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Operator: Morning. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the OceanFirst Financial Corp. first quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to withdraw your questions, simply press 1 again. I will now turn the call over to Alfred Goon. Please go ahead. Alfred Goon: Thanks, John. Good morning, and welcome to the OceanFirst Financial Corp. first quarter 2026 earnings call. I am Alfred Goon, SVP of Corporate Development and Investor Relations. Before we kick off the call, we would like to remind everyone that our quarterly earnings release and related earnings supplement can be found on the company website oceanfirst.com. Our remarks today may contain forward-looking statements and may refer to non-GAAP financial measures. All participants should refer to our SEC filings for a complete discussion of forward-looking statements and associated risk factors. And now I will turn the call over to Christopher D. Maher, Chairman and Chief Executive Officer. Christopher D. Maher: Thank you, Alfred. Good morning, and thank you to all who have been able to join our first quarter 2026 earnings conference call. This morning, I am joined by our President, Joseph J. Lebel, and our Chief Financial Officer, Patrick S. Barrett. We appreciate your interest in our performance and this opportunity to discuss our results. This morning, we will provide brief remarks about the financial and operating performance for the quarter and some color regarding the outlook for our business. We may refer to the slides filed in connection with the earnings release throughout the call. After our discussion, we look forward to taking your questions. We reported solid first quarter results, which included earnings per share of $0.36 on a fully diluted GAAP basis and $0.43 on a core basis. GAAP earnings per share increased a penny and core earnings per share increased $0.08, or 23%, as compared to the prior year’s quarter. In terms of performance indicators, we delivered our fifth consecutive quarter of net interest income growth, which increased by $1 million, or 1%, as compared to the linked quarter, and was up $10 million, or 11%, as compared to the prior year’s quarter. This performance was driven by an increase in average net loans of $268 million and net interest margin expansion to 2.93%, supported by lower cost of funds and earning asset growth. Total loans for the quarter increased by $92 million, representing a 3% annualized growth rate, driven by $429 million in originations. Asset quality remained exceptional as total loans classified as special mention and substandard were 1.5% of total loans, below our ten-year average of 1.8% and within the top decile of our peer group. The quarterly provision was primarily driven by loan growth and an increase in criticized and classified loans, partly offset by lower unfunded commitments. GAAP operating expenses for the quarter were $73 million, which includes $4 million of merger-related expenses. On a core basis, operating expenses of $69 million declined by $2.1 million, or 3%, from the linked quarter, primarily driven by the impact of our strategic initiative to outsource the residential lending platform and disciplined expense management across the company. Looking forward, we worked diligently to restructure our core IT infrastructure and position the bank to benefit from the deployment of artificial intelligence across all departments. We have invested in AI through existing vendor relationships and have started to see the efficiency benefits in legacy bank processes while looking to further enhance our capabilities. We see significant opportunities to date, and these efforts will enable our ability to improve operating leverage, building further scalability as the bank grows. We will provide additional commentary on our financial outlook in a moment. Capital levels remain strong with an estimated common equity Tier 1 capital ratio of 10.7% and tangible book value per share increasing to $19.86. During the quarter, we also repurchased a modest number of shares solely related to the vesting of employee equity awards. We did not repurchase any shares under the board-approved authorization. As previously announced, a quarterly cash dividend of $0.20 per common share was declared, marking the company’s 117th consecutive quarterly cash dividend. Finally, on 12/29/2025, we announced our merger agreement with Flushing Financial Corporation and an investment agreement with Warburg Pincus. To date, both companies have received shareholder approval. In addition, we have received regulatory approvals from the State of New York Department of Financial Services and from the OCC. Approval from the Federal Reserve remains the final outstanding regulatory requirement to complete the merger. We continue to work towards an expected closing in 2026 and a full systems integration and rebranding in 2026. Importantly, we have made arrangements to accommodate branch transactions for all customers in all branches effective on our first day of operation. We have undertaken that work as we believe that the additional Flushing branches will provide an immediate and meaningful competitive advantage. We plan to provide a detailed financial update on the Flushing merger in connection with our second quarter earnings, which will include a discussion on the pro forma balance sheet and other projections from our latest view of the merger model. In the meantime, we remain focused on executing our organic growth strategy, which is clearly reflected in our results this quarter. At this point, I will turn the call over to Joe for additional color on these businesses. Joseph J. Lebel: Thanks, Chris. I will start with loan originations for the quarter, which totaled $429 million and resulted in quarterly loan growth of $92 million, which was in line with our expectations given typical first quarter seasonality and a handful of customer-accelerated closings at the end of Q4. Our C&I business grew 19% on an annualized basis from the linked quarter, with closed loan volume in C&I and commercial real estate up 81% year-over-year, reflecting continued momentum from our recruitment of talent added in 2024 and 2025. We added another three C&I bankers in Q1 2026, with plans for more in the coming quarters. Total deposits grew by $192 million, or 2%, in the quarter. Excluding brokered deposits, deposits increased $314 million, driven by broad-based organic growth across our core business lines and institutional deposits. The Premier Bank deposits grew $9 million, or 3%, from the linked quarter. The team has brought in over 1,500 new accounts across 400 relationships since the May 2025 inception, approximately 20% representing noninterest-bearing accounts. As an added benefit, the teams contributed $21 million in loan originations for the quarter, and the loan pipeline in Premier stands at $40 million. Customer engagement and calling activity has been significant, and the addition of the Flushing branch footprint will provide a meaningful tailwind moving forward. We remain confident in our 2026 Premier deposit targets and have recently added two new Premier teams located in Manhattan and Long Island, with a few more on the horizon. Lastly, noninterest income decreased by $2.7 million to $7 million during the quarter, primarily driven by a lower gain on sale of loans of $779,000 relating to the Q4 2025 outsourcing of our residential platform. Additionally, we saw some reductions in commercial loan swap income due to lower swap origination volume for the quarter. That should improve through the year as seasonal origination volumes increase. Overall, noninterest income levels were in line with our expectations and as guided in the previous quarter. With that, I will turn the call over to Pat to review the remaining areas. Patrick S. Barrett: Thanks, Joe. As Chris noted, net interest income increased and margin expanded in line with our previous outlook. Compared to the previous year’s quarter, net interest income grew $10 million, or 11%, attributed to the tremendous loan growth in the latter half of 2025. Pre-tax pre-provision core earnings grew 4%, or $1.2 million, from the prior quarter, driven by earning asset growth during the quarter and in 2025. Loan yields decreased modestly, reflecting both lower rates and a continued mix shift within the portfolio. Total deposit costs decreased 16 basis points, driven by disciplined pricing across our relationship base and reflecting the positive impact of the Fed’s rate cuts in late 2025. Looking ahead, we expect positive expansion in net interest income in line with our loan growth and a stable to modest increase in margin over the next quarters. As Chris mentioned, asset quality remained very strong with nonperforming loans to total loans and nonperforming assets to total assets both at 0.31%. Criticized and classified loans increased during the quarter, driven by one large commercial relationship that remains current and well collateralized. Even including this increase, asset quality continues to remain at the low end of historical levels for criticized and classified loans. Lastly, net charge-offs were de minimis, representing only 3 basis points of average total loans on an annualized basis. Turning to expenses, core noninterest expense decreased from $71 million to $69 million, driven by our initiative to outsource the residential business. Non-core items in the first quarter were almost entirely Flushing merger-related costs. Looking ahead, we expect our second quarter core operating expense run rate to remain in the range of $70 million to $71 million. Capital levels remain strong with our estimated CET1 ratio at 10.7%. A word on taxes: We expect our effective tax rate, which was 24% in the first quarter, to remain in the 23% to 25% range absent any tax policy changes. This will change with the impact of the Flushing acquisition, and we will update you accordingly once the transaction closes. There are no changes to our full year guidance as stated in the previous quarter, although we have removed the modest impact of further Fed rate cuts from our outlook. To recap, our guidance is for mid- to high-single-digit loan and deposit growth, NIM growing past 3% in the back half of the year, other income ranging from $7 million to $9 million per quarter, and expenses stable at $70 million to $71 million per quarter. Note that these are stand-alone expectations and do not reflect the impact of the Flushing acquisition. We have also added our second quarter outlook for your convenience. At this point, we will begin the question and answer portion of the call. Operator: Thank you. Ladies and gentlemen, we will now begin the Q&A session. At this time, I would like to remind you to press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking the question. Our first question comes from the line of Daniel Tamayo with Raymond James. Please go ahead. Daniel Tamayo: Thank you. Good morning. Maybe starting first on the deposit side. Nice quarter of growth for you, and it sounds like the Premier folks are making an impact there. You touched on this a little bit in the prepared remarks, but how sustainable do you think this is? Is there any seasonality in the first quarter numbers, and are you able to maintain the mix shift that you have had? Any color on the deposit side would be great. Thanks. Christopher D. Maher: Dana, I think you see some seasonality. It is not uncommon for us in our space, given where our geography is. Frankly, given the Premier team’s momentum, we are going to see more in Q2 and Q3. Joseph J. Lebel: We are still pretty bullish there. It was a little bit of a slow start to the year for them, but it was more than made up for in other areas of the company. So we are pretty happy with the trajectory. More work to do, but overall, we are generally optimistic. Daniel Tamayo: And the reiteration of the net interest income guide despite pulling the cuts out—correct me if I am wrong, but is the read there that competition is increasing and impacting loan spreads, or is it something else? Patrick S. Barrett: I would say yes, competition is pretty intense. You see that in our loan yields—stable versus expanding. So any benefit from maturities and rollovers is being competed away for new originations, and of course the yield curve is playing a little bit of havoc with repricing. We have been positioned relatively neutral for several quarters on interest rates, and the impact of the Fed cuts is less of a thing that rolls through our balance sheet than it is a reason that gives us the ability to reduce deposit costs. There is about a quarter lag on seeing the benefit of that when we do it. We saw nice benefit from the Fed’s rate cuts in September, November, and December rolling through this quarter. We had only modeled, I think, a September rate cut and a December rate cut previously. So when we take that out—because we tend to track with consensus where the market views and predicts rates to be—it was less than a $0.5 million impact on the year. It is a little bit more on an annualized basis for next year, but pretty much de minimis for this year. Daniel Tamayo: Got it. Thanks for the color, Pat. And then maybe one for you, Chris, just on the portfolio sale for Flushing. Any update there on potential size, timing—anything you can give us in terms of where you stand with that now? Patrick S. Barrett: Yeah. So the only thing I can tell you is that— Christopher D. Maher: When we work through legal day one and have all those answers, we will promptly share them with folks. Nothing has changed our outlook since the last time that we spoke. The merger model is holding up, so there is really no deviation in terms of marks, earn-backs, anything like that. We are pretty much on track to where we thought we would be. I would leave the details around the balance sheet restructure for legal day one, and we will talk to you then. I would note that certainly there are some loan segments we are looking at, but it even goes deeper than that. We are looking at hedges and liability structures and securities portfolios. It is an all-encompassing review to make sure we have the right balance sheet coming together as a combined company. There are a lot of different things we would tick and tie, but we will report them out to you promptly. Our views have not changed, the merger model is on track, and there is no reason to have any concern about either marks or earn-back periods at this point. Daniel Tamayo: Alright. I appreciate it. Thanks, guys. I will step back. Operator: Our next question comes from the line of Timothy Jeffrey Switzer with KBW. Please go ahead. Timothy Jeffrey Switzer: Hey. Good morning. Thanks for taking the question. You mentioned you hired a few C&I bankers already, two other Premier bank teams, and you are looking to do a little bit more hiring. Any goals in terms of how many bankers you would like to add, and how should we think about this impacting the expense outlook? Christopher D. Maher: Tim, the way I think about it is we are really bullish on the opportunity to be building out our franchise in New York. We think there is so much opportunity there that the more qualified bankers we can bring on, the better. As we see that opportunity, it is getting us interested in adding a few more bankers. But, Joe, you might talk a little bit about the work you are doing now—this is kind of key hiring season—so why do you not take it from there? Joseph J. Lebel: There are a lot of irons in the fire. I am a big believer that you hire talent when talent is available to you. We were fortunate to get a couple folks just ahead of the hiring season. We are in the thick of it today. I think you will see more from us in the coming quarters, and we are pretty bullish. A lot of that now is going to come in the C&I section of the bank, which is where you are going to see the vast majority of the loan growth as we diversify the mix over time. But there is good talent to be had across the geographies we are in. Christopher D. Maher: I would also note, and we mentioned this in the prepared remarks, that we have made a lot of progress on a few things that relate to costs around the company. We did guide on stand-alone expenses, and those reflect us being able to add a significant amount of talent but not have expenses go up. We are seeing material decreases in some of the operations areas, which is helping us fund the new folks that we are bringing on board. I think we are going to have a brisk hiring season and we are going to be able to comply with the expense guidance that we put out earlier. Do not look for expenses to move up if we are able to hire several more high-quality bankers. We have room to do that. Patrick S. Barrett: Do not be surprised if you see compensation expenses go up and data processing expenses go down, with the net being a push. Timothy Jeffrey Switzer: Understood. You touched on this in your comments earlier, but there was some slight credit migration across some of the more forward-looking metrics—nothing crazy and all from low levels—but just to check the box, is there anything systemic in there or concentrations in certain sectors? Christopher D. Maher: No. It is really just a single business. A single customer had a weak year last year, so you look at your risk ratings on that basis. At this point, it looks like they have runway to recover and migrate back out of that over the foreseeable time period. We are watching closely, but it was only one credit, and it was not something that had a pattern or that we would be concerned about bleeding from there. Timothy Jeffrey Switzer: Great. And one last quick one from me: the timing of close for the merger—should we be thinking 2Q? Christopher D. Maher: We are going to close pretty promptly after we receive the final regulatory approval, but we have to respect their process and understand where they are. Typically, you are not able to close for about 15 days after you receive the final federal approval. We would be hopeful that we are doing it earlier in the quarter, but who knows. We have to respect the process and see how things fall out. Operator: Our next question comes from the line of David Jason Bishop with The Hovde Group. Please go ahead. Christopher D. Maher: Morning, Dave. David Jason Bishop: Hey. Chris, Joe, as you get to know the legacy Flushing franchise and customer and deposit base, any update on your assumptions in terms of your ability to go in there and maybe reprice and remap some of their deposit products and realize some of the deposit cost saves you may have contemplated on first pass? Christopher D. Maher: I think there is opportunity, Dave, in a lot of different ways. First, we have been very pleased as we start working face-to-face with people in broad numbers and get to know them better. We have hundreds of people with OceanFirst Financial Corp. and Flushing working together and preparing for not just the closing, but the integration and how we are going to run the business together, and we really enjoy that opportunity. There is a lot of good talent there. A particular call-out: we think the branch folks are fantastic. We are working through a process of integrating the commercial bankers as well. In terms of deposit pricing, I think some of that will be a little bit market driven. We have to understand where the market comes. The yield curve bouncing around the last few weeks has at least raised the question in our mind about how much you could reprice. But the model was not especially dependent upon that. We are looking at the whole balance sheet. If we have an opportunity to restructure the balance sheet, we may be able to be less dependent on certain sources of funding, which could give us some options as well. We still feel good about it, but we are also watching the broader world and where short-term rates are and what Fed policy becomes, because that will probably make a little bit of a difference over the next couple of quarters. As Pat pointed out, it is not going to make a big difference in our full-year earnings or the NIM, but around the margins, it could be better. David Jason Bishop: Got it. Then maybe one follow-up question. Obviously the focus with the merger is in the New York Metro Area, but there is a lot of disruption from integration and M&A down in the greater Baltimore/DC region. Are you still looking to potentially add talent down in this metro area as well as Boston? Christopher D. Maher: Absolutely. I was just staying with that team a couple of weeks ago, and we think there is a great opportunity there. Joe, maybe you can walk through that a little more. Joseph J. Lebel: We have almost a dozen folks down there now. We have continued to build that team out in the last 18 months and remain out there looking for more. I think we are still just scratching the surface of our opportunities down there. Christopher D. Maher: One of the things we are seeing is the advent of technology—there are a lot of smaller technology players that are working in the mission-critical government space, from defense to cybersecurity and more. Because they are smaller companies, it particularly suits our banking model where the relationship matters a great deal; they are looking to align themselves with a bank over the long term, and a bank that can grow with them because they may be small today but have aspirations to grow quickly. I really enjoyed meeting and working with a lot of those clients, and we think we can grow that pretty nicely in the coming years. David Jason Bishop: Great. Appreciate the color. Christopher D. Maher: Alright. Thanks, Dave. How about next? Operator: Our next question comes from the line of Christopher William Marinac with Janney. Please go ahead. Christopher D. Maher: Thanks. Good morning. Christopher William Marinac: I wanted to ask about the non-New York geographies—new C&I business you are doing in Philadelphia, Boston, and the DC corridor—and how those markets can complement what you are building now with Flushing and the combined OceanFirst Financial Corp. footprint. Joseph J. Lebel: Chris, I will start with Boston to give you a little bit of flavor. The three C&I hires this year were in the Boston footprint. We are pretty happy with that addition; the team is now eight folks or so. As I mentioned earlier, we are almost a dozen down in the DC/Baltimore metro. Philly has always been a consistent performer. It is a book that is north of $2 billion today. We are really bullish on all three markets, continuing to add people in those segments. The C&I business is growing in all three segments. If you recall, initially the CRE business was very strong in Philly and Boston, but the focus for us has been to diversify the books, and I think we have done a really good job there. We are just touching the surface; I think there is a wealth of opportunity going forward. Christopher William Marinac: Great, Joe. Thank you for that. And, Chris or Joe, if you go back to when Signature failed a couple of years ago, how much business is still out there to move if you had to ballpark it today? Christopher D. Maher: There is always some opportunity there, but what we are really focused on is winning share across a wider group of different competitors. In fact, the hires we made—including a number of hires we made into the Premier Group this year—came from other banks and have other targets. What we tried to build when we brought our teams over was to hire folks that had a history of working in this model and bring in bankers from a variety of different institutions, bringing them into the Premier model and making it work. We are less dependent upon any particular competitor, but there is still opportunity out there. The Premier Group, although recruiting from a variety of sources, is still a deposit-heavy, deposit-centric hire. The bankers we are looking at there are bankers that can bring management portfolios with them, which is a slightly different focus. The C&I folks bring cash management with them as well, and we are really happy that our C&I bankers are funding almost 50% of their asset growth with their own deposits, which exceeds our expectations in that segment. In the Premier segment, we expect it to be more of a contributor of excess funding. So it is a slightly different candidate but looks very similar to what we have done over the years. Christopher William Marinac: Great. Thank you, Chris. I appreciate the background here. Christopher D. Maher: Alright. Thanks, Chris. Operator: Thank you. At this time, we have no further questions. We will now turn the call back over to Chris for closing remarks. Christopher D. Maher: Thank you. We appreciate your time today and your continued support of OceanFirst Financial Corp. We look forward to speaking with you in July at our second quarter results and hope we will have the opportunity to go a little deeper in the Flushing merger model at that time as well. Thanks, everyone. Operator: Ladies and gentlemen, this concludes today’s conference call. You may now disconnect your lines at this time. Thank you for your participation, and have a pleasant day.
Operator: Good day, and thank you for standing by. Welcome to the Gentex Reports First Quarter 2026 Financial Results Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Josh O'Berski, Vice President of Investor Relations. Josh O'Berski: Thank you. Good morning, and thank you for joining us today for our first quarter 2026 earnings conference call. I'm Josh O'Berski, Gentex's Vice President of Investor Relations, and with me today are Steve Downing, President and CEO Neil Boehm, COO and CTO, and Kevin Nash, Vice President of Finance and CFO. Please note that a replay of this conference call webcast along with edited transcripts will be available following the call on the Investors section of our website at ir.gentex.com. Before we begin, I'd like to remind you that many of the statements made during today's call are forward looking and reflect our current expectations. These statements involve a number of risks and uncertainties, both known and unknown, including those described in our press release issued this morning and in our annual report on Form 10-K for the year ended December 31, 2025, as well as general economic conditions. Actual results may defer materially from those expressed or implied in these forward-looking statements, if risks and uncertainties materialize or if our assumptions prove to be incorrect. I'll now hand the call over to Steve Downing for our prepared remarks. Steven Downing: Thank you, Josh. For the first quarter of 2026, the company reported consolidated net sales of $675.4 million a 17% increase compared to $576.8 million in the first quarter of last year, which did not include VOXX. VOXX contributed $88.6 million of revenue during the quarter while Core Gentex revenue totaled $586.8 million, which was a 2% increase despite global light vehicle production that declined more than 3% versus last year. Core Gentex revenue growth was driven by strength in Advanced Features across several regions, helping offset lower light vehicle production and ongoing unit volume headwinds. In North America, revenue increased approximately 6% despite a 2% decline in light vehicle production, driven primarily by continued growth and penetration of FDM shipments. In Europe, Japan and Korea, auto-dimming mirror unit shipments declined by approximately 8% versus last year. However, revenue for these combined regions declined only 2%, reflecting favorable product mix driven by the successful launch of a Cabin Monitoring System in Europe and continued FDM growth. In China, first quarter revenue totaled approximately $28 million, down 29% versus last year, reflecting the ongoing impact of tariffs on our exports to China. Overall, given the continued challenges facing many of our customers, our revenue growth continues to be driven by expanding electronic content and the adoption of new technologies. As an example, VOXX was a bright spot during the quarter with revenue coming in approximately 9% above our beginning of quarter forecast, driven by stronger-than-anticipated sales in the Premium Audio segment. Consolidated gross margin for the first quarter of 2026 was 33.8% compared to 33.2% in the first quarter of last year. Core Gentex's gross margin was 34% representing an 80 basis point increase versus last year. Gross margin benefited from operational efficiencies and favorable product mix, partially offset by the impact of tariff-related costs and higher commodity prices. Year-over-year, the company delivered nearly 200 basis points of operational gross margin improvement driven by strong execution and product mix despite the headwinds created by tariffs and commodity price increases. First quarter consolidated operating expenses totaled $105 million compared to $78.7 million last year, which did not include VOXX. The increase was primarily due to the VOXX acquisition, which accounted for $23.2 million of the change as well as $2.8 million of impairment charges. On a non-GAAP basis, Core Gentex's adjusted operating expenses were $78.3 million compared to $75 million in the first quarter of last year when we exclude impairment charges, acquisition-related costs and severance. As Neil mentioned in the press release, we are incredibly busy with the launch of some of the most complex and innovative technologies in the company's history. These launches include our Gen 4 FDM, new CMOS Imaging Sensors, In-cabin Monitoring Platforms, Dimmable Visors and Large Area Devices, along with multiple new VOXX Automotive and Premium Audio launches. These efforts are occurring at the same time our customers have drastically increased their requirements around cybersecurity for many of our existing and new products. Despite this activity level, the company remains focused on operating expense discipline and continues to leverage available tools to meet customer commitments while maintaining modest expense growth. Consolidated income from operations for the first quarter of 2026 was $123.7 million compared to $113 million in the prior year period. Core Gentex income from operations totaled $117.9 million, representing a 4% year-over-year increase. On a non-GAAP basis, adjusted Core Gentex income from operations was $121.4 million compared to $116.8 million in the first quarter of last year. Total Other loss for the quarter was $5.6 million compared to Other income of $0.6 million in the prior year period, primarily reflecting lower investment income and impairment charges. The effective tax rate for the first quarter of 2026 was 16.6% compared to 16.5% last year. Consolidated net income was $98.5 million compared to $94.9 million in the first quarter of last year, driven by higher sales and improved profitability. On a non-GAAP basis, consolidated net income was $103.7 million compared to $98 million last year. Earnings per diluted share were $0.46 for the first quarter of 2026 compared to $0.42 last year, reflecting increased sales and improved profitability, partially offset by Other losses. On a non-GAAP basis, adjusted earnings per share were $0.48 compared to $0.43 for the first quarter of last year. I will now hand the call over to Kevin for some further financial details. Kevin Nash: Thanks, Steve. Gentex's Automotive net sales were $566.2 million in the first quarter of '26, up from $563.9 million in the first quarter of '25 demonstrating revenue growth despite a quarter-over-quarter decline in light vehicle production and in base auto-dimming mirror unit shipments. The quarter-over-quarter increase in net sales reflects favorable product mix, new technology launches and content gains with customers. Net sales from Gentex's Other product lines, which includes dimmable aircraft windows, fire protection products, medical devices and biometrics were $20.6 million in the first quarter compared to $12.9 million in the first quarter of '25, which represents an increase of nearly 60%. This growth was driven by quarter-over-quarter increases of $3.4 million in aircraft window sales and $2.1 million in each of fire protection products and biometric sales. VOXX net sales contributed $88.6 million during the first quarter. And 1 year after the close of the acquisition, the integration is well underway, and the VOXX business has now achieved profitability. The focus for the next 12 months will be on scaling product launches, expanding sales channels and strengthening market position, while at the same time, improving margins and lowering operating expenses. During the first quarter, the company repurchased 3.3 million shares for $71.6 million at an average price of $22.1. As of March 31, approximately 32.6 million shares remain authorized under the repurchase program, and the company expects to continue to repurchase consistent with its capital allocation strategy. Turning to the balance sheet. Our comparisons today are based on March 31 of '26 versus December 31 of '25. Starting with liquidity. Cash and cash equivalents were $164.8 million at quarter end, up from $145.6 million at year-end. Short-term and long-term investments totaled $280.4 million compared to $278.4 million at the end of '25. Accounts receivable was $419.5 million on March 31 compared to $368.5 million at year-end, reflecting higher first quarter sales activity. Inventories totaled $523.5 million, up modestly from $516.3 million at year-end, driven by higher bill of material costs due to tariffs and precious metal cost increases. Accounts payable was $276.6 million compared to $248.9 million at year-end, primarily driven by month end timing and inventory purchases. Preliminary cash flow from operations for the quarter was $137.1 million compared to $148.5 million in the prior year period, as higher net income was more than offset by those changes in working capital. Capital expenditures for the first quarter were $17 million compared to $36.7 million in the first quarter of last year. And lastly, depreciation and amortization for the quarter was approximately $25.7 million compared to $25.5 million in the first quarter last year. I'll now hand the call over to Neil for a product update. Neil Boehm: Thank you, Kevin. The first quarter of 2026 was another strong launch quarter. In the quarter, over 65% of the launches were advanced interior and exterior auto-dimming mirrors and electronic features. HomeLink Full Display Mirror and advanced feature exterior auto-dimming mirrors where the product is driving the greatest growth of the Advanced Feature launches for the quarter. Within the first quarter, Gentex took part in several trade shows and customer events to demonstrate our products and capabilities. At IC West, we demonstrated our suite of products aligned for the security and access control industry, highlighting our Fire Protection, Biometric Authentication and Smart Home Solution products. Between our PLACE and commercial Fire Protection products, our HomeLink Smart Home Solutions and our BioConnect and EyeLock brands, our product lines provided some great conversations with customers, installers and industry professionals. Across our industries and in all regions of the world, we continue to see demand for localized production as a venue to offset tariffs and de-risk supply chain constraints. In China, this has created a substantial headwind in our markets. But globally and especially for North America, it continues to create opportunities. Our deep expertise in high-end electronics manufacturing and assembly, puts us in a unique position to participate in a number of these near-shoring opportunities. We remain optimistic about our ability to capitalize on a number of these opportunities. Our teams at Klipsch Onkyo, and Integra begun launching the products we showcased at CES. At Klipsch, the new Fives, Sevens and Nines are now available for purchase and combined impressive sole performance with incredible design. With a large number of new products still in development, we're excited to see how the balance of the year performs and how consumers react to these new products. While base mirror volumes remain pressured because of tariffs and global cost-cutting trends, our customers are deploying creative strategies to attempt to capitalize on consumer demand for technology. To that end, the team at Gentex remains focused on delivering the Advanced Features our customers and end consumers have grown to expect in their vehicles. Full Display Mirror remains a leading performer within the quarter, and we're well on our way to adding another 200,000 to 400,000 units versus last year's volume. Our Driver Monitoring Solutions are also driving revenue growth, with our product currently shipping to Rivian, Volvo and Polestar. We expect to begin shipping Driving Monitoring products for the next 2 OEM customers in the second quarter to early third quarter of 2026. Dimmable visor continues to gain customer interest, and our manufacturing teams are well underway to getting production lines built to support the expected volumes for first program launch, which will begin shipping in the back half of 2027 Vehicle production volumes for 2026 are slated to be flat to slightly down in our primary markets and pressure from our OEM customers to reduce cost and de-content vehicles remains a threat. But Gentex is well equipped with our product portfolio to continue outperforming our markets. Our pricing remains competitive, and our product quality and consumer demand for Advanced Features provides growth opportunities at our customers. Internally, our teams continue to focus on driving greater efficiency in our engineering and manufacturing processes, improving our component and supply chain pricing and availability and balancing the evolving tariff impacts as we launch in the port increasingly complex array of technologies for the global market. I remain highly confident in the team here at Gentex and their ability to continue to drive improvements while we advance and launch new technologies. Now I hand the call back over to Steve for guidance and closing remarks. Steven Downing: Thanks, Neil. The company's light vehicle production forecast for the second quarter of 2026 and full years 2026 and 2027 are based on the mid-April 2026 S&P Global Mobility outlook for North America, Europe, Japan, Korea and China. The S&P Global Mobility forecast for global light vehicle production for the second quarter of 2026 is expected to decline 2% versus the second quarter of last year, while light vehicle production in the company's primary markets is expected to be down over 3%. Full year 2026 production in the company's primary markets is also expected to decline 2% versus last year. Forecasted vehicle production volumes for the second quarter of 2026 and calendar years 2026 and 2027 were included in our press release from earlier today. Consolidated revenue for 2026 is now expected to be between $2.65 billion and $2.75 billion. Consolidated gross margin is still anticipated to be between 34% and 35% for the year. Consolidated operating expenses, excluding severance impairments, are forecasted at $410 million to $420 million. The effective tax rate is expected to be between 16% and 18%. Capital expenditures are projected at $125 million to $140 million, and depreciation and amortization is expected to total $100 million to $110 million. Also, based on the S&P Global Mobility light vehicle production outlook and the company's estimates for premium audio, aerospace, medical, fire protection and consumer electronics products, the company has updated its expected calendar year 2027 revenue range to be between $2.8 billion and $2.9 billion. As it relates to the recent invalidation of the IEPA tariffs by the U.S. Supreme Court, the company has not recognized any potential refund in its first quarter results. The company is in the process of assessing the potential impact of such a validation in its eligibility and process for seeking refunds. As of March 31, the company estimates that approximately $15 million of tariff costs have been capitalized in inventory associated with IEPA tariffs, which had not yet been expensed as of that date. Since the inception of the IEPA tariffs, the company, including VOXX, has directly paid a cumulative total of approximately $42 million, excluding amounts paid indirectly through suppliers, which was partially offset by approximately $5 million of costs recovered from customers to-date. Given the evolving situation, the company has not recognized any potential refunds because of the difficulty in predicting whether any tariff refunds will be available or whether the U.S. Customs and Border Protection Agency will contest any tariff refund claims made by the company. Based on first quarter performance and our current forecast for the remainder of the year, the company is increasing its current revenue guidance for the year, while maintaining the full year gross margin guidance. new tariffs, which are currently temporary, have been reflected in our outlook, assuming they will be effective for the full year. The company is also facing new and ongoing cost pressures from key commodities, including a number of precious metals petroleum-based products and memory components. These headwinds have not resulted in material supply chain disruptions to date, and we will continue to pursue customer reimbursement opportunities and internal VAVE projects to reduce the impact these headwinds could have on gross margin performance. At the 1-year anniversary of the VOXX acquisition, we are pleased with the cost improvements accomplished and how the teams continue to further integrate. We are also proud of the progress made across the organization as we begin to see the benefits of a shared strategy and expanded capabilities across the combined businesses. As we look ahead, we remain focused on the disciplined execution of many technology launches, development initiatives and R&D projects that are currently underway. Our focus on new technology is absolutely necessary to accelerate growth in a market where light vehicle production challenges remain. The efforts spent on new technology launches is designed to provide above-market growth over the next few years, and when combined with our disciplined approach to managing operating expenses, we believe we have a winning formula to create shareholder returns. We are encouraged by the increased interest from our customers on Gen 4 FDM and ICMS, Dimmable Visor and Large Area Devices, as well as several ongoing discussions with customers around becoming a strategic high-volume electronic supplier with a U.S. operating footprint to help OEM customers mitigate tariff exposure and geopolitical risks that exist in the current supply base. That completes our prepared comments for today. We can now proceed to questions. Operator: [Operator Instructions] Our first question comes from Joseph Spak with UBS. Joseph Spak: Steve, I actually wanted to pick up right where you left off. You mentioned this interest in becoming a high -- strategic high-volume electronic supplier. Can you give us some indication about how substantive the customer interest is? Are we talking about RFQs and formal sourcing decisions? Or is this more exploratory? And what type of incremental investment do you think should take from your perspective? Maybe what types of products or end markets are you talking about? And how should investors begin to think about a potential return on that initiative? Steven Downing: No, it's a great question. What I would say is we're right now with a couple of different OEMs were in the RFQ phase. So nothing's been sourced or awarded yet. But really, what you're looking at is, and you can imagine inside of a vehicle, there's a lot of electronic modules that are sourced as either Tier 2 or Tier 3 some of those in varying complexity. But from a capital footprint, we believe, over the next couple of years, it's a very light capital lift and definitely well inside of our capital guidance already for this year. Obviously, if that business were to expand significantly, then it would have a capital call, but it would be very much in line, if not a little less on it. If you look at capital as a ratio to revenue it would be actually a lower ratio than what we have currently with auto-dimming products. Joseph Spak: And just as a follow-up, do you see opportunities outside of automotive? And what do you think about your capabilities to be able to participate there? Steven Downing: Yes, absolutely. We see a lot of opportunities. Obviously, we're already making electronics in the aerospace industry, both for Boeing and Airbus, one of the things we believe is an opportunity is to continue to expand our aerospace footprint in the electronic space, but it's also starting to bring in with the addition of VOXX and Klipsch. We're starting to see opportunities in the consumer electronics space as well. Joseph Spak: Okay. And then just on the guidance. I was just wondering if you could help us sort of unpack because you raised the revenue guidance, it looks like by a little bit more than the beat. You did take a softer production view. So maybe what's sort of just driving that optimism over the rest of the year? And then within the unchanged gross margin guidance, just maybe a comment or two on what you're seeing from an inflationary pressure perspective and whether we should -- how we should think about that sort of falling within the range from some higher costs or if there's internal offsets to some of those pressures? Steven Downing: Sure. So I'll start with the revenue question first. You're exactly right. I mean we're seeing a lot of strength on the technology side and advanced features, which is fortunately more than offsetting some of the headwinds on the light vehicle production side. We tend to be a little more -- a little -- pretty aligned with S&P where they're at. I know it's a little more pessimistic than what some other Tier 1s or OEMs would say production is going to look like, after several years of this and production declines, we tend to believe that these numbers make sense to us. And so we're a little conservative in terms of light vehicle production, but we do see good demand for our highest end products, especially Full Display Mirror and cabin monitoring. And then like Neil mentioned in his prepared comments, as we move into '27 and beyond, advisers and large area devices, we're really starting to get a foothold there. And so -- we have the one award for visors already. I would say that by the end of this year, we fully expect that we'll have a couple more of those awards. And so we're pretty optimistic about longer term what content will look like -- and we've known for a few years now that we -- if we're tied just to light vehicle production that was going to be a declining market. So -- we've offset the challenges in China with growth in North America. And honestly, despite even though it's down a little in Europe, we're more than beating the market, both in North America and in Europe, Japan and Korea. On the margin side, yes, we're -- definitely, there's a lot of headwinds right now in the space, especially if you look at it between between the tariff situation, which is obviously very unpredictable at this stage, but between tariffs and then the cost increases we're seeing in precious metals. And when we say that, we're really talking about metals that we have exposure to, silver, gold, ruthenium, very, very volatile pricing in the last 12 months. And so those are definitely to a headwind. And then obviously, you can read about this anywhere. But when you start talking about memory components, we're kind of back to where we were about 3 years ago with definitely an inflationary market on the electronics side. So -- but all that said, when we look at our forecast, we have a lot of internal VAVEs and some positives as well. So we think we can weather that storm and still hit that margin guidance for the year. Operator: Our next question comes from Luke Junk with Baird. Luke Junk: Maybe I'll start with the guidance revision, Steve. Just want to understand the walk a couple of points relative to a little bit of a headwind from production [indiscernible] a lot and clear in terms of the higher tech products. What I want to double click in is just your [indiscernible] and vehicle mix you to date. And anything that we should be aware of relative to your updated assumption or any customers dynamics that could impact incrementally your view just underlying your shipments going through the year? Steven Downing: Thanks, Luke. What I would say on the -- especially on the vehicle mix side, we're doing really well in terms of -- despite some of the challenges and the overall sentiment in the market, demand for higher-end or well-equipped vehicles has continued to hold steady. And that's the one for us. I mean, they're starting to see some incentives in the marketplace, but it's not over the top right now. What we've seen on the negative side is really de-contenting on the lowest-end vehicles, and that's where you'll see some of the challenges on the volume side, both IEC and OEC volumes, especially in lower-cost markets. where these features are nice to have. But if the consumer is not paying for them, OEMs are looking for a way to try to save money. And so that's the challenge is how does that mix shape out over time, right? Does it continue to be moving towards lower end vehicles? Or are we going to continue to see demand on the higher end and well-equipped vehicle side? What we're seeing right now and on the release side and even from our customers is that, that portion of the vehicle build that's focused on higher-end consumers is holding up very well right now. Luke Junk: Cool. And then second, Neil, it would be just great to get your perspective on large area device so far this year in terms of your internal efforts now that you finally have the equipment in-house in terms of key progress markers and just iteration moving towards commercialization ultimately. Neil Boehm: Yes, absolutely. Team's made some really good progress in the last 2 months with the equipment we talked about in the first -- I guess, fourth quarter a couple of months ago, equipment's up and running. Just got buy off on it from the supplier, from the insulation and fixing some of the process. We just started running our first passes of some material through it earlier this week. So we probably have another, let me -- I'll sum it there's another month or 2 of kind of weeding out the process and really trying to get that tuned into what we need to be able to make good material. In the meantime, we're still utilizing our third-party sources, still putting parts through construction and manufacturing and validation to prove out the technology. Luke Junk: And lastly, just the electronics manufacturing opportunity from a margin standpoint and the sorts of things you'd be looking at Steve, it seems from a capital standpoint, that's pretty light lift, at least initially? Would it be right to think this is sort of a typical margin opportunity as well, not anything in [indiscernible] the contract manufacturing type relationship? Steven Downing: Yes. So if you look -- if you pull the companies who are currently involved in this business, we're modeling margin profile that's very similar to theirs. Operator: Our next question comes from Mark Delaney with Goldman Sachs. Mark Delaney: I was hoping to start with one on what you're seeing in a bit more detail with respect to auto production trends. I understand your based on your forecast on the latest S&P view of negative 2%. But could you talk a bit more on what you're seeing with your own business by region? And I understand some of the strength at the high end. But given the war in the Middle East, I'm hoping you could help us understand if you've seen any degradation in OEM schedules maybe looking into the back half of the year. Steven Downing: Yes. Thanks, Mark. What I would say first is that we haven't really seen any degradation due to the Iran situation. What we have seen over the last 18 months to really the last couple of years, is definitely some weakening in the European market, especially with the traditional OEMs that we have our best content with. So if you think about the German OEMs, that's usually where we've had our best book of business. There has been a trend towards lower end vehicles in the European market. And so that has been a negative headwind we've been dealing with for the last couple of years. We don't see that worsening right now. It's kind of on the same plane as it was and has been -- and so we're not too negative that it's going to continue to worsen in Europe, but it's just not the uplift that we used to have out of the -- especially out of the German market. Mark Delaney: Understood. And my other question was also on the electronics opportunity you were describing. I understand you've had some RFQs out, but to the extent that those are successful, could you speak a bit more as to when you think you can start to see a financial impact from these engagements? Steven Downing: Yes. I think right now, most of what we're quoting is kind of like early '28 type SOPs. There's always the possibility something could come in quicker. It probably wouldn't be material from a revenue standpoint. -- if it did happen sooner, but really kind of what we're targeting is that '28 to '29 to have kind of a material level of revenue from that product line. Operator: Our next question comes from David Whiston with Morningstar. David Whiston: Just curious how -- for Q2, how are you balancing buybacks given what I see as a very cheap stock versus rising in-book costs in the Iran war? Steven Downing: Yes. So it's a great question, David. We would agree with you, the stock is definitely undervalued, at least given our performance. And so we're going to continue to take advantage of that, whenever possible. So the good news is if you look at how we fund share repurchases, it's all driven off of cash flow from operations. So the conflict isn't really changing our financial performance. If it did, obviously, we'd have to slow down repurchases, but we don't see anything really creating that type of financial problem with our ability to generate cash off the existing business. David Whiston: Okay. And on all the EV program cuts across the industry lately. Has that caused any major volume problems for you guys versus your budget? Steven Downing: Yes, there's definitely been some headwinds. I mean we were anticipating some better content. If you look at that vehicle lineup that we typically have really strong content, including not only just IECs but also OECs -- and so as those programs have pushed out, gotten canceled, delayed, that definitely has taken some of the growth away that we are hoping for. But it's not so substantive that it's causing a huge change to our forecast. It's just you would have expected another 1% or 2% of growth at least if those launches had happened on time and at volume. Operator: [Operator Instructions] Our next question comes from James Picariello with BNP Paribas. James Picariello: I want to first ask about an update on the VOXX integration and just how we should be thinking about the EBIT or EBITDA trajectory from here, right? Last year, for the full year, we saw adjusted EBIT of just over $10 million. We're almost at $6 million, did I say $1 billion, $10 million. Steven Downing: I like that number better. It was in yen. We knew. David Whiston: $6 million, almost $6 million just in the first quarter alone. So yes, just any thoughts on how this trajectory looks from here? Kevin Nash: Yes. I mean, great question. I mean I think there's been a lot of hard work. I mean, we are seeing a little bit of new growth from some of the new products that Steve mentioned -- or Neil mentioned in the call, so that they -- took typically carry higher margins. But their business is quite seasonal. So you expect a little bit of a dip probably in Q2 with a ramp in Q3 and Q4. But if you annualize that first quarter number, that's our expectation from a pretax profitability [indiscernible] mid- to high 20s is what we're looking at this year with the ramp towards the end of the year and into next year to get to our target of, call it, that 40% to 50%. James Picariello: Right. Okay. That's great to hear. And then -- just on the de-contenting topic. I mean, I know it was -- it was touched on during the prepared remarks. But I view it as two buckets. Obviously, I care more about your view, right? You have a global major global EV manufacturer. And then some dynamics taking place in Europe? Can you just shed light on what the latest is there? Steven Downing: Yes. I would say you're absolutely right. I mean it kind of breaks out that way. I mean you have the trend of what's going on with EVs, and obviously, there's no doubt that a lot of the investment that went into that on the supplier side did not have the payout that we were hoping for from a development standpoint. The good news is most of our products are ambivalent as it relates to what the powertrain is. So if we're launching a product for an OEM and they move from an EV to platform. We typically will have the same product on both of those. So it's not like the development is completely wasted. However, the volume difference and the content may be different between an ICE platform and an EV platform. And then as it relates to geographically, you're exactly right. I mean there's definitely some trends in certain markets, obviously, the China thing is very obvious of what it is, definitely have struggles there geopolitically, even selling products into Chinese and domestic OEMs. But -- on the flip side of that, probably the region that struggled the most, quite frankly, has been in Europe in terms of the content. And like I mentioned before in the Q&A session, the German OEMs where we've traditionally had some of our best book of business have definitely have had some troubles over the last couple of years. And so we don't see that changing or correcting course anytime soon. And that's where the focus on content and new technology is really important is for those customers. So if we want to -- you can't count on just auto-dimming mirrors for growth with those OEMs. And so we have to continue to evolve, and that's where the in-cabin monitoring system and the visors are really starting to gain traction and attention from those customers. and there's definitely a lot of interest there. And like we said, and you've seen at CES large area of device demand is there. Right now, we're in the engineering cycle where we have to get through this product. You have to make sure it's robust before we feel comfortable launching it. But we're much closer today than what we were anytime in the last couple of years. And so I think our confidence as a team, the durability of that product is surviving and lasting much better. I mean, we fixed literally thousands of issues that could have caused a program problem. And there are still challenges. There's no doubt, but we're definitely way further down that path than what we were this time last year. Operator: I would now like to turn the call back over to Josh O'Berski for any closing remarks. Josh O'Berski: Thank you, everyone, very much for your time, questions and attention. We hope that you have a great weekend. This concludes our call. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Alpine Q1 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 your first speaker today, Jenna McKinney, Director of Finance. Please go ahead. Jenna McKinney: Thank you. Joining me and participating on the call this morning are John Albright, President and Chief Executive Officer; Philip Mays, Chief Financial Officer; and other members of the executive team who will be available to answer questions during the call. As a reminder, many of our comments today are considered forward-looking statements under federal securities laws. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we undertake no duty to update these statements. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's Form 10-K, Form 10-Q and other SEC filings. You can find our SEC reports, earnings release and most recent investor presentation, which contain reconciliations of the non-GAAP financial measures we use on our website at www.alpinereit.com. With that, I will turn the call over to John. John Albright: Thank you, Jenna, and good morning, everyone. We are pleased to report a strong first quarter in 2026, building on a record level of investment activity we achieved in 2025. We continue to execute our investment strategy by seeking to assemble a high-quality portfolio of single-tenant net lease properties leased to investment-grade rated tenants in addition to originating commercial loans with attractive risk-adjusted returns secured by high-quality real estate with strong experienced sponsored. During the quarter, we acquired a retail property in downtown Aspen, Colorado, for $10 million. This acquisition was structured as a 50-year absolute triple-net master lease and initial cap rate of 8.5% with 1.25% annual rent escalators. With regards to the property dispositions, we continue to selectively prune our portfolio, selling 3 non-investment-grade-rated lease properties for $5.8 million and weighted average exit cap of 7.4%. As a result of our combined first quarter property transactions, our property portfolio consists of 125 properties, totaling 4.3 million square feet across 31 states with a 99.5% occupancy and a WALT of 9.3 years. 50% of our ABR is generated from investment-grade rated tenants with Lowe's, Dick's Sporting Goods, Walmart and Best Buy, representing 4 of our top 5 tenants. Additionally, during the quarter, we originated a $32 million first mortgage loan, of which $8.6 million was funded at close. The loan carries a 24-month term with an initial interest rate of 13% inclusive of a 1.5% paid-in-kind interest, stepping down to an 11.5% current pay rate upon the borrower meeting certain conditions. The loan will fund the development of 101,000 square foot retail center with national investment-grade rated tenants and 3 outparcels. The retail center is located in the Atlanta MSA is shadow anchored by 128,500 square foot Target currently in development and is adjacent to an existing Publix, creating a strong and varied merchandising mix. Further, with regards to our commercial loan portfolio, we closed and funded the $31.8 million Phase 2 of our first mortgage loan investment secured by a luxury residential development located in Austin, Texas metropolitan area. The A-1 participation that was previously announced contributed an additional $10.8 million towards this funding. Accordingly, net of the A-1 participation, our combined investment in Phase 1 and Phase 2 of this loan was $40 million at quarter end. Reflecting this quarter's loan activity including two loan repayments totaling $7.2 million in January. Our commercial loan portfolio totaled $160.4 million with a weighted average current yield, including PIK interest of 13.5% at quarter end. We have sought to originate loan investments that complement our property portfolio and increase the overall yield earned on our total assets. Notably, our loan portfolio has now grown to our targeted level of approximately 20% of our total undepreciated asset value. However, as noted previously, timing of funding and repayments of loan investments may cause the relative size of loan portfolio to vary quarter-to-quarter. Looking forward, we have a highly attractive pipeline of investment opportunities, including high-quality properties, net lease investment-grade tenants and attractive loan opportunities. Given this robust pipeline and our recently completed investment activity, we utilize both our common and preferred ATM programs this quarter, raising a combined $36.2 million of equity. Furthermore, we are raising our 2026 outlook for investment volume by $100 million and increasing guidance for FFO and AFFO per diluted share to new ranges that apply approximately 12% growth at the midpoints. And with that, I'll turn the call over to Phil. Philip Mays: Thanks, John. Beginning with financial results. For the quarter, total revenue was $18.4 million, including lease income of $12.6 million and interest income from commercial loan investments of $5.8 million. FFO and AFFO for the quarter were both $0.53 per diluted share, representing 20% growth over the prior year period. Earnings growth for the quarter was driven by investment activity, in particular, our commercial loan investments as we grew the loan portfolio to approximately 20% of our total undepreciated asset value. Moving to the balance sheet. During the first quarter, we amended and restated our unsecured credit facility. Our new facility includes a $250 million revolver due February 2030 with two 6-month extension options, a $100 million term loan maturing in 2029 and a $100 million term loan maturing in 2031. At closing, we applied existing SOFR swaps, locking in initial fixed interest rates for both term loans at approximately 3.5% and for $100 million of the outstanding balance under the revolving facility at approximately 4.8%. As the existing stock agreements mature, we have entered into 4 swap agreements, which will result in changes to the current interest rates. I refer you to our prior press release announcing the amended credit facility, which discusses the timing and impact of those changes. Notably, with the closing of this facility, we now have no debt maturing for almost 3 years. During the quarter, we were also active on both our common and preferred ATM programs. Under our common ATM, we issued approximately 1.7 million shares at a weighted average gross price of $19.31 per share for net proceeds of $31.6 million. And under our preferred ATM, we issued approximately 186,000 shares at a weighted average gross price of $25.17 per share for net proceeds of $4.6 million. Reflecting our investment activity and equity issuance, we ended the quarter with net debt to pro forma adjusted EBITDA of 6.6x and approximately $90 million of liquidity. John provided an update on our property portfolio. As previously noted, our property portfolio includes properties acquired through sale-leaseback transactions and at quarter end, approximately 11% of our ABR or $5 million is generated from these properties, which include the Aspen property acquired this quarter and 3 previously acquired restaurants. Although these sales leaseback properties constitute real estate for both tax and legal purposes, GAAP requires them to be accounted for as financing. Accordingly, current annual cash payments from these properties of approximately $3.7 million are reflected as interest income rather than lease income. Also, as a reminder, our quarterly earnings press release includes a supplemental table that provides the details for both our commercial loan portfolio and related interest earnings. With respect to our common dividend, as previously announced in February, the Board increased our quarterly common dividend by 5.3% from $0.285 per share to $0.30 per share beginning this quarter. This new quarterly common dividend rate represents just a 57% AFFO payout ratio for the quarter. Now turning to guidance. For the full year 2026, we are increasing our FFO outlook to a new range of $2.09 to $2.13 per diluted share and our AFFO outlook to a new range of $2.11 to $2.15 per diluted share. Further, as John discussed, we are increasing our investment activity by $100 million to a new range of $170 million to $200 million. With that, operator, please open the call to questions. Operator: [Operator Instructions] Our first question will be coming from the line of Michael Goldsmith of UBS. Michael Goldsmith: First question, guys, you've talked about the strategy of high-quality net lease in combination with the commercial loans. So can you just talk a little bit about your acquisitions, your activity in the quarter and then what's in the pipeline and how that fits with that overall strategy. John Albright: Yes. I mean I think it's pretty straightforward. We have a fair amount of activity in the pipeline right now that we're really trying to bring in some additional investment-grade credits, higher up in our credit profile, and we're finding some good opportunities. So we're actually very optimistic on what we could do in this coming quarter. And then on the loan side, there are a couple of loans still in the pipeline. And as we have some lower-yielding loans burn off -- pay off in the upcoming months. That will be a nice recycle into higher-yielding and high-quality loans. So it's kind of a little bit more of the same. So everything looks pretty good from our perspective right now. Michael Goldsmith: And to follow up on your last point, I presume you're referring to this July 2026 loan? And is that just like -- is that only -- I guess you have one more kind of near-term loan expiring off in 2026? I guess you commented in the call how that could add some volatility to kind of like [indiscernible] to the earnings, but do you feel good about the opportunities to redeploy and limit some of that volatility in the near to intermediate term? John Albright: Yes. We feel very confident on kind of -- as we've expanded the loan program and done multiple loans with these developers, they are getting very used to kind of our -- the way we do business and the bespoke way we can kind of tailor these loans with their development needs. And so as these loans pay off, there's something else in the pipeline that they need to accommodate. So the pipeline is very strong and very high quality and the sponsors are high quality as well. So feeling good that these lower-yielding loans that are going to be paying off, and some of them are going to be paying off, we think, early, we'll have good opportunities to reinvest. Operator: Our next question will be coming from the line of Jay Kornreich of VP. Jay Kornreich: At the end of your comments, you referenced the loan portfolio nearly at the cap of 20% of total assets. So should we expect kind of a shift in strategy from here where the bulk investments are coming more so from more traditional net lease real estate instead of the loans? And if so, I guess, how do you view your cost of capital and deal spreads you could achieve on those types of new investments? John Albright: Yes. So we do have a larger amount in the pipeline of traditional net lease investments. And as far as some of the additional loans in the pipeline, as I mentioned, those will probably be fulfilling the need that we have with the lower-yielding loans paying off. And so with regards to kind of our cost of capital, as you know, in our 5-plus years, we've always been kind of cost of capital kind of constrained. So we do move out some properties at lower cap rates and recycle. But the yields that we have in front of us on the net lease acquisition side work well with sort of our capital structure right now. But Phil, do you want to chime in on that sort of end? Philip Mays: Yes, I think that's right. And then if you just think about it going forward, Jay, kind of we are near that 20% cap kind of an 80-20 blend, 80% properties, 20% loans and you look at the yields we've done in both of those buckets, your cost of capital works nicely with that. Jay Kornreich: Okay. I appreciate that commentary. And then I guess just maybe on the disposition side, you have done a significant amount of work over the past 18 or so months. Just with rightsizing tenant exposures, shrinking exposure to Walgreens and dollar stores, while I guess also buying higher credit in Walmart. Are there any other specific exposures you're kind of focused on rightsizing at this point? John Albright: No, not really. I mean, even though I think in the past, we've gotten asked about at home and so forth. But the at homes that we have are very high performing, and we've had interest from other tenants that want to buy the at home and bringing in their concept and at home is not interested in moving. So we have -- so we're in a good spot where we've gotten a high-yielding asset in a great location in Charlotte, and we're pretty confident they're going to be renewing because they're declining people, they want to give them a check. So even though you may see some credits that don't fit. It's all about the quality of the real estate. And we're -- there's actually one that we're working on right now that you would say would be a very low quality tenant, but we have an investment-grade tenant that wants to take over that space, and it looks like we'll be able to negotiate a buyout. So we're always looking to prune and upgrade, but it's -- again, it's all about the locations that we kind of really specialize in trying to buy that. We know that if these tenants leave, there's going to be a nice replacement opportunity. Operator: Our next question will come from the line of Matthew Erdner of JonesTrading. Matthew Erdner: Sticking with the loan portfolio for a little bit, do you guys have any loan to own options that you see yourselves capitalizing on? Or is it just going to be kind of recycled back into new ones? John Albright: Yes. The cap rates that they'll be able to sell these assets will not work with sort of our investment program. So most likely, none of these will turn into ownership positions. But certainly, as the developers build these tenants out and look to sell them they give us a right or really just come to us and say, do you want to buy it and we'll save a real estate commission. But the cap rates are very strong for these assets. So unfortunately, they just really won't fit. But hopefully, down the road, we'll find some where we can actually fit those into. And if we have a 1031 need, that could be more where that opportunity comes in. Matthew Erdner: Got it. That's helpful. And then looking out a little bit into '27, '28, it looks like 20% of the leases are rolling over. Could you just kind of walk through the process and if you've started discussions with some of those tenants and just how you envision those discussions going? John Albright: Yes. I mean, I think that everything that we have coming up, we've been in discussions with these tenants over time. And if we had if we had issues, we would probably be dealing with them early. So feel very strong that these are going to be renewal candidates. And as you know, that's one of the opportunities that -- where we like to buy with a shorter-term leases with a high chance of renewal. And a lot of these things are below market. And so that's why we're -- you're going to probably see a lot of natural renewals happen and usually get a bump up on the leases as well. Operator: Our next question will come from the line of Gaurav Mehta of AGP, Alliance Global Partners. Gaurav Mehta: I wanted to ask you on your investment-grade exposure and the lease term. As you look to acquire more properties, should we expect that you would look to increase that exposure and increase the lease term further? John Albright: Yes, that's -- look, that's always the goal, and there's a little bit of a mix. There's some properties in the acquisition pipeline that are shorter duration. And so there's definitely an opportunity to go in there and do an extend blend. But again, as I just mentioned, a lot of the lease rates are so low that we don't really want to give up that bump because we want higher lease duration. But what we have here in the pipeline is accretive to our lease duration as far as getting it longer term. And so that will look pretty good for us. But again, we're not in a hurry to kind of just have a higher lease duration and give up economics to our shareholders. Gaurav Mehta: Second question, on the investment guidance, just to clarify, the $170 million to $200 million, is that what you're deploying? Or is that on the loan side that includes what you're funding or its just originations? Philip Mays: Yes. So generally, both funding and deploying or if you want to look at the loans on an origination basis, both will fall in that range. I would say probably the funding is going to be just looking at the pipeline, it's a little hard to estimate with future loans and what funds are closing. But right now, I'd say the funding is probably $20 million less than the deployment, including full origination values, but both will fall within that range. Operator: Our next question will be coming from the line of Wesley Golladay of Baird. Wesley Golladay: I just want to go back to the question about the lease renewals. Do a lot of those tenants with the below-market leases, do they have options? Can you just mark those to market? John Albright: They have options. So unfortunately, it's going to be a set bump based on the renewal options. Wesley Golladay: Okay. Then a quick one on the accounting side. There's a lot of restricted cash around $24 million. Is that mainly tied to the, I guess, the more senior loans that you sold? And does that restricted cash get released throughout the year? Philip Mays: Wes, it's Phil. Yes, most of the restricted cash at the end of the quarter is related to loan reserves. We take pretty healthy reserves upfront as part of our loan process in closing. So a lot of that restricted cash is related to loan reserves. Operator: The next question will come from the line of RJ Milligan of Raymond James. R.J. Milligan: So maybe just a follow-up on that loan reserve comment, Phil. Obviously, with net lease, we can go down the top tenant list and look for people that are on the watch list, we don't have a lot of visibility on the loan book. I'm just curious if there's anything that you guys have on the watch list in terms of the loan book? Obviously, the PIK is a pretty big component. Is there anything that gives you any concern about collecting that as those loans mature? Philip Mays: Yes. So let me be clear about the loan reserves. So we'll take reserves related to real estate taxes or a certain period of interest upfront. And it's just part of our underwriting. And Steven or John can chime up and provide more details on that. We don't really have any credit concerns about any of the loans. And though those reserves are credit related, it is just part of our underwriting, conservative underwriting and making sure we get nice cash deposits upfront related to like a year of debt service or something like that. John Albright: Yes. So RJ, we basically want to really have these loans structured pretty tightly. So we forced the reserves, so we don't have to worry about real estate taxes, interest and so forth. And so out of our loan book, there are no concerns right now. The PIK is really done to accommodate the timing of how long it takes to develop. So you have less cash burn while you're developing. But the book is very healthy right now. R.J. Milligan: Great. That's helpful. And then Phil, maybe just on the capital raising side, you guys had a little preferred and some equity this year. How do you think about the more attractive capital sources going forward as we move through the year? Philip Mays: Yes. I mean just for -- so we ended the quarter with about $90 million of liquidity. At this point, we're generating probably close to $15 million of cash flow on an annual run rate. So that's obviously a great use for us on the free cash flow. Then John spoke earlier about dispositions at a lower cap rate. So that would be another use and then after that, RJ, we could look to be opportunistic on common or preferred, if it's trading at a good level. Operator: Our next question comes from the line of John Massocca of B. Riley Securities. John Massocca: I know we've talked a lot about the loan book over the call, but maybe kind of going to the one new loan originated in 1Q, there's a step down in there if they meet certain conditions. What are kind of -- maybe some color around the conditions that they would need to hit to get down to that 11.5%? John Albright: Yes. So basically, they've been negotiating leases and waiting for tenants to go through their signing process. And so if the -- some of the leases hadn't been signed by the time we closed it, so we said the rate needs to be higher until you kind of get those finalized. So it should be relatively short duration, unfortunately, but that's what that's about. John Massocca: Okay. And then I know the Austin loan was kind of contingent on them kind of selling some of the homes in that piece of property. So I mean how is that progressing? I guess how does that impact maybe interest income from that particularly large loan investment you've made? John Albright: Yes. So I'll answer kind of the cadence on the lot sales. So they're selling lots. So as you know, as the lots are sold, it goes through our A-1 participant first. And given that it's obviously late spring, the activity is stronger, but the asset has a large amenity that won't be open until the fall. So we expect that in the fall is really where the lot sales are going to pick up as people kind of going to get a lot more excited about it when it's closer to having the large amenity open. John Massocca: Okay. I mean, I guess, maybe the anticipation there is that your portion of the loan won't start getting paid down until towards the end of the year? John Albright: Correct. John Massocca: And then last one, Phil, maybe on guidance. In terms of G&A assumptions in the guidance, are you assuming any incentive fee payout to CTO at this point? I know it's kind of early in the year, but just kind of thoughts around how that could maybe impact your guidance outlook. Philip Mays: Yes. So the guidance doesn't assume any incentive fee. What is in there, right, is a little bit higher of a management fee run rate given the equity that we issued. So for the quarter, the management fee was about $1.25 million just based on the equity that was issued during the quarter, the go-forward run rate is about $100,000 higher a quarter, so $1.350 million, assuming no additional equity. But other than adjusting the management fee for our expectations, there's no incentive fee in the guidance. Operator: Our next question will come from the line of Craig Kucera of Lucid Capital Markets. Craig Kucera: We've been hearing from some of your competitors that there are an increasing number of portfolios coming to the market basically from like family offices that got into the space in 2021 and issued 5-year debt at rock bottom rates. Maybe they don't want to refinance. Are you seeing any small portfolios that might be attractive as acquisition candidates? John Albright: We're seeing a little bit of owners of assets that are coming up on a duration or they want to lower their exposure in a larger portfolio. But we're not seeing bigger portfolio sort of opportunities. The ones that we're looking at are really nice size for us and luckily being a small-cap company is that these assets can really move the needle versus the very large companies that really need to do those portfolio acquisitions. So we'll let the large tankers take on those. And as we just add these one and twos, they all add up very nicely for us, but we're not really chasing any sort of portfolio opportunities. Craig Kucera: Okay. Got it. Just one more for me. I think you were buying at about a 7.4% cash cap rate last year. This quarter, you closed at 8.5%. Just curious to hear your overall viewpoint on the acquisition environment. Has there been any move in pricing? Or should we expect something closer to, call it, 7.5% this year? John Albright: Yes, you're going to be closer to 7.5% of this coming quarter, at least, and maybe might see some opportunities in a quarter or two that are higher. Operator: And I'm showing no further questions. This concludes today's program. Thank you for participating. You may now disconnect.
