加载中...
共找到 25,489 条相关资讯
The troubles at two regional banks that helped drive Thursday's stock market pullback could have been idiosyncratic, but one thing is clear: Just in case, Wall Street is now on alert for systemic credit risk. CNBC's Leslie Picker explains.
Tim Quast, ModernIR founder, president and CEO, joins 'Power Lunch' to discuss the clues that lead to how stocks could trade going forward.
Operator: Good morning. My name is Megan, and I will be your conference operator today. I would like to welcome everyone to the Third Quarter Slb N.V. Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a Q&A session. As a reminder, this call is being recorded. I will now turn the call over to James McDonald, Senior Vice President of Investor Relations and Industry Affairs. Please go ahead. James McDonald: Good morning, and welcome to the Slb N.V. third quarter 2025 Earnings Conference Call. Today's call is being hosted from Houston following our Board meeting held earlier this week. Joining us on the call are Olivier Le Peuch, Chief Executive Officer, and Stephane Biguet, Chief Financial Officer. Before we begin, I would like to remind all participants that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. For more information, please refer to our latest 10-K filing and other SEC filings which can be found on our website. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our third quarter earnings press release which is on our website. With that, I will turn the call over to Olivier. Olivier Le Peuch: Thank you, James. Ladies and gentlemen, thank you for joining us on the call. I will begin today by discussing our third quarter performance, then I will describe the near-term outlook for Oil and Gas markets. Finally, I will share our guidance for the fourth quarter. Stephane will then provide more details on our financial results and the structure of our new digital division. After that, we will open the line for your questions. Let's begin. Our fourth quarter unfolded in line with expectations. We achieved sequential revenue growth driven by the addition of two months of activity from Champagnex, our digital business, and the resilient performance of our core. In the International Markets, revenue rose 1% sequentially, with notable increases in several countries across The Middle East and Asia. Across this region, sequential growth was seen in Iraq, United Arab Emirates, Oman, Egypt, China, East Asia, Indonesia, Australia, and India. Alongside broader improvements in offshore activity across Vienna, Sub-Saharan Africa, and Scandinavia. Meanwhile, revenue in North America grew 17% sequentially. This was driven mainly by the contribution of Champagnex, followed by higher offshore activity, which more than offset a decline in U.S. Land activity as U.S. Shale operators focused on further efficiency gains and cash preservation during the quarter. We also experienced strong growth in our Data Center Solution business, extending our reach with hyperscalers to a new market for Slb N.V. This quarter marks the first time we have disclosed our data center revenue, which has more than doubled year on year. Looking ahead, we foresee expansion beyond The U.S. along with the onboarding of new customers. Next, let me discuss the performance of our divisions. I will begin with Digital, as this is the first quarter we are reporting Digital as a standalone division. As you have seen in our release this morning, our digital business is comprised of four categories where Slb N.V. offers solutions that help unlock productivity for geoscientists and engineers, drive step change in efficiency and safety in operations, and help our customers in delivering better wells and higher producing assets. These solutions are embedded in platform and applications, digital operations, Digital Exploration, and Professional Services. Each of which Stephane will describe in more detail a little later in this morning's call. Specific to the third quarter, digital revenue increased 11% sequentially. This was driven by a 39% increase in digital operations, enabling digital services and automation capabilities augmenting our offering from our core divisions. Of note, automated drilling footage increased by more than 50% year on year. This was also supported by the addition of new connected assets from Champagnex. Following the integration, we now have a combined total of more than 20,000 connected assets deployed in the field, providing additional digital insights and optimization for our customers. One of the reasons digital operation is such an exciting area of growth is because it presents the opportunity to enhance every service and piece of equipment that we deliver. By embedding digital capabilities, we enhance performance and unlock the power of autonomous operations, creating an adjacent and fast-growing digital market that strengthens our core offering. In the earnings release published this morning, you would have seen a broad range of examples of platform and application being adopted by customers across all basins, customer types, and life cycles. These examples demonstrate the global reach of our digital brand, the impact of our platform strategy, and the emergence of AI as a transformative force in our industry. This quarter, for example, we secured key contracts awarded to our OptiSite production suite, which enables customers to process comprehensive data streams through cloud-based applications to drive productivity and efficiency across assets and facilities in the field. We also announced a collaboration with AIQ to deploy its Energi, AgenTeq AI solution for ADNOC, powered by Slb N.V. Lumi data and AI platform. These are meaningful milestones that speak to the momentum behind our digital business, and you can expect to hear more announcements in the weeks ahead that further demonstrate the impact and scale of these solutions. Turning to the financial performance of this business, we expect our digital revenue to continue growing at a rate that visibly outperforms global upstream spending and that exceeds the growth rate of our core business by double digits. At the same time, we expect Digital to continue delivering highly accretive margins to the company. In the core, I was very pleased with the resilient performance of this quarter, given the challenging macro environment. Excluding the impact of the Champagnex contribution, the core divisions of Reservoir Performance, Well Construction, and Production Systems were essentially flat sequentially. This demonstrates how our global footprint and broad portfolio help us to navigate regional uncertainties and offset localized headwinds. Specific to our Production Systems division, already benefiting from the addition of Champagnex, which delivered revenue growth and margin contribution ahead of expectations. We are very pleased with the integration so far, and in addition to the strong delivery of the team, we continue to receive positive feedback from our customers. For example, we recently delivered a combined ESP string using a Champagnex pump with an Slb N.V. induction motor for a main operator in the Panama Basin. By bringing together these two best-in-class technologies, we improved performance for unconventional wells and enabled faster installation, reducing downtime and strengthening project economics for our customer. And in The Middle East, we have received several contract awards for Artificial Lift, well testing, and production chemical technologies that leverage the combination of Slb N.V. and Champagnex solutions and engineering capabilities. Moving forward, in the context of tighter industry economics and mounting pressure from production declines, our customers are placing greater emphasis on production recovery solutions to unlock additional barrels at the lowest possible cost with maximum capital efficiency. This presents an exciting growth opportunity for companies who can offer solutions and technology to optimize production and maximize recovery from maturing assets. And technology will be the key. This is where Slb N.V. has a distinct advantage and why we have made production recovery a strategic focus for our business. By combining our deep subsurface expertise, the industry's broadest lift, intervention, and chemical technology portfolio with unique integration and digital capabilities, we offer a differentiated value proposition to our customers. This offering now includes Champagnex, which brings unique technical capabilities and a strong track record of customer success, from production chemicals to artificial lift, enhanced with digital capabilities. And we continue to develop our portfolio with strategic investments, including our recent acquisitions of Resman Energy Technology and Stimline Digital. Altogether, our production recovery offering adds another level of growth to our business, with combined exposure to CapEx and OpEx spend, complementing our leadership in upstream exploration and development. Now turning back to our quarterly results, and considering the market conditions we faced during the past few months, I am pleased with our performance. We achieved resilient results across the core divisions, delivering early success with Champagnex and continuing the momentum in digital. And there are several bright spots on the horizon. Thank you to the entire Slb N.V. team, including our new colleagues from Champagnex, for your excellent contribution this quarter. Next, I will discuss the ongoing macro environment and the near-term outlook for oil and gas markets. In an environment with increasingly challenging commodity prices and uncertainty on demand-supply balance, the industry has so far proven disciplined, and most long-cycle and international activity is demonstrating resilience. It is difficult to predict the exact outcome of further production increases and ongoing geopolitical developments, but the fundamentals for oil and gas remain constructive. Global inventories still reside at multi-year lows, and the need to offset natural production decline accounts for nearly 90% of annual upstream investment. These dynamics create a supportive environment for sustainable investment in the near to mid-term, barring a dramatic shift in commodity prices. Against this backdrop, with the exception of a few well-known markets where activity has recessed, global activity has stabilized with many locations still on the rise. To touch on international markets, many countries remain poised for investment growth tied to long-term capacity expansion plans and assurance of energy supply, particularly for gas. Notably, while OPEC+ production releases are currently being filled using capacity behind the pipes, additional releases will eventually require new infill drilling or new development to meet the higher supply output from these countries. This presents a positive catalyst for activity in member countries and reinforces the potential for higher activity in 2026. Specific to deepwater markets, the pipeline remains very healthy with favorable economics. We expect further investments in countries across the Atlantic, supported by oil, and in Asia driven by gas. And while short-term scheduling uncertainties have resulted in white space, partly in Sub-Saharan Africa, we expect this to progressively disappear as there are a number of FIDs planned for 2026 and early 2027. Meanwhile, in North America, operators continue to prioritize production maintenance as a result of commodity prices, underpinned by efficiency improvements leading to muted activity in the near to mid-term. In this context, considering the current industry dynamics and commodity price environment, we believe the conditions are set for when the supply-demand rebalances for the international markets to lead future activity rebound, and Slb N.V. is well-positioned to benefit from such an event. Now that we have discussed the market conditions, let me describe how we see the fourth quarter unfolding for our business. We expect that we will achieve a sequential step-up in results in the fourth quarter with high single-digit top-line growth. As we report a full quarter of Champagnex and generate seasonally higher year-end digital and product sales. With the third quarter results behind us, we are now in a position to confirm that second-half revenue will be within the midpoint of our previous guidance range of $18.2 billion to $18.8 billion. We also expect the fourth quarter adjusted EBITDA margin to expand 50 bps to 150 bps sequentially. This will be driven primarily by increased earnings contribution from both digital and Production Systems, including a full quarter of Champagnex results and fully restored operation on our IPS ECOLA assets. Specific to the digital business, we expect a significant increase in the fourth quarter on seasonally higher sales across the portfolio. As a result, we believe our digital division will be able to achieve double-digit growth year on year with EBITDA margin reaching 35% on a full-year basis. Overall, Slb N.V. continues to demonstrate resilience in navigating the challenging market environment. Our strength in digital, coupled with our growing presence in the production recovery space, will expand our leadership in the sector and help us drive positive outcomes for our customers. I will now turn the call over to Stephane to discuss our financial results in more detail. Stephane Biguet: Thank you, Olivier, and good morning, ladies and gentlemen. Third quarter earnings per share excluding charges and credits was $0.69. This represents a decrease of $0.05 sequentially and $0.20 when compared to the first quarter of last year. We recorded $0.19 of charges during the first quarter. This includes $0.12 of merger and integration charges largely related to the Champagnex acquisition that we closed during the quarter, as well as approximately $0.04 related to workforce reductions and $0.03 related to the impairment of an equity method investment. Overall, our third quarter revenue of $8.9 billion increased $382 million or 4% sequentially. I recognize that there are a lot of moving pieces this quarter, so let me bridge our Q3 revenue to Q2 at a high level. $579 million of the sequential revenue increase comes from the two months of activity we recorded this quarter from the acquired Champagnex businesses. This increase was partially offset by the loss of approximately $100 million of APS revenue due to production interruptions arising from a pipeline disruption in Ecuador and the absence of approximately another $100 million of revenue following the divestiture of our interest in the Palliser ATS Project in Canada at the end of the second quarter. In other words, after considering the revenue contribution from Champagnex and the impact of the lower APS revenue due to the two factors I just mentioned, revenue was essentially flat on a sequential basis. Our pretax segment operating margin declined 32 basis points sequentially to 18.2%. The impact of the two months of Champagnex was accretive to these margins as Champagnex contributed $579 million of revenue and $108 million of pretax income in the quarter. Company-wide adjusted EBITDA margin for the quarter was 23.1%, representing a sequential decrease of 92 basis points. The effect of the pipeline disruption in Ecuador negatively impacted our EBITDA margin by approximately 60 basis points. In addition, the divestiture of our interest in the Palliser project resulted in a further 30 basis points reduction. I will now go through the quarterly results for each division. Let me begin by sharing more detail about our new digital reporting structure. As Olivier described earlier, digital is a fast-growing business, and Slb N.V. is at the forefront of this industry transformation. We expect our digital business to grow faster than our core business for the foreseeable future with margins visibly accretive to the rest of the company. As such, our intent is to increase transparency around our digital business and better highlight its strategic value. To do this, we are now reporting digital as a standalone division. At the same time, our APS business is now being reported in the All Other category, together with our Data Center Solutions and Slb N.V. Capturing businesses. To provide you with better insight into these changes, as well as the impact of Champagnex, we have included supplemental pro forma financial information going back to 2024 as an exhibit to the Form 8-K we filed this morning for our earnings press release. Getting back to digital, revenue is captured and will be reported across four categories where Slb N.V. offers solutions for our customers: Platforms and Applications, Digital Operations, Digital Exploration, and Professional Services. Let me briefly describe each of these categories. Additional details can be found in question 11 to the FAQs at the back of our earnings release. The first category, Platforms and Applications, includes Slb N.V.'s cloud technologies, such as the Delphi and Lumi platforms, along with a suite of specialized domain-focused applications such as Petrel and Techlog, offered as SaaS subscriptions or perpetual licenses. These platforms and applications automate complex models, unlock data, and utilize AI and machine learning to reduce cycle time and improve the efficiency of workflows. This allows our clients to make better, faster decisions to improve their project economics and reservoir performance. With the exception of one-off license sales, revenue in this category is recurring in nature, underpinned by a globally installed software base built over four decades, and complemented by growing adoption of cloud-based capabilities and IoT-enabled solutions. As a result, Platforms and Applications has high retention rates and very limited churn. As illustrated by the fact that the net revenue retention rate was 103% at the end of the third quarter. This represents the percentage of recurring revenue retained from our existing customer base over the last trailing twelve months relative to the prior trailing twelve months. The second category is Digital Operations, which combines the unique strength of Slb N.V.'s core Oilfield Services and products with advanced digital technologies to deliver more reliable and more efficient field operations. By integrating connected solutions with performance live digital service delivery centers, customers gain real-time monitoring, remote decision-making, and automated execution across their workflows from autonomous drilling to automated well intervention. Revenue in this category is generated from the same client base as our core divisions and is therefore repeatable. Additionally, a portion of the revenue is recurring in nature. To incentivize the three core divisions, Well Construction, Reservoir Performance, and Production Systems, and digital to develop and promote this offering, the resulting revenue is recognized in both the respective core division as well as in the Digital division. This revenue is then eliminated in consolidation. The third category is Digital Exploration. Digital Exploration represents our Exploration Data business. Our differentiated library of site surveys and other subsurface data covers key exploration and producing basins worldwide. These licensed data sets are refreshed and reprocessed to benefit from the latest imaging algorithms and AI technologies enabled by high-performance cloud computing. Revenues are generated from one-time non-transferable license sales and are therefore non-recurring in nature. Professional Services makes up the fourth revenue category. This includes consulting and other services required to support our clients' digital transformations. These services include transition support from on-prem to cloud-based digital solutions, data cleanup and migration, and workflow automation, including deployment of solutions built using our global network of innovation factories. Professional services revenue is largely project-based, and repetitive engagements with the same customers are common. These services generate pull-through opportunities across the overall digital revenue streams. In addition to reporting revenue across each of these categories, we will also share annual recurring revenue or ARR on a quarterly basis. ARR represents the annual value of recurring subscription and maintenance revenue from platforms and applications along with the recurring portion of digital operations, providing a measure of predictable revenue over the next twelve months. Now that I have described our digital reporting structure in more detail, I will walk through our first quarter digital results. First quarter digital revenue of $658 million increased 11% sequentially, and adjusted EBITDA was $215 million, reflecting a margin of 32.7%, up 123 basis points sequentially. Third quarter sequential revenue growth was driven by robust sales of Digital Exploration, coupled with increased digital operations. It also reflects two months of activity from Champagnex, which contributed digital revenue of $20 million. Annual recurring revenue stood at $926 million at the end of Q3, representing year-on-year growth of 7%, highlighting our ability to continuously expand our offerings in platforms and applications and digital operations, as well as secure new customers. Turning to the core divisions, Reservoir Performance revenue of $1.7 billion declined 1% sequentially as higher activity in Europe and Africa was more than offset by lower revenue in The Middle East and Asia, primarily in Saudi Arabia. Pretax operating margin of 18.5% was essentially flat sequentially. Well Construction revenue of $3 billion was flat sequentially as higher revenue in offshore Vienna and North America were offset by lower drilling activity in Saudi Arabia and Argentina. Margins of 18.8% were essentially flat sequentially. Production Systems reported revenue of $3.5 billion increased $542 million or 18% sequentially. This reflects two months of activity from the acquired Champagnex Production Chemicals and Artificial Lift businesses, which contributed $575 million of revenue. Pretax operating margin of 16.1% declined 66 basis points sequentially, driven by an unfavorable geographic mix in completions and lower subsea margins. This decline was partially offset by the accretive margin contribution from Champagnex. On a pro forma basis, Production Systems revenue of $3.8 billion was flat sequentially, with lower completion sales offset by increased sales of valves and production chemicals. While it is still early days, we are quite pleased with the performance of Champagnex, which recorded another quarter of year-on-year revenue and margin growth, demonstrating the resilient nature of this production OpEx-based business. Going forward, these results will be further enhanced by the $400 million of annual pretax synergies that we expect to generate within the first three years after closing. We remain confident that we will be able to realize 70% to 80% of the synergies within the first twenty-four months of the transaction. As a result, we expect the transaction will be accretive to both margins and earnings per share on a full-year basis in 2026. Now turning to our liquidity. During the quarter, we generated $1.7 billion of cash flow from operations and $1.1 billion of free cash flow. These amounts include the payment of $153 million of acquisition-related items during the quarter. Capital investments, inclusive of CapEx and investments in APS projects and exploration data, were $581 million in the quarter. For the full year, we still expect capital investments, including the impact of Champagnex, to be approximately $2.4 billion. We expect that following our historical patterns, free cash flow will increase in the fourth quarter on the back of lower inventory as a result of year-end product sales as well as higher customer collections. The extent of the sequential step-up in free cash flow will largely depend on cash collections in certain countries. Finally, we repurchased $114 million of our stock during the quarter, which brings our total stock repurchases to $2.4 billion on a year-to-date basis. When combined with our $1.6 billion dividend commitment for the year, this will result in us returning a total of $4 billion to our shareholders for the full year. I will now turn the call back to Olivier. Olivier Le Peuch: Thank you, Stephane. Megan, I think we are ready to open the floor for questions. Operator: We will now begin the Q&A session. If you would like to ask a question, please press *1 on your telephone keypad. Your first question comes from the line of David Anderson with Barclays. David, your line is open. David Anderson: Hi, good morning. The IEA put out a report highlighting the increased global decline rates and the need to spend capital just to offset these barrels each year. Now that you have Champagnex in the fold, and you have created what looks to be the largest production-focused business and services, we think about chemicals, lifts, subsea, something like 40% to 45% of your revenue. Can you talk about how you see this part of your business growing? It's a little confusing when I think about your core business because this seems a little bit different. But how do you think about this part of your business growing, particularly with deepwater development ramping up? And I am just wondering, do you think the production should outpace the upstream-driven part of the portfolio through the end of the decade? Is that the right way to think about it in terms of the opportunity set? Olivier Le Peuch: I think the right way to think about it first is what the customer is looking for. And I think as you pointed out, it's clear that the natural decline that is weighing on the industry has to be offset not only by infill drilling and new developments, but there is increased recognition by the customer that production and recovery is a new theme that needs investment, technology, innovation, integration, and capability to lift and enhance production and hence recovery through technology and disruptive solutions that the industry needs. So we are positioning ourselves with this acquisition of Champagnex not only to address both the OpEx and the CapEx market as a larger market and hence as a larger share of the wallet of our customers, but also as a more resilient space as the OpEx has indeed been growing at a higher pace than CapEx lately and will continue to do so. But more importantly, I believe, is that we are able to unlock new solutions because we have the broadest portfolio with this addition. We have the broadest lift portfolio, the largest intervention portfolio in the market, and we have now science in chemistry and capability in the industry that not only touch the production from the wellhead to the process but also the reservoir. And I think when combining this with established integration capability of digital, I think we have something that the industry is looking for. And I think the customer feedback we are getting is actually extremely good because they are all increasingly focused on production recovery as a way to add to their production target. And it's an "and," not an "or." The end of upstream exploration development will be complemented by production recovery. It's a market that will expand long-term, and in this market, we believe we have a leadership position that we have established. David Anderson: And so shifting over to digital, thrilled to see all the breakout here. I have a million questions here. I am going to try to keep it to a handful of things just to focus on. Stephane, you talked about the four different segments here. I was wondering if you could kind of just talk a little bit about how we should be thinking about those four segments, how they should be trending, and what the drivers are for those four segments. I guess the exploration part, but kind of the rest of it. And then secondarily, you highlighted $900 million in recurring revenue year-to-date, up 7% from last year. I am just curious, are you expecting this to accelerate? Did you think it was going to grow more or less this year? And how should we think about that going forward? Stephane Biguet: Thanks for all the questions. Indeed, it's a lot of additional info. So the ARR above $900 million already, yes, it's growing, and we clearly anticipate this to continue growing as we not only offer more to our existing customers but also secure new customers. So probably going into Q4, we can be looking at probably high single-digit growth for ARR. And with the kind of number you see now, we are not too far, I believe, from getting into next year and getting to $1 billion of ARR, which really provides a very good baseline revenue. For the rest of your questions, I will pass it to Olivier. Olivier Le Peuch: Yes. No, thank you, Stephane. No, David, clearly, there are different dynamics for the four buckets. But I think if you have to look at the platform application, this is where customer adoption and expansion of our offering will give us the opportunity to continue on our journey to accompany our customers across the subsurface, across the production drilling, and across their data and AI capability. So the expansion of AI into that space, and you have seen several announcements during the earnings press release this morning showing that this will be a driving force for further growth. The deployment of clouds, both hybrid and public clouds, continuation of our platform transition that we have seen, and the continuing adoption of the capability we keep adding to our offering, the application we have seen. So this is all about customer adoption, technology transition from desktop to cloud to AI. So the digital portion is all driven by adoption for everywhere we touch, for every product and equipment we deliver, we will continue to add digital services, automation, and autonomous capability to complement this offering. So this would be added to the core. It's jointly to the core, but it's an exciting adjacent space to the core that we grow and fast faster-paced growth ahead of the core. You have seen this quarter, you have seen the year on year, and we are talking about 50% year on year growth. This is remarkable. The digital exploration is linked to the exploration market, but it's increasingly becoming digital because the customer recognizes they need to use more digital insights before they drill the first well. Hence, it will be linked, and it will be up and down, highly variable from quarter to quarter. But yet trending, in our opinion, positively. And Professional Services, I think, have to support the three buckets. And have the capability we put inside the customer office ahead of the on large engagements with consulting engagements or during the transition of that data space into our offering. This is what drives this. So it's different drivers, but altogether, we believe over time, this will all be positive, leading to each other to create sustainable growth going forward as we say outpacing CapEx spend. David Anderson: Appreciate the insight. Thank you. Olivier Le Peuch: Thank you. Thank you. Operator: Your next question goes to the line of James West with Moelis Research. James, your line is open. James West: Thanks. Morning, Olivier and Stephane. Olivier Le Peuch: Good morning, James. James West: So curious on two key markets here for you guys where you have a nice dominant position that I would love to get your thoughts on. First is deepwater. As we look out into 2026, obviously, it's been very resilient although some white space, but it looks like we are going to kick off a lot of campaigns next year. Just love to hear your thoughts on how we should think about that unfolding and Slb N.V.'s position? Olivier Le Peuch: No. First and foremost, I think deepwater remains here to stay and is here to grow as a market. It has several economics. And it is seen as a place to invest to unlock new resources. You see it's not only development FID, but it's also exploration. The border is going on and is steady and is growing. So now if we look at activity and the schedule of the rigs that we foresee going forward, actually, we are foreseeing that white space that developed in the last eighteen months is starting to dissipate. And we believe from a rig activity drilling activity, we may say that we are at the bottom this quarter in 2025. And we expect, although very gradual, we expect strengthening of the rig activity to support this both exploration and development FID coming in the pipeline. With a gradual strengthening and an uptick in the later part of the year that is currently scheduled and strengthening further in 2027. And we see it from the call from our customers to prepare the subsea pipeline that corresponds. We are happy with our Subsea position. We will be closing the year with growing both booking and backlog to be ahead of last year both and to place us to a position where Subsea should grow not in 2026, materially in 2027 as a consequence of this pipeline. So we are confident that it's on the horizon. And I think we will start to see the strengthening happening step by step. James West: Got it. Okay. That's great. Thanks for that Olivier. And then the other market, the Kingdom Of Saudi Arabia, has gone through some gyrations here in recent quarters, but it seems to me like at least that we may have found somewhat of a bottom and maybe looking to add activity next year. Is that consistent with what you are seeing in that market? I know it's a sizable market for yourself. Olivier Le Peuch: No, I would comment on the activity. I think it is our assessment indeed that we have reached a stabilized activity, if not bottom, in the current level of activity we see. And we are anticipating a likely rebound in the near to mid-term. And directionally, we are anticipating that we should expect increased activity in 2026 for both gas and oil for different drivers. Gas continues to support the expanded capacity commitment to 2030 and then commercial Jafurah and other assets in the country. And for oil, in relation to supporting the extra supply that is delivered to the market and assurance of supply through intervention and possibly to some additional oil drilling as well. James West: Great. Thanks, Olivier. Olivier Le Peuch: Thank you, James. Operator: Thank you, James. Your next question comes from the line of Scott Gruber with Citi Research. Scott, your line is open. Scott Gruber: Yes. Good morning. I want to ask about the data solutions business. Morning. The data center solutions business, it's growing pretty quickly here. Actually becoming really sizable. Can you talk about the strategy for the business? Is the aim here to develop a skill set and take it global, you know, as data center construction goes global? And overall, how do we think about the growth for the data center business in '26 and beyond? Olivier Le Peuch: Yes. I think it's early days, and we are very pleased with the market position we gained at a very fast pace. I think based on our first relationship and partnership with that hyperscaler gave us the opportunity to step into that market, building on our manufacturing and generating process technology and global supply and logistics that I think we have put to make it a reality. Now going forward, yes, the ambition is to expand beyond The U.S. footprint we have established. And we already have a pipeline of expansion here in Asia that has been agreed. And to also expand to more customers and diversify hyperscalers and collocators as we call them. To complement our offering. But yes, we will add technology. We will add the critical technology that makes it unique to go beyond the first step we have. So yes, we have an ambition to grow it. To expand customers, to expand geography. To