Regions Financial (RF) Q3 2026 Earnings Call Transcript

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DATE

Friday, Oct. 16, 2026

CALL PARTICIPANTS

• Chairman, President and Chief Executive Officer - John Turner Jr.
• Treasurer - Anil D. Chadha
• Head of Investor Relations - Tom H. Speir

TAKEAWAYS

• Net Income -- $611 million, or $0.71 per diluted share, representing an 11% increase year over year.
• Adjusted Net Income -- $622 million, or $0.73 per diluted share, reflecting the exclusion of $15 million in securities repositioning losses.
• Adjusted Pretax Pre-provision Income -- $870 million, reflecting core earnings power across the company's diversified business segments.
• Adjusted Return on Average Tangible Common Equity -- 21.7%, compared to 20.2% in the second quarter of 2026.
• Net Interest Income -- $1.3 billion, an increase of 2% compared to the prior quarter supported by structural repricing dynamics and balance sheet growth.
• Net Interest Margin -- 3.68%, representing a two basis point increase linked-quarter driven by higher yields on newly originated fixed-rate assets.
• Average Loans -- $99.2 billion, an increase of 0.5% compared to the second quarter driven by commercial and industrial lending activity.
• Ending Loans -- $99.8 billion, a 0.6% increase reflecting a pickup in lending momentum late in the quarter.
• Average Deposits -- $129.1 billion, reflecting a 1.2% decline driven by large commercial clients reallocating balances to off-balance sheet products.
• Interest-bearing Deposit Costs -- 1.70%, representing an increase of one basis point during the quarter due to disciplined management in an elevated rate environment.
• Noninterest-bearing Deposit Mix -- low-30% range, which management indicated is consistent with its operational deposit base and long-term targets.
• Capital Markets Income -- $107 million, representing a 27% increase compared to the prior quarter driven by stronger M&A advisory and securities underwriting.
• Service Charges -- $171 million, reflecting record treasury management performance and seasonally higher consumer-related activity.
• Adjusted Noninterest Expense -- $1.1 billion, which remained relatively stable compared to the second quarter.
• Annualized Net Charge-offs -- 29 basis points of average loans, reflecting a 13 basis point decline linked-quarter.
• Estimated Common Equity Tier 1 Ratio -- 10.8%, which management indicated provides sufficient flexibility to support strategic growth and capital returns.
• Full Year Average Loan Guidance -- Growth of low single digits versus 2025, supported by commercial client engagement and production pipelines.
• Full Year Average Deposit Guidance -- Growth of low single digits versus 2025, reflecting a focus on new account acquisition and retention.
• Q4 Net Interest Income Guidance -- Growth of 1% to 2% compared to the third quarter, assuming a federal funds rate hike occurs in December.
• Q4 Net Interest Margin Guidance -- Approximately 3.70%, reflecting expansion from structural tailwinds and fixed-rate asset turnover.
• Full Year Adjusted Noninterest Income Guidance -- Growth of 3% to 5%, with current performance tracking toward the lower end of that range.
• Full Year Adjusted Noninterest Expense Guidance -- Up 1.5% to 3.5% versus 2025, reflecting ongoing technology and infrastructure investments.
• Full Year Net Charge-off Guidance -- 40 to 50 basis points, with performance for the year trending toward the lower end of the range.
• Share Repurchases -- $95 million, representing the return of excess capital to shareholders during the third quarter.

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RISKS

• John Turner Jr. stated, "the level of new activity is slowing because of rising cost and difficulty to make the economics of those transactions work," regarding the investor real estate portfolio.
• John Turner Jr. noted a "little weakness in the multifamily business primarily in Texas" due to "softness in absorption rates."

SUMMARY

Regions Financial Corporation (NYSE:RF) reported third quarter results that management stated were driven by record fee revenue and structural net interest margin expansion. The company reported a decline in net charge-offs to 29 basis points and a reduction in criticized business loans during the quarter. Management stated that net interest income grew 2% compared to the prior quarter, supported by fixed-rate asset turnover and disciplined deposit cost management. The company is currently executing a multiyear technology modernization project, including the implementation of a new cloud-based deposit system. Management indicated that organic capital generation remains a source of strength, with an estimated Common Equity Tier 1 ratio of 10.8% supporting continued share repurchases and common dividends.

• Management reported that a pilot for the new cloud-based deposit platform will launch for associates in October 2026, with a broader phased conversion of customers planned for 2027.
• Treasurer Chadha noted that management currently oversees approximately $16 billion in off-balance sheet investment solutions for commercial clients, which remains available for potential deposit growth.
• The company reported that its mass affluent customer base grew by 8% year over year, with 85% of those customers sourced from the existing retail base.
• Management indicated that investments in cybersecurity are being increased to address risks associated with artificial intelligence and to maintain customer trust platforms.
• John Turner Jr. indicated that the company is currently not pursuing depository acquisitions to maintain focus on the implementation of its core technology transformation projects.
• Management reported that small business account openings reached their highest level in 10 years, excluding the pandemic period, growing 100 basis points over the prior year period.
• John Turner Jr. noted that current investor real estate growth is being driven by bridge-financing in the multifamily sector, although elevated rates are slowing new project activity.