Operator: Good morning. My name is Megan, and I will be your conference operator today and would like to welcome everyone to the First Quarter SLB N.V. Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a Q&A session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. You may remove yourself from the queue by pressing star two. As a reminder, this call is being recorded. I will now turn the call over to James McDonald, senior vice president of investor relations and Industry Affairs. Please go ahead. Thank you, Megan. Good morning. James McDonald: And welcome to the SLB N.V. First Quarter 2026 Earnings Conference Call. Today’s call is being hosted from Houston, following our board meeting held earlier this week in Midland, Texas. Joining us on the call are Olivier Le Peuch, chief executive officer, and Stephane Biguet, chief financial officer. Before we begin, I would like to remind all participants that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. For more information, please refer to our latest 10-K filing and other SEC filings which can be found on our website. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our first quarter earnings press release, which is on our website. With that, I will turn the call over to Olivier. Olivier Le Peuch: Thank you, James. Ladies and gentlemen, thank you for joining us. Before we begin, I would like to acknowledge our people, customers, and partners in the Middle East as they navigate this challenging and uncertain time. Our strong presence in the region dates back more than 85 years, and I am proud of the resilience and unity demonstrated by our people as they work in lockstep with customers to safeguard our teams and assets, preparing for an eventual resumption of operations. I want to commend the entire SLB N.V. team for their continued care, commitment, and support for one another and for our customers. Turning to today’s call, I will start with our first quarter performance, followed by an update on the evolving situation in the Middle East, and our outlook in the mid to long term. I will then cover our strategic initiatives including production recovery, digital, and data centers, and provide our outlook for the second quarter. Stephane will then take you through the financials and we will open the line for your questions. Let us begin. It was a challenging start to the year, marked by severe disruption in the Middle East that impacted our first quarter revenue and earnings. At the onset of the conflict, customer decisions to safeguard personnel and assets led to an initial wave of operational shutdowns. As the conflict persisted, further activity curtailments followed as a result of production shut-ins. The impact of these actions was most pronounced in Qatar due to force majeure and the suspension of offshore operations, and in Iraq due to the security conditions. We also experienced a more gradual impact from offshore shutdowns in other countries in the region, driven by a combination of security concerns and export capacity disruptions. In addition to the situation in the Middle East, unfavorable activity mix and higher costs further weighed on the quarter, most notably in OneSubsea. Looking across the divisions, Production Systems and Digital grew year on year, while Reservoir Performance and Well Construction declined mostly due to the impact of the conflict. Production Systems year-on-year revenue increased 23% due to the acquisition of ChampionX, which continued to deliver accretive growth. Additionally, we are on track to achieve our synergy targets. On a pro forma basis, ChampionX also grew year on year, demonstrating the increasing demand in the production market. Turning to Digital, we increased 9% year on year driven by strong uptake in digital operations. Of note, automated footage reading increased by 145% year on year as customers continue to adopt digital and AI-powered solutions to boost operational performance and efficiency. Also, data center solutions remain a bright spot, with 45% growth year on year. The momentum in this area continues, as you saw our recent announcement to serve as a modular design partner for NVIDIA DSX AI factories. With our growing backlog, we remain on track to exit the year at a $1 billion run rate and expect the growth rate to accelerate in 2027. Overall, despite the challenges of the quarter, I am pleased that the strategic decisions and portfolio actions that we are taking in digital, data center solutions, and production recovery are delivering results. I would like to express a big thank you to our teams in the Middle East and across the world who continue to deliver each day for our customers in this very dynamic environment. Now let me turn to how we expect the market to evolve as the conflict in the Middle East is resolved. Firstly, we anticipate that oil prices will set at levels above the pre-conflict baseline. This reflects the new balance of liquid supply and demand which has been significantly altered by more than 500 million [inaudible] lost production impact thus far. In this environment, energy security remains at the forefront. We expect many countries to accelerate efforts to diversify supply, strengthen domestic resource development, and rebuild strategic and commercial inventories that have been drawn down during the conflict. In short, the fragility of the global energy complex we are witnessing today demonstrates the strategic importance and long-term value of oil and gas. Together, these dynamics are expected to support a constructive macro environment for upstream investment over the coming years. In the near term, activity would be led by the restoration of capacity across the Middle East for both oil and gas. While some countries that executed orderly shut-ins should be able to resume production within days or weeks, other areas—particularly where disruptions were more abrupt—may require more value ramp-up including additional waiting time and maintenance. As a result, while the near-term recovery will be gradual and differ across countries, we see an upside in the outlook beyond demand restriction from the prolonged conflict. We are committed and ready to support our customers across the region. Beyond the region, we expect a broad-based response across both short and long cycle investments. Short-cycle activity is likely to strengthen first, particularly in North America and parts of Latin America, where operators can respond quickly to higher prices. In addition, well intervention activities that can lead to additional production will get a natural boost across all basins. At the same time, we expect renewed momentum in long-cycle developments, especially in offshore and deepwater markets, as customers look to secure durable, large-scale sources of supply. This is also likely to improve certainty of offshore FID approvals while also supporting increased exploration activity. As we can read in third-party reports, the FID pipeline in 2026 is strengthening and directionally adding over $100 billion of total investment approval, visibly ahead of the last two years, and with another step up expected in 2027, with deepwater resources getting a large portion of these investments. Regionally, this presents opportunities in Africa, Asia, and Latin America. Africa is one of the most compelling long-term opportunities, with a significant base of underdeveloped oil and gas resources. We expect portfolio allocation to shift more favorably towards this region over time. In Asia, we continue to see prioritization of access to gas, both onshore and offshore, as it works to diversify supply through development of national resources. And across Latin America, from Guyana to Brazil to Suriname, we see continued strength in deepwater developments, complemented by short-cycle growth in unconventional Argentina. Separately, Venezuela continues to represent an exciting growth opportunity where we can expand on our existing operations in-country. To conclude this section, in the context of energy security and the rebalancing of supply and demand, we see three primary drivers of increased investment over the coming years. First, the replenishment of depleted commercial inventories and strategic reserves. Second, diversification of supply including greater redundancy sourcing. And third, increased emphasis on developing local resources to enhance long-term resilience. Our core business will benefit from these dynamics, supporting the positive outlook for SLB N.V. into 2027 and 2028. Let me now describe the additional strategic growth levers for SLB N.V.: production recovery, digital, and data centers. Starting with production recovery, this is becoming increasingly critical as the industry faces structural challenges in replacing reserves and sustaining production from existing assets. In this context, technology that enhances recovery and extends the life of mature fields is no longer optional—they are essential. Against the macro we just discussed, this is a defining moment for production recovery. These technologies have the potential to shape the next stage of recovery in unconventional assets and create a step change in quality and enhancement in every basin and play, from deepwater to conventional, and from gas to oil. With ChampionX, we are uniquely positioned to lead in this space by combining production chemistry, artificial lift, digital capability, and subsurface domain expertise while helping customers unlock additional barrels from existing reservoirs in a capital-efficient manner. This is particularly relevant as operators look to maximize recovery, improve returns, and bring incremental supply to market in support of energy security. We also held our first production recovery summit in Houston a couple of weeks ago, and we are very pleased with the engagement from our customers from every region across the world. They increasingly recognize the potential of this domain and the opportunities it presents to underpin growth for the industry. Turning to digital, this business continues to build strong momentum and is a key driver of both differentiation and long-term value creation for SLB N.V. While still a relatively small portion of our revenue today, its impact extends well beyond its size. Our approach is grounded in domain expertise, where AI, data, and software are integrated into our platform and workflows to deliver measurable performance outcomes. This is not about standalone tools; it is about embedding intelligence across the full life cycle of whatever developments and production. Our teams continue to make exciting developments, particularly in the urgent adoption of AI. As the number of use cases increases and the value of these technologies is proven in the field, we anticipate increased adoption. Over time, we expect digital to become an increasingly important lever for growth, both as a standalone business and as an enabler across our broader portfolio. We are excited to share more about this business during our Digital Investor Day later in June. Finally, data centers represent a new and rapidly expanding opportunity for SLB N.V., leveraging our core strengths in engineering, manufacturing, and project execution, while extending our scope of modular infrastructure solutions to support the accelerating demand for AI and digital capacity. In less than two years, we have established our right to play in this industry, proven by our manufacturing know-how and supply chain capabilities. We are building on this expertise to support design engineering and performance optimization of the data center build-out. And we are currently scaling the business by expanding capacity, deepening partnerships, and selective international growth. While still at an early stage, this business is already demonstrating the characteristics we are looking for: capital-light growth, strong demand visibility, and a clear path to becoming a meaningful contributor to earnings over time. Looking ahead, we see additional upside to opportunities such as thermal management, decarbonized power, and scaling as a systems integrator. These are areas where our capabilities can further differentiate our offering and expand our addressable market. We also continue to assess potential opportunities to accelerate this trajectory through targeted M&A. Taken together, these three areas—production recovery, digital, and data center solutions—reflect how we are evolving our portfolio toward higher-return, technology-driven, and less cyclical growth. They are complementary, scalable, and aligned with the long-term trends shaping both the energy system and digital infrastructure. Let me now share our view on how the second quarter may unfold. First, it is uncertain how long geopolitical disruption will last and how the recovery in the Middle East will unfold. At the same time, we are facing higher procurement and logistics costs driven by the conflict. As a result, it is challenging to provide precise guidance for this quarter. However, there is a scenario where our portion of disruption in the region persists through the middle of the second quarter and then begins to gradually ease. Under this assumption, we estimate that the sequential revenue and earnings decline in the Middle East will be fully offset by all of our international markets combined, where we anticipate mid- to high-single-digit revenue growth with improved margins. Meanwhile, North America revenue is expected to be flat sequentially. By division, under the business scenario just highlighted, Digital and Production Systems will grow globally, while Reservoir Performance and Well Construction will decline globally. I will now turn the call over to Stephane to discuss our financial results in more detail. Stephane Biguet: Thank you, Olivier, and good morning, ladies and gentlemen. First quarter earnings per share, excluding charges and credits, was $0.52. This represents a decrease of $0.20 when compared to the first quarter of last year. During the quarter, we recorded $0.02 of merger and integration charges, primarily related to the ChampionX transaction. Overall, our first quarter global revenue of $8.7 billion increased 3% year on year. Excluding the impact of the ChampionX acquisition in the third quarter last year, revenue declined by $607 million, or 7% year on year. When compared to the fourth quarter of last year, revenue fell by just over $1 billion, or 10.5%. This decline was approximately 200 basis points, or about $200 million, higher than what we expected at the time of our last earnings call in January. This was primarily due to the impact of the conflict in the Middle East as we experienced operational disruptions throughout the month of March. Company-wide adjusted EBITDA margin for the first quarter was 20.3%, down 346 basis points year on year. Margins were negatively affected by high decrementals on the Middle East revenue impact. We did not make any material adjustments to our cost base during the quarter, as our immediate focus was the protection of our people and preserving operational capacity for the expected future rebound in activity. We also incurred additional logistics and materials costs as a result of supply chain disruptions due to the conflict. Beyond the effect of the Middle East conflict, first quarter margins were impacted year on year by increased tariffs, project mix, and higher costs in OneSubsea, as well as pricing headwinds in select markets, particularly in Well Construction. Let me now go through the first quarter results for each division. First quarter Digital revenue of $640 million increased 9% year on year, primarily driven by 87% growth in digital operations. This was supported by increased digital services adoption and new technology introduction, as well as the acquisition of ChampionX. Notably, annual recurring revenue for the division stood at $1.02 billion at the end of the first quarter, representing year-on-year growth of 15%. Digital pretax operating margin of 20.9% was essentially flat year on year. However, adjusted EBITDA margin of 26.1% declined 473 basis points due to lower amortization relating to exploration data as a result of the mix of surveys sold during the quarter. As you know, Digital margins are historically lowest in the first quarter due to seasonality and steadily increase throughout the year, reaching the highest level in the fourth quarter, as evidenced by last quarter’s results. This trend will continue, and consequently, we expect to achieve full-year Digital adjusted EBITDA margin that is at least equivalent to last year’s level of 35%. Reservoir Performance revenue of $1.6 billion decreased 6% year on year, while pretax operating margin of 16.1% decreased 47 basis points. These decreases were due to lower stimulation and intervention activity, primarily as a result of the disruptions in the Middle East. Well Construction revenue of $2.8 billion decreased 6% year on year, primarily from lower activity due to the disruption in the Middle East, partially offset by higher offshore drilling activity in Europe and Africa, Latin America, and North America. Pretax operating margin of 15.2% contracted 463 basis points year on year due to lower profitability on account of the Middle East conflict, as well as pricing headwinds in select markets. Finally, Production Systems revenue of $3.5 billion increased 23% year on year. Excluding the impact of the ChampionX acquisition, first quarter revenue decreased 6% year on year. On a pro forma basis, revenue from the ChampionX production chemicals and artificial lift businesses grew 2% compared to 2025. This strong ChampionX performance was offset by the impact of the Middle East conflict, lower OneSubsea revenue, and, independent of the conflict, lower product deliveries in Saudi Arabia. Production Systems pretax operating margin of 14.2% declined 240 basis points year on year due to lower profitability in Surface Production Systems, Completions, and OneSubsea. As it specifically relates to OneSubsea, pretax margin in the first quarter was 14.4%, compared to 18.1% in 2025. Margins were affected by the concurrent wind-down of several large programs and the initiation of new projects with high start-up costs. OneSubsea margins are expected to increase over the remainder of the year. ChampionX partially offset those effects as we continue to make progress with our synergy realization. As a result, ChampionX margins this quarter were higher than in both Q4 and Q1 of last year and were accretive to both Production Systems and total SLB N.V. margins. Now turning to our liquidity. Our net debt increased $797 million sequentially to $8.2 billion. During the quarter, we generated $487 million of cash flow from operations. Free cash flow was slightly negative at $23 million on account of the payment of annual employee incentives and the seasonal increase in working capital that we typically experience in the first quarter. This was compounded by delayed collections in the Middle East stemming from the conflict. We expect our cash flow generation to follow our historical pattern, with free cash flow gradually increasing throughout the year, with the majority coming in the second half. Capital investments, inclusive of CapEx and investments in ATS projects and exploration data, were $510 million in the first quarter. For the full year, we are still expecting capital investments to be approximately $2.5 billion. During the quarter, we repurchased $451 million of our stock, and we still expect to repurchase a minimum of $2.4 billion for the full year, in line with 2025. As a reminder, we are targeting to return more than $4 billion to our shareholders in 2026, through a combination of dividends and stock buybacks. Before I wrap up, let me come back to our second quarter outlook and more specifically to the Middle East. I would first like to clarify that the Middle East represented approximately 70% of our Middle East and Asia business in the first quarter. Under the specific scenario that Olivier highlighted earlier, where operational disruption in the region persists until the middle of the quarter, and then starts to alleviate, we estimate that it would negatively impact our second quarter earnings per share by an incremental $0.06 to $0.08 when compared to the first quarter. This is the result of lost revenue as well as higher procurement and logistics costs associated with the conflict. I will now turn the conference call back to Olivier. Olivier Le Peuch: Thank you, Stephane. I believe we are now ready to take your questions. Operator: We will now open the call for questions. We will now begin the Q&A session. If you would like to ask a question, please press star followed by one. Your first question comes from the line of David Anderson with Barclays. Your line is open. David Anderson: Hi. Good morning, Olivier. How are you? I am good. Morning, Olivier. So looking past some of the near-term disruptions, I was wondering if you could expand a bit more on your views on how the investment cycle has changed. You mentioned a broad-based recovery in 2027 and 2028. Is that predicated on oil prices being structurally higher now? And can you also comment on which end markets you see the most upside in as you sit here today? Olivier Le Peuch: I think there are multiple reasons why I think we will initially benefit from an uptick in investment. First, indeed, we are projecting that the commodity price will be higher after this than they were before. But more importantly, the significant impairment of the supply-demand balance has created the need for replenishing inventories, replenishing the strategic reserves, and also has heightened the risk around energy security. As a consequence, there will be multiple factors that will play into an increased investment outlook. Firstly, replacing inventories and strategic reserves will supplement the natural demand in oil and gas. Secondly, the energy security imperative will drive national decisions to invest into local resources and to diversify sources of supply, including creating some redundancy if and as necessary, and clearly maintaining in the future higher inventory stockspares to prevent future shocks of supply. This aligns with trends that were already in play that were indicating offshore was set for a rebound as we exit 2026 into 2027. We believe that this combination will affect both the short cycle in the near term and the long cycle at scale into 2027 and 2028. So, in our opinion, we are set for an uptick into a cycle of strength going forward. David Anderson: So, Olivier, you had talked about deepwater looking particularly attractive in that outlook. Obviously, that is part of the long-cycle story. Can you talk about where you see the most upside in terms of SLB N.V.’s business? Is it more on the Well Construction and Reservoir analysis side? Could OneSubsea be a big driver? Just trying to think through the businesses that would be most impacted. Olivier Le Peuch: First, we are confident that offshore has been very attractive economically now and is the last large resource asset for operators to unlock and develop going forward. That is the reason why we are seeing this uptick in the FID pipeline and the projections by many reports saying that this will at scale exceed what we have seen in the last couple of years. The macro is very positive for deepwater, and this is true across Africa, Asia—East Asia—and the Americas, for different reasons. Africa, as I stated in my remarks, is set to be one of the main beneficiaries. It has vast undeveloped resources—both oil and gas—on the West and the East coasts, and is clearly set to be developed. This is where we see potential acceleration of FIDs in the coming quarters. The Americas are very strong, from Brazil to the Gulf of Mexico, and I believe this will continue, including plays in Central America. In Asia, because of gas, we see a doubling down on the development of gas and deepwater resources, with a lot of developments happening these days in Indonesia. You have seen some of the announcements we made earlier today in the earnings press release, with OneSubsea being awarded in Malaysia and in the South China Sea—a critical award. I believe that our core at large would benefit from this rebound; we have strong market positions across the divisions. But yes, indeed, OneSubsea is expected to benefit at scale and, as guided previously, we expect OneSubsea bookings this year to be visibly higher than last year and to then have a growth trajectory in 2026 and into 2027 and 2028 as we see the scale of this offshore cycle developing. Operator: Thank you. Your next question comes from the line of James West with Melius Research. Your line is open. James West: Hey. Good morning, Olivier and Stephane. Olivier Le Peuch: Good morning, James. James West: The Middle East is your backyard. You have owned that market for a century or more. You do not leave conflict zones, but when conflicts happen you are always there for the recovery. As you think about the recovery and how it could unfold—I know you made some comments in your prepared remarks about this—but as you talk to the customers, what do they want to do? What do they need you for initially, and how do you think the momentum builds assuming that the conflict resolves in the timeline that you and others laid out? Olivier Le Peuch: First, to be clear, we are working in lockstep with customers every day and every week. We continue to work closely with them to understand as they are contemplating all options for recovery while observing the geopolitical developments. We stand ready, so we are more in standby as we speak. Multiple scenarios are being considered, and there are some countries where the resumption of operations will be relatively fast and could turn into days and weeks. There are other countries and facilities and fields that have been shut in abruptly where we will need to intervene. Hence, there will be an initial phase of assessment and an initial phase of intervention before production can come back to full capacity. There are zones in the region where security will remain a concern and will delay further the recovery. So it is a gradual recovery, but yes, we are working very closely with customers both to mobilize equipment and resources and also to anticipate the reservoir consequences and the type of services that we will need to provide as the conflict stabilizes and as customers have the confidence to remobilize. We see clear long-term upside in the region, and we see that some countries will actually use this to catch up and maybe expand their capacity to recover market share and production lost during this period. James West: Got it. Very helpful. And then maybe a quick follow-up. Understanding that most geographies and, of course, companies and countries want to diversify supplies, do you see more of your customers that are Middle East-based stepping outside of the region? They have already started to do that a little bit, but stepping outside more post conflict? Olivier Le Peuch: Generally, operators will continue to diversify across the entire world, and there are plenty of basins that still stand undeveloped. I highlighted Africa. There is a lot of oil and gas resource that is set to be developed, and I think the fiscal terms and the security conditions have improved in the region and will make it critical. But the Middle East remains a low-cost barrel and low-cost gas region at scale, and hence it will continue to attract investment as well. The national resource holders in the region will continue to develop at scale their resources. So we see a mix, and I think beneficiaries will include Africa, the Americas—offshore—and Asia deepwater, and production recovery across all regions, because this is where the fastest incremental barrels can come from. Operator: Thank you. Your next question comes from the line of Steve Richardson with Evercore ISI. Your line is open. Steve Richardson: Good morning. I was wondering if we could talk a little bit about Digital. You made this acquisition with S&P. What we understand is this is a largely U.S.-centric software suite and dataset. Can you talk about what the longer-term vision is there, and be sure to hit on how and if that is an enabler of some of the other things you are doing in the broader business outside of Digital? Olivier Le Peuch: Absolutely. As described in our press release this morning, we have come to an agreement with S&P Global Commodity Insights to acquire the upstream petrotechnical software suite—not their data—and this is mostly deployed in North America with independents and is quite specific to the unconventional market. This is highly complementary to the offering we have. As we go forward, this will complement our offering in North America, give us support to expand the reach of these petrotechnical workflow solutions internationally for hybrid markets, and also help us to expand and address the next challenges in unconventional development and recovery. We will use this new software suite to complement what we have, add domain depth, and unlock new unconventional workflows. It gives us broader market access and a tool that is fit for the unconventional market where we did not have the same offering today. Separately, as you may have seen in the earnings press release, we have entered an agreement to pursue a strategic partnership with S&P Global Commodity Insights around AI, giving us the opportunity to use the power of large language models and domain-specific foundation models using the global datasets of S&P Global Commodity Insights. Together, we will provide our customers with unique insights by applying AI capability and our domain foundation models on the full datasets of S&P Global Commodity Insights. That is unique and will be very appreciated by customers. Steve Richardson: That is great. And I suspect we will hear much more about that at the Analyst Day in June. I am wondering if you could give us a brief update on the data center business and your outlook there in terms of securing additional customers, your commercial approaches, and expectations for the balance of the year relative to what you talked about a quarter ago? Olivier Le Peuch: We continue to reiterate our ambition and our goal that we will reach or exceed a $1 billion run rate as we close this year. We have made great progress this quarter to secure additional customers that give us further visibility into demand for our capacity in 2027 and 2028, and we are developing more growth and scaling beyond the exit-rate guidance going forward. You have seen one announcement with NVIDIA that shows they have selected us as their modular design partner for the DSX AI factory. It means a lot—it means we have been selected as a trusted partner to develop modular infrastructure solutions for the DSX centers, large-scale future builds that need to be scaled fast. We will add capability to build sites and manufacture equipment off-site and bring this modular infrastructure to NVIDIA’s customers in the future. You will see additional announcements coming that will show the breadth of our customer reach and the scale of our operations going forward. We are very pleased with the progress, and this will continue in 2026 and clearly at scale in 2027. Operator: Thank you. Your next question comes from the line of Arun Jayaram with JPMorgan. Your line is open. Arun Jayaram: Yes. Good morning. Olivier, production recovery seems to be an important theme this morning. I was wondering if you could highlight some of the industrial and technical challenges in restoring production that is offline in the Middle East, and do you think that, assuming we get to an improvement in the situation in the Middle East in 2Q, this could be a driver of SLB N.V.’s second half 2026 results? Olivier Le Peuch: Firstly, we will not be commenting on behalf of our customers in the Middle East as they go through the assessment of their facilities—some of them, as you know, have been damaged by this crisis. I will comment on the engagement, collaboration, and close partnership we have with our customers to prepare for remobilization as security concerns abate. Some shut-ins were done orderly and will just require a resumption of operations with remobilization of resources with no significant short-term impact. Others will need well intervention activity, and that is where we have upside. We will work with our customers to help restore production and use the production recovery technology set to help regain pre-conflict capacity. Long term, as resumption of operations gradually occurs throughout the following months and possibly quarters for some countries, we see upside in the desire for some countries to uplift their capacity and to participate in the replenishment of depleted inventories and strategic reserves. We see a sequence of intervention first, production recovery focus next, and then large-scale development and expansion of capacity for some countries. Arun Jayaram: Great. I have a follow-up to Steve’s question on Digital. If I look at year-over-year trends, your revenue was up 9% but your margins fell by 473 basis points. Can you talk about what you saw on the margin front and perhaps the recovery potential for Digital margins over the balance of the year? Stephane Biguet: I will take this question, Arun. As you know, we closed last year in Digital with full-year EBITDA margin of 35% and pretax operating margins of 28%. There is a bit of a distinction between pretax margin and EBITDA here. We started 2026 with pretax margin of just about 21%, which is essentially in line with where we started in 2025. EBITDA margins, however, were indeed lower, and this is exclusively due to lower amortization from the mix of exploration data that we sold during the quarter. Stepping back, as I said earlier, the first quarter of the year is typically the lowest for Digital margins. We fully expect to see the same pattern we have seen over the years, reaching the highest margins in the fourth quarter. It is our ambition to deliver total EBITDA margins from Digital of at least 35% this year as well. The quarterly choppiness is not a concern to us. Operator: Thank you. Next question comes from the line of Scott Gruber with Citi Research. Your line is open. Scott Gruber: Yes. Good morning, Olivier and Stephane. Olivier Le Peuch: Good morning. Scott Gruber: In a world where code writing becomes easier and more commoditized, can you speak to the resilience of the value-add of your Digital portfolio? And as you take moves to shape the portfolio like you have done with the S&P acquisition, how do you think about expanding that value-add and enhancing that resilience? Olivier Le Peuch: Customers are accelerating the adoption of digital because they believe that no matter where the cycle is—whether it is a high or challenging cycle—they need to differentiate and extract efficiency and productivity in geoscience and planning workflows, operational performance and efficiency in drilling, and in production and recovery. They have seen that digital capability is delivering, and you can see it by the adoption of digital operations growing nicely year on year, driven by drilling and production operations where customers are adopting AI and software solutions that can transform the performance of drilling operations—like drilling automation—and transform production workflows to render ESPs autonomous. These capabilities will be sought by every customer. Every use case we see is resonating across customers in every basin. We see not only resilience but a long-term tailwind in any cycle, and digital will continue to have a tailwind in our industry because we have data like no other industry, we have scientists and engineers who love to work with data, and we have AI that is becoming a catalyst and x-factor to unlock productivity. We are unique in our capability; we have deep domain knowledge and a platform that can help scale AI capability. It is the right time for the industry to adopt AI at scale. We will show more during our Digital Investor Forum. Scott Gruber: I look forward to it. And a follow-up: with an outlook for higher oil prices, at least over the medium term, how does that impact the Digital business? I assume your seismic sales could improve. How meaningful could that be? And more importantly, would you anticipate customers taking some of this excess cash and spending it on more software and applications to get a bigger boost for their own internal efficiency? Olivier Le Peuch: When commodity prices are high and customers have more optionality in discretionary spend, they invest in domain and in digital, and they accelerate exploration. We foresee that, and we are seeing signals that exploration is coming back. We have seen announcements of companies reinvesting in exploration at scale because they want to secure reserves to participate in long-term energy security. At the same time, yes, they use discretionary spend to buy datasets to accelerate exploration, which we will benefit from, and they also participate in more pilots and make decisions faster to accelerate platform and software deployment in their organizations. Operator: Thank you. Your next question will go to the line of Sebastian Erskine with Rothschild & Co Redburn. Sebastian, your line is open. Sebastian Erskine: Hi. Good morning, gentlemen. Thanks for taking my questions. I just want to start on SLB N.V. OneSubsea. It is really one of the jewels in the SLB N.V. crown. You guided that full-year 2025 results to $9 billion in order intake over the next two years. I wonder if you could give an outlook on the margin expansion within the OneSubsea business, particularly with comparisons to the broader offshore E&C universe? Is there more room for integration with the rest of your portfolio or further efficiencies related to your existing subsea business? Any color on the margin outlook for OneSubsea? Stephane Biguet: Sure, Sebastian. You have noticed that for the first time we gave you our margins for OneSubsea for the first quarter. Unfortunately, they were not as strong this quarter, but these are temporary effects due to the timing of project completions and start-ups. You have seen where the margins were in the same quarter of last year—pretax margins of 18%—which means EBITDA margins are very close to 20%. This is what we expect from this business over the cycle at the minimum. Even though we started on a rough note in the first quarter, we expect the margins to normalize in the coming quarters. On the back of a backlog that is increasing year on year—we are up 5% year on year on the backlog—we have better visibility on the growth going forward and on potential margins. Olivier Le Peuch: I will add a couple of things. In production recovery, subsea as a domain of deepwater is essential for our customers, and production recovery plays a great role. We have a unique subsea processing portfolio. You have seen another announcement that we are continuing to innovate and enhance the project we have with Equinor in Norway, and we made an acquisition that complements our offering to better participate in the intervention world of deepwater subsea. The production recovery strategy and the connection with our overall core capability is essential going forward. It will help customers leverage OneSubsea to enhance production of existing fields and provide more life-of-field services, including digital capability, to subsea installations. So it is both on the EPCI cycle and then on the long-term life-of-field services that we will benefit. Sebastian Erskine: I really appreciate the color there. And then just a follow-up. I think, in prepared remarks, you mentioned toward the end of the data center solutions section that you were considering potential further M&A following the announcement of the S&P Global deal. What areas are you seeking to add in terms of your portfolio? Olivier Le Peuch: We are looking at opportunities where we can build a portfolio with more technology anchors across modular infrastructure—for example, thermal management comes to mind. We are looking at opportunities that could complement the offering we have and the go-to-market motion we have carried into the space. Operator: Thank you. Next question will go to the line of Mark Bianchi with TD Cowen. Your line is open. Mark Bianchi: Hi. Thank you very much. I just first wanted to quickly clarify the outlook for the second quarter. You are essentially saying that results will be the same as the first quarter, and there is a $0.06 to $0.08 incremental hit from the Middle East that is being offset elsewhere. Is that the message you are trying to deliver here? Stephane Biguet: Yes, that is a good summary, Mark. Just to be clear, this is under the specific scenario that we highlighted, where the operational disruptions start to ease more or less at the middle of the quarter and then gradually recover. In this scenario, we can offset the negative impact of the $0.06 to $0.08 incremental effect of the Middle East with the rest of the international operations. Mark Bianchi: Great. Thanks for that, Stephane. The other question I had, going back to OneSubsea and the $9 billion of awards over 2026–2027: given the outlook here, do you see upside to that now? And how are you thinking about your competitive positioning? We hear a lot from your competitor about their capabilities. Can you talk about how you see OneSubsea positioned from a competitive perspective? Olivier Le Peuch: First, commenting on the cycle, the more these dynamics play out as the conflict ends, the more we believe that investment will be attractive in the deepwater market, which is the majority of what we foresee as FIDs in 2027 and 2028. The more it will expand the size of the addressable market. Hence, if FIDs firm up, if not accelerate, in 2027 or even in 2026, this will give us potential to outperform the guidance we have given. On positioning, we feel extremely good. We have partnered with Subsea7, which gives us, when customers ask for integrated offerings, the integrated capability to deliver—and we have done this at scale with many customers. We have developed partnerships and collaborative engagements with several customers that have led us to work jointly to improve the design of subsea architectures and unlock FIDs—this is true with Equinor and BP. We also believe we have a unique portfolio in subsea processing with no match in the market. You have seen announcements today and will continue to see a pipeline of projects that make it unique. You have seen the Åsgard-type subsea gas compression unlocking a new level of recovery in Norway, and the additional announcement we made today on the Gullfaks project where we will rework with our customer to extend life and improve performance of subsea processing to unlock the next level of recovery. We feel good about our integration capability, the pipeline—you have seen awards in Malaysia, in the South China Sea, in Suriname, and in Norway announced today—and we will continue to have a pipeline of exciting projects across the Americas, Asia, and Africa. We are pleased with OneSubsea’s progress and continue to support them fully. Operator: Thank you. Your last question comes from the line of Neil Mehta with Goldman Sachs. Your line is open. Neil Mehta: Thanks so much. Morning, my friends. You talked a lot about some of the cost impacts that you are seeing in the Middle East and how that is impacting margins, and I think we all understand that at a conceptual level, like freight. But can you give us some of the line items that are causing the pressure points and help us understand the specific items? Stephane Biguet: Clearly, the situation in the Middle East introduced strain on supply chain networks locally, with ripple effects elsewhere. The line item most impacted is logistics and transportation costs. Coming next are raw materials—those derived from petroleum products, and that includes chemicals. So it is raw materials and logistics mostly. This impacted margins in the first quarter and it will linger for a while. We are not going to just let that hit our costs—we have mobilized our commercial organization to recover some of these increased costs, and we are activating inflation pass-through clauses in our contracts. Where we do not have those, we are in direct negotiations with both our suppliers and our customers to offset these effects. We are used to these spikes from inflation, and we try to recover as much as we can. Neil Mehta: And my last question: it has been a couple months now that ChampionX has officially been in the SLB N.V. portfolio. Any observations about what it is bringing to the table and how you have been able to integrate the system into the broader company? Olivier Le Peuch: First, I will reiterate the results part of the ChampionX addition to our portfolio. As Stephane highlighted, ChampionX has been accretive to the company in the first quarter, growing year on year and expanding margins year on year. Second, I will come back to the three days we spent with our board in Midland. It was a pleasure to see in action our former ChampionX employees integrating fully in a customer-centric, opportunity-to-outcome pipeline demonstration with our board, showcasing our fit-for-purpose technology—highly integrated and already getting pull-through and synergy, both revenue and technology, that customers appreciate. We also met many customers with our board in Midland and received very direct and transparent feedback—they were very pleased with the integration progress and see the potential that ChampionX, together with SLB N.V., can bring to operations in the Permian. We are seeing the benefits in financial results, we are seeing an exciting opportunity for production recovery—as we commented at the summit we hosted—and we see the enthusiasm of our teams and customers. This is a unique combination that can unlock the potential of production recovery, particularly in unconventionals, but also across all our basins worldwide. Operator: Thank you. I will now turn the call over to SLB N.V. for closing comments. Olivier Le Peuch: Thank you very much. Ladies and gentlemen, as we conclude today’s call, I would like to leave you with the following reflection. First, while recent events have created near-term disruption, they have also reinforced the need for secure and reliable energy, which will support oil prices above pre-conflict levels and create an ongoing backdrop for oil and gas investment. Second, production recovery, digital, and data center solutions are creating the foundation for accelerated growth. And finally, I want to recognize that this year marks 100 years of SLB N.V. As we celebrate this milestone, I am proud that we are not only honoring an extraordinary legacy but also building the foundation for the next century of innovation, performance, and leadership. With this, I will conclude today’s call. Thank you all for your time. Operator: This concludes today’s conference call. You may now disconnect.
Operator: Good morning, and welcome to The Hartford's First Quarter 2026 Earnings Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Kate Jorens, Senior Vice President, Treasurer and Head of Investor Relations. Thank you. Please go ahead. Kate Jorens: Good morning, and thank you for joining us today for The Hartford's First Quarter 2026 Earnings Call and Webcast. Yesterday, we reported results and posted all earnings-related materials on our website. Before we begin, please note that our presentation includes forward-looking statements, which are not guarantees of future performance and may differ materially from actual results. We do not assume any obligation to update these statements. Investors should consider the risks and uncertainties detailed in our recent SEC filings, news release and financial supplement, which are available on the Investor Relations section of thehartford.com. Our commentary includes non-GAAP financial measures with explanations and GAAP reconciliations available in our recent SEC filings, news release and financial supplement. Now I'd like to introduce our speakers, Chris Swift, Chairman and Chief Executive Officer; and Beth Costello, Chief Financial Officer. After their remarks, we will take your questions assisted by several members of our management team. And now I'll turn the call over to Chris. Christopher Swift: Good morning, and thank you for joining us today. Hartford's first quarter 2026 results were strong, building on continued momentum from the past few years. Our broad portfolio of complementary market-leading businesses continues to generate superior returns for shareholders. The strength of our businesses, the breadth and depth of distribution relationships and our customer-centric focus position us to navigate a dynamic environment. Against the backdrop of geopolitical and economic uncertainty and rapid technological change, we continue to execute with discipline and advance our strategic priorities. Looking forward, our foundation is strong and our strategy is clear, reflecting who we are at the core, an underwriting company that consistently delivers with discipline and innovates with purpose. Among the quarter's highlights, Business Insurance delivered strong written premium growth of 6% with an underlying combined ratio of 89.2%. In Personal Insurance, the underlying combined ratio improved 4.7 points year-over-year with growth impacted by a competitive market. Employee Benefits core earnings margin was 6.9%, driven by outstanding life and strong disability performance, along with excellent new business sales growth and the investment portfolio continued to generate strong net investment income. All these factors contributed to core earnings of $866 million and an outstanding core earnings ROE of 20.3% over the trailing 12 months. Let's take a closer look at the first quarter performance. Business Insurance delivered another strong quarter, reflecting excellent execution across all lines. The current market reinforces the importance of underwriting discipline, pricing rigor and risk selection, areas where we continue to differentiate ourselves. Increasingly, our underwriting decisions benefit from real-time insights embedded directly into workflows, supporting smarter risk selection and more accurate pricing. Leveraging deep agent relationships, we are growing where price, terms and conditions appropriately compensate for risk. This is clearly reflected in our quarterly results as we continued to outpace the market in small business and remained selective in certain middle market and specialty lines. Focusing on small business, results again demonstrated the strength of our industry-leading franchise. Written premium growth of 8% and an underlying combined ratio of 89.4% were driven by excellent execution across our core offerings with double-digit growth in package and commercial auto. Our small business strategy is supported by a flexible multichannel go-to-market model. Customers have multiple ways to engage, whether it's through agents directly or via embedded capabilities such as payroll providers. All channels provide consistent service capabilities, underwriting and pricing. An important component of our strategy is the expansion of our market-leading small business ecosystem across multiple dimensions, including size, risk, product and segment. By size, we are increasingly working across business insurance to target the small end of middle market and growing with customers as their businesses scale, leveraging the breadth of our underwriting expertise and product offerings. By risk profile, we move seamlessly from admitted into E&S where appropriate, allowing us to support customers as exposures become more complex. By product, we are combining our specialty products with our unmatched small business distribution to deliver more tailored and complete solutions. And by business segment, we are launching efforts in the small and midsized market within employee benefits, leveraging our small business expertise. Moving to Middle & Large, written premium growth was solid at 5% with an underlying combined ratio of 91.3%. The team remains focused on disciplined underwriting and selecting opportunities that deliver attractive risk-adjusted returns in an increasingly competitive market. We are continuing to transform underwriting workflows, including through an AI assistant that augments key components of the underwriting process. Turning to Global Specialty. Results remain solid with another quarter of underlying margins in the mid-80s. Written premium growth of 3% reflected economic conditions, including fewer construction projects within our core area of focus. Global Re delivered premium growth of 11%, driven by growth in lines with strong risk-adjusted returns. Across Global Specialty, we are continuing to invest in the automation of lower complexity risk and enhancing underwriting workflows in more complex areas. Turning to pricing. Business Insurance renewal written pricing, excluding workers' compensation, remained relatively consistent at 6% in the quarter. Pricing in commercial auto and liability, including umbrella and excess remained strong and above loss trend. Property continues to remain highly profitable and an attractive area for growth, so though pricing moderated in the quarter. Pricing within small business package and middle market general industries was fairly steady in the mid-single digits and represents 60% of our property book. Shifting to Personal Insurance. First quarter results reflected solid execution amid a competitive market backdrop. In auto, where annual policies are over 70% of the book, renewal pricing reflects actions taken to date and are expected to moderate further in 2026. The market remains dynamic with competitors aggressively positioning renewal rate decreases, increasing marketing spend and introducing new business discounts. We remain disciplined and expect direct auto growth to remain challenged in the near term. In Home, results were outstanding, supported by consistent underwriting with low double-digit pricing. Within the agency channel, new product rollout continues to progress as planned with very positive agent feedback. Our agency offering is now live in 15 states with 30 states planned by early 2027. We are committed to our long-term objective in personal insurance to expand market share thoughtfully and deliberately with sustained profitability at target levels in our direct and agency channels. Moving on to Employee Benefits. Core earnings margin of 6.9% was driven by outstanding life and strong disability results. Persistency remained strong in the low 90s and fully insured premium increased 3% year-over-year. We were pleased with the excellent sales this quarter, supported by disciplined pricing and underwriting execution. Results were driven by a double-digit increase in quote activity, strong sales management and continued investments in technology that are translating into stronger value propositions for customers and brokers. Sales also benefited from 2 states with paid family and medical leave coming online in the quarter. Additionally, we continue to enhance our digital capabilities and deepen API connectivity with HR and benefits administration platforms, driving greater ease of doing business and a more seamless customer experience. These benefits are most pronounced in the large account segment, where our leadership is anchored by differentiated absence and leave solutions that tightly integrate disability, paid family and medical leave and supplemental products. At the same time, expanding our presence in the under 500 lives segment remains a key strategic priority, including broadening product offerings such as dental and vision for small and midsized employers. In closing, first quarter results demonstrate continued momentum and execution of our strategy. In Business Insurance, a diversified portfolio, strong distribution relationships, disciplined underwriting and technology-enabled execution continue to drive profitable growth at attractive returns. In Personal Insurance, our focus remains on thoughtful market share expansion, supported by continued progress in the agency channel. Employee Benefits remains a high-quality accretive business where our leadership in absence and leave positions us well at the large end of the market and ongoing investments will enable us to extend those capabilities to small and midsized customers. Investment income remains strong, supported by a diversified and durable portfolio. Taken together, I am confident in The Hartford's ability to continue delivering strong financial results and superior risk-adjusted returns for shareholders. Now I'll turn the call over to Beth to provide more detailed commentary on the quarter. Beth Bombara: Thank you, Chris. Core earnings for the quarter were $866 million or $3.09 per diluted share with a trailing 12-month core earnings ROE of 20.3%. In Business Insurance, core earnings were $551 million with written premium growth of 6% and an underlying combined ratio of 89.2%. Small Business continues to deliver excellent results with written premium growth of 8% and an underlying combined ratio of 89.4%. Middle & Large business had another strong quarter with written premium growth of 5% and an underlying combined ratio of 91.3%. Global Specialty's first quarter was solid with written premium growth of 3% and an underlying combined ratio of 86.1%. The Business Insurance expense ratio of 31.6% is generally consistent with the prior year with staffing costs and investments in our business being partially offset by the impact of earned premium growth. In Personal Insurance, core earnings were $141 million with an underlying combined ratio of 85%. The underlying combined ratio improved 4.7 points in the quarter with improvements in both auto and home. The Personal Insurance expense ratio of 27% remained flat to the prior year. Written premium in Personal Insurance declined 6% with a 10% decrease in auto, partially offset by 4% growth in home. Agency growth remained strong at 9% over the prior year. Renewal written pricing increases were 6.8% in auto and 11.8% in home and effective policy count retention was relatively stable. We expect retention to improve as pricing continues to moderate. Turning to reserves. Favorable prior year development was driven by reserve reductions in workers' compensation, homeowners and personal auto. General liability reserves related to sexual abuse [ and molestation ] exposures from the 1970s and 1980s were increased by $70 million, which included a provision for a settlement in principle in one bankruptcy proceeding involving a religious institution. Excluding the impact of the increases in general liability reserves, total net favorable PYD impacting core earnings was $75 million. With respect to catastrophes, P&C current accident year losses were $230 million before tax or 5.1 combined ratio points. Business Insurance catastrophe losses of $171 million were primarily driven by winter storms. In small business, losses from winter storms were $73 million this quarter compared with $8 million in the prior year quarter. Historically, freeze-driven winter storms like storm burn tend to impact small business customers to a greater degree. Personal Insurance catastrophe losses of $59 million were primarily from tornado, wind and hail events across the Midwest. Moving to Employee Benefits. Core earnings of $127 million and a core earnings margin of 6.9% reflect outstanding group life and strong disability performance. The group life loss ratio of 73.2% improved 6.7 points, reflecting lower mortality in term life and accidental death products. The group disability loss ratio of 72.7% increased by 3.7 points, driven by less favorable long-term disability loss trends as well as higher short-term disability claim incidents, including in paid family and medical leave where we continue to take pricing actions to reflect the increased utilization of these products. The employee benefits expense ratio of 26.7% increased 1.3 points compared to 25.4% in first quarter 2025, driven by higher staffing costs and higher technology costs. Turning to investments. Our diversified portfolio continues to produce strong results. For the quarter, net investment income was $739 million, an increase of $83 million from the first quarter of 2025, driven by higher income from limited partnerships and other alternative investments, a higher level of invested assets and reinvesting at higher rates. The quality of The Hartford's portfolio remains strong across public and private credit and equity. Private credit covers a range of subsectors, including traditional private placements, commercial mortgage loans, private asset-backed credit and direct lending to corporate issuers and business development companies. Investments related to direct lending and business development companies have been topical of late. The Hartford's investments in this sector represent approximately 2% of our invested assets. Investments are largely focused on well-capitalized companies with sound business models and platforms with multiple sources of liquidity. These investments have attractive yields and are expected to continue to contribute positively to our portfolio's performance. The total annualized portfolio yield, excluding limited partnerships, was 4.5% before tax, up 10 basis points year-over-year and down 10 basis points from the fourth quarter. The decline from the fourth quarter was primarily due to lower returns on public equity-related fund investments, reflecting broader market declines and a modestly lower yield on variable rate securities. First quarter annualized limited partnership returns were 5.1% before tax, materially higher year-over-year, but lower than the fourth quarter, reflecting reduced returns in the private equity and real estate portfolios. Geopolitical volatility and economic uncertainty may lead to this trend continuing in the near term. For full year 2026, with the current backdrop, we expect net investment income to increase, supported by continued growth in invested assets with overall portfolio yields expected to be generally in line with 2025. Turning to capital management. Holding company resources totaled $1.8 billion at quarter end. During the quarter, we repurchased 3.3 million shares under our share repurchase program for $450 million, and we expect to remain at that level of repurchases in the second quarter. As of March 31, we had $1.1 billion remaining on our share repurchase authorization through December 31, 2026. In summary, we are very pleased with our strong performance for the first quarter and believe we are well positioned to continue to enhance value for our stakeholders. I will now turn the call back to Kate. Kate Jorens: Thank you, Beth. We will now take your questions. Operator, please repeat the instructions for asking a question. Operator: [Operator Instructions] Our first question comes from Andrew Kligerman from TD Cowen. Andrew Kligerman: I -- my first question is around pricing. And I thought it was great to see that in Business Insurance, you really ex workers' comp didn't have much deceleration in renewal written pricing. And one of your competitors, I'd say, was closer to 100 basis points of deceleration. So my question is, particularly in the small business area, could you talk a little bit about the resilience of pricing there? Is this a line of business that could hold rate increases, maybe a little bit of deceleration, but maybe it holds in for the long haul? Or do you see this coming under a lot of pressure as we've seen large accounts and upper middle in particular? Christopher Swift: Andrew, thank you for the question and joining us. Let me just make some overall commentary and maybe give you a little bit of data. And then between Mo and myself, we could share our views on small commercial and how resilient it most likely can be. So in my prepared remarks, I think we talked quite a bit about commercial auto and liability, including umbrella and excess and that overall property continues to be a growth area for us. And our property book is 60% concentrated in small business package and middle market general industries. As you noted, the quarter, we were basically ex comp at 6%, down 10 basis points from fourth quarter of 2025. So we feel really good about the team's ability to execute and keep margins, and that's no small feat. So really, really, really proud of the team. I would -- as I normally do, Andrew, I'll give you some GL pricing because we talk internally -- anything liability, we just really need to be disciplined. So for the quarter, GL pricing was up to 9.7%, 50 basis points up from the fourth quarter at 9.2%. And I would say with the primary lines in the high single digits, and then anything sort of excess umbrella in the low double digits that have been generally consistent with the fourth quarter or up a little slightly. Within small, I would give you an ex comp number of 7.2%, which was down 50 basis points from 7.7% in the fourth quarter, mostly due to auto. But again, still an overall strong component, particularly whether it be the property component or the E&S binding component. Middle market, I would just share was down 53% ex comp or down to 5.3% from 6.2%. And then in Global Specialty, actually, Global Specialty executed very well and increased pricing up to 4.8% from 4.1%. So I think all that indicates, again, a real discipline by the team, a real focus. And when you really talk about small business, I think our ability to be very consistent and steady with price increases, both on the auto side, both on the property side or the GL side has been a key component of just reliability that our agents look for. So we try to be thoughtful. We try to take little bites at the apple on a state-by-state basis. And I think there is a level of durability that if you don't shock and surprise customers and agents with modest increases, your retention will hold and you can maintain your margins. But Mo, what would you add? Adin Tooker: I like your response. I think the only thing I'd add, Andrew, is that in the small business space, I would ask you just to think about our maneuvers quarter-to-quarter really about execution and rate adequacy as a starting point. We're really not responding to competitive pressures. What you see is trying to make sure we maintain margins and find the growth that we think is there. And that's in comp, especially in our package spectrum, auto, even in the E&S side. So really, I think it's really about execution from a great, great starting point on our small business side. And then the only other thing I would add is on the small -- excuse me, on the middle and global side, as we talked about in previous quarters, it really depends on how the market holds up. So we're really proud of how well the team executed maintaining margins in what is a moderating market. And the market will really determine the growth rates for us in Middle and Global going forward. Andrew Kligerman: Yes. I think that just for volumes that you could do that with 6% written premium growth and maintain some rate. So the follow-up is related. Chris, I appreciated your prepared remarks about how -- particularly in small, you're able to go to many places, specialty, direct, et cetera. And when I think about The Hartford, I think about the best-in-class in small mid. And lately, I've been hearing a lot of companies are making a big push to small mid. They feel that AI is enabling them. So maybe a little more elaboration on The Hartford's competitive moat amidst this AI expansion among a lot of your players? Will it be easier for them to look like Hartford and do things that Hartford does? Or why is that moat so strong even amidst AI? Christopher Swift: Yes. Well, thank you for noticing. Yes, we're really proud of our capabilities in the SME space broadly defined. That doesn't mean we can't play in the larger end of the market, but we're thoughtful about competing there. But in sort of SME land, I think we have some strong capabilities. We've been at it for a long time. We've had a technology orientation going back decades. We've had a partnership with agents and brokers, but primarily agents that really care about the SME space. We know what's important to them from a service side. And we're one of the digital leaders in small business and increasingly in middle, particularly the small end of middle. So we're going to continue investing in those capabilities, I think, to differentiate ourselves and make us an easier company to do business with and know our customers. So when you put it all together, I do believe that there is a moat that we got to constantly defend because there is a lot of good competition out there and a lot of good brands that agents and people recognize. But we are in a good position. We will continue to defend and invest to differentiate ourselves over a longer period of time. What happens with AI and agents and distribution in general, I think, is still a play that's going to evolve over time. But we have deep partnerships with all our distribution partners. We have capabilities that if markets move on a direct or a more embedded basis, as I said, we'll be ready. But we've partners that we do a lot of good servicing for and taking care of sort of our joint customers in a true partnership mindset. So we feel good about that. But Mo, what would you add? Adin Tooker: You mentioned it quickly, but I think what we're finding, Andrew, is that all of the capabilities we've built over 30 years in small really matter a lot in middle. And those same capabilities, we believe, can help us grow profitably in the middle space because the agents -- there's a margin pressure they're feeling as well and as much help as we can give them helps grow their margins in the middle market space as well. Operator: Our next question comes from Elyse Greenspan from Wells Fargo. Elyse Greenspan: My first question was on Business Insurance and specifically on the expense ratio. If you could just help us think about the seasonality and just trajectory from here. I know last quarter, you guys laid out a target below 30%. And I know that's for the end of '27. But given, right, that the expense ratio was higher this Q1, just trying to get a sense of like the trajectory from here? Christopher Swift: Elyse, thanks for joining us. So I would say with expenses overall, there is a little bit of seasonality in the first quarter just coming off year-end and all the first quarter activities that happened primarily from a compensation and benefit side. So not surprising. Our expense targets by business are right on plan for the first quarter. So there's no new news there. I would say I reaffirm everything that we've talked about last call and the targets that we're aiming for at the end of '27. So nothing's changed, absolutely nothing in our ability, I believe, to deliver on expense improvements over the next 7 quarters. I would say incrementally, we do expect improvement in '26. So I think you will see a decline in all the major businesses segments of an expense ratio decline in '26 with continued improvement in '27. Elyse Greenspan: And then my second question, also sticking within Business Insurance, right? I think in your prepared remarks and in response to the first question, right, you guys were pointing to more of a stable pricing environment away from comp. And obviously, pretty good premium growth within BI in the quarter, expect business insurance driven by small. And so when you guys think about the current market, does it feel like you can maintain premium growth within small commercial kind of in this 8-ish percent range just based on forward views on pricing, et cetera? Christopher Swift: Yes. It's hard to forecast. I can tell you, the team has, I think, distinctive capabilities, offerings. We've talked about it from a technology side, relationships. But we got to compete. Market will tell us if we can remain competitive and thoughtful, particularly from a pricing side. So I think the overarching point I would just say, Elyse, is, yes, we'd like to grow. We plan to grow. But we got to maintain margins and be thoughtful about sort of the trade-off between profitability and growth. I think we are well positioned to do that to make those trades. So we'll just have to see how the market plays out over a longer period of time. And Mo, what would you add? Adin Tooker: Maybe just one point. Elyse, the additional piece I would give you is the flows continue to be really strong, i.e., submissions into both the retail, i.e., the admitted part of our small business franchise and the non-admitted. And that flow and our hit rates are relatively flat. So we feel really good about this continued flow that we're getting from our agents, which demonstrates to us the strength and position we have with them. Operator: Our next question comes from Brian Meredith from UBS. Brian Meredith: First of all, Chris, you've got some good E&S capabilities. Maybe you can talk a little bit about what you're seeing in the market as far as is business kind of flowing back to the standard markets from the E&S markets at this point in the cycle? Are we kind of heading in that position? And then maybe also talk a little bit about what you're seeing about -- with the MGA competitive -- competition out there? Christopher Swift: Brian, I'm going to let Mo answer that just because he's the principal architect of a lot of our growth strategies in the marketplace. But I would just say I feel a level of stability. And I don't sense a lot of movement one way or the other. But Mo, what would you really say? Adin Tooker: Yes, Brian, maybe I'll tell it in 2 different ways. One, in our binding business, which sits in Small Commercial, as I said, the flow continues to be really strong. We don't feel the admitted market taking much back in that space. As we talked about, pricing is down a little bit, but our starting point is really good. So we're excited about the binding opportunities. We don't feel MGA impact in the binding space. If I shift into our Global Specialty space, where it's more of a brokerage model, again, flow continues to be really strong there in just about every single product for us. We do feel a little bit more flow back to the admitted in the larger risk space. There is a little bit of a competitive nature there. But as Chris talked about, our pricing improved in that book. We continue to -- the casualty lines, we're getting the pricing we need. And broadly, in our specialty book, and that's admitted and non-admitted, we do feel the MGA is having an impact. In any place, we're really trying to build capacity or brokers are trying to build capacity, we do feel that impact. And I don't feel that changed in the quarter, but it's been pretty persistent over the past several quarters. Brian Meredith: Great. And then second question, I was hoping to chat a little bit about workers' comp. Kind of where are we with respect to -- I mean, it's still a competitive market out there. I know you're kind of expecting some margin deterioration this year in comp. Where are we as far as profitability? Are we getting to a point where maybe we're going to see some leveling out in comp and maybe some improvement? Christopher Swift: No. Brian Meredith: Pricing? Christopher Swift: Just bluntly. I think our pricing was relatively flat in the first quarter, Brian, to the fourth quarter. If I look at activity broadly defined in the marketplace, there's people still putting through negative rates in various states. California is sort of the outlier. We always talk about comp ex California. I think we're proud though of being sort of the top carrier in that area. I think we've been disciplined and thoughtful. I think the underlying trends are still relatively stable. If I look at severity, particularly on the medical side, a level of stability, still well within our 5% pricing in and reserving assumption. I think severity would say probably is running in the 3%, 3.5% range. So it's behaving. I feel good about the market. We still got to be disciplined, but I don't see a price increase coming anytime soon because, quite honestly, the book is behaving pretty well. But Mo, what would you say? Adin Tooker: Brian, the only thing I would add is that it's basically right on expectations for us, both top line and bottom line. And I don't think you should expect us to see the book grow dramatically. There's parts of the book that are really competitive that we're pulling back on. For example, white collar in middle is really competitive, and we're just not able to grow that at the pace we'd like to. But broadly, think about top and bottom line on budget and basically we're relative to our expectations, exactly where we thought we'd be. Operator: Our next question comes from Mike Zaremski from BMO Capital Markets. Michael Zaremski: I guess just kind of hammering in on kind of the market level of competition. I know you've -- I'm not trying to obsess about it, but Chris, you spoke to increasing competition a number of times in your prepared remarks. I don't think it's that surprising to folks given the excellent profitability levels that you and many of your peers also throw off. I guess you guys have lived through many hard and soft cycles. Do you feel that HIG's operating strategy would kind of pivot or change materially to the extent the market continues to soften materially over the coming year or 2? Christopher Swift: No, I think, again, I appreciate the question and acknowledge that the market is competitive. Markets are always competitive. So you got to know what you're good at and know what you can do well. I don't see our business model strategy changing dramatically for market cycles. I think it's a discipline that we have. So if there are conducive aspects of the market, as I said in my prepared remarks that we could get the price we need, the terms and conditions and generate good returns on our invested capital, we'll feel good about growing that or not growing if we can't. So I don't know if I'm really answering your question or getting what you're really asking for, but yes, we know how to run a business in various cycles. Michael Zaremski: No, you did. We just get a lot of questions from investors about -- that seem a bit worried about the pricing cycle. And I think we're trying to remind folks that the sky is not falling. So I'm just kind of pivoting just for specifically to Global Specialty since you called out pricing being up a bit. Just curious if -- what caused that, if it's worth talking about? Christopher Swift: Yes. I would say -- Mo, you can add your color. I would say wholesale, particularly on the primary liability side and a little excess casualty, where the team is really being disciplined and focused on getting rate as I said, with anything, with liability in the product line, we are super focused on getting the needed rate. But Mo, any color? Adin Tooker: Well, I think that's the key point. I think the rest of the book is fairly stable, Mike. If you think financial lines, it is where it's been. We didn't feel dramatic change. Marine is the same. We have a lot of lines within that global specialty book, but I think the standout in the quarter was the rate coming back up in wholesale casualty lines. Operator: Our next question comes from David Motemaden from Evercore ISI. David Motemaden: I was hoping you guys could unpack some of the movement in the underlying