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Operator: Good day, and thank you for standing by. Welcome to the First Western Financial, Inc. First Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question, press star-1-1 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, please press star-1-1 again. Please be advised that today's conference is being recorded. Now it is my pleasure to hand the conference to Tony Rossi. Please proceed. Tony Rossi: Thank you, Carmen. Good morning, everyone, and thank you for joining us today for First Western Financial, Inc.'s First Quarter 2026 Earnings Call. Joining us from First Western Financial, Inc.'s management team are Scott C. Wylie, Chairman and Chief Executive Officer; Julie A. Courkamp, Chief Operating Officer; and David R. Weber, Chief Financial Officer. We will use a slide presentation as part of our discussion this morning. If you have not done so already, please visit the events and presentations page of First Western Financial, Inc.'s Investor Relations website to download a copy of the presentation. Before we begin, I would like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of First Western Financial, Inc. that involve risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website. I would also direct you to read the disclaimers in our earnings release and investor presentation. The company disclaims any obligation to update any forward-looking statements made during the call. 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 the financial and other quantitative information to be discussed today as well as a reconciliation of the GAAP to non-GAAP measures. With that, I would like to turn the call over to Scott. Scott C. Wylie: Thanks, Tony, and good morning, everybody. We executed well in the first quarter and saw positive trends in many areas, including loan and deposit growth, net interest margin expansion, well-managed expenses, higher mortgage banking revenues, and improved asset quality. This resulted in another increase in our level of profitability, with EPS up 85% quarter over quarter. We continued to maintain a conservative approach to our new loan production with our disciplined underwriting and pricing criteria. As a result of the additions we have made to our banking team over the past few years, as well as the generally healthy economic conditions in our markets, we had a solid level of loan production which was diversified across our markets, industries, and loan types. As a result of our financial performance and the balance sheet management strategies, we had a further increase in both book value and tangible book value per share. Moving to slide four, we generated net income of $6.2 million, or 63¢ per diluted share, in the first quarter, which was higher than the prior quarter. This represented our third consecutive quarter in which we generated an increase in net income and earnings per share. With our prudent balance sheet management, our tangible book value per share increased 3.3% quarter over quarter. Now I will turn the call over to Julie for additional discussion of our balance sheet and trust and investment management trends. Julie? Julie A. Courkamp: Thank you, Scott. Turning to slide five, we will look at the trends in our loan portfolio. Our loans held for investment increased $41 million from the end of the prior quarter. We continue to be conservative and highly selective in our new loan production, but with the higher level of productivity we are seeing from the additions to our banking team that we have made over the last several quarters, we are seeing a solid level of new loan production. New loan production was $116 million in the first quarter. That production was diversified across our portfolios, and we are also getting deposit relationships with most of these new clients. We continue to be disciplined and are maintaining our pricing criteria. This resulted in the average rate on new production of 6.31% in the quarter. Moving to slide six, we will take a closer look at our deposit trends. Our total deposits increased $95 million from the prior quarter, or 10%, or $35 million in the quarter. The deposit growth in the quarter brought our loan-to-deposit ratio down from 96.5% in the prior quarter and 96.4% from a year ago to below 95%. Now turning to trust and investment management, slide seven. We had a $43 million increase in our assets under management in the first quarter, primarily attributed to lower market values, which were partially offset by the addition of new accounts. Net new accounts and contributions contributed a net increase of $42 million in the quarter. On a year-over-year basis, our assets under management increased by approximately 1%. As David will cover shortly, our trust and investment management fees have increased 5.3% from 2025, and we have restructured that team for growth. Now I will turn the call over to David for further discussion of our financial results. David? David R. Weber: Thank you, Julie. Turning to slide eight, we will look at our gross revenue. Our gross revenue increased 3.4% from the prior quarter due to increases in both net interest income and noninterest income. Turning to slide nine, we will look at our trends in net interest income and margin. Our net interest income increased 1.5% from the prior quarter due to an increase in our net interest margin. Our NIM increased 10 basis points from the prior quarter to 2.81%. This was due to a reduction in our cost of funds which was primarily due to lower rates on money market deposit accounts as a result of the company reducing deposit rates commensurate with the short-term decreases in 2025, and runoff of higher-cost deposit accounts. Our net interest income increased 19.7% from 2025 due to an increase in net interest margin and an increase in average interest-earning assets. Now turning to slide 10. Our noninterest income increased by approximately $600 thousand from the prior quarter. This was primarily due to increases in gain on sale of mortgage loans, risk management and insurance fees, and trust and investment management fees, which increased for the third consecutive quarter. Now turning to slide 11 and our expenses. Our noninterest expense decreased by $1.1 million from the prior quarter. The decrease was due to an OREO write-down in the fourth quarter 2025 and a decrease in professional services, partially offset by an increase in salaries and employee benefits due to payroll tax seasonality and an increase in bonus accruals as a result of the improved earnings in the quarter. Our efficiency ratio improved for the sixth consecutive quarter as we continue to tightly manage expenses while also making investments in the business that we believe will positively impact our long-term performance. Now turning to slide 12. We will look at our asset quality. As Scott indicated earlier, we saw improved trends in the loan portfolio in the first quarter, with decreases in nonaccrual loans and NPAs. This was partially driven by the sale of the last OREO property we had on the balance sheet. Additionally, we had no loan charge-offs in the quarter. Our allowance coverage was 77 basis points of total loans as improved trends during the quarter drove a release of provision. Now I will turn it back to Scott. Scott? Scott C. Wylie: Thanks, David. Turning to slide 13, I will wrap up with some comments about our outlook. Based on our first quarter performance, what we are seeing in our markets, our expectations for the year are unchanged from what we provided at the start of the year. Overall, we continue to see relatively healthy economic conditions in our markets, seeing good opportunities to add both new clients and banking talent due to the ongoing disruption from M&A activity, particularly in the Colorado banking market. We also recently added a new market president for Scottsdale, Arizona, where we see good opportunities for growth. Our loan and deposit pipelines remain strong and should continue to result in solid balance sheet growth in 2026, with loan and deposit growth at similar levels to what we had in 2025. In addition to the balance sheet growth, we expect to see more positive trends in our net interest margin, our fee income, and more operating leverage resulting from our disciplined expense control. We had net interest margin expansion of 26 basis points in 2025, and while we expect further expansion in 2026, it may not be at the same level as last year. While we will remain disciplined in our expense control, we believe that investing in the business will drive future shareholder value. The ongoing disruption from the M&A activity in our markets creates unique opportunities for us to add banking talent. We will take advantage of those opportunities if and when they materialize, as well as opportunities to add new clients. Based on the trends we are seeing in the portfolio and the feedback we are getting from clients, we do not see anything to indicate that we will experience any meaningful deterioration in asset quality. The positive trends we are seeing in a number of key areas are expected to continue, which we believe should result in steady improvement in our financial performance and further value being created for shareholders in 2026. We will now open the call for questions. Operator: Thank you so much. And as a reminder, if you do have a question, press star-1-1 and wait for your name to be announced. To remove yourself, press star-1-1 again. One moment for our first question. It comes from the line of Brett Rabatin with Stonex Group. Please proceed. Analyst: Hey. Good morning, everyone. Good afternoon. Wanted to start off. Obviously, great to see the trends this quarter in a number of categories. How many MLOs have you added, and then, obviously, a stronger start than usual on mortgage. How much production did you have this quarter? I know it was better than usual for 1Q. Scott C. Wylie: I think we added one new MLO in the quarter, and we added another seven folks in front-office banker-type jobs. The MLO additions are especially nice if they are a good fit for us and producers because they have very low fixed costs, and their compensation largely comes from variable cost from production. Do either of you have the data for last year, Andy? For last year MLO adds? And then this mortgage— Tony Rossi: Yeah. Give me a second. Scott C. Wylie: We will look up that number, Brett. Julie A. Courkamp: Mortgage had a good, strong first quarter. We saw gains on mortgage loans go from $800,000 in quarter four to $1.5 million in quarter one. So really strong production and economic conditions, I think, spurred that, but also the MLO adds we have been doing over the last several quarters have just given us a level of ability to produce mortgages. David R. Weber: And lock volume increased a little under $40 million quarter over quarter. We were just under $180 million in secondary lock volume for Q1. And then in 2025, we added eight MLOs. Scott C. Wylie: Okay. That is helpful color. And just on that point, I would love to tell you that we were expecting a strong first quarter, but actually, our experience is first quarter tends to be pretty quiet. We had been thinking that with the pent-up demand from slow mortgage markets in our geographic region that eventually we would see some pent-up demand come out and drive some volume. And I think that is what happened in Q1. It is a combination of pent-up demand, of course that we had unseasonably warm weather in our markets in Q1, and then definitely the impact of the new MLOs we have added. So those were really nice results to see. I will add one more data point. David R. Weber: We did not see a material decrease in lock volume in March, when rates materially increased. So that is what gives us comfort as far as what was driving mortgage origination volume, that it really was not solely dependent on improved rates because in March, that obviously did not happen from a rates perspective, and our volume still looked good in March. Operator: Okay. Analyst: That is helpful. And then you mentioned Scottsdale, new market president. Any other markets that you are keen on trying to grow stronger organically? And then I saw PNC made quite a few layoffs. I am sure mostly back office, but just wanted to hear if you are able to capitalize on any disruption in Colorado and maybe an update on what you are seeing from that perspective. Scott C. Wylie: So let us start with Arizona. In Arizona, we felt like we needed a leadership team that others would follow and that could really help us build our teams out there. We have two offices, one in Scottsdale, one in Phoenix, that have been open for years, and they have had good growth and they are profitable. But we have tiny market share in Arizona. We think we have a platform that would be attractive and unique and differentiated in that market, but we did not really have the leaders to put the teams together to make that happen. So we recruited one of the top folks out of First Republic/JPMorgan and added him nine months ago, something like that—October maybe. And then we hired one of the top folks out of FirstBank/PNC that started maybe a month or two ago. Those two executives have a very complementary set of skills, and they work really well together so far, and we are excited about what they can accomplish. We are feeling really positive about these hires we have made for Arizona and where that team is going to go. In terms of your second part of your question about market opportunities in other markets, it is everywhere. It is amazing to see the quality of talent that we are seeing when we open up a position. I think it is a generational opportunity for us. We have hired several people already. We have several more in the works that are going to be real value drivers for us going forward. And we have done it all in a fairly well-contained cost environment. We have been spending between $19 million and $20 million a quarter for something like twelve quarters now. It looked higher in the fourth quarter last year, but remember, we wrote down $1.3 million of an OREO because we had that last OREO under contract, and we knew the price was going to be down $1.3 million from our book value. So that shows up as an operating expense even though it is nonrecurring, obviously. Those expenses appeared more inflated in Q4 of last year than they really were on an operating basis. And then your last question on PNC: there is a really unique kind of emotional connection between Colorado and FirstBank that had long, deep roots here. I think it is a real challenge for any acquirer from the outside to come in and navigate that. The news this week that they were laying off 800 people or whatever it was was big news. I had phone calls this week from people calling to say that they were sad, that this was a real tragedy for our economy here. I think that is just going to continue to create opportunities for us, and I see it pretty much every day. PNC is making a big effort to handle a smooth transition, and no knock on PNC. I think the test they have is a real challenge. Analyst: Scott, you have started the year at a stronger pace than last year on loans in particular. Would it be too aggressive to say you could be a double-digit grower this year? Scott C. Wylie: If you look at our loans year over year, I think we grew 11%, and our deposits grew 11–13% year over year. Our guidance we have been giving is kind of high single digits. Although, if you take out the quarter-over-quarter puts and takes, I feel like we seem to be around 10%, which would be double digits to your question. On fee income, we had really seen that flat for years. We have made many changes now in that area in particular—we talked about the mortgage one already, but also in the wealth side. We have some changes that we feel very positive about. We are seeing some green shoots there that are pretty exciting. I do think that we will see continued revenue growth this year with really nice operating leverage. If you look back—again, take out some of the bumps—we did 54¢ in EPS in 2023, 87¢ in 2024, $1.34 in 2025, and now our run rate seems pretty clearly over $2. I think that bodes well for 2026–2027 earnings. Operator: Thank you. One moment for our next question. It comes from the line of Wood Neblett Lay with KBW. Please proceed. Analyst: Thanks for taking my questions. Wanted to start on the net interest margin. It has been two consecutive quarters of pretty meaningful expansion. I believe you noted you expect the expansion to moderate, but it still feels like the NIM is biased higher. Any thoughts on how we should think about the trajectory there? Scott C. Wylie: I have been saying for six or eight quarters that I believe we will ultimately get back to a 3.15–3.20 kind of a NIM because that is historically what we have seen in normal markets with normal yield curves and normal economics and a normal competitive environment over my forty years of running banks. I think we will still get there. The pace is just hard to predict. The finance team, in particular, is reluctant to say, not knowing anything about what is going to happen in the future with the Fed and the war and whatever, that we are going to see 10 basis points improvement a quarter. I think David would feel comfortable saying we are not going to see that in 2026. But we have seen, as you said in your question, really good NIM improvements. What is driving that—our people are doing a really good job of having pricing discipline. That shows up on the loan side. We saw loan yields in Q1 down slightly when actual rates were down 50 basis points. We are seeing acquirers wanting to prove that they make a difference; they are out doing really aggressive loan pricing. We hear about this, and we are not going to compete with that. Yet our people are still producing nice growth with high-quality credits that produce zero loan losses like we have had now, again. And on the deposit side, we saw a 50 basis point decline in Q4, and we put all that into our deposit pricing, which a lot of banks here did not, and we did not see any runoff. We actually saw nice deposit growth. David, did I miss anything big there? No? You covered it. We are not guiding to 10 basis points a quarter. Analyst: As a follow-up to that normalized 3.15–3.20 margin, it is not going to happen this year. What is a realistic timeline to getting the net interest margin back to those levels? Scott C. Wylie: It is hard to predict. There are so many variables that go into it. I am hopeful that we are back with a 1% ROA in 2027. Whether we get there for the full year, in January, or in December, I do not know yet. We have come a long way since the rapid run-up in short-term rates, the inverted yield curve, the failure of big regional banks—all that. We said we were going to play defense; we did. We said we were going to go back on offense; we have. We have some really historic opportunities in the markets right now. I think we are doing a great job of taking advantage of them, and you are seeing that play out. That is going to drive more operating leverage, more profitability, and some nice outcomes for our shareholders. Julie A. Courkamp: Our ability to materially improve NIM—there is a very large opportunity for us in DDAs, and our organization is extremely focused on that. There are a lot of different things that we are working on, and hires that we are looking to make or have made in that area. We cannot really predict it, but there is a lot of effort going into focusing on noninterest-bearing deposits and then keeping our discipline on loan pricing, which has been something we are also quite focused on. Analyst: Maybe last for me. On the trust business, it is great to hear the commentary on new accounts opened and fees were up quarter over quarter. You have made some changes to emphasize more of a growth business model. Where do we stand in the trajectory of that business? Scott C. Wylie: We brought in a new head of wealth a year ago now—he started on April 1—from Goldman. He was in a senior wealth role there. Through him—he is leading it—we have done a complete overhaul of our planning function, our trust function, and our investment management, which also include our insurance area and our retirement services. We have replaced the leadership in all those areas and built stronger teams. We built out some new products and services which we have been test marketing, and that has all gone better than we had expected. In addition, this new hire—his name is Brandon Summers—had particular expertise in selling B2B wealth services, and that is not something we had done before. That was a big part of why we recruited him. We have also launched a B2B offering which is similar to what you see at the big Fortune 500 companies, where the company will hire a specialist firm to provide wealth consulting services to their executives as a benefit. We do not have a lot of Fortune 500 companies in our market, and we do not really want to compete against that business, but for our target clients—lots of entrepreneurial and some good-sized businesses—they do not have a product offering like that. We have created a trademark offering called WorkWell, and we are out selling that, and we have a person dedicated to marketing it. We think that is going to be really impactful in the future. There are really nice synergies between that and selling our banking services—back to Julie’s treasury management and the DDAs. This all has really nice synergies to what we are doing anyway. That is a summary of what we are doing on the wealth management side that is really exciting. It is starting to show results, as you said—really just green shoots at this point. We are going to see a lot more impact in the next couple of years. Analyst: It is great to hear the momentum there. I appreciate you all taking my question. Scott C. Wylie: Yep. Thank you, Woody. Operator: Thank you. Our next question comes from Matthew Timothy Clark with Piper Sandler. Please proceed. Analyst: Hey. Good morning. Thanks for the questions. I wanted to touch on interest-bearing deposit costs and maybe the spot rate at March if we could have it. And then how you are thinking about additional relief from here with the Fed on hold? Scott C. Wylie: That sounds like a question for David to me. David R. Weber: Thank you. Matt, the spot rate on deposits was 2.79% for the end of the quarter. With the Fed on pause, I go back to Julie’s comments. We have a lot of opportunity from a funding cost perspective with growing our DDA balances. Even with the Fed on pause, we feel with the company’s focus there and the things we have laid out and are working on accomplishing that we have opportunity to grow that portfolio, which will then help bring down our average cost of deposits and average cost of funds. Analyst: Along those lines, your noninterest-bearing deposits tend to decline in the second quarter. Should we still expect that to be the case, or is it different this time? David R. Weber: I would not say anything different at the moment. We typically see deposit outflows, as you mentioned, related to tax payments in the second quarter. I do not know that there is anything that we know today that would make that different. So I think that is what we are thinking about as far as Q2. Analyst: And then the FHLB borrowings that you have, can you just remind us if those are overnight or if there is some term to them? And is there a plan to use excess cash to pay those off? David R. Weber: The FHLB borrowing was an overnight that was swapped, and that swap matured in early April. Depending on how our liquidity evolves going forward, we will see if it makes sense to pay that off and keep it at zero, or if we need to replace that. We will just have to see how things evolve. Analyst: So it is zero as of in April here. Is that what you are saying? David R. Weber: It is a zero balance in April as of now. Analyst: Okay. David R. Weber: Correct. Analyst: Sounds good. And then in terms of the near-term NIM, I know there is a little bit of relief on the deposit side, but assuming you lose some noninterest bearing seasonally, you get the benefit of the FHLB going away. It does seem like maybe the margin is flattish in the near term to flat to down slightly. I have to retest the numbers, but that is kind of where I am. Julie A. Courkamp: I think we still have opportunities to continue to see NIM expansion in the remaining quarters in 2026. To Scott’s point earlier, I do not think it is going to be 10 basis points a quarter, but I do feel that we will continue to have opportunities to expand NIM. Analyst: Great. And then just last minor one, you bought back a little bit of stock. It is not a big amount, but just curious what price you paid? David R. Weber: It was $23.85 on an average basis. Analyst: Perfect. Thank you. David R. Weber: Thank you. Operator: Our next question comes from the line of William Joseph Dezellem with Tieton Capital Management. Thank you. Analyst: A couple of questions. First of all, the deposits grew at roughly two times the rate of loan growth in the first quarter. Would you step back and just walk us through the general dynamic behind that? Is that a normal seasonal phenomenon, or was there something specific to your activities that led to that ratio? Scott C. Wylie: Over the last many quarters, we have put a much more significant focus on deposit growth. Our feeling is to get to be the bank that we want to be at $5 billion or $10 billion, we need to have as strong of a deposit story as we do on the loan and the P10 side. So it has definitely been a focus for us now for several quarters. We do not really do loans here that do not come with a primary banking relationship. We literally write that into our loan documents. It is part of the expectation that we have with any conversation we have with any prospective client. It is a part of the conversation we have with existing clients. We report on it internally—what loans we have that do not have deposits associated or have smaller ones. It is a very routine part of the conversation here, just being good bankers and driving relationship-oriented clients. The fact that in one quarter we saw a little bit more deposit growth than loan growth—I would not read too much into that. We saw something like that in the third quarter last year. Some of the feedback we got was that we should try and manage that so it is more consistent, and there is no way of doing that. It just happens when it happens. The more relevant number for me is that we grew deposits 22% more than we grew loans over the last twelve months. That is probably a really relevant and helpful data point. If we see some decline in deposits in Q2, which is likely, I would not read anything into it either. That is just part of who our clients are and the fact that they pay taxes in Q2 that pull down the money market accounts and whatnot here. Analyst: That is helpful, Scott. Let me take it one step further, though. Over time, where would you anticipate the loan-to-deposit ratio would end up? You said sub-95% now, and if you keep up the trend that has been in place for several quarters, it will be at sub-85% and then sub-75%. Next thing you know, we are sub-50%, and I suspect that is not where you are headed. I am being a bit facetious, of course. What is your long-term thought? Scott C. Wylie: That is true—that is not where we are headed. I have been doing this a long time, Bill. I never really know where the next $1 billion of deposits are going to come from, but our clients do have a lot of liquidity, and we find that we are always able to produce deposits when we want them. It does not mean you do not have to focus on it. It does not mean you do not have to do the things that Julie was just talking about in terms of focusing on deposit strategies and strengthening our treasury management team, improving our technology, stuff like that. But at the end of the day, we have historically operated First Western Financial, Inc., and my prior banks, with loan-to-deposit ratios in the 90s. When it gets into the high 90s, we get more uncomfortable. When it is in the low 90s, we think that is fine, but we are not going to pay up for higher-cost deposits. I think that has fueled nice growth for us over the years and will continue to do that and provide the operating leverage we need to drive earnings that can support the growth that we want to do. Analyst: Lastly, with the geopolitical events, specifically the Iran war, what, if any, impact have you seen from your customers' behavior on either the loan or deposit side or the pipeline of activity? Scott C. Wylie: I was thinking about that before this call, Bill. Over time, I have found when our clients get nervous, they kind of stop doing things and say, “I can wait.” We have not seen that yet in this case, and I am not sure why that is. Maybe the Middle East seems like a long way away from the Rocky Mountain region. I am not sure why we are not seeing it, and, knock on wood, it has not had any negative impact on us so far. We really have not seen any impact, and I am not hearing about it in my conversations with clients or prospects or with our folks in the field at this point. That could change, but right now, our days are much more consumed by all this disruption that we are seeing from the M&A activity than global economic or political stuff. Operator: Our next question comes from the line of Ross Haberman with RLH Investments. Analyst: Morning. Scott C. Wylie: Morning. I am sorry, Ross. I got on a bit late, so if you addressed these questions, I apologize. Analyst: Could you talk about loan growth and what your expectation is in 2026 in terms of net loan growth and what offices you think it is going to originate from? What are you seeing better demand from? Is it Arizona, Colorado, or elsewhere? Thank you. Scott C. Wylie: Great question. We did not really talk specifically about that. I did mention that we are seeing loan growth across the platform in terms of geography and industry type, and we are not seeing weakness in one place or another. We are also not stretching anywhere. I would tell you that our owner-occupied CRE number was getting a little higher than we felt comfortable, and we have pulled that down. I do not have that number handy. Is it from 360 to down to, like, 325 now? Julie A. Courkamp: In that range. Yep. Scott C. Wylie: That is a change that we are driving. We are actually seeing probably more owner-occupied CRE demand than ever, but we are being very selective there. The guidance we have given for balance sheet growth is high single digits, but I did say earlier in the call that we are up 11% year over year in loans and up 13% year over year in deposits. I do not think we are ready to jump out and say we are going to see mid-teens growth this year, but it does seem like 10% would be a reasonable guesstimate from where we are today. Analyst: Is a good amount of the growth of the loans coming from Arizona and/or Montana? Scott C. Wylie: In the backward-looking data, no—neither one. But I would also tell you that we are seeing some nice opportunities in both markets, and I think that you are going to see nice growth out of both those markets in the next twelve to twenty-four months. We have really good people there, and they are working hard. We live the market disruption in Colorado more than elsewhere, but it is everywhere. We are seeing it in Wyoming. We are seeing it in Arizona. We think there are lots of opportunities for us in Montana too. The numbers are just bigger in Colorado and more immediate for us because we are in Denver, but we are seeing opportunities everywhere. You know very well our theory about market share. We have tiny market share, and I think by just showing up and doing a good job of what we do differently than everybody else—which is we are local, we are trusted, and we are expert—those three things play really well in the market today. Analyst: Are you seeing pressure to raise rates on the deposit side, and is it coming from the bigger banks in your markets today? Scott C. Wylie: I would take a stab at that question, David, and then I would be interested in your answer too because it seems like less to me. The conversations I am having—people are calling, or I am calling them, and they are saying, “I do not want to be with a national bank. I want to be with a local bank.” They do not even say the word “rate.” They say, “When can I move?” We have actually created here a conversion concierge—the internal people call it the Switch SWAT team. We tell people we have a Switch SWAT team that will come out and help them transfer their accounts here and simplify the whole conversion process. They love it. I literally do not hear the question, “What rate are you going to give me?” I think we have a really extraordinary window of opportunity here, and we are doing everything we can to jump through it. David, what are you seeing in terms of the day-to-day stuff? David R. Weber: My simple answer would be: Is the pricing market for deposits still highly competitive? Yes. Am I fielding a bunch of calls from our bankers saying we need to raise deposit rates? No. Those are the dynamics that we are seeing in our markets at the moment. Analyst: One final question, if I may. Have you announced any new plans for new branches in any of your markets, or if you found something small to buy as a fit-in, would you consider buying that today? Or is any growth you really want to be organic? Scott C. Wylie: We are very focused on organic growth, without a doubt. We have not talked about it because we do not have anything to talk about yet, but as part of the whole market disruption thing, we are seeing really good people that are available that we are trying to bring here. Most of them so far—all of them—have been in our existing footprint, but there are some that are in adjacent footprints that would be very attractive to us. Hopefully, we will have something to talk about later this year there. That would be a big plus as far as I am concerned. If we could bring a couple of well-established teams that want our toolbox to be able to go out and sell with, that would be fantastic. And to buy. Analyst: Thanks again for all your help. The best of luck. Have a good weekend, guys. Scott C. Wylie: Yep. Thanks, Ross. Operator: Thank you. And as I see no further questions in the queue, I will conclude the session and turn it back to management for closing remarks. Scott C. Wylie: Thank you, and we appreciate everybody dialing in on the call today. We talked about some of the noise in Q1 that was built off of the noise in Q4, but clearly we are seeing really nice trends in operating leverage that are translating into great EPS results. If you back up and look at that year over year, we have seen a nice multiyear trend. Our NIM is continuing to improve. Organic growth is continuing across the platform. Our asset quality continues to be very strong, and we do not see anything today that would change that. I think that is a very encouraging referendum on the credit quality that we pursue here. Our efficiency ratio has really trended down nicely from 79% a year ago to 70–73%, and that is not going to stop, I do not think. Our goal here is to get our ROA back over 1%; with our capital efficiency, it is going to drive a nice ROE in the low teens, and really, I think, get First Western Financial, Inc. back towards a financial performance where we should be. So with that, thanks everybody for dialing in. We really appreciate the support and your interest in First Western Financial, Inc. Have a great weekend. Operator: This concludes our conference. Thank you for participating, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the First Hawaiian, Inc. Q1 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, we will have a question-and-answer session. To ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. I would now like to hand the conference over to your speaker today, Kevin Haseyama, Investor Relations Manager. Kevin Haseyama: Thank you, everyone, for joining us as we review our financial results for 2026. With me today are Bob Harrison, Chairman, President and CEO; Jamie Moses, Chief Financial Officer; and Lea Nakamura, Chief Risk Officer. We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available for downloading and viewing on our website at fhb.com in the Investor Relations section. During today's call, we will be making forward-looking statements, so please refer to slide one for our safe harbor statement. We may also discuss certain non-GAAP financial measures. The appendix to this presentation contains reconciliations of these non-GAAP financial measurements to the most directly comparable GAAP measurements. I will now turn the call over to Bob. Bob Harrison: Thank you, everyone, for joining us today. I wanted to start by sharing our support for the communities impacted by the recent flooding in Hawaii from the Konololo storms and Typhoon Sinlaku in Guam and Saipan. It is really important for us to support our communities, and we are actively providing relief and support to help our customers and those affected in the relevant communities. Moving on to the outlook, the statewide unemployment rate remained stable at 2.2% in January. That compares to the national rate of 4.3% for the same month. Through February, total visitor arrivals were up 7.1% compared to last year, primarily due to more visitors from the U.S. Mainland and Japan. To date, spending through February was $4.2 billion, up 14.8% compared to 2025 levels for the same period. At this point, it is too soon to know how tourism and the local economy might be impacted by recent global events. The housing market remains stable with the median single-family home sales price on Oahu in March at $1.2 million, up 3.4% from the prior year, and the median condo sales price on Oahu in March was $510 thousand, up 2% from the prior year. Turning to slide two, we had a strong start to the year. Loans and deposits grew, credit quality remained solid, and we remained well capitalized. Our return on average tangible assets was 1.2% and return on average tangible equity was 15.3% for the first quarter. The effective tax rate for the first quarter was 22.5%. Turning to slide three, the balance sheet remains solid as we continue to be well capitalized with ample liquidity. We remain asset sensitive and well positioned to benefit from a higher-for-longer rate scenario. During the quarter, we repurchased about 1.3 million shares at a cost of $32 million. Turning to slide four, total loans grew over $128 million in the quarter, up 3.6% on an annualized basis. We had good growth in CRE and C&I loans, partially offset by runoff in the residential loan portfolio and payoffs in the construction loan portfolio. Some of the growth in the CRE portfolio and decline in the construction portfolio were due to completed construction projects converting to permanent financing. Now I will turn it over to Jamie. Jamie Moses: Thanks, Bob. Turning to slide five, we delivered solid deposit momentum in the quarter with total deposits increasing by $262 million, driven primarily by growth in public operating balances. Retail and commercial deposits were modestly higher and, importantly, did not experience the typical seasonal outflows we have seen at the start of prior years, which we view as a positive signal. Public deposits increased $244 million reflecting higher operating account balances. We continue to see meaningful improvement in funding costs with the total cost of deposits declining seven basis points to 1.22%. Our noninterest-bearing deposit ratio remained healthy at 31%, reinforcing the strength and stability of our core funding base. On slide six, net interest income for the quarter was $167.5 million, down $2.8 million from the prior quarter. Net interest margin was 3.19%, a decline of two basis points sequentially. This reflects the full-quarter impact of the December rate cut. As we look ahead, we expect the balance sheet repricing story to continue throughout the year. Turning to slide seven, noninterest income totaled $52.8 million for the quarter. The decline from last quarter was primarily attributed to lower BOLI income and swap fee activity, which we view as timing-related rather than structural. Noninterest expense was $127.9 million, and there were no material, unusual, or nonrecurring items in the quarter. Our expense profile remains well controlled and aligned with our full-year outlook. With that, I will turn it over to Lea to review our credit performance. Lea Nakamura: Thank you, Jamie. Moving to slide eight, the bank continued to maintain its strong credit performance and healthy credit metrics in the first quarter. Credit risk remains low, stable, and well within our expectations. Overall, we are not observing any broad signs of weakness across either the consumer or commercial books. Criticized assets decreased by 21 basis points, and nonperforming assets and loans 90 days or more past due were 30 basis points of total loans and leases, down one basis point from the prior quarter, resulting from a decrease in dealer flooring nonaccruals. Quarter-to-date net charge-offs were $4.9 million, or 14 basis points of average loans and leases, unchanged from the fourth quarter. The bank recorded a $5 million provision in the first quarter. The allowance for credit losses increased by just under $1 million to $169 million, with a coverage ratio of 1.17% of total loans and leases. We believe that we are conservatively reserved and ready for a wide range of outcomes. Bob Harrison: Thanks, Lea. Turning to slide nine, we have updated our outlook for key performance drivers. We continue to expect full-year loan growth to be in the 3% to 4% range. With the markets now expecting no rate cuts this year, we have revised our full-year NIM outlook to be in the 3.22% to 3.23% range. We expect second-quarter NIM to be up two to three basis points from the first-quarter NIM. Our outlook for noninterest income remains about $220 million for the year. Finally, we expect expenses to gradually increase throughout the year, and we continue to forecast full-year expenses will be about $520 million. That concludes our prepared remarks, and now we would be happy to take your questions. Operator: We will now open the call for questions. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment for questions. Our first question comes from Anthony Elian with JPMorgan. Anthony Elian: Great. Thanks. Jamie, on the outlook, the drivers of the two to three basis points sequential increase in NIM in 2Q—could you help us unpack that a little bit? What is driving the range for the full year moving higher, and is that entirely coming from no rate cuts this year? Jamie Moses: Tony, good morning. The right answer to that is the balance sheet repricing story that we have had and seen for the last year or two. Again, just to remind everybody, we have about $400 million of fixed-rate cash flows that come off every quarter and get repriced at about a 155 basis point spread higher on a weighted average basis between loans and securities. That is really the driver as we go forward. We still are an asset-sensitive balance sheet, so we will see a decline in NIM if there is a rate cut in any given quarter, then the balance sheet repricing dynamics after that will drive the NIM higher as we go forward. Anthony Elian: Thank you. And then on expense, you reiterated the outlook of $520 million for the full year, but I think 1Q came in a little bit lower than what we were expecting, which should imply a pretty good pickup over the course of the year. Is that the right way to think about it, and what are the areas driving the increase in expense? Thank you. Jamie Moses: Yes, it is going to be broad based in terms of the areas. Hopefully, we will get some more salary expense in there as we have talked about. We are looking to hire talented folks to come over and drive revenues for us, so hopefully that is where we will see much of that pickup. But generally broad based, and I think you are thinking about it correctly in terms of a little pickup and a ramp as we get throughout the year. Operator: Thank you. Our next question comes from Jared Shaw with Barclays. Jared Shaw: Morning. When you look at the growth, C&I growth has been pretty good. Any specific drivers underpinning that? And can you update us on your appetite for Mainland expansion? Any of the hires, Jamie, that you are talking about—should we think are coming maybe off island? Bob Harrison: Yes, Jared. Let me start with the loan outlook. The $71 million in C&I growth for the quarter—about $24 million of that was dealer floor plan, and the rest were draws on existing lines of credit, both local companies and Mainland companies. So it was pretty broad based, with good growth in dealer flooring, which we appreciate. We look at that for the rest of the year as being an opportunity, along with commercial real estate, to continue to grow. On hiring, we are looking for people all over. Of course, we would strongly prefer to hire locally, but if we are unable to do so, we would look to the Mainland. Jared Shaw: On the floor planning, are you seeing utilization get back to more normal levels? I know it was pretty low for a while. Or is that growth coming from expanding the network? Bob Harrison: We added a new dealer relationship during the quarter, but that was not all of it. I think it was a little bit of utilization, so a mix of both. Jared Shaw: Okay. And then separately, the securities yields are still pretty low and, with the extra capital you have, would you consider putting on more of a cost-of-funds leverage play here, or utilize some of the extra deposit growth on securities and prefund some of that cash flow that is going to be coming off? Or should we think that you are going to be reinvesting cash flows as they happen? Jamie Moses: Yes, Jared. I think the answer is the latter. We are just going to be reinvesting cash flows as they come off. No plans to do any sort of restructuring or anything at the moment, and no plans to expand the size of the securities portfolio either. For now, it is just cash flows coming off, and we will reinvest them. Jared Shaw: Great. Thank you. Jamie Moses: Thank you. Operator: Our next question comes from David Feaster with Raymond James. You may proceed. David Feaster: Hey, good morning, everybody. I wanted to touch on the competitive side. You have a unique perspective. Could you compare and contrast the Mainland versus Hawaii? Are you starting to see competition shift from just pricing to pushing on structures and standards? What are you seeing on that front? Bob Harrison: Yes, Dave, this is Bob. We really have not seen much change. It has always been cyclically competitive on pricing. Now we are getting a little bit more competitive on price primarily on the Mainland, but a little bit here. It has always been a bit more competitive on price in Hawaii given the various banks' low loan-to-deposit ratios—everybody has liquidity they are looking to put to work here in Hawaii—so that is always an issue here. We are seeing it cycle down slightly in our Mainland markets. A little bit of that is multifamily construction that was higher on a spread a year and a half ago than it is today, so that speaks to that. The other thing we are seeing is the larger banks are taking bigger pieces of deals, and so there is less available. There is a little bit more competition for deals themselves as some of the larger banks are increasing their hold levels. Does that address your question? David Feaster: Yes, that is helpful. And you reiterated the fee income guide. Can you walk through some of the business lines, the underlying trends, and some of the puts and takes you are seeing there? Bob Harrison: On the wealth side, we are continuing to see really good interactions between our customers and our wealth advisers. That business has continued to grow year after year for many years now, so that has been a nice opportunity. The fees associated with our credit card business have been pretty stable. There is movement quarter to quarter—usually a little stronger in Q4, a little less in Q1—but that is pretty standard for what we would expect in that business. Jamie, anything you would add to that? Jamie Moses: Yes, the only thing to add is there is a portion of our BOLI that is market driven and can be somewhat volatile. We saw that a little bit at the end of the first quarter with the market underperforming, so we had fewer fees related to that. Swap fee income in our loan book can also be cyclical depending on what kind of lending we are doing in a particular quarter and what our customers want. Combine those with what Bob mentioned, and that is how we get to the fee guide. David Feaster: Okay. And then touching on the funding side—you had a lot of success this quarter, with a lot of benefit from public funds. Can you touch on competition on the funding side and how you think about gaining share and driving market share growth on the deposit front? Where do you see more opportunity—commercial or retail? What funding trends are you seeing? Bob Harrison: Virtually all of our deposits are here in market. It is a day-in, day-out ground game—getting out there and meeting with customers and prospects, showing them the different products and services we offer, and seeing how we can make that work for them. There is not a lot of magic to it that would change quarter over quarter, but our folks are out there meeting with customers on the consumer, small business, and larger business side. David Feaster: Alright. Thank you. Operator: Our next question comes from Kelly Motta with KBW. Kelly Motta: Hey, good morning. Thanks for the question. On capital—really solid here—I apologize if it was asked already, but have you done any work on the proposed capital changes and the potential impact to your ratios? Jamie Moses: Yes, we have done a little bit of work on it. We think that it could possibly add maybe 1% CET1 to our capital levels. But, again, it is proposed, and we are not going to change our capital allocation strategy or plans based on that. If it goes through the way it is, we think it is about a 1% add. Kelly Motta: Got it. That is really helpful. You have been very consistent with the share repurchase. It seems like, even with growth picking up, that is probably a good expectation. How are you thinking about that? Thank you. Jamie Moses: Yes, Kelly, I think you summarized it well for us. Bob Harrison: We have the $250 million allocation, and we used $34 million in Q1. It is not set for a particular year or timing, so we will use it as it makes sense going forward. Jamie Moses: Yes, to be clear, the amount of the authorization was $250 million. Kelly Motta: Got it. That is really helpful. Then, on credit—anything you are watching or pulling away from? Lea Nakamura: I do not think there is anything we are pulling away from. Given the uncertainty in the environment, the volatility, and the recent natural disaster events that have happened in our footprint, we are watching certain portfolios very carefully, but we have not really seen anything so far. Kelly Motta: Got it. Thank you so much for the time. I will step back. Operator: Thank you. Our next question comes from Andrew Terrell with Stephens. You may proceed. Andrew Terrell: Good morning. To go back on the margin, I hear you on the near-term and full-year guide, and that the majority of what underpins that is the fixed repricing. Is there any level of benefit you would expect or work to do on the deposit base as you move throughout the year? Have you fully exhausted the ability to reprice lower, or are there other tweaks you could make on the funding side? Jamie Moses: There is still some ability to work on that, in particular with CD pricing and what rolls over every quarter. We have seen a significant decline in the competitive environment around those from, say, a year or so ago, so we could still see some benefit from that. The March deposit cost number was 1.20%, a little bit lower than what we had in the quarter, so you can see the dynamics of CD repricing around that. I would not expect it to go too much lower with rates staying the same in totality in terms of deposit cost. The guide for the year on the NIM is inclusive of any rate actions we might take on the deposit side, as well as the repricing story. Andrew Terrell: Last quarter, you talked about the fixed cash flows for the year—roll-off yield 4%, new asset yield 5.5%. There has been a lot of rate volatility throughout the first quarter. Do you feel like a 5.5% blended new asset yield is still a fair assumption based on what you are seeing for loan origination yields and where you are buying securities today? Jamie Moses: Yes, I think so. It is going to depend quarter to quarter based on what type of lending activity we do in any given quarter. If activity is primarily in lower-spread things, it might be a little bit lower than that. But for the year, 155 basis points is a good number, and that $400 million per quarter of cash flows coming off and repricing is still a good number. Andrew Terrell: Got it. One last one: we started talking more about Mainland M&A interest last year with you. Has anything changed there—any willingness or appetite, or your view of the M&A market as it stands right now? Bob Harrison: No updates. We are still talking to people to see if there are things that might make sense, but we have not changed our profile or what we are looking for. We are really looking for a good fit first and foremost and then take it from there. Andrew Terrell: Great. Thank you for taking the questions. Operator: Thank you. Our next question comes from Matthew Clark with Piper Sandler. You may proceed. Matthew Clark: Hey, good morning. Just a couple follow-ups on the cash flows on the asset side. It is $400 million a quarter, but can you give us a split between loans and securities on average? We can guesstimate the rates, but I am trying to forecast those individual yields. Jamie Moses: The right way to think about it is, for the year, we expect $600 million of cash flows coming off the securities portfolio. That leaves $1 billion in cash flows from loans. The spread of 150 to 155 basis points that we talked about is inclusive of the roll-off and roll-on yields. In the quarter, we added in the securities portfolio in the 4.90% range of yield, and a little bit higher than that—around 6.20%—on our loan yields. I think that gets you what you need there, Matthew. Matthew Clark: Great. Then, to drill into the CDs—how much do you have coming due in 2Q, and what are the roll-off and roll-on rates? Jamie Moses: In Q2, we are going to have about $1 billion come due. That is currently somewhere in the neighborhood of a 2.90% CD rate, and I think that will roll over at something like a 2.50% weighted average. It is hard to tell for sure because some folks roll into promos and some roll into rack rates, but if you back into the margin guidance we have given, you can get to what you need on the CD side. Matthew Clark: Got it. Getting to a NIM that is a little bit above what you are forecasting for 2Q. Thank you. Operator: Thank you. I would now like to turn the call back over to Kevin Haseyama for any closing remarks. Kevin Haseyama: We appreciate your interest in First Hawaiian, Inc. Please feel free to contact me if you have any additional questions. Thanks again for joining us, and have a good weekend. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Good afternoon. Welcome to the First Business Financial Services First Quarter 2026 [Audio Gap]. I would now like to turn the conference over to First Business Financial Services Inc. CEO, Corey Chambas. Please go ahead. Corey Chambas: Good afternoon, everyone, and thank you for joining us. We appreciate your time and your interest in First Business Bank. Joining me today is our President and Chief Operating Officer, Dave Sailor; and our CFO, Brian Spillman. Today, we'll discuss our financial performance, followed by a Q&A session. I'd like to direct you to our first quarter earnings release and supplemental earnings call slides, which are available through our website at ir.firstbusiness.bank. We encourage you to review these along with our other investor materials. Before we begin, please note, this call may include forward-looking statements, and the company's actual results may differ materially from those indicated in any forward-looking statements. Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements are listed in the earnings release and the company's most recent annual report Form 10-K and as may be supplemented from time to time in the company's other filings with the SEC, all of which are expressly incorporated herein by reference. There you can also find information related to any non-GAAP financial measures we discuss on today's call, including reconciliations of such measures. We are very pleased with our strong start to 2026. Our team's execution was exceptional. We won new relationships in a highly competitive environment, growing loans and deposits at a pace that well exceeded our expectations. We grew fee income by nearly 16% year-over-year with strong contributions from multiple sources. I'll highlight our Private Wealth business, which again produced record revenues and provides annuity-like support for our revenue growth and diversification goals. Asset quality remained stable in our core performing portfolio, and we were pleased to see some swift progress toward resolving our largest nonperforming asset, which was downgraded last quarter. At the bottom line, we grew net income and earnings per share by more than 9% over last year's first quarter, even as our margin returned to a more normalized level after being elevated in early 2025, which was residual from the period of rapid Fed tightening. And perhaps most importantly, our strong earnings and disciplined capital deployment drove 14% year-over-year growth in tangible book value per share. This success reflects our commitment to 4 key objectives: prioritizing high-quality relationship-based growth, diversifying our revenue streams, maintaining long-term positive operating leverage and preserving a culture that attracts and keeps the highest quality talent. We are very pleased with the momentum of our first quarter results, which Dave will discuss more now. Dave? David Seiler: Thank you, Corey. Our outstanding first quarter growth positions us well to achieve our long-term goals. As you know, we aim for 10% loan and core deposit growth on an annual basis. In the first quarter, we grew loans by $126 million or 15%, far outpacing our plan. Growth came from across our markets, led by Madison, Milwaukee and Kansas City, as well as from asset-based lending, which is generating some great momentum under the new leader we brought on a year ago. The growth occurred late in the quarter with $90 million or 72% in March. That had margin implications, which Brian will cover and it included some pull forward of growth we had forecasted for the second quarter. After an extremely strong first quarter, our pipelines are lighter going into Q2, and we will have some known payoffs in the second quarter. Therefore, we expect the second quarter to be lighter on growth than Q1 with normalization in the second half of the year, placing us on track to achieve our 10% annual growth goal for 2026. Our 10% growth expectations are driven by continued positive trends in our businesses and the banking industry. Our largest markets in Southern Wisconsin continue to benefit from a strong regional economy. Our clients in the manufacturing and distribution space are doing well. Commercial real estate occupancies have remained strong particularly in multifamily properties. We are also seeing signs that new development is picking up after a slight slowdown in 2024 and 2025. Additionally, we continue to expect the 2026 changes to federal tax policy should be a tailwind for our business clients and C&I portfolio. We continue to see tangible benefits from talent acquisitions as well. We recently hired a new President for our Private Wealth business. We are also seeing positive results from producers and asset-based lending who were hired in the second half of 2025. Obviously, we are looking at the same wildcards as everyone else, and we'll continue to monitor for any impact of oil prices and geopolitical uncertainty. So far, it's been business as usual. I also want to highlight our exceptional double-digit growth in core deposits this quarter. First quarter balances were up 18% from the linked quarter and up 14% year-over-year. That's not an easy feat in this environment. Our focus on hiring the best treasury management talent and maintaining a disciplined approach to business development continues to pay off. We are pleased to see this core deposit growth coming from multiple bank markets and our private wealth group. Our strength is in taking market share, as you saw this quarter. So we are confident in our team's ability to not only maintain existing client relationships, but also to continue bringing in new deposit balances. As with loans, we continue to target 10% growth on an annual basis. Another highlight was our strong noninterest income, which grew 16% compared to last year's first quarter. Private Wealth produced record revenue of $3.9 million, up 11% year-over-year. This business consistently generates more than 40% of our total quarterly fee income. Strong deposit growth contributed to service charges increasing more than 26% year-over-year, displaying our team's impressive success in adding and expanding full business banking relationships and our other fee income sources, which tend to be variable from quarter-to-quarter, posted favorable results for the quarter. Moving to credit. We saw some rapid progress on our largest nonperforming asset. Recall that we downgraded $20.4 million in CRE loans from a single Southeast Wisconsin based client relationship on nonaccrual status last quarter. In Q1, $3.4 million of land development loans in this portfolio were sold at par. You can see the benefit of this to our nonperforming asset ratio on Slide 12 of the earnings supplement. Appraisals exceed carrying values on the land and the remaining $17 million of loans with no specific reserves recorded. We expect ongoing resolution, but the timing will be variable, based on current activity, we don't anticipate additional progress to occur before the second half of 2026. The remainder of our portfolio was stable, and you can see our favorable trends on Slide 11. Before I hand it off to Brian, I'll note that this is Corey's last call before his retirement next week. I want to thank Corey for his leadership and service to first business bank, it's difficult to summarize as many contributions to our company, so I'll leave you with this. During Corey's tenure as CEO, First Business Bank has produced cumulative shareholder returns of nearly 700% outperforming bank and regional bank indices by a multiple of more than 3x and the Russell 2000 by more than 200 percentage points. This is no coincidence. Cores are visionary, and we are grateful for his leadership and friendship. We are also very happy that Corey will be continuing to serve on our Board. Now I'll hand it off to Brian. Brian Spielmann: Well said, Dave, thanks. First quarter net interest margin increased 3 basis points to 356 and there are some noise in both the first and linked quarters. You can see a breakdown of this on Slide 6 of our earnings supplement. First quarter NIM included the 5 basis point impact of fewer accrual days in the quarter. Excluding this impact, first quarter NIM was 361, which will be in line with our internal budget expectations. As a reminder, fourth quarter NIM included 10 basis points of compression from the nonaccrual interest reversal on the downgraded CRE NPL. Excluding this, fourth quarter NIM would have measured [ 3.63 ]. There was no nonaccrual interest reversal activity in Q1. The 2 basis point difference in these adjusted NIM measurements primarily reflects the late quarter timing of loan growth. As Dave mentioned, the bulk of our significant loan growth came late in the quarter. Two-thirds of the growth was from our C&I portfolios, which are higher yielding than CRE, and we expect this to benefit our net interest margin going forward. You can see the historical trend of this yield differential on Slide 5 of the earnings supplement. Looking out at the year, we think the early momentum of C&I loan growth in Q1 positions us well to operate within or toward the lower to middle portion of our targeted $3.60 to $3.65 range for the year. Our outlook assumes a stable to modestly changing interest rate environment. Margin performance is expected to be driven primarily by balance sheet mix and our targeted annual 10% loan and core deposit growth rather than additional rate tailwinds. On the funding side, ongoing core deposit growth has improved our funding mix over time, and we continue to manage deposit pricing with discipline in a competitive environment. Where needed, we supplement with wholesale funding to match fund fixed rate loans and maintain NIM stability. On noninterest income and expense, I'll remind you that quarterly comparisons are impacted by last quarter's accounting classification change related to limited partnership investments. Specifically, last quarter, we reclassified $904,000 out of our other noninterest expense and into other noninterest income to net against the related revenue. This expense represented the bank's share of costs for the first 9 months of 2025 related to our latest run of limited partnership investments. Our strong first quarter fee income supports our expectation of 10% growth for the full year compared to 2025, and we view first quarter as a good starting point for quarterly fee income in 2026. Looking at expenses, we saw the typical first quarter increases related to compensation. Compensation expense increased by about $1.4 million in Q4, mainly due to first quarter resets for payroll taxes and 401(k) match contributions along with annual merit increases and higher average FTEs, which were up about 5.7% from a year ago. Looking ahead, payroll taxes will come down throughout the year, but new FTE adds will go up. Professional fees were also higher in Q1, increasing by about $445,000 in Q4. Elevated recruiting costs and seasonal legal fees related to the company's annual 10-K and proxy filings drove the increase. We typically base our full year expense forecast on first quarter actuals, which remain an appropriate run rate for 2026. I'll reiterate that our primary expense management objective is achieving annual positive operating leverage that is annual expense growth at some level modestly below our target level of 10% annual revenue growth. The effective tax rate was 15.2% for the first quarter. Our effective tax rate varies modestly quarter-to-quarter, in part due to the timing of tax benefits received from our investment and limited partnerships and the timing of stock compensation vesting activity. We continue to expect our effective tax rate will be within our expected annual range of 16% to 18% for 2026. Finally, our strong earnings have continued to generate excess capital to facilitate organic growth. We continue to believe reinvestment in the growth of the company provides the best return for our shareholders. We do, of course, evaluate all capital management tools at our disposal to maximize shareholder returns. And now I'll hand it back over to Cory. Corey Chambas: Thank you, Brian and Dave. Dave was the architect of our current 5-year strategic plan, and you can see our outstanding progress toward achieving the goals of this plan on Slide 15. I believe nothing has been more instrumental to achieving the success than our culture. So I'll take a final opportunity to bang the drum on this. Our culture defines us and it is our secret sauce. It is in the DNA of First Business Bank to be passionate about our people and obsessed with our strategic plan, and it's foundational to our mission to be an entrepreneurial partner to our clients, investors and communities. This intense cultural focus has been fundamental in achieving our superior long-term shareholder returns. It has been my north star of sorts, and I'm confident Dave's leadership will bring continued success. We have the right team in place to continue achieving both strong earnings and above industry growth, and I'm excited for the future of First Business Bank. Thank you for taking time to join us today. We're happy to take your questions now. Operator: Thank you. The floor is now open for questions. [Operator Instructions]. Your first question comes from the line of Daniel Tamayo of Raymond James. Daniel Tamayo: Thank you. Good afternoon, everybody. First, I just wanted to say congratulations on your retirement, Cory. It's been a pleasure working with you over the last few years and obviously, good luck to Dave. I guess on the heels of that, I'll throw out a longer-term question here for you, Dave, as you look to the future. Looking at Slide 15 with your goals and progress on it in the 2024 to 2028 goals from a profitability perspective, you guys, obviously, have talked about this 10% growth, and I think that certainly holds. But just curious how you think about from a profitability perspective, I guess, if it's efficiency or return on tangible common equity, how do you anticipate changing any of these long-term goals and progress, the slide or anything like that as you think about your leadership. And if not, what's the plan over the next few years to get these to get or keep these numbers kind of at these levels? David Seiler: Yes, good question. So we are -- our strategic plan is a 5-year strategic plan. We're a little over 2 years into it. And every quarter or more often, we look at all of these metrics and and evaluate if there's still the right metrics for us to be looking at. And I would say right now, you look at our efficiency ratio, for example, that blipped up a little bit this quarter for reasons that I think we've outlined in some of our comments already. So we expect that to kind of return to where we wanted to be over the next -- over the balance of the year and in the upcoming quarters. At this point, we still think these are good metrics for us to be working on, and we've identified 5 strategies from our strategic plan, and we have teams of leaders working on each of the strategies. And at this point, I think we think they're all -- these are the right targets for us. Daniel Tamayo: All right. Good start, Dave. David Seiler: I am not official yet, Danny. Daniel Tamayo: All right. Fair enough. And then I think I get what you guys are saying on the margin. I'm assuming this is going to be an annual thing. I mean it's just the math, right, of the fewer days in the first quarter. But as we think about modeling the margin we should think about modeling that down a bit in the first quarter going forward and then popping back up in the second quarter remaining in that -- the targeted range, Brian? Brian Spielmann: Yes. That's a fair statement. I would say we're always going to have the first quarter accrual mechanics issue, right? But for us, specifically for this quarter, to me, it was more of a timing difference on when our funding came in versus when we deployed that funded in the quarter. That to me is more of the driver on why the NIM was reported outside of our range. If we would have had the loan growth aligned with that funding growth earlier in the quarter, the NIM would have been within our range. So that's more of it. But I think your point is bad, though in terms of the quarterly first quarter estimates that there's going to be that day basis impact us all. Daniel Tamayo: Okay. And as it relates to that dynamic with the late in the quarter loan growth, like you're thinking basically the margin comes back up into the range in the second quarter and then relatively stable from there? Brian Spielmann: Yes. Daniel Tamayo: Okay. All right. I will step back -- appreciate it. Operator: Your next question comes from the line of Jeff Rulis of D.A. Davidson. Jeff Rulis: I wanted to check on the expenses. Brian got your comments there. I just seemed a little high. I mean maybe I'm just still updating the model on the reclass a little bit. But if I heard that right, that this level kind of flat line for the year? If I guess, if I just annualize it and then run it off of across full year '25, something in the high single digits. Is that kind of where we should be thinking? Brian Spielmann: Exactly, spot on. Jeff Rulis: Okay. while I got you, Brian, on the -- do you have the margin for the month of March, just to try to jump off point. Brian Spielmann: We don't have that. And it would be influenced by the late growth. That's kind of the point behind the late growth commentary is that the more Q1 margin of $359 million being impacted -- sorry, by 356 being impacted by that. So it's going to be pushing us back into our range based on that March activity. Jeff Rulis: Okay. Fair enough. You were pretty clear about the resuming back into that range. So I'll stick with that. Just was curious. Maybe just the last 1 on the growth. Dave, I think you alluded to the geography, but maybe the -- do you have a breakout of maybe the mix of that growth pretty strong, but was it the mix of existing customers versus new? I think you mentioned maybe that was a 60-40 split last quarter or something, but just trying to get a sense for market share gains or existing customers? Brian Spielmann: Yes. Well, we don't have a mix between existing clients and new clients. I think it was as we stated before, it was really across all of our Southern Wisconsin bank market. It's in Kansas City as well as asset-based lending. I would say within those groups, it really wasn't concentrated in any particular area. It was spread fairly evenly. And I would say, always our growth is going to be driven by new. We do more loans to existing clients over time. but the driver of our growth is always going to be new client relationships. Well, I think 1 of the things you can look at that reinforces that is the growth in our service fee income. Debt. We've had very rapid growth in our service fee income, and you don't get that without adding new clients. On service charges? Jeff Rulis: Yes, Yes. Okay. And Corey, thanks for the conversations over the years, all the best and appreciate what you've done, and Dave, I look forward to catching up in Nashville in a couple of weeks. So thanks. Brian Spielmann: Thanks, Jeff. Thanks, Jo. Operator: Your next question comes from the line of Nathan Race of Piper Sandler. Nathan Race: Comments earlier. Congratulations, Cory, Dave. -- been great. I wanted to checking on just the fee income outlook, Brad, I think you mentioned kind of a stable outlook. Just curious kind of what momentum you're seeing on the SBA front. Obviously, Wealth Management has shown some nice growth year-over-year as well. So just curious how you're thinking about kind of the overall year-over-year trajectory? Brian Spielmann: I can speak to the total broader fee income piece and then maybe Dave has a couple of comments on SBA. But the total fee income line, I think, is consistent with the prior messaging around 10%. And year-over-year growth expectations with Q1 being a good starting point for that? I know we had some noise in Q4, but really strong performance from those more consistent annuity streams for us, private wealth service charges and other, which now includes starting to build more of our SBIC investment product there that will start kicking off more returns as well over time. But that's really the primary drivers of that fee income, which again, we believe is a 10% growth in total for us throughout '26. Dave. David Seiler: Yes. And on the SBA side, we actually expected that to be a little bit higher this quarter after the shutdown late last year. But I think as we look at pipelines we expect it to be relatively flat going forward. Nathan Race: Okay. Got it. And Dave, I think you mentioned earlier, you're expecting some softer growth in the same quarter, just given maybe some pull-through and some expected payoffs this quarter. So is it fair to expect maybe like mid- to low single-digit growth in the same quarter and then get back up to that kind of high to low double -- high single digit to low double-digit trajectory in the back half of the year. David Seiler: Yes, I think that's probably reasonable for Q2, Nate. A little bit depends on payoffs and those aren't -- some of those are in flux right now. So we can't predict them 100%, but I think that's a reasonable point, and we still expect to be at 10% for the year. Nathan Race: Okay. And then maybe 1 last one. Any color that you could shed on the charge-offs in the quarter and just how you're budgeting or thinking about charge-offs over the balance of this year. It doesn't sound like there's been much movement on the ABL credit that we've talked about, which again, shouldn't really result in any loss content. But -- and within that context, it also seems like the Southeast properties are still slated to sell that part similar to what we saw this quarter. So we're just hoping to get any color along those lines, please. David Seiler: So I can talk about the Southeast properties and the asset-based lending credit that we have. So on the Southeast properties last -- last quarter, we talked about how we're going to work this out of this over time. And we started that with a little over $3 million in payoffs with no losses in the past quarter. Right now, we are pursuing foreclosure on the rest of the properties in that nonperforming portfolio. And so we shouldn't really expect any resolution in Q2. That's probably more the back half of the year based on how long those proceedings take in Wisconsin. And again, as it relates to the asset-based lending credit that's going to be an end of the year type of end most likely. But there -- we've had no negative news there. It's just moving through the court system very, very slowly. But we're being told that's what we should expect in this case. Nathan Race: Okay. That's helpful. I appreciate the color. David Seiler: Hey, on the broader charge-off question. I would say for Q1, nothing kind of unusual to report kind of a broad mix of charge-offs coming from SBA, C&I. I will say that EF finance improved from a charge-off perspective from Q4 to Q1. So that's a good indication that we're improving and working for that portfolio. I think we had about 25 basis points of charge-offs in the quarter. little higher than we would think. We tend to think around 20 basis points on average for the year. So -- but nothing that's alarming to us by a means. Corey Chambas: Just to add to that, Nate, that transportation segment of that equipment finance portfolio, which started out at about $61 million is down to $18.1 million or $18.2 million, something like that. So we're making nice progress on that. Nathan Race: Okay. Got you. Very helpful. I appreciate all the color. Thanks, guys. Hope have a great weekend. Operator: Your next question comes from the line of Damon DelMonte of KBW. Damon Del Monte: First off, Corey, congratulations on the retirement. I think I've been covering you guys for probably close to 12 years. So it's been an enjoyable run. And Dave, I look forward to working with you in your new role. So congrats. David Seiler: Thank you. Damon Del Monte: Sure. So with that, I guess, most of my questions have been asked and answered. But Brian, I may have missed this, but do you know what the fees and low of interest were included in the margin this quarter? Brian Spielmann: We're about $2.2 million. So that's more in line with kind of run rate, a little bit higher than the run rate. That's up from the prior quarter. But remember, the prior quarter had the nonaccrual interest rate reversal in Q4, so... Damon Del Monte: Right, right. That's right. Okay. And then kind of along the lines of credit and trying to figure out provisioning going forward. The reserve do you expect to kind of maintain this reserve level? And then if you kind of have average net charge-offs of 20 basis points kind of just back into the provision that way? Is that a good way to think about it? Brian Spielmann: Yes. That's all I think about it, Dan. I think the macro piece of this equation with the subscribed to Moody's, right? So that's the wildcard. -- with geopolitical, but I think all else equal, you're provisioning for growth off this reserve level with the 20 basis points that's appropriate. And we saw -- for example, this quarter, $1 million of the provision was due to loan growth of about 2.9% in the quarter. So that will come back down. Obviously, as we talked about with Q2 growth coming back down, but yes, with the uncertainty around the macro, to me, that's no change is a reasonable place to be. Damon Del Monte: Got it. Okay. Great. That pretty much covered everything else. So thanks for taking my questions and take care. Operator: Your next question comes from the line of Brian Martin of Brand. Brian Martin: Just maybe [Audio Gap] where you're optimistic going into the year? [Audio Gap] And maybe areas that aren't really optimistic about in terms of delivering the targeted growth this year. Brian Spielmann: Sure. Well, I mean, I think if you look for the -- where it's going to come from for the rest of the year, I think we're going to continue to see nice growth in our -- from our ABL team also from our accounts receivable finance team. Kansas City is looking really good. We continue to add talent in Kansas City. And our -- particularly our Southern Wisconsin markets are still strong. We have good teams in both of those markets. So we should continue to see growth there. Brian Martin: Okay. And in terms of the build-out, it sounds like you're still adding some folks in Kansas City. Is that primarily complete at this point? So you've got a full team there just more areas you're adding down there? Brian Spielmann: I don't think we'll have a lot more ads down there, Brian, but we could have another ad. And in order for us to continue to grow at 10%, we have to continue to add folks really across our markets. So I think we will likely have another ad in Kansas City this year. Brian Martin: Got you. Okay. And then maybe just jumping to the -- just the fee income per section. And I appreciate the color you guys have already given your comments, Brian. Just in terms of the lumpiness that kind of seems within this portfolio. Do you still expect some lumpiness count throughout the year? I know the movie made or reclasses just kind of trying to think about the quarterly movement or progression? Is it -- do you expect a little bit more consistency? Is it still going to be a little bit lumpy as we go along? Brian Spielmann: I would say, yes, is the answer. There's still going to be lumpiness, but that's something we're working on and trying to improve, right? We talked about the success of our private wealth and our service charges, those are becoming more and more consistent in annuity like more so than they had before. And then I also just really kind of briefly talked about our investments in small business investment company funds, -- we're deploying more capital there. There's a 5% limit, right, for regulatory capital, but we're doing that over time to add a more stable level of fee income to the quarterly run rate. So that will take some time, but that's the part of our process to smooth those earnings out on a quarterly basis. But it's just the nature of swap fees and SBA gains -- it's just going to be lumpy still, but it's why we're really focused on that 10% year-over-year growth. Brian Martin: Yes. Okay. Okay. that covers -- Damon got the credit cards other than that, I'm good and just the same comment that both guys have made. It's been great working with you over the years, Corey, and I wish you the best in retirement and Dave, it's been good to continue to know you and continue to work going forward. So congrats on everything, and thanks for taking the question. Brian Spielmann: Thanks, Brian. Thanks, Brian. Operator: That concludes our Q&A session. I will now turn the conference over back to CEO, Corey Chammas, for closing remarks. Corey Chambas: Thanks. First, I'd just like to say I appreciate all the relationships I've dealt with all of you over the years. So I will definitely miss that. I miss you all. Overall, I just want to say thanks, everybody, for your interest in First Business Bank joining us today, and I hope everybody has a great weekend. Operator: This concludes today's conference call. You may now disconnect.
