Good morning, everyone. And welcome to the FNB Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please also note that today's event is being recorded. At this time, I'd like to turn the conference call over to Lisa Hajdu, Manager of Investor Relations. Ma'am, please go ahead.

Good morning, and welcome to our earnings call. This conference call of FNB Corporation and the reports as filed with the Securities and Exchange Commission often contain forward-looking statements and non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with GAAP. Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials and in our earnings release. Please refer to these non-GAAP and forward-looking statement disclosures contained in our related materials, reports and registration statements filed with the Securities and Exchange Commission and available on our corporate website. A replay of this call will be available until Wednesday, January 28, and the webcast link will be posted to the About Us, Investor Relations section of our corporate website. I will now turn the call over to Vince Delie, Chairman, President and CEO.

Thank you, and welcome to our fourth quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer; and Gary Guerrieri, our Chief Credit Officer. FNB reported fourth quarter operating net income available to common shareholders of $182 million or $0.50 per diluted common share. Full year 2025's operating performance reflected several records, including revenue of $1.8 billion, operating net income available to common shareholders of $577 million and operating earnings per diluted common share of $1.59. Full year operating EPS grew 14% year-over-year, driven by the 9% growth in net interest income, significant margin expansion and record noninterest income. We delivered strong profitability and capital metrics with return on average tangible common equity equaling 16% and tangible book value per share of $11.87, an increase of 13% from the year ago quarter. Throughout 2025, we focused on resetting the balance sheet to best position FNB for continued future success, including managing loan concentrations as well as improving the loan-to-deposit ratio to 89.7%. In December, we transferred approximately $200 million of performing residual mortgage loans to held for sale in anticipation of a loan sale to close in the first quarter of 2026. Additionally, as I mentioned on the earnings call a year ago, we have strategically decreased our CRE concentration organically to 197% over the past few years. We are generating enough capital to support growth across our loan portfolio, including CRE and have ample capacity to achieve historical growth rates. Since launching our Clicks-to-Bricks strategy 10 years ago, FNB has introduced innovative solutions, including the eStore and common application that provide an enhanced client experience to deepen relationships and achieve customer primacy. Our comprehensive digital strategy, including our early adoption of AI, remains a driving force behind client acquisition, engagement and convenience. This quarter, we introduced…

Thank you, Vince. Good morning, everyone. We ended the quarter and year-end with our asset quality metrics remaining at very strong levels. Total delinquency ended the quarter at 71 basis points, up 6 bps from the prior quarter with NPLs and OREO down 6 bps, ending at a multiyear low of 31 basis points. Net charge-offs totaled 19 basis points and 20 basis points for the year, showing continued strong performance throughout an uncertain economic environment. We experienced a further decline of $147 million or 10.2% in criticized loans on a linked quarter basis, driven by payoff activity with decreases again observed throughout all of the commercial segments. Once again, we were pleased with the improvements we saw during the quarter and throughout 2025. Total funded provision expense for the quarter stood at $18.7 million, supporting the C&I loan growth and charge-offs. Our ending fund reserve stands at $440 million, an increase of $2.3 million, ending at 1.26%, up 1 basis point from the prior quarter. When including acquired unamortized loan discounts, our reserve stands at 1.32%, and our NPL coverage position remained strong at 438%, inclusive of the discounts. Regarding tariffs, we continue to monitor line utilization and industry concentrations, especially customers with a higher potential impact over the longer-term. Since Q1, we have not seen any material impacts on the loan portfolio and have continued to experience positive credit migration since then. Furthermore, this quarter marked our strongest C&I loan production activity for the year, enabling us to achieve positive net C&I loan growth in the quarter and year-over-year which offset another decrease in line utilization. Regarding the nonowner CRE portfolio, all credit metrics improved quarter-over-quarter and year-over-year with delinquency and NPLs at 34 and 31 basis points, respectively. We have successfully managed the CRE risk and exposure…

Thanks, Gary, and good morning. Today, I will focus on the fourth quarter's financial results and walk through our guidance for the first quarter and full year of 2026. Fourth quarter operating net income totaled a record $181.8 million or $0.50 per share when excluding a discretionary $20 million charitable contribution to the FNB Foundation partially offset by a reduction in the estimated FDIC special assessment. Record total revenues of nearly $458 million, grew a very strong 12.4% on an operating basis and operating pre-provision net revenue grew 21.5% from the year ago quarter. The fourth quarter's performance also includes investment tax credits of $37.2 million from a renewable energy financing transaction, partially offset by related noncredit valuation impairment of $4.4 million pretax on the financing receivable, which is included in other noninterest expense. FNB's Equipment Finance business originates renewable energy financing transactions is a core element of their business strategy. While we continue to have an active pipeline in the renewable energy sector, certain types of projects are limited by changes in the tax laws. Total assets at year-end 2025 exceeded $50 billion for the first time in company history. Fourth quarter average loans and leases of $35 billion, increased $169 million from last quarter or 1.9% annualized. Average consumer loans grew $223 million, primarily due to higher residential mortgage and consumer line of credit balances. Average commercial loans and leases slightly decreased $54 million linked quarter driven by higher attrition from secondary market activity, lower line utilization and further scheduled reductions in CRE balances. Average commercial and industrial loans increased $81 million and commercial leases increased $26 million, while average commercial real estate loans declined $158 million. CRE exposure has reached our desired concentration range and combined with record capital levels and a sub-90% loan-to-deposit ratio provides FNB…