INDUSTRY GLOSSARY

• AOCI: Accumulated Other Comprehensive Income, which includes unrealized gains and losses on certain investments held by a company.
• Basel III endgame: A set of proposed regulatory changes intended to standardize how large banks calculate risk-weighted assets.
• C&I: Commercial and Industrial loans made to businesses for working capital or capital expenditures.
• CET1: Common Equity Tier 1 ratio, a core measure of a bank's financial strength that compares its equity capital against its risk-weighted assets.
• Criticized Loans: Loans that management has identified as having higher credit risk based on the borrower's financial condition.
• H.8 data: A weekly Federal Reserve report that provides an estimate of the aggregate balance sheet for all commercial banks in the U.S.
• IRE: Investor Real Estate, a category of lending for properties owned for investment purposes.
• NII: Net Interest Income, the difference between the revenue generated from a bank's assets and the expenses associated with paying its liabilities.
• NIM: Net Interest Margin, a measure of the difference between the interest income generated by banks and the interest paid out to lenders relative to assets.
• Non-GAAP: Financial measures that are not defined by standard accounting principles, often used to show underlying business performance.
• Regions Home Improvement Finance: A specialized lending division within the Consumer Bank focusing on home renovation financing.
• ROATCE: Return on Average Tangible Common Equity, a financial ratio used to estimate the return a company generates on its core equity.

Full Conference Call Transcript

Operator: Good morning, and welcome to Regions Financial Corporation's Quarterly Earnings Call. My name is Christopher, and I will be your operator for today's call. I would like to remind everyone that all participant phone lines have been placed on listen only. I will now turn the call over to Tom H. Speir to begin.

Tom H. Speir: Thank you, Christopher. Welcome to Regions' third quarter 26 earnings call. As John and Anil will provide high level commentary regarding our results. We ask that you review the cautionary statements included in our earnings documents, which are available in the Investor Relations section of our website These materials contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results as well as forward looking statements about Regions' performance. These statements speak only as of today, and we undertake no obligation to update them. I will now turn the call over to John.

John Turner Jr.: Thank you, Christopher, and good morning, everyone. We appreciate you joining our call today. Earlier this morning, we reported earnings of $611 million resulting in earnings per share of $0.71. On an adjusted basis, earnings were $622 million or $0.73 per share. We delivered adjusted pretax pre provision income of $870 million and an adjusted return on tangible common equity of 22%. As we move through the second half of the year, what stands out most to me is the consistency of our performance. While continuing to generate strong financial results, we have remained focused on strengthening the franchise through investments in talent, technology, products in key markets.

Those investments continue to enhance our ability to serve customers and compete effectively. Across our businesses, we continue to see healthy customer engagement. On the consumer side, we continue to grow households and checking accounts. While deepening primary relationships. Commercial clients continue to invest in their businesses, technology, and long term growth initiatives. The operating environment continues to evolve, and activity levels across the franchise remain constructive. Credit quality continued to be a source of strength during the quarter. Annualized net charge offs were 29 basis points of average loans. While business services criticized and total nonperforming loans continued to decline. Despite these positive trends, we remain focused on actively managing risk across the portfolio.

While soundness remains the foundation of our strategy, we are also generating strong momentum across our fee based businesses. Capital markets and treasury management each delivered record revenue during the quarter. Reflecting strong client engagement and continued execution across both businesses. Wealth management revenue moderated from record second quarter levels but remained strong relative to the prior year. Collectively, capital markets, treasury management, and wealth management continue to perform at historically strong levels demonstrating the strength of our diversified fee based business model. And the value we provide to our clients. We continue to make meaningful progress on our cloud based deposit platform implementation and broader modernization efforts.

As we have discussed previously, we are taking a deliberate phased approach that we believe appropriately balances execution discipline with the scale and complexity of the initiative. This is 1 of the most significant technology investments in our company's history. And we remain confident in both our approach and the long term benefits this investment will deliver. Our commitment to long term investment extends beyond talent and technology to the communities we serve. This year marks 30 years as the official bank of the Southeastern Conference. A milestone we are proud to celebrate.

Believe the longevity of that relationship reflects the strength of our brand, the depth of our community relationships, and our long standing commitment to customers and businesses we serve. As we look ahead, we remain confident in our position. We have a strong franchise, healthy customer relationships, a leadership team focused on execution. We believe the investments we have made and the momentum we are seeing across the business position Regions well for a strong finish to 2026 and sustained success in the years ahead. Now Anil will provide some highlights regarding the quarter.

Anil D. Chadha: Thank you, John. Let's start with the balance sheet. Both average and ending loans increased modestly versus the second quarter. As expected and consistent with market trends, growth moderated from the stronger pace experienced during the first half of the year. Growth was again driven by broad based commercial lending activity, including continued strength across several C and I categories including government and public sector and wholesale and financial services. While net loan growth remained concentrated among investment grade commercial clients, production trends continue to be healthy across our emerging commercial and middle market businesses. Supported by recent talent investments.

Consumer loan balances declined modestly during the quarter, Growth in credit card and home equity was offset by continued softness in residential mortgage, and Regions Home Improvement Finance. Reflecting the higher rate environment and muted housing market activity. As we look ahead, current levels of client engagement production activity, and pipeline strength continue to support our confidence in the growth outlook. We continue to expect full year average loan growth to be up low single digits versus 2025. Turning to deposits. Both average and ending balance has decreased modestly, primarily reflecting activity from a few of our largest commercial customers, utilizing our institutional investment services for specific investment strategies. Combined with expected seasonal outflows in public funds deposits.

As a reminder, the company continues to manage substantial excess client liquidity for our commercial clients totaling approximately $16 billion through highly liquid off balance sheet investment solutions. Underlying commercial trends remain healthy with continued growth in new accounts, increases in both average and ending commercial noninterest bearing balances during the quarter. Retail deposits performed as expected with growth in new accounts partially offset by late summer seasonal spending. Consumer money market balances continued to grow while year to date small business account openings reached their highest level in the past decade, excluding the pandemic period. And are approximately 100 basis points higher than the prior year period.