broaden our offering. And remember, this is clearly not driven by oil and gas customers, it is driven by hyperscalers partners. That reach out to us to help them respond to this AI boom and data center growth that I think will last beyond this decade. Clearly. Scott Gruber: Got it. No, very interesting. It's a bit of a different business. Is it fair to assume that there's little CapEx and balance sheet commitment with the business? Or is there an investment needed to grow this business? Olivier Le Peuch: Absolutely. The investment is competencies that I think we have at scale in the organization. It's technology, creating a reputable scalable modular solution that differentiates us for fast deployment. But it's not CapEx, no. I think we are not this is a very very low CapEx intensity business. That we have set up here. Scott Gruber: Excellent. We will continue to watch. Thank you. Olivier Le Peuch: Thank you. Operator: Thank you, Scott. Your next question comes from the line of Josh Silverstein with UBS. Josh, your line is open. Josh Silverstein: Yes. Hi, everyone. Thanks for the new digital details here. Like the 7% growth in the annual recurring revenue. Is this growth predominantly coming from new customers or growing the new customer base, the existing customer base? Obviously, the 103% net retention rate shows how sticky the revenue is, but I am curious about if you need to keep adding customers to drive that growth going forward? Olivier Le Peuch: I think we already have 1,500 customers, and I think we have a lot to grow with each customer we have. But yes, we are adding new customers in every new space where we develop technology. I think the digital operation, I think, is a discovery for many customers, and we are doing it every day. The platform application, I think the new offering Lumi and Lumi Data and AI platform, I think, is being delivered fresh from launch last Q4 to new customers, and as adoption has been already more than 50 customers in less than a year. I think it's remarkable. So I think we are very proud of this. So it's a combination of enhancing the adoption within customers, developing enterprise solutions, and enhancing the consumption and delivering more to an existing customer set. And also expanding and broadening our customer access for part of the offering that we were more confined to a few customers in the past. So I think we are broadening our offering with more access across all our customers, and we are strengthening for existing large customers, and you have seen announcements in the last, and you will see more announcements coming soon on customer adoption, large customer adoption. That reflects our success with those customers. Josh Silverstein: Great. And then just as a follow-up, I wanted to go back on the EBITDA margin comments that you guys have made. You highlighted it was around 32% for the first nine months, but I think you said you expected to reach 35% for the full year, which implies a very large jump towards 45% in the fourth quarter. So I wanted to just make sure that was right and then where you think margins can kind of go to if we look at 2026 versus 2025? Olivier Le Peuch: Yes, yes. We I confirm we did say that we think we can reach 35% EBITDA margin for the full year. And yes, it's a step up for the fourth quarter. If you look at actually at the pro forma statements we provided for the we include the digital division by quarter, back to 2024. This variability and seasonality is quite common. Actually, we always start very low in the first quarter, and margins as well as revenue, by the way, grow quarter after quarter. So Q4 is always the best revenue quarter and is always the best EBITDA quarter as well. So we are pretty confident we can get there. If you look into the future, 35% EBITDA margin is a good baseline to start from basically. By the way, if I if I can add something we've not discussed before on the mass EBITDA margin, except for the digital exploration part of it, is a very good proxy for free cash flow. There's obviously no CapEx in the digital business, again, except for exploration data. Josh Silverstein: Great. Thanks, guys. Olivier Le Peuch: Thank you. Operator: Thank you, Josh. Your next question comes from the line of Arun Jayaram with JPMorgan. Arun, your line is open. Arun Jayaram: Yes, that was my question on kind of digital capital intensity of that segment. So I was just wondering about as you think about, you know, longer-term growth from that segment, I mean, you mentioned that you think that it could help outstrip the core business by double digits. Was wondering if you could maybe elaborate on that commentary on growth from digital. Olivier Le Peuch: I think there are two comments to it. One, as I said, is the adoption of our customers. Existing and new customers we developed in the last question. I think that the market expansion itself, digital is being seen as a critical mission-critical for many customers to transform the way they operate. To add productivity, to add efficiency to their geoscientist engineer and asset team. And I think this trend is here to stay. And we are leveraging our market leadership to leverage and to continue to grow our market position into that supporting our trend. But secondly, and I think more importantly or equally importantly, is our ability to continue to add digital operation capability digital growth, and hence this one will outperform the core because the principle we are setting here is essentially for every service we provide, for every well site we touch, for every equipment we deliver, we will progressively add building on our platform and connecting to our life performance center will add a set of digital services and enhance this offering that enhances the operation, the performance, and gets the customer to create more value. So this will ultimately and mechanically be going at a higher rate than the core because it will be the market penetration of digital into our core business. So you add this to the underlying trends of digital transformation with the earnings that we have witnessed in AI, I think you get the combination that gives us the confidence that we will clearly outperform the market growth of CapEx and outperform the core as a combination. Arun Jayaram: Great. One follow-up, Olivier. I wanted to see if you could elaborate on your commentary on what would happen in the recovery. Your commentary suggests that you expect that international would lead in a recovery. Historically, it's been North America. So I was wondering if you could maybe just elaborate on that thought. Behind that commentary. Olivier Le Peuch: Yes. I think we believe that tightened economics that we are under, and we believe we don't see them necessarily changing very much. We see them improving slightly as soon as the demand-supply rebalance. But under those conditions, I think we believe that the situation in North America is such that we don't anticipate significant gain of activity based on the efficiency. Practical based on, I would say, the challenging economics of some basins and also of the continuing consolidation happening in this market. By contrast, internationally, you have several trends that are here to stay. I think that deepwater has a very solid pipeline that drives international growth. You have gas and as a security of supply, that has led to capacity deployment, exploration capacity expansion, and non-commercial development internationally. And you still have the commitment to oil capacity expansion, if not the necessity to offset the decline in many international locations and aging basins that combine to make international, I would say, getting a better outlook and the first leg for the rebound as activity strengthens. Arun Jayaram: Great. Thank you.
Operator: Greetings, ladies and gentlemen, and welcome to the Truist Financial Corporation Third Quarter 2025 Earnings Conference Call. Currently, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this event is being recorded. It is now my pleasure to introduce your host, Mr. Brad Milsaps. Brad Milsaps: Thank you, Betsy, and good morning, everyone. Welcome to Truist Financial Corporation's Third Quarter 2025 Earnings Call. With us today are our Chairman and CEO, William Rogers Jr., our CFO, Mike Maguire, our Chief Risk Officer, Brad Bender, as well as other members of Truist's Senior Management Team. During this morning's call, they will discuss Truist Financial Corporation's third quarter results, share their perspectives on current business conditions, and provide an updated outlook for the remainder of 2025. The accompanying presentation, as well as our earnings release and supplemental financial information, are available on the Truist Investor Relations website, ir.truist.com. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on slides two and three of the presentation regarding these statements and measures, as well as the appendix for appropriate reconciliations to GAAP. With that, I'll turn it over to William. William Rogers Jr.: Thanks, Brad, and good morning, everybody, and thank you for joining our call today. Before we discuss our third quarter results, let's begin, as we always do at Truist, with purpose on slide four. At Truist, our purpose to inspire and build better lives in communities guides every decision. It's the foundation of our strategy and the reason our fantastic teammates show up every day with conviction and care. We believe purpose drives performance, which is why during the third quarter, we announced a strategic investment designed to accelerate our performance by building better lives, deepening relationships with existing clients, and attracting new clients in some of the strongest markets in the country. We're investing in our communities by building 100 new insight-driven branches in high-growth markets, renovating more than 300 locations, enhancing digital capabilities, elevating marketing, and hiring premier advisors to serve clients with more complex financial needs. These new branches are designed for smarter client engagement with advanced AI-driven technology and dedicated premier advisor spaces, all aimed at helping clients achieve financial success and further strengthening our presence in these dynamic communities. These investments are part of our overall strategy to improve our profitability, accelerate growth by deepening relationships, and delivering a more personalized, technology-enabled experience to new and existing clients, which I'll discuss throughout today's call. Now let's turn to our results on slide five. For the third quarter, we reported net income available to common shareholders of $1.3 billion, or $1.04 a share, which included $0.02 a share of restructuring charges primarily related to severance. At a high level, our strong performance in the third quarter reflects the diversity of our business model and the execution of many of our strategic growth and profitability initiatives that we've been discussing for the last several quarters. These initiatives include accelerating growth through the addition of new clients and deepening existing relationships in areas like payments, wealth, and premier banking. We're executing our plan while maintaining our expense and credit discipline and returning capital to shareholders. During the third quarter, average loan balances increased 2.5%, as we saw broad-based growth across our wholesale and consumer segments, driven by increased loan production and new client acquisition. Average deposit balances did decline late quarter due to two large M&A-related client deposits that were withdrawn in mid-July that we've discussed previously. Excluding the impact of these deposits, average client deposits increased during the quarter. Adjusted non-interest income increased 9.9% late quarter to more than $1.5 billion due to strong investment banking and trading income and strong wealth management income. The third quarter represented our best non-interest income quarter since the divestiture of TIH. Adjusted expenses remain well controlled and were up just 1% late quarter, which, along with a strong revenue performance, helped drive 270 basis points of late quarter positive operating leverage. We also maintained strong asset quality metrics as net charge-offs declined both on a late quarter and a year-over-year basis. Finally, we remain in a strong capital position, which allowed us to support our balance sheet growth and return capital to shareholders. During the quarter, we returned $1.2 billion of capital to shareholders through our common stock dividend and the repurchase of $500 million of our common stock. We plan to target approximately $750 million of share repurchases during the fourth quarter. In summary, our third quarter results were strong as the combination of improved revenue, discipline expense and credit management, and robust capital return drove 130 basis points sequential improvement in our ROTCE to 13.6%. We do still have a lot of work to do. Our recent performance and the momentum I see across the company every day give me confidence in our ability to reach a 15% ROTCE in 2027. I'll share more on how we plan to get there later in the call. Before I hand the call over to Mike to discuss our quarterly results, I want to spend some time discussing the progress we're making on our strategic priorities and the positive momentum we're seeing within our business segments and with our digital strategy on slide six. Let me first start with consumer and small business banking. I'm encouraged by another solid quarter of consumer loan and deposit growth, net new checking account growth, and progress with our premier banking clients as we deepened relationships and acquired key new clients and households through digital and traditional channels. Net new checking account growth remained positive in the third quarter, with over 20,000 new consumer and small business accounts added, a key metric that reflects both the strength of our brand and the long-term growth potential of our company. We're attracting younger clients with greater median incomes and higher average balances, which aligns directly with our strategy to build enduring, profitable relationships early in the client lifecycle. Average consumer and small business deposit balances increased modestly late quarter and 1.9% versus the third quarter of 2024. Average loan balances increased 2% late quarter and 7% versus the third quarter of 2024, driven by a significant increase in production. Premier banking continues to be a strategic growth engine. We saw significant increases in loan and deposit production per banker, reflecting deeper client engagement and improved productivity. Our digital strategies also deliver results. We continue to accelerate our performance with enhancements, increased production, and accelerated client engagement, positioning us to scale efficiently and meet evolving client expectations, as seen with the success of our AI-enabled chat function, Truist Assist. Digital transactions rose 7% year over year, and digital channels accounted for 40% of new to bank clients. Notably, Gen Z and Millennials represented 63% of this growth, a strong signal that our digital-first approach is resonating with the next generation of Truist clients. In wholesale, I'm encouraged by this quarter's loan growth, improvement in investment banking and trade revenue, and progress in key focus areas like payments and wealth. Average wholesale loans increased 2.8% late quarter and 4.8% year over year, driven by growth from new and existing clients and increased production. Seeing that growth was broad-based across industry banking verticals, as this strategy continues to gain traction. We've seen consistent quarterly growth in balances, fueled by new client acquisition across diverse sectors, supported by strategic talent investments. Year to date, we've onboarded twice as many new corporate and commercial clients compared to the same period last year, and we're seeing higher revenue per client, a clear sign of deepening relationships. In wealth, net asset flows remain positive, and year-to-date AUM from wholesale and premier clients is up 27% versus the prior year, reflecting strong advisor productivity and overall client trust. Our payments business continues to scale, launching new solutions that deliver speed, simplicity, and security to our clients. These enhancements, along with targeted talent investments, drove an 11% year-over-year increase in treasury management revenue. Now, let me turn it over to Mike to discuss our financial results in a little more detail. Mike. Mike Maguire: Thank you, Bill, and good morning, everyone. I'm going to start with our performance highlights on slide seven. We reported third quarter 2025 GAAP net income available to common shareholders of $1.3 billion, or $1.04 per share. Included in our results are $0.02 per share of restructuring charges, which are primarily related to severance. Now, moving to third quarter results, adjusted revenue increased 3.7% late quarter due to 9.9% growth in non-interest income and 1.2% growth in net interest income. Adjusted expenses increased 1% late quarter, primarily due to higher personnel expenses related to incentives and strategic hiring efforts. Our asset quality metrics remain solid as net charge-offs declined on a late quarter basis and on a year-over-year basis. Our CET1 capital ratio remains stable at 11%, and our CET1 ratio, including AOCI, improved by 10 basis points to 9.4%. I'll now cover loans and leases on slide eight. Average loans held for investment increased by 2.5% on a late quarter basis to $320 billion due to growth in both commercial and consumer loans. Average commercial loans increased by $4.8 billion, or 2.6%, due to $3.7 billion of growth in CNI loans and $1.5 billion of growth in CRE loans, partially offset by lower commercial construction loan balances. In our consumer portfolio, average loans increased $3 billion, or 2.5% late quarter, due to growth in other consumer, residential mortgage, and indirect auto. The average loan yield remained relatively stable on a late quarter basis. Moving now to deposit trends on slide nine. Average deposits decreased $3.9 billion sequentially, or 1%, due to the mid-July withdrawal of $10.9 billion of short-term M&A-related client deposits that we've discussed previously. These deposits impacted the second quarter average balance by $10.9 billion and the third quarter average balance by $1.7 billion. As Bill mentioned, many of our top business and growth initiatives are aimed at driving core client deposit growth. As a result, we're seeing accelerating momentum with clients in consumer and wholesale that will drive improved client deposit growth in the fourth quarter and in 2026. As shown in the chart on the bottom right-hand side of the slide, our cumulative interest-bearing deposit beta improved from 37% to 38% on a late quarter basis. Based on our outlook for stronger client deposit growth in the fourth quarter and our expectation for two additional 25 basis point reductions in the Fed funds rate in October and December, we remain on track and confident in our ability to drive our interest-bearing deposit beta to the mid-40% area in the fourth quarter. Moving to net interest income and net interest margin on slide ten, taxable equivalent net interest income increased 1.2% late quarter, or $45 million, primarily due to one additional day in the third quarter, loan growth, and fixed-rate asset repricing. Our net interest margin declined one basis point late quarter to 3.01%. We expect net interest income to grow approximately 2% on a late quarter basis in the fourth quarter due to continued loan growth, growth in client deposits, and a reduction in deposit costs following the September reduction in the Fed funds rate and our expectation for the additional two cuts during the fourth quarter. These positive factors should result in net interest margin expansion in the fourth quarter as well. As you can see on the top right-hand side of the slide, we updated our outlook for the fixed-rate asset repricing. We expect to reprice approximately $11 billion of fixed-rate loans and approximately $3 billion of investment securities during the fourth quarter. Based on our view of interest rates for the remainder of 2025, we anticipate that new fixed-rate loans will have a run-on rate of around 7% compared with a run-off rate of closer to 6.4%. We may allocate a portion of the cash flows from the investment portfolio to support loan growth in the fourth quarter versus securities. We also updated our swap portfolio disclosure on the bottom right-hand side of the slide. As of September 30, we had $105 billion of notional received fixed swaps and $28 billion of notional paid fixed swaps compared with $90 billion and $29 billion, respectively, at June 30. During the quarter, we increased our notional received fixed swap position by adding additional forward starting received fixed swaps as part of our overall strategy to maintain a relatively neutral position to changes in rates relative to our baseline view. Turning now to non-interest income on slide 11, adjusted non-interest income increased $140 million, or 9.9% versus the second quarter of 2025, due to strong growth in investment banking and trading income and wealth management income, partially offset by lower other income. Investment banking and trading income increased $118 million, or 58% late quarter, to $323 million. We saw improved performance across our platform with strength in debt capital markets and trading revenue. Based on our current pipeline and overall strong market activity, we remain optimistic about investment banking and trading income in the fourth quarter as well. Wealth management income also experienced a strong quarter, with fees up 7.5% late quarter due to higher market values, positive net asset flows, and new client acquisitions. On a like quarter basis, adjusted non-interest income increased $75 million, or 5.1% compared to the third quarter of 2024, primarily due to higher wealth management income and higher service charges on deposits due to greater treasury management revenue. Next, I'll cover non-interest expense on slide 12. Adjusted non-interest expense, which excludes the impact of restructuring charges, increased 1% late quarter, due primarily to higher personnel expenses related to higher incentives and strategic hiring efforts. On a year-over-year basis, adjusted expenses remained well controlled and were up 2.4% due primarily to higher personnel expense. Moving now to asset quality on slide 13. Our asset quality metrics remain strong on both a late and like quarter basis, reflecting our strong credit risk culture and the proactive approach we've taken to quickly resolve problem loans. Net charge-offs decreased three basis points late quarter to 48 basis points, and were down seven basis points versus the third quarter of 2024, as we benefit from lower CRE losses on both a late and like quarter basis. Our loan loss provision exceeded net charge-offs by $51 million, and our ALL ratio held steady at 1.54% of total loans. Non-performing loans held for investment increased nine basis points late quarter to 48 basis points of total loans. Second quarter non-performing loans of 39 basis points benefited from the resolution of several problem loans, resulting in NPLs declining to multi-quarter lows. As you can see on the slide, the third quarter of 2025 level remains stable compared with the third quarter of 2024, which reflects a return to a more recent level. The late quarter increase was driven by higher non-performing CNI and construction loans, partially offset by a decline in CRE non-performing loans. Over the last week, there have been a number of questions about exposures to certain borrowers, including Tricolor and First Brands. Just to address it, Truist does not have any exposure to Tricolor. However, we do have exposure to First Brands, but this exposure is fully reflected in our loan loss reserve and our updated and improved 2025 net charge-off guidance. Now, I'll provide additional color on our guidance for the fourth quarter of 2025 and for the full year on slide 14. Looking into the fourth quarter of 2025, we expect revenue to increase by approximately 1% to 2% relative to third quarter revenue of $5.2 billion. We expect net interest income to increase approximately 2% in the fourth quarter, primarily driven by loan growth and lower deposit costs. We expect non-interest income to remain relatively stable late quarter. Adjusted expenses of $3 billion in the third quarter are expected to remain relatively stable on a late quarter basis. As it relates to buybacks, as Bill mentioned, we plan to target $750 million for the fourth quarter. For full year 2025, our outlook for revenue and expense growth is unchanged. Based on our current outlook for net interest income and non-interest income in the fourth quarter, we would expect annual revenue to come in around the midpoint of our 1.5% to 2.5% range. In terms of our outlook for adjusted expenses, we continue to expect full year 2025 adjusted expenses to increase by approximately 1% in 2025 versus 2024. On asset quality, we expect net charge-offs of 55 basis points in 2025, compared with our previous guide of 55 to 60 basis points. Finally, we expect our effective tax rate to approximate 17.5% or 20% on a taxable equivalent basis in 2025. I'll now hand it back to Bill for some final remarks. William Rogers Jr.: Thanks, Mike. As I mentioned earlier in the call, our recent performance, coupled with the strong momentum I see every day inside our company, reinforces my confidence in our ability to accelerate growth and profitability over the near term. As you can see on slide 15, we expect to grow revenue in 2026 at a higher rate than we will grow revenue in 2025. Although it's a little too early to provide specifics on the 2026 outlook, I'll say at this point we expect the rate of revenue growth in 2026 to more than double versus our growth rate this year. We also expect to generate more operating leverage in 2026 than we will generate this year. In addition, we plan to increase our share repurchase program in 2026 to $3 billion to $4 billion, which is above the 2025 level, as we'll now target a 10% CET1 ratio by the end of 2027. Finally, these drivers and others should also accelerate our EPS growth rate beyond what we'll achieve in 2025. As I've discussed today, we're seeing solid progress in many of our key strategic focus areas, all of which I expect to accelerate over the near term and help us achieve our previously stated goal of a mid-teens ROTCE, which I'll discuss in more detail on slide 16. As shown on slide 16, we're targeting a 15% ROTCE in 2027, a goal that reflects our confidence in Truist Financial Corporation's long-term earnings power and strategic direction. We see multiple paths to stronger revenue and profitability. With focused execution, we believe these initiatives will deliver meaningful improvement over the next two years. The key drivers outlined on the right side of the slide include continuing to execute against our top business growth and profitability initiatives that I discussed on slide six, continuing to drive positive operating leverage, realizing the ongoing benefit from fixed-rate asset repricing and accelerating share buybacks. Much of our profitability improvement and growth potential is rooted in deepening relationships with existing clients, particularly in wealth management, payments, premier banking, investment banking and trading, and corporate and commercial banking, where we're already experiencing strong momentum. In summary, I'm as optimistic as ever about Truist Financial Corporation's future. I'm encouraged by the momentum we're seeing across the businesses and remain focused on executing with discipline, delivering for our clients, and creating value for our shareholders. I want to pause and thank all of our teammates for their incredible focus, their productivity, and their purpose-driven commitment to move Truist Financial Corporation forward. As always, we appreciate your continued interest and support, and we look forward to updating you on progress in the quarters ahead. With that, Brad, let me hand it back over to you for Q&A. Brad Milsaps: Thank you, Bill. Betsy, at this time, will you please explain how our listeners can participate in the Q&A session? As you do that, I'd like to ask the participants to please limit yourselves to one primary question and one brief follow-up in order to accommodate as many of you as possible today. Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. In the interest of time, we ask that you please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question today comes from John Pancari with Evercore. Please go ahead. John Pancari: Good morning. William Rogers Jr.: Morning, John. Just on your color that you gave around 2026, I appreciate all the detail there, particularly around the revenue expectations and the ROE. On the revenue front, for revenue growth to more than double, can you possibly help us break that out a little bit? How are you thinking about the spread revenue component versus the fee revenue side? Maybe within the spread revenue side, how you would think about the pace of balance sheet growth as you look at 2026 that would underlie that? William Rogers Jr.: Yeah, John, I'll start with that. Clearly it's a component of all of the cylinders hitting, you know, so NII growth is a key part of our revenue. We have continued loan growth. We've got really good momentum on that side. I think we'll continue that at a pace that's not too far off from where we are today. As it relates to the deposit side, I think we're in a different part of the J curve there. That's accelerating. You saw some of the activity on the client side and some of the momentum we see headed into the fourth quarter. There's some seasonality in that. We'll have both loan and deposit growth. Deposit growth better than this year and loan growth probably a little more consistent. On the fee income side, I think also just continuing the fee income momentum that we've established in the last couple of quarters. John Pancari: Okay, great. How do you think about the breakout of that revenue growth when you look at overall spread revenue versus the pace of revenue growth you would see on the fee side? How are you thinking about that? Brad Milsaps: You know, John, we're trying to avoid being, we're shaping more than guiding. I think for 2026 at this point, obviously still in the planning sort of cycle, I would say we wouldn't expect a remix, you know, spread versus fee income next year. I think, with that in mind, it's likely that fees are going to grow at a faster rate than NII will, but both have strong momentum going into next year. John Pancari: Okay, great. Thank you. Lastly, I know you had talked about the degree of positive operating leverage accelerating over this year. Any way to help us frame that as well? I know you don't want to be too specific, but just trying to gauge how much of efficiency improvement is baked in in terms of thinking about the momentum that you could see as you head into 2026. Brad Milsaps: I'm afraid I'm going to let you down again. We don't want to be too specific, John, but I think the intention of the slide that Bill referenced was that we feel great about at least twice the revenue growth operating leverage this year. We expect to be around 100 basis points. It should be higher than that next year based on what we see right now. Those factors combined should drive EPS growth higher as well, and the buybacks obviously helping with the ROTCE journey. I think that was the intent there. Sorry not to be more specific at this point. John Pancari: No, that's fine. We can go off the graphic, I guess, on page 15 and make an estimate based on that. Thank you. I appreciate the color. Brad Milsaps: Yeah, you got it. Operator: The next question comes from Scott Siefers with Piper Sandler. Please go ahead. Scott Siefers: Morning, guys. Thank you for taking my question. Mike, I was glad to see the interest-bearing deposit costs come down a couple basis points. That was a nice sort of inflection. You sound optimistic on the outlook into the fourth quarter. Bill, your comments were all very constructive on overall growth into next year. I'm just curious if you can expand upon the options you see with deposit pricing now that the Fed is lowering rates again and what gives you confidence on that growth momentum into next year as well. William Rogers Jr.: Mike, I'm sure you do the pricing and I'll do the growth. How about that? Brad Milsaps: Yeah, that's fine. Good morning, Scott. On the pricing side, we feel pretty good about, you mentioned, we saw a touch of momentum in the third quarter. We actually, as you'll recall, back in the second quarter, we were actually hoping and maybe expected to be closer to 40% on the beta in the third quarter versus the 38% we got. The good news is we're off to a pretty good start in the fourth quarter as well. I mentioned we thought we could get to sort of the mid-40%, and that takes into consideration some of the momentum that we are seeing now based on the September cut as well as the October cut, which is going to be more important, of course, for the year than December. That should drive some nice benefit for us in terms of both NII and our margin in the fourth quarter. We would expect that to continue into 2026. It's not just, some of that's taking advantage of some of the psyche and getting some help on rates, but there's also some mix that we're focused on. Maybe that's a good segue to talk to Bill about some of the momentum we're seeing on the balances with core client deposits. William Rogers Jr.: Yeah. Mike, you talked a little bit about the pricing side and increasing betas. On the momentum side, we saw some end-of-period growth in client deposits. We see existing momentum in some key markets. Think about Miami, DC, and some others from us. Really accelerated growth in markets like Pennsylvania and Texas, where we're growing at disproportionately faster rates. I look at sort of all the leading indicators of deposit growth. If you think about for us, the leading indicators are things like net news. We're bringing in a lot of new clients that we have a chance to deepen relationships with. Those balances are higher than they've historically been. We look at the premier production. We talked about that. Premier production's up almost 30%. They're in, got the engine running there. Then look at treasury management pipelines. Their pipelines are up really significantly. Treasury management up double digits. New clients and wholesale, 60% of our new clients have awarded us a payments product. Some of those haven't funded yet. I look at all these as the leading indicators of deposits, enhanced marketing, onboarding. I talked about the branch commitment long term. We're also building not only for the short term within this cycle, but ensuring that we've got really good market presence and capacity to grow over the long term in the deposit cycle. Hopefully, that's helpful. Brad Milsaps: Yeah, no, that's great. I appreciate all that. Maybe separately, Bill and Mike, I think you both have been pretty clear that you all are focused organically. Just curious for any updated thoughts or if your thoughts on them may change at all now that the ground is sort of shifting a bit in the large regional space, given some of the transactions we've seen over the last 90 days or so. William Rogers Jr.: Yeah, I mean, we think the best place for us to focus is Truist. If we think about the opportunity to increase shareholder value and provide really great