loss ratio in Business Insurance this quarter? And maybe just talk a little bit about how much of a headwind workers' comp is within there and some of the other moving pieces? And maybe just given the pricing environment, how you're thinking about that for the rest of the year? Christopher Swift: Yes. I'd first say, as I said earlier, it's -- there's no surprises. I think our picks, obviously, one quarter in are holding. I think we've used the phraseology that the setup for 2026 was similar to 2025 with some modest comp pressure. So I think that continues just based on math. I think property is moderating, but still highly profitable. And what I would say, David, is we closed 2025 with a little over $3.3 billion in property premium. We think we could grow that 10% this year, again, with good margins, good returns. Certain lines in the property world are still positive. As I said, the spectrum component of [ BOP ] the property component there is up, I think, 6.3% in the first quarter. I think GI property, general industries property is up 4%. So yes, there's always going to be sort of puts and takes. But as we sort of look out, I still think '26 will play out largely like '25 with some very modest headwinds. But Beth, Mo, would you add anything? Beth Bombara: Yes. The only thing that I'll add to that is if you look at the underlying loss and loss adjustment expense ratio in Business Insurance, it moved very modestly from first quarter of last year to first quarter of this year. And when I look at sort of the underlying lines of business within there, there's no big moves one way or the other. It's really just very small move kind of across the book. So it's not as if there was some amount of big favorability that was being offset by a large amount of deterioration, and that's in line with what we would have expected. David Motemaden: Got it. That's helpful color. And then maybe just pivoting to group benefits and specifically group disability, that's been deteriorating a bit over the last several quarters. I know some of that is just the long-term disability sort of normalizing. But could you just talk about maybe some of the short-term disability trends and how you're thinking about the disability loss ratio throughout the rest of the year as some of the pricing actions you guys have been taking maybe starts to show up? Christopher Swift: Yes. Again, I appreciate the comment because you've done your homework, right? I mean the disability line has long-term STD and now increasing a larger percentage of our paid family and paid medical books. The latter 2, STD and the paid family, paid medical, obviously, our short cycling businesses, I'd like to say, generally is 1- to 2-year rate guarantees. I would say that the incident rate in particularly paid family and medical is higher than we anticipated, but we're taking, again, the appropriate pricing actions in the marketplace because it's a benefit people are actually really, really using, and we can adjust rates appropriately. I think we've -- I said in my prepared remarks, we got 3 states coming online, 2 came online first quarter in paid family medical. And I think [ Maine ] comes online May 1 of this year. So I would say that those are the components. LTD is up a little bit. And I would characterize that as just a little bit of a reversion to the mean. LTD has been performing so exceptionally well over really the last 2, 3 years. Our pricing assumptions and our reserving assumptions are a little bit back to the mean, both on incidences primarily. And terminations have always been strong, and we've got a great claims department that will get people back to health and work. So I would say those are the components. But Mike Fish, what would you add any additional color on? Michael Fish: Yes, I would just add, in the quarter for paid family leave, the new states that Chris referenced, generally, when we see new state programs come online, there is a pent-up demand element, meaning we see high utilization in that first 1 or 2 months of the year that those programs go live. So we expect to see that moderate through the year. And again, second, just adding on the rate increases we've been putting in place in paid family leave, double digit again this year, and we're maintaining persistency in the upper 80% range. So very pleased with our ability to place rate, and we'll continue to do that as utilization moderates through the year. Operator: Our next question comes from Katie Sakys from Autonomous Research. Katie Sakys: I want to shift back to the BI reserves for a moment. I think excluding the legacy charge this quarter, the core general liability book still looks quite strong with no net adverse development for several quarters now. How is the loss emergence in GL tracking versus your original expectations? And does what you're seeing today reinforce your confidence in current casualty loss picks going forward? Beth Bombara: Yes, I'll start with that. Yes, I mean, we feel very good about our loss picks in the GL book, both from the standpoint of prior year reserves and the loss trend that we've embedded in our 2026 picks. We look at the reserves every quarter. We look at them by accident year, by product line. Obviously, quarter-to-quarter can be small movements kind of within that. But overall, no change in our net GL reserves, excluding the legacy item that we discussed. And we feel good about what we're seeing and what that means relative to our loss position. Katie Sakys: Okay. And then, Beth, you mentioned in prepared remarks that direct lending and BDC exposure is about 2% of invested assets. Can you help us understand how much of that exposure is to software or adjacent borrowers? Beth Bombara: Yes. So as I said, our investments in sort of direct lending and BDC is about 2%. If we look at just the BDC portion, it's less than 1%. And I'd have you think about our investments in those groups of assets as being very diversified. So there obviously is a software component. But as we look through the underlying exposure and the underlying loans, we feel very good about the exposure there. And as I said, we continue to see these investments performing well for us. Operator: Our next question comes from Gregory Peters from Raymond James. Charles Peters: So I'm going to go back to the benefits business on the sales side for my first question. And Chris, you mentioned numerous times through your prepared remarks and the Q&A, how disciplined you are regarding growth and maintaining price discipline. And it looks like you had a really strong first quarter in sales. And I generally view that market as being pretty competitive. So maybe you could unpack -- and maybe it was embedded in that answer about pricing, but maybe you could unpack the results you reported for the first quarter in terms of sales? Christopher Swift: Yes. I'll remind you of the numbers and then ask Mike Fish to add his commentary. So yes, I think the 53% increase in sales growth is a meaningful number. I would say if you exclude the 3 states that paid family and paid medical leave are coming online, which are new, that increase drops to about 40%, but still meaningful. But I would say that the market conditions, I think, were primed for us to take advantage of opportunities. And I think more quotes were out, Mike. I think we improved our sales management and sort of bidding concepts of where we wanted to start when we came out with initial quotes. I think our capabilities, particularly at the national account level have been being recognized more and more by our agents and brokers. So it was almost like the perfect combination of a lot of things that we've been working on to have these results. Obviously, we look at pricing very closely from a management side. And I would tell you, in aggregate, the cohort that we put on, will generate returns in line with our targets. So I put all that together and say, yes, it feels good, feels disciplined, and we're going to try to keep it going. But Mike, what would you add? Michael Fish: Yes. Just a couple of items. First of all, on that pipeline development. So we started early last year, really working hard within our sales and across our sales team, essentially investing in our sales footprint as well as market analytics to do a much better job engaging at the local level. So we saw that, as Chris noted, coming through in higher activity, quote activity. So a good component of what we saw in the sales in the quarter was really just driven off of, I'd say, sales execution at the local level. So very, very pleased with that. And then second, we've been very clear in talking about our investments, our technology investments in the benefits business. And that's across absence, across our HR technology integrations that we have. And those are really paying off. So when our sales team is out engaging with brokers and ultimately, when we get into that moment in front of a customer in a finalist meeting, and that would be on the larger end of the market. We just have a phenomenal story to tell. So I think all those items came together to produce a really nice sales result in the quarter. And again, just reinforcing, we're maintaining our underwriting discipline. We haven't changed that, and we will not do that. Charles Peters: Fair enough. I'll pivot over to the Personal Lines business since it hasn't really been asked of yet. You talked about 70%, I think, was the comment about 70% of your business being annual policies. I know you're in process of rolling out prevail, which I presume is 6-month policies. But maybe you could spend a minute and give us some more detail about how you expect The Hartford to perform beyond just a couple of quarters with the rollout of prevail and how the -- considering how competitive the marketplace is, just curious what your view on the outlook there is? Christopher Swift: Yes, I would summarize, Greg, what I tried to say in our comments is I think we have our strategy and objectives very clear. I think we've invested heavily, and as you said, our new product and platform, particularly in the direct channel. We're rolling out the same product and platform in essence, in the agency channel, which, again, the independent agent channel is a great strength of ours. And I think getting back into that in a more meaningful way with a more modern product is being well received and will continue to drive incremental growth. I think the balancing act in all this is we worked so hard to get back to target margins. And we're really [ loath ] to give back any pricing or cut rates just to grow. So we're going to continue to find our niches, our pockets, whether it be through AARP or through agents. And as we roll out more states for agents, I think we'll obviously have a higher growth rate. But yes, it's a balancing act. But we don't want to kick up everything we work so hard on. But I'll ask Mo or Melinda if they'd like to add any color? Melinda Thompson: Yes. Thank you. What I would just add is that agency is growing today, a function of the investments we've made there, smaller base, direct will take certainly more time. But the investments that we've made in product, technology, customer experiences, things that we are doing with AI, they're all aimed at customer experiences that are about supporting the long-term growth. So we'll navigate the current market cycle and play for the long term. Operator: Our next question comes from Rob Cox from Goldman Sachs. Robert Cox: Just a question, just to go back to the [ cats ]. Just a little higher than we thought this quarter, but it sounds like it was driven by your exposure to small business and freeze-related losses. Just curious how the [ cats ] in the quarter compare to your own internal expectations? Any updated thoughts on how you're thinking about diversification into property from a broader perspective and if you're now lined up to see any recoveries on your aggregate reinsurance treaty? Beth Bombara: Yes, I'll take that, Rob. So I would say, overall, when we look at our [ cat ] losses for the quarter, compared to what our original expectations would be, it's probably about $30 million higher. So it's not a significant change from what we would have expected. And as I said, it really was focused in the small business area where we just tend to see with freeze activity, higher losses there. So that is definitely what drove that. And then as far as the aggregate treaty, what I'll just say to that is, as you know, our aggregate treaty kicks in when subject losses reached $750 million. Again, it doesn't include our global recast. And so through first quarter, we're at $204 million. And so we'll have to see how the rest of the year progresses as to whether or not we would hit that aggregate. Robert Cox: Okay. That's helpful. And I just want to follow up on the distribution discussion here. I think, Chris, you mentioned [indiscernible] strong distribution relationships, which is clearly part of the firm's competitive advantage. There's some industry discussion on whether or not distribution costs are too high and will come down over time. So just curious on your views in that debate. And in particular, any thoughts on magnitude or time frame? Christopher Swift: Yes. That's like being a Red Sox fan or a Yankees fan. So there's always going to be discussion and debate who's got the better club. So yes, what I would say is, speaking for us, and our ability to sort of manage costs. I'm really proud of what the team has been able to do to sort of keep our overall cost to acquire new business relatively flat over the last 3 or 4 years. And Mo's led that effort with the team. I mean it's still a significant amount of money on a percentage basis or dollar level. But I think we've been able to complement our distribution partners with technology, with service, with making their life easier. And we try to impress upon them, the more that we could do business together, I think the more money they would make in our relationship compared to everyone else. That's not unusual to sort of say, but it's really actually true with our capabilities. But I think you're really alluding to the future, and I tried to allude it to a little bit in a response. I'm not sure what AI is going to do in the agent world. And that's why we've been talking more about sort of our multimodal capabilities, whether it be through agents and advice channels, whether it be direct, whether it be embedded, whether it be other technologies. And not every product line is created equal, right? You can make the argument that the simpler product line today of auto is maybe most prime to be impacted by AI and how that happens. And you have other complex lines that really people need advice. They need to make sure that they understand the various features in a product and what's in, what's out. So I think advice will always be needed, and we'll continue to partner in the best way possible with our distribution partners to figure out how consumers want to consume advice and where they want to go for advice as a first step. But Mo, what -- would you add anything else? Adin Tooker: I like where you went in terms of the partnership model. A lot of our digital investments, our service centers in small and middle are really about that partnership with the agents. So the compensation becomes less of a conversation because of the service we're providing to support the upfront customer. And in many situations, we are providing that service for our agents. So that partnership is a really key model for that discussion longer term. Operator: Our last question today will come from Yaron Kinar from Mizuho Americas. Yaron Kinar: Just want to start with personal auto. Just given the changes in the competitive environment today, do you expect that to continue now with the Strait of Hormuz situation? And on the one hand, maybe you have better frequency coming out of lower gasoline prices. On the other hand, you have maybe supply chain issues driving severity up. So do you see any impact on the competitive environment with all that? Christopher Swift: Yes. Yaron, I would say a couple of things top of mind. One, price of gas, price of oil and miles driven isn't really correlated that much. I mean people will still have to commute to offices. Obviously, the trend of work from home has changed sort of driving patterns. Maybe there's a slight decrease in summertime driving. But generally, all our models say price of fuel is not really indicative of miles driven. I think the whole war situation creates a lot of uncertainty that we're going to have to watch closely and see how it plays out. That said, I don't see a direct line into the U.S. here from our cost of goods sold in products, but our derivative impacts and second degree impacts of chemicals, fertilizers, plastics, all have an element of petroleum in it. So there could be some minor effects there, but I would say when we picked our loss picks for the year, I think we have a margin for adverse deviation for these types of items and events. And we still feel good as we sit here today where our picks are for the full year, particularly in personal lines. Yaron Kinar: That's helpful. And then maybe circling back to the last line of questions around AI and the intermediaries. Is there a risk that The Hartford negotiating power with intermediaries in small commercial would diminish if larger brokers are able to use AI to move down market and infringe on a space that's really been dominated by smaller agents? Christopher Swift: Well, you might be really referring to agent consolidation and what happens and if consolidation continues to play out. I think, Mo -- when Mo and I think about it strategically, we still think it's a net benefit to us because carriers, I think, will -- particularly the large national account carriers that have broad-based capabilities particularly as all these agents and brokers are trying to simplify their business model and do business with less carriers. I think it's still a net positive for us over the long term. But Mo, what would you add? Adin Tooker: Chris alluded to it before. I think what we're finding is actually the opposite. The large carriers are consolidating to those who have the most capabilities to help them create additional margin in the small business space. So they're looking to fewer people who have better capabilities. So actually, we feel like it's a large market for small business, large brokers are actually coming our way in terms of the momentum in terms of flow and long-term capabilities and commitments we think we win in that space. Yaron Kinar: But I understand that you may see more flow, but ultimately, don't they have stronger negotiating position when they try to determine the terms of the actual contract or policy? Adin Tooker: Yes. I think this is where the balance of power is actually really equal because of all the capabilities we bring. There's very few people who can bring what we bring in the small business space, and I can prove to any agent and broker how we can make $0.01 or $0.02 more in every dollar for them that leads to some really productive conversations. Operator: And we are out of time for questions. I would like to turn the call back to Kate Jorens for any closing remarks. Kate Jorens: Thanks for joining us today. As always, feel free to follow up with any additional questions, and have a great day. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Universal's First Quarter 2026 Earnings Conference Call. As a reminder, this conference call is being recorded. I'll now turn the conference over to Arash Soleimani, Chief Strategy Officer. Arash Soleimani: Good morning. Thank you for joining us today. Welcome to our quarterly earnings call. On the call with me today are Steve Donaghy, Chief Executive Officer; and Frank Wilcox, Chief Financial Officer. Before we begin, please note today's discussion may contain forward-looking statements and non-GAAP financial measures. Forward-looking statements involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements. For more information, please see the press release and Universal's SEC filings, all of which are available on the Investors section of our website at universalinsuranceholdings.com and on the SEC's website. A reconciliation of non-GAAP financial measures to comparable GAAP measures is included in the quarterly press release and can also be found on Universal's website at universalinsuranceholdings.com. With that, I'll turn the call over to Steve. Stephen Donaghy: Thanks, Arash. Good morning, everyone. We had a fantastic start to the year with a 38.5% annualized adjusted return on common equity. Our top line results were strong with growth across our multistate footprint, including in Florida. On a separate note, I'm pleased to announce the completion of our 2026-2027 reinsurance renewal for our insurance entities as our program is now fully supported and secured. During the renewal process in 2026, we also secured $352 million of additional multiyear coverage, taking us through the 2027-2028 treaty period. I'll turn it over to Frank to walk through our financial results. Frank? Frank Wilcox: Thank you, Steve, and good morning. Adjusted diluted earnings per common share was $2 compared to an adjusted diluted earnings per common share of $1.44 in the prior year quarter. The higher adjusted diluted earnings per common share mostly stems from a lower net loss ratio and higher net investment income. Core revenue of $398.2 million was up 0.8% year-over-year with growth primarily stemming from higher net investment income and net premiums earned. Direct premiums written were $506.5 million, up 8.5% from the prior year quarter. The increase stems from 4.9% growth in Florida and 18.3% growth in other states. Overall growth mostly reflects higher policies in force and inflation adjustments across our multistate footprint. Direct premiums earned were $531.4 million, up 3.5% from the prior year quarter, reflecting direct premiums written growth over the last 12 months. Net premiums earned were $356.9 million, up 0.3% from the prior year quarter. The increase is primarily attributable to higher direct premiums earned, partially offset by a higher ceded premium ratio. The net combined ratio was 89.7%, down 5.3 points compared to the prior year quarter. The decrease reflects a lower net loss ratio, partially offset by a higher net expense ratio. The 63.9% net loss ratio was down 6.6 points compared to the prior year quarter, with the decrease reflecting better current accident year results. The net expense ratio was 25.8%, up 1.3 points compared to the prior year quarter, with the increase primarily driven by a higher ceded premium ratio and higher policy acquisition costs associated with growth outside of Florida. During the first quarter, the company repurchased approximately 210,000 shares at an aggregate cost of $7.1 million. The company's current share repurchase authorization program has approximately $13.1 million remaining. On April 10, 2026, the Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock payable on May 15, 2026, to shareholders of record as of the close of business on May 8, 2026. With that, I'd like to ask the operator to open up the line for questions. Operator: [Operator Instructions] And our first question comes from the line of Paul Newsome of Piper Sandler. Jon Paul Newsome: Congratulations on the quarter. Maybe we could just start off with some thoughts or color on the competitive environment, both in Florida and outside of Florida. It gets lots of investor questions about whether or not we're seeing a change in the number of folks who are competing in those markets and maybe the speed at which obviously, the ROEs that you and others are reporting are so huge, whether or not that will attract a lot of new competitors. Stephen Donaghy: Paul, thank you. I think from a competitive perspective, we analyze our rates and are chasing rate adequacy more than we are chasing business. So from a competitive perspective, we feel good about where we stand. And obviously, from the quarter, we can bring on business when we want to and we see the markets profitably. So that's probably the answer I would give you. There is competition everywhere, but we feel good about our position and our relationship with our agents has never been stronger. So, yes. Jon Paul Newsome: Should we expect further price adjustments and rate adjustments for you folks in the future? Stephen Donaghy: We haven't kicked off our rate analysis at this point. So as we get ready to do that, we will analyze the past 12 months and see how that impacts. And I think as we continue to benefit from the legislative environment and our business, we will do the right thing by our shareholders and our partners. So we'll take that all into account and continue to do the right thing. Jon Paul Newsome: Maybe some thoughts on capital management. Obviously, given where the returns are accumulating some excess capital. How do you balance the various uses of that capital today? And should we expect further purchases as a focus or not? Or just maybe you could just kind of prioritize how you think about that. Frank Wilcox: Paul, this is Frank. I think we're going to stay the course. Our #1 priority with capital has always been to support the insurance entities, ensuring that they are adequately capitalized so that we can continue to produce the business that benefits the entire holding company system. That, combined with continuing to return shareholder value. Operator: Our next question comes from the line of Nicolas Iacoviello of Dowling & Partners. Nicolas Iacoviello: Congrats on the quarter. Could we just start -- I was wondering if there's any additional details or commentary you could provide around the outcome of your reinsurance renewal? Stephen Donaghy: Nick, thanks. I appreciate the comments. I think from the reinsurance perspective, we are very excited to be done and have it fully secured for 2026, '27. We were quite happy that we also extended our multiyear agreements. From a pricing perspective, we're going to sit on that until we get to May and release all the details as normal. We think it'd be premature for us to kind of make public comments relative to how we did, but we were very pleased with the market and very pleased with our partners for many, many years and how they treated us relative to this year. Nicolas Iacoviello: Got it. I know we'll see more details in May. But I mean, is there anything you could comment on how we should think about the retention? Is it fair to assume it would be similar on a GAAP basis versus prior year, and it would include some captive usage. I get, obviously, you'll have the opportunity to maybe buy down. But as it stands today, is that a fair assumption? Frank Wilcox: Yes. The retentions will remain the same for the insurance entities, $45 million. We plan to continue to use the captive in the same manner for the $66 million layer above $45 million for the first event. So structurally identical to last year. Operator: I'm showing no further questions at this time. I'll now turn it back to Steve Donaghy, Chief Executive Officer, for closing remarks. Stephen Donaghy: Thank you. I'd like to thank all of our associates, consumers, agents and our stakeholders for their continued support of Universal. Have a nice day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, and welcome to the Sensient Technologies Corporation 2026 First Quarter Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Mr. Tobin Tornehl. Please go ahead, sir. Tobin Tornehl: Great. Thank you. Good morning. Welcome to Sensient's earnings call for the first quarter of 2026. The I'm Tobin Tornehl, Vice President and Chief Financial Officer of Sensient Technologies Corporation. I'm joined today by Paul Manning, Sensient's Chairman, President and Chief Executive Officer. Earlier today, we released our 2026, First quarter results. A copy of the earnings release and the slides we'll be using during today's call are available on the Investor Relations section of our website at sensient.com. During our call today, we will reference certain non-GAAP financial measures, which remove the impact of currency movements, cost of the company's portfolio optimization plan and other items as noted in the company's filings. We believe the removal of these items provides investors with additional information to evaluate the company's performance and improve the comparability of results between reporting periods. This also reflects how management reviews and evaluate the company's operations and performance. Non-GAAP financial results should not be considered in isolation from or a substitute for financial information calculated in accordance with GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our press release and slides. We encourage investors to review these reconciliations in connection with the comments we make today. I'd also like to find everyone that comments made during this call, including responses to your questions, may include forward-looking statements. Our actual results may differ materially from those that may be expressed or implied due to a wide range of factors. -- including those set forth in our SEC filings. We urge you to read Sensient's previous SEC filings, including our 10-K and our forthcoming 10-Q for a description of additional factors that could potentially impact our financial results. Please keep these factors in mind when you analyze our comments today. We'll start on Slide 5 of the deck. Now we'll hear from Paul. Paul Manning: Thanks, Tobin. Good morning, good afternoon. Earlier today, we reported our first quarter results. We've gotten off to a very strong start to 2026, delivering 7% local currency revenue growth, 10% local currency adjusted EBITDA growth and 14% local currency adjusted EPS growth. These results exceeded our early expectations and position us nicely for the year. We continue to have particularly strong results from the Color Group, which delivered 12.3% local currency revenue growth and 13.2% local currency operating profit growth. Commercial activity around natural color conversions continues to be very strong and the momentum is building. Flavors & Extracts Group also had a solid quarter, delivering 1.7% low currency revenue growth and local currency operating profit growth of 5.1%. Asia Pacific Group contributed local currency revenue growth of 4.7% and local currency operating profit growth of 14.5%. Each of our groups has had a nice start to the year. During the first quarter, we generated strong new sales wins across each of our groups and our sales pipelines continue to grow to support our revenue expectations. While we are seeing particularly high win rates in natural colors, our innovative product portfolio is also fueling success in each of our other businesses. Our customer service levels remain exceptionally high. And despite a sluggish overall food market in many geographies, we believe we are well positioned to continue our sales wins success. As I mentioned on previous calls, the preparations for the wholesale conversion of synthetic colors to natural colors in the United States remains our priority and current strategic focus. We are not seeing any slowdown in conversion activity and I will reaffirm what I previously stated that the U.S. conversion to natural colors is the single largest opportunity in Sensing's history. We are continuing investments around the world to increase our production capacity and to optimize our product portfolio. We also are building, continuing to build a resilient supply chain to provide the botanicals necessary to produce natural colors and to support the needs of our customers in alignment with their launch dates. These investments will support and position us for our $1 billion natural color sales goal. We advance further with customers on application support, they are also confirming that while natural colors may cost more than synthetic options, the cost impact remains manageable since natural colors are still a relatively small part of overall ingredient costs in most product categories. First quarter had no shortage of newsworthy developments in trade, tariffs, and geopolitics. We are continually monitoring these situations, but would like to provide some information around the conflict in Iran. We do not have any significant operations in the Middle East, and we are working to mitigate any potential supply chain risks that may result from the overall increase in fuel and certain commodity prices. In past circumstances like COVID and the invasion of Ukraine by the Russians, we have proven our ability to adjust prices where necessary and to minimize our financial impact and any major disruptions to our customers. This continues to be my expectation with the war in Iran. Now turning to Slide 6 and our group results. [indiscernible] had an excellent first quarter, delivering 12.3% local currency revenue growth and 13.2% in local currency operating profit growth. The group's first quarter adjusted EBITDA margin was 24.4%, flat to prior year despite our increased investments in support of the natural color conversion opportunity, the group continues to sell technically differentiated products, control its costs, execute on pricing strategy and deliver quality new wins. We are starting to see an uptick in customer orders for conversion of their synthetically colored products in the U.S. and the pipeline to $1 billion continues to look very promising. I now expect the Color Group to deliver double-digit local currency revenue growth in 2026. Previously, I expected high single to double-digit growth. I continue to expect the natural color conversion sales to build as the year progresses. As the sales build, I expect profit leverage to improve as well. Profit leverage in Q2 and Q3 for the Color Group will be similar to the relationship in Q1. Overall, the Color Group got off to a tremendous start to 2026 and remains on a great trajectory, and I'm very excited about the future ahead of us. Turning to Slide 7. Flavors & Extracts Group saw local currency revenue growth in the first quarter of 1.7% and an increased local currency operating profit growth of 5.1%, the group's adjusted EBITDA margin was 17.2%, up 30 basis points versus the prior year's comparable quarter. The results exceeded our expectations in the first quarter. The group continues to optimize its cost and focus on new and defensible flavor wins, and these factors have fueled the favorable profit leverage. Overall, we expect Q2 to be similar to Q1 with strengthening revenue and profit performance as we move through 2026. Now turning to Slide 8. Asia Pacific Group had a nice rebound in the first quarter, delivering 4.7% local currency revenue growth and 14.5% local currency operating profit growth. The group's adjusted EBITDA margin was 26.1%, up 220 basis points versus the prior year's first quarter. Overall, the Asia Pacific Group got off to a substantially faster start than we anticipated and is set up nicely for the future. The regional demand constraints that the group has experienced over the last few quarters improved in Q1. Plus, we generated strong new sales wins. Pending resolution of the Iran war, I continue to expect improvement throughout the year with greater sales and profit improvement in the back half of 2026. Now turning to Slide 9. Regarding our full year guidance, we are increasing our local currency ranges for the year. We now expect our local currency revenue to be up high single to double digits. Our previous guidance was for mid-single to double digits. We now expect local currency adjusted EBITDA and EPS to grow at high single to double-digit rates. Our previous guidance called for mid-single digit to double-digit local currency adjusted EBITDA growth and mid-single to high single-digit local currency adjusted EPS growth. On the capital allocation front, we still expect consolidated capital expenditures of $150 million to $170 million in 2026 to ensure that we are prepared for the forthcoming natural color conversion activity and that we can achieve our $1 billion sales goal. As I mentioned last quarter, we expect to spend between $225 million and $250 million on natural color capital over the next couple of years. We continue to anticipate an increase in our natural color working capital and maintain our goal of significantly improving our ROIC to the mid-teens over the next few years. Beyond capital expenditures, we will continually evaluate sensible acquisition opportunities, but we do not anticipate any share buybacks at this time. Now before I turn the call over to Tobin, I'd like to provide some information on a couple of our innovative technologies shown on Slide 10 is some information about 2 of our popular natural color platforms. Avalanche is a global portfolio of clean label alternatives to titanium dioxide. We're also showing a range of extrusion stable natural colors that are ideal for use in production processes utilizing high heat or pressure. Titanium oxide is a whitening agent commonly used in baked goods, frostings confections and makeup applications. In recent years, there has been a growing demand from our customers to remove titanium dioxide from their products. This demand has been driven by bands or regulation changes across the globe. It's quite difficult to replace TiO2 due to its exceptional performance characteristics and cost effectiveness. Our Avalanche portfolio addresses the market need for white products and is designed to best match the performance of titanium dioxide. The portfolio is robust and continues to grow as new technical application challenges arise. Next, I'd like to highlight our extrusion stable natural color offerings. They have been developed for maximum stability and performance in high heat or pressure process. For example, extrusion is commonly used to make breakfast cereals. Several large retailers and CPG companies have made announcements about their commitment to rapidly remove synthetic dies from this category and therefore, remains a priority for us. You'd like more information on any of our natural color technologies, please visit our website. Since 2019, the company's local currency adjusted revenue compounded annual growth rate is approximately 6%. Our growth in the first quarter is above that historical rate, and I'm quite pleased with the trajectory we are on for 2026 and beyond. I'm excited about the growth opportunities within each of our groups. Our pipeline for natural color conversions continues to build, and I'm pleased with our progress toward our overall revenue goal. We believe long-term investors are well positioned to benefit substantially from our execution. We will continue to emphasize investment in research and development, production capacity and a resilient supply chain in order to be ready to support our customers. The growth we are experiencing is a direct result of the execution of our long-term strategy seizing the opportunities in the markets in which we operate. I remain optimistic about 2026 in the future of our business. Tobin will now provide you with additional details on the first quarter results. Tobin Tornehl: Thank you, Paul. In my comments this morning, I'll be explaining the differences between our GAAP results and our non-GAAP adjusted results. The adjusted results for 2025 remove the cost of the portfolio optimization plan. While we do not have any portfolio optimization plan costs in our 2026 first quarter results, we believe that the removal of these prior year cost produces a clear comparative picture of the company's performance for investors. This also reflects how management reviews the company's operations and performance. Turning to Slide 12. Sensient's revenue was $435.8 million in the first quarter of 2026 compared to $392.3 million in last year's first quarter. Operating income was $66.7 million in the first quarter of 2026 compared to $53.5 million of income in the comparable period last year. Operating income in the first quarter of 2025 included $2.9 million, approximately $0.05 per share of portfolio optimization plan costs. Excluding the cost of the portfolio optimization plan in the prior year, adjusted operating income was up 12.2% in local currency in the first quarter of 2026 compared to $56.4 million in the prior year period. Interest expense was $7.9 million in the first quarter of 2026, up from $7.3 million in the first quarter of 2025. The company's consolidated adjusted tax rate was 24.9% in the first quarter of 2026 compared to 25.3% in the comparable period of 2025. Local currency adjusted EBITDA was up 10.4% in the first quarter of 2026. Foreign currency translation had approximately a $0.06 benefit on EPS in the first quarter of 2026. Turning to Slide 13, cash flow used in operations was $14 million in the first quarter of 2026. Capital expenditures were $29 million in the first quarter and as Paul indicated, we continue to anticipate our capital expenditures to be between $150 million and $170 million for the full year of 2026. Our net debt to credit adjusted EBITDA is 2.4x as of March 31, 2026. As we communicated last quarter, we expect higher investments in inventory throughout the year to prepare for increased natural Color Conversion revenue. That is expected to increase further with our leverage ratio entering the upper does later in the year. Overall, our balance sheet remains well positioned to support our capital expenditures, sensible acquisition opportunities and our long-standing dividend. As Paul indicated, we continue to invest in our natural color production capabilities and capacity. These investments will remain elevated for the next few years, and we expect to drive favorable volume and profit growth for years to come. Turning to Slide 14, revisiting our 2026 guidance. Based on our first quarter results, we now expect our local currency revenue to be up high single to double digits. Our previous guidance was for mid-single to double digits. We now expect local currency adjusted EBITDA in EPS to grow at a high single to double-digit rate. Our previous guidance called for mid-single to double-digit local currency adjusted EBITDA growth and mid-single to high single-digit local currency adjusted EPS growth. We continue to expect acceleration in revenue and EBITDA growth in the second half of the year. We expect our second quarter interest expense to be approximately $9 million and we expect our second quarter adjusted tax rate to be approximately 25%. Based on current exchange rates, we still expect the impact of currency on EPS to be immaterial for the year. Thank you for participating in the call today. We'll now open the call up for questions. Operator: [Operator Instructions] And the first question will come from Ghansham Panjabi with Baird. Ghansham Panjabi: Paul, it sounded like the first quarter came in, but then you thought. Just maybe give us a bit more color upon intended, I guess. And what drove that? Was there just faster conversions of customers? Was there a bigger contribution from load-in benefit as it relates to inventory build, et cetera? Just give us a bit more perspective on that. Paul Manning: Well, the simple answer is we got more wins than we thought. -- not only natural color wins in the general business, the base business, but also more natural color conversions than I had anticipated. So that would be one. I think we saw a nice set of wins out of Asia Pacific. And in addition to that, we didn't see as much of that tariff distortions that I was sort of concerned about on the last call. So that ultimately moderated a bit as well. And then in flavors, again, new wins, I think was the driving factor there. I mean price is sort of on the low single-digit side of that 7% overall consolidated revenue that came in, in line with what I had anticipated. But yes, the short answer is wins. Ghansham Panjabi: And then it relates to the cadence of growth in that segment as the year unfolds. I mean, obviously, a very strong start to you don't have full control in terms of business wins, et cetera, but presumably, you have some view on backlog, et cetera. How should we think about the cadence of that as it relates to 2Q through 4Q specific to your overall guidance for that segment? Paul Manning: Well, I think overall, Q2 will look pretty similar to in fact, in each of the groups. I'd like to see a little bit more top line out of flavor you'll see that in Q2 and as we go through the year. But yes, I think there'll be some on the Color Group side of things. Barring some unforeseen larger conversions than I would tell you that I see right now, Q2 should look a lot like Q1 and then, of course, we would expect to see more and more of this building as we get into the back half of this year and certainly as we get into 2027. I think right now, with customers, many of them are getting into the phase of, okay, they've done a lot of the reformulation work, if not all of the reformulation work. And then it's a matter of getting the rest of their ducks in a row, whether it's consumer test marketing regulatory reviews, aligning their production plans, scaling up these products, preparing for their eventual production of the natural colors. I think now we're getting into the phase where we may get a little bit more clarity from some on launch dates. But I think here, again, the short answer Q2 will look a lot like Q1. Q2 will look fairly similar to Q2 and Q1, but I think Q4 is where you'll see perhaps a more decided inflection point in natural colors. But I think ultimately, for the year, yes, we feel really good about where we are for each of the groups in terms of what they should deliver. Ghansham Panjabi: And then just 1 final one. On the TiO2 opportunity set, can you sort of frame that for us as it relates to how big that is in terms of the addressable market, et cetera? And is that part of the $1 billion sales threshold that you're focused on in terms of natural colors? Or is that separate from that? Paul Manning: Yes, that's a great question, I would tell you that, that may be the single most challenging program, but the irony of that is titanium dioxide from a regulatory standpoint is actually considered natural colors. So I hadn't contemplated that in the $1 billion, but if I'm getting the $980 million, I need a little push over the edge, I may count that on, but I'll let you know about that. But no, I think this is 1 of those that -- and you'll see more and more of this, too, right? As you convert to natural colors, there will be the next wave of regulatory expectations, right? So titanium dioxide is 1 of them. We've been working on this for a number of years. This came out really, Europe was first in sort of decrying the use of titanium dioxide, not only in food products, but also personal care products. And then the U.S. has sort of followed in the wake of that. It's I would say it's a conversion that's a little bit more in its infancy compared to the broader based natural color conversion -- but no, I think this could be a nice add-on, but I have not factored that into the $1 billion. Operator: Next question will come from Josh Spector with UBS. . Joshua Spector: I wanted to follow up just on just on the COLORZ growth, I'd just be curious, where is your confidence at today versus 3 months ago around the time line I mean a lot of investors are concerned that things could slip because your customers will be facing a lot of cost pressures in different areas. So obviously, 1Q was good. You're talking about new wins, but the stuff you thought would convert and move in the second half -- is that going faster or slower? Like any details there to help us understand the cadence would be helpful. Paul Manning: Josh, I pay attention to the time line very much the macro level, right? The expectation -- there are 2 really key dates here that I think the market has been moving towards January 1, 2027, which is essentially the Walmart deadline for having natural colors in its brand names throughout its stores in the U.S. And then the other noteworthy time frame that folks have been honing in on a January 1, 2028. So I think largely, customers remain on track with those. I'm very exceedingly confident. I think my confidence where with versus 3 months ago, I'm still very confident. I don't see -- I talked to a lot of customers. We're dealing with just about any customer you've heard of, you could say, -- we've got a vast pipeline across big customers, middle-sized customers and small ones. And so we can say this with a great deal of authority, there is no slowdown at any of these customers. And there is no deviation from, well, maybe I won't do this, maybe I will, said by no 1 that I've interacted with in the last 6 months. And so I think that the organizations are committed. You can go to the FDA website. I think there's a couple of dozen household names that have pledged this already on the FDA and to the American public that they will do this. So yes, I continue to remain very confident. Now what is the precise distribution of do we get 5% this month and 8% in the next month. Yes, that one's a little bit harder and quite frankly, possibly even unknowable to a large degree. But I think that customers are honing in on their launch date. Bear in mind that some of these brands have dozens, if not more than 100 products that they're attempting to convert that's a massive undertaking. These are all new launches. They require new packaging. They require new formulation, production scale-up. In some cases, customers need to implement capital in their plants to process it differently. So a lot of moving parts. So customers aren't being reluctant and they're not well. Maybe I'm not going to do this. No, they need to do it right and that takes time. And so we should not expect some massive conversion in these very early days. I think we're pacing very much at the pace that I would expect, and it's one that would accelerate as we get, again, closer to these deadlines because every customer that I have evaluated and spoken to, and there's a lot of them, they're very committed to this. Joshua Spector: I did want to ask on margins and colors. I mean if I go back to last call, you were talking about the year margins being down about 50 basis points. You were flat in first quarter. It sounds like from your comments earlier, you're thinking you're maybe flattish in 2Q, 3Q, corrective if I'm wrong, and you sound like you're up in fourth quarter. So are margins up there? And just what does that mean in terms of the OpEx investments? Is that embedded in there through the year? Is that slower and I'll throw 1 more if you're able to quantify what those OpEx investments are that you're going to grow into next year, that would be helpful as well. Paul Manning: Yes. So EBITDA we were flat for the quarter. As I noted in the comments, that's a bit better than I had anticipated. Really the moving parts here are you mentioned it, the capital expenditures -- and when, as I like to say, metaphorically, the little green light goes on, which is to say the equipment is up and running and producing product, and now you're depreciating it. So that is a variable. And then you're balancing that variable with you've got ongoing investments to ensure that we have the right personnel in place and we have the right engineers and we're doing the right testing and a lot of the other R&D and applications and processing engineering that goes into these conversions, right? So we made a lot of those investments. So that's a second factor. And then you're balancing that with the inflow of revenue. And so if the capital is done before the sizable revenue comes in, which I'm not particularly -- that I don't have a problem with that. I'm okay with being early on capital. So that's where you may see a little bit of a headwind on that leverage. But in instances, our customers maybe move a launch to the left or a bigger launch happens, then that would balance a lot of that expenditure out and therefore, provide a little bit of a tailwind to the EBITDA margin. So I think net-net for the year will be flattish on the EBITDA in the Color Group. I would expect us to be up in Asia. I would expect us to be up in flavor for the year. But color -- you got the variables, you're exactly right. And it's just a matter of how does the revenue flow and how do we progress along with our investments. And again, it may be a quarter or so that were early by. And I would consider I would be thrilled I was early on capital implementation, I had a bunch of folks sitting around waiting for products to come in. I can't think of anything more exciting in this moment than something like that. Operator: Our next question will come from Larry Solow with CJS Securities. Lawrence Solow: Paul, congrats to the year. So I guess, just kind of set the way I just ask those questions another way. Obviously, the quarter was a little bit better across segments, but in college to and the margin was a little bit better. It feels like and I think you're adjusting your margins a little bit. I guess, flattish on color side, you expect a little bit of a pressure, I think, last quarter. So is the change, basically, it sounds like revenue is a little bit faster coming in conversions are a little bit faster. No change on the expected investment this year. Is that kind of a good way to summarize what's happening in collars just for the year? Paul Manning: Yes, I think that's about right. Yes, revenue was a little bit better than we thought, and I think that -- and that went a long way. I think that going back to the previous question, yes, I think some of this is it's all about the timing. And so again, you may have a quarter where it's not such a smooth slope on some of these variables. But yes, you're absolutely right. I think we did better than we thought. And so therefore, the EBITDA was not down as I had thought it might be. It was more flat. And yes, I think that's a real positive outcome. I think it's indicative of a couple of things, though, too, right? not only wins, but it's high quality wins. And I think one of the things that I've talked about over the years, the point among many that distinguishes Sensient's is that we really pursue those natural color opportunities that are very strongly performance-based applications. Natural colors are exceedingly challenging in most formulations. But in others, it's a little bit more mundane, and then those are the ones that we tend to perhaps spend a little bit less time with. And so when you focus on the more technically challenging, those tend to be I suppose, more positive on the gross margin front than, of course, the more mundane. So I think the mix is going to continue to play a good factor here. And I think perhaps in my own mind, the mix was a bit better than I thought it would be right out of the gate in Q1. Lawrence Solow: I appreciate that. And just like on the more kind of hard to call it long term because it's only a couple of year outlook, right, where you give -- you have the January 1, 27 and more importantly, that's for Walmart, which I know is a nice percentage of just products in the United States. But January 28, obviously, is the kind of deadline or soft deadline. Clearly, I don't think you expect everybody to be able to convert, right, just impossible. So I'm just curious, are companies getting more competitive, more maybe not anxious, but just trying to solidify their plans sooner than the next guy because it feels like it's going to be a little bit of a game of musical chairs in terms of if the full supply chain is not ready for the conversion. Maybe only some could convert. I'm just trying to get any kind of color on tenant on just how that's progressing as you get kind of closer to these dates. Paul Manning: Yes. I would tell you that the bulk of the activity is going to be in 2027, but a significant amount of the activity, as you just saw here in Q1 is going to be here in 2026. So I gave you some of the factors that may impact the timing of these launches. But there's also the phenomenon of competitors, right? So if a competitor in this category converts to natural colors, and he does it sooner than his competitor would. You could expect that is competitor may want to more rapidly move in that direction as well. There is ultimately in markets, what I like to refer to and you can read about this one, too, there is a tipping point. There's a critical, critical mass of activity maybe it's 20%, maybe it's 30% of a market that it moves in this direction and then it moves very rapidly towards the end of -- and so part of what we're preparing for is that possibility that it may start off where you get 10% and 15% is converted and then you get up to about 20% and then it moves very rapidly in that direction. Now whether you want to call that a tipping point or just folks all pursuing the similar deadlines, one way or the other, I think everybody gets there. But yes, you're right. This is a matter of guiding your customers like, hey, folks, you can't all convert in Q4 2027, and you don't want to either -- so I looked at a customer's launch plan just the other day, and they had it all kind of metered out over the course of the year, this product category here and this product there and right? So I think customers are really forming these plans up very, very, very nicely. And they've got a lot of risk in terms of their timing, they need to achieve their deadlines as well. So Yes. I think the more we go into this direction, I mean, eventually, it just has to happen by virtue of the expectation of the market. But I think you may -- you could see more dramatic conversions sooner than we had thought because of some of that competitive activity when your competitors do it, and you're not, that's not a good thing for you and being a CPC competitor. So that remains to be seen. That's a bit of an uncharted territory, but then again, that's why we're like -- we're hitting it hard, Larry, on capital. We're hitting it hard on the supply chain. We are hitting it hard on stress testing this business, right? So I think we're going to be ready. Lawrence Solow: Great. Now I could just slip one more. Just I think a few weeks ago, I think just my question is more on the FDA and just their activity or their involvement. I know a couple of weeks ago, think they delayed some approvals of -- I think they were more genetically engineered natural colors. So potentially, these were competing products that you probably wouldn't want to be approved either but -- and I guess there engineered is maybe not "natural" -- but I guess my question is, is the FDA just getting more involved putting on with the natural and the involvement of the evolvement of natural colors or is it still more just -- I know they put out these recommendations and at all last year. I'm just curious if that was more of the -- just curious what's going on the FDA side and the supply chain. . Paul Manning: Yes. So Colors is -- let me start with 100,000 feet, and I'll tell a little story here, just to give everybody on a line a little bit of background. At 100,000 feet, colors are ingredients that have to be approved for use in food. So you may have heard other terms like grass. This is under a lot of controversy right now and in some corners, but Colors actually had to go through a full throttle, full throated, whatever you'd like to say, approval process with the FDA. And this approval process could entail tox studies, it could entail any number of tests, lots of data, ultimately a lot of time and money to get a color approved in the United States. Now -- what has happened over the years is many have been approved. There are many approved, but there will be more and more that will get approved in the future. Now sometimes these approvals it may be the use of this natural red, and I'm going to get it approved for use in soda, but it's not approved for use in candy. That may be a separate set of testing and evaluation by the FDA. So -- when you look at these approvals, you have to note what applications in food that they are approved for -- and so it's a very, very interesting process. It's very unique. It's very unique, and I would almost argue exclusive to colors that every 1 of these has to be approved by the FDA. So along the line, right, and you're seeing a lot more activity. So to your question, is the FDA more involved, yes, because there's a lot more, what they call, petitioning to use a new natural color in the market. And so from time to time, or at least maybe the one you're referring to, there was a beat route that was being challenged. -- sometimes entities may challenge the use of that natural color in a segment or they may challenge the name of that natural color that may challenge some other facet of the approval at the FDA. I wouldn't consider this to be unusual to any great degree. Long story short, there's a lot of natural colors that are approved. We've got a good toolbox that we can work from. But it's not a complete toolbox -- and so we very much get involved with the FDA on submitting raw materials that we could use for Colors as well. So very much a very active process right now for sure. And that's all public information. So if you ever wanted to go and check that out, you could see what's actually in the FDA's funnel on natural colors. Operator: [Operator Instructions] Our next question will come from Nicola Tang with BNP. Ming Tang: First one is a quick simple one. I was wondering if you could give us an update on the revenue related to the conversion of synthetic colors, I think [indiscernible] quarter, you're at about $5 million. Just wondering if you hear an update as of this quarter. Paul Manning: Sure. So yes, just to recap for everybody else on the line here. So couple of numbers we talk about, right? We talk about our $1 billion sales goal and that's derived from -- we have about $100 million of synthetic colors, and we think that will convert at about 10 to 1. So there's $1 billion is what we're chasing. The back half of last year, we invoiced specific towards that goal, this natural color conversion, about $5 million. That was what was invoiced. Now when you take that back half and you take Q1 of this year, now we've invoiced about $20 million or so towards that goal of natural colors. So stated in a different way, you look at the colors growth was about 12%. You can do the math here, but about half of that was the base business just continue to do really well. And the other half was this incremental derived from these natural color conversions. But order of magnitude over the last 9 months, it's been about $20 million of invoiced in natural color conversions in the U.S. Ming Tang: That's great. Second question, I just wanted to ask a bit more about the reported EPS guidance. Just thinking more in absolute numbers. So at the midpoint, you're upgrading your EPS guide by about $0.10. But the beep actually, when I look at Q1 versus certainly consensus expectations is more like $0.20 -- so actually, to me, it looks like although you've upgraded your guidance or of the metrics, it's actually an implied downgrade on the rest of the year. So I was wondering if you could help me, am I misunderstanding or are there reasons why your maybe there was some pull forward in Q1 or maybe you're taking a more cautious outlook been just general macro in the Middle East, as you mentioned. Just wondering if you could help me understand the new EPS finance. Paul Manning: Okay. Let me -- I'll give the first part of SAB, and then I'll turn it over to Tobin. He loves this question. So EPS -- so yes, we raised our guidance. And I always like to start with revenue, we've got a very strong ability to control that figure, right? -- customers may delay a launch or move a launch or they may do this or that. But in general, across an organization, this large -- we like to think we have a strong control over revenue, and we can predict that fairly well. [indiscernible] EBITDA. And so you see a nice raise on each one of those. As you get below EBITDA, that's where you then start to have to factor in things like interest and tax and then things we don't control like FX and other potential below the EBITDA line factors. And so that's where the EPS figure can get somewhat separated from the net leverage that you see between revenue and EBITDA that you therefore expect on EPS. So I think in short, interest is up substantially, and I'm going to let Toby answer that. But there's a couple of other factors in there, too. You can. Tobin Tornehl: Yes. I think -- and we kind of talked about it a little bit in our prepared comments, but through interest was up in the first quarter of $7.9 million versus $7.3 million last year. And we expect that to continue throughout the year, given the investments that we're making in natural colors. From the capital. And then as Paul mentioned, from people and R&D and everything. So we expect our overall interest expense to be up about $6 million throughout this year and that will progress on a quarterly basis as we kind of move forward. So you have that increasing. Our leverage ratio right now is about 2.4. In our comments, I mentioned, we expect that to climb as well as our debt increases throughout the year. So we'll be in the higher 2s from that point. tax rate, we're about 25% in the first quarter. We're guiding for 25% this next quarter and roughly about 25% for the year. So you have those components was a benefit. As I mentioned in the prepared comments, about $0.06 in this first quarter. Exchange rates are all over the place right now given what's going on in the world. I would say that in the back half of the year, that would become more of a headwind. But overall, FX should be about immaterial when you look at it for the year. So -- when you look at it, we did increase our EPS guidance from where we were in Q1. So right now, we're at high single-digit growth and double-digit growth. So that's kind of where we are at this point. Ming Tang: And then just going back on the previous -- you answered the previous question, I was just reflecting on it. When you said 20 million invoiced -- is that with reference to the EUR 100 million revenue synthetic revenue or the EUR 1 billion overall revenue opportunity? Tobin Tornehl: The $1 billion. . Ming Tang: And then the final question would be just around raw materials. You mentioned you don't have significant direct exposure to Middle East, but I think there's a general view that input inflation there may be more input inflation, particularly on the synthetic side. I was wondering what you're expecting in terms of inputs this year? And are we mainly talking about synthetics? Or should we be thinking about certain naturals within your supply chain, which are either sourced I don't know from the Middle East or from Asia or something where there might be a potential disruption either in terms of cost availability? Paul Manning: So in short, we believe that there is a sufficient amount of inflationary inputs that we're going to need to take pricing to address that. This would be sort of low single-digit magnitude. So not unlike again, where we've done this in other instances of tariffs and wars and pandemics and the like. We would anticipate taking pricing there. The biggest factors here, there's certainly the logistical inflation substantially derived from energy and petroleum more specifically. So we face that. . There's an impact of packaging as many of those raw materials have petroleum-based in inputs. And then of course, as many in the media are fond of saying, petroleum-based synthetic colors, of course, therefore, you realize that a couple of those synthetic colors are indeed derived. Of course, then again, many things in nature are derived from that as well. But that aside, we would expect to see more on the raw material side of synthetic colors for food and for personal care that we would need to address. For natural colors, it would come sort of fertilizers and other input costs we see rising. So those would have an impact on natural colors. But a lot of these costs for harvest are built into the next year's harvest often time. You hear me talk about that with our raw materials or with our agricultural business. So in short, there's many of these different factors, but I think we can address this, and we will address this with a modest amount of price increase that we would expect to give principally focused in synthetic colors for food and personal care, but also anything related to logistics, which is effectively all in down and outbound freight. And then, of course, a couple of other -- you'll hear propylene glycol is another one that's been heavily impacted by the war. So that's how we kind of see it playing out right now. And even if the war were to stop, there's still a sufficient enough backlog in other sources of a nurture here that the inflation is coming if it hasn't already, and so we're going to need to address that. Operator: The next question is a follow-up from Joshua Spector with UBS. Joshua Spector: Just a small follow-up and actually related to what you were just talking about, is just as you look at your 2Q guide, are you baking in anything in terms of a negative impact from transport logistics loss, et cetera? Or are you assuming your pricing offsets that more or less in real time? Paul Manning: I'm not assuming any bad, and I'm not assuming any good. So I didn't assume the inflation because at this point, it's fairly modest and some of it is, quite frankly, deferred. But I'm also not assuming any pricing in Q2. either from a guidance standpoint. Operator: And that concludes our question-and-answer session. I would like to turn the conference back over to Mr. Tornehl for any closing remarks. Please go ahead. Tobin Tornehl: Okay. Thank you for your time today. That concludes our call. If you have any follow-up questions, please feel free to reach out to the company. Have a great weekend. Operator: The conference has now concluded. You may now disconnect.