Operator: Hello, everyone, and thank you for joining us, and welcome to WSFS Financial Corporation First Quarter Earnings Call. [Operator Instructions] 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: Thank you very much. Good afternoon, and thank you, everyone, for joining our first quarter 2026 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 is Rodger Levenson, Chairman, President and CEO. Prior to reviewing our financial results, I would like to read our safe harbor statement. Our discussion today will include information about our 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 in our annual report on Form 10-K and our 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. WSFS had a strong start to 2026, continuing to demonstrate the strength of our franchise and diverse business model. Our first quarter results included a core EPS of $1.68, core ROA of 1.65% and core return on tangible common equity of 20.7%, which are all up versus the prior quarter and prior year. On a year-over-year basis, core net income increased 35% and core PPNR increased 10%, resulting in core EPS growth of 49% and tangible book value per share growth of 15%. These results include the previously disclosed loan recovery of $15.7 million. Excluding this recovery, core EPS was $1.45, which is up 28% year-over-year, and core ROA was 1.43%, which is up 14 basis points year-over-year. Core results for the first quarter exclude 2 items related to the sales of real estate properties as we continue to optimize our office footprint and bring more associates together in fewer locations. These items resulted in a $2.2 million negative impact to net income and $0.04 impact to EPS. Net interest margin of 3.83% was flat linked quarter while absorbing the interest rate cuts that occurred in the fourth quarter. We continue to successfully reprice our deposits, and this margin reflects a reduction of 12 basis points in total client deposit costs to 1.33%. Our interest-bearing deposit beta was 46% for the quarter, an increase relative to the prior quarter. Core fee revenue, which represents nearly 1/3 of total revenue, grew 11% year-over-year. This was driven by broad-based growth across our fee businesses and led by Wealth & Trust, which grew 25% year-over-year. Within Institutional Services, Corporate Trust, which performs trustee and agency services for mortgage-backed and asset-backed securitizations, and Global Capital Markets, which performs trustee and agency services for distressed debt and bankruptcies were each up over 40% year-over-year as we continue to win new mandates and capture market share. The Bryn Mawr Trust company of Delaware, our personal trust business, also delivered very strong year-over-year growth of 27%, driven by continued new account and client growth. In addition to Wealth & Trust, we also had other businesses that delivered strong double-digit growth, including capital markets within our commercial division and mortgage banking. Cash Connect fees declined quarter-over-quarter due to the impact of interest rate cuts and lower volumes, but the business delivered a strong profit margin of 15%, more than doubling its profit margin year-over-year. Client deposits increased 5% linked quarter, driven by growth in Commercial and Trust. While some deposits in both of these businesses are transactional and maybe short term, we continue to see solid momentum. On a year-over-year basis, our deposits are up over 9%, driven by growth across Trust, Commercial and Private Wealth Management. Importantly, noninterest deposits grew 14% linked quarter and now represents 34% of our total deposits, up from 29% in the first quarter of last year. Gross loans were up slightly linked quarter. In Commercial, strong momentum in C&I lending was partially offset by elevated payoffs in commercial mortgages. Annualized C&I growth was 7% linked quarter, driven by robust fundings. We also saw strong momentum in Small Business Banking, which had annualized growth of 11% linked quarter. In Consumer, despite seasonal trends, we continue to see solid originations in residential mortgage, which were up over 70% year-over-year. Residential mortgage and WSFS originated consumer loans at annualized growth of 3% linked quarter and are up 14% year-over-year. Turning to asset quality. We saw meaningful improvement across delinquencies and problem assets. Delinquencies are down 32% year-over-year and problem assets are down 26% year-over-year. Nonperforming assets, which are down 25% year-over-year, increased linked quarter driven by 2 loans, a C&I loan and a multifamily loan, both of which are well secured. Net recoveries for the quarter were $3.5 million as the previously disclosed $15.7 million recovery more than offset the charge-offs. Excluding the impact of this recovery, net charge-offs were $12.2 million, which is a 19% decrease from the prior quarter. During the quarter, we continued to execute on our capital return framework and returned $94 million of capital, including $85 million in buybacks, which equates to 2.5% of our outstanding shares. Since the beginning of 2025, WSFS has repurchased approximately 12% of our outstanding shares. In addition, the Board approved an 18% increase in the quarterly dividend to $0.20 per share, along with an additional share repurchase authorization of 15% of our outstanding shares as of quarter end. This brings our total authorization to 19% of outstanding shares, reflecting our intention to continue to execute on our capital return framework and maintain an elevated level of buybacks in line with our previously communicated targets and framework. As shown on Slide 11 of the supplement, we updated our annual outlook for net charge-offs as a result of the recovery. Our new outlook is now 25 to 35 basis points for the year, down from the previous outlook of 35 to 45 basis points. As part of our typical process, we will provide an updated full year outlook when we present our 2Q results in July. We're pleased with these results to start the year, and we remain committed to delivering high performance. We will now open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Russell Gunther at Stephens. Russell Elliott Gunther: I'd like to start on the deposit growth, please, and if we could touch on just the overall sustainability. Would love to get some incremental color in terms of the Wealth & Trust vertical, maybe just parsing the drivers of growth here between the impact of market share gains versus the comment some of this is short term and transactional in nature? David Burg: Yes. Sure, Russell. Happy to address that. Thanks for the question. So as you know, as you saw, our deposit growth was very strong this quarter. And as we noted in our remarks, we did have some elevated transactional deposits at the end of the quarter, and those were both in Commercial and Trust. Having said that, we do feel like we continue to have momentum across these businesses and continue to have momentum in our deposit growth. Certainly, would not take this quarter and extrapolate it out in terms of the growth rate for the year. We're very pleased with the results, but not something that we feel is sustainable even though we feel like we're strategically well positioned. When you look at our -- for example, when you look at the Trust business -- and by the way, 2/3 of the growth was really driven in Trust, you can think about it 1/3 in Commercial of those deposits. And when you think about our Trust business, it is a combination of both strong growth in the market as well as our ability to take share and grow faster than the market. So we are benefiting from strong market growth there, but in addition, continue to take share on top of that. I would also add, Russell, that -- yes, I would just add one comment. We are -- I think it's worth calling out that we are seeing more deposit competition for sure, really across all the businesses. That's in Commercial and Consumer. And so that pressure is going to continue to be there. But again, we feel like we're well positioned competitively. Russell Elliott Gunther: Okay. Excellent. And then my second question would just be to kind of parse your original 2026 guide where you have 3 rate cuts embedded in there, the environment looking more like probably none. So could you just maybe sensitize to that and walk us through some of the puts and takes? Obviously, a bit of an asset-sensitive position on the margin, maybe Cash Connect overall profitability diminishes a bit, but what impact does removing those 3 cuts have on that ROA target of 1.40% plus or minus? David Burg: Yes. Yes. So one is, as I mentioned, when we come out in July, as you know, the rates have been very volatile and the expectations have changed a lot, and we'll see what happens in the back half of the year. When we update our outlook, we will certainly provide kind of a more clear picture. Clearly, the March cut didn't happen. And as you noted, we are asset sensitive, so that does provide a little bit of a tailwind for us. What we have said in the past, what I had said is that generally kind of about 2 basis points per rate cut across the year was the cost to us of the rate cut. And so I would expect the same the other way, but I think it is important to note, and I'll come back to my question on competition. We are seeing more deposit competition really across the board and more pricing competition and that's both in Commercial and Consumer across businesses. So I think that's definitely something that's in the market. We have a number of promotional products out there as we continue to try to grow clients and win market share. And so putting that all together, we do have a bit of a tailwind because of not having the cuts, but there're also other puts and takes there. And so putting that all together, I think the current rate where we're at is probably a good place to be. The other thing I would note is just as always in the first quarter, just because of the technical nature of the seasonality, just the NIM is always a bit higher. Operator: The next question comes from Janet Lee at TD Cowen. Sun Young Lee: So the total loan growth was on a period-end basis was muted, but it looks like the commentaries around C&I utilization and pipelines are pretty strong, and a lot of that growth seems to have been offset by some CRE payoffs and partnership consumer loans. So as you think about -- as we think about the loan growth in the coming quarters, how should we think about the cadence of partnership consumer loan runoffs as well as the paydown impacts? Should we see a pickup in loan growth? David Burg: Yes. So I'll start off. So yes, exactly as you summarized it. I think we saw -- we're very happy and pleased with the fundings and the momentum that we have on the C&I side of the Commercial business, and I'll touch on both Commercial and Consumer. We -- especially if you look at it across the last 2 quarters, we had annualized growth in C&I of 7% this quarter. Last quarter, we had annualized growth of 15%. And when you look at the fundings across both of those quarters, they've been really strong and up materially over where they were a year ago. So we feel good about the C&I momentum. And as you know, C&I is really our primary product with respect to commercial lending. That's where we want to lead with, that's the product that also delivers our deposit growth and the broader relationship as well as transactional activity. And so that is the product that we're very focused on. So when you look across the 2 quarters, we had good momentum. We had increased line utilization in both quarters, which is a good indication of client activity and the pipeline is pretty healthy. We are contending with a higher rate of payoffs in commercial real estate. Some of that has also helped our decline in problem assets. Some of them had lower yields and so we were happy to see those run off. But it's something that we will have to contend with as we're dealing with -- we are dealing with a bit of an elevated maturity pipeline with respect to commercial real estate. And what I would add also with commercial real estate is, we are -- as we said before, we are primarily a recourse lender, and so we're very selective in how we do commercial real estate and the type of clients that we do business with. And so we're really focused on accretive growth and not just growth for growth's sake. So I think this is a pattern. The pattern that you're seeing this quarter is we were pleased with our momentum. There're certainly pockets where we'd like to see a little bit more growth, but overall, we feel good about the momentum. And for example, Small Business, which had an uneven year last year, also had a very solid quarter, 11% annualized growth. And so we feel good about that where we are. Rodger Levenson: Yes. This is Rodger, Janet. I would just add to that. I think over time, on the consumer side, we -- the spring portfolio will continue to roll off consistent with what you saw this quarter. It may be impacted by rate cuts a little bit so there's a little bit of refi risk in that. But that's sort of, I think, a pretty good going rate of attrition there. I think our goal is and some of the progress that you've seen in our home lending business is to offset as much as possible of that growth and hopefully, over time, overcome that with our home lending products that we have. And then the Commercial business will operate exactly as David has said. We're obviously taking a very hard look at those maturing loans along the criteria that David outlined. Much of that is acquired loans. And we want to make sure that to the extent we're going to extend those loans or refinance those loans, they fit our overall criteria from an asset quality and return standpoint. So that's just a little bit of kind of longer picture of what you should see. C&I should be the primary driver and then hopefully, the growth of the home lending to offset the continued runoff of spring. Sun Young Lee: Got it. That's very helpful. And not to put words in your mouth, but if I were to interpret your prior commentary on net interest margin earlier, with no rate cuts, your earning asset yields would obviously benefit more, but you're expecting deposit costs to go up versus the 1.33% level in the first quarter. So that mitigates -- that results in a flattish NIM from here. Is that the right way to think about it? David Burg: Yes. Janet, I wouldn't say necessarily go up. The way I would think about it is, as you know, with the rate cuts, we had -- we would have repricing in our loans and so our yields have been coming down, which we've been offsetting with our deposit decreases. So in the absence of the rate cuts, we would see the stabilization in the loan yields. So on the deposit pricing side, we've had good repricing, but what I was suggesting with my earlier comments is we have seen more price competition come into the market. And when you look at our deposit prices, whether that's the CD that we have, for example, flagship CDs of 3%, our money market product is also at 3%, we're definitely far away from the high point in the market. And we see many competitors who did not move in the last rate cut and some competitors that have held or increased their pricing in some of these products. So I think there's definitely more deposit competition in the market. We still have a little bit of a repricing tailwind from some of the maturing CDs that we have. But because our CDs have been shorter and -- shorter term, a lot of that repricing is already behind us. And so that's why, really, I said kind of the NIM environment -- there're puts and takes, but the NIM environment -- our NIM should be more or less stable other than that some of that first quarter seasonality with the account. Operator: Your next question comes from the line of Christopher Marinac at Brean Capital, LLC. Christopher Marinac: I wanted to ask about the capital plans. And curious if the regulatory changes that may be happening this year kind of would cause you to revisit that again as you continue to execute the authorization quarter-to-quarter? David Burg: Chris, the -- yes, with respect to the buybacks, I guess I'll take you back to our framework that we laid out when we launched really the -- when we updated our buyback framework at the beginning of last year, and we said that we will be on a multiyear glide path returning capital towards a 12% CET1 target. And we said that we would approximately return about 100% of our net income, plus or minus. Some quarters a little bit more, some quarters a little bit less, and that's generally -- when you look at the last 5 quarters, that's really generally where we've been. When we think about capital return in general, it's -- obviously our #1 priority is to invest in the business, and we want to continue to grow the business. We feel good about our growth prospects, and we continue to invest in our businesses. And when we think about capital return, we look at both -- we look at a couple of different considerations there. One is the regulatory ratios and the other ones are also rating agency ratio. So for example, we look at -- in addition to CET1, we also look at TCE. We look at our AOCI volatility and rate volatility. And so we want to manage all of those factors to ensure that we have the right view on excess capital and our glide path. And so that's why those are really the drivers behind why we tend to stick around 100% because of those factors. We saw more interest rate volatility in the last quarter, and you saw a little bit of pressure on our TCE, and that's an example of the kind of things that we're carefully monitoring. With respect to the capital changes, we've -- obviously, this is in common period. And so we'll see how the final rules shake out. But we feel like it will have some incremental capital to us on the regulatory side because of the risk weightings and changes to assets, based on our preliminary modeling maybe a 4% to 5% benefit to capital. But again, that's on the risk-weighted side. And we look at multiple capital ratios and multiple indicators including our total capital to assets and those types of metrics. So we're going to weigh all of that, but that could potentially provide a little bit more capacity. Christopher Marinac: Great, David. That's very helpful. And I guess kind of a related question. I mean, as you sort of have the ability to be picky about the new loans that you do, have kind of your internal thresholds for return gone up over the past several quarters in terms of what would be acceptable versus not acceptable for a new credit? David Burg: I would say, Chris, no necessarily changes in our thresholds. We do look at -- I think what's really important to us is looking at the relationship pricing altogether rather than thinking about loans in a transactional level. And so we put all of that into the mix. The deposits are obviously a big part of that, other fee activity are a big part of that. And we're certainly not -- we're not the low price point in the market. And so we think about credit, we think about relationship pricing, and those are the things that drive our hurdle. Operator: Your next question comes from Manuel Navas at Piper Sandler. Manuel Navas: On the Corporate Trust side and the Global Capital Markets side, those 40% great revenue quarters up year-over-year, is there some better way to track that? How should we think about that going forward? You said that this is a great quarter, not all of them can be this great, but how should we think about those businesses over the course of the whole year? David Burg: Yes. So yes, those 2 businesses are essentially what comprises our Institutional Services business. The -- as you know, the Corporate Trust business really focuses on ABS and MBS securitizations. The Capital Markets business focuses on distressed debt and bankruptcies, and we saw good momentum across both businesses. We've been -- there've been a couple of drivers behind that. When you look at -- we've been investing in headcount and technology across the businesses. And those businesses are very important. Referrals and relationships are very important in those businesses. And we have developed over time, unique product expertise across those businesses. We have the ability to be innovative, we can respond faster to clients. And as we continue to do more work in those businesses, our reputation has really spread, and we continue to win other and new mandates. And so that's been a great trend. In addition, our -- the strength of our balance sheet and our credit ratings, and as you know, we have 3 strong investment-grade ratings, those are also very important support factors for our ability to do these deals because clearly, this is about our ability to be there for the long term to be there as a trustee and a custodian of these assets. And the last point I would make is there have been strong market growth, particularly when you look at the asset-backed and mortgage-backed security market, the market growth there has been about 20% per year. And so we have been able to ride that market. We've been able to actually win share and grow in excess of that growth rate, as you can see from the numbers, but we benefited from that market growth. So certainly, we don't expect that market growth to continue at that rate. It may slow down to a more normalized growth rate, but we feel good about our ability to continue to win share. Manuel Navas: Okay. I appreciate that. In terms of the loan growth potential, can you speak to customer sentiment beyond what's captured in the better pipelines that are up 35% and line utilization is up. But just kind of what -- how are your footprint thinking about what's going on in the environment? Or is it seems like it's business as usual? Rodger Levenson: Manuel, it's Rodger. So you can imagine, been spending a fair bit of time out and about with our clients and prospects. And I would say generally that it's business as usual. I think all this volatility, including what's going on right now overseas, I think it's kind of set in that there's going to be some volatility and that businesses are kind of moving on, and they're investing and they're seeing opportunities to grow as a general statement. I would say, at the beginning of the year, some of our local businesses had some exposure to the weather. We had a pretty rough period of time there in the early part of the year, but we -- businesses have kind of moved past that. And I'd say, generally, optimism is at a pretty reasonable level at this point. And you think you see that in not only the fundings, but some of the comments on our pipeline and other things. So we feel good about that, supporting the overall C&I growth going forward. Manuel Navas: I appreciate that commentary. Is there any opportunity to add talent, any talent that you feel like you need to add to keep that lending trajectory going? Rodger Levenson: So we're always interested, as David said, investing in the business and in the Commercial business, in particular, that's all about adding talent. And I think the bar for us, though, is very high. So we're looking at people who can move books of business, have deep relationships in the market and are culturally consistent with us across the commercial platform. Just as a reminder, an example of that last year, in the sort of right between the third and the fourth quarter, we hired the M&T Market President for the Greater Philly region, Greater Philly and Delaware region, somebody we've known for a long period of time to join us and that was a significant pickup for us. And I think that's indicative of the fact that very well-known individual proven person in the marketplace could have gone wherever pretty much I think he wanted to go and he chose WSFS. And so I think that shows that we're kind of the provider of choice for people who are at larger institutions who want to be part of something that has a balance sheet big enough to support larger customers with a product offering at a bigger bank, but in a much more nimble service-driven way. So I would expect that we will see more talent like that coming to us over time as it has for as long as I can remember. Operator: [Operator Instructions] Next up, we have Charlie Driscoll from KBW. Charles Driscoll: This is Charlie on for Kelly Motta. Circling back on the capital priority question with the possible regulatory relief boosting capital and still meaningfully above your medium-term CET1 targets? And I understand you're already pretty aggressive on the buyback and with the premium valuation giving you optionality. Just wondering your updated thoughts on M&A here? If you're looking for a more traditional bank or something less traditional? Just anything there. Rodger Levenson: So no update, Charlie, on that topic. Clearly, we -- we've talked about, we'd love to find opportunities, particularly in our fee businesses for investment, whether they're one-off talent or small acquisitions or potentially even something larger. I think our profile is growing in that space significantly, particularly the Wealth & Trust area. So we'll continue to look for those opportunities. In terms of whole bank, we think we have a great opportunity to execute on our strategic plan with the footprint that we have today focusing on this Greater Philadelphia and Delaware region, and a lot of headroom to grow in a very distracted large bank competitive set. That being said, if something came along that we think would be additive to that, we would certainly consider it, but the bar would be, I think, very high because we do think there's so much opportunity right in front of us. But we always keep our eyes open for those kinds of situations, but I would also just reiterate, we feel we can execute on our strategic plan by focus -- in the banking business by focusing on the organic growth opportunity right in front of us to take market share. Charles Driscoll: Great. And then just on credit broadly, you booked a big recovery in the quarter. Maybe any inside baseball you can give on that specific credit? And any broader kind of commentary on what you're seeing in your portfolio? Is there any areas you're more concerned about or looking at more carefully? David Burg: Yes, Charlie, I would say, on that specific credit, generally, we take a conservative posture with the way we look at our assets. This was -- as a reminder, this was a loan that was an acquired loan, not a loan that we originated and was kind of unique to our portfolio, but it was a loan to a fund that was invested in office real estate. We didn't have direct collateral -- we didn't have the direct recourse to the collateral. And so we saw no value in that, and we took a full write-off, but there's a lot of liquidity in the market. And one indication of that liquidity was that the sponsor in this case was able to get a full refinancing of that loan, and we were able to get a full recovery. So I think that's an indication of kind of the liquidity that we see in the market for some of these assets. In terms of our overall portfolio, I think we feel good. As kind of I had outlined in our comments, there's always -- there're always potentially uneven deals in commercial, but generally, when you look at the trend over the last 5 quarters, we've been trending down pretty much in all of our indicators, and that makes us feel good about our portfolio. We gave you some disclosure around our NDFI portfolio, which is very small, about 3% of our assets, also very granular and distributed. We see no credit issues in that portfolio. There are no very -- almost no problem assets, no NPAs, charge-offs or delinquencies there. And so we feel good about our portfolio overall. Again, there's always 1 or 2 credits that could be specific problems, but nothing systemic that we're seeing overall and something we continue to monitor closely. Operator: And with no further questions in the queue, I would like to turn the conference back to David Burg. David Burg: Okay. Well, thank you very much, everyone, for joining the call today. If you have any specific follow-up questions, please reach out to Andrew at Investor Relations or me. Have a great day. Rodger Levenson: Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Hello, and welcome to the Financial Institutions, Incorporated First Quarter 2026 Earnings Call. My name is Josh, and I will be the moderator for today's call. [Operator Instructions] At this time, I would like to introduce your host, Marty Birmingham. You may proceed, Marty. Kate Croft: Thank you for joining us for today's call. Providing prepared comments will be President and CEO, Marty Birmingham; and CFO, Jack Plants. They will be joined by additional members of the company's leadership team during the question-and-answer session. Today's prepared comments and Q&A will include forward-looking statements. Actual results may differ materially from forward-looking statements due to a variety of risks, uncertainties and other factors. We refer you to yesterday's earnings release and investor presentation as well as historical SEC filings, which are available on our Investor Relations website for our safe harbor description and a detailed discussion of the risk factors relating to forward-looking statements. We will also discuss certain non-GAAP financial measures intended to supplement and not substitute for comparable GAAP measures. Non-GAAP to GAAP reconciliations can be found in the earnings release filed as an exhibit to Form 8-K or in our latest investor presentation available on our IR website, www.fisi-investors.com. Please note, this call includes information that may only be accurate as of today's date, April 24, 2026. I will now turn the call over to President and CEO, Marty Birmingham. Martin Birmingham: Thank you, Kate. Good morning, everyone, and thank you for joining us today. Our first quarter results underscore the strength of our community banking franchise, reflecting disciplined execution by our team and a continued focus on sustainable profitability. We delivered net income available to common shareholders of $20.6 million or $1.04 per diluted share, representing improvement from both the linked and year-ago quarters. The first quarter operating results also supported meaningful improvement on key measures of profitability over both the linked and year-ago quarters, including return on average assets of 137 basis points, return on average tangible common equity exceeding 15% and an efficiency ratio of 57%. Our management team and Board took strategic actions during the quarter that reflect our commitment to prudent capital deployment and long-term shareholder value creation. In January, we completed the refinancing of $65 million of legacy sub-debt issuances. In addition, we repurchased a little over 163,000 shares, bringing the total repurchase since December to approximately 500,000 shares or half the 5% authorization approved under the current buyback program. In February, our Board also approved a 3.2% increase in our quarterly cash dividend to $0.32 per common share. Tangible book value per share increased 1.1% to $28.15 this quarter as strong earnings more than offset the impact of our share repurchase activity and some downward pressure in AOCI driven by interest rate volatility. Our capital actions underscore our Board's confidence in our strategy and long-term outlook, while reaffirming our commitment to disciplined capital management and long-term shareholder value. From a balance sheet perspective, total loans were down modestly on a linked-quarter basis and up 1.6% year-over-year. Commercial loans were relatively flat on a linked-quarter basis, with business loans up 1% and mortgage down modestly. Compared to the first quarter of 2025, both categories were up about 5%. On our January call, we indicated that our expectation for first quarter commercial growth would be modest, given the magnitude of loans that were closed in late 2025 and higher payoffs we anticipated to take place in the first quarter. Given geopolitical and economic uncertainty in the first quarter, we did see some of our commercial customers taking a cautious approach by tightening their balance sheets and paying down debt with cash reserves, which impacted both sides of our balance sheet in the form of lower loans and deposits. Asset line activity. In the fourth quarter of 2025, we originated approximately $270 million in commercial loans with roughly $135 million rolling off. In the first quarter of 2026, originations were $147 million with $158 million in payoffs and paydowns. Based on the size and health of the pipelines we have today, we expect to see loan growth rebound through the second half of the year and continue to expect full year loan growth of 5%, driven by commercial. In our Upstate New York markets, we are seeing demand pick up on the C&I side, particularly in Rochester and Buffalo. In Syracuse, excitement on the ground is palpable following the Micron groundbreaking earlier this year. With a seasoned local lender joining our team recently, we believe we are well positioned to support the growth that will take place in Central New York. In our Mid-Atlantic portfolio, where we have a small team of CRE lenders, we have experienced higher refinancing activity for construction loans, which is a testament to the high quality of the sponsors and the liquidity of this portfolio. Turning to consumer loans. On-balance sheet residential grew modestly, up about 1% from the end of the linked and year-ago quarters. Sold and serviced residential mortgages of $298 million were up 1.5% during the quarter and more than 6% year-over-year, as we shift more production to our off-balance sheet service portfolio, supporting fee income. In the Upstate New York metros of Rochester and Buffalo, the housing market remains hotter with home values projected to climb another 4% or more in 2026. Both mortgage and home equity applications were up 10% year-over-year, and we are enthused about our opportunity as we enter the busier spring and summer home buying season. Consumer indirect loans were down 2.4% from the end of the fourth quarter and around 8% from the first quarter of 2025 to $788 million. As we have shared previously, we have been comfortable allowing runoff to outpace originations given our focus on profitable spreads and favorable credit mix. Originations in the first 2 months of the quarter were lighter than we planned, but March was very solid, with April pacing well. We feel well positioned to capitalize on the seasonal uptick in foot traffic and car-buying activity that occurs in the summer months in our footprint. Credit remains stable on this line of business given the prime lending nature of our operations. We lend through a network of more than 360 new auto dealers across New York State. And the portfolio has an average loan size of approximately $20,000 and a weighted average FICO score exceeding 700. Period-end total deposits were $5.34 billion, up 2.5% from December 31 and down about 1% from the March 31 of 2025. We offboarded the remaining $7 million of BaaS-related deposits in the first quarter, marking the completion of our Banking-as-a-Service wind-down. This was the main driver of the year-over-year decline in total deposits and nonpublic deposits as we took BaaS deposits to 0 at the end of last month from approximately $55 million at March 31, 2025. Both the reciprocal and public deposits year-over-year has also allowed us to reduce our use of brokered wholesale deposits. Our reciprocal deposit base is differentiated, one anchored on deep and often long-tenured commercial and municipal relationships. More than 20% of these customers and 30% of the balances have had a relationship with Five Star for more than a decade, and the average relationship tenure across the portfolio is 5 years. Our reciprocal product offering helps us retain important customer relationships while reducing traditional collateralization requirements on public and institutional funds, and providing us viable liquidity, including during the 2023 banking crisis. Our public deposit base is well established through hundreds of local municipalities, school districts and other governmental entities. Balances reflect seasonality associated with tax collections and state aid, and as a result, this funding segment peaks in the first and third quarters and remains well managed. Our team remains highly focused on the retention and acquisition of core nonpublic deposits. We continue to target low single-digit deposit growth for the full year even as we allowed some higher-priced single-product CDs to roll off at maturity in the first quarter, benefiting margin. It's now my pleasure to turn the call over to Jack for more details on our results, including some favorable updates to our guidance. Jack Plants: Thank you, and good morning, everyone. Our business lines came together to achieve profitable financial performance in the first quarter, highlighted by NIM expansion, durability of key noninterest income categories and disciplined expense management. Starting with net interest margin, the 5 basis point increase on a linked-quarter basis was driven by lower interest-bearing liability costs. Cost of funds decreased 15 basis points from a linked-quarter as higher-rate CDs mature alongside overall downward deposit repricing. And as a reminder, fourth quarter margin was impacted by the level of sub-debt we were carrying in December ahead of the mid-January call of $65 million of past issuances. The 367 basis point NIM we reported for the first quarter was stronger than we anticipated due to favorable deposit pricing. While we continue to see competitive pressure on deposit pricing, we are strategically emphasizing our primary customer relationships, including those with maturing time deposits, which may modestly impact our cost of funds. We still anticipate modest incremental NIM expansion for the rest of the year and now expect to achieve full year net interest margin in the upper 360s. As a reminder, our guidance is based on a spot rate forecast, which does not factor in potential future rate cuts. Investment securities yields remained stable at 4.48% quarter-over-quarter, while average loan yields decreased 13 basis points as compared to the fourth quarter, primarily reflecting the timing of the December rate cut. As a reminder, approximately 40% of our loan portfolio is tied to variable rates, with a repricing frequency of 1 month or less. Noninterest income was $10.7 million for the quarter, compared to $11.9 million in the fourth quarter. The primary driver of the variance was lighter commercial back-to-back swap activity given the rate environment and origination activity. As a result, associated swap fee income was $239,000, as compared to $1.1 million in Q4. However, our loan pipelines are supportive of higher originations for the remainder of the year, which will positively impact swap activity and noninterest income. Investment advisory income of $3.1 million was consistent with the fourth quarter of 2025. This revenue is largely derived from Courier Capital, our wealth management subsidiary serving mass affluent and high net worth clients, businesses, institutions and foundations. New business was solid during the quarter, offset by market-driven outflows that led to a modest decline in AUM from year-end 2025. With assets under management of nearly $3.6 billion, Courier Capital remains one of the largest RIAs in our region. Company-owned life insurance revenue of $2.8 million was consistent with the linked-quarter. Limited partnership income of $244,000 was about half the level reported in the fourth quarter of 2025. Associated revenue fluctuates quarter-to-quarter given the performance of underlying investments. A net loss on other assets of $481,000 was recognized in the first quarter of 2026, compared to a net loss of $225,000 in the fourth quarter of 2025. The first quarter loss relates to the write-down of 2 branch locations, one which we are preparing to consolidate in the second quarter and another that has been held for sale from the previous branch optimization. These declines were partially offset by $1.8 million of other noninterest income, which was up about $340,000 from the linked-quarter, reflecting insurance proceeds related to a past deposit-related charge-off. We reported quarterly noninterest expense of $35.6 million, down from $36.7 million in the fourth quarter. Salaries and benefits expense, the primary driver of NIE, was down $722,000 or 3.7%, reflecting lower incentive compensation and lower medical expenses. We do expect to see annual medical expenses to be in line with our self-funded plan experienced in 2025, and that's reflected in our full year guidance. Professional service expenses were down $366,000 or about 20% for the linked-quarter, reflecting the lower level of interest rate swap transactions along with lower other professional and consulting fees. Occupancy and equipment expenses declined $239,000 or around 6%, due in part to seasonal snow plowing expense impact in the fourth quarter. These reductions were partially offset by higher computer and data processing expenses, which were up $277,000 or 4.7% from Q4. The increase was primarily due to the reversal of prior accruals associated with the termination of a vendor relationship in the first quarter. This will be largely offset by the elimination of associated recurring costs moving forward. Prudent expense management remains a top priority, reflecting our commitment to maintaining the positive operating leverage we have achieved. Given our favorable first quarter results, we now expect to deliver a full year efficiency ratio approaching 57%. We reported an effective tax rate of 15.5% in the first quarter, driven by appreciation in our stock price that positively impacted the tax deduction associated with long-term stock-based compensation that vests annually in the first quarter. The 2026 effective tax rate is now expected to be at the lower end of our guided range of between 16.5% to 17.5%, including the impact of the amortization of tax credit investments placed in service in recent years. In looking at credit costs, net charge-offs were 44 basis points of average loans, compared to 21 basis points in the linked-quarter. First quarter charge-offs included a portion of a previously disclosed commercial business relationship placed on nonaccrual status in 2023 that was fully reserved for in a prior year through a specific reserve in our allowance process. We expect to remain within our previously disclosed full year charge-off guidance of 25 to 35 basis points. Our allowance for credit losses was 97 basis points of total loans this quarter, down slightly from year-end 2025. The decline reflects lower loss rates and reduced qualitative factors, which are driven by improving seasonal trends in indirect delinquencies and favorable performance in our commercial loan pools. We did increase the qualitative factor tied to the economic environment to reflect ongoing geopolitical and macroeconomic uncertainties. Overall, the ACL remains at the lower end of our historical range and we remain comfortable with the allowance given our strong asset quality. That concludes my prepared remarks, and I'll now turn the call back to Marty. Martin Birmingham: Thanks, Jack. Our first quarter results reflect strong underlying profitability, disciplined balance sheet management and a capital position that provides flexibility as we continue to invest in our business while returning capital to shareholders. While the broader economic environment remains dynamic, we are seeing positive momentum in our lending and wealth management pipelines. Our profitable results also support the positive revisions to our NIM, efficiency ratio and tax guidance that Jack shared. Supported by a dedicated team in building a unique space in our region's banking industry, we believe we are well positioned to achieve our targets for full year 2026 and create long-term value for our shareholders. Thank you for your attention this morning and your continued support and interest in our company. That concludes our prepared remarks. Operator, can you please open the call for questions? Operator: [Operator Instructions] The first question comes from the line of Damon DelMonte with KBW. Damon Del Monte: First question is just on the margin. I appreciate the updated guidance there. And Jack, hopefully you could just kind of talk about some of the dynamics that give you confidence that you're able to maintain this upper 360s level for the remainder of the year. Jack Plants: Yes. Damon, so the margin came in a little bit above our expectations for the quarter. That was primarily driven by a benefit that we recognized through cost of funds. Our cost of interest-bearing liabilities continue to drift downward through January, February and into March. Frankly, the cost of interest-bearing liabilities ended March at 2.49%, which is about 9 basis points lower than the January print. We do see some pressure coming through from a competitive standpoint on deposits in our market. So I do believe that we are approaching the bottom from a cost of funds perspective. But given where our loan pipeline stands and the spreads that we're recognizing on originations, I think we're going to start to see some lift on the earning asset side, which is going to provide us that margin stability through the rest of the year. Damon Del Monte: Got it. Okay. And can you just remind us on the asset side, do you have a lot of back book repricing to happen this year? Jack Plants: We have, from a cash flow perspective, we have about $1 billion on a rolling 12-month basis of cash flow that comes off the loan portfolio. But just from an overall yield standpoint, we are seeing on the commercial portfolios, incremental improvement in new origination yields versus what's running off. And that's driving some of that earning asset yield benefit that we're seeing. We did have some compression that occurred on our floating rate portfolio to start the year, and that was driven by the December rate cut that we had. So about 40% of our portfolio is variable. Given our rate forecast for the year and expectations, we believe that can be tempered. Damon Del Monte: Got it. Okay. Great. And then I guess maybe a quick question on capital management. Good to see you guys are active with the buyback. Marty, just kind of wondering what your thoughts are as you kind of look out on the landscape of growth expectations and managing capital and still having around half of your buyback left. Do you think you guys are still on the trail to continue with the buyback? Martin Birmingham: We still have capacity, as I indicated. And we have a couple of [ governors ] that we're thinking about. Number one is our CET ratio, CET1, and really a floor of 11%, and as well, and before that, is ensuring we've got capacity to support growth. And we talked about our confidence in terms of being a back half of the year experience for us in terms of driving our balance sheet growth, and our pipelines are healthy and they are demonstrating vibrancy relative to all the loans that flow through at the end of the year. So I would say those are the factors. What we have done we're thrilled with, Damon, because the earn-back is at or around a year. So that's been a very good use of capital. Operator: The next question comes from the line of Manuel Navas with Piper Sandler. Unknown Analyst: This is [ Ekyu Nazir ] on behalf of Manuel. I wanted to ask a question about the loan growth. How do you guys plan to rebound to maintain the 5% guide there? And could you provide some more insight on the pipelines? Martin Birmingham: Sure. So today, the pipeline currently stands at almost $1 billion, $950 million-ish. That's up from $650-ish million at year-end, and it's up historically by other prior year period measurements. So we -- that's -- commercial has been a lumpy business historically in terms of how it flows through to the balance sheet, opportunities to ultimately the balance sheet. So we're very comfortable that -- where we stand today and the growth of the pipeline where it is, that that ultimately will translate to opportunities for growth in the balance sheet. Our C&I pipeline activities are basically 2x where we've been historically. So that's a good leading indicator. And our CRE opportunities currently stand around a little over $600 million. So we are monitoring that closely. We have a very aggressive internal process in terms -- disciplined process, I should say, relative to monitoring opportunities and processing them. And we keep a very close eye on term sheets that have been vetted by our credit folks and been issued and those that are seeking approval internally, that the customer has accepted, where we've issued commitments and where commitments have been accepted by the customer. So it's obviously a timing issue, but we're comfortable that it will ultimately flow through to the balance sheet. Jack Plants: And the other component there is we've been a very successful construction lender and we have construction commitments that are planned to draw down over the remainder of the year for projects that are in flight. And those are not represented in the $1 billion loan pipeline that Marty mentioned. So we're very confident in our ability to achieve that 5% target. Unknown Analyst: That's helpful. I also wanted to ask, are you seeing pricing get tougher on loans or deposits? And how is the competition in that regard? Jack Plants: Yes. This is Jack. So as I mentioned earlier, we are seeing the market being quite competitive on deposit rates, particularly higher-rate CDs and money market accounts. Our focus is more on relationship-based pricing, which is why we allowed some of those higher-rate single-account CD products to -- or customers to roll off during the quarter, which is where we saw some of our deposit balances declined on the retail side. But as we are out there in our commercial pipelines, we've seen success with deposit growth that supports loan originations. And as Marty mentioned, through the C&I pipeline being 2x where it's been historically, that's the portfolio that's a bit more deposit-rich on the commercial side, which should provide some balance sheet funding as those originations trickle through. On the pricing on the commercial side, it's as competitive as it has been, but spreads that we've observed have been within our tolerances and aligned with what we have budgeted for the year. So we're comfortable there. Operator: Thank you. That concludes today's question-and-answer session. I would now like to pass the call back to Marty for any closing remarks. Martin Birmingham: Thank you very much, operator, for your assistance and thanks to everyone who joined us. We look forward to updating you on our second quarter in July. Operator: Ladies and gentlemen, thank you for attending today's conference call. This now concludes the conference. Please enjoy the rest of your day. You may now disconnect.
Operator: Hello, everyone, and welcome to the Bancorp Inc. First Quarter 2026 Earnings Conference Call. Please note that this call is being recorded. [Operator Instructions] I'd now like to hand the call over to Andres Viroslav. Please go ahead. Andres Viroslav: Thank you, operator. Good morning, and thank you for joining us today for the Bancorp's First Quarter 2026 Financial Results Conference Call. On the call with me today are Damian Kozlowski, Chief Executive Officer; and Dominic Canuso, our Chief Financial Officer. This morning's call is being webcast on our website at www.thebancorp.com. There'll be a replay of the call available via webcast on our website beginning approximately 12:00 p.m. Eastern Time today. The dial-in for the replay is 1 (800) 770-2030 with a passcode of 9545117. Before I turn the call over to Damian, I would like to remind everyone that our comments and responses to questions reflect management's view of today, April 24, 2026. Yesterday, we issued our first quarter earnings release and updated investor presentation. Both are available on our Investor Relations website. We will make certain forward-looking statements on this call. These statements are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions we mentioned today. These factors and uncertainties are discussed in our reports and filings with the Securities and Exchange Commission. In addition, we'll be referring to certain non-GAAP financial measures during this call. Additional details and reconciliations of GAAP to adjusted non-GAAP financial measures are in the earnings release. Please note that The Bancorp undertakes no obligation to publicly release the results of any revisions to forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Now I'd like to turn the call over to The Bancorp's Chief Executive Officer, Damian Kozlowski. Damian? Damian Kozlowski: Thank you, Andres, and thank you for joining our call today. The Bancorp earned $1.41 a share in the fourth quarter. EPS growth year-over-year was 18%. First quarter ROE was 35.1% and ROA was 2.57%. Fintech, GDV continues to grow above trend at 18% year-over-year. Revenue growth in the quarter, which includes both fee and spread revenue was 15% year-over-year. Our 3 main fintech initiatives continue to move forward quickly and are well positioned for success. Our onboarding of new programs and expansion of current programs continues at pace. Cash at program has been launched. It will ramp up during '26 and '27 and show progressive accretion to our financials. Credit sponsorship balances soared in the first quarter to $1.65 billion, a 50% nonannualized increase over the fourth quarter of '25. As previously said, we expect to launch at least 2 significant additional programs in '26. Announcements are subject to our partners' marketing time lines. Embedded finance platform is close to completing the development of its first operational use case. We plan to announce at least one client in this area in '26. We also made continued progress in reducing our criticized assets, which includes both substandard and special mention assets. These assets declined from $194.5 million to $163.1 million, or 16% quarter-over-quarter. We expect more progress over the next few quarters. Lastly, we are maintaining our guidance of $5.90, EPS for '26 with $1.75 per share in the fourth quarter. Our expectation for '27 EPS is in a range $8.10 to $8.30. 2026 buybacks are forecast to be $200 million total and $50 million a quarter in '26 with '27 buybacks equal to near 100% of net income in the year. Our 3 major fintech initiatives, along with platform efficiency gains from restructuring and AI tools, plus a high level of capital return through continued buybacks, will be the driving forces beyond EPS accretion. EPS gains are subject to development and implementation time lines in fintech. I now turn the call over to our CFO, Dominic Canuso. Dominic? Dominic Canuso: Thanks, Damian. The first quarter builds on our momentum and strategy from 2025 and is setting up for a strong 2026. Ending loans for the quarter are $7.75 billion, which is a 9% non-annualized linked quarter growth and 22% growth year-over-year. Credit sponsorship growth accounted for 88% of total loan growth linked quarter and 83% of total loan growth year-over-year, bringing the segment to approximately 21% of total loans up from 15% prior quarter and 9% a year ago. Our strategy is to continue to shift the loan mix towards the higher returning lower cost credit sponsorship business. Average deposit growth was also a robust 9% non-annualized linked quarter fully funding the loan growth with an average deposit cost of 1.7% in the quarter, which was a 7 basis point decrease from prior quarter and 53 basis points lower than the prior year quarter. We also ended the quarter with $1.34 billion in off-balance sheet deposits comparing to $850 million at the end of the fourth quarter and $793 million prior year demonstrating the continued growth of our partnership-based deposit franchise, along with the strength of our overall liquidity position. NIM was 3.87% in the quarter, down 43 basis points from prior quarter and 20 basis points prior year's quarter. The decrease versus prior quarter is driven by both the mix shift in loans to credit sponsorship and the lagged impact of the lower short-term rates on variable rate loans. For some additional context on NIM, especially as we continue to mix shift loans towards fintech, our fintech lending fees are the equivalent to an additional 24 basis points of net interest margin. In addition, given the volume of off-balance sheet deposits, we generated from $900,000 from deposit sweep fees, which is recognized in other income, which equates to another 4 basis points of net interest margin. Noninterest income mix, excluding credit enhancement, was 33% compared to 30% in the fourth quarter and 29% in the first quarter of 2025. Fintech fee revenue is 29% compared to 27% for both prior quarter and prior year quarter. It is important to note that the growth in the credit sponsorship loans that we saw in the quarter is a leading indicator of fintech fee growth, both in the lending fees and higher transaction fees due to the higher volume of churn in that portfolio. Regarding credit, we continue to see improvement in both our current and leading credit metrics with particular note in REBL and leasing. REBL criticized loans are down $24 million, or 29% to $59 million from prior quarter and down 75% over the last 18 months. When excluding fintech credit sponsorship loans, which are supported by full credit enhancement, our traditional lending portfolio saw a provision reversal of $1.3 million, even as the traditional lending portfolio grew in the quarter. The release of reserve was primarily driven by specific reserve reductions in our leasing portfolio that were established in the third quarter of 2025 as positive progress continues to be made with those borrowers. Noninterest expense for the quarter was $55 million with an efficiency ratio of 41.5% when excluding the credit enhancement revenue. We continue to invest in the fintech platform, including building out embedded finance capabilities along with launching new products. At the same time, we are leveraging AI and refilling costs across the organization to continue to improve efficiency and allocate resources to support our fintech initiatives. Operator, you may now open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Joe Yanchunis of Raymond James. Joseph Yanchunis: So with your 2026 EPS outlook reiterated. Can you talk a little more about your embedded finance offering and this initiative's impact on 2026 results? I mean, how long will it take to onboard this first partner after announcement? Obviously, partner delays are a thing in this space. I just was hoping to get a little more color on that from your end. Damian Kozlowski: Yes. We have very little revenue for embedded finance in '26. We have more in '27. But you're exactly right. We're likely to announce at least one partner. It does take a while to fully build out the capability, depending on what the use case is. It could be very limited or it could be very broad. So that impact of embedded finance will really be fulfilled in '27 and '28. So very little revenue is in our own plan for '26 for embedded. Now we do have revenue in there for continued sponsored lending growth and for a potential announcement around 2 new partners. So that has more of an impact than the embedded would on our own budget. Joseph Yanchunis: Got it. That's helpful. And in your prepared remarks, you discussed some metrics behind your off-balance sheet deposit in that strategy. I mean, how should we expect this to evolve over the coming quarters? I assume the amount earned per deposit is based on the individual deposit costs and correct me if I'm wrong there. But will the biggest driver of revenue growth from this be moving more deposits off balance sheet or getting better economics for deposit? Damian Kozlowski: It's both, right? So over time, we take the higher cost deposits off the balance sheet. And we do, depending on the program that we're taking off the balance sheet, we may get some spread on that, right? It's in our own forecast, that's a small part. It's basically gravy. And the way we look at our own forecasting over the next 3 to 5 years, it wouldn't be as we grow the other parts, the main initiatives, that's literally gravy on top. It's not a big part of our own planning. And they're volatile, right? And it depends on the program. But they will grow. We'll have forced lower basis points on what we have to pay out as we take more higher-yielding deposits off the balance sheet. And in select occasions, we will get some spread on transferring those deposits through our network to other banks. Joseph Yanchunis: Okay. I appreciate that. What about the Aubrey? What are your current thoughts on the timing of selling that property? And has your expectation around the sale price changed given the recent softness that we've seen in rent prices? And then additionally, has there been any thought on redeploying those proceeds into share repurchases? Or will you just accrete that capital? Damian Kozlowski: Well, we're going to return 100%, as we've said before, of share buyback from our net income until we get a multiple that we think is appropriate for our ROE and growth. So that -- whatever we get in net income, we'll distribute back to shareholders through buybacks. But Dominic can give you a good Aubrey update. Dominic Canuso: Sure. Yes. So we're continuing to invest in the property to increase the occupancy rate as we -- the occupancy rate of variable rooms has been 80% even as we doubled it, and there are plans to continue to finish the remaining 50 units that need to be upgraded. We're just over 60% of occupancy on a total unit basis, and we expect to hit near 70% in the very near term. We expect the property to be operating breakeven by the end of this quarter. So its impact to our financials should be neutral. And we've shifted a bit given the significant progress and success in the continued occupancy from just removing it from the balance sheet to actually getting it to a stabilized valuation, which may take a little longer, but ultimately result in better economics for the bank when we exit. Joseph Yanchunis: Okay. That was helpful. But I actually just want to kind of dig into something that you said, Damian. So I was under the impression the guidance implied $50 million of share repurchases per quarter in '26 and then you returning 100% of net income or putting up -- the buy back 100% of net income in '27. So would that mean if you sold the Aubrey does that mean you're going to sell the Aubrey in 2027 kind of based on your answer? Damian Kozlowski: We're looking to -- I think we'll be totally full if we're going to go to stabilization. That would probably be a first quarter next year event. We have -- there's close to 50 buildings on the property, right? And there are 9 left, and we're reconditioning those 9 buildings over 3 phases over the next 9 months. So if we get the stabilization probably would happen occur at the end of next year, where stabilization is in the high 80s, low 90s. And then we would be able at least to get, obviously, our basis covered, but the appraisals are in the low 50s. So -- and if we were to monetize, it would be a rounding error to our buyback. If we're looking at our buyback, we're a little bit less than net income this year because we did so many buybacks last year that we're just building a little bit of extra equity into the end of this year, and then we would return 100% for the foreseeable future, we think, depending on the multiple. So the exit on the Aubrey, if stabilized, if someone doesn't come in and just write a check. But our current intention is to fix those 9 buildings, get it up to high 80s, 90 and then monetize it at this current time because we've done so much work already. Joseph Yanchunis: Right. Okay. Great. And then one last one for me here. How much of your balance sheet are you willing to dedicate to credit-enhanced loans over time? Damian Kozlowski: All of it? Joseph Yanchunis: All of it, okay. Damian Kozlowski: Credit enhanced or credit sponsored loans. Which one do you mean? Joseph Yanchunis: The credit sponsored loans, the one that... Damian Kozlowski: I thought that quite meant. So there's 2 parts, right? There's credit enhanced loans and then there's also loans that we might do that are distributed or we might take parts of bigger origination, slices of it, right, and keep it on the balance sheet. But of the sponsorship loans, I mean it's possible when we're looking at our pipeline, that will be a much bigger part of our business. Now that's over many years. So we're going to -- and many -- remember, many of our businesses like SBA, the real estate business, which we have distributed before, are fairly liquid assets. The same is true with the demand loans on the institutional. So this is a multiyear thing, and it really depends on the programs. Chime is a very unique situation where we're using a lot of balance sheet. That's very unlikely to happen. There will be some balance sheet used for future programs. Some might be bigger than others. Chime is a very special case. So this is a very -- when we look at our APEX 2030 strategy, we might -- originally, we were thinking 10%. And then we thought more like 30% or 40% of the balance sheet possibly in the next 3 to 4 years. Operator: Your next question comes from the line of Manuel Navas of Piper Sandler. Unknown Analyst: This is Grant on for Manuel. I just wanted to ask, could you talk a little bit more about the shift in LLR for fintech loans that was -- came in at 1.81% this quarter and was 2.84% last quarter. Could you just talk a little bit more about what drove that shift? Did you do more secured credit cards that require less... Damian Kozlowski: So the economics, I'll let Dominic handle it. The overall economics, the NIM of the entire program because it's in different places of the balance sheet, and we fund it with noninterest-bearing deposits is around 3% NIM. But the whole portfolio of products if we take a look at all the economics. That -- and the cost structure on that is not traditional lending, right? So you're not supporting it with origination and all the things that you would on a traditional business. So -- and it's credit secured. So we're getting -- the whole economics of the portfolio is around that would move up over time potentially with different product sets. And I'm only talking about Chime. But Dominic, do you want to dig a little deeper? Dominic Canuso: Sure. Grant, to your question, the secured product did outperform the growth in the quarter. And so there was a mix shift towards that product, which does have a lower loan loss reserve relative to the other products. But across our product, continues to improve, as you can see in those metrics as the performance of customers along with the growth demonstrates the growth potential of the programs. Unknown Analyst: Understood. And I also wanted to ask what is kind of the pace of fintech loan growth from here? I see the goal was $2 billion by year-end. You're now at $1.67 billion, and you were at $1.1 billion at 4Q. How does this adjust other metrics like fee income or NIM? Dominic Canuso: The success in the quarter, we're very pleased with, and I think outran our internal expectations. It does not change our full year targets or expectations. I think what it does is demonstrate the strength of the balance sheet. We'll see in the near term, along with the fees that we anticipate from the churn, particularly in that higher volume portfolio. So overall targets remain the same. I think there was just a little bit of a pull forward of volume that we anticipate, which is very positive, and we're excited to see. So it just means that the balance sheet will be a little higher earlier in this year than originally expected. Operator: Your next question comes from the line of Timothy Switzer of KBW. Timothy Switzer: So Damian, you mentioned in your opening comments that the new cash program has launched and will ramp up over the course of the year. And it looks like we saw some acceleration in GDV. Was there any contribution at all this quarter? Damian Kozlowski: No, very little. No. So very little, right? So our partners are very -- they're meticulous when they launch these programs in solar way. So we go through a long testing phase. And then you start -- we're in the full I would say, turn the dial stage where everything is set. We're watching you have incremental kind of gating issues. So we've already passed the first gate, and we're ready to start turning up the dial. So a lot of work has been done. Like I said, that by the end of the year, it should be fairly meaningful to our financials. So all predicated on the time lines, right, of that gating. It's going very well so far, but things can -- I think it's going to be good. So you'll see that dial turned up through '26 and then especially through the first part of '27. So everything is going well. And I think all the -- us, our partner are all pleased with the implementation. Timothy Switzer: Awesome. That's great to hear. So it sounds like the real acceleration, like an inflection point kind of occurs in the beginning of '27. Damian Kozlowski: Well, it will ramp up this year. It will start being meaningful. When we talk about our own forecast with our programs, we see a bump in the fourth quarter. That's part of the bump, right? It's not embedded finance like we were saying before, but that is -- it's definitely the Chime lending, it's definitely Cash App, other programs that we will announce other lending programs. We'll also announce other lending Banking-as-a-Service programs over the course of the year. And all those things will start meaningfully contributing by the end of this year, but then '27, there will be multiple things ramping up together, which will really lead us into that '27 guidance that we have. Timothy Switzer: Okay. Nice. And so you talked about this earlier with Grant's question on the 3% NIM. But I'm not sure if that was just the secured card or all the fintech loans. But could you kind of help us -- the economics? Damian Kozlowski: Yes. The reason I said that is because I just wanted to give the -- there's a lot of confusion because it's a different -- it's -- we don't break it out separately, and it's in total economics, right? So we're funding it, right, with noninterest-bearing deposits, right? There's multiple different products. There's 4 and it's growing, different products. But if you look at the entire economics of it today through the Bancorp, right, it's around 3% NIM for us, right, because it's obviously being funded. Timothy Switzer: Card or all of the fintech. Damian Kozlowski: That's everything together. We don't give independent economics, but the blended economics that's about what it is, right? That potentially will grow over time depending on the product mix. And it's a very -- I think it's incredibly synergistic for both us and our partner. I think it works for us -- for both of us. The programs have grown. Obviously, it's been a great source for revenue, but also of relationship deepening for Chime, and we're trying to support their initiatives by using our balance sheet. Now that's -- once again, that's a very unique relationship. I'm not saying that we will have -- like we do with Chime. That's very unique where we have a very deep relationship with them, obviously, for the issuance of their cards and new products and now their lending products. So we look at the entire economics of the relationship. That 3% doesn't include obviously all the interchange, our part of the interchange that Chime originates. So... Timothy Switzer: On the secured card? Damian Kozlowski: No, not on secured card. That would be in the -- if you look at all the products, the lending product that we we're talking about all products, right? So any of their products where there's interchange involved, we get a portion of that. Plus obviously, they have deposits that are sitting in the bank that are in excess of the noninterest-bearing deposits. So some of the saving deposits, some of those are off balance sheet. So I would say there's the lending part where if you add all the economics together, it's around 3%, right? But it also has -- it's secured, remember, it's credit enhancement. right? Then separately, there's a whole stream of revenue. Obviously, that's appears of fees that's only linked to interchange. And then the third party economics, there's other deposits that fund the bank, excess deposits that are rent out that provide deposits to the bank, too. So that's -- it's such a broad, deep relationship that there's multiple revenue streams from the Chime relationship. Lending is just one of them. Timothy Switzer: Yes. Okay. I get that. And I'm getting a lot of questions about kind of the profitability on these loans because if we take the numbers that are, I guess, disclosed and we can directly tie to those loans, if I take the fintech fees and the interest income and then those average balances, it looks like it's an annualized yield of about 2.7% and it's pushing off these non-fintech loans yielding nearly 7%. And I know obviously credit risk, it's not a traditional loan where it costs as much to originate. Where are the -- and maybe just the broader part of that relationship with Chime, I know all of this ties together like you mentioned. But... Damian Kozlowski: Well, you're not that far off, right? So that's 2.7%, we're saying it's around 3% today, right, with the mix currently, right? But the cost structure is radically different. It's only a fraction of traditional, right? So you're getting a 3% NIM. And this once again is separate from the other 2 revenue streams. You're getting a 3% NIM, right? But it's a fraction of the cost of traditional lending, and it has no risk of loss. So think about that, right? So if you kind of -- that's like almost -- it's almost a bond, right? You can think about a 3% -- a short-term bond that's yielding 3%. And then you have all these other revenue streams that are coming off that, including increased spend. So if you think about it, we're lending money out to people that wouldn't have used it otherwise, and that creates interchange, right? And the velocity there is extremely quick, right? So we're talking about billions potentially every month that are going through those products, creating fees for Chime, obviously, but also creating economics for us. It's creating additional GDV spend. Dominic Canuso: Just to add, I think the most important part here is the fact that each partner has unique expectations and unique designs. And given the ability to generate deposits, generate transaction fees, whether it's debit or credit, parking loans on the balance sheet and potentially off balance sheet in the future for loans, off-balance sheet deposits that are excess or funding other programs with deposits, we believe the economics to the partner are where they need to be for them to invest and grow in their programs. And for us to see the returns on a total ROA and ROE basis that are accretive to where we are today, which is why we expect and intend to continue to shift the balance sheet towards these products. Timothy Switzer: Got it. All that answers my question very clearly. And in terms of like the velocity, can you maybe let us know what was the volume on the loans this quarter? Or how long are you holding these on the balance sheet on average? And then how might that change in the future, whether you guys change your strategy or these 2 upcoming credit sponsorship programs sound like they might be shorter duration. If you plan to transfer more securitizations, anything like that would be really helpful. Damian Kozlowski: It's hard to give you clarity on that because we haven't announced. There's a bunch of different use cases from wage access to longer-term installment loans. And we intend to do all those things, right? So we intend to provide some on balance sheet, probably not as much as our current relationship with Chime to other partners. We intend to securitize a lot of it, so you'll get incredibly high velocity. And you'll hold those loans from 3 to 30 days probably at the most. Usually, it's only a few days. It will be purchased back by the fintech partner and then securitized. And then there is definitely a situation where we'll be holding pieces of loans at a much higher yield, right? So loans that we like or if it's important to the product for us to hold -- excuse me, partner to hold a strip, we will, but those loans will be very, very high. So if you look at the NIM today, of The Bancorp where it is today, right? We're around 4% if you add back what Dominic was saying, the basis points and the fee that potentially could be viewed as interest, right? So it's not that different. We had some deterioration in our NIM. But if you add back the increased fees from this quarter versus last year, it's 12 basis, 13 basis points different in NIM. Your NIM is going to -- your net interest margin should go up over time, right, if you add back all those fees depending on the programs because you're going to obviously have pressure on deposits going down, right, because of our liquidity. So we'll take more high deposits off the balance sheet. And then when you look at these programs, the Chime situation is the lowest -- probably the lowest NIM situation you would have because all the synergistic revenue. So that, over time, once again, adding back potential fees from the line that we have that third line in our financials around fintech loan fees, plus you look, obviously, the interest is -- if there's any interest on those loans is already in our NIM calculation, that after this initial stage should start moving up, right? And then in many of these cases, because of velocity of loans, you'll be getting fees. And so you'll get effective yields, very short-term loans very quick. Many of them will be backstopped or securitized. So you'll have a conversion on the balance sheet from traditional nontraditional lending. There'll be less of a -- potentially of a traditional bank reserve -- these are the structure of these loans. The velocity will go up very high. And if you add back the fees on these loans, the NIM -- the effective NIM on these loans over time will go up. Now in the near term, they'll go down for the reasons that we stated on the Chime program, but that should turn around as we add new partners. Timothy Switzer: Great. Yes. I mean, that's really helpful. I mean, regardless of where the reported NIM goes, APEX 2030 ROA 4%, ROTCE at 40%, bottom line is moving up. Damian Kozlowski: Tim, just look at this quarter, we had a 35% ROE, look at our ROA, right? And if you consider the fact that we're going to be repatriating our equity, our equity stays the same. So any -- as we -- as our net income moves up, obviously, our ROE, ROA will continue to move up and our efficiency ratio is likely to move down. Timothy Switzer: Yes, that's great. Okay. Another area that has become a bigger and bigger opportunity in the fintech side of things for you guys is off-balance sheet deposits, which I think is down to $1.3 billion right now. Your press release mentioned $900,000 earned on deposit sweep in other income. Is that where all the revenue from your off-balance sheet deposits are reported? Just want to make sure I'm catching all the revenue. Damian Kozlowski: Yes, Dominic can answer that, but yes. Dominic Canuso: That's correct. That's where it's located. As Damian mentioned earlier on the call, first quarter is seasonally high just because of tax season. We do expect it to contribute, but it's probably a secondary or tertiary benefit from all the strategies we just talked about. Timothy Switzer: Okay. Yes, makes sense. I think on the last on this call, I got a few more, if that's okay. On the REBL book, good to see another quarter of improvement in the credit metrics there. Can you give us an update on how the maturities and refinancing within the REBL book are going right now? And one thing I'm looking at is the percentage of REBL balances maturing over the next 12 months declined meaningfully for the first time in a while in Q4, it's now less than 50%. Do you have that updated number for Q1? Because it kind of seems like they could indicate you're seeing less 1-year extension and more actual payoffs. Damian Kozlowski: Yes. So remember, we have great visibility. These are repositioning mostly at workforce housing, and they require works. So there's constant draws, right? We have reserves and everything. So we don't -- the reason that we had that bubble when we did was that because the origination period where we got back into the business, there were a lot of loans done at that time, right? We haven't -- we've maintained the portfolio, but that bump in -- that large bump in origination during that period that we resulted in classified assets has worked through the system, right? So those were the buildings that were having issues due to the supply shock, interest rate increases, sharp interest rate increases. So that bubble has gone through the system. So that's dropping because we just haven't had as many originations, right? So -- and if a project is completed, right, it's on plan and everything. Sometimes sponsors will want a year or 2, and that's built into our contracts, 2 1-year extensions and people take advantage of that sometimes. It's that both of our agreement and they're stabilized loans at that point, they may want to do an exit and they're not exactly want to do it at this interest rate. So yes, that -- the reason that was so high was because of that bubble. And that bubble is -- I don't know the exact maybe Dominic has that on his fingertips, maybe we can publish it in the future. But that is slowly working down quickly. Timothy Switzer: Okay. All right. That's helpful. And kind of related to that, it looks like the average yield on the REBL book has gone down from about 8.5% to 7.6% in the last 2 quarters. It seems like a pretty quick decline. Could you talk about the drivers there in terms of maybe what new loans are coming on at versus rolling off? And how much of that decline could be due to some of these extensions or modifications of that... Damian Kozlowski: Go ahead, Dominic, do you want to handle that? Dominic Canuso: Sure. Yes. Well, just as a reminder, 1/3 of that portfolio is variable. So you'd clearly see a step down with the short-term interest rate environment that we've seen over the past year. But to the point that you just spoke about, which was the vintaging -- that large vintage roll-through, again, they're on 311 contracts, many of which came to that second term and were either recapped or refinanced or sold out. Those recaps and refinances were at lower rates because they were at more stabilized values, previous investments, stronger investors. So those rates by the quality of the positioning of those loans brought down the rate combined with the variable rate environment. We do think we're at a good point now having worked through that large vintage bubble and with the lower rates that we should see much more stability going forward. You'll Continue to see loans rolling off in the low 8s and being put on in the mid-6s. So you'll see that natural portfolio churn. But that's just the interest rate environment we're in nothing more than that. Timothy Switzer: Okay. All right. That's helpful. And then the last one for me. Is there any risk or even opportunity from the proposed executive order on banks being required to obtain citizenship info? It seems like that would be a big lift for a lot of the fast banks given like the third-party relationships and how small some of these accounts are. And like on the opportunity side, would your prepaid card products be required to attain citizenship info as well? It seems like it could push a lot of people towards those sort of products. Damian Kozlowski: Well, that would be a very difficult thing to do since prepaid cards, every prepaid card, that would be every incentive card. That would be Cracker Barrel. I mean that would be a restaurant card, that would be very difficult. There are some -- and those deposits on those type of cards, in many cases, are not even insured deposits because you don't know who it is. We do have, I think, many institutions, we have fairly good information in that area if it gets implemented. If it becomes a requirement, everyone will have to do it, right? I'm sure there will be an implementation phase. There might be new accounts. All those things aren't clear at this time. So we can't really comment on it. But we do collect a lot of -- depending on the type of account and the use, there is a lot of already information like social security numbers and everything for many of our -- not of our clients, obviously, but of their clients that end up being deposits at our bank. So there is requirements already in place. And we -- right now, we don't know how that has to play out, whether that -- how that actually gets worked through the system. Obviously, the regulators, everyone -- it would be -- everyone would have to be involved and it would have to be implemented over long periods of time. Operator: I would now like to hand the call back to Damian Kozlowski for closing remarks. Damian Kozlowski: Thank you for joining us today, everyone. Operator, you may disconnect the call. Operator: Thank you for attending today's call. You may now disconnect. Goodbye.