return, it is for us to really stay focused and highlighted on Truist. That being said, we're just like ultra competitive right now. I mean, we've never been more competitive. We've got, you know, great teammates on the field. We've got product and capability. We've outlined this growth pattern, you know, where we are today to the return. I am all Truist all the time. Brad Milsaps: Perfect. Okay, good. Thank you guys very much. I appreciate it. Operator: The next question comes from Erika Najarian with UBS. Please go ahead. Erika Najarian: Hi, good morning. In terms of the walk, Bill, to 15% ROTCE, what do you think is the, you know, appropriate efficiency ratio underneath the surface? I'm sure we could all do the math, but just wanted to hear from you in terms of where you want this efficiency ratio to go from the 55.7% as you think about the medium term. You mentioned that you're being ultra competitive. There could be, you know, deal making if you're super focused on Truist could also lead to opportunities for you. How do you balance optimizing efficiency with potentially being more aggressive at taking advantage of some of the consequences and fallout from the deal making in your footprint? William Rogers Jr.: Yeah, Erica, on the efficiency ratio side, that's not going to be the biggest driver of the walk. The biggest driver, we'll have some marginal improvement in the efficiency ratio, but quite frankly, we're not going to guide to that or manage to that because to your point, we have a lot of opportunity for growth. That's where you're going to see us continuing to invest. We outlined those opportunities in CSBB and wholesale, and I think they're significant. We're not investing in response to, we're investing relative to opportunity. We've got a lot of opportunity. We want to be the most competitive player in our markets. That's, and we're going to continue to invest in that regard. We're going to be driven by growth. We're going to be driven by operating leverage, and we're going to be driven by return. Erika Najarian: Got it. Just a follow-up question for Mike. As we think about more than doubling your revenue growth in 2026, that's clearly better than 3% to 5%, which is the double of what the 2025 revenue growth is. How should we think about the trajectory of the net interest margin in that context relative to the cuts in the curve? Brad Milsaps: Yeah, Erika, just to clean it up a little, if you look at our outlook, you know, we mentioned in our prepared remarks that we expect revenue to grow in the fourth quarter, you know, 1% to 2%, which puts us at the midpoint of our range, which is 2%. As it relates to the net interest margin, you know, we would expect progress in the fourth quarter with the cuts in October and December that I mentioned to Scott a moment ago. We would expect to see continued progress in 2026 and in 2027. Again, there's a lot of assumptions around the backdrop there, but with the operating environment that we see today and with the curve as we see it today, we'll make progress in 2026 towards that kind of three-teens number that I've talked about a little bit. I think we're there in 2027. That'll be an important driver, you know, as Bill mentioned, in terms of the business initiatives and the ROA profile that should continue to evolve and improve that net interest margin, which again, it's going to be driven by a number of things. You know, Erika, it's going to be the sort of structural under-earning on the balance sheet around fixed-rate asset repricing. We expect, you know, a profitable loan and core client deposit growth to help, you know, improve and drive the margin. We're hiring bankers, expanding businesses. I think we've got a lot going for us as we think about NII and NIM trajectory over the next couple of years. That's going to be a really important part of the ROA improvement story, which coupled with a touch of improvement on efficiency, as Bill mentioned, plus, you know, the fee business momentum we have, plus a little bit of buyback, we think is what gives us the confidence that 15% is going to be achievable in 2027. Erika Najarian: To clean up the message, just because it's a very crowded earnings day, I want to make sure we're taking away the right thing. When Bill said the rate of revenue growth to more than double in 2026 versus 2025, are we looking at the full year 2025 outlook on slide 14? It's more than double 1.5% to 2.5%, not more than double 1% to 2%. I know it sounds like teeny tiny, but it's important for investors to clarify. Brad Milsaps: Yeah, I think Erika, what and maybe take us directionally versus literally. I think Bill's looking at 2% for 2025 and saying that literally it'll be more than twice that. Erika Najarian: Got it. Brad Milsaps: Call it 4% plus. Yes, sir. Yep. Erika Najarian: Thank you. Operator: The next question comes from Ken Usdin with Autonomous Research. Please go ahead. Ken Usdin: Hey, good morning, guys. I wanted to ask, you mentioned that you've got some fixed-rate benefits into the medium term. I'm just wondering if you could kind of flesh that out a little bit. We can see that the loans are getting about 60 basis points in the fourth quarter, but what's the benefit you have as you look further out in terms of the magnitude that you see rolling over the next couple of years that'll help that NIM trajectory? Thanks. Brad Milsaps: Yeah, good morning, Ken. No, you've got it right. In the fourth quarter, we gave you sort of the 7% run-on versus the 6.40%. The bonds may be a little bit better than that in the fourth quarter. On the loan side especially, we would expect for that to begin to diminish. That is going to be, I think, a nice tailwind for us in 2026, but a diminishing tailwind with perhaps a long tail, though the overall magnitude of the improvement will diminish over time. That is really driven by two factors. One, a lot of the loans that are repricing for us are in that sort of consumer lending platform. Those are generally pretty short assets, with lives in the two and a half to three-ish years range. You have got some churn that has been happening already over the last couple of years, and to some extent, that is playing itself out. On the other hand, most of our term exposure is in sort of the two to three-year part of the curve, the shorter end of the belly of the curve. With that part lower, you are starting to see, and we will begin to see, at least we assume, lower run-on rates. Will it continue to be a benefit? It will. If you think about it more in terms of the yield on that portfolio, let's call it $135 billion ballpark of fixed-rate loans that we think about. You are going to get a few, a couple, maybe basis points a quarter of improvement on the yield, and then that will diminish. Same thing on the bonds. We have got some different vintages based on different maturities and speeds there, but we would expect that benefit to diminish a touch as well throughout the course of next year as you see the belly of the curve and maybe the longer end of the belly lower as well. The other thing to note just on the bonds as you are looking at our yields on the securities, we do also have the phenomena that our payers, which receive SOFR, are going to feel some pressure as the funds rate gets lower. You might see the gross yield, which is what we show you on that NII disclosure page. The gross yield should continue to march up, but the yield, including the hedge, will actually show some pressure as those payers are less in the money. Ken Usdin: Great. That's great color. Just one quick one. It's great to see the IB and trading kind of get back to that level where it had been previously. Just wondering if you could flesh out where the drivers were and obviously market dependent, what kind of trajectory could we think about going forward? Thanks. William Rogers Jr.: Yeah, and I think the way you characterize it is right. I mean, we're sort of back to that kind of level that we think is sustainable. The good news, it was on a lot of cylinders. We hit on a lot of the cylinders of our business. Pipelines, to your other comment, are actually quite strong. We have a lot of awarded business in the M&A side for the fourth quarter. We're overall confident that this trend can continue. This has been a business that has historically grown at low double-digit kind of CAGR over time. I think over time that continues to be that opportunity. We have a lot of new teammates that know how to leverage this capability, and that's what's fun to see. What gives me more optimism for the future is you can just see how we're becoming more relevant to clients. In the early part of that, you see that in FX and derivatives. In the longer term, you see it in more of our advisory business and M&A and equity capital markets and other components, debt capital markets or the other components. Good quarter, all cylinders, good pipelines, and really good leading indicators in terms of how our team is utilizing these resources that we have. Brad Milsaps: Okay, thanks, Bill. Operator: The next question comes from Ebrahim Poonawala with BofA Securities. Please go ahead. Ebrahim Poonawala: Hey, good morning. William Rogers Jr.: Morning. Ebrahim Poonawala: I just had maybe Bill, and I think we have Brad on the call as well. We'd love to get sort of your views on, from a credit quality perspective, where things stand, both given kind of your businesses in terms of direct consumer lending, even on the subprime side. Just give us a health check on where you see credit quality on the consumer side. When we look at non-accrual C&I loans, NDFI or non-NDFI, do you see credit at the precipice of material deterioration? That's how the market's been trading these stocks over the last couple of days. We'd love your perspective on both those. Thank you. William Rogers Jr.: Yeah, let me go sort of really high level. I'm staring at Brad. I'll bring it down a little lower level with Brad and try to go around the horn because you asked a lot in your question. I can say overall credit quality is strong. Let me start with that as a premise. We have seen in the market some, I would say today, idiosyncratic and uncorrelated events. That being said, just remember, the number one risk for a bank is credit risk. Just like we're vigilant about that, we have been in the past, we're hyper-vigilant today and we'll be hyper-vigilant tomorrow. These are important components. You talked a little bit about NDFI and said maybe it's probably worth diving in there just a little bit. Our largest exposure on the NDFI side is REITs and asset securitization. That's 50% of our NDFI portfolio. We know that they're different by institution. Everything else that's in those categories, capital calls, leasing, BDCs, mortgage warehousing, they're all single-digit part of the overall portfolio. Highly, highly diversified, 20-plus asset classes, low interconnectedness, which has been the spirit of that portfolio and Truist Financial Corporation overall. Maybe with that, let me turn to you, Brad. If there's anything else you want to clean up, we can do that. Brad Bender: Yeah, thanks, Bill. Good morning, Ibrahim. I'd say, you know, I'll build on the NDFI really quickly. For us, we take a very client-centric approach. It is, to Bill's point, highly high-quality diversified collateral with strong structural protections. We take a dogmatic risk-adjusted return approach across the differentiation of those asset classes. I think in your consumer questions, particularly around the subprime, as a reminder, the majority of our subprime sits only in our auto portfolio. On the rest of the consumer portfolios, it's a very marginal amount. The majority of our consumer portfolios are high-quality superprime borrowers. We de-risked in 2023 and 2024 on the lower end of the consumer spectrum. That was an intentional decision that we made. It's also reflective in the results that you see this quarter. That's really where we're going to continue to focus, is how do we drive high-quality assets both in the wholesale and the consumer space. Ebrahim Poonawala: Got it. I'll just leave it at that. Thank you both. William Rogers Jr.: Thanks. Brad Bender: Thanks. Operator: The next question comes from Matt O'Connor with Deutsche Bank. Please go ahead. Matt O'Connor: Good morning. I just wanted to come back to the capital levels and buyback commentary and get a sense of if there's flexibility to kind of lean in the buybacks. We're obviously seeing some sell-off in the market here. Two days might not be enough to make you want to lean in, but if there's more pressure, broadly speaking, it seems like you've got the capital that you could do more if you wanted to. William Rogers Jr.: Yeah, I mean, I think, Matt, you know, we want to be on a steady pattern. We don't sort of want to, I think, to your point, react to two days' worth of market volatility. That being said, we think this is a great time. We've got ample capital. I think we've got a really good flight path. You know, we do have the flexibility. I think about, you know, $750 million, sort of think about that as a floor, so to speak, and then we've got capacity to increase that as we go along, all while keeping, we think, an appropriate and conservative capital structure. We wanted just to define the speed and the slope to get to that 10% CET1. Matt O'Connor: Okay, that's helpful. Just a little question here, just the loan growth. You had a lot in commercial real estate. We've heard about some refinancing away from the banks there. Just wondering what drove that. Again, not huge, but $2 billion increase off of a $20 billion in the quarter. Thanks. William Rogers Jr.: Yeah, a lot of that is sort of we had a decrease to have an increase. Some of that was just an inflection point. In that CRA, think a lot of what we talked about earlier, REITs, think about a lot of the shorter duration, long-term relationships with a lot of capital markets business associated with them. It's a little more of an inflection than an actual relative long-term increase. Brad Milsaps: Prepayments load. William Rogers Jr.: I'm sorry, yeah, prepayments load, yeah. Matt O'Connor: Okay, thank you. Operator: The next question comes from Chris McGratty with KBW. Please go ahead. Chris McGratty: Oh, great. Good morning. Brad Milsaps: Morning. William Rogers Jr.: Good morning. Brad Bender: Just a quick clarifying question on the non-accrual loans and CNI, which went from $520 million to $800 million. In your prepared remarks, you talked about the First Brands exposure. Is that contributing to that? I know you said you had reserved against it. I'm trying to see where this lies and if it's been charged off. Thank you. Yeah, Chris, good morning. It's Brad. I'll hit that really quickly. As a reminder, we had outsized resolutions in the second quarter, and what you're seeing is a return to recent levels. Yes, First Brands is captured within that. It was an appreciable amount of it. It wasn't the whole of the increase, but that $48 million sort of matches what you saw in 4Q, 1Q, and previous periods. Chris McGratty: Okay. The message is that that increase has been reserved for. Brad Bender: Yeah, we've got it accounted for in the forward guide. Chris McGratty: Perfect. Just clarifying slide 16, which is again the ROE target. I think it's great to see the formalization of 15%. Is the message you're sending on 2027, we're going to get there on the full year or at some point? I know it's a little bit of a nuance. Brad Bender: Yeah, I think we're going to get there on a full year basis. That's the message. William Rogers Jr.: Yeah, in any one quarter, you're going to have some fluctuation, but yeah, for the full year. Chris McGratty: Okay, thank you. Operator: The next question comes from Betsy Graseck with Morgan Stanley. Please go ahead. Betsy Graseck: Hi, good morning. Can you hear me okay? Brad Milsaps: Good morning, Betsy. Betsy Graseck: Yeah, okay. I just want to make sure I understand what we just said, which is that First Brands' estimated credit impact is in the forward guide, meaning it's not embedded in this quarter that just reported. Brad Bender: Yes, so Betsy, it's Brad. It is accounted for in the quarter just reported, and then the forward guide from an NCO, if there are implications there that play out. We're early in that process. Betsy Graseck: Okay, we're. Brad Bender: Yeah, so accounted for in non-performing loans and then forward guide on net charge-offs. Betsy Graseck: Okay, got it. I just also wanted to understand how you're thinking about the underwriting in this environment. Does it change at all? I'm asking with context to C&I's been doing better, obviously accelerating a little bit. Can we expect to have that kind of acceleration continue here, or is there a change in underwriting style, path, due diligence that would, you know, perhaps slow it down a bit as we move into 2026? William Rogers Jr.: Yeah, I mean, I'll start with that. We're vigilant and diligent in our underwriting. As I said earlier, we have been, are, and will be. Maybe that doesn't change from that perspective. Brad highlighted on the consumer side, we made some adjustments, quite frankly, in the last 18 months as it relates to that portfolio, just ensuring that our portfolio on the unsecured side particularly stays superprime and allowing for that. You see that in some of our results. That was a marginal change on that point as it relates to the wholesale side. The key for us is just to have a really diversified portfolio. We have a lot of discipline around the diversity. I don't think that changes, but it does accentuate the fact that we just want to have a really diversified portfolio in sort of every way that you can measure and define a diverse portfolio. We think that's inherently the strength of Truist. If you look at sort of any category, Betsy, that you might say, "Gosh, this is something I'm worried about or thinking about." We index low on all of those. That was the advantage of creating Truist, creating this highly diversified portfolio. If we have anything, it's going to be continued discipline around that diversity. I don't think that lowers our growth opportunity and actually increases the opportunity because we have so much diversity. Betsy Graseck: Okay, thank you. Operator: The next question comes from Steven Alexopoulos with TD Cowen. Please go ahead. Steven Alexopoulos: Morning, everyone. William Rogers Jr.: Good morning. Brad Milsaps: Morning, Steve. I wanted to start, I want to go back to Ibrahim's question on NDFI. I know this has become the topic du jour on these banks' earnings calls. Generalists listening to this conversation are dumping out of regional banks on fears that their portfolio is loaded with cockroaches. When you guys look at the totality of your loan exposures, where do you rank the risk of the NDFI portfolio? Below average, average, or above average? Do you think the market is right at this point in time to be scrutinizing that portfolio? Yeah. Maybe I'll hit it really quickly for you. Today we sit at about 11% of our total lending portfolio. That ranks us as of 6/30. On the published data, that puts us ninth out of 11. I think back to Bill's point, well-diversified, granular, and then underweight relative. On how we think about this from a long-term standpoint, I think these are long-tenured relationships with global financial institutions across 20 asset classes for us. We have sub-limits and top-of-the-house limits in place to ensure we maintain credit discipline. We will continue that on a forward basis. William Rogers Jr.: Yeah, and relative to where it fits, I mean, this is, you know, if you think about the high percentage of ours being REITs and asset securitization, this is an investment-grade looking portfolio, which we have really good returns against and really good risk-adjusted returns. We have the capacity and capability, you know, with our tools and things that we can do from a capital markets perspective that these are just long-tenured clients. We don't think about this as an NDFI strategy. Maybe that's the best framework to start. This is a client strategy that gets counted in an NDFI category. These are businesses that we've been in for a long time and, you know, have a lot of confidence in going forward. Brad Milsaps: Okay, it sounds like because you're pointing out that you have lower exposure versus peers, you do think this is a problematic portfolio for the industry, right? Otherwise, you wouldn't be pointing out it's well below peers in terms of your exposure. William Rogers Jr.: No, I think we're pointing out it's well below peers, back to my diversity comment. If you have a lot of diversity, you have diversity from risk, but you also have diversity from opportunity. We have an opportunity to grow things that have smaller %, and it also mitigates our risk. Diversity is a two-edged sword that I think we use wisely. Brad Milsaps: Got it. Finally, if we go back to where we were three months ago, we've now had Tricolor, First Brands, and this Cantor loan called out by Zions. I'm curious, the way you look at your loan portfolio, do these represent an inflection point in the credit outlook for the industry compared to where we were three months ago? I think it's early to call it at that level. I would say this is certainly an opportunity. We'll go back and look at all, as we do with any external events, what occurred, what are the implications. It would be early to call it an inflection point. Our performance to date isn't demonstrating that across our portfolios, and we're not seeing that on a broad base. Okay, perfect. Thanks for taking my questions. Operator: The next question comes from Gerard Cassidy with RBC. Please go ahead. Gerard Cassidy: Hi, Bill. Hi, Mike. William Rogers Jr.: Morning. Gerard Cassidy: Bill, I'd like to go back to your comments when you opened up about the new branches being AI, you know, integrating AI into these branches. Can you share with us how we are going to be able to measure the success that, you know, this AI infiltration into the banking industry and you guys in particular as you tap the potential of these investments? How do you think it's going to manifest itself to us outsiders where we could say, wow, Truist is way ahead of the curve compared to their peers? William Rogers Jr.: Yeah, you know, it's a great question. I think today we talk about AI like it's something separate, like we used to talk about the internet as something separate. I think AI is just going to be the fuel. We're not going to talk about it being separate. The way you're going to see the successful companies implementing AI is, does it reflect in their business? Does it reflect in the more efficient? Does it reflect in that we're growing at a higher level? I look at all the use cases that we have across the company, and they're all in those categories. There are places that are going to make us incredibly more efficient. There are places that are going to make us really, really more client-centric. You noted that as it relates to the branch police. There are places that are going to help our overall revenue growth and sales productivity. It's all in those categories. I think we're not going to say this AI contributed this amount to the efficiency ratio or this amount to revenue growth. I think that's actually sort of hard to do. If you're getting disproportional growth and disproportional efficiency as a result of AI, I think that's where we're going to end up talking about this. I'm really optimistic about what AI can do to help us accelerate everything that we talked about. Our ROTCE walk, I'd say, is fueled by AI. It's maybe a good way to think about it. Gerard Cassidy: Very good. Just as a follow-up, I apologize for beating up on credit, but you guys have demonstrated that you're one of the better underwriters out there. Coming back to the First Brands, I'm curious, Brad, you know, the size of that exposure, you know, how big was it? Second, just how'd you guys get involved? If you could just give us some color on your thinking of that relationship. Yeah, Gerard, happy to hit it. Look, it's early. As you know, we don't normally talk specifically about clients. We are in it with a broader base. Overall, the exposure is less than $200 million for us. It would be early for us to get into the details of that. Understood. No, I appreciate that. Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to Brad Milsaps for any closing remarks. Brad Milsaps: Okay, thank you. That completes our earnings call. If you have any additional questions, please feel free to reach out to the investor relations team. Thank you for your interest in Truist, and we hope you have a great day. Betsy, you may now disconnect the call. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the American Express, Q3 2025 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you wish to ask a question, please press star, then one on your touch-tone phone. You will hear a tone indicating you have been placed in queue. You may remove yourself from the queue at any time by pressing star, then two. If you are using a speakerphone, please pick up the handset before pressing the numbers. Should you require assistance during the call, please press star then zero. As a reminder, today's call is being recorded. I would now like to turn the conference over to our host, Head of Investor Relations, Mr. Kartik Ramachandran. Please go ahead. Kartik Ramachandran: Thank you, Daryl, and thank you all for joining today's call. As a reminder, before we begin, today's discussion contains forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these statements are included in today's presentation slides and in our reports on file with the SEC. The discussion today also contains non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, as well as the earnings materials for the prior periods. We discuss. All of these are posted on our website at npr.org. Com. We'll begin today with Stephen Squeri, chairman and CEO, who will start with some remarks about the company's progress and results, and then Christophe Le Caillec, Chief Financial Officer, will provide a more detailed review of our financial performance. After that, we'll move to a Q&A session on the results with both Stephen and Christophe. With that, let me turn it over to Stephen. Stephen Squeri: Thank you. Good morning, and thank you for joining us. We had a very strong quarter with revenues up 11% year over year to a record $18.4 billion and earnings per share up 19% to $4.14. Cardmember spending in the quarter accelerated to 9%, or 8%, on an FX adjusted basis, with particularly strong retail spending and a bounce back in travel and our credit performance continued to be excellent. Based on our strong performance through the first three quarters, we're raising the guidance we provided in January. We now expect full year revenue growth of 9 to 10% and EPS between $15.20 and $15.50. The big news in the quarter was the launch of our refreshed US Consumer and Business Platinum cards, which reinforces our leadership in the premium space. I'm very pleased to say that the initial customer demand and engagement are exceeding our expectations. In fact, while it's still early, this is the strongest start we've seen for a US platinum Card refresh. Before I get into more details on platinum, I want to provide some context. We are fortunate to have a global premium customer base that is unmatched in the industry, and our goal is to provide our customers with the best experience in the industry. By continually investing in innovating our value propositions, the recent platinum launch is yet another example of our proven strategy of refreshing our products on a regular basis to drive customer engagement and growth. In fact, we've done over 200 refreshes across our portfolio globally since 2019, and this is the third US platinum refresh we've done in the past decade. Our refresh strategy leverages and strengthens the competitive advantages of our membership model. It starts with understanding what our customers and our prospective customers want, and then enhancing our value propositions with access to compelling benefits, services, and experiences at a price point that delivers outstanding value. The scale of our premium customer base gives us a distinct advantage. Our consumer and Business Platinum card franchise alone accounts for approximately $530 billion of annual spend globally. This scale gives us deep insights into customer spending patterns and emerging trends, which informs our product enhancements and where we invest in. Another key advantage is the relationships we have with 160 million merchants around the world who accept our cards. We've grown the number of Amex accepting merchants by nearly five times since 2017, giving our card members more places to use their cards and giving more merchants access to our high spending customers who spend, on average, nearly three times more annually on American Express cards than the average spend per card on other networks. Ultimately, product refreshes fuel a virtuous cycle of growth for the company. By continually enhancing our offerings, we drive the engagement and scale of our premium customer base, our high spending card attract a growing number of world-class merchant partners who add more value to membership, which drives more engagement. And this enables us to generate more dollars that we can reinvest in enhancing our products. The result of all this is a loyal and growing premium customer base, mutually beneficial relationships with our merchants, and strong returns for our shareholders, including higher revenue growth, excellent credit quality, expense leverage, and increased profit across our product portfolios. There's no better example of how we execute this strategy than our platinum cards. We launched our first platinum card over 40 years ago. It was the first premium card of its kind in the industry and remains the category leader. Platinum was initially designed for well-established, affluent, frequent travelers. Several years ago, we made a conscious decision to widen our aperture for our premium products so that we could also attract new generations to the franchise and grow with them as their needs change. With the value enhancements we've made over the past decade, the Platinum Card has evolved into the leading premium lifestyle card that it is today, with a wider range of benefits and experiences that appeal broadly across generations, including Millennial and Gen Z consumers who are very comfortable paying for its exceptional value and are highly engaged in the product. A good example of these value enhancements is the previous US Platinum refresh we did in 2021. Coming out of the Covid pandemic, we learned that our card members, particularly the younger cohorts, love the benefits we've added in categories like digital entertainment, wellness delivery services, in addition to our travel offerings, which we also continue to enrich with investments in New Centurion lounges and expansion of our hotel programs. That brings me to our most recent platinum launch. Here again, we continued our strategy of enhancing the card's benefits and services with more world-class partners across the areas we know our customers love to deliver industry-leading value that far exceeds the card's annual fee. In addition, we continue to enhance our award-winning digital capabilities, introducing a new app experience for our US platinum members that makes it even easier to engage with the card's benefits. As I mentioned earlier, the initial results are very strong, exceeding our expectations. For example, new platinum account acquisitions are running at twice the level before the refresh in the first three weeks. We saw very strong engagement in the new benefits, and over 500,000 requests for the new mirror card. And while the annual fee increase won't go into effect for a few months, retention rates have been stable post-refresh. In addition to these results, we saw record bookings through Amex Travel following the platinum refresh and the launch of our new all-in-one travel app, which we introduced earlier in September in the US. Looking ahead, I'm confident about our ability to sustain our growth by continuing to build on our powerful membership platform with a growing set of high-value products, benefits, services, and experiences. We'll also continue expanding our digital capabilities for consumers and businesses, including the upcoming integration of centers, expense management, solution for commercial customers, and will focus on continuing to grow merchant coverage outside the US to give card members more places to use their Amex cards. With that, I'll hand it over to Christophe to walk through more detail on third quarter results. Christophe Le Caillec: Thanks, Steve, and good morning everyone. Let me start with a few highlights for the quarter. Our business model is performing really well. Revenue growth accelerated to 11% this quarter with broad-based growth across revenue lines. Annual card fees are now approaching $10 billion annually and have grown at double digits for 29 consecutive quarters. Credit performance remains excellent, with both US consumer and small business delinquency rates still below 2019 levels. And we've driven leverage from expenses and provision even as we have invested in our premium value propositions, marketing, and technology. As a result, we continue to deliver very strong returns. EPS growth was 19% this quarter with an ROE of 36%. Turning to build business trends for the quarter. Total spend was up 8.5%, FX adjusted, about two percentage points higher than Q2. The step-up in growth was driven by strong retail spending, up 12%, as well as a rebound in T&E. Airline spending picked up this quarter, and restaurants, our largest T&E category, continued to be very strong, up 9%. Premium T&E bookings saw good momentum, with spending on front of cabin airline tickets up 14%. The momentum we've seen from younger customers also continued. Millennials and Gen Z now account for 36% of total spend, making up the same share as Gen X. International had another strong quarter. We spent up 13% FX adjusted. Momentum remains broad-based across markets, with three of our five top countries growing by 18% or more this quarter. In addition to the strong early performance, we are seeing in the US following the refresh spent on platinum cards issued outside the US is up 24% this quarter, consistent with what we have seen over the last two years. Overall, spend growth continues to be driven by transaction growth, up 10% in Q3. A good indicator of engagement from our customer base. I will note that we see strong engagement from Millennial and Gen Z card members, with the average number of transactions per US customer, about 25% higher than older cohorts. We acquired 3.2 million new cards in the quarter, and even more important than the overall number of cards, demand for our premium products remain very strong, with over 70% of new accounts acquired on fee-paying products. Turning to balance, growth and credit loan and card member receivables were up 7% year over year. Broadly in line with bill business. There was about a one percentage point impact on balance growth from our health facility portfolios. Again this quarter, credit performance remains very strong and stable. Q3 delinquency and write-off rates were low, with delinquency rates flat to last quarter, while write-off rates declined. This performance is supported by our focus on premium products, which tend to attract high-income, highly creditworthy customers. We're seeing the outcome of this strategy in the latest platinum refresh, where the credit profiles of consumer applicants following