Operator: Good day, and welcome to the Ameris Bancorp First Quarter Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nicole Stokes, Chief Financial Officer. Please go ahead. Nicole Stokes: Thank you, Bailey, and thank you to all who joined our call today. During the call, we will be referencing the press release and the financial highlights that are available on the Investor Relations section of our website at amerisbank.com. I'm joined today with Palmer Proctor, our CEO; and Doug Strange, our Chief Credit Officer. Palmer will begin with some opening comments, and then I will discuss the details of our financial results before we open up for Q&A. But before we begin, I'll remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties. The actual results could vary materially. We list some of the factors that might cause results to differ in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements as a result of new information, early developments or otherwise, except as required by law. Also during the call, we will discuss certain non-GAAP financial measures in reference to our performance. You can see our reconciliation of these measures and GAAP financial measures in the appendix to our presentation. And with that, I'll turn it over to Palmer for his comments. H. Proctor: Thank you, Nicole. Good morning, everyone. We appreciate you taking the time to join our first quarter call. I'm proud of our performance to start the year, primarily from three things. First, we operated at a high level of core profitability with an ROA above 1.60%, PPNR ROA at 2.30% and our return on tangible common equity of almost 15%. Second, we experienced good growth in loans, deposits, earning assets and revenue. And third, we actively managed our capital by repurchasing 1.4% of the company in the quarter at about a 7.5% discount to yesterday's closing price. In addition to those 3 positives, I want to revisit something I said on our first quarter call last year. I said we were focused on enhancing revenue generation and positive operating leverage. And once again, we executed on our plan compared to the first quarter of 2025, our quarterly revenue is up 10%, with expenses up only 4%. That's about a 21% efficiency ratio on our growth due to our focus on efficient organic profitable growth. More specifically, on an annualized basis, we grew loans and deposits by 5% to 6%, along with earning assets at nearly 10%. Revenue increased 9.5%, driven by an uptick in fee income, which represented a strong 22% of total revenue for the quarter. Our continued focus on expense discipline across the company results in an efficiency ratio of just under 50% despite some seasonal revenue and expense headwinds in the first quarter. Our net interest margin expanded 3 basis points to 3.88% in the quarter and remains well above peer level. Loan production was $2.2 billion in the first quarter, a 45% increase over first quarter last year. Our loan pipeline remained robust at $2.8 billion. On the deposit front, we continue to focus on core granular deposits and relationship banking with total deposits up 5% annualized in the quarter. Our noninterest-bearing deposits grew $323 million in the quarter recapturing some of the seasonal decline of last quarter. Our noninterest-bearing deposits returned to 30% of total deposits, and we have minimal reliance on brokered funds. We increased our capital return in the quarter by repurchasing $75 million or 1.4% of shares outstanding, which is the highest level of buybacks we have had in any 1 quarter. Capital levels remain robust with CET1 finishing at roughly 13% and our TCE ratio slightly above 11%. These capital levels position us well for any type of environment. Credit quality was stable. Our 1.62% reserve was unchanged and both net charge-offs and non-performing assets, excluding government-guaranteed mortgages, improved modestly in the quarter. CRE and construction concentrations were relatively stable at 265% and 46%, respectively. Overall, we remain well positioned for future growth, and this growth should be positively impacted by the continued disruption in our Southeastern footprint. I'll stop there and turn it over to Nicole to discuss our financial results in more detail. Nicole Stokes: Great. Thank you, Palmer. So we reported net income of $110.5 million or $1.63 per diluted share in the first quarter. Our return on assets was 1.62%. Our PPNR ROA was 2.3%, and our return on tangible common equity was 14.75% for the quarter. Our tangible book value increased to $44.79 and that's about 12.5% higher than a year ago. As Palmer said, capital levels remain robust, and we were notably active in our share buybacks during the quarter, repurchasing $74.9 million of common stock or 950,400 shares at an average price of $78.76. Combined with our full year 2025 share buybacks, we've repurchased just over 3% of the company over the last 5 quarters. Our remaining share repurchase authorization was $84.3 million at the end of the first quarter. Our net interest margin expanded 3 basis points to a strong 3.88%. The expansion came from 6 basis point positive impact on the funding side, more than offsetting the 3 basis point decline from the lower asset yields. Our margin level is well above peer and it's 100% core without any purchase accounting accretion from M&A. Our asset liability sensitive is effectively neutral and has really served us well through this macroeconomic environment. That said, we do anticipate we could have some slight margin compression over the next few quarters, and that's really due to pressure on the deposit costs as we fund our balance sheet growth. We believe the margin could decline a few basis points per quarter, probably 5 to 10 total basis points lower over the next few quarters. But we will continue to focus on growth in net interest income, both through earning asset growth and margin management. Non-interest income increased $8.1 million this quarter, mostly from better mortgage fees as well as an increase in our equipment finance fees. Total non-interest expense increased about $14 million in the quarter, partially driven by seasonally higher compensation costs, specifically higher payroll taxes, 401(k) matching expense and incentive accruals. Comparing cyclical first quarters, our efficiency ratio this year was 49.97%, an improvement from 52.83% first quarter of last year. This improvement was driven by the positive operating leverage as year-over-year quarterly revenue growth was $28.5 million, and our expense growth was only $6 million for that same period. Going forward, I anticipate the efficiency ratio to be slightly above 50% for the rest of the year. During the quarter, we recorded $16.6 million of provision expense, annualized net charge-offs this quarter decreased to 21 basis points. We continue to anticipate net charge-offs in the 20 to 25 basis point range for 2026. Our reserve remained strong at 1.62% of loans, the same as last quarter and overall asset quality trends remain strong with non-performing assets, excluding government-guaranteed mortgages and net charge-offs down in the quarter and both classified and criticized remain well below peer. Looking at our balance sheet. We ended the quarter at $28.1 billion of total assets compared to $27.5 billion at year-end. Earning assets grew $607.8 million or 9.7% annualized as we grew both the loan book and the bond portfolio. Loans grew $314.5 million or about 5.9% annualized. And as Palmer mentioned, our loan production and our pipelines remain strong. The real big win for the quarter was our core deposit growth. Deposits grew $261 million or 4.7% annualized, and that was really strong growth in both our consumer and commercial customers of $547 million. As expected, we had the seasonal outflows of about $430 million of public funds and our noninterest-bearing to total deposit ratio improved back up to 29.8% from 28.7% at year-end. We project our loan and deposit growth to be in the mid-single-digit range for the rest of the year. And as I previously mentioned, we expect longer-term deposit growth will be the governor on loan growth. With that, I'm going to wrap it up and turn the call back over to Bailey for any questions from the group. Operator: [Operator Instructions] Our first question comes from Will Jones with KBW. William Jones: So Nicole, I just wanted to start just with the margin. You guys have just perpetually continued to outperform your guidance and kind of outperform your expectations there, although the forward outlook, the messaging has really been the same that you kind of see a couple of basis point headwind just as it becomes more competitive to fund some of your growth, although it feels like that messaging hasn't particularly changed much either. So maybe just a backward-looking question, what has kind of differed from your expectations with that dynamic? And maybe more forward-looking, where are you seeing new loan yields today coming on just relative to new deposits? Nicole Stokes: Yes. Great question. So I'll start with kind of the look back. And we've said all of our guidance when we talk about our ALM modeling and where our margin guidance is going. We've said all along that, that had to do with some of our guidance we added was deposit pressure and also the funding and the mix of the deposits as we fund the growth. So where is the growth coming from? Certainly in the first quarter, something that really helped the margin was the deposit growth of the noninterest-bearing. So $323 million of noninterest-bearing growth absolutely helped the margin. And I understand that every quarter, I say that there could be some slight compression coming. But I did want to mention that our March -- for the month of March, our month of March margin was slightly below the 3.88% that we reported for the quarter. So we really do see they're kind of coming down a little bit in the quarter. In the future quarters, again, not huge amounts, but just some slight compression coming in, but we will continue to remain focused on the growth in NII and the profitability. And then when you talk about -- and I think the second part of your question was the loan and deposit production. And that feeds in exactly to the first part of the question. When we look at our loan coming on yields and production for the quarter versus our deposits, our loans -- it's still accretive when you take in all deposits. When you take in interest-bearing and non-interest-bearing, loans came in for the quarter, total loan production at about 6.13%. And and then total deposit production, including noninterest-bearing came in at about 1.90%. So that's still coming in at a positive accretive spread to margin. However, if you take out the interest, the noninterest-bearing and you look at just interest-bearing deposits, our interest-bearing total deposit production was at 2.74%. So as we don't continue to get that noninterest-bearing growth, the spread between loans and interest-bearing deposits are slightly dilutive to margin. It just goes back on how key that noninterest-bearing deposit growth is for us. William Jones: Yes. Okay. That's very helpful color. We like margin beats for what it's worth. I guess, unpacking that just a little bit more. If we think about an environment where we don't get rate cuts for the rest of the year, is it possible that deposit costs could actually creep up throughout the year, just as we think about this 5 to 10 basis point margin headwind that you kind of see? Nicole Stokes: So if rates stay flat -- there's a couple of moving targets there. Tactically speaking, we have all of our -- our retail CDs are all pretty short. We've got about 35% of our retail CDs that reprice or that mature in the second quarter. And those are coming off at about a 3.48% and you compare that to our first quarter production of 3.44%. So it's very close. I mean, new production was a little bit accretive compared to what is expected to come off. And then when you look at the whole book, 83% will mature the rest of this year. And that is about a 3.39% versus production of 3.44%. So there's definitely that tailwind that was coming in on CDs has certainly slowed, which is feeding into my guidance. So on overall deposit cost, a lot of that, I think, is going to be contingent upon competition. And on the loan growth and the opportunities that we have for loan growth, we are going to protect our core relationships and protect our customers, but we are definitely after the relationship not just a transaction. And so we like having noninterest-bearing included in -- we like the operating accounts for our loan customers as well. So that blend is really what's going to help keep our deposit costs. William Jones: Yes. Okay. That's great. And lastly, I just wanted to talk -- touch on fee income a little bit, particularly the equipment finance business. I feel like maybe we've underappreciated a little bit some of the growth that's happened there in that business and that revenue stream. Maybe if you could talk about any drivers or initiatives that you've taken there in that business? And then just what an appropriate growth rate for the equipment finance revenue stream is going forward? Nicole Stokes: Yes. So the equipment finance, we do like that business. And I think everybody knows that we've got that credit box where we like it. And so the non-interest income that comes from that, that's really service charges and some fees on those loans. We like that. We think that that's going to grow pretty commensurate with the rest of the balance sheet. They're actually down to about 6.9% of total loans. They kind of peaked out at about 7.2%. So I would consider the growth of the equipment finance to be in line with the growth of the rest of the company, and those fees should grow similarly to the loan growth. Operator: Our next question comes from David Feaster with Raymond James. David Feaster: I wanted to start. I appreciate your commentary on the deposits or the governor for growth, still targeting mid-single-digit growth. You've done a phenomenal job driving core deposit growth and funding growth with core deposits. Could you talk about the strategy to grow core deposits? And would you be willing to utilize more non-core funding to support growth if needed? And then just how the competitive landscape for deposits is playing into some of that? H. Proctor: Yes. I think, if you look at our investments and talent over the last several years, we focused a lot, as I've said before, on treasury management. That's been a huge help for us when it comes to operating accounts, payroll accounts. And obviously, we remain focused on just even consumer checking accounts. But that's kind of in our DNA. That's where our focus will continue to lie. Would we be willing to sacrifice some of that for growth? We would, for the right kind of growth. I mean, our growth will always be measured. We don't like erratic growth, but we will certainly remain competitive and capitalize on opportunities that come before us. So the answer to that would be, yes, we'd be willing to sacrifice some of that for future growth. David Feaster: Okay. And maybe just -- there's obviously been a lot of disruption across your footprint. Kind of a 2-part question, I guess. First off, how has that disruption impacted the competitive landscape in your footprint? And secondarily, have you seen much dislocation from any of this M&A yet? And is it on the client acquisition side or the hiring front, where are you seeing the most opportunities? H. Proctor: Well, our focus remains on the client acquisition side because as we've said before, we have the talent. We're very selective in the talent we have, and then we'll continue to obviously look at new talent. But in terms of our ability to execute on our mid-single-digit kind of growth, we've got everybody we need on board to do that. So our focus remains on the client. I think the benefit we probably have, David, is by being an overlap market with a lot of the disruptions going on and already having a present in those existing markets where you've got name recognition and you may potentially have -- already have some of the waller share, not all of it. I think that gives us a leg up over a lot of our competition that just doesn't have the same presence we had in some of those overlapping markets. So I view that as a potential accelerator for us where we're not having to introduce the bank. They already know the bank. And in some situations, we already have, as I mentioned, some of the business. Now, the objective is to get -- become the primary business and primary wallet shareholder. And so I think that's where you'll see our growth from the disruption continue to accelerate. But we clearly stay focused on the customer acquisition side, and that's where that focus will remain. David Feaster: That makes sense. And then you've got a lot of excess capital, you're continuing to generate a lot of organic capital. Wanted to get the thoughts -- I just want to get your thoughts on the regulatory relief here, specifically on the capital relief side. Have you done any work around what that could mean for you all, especially around the treatment of MSRs? Does that change your strategy at all? And then just how do you think about capital deployment? Obviously, the buyback has been a focus. Just kind of curious your thoughts on capital at this point. H. Proctor: Yes. Because we have so much capital right now in terms of the relief, it really doesn't change our direction at all. Because we're already well capitalized, especially when it comes to any efforts for growth. Our capital priorities will remain intact in terms of what the opportunities are. And first would be the organic growth that we stay concentrated on. Then, I do think that depending on the macro environment, if it presents opportunities, there's additional buyback opportunities perhaps. And then, third, you've got dividends, which we're pleased with where those are. And then last but not least would be M&A. But like we've said before, M&A is really not on our radar just because we've got so much opportunity in front of us, and we don't need to distract ourselves from the great organic opportunities that are in our disruptive markets. And Nicole, anything you want to add on that. Nicole Stokes: Sure. On the regulatory changes. So, I think the Fed has estimated that CET1 capital is probably going to fall by about 8% for banks and about an 8% reduction in risk-weighted assets. And our preliminary analysis shows that we're going to be very close in line with the Fed estimates. Operator: Our next question comes from Gary Tenner with D.A. Davidson. Ahmad Hasan: I'm Ahmad Hasan on for Gary Tenner here. First question on maybe loan growth trends. I saw that unfunded commitments increased. Can you comment on the pipelines and what we could potentially see in 2Q? H. Proctor: Yes. We remain obviously driven by our markets, and we were very encouraged by the start of the year. And more importantly, we saw robust pipelines throughout all the different verticals. It wasn't any 1 vertical. So that's more encouraging than anything to me in terms of diversification and opportunity. Any growth that accelerates or decelerates is really going to be driven more by the macro environment than it is anything internally here. Structurally, we're well positioned to capitalize on those tailwinds or headwinds. But I will tell you, we remain encouraged by the existing pipelines across the board. Ahmad Hasan: Got it. And maybe on mortgage banking income, it rebounded strongly despite lower production volumes and narrower gain on sale margins. Can you talk about the different puts and takes there and maybe outlook on that segment? Nicole Stokes: Absolutely. So when we look at fourth quarter, we had some seasonality in the fourth quarter. And so revenue was actually down in the fourth quarter is the anomaly there based on some wholesale versus retail mix. And so really, the first quarter was just a rebound back to normal profitability as we had expected. And then, I think that continues. The first quarter was a good strong quarter. Now a lot of that is dependent on rates and rate loss, but we are in good markets for the mortgage group. H. Proctor: In that sector, as you know, it's just so rate driven and tied to that 10-year. We did see an increase in apps, obviously, January, February when rates dipped. And then, of course, they rebounded backwards the other way. So it's primarily driven by the rate environment. Ahmad Hasan: All right. That makes sense. And maybe broadly, can you talk about your AI strategy and what that means for your expense levels and perhaps how that is impacting different contract negotiations with your vendors? Just trying to hear you. H. Proctor: Yes. I would tell you that AI here is more of an evolution than a revolution. And the way we look at it is utilizing it to build capacity, not so much to cut out expense. And so what we have done is spend a considerable amount of time looking through process here throughout the company, especially in some of our higher-volume areas and how we can create automation for that. And with that, you're going to build efficiencies. And with that, you're going to build capacity. So as the bank grows, we won't have to layer in additional expense. But that's the way we look at it. We don't look at it as a true cost-saving measure. We look at it as an ability to build capacity for the company as it continues to grow. Ahmad Hasan: Got it. That makes sense. Maybe just the second part of that question. Is it getting easier to negotiate contracts with your software vendors or... H. Proctor: Well, it is, it depends on the software. And obviously, the best part of AI is being able to utilize it to look through some of those contracts, and help you identify some opportunities. But yes, a lot of software vendors are getting very anti right now and trying to lock you in for longer-term contracts, which we're not a big fan of because technology changes so quickly. And the last thing you want to be is beholden to something that becomes antiquated in short order. So we are able to negotiate within reason, but they are becoming more aggressive on the other side, knowing that they need to lock in some of their customers in anticipation of disruption in their own world. So that kind of works both ways. Operator: Our next question comes from Russell Gunther with Stephens. Russell Elliott Gunther: Maybe just a follow-up on the expense question. Really great improvement year-over-year on an already stellar efficiency ratio. Nicole, you tend to level set us relative to consensus expectations for the year. So hoping you could weigh in there and then perhaps just address the cadence of non-interest expense as well. Nicole Stokes: Sure. So I think consensus right now is really a good number. When you look at kind of the 2025 actual and 2026 consensus, that's about a $35 million increase. And remember, fourth quarter was a little bit low last year. So it's about a 6% increase. And if you take in a little bit extra mortgage, I think that expense run rate looks reasonable. You kind of have a 4% to 5% increase in overall expenses, majority of that being salaries and benefits. And then you add in a little bit extra for mortgage, you can kind of get to that $30 million to $35 million increase. So that's kind of where I would guide. So I feel like consensus is good in that. I think it's running about $160 million, $162 million a quarter for the next 3 quarters. And then remember, second and third quarter is typically our cyclically higher quarters because of that extra mortgage expense. Russell Elliott Gunther: Okay. Excellent. And then a similar follow-up on fees. So I appreciate the comments around mortgage as well as the Balboa gain on sale. In the past, you've kind of helped us think about core fee income growth at the mortgage vertical. And so any insight there for the year would be helpful as well. Nicole Stokes: Yes. So -- and I apologize, I didn't hear. Did you say ex mortgage or for mortgage? Russell Elliott Gunther: Well, I'll take it, but I was really focused on the ex mortgage piece in particular. Nicole Stokes: Yes. So for the ex mortgage piece, I think that you can expect kind of service charges on deposit accounts to really kind of follow the growth of deposits. So if we're expecting mid-single-digit deposit growth, I would say, mid-single-digit service charge growth. And then same with equipment finance activity, I would say that the loan growth that, that fee activity should follow the loan growth for that group. So again, kind of mid-single digit as well there. And then other non-interest income, that really includes kind of our BOLI income, which is pretty stable. And then it also includes some SBA gains. And so typically, second and third quarter are a little bit higher than first quarter. But I think kind of tying it in consensus seems to have -- be really close, I think, to expectations. Operator: Our next question comes from Christopher Marinac with Brean. Christopher Marinac: Palmer and Nicole, I wanted to ask a little bit more about the deposits per account and the information you've given us now for several quarters. Probably $1 billion ago on deposits, you used to have interest bearing checking in the 80s per account. Now it's well over $100,000. And I'm curious, is that a reflection of change of behavior of your customers? Or is it that you're focusing on slightly bigger small businesses within the footprint? H. Proctor: I think it's -- what is a reflection of, is our customer base has grown, the existing customer base and then the customers that we're calling on, and a lot of customers, they just have more liquidity on their balance sheet. So I think that's really the primary driver of that differential. Christopher Marinac: And in terms of kind of net new accounts, the pace seems to have been kind of mid-single digits for a while, Palmers. Is that still something you're kind of looking at as a consistent piece going forward? H. Proctor: Yes. That is the objective. And when you look at -- especially our noninterest-bearing, we continue have been very pleased with not only the growth there, but also the unit growth, not just dollar growth. And the team remains laser-focused on that opportunity. And if you can lead with that opportunity and then follow with the loans, that's the preferred method. So many times, banks have historically led with the loans and a cheap rate on the loan and then ask for deposits. We try and turn that on its head and ask for the deposits and then consider doing a loan. But in competitive environments, that gets more and more difficult to do. Christopher Marinac: Understood. And then just a quick question on the mortgage business. Do you see the change in the rates in the past maybe 6 to 8 weeks? Does that impact at all profitability as the rest of this year, particularly in the seasonally strong Q2 and Q3. Does that play out any differently than you would have thought? Nicole Stokes: I think it came exactly as we expected. We knew that fourth quarter was a little bit low because of the mix and the first quarter came in. I think what was maybe a little bit better than expected was production, was a little bit better than expected because typically first quarter is a little bit cyclically slower. And it did drop a little bit, but it was coming off of a really strong fourth quarter. So we would have expected it to drop a little bit more than it did. So it was definitely a good quarter for mortgage. Christopher Marinac: And then looking into these next few quarters, do you think we could still use sort of past history as a reasonable guidepost for the moment? Nicole Stokes: I do. I think so. I mean, second -- I would say that first quarter, because it was seasonally strong. I think second quarter could be consistent with first quarter. And then depending upon what we see with the 10-year, there's certainly, I think, some pent-up demand if we get some movement. If not, then I think we're going to be similar to where we are for the first quarter. But people are -- and again, we're close to 90% purchased. So we're not a refi shop. So you're really going to -- our business is going to be consistent with just like events that people are moving and buying houses and that the tailwind for us could really be if rates come down, if we get kind of a refi boom later in the year. Operator: Our next question comes from Stephen Scouten with Piper Sandler. Stephen Scouten: I jumped on here a little late, so apologies if I'm hitting anything you've already covered. But Palmer, it feels like you've been pretty bullish about the organic growth opportunities in the bank for some time. What do you think it would take to get kind of above and beyond the mid- to high single-digit growth? Because it feels like the potential maybe is there for even faster growth, is it really just deposits? Or is there something else besides that, that you need to see happen to get maybe even stronger growth? H. Proctor: Well, the capacity is certainly there, but so much of that is driven by the macro environment. And -- the thing that we can assure the market is that if it's prudent to do so, we will hit the accelerator. I think right now, growth we're encouraged by what we see. But historically, we're accustomed to growing at double digits. And that's obviously where we would all like to get back to. But only if it's prudent to do. So while we like mid-single digits better than what historically the banks have seen over the last couple of years, we do hope that we can get back to higher single digits or double digits in general on a go-forward basis, but that's just going to be driven by the macro economy. Stephen Scouten: And then in terms of the pace of the repurchase from here potentially, how price sensitive would you guys be with the continued outperformance of the shares? And how should we think about excess capital? Is there a CET1 level you think about? Or is there a total payout ratio? What would be kind of the marker that we should look at there? Nicole Stokes: Yes. So our TCE target, we've kind of said around 10%, 10.5%. We're above that currently. And then our CET1, we've kind of targeted around 12%, and we're currently above that. So in our total risk base, we're targeting about 14% to 15%, and we're right in that at 14.8%. So all of that being said, we like where our capital is. When you think about the buyback, we were more aggressive. We've been more aggressive, and we doubled the buyback last October, and then we're aggressive. When we look at kind of balancing our buyback versus growth and how to utilize our capital, we could -- we have about $84 million left. So we could do the remaining $84 million, which would be the full $200 million buyback and have about 9% asset growth and keep our capital ratios pretty consistent to where they are today. We could do about $34 million more. So that would be about $150 million of the $200 million, so 70% of the authorization and do about 11% asset growth and keep our capital levels kind of flat. So I'm saying all that to say that I think you could see us being opportunistic, but we definitely felt we went pretty aggressive in the first quarter, knowing that, that kind of strategy and we have that runway in our capital numbers. Stephen Scouten: Extremely helpful, Nicole. And then maybe just last thing for me, maybe a more philosophical question here. I mean, you guys have been pretty adamant that M&A is very low on the priority list really not on the table or of interest today. But when you guys have run the bank so efficiently and are putting up such great returns, at what point do you say, hey, if we're putting up a 1.60% ROA, it'd be great to put that on a much bigger pool of assets? And does that philosophically drive any thoughts around M&A at some point down the line? H. Proctor: Well, for us, as long as that pool of assets is generated organically, we're fine with that. But in terms of M&A itself, it -- to your point, it's -- we have a high bar that allows us to be a little more discerning because most of the deals that are out there are obviously -- they're all dilutive to a certain degree. And then we look at -- our biggest priorities are deposits. So when you try and look for deposit-rich banks that could be accretive, it narrows down the playing field pretty quickly. And then furthermore, with all the opportunity in front of us, there's just very little interest in getting distracted with an M&A deal. So it remains low on our priority list. And now if we didn't have the organic ground game or didn't see the opportunity for growth, maybe you reconsider a step back or move it up the priority stack. But right now, we just don't see the benefit in getting distracted with that. Operator: This concludes our question-and-answer session. I would like to turn the call over to Palmer Proctor for any closing remarks. H. Proctor: Great. Thank you, Bailey. One of our key internal priorities for 2026 has been operating as 1 bank, 1 team and a commitment clearly reflected in our strong first quarter results. And I'd like to thank all my Ameris teammates for their contributions to this outstanding start to the year. Looking ahead, we're going to remain focused on controlling what we can control and driving profitable organic growth and top-tier performance metrics while enhancing shareholder value through continued growth in our core deposit base, and tangible book value per share. I want to thank you once again for joining our call. We appreciate your continued interest in Ameris. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Baker Hughes Company First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's call, Mr. Chase Mulvehill, Vice President of Investor Relations. Sir, you may begin. Chase Mulvehill: Thank you. Good morning, everyone, and welcome to the Baker Hughes First Quarter Earnings Conference Call. Here with me are our Chairman and CEO, Lorenzo Simonelli; and our CFO, Ahmed Moghal. The earnings release we issued yesterday evening can be found on our website at bakerhughes.com. We will also be using a presentation with our prepared remarks during this webcast, which can be found on our investor website. As a reminder, we will provide forward-looking statements during this conference call. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please review our SEC filings and website for the factors that could cause actual results to differ materially. Reconciliation of adjusted EBITDA and certain GAAP to non-GAAP measures can be found in our earnings release and presentation available on our investor website. With that, I'll turn the call over to Lorenzo. Lorenzo Simonelli: Thank you, Chase. Good morning, everyone, and thanks for joining us. First, I'd like to provide a quick outline for today's call. I will begin with a summary of our first quarter results and recent portfolio actions, then highlight key awards and address the evolving macro environment, including the ongoing situation in the Middle East. I will then turn it over to Ahmed, who will present an overview of our financial results as well as provide guidance for the second quarter and review our outlook for the full year. He will also share an update on the progress with Chart integration planning and discuss recent actions to further optimize our portfolio. To conclude, I will highlight the progress we continue to make in positioning Baker Hughes as a leading provider of industrialized energy solutions, and then we'll open up the line for questions. Let us turn to Slide 4. Against the backdrop of ongoing conflict in the Middle East, our top priority remains the safety and well-being of our employees and their families. We remain in close contact with our team and continue to monitor the situation closely. And I am proud of our team's resilience. Despite a complex operating environment, we delivered another strong quarter of financial results, reflecting the strength of our portfolio and disciplined execution, which more than offset the significant impact of regional disruptions. For the first quarter, adjusted EBITDA totaled $1.16 billion, exceeding our guidance range as we continue to deepen our exposure into adjacent end markets and drive structural operational efficiency. Adjusted earnings per share were $0.58, 13% above the same quarter last year, even as results were impacted from the Middle East conflict -- the PSI divestiture and the formation of the SPC joint venture. Adjusted EBITDA margin rose 140 basis points year-over-year to 17.6%, driven by strong IET performance, partially offset by lower OFSE margin. Turning to orders. IET delivered another outstanding quarter with bookings reaching a record of $4.9 billion, marking the third consecutive quarter above $4 billion. This performance reflects ongoing strength across energy infrastructure, highlighted by $1.4 billion in Power Systems orders and further progress in LNG, gas infrastructure and CCS. IET also reported a book-to-bill of 1.5x for the quarter, resulting in a record RPO of $33.1 billion. This marks the fifth consecutive quarter that IET has achieved this milestone. Excluding transactions, RPO rose by 3% on a sequential basis and increased 10% compared to the prior year. These results underscore the diversity and versatility of the IET portfolio, supporting sustained growth across energy infrastructure markets as the importance of energy security continues to rise. During the first quarter, we generated free cash flow of $210 million. Our first quarter performance demonstrates the durability and robustness of our portfolio, the positive trajectory aided by our business system and the strong momentum in IET. We are confident that our versatile portfolio and track record of operational excellence positions us for sustained growth during Horizon 2 as we continue to navigate a volatile environment. Earlier this month, we announced the divestiture of Waygate Technologies as part of our ongoing portfolio management strategy and comprehensive evaluation to identify further opportunities for enhancing shareholder value. Combined with the sale of PSI to Crane and the joint venture with Cactus, which both closed earlier in January, we expect to generate gross proceeds of approximately $3 billion in 2026, further strengthening our balance sheet. Now turning to key awards on Slide 5. In Power Systems, we achieved another outstanding quarter, securing orders across our power generation, grid stability and energy management capabilities. For power generation, we converted a prior slot reservation agreement into an integrated solution award for a critical infrastructure project in North America. This contract includes NovaLT16 gas turbines, BRUSH Power Generation electric generators, gears and long-term aftermarket services, delivering up to 1 gigawatt of reliable power to support growing energy demand from data centers. Additionally, we announced a contract to provide 25 BRUSH Power Generation generators to Boom Supersonic. When paired with Boom's gas turbines, this is expected to deliver a total of 1.21 gigawatts of generator capacity for data centers. In grid stability, we secured a contract with Hitachi Energy to design, manufacture, install and commission 4 synchronous condensers. These will enhance system reliability and stability at 2 energy substations in Australia. By providing crucial voltage support and dynamic response, synchronous condensers help mitigate the challenges associated with intermittent power from renewable sources, ensuring a more reliable and stable grid. In energy management, Baker Hughes received a second contract for the engineering and design of Hydrostor’s advanced compressed air energy storage system in the U.S. This collaboration includes up to 1.4 gigawatts of potential equipment orders for compressors, expanders, motors and generators. Further highlighting our momentum in energy management, we announced a collaboration with Google Cloud to develop AI-enabled power optimization and sustainability solutions for data center applications. This partnership is a pivotal collaboration that leverages Baker Hughes expertise in power systems and Google Cloud's leadership in advanced AI and data analytics, bringing together the core capabilities of both companies to drive innovation and operational efficiency across the data center market. In gas infrastructure, we secured 2 key awards this quarter. We received a significant order for an advanced electric motor-driven compression solution supporting offshore operations in the Middle East. Additionally, Baker Hughes will deliver gas compression units, including 3 NovaLT gas turbines for the San Matias Pipeline S.A. in Argentina, marking our first NovaLT deployment in South America. In LNG, we booked equipment orders totaling $1.2 billion this quarter across key regions. Notably, Qatar Energy awarded us a significant contract for 2 mega trains on the North Field West project, representing 16 MTPA of capacity. Our scope includes 6 Frame 9 gas turbines, 12 centrifugal compressors and integrated power solutions, utilizing three Frame 6 gas turbines and three BRUSH Power Generation generators. We are also seeing potential acceleration of LNG project FIDs in North America. Reflecting this momentum, we recently entered into a strategic agreement with ST LNG to provide critical gas compression and power generation solutions for their proposed 8.4 MTPA LNG export terminal offshore Texas. Additionally, we continue to drive value through our life cycle model, signing a 5-year aftermarket service agreement with Petrobras. This contract covers maintenance, repair and engineering services for up to 64 aeroderivative gas turbines across 19 FPSOs, further strengthening our role as a trusted provider for Petrobras critical operations. Including our 1 gigawatt data center order highlighted earlier, we secured $1.4 billion in new energy orders this quarter, a strong start to the year that reinforces our confidence in achieving our $2.4 billion to $2.6 billion target for 2026. New energy bookings also included a significant award to provide advanced compression and pumping technologies for Qatar Energy, LNG's large-scale carbon capture facility. Our scope includes 6 compression trains powered by variable speed electric motors, enabling the capture and transport of 4.1 million tons of CO2 annually. In our Downstream Chemicals business, we signed a substantial multiyear agreement with Marathon Petroleum, establishing ourselves as the preferred supplier of hydrocarbon treatment products and services for 12 refineries and 2 renewable fuels facilities throughout North America. This strategic collaboration reinforces our position within the downstream market and demonstrates our commitment to delivering innovative solutions that enhance operational efficiency and support sustainable growth for our customers. Turning to Energy Upstream. We secured key awards that reflect our differentiated positioning and long-term value proposition to customers across the oilfield services market. In Brazil, we secured a major contract with Petrobras to deliver 91 kilometers of flexible pipe, risers, flowlines and comprehensive maintenance and installation services, supporting the country's pre-salt and post-salt developments. We also signed a major contract extension with Petrobras to provide integrated workover and P&A solutions for one of the world's largest offshore P&A projects. Within SSPS, we also received an award from Turkish Petroleum to provide subsea production systems for 5 wells in the Black Sea, including deepwater horizontal tree systems, manifolds, subsea distribution infrastructure and topside control units. In Argentina's Vaca Muerta shale, we signed a 3-year contract with YPF to provide well construction technology, including Lucida, rotary steerable and Perma Force drill bits to support unconventional shale development. We also continue to see strong momentum across integrated services, signing a contract with Gulf Energy to drill and complete 43 wells in Kenya's South Lokichar Basin, marking our first fully integrated project in Sub-Saharan Africa. Moving to digital. We continue to advance our position across both hardware and software solutions. In IET, we secured several contracts to deploy Cordant Asset Health, including an award for a large U.S. combined cycle power plant, which further illustrates the value of our digital solutions in enhancing efficiency and reliability. Notably, Cordant’s power-related orders doubled year-over-year, continuing strong momentum from 2025 when power orders rose by more than 80%. This robust growth highlights both the rapid adoption of our digital offerings within the power sector and our commitment to advancing the global transformation of power systems. In OFSE, we expanded our Lucida agreement with a large NOC for ESP surveillance and optimization and signed a new multiyear Leucipa contract with Xpand Energy, covering gas wells across the Marcellus, Utica and Haynesville Shale basins. Currently, this technology is actively deployed across approximately 75,000 wells globally, providing digital enablement that significantly differentiates our artificial lift portfolio through improved surveillance, optimization and production performance. Lastly, underscoring the expanding commercial synergy opportunities within our enterprise capabilities, we established a strategic collaboration with XGS Energy and were awarded a contract for initial well design and engineering support for its 150-megawatt geothermal project in New Mexico. Our early involvement positions us to deliver integrated subsurface and surface solutions that set us apart from our competitors. Turning to the macro on Slide 6. Despite an otherwise constructive global demand backdrop, the Middle East conflict has introduced a meaningful new layer of macro uncertainty. Disruptions across critical energy corridors, including the Strait of Hormuz, have tightened global oil and LNG balances, leading to sharp price increases. These developments have heightened inflationary pressures, which would present downside risk to global economic growth should the conflict persist over an extended period. The conflict has introduced significant volatility into global oil markets, impacting over 10% of global oil volumes. Concerns around the security of key transit routes have tightened near-term supply-demand balances with growing risk of undersupply in 2026. While the duration and full extent of the conflict remain uncertain, it is evident that geopolitical risk has become a structural reality for oil and gas markets. This development has significant consequences for the reliability of supply and global energy security. To address these challenges, there is a growing need for increased upstream investment to expand global production capacity and ensure we can meet rising demand. Additionally, rebuilding global inventories above historical levels is expected to play a critical role in supporting energy security, particularly given the significant drawdown of inventories following the extended closure of the Strait of Hormuz. The conflict has also significantly affected global LNG markets with 20% of worldwide LNG capacity now off-line, driving significant price volatility. The recent infrastructure damage in the region and the effective closure of the Strait of Hormuz have materially constrained the LNG market's ability to respond to growing demand, likely to result in a supply shortfall this year. Consequently, we are seeing increased sensitivity to price movements in key consuming regions. In Asia, higher LNG prices have led to fuel switching from natural gas to coal, which has helped moderate additional upward pressure on LNG prices. Meanwhile, in Europe, the gas injection season has begun at a slower pace against relatively low storage levels. Currently, storage levels are only 30% of capacity, 6% below last year and 13% below the seasonal average. These dynamics underscore the ongoing challenges and highlight the importance of energy security across global markets. Turning to 2026. We now expect global upstream spending to be modestly below our prior outlook of low single-digit declines compared to 2025, driven entirely by a significant reduction in Middle East activity. This is expected to be partially mitigated by more resilient spending across other regions with North America and international markets outside of the Middle East now expected to be broadly flat compared to last year. This outlook assumes a resolution of the Middle East conflict by midyear and the full reopening of the Strait of Hormuz. That said, geopolitical conditions remain fluid and the ultimate timing and magnitude of the recovery in the region are subject to a wide range of potential outcomes. In the near term, we anticipate greater emphasis on optimizing production from existing wells. Once the conflict ends and the Strait of Hormuz is fully opened, we expect a measured increase in activity in the Middle East, led by a meaningful increase in remediation and intervention work as previously shut-in wells are brought back online. The pace of activity in the region will be dictated by producers' ability to restore export flows out of the region. In light of these significant disruptions, we see 2 key structural trends shaping energy markets in the wake of recent geopolitical developments. First, energy security will likely become a foundational priority for governments and industry alike, driving greater emphasis on diversifying oil and gas supply sources and increased investment in power and energy infrastructure, while also supporting continued development of lower carbon solutions such as geothermal, nuclear and grid modernization. Importantly, this is not just about adding supply. It is about building a more resilient energy system that supports industrial outcomes. That means greater redundancy, more diversified infrastructure and less reliance on single large-scale assets. A more distributed energy system will be critical to supporting future economic growth. This is where Baker Hughes is uniquely positioned with differentiated capabilities across the full energy value chain, spanning from molecule to electron. By leveraging these strengths, we're able to support customers with integrated life cycle solutions across the full energy spectrum and adjacent industrial markets. Against this backdrop, we are increasingly confident that our Horizon 2 IET order target will exceed $40 billion, supported by strengthening demand across global energy infrastructure markets. Second, regardless of the outcome of the current conflict, we expect an environment characterized by heightened geopolitical risk that is likely to result in persistent risk premiums for oil and LNG prices. This environment underscores the importance for higher upstream investment, particularly across the U.S., Latin America and other deepwater regions. To close, let me briefly recap. Despite the ongoing tariff-related pressures and significant Middle East disruption, we delivered strong results with IET achieving 35% year-over-year EBITDA growth and reaching record levels in both orders and backlog. This performance reflects effective execution of the Baker Hughes business system, supported by strong pricing and continued productivity improvements. Looking ahead, we remain focused on the successful closing of the Chart transaction and ensuring a seamless integration process. We are making substantial progress in integration planning and remain confident in delivering our targeted cost synergies of $325 million. More broadly, our ongoing portfolio management actions, strategic initiatives and comprehensive business evaluation are reinforcing the durability and effectiveness of our long-term strategy. These efforts enable us to navigate an evolving market landscape with confidence and position us to capture new growth opportunities. With that, I'll now turn the call over to Ahmed. Ahmed Moghal: Thanks, Lorenzo. First, I would like to reiterate Lorenzo's comments that our foremost priority is ensuring the safety and well-being of our employees and their families in the Middle East. I'll begin on Slide 8 by presenting an overview of our consolidated results. Next, I'll give a quick update on the pending Chart transaction and discuss progress in our portfolio management strategy. After that, I'll review our segment results and provide a brief summary of the second quarter and the full year guidance. As Lorenzo mentioned, we once again delivered strong orders in the first quarter with total company orders of $8.2 billion, including $4.9 billion from IET. Adjusted EBITDA of $1.16 billion increased 12% year-over-year, driven by robust IET growth, partially offset by the impact of the Middle East disruptions on our OFSE business. Adjusted EBITDA margins increased by 140 basis points year-over-year to 17.6% GAAP diluted earnings per share were $0.93. Excluding $0.35 of adjusting items in the quarter, diluted earnings per share were $0.58, up 13% year-over-year. During the quarter, we generated free cash flow of $210 million. The first quarter is generally the weakest period for free cash flow due to seasonal factors, but this period was further affected by some delays in customer payments. Moving on to capital allocation on Slide 9. The company's balance sheet remains strong with our net debt to adjusted EBITDA ratio declining to 0.32x. Following the successful debt offering in March, our cash position increased to $14.8 billion, while liquidity increased to $17.8 billion. The long-term debt issuance in March raised $6.5 billion in U.S. bonds and EUR 3 billion in European bonds, marking our inaugural bond offering in Europe. The proceeds from this offering will be allocated towards closing the Chart acquisition. Our target remains to reduce our net debt to adjusted EBITDA ratio to between 1 and 1.5x within 24 months after the Chart transaction closes. We plan to achieve this through free cash flow generation and proceeds from our ongoing portfolio management actions. At the start of the quarter, we completed the previously announced SPC and PSI transactions. In addition, we anticipate generating gross proceeds of $1.6 billion from the IPO of HMH in the recently announced sale of Waygate Technologies to Hexagon. As a result, we expect to achieve our $1 billion incremental divestment target ahead of schedule, underscoring our commitment to disciplined capital management and maintaining our strong balance sheet. With respect to Chart, we remain focused on closing the transaction and executing a seamless integration. With regulatory reviews still underway in certain jurisdictions, we currently expect closing in the second quarter, understanding that the timing may evolve as those processes progress. We believe this combination will significantly enhance the value we deliver to customers, broaden our industrial portfolio and enable us to expand into adjacent markets. On integration, our integration management office led by Jim Apostolidis continues to make significant progress. The team is organized into 17 operational work streams, each focused on ensuring a smooth transition. To date, we have identified more than 250 synergy opportunities and remain confident in achieving the full $325 million of targeted cost synergies. As we have progressed through integration planning, our work has further reinforced both the strategic and industrial rationale of this acquisition while highlighting strong cultural alignment between the 2 organizations. Let's now turn to segment results, starting with IET on Slide 10. During the quarter, we booked record IET orders of $4.9 billion, driven by continued strength in Power Systems, LNG and gas infrastructure. Over the last 4 quarters, IET orders totaled $16.6 billion, which is up 25% versus the prior 4 quarters. Our first quarter results reflect outstanding performance in IET with revenue of $3.35 billion at the high end of our guidance range and increasing 14% year-over-year. Compared to last year, revenue was impacted by the PSI and CDC transactions, which together represented a headwind of 3% to aggregate revenue. Growth was led by strong performance in Gas Tech Services as we continue to work down the overdue aero derivative backlog. We expect these benefits to carry into the second quarter with a more normalized environment anticipated in the latter half of the year. During the quarter, IET revenue was slightly impacted by shipping delays associated with Middle East disruptions across key trading routes. IET EBITDA for the quarter increased 35% year-over-year to $678 million. Margins expanded by 310 basis points to 20.2%. This strong margin performance was driven by favorable backlog pricing, elevated project closeout and productivity and ongoing execution of the Baker Hughes business System, further reinforcing our operating discipline. Turning to OFSE on Slide 11. OFSE delivered another solid quarter, demonstrating resilience despite persistent macroeconomic headwinds and the ongoing challenges in the Middle East. Revenue for the quarter was $3.24 billion, reflecting a 9% sequential decline, while remaining slightly above the midpoint of our guidance range. SPC was excluded from the consolidated results after the formation of a joint venture with Cactus in early January, contributing 4% to OFSE's sequential revenue decline. Relative to our expectations, strong performance in Mexico, Sub-Saharan Africa and the Gulf of Mexico more than offset the disruptions experienced in the Middle East during March, which impacted OFSE revenue by approximately 2% when compared to the fourth quarter of 2025. OFSE reported EBITDA of $565 million, exceeding the midpoint of our guidance range. EBITDA margin declined 70 basis points sequentially to 17.4%. This decline was attributed to the SPC transaction, seasonality and the impact of Middle East disruptions, partially offset by an improvement in North America OFSE margins. The quarter was positively impacted by foreign exchange and more favorable mix of direct sales across offshore markets, which generally yield higher margins. In addition, SSPS posted continued strength in orders totaling $650 million, up 22% year-over-year. This is a robust 82% increase when excluding the impact of SPC. Turning to Slide 12. I will provide our outlook for the second quarter and then comment on our full year 2026 guidance. For clarity, I will speak to the midpoint of the guidance ranges. For the purposes of this guidance, it is assumed that the situation in the Middle East will continue through the end of June without further escalation. The full reopening of the Strait of Hormuz is anticipated thereafter, followed by a measured increase in Middle East activity levels during the second half of the year. This guidance does not account for any potentially significant secondary impacts, such as elevated inflationary pressures or broader supply chain disruptions that could arise from the ongoing situation. Starting with second quarter guidance, we anticipate company revenue of $6.5 billion and adjusted EBITDA of $1.13 billion. For IET, we expect results to demonstrate another quarter of robust year-over-year EBITDA growth led by Gas Technology and CTS. The impact on IET for Middle East-related disruptions is expected to be modest in the second quarter. Overall, we forecast IET EBITDA to reach $670 million. The major factors driving our guidance ranges for IET will be the pace of backlog conversion in GTE, the progress with aero derivative repairs in GTS, the level of disruptions related to the ongoing conflict in the Middle East, foreign exchange rates and trade policy. For OFSE, we anticipate second quarter results will be impacted by events in the Middle East and a return to a more typical mix of direct sales. While a normal seasonal recovery is anticipated for regions outside the Middle East, we expect this to be offset by significant declines in the Middle East. Consequently, EBITDA is projected to be $540 million for the quarter with revenues estimated at $3.2 billion. Outside of the Middle East conflict, factors driving our guidance ranges for OFSE include execution of our SSPS backlog, near-term activity levels, trade policy, foreign exchange rates and pricing across more transactional markets. Moving to our full year guidance. We are maintaining our company's revenue and adjusted EBITDA guidance range. Currently, we anticipate full year results to be slightly below the midpoint of these guidance ranges, reflecting both our resilience and adaptability in navigating ongoing uncertainties. Although near-term challenges persist due to the conflict in the Middle East, we remain confident that our portfolio positions us to manage short-term disruptions effectively. As we look ahead to full year IET orders, we have started 2026 with strong momentum, driven by a record first quarter led by Power Systems strong performance. Given this momentum, we believe we are well positioned to achieve at least the $14.5 billion midpoint of our order guidance. The growing emphasis on energy security is expected to further support demand for energy infrastructure, unlocking potential upside to IET's Horizon 2 order target. We now anticipate achieving at least the midpoint of our full year IET EBITDA guidance of $2.7 billion. Developments in the Middle East may result in minor delays to planned LNG maintenance in GTS. However, we expect these impacts to be more than offset by the first quarter outperformance and revenue conversion from higher backlog levels. In OFSE, ongoing tensions in the Middle East have introduced considerable uncertainty, which may impact our ability to achieve the midpoint of our original full year guidance range. However, should the conflict conclude by the end of June without significant escalation and provided the Strait of Hormuz is fully operational during the second half of the year, we anticipate being able to achieve the low end of our EBITDA guidance range of $2.325 billion. We will continue to monitor the situation closely, and we'll provide any significant updates if and when appropriate. In summary, we delivered another quarter of outstanding operational performance even with ongoing challenges in the Middle East. IET once again delivered very strong results, while OFSE demonstrated continued resilience against a difficult backdrop, highlighting the durability of the portfolio. This success is a testament to the strength of the Baker Hughes business system, which continues to drive enhanced execution, productivity and profitability across the organization. We also continue to advance our portfolio management strategy with the announcement of the Waygate Technologies divestiture marking another important milestone. Collectively, these efforts reinforce our focus on delivering sustained long-term value for our shareholders. With that, I'll turn the call back to Lorenzo. Lorenzo Simonelli: Thank you, Ahmed. For those following along, please turn to Slide 14. Following yet another strong quarter, it is clear that we are gaining real momentum in executing our strategy to transform Baker Hughes. Across our 3 time horizons, our strategy is designed to evolve Baker Hughes into a leading industrialized energy solutions company, one that is uniquely positioned at the intersection of energy and industrial markets. Fundamental to this transformation is our ability to operate across the full energy value chain, spanning from molecule to electron. In energy upstream, we continue to provide our customers with critical technologies and services that enable efficient and reliable hydrocarbon production. As those molecules move through the system, our energy infrastructure capabilities enable their transportation, processing and subsequent conversion into usable energy. Through the versatility of our IET portfolio, enhanced by the planned acquisition of Chart, we are expanding our reach into industrial markets that directly rely on the energy produced across the value chain, broadening our capabilities at the intersection of energy systems, industrial demand and global innovation. What differentiates Baker Hughes is not just our participation across these markets, but our ability to connect them. Our portfolio enables us to integrate solutions across the energy value chain, linking subsurface, surface and end-use capabilities in a way that is uniquely differentiated. This is especially important as the lines between energy and industrial markets increasingly converge, unlocking new opportunities for integrated solutions, higher-value offerings and a more durable recurring revenue streams. Reliability, scalability and predictability are critical to industrialized energy solutions, and this is precisely where Baker Hughes is positioned to lead. Across our broad and versatile portfolio, we deliver mission-critical technologies, comprehensive life cycle solutions and advanced digital capabilities for industrialized energy applications. Importantly, our ongoing portfolio actions continue to positively reinforce our path ahead. We continue to execute deliberate and strategic steps to advance our transformation as we build a company capable of industrializing energy solutions. Our strategy, unmatched portfolio and distinct capabilities position Baker Hughes to deliver sustainable growth, continued margin expansion and create long-term value for our shareholders and customers as we continue our journey in Horizon 2. In closing, I would like to thank all Baker Hughes employees for delivering another strong quarter. I especially want to recognize the resilience and focus of our colleagues in the Middle East who continue to support one another and our customers in a challenging environment. We continue to prioritize the safety of our people and their families. With that, I'll turn the call back over to Chase. Chase Mulvehill: Operator, we can now open the call for questions. Operator: [Operator Instructions] Your first question comes from Arun Jayaram with JPMorgan. Arun Jayaram: Lorenzo, I wanted to get your thoughts on the impact from the Middle East conflict on the potential for infrastructure spend, both from repairing damaged infrastructure and to add redundancy for greater supply surety. This obviously, as you mentioned, should be a favorable trend for Baker. But I was wondering if you could help us gauge maybe the intermediate and longer-term impact. I know you signaled how IET orders could exceed your Horizon 2 target, but I wanted to see if you could provide a little bit more color around this. Lorenzo Simonelli: Yes, definitely, Arun. And clearly, a lot taking place. And as we look at the current situation, the top priority remains, obviously, the safety and well-being of our employees and their families in the region. So we're taking all the right precautions and supporting them in these challenging times. As we look at beyond the considerable near-term uncertainty surrounding the situation, what we do recognize is that it's going to drive fundamental structural change across the energy landscape in the future. And first and foremost, energy security is going to become increasingly important, and it's going to really receive more emphasis, not just within that region, but also globally with regards to how countries treat their energy security. And it's going to lead to a diversified mix of energy sources that are going to be essential to meet the energy demand. And as a result, we see a stronger focus on diversifying energy supply sources, enhancing the reliability of the global energy markets. And to address this, we're going to see a few things. Firstly, increased upstream investment to expand global production capacity, ensuring we meet the rising demand and supporting the more durable upstream spending cycle in the years ahead. There's going to be a rebuilding of global inventories above historical levels to ensure that energy security is at foremost, and it's going to be playing a particular role in making sure that we avoid significant drawdowns in the future given the extent of what's happened from the Strait of Hormuz closure. Beyond the aspect of increased upstream investment, we're going to continue to see investment in lower carbon solutions, including geothermal, nuclear and grid modernization as part of the drive to build a more sustainable energy system. It's going to be about diversifying the energy mix and making it more durable. And so you're going to see a theme of increased investment in other areas. Also, it's not just about increasing energy supply. It's about the robust and resilient energy infrastructure and greater redundancy, diversifying infrastructure, reducing reliance on any single large-scale assets. So as you look at Baker Hughes, we're uniquely positioned to address these needs given the differentiated capabilities across the entire energy value chain from molecule to electron. And as we look at this going forward, we feel good about the opportunity to exceed the $40 billion target for IET orders that we gave out at the end of Horizon 2 in 2028. And it's not just about LNG FIDs. It's also about associated gas infrastructure, pipelines, compression stations, and we're seeing the need for more redundancy and investments being made in those areas. Operator: Your next question comes from the line of Scott Gruber with Citi. Scott Gruber: Yes, very strong results here in 1Q. But Ahmed, can you unpack the 2Q guide for us a bit more? IET usually sees a nice step-up in revenues and margins in 2Q, but the guide is a bit more flattish. Obviously, a strong comp, but just curious on some color there. And then in OFSE, you guys assume no recovery in the Middle East until 3Q, no pushback there. But if we do get better activity levels in the second half of the quarter as one of your peers is embedding, I just curious how much could that contribute to segment results? And it sounds like there's a bit better outlook across the other end markets. So some additional color there would be great, too. Ahmed Moghal: Yes. No, for sure, Scott. Look, I mean, as you said, and as we also said in terms of our remarks, there's still a great deal of uncertainty regarding ultimately the duration and depth of the conflict. So there are many different factors that could affect the second quarter as well as the second half. So just as a quick reminder, as you think about the second quarter, we're assuming the conflict persists through the end of June, but with no further major disruptions and that the Strait of Hormuz is not fully operational until we enter the second half of the year. So I think it's helpful to break it down by OFSE and IET. So really starting with OFSE, we -- with the backdrop of those assumptions, we expect a significant impact still to our Middle East operations in the second quarter with that region potentially falling, I'd say, more than 20% sequentially, which is double the rate of decline in the first quarter. And of course, that's driven by the fact that Middle East revenue in April, we expect to remain near March level and then hold throughout the second quarter, so effectively 3 months. The mix within that as well, I think, is important. So if you think about service-related revenue in the region will be affected, but the larger impact as we see it right now is going to be on the product sales side, just given the logistical challenges with equipment imports and exports. And to your specific question around if we see a quicker recovery as we go into the second quarter, there could be some upside to the Middle East revenue assumptions. And obviously, you'd expect us to be prepared to take action accordingly, and that's contemplated in the range for the second quarter. But with that upside, it could be somewhat delayed given the heavier mix of products that I talked about in the region because of that logistical piece. So outside of the Middle East, if you step back and you look at the rest of OFSE, we're anticipating at this point in time, a typical seasonal recovery across international markets outside of Middle East. And I'd say flattish revenue right now in North America. SSPS, we expect to deliver a sequential increase just driven by their backlog and linearity around that. And then OFSE margins, we're projecting a sequential decline in the second quarter, and that I'd attribute to some of the tailwinds that supported the first quarter margins as we went through it. So excluding those first quarter benefits, segment -- when you look at OFSE's operational margins in the second quarter could be modestly higher sequentially despite some of those supply chain and logistic disruptions. So that's really how we think about OFSE. When you look at IET, our second quarter assumes a modest impact from the conflict, and that's around logistical constraints, I'd say, for shipping products in and out similar to OFSE, and that would impact GTE slightly. And then in GTS, specifically, we experienced lower seasonal revenue declines during the first quarter, and that was driven by some of the overdue backlog that we -- the team executed quite well on. So this -- as you roll that forward into the second quarter, we would expect that to temper the usual significant sequential growth in GTS that you would see between 1Q and 2Q. So that's one factor I would call out. The other one is that at this time, we don't -- we do not anticipate any significant impact on GTS from potential LNG maintenance delays. So we, across IET have been driving, and now this is more an overall IET sort of view, better linearity. So we anticipate the second quarter segment revenue will be flat quarter-over-quarter. And on the margin side, in Q1, as we said, we had some strong productivity come through as well as favorable project closeout. And with those Q1 tailwinds, carry forward the stable revenue, IET margins, we expect to be only modestly up in 2Q. So stepping back and taking all of those factors into account at the company level, we expect the second quarter EBITDA for the company to be relatively flat versus the first quarter. So Scott, hopefully, that -- those building blocks help. Operator: Your next question comes from the line of James West with Melius Research. James West: I wanted to build on what Scott just asked about it and to think a little bit more about the second half. There's a bunch of moving parts. IET has been an outperformer. Maybe that implies that we want to be conservative in the second half or maybe we don't want to be. OFSE, we understand what you're saying about the Middle East, but there's a building recovery that's gaining momentum. And so I'm curious how we should think about -- we have the full year guidance, but how we should think about kind of 3Q, 4Q unfolding, both revenue-wise for OFSE and IET and margin-wise as we track towards your targets for the year. I'm assuming you have better visibility probably on IET than OFSE, but any help you can give there would be appreciated. Ahmed Moghal: Yes, James, as we think about the second half, it's really the usual multiple variables and the distinction between OFSE and IET, as you pointed out, given the visibility we have on the IET side. So maybe on the OFSE side, I'd say the first consideration is the extent of the state of the infrastructure and also the available storage capacity in the region. So that's a macro factor that obviously we're looking at. And given that level of uncertainty, we believed it more prudent to assume a measured ramp in the region during the second half of the year. And of course, that assumes that the Strait of Hormuz is fully operational at that point in time. So also across the world, we do see some offsetting activity in regions and now expect North America and international outside of the Middle East to be modestly stronger in the second half compared to what we contemplated at the beginning of the year. And so tying that into the margin profile for OFSE, you've seen us be very focused on cost discipline. The cost-out actions that we've been working on for the fourth quarter and the first quarter are starting to come through. And so we still see the potential to achieve the lower end of the OFSE EBITDA guidance range. But of course, there are a lot of factors into the mix. IET, what I mentioned earlier is better linearity and that carries through, as I think about it to the first 3 quarters and then a less pronounced 4Q increase when you compare it to prior years. And so while we recognize that there could be some modest impacts in the second half as well with cost inflation, the logistical challenges we've talked about, some potential project delays and/or potential maintenance delays, we only expect that to be modest at this point in time. And as a reference point, I think it's helpful to look back in 2022 when the start of the Russian-Ukraine conflict kicked off, we basically had only modest LNG maintenance delays that normalized over time following that initial spike in LNG prices. So with the current LNG prices being less pronounced, we expect it to be somewhat muted as we compare to '22. And the additional factor I would say is just thinking about linearity is that we don't expect a significant second half revenue ramp because of overdue aeroderivative backlog in GTS. So that will normalize over time. That builds up to just giving us some confidence in saying that we can achieve at least the midpoint of our full year IET EBITDA guidance range of $2.7 billion. So I just do want to emphasize the fact that this is -- it's quite fluid, but this is our best view given the current conditions, and it may change as additional factors emerge, including unforeseen persistent secondary impacts. And as we've always been, we're committed to maintaining the transparency, and we'll update you with the best view and projections for the remainder of the year as all the circumstances evolve. So hopefully, James, that builds out the year a little bit. Operator: Your next question comes from the line of David Anderson with Barclays. John Anderson: So really impressive to see the IET margins above 20% already. But I thought the standout this quarter were the IET orders. It came in well above our expectations. I was hoping you could spend a little bit more time on the Power Solutions side of the orders. Could you talk to -- you mentioned kind of the 3 primary drivers being generation, grid and management. Can you kind of talk about those 3 drivers, kind of how you see those playing out? It looks like the pace has you on track to maybe upside for your '26 order guide. And maybe if you could also comment on the longer-term stability of the data center demand, which is clearly an issue a lot of people are talking about. Lorenzo Simonelli: Yes, definitely, Dave. I'll take that one. And maybe let me start by reiterating what we said before that global power demand is in a multiyear growth cycle. And it's important to remember, we're only in the early stages and the current projections indicate that power demand will double by 2040, driven by factors such as data center and AI compute, digital infrastructure expansion, electrification, including EV adoption and the transition of industrial processes from fuel-based to electric power solutions and what we said before as well from the energy security aspect and making sure that there's redundancy. Also, as you look at the grid constraints becoming more pronounced, particularly in the United States, it's going to drive further investments taking place. And we see a fundamental shift towards behind-the-meter power solutions. And we're seeing also a shift in the customer mindset for these solutions. And it's no longer viewed as short-term bridge solutions. Increasingly, they're being deployed as long-term baseload power infrastructure, which obviously suits our portfolio well. And so as a result, we see the behind-the-meter market reaching $60 billion by 2030, led obviously by data centers, which we've continued to participate in. And it also includes 3 core capabilities of Baker Hughes as you think about power generation, grid stability and energy management. And when you take that, we look at the annual market opportunity expanding to more than $100 billion by 2030. And if you look at specifically power systems in the first quarter. Again, thanks. It was a great performance. And again, it shows the breadth of our Power Systems portfolio, securing $1.4 billion of orders across the 3 capabilities, and that accounted for almost 30% of total IET order, and we see strong momentum across power generation for large data center projects, synchronous condensers that support the grid stability and energy storage solutions for effective energy management. Also, our digital solutions, inclusive of iCenter and Cordant remote digital offerings continue to expand, and they increase the opportunities for cross-selling in these areas. So our rapidly expanding installed base is going to allow us to really have a synergy potential within that digital space and software platforms as we go forward. And if you look at the Cordant power-related orders, they doubled year-over-year in first quarter and sustaining their strong momentum from 2025. And we saw power orders increase over 80%, which, again, we see as strong momentum going forward. Our installed base for NovaLTs is also set to expand dramatically in the coming years given -- and will give a benefit to our aftermarket services business into 2030 and beyond. And the benefit of our extensive portfolio is going to enable us to deliver integrated power solutions for many different applications and end markets. So you can see we're feeling good about the durability and the robust nature of the demand outlook for Power Systems segment. And again, as we mentioned previously, potentially providing upside to the midpoint of our 2026 IET guidance range. And looking beyond 2026, confident in the strength of our IET orders, supported by what we're seeing is that fundamental rise in energy infrastructure demand. And this trend is expected to drive sustainable growth across Power Systems, gas infrastructure, LNG and other aspects of the IET portfolio. And given the positive trajectory that we see both within our Equipment and Services segments within IET, we expect continued and sustained growth for IET moving forward, hence, why the $40 billion order plus for 2028 Horizon 2. So hopefully, that gives you a breakdown. Operator: Your next question comes from the line of Stephen Gengaro with Stifel. Stephen Gengaro: You've clearly been busy on the portfolio optimization front. And I'm just curious, after the sales announced year-to-date, Waygate and the HMH IPO that Ahmed mentioned, you're already above that $1 billion kind of bogey that you set out there, I think, on the fourth quarter conference call. Can you just give us an update on how you're thinking about the portfolio optimization strategy going forward? Do you think you're largely done? And how should we be thinking about next steps? Ahmed Moghal: Yes, Stephen, I'll take that. As we've talked about a few times broadly, I just want to remind everybody on what drives portfolio management actions for us and the criteria we use. So there are 4 broad strategic criteria on top of the obvious financial ones. First is we like exposure to technologies that have critical applications, critical to customers and so forth. Second is around life cycle models and the ability to drive aftermarket calories. Third is a right to play in terms of commercial and operational synergies across the portfolio. And then I'd say fourth is earnings durability with expansion into new markets. So that's what we use. And then when you look at a quick recap, the recent divestitures, including the Waygate Technologies announcement and HMH IPO proceeds, we were expected to generate around $1.6 billion in gross proceeds. And when you couple that with those 2 recent transactions, we expect to, as you mentioned, achieve and exceed the $1 billion incremental divestment target ahead of the schedule, which we're doing in a very disciplined manner and maintaining and strengthening the balance sheet as we continue to go through this. So when you take those Waygate and HMH and you couple that with PSI and the proceeds from SPC joint venture, in aggregate, that's around $3 billion of gross cash proceeds in 2026. But all of these actions, I wouldn't look at them as a single milestone. So it's a continuum part of our ongoing portfolio management progress. So as we progress through the next couple of years, you'll see us remain very disciplined as to the approach and making sure anything that we do is very much aligned with the strategic objectives on driving value and the strength of the balance sheet. But I want to be clear in the near term, our focus is very much on closing and successfully integrating the Chart transaction. So hopefully, Stephen, that gives you a little bit of color on how we think about the portfolio. Operator: Your next question comes from the line of Saurabh Pant with Bank of America. Saurabh Pant: Lorenzo, maybe I want to go back to the Power Systems topic you were talking about. The demand side of the equation in response to Dave's question, I want to focus a little bit on the capacity side of things because demand is clearly very strong, right? But on the capacity side, I know you are doubling NovaLT capacity, but then you're also booked out through 2028, right? My question is, are you capacity constrained relative to the level of demand you are seeing? And when I ask that, Lorenzo, it's not just on NovaLT, but also on products like BRUSH generators, synchronous condensers, you talked about that. So any color on the capacity side of things, please? Lorenzo Simonelli: Yes, Saurabh, thank you very much. And as you said and we've said before, power demand is rising. And in North America, in particular, data center growth, manufacturing return and also the required infrastructure is going to be robust demand for power systems equipment inclusive of the generators, gas turbines and power generation, synchronous condensers to support the various aspects and very well suited to the portfolio that Baker Hughes has. The NovaLT remains a core product and as does the electric motors, gearboxes, generators, synchronous condensers and the control and protection systems. From a capacity standpoint, we're effectively sold out of NovaLTs through 2028 and the tightness we're seeing across the broader turbine market is well understood. And we have increased capacity, as we mentioned. We continue to receive strong inbound demand for the NovaLTs, and we'll evaluate each opportunity on its own merit. Our focus remains on customers that are becoming long-term partners and also with the financing and offtake firmly in place. And we're looking ahead to continue to closely monitor market conditions through our dynamic planning process, and we'll make the right decisions that are necessary to expand beyond the current doubling plan with a guided disciplined assessment of medium- and long-term supply-demand dynamics and a clear return threshold. For our Frame 5 gas turbines, which we can also sell into non-oil and gas markets from time to time, we have available capacity in '27 and '28 to support orders, which should the demand materialize. And importantly, we're actively assessing capacity needs across our entire Power Systems portfolio, not just the NovaLTs. As you mentioned, we have added capacity to our BRUSH product lines which include the generators and synchronous condensers. This will materially add to our annual revenue run rate. And we've also inaugurated our aftermarket NovaLT facility in Italy, which will support the robust services growth. So we're able to maintain flexibility across our manufacturing footprint and supply chain to support additional capacity as needed. And also, we're investing in different growth areas of technology development, which is core to our focus here for the next generation of engines and emissions reduction technologies, and we'll continue to invest across the R&D for power systems and also enhance our portfolio so that we can deliver the differentiated solutions to our customers. And taken together, our investments in capacity and innovation really positions us well to deliver sustainable growth and continued margin expansion and long-term value for our shareholders and customers. So I appreciate it, Saurabh. Operator: And that's all the time we have for questions today. I will hand you back to Mr. Lorenzo Simonelli, Chairman and Chief Executive Officer, to conclude the call. Lorenzo Simonelli: Yes. Thank you to everyone for taking the time to join our earnings call today, and I look forward to speaking with you all again soon. Operator, you may now close out the call. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program, and you may all disconnect. Everyone, have a great day.
