HWCPZ

• Fourth quarter performance: Strong earnings with ROA of 1.41% and efficiency ratio under 55%. Net interest income continued to grow, loans and deposits increased.
• Bond portfolio restructuring: Completed bond portfolio restructuring, expected to benefit NIM by 7 basis points and EPS by $0.23 per share.
• Hiring plan: Expect to hire up to 50 additional revenue-generating associates in 2026 to support growth targets and improve profitability.
• Credit quality: Criticized commercial loans and nonaccrual loans decreased, net charge-offs at 22 basis points, loan loss reserves solid at 1.43% of loans.

• 2026 Guidance: NII expected to be up between 5% and 6% from 2025 with modest NIM expansion. PPNR guide up between 4.5% and 5.5%. Efficiency ratio expected to fall in the range of 54% and 55%. Expect 2 25 basis point rate cuts in April and July 2026.
• Bond restructuring impact: Annual impact to support NII and NIM growth in 2026, contributing 7 basis points to NIM, $24 million to NII, and about $0.23 to earnings per share.

Net Interest Income (NII): Increased 1% this quarter, driven by favorable volume and mix for average earning assets and interest-bearing liabilities. Fee Income: Grew in each of the 4 quarters this year, totaling $107 million in the fourth quarter, and expected to be up between 4% and 5% in 2026. Loans: Grew $362 million or 6% annualized. Deposits: Up $620 million or 9% annualized, largely driven by seasonal activity in public fund DDA and interest-bearing accounts.

• Economic uncertainty: Current economic environment is rapidly evolving, making it difficult to accurately project results.
• Interest rate changes: Impact on loan yields, cost of funds, and deposit pricing.
• Competition: Competitive landscape in hiring bankers and attracting deposits.

Q: Noticed that the fourth quarter loan production was up about 7.5% Q-on-Q, but paydowns were also up. Maybe Mike or John, if you can just talk about what your expectations are for kind of gross production versus expected paydowns as we move through the year, inclusive of those 2 cuts.

A: Thanks, Michael. I'm going to ask Shane to start with that answer. Go ahead, Shane.

Q: A question just on the margin. You talked about seeing modest NIM expansion in '26, but we're getting 7 basis points immediately upfront from the bond restructure. Do you -- kind of walk us through kind of what you're thinking about the margin kind of outside of that onetime event? Is it -- do you kind of still see a core margin having upside? Or is it -- or is really that modest expansion coming from the bond restructure and outside of that, we're kind of stable once we hit that new rate?

A: Sure. I'd be glad to, Catherine. So I think the main underpinnings of what we're referring to in terms of our ability to widen the margin and grow NII next year is really around the balance sheet. So we've got the loan growth pegged at mid-single digits. So if you assume that's somewhere between 4% and 5%, that should add a healthy amount of volume to our balance sheet and certainly coming with that will be an intended increase of average earning assets. So I think, first and foremost, it's organically expanding the balance sheet. Then you called out the bond portfolio restructure. So that will contribute 32 basis points in terms of the bond yield and about 7 basis points on the NIM. But related to the bond portfolio, we also have about $1.150 billion of cash flow, principal cash flow coming back to us next year. That will be coming back at about 3.75% and going back on the balance sheet, call it, between 4.25% and 4.5% depending where rates are. So that's a significant improvement on top of 32 basis points related to the bond restructure. So that could be as much as somewhere between 45 and 50 basis points of bond yield improvement from the fourth quarter of '25 to the fourth quarter of '26. So that's significant. Then in terms of our cost of deposits, we're assuming the 2 rate cuts next year, one in April and one in July. So given that, we've got anywhere from about 25 to 30 basis points improvement in our cost of deposits from fourth quarter to fourth quarter. A lot of that's coming from our continued ability to reprice CD maturities. We've got about $8 billion of CD maturities next year. Those will come off at about 334. The assumption is that they'll go back on at about 280 or so that is inclusive of about an 81% renewal rate. So the organic growth of the balance sheet, the securities yield improvement, our ability to continue to reduce our cost of deposits. Those are the main tailwinds, if you will, toward NIM improvement next year. Probably one of the headwinds would be we do expect with a couple of rate cuts next year, our loan yield will continue to decline a bit next year, but I think at a slower pace than what you saw over the course of the fourth quarter. I think you put all that together and our NIM improvement, call it, somewhere between 12 and 15 basis points, maybe a little bit north of that, again, with 7 coming from the bond restructure. So that's how we're kind of thinking about the NIM and NII next year.