We remain disciplined in managing deposit costs in an elevated rate environment, while leveraging the strength of our deposit franchise to drive customer acquisition and retention. Our noninterest bearing deposit mix remained in the low-30% range consistent with our target and reflective of the operational nature of our deposit base. We continue to expect 26 average deposits to be up low single digits versus the prior year. Let's shift to net interest income. Net interest income increased 2% linked-quarter building on recent momentum and supported by structural repricing dynamics and balance sheet expansion. Net interest margin increased 2 basis points to 3.68%, reflecting our strong profitability and deposit funding advantage.

During the third quarter, interest bearing deposit costs were largely stable increasing just 1 basis point to 1.70%. Disciplined deposit cost management and our operating account mix continues to provide a strong foundation for earnings in the current elevated interest rate environment. We expect the interest bearing beta will remain in the mid to high-30% range through the rising rate cycle supporting a mostly neutral interest rate risk position. In the fourth quarter, however, lags in the repricing of certain retail deposit products following the September rate hike will provide a modest lift in net interest income. We are positioned well to benefit from higher middle and long term interest rates through fixed rate asset turnover.

In the third quarter, yields on newly originated fixed rate assets were approximately 100 basis points higher than the yields on maturities. We expect this repricing advantage to expand to between 100 and 125 points in the fourth quarter providing a tailwind that persists for multiple years assuming current rate levels while moderating through time. As previously mentioned, loan growth moderated during the quarter, However, we did see momentum pick up late further supporting average balance and net interest income growth into the fourth quarter.

The mix of loan growth continues to migrate towards high quality credits, And while this creates a headwind for asset spreads, net interest income and margin the economic trade off is evident in improving credit results and deepening customer relationships. Similarly, while the funding mix in the third quarter was negatively impacted by the migration of certain deposits to off balance sheet products, the resulting shift supports fee revenue. Looking forward, we expect a more balanced loan and deposit growth profile to sustain profitability. Assuming the next Fed rate hike occurs in December, we expect fourth quarter net interest income to increase between 1% and 2%.

Supported by persistent tailwinds from higher rates, structural repricing, disciplined deposit cost management, balance sheet growth, and the seasonal HR asset dividend. The fourth quarter net interest margin is expected to be approximately 3.70%. Now let's turn to fee revenue performance for the quarter. Adjusted non interest income increased 3% on a linked-quarter basis driven primarily by record capital markets and treasury management revenue, as well as growth in commercial credit fees bank owned life insurance income, and other noninterest income. Partially offset by a $28 million decline in the market value on employee benefit assets.

Capital markets income increased 23% compared to the prior quarter driven by stronger M&A advisory activity, securities underwriting and placement fees, commercial swap income, and syndications revenue. Looking ahead, activity levels remain constructive, and we continue to expect fourth quarter revenue to be within our previously communicated range of $90 million to $105 million The timing of client activity and market conditions will influence where we land within that range. For full year 2026, we continue to expect adjusted non interest income to grow between 3% and 5% versus 2025. With results continuing to track toward the lower end of that range. Let's move on to noninterest expense. Adjusted noninterest expense was relatively stable compared to the prior quarter.

Lower salaries and benefits expense attributable primarily to lower market value adjustments supplemental employee benefit liabilities along with a decline in other expense helped offset higher equipment software expense and increased professional legal and regulatory costs during the quarter. As expected, continued investments in technology and infrastructure were offset by disciplined management across the broader expense base. Overall expense trends remain consistent with our expectations for the year. For full year 2026, we continue to expect adjusted noninterest expense to be up between 1.5% and 3.5%, we expect to deliver full year adjusted positive operating leverage.

Regarding asset quality, we were encouraged by strong credit performance during the quarter, reflecting the strength and resiliency of our customer base and our continued disciplined approach to risk management. As John highlighted, annualized net charge offs as a percentage of average loans declined 13 basis points to 29 basis points. Business services criticized and non performing loans improved during the quarter. The business services criticized ratio declined 30 basis points to 4.71%. While the nonperforming loan ratio declined 8 basis points to 59 basis points. The allowance for credit losses ratio declined 2 basis points to 1.61%. Continued progress within previously identified portfolios of interest were largely offset by reserves maintained for macroeconomic uncertainty and other qualitative factors.

Resulting in a relatively stable reserve balance during the quarter. Continue to expect full year 2026 net charge offs to be between 40 and 50 basis points based on performance to date, now expect to trend toward the lower end of that range. Let's turn to capital and liquidity. We ended the quarter with an estimated common equity Tier 1 ratio of 10.8%, while executing $95 million in share repurchases and paying $255 million in common dividends during the quarter. Liquidity remains robust with total sources well above required levels. Modest declines during the quarter reflect the impact of higher interest rates on collateral valuations, as well as the changes in loans and deposits discussed previously.

Regions remains well positioned to support future loan growth while maintaining its disciplined approach to balance sheet management. Including the impact of ASCI and reflecting the proposed Basel III endgame risk weighted asset changes, our estimated CET1 ratio was approximately 10%. This level remains well above our target range of 9.25% to 9.75%, and provides continued flexibility to support strategic growth and return capital to shareholders. Regions maintains a strong earnings profile that consistently generates capital and we will continue to execute strategies to further reduce our sensitivity to interest rates.

Overall, we are pleased with our third quarter performance, which reflects the strength of our franchise the resiliency of our customer base, and the disciplined execution of our long term strategy. We remain well positioned to support our customers, invest in growth opportunities, deliver sustainable value for shareholders. With that, we will open the line for your questions.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1. You may press 2 if you would like to remove your question from the queue. Our first question comes from the line of Ryan Nash with Goldman Sachs. Please proceed with your question.

