our Cardiopulmonary business segment. When it comes to CardioSave, in CE markets, the CE approval is reinstated with conditions since last fall. We hope to initiate sales by the end of last year, but due to some delay in shipment of critical components, we have pushed of deliveries now to the second quarter of 2026. In the U.S., we're currently only selling replacement pumps to existing customers. And due to the delay with critical components that I just mentioned, we've also pushed the 510(k) submission to Q2 2026. We had strong order growth for pumps in the quarter, which confirms the leading position in this segment and the trust that our customers have in us, and this is why the submission and the start of deliveries is really a key priority for us. If we then move to Cardiohelp, there are no sales restrictions in key markets for the existing Cardiohelp. We and our customers are very excited about the next-generation device here, the Cardiohelp II . For this one, we sent in the submission for CE-mark approval in Q4 of 2025, so last year, and we expect to be able to initiate the first shipment in Europe during the beginning of this year. In the U.S., we're only selling to existing customers or customers confirming that they don't have any other viable alternative. The work with the 510(k) submission for the complete Cardiohelp II system is going according to plan and is set for the second half of this year. We can then move to Page #12. At the Capital Markets Day in our Capital Markets update in May 2024, we guided for an adjusted EBITA margin of 16% to 19% by the end of 2028. And I think we're on a steady path of reaching that, and that's despite the very different norm that we have today compared to 18 months ago. The main drivers which will enable this is related to growth, it's related to product mix and it's related to productivity. So if you look at the growth angle of this to begin with. So from the perspective of regulatory approvals and key strategic product launches, we have mentioned some of them here. We have the next-generation ECMO therapy with Cardiohelp II having no sales restriction for CardioSave intra-aortic balloon pump and also our low temp sterilization is something that will materialize during this guidance period. We also expect to get our share of the announced U.S. pharma investments and a recovery in Bio-Processing. And we will, of course, continue our diligent and successful work with realizing price increases every year. From a mix perspective, it is our strategic intent to steer our business towards a continued rotation to high-margin products and consumables. And if possible, we prefer to have products that are made up of a competent hardware and with captive consumables attached to this. Our strong R&D and innovation pipeline is set to contribute to this development. And then from a productivity perspective, we've already done a lot in several parts of the business with remaining opportunities in other parts of the company. The heightened extraordinary quality costs connected to the product uplift in CardioSave and Cardiohelp is expected to go down from the second half of 2026 and then be significantly lower in 2027 and '28. So this will also support the margin expansion. Furthermore, we will continue with our production excellence efforts, helping us to further optimize our supply chain and remain with a tight cost control across the company. So all in all, this supports our assessment that our target for 2028 is well within reach. We can then move over to Page 13, please. So what does this mean for 2026 then? And here, we see primarily 3 themes. First, unfortunately, we expect the geopolitical friction and the FX headwind to continue in 2026. And so of course, will our mitigating efforts. Secondly, a key this year will be to hit the critical quality remediation milestones to enable the product launches that we have in the pipe as soon as possible. And thirdly, we do expect the solid underlying performance to continue, and we have good momentum across large parts of our business when it comes to this. So in many aspects, a year quite similar to 2025 and setting us up for an acceleration in 2027 and '28. Can I move to Page 14. This takes us to our financial outlook for 2026. As we all know, there are some geopolitical uncertainties that we will need to navigate in the coming years. But based on the underlying demand that we see, our expectation is for an organic net sales growth to be in the range of 3% to 5%, adjusted for the phaseout of our Perfusion product category. Surgical Perfusion is expected to have a net sales in 2026 declining from about SEK 250 million to SEK 50 million. We move then to Page 16, please. So summarizing the quarter, we had organic growth in top line, resulting in record high sales for the quarter. Tariffs and FX continue to be a significant headwind, but we still managed to have margins in line with the 2024 level, really confirming that the underlying performance is developing according to our plans. Our financial position remains solid. We had a good end from a cash flow perspective for 2024 -- sorry, '25. For 2026, we guide for organic net sales growth of 3% to 5% adjusted for the phaseout of Surgical Perfusion. And our priorities remain the same for 2026. So key here is addressing the remaining challenges that we have in our Acute Care Therapies business area. We continue to focus on sustainable productivity improvement and cost consciousness when navigating the geopolitical uncertainty and addressing the impact from tariffs. And key focus, of course, as always, is to continue creating added value for our customers and really help them serve patients better. With that said, I open up for questions. Operator: [Operator Instructions] The next question comes from Oliver Reinberg from Kepler Cheuvreux. Oliver Reinberg: Three, if I may. I'll probably take them one by one. Mattias, can you just say a word on 2026? I mean, you alluded to the fact that there's obviously still the kind of headwinds from currencies and I guess also tariffs maybe a certain annualization effect. Can you just help us to get a kind of feeling for the magnitude of these headwinds? And I think the Street is currently expecting 60 basis points of margin expansion. Is that something you feel comfortable with? That would be the first question, please. Mattias Perjos: As usual, we never comment on expectations from the capital markets here. But the -- from the tariff situation, assuming that they remain the way they are now, I think the math that we have from 2025 will apply in 2026. So we will have a slightly higher level of tariffs up to a couple of hundred million. So that's something we will need to mitigate. And so we are fingers crossed for some tariff stability at least. The best thing will be if they went away, but we expect to have to live with tariffs now for 2026. So they will continue to be around SEK 0.5 billion headwind at least. On the currency side, we do expect the dollar to continue to depreciate, but we're really in no position to make any estimates forward-looking on this. So that's an additional headwind that we will need to find ways of mitigating. Oliver Reinberg: Okay. But would it be fair that you still feel that you can mitigate both and there will be net margin expansion at the end? Mattias Perjos: Yes, that's our ambition. Oliver Reinberg: Okay. Perfect. And then just secondly, on this kind of midterm guidance, which you also already gave within the last call. I mean, can you just give any kind of flavor is the upper end as likely as the low end, so the full range of the whole guidance still applies? Mattias Perjos: I'm not really in a position to dissect the guidance spend now and narrow it down. But I think it's really encouraging to see that without the negative effect from the geopolitical consequences of tariffs and headwinds, we would already be within our guidance range. So the momentum underlying in our business is good. We do feel okay about investment climates among our customers as well. I think treatment needs will continue to grow slowly, but that support our business growth. And like I mentioned in the presentation page, our productivity measures across the business is also really showing good momentum. So overall, we feel good about the traction towards the margin, but I'm not prepared to make any more detailed analysis or break this down with the probabilities right now. Oliver Reinberg: Okay. Fair enough. And the last question, just because we're full, it's always probably a kind of good opportunity to discuss capital allocation. I mean, you brought the leverage down quite significantly. Can you just talk about priorities? I mean, in the past, you were more leaning towards M&A. Can you just provide some kind of color how open you would be to any kind of share buybacks at this kind of point? And I think there was some time ago also you did this kind of discussion to what extent Life Sciences is a kind of long-term fit given that the industry is going to normalize. I mean, do you feel that there's a lot of people knocking on your door for any kind of potential offer? Any kind of flavor here would be great. Mattias Perjos: Yes. I think we definitely have continued inbound interest regarding the Life Science business, but it's not something that we have on the divest list here. We feel like good owners. We like the exposure to this end market, and we continue to invest in this part of the business as well. When it comes to capital allocation in general, M&A remains one area, but we have a mandate to do share buybacks as well. It's a discussion that is continually going on in the Board. Given the uncertainty that still remains, I think we've seen some examples of this already in this year with tariffs coming in or the threats of tariffs coming in and so on. So I think it's good to be a little bit prudent with how we allocate capital. Operator: The next question comes from Mattias Vadsten from SEB. Mattias Vadsten: I have 3. I'll take them one by one as well. First one, if you could talk a bit about the sort of phasing for the year, for example, assuming perhaps Q1 is one of your tougher comps during 2026 from the perspective of a couple of things? And also quality cost, it sounds like it should come down foremost towards the second half. So maybe if you could give your view there. That's the first one. Mattias Perjos: Yes. No, we're not prepared to make any kind of quarterly guidance here, but the dynamics that you described, we agree with, it's maybe the best way of putting this. But we've guided for 3% to 5% growth in 2026. Our ambition is to continue to expand the margin, but I can't really break it down by quarter. Mattias Vadsten: Okay. Then it appears ventilators has been very strong, of course, and strength continued also into Q4, perhaps driven more by outside U.S. markets. But could you give us your overall sort of thinking for the business in 2026, perhaps without going into too much of a detail, but more how you think about it going forward? Are accounts sort of tougher? Or is the momentum strong enough to make it continue to grow strongly also in '26? Mattias Perjos: Yes. I think I'll describe it the way we've done it during 2025. We've had over a year of good momentum now in this business. I think definitely compared to our market share pre this shift, we've been net beneficiary when it comes to market share grab. So very thankful for the support from our customers and the great work by our teams to make this happen. I think that there is a mix of replacement cycle, normal replacement cycle going on in this business, and there is the continued withdrawal of some of the remaining incumbents in this business as well. But needless to say, the tailwind will be much, much milder than it was during end of '24 and the whole of 2025. Mattias Vadsten: Okay. And then on the situation -- on the supply side in IABP, what is your sort of level of confidence to have that sorted in Q2? And also, is it fair to say that sort of CardioSave in the U.S. will be sold without restrictions towards the end of 2026? Or how do you view that? Mattias Perjos: I don't think we will be able to sell towards the end of 2026. This is now first about submitting the updated 510(k) that we said now is in the second quarter. It still hinges on making sure that we have the critical components fully available that we can do the validation and testing needed and we prepare for this. So there is still some uncertainty related to this, but we feel obviously more confident about Q2. Otherwise, we would have said something different. So there's some remaining work, but also steady progress towards this. Operator: The next question comes from Kristofer Liljeberg from Carnegie. Kristofer Liljeberg-Svensson: I will also take my questions one by one. First, are you able to comment on Paragonix sales level here for 2025, maybe how much it's growing right now and margins? Agneta Palmer: I don't think we will disclose the exact growth figures of Paragonix, but we are very happy about this development. And as is visible in our report, we will end up with a bit of a higher earn-out also based on this. And margin-wise, it is also developing according to our expectations or a bit better. Kristofer Liljeberg-Svensson: But would you say it's still dilutive on margin? Agneta Palmer: It's slightly dilutive on margin overall on the... Kristofer Liljeberg-Svensson: Okay. For the group or for ACT? Agneta Palmer: For the group. Kristofer Liljeberg-Svensson: Okay. Then my second question, Mattias asked before about phasing effects. Just wondering about Q1 and the flu season. I think that was quite a good benefit for you last year and it seems the number of cases is dropping quite fast in the U.S. Could you maybe give a little bit of flavor how much a good or a strong or weak flu season impacting sales in a given quarter? Mattias Perjos: No, the short answer is no. It is difficult to break it down. I mean there's been a couple of years after the pandemic where we had no flu season effect and now we saw last year that there was some and this year, if you look at 2025, '26, hospitalizations increased a little bit earlier than they did before. So there was maybe a bit more of a December effect, but it's impossible for us to speculate about the impact of this in... Kristofer Liljeberg-Svensson: Okay. And finally, when it comes to the quality cost, is it possible to say approximately how much lower they were in 2025 versus '24 or if they were still at this SEK 800-plus level? Agneta Palmer: No, I think we will stick to the information that we have provided before. We had sort of a peak level that is -- we are remaining on high levels, and it will slightly then come down, but we will not give any exact amount. Kristofer Liljeberg-Svensson: But you can confirm it was less than SEK 800 million in 2025? Agneta Palmer: Yes, that we can confirm. Operator: The next question comes from Ludwig Germunder from Handelsbanken. Ludwig Germunder: Ludwig Germunder from Handelsbanken. I would like to start with touching upon ventilators again, like we've been talking about a bit before already. But would you be willing to give some flavor around the ventilator sales? We knew that comps were tough going into this quarter and yet the sales come out strong now. What does the strong mean? What are the main drivers? And how should we think about this going into Q1, where dynamics are very similar? Mattias Perjos: I think the strength comes on the back of some continued competitive conversion, possibly some of the normal replacement cycle kicking in and also some fee effect positively. But we can't break this down even if we wanted to unfortunately. Ludwig Germunder: Did it surprise you? Or was this in line with what you saw coming? Mattias Perjos: I wouldn't say surprise, mild surprise, maybe it was a mild positive compared to expectations. Ludwig Germunder: Okay. And then a quick one on Paragonix as well. It seems like it's doing well there, another quarter of strong growth. What are the main drivers you're seeing in Paragonix? And what are you expecting for this in 2026? Mattias Perjos: The drivers have not changed. I mean there is this conversion from ICE, it's still one of the ongoing things. And then, of course, we had a good launch of the KidneyVault during 2025 as well. So I'd say these are the main contributors. Ludwig Germunder: Okay. And then just final one on the outlook given the updated definition. If my math are correct, you're adjusting for an estimated headwind of around 57 basis points. How should we think about this in relation to the other? Has anything changed given the, let's say, the estimated rest of the business? Or is it the same as before? Agneta Palmer: The same as before, we have not guided before on 2026. Would you care to elaborate the question? Ludwig Germunder: No. Yes, sorry. I'm thinking the development, for example, when you guided to 3% to 5% in 2025, you did that on the base of something. Do you see the same market development excluding the Surgical division? Agneta Palmer: There are a number of dynamics in the market development, of course. If you look at our market presence, it is the same trajectory as in 2025 and strong in our key position. Then we have different dynamics such, for example, as the one described by Mattias when it comes to ventilators and the conversion effect that is a tough comparison now moving into 2026. Operator: The next question comes from Philip Omnou from JPMorgan. Philip Omnou: Firstly, on Section 232, I would love to get your thoughts on that program and the implications of that and what you anticipated in terms of its outcome for 2026? Agneta Palmer: Yes. So I have hopes, but I will not speculate on the outcome. What we can say about Section 232 is that we have submitted our opinion along with our industry colleagues, and we are expecting clarity on this in Q1, this is what has been said before. So let's hope for some clarity. And as Mattias mentioned before, the very least stability on tariffs. That's all we can say on this one. Philip Omnou: Okay. Perfect. And then maybe can you remind us of your tariff mitigation actions that you've gone through and what sort of impact do you expect they can have in 2026? Agneta Palmer: We can just reiterate what we have mentioned before. So we work with it -- we always work very actively with pricing, but we intensify these efforts to mitigate for tariffs. We also intensify our productivity agenda that has been very strong also, but we have accelerated some areas of that to compensate for the increased cost of tariffs. And then the third bucket is that we review our structure, both in terms of our business partners, so to speak, with suppliers, et cetera, and in some cases, also our own footprint. Philip Omnou: Right. Okay. And then just the last one from me, please. I'm not sure if someone has really asked this because my line cut out. But we saw the corporate warning from Teleflex a few weeks ago, and they were talking about weakness in demand for intra-aortic balloon pumps and catheters in the U.S. and Asia. So just wondering if you had any thoughts on that and if you were seeing anything in your existing customers? Or does it change anything with planning for CardioSave? Mattias Perjos: Yes. I think we've seen that as well. We can only comment on our reality. And I think our view is a bit muddled by the fact that we have supply restrictions here, but the order intake and the optimism from our customers in terms of getting shipments of balloon pumps started in [indiscernible] is positive, I'd say. So we have a somewhat positive picture of the demand situation and the desire from our customers to have access to this therapy. Operator: The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: I have a question regarding the margin outlook for the year. You expect to compensate the tariffs and FX and expand margins. I think I understood you correctly. It would be good to hear what assumptions you made on tariffs and also on what type of FX headwinds you expect on EBIT for the year? Have you -- on the tariff side, have you assumed the tariffs to remain unchanged? Or coming back to the Section 232, which I think at least partly assumes higher tariffs, so if you could provide some clarity on what you have included in your sort of internal thinking for the year, that would be helpful. Mattias Perjos: Yes. When it comes to the tariffs, we have assumed the same level as we ended in 2025. We have made no predictions on the outcome of any 232 investigation here. So it's the same tariff that we left 2025 with that we have assumed for this year. Sten Gustafsson: And in terms of FX headwinds, I think it was 1.2 percentage points in Q4 on EBIT? Agneta Palmer: Yes. So we -- again, we don't speculate in the FX development, and we will not give any specific guidance on this. But overall, as you know, a weakening dollar is negative for us, and we will do everything that we can to mitigate and compensate for that in the case that, that continues, which has been the trend in the start of this year. Sten Gustafsson: Okay. But you're not -- do you think it will be higher than 1.2 for '26? Or is that sort of a proxy or what you have assumed the impact will continue to be during the year? Agneta Palmer: Again, we will not speculate on the development of the U.S. dollar. So we work with a number of scenarios and mitigation activities, and we adjust accordingly. Sten Gustafsson: Sure. And finally, on price, you were successful last year raising prices. I think you talked about previously 2 to 3 percentage points. Do you think you can do the same thing this year, raise prices by 2% to 3%? Mattias Perjos: The ambition is more closer to 2% than 3%, I'd say, is realistic. But the price work continues actively as it has done since 2018 for us. So we will continue this work. And I think you already know the dynamics with long contracts in our industry and so on and the limited ability to maneuver in the beginning of this phase. But hopefully, there'll be some opportunities there. But yes, ambition is still to continue to improve prices in 2026. Operator: The next question comes from Erik Cassel from Danske Bank. Erik Cassel: First, I want to sort of touch upon the guidance as well. I mean, as you alluded to, Mattias, excluding headwinds from FX and tariffs, you've sort of already reached the low end of the targets you set. Would you say that you've sort of managed to achieve all the improvements you set out to do earlier than planned, sort of meaning that there's not much left to do? Or would you rather say that you sort of underestimated the level of margin improvement you could achieve over time? Mattias Perjos: We have definitely not run out of improvement initiatives. There's plenty to do still. I don't want to reply that we had underestimated the potential either. We know that there's a lot of potential in the business. And we've made some good progress now as you've seen in 2025, but there's a lot still to do there. Erik Cassel: Okay. I guess that sounds good that you're not done. Then I sort of want to ask what's happening with the Perfusion business in terms of drag on margins. I mean, do you sort of keep the organization there to support customers in '26 and sort of see it become loss-making? Or have we already moved a lot of the people over to ECMO so that there is not much of an effect for ACT as a whole? Agneta Palmer: We do expect a slight marginal improvement effect coming from the gradual Surgical Perfusion in 2026. Mattias Perjos: We have moved out people already from this business, both to grow the [indiscernible] business, but also there is a reduction of people related to this that we implemented in 2025. Erik Cassel: Okay. Great. And then lastly, on ECMO, it seems to be doing pretty well. How much would you attribute that to just the underlying market doing well, perhaps the effect of influenza season coming early? Or is there some sort of aspect of you maybe gaining back some market share that is driving the maybe above-market growth? Mattias Perjos: It's not possible for us to dissect this. It's very difficult to monitor competitor performance in detail, I think. So we've definitely benefited from good overall market momentum, a little bit of a flu effect in there as well. I think it kind of confirms our competitive products and that they do really life-saving work every day. That's something that's appreciated by the clinicians who are our customers. So this is the main reason why we continue to see growth. But what the market growth was exactly in Q4 it is not possible to say right now. Erik Cassel: Okay. Just lastly, do you have any comments or thoughts on the sort of long-term prospects of ECMO now? I recall you saying that there's still a risk that you're going to lose out on customers from them switching. Have you seen any more evidence of that to sort of provide support that you're really going to lose market share going forward or sort of maintain or even improve? Do you have a different view now? Mattias Perjos: No, I think nothing has changed in our view. I think we believe still in a longer-term market growth of mid- to high single digits for this segment. And looking at the competitive dynamics right now, it doesn't appear that we are losing anything to competitors. So we remain strong with us in this segment. And all the work now that goes into both launching Cardiohelp II in CE markets and also getting the 510(k) submission into the U.S. is really key milestones now to continue to grow this business. Operator: The next question comes from Filip Wetterqvist from SB1 Markets. Filip Wetterqvist: I just have one question on Life Science and then a follow-up. Would you say that the weak quarter in Life Science is an effect of like a big pharma production ramp-up last year ahead of tariffs leading to some cooler demand this year? Or is it just lumpiness of the business? Mattias Perjos: I think it is partly natural lumpiness of the business, we have seen also throughout 2025 that there's been a lot of delayed decision-making when it comes to projects. So a lot of companies now have announced expansion plans, but they've not really started to implement projects. So we can see that we have a similar win ratio like we've had before, but there's been less fewer big opportunities in 2025 due to customer hesitation on the back of geopolitical uncertainty. Filip Wetterqvist: All right. And then do you have like any idea how much the government shutdown affected Life Science in the quarter as no NIH funding was paid out during the period? Mattias Perjos: No, we cannot quantify that, unfortunately. Operator: The next question comes from Delphine Le Louet from Bernstein. Delphine Le Louet: I go again one by one. Just a clarification on the Paragonix and just willing to know how big Paragonix is now into the ACT business, how much does that represent? I know you don't want to disclose that, but probably you can give us sort of a sense and the range of how big it is? Second question to deal with Paragonix because I didn't catch. You mentioned it was not dilutive at the group level. And so if I'm hearing well, I just -- I need a confirmation. And so my question here would be, what is missing or when can you achieve sort of the ACT margin for that specific range of products? And then I will continue. Mattias Perjos: I think from a volume perspective, we don't have enough details for subsegment, but it's well over $100 million now the Paragonix business. And what Agneta said earlier is that it's slightly dilutive to group margins and consequently also dilutive to ACT margins. We don't guide for when it's going to be accretive to margins, and this is more about how we pace the expansion of the business with it. So we're happy with the performance right now, both from a growth perspective, and we can see that there is operating leverage in the business, but we're also continuing to invest quite a lot both in the U.S., in the old U.S. expansion and in the future R&D pipeline. Delphine Le Louet: All right. Moving on probably to what's going on in China and any feedback you may give us regarding the grounds that you have in China on the hospital activity, on the evolution of the commercial interaction over the course of '25, have you anything specific to tell us about that? Mattias Perjos: I think it's a year or more of the same. I think the hurdles continue to be the same ones that we have battled for a number of years now. We have some really strong positions in China. And I think one of the bright spots is that we actually did grow in China also in 2025. That's not something we take for granted in our industry anymore. So that's really positive and confirms the strong positions that we have. 0Going forward, I think, again, I think the geopolitical friction and impact here will continue to be somewhat of a hurdle. And of course, there are barriers when it comes to having local presence and so on. And there's also, of course, an evolving competitive landscape in China. So basically, we stand by the comments that we've made before that we have a long-term positive view on China. But it has changed quite a lot from 5 years ago when we had good double-digit growth in that market. Delphine Le Louet: Okay. Moving on to the Life Science. Obviously, we hear from the competition and on the biomanufacturing side, speaking about that, back to a very nice normalization and back to high single-digit, low double-digit growth. So I was wondering on your side, if you are feeling about any traction from the clients, if you confirm because you're probably a bit more late stage that the normalization has happened and that you're hearing probably more positive coming out from the U.S. versus Europe or any comment here either on a product or on a region would be interesting? Mattias Perjos: I think bioprocessing, we highlighted was a weak spot for us in Q4. It has been a weak spot throughout 2025. And we have relative to many of our peers in the market, a higher exposure to China, which is a more difficult market, both from an investment and competitive standpoint. But we do see on a broader basis, the comeback in other markets in China like the U.S., for example. So that market dynamic, we do see as well, but we have a slightly different exposure than our peers. Delphine Le Louet: Yes. Okay. And just probably to be back into the tariff and into a mitigation measure that you are currently implementing. Can we get your first feedback, clients reaction about the price increase? And can you probably more specify over the course of the '26, how you're going to mitigate exactly the tariff? And what would be the ideal target by the end of the year for '26 when it comes to the mitigation of the tariff? Would that be 50%, 70% and then thinking about '27 and '28? Mattias Perjos: I think we've continued -- worked actively with pricing since 2018 when we were able to reverse a downward trend through price improvement, and we've been able to do that ever since. So it's really not something new for us. So there's no new -- we can't talk about new customer reactions to this. Customers understand our perspective when it comes to the impact of tariffs, but they also have, of course, a reality with their challenges. So it's a dialogue with customer by customers and very different reactions and understanding of this. But we feel that we can continue to work with pricing the way that we have done in the last 2 years successfully. So that's really the main way. And we take a couple of percentage points price increases, we can calculate the mitigation effect of that when it comes to tariffs and of course, currency. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: So I have 2, and I'll take them one by one. First on Life Science. So yes, weaker order intake here in Q4. So I just wonder what the lead times typically are for these products? And how much one should look at this Q4 order intake number when predicting sales for H1? Mattias Perjos: I think on average, the lead time in Life Science is 9 to 12 months. Having said that, I think in cell transfer, it's much, much quicker given the data bags, for example. And -- but when it comes to the weak business, it's obviously often over a year in lead time. So the average is 9 to 12 months. Ludvig Lundgren: Okay. Great. And then second one on this critical component delay, which made you push the 510(k) submission and CE mark get launch for CardioSave, I just wonder if you can elaborate a bit on your confidence in this new time and if there's any uncertainty in this? Mattias Perjos: There is some uncertainty still in this. So we still need to make sure that we have the adequate supply of the critical components and that we are able to do the remaining test validations and that is required. So it's our best estimate right now, the second quarter for submission. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Mattias Perjos: Thank you very much. I think we already made a summary before the Q&A. So nothing in addition to say from me. I just thank you for your attention today, and wish you a good rest of the day. Thank you.
Operator: Thank you for standing by, and welcome to the First Merchants Corporation Fourth Quarter 2025 Earnings Conference Call. Before we begin, management would like to remind you that today's call contains forward-looking statements with respect to the future performance and financial conditions of First Merchants Corporation and involves risks and uncertainties. Further information is contained within the press release, which we encourage you to review. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. The press release available on the website contains financial and other quantitative information to be discussed today and will be -- as well as reconciliation of GAAP and non-GAAP measures. As a reminder, today's call is being recorded. I would now like to hand the conference over to your speaker today, Mr. Mark Hardwick, CEO. Mr. Hardwick, you may begin. Mark Hardwick: Good morning, and welcome to First Merchants' Fourth Quarter 2025 Earnings Call. Thanks for the introduction and for covering the forward-looking statements. We released our earnings yesterday after the market closed, you can access today's slides by following the link on the third page of our earnings release. Joining me today are President, Mike Stewart; Chief Credit Officer, John Martin; and Chief Financial Officer, Michele Kawiecki. On Slide 4, you'll see our 111 banking centers across Indiana, Ohio and Michigan, along with several recent awards recognizing our culture and performance. We ended the year with record total assets of $19 billion, record total loans of $13.8 billion and record total deposits of $15.3 billion. On Slides 5 and 6, our strong balance sheet and earnings performance reflect the quality of the First Merchants team, our customer base and our community-oriented business model. For the full year, we delivered record net income of $224.1 million and record diluted earnings per share of $3.88, an increase of 13.8% from the previous year. Fourth quarter net income totaled $56.6 million or $0.99 per share. Annual return on assets was 1.21% and annual return on tangible common equity was 14.08%. Loan growth remained robust with $197 million of linked quarter growth or 5.8% annualized and nearly $1 billion or $939 million of growth for the year, representing 7.3%. Our efficiency ratio was 54.5% for the year, and we achieved significant operating leverage with revenues growing almost 5x faster than expenses. We have now received all regulatory and shareholder approval to proceed with the acquisition of First Savings Group, which adds approximately $2.4 billion of assets and expands our presence into Southern Indiana and the Louisville MSA. We remain confident in our strategic and financial benefits of the merger, and we will actually close this weekend on February 1, 2026. Now Mike Stewart will cover some of our line of business metrics. Michael Stewart: Thank you, Mark, and good morning to all. The business strategy summarized on Slide 7 has been updated to reflect the collective work of our lines of business leadership teams. Each of these business units refined and updated their strategy in alignment with our primary focus of building on our Midwestern strength, growing organically through deeper relationships and smarter use of technology for enhanced client relationship and internal efficiencies. 