Operator: Good day, and welcome to the Western Union First Quarter 2026 Results Conference Call. [Operator Instructions] Please note, this event is being recorded. . I would now like to turn the conference over to Tom Hadley, Vice President of Investor Relations. Tom, please go ahead. Tom Hadley: Thank you. On today's call, we will discuss the company's first quarter and full year 2026 outlook, and then we will take your questions. The slides that accompany this call and webcast can be found at westernunion.com under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release. Joining me on the call today is our CEO, Devin McGranahan, and our CFO, Matt Cagwin. Today's call is being recorded, and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the 2025 Form 10-K for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable GAAP measures in our earnings release, attached to our Form 8-K as well as on our website, westernunion.com, under the Investor Relations section. I will now turn the call over to our Chief Executive Officer, Devin McGranahan. Devin McGranahan: Good morning, and welcome to Western Union's First Quarter 2026 Financial Results Conference Call. Today, I will spend a few minutes discussing our results in the quarter and the emerging stabilization we are seeing in the U.S. remittance market. Next, I will review our M&A strategy and our recent transactions. Then finally, I will give you a quick update on where we are with our digital asset initiatives and the near-term pending launches. . In the first quarter, we reported revenue of $1 billion. On an adjusted basis, this was a decline of 1% year-over-year. This is a 400 basis point improvement over the fourth quarter and relative stabilization year-over-year. Consumer money transfer transactions were slightly positive in the quarter for the first time since Q1 of 2025, which was a 300 basis point improvement from Q4. Cross-border principal growth was again up mid-single digits, speaking to the resilience of our customer base and their perseverance in the current difficult macro environment. This quarter, we again saw incremental improvement in our CMT transaction rates quarter-over-quarter. Q1 was better than Q4, Q4 was better than Q3, and Q3 was better than the lows that came in the second quarter of 2025. We believe this should set us up to return to a more meaningful transaction growth beginning in the second quarter of this year. Adjusted earnings per share came in at $0.25 in the quarter compared to $0.41 this quarter a year ago. This is below our expectations and is the result of a combination of some quarter-specific issues as well as a seasonal change for how quarter 1 will perform going forward given the growth of our Travel Money business. The quarter-specific issues included incremental investments associated with our strategic agent signings, product expansion and the timing of certain expenses that we believe will reverse in future quarters, which Matt will cover in more detail later in the call. In response to the slow start to the year, we have decided to accelerate our operational efficiency program that we first announced at Investor Day last fall. This program is designed to improve vendor efficiency, realize the synergies we expect to achieve from the pending Intermex acquisition, and leverages AI to rationalize our existing business processes and significantly reduce labor content. As a result, we believe we can accomplish our $150 million operating efficiency program by year-end 2028 with large contributions coming in both 2026 and 2027. Our retail business in the Americas continued to face headwinds in the quarter associated with the current geopolitical environment, though we believe we are now seeing improvement from the steep declines that we saw in the middle of 2025. We did see strong performance in the quarter in many corridors like Italy to Morocco, France to Cameroon and Kuwait to Bangladesh, offset by continued weakness in the Americas across several specific and large corridors, most notably U.S. to Mexico. Though from a transaction growth rate perspective, while still negative, the U.S. to Mexico corridor improved by 350 basis points relative to the fourth quarter. Our branded digital business increased transaction growth to 21% and adjusted revenue by 6% in the quarter, with gains driven by some of the new relationships we have signed in the Middle East last year. This is an 800 basis point acceleration in our transaction growth rate, and while the revenue growth gap has increased significantly, we are encouraged by the momentum that we are seeing on the transaction side. The revenue growth is being muted by a strong growth in lower RPT corridors continued significant increase in payout to account and some of our new customer promotional offers, which we discussed on the Q4 call. We also believe this will improve in coming quarters. In Consumer Services, adjusted revenue was up 33% in the quarter, driven by growth in Travel Money led by Eurochange as well as growth in our bill pay business. We expect Consumer Services to have another strong year in 2026, as our Travel Money business is expected to approach $150 million in revenue, up from nearly nothing a few years ago. Matt will discuss our first quarter results and 2026 outlook in more detail. later in the call. Now switching briefly to the macro and focusing on the Americas as that is where much of our focus has been over the last several quarters. As you know, remittances in the Americas have faced meaningful pressure that began early last year and continued through this winter, particularly across our key U.S. to Latin American quarters. We saw meaningful declines to markets like Mexico, Ecuador and Guatemala driven by a combination of migration dynamics and U.S. immigration policy. What we're seeing now, however, is a business that is beginning to show stabilization and even potentially signs of improvement. Trends have improved across these corridors with the most recent month March, showing revenue growth rates 800 basis points or better in each of these corridors relative to the lows that we saw last summer. Starting with U.S. to Mexico, which remains the largest remittance corridor globally, Central Bank data shows that 2025 was a down year with monthly remittance principal declining double digits at multiple points throughout last year. As we move through recent months, however, we have seen those declines moderate with inbound principal activity hovering around flat to low single-digit either positive or negative, which is a vast improvement from the relative double-digit lows we experienced last summer. When we look beyond Mexico, the story also continues to be constructive. Corridors like U.S. to Ecuador and U.S. to Guatemala are meaningfully better today than they were performing last summer and into the fall. However, I do want to be clear. This is not a sharp rebound and not all corridors have improved with U.S. to Colombia, as an example, still showing weakness. But overall, we are seeing improving trends and remain optimistic about the rest of the year. We believe that what's driving stabilization is a combination of factors. First, migrant behavior has begun to normalize. After a period of disruption tied to immigration policy and labor market uncertainty, we are seeing more consistent sending patterns. Second, remittances remain a resilient category. And many of these economies, remittances represent a significant share of GDP and are nondiscretionary for senders. And third, we are benefiting from the actions that we have been taking, expanding our retail footprint, strengthening our presence in key communities and continuing to scale our digital capabilities. So stepping back, the message is, North America is not yet back to growth, but it is stabilizing. It is meaningfully better than it was last summer and the improvement we're seeing across some of our most important corridors gives us confidence that the business is now on firmer footing as we move forward. Shifting gears, I would like to spend a few minutes talking about our M&A strategy. Over the past few years, we have spent significant time advancing our strategic position as the global leader in providing accessible financial services for the aspiring populations of the world. A central pillar of this evolution has been a disciplined but opportunistic acquisition strategy focused on strengthening our footprint in high-value corridors, accelerating our digital capabilities and broadening our financial services offering. We have deliberately shifted from a strategy of complete capital return to a model that balances capital return to shareholders with value creating and targeted capability-driven acquisitions, where each transaction is designed to either expand our geographic strength, our platform functionality or our product offering to enable us to maximize the value of our global franchise to our shareholders. Last month, we closed on the acquisition of Lana in Mexico. This transaction will help strengthen our position in 1 of the most important remittance markets in the world. The acquisition gives us the license to launch a digital wallet in the country, which we plan to do later this year on our Beyond digital platform, strengthening our wall-to-wallet capabilities. It will also enable us to build on the success we have seen with our receive strategy in Argentina and Brazil, where we have a meaningful portion of our inbound remittances ending up in our own digital wallets in those countries. This allows us not only to save on commission expense, but potentially opens up new revenue streams for the company. We believe bringing a wallet to Mexico has the potential to change the way we do business in the country by enabling our 2-sided network. We look forward to updating you on our progress as we prepare for our wallet launch later this year. Earlier this month, we also completed the acquisition of Dash, Singtel's digital wallet business in Singapore, further extending our presence in Southeast Asia. This acquisition enhances our capabilities in key remittance and payment hubs, strengthening our access to digital-first customers in that region and supports our broader ambition to build a more connected Asia Pacific network. Dash brings complementary technology and distribution capabilities that will accelerate our digital onboarding and improve cross-payment efficiency across the regional corridors. We are excited to welcome Dash employees and customers to the Western Union family. In the current quarter, we expect to close the acquisition of Intermex subject, obviously, to normal regulatory approvals. We are now down to just 1 jurisdiction and are optimistic that we can attain the final approval in the coming weeks. This transaction is expected to strengthen our agent network density, improve corridor economics and further reinforce our leadership in the U.S. As previously disclosed, we expect this combination to deliver meaningful cost synergies, and I am now more optimistic today than I was just a couple of months ago when we spoke on our Q4 earnings call. The opportunity to put these businesses together and truly take a best-of-breed approach, I believe, will substantially drive value for our shareholders beginning in the back half of this year and will continue for many years to come. Over the last 6 months, the 2 teams have been hard at work designing what the post-acquisition business will look like. The more time we spend together, the more obvious it is that the culture Intermex has built will be a true asset to Western Union. The Intermex team has a laser focus on delivering for their customers and agent partners alike, which very closely aligns with the culture that we have now been building at Western Union. The 2 teams have also been thinking through synergies, and outside of the obvious public company costs, we think there are plenty of opportunities that could prove our $30 million synergy target conservative. We had originally committed to achieving synergies over the first 2 years based on the work to date, I am optimistic that it will be front-loaded as well. And lastly, as most of you know, we completed the acquisition of Eurochange in the United Kingdom, which has added meaningfully to our scale and our Travel Money platform. This transaction expands our presence in the European Travel Money market and strengthens our ability to serve outbound travelers in the United Kingdom. Eurochange enhances our physical footprint in a strategically important market and complements our broader Travel Money ecosystem by improving distribution density and product diversification. These acquisitions reflect a clear and consistent strategy. We are selectively investing in assets that enhance our corridor leadership, digital capabilities and product offerings, while reinforcing the long-term resilience and growth profile of our global network. Importantly, these transactions are not stand-alone initiatives, they're enhancing an omnichannel platform where physical and digital channels reinforce 1 another and where the acquisition serves as a catalyst for accelerating the company's strategy. I recently returned from Asia, where I met with our new team from Dash and spent several days with our team launching our new digital wallets in Australia and the Philippines. Our goal is to have an interconnected network of send and receive digital wallets across the important corridors in Asia. I also visited Vietnam for the first time and met with a few of our new partners that will accelerate the development of our payout to account network and home delivery options in that country. We see significant opportunity in increasing our market share to this important and growing market. As we outlined at our Investor Day, our strategy is focused on growing share in higher-growth markets where, for various historical reasons, we do not have our fair share of the market. Vietnam fits this perfectly where it is a $15 billion inbound remittance market, where we have only mid-single-digit market share. Additionally, some of the largest corridors are from other Asian countries, including Japan, South Korea, Australia and Singapore, where we have a strong presence. I've also met with our team in Manila as we move forward, growing our operations center there. As part of our Beyond strategy, we are regionalizing our operations in each major region to drive efficiency and speed to market. Manila will be the primary operating center for the APAC region and thus will become part of our global operating model. Before I turn the call over to Matt, I'd like to make a brief update on our digital asset initiatives. And more importantly, where we are in the transition from launch readiness to real-world adoption and scale. Over the last few months. We've crossed an important threshold. It is no longer a question of if Western Union will be active in digital assets. It is now how fast can we scale. At the foundation of our strategy is USDPT, our U.S. dollar-backed Stablecoin. USDPT is now in its final stages of readiness and is expected to go live next month. This milestone represents the completion of a significant build across issuance, treasury operations, settlement and controls and positions us to operate a native digital dollar embedded within Western Union's global network. As we approach launch, adoption is beginning to form around the coin. We are working with a growing set of exchange partners to support access, conversion and distribution across key regions, while also engaging with banks and financial institution partners in priority corridors to enable the direct settlement and treasury use cases. Together, these relationships position USDPT as a foundational asset for scaling digital payments and settlement across our platform. Building on that foundation is our Digital Asset Network, or DAN, which operationalizes USDPT and other digital assets. Across Western Union's physical and digital footprint, we are pleased to report that we plan to launch our first partner on the DAN network next week with additional partners coming online shortly thereafter. Through DAN, millions of wallet users will be able to move from digital assets into local currency using Western Union's retail network with an experience that is simple for customers and familiar for our agents. Since announcing our initial partners, we've seen strong inbound interest, and our focus now shifts to launching and scaling, onboarding new partners, expanding corridor coverage and driving volume as the network grows. Importantly, DAN is not a point solution. Our partner pipeline represents tens of millions of crypto wallets globally, creating a powerful distribution channel that brings digital asset users directly into Western Union's retail and digital network, solving an industry-wide issue of ramping from crypto to cash as a safe and effective utility. Finally, extending USDPT and DAN directly to consumers, we are preparing to launch our U.S. dollar Stable Card later this year. This product allows customers to hold value in Stablecoin form and spend globally where ever card acceptance exists, bringing digital dollars into everyday commerce. The Stable Card is particularly compelling in inflation-sensitive markets where customers want dollar-denominated value with immediate practical utility. We expect to begin rolling this out across dozens of markets with an initial wave targeted for later this year. Over time, this card will be consumer-facing expression, connecting USDPT, digital asset, retail customers, global spending into a single, integrated, easy consumer experience. Taking together, USDPT, DAN and Stable Card operate as a connected ecosystem. With launches imminent, partners coming online, and early transactions beginning to flow through the network, we are firmly now in execution mode. The focus ahead is scaling, expanding adoption, increasing velocity and embedding digital assets more deeply into Western Union's core money movement platform. This is an exciting time for the company, and I look forward to updating you on our successes in the coming quarters. In conclusion, we entered the remainder of the year focused on disciplined execution and long-term value creation. We are continuing to modernize our platform, accelerate our efficiency programs, expand our digital capabilities, and optimize our global network to better meet the evolving needs of our customers. While we remain mindful of the macroeconomic uncertainty and competitive dynamics, our priorities are clear, drive sustainable revenue growth improve operating efficiency and deliver strong cash flow. We believe the actions we are taking position us well for the future, and as always, are committed to maintaining our financial discipline, while returning value to shareholders. I want to thank our nearly 10,000 strong colleagues around the world, who are working diligently every day to accelerate our Beyond strategy. I will now turn the call over to our CFO, Matt Cagwin, to discuss our financial results in more detail. Over to you, Matt. Matthew Cagwin: Thank you, Devin, and good morning, everyone. I'm going to walk you through our 2026 first quarter financial results and our 2026 full year outlook. In the first quarter, GAAP revenue was $983 million, which on an adjusted basis was down 1%. The decrease was driven by a continued slowing of our Americas retail business, offset by growth in Consumer Services and Branded Digital, which came in at 33% and 6%, respectively. Our expectation is Q1 will be the lowest growth rate of the year due to the benefits of the Intermex acquisition, our new agent wins, accelerated branded digital revenue growth, and the launch of our digital asset strategy that Devin just spoke about. Adjusted operating margin was 13%. As we singled last quarter, we believe that Q1 2026 would be lower margin quarter due to several factors. Those factors include a lack of vendor incentive payments, which we expect to receive in future quarters this year, and higher costs associated with our new agent signings, a foreign currency loss and the seasonal dynamics associated with our Travel Money business, which has lower fixed cost coverage in the first quarter of the year. As stated, many of these margin pressures are not expected to repeat in future quarters, and a few are expected to reverse. In addition, we expect to see a meaningful benefit from our cost efficiency program in the back half of this year, driven by the Intermex synergies and lower vendor and labor costs, which will benefit from process optimization as well as the utilization of artificial intelligence. Adjusted EPS was $0.25 in the current quarter. Adjusted EPS in the current period was affected by the lower operating profits that I just discussed, as well as higher tax rate, partially offset by fewer shares outstanding. Our adjusted effective tax rate in the quarter was 15% compared to 10% in the prior year. The increase in our adjusted tax rate was primarily due to discrete benefits in the prior year period. Now turning to Consumer Services, which contributed 14% of total revenue in the quarter. First quarter adjusted revenue was up 33%, driven by the expansion of our Travel Money business and growth in our Consumer Bill Pay business. As a reminder, we're lapping the acquisition of Eurochange on April 1, but remain excited about the organic growth, which was up double digit in the first quarter. Looking ahead, we are actively working to further expand our consumer services capabilities, in line with our Beyond strategy. The Intermex acquisition strengthens our retail reach in the Americas and introduces 6 million new customers to our broader product ecosystem. In addition to that, the launch of USDPT Stablecoin, Stable Card and our Digital Asset Network also opens up multiple new revenue streams, which we believe will help accelerate future growth. As you know, Travel Money has grown from a small business just a few years ago to what we expect to be a $150 million business this year. We are applying the same approach of leveraging our brand, our global footprint and our execution capabilities to the next-generation consumer products and look forward to seeing similar results. We believe the combination of organic expansion, inorganic activity and digital innovation gives us a durable path to double-digit growth in this segment for years to come. Now transitioning to our consumer money transfer or CMT business. CMT transactions were slightly positive in the quarter relative to a year ago. This was driven by a robust branded digital business that grew transactions 21%, offset by the continued slowdown in our retail businesses led by the Americas. CMT adjusted revenue was down 6%, which continue to reflect the challenging industry backdrop that we have been navigating over the past several quarters. U.S. immigration policy uncertainty remains a meaningful headwind. Although the comparisons get a lot easier in the second quarter, as we saw the U.S. retail business down double digit in the second quarter of last year. We remain optimistic that the worst is behind us with North America and lack of CMT adjusted revenue growth, improving 300 and 500 basis points versus the fourth quarter of last year. In the first quarter, our branded digital business grew adjusted revenue by 6%, with 21% increase in transactions. This marks the tenth consecutive quarter of solid revenue growth. The Middle East continues to be 1 of our largest growth regions, driven by our new partner wins that we discussed last year. As we have flied in the past, these are primarily account-to-account transactions with lower RPT than our license business. So the gap between transactions and revenue growth will remain elevated as we continue to ramp these partners. Account payout transactions continued their strong momentum, growing over 45% in the quarter, which is our strongest quarterly growth that we've seen in the past 4 years. As Devin highlighted, we recently closed on the acquisition in Mexico and Singapore, both our wallet businesses, and we're excited about the opportunity ahead, as they will become more digital in those regions with those acquisitions. Now turning to our retail business. Overall, the performance of our retail business was up slightly on a transaction basis and more meaningfully better on a revenue basis. We continue to see softness in the Americas, but is improving, as I mentioned earlier, and Q2 gets a lot easier from a comparison perspective. We believe there are numerous compelling opportunities for our retail business to recapture share, and the acquisition of Intermex strengthens our ability to do so. By adding about 10,000 new U.S. agent locations with deep roots in the key Latin America corridors, Intermex expands our retail footprint precisely where we need it most, which strengthens our ability to serve our customers in the United States. In addition to Intermex, we continue the rollout of our new agent wins that we announced last quarter. We have now launched 3 of the 4 agents with the German post going live last Friday and the Canadian post expected to go live later this quarter. As a reminder, we expect these new agent relationships to add roughly $100 million in revenue once they are fully rolled out, which is expected to occur over the next few quarters. We are excited about the opportunities in front of us. for retail and look forward to executing against the opportunities as we work to strengthen our retail business. Now turning to our cash flow and balance sheet. We generated $109 million in operating cash flow in the first quarter. This was down 26% versus last year, driven by the lower operating profit that we discussed earlier. As expected, the first quarter CapEx was $47 million, up year-over-year, driven by higher agent signing bonuses. As discussed previously, we remain committed to strategically investing in key areas of our business while also aligning our agent compensation to performance. We continue to maintain a strong balance sheet and cash flow, with cash flow equivalents of $900 million and debt of $2.6 billion. Our leverage ratios were 2.8x and 1.8x on a gross and net basis, which we believe provides us ample flexibility for capital returns or potential M&A, while maintaining our investment-grade credit rating. As a reminder, we will fund the Intermex acquisition with a delayed draw bank facility that we entered into in January. As a result, we expect our debt-to-EBITDA ratios to be elevated above historical levels for the 12 to 18 months post closing. In the quarter, we returned over $120 million to our owners via dividends and stock repurchases. Now moving to our 2026 outlook, which assumes no macroeconomic changes and no significant impact from the conflict of the Middle East. Based on everything we know today, we are reaffirming our guidance, which includes our adjusted revenue outlook for 2026 at 6% to 9% revenue growth, inclusive of the Intermex acquisition, which we continue to expect to close in the second quarter this year. And our adjusted EPS for the full year, we believe, will be between $1.75 to $1.85. We expect Q2 EPS to be similar to last year and then to accelerate as we move into the back half of the year, driven by higher revenue associated with improving remittance backdrop, new agent wins, and a seasonally stronger period for Travel Money, combined with accelerating pace of our operating efficiency program, the benefits of some of which affected [indiscernible] our Q1 headwinds that we expect to reverse or not repeat in future quarters. Beyond the near-term efficiency program, we do see meaningful long-term opportunities from 2 additional initiatives. First, the implementation of AI has the potential to significantly improve efficiency for our business. And second, our Stablecoin infrastructure, which we believe has the potential to reduce settlement costs by replacing the legacy correspondent banking rails with a more efficient on chain alternative. Thank you for joining the call, and operator will take your questions now. Operator: [Operator Instructions] Our first question comes to us from Will Nance at Goldman Sachs. William Nance: I want to just come back to some of the moving pieces in margins, because seems like that was the primary driver of the lower EPS this quarter. And if I'm hearing you right, it sounds like you've got incentive timing in there, you've got some vendor payments. There's all seasonality of 1Q around the Travel business. And so I guess just relative to expectations, I'm just wondering if you can help delineate like what was it that actually drove things that were below expectations versus some of these things, which are more timing in nature. And I was wondering, on the FX remeasurement, if you could size that, because I imagine that was probably 1 of those items. Devin McGranahan: Will, thanks for joining the call this morning. Let me just dimensionalize a little bit for you. So we've about 50% of the decline year-over-year is driven by things that we anticipate when we had our call 2 months ago. Those are things like the vendor incentives, which we talked about happening, last year happened in Q1, but we anticipate happening over Q2, 3 and 4 this year, just phasing it when we're actually using it. Matthew Cagwin: Fixed cost coverage, we knew that would be an impact on Q1. We bought Eurochange effective April 1 last year. It comes in with a lot of employees, some buildings, things of that nature, and their revenue and profit are higher -- revenue is higher and profit occurs in Q2 and a little bit in Q3 and 4. So we knew that was going to happen. And then costs associated with the strategic partners, we anticipated that, that would be ramping spending a fair bit of tech time and signing bonus amortization and other costs associated with that. So that was all anticipated and talked about when on the call last time. The 2 items that were not anticipating when we met 8 weeks ago, was the FX loss. It's multiple pennies of EPS. It's just timing. We've had that over the last 10 years, we've had 2 or 3 times where it's been large, but we have a little bit of gains and loss every quarter, but that was a bigger item, a little bit of a surprise here in March. And then the other item that we have is our dual track got dislocated. So we have been managing very carefully for the last 4 years the ability to manage 2 things. One is how do we continue to maintain and grow our business while reducing costs on our legacy back book while investing in the future. As you probably remember from our first Investor Day, we talked about a cost redeployment program, and we did a great job of matching up the cost in our dual track. We got a little dislocated this quarter on the pace of investments on our digital asset strategy, investing in some of our other digital assets and replacing platforms relative to how much cost we would pull out elsewhere in the business. As Devin talked a minute ago, we've doubled down on that in the last couple of weeks, and we see a path to accelerate that, both with the Intermix business, the strength of AI, process improvement, which is why we felt comfortable keeping our guidance where we were. William Nance: Got it. Okay. I appreciate all the color. That's helpful. And if I can just maybe throw in another 1 around the conflict in the Middle East. And I was just wondering if you could provide a little bit of color around what you're seeing specifically with money transfers into and out of that region. And how that could evolve over the coming months. I acknowledge that it's very uncertain. Appreciate taking the questions. Devin McGranahan: Will, we to date have seen a mixed response in the Middle East, and this is typical of kind of our business, right -- and the diversification of our business, right? So we have seen a noted decline, as you would expect, of travel from Europe to the Middle East, which had some impact on our Travel Money business, particularly in the U.K. in the first quarter, which exacerbated the fixed cost coverage issues that Matt talked about. So less people are vacationing in Dubai, and that has an impact on our Travel Money business. However, the opposite is true, which is in the early times of a conflict like this, many people move money out of the region. And so we've actually seen a moderate acceleration of outbound remittances from the Middle East. Now historically, we have seen similar patterns that then revert themselves if the conflict remains extended for some period of time, where there's less migration into the region, there's less opportunities for people economically, and thus, the overall volume of outbound remittances begins to shrink. So I think we're in the early stages of this conflict. We see mixed results in our business based on the differences of the businesses, and are keeping a close eye on how this develops over time. I think like all, we wish for a quick resolution, so that we can return back to normal course and speed, particularly in our business in the Middle East, which as you can see, is becoming a strong driver of our financial performance, particularly in digital. I want to come back just briefly on Matt's comment about the dual track in the quarter. We're very excited about the things that we're investing in, whether that be digital assets, whether it be the rollout of the digital wallets in multiple new countries around the world, the signing of new partners. The team has done an exceptionally good job over the last, call it, 24 to 36 months of managing the cost equation while we invest for the future. This is a strength of the team and our ability to get back on track I remain very confident of and the team's ability to accelerate reducing the costs in parallel with investing for the future is where we're going to be for the rest of the year. Operator: Our next question comes to us from Tien-Tsin Huang at JPMorgan. Tien-Tsin Huang: Just building on that Devin and your confidence there and the dual track pacing issue not repeating itself. I'm just curious, just, for example, the accelerating of the efficiency program. Is there execution risk there. It doesn't sound like the AI savings is a part of that, but I'm just asking that because you're also launching some of these wallets and you've got the digital asset launch. You're also absorbing 2, I guess, 3 acquisitions, including Intermix. So just thinking about the challenge of doing all of those things, but also delivering on the second half EPS acceleration that you reaffirmed there. Devin McGranahan: Thanks, Tien-Tsin. Of course, there is always execution risk. And part of what I was highlighting in my last commentary is the team has a pretty good track record over the last couple of years as we implemented the prior $150 million program and invested in Beyond digital platform and then building out the Travel Money business. And so this is a known muscle and skill for the team. So I feel confident that we can continue to flex it. We got out a little out of the line with the timing in the quarter. But think about the program basically is 3 things, right? One, there's the operating model efficiency, and in my public comments, I talked about how we're regionalizing that operating model that reduces corporate overhead that reduces some of the centralization. We're well down the path of that. and we'll continue to strengthen our regional operating model in the Americas, in Europe and then in Asia Pacific across our 3 big regional operating centers. The second is, as we're going on this journey, and we've got line of sight on these things already. We are sunsetting legacy platforms as we move to the Beyond platform as we move to the next-generation point-of-sale as we make the data infrastructure all cloud-based and in Snowflake. That allows us just to shut stuff down which we've got clear line of sight and road map on. And then the third is AI is starting to take effect. We're starting to see broader applications of it across our service operations across our tech development and in some cases, even into our marketing functions. And so we think that will accelerate. And we're building -- the most important thing is building momentum around those skills within people of the company. And so as adopt the skills and the tools that are being developed, we see that in the productivity gains. And then frankly, we just need to hire less people, all of the backfills and all the things that happen every day need to stop happening then as the tools replace the work. So I feel good about it, and I know the team can execute. Tien-Tsin Huang: Okay. No, that's clear. Just my quick follow-up, then I'd love to hear a little bit more on the 2 acquisitions, Lana and Dash. I know some of it you've been looking at those for quite a bit, but you have a great view on what's going on in the ground in a lot of these regions. Is the vision here that each of these will ultimately be portable into other countries around, say, Mexico and core Singapore. Is that the vision there that you're making bets on these regions with these individual assets and then you're going to expand from there? I'm just thinking about how -- is this the beachhead for each? Or could we expect more similar wallet acquisitions down the road? Devin McGranahan: Yes, so think about it, and we talked about this at the Investor Day, we've now kind of solidified what we call the Beyond platform. And so the Beyond platform, the most important part of it is a services layer that connects into our infrastructure for core payment processing for core risk and compliance for moving across our funds out network. And into that services layer, we can plug different experiences in different countries around the world so that we can then create a seamless network of these wallets. So that enables us to accelerate this through acquisitions by buying properties that already exist, plugging them into the beyond framework, which then takes advantage of our payout networks. And that's a great example. In Singapore with Dash, the team is now already hard at work, moving from Singtel Dash's payout network, which was, as you would imagine, significantly subscale to ours and the economics were significantly different, because they dependent on a lot of intermediary players to move the money around the world. We're basically going to turn that off and plug it right into Western Union's APN network, which will have both consumer advantages, but more importantly, format and the team economic advantages on reducing payout costs. And so the Beyond framework and platform that we've talked about enables us to more rapidly expand our digital wallets, both organically, like we're doing in Australia and the Philippines, but also inorganically, like we're now doing in Mexico and Singapore. The key to this, and Matt can talk more about it, is finding those assets that we can acquire at reasonable valuations and thus then enabling us to expand faster than we can just organically. When those opportunities present themselves, we will take advantage of them. Matthew Cagwin: And Tien-Tsin, if I could build a little bit on what Devin just said, when we looked at these wallets, for us, I wish there was a global license and you could just basically buy 1 license and do the stuff everywhere in the world. So we don't have licenses everywhere in the world would like to be today for our wallet strategy. by buying in Mexico and in Singapore that brought licenses. So that's kind of step number 1 we didn't have the license to do this. Two, as we always look at the tech stack as it brings them into us, is Devin just talked about, we feel pretty good about where we are now with our beyond platform. Back when we started talking to Dash, we were not in the same place. We were still doing a little bit of creativity in Europe in a couple of places in Latin America, and we made some evolutions in learnings and gotten stronger over the last 4 years. . So we were looking at them for the technology at that time to bring in ideas and thoughts about how to make ours better, faster and pace. We've now caught where that is. I don't think that's as paramount as it would have been before. But Devin could expand on this maybe in the after call. But he was just in Singapore with the team. The other thing we always look for is people. And when you can buy a company that brings in really strong talent, it's local knowledge base that they can help you accelerate, and we're super excited about Dash for doing that because we brought good concentration of operations folks, tech folks, market present folks and then now we can overlay the fact that we got great payment rails around the world. We've got brand recognition around the world that we can then take that in ports and fuel and then start creating a wallet payout between Singapore, our wallet in Australia, which we are taking live right now, our wallet in a couple of other places which we've not talked about. So we're building on an infrastructure within Asia where you can start doing well-to-well transactions, which has helped us do. So I'm very excited about both of them. It might have been 1 of the longest regulatory review process in my life, but we're excited to have them part of the family. Tien-Tsin Huang: Yes, a couple of years, but through that. That's great. . Operator: Our next question is from Vasu Govil at KBW. Vasundhara Govil: I guess I'll ask my first one on the Stablecoin launch. Could you maybe talk through the go-to-market strategy there? Are you targeting users in specific corridors when you first launch it? And sort of what milestones should we be tracking over the next 12 months? Devin McGranahan: Thank you. Think about it in 3 different tranches. The first, which is the launch of USDPT, we are not originally launching that as consumer facing. So we are launching it as an alternative to the interbank Swift settlement network that we use today that Matt and the treasury team use to settle with our agents, and so we are launching in a couple of countries with some important aging partners here in the next quarter to begin moving and settling between us and our agents on chain in real time at much faster speeds and again, over weekends and holidays where we have capital tied up because the traditional banking system only settles Monday through Friday and takes T+2, T+3 in some parts of the world. And so that is launch number one, and that is going to be within Western Union, modernizing our settlement platform and our money movement in between us and our major partners around the world. Launch #2, which will happen next week, is the digital asset network. So we're enabling digital wallet companies, digital asset wallet companies around the world to be able to have Western Union as a funds off ramp or payout option for their wallet customers. So it opens us up to a population of millions and millions, $10 million plus, native digital customers who own digital assets in wallets around the world, and they can now pay out those digital assets and fee out currency across the Western Union retail network. We have a pipeline of partners that have signed and more in the pipeline to time, and then we work through each and implementing them so that they have that option for their customers. As I said, the first 1 of those will go live next week. The third, which is more consumer facing is our Stable Card. And that product, we're launching in a couple of countries here and I'll call it the next 90 to 180 days that will allow us to then offer as a payout option to Western Union customers a Stablecoin backed card as an alternative to pay out to account or cash payout. So you will, as a consumer in 1 of these countries, be able to select a Western Union Visa Stable Card to receive your remittance payout. And so you can look forward to seeing the milestones of consumers having that as an option in a number of countries before the end of the year. Vasundhara Govil: That's super helpful. And just a quick follow-up, Matt, on the margins. If you could just help us with how we should think through the cadence of margins for the rest of the year so we can calibrate our models accordingly. That would be super helpful. Matthew Cagwin: Yes. So think about -- we now provided in our outlook, tax range, interest is pretty fixed. So I think you can back into the margins off the comment I intentionally gave on -- think about Q2 EPS being in the ballpark of last year, and then accelerating from there. I think you can back into margin off that because we pretty much help you below the line. . Operator: Our next question comes to us from Bryan Keane at Citi. Bryan Keane: I just wanted to ask about the digital -- adjusted digital revenue. It kind of stayed at 6% despite the surge in transaction growth to the Middle East. So if you just separate out the Middle East surge kind of what happened to the relationship on adjusted revenue to digital transactions. Devin McGranahan: Okay. So as we talked about, Bryan, back on the Q4 call, we had seen some market trends towards more aggressive new customer offers, particularly coming out of the lows of last summer. We probably followed those to the detriment of revenue to maintain new customer acquisition. And so what you are seeing is the impacts of that program along with the shift to path to account and the shift on these lower RPT corridors. So it's both mix, which are growing strongly. As Matt said, payout to account grew 45% in the quarter, which is a material acceleration for us yet again. So payout to account is growing faster, which is an impact. Payout to low RPT corridors like India is impacting. We're doing better in those kinds of quarters than we historically have. . And this new customer acquisition strategy that we are moving back from a bit, which was very aggressive new customer offers, that impacted revenue is in that mix as well. Bryan Keane: Okay. That's really helpful. And then, Devin, obviously, AI continues to evolve, and productivity gains are continuing to show some [indiscernible] results. I guess, can you quantify what you think AI could do to some of the back office costs for Western Union? Devin McGranahan: So we believe it can have significant impact. A lot of our processes, a lot of our historical support infrastructure will benefit from modernization. The most important thing is the pace at which we've been able to do that, and we've now been on this for 3 years. We've moved a lot of the data to the cloud. We started sunsetting systems. We started automating. It has always been throttled by how much tech development you can do, how much you can ramp down legacy systems, ramp up new systems. And so for a company like us, the ability to accelerate the move from the old, many times, heavily labor-intensive systems and platforms that support operations, customer service, risk and compliance, treasury functions, accounting functions, is, in fact, the elixir that allows a large legacy company to start moving a lot quicker on this modernization journey. And so that's really what the team is focused on, which is how do we accelerate the path we already know we needed to go down of getting off of these legacy processing and support and infrastructure platforms at a much faster pace, which then takes away a lot of the labor that's required to support, maintain and operate them. And so we're making good progress on that. And that is part of why I think we believe we can accelerate our most recently announced operational and efficiency improvement by at least a couple of years because we're starting to see the green shoots on it. Operator: Our final question is from Darrin Peller at Wolfe Research. Darrin Peller: I just want to go back to the comments you made about expanding the retail footprint for a minute. I know you've had in the past, touched on kind of paring down locations and being more efficient. Maybe help us understand the strategy here again, just to revisit where we're going to go geographically that you think there's real opportunity. You touched on under your prepared remarks, but I guess I'm curious if that's going to dovetail with your push on more wallets more digital, more international on the digital side as well just because it feels like it's a lot to do in 1 period where you're going more digital, more white label partner it stable going kind of revisiting some of the tenants based on the execution. Devin McGranahan: Yes. Thanks, Bryan (sic) [ Darrin ]. I think you can think about the footprint as a twofold strategy, both of which are reasonably well controlled, one, which we've talked about ad nauseam in the last 2 or 3 calls is we have ramped up and have succeeded in signing several significant retail partners Kroger going exclusive, the Deutsche Post, the Canada Post, these will expand our retail footprint. But most importantly, their competitive takeaway, and so they allow us to expand our customer base in retail through the addition of partners that on any given 1 of them will have several thousand locations up to as many as 10,000 locations. So that strategy of signing material partners and being the company that is the partner of choice for large retail networks is well underway. And as Matt talked about, we see significant revenue gains in the coming months from the implementation of those partners. The second, which we've talked about, which is more controlled distribution, which supports the digital strategy. So those are our owned locations and our concept stores, where, again, it's a small part of the distribution. Today, it's a couple of thousand. But that really allows us to control the experience. We can introduce people to the digital products, the digital wallets, we can cross-sell, Travel Money, Bill Pay, Prepaid. And so our owned retail network in New York City has the strongest performance on our Prepaid as the remittance tax came in, because it's our own employees who are helping the customer understand the value of the Prepaid product with the remittance tax. So those 2 dimensions are really the strategy. Darrin Peller: Okay. All right. One follow-up. Just timing-wise, I mean, again, some of these initiatives are exciting around both the digital wallet partnerships you went through earlier and the digital wall in terms of -- and the Stablecoin dynamics and strategy there, both on the Card side and the Network side. Just what are the timing expectations you'd expect to see some of the fruit of this? I know it's been an investment initiative for a number of years. . Devin McGranahan: Getting and expecting real benefits before the end of this year, and Matt can talk more about it. But Stablecoin products and services are all being launched as we speak. The wallets are ramping. We'll start to see the benefit of Singtel probably here in the second quarter. And as we launch in Mexico, Australia, Philippines, as those come online, we believe the value will start to accumulate, which should all happen before the end of the year. Matthew Cagwin: If I can just build on Devin's point real quick, kind of call wrapping up here. But if I work my way through the 3 topics on a Stablecoin, some are very much easier than others, just the infrastructure they're using, which I know at times we talk about how hard is to roll things out in our organization. But the Stable Card, the partner we're using and the rails we're using, we'll be able to get into dozens of locations relatively rapidly versus doing onesies and twosies. The DAN network, we're able to use our current rails in our normal payout network. So that will be able to be rolled out pretty broadly pretty quickly. The 1 that's a little bit more of a grind is getting the right partners and the pay and pay out for using USDPT to build to use for settlement processes. We're working on a few countries right now, hoping to that progress is the world will evolve and help us accelerate that. But that 1 is a little bit more of a -- we got to go push our way through it and get it to work. We're the first to have ability to get more broad-based than we normally do for a lot of our stuff. Operator: Thank you for joining the Western Union First Quarter 2026 Results Conference Call. We hope you have a great day.
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 Flagstar Bank First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Sal DiMartino, Director of Investor Relations. Please go ahead. Salvatore DiMartino: Thank you, Regina, and good morning, everyone. Welcome to Flagstar Bank's First Quarter 2026 Earnings Call. This morning, our Chairman, President and CEO, Joseph Otting, along with the company's Senior Executive Vice President and Chief Financial Officer, Lee Smith, will discuss our results for the quarter. During the call, we will be referring to a presentation, which provides additional detail on our quarterly results and operating performance. Both the earnings presentation and the press release can be found on the Investor Relations section of our company website, ir.flagstar.com. Also, before we begin, I'd like to remind everyone that certain comments made today by the management team of Flagstar Bank NA may include forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements we make are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor language in today's press release and presentation for more information about risks and uncertainties, which may affect us. Additionally, when discussing our results, we will reference certain non-GAAP measures, which exclude certain items and reported results. Please refer to today's earnings release for a reconciliation of these non-GAAP measures. And with that, I would now like to turn the call over to Mr. Otting. Joseph? Joseph Otting: Thank you, Sal. Good morning, everyone, and welcome to our first quarter 2026 earnings conference call. We are pleased to report another quarter of solid progress and continued momentum across our core banking franchise. Our first quarter performance reflects continued improving fundamentals, strong C&I growth, a high level in growth of core deposits, further progress in reducing the level of nonaccrual and criticized classified loans, continued margin expansion and industry-leading capital levels. Just as importantly, our first quarter results demonstrate we are exceeding and executing on the strategy we laid out 2 years ago and delivering against our priorities. We are doing exactly what we set out to do. strengthening our earnings profile, improving the quality of our balance sheet and building a top-performing regional bank. The progress we are making is intentional and driven by a clear focus on disciplined execution. Now turning to the slides. Slide #3 of the investor presentation, I'd like to highlight some of the key performance factors and drivers during the quarter. First, disciplined expense management has been a hallmark of our return to profitability over the past 2 years. And in the first quarter, operating expenses continued to decrease, and we expect them to decrease in 2026 and 2027. We also had another quarter of net interest margin expansion, driven primarily by lower funding costs. Second, one of our key growth strategy is to diversify our loan portfolio by increasing our C&I lending platform. This quarter marked the third consecutive quarter of C&I loan growth after us reducing our exposure to certain industries, lowering our single transaction exposures and exiting certain relationships that did not meet our return hurdles. And we've done this throughout 2024 and part of 2025. Third, we experienced a further reduction in our overall CRE exposure, mostly through par payoffs resulting in the multifamily and CRE portfolios declining by $1.6 billion or 4% relative to the fourth quarter and further improvement in our CRE concentration. Fourth, we continue to see positive credit migration as nonaccrual loans declined by 11% and criticized and classified loans decreased by 3%. Additionally, we ended the quarter with a robust CET1 capital ratio of 13.2%. In terms of future capital distributions, our focus first is on demonstrating several quarters of sustainable profitability and continued improvement in our nonaccrual loans and flexibility to support our anticipated loan growth. We expect the Board taking actual and capital distributions in the second half of the year. Finally, I would like to highlight 2 other milestones during the first quarter. We were very pleased with Fitch and Moody upgraded the bank's long-term and short-term deposit ratings to investment grade with a positive outlook. And when we filed our 10-K in late February, we disclosed that the previously material weakness in internal controls have been remediated. Both of these milestones reflect the tremendous effort, dedication and hard work of our entire team. On the next couple of slides, we spotlight the significant progress we continue to make in our C&I lending businesses. During the quarter, C&I loans grew by $1.4 billion or 9% on a linked-quarter basis, significantly higher than in prior quarters. On Slide 4, we go into detail on the trends in our C&I portfolio. While the first quarter is typically a seasonally slow quarter for originations -- you can see on the left side of the slide that our originations were essentially flat compared to the fourth quarter. We also will note that the pipeline remains strong, and we expect second quarter fundings in C&I to be similar to Q1. On the right side is the 5-quarter trend in the C&I portfolio. After bottoming in the second quarter of last year, we've had steady growth and in the first quarter, C&I loans grew by $1.4 billion, up 9% compared to the fourth quarter and year-over-year 12%. The next slide provides quarter-over-quarter growth by loan category. While the majority of the growth was driven by our 2 main strategic focus areas, specialized industries lending and corporate and regional commercial banking. This quarter growth was broad-based with growth also occurring in the mortgage finance and asset-based lending verticals. Now turning to Slide 6. You can see the trend in our adjusted diluted EPS. We whereby we have now reported 2 consecutive quarters of VPS growth by executing on all our strategic initiatives. On an adjusted basis, we went from $0.03 in the fourth quarter to $0.04 during Q1. One other positive note I'd like to make is that during the first quarter, we completed the consolidation of our 6 legacy data centers into 2 co-location centers with no disruptions neither to the organization or any of our customers and this positions us well in 2027 to have the baseline and platform for our core conversion with ultimately the goal in 2027 is to get on to one core. So with that, I'll now turn it over to Lee to review our financials and credit quality. Lee Smith: Thank you, Joseph, and good morning, everyone. We're very pleased with another quarter where we continued to execute our strategic vision to make Flagstar one of the best-performing regional banks in the country. We were profitable for the second consecutive quarter following the bank's return to profitability in the fourth quarter. More importantly, we made real progress against key initiatives that drive our financial forecast. We achieved net C&I loan growth during the quarter of $1.4 billion, significantly higher than previous quarters following the origination of $2.6 billion in new C&I loans, of which $2 billion was funded. As we've discussed, net C&I growth in previous quarters was muted as we rightsized legacy C&I positions within the portfolio. Most of this is behind us and you're now seeing the growth from new originations materialized into net loan growth. NIM expanded 10 basis points after adjusting for the onetime hedge gain of approximately $21 million in Q4. Furthermore, much of the new C&I growth occurred towards the end of Q1, meaning the full benefit of these newly originated loans will be felt in Q2 and beyond. Core deposits, excluding broker grew $1.1 billion, and we reduced deposit costs by 21 basis points. We paid off another $1 billion of flub advances and $300 million of brokered deposits as we further reduced our reliance on high-cost wholesale funding. Despite this deleveraging of $1.3 billion, our balance sheet only decreased $400 million quarter-over-quarter. CRE and multifamily payoffs were again elevated at $1.6 billion, $1.1 billion of wins were par payoffs and 42% of these payoffs were rated as substandard loans. We resolved the situation with one borrower that was in bankruptcy and reduced our nonaccrual loans by $323 million, while substandard loans decreased almost $700 million, meaning we reduced nonaccrual and substandard loans over $1 billion quarter-over-quarter. Our ACL reserve decreased $78 million, primarily driven by lower CRE and multifamily loan balances. Operating expenses were again well contained at $441 million, a decrease of 5% quarter-over-quarter. And we ended the quarter with 13.24% CET1 capital at or near the top of our regional bank peers. We were also thrilled to be upgraded by both Moody's and Fitch, particularly given that both agencies returned our long and short-term deposit ratings to investment grade. We continue to execute on our strategic plan, exactly as we said we would. Now turning to Slide 7. We reported net income attributable to common stockholders of $0.03 per diluted share. On an adjusted basis, we reported net income attributable to common stockholders of $0.04 per diluted share. First quarter was a relatively clean quarter with only one adjustment, our investment in FIGA Technologies, which decreased in value during the first quarter by $9 million based on its closing stock price as of March 31. Subsequent to the end of the quarter, we have sold out of approximately 75% of our FIG position at a gain of $1.8 million compared to our March 31 mark. interest income and NIM temporarily and until we replace it with new C&I, CRE or consumer growth. In order to retain some of the higher quality relationship CRE runoff in the future, we have assumed spreads off of SOFR in the 175 to 225 basis point range versus our contractual option of 275 to 300 basis points of a 5-year flow. Lower noninterest-bearing DDA growth in Q1. Deposit growth in Q1 was all interest-bearing, which was positive, particularly as we also reduced interest-bearing deposit costs 21 basis points quarter-over-quarter. We believe the current rating agency upgrades will help us garner more noninterest-bearing DDAs going forward. But as it's been pushed out, it impacts net interest income and NIM. We expect total assets to be approximately $94 billion at the end of '26 and $102 billion at the end of '27 as a result of net loan growth. The reduction in interest income has been partially offset by reducing provision and operating expense guidance. Adjusted EPS is now forecast to be in the $0.60 to $0.65 range in '26 and in the $1.80 to $1.90 range in '27. Slide 9 depicts the trends in our net interest margin over the past 5 quarters. We continue to post steady quarterly improvements in NIM, driven largely by lower funding costs. First quarter NIM increased 10 basis points quarter-over-quarter to 2.15% after adjusting for the recognition of a onetime hedge gain of $21 million in the fourth quarter. Turning to Slide 10. Our operating expenses continued to decline, reflecting our focus on cost containment. Quarter-over-quarter, operating expenses declined $21 million or 5%. Slide 11 shows the growth in our capital over the last few quarters. At 13.24%, our CET1 ratio ranks among the top relative to other regional banks, and we have about $1.6 billion in excess capital after tax relative to the low end of our target CET1 operating range of 10.5%. The next slide provides an overview of our deposits. Core deposits, excluding brokered, increased $1.1 billion on a linked-quarter basis or about 2%. This growth was primarily driven by growth in commercial and private bank deposits of $461 million and retail deposits, which were up $142 million. As in past quarters, during the current quarter, we paid down $300 million of brokered deposits with a weighted average cost of 4.76% -- in addition, approximately $5.3 billion of retail CDs matured during the quarter with a weighted average cost of 4.13%, and we retained 86% of these CDs as they moved into other CD products with rates approximately 35 to 40 basis points lower than the maturing products. In the second quarter, we had $4.8 billion of retail CDs maturing with an average cost of 3.98%. Also during the quarter, we further deleveraged the balance sheet by paying down $1 billion of flub advances with a weighted average cost of 3.85%. The deleveraging CD maturities and other deposit management actions led to a 21 basis point reduction in the cost of interest-bearing deposits quarter-over-quarter. Slide 13 shows our multifamily and CRE par payoffs, which were again elevated this quarter at $1.1 billion, of which 42% were rated substandard. These payoffs are resulting in a significant reduction in overall CRE balances and in our CRE concentration ratio. Total CRE balances have decreased $13.4 billion or 28% since year-end 2023 to approximately $34 billion, aiding in our strategy to diversify the loan portfolio to a mix of 1/3 CRE, 1/3 C&I and 1/3 consumer. Additionally, the par payoffs have helped lower our CRE concentration ratio by 134 basis points to 3.67% -- the next slide provides an overview of the multifamily portfolio, which declined $5.5 billion or 17% on a year-over-year basis and $1.1 billion or 4% on a linked-quarter basis. The reserve coverage on the total multifamily portfolio was 1.83% and remains the highest relative to other multifamily focused lenders in the Northeast. Additionally, the reserve coverage on these multifamily loans where 50% or more of the units are rent regulated is 3.20%. Currently, there are $11.9 billion of multifamily loans that are either resetting or maturing through year-end 2027 with a weighted average coupon of approximately 3.75%. Moving to Slides 15 and 16, we have again provided detailed additional information on the New York City multifamily portfolio, where 50% or more of the units are rent regulated. At March 31, this tranche of the portfolio totaled $8.8 billion, down 4% compared to the previous quarter and has an occupancy rate of 97% and a current LTV of 70%. Approximately 52% or $4.6 billion of the $8.8 billion are pass rated loans and the remaining 48% or $4.3 billion are criticized or classified, meaning they are either special mention, substandard or nonaccrual. Of the $4.3 billion, $1.9 billion are nonaccrual and have already been charged off to at least 90% of appraised value, meaning $287 million or 15% has been charged off against these nonaccrual loans. Furthermore, we also have an additional $73 million or 5% of ACL reserves against this nonaccrual population, meaning we have taken 20% of either charge-offs or reserves against this population. Of the remaining $2.7 billion, but a special mention in substandard loans between reserves and charge-offs, we have 5.8% or $154 million of loan loss coverage. We believe we're adequately reserved or have charged these loans off to the appropriate levels. And with excess capital of $2.2 billion before tax, we think we're more than covered were there to be any further degradation in this portion of the portfolio. Slide 17 details our ACL coverage by category. The $78 million reduction in the ACL was largely driven by lower CRE and multifamily health reinvestment balances. Our coverage ratio, including unfunded commitments, was at 1.67% at quarter end. On Slide 18, we provide additional details around credit quality, which trended positively during the quarter. Nonaccrual loans totaled $2.7 billion, down $323 million or 11% compared to the prior quarter. Criticized and classified loans also declined, decreasing $385 million or 3% compared to the prior quarter. During the quarter, we did see an increase in special mention loans as a result of our comprehensive and prudent process that analyzes in detail all loans with a reset or maturity date 18 months out, 18 months from March 31, 2026, is September 27, and 27 is our largest reset year where nearly $9 billion CRE loans either reset or mature. This amount includes approximately $2.9 billion of multifamily, where 50% or more of these units are rent regulated. As part of this internal forward-looking process, we've applied the relevant pro forma contractual interest rate calculations and adjusted risk ratings accordingly. Three items I would note, we are now 75% through analyzing the entire 2027 cohort. The results of this analysis is reflected in our ACL, and we continue to see significant substandard par payoffs each quarter. At the end of the quarter, 30- to 89-day delinquencies were approximately $967 million, a decrease of $19 million from the previous quarter. As mentioned last quarter, the biggest driver of this delinquency number is the additional day or 31st day of March when calculating delinquencies at precisely 30 days. As of April 21, approximately $493 million of these delinquent loans have been brought current. We continue to deliver on our strategic plan and are excited about the journey we're on and the value we will create for our shareholders over the next 2 years. With that, I will now turn the call back to Joseph. Joseph Otting: Thank you very much, Lee. Before moving to Q&A, I wanted to add that we are encouraged by our continued progress made in the first quarter and remain focused on driving sustainable profitability, improving returns and delivering long-term value for our shareholders. With continued improvement in credit trends solid loan and deposit growth and strong capital levels, we believe that Flagstar is well positioned in 2026. In addition, I'd like to thank our Board of Directors, our executive leadership team and all the teammates at Flagstar for their dedication and commitment to the organization and our customers. And operator, with that, I would be happy to turn it over to you to open the line for questions. Operator: [Operator Instructions] Our first question will come from the line of Chris McGratty with KBW. Christopher McGratty: Lee, maybe a question for you to start the margin adjustment for next year. I hear you on being a little bit more competitive on the payoffs. Could you unpack just the differences in your assumptions for the margin for next year? Specifically, is it a balance sheet size and the NII conversation size versus margin? Lee Smith: Yes. So it's a little bit a balance sheet and then a little bit of the additional payoffs of the CRE and multifamily book. So as I mentioned, the balance sheet at the end of '26 will be about $94 billion, $102 billion at the end of '27. So we are assuming a slight reduction versus what we had previously guided to sort of in that $500 million to $750 million range. But if you look at Q1, we did see $1.6 billion of par payoffs, paydowns and amortization in that CRE and multifamily book. And as I mentioned in the prepared remarks, it's both good news and bad news. The good news is it's allowing us to get to our diversified strategy more quickly of 1/3, 1/3, 1/3, but it does impact short-term interest income and NIM, and that's what you're seeing. So we think that we'll be able to use the funds from those payoffs to just further grow the C&I, the consumer and originate new CRE loans, but it sort of pushes everything out. So that's one of the items that is impacting the NIM. I think some of the better quality CRE loans that we would look to retain -- we'll be pricing those after spread to soar in the 1.75 to 2.25 range. And that's obviously a lower rate than the contractual reset, which is 5-year plus $300 million. And we've deliberately left that contractual rate in place because, as you know, Chris, we've been trying to reduce our exposure to those CRE multifamily assets where we have -- we're overweight and there's higher risk. So that's obviously working. And then we're seeing, as a result of that, fewer loans that are resetting are staying with us. We were sort of originally in the 50% range. It's now in the 35% to 40% range. And then the final piece that I mentioned was we saw very strong deposit growth in the quarter, $1.1 billion very pleased with that. It was all interest-bearing. We would like to see more noninterest-bearing growth. We think that will come with the rating agency upgrades, but that sort of pushes it affects NIM in the short term, and it sort of pushes everything out. So it's a combination of those items that you're seeing just bring the NIM down 10 to 12 basis points. Christopher McGratty: That's great. And then, Joseph, for you, I mean, the consequence of this is you have more capital and then I heard you on the Basel III. It feels like everything is lining up for the back half of the capital distribution that you alluded to in your prepared remarks. Can you just talk through the mile markers that from here you might need to see before you pull that lever? Joseph Otting: So Chris, we've been fairly consistent saying is we wanted the company to demonstrate consistent quarterly earnings. And our goal is -- obviously, we feel that will occur now as we've turned the quarter in the fourth quarter and then the first quarter. That's one of the legs of the stool. The second would be our goal is to get the nonperforming assets down to $2 billion by the end of the year. And so that was kind of the second leg of that and to continue to make progress from roughly the $2.6 billion level that we are at today. And then the third is just understanding how much growth we can have in the C&I portfolio and balancing that against the CRE payoffs I'd say the way we look at that is the CRE payoffs have been greater than we expected, but the C&I originations have also been more. And we do see some acceleration in the C&I occurring not only in our pipeline, but as we add more people into the various industry specializations and geographic strategy that we actually think that will continue to grow. And so when you take those kind of 3 factors into account. It was always management's intention to have a good insight to that through the second quarter and then have dialogue with the board on capital actions going forward. Operator: Our next question will come from the line of Jared Shaw with Barclays. Jared David Shaw: Maybe just sticking with margin. But for this year, when we look at loan yields this quarter, I guess that was a little bit weaker than we were expecting. Anything that you're seeing there that we should call out? And then just sort of as we look at the pace of margin expansion for the next few quarters, how is the loan yield playing into that? Joseph Otting: Yes. Well, if you look at the actual asset yield, it wasn't down that much quarter-over-quarter when you consider the rate reductions in the fourth quarter. That's what I would say. The reduction was twofold. So in terms of the interest income, you've got what I just mentioned we had more payoffs and paydowns as it relates to that CRE and multifamily book, which we think is sort of a -- it's a good news story, but it does impact that short-term interest income a NIM. And remember, you do need to adjust in Q4 you do need to adjust for that hedge gain of $21 million, which was included in interest income and NIM. So when you adjust for that, the NIM was 2.05% in Q4, increasing 10 basis points to 2.15% in Q1. The other thing that I would point out, and I allude you to some of these in my prepared remarks, Jared, when you think of the $1.4 billion of net C&I growth in the quarter, I would say $600 million of that came right at the end of the quarter, in the last week or 10 days. So you're not seeing any pickup in NIM and interest income in Q1 as a result of that but you will see that flow through in Q2 and beyond. The other part of it is the borrower that was in bankruptcy that got resolved on March 31, the last day of the quarter. So you've got a significant amount of loans coming off of nonaccrual and then a new accruing loan that is coming on you didn't see any benefit of that in the first quarter because it occurred on the last day of the month and the quarter. You will see that flow through in Q2 and beyond. And I would just point out the net C&I growth of $1.4 billion in the quarter, we feel that we can continue at least at that run rate throughout this year, and we've been talking about growing C&I and people have been asking you what do we think we can do. And I think this is the first quarter where we're really showing the power of everything that Jose and Rich have built and what those bankers are doing on the C&I side. Jared David Shaw: Okay. All right. And then if I could just ask quickly 1 more. You in the past talked about adding cash and securities. I think it was about $2 billion to $4 billion -- is that still -- what's sort of the path forward on cash and securities balances with the broader backdrop? Joseph Otting: Yes. I think as you look forward in '26, you will probably see our cash position come down a couple of billion. We will be buying more securities. I think you can expect us in Q2 to be buying at least $1 billion, $1.5 billion of securities. And we would look to get that securities balance back up to probably $16 billion or so as we move into the second half of 2026. The securities were behind, as I've said before, pre vanilla short duration RMBS CMOs. But it gives us an additional lever should we need to create more cash to let some of those securities run off. But a lot of it, as well, remember, Jared, given by what are the par payoffs because as we're seeing those CRE and multifamily loans pay off, that is generating cash and we've got the option to grow the securities or pay down wholesale borrowings. And you saw us pay down another $1.3 billion of expensive wholesale borrowings in the quarter between flu and brokered deposits. Operator: Our next question comes from the line of Manan Gosalia with Morgan Stanley. Manan Gosalia: Maybe staying on the topic of the Moody's and Fish upgrades. I think Moody's upgrade also came with a deposit rating upgrade. So can you talk about the implications for both funding costs? I think you mentioned more DDA growth. But also for expenses, is there any benefit on the FDIC expense side? So would love to get a full set of benefits from the upgrades beyond just the capital side? Joseph Otting: Sure. Let me take the Moody's upgrade on the deposit. As we obviously look to bring on new relationships and roughly, there were 75 new relationships that came in, in the first quarter. is part of our strategy, obviously, is to make those both depository and fee income relationships in addition to loans. And not so much in the middle market, but in the lower end of the corporate market, where -- we are focused on a lot of those companies have in their -- kind of their bank or their investment policy is that the bank had to have an investment-grade rating generally from Moody's or an S&P rating to be able to exceed the FDIC insurance levels. And so that rating is very important to that strategy as we look to penetrate in and gain operating accounts that often exceed those dollar amounts. And so we think that is a turning point, so to speak, for us of our ability to gain sizable new deposits with the relationships that we're bringing into the institution. And so -- we think that will be significant for us as we move forward in that strategy. And I'll turn it over to Xin's question to Lee and let him answer that. Lee Smith: Yes. The upgrades have no direct impact on FDIC expenses. But as Joseph mentioned, I think we -- it's a huge advantage in terms of being able to raise deposits going forward. And both Moody's and Fitch took our short- and long-term deposit rating back to investment grade. So we're very pleased with that, and Moody's still has us on a positive outlook as well. Manan Gosalia: Got it. And then maybe to stay on the expense side, Joseph, you spoke about the consolidation of the legacy data centers and the setup for the core conversion in 2027. I guess how big of a lift is that? Is that multiple years? And how are you thinking about the expense number there? And I'm guessing it's baked into your guidance, but if you can just speak to that. Joseph Otting: Yes. So obviously, closing 6 data centers and getting into 2 co-location centers was really positive for us. It was reflected in our expense forecast for this year. Next year, we do today run 2 cores where we have 2 of the legacy organizations on 1 core provider and 1 on a third. It is our intent by July of next year to be [ AgeCore ] and on a run rate basis, we believe when that gets completed, it's roughly a $40 million decrease in expenses for the company. Operator: Our next question will come from the line of David Severini with Jefferies. David Chiaverini: So wanted to drill into credit quality a little bit. trends continue in the right direction with criticized and classified loans trending lower. Can you talk about your expectations going forward with these loans? Do you expect a continued downward trend? And any surprises you've observed either good or bad as these loans have matured or reset? Lee Smith: Thanks, David. Yes, no, we do not expect any surprises. Let me address that in the first instance. And we continue to see continued reduction of criticized and classified. As Joseph mentioned, we're on track to reduce nonaccruals by up to $1 billion this year, and we saw a nice reduction in Q1, and we believe that will continue throughout 2026. And that's obviously accretive from both an earnings and a capital point of view because those nonaccruals are 150% risk rated, we continue to see a lot of liquidity around the multifamily loans and that is why of the $1.1 billion of payoffs in Q1 42% was substandard. And that is consistent with the trend that we've seen for multiple quarters now. So we expect to continue to see a reduction in the substandard loans. And then I mentioned the special mention loans have increased this quarter because we're doing that very comprehensive 18-month look forward of all loans that are maturing or resetting in the next 18 months. 2027 is our biggest reset maturity year. There's $9 billion that is resetting and maturing. So with 3 quarters of the way through that analysis. And by the end of Q2, we will be all the way through 2027. And again, everything -- even though there was an increase in special mention loans, given the reductions in the other categories, given the reduction in CRE and multifamily HFI balances it's all reflected within our ACL reserve. And the final point I would like to add is on the charge-offs, as you brought up credit, David. So charge-offs were $78 million this quarter versus $46 million last quarter. However, $34 million of what was charged off related to the 1 borrower that was in bankruptcy. And of that $34 million $30 million was already fully reserved. So there was an incremental $4 million related to that bankruptcy really just sales costs that we needed to take. And if you subtract that $34 million from the $78 million, you're basically at $44 million of net charge-offs versus $46 million last quarter, which is about 30 basis points. So we are consistent from a net charge-off on a net charge-off basis and we expect that trend to continue next quarter as well. Joseph Otting: Yes. And David, the 1 other thing that I would add, I think Lee did a good job of describing that is when we do that look forward, of those loans today are current in the special mention category. So if you called those borrowers up, they would say, well, I've never missed a payment. But what we do in that 18-month look forward is we apply the current rate that they would incur if that loan matured today. And then we analyze that cash flow and make a determination where does their cash flow sit against fixed charge cover or cash flow coverage on the property. And so if your property is at 3.5% today, and you take it up to 6.5% for our contractual rollover, that's what's causing those loans to look slightly impaired when actually that is really a forward look to those with pretty punitive interest rates. David Chiaverini: Very helpful. And sticking with this theme, can you provide us with your latest views on a potential rent for us and the impact this could have on your portfolio? Lee Smith: Yes, absolutely. So we have modeled out a rent freeze, 3-year rent freeze occurred or starting October 1 '26. So a couple of other assumptions that I would add, we also assume as part of this analysis, the operating expenses increased 2.75% per annum and think about that as being inflationary. And we also assume that the market units or the non-regulated units are able to increase their rent 2.1% per annum. So here's what we found when we ran that analysis anything that is 70% or less rent regulated, there is no impact to the NOIs. And the reason for that is the rent freezes on the rent-regulated units are offset by increasing the rent on the market or nonrent-regulated units. So 70% is sort of the demarcation line. Anything that is above 70% rent regulated the recent impact to ROI over that time horizon, the 3-year time horizon of about 7% or 8%. And if you look at the rent regulated slides that we have in the earnings deck. So we have -- and the earnings deck shows everything that is more than 50% rent regulated, and we have $8.8 billion. But $4.6 billion is pass rated. -- with an amortizing DSCR of 1.5. So those borrowers would be able to absorb the rent freezes and that impact on -- and then when you look at the criticized and classified, which is $4.2 billion, we have taken significant charge-offs. So between charge-offs and ACL reserves, we've taken over GBP 500 million of charge-offs, and we have reserves against that population. So we believe that we're more than covered just given when we re-underwrote that book in '24 and we took over GBP 900 million of charge-offs, and we increased our ACL reserves we believe we're more than covered what -- given what we've already done. A couple of other things I'd point out, though, on this. It's not just about the rent freeze as you know, we're getting annual financial statements from these borrowers and looking and digging into those we're doing a deep dive on everything that is maturing in the next 18 months, and we undertake a robust analysis on all of those loans. We're reviewing things like the worst landlord list and lean and violation lease, and we don't have much exposure there. A lot of our borrowers, as you know, these are families where the properties have been with them for multiple years. So they have a low-cost basis they benefited from the 1031 tax rollover. So we do not have any REO on our balance sheet. And if there was an issue, it would be showing up in our charge-offs and ACL reserve, which, as we've just been through, you're not seeing. And the final thing I would add is there is still an incredible amount of liquidity for the ASC class. As we've seen from our quarterly par payoffs and as we saw again this quarter as well. Operator: Our next question will come from the line of David Smith with Truwiuth Securities. David Smith: I guess big picture. You obviously took your '26 and '27 earnings guidance a bit lower. Do you just view this as a delay and push out of your expectations by a couple of quarters? Or has anything changed at all about your medium and long-term profitability expectations for the bank? Lee Smith: David you are spot on. And that is exactly joseph and I were having this conversation. Not -- if you look at our thesis and everything we're doing, we are executing against our strategy. And all these stores worst case is maybe pushes things out 1 quarter or 2 quarters. And let me tell you what I've been by that. because the -- we're seeing increased paydowns or payoffs of that CRE multifamily maybe we just need 1 more quarter of $2-plus billion net C&I growth for 2 quarters. So everything is intact, those reset and maturity dates. We know they're coming. We just need to sit here and be patient. It's just time. and worst-case scenario, maybe you're just looking at an extra quarter or 2. So I think you've hit the nail right on the head there. David Smith: And then the change in assumption on multifamily loan repricing to $175 million to $225 million over SOFR instead of 300 over the 5-year. Does that have any impact on credit as you do the 18 months look forward on loans resetting? Lee Smith: Yes. So let me just clarify that. We the contractual resets, we are sticking by. So anything that is resetting or maturing but really resetting the contractual term is 5-year flood plus 300 or prime plus 275. We're not wavering off that, and we haven't waived off that. All we are saying is if there are better quality CRE loans within our portfolio, maybe it's in the builder finance arena or maybe it's in a non-officer where there's a deposit relationship. It's a strong credit then we probably need to -- in order to retain them, we probably need to move to a market rate which would be so for plus $75 million to $225 million. So that's all we're saying that we'll be very selective in only selecting those credits that are extremely high quality, and we think that there's either an existing or the potential for a future relationship. Joseph Otting: David, one point I think you were perhaps asking there was like when we're doing that forward look, and we're applying our contractual rate. We probably are 75 basis points over the market when we do that analysis that would perhaps push some of the loans into the special mention category that if you use a strictly a market rate and that analysis you would not see as many special mention credits. Operator: Our next question will come from the line of Dave Rochester with Cantor. David Rochester: Appreciate the comments on the Board meeting coming up and your thoughts on just capital deployment in general. You called out the $1.6 billion of excess capital above the bottom end of your target capital range. You talked about that for a quarter or 2 now. I was just curious how you're looking at that excess capital because we've seen some banks manage that down to their targets fairly quickly. Now that we have some clarity with the capital proposals. You've got more loan growth that's ramping up through the end of this year. Obviously, that's going to be improving profitability and whatnot, and you want to save capital for that. But are you in a situation now where you could easily just save half of that excess and dedicate that to the loan growth that you're expecting over the next couple of years and then take the other half and pay that out over the next couple of quarters? How are you thinking about getting to your targets more so in terms of timing? Lee Smith: Yes. Well, great question. And look, we -- I think we're in the fortune of what sort of ironic if you turn the clock back 18 months ago, people were asking if we had enough capital and you sort of fast forward to where we are today, and again, because of the great work that the Flagstar team has done, we're in this sort of situation where people are asking, what are you going to do with all the capital. We're in the fortunate position where we can do both, we can grow, and we can obviously execute on capital actions later in the year, as Jose alluded to. I think also what Jose said is exactly what we're looking to do here, which is the consistent profitability, and we've now had 2 quarters of profitability. So we're on the right track. We want to see those problem loans come down. We had a nice quarter in Q1, and so we want to see more of that. and then the organic growth, particularly on the C&I side, and you're really beginning to see that come through as you saw in Q1 with $1.4 billion of net C&I growth. But we can do both. And you mentioned the new capital rules and the Basel III proposal, look, we've analyzed that, and we believe that, that will give us an additional 60 to 80 basis points of CET1. So that's all in the risk ratings. And again, that's something that would be very helpful to us as well. But yes, we have optionality, and we're able to, I think, grow and we're able to take capital actions. We just want to prove out the consistent profitability as you see and see a little bit more reduction in those problem lines. David Rochester: Sounds good. Appreciate it. And then just on the new C&I bankers you've hired, I was just wondering how they've done with their marching orders to bring in the first deal in the first 90 days. And -- if you can just give an update on where you are on hiring for this year. I think you're targeting 200 bankers by the end of this year, which meant maybe another 75 that you had to go. If you could just give us an update on that. And then any lingering derisking efforts that you're wrapping up in equipment finance or any of the other segments? That would be good to hear about as well. Lee Smith: Yes. Let me start with the banks. So first of all, I mean, I just want to complement the job and the work that Rich and those bankers are doing. They have been phenomenal. As you can see from the net C&I growth in Q1. And again, this is very granular. The average loan size is in that $20 million to $30 million range in Q1. The average spread to sofa was actually went up. It was actually 242 basis points, and we've got just over 70% utilization. So doing a tremendous job. Today, we have 131 customer facing, C&I bankers I think Rich would like to probably more like 180. So I think you've probably got another $40 million to $60 million to go in terms of new hires. As we said before, our expectation and these are all seasoned bankers that know Jose, no rich our expectation is that they're executing on their first deal within 90 days. And then they're doing, on average, 3 or 4 deals in that first year, 5 or 6 deals a year thereafter. And I think if you sort of do the math on that, that's how we're getting to the C&I growth that we've alluded to. And again, you saw that come through in the first quarter. And then the second part of the question, yes, as I mentioned, a lot of the tool trees, as we referred to, where we had outsized exposure to single names. We are mostly through that. And if you look at the page on earlier in the deck, you can see that we really. We didn't have anywhere near as much runoff in those legacy equipment finance, asset-based lending categories. There was a little bit of a swap between the two. So that's why there may be a little noise there. But on a net basis, there wasn't much runoff at all. And we feel that you'll start to see those areas grow, which will then complement what we're doing with the national lending verticals, the specialty verticals as well as what we're doing from a middle and upper C&I market point of view going forward as well. Joseph Otting: Yes. The other thing obviously, Lee hit on the spot, we've assembled really an incredible team in the C&I space that have come to the company in that 20 to 25-year experience level across both geographic markets and industry specialization. Our focus really is in kind of that $20 million to $75 million range type credit size. And that gives us the ability both to scale quickly, but also clients that use a lot of bank products and services that gives us cross-sell opportunities. So I would say, I think if Rich was here, he would say probably 90% of the people are kind of hitting that first deal in 90 days with a number of them far exceeding that kind of production level. So it's really been an impressive story and I think if you had to assess where we are, I think we're kind of sliding in the second base on that overall strategy. So we really do continue to see, I think, good market expansion, good growth in both adding people and those people that have now been in the company for 6 to 9 months, are really hitting the stride. I commented in my comments that we really expect to be at or above the production level for Q2 to what we've done in Q1. And we actually were pretty hot coming out of the box this quarter with new closings that may have tried to get down in the first quarter, but leaked over into the second quarter. So the opposite of what we had in the first quarter is we had a really strong March on closing. We actually came out of the box really hot in April. And so we look for this to be an exceptional quarter. Operator: Our next question comes from the line of Anthony Elian with JPMorgan. Anthony Elian: Lee, on fee income, you reduced slightly the '26 outlook, but it still implies a material step-up for the rest of this year to hit that range. Talk to us about the areas you think will drive the increase in 2Q and beyond? Lee Smith: Yes, sure. So a couple of things on the fee income. First of all, and you probably already have, but I want to make sure people are adjusting for the figure gains, losses because that is in the noninterest fee income section. So we had a $9 million gain in Q4 and then we reduced the valuation and effectively, you saw a $9 million degradation in Q1. So that's an $18 million swing quarter-over-quarter. So I just want to make sure people are capturing that. But we think that -- it's really all of the line items. So capital markets syndication income, swap and derivatives. We hired a new head of Capital markets towards the end of last year and he's just finding getting his feet under the table, and we feel pretty excited about some of the things that we're seeing there. As we originate more loans, we expect unused loan fees to increase. We have some SBIC investments. The returns were slightly down in Q1 versus normal quarters, and we expect that to return to normal as we move forward. Q1 is seasonally low for mortgage gain on sale, and we would expect gain on sale to increase will increase as you move into Q2 and beyond. And then the CRE fee income should increase as we start originating new CRE loans. The consumer overdraft and service charges should increase. We think net loan fees and charges, deposit fees will increase. And we've said before, one of the things that we identified that was happening was we were waiving a lot of fees in the private bank and we are gradually reducing the amount of fees that we've been waving in the private bank. So -- it's not 1 area in particular. We expect to drive fee income across all categories and in all parts of our business model. Anthony Elian: And then on NII, can you share with us how much visibility you have just on the level of commercial real estate payoffs going forward, right, why what you saw in 1Q would lead to such a sharp reduction in your NII outlook next year? And really what I'm trying to get at is the confidence you have that this is it for reductions to the NII outlook. Lee Smith: Yes. No, it's a fair question. I would tell you that people, I think, need to appreciate is there are more moving parts to this model than probably any other bank out there that especially banks that are mature because you're dealing with par payoffs, pay downs, new originations, we're in growth mode, you're dealing with reductions in nonaccrual loans and they're lumpy. It's not linear. We're looking to pay down wholesale borrowings reduce the cost of core there are more moving parts to the story than any other bank out there. We are moving in the right direction. -- to be absolutely precise on every single one of those, it's not easy. And so we feel, based on the guidance that we've provided that is the best look that we have today. But par payoffs or paydowns increased, Sure, they could. We've got strategies in place, as I mentioned, for the better quality loans to try and retain them. But there's a lot of moving parts. I think what I would look at is the bigger picture. And as Joseph and I have both said, we are doing exactly what we said we would do and executing on our strategy. And the worst case here is maybe pushes things out 1 or 2 quarters. So instead of Q4 of '27, it's -- we get there in 1Q of 28 or 2 of because we just need another quarter or 2 of $2-plus billion of net C&I growth. That's the worst-case scenario. And that's how I would look at it when you're looking at the -- you got to look at the bigger picture. Operator: Our next question comes from the line of Matthew Breese with Stephens. Matthew Breese: I wanted to touch on the inflows and outflows of NPAs this quarter. And going back to the Pinnacle group the bankruptcy loans, which I thought was maybe $500 million or $600 million in balances. If that came out, it implies a decent chunk of new NPAs went in -- and so I was just curious if that's the case, could you provide some color on the new inflows of NPAs number of loans, size of relationship -- and Jose, do you -- are you sticking with your outlook for a $1 billion reduction in nonaccruals this year? Joseph Otting: Yes. Yes. First of all, Matthew, we are sticking with that. it's kind of -- you got to look at that category kind of like accounts receivable each quarter, and we've had that like volatility where some come in and some go out. We had roughly million of resolutions during the quarter. So you do have inflows and outflows that in [indiscernible] and that has always been there where things are transitioning through that. We do expect this next quarter to be down $200 million in additional NPAs. So it's the trend line that we take a look at, but there is in and outside of that category on a fairly consistent basis. And Matt, I'll just remind you, 35% of our nonaccruals are current and paid -- we're very punitive on ourselves in the way that we risk rate these loans and no 1 else has that amount of their nonaccruals current and pay. But you've got to bear that in mind as and real estate secured. Matthew Breese: Understood. Okay. And then, Lee, could you just clarify where the hedge gain was flowing through in the average balance sheet. I thought it was in borrowings, but I think you had mentioned it was in interest income. I was squeezing in 2 questions in one. Lee Smith: Well, let me do -- let me handle 1 first because you'll have to pay for the next one. The -- it's all in the flu, the wholesale borrowings line. That's where that gain was, Matt. Matthew Breese: Okay. And then could you just provide this quarter, what were new loan yield originations overall? How does that compare to the pipeline? And how does that compare to the fourth quarter? Lee Smith: The -- yes. So I mentioned a couple of questions. The new C&I loans were coming on at a spread to sofa of $24 basis points in Q1. So which was higher that they were coming on around 225 in Q4. So we saw a nice increase in Q1 in terms of average spread to sofa. Operator: Our next question comes from the line of Casey Haire with Autonomous. Casey Haire: Lee, I had a question for you on the balance sheet forecast of $102 million in '27. So if we started 87 today, you have about $12 billion of multifamily coming back to you between now and 27. You lose 60% of it that is a $7 billion drag, that takes you down to $80 million. You originate $2 billion a quarter of C&I that takes you back up to $94 billion where is the -- what's the -- you're still $8 billion short versus that $100 million? I guess what are we missing here? Lee Smith: Yes. So a couple of things. C&I growth is pretty significant in both years. You're sort of looking at $7-plus billion in both years. But remember, on the CRE and multifamily side, we are originating new CRE loans, not New York City CRE loans, but CRE loans in other parts of our footprint. So the Midwest, South Florida California. So you've got to factor in the runoff in CRE and multifamily is not as big as you think because we're replacing some of that with new CRE originations. And then we also expect to see growth in the residential mortgage line item as well. as we're originating mortgages for balance sheet. So I think the piece you're probably missing is the CRE multifamily runoff is probably not as great as you're thinking because of the new loans we're originating. Casey Haire: Okay. Fair enough. And then the deposit growth was decent this quarter. What's the outlook there? Can you build on this momentum? And where do you want to what's -- how is the loan-to-deposit ratio? Where do you want to live on that ratio going forward? Lee Smith: Yes. We believe we can build on it. And as we said before, leveraging the new C&I customers that we're bringing in is as 1 area that we feel that we can be successful in. And if you look at Q1 and you look at the deposit growth, about $450 million was from the commercial customers and the private bank customers. And ultimately, we want to get the operating accounts of those commercial customers. But if we have to start with some interest there in deposits, that's fine as well. So we believe that we can leverage those new relationships on the C&I side. And our treasury management team is working diligently to make that happen, and we saw some green shoots in Q1. We believe the private bank is another area where we can grow deposits. And Mark Pit runs the private bank it really built out a real private bank with the Chief Investment Officer, trusted adviser. We've got a family wealth planner -- we've got all the products that they would need, interest-only mortgages now in a broad mortgage product set subscription lending. So we feel that that's an area where we can continue to bring in more deposits and then leveraging our 340 bank branches as well. And obviously, the new CRE lending we're doing, the expectation is that is relationship driven and will come with deposits and fee income opportunities as well. So we do believe that we can continue the momentum and grow more deposit I'd like to see some more noninterest-bearing DDA growth, but we think that will come with those upgrades that we got this quarter for Moody's and Fitch. Operator: Our next question will come from the line of Bernard Von Gizycki with Deutsche Bank. Bernard Von Gizycki: I know you I know your specialized and regional banking segments are being built out and deposit gathering initiatives will be in a different life cycle versus peers. But with rates potentially on hold, how would you describe deposit pricing pressure. It sounds like the Moody's switch upgrade could help alleviate some pressure that some peers might be seeing more of. Just talk on what you're seeing within your footprint? Lee Smith: Yes. Obviously, it's competitive [indiscernible] and we meet every week on this, and we review deposit gathering in every single market that we're in and we look at what our competitors are doing, and we make sure. Obviously, you need to be competitive. But what I would say is -- not only did we bring $1.1 billion of new deposits in Q1, we also reduced that cost of poor deposits 21 basis points. So we're not overpaying for these deposits. I think we're leveraging our relationships. We're leveraging the model that we built. And we'd be mindful, obviously, of what our peers and competitors are doing, you have to be. But I would say despite that, you've still seen us sort of execute and be successful with the deposits that we brought in and the reduction in core deposit costs. Bernard Von Gizycki: And just a follow-up. I know you paid down the FHLB advances by $1 billion during the quarter. What are your expectations for pay downs for the rest of the year? Lee Smith: Yes. I think the way we're thinking about it, Bernie, is we believe we can pay down another $2 billion or $3 billion over the rest of the year. And again, a lot of it will be driven by what excess cash do we have and that will be driven by what's going on with deposit growth, what's going on with the payoffs, the paydowns, but we think we can pay down another $2 billion or $3 billion of loan advances. Joseph Otting: Which get us into the like $6 billion a -- if you recall, when we got here, it was about $23 billion. Operator: And that concludes our question-and-answer session. I'll turn the call back over to Joseph for any closing comments. Joseph Otting: Thank you very much, operator, and thank you for taking the time to understand our story. We often say here, we started with 20 big items that we needed to knock off the list. We really feel we're down to about 4, have those well under control and are executing on that. And we remain extremely focused on executing on our strategic plan. We really want to transform Flagstar into a top-performing regional bank. Creating a customer-centric organization that's relationship-based culture and effectively manage risk to drive long-term value. So thank you for your time this morning, and thank you for joining us. Operator: This concludes our call today. Thank you all for joining. You may now disconnect.