the refresh are even better than what we were seeing before, with an average FICO score of 15 points contributing to two times the number of acquisitions. Overall provision expense of $1.3 billion this quarter included a reserve build of $125 million, reflecting balanced growth. Returning to revenue on slide 14. Revenue was very strong this quarter, up 11% with momentum across revenue lines. Net card fees were up 17%, FX adjusted, a pace that we have now maintained since 2019. Card fee growth moderated as we expected and will continue to moderate before we see an inflection upward in 2026. As a result of our product refreshes. As a reminder, card members who held platinum cards prior to the refresh get to experience the new benefits for a few months before the increase in the annual fee goes into effect. The new card fee will then be applied at renewal anniversaries over the next 12 months. Additionally, card fees are amortized over a 12-month period, putting those factors together, it takes roughly two years to fully lap the impact of the refresh on card fees. With the contribution to growth peaking 12 months following the effective date of the new annual fee. The overall trajectory of card fees is also dependent on many other factors, such as volume and mix of acquisitions, retention, and the full suite and cadence of product refreshes globally. Net interest income was up 12% again this quarter. We continue to grow balances largely in line with spending while driving higher NII growth by expanding the margin earned on balances and at the same time, we've maintained best-in-class credit results. This quarter, the service fees and other revenue line includes the impact of a transaction at the Global Business Travel Group, which contributed about five percentage points to year-over-year growth in this line. In addition, this is the first quarter that we have fully lapped the sale of the acidified business last May. The main takeaway here is that growth in service fees and other revenue is running higher than the low single digits that we saw in the second half of last year. And earlier this year. Overall, we feel good about the momentum we have at this point in the year, and we're on track for full-year revenue growth of 9 to 10%. Turning to expense performance, VCE was up 14% in the quarter with the VCE to revenue ratio coming in at 42%. Card member service growth stepped up from the first half of the year to revive by strong early engagement with the refreshed US platinum benefits, especially some of the quarterly credits that were available to customers. This is a good early sign of interest in the product, and the new benefits. And as we noted previously, the cost of benefits occurs immediately. While the realization of fee revenue is lagged given the timing and accounting of those fees. Our model also benefits from partners that offer value to our customers. Over the last 12 months, our partners have offered over $3 billion of value across embedded benefits. Amex Travel and Amex offers. We also manage our VCE expenses through constant innovation of our rewards and benefits. The latest one being the introduction of amount-based redemptions. As we've noted previously, we expect the VCE ratio to increase over time as a result of our investments in the value proposition and the mix shift to a more premium portfolio. We also feel good about the ability of these investments, together with expense leverage, to drive sustainable mid-teens EPS growth under our long-term aspiration. Moving on to capital, we returned $2.9 billion of capital to our shareholders, including $0.6 billion of dividends and $2.3 billion of share repurchases. Our business continues to generate very strong returns with an ROE of 36% this quarter. Our strong ROE enables us to return a high level of earnings to our shareholders around 70% over the past three years. Over the same time period, our dividend is up 58%. That brings me to the outlook for the year where there continues to be uncertainty in the environment. Given the strength of our performance, we are raising our full-year guidance. We now expect revenue growth of 9 to 10% and earnings per share between $15.20 and $15.50. These assume a stable macroeconomic outlook as we get to the end of the year. Stepping back, we feel really good about our momentum year to date, and we are very pleased with the initial demand and engagement following the platinum refresh. With that, I'll turn the call back over to Kartik and we'll take your questions. Kartik Ramachandran: Thank you, Christophe. Before we open up the lines for Q&A, I will ask those in the queue to please limit yourself to just one question. Thank you for your cooperation. And with that, the operator will now open up the line for questions. Operator. Operator: Ladies and gentlemen, if you wish to ask a question, please press star, then one on your touch-tone phone. You'll hear a tone indicating that you've been placed in queue. You may remove yourself from the queue at any time by pressing star, then two. If you are using a speakerphone, please pick up the handset before pressing the numbers. One moment please. For the first question. Our first question comes from the line of Sanjay Sakhrani with KBW. Please proceed with your question. Sanjay Sakhrani: Thank you. Good morning. First of all, I appreciate all the disclosures on the platinum card and the refresh. And it seems like things are going really well there. Steve, I guess there's been just a lot of resiliency, if not strength, across your customer base. Even corporate and small business to accelerate sequentially. So maybe you could just talk about how you're feeling about the path forward? Can things actually improve here? Because we've bottomed some because you had this acceleration. Maybe just in a stable macro backdrop, specifically, and then just one Christophe modeling thing, the gain that you had this quarter, I mean, should we think about it as an explicit benefit? I'm sorry if I missed it. Missed that commentary. If you had any. Thanks. Stephen Squeri: Look, I think you saw a little bit of an accelerant this quarter from a Billings perspective. But if you look back over the last 6 or 7 quarters, it's been relatively stable. Is this a sign of things to come? I don't know if we're going to keep this billings up the way we are, but I don't see anything in the horizon here that would indicate that billings are going to slow down or decline. So, you know, I think the second quarter, you saw a deceleration in airline spending. I think the pickup in T&E was really good. I mean, restaurants continue to be strong, but airlines really did pick up. And I think what was really encouraging for us as well was the premium part from an airline perspective. I mean, that was up 14%. When you think about front of the cabin. So that coupled with quarterly billing, quarterly bookings in our US travel consumer travel business, which we're at an all-time high. So I think, you know, look, we're still in a relatively stable, stable environment. I would also point out, as I always point out, our card base is not representative of what's going on across the United States. It truly is a bifurcated economy. We have a small percentage of the cards, but our cardholders are much more premium, and we're lucky to have a much more premium card base. So, you know, we're seeing a little bit of a pickup in spend. We hope that that continues into the fourth quarter. I think what was encouraging for us is also the pickup in small business. You know, we saw 4% growth pick up in large and global as well, which was up at about 6%. And international continues to, you know, just continues to really be really strong. And the last thing I'll say is I think retail spending, especially in the US consumer business, you know, hopefully is a good harbinger for what will come during the holiday season because US consumer business was very strong as well at 9%. So, you know, are we going to see a big accelerant from here? It's not what we're expecting, but we're not also expecting a deceleration as well. Christophe Le Caillec: And on your question about the gain, so it's not a large gain. It's in the range of about $80 million. We called it out because it has an impact on the growth rate of that line. Service fees and other revenue there. You know, if you want to color, as you know, we own about 30% of the Global Business Travel Group. And I'm sure you've heard or seen that they just merged with their Carlson Wagonlit. And that translated into a small gain for us, which we recognized this quarter. And that is moving the line a little bit. It's about five percentage points of that 17% growth that you see here. FX adjusted, even if you control for that, we would still be in double-digit revenue growth. So it's really not changing that much there. The picture in terms of the momentum that we've reported this quarter. Operator: Thank you. Our next question comes from the line of Ryan Nash with Goldman Sachs. Please proceed with your question. Ryan Nash: Hey, good morning Steve. Good morning Christophe and I echo Sanjay's comments on the disclosures. Maybe Steve can maybe just talk or Christophe, broad strokes on the financial impact of the platinum refresh, particularly on card fees and VCEs. And, Christophe, you broadly comment on this, but does this in any way impact your ability to generate mid-teens EPS growth? Not over time, but during the refresh period? Thank you. Stephen Squeri: I'll let Christophe go through some of the numbers here. Christophe Le Caillec: Yeah, the short answer is no. We try to provide some color in terms of the dynamic. And you understand I know there the card fee dynamic is delayed. And then it's summarized over 12 months. While the benefit is immediate and is available to everybody. That clearly puts a little bit of pressure. And we signal at the beginning of the year that you should expect a little bit of step up in Cochems at the back end of the year, on the back of this platinum refresh. But the year is really playing out as we were expecting it to play out. You know, of course, we have those insights. It was not all that visible to all of you, but we were expecting that kind of like step up in Cochems in Q4 and we are expecting it as well for 2026 going forward. So we did all of this with our eyes wide open. It's a material investment, a significant investment, but it's our biggest product. And we give you a little bit of, you know, some global numbers as well. On the size of their product. It's very large. So it is a sizable investment for us. But we are, you know, we are still, you know, doing all of this with the, you know, ambition to deliver 15 or mid-teens EPS in terms of, in terms of the coming years. Stephen Squeri: Right. And the only thing I would say is that, you know, look, we plan and we run the company medium to long term here. So as Christophe pointed out, we do all this stuff with our eyes wide open and with our aspirations in mind. And so when we think about our planning horizon, as Christophe said, it will take, you know, two years for everything to fully play out and expenses play out a little bit earlier. But, you know, our aspirations are still our aspirations. Ten, 10% plus revenue growth and mid-teens EPS growth. Operator: Thank you. Our next question comes from the line of Mark DeVries with Deutsche Bank. Please proceed with your question. Mark DeVries: Yeah, thanks. I was hoping to get a better sense of how much you think the platinum refresh contributed to the acceleration in build business growth during the quarter. I was kind of surprised at how quickly you made some of those credits, like the Resi and Lululemon available, probably stimulated some spend and also any color on kind of the strength of demand on the consumer product versus the business. Christophe Le Caillec: Good morning, Mark. So on the spend, if you look at the spend in aggregate total build business for the quarter, the impact is small. You know, we've seen strength as we said in travel and entertainment, airline went from being flat last quarter to being at 5% this quarter. So either those macro changes are what's driving the billing strength that you see in the quarter. If you were to look at some specific partners, though, you would see like an impact. And we are sharing, I think some of those numbers on that platinum. Charge on platinum card, where, you know, we're calling out that, you know, for those partners listed on the bottom right here, there was like a 2X increase in terms of the number of customers. But the total impact, billing wise for the quarter is, is not really material. Operator: Thank you. Our next question comes from the line of Donald Fandetti with Wells Fargo. Please proceed with your question. Donald Fandetti: Hi. Good morning. Steve, can you dig in a bit on what you're seeing in SM? You know, obviously it's good to see the uptick, you know, is that organic growth or is this just sort of bouncing around. And do you see any scenarios where that could normalize as you look out to 2026? There's also, you know, some fintech competition. Stephen Squeri: Yeah. Look, I think what we're seeing is we're seeing still good acquisition. Which is good. And you're seeing organic start to turn around. A little bit, especially at the small end and at the, in the, in the medium in, in the middle market as well. So I think it'll, it'll stabilize. You know, one of the things that we've talked about quite a bit is, you know, our larger transactions moving off, you know, some of the cards that came on during, during the Covid piece. And I think we're, we're over, we're growing over that right now. So we feel good about acquisitions. We feel good about the early indications as it relates to the business. Platinum. Platinum launch. And yeah, it's look, it's a, it's a competitive, it's a competitive marketplace out there. No doubt about it. Which is why we've done the center where we did the center acquisition and why we'll be looking, you know, early next year to, to relaunch, to launch our, our version of center integrated in with our cards. So you know, we think there's still a lot of opportunity in this space. And we think, you know, hopefully the, the downturn that we saw from an organic perspective is, is going to be behind us. Operator: Thank you. Our next question comes from the line of Craig Maurer with FT Partners. Please proceed with your question. Craig Maurer: Yeah. Hi. Good morning. Thanks for taking the questions. Wanted to ask first. When you look at the platinum card refresh, I was curious how much of that you think has been. With consumers or businesses that have high-end cards with other issuers already, or upgrades within your own portfolio, trying to ascertain, you know, the degree to which this, this investment is creating a competitive takeaway from others. And second, if you could just talk about the international strength and where you saw that most outside the US. And where you might still be lacking in terms of coverage, thanks. Stephen Squeri: Yeah. So look, I think the it's a little bit too early to tell in terms of, you know, what the takeaways are at this point. I think the upgrades were very happy with the upgrades and we were happy with, you know, the new card acquisition that we saw, what we what we don't know. And we'll figure this, this out. But we're, you know, sort of three weeks in here. With these people that had premium cards before. Is this their first foray into the premium card segment? But we'll look at all that. We will look at all that data and figure that out as far as international goes international pretty much across the board was, was very, very strong for us. I think, you know, we focus on really the big five markets. I think three of those markets, we had at almost 18% growth. And, you know, coverage continues, you know, as I said, we're, we talked about the city strategy of getting to 75% live coverage. And we talked about the various country strategies. And we continue to march, march in that direction. You know, we'll continue to focus on Europe. And that's been a big focus. There's still some cities that, that we're working on. And will share more color with that. As, as that, as that occurs. But we're really pleased with just how much coverage has increased. Over the last, over the last few years. Operator: Thank you. Our next question comes from the line of Erika Najarian with UBS. Please proceed with your question. Erika Najarian: Hi. Good morning Christophe. If I could just. Dig in to Ryan's question a little bit. You know thank you so much for taking us through. You know, the sort of lifespan of the increase in card fees two years after the refresh. It's fully baked in 12 months after the new car will peak. I'm wondering if you could walk us through in terms of the same pacing, in terms of the step up and related expenses, is it would it be the heaviest over the next like 3 to 4 quarters and then it would subside in, in the next in the back half of, let's say 27. That walk would be helpful. Christophe Le Caillec: Hey. Good morning Erika. Either predicting what's going to happen in 27 is going to be like really hard, but you. From her engagement standpoint, we are certainly going to keep engaging with card members. And our goal is to increase the engagement. But from a modeling standpoint, I think you can assume that the entire benefits are available to our card members from book back book from day one, and there are very strong engagement that we've seen in a right on the day of, you know, announcing the new product on September 18th. Was very high from day one. And has remained, you know, elevated and strong since then. So I don't think we there is like a bit of a curve that is playing out for those benefits. The way the way it's playing out. If you want for card fees. Right. The accounting is also a lot more straightforward. Many of the benefits are quarterly benefits. So you kind of like expense them as soon as the card member earns them. So there is not that kind of complexity for those benefit as there is for card fees. So it's going to be like much more linear. But over time, as I said, the goal is actually to get more and more of these card members to engage with those benefits. So you should expect that kind of like, you know, modest trend up. By design. Operator: Thank you. Our next question comes from the line of Brian Foran with Truist Securities. Please proceed with your question. Brian Foran: Hey, maybe piggybacking a little on Craig's question. If I think about the tearing of gold, platinum and black. You know, now that there's more dining on platinum. Are you seeing any interactions with gold? That you would call out? And then on the other side, you know, is there white space available for some, you know, enhanced or new, even new card between platinum and black? Now that you know, it's clear that a lot of consumers will jump at a pretty high annual fee. Stephen Squeri: So, you know, look, gold continues to be, you know, a very strong product for us. And we continue to acquire new cardholders there. So we haven't seen Gold Card acquisition go down. And we have seen upgrades. But it's still early. I mean, you know, we're only three weeks in here. So we'll see how that plays out. And, you know, part of part of our strategy is to provide card members with a path to, to higher end products that potentially meet their needs, you know. Look, is there a is there a product between Platinum and Centurion? Maybe if you have any ideas, we're open to those to those ideas. But you know, it's something that we talk about from time to time. But we'll see. But we're really happy with Centurion is and we're happy with where with where platinum is. And I think this refresh will continue to cement our position as the leading premium product. Operator: Thank you. Our next question comes from the line of Rick Shane with JP Morgan. Please proceed with your question. Rick Shane: Hey guys. Thanks. I'd kind of like to follow up related to Erica's question, particularly related to retention offers as you as the new higher fees roll out, I assume that that really sort of cascades over 12 months. And I'm curious how we should think about perhaps what percentage of customers take retention offers or request retention offers. And if you expect that that response rate is going to be higher or lower this time based on the initial responses you've seen. Stephen Squeri: Yeah. So I think in general, that's a low that's a very low percentage of how we retain our base. Most of the retaining of the base is actually just explaining the product to them. And I think when you look at this product and you look at what you pay for, the value that you get, it's pretty easy to come to the conclusion that this is a product that I really want to keep. And so I think what we one of the things that we've really tried to do with this refresh is really make it easy to understand what the benefits are. And easy to engage in those benefits. And I think that's critical because what that will do will lead to more retention. More engagement, will drive more business to our merchants. And we'll have more loyalty all the way around. So I don't see retention offers playing a. In fact, I would argue that they may play even a smaller role than they have in the past. And they already had a small role, because I think this product. Really works really hard for itself. Operator: Thank you. Our next question comes from the line of Jeff Adelson with Morgan Stanley. Please proceed with your question. Jeffrey Adelson: Hey, good morning. Steven Christophe. I just wanted to maybe dig in a little bit more on consumer health. I know, you know, I think your results really speak for themselves. And you've been pretty clear that you're seeing a stable spend environment in the last 6 or 7 quarters. Delinquencies remain low. I guess, just maybe in light of all these seemingly one-off headlines we've seen recently, which the market is maybe hearing are not so one-off, you know, there's been a lot of focus on the health of the consumer. So obviously your consumer base is very different than most. But maybe you could just give us a little bit more color and commentary into the health of your consumer base. Maybe what you're seeing at the lower end of that spectrum and relatedly, just anything you're noticing from the government shutdown so far, if at all. Thanks. Stephen Squeri: All right. Let me make a couple comments and I'll whatever. I miss. Christophe can fill in I. You know, I think that there's been a little bit of noise out there in the last couple of days about, you know, defaults and. Especially from a commercial perspective. But if you look at what the banks reported from a card write-off perspective and a card delinquency perspective. It all got better. Write-offs are down from the bank, from the from the major issues that we follow. Delinquency is down. And for ourselves. Delinquencies are exactly what they've been for the last number of quarters. You know, around at 1.3 and our write-offs sequentially are, you know, are down a little bit. They're 1.9. But, you know, we've been hovering around two and 1.9 and our gap, you know, we still have a huge gap between us and and our competitors. So I think, you know, the health of our consumer is really, really good. And they're spending they're engaging with the product. And they're paying their bills. And I would argue that it looks like the health of, of our bank competitors, consumers are getting are getting a little bit better. As far as the government shutdown goes. You know, this is not our first rodeo with a government shutdown. And we haven't really seen any impact at this particular point in time. And if I go back historically, I think the last, not the last one, but maybe the one before was like 35 days or something like that. It. It didn't really have an impact. And so and for card members that are impacted, we do have our programs, our short-term relief programs, which will get them over the hump, enable them to continue to use the product and then come back and engage with us as they normally would. So that's that's pretty much what we're seeing. Christophe Le Caillec: I don't have a lot to add. You know, I will say, you know, some indicators that reflect the strength of our portfolio, like retail spend up 12%, restaurant spend up 9%. So very strong acquisition as well with 70% of the card members joining the franchise choosing to join American Express on a fee-paying product. So the first thing they do is just like to pay a fee that shows, you know, confidence in their in the future. And of course, you know, on the credit metric, part of our job is also to kind of, you know, look at every single, you know, customer in that just to see whether there are areas of weakness and, you know, like it's very stable across the board, very strong. And. Reflected in the metrics in the reserve rate. We go, you know, there's a lot of scrutiny that goes into this modeling. And and you know, we see a lot of strength and stability across the board. Operator: Thank you. Our next question comes from the line of Mihir Bhatia with Bank of America. Please proceed with your question. Mihir Bhatia: Good morning, and thank you for taking my question. I was wondering if you could spend a couple of minutes on marketing spend and how you're thinking about that, not just into for Q, but also just longer term or into 2026. I guess, I suspect you want to continue to support the platinum refresh, but any details you can provide on where that $6 billion-ish of annualized spend is going? Maybe just give us a peek under the hood. How much is broad-based sponsorships, brand building versus like more micro like, the card member bonuses, retention type stuff? Thank you. Yeah. Christophe Le Caillec: Hey. Good morning Mihir there. Are the biggest share. And the one that is moving from one quarter to another when it comes to marketing is there a size of the welcome incentives? Right. That's the biggest share of this marketing line. And there is tension here in that number. Between we want to spend more marketing dollars, but we also want that marketing dollar to be more efficient. So if you work here in the marketing organization, you constantly battling between. Let's do more, let's spend more. And yet at the same time, let's make sure the dollars were really, really hard for us. And the, you know, the number that we end up spending each quarter and each year is the outcome of those two. Kind of like pressure points. And we are very strict and disciplined about those two. We really do not want a great opportunity to go. And so we're going to keep investing and we're going to keep investing at elevated levels. And at the same time, we're going to subject every single of this dollar to the level of rigor that we have spoken in the past, making sure that the return on that investment, we treat that as an investment meets our profitability criteria. Right. And we are very clear in terms of stopping those investments where they are not meeting these criteria. And we are getting more and more sophisticated. You know, and measuring those, tracking those and, and, you know, and that's that's how we make that decision. It's not like, let's spend this year like $6 billion. We kind of like go in very much in the detail. And it is the sum of all this kind of like analysis that leaders do. That number. That's what we've done in the past and that's what we're going to keep doing going forward. Operator: Thank you. Our next question comes from the line of Moshe Orenbuch with TD Cowan. Please proceed with your question. Moshe Orenbuch: Great, Thanks. You've kind of answered both the question about card fees and spending in terms of the refreshed. Is there, you know, some sort of a like a vintage like performance in terms of spend volumes and, you know, and therefore the key revenue driver that you could share with us, like as you kind of bring on both, you know, both from new accounts and from, you know, higher spend from existing accounts. Any ways to think about that over the next several quarters? Yeah. Christophe Le Caillec: So we're not. We're not disclosing those kinds of like numbers around spend by vintage or revenue by vintage. But what I can tell you is that intentionally, we have been, you know, back to the conversation with me here about investments and marketing dollars. We've been spending more of our dollars against fee-paying products and premium products. So the customers that are, you know, the more recent customers or indexed on these fee payment products, they also overindex on being younger customers. And we've made that point many, many times. And either this quarter we shared with our with you that everything else equal, when you look at the engagement we're getting from these younger customer, they actually tend to transact 25% more than the older cohorts. So either I'm not going to share vintages and detail numbers with you, but you know, those are the kind of like forces that are at work here. More premium younger card members, more engaged. And that's what's kind of like the dynamic in the portfolio. Stephen Squeri: Right? The only thing I'll add is that. We're getting from a younger cohort, we get a higher share of their wallet and they stay with us longer. And they grow as their lives grow. And so what we don't disclose vintage numbers. You can just philosophically look at this and say, well, if you're getting somebody younger and they're going to stay with you longer and you have a premium base that you're going after. Maybe you can conclude that they will spend more over time. And so those vintages, as you get these cardholders now tend to add more value down the road. And that's the strategy without without going through sort of this, this is who we acquired when. But if you just think about this from a strategic perspective. Younger premium cardholders, we're going to grow with them as their careers grow as their families grow as their as their life changes. And we're what we're doing here is we're really creating that loyalty and engagement so that we become that card of choice. And when you put a lot of benefits on a product. People want to engage with that product. More on an ongoing basis, whether that product, whether they're using a benefit associated with the product or not. And so that's a dynamic that's at work. Operator: Thank you. Our final question will come from the line of Rob Wildhack with Autonomous Research. Please proceed with your question. Robert Wildhack: Hey guys. One more on platinum. The $3 billion figure in partner offered value was an interesting one. As you've gone through this refresh cycle and maybe looking back over the last few cycles, refresh cycles. Now to I mean, how has that partner receptivity changed with respect to co-funding credits and rewards? And then is there anything unique or different between the products, like to call out on the same theme as you compare the gold refresh to the platinum refresh. Stephen Squeri: Well, I think you know, the nice part about sort of this product and our customer base is. People want to work with us and people that have been working with us want to work more with us. And I think there's no better example than that. Than our relationship with Uber. You know, we always we've had an Uber benefit for a long time. And now you have an Uber one benefit on there. And so they clearly see the value of working together. And it's a great partnership of working together to drive to drive results. You know, for both of us. And so, you know, it's we're very discerning about who we're going to work with. We work we try and work with, you know, as many world-class brands as we can. And you. Know what you want to do is make sure that you're putting together a value proposition that speaks across the generations. And so, as I said in my opening remarks, we've been expanding these value propositions from pure travel to much more lifestyle wellness, and, you know, retail. And so forth. And digital, you know, people live their lives that way. And so I think that, you know, as we continue to think about this and as we continue to have success here. It gets back to what we what we talk about, which is our virtuous cycle, that the more the more value we bring to our merchant partners, the more they want to engage with our cardholders, and then the more that we drive. As you think about the various products you look to target, the various value propositions to the target audience that you're going for. And if you just take if you look at sort of differential between platinum and gold. Well, gold has, you know, certain travel benefits associated with the, the, the hotel collection. It really is targeted. It has a heavy emphasis on dining. And, you know, we've talked about the success that we had with Dunkin and the engagement that our card base has, and that's worked out very well for our cardholders, very well for us and very well for Duncan as well. And so the challenge of our marketing teams is to make sure that we're not only know what our card members want, but anticipate what our card members want. And then build those into the value propositions by working with those partners that will, that will, in fact, do that. And I think, I think we've done a good job in that respect. And I think the team has really stepped up and created a platinum card value proposition. That is the best value proposition that we have ever that we ever had. And I think our customers are really appreciating it and will continue to appreciate it. Kartik Ramachandran: With that, we will bring the call to an end. Thank you again for joining today's call and for your continued interest in American Express. The IR team will be available for any follow-up questions. Operator. Back to you. Operator: Ladies and gentlemen, the webcast replay will be available on our Investor Relations website at IR.americanexpress.com. Shortly after the call. You can also access a digital replay of the call at (877) 660-6853, or (201) 612-7415. Access code. 13756151. After 1 p.m. eastern time on October 17th through October 24th, that will conclude our conference call for today. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Autoliv, Inc. Third Quarter 2025 Financial Results Conference Call and Webcast. Please note that today's conference is being recorded. I would now like to turn the conference over to your first speaker, Anders Trapp, Vice President of Investor Relations. Please go ahead. Anders Trapp: Thank you, Lars. Welcome, everyone, to our third quarter 2025 earnings call. On this call, we have our President and Chief Executive Officer, Mikael Bratt; our Chief Financial Officer, Fredrik Westin; and me Anders Trapp, VP, Investor Relations. During today's earnings call, we will highlight several key areas, including our record-breaking third quarter sales and earnings, as well as our continued strategic investments to drive long-term success with Chinese OEMs. We also provide an update on market developments and the evolving tariff landscape impacting the automotive industry. Finally, our robust balance sheet and strong asset returns reinforce our financial resilience and support sustained high levels of shareholder returns. Following the presentation, we will be available to answer your questions. And as usual, the slides are available at autoliv.com. Turning to the next slide. We have the safe harbor statement, which is an integrated part of this presentation and includes the Q&A that follows. During the presentation, we will reference some non-news GAAP measures. The reconciliations of historical use GAAP non-use GAAP measures are disclosed in our quarterly earnings release available on autoliv.com and in the 10-Q that will be filed with the SEC or at the end of this presentation. Lastly, I should mention that this call is intended to conclude at 3:00 pm CET. So please follow a limit of two questions per person. I now hand it over to our CEO, Mikael Bratt. Mikael Bratt: Thank you, Anders. Looking on the next slide. I am pleased to share yet another record-breaking quarter, underscoring our strong market position. This success is a testament to the strength of our customer relationships and our commitment to continuous improvement as we navigate the complexities of tariffs and other challenging economic factors. We saw a significant sales growth, driven by higher than expected light vehicle production across multiple regions, especially in China and North America. Our high growth in India continues, accounting for 1/3 of our global organic growth. I am pleased to highlight that our sales growth with Chinese OEMs has returned to outperformance driven by recent product launches and encouraging development. Looking ahead, we anticipate to significantly outperform light vehicle production in China during the fourth quarter. We improved our operating profit and operating margin compared to a year ago. This strong performance was primarily driven by well-executed activities to improve efficiency higher sales and the supplier compensation for an earlier recall. We successfully recovered approximately 75% of the tariff cost occurred -- incurred during the third quarter and expect to recover most of the remaining portion of existing tariffs later this year. The combination of not yet recovered tariffs and the dilutive effects of the recovered portion resulted in a negative impact of approximately 20 basis points on our operating margin in the quarter. We also achieved record earnings per share for the third quarter. Over the past 5 years, we have more than tripled our earnings per share mainly driven by strong net profit growth, but also supported by a reduced share count. Our cash flow remained robust despite higher receivables driven by higher sales and tariff compensations later in the quarter. Our solid performance, combined with a healthy debt level ratio supports continuous strong shareholder return. We remain committed to our ambition of achieving 300 million to 500 million annual in stock repurchases as outlined during our Capital Markets Day in June. Additionally, we have increased our quarter dividend to $ 0.85 per share, reflecting our confidence in our continued financial strength and long-term value creation. Expanding in China is key to strengthening Autoliv's innovation, global competitiveness and long-term growth. To support our growing support our growing partnerships with Chinese OEMs, we are investing in a second R&D center in China. In October, we announced a new important collaboration in China as illustrated on the next slide. We have signed a strategic agreement with Qatar the leading research institution setting standards in Chinese automotive sector. This partnership marks a new chapter in our commitment to shaping the future of automotive safety. Together with Qatar, we aim to define the next generation of safety standards and enhance the safety on the roads in China and globally. We're also broadening our reach in automotive safety electronics as shown on the next slide. We recently announced our plan to form a joint venture with HSAE, a leading Chinese automotive electronics developer to develop and manufacture advanced safety electronics. The joint venture will concentrate on high growth areas in advanced safe electronics, including ECUs for active spa, hands-on detection systems for steering wind and the development and production of steering wheel switches. Through this new joint venture, we intend to capture more value from steering wheels and active diesel while minimizing CapEx and competence expansion enabling faster market entry with lower technology and execution risks. Looking now on financials in more detail on the next slide. Third quarter sales increased by 6% year-over-year, driven by strong outperformance relative to light vehicle production in Asia and South America. Along with favorable currency effects and tariff-related compensation. This growth was partly offset by an unfavorable regional and customer mix. The adjusted operating income for Q3 increased by 14% to USD 271 million from USD 237 million last year. The adjusted operating margin was 10%, 70 basis points better than in the same quarter last year. Operating cash flow was solid USD 258 million, an increase of USD 81 million or 46% compared to last year. Looking now on the next slide. We continue to deliver broad-based improvement with particularly strong progress in direct costs and SG&A expenses. Our positive direct labor productivity trend continues as we reduced our direct production personnel by 1,900 year-over-year. This is supported by the implementing our strategic initiatives, including automation and digitalization. Our gross margin was 19.3%, and an increase of 130 basis points year-over-year. The improvement was mainly the result of direct labor efficiency, head count reductions and compensation from a supplier. RD&E net cost costs rose both sequentially and year-over-year, primarily due to lower engineering income due to timing of specific customer development projects. Thanks to our cost saving initiatives, SG&A expenses decreased from the first half year level combined with the increased gross margin, this led to 70 basis points improvement in adjusted operating margin. Looking now on the market development in the third quarter on the next slide. According to S&P Global data from October, global light vehicle production for the third quarter increased 4.6%. The exceeding the expectations from the beginning of the quarter by 4 percentage points. Supported by the scrapping and replacement subsidy policy we continue to see strong growth for domestic OEMs in China. Light vehicle demand and production in North America has proven significantly more resilient than previously anticipated. In contrast, light vehicle production in other high content per vehicle market, namely Western Europe and Japan, declined by approximately 2% to 3%, respectively. The global regional light vehicle production mix was approximately 1 percentage point unfavorable during the quarter. Despite the important North American market showing a positive trend. In the quarter, we did see call-off volatility continue to improve year-over-year and sequentially from the first half year. The industry may experience increased volatility in the fourth quarter, stemming from a recent fire incident at an aluminum production plant in North America. And production adjustments by key European customers in response to shifting demand. We will talk about the market development more in detail later in the presentation. Looking now on sales growth in more detail on the next slide. Our consolidated net sales were over USD 2.7 billion the highest for the third quarter so far. This was around USD 150 million higher than last year, driven by price, volume, positive currency translation effects and USD 14 million from tariff-related compensations. Excluding currencies, our organic growth sales -- organic sales grew by 4%, including tariff costs and compensation. China accounted for 90% of our group sales. Asia, including China, accounted for 20% and Americas was 33% and Europe for around 28%. We outlined our organic sales growth compared to light vehicle production on the next slide. Our quarterly sales were robust and exceeded our expectations, driven by strong performance across most regions, particularly in Americas, West of Asia and China. Based on light vehicle production data from October, we underperformed slightly production by 0.7 percentage points globally as a result of a negative regional mix of 1.3 percentage points. We underperformed slightly in Europe, primarily due to an unfavorable model and customer. In the rest of Asia, we outperformed the market with 8 percentage points, driven primarily by strong sales growth in India and to a lesser extent, in South Korea. While the organic light vehicle production mix should continue to impact our overall performance in China, our sales to domestic OEMs grew by almost 23%. ,8 percentage points more than their light vehicle production growth. Our sales development with the global customers in China was 5 percentage points lower tender light vehicle production development as our sales declined to some key customers, such as Volkswagen, Toyota and [indiscernible]. On the next slide, we show some key model launches. The third quarter of 25% or a high number of new launches, primarily in including China. Although some of these new launches in China remain undisclosed here, confidentiality, the new launches reflecting a strong momentum for Autoliv this important market. The models displayed here feature Autoliv content per vehicle from USD 150 to close to USD 400. We're also pleased to have launched airbags and seatbelts on another small Japanese cars, this is the main [indiscernible] Autoliv has historically had limited exposure to these segments in Iran. In terms of Autoliv's sales potential, the [ Onvo ] L9 is the most significant. Higher content per vehicle is driven by front center airbags on five of these vehicles. Now looking at the next slide. I will now hand it over to Fredrik Westin. Fredrik Westin: Thank you, Mikael. I will talk about the financials more in detail now on the line. So turning to the next slide. This slide highlights our key figures for the third quarter of 2025 compared to the third quarter of 2024. The net sales were approximately $ 2.7 billion, representing a 6% increase. The gross profit increased by $ 63 million and the gross margin increased by 130 basis points. The drivers behind the gross profit improvement were mainly lower material costs positive effects from the higher sales and improved operational efficiency. This was partly offset by negative effects from recalls and warranty, depreciation and unrecovered tariff costs. The adjusted operating income increased from $ 237 million to $ 271 million, and the adjusted operating margin increased by 70 basis points to 10.3%. The reported operating income of $ 267 million was $ 4 million lower than the adjusted operating income. Adjusted earnings per share diluted increased 26% or by $0.48, where the main drivers were $0.29 from higher operating income from taxes and $0.08 from lower number of shares. This marks our ninth consecutive quarter of growth in adjusted earnings per share, underscoring the strength of our ongoing operational improvements and further bolstered by a reduced share count from our share buyback program. Our adjusted return on capital employed was a solid 25.5%, and our adjusted return on equity was 28.3%. We paid a dividend of $0.85 per share in the quarter, and we repurchased shares for USD 100 million and retired 0.8 million shares. Looking now on the adjusted operating income bridge on the next slide. In the third quarter of 2025, our adjusted operating income increased by $ 34 million. portion attributed with $ 43 million, mainly from higher organic sales and from the execution of operational improvement plans, supported by better call-off volatility. The out-of-period cost compensation was $ 8 million lower than last year. Costs for RD&E net and SG&A increased by $ 30 million, mainly due to lower engineering income. The net currency effect was $ 6 million positive, mainly from translation effects. Last year's supplier settlement and this year's supplier compensation combined had a $ 29 million positive impact. The combination of unrecovered tariffs and the dilutive effect of the recovered portion resulted in a negative impact of approximately 20 basis points on our operating margin in the quarter. Looking now at the cash flow on the next slide. The operating cash flow for the third quarter of 2025 totaled $ 258 million, an increase of $ 81 million compared to the same period last year, mainly as a result of higher net income, partly offset by $ 53 million negative working capital effects. The negative working capital was primarily driven by higher receivables, reflecting strong sales and delayed tariff compensation towards the end of the quarter. Capital expenditures net decreased by $ 40 million. Capital expenditures net in relation to sales was 3.9% versus 5.7% a year earlier. The lower level of capital expenditures net is mainly related to lower footprint CapEx in Europe and Americas and less capacity expansion in Asia. The free operating cash flow was $ 153 million, compared to $ 32 million in the same period the prior year from higher operating cash flow and the lower CapEx net. The cash conversion in the quarter, defined as free operating cash flow in relation to the net income was around 87%, in line with our target of at least 80%. Now looking at our trade working capital development on the next slide. The trade working capital increased by $ 197 million compared to the prior year, were the main drivers for $165 million in higher accounts receivables, $ 8 million in higher accounts payables and $40 million in higher inventories. The increase in trade working capital is mainly due to increased sales and temporarily higher inventories. In relation to sales, the trade working capital increased from 12.8% to 13.9%. We view the increase in trade working capital is temporary as our multiyear improvement program continues to deliver results. Additionally, enhanced customer call of accuracy should enable a more efficient inventory management. Now looking at our debt leverage ratio development on the next slide. Autoliv's balanced leverage strategy reflects our prudent financial management, enabling resilience, innovation and sustained stakeholder value over time. The leverage ratio remains low at 1.3x, below our target limit of 1.5x and has remained stable compared to both the end of the second quarter and the same period last year. This comes despite returning $ 530 million to shareholders over the past 12 months. Our net debt increased by $ 20 million and the 12 months trailing adjusted EBITDA was $ 41 million higher in the quarter. With that, I hand it back to you, Mikael. Mikael Bratt: Thank you, Fredrik. On to the next slide. The outlook for the global auto industry has improved call for North America and China. While the industry continues to navigate the trade volatility and other regional dynamics, S&P now forecast global light vehicle production to grow by 2% in 2025, following growth over -- of over 4% in the first 9 months of the year. The outlook for the fourth quarter has significantly improved. Nevertheless, they still anticipate a decline in light vehicle production of approximately 2.7% in the quarter. In North America, the outlook for light vehicle production has been significantly upgraded driven by resilient demand and low new vehicle inventories. However, a recent fire incident at an aluminum production plant in North America may impact our customers. For Europe, S&P forecast of 1.8% decline in light vehicle production for the fourth quarter despite some easing of U.S. import tariffs. We continue to see downside risks for Europe, like the European light vehicle production, driven by announced production stoppage at several key customers. In China, light vehicle production is expected to decline by 5%, primarily due to an exceptionally strong Q4 in 2024. Nevertheless, S&P anticipate sustained growth in Chinese LVP over the medium term, supported by favorable government policies for new energy vehicles. more relaxed out the loan regulations and increasing export volumes. The outlook for Japan Light vehicle production has improved as carmakers are increasingly shifting exports to markets outside the U.S., aiming to mitigate reduced export volumes to the U.S. In South Korea, domestic demand has been steadily recovering, while exports have also risen driven by increased shipments to other regions compensating for the decline in exports to the U.S. Now looking on our way forward on the next slide. We expect the fourth quarter of 2025 to be challenging for the automotive industry with lower light vehicle production and geopolitical challenges. However, our continued focus on efficiency should help offset some of these headwinds. Consistent with typical seasonal patterns, the fourth quarter is expected to be the strongest of the year. Despite the expected decline in global light vehicle production year-over-year, we foresee higher sales and continued outperformance, particularly in China. Unfortunately, we are also facing some year-over-year headwind. Unlike the past 3 years, we do not expect out-of-period inflation compensation in the fourth quarter given the shift in the inflationary environment. We expect higher depreciation costs due to new manufacturing capacity to meet demand in the key regions and that the temporary decline in engineering income will persist, driven by the timing of specific customer development projects. These factors combined in the reason for why we currently expect the full year adjusted operating margin to come in at the midpoint of the guided range. However, our solid cash conversion and balance sheet provides mentions and a robust foundation for maintaining high shareholder returns. Turning to the next slide. This slide shows our full year 2025 guidance which excludes effects from capacity alignment and antitrust-related matters. It is based on no material changes to tariffs or trade restrictions that are in effect [indiscernible] 2025. As well as no significant changes in the macroeconomic environment or changes in customer call of volatility or significant supply chain disruptions. Our organic sales is expected to increase by around 3%. The guidance for adjusted operating margin is around 10% to 10.5%. With only 1 quarter remaining of the year, we expect to be in the middle of the range. Operating cash flow is expected to be around USD 1.2 billion. We now expect CapEx to be around 4.5% of sales. revised from the previous guidance of around 5%. Our positive cash flow and strong balance sheet supports our continued commitment to a high level of shareholder return. Our full year guidance is based on a global light vehicle production growth of around 1.5% and a tax rate of around 28%. The net currency translation effects on sales will be around 1% positive. Looking on the next slide. This concludes our formal comments for today's earnings call, and we would like to open the line for questions from analysts and investors. I now hand it back to [indiscernible]. Operator: [Operator Instructions] And the questions come from the line of Colin Langan from Wells Fargo. Colin Langan: You raised your light vehicle production forecast from down 1.5% to up 1.5%, but organic sales didn't change why aren't you seeing any benefit from the stronger production environment on your organic? Fredrik Westin: Yes. Thanks for your question. So the -- there are a couple of components here. I mean, first one is that some of these adjustments that we also don't take into account are for past quarters. So some of the volumes have been raised in -- also in the first half, whereas we had already recorded our sales for that. So that doesn't -- so then we had a different outdoor underperformance in the first half of the year. So that's one part of the explanation. And then we also see a larger negative mix now after 9 months and also expect that for the full year. That is close to 2 percentage points. This negative market mix, which is also one of the reasons. And that's even less unfavorable now than we saw at the quarter ago. So those are some explanations. And then on top of that, we see that some of the launches in China have been a bit delayed and that they are not coming through fully in line with our expectations that we had here about a quarter ago. So those are the main reasons why you don't see that LVP estimate increase comes through on our organic sales guidance. Colin Langan: Got it. And then the margin in the quarter was very strong. I thought Q3 is typically your -- one of your weaker margins. Anything unusual in the quarter? I noticed you flagged supplier settlements. I kind of get the nonrepeated bad news last year. Is the $15 million of supplier compensation additional good news, is that onetime in nature? How should we think of that or anything else that's maybe possibly onetime in nature in the quarter that drove the strong margin? Mikael Bratt: Yes. The $ 50 million there is a one time. It is compensation from a supplier for historical cost that we have versus our customers there. So it's onetime in the quarter here for previous costs that we have had. So I would say here also that I think what you saw in the quarter here was that we had slightly higher sales than expected. So that was an important component, of course. But I think most importantly here is that we continue to see a very strong delivery of the internal improvement work that we are so focused on and that we have been focused on for a while leading to our targets here. So good work done by the whole poly team here across the whole value chain. Operator: And the questions come from the line of Björn Enarson from Danske Bank. Björn Enarson: On your implied guidance for Q4 and also on your -- a little bit cautious comments on Q4, it looks like there are a little bit of temporary negative effects that you are talking about or should we extrapolate the Q4 trends looking into 2026? Or are you quite happy with the productivity work and also that call-offs looks again a little bit better. So should we have as a base assumption that you should progress again towards the midterm target of 12%? Or how should we look upon that? Mikael Bratt: I think, I mean, first of all, that we feel confident when it comes to our ability to eventually get to our 12% target. No doubt about that. And I mean what you see here in the Q3, Q4 movement here is nothing if you read into that. I think, as I said before here, I mean, we see very good progress in terms of the activities that we control ourselves here, and we see really good traction when it comes to the strategic initiatives that we have outdone some time back. So good progress there. I think -- when you look at Q4 -- over Q4 here, it's, I would say, more of, first of all, a normalization of the quarters here. I mean, is still the strongest quarter in the year. But of course, in the previous last 2, 3 years here, it has been more pronounced since we had this out-of-period compensation that we referred to earlier here. Which you will not see in the same way now in this quarter in Q4 2025. So that there is a difference there. And I would say also here, I mean, you have seen a little bit stronger Q3 when it comes to sales and there is a timing effect between Q3 and Q4 compared to when we looked into the second half year. So there is also a part of the explanation. But the bottom line here, we feel comfortable with our own progress here towards the target that we have. Fredrik Westin: And then maybe just to build on that, just one more detail on the fourth quarter. we do expect that we will have a slightly lower engineering income also in the fourth quarter, as you saw on the third quarter. This is temporary, and it's very dependent on how the engineering activities are with certain customers. And this should then also recover in 2026. Björn Enarson: Okay. I saw that comment. And did you say it's likely to be recovered then in early next year then? Fredrik Westin: Or next year, overall, yes, should be a recovery ratio that is more in line with -- or a bit higher now than what you see in the second half of this year. And that's, again, very dependent on engineering activities with certain customers and how they reimburse us. Mikael Bratt: Yes. Because in some cases, it's built in, in the Peace pricing. In some cases, it's paid like engineering income specifically. Depending on how that mix looks over time, of course, you have some smaller fluctuation and that is really what we refer to [indiscernible]. Operator: And the questions come from the line of Tom Narayan from RBC. Gautam Narayan: Maybe a follow-up to that last one. The Q4 guidance. You called out three headwinds, the less compensation on inflation I guess, the higher depreciation and then this engineering income. Just wondering if you could dimensionalize those three in terms of order of magnitude for Q4. I mean, we know the engineering income is temporary. The other two, I guess, depends on certain factors. Just trying to dimensionalize those three in terms of what is temporary and what continues. And then I have a follow-up. Fredrik Westin: Yes. So I think the income, you can look at the Q3 on a year-over-year basis and how that -- as a percent of sales. And that, I think, is a pretty good indication also for how that could be in the fourth quarter. And that's the largest headwind we will have. The next one is the fact that we had this out of period, the compensation from our customers related to inflation compensation last year that falls away this -- the second largest and the third largest is the depreciation expense increase. Gautam Narayan: Okay. And then on the China commentary, we did see -- I think the ID is losing share in China due to some just government initiatives and whatnot. I would have thought that alone would maybe benefit you guys more? I know macro in China, the domestics are doing better than the global. So I see that. I understand that. But just wondering if the share loss at BYD's seen. I know you're under-indexed to them is benefiting you guys? Mikael Bratt: Yes. I mean in the overall mix, of course, since we are selling components to them, and you see them -- their portion of the total market flattening out. Of course, it's supportive in the sense of measuring our outperformance relative to COEMs, LVP as such. So mathematically, yes, that effect that. Operator: And our next questions come from the line of Mike Aspinall from Jefferies. Michael Aspinall: One first on India. It was 1/3 of the organic growth. Can you just remind us where we are in the shift in content per vehicle in India and how large India is in terms of sales now? Mikael Bratt: Yes. I think we are see the strong development in India there and as I said, 1/3 of the growth in the quarter it's today around 5% of our turnover is coming from India. It's not long ago, it was around 2%. So a significant increase of importance there. And we have a very strong market share in India, 60%. So of course, we are benefiting well from the volume growth you see there. And we're expecting India to continue to grow, and we have also invested in our industrial footprint there to be able to defend our market share and to capture the growth here. And content-wise, we expect it to go from it went from $120 in 2024 to roughly USD 140 this year. So you have both content and LVP growth in India to look forward. Fredrik Westin: And then we are to around $160 to $170 in the next couple of years. Michael Aspinall: Great. Excellent. And one more. Just on the JV with [ Hancheng ] chain, who are you purchasing these items from before? Were you purchasing from [ Hancheng ] and now to JV or have you formed a JV with them and we're purchasing from someone else previously? Mikael Bratt: I mean they have been an important supplier to us in the past as well. And of course, we have worked with them and established a very good relationship there. I could say it hasn't been exclusively with them. We have a global supplier base here, but we see a great opportunity here to not only produce but also develop components for our future models and programs here, we work together here, both on development and manufacturing. Michael Aspinall: Okay. So they're moving, I guess, from a supplier and now you guys are going to be working together. Operator: And the questions come from the line of Vijay Rakesh from Mizuho. Vijay Rakesh: Mike, just quickly on the China side. I know you mentioned subsidies. When you look at the NAV and the scrapping subsea, fleet is down 50% this year. Do you expect that to be extended to '26? Or is there going to be another step down? And I have a follow-up. Mikael Bratt: Yes. We I will say we are not speculating in that. So I guess it's anybody is yes here. But I think, overall, we definitely look very positively on China. And as we have mentioned here before, we are growing our share with the Chinese OEMs here and good development in the quarter here. And we're also investing in China as well here. So as I mentioned in the presentation here earlier, I mean, we are investing in a second R&D center in Wuhan to make sure that we also continue to work closer with the broader base of customers there to adding capacity. We talked about the JV of now here. And then also the partnership with Qatar care here is important steps here. So all in all, looking positively on China going forward here for sure. So subsidies or not, we will see. But overall, it's pointing in the right direction here. Vijay Rakesh: Got it. And then I think on the -- as you look at the European market, a lot of talk about price competition and imports coming in from Asia and tariffs, et cetera. How do you see the European market play out European auto market play out for 2026? Mikael Bratt: Yes. I think we wait to comment on '26 for the next quarterly earnings here when it's can for it. But as we have said here for the remainder of the year, we are cautious about the European market more from a demand point of view than anything else. I think -- that's really the main question mark around the market and anything else in terms of OEM reoffering or anything like that. I mean it's really the end consumer question. it comes to you. Operator: And the questions come from the line of Emmanuel Rosner from Wolfe Research. Emmanuel Rosner: My first question is actually a follow-up, I think, on Colin's question around the organic growth outlook, which is unchanged despite the better LDP. I'm not sure that I understood all the factors, but if we wanted to frame it as like growth above market, initially, you were going to grow 3% despite a shrinking market, now growing 3% in a market that would be growing 1.5%. Can you maybe just go back over the factors that are driving this different expectation for outperformance? Fredrik Westin: Yes. In that sense, I mean the largest change over yes, a couple of quarters here since we started the year is the negative market mix. So as I said, we now see a negative market mix for the full year of around 2 percentage points. and that has deteriorated over the course of the year. But that's the largest part. Then we also have seen here in the third quarter, also the negative customer mix for us in mostly North America and Europe. So that's also a deviation to what we expected going into the year. And then the last one that I already mentioned before is that we see some delays on the new launches, in particular in China. So they're not coming through at the same pace that we had expected originally. Emmanuel Rosner: Understood. And if I go back to your framework and your midterm margin targets. Can you just maybe remind us the drivers that will get you from the 10% to 10.5% this year towards the where are we tracking on some of those? And I did notice that you mentioned improved cold pull-offs accuracy, both sequentially and year-over-year. Is that something that you expect to continue and that will be helpful for that. Fredrik Westin: The framework has not changed, as you would probably expect. So it's still -- if we take 2024 as the base point adjusted operating margin, we still expect 80 basis points improvement from the indirect head count reduction. In the reported numbers here now, you don't see a movement in that, but we had about employees from a labor law change in Tunisia that we now have to account for head count that distorts that number. You adjust for that, we would also have shown further progress on the indirect head count reduction. So that is well on track. There was a 60 basis points from normalization of call-offs. That is developing well. We saw 94% call of accuracy here and also in the third quarter, which is an improvement on a year-over-year basis. We also talked about that we have decreased our direct head count by 1,900 people despite that organic growth was up 4% on a year-over-year basis. So that's tracking very well. And then the remaining 90 basis points would be from growth component, where we are a little bit behind now this year as we laid or as you talked about before, and then from automation digitalization. And there again, you can see, I think, on the gross margin, even if you exclude the settlement here with the supplier, you can also see there that we are progressing well on that component. Operator: And the questions come from the line of Jairam Nathan from Daiwa Capital Markets. Jairam Nathan: I just wanted to kind of go back to the announcement in out of China. Just wanted to understand the timing, it seems it kind of coincided with also the -- with the announcement of Adient, the 0 gravity product. So just wonder is there -- is this the timing related to some -- a new business win or more opportunities there? Mikael Bratt: You're talking about JV or? Jairam Nathan: The JV, the Qatar partnership as well as the kind of announced you kind of finalize the Adient gravity product. Mikael Bratt: I was going to say they're not connected at all as such because, I mean, the JV here is really to vertically integrate in an effective way together with the partner to gain a broader product offering here to say that we also yes, more to our end customer, basically. Qatar is, of course, a development collaboration to make safer vehicles safer roads for everyone. So it's including light vehicles, commercial vehicles and valuable radiuses, meaning 2-wheelers, et cetera. So the broad-based research collaboration there. And then the AGM, of course, is connected to the 0 gravities. So I mean, yes, to some extent, of course, they are all about safety products as such, but they are not connected in any way. Jairam Nathan: Okay. And just a follow-up, I wanted to understand the lower CapEx. Is that something that can be maintained in as a percentage of sales into the future? Mikael Bratt: Yes. I think, I mean, we have been talking about this in the past also that our ambition is to bring down the CapEx levels in relation to sales compared to where we have been -- and we've been through a cycle here where we have investing a lot in our facilities around the world here, Europe, where we have consolidated and upgraded a number of plants in BI investments we talked about before. expanding capacity in China. We also upgraded in Japan, et cetera. So last couple of years here, we have invested heavily in upgrading our industrial footprint, and we are coming out now into a more normalized phase here, and that's why we can bring it down here. So we are not expecting to see CapEx jump up back in the near term here. Operator: The questions come from the line of Hampus Engellau from Handelsbanken. Hampus Engellau: Two questions from my side. Maybe [indiscernible] question, but if I remember correctly, you covered about 80% of the tariff costs in the second quarter, and the remaining 20% came in Q3, and now you're moving around 20% for Q3, you would get in Q4. Is the net effect like 100% compensation, if you account for the things you that came from second quarter to Q3? Or you still a net negative there on the margins? Mikael Bratt: Let's take the first that one. We are still net negative here, as we said, we have received some of the outstanding 20 in the second quarter. But most