2025 was a year of momentum and record results. This slide summarizes how our teams have been winning and capturing market share. We remain a commercially focused organization across all these business segments with an eye on growing within the markets pictured on the next slide. So let's go to Slide 8. As Mark stated earlier, this was another great quarter of loan growth across all segments and across all markets. It is very pleasing to see our Midwest economies continue to expand, our clients' businesses continue to grow and see our bankers continuing to win new relationships. $153 million in commercial loan growth for the quarter or 6% annualized, $852 million of increased commercial loan balances year-to-date, nearly 7% growth rate for all 2025. CapEx financing, increased usage of revolvers, M&A financing and new business conversion are the drivers of this growth. Another encouraging bullet point on this page is the quarter ending pipeline, which is stable from prior quarter and gives me optimism that we will be able to maintain our loan growth into the first quarter. The Consumer segment also shared in balance sheet growth with the residential mortgage, HELOC and private banking relationships driving the $44 million of loan growth for the quarter and the $87 million for all 2025. Pipelines in this segment also consistent from our end of quarter prior. So we can turn to Slide 9 and talk about deposits. The fourth quarter was our strongest quarter of deposit growth with the consumer segment driving increases in new households and balances. Enhanced digital platforms are deepening our client relationships. Our marketing efforts are leveraging the strength of our local brand and the reputation that we have and driving new relationships. The bottom section of this page summarizes the fourth quarter growth of $155 million of total consumer deposit increases with over $250 million in non-maturity balance growth. The full year's results also reflect the growth in the mix of non-maturity and maturity balances assisting in the margin improvement Michele will review next. Commercial business segment is summarized on the top of the page. While deposits have increased in both the quarter and year-to-date, the primary driver has come through our public fund depository relationships. It is a higher cost of deposit, but they are local government and public relationships that utilize many other treasury services we offer. Part of the increase in loan balances come from higher line of credit utilization, which typically reduces operating deposit account balances. Improving the mix of all deposit categories has been the focus of our teams for the past year and has been accomplished by focusing on primary core accounts and deposit cost. Overall, I'm pleased with the active engagement our teams are having with their clients as we've continued our pricing discipline, specifically with maturity deposits and public funds and remain hyper focused on relationships and converting single product users. Before turning the call over to Michele, one last comment regarding First Savings Bank. As Mark said, our integration efforts are on track. The engagement of their team has been strong. We have completed our product and process mapping. So post legal close, we will begin the on-site training and preparation for the May integration. Their community bank model and specialty verticals have a solid reputation and continuing their growth within Southern Indiana in these verticals will be our priority. So I'm going to turn the call over to Michele now, and she can review in more detail the drivers of our balance sheet and income statement. Michele? Michele Kawiecki: Thanks, Mike, and good morning, everyone. Slide 10 covers our fourth quarter performance, which reflects a continuation of positive financial trends we had throughout 2025. Total revenues in Q4 were strong with meaningful growth in both net interest income of $5.4 million and noninterest income of $0.6 million. This resulted in overall pretax pre-provision earnings of $72.4 million, up $1.9 million from prior quarter. Strong earnings drove a 4% increase in tangible book value per share on a linked-quarter basis. Turning to annual results on Slide 11. We delivered record diluted EPS and achieved an all-time high tangible book value per share in 2025. Year-over-year positive trends include double-digit net income growth of 12.2% and positive operating leverage. Tangible book value per share ended the year at $30.18, which is an increase of $3.40 or 12.7% from prior year. Slide 12 shows details of our investment portfolio. On the bottom right, you will see the valuation of the portfolio improved meaningfully during the quarter due to changes in interest rates. The unrealized loss on the available-for-sale portfolio declined $30 million or 15%. Expected cash flows from scheduled principal and interest payments and bond maturities over the next 12 months totaled $282 million with a roll-off yield of approximately 2.09%. We plan to continue to use this cash flow to fund higher-yielding loan growth in the near term. Slide 13 covers our loan portfolio. The total loan portfolio yield declined by 8 basis points from the prior quarter to 6.32% due to the impact of recent Fed rate cuts. This quarter, new and renewed loans were originated with a yield of 6.51%, which remains a tailwind for the overall portfolio yield. The allowance for credit losses is shown on Slide 14. This quarter, we had net charge-offs of $6 million and recorded a $7.2 million provision. The reserve at quarter end was $195.6 million and the coverage ratio of 1.42% remained robust. In addition to the ACL, we have $13.4 million of remaining fair value marks on acquired loans, providing additional coverage for potential losses. Slide 15 shows details of our deposit portfolio. The rate paid on deposits declined meaningfully by 12 basis points to 2.32% this quarter. Our team strategically reduced deposit rates following the Fed's rate cuts, resulting in a $3 million reduction in interest expense even as deposits grew $424.9 million or 11.4% annualized in the fourth quarter. On Slide 16, net interest income on a fully tax equivalent basis of $145.3 million increased $5.4 million linked quarter and was up $5.1 million from the same period in prior year. Net interest income was positively impacted by a $3.3 million recovery from a successful resolution of a nonaccrual loan. Our quarterly net interest margin of 3.29% increased 5 basis points from prior quarter. Our teams continue to stay focused on growing loans and deposits using disciplined pricing and our net interest income growth trend throughout 2025 is evidence of their success. Next, Slide 17 shows the details of noninterest income, which totaled $33.1 million with customer-related fees of $30 million. Customer-related fees were strong in all categories with notable quarter-over-quarter growth in wealth management fees of approximately $300,000, card payment fees of $300,000 and gains on sales of mortgage loans of $400,000. Moving to Slide 18. Noninterest expense for the quarter totaled $99.5 million, an increase of $3 million or 3% linked quarter. Expenses for the quarter included $500,000 of acquisition costs, which were offset by a reduction of the FDIC special assessment accrual of $700,000. Full year noninterest expense increased only $3.2 million or less than 1%, demonstrating significant operating leverage. Slide 19 shows our capital ratios. The tangible common equity ratio benefited from strong earnings and AOCI recapture, increasing 20 basis points to 9.38% while returning capital to shareholders through share repurchases and dividends. During the quarter, we repurchased 272,000 of shares for $10.4 million, bringing total share repurchases in 2025 to just over 1.2 million shares for $46.9 million. We remain well capitalized with a common equity Tier 1 ratio at 11.7% and are well positioned to support continued balance sheet growth. That concludes my remarks, and I will now turn it over to Chief Credit Officer, John Martin, to discuss asset quality. John Martin: Thanks, Michele, and good morning. My remarks begin on Slide 20. We had strong loan growth for both the year and the quarter of 7.3% and 5.8%, respectively, led by C&I loans shown on line 4, which grew nearly $700 million for the year. While we experienced strong C&I loan demand, we saw more moderate growth in investment real estate for the year and quarter on Line 7 as higher rates slow demand and assets moved into the permanent financing market. The diversity of lending types our teams continue to originate has allowed us to grow as demand varies across various asset classes. On Slide 21 and Slide 22, we again provided more detail of the loan portfolio. On Slide 21, the C&I classification includes sponsor finance as well as owner-occupied CRE. Current line utilization leveled off during the quarter, declining slightly from 50% to 49.8% after climbing in the first half of 2025. In the sponsor finance portfolio, we track key credit metrics across 90 platform companies. We took a $4.4 million charge in the quarter to an individual borrower. We underwrite to higher origination standards compared to traditional C&I loans and track the portfolio quarterly. The portfolio almost exclusively consists of single bank credits for private equity-backed platform companies as opposed to large, widely syndicated leveraged loans from money center banks trading desks. On Slide 22, we break out the investment or nonowner-occupied commercial real estate portfolio. Our office loans are detailed on the bottom half of the slide, represent only 1.9% of total loans and any potential issues are easily managed. The wheel chart on the bottom right details the office portfolio maturities, loans maturing in less than a year represent 28.1% of the portfolio or roughly $73 million. On Slide 23, I highlight this quarter's asset quality trends and position. Asset quality remains strong. NPAs and 90-day past due loans on line 4 were up $5.6 million or 2.54%. The largest nonaccrual, a $12.9 million investment real estate multifamily construction project paid off without loss of principal shortly after quarter end. Adjusting for this payoff, NPAs and 90-day past due loans would have fallen to 0.45%, down year-over-year from 0.66%. Turning to the asset quality migration roll forward on Slide 24 in column 4Q '25, there were new nonaccruals of $22.8 million on Line 2, the largest of which was a $9.6 million investment real estate multifamily construction project. We had a $9.1 million reduction on Line 3 from payoffs or changes in accrual status primarily related to a nursing facility that had been one of the prior quarter's largest nonaccruals that paid off. During dropping down to Line 5, there were $7.3 million in gross charge-offs, the largest of which was the $4.4 million sponsor finance C&I borrower I mentioned earlier. Then dropping down to Lines 12 and 13, we ended the quarter up $5.6 million, excluding the early quarter payoff with NPAs and 90-day past due loans totaling $74.5 million. To summarize, asset quality remains stable and improving. Classified loan balances are largely unchanged at 2.56% of loans with 18 basis points of annualized net charge-offs. We continue to grow C&I loans with our commercially oriented teams. And finally, we are excited about the local opportunities and new business verticals First Savings Bank brings as we head into 2026. I appreciate your attention, and I'll turn the call back over to Mark Hardwick. Mark Hardwick: Thanks, John. Slides 25 and 26 have been updated, along with our 10-year combined aggregate growth rates. As we look forward to '26, we're committed to supporting our world-class teammates and serving the needs of our clients, which will deliver the high-quality results our shareholders have come to expect. We appreciate your interest and your investment in First Merchants. And at this point, we're happy to take questions. Thank you. Operator: [Operator Instructions] Our first question is going to come from the line of Brendan Nosal with Hovde Group. Brendan Nosal: Maybe just starting off here on the topic of kind of balance sheet optimization. If I recall correctly, last quarter, I think you said you were looking at how you could optimize the sheet short of a wholesale kind of raise restructure transaction. So can you just update us on what areas of the balance sheet you're looking at, what you would try to achieve with those actions and what the parameters are around the existing capital base? Mark Hardwick: Yes. Thanks, Brendan. We are -- our line dropped right before the call started. And so for some reason, we dropped again, just give us a little time to dial back in. But we're continuing to evaluate the possibility of some type of balance sheet kind of repositioning. But I would say, as there's been some decrease in rates, the likely size of anything just continues to decline. which validates our decision -- and our communication in the last call that there would be no need to raise any type of capital. So whatever we do, it's going to be pretty modest. What we have already settled on is that we do plan to sell the entire First Savings bond portfolio. It's about $250 million at close. And anything else that we do is really just focused on trying to take pressure off of liquidity. So we're evaluating a small portion of our bond portfolio and some of our lowest yielding bonds as well as some of our lowest yielding loans. But whatever it is, it will be relatively small if we do anything beyond the First Savings bond book. Operator: Our next question will come from the line of Daniel Tamayo with Raymond James. Daniel Tamayo: Yes, maybe starting on the loan growth side. It sounds like pipelines are pretty consistent from where they were last quarter. Loan growth was certainly a solid good story in 2025. Maybe you can give us a sense for your expectations for overall loan growth and where those categories that might be driving that loan growth in 2026 are? Michael Stewart: Yes, this is Mike Stewart. I'll try to take that. You're right. The pipelines, yes, it can remain consistent. So -- it's across the board when I think about geography or when I think about our segments, our C&I teams focused on different size companies are all in a good position engaged along the way, our investment real estate team. The new asset-based team that we talked about a couple of quarters ago has been off and running and producing fantastic results. And in this marketplace, that's a really good discipline to have as it rounds out a lot of things we're doing. So when I look at that loan growth, I feel like it's balanced through our segments and how we manage that and through the geographies as well. We might have even referenced about a year ago, we put some additional focus on our small business lending efforts through our consumer network. And that also, while not a large dollar amount, it's just got good momentum across the board. I will say that's part of the strong fourth quarter, we had a couple of payoffs that didn't happen. So it ended our year a little stronger than I would have thought. So the first quarter, though, when I think about outlook, I still feel it's going to be in that mid-single-digit level. Economy is good in the Midwest and our teams, I feel like, we can convert what we're doing. Daniel Tamayo: Okay. So you said mid-single digit for the first year. I apologize if I missed it. Did you think that will carry through for the year as well? Michael Stewart: That's the way I'm looking at it, sure, yes. Mark Hardwick: Yes. I mean we're kind of mid- to high expectations for the year when you think about 6%, 7%, 8% is more how we think about the plan and consistent with what we delivered this year. Michael Stewart: And I think about the opportunities that can come our way when we're partnering with First Savings Bank. It's a new part of the state. So we get to work in new areas with their team. And then they've got those verticals that we can continue to evaluate how we want to originate and sell portfolios or continue to utilize our balance sheet. So we've got some nice levers. Daniel Tamayo: Okay. Great. And then maybe one for Michele on the deposits. If you have the CD repricing schedule over the next 12 months with balances and yields? Michele Kawiecki: Yes, I do. And so really in the first 2 quarters of 2026, we have about $800 million of CDs that are maturing. And the weighted average rate on those CDs, it is higher than our current specials. And so first quarter, that weighted average rate is like a 3.75%. Second quarter, it's like a 3.65%. And currently, our 12-month CD that we're offering is at 3.30% and the 9 months is at 3.45%. So we'll get some nice pickup on some savings on interest expense there. In the third quarter, we've got another -- just under $400 million that will be maturing. And those -- that weighted average rate is really in line with our special currently. And so that -- and then there's just really not a whole lot in the fourth quarter. So hopefully, that gives you kind of the color you're looking for. Daniel Tamayo: Yes, that's fantastic. And then one for you, Mark. Just on operating leverage, your thoughts around your ability to achieve that, I guess, probably the easiest way to look at it on an organic basis unless you want to include the deal and what might be problematic or potential issues or benefits to achieving that? Mark Hardwick: Yes, it's a great question. On our core, we were pretty aggressive with the '26 plan about just continuing to invest in people. We added about 15 FTEs in '25 that were -- that added about $4 million of total expense. And in '26, we committed to another 10 that are part of the sales force, another $2.5 million or so. And you can see some of that coming through in the fourth quarter. And so we're just finding opportunities to add talent that we're really excited about. And I would say if it were just stand-alone, maybe we'd be a little bit more conservative that we're finding the talent that we're adding and just feel like it's consistent with the market opportunity. And so on a core basis, operating leverage was going to be a little less impressive, I guess, than maybe last year, we did a hell of a job, I thought adding operating leverage in '25. But most of it is just because of the strength of the acquisition. We're going to continue to add a real positive kind of operating leverage entity in '26. And on a combined basis, I think we're going to produce the kind of results that you're used to seeing from us. And so we're pretty bullish about the growth of net interest income and fee income and how those numbers exceed any expense additions that we'll have on a net basis when you consider First Merchants, First Savings plus all of our cost takeouts for the year. So we're looking closely at all the estimates that all of you have and feel comfortable with those numbers and feel like those are -- there are EPS targets that we can meet or exceed. Operator: Our next question comes from the line of Damon DelMonte with KBW. Damon Del Monte: Just had a question on expenses and kind of the outlook there. Michele, could you give us a little guidance of kind of how you're thinking about kind of a core expense base for First Merchants given some of the moving parts in the fourth quarter? And then how we should kind of think about the first partial quarter with FSFG coming on board? Michele Kawiecki: Well, on a core basis, just looking at year-over-year noninterest expense, we have budgeted to increase about -- between 3% to 5% for the reasons Mark just indicated, the addition of talent. And then, of course, we're adding First Savings, their operating expense with we know that closes on February 1. So that will bring on 11 months of operating expense. But just as a reminder, we have 27.5% cost -- annualized cost savings that we've estimated that we think we can fully realize once we get past the integration. And so our integration is scheduled for May. And so I think we'll be able to realize those cost savings more in the back half of 2026. Mark Hardwick: Yes. And I wanted to just add when I talk about some of the additions of talent, just a reminder that back in '23 when we completed or announced a voluntary early retirement. And at that time, we had about 2,145 employees. And today, we're about 2,035. And so that 5% reduction, we've been able to hold on to even with the addition of talent and on a core basis, expect to add less than 2% to the FTE base and just excited about the quality of talent that we're bringing on to the company. Damon Del Monte: Got it. Okay. Good color there. And then with respect to the margin, Michele, did you say that there was a benefit of $3.6 million from interest recoveries on nonaccruals? Michele Kawiecki: There was, yes. And when I look at core margin -- go ahead, sorry, Damon. Damon Del Monte: Oh, no. Yes, I was going to dovetail that into the core margin, so go ahead. Michele Kawiecki: Yes. Just looking at year-over-year, we built one rate cut in our plan that we had built in early in the year. And so on a core margin basis, we did expect that margin in 2026 would compress a few basis points. We do think that we'll be able to get some momentum on repricing deposits, which will help offset some of the asset repricing that occurs because of the commercial nature of our loan portfolio. But on a net interest income basis, we definitely expect to see growth year-over-year. Operator: Our next question comes from the line of Nathan Race with Piper Sandler. Nathan Race: Maybe on fee income, nice growth quarter-over-quarter in 4Q. I'm just curious how you're thinking about the opportunities to grow some of the fee lines in 2026, just given the momentum in fourth quarter and some of the ongoing areas that you guys are trying to grow? I think in the past, Michele, maybe we were talking in mid- to high single-digit range, but just curious if that's still a good expectation versus kind of the 4Q level? Michele Kawiecki: On the noninterest income basis for 2026, I mean, we feel like we can get double-digit growth there. And so we're planning 10% growth. And some of that comes from some of the investment people that we have. We think we'll have some great momentum both in our wealth management space as well as our treasury management. Mike, I don't know if you want to add some color? Michael Stewart: Treasury management, some of the investments we're seeing with our derivative product group, that will add what we've done on the consumer side with how we're positioned there, that fee income should continue to be -- that won't be double digit, but that adds to that total. And then by the -- again, when you get past our integration, the fee income, the opportunities that sit with our acquisition, also originate and sell with the mortgage side, originating to sell with some of their products and services or their specialty groups is additive. Nathan Race: Yes, definitely. And just to clarify that double-digit growth expectation for this year, is that inclusive or not including FSFG? Michele Kawiecki: We think we'll have double-digit growth even on a stand-alone basis. Nathan Race: Okay. Great. Good stuff. And then maybe a question for Mike. There's obviously been some notable M&A announcements with some of your larger Midwest competitors recently. So just curious if you're starting to see maybe some M&A-related disruption permeate through the loan pipeline these days? And maybe just any expectations in terms of how some of those competitors maybe more focusing on the South can impact both opportunities to add talent on the commercial side of things and then anywhere else across the company? Michael Stewart: Yes, that specifically, we're thinking about -- I'm responding to you in our Michigan market where you got Fifth Third and Comerica and we view it as opportunity. When I think about the pipeline, yes, there's already early conversations happening with clients, with our teams and maybe other outside banks, too, but with our teams that might be a little sensitive to moving from one bank to the new bank or experiences of the past or making sure they've got alternative plans ready to go. So the conversations are happening. So that's a positive. I do feel like there's an opportunity to augment teams. That's probably -- that comes later. I think they've done a nice job of assuring that they've got their arms around individuals and giving them big hubs as they should. But those type of disruptions and the changes that happen in the back end we'll be positioned because we know who that is. We understand the talent that we think would be great to add to our team, and we're already having conversations there as well. Don't know -- from a consumer point of view, don't know yet how we can play into some banking center augmentation and adding to our footprint, but we're evaluating that as well with Michele. So, opportunity, for certain. Nathan Race: Got it. That's really helpful. And then maybe one last one for Mark on buybacks. Obviously, stepped up in the quarter. And I think the valuation is still quite compelling with where you guys trade relative to peers. So just curious if we can expect the pace of buybacks to step up in 2026? Or do you think what we saw in 2025 is a good approximation for this year? Mark Hardwick: Yes. If we continue to trade kind of below average, I guess -- I mean, it's an opportunity that we'd like to take advantage of, and we have the capital base to do it. So I don't have any desire really to see our TCE grow above the current levels. When we close the transaction, we'll see a decrease from that kind of 9.40% level, more like 8.70%, 8.80%, but still well above our target of 8%. And so we intend to be aggressive with buybacks as long as the price holds where it is. So I'd prefer the price to be up when we didn't take advantage of it, but if this is where we are, it's the right thing to do. Operator: Our next question comes from the line of Brian Martin with Janney Montgomery Scott LLC. Brian Martin: Maybe, Michele, just back to margin for just a minute. The core margin in the quarter ex that onetime item, kind of what was that? And then just remind us of kind of the normal seasonality that you'd expect in 1Q, I guess, as we think about it, I guess, kind of absent FSFG. Michele Kawiecki: Well, core margin for the quarter, the interest recovery did add several basis points to our core margin of probably about 8 basis points. to core margin. And then to your question about what we would expect in Q1, because of the commercial orientation of our loan portfolio, the day count in Q1 always has a pretty significant impact. And I think last year, it ended up being about 5 basis points. And so when you look at the trend of margin, the seasonality definitely takes a dip in Q1 and then obviously rebounds later quarters. But overall, for the year, we would just -- the overall annualized margin, we would expect just a couple of basis points of compression, assuming that we get a Fed rate cut in 2026. Brian Martin: Okay. And just remind us kind of the impact of FSFG on the margin overall? Michele Kawiecki: Yes. Once we pull the deal in, particularly because of the impact of some of the interest accretion, you will see that gives our margin some lift. Brian Martin: Got you. Okay. All right. And then just on the expenses for a moment. Just the kind of the integration occurs in May. Third quarter should be a pretty clean quarter then from an expense standpoint? Michele Kawiecki: Yes, it should be. Brian Martin: Okay. And then just how are you thinking about bigger picture as you get later in the year to Mark's comment or the other comments earlier about operating leverage. Just kind of where the -- the efficiency is at a pretty nice level here at 54-ish. And as you kind of get into the back -- the fourth quarter of the year, can you kind of be around that level? I guess what's kind of the bigger outlook on efficiency as far as where you get to as you start to capitalize on some of the cost savings? Michele Kawiecki: So I think our efficiency ratio will continue to be under that 55% level, and we should have really good operating leverage, I think that it should continue to grow in Q3, Q4 for sure. Brian Martin: Okay. So maybe being -- you're below the 54% or below the current level in fourth quarter of '26. Is that how we should think about it as we kind of hold everything in? Michele Kawiecki: Yes. I mean our goal is always to be below the 55% level, and we'll definitely be below that in each quarter once we get [indiscernible], yes. Brian Martin: Okay. And then just last two for me, was just on the -- you gave the CDs, Michele, but just in terms of the fixed rate loans repricing, I think you said there's still some tailwind just given where repricing is. But what -- can you remind us what's repricing on the loan side in '26? Michele Kawiecki: Yes. We had -- I believe it was $300 -- about $350 million of fixed rate loans that are going to be maturing in 2026, and they were at like a 4.40% rate. And so there's definitely some repricing upside there. Brian Martin: Yes, some tailwind. Okay. And then lastly, just was the tax rate. Still -- I guess, how are you thinking about that? I think it was still around 13% or 13.5%, is that kind of a decent level to think about or... Michele Kawiecki: Yes, good question. On a core basis, we would expect it to be about 13%. I think once you add in the deal and all of the financials on a combined basis for '26, it will probably come in a little bit lower because of the transaction costs and such. And so I would expect it to be more like 12% for 2026 on a combined basis. Operator: Our next question comes from the line of Terry McEvoy with Stephens Inc. Terence McEvoy: Maybe a question for John. The multifamily construction, it was kind of mentioned the NPL formation and then the payoff. So I guess my question is, what are you seeing across that $400-plus million portfolio? And then as a follow-up, based on your outlook today, is charge-offs kind of $6 million to $7 million like you saw in the third and the fourth quarter? Is that -- are you comfortable with that run rate over the near term? John Martin: Yes, so when I think about the multifamily portfolio, it's generally in pretty decent shape. We have had a couple of names that as a result of the higher interest rates and quite frankly, just disagreement amongst partners and the strategy there that have kind of fallen out. The two names that one that went in, one that came out were examples of it. But it's not some wholesale problem. For the most part, we've seen those assets stabilize and to move into the permanent market. When I think about charge-offs, I think about it in that 15 to 20 basis point about depending on what we have in any individual quarter. So yes, that $6 million to $7 million is probably about the right number. Terence McEvoy: Great. And then maybe a follow-up. Mike, you kind of ran through the positive consumer deposit trends and Michele talked about the success lowering rates. When I look at the decline in commercial deposits ex public funds, is that a good sign for loan demand or commercial loan demand in 2026? Or is that just seasonality and I'm reading too much into it? Michael Stewart: Well, there is definitely a correlation with line of credit usage and businesses using their cash to fund and finance. So there could be seasonality in it. That seasonality usually comes more from the public fund side when tax receipts grow and tax payments go out, and you see that in the second and fourth quarters. But when I think about the business flow and the core operating accounts, we penetrate relationships really well. And I do think it's part of the working capital cycle. So when we do see revolver increases, I mean, John had a slide that showed them pretty flat, but my comments also talked about the draws that are happening under construction -- real estate, which also means they're using their cash into projects. So I do think it's a corollary to loan growth with where they're utilizing their excess funds. Operator: We have a follow-up question from the line of Brian Martin with Janney Montgomery Scott. Brian Martin: Just one follow-up, guys, I forgot to ask. The -- and just, Mark, your comments about the outlook for this year, just given the valuation and where the stock is at in the buyback, where does -- how does M&A fit into that? I mean, obviously, it seems like you have your hands full with the transaction and a lot in front of you. But -- and where the valuation is at, does it feel like the buyback is a better use of capital today than considering M&A, and that's probably the way to think about near term, and we'll see where things go? Or how are the dialogue on M&A today? Mark Hardwick: No, I think you summed it up well. We're focused on the acquisition in front of us. And we do think that using our capital to continue to repurchase shares at the current price level is the best short-term strategy for sure. So we're really not spending much time thinking about what's next on the M&A front. Brian Martin: Got you. Understood. I just wanted to confirm. Operator: Thank you. This concludes today's Q&A session. This also concludes today's conference call. Thank you for participating. Everybody, have a great day. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Home Bancorp's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Home Bancorp's Chairman, President and CEO, John Bordelon; and Chief Financial Officer, David Kirkley. Please go ahead, Mr. Kirkley. David Kirkley: Thank you. Good morning, and welcome to Home Bank's Fourth Quarter 2025 Earnings Call. Our earnings release and investor presentation are available on our website. I'd ask that everyone please refer to the disclaimer regarding forward-looking statements in the investor presentation and our SEC filings. Now I'll hand it over to John to make a few comments about the quarter and the year. John? John Bordelon: Thank you, David. Good morning, and thank you for joining our earnings call today. We appreciate your interest in Home Bank as we discuss our results, our expectations for the future and our approach to creating long-term shareholder value. We're proud of everything we accomplished in 2025 and believe we are well positioned to continue the outstanding performance you've come to the expect from Home Bank. Yesterday afternoon, we reported fourth quarter net income of $11.4 million or $1.46 per share. For the full year 2025, net income was $46 million or $5.87 per share which is a record for Home Bank and 29% higher than our 2024 earnings per share. Fourth quarter net interest margin was 4.06% and the ROA was 1.29%, which was sharply higher than the fourth quarter of 2024, and that NIM was 3.82% and an ROA of 1.12. Loans grew by $38 million in the fourth quarter or 6% annualized as strong December originations exceeded still elevated payoffs and pay downs. Our pipeline is building and paydowns appear to be slowing, so we expect growth in 2026 to be in the mid-single digits. While loan growth in 2025 was not up to our historical trends, Deposits grew by 7% or $192 million with strong growth in demand deposits and relatively low-cost money market accounts. As a result of our success attracting deposits, we were able to reduce our loan-to-deposit ratio to 92% in the fourth quarter from 98% a year ago. We intend to continue to focus on deposits, which will build franchise value and position us for increased profitability when we return to our historical rate of loan growth. We continue to have success with our Texas franchise, which is now in its fourth year of operation. We now have 15 commercial bankers in 5 branches and 1 loan production office in the Houston market and expect to open a new full-service branch and close the loan production office in the first quarter. We expect the lending team we hired in late 2023 will be even more productive than they have been. Since entering the Texas market in 2022, loans have grown at a 15% annual rate and now represent 20% of our loan portfolio. Nonperforming loans increased in 2025, but our charge-offs remain very low, and we don't expect that to change due to our conservative underwriting standards and proactive credit management. As you can see on Slide 16, our net charge-offs have averaged about 6 basis points over the last 6 years. We continue to perform at a level above our peer banks and expect this trend to continue. We are confident in Home Bank's future and our ability to meet our higher standards in all economic climates. With that, I'll turn it back over to David, our Chief Financial Officer. David Kirkley: Thanks, John. Slide 5 in our investor presentation has a summary of the last 6 quarters. As John mentioned, fourth quarter net income totaled $11.4 million, an 8% decrease from the prior quarter but a 21% increase from a year ago. The decline in net income was primarily due to an increase in provision expense related to loan growth during the quarter. Net interest income was stable when compared to third quarter, decreasing $58,000 while NIM decreased 4 basis points to 4.06%. Year-over-year, 2025 NIM increased 32 basis points to 4.03%, while ROA increased 25 basis points to 1.33%. Yield on loans decreased 9 basis points quarter-over-quarter due to repricing of variable rate loans after the three Fed rate cuts in September. The contractual rate on new loan originations during the quarter was 7%. Despite recent rate cuts, our yield on interest earning assets increased 14 basis points to 5.88% in 2025. Slides 14 and 17 provide additional details on cash flows from our loan and investment securities portfolio that should support NIM expansion in 2026. Excluding floating rate loans repricing in the next 3 months, 41% of loans with a blended rate of 5.7% are expected to reprice or refinance over the next 3 years. Over that same time period, half of our investment portfolio is expected to mature with a roll-off yield of 2.56%, which is well below current available yields. Slides 15 and 16 of our investor presentation provides some additional detail on credit. We had $165,000 in net charge-offs in the fourth quarter and $908,000 of net charge-offs in 2025 which was only 3 basis points of total loans and $128,000 less than 2024. Fourth quarter nonperforming assets increased $5.2 million to $36.1 million or 1.03% of total assets. The increase was primarily due to the downgrade of two relationships and partially offset by paydowns. The largest was a $4.1 million relationship with two separate townhome development loans in Houston. We feel that between the loan values on these properties and the guarantor strength, there will be no material losses on this relationship. We reported a $480,000 provision expense related to loan growth during the quarter, which was an increase of $709,000 from the prior quarter. We feel very confident in reserves as our allowance for loan loss ratio was stable from the third quarter at 1.21%. Average deposits increased by $58 million in the fourth quarter and by $187 million or 7% in 2025. Average noninterest-bearing deposits, which represent 27% of total deposits increased by $3 million in the fourth quarter and $40 million in 2025. 