Operator: Welcome to the Eastern Bancshares, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note that this event is being recorded for replay purposes. In connection with today's call, the company posted a presentation on its Investor Relations website, investor.easternbank.com which will be referenced during the call. Today's call will include forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied due to a variety of factors. These factors are described in the company's earnings press release and most recent 10-K filed with the SEC. Any forward-looking statements made represents management's views and estimates as of today, and the company undertakes no obligation to update these statements because of new information or future events. The company will also discuss both GAAP and certain non-GAAP financial measures. For reconciliations, please refer to the company's earnings press release. I'd now like to turn the call over to Denis Sheahan, Eastern Chief Executive Officer. Denis Sheahan: Thank you, Rob. Good morning, and thank you for joining our call. With me today on the call are Bob Rivers, Executive Chair and Chair of the Board of Directors; Quinsey Miller, our President and Chief Operating Officer; and David Rosato, our Chief Financial Officer. Our first quarter performance was solid and in line with our expectations with results reflecting the impact of typical seasonal trends. Operating income increased 31% and operating earnings per share increased 18% from a year ago and generated an operating return on average tangible common equity of 12.8%. As expected, period-end loan and deposit balances were down modestly from year-end. However, customer sentiment remains positive and commercial loan pipelines ended the quarter at record high levels, giving us confidence for strong activity in the coming quarters. Following a record year of originations, our commercial lending team remains energized and that momentum is carrying into 2026. Overall, we believe Eastern is well positioned to deliver meaningful value to shareholders by executing on organic growth opportunities and a consistent return of capital. We continue to see positive trends across many areas of the business. First quarter highlights include continued momentum in Wealth Management with positive net flows approaching $400 million in the quarter. Solid build in loan pipelines for both commercial and home equity lending, strong asset quality, significant capital return to shareholders and the successful completion of the Harbor One merger core system conversion. Wealth management is an important component of our long-term growth strategy. Beyond strong investment solutions and results we provide comprehensive wealth services, including financial, tax and estate planning as well as private banking. Wealth assets increased to a record high of $10.3 billion including $9.8 billion in assets under management, driven by strong positive net flows, partially offset by weaker equity market performance. We've been pleased with the integration of the Eastern and Cambridge wealth teams, which continue to capitalize on the deepening alignment within our banking business, elevating client engagement and referral activity. Notably, we have considerable opportunity to expand relationships within Eastern's client base, and our plan is to lean into that meaningfully over the next several years. Given the wealth demographics of our footprint, we are encouraged by the momentum of our business. Asset quality continues to be a real strength for us. Net charge-offs were 17 basis points, and we saw a solid improvement in nonperforming loans since year-end. We remain very comfortable with our risk profile with limited exposure to current higher-risk sectors, including private credit, software, life sciences and clean tech. Our lending to non-deposit financial institutions or MDFIs as defined by the call report, is less than 3% of total loans and as low risk as it is largely centered on organizations that provide affordable housing in Massachusetts, REITs that lend in our market, mostly in the multifamily space. and a small number of asset-based lending relationships we know well. Overall credit trends are positive and reflect the quality of our underwriting and deep knowledge of our customers, communities and local economy. Importantly, as the macro and geopolitical environment continues to evolve, we remain vigilant and closely engaged with our customers and consistent with our proactive risk management approach we will address any emerging issues prudently and quickly. Turning to capital. Given our profitability, we continue to generate capital in excess of our growth needs, we remain focused on rightsizing our capital through a combination of organic growth, share repurchases and quarterly dividends. This was evident in the first quarter as we repurchased 3.9 million shares for $75.1 million. As of quarter end, we've completed 59% of the current authorization and we expect to finish the program around midyear, at which point we anticipate executing a new authorization subject to regulatory approval. In addition, we announced a 15% dividend increase, marking our sixth consecutive year of dividend growth since becoming a public company, reinforcing our commitment to deliver consistent capital returns to shareholders. In February, we successfully completed the Harbor One merger core system conversion. With this milestone behind us, we are excited to realize the full potential of the combined franchise. This achievement reflects the extraordinary efforts of our employees, particularly given the conversion was partly executed amid a significant snowstorm in Greater Boston. I want to sincerely thank everyone who contributed to this effort for their dedication and teamwork. Importantly, we remain on track to capture the merger's targeted cost savings and onetime charges are largely complete with approximately $2 million remaining in the second quarter, bringing the total to $67 million. Before turning the call over to David, I wanted to spend a moment on artificial intelligence, a topic we are frequently asked about. Everything we are doing in AI is centered on improving how we deliver for our clients. Our focus goes beyond streamlining processes and efficiency and is centered on the objective of knowing our customers better than we know them today. One of Eastern's long-standing strengths has been the depth of our client relationships and AI will allow us to scale that advantage in meaningful ways. It will enable us to better anticipate customer needs, provide more relevant product recommendations and engage customers at the right time with the right solutions. This will further differentiate our franchise through an even higher level of personalization that customers typically receive from much larger banks. As a result, we view AI not only as an efficiency tool though it certainly will streamline workflows and improve productivity, but also as a driver of revenue growth. David, I'll hand it over to you to provide a review of our first quarter financials. R. Rosato: Thanks, Denis, and good morning, everyone. I'll begin on Slide 3 of the presentation. The first quarter marked a solid start to the year and was mostly in line with our expectations. We reported net income of $65.3 million or $0.29 per diluted share. Included in net income was $30.8 million of nonoperating costs, mostly related to the Harbor One merger. On an operating basis, earnings were $88.6 million or $0.40 per diluted share. While operating earnings decreased 6% linked quarter, they were up 31% year-over-year reflecting the enhanced earnings power of the company. Looking at Slide 4. We are pleased with the continued strength of our profitability metrics while operating ROA of 117 basis points and return on average tangible common equity of 12.8% were down from Q4. Both metrics improved from a year ago when operating ROA was 109 basis points and operating return on average tangible common equity was 11.7%. We remain focused on driving sustainable growth and profitability. Moving to the margin on Slide 5. Net interest income of $244.7 million or $250.8 million on an FTE basis increased 3% from Q4. The growth was driven by margin improvement due to lower cost of funds, partially offset by $3.1 million of lower net discount accretion, which totaled $19.5 million compared to $22.6 million in the prior quarter. Excluding accretion, net interest income increased approximately 5%. As you all know, quarterly accretion income can be lumpy. Looking ahead, we expect accretion to average $21 million to $22 million per quarter. In Q1, accretion of $19.5 million was about $2 million below trend. The net interest margin expanded 2 basis points linked quarter to $3.63. The improvement was driven by a 16 basis point reduction in interest-bearing and liability costs, reflecting improved deposit pricing. This more than offset a 7 basis point decline in yield on interest-earning assets, primarily due to lower loan yields, partially offset by higher security yields. Net discount accretion contributed 28 basis points to the margin compared to 34 basis points in Q4. Excluding the impact of accretion, the margin expanded approximately 8 basis points from the fourth quarter, highlighting the underlying strength of our core margin performance. We have included a new disclosure report on the repricing characteristics of our interest-earning assets on Page 18 in the appendix. Excluding the impact of cash flow hedges, which are in runoff mode, $1 billion or approximately 35% of our total loan portfolio is floating at current rates. The remaining $14.9 billion is comprised of variable and fixed rate loans of $4.1 billion and $10.8 billion, respectively. The time buckets reflect the dollar value of any repricing or cash flow events for the portfolio, including projected prepayments based on the forward yield curve. We have also disclosed the projected yields as assets run off the balance sheet, inclusive of purchase accounting. Current loan origination yields are 5.75% to 6% for commercial, 5.5% to 6% for residential, and HELOCs are indexed to prime. Excluding floating rate loans, we expect approximately $2.8 billion of turnover for repricing over the next 3 years. Based on current origination yields, this activity is expected to be accretive to NII and margin. For the securities portfolio, we expect approximately $1.5 billion of principal cash flow in the next 3 years at a weighted average book yield of 2.86%. Again, this cash flow will be accretive to NII and margin. Turning to Slide 6. Noninterest income for the quarter was $43.6 million, a decrease of $2.5 million compared to the fourth quarter. On an operating basis, noninterest income was $45.1 million, down $1.6 million. The largest contributor contribute to the variance was a $1.9 million loss on investments related to employee retirement benefits, reflecting weaker equity market performance. This compares to $1.7 million in income for the prior quarter, resulting in a $3.6 million quarter-over-quarter reduction in noninterest income. The unfavorable impact on income was partially offset by a $1.2 million improvement and related benefit costs reported in noninterest expense. Conversely, noninterest income benefited from a $2.9 million increase in miscellaneous income and fees. Primarily driven by a $1.7 million gain on the sale of commercial loans. This gain is related to a Harbor One loan workout that resulted in a note sale above our remaining fair value mark. Turning to Slide 7, we highlight Wealth Management, which is our primary fee business and accounts for more than 40% of noninterest income. Wealth assets increased to a record $10.3 billion, including AUM of $9.8 billion, driven by strong positive net flows. We're particularly pleased with this performance given that weaker equity market conditions during the quarter created headwinds for asset values, yet we were still able to deliver growth. underscoring the strength of our client relationships and full-service capabilities. Fees decreased modestly from the fourth quarter, but increased nearly 12% from a year ago primarily driven by strong growth in assets. Moving to Slide 8. Noninterest expense was $198.6 million, an increase of $9.2 million compared to the fourth quarter. The increase was primarily driven by seasonal costs and a full quarter of Harbor One operating expenses, partially offset by lower nonoperating costs. On an operating basis, noninterest expense was $167.9 million, up $11.8 million from the prior quarter. The increase reflects seasonally higher payroll and benefit-related costs as well as the full quarter impact of Fiber One. The largest contributors to the quarter-over-quarter increase were salaries and benefits of $10.6 million. Occupancy and equipment costs increased $2.1 million and technology and data processing expenses rose $1.2 million. These increases were partially offset by a $2.2 million reduction in professional services expense. Nonoperating noninterest expense of $30.8 million decreased $2.6 million, primarily due to $1.8 million of lower merger-related costs and $800,000 lower other nonoperating expenses. As a reminder, the first quarter typically represents a seasonally high point for expenses, and we expect a moderation in the quarterly expense run rate over the remainder of 2026. Importantly, with the completion of the Harbor One core system conversion in February, we remain on track to achieve the projected merger cost savings. Moving to the balance sheet, starting with deposits on Slide 9. As expected, balances declined from year-end. Deposits finished the quarter at $25.1 billion, down $366 million or 1.4%, primarily due to seasonal outflows at elevated competition for deposits. In addition, $81 million of Harbor One's broker deposits matured in Q1. Total deposit costs decreased 13 basis points to 1.46% and primarily driven by lower costs and time deposits and money market accounts. We are committed to increasing deposits to support our loan growth strategies. The New England deposit environment remains competitive, and we are taking targeted actions to ensure our offerings are appropriately positioned to defend and grow share. While these efforts will result in some upward pressure on costs, we remain focused on balancing growth of our high-quality deposit base with that of the margin. Notably, retention of Harbor One deposits has been consistent with our expectations. Turning to Slide 10. Total loans declined modestly from year-end, consistent with our expectations. Period-end balances were down $187 million or less than 1%. The decrease was driven in part by nonperforming loan resolutions of $35 million and commercial real estate payoffs. We are pleased C&I continue to be a source of growth with balances increasing $49 million or 1.1% from year-end. We finished the quarter with record commercial pipeline of approximately $800 million. which gives us confidence in strong origination activity in the coming quarters and supports a favorable growth outlook as we move through the year. We continue to benefit from the strategic investments we have made in hiring talent and our differentiation in the market. We can deliver the breadth and products and services typically associated with much larger banks by retaining the certainty of execution that comes from local decision-making and a deep understanding of our customers and communities. Turning to consumer lending. Home equity balances grew slightly during the quarter. We are underpenetrated in this line of business, and growth has been somewhat episodic. Largely due to capacity constraints within our legacy origination platform. We are in the process of implementing a new home equity origination platform, which we expect will improve speed scalability and consistency, enabling more sustained growth. Given the strong underlying consumer demand across our footprint for this product, we are excited about the opportunity ahead and we see home equity as an attractive area of growth. Residential mortgage balances were down approximately 1% from year-end. Our expectation is the residential portfolio will remain relatively flat in 2026 as we favor HELOC and commercial loan growth. Turning to securities on Slide 11. We continue to be pleased with the overall quality and positioning of the portfolio. Balances increased $171 million since year-end, reflecting disciplined deployment into attractive opportunities. The portfolio yield increased 14 basis points to 3.18% for the quarter, supported by recent purchases. From a valuation perspective, AFS unrealized losses totaled $277 million at quarter end compared to $259 million at year-end. Turning to Slide 12. Our capital position remains strong, as indicated by CET 1 and TCE ratios of 13.2% and 10.2%, respectively. As Dennis stated earlier, we are focused on rightsizing capital through organic growth, share repurchases and quarterly dividends. We expect to generate excess capital but plan to manage our CET1 towards the median of the KRX, which is currently 12%. Our commitment to rightsizing capital was evident in Q1 and with the repurchase of 3.9 million shares for $75.1 million at an average price of $19.33 which was $0.68 below the VWAP for the quarter. As a result, our diluted common shares outstanding were 220.8 million as of March 31. Second quarter to date, we have repurchased an additional 740,000 shares through yesterday for a total cost of $14.4 million and now have 4.2 million shares remaining on our authorization. We have now completed 65% of the buyback. We currently anticipating completing the buyback around midyear, at which point we anticipate executing a new authorization subject to regulatory approval. Additionally, if the Basel III proposal to reduce risk weights on certain assets is adopted, our preliminary estimates suggest an increase to Eastern's risk-based ratios of approximately 1%, which will support additional share buybacks over time. As displayed on Slide 13, asset quality remains excellent as evidenced by net charge-offs to average total loans of 17 basis points. Nonperforming loans improved as expected, falling nearly $35 million linked quarter to $138 million or 60 basis points of total loans. NPLs were lower in both the legacy Eastern and acquired Harbor One portfolios. Progress has continued in the second quarter, and we expect further credit resolutions in the quarters ahead. Reserve levels remain robust as demonstrated by an allowance for loan losses to $37.9 million or 143 basis points of total loans. Criticized and classified loans of $801 million or 5.1% of total loans, were up modestly from $793 million or 5% of total loans at year-end. The increase was driven by higher criticized balances on the Harbor One portfolio, largely offset by continued improvement in legacy Easter loans. As we deepen our knowledge of the acquired portfolio, we further refined risk ratings and this led to the increase in Q1. In addition, we booked a provision of $5.8 million, up from $4.9 million in the prior quarter. Finally, slides covering our CRE and investor office portfolios can now be found in the appendix. We remain focused on the investor office portfolio and believe the worst of the office loan issues are behind us. so we remain realistic in our outlook. The portfolio totals $1 billion or 4% of total loans. Criticized and classified loans are $160 million an improvement from over $170 million at year-end. Our reserve level of 6% remains conservative. Importantly, we reunderwrite all investor office loans of $5 million or more each year, and we recently completed that process during the first quarter with no unexpected findings. Before turning to Q&A, I'd like to briefly address our 2016 outlook on Slide 14. At this time, we are not making any changes to full year guidance as the first quarter performance was mostly in line with our expectations. While there were some offsetting factors in the quarter, none alter our overall view of the year, and we remain confident in achieving the projections in the outlook. With that said, based on Q1 results, we may trend towards the lower end of the NII guidance range we shared in January. In addition, we are mindful that the economic environment remains fluid. We continue to closely monitor conditions impacting our business, our customers and the communities we serve. Given the ongoing uncertainty around geopolitical developments, interest rates, inflation and broader market volatility, we plan to revisit our outlook at mid-year this visibility improves. That concludes our comments, and we will now open up the line for questions. Operator: [Operator Instructions]. Your first question comes from the line of Feddie Strickland from Hovde Group. Feddie Strickland: Good morning, everybody. Just wanted to start off with a clarification. I appreciate the new interest earning asset pricing slide, and it seems like that's maybe a big part of the margin expansion story at this point. But just as a point of clarification, it's as projected yield on that. Is that where the yield is rolling off? Or where you expect those loans to be priced at? Denis Sheahan: That's the yield rolling off. Yes. And Feddie, just to be clear on that, there is a footnote that sense is on a non-FTE basis. That's -- I'll give you an example. So if you see the total security yield of $310 million, we reported that for the quarter, securities were $38 million. That 8 basis point difference is the FTE adjustment on those assets. Feddie Strickland: Got it. And I guess of the fixed loans that are repricing. I mean, how much of that is kind of fixed over the next year? Just trying to get a sense for what the opportunity simply from backfill free pricing is. Denis Sheahan: Well, we -- I mean we I mean if you look at the columns. Yes, Q4 to 6%, 7% to 9%, 10% to 12%, right? R. Rosato: Yes. You can see, we tried to break this out and obviously, we'll be happy to take feedback on this since it's the first time we've done it. But we tried to characterize the portfolio in the loan portfolio into the three major groups. Floating is prime and SOFR. And in commercial, that's SOFR-based in consumer, that's prime. Those are the HELOCs. Intermediate repricing and then what's fixed. We aggregated that in buckets thinking that the most useful information was the current yield by maturity bucket or so than the exact mix of whether that's fixed or floating. Now what you'll find is within 3 months is the whole floating bucket. Everything else is fixed or variable, meaning intermediate term fixed, and that represents the repricing opportunity. Feddie Strickland: That's super helpful. And just one more for me. There's been some news of some larger competitors moving into the Boston market on the wealth side. Can you talk about the extent to which you've run into them so far? Have you expect any pressure there? Denis Sheahan: Sure, Feddie. So yes, there's frequently news of entrance into the market. We're not alone in understanding the very strong demographics from a household income and wealth perspective in New England and in Massachusetts, in particular. But it's always been a very competitive market. We'd expect that to continue. So new entrants don't disturb us. We're well used to competing with others in the market and have been for many years. R. Rosato: Dennis, I would just add to that. A lot of those new entrants are focusing higher asset amounts than our core, bread and butter. Operator: Our next question comes from the line of Justin Crowley from Piper Sandler. Justin Crowley: Just wanted to keep on the margin. You left the guide unchanged. And I think last quarter included two cuts in the guide. So -- just kind of curious with the Fed likely on pause here, how you should think about that impacting the NIM and just the expansion that you've laid out? Denis Sheahan: Sure. Thanks, Justin. So I would go back to what we've been very consistent for quite a period of time now is we are essentially interest rate risk neutral to NII. We've talked about on past calls that a steeper deal curve is better than a flatter yield curve, but it's relatively modest. I pointed out 1 to 2 basis points positive margin impact up per 25 basis points of steepness. So the -- we feel good about the NIM. We feel really good about the core NIM as well. The only challenge around margin is really just two things: One, it's the variability of accretion that we've talked about in the past. We tried to point out, it was down $3.1 million linked quarter here had an impact on the reported margin; and then the other side the other issues or things that we think about is just the size of the balance sheet and then the growing issue for the industry is the cost of deposits. Justin Crowley: Okay. And so on that latter point, just on funding costs, is that sort of the aspect that gets you to have a bias towards just the lower end of the range on NII? Are you thinking about deposit pricing pressure any differently here as you sit here today? Denis Sheahan: Yes. So yes, we put out the original full year NIM of $1.20 billion to $1.050 billion. We're thinking we'll be within that range, but we're concerned about being on the lower end of that range. That's really driven by two factors: one, loan growth. It was -- we expected weaker loan growth in Q1. It was slightly -- it was down slightly more than we were expecting. And so that's a volume issue on the asset side. And then it's a price issue on the liability side around the deposit base. We had really good deposit performance in Q1 from a price perspective, a little less so on a volume perspective. Justin Crowley: Okay. Got it. That's helpful. And then just one last one. Just on loans. If you could just give a little more color on the loan pipeline. I know it's at record levels, but just what that what that mix looks like and what gets you confident these pull-through as customers continue to get their arms around some of the uncertainty that still exists today. Denis Sheahan: Sure, Justin. Happy to do that. So first of all, as David mentioned, our loan growth was a little softer than we expected in the quarter. And some of that is why the pipeline is as large as it is. We had a pretty rough first quarter in this part of the country in terms of weather. So something slipped a little bit. But we have a very -- a record high pipeline beginning the second quarter here. So we do expect to have very, very good closings. In terms of -- before I give you the numbers, would things slip a bit because of perhaps what's going on geopolitically or what have you, we don't think so. Certainly, with the pipeline as it stands today. These are pretty far along in the process. It's a good mix between commercial real estate, C&I and community development lending with commercial real estate being about 57% of the portfolio C&I just under 30% and then the rest is community development lending, which is more affordable housing lending typically. So a really good mix, and that also gives us a lot of confidence in where that commercial loan pipeline is headed. We also feel really good about our consumer home equity pipeline. David referenced that a little earlier we think that will have good progress second and into third quarter, too. Operator: Your next question comes from the line of Jared Shaw from Barclays. Jared David Shaw: Maybe sticking with the deposit side. you have good betas through first quarter. I guess if we're in a flat rate environment with some of the expectation that competition increases. Is this sort of peak beta, do you think here? And that could go going forward, we could see a little bit of pressure? Denis Sheahan: Yes. I mean the short answer is, yes, I think there will be betas will be slower to come down than they were going up, our beta was 46%. The -- we -- again, I'll go back to my original question as part of the original question of we're roughly interest rate neutral. That's good. But we -- I would expect probably a 2 to 3 basis point incremental cost to deposits as the year unfolds here, which is probably translates into 1 or 2 basis points to the overall margin. Jared David Shaw: Okay. And then do you have the spot deposit rate at the end of the quarter? Denis Sheahan: Yes, it was 142 basis points versus 146 basis points for the whole -- for the full quarter. Jared David Shaw: Okay. Okay. And then when you're looking at the sort of the competitive pressure. Is that primarily for attracting new money to the bank? Or is that -- you're expecting now to have to pay more for retention, maybe especially of retention of Harbor One? Denis Sheahan: I think of it as a bit of all of the above when -- just a little bit more color, thanks. We've talked about smaller banks being competitive in certain parts of our market repeatedly. That's kind of the nature of this market up here. I think what's changed is you're now seeing more aggressive pricing from larger banks. Some of that's to support what they're trying to do in wealth management. Some of that is online, and some of that is just larger banks being more competitive. So those dynamics are changing, that affects everything that affects it attraction of new money, but it also impacts existing because of the flows that you see just across your deposit base in normal times. There's a certain amount of money that's always in flight. R. Rosato: I think, Jared, I'd just add, I think you know we spend a lot of time thinking about our deposit base. It's a wonderful deposit base. And we're just signaling that we see we see cost increasing. But if you look at the trend and how we've managed this deposit base through a merger with the company that had a higher cost of deposits than we, if you look on Slide 9, now Q3 cost of deposits was 155 basis points. So through the merger, we've still been able to bring it down, as David said, spot is 142. So we spent a lot of time thinking about this, but we do think it's fair just to signal that there is competitive pressure on deposits. And we think that we'll certainly be affected to a degree by it. But even within that, we manage this deposit base very, very intently. Jared David Shaw: Yes. Okay. I appreciate that. And then if I could just one final one. What would be, as we look at second quarter, with some of the moving parts on salaries and the closing of the deal, what sort of a good salary level for second quarter? And then should we expect marketing expenses to maybe trickle higher with some of this deposit initiative too? Denis Sheahan: So let me kind of just go down the whole list. Yes, salary will come down Salary will be down linked quarter because of the timing of the merger as well as normal onetime in the first quarter. The tackle come down, occupancy will come down. The only thing I'm really thinking on the expense side is we were under a bit on professional. That will probably tick up, [indiscernible]. R. Rosato: And marketing, yes, it's fair to say that's seasonal as well. Home equity promotions will be much heavier in the spring season heading into summer. And yes, on the deposit side. So you should see marketing tick up in Q2. Operator: Our next question comes from the line of Damon DelMonte from KBW. Damon Del Monte: And David, I was just looking for a little bit of clarification on the guidance slide. If you look at the -- if you try to back into like the average earning assets, when you look at the NII range that you provided in the margin ranges you provided, if you were to kind of take the midpoint of that, that kind of puts you at about $28 billion in average earning assets, which is where you guys hit this quarter. So just trying to connect the dots here of looking at where the average earning asset balance could be during the year, kind of given the outlook for loan growth. Denis Sheahan: Yes. So the issue will be we have a strong pipeline from what we think will be, let's say, at end of the second quarter, we'll be right back on our expectations on an ending period basis. I think the issue, the crux of your question is really around the averages. So even though with that strong pipeline, we'll get back to what internally we say is budget. I do believe the averages are going to take a little longer to catch up. So where -- that's the thought process around the lower end of the margin or the net interest income guide. Lower average balances on the asset side and then not lower averages on the deposit side, but slightly higher costs. Damon Del Monte: Got it. Okay. All right. And then with respect to the outlook for provision, again, the guided range didn't change from last quarter. But it came in later this quarter as you guys continue to work through credits where you need to reserve for. So I guess how are you thinking about the provision going forward, just kind of given the composition of nonperformers and expected growth? Denis Sheahan: Yes. I mean, again, we're not long post this merger. So there's -- admittedly, there's a little bit of conservatism in not lowering the guide. We Obviously, credit improved a lot in Q1. Provision expense coming in at 58%. If you run rate that would take us towards the low end of the $30 million to $40 million. But we're just being cautious there with the dynamic of still early in the Harbor One and with what's going on in the macro economy. Operator: Your next question comes from the line of Laurie Hunsicker from Seaport Research. Laura Havener Hunsicker: I just wanted to go back to expenses here. Can you just share with us what was the FICA expense and what was the snow removal expense this quarter? Denis Sheahan: Well, let's think about it linked quarter. FICA was up $3.1 billion linked quarter. Snow was up about $650,000 linked quarter. Laura Havener Hunsicker: Okay. That's great. And then do you have a spot margin for March? Denis Sheahan: Sure. 365. So up two from the quarter. Laura Havener Hunsicker: Right. Okay. Okay. And that includes basically the same amount of accretion that you reported in the quarter? Denis Sheahan: I mean we talk about accretion being lumpy quarter-to-quarter. It's even more lumpy month-to-month. But that's a good number, Laurie. I know in past costs, sometimes I'll adjust it for you. This one doesn't need adjusting. Laura Havener Hunsicker: Okay. Perfect. And then just last question here on credit. Obviously love seeing the drop in commercial nonperformers. So 2 parts to this. Can you share with us the drop in office nonperformers at $37 million, down to $11 million. Can you just share with us the resolution there? And then second part, the industrial warehouse, it looks like the nonperformers there keep going higher. So you went linked quarter $25 million to $41 million. Can you just tell us a little bit about that since that book is larger? R. Rosato: Sure. So Laurie, that was just a coding error that we found on Harbor One loans. So they -- when we -- when we closed the deal, that specific loan was coded as construction, but construction had been completed, and it should have been classified as industrial warehouse. So there's really no change there. And that was all considered as part of the credit mark reserve established against, et cetera. Nothing changed there. It was merely a reclassification from construction to industrial. Denis Sheahan: Yes. And then just -- there's nothing unusual in the resolution of any of those loans. They just Yes. I mean they were financed by another party. That's basically it, Laurie. We had reserves established, et cetera. We went through a whole workout on them and they're -- that project is now with new borrowers, not financed by us. It's -- that's simply it. Some -- I mean, we did call out the gain on that one commercial loan. So there was a loan sale in there. We generated the $1.3 million gain, which just -- the final resolution was better than the remaining fair value mark. So it was a good guide this quarter. Operator: next question comes from the line of Matthew Breese from Stephens Inc. Matthew Breese: Thanks for having me on. Maybe just thinking about the deposit strategy a little more. Is there a growth component or target, meaning there's a certain dollar amount of deposits you're looking to bring in because I guess what I'm worried about is, a, you certainly don't want to dilute your most valuable characteristic too much or unnecessarily so. And then B, as you think about the promotional rates just on your website, money market and CDs and kind of the high 3s, low 4s versus incremental loan yields in the high 5% or 6% range. It's just not great for the incremental margin. And so I wanted your thoughts on all that, where do you start to cut this off dollar-wise to come in. Denis Sheahan: So we guided to, David, 1% to 2% deposit growth for the year. So we don't have outsized expectations in terms of growth. Again, what we're just trying to signal is that we are seeing deposit competition increase in the marketplace, which is perhaps higher than we anticipated at this point. It's coming from smaller competitors and larger competitors. So we're just trying to bring some reality to our forecast on that, but we're not we're not guiding to significant increase in deposit growth. Again, it was 1% to 2% for the year. And I mean you referenced CDs and money markets. We also have checking what we call stacked offer, meaning different rewards for different levels of account balances across checking accounts, which is something this company has done for years very successfully. So it's not all coming in. All those deposit flows don't come in at that highest money market or C&E rate. And then I would just reiterate, we are not the high in the market either. And I'd say again, Matt, what I referenced earlier, which is how we've managed the cost of deposits over the past several quarters even when adding a bank that has a higher deposit cost than the legacy company from 155 basis points in Q3 to a spot of 142 at the end of the first quarter. So that's -- you're right, this is a very material component of the company, our deposit base, an important one, but we manage it very deliberately. Understood. And then tying that back to the margin, as I think about the NIM guide for the full year and where you sit today, is it fair to say that we kind of end the year closer to the high end of the range versus the low end? Or what is kind of the cadence of the NIM throughout the year given everything you've outlined. Well, the somewhat dependent on the pace in the second quarter, the build of loan and deposit balances, but the -- we're expecting the core NIM without purchase accounting to incrementally improve each quarter. And so -- and then I'll go back to the -- when we announced the Harbor One transaction a year ago at this point, we telegraphed a 3.70% margin that's the middle of the guide we gave in January, and we still think we'll be in that 10 basis point range. And we ended Q1 on a spot basis at 3.65% which is the low end of it. Matthew Breese: Okay. I appreciate that. Last one, I think about the -- some of the reductions and payoffs this quarter, how much of it was -- or is there an outsized portion of it that was acquired loans versus legacy Eastern? And is any of that strategic in nature, meaning you got your arms around Harbor One and maybe the a bit more transactional commercial real estate that might be better off kind of elsewhere than with you. Is that a component of it? And is that incorporated into the full year guide? Denis Sheahan: I think the only real color there, the Harbor One portfolio is nothing unexpected. We're so early in it, but there's nothing coming in either from a credit mark or from a payoff pace unexpected. There was, let's say, some elevated commercial real estate payoffs in the legacy portfolios, legacy now being defined as legacy or and Paper Trust. We actually think that's a sign of a healthy market. So that was a little higher than we expected, but we'll see if that continues or not. It's just a higher level of activity in the market. Operator: Your next question comes from the line of Janet Lee from TD Bank. Sun Lee: So on the deposit cost commentary, so you're expecting some modest increase in deposit cost. A lot -- I guess some of that has to do with the retention of. Or does that have to do with retaining Harbor One deposit base, which is obviously a higher cost base that's -- is that part of that. Is that what's driving the increase along with the competitive deposit competition in your market. How much of the Harbor One retention is the factor in your deposit cost outlook? Is it harder to retain versus before? R. Rosato: No. It's more about just the market, pricing in the marketplace. I mean, certainly, an element of our deposit base. An important element is the Harbor One customer base -- but this is what's going on in the market broadly. And it's been -- it's consistent and expanded from the back half of last year, we saw this pricing really kick off with lower institutions. Now we're seeing it with institutions that are higher than us, so it's reflective of what's going on in the marketplace. But certainly, yes, we are engaged in very importantly retaining the Harbor One customer deposit base, and that's going very well. But it's mostly about what's happening in the market. Sun Lee: Got it. For loan growth, so it looks like the loan growth will be picking up in the coming quarters. But just given the lower base, is it fair to assume that it's coming in at the lower end? Or do you have more optimism that it could be somewhere in the middle or even at the upper end, how should we think about the cadence of loan growth picking up? Denis Sheahan: I think the original range is where our expectations are. It's a fairly tight range. So I don't want to shave that high or low at this point. As I would just go back to -- we -- loans were modestly down in Q1. It wasn't a surprise to us. That's normally what happens in Q1 and here in New England. It was a little worse because of the weather. But we have record pipelines. We feel good about it. Operator: And there are no further questions at this time. I will now turn the call over to Denis Sheahan for closing remarks. Denis Sheahan: Thank you, everybody, for joining us. I appreciate your questions. We look forward to speaking with you at the end of our next quarter. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Norfolk Southern Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions] Also note that this call is being recorded on Friday, April 24, 2026. And I would like to turn the conference over to Luke Nichols. Please go ahead, sir. Luke Nichols: Good morning, everyone. Please note that during today's call, we will make certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or future performance of Norfolk Southern Corporation, which are subject to risks and uncertainties and may differ materially from actual results. Please refer to our annual and quarterly reports filed with the SEC for a full discussion of those risks and uncertainties we view as most important. Our presentation slides are available at norfolksouthern.com in the Investors section, along with our reconciliation of any non-GAAP measures used today to the comparable GAAP measures, including adjusted or non-GAAP operating ratio. Please note that all references to our prospective operating ratio during today's call are being provided on an adjusted basis. Turning to Slide 3. I'll now turn the call over to Norfolk Southern's President and Chief Executive Officer, Mark George. Mark George: Good morning, and thanks for joining us. With me today are John Orr, our Chief Operating Officer; Ed Elkins, our Chief Commercial Officer; and Jason Zampi, our Chief Financial Officer. Before we get into details, I wanted to start by recognizing our Thoroughbred team. Working together, we successfully navigated another challenging winter with weather events that affected most of our territory, putting real pressure on the network and our volumes in the month of February. But as conditions normalized and our network recovered, we were able to capture the available volume in March and exited the quarter with solid momentum, all while staying focused on what matters most: operating the railroad safely. Our safety performance continues to excel, which remains our most important work. We're seeing the benefits of the investments we've made in technology, training and standard processes from digital inspection tools to more rigorous operating standards. These efforts are helping us detect and address potential issues earlier and keep our employees, customers and communities we serve safe. Our FRA reportable accident rate is down yet again, thanks to the systems we have and our leadership. I'm proud of how our people stay disciplined and committed through all the weather challenges and other distractions. On costs, we remained disciplined. Total adjusted expenses were up just 1% year-over-year despite inflationary pressures, storm costs and sharply higher fuel prices. We earn new business, expanded key relationships and saw customer confidence grow across multiple sectors, reflecting improved execution and trust in our capabilities. We're seeing strength and encouraging results across multiple parts of the business, reflecting focused investments and improved coordination across our teams. Ed will walk through some of our wins and the underlying volume drivers in more detail. Lastly, stepping back to the broader environment, the macro remains a mix of puts and takes. Customers continue to manage dynamic and shifting supply chains. But our message is simple. Norfolk Southern is well positioned to grow alongside of them. The strength of our network combined with the flexibility we built into our cost structure gives us confidence to navigate whatever the market brings. And with that, I'll turn it over to John to get into the operational details. John? John Orr: Good morning, everyone, and thanks, Mark. Throughout 2025, our Norfolk Southern team was focused on growing our team's capabilities, skills and speak up willingness, creating the environment to deeply embed our safety and service maturity and capabilities. Now for the full quarter behind us in 2026, we are realizing measurable gains from those successive efforts. We are advancing and layering progressive PSR 2.0 structural changes to build more resilience and efficiencies across the railway, develop generational railway leaders and provide our customers with the best possible service plan. As Mark noted, extreme and network-wide winter weather in the first quarter tested the network. I'm very proud of the entire enterprise in the way we anticipated, prepared and responded to deliver for our customers. The extraordinary commitment of more than 19,000 rail orders across our franchise was clear in the service and volume execution coming out of the system-wide storms. Thank you to all my fellow rail orders. The entire team delivered both daily and storm backlog demand and drove post-pandemic daily GTM volume records, made possible by our operations and commercial teams. Turning to Slide 5. At Norfolk Southern, Safety is the core value to which all of our operating decisions are made. Our continued investment in safety is producing results while building a stronger, more durable safety culture. In the quarter, our FRA personal injury ratio was 1.10. This is consistent with full year 2025 performance. Our FRA accident ratio was 1.43. This reflects a 37% improvement year-over-year in the first quarter. Our FRA mainline accident ratio was 0.26. For the second consecutive year, Norfolk Southern continues to lead the way for Class I railroads in mainline incident reliability. This progress is not isolated, it is also mirrored in a reduction of non-FRA reportable accidents. These improvements reflect the strategic impact of our intentional coordination of field-level technology coupled with execution across back office, work scope process refinement and field conversion engagement. Combined, we are creating reliable network value by engineering out risk from operations wherever our teams work. This holistic approach to safety improvement is now embedded in how we plan, execute and manage the railway every day. While we are all proud and encouraged by our safety improvements, we are driven by a relentless drive for continuous improvement. Our enterprise is committed to putting in the work. We know there's more work to do. We are strengthening our stop work authority, reinforcing a speak-up culture and relentlessly addressing root cause analysis to prevent block crossing and other incidents. Turning to Slide 6. Throughout the first quarter, the network demonstrated resilience in the variable demand environment we faced. Our focus remains on improving our train speed while maintaining balanced discipline around energy management and service levels, a core operational priority. While shipments were modestly lower year-over-year, we moved 1.1% more gross ton miles, reflecting stronger train productivity and better asset utilization across the network. Terminals well improved year-over-year, coupled with continuous focus on execution of the plan. This supports gains in car miles per day. We have been intentional about protecting service and operating the network at a lower cost structure. That discipline is reflected in an 8.6% fewer recrews, improved locomotive reliability and continued reductions in unscheduled train stops. Improved crew scheduling and greater crew availability are supporting stronger crew productivity across the network and the better aligned, qualified T&E crew base, which is down about 6% year-over-year. And we continue to strategically recruit and renew our workforce in markets where we anticipate growth. Reliability drives improved productivity in cruise, locomotive and fuel efficiency. Taken together, these results demonstrate we are controlling what we can control, managing costs, improving efficiencies and positioning the network to respond to the evolving market conditions. Turning to Slide 7. At the core of PSR 2.0 is a self-reinforcing operating system, a flywheel where disciplined execution compounds over time. At Norfolk Southern, we know when we run the plan, reduce recrews and improve network velocity, we create stability in the operation. Stability matters to our people and to our customers. It allows us to deliver our service and utilize assets more effectively, improve locomotive and field productivity and operate with better energy efficiencies. Operational gains have manifested into the continued evolution of our service plan and its execution. They feed directly back into better schedules, better planning and more consistent execution. We now have a connected system where every improvement strengthens the next. That compounding effect is how we intentionally build a more resilient railroad steadily over time. Our war rooms continue to translate this discipline into measurable results. The mechanical room has improved detection quality in our wheel integrity systems while delivering confirmed defect identification that directly improve safety and reliability. This is a clear example of technology process and field execution working together at scale. At the same time, our need for speed war room is embedding advanced analytics directly into daily operating decision-making. By pairing data science with frontline execution, we are improving plan quality, accelerating decisions and strengthening the performance across our network. Disciplined execution across the organization is delivering results. In the first quarter, we achieved a fuel efficiency record, strengthening our competitive position in a high fuel price environment while protecting margins. More importantly, it reflects the repeatability of this operating system. Taken together, our PSR 2.0 transformation and operating systems position us to continue to outperform our original cost reduction commitments and deliver sustained progress across safety, service and financial performance. With that, I'll turn it to you, Ed. Unknown Executive: Thanks a lot, John, and good morning, everybody. Let's move to Slide 9. We closed out the first quarter with significant volume momentum, and this is offsetting a volatile February where severe winter weather impacted our customer car loadings for several weeks. Overall, volume finished down 1%, primarily due to challenging intermodal market conditions as well as merger-related losses. However, revenue ended the quarter flat year-over-year and RPU was up 2%, with solid core merchandise pricing and some favorable high-level mix, which were somewhat overshadowed by some puts and takes within the individual business groups, particularly within coal. Within merchandise, volume and revenue increased 1% from a year ago, and this was driven by continued share gains in our chemicals and our automotive markets. RPU less fuel was flat year-over-year within the segment as strong core pricing was offset by mix interactions due to sustained growth of lower-rated commodities within our chemicals franchise that we've talked about for a couple of quarters now. In our intermodal business, volumes decreased 4%, reflecting difficult comparisons related to tariff front-running in 2025 as well as impacts from the winter storms in the quarter and ongoing merger-related losses from prior quarters. Overall, intermodal revenue declined 1% and revenue less fuel decreased 2% due to these volume impacts while improved pricing and positive mix within the segment drove ARPU higher by 3% and RPU less fuel higher by 2%. Looking at coal, volume increased substantially as higher electricity demand, stockpile replenishment and a supportive regulatory environment powered our utility segment. Now this strength was partially offset by reduced volume in domestic met coal. And so while total coal volume increased 9%, revenue declined 2% as mix headwinds from utility growth and continued overhang of export pricing drove ARPU down by 9%. Let's go to Slide 10. Here, we highlight several dynamic factors influencing our market outlook, including the conflict in Iran, which has obviously driven energy prices sharply upward in the near term. Our fuel surcharge revenue will be the most immediate impact as an offset to fuel expense. And additionally, we're aggressively pursuing volume and revenue opportunities in a variety of energy-related markets while also monitoring potential impacts to overall consumer demand. Looking at merchandise, we have a subdued, but positive outlook for vehicle production due to near-term economic uncertainty on the part of consumers. Manufacturing activity remains mixed with output forecasted to expand modestly amid the shifting economic landscape. Energy prices and global supply chains will be significant wildcards in the months ahead due to the conflict in Iran. And depending on the duration of supply chain disruptions, we could see near-term opportunities in markets like natural gas liquids, export plastics and potentially even crude oil. Looking to our intermodal markets. International volumes are going to remain soft due to continued tariff volatility and trade pressures. On the other hand, retailers have been maintaining lean inventories in response to this macro uncertainty for which a visual restocking offers some support from baseline freight activity. The truck market has turned relatively positive with dry van rates trending upward in the first quarter of '26 and capacity continues to rightsize while demand is firming. Taken together, we have an optimistic view of intermodal, although we're tempering that optimism somewhat due to increased competitor activity following the merger announcement. Let's turn to coal, where a combination of global factors is supporting pricing across both metallurgical and thermal seaborne markets. Now most notably, the conflict in Iran is impacting global LNG supply chains, opening the global market to consider alternatives such as U.S. sourced thermal coal. The Utility outlook remains positive as growing domestic electricity demand and inventory restocking should continue to support Norfolk Southern coal volumes. Okay. Let's move to Slide 11, where I'm excited to introduce an innovative new short line and transload partnership, which is subject to standard regulatory approval with Jaguar Transport Holdings. Unlike traditional short-line transactions across the industry, which have been focused on finding efficiencies and leveraging lower density lines, our new partnership focuses on growth in a high-density switching corridor located in Doraville, Georgia. Our new partnership, which includes operation of both an industrial short line and our transload terminal, will deliver exceptional local service and responsive capacity to customers in the growing Metro Atlanta market. Now here's what I want everyone to take away. This new partnership is just the latest example of our larger growth strategy in action. We're focused on building and executing innovative deal structures that deliver new capabilities and exceptional value for our customers. Look for more innovative solutions and new capabilities in the months ahead as we continue to execute on our strategy for growth. With that, I'm going to turn it over to Jason Zampi to review our financial results. Jason Zampi: Thanks, Ed. I'll start with a reconciliation of our GAAP results to the adjusted numbers that I'll speak to today on Slide 13. We incurred $52 million in merger-related expenses during the quarter, while total costs related to the Eastern Ohio incident were $10 million. Adjusting for these items, the operating ratio for the quarter was 68.7% and EPS was $2.65 per share. Moving to Slide 14, you'll find the comparison of our adjusted results versus last year. From a year-over-year perspective, the operating ratio increased 80 basis points. Inflation and fuel price headwinds drove an approximate 280-basis-point increase. However, we were able to mitigate a large part of that increase through productivity and higher revenue per unit. Taking a closer look at our quarter on Slide 15, overall costs were up 1% as we were able to offset an estimated 5% headwind from inflationary pressures. Specifically, fuel price alone was $31 million higher than last year and over $40 million higher than our expectations, a phenomenon that really accelerated in the later part of March and has continued here into the second quarter. We have continued to deliver on our productivity initiatives with fuel efficiency and labor productivity delivering over $30 million in savings. Partially offsetting those gains we had some volumetric increases that drove purchase services and rents higher in the quarter. So to summarize our financial results on Slide 16, while first quarter costs were only up 1% and in line with our cost guidance for 2026, the lack of revenue growth combined to drive a modest EPS reduction. While we overcame typical operating ratio seasonality in Q1, we are constantly striving to improve. We continue to refine our focus to unearth other opportunities, and you heard John talk about some of those initiatives as we work towards the $150-plus million of efficiencies planned for this year on top of the over $500 million in productivity we generated over the last 2 years. Fuel is obviously going to be a wildcard for the remainder of the year, and we anticipate it to be a headwind in the second quarter. But despite that, we expect to achieve typical margin seasonality from 1Q to 2Q. We continue to move forward. John and team are continuing to drive productivity while maintaining a safe railroad with consistent and predictable service levels and Ed and his team are pursuing high-quality growth opportunities across the entire book. Overall, we're executing to the plan we laid out, focusing on safety and service within a reasonable cost outlook while progressing through our merger application with UP. And with that, I'll turn it over to Mark to wrap it up. Mark George: Okay. Thank you, Jason. You all just heard that we are laser-focused on 3 fundamentals: First, safety. We continue to make progress through better tools, better processes and a culture that treats safety as a value, not a metric. Second is service. Our customers are seeing our resilience coming out of the winter weather and getting back to consistent, reliable performance even as volumes increase. And third, costs. We're maintaining tight control, driving productivity and aligning our expense base with demand as we fight to win volume. Overall, we see a promising story emerging where we can leverage any reasonable volume expansion the market presents with our commitment to control costs, giving us confidence in our ability to drive attractive and profitable growth. Now turning to guidance. Last quarter, we provided an adjusted operating cost envelope of $8.2 billion to $8.4 billion for 2026, and I'm proud of how the NS team has handled all the challenges in Q1 to remain on track for our guide, and I remain confident in our cost control playbook. Now while the underlying cost structure remains intact, fuel prices are obviously putting upward pressure on the cost outlook. As you heard from Jason, the price surge in March alone resulted in expenses that were $40 million higher than our expectations. While we are sensitive to the impact of conflict and inflating energy markets are having on people's lives, today, it is unclear on how long fuel prices will remain inflated and by how much over the remainder of the year. In light of this, we are maintaining our current cost guidance while acknowledging the near-term volatility and uncertainty on one of our key cost inputs. Our team has worked hard to be transparent with all of you. We will continue to monitor the situation as we progress through Q2 and gain more confidence on where fuel will settle, and we will update you accordingly. And finally, just as a brief update on the merger, we remain on track to refile the application by the end of the month. This revised application will be even stronger in articulating the benefits of creating the nation's first single-line transcontinental railroad. And with that, let's open the call to questions. Operator: [Operator Instructions] First, we will hear from Chris Wetherbee at Wells Fargo. Christian Wetherbee: Maybe 1 point of clarification and then the question. I guess, Jason, you mentioned normal OR seasonality 1Q to 2Q. Just kind of curious what you see that normal seasonality as being just to clarify. And then Ed, you talked a little bit about competitive activity, I think, particularly in Intermodal as it relates to the merger. I guess as you think about that, have we seen most of that happen already? Is that something that maybe still has yet to play out? And is it more than intermodal? Or is it really more sort of contained within Intermodal? Jason Zampi: Chris, it's Jason. Let me start with the OR question. Just a reminder, first about some of the headwinds that we've got in our plan. We've talked about inflation and some of those year-over-year pressures in that 4% range. We've got lower land sales. Specifically, you may recall, we had a $35 million land sale in the second quarter last year that we don't expect this year. We've got to absorb those revenue losses from the competitive merger responses. And now obviously, we have to deal with these fuel headwinds that are going to continue into the second quarter. So that said, you put all those together, all those headwinds, we're really still expecting to be in that normal kind of sequential OR improvement. We think about that at about 200 basis points, and that's really due to all the productivity initiatives that we've got going on. Mark George: And an uptick in revenue from first quarter to second quarter... Ed Elkins: And this is Ed. To your second question there. Yes, it's really, we think primarily an intermodal story. And it's playing out the way that we've anticipated so far. And frankly, we're doing everything we can to make sure that we're earning everything we can from both the road and from other modes. Operator: Next question will be from Scott Group at Wolfe Research. Scott Group: Ed, I have a question. intermodal pricing is arguably somewhat cyclical tied to truck pricing. Coal pricing is volatile. It feels like merchandise pricing has been like the constant, and I see merchandise RPU ex fuel flat and so maybe you'll say it's mix, but just some thoughts I would have thought or hoped we'd see some better merchandise pricing? And then Mark, just -- you mentioned quickly the merger, just applications coming next week, you've had months now to gather feedback. Anything that gives you more confidence in approval? Any feedback that gives you concern? Just any high-level thoughts. Mark George: Ed, why don't you go ahead. Ed Elkins: Sure. I'll probably disappoint you because I'm going to say it's mix. First of all, we've had a good quarter and a very strong track record on the core price here. RPU, of course, is not price. When we see our merchandise book, frankly, I think we're close to a record this quarter for RPU less fuel, it's really about growth in some of the lower-rated chemicals commodities, stuff like frac sand and NGLs, where we've done a really good job of earning new business there. And at the same time, we continue to take price very aggressively where we can. And I would say that for the most part, I'm really satisfied with where we've landed on core price and adding incremental revenue through some of those low rated commodities has been a good thing for us. Mark George: Yes. Thanks, Ed. And look, with regard to the merger, I think being out on the road and seeing how this has played out these past handful of months since we submitted the initial application, I'm feeling a lot better as we talk to customers and understand the concerns, as customers are listening to the opposition and some of the steer tactics, and we get a chance to clarify with facts, I believe we have a really good story. The new application is going to confirm what we said in the original application on the logic of doing this deal and the benefits that single-line transcontinental railroad will bring to the country and to our shippers. In fact, we're going to have a much stronger set of data that actually makes the case even stronger. So we feel pretty good about it and I think, right now, it's just about trying to get on the clock and by getting that application in on the 30th, the clock will start running. So I feel better, Scott, than I did even 5 months ago when I felt really good. Operator: Next question will be from Brian Ossenbeck at JPMorgan. Brian Ossenbeck: Maybe just to clarify with Jason, can you give us the fuel and weather-related costs into the quarter? I don't think we heard the specific call out here directly. And just Ed, maybe going back to the '26 market outlook, much of the different I guess, segments here moved a bit higher vehicle manufacturing warehouse in particular, truck makes sense, but maybe you can give a little bit more context as to what you're seeing and feeling in there that gives you the confidence to move those up a notch on your rating scale and maybe how that's expected to play out throughout the rest of the year? Jason Zampi: Brian, first part of your question. So thinking about fuel specifically, versus prior year was up $31 million just from price, but the really big impact that we're talking about is kind of that difference compared to what we expected. And just in the month of March alone, that was up over $40 million. So the price we paid per gallon in March was up 45% over last year, and we really see that same phenomenon kind of happening again here in April. So kind of splitting that up between prior year and then what our expectation was. I'd tell you on storm costs. And John, you can give a little color on this, but that was about million to $15 million in the quarter of costs. And John, you give a little background on that. John Orr: Yes. Let's just go to fuel for a second because it's not just the price story, it's the consumption story, and we set a consumption record that is compounding its value in the fuel efficiency cost levers that we've been pulling through our precision fuel operations all of last year and this year. With the help of finance, operations, IT, everybody, we've got an integrated fuel management system that is giving us value in both how we purchase it, how we distribute it and of course, how we consume it in our -- through our energy management on board. So those are some things that are in a high-cost environment give us those double coupon values that we can enjoy. And as far as the storms are concerned, they were very concentrated. Unfortunately, they're across the whole Eastern Seaboard from north to south. And most of that, we're able to work through very quickly, but in a concentrated way. So the money you see there impacted us and were the nice thing for our services, we're able to rebound and push through for the balance of the quarter. Ed Elkins: And this is Ed. You were asking about where we have optimism or where the markets are that we think have opportunities. I'll kind of just go around the horn and repeat someone has said on the prepared remarks and try to get in a little bit more detail. Start with intermodal, clearly, there's a reason to be optimistic about domestic Intermodal, domestic non-premium. We've seen growth there despite some of those competitive headwinds that we talked about. And I think there's more opportunity to come. When you think about higher fuel prices and what that does to our competitors on the road, it makes Intermodal more compelling naturally. And with the good service product that we're able to offer, I think we have a compelling case to make there. International side, I think there's a lot of trade uncertainty still out there. And frankly, when you're comping against the pull forward that happened last year, that's going to be challenged. If I go to coal, we continue to be constructive on the utility side of the business. I think restocking will continue. And I think electricity demand over the medium term at least is going to inflect upward. And so we feel good about that piece. Met side -- or excuse me, on the export side, I think the U.S. coals are finding new opportunities overseas because of all the all the disruption from the conflict as well as commodity price constraints -- well, commodity prices and constraints on sourcing from some of those things. So we'll see how that plays out. On the industrial side, I think I mentioned in the prepared remarks that we're exploring actively opportunities that are showing up in places like NGLs, export plastics as well as possibly even some of the petroleum products that we'll want to move in current environment. And generally, we feel pretty good about manufacturing. There are some real signs of life out there, whether you're looking at the economic factors or even listening to various stories. We have over more -- we have, gosh, 400 or so projects in our industrial development pipeline. We're actually starting to see that pipeline begin to move. Last year, it was really held pretty tight, but we've had 12 projects come online in Q1 here and that will be worth about 70,000 loads when they're at full rand. And for the full year, we'd like to see a few dozen more of those come across the finish line, and we think we can. Operator: Next question will be from Jason Seidl at TD Cowen. Jason Seidl: Wanted to talk a little bit on the Intermodal side. I mean, obviously, there's some competitive dynamics going on impacting the business. But one of the largest trucking companies indicated that they're already having inquiries from clients about peak season planning. I wanted to know where you stood with your discussions with customers on that? And then maybe a little bit on the new short line partnership initiative. Is this a one-off? Or do you see, if this gets approved, replicating this in other regions? And if so, where? Ed Elkins: I appreciate the questions. They are good ones. Again, I'm bullish on domestic non-premium Intermodal for the rest of the year, at least for the foreseeable future from a combination of factors, first one being, we've seen the supply of over-the-road drivers be constrained. I think that's going to continue to happen. I think I said it on an earlier call that we really need to see demand rather than supply be the thing that pushes this forward. And I think we're starting to see that. You look at the price of on-highway diesel and what trucks are having to pay for that. Intermodal is going to be a compelling value proposition for a lot of customers, but it's only compelling we have a good service product, and that's what John and I are really focused on how do we deliver that value for customers. So I feel pretty good about that piece. In terms of our new partnership with Jaguar, I meant what I said. It's an innovative deal that I think is going to deliver exceptional value for customers. And if we can make it work, and I am very confident that we can, we're going to look to replicate this sort of deal elsewhere. Operator: Next question will be from Jonathan Chappell at Evercore ISI. Jonathan Chappell: John, I wanted to ask you about 2 specific cost items and how we think about them going from here. You mentioned the fuel consumption down 6% year-over-year, but also down sequentially. I can't find another time where your fuel consumption was down 4Q to 1Q, especially given weather. So is that