Operator: Good morning, and welcome to Byline Bancorp First Quarter 2026 Earnings Call. My name is Tiffany, and I will be your conference operator today. [Operator Instructions] Please note, the conference call is being recorded. At this time, I would like to introduce Brooks Rennie, Head of Investor Relations for Byline Bancorp to begin the conference call. Brooks Rennie: Thank you, Tiffany. Good morning, everyone, and thank you for joining us today for the Byline Bancorp First Quarter 2026 Earnings Call. In accordance with Regulation FD, this call is being recorded and is available via webcast on our Investor Relations website along with our earnings release and the corresponding presentation slides. As part of today's call, management may make certain statements that constitute projections, beliefs or other forward-looking statements regarding future events of the future financial performance of the company. We caution that such statements are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from those discussed. The company's risk factors are disclosed and discussed in its SEC filings. In addition, our remarks and slides may reference and contain certain non-GAAP financial measures, which are intended to supplement, but not substitute for the most directly comparable GAAP measures. Reconciliation of each non-GAAP financial measure to the comparable GAAP financial measure can be found within the appendix of the earnings release. For additional information about risks and uncertainties, please see the forward-looking statement and non-GAAP financial measure disclosures in the earnings release. As a reminder for investors, during the quarter, we plan to participate in 2 upcoming conferences here in Chicago. The Stephen Chicago Bank tour on May 14 and the Raymond James Chicago Bank Symposium on May 28. With that, I'll now turn the call over to Alberto Paracchini, President of Byline Bancorp. Alberto Paracchini: Great. Thank you, Brooks. Good morning, and welcome to Byline's first quarter earnings call. We appreciate all of you taking the time to join the call this morning. With me today are Chairman and CEO, Roberto Herencia, our CFO, Tom Bell; and our Chief Credit Officer, Mark Fucinato. Before we get started, I'd like to pass the call over to Roberto for his comments. Roberto? Roberto Herencia: Thank you, Alberto, and good morning to all. As Alberto said, we do appreciate you joining us today and taking the time to engage with Byline. markets in general continue to offer plenty of distractions and at times entertainment. Shifting interest rate expectations, inconsistent economic signals, policy uncertainty and heightened geopolitical tensions with the Iran war at the center of it and its brother implications. These add another layer of complexity for businesses and investors alike. We have learned over time that durable results do not come from reacting to every headline. They come from being anchored to purpose, disciplined execution and long-term thinking. So we remain focused on driving value for our holders as we work and make progress I may add toward becoming the preeminent commercial bank in Chicago. We started the year with another strong quarter. ROA, PTPP, NIM and efficiency remain among the best-in-class tangible book value growth of 14% year-over-year are also knocking on the door of best-in-class. Our balance sheet remains strong and positioned to support customers through the cycle. I want to recognize what matters deeply to us, our people. Byline Bank was recently honored as a U.S. best-in-class employer in Gallagher's 2025 U.S. benefits strategy and benchmarking survey. We were also named to Newsweek's America's greatest midsized workplaces for women, highlighting our dedication to practices grounded in transparency, professional development, and flexibility, empowering women to build careers that grow with their lives. These awards reflect effective steel strategies with measurable outcomes, including employee well-being and engagement. They reinforce our people-first approach and strengthens our ability to attract, retain and develop top talent in a very competitive environment. I would like to point out that our SBA platform continues to perform well for the 16th consecutive year. Our team ranked as the #1 SBA 7(a) lender in Illinois, according to the most recently published fiscal year rankings. This kind of consistency does not happen by accident. It reflects decades of experience, disciplined execution and the dedication of an outstanding team. I would also like to recognize 2 individuals who have been familiar voices to many of us for a long time. This marks the end of an era as Terry McEvoy of Stephens and David Long of Raymond James step into new chapters in their careers. Collectively, as sell-side analysts, they've covered more than 200 earnings seasons. And more importantly, they brought professionalism consistency and thoughtful engagement to their work. We are grateful for the time they spend covering Byline and for the relationships built over many years. On behalf of the Board and the entire management team, we wish both Terry and David continued success in their new roles. To close, I remain very optimistic about Byline. We are operating with clarity of purpose supported by strong fundamentals, an engaged workforce and a resilient business model. We are very focused on compounding returns the right way through prudent growth, disciplined risk management and an unwavering commitment to our people and customers. With that, Alberto, back to you. Alberto Paracchini: Thank you, Roberto. As is our normal practice, I'll start with the highlights for the quarter, followed by Tom, who will take you through the financials and then I'll come back to wrap up before we open the call up for questions. As always, you can find the deck we're using this morning on the IR section of our website, and please refer to the disclaimer at the front. . Turning to Slide 4 on the deck. Overall, I'm pleased to report that we had a solid start to the year and delivered another excellent quarter. Earnings momentum continued along with strong profitability, disciplined expense management and stable credit quality despite an evolving macro and geopolitical backdrop. For the quarter, we reported net income of $37.6 million and EPS of $0.83 per diluted share, representing growth of 8.9% and 9.2%, respectively. Profitability was strong with ROA of 156 basis points and ROTCE of 13.7%. Pretax preparation income totaled $55.2 million, resulting in a pretax provision margin of 229 basis points, which marks the 14th consecutive quarter in which this metric exceeded 2%, reflecting the durability and consistency of our operating results. Total revenues were $112.4 million for the quarter. Net interest income remained solid at just under $100 million, while noninterest income was lower at $12.5 million, largely due to lower fair value marks for the quarter. The margin remained stable at 4.33%, notwithstanding a lower day count and lower yields. This was offset by a drop in deposit costs driven by a better mix coupled with pricing discipline, which Tom will cover in more detail shortly. From a balance sheet standpoint, total deposits increased 8.2% annualized to $7.8 billion, reflecting growth across both core as well as time deposits. Loan balances were modestly lower linked quarter as payoffs more than offset solid origination activity of $241 million. Expenses remain well managed at $57 million, down 5.3% from the prior quarter, with our efficiency ratio improving to 49.8% for the first quarter, one of the lowest levels we've reported since becoming a public company. Asset quality remained stable. Credit costs were $5.5 million for the quarter and consisted of $6 million in net charge-offs and a small reserve release of $0.5 million. Both NPLs and criticized loans showed declines and the ACL increased 1 basis point to 1.46% of total loans. Moving on to capital. Our capital levels continue to grow and balance sheet strength is evident with a TCE at 11.1% and CET1 over 12.5%. We exercised some of that capital flexibility this quarter and returned 40% of net income back to shareholders by repurchasing approximately 318,000 shares of stock at an average price of $30.84, in addition to our quarterly dividend of $0.12 per share. With that, I'll turn the call over to Tom, who will walk you through our results. Thomas J. Bell: Thank you, Alberto, and good morning, everyone. Starting with our loans on Slide 5. Total loans stood at $7.5 billion, down slightly from the prior quarter. The decline in balances was primarily driven by $72 million in runoff related to loan participations and acquired loans. Origination activity was solid with $241 million in new loans, while payoffs remain elevated at $320 million. Loan commitments increased and line utilization declined slightly to 59.2%. Loan yields came in at 6.84%, down 11 basis points linked quarter as a result of the December Fed rate cut. Pipelines remain strong, and we expect full year loan growth in the mid-single digits. Turning to Slide 6. Total deposits were $7.8 million for the quarter, up $154 million or 8.2% annualized from the prior quarter. The growth was due to increases in interest-bearing checking and time deposits. We saw a 6 basis point improvement in deposit costs, driven by lower money market rates, which brought over overall deposit costs down to 1.91%. Turning to Slide 7. Net interest income was $99.9 million in Q1, down 1% from the prior quarter and up 13% year-over-year. Net interest income was impacted by 2 fewer days in the quarter lower yields on earning assets and higher borrowing costs as a result of a balance sheet hedge that matured in March. This was partially offset by lower rates paid on deposits. The net interest margin was stable at 4.33%, declining modestly by 2 basis points from the last quarter, with 50% of the decline coming from lower accretion while expanding 26 basis points year-over-year. Our outlook for net interest income is based on the forward curve, which currently assumes no rate cuts or hikes in 2026. Given the rate outlook and our balance sheet position, this implies a net interest income range of $99 million to $101 million in the second quarter. We expect net interest income to grow driven by overall balance sheet growth and disciplined deposit pricing in the event short-term rates move lower. Turning to Slide 8. Noninterest income totaled $12.5 million in Q1, which was down approximately $3.2 million linked quarter. The decline on a quarter-over-quarter basis was driven by an additional negative fair value mark on loan servicing assets of $755,000 and a $1.3 million decline in fair value of equity securities. Excluding these fair value adjustments, fee income remained stable. We expect gain on sale to average $5.5 million per quarter and our noninterest income to be in the $14 million to $15 million range for the second quarter. Turning to Slide 9. Expenses came in at $57 million, down 5.3% from the prior quarter. This was driven by salary and benefits from lower incentives, legal costs and advertising spend. partially offset by higher data processing expenses. Our efficiency ratio improved 54 basis points to 49.78%, with noninterest expense to average asset ratio 2.37%, down 10 basis points. Looking forward, our noninterest expense full year guidance remains unchanged at $58 million to $60 million per quarter. Turning to Slide 10. Credit costs declined for the quarter with the provision coming in at $5.5 million. NPLs decreased $4 million or 5.6% linked quarter to $67 million, while NPAs to total assets improved to 71 basis points from 77 basis points in Q4. The improvement was driven by resolution activity during the quarter. The ACL remained flat at 1.46% of total loans. Moving on to capital on Slide 11. Capital levels continue to grow and remain robust with CET1 at 12.5%, 22 basis points linked quarter and up 77 basis points year-over-year. Total capital came in at 15.5%, up 69 basis points year-over-year. In addition, tangible book value per share grew to $23.79, increasing [ 1.5% ] on a linked quarter basis and 14% year-over-year. And last month, roll bond rating as we affirmed our BBB+ credit rating and outlook. In closing, another great quarter across the board and a solid start to the year. With that, Alberto back to you. Alberto Paracchini: Thank you, Tom. So to wrap up, we were pleased with our results and performance for the quarter, notwithstanding the level of uncertainty in the environment, we're optimistic in our ability to execute our strategy continue to grow the business and deliver value to shareholders. In terms of the outlook, pipelines remains at solid levels across our businesses, and we remain well positioned to take advantage of opportunities in the marketplace. With that, operator, we can open the call up for questions. Operator: [Operator Instructions] Your first question comes from the line of Nathan Race with Piper Sandler. Nathan Race: Hope you're all doing well. Alberto, I was hoping you could just shed some more color just on the production levels in the quarter in terms of how much of the year-over-year decline may just been due to some of the macro factors at play these days versus seasonality. I know you mentioned the pipeline sold going to the rest of the year, but I was just hoping you could shed some light on that in the what in terms of payoffs as well. Alberto Paracchini: Yes, of course. Not a lot of -- so on your second point there. So not -- we didn't really see -- we had pretty good origination level. So the level of business activity was pretty good in commercial banking, our leasing business. Real estate was nothing unexpected on that end. A lot of the payoff activity or a portion of the payoff activity that we saw this quarter was just simply recycle us essentially recycling loan participations and loans that we had acquired coming from some acquisitions. That's really what drove it. if you actually strip out the impact of those, which is -- I mean, it's perfectly aligned with what we want to do ultimately with those books. If you strip that out, I think loan growth would have been somewhere in the 4% kind of level for the quarter. So nothing unusual other than just planned runoff coming from books that we've acquired over the years. Nathan Race: Got it. That's really helpful. Maybe a question for Tom. I know you don't give margin guidance specifically, but just trying to understand the trajectory of loan yields over the balance of this year just in terms of the context of kind of what the roll-off yield looks like and kind of what you're seeing in terms of blended rates on loan per these days. Thomas J. Bell: Roll-offs are, call it, $300 million-ish like a $450 million kind of coupon, so new production is typically around 675, 680 kind of coupons. Nathan Race: Okay. So imagine, again, without giving margin guidance that you're thinking the margin could kind of there just given maybe more rational deposit pricing competition these days and just given what you just described in terms of the roll-off . Thomas J. Bell: I mean, certainly, on the loan side, spreads will -- are maintaining well. I think as you'll see in the balance sheet, right, we grew the securities portfolio this year. That's a tighter spread transaction. So when you start to include that in, you could have a small tweak to the margin overall. But again, NII guidance growing over the year here. Nathan Race: Got you. And maybe one last one, Alberto, or Roberto. Just curious what you guys are seeing in terms of M&A conversations and activity levels these days. Obviously, you have a little bit of a headwind to earnings next year with the [ Durbin ] impact, which I know is not particularly big for you guys, but just curious if you're feeling more optimistic on M&A announcement over the balance of this year. . Alberto Paracchini: We're always optimistic in terms of just the level of conversations. I would tell you maybe right now, and I don't think this is inconsistent with what others have said in their earnings call. I mean, certainly, the uncertainty in the environment given the macro and geopolitical issues maybe causing some sellers to pause. That being said, I think the underlying level of conversations continues to be, I think, from my view, pretty healthy. Nathan Race: Okay. Great. I appreciate all the color. I hope guys have a good weekend. Operator: Your next question comes from the line of Brendan Nosal with Hovde Group. Brendan Nosal: Hope you're doing well. Maybe starting off here on capital. I think if my math is correct, you've nearly tapped out the current buyback plan. Is there a willingness to re-upping that and remaining in the market? Just given how much capital you have today and how much you'll continue to generate. Thomas J. Bell: Yes. Brendan, we're not -- we've only done about 300,000 shares. So we have to over a $2 billion program. So we have plenty of room to continue to repurchase shares. . Brendan Nosal: Great. And apologies for that after a long earnings week. Maybe pivoting to kind of funding here. A really nice quarter for deposit growth both overall and core funding. Just kind of curious why you opted to grow CDs as much as you did, given the lack of loan growth and then tie that into the competitive landscape in Chicago for core funding? Thomas J. Bell: I mean, we're first focused on full relationship customers. But we -- our CD book has grown over the years, and we're still trying to maintain a certain level of CDs. As you know, loan-to-deposit ratio was higher at the end of the year because of as an example on maybe some more institutional deposits. But generally speaking, we think we have a good deposit base. The CD book is good. The back book is performing well. As you can see that the CD yields are coming down kind of quarter-over-quarter. But given the Fed on hold, that's probably going to slow down here. But you still need to fund the bank, and we like the diversification that we get from it with the opportunity to potentially cross-sell those CD customers and other products. Operator: Your next question comes from the line of Damon DelMonte with KBW. Damon Del Monte: Hope you're all doing well. First one, just kind of regarding loan growth and the pipeline that you referenced. Could you just give a little color on kind of what is -- what's that comprised of? And what segments are building that pipeline for you? Alberto Paracchini: So all segments, Damon, but I would say like we have touched on in prior calls, probably the delta there, the one that's more rate sensitive is probably going to be real estate I would think rates have backed up, and I'm not talking about short-term rates, but the back up in 5 years, the backup and the 10-year real estate is much more sensitive to those. So I suspect if we see a decline in that later on in the year, potentially, that's going to probably positively impact volumes still within the range that we provide, which is that mid-single-digit target. That's the one that I would say has the highest probably the highest chance of having some volatility around rates. As far as the other category, which are really just commercial banking and our leasing business in general, pipelines are solid, and we really here to for, we really haven't seen an impact where people are saying, you know what, given the uncertainty in the environment, we are going to take a breather here and postpone something that we're planning to do for a few months just to see how the environment settles down. I mean, activity has been good. We've seen, for example, to give you some color companies are actively being marketed and sold in our sponsor business as well as we're hearing some of that also in our commercial banking book, which is a positive sign from a transaction activity standpoint. And borrower activity continues to be good. So demand for credit remains solid in those segment Damon. Damon Del Monte: That's great. Great color. Tom, you mentioned about the securities portfolio increasing in size, and you can see the average balances were up quarter-over-quarter. How do we think about that for the remainder of the year? Do you expect to add to that? Or do you think that might start to trail down a little bit? Thomas J. Bell: I think stable, Damian, we'll probably reinvest cash flows. I mean, we could go up a little bit just depending on market opportunities. But assuming loan growth will deliver, which we expect, there's probably no need to grow the portfolio meaningfully. Alberto Paracchini: I think big picture, Damon, the way we think about securities at least from a big picture standpoint, we're always going to be trying to grow deposits irrespective of what the environment is we are always going to be looking to try to grow deposits over time through the cycle. We just don't think we are good enough to be able to as some of our colleagues in the industry say, turn us big it on, turn is bigger off. So we're constantly trying to grow deposits to the degree that deposits start outpacing our ability to grow loans, then by definition, you would see that growth probably end up in the securities portfolio. So just big picture, that's kind of how we think about it. Damon Del Monte: Great sense. Operator: Your next question comes from the line of Brandon Rud with Stephens, Inc. Please go ahead. Brandon Rud: If I could follow up on an earlier question about the deposit costs. Can you maybe talk about the trajectory through the quarter relative to the $191 million reported? And when you think about a starting point as we enter the second quarter, would you anticipate that number kind of trending down a few more basis points. Thomas J. Bell: Pretty consistent. The average over the quarter versus period end pretty much unchanged. March was exactly on top of where the cost of funds was for the quarter. So not a meaningful change. I think the -- again, just maybe touching back on the prior question, the CD book is very short. It's 4 months, 5 months at length. So a lot of opportunity to reprice, but most of the book is repriced given that made its last cut, so to speak, in December. Brandon Rud: Okay. And maybe just a higher-level question. I think back in January, the plan was to not manage below $10 billion this year. I guess, is that still the plan? And can you remind me what the [ Durbin ] impact would be in, I guess, '27? Alberto Paracchini: Sure. Yes, Brandon, we are not trying to manage the balance sheet artificially stay under $10 billion. It just so happens that we're at $9.9 billion at the end of this quarter, but it could very well be -- it could have very well have been that we would have been over $10 billion. So we're kind of -- as we think about it, we're kind of there, and we expect to be crossing that barrier here at any point. And as part, maybe you want to take the Durbin impact for '27? Thomas J. Bell: Sure. Yes, as we mentioned, we don't have the same kind of entertain costs some of the other banks do. And I think we kind of quoted like about 4 basis points to ROA is a decline, just given that it takes effect again in 2027. July 1st. Alberto Paracchini: So it'd be July 1 of '27. And I think we had said publicly, we had said $3.5 million to $4 million in terms of the Durbin impact, Brandon. So obviously, that's an annualized number. So in July of 2027, all else being constant, we would see the impact of half of that in the second half of the year. Operator: [Operator Instructions] Your next question comes from the line of Brian Martin with Brean Capital. Brian Martin: Just wondering if you -- Tom, your last question, maybe I didn't hear your response or just on the call, I was just going to ask you on the cost of deposits, given the backdrop, like you said, the Fed the major last rate cut, it's pretty stable from here. I mean there's not much opportunity, like you said, on the CD side, given the book short. So just you would think relatively stable, give or take, as you think about going forward? Just wondering how the competitive pressures are. loan growth outlook looks pretty bright. So just trying to understand the competition. Thomas J. Bell: Yes. I would say relatively flat, maybe down a little bit. Again, mix helps us. We're always focused on relationship banking and commercial banking. So those are typically lower cost deposits, and that will help us. On the competitive front, on the consumer side, yes, it's the typical competition we see as far as rates, I don't think anything is crazy at this point. But we just want to keep our market share in that category. And so I would say nothing is going higher, at least at this point. And we just the book is almost fully repriced. So there's not a lot of lift for lower costs as we move forward other than mix. Brian Martin: Got you. Okay. That's helpful. And just the commercial payments business. I guess your confidence in just continuing to grow deposits, is that giving you some tailwind there on that opportunity? Thomas J. Bell: Yes. I mean I think that's more of a year goes on, we'll see more benefit from that. And obviously, the fee income that comes with that as well. And it takes a while to onboard the customers. So we'll start seeing that more here in the second half of the year. . Brian Martin: Got you. Okay. And then maybe just the last one, just some of the noise in the quarter in terms of the fee income. Can you just give some thoughts on kind of a baseline or how to think about -- you've given some color on the SBA business. Just kind of the some of the noise in the quarter, if you can just talk a little bit about how to think about the jumping off point, if you will, going into 2Q? Thomas J. Bell: Yes. We still gave guidance of $14 million to $15 million, Brian, I don't know if you heard that. Brian Martin: Sorry. Okay. Thomas J. Bell: But no, no, no. But for the quarter, we had lower swap fee income from our back-to-back program, and we expect that to pick up here. And then we had a small lower valuation on the sale of some lease assets, which was a one-off. So I would expect that's why I've given guidance of the $14 million to $15 million. But those were the 2 drivers other than the fair value adjustments. . Brian Martin: Yes. Okay. That's all I had, guys. I appreciate you taking the color. And congrats on the quarter. Operator: Thank you for your questions today. I will now turn the call back over to Mr. Alberto Paracchini, for any closing remarks. Alberto Paracchini: Great. Thank you, Tiffany. So in closing, I'd like to congratulate and thank all our employees on another solid quarter. Our level of performance would not be possible without their dedication, their effort and the commitment to customers, it really -- we couldn't do it without them. So thank you all. . And to everyone on the call, thank you for joining us today. We appreciate your continued interest in Byline, and we look forward to talking to you again next quarter. Thank you. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Q1 2026 USCB Financial Holdings, Inc. Earnings Conference Call. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the conference call over to Luis de la Aguilera, Chairman, President and CEO. Sir, please go ahead. Luis de la Aguilera: Good morning, and thank you for joining us for the USCB Financial Holdings First Quarter 2026 Earnings Call. I'm Luis de la Aguilera, Chairman, President and CEO of USCB Financial Holdings. Joining me today are Rob Anderson, our Chief Financial Officer; and Bill Turner, our Chief Credit Officer. Rob will walk you through our financial results in detail, and Bill will review credit quality and portfolio trends. We are very pleased to report on another record quarter, highlighted by strong core earnings, disciplined balance sheet execution and our continued focus on maintaining strong credit quality. . For the quarter ending March 31, 2026, the company generated net income of $9.4 million or $0.51 per diluted share on a GAAP basis. On an operating or adjusted basis, diluted EPS was $0.47, operating ROAA was 1.25%, ROAE was 15.92% and an efficiency ratio of 52.36%. These results reflect consistent execution of our long-term business model focused on disciplined growth, prudent risk management and sustainable profitability. At a high level, total assets reached $2.8 billion, up 6.3% year-over-year. Loans increased 10.1% year-over-year from $2.2 billion driven by continued strong diversified production. Deposits grew 8% year-over-year to $2.5 billion, supported by specialized business verticals as well as well-diversified deposit base. Our deposit-focused business verticals, namely Association Banking, our Private Client Group and correspondent banking have delivered -- have steadily grown 30% of deposits or $747 million as of March 31, 2026, a $62 million quarter-over-quarter increase. Net interest margin expanded to 3.27%, up from 3.1% the prior year, reflecting effective asset deployment and improving funding costs. Importantly, this growth has not come at the expense of credit quality. Nonperforming loans remain exceptionally low at 0.16% of total loans, and net charge-offs were effectively 0 for the quarter. Our first quarter's performance demonstrates the benefits of actions we have taken over the past several quarters to enhance earning power and balance sheet resilience. Loan production was strong during the quarter with $188 million in gross loan production over half of which occurred in March, positioning us for continued momentum into the second quarter. While the timing of production limited full quarter earnings contribution, the pipeline supports future net interest income expansion. On the funding side, we continue to see the benefits of our specialized deposit franchises. Average deposits increased by nearly $212 million year-over-year while deposit costs declined to 2.2%, improving by 29 basis points from the first quarter of last year. Capital remains a key strength for the company. During April, our Board declared a quarterly cash dividend of $0.125 per share, reflecting confidence in our earnings durability and capital generation. Tangible book value per share increased to $12.23 and 8.9% year-over-year increase even after absorbing the market-related AOCI impacts. Overall, this was a balanced quarter with strong earnings, solid growth, stable margins and strong credit quality, all while maintaining conservative capital levels. The following page is self-explanatory, directionally highlighting 9 select historical trends since recapitalization. Consistent, efficient, profitable performance based on conservative risk management is what a team focuses on consistently delivering. Noting this overview, I'll now turn over the call to Rob to review our financial results in greater detail. Robert Anderson: Okay. Thank you, Luis, and good morning, everyone. Looking at Pages 5 and 6, I would describe the first quarter of 2026 as a highly successful quarter for USCB. The team posted very solid results, which I'm proud to share with you today. The balance sheet, specifically the loan book continues to grow within our stated range of high single to low double-digit growth. Deposits increased this quarter, outpacing loan growth and ensuring sufficient liquidity for future lending. Credit remains solid, and our profitability ratios came in line with internal projections. While we made $0.51 on a GAAP basis, the company recognized a $619,000 income tax benefit in the quarter due to an adjustment of the deferred tax asset relating to 2025. Adjusting our GAAP figures for this 1 item, you'll find the operating or adjusted numbers on Page 6. This includes operating return on average assets of 1.25%, operating return on average equity of 15.92%, efficiency ratio of 52.36%, operating diluted earnings per share of $0.47, NPA to assets of 0.13%, allowance for credit losses stable at 1.16%, total risk-based capital at 14.09% and last tangible book value per share at $12.23. So with that overview, let's discuss deposits on the next page. Average deposits for the quarter totaled approximately $2.4 billion, representing an increase of $212 million year-over-year. On a linked-quarter basis, average deposits declined by $26 million, and that sequential movement requires some context. Late in the fourth quarter, a large commercial plant drew approximately $130 million, which reduced our average balance deposit entering the first quarter. Importantly, this was anticipated and managed outflow. And at the end of the period chart demonstrates, we have since recovered from that decline. On an end-of-period basis, total deposits increased by $149 million during the quarter, highlighting both the resilience of our franchise and our ability to respond quickly to a large discrete plant movements. Equally important is the deposit -- total deposit costs declined 8 basis points quarter-over-quarter to 2.2%, which played a meaningful role in allowing us to keep the net interest margin stable. With ongoing rate volatility, we anticipate deposit costs will stay near current levels, although some competitors are offering higher rates, a relationship-driven deposit base should ensure stable pricing and funding. So with that, let's move on to the loan book. On an average basis, loans increased $46.8 million quarter-over-quarter, which equates to an 8.9% annualized growth rate. Year-over-year, average loans grew 9.6% and well within management's expectations. Net loan growth at the end of the period was $52 million, showing strong production momentum and 2 key dynamics stood out on this. First, A significant portion of our loan production occurred late in the quarter and second loan payoffs occurred early in the quarter. This timing is visible on the chart and translates to a lower earnings impact in the quarter. More specifically on Page 9, gross loan production totaled $188 million during the quarter with $114 million or 60% closing in March. Additionally, [indiscernible] rates were lower for most of the quarter, further influencing loan yield metrics. Correspondent banking loans represented 30% of quarterly production and carried a new loan yield of 5.13%. Excluding this segment, the weighted average yield on the new loan production was 6.2% for the quarter. It's important to remember that these correspondent loans are short term in nature, typically 180 days tied to SOFR and serve a strategic purpose by adding asset sensitivity and optionality to the balance sheet. Additionally, these banks have over $250 million in low-cost deposits with significant wire volume, a very profitable business vertical for USCB. Looking ahead, we expect new loan production yields to remain around these levels. Turning to Page 10. Net interest margin was flat at 3.27% for the quarter. Despite successfully lowering deposit costs, overall margin was impacted by lower-than-expected loan interest income, largely driven by timing and volatility rather than structural pressure. Specifically, interest income was constrained as mentioned before by a combination of factors. Loan closings that occurred late in the quarter, elevated payoffs early in the period and lower SOFA rates throughout much of the quarter. These pressures were partially offset by improvements in deposit pricing and higher yields in the securities portfolio, which helps stabilize our margin. Importantly, we have now expanded the NIM quarter after quarter and the underlying trajectory remains intact. As recently originated loans seasoned into earnings, we expect incremental improvement in interest income, which should support a very modest margin expansion later this year. That said, ongoing rate volatility may limit the degree to which deposit costs can move materially lower from here, and our focus remains on disciplined pricing, balance sheet mix and execution, all aimed at protecting the margin while positioning the franchise for improved profitability. So with that, let me pass it over to Bill to discuss asset quality. William Turner: Thank you, Rob, and good morning, everyone. As you can see from Page 11, the first perhaps shows the allowance for credit losses increased to $26.1 million at the end of the first quarter and at an adequate 1.16 in the loan portfolio. We made a $602,000 loan provision to the allowance that was driven mostly by the $52 million in net loan growth. There were no loan losses during the quarter. The remaining graphs on Page 11 shows the nonperforming loans in the quarter and grew by 6 basis points or almost $500,000. The nonperforming ratio stands at 0.16% of the portfolio, and these loans are well covered by the allowance and compare favorably to peer banks at year-end 2025. The increase was related to 2 pass-through residential real estate loans that are in the process of collection. All nonperforming loans are well lateralized and no loss is expected. Classified loans also increased during the quarter to $6.8 million or 0.3% of the portfolio and represent 2.2% of capital. The increase is related to the 2 nonperforming residential loans previously mentioned. No losses are expected from the classified loan pool. The bank continues to have no other real estate. Overall, the quality of the loan portfolio is good. Now let me turn it back over to Rob. Robert Anderson: Thank you, Bill. Total noninterest income for Q1 was $4.2 million, up from the previous quarter and accounting for 15.8% of total revenue. Service fee income reached $3.1 million, mainly driven by record swap fees of $1.6 million amidst strong loan activity and strong sales execution with rate volatility in the quarter. While fee performance was exceptional this quarter, we expect swap-related fees to normalize in Q2 as market conditions stabilize. Overall, noninterest income performance in the quarter highlights the diversification of our revenue streams and the value of our fee-based capabilities. Let's take a look at our expenses. Our total expenses amounted to $13.7 million, which is $564,000 less than the previous quarter, predominantly due to various onetime items in Q4 of last year. The efficiency ratio stood at 52.4% for the quarter, which is consistent with prior periods. Additionally, head count increase this quarter and more hires are planned for Q2. You should expect expenses to increase, but at a measured pace, and the efficiency ratio should remain in the low 50% range. In a minute, Luis will speak about some specific strategies that will tie this together. So with that, let's move on to capital. Capital ratios remain robust and continue to strengthen. Total risk-based capital currently stands at 14.09%. The dividend remains at $0.125 and our projected earnings and capital generation profile, we anticipate further improvement in capital ratios over the coming quarters. So with that, let me turn it back to Luis for some closing comments. Luis de la Aguilera: Thank you, Rob. Before we conclude, I would like to briefly expand on how our operating model is translating into tangible growth opportunities across South Florida, particularly in Miami Dade, Broward and Palm Beach counties. In March of this year, we launched a new lending team located in our recently remodeled Doral headquartered or banking center. This new production unit will focus on developing one of Miami-Dade's densest small business high-growth areas, the Airport West market, encompassing the adjacent cities of Doral, Hile and Medley. . U.S. Century Bank has banking centers in each of these markets, and this new lending team will partner with each respective branch to leverage business development opportunities, led by a proven senior lender as team leader, along with 2 business development officers and supported by portfolio manager and lending assistant, existing staff has been reassigned to largely field this team. To round off this new production unit, a new senior C&I lender has been hired. And in fact, this new team will have a total of 2 new production hires as the rest is composed from current team members. Another production unit, which is expanding is our association banking team, which was launched as a business vertical focus on the deposit rise condominium market. This unit has grown to serve over 470 condominium associations in the Tri-County market, of which 136 are in the Broward Palm Beach markets. At quarter end 2026, this business unit totaled $160 million in deposits, posting a 29% year-over-year deposit growth rate. The association banking team also closed Q1 2026 with $126 million in loans, reflecting an 11.5% annual growth rate. Led by an experienced Senior Vice President of the Association Banking unit, has hired a new production officer who will focus on developing Palm Beach and the Treasure Coast from Port St. Lucie North to Vero Beach. The Tri-County Miami-Dade MSA, reports approximately 13,000 condominium associations housing over 600,000 condo units be noting a clear opportunity for growth. Since 2015, U.S. Century Bank has tactically adopted a branch-light technology-enabled model, consolidating our physical footprint from 18 locations to 10, while more than tripling the size of our balance sheet. This approach has allowed us to scale efficiently, deploy capital productively and service clients through relationship-driven high-touch model without the overhead associated with additional large branch network. Our investments in digital capabilities and centralized operations enable our bankers to focus on what matters most, local market knowledge, speed of execution and client service. The results in Broward and Palm Beach County provide compelling proof of concept. As of March 31, 2026, the bank serves over 2,100 clients across these 2 counties, with approximately $445 million in loans and $415 million in deposits despite operating only 1 physical branch location between them. In Broward County alone, we have built a base of 1,850 customers supported by $234 million in loans, $259 million in deposits, while Palm Beach County has grown to 253 customers, $122 million in loans and $156 million in deposits. Importantly, this growth has been driven primarily through referral activity, direct calling efforts and our specialized verticals rather than reliance on a legacy branch traffic. These metrics reinforce our belief that there is substantial unmet demand by commercially focused relationship-driven bank led by local decision makers who understand the market. As a result, we believe the time is right to thoughtfully extend our physical presence by opening 2 to 4 strategically located branches in Broward and Palm Beach counties over the next 3 years. These locations will be designed to complement, not duplicate our existing branch-light strategy and will be staffed by proven local talent with deep market relationships, allowing us to further capture market share, deepen client penetration and accelerate organic growth while maintaining strict discipline around returns and expense efficiency. We view this next phase of expansion, not as a departure from our model, but as a natural evolution, deploying physical offices where the data already demonstrates scale, profitability and long-term opportunity. The 3 strategies I have just outlined aligned well with USCB's relationship-driven business model, growth in professional firms, closely help businesses and income-producing real estate continues to generate high-quality loans and deposit opportunities. Our specialized verticals and conservative underwriting allow us to participate in this growth while maintaining excellent credit quality. Simply put, Florida's strength maintains a powerful headwind for USCB while we believe the state's long-term fundamentals continue to support sustainable growth opportunity for our franchise. With that said, Operator, we are now ready to open the line for Q&A. Operator: [Operator Instructions] Our first question today comes from Will Jones from KBW. William Jones: Rob, I wanted to start firstly on the margin this quarter. It felt like just with some of the loan dynamics with the payoffs early and the growth late that we didn't really get to see or realize fully optimized margins just from the bond structure that you guys did and some of the liquidity deployment that you guys had planned. Is there a way to look at like what a March NIM would have looked like just as we think about a good starting point for the margin going forward? Robert Anderson: Yes. On the margin, I mean, our net interest income was down slightly. I mean you had the day count in there, of course. But also, we had elevated payoffs real early in the quarter. We had some properties -- clients that sold some properties that left and then over -- around 60% of our loan production occurred in March. The March margin was right around 3.28%. So it's been pretty steady for the 3 months. I would anticipate all the additional earning assets that came in mainly in the last 2 weeks of March to help fuel the net interest income for the second quarter. We have a very strong pipeline right now, probably one of the strongest we've seen April activity was strong on the loan side as well. So I would anticipate flat to slightly higher margin given what we're doing on the deposits, and we don't have to pay up for deposits either. So I would model flat to slightly up near term. William Jones: Yes. Do you have that -- just the new incremental deposits this quarter, just what that's costing and kind of what the competitive dynamics are looking like today? Robert Anderson: Yes. So we grew about $149 million in the quarter, and it was very broad-based. Luis mentioned about $62 million of that came from our specialty verticals, meaning the Private Client Group, correspondent banking and our homeowners association, which you know we've been emphasizing and we'll continue to put a lot of resources behind. The balance of it came across the board. And in the meantime, we decreased the cost of the entire deposit book by 8 basis points in the quarter. So it's not like we are paying up for that funding. Our DDA has been strong in the early parts of April. So we feel pretty confident about maintaining kind of our deposit costs in or around the current levels. And I could tell you the specialty verticals have a much lower deposit cost than overall. For instance, our Private Client Group deposit cost in that book, which is about little over 2%, correspondent banking is probably around 1.65% and our HOA loans are probably around a similar amount. William Jones: Yes. All right. That's great. This is very helpful color. And then I guess just kind of a little on some of your final thoughts there. I feel like the next call it, 2, 3, 4 or 5 years is going to be a pretty transformational period for you guys just in terms of what you want to do with the growth of the franchise. And I guess within that comes a little bit of upfront investment, as you guys talked about, but it still feels like you're going to carry some pretty solid revenue momentum just from that group. So what is the right way to think about operating leverage as we look out maybe over this year and next, and then maybe curtail that on just some near-term profitability goals that you guys might have? Robert Anderson: Yes. It's a good question, Will, and we've been modeling that out. But we do have a really strong 3-year strategic plan. It does involve some investments, mainly moving up to Broward and Palm Beach in addition to investing heavily in Miami-Dade. I think the word that I would use will be measured. We're clocking a 1.25% ROA, 16% on equity. I do not see those materially moving down. Of course, asset quality has been our cornerstone, but we will be making investments. I think you can expect the expenses to tick up, but we're still growing the balance sheet at a double-digit pace and compounding our equity around 16%. So that should translate into good earnings. And returns for our shareholders that are well within kind of what I'd say is our current performance. Luis de la Aguilera: And we'll add to that -- this is Luis. To add to that, the fact that we've built out in Broward and Palm Beach, the portfolios we have in loans and deposits over $445 million in loans, over $415 million in deposits. That is as large as some smaller banks that are up there that have multiple branches. So we already have the demand. It's clear that proof of concept, over 2,100 customers. And we feel that strategically opening banking centers, we can not only service those customers more readily, but also attract new ones. As you know, over the last decade, there's been a lot of M&A activity in Broward and Palm Beach, and there's, I think, a wide open opportunity for us. William Jones: Yes. Well, it's certainly a fun growth story to cover. So I look forward to seeing what you guys do over the next few years. Operator: Our next question comes from Michael Rose from Raymond James. Michael Rose: Just wanted to follow up on kind of some of the deposit commentary. And I know that was kind of your #1 priority coming into the year. You guys really executed both on the interest-bearing front, but especially on the NIB front, mix remained relatively stable. Just as we think about some of the efforts to ramp up our continued loan growth at kind of higher levels, and I think Luis, you did a really good job kind of outlining some of the priorities and strategies as we move forward. And I know you described some of the deposit aspects as well. But should we anticipate any change in that mix? And then maybe just from a shorter-term perspective, Rob, I mean, what are you assuming in terms of rate cuts, if any, it seems like the forward curve doesn't have any in there, just the ability to kind of put a cap on deposit costs for some of the growth in some of the specialty verticals. I know a lot in there, but just trying to kind of frame up the deposit conversation. Robert Anderson: Yes. So maybe I'll start. I would say early in the quarter, February time frame, I mean, it seemed like rates were starting to move down and then March it and rates start moving back up. We're not anticipating rate cuts near term, but there's still, I think, one in the forward in the forward curve going forward. As a reminder, we still profile liability-sensitive just slightly, which I think would benefit us, and we've been able to outperform our modeling. So I think if we do get the rate cuts that will be beneficial to the margin. We have put a lot of emphasis on our deposit book because we feel that's where we add franchise values having small, granular low-cost deposits across the board. So we've made investments in our private client group, in our HOA space, in our correspondent banking, and of course, in our business banking and just how we price and go after deposits across the board, we're talking to the sales team constantly, whether it's in pipeline meetings or monthly leadership meetings, that is a heavy focus for us. But I think you can continue to see both the loans and deposits growing at double digits. We've given that guidance before. This quarter was a little outsized on the deposit side, but we needed that given what we had at year-end. But I don't think the deposit cost is going to move materially next quarter unless we have a rate cut, which isn't anticipated at this time. So I would stop with that color unless Luis wants to add anything else to it. Michael Rose: Okay. Perfect. I appreciate it. And then just -- I think I heard Rob earlier that you expect swap fees to normalize, not surprised there. I think you kind of previously thought and the service charges were up this quarter, which was nice to see. I think previously, you talked about a $4 million to $4.5 million a quarter kind of run rate for fee income. I know it's a smaller piece relative to spreading time for sure, but any updated thoughts there as we kind of move forward and you kind of grow out on the deposit side? Robert Anderson: Yes. On the noninterest -- on the fee side, swaps were the outstanding item in the quarter. I think the sales team really knows how to work with their customers, position that as a product where they can choose either a fixed rate or swap, and that was elevated in February. We had a fair amount that locked in at a little bit tighter spreads. March came in a little tighter, but February was a good month. I think you'll see the swap number come back down to maybe $700,000 a quarter, and that would put maybe total fees all else being equal, right around maybe 3.7% somewhere around there for the quarter. But certainly, 4.1% was a nice quarter for us and a standout and the team did a great job. Michael Rose: Okay. Great. And then maybe just one final one for me. Obviously, you guys continue to have really strong capital levels. They bumped up higher this quarter despite pretty strong balance sheet growth. Any sort of thoughts around normalized capital levels as you kind of execute upon these growth plans? And maybe what that could translate to from either a ROCE or an ROA perspective just over the next kind of the intermediate to longer term as we think about the story playing out with all the growth initiatives that you talked about earlier? Robert Anderson: Yes. This year, we increased our dividend to $0.125 a quarter. I think that will remain at that level for a current time. Our capital was really supporting our growth. But when we're compounding our capital at 16%, 17%, which I think is a great return for a bank our size, we're going to build capital. We're growing our earnings faster than our balance sheet. So that should continue to grow our capital levels. And I think our capital levels are good from where they are, but we'll continue to deploy them at a profitable pace as well. So we may rethink the dividend, but I would say that's pretty safe at the current levels for the balance of the year. Operator: Our next question comes from Feddie Strickland from Hovde. Feddie Strickland: It sounds like there's maybe still a little bit of room for the margin to grow from here, maybe on the yield side. And it looks like the weighted average yield on new production, I think, was around [ 620 ] is what you had in the deck. What's the pickup you're seeing there versus what you're seeing the loans rolling off, particularly maybe fixed-rate CRE coming up for repricing? Robert Anderson: Yes, it's a good question. I mean, I think our production, I mentioned this, the pipeline is really strong right now. It's probably one of the strongest that we've had in a long time, and it's more balanced earlier in the quarter. Outside of the correspondent piece, which was a little bit lower this past quarter, the yields were around $6.20. I think today, they're hovering right around that for a really solid gold-plated CRE type properties. But I would anticipate that we would be right around the same level. I don't see that moving significantly higher or significantly lower on the loan yield. We haven't changed our pricing significantly and our pipeline is really strong at those levels. So we tend to want to keep the sales team fix with volume and pricing that is in the market today where we don't have to go chase up. And I think given where we are in terms of our growth and what we're putting on, we don't have to go out and chase a lot of lower-yielding assets. So I would say at or near the current levels would be good for modeling, Feddie. Feddie Strickland: And Rob, just what I was trying to get out of it, do you have anything that's coming off at lower rates that's being replaced with that $6.20 or so. That's what I'm curious about. Robert Anderson: Yes, we do. We have some stuff that we are originating and that were still at lower rates that will be moving off. I think we had a payoff the other day, I think it was at $4.85. That was probably maybe $7 million to $10 million loan that came off. But we do -- I don't have the exact number that's rolling off. But we would anticipate we had over $50 million of net loan growth. I think that's a good model -- a number to model for the coming quarter as well, given our pipeline is similar to what we had maybe a little bit more elevated. . Feddie Strickland: Appreciate that. That's helpful. And then on the correspondent banking side, obviously, super strong growth there this quarter. Was that expected or seasonal? Or was any of that driven by some of the geopolitical turmoil we've seen lately, maybe you have some customers coming more there? Or is that not really a direct impact? Luis de la Aguilera: No, that was planned, Feddie. We want to grow that book responsibly. Our focus is the Caribbean Basin in Central America. To that effect, we have onboarded 3 new banks in this quarter, and we are looking at an additional 5. Our team just visited with one -- with our lead director Central America, we do kind of quarterly visits. And just like a domestic customer, they're eager for customer service execution, and I think that we're poised to do that. And again, on the loans, keep in mind that the term of these loans are 180 days and the business is really relationship-driven because the loans, not all the banks borrow but all of them have deposits and they're low-cost deposits, and we do a tremendous amount of wire activity. So for us, it's a very good business, and it gives us diversity on the loan side, cheap funding, and these are very established banks. We look very carefully at country risk. And the banks, by and large, are very well capitalized and very, very established. Feddie Strickland: Great color. And just one last quick one here, Rob. I know you guys had a onetime tax item this quarter. What should we expect as a good kind of normalized tax rate going forward? Robert Anderson: Yes. For modeling, I'd use about 26.4%. I think that's a good rate to use going forward. . Operator: [Operator Instructions] Our next question comes from Howard angles from Prem Capital. [Operator Instructions] And it's showing no additional questions at this time. I'd like to turn the floor back over to the management group for any closing comments. Luis de la Aguilera: Thank you. In closing, the first quarter was an excellent start to 2026, effectively a strong kickoff to our 3-year strategic plan. We delivered record earnings continue to grow the balances prudently maintaining strong margins and preserve the outstanding credit quality while returning capital to shareholders. Our franchise remains well positioned in one of the most attractive banking markets in the country, supported by a differentiated business model, specialized vertical and a proven management team. We appreciate the continued confidence and support of our shareholders, clients and employees and look forward in speaking with you in the next quarter. So I wish you all a great day, and thank you for your continued confidence in U.S. Century Bank. Operator: And with that, we'll be concluding today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
Operator: Good afternoon. My name is Pryla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rexford Industrial Realty, Inc. First Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, you may press star one again. Thank you. I will now hand the call over to Mikaela Lynch, Director of Investor Relations and Capital Markets at Rexford Industrial Realty, Inc. Mikaela, please go ahead. Mikaela Lynch: Thank you, and welcome to Rexford Industrial Realty, Inc.'s First Quarter 2026 Earnings Conference Call. In addition to yesterday's earnings release, we posted a supplemental package and earnings presentation in the Investor Relations section on our website to support today's remarks. As a reminder, management's remarks and responses to your questions may contain forward-looking statements as defined by federal securities laws, which are based on certain assumptions and subject to risks and uncertainties outlined in our 10-Ks and other SEC filings. As such, actual results may differ, and we assume no obligation to update any forward-looking statements in the future. We will also discuss non-GAAP financial measures on today's call. Our earnings presentation and supplemental package provide GAAP reconciliations as well as an explanation of why these measures are useful to investors. Joining me today are Rexford Industrial Realty, Inc.'s CEO, Laura Clark, together with our COO, John Nahas, and our CFO, Michael P. Fitzmaurice. It is my pleasure to now introduce Laura Clark. Laura? Laura Clark: Thank you, Mikaela, and thank you all for joining us today. The Rexford Industrial Realty, Inc. team delivered a strong quarter. We set a record for leasing activity, executing 4.1 million square feet of leases, reflecting increased tenant activity and demand for our higher-quality portfolio. The decisive actions we are taking to advance our strategic priorities are driving top- and bottom-line growth, supporting our outperformance and higher expectations for the full year. Today, I will provide an update on our strategic focus areas and the broader environment. John will then discuss our operating performance and share a deeper view on market trends. Finally, Fitz will walk through our financial results and increased full year outlook. We entered the year with clearly defined goals to drive long-term shareholder value. In the first quarter, we made meaningful progress against our three strategic areas of focus: opportunistic dispositions, accretive capital recycling, and operational rigor. I will start with our programmatic disposition strategy, which is focused on strengthening future cash flows and reducing development exposure. To date, we have closed on $144 million of dispositions with another $170 million under contract or accepted offer, keeping us firmly on track to achieve our target for the year. Through these strategic dispositions, we are de-risking cash flows, capturing premium valuations, and avoiding future dilutive capital spend, all while directly supporting our next priority: accretive capital recycling. As we redeploy capital from dispositions, our investment decisions remain anchored in our commitment to delivering superior risk-adjusted returns. Given the dislocation between Rexford Industrial Realty, Inc.'s public market valuation and the intrinsic value of our platform, share repurchases remain a compelling driver of FFO and NAV per share accretion. In the first quarter, we executed $200 million of share repurchases. Looking ahead, we will continue to evaluate opportunities across our portfolio to increase the quality and durability of our future cash flow growth and unlock meaningful value through accretive capital recycling. We also made material progress against our commitment to enhanced operational rigor. Last quarter, we shared our focus on prioritizing occupancy amid softer market fundamentals. Our team's strength of execution—proactively engaging tenants, addressing end-market requirements, and driving demand for our assets—translated into stronger leasing and shorter downtime. Our first quarter results and increased full-year guidance expectations directly reflect our efforts to preserve cash flows and reduce capital costs, a continued focus moving forward. Regarding operational efficiency, our actions to date have positioned us to achieve meaningful G&A savings, bringing G&A as a percentage of revenue below the peer average, and we expect to continue reducing this level over time. Turning to the infill Southern California industrial market, where Rexford Industrial Realty, Inc.'s unique positioning provides unparalleled visibility into conditions on the ground. Infill Southern California is home to more than 24 million people, represents the twelfth largest economy in the world, and includes the fourth largest industrial market globally. A diverse set of macro and microeconomic drivers shapes demand and supply across the segment and market, meaning that no submarket, building size, or quality tier performs the same. Importantly, this diversity underpins strong long-term supply and demand fundamentals. Against that backdrop, the first quarter reflected a shift across the market. Increased tenant activity translated into higher leasing volumes. Specifically, first quarter leasing activity for the Rexford Industrial Realty, Inc. portfolio was over 70% higher year over year. In addition, current leasing interest on our vacant spaces increased to approximately 90% compared to 75% last quarter and a year ago. Notably, momentum accelerated through the quarter, with the majority of our leases executed in the second half of the quarter. While demand in certain submarkets and product types remained soft and market fundamentals are still under pressure, we are encouraged by the early positive signs we are seeing within our portfolio and the market. We view this incremental improvement as a necessary precursor to broader stabilization, setting the stage for an eventual tightening in availability and lower vacancy across the market. Importantly, our high-quality, functional assets and supply-constrained locations reinforce our confidence in Rexford Industrial Realty, Inc.'s ability to deliver outsized growth. Supply under construction remains near historic lows, and the structural barriers to new supply that have emerged in recent years, including significantly increased regulatory restrictions, have fundamentally altered the market's ability to add supply. We believe these long-term constraints will deepen Rexford Industrial Realty, Inc.'s competitive moat and reinforce the value of our irreplaceable portfolio. These favorable dynamics are amplified for buildings under 50 thousand square feet and align with Rexford Industrial Realty, Inc.'s core focus on smaller-format, consumption-driven industrial. Supply under construction in this size range is immaterial, and approximately 80% of the existing inventory was built over 50 years ago, reflecting the longstanding difficulty of adding smaller-format product and positioning our value-creation platform to deliver outsized per-share growth over time. In closing, we are encouraged by the incremental improvement we are seeing in the market. We are confident Rexford Industrial Realty, Inc. will continue to capitalize as the market approaches a trough and demand conditions improve. We remain well positioned to deliver meaningful, sustainable value creation for our shareholders. Before turning the call over to John, I would like to congratulate him on his well-deserved promotion to COO, recognizing his exceptional leadership and substantial contributions across Rexford Industrial Realty, Inc.'s operations. John? John Nahas: Thank you, Laura, and good morning, everyone. Before I begin, I would like to express my gratitude for the opportunity to step into the COO role. I am proud to be a part of a tremendous Rexford Industrial Realty, Inc. team, and I am excited to help lead Rexford Industrial Realty, Inc. as we execute upon our strategy to drive performance. Overall, we delivered a solid first quarter, with results tracking ahead of our expectations and reinforcing the durability of our platform. Leasing activity gained momentum throughout the quarter. Our focus on prioritizing occupancy has resulted in over 4.1 million square feet of lease transactions. The volume is comprised of 144 deals averaging 29 thousand square feet, with approximately 70% coming from renewals, including the renewal of Tireco at our 1.1 million square foot building on Production Avenue in the Inland Empire West. Cash releasing spreads for the quarter were negative 15.4% inclusive of the Tireco renewal and negative 1.8% excluding the Tireco renewal, in line with our expectations. I would like to take a moment to further describe the Tireco renewal given its relative size and impact. The renewal was strategic for a number of factors. First, at the time of negotiation, we had visibility to the upcoming vacancy of an immediately adjacent building similar in size and functionality that would have represented an efficient, low-cost relocation option for the tenant. Second, considering the significant capital investment and downtime associated with the potential vacancy next year, it was financially advantageous to preserve the occupancy. Finally, we opportunistically chose to limit the extended term to three years and to convert the lease structure to gross, thereby allowing us to collect a material reduction in property tax assessments anticipated to occur over the term. While this renewal generated an approximately 30% negative spread, it was amplified by the above-market in-place rent that was established during the last lease extension and is not indicative of future leasing spreads in the portfolio. Turning to the market, as Laura noted, we are seeing higher levels of leasing activity. Demand drivers continue to emanate from consumption-related sectors such as construction-related uses, food and beverage, and automotive businesses, and notably, we have not seen a negative impact on demand related to the current geopolitical conflict. Importantly, the level of activity and conversion rate to leases continues to be dependent on product size, class, and submarket. Demand for spaces under 50 thousand square feet remains healthy and well diversified. Tenants seeking larger spaces over 50 thousand square feet are generally focused on functional space that can be leased at value rates. As a result, Class A product in certain submarkets, such as San Fernando Valley, Orange County, and San Gabriel Valley, continues to see slow activity, as evidenced by delayed rent commencement on development projects that we have delivered in those markets. Focusing further on submarket-specific demand, we continue to see notable increased activity from 3PLs in the Inland Empire West and from advanced manufacturers which are seeking both larger and smaller-format spaces in specific portions of the San Fernando Valley and South Bay markets. One such example is the stabilization of our completed repositioning project at 1315 Storm Parkway, which is a 38 thousand square foot building in the South Bay that we leased to an advanced manufacturer. Overall, we are encouraged by these trends and the general increase in activity. However, we continue to closely monitor net absorption across our markets. The overall infill SoCal market continues to experience negative net absorption, resulting in a 20 basis point increase in vacancy with rents declining approximately 70 basis points compared to last quarter. Deal terms aside from rate continue to be stable, including concessions and annual escalations. Moving on to capital allocation, we remain focused on our disposition strategy and disciplined capital deployment. During the quarter, we disposed of five assets comprised of two development projects that did not meet our current return requirements and three operating assets that were sold to users at premium valuations. Subsequent to quarter end, we closed on one additional property that was formerly in our near-term development pipeline, and we have $170 million of additional dispositions under contract or accepted offer which are subject to customary closing conditions. In regard to repositioning and development, we continue to rigorously evaluate the strategy for each asset in our pipeline with a focus on maximizing risk-adjusted returns. As a result, two projects were removed from our prior near-term pipeline to pursue more accretive outcomes. At Green Drive in the City of Industry, we were able to meet an active user-sale requirement and have pivoted to executing a sale and capitalizing on a premium valuation. At Mulberry Avenue in the Inland Empire West, we are foregoing a previously planned repositioning project that no longer meets our return requirements, and the property is now being offered both for sale and for lease as-is. At the same time, we continue to move forward with value-creation opportunities that meet our underwriting targets. Ruffin Road in San Diego was added to our future development pipeline, as it will ultimately deliver a highly competitive building in a desirable location and is forecasted to achieve a 200 basis point development spread. With that, I will turn it over to Fitz. Michael P. Fitzmaurice: Thanks, Laura and John, and good morning, everyone. We are pleased with our first quarter financial results, which reflect our continued focus on what we can control: driving occupancy, recycling capital accretively, and preserving balance sheet flexibility and strength. Starting with financial results, first quarter core FFO per share of $0.61 was $0.01 above our internal forecast and up $0.02 sequentially from the fourth quarter last year. The $0.01 beat was largely driven by stronger NOI growth and accretive share buybacks. The $0.02 sequential improvement was driven primarily by lower G&A, and also accretive share buybacks and stronger NOI growth. Same-property NOI growth was 90 basis points on a net effective basis and negative 40 basis points on cash. While the year-over-year change benefited from average occupancy gains, we did experience higher concessions. Regarding bad debt, as expected, expense was elevated this quarter. It was concentrated in a few tenants and not broad based. Our tenant watch list continues to trend low, underscoring the strong credit quality and stability inherent in our diverse tenant base. Turning to capital recycling and the balance sheet, disposition proceeds were redeployed into share buybacks. We bought back $200 million of shares at a weighted average price of $36, bringing our cumulative total since mid-2025 to $450 million. This capital rotation was meaningfully accretive. Selling assets and redeploying into shares at a significant discount to intrinsic value was a key factor in our ability to raise full-year guidance. We view share buybacks at these price levels as a superior use of capital, providing a direct and meaningful increase to shareholder returns. We ended the quarter with net debt to adjusted EBITDA of 4.5x and $1.3 billion of total liquidity, with no significant maturities until 2027—a balance sheet that gives us strength and flexibility. Based on approximately $300 million of remaining dispositions expected to be completed by the end of the year, we have significant liquidity and opportunity to deploy capital towards the highest risk-adjusted returns across our suite of opportunities: share buybacks, repositionings, and select developments. Turning to our 2026 guidance increase, we are raising our full-year core FFO per share midpoint by $0.02, primarily driven by outperformance in the first quarter due to strong leasing activity as we continue to prioritize occupancy and accretive capital recycling. We have also raised our same-property NOI growth outlook by 50 basis points at the midpoint, both on a net effective and cash basis. Average same-property occupancy is now expected to be 95.1% to 95.6%, up 30 basis points at the midpoint. Our bad debt assumption of 75 basis points of revenue remains unchanged, as does our net effective releasing spreads of 5% to 10%. All other assumptions—G&A of approximately $60 million and interest expense of approximately $112 million—remain intact. On the repositioning and development front, we expect to stabilize and commence rent on approximately 1.1 million square feet of value-added projects, generating $17 million of annualized NOI, with the majority expected to come online in the second half of this year. This is down slightly from our earlier expectations due to rent commencement delays that John noted. Conversely, approximately $12 million of annualized in-place NOI will come offline related to 2026 construction starts, in line with last quarter. The weighted average timing of the annualized NOI coming offline is late in the third quarter. Before we open up the call for questions, we acknowledge the near-term pressure from releasing spreads given the market rent decline over the past three years. However, our focus is clear: control the controllables. We are navigating the current phase of the cycle with a clear, disciplined strategy centered on execution. Our primary bridge to growth is a rigorous focus on driving occupancy in our overall portfolio. And we have a robust repositioning and development pipeline representing roughly $50 million of NOI poised to come online over the next two-plus years, which serves as a powerful offset to current market rent resets. Furthermore, we are aggressively optimizing our capital allocation by selling non-core assets and redeploying those proceeds into accretive share buybacks at attractive valuations. By pairing these actions with a lean approach to G&A, we are strengthening our cash flows while positioning us for outsized growth as the broader environment improves. In closing, a big congrats to John on his promotion. John, I truly appreciate your leadership and our continued partnership. Finally, on behalf of Laura, John, and myself, I want to extend our gratitude to the entire Rexford Industrial Realty, Inc. team for their ongoing dedication and consistent execution of our strategic goals. I will now turn the call back to the operator and open the line for questions. Operator: Thank you. And at this time, I would like to remind everyone, in order to ask a question, simply press star then 1 on your telephone keypad. We will now open the call for questions. I will now hand the call back to Mikaela Lynch to begin the Q&A session. Mikaela Lynch: Thank you, and good morning. Our first question comes from Craig Mailman from Citigroup. Craig, please go ahead. Craig Mailman: Hey, good morning, guys and girls. Laura, you had mentioned that you are seeing some improvement that accelerated through the back end of the quarter. Can you talk about where you are seeing those pockets of strength in terms of your submarkets? I have heard John's comments on 3PLs and the IE West, but any other verticals or tenant types to call out as you are seeing some kind of continuing bottoming in the process in L.A.? John Nahas: Yeah. Hey, Craig, this is John Nahas. I will jump in and take that. So overall, we have continued to see some consistent themes—construction-related uses, advanced manufacturing in certain submarkets as I mentioned in the prepared remarks, food and beverage. Those are themes that we saw active last quarter, and those continue this quarter across all markets. And then from there, there is really a bifurcation, whether we are talking about below 50 thousand square feet—where we continue to see a broad base of demand, just based on consumption in the infill markets—and then above 50 thousand square feet, it gets a little bit more submarket dependent. So while 3PL activity remains increased in the Inland Empire, it is not the only tenant activity we are seeing out there. It does go beyond a bit more, but it is really mixed and micro-market dependent. I think it is maybe helpful to talk a little bit about where we are today with activity compared to where we were last year. We saw the back half of 2025 show increased activity as compared to the first half of the year, where there was a bit more turmoil from tariffs and other macroeconomic impacts, and that produced some good volumes in the market. When we got to the fourth quarter, there were deals that were being executed, but what we did not see at the time was the early formation of the leasing pipeline. So there was slower touring activity, and as a result, this quarter we saw less conversion into executed deals, particularly around some of the Class A product. And I mentioned this in the prepared remarks as well. That is a pocket in a number of submarkets where we still do not see the same levels of demand recovery. There are exceptions to that. The South Bay market, in particular, is one to point out where Class A really fits the advanced manufacturing demand. I mentioned San Fernando Valley. There are certain pockets, particularly Santa Clarita Valley, where we see that tenant demand forming, as well as in San Diego. And then there have been some recent deals that hit the market in the Long Beach area where demand is forming as well. So it is really kind of across the board—feeling better. There is better sentiment in the market this quarter. We are seeing more signs of that early leasing pipeline starting to form, but we are watching it very closely in terms of how that is going to convert into executed deals, which we would expect to see happen over the next two to three months. Operator: Thanks, Craig. Mikaela Lynch: Our next question comes from Samir Khanal from Bank of America. Samir, please go ahead. Samir Khanal: Thank you. Good morning, everybody. I guess, Laura, on the one hand, it looks like you are starting to see improvements in the market. You talked about tenant activity. But when I look at the development leasing side, it is still taking a bit longer. I guess maybe just reconcile the two items. Thanks. Laura Clark: John just touched on what we are seeing from a development perspective in terms of some of the drivers there, but just overall, Samir, what I would say is we are encouraged by the early signs of improvement—a pickup in activity. We are seeing increased tenant decision making and an increased level of lease executions, and that certainly varies by size, submarket, and product type. All that said, market fundamentals are under pressure. Net absorption is negative and vacancy ticked up. So we take all these different dynamics into account. We do see the bottom forming of the cycle, and these are good early signs. As we look ahead, we expect and hope to continue to see quarters of improved incremental demand, and that is what is really going to be critical to net absorption turning positive in the market, vacancy moving down, and rates firming. Operator: Thanks, Samir. Mikaela Lynch: Our next question comes from Greg McGinniss from Scotiabank. Greg, please go ahead. Greg McGinniss: Hey. Good morning. I am curious who you are finding as buyers for the dispositions, whether those are in-place assets or ones that are coming from the redevelopment pipeline, and what types of cap rates are being achieved on those. John Nahas: Yeah. Hi, Greg. This is John. So if you look at what we sold in the first quarter as an example, there are really two buckets. There are the development sites that we sold, and the buyer profile for that tends to be merchant developers that are well known in the region and good groups that develop product here. Those deals do not really trade on a cap rate basis. It is more about land basis that supports their underwriting targets. And then the other half of the sales that completed were operating assets that were sold to users, and so that pricing there represents pretty strong cap rates. On a blended basis, we were below 4% this quarter with the three assets that we sold to users. The reason for that is the users do not really look at it from a cap rate basis; they are looking at it from a dollar-per-square-foot standpoint. There are other considerations that drive that demand, such as some of the accelerated depreciation benefits that they now have, not only from the real estate but investments that they are making into fixturization and equipment. Right now in the market overall, we are still seeing low transaction volume, and it presents this opportunity for users to continue to be active, and so we are capitalizing on that where it generates these low cap rates that allow us to accretively recycle capital. We actually had a couple of repositioning projects that I mentioned in my prepared remarks where we have shifted gears on strategy to take advantage of interest in the market. So we are going to continue to do that where we see low cap rate opportunities that will allow us to collect those proceeds and put them to work at higher yields. Mikaela Lynch: Thank you, Greg. Our next question comes from Michael Griffin from Evercore. Michael, please go ahead. Michael Griffin: Just wondering if you can give us some more color on where market rents are. I realize it can be submarket by submarket, but maybe for the portfolio broadly. Rents signed in the quarter were, call it, in the mid-$15 range, but you have $18 rents expiring for the rest of the year. If you kept your net effective and cash mark-to-market guidance the same—which I believe on a cash basis is 0% to down 5%—does that imply the rents you are signing on those expiring leases are going to come in in the mid-$16 range? Is it $17? Just help us contextualize where market rents are and the expectations for the rest of the year. Thank you. Michael P. Fitzmaurice: Yeah. Our expectations for releasing spreads have not changed since last quarter. On a net effective basis, they are going to be between 5% and 10%, and on a cash basis, flat to negative 5%. As we disclosed last night, Tireco did have a disproportionate impact on releasing spreads this quarter. As we move throughout the remaining part of the year, we do expect releasing spreads to reaccelerate into the back half of this year. Mikaela Lynch: Thanks, Michael. Our next question comes from Michael Mueller from JPMorgan. Michael, please go ahead. Michael Mueller: Yeah, hi. If you continue to buy stock back like you did in the first quarter, would it likely be coupled with an increase in disposition activity? Michael P. Fitzmaurice: Hi, Michael. Good morning. Yeah, look, buybacks are tied to disposition activity. Our expectations for this year are between $400 million and $500 million. To date, we have about $145 million already closed and another $170 million under contract. We view buybacks through an opportunistic lens. When we see a disconnect between our intrinsic value and the current market price, we are going to lean in. We demonstrated this approach over the last six months. We have $500 million remaining on the program. In terms of appetite, it is obviously share-price sensitive, balanced with ensuring we maintain our low leverage of 4.5x and other competing uses of capital. Mikaela Lynch: Thanks, Michael. Our next question comes from John Kim from BMO. John, please go ahead. John Kim: Thanks, Mikaela. Just on the buybacks, you certainly make a compelling case to continue it. But looking at the market's reaction today and year to date, it does not seem like you are really being rewarded for it. So I am wondering, if this thing continues, would you consider pausing buyback activity? Laura Clark: Hey, John. Thanks so much for the question. At the foundation of how we are allocating capital is directing capital to the highest risk-adjusted returns and where we can drive FFO per share, NAV per share, and shareholder value and growth. We are going to continue to assess where those opportunities are. As Fitz mentioned, when you look at the disconnect between our intrinsic value and where the stock is trading, that has been a compelling use of capital to date. So we will continue to assess that, as well as opportunities to invest within our value-creation platform through our repositionings and select developments as we move through the year. Michael P. Fitzmaurice: Thanks, John. Mikaela Lynch: Our next question comes from Vince Tibone from Green Street. Vince, please go ahead. Vince Tibone: Hi, good morning. I wanted to dive into the leasing activity you mentioned was at a record high. Looking at the stuff, it looks like it is mostly driven by renewals and then the Tireco lease being a part of that. Outside of Tireco, are you generally trying to do more early renewals than in the past? Spreads have held up a little better there. Just trying to get a sense of your strategy on the renewal side in a softer market. Are you going after more renewals as a way to help retention or hold up better on the rent side of things? Curious about your approach. John Nahas: Yeah. Hi, Vince. This is John. As you noted, the Tireco transaction did help lift the overall leasing volumes. Beyond that, there are a number of deals that were made across various unit sizes across our portfolio. When it comes to renewals and retention, we are prioritizing that where we can. It is part of our overall strategy to prioritize occupancy. I will say that tenants in today's market—depending on the size range and depending on the submarket—might have more options that work for them. Part of the activity levels we are seeing with tenant touring is being driven by tenants evaluating what is available in the market relative to the space they currently have. When we see that happening, we are proactive in engagement and, in some cases, trying to preempt that exercise. That was part of the strategy with the Tireco renewal, as I mentioned. Our numbers show that. Our retention is up a bit, and renewals are making up a slightly higher component of our overall leasing activity in the quarter, which is a result of that approach. Mikaela Lynch: Thanks, Vince. Our next question comes from Vikram Malhotra from Mizuho. Vikram, please go ahead. Vikram Malhotra: Good morning. Thanks for taking the questions. I had one clarification and then a broader question. First, you mentioned sort of the leasing dollar ramp up. I am wondering if you can give us a square footage target you have to put to keep the core portfolio occupancy, and then how much you need to lease square footage-wise for the development portfolio to meet your goals? And then a bigger picture question: clearly you are selling attractively and buying back stock, but is there a thought to take a deep dive into the portfolio, maybe identify markets or submarkets you do not want to be in long term, and take advantage right now by doing a bigger sale, a $1 billion sale, or a mini-portfolio sale where you position this portfolio for the long run? Thanks. Michael P. Fitzmaurice: Sure. Good morning, Vikram. In terms of square footage that we expect to commence as it relates to our guidance, between 8 million and 8.5 million square feet this year, which includes about 1 million square feet from our repositioning and development. Laura Clark: In regards to your question on additional dispositions, we do continually assess the portfolio. We are looking to identify additional opportunities to build a more resilient and higher-growth platform and portfolio going forward. We are assessing risk, we are assessing capital needs, and we are assessing product that aligns with our ability to drive true value creation and differentiated growth. Importantly, as is contemplated in our current disposition guidance for the year, we are focused on recycling capital on an accretive basis that enables us to drive FFO and NAV per share growth. Mikaela Lynch: Thanks, Vikram. Our next question comes from Richard Anderson from Cantor Fitzgerald. Richard, please go ahead. Richard Anderson: Thanks. Good morning. I wanted to ask a broad question around some of the tangential demand factors around advanced manufacturing and data centers and even, in your case, aerospace and defense being a potential lightning rod of demand in Southern California, and how that manifests itself in your smaller-format consumption-oriented platform. Is there a dotted line, a straight line, a dark line to your business from these outside demand factors, or do you feel it directly in your leasing process? Thanks. John Nahas: Yeah. Hi, Richard. Data centers are not really a core component of our business. There are a lot of power demands that come with that, and so that one is not something that makes up a material opportunity for our portfolio. When it comes to advanced manufacturing, the answer is yes—it is a very bold, connected line. We see that demand being applied to spaces both large and small. The property I mentioned in the prepared remarks, Storm Parkway—pretty close to our average unit size—represents the typical unit in the Rexford Industrial Realty, Inc. portfolio, and we leased that to an advanced manufacturer. It is important to note there are different facets and layers to this sector. Some of them are the biggest household names that everyone recognizes, and then there are all the vendors and service providers that come with that industry. We see a lot of demand, especially in the South Bay markets, specifically the coastal portions of that market, where there is demand across all those ranges. We have executed deals with the household names, and we have been very happy with the level of demand that ranges from some of our smallest units in that market—going down to 5 thousand square feet that are a little bit more incubator type—up to things like Storm and beyond. Even Western, which we stabilized last year, which is a Class A development we delivered in Torrance, fits into that category. So it is a very relevant and active sector. As I mentioned, we see this demand in other pockets of San Fernando Valley, San Diego, and now a little bit in Long Beach and a little bit in Orange County. We spend a lot of time focused on the demand that comes from that sector in the market and have had some success to date. We are pretty pleased by it. Operator: Thanks, Richard. Mikaela Lynch: Our next question comes from Brendan Lynch from Barclays. Brendan, please go ahead. Brendan Lynch: Great. Good morning. Thanks for taking the question. Maybe talk about the long-term plan for the Tireco asset. I would imagine getting the lease renewal makes it easier to dispose of if you so choose, and it does not really fit in with the rest of your portfolio. How should we think about that going forward? Laura Clark: Hi, Brendan. John Nahas: Our focus was on addressing the lease roll for next year as we thought about structuring that renewal, so it is not really a read-through to any longer-term strategic plan for that asset. Michael P. Fitzmaurice: Thanks, Brendan. Mikaela Lynch: Our next question comes from Baird. Please go ahead. Analyst: Hey, good morning out there. I was hoping to unpack the decline in lease term signings during the quarter—if there is anything specific to call out there. You would think if tenants were seeing an inflection point or a bottoming-out phase, they would be seeking a little bit more term and lock in favorable terms. Is this a strategy that Rexford Industrial Realty, Inc. is pursuing to weather the near term and kick out for a cycle in, say, 2029 and beyond? Is there anything worth highlighting within the lease term, or are we just reading through one print and there is some hodgepodge numbers in there? John Nahas: Yeah. Hi. It really depends. There are tenants in the market who are trying to capitalize on current market rate levels and lock them up for longer periods of time, and in some cases, that might be the best decision to meet that requirement and do that deal. In others, we may proactively try to shorten terms strategically so that we can get to a reset moment if we believe that is going to come in the next few years. Tireco is a good example of that. We chose to limit that term on the extension to three years. It really depends on competitive supply and how much leverage there is on each side of the table for each situation. In terms of the overall statistics for the activity that we converted in the first quarter, it also comes down to size. The mix of units that falls into our volume can have an impact. Generally speaking, the smaller units in our portfolio on average tend to have shorter terms anyway, so that is impacting the number as well. Mikaela Lynch: Thanks. Our final question comes from Wells Fargo. Please go ahead. Analyst: Yes. Thank you. Good morning out there. I wanted to go back to rent a little bit. It looks like the pro forma targeted rent in your redevelopment portfolio seems to be a little bit higher than current market rent. Is that part of a mix issue, or is there some type of rent growth that is baked into that pro forma? Michael P. Fitzmaurice: No. That has to do with the mix issue. Operator: Thank you. Mikaela Lynch: That concludes the Q&A portion of our earnings call. I would now like to turn the call over to Laura Clark for closing remarks. Laura Clark: Thank you all for joining us today. We look forward to spending time with you throughout the quarter, and I hope everyone has a wonderful weekend. Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.