As you've heard in our prepared remarks, we are very pleased with our financial results and achieved a number of records for 2025 including revenue, noninterest income and EPS. Our balance sheet surpassed $50 billion in assets, and we are well positioned to benefit from technology investment and expected growth opportunities. Our performance reflects steadfast execution of our multipronged strategy, diversifying revenue streams, optimizing our balance sheet, deploying capital thoughtfully and serving as the primary bank for our clients, enabled by our tech investments in eStore and omnichannel capabilities. Successful execution of FNB's strategy has led to enhance profitability and capital accretion, all while achieving some of the highest returns in the industry. Looking ahead to 2026, we are confident in our ability to deliver meaningful loan and deposit growth, margin expansion and further diversification of fee income. Our improved capital levels and double-digit tangible book value growth year-over-year provide strong capital flexibility and position FNB to continue to deliver sustainable long-term value benefiting our customers, employees, communities and shareholders.

[Operator Instructions] Our first question today comes from Daniel Tamayo from Raymond James.

Maybe we start on the fee income side. Obviously, at the Investor Day last quarter, you talked a lot about growth that has been expected -- sorry, investments that have been made into the fee income businesses and kind of long-term growth pathways. Just curious, as you look at the guidance range for '26, what do you think might get you towards the upper end of the guide and how likely that could be in your mind?

Yes. I mean, I don't -- do you want to answer, Vince.

Sure. I can jump in and you can add. I think just a couple of things on fee income, right? It again highlights the importance of diversification. So we had all-time highs for 7 of our fee-based businesses for the full year and 4 of them in the fourth quarter alone. When you look at the kind of moving parts that were there, the growth in service charges, insurance and securities commissions and BOLI offset mortgage banking and capital markets being lower than the prior quarter. So the benefit of the diversification comes through. When you look ahead to '26, we're projecting continued solid growth there. The newer businesses that we've talked about starting to contribute at higher levels is definitely baked into the guidance. I think there might be some upside to that. And then strong performance from our kind of core fee-based businesses, wealth, treasury management, capital markets and mortgage. I think there's an opportunity for them to have another strong year as we did in 2025.

The only thing I was going to add, Vince, is that the macroeconomic environment, as we mentioned, when we were all together, Danny, plays in our favor. So the interest rate environment is positive for the mortgage banking business. We sell servicing release gain on sale from the sale of mortgage loans. So that's reflected in the fee income number. More activity in treasury management moving into next year because of what Vince said, with market share gains, expect...

New initiatives there.

And new initiatives there and the build-out of our TM platform. We expect that to continue to grow with contributions from merchant and other areas that relate to treasury management. Derivatives, we would expect, given the interest rate environment from a derivatives perspective to play out in our favor. And then we built out the public finance division in the process of building it out. We're very optimistic about contributions from that business and the debt capital markets arena. So that should play out for us. And then the M&A advisory business is they're seeing a lot of opportunities that we're expecting to translate that into fee income in '26. So there are quite a few drivers that's why we're fairly confident that we're going to be able to achieve what we've laid out in the guide.

And we did move the first quarter guidance up a bit, Danny, too. The implied guide for the fourth quarter was [ 88% to 93% ] we moved it up to [ 90% to 95% ] In a seasonally slower quarter. So I think that's an indication too.

Great, Vince. Maybe a bigger picture question on operating leverage. Just your thoughts around operating leverage in 2026 and what might be potential issues in not getting there or levers to achieve it?

Yes, I would just -- a couple of things. So if you look at the PPNR was lower in the fourth quarter versus the third quarter, all very explainable. We had about $12 million of not -- what I would call discrete nonrun rate expenses that came through in the fourth quarter. We had the solar tax impairment that we mentioned in the remarks. We had some higher medical claims that occur in the fourth quarter every year, our mortgage down payment program was a little over $3 million. And then year-end performance-based accruals and 401(k) contributions based on the strong overall financial performance. So -- and then in the third quarter, we had that $5.4 million recovery. So there was a lot of noise kind of moving from third to fourth quarter. I mean as we go forward next year, our guidance includes a meaningful increase in PPNR and in the operating leverage. And I think as we talked about at Investor Day, expenses growing in the low single digits, while we're continuing to invest in the new initiatives, some of the ones that Vince mentioned. So I think we feel pretty good about our ability to meaningfully increase the operating leverage in 2026.