2025's deposit growth helped us reduce more expensive FHLB advances by $173 million to just $3 million at the end of the fourth quarter. The cost of interest-bearing deposits decreased 6 basis points in the fourth quarter and decreased 15 basis points since the fourth quarter of 2024. Our overall cost of deposits in the fourth quarter was an attractive 1.84%, and we expect additional reductions in the first quarter as recent Fed rate cuts are reflected in our deposit pricing. Slide 22 of the presentation has some additional details on noninterest income and expenses. Noninterest income was $4 million, which was slightly above fourth quarter expectations of $3.6 million to $3.8 million. Going forward, we expect noninterest income to increase to between $3.8 million and $4 million over the next several quarters. Noninterest expenses increased by $515,000 to $23 million and was in line with expectations. Noninterest expenses are expected to be between $22.5 million and $23 million in the first quarter and then increase to between $23.3 million and $23.7 million from there as annual raises take effect and new projects kick off. Slides 23 and 24 summarized the impact our capital management strategy has had on Home Bank. Since 2019, we grew per share tangible book value adjusted for AOCI at a 9.6% annualized rate. Over that same time period, we also increased EPS at an 11.5% annualized growth rate. We've increased our quarterly dividend per share by 55% to $0.31 per share and repurchased 17% of our shares. And we've done this while maintaining robust capital ratios. This positions us to be successful in varying economic environments and to take advantage of any opportunities as they arise. With that, operator, please open the line for Q&A. Operator: [Operator Instructions] The first question comes from Feddie Strickland at Hovde Group. Feddie Strickland: I just wanted to start on the credit side. I hear you on the limited loss history here and the fact that charge-offs really haven't been that high the last couple of quarters or for a while here. But when do you think we might see a shift in the trajectory of the Class 5 and NPAs as you work through some of these credits? John Bordelon: Yes. It's hardening a little bit that sometimes it takes a little bit longer, especially those credits in Louisiana and Mississippi. Texas products typically move a little bit faster, we're finding out a more closer date, there is usually about 60 days or less. So we are working through a lot of these. A couple of the newer ones we had were not on our radar and then they just kind of popped up a little bit. So we do believe that the two subdivision properties in Texas, we should be getting back out of foreclosure or they should be sold by February 3. We think there's a lot of equity still in that property, very good locations. We had another facility in Texas that the tenant moved out and the landlord is looking to sell the property. He has some interested parties just hasn't gotten there yet. So he's actually waiting -- he filed some lawsuits to be able to get back rent that the tenants had, and we'll see about that. But the most part, it's a good facility that should not have trouble selling. But once again, it just takes a little bit of time. So we had a lot of one-off circumstances. We don't see this as an economic-driven downturn. And we just see different scenarios where people are able to maintain the rental property or in the case of the two subdivisions, the person never started the development of those subdivisions. David Kirkley: One of the properties that John was talking about in February, that's about $5.5 million that once again, will either be paid off, refinanced out or will foreclose on and move to sell quickly. Feddie Strickland: Got it. So all I'll see -- what we can see NPAs come down about $5.5 million if nothing else comes on. Is that a fair assumption? John Bordelon: We hope so. We think the property is if we do take them back should be able to sell relatively quickly, it does take a little bit of time in Texas to get permits and things of that nature. That would be the only thing that would slow it up, we think. Feddie Strickland: Okay. And shifting gears to the loan pipeline, does the makeup look any meaningfully different from what's on the books today? Or I guess, in other words, do you expect any sort of longer-term shift in the portfolio? I know in the past, you talked about more C&I. John Bordelon: All of '25, we had some payoffs versus second quarter, they weren't as large as they were in the third quarter, but we did have payoffs and pay downs throughout our portfolio. So I think it's just maybe because of higher rates are people selling their businesses to profits and such and the loans get paid off, but we're not -- we didn't have much of that at all a little bit but not much in fourth quarter. We're thinking hopefully, we have less of that in 2026. So the loan growth is there if we don't have the payoffs. Feddie Strickland: And just a last question, just update on what you're hearing from customers throughout different parts of the footprint, how are things in New Orleans versus Houston? Just curious where you might see a little bit more versus a little bit less growth incrementally? John Bordelon: We're not hearing anything negative in any of our markets, especially with rates coming down, yield curve coming down a little bit. So I think it's probably leaning a little more towards the positive side. Obviously, the national scene is always a concern what happens with interest rates, what happens with the economy and such. But for the most part, we have not heard any negative comments. Operator: The next question comes from Joe Yanchunis at Raymond James. Joseph Yanchunis: So I was hoping you could talk a little about the SBA business as we enter into 2026. Yes, as it currently stands, do you think the business will be a driver of growth? Or will it take some more investments to really grow the business? John Bordelon: That's a great question. We got into the SBA business after the Texan Bank acquisition, and we kind of have been slow to develop it. But as rates went up, the request were much smaller and few and far between. So we do anticipate that with the lower interest rates, that should pick up. I don't think we're low enough yet to where it's going to be tremendous, but it should be much better than it has been in the last two years. Joseph Yanchunis: Got it. And just a quick clarification. All my questions are great questions. So capital levels continue to build. You throttle down the buyback with current levels where the stock price is. Would you characterize M&A as one of the top capital deployment priorities? And if that's the case, can you talk about how the pace of conversations changed in recent months? John Bordelon: Well, a couple of important factors, I think, Dave and I have been speaking to people opportunities that have been out there for the last 3 years, of course, with the high interest rates and some of the balance sheet being a little upside down, it was not very attractive. The other important component there was we did not have a commodity that we felt we could use. So we looked at smaller deals that we could pay cash for. So now that our stock price is getting closer to a [ 140 ] of tangible or so, we feel as though we have the power to go out and maybe look for a little bit larger banks that we feel very comfortable with. So we're very optimistic about 2026 M&A. Joseph Yanchunis: And what would the larger deal look like just in terms of size or if you want to talk some geography as well? John Bordelon: Yes. I mean we're probably not looking at anything over $1.5 billion, I mean, half our size or less. Joseph Yanchunis: I appreciate that. And kind of last one for me here. In the back half of '25, you purchased nearly $20 million of securities. How should we think about the size of the bond portfolio as you move throughout '26? David Kirkley: I think it's going to be relatively in the same percentage of assets to 11% to 12%. We expect loan growth, we expect our balance sheet to increase a little bit. So I expect the investment portfolio to increase book basis -- excuse me, on a par basis by about $15 million to $20 million and then whatever happens on AOCI as it comes back. Operator: The next question comes from Stephen Scouten at Piper Sandler. Stephen Scouten: I appreciate the time. I'm curious, John, I heard you say you feel pretty good about that team you have in Texas from 2023. Do you feel like there's opportunities with all the M&A we've seen in that environment to continue to add to that team? Or is there kind of plenty of capacity there now to grow at the pace you want to grow? John Bordelon: Well, we never lost anybody in the Texan acquisition, and we added about 3 other people to that. And then we did a pull out 2 years ago, I guess, it is now a 3-person team -- actually a 4-person team with 3 relationship managers. So that's the -- that's where we're building a new branch in Northwest Houston, and that's going to give them full branch capabilities. It's been very difficult as a loan production office for the last 2 years for them to grow as much, especially on the deposit side. So we're very excited about that team and hope to continue to grow in that market. Absolutely. Stephen Scouten: Okay. Got it. And then when you think about the kind of overall loan growth capacity for the franchise as we look at '26. Is kind of -- is mid-single digit the right way to think about it? Or do you have aspirations for more given what you're seeing in the Houston MSA? John Bordelon: I think the only thing that's going to push it past mid-single digits is potentially lower interest rates that may spur the economy a little bit more. I don't know if we're going to see that until maybe midyear or second half of the year, it's anybody's guess, right, where interest rates go. But it looks like the long end staying up a little bit. So potentially, it may be better in the second half of the year than the first half of the year. But I still think based upon the pipeline that we had in fourth quarter, I think first half of the year is still going to be mid-single digits. Stephen Scouten: Okay. Great. And then just maybe last thing for me. Kind of thinking about the trajectory of the NIM and David, I heard you obviously say you think there's some expansion opportunities there. I guess, kind of two parts to that. What do you think the scale of that potential upside could be? And then two, can you kind of help me reconcile the -- obviously, on page, was it, 21 of your presentation. What would show is kind of a liability sensitive -- I mean, excuse me, like an asset-sensitive appearance on the balance sheet versus what we've kind of seen in practice and kind of how I think about your balance sheet and the upside from lower rates? David Kirkley: Yes. So we had 3 rate cuts since mid-September. And so that impacts the loan portfolio immediately, and you saw that as a 9 basis point decline in loan yields. We have a very short deposit portfolio, but it does take a couple of months to realize the impact of rate cuts through CD repricing. Our NIM in December was 4.08% and that's reflective -- that's due to seeing our deposit cuts actually playing out on the income statement. And you're going to see more of that come through in Q1 as a lot of the CDs are repricing. So we took the impact of the rate cuts and that reduced our loan portfolio by 9 basis points. We've been originating in the 7% range, and we have roll off yields, a pretty healthy roll-off yield. So in the base case scenario, we see NIM ticking back up to 4.1% and 4.15% throughout the year. So that answers one of your questions, I believe. As far as rate sensitivity goes, change in net interest income, you got to remember that this projection is based off of the next 12 months. It's not saying, "Oh, my NIM was 4.05% and then down 100 basis points, I'm going to lose 4.1% of my NIM. It's -- my NIM is projected to increase in the base case to 4.1%, 4.15% in the base case, not from the 4.04% we just -- I mean, 4.06% we just reported, it's a 4.1% or a live asset-sensitive bank from that base case. And so even if we go down 100 basis points in yields, we still think that our NIM is going to be relatively stable to what we just reported. John Bordelon: I think the biggest headwinds we have right now in regards to NIM or some outliers on the deposit side, throwing some really high CD rates out there. So we're having to compete a little bit for that. That hasn't been the issue. Pretty much a lot of banks were all in the same general vicinity rate-wise, but there are some outliers in the 4.25% range. Stephen Scouten: But generally, I guess this is kind of a shock scenario, but it sounds like you have a lag that's actually beneficial as those CDs repriced over time from each subsequent cut. So theoretically, it could impact the NIM negatively for the first 30 days, but then probably there's some strength after the fact as deposits reprice. Is that maybe the best way to think about it? David Kirkley: Yes, that does, yes. But I'm glad John did bring that up. We are seeing more -- a much wider range of deposit pricing in some of our markets than we had over the last, I guess, probably 1.5 years with the spread between the high and the average. Stephen Scouten: Yes. Makes sense. People have seeing loans out there that they want to fund up. So yes, I would imagine it all gets a little bit more competitive. But to your point, hopefully, that means we got better economic strength. So we shall see. I appreciate all the color. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to John for any closing remarks. John Bordelon: Thank you. And once again, thank you all for joining us today, and we look forward to speaking to many of you in the coming days and weeks, and thank you for your interest in Home Bancorp. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Enterprise Financial Services Corporation Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Jim Lally, President and CEO. Please go ahead. James Lally: Good morning, and thank you all very much for joining us, and welcome to our 2025 Fourth Quarter Earnings Call. Joining me this morning is Keene Turner, EFSC's Chief Financial Officer and Chief Operating Officer; and Doug Bauche, Chief Banking Officer of Enterprise Bank & Trust. Before we begin, I would like to remind everybody on the call that a copy of the release and accompanying presentation can be found on our website. The presentation and earnings release were furnished on SEC Form 8-K yesterday. Please refer to Slide 2 of the presentation titled Forward-Looking Statements and for our most recent 10-K and 10-Q for reasons why actual results may vary from any forward-looking statements that we make today. Our financial highlights begin on Slide 3. I am pleased with our results for the fourth quarter and for all of 2025. For the quarter, we earned $1.45 per diluted share, which compares favorably to the $1.19 that we earned in the linked quarter and $1.28 in the fourth quarter of 2024. These results produced a return on average assets of 1.27% and a pre-provision return on average assets of 1.74%. We discussed in our last earnings call, we closed on the branch purchase in Arizona and Kansas early in the fourth quarter. Earnings from this complemented our relationship-oriented business model, helping drive expansion of net interest income for the quarter to $168 million, which was a quarterly increase of $10 million when compared to the linked quarter and $22 million compared to the fourth quarter of 2024. Margin too improved slightly to 4.26%, driven by disciplined loan and deposit pricing throughout both books of business. Our ability to hold our margin at this level illustrates the quality of our deposit base and the relationship-oriented loan portfolio. The ability to continue to expand our net interest income, along with widening our net interest margin to the extent that we have reflects the strength of the franchise we are building and we remain positioned to produce high-quality earnings for years to come. As important, the branch purchase accelerated our strategy in 2 of our higher-growth markets by several years. Since the closing, I've spent time with our new team and our new clients and feel even better about how this fits into our overall strategy and the impact that this expansion will have on our long-term performance. The strength of our company is our well-positioned balance sheet, which provides for great flexibility when it comes to capital management. We came into 2025 with a goal of growing our balance sheet at a mid- to high single-digit pace. With our organic growth complemented by the aforementioned branch purchase, we're able to exceed this goal, growing our balance sheet by 11%. Capital levels at quarter end were stable and strong with our tangible common equity to tangible assets ratio at 9.07%. As impressive was our 14.02% return on tangible common equity for the fourth quarter. Because of the branch purchase, we expected some dilution to tangible book value. But due to our strong earnings during the quarter, tangible book value per share was relatively stable at $41.37. This represents an 11% increase in tangible book value per share growth for the year. Because of our confidence to continue to produce high-quality earnings at the pace that we are, we increased our dividend by $0.01 per share to $0.32 for the fourth quarter and repurchased 67,000 shares at an average price of $52.64. Loan growth for the quarter was $217 million and was largely attributed to the acquired loans that came with the branch acquisition. Further reducing our loan balances in the quarter was the movement of approximately $70 million of Southern California commercial real estate loans into OREO. I will provide an update on our progress with these properties later in my comments. Deposit growth and the quality of the deposit base continues to be a significant differentiator for our company. In the fourth quarter, we saw deposits grow by $1 billion, $400 million of which came from new and existing clients with the remaining approximately $600 million coming from the branch purchase. The cost and composition of the deposit base continues to improve and is aided in the consistency of earnings and profitability. The quarterly cost of deposits decreased to 1.64%, and our level of DDA to total deposits improved to 33.4%. It should be noted that we have maintained our DDAs at over 30% of total deposits for the last 4 years. Finally, liquidity remains strong as evidenced by our loan-to-deposit ratio of 81%. There were several moving parts with respect to credit in the quarter. The most important movement occurred with the real estate associated with the 7 real estate loans in Southern California that we discussed on last quarter's earnings call. With a favorable verdict handed down by the bankruptcy courts during the quarter, we were able to take 6 of these properties into OREO with the seventh to follow shortly. Like we assumed, interest in these properties has been high with purchase sale agreements on several of the properties expected to be received in the very near future. Further improvement to our overall credit metrics is a high priority. I can see a clear path for the elevated level of NPAs and OREO to reduce significantly in the next couple of quarters to more historical levels. Doug will comment on the specifics related to all of this in his comments. Slide 5 summarizes our performance for all of 2025. For the year, we earned $201 million of net income or $5.31 of diluted earnings per common share. We leveraged capital advantageously to expand in 2 key markets while growing tangible book value per share by 11%. Other uses of capital included increasing our annual dividend by $0.16 per share to $1.22 and repurchasing just over 258,000 shares at an average price of $54.60. You will hear much more about these and other financial highlights in Keene's comments. Slide 6 illustrates where we are focused as we turn the page into a new year. Like I stated previously, I can see a clear path to improve credit statistics in the next quarter or 2. Nonetheless, this is a keen focus for us in 2026. The level of NPAs is not compatible with the quality company we've built an improvement to more historical levels will be accomplished. At the same time, we will continue to grow the balance sheet with the quality and consistency that we've displayed for many years, serving our existing clients' needs while adding new ones that appreciate our consultative approach and willing to give up a few basis points on both loans and deposits to experience this. And finally, like many of our clients, we will continue to find more ways to automate mundane non-value-added tasks, utilizing the investments we have made in technology over the last few years in order to enhance productivity and efficiency within our business. Before handing the call over to Doug, I would like to share with you what I'm hearing from our clients throughout our markets and national business lines. For the most part, our clients remain optimistic about the economy and how their businesses will perform in 2026. In particular, clients that are developers, contractors, subcontractors and suppliers to companies in and around power generation and the data center industries are expecting particularly good and long runs ahead. This obviously trickles down to manufacturers and service businesses, too, that support these industries. Industries and companies that serve infrastructure improvements throughout our markets, too, should see many opportunities. This includes water projects, utility work and highway and road construction. Furthermore, there is a keen focus by our client base to further improve productivity and efficiencies. I cannot help thinking that this will come with investments in technology, robotics and other machine learning capabilities, the expense of which will be partially offset by the favorable tax treatment that such investments now receive. The agility and resilience that our client base continues to show has been quite remarkable. I would expect this to continue in 2026 and beyond. We are pleased with the results for the fourth quarter and the entirety of 2025 and look forward to what lies ahead in 2026. Our company is positioned extremely well to continue to execute on our strategic plan and drive long-term shareholder value. Our diversified relationship-oriented model has compounded tangible book value per share at a rate of over 11% for the last 14 years, and I see this continuing for many years to come. With that, I would like to turn the call over to Doug Bauche. Doug? Douglas Bauche: Thank you, Jim, and good morning, everyone. The fourth quarter, as Jim just described, was full of activity. The completion of our branch acquisition and onboarding of new clients and associates has gone exceptionally well. The feedback that I continue to receive from our new partners has been overwhelmingly positive. We also successfully completed foreclosure of the previously highlighted Southern California real estate portfolio and are now one very important step closer to substantially reducing our nonperforming assets. And certainly not to be overlooked, we continue to expand the balance sheet through the attraction of new organic commercial relationships and are positioned with momentum heading into the new year. Slide 7 demonstrates the diversity and growth of our loan portfolio across all asset classes. Asset categories representing credit to commercial and industrial businesses, including C&I, CRE owner-occupied, SBA and sponsor finance, combined are just over 50% of our portfolio, while investor-owned CRE, life insurance and tax credit lending largely round out the balance of the portfolio at 24%, 10% and 7%, respectively. Loans grew $217 million in the quarter and $580 million for the year. Organic growth in the quarter and LTM from our C&I, investor-owned CRE and life insurance premium finance lines were offset by contraction in our sponsor finance and construction and land development segments as sponsors monetize portfolio companies and developers completed and sold a number of industrial and mixed-use construction projects. Additionally, reported organic growth at $288 million for the year was muted by our sale of $78 million in SBA guaranteed debt the movement of the aforementioned $70 million in real estate loans to OREO and our election to exit several loan participations that no longer met our return thresholds. Adjusted for those 3 items alone, organic loan growth for 2025 was in line with our mid-single-digit expectations. Slide 8 displays our loan portfolio balances and growth across our geographic footprint in specialty lines. Specialty lending and all 3 of our geographic markets contributed to positive loan growth during the year, and our portfolio remains favorably balanced. Within the Specialty Lending business lines, our SBA 7(a) owner-occupied CRE production topped $250 million in originations for the year and is poised to expand as we continue to head into a more favorable interest rate environment in 2026. Additionally, growth in other low credit risk categories of Life Insurance Premium Finance and Tax Credit Finance outpaced contraction in Sponsor Finance. Our momentum in the Southwest continues. Growth in the Southwest outpaced all other markets and was driven by expansion of quality C&I and CRE relationships throughout Arizona, New Mexico, Northern Texas and Southern Nevada, including the relationships added in the branch acquisition. Turning your attention to Slide 9. Deposits grew $1 billion in the quarter and approximately 11% or $1.5 billion year-over-year, inclusive of the $609 million in branch acquired deposits in our Arizona and Kansas City markets. Organically generated deposit growth for the year was right in line with our expectations at 6.5% or $854 million. For the quarter, organic deposit growth was seasonally strong at $432 million with noninterest-bearing deposits representing 63% or $274 million of growth during the period. Similar to our legacy deposit portfolio, the $609 million in acquired branch deposits are favorably mixed with nearly 35% or $213 million in noninterest-bearing commercial transaction accounts. Strong deposit generation and favorable mix provide us opportunity to control the cost of interest-bearing deposits and defend our net interest margin in this down rate environment. Slide 10 depicts the dispersion of our deposit base across the Midwest, Southwest, West and our deposit verticals. A core strength of our business model continues to be our ability to execute our deposit strategies with balanced growth coming from new relationships, deepening of wallet share with existing clients, acquisition of attractive deposit franchises and leveraging our differentiated deposit verticals. In our Midwest region, in particular, deposit balances have grown steadily and are approaching $7 billion in aggregate. As our average client relationship duration continues to lengthen, we find we are regularly rewarded with greater share of wallet and ancillary products, including private banking, commercial card and merchant services. The breakdown of our deposit verticals is reflected on Slide 11. Community Association and Property Management largely contributed to our deposit vertical growth in 2025, while we exited higher-yielding deposits within our Legal Industry and Escrow Services segment. We've redirected our efforts in the Legal Industry and Escrow Services area and our pipeline of more favorably mixed and priced deposits is gaining traction. These 3 businesses continue to provide a diverse, growing and overall favorable cost-adjusted source of funding that complements our geographic base. Turning to Slide 12. You'll see that our deposit base is intentionally well balanced across our core commercial, business and consumer banking and specialty deposit channels. With the recent branch acquisition, our core commercial business and consumer banking and specialty deposits are 39%, 33% and 28% of total customer deposits, respectively. I'd also like to provide some commentary on asset quality. As Jim noted earlier, we see a clear path to reducing our elevated nonperforming assets of 95 basis points to a more historically normalized level of 35 to 40 basis points over the next quarter or 2. To bridge that path, let me say that we are actively negotiating PSAs on 5 of the 6 properties in Southern California that we moved into OREO in December. With final execution of these PSAs and sale of the related OREO assets, we would realize proceeds at or above our carrying value. Furthermore, we continue to chip away and make good progress on a number of other specific nonperforming loans. The combination of these successful resolutions alone will reduce NPAs in half without charge or write-down. Keene will discuss some of our asset quality metrics, but it is worth noting that our reported 21 basis points of net charge-offs for the full year includes 3 basis points related to 2 of the loans in the Southern California relationship. On a net basis, we did not take a loss on the foreclosure of the 6 properties that we took possession of in the fourth quarter. Excluding those loans for that reason, our adjusted net charge-offs were 18 basis points for 2025. Now I'll turn the call over to Keene Turner for his comments. Keene Turner: Thanks, Doug, and good morning, everyone. Turning to Slide 13. We reported earnings per share of $1.45 in the fourth quarter on net income of $55 million. Excluding certain nonrecurring items, earnings per share on an adjusted basis was $1.36, a $0.16 increase from the third quarter adjusted earnings per share of $1.20. Pre-provision earnings increased over $9 million from the linked quarter to $75 million, primarily due to continued expansion in net interest income and the seasonal fourth quarter increase in tax credit income. The branch acquisition that closed on October 10 increased our liquidity and earning assets while also adding to the bottom line. Earnings also benefited from a gain on other real estate owned that is not included in our pre-provision earnings. The provision for credit losses increased from the linked quarter and was primarily driven by net charge-offs and a change in the mix of nonperforming loans. The increase in noninterest expense in the quarter was mainly due to the addition of the run rate expenses from the branch acquisition and onetime acquisition costs related to the transaction. In conjunction with the finalization of our tax return, we have updated our state tax apportionment and effective tax rate, which resulted in a slightly higher tax rate in the fourth quarter. Turning to Slide 14 and with more details to follow on 15. Net interest income was $168 million in the fourth quarter, an increase of $10 million from the prior period, inclusive of the branch acquisition. Net interest income growth resulted from a combination of strong deposit growth, higher investment balances and a favorable spread on acquired loans and deposits, partially offset by lower interest rates paid on interest-earning assets. Interest income increased $7 million from the prior period, mainly due to higher earning asset balances. Loan interest increased $2 million, including $4.4 million from acquired branches as average loan balances increased $340 million compared to the linked period and was partially offset by lower interest rates. The rate on loans booked in the quarter was 6.75% and remained accretive to the overall portfolio yield. Interest on investments was $3.2 million higher compared to the linked period with average balances increasing $270 million and the portfolio yield improving by 9 basis points. The average tax equivalent purchase yield in the fourth quarter was 4.61%. Interest on excess cash balances increased $1.8 million in the fourth quarter, mainly as a result of seasonally higher deposit balances. Interest expense declined $3 million compared to the linked quarter and included $1.7 million in interest expense from deposits at acquired branches. Total deposit expense decreased $1.4 million as a result of lower interest rates, partially offset by higher average balances. Interest expense on borrowings decreased $1.6 million, mainly due to lower balances on short-term advances along with lower interest rates. Interest expense also reflected the redemption of our subordinated debt in September that was replaced with a new floating rate senior note at a lower interest rate. Our resulting net interest margin for the fourth quarter was 4.26% on a tax equivalent basis, an increase of 3 basis points over the linked period. The earning asset yield declined 13 basis points, driven mainly by lower rates on variable loans and short-term assets. Our cost of interest-bearing liabilities declined 25 basis points, led by lower interest rates on deposits and borrowings, including a lower average interest rate on the acquired deposit portfolio, along with a more favorable shift in the funding mix. Moving into 2026, we expect net interest margin run rate to be roughly 4.2%. Compared to the fourth quarter, we will have some additional loan repricing based on periodic and longer-term resets and would expect to see some additional attrition of deposit balances during the first quarter. We believe our balance sheet composition and funding mix have us well positioned to limit the overall impact of interest rates to net interest margin as we have demonstrated with recent cuts. We will continue to respond to interest rate changes by appropriately managing pricing on both sides of the balance sheet. We believe that by executing our plans to grow the balance sheet funded by core deposits, we will continue to see positive momentum in net interest income growth. Slide 16 reflects our credit trends. We had net charge-offs of $20.7 million in the fourth quarter compared to $4.1 million in the linked quarter. As Jim and Doug discussed, we made significant progress in the fourth quarter toward resolving our largest nonperforming relationship that consists of 7 different properties. In the process of foreclosing on the real estate collateral in this relationship, we had a charge-off on a few properties and a gain on others. While the impact of these items is reported on different line items, we recognized a net gain in earnings related to the foreclosures. This is consistent with what we had expected and previously disclosed. Other than this relationship, we had a loss on the California C&I loan and also charged off several loans that had been reserved in prior periods. Net charge-offs for the year were 21 basis points of average loans compared to 16 basis points last year. The provision for credit losses was $9.2 million in the period compared to $8.4 million in the linked quarter. The increase in provision was mainly due to net charge-offs in the quarter. Nonperforming assets increased $29 million to 95 basis points of total assets compared to 83 basis points in the linked quarter. Doug discussed the components of the movement within our nonperforming assets and the progress and expectations we have for reduced levels in 2026. Slide 17 shows the allowance for credit losses. We continue to be well reserved with an allowance for credit losses of 1.19% of total loans or 1.29% when adjusting for government-guaranteed loans. We adopted the new CECL accounting standard for purchase loans that was issued in November. This eliminated the CECL double count that would have been recognized on the acquired loan portfolio and the $3.3 million credit mark on these loans was added to the allowance for credit losses and purchase accounting. On Slide 18, fourth quarter noninterest income of $25.4 million decreased $23.2 million from the linked quarter. However, if you exclude the impact of the tax credit recapture in the linked quarter, noninterest income increased $9 million. The increase was primarily due to the other real estate owned gains and seasonally stronger tax credit income. This was partially offset by lower gains on SBA loan sales as we did not sell any production in the fourth quarter. Depending on the levels of planned growth and activity in the SBA space, we may take the opportunity to continue to sell SBA loans in coming quarters. Turning to Slide 19. Fourth quarter noninterest expense of $115 million increased $4.7 million from the linked quarter. Onetime branch acquisition costs were $2.5 million in the quarter, which is an increase of $1.9 million from the linked quarter. The impact of incremental operating expenses of the expanded branch footprint totaled $4.2 million in the quarter and were partially offset by seasonally lower employee benefit items and the reversal of a portion of the FDIC special assessment that was recorded in prior years. The resulting core efficiency ratio was 58.3% for the quarter. Our capital metrics are shown on Slide 20. Tangible book value per share of $41.37 was relatively stable with the linked quarter. We leveraged our excess capital in the period to support the branch acquisition, which was modestly dilutive on a per share basis. This dilution was offset by our strong earnings performance and the favorable improvement in the fair value of the securities portfolio in the quarter. Our tangible common equity was 9.1% compared to 9.6% in the linked quarter, and our common equity Tier 1 ratio was 11.6%. In addition to absorbing the branch acquisition, the strength of our capital position allowed us to repurchase $3.5 million of common stock and to increase our quarterly dividend by $0.01 to $0.33 per share for the first quarter of 2026. This was another solid quarter of financial performance with a 1.3% return on average assets and a 14% return on average tangible common equity. As it relates to capital, we have a history of driving shareholder value by managing our capital position and compounding tangible book value. 