Operator: Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Hilltop Holdings First Quarter 2026 Earnings Conference Call and I would now like to turn the call over to Matt Dunn. Please go ahead. Matthew Dunn: Thank you. Before we get started, please note that certain statements during today's presentation that are not statements of historical facts, including statements concerning such items as our outlook, business strategy, future plans, financial condition, credit risks and trends in credit, allowance for credit losses, liquidity and sources of funding, funding costs, dividends, stock repurchases, subsequent events and impacts of interest rate changes as well as such other items referenced in the preface of our presentation are forward-looking statements. These statements are based on management's current expectations concerning future events that, by their nature, are subject to risks and uncertainties. Our actual results, capital, liquidity and financial condition may differ materially from these statements due to a variety of factors, including the precautionary statements referenced in the preface of our presentation and those included in our most recent annual and quarterly reports filed with the SEC. Please note that certain information presented is preliminary and based upon data available at this time. Except to the extent required by law, we expressly disclaim any obligation to update earlier statements as a result of new information. Additionally, this presentation includes certain non-GAAP measures, including tangible common equity and tangible book value per share. A reconciliation of these measures to the nearest GAAP measure may be found in the appendix to this presentation, which is posted on our website at ir.hilltop.com. I will now turn the call over to Jeremy Ford. Jeremy Ford: Thank you, Matt, and good morning. For the first quarter, Hilltop reported net income of approximately $38 million or $0.64 per diluted share. Return on average assets for the period was 1% and return on average equity was 7.1%. To summarize the quarter, PlainsCapital Bank reported a continued expansion in net interest margin while generating year-over-year growth in both core loans and core deposits. PrimeLending narrowed its operating loss when compared to the first quarter of 2025 as the mortgage business benefited from higher origination volumes. And HilltopSecurities delivered strong earnings as net revenues across its business lines showed good momentum to start the year. At PlainsCapital Bank, a favorable 3.38% net interest margin and the continued execution on a robust loan pipeline helped to produce $47 million of pretax income and a 1.2% return on average assets for the quarter. Operating results at the bank were supported by active management of the deposit portfolio and a further remixing of earning assets into core loans. This combination led to an increase in net interest income of $8 million versus the first quarter of 2025. Results in the quarter included a $1.8 million provision expense. This was largely driven by a stressed auto note credit that we have discussed in prior quarters. Will is going to provide further commentary on credit in his prepared remarks. The bank is poised to deliver continued core loan growth as we seek to organically recruit talented bankers to our platform and expand on our existing customer base by offering value-enhancing products and services. Additionally, we expect to grow core deposits on a year-over-year basis, but we anticipate modest seasonal volatility in core deposit balances. We believe the backdrop of a healthy Texas economy and a constructive shape to the yield curve will continue to provide a favorable operating environment for PlainsCapital Bank. Moving to PrimeLending, where the company reported a pretax loss of $2 million during the first quarter. The improvement in financial results was primarily driven by year-over-year increases in loan origination volumes and gain on sale margins as well as cost structure enhancements that were implemented in 2025. However, overall profitability within the mortgage business remains under pressure from stubborn headwinds such as affordability and the interest rate lock-in effect. The spring and summer months historically drive elevated origination volumes at PrimeLending. However, persistent volatility in long-term interest rates creates greater uncertainty around second and third quarter production than in a typical year. Given the structural challenges that homebuyers currently face, we anticipate that overall volumes will be materially impacted by prevailing mortgage rates. We remain focused on achieving internal productivity metrics to best position the business for profitability in this prolonged mortgage cycle. During the quarter, HilltopSecurities generated pretax income of $15 million on net revenue of $116 million for a pretax margin of 12.7%. Speaking to the business lines at HilltopSecurities. Public finance services continued to produce solid top line results as it delivered $23.6 million of net revenue. which is a modest decline versus last year's robust first quarter. Structured finance showed strength in a volatile interest rate environment as the business line delivered net revenue of $23.6 million benefiting from a material increase in DDA lock volume on a year-over-year basis. In Wealth Management, results further improved versus the prior year's first quarter from higher advisory fees and transaction fees. We continue to see organic growth in the wealth business in the midst of a competitive operating environment. Finally, fixed income services delivered $14 million of net revenue which was a 58% increase compared to the first quarter of 2025, primarily from strong sales volumes. Despite the highly volatile interest rate environment, HilltopSecurities produced a solid first quarter and improved pretax income by 60% on a year-over-year basis. The firm continues to add scale to our core competencies and deliver value to our clients. Moving to Page 4. Hilltop maintained strong capital levels with a common equity Tier 1 capital ratio of 19.1%. Additionally, tangible book value per share increased to $31.97. During the period, we returned $11.8 million to stockholders through dividends and repurchased $47.5 million in shares. Thank you. And I'll now turn the presentation over to Will to discuss our financials in more detail. William Furr: Thank you, Jeremy, and I'll start on Page 5. As Jeremy discussed, for the first quarter of 2026, Hilltop reported consolidated income attributable to common stockholders of $37.8 million, equating to $0.64 per diluted share. The quarter's results included 7% growth in net interest income, driven by ongoing efforts to manage deposit levels and costs, coupled with approximately 5% year-over-year average HFI loan growth at PlainsCapital Bank. In addition, PrimeLending and HilltopSecurities delivered growth in fees driven by improved origination volume and margins in mortgage and improved fixed income trading results during the first quarter of 2026. I would like to remind all call participants that the prior year's first quarter results included $41.8 million of revenue and $28.8 million of net income related to the sale of the merchant banking investment and a legal recovery at Plains Capital Bank. Turning to Page 6. During the first quarter, Hilltop's allowance for credit losses declined by $2.5 million to $89 million. This decline is largely attributable to a modest improvement in the overall credit quality of the portfolio, including the net impact of positive credit rating migration, payoffs and new loan growth during the quarter. While the economic condition impact during the first quarter was limited, we do believe that the macroeconomic environment, including the geopolitical landscape will continue to provide volatility and uncertainty in future periods. As we've stated since the introduction of CECL, we believe that the allowance for credit losses could be volatile and the future changes in the allowance will be driven by net loan growth in the portfolio credit migration trends and changes to the macroeconomic outlook over time. As of March 31, allowance for credit losses of $89 million yields an ACL to total loans HFI ratio of 106 basis points. Turning to Page 7. Net interest income in the first quarter equated to $112 million, including $1.3 million of purchase accounting accretion versus the prior year same period Net interest income increased by $7 million or 6.7%, reflecting our ongoing efforts to prudently lower deposit costs while continuing to focus on growing customer deposits and relationships across the franchise. At this point in the rate cut cycle, the team at Plains Capital Bank has achieved an interest-bearing deposit beta from the first 175 basis points of reductions from the Federal Reserve of 74%. While we're pleased with these results to date, we recognize that competitive intensity and pricing pressures could escalate in the future. Our current expectation for a through-the-cycle interest-bearing deposit beta is 60% to 65%. In addition to the improved interest-bearing deposit beta outcome, Hilltop's overall asset mix has improved versus the prior year with average excess cash levels declining by approximately $1.1 billion, while average HFI loans have grown by approximately $407 million. We expect that this mix shift will continue to benefit net interest income into the future quarters. Currently, our estimates for future NII and NIM reflect our expectation that the Fed will execute 2 additional rate reductions in 2026. I'm turning to Page 8. First quarter average total deposits were approximately $10.6 billion and have declined by approximately $82 million or less than 1% versus the fourth quarter of 2025. On an ending balance basis, deposits declined by $347 million to $10.5 billion from the prior quarter ending balance level. The decline in deposit balances reflects the expected outflows during the quarter from certain of our public entity and commercial clients, specifically related to seasonal distributions. Our expectation is that deposits will stabilize and grow throughout the second half of 2026. Looking at the chart on the left of the page, we're very pleased with the stability in our noninterest-bearing deposits as our banking teams continue to focus on growing relationships, including growth in our treasury management suite of products. During the quarter, total interest-bearing cost declined from the prior quarter by 20 basis points to 249 basis points as of March 31. Given the current market conditions, including a competitive operating environment, we do expect that interest-bearing deposit costs will begin to stabilize at these levels until we see additional movement from the Federal Reserve. Moving to Page 9. Total noninterest income for the first quarter of 2026 equated to $188 million. First quarter mortgage-related income and fees increased by $5 million versus the first quarter of 2025, reflecting growth in loan origination volumes of 16%. While the mortgage market had begun to stabilize during the fourth quarter of 2025 and the beginning of the first quarter of 2026, the volatility created by concerns over the Iran conflict has impacted markets interest rates and slowed mortgage demand during the latter part of the first quarter. Given the uncertainty regarding the ongoing conflict and its impact on inflation, yields and housing demand, we are maintaining our mortgage production volume expectation at $9 billion to $10 billion for the year. In addition, we expect the gain on sale margins will remain relatively stable at the current levels given these environmental challenges. Further, revenue from principal transactions, commissions and fees increased by $11.2 million, driven primarily by growth in fixed income services, coupled with growth in wealth management and structured finance. The most significant driver of the decline in revenue recorded in other noninterest income, related to the sale of merchant banking investment during the prior year same period, which as noted on the slide, equated to $41.8 million. It does remain important to recognize that both fixed income services and structured finance businesses, HilltopSecurities can be volatile from period-to-period as they are impacted by interest rates, overall market liquidity and production trends. Turning to Page 10. Noninterest expenses remained relatively stable from the same period in the prior year, declining by $3 million to $248 million. During the prior year same period, expenses were impacted by $4.8 million, resulting from the net impact of the merchant banking investment sale and the recovery recorded in professional services. Looking forward, we expect expenses other than variable compensation will remain relatively stable as the ongoing focused efforts related to streamlining our operations and improving productivity continue to support lower headcount and improved throughput across our franchise, helping to offset the ongoing inflationary pressures that persist in the market. Turning to Page 11. First quarter average HFI loans equated to $8.3 billion, which grew by $218 million or 2.7% versus the fourth quarter levels. Continuing from 2025 and into the first quarter of 2026, we have continued to see solid activity across our commercial loan pipelines. Growth in the pipeline has been geographically dispersed centered in commercial real estate lending. Further, while the most recent pipeline trends are encouraging, we are monitoring for any negative demand impacts resulting from the current conflict in the Middle East, higher interest rates and higher oil and gas prices. Based on the current business flows, we are expecting full year average HFI loan growth to range between 4% and 6%. As noted in prior quarters, we continue to retain mortgages originated PrimeLending and would expect to continue to do so in the coming quarters. Our expectation is that we will retain between $10 million and $30 million per month. I'm moving to Page 12. First quarter's results include $4.3 million of net charge-offs. This quarter's net charge-offs largely reflect the write-down of loans within the auto note finance credits that we've discussed over prior quarters. During the first quarter, the net charge-offs in the Auto Note portfolio equated to $3.6 million. As shown in the chart in the upper right of the page, nonperforming assets increased modestly, driven largely by the negative migration of one credit in our commercial real estate portfolio. Regarding credit overall, we've not seen any prevailing trends that cause undue concern in our portfolio. However, we do continue to monitor all aspects of the portfolio very closely as higher interest rates, international conflicts and higher energy prices could have a negative impact on our clients over the coming quarters. Moving to Page 13. As we move through the second quarter of 2026, there continues to be a lot of uncertainty in the market regarding interest rates, inflation and the overall health of the economy. We are pleased with the current positioning of our balance sheet and the ongoing work that our team is executing each day to move our company forward through what has been an ever-changing operating environment. As is noted in the table, our outlook for 2026 reflects our current assessment of the economy and the markets where we participate. Further, as the market changes and we adjust our business to respond, we will provide updates to our outlook on future quarterly calls. Operator, that concludes our prepared comments, and we'll turn the call back to you for the Q&A section of the call. Operator: [Operator Instructions] Your first question comes from the line of Woody Lay from KBW. Hannah Wynn: This is Hannah Wynn in for Woody Lay. My first question is on the NII range that you gave. I saw it bumped up this quarter from your previous guidance. And I was wondering if you could give a little color into this and where you're seeing loan yields come on and also where you might expect this to change if we don't end up seeing a rate cut this year. William Furr: Thanks, Hannah, for the question. Well, as we noted kind of in the prepared comments, we've seen what we believe to be pretty solid loan growth. We expect that loan growth to continue throughout the year. We're also seeing, as we noted, an improved deposit beta, the 74% through the cycle, while we would expect that likely diminishes if there are additional Fed rate cuts, we're very pleased with kind of where that has positioned us. So that was the basis in large part for the increase in the guide. As it relates to overall loan yields, our going on loan yields during the quarter were about 6.5% overall. So that's -- we view that as pretty favorable. Hannah Wynn: Okay. Great. And then my other question is on the capital front. I know you guys were active again on buybacks this quarter and wondering where you expect this activity to continue and also where you would put M&A in your capital priorities right now? Jeremy Ford: This is Jeremy. Yes, we were active. I think we're being more consistent with our repurchases this past quarter. And we have an authorization of $125 million for the year. So we'll be market dependent. We'll be looking for us to be consistent in our share repurchase and M&A is always available to us. We have the resources and the balance sheet. I think that -- so it would be a priority if we have the right strategic fit or if it is also a financially compelling transaction. Operator: Next question comes from the line of Matt Olney from Stephens. Matt Olney: I want to dig more into your mortgage expectations for the remainder of the year. Will, I think you mentioned you're keeping the mortgage volume guidance for the full year unchanged. I guess some of the other -- I think some of the other third parties have moved more cautious if rates have increased in recent months. So anything else you can share about your outlook here? And I see you're assuming some Fed cuts in the NII guidance. I'm curious if you're also assuming lower rates with your mortgage outlook. William Furr: Thanks for the question. From a mortgage perspective, what we're kind of asserting here is we don't have clear visibility into the buying season for the second and early part of the third quarter. What we do see, and we noted in our comments was more muted demand in March and certainly directly after the conflict began overseas. And so as a result of that, we likely are moving. We would say we're going to -- we're still within the range. But if we -- historically, we guided -- if you look through our guidance, it's kind of midpoint. And so as we see softness, you could move to the lower end. But that said, it all depends on how temporary kind of the effects are and how the overall market recovers once the conflict is resolved. So we're kind of cautiously optimistic there. And I know the team at PrimeLending continues to work hard to grow the business and originate mortgages for our customers. So that's the primary view there. As we get more clarity around the impacts and the longevity of the impacts, we'll provide more perspective next quarter. Matt Olney: Okay. Well, what about -- specifically about your rate assumptions. I mean we see the NII assumptions and the rate backdrop there. But what about the broker-dealer, the mortgage piece? Are you assuming any rate changes in other -- is it kind of through the entire enterprise? Just any more color on your rate assumptions. William Furr: Yes. So we -- our current assessment is 2 additional rate cuts, and we apply that across all of our businesses consistently. We also apply that to all of our guidance consistently. So that is the basis. I'd tell you, if we got no cuts, and that was all that occurred, which is also a pretty static and sterile analysis. But if that occurred, you could see NII move higher $8 million to $10 million, and then we would see likely a slightly better or improved revenue perspective in HilltopSecurities as well. Matt Olney: Okay. Appreciate that. And then as far as the net interest margin, great margin performance this quarter. It looks like the driver, interest-bearing deposit costs went lower. I was hoping you could speak to any more drivers of the margin performance this quarter? And just how sustainable do you think these levels are? William Furr: Yes. So I think from a deposit perspective, we feel good about the work the team has done. The 74% interest-bearing deposit beta through this point in the cycle, we feel very good about and it's higher than we've historically modeled or experienced. That said, there -- and we noted this, there continues to be kind of ongoing competitive intensity. And by virtue of that, we could see the need to increase deposit rates modestly. That said, we're going to be cautious and thoughtful about that because we are focused on growing overall relationships and deposit balances over time. And that's why I noted that our kind of through the cycle, if we get some additional Fed activity in terms of downward rates, we'd expect to see that beta back up to the 60% to 65% level. And so that's kind of how we're thinking about it. As you look at NIM, we do believe we've kind of gotten to a peak NIM level given a consistent Fed. And so we would guide NIM flat to modestly down from here. And again, we feel good about the guidance we provided on NII as it relates to both interest rates as well as our balance sheet positioning and our overall deposit cost. Operator: Your final question comes from the line of Cole Martin from Raymond James. Cole Martin: I'm on for Mike Rose this morning. Just on expenses, I was hoping you could talk through your nonvariable expenses guide of 0% to 2% and kind of what the puts and takes would be to really get to flat growth this year? And then also how much of that is technology driven? William Furr: Yes. So I think the guide really presumes, I'd say, normal inflationary increases in personnel-related expenses as well as our technology service provider costs. Those are in there. We are obviously making thoughtful investments across the franchise to grow our bankers, our client-facing and customer-facing associate groups. And so that's really the basis of what would drive it higher. And we would expect it to be modestly higher on a year-over-year basis, just given those investments that we're making. Obviously, we continue to make investments in technology, our data platforms, the deployment of AI where practical across our organization certainly is a key focus as well. And those investments are kind of considered in the guidance as well as we look forward. So from an expense perspective, we are very pleased with the work the team has been able to do to drive productivity throughout the organization and keep our expenses other than variable compensation relatively stable over the last couple of years, but we do continue to see inflation, and we also expect to continue to make again, investments in client-facing resources as well as technology to continue to position the organization to be successful into the future. Cole Martin: Great. And then on deposits, I was hoping you could give a little bit of color on how much of an impact deposit competition that's had and kind of where you see the health of the consumer going out through 2026? William Furr: Yes. So I think deposit competition remains robust for sure. And what I would say is we've seen largely rational behavior, what we would call largely rational behavior by the competitive set through this portion of the rate cycle. And so we've been able to operate within that. And so when I say rational, we don't see a lot of competitors offering rates that we would call irrationally high, even though there's certainly activity out there to kind of grow clients and teaser rates and the thing and the like. So from that perspective, we feel like the competitive intensity is still there. It's pretty high. But that said, it seems rational at this point. Operator: There are no further questions. That concludes the question-and-answer session and today's call. You may now disconnect.
Operator: Good morning. And welcome to the SB Financial Group, Inc. First Quarter 2026 Conference Call and Webcast. I would like to inform you that this conference call is being recorded and that all participants are in a listen-only mode. We will begin with remarks by management and then open the conference up to the investment community for questions and answers. I will now turn the conference over to Sarah S. Mekus with SB Financial Group, Inc. Please go ahead, Sarah. Sarah S. Mekus: Thank you, and good morning, everybody. I would like to remind you that this conference call is being broadcast live over the Internet and will be archived and available on our website. Joining me today are Mark A. Klein, chairman, president, and CEO; Anthony V. Cosentino, chief financial officer; and Steven A. Walz, chief lending officer. Today’s presentation may contain forward-looking information. Cautionary statements about this information, as well as reconciliations of non-GAAP financial measures, are included in today’s earnings release materials as well as our SEC filings. These materials are available on our website and we encourage participants to refer to them for a complete discussion of risk factors and forward-looking statements. These statements speak only as of April 24, 2026, and SB Financial Group, Inc. undertakes no obligation to update them. I will now turn the call over to Mr. Klein. Mark A. Klein: Thank you, Sarah, and good morning, everyone. Welcome to our first quarter 2026 conference call and webcast. First quarter represented a solid start to the year for SB Financial Group, Inc. and really reinforces the consistency and resilience of our operating model. Results reflected balance sheet performance across the franchise, supported by loan growth, stable net interest income, improved fee-based revenue, disciplined expense management, and sound credit quality. This quarter also marked the first full anniversary of the Marblehead acquisition, and we now view that transaction as a solid contributor to our funding base, expanded presence in Northern Ohio, and overall franchise stability. While the operating environment remains competitive, we continue to feel good about our position. The balance sheet remains sound. Our credit metrics continue to compare favorably, and our business line provides a healthy mix of margin and fee-based revenue. We believe that combination, along with our disciplined approach to growth and capital deployment, supports our ability to build long-term shareholder value. Briefly, some highlights for the quarter. Net income was $4.3 million with diluted EPS of $0.90 compared to GAAP diluted EPS of $0.33 for 2025. This now marks our 61st consecutive quarter of profitability. Tangible book value per share ended the quarter at $18.45 compared to $15.79 for 2025 and $18 at year end. Adjusted tangible book value per share, excluding AOCI, now comes in at nearly $22. Our net interest income totaled $12.7 million compared to $113 million in 2025 and $12.7 million in the linked quarter. The year-over-year improvement was driven by higher interest income on loans and a stable funding profile, while the linked-quarter comparison remained relatively consistent. Balances increased by approximately $92 million from the prior-year quarter and approximately $500 thousand from the linked quarter, reflecting continued production across the franchise and extending our trend of sequential quarterly growth. Total deposits in the quarter were $1.37 billion compared to [inaudible] for 2025 and $1.3 billion at year end. On a year-over-year basis, deposits increased $100 million, or nearly 8%, reflecting continued organic deposit growth and stable client relationships across the franchise. Noninterest income improved to $4.7 million from $4.1 million in the first quarter of the year and $3.7 million from the linked quarter. Percentage of fee income to total revenue of 27% was slightly higher than the prior year and well ahead of the linked quarter. Noninterest expense totaled $11.9 million, and improved from the prior-year quarter while increasing modestly from the linked quarter. The prior-year quarter included acquisition-related expenses and incremental operating costs associated with Marblehead, which elevated that comparison period. Asset quality continues to remain a strength of SB Financial Group, Inc.; nonperforming assets totaled $4.8 million, or 0.3% of total assets, compared to $6.1 million, or 0.41%, in the first quarter. While nonperforming assets increased modestly from year end, overall credit performance remained sound, and reserve coverage remained strong. I am especially pleased with the efforts of not only our lenders, but more importantly, our collection team, which drove our total delinquency level down to just 28 basis points at quarter end. As we have revealed in prior quarters, we key on our five strategic initiatives: growing and diversifying revenue; more scale for efficiency; greater share of the client’s wallet for more scope; operational excellence; and, of course, asset quality. Looking a little closer at revenue diversity, mortgage originations totaled approximately $66 million compared to approximately $40 million for 2025, and approximately $72 million in the linked quarter. The mortgage business remains an important part of our franchise, helping us expand household relationships while also contributing meaningful fee income across the company. While volume was weaker than we anticipated in the quarter, the pipeline has stabilized at approximately $35 million, and we anticipate approximately a 25% increase in volume for the second quarter sequentially from the linked quarter. Big title continued to perform well during the quarter, benefiting from both internal referrals and continued traction of clients outside of the bank. This business remains a valuable part of our product set and an important contributor to fee-income diversification. On the scale front, the Marblehead acquisition continues to support our funding profile, and we remain pleased with the stability of those client relationships just one year after closing. Deposit growth continued to provide meaningful support to our balance sheet. We remain pleased with the stability of the Marblehead relationships and, more broadly, continue to see opportunities to grow deposits organically through client-calling efforts, treasury management activities, and the broader relationship model that has served us well across our markets, particularly with the current market disruption and consolidation. As we discussed previously, we committed to two nearby markets recently, Angola, Indiana, and Napoleon, Ohio, and these results have exceeded our admittedly aggressive goals. We have closed nearly $19 million in loans and approximately $17 million in deposits in just five months of operation. These two markets have clearly been at the forefront of the market disruption I just mentioned, and we certainly have seized on that opportunity. Client relationships—more scope—remain focused on serving clients through our relationship-based model that emphasizes responsiveness, local market knowledge, and a full suite of products and services. We continue to believe that approach, combined with our hybrid office model and expanding digital capabilities, positions us well to serve our clients across both legacy and newer urban expansion markets. Referral activity continues to be an important tool in strengthening household relationships across our business lines, and we continue to view that cross-functional approach as an important part of deepening client relationships across the franchise and delivering more scope and a greater share of the client wallet. On operational excellence, we remain focused on matching growth with disciplined execution. The first quarter reflected that mindset with expense levels improving from the prior-year period and remaining controlled relative to revenue. Plus, we continue to evaluate staffing, technology, and physical presence across the franchise to ensure resources are always aligned with current client activity and long-term market opportunities. Capital levels remain strong with improvement in total capital and higher ratios for both TCE and CET1 regulatory capital. And finally, before I turn it over to our CFO, Anthony V. Cosentino, criticized and classified loans coverage remains strong and continues to reflect our conservative approach to risk management. The allowance for credit losses at 1.39% remained strong relative to total loans, with criticized and classified loans at just $4.6 million, down $25 million, or 35%, from the prior year. We continue to emphasize disciplined underwriting, proactive management of problem assets, and prudent growth across all markets. We believe that combination remains one of the key differentiators for SB Financial Group, Inc. and an important metric for our long-term performance. I would like to ask Anthony to give us some more details on our quarterly performance. Anthony? Anthony V. Cosentino: Thanks, Mark, and good morning again, everyone. Let me outline some highlights and important details of our first quarter results. On the income statement, the first-quarter total operating revenue increased to $17.4 million, representing a 13.2% increase from the $15.4 million in the prior-year period and a 6.1% increase from the linked quarter. As Mark noted, this quarter reflected a balanced revenue performance with stable net interest income and a stronger contribution from our fee-based businesses. Mark also detailed our GAAP EPS earlier in the call, and when we adjust both years for OMSR recapture and the Marblehead merger costs, EPS would be $0.63 for the current period compared to $0.42 in 2025, up over 50% on an adjusted basis. Net interest income was up $1.4 million, or 12.7%, from 2025 and consistent with the linked quarter. The year-over-year increase was driven primarily by continued balance sheet growth, better mix, and the repricing benefits within the portfolio. Total interest expense increased modestly from the prior-year quarter as higher volume-driven deposit costs were partially offset by lower costs across other funding sources. While funding costs remain an important point of focus, the overall funding profile of the company remains well aligned with the asset growth we have achieved over the last year. Net interest margin for the quarter was 3.49% compared to 3.41% in the prior-year quarter and 3.52% in the linked quarter. Even with net interest income remaining flat sequentially, the company continued to benefit from the larger balance sheet and the repricing of interest-earning assets. Noninterest income increased to $4.7 million; on a percentage basis, that represents an increase of approximately 14.7% from the prior-year period and 27% from the linked quarter. The quarter-over-quarter and year-over-year improvement was driven by higher mortgage loan servicing fees, stronger gains on sale of mortgage loans and OMSR, and improved gains on the sale of SBA loans. The total mortgage banking contribution for the quarter was $1.8 million compared to $1.5 million in the prior-year quarter and $1.5 million in the linked quarter. We continue to utilize our hedging program, which was in the money for the quarter, as it successfully offset the disruption in the rate markets. Operating expenses totaled $11.9 million in the quarter, down $500 thousand from the prior year and up just $700 thousand from the linked quarter. The year-over-year comparison benefited from the one-time merger-related costs that were present in 2025. The linked-quarter increase was modest and reflects normal quarterly expense variability. Our efficiency ratio for the first quarter was 68.1%, representing a meaningful improvement from the prior-year period and continued stability on a sequential basis. Our adjusted efficiency ratio was down by over 500 basis points from the prior period and the adjusted operating leverage was a positive five times. Turning to the balance sheet. Loan balances ended the quarter at approximately $1.18 billion, reflecting continued year-over-year growth and a modest increase from year end, with loans-to-assets at a healthy 74%. We remain encouraged by the continued stability in production across the franchise, and we believe the current balance sheet remains well positioned to support additional disciplined loan growth during the year. Our loan-to-deposit ratio at quarter end was 86%. Although we continue to view the low to mid-90s as a reasonable long-term operating range, the current funding profile gives us flexibility to support loan growth while maintaining strong liquidity and a balanced risk posture. On capital management, during the quarter, the company repurchased approximately 29 thousand shares at an average price of $21.12. We have guided lower on the payback on the buyback for 2026 as prices are at or near our adjusted tangible book value. We are also cognizant of the impending potential call of our sub debt that would require a capital outlay, potentially impacting an aggressive buyback posture moving forward. Turning lastly to asset quality. While nonperforming assets totaled $4.8 million and were relatively unchanged compared to the linked quarter, we did foreclose on a large property that elevated OREO with a like-size reduction in NPLs. We feel confident in our collateral position and do not anticipate further write-downs from this relationship. The allowance for credit losses as a percentage of total loans is 1.39% compared to 1.36% in the linked quarter and 1.41% in the prior year. Coverage of nonperforming loans was higher than both the linked and prior-year quarters, underscoring the continued strength of the company’s reserve position and disciplined approach to credit risk management. Total delinquencies were also down substantially for both the linked and prior year, and when we exclude loans on nonaccrual, the delinquency rate is effectively zero. I will now turn the call back over to Mark. Mark A. Klein: Thank you, Anthony. We certainly remain encouraged by our positioning as we move through 2026, supported by strong credit fundamentals, a growing balance sheet, and continued discipline in expense control and capital management. We are focused on executing across all of our footprint, optimizing our lenders and lending capacity, and driving cross-sell activity to support core deposit growth while maintaining a balanced approach to risk. We will be announcing a quarterly dividend of $0.16 per share, equating to an annualized yield of approximately 2.8%, representing 25% of our earnings. We continue to believe the current environment presents attractive opportunities to build on our growth trends. Our capital levels provide flexibility. Our collective experience provides a clear path to a broader footprint. And our continued focus on improvement supports our long-term objective of scaling our franchise toward our $2 billion strategic goal of a balance sheet. We will now open the call for questions. Operator: Thank you. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, press star then 2. The first question will come from Brian Joseph Martin with Breen Capital. Please go ahead. Brian Joseph Martin: Hey, good morning, guys. Just maybe a couple things here. You talked a little bit on the call about the success you have had in the newer markets, Mark, that you mentioned. When you look at loan growth and the deposit growth going forward and the benefits from these new markets, can you frame up your outlook on loan growth here? Is there more to come from those new markets, or was that the low-hanging fruit and there is still more upside? Just frame up your outlook on loan growth and the pipeline here. Mark A. Klein: Sure. As I am sure you know, Brian, Angola was a mortgage production office originally, and when COVID hit, we left it a mortgage production office with some wealth management business. Recently, we knew there were opportunities in Angola to develop it into a full-service office, and it has been really good. We have a great staff and certainly a lot of opportunity. We used to spend some time up in that market, but when COVID hit, we pulled back. Angola is doing well, and we are right on the verge of having black numbers coming out of that with a positive P&L. Napoleon was specifically a result of the disruption in the market from consolidation and mergers. That has great potential. As I have mentioned before on prior webcasts, there is probably $1 billion in that market that has now become deposits of larger regional banks, whereas before they were deposits of smaller community banks. We feel there is a great opportunity to continue to lever that. We have a great staff, and that will provide not only lending growth but also nice deposit opportunities in a market that is longing for a community bank. Lastly, we have been in Gahanna for a period of time, generally as a mortgage loan production office, and most likely by the end of the year, we will be having more conversations about opening that as a full-service office in Columbus, because we know there are opportunities there with just the one officer we have in Dublin. That is an update on those offices in terms of opportunities for de novo expansion. Brian Joseph Martin: Okay. And as far as the pipeline and what you are expecting in the coming quarters? Mark A. Klein: Yes. Steven can speak to the pipeline. Steven A. Walz: We have had a few payoffs recently, not because clients wanted to leave us but because they sold one of their projects. Generally, the pipeline is pretty decent. As we have discussed many times, an outsized segment of our growth has come from Columbus and continues to do so. But we also indicated this year we were hoping that our other markets—Fort Wayne, Indianapolis, Toledo, and Findlay—all kick in and provide their portion of our $75 million to $100 million growth. Consistent with that, we continue to focus on expanding the breadth of growth across those markets. Columbus delivers a lot of growth for us and will continue to do so, but we are committed to expanding that growth story to those other urban markets, and that includes the Angola and Napoleon offices. There is more growth there, and we think our model serves those markets well. Mark A. Klein: Yes, a lot of disruption in those markets has played well into our hand. We could have gone there before the disruption, but it would not be quite as robust as we are finding it today. Brian Joseph Martin: Okay. With geopolitical risks out there, we have heard more people say near-term sentiment is not quite as positive on loan growth. It sounds like your pipeline is still good and you are still optimistic about achieving your targeted goals for the year. Steven A. Walz: Yes, I think that is true, Brian. We have not seen a whole lot of blowback from what is going on in the Middle East. Our ag portfolio, which is not insignificant, has by and large prepurchased supplies that could be impacted, so we would not expect any hit to our ag portfolio this year, and hopefully things do not persist beyond this year. Mark A. Klein: And I will reiterate our credit culture: we are never going to get enough yield to compensate for an undue amount of risk. We walk away from some deals. I think we could grow in the low double digits if we wanted to, but we stay disciplined. We like credit quality and we know the effect that has on profitability should we lose what we have worked hard to get. Steven A. Walz: Certainly. The markets we are in would afford that kind of opportunity, but we walk away from deals that do not make sense for our credit culture. Brian Joseph Martin: Maybe, Anthony, on the margin. The liquidity you have today seems to give you a little cover on potential deposit competition. How do you feel about the margin over the next couple of quarters in a stable rate environment? Anthony V. Cosentino: We are down, call it, five basis points from the linked quarter, really a function of being very liquid. We had a lot of deposit growth—$65 million in the quarter. We were not terribly aggressive on the rate side, even in the new markets—maybe 25 basis points above market, nothing crazy. I think there has been a little bit of money parking in the markets and we were the benefactor of that. A number of new clients we have gotten via disruption have brought in deposit dollars. I do think liquidity will wane a little in the coming quarters. We have already started to get a little stickier on deposit pricing, not really matching some aggressive rates. I think we are in a good spot. I think margin at 3.47% is probably going to move up a few basis points in the second quarter because I think we will get back to having, call it, $15 million to $20 million of loan growth in the quarter versus the roughly $1 million we had in the quarter we just finished. Brian Joseph Martin: And in terms of the cost of deposits, are we trending higher from here than lower as you go into next year with competition? Anthony V. Cosentino: I had been pretty confident that deposit costs would trend higher, and they have continued to trend a bit lower, so I have missed that so far. But I still believe the market disruption we have had will not continue indefinitely. Competitors are going to become aggressive. They are focused on growing loans and will have to fund it. Also, deviating from CRE a bit to more ag-based C&I brings a deposit base we are very happy about that we did not have prior to six months ago. Not only are we acquiring balances, the full relationship comes with deposits, which has been a real needle mover. Brian Joseph Martin: In terms of the mortgage outlook, you talked about 20% to 25% production growth next quarter. Bigger picture, where rates are today—what are you seeing for mortgage for the full year? Mark A. Klein: I have been thinking $350 million, expecting a bit of a play in the 10-year, which has been temporarily disrupted and is a bit of a fly in the ointment. We just hired a couple of new high-producing MLOs in some urban markets and we are gaining traction and more representation in some of our legacy markets. Average production has gone down, which is why we brought on more MLOs. With a larger team, and given the 80/20 rule, I am still optimistic we can deliver something closer to that $350 million to $400 million number, though I am sure Anthony has a different number. Anthony V. Cosentino: In March, we did 45% of our total first-quarter volume. We did just shy of $30 million in March. Our pipeline is around $35 million. I think we are going to do roughly $90 million in the second quarter and would suspect we repeat that in the third quarter if things stay where they are. Hiring high-performing folks in various markets tells you our model is still working and the volume is out there. That would put you on pace to get to $310 million to $325 million on the high end for the full year. I think rates will be relatively stable. Mortgage rates have fought back against the increase in the long end of the curve, and as long as we are at 6% to 5.875%, I think we can hang in there. You are starting to see a lot of secondary people get aggressive to try to get volume, and the FHLB is getting aggressive on very low-rate opportunities to sell; we will be participating, which should benefit us. Mark A. Klein: I am hopeful we will get a play in the 10-year. With a larger balance sheet, monthly contribution keeps compounding; we do not need to do $100 million of mortgages every month. We have the balance sheet size and the operating revenue now. Brian Joseph Martin: And the mortgage folks you hired—are you still planning to hire more, and were those in metro markets? Which markets did you add people in? Mark A. Klein: Yes. We have added one in Cincinnati and Indianapolis. We have a couple of individuals considering roles in some of our legacy markets. Findlay has been a gap for us, but we have had enough people to cover those markets. Having people who live, work, and play in the market is more accretive to all business lines, like in Angola. We are currently hunting down somebody in the Angola market. We are committed to the business line. We love the gain on sale, and getting another household with more products and services is a big deal. Brian Joseph Martin: Last two for me. On expenses, big picture—how you are thinking about the full year and ebbs and flows? Any initiatives to take it off the current run rate, or is the current run rate a decent level to think about in the coming quarters? Anthony V. Cosentino: I think the run rate is in pretty good shape. We have consolidated some areas in our operational sections and made efficiencies, which will continue to help us. The bulk of our technology spend on new things is largely in the rearview mirror. We do have a conversion to Fiserv at the end of the year that I think will be a net zero in 2026 and will be a bit of a headwind as we go into 2027 as we try to find opportunities. I am very hopeful on the expense side. As we have gotten bigger, we have found ways to do more with less, which is what we need to get to continually. Brian Joseph Martin: And capital—you said the buyback is a little bit lower. Near term, you talked about sub debt and maybe potentially M&A. Is that how to think about capital deployment today? Anthony V. Cosentino: Yes. We have been very aggressive on the buyback and I still think it is a great use of internally generated capital, but at the price where it is today, we can afford to slow down a bit. We have sub debt in June we have to think about. We also have a lot of opportunities to deploy, and if we do another $160 million of asset growth in 2026 like we did in 2025—which I do not anticipate—we would be stressed a bit on regulatory capital. We have to be cognizant of that. Mark A. Klein: On M&A, we continue to keep our ear to the ground—downstream as well as midstream and everything in between—but nothing transformative at this point. We know organic is great, but clearly M&A is divine. We continue to look at opportunities in the region. Brian Joseph Martin: And credit all sounds good. Continued success on the credit front—nothing really causing problems in terms of risks you are seeing? Mark A. Klein: From a high level, when you have a downturn, you get a good idea of underwriting and administration, and we have not had much of a downturn. Our clients’ balance sheets are pretty liquid. We get personal guarantees, rely on makers, and have good projects in urban markets. Generally, all is good, but as we all know, you have it until you do not. We are precautious on the risk we take and the deals we do. If we wanted to really light it up, the opportunities are there—17 different lenders out there trying to find deals—but our job is to pull back on the reins to keep this measured and on the tracks. Steven, any more perspective? Steven A. Walz: Yes. The stability of our asset quality continues. The credits we are working through are not a function of turnover and new credits coming into nonaccrual. It is largely the same ones we have talked about in the past. The wheels of justice grind a little more slowly than we might like. As Anthony referenced, we did get control of one piece of collateral, and we are very confident in our position. On those credits, we think we are going to get out where we ultimately belong. Brian Joseph Martin: And lastly, deposits and liquidity—you had good growth. Do deposits tail off a bit here? How are you thinking about deposit growth from here? Anthony V. Cosentino: I think we are going to have a down quarter in the second quarter on deposits. We already know of some larger relationships that are moving out for normal business reasons. I do not think we will have enough on the retail side to overcome that. I think we will probably be at a 90% loan-to-deposit ratio for the rest of the year, and that is a comfort level for us. We do not need to be overly priced on deposits to get there. We are only nervous about liquidity if the loan pipeline gets to the upper end of our range. We are comfortable at mid- to high-single-digit growth and funding that. If we get above that level is when we might have some stress. Mark A. Klein: I would not downplay the market disruption, which has been wonderful for us. We have garnered relationships we might not have been able to bring over otherwise. That has just begun. We are nine months into our plan to find more of disrupted companies’ assets, and we are at that $100 million to $110 million number. We are cruising along to our strategic goal of a few hundred million—lots of opportunities and a bigger job to be done. Brian Joseph Martin: Gotcha. Okay. Well, thanks for taking the questions, guys. I appreciate it. Operator: This concludes our question and answer session. I would like to turn the conference back over to Mr. Mark A. Klein for any closing remarks. Mark A. Klein: Thank you, and thanks for joining us this morning. We look forward to having you join us in July for our second quarter 2026 results. Thanks for joining us. Goodbye. Steven A. Walz: Have a great day. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Apogee Enterprises Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I will now turn the conference over to Jeremy Steffan, Vice President, Investor Relations and Communications to begin. Jeremy, please go ahead. Jeremy Steffan: Thank you. Good morning, and welcome to Apogee Enterprises Fiscal 2026 Fourth Quarter Earnings Call. On the call today are Don Nolan, Apogee's Chief Executive Officer; and Mark Augdahl, our Chief Financial Officer. During this call, the team will reference certain non-GAAP financial measures. Definitions of these measures and a reconciliation to the nearest GAAP measures are provided in the earnings release and slide deck, which are available in the Investor Relations section of our website. As a reminder, today's call will contain forward-looking statements. These reflect management's expectations based on currently available information. Actual results may differ materially from those expressed today. More information about factors that could affect Apogee's business and financial results can be found in our press release and in the company's SEC filings. With that, I'll turn the call over to Don. Donald Nolan: Thanks, Jeremy, and good morning, everyone. We're glad you could join us for our fourth quarter earnings call. As I spent more time with the business over the past several months, engaging with our teams, visiting our operations and working closely with our leadership group, I've gained a deeper appreciation for both the strengths of our portfolio and the discipline embedded in how we operate. While the market environment continues to evolve, we are focused on executing what is within our control, managing through near-term pressures and continuing to build a strong foundation for long-term sustainable performance. I'm confident in the organization we have in place and the enhanced strategic direction we are taking as we move forward. With that said, I'm pleased to share that our results for the quarter were ahead of our expectations on both the top and bottom line despite what continued to be a dynamic and challenging environment. I'd like to thank our team of dedicated and resilient employees for their focus on delivering exceptional products and services to all of our valuable customers. Fiscal 2026 was a year of disciplined execution for Apogee as we navigated a difficult environment while continuing to strengthen our operating foundation. Our teams delivered meaningful gains in safety, service and productivity and generated solid cash flow. I'd like to emphasize 3 areas that position us particularly well for the future. First, Performance Services successfully integrated UW Solutions into the segment. They delivered upon the first year financial targets for the acquisition of $100 million in revenue and adjusted EBITDA margin of at least 20%. The total segment delivered revenue of almost $200 million and an accretive margin for the company, and we're excited for the future given the expanded market, greater geographical reach, along with the added substrate capability and coating technology. Second, the Apogee management system continues to drive meaningful improvements across our manufacturing footprint, utilizing technology with embedded AI. Last fiscal year, our Architectural Metals segment made significant progress improving outcomes for our Tubelite brand, completing a value stream redesign, which resulted in improved service levels and lead times. We also reconfigured our Linetec finishing facility in Wausau, Wisconsin, creating a tighter, more connected footprint that streamlined anodizing, paint and packaging operations. This drove significant reductions in material movement, ultimately creating a leaner and safer environment. EMS has truly become a cornerstone of Apogee's operating success, creating a safer work environment for our teams, delivering better quality, service and reliability for our customers and building a culture of continuous improvement that will drive even stronger outcomes in the years ahead. And third, we actively managed our cost structure and manufacturing footprint to mitigate portions of direct and indirect tariffs while driving efficiencies across the organization. These decisions were difficult, and we certainly don't take them lightly, but we are confident that the actions further position Apogee to successfully navigate the market headwinds we see today and expect in the near future. What we delivered in fiscal 2026 reflects more than just execution. It reflects the strength of a strategy that has guided Apogee through change and positions us to lead. The strategy we put in place in 2021 continues to serve us well with a clear focus on becoming the economic leader in our target markets, actively managing our portfolio and strengthening our core capabilities and platforms. That focus has driven meaningful improvement across the business, including a more competitive cost structure through facility consolidation and organizational alignment, tighter supply chain integration and greater leverage of enterprise back-office functions. At the same time, the Apogee Management System delivered substantial gains in productivity and safety. We elevated pricing discipline and sharpened our portfolio, resulting in higher margins and increased profit dollars over the past 5 years. Moving forward, we are enhancing these strategic pillars to position Apogee as a more growth-oriented customer-obsessed organization. Pillar #1 is focused on accelerating leadership in target markets by differentiating through deep customer focus and insight, shaping what we offer and how we deliver it to be the economic leader in the markets we serve. The second pillar involves growing and strengthening the portfolio through organic and inorganic advancements and differentiated solutions that address evolving customer challenges and deliver lasting value. And the third pillar is all about advancing core capabilities by driving a culture of continuous improvement through operational excellence, talent development and technology that truly elevates the customer experience. Building on the progress we've made, we continue to identify areas for growth in nonresidential construction markets. We see opportunities to further leverage our deep knowledge of this industry by offering differentiated products, project expertise and strong customer relationships across architectural building products and services. At the same time, we are evaluating adjacent opportunities and growth avenues that build on our core capabilities in performance surfaces, including the selective expansion of substrate capabilities and advanced coating technologies. These opportunities have the potential to extend our reach into new markets and geographies, broaden our end market exposure and provide platform style growth options for the future. Our focus remains to be disciplined on execution and thoughtful with our capital allocation as we evaluate opportunities intended to support durable returns, long-term earnings and cash flow generation across the portfolio. By cultivating a broad growth mindset, deepening our commercial and customer insight capabilities and intentionally expanding into new and adjacent markets, we are positioning Apogee not only to respond to evolving customer needs, but to anticipate them, shaping demand, redefining our competitive space and creating enduring value over time. As we look ahead, we're reminded that our industry will always move through cycles. But Apogee's future is not defined by those cycles. It's defined by the choices we're making today. By investing in the strategic growth areas where demand is strongest and by elevating our focus on delivering exceptional value to our customers, we're building a company positioned not only to navigate the near-term environment, but to achieve long-term sustainable success. I'm deeply proud of what our teams have accomplished, and I'm even more confident in where we're headed. Together, we are creating Apogee that is stronger, more resilient and capable of delivering exceptional value for all stakeholders. With that, I'll turn it over to Mark to cover the financials and our fiscal 2027 outlook. Mark Augdahl: Thanks, Don, and good morning, everyone. First, I'll begin with a review of the results of the fourth quarter, followed by full year commentary and then discuss our outlook and assumptions for fiscal '27. Starting with our consolidated results. Net sales increased 1.6% to $351.4 million, primarily reflecting favorable pricing in the Metals segment that helped offset a portion of higher aluminum costs. Favorable mix also contributed, partially offset by lower overall volume. Adjusted EBITDA margin increased to 12.1% compared to 11.9% a year ago. The improvement was primarily driven by lower incentive compensation and risk-related insurance expenses, along with productivity improvements. We also benefited from cost savings associated with Fortify Phase 2 with actions substantially completed during the quarter. The improvements were partially offset by higher aluminum costs, the impact from the reduction in volume and higher health insurance costs. Adjusted diluted EPS was $0.92, slightly ahead of our expectations and up year-over-year, primarily driven by lower amortization and interest expense. Turning to our segment results. Metals net sales declined approximately 2% to $110 million, reflecting continued challenging market conditions. The decrease was primarily due to lower volume, partially offset by favorable price and product mix. Despite the revenue decline, adjusted EBITDA margin improved to 6.5%, driven by cost savings from Fortify Phase 2 and favorable product mix, partially offset by higher aluminum costs that were not fully offset by those pricing actions and the impact of lower volume. The Services segment delivered its eighth consecutive quarter of year-over-year net sales growth, primarily due to increased volume from project timing, partially offset by price. Adjusted EBITDA margin decreased to 7.5%, mostly driven by lower price, partially offset by the impact from higher volume and improved productivity. Backlog for services ended the quarter at $694 million, down approximately 4% compared to the prior year, but we are well positioned entering the upcoming fiscal year. Glass net sales declined to approximately $67 million, primarily driven by lower volume and price due to continued end market demand softness. Adjusted EBITDA margin also declined to 13.5% due to lower volume and price and higher material and freight costs, partially offset by productivity improvements, lower incentive compensation and warranty-related expenses. Performance Surfaces net sales increased to over 13%, driven by volume growth supported by share gains in the retail and fine arts market channels. Adjusted EBITDA margin decreased due to higher material and manufacturing costs, partially offset by net sales leveraged from higher volume. On a full year basis, the company net sales increased 3.2% to $1.4 billion, driven by $65.3 million of inorganic contribution from the acquisition of UW Solutions. This growth was partially offset by lower volume, reflecting softer end market demand in Metals and Glass throughout the fiscal year. Adjusted EBITDA margin declined to 11.9%, primarily due to higher aluminum costs as well as the impact of lower volume and higher health insurance costs. These headwinds were partially offset by lower incentive compensation and risk-related insurance expenses and savings generated under Fortify Phase 2. Turning to cash flow and the balance sheet. Net cash provided by operating activities was $55.8 million in the quarter compared to $30 million a year ago. The improvement was driven by higher net income and working capital improvements. On a full year basis, net cash from operating activities was $122.5 million and similar on a year-over-year basis. Also during the fiscal year, we used $27.3 million for CapEx, prioritizing investments that drive operational efficiency and margin improvement. In the fourth quarter, we repurchased $15 million of stock and on a full year basis, returned $37.2 million to shareholders through dividends and share repurchases. Our balance sheet remains strong with a consolidated leverage ratio of 1.3x, no near-term debt maturities and significant capital available for future deployment. Looking ahead to fiscal 2027, the market characteristics are expected to remain relatively unchanged, especially in the first half. We anticipate continued competitive pricing and volume pressure in the Metals and Glass segments, elevated long-term interest rates and a dynamic macroeconomic environment. External indicators, including the Architectural Billings Index and FMI reflect ongoing softness in the operating environment throughout the year. Amid these conditions, we remain focused on executing the enhanced strategy, Don referenced earlier, which is positioning the business to drive organic and inorganic growth over time. While we remain confident in the long-term fundamentals of our business, the pace and direction of global economic conditions continue to be in flux, and as a result, we've set wider full year sales and EPS ranges to ensure our guidance reflects the realities of today's operating environment. For fiscal '27, we expect full year net sales between $1.38 billion and $1.43 billion and adjusted diluted EPS in the range of $2.70 to $3.25. This guidance includes the following headwind assumptions; normalization of corporate incentive compensation expense, elevated aluminum and fuel cost inflation and persistently rising health insurance expense. These are partially offset by benefits from the fourth quarter Fortify 2 actions in Metals and Corporate, prior year tariff costs that have since been mitigated and will be tailwinds mostly impacting the first half and pricing actions expected to offset incremental inflationary costs and finally, continued emphasis on cost controls across the organization. We anticipate generating slightly more revenue and profit in the second half than the first as macroeconomic factors are expected to improve throughout the upcoming fiscal year. Additionally, we expect interest expense of approximately $10 million and adjusted effective tax rate of 26% to 27% and capital expenditures between $35 million and $40 million. Looking ahead to the first quarter, we expect net sales to be slightly lower and adjusted EPS to be lower on a year-over-year basis. We also expect operating cash flow generation to start the year strong, reflecting disciplined execution and working capital management. As we look ahead, we recognize we are operating amid a challenging macroeconomic environment marked by pricing pressure, elevated interest rates and uneven demand. Even so, our focus remains firmly on what we can control, operating safely, executing with discipline and managing the business for long-term success. I want to thank our employees for their continued dedication and execution and our customers for their trust and partnership. Importantly, our strong cash generation and disciplined approach to managing our balance sheet provide the flexibility to reinvest in the business, advance our strategic priorities and return capital thoughtfully. That financial strength gives us confidence in our ability to navigate near-term headwinds while positioning Apogee for sustainable performance and driving long-term value for all stakeholders. With that said, we will now open up the call to questions. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from Julio Romero with Sidoti & Company. Julio Romero: Mark, I appreciate you running through some of the headwinds and tailwinds in the guidance in your prepared remarks. I was hoping you could help us out with putting a finer point on any effect baked in for the year-to-date rise in aluminum prices and kind of what assumptions are baked in, in terms of price increases to help offset that? Mark Augdahl: Sure. So first of all, yes, aluminum has been an interesting thing to be tracking, and we've been doing so diligently. I think we've seen about 87% increase in aluminum costs over the past year and 25% increases since -- just since January. So yes, very dynamic market as it relates to that. As far as how we're thinking about that, we're certainly baking those increases in where we, at this point, have no idea what's going to happen to aluminum costs going forward, but we are certainly addressing price or addressing -- offsetting those costs that we've seen by implementing price as appropriate. We're looking at all levers around that price, too, whether it be surcharges or regular price built into our normal pricing processes. So certainly a drag on the year, which is reflected in our outlook, but we're doing all that we can to mitigate those impacts. Julio Romero: Got it. Very helpful there. And then on tariffs, did I hear you guys correctly that the tariff impact from the prior year is essentially fully mitigated and should be a tailwind in '26? And then secondly, I guess, what would that imply with regards to the recently revised tariff policy, no direct impact and just more of an indirect impact on the rising aluminum side? Mark Augdahl: Yes, that's correct, Julio. So first of all, I think we articulated last year that -- or for F '26, we had about a $9 million impact on tariffs. It was primarily as it relates to our supply chain as we move product across the border to Canada and back. That was offset with the actions that we put in place with Fortify 2, but it will be a headwind in the first half of the year, excuse me, it was a headwind in '26, it will be a tailwind now in '27. Julio Romero: Got you. Super helpful there. One more, and I'll pass it on. Don, you mentioned in the prepared that the Apogee Management System is leveraging embedded AI to drive some manufacturing improvements. Can you expand on those comments? I think you mentioned some benefit with regards to reconfiguring a finishing facility in Wausau, and then another initiative on the metal side. I was hoping you could expand on those comments. Donald Nolan: Sure. Look, it's early days for us in AI for sure, but we're already starting to see some impact. We have a few things that we're looking at and using in our manufacturing facilities already, but it's early days and more to come. I think the other thing that you should know is we're rolling out Copilot across the company, and we're starting to see some impact as everyone gets a little bit more productive. I think -- but this is a long-term investment. Operator: Our next question comes from Gowshi Sri with Singular Research. Gowshihan Sriharan: Okay. On the metal side, with the aluminum headwind and Fortify that's helped you kind of maintain margins. Have you consciously shifted your mix of customers or project types away from certain low-margin accounts? And should we expect more of that mix pruning as we go through FY '27? Mark Augdahl: From my perspective, we have not changed our product or customer mix as it relates to anything that's gone on with aluminum cost increases. If that's -- if I'm answering your question correctly there. Gowshihan Sriharan: And just in Metals in respect as well, have you shifted away from... Mark Augdahl: No. Aluminum is the base of most of our product in that segment. Donald Nolan: Yes. I can give it at this price, aluminum is the best material for these applications. Gowshihan Sriharan: Got you. On the Glass side, have you -- are you changing any price structure in terms of surcharges or contract duration so that it's not exposed to any rapid swings in input pricing? Mark Augdahl: The Glass market is unique as the float suppliers do provide surcharges to us as they get impacted by various components of their cost. And to the extent that those are passed on to us, we pass them on as well. Gowshihan Sriharan: On the Fortify 1 and 2, as SG&A is down [indiscernible], how much of that SG&A efficiency is truly structural versus temporarily depressed by lower incentive comps? Are there any areas where you actually expect SG&A to step back up in FY '27? Mark Augdahl: It's a great point. Yes, both incentives as well as Fortify savings impacted the SG&A rate in F '26. We did -- we are reinstating our compensation programs are allowing for our STI to come back into play. So it will be a drag on our F '27 results. So therefore, I do expect our overall SG&A rate to increase. Gowshihan Sriharan: Got you. On the performance and UW platform, you have -- you look like you have a lot of runway. But from an operational standpoint, are there any specific capacity bottlenecks or process constraints in that business that you need to address in FY '27 to support the next leg of growth there? Donald Nolan: No. I mean, you hit it right on the head. We're really excited about the growth potential for Performance Surfaces, especially our resin deck mezzanine flooring line. We continue to expand that business, not just in the United States, but in Europe and elsewhere. So we are investing in that plant. And -- but short term, we don't see a problem there. Operator: And I'm not showing any further questions at this time. I turn the call back to Don for any further remarks. Donald Nolan: In closing, we remain confident in the actions we're taking and the foundation we've built. We're a leaner, more agile organization with a clear and urgent focus on serving the customer. I want to thank our employees for their dedication and commitment. They continue to make a meaningful difference for our customers and our company. Our strategy is clear, our discipline is strong, and we believe Apogee is well positioned to deliver long-term value. Thank you for your continued interest and support. Operator: Thank you, ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Hello, everyone. Thank you for joining us, and welcome to Customers Bancorp, Inc. 2026 Q1 Earnings Webcast. [Operator Instructions]. I will now hand the conference over to Phil Watkins, Executive Vice President, Head of Corporate Development and Investor Relations. Please go ahead. Philip Watkins: Thank you, Miriam, and good morning, everyone. The presentation you will see during today's webcast has been posted on the Investors web page of the bank's website at www.customersbank.com. You can scroll the first quarter 2026 results and click download presentation. You can also download a PDF of the full press release at this spot. Before we begin, we would like to remind you that some of the statements we make today may be considered forward-looking statements under applicable securities laws. These forward-looking statements are subject to change and involve a number of risks and uncertainties that may cause actual performance results to differ materially from what is currently anticipated. Please note that these forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update those forward-looking statements in light of new information or future events, except to the extent required by applicable securities laws. Please refer to our SEC filings, including our most recent Form 10-K and our current reports on Form 8-K for a more detailed description of the assumptions and risk factors related to our business. Copies of these filings may be obtained from the SEC or by visiting the Investor Relations section of our website. We also reference non-GAAP financial measures, so it's important to review our GAAP results in the presentation and the reconciliations in the appendix. At this time, it is my pleasure to introduce Customers Bancorp CEO, Sam Sidhu. Samvir Sidhu: Thanks, Phil. Good morning, everyone, and welcome to Customers Bancorp's First Quarter 2026 Earnings Call. I'm joined this morning by our Chief Financial Officer, Mark McCollom. Before we get into the results, I want to take a moment to share what makes this call meaningful to me. While I've been CEO of Customers Bank since 2021, January 1 marked my first day as CEO of Customers Bancorp. This was the result of a careful multiyear succession process that Jay, our Board and the leadership team built with intentionality. Jay is now our Executive Chairman, and having his guidance and engagement during this transition has been invaluable. I couldn't be more grateful for what he built and for the confidence he and the board have placed in me. And I want to be clear, the strategy, the culture and the principles that got us here are not changing, entrepreneurial urgency, a differentiated approach centered on service and technology, an obsession with earning the right to serve each client every day. Those don't change. The clearest proof that this model is working is our Net Promoter Score. It came in at 81% this year, up 8 points from last year and nearly twice the banking industry average of 41%. That puts us in the company of the most admired service brands across any sector, not just banking. It's the signal we look at very closely because it tells us whether the flywheel is humming. Great service drives retention and referrals, which drives financial performance, which attracts better teams, which makes the service even better. That cycle is self-reinforcing. And right now, it's not only working, it's accelerating. Now I'll take you through some highlights from the first quarter and our priorities then hand it over to Mark for the financial details. Turning to Slide 4. Q1 2026 was another clear demonstration of a model that is firing on all cylinders. I'll walk you through some financial highlights. Total deposits grew 16% and total loans grew 15% on an annualized basis in the quarter. Total noninterest-bearing balances grew to a record $6.7 billion, driven by our new teams. We delivered significant positive operating leverage with year-over-year revenue growth far outpacing expense growth. Tangible book value per share grew 16% year-over-year, continuing a multiyear track record of 15% plus growth, which is among the very top in the industry and we accomplished all of this while maintaining strong credit performance and ample liquidity. On Slide 5, you can see our top priorities. One of the questions I get asked most often since becoming CEO is what's changed. My answer is simple. The last several years were about building the team, aligning around a shared direction and executing on foundational investments, including in our tech, payments and risk management infrastructure. That work is largely complete, and hopefully, that shows. Now I am able to focus my time less in the next 2 to 3 quarters and more on building the platform for performance over the next 2 to 3 years. This shift is what shapes our 4 priorities for 2026. First, AI and automation. We are moving fast and with real conviction toward a goal of workflow orchestration across the company. Second, payments in the cubiX ecosystem. We built cubiX from scratch. And now by transaction volume, it is one of the largest commercial payments platforms in the country. Third, organic balance sheet growth and talent recruitment. Our past hiring supports our guidance of growth in loans and deposits that is well ahead of the industry. And our current team onboarding and recruitment pipeline sets up for continued growth in 2027 and beyond. And fourth, risk management excellence. This is not just a compliance posture. It is a competitive one. The regulatory environment around payments and digital assets is becoming more constructive, which plays directly to our existing strengths and widens our moat. We are appreciative of the increasingly collaborative relationship with our regulatory stakeholders and intend to be a bank that regulators view as a model for risk management. We believe that risk management excellence is becoming an asset for us. Turning to Slide 6 on AI. I want to be direct. We are moving aggressively to operationalize AI across Customers Bank. We believe AI represents the biggest opportunity in a generation for a bank of our size and culture. We are small enough to move fast and large enough to invest with intent, which is a rare combination. Most organizations are focused on productivity gains, which we are to and will achieve but we're most excited about the revenue generation and risk reduction opportunities from these tools. I am personally leading our AI transformation effort because I believe the bank in our tier that wins on AI will have compounding benefits and structural advantages that will be very difficult to match. To walk you through the evolution, in 2023, we entered into initial enterprise partnerships with companies like OpenAI and Microsoft. In 2024, we established a foundation by implementing AI governance and beginning data transformation efforts. In 2025, we moved into production. We trained 100% of our team members. We piloted targeted use cases which are already delivering measurable results. AI began first testing then writing code, and we started building agents. Now in 2026, we are training our team members to be builders and managers of agents, and we are seeking to automate end-to-end workflows across our operating platform. The 3 key initial focus areas in the commercial bank are loan onboarding with a focus on credit underwriting, deposit customer onboarding and payments orchestration. I'm thrilled to say that we're already seeing tangible results. From an adoption standpoint, 75% of our team members have AI licenses. More than 500 agents and custom GPTs have been built by our workforce, approximately 2 dozen of those in the last 2 weeks alone. We have saved more than 28,000 hours through AI-enabled workflows, unlocking the equivalent of almost 15 FTEs. This strategic change should allow us to scale our operations far faster than we would need to scale our workforce. We already have best-in-class efficiency, as you can see from our noninterest expense to average asset ratio. Even so, we would expect that as we grow our asset revenue and earnings per employee ratios would increase meaningfully. We should be able to provide medium-term targets on those in the coming quarters. At the same time, the value additive and strategic work conducted by our team members would go up immensely. To accomplish this, we are utilizing a broad range of tools. This includes strategic partnerships like one we just signed this week with a large frontier model provider that we are very excited about. We'll have more details to share on that soon, but it shows that leaders in the industry view Customers Bank as being on the forefront of utilization of this technology and assisting them in advancing adoption in the regional bank space. This partnership will initially be focused on the 3 priorities I outlined earlier: loans, deposits and payments. We are only at the beginning of realizing the benefits from this technology, and we intend to be a leader in unlocking it. Moving to Slide 7. We believe payments functionality is the future of banking, and cubiX is our platform for capturing that future. At its core, cubiX gives clients seamless access to all of our payments rails, from traditional wire and ACH to [ RTP FedNow ] and our proprietary 24/7 365 intrabank instant payments platform. We built it in-house. And today, it is one of the largest commercial payments platforms in the country by transaction volume. One item worth highlighting is that even though the digital asset industry saw meaningful declines in volume and prices over the last couple of quarters, our balances were relatively stable. Importantly, we processed $500 billion in transaction activity for our digital asset clients in the first quarter, a similar pace to 2025 despite the perceived market headwinds. This reflects the mission-critical nature of the service we provide and the quality of the relationships we have built with our customers. As we previously stated, we are focused on deepening that engagement through enhanced product offerings that drive increased wallet share and stickiness. In 2026, our priority is to broaden the cubiX ecosystem beyond its digital asset beginnings. We have started enabling and see significant opportunity in mortgage finance and real estate transaction settlement where the demand for real-time bank-grade payments infrastructure is growing. While the mortgage finance deposits represent balances from existing clients today, we are in active discussions with networks of prospective clients in the real estate industry, and we believe they will be meaningful drivers of noninterest-bearing deposit growth in 2026. To help make it real, our 90-day pipeline for cubiX' customers from new industries is greater than the slight decline in average digital asset balances we saw in the first quarter. Additionally, we see strong opportunities to partner with large institutions in traditional capital markets as exchanges move to 23/5 and eventually 24/7. This could drive both deposits and fee income opportunities for us with even further diversification. While cubiX is highly profitable serving the digital asset industry, when we achieve broader industry adoption, we will get meaningful operating leverage and even more durable earnings. We believe we are still in the early innings of unlocking the full franchise value of this technology. Moving to Slide 8. Banks by nature, grow at roughly the pace of the broader economy. There are only 2 ways to grow faster, acquire it or earn it. We earn it through our people, our platform and our culture. We are one of the top organic growth stories in the industry. We have not relied on acquisitions to build this franchise and have still delivered disciplined growth at rates that far surpass our peers. What we have done is continuously recruited top talent, giving them access to a strong balance sheet, a sophisticated product suite, best-in-class technology, and importantly, they gain a culture that empowers them to do more for their clients than they could elsewhere. I'm thrilled to say that year-to-date, we have already had 20 bankers join us or sign offer letters, and we're in active discussions with half a dozen other team leaders. These bankers represent a mix of geographic C&I and national specialized verticals. This is not a new playbook. It is the same strategy that has driven our long-term outperformance and that has produced results at the very top of our peer group. We are the #1 compounder of core EPS and a top compounder of tangible book value and revenue among peers over the last 6 years. They are the clearest long-term indicators of franchise value creation and share price performance. Before I hand the call over to Mark, I want to take a moment to welcome 2 new equity analysts joining our story. We're pleased to have Tony Elian from JPMorgan and Manuel Navas from Piper Sandler covering Customers Bank. Welcome to both of you. We look forward to building strong relationships for years to come. With that, I'll pass it to you, Mark. Mark McCollom: Thanks, Sam, and good morning, everyone. On Slide 9, you can see our GAAP financials, and I'll start my comments on Slide 10. In the quarter, we delivered GAAP and core EPS of $1.97 as GAAP and core earnings were materially consistent. Core ROE and ROA came at 13.1% and 1.13%, respectively. Our consistent execution has led to core EPS increasing 28% from last year. Turning to Slide 11. Total deposits grew over $800 million in the quarter to $21.6 billion, up $2.7 billion or 14% year-over-year. The quality of our deposit franchise continued to improve, and I want to highlight 2 dynamics in particular. First, noninterest-bearing deposits grew by over $400 million in the quarter. Included in this total was a $200 million contribution from spot balance increases in our digital assets channel. But what I really want to point out is the approximately $230 million contribution during the quarter from our traditional commercial franchise. These balances were up 9% quarter-over-quarter and 22% year-over-year. This is directly attributable to the success of our commercial banking team strategy and the strength of the relationships these bankers bring. As you heard from Sam total noninterest-bearing deposits reached a record $6.7 billion or over 31% of total deposits, not just top quartile but about decile of regional bank peers. Second, average total deposit costs declined again in the quarter by 8 basis points to 2.46% and our cost of interest-bearing deposits declined by 18 basis points. We are continuing to benefit from the positive mix shift of our deposit book as we grow lower cost relationship-based deposits. Turning to Slide 12. It highlights the results of our commercial banking team strategy. And I'll give you a spotlight on our 2024 vintage teams as they recently hit their 2-year anniversary with customers. The 10 teams launched in April 2024 now manage over $2.1 billion in deposit balances across approximately 8,000 accounts with 32% of these balances being noninterest-bearing at an average total deposit cost of around 2%. They've also generated a [ positive ] loan ratio of about 2.7x. These economics are really compelling. These teams became profitable in approximately 3 quarters and are generating a loan-to-deposit spread of over 400 basis points in addition to the significant excess deposits they generate. This slide also highlights the tremendous momentum we are seeing across our commercial businesses. In total, we added over 1,100 net commercial accounts in the first quarter. That's a 5% increase in our commercial account base in a single quarter, which is incredible. Notably, over 50% of that net growth came from the 2025 vintage teams. These teams have already produced low 9-figure balances of deposits at an extremely attractive blended cost of about 50 basis points. These accounts are operational in nature, and therefore, there's a lag between account openings and deposit balances coming over to our company. You can see this in the fact that less than 15% of the accounts opened during the quarter were meaningfully funded with deposits. These are similar stats that we used to show you in 2024 to give you a sense of the deposit balance fundings to come in future periods. This level of account activity gives us optimism for meaningful deposit balance growth from these 2025 vintage teams in the coming quarters. Turning to Slide 13 in loans. Total loans grew over $600 million to $17.4 billion, representing 15% annualized growth. We typically see the first quarter as the slowest growth quarter of the year so we're very pleased with this performance. Growth was broad-based across the franchise, top contributors in the first quarter included fund finance, mortgage finance and health care. As we often say, the mix of contributors can shift from quarter to quarter, but what remains consistent is the diversified multi-vertical nature of our asset generation platform. On Slide 14, net interest income for the first quarter was $191.4 million. Net interest income grew by $24 million year-over-year or 14%. The expected sequential decline in net interest income and net interest margin was driven by 2 primary factors. Approximately $10 million of accretion income in the fourth quarter, which did not repeat as well as a lower day count in the first quarter. If you account for those factors, we were essentially flat quarter-over-quarter despite the full impact of December's rate cut. One other item impacting