We also don't have the expense related to heightened standards, building as rapidly because we've completed many of the initiatives that we needed to complete from a personnel perspective and from a consulting and systems perspective. So -- we don't expect that to be a headwind anymore. We've also completed -- we fulfilled our obligation to fund grants for low income mortgage loans. So that was a pretty significant expense in '25. So that will be behind us as well. So we're fairly confident that we're going to be able to achieve the results that we reflected in our guide. In addition, we've had a number of expense initiatives that Vince has mentioned in the past. And this year, we believe we can achieve even better cost takeouts on a run rate basis than we have historically. We've been focused on it. So efficiency is a focus moving into next year. And we're also leveraging some of the digital investment changes that we're making from a process perspective by utilizing AI and data analytics to make our operations more efficient. And the deployment of the common app in the retail delivery channel also provides a great deal of efficiency from a back office perspective because a lot of that processing is digitized. So that should all play well for us as we move into next year with elevated volumes in the consumer set.

Yes, some of the initiatives baked into from a CapEx standpoint is investing in our data science platform, AI and machine learning data platform with the new leaders that we have on board, investing more to get even more benefit out of those functions there. And that's part of why we were confident with the higher cost savings goal that we have for '26. And if you baked into our guidance has the efficiency ratio kind of getting down into the low 50s by the end of the year or second half of the year, I would say.

Our next question comes from Russell Gunther from Stephens.

I wanted to ask on the -- the loan growth outlook for '26 of mid-single digits. First, Vince, I want to make sure I caught you that your expectations for the resi portfolio would be around that sort of mid-single-digit level. And then second, as you discussed at the Investor Day, C&I and CRE are expected to be the loan growth leaders going forward. So if we are thinking about resi in that mid-single digits, is it safe to assume C&I and CRE would outpunch that and maybe just some comments around the drivers of the magnitude within commercial.

Sure. I mean if you strip out the large payoffs that we had, particularly in the CRE space, we had a very strong production quarter. I know it's not reflected in the spot balance because of those payouts, acceleration in payoffs, particularly in multifamily with some larger C&I credits that went the way of capital markets versus bank debt. So I think the production -- the underlying production was very strong. The C&I production was extraordinarily good, I would say, for the fourth quarter of the year. So we're moving into next year with some good momentum. We do have a lot of capacity. We talked a little bit in the prepared remarks about resetting the balance sheet. So we used '25 to kind of position our company to grow CRE loans and to grow C&I loans more rapidly. If you look at our loan-to-deposit ratio, we've had great success generating deposits. As I said earlier in the year, my hope was we would be closer to 88%. We're at 89.7%. So we're close. That gives us a lot of capacity to fund loan growth moving into '26 and to manage our margin from a deposit cost perspective. So those are positives. If you look at the capital generation that this company has been able to produce historically, we generate sufficient capital levels to sustain mid- to high single-digit loan growth with relative ease. If you look at capacity from a CRE perspective, we're one of the few banks in our peer group that has a concentration as low as we do. And we've specifically managed that down. We mentioned we wanted to be under 200%. We finished just under 200%...

197%.

197% capital. So this is a reset and that should give you great confidence because now we can move into '26 and be much more aggressive in the CRE space and in the C&I lending space. And we have a much stronger platform from a fee income perspective to support leading those credits. So I think all of that is why we're very optimistic about achieving the guide that we put out there. The other thing I will note, if you look at the H8 data and you exclude some of the payoffs that we've had, we've actually performed significantly better than the banks in total in the last quarter. So again, not looking at the full year because we were being very measured and we were reducing exposures in a bunch of areas that we wanted to reduce exposures in to prepare for '26. But if you strip out some of the payoffs, we were many times greater than the other banks in the industry. So we're optimistic about it. We haven't pulled back in terms of our pursuit of good C&I opportunities. We're not an NBFI. We're not a commercial finance driven C&I shop. So this is core C&I across our markets. where we're taking market share.

The line utilization is very low.

The line utilization remains low. So there's upside there as well. So all in, I think we're in a fairly strong position moving into '26 to continue to drive growth in our loan categories. In mortgage, I would -- we're -- there's a sale of performing mortgage loans. We decided there were some single household mortgage loans that we felt we should move off the balance sheet to give capacity for other things to provide higher returns, and that's the decision driving that. So I would expect growth in the mortgage business to be more tempered moving into '26 and with the change in rates probably an opportunity to get better gain on sale margin as we move into '26 to help fee income. So more moving off the balance sheet in '26. I hope that helps.

Okay. Great. And then my second question would be capital related. CET1 11.4% not too long ago, that target was 10% than 10.5%. It would be helpful to get a sense for where you would plan to manage that in 2026. And as you grow that CRE where are you willing to flex that concentration level to?