2025 marks the 14th consecutive year that we have increased tangible book value per share with an 11% compound annual growth rate over that period. Since we started increasing our common stock dividend in 2015, we have increased the dividend by a 17% compound annual growth rate over the past 11 years. We are well positioned with a strong balance sheet and capital position to continue this trend and to execute our strategic initiatives in 2026. I appreciate your attention today, and I will now open the line for questions. Operator: [Operator Instructions] Our first question will come from the line of Jeff Rulis with D.A. Davidson. Jeff Rulis: I wanted to check in on the foreclosed properties. I appreciate the detail. I was hoping to get maybe a little bit more. The timing of when you took control of those in the fourth quarter. And I guess it sounds like you expect the reduction in NPAs and OREO 1 to 2 quarters. So my guess is you're anticipating sales early part of this year as that plays out. Just wanted to check in a little more if we have exact timing. Douglas Bauche: Yes, Jeff, it's Doug. Just to remind you on the timing of this. We tried the original foreclosures on these properties back in October and then a bankruptcy filing was posted by the debtors. So that delayed our process, and it was in the middle of December that we received a favorable ruling from the bankruptcy court that recognized our October 15 foreclosure process as a legitimate process. So in the middle of December, we were able to take 6 of the 7 properties into OREO. The seventh property, the reason it didn't come into OREO is because back in October, there was an unrelated third party that had outbid us on that particular property. So that will have to be retried here in the first week of February. So having control now of 6 of the 7 properties, as we mentioned, we are actively engaged with parties on sale agreements at this point in time. We feel that the valuations for these negotiations continue to reaffirm our positive outlook on the resolution of these properties. As you noted, we took a gain on the OREO here in the fourth quarter. We feel good about how we're positioned. Timing of it, Jeff, is always a bit hard to predict, but we've got good momentum, good progress here, and we're optimistic that by the end of the second quarter, we're going to see some resolution. Jeff Rulis: Doug, is it safe to say, I mean, the litigation process has been an issue. I don't know how you're able to market those properties. I mean, in terms of some interested parties, I mean, for the balance of '25, probably knew that these may be coming to a sale. Do you glean any momentum that maybe conversations have predated taking control of those properties? Or is that truly you really couldn't discuss those until you've got legal ownership of that? Douglas Bauche: Yes, it was a very public -- Jeff, as you know, right? It was a very public litigation that was going on, just not only for the 7 properties that we were a direct lender on, but other properties that these parties were engaged in. So it was well known. There were a lot of parties reaching out to us before we had control of the properties and we're able to even speak of the situation. So now that we've taken control and ownership, the simple ownership, it really clears the path now for us to move forward in contract negotiations and the monetization of the assets. Jeff Rulis: Appreciate it, Doug. Just hopping over to the -- maybe Keene, on the sort of some moving pieces on the fee income and noninterest expense lines. I don't know if you could reorient us on a run rate and/or kind of growth expectations on both. Keene Turner: Yes. So when I think about the 2025 fee income run rate, you got to take out the gain on the ORE. And then you're getting -- which you really didn't see here in the quarter, you got about $2 million from the branches we acquired. And then other than the tax credit line item, which I think about as being relatively flat, we've got fees growing at about 5% year-over-year on a recurring basis. And then from an expense perspective, I've got -- if you call the run rate for 2025, $423 million of expenses, and you've got $18 million that's a full year for the branches. We think expenses grow around 5%. So that gets you -- that will get you in the ballpark. And I'd like to back up for a second and let just highlight one assumption that's there. So we've got 3 Fed funds cuts in that projection, which predominantly affects the deposit costs. So year-over-year, we're accounting for that expense guide, we're accounting for deposit costs on a run rate basis to be relatively flat. And I'll say significantly, but down from fourth quarter annualized run rate. And that's inclusive of the growth that we're expecting in those 3 businesses. Jeff Rulis: Just to recap that, so I got it on the expense side, you're talking about a $423 million core plus $18 million annual on the acquired branches. So kind of growing 5% off of 441. Is that correct number to use? Keene Turner: Yes. I mean range of reasonableness on both sides of that, but that's how I'm thinking about it and how we've built it. Operator: Our next question comes from the line of Nathan Race with Piper Sandler. Nathan Race: I was wondering if you could just shed some additional color on the 2 loans totaling $28 million that migrated to nonaccrual in 4Q in terms of what type of impairment was taken in the quarter? And then also what the timing for resolution is? I appreciate that you guys are pretty well secured here. So just curious on some of the background there and any color on just the timing. Douglas Bauche: Yes, sure. This is Doug. I'll just comment again. So these particular assets, one is a retail center in Riverside, California, approximately $22 million or $23 million in debt. Valuations that we have on current appraisals would suggest we're at a very good loan to value. And I'll comment that we're actively negotiating the exit of that credit. The second loan that came in was a $6 million loan that's secured by a residential property in San Diego. Again, I think from a valuation perspective, we're somewhere in the neighborhood of 60% to 65% of appraised value, and we feel good about our position. Timing on that one is not as clear for me in terms of the exit may take a little bit longer. But from a valuation perspective, we feel good and loss content. I believe there will be very little loss content in either one of those assets. Nathan Race: Okay. That's really helpful. And then, Keene, I'd be curious to get your thoughts on -- I appreciate the broader income comments earlier, but just in terms of SBA gain on sale revenue, obviously, the government shutdown had an impact in the fourth quarter, but just any expectations for that revenue line to grow this year? Keene Turner: Yes. I think that -- Nate, we did not take gains on SBA loan sales in the quarter. I'm not sure with the tax credit strength, we would have done that anyway, but the shutdown did tie our hands a little bit. We had a good quarter there, but it was all half -- second half of December weighted. For 2026, I would expect the SBA gain on sale to grow modestly from the 2025 levels in that 5%, but we do have that as part of our plan coming out of the gate here in '26. Nathan Race: Okay. Great. And I just want to clarify on the tax credit revenue. You had some noise in that number in the third quarter. So I think your comment was kind of flat. Is that flat versus just under $8 million in 2025? Keene Turner: Yes. Like 7.5%, 7% to 7.5% is what we're thinking. I mean, obviously, that line is fairly volatile given rates and the performance of that business, but we think it repeats by and large in 2026. But to your point, there might be some puts and takes depending on how the year and the rate cycle plays out. Nathan Race: Okay. Great. And then I appreciate the commentary around kind of mid-single-digit loan growth for this year. Is the expectation that deposit gathering should largely keep pace just based on some momentum you're having with share gains and just with some of the hires continuing to ramp up. And we would just be curious also within that context, what your spot rate of deposit costs were coming out of the quarter. James Lally: Yes, I'll take the first part of that, Nate, this is Jim. On the overall balance sheet growth, we're looking at 6% to 8%. And to your point, loans at about mid-single digit. But certainly, the deposit gathering rate and pace will exceed the loan growth pace. Relative to the spot rate on deposits in the fourth quarter. Keene you have that one? Keene Turner: Yes, it's 1.6% coming out of December. Operator: Our next question comes from the line of Damon DelMonte with KBW. Damon Del Monte: Just wanted to circle back on the margin, Keene. I think you had kind of guided to like a $420 million for the year in 2026. Just kind of curious on the cadence of kind of how you're seeing that play out. We have a bit of a step down here in the first quarter with some seasonality and then kind of just stays flat? Or what are some of the dynamics you're thinking about? Keene Turner: Yes. I think I normalize out about 3 basis points in the quarter. We just -- we didn't have any headwinds from prepayment of SBA loans that are acquired at a premium. So that was a few basis points. So we do see that $423 million stepping down to around $420 million. And then it just kind of hangs there. And that is pretty sticky, whether we have no real rate changes or whether we actually have the 3 cuts that I mentioned in our forecast. The dollars moves around a little bit, but we feel pretty comfortable that at least with the Fed funds rate coming down, but the shape of the curve remaining reasonably intact that we're pretty well positioned to defend margin in that environment. I think we've I highlighted in my comments that we've done that successfully so far with the prior Fed cuts. Damon Del Monte: Got it. That's good color. And then kind of along the lines of the credit outlook, you guys seem pretty optimistic that you'll see some meaningful resolutions on some of these NPAs in the first half of the year. How do we think about provisioning going forward? Do you think you kind of go back to a more normalized level versus what we saw in the back half of the year? Or do you think it kind of stays a little bit elevated until you kind of completely come out of the woods? Keene Turner: Yes. I mean, Damon, based on where we sit today, everything that we know that's a nonperformer or that the problem has the appropriate reserve or fair value on it, whether it's in ORE or in the allowance. And so I think that we're approaching it like this, which is the allowance because of the charge-offs and the activity, actually, the coverage came down. I think that reflects where we sit from a balance sheet perspective. And as long as we don't have unexpected migration, I think our expectation is that charge-offs move down from the level they were at in 2025, and then that will alleviate some of the provisioning. We do have, I think, aspirations to get a little bit more net growth in the portfolio this year. And so that will be a counterbalance, but we'd rather provision, obviously, for growth and for charge-offs. So I think that's the long way of saying we're optimistic, but we're also realistic about just having a little bit more credit class and ORE than we'd like. Damon Del Monte: Got it. Okay. Great. And then just lastly on capital management. You noted you guys did a little bit of buyback this quarter or last quarter. I guess, how do you think about the buyback here as we go into '26? And what is the remaining capacity? James Lally: Yes. So this is Jimmy again, Damon. We were very interested in terms of utilizing our capital for buybacks. We've got roughly -- we've got 150,000 shares. Keene Turner: There's 1.1 million that's still authorized. There's about 100,000 that's covered by a plan right now. James Lally: Yes. And then obviously, growth is a big part of it for '26 and then certainly, we'll continue relative to the increase in the dividend over time as well. Keene Turner: I'll color that in a little bit, too. I mean I think I think the question that we get is, you could have done more in 2025, why didn't you? We wanted -- we leveraged our capital through the branch acquisition. When you look at the stack, the total stack looks good, but we're a little inefficient on TCE. And so I think we've got a little bit of work to do when we come out of year-end here to work on the cap stack, and I think the environment is set up well for that. So more to come there, but that's on our radar as an early 2026 item. James Lally: And Damon, I'll just get ahead of the M&A question, which is a very low priority for us. It's about executing the plan. It's about getting our credit right, organic growth, making sure we're integrating well what we did in 2025. Operator: Our next question comes from the line of David Long with Raymond James. David Long: As it relates to your charge-offs for the quarter, I think the number was a little over $20 million. You had a few million from the properties that you've been talking about that those 7 properties. There's a good -- it's still elevated when you take that out. I think you mentioned that you decided to move forward on some credits that you had built reserves for. Just curious what drove that higher and why make the decision now to move some of those and charge them off at this point? Douglas Bauche: Yes. David, it's Doug Bauche here. Let me comment just on charge-offs. Again, fourth quarter, $20 million thereabouts in charge-offs, net of the aforementioned OREO properties that Keene talked about, right? We had about $3 million of charges there. We're really talking about $18 million of commercial charges in the quarter. We had 2 sponsor finance credits totaling $3.5 million in aggregate that were previously recognized and reserve for. We had one multifamily project in L.A. County that was still back acquired asset that we took a $3 million charge on. And then really what came up in the fourth quarter was a C&I credit in our Southern California portfolio, a company that was engaged in kind of last mile logistics and delivery of e-commerce packaging, a company that really -- its growth rate outstripped its capital. It was a $10 million credit. We took an $8.5 million charge on that. We continue to carry a $1.5 million balance that we feel we're well secured by the remaining asset to the company. But I think we wanted just to recognize that fully and head into the 2026 year with a really clean slate and good position. So those were the primary drivers of charges in the quarter. David Long: Okay. Great. No, I appreciate that color. And I think it goes without saying, but this is the fourth quarter aggregate here net charge-offs is not reflective of anything that you expect going forward, correct? Douglas Bauche: No, it's not. And I'd just refer back, right? We look at -- if you look at the year charges again, whether you look at 18 basis points adjusted or 21 reported, that's relatively in line, David, with what our 10-year average is, right? I think our 10-year average net charge-off rate is somewhere in that 15 to 16 basis points. So I think it's largely in line with our historical performance. And quite frankly, it's representative of who we are and the commercial credit that we originate and take. But I feel good about how we're positioned going into the new year. Operator: [Operator Instructions] And our next question will come from the line of Brian Martin with Janney Montgomery. Brian Martin: See most of mine were just covered there, but just one clarification, Keene, on the fee income side, just thinking about the base there, I guess, I think you talked about mid-single-digit growth, maybe is that base around -- just given some of the noise throughout the quarters, around $75 million, is that kind of the starting point that you're thinking about? Or is it different than that in terms of. Keene Turner: No, that's about right. I mean the biggest item in there is the fourth quarter gain on ORE. There are a couple of BOLI payouts throughout the year, but nothing that accumulates to be material, and we'll have items like that moving forward. So yes, I'm really just stripping out the $6 million and then growing off of that and adding the $0.04 or $2 million for the branches that will start to earn some fees here in early 2026. Brian Martin: Yes. So how much of the -- I mean, that $2 million run rate in branches, was that in the fourth quarter number? Or that's, I guess, fully in the number or not -- I guess, what part of that was in that current level? Keene Turner: Well if you think about the timing, I mean we typically put fee holidays in place. So you wouldn't have charged fees in October and likely November. So you're not -- the number in and of itself, $2 million is not that large. And then if you have a little bit of run rate in December, it's not meaningful. So really, you'll start to get that $500,000 a quarter here in 2026. Brian Martin: Got you. Okay. So roughly 75-ish, 5% and then add in the branches, and that's how we think about it. So that's helpful. And then just the loan pipeline, I think you talked about, I guess, the SBA being a bit -- maybe a bit stronger. And just wondering in terms of other areas or segments or markets that are stronger today that you're seeing. I know Jim commented about the infrastructure, but anything else in terms of where you're -- the growth outlook may be a little bit better in 2026? James Lally: Yes, Brian, this is Jim. I'd say we look at it closely. We feel very good about where the pipeline sits today. The life insurance premium finance portfolio looks good. Portfolio or the pipeline -- the pipeline down in the Southwest looks really good. As Doug mentioned, there's great momentum down there. And it's really a nice mix between C&I and the CRE side. So we like the mix. We like the pace of play. We feel very comfortable about where we sit today and the projected growth for 2026. Brian Martin: Okay. And the projected growth is still consistent with what you -- consistent with this year's performance. Is that how to think about? James Lally: No, I think we said we're mid-single digits net-net-net for 2026. Operator: And that concludes our question-and-answer session. I'll hand the call back over to Jim for any closing comments. James Lally: Well, thank you, and thank you all very much for joining us this morning and for your interest in our company. We look forward to speaking with you again in the first quarter, if not sooner. Have a great day. Operator: This concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Welcome to the Five Star Bancorp Fourth Quarter and Year-End Earnings Webcast. Please note, this is a closed conference call, and you are encouraged to listen via the webcast. [Operator Instructions] Before we get started, we would like to remind you that today's meeting will include some forward-looking statements within the meaning of applicable securities laws. These forward-looking statements relate to, among other things, current plans, expectations, events and industry trends that may affect the company's future operating results and financial position. Such statements involve risks and uncertainties, and future activities and results may differ materially from these expectations. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from the company's forward-looking statements, please see the company's annual report on Form 10-K for the year ended December 31, 2024, and quarterly reports on Form 10-Q for the 3 months ended March 31, 2025, June 30, 2025, and September 30, 2025, and in particular, the information set forth in Item 1A, Risk Factors in those reports. Please refer to Slide 2 of the presentation, which includes disclaimers regarding forward-looking statements, industry data, unaudited financial data and non-GAAP financial information included in this presentation. Reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures are included in the appendix to the presentation. The presentation will be referenced during this call but not followed exactly and is available for closer viewing on the company's website under the Investor Relations tab. Please note, this event is being recorded. I would now like to turn the presentation over to James Beckwith, Five Star Bancorp President and CEO. Please go ahead. James Beckwith: Thank you for joining us to review Five Star Bancorp's financial results for the fourth quarter and year ended December 31, 2025. These results were released yesterday and are available on our website, fivestarbank.com, under the Investor Relations section. Joining me today is Heather Luck, Executive Vice President and Chief Financial Officer. 2025 was another outstanding year of achievement underpinned by exceptional growth across all of the markets we serve and consistent strong financial performance. During 2025, we expanded our footprint in the San Francisco Bay Area through the opening of our Walnut Creek office. We expanded our agribusiness vertical, and we also added 10 more seasoned business development professionals to facilitate ongoing organic growth. In 2025, Five Star Bank achieved year-over-year growth in total loans held for investments of 15%, total deposit growth of 18%, net income growth of 35% and an increase in earnings per share of 28% to $2.90 a share. Financial highlights for the fourth quarter include $17.6 million in net income, earnings per share of $0.83, return on average assets of 1.50% and return on average equity of 15.97%. Our net interest margin expanded 10 basis points to 3.66% and our total cost of deposits declined by 21 basis points to 2.23%. Our efficiency ratio was 40.62% for the fourth quarter. Financial highlights for the year included a $61.6 million of net income, earnings per share of $2.90, return on average assets of 1.41% and return on average equity of 14.74%. Our net interest margin expanded by 23 basis points to 3.55% and our cost of total deposits declined 16 basis points to 2.40%. Our efficiency ratio was 41.03% for the year. In the fourth quarter, we saw continued balance sheet growth. Loans held for investment grew by $187.7 million or 19% on an annualized basis and total deposits increased by $97.6 million or 10% on an annualized basis. Over the course of the year, we experienced outstanding balance sheet growth. Loans held for investment grew by $542.2 million or 15% and total deposits increased by $643.1 million or 18%. We successfully reduced our balance of wholesale deposits by $95 million or 17% in 2025, and we grew our balance of non-wholesale deposits by $738.1 million or 25%. Our asset quality continues to remain strong with nonperforming loans representing only 8 basis points of total loans held for investment. We continue to be well capitalized with all capital ratios well above regulatory thresholds for the quarter and year. Our strong financial performance and dedication to delivering shareholder value drove an increase to our cash dividend of $0.05 per share for a total dividend of $0.25 per share for the quarter. This is the first increase in the dividend since April 2023. The dividend is payable to the company's shareholders of record as of February 2, 2026, and is expected to be paid on February 9, 2026. Our total assets increased during the fourth quarter and full year by $113.1 million and $701.6 million, respectively. This growth was largely driven by loan growth within the commercial real estate portfolio, which increased by $161.4 million in the fourth quarter and $448.5 million in the year. Our loan pipeline remains strong. Our prudent underwriting standards, comprehensive loan monitoring and focus on relationship-driven lending have contributed to maintaining the strong quality of our loans. As a result, we have a very low volume of nonperforming loans despite an increase of $1.0 million during the fourth quarter related to 2 separate faith-based real estate loans entering nonperforming status. We recorded a provision of $2.8 million for credit losses during the fourth quarter, primarily related to loan growth for the total provision of credit losses of $9.7 million for the year ended December 31, 2025. Growth in our total liabilities during the fourth quarter and full year was a result of growth in interest-bearing and noninterest-bearing deposits related to both new accounts and inflows from the existing customer base. Non-wholesale deposits increased $139.1 million during the quarter and $738.1 million during the year. Wholesale deposits decreased by $41.4 million during the quarter and $95 million during the year. Total noninterest-bearing deposits accounted for 26% of total deposits. Approximately 61% of our deposit relationships totaled more than $5 million. These deposits have a long tenure with the bank. With an average of 8 years, we believe our deposit portfolio to be a stable funding base for future growth. On that note, I will now hand it over to Heather to discuss the results of operations. Heather? Heather Luck: Thank you, James, and hello, everyone. Net interest income increased $2.7 million or 7% from the previous quarter, primarily due to a $1.8 million increase in loan interest income driven by new loan production and a $1.1 million decrease in interest expense. The decline in interest expense is primarily related to a 21 basis point decline in the average cost of deposits quarter-over-quarter driven primarily by 2 rate cuts occurring in the 3 months ended December 31, 2025. The average balance of deposits increased by 4% during the 3 months ended December 31, 2025, but the substantial decrease in the cost associated with deposits led to a net reduction in total interest expense. Net interest income increased by $32.2 million or 27% from 2024, primarily due to a $35.9 million increase in loan interest income driven by new loan production at higher rates, contributing to overall improvement in the average yield on loans. This was partially offset by a $10 million increase in deposit interest expense related to a 19% increase in the average balance of deposits during the year. The average cost of deposits was 2.40% for the year ended December 31, 2025, a decrease of 16 basis points compared to the prior year, which helped to moderate the increase in interest expense related to deposit growth. Noninterest income decreased to $1.4 million in the fourth quarter from $2 million in the previous quarter, primarily due to an overall decline in earnings related to equity investments and venture-backed funds during the 3 months ended December 31, 2025, compared to the prior quarter. Noninterest income increased by $100,000 in 2025, primarily due to an increase from fees from swap referrals and income from credit card activity, an improvement in earnings related to equity investments and venture-backed funds and an increase on earnings on bank-owned life insurance related to the purchase of additional policies. These gains were almost entirely offset by a lower gain on sale of loans, which declined due to the strategic reduction in origination of loans held for sale during the year. For the 3 months ended December 31, 2025, there was a $1.1 million increase in noninterest expense. And for the full year ending that date, the increase amounted to $10.5 million. The primary driver for higher noninterest expense was related to an increase in headcount, leading to elevated salaries and benefits. Provision for income taxes for the quarter ended December 31, 2025, decreased by $500,000 or 9% as compared to the prior quarter due to a $900,000 benefit recorded during the fourth quarter related to the purchase of transferable tax credits. This was partially offset by an increase in pretax income recognized during the quarter and an adjustment related to the true-up of amortization expense related to low-income housing tax credits during the 3 months ended December 31, 2025. The provision for income taxes increased by $3.1 million or 16% for the year ended December 31, 2025, as compared to the prior year due to a 29% increase in pretax income recognized during the year. This is partially offset by a $900,000 benefit recorded during the quarter related to the purchase of tax credits. And now I will hand it back to James for closing remarks. James? James Beckwith: Thank you, Heather. 2025 was an outstanding year of achievement for Five Star Bank. As we not only celebrated our 25th year in business, but also reflected on a quarter century of growth, innovation and commitment to our core values. Since our founding, Five Star Bank has steadily evolved from a [ small ] entrepreneurs into a $4.8 billion financial institution with 9 branches and over 230 employees. This remarkable expansion is a testament to our enduring dedication to authentic relationship-based service, a philosophy that places the needs of our customers, the well-being of our employees and communities and the interest of shareholders at the heart of everything we do. Throughout these 25 years, Five Star Bank has consistently prioritized building deep, meaningful relations with our clients, understanding that true success comes from trust, transparency and mutual benefit. Our employees play a crucial role in this journey, embodying our values through personalized service, expert financial guidance and active participation in the community initiatives. We take immense pride of our achievements, which include not only financial growth, but also positive impacts on the local economies, support for small business and contributions to the social and environmental causes. Looking ahead to 2026 and beyond, our vision remains steadfast. We are committed to further developing all of our business verticals while expanding our reach into new markets. It is increasingly -- in an increasingly digital world, we recognize the importance of blending cost-cutting technology with the human touch that defines Five Star Bank's high-tech and high-touch approach to business. As we move forward, Five Star Bank will remain focused on innovation and service excellence. We are excited about the opportunities ahead and are confident of our proven strategy will drive continued growth, strength in client relations and creating lasting value for our shareholders. We appreciate your time today. This concludes today's presentation. Now we will be happy to take any questions you might have. Operator: [Operator Instructions] And the first question today will come from David Feaster with Raymond James. David Feaster: I wanted to start on the origination side. You saw a real nice acceleration in originations this quarter. I just wanted to -- I was hoping you could give us maybe a sense of some of the drivers behind it? I know it's hard to peg, but how much of that growth is from new hires versus increasing demand? And then just any thoughts on how pipelines are shaping up heading into the new year and where you're seeing opportunity for growth? James Beckwith: Sure. We saw all of our verticals perform extremely well in the fourth quarter. Our ag -- our food and ag group did extremely well in terms of onboarding some clients whose lending cycle, if you will, is kind of gears up during the fourth quarter, especially in some of our nut tree processing clients who are paying growers. So that was a significant component. So it's seasonal in nature. But also some of the deals that we did down in the Bay Area, I think we had a fair amount of volume that came out of that. But across all of our geographies and our verticals, it was a very big quarter for loan production. Now as we enter into 2026, the pipeline looks good. It's been higher, it's been lower, but it looks good as we roll into 2026, David. David Feaster: Okay. That's great. And maybe just switching to the other side of the balance sheet, your deposit growth has been phenomenal. You've done a great job driving core deposit growth and reducing the wholesale funding and significantly improved your deposit costs. I just wanted to -- I was hoping you could touch on, first, the competitive landscape for deposits from your perspective today? And then just how you think about core deposit growth going forward and your ability to continue to fund your outsized loan growth with core deposits? James Beckwith: Sure. Well, the markets that we're in right now are very competitive. For the best clients that [ I'm going ] to see the Tier 1 clients, if you will, or prospects, it's a very competitive space. And it doesn't really matter what geography you're in. It's just competitive. And so we don't expect that to change. But our secret sauce, David, is the fact that we've got 42 business development folks that -- that's their job is to bring in core deposit and core relationships into the bank. We feel that's our competitive advantage. We brought some folks in down in Orange County that are deposit gatherers. They're starting to see a fair amount of traction down there. We've got folks that are in the Bay Area that are primarily deposit -- have a deposit orientation, they're doing well. But we also saw great growth in North State in our Redding office and also our Yuba City office. So we're excited about what that might mean for 2026. We seem to be doing fine so far. So we expect that we'll be able to continue to execute. Don't think we're going to be able to do what we did in 2026, what we did in 2025, David. That's just -- that's asking a lot. And a lot of things [ are ] away so we're projecting on both sides of the balance sheet, 10% growth as we roll into 2026. If we can achieve that, which is really quite substantial, we're happy with that. A couple of drivers of that is that on the loan side, we expect a fair amount of payoffs. We saw a fair amount of payoffs in the fourth quarter. And we expect the same or similar that we're going to see in 2026. So we're going to have to run that much harder. And then on the deposit side, we're trying to get rid of all of our wholesale -- excuse me, our broker deposits. And that's $175 million as we ended the year. And so in order to grow total deposits by 10%, I think what is it, Sarah, we're going to have to grow by 13 or so percent? So we're going to have to hustle in order to achieve those types of goals for us as we enter into 2026. David Feaster: Okay. And one of the things that supported your growth has really been your hiring efforts. I mean you talked about adding 10 BDOs this year. You've had a lot of success. I got to imagine what you guys are doing is resonating in the market. I mean it's -- you guys are putting up pretty -- it's just -- it's fun growing like you guys are, and I know you're getting recognized. I'm just curious, there's still a lot of disruption across your footprint in Northern California. How do you think about your ability to continue to recruit bankers and BDOs? And are there any markets or segments that you're notably focused on or expanding into? James Beckwith: Sure. I think we did a nice job with the East Bay and our Walnut Creek opening. It's a nice office. We expect that to grow. But when you consider about what we're doing down in the Bay Area, we're not yet on the Peninsula or South Bay. So that certainly would be an area from a geographical perspective that's of interest to us, highly competitive in terms of getting qualified bankers to come work for you. And frankly, a lot of those salaries have been bid up. And it's not a bad time to be a business development and a seasoned business development person in the Bay Area. Let me tell you that much. Operator: The next question will come from Andrew Terrell with Stephens. Andrew Terrell: Maybe if I could just start on expenses, Heather, hoping you could help us out with just kind of thoughts on the expense run rate into the first quarter. And if I look back at 2025, you guys grew, I think it was around high teens on overall expenses. You obviously had a pretty tremendous amount of revenue growth as well throughout the year. But just as we look out into 2026, any thoughts on kind of where the expense growth head? Should it moderate from here or stay elevated as you guys keep hiring and continue making investments? Heather Luck: Yes, sure. So from a dollars perspective for Q1, you could probably add about $300,000 to that expense amount. We do have plans that have brought on a few new people into our group. So that will help support that. But if you look at the full year for 2026, I think our target for a range on expenses as a percent of total assets or average assets, should be like 1.48% to 1.55% in that range. And we believe that, that will help accommodate growth as well as regular maintenance on there, too. So I think that range for 2026 would be 1.48% to 1.55%. James Beckwith: I think, Heather, what we end the quarter at or in the year at -- we're right at 1.50%? Heather Luck: Yes, the quarter was at 1.50% average assets. James Beckwith: That's something that we think about constantly, Andrew, in just terms of a percentage to total assets. And it's not a bad guide as we continue to grow. Andrew Terrell: Yes. Okay. Yes, you guys have stayed pretty consistent in that band we've talked about for a while. Okay. James, I wanted to get a sense from you just on competitive dynamics on rate competition on loans specifically. I know you guys do have somewhat of a repricing story as we move forward. Just wanted to get a sense on where new originations are coming at -- coming on that from a yield standpoint. We've heard from several of your peers, just the competition they're seeing on the loan side is impacting spreads. I'm just curious what you're seeing. James Beckwith: Yes. I think we're seeing the same thing, but we have the -- an ability to generate new credit within our MHC and RV efforts that usually will allow us to get our normal spreads, which could be anywhere between 275 to 350 over the 5 years. So we have a competitive advantage from that perspective because it's just not a lot of players in that market. But if we're going toe to toe with folks on an owner-occupied real estate and line of credit for an operating entity, it can be very competitive. And you could see spreads as low as 200 over 205 over and at prime or prime minus 25 even for their operating line. So it's constant. There's a lot of folks that are interested in the -- certainly in the Bay Area that have come in. And so we've -- it's a highly competitive environment and not just in the Bay Area, but up and down the Valley, the capital region. So we recognize this. There is pressure. We do have a lot of refinancings coming up in '26 and those fundamentally from everything that we did in '21 since we have, for the most part, our MHC and RV and probably outside of that, too, anything with the CRE patina to it, it's a 5-year reset, usually a 25- or 30-year [ ammo due ] in 10 with one reset after the 60th month. So big years of origination, you're going to have some resets happen. We don't expect all those loans to stay with us. A lot of those operators are going to take their loans to agency because they can get a better deal, lose the personal guarantees, take cash out. So we just -- it's going to have an impact to us. So a lot of those credits were 4 handles in terms of interest rates. So we're going to see a lot of that happen in 2026. Hopefully, we can keep up to half of them, okay? But they're going to reset, and we'll just see how that goes. We're actively -- I'm going to say, because they have other credits with it. We're actively in those discussions about what they're going to do when their loans reset. Andrew Terrell: Yes. Got it. Okay. I appreciate all the color there. And if I could just ask one more. You leveraged capital a little bit this quarter with the strong growth. I think your CET1 down around 10.5% now, maybe 10.6%. But I just wanted to get your sense on comfortability with capital as it stands today and kind of the outlook. I'm sure organic earnings can fund kind of 10% growth rate. But just wanted to get your thoughts on the current position and kind of capital expectations. James Beckwith: Sure. We had outsized growth in 2025. So you saw a decline in our capital ratios. But as we go forward, we believe that we'll be able to maintain our capital positions with a 10% growth. We do anything like 15% growth. I think that's another matter. But I think we like where we are. We need to be highly profitable so we can fund our growth. And I think we -- we'll be able to do that in terms of what we see in front of us in 2026 from a profitability perspective. So we'll just see how that goes, Andrew. If we have outsized growth that's another conversation. Heather Luck: Yes. If we stick to that 10% growth rate throughout our entire forecast period, we usually budget on a 5-year forecast. We are able to sustain ourselves and fund ourselves through that even with the elevated dividend that we just announced recently. But if we did grow like 15% to 20%, that clearly will accelerate capital needs, and we won't be able to self-generate. So we would likely have to have a capital event sometime in '27 or '28, depending on how fast that growth happens. Operator: The next question will come from Gary Tenner with D.A. Davidson. Gary Tenner: I wanted to dig a little bit into kind of the efficiency ratio. I know you talked about the expense-to-asset ratio earlier in the call. But as I'm thinking about the margin expansion kind of outlook, thinking that NII should run somewhat ahead of your loan growth outlook and balance sheet outlook, it seems like it will be kind of in line with the expense side of things. So I'm just wondering, with your efficiency ratio at 40%, down a little bit from a year ago, is there any -- is there much more room to push that lower? Or is it really just making $1 on every $0.40 from here? James Beckwith: Well, I think it's probably more the latter. And we have -- because we're constantly investing in our business. We're constantly growing our front end, adding more [ biz dev people ], and they're expensive. And we're constantly throwing coal into the boiler and trying to maintain our growth rates. As we get bigger and bigger, doing 10% is harder to do because the numbers are just bigger. But -- so we think that constantly having some form, Gary, of investment in the business in the form of new front-end people, which has a rippling effect across our cost structure because you hired some more biz dev folks, you've got to have some backup from a depository perspective. And then, of course, you got to have a few more lenders that will be able to underwrite their business. So that's how we think about it. It really starts with the folks that are on the front end. And we're not backing off. If we see a team that we think we can get, Gary, we're going to do it. And I think that's evidenced in what we've been able to do over the last 3, 4 years. So we're reinvesting. We're constantly reinvesting in our business. Imagine -- I think our profitability would be a lot higher if we didn't do that. But this is really a long-term play for our shareholders. And so we're a long-term organic growth shop, and we want to maintain that focus. Gary Tenner: Appreciate that, James. And then just as it relates to kind of the near-term outlook, the ability to generate that kind of 10% threshold of loan growth or really both sides of the balance sheet, is that -- do you have the headcount to accommodate that or to accomplish that today? Or is there any assumption that there's adds early in the year that help generate some of that growth? Or is it basically kind of -- is it based on the current team, I guess, is the question? James Beckwith: Kind of based on the current team. Wouldn't you say, Heather? Heather Luck: Yes, I think so. We really have -- if you think about it, we've -- in the Bay Area specifically, we've been hiring in tranches. And so it started in 2023, but we continue to add headcount as we go. So we have new hires. We hired 12 BDOs in 2025, and it does take some time to really understand our system, our platforms, our processes to really get their feet under themselves to run hard. And so they'll come online. But really, I think 10% growth is achievable with the current team that we have in place. Operator: [Operator Instructions] No further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. James Beckwith: Thank you. We are proud to have achieved another quarter and year of significant organic growth, built on a strong foundation of client service, expanded relationships and products and the loyalty of our exceptional clients. We will always remember that we exist because of our clients' trust us, and we believe in them. We will continue to answer the call of businesses and organizations who desire a time-honored banking partner through the geographies and verticals we serve. Five Star Bank is here to stay. It is our privilege to be a driving force of economic development, a trusted resource for our clients and a committed advocate for our communities. We look forward to speaking with you again in April to discuss the earnings for the first quarter of 2026. Have a great day, and thank you for listening. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the WSFS Financial Corporation Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to turn the call over to your host for today, Mr. David Burg, Chief Financial Officer. Sir, you may begin. David Burg: Great. Thank you very much, and good afternoon, everyone, and thank you for joining our fourth quarter 2025 earnings call. Our earnings release and earnings release supplement, which we will refer to on today's call can be found in the Investor Relations section of our company website. With me on this call are Rodger Levenson, Chairman, President and CEO; and Art Bacci, Chief Operating Officer. Prior to reviewing our financial results, I would like to read our safe harbor statement. Our discussion today will include information about management's view of our future expectations, plans and prospects that constitute forward-looking statements. Actual results may differ materially from historical results or those indicated by these forward-looking statements due to risks and uncertainties, including, but not limited to, the risk factors included in our annual report on Form 10-K and the most recent quarterly reports on Form 10-Q as well as other documents we periodically file with the Securities and Exchange Commission. All comments made during today's call are subject to the safe harbor statement. I will now turn to our financial results. Our businesses continued to perform very well in the quarter, providing strong momentum moving into 2026. For the fourth quarter, WSFS delivered a core earnings per share of $1.43, a core ROA of 1.42% and core return on tangible common equity of 18%, which are all up meaningfully on a year-over-year basis. These results closed out a successful 2025 that included a full year core EPS of $5.21, core ROA of 1.39% and core return on tangible common equity of 18%. Our 4Q core EPS is up 29% over the prior year, and our 2025 full year EPS increased 19% over the prior year. These core results for the fourth quarter exclude several non-core items, which resulted in a $5 million impact to net income as well as the $0.09 impact to EPS in the quarter. These items are outlined on Page 5 of the supplement. Net interest margin was 3.83% for the quarter, down 8 basis points linked quarter, driven by the rate cuts and a onetime interest recovery last quarter, which accounted for 4 basis points of the decline. Importantly, our NIM is up 3 basis points year-over-year while absorbing 75 basis points of interest rate cuts since the fourth quarter of 2024. We continue to successfully reprice our deposits, and our exit deposit beta for December was 43%. Core fee revenue increased 2% linked quarter and 8% year-over-year driven by double-digit growth in Wealth & Trust, capital markets and home lending. Our Wealth & Trust business continues to perform very well and grew 13% year-over-year with 29% growth in WSFS Institutional Services and 24% growth in BMT of Delaware. For the full year 2025, WSFS Institutional Services was the fourth most active U.S. asset-backed and mortgage-backed securities trustee with nearly 12% market share, moving up 2 spots in the rankings relative to 2024. Total gross loans grew 2% linked quarter or 9% annualized, driven by broad-based growth across our businesses. In commercial, growth was led by C&I, which delivered growth of 4% linked quarter or 15% annualized. And overall, we saw the largest quarterly fundings in over 2 years. Our residential mortgage and WSFS originated consumer loans continued to build on a strong momentum and grew 5% linked quarter. Total client deposits increased 2% linked quarter or 10% annualized, with growth across trust, private banking and consumer. Importantly, our noninterest-bearing deposits grew 6% linked quarter and now represent 32% of our total client deposits. Turning to asset quality. We saw a meaningful improvement across our problem assets due to favorable net migration and payoffs and ended the year at the lowest level in over 2 years. Nonperforming assets were essentially flat compared to the prior quarter and ended the year down approximately 40% compared to year-end '24. Delinquencies increased 46 basis points linked quarter due to several previously identified non-performing and problem assets moving to delinquent status in the quarter, 14 basis points of this increase was driven by non-performing loans. The remainder is primarily comprised of 2 office loans and 1 multifamily condo loan in our footprint. One of the office loans was already resolved in January, while the other is a medical office expected to be sold in the first half of '26, which would result in a full repayment of our loan. We continue to work with the borrower on the remaining loan and believe we're well secured. Net charge-offs increased 16 basis points to 46 basis points of average loans, primarily due to the partial charge-off of a nonperforming land development loan. Net charge-offs were 40 basis points for the year, excluding Upstart, which is on the midpoint of our prior outlook. During the fourth quarter, WSFS returned $119 million of capital including buybacks of $109 million or 3.7% of our outstanding shares. This took our total buybacks for the year to $288 million, representing over 9% of our outstanding shares. On Slide 15 of the supplement, we provided our 2026 outlook, which assumes a continued stable economy and three 25 basis point rate cuts throughout the year in March, July and December. Overall, we expect to deliver another year of high performance and growth with a full year core ROA of approximately 1.40% and double-digit growth in core EPS. As a reminder, we intend to maintain an elevated level of buybacks in line with our previously communicated glide path towards our capital target of 12%, while retaining discretion to adjust the pace of buybacks based on the macro environment, business performance and potential investment opportunities. We expect mid-single-digit loan growth overall with low single-digit growth in our consumer portfolio, where we expect continued momentum in residential mortgage and other real estate secured consumer loans, partially offset by the continued runoff of our Spring EQ partnership portfolio. Building on a strong momentum in deposits in 2025, we expect continued broad-based deposit growth across our businesses in '26. Our outlook calls for deposit growth in the mid-single digits from 4Q levels. Our outlook for NIM is approximately 3.80% for the year, which incorporates the impact of the 3 additional interest rate cuts I mentioned. We continue to focus on deposit repricing opportunities while growing our portfolio and expect to maintain an interest-bearing deposit beta of low to mid-40s throughout the year. While the path and timing of future rate cuts remains uncertain, it's important to note that the impact of additional rate cuts on our financial results will not be linear. As we continue to manage our margins through several levers, including deposit repricing actions, our hedge program and the securities portfolio strategy. We continue to see momentum and growth opportunities in our fee businesses, which contribute approximately 1/3 of our total revenue. Our overall fee revenue will grow mid-single digits, excluding Cash Connect. Wealth & Trust is expected to continue the strong momentum and again grow double digits in 2026. Cash Connect revenue is expected to decline due to interest rates but will be more than offset in expenses. Our focus in Cash Connect continues to be on driving the profit margin which has increased meaningfully in 2025. Our outlook for net charge-offs is 35 to 45 basis points of average loans for the year, consistent with our 2025 results. While we have seen strong improvement in problem loans and nonperforming assets, commercial loan losses may remain uneven. Our outlook calls for an efficiency ratio in a high 50s for the year. We plan to maintain strong expense discipline, but we'll continue to leverage opportunities to invest in the franchise, which, coupled with normal seasonality, may result in some variances quarter-to-quarter. We're excited about the future and remain committed to delivering high performance. Thank you, and we will now open the line for questions. Operator: [Operator Instructions] Our first question comes from Manuel Navas from Piper Sandler. Manuel Navas: On the loan growth, can you talk a little bit about the better commercial trends? And kind of what are you seeing out there in terms of sentiment? There's some better line utilization, the footings were up. Just kind of talk about what you're seeing in commercial that's driving this kind of strong originations and a good outlook. David Burg: Yes. Sure. And well, good afternoon I'll start off. So in commercial, as you know, in the first half of last year, there was quite a bit of uncertainty in the economy with the tax bill pending some of the tariffs and legislative issues that were ongoing. And I think as you heard Rodger mentioned a couple of times in our calls in the first couple of quarters of the year that small business owners and entrepreneurs were, when faced with that kind of uncertainty, we're kind of delaying some business decisions. And so what happened over the course of the year was we continue those discussions with clients. We saw that pipeline really build in the third quarter and our pipeline reached over $300 million in the third quarter. And in the fourth quarter, when some of those things crystallized, we -- the environment -- people felt better about making some of those decisions with the passage of the tax bill, a little bit more clarity on legislative front. And so we saw very strong originations and fundings, and we continue to see good momentum. We're not going to see that kind of growth every single quarter. But we feel good about the momentum going forward from here. Manuel Navas: I appreciate that. Can I switch over to capital return for a moment. David Burg: Sure. Manuel Navas: This was a really strong quarter in terms of buybacks. What are kind of your parameters there? Is it just that CET1 ratio? This quarter also had return on AOCI, a little bit lower pricing, tangible book value per share growth you hit the 110% total payout. Like what should be the guidepost beyond CET1 going forward? David Burg: I think, Manuel, we look at all of those factors, I would say, primarily CET1 and TCE, which does incorporate that AOCI volatility. And of course, if we see our price dip, we take advantage of those opportunities. But generally, our approach is, as you know, the majority of our capital philosophy, our capital return philosophy is through buybacks. Our dividend is kind of in the mid-teens. So about 85% of our capital returns is through buybacks. And we are continuing on this kind of multiyear glide path to get to the capital to our capital target. And so I think we have the capacity and you can kind of think about it as returning roughly 100% of net income a year. But I think importantly, we will talk about up and down depending on what we see. If there are investment opportunities, we want to take advantage of those. And similarly, if there's some kind of stress in the economy or the market, we may slow that down. So I think that's kind of the glide path, but all of the factors you mentioned are things we take into account. Operator: Our next question comes from Russell Gunther from Stephens. Russell Elliott Gunther: I wanted to start on Cash Connect, if we could. So 3 cuts baked into the outlook. I know 4Q tend to see some seasonally lower ATM volume. But as you look at the year ahead, what type of revenue hit are you guys anticipating here? And then within that, if you could talk to just overall margin expectations, you mentioned the improvement, I think from what was a high single-digit margin to a low double-digit one now. So just helpful to get the puts and takes positive and negative over the course of '26 in terms of profitability improvement here. David Burg: Yes, sure, sure, Russell. So yes, when you look at Cash Connect, as you mentioned, the interest rates do have an impact on the pricing, on the top line, but that's more than offsetting the expenses. So we do have a margin benefit there. I think the way to think about it is roughly about $2.5 million annual impact per 25 basis point rate cut is kind of roughly what you should think about. On the topline. And so the impact of the rate cuts, like you said, about 3 rate cuts for the year, that's really kind of the way to think about the impact on the topline for Cash Connect. But you mentioned the margin. That's really been the story that we've been focused on because some of that macro pricing. But not only are the interest rates accretive to margin, but we've also been taking a number of other actions to continue to drive margin. And those are: number one, pricing. We've leveraged some of the scale that we have in the market to increase pricing across our products, and that's been a meaningful benefit. Number two, we've had a couple of things that we're doing around expenses, and that includes both optimizing kind of in-transit cash as well as just efficient management of expenses in the business. And the third thing that we're doing is we're taking a look at the client portfolio across that business and thinking about and there's a page in the supplement, which shows the mix of that business between Smart Safes and bailment and you can see that Smart Safes have increased year-over-year from about 25% of total volume to about 33% of total units, rather. And the Smart Safes generally come with higher margin and higher kind of value-add products. And so as we continue to grow that business, which we think is kind of a growth vector within that business, that should also be accretive to our margins, and that's part of our strategy. So it's a combination of not just rates, but all of those actions that have allowed us to drive the margin. And the goal is that we continue to drive that into the mid-single digits and hopefully higher. Russell Elliott Gunther: That's very helpful, David. And then just switching gears overall to expenses. Great to see the high single -- the high 50 deficiency. But outside of the lower result we'll get like from the Cash Connect as we just discussed, are there areas of outright reduction that can support a lower run rate for the year? Just trying to think through what's a decent core not just for noninterest expense growth rate for WSFS? David Burg: Yes, Russell, I would say a couple of things there. Our efficiency for the year this year was 59%. We said high 50s. So we'd like to be in that range or a little bit better next year. We don't want to give a specific number because as you know, we want to take advantage of opportunities and invest in the franchise. And so if those opportunities exist with talent additions, or technology, we want to take advantage of those opportunities. And so that's why quarter-to-quarter, there may be fluctuations. But to give you a little bit of a sense of other things that we're doing on expenses, we do have a number of different productivity actions that we're taking. For example, we've been optimizing our real estate portfolio, and that's been a nice tailwind for us and will continue to be. So we're really leveraging those opportunities hard. Another one is we have divested a number of products or businesses that are not central to our strategy. Those include upstart -- earlier in the year, powder mill, we exited the joint venture with Commonwealth and all of those things are also taking out expenses for things that are, again, not central to our strategy. And in addition to all of that, I think we're having really good strong discipline around our head count and expenses overall, including particularly in the shared functions. So I mean all of those things give us confidence, but importantly, we want to really continue to invest in the business if those opportunities... Russell Elliott Gunther: I hear you. I appreciate it. And then just last one for me. Curious as to the anticipated mix of deposit growth. So you guys are basically looking to match fund loan growth. Just wondering any willingness to flex with the below peer loan-to-deposit ratio around 76%, right? Just maybe fewer market rate deposits. And then I guess an adjacent question really would be just expectations around the overall size of the balance sheet, if you can touch on the investment portfolio and cash balances, how they could trend over the course of the year? David Burg: Sure. So first on deposits. So that's a trade-off that we do take into account. We've been running off, if you look over the course of the year, we've been reducing a little bit of our CD book, and that's been really price driven. So it's not an intentional runoff but we've been aggressive on pricing there, and that's really because of the strength of the deposit growth in other businesses, we were able to do that, particularly for clients that are -- that only have the CD relationship. So we will continue to look at opportunities to flex pricing. But as you know, a lot of our deposit growth has come from noninterest-bearing deposits. And those are clearly kind of core operating deposits that we certainly want to continue to bring in and our super-accretive in the long run. So I would say, we are trying to be fairly aggressive on pricing while continuing to grow core clients and relationships. And on your question around securities portfolio, we have -- over the course of the year, we've been bringing down our portfolio a bit, I'll say, over the course of the past couple of years from elevated levels. Now we've reached the point where it's in the low 20s, about 21%. And our intention is to keep it here. So from this point forward, we're going to -- anything that really that comes off the securities portfolio, we will look to reinvest it in the same type of securities that we essentially have. So agency, not taking a lot of credit at all credit risk in any way, MBS, those types of securities. But we're going to keep it flat at this level. Operator: Our next question comes from Kelly Motta from KBW. Kelly Motta: Just at a high level, you over the past year or so, exited a couple of businesses where the risk-adjusted returns aren't there. It feels like given your guide and outlook, these the headwinds are abating somewhat. Are there any -- as you strategically look at your diversified businesses, are there any things that you're continuing to evaluate that you could share or kind of thresholds of profitability you look at of these kind of niche businesses and deposit and loan verticals that you have. David Burg: Yes. I'll start off, and I'm sure Rodger will weigh in as well. So Kelly, we continue to -- we have an initiative here, we call it relook where we continue to look at different parts of our business and think about the fit and the strategic fit of that going forward. And that's something that we continue to do. And like you said, we've done a good job of shedding some of those things. At the end of the day, I can't really discuss anything specific that's on the horizon right now, but it's really, I would say, part of our strategic plan and part of our ongoing strategy to always evaluate those type of things. Rodger Levenson: Yes, Kelly, it's Rodger. I would just add to what David said is I think if you look at the actions we took in '25, those were primarily decisions made and WSFS look very different than we are today. And because they were low scale, low profitability partnerships or businesses that we had, we thought it just made sense for the reasons that David said to move on from those. I don't think there's a large group of followers to that, but I do think, as David said, there's opportunities to relook at a lot of things that we're doing based on the evolution of the company, and I think this was an important year to kind of start to build some of that muscle. We've always been very disciplined, obviously, about evaluating our profitability by business line and shared service area. I think this will -- this exercise will help us continue to do that. going forward. So it's -- when you go through a period of rapid growth like we did 4, 5 years ago, I think as you settle into your scale and you see whether you're getting that higher growth you're looking to free up capital and resources to continue to invest in those areas and in areas where we're not seeing that to either redeploy that capital or resources. So it's an important part of our strategic plan and will continue to be going forward. Kelly Motta: Got it. That's helpful. Maybe a question on M&A, if I could. It's been several years now since the last deal. I know you've been internally focused and clearly, you've had a nice glide path with what you're doing organically, but just as we get another year out entering 2026. I'm wondering if you have any updated thoughts here given the integration and work you've done so far? Rodger Levenson: Yes. This is Rodger again. I'm sure you're referring to bank M&A, which I'll address in a second. But as David said a couple of times, we're continuing to invest very heavily in the business, whether it's the fee businesses or the banking business, and that could come through one-off lift apps or talent or small firms or it could come to something larger. As it relates to traditional banking we've been clear over the last year or so that if something came along that would strengthen our position, our very strong position in the greater Philly Delaware region, we would absolutely consider that. And I think we have demonstrated now our ability to execute on those very well. But we also feel good about the organic growth. And so we can continue to achieve our objectives as we outlined for '26 by focusing on the organic opportunity, and then we'll supplement those with inorganic opportunities should they come along. Operator: Our next question comes from Christopher Marinac from Janney Montgomery Scott. Christopher Marinac: I wanted to look at sort of risk-adjusted returns in the loan portfolio, and particularly as Upstart is now behind you. Do you see those getting stronger? Or does the rate environment sort of limit what you can get on a risk-adjusted return? David Burg: Chris, it's David. Yes, I think -- so when you look at our loan pricing, our risk-adjusted returns, it's really a combination of the different businesses that we have. Like you said, when you -- if you look at the consumer business, we've divested Upstart and really, most of the portfolio is now a real estate secured portfolio. And so when we think about kind of risk-adjusted returns and going a little bit to the previous question, really, we want to focus on things where we feel we have a competitive advantage and are able to originate better than others in the market. And that's really around the home lending product. And that goes both to -- and that really goes to risk-adjusted returns and our ability to not just grow but also grow at the right price points. And so that's why when you think about our growth going forward, it's really on the residential side on the home equity line side, installment line side, but kind of in that real estate secured portfolio, where losses are -- have a very different profile than on the unsecured portfolios that we've seen. On the commercial side, we continue to be -- the primary product is really the C&I relationship product, and that's really where we continue to see the growth. We are not the lowest price point in the market. We are -- we sell kind of our relationship, our ability to provide different products, our ability to provide superior customer service and that personalized touch. That's really what we think is our competitive advantage. And so we're not the lowest price point in the market, but we think we're the best service in the market and the most responsive in the market. And so that's what we're going to continue to lean on. So C&I is our primary product, but commercial real estate continues to be an important product that we're going to continue to grow with the right sponsors with whom we have relationships and who are known in our footprint. Rodger Levenson: Chris, this is Rodger. Obviously, 100% agree with what David. The other component which you'll hear us continue to talk about more is getting more out of our client relationships, particularly C&I, but across the platform by referrals throughout our franchise, especially on the wealth side. So I think it's taking that total relationship view and allocating that to various products is where we see an opportunity to get a little bit more overall profitability through the franchise just because of the strength of the relationship. I think we've done a good job on that front, but we also feel like we're just getting started, particularly on those referrals into wealth and vice versa. Christopher Marinac: Great. I appreciate it. And then, David, just a quick question on taxes. Is that sort of 24%, 25% range still a good number to think about going forward? David Burg: Yes, yes, that's a good number. Yes, the tax bill really didn't have a material impact on our business, maybe a little bit of a negative impact because some deductions are no longer allowed charitable deductions, for example, up to a certain point. So a small impact, but generally, that's the right range. Operator: Our next question comes from Janet Lee from TD Cowen. Sun Young Lee: I want to step back and understand the driver behind your strong -- very strong noninterest-bearing deposit growth in the quarter. I assume a lot of that has to do with wealth and trust momentum that has been growing. In terms and aside from the deposits, the wealth and trust revenue on the fee side is also growing double digits. So I want to understand, is it a function of your overall institutional trust market increasing? Or are you taking market share? I want to understand the competitive dynamics there and whether that $340 million of noninterest-bearing deposit increase in the quarter should normalize in the quarter ahead? David Burg: Janet, it's David. Thanks for the question. So yes, I think generally, we expect that our noninterest deposit growth will be consistent with our interest bearing deposit growth. So we want to continue to at least maintain that NIB ratio and, of course, try to grow it. So I'm not sure the growth that you saw this quarter, the 6% quarter-over-quarter growth, that's probably not -- we're not going to put up that kind of growth every single quarter. But generally, we want to continue to grow those at least in line with total deposits. And I would say importantly, the growth that you've seen came from 2 businesses. One is trust and two is private banking, predominantly in this particular quarter. But importantly, when you look at the composition of noninterest-bearing deposits across our business, it's pretty broad-based. About 40% of that is in consumer. About 35% of that is across trust and private banking and about 25% of that is in commercial. So every business is contributing meaningfully to that noninterest-bearing balance and really comes with the relationship growth and the relationship account growth that we have. So again, while private banking and trust have been and predominantly trust have been the engines this quarter, I think the composition is pretty broad across the business. Sun Young Lee: Got it. And in terms of credit problem assets and NPAs were down quarter-over-quarter, NCOs increased a bit. So given the favorable migration in those problem assets, which I believe you cited at the lowest level in over 2 years, how should we think about -- how do you -- how does this impact your expectations around where your NCO could land versus that 35 to 45 basis points guide? David Burg: Yes. So it's the -- so you're absolutely right in terms of our problem assets, and we've had the migration, we're down about $95 million. It was a combination of just migration as well as payoffs and paydowns that contributed to that. I would say in terms of our net charge-off guide, this year, if you exclude upstart, we were 40 basis points, and we assume we're going to be in the same position next year. Really, commercial is going to continue to be uneven, and that's really kind of the message. So you may see some fluctuations there. Some of the nonperforming assets, you may see some of those go to loss. But at the end of the day, I think we continue to feel good about our portfolio. And one of the things that differentiates us in our commercial real estate portfolio is the fact that we have a very high level of recourse. So -- we have -- in our office portfolio, we have 80% recourse in our multifamily portfolio with 86% recourse. And so those, in addition to the asset collateral makes us feel better about those portfolios, but they will continue to be uneven. And then on the consumer side, with the divestiture of the upstart portfolio, really the majority of it is real estate secured. And so that portfolio from a net charge-off perspective has been low and continues to be very well. Operator: Our last question comes from Manuel Navas from Piper Sandler. Manuel Navas: Hopping on to try to clarify something. Is the double-digit EPS growth on core or reported EPS? David Burg: It's on -- it's looking at core relative to core, Manuel. Manuel Navas: Okay. Great. A quick question on the NIM with that guide has there been any shifts in your hedging profile? Any other kind of wildcards in the NIM outlook? David Burg: No, no wild cards. As you know, our NIM -- as you see, our NIM outlook is for 3.80%. We finished -- the quarter was 3.83%. Our exit rate for the quarter in December was also 3.83%. We are -- we're trying to manage the interest rate cuts that are -- that we're forecasting or assuming in outlook for next year. And we do that through 3 ways. Deposit pricing being the main one, but also the hedging program in the securities portfolio. And on the hedging program, we are -- to give a quick update there, we have about $1.3 billion of hedges that are currently in the money. And with another rate cut, we would have $1.5 billion of hedges that are in the money. So that's an important tool that we use to mitigate subsequent rate cuts. And then the securities portfolio, as I mentioned earlier, we're reinvesting that now and kind of keeping it flat, and that's providing an uplift because the security portfolio is yielding. The yield on that portfolio is like 2.35%, 2.4%, and we're reinvesting that at about 4.3%, 4.4%. So so about 200 basis point uplift, which is offsetting some of the interest rate impact. So all of that put together, that's why the impact for next year is a bit less than what the sensitivity would suggest. But that's -- those are the things we continue to manage. Manuel Navas: And with that, you described really strong deposit growth with this outlook. And I think you talked a little bit about it in the trust business, but -- where do you see all the growth across all your other businesses? What are kind of the opportunities for deposit growth? David Burg: So yes, so our outlook, our goal is really for continued mid-single-digit deposit growth. As you know, in institutional services, we've continued to increase share and we believe we're going to continue to do that. So that continues to be a growth engine. Rodger mentioned the referrals that we are working on within commercial and wealth, and we think there's a huge opportunity for us around that, that we haven't tapped yet. So that's -- that should power additional deposit growth as well. And again, growing the C&I portfolio is also an important source of deposits for us. So the combination of all those things, I would say as well as small business is also an important contributor of deposits that we think the growth is going to accelerate there. So we do feel good about the mix of businesses and all of them contributing. Operator: And with no further questions in queue, I would like to turn the conference back over to David Burg. David Burg: Okay. Thank you, everyone, for joining the call today. If you have any specific follow-up questions, feel free to reach out to Investor Relations or me, and have a great day. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to Nucor's Fourth Quarter 2025 Earnings Call. [Operator Instructions] And today's call is being recorded. [Operator Instructions] I would now like to introduce Chris Jacobi, Director of Investor Relations. You may begin your call. Chris Jacobi: Thank you, and good morning, everyone. Welcome to Nucor's Fourth Quarter Earnings Review and Business Update. Leading our call today is Leon Topalian, Chair and CEO; along with Steve Laxton, President, COO and CFO. Other members of Nucor's executive team are also here with us today and may participate during the Q&A portion of the call. Yesterday, we posted our fourth quarter earnings release and investor presentation to Nucor's IR website. We encourage you to access these materials as we will cover portions of them during the call. Today's discussion will include the use of non-GAAP financial measures and forward-looking information within the meaning of securities laws. Actual results may be different than forward-looking statements and involve risks outlined in our safe harbor statement and disclosed in Nucor's SEC filings. The appendix of today's presentation includes supplemental information and disclosures, along with a reconciliation of non-GAAP financial measures. So with that, let's turn the call over to Leon. Leon Topalian: Thanks, Chris, and welcome, everyone. For as long as I've been Nucor's CEO, we have opened our earnings calls by recognizing our safety performance, and I am pleased to continue that tradition again. In 2025, our team achieved the lowest injury and illness rate in our history, marking the eighth consecutive year of improvement. And we finished the year with incredible momentum as the final 2 months of the year were the safest 2 months we have ever recorded. These milestones have occurred during a period of significant growth and transformation for Nucor, and I am extremely proud of how our team continues to prioritize safety in everything we do. However, as we pursue our goal of becoming the world's safest steel company, our safety journey will not be complete until we operate injury-free every day. Before I comment on our results, I would like to briefly address the management changes we announced at the end of last year. Effective January 1, Steve Laxton was promoted to President and Chief Operating Officer. Throughout his 23 years at Nucor, Steve has demonstrated strong leadership and has played an important role in shaping our growth strategy. In this expanded role, he will have an even greater impact on the company's future. Steve will also continue to serve as CFO until a successor is named. Congratulations, Steve. I would also like to acknowledge the many contributions of Dave Sumoski. Dave has served as our Chief Operating Officer since 2021 and will retire in June after more than 30 years at Nucor. Over that time, Dave has been a trusted leader, and his deep operational expertise and strong commitment to advancing our safety culture have made a lasting impact on the company. He will be missed by all of us when he begins a well-deserved retirement in June. On behalf of our teammates across Nucor, we wish Dave and his family all the best. Turning to our financial performance. We delivered adjusted earnings of $1.73 per share in the fourth quarter and $7.71 per share for the full year. EBITDA totaled $918 million for the quarter and approximately $4.2 billion for the year. We remain committed to balancing long-term growth with meaningful shareholder returns while maintaining the strongest credit profile in our industry. For 2025, we reinvested $3.4 billion into the company, with the majority of that capital going to projects that were completed in 2025 or will be completed later this year, returned $1.2 billion to shareholders through dividends and share buybacks, representing approximately 70% of net earnings and finished the year with $2.7 billion in cash, providing ample liquidity to support the business and finance our growth objectives. We begin 2026 with real momentum built on years of hard work, disciplined investment and a relentless commitment to Grow the Core, Expand Beyond and Live Our Culture. Since 2019, we have strengthened our steel mills segment through 15 major projects across our sheet, bar and plate groups. These investments have enhanced our capabilities while shifting our product mix toward higher-margin products that address growing customer needs in key markets. We have also expanded our steel products portfolio by delivering more comprehensive customer solutions and adding steel adjacent businesses supported by strong secular demand trends. The progress we made in 2025 marked a meaningful inflection point as a number of projects transitioned from the construction phase to the ramp-up phase. Major projects completed include our new rebar micro-mill in Lexington, North Carolina, a new melt shop at our bar mill in Kingman, Arizona, a new Nucor Towers & Structures facility in Alabama and new galvanizing and prepaint lines at our Crawfordsville sheet mill in Indiana. All of these projects are on track to be fully ramped up and operating at positive EBITDA run rates within the year. Our growth strategy has never been about simply getting bigger. It's about generating more value for our customers, shareholders and teammates. Even as we've executed on these growth projects, we've also taken deliberate steps to realign our asset base and improve our cost structure by restructuring operations and repurposing facilities to better serve fast-growing end markets. For example, we converted 2 existing steel products facilities to support our Nucor Data Systems business as it supplies the rapidly expanding data center market. This demonstrates a core strength of Nucor. With the broadest range of capabilities in the North American steel industry, we are uniquely positioned to capitalize on new opportunities wherever they emerge. Turning to 2026. Several remaining projects will reach completion this year, and our teams are focused on bringing them online safely, on time and on budget. Within the sheet group, we are on schedule to complete construction of our new mill in West Virginia by year-end. Once online, this mill will begin supplying some of the cleanest and most advanced sheet steel in North America, serving automotive, construction and industrial customers. We will also start up the new galvanizing line at our Berkeley County mill with commissioning planned for mid-2026. Within towers and structures, construction continues on our greenfield utility pole production facility in Indiana, which is expected to begin full operations in the second quarter. Our third greenfield project in Utah remains on track for completion in 2027. When these facilities are fully online, we will operate 4 highly automated state-of-the-art production sites with national coverage in the high-growth utility transmission tower market. Since 2020, we have invested approximately $20 billion through CapEx and acquisitions to grow our core steelmaking capabilities and expand into downstream businesses while returning nearly $14 billion of capital to shareholders and improving our credit profile. With the majority of our recent investments largely complete, I'm confident it sets up Nucor to enter its next phase of growth from a position of strength, focused on disciplined capital allocation while driving long-term value for our shareholders. Moving to trade policy, vigorous enforcement of our trade remedy laws and the full reinstatement of the Section 232 steel tariffs without exemptions last year have helped drive down steel imports. Foreign import share of the U.S. finished steel market has dropped from approximately 25% at this time last year to 16% in October and an estimated 14% in November. We expect imports will continue to trend at or below those levels in 2026 as the market absorbs the full impact of the Section 232 tariffs and recent trade case determinations. During 2025, the Department of Commerce and the International Trade Commission made important rulings regarding unfairly traded imports of corrosion-resistant steel and rebar. Together, the Section 232 tariffs and product-specific trade cases provide vital defenses against countries that seek