net interest income for the quarter was the planned redemption of $110 million of higher cost subordinated debt late in the quarter. This redemption will help our net interest income in the second quarter. We continue to have leverage on both sides of the balance sheet, including loan growth and deposit mix improvement opportunities. With that, we remain optimistic about our ability to drive strong net interest income growth in 2026. Moving to Slide 15. Noninterest expense was $112 million for the quarter. As we highlighted on our previous call, we had about $5 million of expenses that were unique to the fourth quarter. And so expenses came in pretty much flat to the fourth quarter, excluding those discrete costs. We talk a lot about positive operating leverage. And I want to take a moment to show you what that means for our franchise. Year-over-year, core revenue growth outpaced core expense growth by nearly 2x. As a result, our core efficiency ratio improved by 300 basis points and core EPS grew 28% over the same period. That's a very strong positive operating leverage, and we believe this is what disciplined high-quality growth should look like. Our core noninterest expense as a percent of average assets was 1.82% once again placing us among the top decile of regional bank peers. On Slide 16, many of you recall that coming into 2026, we outlined our second operational excellence initiative, targeting $20 million in annual run rate proceeds across both revenue and expenses. I'm pleased to report that Phase 1 of that initiative has been substantially achieved on a run rate basis. and we are now increasing our target by an initial $10 million in Phase 2, bringing our total target to $30 million in run rate proceeds. On the revenue side, this was driven primarily by capital market sales within our existing SBA business, and you saw some of this in the first quarter of 2026. And the savings on the cost side were a mix of vendor, technology and risk management infrastructure improvements. These savings are being reinvested into the franchise, in people, technology and the capabilities that differentiate us. We view this as a key component of sustaining positive operating leverage into the future. On Slide 17, a tangible book value per share grew to $63.54, up 3% quarter-over-quarter and 16% year-over-year. This continues our multiyear track record of double-digit tangible book value per share growth and represents a CAGR of over 15% since the fourth quarter of 2019. Turning to Slide 18. Our capital position remains robust and continues to provide significant strategic flexibility. Our TCE ratio of 8.3% was up 60 basis points year-over-year even as our tangible asset grades grew 15% over the same period. We also repurchased about 620,000 shares of our common stock during the quarter at a weighted average price of about $68. Given the trajectory of our tangible book value I just described, that felt like an attractive price. During the quarter, as planned, we also redeemed the subordinated debt issuance I mentioned earlier, which explains some of the additional reductions in our risk-based ratios during the quarter. Even with these items, we still maintain a comfortable cushion to our internal capital targets. In addition to the subordinated debt over the last year, we've also redeemed over $140 million in preferred stock simplifying and improving the quality of our capital stock. We believe strong organic earnings position us well to support continued balance sheet growth and when appropriate, to return capital to shareholders. On Slide 19, credit performance remained stable across the board. NPAs as a percent of total assets remain low and below our peers. Total net charge-offs declined modestly quarter-over-quarter with strong performance across both commercial and consumer portfolios. Commercial MCOs remain very low, and our consumer portfolio represents only a small portion of our total loans, continues to perform within expectations. Reserve coverage was solid, though we continue to monitor the geopolitical uncertainty that exists in the macroeconomic environment. With that, I'll close with our 2026 outlook on Slide 20. We are reaffirming our full year 2026 management outlook across all key metrics. On loan growth, we had a strong start to the year, and our pipeline remains solid. For deposits, we also had a good start to the year, and both the newer teams and the franchise as a whole have good prospects to continue that momentum. With respect to net interest income, we continue to project growth of 7% to 11% over 2025. For noninterest expense, we are maintaining the range of $440 million to $460 million for the year. That is growth of only 2% to 6% even as we continue to invest significantly in people and technology. And lastly, there are no changes currently to either our capital or our tax rate targets. With that, I'll pass the call back to Sam for closing remarks before we open the line for Q&A. Samvir Sidhu: Thanks, Mark. Before I offer my closing remarks, I want to share something that I believe may be a first in the history of public company earnings calls. The prepared remarks you heard on my behalf today were delivered by my AI clone, not read by me directly. The execution of this call itself is a live demonstration of what we mean when we say AI is not an experiment at Customers Bank. We will be using it to transform our company. You can imagine use cases for this technology to support our relationship managers to drive revenue and enhance the client experience. To wrap up, in the first quarter, we delivered strong growth across every major dimension of the franchise. Deposits grew 14% year-over-year. Noninterest-bearing deposits hit a new record. Loans grew 15% year-over-year. Our cubiX payments platform onboarded new clients, creating diversification and repositioning this as a noninterest-bearing deposit growth vertical. Finally, we delivered positive operating leverage with a 300 basis point decline in our efficiency ratio, leading to core EPS growing by 28% year-over-year. We'll now open up the line for live questions. Operator: [Operator Instructions] Your first question comes from the line of Anthony Elian of JPMorgan. Please go ahead. Unknown Analyst: This is [ Mike Petrini ] on for Tony. So I'll start with a quick housekeeping one. What were the cubiX total deposit balances for the period end as well as the averages versus that $4 billion number at 4Q? Unknown Executive: Yes. Period-end numbers were right around $4 billion, and quarterly average numbers were right around $3.6 billion. Unknown Analyst: Okay. Great. And then on Slide 7, the mortgage finance and real estate deposits, they combined for about 20% of cubiX deposits. How much do you see both of those mortgage finance and real estate contributing in the next few quarters in cubiX, one could the capital markets sort of opportunity that you guys have identified on Slide 7 start factoring into cubiX deposit growth? Samvir Sidhu: Yes, sure. I'd be happy to take that. I think that -- what's really interesting about the mortgage use case, as we discussed before, this is to date existing customers that are using our advanced payments capabilities that we're using more traditional payments capabilities with us prior to sort of more traditional, think of it as sort of wire ACH in and out. And this has been a priority for us in 2026 to sort of see a bit of broad use of cubiX not only much further beyond the digital asset industry and also creating diversification in our deposit base. So I'll get to sort of the new deposits in a second. But what I would say is we're thrilled with the early progress on that goal, and we did not expect that as early as the first quarter, we'd be able to show you that slide that you referenced on Slide 7. So they currently represent about 20% of our deposits. The growth is really going to be coming from that 1% number you see there on the real estate transaction side which is really hugely valuable to customers that are currently banking with other banks that are looking for advanced payment capabilities beyond what they're able to get in addition to sort of the service that we offer. So we see that you heard in my scripted AI remarks that we expected about $250 million or so of noninterest-bearing deposit growth related to new verticals in cubiX just the next 90 days. We'll continue to update sort of on progress as the year progresses. Your last question was around the traditional capital markets use cases. That's still a little bit early days to add a little bit of color on what that would be is we have markets in the traditional side that are open 23/5 today, they will be open 24/7. And as you can imagine, there's a number of use cases to have [ FedNow RTP ] and cubiX for after-hours [indiscernible] reconciliation. Unknown Analyst: Great. And then if I can sneak one more quick one in there. Period-end loans and deposits each increased about 15% annualized. This quarter, you guys left the full year guide at that 8% to 12% range. Is there a level of conservatism taken to that guidance? Or sort of what are you seeing that would suggest a slight slowdown in balance sheet growth for the rest of 2026? Unknown Executive: No, I don't think we're I mean, we're still sticking to the guide that this year. As you know, there's certainly a lot of still geopolitical uncertainty out there in the market. Candidly, we were pleased by the level of loan growth we were able to generate in the first quarter. We had a couple of quarters ago, we had a couple of deals that we thought were going to close and didn't close during the quarter and then end up being a little below and then you start out in the next quarter really hot. In this case, you saw that our average loan growth versus our spot loan growth was pretty materially different, which implies we had a lot of loan growth actually closing in the month of March. So we feel that obviously sets us up well for the second quarter. But at this point, we're still sticking to our full year numbers. Operator: Your next question comes from the line of Kelly Motta of KBW. Kelly Motta: Please, I'm still recovering from the shock of the AI clone aspect of the call that's quite remarkable. Maybe a question for you and maybe your AI clone is you've been obviously at the forefront of this AI transformation here. I think to us as analysts, the potential efficiencies are pretty clear. your prepared remarks and highlight additional revenue opportunities as well. I was hoping just given your expertise and how far ahead of the curve you are on this front. You could speak to potential, what you mean by that and how we should be thinking about the potential revenue enhancements that AI could provide to Customers Bank and, I guess, thinking more broadly. Samvir Sidhu: Yes. Sure, Kelly, and then I assure you this is really me. What I would say is that just to add a bit more color, in the prepared remarks, I talked about how we feel we can scale the company at significantly higher rates than our head count will grow. And you can imagine sort of when you have an autonomous agent, you're essentially creating a digital worker. And when you have end-to-end automation across your workflows, which is very easy to say, very difficult to achieve, you can deploy these digital workers under human supervision and they can work around the clock. So you can appreciate getting to the state as much more than creating what folks will call sort of a GPT they can save a couple of hours or a chat prompt that can help you research right faster. Really, the challenge here, the difficulty here and the opportunity here is about having to change management strategy. It's about training and enabling your team members. It's about redesigning workflows and processes. It's about having developers and process [ mavens ] that are on staff. It's having broad-based AI frontier model and newer emerging commercial partnerships. We teased a couple of KPIs of how it might show up in our financials with the asset revenue and pretax profit employee KPIs. And I think we'll have tailwinds on each of those if we're successful and that's something that we'll be able to provide targets on in the future. At the end of the day, they kind of all come into lower efficiency ratio. That's sort of the net output. The use case is to kind of get to the heart of your question that typical companies and banks will be focused on will be productivity as well as, in some cases, improving the client experience which is table stakes. And I think those are hard to do, and we feel very good about our ability to achieve success there. But where we are really focused and feel we are uniquely focused is on the new revenue opportunities as well as reducing risk. So to get to your question, we plan to start using AI first business models to attract new customers to attack new verticals that will sort of help drive new opportunities that don't exist today. And these are things that are live and in production now that could result in impact as early as the end of the year, but definitely into 2027. And then we're also looking at really interestingly, completely redesigning the first, second and third line processes to reduce risk across all of our operations. And I think that's really also a unique way that we're approaching things. So it's not just sort of the loans, the deposits and the payments orchestration life cycles we're also thinking more broadly about areas within risk, compliance, audit, finance, marketing, legal, where we can really transform some of those risk and revenue enabling functions as well. Kelly Motta: Got it. I really appreciate the thoughtful and detailed answer. Maybe turning to the NII guide. I appreciate it's unchanged. I'm wondering, underneath the hood of that, the average cubiX deposits were down, though within range. And we didn't really see it with the growth in other areas of core deposits. So I'm wondering if you're able to provide -- was there any shift in kind of the components of what gets you to that NII range, meaning perhaps cubiX coming down slightly by growth in other areas? Just curious if we could parse that out a bit. Mark McCollom: Yes, Kelly, this is Mark. And that was me the whole time, by the way. But as we -- as you think about NII, you're correct. I think as the year is starting to play out, we had a couple of shifts. We did see -- I mean, we were really pleased to only see average cubiX deposits going down from 3.8% to prior quarter to 3.6%. Where you see on Slide 7 and you see the mortgage finance, but more importantly, the real estate which really then ties to our 2025 teams and some of the things we highlighted on commercial account growth. I would expect to see for -- in the second quarter and the third quarter, you'll start to see some of that account growth, which was only approximately 15% funded with deposits, some of that starting to take hold. So then that provides a little bit of a hedge for us in terms of our guidance. If we would continue to see a little bit more of a drop in cubiX deposits, I think it's early. Certainly in the second quarter to be able to predict where those end up on an average balance basis. But then I'd also say that we had both really strong marches, which led to our spot balance is being significantly higher in both loans and deposits than our average balances for the quarter. So when you look at -- take loan yields, loan yields ended the quarter at [ 3.62], SOFR yesterday was at about [ 360 ] right? So even if you're going to bring on new originations and across most of our verticals, we bring on new originations at 225 to 300 basis points over. But even at 300 basis points over [ SFR ], the majority of our asset production might still be coming in below where that current loan yield is on commercial because you can see in the top of that margin table, our commercial book today is kind of right around 680 all in. So even at 300 basis points over, which is really tough to do across all your verticals, new production is still coming in a little bit lower. So I would expect to see, on a margin basis to be -- loan yields coming down a little bit more how much that impacts margin is really going to be how successful are we on the deposit front. Again, given the green shoots we're seeing in the first quarter, it feels like we're setting up well for the year, but it's still early. So that's why you put all that together, we're saying, hey, we're not going to move on our guide yet for the year for NII and the last comment I'll make on all of that is that as a growth company, we focus on NII. We understand that you as an analyst community like to look at margin because that's kind of a shortcut to help fill out an earnings model. But at the end of the day, NII drives earnings growth, not net interest margin. And so we're really focused on that, and we're sticking to our guide at this point in the year. Operator: Your next question comes from the line of Manuel Navas of Piper Sampler. Manuel Navas: Yes. I just wanted to follow up a little bit on the cubiX deposits. Cash remains high on the balance sheet. And there was some conservatism on using cubiX or deploying cubiX deposits. Has that shifted at all so far, given kind of a little better more sticky deposits there and also some of the CRE customers coming on? Samvir Sidhu: Happy to jump in here and welcome officially and formally. So I think that what we've always said is that on the digital asset side, we've been -- we had an opportunity to really start to getting that amount of customer behavior over the past couple of years, we have and we'll continue to sort of hold these in cash for the time being. I think there are some things that we would look to the external environment that would give us some more confidence and comfort. One of the things that's interesting about the new verticals is these commercial customers come from traditional industries with long histories of operating account behavior. They're currently at banks and that -- where they without these advanced payment capabilities that cubiX can provide them. Those banks deploy the deposits. We're going to do the same, but also offer those customers superior technology and really improve their operations experience. So I think that's really one of the net differentiating factors. Those levels are already at 20%, including existing customers, though that 1% is a very small portion, and we expect that to significantly increase in the coming months and quarters. Manuel Navas: I appreciate that. Speaking to the 20 new role that are being added, what products or -- can you discuss -- I know they're kind of distributed, but is there any kind of key product or regional focus to those additions? And what's the pipeline look like for more hires? Samvir Sidhu: Happy to take that. So it's a combination of expansion of talent in existing geographies, there are one or 2 submarkets where we will be sort of, I call sort of adjacent expanding into. And there are some -- actually some new national deposit verticals, given that not every one of these team members has fully started the bank had sort of deferred to come back to you to give you a little bit more color. But it's consistent with the way that we've approached team hiring to date. Your second part of your question was about the teams and the pipeline. Similar story on the first part of your question in terms of how we would approach geographic and vertical focus. But I would also add that these while we've had 20 or so hired this year, we had about 40 last year, 100 the year before, 40 the year before, sales first-line bankers. So I think that we still expect to have some more hiring to do based upon the expense guide that we gave in the first half of -- sorry, in the first call of the year and also had an opportunity to share with you some of the benefits of [ OE 2 ], Operational Excellence [ 2 ], as we're calling it, and from the extra savings and plan to reinvest those savings into the institution which one of the big use cases and uses of that -- of those savings will be into hiring and supporting new teams. Manuel Navas: I appreciate that. I just want to add a question about mid movements going forward. Deposit costs are flattening out. I just want to kind of understand how the marginal cost of new deposit flows, how is it coming in? Or should we kind of expect deposit cost of the [indiscernible] from here? Samvir Sidhu: We're typically seeing in new deposits and remix is we're typically seeing them coming in about 150 basis points below the highest cost of our interest-bearing deposits, I think, which is which is interesting. So the marginal cost is significantly lower than our interest-bearing costs and also below our overall cost of deposits. Operator: Your next question comes from the line of Steve Moss of Raymond James. Stephen Moss: Nice quarter here. Sam, maybe just starting on the -- going back to deposits, again, not to beat a dead horse, but definitely struck by the step-up here in the mortgage finance and real estate and your short-term 90-day pipeline. Just kind of curious maybe how are you thinking about how these deposits -- how long they stay on your balance sheet, how long we turn over? And any sense for the overall pipeline as you look a little further out? I know you said the [ $250 million ] number, but -- just trying to think about the turnover of these deposits and where you're going to think you can grow here? Samvir Sidhu: Yes, sure. Thanks, Steve. And so -- the simple answer is they're sticky and long duration with deposits where we're really just helping them add payments capability, streamline their operations, lower the cost of their business, increase revenue opportunities for them that they otherwise wouldn't have. Coming back to cubiX deposit diversification, this is something we've been talking about for some time. We have now I think now we're really showing that we're able to sort of onboard customers on [indiscernible] that you referenced the $250 million just in the next 90 days. What I would say is we -- we're at 31% noninterest-bearing deposits, which is already at the top end of the industry. And we believe the opportunity ahead of us will allow us to keep taking this up even further. You look at the percentage of noninterest-bearing deposits of our total net deposit growth for the quarter. That's pretty impressive and staggering. Let's also not lose sight of the fact that -- we grew our non-cubiX noninterest-bearing deposits by $230 million in this quarter and adding that to last quarter, that 6-month totals almost $400 million from traditional commercial customers. Stephen Moss: Right. And then on those non-cubiX deposits, you've historically said for quite some time, a $2 billion type deposit pipeline. Just kind of curious as to where that shakes out these days. Samvir Sidhu: Yes, Mark would kill me, but it is significantly higher than it has been in the past. And I think that typically, we've been operating about that $2 billion-ish or so pipeline and it is significantly higher just by nature of the fact that you have new teams who joined us late last year, middle summer to Q3 of last year, who have had an opportunity. Mark shared some stats on over 50% of the account openings were from 25 teams, right? So these are folks who have been with us for less than a year, in some cases, only 6 months. And what I would also say is that as you think about sort of what -- going forward, hiring new teams for '27 is going to be really important as well. So the '25 teams are building momentum for '26. The '26 teams will build momentum for '27. And we're doing it earlier in the year from a hiring perspective, which I think is very unique, and it just shows that there's a lot more inbound requests and inbound conversations and in some cases, start well beyond the beginning of this year and bonus season really started last year. Stephen Moss: Right. Okay. Appreciate that color there. And then on the loan growth mix here, I definitely appreciate the chart as you can see the shift underneath here. Just kind of curious where you're seeing the strength in the pipeline? I know you said it was solid -- so obviously, that bodes well, but I'm assuming there's probably some sort of mix shift versus fund finance, which we saw was strong this quarter. Mark McCollom: Yes, I'll take that. This is Mark. If you think and we have provided -- if you look at our loan growth slides, this quarter, it happened at fund finance, which is a combination of both our capital call lines and our lender finance business. fund finance, mortgage warehouse and health care in the forefront. Last quarter, fund finance was down at the very bottom. But then the quarter before that, fund finance was actually up. So the look within fund finance, our lender finance category was $2.8 billion back in the third quarter of $25 million. It dipped about $300 million in the fourth quarter and then it came back again in the first quarter. What I would say about that is that we have a very defined credit box that we like to operate in. And at certain times, then that will mean when certain segments get a little bit more frothy, we're probably going to underperform a little bit. But then in cases like the first quarter, where I think there was a pullback in MFI and specifically in the lender finance space, we just stay in our credit box. And in periods like that, we're going to benefit a little bit. but the performance in that segment, which we -- because of some of the additional questions around NDFI and lender finance, in particular, we added an extra slide, Steve, which you can see on Page 23 in the deck, we've been in this business for a long time. And as we commented after the third quarter call, have really good looks through LTVs. We have collateral substitution rights and maybe most importantly, we have incredible diversification, both in terms of the total number of facilities that we participate in. And then within those facilities, the weighted average number of obligors and our low largest obligor within each facility gives us comfort and diversification. And then lastly, just being in the business for 10 years, we've never had a delinquency or a net charge-off. And that doesn't mean that it will always stay that way, obviously, banks run the business to take risk and credit risk. But -- this has been a business for us that's been actually a very strong performer. Stephen Moss: Okay. I appreciate all the color there. And if I could sneak one more in. On the, call it, $3.3 million, I think it was in warrant gains here for the quarter. Just curious the drivers of those warrant gains, was it from IPOs or clients getting additional venture funding or maybe just modeling just with valuation? Just kind of curious how to think about those warrant gains with -- and the episodic nature of them, obviously. Samvir Sidhu: Yes. So I'll sort of just jump in. I think that there's a combination of sort of private valuations, as you know, in sort of [ Black Scholes ] model, et cetera, for private market warrant valuation is also transactions that can happen that could be private or public like an IPO in nature and believe it or not, been -- in some cases, you have restrictions on when you can sell your shares for up to 6 months. So there's a lot -- that's sort of the way to think about it. What's really interesting is as we have a portfolio of these warrants that are dozens and dozens and dozens related to how many loans that we've sort of originated over the past couple of years. And one of the things that we say really interestingly here is we have very, very low historical over multiple decades of credit charges lower than traditional C&I in this business, and these warrant gains more than make up for any sort of net reductions that this industry has seen despite some of the potential perception. And I think that's really the interesting part about this is that we have -- these are -- these have been recurring over the past couple of quarters. I think that's what we're proud about. Operator: Your next question comes from the line of Peter Winter of D.A. Davidson. Peter Winter: Sam, you talked about one of the strengths is the investments you've made in risk management. And I saw both declines in professional fees and FDIC costs also came down. I was wondering if you can give an update if that should continue? And anything you can provide in terms of an update on the written agreement. Samvir Sidhu: Yes. Sure, Peter. Thanks so much. So I think that the -- I'll start with sort of the high level sort of point that you made is that I think that I mentioned this in my prepared remarks as well, is that we really truly feel and believe that risk management is becoming a competitive edge for the organization and also for sort of simplistic business unit perspective. A competitive moat per se, our cubiX business. We have said that professional services and insurance costs will continue to reduce over time as we progress our efforts there. I did say on the last call, which I think went a little bit unnoticed that we materially completed our work related to the written agreement at the end of last year. And then in 2026, we want to put that behind us. And that's really the interesting part about the whole story is when you add sort of technology plus risk management plus AI plus a business line that is facing sort of regulatory clarity and tailwinds plus the diversification of using that technology from that business line into new traditional markets that are also seen the need to go into after hours and 24/7 or 23/5 type payments capabilities. It is really interesting how uniquely positioned we are today. Peter Winter: Got it. That's helpful. And then separately, you added $10 million to reserves this quarter. Was that solely to support the strong loan growth? And maybe if you can give an update on your views on the macro risk and how that is factoring into your reserve setting process this quarter. Mark McCollom: Yes, Peter, this is Mark. We obviously had a really strong growth for loans this quarter. From an overall ACL as a percent of loans, we went up 1 basis point. So yes, I would say that most of our kind of over provision to charge off was just a function of that. I mean we continue to definitely watch the geopolitical uncertainty out there and continue to watch on if that could have any impact on any of our portfolios in coming quarters. But for this quarter, we felt that was appropriate to just have a very small increase to our ACL percentage overall. Operator: Your next question comes from the line of Kyle Gierman of Hovde Group. Kyle Gierman: This is Kyle on for Dave Bishop. Just wanted to touch more on credit quality. Obviously, it's been very good relative to peers, but you saw the increase in CRE and multifamily. I was wondering if you can provide some details surrounding that increase? Unknown Executive: Yes. So specifically within the multifamily nonperformers, I mean we had 1 loan that we made the decision to put on to NPA. It's -- when you move it to NPA, I mean we've actually charged down to its current collateral value. The loan is still performing according to its contractual terms. But we just made -- took a conservative stance to put on a nonperforming, although it is still paying according to its contractual terms. Kyle Gierman: And then maybe a final question. I saw you redeemed subordinated debt and repurchase of shares in the quarter. I was just wondering what the priority order for capital deployment is going forward? Unknown Executive: Yes, the priority order for capital really remains the same. And that's, first and foremost, it's organic growth. And to the extent that we have excess capital generation after supporting that organic growth, then number two, would be inorganic growth opportunities. And for us, you really need to think about that more in terms of expenses necessarily in terms of capital because for us, inorganic growth has historically been a lot of these team lift-outs. And -- but the team without cost money, which ultimately impacts capital. And then number three, if we have excess capital after those, then our Board had approved a $100 million share our share repurchase authorization back in February. And we felt in the first quarter at a weighted average price of around $68 we felt that was a prudent use of capital there as well. Operator: Your next question comes from the line of Janet Lee of TD Cowen. Sun Young Lee: Apologies if this was already asked as I was handling a few calls, and I don't have an AI agent. But for the -- for the new banking teams, for the 2024 teams on your slide, their spot deposit cost is 2%, and they're still bringing in a nice inflow of deposits into the bank that's driving the positive remix in deposits. Based on that, is it fair to assume that with the ongoing deposit inflows of the lower-cost deposits, net interest margin could improve from here versus the first quarter? And could you confirm whether that $400 million-ish cadence of deposits from the new banking team still holds? Or is there any change in expectations? Samvir Sidhu: Yes. Thanks, Janet. It has not been directly asked. And I think that one of the things that Mark did sort of refer, which I'll sort of focus on is, is that we're a growth organization, and we're focused on increasing NII. And I think that prior to you sort of joining the coverage, we sort of going back a couple of years, we really also sort of showcased NII trajectory and how that would sort of translate into NIM trajectory over time. We gave sort of NII growth guidance for this year. You're absolutely right on sort of the deposit, the marginal cost of deposits, whether they use for remix or whether they use to fund incremental loan growth. And I think that's something that we are and we'll continue to be proud of, and that's really what's unique about our overall story as we think out sort of the improvement as well as the funding of our organic growth. Banks with the flatter balance sheets that don't have the growth opportunities that we have, NIM makes a lot more sense for them, and this is the point that I would sort of continue to make [ that's ] their main lever for growing NII, where ours is really a combination of balance sheet growth and maintaining margin, maintaining margin, I think, is really important. And that's really the value proposition of [indiscernible], and I think that is really around our ability to grow net interest income year-over-year independent of rate environment independent of competitive environments. Sun Young Lee: Got it. And -- sorry, go ahead. Mark McCollom: Yes. Janet, this is Mark. I was just going to add that I made this point earlier in the Q&A is that if you look at our commercial business today, which makes up, obviously, the majority of our loan book, that's at a blended average cost in the first quarter of about 680. Current SOFR is at about $360 million, right? So in a commercial business, most of our commercial businesses tend to be kind of 225, maybe for commercial real estate up to 275 approaching 300 for some of our other verticals over SOFR. But that then implies that new loan volumes in both the first quarter and continuing into the second quarter, will continue to come on at a little bit lower yields than our overall commercial portfolio yield. So that's going to continue to have maybe a little bit of downward pressure on NIM, but again, given the amount of loan volume that we put on in the month of March, we still feel comfortable with the NII guide that we put out. That makes sense? Sun Young Lee: Yes, that's helpful. And just one follow-up on fee income. Where do you see the biggest upside from here? Or how should we think about the growth cadence that things are off a lower base and it's a little volatile, your fee income items. So how should we think about where which area presents the most growth opportunities and how we should think about the trajectory from here? Unknown Executive: Well, I think if you look back to where we were maybe a year ago when some of the discrete line items to today, our commercial lease income is about 50% and I would say that of the different line items of fee income we have, it's probably the least episodic because really what that commercial lease income represents, it represents interest income on operating leases. Those operating leases put -- actually put some pressure back to part conversation, put some pressure on margin because it shows up on your balance sheet as a noninterest-earning asset. But then you have both commercial lease income, but then also commercial lease depreciation on the expense line. But for fee income, you can see that our trajectory is going from $10.5 million a year ago to $15.4 million in the first quarter of this year, so almost 50% growth in that line. So when you look at the other lines, I mean things like for this quarter, I did see, I think one analyst maybe pulled out our sales of loans out of core earnings. And I would say, well, gosh, to us, that feels like core earnings because that's actually sales of just SBA loan originations which some banks might have a mortgage banking operation sell off their mortgage loans. We're just making a decision to sell and set a portfolio in some of our SBA loans going forward. So when you look to how we've grown overall fee income, we think it's now appropriate to think about a good floor for fee income is going to be somewhere in the $30 million to $32 million range. Operator: Your next question comes from the line of Tyler Cacciatori of Stephens, Inc. Tyler Cacciatori: This is Tyler on for Matthew. Can you just provide us some idea on the mix of cubiX deposits from a customer standpoint in terms of exchanges, stable coin providers and investors? Just really trying to see how much of each of those in a percentage of overall mix, if you have that detail. Samvir Sidhu: Yes, Tyler, I think that we have provided this a couple of years ago, and it generally stays -- it stays the same. Exchanges are sort of the biggest participants, as you can imagine, then followed by market makers and followed by stable coins. I don't have the percentages. Tyler Cacciatori: Understood. And then securities yields were a bit higher than what we were expecting during the quarter. Can you just update us on the dynamics there and how to think of those going forward? Samvir Sidhu: I'm sorry, I didn't catch the beginning of that. What was the question? Tyler Cacciatori: Securities yields were a bit higher than what we were expecting during the quarter, and we're just looking for an outlook there. Unknown Executive: Yes. Yes. I think that's really more a function of the fourth quarter than the first quarter. In the fourth quarter, we did have a couple of adjustments relating to prior quarters, which actually pulled down that yield a little bit artificially. So I think when you look at that [ $470 million ] yield that we had in investment securities, I feel like that's going to be a better kind of run rate going forward. Tyler Cacciatori: Okay. Great. That's very helpful. And then if I could just squeeze one more in. Do you have the amount of brokered deposits at quarter end? Samvir Sidhu: Stable as a percentage of deposits. Operator: Your final question comes from the line of Brian Wilczynski of Morgan Stanley. Brian Wilczynski: So the new commercial banking teams have been very successful again in terms of adding new low-cost deposits. It's great to see the 2025 teams ramping up, as you showed on the slide. Can you talk a little bit about what you're doing to deepening those relationships on the fee income side? Is there an opportunity to do more with those clients around treasury management, capital markets? And how do you plan to execute on that over the next 12 months or so? Samvir Sidhu: Yes. Sure. It's a great question, Brian. And I think that over the years, we have continuously expanded our treasury management capabilities, and that's really the big driver. And even prior to cubiX, that was one of the large initiatives a number of years ago. The organization is sometimes new teams or new verticals or new sort of sub verticals come on that have what we call sort of edge case treasury management capabilities. We continue to expand and broaden the edge case becomes our base case as we to expand. And over time, we've also thought about an incorporated parts of our team members that allow us to expand into new products and services to service customers. So what ends up happening is the new teams, the edge case for our overall company becomes their base case and that, that becomes something that we can then sort of cross-sell into our existing client base as well. Brian Wilczynski: Really appreciate that color. And then maybe one on the lending side. It was another strong quarter for loan growth remains very well diversified. I was wondering if you can maybe just talk about how your clients are reacting to the geopolitical uncertainty broadly. Has there been any impact at all over the past few weeks on client demand on the loan side? Does that vary at all maybe across the different segments? If you could just speak to what you're seeing over the past few weeks, that would be really helpful. Samvir Sidhu: Yes, I'm happy to jump in on that, Brian. It's obviously something that we spend a lot of time thinking about and trying to, in some cases, create connections. I think what I would sort of say just generally we haven't seen anything tangible that we can put our finger on. At the end of the year, you usually see folks who try to sort of close loans quickly by the end of the year 1 some loans slipped into April that we would have normally expected to close into 331. Why those happened? Difficult to say, but they still closed. So I'd say that sitting where we are today, we don't see any changes to go forward pipelines. We didn't really see any changes to commitments to closings, but it's something we continue to sort of stay close on. Operator: There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Sam Sidhu, CEO, for closing remarks. Samvir Sidhu: Thank you to everyone for your continued investment in and support of Customers Bancorp. We believe Customers Bank can be the most admired commercial bank of its size in the United States, not the biggest, but the most admired. We're grateful for the confidence of our Board, the dedication of our nearly 900 team members and the trust of our shareholders. Thank you, everyone. Have a great day and a great weekend. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, and welcome to the Erie Indemnity Company First Quarter 2026 Earnings Conference Call. This call was prerecorded, and there will be no question-and-answer session following the recording. Now I'd like to introduce your host for the call, Vice President of Investor Relations, Scott Beilharz. Please proceed. Scott Beilharz: Thank you, and welcome, everyone. We appreciate you joining us for a discussion about our first quarter results. This recording will include remarks from Tim NeCastro, President and Chief Executive Officer; and Julie Pelkowski, Executive Vice President and Chief Financial Officer. Our earning release and financial supplement were issued yesterday afternoon after the market closed and are available within the Investor Relations section of our website, erieinsurance.com. Before we begin, I would like to remind everyone that today's discussion may contain forward-looking remarks that reflect the company's current views about future events. These remarks are based on assumptions subject to known and unexpected risks and uncertainties. These risks and uncertainties may cause results to differ materially from those described in these remarks. For information on important factors that may cause these differences, please see the safe harbor statements in our Form 10-Q filing with the SEC filed yesterday and in the related press release. This prerecorded call is the property of Erie Indemnity Company. It may not be reproduced or rebroadcast by any other party without the prior written consent of Erie Indemnity Company. With that, we move on to Tim's remarks. Tim? Timothy NeCastro: Thanks, Scott, and good morning, everyone. Before we get into our first quarter results, I'd like to share some recent changes to the Erie Indemnity Company Board of Directors. First, Tom Hagen recently informed the Board of his decision to step down as Chairman after serving in the role for more than 20 years. Following a special meeting of the Board of Directors on April 19, Jonathan Hirt Hagen was unanimously elected as Chairman of the Board. Jonathan is the son of Tom Hagen and the late Susan Hirt Hagen and the grandson of our Co-Founder, H.O. Hirt. He has served on our Board since 2005 and as Vice Chairman since 2013. Jonathan brings a thoughtful, steady approach to leadership, along with a strong understanding of our business and of our culture. He also carries forward the legacy of those who helped build this company grounded in service, integrity and a long-term perspective. Tom will continue to serve as a member of the Board as Chairman Emeritus and Chair of the Executive Committee. His experience and guidance will remain an important part of our leadership as we move forward. The Board of Directors also recently welcomed a new member, William Edwards, is an attorney and partner at Taft in Indianapolis, Indiana, where he practices employment law. He's also an alumnus and current Board Chair at Wittenberg University, which is the alma mater of Erie's Co-Founder, H.O. Hirt. Finally, we are deeply saddened by the recent passing of one of our long-time Board members and retired Erie executive, George Lucore. George spent 38 years as an employee, retiring in 2010 as Executive Vice President of Field Operations. He continued his service to the company by joining the Board of Directors in 2016, where he remained an engaged and thoughtful contributor. He often said he was honored to continue his association with Erie in this capacity, and we were equally honored to benefit from his experience and his perspectives. Let's now turn to the first quarter results. As we shared in previous calls, 2025 was one of the more challenging periods we faced in terms of profitability, marked by elevated weather activity, including the costliest weather event in our company's history last March and a complex market. But by the end of 2025 and now in the first quarter of 2026, we started to see a more balanced picture and early signs that we're beginning to turn a corner. We're still operating in a competitive market, and there's more work ahead, but the steady measured progress is encouraging. Here to share more details of our first quarter results is Chief Financial Officer, Julie Pelkowski. Julie? Julie Pelkowski: Thank you, Tim, and good morning, everyone. Starting with the results of the Erie Insurance Exchange, the insurance operations we manage. With significantly lower catastrophe and weather-related losses in the first quarter of 2026, the underwriting performance of the core business of the exchange continued to be more evident in contrast to the elevated weather activity we experienced a year ago. Following the period of significant rate increases across the industry, growth continues to be challenging. Higher premiums are impacting customer behavior and measures like policies in force and retention reflect a more competitive landscape. Now getting into the details of the first quarter performance of the Exchange, starting with growth, direct written premium grew 3.6% in the first quarter of 2026 compared to 13.9% in the first quarter of 2025. Given our pricing has reached more adequate levels, this has increased our competitive position challenge. While our average premium per policy grew 8.1% in the first quarter, policies in force were down 1.7% from this time last year and retention declined to 88%. Shifting to profitability. The Exchange's combined ratio was 99.4% in the first quarter of 2026 compared to 108.1% in the first quarter of 2025. The primary drivers of the combined ratio improvements are twofold. First, non-catastrophe losses improved about 3 points compared to the prior year, reflective of stronger rate adequacy. From a catastrophe loss perspective, we saw an almost 7-point improvement from the first quarter of 2025. As Tim mentioned, the first quarter of 2025 included the most expensive weather event in our history, which drove the much higher combined ratio last year. In 2026, the catastrophe losses we experienced were more in line with historical trends. Our policyholder surplus at the end of March was $10.1 billion, consistent with the December 2025 surplus level, reflecting essentially breakeven underwriting and investment results. Shifting to the results for Indemnity. Net income was nearly $151 million or $2.88 per diluted share in the first quarter of 2026 compared to $138 million or $2.65 per diluted share in the first quarter of 2025. Operating income increased approximately 10% to almost $167 million from $151 million in the first quarter of 2025. Management fee revenue for policy issuance and renewal services grew approximately $31 million or 4.2%, in line with the increase in the direct written premiums of the Exchange, while we had more modest expense growth of 2.8% in the first quarter of 2026. Commission expense, our largest cost of operations, increased 6.4% to $465 million, driven largely by agent incentive compensation due to the underwriting profitability improvement as well as higher base commissions driven by premium growth. Noncommission expenses decreased approximately 5.6% to $180 million, primarily driven by lower professional fees and expenses across most other categories, except for personnel costs, which were impacted by higher pension costs and increased compensation. Our investment income in the first quarter was $22 million compared to $20 million in the same period of 2025, reflecting higher net investment income driven by higher yields and higher invested balances. As always, we take a measured approach to capital management and maintain a strong balance sheet. For the first 3 months of 2026, our financial performance enabled us to pay our shareholders approximately $68 million in dividends. With that, I'll turn the call back over to Tim. Timothy NeCastro: Thank you, Julie. As we look ahead, our focus is on building on this momentum, continuing to move forward with discipline and staying grounded in the long-term approach that's guided us through this past year. On the personal lines side, we're excited for the continued rollout of Erie Secure Auto. Following a successful pilot in Ohio, we expanded into Virginia and West Virginia. We're already seeing a positive impact on submissions and premium in those states. We expect to introduce Erie Secure Auto in four additional states this quarter with continued expansion planned throughout the remainder of the year. In commercial lines, we're continuing to introduce Business Auto 2.0 across our footprint. After rolling out to eight states in 2025, the product expanded to North Carolina, Virginia, Maryland and the District of Columbia in the first quarter of this year. We now have one remaining state, New York, to complete the rollout. This product is improving the quoting and servicing experience for agents and customers while also supporting greater consistency and efficiency in our underwriting. Another rollout that will help connect our independent agents with customer leads is our new online quote platform. It was launched in Ohio in February, and we'll introduce it in Maryland, Pennsylvania, Virginia and West Virginia next month. This is a more streamlined modern quoting experience designed to move prospects through the process more efficiently. It's the result of several years of testing and refinement, and over time, it will replace our existing online quoting tools. Importantly, it supports growth, improving lead conversion and reducing connection time to our agents while integrating with products like Erie Secure Auto as they're introduced across our footprint. Modernization of our technology platforms is key to our ability to introduce these new capabilities, and we're making meaningful progress. Today, more than half of our systems have been migrated to contemporary platforms, enhancing both the capabilities we deliver and the speed at which we bring new solutions to market. The modernization is only part of the story. We're also focused on how artificial intelligence can help us improve how work gets done across the organization. Over the past year, we've moved from early experimentation, scaled deployment of secure tools, including ChatGPT Enterprise now available across our employee population. And we're embedding AI into real workflows with strong governance in place. In claims, AI is helping teams prepare subrogation cases more quickly and more consistently. In other areas, teams are reducing backlogs, accelerating analysis and improving response times. Many of our most impactful use cases are practical, saving time, improving quality and reducing risk. And to be clear, this isn't about replacing people, it's about helping our employees do their best work. Our advantage has always been the judgment, care and experience of our employees and agents bring to what they do. We believe AI should strengthen that human touch and not replace it. That will continue to be our focus as we leverage this powerful tool across the organization. As we move through 2026, we remain focused on supporting our employees and agents, serving our customers and continuing to build on the progress we've made toward restoring profitability and balancing it with healthy growth. Thank you all for your continued support and for your interest in Erie.
Operator: Good day, everyone. Welcome to the conference call covering NBT Bancorp's First Quarter 2026 Financial Results. This call is being recorded and has been made accessible to the public in accordance with the SEC Regulation FD. Corresponding presentation slides can be found on the company's website at nbtbancorp.com. Before the call begins, NBT's management would like to remind listeners that, as noted on Slide 2, today's presentation may contain forward-looking statements as defined by the Securities and Exchange Commission. Actual results may differ from those projected. In addition, certain non-GAAP measures will be discussed. Reconciliations for these numbers are contained within the appendix of today's presentation. At this time, all [Operator Instructions] As a reminder, this call is being recorded. I will now turn the conference over to NBT Bancorp President and CEO, Scott Kingsley, for his opening remarks. Mr. Kingsley, please begin. Scott Kingsley: Thank you. Good morning, and thank you for joining us for this earnings call covering NBT Bancorp's First Quarter 2026 Results. With me today are Annette Burns, NBT's Chief Financial Officer; Joe Stagliano, President of NBT Bank; and Joe Ondesko, our Treasurer. Our solid operating performance for the first quarter was driven by disciplined balance sheet management, the growth of our diversified revenue streams and the continued benefits of integrating Evans Bancorp into our franchise following the merger in May 2025. These factors have contributed to productive gains in operating leverage. Operating return on assets was 1.29% for the first quarter with a return on tangible equity of 15.50%. These metrics represent meaningful improvement over the first quarter of last year and have provided incremental capital flexibility. Our tangible book value per share of $27.05 at quarter end was more than 9% higher than a year ago. The continued remix of earning assets, diligent management of funding costs and the addition of the Evans balance sheet resulted in a 28 basis point improvement in net interest margin year-over-year. We got off to a slow start in January and February with the very difficult winter weather conditions, and we experienced a higher-than-expected level of commercial real estate payoffs. With that said, activity since then has been quite good and we are very pleased with the types of customer opportunities we are seeing across our footprint as well as our current pipeline levels. Growth in noninterest income continues to be positive, highlighted by a new all-time high in quarterly revenue generation from our retirement plan administration business. Our capital utilization priorities remain focused on supporting organic growth while continuing our long-standing commitment to annual dividend growth. In addition, our strong capital levels continue to allow us to evaluate a variety of M&A opportunities. Another component of our capital planning is to return capital to shareholders through opportunistic share repurchases. Consistent with that approach, we repurchased 250,000 of our own shares again in the first quarter of 2026. One year in, the integration of our Evans Bank colleagues has gone smoothly and validated the strong cultural alignment we saw from the outset. Their customer and community-focused approach continues to enhance our franchise, and we remain excited about the opportunities ahead in the Western region of New York. Momentum across Upstate New York semiconductor corridor continues to build. Since Micron's groundbreaking late last year and the completion of its site acquisition from Onondaga County in the first quarter development activity has accelerated. Site development and infrastructure build-out for the first fabrication facility are now underway and we are already seeing tangible benefits with more than a dozen of our customers securing contracts tied to the project. Stepping back more broadly, across our 7-state footprint, we continue to see encouraging activity tied to advanced manufacturing, infrastructure investment, housing development and workforce-driven economic initiatives. These dynamics are evident across our core markets, including manufacturing and defense activity in New England as well as construction and community revitalization efforts throughout our legacy regions. While activity levels can vary quarter-to-quarter, the depth and diversity of these initiatives reinforce our confidence in the markets we serve. We believe NBT is well positioned to support this activity through our relationship-driven model, significant balance sheet capacity and a diversified set of financial solutions. I will now turn over the meeting to Anette to review our first quarter results with you in detail. Annette? Annette Burns: Thank you, Scott, and good morning. Turning to the results overview page of our earnings presentation. For the first quarter, we reported net income of $51.1 million or $0.98 per diluted common share. We have improved earnings 27% from the first quarter of 2025 with growth in our balance sheet, net interest margin improvement and a 4.5% year-over-year growth in our fee-based income as well. Earnings were modestly lower than the prior quarter, consistent with seasonal expectations, 2 fewer days in the quarter and a normalized effective tax rate. The next page shows trends in outstanding loans. Total loans at $11.5 billion were down $50.9 million from December 31, 2025, with other consumer and residential solar portfolios in a planned runoff status, representing half of that decline. In addition, we continue to experience an elevated level of commercial payoffs, similar to the prior 2 quarters. Our total loan portfolio remains purposely diversified and is comprised of 56% commercial relationships and 44% consumer loans. On Page 6, total deposits were up $244 million from December 2025, primarily due to the inflow of seasonal municipal deposits during the quarter, along with increases in consumer and commercial customer account balances. Generally, in most of our markets, municipal tax collections are concentrated in the first and third quarters of each year. We experienced a favorable change in our mix of deposits out of higher cost time deposits and into checking, savings and money market products. 59% or $8 billion of our deposit portfolio consists of no and low-cost checking and savings account at a cost of 38 basis points. The next slide highlights the detailed changes in our net interest income and margin. Our net interest margin in the first quarter increased 7 basis points to 3.72% compared with the prior quarter, as the 9 basis point decrease in the cost of funds more than offset the 2 basis point decline in earning asset yields. Loan yields decreased 4 basis points from the prior quarter to 5.66%, primarily due to the repricing of variable rate loans following the prior quarter's federal funds rate decreases. We were able to actively manage our funding costs downward to more than offset that impact as evidenced by the 10 basis point decline in our total cost of deposits to 1.34% for the quarter. Net interest income for the first quarter was $134.3 million, a decrease of $1 million compared to the prior quarter but more than 25% above the first quarter of 2025. The decrease in net interest income from the prior quarter was driven by 2 fewer days in the first quarter of 2026. The opportunity for further upward movement in earning asset yields and net interest margin will depend largely on the shape of the yield curve and how we reinvest loan and investment portfolio cash flows. The trends in noninterest income are outlined on Page 8. Excluding securities gains, our fee income was $49.7 million consistent with the prior quarter and increased 4.5% from the first quarter of 2025. Our combined revenues from retirement plan services, wealth management and insurance services exceeded $32 million in quarterly revenues. Noninterest income represented 27% of total revenues in the first quarter and reflects the strength of our diversified revenue base. Total operating expenses were $112 million for the quarter, a 0.5% increase from the prior quarter. Salaries and employee benefit costs were $68.8 million, an increase of $2.8 million from the prior quarter. This increase was primarily driven by seasonally higher payroll taxes and stock-based compensation, partially offset by lower medical expenses. In addition, annual merit increases occurred in March at an average rate of 3.3%. The quarter-over-quarter increase in occupancy expenses was expected, driven by increase in seasonal costs, including utilities and higher maintenance costs. The effective tax rate for the first quarter was higher than the prior quarter at 23.3% primarily due to the finalization of the deductibility of last year's merger-related expenses and the associated impact on the full year effective tax rate in 2025. Slide 10 provides an overview of key asset quality metrics. Provision expense for the 3 months ended March 31, 2026, was $5.6 million compared to $3.8 million for the fourth quarter of 2025. The increase in provision for loan losses was primarily due to a slightly higher level of net charge-offs and nonperforming loans resulting in a higher level of allowance for loan losses. Reserves were 1.2% of total loans and covered more than 2x the level of nonperforming loans. In closing, we believe the strength of our franchise positions us well for growth opportunities as they arise. We continue to see productive engagement across our markets reflecting our ongoing investment in our people and communities. Thank you for your interest in our results. At this time, we welcome any questions you may have. Operator: [Operator Instructions] Our first question comes from the line of Mark Shutley with KBW. Unknown Analyst: So expenses came in a little bit better than we were expecting despite sort of the seasonal factors there. So I was wondering if you could maybe update us on your outlook there and sort of maybe what's an appropriate run rate for the year? Annette Burns: Sure. I'll take that, Mark. So yes, there were some seasonality in our first quarter expenses, primarily higher levels of salaries and benefit costs related to payroll taxes and stock-based compensation as well as some higher level of occupancy costs. As we look into the next quarter, and we think about salaries and benefit costs, we'll probably see some increased costs related to our merit increases as well as an additional payroll day as well as our occupancy expense seasonal increase will probably be offset in the second quarter by just increase in productivity across our markets like higher travel training as well as technology initiatives. So with all that being said, our run rate in the first quarter was right around $112 million. That will probably be a good place to be in the second quarter. And we still think our run rate or overall increase in occupancy -- or overall operating expenses is typically runs between 3% and 4% annually. We still think that, that is kind of where we're landing for 2026. Scott Kingsley: And Mark, we had some costs in the third and the fourth quarter of last year on the operating expense side that were a little bit higher than sort of standard run rate. Some specific initiatives or some specific costs that we incurred in those quarters. So not unusual for sort of the other expense line to be a little bit lower in the first quarter with, as Annette mentioned, with the costs associated with stock-based compensation and payroll taxes to kind of be the higher one. Unknown Analyst: Great. That's helpful. And then maybe just looking to the NIM, the deposit costs are really strong. But sort of given the current rate environment, maybe seemingly more flat. I was wondering if you're seeing sort of increased deposit competition in your markets and what you expect for deposit costs from here. Annette Burns: So if I think about the margin over the past 2 quarters, I think kind of as we expected to see kind of with the federal funds rate cuts, that our loan repricing was going to happen almost immediately, and then we were going to have a little bit of time to work through our deposit rate changes. So we actively manage that, and I think we were successful through the first quarter of 2026. So our margin right now stands today at 3.72%. We think that's a really great place to be and throwing off some really meaningful earnings as we look forward, when we look at our funding costs, I think they're stabilized there's probably a little bit of opportunity to work that down a little bit, but that will probably be offset by some of our deposit growth initiatives as well. So I would say stabilized there. And then as we look at our earning asset yields, there's probably some repricing opportunities as we primarily look at our investment securities book as well as our residential mortgage book. And then really the shape of the yield curve will kind of influence margin improvements over the next couple of quarters, particularly where we reprice our assets in the 2- to 5-year range of that yield curve, which had seen some improvements and positively sloped starting in March. So I think as we look forward, it's stabilization as well as maybe a few basis points of improvement depending on that yield curve. We think about deposit pricing, I think there is competition for deposits, but it's fairly disciplined or we don't see anything terribly crazy, maybe a few pockets here and there. Scott Kingsley: I'd add to that, Anette, to your point, in most of our markets, and we've got some pretty diverse markets. But in most of them, deposit gathering has not been focused on additional share grab in most of our markets. Most of the people we compete with find that even the large banks that the cost of funding in our markets where we compete with them is probably lower than some of the larger metropolitan areas that they do business in. What we have seen on the asset pricing side is a competitive landscape. I think as people look for yielding assets, there's been a little bit of give up in spread whether that's on the commercial side or business banking. And in the first quarter, we thought that there were some people that mispriced indirect auto. So we chose not to participate in that at the same level that historically we might have from a growth standpoint. So in a difficult quarter for Pure auto sales, I think there were certain other people out there that were trying to do sustain their portfolios. We think we're really good at that portfolio from a total operational management standpoint and remember, the duration of that portfolio is somewhere between 24 and 28 months. So reengaging in that when the economics make a little bit more sense is kind of how we look at that. Operator: And our next question comes from the line of Feddie Strickland with Hovde Group. Feddie Strickland: I think to address this in your opening comments, but I just wondered if you could talk generally about sentiment among commercial customers. Are you seeing clients pull back at all on some of the economic uncertainty and credit rather interest rate uncertainty or the trends in the footprint like the chip manufacturing facilities still kind of pull the local economies forward regardless? Scott Kingsley: Yes. Thanks for that opportunity. So across the markets, customers are feeling pretty good about themselves. I don't think that we started the year thinking that they could possibly have more uncertainty than they went through in 2025, but we appear to have topped that in early '26. And we've said this before that uncertainty doesn't inspire action. But I don't think things have been held up. So I don't think we have customers who have said I'm going to pass on fulfilling capital expenditure projects that I had planned, either for capacity improvement in their businesses or just general recurring costs associated with being technically better. So we haven't seen any of that. I will say this, in the first quarter, we had a number of really exciting and really robust construction projects that did not get underway in the time line we expected. But most of them, as the grass is turning a little greener, they're finding their way to get out and start to work on some of that stuff. So we think there will be -- there was probably a little bit of a backup in the first quarter that will get taken care of here in the second quarter. But nothing never seen that is falling away. I do think that some of our very astute customers who use our capable and treasury management tools, in some cases, are paying down some of their leverage because there are opportunity to earn yield on that is not at the same level that it was 18 or 24 months ago. So I think much like our balance sheet, there's a lot of tactical management going on in our customers today. And -- but sentiment quite good across the franchise. Feddie Strickland: All right. That's great to hear Scott. And just if you could also give us an update on M&A conversations. It sounds like those are ongoing. I'm just curious on a similar question whether current conditions or maybe making that a little bit of a priority for some potential partners or whether that's a little bit of a headwind? Scott Kingsley: Yes. Let me kind of tack that and check that in a couple of different ways, which is we have ongoing conversations with like-minded smaller community banks across our 7-state footprint. Our priority is to try to do some fill-in work and whether that's a practical M&A transaction build out concentration in some of our markets ourselves. So if I was to hit on that really quick, I would tell you that our strategy in greater Rochester, New York and into the Finger Lakes is a build-out strategy that we recognize that we don't have the market coverage that we needed. So getting closer into the city of Rochester and maybe in the western and southern suburbs is a priority for us. So something you'll see us act on in the next 12 to 18 months. I feel a little bit similar to that in Southern New Hampshire and Southern Maine where our concentration in terms of spots in the market is not that concentrated. And -- but we've got great commercial lending teams in both markets. So giving them a little bit more to work with. We opened another branch in base side in Portland during the quarter. We're going to make a commitment in Scarborough going into the second half of the year or early next year. And we'd like to find a couple more spots in Southern New Hampshire, again, just to give our folks some opportunity for enhanced branding. I think if you look at the rest of our franchise, there are spots where we're still missing some participation in markets that we think we would thrive in. And it doesn't require us to move our geography another 100 or 200 miles. These are things that are either next door or within the existing footprint. So that's where we've been spending our time. To your point about priority for certain other people and maybe some people who are not necessarily experienced acquirers, there's been a handful of transactions in our marketplace that we think presents a disruption opportunity. There was a -- for us, in a market, a substantive transaction in the Mohawk Valley outside in the greater Utica area. We think that will present some opportunities for us a handful of things going on in Western -- sort of Western New England, Western Massachusetts and Connecticut, a couple of large transactions, but then a couple of small transactions where a couple of small community banks are getting together. So we've got some very specific and pointed initiatives attached to that from a disruption standpoint. And are pretty confident given past results that we'll see some productive gains from that. Feddie Strickland: Super helpful color. Just one more quick one for Annette. I apologize if I missed it somewhere, but did you have the loan discount accretion number for the quarter? I think I saw it was up, but not by how much and maybe what expectations might be for that number going forward? Annette Burns: Sure. Our loan accretion for the quarter was right around $6.5 million that's kind of a little bit down from what we had in the fourth quarter. And I would expect it to run somewhere in the $6 million to $6.5 million that corresponds with our intangible asset amortization around $3.5 million a quarter, so aligned with that. As we think about accretion where we mark those loans, we think we're capable of getting pretty close to those rates as we reinvest those cash flows in our loan book as well. Scott Kingsley: Yes. I would reinforce Annette's comment on that, that the size of the marks in either our residential mortgage portfolio or commercial portfolio, from both Salisbury and Evans don't leave us with the yields that are above current market yields. Operator: And our next question comes from the line of Manuel Navas with Piper Sandler. Manuel Navas: Can you just speak to loan growth this year and the kind of the makeup of the loan pipeline. Just wondering how things look with the runoff portfolios, the pullback in indirect auto, just kind of level set things as we kind of move across the year? Scott Kingsley: Sure. And let's see if I can sort of accomplish this efficiently from those sort of 4 subsets of questions, Manuel. Runoff portfolio, primarily solar residential. We've said before, that's roughly $100 million a year. That's exactly what we incurred in the first quarter, so $25 million in the quarter. And our expectation is that continues on the prepayment patterns in that portfolios are more similar to the prepayment patterns of home mortgage, probably not a really unexpected outcome since the equipment sits on top of the house. And so from a practical standpoint, that's kind of going according to plan. I think to the extent that we're incurring some losses in that portfolio from customers are not paying us back timely, it's as expected, not outside of that. And just as a reminder, we carry reserves around 4% of that portfolio. So I think we're really well covered relative to the expectation of future results as that portfolio runs up. Indirect Auto is an interesting one for us. Again, as I said before, we're really good at this portfolio. We really like the short duration of the portfolio. We like the asset because the customers in our market actually need that asset. And so our performance from a quality standpoint has been really, really solid. As a matter of fact, sub-30 basis point charge-off levels for quite a while now in that portfolio. In that portfolio, though, that if there's -- if people are trying to get share to build to their book, and in the first quarter, we saw a handful of institutions probably more dominated by credit unions that had really low rates. Rates that made no sense, rates barely above Fed funds rates, and that's not where we're going to participate and add to our portfolio. From the rest of the pipeline standpoint, nice mix of commercial real estate in C&I in our current portfolio in the pipeline for that like the construction projects that are out there. And as I said before, a couple of them have probably got underway a little bit later than maybe we would have hoped from a progress standpoint, there's a lot of infrastructure build going on in our markets, not just Central New York, but across the footprint. So opportunities for our contracting clients and people who service those industries to move forward. We really think that in the first quarter for us historically, is not our most robust quarter of growth, and that was evidenced in this quarter. We think we start to get back to more of that low to mid-single-digit growth rates for the balance of the year. Manuel Navas: I thought that was a pretty fulsome answer. Can you remind me and level set a little bit on kind of fee growth expectations, where the largest opportunities are? Where you'd like to see better growth, for example? Just kind of thoughts on that year-over-year. Annette Burns: Sure. Our fee-based income does have some seasonality with the first and third quarter usually being the most robust and second and fourth being a little lighter. I think we're really excited about the growth opportunities and our fee-based income. Most excited about the performance of retirement plan services. They really had some really great wins in the first quarter of 2026, and that's evident in their numbers. So really good trajectory there. But we also feel that wealth and insurance have some really good opportunities as well, particularly as we bring the whole bank to some of our markets like the Western New York region as an example. So feeling good about the trajectory there. I think as we think about full year growth expectations, I think we can look back to our historical performance over the past couple of years, which is are in the mid-single-digit growth rates for our fee-based businesses. I think we still continue to expect that's achievable for us. And deposit service charges, banking fees generally we are a little lighter in the first quarter seasonality, and that will continue to build as well as we get into the next few quarters. Manuel Navas: I appreciate that. My last question is could you give any extra color on some of the NPL build here, just anything we can disclose on that? Annette Burns: P Sure. I'll take that. Nonperforming loans, the majority of our increase during the quarter was related to a C&I relationship in the Western New York region. We're acting working through that. It's really a specific customer circumstance. So we have a handful of other nonperforming loans that we're continually to actively engage and work through as well, which are primarily commercial real estate based. We feel pretty good about our capacity to work through those and feel very good where we are from a positioning as far as our allowance associated with those. And I would just add that our consumer delinquencies have performed kind of in line with our expectations and in some cases, better than our expectations. So those are really looking good through the first quarter as well. Scott Kingsley: Yes. And just where we are, and this is not just us, but we're coming off such a low base that one relationship or a couple of relationships can actually make a difference relative to size of that nonperforming. But I think the important comment that Annette made was we think we have the capacity to work through these. Not only do we have the stamina to work through is -- but we have a really good job at identifying a customer that may be just going through a really difficult period of time. But we like everything about what they do. So this doesn't have to be us moving really quickly to sell assets and remove them from our portfolio. We have the same to work through stuff. Operator: Our next question comes from the line of Steve Moss with Raymond James. Stephen Moss: Scott so maybe just most of my questions asked and answered here. Just following up. I'm not sure I caught this or you might have spoken to Scott, but on the deposit cost side here, definitely a healthy step down. Just kind of curious, I know you operate in lower cost markets for sure. But just -- is this a good bottom to deposit costs? Or as you're entering maybe a little more relatively suburban markets and Upstate New York, do we see a little bit more of an upward pressure, if that holds flat here? Scott Kingsley: It's a decent question, Steve. I would kind of reflect on this that if you thought about the fourth quarter where there were 3 Fed funds changes in the last 4 months of the year. And the impact that had on our [indiscernible] assets, we knew that we had a responsibility to cover that and maybe a little bit more. But it was difficult to get all that in the same quarter that all of those happened. And I would really focus on sort of the month of December. But we had active management across all deposit portfolios and achieve that lower rate in the first quarter, arguably in January to get back to levels of beta performance that we think are sustainable for us. So your question is a good one relative to if we end up in a little bit more suburban or light metro markets with some of our growth plans. Will the cost of interest be a little bit higher. It might be. But again, if you think about the product we're really leading with is we're leading with the checking product. So if it's necessary for some larger commercial customers or even municipal customers for us to have a higher rate to secure the win of that customer. Long term, it's total cost of funds in the relationship. So I don't think we think it's going to be outside of the norm that we can't handle. And if you kind of think about a growth rate of just pick a number, 4% or 5% on a $13.5 billion base. That's $0.5 billion of new deposit balances on an annual basis. Even if those are a little bit above the blended cost of our existing deposit portfolio, we can probably held that small dilution. Stephen Moss: Okay. That's helpful. And then just in terms of -- the other thing I just want to touch base on in terms of cash flows. Just kind of curious on the security side, just maybe I missed in the deck, but what's the amount of cash flows that you guys have for the upcoming 12 months for securities? Annette Burns: Securities cash flows probably run somewhere in the $20 million to $25 million a month, pretty consistently, maybe out in '27, '28, there might be a little bit of more lumpiness to it, but pretty consistently over the next several quarters. Stephen Moss: Okay. And then on auto loans, I think I wanted to ask about was just kind of -- you guys mentioned competition with regard to pricing. Just kind of curious, was it just incrementally tighter that you guys weren't willing to put it on this quarter? Or was it kind of a meaningful step down and maybe we see that extend for a little bit here? Scott Kingsley: In the first quarter, and I think we're actually seeing a little bit of rationality here in the second quarter already. In the first quarter, there were offerings out there that were 150 to 200 basis points below ours. Stephen Moss: Okay. Got it. Annette Burns: I think you could combine that too with some lower auto sales just generally as well. Operator: [Operator Instructions] Our next question comes from the line of Matthew Breese with Stephens. Matthew Breese: A few from me. First, Annette, maybe you could help me out with new loan yield originations this quarter and what's some of the roll-on versus roll-off dynamics to what extent is that positive still? Annette Burns: Sure. I'll get us started here. So if we look at our book. Our residential mortgage probably still has somewhere around 120 to 125 basis points to reprice. Our commercial yields have come in a little bit, particularly with the 75 basis point drop in the yield curve over the past 12 months. But it was probably still about somewhere in the 20 to 25 basis point range of repricing opportunities in our commercial book. If you look at our indirect auto book, our new origination rates are actually a little bit below where our portfolio yields are. So they're completely repriced and a little bit underwater at this point. And then I spoke about our investment securities portfolio that's probably somewhere in the $150 million to $175 million from a repricing opportunity. Matthew Breese: Perfect. Okay. And then I guess if loan growth remains subdued, may we see some tactical changes. And I'm thinking, do we see more consistent or even more aggressive buybacks. Or do we see you perhaps Connecticut is a really kind of heavily disrupted market right now with all the M&A you have your toe in there, maybe see you lead with lending to drive some better growth in that geography. I'm just curious as you play this out, what might we see you do? Scott Kingsley: So I don't think the strategy holistically changes by a lot, Matt. Will there be tactical opportunities in markets with disruption where it is? Definitely faster to lead with the asset product from a loan standpoint for sure. So to your point, whether that's Northwest, North Central Connecticut, whether that's the Berkshire's or in fairness, whether that's in spots in Central New York, honestly, today. So you're not wrong about that. I don't think that we'll think that it's a holistic change in strategy. What we are experiencing is an opportunity to hire some very high-quality people in several of our markets today, either coming from some of our larger bank competitors or for people that have been displaced in disruption. So that has been an opportunity, and we've probably added half a dozen people to our mix in the last 6 months. We probably 2 years ago, we're sure we'd ever get access to that level of quality individual. So that's a net positive. Has that shown up on the balance sheet? Yes, probably not. But on a going-forward basis, we certainly expect some opportunities to come out of that. But I think tactically, I think we're proving that we're pretty adept at moving with situations. And as logical opportunities present themselves in the markets will be there and we'll be in a position to win those opportunities. Should there be pricing dynamics that don't make sense for us on a long-term basis, we're unlikely to chase for those. Matthew Breese: Scott, should we think about consistent buybacks here? I mean, it's been $250,000 last couple of quarters. Is that something we should model in for 1 or 2 more quarters? Scott Kingsley: Here's how I kind of look at that, Matt, is that generating and retaining capital is hard like you work really hard to get to that privilege to generate capital to use for future opportunities. So we are not opposed to share buybacks. We don't think that, that's top of our priority list. But we can certainly fund what we've done for the last 2 quarters because our earnings generation has been so robust. So I don't think that we need to think about that as we're probably never going to start 1 of our conference calls with we bought 9% of our shares this quarter. That's not us. But a practical mechanism that says if the market is not recognizing our value, we want to be participatory in that Absolutely. Matthew Breese: Yes. Okay. Last one for me. Just an update on all things kind of chip manufacturing, not just Micron, but there's been tens of billions directed to New York creates and global foundries. And just curious in terms of activity, what's going on? And two, when do we start to see that translate into a bit more loan growth than we're currently seeing. And that's all I have. Scott Kingsley: Really decent question, Matt. I think the build-out of that GLOBALFOUNDRIES in Saratoga has really it's a great model to watch relative to what 1 might expect in the future with other fabrication facilities coming online. And the total sort of vendor environment that they had to create to be able to service that facility, watched housing developments and demographic improvement exist in that area for a number of years now. So that ought to continue. To your point, we're engaged in not only a lending facility at New York creates, but just to throw off that the activity generates there. It's a really important feature for not only Micron and global families, but other people who are interesting in pretesting their products are using that facility. So it's a very important economic stimulator for future development. So all in all, like anything from these very, very large project base. I wouldn't say we're disappointed that the pace has been a little bit slower than we might have initially expected. But remember, just the sheer size of these projects. So when you think about what's really important there, we keep coming back to what's really important is the sponsor, right? Global Foundries is doing very well. Micron is doing exceptionally well. So the strength of the sponsor is really, really important to this, and I think that they're committed to these build-outs on a long-term basis. Operator: our next question comes from the line of Jacob Civiello with Davidson. Jacob Civiello: Just 2 quick questions for me. I apologize if I missed this, but did you have a spot NIM for the month of March that you provided? Annette Burns: It's pretty consistent with where we landed for the quarter. Jacob Civiello: Okay. And then -- you talked about the commercial payoffs in the quarter being relatively consistent with the past couple of quarters as you kind of look ahead or think ahead, I know you talked about loan growth being kind of back to that low to mid-single-digit growth trajectory are the payoffs and paydowns factored into that? Are they slowing? Like, can you give us any perspective there? Scott Kingsley: Sure, Jacob. Absolutely. So just to give you a framing reference here, in the first quarter of last year, we had about $45 million or $50 million worth of early payoffs. That was pretty consistent with the second quarter. Starting in the third quarter, the number went above $100 million. And for the first quarter, about $125 million for this year. And again, I think a lot of that has to do with the valuation of some of our customers' assets, whether it's the holistic business they're doing or a piece of real estate that they own I think that as people look for yield from performing assets, all of those things have been in that consideration. I don't think that early paths are going to go to back to 0, but I also think we're seeing signs that our production levels are capable of handling a higher level of payoff and still demonstrating that balance sheet growth. And I think we're already in that phase. Jacob Civiello: Okay. I mean any particular geographies or customer type loan size... Scott Kingsley: Widespread. A couple of very attractive operating businesses some real estate projects that the owner probably thought that they were going to be the holder for 5 to 7 years, and they were able to go into an agency was at a hockey game in Western New York and had a chat with one of our customers who moved to an agency instrument 3 years before he thought it would be available. And so a wide variety and a wide variety of geographies. But as well as that, is that there's not of our geographies today where we're not seeing good growth attributes or good opportunities coming through. -- so kind of balance that with its widespread on the payoff side, it's pretty widespread on the growth side. Operator: Thank you. I have not shown any further questions. I will now turn the call back to Scott Kingsley for his closing remarks. Scott Kingsley: Thanks in closing. I want to thank everyone on the call for participating today, and thanks for your continued interest in NBT. Talk to you next time. Operator: Thank you, Mr. Kingsley. This concludes our program. You may disconnect. Have a great day.