Yes, I would say a few things on that topic, right? Like you mentioned, the 11.4%. It wasn't that long ago that we had a goal of 10% and then 10% was the floor and now we're at 11.4%. Dividend payout for the full year, then you combine that with our expectation for strong internal capital generation based on the guidance that we have. So we're in the best position we've ever been to deploy capital to optimize shareholder value. The organic growth is the first use of that, of course. But like Vince said, we're generating enough capital to really support high single-digit loan growth. So I think that Vince...

To stop you right there because you asked a question about our ability to maintain the concentration levels. We did look at that -- we do generate a lot of capital, as you mentioned, our strong internal capital generation. We could -- basically, based on that in our guide, we could originate nearly $1 billion in CRE loans and not change the concentration level at this point in time. I think that's an important point, and I'm sorry to interrupt you. I thought given your speech on our capital.

Yes.

So there's -- I mean there's significant capacity to do business as usual there. And we're going to pick the transactions that we want to bank. But we've got plenty of capacity with the capital generation that the company is achieving.

But if we move slightly above 200%, that's not going to kill us. We're still well below others that we compete against in the marketplace. But our goal is to stay there if we can. Go ahead.

So beyond supporting that balance sheet growth, we still think buybacks are attractive. I mean we did $50 million for the full year. We did $18 million in the fourth quarter. Even at these valuation levels, we still think it's attractive. And for 2026, I would expect we'd be at the same level or higher as far as buyback activity. And then the dividend, we've been having conversations. I mean it's something we discussed regularly, and we'll be discussing with our Board. In the past, we had that elevated payout ratio for such a long period of time. And we like the flexibility of the buybacks. So that will be a component of capital management. But our payout ratio in the 25% level at least creates the ability to increase the dividend at some point if we decide to do that. So it's definitely something that's on the table for us to discuss. There hasn't been a decision or anything, that's a Board decision, but it's something we'll take a hard look at this year. This is a strategic planning cycle for us. So it would be kind of part of our capital management planning as we look ahead.

And the Board is going to look at it through the lens of our shareholders. They want to do what's absolutely best from a capital deployment perspective. That has always been their stated mission. They want to drive returns at the company, drive higher stock price performance. So they're going to look at all of that and look at our relative valuation with buybacks in mind when they make those decisions. So deployment of capital is a focus of the Board will continue to be. .

Yes. The last point I would make, too, is just when you look at our financial performance, Alfred always says and it's a good point. We have a 16.3% return on tangible common equity on a TCE ratio that's 8.9%. So that TCE ratio has built significantly from the 4.5%. It was when the 3 of us started in our roles, it's 8.9%. So I think that's important, too. So even with the higher levels of capital, we're generating a top quartile for sure, return on tangible common equity and managing that capital will be key to our performance as we move forward.

Our next question comes from Casey Haire.

I want to touch on the margin. So the -- just wondering the interest-bearing deposit beta, where does that trend throughout '26 versus that 25% cycle to date?

Yes. I would say we've still talked and still feel that kind of mid-30s on a terminal beta makes sense to us. By the end of the year, our guidance probably get to about 30% or so, up from the '25. I think our team has done an excellent job managing the deposit rates through this cycle, being very thoughtful and strategic in how we're adjusting rates and which tranches we're adjusting rates at. So there's still opportunity for us from end of the year reference point forward to continue to bring down deposit rates and big slugs of the deposit base. So I would say 30% or so by the end of the year, Casey, and still kind of a mid-30s once this cycle finishes.

Okay. Excellent. And then just a credit question.

Total, too. sorry, I should comment.

So that's not IBD. That's total deposit.

That's total. Yes, I'm sorry. You're asking interest. That's total.

Okay. Got you. Okay. All right. And then on the credit side, so the provision guide, does that assume -- like that assumes that the ACL ratio. The reserve ratio kind of holds this level supports mid-single-digit growth, and then the charge-off outlook, I'm assuming that presumes that we kind of hang out at this 20 bps level.

Yes. I think you're spot on, Casey, with your assessment of that, all sounds pretty close to what we're expecting there with the guide. .

Okay. Great. And just last one for me and one more on the capital front. So you guys clearly have a very nice capital generation. It's not inconceivable that you're above 12% CET1 in a year from now. So I guess, kind of the other way, is there -- I know you're well above your floor, are you looking at -- is there a level of capital that's too much? Or are you happy to just let capital stockpile for I mean you have more room to be more aggressive and take the payout ratio higher. I'm just wondering what's preventing you.