the new kind of base we should think about going forward, maybe not 6% year-over-year improvement, but continue to march lower from here? And then also on headcount, you're in this tight little range all year last year, about 19.3 to 19.4, stepped down about 300 in 1Q. What happened? Why is headcount down? And again, is this going to be a tight range where we should be about down 300 every quarter for the rest of the year? John Orr: Thanks for your questions. And on our fuel productivity, well, I'd like to take all the credit for such a sequential improvement, it is improving sequentially, but there are some accounting adjustments within that fuel number that give us a small benefit, but sequentially, we're improving, and that's really driven by treating fuel as a major cost lever and precision fueling, how we're managing that and how we're driving consumption, improving locomotive reliability and fuel efficiencies. As we said before, it's a journey, and the program will stretch over several years and it involves integrating more tech process refinement, both in the field and here at [ 650 ], and it's integral in our strategy. So well, it's never going to be a straight line and the volatility in pricing is going to have its own aspect. Our desire is to continue to march towards the most progressive fuel efficiencies we can get. So that's aligned with our locomotive strategies. It's aligned with our conversions from DC to AC and even found within how we restructure our zero-based plan model and continue to have a relevant plan rather than a historic plan. And as far as labor productivity is concerned, we're benefiting from fewer recrews. We've restructured our starts last year, our zero-based plan affected approximately 200 starts -- train starts and train revisions. This year, we have another pipeline of similar scale, and we'll continue to create predictable schedules. And that helps because as we restructure starts, well, it's being driven by volume and workload and held in place by zero-based plan, it's really focused on lowering held away, better using crew accuracy, lineups for crew rest and crew cycles and those was manifest into a more productive workforce. And our qualified count is really about not chasing the curve, it's about focus on retention, the accuracy of our new hire pipeline and our training and onboarding to better position us to absorb growth with the best existing resources. So our pipeline is always active. We're recruiting the best people we can find, being very selective and giving them the benefit of a very robust and precise training program. Lots of work to do there, but we're exercising labor productivity and workload so that we can maintain our service structure and give our customers the best experience we can. Mark George: I guess I would just add, we're really not just hiring to some aggregate number. We've got some 90 different crew bases across our network where people have to be qualified to operate in those specific districts. So we have to monitor the demographics of each of those crew bases. When we expect to see retirements come and get ahead of those curves because it takes about 6 months to hire somebody, train somebody, qualify them and expecting some attrition to happen during that process as well, so we got to do that for 90 different crew bases. Now some -- we've got cushion, others were in deficit because they're in locations where employment is full and a very difficult place to hire. So there's a lot of work that goes in to make sure that what productivities we're going to be driving across the network so that allows us to absorb attrition versus when will volume come. So it's a real delicate balance to determine the level of hiring, for which location 6 months in the future in a very uncertain demand environment. And I think right now, we're doing well, but I will tell you, it's probably the the single biggest debate we have internally is the level of hiring we need to do based on the market outlook. Operator: Next question is from David Vernon of Bernstein. David Vernon: Sorry, problem with mute. So I guess, Ed, as you think about the growth prospects for export thermal if that were to kick in, can you kind of help us understand kind of what the range of possible outcomes is there from a volume and also from a yield perspective, would that be additive to ARPU -- negative to ARPU? How do we think about the potential for a pickup in export coal affecting the revenue outlook for you guys? Ed Elkins: Yes. Export thermal would be helpful to our ARPU mix. And the first quarter got hurt by winter weather. It was just -- it was hard to get out of the ground, hard to move it and hard to dump it. But I think we're going to see that rebound, particularly if the conflict in the Middle East continues there's going to be more markets open up to U.S. coal. So yes, I'm optimistic about it, and it will be helpful. Operator: Next question will be from Richa Harnain at Deutsche Bank. Richa Talwar: I wanted to talk about costs, 1% cost increases by 5% inflation. Maybe you can talk about initiatives that you're focused on to keep that cost trajectory going. You gave us a lot on headcount and stuff and fuel efficiency. But maybe talk about some of the other buckets where you're seeing the most success what hasn't been done that you think there's more potential for? That's on the cost side. And then, Ed, I would love to hear, I think you said you feel really good about manufacturing picking up, and you've heard some anecdotes from your customers. I know you talked about the success you're winning on projects and things, but I'd love to hear maybe more broadly what your sense on the macro backdrop and what hand that's delivering to you? Jason Zampi: Yes, I'll start on the cost side. You point out the I think, pretty good cost control we had here in the first quarter, up 1% with 5% headwinds from inflation and fuel. And it's really driven by a couple of things. And we have a really good track record that we've shown over the last 2 years of getting about $500 million in productivity, and we've got a lot of projects and initiatives in the hopper to hit that $150 million plus. For the first quarter specifically, and then I'll turn it over to John to kind of talk about what we're working on the remainder of the year. just from fuel efficiency alone, we last year improved 5% the year before that 3%, now first quarter, we're hitting an all-time first quarter record. So really strong performance there. And that -- we will continue down that path. And that labor productivity continues to be one of our biggest components where we really benefited quite a bit over the last 2 years. And as we've talked about in the past, not just T&E productivity, but really labor productivity across the board. John Orr: Yes. Jason, you hit on a disciplined approach to this. and we're committed to it. We've adjusted our budgets accordingly. But it's across all streams. Productivity, obviously, we started in T&E, our zero-based planning through 2025 and version 3 that we're undertaking in 2026 is giving us a benefit on crew starts with a focus on continuing to create our own capacity through weight and train length that give us the opportunity to really make best use of our infrastructure. And from the T&E, there are incidental costs that come out of that with running a more resilient railway, and leveraging of our portals with fewer train starts, more mechanical resilience, better locomotive capability. So all of those [indiscernible] flow through to purchase services and others. Big focus on our next generation of purchase service and enterprise resource management and the discipline around those major purchases and fuel is going to continue to be a big driver of that. But I'm really proud of what the team is doing on safety, significantly lower incidents and oxidants even above and below the FRA reporting threshold. That's giving us the ability to really drive the plan, have accountability where our cars are, have more accuracy on when our trains arrive and depart. That gets us lower equipment rents that gets us into better locomotive turns, better locomotive utilization and there's significant value in those things. So it is really working the fundamentals with projects that are coming online and really driving big benefits. It's small wins and big ones put together. They are going to really create the flywheel that we've got that's creating the improvement. Operator: [Operator Instructions] Next will be Jordan Alliger at Goldman Sachs. Jordan. Jordan Alliger: Just wanted to come back to sort of -- I know you've talked a lot about the intermodal service, that's a key focal point. And I was looking at your network update slide, and it looks like the intermodal service composite has been sort of like 85%, which is off from the high of low 90s. So I guess, is that weather related? Is it temporary? How do you address that? And in your view, do you need to be above 90% to start getting market share back? John Orr: We'll let talk about market share. But if you've heard me speak on these calls, I'm never pleased about any particular metric. But I am pleased that sequentially, we're pacing slightly ahead of where we were last year at this time. And it's not just the average, it's really getting down to the lane, getting down into the customer, the important commitments that we've made to our customers and their product view and their sorting view and the end-to-end capability that we're building in them. So I would love to be a higher number. I'm striving to be a higher number. But sequentially, I'm very pleased that we're seeing that improvement. And my job is to give Ed every opportunity to walk into any customer with good service in his back pocket to negotiate is our market share. Ed Elkins: Thanks, John. And look, I think we will have a better number, and I know you're working on it. But look, you nailed it, John, I mean, you said that we've focused at the lane level. There are some lanes that have a lot of potential, some lanes that have some potential. And where we have a lot of potential and we have very good data on that, we're very focused on delivering an exceptional service product. And that's what John and I talk about every single day. That doesn't necessarily manifest itself in an average, but I can tell you right now that we are laser-focused on those lanes and those opportunities where we have a lot of potential to take traffic off the highway and deliver a very good service product for them. So thank you. Operator: Tom Wadewitz at UBS. Thomas Wadewitz: So Mark, I want to refer back to the fourth quarter call. I think you were kind of maybe somewhat fresh off the share shift in Intermodal. And you had some fairly aggressive comments, I think, on just competing in the market and you're going to compete hard in the market. What do you think the competitive dynamic is like among rails in the East? It seems like there are kind of puts and takes, maybe you've got a little growth in chemicals, autos, maybe a little late rail share, I'm not sure, and then you got -- they've got some intermodal. But how do you think about that? Is it pretty stable? And then I think on the -- I guess, on the international and domestic, is there a share shift in international? Or that's just like kind of completely like-for-like customer? And I think, Ed, you talked about the just the weakness in international being maybe just demand-driven, but not share shift. So a couple of thoughts on competitive dynamic and then just shared international intermodal. Mark George: Sure, Tom. Thanks. Good question. And look, obviously, following the merger, you saw a flurry of new alliances taking place with our Eastern peer and Western peer and some of the Canadian railroads and that has obviously had some level of impact on us. I mean it's enhanced competition, frankly, just from the mere announcement of this merger. So we talked about some of the losses that we've had and that we're going to continue to fight like heck to retain our share and fight in other areas to gain to offset some of that. And that's what the team has been doing. They've been doing a great job, I think, competing. Look, I think you have to step back. This North American rail network is running pretty damn well. All the railroads are operating well and they're all offering very good competitive products, which is really great because we are an integrated supply chain and we cheer on the other railroads to have good service because we all want to be -- we all interchange with each other. Half of our volume interchanges with another railroad. So we don't want anybody to be in a bad service situation. So it's not just us, we want everybody to be good, and they are all good right now. But when it comes to the competitive offering, I think the product that John and the operations team has put out there has been really good. It's been really resilient. And I think we're doing a good job on the commercial side as well being more responsive and working to solve problems with our customers. So I feel really good about our competitive position right now, I do, in pretty much all the areas. I think the challenge we have on the international side, there's a lot of uncertainty going back to tariffs of last year. There has -- there's been probably some inventory depletion that's taken place and it hasn't seemed to really fully started to restock yet. So international has been relatively weak. Not sure when that's going to turn around. Domestic on the other hand, for other dynamics, I think given the cost profile with what fuel is doing to truckers, we feel pretty good about being able to taking some share off the highway. But Ed, why don't you talk a little bit more? Ed Elkins: Sure. I think you kind of nailed it. We believe that the product we're delivering is very competitive in the marketplace. And you're right, Mark. We want all of our rail competitors to be very strong because oftentimes it's hard to get customers to discriminate between ourselves and other railroads. We're all just one big railroad. And that's true in many cases. So we want strong rail competition. We're really focused on the highway. The competitive landscape continues to be very competitive. And frankly, higher fuel prices are probably helping us deliver additional value for our customers across the board, particularly on the domestic Intermodal side. And we've seen a little bit of share shift, as you alluded to. Some of it's a competitive response, some of it's just more book diversification. And we continue to work on how we can improve our position. I'm really proud of the team and what they've been able to do. Operator: Next question will be from Walter Spracklin of RBC Capital Markets. Walter Spracklin: My question is for Ed, taking a little more high level on the freight recession. We're hearing a lot of commentary from your counterparts in trucking that is outright saying the recession -- this recession is coming to an end. But your peers in railroads seem to be a little bit more conservative in terms of making that call. Is this just a supply-side thing where the new rigs have driven better pricing for trucks, and that's what's causing that more positive view? Or I know the trucks have talked a little bit about higher demand in some of the industrial verticals. Just curious if you're seeing any green shoots on the demand side outside of truck pricing or just your own pricing that is suggesting that the freight recession might be finally coming to a bit of an end here? Ed Elkins: Really good question. And I think I'm probably talking to the same folks you are when it comes to trucks on the supply side. There's a few uncertainties out there in a few parts of the equation that haven't been solved yet. The first one being what's going on with housing and interest rates and inflation. And those are 3 big factors that I think really need to resolve themselves before we can declare anything over, so to speak. At the same time, we see the IPI come up. We've seen manufacturing for, I think, 3 straight months now, be above water. We see some strength in the auto industry, both in terms of demand as well as supply. So there are some green shoots, and we are cautiously optimistic about certain segments. But I remain vigilant on those 3 factors that I think really need to come around before we could say we're out of the woods. Mark George: Yes. I think to call an end of the freight recession may be a bit premature. But I think for us to be able to start taking share from highway, fuel prices are going to help that. So that's a little bit of the optimism you hear. And then some of the green shoots we see in industrial production, which usually has a 6-month lead time, it gives us a little bit of optimism that maybe there's something they're brewing. And I think, Ed, you would say that when it comes to manufacturing, we're not necessarily seeing it yet except for some of the components that go into manufacturing. Those are areas like plastics and some metal components, we're starting to see some growth there. So we're not calling an end to the freight recession, but we're saying there's green shoots. So we'll keep an eye on it. Operator: Next is Brandon Oglenski at Barclays. Brandon Oglenski: Sorry, Mark, you got one more from me. I'll keep it pretty short here. Jason, can you just help us and maybe already address this, but the average sequential OR change that you guys would view in 2Q? And maybe just at a higher level, I mean, you guys have been working towards like more safe outcomes and everything I get it, but the operating ratio has been moving maybe in the wrong direction. Should we be thinking, though, if that freight market is turning that there's a lot of like potential for incremental margin here, too? Ed Elkins: Yes, absolutely. No doubt about that. We've got the capacity to move all this volume. John and the team have done a great job from a service perspective and making sure we're ready to handle it. We've got the resources in place. And then to your point, because of that capacity, when this comes through, it's a really good incrementals. Mark George: I think you just wanted to hear the sequential margin improvement, you would think a couple of points. Ed Elkins: Yes. Yes. About 200 basis points of sequential OR benefit from first quarter to going into the second quarter. Mark George: Thanks a lot, Brandon. And look, I think just to kind of recap a little bit here. We told you at the beginning of the year that we were focused on preserving safety, maintaining service and controlling costs while we were going to fight for every dollar of quality revenue we could. And we did exactly that in the first quarter. Revenue being flat later than we hoped, but we are more optimistic on the top line as we enter the second quarter because there are some signs of life emerging in the market. Now that said, this is a very dynamic world with an awful lot of cross currents. So we've just got to keep an eye on that. Let's keep an eye on those weekly volumes, and that will give you some indication of how things are shaping up. But we got a tight grip on cost right now and real good momentum on productivity and efficiency. So we're going to carefully balance all of our resources, and so that we're able to move the volume when it comes while we continue on this never-ending drive for productivity and efficiency. And regarding the merger, we're going to submit our revised application here on the 30th. Like I said before, the rationale is the same, but the depth and the quality of the data in the application considerably strengthens our case. And look, when you step back and look at it, our customers, our supply chains, they're increasingly national and global, but our U.S. freight rail network is fragmented. So a single-line transcontinental network is going to simplify service, reduce interchange complexity, that's going to allow freight to move more efficiently, more safely and more reliably from origin to destination. That's what this is about. It really is going to deliver a very compelling proposition for more customers to choose rail over highway. And ultimately, I think that's good for the country, and it's good for everybody. So thanks all for your participation in today's call and stay safe out there. Thank you. Operator: Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines. Have a good weekend.
Operator: Hello, and welcome to Charter Communications First Quarter 2026 Investor Conference Call. [Operator Instructions] Also as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now turn the call over to Stefan Anninger. Stefan Anninger: Thanks, operator, and welcome, everyone. The presentation that accompanies this call can be found on our website, ir.charter.com. I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, and we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans and prospects constitute forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only, and Charter undertakes no obligation to revise or update such statements. As a reminder, all growth rates noted on this call and in the presentation are calculated on a year-over-year basis, unless otherwise specified. On today's call, we have Chris Winfrey, our President and CEO; and and Jessica Fischer, our CFO. With that, let's turn the call over to Chris. Christopher Winfrey: Thanks, Stefan. During the first quarter, Spectrum Mobile remained the fastest-growing mobile provider in our footprint, and we now have over 12 million mobile lines, including an increase of 370,000 Spectrum Mobile lines in the quarter. That's 1.8 million new lines over the last 12 months for growth over 17%. We're pleased with that growth given the continued intensity of mobile subsidies from the 3 big telcos. In addition, our video customer losses continued to improve year-over-year. 60,000 loss was less than 1/3 of last year's first quarter loss, driven by significant product improvements over the past couple of years. In Internet, competition for new customers remains high. In our first quarter, Internet customer loss totaled 120,000. Revenue was down 1% year-over-year, primarily driven by lower residential video revenue, while residential connectivity revenue grew 0.9% year-over-year. First quarter EBITDA, excluding transition expenses for the Cox transaction, declined by 1.8%, primarily due to a prior year benefits. Cable industry Internet growth has been pressured for several years now given new competition, a challenging housing environment and other factors like mobile substitution. But we remain confident about our ability to win in the marketplace and grow over the longer term. Ultimately, that confidence in our future success is founded on 3 building blocks. Our powerful advanced network, our core operating strategy around products and pricing, and our focus on improving customer satisfaction. Starting with customer satisfaction. Our customers remain the central focus when we make decisions for any product or service and how we allocate our resources. We have an integrated and detailed approach that starts at the highest levels of the organization. Our customer focus is not just cultural, it's also core to our incentives. Beyond the obvious share price incentives, NPS scores and other service-related metrics now drive a meaningful part of our overall annual incentive structure. Relentless improvement is also a key component of our approach and that applies to our network capability and reliability, products that we offer, and to our service. We're constantly working to improve each of these, with examples including new product innovations like our Invincible WiFi, and our Anytime Upgrade feature for mobile, and the dramatic decline we've seen in service in trouble calls per customer. We've also deployed new AI tools now used by our service agents, driving higher customer satisfaction and reducing call times with higher job satisfaction for employees as well. We have a seasoned very competitive team here at Charter fully aligned with our shareholders, and that team will only get better with the addition of top-flight talent from the Cox team, and Nick Jeffrey who joined in September. Moving to our Advanced Network. Our high-capacity network is an unrivaled asset. It offers gigabit speeds and low latency everywhere we operate. Those capabilities matter long term as customer data usage continues to increase, including in the upstream, where we're seeing 20% annual growth driven by things like self-driving cars, significantly increasing upload. By the end of this year, about 50% of the current spectrum network will be upgraded to symmetrical and multi-gig service, with significant work on the remaining 50% already in flight. By deploying remote OLTs and Mora WAN transponders, we will have fiber on-demand capabilities, and fully active telemetry in the vast majority of our footprint, giving us cost and service advantages. Our network is both wired and wireless in 100% of our footprint. It can get mobile from us wherever we offer our gigabit speeds and vice versa. And with our expanding hybrid MNO capabilities using CBRS and WiFi in conjunction with the Verizon mobile network, we are driving our seamless connectivity advantage. That is the basis for Spectrum Mobile's fastest overall mobile speeds. In addition, our network is both fiber-based and powered to its edge, which means it can uniquely provide enhanced wireless opportunities that we haven't pursued yet. If you think about our ubiquitous deployment of multi-gig unique seamless connectivity capabilities with low latency, edge compute, and the potential for fiber-powered DAZ, nobody has the set of assets that we do. You see us demonstrating those capabilities with early deployments, immersive content with Spectrum front row, authenticated offload for AWS and likely extending that to increasingly autonomous vehicles. We're also deploying other B2B products with Edge Cash and GPU as a service. Our network and data assets really lend themselves to future B2B and B2C applications, which require proximity and low latency under 10 milliseconds, which we now provide. Our industry has always excelled at finding new products and customers for our key assets. Our core operating strategy remains unchanged, offering great products at the best value with continuously improving service, and that service is uniquely delivered by our 100% U.S.-based employees, 24/7, with the customer commitment supported by money back guarantees. That core operating strategy has served us well. It fueled our organic and inorganic growth from Legacy Charter in 2013, with just 5 million customer relationships, to Charter today with nearly 32 million customers. And now pro forma for the Cox transaction with over 70 million passings. We take the responsibility that we have to our local communities personally, and it's reflected in our operating strategy. With those 3 building blocks in place, we're going to turn to what we're doing day to day right now to win in an increasingly converged market. Our competitors are all talking conversions, but we uniquely provide it now and in the future. Slide 5 of today's presentation clearly shows they offer more for less than our competitors. Our results don't yet reflect that reality given the legacy reputation of cable. So we remain focused on clearly messaging and delivering our superior value, utility and service to both new and existing customers. And we're doing that in different ways. We launched our $1,000 savings guarantee in February, which demonstrates the value we deliver in a very clear way. If you sign up for Spectrum Internet and switch to more mobile lines from Verizon, AT&T or T-Mobile, we guarantee $1,000 of savings in your first year, or we'll cover the difference. We also recently launched a new Digital Buy Flow for online channel, it better demonstrates our bundled value and savings versus competitors, and the new Buy Flow is achieving better yield. We're also actively migrating our existing base of customers to our newer pricing and packaging, giving them more product, including Internet speed increases and mobile, for the same price or slightly more than they're paying so they get more value, creating higher satisfaction and reducing their propensity to churn. Roughly 45% of our residential customers are now in the pricing and packaging launched in late 2024. With respect to providing superior utility, over 50% of our expanded basic video customers have activated at least one of our included streaming apps, with those activating, taking nearly 4 streaming apps on average. Customer churn for expanded basic customers for activate is 1/3 lower, and it is meaningfully lower across all customer tenure. Keep in mind that nearly all video customers are also broadband customers. So that's a big help. We also launched our new Invincible WiFi router in February, which effectively guarantees connectivity. When a home or business loses power Invincible WiFi's battery unit keeps the router running. It also comes with the back of 5G cellular connection keeping customers online without interruption if a network disruption occurs. The upgrade and attach rate was much higher than expected, and we've had to prioritize our supply to a smaller audience until we get the right level of supply. So a little frustrating short-term. But Invincible WiFi is a great way to add utility to our service, which improves quality, lower churn and earns more revenue. It's a great example of an innovation that provides better utility to our customers. In Mobile, we have the most value rich plans in our footprint. A market-leading Anytime Upgrade program, the most valuable repair and insurance plans and the best international service plans are out. And in Service, I'll simply highlight what we've talked about previously, our continuous service improvements through telemetry improvements with our network upgrades, the use of AI in the network and frontline employee tools, same-day service and installation guarantees, often we're at your doorstep in an hour, and the commitment to a U.S.-based service agent. We are America's connectivity company. Before I turn things over to Jessica, I just wanted to provide a brief update on where we are with the Cox transaction. We've now received all the necessary federal and state approvals that we need to close, except from California, and we're working with the California Public Utilities commission towards the summer close. Within a couple of months of closing, we will launch the Spectrum brand and our pricing and packaging within the legacy Cox footprint. Our focus is always will be on product penetration and customer ARPU not single product ARPU and, of course, growing free cash flow per pass. Cox's low mobile and video penetration rates are major opportunities. And that's what's going to assist us in migrating the customer base to our pricing and packaging in an efficient manner. That's something we've done successfully several times before, including the Time Warner Cable, Bright House and Bresnan and Charter in both 2013 and the last 18 months really. In addition to benefiting from better mobile and video products, the Cox communities will benefit from lower promotional and retail pricing, sales channel expansion, including field sales and stores, and our very complementary B2B capabilities, which will help accelerate growth in both Cox and Spectrum business. As part of the acquisition, we're picking up talent, which we expected and unexpected capabilities in B2B and network AI. And we're stepping into a very high-quality network asset. The Cox network has been very well maintained with robust investment through the years. Cox's mid-split process is nearly complete, and it gives us plenty of competitive runway to implement high split in DOCSIS 4.0 after we finish those projects within current Spectrum footprint. We can then make that move at lower cost and at faster speed, it's what was included in our original plan, although we don't have to rush it. So we're looking forward to the completion of our multiyear investment programs, the near-term actions to win in our current footprint, and the pending Cox closing and driving growth in that footprint. With that, now I'll pass it over to Jessica. Jessica Fischer: Thanks, Chris. Please note that any forward-looking financial or customer information that we provide in today's discussion or presentation does not include Cox or any transition costs related to Cox integration planning. Let's please turn to our customer results on Slide 8. Including residential and small business, we lost 120,000 Internet customers in the first quarter, driven by lower connects year-over-year, partly offset by slightly lower churn. The operating environment for new sales, in particular, Internet continues to be competitive. We continue to see expanded fixed wireless competition and higher mobile substitution as well as ongoing fiber overlap growth at a rate similar to prior quarters. Though I would point out that we also continue to have higher market share than our competitors, even in mature fiber markets. Collectively, that drove first quarter Internet sales lower year-over-year. Churn improved year-over-year, and Internet churn, including non-pay churn remains at very low levels. In Mobile, we added 368,000 lines, with higher gross additions year-over-year, more than offset by higher disconnects. Net adds in the quarter were lower due to heavy device subsidy activity by the big telco competitors, including the iPhone 17. Video customers declined by 60,000 versus a loss of 181,000 in 1Q, '25, with the improvement primarily driven by much lower video downgrades and customer churn year-over-year, resulting from the new pricing and packaging we launched in late 2024, Xumo and the Seamless Entertainment product improvements, including our programmer streaming app inclusion packaging. New connects and upgrades to our fully featured video package with apps were up year-over-year. Wireline voice customers declined by 174,000, with the year-over-year improvement primarily driven by lower churn. In Rural we continue to see strong customer relationship growth, generating 41,000 net customer additions in our subsidized rural footprint in the quarter. Subsidized rural passings grew by 89,000 in the first quarter, and by over 483,000 over the last 12 months, which is in addition to our continued nonrural construction and filling activity. Moving to first quarter revenue results on Slide 9. Over the last year, residential customers declined by 1.5%, while residential revenue per customer relationship declined by 1.4% year-over-year. Given the growth of low-priced video packages within our base, $218 million of costs allocated to programmer streaming apps and netted within video revenue, versus $47 million in the prior year period, and a decline in video customers during the last year. Those factors were partly offset by promotional rate step-ups, rate adjustments and the growth of Spectrum Mobile lines. Excluding the Programmer Streaming app allocation headwinds to residential revenue, residential revenue per customer relationship grew by 0.3% year-over-year. As Slide 9 shows, in total, residential revenue declined by 2.7%, and it was down by 1.1% when excluding costs allocated to streaming apps embedded within video revenue in both periods. Turning to commercial. Total commercial revenue grew by 1% year-over-year with mid-market and large business revenue growth of 2.1%, and when including all wholesale revenue, mid-market and large business revenue grew by 2.8%. Small business revenue grew by 0.2%, reflecting year-over-year growth in revenue per small business customer of 0.9%, mostly offset by a year-over-year decline in small business customers of 0.7%. First quarter advertising revenue grew by 5.3% given higher political revenue year-over-year. Excluding political, advertising revenue declined 3.4% year-over-year. Other revenue grew by 14.2%, driven by higher Mobile sales -- Mobile device sales, and in total, consolidated first quarter revenue was down 1% year-over-year, but increased 0.1% when excluding advertising revenue and Programmer app allocation. Moving to operating expenses and adjusted EBITDA on Slide 10. In the first quarter, total operating expenses decreased by 0.2% year-over-year. Programming costs declined by 9.3% due to $218 million of costs allocated to Programmer Streaming apps and netted within video revenue, versus $47 million in the prior period. A higher mix of lighter video packages and a 1.3% decline in video customers year-over-year, which was partly offset by higher programming rates. Other cost of revenue increased by 11.4%, primarily driven by mobile service direct costs, higher mobile device sales and higher advertising sales costs given higher political revenue. Cost to service customers, which combines field and technology operations and customer operations decreased 1.4% year-over-year, primarily due to lower labor costs. Marketing and residential sales expense declined by 3.2% year-over-year due to lower marketing expenses and labor expense. Transition expenses relating to the pending Cox transaction totaled $24 million in the quarter. Finally, other expense grew by 5.3%, primarily driven by onetime benefits of $75 million in 1Q, '25. Adjusted EBITDA declined by 2.2% year-over-year in the quarter, and declined by 1.8% when excluding transition expenses. Turning to net income. We generated a bit under $1.2 billion of net income attributable to Charter shareholders in the first quarter compared to a bit over $1.2 billion in the prior year period, primarily driven by lower adjusted EBITDA year-over-year, partly offset by lower other operating expense. Given our noncash L.A. Laker RSN balance sheet write-down in the prior year. Turning to Slide 11. First quarter capital expenditures totaled $2.9 billion, $456 million higher than last year's first quarter, driven by timing of spend with higher network evolution spend, which lands in upgrade rebuild spend, and higher CPE, driven by new WiFi 7 routers and our new Invincible WiFi unit. We continue to expect total 2026 capital expenditures to reach approximately $11.4 billion. Looking beyond 2026, we expect total capital spending in dollar terms to be on a meaningful downward trajectory. And after our evolution and expansion capital initiatives conclude, our run rate capital expenditures should be below $8 billion per year. Just to highlight that reduction in capital expenditures, on its own, from approximately $11.7 billion in 2025 to less than $8 billion in 2028, is equivalent to over $28 of free cash flow per share based on today's share count. If we take consensus 2026 free cash flow and substitute our expected 2028 CapEx for 2026 CapEx, our current stock price would imply a free cash flow multiple of only about 3.8x, and a free cash flow yield of over 25%. Turning to first quarter free cash flow on Slide 12. First quarter free cash totaled $1.4 billion, about $200 million lower than last year, given accelerated timing of capital expenditures in the year, lower EBITDA and higher cash paid for interest year-over-year, partly offset by a less unfavorable change in cable working capital. Turning to cash taxes. First quarter cash taxes totaled $64 million. We continue to expect that our calendar year 2026 cash tax payments will total between $500 million and $800 million. We finished the first quarter with $94 billion in debt principal. Our weighted average cost of debt remains at an attractive 5.2%, and our current run rate annualized cash interest is $4.9 billion. During the quarter, we repurchased 4.3 million Charter shares, totaling $963 million at an average price of $225 per share. As of the end of the first quarter, our ratio of net debt to last 12-month adjusted EBITDA remained at 4.15x, and stood at 4.22x pro forma for the pending Liberty Broadband transaction. During the pendency of the Cox deal, we plan to be at or slightly under 4.25x leverage pro forma for the Liberty transaction. Following the close of those transactions, we will target the low end of the 3.5 to 3.75x range, which we expect to achieve within 3 years following close. Even with this de-levering, we continue to expect significant ongoing capital returns to shareholders. Before turning the call over to Q&A, I want to make a few comments regarding our pending Cox transaction. We now estimate transaction synergies, or run rate operating expense synergies of at least $800 million, and are likely to grow that further. Those estimates do not include the benefits of applying Charter's operating strategy to create revenue and operating cost synergies over time or CapEx savings. We believe those operating synergies will also be significant. Turning to our reporting plans. I wanted to give you a brief preview on how we expect to report, and to mention a few things to better navigate our post-close results. Our first post-close results will reflect a full quarter for legacy Charter, plus a stub period for legacy Cox. So year-over-year actual comparisons won't be helpful. But we intend to present Charter's quarterly trending schedule with pro forma data along the lines of what you receive today. Going forward, we will report similar customer PSU and revenue data for both legacy entities for several quarters following close, both separately and on a consolidated basis. This approach will allow you to track the development of both legacy Charter and legacy Cox. We will not show expenses or capital expenditures by legacy entity. That's not really practical, given the shared nature of key large items like programming, overhead and significant centralized capital spend. We will also continue to report transition expense and capital related to the integration, and we'll provide updates on certain items, including estimates for the synergies we have realized, so that you can better isolate the organic growth of the business. At close, our outstanding share count will increase as we will issue the equivalent of just over 46 million Charter shares to Cox Enterprises, comprised of common and preferred partnership units, partly offset by net charter share reduction of about 6.8 million shares associated with the Liberty Broadband transaction. That 6.8 million figure is lower now than when we announced the Liberty Broadband transaction, primarily due to our ongoing share repurchases from Liberty Broadband. If we had closed on March 31, our stand-alone share count at close, on an as-converted as-exchanged basis, would have been about $179 million. We will provide additional post-close reporting updates as we get closer to close. And with that, I'll turn it over to the operator for Q&A. Operator: [Operator Instructions] Our first question will come from Sean Diffley with Morgan Stanley. Sean Diffley: So clearly, the focus is on getting the Cox deal done, and thank you for the updates on synergies and timing with California PUC. But I was curious your assessment on the potential for further cable M&A from a regulatory standpoint. Obviously, the FCC when reviewing the Cox deal mentioned increasing competition from the likes of fixed wireless and satellite. So I'm curious how you're framing your ability and willingness to do more meaningful consolidation from here in the cable sector? Christopher Winfrey: Sure. Look, first and foremost, and make it clear, I'm not commenting on any particular company or assets. But I think as everybody knows, we like cable as an investment, I think it's a great business. We'd like to acquire more cable assets if it can be done in an appropriate price, conditions and the size of the transaction depends on -- will drive higher synergies. When you hear Jessica talked about the synergies inside of Cox, you can kind of flex that up and down based on the size. I think when you step back and take a look at the environment from a regulatory perspective, and each deal is unique, and you have to brush in its own way. But at the end, we're just regional competitors with other cable -- each of the cable companies is a regional competitor. We don't have overlap and all of us are competing against national and global competitors. That's never been the case more than it is today. When you think about fiber overbuild, when you think about national telcos with both wireless, mobile, wireless fixed wireless access, fiber overbuild themselves in many cases. If we think about the video space, which is really global competition, and each element of the space that we operate in, it's much more competitive than it was 5 or certainly 10 years ago. I think the Charter operating strategy when you think about the benefits that we provide in transactions like Cox or with Time Warner Cable Bright House, the operating strategy has been good for customers, and it's been good for employees, and we've demonstrated that. It's not just a something that we say at the time of an acquisition. It's actually been delivered 100% U.S.-based, lower pricing for retail and promotional pricing, and with innovative new products. We've used that scale to improve the quality of the service and the products. So it's helped us to be a better competitor and a better service provider against national and global competitors. And I think there's a significant rationale, but there's nothing that we're looking at today, or doing today other than just finishing the Cox transaction, but I think the opportunity is there to do more over time, and we'll evaluate it when it's available. Operator: Your next question will come from Craig Moffett with MoffettNathanson. Craig Moffett: So let's stay with the Cox transaction for a second. Once you close, you're now running in your own stand-alone business about flat year-over-year broadband ARPU. There's been a lot made of the fact that Cox's broadband prices and therefore, its broadband ARPU is significantly higher than yours. How do you think about the trajectory of how quickly you can move those customers onto Spectrum pricing. And so what does that look like as you give those generally more attractive offers to Cox customers? Christopher Winfrey: Sure. Look, you're right, the broadband ARPU is higher than ours. You can see that. But also the customer ARPU is actually not that different. And so I think that's the place to focus on is what's the customer ARPU going to do overtime and the margin at a household level. So clearly, the broadband stand-alone pricing, which is part of the rationale for getting the deal done is broadband pricing is going to be lower, both at promotional and retail and the broadband reported ARPU for Cox is going to go down. Our goal is to use video and mobile, given the super low penetration that exists to those products that Cox to make sure that customer ARPU is intact and can potentially likely increase over time and to drive margin in there. And so as a result, what you'll end up with is a financial profile and its trajectory that's being preserved based on providing more value into the household. The churn rate at Cox is higher than ours. So I think we have a real opportunity to drive benefits there. I think entering into the market, Craig, with a -- it doesn't -- the Cox is great. Spectrum, I think, is a great name. It's not one over the other. It's that you will have a new name in the marketplace in these markets with lower broadband pricing and retail and promotion with a free mobile line for a year that doesn't exist today with the fastest mobile product in the country, at the lowest price really for anything of that scale. And a video product that is fully developed. Meaning in the Spectrum footprint, we came out with Spectrum TV app, it's improved over time. It didn't have pause live TV. It didn't have Cloud DVR at the beginning, all that exists today. It exists with seamless entertainment in a way that's now easy to activate, which wasn't the case before. So in the Spectrum footprint, those products, including mobile and video, just continue to get better. And here, we're going to enter into Cox footprint with a big bang. New name, great way to save money, both at retail and promotion for broadband, excellent mobile and video products that are fully developed and brand new in the marketplace. And I think we're going to make a splash because we're new. Now that doesn't go on forever. Your service reputation has to earn that. So is that a 2-year tailwind where you're going to have much higher sales because you are new and because you're providing all this additional product and pricing and value. That will be the case. We're going to have a field sales force that don't exist today. We're going to have service hours that don't exist today. We're going to develop the in-sourcing capabilities in U.S.-based workforce that can do same-day installs and same-day service in a way that doesn't exist today. And we have the opportunity to earn a brand-new service reputation in that market and have long-term growth. All of which to go back to your question means that you can have higher sales of broadband. You can have lower churn of broadband. You can have a significantly higher attach rate for mobile and video that preserves your overall customer ARPU and margin. And have more operating and CapEx cost synergies along the way that allow you to fund that growth. So I think it's going to be a unique footprint even relative to the stand-alone Charter that you're looking at today. And pace of migration for the broadband base similar to what we've done inside the Charter stand-alone footprint many times in what we did with Time Warner Cable and Bright House. You can pace the migration based on your marketing efforts to your existing customers and how quickly do you put them into loyalty offers and see what's working. And in terms of additional product attached to offset some of the lower pricing that we're introducing into the market. So I feel really good about where we're going to go. And we're just waiting to be able to bring that type of benefit in those savings into -- not just California. California is about 1/5 of the overall Cox customers. But we have 4/5 of the footprint that is patiently awaiting. We're excited to get going and bring those benefits to the California customers and to the customers across the rest of the country. Jessica Fischer: I'd add one more, just a miracle item to that, Craig, as you're thinking about it. I mean, Chris said that the average revenue per customer is not that different from where we sit. The other interesting thing is that the EBITDA margin is also not that different from where we sit today, even though broadband makes up a much larger portion of their revenue than it does of ours, which might have linked itself to a different cost profile. So we have some space if we move the operating cost structure to look more like ours over time and in particular, as you move it that way, recognizing that it's a marginal additional business rather than an entire business that you have to fully replicate an overhead structure for. There's plenty of space to then create room for that change that you make in the revenue stream over time as well. Christopher Winfrey: Yes. I'm going in a different direction, everything that we just talked about based on the residential side, but I mentioned it in the prepared remarks. I think one of the real pleasant surprises -- we've had many pleasant surprises in evaluating the Cox assets and getting to know the team, you can better. But the B2B capabilities are entirely complementary. If you think about from Cox has best-in-class hospitality capabilities. They have the longest service reputation in B2B across the country for cable operators. They have products that, in some cases, with rapid scale that we don't have and the hope is that we can deploy that across our existing base. And we have scale in Spectrum business that can benefit the Cox footprint, but also can apply the things that they do really well and apply that across a much broader footprint even in hospitality. If you think about what they do in Las Vegas, and applying that across New York, L.A., Orlando and Dallas, all of our major markets. We're -- I'm pretty excited, and we're going to have a big nucleus of the Cox team that's really helping and driving that part of the business to higher growth for both Spectrum business and Cox's what exists today. So not our biggest portion of our overall revenue base, but I think it's going to be a big revenue contributor for both of the current operations. Operator: Your next question will come from Vikash Harlalka with New Street Research. Vikash Harlalka: I have a 2-parter on pricing and ARPU. Chris, you were ahead of the curve on pricing strategy when we compare it with your peers. But do you think you've pulled all the levers on pricing strategy? Or are there more pricing changes to come? So as an example, like a 5-year price lock that Comcast and Optimum have been be amended? And then on ARPU, broadband ARPU was flattish in 1Q. Should we expect an acceleration from here? Christopher Winfrey: Sure. Look, we're always -- we like our pricing and packaging strategy. It works. And clearly, we'd like to be having more sales on the front end. And so that are used for really thinking through are there other ways to go to market and get a better response rate from customers. And so we're constantly evaluating that. So there's no pride if we see things that are working elsewhere, we'd be happy to adopt it. So we spend time looking at it and thinking about it? When we've run some trials around 5-year guarantees or 5-year price logs that we try different things, we haven't seen the necessary lift ourselves. But maybe that's because we didn't do it at scale. So -- we also want to think about not just the promotional price, but what are the roll-off and what's the retail rates. And so it's an entire package of where you end up over time. So all of which to say, we continue to evaluate and look at things. We're very focused on returning to broadband growth. But right now, we don't see any reason to change what we're doing and continue to focus on that. It doesn't mean that we're not trying things left and right to make sure that we can get a better response rate and consideration from new customers. Jessica Fischer: And from an ARPU growth perspective across the year, I think that you've heard Chris just say that one of the things that we do in the market constantly is to tune offers to make sure that we're driving the right, sort of, total customer lifetime value for the business, but also being cognizant of what happens then inside of the year with ARPU and EBITDA. And as we do those things and look at pricing overall, there are a number of factors can drive up or down there. I think on ARPU growth for the year, it'll be close either way in terms of whether we end up with net growth. As you noted, it was pretty flat in the first quarter. But it will depend on a number of factors in how we sort of address the marketplace. Christopher Winfrey: Operationally, just so you have a sense of how that works is I talked earlier when Craig asked the question, the pace of your loyalty migrations for existing customer base, how aggressive you're leaning in that has a high customer lifetime value impact. But it can have a short-term broadband impact. So the pace of proactive and reactive migration of your existing base, and some of the -- to a lesser extent some of the offers that we try at the outset for new acquisitions. And so you have to trade off the customer lifetime value and the ROI of some of those efforts versus the short-term impact to ARPU and things that all of us like to see from an ARPU development. And that's an active -- I wouldn't say daily, but it's a monthly practice of just coming and taking a look at where we're at and making sure we're doing the right thing for the long-term health of the business, and for the customer relationship and at the same time, meet our financial commitments along the way as well. Operator: Your next question will come from John Hodulik with UBS. John Hodulik: Maybe just -- can we get some color on sort of the competitive environment? I think Chris or Jessica, you guys sort of laid out what you're seeing in sort of each of the segments. But from a -- are you seeing more pressure on fixed wireless with AT&T's efforts in that area? And then on the fiber side, it seems like there's an aggressive promotional environment, especially around converged offerings. Just wondering if that's having an impact? And then lastly, on the satellite side, obviously, a lot of focus on these LEO constellations. Are you seeing any pressure in rural markets? Or do you expect that to intensify over the next couple of years? Christopher Winfrey: Goodness, John, there's a lot in there. So let me try to start from the very top, about the operating environment and competitive environment. You've heard a little bit in our commentary. The -- our issue right now really is top of funnel issue. So what do I mean about that? Our yield at the point of sale is as strong as ever. Our churn remains at historical lows, and that's really supported by the value of the products and everything that we're doing to bundle in, which is driving churn lower. The external factors on top of that funnel, which I'll come back to some of the specifics that you asked in just a second. But the top of the funnel, external factors, they're really the same, which is that we have new competition, and any form of new competition has impact. So yes, we see the continued footprint expansion from cell phone Internet where AT&T has taken the place and others have slowed down. But A&T has filled that gap with a fixed wireless access product that originally they said they didn't think made a lot of sense. On the other hand, the pace of gigabit overbuild growth, it continues at the same pace it's been. And so there's nothing really new there. Our share in those fiber overlap areas, as Jessica mentioned, including particularly mature fiber overlap areas, that remains above the competition generally across our footprint. And the promotional activity, I guess, is the big question there, too, is, it did it there? Yes, throughout the quarter. It was up and down and varied by competitor and during the course of the quarter. But there's not a fundamental change in the level of promotional activity. And on the external side, we have a continued muted housing environment, the slow household formation. And as we talked about before, low move rates and mobile substitution growth, it's still there, but it seems to be slowing a little bit, hopefully. So what does that all mean? If you step back, our yield across all channels, it's good and improving. Churn is low. And issues about considering more consideration of sales traffic at the top of the funnel. And that really comes down to, I think, continued improvement in our service reputation, our marketing, our offer expressions and the way that we're using mobile and video really to drive broadband. And so we're fully focused on those areas. I'm not going to tell you we're sitting here waiting on a better housing environment, which I do think will happen. But in the meantime, we're focused on what we can do. And there's an opportunity to be an even better operator here along the way. And through both the external conditions and our own efforts, I think we can get back to broadband growth. That was your first big question. The second was on AT&T and fixed wireless access entry, which they are filling the gap that -- with lower growth from others to subside -- or the growth that rates are subsiding. So I think that answers that. The converged offer that we're seeing from other providers? Look, there's a bit of flattery that's going on there because everything that we do seems to be copied. And so even the branding of our Spectrum One, I think, has been mimicked and -- but its capabilities are limited in terms of footprint, where we have the ability to provide convergence in 100% of the footprint. You've seen multiple competitors come out and try to talk about a savings guarantee. They don't do that against us. We do a savings guarantee against AT&T, T-Mobile and Verizon. We guarantee $1,000 of savings. So you saw that, kind of copied. Even on the service commitment, if you take a look at the fine print on others who copied our service commitment, it's not the same. We actually provide a guarantee. And that means that we'll actually pick up the phone, not just call it back when we don't, and we'll show up on same day if you have a service or an installation. So I think the quality of what we're doing is higher, and you are seeing some people trying to mimic some of the convergence. And I think it's talking up our advantages. If you take a look at some of the slides we've shown investors in the past, our capabilities there are better. Our ability to save customers' money is higher. And the quality of our service as America's connectivity company with 100% U.S.-based sales and service. We've made that investment. And I think we're set up to deliver. We need to -- it doesn't mean that we're perfect. We have a lot of room for improvement to execute better, but we've made that investment. And so that sets us up pretty well to do that. On satellite, I would just say we don't underestimate any competitor, particularly one that is as well capitalized as they are, and as innovative as -- all, not just Starlink, but also Amazon and others. But so far, our tracking in data doesn't suggest a significant customer share loss to satellite. It might be -- we do see evidence that in some of the subsidized rural footprint, we're hitting all of our targets in subsidized rural footprint. I think we would be doing even better there if some of that market had not been preceded with satellite, which in certain markets with low density I think long term, it's actually a great product. I think if the density is low enough, it can serve enough capacity and enough customers. I think it's ideal from a full broadband coverage to the country where really fiber-based solutions can't, and probably shouldn't go. I also think from a satellite perspective, there's probably more areas there to cooperate, then to think of it as a direct competitor to in a suburban and urban environment. So if you take one way of doing that as a -- we've already done a 5G as our backup service through Invincible WiFi. There are other ways to attach satellite and to become a seller of that product to the extent that they were willing to have us as a reseller to bundle that together with our broadband service. I think there's some merit to looking at that as well, and we're thinking through all those things. So I go back to -- on satellite where I started. We don't underestimate the capabilities either from innovation or from a capital perspective, but we're keeping a close eye and so far, we don't see a major impact, and it could be more friend than foe. Operator: Your next question will come from Sebastiano Petti with JPMorgan. Sebastiano Petti: Just wanted to see if you could circle back on prior expectations for -- to grow EBITDA, ex the transition cost. Is that still the plan for the year? So that's my first question. And then thinking about, I guess, in terms of broadband ARPU. You did see a little bit of a slowdown there. But could you help us think about the expectations for the balance of the year? I mean, I think, Chris, you talked about trade-offs, near-term trade offs for the longer-term kind of health of the business. Should we anticipate your pricing strategy or the annual cadence of price increases within those comments? Is that something that we should probably contemplate maybe broadband pricing increase later this year is maybe not necessarily something we should expect as you kind of try to maybe help the CLVs in the long term, trying to keep turned down? Jessica Fischer: I'll start on the EBITDA side. We do continue to plan to grow EBITDA slightly this year with the benefit of the tailwind from political advertising. And as you point out, excluding transition costs. As we go through the year, we talked about the tuning exercise around offers, and changes in that tuning are going to have an impact on how close to the line we are on EBITDA growth. But that continues to be our plan. And... Christopher Winfrey: On broadband ARPU, Jessica can reiterate it, but I don't want to say in a different way and then somehow create daylight after the fact on broadband ARPU other than to say, the piece that you asked on pricing increase, we haven't made any determination on that yet. For obvious reasons, it's always been our strategy to try to keep prices as low as we can so that we can have enhanced competitiveness. That's been part of our philosophy. It was our philosophy and when it wasn't popular. And it allows you to have better acquisition and better retention. That's still the case. And so we try to minimize that, but also recognize that we're still in -- certain parts of the business have an inflationary environment. So we think through those real time as the year goes on. And there's a multifactor consideration that Jessica talked about, and I talked about before -- going that. So we haven't made any decisions on that front yet. Jessica Fischer: Yes. And I think because of that, from an overall Internet ARPU growth perspective, it will be close either way in terms of where we land on overall Internet ARPU growth for the year, but it will depend on a number of those factors that Chris talked about, and the tuning around offers as well, and it is what you do with the overall pricing profile across all of our products. Sebastiano Petti: And then just... Christopher Winfrey: Okay. Go ahead with your question. We'll let you cheat, go fire away. Stefan's upset, but you can go. Sebastiano Petti: Sorry. Yes. I appreciate that. Just quickly, any context, just if you could provide around the upside to the synergies at Cox? I mean, just kind of given the upgrade here today, I mean, sources of that? And then just kind of how we're thinking about that? Jessica Fischer: Yes. There's -- so moving from $500 million to $800 million, there's a portion of that related to procurement synergies, including programming, as well as we just have a better sort of picture and visibility into the financials. And so base-lining some of those costs that we see at a more detailed level against what we expect based on how we operate. It's certainly how we get them place to place. And as I said, I think there's a space for us to continue to find more there. Christopher Winfrey: Yes, I think there will be. Operator: Your next question comes from Steve Cahall with Wells Fargo. Steven Cahall: Chris, yesterday, Comcast reported a pretty strong inflection in their subscriber trends. It came on the back of a huge quarter for event marketing, and they've been pretty aggressive lately on ARPU and price locks as well. I know you all have been very, very active and proactive in the market with the way you've done pricing and packaging. You also talked about a lot of the competition. Do you feel like at this point, you need to get even more aggressive on either the marketing or the packaging front to kind of cut through this competitive noise? Or do you feel like if you just kind of continue on kind of doing what you're doing, that things will start to improve here as we get through some of this kind of competitive hump? And then just one on churn and gross adds. Traditionally, you all have done really well with jump balls when we've seen activity. It does sound like from what you said your gross add environment looks a little different now with the top of the funnel than it did historically. Any way to think about how if we do start to see a pickup in move activity you think that can drive the business forward? Christopher Winfrey: Sure. So look, first off, you should note that we were pleased, great to see the change in trajectory for Comcast and their Internet and their success in mobile as we talked about before, we don't have any overlap with Comcast, and we partnered with them on all kinds of different fronts from a technology and platform perspective. So we're cheering them on. I think it's good for everybody. They may be coming from a different place and timing going to your question related to pricing and packaging. But of course, our team immediately as of yesterday, has already started to see, is there anything -- any good nuggets there that we can get that we could see that might work for us and copy them to the extent there's something there. So far, we haven't seen that. But we know that they've been complementary of us. We want to done things around Spectrum Mobile. And we'll just take a look and see if there's anything there that's consistent with our kind of long-term competitive and financial objectives. As you mentioned, there might have been some onetime benefits and they may be coming from a different place. But it's no pride here in terms of adopting something that works. So we'll take a look. We're really pleased to see what they did. Are we going to stand still and just hold tight? No, we're not. Our head is not in the sand. I do think that our issue here is less about not that we -- we're open-minded to offer expression, but we've tried a lot of different things. I don't think that's our underlying issue. I think our ability to cut through and message to customers around our value and utility is actually the thing that's creating pain for us. Some of that ties to service reputation that we spend, feeds back in. And if you think about our willingness to think out of the box, the hiring of Nick Jeffrey as our Chief Operating Officer, really ties into those two things. And I think that could be obviously good for us, but I think it could be good for the industry as well as having somebody new to the team who has dealt with a highly competitive market, wireless market in the U.K., a global B2B business with Vodafone. And then as an over-builder an attacker successful one, frankly, here in the U.S., I think adding that skill set to an already pretty talented team that operates and executes really well. I think it's going to be good for us. But for all the reasons I talked about before, I think it could be good for the industry just because we don't compete with each other, we can watch for each other during -- learn from what we do. I think we do a pretty good job. The other question you asked is around jump balls and gross adds. The thing I would tell you is the gross adds was the variance year-over-year our churn did better. The vast majority of that came from the low income segment. And so I think we -- as we dug more into that, realize there's probably some offers that we've had in the market before that weren't as prevalent and we need to go back and reevaluate some stuff that we had that's worked. And so I think that's probably a decent size driver of the variance we had year-over-year in sales. And so we're working through that as well. So I -- again, just to come back, I don't think it's offer expression. It may be a little bit of offer availability in the low income. I think the bigger -- and that's kind of at the margin year-over-year. The bigger picture is how do you get back to full-time growth across all segments. And that really comes to doing a better job of messaging our valuing utility, and earning the service reputation that we have invested in already. So it's not about additional money. I don't think we need to spend anything more in marketing. Some sense, you may say that we're spreading too thin, maybe there's opportunities to cut back if we can simplify the message along the way, and we're thinking through all that. Jessica Fischer: One more thing I'd add on to the end there because you did talk about movers, and you hear us sometimes talk about movers. And given where the environment is, that does create confusion in some cases, actually do really well, in particular, with the mover cohort and it has to do with the scale of our footprint and what we can do with transitioning customers from one location to another. And so even when you look at sort of what's happening in overall market share shift and you might say, well, wouldn't more movement be problematic for you. Actually movement in the form of people moving from one household to the other continues to be something that we see as a net benefit to us. And so movement between homes in the marketplace, and more movers actually is an overall benefit to the extent that there is sort of recovery in the housing space. And I think as we think about joining our footprint together with the Cox footprint that will improve in that respect as well. And as we can cooperate with some of our peers, we actually try to do everything that we can to take good advantage of those good customer relationships where we have them, which is in a lot of spaces. Christopher Winfrey: Jessica kind of alluded to, not only from the Cox footprint, actually help both footprints in terms of off-footprint move retention. But I think there's a lot more that we can do within the industry. We've had some efforts in the past it's not as successful as it could and should be. And so we're actively working together with some of our partners there to do even better on that front. Stefan Anninger: Thanks, Steve. That concludes our call. Operator, back to you. Operator: Thank you for joining. This concludes today's call, and you may now disconnect.