to dump their steel into the U.S. market. We appreciate the efforts the federal government took in 2025 to level the playing field for the American steel industry. Looking ahead, the trade policy will remain a priority for our industry. The formal USMCA review beginning in July offers the opportunity to drive additional steel demand in North America, crack down on efforts to transship steel through Mexico and Canada and address steel subsidies provided by the Canadian government. We must also continue to implement common-sense policies like Buy America that incentivize the use of American-made steel for infrastructure, shipbuilding and defense. Turning to our expectations for 2026. We continue to see strength in many of our primary end markets, including infrastructure, data centers and energy and in energy infrastructure. We are also seeing healthy demand related to advanced manufacturing in the border fence. While those markets remain strong, we have yet to see much improvement from interest rate-sensitive markets like automotive and residential construction. In total, we expect domestic steel demand to be slightly up relative to 2025. And as I mentioned earlier, we expect the full impact of the Section 232 tariffs and recent trade determinations will lower levels of imported steel in 2026. Against this supply and demand backdrop, we entered the year with historically strong backlogs, up nearly 40% year-over-year in the steel mills segment and 15% in steel products. Within that, our structural group really stands out. The team set a record in the first quarter of 2025, and the structural backlog we are carrying into this year is more than 15% above that, reflecting sustained demand across key nonresidential and infrastructure markets. For the full year, we currently expect Nucor steel mill shipments to increase approximately 5% compared to 2025. With that, I will turn the call over to Steve to provide additional details on our fourth quarter and full year performance as well as our outlook for the first quarter. Steve? Stephen Laxton: Thank you, Leon, and thank you all for joining us on the call this morning. During the fourth quarter, Nucor generated adjusted net earnings of $400 million or $1.73 per share. For the full year, adjusted net earnings were approximately $1.8 billion or $7.71 per share. As noted in our earnings news release, adjusted fourth quarter earnings exclude $27 million or $0.09 per share of charges related to onetime noncash asset impairments, primarily related to discontinued operations that were recognized during the period. Full year results also exclude approximately $23 million or $0.10 per share of after-tax charges incurred in the first quarter, primarily related to closing or repurposing facilities in the steel products segment and ceasing production of wire rod at our Connecticut bar mills. Turning to the segment level results. For the fourth quarter, the steel mills segment generated $516 million of pretax earnings, down roughly 35% from the prior quarter. Shipment volumes declined 8%, reflecting seasonal effects, fewer shipping days in Nucor's fiscal fourth quarter and the impact of both planned and unplanned outages. While average realized pricing improved in our bar and structural groups, those gains were more than offset by lower pricing in our sheet and plate groups. This decline was expected as lagging sheet prices from the fall flowed through in the quarter. Sheet prices began to rise in November and December, with most of that benefit expected to be realized in the first quarter. Turning to steel products. We generated pretax earnings of $230 million, down from $319 million in the third quarter. Consistent with our steel mills segment, volumes declined sequentially across the steel products portfolio. Our rebar fabrication business accounted for roughly half of the quarter-over-quarter volume decline, in line with its typical seasonal volume trend. Turning to our raw materials segment. We generated pretax earnings of approximately $24 million compared to $43 million for the prior quarter, primarily reflecting the impact of 2 scheduled outages at our DRI facilities. As we continue to advance our long-term multiyear growth strategy, 2025 CapEx totaled approximately $3.4 billion. With several major projects reaching completion this past year, we will see a meaningful step down in capital spending for 2026. Our current estimate for 2026 CapEx is approximately $2.5 billion. Growth-oriented investments will represent roughly 2/3 of our planned spending with our West Virginia sheet mill remaining the largest single use of capital. Our growth efforts are also having a pronounced near-term impact on profitability. For 2025, pre-operating and start-up costs totaled $496 million. Looking ahead, we expect these costs to remain elevated in 2026 as several projects move beyond the start-up phase, offset by higher expenses associated with others, particularly bringing West Virginia online. Nucor remains committed to a balanced capital allocation framework anchored by 3 principles: maintaining a strong balance sheet, investing for value-creating growth and making meaningful direct returns to shareholders. In the past 3 years alone, Nucor has invested over $9.5 billion through capital spending and acquisitions. During that same period, Nucor returned over $6 billion to shareholders in dividends and share repurchases, an amount equal to roughly 73% of Nucor's net earnings during that time frame. Even with these historically sizable investments and returns, we have preserved low leverage and substantial liquidity, supporting our industry-leading A- and A3 credit ratings from all 3 major rating agencies. It is worth noting that in December, our Board approved an increase in the quarterly dividend to $0.56 per share, extending our record of paying and increasing our regular quarterly dividend for 53 consecutive years. Turning to our first quarter outlook. We expect higher consolidated earnings with improved results across all 3 operating segments. Shipment volumes should increase in each segment, supported by a healthy demand environment, typical positive seasonal trends and fewer outages relative to the fourth quarter. The steel mills segment is expected to drive the largest portion of the sequential earnings growth due to higher volumes and higher realized pricing. All product groups within this segment should see improved results with our sheet business contributing the most to the overall increase. In the steel products segment, we expect higher volumes and stable pricing. And in our raw materials segment, earnings are expected to improve modestly following the successful completion of planned DRI outages in the prior quarter. These gains will be partially offset by higher profit eliminations upon consolidation. Before we take questions, I'd like to spend a minute on what has long been both a source and evidence of Nucor's resilient and sustainable business model, our ability to generate free cash flow across a wide range of market conditions. Last year, Nucor had negative free cash flow, something that is very rare in our company's history. But this event was not a surprise. It was a measured and intentional result that was the product of advancing our aggressive growth initiatives and strategy. We prudently positioned the company with ample liquidity ahead of these expected results to afford the ability to maintain our growth and return commitments. With lower capital spending, incremental EBITDA from recently completed capital projects and improved market conditions as a backdrop, we expect Nucor to generate meaningfully higher free cash flow in the year ahead. We enter 2026 with healthy, favorably priced backlogs, supporting both higher shipments and better margins across most of our product lines, and we remain confident that with the broadest range of capabilities and solutions in the North American market, our driven and dedicated team is exceptionally well positioned to create value for our customers and shareholders. And with that, we'd like to hear from you and answer any questions you may have. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Lawson Winder from Bank of America. Lawson Winder: Steve and Dave, I would say congratulations on your new adventures going forward. If I could ask about CapEx and look out to 2027. And by the way, thank you for the detailed guidance on 2026 CapEx. As we think of how falling CapEx might help support Nucor's unfolding free cash flow inflection, could you just speak to your current view on CapEx for 2027? And in particular, maybe address -- one would be the $950 million for West Virginia in 2026 and how that might be expected to follow on in 2027 with some additional CapEx. And then the breakdown in 2026 CapEx suggests non-expansionary and non-improvement CapEx of about $950 million. And I think we've talked about $600 million in the past. Like what is the latest thinking on sort of ongoing non-expansionary CapEx to kind of keep the business running? Leon Topalian: Lawson, I'll kick this off and then ask Steve to provide a little bit of color as we think about CapEx flowing into 2027, but I do want to begin where you started in thanking Dave and Steve both for their commitment. Dave's 30 years with our company. And again, he and I started our careers together building Nucor Berkeley in the mid-90s, and we appreciate everything you've done. And on behalf of our 33,000 team members, Dave, thank you. David Sumoski: Thanks, Leon. Leon Topalian: And look, Lawson, the other thing I'll also just mention briefly is 8 straight years of safety performance, that our team continues to just exemplify the value of safety and what it means to accept the challenge of becoming the world's safest steel company. It is something that gives me tremendous pride in all of us in Charlotte as they execute each and every day across all of our product groups to these start-ups, the enhancements, the build-outs, the new lines and greenfield operations. It's an incredibly exciting time for Nucor that positions us well for the long term. And as again, we move to the future, we do see a day in time where Nucor will go an entire year without a single injury to any of our team members. So we're going to continue to focus on that as our primary value as we drive all of our business results and again, thanking our team for that. Finally, the last comment I'll make specific to the CapEx. Look, when we began this journey in 2020, it was to make sure Nucor remained a growth company. We've invested heavily. We've taken meaningful steps. But against that backdrop, Lawson, one of the wonderful things then and now is we didn't have to pivot. We didn't have to change tack of where the company was headed or the direction. In fact, we were coming off some of the best years we've ever achieved as a company when we added the Expand Beyond portion of our growth strategy, and it remains the same today that we can be incredibly prudent and disciplined with how we think about spending our valuable shareholder capital to grow this company meaningful. Again, the culmination of West Virginia that will start up later this year will really absorb the majority of that CapEx as we move into 2027. But Steve, maybe provide some additional details? Stephen Laxton: Yes, sure. Lawson, just to kind of follow up on what Leon said there. West Virginia will be done at the end of this year, and that team is doing a fantastic job moving that project forward. Busy, as you could imagine, it's a big project. And in the past, we have guided figures of what we would call maintenance capital. But included in maintenance capital, I would put safety, environmental compliance and a certain amount of efficiency projects that are smaller in nature that don't necessarily add new capabilities to us. I would guide you to a figure closer to $800 million a year now for that just because of the inflation that we've seen in the last several years post-COVID and just the size of our company. We're larger now. So as you think about modeling out things beyond '27 and beyond, I'd guide you more toward an $800 million figure plus whatever projects are going on. Lawson Winder: Fantastic. And I guess just a follow-up would be on those potential expansionary projects. It feels like you're quite satisfied with the long product business at this point with the step back from a potential Pacific Northwest expansion. Are there areas of the business that you might be able to highlight today as places where you actually might consider some expansionary capital beyond '26? Leon Topalian: Yes. Look, Lawson, I think without getting very specific and completely not answering your question, I would just guide you to the things that you've seen and how we've looked for growth. And it's coming through the megatrends in our economy, things like data centers, energy, energy infrastructure. Obviously, the ability for us to pivot very quickly and handle the increase in the border wall has been a nice boom for our businesses across Nucor. But -- and finally, the towers and structures segments of our growth that we are tremendously excited about. Every one of those continues to provide a platform for additional growth. For example, in data centers today, Nucor supplies about 95% of the overall steel demand required for the entirety of a data center. And so again, we look for, okay, what's the next step? How can we continue to maximize our capability set and continue to enhance the growth profile for our shareholders? So we're looking for things that aren't high CapEx. We're looking for businesses that might be countercyclical to the steel industry and trends that we've been a part of for 6 decades. And then lastly, I think in the core side, it's how do we continue to invest for the long term that moves us up the value chain and higher-value products. And again, you're seeing that in our galvanizing lines in Crawfordsville and Nucor Berkeley, the 2 galvanizing lines that West Virginia is building. So again, we're thinking about how do we continue to grow and enhance our differentiated position that we have to supply our customers with products that they're going to need today and down the road. Operator: Our next question will be from Timna Tanners from Wells Fargo. Timna Tanners: I wanted to take a step back and recall your November 2022 Investor Day where you talked about through the cycle EBITDA at $6.7 billion. And if you could just refresh us on where we stand relative to that number, what it might take to get there considering the projects that you have. I know those were -- that number was assuming they are complete. But should we assume that, that could be the run rate in 2027 as you finalize some of these projects? Or any updated thoughts there, please? Leon Topalian: Yes. A couple of thoughts. First, thank you for referencing that. For me, it was my first Investor Day as CEO. And again, Steve and his new role as Chief Operating Officer as well as CFO, at least for a short time until we announce his successor. Look, we're thinking hard about when the next Investor Day is, Timna, again, to provide an update against that backdrop. But look, it's something we spent a lot of time thinking through the investments we're making at that time. So look, to answer your question broadly, yes, I think you're thinking about it the right way as we culminate the West Virginia start-up and then bring that to its full ramp capabilities. At the same time, I would tell you, look, I'm an optimist, and I believe in the long-term growth strategy Nucor has had, but I also think we've reached a time in our economy where we've seen import levels, for example, I've never seen in my 30 years at Nucor. So we're poised today to capitalize on those trends as well as the opportunities. And again, I know your background and obviously, how well you understand sheet. The material decrease in the import levels on sheet alone are 4 million tons of consumption that the domestic supply chain gets to now contribute. It is a meaningful number. And so again, I don't know what the next administration brings, but certainly, as we look to '26 in the short-term horizon, may we see import levels staying or maybe even slightly coming down some more. So Steve, anything you'd add on the Investor Day or the EBITDA that we projected at that point? Stephen Laxton: No, not really. I think what I would be a little bit clear on, I think I heard you ask about is that good guidance for '27. And I want to hesitate to say that it's guidance for '27, the Investor Day materials, which you're familiar with, but others on the call may not be, was a mid-cycle guidance around -- after all projects at that time were completed, including West Virginia and the others. And just -- so I'd back off of that being a specific guide toward '27. All the points Leon made are solid and can be baked into your thinking around '27. But with respect to the ramp-up of West Virginia, that's a big complex mill. It's not going to be at its run rate of EBITDA in '27 among other projects, for example. Timna Tanners: Okay. Appreciate that color. Along the lines of what Leon was talking about with the loss of imports, it does make sense that the domestic mills can take share. Can you just give us some thoughts on the spare capacity across your operations and what you might be able to do incrementally to take share from imports? Leon Topalian: Yes. Look, again, I think overall, we're in a great position. We're roughly about 85% utilization across our sheet mills. That gives us opportunity to contribute into the spot market and as well as think about the long term. So again, with an import level overall ADC about 15%. It creates some unique opportunities that we have the room. We have the capability set in our mills and again, really creates a wonderful time for a ramp-up of a new facility in West Virginia. And so we see more opportunities there as well. I think the Northeast and Midwest corridors provide some unique geographic opportunities for Nucor. And again, I think from a cost position, that mill is going to provide a significant value for our shareholders. Operator: Our next question comes from Bill Peterson from JPMorgan. William Peterson: Again, congrats to Steve and Dave here. I wanted to follow up on the last question. You discussed shipments are -- your shipments are projected to increase by 5%, implying a higher share of U.S. market demand. I think you talked that there's some uplift you can see in utilization, you mentioned sheet. But I guess should demand support, is there upside to that 5% expectation? And what would drive that? Would that be more in your view, sheet, plate or I guess, bar considering that you have Lexington and Kingman coming online? Leon Topalian: Well, yes, Bill, look, do I think it's sustainable? 100%. If you look at our backlogs, again, they're up 40% year-over-year in the steel group, 15% or 16% in our products group. In many of our product groups today, they are record-setting backlogs. I think maybe the -- our earnings call in Q3 and 4, I actually shared some volumes in our structural backlogs. And again, in my opening comments, they are record backlogs, and they are historic backlogs for what we've seen, and it's a market and an end-use customer in our nonres and industrial sectors that we know incredibly well. So when I'm talking to our customers and our customers' customers, the demand picture is robust, and it's very optimistic for 2026. We believe that the 5% is not only an achievable number, but the demand profile is going to create some uplift for virtually every product group. Finally, I'd tell you that as you look, it's a commodity across the board. We've -- it's a supply and demand environment. It's not tariffs or a single thing that's driving pricing, but the pricing that Nucor has realized that were announced in Q4 hits almost every product group, sheet, plate, bar, beam and many of the product group segments themselves that are all seeing that stick. So look, I think we're entering what should be a better year in 2026. We're very optimistic. And again, we -- the timing of our start-ups in several of the expand businesses and core are coming at a perfect time in a demand environment that's peaking in energy, infrastructure, nonres, border fence, energy infrastructure, towers and structures, and yes, I think positions Nucor incredibly well. William Peterson: I wanted to follow up on your comments around trade policy with your expectations that the tariffs are going to continue without exemptions. So is that kind of a statement on 2026? I guess, are you expecting that to be durable beyond? I'm also trying to get a sense for the risk of lower tariff rates and/or quotas. Maybe these are on the table for the upcoming USMCA negotiations. And maybe what is Nucor lobbying for or positioning for? I guess bottom line is, are you supportive of lower rates for Mexico and Canada if they have equally high steel tariffs to other regions in order -- basically in order to mitigate transshipments? Any sort of specifics on your expectations around trade policy would be helpful. Leon Topalian: Yes, Bill, I'll touch on it. And look, let me begin with the end in mind. What Nucor is most in favor of is banning illegally dumped subsidized imported steel to come in and ravage the shores of the U.S. economy period, full stop. How we do that, how that's affected? Obviously, it matters greatly. And if you would ask me and you did a year ago, hey, did I think our trade agreement with USMCA as we reinstituted or Trump reinstituted the 232 tariffs would be resolved very quickly. I would have told you, absolutely, I believe that would have been resolved very quickly. But here we are a year later, still that not done. And then again, July, the renegotiations come up. But the reality is I can't tell you, does that end up with a trilateral agreement, a bilateral agreement and again, the one-offs on what this current administration is going to do. What I can tell you is what we've seen out of Commerce and USTR is a very supportive trade environment that's pro-America and pro-U.S. manufacturing. So what would we like to see ultimately? Manage strength in the rules of origin, continued enforcement of the 232 policies that are already on the books, the enforcement of them. That's why we've been such staunch supporters of the Level the Playing Field Act 2.0 (sic) [ Leveling the Playing Field 2.0 Act ] and still think that needs to pass. But look, I think as we look to the second half of President Trump's administration, you will see a continuation of those pro-America first trade policies and remedies. Operator: Our next question comes from Phil Gibbs from KeyBanc. Philip Gibbs: On West Virginia specifically, can you just update all of us on some of the new products and end market capabilities that, that mill may give you relative to the current fleet of assets that you have right now on the sheet side, just to kind of go back over the investment case and why you're making the move here? And yes, that's effectively the question. Just kind of want a refresher in terms of what it brings because I know it's a different mill relative to what you currently have. Leon Topalian: Yes. Look, Phil, I appreciate the question. I'll kick it off and then ask Noah Hanners to actually give you the specifics of that capability because it's going to be very unique for Nucor. But if we step back to the macro question you asked about why, look, it's the right opportunity. If you look at Nucor's market share in the largest sheet consuming region in the U.S., it's about 15% or 16%. So we have a huge opportunity to grow in that space against what we believe is some competitors that we have ample opportunity to continue to provide a better differentiated value proposition in that market. So the geography of West Virginia, coupled with the state in the Mason County, West Virginia, the people of that state fuels what we believe is going to be an unprecedented growth for us and a capability set unlike anything Nucor has brought to bear in the market. So we couldn't be more excited about the geographic, the technical and again, the people side of the state of West Virginia. They've been an amazing group to work with. We couldn't be prouder of the team we've hired, the work that's being done there. But Noah, why don't you touch on some of the capability sets in the mill. Noah Hanners: Yes. Maybe just to add a little bit more detail to Leon's excitement there. One, we feel great about the strategy to get into higher value-added products. And specifically at West Virginia, that's about 1/3 of that production going into the automotive market. And some of those grades, the quality of the production there will be into exposed automotive, an area where EAF production really hasn't played broadly before in the U.S., and we're really excited about the capability to get there mostly because of the demand we hear from customers. We've recently gotten qualified on exposed automotive through another route to our mills, and that will really open the door for us to expand our business into the highest quality automotive production. The other point I'd highlight is in the consumer durables. We haven't had great market share there with especially items like appliances. And Leon hit the regionality of this, but we see some pretty substantial growth in demand through some reshoring projects that are being built in that region. So probably those are the 2 areas that I'd highlight for you, 1 million tons of galvanizing is going to play really well with that. We're going to have the capabilities to match what is really robust growth in demand for us. Philip Gibbs: And do you have any carryover CapEx from these major projects like West Virginia into 2027, Steve? I know you talked about $800 million maintenance plus whatever growth you have, and you always have some sort of growth element. But anything left on West Virginia or these other major projects in '27? Stephen Laxton: Yes, there'll be a small amount, Phil. That's very normal for us to have some carryover between calendar years. We'll update you more on the outlook in '27 as we get toward the end of '26. So I'd love it if that team beats every time and we don't do that, but that's been the historic pattern year on. Philip Gibbs: And then if I could sneak one more in just on kind of just a modeling question, high-level question, just because I don't have it in my model. Do you guys have an idea what mill utilizations were for Nucor in general in 2025? Leon Topalian: Yes, we do. As I think about our major product groups, somewhere in that 82%, 84% range is about the right utilization, Phil. Operator: Our next question comes from Katja Jancic from BMO Capital Markets. Katja Jancic: I think earlier, you talked about beyond the current project pipeline, you would be looking at growth opportunities that would be less capital intensive. In the future, could you talk -- or could you provide a little more color on what the, let's say, annual growth CapEx could potentially be in a more normalized environment without these major projects? Leon Topalian: Well, Katja, yes, I appreciate the question, and I'll probably have you back into the numbers because we're not going to exactly tell you the exact amount of dollars. What I would tell you is this, we are committed to a long-term investment-grade credit rating. We're committed to returning at least 40% of our net earnings back to our shareholders in dividends and share repurchases. And quite frankly, beyond that, I want to use the rest 60% for growth, period, full stop. So I want us to be using the money that Nucor is generating to continue to fuel our growth for the next 10, 12, 15, 20 years and beyond. And so that's how you can be thinking about it. We -- again, we provided some details in the 2022 Investor Day that we had. And so again, if you think of a through-cycle EBITDA of $7 billion, okay, everything that didn't go back to our shareholders is then going to be used for growth. So again, our M&A teams are working hard, and we're really looking really hard this year at, okay, how do we invest that, how do we grow -- continue to grow Nucor in meaningful ways. And I think you're going to see a shift from heavy core investments to heavy adjacencies or what we call the Expand Beyond investments over the next several years. Katja Jancic: Maybe just a follow-up to your comment about M&A, can you talk a little bit more? I know you said adjacencies, are there specific products? Or how should we think about these type of businesses? Leon Topalian: Yes, Katja, again, I shared a little bit earlier, but look, we've been fairly open with our investment filters and strategy in M&A and particularly adjacencies that they're going to have some steel centricity. There's going to be some connection to Nucor gaining and using and having the opportunity to have synergies. So it's something that's going to connect us to, for example, like C.H.I., with the overhead door businesses in Rytec and what a wonderful adder, where they've been a huge player in the residential space, a little less so in the commercial. Well, again, that's where we play in the commercial side. So our teams and our Buildings Group, our Nucor Warehouse Systems groups to be able to use and combine forces to be able to provide that, the hyperscalers and colocators in the data center. It provides a wonderful platform for us to continue to grow Nucor and as well that business footprint. So when you think about the megatrends in the U.S. today, energy, energy infrastructure, data centers, towers, structures, those are the areas you can be looking and expect that Nucor is searching really hard for those companies that would be additive and where we see synergies and value [ in creating EVA ] for our shareholders. Operator: Our next question comes from Andrew Jones from UBS. Andrew Jones: Just a few questions. First of all, on pricing. I'm just curious how you're looking at your pricing policy now given, obviously, we have on import parity, your traditional importers are probably getting sort of close to $1,000 on HRC, I would guess. But I guess if you're talking about like East Asia, they can probably land HRC in the U.S. at close to $800. So given that gap is now growing to import parity versus, say, some of these East Asian countries, like what stops those volumes starting to tick up in the coming months? And do you see that as a material risk? And does that hold you back from potentially lifting prices much further from here? How do you think about that in the context of changing trade flows? And I've got a second question, if you answer that first. Leon Topalian: Yes, Andrew, I want to make sure I'm getting at the heart of your question. I think I understood what it is. But Steve, if I miss parts of that or -- jump in. But look, we had similar questions back in '21 and '22 when the U.S. economy was so hot and the world pricing was less, right? We saw spreads of HRC that were $200, $300 a ton or in some cases, in short points greater than that. And what's sustainable? And are you taking -- look, we are a commodity-driven business who values our shareholders and our customers a great deal. It is that bedrock that ultimately dictates pricing, not our wishes. It is what the demand profiles and supply chain is looking like in the U.S. And what I would tell you is that the separation today in the U.S. from the world market is for a good reason. Look at the demand profile against the backdrop of a really healthy and robust economy outside of just steel. You're seeing growth, reshoring, investments, nuclear energy, like just a number of facets that are creating this. So it's not a false narrative that it's the only reason pricing is up because President Trump put in place tariffs. That's not it at all. Shoot, it wasn't 5, 6 months ago, we saw HRC at $800 a ton. So it's not that. It's a much broader economic picture of strength of the U.S. and why every foreign investment wants to come and build here. It's why you saw -- and now what was the -- a U.S. company, now a Japanese company and U.S. Steel. It's not an American company today. It is a Japanese-owned company. And you're going to see continued investments from foreign companies that are looking to capitalize and come to the U.S. because of that strength. And so, look, the forecasted [ touch on ] pricing, look, I'm not going to try to predict. What I would tell you is based on what we're sharing with you our historic backlogs, volumes, the demand, the robustness that we see in this economy, again, I think '26 is shaping up to be a very, very solid year for Nucor. Andrew Jones: Okay. That's clear. And then just on the CapEx, I mean, you sort of talked about it a bit already, but I guess the guide for '26 was lower than what the Street had in. And if there isn't substantial overspill into '27, it looks like the cost of some of those projects have come down despite obviously all the tariff risks. I mean, what do you attribute that to? I mean were you building in a lot of contingency that hasn't come to pass? Or like what's changed? Stephen Laxton: Andrew, this is Steve. In many regards, it's the -- you have to look at '25 coupled with '26. So if you're only looking at '26, it looks like maybe relative to what your estimate would have been that our forecast is lower. But we also -- we ended up spending $3.4 billion, which is a little bit more than a year ago on this call, we would have guided you closer to $3 billion for the spin. So our teams did an outstanding job advancing those projects. And we -- as Leon mentioned in his opening comments, we brought a number of projects online this year. So kudos to our team. They covered a lot of ground. We -- almost arbitrarily, there's a year-end stuck in there. But under the course of time, when you look at both of those 2 numbers together, it's in line. So it's not that there's been a reduction in cost. It's really just timing difference between the 2 periods. Andrew Jones: Okay. That's clear. And just finally, on the M&A front, I mean, obviously, your peers have been pretty active. From the perspective of your market share, I mean, do you think that M&A would be possible for you on the actual upstream steel side of the market, given how large you are relative to others, obviously, with imports going down? I mean, do you have scope or interest in expanding in the upstream side? Or is it mainly just focused on some of those downstream areas you've alluded to? Leon Topalian: Yes, Andrew, look, we are the largest steel producer in the Western Hemisphere. So yes, every M&A opportunity in our pipeline holds interest. And so where we think we can grow and do and move, we will absolutely do so. But make no mistake, Nucor is a steel company at its heart, and we will continue to grow through adjacencies and Expand Beyond, but it's the capabilities through our steel that fuel and fund all of that growth. And so yes, as those opportunities emerge, you can bet Nucor's looking hard and evaluating hard of how we think about growth in the core businesses. Operator: Our next question comes from Tristan Gresser from BNP Paribas. Tristan Gresser: The first one is on the incremental EBITDA from the completed projects. Could you give us a sense of how much those projects contributed in 2025? And what do you expect in terms of EBITDA contribution for 2026? Stephen Laxton: Yes. Tristan, that's a great question. So if you just took -- are you talking about just -- I want to clarify, just if you're talking about the projects that came online last year, there's 4 major projects that came online. When you put those along with continued progress at Brandenburg, the delta in the EBITDA is about $500 million between just those 4 projects and progress at Brandenburg. So it's a meaningful uplift in 2026's outlook for us just from those recently completed projects. Tristan Gresser: Okay. Sorry, just to clarify, you expect a $500 million additional contribution from those projects plus Brandenburg in 2026 versus 2025? Stephen Laxton: Yes. That's the delta in EBITDA between all projects together. Correct. Tristan Gresser: Okay. Got it. And second question, could you provide us a bit of an update on the plate market? You referenced Brandenburg. It would be good to know where the -- what's the situation today. But also on plate, I think we've seen some price hike announcement in December, January. But when I look at spot prices, they've not moved too much. So are you facing some resistance? Can you discuss a bit the demand environment? And also keen to get some sort of update on the rebar market and where do you see the ramp-up at Lexington? That would be great. Leon Topalian: Okay. Tristan, you have -- Brad Ford will kick us off on plate. And then maybe, Randy, why don't you touch on the start-up in Lexington? Brad Ford: Yes. Thanks for the question. Overall, we're pretty excited about where we're at on plate entering '26. As we touched on a few times on this call, backlogs are strong. Backlogs in plate are up 40% from this time last year. And we're coming off a pretty good year in terms of overall domestic consumption, which was up 15% year-over-year and really the best since we've seen since 2019. Obviously, couple that with an import picture where imports ended 20% down on cut-to-length plate for '25. And a lot of that was in the second half of the year as the market kind of worked through higher levels of imports from earlier in the year. So all told, we feel pretty strong going into '26. Strength in certain end-use markets, specifically energy, line pipe, transmission, wind are pretty strong. Nonres construction continues to be robust. I know Leon has referenced our structural backlog. And then infrastructure and specifically bridge continue to remain robust. So strong demand picture, low import levels and strong backlogs, we feel pretty confident going into '26. Randy Spicer: Tristan, just to give you an update on Lexington. First, I certainly want to thank our Lexington and Kingman teams for their continued focus on safely and successfully ramping up these new investments. We are extremely encouraged by those operations. They're ramping up, developing and how that team is executing on those projects. We continue to hit more and more milestones. Each week, we're setting and breaking production records on a regular basis. So this is an absolutely fantastic time to be bringing these investments up. We are currently sitting with record backlog on that side of the business. So we remain confident that both, quite frankly, our Lexington and Kingman operations will be EBITDA positive by the end of the first quarter, and we would expect both also to be fully ramped by the end of the year. Operator: We currently have no further questions, and I would like to hand back to Leon Topalian, Chair and CEO, for any closing remarks. Leon Topalian: Well, thank you for joining us for today's call. We feel very good about the position we're heading into 2026 and look forward to the opportunities we have before us. Thank you to our team for the safety, operational and financial performance you delivered in 2025. And thank you to our customers for choosing to do business with Nucor each and every day. And thank you, finally, to our shareholders for investing your valuable shareholder capital with us. Have a great day. Operator: Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Greetings, and welcome to the RBB Bancorp Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. And please note, this conference is being recorded. I will now turn the conference over to your host, Rebeca Rico, financial analyst. Ma'am, the floor is yours. Rebeca Rico: Thank you, Ali. Good day, everyone, and thank you for joining us to discuss RBB Bancorp's results for the fourth quarter of 2025. With me today are President and CEO, Johnny Lee; Chief Financial