Nothing is really preventing us. I mean, as I commented on, the dividend will be a discussion with our Board this year as far as potentially increasing the dividend, having buybacks at or higher than the level that we did last year is kind of part of what's baked into our plan. The capital ratio, if you do the math and run it forward, you get around 12% by the end of the year. So some of that at some point, the loan growth activity picks up to get to the high single digits, right? And you want to have the ability to do that. But we're looking at all the pieces of it between funding loan growth as well as the dividend and the buyback.

Yes. We don't want to sit here and keep accumulating capital, Casey. We're focusing on a bunch of avenues to deploy capital to move some returns too. I mean we -- if we can invest capital in high-returning opportunities, then we're going to have a much higher return on tangible common equity on a slightly lower capital base. But it has to be sustainable. It can't just be a onetime deal, where we bought back shares, and then everything rolls back. And we're looking forward and making sure that we're deploying that capital in the most productive ways on a go-forward basis, so we can drive returns.

Yes. And the industry has been moving higher, too. The peers generally have been shifting upwards. So kind of keep one eye on that and then the rest of our eyes on kind of what we're doing.

Yes. I mean the -- it's kind of tough when you look at the AOCI impairment that occurred a few years ago, and there's accretion going on, Casey. So some of the TBV build is just a reversal of impairments that occurred and we didn't have that. So when you look at these big outsized numbers and TBV growth, you have to take that into consideration. Ours is core earnings and retained earnings. That's a big difference. So when you're evaluating all these banks, you should be taking that into consideration, I hope. I think you are...

And we've returned with $2.2 billion capital since 2009. So I mean it's been an active part of our overall shareholder positioning.

[Operator Instructions] Our next question comes from Kelly Motta from KBW.

So not to beat a dead horse with capital, but just kind of building off of the last couple of questions there. It sounds like you believe your stock is still attractive here. Can you, one, remind us any price sensitivity that you have regarding the buyback, if there's any sort of guiding principles there. And then two, I'd be remiss if not to ask about any updated thoughts on M&A here.

Yes. I would just say valuation, we think our stock is worth a lot more than where it's trading. If you look at where it was trading sake in the last year or 2, I mean, it had been trading at a discount on a P basis to our peers, which didn't make sense to us. And now it's kind of equal to the peers, and we think it should be higher than it appears. So we still think it's a good investment for us to make even at these higher valuation levels. And there's not a bright line, Kelly, I guess I would say, where we would stop. I mean, we look at our relative positioning and what's happening with the market and what's happening with the economy. So -- but definitely room for us to continue to be active.

Yes, we're -- from an M&A perspective, we're 9 years past our last M&A -- large M&A transaction. We did 2 small bank deals, very small. We've said repeatedly, we're focused on internal capital generation. We're focused -- we've said this back going back 5, 6 years ago. We're going to continue to look at the mechanisms that we have to drive returns through organic growth. So that's our priority. We've been able to do that very successfully. We've been able to invest in tech and outperform some of the largest banks in the country in certain aspects of our tech offering. So we're going to keep doing that. And if something comes up opportunistically, it really has to be a good fit. And I think it would have to provide us with -- it can't dilute what we built. So 26% noninterest-bearing deposits and the deposit mix is pretty strong still even after it declined post the effect of stimulus. And I think our goal is to continue to drive that mix in a favorable manner. We don't want to dilute that. We don't want to dilute capital tangible book value materially because we've spent a lot of talking focusing on it and driving TPV growth. So we have good momentum there. If something provides us with an opportunity to drive organic growth at a faster clip, sure we would look at it. But we've got tremendous markets. We're spread across a pretty broad geography. We -- as I've said before, we've grown market share in 75% of the MSAs that we compete in. So we are proving that we can compete effectively at our scale and size and our efficiency ratio is very strong. So I don't place that as a high priority anymore. I know that seems surprising to people, but because we've been here for so long. I mean, I've been in this seat for almost 15 years. So we did a lot of M&A transactions to get to where we are, but we needed to get to this level.

And then leveraging the investments we made that are really early stages of contributing.

Yes. So I guess the answer is we're going to do whatever we think makes the most sense for the shareholders, and we're going to be very cautious as we move forward, just like we have been over the last in 5, 6, 7 years. And if something presents itself that checks all the boxes, sure, we'll look at it. But we're going to continue to stay focused on organic growth, driving organic growth, building out our platform leveraging our retail bank, which is, I think, the 19th, if you look at locations, it's the 19th largest retail bank in the country, right, Alfred, and one of the most efficient if we looked at metrics relative to the largest banks in the country, and we run a very efficient retail bank. So the consumer business for us is a good business. Anyway, that's our take on it. And I appreciate the question.

Got it. I appreciate all the color makes total sense. Maybe 1 follow-up for me just asking the operating leverage kind of in a different way. Clearly, you've set the stage very well for 2026 to drive positive operating leverage ahead. And you noted you anticipate the efficiency ratio getting into the low 50s kind of by the second half of the year. Looking back, you were more a mid- to high 50s efficiency ratio type bank. You've obviously made a lot of investments in tech that you're able to really leverage now. Just wondering, as you kind of think about the longer-term efficiency ratio of the bank, given these significant investments you have made in technology, do you think that low 50s is that lower run rate is sustainable? Any kind of thoughts in either direction here, particularly as de novo expansion remains a focus here?