Ryan Nash: Hey, good morning, guys. So you guys have been able to buck the trend this quarter. Deposit costs are up just 1 basis point. Maybe just talk about expectation embedded in the 4Q NII guide and ahead. Anil, I know you mentioned they could lag a bit. But looking forward, just how do you think about balance in growing deposits to support the balance sheet and also continuing to maintain a peer leading margin? Maybe just a little bit of color on how you think about incremental funding from here. Thank you. And I have a follow-up.

Anil D. Chadha: Yeah. Thank you. So the most important thing to protect the margin is to make sure we continue to grow noninterest bearing deposits. And so that has been a key focus of ours. that is why we are making the investments we are across our retail network, across the small business platform. We are seeing great results so far this year. Small business, operating accounts are up over 100 basis points this year, and so continuing to do that. It is day to day fighting, but that is the key to success. The overall composition of our balance sheet is also what helps us having a relatively lower loan to deposit ratio. Is helpful.

Having a lower debt footprint is helpful. It allows us to continue to invest in profitable loan growth while being able to maintain deposit cost flexibility having the funding needed to fund that growth through time. So continuing to do that, being mindful of putting on good profitable loan growth, and continuing to execute growing noninterest bearing deposits is the key to maintaining that flex and that deposit advantage and the NIM advantage going forward.

John Turner Jr.: Ryan, I. I would just add, obviously not using rate as part of our deposit strategy to grow deposits, but we can. If we need to. We have about $16 billion in off balance sheet investment related deposits that customers are holding either in a, suite product, basically, or with our institutional trust department. So we know that money is can easily attract that back to the bank with higher rates.

Separately, on the consumer side, back in 2022, 2023, rates were rising, and we saw the because of a very active program that we initiated to grow deposits, we grew CDs by about $7 billion, money market deposits by 4, and we are able to do that at a deposit beta of about 44%. So when rates went up almost 500 basis points over that period of time. So we know we can grow deposits if we need to by using rate. We are actively following our customer activity, but it is not part of our strategy, obviously, currently.

Ryan Nash: Got it. Thanks, John. And, Anil, maybe for a follow-up, just given the move in rates, your capital levels fell below the 9.25% and 9.75% without factoring in Basel III, and I think TCE may have dipped a little below 7%. So maybe just talk about how you are planning on managing capital over the next few quarters given decent loan growth? Are you factoring Basel III now into expectations? And you know, what time frame would you expect to be back in that sort of targeted range that you guys have been focused on for a period of time here? Thank you.

Anil D. Chadha: Yeah. So importantly, under the current capital framework, our capital level is 10.8%. So very robust capital levels. To your point, if we wanted to pro form a for Basel III endgame, which we expect to see this year, that would take us to 10%, which is well above our 9.25% to 9.75% range. Also, we generate 50 basis points of capital every quarter. This quarter is a great example. It just really shows the organic capital generation that we have quarter to quarter. We will pay 20 basis points out in the dividend. Grow the balance sheet. And so we organically create capital as well.

Also when you think about the impact from AOCI given last quarter's rate moves, through time, we will see that AOCI burn down assuming flat rate and so that is capital that accretes back to our balance sheet through time. as well. And so we think we are well positioned given the organic capital we generate, given our overall capital position. To continue to make all the investments we want to make and when appropriate, buy back shares, through time as well. Got it.

Operator: Thank you. Our next question comes from the line of Scott Siefers with TD Cowen. Please proceed with your question.

Scott Siefers: Hey, Anil. I think you noted in your prepared remarks that loan demand picked up toward the end of the quarter, I believe. Hopefully, I am not putting words in your mouth. We have heard that from a couple of regionals. So I guess, question and follow ups. You know, what do you think is driving that? And then on the flip side, is there a point where you think higher rates mark. Might start to impact, demand a little more materially, I guess, on the negative side?

John Turner Jr.: Yeah. This is John. We have seen nice activity toward the end of the quarter, as you pointed out. Production was up year over year. About $4 billion. We saw a 60% increase in production. And, in addition to that, obviously, line utilization is up year over year. They were down a little. For the quarter, but customers are actively managing their balance sheets, investing in their business. And still have a positive point of view or positive view of the economy. And so we would expect that activity to continue. 1 place where we are seeing the impact of interest rates is in the investor real estate portfolio. We are seeing.

While we are seeing growth in multifamily as a result of previous commitments that are funding, the level of new activity is slowing because of rising cost and difficulty to make the economics of those transactions work. So that is a something we will look for in future quarters to have an impact on loan growth. But in general, business sentiment is still good. Alright. Thank you very much. I appreciate the color.

Operator: Thank you. Our next question comes from the line of Erika Najarian with UBS. Please proceed with your question.

Erika Najarian: Good morning. Good morning, Erika. Thank you. I noticed that slide that you usually have in terms of where your NIM is on with. Against the Fed funds background is not in the third quarter slide. So as we think about the rate curve and as you think about your confidence in, you know, NIB growth, optimization and beta. I am wondering how we should think about the path of the net interest margin from 73 exit as we contemplate 2 to 3 rate hikes. Over the next 12 months?

Anil D. Chadha: Yeah. And we removed that slide given that slide was really focused for the full year. And given we gave you the fourth quarter guide, we just did not feel that slide was as necessary. But I will address your question. will not go too far to give 2027 guidance, but we indicated we expect to exit the fourth quarter around the 73 margin. So when we look forward into 2027, some of the structural tailwinds that we have will continue into 2027 so fixed asset repricing will continue. We quoted that to be a 100 to 125 points in the fourth quarter. That will continue into the future at a lower rate.