Operator: Good morning, and welcome to Procter & Gamble's quarter end conference call. Today's event is being recorded for replay. This discussion will include a number of forward-looking statements. If you will refer to P&G's most recent 10-K, 10-Q and 8-K reports, you will see a discussion of factors that could cause the company's actual results to differ materially from these projections. As required by Regulation G, Procter & Gamble needs to make you aware that during the discussion, the company will make a number of references to non-GAAP and other financial measures. Procter & Gamble believes these measures provide investors with useful perspective on underlying business trends and has posted on its Investor Relations website, www.pginvestor.com, a full reconciliation of non-GAAP financial measures. Now I will turn the call over to P&G's Chief Financial Officer, Andre Schulten. Andre Schulten: Good morning, everyone. Joining me on the call today are John Chevalier and Keri Cohen, our Senior Vice President of Investor Relations. I will start with an overview of results for the third quarter of fiscal '26 and then discuss our progress on near-term business interventions and longer-term transformation efforts. I'll close with guidance for fiscal '26 and then we'll take your questions. As we expected, we saw a solid acceleration in top line results in our fiscal third quarter. Bottom line results reflect the strength of the top line progress with partial offsets from incremental investments in the business and energy cost impacts from the conflict in the Middle East. Taken together, we remain on track to deliver within our guidance ranges for the fiscal year. Organic sales increased more than 3% versus the prior year. Volume increased 2 points, pricing was up 1 point and mix was flat for the quarter. We delivered broad-based growth across the business with each of our 10 product categories growing organic sales. Skin and Personal Care grew organic sales high single digits. Hair Care, Family Care and Home Care grew mid-single, Personal Health Care, Oral Care, Fabric Care, Baby Care, Feminine Care and Grooming, each grew low single digits. Growth was also broad-based geographically with each of our 7 regions growing organic sales. Focus markets were up 3%. Organic sales in North America grew 4%. Volume was up 3 points, driven by improved consumption and trade inventory dynamics. We saw a benefit from base period trade inventory destocking and a modest help from a current period trade inventory increase late in the quarter, driven by Easter timing. Price/mix added a point of growth. The Europe region was up 2%, led by enterprise markets being up 6% and modest growth in focus markets, led by the U.K., Italy and Spain. Greater China organic sales grew 3%, continued growth in what remains a challenging consumer environment, Pampers and SK-II led the growth, each up double digits. Enterprise markets in aggregate grew 5% for the quarter. Latin America organic sales were up 5%, with Mexico and Brazil each up high single digits. Organic sales in Asia Pacific, Middle East, Africa enterprise region was up 4%. Global aggregate market share improved to in line with prior year with positive trends through the quarter. 26 of our 50 -- top 50 category country combinations held or grew share for the quarter. On the bottom line, core earnings per share came in at $1.59, up 3% versus prior year on a currency-neutral basis, core EPS was in line with prior year. Core gross margin was down 100 basis points, and core operating margin was down 80 basis points versus prior year, strong productivity improvement of 330 basis points was offset by healthy reinvestment in innovation and demand creation. Currency-neutral core operating margin was down 70 basis points. Adjusted free cash flow productivity was 82% and we returned $3.2 billion of cash to shareowners this quarter, $2.5 billion in dividends and over $600 million in share repurchases. Earlier this month, we announced a 3% increase in our dividend, continuing our commitment to return cash to shareowners, and this marks the seventh consecutive annual dividend increase and the 136 consecutive year P&G has paid a dividend. In summary, this was a solid quarter of progress. Positive sales and share trends and earnings growth in a difficult environment. Geopolitical dynamics have thrown new challenges in front of us, but we will continue to fully support the business to maintain the momentum that we are creating. As we move forward, we remain committed to the integrated growth strategy, a portfolio of daily use products and categories where performance matters. In these performance-driven categories, we must deliver irresistibly superior products across the product itself, the package, the brand communication, retail execution and value. We continue to drive productivity with multiyear visibility to fund innovation and demand creation and to mitigate cost headwinds. Constructive disruption is key to staying ahead of and to creating emerging trends and opportunities in our fast-changing industry. Finally, an organization that is fully engaged, enabled and excited to serve consumers and to win in the marketplace. Now P&G's point of difference. Our competitive advantage comes from outstanding integrated execution of these strategies across all activity systems in the company and from anticipating what capabilities are needed next. While the core strategy remains constant on last quarter's call and at the CAGNY conference, we outlined 3 major changes in the landscape around us. media fragmentation and changing consumer media preferences are affecting how consumers are collecting information about our categories, including platforms like social media, retail, media and AI portals. The retail landscape is changing, more concentration, but also brand proliferation. Retailers are becoming media platforms and media platforms are becoming retailers. Third is inflation across food, energy, health care and many other areas of spending has taken a toll on consumers and how they assess value. Recent geopolitical events have elevated this to a new level of concern. In short, the consumer path to purchase is changing every day, and we expect an even more intense pace of change in the next 3 to 5 years. The interventions and investments we're making in P&G capabilities to adapt to these changes are beginning to bear fruit, strong innovation supported by sharper consumer communication and retail execution. A few examples. Building on the success of Dawn Powerwash in the U.S., Fairy Skip the Soak in the U.K. is a great example of deep consumer insight that's driving innovation. Consumer research showed us that more than 70% of U.K. consumers soak dishes before washing. With this insight in mind, we created the Fairy Skip the Soak idea, which instantly and intuitively helps consumers understand what the product is and what it's for. Integrated superiority across all vectors, where the product name inspires the packaging, in-store execution and communication, all supported by superior performance that delivers on the promise. Skip the Soak drove Fairy brand household penetration to 61%, up 5 points in its first year. Mr. Clean continues to innovate on its core proposition and solving more cleaning jobs with new additions to the portfolio, core and more. The brand has launched new innovations on the Magic Eraser platform that improves the longevity with a dense form and a wider micro scrubbing structure that now last 2x longer. We restaged the packaging to use room and mass-focused names that clearly signal where to use the Eraser. At the same time, we launched Mr. Clean shower and top scrubber to address consumers' #1 most hated cleaning chore, shower and tub. Mr. Clean Shower & Tub scrubber delivers a quicker, easier and deeper clean with the power of the Magic Eraser, a sturdy grip handle, built in squeegee and a pivoting head for hard-to-reach areas. The results, Mr. Clean is winning consumers and driving category growth, delivering 18x its fair share of the bath cleaning category growth since launch. Germany Pantene identified an opportunity to improve brand and product superiority awareness by capitalizing on media landscape shifts. The increased investments in social media and influencer partnerships including top German beauty opinion leaders, hair experts and brand events, including talk-worthy local events like the Oktoberfest and Berlin Fashion Week. The impact earned consumer earned influencer posts grew 4x and total reach tripled despite a 20% reduction in media spend. Pantene value share in Germany is up 60 basis points versus a year ago and accelerating. The other examples we've discussed recently also continued to deliver strong results, including Greater China Baby Care, Mexico Fabric enhancers, Brazil Hair Care and U.S. Personal Care. Finally, site boosted liquid detergent in the U.S. continues to deliver strong results, initial weeks in the tight EVO launch are on track with our high expectations. While we work to improve our near-term results, we're also making progress on the longer-term reinvention of P&G capabilities, the next phase of constructive disruption that will create and extend our competitive advantages in each element of our strategy. The way to break through consistently is to build the strongest brands in the industry. P&G has the unique strength and capabilities to redefine brand building to deliver consumer-relevant superiority. First, we are leveraging our large iconic brands with huge consumer bases and all the data we gather. We are now scaling the integrated data platforms and the technologies that will enhance our team's ability to mine this data for insights that lead to new product innovations, brand ideas, performance claims and marketing campaigns across all relevant consumer platforms. Next, we are driving our unique set of innovation capabilities, substrate technology, formulaic chemistry, devices and biology to deliver breakthrough solutions in every part of the business. Third, we have tremendous supply chain capability. Supply Chain 3.0 is driving a more complete system connection from purchase signal to our production planning and material ordering to ensure consumers find the product they want each time they shop. We know how to automate, digitize and autonomize our operations. And more importantly, we have qualified a financial framework to generate strong returns on these investments. Our innovation and supply capabilities are key enablers to win in the volatile market we operate in today. Connecting R&D, supply chain and procurement allows us to adjust sourcing optimized formulations and qualify alternative supply faster and more effectively than ever done before. It took years to build these underlying platforms and capabilities, and we are now in full scaling mode across the company. The next step is to connect the dots to integrate the pieces. We will close the loop, and we believe this will create a new S-curve for growth and value creation centered around our consumers. We are confident in the short-term progress we're making, and we're excited about the mid- to long term as we leverage our strength at unique capabilities to set us apart from the industry. Moving on to guidance. As we saw in our press release this morning, we are maintaining our fiscal '26 guidance ranges across organic sales growth, core EPS and adjusted free cash flow productivity. However, where we will land within those ranges has become more uncertain given the geopolitical dynamics in the Middle East. We continue to expect organic sales growth of in line to 4%. We're seeing progress in most categories and regions, as you can see in this quarter's results. Underlying global market growth for our portfolio footprint is around 2% on a value basis, with a positive trend over the last 2 months. However, it's unclear how much higher gasoline and energy costs will impact near-term consumer spending in our categories. Also, as I mentioned earlier, the trade inventory increase we saw in March was driven by Easter timing and likely some protection against potential price increases or supply chain disruptions resulting from the conflict in the Middle East. We expect this to result in fourth quarter organic sales somewhat lower than third quarter. As a reminder, our top line guidance includes a roughly 30 to 50 basis point headwind from product and market exits as part of our restructuring work. Our bottom line guidance is for core EPS growth in line to 4% versus prior year. This equates to a range of $6.83 to $7.09 per share. This guidance includes a foreign exchange tailwind of approximately $200 million after tax, unchanged from our prior outlook. We now expect a headwind of approximately $150 million after tax for the fiscal from a combination of commodity-linked cost inflation, feedstock exposures and logistics disruptions resulting from the conflict in the Middle East. Almost all of these increased costs will be in the fourth -- fiscal fourth quarter. Our teams are doing a tremendous job to protect supply continuity and to minimize cost impacts much of this work, such as rapid product reformulation and supply diversification is enabled by the advanced data tools and capabilities we discussed earlier. With the timing of these cost impacts, there is little opportunity to create short-term offsets within cost of goods sold. Likewise, we will protect our demand creation investments in the business to support our new innovation and maintain positive momentum. In fact, we've approved incremental investments in several businesses in the last month. Given all the above, we now expect full year EPS results to be towards the lower end of the guidance range. Our fiscal '26 outlook continues to call for approximately $500 million before tax and higher costs from tariffs. Below the operating line, we continue to expect modestly higher interest expense versus last fiscal year and a core effective tax rate in the range of 20% to 21% for fiscal '26 combined a $250 million after-tax headwind to earnings growth. We continue to forecast adjusted free cash flow productivity in the range of 85% to 90% for the year. This includes an increase in capital spending as we add capacity in several categories and as we incur the cash costs from the restructuring work. We expect to pay around $10 billion in dividends and to repurchase approximately $5 billion of common stock, combined a plan to return roughly $15 billion of cash to shareowners at fiscal '26. This outlook is based on current market growth rates, commodity prices and foreign exchange rates. Significant additional currency weakness, commodity or other cost increases, further geopolitical disruptions, major supply chain disruptions or store closures are not anticipated within the guidance range. We won't provide guidance for fiscal '27 until our next call in July. However, we understand investor concern about potential cost and supply impacts from the Middle East conflict. For perspective, the annual cost impact of Brent crude at around $100 per barrel is roughly $1.3 billion before tax or $1 billion after tax versus a pre-conflict oil price in the mid-60s. Again, this goes beyond direct commodity cost to include other upstream and downstream cost impacts that would hit our P&L. Regarding supply impact, we are hopeful the full flow of materials where we resume in the coming weeks. We continue to work closely with our suppliers and contract manufacturers to identify potential short-term risks. So far, our business continuity plans continue to perform well despite some force majeure declarations by our direct suppliers or by their upstream suppliers. No company will be immune to these effects. But this is an example of where our capabilities help us buffer the impact on our business. Our business teams have been developing multiple contingency plans to mitigate potential cost and supply disruptions. Underpinning each of these options is a commitment to maintain support for our brands and superior value for our consumers. We remain willing to manage some short-term pressure on the bottom line to come out of this period with stronger brands and business momentum. On the other side, this has proven to be the right path in the past, and we are confident that it is now. In summary, we continue to believe the best path to sustainable balance growth is to double down on the strategy, stronger integrated execution to delight consumers with superior products at superior value. Challenging markets like the ones we compete in today are an opportunity for P&G to step out from the pack and to lead. We have the brands, the tools, the capabilities, and most importantly, the people required to win. We're confident in the short-term progress we're making. It won't be a straight line, but we are moving in the right direction. We are building momentum, and we are excited about the long-term opportunities ahead. And with that, we are happy to take your questions. Operator: [Operator Instructions] Your first question comes from the line of Steve Powers of Deutsche Bank. Stephen Robert Powers: Andre, you covered a lot of ground in your prepared remarks. But I guess as you look through the puts and takes and timing nuances, in the third quarter, how do you assess underlying progress on organic growth? And to what extent are you confident it could be further progressed into the fourth quarter and into '27? And I guess I asked that in the context of the $1 billion in after-tax cost headwinds that you mentioned have now built for the year ahead as well as the accelerated investments you've set in motion that I presume are also likely to carry forward. And so as you approach fiscal '27 planning with all that in mind, do you think productivity alone will be necessarily relied upon as offense to those factors? Or do you feel the building advantages and momentum you're building will allow for potential use pockets of incremental pricing should the need arise. Andre Schulten: Steve, thanks for the question. I have a great amount of confidence in the progress we're making on the growth side. The breadth of the progress is visible across regions and across categories. And if you drill a level deeper and you look at the individual plans that we are executing across the brands that are responding the fastest and the best, they show that our hypothesis underlying our business model is working. When we innovate, when we deliver a better solution for our consumers and our categories, they respond. The prime example for me is the tight liquid intervention we made again, a huge business in the U.S. and the formula upgrade we delivered was the biggest upgrade we made in 25 years and just showing that performance improvement to the consumer at the same price, leading to mid-teens growth on a business like that is impressive. We're seeing the same on the beauty category. SK-II growing 18%, just continuing to invest in the brand proposition, the innovation on the super premium side with different forms is gaining momentum and just great execution. The examples we gave -- the other examples we gave are just solidifying that same model. So I feel very strong about the progress because I also see the amount of brand country combinations that is still to come will only increase the momentum. So I feel very good about the diligence the team is applying really understanding what is the intervention we need to make across product, package, communication, go-to-market and/or price to give the consumer the value that they will respond to. And I feel very good about our ability to create excitement with the consumer when we innovate into new areas. The confidence in that model comes with conviction that we want to continue to invest behind it. The noise, I would call it, from the commodity exposure is significant. As you know, $1 billion after tax is nothing to sneeze at from a headwind standpoint. And we have a lot of work to do to work through the supply chain side and the cost side. I think you've seen us excel in that space. The last time when we had to do this coming out of COVID, with the supply chain crisis. I think the team even further sharpened their skills and reformulation. We further diversified our supply base. We further diversified our flexibility on our formulations and we further sharpened our understanding of what our short-term productivity levers that we can pull. And honestly, there's a lot of room in our P&L to drive short-term productivity and that will be the first place to go. Will it be sufficient to offset the full $1 billion after tax, likely not. With that, we continue to innovate. And pricing -- selective pricing with innovation where the consumer tells us their interest is high, their willingness to pay for better performance is there will be the other part of the offset that we're driving. So we're building those plans, and I'm confident it will leave us in a reasonable place from an earnings growth standpoint, while not jeopardizing the investment in sustained organic sales growth and share growth, which honestly, we're just delighted to see the ship turning this quarter. Operator: Your next question will come from the line of Dara Mohsenian of Morgan Stanley. Dara Mohsenian: Just 2 follow-ups on Steve's question. Just a -- can you discuss if you can see any advantage on relative sales performance versus competitors here as you look at the post Iron conflict situation from a supply chain or sourcing standpoint, is that something you think can be significant? Or is it more modest in nature? Obviously, it's a fluid situation, but any thoughts there would be helpful. And just be, you mentioned progress in a lot of areas on the growth side, whether it's certain brands, et cetera, with the innovations you put in place, your spending behind the business in Q4. The first part of the question, you've got some potential competitive advantage here post the Iran conflict. Are you comfortable that you're back to organic sales growth outperformance versus your categories going forward as we look out beyond fiscal Q4? Do you have visibility around that? Just your thoughts around the potential timing of sort of broader outperformance across the portfolio versus some of the areas where you're seeing progress already would be helpful. Andre Schulten: The supply chain side is too early to assess. But if history is any indicator for what's to come. Our supply chains are generally resilient. We have flexibility. We have ability, as I said, to reformulate and our retail partners tend to lean on us to be their reliable partner in these times, and we've managed not to let them down. We've seen other players struggle, especially if it's long supply chains, especially if it's heavily contract manufactured supply chains. So again, if history is any indication of what's to come, I feel relatively good about our position. And if anything, I have more -- even more confidence if that's possible in our supply chain team, procurement team, our R&D teams who are just on top of every single element of this every day. Outperformance versus the market is absolutely what we want to deliver. We've done it in quarter 3. We want to do it in more quarters. Will it be in every quarter, I don't know. There are many drivers to this, but I feel that we are getting to a point where there's enough mass in the interventions we've made we've hit enough critical components of the portfolio with the right innovation, with the right interventions across the vectors that we will see continuous progress every quarter. Again, can I promise that every quarter will outperform the market? No. But I'm more confident than I've been in a long time that we will go exactly in that direction. Operator: Your next question comes from the line of Lauren Lieberman of Barclays. Lauren Lieberman: I wanted to check in on China. So China of 3% this quarter. Just if you could give us a sense for how the market performed in your categories? And then you called out the tremendous acceleration in SK-II. So I just wanted to talk a little bit about what you're seeing in the beauty market in China, in particular. Andre Schulten: China delivered 3%, as you've seen in the quarter. So last 3 quarters, 5%, 3%, 3%, very good progress. And again, I think the fundamental reinvention of the China model all the way from go-to-market portfolio communication model, innovation model, I think, is starting and is continuing to pay dividends. The market is still difficult. Consumer confidence is still low and down versus the normal equilibrium. The market growth is still negative across most channels. And the only growth you see is in online and into in yen. So the market content -- context is really still the same. The positive side of China is the consumer is very discerning and the consumer is very engaged in our categories. And when we deliver true superiority, they are willing to go there. And that's what you see in SK-II. SK-II was up 18% in total. I think China was up 13% in the quarter. China travel retail was up significantly. And you see exactly that when the consumer sees excitement, value something that they enjoy, they will go there and pay the premium. The same is true in Baby Care, I think 19% growth in Baby in the quarter. And for the exact same reason, best-in-class consumer understanding product performance and innovation that is in line with that with the great communication model gives us growth in one of the most difficult categories. Great visibility, I think, to driving that model across more categories, more mature thinking around the channel approach that we take between online to yen and our brick-and-mortar channels. So I see a lot of upside in the China market because of that maturing thinking in strategy and execution. But again, our closes are always closed. China is China. So a lot of volatility to be expected, but I feel very good about where the team is headed. Operator: Your next question will come from the line of Peter Grom with UBS. Peter Grom: Andre, I know we're not getting guidance for '27 today. But in your response to Steve's question, you touched on productivity and pricing with innovation as offset to inflation and that it would put you I think you said in a reasonable place from an earnings growth standpoint. And so I don't know if I'm reading too much into this, but I just wanted to clarify that despite these headwinds and a commitment to invest in the business but you still see a path to earnings growth next year based on where things stand today. Andre Schulten: Thanks, Peter. I'm -- look, I'm very happy that I don't have to give guidance today because what do we know, what the world looks like 3 months from now. With what we know today with $1 billion headwind and with the assumption that we can manage through the supply side of things well, we will do everything, everything that we can to do exactly what you're describing. But it's a work in progress. It's a work in progress on the macro side. It's a work in progress on pushing the productivity lever as hard as we can, and it's work in progress on honestly, a lot of tough choices that we can make within our P&L. The one thing we will not compromise on is the investment in the parts of the business that are showing momentum. So I won't give you any more detail than that, but be reassured the team and the work that is happening right now has the sole objective to deliver exactly what you're describing. Earnings growth even in light of these challenges, without sacrificing reinvestment on the business without sacrificing or jeopardizing the momentum we're building. Operator: Your next question will come from the line of Peter Galbo with Bank of America. Peter Galbo: I just maybe wanted to click in a bit more. I think you were very deliberate in your comments about increased investments across several kind of country products combinations. I believe you said over the last month. And we've heard a little bit about [indiscernible] in the U.S., SK-II obviously in China. But maybe you can give us a few more just where the incremental investments are really going in from a country product combination standpoint as we start to contemplate Q4 and into '27? Andre Schulten: Peter, look, you will understand, I won't give away where we're going in terms of the innovation investment and the strengthening. But it's the areas you would point out have opportunities. So if you look at Baby Care in the U.S., we're growing share at a global level on Baby Care. But the U.S. is not performing where we want it and that requires intervention. The plan is extremely strong. The conviction of the team and our conviction is very high. And as we said, we'll continue to drive interventions and innovation in that space. The momentum that the team is building in Beauty Care is fantastic to see. And talking to the team and the number of ideas they have to further build that momentum. I have high confidence to give them the flexibility to continue to invest with the innovation and the commercial ideas that they have. Fabric Care, we just launched Tide Evo, very strong execution in market, retail support is outstanding. So again, an area of significant upside and a significant reason to believe that we can accelerate. And I could keep going, Peter, but it's basically what I said is we have a bigger and bigger share of the portfolio where we either have interventions that are already working or we have a very clear plan in place with conviction that investment will pay out and deliver, and that's what we'll execute over time. Operator: Your next question will come from the line of Chris Carey with Wells Fargo Securities. Christopher Carey: Andre, I wanted to ask about the concept of pricing power and whether you think that this is different for perhaps the consumer staples industry, but more specifically for P&G. You did mention that there was potentially some front-loading of inventory levels in the quarter as retailers potentially prepared for do pricing for inflation. I don't know if I heard that wrong, but nevertheless, it does imply that retailers are aware that incremental pricing is a possibility for this new round of inflation. The reason I bring that up is because I feel a lot of questions around consumer staples companies, including P&G, potentially losing the concept of pricing power into new inflationary cycles with so much inflation over the past 5 to 6 years. I wonder if you could just give some thoughts on pricing and whether you think pricing as a concept is different for the sector or for P&G than what it has been more historically. And then just as a follow-up, just from a competition, you have mentioned in recent earnings calls that competitive activity has heated up now that inflation is moving higher, are you seeing competitive activity start to ease as competition needs to become a bit more rational given cost structures? Andre Schulten: Thanks, Chris. Look, there's a natural tension in these situations. You have broad macro cost headwinds which are hitting everyone in the industry, which generally is demanding pricing. So typically, when you see these headwinds, the entire industry will move up in terms of pricing. And then on the other side, you have the reality that the consumer has been hit with cumulative inflation beyond anything that they've seen in recent history. I think the opposite ends here, the way to square that in our mind is innovation. Consumers do respond well if we give them a truly better proposition in the categories that we're in because they see there is upside. There is still upside in many of our products to make them better deliver a better experience and delight the consumer. And if we do that and we take a little bit of pricing with it, consumers respond. The other reason why that works is it generally comes with a choice for the consumer because we won't price across the entire portfolio just a straight line. But we give the consumer choice. We give the consumer choice to either pick the innovation with a bit of pricing and the promise of better performance or stick with what they know. We have a very well-developed vertical portfolio, as you know, both from a brand tiering standpoint and from a price point standpoint. So I don't think we've lost pricing power I think pricing power has to be earned and the way to earn pricing power is to combine pricing with truly a delightful experience for the consumer. And if we do that, and we're honest with ourselves, instead of just assuming we can take a straight 5% price increase across everything, I think it will work. So that's the job at hand for the team. And luckily, again, we're in categories where that generally works because these products are products where you see as a consumer, you use them on a daily basis and you know whether they are delighted or not. And you know whether the product you just bought is better than the one you had before, and therefore, it's worth the price. On the competitive side, too early to say, to be honest. I think this is just a few weeks. And I think everybody is still -- at least we are grappling with what reality are we looking at. You would expect some pull back, hopefully, in terms of promotion activity but it's too early to observe. What I can tell you, the data we have is still relatively stable, but promotion activity in Europe and the U.S. as the 2 indicators with the closest read are slightly increasing back to pre-COVID levels. So with the data read that we have, nothing has changed yet. We'll see where this goes. Operator: Your next question will come from the line of Robert Ottenstein of Evercore. Robert Ottenstein: First, just a follow-up. Can you disaggregate the volume number in the quarter for the Easter impact the inventory drawdown last year and SKU rationalization that you were planning. So we kind of have a better sense globally exactly where volumes are. And then perhaps building on that, maybe give us an update on the restructuring program that you announced in June of last year in terms of head count reorganization and kind of rebalancing some of the functions and the people and responsibilities. Andre Schulten: I'll keep it simple because into every effect on the base period versus base period of that base period, we get confused. The simple answer I give you, I think the pull forward from Q4 into Q3 is about 1 point. So we would have rounded to 3% organic sales growth instead of having a strong 3%. That's my easy answer and the IR team can give you all the gory details behind it. But think about it, the underlying growth, in my mind, would have been about 3%, but rounding up. With the pull forward, we had a strong 3%, the net impact about 1 point of volume forward from Q4 into Q3. The restructuring program is very well on track. Multiple components. We have the portfolio part of the restructuring with the go-to-market changes in Bangladesh, Pakistan, the portfolio choices across Asia Pacific, all of that is being executed and actually slightly ahead of the program objectives. The head count reduction is being executed in line with trajectory. So we're on track to deliver 15% nonmanufacturing head count reduction over 2 years with a significant portion of that being delivered this fiscal year, by the end of this fiscal year. The organization programs, look, our objective really is, as we said, to enable our organization to be closer to the consumer and be more empowered than they are even today. as the next phase of organization design. We want smaller teams that are empowered to make decisions that have the data to make those decisions without a lot of leg work and that are freed of internal work processes and leg work that they otherwise would have to do. That technology bundle is being rolled out right now. So data access, data analytics, reporting capability, I would call that toolbox, number one, rolling out. Second toolbox, how do we enable those teams to be better at consumer-facing work. So think about concept ideation, content creation, pushing that content out across all platforms, measuring it, reworking it. That's toolbox #2, that is being scaled as we speak. Number three, the whole innovation part that's already being used. So think about molecular discovery suite think about perfume discovery, digital twins to qualify innovation, that's already well in place. And then the fourth component of the intervention is automation. So we talked about unattended shifts. We now have those programs rolled out across 9 categories. And again, the feedback from the plant organization to skip the night shift is great. We are upskilling those people to deliver a higher order task in the factory that is working, and we have multiple automation programs qualified that we are rolling out. So I think consistent progress on the organization design side and consistent progress on the technology data site that is underpinning that progress on the organization. Operator: Your next question comes from the line of Kevin Grundy with BNP Paribas. Kevin Grundy: Congrats on the progress in the quarter. Andre, I want to come back to gross margin, not to beat a dead horse here, but kind of pull together some of the threads that we've talked about, this is around ability to price input cost, productivity, kind of controlling what you can control for the organization. The $1.3 billion pretax headwind, thanks for sharing that. That's helpful. Understanding the volatility of the environment and a lot to sort of digest here around pricing decisions and consumer demand, et cetera. But just to play this back, it sounds like your base case is the gross margins will likely be down, I would say, looking out to next year, given that cost headwind and May using sort of reasonable assumptions implied kind of a lower pricing contribution. I think getting back to Chris' question, like is it different, this may imply like typically the CPG companies are kind of able to price through this. Is that a fair take? The base cases today would be that gross margins are down and maybe there is understandably a little bit more trepidation around pricing given the K-shaped economy, et cetera, et cetera. So I just want to play that back to you and get your take. Andre Schulten: Thanks for the question, Kevin. Look, the honest answer I'll give you is I don't know. The second part of the answer is I don't really care. Not because I don't care about the financial impact. But what is more important is what are we doing within the activity system that drives top line growth and bottom line growth. that's what ultimately we want to drive and then the gross margin and the margin are outcomes of that. So if we continue to drive great productivity, which we will check, if we continue to drive innovation that's winning even though it's gross margin dilutive, check. If we continue to drive investment in the right trial driving activities on the sales deduct side, check. So if all of those things happen and the gross margin is down, I feel great about it because it will drive top line growth and it will drive earnings growth. We will not let gross margin dilute because we're not delivering productivity or we're investing in things that don't drive top line and underlying earnings growth. But where exactly that balance comes out for me is very hard to predict and honestly not that relevant as long as the underlying activity system does what we need it to do. Operator: Your next question comes from the line of Filippo Falorni of Citi. Filippo Falorni: Andre, I wanted to ask about your enterprise market business. I think you mentioned 5% growth in the quarter and 4% in Asia, Middle East and Africa. So any impact that you saw within the 4% from -- in terms of demand from the conflict in the Middle East. It seems pretty minimal based on the reported results, but are you expecting some further impact in Q4? And then also related to this, in terms of like some of the Southeast Asia countries and India, countries that rely more on oil from the Middle East. Are you seeing any demand impact in those regions? And how do you think that evolves going forward? Andre Schulten: Yes, Filippo. Look, every enterprise market cluster has been performing very well. As we said, Asia, Middle East, Africa, up 4%, Latin America up 5%, Europe enterprise markets up 6%. So it's encouraging to see the breadth and the consistency of the growth. I -- as you already pointed out, the Middle East in it of itself is a relatively small part of our global sales, about 2%. And I can only thank the team in the Middle East. Our Dubai-based teams and Middle East-based teams are doing an amazing job showing resiliency and professional commitment to keep the business running while dealing with the situation. So big thank you and shoot to those teams. So the direct impact on sales, no. Actually, the business is doing well still. And for the rest of the effects, the only thing I can tell you is the upstream supply chain is more exposed in the Southeast Asia region. So that's where we have to do more work to ensure that we can continue to supply have all the feedstock available, et cetera. So that's a heavy workload there that our supply chain team is mastering. It's too early, I think, to expect any consumer demand impact from the conflict. So we're not seeing that. All markets are growing strongly. India is growing. So I think that's the question where we have more visibility next quarter and again, part of why I'm happy not to give guidance today. Operator: Your next question comes from the line of Bonnie Herzog with Goldman Sachs. Bonnie Herzog: I have a quick question on Baby Care, which appears to be turning following declines over the past year. You did highlight unit volume growth in certain markets. So curious to hear how much of that is end market led growth versus market share gains? Also, can you talk about the interventions you've made to drive a turnaround in that business? And I guess, how should we think about the momentum going forward? Andre Schulten: Thanks for the question, Bonnie. Baby Care at a global level is growing share. 5 of 7 regions are growing share. And the biggest region, not growing share is the U.S. So that's where the focus is. The regions that are growing are further ahead in truly driving superior propositions. It's coming back to the same playbook. We've talked about China earth rates down, market volume down, hundreds of competitors were growing 19% in the quarter. Why? Because we understand the consumer drive the innovation, have the execution. Same is true in the other 4 regions that are growing. That's the opportunity in the U.S. So that's where you see investment in the product. You see investment in how we communicate that benefit in a more relevant way to our consumers in the U.S. and trial building activity to ensure that we get that product into moms and dads hands and on baby's parts as fast as we can. The playbook is the playbook, and we know how it works. What we're in right now is the execution, which takes some time in baby care. It's a complicated manufacturing lineup, et cetera. But I'm very confident the team has the plan, and I'm very confident to put the money where that plan goes. Operator: Your next question comes from the line of Kaumil Gajrawala of Jefferies. Kaumil Gajrawala: As we're all working through the various puts and takes from the geopolitical issues, I think you mentioned very specifically in your prepared remarks, it's not just commodity costs, but all the other sort of things that come with it as part of that $1 billion. Can you maybe just talk a little bit more about what those items are just so it's something that we can watch and track a little more closely? And then on tariffs, we're starting to see some public companies, especially in their filings, talk about potential tariff refunds. Curious where you stand on that. Andre Schulten: [ Nick ], the cost impact is broader than just commodity. Obviously, a lot of feedstock. Basically, the majority of our feedstock is petro-based. So it's input NAFTA, you name it input costs into our suppliers' production system, part number one. Part number 2 is sourcing changes that we are making, either because of cost or availability generally mean less effective sourcing lanes which means higher transportation costs, longer lead times, higher inventory levels, including outside warehouse. The third component is reformulation. When materials are not available, we reformulate into others, which might come with upcharges. In many cases, they do. because we don't want to dilute the performance of the product. So we have to go to an alternative formulation that generally comes with higher cost. The last component is just finished product logistics again, diesel costs going up. That's the most immediate impact you see in quarter 4, that immediately passes through to the P&L in terms of higher logistics and transportation costs. Force majeure, again, we see some suppliers just not being able to supply at all. We see some manufacturing facilities that have been compromised by the war. And so it's not just the oil price, it's also the availability of product and input costs that is then driving the exact same comments that I just gave you. Tariff refund, look, we are following the process. The U.S. administration is beginning to lay out. Once that process is clear, defined and accessible, we will follow it. We have about $150 million after tax in refunds available from the IEEPA tariff. How much of that is recoverable or not, we'll find out. Operator: Your next question comes from the line of Andrea Teixeira with JPMorgan. Andrea Teixeira: Andre, you mentioned the recovery in volumes with innovation. Obviously, that has been remarkable. But I understand that you're also improving affordability in some areas. Have you been able to recover volume share in the most price-sensitive categories I believe you had some interventions in tissue in the U.S. And like you mentioned in Baby Care in some of the kind of price cohorts that you may be able to assist the low-income consumer. Can you talk to that, in particular in the context of the U.S. and also focus Europe. Andre Schulten: Andrea, I think the volume share gains in the U.S. are broad-based. It's a combination of the innovation launches we are driving. I was talking about tight liquid. That's a big component of volume share gain. Family Care is a combination of interventions made by the business, but most importantly, also period-over-period effect. Remember, we -- family care was the business that was heavily impacted by the port strikes in Q2. So you see that reverse effect coming through now, that's playing out in share and the growth rates. But we are very careful. Look, we always look at every component of what we know drives consumers purchase decision. Is it better for them to have a better product, better presented with packaging, with clear communication and execution in store. And if we think that will address the value outage that a consumer might see and not pick our products, we will go there. And that works in most cases, where it is truly an affordability aspect and we are, in relative terms, just too expensive, we will address it that way. And it is not a general theme. I can give you one way or the other. That is the difficult and very careful calibration we're making brand by brand and honestly SKU by SKU because in some cases, it might just be price point versus price per unit or price per dose. So -- but you see a combination of all 3 drivers, base period here in terms of share, value interventions we're making on the product and performance side and yes, selective interventions in either price point or just value per use. Operator: Your next question comes from the line of Olivia Tong with Raymond James. Olivia Tong Cheang: You've quickly obviously taken a number of actions to improve trial affordability. I mean it's early days, of course, but what's your read on the staying power of the volume lift it has had and could have going forward? And the 100 basis points of reinvestment in gross margin, was it fairly similar by division? Or did it vary materially across the divisions? And is that the amount that we should expect for the foreseeable future? Andre Schulten: Olivia, I think the staying power of the of the trial of the growth is strong because it's grounded in consumer insight, and it's again done at that very detailed level, with the right level of diligence to say, what is the outage. Will we get it right in 100% of the cases? No, but I think our hit rate is improving significantly, and that's why you see the pickup. And that's what we are tracking diligently. So Shailesh and I are sitting down with every business to track whether that is actually delivering against the expectations? And if not, what are the learnings we're taking, but we've done this now for 6, 8 months. And you can see as we cycle through these iterations, we get better and better at diagnosis, triage and then making sure we get the right interventions executed. The reinvestment type and level is really different, therefore, by business, by brand, by country. So I can't give you a standard recipe of this is what it looks like. It is different, not only by category. It is different by country, it is different by retail, it is different by SKU. The level of reinvestment give us until July. We are working through those plans right now. I don't want to give you a blanket answer. I think it really depends on the plans as we review them over the next 90 days and what we decide to go forward with and we'll give you more visibility as we get into guidance conversations. Operator: Your next question comes from the line of Robert Moskow of TD Cowen. Robert Moskow: A couple of kind of near-term questions and a clarification. Andre, when you talked about fourth quarter being lower than third, I just want to confirm that's in absolute dollars. And then I think in your prepared remarks, you talked about consumers pulling forward purchases as an inflation hedge. I thought that's what I heard. Maybe the trade is doing it. Can you speak a little bit more about that? Do you have any evidence right now that consumers are doing this to prepare for more inflation ahead? Andre Schulten: Let me start with the second part of the question. I think the pull forward, if anything, if you're a retailer and you're tuned to what's going on, you might have pulled in a little bit of inventory. But it's hard for us to really quantify that. On the consumer side, no, nothing. I don't think the consumer is loading pantries at this point in time, nothing visible to us. So I think the consumption side is actually stable. I think the inventory side, which we -- and again, I think I will give you all the glory details between base periods and loading effects. But I wouldn't say the price-driven loading is the biggest part of it. I think it's just base period, is a significant component of that. When I say Q4 might be lower than Q2, I think it's growth rate we're talking about here. So there's a point -- of shift, a point will come out of the growth rate that you all had anticipated for Q4. And that's the -- as I said, we would have rounded to 3% in Q3 instead of having a solid 3%. So that's the logic of the point to look forward I was talking about. Operator: Your next question comes from the line of Edward Lewis of Rothschild & Co Redburn. Edward Lewis: Andre, just wanted to look at sort of supply chain 3.0, which you've talked about. I mean I guess I sort of think of this as a kind of way you're deploying AI across the organization. And when I think about sort of your initial assessment of what costs might be on the cost headwinds heading into fiscal '27, how much of an advantage do you see already from what you're doing on AI in sort of rating that into a certain extent, if that's the right way to think about it? Or is it still too early to really see sort of significant benefits from the moves you're making around AI and supply chain 3.0. Andre Schulten: Look, I wouldn't call Supply Chain 3.0 AI. I think it's really applying technology that is available to us in our manufacturing and supply chain processes. Some of it is AI, but a lot of it is a lot more basic automation that we're driving. We are scaling the technologies across all categories. Again, we talked about unattended shift models that is rolling out throughout more and more categories and more and more plants. Unattended warehousing, including loading and unloading of finished product, pack and raw materials rolling out globally, real-time touchless quality rolling out across the corporation. All of that is embedded in the productivity commitments we've made, so the $2 billion to $2.2 billion, $1.5 billion of that in cost of goods. This gives us confidence that we can continue that level of productivity. And what we'll be pushing now is how much can we accelerate? How much can we accelerate that 2030 vision that carries the supply chain 3.0 endpoint in our mind. How much of that can we carry forward to help the situation. And I think that will be the conversation over the next 90 days and will inform part of our guidance. But we know -- we know it works, and we know what to do. We have the technologies available. It's about how fast do we roll them out. And I think that's where we'll push the envelope. Operator: Your final question will come from the line of Michael Lavery of Piper Sandler. Michael Lavery: I just wanted to come back to inflation mitigation and maybe a couple of parts to it. I guess just if the pressure is primarily oil price driven, and given the stretched consumer, how do you balance thinking about pricing responses versus just the volatility in something like oil prices? And then just on how to kind of think about the spending piece. This could be nitpicking your words. I want just clarify it. You said you wouldn't sacrifice spending on businesses that have momentum. Does that suggest potentially for businesses without as much momentum that maybe you would postpone interventions? Or is your thinking that should we hear you as any of those growth-focused investments would continue regardless of the inflation environment. Andre Schulten: Thanks for the question. Look, I think the volatility component of where is oil going to be is a reality that we understand. But that's why we are -- what we're trying to do is control our destiny. We control productivity. We control the choices that we can make in sourcing. We control innovation. So that's where we want to drive the majority of the recovery because if we price with innovation, no matter where oil is, it will be the right thing for the consumer because the innovation is worth the pricing that we're taking. So we're trying to address exactly what you're describing, which is decoupled as much as we can, the interventions we're making from the volatility we're seeing in the market. So it's the right answer no matter where this goes. Would it be perfect? No, but I think that should be the North Star that we're going after. Look, the very simple answer to your second part of the question is momentum versus investment. Every business leader's job is to create momentum. And so we need to create a business plan that gives us confidence that where we don't have momentum yet. We will deliver momentum within a very short period of time. And honestly, I have confidence that every 1 of our business leaders is doing that, and I see only increasing conviction that they are able to do it. So I don't think we're going to have an issue of -- we don't have enough opportunities to invest. We will have the right plans and then it's a matter of wise and sound resource allocation within that. All right. I think that was our last question. Thank you so much for your time. Again, I want to close out where we started, strong quarter. Thank you to the P&G team. We're building momentum. Will it be a straight line? Absolutely not. We're working through the headwinds that we have identified. We feel very good about our relative positioning to deal with those headwinds and we'll talk more, and I know you're looking forward to that about next year in the July call. Please don't hesitate to reach out with questions. Our IR team is available to you. So am I, and thank you very much. Have a great day. Operator: That concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.
Operator: Thank you, and good morning, everyone. I would like to thank you for joining us today for Rithm Property Trust's First Quarter 2026 Earnings Call. Joining me today are Michael Nierenberg, Chief Executive Officer of Rithm Capital and Rithm Property Trust; and Nick Santoro, Chief Financial Officer of Rithm Capital and Rithm Property Trust. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Rithm Property Trust website, www.rithmpropertytrust.com. If you've not already done so, I'd encourage you to download the presentation now. I would like to point out that certain statements made today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we will be discussing some non-GAAP financial measures during today's call. Reconciliations of these measures to the most directly comparable GAAP measures can be found in our earnings supplement. And with that, I will turn the call over to Michael. Michael Nierenberg: Thanks, Emma. Good morning, everyone, and thanks for joining us. For the quarter, the company had a pretty uneventful quarter as we continue to look for opportunities that could be a game changer for this capital vehicle. With asset manager valuations under pressure, downward pressure on equity valuations in the public markets, we're going to continue to remain patient and work towards creating value for shareholders. While the geopolitical events affecting the world, credit spreads have remained actually in a relatively tight range and markets in general are performing well away from the headline risk we've seen in some of the retail private credit. Even there, if you take out the retail component, private credit is still performing well. The [ softer ] headlines you've been reading about will take a while to play out and the earlier vintages in the private credit world where companies borrowed money at large multiples of revenue will likely be the ones affected negatively in the future. And a lot of those deals were originated back in the '20 '21-ish kind of vintage. For RPT, we positioned the company for success by doing the following. When we took over this vehicle in '24, we made a decision to clean up the balance sheet, liquidate a lot of the residential stuff and reposition the company in the commercial space using this as an opportunistic vehicle to deploy capital in the commercial world. Today, the company has just a little under $100 million of cash and liquidity. The balance sheet is extremely clean. There's no problem loans and again, is in great shape. While we continue to wait for the opportunity to transform the company, we'll continue to pay the dividend. From an optionality standpoint, at some point, it's likely if we can't -- we need to grow the vehicle, quite frankly, from an overall capital standpoint. If we can, we'll be looking at different opportunities in the M&A world. And at some point, we may consider even buying back a little bit of stock here. With that, I'll refer to the supplement that we posted online. I'm going to start on Page 3. And again, this is just really the summary of what Rithm is, Rithm Property Trust. Today, the pipeline is, give or take, about $2 billion. It's always fairly robust. We're looking at large opportunities in the multifamily space. We also evaluate things that we could potentially do around our Genesis business, where we continue to grow our multifamily lending there. The equity is a little bit under $300 million. It's about $287 million. The commercial real estate portfolio, this is all post '24 vintage things that we've done is $236 million, and we have, give or take, a little bit under $100 million of cash and liquidity. When you look at the financial highlights for the quarter, quite frankly, not a lot of activity. We sold down a little bit of -- we sold a few CRE floaters in the quarter to create a little liquidity, looking for better opportunities, quite frankly, to increase earnings. As I pointed out in my opening remarks, the credit markets have continued to perform well. The CMBS markets perform well. But while saying that, we'll continue to monitor opportunities to turn over the portfolio and deploy capital in higher-yielding assets. GAAP income, negative $3.2 million or $0.42 per diluted share. Keep in mind, we did a reverse split. I think it was in Q4. Earnings available for distribution, negative $300,000 or $0.04 per diluted share. Again, not a lot of activity. A lot of this relates to either the G&A or the dividend paid. Dividend paid in the quarter, $0.36 per diluted share, which correlates to about a 10.8% dividend yield based on where the equity is trading today. Book value, $236.2 million or $30.83. And then as I pointed out, cash and liquidity a little under $100 million. When you look at RPT, I mentioned again earlier, the strategic transformation. Again, going back to when we took over this vehicle, we cut G&A dramatically. We cleaned up the balance sheet. We sold down a lot of the residential portfolio where we could. And I'll talk a little bit about the equity that's remaining in the book. We've made some new CRE investments, and that was mostly done in floating rate AAA CMBS. We made a few loans on the debt side. We deployed $50 million in equity alongside Rithm in the Paramount transaction, which we closed in December of '25. We continue to renegotiate our repo agreements, and we continue to improve liquidity. So overall, the company is in, what I would say, as much as there's no very little activity in great shape, and we look for an opportunity to deploy capital or create more capital, quite frankly, on something that's going to be a game changer. I'd like to go back and refer to what Blackstone did with BXMT many years ago or what we did with Rithm, which was going back to 2013, where we started that with $1 billion of capital. And today, the company has about $8 billion of capital. So we need to be patient here. As I pointed out, we'll continue to pay the dividend. At some point, we need to make a move in either clean up the vehicle or figure out a way to grow it. And obviously, we're actively trying to grow the vehicle. When you look at Page 6, the repositioning of the portfolio, where we can go here. I pointed out on the Genesis side, we're doing more lending in the multifamily space. There could be some opportunities to work together with that company. We continue to look for opportunities to put our capital in the debt markets on the CRE side, and then we'll continue to evaluate opportunistic investments and figure out different ways that we can increase shareholder value. And then on Page 7, it really just talks about how Rithm Property Trust benefits from the overall Rithm ecosystem, and that includes the Paramount transaction that we closed in December and then our asset management businesses, Sculptor and Crestline. So with that, I'll turn it back to the operator. We could open up for Q&A and then get on with our beautiful Friday. Operator: [Operator Instructions] And your first question comes from the line of Craig Kucera with Lucid Capital Markets. Craig Kucera: Optically, it looks like the strategy this quarter was to reduce your CMBS holdings and deleverage. Are you expecting to lever back up in the near term by investing in other asset classes such as loans from Genesis? Or should we expect leverage to be a little bit diminished for the near term? Michael Nierenberg: Yes. We looked during the quarter, the market felt -- despite performing well, the market felt or the world feels horrible. So when you think about that in credit spreads, and we saw high-yield gap a little bit wider, but then it came in about 50 basis points to where it is today. So we use that as an opportunity to say, if the world doesn't feel as good, let's sell down some of our, what I would call, levered AAA CMBS, which is yielding, give or take, about 10% with the thought as we might be able to deploy more capital in higher-yielding assets. Quite frankly, we -- at this point, we'll continue to sit on the cash and look for those opportunities. I mentioned in my opening remarks, we're looking at a large portfolio now of multifamily assets that will be coming at some point in May. And we're seeing some opportunities on the debt side, quite frankly, that I think we'll be able to deploy capital at higher yields. than where we are on some of the AAA CMBS. But for now, it wasn't really just to reduce leverage. It was to create more capital for what I would call opportunistic investing. But at some point, that capital will get redeployed where that goes back into a debt, some kind of lending, multifamily or even buying back some equity here. Craig Kucera: Got it. And I guess if the market or at least how you feel about the world continues to be sort of miserable, do you think you'll continue to harvest proceeds from CMBS? Or do you think you kind of work through what you wanted. Michael Nierenberg: It's a really -- we're in a really interesting period of time, right? Because when you read the headlines or you think about the headlines, there's been a lot of negativity around private credit, yet you look at a lot of firms that are in the [ PE ] business, and they're still sitting on a lot of these portfolios that go back many, many years you look at the equity markets were at all-time highs. So if you think about private credit, private credit sits on top of equity. So what's going to go first, the equity. So when you look at the public markets in general, the markets feel -- as much as the world feels terrible, the markets are performing extremely well. We look across RMBS, you look across CMBS, you look at the liquidity that we're seeing in all these different lending markets, things are actually okay. The geopolitical side just feels horrible though. Obviously, there's a lot of headline risk coming out of the administration and other places. But -- so I think we're just looking for better opportunities to actually create more earnings. Craig Kucera: Got it. Changing gears, there was a pretty decent pickup in professional fees this quarter. Was that more just a onetime event? Or should we expect to see something similar going forward? Nicola Santoro: That was a onetime event in the quarter. It had to do with us looking at various capital options. Craig Kucera: Okay. Fair enough. And this quarter, you closed on the Paramount transaction in the fourth quarter and at the Rithm Parents and of course, Rithm Property put in $50 million. Was there any impact to the income statement this quarter from Paramount? Nicola Santoro: Paramount for the quarter was essentially flat. Craig Kucera: Okay. That's helpful. Will that ramp up at any point? Or should we expect that to be really more of a backloaded type of investment? Nicola Santoro: No, it will ramp up as the investment continues to accrete and as we make progress on Paramount. Michael Nierenberg: Just a little color on that. When we took -- we closed the company, I believe we closed the transaction on December 20. So we've had really just a quarter of working on that. We've taken G&A from $65 million down to about $30 million. The performance, the lease-up activities is at the highest levels we've seen in 20-plus years. When you look at the properties, you have New York and San Francisco. We're in the middle of doing a few refinancings. We have some potential JV equity investments. So we're excited about that. We've had a ton of conversations with different [ LPs ]. The initial thought there was -- it's an opportunistic situation. But around that, we're going to raise capital either from third parties or just bring in JV partners with the intent of trying to make 2x and 20-plus percent on our money. So some of it will be back-ended. Some of it will be, as to Nick's point, as we accrete up over time, but that hopefully should be a good one. You look at our New York portfolio, it's -- for the most part, it's essentially leased up. So things are good on that one. Operator: Your next question comes from the line of Jason Stewart with Compass Point. Jason Stewart: On the Genesis loans, are those likely to be more portfolio-based or chunky? Or is there an opportunity for flow? And then a follow-up on Craig's liquidity questions. Is there an opportunity to do anything with the unsecured debt just given how much liquidity is on the balance sheet? Michael Nierenberg: So the unsecured debt, I believe, is like a [ 9% ] and [ 7% ], [ 8% ] kind of coupon. If we could get the company rated a little better, that drops to [ 8% ] and [ 7%], [ 8% ] When you think about that in the debt markets for this type of company, it's not a horrible cost of capital. Obviously, we want to make it more accretive and make sure the investments are more accretive, thus selling down some of the CMBS and looking for an opportunity to deploy in higher-yielding assets. When we think about Genesis, on the Genesis side, we bought this company, I think, in late '21/'22. At that time, they were doing $1.7 billion of production. The company was making $40-odd million of EBITDA. We've taken that where this year, I think we're going to do something between $6 billion and $7 billion of production, and the company should make between $150 million and $200 million of EBITDA. So it's been -- knock wood, it's been a very good successful acquisition, and it's been a great feeder for our business. From Genesis, we've established a couple of things. One is we have a nontraded REIT we launched with one of the large money center banks where we're actually raising capital alongside some of the production that comes out of Genesis. That's gone extremely well. We've also done a large [ SMA ] around some of the Genesis flow with one of the sovereigns overseas. So when we look at what we've done there, that's been a great one. Now we're actually looking at, is there a way to take these assets in the securitization market, quite frankly, that could be north of 20% or 15% to 20%. Can we actually use this vehicle to -- either around multifamily or some of the other stuff that's not going into these flow programs to actually grow earnings at RPT. So that's something that we're extremely focused on. Hopefully, we get there, and that business continues to grow. So that's really the thought around the Genesis side. Operator: Your next question comes from the line of Henry Coffey with Wedbush Securities. Henry Coffey: Obviously, actually a lot of progress in here and you cut your losses. And if we go with Nick's comments, we're almost at the point of breakeven on an EAD basis. If you -- things -- the environment or the political environment is bad, but it's probably not going to get worse. And so it's fair to say that the debt and credit markets, whatever they are, aren't going to get worse. And what's the holdup in terms of deploying assets? Are there like opportunities like you said, that don't show up until May? Are there enough opportunities out there where you could, if you wanted to push hard, leverage this thing up now? What is sort of the overall temper of the market right now in terms of opportunities? Michael Nierenberg: This vehicle on a relative basis, Henry, is extremely small. We need to create a large pool of capital to make a difference in the earnings and profile of the company as we go forward. And I think to your point on the equity or the debt and credit markets, there's a ton of capital still out there in the markets being deployed. When you look at all the headline risk, and you've heard some of the other folks that run some of the larger asset managers, on the -- the real headlines around the private credit stuff were really the redemptions that came about from retail. Anybody that has institutional money, those are typically going to be in longer-dated locked-up funds. So that's not really the problem in what I would say, the credit markets. So if somebody comes out and I use this example, I was in Asia last week speaking. If you look, most of these documents have, I'll call it, redemption limits for a specific reason. To the extent that retail comes in and they want -- and you've seen folks want 10% or 15% out of some of their -- out of some of these funds, a lot of the funds have 5% limits. And they have 5% limits for a reason because you don't want to just liquidate good assets for the sake of liquidating because retail needs the money back. So I think my whole view on this is that on the private credit markets, it's really an education process. how do people -- how does a private wealth client buy into a private debt fund or private credit fund, making sure they understand really what the liquidity functions are. Because what you're seeing in the markets these days, there's been a lot of demand for evergreen type funds. We have an evergreen type fund out there, I mentioned on the Genesis stuff. And you just have to make sure there's an ample amount of liquidity. Now it's a very different thing, I think, when you have assets that are secured by -- or cash flow that's secured by assets as what we do in Genesis and really in the so-called [ ABS space ]. But the gist of it is around the private credit markets is that you're not seeing a lot of selling. You're seeing more capital that continues to get deployed, and you haven't seen this huge gap in spreads. So overall, when you think about where we are, there are going to be opportunities, but we haven't -- we wanted to create a little liquidity during the quarter in the event that we could deploy at a much higher level. And quite frankly, we just haven't seen it come to fruition. I pointed out on the multifamily stuff, that -- it's a reasonable size deal that we're actually looking at. Rithm Property Trust cannot do the entire thing, just to be clear. So that it could be a combination of third-party capital, Rithm Property Trust and Rithm. And I guess -- and again, that's similar to what -- the way a lot of these other larger asset managers have grown their business where they're using different capital vehicles and funds to share in the, I'll call it, in the wealth of a great investment. Henry Coffey: On the capital side, this is -- there's a funny [ cajun ] joke that I'll share with [indiscernible] later on, but this is kind of a chicken or an egg thing. And it seems -- we have a lot of confidence in you as investors. And there seems to be a point where you just have to kind of do it, accept maybe some near-term dilution and then get on with the business of growing RPT into a bigger business. What does that pain threshold look like for you? Michael Nierenberg: I think as long as we think that we could do something that's accretive longer term for shareholders, we'll do it. I mean I think the whole notion of the REIT business, when you think about it logically, where REITs trade relative to asset management companies, and it's effectively the same thing. The only difference is I look at Rithm, our bigger company, obviously, we're trading, give or take, 5x EBITDA. You look at some of the larger asset managers, they could trade anywhere from 10 to 30x -- so the whole arbitrage, if there is an arbitrage is to continue to create asset management vehicles where you can turn them from 5x to 10x. In the case of Rithm, if we did something like that, the stock is a $20 to $30 stock, and it trades at, give or take, $10. If you look at Rithm Property Trust, we need to raise pools of capital. We've been very good and disciplined around maintaining book value in all of our REIT vehicles because I think we're -- we have a lot of expertise around the house. We've been doing this for 30-plus years or whatever it is. And from a market perspective, we're typically -- we have a reasonable view from a macro level. As it relates to this vehicle, to the extent that we can raise a large pool of capital and it gets deployed accretively and all of a sudden earnings start moving, we'll do it in a heartbeat. Henry Coffey: I mean the stock is at half of book value issuing stock here would be painful, but maybe also the recognition that the market is not really getting it and maybe the pain from issuing stock at this level would only be temporary. And I'm just kind of thinking... Michael Nierenberg: But you need to do it around an accretive transaction. It's not just to raise capital is what I would say. So if there's something that's hugely accretive, then we'll come back into the market, and we'll work with our investor base, and we'll work with our capital formation groups and our banks, and we'll try to get something done. Somebody -- I think it was either Craig or Jason asked about the onetime charge. That was part of what we were working on in the quarter is to figure out a way to raise a pool of capital. Operator: Your next question comes from the line of Jade Rahmani with KBW. Jade Rahmani: The commercial mortgage REIT sector has been under pressure for several years, and there only seem to be a few companies successfully emerging from the [indiscernible] downturn in values and credit with scale being a big differentiator. There's been one interesting deal in the space, which is the ARI sale to Athene of its entire loan portfolio. And at the same time, we're seeing real estate transaction activity pick up and [ LP ] investors start to increase their real estate allocations. So I wanted to ask if you're seeing any change in engagement from perhaps public commercial mortgage REITs, the smaller ones or otherwise private vehicles about potential combination scenarios. Michael Nierenberg: Yes. I mean I think one of the things that we've been very good at over the years is to try to differentiate ourselves from others. And look at what we've done in the mortgage space is we built -- it goes back to the Fortress days. We built Mr. Cooper, which is now owned by Rocket. We built OneMain, which is now public market. We had sold down the equity to Apollo when I was at Fortress. We built Newrez from nothing, and that company is great. We built Genesis or helped grow Genesis Capital. So we've been very -- what I would say is we've been pretty acquisitive, which has enabled us to grow our business. We'll continue to look at M&A, particularly in the world that you point out. It's not easy getting folks, the combination side when you talk about what I would call a lot of broken REITs. Our -- this REIT is not broken. This balance sheet is crystal clean. There's -- when I look at the equity, just to give you a sense, there's, give or take, about $100-ish million of equity that's tied up in residential deals that are marked extremely well, that are -- they are reperforming loan deals that were created by the prior management team at what was known then as Great Ajax. So when I look at what -- where we want to go with this and I think about the overall REIT space, we'd love to do combinations with folks. We want to grow it. I will tell you the Paramount transaction has opened up the door as a firm for us to -- we probably had hundreds of conversations with LPs and different folks about -- and it's on the private side, obviously, in the public -- in different real estate activities or real estate transactions, and that will continue. So I think that's been a really good one. Our asset management business at Sculptor, they raised $4.6 billion on their last fund, and they're extremely active in the real estate space. So getting these smaller deals -- everybody wants to do a deal or we want to do deals. Not everybody wants to give up their business, quite frankly, and something that's underperforming. I mean it's just that simple. Should these smaller businesses are very, very difficult to have them exist and to try to grow because you need the capital to grow it. So my long-winded answer is we're always actively looking to do M&A around this, and I think you're going to see more M&A in this. But our balance sheet is crystal clear, right, -- crystal clean. We're very, very different than I think some of the other legacy REITs that have, quite frankly, suffered a little bit here based on some of the earlier vintage lending that's occurred. Operator: There are no further questions at this time. I will now turn the call back over to Michael Nierenberg for closing remarks. Michael Nierenberg: Thanks so much for your questions. Have a great weekend. Look forward to updating you throughout the quarter. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Before we get started, let me remind everyone that through the course of the teleconference, Kinsale's management may make comments that reflect their intentions, beliefs and expectations for the future. As always, these forward-looking statements are subject to certain risk factors, which could cause actual results to differ materially. These risk factors are listed in the company's various SEC filings, including the 2025 annual report on Form 10-K, which should be reviewed carefully. The company has furnished a Form 8-K with the Securities and Exchange Commission that contains the press release announcing its first quarter results. Kinsale's management may also reference certain non-GAAP financial measures in the call today. A reconciliation of GAAP to these measures can be found in the press release, which is available at the company's website at www.kinsalecapitalgroup.com. I will now turn the conference over to Kinsale's Chairman, President and CEO, Mr. Michael Kehoe. Please go ahead, sir. Michael Kehoe: Thank you, operator, and good morning, everyone. Today, I'm joined by Bryan Petrucelli, our Chief Financial Officer; Stuart Winston, our Chief Underwriting Officer; and Salmaan Allibhai, our Chief Actuary and Head of our Data and Analytics team. In the first quarter 2026, Kinsale's diluted operating earnings per share increased by 37.7% over the first quarter of 2025, generating an annualized operating return on equity of 24%. Gross written premium was down 0.5%, but net written premium grew by 5.6% for the quarter as our business lines with the least reinsurance participation continued to show positive top line growth. Kinsale's combined ratio was 77.4%. E&S market conditions in the first quarter continued to be competitive with the level of competition and our growth rate varying from one market segment to another. We added additional disclosure to our 10-Q this quarter with gross written premium detailed by underwriting division, first quarter of 2026 and 2025. This quarterly disclosure complements the annual disclosure of premium by underwriting division in our 10-K and provides some insight into market conditions and growth prospects at a more granular level. And continuing the trend from the last few quarters, much of the headwind to our growth emanates from our large commercial property division, where we write larger layered property accounts and where there is an abundance of competition and falling rates. Excluding the Commercial Property division, Kinsale's growth in gross written premium was 6% for the first quarter. The investment thesis in Kinsale has always started with our disciplined underwriting and low-cost business model. By maintaining control over our underwriting operation and never outsourcing it to third parties, we drive a more accurate and more profitable underwriting process while offering our brokers the best customer service and the broadest risk appetite in the E&S market. Likewise, our 17-year commitment to making technology and analytics a core competency, allows us to operate a smarter business with a tremendous cost advantage over every competitor in the market, no exceptions. And in this competitive period of the insurance cycle, the Kinsale model continues to succeed. In the first quarter, new business submissions were up 6%. New business quotes were up 8% and new business bind orders were up 9%. We are seeing the largest headwind to growth among larger accounts, particularly within our Commercial Property division. It's on the larger premium accounts where the competition is most intense. Hence, our continued focus on smaller transactions where margins continue to be robust. You can see this smaller account trend in our average policy premium for the quarter. It was $12,200 per policy, down from $14,200 and in the first quarter of 2025. Finally, we continue to work on technology innovation, including extensive use of AI models to drive automation in our business process, especially underwriting and claim handling and throughout our software development and analytics teams. This innovation is improving efficiency, customer service, accuracy and data collection across our business, and we have begun incorporating various AI agents into our enterprise system. With the talent of our technology professionals in our bespoke enterprise system and the lack of any legacy software, we are well positioned to expand our tech lead to the benefit of both profitability and growth. And with that, I'll turn the call over to Bryan Petrucelli. Bryan Petrucelli: Thanks, Mike. As Mike just noted, the profitability of the business continues to be strong, with net income and net operating earnings increasing by 26.1% and 36.3%, respectively, quarter-over-quarter. The 77.4% combined ratio for the quarter included 4.5 points from net favorable prior year loss reserve development compared to 3.9 points last year, with less than 1 point in cat losses this year compared to 6 points in Q1 last year. Gross written premium decreased by 0.5 point for the quarter, while net written premium grew by 5.6% and as Mike mentioned, the growth in net written premium was higher than gross as the lesser reinsured lines continue to grow at a nice clip. We produced a 21.1% expense ratio for the quarter compared to 20% last year. The other underwriting expense portion of the ratio, which is the best measure of the operational efficiency of the business, was 10.3% for the quarter compared to 10.5% in Q1 2025. The overall expense ratio increase is attributable to a higher net commission ratio resulting from higher reinsurance retentions. The larger retention provides a positive economic trade for the company with a higher net commission ratio being more than offset by greater underwriting and investment income. On the investment side, net investment income increased by 26.5% for the first quarter over last year as a result of continued growth in the investment portfolio generated from strong operating cash flows. Kinsale's float, mostly unpaid losses and unearned premium grew to $3.3 billion at March 31 from $3.1 billion at the end of 2025. Annual gross return was 4.5% for the quarter compared to 4.3% last year. New money yields are averaging around 5%, with an average duration slightly above 4 years on the company's fixed maturity investment portfolio. And lastly, diluted earnings per share continues to improve and was $5.11 per share for the quarter compared to $3.71 per share for the first quarter of 2025. And with that, I'll pass it over to Stuart. Stuart Winston: Thanks, Bryan. There's plenty of competition in the E&S market. There's also opportunity and it's also a market in constant transition. Areas like large shared and layered placements in commercial property, certain professional lines, management liability and public entity all continue to experience strong competition and headwinds to growth. Recently, we have noticed more aggressive competition in some long tail lines like construction over the last quarter as well. There are also strong areas of opportunity with favorable growth prospects within the E&S market. Within the overall property market, our small business property and Inland Marine, Agribusiness property and Personal Insurance divisions all experienced favorable underwriting conditions and strong growth in the quarter. Within Casualty, our Agribusiness Casualty, Allied Health, General Casualty, Healthcare, Entertainment and Product Liability division saw favorable markets and growth in the quarter as well. We also continue to drive growth through new product offerings and product expansions, robust marketing efforts, new broker appointments and continually improving service standards combined with the broadest risk appetite in the business. As Mike mentioned, overall new business submission growth increased 6% in the first quarter, a similar rate to the fourth quarter of 2025. We continue to see a decline in new business submissions in the Commercial Property division that handles large shared and layered deals and excluding the Commercial Property division, new business submissions were up 9% for the quarter. While our lines of business are experiencing varying levels of competition and pricing pressure, the combined pricing trend for Kinsale is in line with the Amwins Pricing Index, which showed a rate decrease of 3 1/3% compared to a 2.7% decrease in the fourth quarter of 2025. Although large commercial property placements continue to experience strong rate pressure, other property lines like small business property and Inland Marine and casualty lines like commercial auto, excess casualty and general casualty, present opportunities for meaningful rate increases. We continue to have a high level of confidence in our model and its ability to perform throughout all parts of the market cycle. The foundation of that confidence is our underwriting discipline, our market responsiveness, our low cost and maintaining the flexibility to adapt to changing conditions. What is especially encouraging is that the business continues to show very good momentum. For small- to medium-sized risks, submissions are up, quotes are up and binders are up. That tells us the market is responding well to what we offer and that our value proposition continues to resonate with brokers and insurers. In a hard market, our model allows us to lean into opportunity. In a soft market, it gives us the discipline to stay selective and focus on business that meets our return thresholds and to exploit our low-cost advantage over our competition. We do not need a specific market environment to perform well. The model is designed to adapt, and we believe that adaptability is a real competitive advantage. So when we look ahead, we feel good about where we are, we feel good about the opportunities for profit and growth and we remain very confident in the long-term strength and durability of the platform. And with that, I'll hand it back over to Mike. Michael Kehoe: Thanks, Stuart. Operator, we're now ready for any questions in the queue. Operator: [Operator Instructions] Your first question comes from Dan Cohen with BMO Capital Markets. Daniel Cohen: Just first on the new disclosure of the new business quotes and the new bind orders. Can you just maybe expand on how that's trended year-over-year and quarter-over-quarter. I understand, Stuart, you said this was up. Just wondering if you could quantify that? And how should we be thinking about this KPI relative to submission growth? Michael Kehoe: Dan, this is Mike. I would say we've had requests from people over the years for a little bit more granular disclosure. So we're providing it. The more granular, the more volatile those numbers are. So I wouldn't overthink how important it is that in a 90-day period, some things up or down. But across the 25 divisions, I think you can see what we're talking about, which is overall, we're in a competitive market, but there's plenty of opportunities in some places. In other places, there's a lot more competition, and we're going to grow a little bit more slowly. Daniel Cohen: Okay. And then maybe just given the material expense ratio and the best-in-class returns today, just wondering, is Kinsale willing to deteriorate some of its accident year loss ratio for higher growth in the near term? Is that a part of the equation at this point? Michael Kehoe: Listen, we always manage all of our product lines to a low 20s return on equity or greater. And we're constantly adjusting pricing in both directions based on our understanding of the relative profitability of a given line. So that's just a normal part of managing an insurance company. But our ROE for the quarter was 24%. So I wouldn't expect a meaningful deterioration from that, no. Operator: Your next question is from Hristian Getsov with Wells Fargo. Hristian Getsov: My first question is on the accident year loss ratio. So I think it was much better than people expected, up 40 bps year-over-year. But is there anything one-off you'd like to highlight maybe in favorable non-cat weather? Or how should we think about the accident year loss ratio moving from here just given more mix shift towards casualty and just loss trend versus rate in lines away from property? Salmaan Allibhai: This is Salmaan. There's nothing out of the ordinary, no one-time adjustments to the accident year loss ratio. I'll just remind you that throughout the course of the year, there is a little bit of seasonality when it comes to that current accident year loss ratio. And so typically, the first quarter is a little bit higher than the other quarters, but nothing out of the ordinary to report. Hristian Getsov: Got it. And then just given the new disclosure, I was surprised to see E&S homeowners declined 22% in the quarter. Was that driven by increased competition? Or was it something more timing-related. Stuart Winston: Yes. It's the high value -- this is Stuart. The high-value market is experiencing some increased competition, and we're -- the limits that we're offering are tend to be lower. So it's -- the average premium is dropping a little bit. Michael Kehoe: We're still showing, I think, good growth in our Personal Insurance division, which is obviously also a homeowner split. Hristian Getsov: Got you. And then if I could just sneak 1 more. I know your reinsurance renewal is coming up and you guys increased retentions last year. But how are you guys thinking about it for this year given the below-average forecasted hurricane season. But also counterbalancing that, which is the lower cost of reinsurance? Michael Kehoe: Yes. This is Mike. We look at reinsurance retentions, limits, et cetera, every year. We've obviously increased our retention many times over the 17 years in business. And so obviously, we'll look at it again this year, but I can't really commit at this moment to how the treaties will be placed. I'll just note, it's a 6/1 renewal date. Operator: Our next question is from Andrew Andersen with Jefferies. Andrew Andersen: On the casualty side, Mike, maybe you could just talk a bit about how competitive behavior has been changing over the past 6 months, whether that's from MGAs or admitted carriers and on the flip side, maybe where it's been more stable than we would expect. Michael Kehoe: Andrew, I would just say, in general, we're looking at a competitive market. I think Stuart highlighted at the underwriting division level, where we're seeing -- I would look at the growth rate as a proxy for how competitive things are, right? The faster we're growing, the more opportunities we're finding. Stuart, I think you commented about the increase in competition on the long-tail lines. Stuart Winston: Yes, we're starting to see a lot of competition from fronts and MGAs and new companies on long-tail lines, specifically in construction over the last 4 to 5 months. So that's -- it's ramping up pretty aggressively there, but there's still premises liabilities is strong for us. Anything related to auto, we're seeing meaningful opportunities there. Michael Kehoe: And maybe one other thing, just to reiterate is that there's -- it's a different market when you're looking at larger transactions than when you're looking at smaller. And hence, we've always focused predominantly on small- to medium-sized accounts. And in a more competitive market, we always feel like that's a great safe harbor for Kinsale. Andrew Andersen: Got it. And that kind of ties into this question, but the submission growth seems pretty similar quarter-over-quarter, but down from where it was maybe a year or so ago. How much of the slowdown of the submissions would you kind of characterize as demand-driven versus some pullback on just irrational pricing? And perhaps you could also update us on some initiatives to expand broker relationships or the penetration with the existing brokers and how that could help top line as we go through the year? Michael Kehoe: In terms of the submission growth, again, we've always looked at that as a little bit of a leading indicator, maybe not a perfect one. But the ex commercial property, the fact that our submissions were up, I think, 9% for the quarter. We look at that as an attractive growth rate. If you had to characterize it, it's a competitive market, but reasonably steady, and we're excited about the growth prospects. There is a little bit of the shift from where larger accounts are under more competitive stress. So that has the near-term impact of, if you will, it has a depressing effect on the growth rate, but only until some of those accounts transition off the books, and then we see more of a normalization. But in terms of new broker appointments, we're always looking for top quality brokers to trade with. And that's a dynamic market. We're principally a wholesale distribution model. If there are changes in the marketplace and an experienced team of brokers who want to start a new shop, we're typically quite supportive of that. Operator: Our next question is from Pablo Singzon with JPMorgan. Pablo Singzon: Mike, thanks for the disclosure and submission growth. Are you noticing any change in retention? Or is the delta between gross premium and submission mostly pricing exposure as well as the mix impact from large commercial property? Stuart Winston: Yes. Pablo, this is Stuart. New business hit ratios and renewal hit ratios have been consistent quarter-to-quarter for a long time. So no big change there. Pablo Singzon: Okay. And then maybe a broader question. So small business E&S and even on the admitted side, has historic have been challenging to break into and some of your larger competitors have said that technology might enable them to be more competitive with smaller customers. Are you seeing any evidence of that emerging in the market today? . Michael Kehoe: No. Obviously, technology has always been an enormous priority for Kinsale. We talk about it in terms of making technology a core competency of our business 17 years ago when we started the company alongside of underwriting and claim handling. And I think that's providing some pretty powerful benefits. I think you can use our expense ratio in part as a proxy for the lead we have over competitors in terms of technology. We like to think we're going to be able to adapt new technologies that are coming out, whether it's software and hardware or whether it's AI models. We think we can adapt that and incorporate those innovations into our business more quickly because of the skill of our tech professionals because of the fact that we don't have legacy software going back 20, 30, 40 years. We don't have thousands of legacy applications to maintain. I think our competitors would have to speak to their own positions on that issue, but we feel like we're in a good spot. Operator: Your next question is from Mark Hughes with Truist. Mark Hughes: Yes. On the property front, where do we stand in terms of the sequential change in competition or pricing. The question is, is it reset at the lower level and now you're just kind of running through that and eventually, you'll hit the easier comp or is it continuing to drift to the downside? Michael Kehoe: Yes. We don't really have any good news to report there. I would say the easier comps, just like last year will be in the second half of the year, because we've always had a little bit of a disproportionate percentage of that commercial property volume in the first 6 months of the calendar year. Mark Hughes: And then the -- yes, the expense advantage, I think you had kind of touched on this earlier that your focus is going to be on keeping -- managing the low 20s ROE but you talked about using the expense advantage. Would you say that essentially, you're in the -- you're using that to the degree that's appropriate at this point that you're not going to be pushing more or using the expense advantage to grow the top line. Is that -- that's something you've already deployed, so to speak, to the extent that you choose to? Michael Kehoe: Mark, I think the way I'd characterize it is we're always estimating our loss cost, some lines of business we write are short tail, like the property cat exposed business. It's heavily dependent near term on the weather. The fire peril on a property book is a little bit more statistically predictable. We write short, medium and long tail casualty those things are impacted by different things like changes in tort law and inflation and -- so yes, we're always thinking about our expense advantage. We also think about our underwriting advantage, controlling our own underwriting, having a more accurate process. We think about the tremendous amount of work we've done in terms of analytics, constantly figuring out smarter ways to segment and price risk. I think that's an advantage. But then on top of that, we've got a tort system that's not 100% predictable, right? There's the law of large numbers. We've got accurate ways to reserve for future claims, but there's -- you never know definitively the cost of goods sold. And so hence, the conservative reserving, we've got a 17-year track record of those reserves developing favorably on a GAAP basis. But yes, all those things go into the mix, and we think it puts us in a great position to not only generate best-in-class returns but to continue to grow the business. We are ambitious. We do want to grow. But we subordinate the growth if we have to, to profitability. But I think the message on this call is that even in a highly competitive market, we're finding lots of ways to grow. Admittedly, the gross written premium number being down 0.5% for the quarter might seem to contradict that. But when you consider all the commentary we're making around large accounts being under more stress, in a lot of ways, the book is just shifting or transitioning to a little bit more of a smaller average premium, and we're fine with that. The profitability in that business is top-notch. So long term, we're confident we're going to continue to grow and take market share, but certainly never at the expense of an attractive level of profitability. Mark Hughes: And then just out of curiosity, how is the equity portfolio performing? Michael Kehoe: It's performing well. I think if you look back over -- so keep in mind, we're about 2/3 actively managed equities and 1/3 passive, principally the S&P 500. I think since late 2022, we've lagged the S&P, but we've more or less matched our benchmark, which is the Vanguard VYM, the high dividend ETF. And lagging the S&P is mostly related to the fact that we've got a little bit less of a weighting toward tech. It's not that we're not big believers in technology. It's just that we're a little bit more of a value orientation. Operator: [Operator Instructions] Your next question comes from Rowland Mayor with RBC Capital Markets. Rowland Mayor: I appreciate the new disclosures on the growth rates by unit. I was just wondering on the commercial property. It looks like it was $65 million of premium in the first quarter and $375 million last year. What portion of that is actually in the large property category you're talking about the competition? Michael Kehoe: We don't have a specific breakout, but the average premium in that division, I think, is somewhere between $30,000 and $40,000 per policy. Stuart Winston: That commercial -- that commercial property division, that is the large shared and layered division. So everything else has handled small properties broken out separately. So Commercial Properties is a stand-alone division for the large shared and layered deals. Michael Kehoe: Yes. And if you look at that division, Rowland, if you looked at that, like, say, a year or 2 ago, I think the average premium might have been north of $50,000. So you can see where we're either losing some of those larger accounts or maybe we're participating higher in the schedule where there's less risk, so hence, less premium. It's a variety of factors. But definitely, a trend towards smaller accounts where, again, we're very confident around the margin in that business. Rowland Mayor: Okay. Perfect. And then I wanted to ask, you had mentioned the low 20s target for ROEs. And I guess with the amount of capital coming into the space and seemingly going after lower return targets, do you think it will normalize back to your market? Or do you think you might long-term need to come down into the high teens at some point? Michael Kehoe: I think with a better underwriting model and a cost advantage that's so significant, it's -- it's hard to believe that it exists. No, we're confident in a low 20s return on equity. We kind of look at it, if you will, it's like a spread over the risk-free rate, which is admittedly slightly -- if you use the 10-year treasury, that's a little bit below 5%. But just generally speaking, we're about 15 percentage points above the risk-free rate. Operator: Your next question is from Pablo Singzon with JPMorgan. Pablo Singzon: Mike, the submission growth rate you provided, do you have a sense of how that compares to the overall market or maybe the subsegment of E&S where you compete in, right? I just want to get a sense of, first, like sort of where the macro is trending? And I guess, more importantly, how you are running against it? Michael Kehoe: Yes. Pablo, we don't have any specific information for the overall market. But I would say, in general, brokers do a great job working hard for their clients. Their clients want low-cost, broad coverage. So they typically canvass the market to make sure they're getting the best terms and conditions for their customer. So I assume there's some commonality to the stats we have versus what our competitors have. But we don't really know that. Operator: Your next question is from Mark Hughes with Truist. Mark Hughes: You talked about more competition in construction. How are you seeing the volume of opportunities? Have you seen any kind of slowdown or delay in construction activity? Stuart Winston: Mark, this is Stuart. We haven't seen any delays, but we don't also focus on large project-specific policies for those parts. I think you will see that in certain areas, outlets in the Northeast for wraps that projects are being delayed a little bit, but that's not really where we focus on in the construction book. Mark Hughes: And then in the general casualty, the growth was still pretty strong double digits, at what, 11% or 12%? How did that compare to the fourth quarter? I think for all of last year, you were up in the low 20s. I'm just sort of curious sequentially what you've seen on the general casualty book? Michael Kehoe: Mark, we don't have the stats to provide today, but we do have in the K, you've got the by underwriting division, gross written premium for the year, and it's a 3-year look back. Mark Hughes: Yes. Yes. Exactly. Okay. And then Bryan, on the cash flow, the cash from operations up 8%. Should we think -- is that going to track along with net written perhaps? Or how would you think about the cash flow dynamic playing out this year? What are the guideposts we should keep an eye on in terms of the free cash. Obviously, it's helping to drive investment income. So I'm just sort of curious, any thoughts there. Bryan Petrucelli: I think that's a good way to look at it, Mark, trending it with net written premiums. Operator: There are no further questions at this time. I'll now turn the call back over to Mr. Kehoe for closing remarks. Michael Kehoe: All right. Well, I just want to thank everybody for participating. And hopefully, you get a sense of our optimism and hope everybody has a great day. Goodbye. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Financial Bancorp. First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] I would now like to turn the call over to Scott Crawley, Corporate Controller. Please go ahead. Scott Crawley: Thanks, Kate. Good morning, everyone. Thank you for joining us on today's conference call to discuss First Financial Bancorp's first quarter financial results. Participating on today's call will be Archie Brown, President and Chief Executive Officer; Jamie Anderson, Chief Financial Officer; and Bill Harrod, Chief Credit Officer. Both the press release we issued yesterday and the accompanying slide presentation are available on our website at www.bankatfirst.com under the Investor Relations section. We'll make reference to the slides contained in the accompanying presentation during today's call. Additionally, please refer to the forward-looking statement disclosure contained in the first quarter 2026 earnings release as well as our SEC filings for a full discussion of the company's risk factors. The information we will provide today is accurate as of March 31, 2026, and we will not be updating any forward-looking statements to reflect facts or circumstances after this call. I'll now turn the call over to Archie Brown. Archie Brown: Thanks, Scott. Good morning, everyone, and thank you for joining us on today's call. Yesterday afternoon, we announced our first quarter results, and I'm very pleased with our overall performance. The first quarter was a busy one as we closed the BankFinancial acquisition, completed the conversion of Westfield Bank and wrapped up the sale of the BankFinancial multifamily loan portfolio. Adjusted earnings per share were $0.77 with an adjusted return on assets of 1.45% and an adjusted return on tangible common equity of 19.2%. Adjusted earnings per share increased 22% compared to the first quarter of last year, driven by a robust net interest margin and strong fee income. Our net interest margin was resilient despite the Fed funds rate cut in December as the expected decline in loan yields was offset by a similar decline in deposit costs. Assuming no short-term rate reductions by the Fed, we expect the margin to remain stable in the near term. Loan balances increased slightly for the quarter due to the BankFinancial acquisition. Excluding the BankFinancial portfolio, loans declined for the quarter as seasonally strong loan production was offset by extended payoff pressure in the ICRE portfolio. Compared to the first quarter of 2025, originations increased approximately 45%. And excluding Westfield and BankFinancial, originations were up by over 25%. Our expectation for loan growth for 2026 has not materially changed. Loan pipelines are very healthy, and we expect strong production in the second quarter. We also expect payoff activity in ICRE to approach more normal levels, leading to solid loan growth in the second quarter. Adjusted fee income was strong for the quarter. Historically, fee income significantly dips early in the year. However, we successfully combated this trend in the first quarter. Adjusted noninterest income was $75.6 million, which was 24% higher than in the first quarter of 2025 and only a slight decline from the linked quarter. These results were driven by record wealth management income, strong client derivative income and record leasing business income. Additionally, expenses were well controlled during the quarter with total noninterest expenses coming in well below our expectations and acquisition-related cost savings exceeding our initial estimates. Net charge-offs were 35 basis points of total loans and were impacted by one large commercial relationship. Other asset quality indicators were stable with nonperforming assets slightly declining from the linked quarter to 44 basis points, while there is certainly more uncertainty in the economy due to the impact of the war in Iran and, our current expectations are for asset quality to gradually improve throughout the year, similar to our performance in 2025. Capital ratios are strong and continued to climb in the first quarter. All regulatory ratios were well in excess of regulatory minimums and the tangible common equity increased to 7.9%. Tangible book value per share was $16.15, which was a 2.6% increase over the linked quarter and a 9% increase compared to the first quarter of 2025. Tangible book value was at approximately the same level as the third quarter of 2025 just prior to the Westfield Bank acquisition. This month, the Board of Directors authorized a $5 million share repurchase plan, replacing the plan we had in place through 2025, and we are evaluating opportunities to employ buybacks as part of our overall capital planning. I'd like to take a minute and discuss our recent acquisitions. During the quarter, we successfully completed the conversion of Westfield Bank. And then for the quarter, Westfield deposit and loan balances were stable, we maintained high associate retention, and we have achieved the financial results that we expected from the transaction to date. We're happy with the quality of the bank we acquired and with the talented team that has joined us. We also completed the purchase of BankFinancial on January 1 and plan to convert systems in early June. We remain excited about the opportunities in the Chicago market and continue to see growth potential from this transaction. Now I'll turn the call over to Jamie to discuss these results in greater detail. And after Jamie, I'll wrap up with some additional forward-looking commentary and closing remarks. James Anderson: Thank you, Archie, and good morning, everyone. Slides 4, 5 and 6 provide a summary of our most recent financial performance. The first quarter results were excellent and included strong earnings, record revenues driven by a robust net interest margin and higher-than-expected fee income. Our net interest margin remains very strong at 3.99%, increasing 1 basis point during the quarter. Cost of funds declined 13 basis points, while asset yields declined 12 basis points. End-of-period loan balances increased $71 million, which included $228 million acquired in the BankFinancial transaction. This was partially offset by a $152 million decrease in ICRE balances, reflecting the payoff pressure that Archie mentioned earlier. Total average deposit balances increased $1.7 billion, including $1.2 billion acquired in the BankFinancial transaction and the full quarter impact from Westfield. We maintained 20% of our total deposit balances and noninterest-bearing accounts and remain focused on growing lower cost deposit balances. Turning to the income statement. First quarter fee income overcame seasonal headwinds with strong performance across all income types. Additionally, we had an $8.9 million gain on bargain purchase related to the BankFinancial acquisition. Noninterest expenses increased from the linked quarter due primarily to the impact of our most recent acquisitions. Our ACL coverage decreased slightly during the quarter to 1.36% of total loans and we recorded $8.5 million of provision expense during the period, which was driven primarily by net charge-offs. On asset quality, net charge-offs were 35 basis points on an annualized basis an increase of 8 basis points from the fourth quarter, while NPAs as a percentage of assets were 44 basis points, declining 4 basis points from the fourth quarter. Classified assets as a percentage of total assets also declined slightly during the period. From a capital standpoint, our ratios are in excess of both internal and regulatory targets. Tangible book value increased $0.41 to $16.15, while our tangible common equity ratio increased to 7.88%. Slide 8 reconciles our GAAP earnings to adjusted earnings highlighting items that we believe are important to understanding our quarterly performance. Adjusted net income was $80.5 million or $0.77 per share for the quarter. Noninterest income was adjusted for $1.3 million of losses on the sales of investment securities, the $8.9 million gain on bargain purchase related to the BankFinancial acquisition and a $1.4 million loss on the surrender of a bank-owned life insurance policy. Noninterest expense adjustments exclude the impact of acquisition costs, tax credit investment write-downs and other expenses not expected to recur. As depicted on Slide 9, these adjusted earnings equate to a return on average assets of 1.45% and a return on average tangible common equity of 19% and a pretax pre-provision ROA of 1.99%. Turning to Slides 10 and 11. Net interest margin increased 1 basis point from the linked quarter to 3.99%. Total deposit costs declined 13 basis points from the linked quarter, offsetting the impact of lower asset yields. Slide 13 illustrates our current loan mix and balance changes compared to the linked quarter. Loan balances increased $71 million during the period. As you can see on the right, we acquired $228 million of loans in the BankFinancial transaction. This was offset by a $152 million decrease in ICRE balances. [ Absent ] the acquisition, loan balances decreased 4.7% on an annualized basis, driven by elevated payoffs and ICRE. Slide 15 depicts our NDFI exposure. As you can see, our total NDFI balances are approximately 3% of our total loan book and all NDFI loans were pass rated at the end of the first quarter. The majority of our NDFI lending is concentrated in loans to REITs, which we believe further mitigates our risk. Slide 16 shows our deposit mix as well as the progression of average deposits from the linked quarter. In total, average deposit balances increased $1.7 billion, including a $1.2 billion impact from the BankFinancial transaction as well as a full quarter impact from Westfield. Slide 18 highlights our noninterest income. Total adjusted fee income was $76 million, with leasing and wealth management both posting record results. Foreign exchange delivered strong results and client derivative fees increased during the period as well. Noninterest expense for the quarter is outlined on Slide 19. Core expenses increased $12.9 million as expected during the period. This was driven primarily by our recent acquisitions. Turning now to Slides 20 and 21. Our ACL model resulted in a total allowance, which includes both funded and unfunded reserves of $207 million, which includes $3.1 million of initial allowance on the BankFinancial portfolio. This resulted in an ACL that was 1.36% of total loans, which was a 3 basis point decline from the fourth quarter. We recorded $8.5 million of provision expense during the period. Provision expense was primarily driven by net charge-offs, which were 35 basis points. Additionally, our NPAs to total assets decreased slightly to 44 basis points, while classified asset balances as a percentage of total assets decreased to 1.02%. Finally, as shown on Slides 22 and 23, capital ratios remain in excess of regulatory minimums and internal targets. During the first quarter, tangible book value increased to $16.15, while the TCE ratio increased to 7.88% at the end of the period. Our total shareholder return remains strong with 35% of our first quarter earnings returned to our shareholders during the period through the common dividend. The Board also approved a $5 million share repurchase program. We maintain our commitment to providing an attractive return to our shareholders and we'll evaluate capital actions that support that commitment. I'll now turn it back over to Archie for some comments on our outlook. Archie? Archie Brown: Thank you, Jamie. Before we conclude our prepared remarks, I want to comment on our second quarter outlook, which can be found on Slide 24. On the balance sheet, we expect mid-single-digit loan growth on an annualized basis during the second quarter as loans filter through our strong pipelines and ICRE payoffs slow. On the deposit side, we expect core deposit balances to remain relatively flat compared to the first quarter. Our net interest margin remains among the highest in the peer group, and we expect it to hold steady in a 3.99% to 4.04% range over the next quarter, assuming no rate cuts. Related to credit, we expect second quarter credit costs to approximate first quarter levels and ACL coverage to remain relatively stable as a percentage of loans. As I mentioned earlier, similar to last year, we expect credit trends to gradually improve over the course of the year. Further down the income statement, we expect fee income to be between $75 million and $77 million, which includes $14 million to $16 million for foreign exchange and $20 million to $22 million for leasing business revenue. Noninterest expenses are expected to be between $151 million and $154 million. We successfully completed the Westfield conversion in March and are scheduled to convert BankFinancial over the summer, we're on pace to achieve our modeled cost savings in the Westfield acquisition and should realize full savings beginning in the third quarter, and we expect full BankFinancial savings to be realized beginning in the fourth quarter. Before I wrap up, I want to thank our associates for the incredible work they've done this year integrating Westfield into First Financial and the work they're now doing as they prepare for the BankFinancial conversion I also want to mention how proud I am that First Financial was selected for the Gallup Exceptional Workplace Award for associate engagement. This marks the second consecutive year that we have received this honor which is awarded to 4% of the thousands of companies that Gallup works with worldwide. We have partnered with Gallup for more than 6 years, and we've made associate engagement a core tenet of our corporate strategy. I want to commend our associates and leaders who work throughout the year to drive engagement, knowing that by doing so, we're also improving the client experience and shareholder value. To conclude, we're really happy with our first quarter results. We've made substantial progress across the company, and we worked diligently to be a bank that consistently produces top level results. We remain focused on the right things and are determined to build on the momentum generated by our first quarter performance. We've had a very strong start to 2026, and we believe that this is going to be another very successful year for First Financial. Kate will now open up the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Daniel Tamayo with Raymond James. Daniel Tamayo: So I guess maybe first, starting on the loan growth side. You talked about the impact from the payoffs in the first quarter, $152 million, I think, is the number you gave. So we talked to a lot of banks this earnings season about this headwind and kind of what's going to change to remove that headwind going forward. So just curious on your thoughts on that, kind of what drives your confidence those headwinds on the paydown side slow? And just a little bit more timing if it's second quarter or you think it's back half of the year. As it relates to the timing of the paydowns? Archie Brown: Yes. Thanks, Danny. Yes, I'll maybe start with some color, and then I'll come back to the kind of how we see our outlook on it. We talked about this primarily being ICRE. We had -- we don't show REITs in the ICRE totals, but we also had some REIT paydowns or exits, if you will, and that shows up more in our commercial line. That was probably another $23 million, but it's all related in the commercial real estate space, if you will. Look, it's been a mix. We probably saw about 30% of our ICRE balances were exited because of the properties were sold. So there's been a little more, I think, a little more volume of sales occurring as some of the developers owners are saying, look, this is -- I'm getting good pricing. It's a good time to do it with the uncertainty. So that's a piece of it. We've seen about maybe close to 1/4 of it go to the secondary market. And then we've seen other banks come back in. We've seen -- for several years, we weren't seeing the larger regionals in the space. They're back in and they're aggressive and they're taking out loans. In some cases, for us, hotels, we don't have a big book, but that's where some of it's come from. Other cases, loans that they're taking and they're taking for very aggressive pricing or, in some cases, structure that we don't think is appropriate. So we're seeing some of it move like that. So if you said property sales, secondary market, larger banks coming back in and then some REIT exits that's sort of been the mix of what we've seen happen. We talked to our commercial real estate team, just what we're seeing in their conversation with borrowers and just with the level of payoff requests coming in, they just are slowing. And what our team sees is that over the course of the second quarter, that will slow -- continue to slow. In addition, our production ramps up more in the quarter. So it's a combination of the 2, we don't know exactly where this is going to fall, of course. There's timing of payoff things that can occur. But they're hopeful that they're going to be somewhere that portfolio around flattish for the quarter. And if they're flattish along with the other activity we have, I think that drives our growth overall. Daniel Tamayo: That's great. Very helpful detail there, Archie. I guess the other side of that, and you touched on it at the end, is the production I think you talked a little bit about it in the prepared remarks, but maybe talk about the pipeline and some of the drivers within that, particularly on the commercial side for the rest of the year? Archie Brown: The pipeline, I think we signaled is pretty strong. Now look, I guess everybody can define what a pipeline means. In our -- in the language we're using here, we call these advanced stage pipeline or a late-stage pipeline. Generally, this is where we've been awarded the business. That doesn't mean we'll close them all. Sometimes they'll fall out for different reasons, but that's how we're looking at this. And it's just -- it's up substantially from the early part of the year, and we think that activity is continuing. The sentiment in the market, I know there's a lot of macro activity going on, but demand is pretty strong. Borrowers are pretty active, and we think the pipeline will continue to build. So that's given us some confidence that we'll see the growth we've talked about. And it's pretty much across the board. When you look at all of the areas that we lend into. We're seeing good pipeline activity. Daniel Tamayo: Okay. Great. And then lastly, again on the same topic, but just curious where you guys stand, I mean, in Chicago right now? You closed the BankFinancial deal. It was really for the deposit side? I know you had some presence there prior to the deal. So maybe update us on where you stand from like a lender perspective and where you're looking to get to over time? Archie Brown: Sure. So Danny, as you said, we closed early in the year, convert early June. As you said, it's been primarily a deposit play deposits are holding, I think, pretty well at this point. And we're sort of building out the team, if you will. So we've added some commercial banking talent. We had a team I think we've added one here in the last month or two. We plan to add more bankers to the commercial banking team. We've added wealth advisers to the team, private bankers to the team. So we're kind of filling out, if you will, what I call the more of the wholesale commercial team to complement the retail strategy. And we think there's good opportunity. If you go back and look at that bank, they really weren't generating activity in those areas to speak of. So we think it's -- as we get the team filled out, almost anything we do there is going to be additive to the bank's balance sheet. Operator: Your next question comes from the line of Brandon Rud with Stephens. Brandon Rud: I guess maybe my first one, the cost of interest-bearing deposits was 2.33% for the full quarter. I'm just curious, embedded within your NIM guide, is that kind of a good starting base for the second quarter or I guess, I guess, yes, is that still a good starting point for the second quarter? James Anderson: Yes, we talked -- when we're talking deposits, Brandon, we really talk more kind of the overall -- like our overall cost of deposits. So that -- but that number that you're quoting there, I mean that's the -- I guess, the exit cost going into the second quarter would be slightly lower than that. And so we're showing our overall cost of deposits in the first quarter was 1.83%, and we think we can get that down in the second quarter, another 2 or 3 basis points. So the cost of interest-bearing deposits would just kind of flow right off of that as well, obviously. So the -- so our starting cost of deposits in the second quarter. Again, 1.83% for the full quarter in the first quarter, the starting point is around 1.80%, 1.81%. Brandon Rud: Okay. Perfect. And then I think you said the fourth quarter of this year, I think, is going to be the first clean quarter with all the expenses taken out. So thank you for the guide for the second quarter. I'm assuming kind of stair steps down from there. I guess what is that all-in run rate with all the cost saves kind of look like in the fourth quarter then? James Anderson: Yes. So we'll get a stair step down here in the -- let's see here. In the second quarter, call it down into that range where we guided to. And we think then it is relatively flat for the remainder of the year. We may get a little bit more coming down. But obviously, we have some other stuff outside of the acquisitions where we're making other investments and whatnot where costs are moving up, just like normal in that 2% or 3% range that's going to offset the decline really from the from the BankFinancial deal. And the BankFinancial deal, obviously, was a little bit smaller in their expense base. But the fourth quarter, so we should see that step down in the second quarter, which gets us to that guide that we put in the outlook, and then it's relatively flat for those -- for the out quarters. Brandon Rud: Got you. Okay. So the cost savings effectively fund the investments and that's a stable rate? James Anderson: Right. Operator: Your next question comes from the line of Karl Shepard with RBC Capital Markets. Karl Shepard: I guess I just want to start on the margin quick. We have the guide for 2Q. But just thinking about your balance sheet, I'm guessing if we don't see any cuts, that's probably a pretty good spot to be for the rest of the year? Or should we be thinking about loan growth maybe changing the mix a little bit and helping the margin? James Anderson: Yes. Yes, this is Jamie, Karl. Yes. So that guide, obviously, with rate cuts getting looks like getting pushed out in either later in the year or into '27 at this point, obviously helps us from a margin standpoint, being slightly asset sensitive. But yes, so when we -- as we remix out of some of the securities balances that we've put on with the liquidity that we got from -- especially from the BankFinancial deal, you could see -- and it's not a lot, obviously, because based on the earning asset base of -- based on the earning asset base that we have, that rotation is relatively small out of the securities book into the -- if we have loan growth in that 5% to 7% range, you're talking about a couple of hundred million dollars a quarter, right? So if we rotate out of securities for a portion or all of that, it's just not -- it's not that much to basically get a lot of lift in the margin, but you might see a basis point or 2. Karl Shepard: Okay. And then I saw in the deck a new branch in the Westfield markets. I'm assuming that was planned ahead of the merger, but just we talked a little bit about Chicago expectations and investments there, 2 questions ago. But anything in Westfield markets to flag? Archie Brown: Yes, Karl, this is Archie. So specific to that branch, that was actually a branch underway when we were negotiating and announcing a deal, they already had that branch under construction. So we just completed. Actually, we opened it up as a First Financial branch prior to the conversion which is, I think, a good thing from training and letting people get to use -- kind of get to introduce to First Financial. With regard to other things we're doing in the Northeast Ohio market, I think altogether, so I think there's about 4 FTE added because of Wadsworth that branch. I think we've added about another 9 producers whether they be on the commercial, small business side, wealth, private banking. We've added about 9 producers to that market. to kind of round out all the things that we do. That's all baked into the expense numbers as well. But we think there's upside of adding the additional production capability. Operator: Your next question comes from the line of Brian Foran with Truist. Brian Foran: Your capital has rebuilt pretty quickly here, which is a good problem to have. I mean, in some ways, maybe just an open-ended question on what you're thinking going forward. I think you mentioned maybe evaluating more buybacks. And then as part of that, if there's anything notable to share around Basel III or around how you're thinking about the binding minimum between CET1 and TCE and things like that. But yes, really just kind of focused on the excess capital and what you're thinking for the next 12 months or so? James Anderson: Yes. Yes, Brian, this is Jamie. So yes, if you -- we are compounding capital at a high rate just based on our earnings level. And if you look back pre Westfield and BankFinancial, I mean, maybe to a lesser extent, BankFinancial. But if you look back pre-acquisition, at the end of the third quarter, and I'm talking about our tangible book value per share we're basically back to where we were now pre-acquisition level. So what we were very pleased with. So we are piling in at this earnings level, a lot of capital. And really, when you think about it for us, I mean our regulatory ratios are fine. We have a lot of cushion there. Typically, our constraint when we look at -- like if we look at an acquisition, our constraint typically is in the TCE ratio. We're close to 8% now, just below 8%. Obviously, we have some AOCI impact in there. And then rates moved against us a little bit in the first quarter to -- or that would have been even a little bit higher. So our typical constraint is to TCE ratio. We would like to be that -- like to have that above 8% and we're getting there pretty quickly. But when we talk about buyback and looking at that, obviously, we're going to be mindful of price and the earnback on that -- on a buyback and looking at that TCE ratio. But we are -- so we have a -- when we look at the common dividend, we have a payout ratio in the low 30s, call it, 30% to 35% now based on our earnings level post acquisition. So we wanted to get a couple -- a quarter or 2 of impact in from the acquisitions to see where we were from a capital ratio standpoint, where everything was going to fall out -- and then so we had the Board approve the share buyback. We haven't done any buybacks in several years, mainly because of, well, several things. We've had -- we had a couple of nonbank acquisitions during that -- so we haven't done a buyback since '21. And we had a couple of the nonbank acquisitions in there, which aid up a pretty significant amount of capital for us because they were all basically all cash deals. And so all goodwill aid into the TCE ratio. So we think we're at a level now, especially with our earnings, the amount of capital we're bringing in, where we can look at buybacks and potentially, I think what we're looking at is looking at that total payout ratio, again, which now with just the common dividend is in the low 30s of increasing that somewhere in that 50% to 60% range. And so if you do that math, the other -- obviously, the other piece of that is the buyback. So you're talking about another 20 to 30 points of where the buyback would play into that. And then -- but that we're -- I don't know if we're saying we're guaranteeing we we're going to do that, you could probably see us execute some on the buyback. It would be dependent on some other factors, potentially macro factors and then we would -- if we see a strategic M&A deal, we would prioritize that in front of the buyback. But yes, I think absent that, I think you would see us start executing on the buyback. Brian Foran: That's great. If I could ask one follow-up. The CRE paydown discussion was really helpful. I think the last point you made was seeing some pricing and structure that you don't necessarily want to match. I wonder if just anecdotally, kind of at the aggressive end of the market, could you share where you're seeing yields or spreads get to? And are there any particular points in structure that you're seeing people give on? Is it an LTV thing? Is it a personal guarantee thing? What are the kind of things you're seeing in the market that you don't want to match? Archie Brown: Yes. This is Archie. I mean we had a deal that we were -- we thought we were within days of closing. It's like a $25 million or $30 million transaction. We thought we were in days of closing and one of the large regionals had been competing on it. And then, I guess, when they realized they had lost it, they came back and basically eliminated the covenants. So it wouldn't even change and just eliminated the covenants. So we're seeing that. Certainly on a fixed charge coverage ratio, those numbers may be coming down. It's those kind of things in particular. Our pricing is aggressive also, I may have mentioned earlier, but certainly sub-200 basis points of spread, 170, 180, in some cases, lower for some commercial, really high-quality commercial deals even lower on spread. So it tends to be really aggressive pricing, loosening up some of the coverage ratios would be probably the primary areas we're seeing it. Brian Foran: All right. Hopefully, it's not true with swooping in with no covenants. Archie Brown: Yes. Well, I think the point here too is, I mean we're -- I think everybody is excited about activity and wanting loan growth, and we want it too, but we don't want to give our skis. So we're going to get growth, but we need -- we want it to make sense, and we want to be happy about it 2 years from now. Operator: [Operator Instructions] Your next question comes from the line of Brendan Nosal with Hovde Group. Brendan Nosal: Maybe just starting off here on some of the -- just the overall balance sheet. It looks like there's some pretty big discrepancies between where spot balances were for kind of loans, cash and securities versus average balances for the quarter, and I guess there's a lot of noise. So I guess, can you fill us in on when the BankFinancial loan sale occurred during the quarter? And then where do you see overall average earning assets landing in the second quarter? James Anderson: Yes. Great question, Brendan. This is Jamie. So the loan sale closed on at the end of -- the very end of the quarter, it closed on March 30. So when you look at our cash and securities we had call it, roughly $400 million sitting in cash, not in securities, it was sitting in cash at the end of the quarter. And so that $400 million-ish we will not put that to work in the securities portfolio. We will kind of slowly let higher cost either borrowings or deposits or broker deposits run out, and we'll fund that with the cash from that loan sale. And then so when you're talking about earning assets, the earning asset base for the first quarter kind of spot at the end of the quarter was around $19.7 million -- around [ $9 million to $15.7 million ]. So if you take that $400 million out sitting in cash, I guess, it's sitting in interest-bearing deposits at banks. So that will come out, and then you'll start to see again, with the loan growth that we guided to, if that is -- again, if that's in that 5% to 7% range, you're talking about a couple of hundred like $200 million a quarter. Our plan is to fund about half of that with cash flows from the securities portfolio and then the rest, we'll grow the earning asset base. So if you're talking about maybe $100 million or so increase in earning assets each quarter. Does that make sense? Brendan Nosal: Yes. Yes. And then just I guess there's still a bit of a discrepancy on my end of just kind of where that number will land in the second quarter just with the moving pieces. Can you just maybe help a little more on kind of where [ AAAs ] land. James Anderson: Yes. So you're talking around $19.5 million. Brendan Nosal: Okay. All right. Fantastic. Maybe turning back to the margin just kind of unpacking the core NIM ex accretion versus the accretion piece. I think you had 10 basis points this quarter of fair value accretion. Just kind of curious when you kind of look at the path for that, what does that number look like? James Anderson: Yes. We think that will be relatively steady at that 10 basis points. Obviously, it could move around if we get either slowdown, and it's all based on the amount of payoff/prepayments that we get on that portfolio. But somewhere around that 10 basis point range in that -- and the dollars would be around that $4 million to $5 million of accretion income. Brendan Nosal: Okay. Perfect. Last one for me here. Just when you kind of look out at growth expectations for the balance of the year, can you kind of dissect that between the core commercial bank versus your various specialty businesses? Archie Brown: Yes, this is Archie. So when you say the specialty, are you meaning core versus like specialty including Summit and Oak Street, things like that? Brendan Nosal: Yes. So yes, when I say essentially Oak Street, Summit, Agile, those books versus kind of the traditional commercial bank. Archie Brown: Yes. I mean it's the top of my head, but I'd say it's slightly tilted towards the core commercial. Agile is going to grow, but they're going to grow. It's just the base is not that huge, and they'll -- if they grow I can't recall now $20 million, $30 million. Summit it will grow, but their amortizations have picked up, so their growth rates are just not as strong as they used to be. So specialty is contributing -- but I would say we're talking commercial core commercial consumer is going to be, as you said, 50% to 60%, maybe 65%. James Anderson: Yes. This is Jamie. Yes, it's about -- I would say it's about 2/3, 1/3. And then Agile, they have a -- the second quarter is their big quarter for growth. Yes. Operator: I'll now turn the call back over to Archie Brown for closing remarks. Archie Brown: Thank you, Kate. I want to thank everybody for joining us today and following along our progress during the first quarter. We look forward to talking again in the second quarter. And hopefully, we'll be sharing even more good news with you. Have a great day. Have a great weekend. Bye now. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the SouthState Bank Corporation First Quarter 2026 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to William Matthews, Chief Financial Officer. Please go ahead. William Matthews: Good morning. Welcome to SouthState's First Quarter 2026 Earnings Call. This is Will Matthews, and I'm here with John Corbett, Steve Young and Jeremy Lucas. We'll follow our pattern of brief remarks followed by Q&A. I'll refer you to the earnings release and investor presentation under the Investor Relations tab of our website. Before we begin our remarks, I want to remind you that comments we make may include forward-looking statements within the meaning of the federal securities laws and regulations. Any such forward-looking statements we may make are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor language in the press release and presentation for more information about our forward-looking statements and risks and uncertainties which may affect us. Now I'll turn the call over to you, John. John Corbett: Thank you, Will. Good morning, everybody. Thanks for joining us. For the quarter, SouthState delivered a return on assets of 1.37% and a return on tangible common equity of 17.6%. As we progress through 2026, our 4 main priorities are: first, to expand our commercial banking sales force; second, to deliver meaningful organic growth; third, to systematically retire shares at an attractive valuation; and fourth, to learn how to leverage the benefits of artificial intelligence and implemented throughout the company. We're making good progress on all 4 fronts. As far as recruiting, we're now in a yield curve environment that is more favorable to balance sheet growth. And with the consolidation disruption occurring throughout our markets, we see an opportunity to expand our commercial banking team by 10% to 15% in the next couple of years. In the last 6 months alone, our division presidents were successful in attracting and growing our commercial banking team by about 7%. We're going to continue to be opportunistic, but based upon the rapid success we may slow the pace of hiring in the next few months. Second, for organic loan growth, loan pipelines have grown 50% since last summer, and that's resulted in solid annualized loan growth of 8% in the fourth quarter and then another 7.5% loan growth in the first quarter. Pipelines grew significantly again in the first quarter, which gives us confidence moving forward. Our previous loan growth guidance for 2026 called for mid- to upper single-digit growth this year. There's a decent chance that we could end up on the higher end of our guidance. The biggest highlight by far has been the success in Texas and Colorado. On a year-over-year comparison, loan production in those 2 states have more than doubled from $500 million in the first quarter of '25 to $1.1 billion in the first quarter of '26. And Houston, specifically, experienced the highest loan growth of any market in the entire company this quarter. Third, on stock buybacks. We've repurchased nearly 4% of our shares outstanding since the beginning of the third quarter at an average price of $95.28. We continue to see this as an attractive use of excess capital at a time when bank valuations seem, at least to us, disconnected from fundamental performance and intrinsic value. And then fourth, we're enthusiastically embracing the potential for artificial intelligence. We're deploying more and more Copilot licenses and training our bankers at the individual user level. We're researching and beginning to deploy AI tools from our major software providers at the department level. And we're looking for ways to reengineer processes between departments at the enterprise level. More to come, but we're pleased with the way the entire organization is embracing these new tools with the goal of improving our speed and scalability, speed for improved customer service and then scalability for efficiency and shareholder returns. Before I turn it over to Will, I'll point out that we've refreshed some of the slides in our deck to highlight the value proposition of being a SouthState shareholder. Our story hasn't changed and it isn't complicated. We're building a premier deposit franchise and we're doing it in the fastest-growing markets in the United States. We adhere to a geographic and local market leadership business model. It's a model that empowers our division presidents to tailor their team, products and pricing to deliver remarkable service to their unique local community. And at the same time, an incentive system built on geographic profitability that instills a CEO and shareholder mindset. This is a model that produces durable results that have outperformed our peers on deposit cost, asset quality and overall returns. And the outperformance is consistent and durable over the last year, over the last 5 years, and over the last 20 years, ultimately leading to a top quartile shareholder return over multiple cycles. Will, I'll turn it back over to you to walk through the details on the quarter. William Matthews: Thanks, John. Our net interest margin of 3.79% was just below our guidance of 3.80% to 3.90%. The slight miss was primarily a result of deposit costs being a few basis points above our expectation in spite of the 6 basis point improvement from the prior quarter. Loan yields of [ 5 96 ] were slightly below our new loan production coupons of [ 6 09 ] for the quarter and accretion of $38.8 million was in line with expectations and $11.5 million below Q4 levels. Excluding accretion, our NIM was up 1 basis point. Net interest income of $562 million was down $19 million from Q4 with the day count impact being $12.6 million of that difference. As John noted, we had another good loan growth quarter with loans growing $896 million, a 7.5% annualized growth rate. Average loans grew at a 6.5% annualized rate. Our Texas and Colorado team led the company in loan growth, and every banking group within the company grew loans in the first quarter. We have some optimism about continuing loan growth as our pipeline at quarter end was up 33% compared with year-end. Noninterest income of $100 million was at the high end of our range of 55 to 60 basis points guidance. We had a solid quarter in capital markets and wealth with seasonally lighter deposit fees, offset by stronger mortgage revenue, which was aided by an increase in the MSR asset value net of the hedge. NIE of $359.5 million was in line with expectations. Looking ahead, we have no changes to our NIE guidance for the remainder of the year. But if we have greater success in our recruiting efforts and we've been pleased with our success thus far, NIE could, of course, move up somewhat. Net charge-offs of $10 million represented a 9 basis point annualized rate for the quarter, and this amount was matched by our provision for credit losses. Nonaccrual and substandard loans were down slightly. Payment performance remains very good, and we continue to feel good about our credit quality. Turning to capital. We repurchased 1.5 million shares in the quarter at a weighted average price of [ $100.84 ]. This makes a total of 3.5 million shares repurchased in the last 2 quarters. And our share count was 97.9 million shares at quarter end, down from 101.5 million shares a year prior. Like last year's fourth quarter, the first quarter payout ratio was higher than we expect to maintain over the long term, but we thought it is an opportune time to be more active. Our strong loan pipeline and recruiting success give us some optimism, we'll need to retain capital to support healthy growth. Even with a higher capital return posture and a 7.5% annualized loan growth in the quarter, capital levels remained very healthy. CET1 ended at 11.3%. Our TCE was 8.64%, and our tangible book value per share ended at $56.90. I'll point out that our TBV per share is up almost $7 or 14% and above the year ago levels, and our TCE ratio is up 39 basis points from March 2025, even with our higher capital return activity over the last couple of quarters. Operator, we'll now take questions. Operator: [Operator Instructions] We'll go first to Catherine Mealor at KBW. Catherine Mealor: I wanted if you could start on the margin. Will, you talked about how the margins fell a little bit below the range just on deposit costs. Curious if you still think that 3.80% to 3.90% range is fair for the year or if deposit pressures are bringing that a little bit lower than the range? Stephen Young: Sure. Thanks, Catherine. This is Steve. Let me kind of walk through our various assumptions and kind of update them versus last quarter. So to your point, yes, we were -- we thought that the margin would start out in the low 3.80s for the first quarter and trend higher during the year, it looks like we missed that by a couple of basis points at the start of the year. If you look at the 4 things that really make up that guidance and our forecast or the level of interest-earning assets, the rate forecast what our loan accretion forecast is in deposit costs. So those 4 things. And if you look at the interest-earning assets, I think we forecasted for the first quarter, we'd be between [ $60 billion and $60.5 billion ]. I think we ended up at [ $60.2 billion ] so right in the middle of that. We said for the year that our interest-earning assets would average somewhere in the $61 billion to $62 billion range. And I think where we are with that, we think that it's a potential -- we're kind of reiterating that, but we do think that the loan growth might drive that slightly higher. A little bit too early to tell, but that it could -- interest-earning assets could end the year in the $63 billion, $64 billion range relative to the fourth quarter, but the average is probably going to be more on the high end of what we were thinking. As it relates to rate forecast, last quarter, we thought that there would be 3 rate cuts coming into 2026. And it looks like right now, the market is [ sub-0 ] relative to the conflict and so on. I think the 2-year and the 5-year treasury rates were up 40 basis points from the lows earlier this quarter. So we've now taken out the rate cuts in our forecast. On loan accretion, which is our third one, is we forecasted $125 million for the full year of '26, and there's really no change to that coming in line with what we had expected. And then the last one was on deposit costs and our original deposit beta forecast was 27%. And then for -- it looks like we came in around 20% for the quarter. So if you kind of go back and look at the movie, I think for the first 100 basis points of cuts, we got 24, we had a 38% beta. And then the last 75 basis points, we had a 20% beta. So you combine it all together, we've had a 30% beta on 175 basis points. But as we look forward and think about the deposit environment that we're at in the flat environment with our growth trajectory, we think that the deposit cost will be in the mid-170s versus our early forecast to be in the low mid-170s. So based on all these assumptions, we'd expect NIM to be in the 3.75% to 3.80% range. If the mid -- if growth is in the mid-single digits, we would expect NIM to be on the high end of the range. And if growth is as we expect, a little bit higher in the high single digit, we'd expect the NIM to be on the lower end of the range with net interest income higher. So hopefully, that helps tell you all the different assumptions. Catherine Mealor: Yes, that's great. And then just kind of take us in big picture. I mean it feels like this is growth related, right? So as you just kind of think about your model and your forecast, is there a big change in NII dollars? Or is it more of earning assets, it's higher and that's coming with a little bit of a lower margin, but that you're at the same place in terms of dollars? Stephen Young: Yes. I think if you look at our models in 2026 because growth takes a while to accelerate and get into the budget '26, the NIM is, if you have lower NIM in the short run, it gets you lower NII dollars to '26. But if you look at 2027, it all sort of catches up with higher growth. So that's kind of the way I would describe the net interest income dollars. Operator: We'll move next to John McDonald at Truist Securities. John McDonald: Great. I was hoping you could drill down a little bit in terms of what you're seeing on the loan growth front? What gives you confidence that you might be able to see the high end there? And kind of just drill down a little bit more in terms of kind of gross production versus payoffs and utilization. John Corbett: John, it's John Corbett. The production -- loan production that we had in the first quarter was very similar to the fourth quarter, which that was a record for us, almost $4 billion. But a lot of the growth came in the latter part of the quarter. We wound up at 7.5% loan growth. Last quarter was 8%. And really, the growth was broad-based, both from the type of loan we are doing and also the geography. I mean, investor CRE was up 9%, C&I is up 9%, single-family residential owner occupied, up mid-single digits. And from a geography standpoint, I think Will said in his opening remarks, every single geography grew led by Texas and Colorado, which was the thing that puts a smile on our face as we worked through the integration last year. Following Texas and Colorado at $1.1 billion, Florida and South Carolina each did about $640 million of production. Greenville was the strongest in South Carolina and as I mentioned earlier, Houston had the highest production in the entire company. But winding the clock forward even with the $3.8 billion in production, we did not drain the pipeline. The pipeline stayed full, and we actually grew the pipeline 33%. So it went up to $6.4 billion from the end of the year was at $4.8 billion. A lot of that's happening in Florida and Texas. So just with the momentum we're seeing with the pipeline growth, we think we can keep this momentum going, and we think we could be in the upper end of our guidance that we gave you previously. John McDonald: Okay. Great. And then just a follow-up on the deposit costs. Can you give us a little more color on what you're seeing in terms of competitive dynamics and maybe what you're doing in terms of deposit mix any promotional strategies? And just what are the wildcards around the deposit cost for this year? Stephen Young: Sure. Yes, John, this is Steve. Yes, a couple of things on that. We look at how we -- the new money that we raised during the quarter and we look at the money market rates as well as the CD rates. And so this quarter, we raised about $400 million in new money at the new money market rate at 2.68%. And our new and renewed CDs came in at 3.69%. So that's sort of where money is coming in. We also if you exclude the seasonal runoff of public funds, our customer deposits actually grew at 7%, about $850 million. And most of that was in the business area, it was up 10%. So a lot of treasury management and so on. So I think that's probably where we're continuing to lean in. From a geography perspective, if you look at our deposit franchise, because we run a decentralized P&L model, we track all of the different divisions and banking groups together. And the deposit cost in the legacy Southeast footprint that we've had is in the mid-140s and then in Texas and Colorado, obviously had a great quarter relative to growth. But the deposit costs are in around the 210 range. And so we think over time, there's going to be an opportunity to lower these with the addition of treasury management, retail and small business products, but that just takes time, but we think there is some opportunity there over time. And the balancing act is deposit growth versus profitability. And so we're tweaking dials around that. The last thing I would say about deposits -- I will tell you that back to the way that the interest rate curve increased during the quarter. We did see more competition towards the end of the quarter. And so our new money market rates started the quarter in the 240 range and ended somewhere in the 3% range. So I think what that's telling you until we can sort of get a little pat on rates to come back down, I think we'll have opportunity on the deposit side. But right now, I think it's just a tough environment, as you know. Operator: We'll move next to Stephen Scouten at Piper Sandler. Stephen Scouten: One other question maybe on the NIM front. It's just -- the change in the guidance, how much of that would you say is related to that last comment you made about the progression of deposit competition versus removing that 3 cuts. I think at 1 point, it was maybe 1 to 2 basis points of help for every 25 bps, but I think that had been diminished over time. So just kind of wondering the puts and takes... Stephen Young: Yes, I think it's probably half and half. So I mean, I think the 2 things driving a little bit the NIM lower between 3.75% and 3.80% versus 3.80%, 3.90%. There's probably things intact. One is, I think, our view of growth versus what we originally given you. So that's probably half of it. And probably the other half is the deposit competition higher than we -- is what we expected. And so the question is, when we got down to the final mile on the deposit beta getting from 20% to 27%, rate went up toward the end of the quarter. And so I would assume at some point when we get back to a rate cutting cycle, that will ease off and we'll be able to get some of that, particularly in some of the new markets. But that would be kind of how I would characterize it, if that's helpful. Stephen Scouten: Extremely helpful. And then maybe digging into the hiring plans and activity a little bit more. Obviously, you put that as your kind of #1 strategic goal, I think, in the presentation. So can we get an update on what that number was this quarter? I think it was [ 26 ] last quarter? And then kind of if you continue to be focused more on Texas, Colorado, maybe the newer IBTX markets and maybe even the Nashville market, which I think was a newer entrants for you guys? John Corbett: Yes, we kind of kicked off the initiatives, Stephen, at the beginning of the third quarter to expand the commercial banking sales force by like 10% to 15% in the next couple of years. And this is the kind of thing you just got to be opportunistic about it. It's not going to happen on a straight line. But the team geared up. They built a recruiting pipeline with a couple of hundred folks in there. And we've grown the commercial banking team specifically by 7% from October 1 to March 31. Most of that growth, the net growth of the team occurred in Texas and Colorado. Dan Strodl and the team have done a great job carrying the brand and the flag out there. That's an area I'd probably look to them to integrate, assimilate the team and maybe not grow too far too fast. But I would like to see our team in the legacy Southeast markets continue to take advantage of that growth. So I think maybe by the end of the year, when we end the -- I guess, it would be the third quarter for 4 straight quarters, maybe we're in the 10% net growth rate. Stephen Scouten: Okay. If I could sneak in one more. Just kind of wondering how you're thinking about the total payout ratio. Obviously, the last couple of quarters have been extremely aggressive, but I know Will said you might need to hold more capital for growth. So how can we think about what you might be from a total [indiscernible]? William Matthews: Stephen, really, our guidance of 40% to 60% over the medium to long term still holds. And I think that makes sense. If you think about it at a -- call it, a 17% return on tangible common equity, if we're growing at the 8% to 10% range, then a 46% payout ratio would essentially hold our capital levels pretty constant. We did exceed that not only in the fourth quarter, but also here in the first quarter. I think first quarter is around 93%, but we thought it was an opportune time given where the share price dislocation was in our minds and we're more active. But we -- I'll also say too, our capital policy and thoughts about capital in addition to the growth, we have, I think, a pretty sophisticated capital stress testing framework, and that informs our capital thoughts as well. So we integrate that, and we like to travel in that 11% to 12% CET1 range. Operator: We'll move next to Anthony Elian at JPMorgan. Anthony Elian: Will, you reiterate the expense outlook from the 4% you gave us last quarter. Just thinking about the cadence of quarterly expenses. Is it pretty consistent with each remaining quarter or anything you'd call out for the pattern of expenses by quarter? William Matthews: Yes. I'll call it a couple of things and say, of course, there are things that vary with revenue. You've got some revenue-based expenses, but just sort of some general trends we've seen over the years, and some of the embedded structural things. So our -- generally, most of our staff's annual -- I mean, annual base pay increase typically occurs in July 1. So that gets you -- that kicks in the third quarter. That's 1 thing to keep in mind. Our ownership model incents people both support and in running a business with revenue to think about how they spend money. And sometimes you see more conservatism earlier in the year and sometimes -- last year, if you look at our fourth quarter, you saw less conservatism with respect to NIE spend. So that's a little bit in there too. First quarter, you've got normal things like the higher FICA expense to be a little higher 401(k) match those kind of things. So anyway, but we're still sticking with our guidance that we gave heading into the year in that roughly 4% range and we'll continue to address that update as the year goes along. And some of that will, of course, depend on, as John said, the opportunistic nature of our hiring initiatives you can't necessarily time that exactly when you want it when good people become available. Anthony Elian: And then, John, you made a comment in your prepared remarks that you may slow the pace of hiring in the next few months given the success you've seen. It just seems like you have a lot of room across your footprint to keep making hires. Is the potential for a slowdown of hiring due to keeping a closer eye on what expenses could do over the short term? Or -- just walk us through that, please. John Corbett: Anthony, it's less about the expense growth. I mean this expense that you have hiring folks is really an investment in the long-term growth of the bank. You look at our core values of our company, it's all about the long-term horizon, the compounding effects of that. So really, it's less about that and it's more just about the assimilation process. We've hired 75 or 80 commercial bankers in 6 months. A lot of that occurred in Texas and Colorado. And you just want to make sure folks are assimilating well into the credit culture of the bank there. So I'd probably look to slow a little bit in Texas, Colorado and continue to be opportunistic in the Southeast. Operator: We'll go next to Michael Rose at Raymond James. Michael Rose: Steve, the fees to average assets were a little bit above the target this quarter. I think it was 61 basis points. Obviously, some good momentum there. Any change in thoughts to that? And can we get an update on the correspondent business just given the changing rate curve in your view? Stephen Young: Sure. Thanks, Michael. Yes, sure. On noninterest income, to your point, I think our guidance for the full year average assets was -- noninterest income to average assets was between 55 basis points and 60 basis points. We ended up at 61 basis points. We put a new slide on Page 12 in the deck that you can kind of look at the trend. The good news is if you kind of look at it year-over-year, we're up from $86 million in the first quarter of 2025 and now we're at $100 million. So that's really healthy growth year-over-year. I would say that as you think about the correspondent revenue. You can look at that graph on Page 12. That really has driven almost half of it. We were at $16.7 million a year ago now around $24.4 million. So I think in our earlier call in January, we mentioned that we probably thought we would average somewhere in the $25 million a quarter on correspondent revenue. Really, there's no change to that. We were $24.4 million so basically right in line. I don't think there's much of a change. There might be 1 quarter is a little better, 1 quarter is a little worse, but I think that's generally good. And I think our general tone relative to noninterest income to average assets continues to hold kind of in the middle of that range between 55 and 60 basis points. We're going to be growing the asset base as we're growing. Michael Rose: I appreciate it. Maybe just as a follow-up, just as it relates to kind of the commentary, John, around pipelines. I think you said they're still strong and robust. Can you size that for us? And maybe just given the success that you've had hiring kind of in the Texas and Colorado markets, what that could contribute to growth for the franchise over time. I would expect that it would grow at an increasing rate. So the mix would be weighted towards those 2 markets given some of the success and obviously some of the merger disruption? John Corbett: Yes. Just to kind of frame up the size of the pipeline. A year ago, the pipeline at the beginning of the year was $3.2 billion. Right now, it's $6.4 billion. So it's doubled. And 2/3s of that growth has occurred in Florida, Texas and Colorado, those states. There is a little bit of a mix shift change. Last year, we really saw all the growth was in C&I and very, very little in commercial real estate. The commercial real estate portion of the pipeline has picked up from 35% of the pipeline a year ago. Now it's about 45% of the pipeline. Still C&I is the majority of it. Operator: We'll move next to Janet Lee at TD Bank. Unknown Analyst: This is Noah [indiscernible] on for Janet Lee. First question, with the investment securities portfolio moving a bit higher, can you walk through how you're thinking about the trade-off between deploying into securities versus loans? Stephen Young: Sure. I think for us, as we think about balance sheet growth, we're mainly looking at it relative to loan growth. I think we're pretty comfortable. I think our securities, the assets is around 13%. I think in this environment, unless we got a few more rate cuts and there was a bit more of a carry trade there. That is probably not something that we're going to be trying to fund new security purchases. I don't expect the securities book to really move. I will tell you that we have about $900 million the rest of the year that's maturing, about $900 million in 2027, and that weighted average rate is around [ 3 60 ]. So we probably get about 100 basis points on just keeping that book reinvested, but I don't expect us to expand the book significantly. Unknown Analyst: Got it. That's helpful. And then a follow-up. I appreciate the AI slide in the deck. I'm wondering from a cost perspective, is there anything quantifiable that you're seeing in terms of expense saves and then when we would begin to see that flowing through to the bottom line? John Corbett: Yes. The incremental cost and expense of AI on the margin is not that high. What we're seeing is that a lot of the major software providers that we currently have in place, they're embedding these AI tools and software that already exists. And then on the individual user level, the Copilot licenses, it's an expense, but it's relatively small. The fun thing about this is learning about individual use cases and the power of this. We were in a meeting this week, and we own a factoring company where it takes an individual about 2.5 minutes to load in an invoice, and there's always some human error in that. So 2.5 minutes per invoice, we've employed an AI tool that can do 1,000 invoices in 2.5 minutes with 100% accuracy. So these are small use cases, but it's sort of getting everybody excited. But as far as the expense run rate, I don't see a big build in the expense run rate. A lot of this is embedded in software we currently utilize. Stephen Young: I think just a follow-up on that. I think the success that we're thinking long term, and it's not any time in the next year, but maybe the next 18 to 24 months is one of the things that we are measuring and monitoring is our number of revenue producers versus the number of our support personnel. And so for us, what we should think that should happen out of this AI boom and the efficiency is that as we increase revenue producers, our support personnel should stay relatively flat, and that should open up sort of the margin in that. So that's kind of how we're thinking about monitoring it Operator: Next, we'll move to Gary Tenner at D.A. Davidson. Gary Tenner: A couple of questions. First, just a follow-up on the capital commentary and the kind of payout ratio questions from earlier. Any preliminary calculation on the potential impact of new capital rules on your capital levels? William Matthews: Yes, Gary, we have run some math on that. And it's roughly 7% reduction in our risk-weighted assets. And that would be roughly an 85 basis point positive impact on our CET1 levels. Now I'll say that we don't run the company currently where the regulatory limit is our controlling factor. There are a lot of other factors, including as I said, our capital stress testing as well as ensuring we maintain the confidence of the rating agencies and whatnot. So I don't know that that necessarily changes our thoughts a whole lot, but certainly something that's new, and we have to study a lot further. Gary Tenner: Appreciate that. And then a follow-up on the fee side of things. Just curious about the deposit account fee line. Obviously, you had a really sizable ramp over the course of 2025, and this quarter seemed a little more of a seasonal dip than typical. So I'm just curious kind of how you see that line trend either full year-over-year or just over the course of the year? Stephen Young: Sure. This is Steve. Yes, typically, in the fourth quarter, that usually hits the highs of the year because of the seasonal debit card and fees that happen towards the Christmas season and so on. I think from our perspective, I would think that the trend year-over-year would be in the -- I think in in our modeling, it's somewhere in the 3%, 4% range year-over-year. So if you kind of look at that and trended it higher, I think that would probably be the way to think about it. But I think all of that is within -- as we model it, that's all within that 55 to 60 basis points guidance. Operator: We'll go next to Ben Gerlinger at Citi. Benjamin Gerlinger: I just wanted to kind of follow up on correspondent banking. I know you guys said 25-ish per quarter, 100 for the year. I know there's a little bit of kind of sensitivity to rates. So is it just more business activity and then kind of thinking longer term, if we do get a couple of more cuts, could that 25 turn into 30? Or how should we think about just the business operations overall? Stephen Young: Sure. No, that's -- it's a good question. Let me just kind of frame it up and one of the things I think there was a bit of confusion last quarter is just this whole gross versus net. So when I speak about correspondent revenue, I'm speaking to the growth. So you have that graph on Page 12. The $24.4 million is the gross revenue. The other -- the minus 3 is the variation margin, which is really kind of an interest margin. But really what the fees that were produced were $24.4 million. So that's kind of how I think about the business and how we communicate. I guess, looking at the ranges of that business. So in our best years, that business did about $110 million of revenue. The worst year did about $70 million. So we're kind of towards the higher end of that. But of course, we're growing the business organically. So I think the upside to it, where there's some new products that we're rolling out really won't have much of an impact in '26, but probably more '27, which would be around commodities to support our energy business would be some of our FX. We do FX, but we're doing a little bit more hedging. That should add a few million dollars. So on the margin, there's probably some reasonable upside to it. But I would -- I wouldn't -- I don't think $30 million is a good run rate in '27, for instance. I just -- I don't know that we know that yet. But as we get further into the year and as we roll out these products and see how they go, I think that would give us more confidence maybe in the -- by October to be able to give you a better forecast. But for right now, there's a lot of volatility, of course, our ARC business is doing really good. Our bond and trading business is really starting to do well as well. So these things are coming together. The question is with all the volatility how that's going to play out the next quarter or 2. But I would just expect, as we see it and as we forecast, it's pretty sturdy and steady for a while before we have the next leg up. Benjamin Gerlinger: Got you. Okay. That's great color. And then just a follow-up on mortgage. Is there a fair value mark or anything that's in there. Just it seems large. William Matthews: Ben, it's Will. As I mentioned in my prepared remarks, we had our normal practice reviewing our MSR valuation, and we had a positive impact this quarter of about $4.5 million net on the MSR valuation. Some quarters has moved against this, some quarters moved it to a positive. This quarter was a positive. Operator: We'll go next to David Chiaverini at Jefferies. David Chiaverini: I wanted to drill into the deposit growth outlook. So with your strong loan growth, and following the first quarter on the deposit side was very strong, but what's your sense of your ability to sustain that level of growth, again, given the strong growth outlook on the loan side? Stephen Young: David, it's a good question. I think it's the part that is the hardest at this point. I think you saw cost in the yield curve move up during the quarter, you saw short-term funding costs move up during the quarter. So it's obviously, at this point in time, it's different than it would have been maybe in January. My guess is it will get a little easier as we get some of the volatility out. Like as I mentioned earlier, our customer deposits grew at 7% this quarter. Obviously, we had the seasonal public funds thing that usually runs around a little bit. We are off $400 million there. But our business accounts, our business was up 10% and a lot of that was treasury management. So hard to forecast here because as I mentioned, the rates on our money market new openings moved up during the quarter from 2.40 to close to 3. So I guess, I think we can obviously generate deposits. The question is at what cost. And if we can have the funding market move down a little bit, that would be helpful. But generally, the business is growing. The question is at what cost. David Chiaverini: And then shifting over to credit quality. Looking at nonperforming assets, within the 5-quarter trend. So it looks very stable there. But some of your peers in the Southeast and Texas are showing some upticks. Curious about your view if you -- if there's any areas you're watching more closely? John Corbett: We went through this period, David, where rates spiked up 5%, and we underwrote a lot of the commercial real estate with a 3% rate shock. So that's why we saw a lot of reclassing into special mention and classified of the commercial real estate portfolio. And we inserted a new slide on Page 18. I don't know if you saw it or not, we broke out that investor commercial real estate portfolio. And really, there's little to no concern about the loss content in that portfolio given the loan to values and the payment performance. We broke it out by every category, and we're at a weighted average loan-to-value of these problem loans of 56%. The -- 98% of them are current. That includes non-accruals. So that's really not an area of concern. The areas would be the normal areas that generally in the economy where we're seeing a weaker consumer on the lower income range of the consumer. And then on some of the small business, particularly SBA loans because a lot of those are floating rates and they had to deal with a 5% rate shock as well. But we've got naturally, the government guarantee on 75% of that. So anyway, that's a rough overview of kind of our view on credit, but it feels pretty stable right now. Special mentions are coming down. Classifieds to tick down a little on a percentage basis, charge-offs continue to remain low. Operator: And we'll go next to Dave Bishop at Hovde Group. David Bishop: Yes, maybe stay on the credit topic. I appreciate [indiscernible] the NDF lending segment. Are you seeing any sort of credit stress within that -- those buckets. Any note you're well below peers, any appetite to even grow some of the exposure to some of those segments. John Corbett: Yes, we're not. The credit team, when all this hit the news, I spent a lot of time with Dan Bockhorst and the credit team analyzing and digging deep in this portfolio. And as you pointed out, it's really an area that we don't have much exposure to. It's the third lowest NDFI exposure amongst our peers, 1.7%. And the biggest piece of that is capital call lines, which our advance rate averages like 50%. So the 1 thing if you step back and think about this pressure on that market, there's been a lot of growth in it over the last few years. So if you think that there's pressure on it, it's probably going to enhance the underwriting standards, which may -- some of that business may shift back to the banking industry on a high-level viewpoint. David Bishop: Got it. And one follow-up in terms of the comments regarding the assimilation of some of the New York bankers in the Texas, Colorado markets. Just curious in terms of those hires are those bankers sort of through noncompete and nonsolicit agreements. I'm curious if they're sort of generating load in the loan pipeline at this point? John Corbett: Yes. It's a case-by-case basis. But I want to say that Dan Strodl told me that the loan pipeline was up to $400 million for the new folks he brought on in the last 6 months. So there's good production early on. A handful of them will have some kind of employment agreement we'll work through. So he's off to a great start. To be able to double your production and go through an integration conversion, take it from $500 million to $1.1 billion. That team has done a fantastic job. Operator: And that concludes our Q&A session. I will now turn the conference back over to John Corbett for closing remarks. John Corbett: All right. Audra, thank you. And as always, we want to thank all of you all for your interest and support of the company. If you have any follow-up questions, feel free to reach out. We'll be available today. And I hope you have a great day. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Orchid Island Capital First Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Melissa Alfonso, Office Manager. Please go ahead. Melissa Alfonso: Good morning, and welcome to the First Quarter 2026 Earnings Conference Call for Orchid Island Capital. This call is being recorded today, April 24, 2026. At this time, the company would like to remind the listeners that statements made during today's conference call relating to matters that are not historical facts are forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Listeners are cautioned that such forward-looking statements are based on information currently available on the management's good faith, belief with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in such forward-looking statements. Important factors that could cause such differences are described in the company's filings with the Securities and Exchange Commission, including the company's most recent annual report on Form 10-K. The company assumes no obligation to update such forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking statements. Now I'd like to turn the conference over to the company's Chairman and Chief Executive Officer, Mr. Robert Cauley. Please go ahead, sir. Robert Cauley: Thank you, Melissa, and good morning, everyone. I hope everybody has had a chance to download our deck as usual. That will be kind of the basis of our call today. First off, I'd just like to walk you through the agenda as usual. Jerry Sintes, our Controller, will walk you through the financial results. I'll then go through the market developments, basically discuss briefly the market variables that impact our decision-making and our performance and some have a few comments on those. Hunter then will talk about the portfolio and our hedging positions, and then we will open the call up for questions. With that, I'll turn it over to Jerry. George Haas: Thank you, Bob. If we start on Page 5, we'll look at the financial highlights of the first quarter. For the first quarter, we had a net loss of $0.11 per share compared to net income of $0.62 in Q4. Our book value at 3/31 was $7.08 per share compared to $7.54 at December 31. Total return for the quarter was a negative 1.3% compared to 7.8% in Q4, and we declared dividends of $0.36 during both quarters. On Page 6, portfolio highlights. Our portfolio continued to grow. During Q1, we had an average balance of approximately $11 billion compared to $9.5 billion in Q4. Our leverage ratio increased 7.9% compared to 7.4% at 12/31. 3-month CPR during the quarter was 14.7% compared to 15.7% and our liquidity at 3/31 was 54.5% compared to 57.7%. On Page 7 is our financial statements, which are also presented in our earnings release last night and will also be available in our 10-Q later. And with that, I'll turn it back over to Bob for a discussion of the market development. Robert Cauley: Thanks, Jerry. All right. I will start on Slide #9, as I mentioned. We're just going to go through the market variables that impact our decision-making and our performance. So on Page -- or Slide 9, we have the interest rate curves on the top of the page. On the top left is the nominal or cash market curve. On the right is the swap curve, on the bottom is just the spread between 3-month treasury bills and 10-year treasuries. Just a few general comments. Obviously, in this environment, the war headlines with respect to the war are driving performance of not just interest rates, but basically all risk assets. We kind of have competing forces at play. On the one hand, you have forces that are inflationary in nature. Others are kind of impact growth or slow growth. The ultimate outcome is yet to be seen. We could end up with both. We could end up with stagflation. With respect to the economic data we've seen, it's actually been fairly resilient, although I would characterize it as mix. We've had some strong, some weak. But that being said, most of the data that we've seen so far is really for the pre-war period. So we haven't seen a lot to gauge the impact of the war. I'd also like to point out that while the war kind of represents a headwind to economic activity and maybe supportive of inflation, there are also tailwinds impacting the economy. The One Big Beautiful Bill was passed last year. The government is running a very significant fiscal deficit. Both of those factors should be kind of supportive of the economy. And I think they go a long way in explaining why the data has been so resilient. And kind of finally, as we're fairly far into Q1 earnings, the earnings have been very strong. So at least so far, the impact of the war seems to be modest. With respect to rates, as I mentioned, rates have been very stable. If you look on the left, you can see that the curve has flattened. The market is pricing out most Fed cuts that were in the market 3 months ago or pre-war. Now there's virtually nothing priced in terms of cuts for the balance of '26, a few basis points. But the curve has been very stable. The impact of inflation is driving Fed cuts out of the market and the impact on growth is keeping longer-term rates stable. On the right-hand side, you can see the swap curve, even more stable, same kind of flattening. I would say that the difference between these 2 is simply just swap spreads. And if you look at where swap spreads are for some context, most spreads across the curve are at or slightly above their 12-month averages. They have been moving in Q1. I'll say a little bit about that in a moment. Moving on to the next kind of variable for us, obviously, mortgage spreads and the performance of TBAs. We do not own typically a lot of TBAs. We do own spec pools, but they trade at a spread to TBAs. So obviously, the performance of this matters. If you look on the top, you can see the spread of the current coupon mortgage to the 10-year treasury. This data goes back 16 years. So it gives you a lot of perspective. As you can see on the right-hand side, for quite a while, mortgage has been tightening. I think it's noteworthy to note that's pretty solid performance and also without the participation of one of the largest -- typically one of the largest holders of mortgages, which are the large banks. They have not been active in the market and yet this market has performed well. If you look at the extreme right, you can see the tightening. As we all know, early in January, President Trump put out a post on TruthSocial, indicating that the GSE, Fannie and Freddie would be buying up to $200 billion in mortgages this year. Mortgages gap tighter. That was in early January. As we moved into February, the performance of the sector was still very solid. At the end of the month, the war hit, we gapped wider. But as you can see, we've been tightening since. And so -- and the way I look at that is that the tightening that we've seen in place for 2 years appears to be resuming in terms of the extent of the tightening, our book was down about 6.1%. We've gotten back a little under half of that, but this week, we've given back a little bit, but we basically recouped about half. With respect to the prices of TBAs on the bottom left, as we always show, these prices are normalized. So for each coupon, we start at 100. I just basically want to show the change over the quarter. Obviously, the announcement by President Trump early in the month caused most mortgages to do very, very well, the exception being the orange line there. Those are higher coupon mortgages are representative of higher coupons and they would be impacted by speeds. The rationale for the buying of the GSEs is to try to drive spreads tighter, which would presumably impact refinancing driving it higher. So higher coupons did poorly. Then you see the impact of the war as we move into March and performance was all given up. Since quarter end, we've gotten some of that back, and we're pretty much back to neutral. With respect to the roll market, it's really with the exception of 1 coupon or maybe 2, it's been pretty benign. Most of the activity there was just driven by a presumed technical thing that those mortgages, the float was small and buying by the GSEs might have caused a squeeze, but that's actually gone away. The next big variable for us, obviously, is implied volatility in interest rates. Obviously, mortgages have a lot of vol component. So when vol is high, mortgages do poorly. When vol is low, they do well. And as you can see on the top, this chart really basically goes back a year or liberation day, April 2 of last year. And you can see after the initial spike, vol has continued to tighten. The onset of the war drove it higher, but we've come pretty much all the way back. So to the extent that vol stays at this type of level, this is very conducive for our business model. In fact, all of these variables, stable interest rates, low swap yields and mortgage performance that's steady, all of these are very conducive for our business model. Moving on to swap spreads in particular. You can see on the left of Slide 12 that spreads have been moving more negative or tightening. That's bad for our hedges because it's offsetting the impact of them, but then it's creating more spread for marginal cash investments -- as you see since quarter end, they started to wind back out. Of note, Hunter put on a trade during the quarter, whereby after TBAs had widened quite a bit after the war, we took a lot of our hedges out of TBAs and put them into swaps because they had tightened. And since then, that trade has worked quite well. If you look on the right-hand side, you see the DV01 composition of the hedge book. The green area represents swaps. So that's higher than it was prior to that. So that trade has worked out quite well. The next state variable, if you will, is refinancing activity. The current mortgage rate available to borrowers is around 6.4% depending on the day. As a result, refinancing activity has been fairly benign. We did have elevated levels -- as I mentioned, the President Trump's announcement, ultimately, the yield on the 10-year treasury dipped below 4% in late February, and we did see a couple of months of fast speeds. But with the backup in rates since then and mortgage rates sitting around 6.4%, for instance, on the bottom of the page, the gray area, the percentage of the universe that's refinanceable while it's higher, it's not high. And refinancing activity has been and we expect it to stay relatively benign. Hunter will have a lot more to say about that when we talk about the current construction of the portfolio, how we see that evolving over time and how we're positioned with respect to prepayment levels. The final variable that I would talk about would be the funding markets. I'm not going to say a lot about that now. We'll talk about that later. But the short answer is that the funding markets are far more stable than they've been. We had actions taken by the Federal Reserve, for instance, to put in place a reserve management policy, whereby mortgages as they roll off the Fed's balance sheet are invested in bills. Spreads available to us are at very attractive levels, and we don't have the spikes that we've had in the past at quarter end or year-end. So pretty much all of the variables that impact our market, whether it's the level of rates, implied fall in rates, swap spreads, funding levels, everything is in a very good state, if you will, right now. So it's very conducive and leaves us very bullish on the business model and levered MBS investing. With that, I will turn it over to Hunter. George Haas: The investment portfolio section of the presentation starts on Slide 16, if you're following along. Mortgage spreads continued their tightening trend that began following the volatility we saw last April, and that move accelerated meaningfully after the President's GSE purchase announcement on January 8. This drove spreads tighter by roughly 20 to 25 basis points versus swaps almost instantaneously within a couple of days. As we moved into February, those spreads began to drift a little bit wider and that widening accelerated sharply around the geopolitical events in the Middle East, jumping as much as 40 basis points wider at its peak versus the tights of the quarter. We closed the quarter near those wides and have begun seeing some stabilization since then as spreads have retraced about 20 basis points. So had a pretty volatile quarter in terms of spreads, first tightening sharply by 20 to 25 basis points before blowing out 40 and then quarter-to-date so far in April, we've tightened back in around 20 basis points. So against that backdrop, we remain focused on maintaining a highly liquid 100% agency portfolio and deploying capital opportunistically through this volatility. We raised approximately $108 million in the quarter and an additional $28 million in early April. Importantly, we were able to deploy that capital at attractive levels. Roughly half the capital as spreads drifted off their tight levels and at levels similar to those we saw in December and then the remainder of the capital we deployed after the big geopolitical shock. In total, we purchased approximately $1.6 billion of agency specified pools and TBAs with a focus on call protected collateral, including loan balance stories, borrower credit attributes and structures that we expect to perform well across the recent rate range. The net impact was a modest reduction in the weighted average coupon of the portfolio, reflecting a shift slightly towards slightly lower coupons. That included $182 million of loan balance 4.5s, $624 million of 5s, $425 million of FICO and LTV 5.5s and $138 million of 6 is mostly in the form of Geo pools and FICO. We also purchased $250 million of 15-year 4.5s. And as Bob alluded to, we've swapped out some of our TBA shorts that we had on in Fannie 30-year 5.5s for swaps at the kind of local wides. The net effect, as I mentioned, was a slight reduction in the weighted average coupon of the portfolio from 5.64% to 5.75%. More broadly, over the past several quarters, we've continued to refine the portfolio towards production coupons, say, at dollar prices around 99 to 101. So this encompasses the kind of 5% to 6% range of coupon buckets and that's where we see the best balance between carrying duration and convexity. As we've discussed, we've reduced our exposure to lower coupons that tend to exhibit greater spread duration and become -- can become a source of volatility during risk off periods, particularly when money managers are actively selling. At the same time, we remain disciplined around prepayment risk. The portfolio continues to be heavily concentrated in specified pools with strong call protection. At quarter end, approximately 92% of the portfolio was backed by specified pools with at least 10 ticks of payup. Turning to the funding side of the equation, Slide 19, if you're following along. Our funding conditions continue to improve over the quarter, allowing us to more fully realize the benefit of the December 10 rate cut. Both SOFR relative to Fed funds and our observed repo funding spreads to SOFR continue to grind tighter as reserve management operations helped stabilize the funding market. At present, we're currently funding in the 11 to 13 basis point range over SOFR, which is quite a drastic improvement from what we saw in the fourth quarter. Turning to the hedge positions. From a hedging perspective, we maintain a pretty consistent framework. The hedge coverage is approximately 65% of our repo balance, and we continue to put an emphasis on interest rate swaps. At March 31, our duration gap was approximately 0.07 years, which equates to a net long DV01 of roughly $375,000, I think $372,000 from the deck in the earlier slides. In terms of partial durations, our hedge profile remains barbelled between the 2- and 3-year part of the curve and the 7- to 10-year part of the curve. We do have a lot of swaps on in the middle, but that's just kind of -- if there were -- if I were to suggest there is a skew, it's to the front and longer end of the curve. By long end, I mean, 7 to 10 years. Prepayment speeds did pick up during the period, during the quarter in response to rates reaching local lows. Speeds increased from 10.9 CPR in January to 16.3% CPR in March. Looking forward, we expect speeds to ease in the coming months. I think the latest Street projections are for the prepaid universe to come down by approximately 15% expected to see as much, if not even a greater impact on us owing to the fact that we own more recent production in most of the portfolio. rates have moved higher. So that's really going to be the impetus for that slowdown in speeds. From a positioning standpoint, the portfolio remains somewhat defensive against the risk of inflation reaccelerating. The 6% higher coupon portion of the portfolio, which represents over 40% of total mortgage assets performed very well during this most recent sell-off, less -- did less so in the earlier parts of the quarter when rates were rallying. That said, marginal capital, we continue -- we expect to continue allocating towards production coupons, as I alluded to, kind of first discount or first premium part of the stack. And this is going to serve to gradually reduce our exposure to higher premium assets over time. Looking forward, while spreads have retraced from their recent wides, we continue to see an attractive environment for agency mortgages. At quarter end, the modeled returns for our combined portfolio, inclusive of hedges and at current funding levels were between 15% and 17% range return on equity. We believe those returns can move higher if prepay speeds do, in fact, trend lower or if the outlook for additional Fed easing reemerges. With that, I will turn it back over to Bob for his concluding remarks. Robert Cauley: Thanks, Hunter. Just to kind of give you kind of a quick rehash. Over the course of the last 4 or 5 quarters, Orchid has more than doubled in size. There have been benefits to us. As a result of doing that, we've been able to lower our cost structure. I would like to just turn your attention before I move on to any further points to Slide 31. Everybody would quickly turn to that page. What we have on Page 31 is basically 10 years of data. George Haas: 32. Robert Cauley: I'm sorry, 32. This is 10 years of data. On the top, we show our stockholders' equity going back to 2015. As you can see, it's been a very -- and by the way, this is annualized data. So this is annual data, not annualized, annual data. So the change year-over-year for both equity and our expenses. And as you can see, our shareholders' equity has grown by 442% over the last 10 years, which is an annualized growth rate of 18.4%. And our expenses have grown 159% or at a 10% annualized rate. The benefit of that or the offshoot of that is on the next slide, Slide 33, and you can see where our expense ratio is. Again, that's for calendar year 2025. As we move through the year, we will probably start to show this on a 4-month rolling average until we get to the end of the year when we can fully update the graph. As you can see, our expense ratio has moved from just under 3% or our G&A load to 1.7%, which is, as you know, very low in regard to most of our peers and actually only lower than all but the 2 largest peers. So that's one thing I wanted to point out. With respect to the portfolio, just to kind of quickly summarize what Hunter said, we expect prepayments to be benign, but we still have a very well protected portfolio with a very modest premium dollar price. Hunter mentioned that returns in the sector are approximately mid-teens, call it, 15% to 17% the current yield on the portfolio with a $0.10 per month dividend and the current book value is very much in that exact same range. So unlike last year, the yield of the portfolio in terms of the dividend divided by the book and returns in the market are very much in line. So to the extent that we were deploying new capital, it would not have any meaningful impact on the yield of the portfolio. And as we just alluded to, as we've grown the portfolio in the company, our expense ratio tends to come down. So in that -- the bottom line of that basically is that growth is accretive to earnings. With respect to our outlook, the market is very appealing to us. Returns are still attractive. They're not as attractive as they were a year ago, but they are still quite attractive. And all of the variables that matter to us, interest rates, the level, the level of swap spreads versus yields on assets, the level of implied vol, the funding markets, everything is in a very great state. And therefore, we are quite bullish on the market going forward. The big variable, of course, is the war. Nobody knows how that's going to play out, but it seems my personal observation, which is that the big tail risk going into the war was a massive escalation meaningful and lasting damage to production capacity in the Middle East. It seems that, that risk is now much lower. I think that kind of explains why the markets have become pretty benign over the last week or 2, while we still react to headlines from the war, generally, the risk assets have done well. And I presume that, that's just because we think that the big outsized tail risk is quite low. So that's our outlook. With that, we'll turn the call over to questions. Operator: [Operator Instructions] our first question comes from the line of Jason Weaver with JonesTrading . Jason Weaver: First, I noticed it looks like the effective duration of the portfolio extended a bit to about 3 as of 3/31. Was that intentional tactical decision around the purchase of the GSE purchase announcement or maybe just a consequence of adding those belly coupons? Robert Cauley: Yes, a little bit of both. And rates have drifted higher. The portfolio extended a little bit, and we're trying to sort of not add too much hedge at the local highs. So we don't mind that the portfolio duration drifts a little bit higher as we approach higher rates. In the beginning of the first quarter, when rates were pushing much lower, particularly in January and early Feb, we noticed underperformance in kind of higher coupons and wanted to make kind of a strategic shift to getting into some more 4.5s and 5s to have a little bit more balance. It is particularly true whenever we are at local highs in rates. I would just add to that. I agree with everything he said. If you look on Slide 21, we did move more of the hedge book to swaps. And if you look at the average maturity, it did go out a little bit kind of coinciding with what Hunter just said. So we moved the average life of the hedge book out about 0.3 a year. So moved it further out the curve. And that was a conscious decision in response to the movements in the portfolio. Jason Weaver: Got it. That makes sense. And then on the dividend, I know you're methodical about this, and it's obviously never easy to make the decision to make a cut. But can you talk about the sort of level of core spread income coverage at a floor that you need to establish the run rate going forward? Robert Cauley: Well, yes, I'm glad you asked that. I know everybody is concerned with that. A couple of things in mind. We have a distribution obligation. So in '24 and '25, we were paying a $0.12 dividend, which at the end of the year was 95% covered by taxable income. A lot of that was driven by hedges, the performance of our hedges during the tightening cycle, where we had a lot of equity in those hedges, which actually when you close them and they have significant positive equity, which was the case, that basically creates a liability, if you will, of future taxable income that has to be distributed over the remaining life of those hedges. So for that reason, we had a dividend yield on a tax basis that was slightly above the GAAP earnings of the portfolio. But as we mentioned in the last call, as we move into the new calendar year, we reevaluate. We've seen the effect of those closed hedges, one, wear off and two, be diluted just because of the growth of the company and the portfolio, shares outstanding. And so now when we appraise the current run rate, that's what drove us to move the dividend where it is. in terms of where that is in relation to what the portfolio is generating, they're very much in line. So right now, the dividend yield is very much in line with what the portfolio is generating and what you can earn in the market today on marginal capital, all in that 15% to 17% yield range. So they're all pretty much in line. And just next year, I will tell you, sometime in the first quarter, we will be again reevaluating where we see taxable earnings running for 2027. And to the extent necessary, we'll adjust. We don't, of course, have any insight into that at the moment. But now based on where we see things running, it would seem the prudent thing to do. And as I said, they're all in line now. We should be -- have our earnings of the portfolio, our dividend yield and the marginal return on capital all be pretty much in line. Operator: [Operator Instructions] our next question comes from the line of Mikhail Goberman with Citizens JMP. Mikhail Goberman: Just a quick one first. Could you update us on current book value? Robert Cauley: Book is up about 2.5% as of yesterday. We've given back some this week. If you had asked me the same question last Friday, it was a little higher than that. But this week, we've given back some of that. So we're up about 2.5% from where we were. Mikhail Goberman: Got you. And if I can just squeeze in one more. You talked about investment opportunities being pretty attractive at the moment. Assuming rates on MBS continue to kind of creep up higher. How does that sort of look to your portfolio construction of your premium portfolio going forward? Robert Cauley: You say rates, you mean mortgage rates available to borrowers? Mikhail Goberman: Yes. Robert Cauley: That would be beneficial. That improves carry. We have a slight premium in the portfolio, as I mentioned, Hunter mentioned about $1 to $1.5 price. We have call protection, which Hunter alluded to. In fact, I should just take over. I mean that's your question. George Haas: No, yes, it's -- like I said in my prepared remarks, the portfolio is over 40% in that 6%, 6.5% bucket, we have a couple of 7s. Those have been paying. The speeds were elevated, particularly in March. And as mortgage rates have risen, and spreads have blown out a little bit with respect to rates available to borrowers, we expect to see a corresponding slowdown in prepay speeds. So yes, we're probably -- we have intentionally skewed both the portfolio and the hedge book to guard against kind of rising rate environment. Our house view has been not quite as, I guess, sanguine as the rest of the market with respect to Fed eases. We've come along since held that we didn't think we were going to get as many as what was priced into the current market. That's played out. And so now that we're at the kind of higher end of the range, we're looking to restack the deck a little bit with a little bit more of a skew towards lower coupons as we add additional capital and to the extent that we have to pay down. So we'll probably buy more 5s and kind of first discount type coupons just because of where we are with respect to kind of the recent range in rates. Operator: And I'm currently showing no further questions at this time. I'd now like to hand the call back over to Robert Cauley for closing remarks. Robert Cauley: Thank you, operator, and thank you, everyone. We very much appreciate you listening in on the call. To the extent you have another question that comes up or you don't listen to the call live and have a question that comes up after listening to the replay, as always, feel free to call. The number here in the office is (772) 231-1400. Otherwise, we look forward to speaking to you at the end of the second quarter. Everybody, have a good day. Thank you. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the Amerant First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] It's now my pleasure to turn the call over to Laura Rossi, Executive Vice President and Head of Investor Relations. Laura, please go ahead. Laura Rossi: Thank you, operator. Good morning, everyone, and thank you for joining us to review Amerant Bancorp's first quarter 2026 results. On today's call are Carlos Iafigliola, our Interim CEO; and Sharymar Calderon, our CFO. Additionally, we're pleased to welcome as a guest speaker this quarter, Lee Ann Cragg, Chief Credit Officer, who will share further insight into our credit risk management initiatives. As we begin, please note that discussions on today's call contain forward-looking statements within the meaning of the Securities Exchange Act. In addition, references will also be made to non-GAAP financial measures. Please refer to the company's earnings release for a statement regarding forward-looking statements as well as for information and reconciliation of non-GAAP financial measures to GAAP measures. I will now turn it over to our Interim CEO, Carlos Iafigliola. Carlos Iafigliola: Thank you, Laura. Good morning, everyone, and thank you for joining us today to discuss Amerant's first quarter 2026 results. As we begin, I want to acknowledge where we are in the execution of our strategic plan. I'm proud of the continued progress we have made on the 3 priorities we outlined last quarter, stabilizing the business, optimizing our credit portfolio and growing sustainably. I also want to thank the Amerant team for their hard work and dedication throughout the quarter. Our people are the key enabler of this plan and that continues to guide our execution. So let's begin with our primary focus, which has been credit quality and improving our loan portfolio. As a reminder, in Q4 last year, we completed a comprehensive reassessment of our portfolio in terms of risk identification and classification and subsequently exited a segment of loans from classified categories. This process continued into the first quarter, where we demonstrated proactive credit management and further refined the classifications of certain loans based on current macroeconomic data and new information received. We identified both necessary downgrades as well as meritable upgrades. Additionally, we exited and transferred to held for sale another group of loans that we no longer consider core to our business. The new process and people we have put in place has significantly improved our credit evaluation capabilities, and the team is executing well. The composition of our loan portfolio now reflects a healthier mix with a risk profile that is more consistent with our long-term goals. Lee Ann will share additional details shortly. Going forward, as we prioritize business development, we will pursue growth within credit parameters that allow for sustainable financial results. To this end, we have enhanced risk-based limits to adjust concentration risk and prevent single borrower overexposure. We have also refined our market approach by moving away from out-of-market collateral projects, except selectively for existing clients in core markets where we have deeper borrower insight. We have also fundamentally shifted underwriting, prioritizing borrowers with proven stable operating history over projection-based lending and tightening our policy exception framework by lowering allowable exception thresholds to better align with our risk appetite. Lastly, we have continued to invest in experienced talent, and we're taking a more intentional approach to growth, focusing on what we believe are the right fundamentals to drive stability, consistency and sustainable top line performance. Our top priority is continuing to improve our efficiency, which the team executed well against this quarter. Our net income for Q1 was in line with our guidance, and we have significantly reduced noninterest expenses quarter-over-quarter, supported by better-than-expected cost savings. To put this in perspective, our expense management efforts represents approximately $30 million in cost savings for 2026. Additionally, we saw strong growth in favorable low-cost international deposits as a result of the reactivation of the Venezuelan economy and our deep knowledge and experience in the market as well as the extensive work that for many years, we have done to preserve and expand our relationships in the country. In line with this, I would like to take a moment to provide some additional context on our international deposit growth. Last quarter, we highlighted Venezuela as an area of opportunity. And this quarter, we delivered, recording $188 million of total deposit growth in Q1, from which $95 million came from Venezuela and $66 million of this growth was in March alone. These deposits are quite attractive due to their stability, overall cost of funds and beta in rates-up cycle, such as the one we recently experienced, allowing for improved profitability as we continue to grow our international presence. Furthermore, these customers are well aligned with our relationship-first approach as they can be cross-sold via our wealth management offering. Moving forward, Venezuela represents a key opportunity to continue generating net interest income from a source of funds and to capture increased market share. We believe Amerant is uniquely positioned to take advantage of this opportunity and support both individual entities as the country reopens. In summary, we believe we executed well against our strategic plan. We took a focused, deliberate action to further optimize our credit portfolio while reinforcing risk management. We implemented cost savings initiatives that have reduced our expenses and improve our efficiency. We generated loan growth that is aligned with our risk appetite despite exits of certain criticized loans and significant loan prepayments, which provides a clear line of sight to sustained credit performance. And we executed well on our international strategy, particularly in Venezuela, which we view as a meaningful opportunity to further scale our international deposit franchise and drive incremental earnings. With that, I will turn it over to Shary to review our quarterly financial results in more detail. Sharymar Yepez: Thank you, Carlos, and good morning, everyone. I want to begin by saying that going forward, we will be discussing results without breaking down core versus noncore metrics in our financials. We would like to be more selective with adjustments with the goal of providing a clearer and more straightforward view of our quarterly performance. All comparisons made to last quarter's results are to our GAAP reported figures. Let's turn to Slide 4, where you will see our balance sheet highlights. Note that in the next 3 slides, I will focus on those items that are most relevant to the quarter and will not be covered in subsequent slides. Total assets were $9.9 billion as of the end of the first quarter, an increase from $9.8 billion as of the end of the fourth quarter. The increase was primarily driven by higher deposit balances. Additionally, we reallocated our assets to fund net loan growth, including selected residential loan purchases and deploy available cash into higher-yielding assets. Cash and cash equivalents were $188.7 million, down by $281.5 million compared to $470.2 million in the fourth quarter due to the purchases of investment securities at attractive yields as well as to fund loan growth. Total investment securities were $2.4 billion, up by $346.3 million compared to $2.1 billion in the previous quarter. Total gross loans were $6.8 billion, up by $56.5 million compared to $6.7 billion in the fourth quarter. While we experienced increases in certain portfolios, overall loan balances were only slightly higher than in the fourth quarter due to a high level of prepayments and some loans that we exited in line with our focus on credit quality. This was anticipated and guided to in our call last quarter. On the deposit side, total deposits were $7.9 billion, up by $152.2 million compared to $7.8 billion in the fourth quarter, primarily driven, as Carlos mentioned, by strong growth in international deposits. Our assets under management increased $148.6 million to $3.4 billion, driven by higher market valuations. As we've shared previously, we continue to see this business as an area of opportunity for us to grow fee income going forward, increasingly in light of the opportunity in Venezuela. Let's turn to Slide 5. Looking at the income statement, diluted income per share for the first quarter was $0.44 compared to $0.07 in the fourth quarter. Net interest income was $80.3 million, down $9.9 million from $90.2 million in the fourth quarter. This was primarily driven by lower average balances and yields on interest-earning assets, largely attributable to the anticipated cuts of 50 basis points in market rates, impacting the portfolio for the entire quarter. The decrease in net interest income was also driven by the asset mix reallocation. That translated into a contraction of our financial margin to 3.55% from 3.78% in the fourth quarter. Provision for credit losses was $7.8 million compared to $3.5 million in the fourth quarter. Noninterest income was $17.4 million, down $4.6 million from $22 million, primarily driven by the absence of the gain that we had in the fourth quarter from the sale and leaseback of 2 banking centers as well as lower securities gains this quarter compared to the fourth quarter. Noninterest income this quarter includes securities gains of $516,000. Noninterest expense was $66.9 million, down by $39.9 million or 37.3% from $106.8 million in the fourth quarter. The significant reduction in noninterest expenses this quarter was primarily driven by our cost savings efforts, which included $3.3 million savings in vendor contract renegotiations. The decrease in noninterest expenses in 1Q '26 was partially offset by $1.7 million in an impairment on investment carried at cost and $1.8 million in net losses on loans held for sale. Pretax pre-provision net revenue was $30.7 million compared to $5.4 million in 4Q '25. As mentioned earlier, we have significantly reduced noninterest expenses this quarter, which more than offset the lower net interest income and noninterest income, driving an improvement in PPNR. You can also see that ROA and ROE this quarter were 0.73% and 7.63% compared to 0.10% and 1.12%, respectively, and our efficiency ratio was 68.52% compared to 95.19%. These ratios were primarily impacted by the increase in net income and significant decreases in expenses this quarter. Turning now to Slide 6 to discuss our capital metrics. Our CET1 remains strong at 11.84% compared to 11.80% last quarter, mainly driven by lower risk-weighted assets and from net income during the quarter, while partially offset by $18.7 million in share repurchases and $3.7 million in shareholder dividends. We paid our quarterly cash dividend of $0.09 per share of common stock on February 27, 2026, and our Board of Directors just approved a quarterly dividend of $0.09 per share payable on May 29 of this year. During the first quarter, we also repurchased 859,493 shares at a weighted average price of $21.77 per share compared to tangible book value of $22.38 as of March 31, 2026. This represented 97% of tangible book value and 95% of book value. On Slide 7, we show our well-diversified deposit mix along with the composition of our loan portfolio. Total deposits for the quarter were $7.9 billion, up $152.2 million or 2% compared to $7.8 billion in the previous quarter. As Carlos mentioned, this increase was primarily driven by the significant deposit growth in our international deposits as a result of Venezuela's economy starting to reactivate, which we believe presents a strong opportunity for us to pursue. In terms of deposit mix, broker deposits totaled $548.1 million, up by $112.4 million compared to $435.7 million in the fourth quarter as we used mostly short-term funding to compensate for some large fund providers that left in the prior quarter. We also saw an increase in interest-bearing demand, savings and money market deposits partially offset by a reduction on noninterest-bearing deposits. Total loans were $6.8 billion, up $56.5 million or 0.8% compared to $6.7 billion in the fourth quarter. This increase was driven by a combination of originations as well as purchases of selected residential mortgages during the quarter, which were largely offset by the higher prepayments we received as well as loan sales completed in this period. Next, on Slide 8, you can see the evolution of our net interest income. You can see that we maintained a healthy net interest margin despite this first quarter fully capturing the impact of 2 rate cuts towards the end of the last year and our asset mix reallocation. We continue to reprice our interest-bearing deposits during the quarter to maintain a healthy NIM and saw the cumulative beta at 0.48% since the rate down period started. Our net interest income was also impacted by nonperforming loans and some of the exits of classified loans that I mentioned earlier. While this may have a short-term impact, it improves the long-term sustainability of our business. Now I'd like to turn it over to Lee Ann, who will speak a bit more about some of the updates we have made to our portfolio management processes as we continue improving credit quality. Lee Cragg: Thanks, Shary, and thank you for having me on today's call. As Carlos highlighted, we are taking significant steps to improve our credit quality evaluation processes, which I'd like to highlight for you today. To begin, we staffed a dedicated portfolio management team to improve the timeliness of the collection of financial information from borrowers and for the escalation of possible issues to the credit team. We've also invested in additional training for both credit and line of business teams to improve the accuracy and consistency of assigning regulatory risk ratings. We have further embedded new checkpoints throughout our monitoring process upon which updated risk rating models should be run and attested. Beyond that, we've made our review procedures more rigorous and risk focused. We redesigned our annual review format to drive deeper risk identification and recalibrated the review threshold from total credit exposures of $5 million to $3 million to expand portfolio coverage. Subsequently, and with additional process and staff build-out, we expect to review all exposures over $1 million through our standardized review. We also introduced quarterly top 20 reviews across CRE, C&I and Private Banking segments to closely monitor our largest relationships. These discussions include risk ratings, exceptions and exposure strategy. These quarterly meetings will be held for portfolio segments that may be deemed in higher-risk categories throughout the year. We have also increased the cadence of hosting multiple loan monitoring meetings. These meetings are for adversely classified loans with ongoing proactive strategy discussions, focusing on restructures or obtaining additive credit enhancements where possible. Finally, we're aligning our incentives with asset quality by incorporating portfolio management metrics into banker compensation starting in 2026. Collectively, these steps provide stronger controls, better visibility and more hands-on portfolio management. Now turning to asset quality. As shown on Slide 10, nonperforming loans were up $4.7 million or 2.7% for a total of $176.1 million or 1.78% of total assets. During Q1 '26, downgrades to NPL were primarily driven by 3 relationships that included a combination of CRE, owner-occupied and commercial loans, and were offset by payoff and note sales as noted on the slide. In the next slide, we have included similar information as it relates to the classified portfolio. During 1Q '26, downgrades to classified loans were primarily driven by the 3 relationships just mentioned in NPL as well as a large nondepository financial institution loan with underlying CRE property as collateral and one large single-family residential loan, which was adequately secured with real estate. On this slide, you can also see the results of our efforts to reduce the loan balances in this classification during this quarter, with loan payoffs totaling $59.5 million and loans sold totaling $65.7 million during the period. Now moving into Slide 12, we discuss special mention loans and their key characteristics, including portfolio composition and collateral coverage. During the first quarter of 2026, downgrades to special mention were primarily driven by 3 CRE loans, partially offset by upgrades to pass totaling $67.3 million. This is based on new year-end financial information that was received and analyzed. As of April 22, special mention loans were reduced to $117.3 million due to a $30.9 million CRE loan sale and is projected to reach a further reduced level to $88.3 million as a result of an additional CRE loan exit of $29 million. This is expected in the coming weeks. Overall, these results reflect the proactive approach to credit monitoring, evaluation and resolution that we have taken to effectively manage risk across the portfolio. You will also see the impact of these efforts as we continue to exit these credits through paydowns, payoffs and loan sales with expected balances declining as a result. And with that, I'd like to pass it back to Shary. Sharymar Yepez: Thank you, Lee Ann. Now moving on to Slide 13. Here, we show the drivers of the provision recorded this quarter and impact to the allowance for credit losses. The provision for credit losses was $7.8 million in the first quarter. The provision was driven by $6.3 million in additional reserves for charge-offs, a $1.7 million net increase in specific reserve allocations and $2.6 million attributable to changes in credit quality and macroeconomic factors. These increases were partially offset by a $2.9 million release related to held for investment loan volume changes. During the first quarter of 2026, gross charge-offs totaled $9.1 million, which includes $4.4 million related to a commercial loan participation agreement that the borrower and the company agreed to wind down in 4Q 2025, and no further charge-offs are expected from this agreement going forward. The remaining charge-offs were related to one commercial relationship and indirect consumer loans. These charge-offs were offset by $1.9 million due to recoveries. Lastly, the allowance for credit losses ratio was up slightly to 1.21% from 1.20% in the fourth quarter, primarily due to increases in specific reserves. On Slide 14, you can see our outlook for 2026. For 2Q '26, we project loan balances to reach approximately $7 billion, driven by organic originations and selective residential loan purchases, which also support a shift towards a more granular portfolio. For the full year 2026, we expect annualized loan growth of approximately 7%. These expectations will be governed by 2 deliberate and nonnegotiable priorities. First, we will continue to exit certain credits to further optimize our loan portfolio, which will offset a portion of organic production in the near term. Second, we will pursue future loan growth that is consistent with our risk appetite and supports the predictability of our credit metrics. On the funding side, we expect deposits to reach $8 billion by 2Q '26 and cumulative deposit growth between 8% to 10% for 2026. The confidence in our deposit growth outlook is supported by emerging opportunities in Venezuela, as Carlos mentioned, and our continued efforts to grow domestically. We expect net interest margin to be in the 3.4% to 3.5% range in 2Q '26, stabilizing around 3.4% towards year-end, reflecting disciplined balance sheet management and pricing. From an expense perspective, we are projecting approximately $68 million to $69 million in expenses for 2Q '26 with quarterly expenses stabilizing around $68 million by the second part of the year as we continue to make progress towards our target efficiency ratio of approximately 60%. Lastly, we continue to believe that buying back our stock represents an attractive use of capital, and we expect to continue using a portion of our cash to directly return capital to our shareholders through repurchases and dividends. And with that, I pass it back to Carlos for additional comments and closing remarks. Carlos Iafigliola: Thank you, Shary. As we wrap up today's call, I would like to reiterate, as shown on Slide 15, the continued progress we have made in stabilizing the business, optimizing our credit portfolio and growing sustainably. Our results this quarter reflect strong execution and tangible progress from the decisive actions we have taken over the past 2 quarters across these priorities. As we look ahead, we will continue to prioritize building a healthier loan portfolio that is consistent with our risk appetite and long-term goals. We will also continue our disciplined expense management efforts, driving efficiencies across the organization. And lastly, we will emphasize growth in our core business with a clear line of sight to sustained credit performance. We will continue to strengthen our relationship-first model to enhance collaboration across our business lines to unlock synergies, proactively manage deposit funding costs and capitalize on strong deposit growth opportunities, including Venezuela. We have a durable franchise, a clear strategic vision and a disciplined execution plan. While there is more work ahead, we are excited about the opportunities and remain confident in our ability to deliver value for our shareholders over the long term. With that, Shary, Lee Ann and I will take questions. Operator, please open the line for Q&A. Operator: [Operator Instructions] Our first question today is coming from Evan Yee from Raymond James. Evan Yee: So just want to start on expenses. So it looks like expenses trended a little bit better than the initial first half of 2026 expectation. Could you just give us some color into what is factoring in your outlook for the rest of the year? Carlos Iafigliola: Yes. Thank you so much for the question. So pretty much we accelerated some of the contract renegotiation that we have scheduled for later into 2026. So we had it completed in early 2026 and the run-up rate seems to be closer to the $68 million for the entire year quarter-over-quarter. So that's a collective effort that we have done to improve expenses. Shary, I'm not sure... Sharymar Yepez: Yes. Yes, Carlos, to complement that, I think it's important that we state that we're not looking into just a onetime cost reduction. We're looking more into sustainability quarter-over-quarter. So that's why you're going to see that the run rate that we have provided some guidance on it goes to the $68 million more or less in the upcoming quarters. And we continue to plan to cross the $10 billion threshold. I know we're at $9.9 billion right now, but we continue to plan to cross that threshold. We're going to have some investments in people and technology. So it means that we have to make sure that we materialize those cost savings initiatives that we have identified so that we get to that run rate of $68 million that we have guided to. Carlos Iafigliola: I guess the takeaway is that those savings are durable throughout the entire 2026. Evan Yee: Got it. That's super helpful. And then I guess switching over the capital. So it looks like you used a large utilization -- a large portion of utilization this quarter. Just kind of curious on what the appetite is there moving forward. I know you've mentioned it was an attractive option. Carlos Iafigliola: You mean in terms of the buyback, the leftover of the buyback right now is $21 million, and we are planning to complete the buyback through Q2. Sharymar Yepez: Yes. And we have -- I mean, we definitely saw opportunity, we believe, in the bank, and we saw a lot of value and opportunity in the first quarter because we were trading below tangible book. We're now over tangible book, but we continue to see opportunities through the buyback program. So as Carlos mentioned, the plan is to continue with the plan throughout the year with the remaining portion. Operator: Next question today is coming from Russell Gunther from Stephens. Nicholas Lorenzoni: This is Nick stepping in for Russell. So it's good to see progress on special mention, especially with that $31 million sale already closed. But looking ahead to that additional CRE exit you guys have targeted for mid-2Q, does that effectively wrap up the heavy lifting on derisking? I'm just trying to gauge if there are more bulk exits on the horizon or if the portfolio is finally where you want it to be. Carlos Iafigliola: Sure. Thank you for the question. And the exercise that we have been doing, and probably you noticed the progression has been risk identification. We exit the relationships that we consider that were critical exits in Q4 2024. And from now on, it will be a risk calibration exercise. So what we place in available for sale reflects a combination of line items that are either out of footprint, or they are too bulky with our new risk appetite. So the progression will be that those line items will continue to fade away out of the balance sheet. Right now, we executed on the $30 million, and there is another exit up coming weeks. So that will left with $130 million in available for sale, but the plan is to continue to execute, and the plan is to create a portfolio that is more granular going forward. So you minimize the swings between the risk rating categories. Sharymar Yepez: Yes. And Carlos, to complement that, too, if we look also at the categories of classified or NPLs, we are looking into different paths to exit those. Some have opportunities for upgrades, which we'll look into, but others have opportunities, whether it's to refi and so on. So when we think about what is the derisking that we have left over the portfolio, as Carlos mentioned, we have the available for sale that we plan to exit, and then we have the reductions of the classified portfolio as well. Nicholas Lorenzoni: Got it. Operator: Next question today is coming from Woody Lay from KBW. Wood Lay: I wanted to start on the net interest margin in the quarter. It came below the guide you all had given for the quarter, and it looks like it came from lower loan yields. One, I was just wondering, were there any elevated interest reversals in the quarter? And two, is new loan production coming on at lower yields just given the adjustment in the risk appetite and trying to put on cleaner and safer credits? Sharymar Yepez: Sure. And Woody, what I'm going to do is I'm going to walk you through some of the elements of the NIM that may be helpful to get to that response. But the first thing is we had a change -- I mean, we have the repricing of the loan portfolio due to the cuts as we had planned for. So that did happen, and that's why we had guided to a lower number versus the NIM that we had in Q4. But then after that, during Q1, we had a different asset mix. You're going to see that we had a higher proportion of investments available for sale. We had some impact due to the timing of the funding of the loan growth, which occurred later in the quarter. And then additionally, to your point, we had onboarding of production with a quality that's aligned with the current risk appetite that will come and is expected to come with an overall lower yield than the existing portfolio. And then on top of that, we also had an impact of approximately 3 basis points associated to the number of days in the quarter versus the last quarter. I think you also had a question regarding if we had certain impacts of nonaccrual. I don't -- I didn't see anything significant this quarter. But if we compare that to the last quarter, last quarter, we did have some impact due to collections or recoveries on NPL loans. So trying to create something comparable for apples-to-apples, you're going to see that because we didn't have that in Q1, the NIM is slightly lower as well. So I hope that helps with that bridge. Carlos Iafigliola: Woody, the other item that I would like to emphasize that this guidance that we're providing, and we're pending still to see the progression, international deposits started to resume. And as you know, they come with a lower cost of funds, closer to the 1% or in some cases, even lower. So we started to see that coming over. As we started to see a significant progression and we started to see a clear path towards accumulation of those deposits, that may have an impact on the cost of funds and will trigger a recalibration on the guidance for the financial margin. So for the time being, the financial margin projected includes the lower loan spreads. Remember that the production that we're looking at right now, it's probably closer to the 200 basis points, so it's even lower in some cases over SOFR. And generally speaking, what we'll have is that if the international portfolio of deposits starting to increase furthermore, we'll have additional savings in the cost of funds. But that's something that we're carefully assessing right now. We have a good quarter from that perspective and looking forward to see what's the accumulation of those line items. Okay. Sharymar Yepez: And Carlos, to add to that, now on the deposit side, given the uncertainty in the rate environment, although we are expecting some positive improvement in terms of cost of funds due to the maturities of customer time deposits and broker deposits as it relates to other interest-bearing products, we still -- there's still uncertainty as to the timing of those -- as to the timing of the repricing of those deposits. So it's something that we will continue to look and model, but that definitely will impact the guidance to the NIM. Wood Lay: That's really helpful color. I appreciate you walking me through that. And then maybe to follow up on the international deposits. As you mentioned, the growth was really impressive as Venezuelan market is opening up. But how are you shifting the strategy on your end? Do you need to hire more people that call on that market? How do you unlock the potential of Venezuela? And could you also just remind us of the cost of those Venezuelan deposits or the cost on the incremental deposits that would be helpful. Carlos Iafigliola: No. Thank you so much for the question. So definitely, we are looking to increase the staff to help us with these efforts. Something that is really important and is that we have seen a progression in the way that the jurisdiction is being looked from the perspective of sanctions. So progressively, we have seen a path towards reducing the number of sanctions towards Venezuela and the Central Bank from the country having access to their funds. So therefore, there is an incremental flow of funds through the economy, and this is happening in conjunction with the U.S. Treasury Department. So we're seeing that positive uptick. We're looking to increase the staff in the international side, and we're also resuming our outreach to the region since now traveling into the country is much easier now than it used to be before. And the cost of funds right now for the entire international portfolio sits around 1.30% actually even a little bit lower 1.15% maybe. And then we have the incremental deposits that we're getting are actually sub 1%. Wood Lay: Got it. And then maybe just last for me on credit, thinking about the charge-off expectations going forward, it's good to see the quarter-over-quarter improvement over charge-offs. But the noise in the Middle East and some of the inflation to input costs, does that make achieving resolution for some of these credits more expensive, and we would expect charge-offs to go up? Or any thoughts there? Sharymar Yepez: So we have no direct exposure to exploration or extraction on the oil piece. So we're obviously looking at our overall portfolio to see impacts there. But what I would say from a high level on our overall charge-off is that we're predicting around 30 to 35 basis points, which is in line with our guidance. We're not seeing any need for elevation at this point. Wood Lay: Got it. Operator: We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments. Carlos Iafigliola: Thank you, everyone, for joining our first quarter earnings call as well as your continued support and interest in Amerant, and have a great day. Operator: Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: Thank you for standing by, and welcome to the Glacier Bancorp, Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. If your question has been answered and you would like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Randall M. Chesler, President and CEO. Please go ahead, sir. Randall M. Chesler: Good morning, and thank you for joining us today. With me here in Kalispell is Ronald J. Copher, our Chief Financial Officer; Tom P. Dolan, our Chief Credit Administrator; Angela Dosey, our Chief Accounting Officer; and Byron J. Pollan, our Treasurer. I would like to point out that the discussion today is subject to the same forward-looking considerations outlined starting on page 9 of our press release, and we encourage you to review this section. Last night, we issued our earnings release for 2026, and we believe it represents a great start to the year with another quarter of strong results. Net income was $82.1 million, an increase of $18.4 million, or 29%, from the prior quarter and an increase of $27.6 million, or 51%, from the prior year first quarter. Diluted earnings per share was $0.63, an increase of $0.14, or 29%, from the prior quarter and an increase of $0.15, or 31%, from the prior year first quarter. A key driver of our performance continues to be margin expansion. The net interest margin as a percentage of earning assets on a tax-equivalent basis was 3.80%, an increase of 22 basis points from the prior quarter and an increase of 76 basis points from the prior year first quarter. The loan yield of 6.16% in the current quarter increased 7 basis points from the prior quarter and increased 39 basis points from the prior year first quarter. The total earning assets yield of 5.11% in the current quarter increased 11 basis points from the prior quarter and increased 50 basis points from the prior year first quarter. The total cost of funding of 1.40% in the current quarter decreased 12 basis points from the prior quarter and decreased 28 basis points from the prior year first quarter. Turning to balance sheet trends, the loan portfolio of $21 billion at the end of the quarter increased $106 million, or 2% annualized, from the prior quarter. The Southwest Region, which includes Arizona and Texas, grew in excess of 7% annualized during the current quarter, underscoring the strength of our diversified geographic footprint. On the funding side, total deposits of $24.7 billion at quarter end increased $151 million, or 2% annualized, from the prior quarter. Noninterest-bearing deposits of $7.4 billion increased $113 million, or 6% annualized, from the prior quarter. Looking past the quarterly acquisition-related expenses, the non-GAAP operating results show the core strength of the business. Without acquisition expenses, operating EPS was $0.70 per share. Operating expenses were $188.2 million for the quarter, demonstrating consistent cost control. Our credit portfolio continues to perform very well. Nonperforming assets remain low at 25 basis points of total assets, with a slight increase from the prior quarter. Net charge-offs declined to 2 basis points of total loans, down from 6 basis points in the prior quarter. Our allowance for credit remains at 1.22% of total loans, reflecting our conservative approach to risk management. We also executed well on integration and operations. During the quarter, we completed the core conversion of Guaranty Bank, which we acquired in October 2025, and I want to thank our teams for their excellent work and focus on our customers throughout the conversion. As always, we remain committed to consistent shareholder returns. In March, we declared our quarterly dividend of $0.33 per share, representing our 164th consecutive quarterly dividend. We are very encouraged with the business performance in the first quarter and look forward to a strong 2026. Our exceptional team, expanding footprint, unique business model, strong business performance, disciplined credit culture, and strong capital base continue to provide a solid foundation for future growth. That ends my formal remarks. We will now open the call for questions. Operator: Certainly. Our first question for today comes from the line of Jeffrey Allen Rulis from D.A. Davidson. Your question, please. Jeffrey Allen Rulis: Thanks. Good morning. Randy, at a high level, I wanted to chat about the Texas market and the Southwest footprint. Larger banks entering the market often put a positive spin on out-of-market buyers and the opportunities. We have also heard from smaller banks that there are greater market share opportunities due to disruption. Given you have been in the market for some time and particularly through Guaranty, how would you characterize that environment? And, extending that to M&A conversations, could you focus on Texas first and then the broader Glacier Bancorp, Inc. footprint? Lastly, on margin, you had a north-of-4% goal coming into the quarter and saw a sizable jump. Does this reset the ceiling, or did you just get there quicker? How should we think about the margin trajectory, including the role of FHLB paydowns, and the $3 billion of loans repricing you referenced—over what period is that? Randall M. Chesler: I think to some extent the numbers speak for themselves. Texas grew in excess of 6% in the first quarter, and during the same period we were completing the conversion, so they did a great job. I really see the bulk of what is happening there as business as usual. They are continuing to grow in the markets they are in with good customers. There is some disruption as larger banks acquire some mid-sized banks there. It is still a little early to tell how extensive that will be at this point. On M&A, our model and approach have been very well received in Texas given the dynamics there and the type of banks and business—very aligned with how we do business—and I think that has been demonstrated. We have had multiple conversations already. People are on different timelines, and we are in no hurry. We continue to be very disciplined—good banks, good markets, good people. That continues across the Mountain West Region as well with some very good discussions. One of the strengths for Glacier Bancorp, Inc. is the size of the geographic area in which we can look for opportunities, and that will continue to be a very good advantage for us. Byron J. Pollan: Very pleased with our margin lift in the first quarter. Our margin was really firing on all cylinders in Q1. We have now had nine consecutive quarters of margin expansion, and the plus 22 basis points was the largest quarterly increase over that run. We do see more lift ahead. With this strong start, we are on track to hit that 4% target. I would not say we are looking to go much beyond that. It maybe accelerates a little, but I still think we will see 4% in the second half of this year, which does not change our broader 2026 guide. Regarding the levers, the drivers of our margin are shifting a bit. The FHLB payoff is complete—we finalized the payoff of our FHLB advances in Q1. From a deposit cost perspective, we might be able to squeak out another couple of basis points of reduction, but with the Fed on hold, deposit costs for the most part will be stabilizing and moving sideways from here. To this point, we have enjoyed a boost from both sides of the balance sheet; going forward, we will lean more on the asset side for further lift. Our asset repricing has momentum. You will see slow-and-steady upward movement on our active repricing through 2027. We have $3 billion of loans repricing in the next 12 months from March 31, and those will earn an incremental 75 to 100 basis points. Now that we have all the Guaranty data converted and in our reporting, that is where that increased number comes from. New loans are being originated north of 6.5%, which is very helpful. On the investment side, we are still seeing very strong cash flow, and those securities are running off at very low rates with a one handle. Putting all those drivers together, we still see lift ahead, leaning more on the asset side. Operator: Thank you. Our next question comes from the line of Matthew Timothy Clark from Piper Sandler. Your question, please. Matthew Timothy Clark: Good morning, everyone. On loan growth, 2% annualized this quarter on a period basis—a little slower start to the year, likely partly seasonality. How do you feel about full-year growth expectations—we were thinking 3% to 5%—and the pipeline coming into 2Q? And then on expenses, you came in a little below guidance this quarter. Any update there going forward, and do you still contemplate getting to a 54% to 55% efficiency ratio in the fourth quarter? Lastly, does that efficiency ratio exclude amortization expense? Tom P. Dolan: Matthew, at this point we are still comfortable with low- to mid-single-digit loan growth. The pipeline shows continued strength in both pull-through and backfill. There is uncertainty out there—geopolitical and associated economic risks could potentially change things—but we are comfortable with low- to mid-single digits. On the first quarter, there was definitely a seasonal impact. We expect improvement in the second and third quarters. Also, as Randy mentioned, the Southwestern region of our footprint does not have the same seasonality as the northern part of the footprint, which is more susceptible to colder weather that slows construction advances, etc. Ronald J. Copher: We definitely plan to get to the 54% to 55% efficiency ratio. I want to point out core operating. When you look at our reported efficiency ratio for the first quarter, it came in at 63%, which is loaded in the numerator with acquisition expenses and compensation relief coming out of that acquisition. The guidance I gave three months ago in January—$756 million to $766 million for the full year—still stands. We remain cautious on hiring and spending in general, given economic uncertainty, certainly adding in the Billings conflict. Our divisions and corporate departments have done a good job looking at where they might pull back on some expenses, which will likely show up as the year unfolds. Too early to tell precisely, but we feel very good about 54% to 55% on a core operating basis and are staying with the guide. On your question about amortization, the deposit intangible amortization would still be included in that efficiency ratio. Operator: Thank you. Our next question comes from the line of David Pipkin Feaster from Raymond James. Your question, please. David Pipkin Feaster: Hey, good morning, everybody. Switching back to Texas and the Guaranty deal for a minute. It sounds like the conversion and integration are complete, and they did about 6% growth in the first quarter. How did the conversion and integration go? And on the growth they are seeing, what is driving it—deeper relationships with existing clients now that they have more capabilities and a bigger balance sheet, or new relationships you can now service? Also, at a high level on growth, could you elaborate on pipelines across your footprint—where you are seeing growth, the complexion of the pipeline, competition, pricing, and origination yields? Lastly, on the other side of the balance sheet, deposit growth was really strong in a seasonally slower period, especially on the noninterest-bearing side. Could you touch on the competitive landscape for funding and where you are having more success driving deposit growth? Randall M. Chesler: The conversion is behind us, and the teams are doing a great job continuing to help folks in Texas get used to our systems. They really did not miss a beat—very pleased with the approximately 6% loan growth. All those things have gone well and are moving in the right direction. Tom can give you a little color on the makeup of that business. Tom P. Dolan: Good morning, David. On whether growth is coming from existing borrowers deepening relationships or new borrowers, it is a little of both. They have seen nice, strong pipeline growth that remains stable going into the second quarter. One of the main benefits is the ability now to deepen relationships that, at one point from an aggregate standpoint, might have been bumping up against their comfort level, and we are able to continue growing with those as well. New customers throughout their footprint have also been a good source of pipeline growth. As for the broader footprint, the composition of the pipeline is still largely driven by real estate, a good representation of both owner- and non-owner-occupied, spread throughout the footprint, followed by C&I opportunities. Compared to a couple of years ago, we are starting to see more construction demand; those do not fund at close, so we have seen strong top-line production levels, and as we get into the summer, we will see those lines draw, in addition to increased utilization for other segments, including agriculture as we get into the growing season. We expect stronger second and third quarters. From a competition standpoint, no significant change in the last quarter. In markets where we have a controlling market share, we generally get better pricing, which allows us to compete better in larger markets where there is more pricing competition. Production yield was about 6.75% for the quarter. We saw the middle part of the curve increase in March, and as a result, late-quarter and early second-quarter production yields have ticked up. Byron J. Pollan: On deposits, we had a great quarter. The first quarter can be a mixed bag, so to see such strong deposit growth while bringing our overall cost down was fantastic. We are encouraged by noninterest-bearing performance—it outperformed our expectations for Q1—and that bodes well for the rest of the year. We do see headwinds in Q2 from seasonal tax flows, but overall we have had a very strong start, and we are encouraged by our divisions’ success. Operator: Thank you. Our next question comes from the line of Robert Andrew Terrell from Stephens. Your question, please. Robert Andrew Terrell: Good morning. Going back to the margin, good to see you at zero on FHLB advances. I do not think there are any brokered deposits. As you look forward this year, beyond maybe eking out a little more on deposit costs, are there other changes you can make in the funding position or deposit base, acknowledging the cash flows coming off the bond book? Should we expect relative stability in the bond book, or are you starting to buy securities again—where does the excess cash go? And then on capital deployment, you have kept the dividend stable the past couple of years and the payout ratio has dropped pretty drastically. Where do you generally like to operate on dividend payout, and thoughts on capital deployment going forward? Finally, any general expectation for capital benefit if the regulatory proposal goes through as written? Byron J. Pollan: We could see a couple more basis points of deposit cost decline in Q2. I would point to our CD portfolio—over 60% of our CDs mature every quarter. In Q2, renewal rates we have seen early on are coming in a little lower than the maturing rates, so I would look for some cost decline in CDs. Beyond that, with the Fed on hold, for the most part deposit rates may move sideways for the rest of the year. With excess cash, particularly in the second half, we are evaluating investment strategies and expect to be active in the market buying bonds in the second half, looking to put excess cash to work. Randall M. Chesler: On the dividend, the payout ratio has dropped significantly, and we are very pleased to see that trend. It is going to continue to trend down—we are looking forward to seeing it drop below 50% in the next couple of quarters. We have had a lot of discussions about capital. We will be building quite a bit of capital when you take in the regulatory relief plus the position of the balance sheet. Byron and Ronald have been very active in rethinking all options, given the amount of capital that will be accumulating. Byron J. Pollan: On the regulatory proposal, it is still early, but most of the impact to us would be on the risk-weighted assets side. We expect some RWA relief. Early calculations indicate a benefit somewhere in the neighborhood of 75 to 80 basis points to our CET1 capital ratio. If the rule as proposed becomes final, we would expect a bump around 75 basis points on our risk-weighted ratio. Operator: Thank you. Our next question comes from the line of Kelly Ann Motta from KBW. Your question, please. Kelly Ann Motta: Good morning, and thanks for taking the question. When discussing the margin and excess liquidity, did you quantify what you consider to be excess cash levels currently on the balance sheet? It is tougher to see given the breakout with taxes and the tax cash baked in with securities. I am trying to get a sense of the dry powder. Also, understanding that Q1’s remarkable margin level was partly driven by liabilities where things level off from here, there still seems to be a lot of earning asset expansion—an 11-basis-point increase this quarter—which bodes well for an exit margin potentially higher than 4% by 4Q. Is that 11 basis points sustainable, and how should we think about cadence and the exit margin in 2026 and through 2027, given those dynamics seem durable? Byron J. Pollan: We do not have a specific hard target for cash, but we are looking at runoff as bonds mature and cash builds. Broadly speaking, somewhere above the $1 billion range in overall cash is where we would look to redeploy cash flows going forward. That level could ebb and flow depending on market opportunities, timing, and broader balance sheet dynamics, but probably somewhere in the $750 million to $1 billion zone in cash and beyond would be where we look to reinvest. On the 11 basis points of earning asset yield expansion in Q1, one thing to point out is day count and the way interest accrues helped Q1, so there is a little bit of an unwind we would expect to see from a day count perspective in February and beyond. The repricing lift we discussed is durable and will be there. In terms of an exit margin, there is potential to go past 4%, but we are not going to blow through it—maybe we creep above it a little. The sustainability into 2027 is supported by the longer-tail repricing story you referenced. Operator: Thank you. This does conclude the question and answer session of today's program. I would like to hand the program back to Randall M. Chesler for any further remarks. Randall M. Chesler: Thank you, and thank you, everyone, for dialing in today. We appreciate you taking time out of your Friday. We wish everyone a great weekend, and thank you again for joining us. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.