Yes. I think there's 2 things. One, there's the efficiency that's being produced through automation and digitization of the banking industry. We've talked about this where we built out the data hub. We're using that data to drive efficiency in the delivery of products and services. I think we've only scratched the surface on taking cost out, right, over time. With looking at how we process transactions across the entire bank and thinking about the impact of AI and automation on driving efficiency and what that means over time, I think, is pretty positive for the industry. That should be viewed as positive. I also think from a revenue generation perspective, which is the other side of this, our ability to analyze data, present information to prospects, clients for our own internal people extremely fast, so that they're able to react to it and produce better revenue results per engagement with a customer is going to drive that efficiency ratio as well. So revenue growth through automation and efficiency are still -- we're still looking down the road for that. We've started to experience some of it, but there's quite a bit to come. So I'm very optimistic about that. I don't know, Vince, if you want to add anything to the question?

No, I would just say sustaining around that low 50s to 50% level feels very achievable as we move forward, given all the things Vince just described. That's all I would say.

And I also think when you look at us relative to the other banks our size, we have a disproportionately large retail bank. So the efficiency ratio in the retail business is not what it is in the commercial business. So if we were a pure commercial bank, yes, we would be below 50%, well below. But Alfred gives us all these branches. We've got a good note, you're laughing. But the truth is, we've got this big machine that we have to run, and it's a good business for us. And as I've said, we were able to do it very efficiently, which is remarkable given our size and scale. I mean, in fairness to the retail business, we do run an incredibly efficient retail delivery channel. It compares very favorably to the largest banks in the country. And if you look at the efficiency ratio broadly speaking, there are probably going to be some puts and takes to it. We're going to continue to drive efficiency in the areas that we can through automation. But as Vince mentioned earlier, we have plan to grow fee income, which tends to be a higher efficiency ratio business in and of itself. And the idea is that all these investments that will continue to drive the efficiency ratio plus the investments in growing additional fee income. I think net-net results in a top quartile ROE that compares pretty favorably to our peers.

And you saw Kelly, you were here, you saw what we've already done with the digitization of the retail delivery channel. We've already embedded the eStore into the ITM. So that somebody remotely can engage a customer fully digitally in a branch and provide them with the ability to transact, cash checks down to the penny, make loan payments. And also, it buys them on what they have in the shopping cart, help them proceed to check out right there. So that in and of itself reduces the need for personnel in the branches over time. So that helps us gain efficiency as well, and we've already built it. It hasn't been deployed fully, but it's built. So that's coming as well. Anyway, that -- that's all. I don't know what else to add. Yes. I think we're in a pretty good spot, and we're very optimistic about efficiency.

So it seems like there is a break with our operator. But Manuel, I think that you're on the line, if you have a question, please go ahead and ask it.

Okay. Great. I hear you guys on the lending capacity from your end and kind of strong production. Can you discuss lending sentiment in your markets? And how -- does that drive kind of expectations for growth to be more back half of the year loaded? And are you already seeing headwinds from payoffs and secondary market improvement slowing already?

Yes. I'd say we -- I think you're right. We tend -- typically in this business, we tend to see the loan growth come in the C&I side anyway. Real estate is kind of all over the board depending on when the project was launched, but from a C&I perspective, you tend to see it build towards the second half of the year because companies are completing their financial statements, they're turning them over to the bank. They're planning from a CapEx perspective now. So then they're coming back right about now and they're starting to reach out to the bankers and start to make plans for capital expenditures and working capital needs. So that's happening, like discussions are happening. I would expect growth to be more back-ended this year. I also think bonus depreciation in some of the comments I read, we get comments back from every region before we do this call. So we all read them. They do a pretty nice job. I thought this was the best they've ever done, giving me commentary. I spent last night reading 38 pages of commentary. But I think when you look at the Southeast, you look at Charlotte and Raleigh and Greensboro, there's a lot of competition. You've got branches being built out across that footprint. But our people continue to see opportunities. We're entrenched in those markets. We have been building out our delivery channel as well and introducing digital strategy and building out our treasury management capabilities. So those markets have performed extraordinarily well, and I would expect them to continue to perform well. If you pivot to Pittsburgh, Cleveland, Baltimore, the more mature markets that we're in, they've had some pretty significant payoffs in those markets, not because we lost customers to other banks, but because…

Yes, in the past, you've talked about the treasury management pipelines being solid. It's showing on the fee side. Do they remain -- they're remaining robust as well on the commercial treasury management deposits?