As we go through time. it is still a benefit we expect the balance sheet to continue to grow into 2027. And so as long as we continue to generate good noninterest bearing deposits, maintain our deposit beta, in the mid to high 30s as rate increases. That will continue to support expansion in both net interest income and the margin in 2025. Very clear.

Erika Najarian: And just to follow-up on Ryan's question on capital, and congratulations by the way, on Anil becoming your new treasurer. he is great. You know, as we think about rates being higher for longer on the belly of the curve, Obviously, you bought back $95 million this quarter. How should we think about your priorities in terms of you know, buybacks versus protecting capital? And you mentioned TCE. I am wondering, Moody's has come out with tougher language for your larger bank peers. You know, Bank of America-- there is a release in Bank of America yesterday. You know, how much are they starting to assert themselves more, you know, in terms of the conversation about capital?

Anil D. Chadha: Yes. Our conversations about capital with the rating agencies have been positive. We have been very clear with how we think about regulatory capital, TCE, So our capital priorities are unchanged. We have strong capital generation. We are mindful of the interest rate environment. You know, it is it is just good to remind ourselves. Over the past 10 years, we have seen 11 quarters when the 10-year treasury has increased or decreased more than 50 basis points. And so we saw a big move this quarter, but we need to remind ourselves that large moves can happen. So it is 1 of the reasons why we are so active in making sure that our hedging program factors that in.

So you see on slide in our appendix the fair value hedges that we put on this quarter to protect capital in a potential rising rate environment. So we will continue to execute strategies like that to protect capital. But because of that and the capital generation that we have, we still think our capital priorities are unchanged. With respect to the TCE ratio, I have commented on this before, but yeah, the inclusion of cash flow hedges in that calculation, I think, is meaningful. You know, for us, that is the core of our franchise values, our deposit base. And so being able to maintain that duration and capitalize on that through time through revenue is important for us.

And so we will make sure that we make good risk management decisions around that. But the TCE ratio really only reflecting, you know, 1 side of that trade if you will, we think is a big disadvantage of that ratio. And so we think the changes to regulatory capital. Those make sense, and we will monitor TCE. But inclusion of cash flow hedges is 1 that I think I would not want to impact how we risk manage our balance sheet.

Operator: Does that complete your question? Yes. Thank you. Thank you. I will take Thank you. Okay. Our next question comes from the line. of Ebrahim Poonawala with Bank of America. Please proceed with your question.

Ebrahim Poonawala: Good morning, Ebrahim. Morning, John and Anil. How are you? Just to talk to us about. From a deposit growth standpoint, I think John, you shared some stats in your remarks, I believe, earlier. But as we think about deposit growth and bringing in new customers, what seems to be doing more to sort of deepen the relationship? And similarly on the consumer side, because all we hear is competitive dynamics, a lot of promotions from non sort of nonmarket banks in the Southeast. So if you do not mind sharing some color around how should we think about lower cost core deposit growth from here?

John Turner Jr.: Yeah. I mean, it is our focus. And our We have dedicated our consumer banking teams focus on acquiring new customer checking households and new small business checking households. Our commercial bankers are focused on winning new logos, new middle market business. And that really is our objective. We are using feet on the street to do that. By and large, and, we think we are in really great markets. We continue to recruit a lot of wonderful bankers. We are enabling them with a lot of really good technology that provides insights about customers and prospects, we are focused on execution. As a result of that, we are growing consumer checking accounts.

We are growing small business checking accounts, and that is really the core of the business. Right? So as we deepen those relationships through providing customers with debit cards, with credit cards, with equity lines of credit or mortgages. Investment products. On the other side, small businesses with treasury management, payment capabilities, and sometimes credit. Those are relationship deepening activities. We think we have talked about growth in treasury management, penetration rates up over 7%. Began to focus on helping customers manage the cash flow in their business, manage the cash in their business. And also take advantage of emerging new payments products that really help their businesses and help speed up cash flow as assets convert.

So I think our team's doing a really nice job, and we are seeing that in household growth and, feel good about what that will mean over time as those customers activate their accounts, use their cards, and do other things that result in more deposit balances coming to the bank.

Anil D. Chadha: And, Ebrahim, I will just add to that. You know, we really understand the nature of our deposit base not deposit customers. We are very proud of the 30 ish percent of our deposit base that is non interest bearing. But even that interest bearing portion, we understand the rate seeking behavior of that population. We are able to test into that population and grow deposits in a very targeted fashion. This is where being in some of the best growth markets in the country works to our advantage.

Because we can do very targeted opportunities and offers to grow deposits in that bucket that we have very well defined and add to our deposit base while still protecting noninterest bearing deposit base as John just alluded to.

John Turner Jr.: The other thing I would just make a point, we have grown our mass affluent customer base by about 8% year over year, and 85% of those customers come from our own customer base. So we are acquiring younger customers. We believe based upon information provided by industry sources at about 3x the rate that many of our peers are, we are converting those customers over time to be more mass affluent in nature. And as a result, their balances and their relationships grow. So a really important part of our strategy, and I think producing really good results.

Ebrahim Poonawala: that is an interesting stat on the younger customers. So thanks for sharing all that color. Quick question on. You did not mention AI. Mostly in terms of you have heard some of your peers talk about redirecting tech investment towards cyber risk because of AI. Just talk to us how big of a lift is that and just how all of that is informing your concern around cyber threats? I mean, not just to regions, but obviously the entire system.