of it remains still. And then in the third quarter here, we got 75. So we have accumulated more outstandings from Q2 to Q3. But as we have indicated here, we still expect to get full compensation and catch up on this in the fourth quarter fully compensated. That's our expectations here. Of course, the work is ongoing here as we speak with debt, but that's the net result right now. Hampus Engellau: Fair enough. And the last question was more related to from what you see today in terms of launches for 2026, maybe compared to 2025 if you have -- could share some light on that? Mikael Bratt: I have no figure yet for '26 to share with you here. But I think in general terms, I mean, we have good order intake here to support our overall market position here. We see, however, some especially on the EV side, planned programs or launches being delayed or canceled here. So there are some reshuffling there. But what kind of impact that we have in '26 compared to '25, we are not ready to communicate that yet. But we, as I said, we have good order intake to support our market position. Operator: And the questions come from the line of Edison Yu from Deutsche Bank. Yan Dong: This is Winnie Yan for Edison. My first question is on the supplier contract that came out of GM, indicating maybe like a more -- a less favorable contract terms of suppliers on a go-forward basis. Just curious if this is something that's more isolated and more depends on like the OEM. Or do you see like heading into [indiscernible] maybe a broader trend that can close potentially as a headwind heading to next year and [indiscernible]. Mikael Bratt: Yes. No, I don't want to comment specific customer contracts or conditions here. But of course, I mean, it's constantly ongoing development here in terms of what the OEMs wants to put into the contract. But I would say that I see good ability to manage those clauses and contracts that are put in front of us here. And I must say I don't feel any major concerns around more difficult situation. I think we are quite successful in negotiating and settling contracts with our customers here. So nothing exceptional there from our point of view, I would say. Yan Dong: Got it. And then on the Ford fire impact, you did mention some potential impacts into 4Q. So I was just curious if you can help us delineate that? Is that something to be concerned about? Or is it more of a negligible impact for you guys? Mikael Bratt: Yes. I think I mean every car that is not produced is not a good thing, of course, and especially the customer in question here. But I mean you have seen the announcement made by the OEMs here. And just as a reference here, I mean, the Ford 150 is around 1% of our global sales. And so we're so good about this manageable level from our point of view. Operator: And the next question come from the line of Dan Levy from Barclays. Dan Levy: Great. I just wanted to just follow up on that prior question. The headlines on Experia yesterday causing some potential supply issues. Just how much of that of a potential risk have you seen or heard on that in the fourth quarter for European production? Mikael Bratt: For the European production. No, I think it's too early to comment on that. I mean it's just a few days hours or most into the situation here. I think, first of all, I think we have a very good supply chain team that are a lot here and are managing through the situation here. We have been here before with supply chain cost gains. And I would say, the last couple of years, there has been many topics here. So I mean, the team is well prepared to maneuver through it. And we'll see and come back on that, but I would say it's too early to be too granular or to detailed around. And as I said solid [indiscernible] we don't see so much yet on the customers. Dan Levy: Just as a follow-up, I wanted to double-click on the China performance. So you did very well outperformance with the domestic OEMs. But in spite of that, the total China performance was negative 3 points even though the domestics are the clear majority, I think we were all a bit sure, I know you sort of unpacked this a bit before in one of the prior questions. But can you maybe just explain the dynamics of why even though you outperformed the domestic, the overall China performance was negative. And what -- can you explain what flips going forward that is leading you to say that your China growth going forward should outperform. Mikael Bratt: Yes. I mean we still guide for us, as we said before here, I mean, we believe that we will see improvements here in the quarter to come. And I think it's a really important milestone here what we reported on the COEM outperformance, which was really strong here in the quarter. But still, the global OEMs is the biggest majority of our total sales. And some of our customers here that are significant had a negative mix impact on us this quarter, unfortunately. So what was on the negative side here. But we don't see this as major trend shift here it's mix effect that we see from quarter-to-quarter. But I think the important takeaway here is that we see this strong growth development to the Chinese OEMs that is also growing their share of the total market. So that sets us up for our development in China over time. Operator: Given the time constraints, this concludes the question-and-answer session. I will now hand back to Mr. Mikael Bratt for closing remarks. Mikael Bratt: Thank you very much, [indiscernible]. Before we conclude today's call, I want to reaffirm our commitment to meeting our financial targets. We remain focused on cost efficiency, innovation, quality, sustainability and mitigating tariffs. As of this ongoing market headwinds, we anticipate strong fourth quarter performance. Our fourth quarter call is scheduled for Friday, January 30, 2026. Thank you for your attention on to the next time. Stay safe. Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Bank OZK Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jay Staley, Managing Director of Investor Relations and Corporate Development at Bank OZK. Please go ahead. Jay Staley: Good morning. I'm Jay Staley, Managing Director of Investor Relations and Corporate Development for Bank OZK. Thank you for joining our call this morning and participating in our question-and-answer session. In today's Q&A session, we may make forward-looking statements about our expectations, estimates and outlook for the future. Please refer to our earnings release, management comments, financial supplement and other public filings for more information on the various factors and risks that may cause actual results or outcomes to vary from those projected in or implied by such forward-looking statements. Joining me on the call to take your questions are George Gleason, Chairman and CEO; Brannon Hamblen, President; Tim Hicks, Chief Financial Officer; and Jake Munn, President, Corporate and Institutional Banking. We will now open up the lines for your questions. Let me now ask our operator, Gigi, to remind our listeners how to queue in for questions. Operator: [Operator Instructions] Our first question comes from the line of Stephen Scouten from Piper Sandler. Stephen Scouten: So George, you and Brannon and your whole team, obviously know these real estate markets better than any of us. I'm wondering from the heightened fear peak of like 2023 to today, if you could give some commentary on how absorption is trending in some of these various classes, whether it's office, industrial, land, kind of how you view those in the landscape today, the attractiveness of each of those, how they're trending? And additionally, maybe on these 2 new loans that moved to substandard, how we can think about when the ACL would tend to get recognized? Because obviously, the Chicago loan doesn't appear to have an ACL and the Boston one appears to have a massively significant ACL already associated with it. So just kind of understanding some of the puts and takes as those loans migrate. George Gleason: Yes. Let me take that last part of your question, and then I'll turn it over to Brannon for some more general commentary on what we're seeing. In regard to the -- we did have 3 loans migrate one from substandard to substandard nonaccrual, that loan had a significant charge-off on it that recognized our exposure on that. We had a significant reserve for it last quarter, but that did manifest itself in a charge-off. And that's a good example to answer your question, when do you -- when does a reserve on a loan become a charge-off, and that is when it becomes evident that we're moving forward with a liquidation or other resolution of that, that's not as an ongoing loan. The second project, you mentioned the Chicago project. We took -- when we moved that, that move from special mention to substandard nonaccrual, we took the charge-off on that, reducing that to what we consider a liquidation value on that asset. The third asset you mentioned moved from special mention to substandard. And we put a sizable reserve on that, representing what we think is a wide range of potential outcomes on that. Those sponsors are continuing to actively work a really good lease prospect and maybe others, I'm not aware of, but I know they've got one really good lease prospect that they're far along with. And hopefully, there'll be the winning proponent on that. They're also evaluating how to recapitalize that project and go forward. I think by the end of this next quarter or into Q1, we'll have more clarity on that. Now with that said, I've read some of the analyst reports that have already been written on our release last night, and it seems that the universal characterization is it was a mixed bag on asset quality. And I would certainly agree that, that's an accurate picture. We did have those 3 migrations and a couple of charge-offs on that. None of those were surprises. They were all either substandard or special mention assets. But the flip side of that is we -- on the positive side, we had our largest foreclosed asset, which constituted more than half of our foreclosed assets that Lincoln Yards land in Chicago sell during the quarter at the book value we had it on the books for. So that was a big win. And the second and third largest OREO assets that we had at June 30, which are now our first and second largest OREO assets are both under contract as of October 2, with expected closings this quarter, and those will have neutral to positive gains on sale, breakeven to gain on sale on those if they close and assuming they do close, we never know they're going to close until they do. But if they do close, we'll have a positive outcome on that. So I think we're doing a really good job of resolving credits that do come into the foreclosed asset category in a very effective way and feel good about that. I think that's a positive. The other thing that I think is a positive, if you look at our combined special mention substandard and foreclosed assets, that aggregate number was actually down modestly during the quarter. So reflected a pretty stable asset quality from that front. The third or fourth point, I guess, I would make is on Page 29 of our management comments, we've talked for years now since the beginning of the COVID-19 pandemic about the importance of sponsor support. And we had an outstanding quarter in sponsor support. We had 41 loans that reached a maturity that were extended and modified. We had almost $70 million of additional reserve deposits posted in connection with those modifications, extensions. We collected $13.5 million of fees. We had over $80 million of unscheduled paydowns on those loans and $14 million of unfunded balances that were curtailed as a result of those. So some of those numbers are among the highest over the 13 quarters that we've been tracking and reporting that data. So while you did have 3 loans migrate risk rating-wise, which you'd always prefer to not see, but they were identified credits, we had just a number of really strong sponsor support examples in our modifications and extensions. And then the final point I'd make before I turn it over to Brannon in that regard is you've seen an infusion of liquidity into the CRE space as evidenced by the record level of RESG paydowns in the quarter just ended. And we've been communicating for some time that we expected a high level elevated RESG paydowns for a number of quarters. That reached a new height in the quarter just ended. That should not have been a surprise to anybody because we've been talking about it for a number of quarters now. But it does reflect the fact that there is a growing degree of liquidity for refinance options and that sponsors are reaching the point that they're willing to grab on to some of those refinance options. So all that is kind of my view on the credit quality front. I'll let Brannon address what he's seeing in the -- at the ground level project, project CRE trend. Paschall Hamblen: Yes. Thanks, George. Thanks, Stephen, for the question. I think broadly, a lot of the things that George just described are evidence of continued improvement in real estate markets. Our largest concentration in real estate on the residential side, multifamily and then through condos in there as well. And that's -- that particular part of the world has been performing very well across the portfolio. But then as you work down, you mentioned office and industrial, and we were pleased in both cases with the continued absorption leases that are being signed up in various projects across the country. There are markets that are hotter, that are -- they've filled up, they've used up all the really strong Class A office space. And that trend of flight to quality just continues. We see it everywhere we go. And as leases roll, it takes a little bit longer for an office contract to work its life than it does an apartment. And so it takes time to see the ultimate degree and magnitude of the migration from lower quality projects to higher quality projects, but we're encouraged at how we're seeing that take place in a number of markets across the country. I mentioned industrial. We continue to see good lease-up there. And I know that we had -- saw a question around industrial appraisals. We're -- all our appraisals on these projects are reflecting the current state of markets, whether it's strong leasing or lesser leasing. And we're really pleased, as always, at our basis in these deals that may be not moving quite as quickly as the others that are really leasing up well. So good activity there. And the office space strength has been strong enough that you're starting to get a bleed over in the life science sector. Those markets where there's just not enough really high-class office for tenants to move to our sponsors in the life science world where demand has been slower, are -- we're seeing them being open and courting tenants that are more of a traditional office use in those projects. And of course, as we've noted several times over the past, our basis in those projects makes an office lease a very executable proposition. So while life science has not attained the level of the magnitude velocity of leasing that office has, you are starting to see office be considered and impactful to projects that are otherwise labeled life science. So you've got all the things George mentioned as evidence of the recovery in the commercial real estate markets. You've got perhaps a reignition of the easing cycle that will take some pressure, slow some headwinds with respect to both sponsors and real estate projects with respect to tenants and operating businesses and all the impact that, that has. And obviously, the capital markets are giving a nod to those market dynamics in the origination of a lot of loans, many of which are coming to take our projects away. And as has been mentioned, our payoffs this quarter are a pretty significant indicator of that. Stephen Scouten: Yes. Fantastic level of detail. Really appreciate that. And maybe flipping the script a little bit, reading through the management commentary, management comments and I went back and read, gosh, a bunch of them last night, all the way back to like 2017, it feels like you guys are about as bullish as I remember reading as it pertains to 2027 loan growth and kind of how you're positioned to be opportunistic there. And it seems like a lot of that is getting past the wall of these older vintage repayments in RESG. But just kind of if you could comment further on that, it sounds like mid-single-digit growth expected in '26, meaningfully more expected in '27. So I don't know if you can frame that up at all, but it feels like loan growth and fee income growth, you're both pretty bullish on as we get into '27. And just any additional commentary there would be great. George Gleason: Yes. Yes, Stephen, I think you correctly understand how we view the future here. Obviously, 2022 was RESG's record origination year. We originated $13.8 billion. We give that in that year. We give that cadence chart in our management comments document and have for years that -- Tim, what page is that on? Tim Hicks: Page 13, figure 13. George Gleason: Page 13, figure 13, in the management comments document that shows that cadence. And we have told people for years that most of these loans have a 3- to 4-year life cycle. So it's no surprise to anyone that's been following our stock that we would have an exceptionally high level of RESG payoffs in 2025, probably late 2025. You certainly saw that in the quarter just ended. And in 2026 as those loans kind of reach that 3-, 4-year time frame. So we've known since we were celebrating the extraordinary level of originations in 2022 that, gosh, we were going to be having to pedal hard to keep up in '25 and '26. And that realization was a strong impetus behind our effort to really ramp up our CIB group and diversify and build its origination capabilities so that we could achieve a handoff of the growth baton from RESG as it was absorbing that payoff wave to another business unit that could match the quality that we've traditionally had in RESG, that 12 or 13 basis point life of portfolio sort of net charge-off number, that high asset quality and also originate in significant volume. So our timing there I think, was very good. If I were criticizing my leadership as CEO, I would have said, gosh, we should have started CIB a year sooner, and the timing would have been perfect. But we started it when we had the human resources lined up and felt like it was time to go on it. And we're pretty close to spot on there. So what I think happens is that RESG repayment wave just continues through '26 as we grind through the natural payoff cycle from all those '22 originations. And of course, there'll be a few older and a few newer originations that will pay off next year and some of the '22 will slide to '27. But next year is going to be the big payoff wave if the normal expected cadence holds true. And CIB is growing. We've really ramped up the staff there. So I think those guys are going to carry the growth ball for us next year. And of course, we would expect our high-quality indirect marine and RV business to continue to grow kind of at a similar rate of growth to what it has grown this year. We would expect our commercial banking business to grow. And with that big RESG payoff wave, we think that gets us to a mid-single-digit loan growth rate next year. But once that payoff wave is behind us and RESG is beginning to contribute positively to future growth, and we're not absorbing all those payoffs, we think we've got all of those growth engines really contributing in a meaningful way, and that really is going to lead us to some nice, very diversified growth in the portfolio in '27 and years thereafter. And at that point, I think you're 40%, 30%, or 38%, 32%, whatever, it's a much more balanced almost 3 parts of the portfolio that are more or less equal with RESG, of course, being the legacy dominant part of that, CIB being almost equal, if not equal to RESG and the commercial banking indirect piece really filling in the final kind of third part of that equation. So I think that diversification is good for asset quality. I think it's good for eliminating some of this concentration risk that's weighed on our valuation, and I think it's good for growth. So we're really excited. I think we've positioned ourselves well to be in a really good place at that point from a growth perspective. And I think we grind through with mid-single-digit growth next year, and a lot of banks out there would be happy with mid-single-digit loan growth. So we're feeling good about it. Stephen Scouten: Great. That's fantastic, George. And maybe just one accounting question to follow up on what you just said. As you migrate towards that maybe 40-40 percentage over time with CIB and RESG, if that reduces the unfunded book further, which I would think it would, that would just simply unlock more potential capital for share repurchases. Is that right on how that accounting would generally work at a high level? George Gleason: Yes. And the CIB guys are very cognizant of that. And they're focused on opportunities that not only meet our high asset quality and returns, but also have high utilization rates because we're very sensitive from our history with RESG where we've got almost as many unfunded as funded that, that capital burden of all those unfunded loans really impairs our ability to be as efficient with capital allocations as we would like to. And we've had those conversations. Of course, Jake and his team are a bunch of really smart guys. They didn't need to have that explained to them. So they are actually working to weed out some of our older legacy business in those books that has a very low utilization rate in preference to new business that's very high-quality new business, but it's going to have a higher utilization rate and less unfunded. So we're focused on that as part of the strategy. Paschall Hamblen: Yes. And George, to piggyback off of that, you can look in our management comments specifically in the CIB section. You'll notice quarter-over-quarter, we had a little bit of shrinkage in our fund finance group, for instance. That is exactly what George is explaining. We're actively, as we grow, rebalancing these legacy books to ensure that we're optimizing utilization and the deployment of capital, but also ensuring that we're getting the best return possible for our shareholders. And so you saw a little bit of a dip there in fund finance. That was primarily by design as we've shed some legacy borrowers who, in some cases, weren't even utilizing their facilities. We weren't getting the fees that we wanted out of those opportunities. Opportunity came around to exit those relationships on good terms, and so we did that. And so you'll see that continued rebalancing to George's point, of the CIB book actively as we grow to ensure that we're improving our utilization quarter over quarter over quarter. Operator: Our next question comes from the line of Manan Gosalia from Morgan Stanley. Manan Gosalia: So I appreciate all the comments on the credit for the RESG side. Can you talk a little bit about the CIB side, maybe what you're hearing, what you're seeing in the portfolio, especially given the recent headlines in the asset-backed lending, corporate banking, sponsor finance, fund finance portfolios. Can you just talk a little bit about what you're seeing there? George Gleason: Jake, do you want to take that? Jake Munn: Sure. That sounds great. Good morning, Manan. It's great to hear from you. You know, quarter-over-quarter, we actually had record origination growth for CIB. We originated nearly 2 dozen new relationships, upsized nearly a half dozen relationships, which is very exciting to see. Now what you'll see within the management comments on a net basis due to both -- some of the strategic realignment that we mentioned earlier as well as the capital markets being really active this quarter, we had a record number of bond issuance and high-yield issuances, which are blessing and a curse that took a little bit of a nick out of our outstandings growth quarter-over-quarter, but the upside is now that we have our loan syndications and Corporate Services group, we're able to reap the benefit of additional fee income from our capital markets program, which is exciting. But quarter-over-quarter, I do want to point out that it was very successful for CIB overall. Our ABLG group really led the way along with CBSF and then our new Natural Resources Group. To a lesser degree, we had great contributions from our fund finance and lender finance groups as well. And so we're excited about the continued diversification we're seeing there, the consistent growth we're seeing there and candidly, the additional fee income that we're producing in partnership with CIB's LSCS with that growth. You had touched on something that's really made the headlines lately, the NDFI space, the lender finance group. The beauty of what we're building here is we're building a wholesale banking infrastructure based on that diversification play. And so with the launch of these new business lines that we've brought into the fold, with the launch of some business lines that we're looking into on the horizon here for the next couple of quarters that we feel like will be very complementary. As a whole, our exposure to that lender finance space will continue to dilute as a percentage of the bank's overall portfolio. And so I do want to point that out as we kind of get into the nitty-gritty here on the NDFI side and some of the headline risk that you all have heard of there. The bulk of our NDFIs here at Bank OZK are really found in that lender finance group led by Jim Lyons, very experienced team. That is our former EFCS group, just to make it clear for everybody as we've renamed them and really honed in a focus on what they've been doing. But an experienced group that's locked in arms with our portfolio management and operations team to ensure deep underwriting, compliance, oversight and really a credit-focused and a credit-first mindset specifically in that space. We're a little bit different in that space than most and most that you've seen in the market that have stubbed their toes there lately. We really focus on single lender opportunities and to a degree, 2 bank club deals within that niche more than the broader syndications. We think that's important in that space because that allows us to have tighter control, allows us to have a deeper look at the underlying portfolio companies within those, the attachment points that the bank has at the loan level as well. And it also ensures that we can put in place a structure that we find to be palatable and conservative in nature, too. And so we take a little bit of a different approach there. We do a bottoms-up risking, which is very different than other institutions. We take the time to look at each portfolio company investment. We actually rate that against the bank's risk rating methodology to ensure that it meets the standards of our institution. We also dive into their policy and their procedures to ensure that they're properly monitoring these loans. And then in addition to that, we also engage third parties for field examinations, appraisals, you name it, to ensure that what we're lending to is, a, actually there; but b, is valued at the valuation that plugs into our assumptions for our overall loans. And so that's a space we've been in since 2019. That loan book has continued to grow, but grow at a much smaller pace than our other business lines. And while we remain focused and committed to that space, I do want to point out over time, it will be -- continue to be a bit diluted just with the introduction of some of these other more diversified C&I business lines. George, anything there you'd like to add? George Gleason: Yes. I'm -- you were talking about the NDFI loans, Jake, from your CIB group. But a chunk of our NDIF loans that show up on our call report are actually RESG loans. And this goes back to our long-standing relationships with a lot of the debt funds that do commercial real estate lending. And we compete with those guys, a lot of times, if they win a unitranche deal, they'll bifurcate it into a senior mezz and we're the senior lender and they're the mezz, sometimes they want to hold that whole loan on their books, but leverage it with a loan from us. And we do a loan to lenders or an NDFI loan to those guys. And we underwrite our loan to them exactly and service it and manage it exactly as if we were the senior lender on that and if we were making the senior loan. So in our view, there is no difference in the way we rate or evaluate those loans or the risk profile of those loans versus us being senior and them being mezz in the transaction. So that's a big chunk of our NDFI loans. We feel really good about that. It's business we've been doing for many years with an exemplary track record. And in CIB, we are looking at the portfolios of the lenders that we're leveraging. As Jake said, our attachment points are very low in those. It gives us a lot of comfort, insulates us from a lot of risk. I was appalled when I was listening to one of the news programs the other day and one of the executives from one of the lenders that has been called in one of these situations was on there and he said, frankly, we just need to do better underwriting. And I thought, my gosh, you're making loans to complex entities out there and you just now figured out you need to do better underwriting. I mean we are thoroughly vetting and doing very diligent underwriting on these things. And Jake really emphasized that talking about a lot of our deals we're single lender or small group lenders so that we're able to really influence that and dig in there and look at the underlying portfolios in great detail. And of course, we got locked boxes and third-party servicers and other protections there that ensure that we're doing those things the right way. Paschall Hamblen: Yes. And George, just to piggyback off that again, I think it's important to point out that the NDFI opportunities and when we're looking at our lender finance book, for instance, it's going to be -- think of BDCs, Business Development Corps, for instance, we look at how they're looking at their investments, right, concentration risking, ensuring that the bulk of their loans are senior secured loans are properly perfected. And then we also look at what industries are they focused in. We've mentioned on prior earnings calls that CIB recognizes there are certain industries out there that are currently a little bit higher risk or very competitive, but we're seeing people stretch on structures, and it makes us candidly uncomfortable. And we see that in the consumer space, the auto space, we see that in the degree in health care, venture capital and tech. And so there's a lot of BDCs and other what we classify as NDFIs that are focused in those niches and good on them, if that's their prerogative. But just like a direct loan that we would do here at Bank OZK, when we're lending to an NDFI, we look at the industries they're investing in to ensure that it is aligning with our overall credit philosophy as well. George Gleason: Yes. And that conservatism and thorough underwriting is evident in our pull-through rates. Jake, what are we running now kind of pull-through rate. Jake Munn: Great point, George. We're still sub-15%, yes. So when we look at that quarter-over-quarter, we're still being very selective on the opportunities that we're pursuing. 