Yes. We're seeing lots of opportunities across the footprint from a depository perspective, from a treasury management perspective. So...

We still have a large pipeline close to $1 billion of deposit prospects we're going after.

Yes.

The other thing I would add, Manuel, is we are starting to see increased levels of opportunities around some high-quality CRE. Discussions were pretty active over the last 60 to 90 days here, and we're seeing some really nice opportunities there. .

All right. That's good to hear. Anything -- any more details on the mortgage sale? And I hear you that you're just opening up capacity. Were they specific to any region? Just any more color on kind of this sale that's coming up in the first quarter?

Yes, they were predominantly -- they were out of market predominantly, not out of market -- not out of our operating area, but out of our immediate area, so around branches. So we looked at them from a practical perspective and said our probability of cross-selling additional services to this pool is limited. So there's nothing wrong from a credit perspective, they're good credits, but we just don't see an opportunity to be able to deploy cross-sell engagement. So we decided to return the capital and reuse it for something we can become the primary client, right? And that's what drove that. That plus it helps us manage the -- my expectation is as we move into next year, we're going to see prepayment speeds elevate anyway. So we're going to see attrition in that book anyway. And I think we're going to be able to move more off the balance sheet because there's more activity in the conforming space moving into next year, particularly in a lower rate environment. So I would expect us to drive fee income, manage the exposure and be able to still grow the other categories because we have the capital to do that, the other higher returning categories. But those loans, in particular, we just viewed as a drag on capital.

Yes. We were -- the other thing I would add too is just from a concentration management standpoint, mortgages as a percent of total loans, around 25%. You can see that in the slide deck. So kind of managing that level of concentration, we decided to take $200 million off. I mean we're very strategic in how we take actions. Remember, during the year, we had pricing strategies to generate more saleable production, just to again manage the total mortgages on the balance sheet. And I think as we go forward in '26, that creates capacity for the commercial growth that you heard us talk about. And as far as the sales too, we expect sales to be basically at par when it settles this quarter.

Right.

And our next question comes from Brian Martin from Janney Montgomery.

Just your last comment, maybe Gary made a comment about the loan growth, but -- and I joined late. So from a commentary standpoint, it sounds like the loan growth outlook is mid-single digits, back-end loaded. Did you talk about kind of the current pipeline? And then also just maybe your comment about Vince, the mortgage being coming down around 25%. When you think about big picture about the loan concentration levels, where they are today, where do you see opportunity to maybe make some additional changes throughout the year as we get to the end of '26, is there a target in terms of where that mortgage number might be, where other buckets may be that you can kind of talk a little bit about in terms of how the positioning looks?

I'll do a high level, and then I'll turn it back over to these guys. Our goal would be to shrink the mortgage book and redeploy over time, right? If you see prepayment speeds accelerated in a different interest rate environment, you're going to see that portfolio basically stay the same in size, right, or grow very small as a percentage of the total. But our goal would be to redeploy that capital into C&I and CRE lending. And I said earlier, I don't know if you missed it, but earlier I talked about our internal capital generation, Brian, and the ability for us now that our CRE concentration is at 197%. It's below 200%. There's capacity there to lend. So keeping that concentration at the same level, given the internal capital generation, we could still originate and fund...

About $1 billion.

$1 billion in CRE loans. So we don't have to keep it at 197%. There's some way to move up and down. That was just our internal goal, right, from a concentration perspective. It puts us in a much better position than many of the peers. So there's a lot of capacity to lend there. We can be very selective. On the C&I side, I think we have a great opportunity to deploy capital there and grow over the next 12 months because we think that, that business will start to accelerate for us and we can move in. Again, we're not doing the consumer finance stuff, NDFI, all the other stuff that is baked into the H8 data for C&I growth that really is mass consumer growth. But we're doing true middle market transactions across our footprint and growing that business. And I think we've done a pretty good job and the pipelines have actually built over time? And go ahead, Gary, you're going to...

Just going to add, Brian, the equipment finance business for us has been extremely strong. And you would expect that with the bonus depreciation that group had an exceptional year, and that just continues to build. They had a very strong fourth quarter, and we expect to have a really, really solid 2026 across that group through the quarters and even building more, as Vince mentioned, towards the latter part of the year with where we sit economically at the moment. So really, really excited about that piece of the business and the C&I opportunities ahead of us.

Yes. Brian, I would just mortgage point, just to close it out. I mean we're looking for production levels to still be very strong. So it's not that we're trying to lessen the activity in that business, the amount of originations. It's just what ends up on the balance sheet. And just for reference, I was looking back, Last year, it was 23% of total loans at the end of '23, it was 20%, just as kind of reference points. Today, it's 25%. So just managing that concentration -- the commercial activity that Gary and Vince have talked about.

Got you. And Gary, that equipment finance, how big a piece of the loan book is that today?

That portfolio today sits at right about $1.5 billion.