Operator: Good day, and thank you for standing by. Welcome to the Chemed Corp First Quarter 2026 Earnings Conference Call. At [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand it over to our first speaker, Holley Schmidt, [indiscernible]. Please go ahead. Holley Schmidt: Good morning. Our conference call this morning will review the financial results for the first quarter of 2026 ended March 31, 2026. Before we begin, let me remind you that the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 applies to this conference call. During the course of this call, the company will make various remarks concerning management's expectations, predictions, plans and prospects that constitute forward-looking statements. Actual results may differ materially from those projected by these forward-looking statements as a result of a variety of factors, including those identified in the company's news release of April and in various other filings with the SEC. You are cautioned that any forward-looking statements reflect management's current view only and that the company undertakes no obligation to revise or update such statements in the future. In addition, management may also discuss non-GAAP operating performance results during today's call, including earnings before interest, taxes, depreciation and amortization or EBITDA and adjusted EBITDA. A reconciliation of these non-GAAP results is provided in the company's press release dated April 23, which is available on the company's website at chemed.com. I would now like to introduce our speakers for today, Kevin McNamara, President and Chief Executive Officer of Chemed Corporation; Mike Witzeman, Chief Financial Officer of Chemed; and Joel Wherley, President and Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary. I will now turn the call over to Kevin McNamara. Kevin McNamara: Thank you, Holley. Good morning. Welcome to Chemed Corporation's First Quarter 2026 Conference Call. I will begin with highlights for the quarter, then Mike and Joel will follow up with additional details. I will then open the call for questions. VITAS's performance during the quarter exceeded even the high end of our expectations. We believe that the first quarter of 2026 would be a tough comparison as we continue to transition to balance our patient mix between short-stay and long-stay patients. VITAS management was able to add ADC through accelerated admissions from nonhospital preadmission locations while also maintaining a high level of hospital-based emissions. This was achieved while also keeping hospice labor costs lower than budgeted. These factors combined to allow VITAS to achieve higher-than-expected revenue growth and EBITDA margins while continuing to add Cushion to the Medicare Cap position in our Florida combined position program. Admissions at VITAS during the quarter totaled 19,394 which equates to a 6.9% improvement from the same period of 2025. We Hospital admissions as a percent of total admissions for our Florida combined program was 43.8% during the first quarter of 2026. As we have discussed previously, an appropriate balance for the sustained long-term stability in the Florida patient base, given the current mix of referral sources is that between 42% and 45% of total admissions that come from hospitals. Equally as important, as Joe will discuss in greater detail, admissions from all other preadmission locations increased 8.4% compared to the first quarter of 2025 in our Florida combined program. Improved admissions led VITAS to outperform our expectations while also adding over $32.5 million to cap cushion in the Florida combined program in the first quarter of 2026. March 31, represents the halfway point in the government fiscal year. We are more confident than ever that VITAS has put the Florida cap issue of 2025 behind us and has returned to a normalized rate of growth. Now let's turn to Roto-Rooter. Over the past 2 years, we have talked about the many headwinds that have persisted at Rotair, which is made for a difficult operating environment. While we believe [indiscernible] will continue to face some of those headwinds, the first quarter of 2026 also showed some signs of improvement across multiple fronts. For the first time since the fourth quarter of 2022, residential plumbing and residential sewer and drain revenue both increased during the quarter. We consider these Roto-Rooter's core services which drive the add-on revenue from excavation and water restoration. We see this as a very positive development for the company. Driving the increase in core residential service revenue was an increase in total leads of 3.3%. Paid leads during the first quarter of 2026, increased 18.7% compared to the same quarter of 2025. Continuing the same trend as past quarters, 53.4% of those leads were the result of paid advertisements. In the first quarter of 2025, we paid for 46.5% of the leads. The change of approximately 7% required Roto-Rooter to increase marketing spend by almost $3 million in the quarter compared to the first quarter of 2025. The centralization of water restoration billing and collections continues and has resulted in improved collections. These improvements resulted in a $1.5 million improvement in overall write-offs compared with the first quarter of 2025. Weather patterns in the first quarter of any given year are positive for Roto-Rooter. However, in the first quarter of 2026, unusual ice and snow storms across large parts of the country led to significant service disruptions due to road conditions. 24 [indiscernible] branches experienced some level of service disruption for a period of time across 5 days of the quarter. We estimate that these service disruptions resulted in a net loss revenue of between $3 million and $4 million during the quarter. On March 31, 2026, we repurchased the territory and assets of the franchises operating in San Francisco, California, and Fort Worth, Texas in 2 separate transactions. The aggregated combined purchase price of these transactions was approximately $20.6 million. Collectively, these retro locations serve a population of approximately 3.3 million people. This purchase is part of Rodger's ongoing strategy of acquiring franchises to boost productivity, market share and profitability. These 2 acquisitions are anticipated to add between $5 million and $5.5 million of revenue for the remainder of 2026. These acquisitions are immediately accretive to earnings. However, initially, growth -- gross margins, EBITDA margins, pricing and mix of service offerings tend to be below the average of our existing rotor portfolio. We are happy with the performance of VITAS in the quarter and its prospects for the remainder of 2026 and beyond. In our February conference call, we described this as a year of transition for Roto-Rooter. The first quarter clearly demonstrated this transition. We feel very positive that the initiatives we have discussed over the last few quarters are beginning to take hold. With that, I would now like to turn the teleconference over to Mike. Michael Witzeman: Thanks, Kevin. VITAS' net revenue was $420 million in the first quarter of 2026, and which is an increase of 3.1% when compared to the prior year period. This revenue increase is the result of a 2.2% increase in days of care, and a geographically weighted average Medicare reimbursement rate increase of approximately 2.6%. The acuity mix shift negatively impacted revenue growth, 120 basis points in the quarter when compared to the prior year revenue and level of care mix. The combination of Medicare Cap and other contra revenue changes negatively impacted revenue growth by approximately 47 basis points. In the first quarter of 2026, Vitas accrued $2.4 million in Medicare Cap billing limitation. This is in line with our expectations. No Medicare Cap billing limitation was recorded in the first quarter of 26% for the Florida combined program and none is anticipated for the 2026 fiscal period. Average revenue per day in the first quarter of 2026, was $210.62, which is a 146 basis points improvement from the prior year period. During the quarter, high acuity days of care were 2.3% of total days of care, a decline of 28 basis points when compared to the prior year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $70.8 million in the quarter, an increase of 0.6% when compared to the prior year period. Adjusted EBITDA margin in the quarter, excluding Medicare Cap, was 16.8%. Now let's turn to Roto-Rooter. Roto-Rooter branch commercial revenue in the quarter totaled $56.5 million, a decrease of 1.9% from the prior year period. Commercial revenue was negatively impacted by the weather events discussed earlier to Kevin. However, for the 13 branches that had commercial business managers coming into 2026 and Commercial revenue was up approximately 10%. We added 18 new commercial business managers during the first quarter of 2026. We expect commercial business revenue to accelerate as these 18 new commercial business managers complete their training and begin to become productive sales leaders in their locations. Roto-Rooter branch residential revenue in the quarter totaled $16.3 million, a decrease of 1.5% over the prior year period. All lines of service increased from the first quarter of 2025 with the exception of water restoration. Demand for water restoration services continues to be strong, and our conversion rates remain high. During the transition to a centralized billing and collection model, we anticipated some disruption to the day-to-day billing processing function. In the first quarter of the average revenue per water restoration job declined by roughly 13%. We anticipate that this issue will improve as the year progresses with the tallies staff gaining experience and proficiency. Revenue from our independent contractors declined 3.3% in the first quarter of '26 compared to the same period of 2025. Our independent contractors are generally smaller operations in middle-market cities. Because they are independent contractors, they tend to operate more like a small mom-and-pop business than our owned and operated branch locations. We are actively working with the contractor group to help mitigate the issues in this segment of our business to get it back to a growth trajectory. Adjusted EBITDA in the first quarter of 2026 totaled $53.5 million a decrease of 9.6% when compared to the first quarter of '25. The adjusted EBITDA margin in the quarter was 22.5%, which represents a 218 basis point decline from the first quarter of '25. Roto-Rooter gross margin of 51% was in line with our expectations. As discussed by Kevin, the decline in adjusted EBITDA margin was mainly caused by increased Internet marketing costs. Finally, let's discuss the revised guidance for fiscal 2026. Historically, we do not give quarterly updates to guidance. Due to the materially improved performance of VITAS, coupled with the level of share repurchases in the first quarter of 2026, we believe updating guidance is appropriate in this instance. As a result of the better-than-anticipated first quarter for VITAS we have increased projections for the remainder of '26. Full year ADC growth for 2026 is updated to a range of 4.5% to 5.5% and compared to the original guidance of 3.5% to 4%. Anticipated revenue growth, excluding the impact of the Medicare Cap, improves from the original guidance of 5.5% to 6.5% and to a revised range of 6.5% to 7.5%. Finally, revised EBITDA margin, excluding the impact of the Medicare Cap, is anticipated to be 18% to 18.5% and compared to original guidance of 17.5% to 18.5%. We're factoring all the gives and takes within expected Roto-Rooter performance for the remainder of fiscal 2026, anticipated revenue growth remains unchanged at 3% to 3.5%. Estimated adjusted EBITDA margin is lowered slightly to 21.5% to 22.5% compared to the original guidance of 22.5% to 23%. This is primarily due to elevated marketing costs now expected to persist above our original guidance for the remainder of the year. Based on the above full year 2026 earnings per diluted share, excluding noncash expenses for stock options, tax benefits from stock option exercises, costs related to litigation and other discrete items, is estimated to be in the range of $20 to $24.75. The midpoint of the revised guidance represents a 13% increase from 2025 adjusted earnings per diluted share of $21.55. The revised 2026 guidance assumes an effective corporate tax rate on adjusted earnings of 24.5% and a diluted share count of 13.6 million shares. The original 2026 guidance was for adjusted earnings per share to be between $23.25 and $24.25. I will now turn the call over to Joel. Joel Wherley: Thanks, Mike. In the first quarter of 2026, our average daily census was 22,723 and an increase of 2.2%. In the quarter, hospital directed admissions increased 13.6%, home-based patient admissions increased 2% and assisted living facility admissions increased 2.9% and nursing home admissions declined 5.4% when compared to the prior year period. The continued high level of hospital admissions allowed us to quickly transition in the quarter and start emphasizing admissions from other preadmission locations that generate a longer length of stay patient. This resulted in ADC growth that was ahead of the original projections. We were able to achieve this level of ADC growth while maintaining full-time equivalents below our budgeted targets for the quarter. Our average length of stay in the quarter was 102.7 days. This compares to 118.7 days in the first quarter of 2025. Our median length of stay was 15 days in the first quarter of 2026, a decline of 1 day from the first quarter of 2025. The new starts in Florida continued to grow at a very rapid pace. Marian, Pasco and Pinellas Counties, combined had 526 admissions in the first quarter of 2026, exceeding our expectations. AC for each new start continues to exceed our expectations, and we anticipate opening ManatoCounty in late second quarter or early third quarter. We intend to aggressively go Manati as we have in our other 3 new starts. I believe the opportunity for growth at VITAS has never been better. We have the difficulties of the 2025 cap circumstance behind us. We are looking forward to continue executing our strategies for the remainder of 2026 and beyond. That will translate into high sustainable growth while providing the best possible care to our patients and families. And with that, I'll turn the call back to Kevin. Kevin McNamara: Thank you, Joel. I will now open this teleconference to questions. Operator: [Operator Instructions] Our first question will come from the line of Brian Tanquilut from Jefferies. Unknown Analyst: This is Megan Holt on for Brian Tanquilut. Congrats on the quarter guys, and the guidance rates for the year. First, on the VITAS side, margins looked good in the quarter. How much of that was head count reduction that contributed to it? And then since you're raising the ADC guidance, do you expand labor capacity to support their growth for the remainder of the year? And then just lastly on the VITAS side, speak to any fraud enforcement you're seeing in Southern California, given the CMS cure? Kevin Fischbeck: I can start with the margin discussion, Megan, and then I'll let Joel talk about the fraud stuff. But we averaged roughly 100 FTEs below our budget in the quarter. we were able to efficiently serve the increased ADC with -- at that level. But I think to your point, that's not something that we view as something sustainable for the rest of the year. We intend to I think our original budget was adding 30 to 40 FTEs a month. We've increased that to closer to 60 per month for the remainder of the year. So we feel very good that if we add those 60, we can achieve the level of ADC growth we have currently budgeted and maybe a little better than that. Joel, fraud, stuff. Joel Wherley: Yes. So we certainly are very sensitive to the national campaign to root out fraud waste and abuse within the health care system. Certainly, the hospice concerns in California have been very public -- there were just Senate congressional hearings on Tuesday, speaking specific to it. We are very supportive of the efforts. However, we also want to avoid direct implications associated with the fraudsters and ensure that, that does not limit access for patients in need in those counties not only in California, but across the United States for legitimate providers to impact the quality of that patient and their loved ones final journey. . Unknown Analyst: Got it. And then on the Roto-Rooter side, it looked like you guys had some additional marketing expense in the quarter. Is that now the right run rate going forward? And you started seeing some pressure on the customers this time last year given the macro backdrop? And facing a similar headwind in terms of the economy right now and whatnot. So are you seeing that similar trends as we're a month into Q2 now? Kevin McNamara: Well, let me just start with the marketing costs. Marketing costs proxy for Google costs. And as we indicated, I mean our leads were up 3%. However, I mean, to get that 3%, we had the battle with the fact that due to changes in the Google algorithm are leads from the natural or free side of the search spectrum were down almost 16%, okay? So those were down 16%. Nothing Rodeo could do. We expect that to basically continue. We have several efforts afoot to increase our visibility on the natural side. But I mean, in the short term, it's going to be something approaching that. We hope to improve our position, but through the models, I would say that's kind of what we expect to see some tough sledding on the natural side of the search with Google. On the positive side, without increasing the amount we bid in the various domains. We've been getting a lot more clicks. I mean our clicks on the paid side went up over 18%. So I guess what I'm saying is, in order to keep our business where it is and basically, our sales where we budgeted, we've got to pay for more of the leads, and that means more marketing costs and kind of inexorable in the short and midterm. And so to answer your question, yes, we expect that to continue. Joel Wherley: Yes. Megan, from a specific number, [indiscernible], I can walk you through it a little bit. But we were from a year-over-year comparison, $3 million above last year in marketing costs. We had budgeted or guided -- included in the guidance was an increase of $1 million -- so we basically spent about $2 million in the quarter higher than what we had budgeted. Of that, we think that roughly $1 million of it was related to some of the weather things we talked about. We were -- when we couldn't get on the road, we were still getting calls probably a much higher volume than we would as we've talked about, weather is good -- that kind of weather is good for us, but we couldn't serve it. And so we were paying for calls that ultimately, we couldn't serve. We expect -- we thought that was probably about $1 million additional expense that shouldn't be really considered in the run rate. So all in all, we spent about -- on a run rate basis, we spent about $1 million more in the quarter than we anticipated. And the entire change in the EBITDA margin in the guidance is us adding $1 million per quarter of marketing costs for the next 3 quarters. Unknown Analyst: And then just any trends you can speak to so far in Q2? Joel Wherley: It's real early in Q2. I think things continue to progress the way we expect them to. . Operator: Next question will come the line of Joanna Gajuk from Bank of America. Joanna Gajuk: So maybe first on the border business. So can you just talk about the marketing for and the weather disruption -- and I guess I want to tie the quarter to the full year outlook. So now the full year outlook includes, call it, $5 million from these 2 franchises that you acquired. So there's some contribution in there too. And I guess you still expect the same revenue growth. So was there some sort of bad guy that after the good guys, so to speak, in the guidance, if you can walk us through . Kevin McNamara: Yes. So what -- I mean, what we talked about, Joanna, was that there are -- within the guidance and what's even in the first quarter, there are some positives, but there's also continued headwinds the contract operations still performed slightly below our expectations. The water restoration revenue, particularly on a price or cost per job is still below -- a little bit below our expectations. So those gives and takes sort of offset the acquisition revenue we anticipated. But revenue stays in line with where we thought it would be at the beginning of the year, just maybe the underlying components might be slightly different than what we had anticipated. But ultimately, the revenue continues to grow as we expected. Joanna Gajuk: And if I may, so on the collection rate, did I hear right? I guess maybe there was some improvement, but I guess you did not expect in Q2 -- so I guess I just want to make sure, are you still expecting to improve collection by $4 million to $6 million for the year. . Kevin McNamara: Yes, we were slightly better than that than our expectations in the first quarter. Having said that, part of that obviously comes from the idea that we're billing lesser job. So we anticipate both of those things improving as we finalize the centralization and those centralized employees get more experienced and we can bring up the revenue per job while still maintaining a higher collection rate. Joanna Gajuk: Right. That makes sense. And with these acquisitions that you mentioned, they usually just come with somewhat lower margins. Obviously, accretive printing money, right? -- the goal is to improve over time. Do you anticipate doing more of these this year? And are there some maybe other assets you would consider acquiring for that business? Kevin McNamara: Well, I would just say, Joanna, that it's hard to say. But yes, I would given the operating environment out there, we've noted that there are a number of franchise holders that held the franchise for a couple of generations and they're saying, "Boy, this is tough. Maybe I will consider selling to you and we're considering a number of possibilities. I would say that -- the 2 that we mentioned this quarter, San Francisco and Fort Worth are kind of unusual. They're real plugs. I mean the ones that are generally available to be groups of smaller franchisees that are very likely going to be participants in our independent contractor portfolio. But Yes. There's no question. We anticipate continuing to add additional locations for Roto-Rooter. It's a good acquisition environment for us in that time. Joanna Gajuk: And I guess any progress you mentioned you're making some traction with Google, Agusta I guess you had this new SEO partner. So can you give us an update there? Kevin McNamara: Well, I hate to get too part of the week, but let me just say this, we immediately saw an improvement in what we call visibility. And by visibility, the best way to do that is you look at how often you appear in the map section. That's where -- that's part of the -- that's where you get the natural. It's biggest driver of the natural leads or free leads. And as we indicated previously, at the end of 2024, we were appearing nationwide, 72% of the time. And halfway through the first quarter of last year, we dropped like a rock to the mid- to low 20% of the time showing up on those maps. What we saw in the first quarter of this year was working with our outside contractor, an improvement, basically, a 10 percentage point improvement in our visibility. And then in March, we saw a change in the algorithm again, which knocked us back a bit as far as is and again, working doing their match, we've been able to improve that almost back to the previous run rate of earlier this year. So it's a constant battle, Joanna. But yes, we're looking for certainly to stabilize the percentage of leads we get that are free. I mean as I indicated, I mean, we are winning the battle in a major way on the paid search. I mean we are getting substantially more leads without increasing the amount we're offering per lead. So the new -- the private equity firms that have come and kind of upended the Google market for leads. I don't know if they're pulling back. I don't know if they're not quite as scientific as we have become as far as our bidding process. But that's a real success story. The only problem is, if you're comparing it to a prior period where you were paying nothing for the lead, it's a tough comparison. But in any event, Joanna, it's a constant battle, do we anticipate improving on our position, no question about it. Now if you said how Google change our algorithm again, they tend to do it in a significant way once a year. So I mean I don't -- maybe we're past that at this point, but we'll see. Joanna Gajuk: Okay. And switching to [indiscernible] I just want to make sure because we hear other companies calling out the weather disruption in healthcare services. So it sounds like it wasn't material because you guys didn't call it out in the hospice business. . Joel Wherley: We get paid on a per day basis, Joanna. So we don't do fee-for-service. So there could be a disruption in a location where we can't get to patients for a day, but that doesn't really impact our revenue. Kevin McNamara: It might affect admissions, but not of a disruption is just a day or 2. On a specific day. That is correct. So no, Joanna, to answer your question, we did not have any weather disruption in our business model. Joanna Gajuk: Okay. Perfect. I just to confirm. But yes, that segment outperformed. So things are going pretty good there. And thanks for the update on the slowed, I guess, cushion, so that increased -- so now we've got the proposal for '27 year, right? And the rate up is going to increase and the cost is going to increase, call it, 2.4%. And I know you don't have all the details yet, but any indication on your kind of initial estimate in terms of the proposed increase in Florida versus the [indiscernible] for 2027. Kevin McNamara: At a very high level, very high level, we think that the revenue -- the rate increase might be slightly lower in Florida than the national average, but we're still we're still crunching the numbers and we don't have the details. They don't come out until some in the summer. Joel Wherley: Yes. Keeping in mind that is the proposed wage rule. We're still in the comment period, and a final wage rule typically is not put into place until the late part of the third quarter. Joanna Gajuk: Right. So that's 1 we will find out. But as of now, there are no indications, there's some outside dynamic that you experienced, I guess, last year. with that increase being high in Florida than overall. But maybe that's the opposite. So that should be manageable there. And there was a couple of other items in that proposal, including this new scoring system, the index SVI. So when we look at some of the data, there was 2 service CMS, VITAS was actually screening above average, but it seems like there was 1 of these measures that were like penalizing the providers because it was essentially capturing just the total number, not per patient. So any thoughts about any of these efforts or anything that was discussed in the CMS proposal, how could that impact your operations? Joel Wherley: Yes. Thanks, Joanna. And as I said previously, we are very supportive of the efforts to eliminate in a waste fraud and abuse from the hospice environment. But you have to keep in mind over 50% of patients needing hospice don't have access or receive that end of life care today. So we want to ensure any efforts to weed out fraudsters, which, again, we are very supportive of, don't in any way impact legitimate providers to be able to provide care to those in need. Now specific to your question about the proposed potential additional scrutiny that is listed in the wage drill. We're continuing to evaluate what the potential impact that might be on VITAS, but again, I'll go back to -- this is in the comment period, and we will be providing comments to ensure that we have communicated our guidance to ensure that, that scoring and that oversight is aligned with what legitimate providers were to be evaluated on a day-to-day basis across the country. And so weed out the fraud focus on improved quality and access for those in need. Kevin McNamara: And Joanna, just give you just very generally speaking, when we hear about fraud in the hospice and whatnot, especially we'll focus on California. You have to remember, they're in 2 buildings in Los Angeles County. There are more hospices located in those 2 buildings that they are in the whole state of Florida. I mean the fraud that we're talking about is it's real fraud. That is almost a business mailbox offices for hospices, no real patients, no real care totally different situation from what historically has been fraud in the hospice field, which tends to be highly specialized arguments between doctors, whether a 6-month terminal prognosis is indicated or not. I mean it's a bit different magnitude. But again, we continue to watch it. We don't want to be swept. We don't want to be a dolphin swept into a tune in net in the accidentally. But so as Joel said, we're watching it very carefully. Joanna Gajuk: So should I read this as even things like this new core system that they proposed is going to be finalized. There were some other things that the CMS proposed, but they never really force because they couldn't really figure out how they're going to measure things. So is it a similar situation with this particular one? Joel Wherley: Yes. We want to make sure that the criteria and the algorithms used to evaluate the scoring with makes sense and is accurate and does not include data that is been infiltrated by fraudulent claims processing from these providers. They've got to be able to filter all of that out and focus on legitimate providers and the measurement of the care and services provided from those. Joanna Gajuk: And to that end, when you mentioned making sure that these are legitimate providers. The other effort right out there. So also 1 of these meetings talk about these efforts they want to put in place where states would have to revalidate all providers within 30 days. Have you seen any of the starting? And I don't know if that -- I assume that things like hospice in California. But have you seen anything in your operations where the states are starting to do that? . Joel Wherley: We have not seen it to that level. There is in place a higher degree of evaluation on new locations and the review of their claims on a regular basis to ensure that these new providers are legitimate in providing actual care. I mean, again, if you think about where the focus has been in L.A. County, the expansion from 400-plus providers to nearly 1,500 providers in L.A. County alone. Those individuals -- those companies receive licenses. And we are very supportive of an improved surveying environment to ensure that they're legitimate and that their patients are legitimate. Kevin McNamara: Joanna, let me sure -- one reason Joanna is a little tried on this is we attempted to get a license in San Francisco. It took us about 6 years dealing with a number of surveys kind of kind of where people didn't understand what hospice was but we got it through it. We got it after 6 years. Joel's sitting here saying, how could 1,100 fake hospices get a license in 18 months where it took us 6 years with legitimate. I mean, that's the kind of stuff that's hard to explain. Now it's different state issues as not the federal government. So you're talking about different silos, but still, they got to coordinate their activities. But I guess what I'm saying is if you put any type of scrutiny and the type of scrutiny we're used to on licensing if they put anywhere a percentage of that, a small percentage of that, it would knock out about 95% of these fake hospices. Operator: [Operator Instructions] Next question will come from Michael Murray from RBC Capital Markets. Michael Murray: For VITAS, I think you're probably seeing a higher mix of admissions from hospitals in your new Florida markets. Just given your current cap situation in the state, how are you thinking about community-based admissions in these markets? Joel Wherley: So thanks for the question. And as we have talked previously, we're managing the balance in those preadmit environments, and we look at that on a daily basis. specific to where we're focusing or where our resources are deployed. And we feel that our community-based initiatives are responsibly growing back from where we needed to be in the last half of 2025. So we feel really good about the balance between hospitals as a preadmit and all of our other or community-based type admissions. Kevin McNamara: And Michael, keep in mind that with the -- you specifically mentioned the new starts, when we have a new start there, there is not, by definition, an existing base of long-stay patients. So regardless of where in the new starts only, regardless of where the preadmission location is for some period of time, they're all short-stay patients because we don't have a base of existing long-stay patients. You have legacy pace from past couple years. . Michael Witzeman: So when you're talking specifically about the new starts, think of them all as short-stay patients for at least a period of time. Michael Murray: Okay. And then these new markets are pretty sizable. How should we think about the volume opportunity longer term? What's your typical market share in Florida? And -- and how should we think about the range markets? Kevin McNamara: Well, I mean, again, if you look at our historical market in some of these markets where we're the original hospice, I mean, -- the numbers are staggering, Joel jump in here. But I mean we're a diamond provider in almost any county that we have the license to operate in. . Joel Wherley: Yes. And we don't see a significant change in our outlook specific to our ability to grow into a market. And our last 3 new starts that we talked specifically about have demonstrated that. So we feel really good about the long-term outlook on our ability to continue to effectively grow those markets as we have in the past. Michael Murray: All right. And then just 1 more on Roto-Rooter. So I just wanted to get a sense for your current mix of paid leads versus organic leads is -- and what are your expectations embedded in your guidance? Michael Witzeman: Paid leads are roughly 53% to 54% of our total leads at the moment. We anticipate that mix to continue. We don't -- we have not anticipated a deterioration or a significant improvement. And that's why, again, we took our guidance and added of additional marketing costs -- marketing costs for the rest of the year. But we don't -- we haven't projected a significant deterioration in that from the first quarter. Kevin McNamara: I mean it's hard. As I indicated, it's a constant battle. In the first quarter, we had 2 months of improving visibility on maps and then a change in change in March where we had a deterioration. And then we go to April to fight the battle and improve our visibility. So Mike is just saying as far as prognosticator, let's -- there could be some in, there's going to be some outs. Our hope, of course, is that we have improvement there, but it remains to be seen. I mean we've been to a period where you go back just less than 3 years, our percentage of leads from resources were 55% and that's 47%. I mean that's an expensive significant shift. Now having said that, Roto-Rooter has been through something similar, and that is when we went through the change from the importance of Yellow Pages, where Yellow Pages was all and Roto-Rooter has a dominant position in virtually every directory to the Internet. That was a tough marketing situation where we went from a dominant the first 2 pages in almost every major metropolitan directory to just 1 of 50 listings on the natural side. It was tough, but Roto-Rooter developed into in the dominant position nationwide on the Internet side. Now the Internet is changing. I have confidence that will be able to transition to the new normal, better than our competitors. And if you look at the growth we've had on the paid search side that is far as our 18% plus increase in leads on the paid search. I think that's a demonstration of that. But again, as we go -- there's a cost of the transition, and we're prepared to we're prepared -- I think, prepared to deal with it and rather we have done it in the past. Operator: I'm not showing any further questions in the queue. I'd like to turn it back over to Kevin for any closing remarks. Kevin McNamara: Thank you, everyone. We're happy. We had what we thought was a good quarter, excellent quarter in VITAS. And so good trends at both companies. And we look forward to reporting on our results for the current quarter in due course. Thank you very much. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Have a great rest of your day.
Operator: Good morning, and welcome to the Principal Financial Group First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference call over to Humphrey Lee, Vice President of Investor Relations. Humphrey Lee: Thank you, and good morning. Welcome to Principal Financial Group's First Quarter 2026 Earnings Conference Call. As always, Material related to today's call are available on our website at investors.principal.com. Following a reading of the safe harbor provision, CEO, Deanaa Strabo and CFO, Joel Pitts, will deliver prepared remarks. We will then open the call for questions. Members of senior management are also available for Q&A. Some of the comments made during this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. The company does not revise or update them to reflect new information, subsequent events or changes in strategy. Risks and uncertainties that could cause actual results to differ materially from those expressed or implied are discussed in the company's most recent annual report on Form 10-K filed by the company with the U.S. Securities and Exchange Commission. Additionally, some of the comments made during this conference call may refer to non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures may be found in our earnings release, financial supplement and slide presentation. Deanna? Deanna Strable: Thanks, Humphrey, and good morning to everyone on the call. This morning, I'll discuss our strong first quarter performance and the steady execution of our strategy focused on delivering sustained growth across our diversified businesses. Joel will then provide additional details on our financial results and capital position. Starting with Slide 2, we delivered 13% adjusted non-GAAP earnings per share growth in the first quarter. above the high end of our target range. This performance was primarily driven by favorable underwriting results and improved mortality within our benefits and protection business, as well as positive market conditions for our fee-based businesses. This contributed to strong revenue growth and margin expansion. Strong performance and capital generation enabled us to return approximately $375 million of capital to shareholders in the quarter, including $200 million of share repurchases. We also raised our common stock dividend for the 12th consecutive quarter, an 8% increase on both a quarterly and trailing 12-month basis. Taken together, these results underscore the value of our diversified business model. Moving to Slide 3. We continue to make progress across our strategic growth drivers, the broad retirement ecosystem, small and midsized businesses and global asset management. Within the retirement ecosystem, we're starting the year with broad-based momentum. Total retirement transfer deposits of $12 billion in the quarter grew 35% year-over-year, and recurring deposits grew 7% over the same time period. This growth reflects our ability to win new business as well as retain and grow existing clients with a comprehensive suite of capabilities across recordkeeping, asset management, investment advice and income solutions. We're growing our participant base and helping them save more for retirement. This is evidenced by a 3% increase in the number of participants deferring into their retirement plans compared to the year ago quarter with average deferrals up over 3% as well. Participants continue to consolidate retirement savings onto our platform with $1.7 billion of roll-ins in the quarter when participants consolidate their retirement savings with us, This further reinforces our confidence in the strength of our platform and our ability to provide customized advice and solutions to meet their needs. Our retirement investment expertise, an important growth driver within the retirement ecosystem is further gaining traction with third-party retirement platforms. This is evidenced by DCIO sales of $1 billion in the quarter and nearly $8 billion over the trailing 12 months. For the small and midsized business segment, our differentiated capabilities and deep expertise are driving results. In retirement, the SMB market continues to perform well. Recurring deposits grew 6% over the year ago quarter and 7% on a trailing 12-month basis. strong new business activity and favorable retention resulted in positive account value net cash flow of $600 million for the quarter. In Benefits and Protection, our broad and meaningful value proposition to the SMB segment continues to drive growth and deepen customer relationships. Specialty Benefits delivered record sales up 24% over the year ago quarter. Additionally, business market life premium and fees grew 15% year-over-year, demonstrating robust demand for specialized solutions, which help business owners protect key employees and fund critical succession strategies. Our latest well-being index filled in late March confirmed steady employment trends with 90% of small and midsized business owners indicating they are maintaining or increasing staff. When we look at our own block across 180,000 diverse businesses in Group Benefits and Retirement both in pros have remained positive and are contributing to growth. In Global Asset Management, we're generating momentum with record gross sales in investment management of $37 billion, up 21% year-over-year. This growth is directly related to in-demand product offerings and our strengthened distribution relationships across global markets. Our private markets capabilities remain attractive to clients globally, generating net inflows of $400 million in the quarter and $3 billion on a trailing 12-month basis. Private Markets AUM grew 11% year-over-year due to ongoing demand for our real estate infrastructure and private credit strategies. Our active ETF business continues to gain traction and delivered net inflows of $400 million in the quarter and $1.8 billion on a trailing 12-month basis. Additionally, we generated strong net cash flow of $1.5 billion in the quarter from clients outside the U.S. Looking across these 3 growth drivers, I'm encouraged by this momentum, the breadth of our retirement solutions our leadership position in serving small and midsize businesses and our expanding global asset management capabilities create multiple avenues for sustained growth. We also continue to innovate in how we serve and engage customers across the enterprise, leveraging data and emerging technologies, including AI. We're deploying these capabilities across the organization to improve productivity, deepen customer relationships and continuously improve the experience we deliver every day. Before I turn this over to Joel, I want to share some of the important recognitions we've received. For the 15th time, Principal has been named 1 of the world's most ethical companies. This recognition from Ethisphere, which I am incredibly proud of underscores our long-standing commitment to integrity, transparency and responsible business practices. Principal Asset Management was also recognized as the winner of the data center Firm of the Year in North America by PERE a leading private markets publication. This award highlights our decades-long expertise, growing capabilities and track record in this sector. Together, these recognitions reinforce the strength of our culture and competitive advantages that differentiate Principal in the marketplace. In closing, the momentum we're seeing across our businesses gives us confidence in our ability to deliver our financial targets. As we expand our customer base to 82 million people worldwide, we remain focused on disciplined execution, sustainable growth, and creating long-term value for our customers and shareholders. Our strong performance this quarter reflects the dedication of our 19,000 employees around the world. Their focus on serving customers and executing with discipline allowed us to capitalize on opportunities early in the year and positions us well for continued growth as we move through 2026. Joel? Joel Pitz: Thanks, Deanna. Good morning to everyone on the call. I'll walk through our financial performance for the first quarter and provide updates on our capital position. As you can see on Slide 4, the first quarter was a strong start to the year, and we are well positioned to deliver on our 2026 financial targets. We reported non-GAAP operating earnings of $456 million, up 10% compared to the year ago quarter or $2.07 per share, an increase of 14%. Excluding significant variances, non-GAAP operating earnings were $479 million, up 9% compared to the year ago quarter or $2.17 per share. a 13% increase. Additionally, non-GAAP operating ROE was 16.1%, an improvement of 140 basis points compared to the year ago period. and at the midpoint of our 15% to 17% target range. Significant variances thought on Slide 11, had an after-tax impact of $23 million in the first quarter. Lower variable investment income was primarily driven by timing of real estate transactions and slightly lower returns in our other alternatives portfolio. We shared in our February outlook call that we were evaluating the presentation and depreciation for core real estate our alternatives portfolio. Beginning first quarter, we reclassified this noncash expense to realize gains and losses. This better reflects total returns by lining depreciation with where gains are recognized upon sale. We still expect full year 2026 variable investment income to improve relative to 2025 with or without this change. This impacts reported results only and there is no impact to our adjusted results. Margin expanded by 190 basis points to 30% in the first quarter. This improvement reflects our strong business fundamentals with 6% year-over-year net revenue growth and disciplined expense management while investing in the business. Turning to capital and liquidity. We ended the quarter in a strong position. with over $1.4 billion of excess and available capital. This includes $800 million at the holding company at our targeted level, $300 million in our subsidiaries, and $350 million in excess of our targeted 375% risk-based capital ratio, which was approximately 400% at quarter end. We returned $374 million to shareholders in the first quarter, including $200 million of share repurchases and $174 million of common stock dividends. Last night, we announced an $0.82 common stock dividend payable in the second quarter. This is a $0.02 increase from the dividend paid in the first quarter and an 8% increase year-over-year. This remains in line with our targeted 40% dividend payout ratio and demonstrates our confidence in continued earnings growth and capital generation. Moving to AUM and net cash flow. Total company managed AUM ended the quarter at $770 billion, modestly lower sequentially due to market performance and up 7% year-over-year. Total company net cash flow was negative $1.5 billion in the quarter, a meaningful improvement on both the sequential and year-over-year basis. The improvement was driven by positive net cash flow and international pension in the quarter and improved year-over-year results in Investment Management. Moving to the businesses. The following commentary excludes significant variances. Starting with RIS and as shown on Slide 5, pretax operating earnings of $318 million increased 4% year-over-year, driven by 3% net revenue growth and margin expansion. Operating margin of 41.5% expanded 60 basis points compared to the year ago quarter and is slightly above the high end of our target range. This reflects our disciplined focus on profitable revenue growth and expense management as well as some favorable seasonality and timing impacts in the current quarter. Fundamentals across the business remain healthy. As Deanna noted, we delivered strong transfer in recurring deposits as well as favorable retention, distal $1.8 billion of RIS account value net cash flow in the quarter, supported by fee-based net cash flow across both large and SMB market segments. Turning to Slide 6. Principal Asset Management delivered earnings growth of 10% year-over-year on 5% revenue growth and margin expansion. Within Investment Management, pretax operating earnings increased 8% from the prior year quarter. adjusted revenue increased over 2% year-over-year despite the impact of our recent divestiture. Higher revenue, along with expense discipline contributed to a 100 basis point improvement in Investment Management's quarterly operating margin gross sales in the quarter were a record, up 21% from the year ago quarter. This highlights the attractiveness of our solutions and the global reach of our distribution. Importantly, demand remains in several key areas, including $1.2 billion of the cash flow spread equally across private markets, ETFs and UCITS. Moving to international pension. AUM increased 4% sequentially and 20% year-over-year to a record $160 billion. The increase was primarily due to positive market performance and net cash flow as well as foreign currency tailwinds. Net cash flow was positive $500 million in the quarter, with $700 million of net inflows in Brazil. Pretax operating earnings increased 14% year-over-year, driven by the benefit of higher performance fees, favorable foreign currency impacts and growth in the business. Operating margin of 48.5% remains comfortably within our target range. Turning to Slide 7. Benefits of Protection delivered a very strong quarter. Pretax operating earnings were $177 million, an increase of 41% year-over-year. This was driven by more favorable specialty benefits underwriting, improved life mortality and business growth, starting with Specialty Benefits, premium fees increased 4% year-over-year, in part supported by record sales in the first quarter. As we indicated in our outlook call, we continue to expect premium fees growth to trend higher throughout the year, most notably in the second half. pretax operating earnings of $140 million increased 26% year-over-year, reflecting strong underwriting experience and growth in the business. Total loss ratio improved 220 basis points compared to the year ago quarter due to improved group life and group dental results, along with continued strong results and group disability. This translated into margin expansion, improving to 16.2% and up 290 basis points year-over-year. In Life Insurance, pretax operating earnings of $37 million, increased $23 million year-over-year, driven by improved mortality experience due to lower frequency and severity. This contributed to a 15.6% operating margin in the quarter at the high end of our target range. Moving to corporate. First quarter losses were elevated due to timing of expenses. On a full year basis, we expect segment results to be within our target range. Before closing, I'd like to make a few comments regarding our investment portfolio. There has been heightened attention recently on the insurance industry's exposure to private credit. First and foremost, we have over 60 years of experience underwriting and managing private assets for our general account and clients. As we shared with you last quarter, the vast majority of our private fixed income securities are investment grade with minimal exposure to direct lending. Importantly, our portfolio continues to perform well with experience better than our long-term expectations. I remain confident in our well-constructed and diversified portfolio, which is appropriately aligned with the liquidity profile of our liabilities. In closing, our first quarter results reflect disciplined execution across the enterprise with strong earnings growth, margin expansion and healthy underlying fundamentals. These results reinforce the strength of our diversified business mix, and position us well to deliver on our financial targets in 2026 and beyond. This concludes our prepared remarks. Operator, please open the call for questions. Operator: [Operator Instructions] The first question comes from Ryan Krueger from KBW. Ryan Krueger: My first question was on Specialty Benefits. Can you provide some more color on the favorable underwriting experience you had across dental, life and disability and also just how you're thinking about the outlook from here. Deanna Strable: Yes, Ryan, and welcome back. Obviously, it was a really strong quarter for Specialty Benefits. And I'll pass it over to Amy to talk about the drivers. Amy Friedrich: Yes. Thanks. Yes, Ryan, the underwriting performance was really strong this quarter. As you noted, with that 58.5% loss ratio. When I look through that, it really is primarily group life and dental that are driving that. So when I look at group life, it's going to be driven by that low frequencies that we saw in this quarter. And when I look at dental, I think we've talked in prior calls about some of the work we've been doing, certainly about past pricing actions which are now well into the experience and then also some of the dental network optimization efforts we've been doing, which are also moving into that performance as well. . I should mention too that group disability performance remains strong. It was consistent with prior year quarters, and it was tracking to what we expected. As a reminder, you asked about looking ahead. When we look ahead, second quarter does tend to be the seasonally highest for dental. So that means that the overall SBD loss ratio does rise a bit in second quarter. But when I look at full year outlook, I look at it very favorably with loss ratios expected to emerge at the low end or even slightly below the low end of the range we communicated at outlook. Operator: Ryan, do you have a follow-up question? . Ryan Krueger: Yes. On Investment Management, you've seen this good momentum in gross sales, but then redemptions have also largely ticked up and so the flows haven't improved as much. So I was just hoping to get a little more color on, I mean, maybe both sides of it, what's driving the gross sales momentum, but also why do you -- have you been seeing higher redemptions? And how do you think that may play out from here? Deanna Strable: Yes. Thanks, Ryan, for that. I'll ask Kamal to add color regarding that. . Kamal Bhatia: Sure, thanks for the question. It's a good one. So let me break down a little bit of the net flow question you asked. First, I'll just reiterate. I think the naan Joel highlighted this in their remarks and you mentioned it as well. We did generate record gross sales in Investment Management in the first quarter, 21% year-over-year, you would also acknowledge is an impressive number. And I would say it's directly related to our new product focus, new strategies that we are introducing into the marketplace. But more importantly, we are continuing to grow the number of distribution relationships across the globe. I would highlight for you that Asia had a standout quarter. They had a $1.1 billion of positive NCF and with our international clients delivering over $1.5 billion of positive NCF, so the key for us is to grow sales across the globe, which would be key to changing the NCF profile given our legacy book. Now to your question on what caused the NCF pattern this quarter, we did see some redemption activity that was concentrated among a very small number of U.S. equity -- active equity mutual funds in the U.S. wealth channel, primarily driven by changes in asset allocation and advisory business models. So our goal continues to be to deliver higher gross sales and gathering commitments to a broader product set. As redemption activity normalizes, I would expect our nonaffiliated NCF profile to improve for the balance of the year. And I would just end with that the future pipeline is very strong. I hope that answers your question, Ryan. Operator: The next question comes from Wes Carmichael from Wells Fargo. Wesley Carmichael: First question was on the Individual Life segment. I think just looking at results, I think it's the best quarter that segment is produced in a long time, and I typically think about the first quarter as being seasonally weak from a mortality perspective. So just wondering if you think anything in the earnings power has changed for that segment? Or is this just a little bit more onetime-ish nature? Deanna Strable: Thanks, Wes, for that question. Obviously, Life did have a very strong earnings quarter, really driven by mortality. So I'll ask Amy to give some color around that. . Amy Friedrich: Yes, thanks for noting that. I do think we definitely feel like we saw some positive volatility in mortality this quarter. And so we've had other quarters though where we talked about it going in the opposite direction. So I definitely see some positive mortality sitting in this. But what I would also say is that when we think about our full year results for this segment, we did communicate guidance range in terms of our margin from that 12% to 16%. And even though this was kind of pointing us towards that mid- to higher end of that range, I would say something that is in the -- towards the lower end of that range for a full year expectation for the earnings power and margin power of this business is what I would be thinking about for the health of the business. Deanna Strable: The other thing I would just say on that, if you did look at claims, it was great to see that the positive came both from incidents and severity and a lot of times volatility tends to come from the severity piece but we did see some better-than-expected results on both incidents as well as severity. So... Unknown Executive: And when I parse those up, incidents and severity, it is about 50-50 for each of them. Operator: Wes, do you have a follow-up? Wesley Carmichael: And so just switching to RIS, pretty strong transfer deposits. Just curious if you could maybe just touch on the flow outlook for that segment for the rest of the year. Deanna Strable: Yes, I'll turn it over to Chris. As you know, we focus on revenue growth and ultimately really drove strong. We did have very strong fundamentals across RIS large case tend to be lumpy when you look at transfer deposits, and this was a quarter we benefited from that, but I'll ask Chris to give some more color. Christopher Littlefield: Yes. Thanks, Deanna. Thanks, Wes. So again, I think as you noted, we did have a really good quarter from a net cash flow perspective driven primarily by strong transfer deposits and also experienced very strong contract retention. And those 2 things were also supported by healthy recurring deposits and stable participant withdrawal rates. And all of this is despite the ongoing market performance. So really feel good about our net cash flow. As we look forward, as Deanna said, as we like to remind you, we really focus on driving profitable revenue growth but as we look forward to close in 2026, we do expect it to follow the historical pattern where Q1 is our strongest for the sales and transfer deposits and the remaining quarters are likely going to be impacted by strong markets. which increases withdrawal dollars as well as the lumpiness that we see in large from time to time in the quarterly results. Deanna Strable: Thanks, Chris, and thanks, Wes. Next question. Operator: The next question comes from Suneet Kamath from Jefferies. Suneet Kamath: I wanted to start with RIS also on the advice model that you guys have. And correct me if I'm wrong, but my understanding is that you use more of a sort of a call center model as opposed to sort of feet on the street or building out wealth management offices. And I know 1 of your competitors is taking that latter approach. Just wondering if that's something that you guys have looked at Or if it's something that you might consider? Deanna Strable: Yes. Thanks, Sameet. Thanks for being there for the question. As we've talked about, our focus is really on the majority of our participants and want to be able to broad -- provide broad-based support to those that don't have as much access or to the adviser community. And so I think our approach is different. But I'll ask Chris to continue to give a little bit more insight into that. Christopher Littlefield: Thanks, Suneet, for the question. Again, we really, as Deanna mentioned, focused on those participants that we serve already. And we're not really looking at building a number of storefront physical presence locations. We do have a few hundred salary-based advisers covering about 90% of our participant base to be able to offer them advisory services, and we're seeing nice results, as we mentioned, we're seeing great in-force dynamics, whether it's from participant roll-ins, increasing deferral rates, increasing in who are deferring all of that is coming from the advice model that we're offering. We're seeing an increase in our retail individual customers that are both IRA and advisory services covers up about 11%. And on the year. And so our model is really focused on focusing on our participants, focusing on those more mainstream than the high net worth and really focusing where Americans need to help. and we believe that we have a model that will be successful over time. Deanna Strable: Yes. And the other thing I'd mention there is we are supplementing that with enhanced technology that will continue to build up as we try to best meet the needs of those clients and how they want to be. So Suneet, do you have a follow-up question? Suneet Kamath: I do. And I wanted to come back to the SMB market. It sounds like last quarter, if I remember correctly, you guys were pretty confident in the employment outlook. It sounds like in your prepared remarks, you talked about being confident so far this year. But as we think about the economy and sort of the volatility that we're just seeing in the markets given its kind of global issues, is there typically a lag that you would see that maybe you're not seeing it show up in your results now, but down the road, there could be some impacts from this uncertainty that we're seeing. Deanna Strable: Yes, Suneet, a couple of things. And then I'm going to ask Amy to give some additional color. I have asked Amy to spearhead a group really focused on monitoring this real time across the enterprise. I think a couple of things I'll say there is we have a broad-based and employer base. So if you think about it, we have 180,000 employers just across RIS and Group Benefits ranging from different size, different industries, different geographies. And I think that diversity is really going to serve us well. . As mentioned, we're looking at it from our block perspective. We also have very regular surveys with SMB employers as well. And just sitting here today, we're not seeing anything that is impactful. But we also understand that some of this is going to be dynamic, and we want to stay close to it. But I do come back to it, I think that diversity is really going to serve us well. But I'll turn it over to Amy. Amy Friedrich: Yes. I agree with how Dana set this up. And I do want to reiterate, as we're seeing in our results, both employment and wage growth are really holding steady in our block. So I'd say wage growth is looking really healthy and similar to what we saw last year. And employment growth has moderated just a bit, but it's really aligned with what we expected to see this year. So your question though about could there be a little bit of a lag, I do think that uncertainty of which there is definitely the presence of some uncertainty for both employers and employees, tends to have an effect on the marketplace in a couple of ways. One way is that people tend to kind of settle back into not necessarily going to make some big expansions in terms of growth, but they also settle back into, I'm not necessarily going to retract back or do something differently. So it has a little bit of a static effect, that uncertainty in the marketplace. What that means for employees is many of them are staying where they are, what that means for employers is that many of them are holding true to the plans that they had for the year. So I'm not that big lag. I am seeing some uncertainty in the sentiment, but small and midsized business owners tend to be and our data proves this out. more optimistic in terms of how aggressively they can take advantage of the market situation when uncertainty does clear. And so I don't -- I'm not seeing a big lag effect, but we will continue to watch that every month. Deanna Strable: Thanks, unit, for the questions. Next question. Operator: The next question comes from Jack Madden from BMO Capital Markets. Francis Matten: My first 1 was on international pension. The earnings run rate is going to step up this quarter, even kind of backing out the significant variances that you call out. I guess could you just unpack some of the drivers there? And which do you think are kind of more repeated more sustainable versus some of the more transitory factors like FX or elevated performance fees. Deanna Strable: Yes, I'll ask Joel to talk through that. And again, thanks, Jack, for being here and for your questions. Obviously, it was a strong earnings growth for international pension, and that segment continues to provide some great diversification to our overall results. and really focused on where we feel that we can drive growth. So I'll ask Joel to give some specifics on the quarter. . Joel Pitz: Jack, as we indicated last quarter, they're in the mid-60s, we did expect improvement wants in the IP results, and that certainly did manifest itself in first quarter with about $80 million of adjusted earnings for the quarter. I'd say, from a run rate perspective to your question, it was a little bit outsized this quarter because of a performance fee within China Construction Bank, our pension business. There was about a $7 million performance fee that was paid within that market. That is 1 way that we're compensated for providing the services that we do within the pension space in China. So it was outsized this quarter, but it's something that's going to be volatile, we can expect into the future. So everything else being equal, I'd say a good run rate, it's going to be more in the mid-70s, a good source to build off. But importantly, we are getting some FX tailwinds finally. I've been in this business a long time, and it's nice to say FX tailwinds as opposed to headwinds and it's really nice to see the underlying results of these businesses, manifest themselves in the U.S. dollars in a meaningful way. Deanna Strable: Yes, I hope that helps. And do you have a follow-up question? Francis Matten: Maybe just 1 on the kind of the outlook for VII and performance fees in the investment management business this year, do you have any visibility at this point to kind of the cadence of realizations. I guess to what extent do you think market conditions need to change or improve in order to kind of unlock a more normal level of real estate monetization? . Deanna Strable: I'll have Joel address that. . Joel Pitz: Yes. So that's going to be a Continue to expect 2026 to improve relative to 2025. One of the reasons why we did have the results we did this first quarter was because there was no real estate transaction activity. As a reminder, we have about 50% of our OFS portfolio. within the real estate as it is depend upon transaction activity, again, which there was none in the first quarter. We do see some pickup in activity for the second, third and fourth quarter. And therefore, that's -- we do see some improvement year-over-year. But underlying performance of the of portfolio in its entirety is performing well than expected. And your question, we don't need to see anything change within the macro environment in order for us to deliver on that improvement that we communicated in outlook. Deanna Strable: Yes. I think the other part we've been there was performance fees from an investment management perspective. And I think we said on outlook that we expected '26 to be similar to '25, but those are going to be lumpy by quarter and they were a little lower in the current quarter. . Operator: The next question comes from Will Libertas from Raymond James. Unknown Executive: What drove the lower BRT sales in the quarter? And is there a little bit more competition flowing into the SMB PRT market. Deanna Strable: Yes. Thanks, Wilmar the question. I'll ask Chris to address that. Christopher Littlefield: Thanks for the question. Again, if you remember, our fourth quarter was a very strong PRT quarter, fourth quarter of 2025, not just for us, with over $1 billion of PRT sales, but for the industry at about $28 billion. And I think what that had an impact of doing was really reducing the pipelines in the first quarter. So I think we haven't seen the industry wide data yet. But anecdotally, it sounds like the industry is pretty light in the first quarter, and we reflect those trends. So that would be how we're thinking about the PRT business. The pipeline remains a little light in the second quarter. But if you remember last year, also sort of developed this way as well, sort of lighter in the first half, more accelerated PRT sales in the second half. And we kind of expect this year be fairly similar to 2025 when it comes to PRT. Deanna Strable: Yes, Wellman, and I think as we've discussed, we're not going to take sales for the sake of sales. We're going to make sure we're disciplined on the capital that we deploy and the returns that we can get from that and if it is lower, we're looking for other opportunities to ensure that we're driving profitable growth across the enterprise. So thanks for that question. Do you have a follow-up? . Unknown Analyst: Yes. Are you seeing the competition actually improving or decreasing in group dental given you guys have implemented price increases, but you're still seeing healthy sales growth. Deanna Strable: Yes. I think that question, you cut out just a little bit, but I think it was really regarding the competitiveness in the group dental market and how that might be impacting the sales volumes. And again, I feel very proud of the results that we delivered both on the profitability side as well as the growth perspective for Specialty Benefits, but I'll have Amy address the market from a dental perspective. Amy Friedrich: Yes. Thanks, Wilma. We do tend to be a very significant player nationally in the dental marketplace. And so 1 of the things that we saw emerging probably 18 to 24 months ago was some things around cost trend and some other things related to impacts on dental pricing that we did then move into our pricing. So we had seen some utilization changes, cost trend changes that we moved into pricing. As we look at last year's results, I do feel like we were 1 of the first in the market with some of those pricing changes, and it did yield a little bit of some of the dental sales that we had for prior year. So I see this year's production, this quarter's production as a good indication about the power of our dental production for the year in comparison to last year. I do think we are comfortable that with the rate we're putting out there in the marketplace, and we're the recipient of some market movement in the marketplace of some of our competitors putting in some rate increases that has brought some things back out to market. So we like the profitability that we're seeing in the dental business that we're writing. And we think it's a good indication for the type of power that dental business will have for us throughout 2026. Deanna Strable: Well, I hope that helps. Thank you for the questions. . Operator: The next question comes from Tom Gallagher from Evercore ISI. . Thomas Gallagher: First question just on RIS fee flows. 1Q '25 I think you had a jumbo case that you lost. How were the jumbo case call-outs for this quarter? Did you have any wins, losses? How did that influence RIS-Fee flows this quarter? Deanna Strable: I'll have Chris address that. You're right. Last first quarter, we had a more significant on the left side this quarter, we're seeing it more positive on the transfer deposit side, but I'll have Chris give some more color. Christopher Littlefield: Yes. I think we had really good wins in the first quarter coming off what was a really strong fourth quarter as well. So I think I'd take you back, and we had strong wins -- it's really strong fourth quarter, and that momentum continued in the first quarter. You're right. Last year, we did have a large case loss that we called out. This year, we had broad strength, but we also had a couple a couple of large case wins in the quarter. And so you did see that very significant difference in growth in our transfer deposits. And as you know, the large segments tend to be a little bit lumpy. and the SMB market tends to be sort of more steady and strong. Deanna Strable: Tom, do you have a follow-up? . Thomas Gallagher: Yes, Deanna. So my follow-up, I guess, is for Kamal, the on performance. It looks like your 1-year numbers for equities and Ashalim got better. Fixed income slipped a little bit. 3-year numbers fell across the board, though, in all 3 categories. Are you seeing any impact from the performance issues? And why do you think the performance has slipped a bit here? Deanna Strable: Yes, I'll have Tom address that. Obviously, investment performance is something we spend a lot of time focused on. There is some duplication across some of those, especially when you get into asset allocation. But I'll ask Kamal to follow up on that. Kamal Bhatia: Absolutely. So I'll start with your question on investment performance and break it down by the segments as you highlighted. Improvement on the 1-year number in certain pieces and then 3 years, slightly weaker. One thing I'll highlight for you, these numbers do not include our very strong private market performance. In fact, our marquee real estate strategy is #1 in its category. And as you know, that drives a significant flow for us. I think in Dan's comment, we also highlighted for you that we grew our private market business 11% year-over-year, I would highlight for you, only 1% of that was from macro. So it shows that we have the engine when investment performance kicks in. But specifically to your question, the area of our core weakness right now is around U.S. equities, particularly active U.S. equities. is an area of weakness, particularly in the short term. The long-term numbers are very, very good. As you said, our fixed income performance has improved, particularly non-U.S. fixed income performance is very, very strong. We see that in our flows, particularly around emerging market debt, which continues to attract a lot of client retention. Asset allocation is very important. As you know, we offer our portfolio in multiple flavors. One of our strategies on the hybrid side continues to do well, but you have highlighted some of our challenges in active book that comes from the U.S. side. And then the last thing I would highlight for you just this quarter is by design, we do run many of these strategies to complement as the passive business has grown across the industry, we design our products to be different than the index. That does lead to, in periods of high volatility, significant deviation in market performance. sometimes positive, sometimes negative. But that's what the clients ask from us. They don't want index-like products from us. And in periods where we deliver, it creates a tailwind as well. and it also supports our stable fee rate, which you have always highlighted as a strength for Principal Asset Management. Deanna Strable: Thanks, Tom, for the questions. Next question. Operator: The next question comes from Michael Ward from UBS. Michael Ward: I was wondering on the Specialty Benefits, did the M&A that you did in the quarter? Like did that contribute at all to the new business growth? And then are there other targets out there that you guys could look to transact on? Deanna Strable: Yes. Thanks, Mike, for that question. We did do a small dental network acquisition with a company that we had a relationship with. I'll have Amy talk to that. And obviously, as I've said on prior calls, it's great to be leaning into some areas that can help drive growth as we continue to think about our portfolio. So Amy . Amy Friedrich: Thanks for the question. So we did -- as Deanna noted, we did a small dental network acquisition that happened to be in Alabama, it was both a dental network and then some renewal rights for a block of Group Benefits business. We feel really good about that transaction. Your question, though, I think, was specifically was that into first quarter results? And the answer is no. Those were not yet present in first quarter results. Any benefit we get from that in terms of new business or cross sales or power of our dental network will start showing up in second quarter and beyond. I do like being able to lean into this piece of the business. We've got some really nice engines running for us in the Specialty Benefits business. And I like being able to add to it a bit inorganically to help us with future growth. Deanna Strable: Thanks, Mark. Do you have a follow-up question? . Michael Ward: Yes. On RIS, I guess, you guys, I would say, have been a little bit quieter just in terms of the inclusion of privates for retirement funds in the time of funds. I'm just curious your sort of stance on that issue and how you see that heading going forward for the industry? Deanna Strable: Yes. I'll have Chris talk through that. Obviously, we applied and support thoughtful efforts to expand investment options within retirement plans. The recent DOL guidance is an important step, but I think our stance is going to take time. It's going to be slow. And ultimately, as we talk to our plan, our customers they're intrigued but are not pushing to move at a fast rate for inclusion, but I'll see if Chris has some additional flavor. Christopher Littlefield: Yes. Thanks, Michael. Thanks, Dana. Yes. I mean I agree. I mean we do support the evaluation of privates to be included in retirement plans. And obviously, we've been offering privates and retirement plans for a long time with our real estate strategies. So we do believe that they play a proper role but they are complex and they come with new challenges. And I think the DOL proposed safe harbor that you need to evaluate the performance and the fees and the liquidity and the valuation and the benchmarking and the complexity that causes plan sponsors and fiduciaries to sort of step back and really be thoughtful about what works for them, what risks are we exposing participants to. And so I think we see a very measured approach to people considering the inclusion of privates in the retirement plans. We just had a significant client conference with 50 or so of our largest and important clients and there wasn't tremendous -- there were a lot of questions and a lot of wanting to understand. But I'm not sensing a tremendous like movement toward everyone, including privates quickly into their plans. I think it's going to take some time and I think as we've said in the past, it's probably going to be introduced first through advice solutions, whether that's a target date solution vehicle or a managed account vehicle because they are complex they need a little bit more explanation and the plan sponsor fiduciaries and the fiduciary committees are going to just take some time understanding how do we include this, how do we monitor the performance? How do we think about the valuation issues? And then how do we deal -- so again, we support it. We're working with a lot of investment partners on including their solutions into various vehicles. But I think it is going to be a bit more measured progress as opposed to a big wave of inclusion here in the short term. Deanna Strable: Next question. Operator: Our final question comes from Pablo Singzon from JPMorgan. Pablo Singzon: So just to start off, maybe a question for RIS. I wanted to ask about your efforts or the growth spread earnings, whether from institutional lose or AM sitting in retirement plans, how do you see the fee versus spread mix evolving over time? Deanna Strable: Yes. Thanks, Pablo, and great to have you on the call. I'll have Chris really address that. As we've talked about, we really do think about our -- how we think about fee and spread is holistically because those are ways that we drive revenue across our retirement ecosystem. So we think less about 1 versus the other and really think about how they can contribute to overall retirement as well as principal growth. But I'll have Chris offer some additional color. Christopher Littlefield: Yes. Thanks, Pablo. We have, over the last several years, really put some emphasis into looking at how do we continue to grow our spread-based earnings. Obviously, PRT and the annuities businesses provide some nice spread-based earnings. But as importantly, we've really focused on growing capital preservation options within our retirement plans, which we call sort of WSS GA solutions. And those, we've driven very significant flows in those over the last several years and including over $400 million of flows in the quarter just on WS or SGA. We do think there is an appetite for capital preservation products that can serve the needs of the participant and continue to think that there's opportunities to drive that. But we're not targeting any particular mix. fee-based flows are really important for us, and we continue to focus on driving profitable fee revenue and at the same time, supplementing and complementing that with the right mix of more capital-consumptive spread-based products. to make sure that we're getting the returns on the capital that we're doing, while also at the same time, meeting the needs for our retirement plan participants for capital preservation. Deanna Strable: Thanks, Pablo. I hope that helps. Do you have a follow-up? . Pablo Singzon: And then secondly, maybe come out. I was hoping you could elaborate on your comment about the asset management pipeline being very strong. Is it better than it was a year ago? Are you seeing new opportunities? Anything you can comment on there things. Deanna Strable: Yes. That's a great final question. We do have a strong pipeline as we sit here today. I think volatility in the market could impact the timing of when that flows in, but I'll have Kamal will give some additional color. . Kamal Bhatia: Sure. Pablo, thank you for the question. So just to follow up to Deanna's comments, I feel very good about our pipeline. Our commitment pipeline has now grown to over $9 billion. just to help you understand, these are mandates that we have actually won that have not funded. And they have diversified across both public and private markets largely from our growth in our global client base. And that's key because the demand is more diversified. Historically, we have highlighted for you a pipeline of around $6 billion around real estate. So you can see how this has scaled up. And it also shows that we are continuing to bring new products to the marketplace as well. So I believe the setup for 2026 is very constructive on that front. Deanna Strable: Thank you, Pablo. I hope that helps. Operator: We have reached the end of our Q&A. Ms. Strable, your closing comments, please. Deanna Strable: Thank you. As we close, I want to thank all of you for joining the call. Our first quarter results underscore the strength of our diversified business model, our focus on execution and growth and our long-term discipline. As mentioned, we are confident in our ability to deliver on 2026 financial targets, and we're well positioned to navigate the current environment, grow and deepen customer relationships and deliver long-term value for shareholders. We appreciate all of your continued interest in Principal and look forward to our ongoing dialogue. Thank you again for your time, and have a great day. . Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time, and we thank you for your participation.