Anil D. Chadha: Yeah. Yeah. Absolutely. So investing in cyber defense has always been something very critical for us and is even more heightened in today's environment. We are actively participating across many different industry consortiums to ensure that our cyber defense protocols are advancing as this technology involves. And to your point, it does involve meaningful expense, both new expense and redirect of existing associates, and that is embedded in our call space. We do expect that to continue through time. it is the new reality that we live in today. So we are definitely front and center with that.

Our CSO is actively involved with her counterparts across the industry, and we have a great team working to make sure that our customers can continue to have the trust in us that we know is incredibly valuable to them. So that is an important investment that we will constantly make to make sure that trust is maintained. We are able to monitor in terms of how AI is being used across different platforms so we can track activity and how it may impact our deposit base. We are seeing very low traffic through that We will continue to monitor that.

We have talked before about while we do not believe that is a meaningful threat to our deposit base, but we can monitor that as well. But to your point, it is an important investment, broadly speaking, that we need to make as a company and 1 that we will absolutely continue to do. that is helpful. Thank you.

Operator: Our next question comes from the line of Kenneth Usdin with Autonomous Research. Please proceed with your question.

Ken Usdin: 1 question on betas. You mentioned that you still expect that the cumulative betas and this upcycle to be in the mid to upper thirties. And last cycle, they were they were higher than that. And then just wondering just what the difference is and if it is what did you tell us about either the mix of deposits or the granularity of the deposit base that gives you that continued confidence that you can kind of keep it in that much better than pure range? Thanks.

Anil D. Chadha: Yeah. 1 point of differentiation is the magnitude of the change before. Think drove a higher beta But in terms of what gives us confidence is really it is that granularity of understanding the nature of our deposit base, so not just thinking about it quote unquote in aggregate, but understanding that we have a portion of our customer base that is 100% beta, and we understand and can back test to see how that changes through time. So by actively monitoring betas across different cohorts, if you will, of our deposit base, and tracking that and seeing the consistency of performance what really gives us confidence in our guide looking forward.

John Turner Jr.: I think too, Kenneth, just embedded in the numbers where some of the maybe some of the, data I shared about our growing deposits intentionally growing deposits, interest bearing deposits in 2022 and 2023. You might remember that was a period of time when banks were actively seeking deposit growth. there is a lot of pressure on deposits. And so, at that time, as I mentioned, we grew CDs by $7 billion and money market deposits by 4 billion. As a result, the deposit beta was higher at 44% as I recall.

Anil D. Chadha: Yeah. And to your remixing point, we have. As you would expect, as rates have moved higher, you know, our kinda starting point today does have some of that remixing already baked into it.

Ken Usdin: Okay. Got it. And just on the loan book, you know, I think we are just from here, is the loan book kind of just all moving to the same direction? Like, any. That you have kinda gotten past all those run off books, I believe. Yeah for the most part. And so is it kinda just, like, business as usual from here and just really depending on the environment and what you are facing in terms of the consumer and commercial sides of the business.

John Turner Jr.: Yes. And I think if you look at loan growth over the quarter, consumer loan growth has been a little bit of a headwind. And since a good bit of our consumer loan growth and consumer loan balances are in the mortgage portfolio, should not expect to see a lot of growth in consumer loans if any growth over the next quarter, 2, 3, depending upon where rates are. On the other side, our wholesale business grew significantly. If you look at h 8 data, we grew a little faster than the h 8 data in the, corporate banking business. So we feel good about the path of loan growth from here.

And to your point, it should be business as usual, absent the impact on the consumer business from rates.

Anil D. Chadha: And I will just point, in the quarter, we saw really nice growth in IRE as well, up about 2.4%, as you look towards where rates may go in the future, that will be a kind of a governor as to how much growth we see there in terms of what may go to the capital markets if rates level out a little bit. But to John's point, we are really proud of the growth that we are seeing. And when you break it down portfolio by portfolio, we think the comparison to H.8 data is kind of reaffirming our belief that we are growing as our markets grow. Understood. Thank you.

Operator: Our next question comes from the line of John Pancari with Evercore ISI. Please proceed with your question.

Analyst: On the on the security side, I know you had mentioned that your-- you will continue to review actions to manage your interest rate sensitivity. I know you further repositioned securities book this quarter. $845 million or so. Can you just talk to us about potential further actions there to adjust your rate sensitivity via the securities book and other actions that you are taking as part of that expectation to manage rates?

Anil D. Chadha: Yeah. So we are gonna maintain the discipline that you seen from us in terms of looking at the return profile of those transactions since about $850 million that we executed this quarter that $15 million loss had about a 2-year payback on that. And so we have been we have been consistent with thinking about that from a payback of less than 3 years, and we will do that through time. As rates move around, we are constantly evaluating any opportunities and as securities pull to. Pull closer to maturity, the law of liquidity benefit also provides opportunity there.

Would not expect to see too much, given what we are seeing right now, but given our history, you should expect us to continue to manage that Regarding the overall securities portfolio, we feel good about the size and composition. Of where it sits right now. We will continue to manage, the risk from interest rates, as I before, through continuing to use fair value, swaps on securities. To make sure that we are monitoring capital risk. And then we feel good about our mix of HTM right now at about 16%. We will monitor that through time. But all in all, feel like we are well positioned in this rate environment.

Analyst: Okay. Great. Thanks. And then separately on the credit side, credit trends were particularly solid and improved bit this quarter. Just given the moving rates and inflationary concerns and macro volatility out there, any signs of erosion that you are seeing, early signs worth flagging? And is it-- you know, I know you are ACL ratio bumped down a little bit this quarter. Is it fair to assume that likely stable from here just given the backdrop? Or do you think you are probably gonna see that compress incrementally? Thanks.