Officer, Lynn Hopkins; Chief Credit Officer, Jeffrey Yeh; and Chief Operations Officer, Gary Fan. Johnny and Lynn will briefly summarize our results, which can be found in the earnings press release and investor presentation that are available on our Investor Relations website, and then we'll open up the call to your questions. I would ask that everyone please refer to the disclaimer regarding forward-looking statements in the investor presentation and the company's SEC filings. Now I'd like to turn the call over to RBB Bancorp's President and Chief Executive Officer, Johnny Lee. Johnny? Johnny Lee: Thank you, Rebeca. Good day, everyone, and thank you for joining us today. The fourth quarter was a strong finish to 2025 with solid loan growth, improving performance ratios and normalizing credit. The entire RBB team continues to work hard to return the bank to its historic performance, and I'm very proud of what the team has accomplished. We still have work to do, particularly with respect to resolving remaining nonperforming assets but we're confident that we turned the corner on credit, and that performance will continue to improve in future quarters. Fourth quarter net income totaled $10.2 million or $0.59 per share which was stable from the third quarter but more than double our earnings for the same quarter a year ago. ROA and NIM showed similar trends and were stable from the third quarter while increasing sharply from a year ago. For the year, loans grew at a solid 8.6%, which we believe demonstrate the progress we have made, returning RBB to its historical rate of growth. We had another quarter of strong originations to $145 million. And for the year, loan originations were 32% higher than they were in 2024. Our pipeline remains healthy and in line with this same time last year, so we are optimistic we will see another year of high single-digit growth in 2026. We continue to maintain pricing and structuring discipline with fourth quarter originations yielding 31 basis points above our current loan portfolio yield. Despite the Fed rate cuts of 75 basis points in 2025, we were able to drive our fourth quarter yield on loans up 4 basis points to 6.7% compared to the same quarter a year ago. Deposits were not the bright spot of 2025 and we show the progress we made by focusing on community outreach to attract retail deposits and expanding relationships with our business clients. Fourth quarter total deposits increased 6.6% compared to the fourth quarter a year ago, with strong growth in interest-bearing nonmaturing deposits supporting loan growth and a reduction in FHLB advances. Average demand deposits remained stable in 2025 and currently comprise 16% of total deposits. The fourth quarter rate on average interest-bearing deposits declined by 55 basis points from the fourth quarter of 2024 or 73% of the rate cuts we saw last year. While we were successful reducing funding costs last year, competition for deposits has been increasing and recent rate cuts have not delivered the same pace of reductions in our deposit costs. We made significant progress addressing our nonperforming assets during 2025. Nonperforming loans decreased 45% and nonperforming assets decreased 34% since the end of last year and included ongoing improvement during the fourth quarter. Criticized and classified assets also improved during 2025, decreasing by 43% for the full year and 25% since end of the third quarter. With that, I'll hand it over to Lynn to talk about the results in more detail. Lynn? Lynn Hopkins: Thank you, Johnny. Please feel free to refer to the investor presentation we have provided, as I share my comments on the fourth quarter and annual 2025 financial performance. As Johnny mentioned, and you can see on Slide 3, net income for the fourth quarter was $10.2 million or $0.59 per diluted share, which is stable from the third quarter. Fourth quarter pretax pre-provision income was $2.3 million or 21% higher than a year ago, which is 4x the growth rate in assets over the same time period. Net interest income increased slightly, the sixth consecutive quarterly increase, adding 1 basis point to the net interest margin, which was $2.99 in the fourth quarter. Asset yields declined by 7 basis points, driven primarily by the 4 basis point decrease in loan yield due to the market decreases in the prime rate in the last 4 months of the year. At the same time, average funding costs declined 8 basis points, driven mostly by a 7 basis point decrease in the cost of deposits, which included a 12 basis point reduction in the average cost of interest-bearing deposits. For the year, net interest income increased by 13% to $112 million due to loan growth, relatively stable asset yields and a 38 basis point decline in funding costs. Our spot rate on deposits was 290 at the end of the year, which was 6 basis points lower than the average cost of deposits in the fourth quarter. To this end, we expect to see some incremental improvement in deposit costs in the first quarter. But as Johnny mentioned, competition remains intense, so it is difficult to quantify what the impact will be. Fourth quarter noninterest income declined by $486,000 from the third quarter, which had included a $0.5 million gain related to 1 equity investment. During the fourth quarter, in addition to SBA loans, we sold $22 million of mortgages, which drove an increase in gain on sale and we remain optimistic that our SFR production levels will continue to support ongoing loan sale activity. Compared to the fourth quarter of 2024, all categories of noninterest income increased, except for other income. Fourth quarter noninterest expenses increased by $282,000 mostly due to year-end accruals, but were in line with expectations. Our operating expense ratio was stable from the third quarter at 1.80% of average total assets. First quarter expenses are expected to increase due to seasonal taxes and salary adjustments and then stabilize for the next few quarters in the $18 million to $19 million range as professional service fees are expected to moderate in 2026 compared to 2025. We also reduced the quarterly effective tax rate by 330 basis points in the fourth quarter when compared to the third quarter of 2025. This was mostly due to a reduction in the multistate blended tax rate and benefits from ongoing state tax planning. The overall 2025 effective tax rate benefited from purchased federal tax credits and state apportionment tax planning. The effective tax rate in 2026 is expected to be between 27% and 28%. Slides 6 and 7 have additional color on our loan portfolio and yields. As Johnny mentioned, originations have been strong at $145 million in the fourth quarter and $73 million for all of 2025, which was 32% higher than the originations we saw in 2024. Slide 7 has details about our $1.7 billion residential mortgage portfolio, which represents 50% of our total loan portfolio and consists of well secured non-QM mortgages primarily in New York and California with an average LTV of 54%. Slides 10 through 12 have details on asset quality, which continues to improve. As Johnny mentioned, we did a lot to work -- we did a lot of work to stabilize and revolve our NPAs in 2025. We believe we are appropriately reserved on our NPL and REO assets as we work towards their resolution. The provision for credit losses totaled $600,000 in the fourth quarter due mainly to charge-offs and loan growth, partially offset by the impact of positive changes in economic forecast and credit quality metrics. We expect future annual credit costs to be much lower now that credit has stabilized. Slide 13 has details about our deposit franchise. The decrease in total deposits during the fourth quarter of 2025 was due to a $42 million decrease in brokered deposits, offset by a $26 million increase in retail deposits which has supported our loan growth. Tangible book value per share increased 7.8% during 2025 to end the year at $26.42 while at the same time, returning over $25 million in capital to our shareholders through dividends and the repurchase of approximately 4% of our outstanding shares. Our capital levels remained strong with all capital ratios above regulatory and well-capitalized levels. With that, we are happy to take your questions. Operator, if you would please open up the call. Operator: [Operator Instructions] Our first question is coming from Matthew Clark with Piper Sandler. Matthew Clark: Just want to start on the deposit beta this quarter, 30% in terms of interest-bearing. It sounds like competition is still pretty intense. How should we think about that beta going forward? Should you think you can hold that 30%? Or do you feel like you need might that come down throughout the year? Lynn Hopkins: Matthew. Thank you. So the 30% for the linked quarters, I would say we're sort of just getting started. So kind of year-over-year, we were able to achieve, I think, closer to that 70% and I think given that we still have a very large portion of our funding base and deposits that will mature over the next year. We think the deposit beta will continue to increase. Matthew Clark: Okay. Great. And then just any update on your plans for the sub debt leases in -- Lynn Hopkins: Yes. So you're right. We have $120 million of sub debt that's eligible to be redeemed and will reprice effective April 1 of this year. So I think that we're looking at the opportunities to rightsize it for our balance sheet and for our capital stack. So I think -- if it was set just to reprice on its own, we're just under 7%. I think the market is more attractive. So we'll be looking at something maybe more holistic in addition to, like I said, rightsizing it for our balance sheet. So I think that's where we're at right now. Matthew Clark: Okay. Great. And then just last one for me on capital. You still have a lot of excess capital, how should we think about the buyback this year? Lynn Hopkins: Yes. I feel like once we rightsize the sub debt, I think there'll be an opportunity for us to be more active on a buyback program. I think one step at a time. I think the end of the 2025 had a continuing to be a little bit more inward facing as we resolved credits wrapped up 2025. So I would expect both the sub debt and then returning to being more active on the buyback. Operator: Our next question is coming from Brendan Nosal with Hovde Group. Brendan Nosal: Maybe just starting on the margin. Definitely, I hear your comments earlier on the pace of deposit competition. But I guess when I look at the margin, the pace of improvement was a bit muted this quarter versus recent quarters. Can you maybe just talk about how you view the path of the margin as we move through '26? Lynn Hopkins: Sure. So let me add just a little bit more color to why we think there is an opportunity, I think, for deposit costs to continue to come down. So again, 99.5% of our $1.7 billion in CDs will mature within the next 12 months. And 40% of those are actually in the first quarter. I think the average price of those is in the high 3s, and I think funding has come down to probably at the high end around the 30% mark. So I think a portion is going to have an opportunity to reprice into the current interest rate environment and we haven't fully seen that. And then I think for -- and then we've also shifted a portion of our funding from traditional CDs into non-maturity interest-bearing products. They have kind of some similar yields, but I think will give us more flexibility as rates continue to come down based on forecast. So I don't know if that's helpful, Brendan or if you're looking for something more specific. Brendan Nosal: Yes. No, that's helpful. I mean, is it fair to say, based on that outlook for downward funding cost repricing that there's room for the margin to continue to expand? Lynn Hopkins: Yes. We are still, I would say, slightly liability sensitive, maybe a little bit more neutral than we've been in the past. You're absolutely right that from a NIM perspective, what we saw in the fourth quarter as our earning asset yields came down a little bit as liquidity repriced into the current environment and then our loan yield came down just slightly. I think there's still opportunity to hold our earning asset yield and our loan yields based on the shape of the yield curve, the repricing characteristics of our loan portfolio. But there's definitely downward pressure on it. It's not that without being very careful, especially since our loan-to-deposit ratio sits around 99%. So I think we're looking at having some attractive deposit beta. We're looking at NIM expansion. One of our biggest opportunities for NIM expansion is our nonperforming assets and continuing to resolve them. They held relatively flat kind of quarter-over-quarter, but we've made progress in, I think, ultimate resolution. So that would also have a positive impact on our net interest margin being able to return over $50 million to an earning asset status. Brendan Nosal: Okay. Okay. Great, Lynn. That's helpful. One more for me just on credit. First of all, congrats on the workout this quarter and the improvement in virtually all metrics. As we look forward, I get that there's a ton of moving pieces here, but can you just kind of talk in broad strokes on where you hope to see credit metrics by the time we sit here in 12 months and look back on 2026? Johnny Lee: I'll talk. That's quite, I would just say in a few quarters, we always stated that we're staying very laser focused on resolving much of our classified, criticized credits and hopefully, this quarter's results demonstrates our ability to continue to kind of moving positively to get most of the results. So let's also keep on track on what we're doing right now. I would hope that certainly 12 months now, you'll see much continuously see improvements in our credit picture. Lynn Hopkins: Yes. I think in addition to what Johnny stated, so our NPLs are well understood. 90% of them are represented by 4 relationships. Of those 4 relationships, 3 of them are continuing to make payments based on agreements, which is good because it continues to lower the balance towards what could be ultimate resolution. So we're really only focused on a few. I think that gives us a really good opportunity to get them worked out during 2026. We're optimistic that, that will happen in the first half of this year. But one of them is the partially completed construction project, which represents about half of that balance and that one will probably take the longest. So as we sit here a year from now with credit stabilized, we look to have sold our OREOs and to have these resolved. Obviously, there may be regular activity, but expect that these larger ones will be moved out. Operator: Our next question is coming from Kelly Motta with KBW. Kelly Motta: Maybe on loan growth, it slowed down a bit from the past 2 quarters to low single digits. Wondering if you could speak more to the pipeline where you're seeing opportunity? And if the decline was more of a function of payoffs or lower demand or just maybe some deposit constraints given your loan-to-deposit ratio and the competitive dynamics that you cited earlier in the call. Johnny Lee: Kelly, this is Johnny. I think quite a combination of all the things that you have mentioned. But I mean, overall, again, obviously, we have some loan sales and we had some strategic exits on a couple of classified credits. And for loan sort of momentum, actually, we certainly want to do more, but compared to previous year, overall, I think we're doing pretty well as far as keeping that momentum going. The pipeline is still relatively healthy right now, both for the commercial and the residential mortgage side. So I think even though Q4 seems a bit light, but I think overall on average, are new funded loans for commercial is about $65 million per quarter and mortgage is about $90 million per quarter. And looking at the pipeline right now, certainly, we feel very optimistic that we can continue to keep that pace. Lynn Hopkins: I think as we sit here today, we are in as good as, if not better position at the same time last year when we were able to achieve over 8% annualized growth. I would kind of comments, the fourth quarter loan growth was a little bit muted, but we did have a higher volume of loan sales, as Johnny mentioned. And we were working to resolve some substandard credits. So we were happy on those exits. And I think with the interest rate environment, payoffs and paydowns can tend to come up a bit, but they are actually a little bit lower than third quarter. So we think that our ongoing production will fall through to net loan growth as we go forward. But I think those things just kind of had a little bit downward pressure, but I think every -- all the metrics are healthy to sit behind it. Kelly Motta: Got it. Maybe last question for me on expenses. You've rewarded about $19 million in the quarter. Just looking into '26. I'm wondering if this is a good run rate to build off of? And any kind of puts and takes. Like I know legal and professional has been maybe more elevated than past years, probably related to the workout but should be presumably declining. And then any kind of thoughts for additional things we should be baking in as we look ahead to next -- this year, sorry, I keep saying next year -- this year, 2026. Lynn Hopkins: I know. I'm doing the same thing. I think that the run rate in the fourth quarter is a pretty good indication of our overhead or quarterly overhead to achieve the production levels we were able to achieve in 2026. So I think what we saw is compensation is a bit higher to reflect the growth inside of the company. We also have management transition this year that we wouldn't necessarily expect to reoccur, and we can reallocate those dollars into higher cost of doing business. You're exactly right, legal and professional. We think there is an opportunity for those costs to come down as credit is stabilized. So while there is a step-up when I look from 2024 to 2025, I don't know that it requires that same step-up in order to achieve mid- to high single-digit loan growth. I think there's also other opportunities to grow top line, if for some reason, expenses go higher. So -- but I think just when you look at just that part of it, we're looking in that $18 million to $19 million range. I think you can tell. So first quarter based on kind of pay raises and taxes kind of has an extra kind of $0.75 million, I think, is kind of what pops through in the first quarter and then it normalizes after that. Operator: Our next question is coming from Tim Coffey with Janney. Timothy Coffey: Then, I guess my first question for you would be, do you see this year as an opportunity to lower the loan to deposit ratio considering the potential to reduce interest expense through the course of the year as well as grow interest income? Lynn Hopkins: Great questions. So I would say a couple of things. One, we lowered our reliance on wholesale funding. And I think it's relatively low and very manageable. So obviously, to lower the loan-to-deposit ratio, deposit growth would have to outpace our loan growth. And I think we're looking at some attractive loan growth in 2026. Our retail deposit growth did keep pace with our loan growth in 2025. So we would expect the same. I think pushing down significantly would maybe take some opportunistic loan sales that we would then put that benefit into the equity. But I would say, generally, I think there's some opportunity to maybe get into the mid-90s. But I don't know if it would get much lower than that, Tim. Timothy Coffey: Okay. Yes, I wasn't contemplating that you sell loans to get there. I thought that you'd be able to grow retail deposits faster. And then, Johnny, as we talked a little bit about the pipeline for this year in terms of loan growth, and we are going to see another a year just like the past one. How -- what is the competition like for commercial real estate loans right now in your footprint? Johnny Lee: Actually, still -- competition is always there. But again, we want to be very strategic about the kind of relationships that we bring in. Certainly, the rate has a little bit more challenged as far as we're trying to maintain the yield that we had in, let's say, prior first half of the year last year. But the -- but overall, I think we've been able to, I think, hold our ground pretty well, because, again, we're a very relationship-driven bank. And so we look at each one of these prospects of contract that we are considering lending to. We look at the overall potential of the relationship, not just what we might be able to generate from a yield standpoint, but any other additional ancillary businesses that might come along with it such as deposits, of course. So with that, I think from a relationship standpoint, we still are able to be fairly competitive. But again, the reality is, certainly, we always face competition on the rate side. Timothy Coffey: Yes. Okay. Yes. Are you seeing competitors undercutting the spreads on these loans relative to where the yield curve is? Johnny Lee: Well, I think we are from a yield standpoint, we've actually given a given up quite a bit of businesses for sort of competitor against some of our peers who are offering these 5-year fixed rates below 5.75% on average or 5.5% to 5.75% by the way, so far, I think we're holding pretty well above the 6% or higher right now with a yield that were much of the pricing that we've been proposing. Operator: As we have no further questions on the line at this time, I would like to hand the call back over to Mr. Lee for any closing remarks. Johnny Lee: Okay. Thank you. Once again, thank you for joining us today. We look forward to speaking to many of you in the coming days and weeks. Have a great day, everybody. Operator: Thank you. Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good day, everyone. Welcome to Western Alliance Bancorporation's Fourth Quarter and Full Year 2025 Earnings Call. You may also view the presentation today via webcast through the company's website at www.westernalliancebancorporation.com. I would now like to turn the call over to Miles Pondelik, Director of Investor Relations and Corporate Development. Please go ahead. Miles Pondelik: Thank you, and welcome to Western Alliance Bancs Fourth quarter 2025 conference call. Our speakers today are Ken Vecchione, President and Chief Executive Officer; and Vishal Idnani, Chief Financial Officer. Before I hand the call over to Ken, please note that today's presentation contains forward-looking statements which are subject to risks, uncertainties and assumptions, except as required by law, the company does not undertake any obligation to update any forward-looking statements. For more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, please refer to the company's SEC filings included in the Form 8-K filed yesterday, which are available on the company's website. Now for opening remarks, I'd like to turn the call over to Ken Vecchione. Kenneth Vecchione: Thank you, Miles. Good afternoon, everyone. I'll make some brief comments about our fourth quarter and full year 2025 performance before handing the call over to our new Chief Financial Officer, Vishal Idnani to discuss our financial results and drivers in more detail. I'll then close our prepared remarks by reviewing our 2026 outlook. Dale Gibbons, now back by popular demand and our new Chief Banking Officer for deposit initiatives and innovation and Tim Bruckner will join us for Q&A. Our Western Alliance closed 2025 with strong momentum delivering record quarterly financial results and broad-based performance across the franchise. We saw robust loan growth, reduced seasonal deposit outflows, positive net interest income trends, stable NIM, rising fee income and continued expansion in PPNR, all while maintaining steady asset quality and demonstrating meaningful operating leverage. In the fourth quarter, net interest income, net revenue and PPNR all reached record levels. EPS for the quarter was $2.59, up 33% from prior year. Return on average assets was 1.23%, return on average tangible common equity was 16.9%, and tangible book value per share rose 17% year-over-year to $61.29. For the full year, we generated diversified HFI loan growth of $5 billion or 9% across regional banking and our specialized C&I verticals. Deposits increased $10.8 billion or 16% supported by strong regional banking inflows and approximately 40% growth in our specialty escrow businesses, which Dale is now leading. Net interest income rose 8.4% on a linked quarter annualized basis driven by loan growth and higher average earning assets and accompanied by a stable margin. We continue to build momentum in commercial banking fees. Cross-selling treasury management, commercial products and digital escrow disbursement services drove a 77% increase in service charges and fees in 2025. Q4 mortgage banking revenues did not experience a large seasonal decline and hence, we're only down $5 million compared to prior quarter. Our Juris banking team delivered a standout quarter completing the first round of more than $17 million in digital payments in connection with the Facebook, Cambridge Analytica consumer data privacy settlement, the largest in U.S. history. Demonstrating the power of our comprehensive disbursement platform. Mortgage banking fundamentals continue to firm and quarterly results exceeded expectations despite typical seasonal softness. We are constructive on this business heading into 2026 due to the current administration's focus on delivering affordable homeownership, potential capital relief on MSRs and continued mortgage rate reductions which point to a stronger results for this business. Operating leverage was a major theme in 2025 with net revenue growth outpacing noninterest expense growth by 4x. Our multiple -- multiyear investments to prepare for large financial institution status are serving us well. And even if the Category IV threshold remains unchanged, we expect to cross $100 billion in assets by year-end 2026 without a notable step-up in expenses. Asset quality remained steady in Q4 with total criticized assets declined by $8 million and staying well below midyear levels. We are working to proactively resolve nonaccrual balances with meaningful improvement expected by the end of the second quarter. We expect net charge-offs to remain elevated in the first half of the year as we work through nonaccrual loans with reserves adjusting modestly as our mix shifts towards higher return C&I growth. However, these actions reinforce the strength of our credit discipline and should enhance our powerful risk-adjusted earnings engine supported by an expanding revenue base and operating leverage. We are well positioned for 2026 and excited about our organic growth opportunities. With that, Vishal will now walk you through our results in more detail. Vishal Idnani: Thanks, Ken. Turning to Slide 4. In 2025, Western Alliance produced record net interest income of $2.9 billion, net revenue of $3.5 billion and pre-provision net revenue of $1.4 billion. Net income available to common shareholders was $956 million and EPS was $8.73. Net revenue and pre-provision net revenue increased 12% and 26%, respectively, from the prior year, demonstrating the continued successful execution of the bank's organic growth strategy. Noninterest income rose 25%, primarily driven by stronger commercial banking and disbursement fees as mortgage banking remained essentially flat and in line with our prior expectations. Noninterest expense growth slowed to 4%. Lower deposit costs and reduced insurance expense were key drivers of this moderate expense growth and reinforced our operating leverage. These factors were key to strong annual EPS growth of 23%. Now shifting to Slide 5, record net interest income of $766 million grew $16 million or 8% on a linked quarter annualized basis as a result of strong organic loan growth, leading to a higher average earning asset balances, while NIM remained relatively steady from the prior quarter. Noninterest income rose 14% from Q3 to approximately $215 million from stronger commercial banking and disbursement fees. We experienced continued firming in mortgage banking revenue during what is typically a softer quarter. Loan servicing revenue was slightly down from accelerated MSR amortization as prepayment speeds increased with recent lower mortgage rates, which has benefited gain on sale income. Noninterest expense increased about $8 million from the prior quarter to $552 million. Overall, we delivered solid operating leverage this quarter with net revenue growing nearly 5%, which outpaced the 1% growth in noninterest expense. Pre-provision net revenue of $429 million marked another record quarter. Provision expense of $73 million declined $7 million from Q3 to account for stronger loan growth, the continued remixing of the portfolio into C&I categories as well as the replenishment of net charge-offs. Turning to balance sheet on Slide 6. HFI loans grew a robust $2 billion in the quarter, bringing full year loan growth to $5 billion, which matched our 2025 full year guidance. Deposit growth across regional banking, specialty escrow services and HOA remains strong and helped offset typical seasonal pressure in mortgage warehouse. Notably, mortgage warehouse deposits performed better than expected, reflecting our efforts to improve stability by increasing the share of more durable principal and interest escrow balances. As a result, total deposits were essentially flat for the quarter. For the full year, deposits exceeded expectations by a wide margin, increasing $10.8 billion or nearly $2.5 billion above our revised guidance from last quarter. In late November, we successfully issued $400 million of subordinated debt to bolster our total capital ratio. Overall, total assets expanded by $1.8 billion from Q3 to approximately $93 billion. Total equity ended the year at $8 billion, supported by organic earnings and an improved AOCI position, partially offset by higher dividends and the initiation of share repurchases. Tangible book value per share continued its upward trajectory, rising 17.3% year-over-year. Turning to Slide 7. Loan growth accelerated in Q4, increasing $2 billion from the prior quarter or $5 billion for the year. Regional Banking posted about $1 billion of loan growth with leading contributions from innovation banking, in-market commercial banking and hotel franchise finance. These businesses made consistent sizable contributions to overall loan growth throughout the year. Additionally, if you look at the chart in the upper right corner, you'll see most of our quarterly and annual growth came from C&I. Mortgage warehouse and MSR financing were leading loan growth contributors from the national business lines. Now looking at Slide 8, impressive deposit growth in 2025 was driven by a notable acceleration in regional banking deposits across both in-market commercial banking and Innovation Banking, along with continued momentum in specialty escrow services and HOA. To put numbers on it, in Q4, regional banking deposits grew $1.4 billion of which $500 million came from Innovation Banking, while specialty escrow services deposits rose over $850 million and HOA deposits increased over $400 million. As noted earlier, the small decline in period-end deposits from Q3 reflected strength in these businesses largely offsetting expected mortgage warehouse outflows. This is a notable improvement from the $1.7 billion net quarterly deposit decline experienced in Q4 2024. Turning to Slide 9 here. Turning to our net interest drivers. Interest-bearing deposit costs fell 23 basis points from reduced costs across product categories. Solid average balance growth in lower cost interest-bearing DDA and savings and money market deposits reflect this deposit cost optimization. Overall liability funding costs also declined, compressing 18 basis points from the prior quarter from lower borrowing costs. Looking at average earning assets, the securities yield declined 18 basis points from Q3 to 4.54% from lower rates on a relatively stable average balance. The HFI loan yield compressed 17 basis points following the resumption of FOMC rate cuts in September, which continued in Q4 with two additional 25 basis point reduction. Looking at Slide 10. Net interest income rose $16 million from Q3 to $766 million, driven by strong loan growth that pushed average earning assets $2.5 billion higher. The modest 2 basis point compression in net interest margin to 3.51% stemmed primarily from a 20 basis point decline in the yield on average earning assets from higher cash balances along with the impact of lower loan and security yields. The outperformance of deposit growth led to the spike in average cash balances, which we expect to revert to more normalized levels going forward. Turning to Slide 11. Non-interest expense only increased 1% quarter-over-quarter. Deposit costs of $171 million resulted from higher average balances in deposit businesses such as HOA. The Q4 efficiency ratio of 55.7% and the adjusted efficiency ratio of 46.5% both fell about 5 points year-over-year. Looking just at non-deposit cost OpEx, the quarterly increase reflects higher corporate bonus accrual related to our financial performance, partially offset by lower FDIC assessments. As has been reported by other banks, we also recognized a reduction in the FDIC special assessment, which lowered the insurance expense by about $7.5 million. Concurrent with this benefit, AmeriHome recognized mortgage servicing deconversion costs of a like amount. Now looking at Slide 12, we remain asset sensitive on a net interest income basis, but essentially interest rate neutral on an earnings at risk basis in a ramp scenario. This offset is supported by a projected deposit cost decline and an increase in mortgage banking revenue based upon our rate cut forecast of 25 basis point cuts in April and July. Turning to Slide 13. Asset quality remains stable. Criticized assets decreased nominally from Q3 and totaled $1.4 billion. Reductions in classified accruing assets and nonaccrual loans were partially offset by modest increases in special mention loans and OREO. Turning to Slide 14. Quarterly net charge-offs were $44.6 million or 31 basis points of average loans. Provision expense of $73 million was primarily a function of strong C&I driven loan growth and net charge-off replenishment. Our allowance for funded loans moved about $20 million higher from the prior quarter to $461 million. The total loan ACL to funded loans ratio edged up 2 basis points to 87. Our total ACL fully covers nonperforming loans at 102% and rose 10 points from the prior quarter. Now looking at Slide 15. Our tangible common equity to tangible assets ratio increased approximately 20 basis points from September 30 to 7.3% from strong earnings growth, while our CET1 ratio edged down to 11% at our target level. Our solid capital levels are indicative of our ability to generate sufficient capital organically, support robust balance sheet growth while returning value to shareholders through share repurchases. We also issued $400 million of subordinated debt at the bank level in late November that augmented our total capital to 14.5%. We repurchased about 0.7 million shares during the quarter for $57.5 million at a weighted average share price of $79.55. Turning to Slide 16. Tangible book value per share increased $2.73 from September 30 to $61.29. From strong growth in organic retained earnings and complemented by a 16% improvement in our AOCI position. Since initiating our share buyback program in September, we have repurchased over 0.8 million shares to date and have utilized just over $68 million of the current $300 million authorization. Our quarterly cash dividend was hiked $0.04 during the quarter. Consistent upward growth in tangible book value per share remains a hallmark of Western Alliance and has exceeded peers by 4.5x over the past decade. Turning to Slide 17, Western Alliance has been a consistent leader in creating shareholder value over the medium and long term. We have provided on this Page 11 metrics, we believe, are key factors in driving leading financial results, strong profitability and sustainable franchise value that ultimately compounds tangible book value and produces long-term superior total shareholder return. For the last 10 years, our EPS growth and tangible book value per share accumulation have ranked in the top quartile relative to peers. We are also the leader in tenure EPS, tangible book value, loan, deposit and revenue growth compared to peers. Lastly, ROATCE growth, the last 2 quarters has made solid progress toward achieving top quartile performance. I'll now hand the call back to Ken. Kenneth Vecchione: Thanks, Vishal. Given the strong macroeconomic tailwinds, we continue to see including an increasingly pro-growth regulatory stance, constructive sentiment across our commercial client base and improving visibility on rate normalization, we remain confident in another year of strong earnings momentum for Western Alliance. Our 2026 outlook is as follows: We entered 2026 with strong loan pipelines across business lines, supported by a healthier macro backdrop and what we view as increasingly accommodative regulatory and political environments. These factors are broadening the risk appetite of our commercial customers. As a result, we expect loan growth of $6 billion and deposit growth of $8 billion. We continue to feel confident operating with CET1 around 11% with our strong organic earnings trajectory, we expect to continue opportunistic share repurchases, subject to market pricing while maintaining capital broadly in line with current levels. Our strong loan growth outlook combined with continued opportunities to lower funding costs, supports our expectation for net interest income growth of 11% to 14%. We assumed two 25 basis point rate cuts in this outlook. We also expect modest expansion in net interest margin throughout the year driven by ongoing remixing into higher-return C&I categories and sustained momentum in core deposit growth. We expect non-interest income to grow between 2% to 4% off an elevated starting point. The building momentum exhibited in service charges and fees and the constructive environment for mortgage points to continued growth in noninterest income. The combination of these emerging tailwinds favor a more robust revenue environment for mortgage and MSR-related income even as we continue to operate with a conservative forecast. Noninterest expense will rise primarily as a function of scale and targeted investments that support top line growth and operational efficiency. For 2026, total operating expenses are expected to increase between 2% and 7% for the year. Deposit costs are projected to decline again between $535 million to $585 million from continued rate relief. Operating expenses, excluding deposit costs are expected to be between $1.62 billion and $1.67 billion, reflecting continued investments in several new business lines and future technology. Looking at asset quality, we expect net charge-offs between 25 and 35 basis points as we proactively reduced nonaccrual balances over the next couple of quarters. As I discussed in my opening remarks, with the ongoing loan growth shift into C&I, the reserve level should adjust as the mix evolves. Our risk-adjusted PPNR trajectory remains strong, and we are confident in continued robust EPS growth. Finally, we project our full year 2026 effective tax rate to be approximately 19%. At this time, Vishal, Dale, Tim and I look forward to your questions. Operator: [Operator Instructions] Our first question today comes from the line of Andrew Terrell with Stephens. Andrew Terrell: I was hoping to maybe start on just the balance sheet growth guidance. Obviously, loans up $6 billion in 2016, deposits up $8 billion, unchanged versus kind of your 