85% of the deals that come across our desk we're passing on primarily from a credit structuring standpoint, from a yield standpoint, the market has gotten very competitive, and we've said that quarter-over-quarter. And we're choosing to pick the spaces, pick the markets that make sense to us, and we're sticking to our guns on credit quality. We'd rather have high credit quality names here and let our products and services speak for themselves versus chasing just yield and as a result, doing a bunch of highly levered deals or deals in kind of adverse industries and asset classes. George Gleason: Yes. We're -- as we've said earlier, we're looking for CIB to become 30% to 40% of our loan book over the next several years. And obviously, even if we're 3% or 4%, we would be paying close attention to. But realizing that it's going to become an element of our loan book, we expect to rival our RESG book as far as volume. We're certainly intent on doing this right. Operator: Our next question comes from the line of Matt Olney from Stephens. Matt Olney: I wanted to switch gears a little bit, and I appreciate the commentary around the margin and the guidance for the NII in the fourth quarter. Very helpful, and that all makes sense. Just want to understand your expectations of when that margin could stabilize. If we go back a year ago, the Fed cut aggressively in the fourth quarter and the margin was down in the fourth quarter and then down a little bit more in 1Q and then stabilized in 2Q of this year. So call it a quarter or two lag after the Fed paused, we saw the NIM stabilize. So just looking for any color on when you expect the margin to stabilize as it relates to Fed cuts. George Gleason: Yes. Happy to address that. If Cindy were here today and she's off and not with us today, but if she were here, she would tell you that our predominant interest-bearing deposit product is a 7-month CD special. We have other maturities, but probably 80% or more of our CD issuance is in that 7-month time frame right now. So our variable rate loans typically tend to reprice around the time of a Fed cut. Those CDs are going to reprice 7 months later more or less. So that's a good example, Matt, of why there's a 2-quarter lag more or less. You see spread getting compressed a little bit for a couple of quarters after a Fed cut until that deposit pricing catches up. And certainly, we'll see that this quarter, I would expect with the September Fed cut and likely 1 or 2 more this quarter. So we're going to be chasing those loan yields for a couple of quarters with our deposit cost until the Fed stops and a couple of quarters after that, we should catch up. Now the other side of that equation, though, is important, and we've included in our management comments on Page 19, figure 20 that is the floor rates in our variable rate loans. So at September 30, 22% of those loans were at -- of our variable rate loans were at their floor. If the Fed cuts a quarter more, 36% will be at their floor and 50 basis points, 41%. So as we get to that 36% and then into the 40% numbers, those floor rates significantly slow down the repricing or stop the repricing of some portion of our variable rate loans. And that gives us the ability to catch up that margin differential much more quickly. So I would tell you, given where the floors are now, it's probably a couple of quarters of compressed margin following Fed cuts to catch up. But as we go through more Fed cuts, if we end up with 3 or 4 or 5 Fed cuts, we're going to begin to derive some meaningful benefit and shorten that catch-up period because we'll have a lot of those loans that will no longer adjust downward. Matt Olney: Okay. That all makes sense. Appreciate the color there. And just to also go back and clarify a comment from a few minutes ago around 2026 and 2027. I think we all appreciate the RESG paydowns are going to be elevated in '26 and continued expense build-out next year as well. It sounds like we should assume that the net income growth and the EPS growth year-over-year in '26 may not be significant. But as the loan growth accelerates in '27, it sounds like this is the year where we could see a lot more operating leverage and the EPS growth and the income growth could be more material. Is that a fair interpretation of your commentary? George Gleason: Yes, I think that's an accurate interpretation. We think that we can achieve record net interest income and record EPS next year. It's going to require a lot of work to do that and probably the year-over-year gains will be relatively small as they've been this year, while we've been building out a lot of this infrastructure for the future and absorbing -- beginning to absorb a lot of these payoffs. But we're putting up positive numbers year-over-year, we would expect to do that next year and then to really see the benefits of all that investment kick in significantly in '27 and future years. Operator: Our next question comes from the line of Catherine Mealor from KBW. Catherine Mealor: One follow-up to the margin question was just on the -- I totally appreciate the floor impact, right, and how that will limit kind of the betas as we get further cuts. And then how do we then layer on just the mix change with pricing at CIB being lower yields than the RESG book and how that can impact loan yields over the next couple of years? George Gleason: That's a good question. And obviously, on our CIB book, we typically have a little lower spread than we do on our RESG book. We do get some fees and more treasury management opportunities, other miscellaneous fees on that book. And then Jake mentioned that as our customers go to capital markets, whether it's for bond issuance or equity issuance, we have now got through our CIB team, a unit that shares in those fees and lets us participate in that. So net-net, I think CIB's revenue-generating capability is not far off RESG's on a pound per pound basis. And where we really, I think, will equalize or actually benefit from CIB is as CIB becomes a bigger part of our book and particularly if they can achieve the higher utilization rates on their credit lines that we are going to strive to achieve there. We will not have as much unfunded loan commitments on that portfolio and the diversification and elimination of our CRE concentration will let us be a little more judicious in our allocations of capital. So I think on an ROE basis, CIB will help us be actually improve our return on equity, even if on an ROA basis, there's a slight deterioration in ROA because I think it will allow us to be much more judicious in the use of our capital. Jake Munn: And Catherine, just to help there. As a reminder, as George mentioned, through LSCS and the introduction and build-out of that business line last year, and it's really ramping up now, we have capabilities to collect bond tips and other capital markets fees. We have the capabilities to collect and serve our clients from an interest rate hedging standpoint, and FX standpoint. We have the opportunity to produce income from a permanent placement standpoint, too. And so we're starting to see a real nice uptick and build there of additional fee income from LSCS, which is serving the broader bank as a whole. And then as a reminder, too, in how we do these deals, over 96.9% of our deals this last quarter or for our book, I should say, as a whole, we're either single lender, they're 2-bank club or if they're syndications, we're the admin agent, we're leading deals now or we're the JLA, and so because of that, not only can we positively impact the overall structuring of those deals, but it's allowing us to unlock substantially more fee income as we serve in more impactful roles for our clients and both a cross-sell standpoint and then also just an upfront fee and arranger fee, et cetera, standpoint. And so to George's point there, we're really starting to see a nice uptick in fees driven by that business unit, and we feel very optimistic about the future. George Gleason: Yes. And the one item that Jake and I both neglected to mention that's really super important is our deposit opportunities for noninterest deposits, noninterest-bearing deposits or low interest-bearing deposits, low-cost deposits through CIB is really an important part of the return on equity equation on that book of business. And obviously, we strive to get deposits with our RESG loans, but commercial real estate loans just don't have anywhere near the same level of deposit opportunities for low-cost deposits that you get with a CIB type of book. So that's a big part of the equation as well. Catherine Mealor: Okay. That's great. And then my follow-up is it was -- there's a lot of movement in credit, and I agree with your conversation that it was kind of a mixed quarter on credit. But it was good to see the overall level of credits basically unchanged, right? Some came in, some came out, but the overall level was unchanged. So I guess the big question is, what's kind of left to maybe come into special mention in your book? And maybe is there a way to give us some color around maybe some kind of migrations within the rest of your past credits? Like are you seeing kind of stabilization there? Or is there anything there that you're keeping an eye on? And then secondly, how do we think about how lower rates could potentially impact the health of your RESG book and perhaps limit the new inflows into special mention just because lower rates kind of help the credit of some of those projects? George Gleason: Yes. That's a great question. Obviously, all that RESG book is variable rate loans. There are a lot of floors in there, but we're not at the floors, unfortunately, on a lot of those loans. So our sponsors will, in large number, benefit from additional Fed rate cuts. That also -- a lower rate environment also creates additional opportunities for them to go to a permanent loan or go to a bridge lender that may be loaning them higher leverage money or cheaper money that will be attractive. So Fed cuts will tend to magnify to a small extent, the rate of RESG loan repayment. So it's a good thing on the quality side and good for our customers. It's a bad thing on the repayment side. But all these loans are going to pay off sooner or later one way or the other. So we're happy for our customers to get a good exit if market conditions allow that. Your other question about what else is out there and what are we watching? I would tell you, we got guys that watch every loan in our portfolio every day. So we're looking at everything all the time, and that's part of the secret of the success we've had over our history as a company and certainly our 28 years since we went public where we beat the industry's charge-off ratio every year, we're paying attention and servicing our loans in a very effective manner. As for how do you know when something is going to become -- going to migrate to those problems? Well, deteriorations in value, deteriorations in market conditions, failure to lease, all really are kind of summarized on Page 29 of our management comments where we talk about sponsor support. And that really is the key. Are our sponsors going to continue to support their projects until they get them leased or get them sold, and our track record on that. And we've said this. We said -- when the COVID pandemic started that we expected most of our sponsors would continue to support their projects until conditions normalized. We've reemphasized every quarter since the Fed started raising interest rates 13 quarters ago that we expected most of our sponsors would continue to support their projects until conditions normalize. Now there are obviously a handful of exceptions and sponsor fatigue and energy and resources to support projects gets exhausted over a prolonged period of time. So we've seen some examples of that, but they've been limited number of examples. And when we've seen those examples, that's when loans become special mention. That's when loans become substandard, that's when loans move into the OREO book and then get liquidated out. So I would say the same thing I said at month one of the COVID-19 pandemic and after the first Fed increase, we expect the majority of our sponsors -- the vast majority of our sponsors will continue to support their projects until they get a successful conclusion. They'll do it because they're high-quality sponsors. They have high-quality assets, and they have a ton of money invested in them. And that keeps them engaged in the projects. We will have some along the way where they're just become exhausted in their ability and energy and resources to support a project, and we'll deal with those when we do. And I think we're very well reserved for what we think is a plausible set of scenarios in that regard. Catherine Mealor: And any changes you're seeing to the trends in life science loans? I think that's the one asset class we're all watching and worried about. George Gleason: Brannon, do you want to talk about life science? Paschall Hamblen: Yes, Catherine, good to talk to you. I alluded to it in my comments earlier, that's been an industry that's had a lot of product delivered and less demand for its space. And I would say there's still headwinds. There's still time to have some of those projects get where they want to go. But what we are seeing is a shift in the intention -- the intended use of that space. It's -- and we've said this quarter after quarter after quarter, it absolutely has the flexibility to serve a more typical office user. And because of demand improvement that we're seeing in the office space, there's starting to be a lot more indication and real lease interest around life science space by the typical office user. So I think that's one of the green shoots that we're seeing in that space. You don't always execute exactly the way you want to. But at the end of the day, getting a user in the space to pay a rent is what it's all about. And again, as I said earlier, our basis in these life science deals is such that executing on a different use on an office use in particular, is absolutely an executable transaction. So -- and as you guys are aware, as we've said so many times about the significant good news funding that we have in these loans and the cost of building out an office tenant space is typically a good deal lower than it is for a life science tenant. So the dynamics that exist there, again, you'd love for them to all be full with life science tenants, but we're encouraged at the office markets that are pushing prospective tenants to really high-quality assets that we've financed the construction of. Operator: Our next question comes from the line of Janet Lee from TD Cowen. Sun Young Lee: On -- just given -- I know, I appreciate that we'll get more clarity in the fourth quarter and January, but on that Boston office loan that moved to a substandard accrual, is that baseline expectation that they will win that 1/3 of the building for that potential tenant? And is that how your reserve tied to this loan is baked in? Just given the size, I would appreciate if you could give a little more color on what the likely path of this loan is in your current seat. George Gleason: Yes. We certainly don't want to get ahead of our sponsor here in their negotiations. They are working hard on leasing. They're also evaluating how to recapitalize that project for a longer runway. Our reserve on it, as I said in my preliminary comments to the initial question, reflects a wide range of scenarios here. So I think we're very well reserved on this, and we're going to let our sponsor continue to work this and endeavor to execute on it, and we'll see how that plays out over the next couple of quarters. Sun Young Lee: Got it. And just switching gears to loan origination. So if I look at the third quarter, it was one of the lowest levels. And in your management commentary, you talked about the expectations for higher origination volumes for 4Q, and I would believe beyond 4Q. Can you explain to us how the third quarter is sort of an outlier quarter and then it will likely look better in that fourth quarter and beyond, just given that you also commented on RESG commitments are likely to decline, but I guess that's more of the -- more driven by the payoffs activities. I would appreciate any color. George Gleason: Yes. You are correct in surmising that our expectation for continued decline in RESG commitments is really driven by the payoffs. I think it is very likely that our very low volume of originations in the quarter just ended was an anomaly. You can never say that for sure. We'll be glad to put up another quarter of results and prove that. Hopefully, we will. What I can tell you is we've already originated in the first 2 weeks or so of the current quarter, about half the origination volume or a little more that we originated in the whole quarter last quarter. So those transactions, I think there are 3 of them that we've already closed this quarter would have been transactions we actually expected to close last quarter. But for one reason or another, they got pushed into this quarter. So we hope we'll return to a much more typical and normal level of originations in Q4 and future quarters. As I mentioned and as we mentioned in the management comments document, there are not as many new CRE projects being originated just reflective of all the various market conditions out there. There are a lot of lenders chasing those projects. So you've got a situation where you've got too many lenders chasing too few projects. That's leading to some structures and pricing and leverage points that we would not go to, that is having an impact on our origination volume. But even with that, I do think we will return more likely than not to a better, more typical origination volume in Q4 and future quarters. Operator: Our next question comes from the line of Brian Martin from Janney. Brian Martin: Most of mine have been answered here. But George, just I've been kind of bouncing back and forth between calls. But just your -- the further build-out of the CIB group, George, can you just talk about if there's a lot more stuff -- a lot more teams or people or verticals that maybe you're contemplating adding, I guess, and just kind of spell out kind of where you're thinking given the growth outlook in that unit and just give a little bit of color on that. And then just -- I know you've talked about in the past the fee income opportunity given it's such a small piece of revenue today. Just kind of over time, where you think that fee income to revenue kind of percentage can get to as you go forward? George Gleason: Yes. Let me tell you that we have a wonderful leadership team in our CIB group. And it's not just Jake, but it's the leadership team under him. And they are -- thank you, operator. They are doing a great job of recruiting just top-tier veteran talent to the team, and they're being very careful about it, but they're also being very active out there in the market. So Jake, I'm going to come to you and let you unmute and talk about that and give a little additional color. Jake Munn: No, I appreciate that, Brian. You asked my favorite question of the morning talking about the fun stuff here. So I appreciate the question. It's a good one at that. I want to emphasize here in third quarter, we're looking at the management comments. You can see quarter-over-quarter, we're up $575 million in outstandings. If we were to look on a commitment basis, so that would be your outstandings plus your unfunded, we're up $1.19 billion. That's our net number. And I wanted to point that out again, from an origination standpoint, these teams are really starting to hit their stride across the board. Our natural resources group, led by George McKean, and Moni and Arth, that team has really taken off and putting together some nice opportunities for us. CBSF continues to grow. We have identified our leader out in Atlanta, John, and he's joined us, and he's building up our presence in that part of the country for us and our footprint. We've identified our leader and brought on [indiscernible] within CBSF out in Nashville. He's got great experience and comes from a very large institution. We're excited to have him here, and we'll continue to build the team there as well. And so the CBSF and the diversification and the great yield that comes from that book is really, again, still at its infancy, and we're going to see that continue to grow and build and really be impactful leaders here for the institution. In addition to that, Mike Sheff's ABLG group has continued to expand. We just hired a gentleman up in New York, and we'll continue to focus on when we find the right people in the right spot that fit the OZK credit culture and overall culture. We're going to find those people. We're going to source them. We're going to bring them in and give them all the support they need to be successful, and we're seeing that in our ABLG group. Our lender finance group, as previously mentioned, led by Jim Lyons, is doing a fantastic job. We're seeing some nice opportunities come that way. We're being highly selective in that space, as I previously mentioned, because we are seeing a lot of pressure on the pricing and structure that we refused to give on. Our fund finance group, Parul and team is really doing a nice job and is going through that legacy book of business, as mentioned, and optimizing it. So we're proud of her and what she's doing and our portfolio management and operations group, which is really the backbone and more than 50% of our CIB staff continues to do a really good job in the underwriting, the compliance, the oversight space and partnering with our second line, our loan review, credit risk management partners, our enterprise analytic partners as well as our third line to ensure that all the lending that we're doing is safe and sound and is what's best for both our institution and our shareholders and the communities we serve. If we look at the overall gross of what we did in the third quarter, we actually originated about $1.6 billion in net new opportunities and material upsizes, which would have equated to about $850 million in outstandings. And so again, some of that delta between the net and the gross there is optimization of the book, which we mentioned. But also, as mentioned previously, capital markets were very ripe, and I'm sure you all saw it as well, but we had a lot of clients, our public clients access the markets, bond issuances, high-yield issuances. And as a result, we're reaping the benefits of the fee income now that we have a great capital markets partnership and program, but that resulted in a little bit of a chip off of our overall growth for third quarter. As we look into fourth quarter, we're very cautiously optimistic. We feel nice about what we're doing. We have teams in place and executing at a high level. We had over a dozen names that were originated in third quarter that will be booked here really in October and then going into November, too. So we anticipate fourth quarter being strong as well. And we continue to look at opportunities for additional business lines, as you asked. That makes sense for what we do that are natural complementary kind of bolt-ons that have nice returns for us, but also have positive kind of credit profiles that really fit the bill of OZK. So we're just getting started on the CIB side. I think you're going to see continued growth and momentum there, and we're very excited about it. George Gleason: Yes. And let me add, Jake, and Jake is operating this addition and expansion of his staff under a gating metric that Brannon and I are monitoring. And that metric is really volume and revenue generation. And as his volume grows and revenue from his business line grows, he can add the next guy or the next 3 guys. And there's a gating metric on that. We're adding -- these are very high-level team members. They're very well paid. They're veteran people. So you're paying for the experience and the knowledge and the relationships that they've built over decades in most cases. And it's not inexpensive to build this team. It's, in fact, expensive to build this team. But we're being very disciplined about the way we do it, and we're getting revenue in place to generate positive leverage before we add the next person or the next group of people. We get positive leverage on that group. We get the next group. So Jake is growing it in a very responsible manner. and we're building it with high-class people in a very professional manner. And that's why I think we talked about '27 being, these guys are really hitting full stride in '27. We will have added a lot of additional people to their world between now and '27 that will generate a lot of additional growth opportunities across a very diverse book of business. CIB, we're talking a lot about our desire to diversify our portfolio more. CIB is inherently internally diverse in what they're building, and that's another big plus out of that. Jake Munn: Yes. And George, to that point, if we look at CIB as a whole, it represents over 40, 45 unique industries. And so there's a lot of diversification within that book, within the structures and the business lines they're under. And again, I just want to emphasize for everybody -- you know, everybody's -- to George's point there that as we hire, we take a very different approach than what our competitor banks do. You see a lot of other banks will enter in a market and they'll hire 10, 20 people, and they'll give them years and years to build up a book and repay the institution for that initial hiring slug. But here, we're really doing it in a methodical way to George's point, before we hire the next person, the existing team pays for them. And so as a result, we ensure that as we grow, we're keeping a very close watch on expenses and a close watch on that efficiency ratio to ensure that we don't get over our skis. Operator: At this time, I would now like to turn the conference back over to George Gleason, Chairman and CEO, for closing remarks. George Gleason: Thank you guys all for being on the call today. We greatly appreciate it. We look forward to talking with you in about 3 months. Thank you. Have a great day. That concludes our call. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Elizabeth Lynn: Good morning, and welcome to State Street Corporation Third Quarter 2025 Earnings Conference Call and Webcast. Today's call will be hosted by Elizabeth Lynn, Head of Investor Relations at State Street. We ask that you please hold all questions until the completion of the formal remarks at which time you will be given instructions for the question and answer session. Today's discussion is being broadcast live on State Street's website at investors.statestreet.com. This conference call is also being recorded for replay. State Street's conference call is copyrighted and all rights are reserved. This call may not be rerecorded for rebroadcast or distribution in whole or in part without the expressed written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website. Now I would like to hand the call over to Elizabeth Lynn. Elizabeth Lynn: Thank you, operator. Good morning, and thank you all for joining us. On our call today are CEO, Ron O'Hanley, will speak first, then John Woods, our CFO will take you through our third quarter 2025 earnings presentation which is available for download. In the Investor Relations section of our website investors.statestreet.com. Afterward, we'll be happy to take questions. Before we get started, I'd like to remind you that today's presentation will include results presented on a basis that excludes or adjusts one or more items from GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure, are available in the appendix to our presentation. In addition, today's call will contain forward-looking statements. Actual results may differ materially from those statements due to a variety of important factors, such as those referenced in our discussion today and in our SEC filings including the risk factor section in our Form 10-K. Our forward-looking statements speak only as of today, and we disclaim any obligation to update them even if our view should change. With that, let me turn it over to Ron. Ron O'Hanley: Thank you, Liz. Good morning, everyone, and thank you for joining us. I'm pleased to welcome John Woods to his first earnings call with State Street. John brings deep and additive expertise to our leadership team and we're excited about the perspective he adds. Turning to our results, I'll begin with our third quarter highlights before turning it over to John. Who'll walk you through our financial results in greater detail. Slide two of our investor presentation highlights the strength of our third quarter results. With quarterly earnings per share of $2.78 increasing 23% year over year. Our strong financial performance reflects disciplined execution, against our strategic priorities and our ability to effectively capitalize on the constructive market environment in the quarter. We continue to demonstrate good business momentum and consistent delivery of improved financial performance. For example, 3Q marked our seventh consecutive quarter of positive total operating leverage, excluding notable items. As we delivered total revenue growth of 9%, a pretax margin of 31%, and return on tangible common equity of 21%. These metrics highlight our ability to drive profitable growth by executing our growth strategy and continuing the transformation of our operating model. Investor demand, new technology, and a changing regulatory environment are creating new opportunities for us and our clients. Alongside our robust third quarter financial performance, we remain focused on advancing product innovation enhancing our capabilities to better serve our clients and accelerate growth in key strategic areas. For example, as I'll outline shortly, we launched a series of strategic initiatives and new product capabilities in the third quarter, all designed to position State Street for sustained long-term growth. In investment services, we delivered strong year-over-year servicing fee growth and ended the quarter with a record $51.7 trillion in AUCA. We recorded one new alpha mandate and another alpha client went live in 3Q. State Street has long been a leader in technology-driven innovation. Today, our investment services team is building on that legacy by developing the tools and client capabilities that will empower our clients to succeed in an evolving market. For example, in the digital assets ecosystem, State Street already provides fund administration and accounting services for digital assets today. As we look ahead, we are strategically positioning State Street to be the bridge between traditional and digital finance as well as the connection point between digital asset platforms. To that end, we are excited about the forthcoming launch of our digital asset platform, which will enable tokenization of assets, funds, and cash for institutional investors. As the wealth market expands globally, we have noted the importance of building upon our front office wealth trading and portfolio construction capabilities at Charles River to further access this growing revenue pool. We achieved a key milestone of our wealth services strategy in 3Q with the announcement of a strategic partnership and minority investments in Apex Fintech Solutions. Through this partnership, State Street will leverage Apex's digital custody and clearing platform to expand our wealth services offerings in support of the high-growth wealth management industry. The partnership will deliver a differentiated fully digital, low globally scalable custody and clearing solution and experience for wealth advisers and self-directed wealth platforms, as well as their clients around the world. As a result, this partnership will significantly strengthen State Street's investment servicing capabilities and build on our existing foundation to deliver the industry's first truly global digital wealth custody solution. The third quarter also marked an important milestone for State Street Investment Management. Which reported record quarterly management fee revenue as period-end AUM climbed to a record $5.4 trillion just one quarter after surpassing the $5 trillion mark for the first time. We continue to innovate at pace, further strengthening our investment management capabilities to drive growth across several strategic focus areas. For example, we launched 11 select fighter premium income ETFs enabling investors to tap into sector-specific opportunities with enhanced income potential. Elsewhere, by broadening our suite of actively managed target maturity ETFs, we further strengthen our capabilities in fixed income solutions. Which remains a key strategic priority. Importantly, the third quarter provided several compelling examples of how our partnerships with some of the world's leading investment firms are expanding and strengthening our client capabilities positioning us for future growth. For example, continued partnership with Apollo, we made further progress in expanding access to private markets with the launch of PRSD, an actively managed short-term bond ETF. Which combines exposure to investment-grade public and private credit. We also launched a euro-denominated AAA CLO use of ETF in partnership with Blackstone. Building on our successful track record together. Which includes actively managed high-income and senior loan ETFs. Finally, in Europe, we entered a strategic partnership with Van Lanschot Kempen Investment Management that will drive further innovation across our respective investment offerings in this key strategic region. State Street markets continue to see the results of its efforts to deepen client relationships delivering strong year-over-year revenue growth in both Securities Finance and FX Trading Services. As a testament to the strength of our markets franchise and the value we deliver to clients, we're proud that State Street was recognized with eight category wins in Euromoney Magazine's 2025 FX Awards, doubling our achievements from 2024. These industry recognitions are strong endorsements of our continuous effort to deliver best-in-class trading and financing solutions technology platforms, and research to our clients globally. Turning to our balance sheet. Our solid financial position has enabled us to return nearly $1.5 billion in capital shareholders year to date through common share repurchases and dividends. Including $637 million in the third quarter. As previously announced, we were pleased to increase State Street's quarterly per share common stock dividend by 11% to $0.84 in 3Q. We remain committed to returning capital to our shareholders. Before I conclude my prepared remarks, I'd like to take a moment to extend my gratitude to Mark Keating, for his outstanding leadership during his tenure as interim chief financial officer. Mark stepped into the role during a pivotal time and provided invaluable stability and leadership as we navigated the transition period. Mark will continue to play an important role in shaping our long-term financial strategy and driving enterprise-wide initiatives, working closely with John. To conclude, the third quarter marked several strategic and performance milestones for State Street. Reinforcing the effectiveness of our strategy. We delivered our seventh consecutive quarter of positive total operating leverage excluding notable items. A clear indicator of sustained momentum. Our continued improving financial performance is supported by a range of tangible proof points that highlight how we are expanding product capabilities and driving innovation across the firm. These efforts continue to position us for future growth and long-term value creation for our shareholders. With that, let me hand the call over to John. Who will take you through the quarter in more detail. John Woods: Thank you, Ron, and good morning, everyone. Turning to slide three. As Ron mentioned, we delivered strong third quarter financial results that reflect healthy business momentum and consistent execution driving EPS growth of 23% year over year to $2.78. Total revenue increased 9% year over year to approximately $3.5 billion and included fee revenue growth of nearly 12%, excluding notable items. Fee revenue growth was broad-based, supported by active client engagement amid a constructive market environment. Servicing fees were up 7%, Management fees increased 16%, and FX trading services and securities finance revenues were collectively up 17% excluding notable items year over year. Expenses increased approximately 5% year over year to $2.4 billion as we continue to prudently manage our expense base while also funding key strategic initiatives and technology investments to support future growth. Taken together, our strong third quarter performance delivered substantial fee and total operating leverage of over 600 basis points and over 300 basis points respectively year over year and excluding notable items. Our pretax margin expanded approximately 270 basis points to 31% while our return on tangible common equity was approximately 160 basis points higher at 21% compared to the year-ago period. Turning now to slide four, Servicing fees increased 7% year over year, primarily driven by higher average market levels net new business, and the impact of currency translation. AUCA reached a new record of $51.7 trillion increasing 10% year over year driven by higher period-end market levels and strong client flows. We achieved nearly $50 million in servicing fee revenue wins in the quarter, bringing our year-to-date total to approximately $250 million. We remain intensely focused on driving servicing fee revenue growth particularly in core back office solutions and private markets, which together account for the vast majority of both our third quarter and year-to-date wins. Our pipeline remains healthy and well-diversified, and we are on track to meet our full-year target 350 to $400 million. This momentum is reflected in our third quarter servicing fee revenue backlog of approximately $400 million up roughly 40% from the prior year. Installing our backlog remains a top priority as we focus on delivering consistent organic servicing fee growth in the quarters ahead. Additionally, we reported one new alpha mandate win with another client going live in the quarter. As Ron noted, we recently finalized a strategic partnership and minority investment in Apex Fintech Solutions, This partnership will expand our wealth services offering through Apex's digital and clearing platform and supports the long-term growth of our investment servicing business. Turning to slide five. Management fees increased 16% year over year to a quarterly record of $612 million primarily driven by higher average market levels and net inflows. Assets under management increased 15% year over year, to a record $5.4 trillion supported by higher period-end market levels in client inflows. Net inflows totaled $26 billion for the quarter, reflecting solid momentum across ETFs, cash, and institutional index fixed income. In ETFs, our US low-cost suite continued to gain market share, achieving record flows in the quarter. Our gold ETF suite further strengthened its market leadership, reaching a record AUM of approximately $145 billion, This strong performance reflects both robust inflows supported by our expanded distribution globally as well as elevated spot prices. As Ron mentioned, innovation remains a cornerstone of our investment growth strategy. In the third quarter, we launched 39 new products, including an expansion of our select sector suite and new alternatives exposures. These initiatives broaden the capabilities available to clients and support organic net new asset growth. We are encouraged by the robust performance of our investment management business in the third quarter which delivered a pretax margin of approximately 36% up nearly 600 basis