John Turner Jr.: Yeah. No, we think stable from here, John, based on what we know. We think the net charge off range based on the composition of our portfolio is somewhere between 40 and 50 basis points We are still working on a few large credits that we had identified as problems in those portfolios of interest. How and when they get resolved, will impact results and could increase charge offs modestly in a given quarter. But for the year, we would expect charge offs within the 40 to 50 basis point range and likely at the low end of that range. And, and we think we see stability from here forward.

Little weakness in the multifamily business primarily in Texas as just as a geography, some softness in absorption rates, but otherwise. And we continue to watch office and given the things that are still impacting those portfolios, but they have improved. And, obviously, as we are-- you see that in our results, and we would expect, as I said, stability from here.

Anil D. Chadha: Yeah. And I would just point you maybe to 3 things as you think about the allowance from here. And John mentioned there is a couple credits that we are still monitoring. They are fully reserved for So if they charge off over time, you should expect us to reduce the allowance by like amount. Continue to look at the economic environment. You know, clearly, that is something that is that is could be variable. So we will keep an eye on that. And then also just as importantly is the origination profile. We have talked a lot about investment grade credits and so just mathematically, that should continue into the future.

Do not need to hold as much reserves against those given the better credit risk. So that could play out just in terms of the mass as the ratio moves from here. Great. Thank you so much. Yep.

Operator: Our next question comes from the line of David Chiaverini with Jefferies. Please proceed with your question.

David Chiaverini: For taking the question. I wanted to ask about capital markets. And the outlook. You are guiding 90 million to 105 million I was curious as to your expectation in terms of with the higher rate backdrop, the extent to which this could impact your customers. Are you seeing any impact at all thus far?

John Turner Jr.: Well, it has had an impact on the business over the last call it, 12 to 18 months. So we did have a good quarter. In the third quarter across all components of our capital markets business, including the real estate business. We have a couple transactions that actually could go to the secondary market and on the verge depending on what happens with rates over the next few weeks. And, so we are guiding to 90 to a 105, and we think that is a solid range. If those transactions work, maybe it is on the upper end of that range. But today, we would say somewhere between 90 and a 105 is where we are in the quarter.

David Chiaverini: Got it. And then on the expense side and the, you know, the pod. The cloud based deposit platform. Remind us, is there any change in timing in terms of when you expect that to be completed? And then can you refresh us on, your latest thoughts on the M&A, front?

John Turner Jr.: Sure. On the deposit system platform, we will begin to pilot of associates, friends, and family, so to speak, in the next week or 2. And assuming that goes well, we will start a larger pilot in the first quarter of 27, and our intention is to convert customers over time in 2027 completing sometime toward the end of the second quarter into the third quarter of 27. And, and all that is on track at the moment. In terms of M&A, our in our position is unchanged. We said we are not interested in depository M&A. We have a really good plan, and we continue to execute our plan. We can deliver top quartile, top decile results.

Based on return on tangible common equity as a primary metric. And we think that is still very achievable We have this project going on. It is consuming everyone's attention internally. Likely the largest technology project we have done. We are effectively converting ourselves. So we need to get through that project before we think about M&A. And I would say that when we get through it, you know, we will have a lot of the conversation about our interest. But today, because I think we will have some capabilities that will position us well if we wanted to participate. But today, we are not candidate to participate in depository M&A. Very helpful. Thank you.

Operator: Thank you. Our next question comes from the line of Matthew O'Connor with Deutsche Bank. Please proceed with your question.

Matt O'Connor: Good morning, Matthew. Good morning. Good morning. I was just hoping you could talk about the wealth fees Sorry if I missed it earlier, but they were down a little bit QQ. Up to 5% year-over-year. Obviously, like equities have been strong, but remind us kind of how impacted they are by equity levels versus fixed income and maybe just versus other things that might be in like annuity sales or just some of moving pieces? Thanks.

Anil D. Chadha: Yes. So I would break the drivers into 2 buckets. First, to your point is just portfolio composition. And so looking at both equities and bonds, I would say drives around 40% to 50% of the overall performance of the business. But most importantly, production within our financial advisers is what drives the growth as well. And so this is the place where we have really been committed to investing This business has done very well for us. You have seen us post record quarters and prior quarters. This quarter, we ticked down just a little bit. Still seeing good production and expect that to return.

But as you think about the drivers of revenue, I would break it into those buckets.

Matt O'Connor: Okay. that is helpful. Thank you.

John Turner Jr.: And, see, I would make the point just, we will end. Likely end the year with a record year in Wealth Management. So, while we had a little softness in the quarter, relatively speaking, it is gonna be a really good year for wealth management. We would expect that trend to continue.

Matt O'Connor: Okay. that is helpful. Thanks. that is it for me.

Operator: Okay. Thank you. Our next question comes from the line of Ryan Kenny with Morgan Stanley.

Analyst: Good morning. Hey, good morning. Thanks for taking my questions. So just following up on the conversation around the core deposit system conversion that is been in the works for a few years now. And just wondering if you could give an update on the timing. And do the capabilities that you are launching need to evolve given that you now are facing the rise of AI tools and real time payments, And which specific capabilities do you think will most be able to help you enhance your customer product set?

John Turner Jr.: Yeah. So, we are on schedule to deliver the platform in 2027. It is a mentioned earlier, we will start a pilot in the next week or 2. And that pilot will gravitate to a much larger set of customers after the first of the year. And we will convert customers in waves over the course of the year likely completing that toward the end of the second quarter or sometime early in the third quarter based on what we know today. The platform will be a contemporary platform. We think this gives us a lot of capabilities that we do not have today. it is a real time system.