2025 expectations. You gave a lot of positive commentary about the momentum. I'm just wondering why maybe not a higher loan and deposit growth guidance? Or do you feel like you're being conservative this year? Kenneth Vecchione: Yes. Well, number one, our loan growth and deposit growth as projected is -- leads the peer group. And I'll just point that out. That's one. Number two, what you see here is all organic growth, which is very important. Number three, we are deemphasizing certain areas of our loan portfolio, i.e., mostly we're doing less in residential loan growth. So as that runs off, it puts more pressure on the other areas to accommodate the runoff in volume. And I guess, number 4 is that $6 billion and $8 billion seems about right. And as we continue to move forward throughout the year, if the projections are proving to be conservative, we will adjust accordingly. But going into this year, $6 billion to $8 billion will produce something along the order of a consensus EPS that's out there today in the $10.38 range, which is about 19% EPS growth, which is, again, leading the peer group for any bank for organic growth. I actually think maybe leading the peer group even for banks that have had M&A activity during the course of the year. Andrew Terrell: Great. And then, Ken, just on the charge-off commentary as well, it sounds like the charge-offs could be a little bit front half loaded. I guess just should we think about first half charge-offs is potentially above your full year guided range before normalizing back to that 20 basis point type level that you've been guiding to previously as we move into the back half? Or just how should we think about the timing of charge-offs or magnitude throughout the year? Kenneth Vecchione: Yes. I would say, I would think about the range as the midpoint coming into the year for modeling purposes at 30. You could see it a little bit higher than that in the first half of the year as we look to get rid of a number of nonaccrual loans that have been on our books -- that is our effort to bring that number down well below our loan loss reserve. And we think that will be good -- look, personally, good for the business. It's good business overall and it will be healthy for our PE expansion and improving our market capitalization. So we are doing that. I think you saw some of that in Q4. Charge-offs were a little bit higher than maybe you thought but classified and criticized loans remained flat. And in terms of our visibility into the first half of the year, we have a number of properties designated to be either upgraded or sold or notes sold or properties sold. And the hard part will be to determine whether or not a lot of that happens in Q1 or Q2. There's, as you know, a lot of paperwork that goes along with that and negotiations but we do have a confident level that by the end of the Q2, the nonaccrual loans will be down. Operator: Our next question comes from Chris McGratty with KBW. Christopher McGratty: Vishal, maybe you could talk about the strength in noninterest income, big service charge number in the quarter. Again, I want to make sure I understand the sustainability of it. I guess what's in that line? And obviously, I heard you on mortgage, but any near-term expectations for mortgage in a seasonally tough quarter. Vishal Idnani: Yes, sure. Happy to take that one. I think the big one there is the service charges. Two primary drivers in that, Chris. The first one is treasury management. We've made a lot of investments in that and we continue to see a pickup in that on the cross-sell there. And the second one is going to be what Ken and I mentioned in the prepared remarks. There's a big improvement in fee income related to the digital disbursements business. Right? So we did handle one of the largest settlements that Facebook, Cambridge Analytica. And we're actually when you get the settlement, we're distributing it to the end claimants and there's fees associated with that. So it's going to depend on what that business looks like going forward, but we've already have other settlements that have come in. So we do feel positive on where that line is going in terms of sustaining that trajectory. On the mortgage side, I think Ken hit this well. Kenneth Vecchione: Let me -- I'll take that. So first, Chris. We are constructive on the mortgage business, as I said, as we begin 2026. And we see several tailwinds that could provide additional alpha earnings to our 2026 projections. As a starting point, we are assuming a 10% year-over-year increase in total mortgage fee-related revenues. However, if several of the administrations make housing affordable programs take hold, combined with favorable regulatory changes and a lower interest rate environment, we think AmeriHome could outperform these projections. As a data point and it's an early data point, so I caution everyone on this. But as a data point, entering the year here, we expect Q1 total mortgage revenues to be nearly equal Q4 results, but I'll tell you that January's volumes and margins as of close of business last night, we're presently trending above our planning assumptions. So a little conservative on the mortgage income. It's based on some tailwinds, which we think are going to come. We'll wait. Those happen to be whether or not there's access to 401(k) funds or the GSEs buying $200 billion more of mortgage bonds. We also see certain areas of the United States seeing supply exceed demand. So we think some housing pricing may come down and certainly in the Southeast and we expect a couple of rate cuts certainly with potentially a more sympathetic Fed chair in May. So with all that going on, I think that's the economic and administration tailwinds that we have. There's also a couple of regulatory tailwinds and we're going to wait to see what happens here but it's our understanding coming out of Q1 that the FRB may give us additional guidance on MSRs. And the two things that we're looking at is, one, will the FRB reexamine the MSR 25% cap to CET1 capital? And if they do that, that will allow us to either hold on to -- that will allow us to hold on to more MSR receivables and those have a double-digit yield to them. And so we like that. On the other hand, there's another consideration, which is the change the risk weighting of the asset -- of the MSR asset, which you know is 2.5x to 1. If that comes down, that will either free us up to hold on to more MSRs or it could allow us to buy back more stock or support more growth to the first question today that we received or we just want to go to capital and we build a higher capital base. So we have some things going on here that potentially could be very strong as it relates to the mortgage business. So a little wait and see, but we have some optimism and trying to restrain it, but I'm hoping that it does come to fruition. Christopher McGratty: That was great. And just as a follow-up for the NII, 11% to 14% with the two cuts. I guess, what puts you at the high end versus the low end? Kenneth Vecchione: The higher end is the average earning assets. If that comes in and grows at a faster pace. We had a great Q4. Our average earning assets in Q4 were up $2.5 billion. So that was fabulous. And usually, it all depends on the loan and deposit growth and when it comes in. That's the hardest thing for us to forecast on an average basis. We can usually get it right on an ending quarter basis. But on an average basis, it's always the one thing that's a little bit softer for us to predict. But we're confident that, that range is good. And I would think it's 12% or greater as a floor, if I was modeling. Dale Gibbons: We're also hopeful that on the deposit side that the categories that are lower cost to us that would pull down our average cost and expand the margin are some of the ones that we're going to be focusing on in terms of digital assets, our trust company and business escrow services in particular. Operator: Our next question comes from David Smith with Truist Securities. David Smith: Can you give us an update on your ECR deposit expectations? How do you expect the mix of ECR within total deposits to shift with the $8 billion of growth in the outlook for this year? And then can you also give an update about how the mix inside of ECR is shifting? Like is there less mortgage warehouse and more settlement services? And how does this affect the ECR rate paid and your beta to changes in short rates over the next year? Vishal Idnani: Yes. I'll start and Tim can add. So first thing I'd say is when you think about the ECR deposits to our total deposits today, if you think about it on an average basis, around 37% today, if you think about end of period, it's around 33%, right? So about 1/3 -- when you think about what that mix shift is going forward on the $8 billion of deposit growth, I think you can largely expect it to hold constant from a mix perspective. We're obviously hoping to push more of that towards the non-ECR. But I think as the forecast stands today and things will move around, I think you can assume the mix is going to move pretty consistent with where we are today. When you think about the beta on the ECRs, we would say think about a 65% to 70% beta on those ECR deposits, but appreciate there's very specific businesses that drive that, right? On the mortgage warehouse side, that's more like 100% beta. When you think about the HOA, I think like 35% to 40% beta and then you've got Juris. So there's a mix of different things in there. So hopefully, that gives you a little bit of sense of what the mix is and what the deposit betas are for the ECRs. Timothy Bruckner: Yes. I'll just add one other thing, too, and I'll tie it back to the first question, which was gee, we thought your deposit growth would even be greater than $8 billion. We're coming into the year of projecting warehouse lending as a division to have flat deposit growth. And what we're trying to do is remix that so that deposit growth comes from the cheaper deposits. Now one of the things that's interesting here, and this will tie into the mortgage fee income question that Chris asked as well, in Q4, we did $1.5 billion better, meaning our deposits in warehouse lending were $1.5 billion higher than we expected because of the mortgage activity and the refinancing activity that was occurring. So one of the things that's -- so what's the good news about that? Well, if there's a lot of refinancing activity, deposit levels should be up for warehouse lending going forward. So that's something to consider. But also with that type of refinancing activity, it should give more volume opportunities to AmeriHome. What it means to your question is, even though we're coming into the year flat for warehouse lending in terms of deposit growth, you could see it spike up accordingly with the volume growth and the movement in that industry. David Smith: And then just as a follow-up, how are spreads trending on new loan origination? And have you seen any changes from competition there? Kenneth Vecchione: We're sort of ending the year or the spot rate now, at the end of the year is about the same as you see in the book. There isn't a day that we don't wake up and have competition and have to worry about yield coming from different players. As the economy gets better and more banks get aggressive to start driving in their organic growth. That, of course, puts a little bit of pressure on us. For us, we keep a tighter lid on the operating expenses while we continue to invest in future businesses for future revenue growth. So if we have to give up a little bit in yield to get loan growth, so be it, as long as it's safe and sound and credible credits, we will go ahead and do that. Tim, do you want to add anything about what's happening on the regional side in pricing? Timothy Bruckner: Yes. What we're really seeing is our specialty business lines are insulating us a bit. There's a definite flight to quality in the market. And our specialties have well-established relationships, control environments and structures where folks are doing business with us for something other than rate. I think that's really important. And we're seeing the strongest growth in those deep channels. Operator: The next question comes from Jared Shaw with Barclays. Jared David Shaw: Maybe sticking on the deposit side. Any update, Dale, early update on some of the initiatives you're working on because it feels like maybe there's a little more of a margin tailwind from the funding side as we look at that NII guide. Dale Gibbons: Sure. Well, maybe I'll just run through them. I really do think these are -- really have awesome opportunities in front of them. I love the bank. I've been here a long time, but I think some of the more interesting things are likely to happen in some of these sectors. The first one is our HOA group, and we talked about how well that's done. The bank is about 30 years old. This has been around about half that time, started at 0 and is now the largest HOA provider in the country. Notably, for the past 8 years, every quarter, they've exceeded our new record balance for them. And that consistency, we think, is important, and we think we're out in front. And frankly, we want to be pulling away from where we're going to be going, going forward, and they're going to have strong performance in 2026. The next one is our Juris Banking operation. We talked about that with the combination with digital disbursements that's already received some color during this call. We're the largest class action mass tort claims settlement entity in the country. We've now expanded that into providing banking services for basically law firms nationwide. We expect to triple their loan volume in 2026. Our digital asset group, we're serving our clients 24/7, which is, of course, digital asset markets are open 24/7. I'm a big believer in kind of the tokenization of everything, and we want to be out in front and facilitating that process. Our trust company, we started that 3 years ago. In under 3 years, we are now broken into the top 10 of the largest CLO trustees worldwide. And they have doubled basically in 2025 and they're going to -- we think they're going to be doubling again in 2026. And our business escrow services function, that's where we provide services to ease the M&A process for private companies selling to either public or private ones for collection of funds, disbursement and also holding on to earn-outs and reps and warranties. So in total, we think these are going to grow about 3x as fast as the bank overall, north of 30% in growth. And most of these have notably lower costs than what we're incurring in our other deposit channels as mortgage warehouse is the largest one for some of the ECRs and that one, as Ken mentioned, will be holding relatively flat, we expect. Jared David Shaw: Okay. Great. I appreciate all that detail. I guess shifting back to the credit question with the expectations for higher charge-offs at the beginning as you work through some of those NPLs. How should we think about provisioning and the allowance with that backdrop? Vishal Idnani: Yes, sure. Happy to jump in there. In terms of where the allowance is for funded loans on the HFI balance today, it's 78 basis points. That's about flat quarter-over-quarter, up about 8 basis points from 70 a year ago. As we think about where that's going next year, I think you can see that allowance drift up a little bit, maybe into the low 80s. And that's largely just a function of, as we said, we see the loan growth mainly coming on the C&I side. So there will be a little bit of a remixing as we do that. And then in terms of the charge-offs, the other piece to get to the provisions, how you can back into it, it's exactly what Ken said. You've got the 25 to 30 bps guidance for the full year. We think right now, it's going to be around that midpoint. So hopefully, that gives you the data points you need. Operator: Our next question comes from Casey Haire with Autonomous. Casey Haire: So I want to follow up on the NIM outlook. Ken, I think you said you expect it up throughout '26. And it sounds like it's positive mix shift on the loan side, moving to more -- less resi and more higher-yielding C&I and the deposit side, as Dale just mentioned, the growth in lower cost deposits. Just wondering, any color you can provide like what C&I categories are you growing faster and sort of the yields around them? And then this growth in lower cost deposit channels, is this going to up the deposit beta in a meaningful way? Just trying to get a better sense on the magnitude of NIM expansion. Kenneth Vecchione: Yes. Okay. Starting on the liability side on the deposits. I think you saw -- if you look at the numbers for Q4, you can see how much we were down in CDs. And so we meaningfully took our CD funding down and that helped our deposit costs decline. We continue -- we will continue to do that through 2026 and that will give some support to NIM. Let me just say about NIM. It's not going to jump up dramatically, but it's going to slowly cascade up throughout the year, okay? Remember, we have 2 rate cuts embedded in there as well, right? For planning purposes, I would always assume NIM is flat, but it does have a slight gentle stream upward to the right. We also are accentuating the businesses growth that Dale is running. And these businesses price more attractively than our traditional deposits. One of the things Dale didn't fully touch on, and I may just throw it over to him in a second, is in our digital asset group, the fact that we now do 24/7 interbank trading. And for that, we get a premium, i.e., a larger discount in what we pay for funding. I'll give that to Dale in just one second. The combined -- on the other side of the balance sheet, I'll take something that Tim Bruckner said, which is the business lines of lot banking, hotel financing, resort financing. Even private credit, all those yields are holding on to where they are. I won't say we have pricing power, but we have the ability to bring in volume based on the pricing that we're holding. And so you'll see more volume come out of those groups in 2026. Dale, did you want to say anything about IBT at all? Dale Gibbons: Yes. Let me just describe what we're doing on this IBT 24/7 that I alluded to and Ken amplified on. I mean, my analogy is it's like the SPDR Gold Trust. SPDR Gold Trust is the largest gold repository in the ETF in the world. And what you do is you just buy and sell your ETF. You don't have to actually own the gold anymore. Well, we're not holding gold, but we're holding U.S. dollars. And these clients can come to us and 24/7, unlike the ETF, which only turns when the markets are open, 24/7, they can convert money to U.S. dollars or from U.S. dollars to any kind of where they are. And that service level is important. And there's things like this in our other businesses as well that lead to lower funding costs. It's because we're providing services that are not widely available. And as a result, we're going to actually have a lower beta, not a higher beta on these types of things. I might note that our deposit growth in 2025 is actually a little bit better than maybe as advertised. You haven't seen this yet, but our broker deposits fell by more than $1 billion on top of that. So the $10.8 billion is already net. There's more like $12 billion. So I think we really outperformed this last year. I know our guidance for 2026 and I feel like we're going to be able to meet that guidance for sure. Casey Haire: Okay. Great. And then just one more on expenses. So if I look at the core expense growth actually the ECR deposit costs, it implies about a 9% to 13% growth understanding you guys got a lot going on. But is there a wiggle room if the deposit cost relief does not materialize, meaning you could maybe flex that lower? Kenneth Vecchione: Sorry, the question is, can deposit costs go lower to drive down more year-over-year operating expense growth? Casey Haire: Yes. The expense growth ex the deposit costs, right? So that implies 9% to 13% growth. If deposit cost relief doesn't kind of materialize the way you guys, can you flex that core expense lower? Kenneth Vecchione: Yes. So embedded in our expectations is that there is no change to LFI guidance. So we've got the full boat of expenses embedded in there that we need to spend in order to meet the $100 billion threshold. Now if the LFI guidance is moved up from $100 million to some larger number, some say $150 million, some say it will be $250 million, then the dollars that we spend there will be reduced, will not be eliminated, but will clearly be reduced because there are certain things that we want to get to and we think are better for the company. So we have room there. We also have room in looking at business expansion and revenue initiatives. But I'll tell you, the secret to our success and the secret to our growth is that we always work on new businesses or new products and services, new business lines so that we can develop an S-curve so that 2 years from now, some of the things we're working on begins to take form and it drives higher revenue. The stuff that Dale mentioned with the IBT network, we started working on that 2 years ago, all right? And so now it's coming to fruition, and we think it's going to drive future success. Juris Banking, we worked on 4 to 5 years ago. BES 3 to 4 years ago. So all these businesses have taken time. Go back and only because Dale is here, I'll say HOA, we worked on 12 years ago, all right? And we did it in such a way that we're now the #1 market share leader in HOA, and we continue to pump out significant deposit growth there as well. So my answer to you is, can we flex on things? Of course. But we're going to balance that with what's good for the short term and what's really good for the long term. And so far, we've done a fairly good job of managing short-term and long-term expectations and driving in long-term growth, whether it be on the balance sheet or in fee income as well. Operator: The next question comes from Janet Lee with TD Cowen. Sun Young Lee: So it appears that some of the confidence... It appears that some of the confidence in your 2026 ECR deposit cost guide is coming from a remix of ECR deposits into lower costs and away from mortgage warehouse for the time being. Are you able to share the composition of ECR deposits among mortgage warehouse, HOA versus Juris? I believe those are the 3 biggest today versus, let's say, the end of the year or what your internal targets might be? Kenneth Vecchione: No. That makes me feel very uncomfortable just because of the competitive environment we're in. I mean it's -- in terms of ranking them, warehouse lending is the biggest, followed by HOA, followed by Juris. And that's what I would tell you. But absent of that, I'm not going to provide what our deposit levels are for any one of those businesses, I'm sorry. Sun Young Lee: Okay. That's fair. And your ACL ratio going up from 78 basis points to low 80s by the end of this year, you said it's really driven by the C&I loan growth and NCO replenishment and I guess, the nonaccrual cleanup. Is there any update you could share on either Cantor or First Brands on that note? Kenneth Vecchione: Okay. Yes. Let me handle First Brands first. And it's really -- our loan is not to First Brands, but it is to Point Bonita, which is a subsidiary of Jefferies. That loan continues to pay down at an accelerated pace. Last quarter, I think we said it was about $168 million outstanding. Today, it sits at $124 million outstanding. So it went from a 19% advance rate against receivables to investment-grade retailers to about 14% to 15%. And so we have good visibility into that. That continues to pay down. That is a past loan, and we're not carrying much concern about that. It's behaving as expected. And as I said, the payments are coming in a little bit faster than what we modeled. And so we're very pleased there. As it relates to Cantor, as you can imagine, I am going to be somewhat limited as to what I can say because of the ongoing legal action that we have. But we have gotten a -- put in a receiver into the business. And that was with the support of the 2 ultra-high net worth individuals. That receiver has ordered all the appraisals for all the properties. We are expecting those appraisals to come in, in early March. Once we see what those appraisals are, we'll have a better understanding of the value of the collateral relative to the outstanding loan. The outstanding loan is $98 million, and then we can proceed from there. So at this point, that's all that I can really tell you that what we're up to, but we hope to have a better insight, better clarity when we present our first quarter numbers. Operator: The next question comes from Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: I guess maybe just one more on credit. So you provided good clarity in terms of the charge-off provisioning outlook. Ken, is the takeaway also that you don't expect classified like special mention went up a little bit this quarter? Like are you feeling good about the pipeline in terms of credit metrics should keep improving from here? Or what could kind of cause any incremental deterioration that could surprise to the downside, if you can talk about that? Kenneth Vecchione: Yes. So asset quality remains stable, and there have been several notable areas of improvement. First, the number of new or rising credits has declined. So that's a positive. We also are seeing an increased willingness from the borrowers to collaborate and work to measurably reduce nonaccrual loans by midyear. We always had this mantra, Tim Bruckner is sitting across to me. He started when he was Chief Credit Officer of early identification and early elevation. Our new Chief Credit Officer, Lynne Herndon, has taken that and modified it just slightly, early identification, early elevation and now accelerated resolution. And so we are working to do that in order to move the classified and criticized numbers down. I will say they are clearly down from second quarter. And interesting to note is that when we look at our credit quality, and we look at, for example, classified loans to Tier 1 capital plus ACL for Q4, that stands at 11.7%. But that compares very favorably to our peer group, $50 billion to $250 billion, and we're using Q3 peer median. So you have to give me a little bit of what leeway here since you haven't calculated everything for the -- for Q4. But that stands at 14.7%. We're at 300 basis points better, all right? So we do -- our asset quality is improving. We came up off the floor of nearly 0 losses. And so it looks a little bit worse than it is, but we're running with our guidance about equal to or slightly below where the peer group is. Tim Bruckner, I don't know if I said too much. I don't know if you want to add anything to that. Timothy Bruckner: No, I think that's a great synopsis. The focus as we continue to communicate was on office loans identified, I think, first discussed with this group in Q1 '23. We've had ongoing discussion. There's a finite inventory of those loans as we've continued to reference and it's shrinking. And the classified office loans are down 1/3 from midyear 2025. And we have deliberate strategies at the asset level around each asset. The elevation brings our executive management team to bear on every situation. And those loans are marked to as is values less liquidation costs. So we feel that, that takes the beta out as we work through resolution. Ebrahim Poonawala: That was good color. And I guess just a separate question. I think, Ken, you talked about all the things over the years you've done to build the pipeline for future growth. As we think about deposits, is inorganic make any sense at all for Western Alliance when we think about maybe transforming the distribution network, having a greater branch footprint? Are all of those things something that you think about? Or just given the momentum you have on organic growth, all of that would be a huge distraction. Kenneth Vecchione: Well, I think the last part of your statement is true. It would be a huge distraction. And when we -- first of all, we do think about it, we should think about it, and it is a discussion point among the senior members of the team. One of the things we consider when we look at alternative inorganic opportunities is return on management's time. And if we went and did anything, would it take away from all the organic growth that we have. We think we're unique with this organic growth. We think it's important. We think it comes with less execution and operational risk. And I'll tell you truth, it's certainly a lot more fun trying to grow a business and go into different products and services or regions than it is to sit on a call and announce, guess what, we just converted our general ledger, and we're very excited about it. So the entrepreneurial spirit here at the bank is more towards organic growth. Having said that, if something fell into our lap that was able to make us bigger and better, okay? That's the key. I look at a lot of deals that are done for people wanting to get bigger, all right? What we -- our criteria is bigger and better. So if there is a bigger and better that help get us into a series of deposit lines that could reduce deposit costs, we'd be very excited to look at something like that. But bigger for big's sake, I think would take away from the organic momentum that we have. Dale Gibbons: Ken mentioned earlier that we have, based upon the estimates out there for 2026, one of the strongest EPS growth targets out there. And so the challenge -- one of the challenges to look at somebody else is to say, gosh, we're growing at 19%. What is everyone else going to be doing and how that might be diluted because our growth is so strong and that not necessarily reflected in RPE. Operator: The next question comes from Matthew Clark with Piper Sandler. Matthew Clark: Just want to circle back to the service charge line. Can you maybe quantify how much the Facebook disbursement fees were this quarter? And it sounds like you've got some settlements coming to help mitigate that headwind going forward. But how should we think about kind of a sustainable run rate there before we see some seasonality again in the fourth quarter? Kenneth Vecchione: Yes. Unfortunately, we're not going to be able to give you any numbers around the settlement and what we generated in terms of fee income. Okay. That's number one. And number two, the thing about settlements, they're hard to predict for us quarter-by-quarter. The Cambridge settlement, we actually thought was going to happen earlier in the year. And so when we get awarded these mandates, we feel great about them, but it's hard for us to predict when they're going to come in. We take a best guess of cost. And so we're not going to be able to give you any very specific data on that. It exposes us to too much competitive risk here, sorry. Matthew Clark: Okay. And then just on the interest-bearing deposit costs, you had a 55% beta this quarter. Could you give us the spot rate on deposits at the end of the year and then your outlook for that beta going forward? Vishal Idnani: Yes, sure. Happy to. So the spot rate on interest-bearing deposits is 2.81%, and that's down from the average rate for the quarter of 2.96%, right? So you're already seeing it come down very nicely. And in terms of where it goes going from here, I'd put it in that mid-50s range is probably the right place when you think about that bucket. Operator: The next question comes from Gary Tenner with D.A. Davidson. Gary Tenner: I just had one quick follow-up to clarify the earlier question on the non-deposit cost expense growth for the year. So it sounds like from what you're saying, if I interpret it correctly, any flexibility there is around the CAT IV threshold more than any tethering of that expense growth to the revenue side, right? Because the majority of that is investment for longer-term opportunities. Is that the right way to think about it? Kenneth Vecchione: Yes. Yes, it is. Gary Tenner: Okay. And then the second question, just, I guess, also a follow-up on that commercial business or the commercial banking fee line. Maybe just even any first quarter sense. I mean, is kind of a blend of 3Q, 4Q kind of the more reasonable expectation than anything closer to the fourth quarter? Kenneth Vecchione: For servicing fees, is that the question? Gary Tenner: Yes. Yes. Dale Gibbons: I think that's fair. I mean it is going to fade from Q4 numbers. We can't really guide you exactly where it's going to go. It is lumpy, but the pipeline for future transactions that we'd be out there in front in terms of helping facilitate disbursements looks good. So -- but this was the largest case basically in U.S. history with 17 million claimants. And so that is going to be diminished in Q1, Q2. Operator: The next question comes from David Chiaverini with Jefferies. David Chiaverini: So I had a follow-up on the IBT network and tokenized deposits. There's been a lot of talk about the strong growth in stablecoins and the potential to disrupt banking deposits. Is it fair to say the IBT network is competing with stablecoins? And can you talk about the client uptake and growth outlook here? Dale Gibbons: I don't think it competes. I think it complements. I mean at the end of the day, people still want to do -- have fiat currency or be able to figure out how they can get back to fiat in quick order. And so what stablecoins do is like my analogy has been McDonald's. I don't think you're ever going to drive through a McDonald's and see a price of a Big Mac in Satoshis. But you're going to see it in U.S. dollars, and you're going to be able to pay for it with USDC with your phone with a flash. And in the background, we're there and saying, okay, so here's something that pain that came in on USDC delivery of that and then what's going to be going out is to -- is U.S. dollars. Within our walled garden, working with stablecoin providers, we facilitate that. We complement what they do more than compete. David Chiaverini: Perfect. And then I wanted to ask about average earning asset growth, particularly on securities portfolio and held-for-sale loans. Any commentary there? Is it right to think about average earning asset growth similarly to deposit growth? Kenneth Vecchione: Well, yes, deposit growth will drive average earning asset growth. You're absolutely right there. Dale Gibbons: We're liability-based in terms of the value of the franchise. We always have been. I think if you get it the other way around, you tend to push on credit underwriting. So we used to have a strong deposit growth at low cost gives us opportunities to make good loans, move into high-quality securities, whatever that might be. Operator: Our next question comes from Bernard Von Gizycki with Deutsche Bank. Bernard Von Gizycki: On the $535 million to $585 million in ECR-related deposit costs you expect for full year '26, you've been rate dependent in the past, and now you're moving to shifting to lower ECR-related balances. Could you provide some sensitivity on the ECR costs if we get 2 rate cuts versus if the Fed is on pause from here? Vishal Idnani: I think we'll still be able to -- we continue to work on. I think we'll be able to drive it down as well. But obviously, it will not go down as much if we don't see those rate cuts, right? I think that will help us move it down further. So I think you can see that being a little bit more sticky if we don't see a drop in rates from here. Bernard Von Gizycki: Okay. On loan growth, the $6 billion for full year '26, so you noted the strong pipelines across business lines, and you noted the C&I will continue to lead the way. Just curious, any color you can share on how big CRE could be a contributor given some of the expected maturities expected in full year '26? Timothy Bruckner: Sure. So in 2025, you can see that we curtailed our growth and pressed out in some cases, CRE loans as a percentage of total loans, they decreased. In 2026, we're not projecting significant dependence on CRE in our total growth numbers. So we call it a modest increase. The preponderance of the increase is coming from our commercial strategy-based and segment-based business strategies where we're aligning our fee-based and treasury products with the credit discipline that we have. And really with that, garnering a broader -- driving a broader spectrum of revenue. So you won't see a significant increase coming from CRE for those reasons. Operator: Our final question today comes from Anthony Elian with JPMorgan. Anthony Elian: Your CET1 is 11% as of 4Q, which is at your target for this year. I know on the outlook slide, you say buybacks remain opportunistic, but should we expect buybacks to take a step back relative to the $57 million you did in 4Q, given you're already at your target for CET1? Kenneth Vecchione: Yes. So 11% is where we feel comfortable. Would we like that to rise? Yes. In regards of the stock buybacks, we don't have anything really layered into our models. We're there in case there's a disruption in the market. We think the capital that we need is -- needs to be there to support the $6 billion in loan growth. And if there's any weakness in the $6 billion in loan growth, then we can switch in support with the EPS goals by buying back the stock. But it wouldn't be something I'd model in. And if we reported that we bought back some stock, it's because we had an opportunity to buy at a discount price vis-a-vis the market. Anthony Elian: Okay. And then on the ECR, so I get your guide $535 million to $585 million this year. But is there a scenario where you can actually see that expense rise from last year relative to the $630 million? If I just think you're not getting as much relief this year from lower rates with only a couple of cuts. You call out the steady investments you have in growth on Slide 18. And the ECR mix from Vishal's comments on the $8 billion of deposit growth is expected to stay constant. I just think about those items as limiting some of the relief you're expecting to get on ECR costs. Vishal Idnani: The first thing I'd say is part of that, just at the beginning, remember, we did have a rate cut at the end of last year. So not all of that is actually baked into where the current rates are. So I think you could continue to see some trend down there. And then we're going to continue pushing on the mix, right? Appreciating what it is. It's hard to kind of say exactly for the year where this is going to land out. So trying to give you some broad level parameters here, but we're going to continue to push and the business is very focused on trying to drive down those costs. The irony here is that it could be higher than our guide. And if we have a very strong mortgage market, which is going to result in refis and those balances that now have a refi coming in or a sale of a house, those come through, and those can add hundreds of millions of dollars to those balances in short order that would actually be a good problem to have. And now we've got more deposits from this sector that we're actually kind of controlling a little bit, have more of an opportunity to tamp down their pricing, but you still could have a higher dollar number. So there's a way that we miss that actually results in better value creation. Operator: Those are all the questions we have time for today. And so I'll turn the call back to Ken Vecchione for closing remarks. Kenneth Vecchione: We're very pleased with the quarter, very proud of what we produced here and we thank you for taking the time to join us today to talk about our results, and we look forward to talking to you again in a couple of months for the Q1 results. Thank you, and happy and healthy New Year to everyone. Operator: Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.
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