$1.5 billion. Okay. Perfect. And then maybe just 1 or 2 last ones. Just on the loan pricing, maybe -- I don't know if you talked about this earlier, but we've heard that some of the pricing has been a bit rational of late. So just wondering how that -- how you're viewing on the loan pricing and just how that plays into the trajectory on your outlook for the margin for the year and kind of what's embedded in your guidance on that as you kind of look into 2026.

I don't think loan pricing in the C&I book or across the board? What are you referencing specifically?

I guess the commentary we've heard is that people are really looking to be aggressive on pricing just because they haven't had the ability to grow. So I guess I haven't heard that it's whether it's on CRE or C&I specifically. So just kind of wondering...

I wouldn't say -- yes, the CRE pricing has been a little -- it's been more firm. The C&I pricing is more aggressive, but it has been. I mean I -- you sound like some of the people that run the regions that we have, they talk about how competitive it is. It's always been competitive. For the 40 years I've been in banking, I've never sat there and said, well, it's not -- it's so uncompetitive. I just -- I can do anything I want. It's always competitive. But there's always a threshold for returns, right? Everybody is running the same models. So we try to achieve a certain return risk-adjusted return on capital. And I would say that kind of governs it. So it tends to fluctuate. Let's say, C&I is good, solid C&I credit, not risky stuff because that could be all over the board. But your traditional middle market transaction that's on solid footing, good fixed charge coverage, lots of capital. You're looking at 25 basis point variance between extraordinarily competitive and not as competitive. So it's never that wide of a margin right? It gets skinny from time to time. But I think you've got to be able to overcome that with products and services that produce returns. And you look at the broader relationship and bring in deposits, compensating balances to support treasury management fees, provide capital markets fees with derivatives and debt capital markets opportunities that's what gives the return. We kind of look at those returns holistically, and we look for returns that are north of sticking 15%, 16%, 17% all in some cases higher. So that kind of drives the whole marketplace essentially.

Yes. And I think we've done a good job driving that cross-sell activity across all of those fee income products that we have. We talked about the diversification of those income streams earlier. The group is very focused on it. And I can tell you, the leadership there is really driving that through the banking teams.

And Brian, I would just add 1 point. So top of the house, the new loans that we made during the fourth quarter came on at 5.92%, which up 24 basis points above the portfolio rate. So it's still additive to the overall return.

Vince is always bringing you facts. I'm giving anecdote. He layers into the stuff you really want to hear.

It all works together.

Exactly. Cool. And then how about just -- did you guys -- any commentary on kind of what's embedded in the NII outlook in terms of margin, just kind of trajectory of margin kind of as you kind of go through the year, given your outlook for rate cuts here and just kind of the better environment?

Yes. I would just say what's baked into our guidance is 2 rate cuts, 1 in April, 1 in September. I mean, April and October. If we don't get to next one, I think last I saw the market was saying in July. I mean it's -- if you don't get it, it's like a couple of million dollars' worth of benefit to a quarter. So just kind of as a reference point, baked into our guidance, has the margin moving up modestly, a few basis points a quarter, say, between the 3.28% and the end of the year is kind of what's baked into our guidance if you do the math.

Okay. I think I'm good. And Vince, just the question on M&A, I guess, just in terms of big picture, if we do see something, if there's a great opportunity out there, does it feel like it's a smaller opportunity given you don't want to kind of take momentum away from what you have, all you've talked about today? Or is that the wrong way to think about it because the right opportunity could be something bigger. It just feels like it might be something smaller and less disruptive if there was an opportunity out there. But I guess maybe I'm reading into that.

No, I think we're pretty focused internally on organic growth. And what we're doing is, we're looking at capital deployment constantly. We've talked about this before somebody else asked a similar question. I don't know if not. But we're going to do whatever we think makes the most sense for the shareholders from a return and capital deployment perspective. We're not out trying to find things. I think given where we are right now and the success we're having and how valuations line up, it's more unlikely that we do a large M&A transaction, right? And if you look back over the last I said 9 years going back to the large -- last large deal we did. We've only done 2 deals. Since then, they were relatively small, and they were -- they basically were additive to the overall strategy. So both deals have really high demand deposit mix it as set. And they provided lots of customers, it was like granularity in the customer base, and it could be plugged into the consumer bank and we could drive on the cross-sell strategies and drive fee income. And that's that made sense to us, but those are more opportunistic than plotted.

Yes. Okay. Yes, that answers it. Congrats on the quarter and the momentum you guys have going into '26.

Yes. Thank you very much. I appreciate it. Thanks, Brian. Thank you, everybody. I think that concludes the questions. And I want to thank our employees for a tremendous year. I know there was a lot of hard work that went into this year, and I want you to know the executive leadership team. I appreciate it. And thank you to our shareholders for continuing to believe in us and support us. Thank you.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.