And, and we think that will be an advantage that we have and something we can bring to our customers. Will also allow us to bring products, pricing mechanisms to customers that we do not have today. We think we do. We will be able to do that much more quickly. And so we are excited about the capabilities with respect to artificial intelligence, again, we think the system is 1 component, of a transformation of our business as we think about how do we make it easier for our bankers and our customers to do business?

How do we transform our client onboarding experience, sales enablement, problem resolution, The new system in combination with artificial intelligence, and process improvement driven by bankers, that know and understand our processes are things that we think will give us a real competitive advantage once the system's in place and we can begin to combine technology with process improvement and quality bankers.

Analyst: And then separately on consumer deposits, So it seems like you are not seeing much of an impact from AI agents on consumer checking balances. But are you seeing any impact from inflation driving lower balances? Yeah.

Anil D. Chadha: No. it is something we monitor, very clearly. I just remind you of a couple metrics. So our average, customer deposit account balance is right at $5.2 thousand. that is a similar number to what I have shared with you before. And the median is still right around $900. And so we have not seen a meaningful shift in that. We talked earlier this year about the benefit of taxes and how that. The buffer for higher. Higher cost across the board. But really are not seeing much movement. We track energy cost. And so year over year, the impact of our gasoline prices on our customers is about $24 a month.

And so our customers are very resilient, and we see that in their deposit balance. Thank you.

Operator: Thank you. Our next question comes from the line of Christopher Spahr with Wells Fargo.

Christopher Spahr: Good morning. Good morning. Yes. Hi. Hi, good morning. Thanks for taking my questions. First is just a little clarification. So the comments on the higher tech spend in the quarter, is that tied at all to the transformation or the systems upgrade?

Anil D. Chadha: that is that is just investment in cyber security. So think about Frontier AI, and investments that we are making to ensure we have a trust platform for our customers. And some of that is just a redirectment of existing spend. Some marginal spend as well, but all that is in the numbers for the quarter.

Christopher Spahr: And then was there. Was it with. Once you get so towards the second half of next year, will there be any kind of relief on the expense side or a head count with the. When you are finally done with the deposit conversion?

Anil D. Chadha: So I think a couple of things. 1, we will move on to a new general ledger platform as well. And so there will be continued investments in tech spend. I will not give you too much guidance into 2027, but we think technology investment is something that we will continue to do. There are ample projects that we think can enable our business investment, as we compete in markets that in today. And so we are very focused on a couple key projects today. But when we bring those online, there are plenty of other projects that we think technology can bring to bear to help our bankers support our customers day in and day out.

And we have some great business cases that we will be executing upon in years to come. So will not go too far in terms of headcount going forward. But I think we should see this continuing to invest to invest in capabilities that will enable our bank to serve our customers.

Christopher Spahr: Okay. I guess what I am getting out to is I believe in the past, you have talked about total tech spend being a little elevated above your, what, 10% to 11% range of revenues, if I recall. Right? Yeah and if that. Will that continue? Beyond the second half? And into 2028?

John Turner Jr.: I think it will continue for a couple of years. It will start to come down as revenue starts to grow. Thank you.

Operator: Our next question comes from the line of Chris McGrattyGratty with KBW. Please proceed with your question.

Chris McGratty: Hello, Christopher. Good morning. Good morning. Maybe asking the expense putting the deposit conversation and the tech spend together. It feels like there is a path to continued operating leverage beyond 2026. Any pushback to that observation?

Anil D. Chadha: Generating positive operating leverage through time is a commitment of ours. When you have significant investments like we have right now, the timing of them, as you can imagine, when you start depreciating capital spend and bringing on SaaS related expenses, is important just in terms of the math. And so, you know, the timing of all that will impact positive operating leverage. We are still committed to delivering it. But as we get closer to giving guidance for 2027, we will clarify that. But the underlying core of our business, the revenue we generate, the expense discipline is unchanged. When we have significant projects like this, there becomes a bit of a math exercise that we can go through.

But the core of our business our core strategy is unchanged. And as we get closer to 27, we will update you on our guidance.

John Turner Jr.: Christopher, we are committed to delivering positive operating leverage. Great.

Anil D. Chadha: Yep. that is right.

Chris McGratty: Okay. And then John, the follow-up would be, Anil's not ready for depositories. But I guess when that day potentially comes, can you just I know it is been a while, but what would the. What was kind of the ideal wave of your wand situation be? Any parameters or guidepost would be great. Thanks.

John Turner Jr.: I am sorry. I missed the first part of the question. I missed your transaction. Oh, for a transaction. M&A. Yeah. Yeah. Yeah. Okay. Got it. I am sorry. So, you know, I think as we think about depository M&A, if we were interested we probably will be those focused on creating more density in markets that we are in. Had a lot of really great markets, and I think we had an opportunity to again, create more density, build a stronger business, in some of the markets we are in where we are not as present. That would certainly be a consideration. I mean, in the end, we have a very good, obviously, low cost deposit base.

Very loyal customer base. And I think any acquisition that we might consider if we were interested in depository M&A would have to be 1 that was complementary Certainly not gonna be the same as but would be complementary to the customer base that we currently have and the deposit base we have. That would be my primary focus. Got it. Thank you very much. Yep.

Operator: Thank you. This concludes our question and answer session. I would now like to turn the call back over to John Turner for closing comments.

John Turner Jr.: Okay. Well, thank you very much. Again, we are awfully proud of our quarter and the consistent performance we continue to deliver. Appreciate your interest in our company and participating today, and hope you have a great weekend.

Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time.

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