points from the prior year quarter. Turning to slide six. State Street markets delivered strong third quarter results. With solid year-over-year growth in both FX trading services and securities finance. Our markets franchise is strategically positioned to support both our investment services and investment management businesses delivering integrated value across the entire franchise. FX trading revenue increased 16% year over year, excluding prior period notable items. While FX volatility was relatively muted, client volumes increased 11% year over year with strong growth across all of our trading venues. Securities finance revenues increased 19% year over year, driven by robust balance growth across both agency lending and prime services. In agency lending, third quarter performance benefited from increased assets on loan and specials activity, While in prime services, our targeted client engagement supported solid revenue growth for the quarter. Moving to slide seven. Software and processing fees increased 9% year over year. Front office software and data revenue increased 14% year over year, driven by higher on-premises renewals, growth in professional services, and continued expansion of software-enabled revenue as we converted and implemented more clients onto our cloud-based SaaS platform. In turn, annual recurring revenue increased by approximately 13% year over year to approximately $400 million in the third quarter. Our front office revenue backlog remains healthy increasing 45% year over year and reinforcing our confidence in the future growth of this business. Moving to slide eight, Net interest income of $715 million was down 1% year over year. This performance reflects an 11 basis point decline in the net interest margin to 96 basis points primarily driven by lower average short-end rates and deposit mix shift, partially offset by the reinvestment of securities portfolio cash flows at higher yields and higher interest-earning assets supported by higher deposit balances. On a sequential basis, net interest income declined 2%, primarily due to a reduction in the interest-earning assets resulting from lower deposit balances compared to elevated second quarter levels as well as lower average short-end rates. These factors were partially mitigated by the reinvestment of securities portfolio cash flows at higher yields, along with continued client-driven loan growth, which contributed to an improvement in interest-earning asset mix supporting a stable net interest margin on a linked quarter basis. Turning to slide nine. Expenses increased approximately 5% year over year. Primarily driven by continued investments in technology and strategic initiatives, higher revenue-related costs, and the impact of currency translation, partially offset by continued productivity savings. Compensation-related costs were well contained, increasing 2% year over year in the third quarter. This increase was primarily driven by higher salaries and benefits the impact of currency translation partially mitigated by a reduction in headcount including from ongoing operating model transformation and process improvements. Information systems and communications expense increased 12% year over year, primarily due to ongoing investments in platform modernization and resiliency AI tools, enhanced data delivery, and improved user experience, as well as higher client implementation activity and volumes. In parallel, we continue to advance our productivity and optimization initiatives generating approximately $125 million in year-over-year savings during the quarter. These efforts have delivered approximately $370 million of savings year to date, keeping us firmly on track to achieve our full-year savings target of $500 million. Our ongoing productivity and other savings initiatives have enabled us to deliver both fee and total operating leverage while also creating capacity to invest strategically in growth areas such as wealth services, alpha, private markets, AI, and process automation. Moving to slide 10. Our standardized CET1 ratio was 11.3% at quarter end, up approximately 60 basis points quarter over quarter reflecting capital generated from earnings and a decline in risk-weighted assets coming off of the elevated FX volatility of the quarter. We returned $637 million capital to common shareholders during the third quarter. Consisting of $400 million in common share repurchases and $237 million in declared common stock dividends, for a total payout ratio of 79%. As Ron noted, in the third quarter, we were pleased to increase our per share quarterly common dividend by 11% to 84¢. To wrap up, let's turn to our outlook. Which, as a reminder, excludes notable items. Building on our strong year-to-date performance, and a constructive market environment, we now expect 2025 total fee revenue growth in the 8.5 to 9% range. An improvement to our prior outlook of at or slightly above the five to 7% range. We expect full-year NII to be down slightly relative to last year's record performance. Turning to expenses, with our improved outlook for fee revenue, full-year expense growth is now expected to be roughly 4.5%, up from our prior outlook of the upper end of the three to 4% range, reflecting ongoing investment in technology and strategic initiatives along with higher revenue-related costs. Importantly, we continue to generate significant positive fee in total operating leverage this year. And given where we are in the year, our full-year outlook implies that for the fourth quarter, fee revenue will be flat to down slightly quarter over quarter reflecting a normalization in other fee revenue from an elevated 3Q, while suggesting a sequential increase in NII. And on expenses, our updated full-year outlook suggests that expenses will be up slightly in 4Q compared to the prior quarter. Finally, we continue to target a total payout ratio approximately 80% for 2025 subject to market conditions and other factors, while also deploying capital to support our clients drive organic growth, and fund strategic investments. In conclusion, our third quarter results reflect the strength of our execution and the resilience of our strategy, driving consistent business momentum, and delivering meaningful fee and total operating leverage. On a personal note, I'm excited to be partnering with Ron and the rest of the State Street management team and I'm very optimistic about the opportunity ahead of us at State Street. As we aim to build upon the strong results we've achieved year to date. And with that, operator, we can now open the call for questions. Operator: At this time, we will open the floor for questions. Elizabeth Lynn: If you would like to ask a question, please press 5 on your telephone keypad. You may remove yourself by any time by pressing 5 again. Please note, you'll be allowed one question and one related follow-up question. Again, that is 5 to ask a question. Our first question will come from Alex Blostein with Goldman Sachs. Your line is open. Please go ahead. Alex Blostein: Hey, good morning, everybody. Thank you for the question, John. Welcome to the call. I wanted to maybe, get your thoughts as you're kinda, you know, get your feet wet, with, with the new business here, if we State Street. How are you thinking about, both the balance sheet management and sort of operating dynamics in the company? Any any additional steps you're looking to pursue as far as just kinda your early observations, across the business go either on the again, capital management, expense management, NII, any any of the thoughts would be would be helpful just to get your first impressions. John Woods: Yeah. Thanks for the question, and good to be on the call. I mean, I think maybe I mentioned this previously at a conference that I think about the priorities broadly. It starts with just partnering with the management team to drive execution and profitability. And, you know, and and in my I guess, I'm completing my month two here I'm exceptionally impressed with the level of innovation and momentum that we have here at State Street. And so that's that's the foundation. That I thought I was joining, and, you know, all systems go on that front. So excited there. I will say that, you know, we're some of the areas that know, I'll be partnering with Ron and the management team on. I will you know, spend time in the balance sheet space I think there are optimization opportunities. On the balance sheet that I've been digging into in my early days here. So that's that that'll that'll be nice to see as as that plays out in the coming quarters. The other couple of items I'd I'd also hasten to add is an exceptional opportunity in the productivity space. That this management team has been hard at. For quite some time. But there is a lot ahead of us that we can accomplish together that's that's got a lot of tailwinds associated with it heading into 2026. And that that gives us opportunity to continue to invest and drive, you know, tech-related innovation over time. And I'll be I'll be plugging in on that front And and then lastly, all of the strategic initiatives that we have in front of both within The United States and around the world, with respect to geographic expansion and product development. You know, those are broadly the areas of optimization and and and focus that I think I'm gonna be looking at. And then just bringing it back to the maybe the specific point you raised with respect to balance sheet. Based upon all of that, maybe just to add look at some of the balance sheet trends more in the micro, here at the end of the third quarter heading into the fourth quarter, there really solid trends coming out of all of that. Some strong deposit flows, You saw our net interest margin was flat quarter over quarter. As you may have seen in the overall guide for the year, sort of seeing net interest income and net interest margin both headed headed up. As we head into the fourth quarter with some solid tailwinds there. So that's encouraging, and I think there's more, you know, more opportunity on the balance sheet to keep that momentum heading into '26. Alex Blostein: Great. That's helpful. Thank you. And then just as a follow-up related to NII, your your point just now around NII improving in the fourth quarter relative to the third quarter, is it a function of the balances being higher? I know that tend to pick up seasonally. Or is there something more more specific that you guys are already starting to work through? To drive an AI hire from here? John Woods: Yeah. It's a good question. We did see the balance sheet come down in the third quarter. I think the outlook into the fourth quarter is for the balance sheet size to be about stable. So I wouldn't call that you know, the reason why we we see NII and net interest margin rising. Into the fourth quarter, but it is important to stabilize that. And and, you know, it's import the all-important deposit levels were down this quarter overall, but frankly, mix was improved into the third quarter. Non-interest bearing deposits held in, and we expect that to continue into April. And we see deposits stabilizing with a number of tailwinds there that that that will ensure that that that stable deposits something that we can count on in April. I'd say the real drivers are more about some other nonrate related tailwinds. So I would you know, we've got the recurring turnover of the investment portfolio where you see cash flows maturing at lower rates being reinvested at higher rates. That was a tailwind in the third quarter. It will continue to be one in the fourth quarter and beyond. I'd also highlight the fact that in the past, we had terminated some interest rate risk management hedges. And the negative drag related to that is already in our third quarter run rate. That's gonna start to run down in the fourth quarter, which will become a recurring tailwind in 4Q and in 2026. Those two sort of mostly non-rate related tailwinds are are giving us some good confidence about not only net interest margin growth in the fourth quarter, but those tailwinds will continue in 2026. And I see some positive mix opportunities. On an ongoing basis. So when you see how we're servicing servicing I mean, serving our customers in the loan space, Loan mix was was an improvement in in 3Q, and that and I could see that being a potential supporter over time as well. So, yeah, feeling pretty constructive about four q and NIM and NII. Great. Awesome. Thank you very much. Operator: Our next question will come from Glenn Schorr with Evercore. Your line is open. Please ask your question. Glenn Schorr: Thanks very much. You know, maybe just a quick follow-up on that conversation. You know, we've I think a couple of us have asked this in the past but, John, you being new to the party and and getting a fresh look, I wonder how you think about or how we should think about this year's State Street you know, struggling around flat, on on net interest income. Last year, as you mentioned, record net interest income at your peers, this year is a good year. So I'm just trying to think of from your fresh eyes, is there something different about the client mix? Is there something different about how you interact with the client base? And ways you can talk through what operating deposits clients can park with you because your your business overall rose plenty. And asset and deposits usually come along with that. So I I don't have to rehash all the the deposit beta stuff. But should we expect I'm curious to get your thoughts on that. And then should we expect similar enough performance going forward in '26 and beyond or is there something about the client mix that that just deposits are different? And you gotta look at the the totality of of the earnings. John Woods: Yeah. I mean, a couple of comments, and we'll spend some more time on this as we get to the 2026 outlook, and we'll we'll cover this in a in a fair bit of additional detail. But I do I do observe, you know, what drives the bus here on the is gonna be deposit levels. Both the level and quality of the mix of deposits and pretty true for most for almost all banks. Right? And so I think about the the trends in the deposit base, you know, I think the macro is coming together relatively with a net tailwind. Certainly, heading into April, We'll update in January again, but in all likelihood, into 2026. And the few tailwinds I'd highlight are when you have the rate environment, we're adding it you know, started the easing cycle that likely continues in the fourth quarter. Maybe a bit into '26 as well as we see where rates are headed. That's typically a tailwind for deposit levels and and often good for mix. Heard chairman Powell talk about possibly QT ending That also is a solid tailwind for system level deposits. And, you know, just bringing it back to really the core franchise in terms of our fee-based drivers, AUCA drivers, are all coming together quite nicely, and we'll talk about that being a really solid tailwind for for levels, which is where we where we generate our deposits. So when I look at when I put all that together, I I feel pretty good about the fact that the balance sheet being stable to rising over time is coming together nicely. And then you and then you flip over to the other drivers which would be impact of rates where we're somewhat diversified across. We've got we've got a balance sheet Majority of the balance sheet's in The US. But the asset sensitivity on the on the short end is close to neutral there. And then we have exposures to the euro area as well as sterling. That, where there's a different rates that were asset sensitive outside The US. It seems like rate stability there tells me that that rates won't be nearly the headwind that it was year over year. And then finally, the the mix and the optimization work that we're going to continue to do. I think along with the eight zero idiosyncratic factors I mentioned about four q, with terminated hedges running off, as well as the turnover of the balance sheet and investment portfolio in particular where where cash flows are getting reinvested at higher levels, which which are less rate dependent. All of that comes together with some pretty solid forces that, you know, we'll talk to you more about in January to to put it all together. But, feeling pretty, optimistic about some of the some of the tailwinds there going going forward. Glenn Schorr: I appreciate all that. Maybe a quickie on the investment management side. You you lot of lot of product innovation. Lot of good flows, and and more to come. Like it. I don't know if you mentioned, I apologize if I missed it, what the outflows were on the instant institutional side and then the bigger picture is maybe talk a little bit towards your aspirations outside of your core footprint meaning it it would be blasphemy in the past if I asked if if station was gonna broaden their active actively managed footprint, but it actually, the world's a little different. There's more growth avenues. So outside of your core ETF, and passive business, maybe longer term aspirations, and thank you for all that. Ron O'Hanley: Glenn, it's Ron. Why don't I take that and John can add in? On flows were positive as you saw, but that that was net of some outflows in institutional, really a one around mostly around one particular client. And know, these things happen. To your broader question, the you know, we know what our strengths are, and our strengths are in the passive and systematic exposures. From an asset management perspective. We're also a leader in product structures such as ETFs and target date funds. And we've been able to turn the the spider franchise into a platform that's recognized and operating around the world and operates really as a distributor for us and others. So what we have actually broadened quite significantly beyond that core passive, but typically have been doing it on the fixed income space doing it ourselves. But then outside of that with key partnerships I talked about some of them. Some of them are recent, such as Apollo. Some of them go back years, really strong partnerships with the likes of of Blackstone. And we will continue to do that. More and more, you see firms coming together. Recognizing that that that a platform like the Spider platform is hard to replicate. There really is a limited number of platforms like that. And the fact that ours is is open architecture in the sense that we will work with with high quality partners. So you'll see us expand that way. And then to to the extent to which there's select opportunities for us to move into active, but we're only going to do that in places where one, we think we can actually add value to clients. And two, that it, can generate scalable, repeatable revenues. Is the way to think about it. Glenn Schorr: Ron, thanks for all that. I appreciate it. Operator: Our next question will come from Mike Mayo with Wells Fargo. Your line is open. Please go ahead. Mike Mayo: Hi, can you hear me? We can, Mike. John Woods: Hey. So, John, back to that press set of eyes, you know, State Street stock for the last five years is underperformed the bank index by about 10 percentage points. And one of your big competitors by over a 100 percentage points. So recently, State Street showed you know, better fee growth, better operating leverage, innovation. And clearly, you have the State Street if you didn't see some potential to provide you know, greater shareholder value than has been delivered for the last five years. So with that and especially with less credit risk compared to your old firm too. So what do you think is you know, not understood about the State Street story, and what would you do to help change that? And then kind of separate but related, you know, Ron, I was just wondering you know, how many more years you're thinking about staying on as CEO? Thank you. John Woods: Thanks, Mike. Happy to take that first part. And know, I think here's what what I find exceptionally interesting. When you look at the the fee-based tailwinds here, and and in the third quarter in particular, the core growth even when you strip out market and FX, on the investment management side since we just spoke about that, is 5% year over year. Just core net growth excluding the other tailwinds. And same on the servicing fee side of things where, you you know, there's 2% net growth year over year. And and the tailwinds there continue to grow when you look at the composition of our backlog, and the pace of installations and in servicing, And what you see from an innovation standpoint on the management side of things I think that story is underappreciated. I think the the opportunities over the medium term on the fee revenue side of things is underappreciated. I also think that the strategic overlap of our markets business with investment management and investment services is also underappreciated. And and and just how integrated that service offering is. And I think we'll we'll try to, you know, do a a better job of shining a high know, in highlighting all of those things across those three large businesses. The second thing that comes to mind is the stability and visibility to net interest margin and NII over time. I think we have opportunity there. And it's right in front of us. We have an exceptionally attractive deposit growth opportunity driven by our custody growth over time. And a number of optimization opportunities that will allow us to, I believe, manage that in a way that creates more shareholder value in the future And then maybe I'll just close out with on the expense front. Management team has done a heck of a lot from what I can see in my I'm in month two here, but from what I can see, there's been just massive movement in productivity but there's a huge amount in front of us, which I find very exciting. All of that is is our resources to continue to reallocate to customer-centric investments. As well as potentially share that you know, to the bottom line on productivity. So I'm I'm sorry, on profitability. So that's what I was hoping to see. Check the box across the board with with some upside and even more excitement, you know, being inside the place than even when I was outside State Street. So that's how I would talk about it. Ron O'Hanley: And, Mike, on your question, I will remain as CEO as long as the board and myself are confident in my leadership and ability to add value, that translates into continuing improving shareholder value creation. Operator: Our next question will come from Ken Houston with Autonomous. Your line is open. Please go ahead. Ken Houston, your line is open. Please go ahead. Ken Usdin: Hey. It's Martin. Good morning, Bin. So oh, we're both here. Sorry about that. I was fighting. The mute button. On on on the fee side, guys, I just wanted to ask, know, we saw the another 350 plus of wins this quarter. Good underlying strength on the services side. Can you just talk about any update to your expected trajectory of how that comes on, especially now that, you know, we're crowded towards the year with 40 fish percent this year, And and just more importantly, how are those installations going? You know, just still some talk in the market about whether, you know, are going as smoothly as we wanted to see on alpha or not. So we just kinda wanna talk ask you to to kinda talk through the installation cycle and and and and the timing. Of those so that win that win base. Thank you. John Woods: Yeah. Great. I'll start off there, and others may add. But so $400 million in backlog at $9.30 significant increase year over year that, you know, we we we see the installation outlook there to be quite attractive as much as half of that being installed by the end of the year. And a significant portion of the remainder being done by the 2026. So the the that backlog level probably comes down a bit, which which is reflective of of of installation pace But, you know, we're gonna want a healthy backlog balanced by sales and installations over time, but we're feeling pretty good about about the installation cycle on on the backlog from, from 09:30. Ron O'Hanley: Yeah. And in terms of how is it going, I mean, we're largely on track to what we said we would do at the beginning of the year. We said that there was a real focus on installations that was combination of one, some of the early development kinds of things that we were doing with, some of the earlier on alpha partners or or coming to a close and being installed, and there's been a lot of progress on that this year. And then secondly, just getting better and more repeatable at it. We've really focused on turning this into a one at a time kind of thing to a repeatable process and and building installation into the early sales and engineering phases of the, of the alpha discussions, which is us immensely. And as John noted, it's some of the later businesses come on, it's actually on a faster implementation pace than some of the earlier businesses, which which is what you'd wanna see from us. John Woods: Yeah. And just adding to that, I would like to say that that the mix of the back is actually quite attractive, much more back office with all that ancillary you know, opportunity to drive other products into a back office installation as well as privates, which which has attractive profitability associated. With it. So we're we're we're pleased about where the backlog is and where it'll get in but also the mix of that business is is quite attractive as well. Ken Usdin: Okay. Got it. And second question, just completely understanding the the the leak up in the expenses. FX translation, and also better revenues And it's obviously been a really good still being able to put up good operating leverage Kind of wanna triangulate what you're saying about NII back up in the fourth, and we'll see what happens here with the curves and all next year. How do you think about the magnitude of operating leverage that the company is capable of? And how and maybe, John, a question for you, how are you starting to triangulate you know, kind of the the save and spend balance as you think about what the right expense growth rate is for shape three? John Woods: Yeah. A couple of different thoughts on that. I mean, I'd first try to you're remind that that in the year over year although expenses are up 5%, 1% of that is FX. So and of the remaining 4%, about half of that is revenue related. And the rest of it is net investment. So which is really contains all of our productivity initiatives, which will continue and allows us to keep investing over time. There's there's there's real operating leverage year over year. As we have articulated. And feeling very good about about the ongoing productivity as you head into 2026. As well to allow us to keep investing and to keep, know, kind of the ability to maintain profitability. Other thing I'd highlight is that even without if I go back to top of the house, even without if you say you know, fees up 12% ex notables, year over year, and if you take out the markets and FX tailwinds, you nevertheless have significant operating leverage you know, know, against the 4% growth in expenses ex FX. Year over year as well. A lot of our marginal business that we brought on is all fee and operating leverage accretive And so, you know, the the the the foundation incremental activity all seems to be heading in the right direction for fee operating leverage as well as total operating leverage. Ron O'Hanley: And what I would add to that, it's Ron here. As we if you know, we we've we've got an ongoing kind of transformation and productivity effort. And we are on pack on pace to deliver what we said we would deliver for this year, which is about 500,000,000 At the same time, we, like certain certain many others are doing, have leaned heavily into AI. And we're all early in that in that journey. But we're seeing lots of opportunity to create improvement in the in client experiences the employee experience, in productivity, in unit cost, and speed. And what's incumbent upon that where the team is really leaning, know, we'll talk more about this next year is how do we capture all that? And deliver that back to to shareholders? Operator: Our next question will come from Jim Mitchell with Seaport Global. Your line is open. Please go ahead. Jim Mitchell: Hey, You've talked about strength in the on the market side. I think relative to some of peers, was stood out particularly on the FX side. So can you just talk about the environment versus what you're doing to grab share? And how you're thinking about the growth outlook in those businesses from kind of elevated levels here? John Woods: Yeah. Sure. I mean, think as you head into the fourth quarter, you know, we had we had had a a sense volatility is typically good for these businesses. We had a sense that volatility would rise from the third quarter which was a little bit on the muted end of things. We didn't expect that it would be this high in October, but nevertheless, it's the from where where you see volatility both in terms of equities as well as in the FX space, those are tailwinds to the market's business heading into the fourth quarter. And so we see some opportunity there. But I would I would hasten to add as I'm as I hinted at earlier, the the overlap of the of the markets business with our core investment services clients in in what we call an integrated FX offering. That's just flow business that continues to grow as our custody business continues to grow as a global custodian. And so that's something that would be a core as core growth continues in servicing fee fees, which we had in the third quarter, will we will have again in the fourth quarter. And as growth continues in investment management, where on the other side of the house, securities lending business overlaps significantly with our investment management customers. And clients. As investment management continues to grow, we'll see securities finance continue to grow. So there really is an integrated offering across each of those three businesses. And and that's the underpinning of why we feel good about Marcus heading into the the fourth quarter And then, of course, there are market dependent factors that you have to keep track of. Early early on that, frankly, actually are are constructive. For the markets business. But that's how I think about it. We have the core strategic business, and then you have the toggle and market dependent based upon the environment. But but that's that's how I think about how we did so well in the in the third quarter. And what what the trends might be going forward. Ron O'Hanley: Jim, what I would add to that is we've we've talked for a long time now about, building up our channel capability within FX and, meeting our clients. Where they want to be and how they want to trade. So we've built multiple venues and access points for our clients Some of those are quite active in these decisions. Some of them are actually not. Since they set it on a sort of auto. And we've got all those offerings in place. And what I would point to is in addition to revenues being up, FX revenues, which is a combination of volume and volatility. Volumes were up. Volumes were up on a double-digit basis year over year, and that just reflects the efforts we've taken to one, build share and continue to grow share. And secondly, to deliver a a really strong client experience that then gets translated into repeated business. Jim Mitchell: Okay. Yeah. That that's that's helpful. And and just maybe a follow-up on the expenses. For next year on operating leverage. It seems like you John, you feel like there's an opportunity to even maybe accelerate expense saves and then you have to balance that with investment. So is the message that you have a good amount of flex if rev the revenue environment doesn't come out as good as you might think? Can you flex downward to to maintain positive operating leverage? Just how should we think about your flexibility next year and beyond? John Woods: Yeah. I'd I'd so you we'll stay tuned in January. We'll we'll we'll give you the contours of this. But there's no question there's there's discretionary levers that we can pull as management. We do wanna continue to invest through downturns should one occur. And there are crown jewels that we're gonna protect. And we have that that that financial strength to be able to do that. However, if in fact there are know, drawdowns that put some pressure on on servicing fees or management fees. Couple of things. I would I would hasten to add that the markets business and frankly, NII can be shock absorbers in that of environment. So first and foremost, we need to think about that. And those those are significant revenue revenue categories that that that would would mute the impact. And then and then, of course, there's this this the discretionary aspect of the pace of investment that we would, you know, recalibrate as we do on a continuous basis based upon what our revenue picture is and is expected to be. So I I'd say there are a number of levers that would, would allow us to continue to drive strong profitability even if we ended up with some kind of downturn that that, hypothetically could occur. Operator: Our next question will come from Ebrahim Poonawala with Bank of America. Your line is open. Please go ahead. Ebrahim Poonawala: Hey, good morning. John Woods: Morning. Ebrahim Poonawala: I guess hey, John. Hi. Maybe just following up on the capital piece. So it sounds like everything you said we should we are setting up for some version of a franchise efficiency plan on the expense side, as well as how you can tap into growth even in a much more better way than you've done so far. Similarly, from a capital standpoint, are there opportunities to do things differently when we think about just the balance sheet management, I I think the capital return, between about 80% payout Would love to hear how to do this, John. Thanks. John Woods: Yeah. I mean, I I I I don't you know, in the capital side of things, I think we have an exceptionally strong capital capital profile as you saw at $9.30. I I think the when we think about how to manage capital, we think about supporting a very strong dividend. You saw an excellent growth in the dividend in the second quarter that was announced. We think about the fact that making capital available to deploy that into growth in RWA as well as investing in strategic initiatives And you also would have seen the use of cat use of our strong capital base to make a few bolt-on acquisitions that accelerate our strategy. A number of our businesses in the wealth space in particular, and there were others. Those those are all exciting uses of capital, and that will continue But given our strong profitability, it does allow us to also be able to make the the the the statement that we're also gonna have a very strong return of capital. Capital to shareholders of roughly 80% for 2025. We'll continue to work through that waterfall as you you know, on an ongoing basis, balancing return of capital with the ability to to deploy capital over time. So nothing nothing real huge pivots expected on the capital front. Other than continuing to evaluate the opportunities put capital to work to serve our clients. Ebrahim Poonawala: Thanks. And just maybe sticking with that, you mentioned strategic investments as the third sort of capital priority. Given the regulatory backdrop that we are seeing, does that allow for something more larger as opposed to bolt-on acquisitions that could strategically put the firm on a much better growth trajectory or just tap into businesses I mean, obviously, we had the acquisition from a few years ago with BBH, but would love to hear in terms of just from appetite for larger deal making. Is there an opportunity? And if so, where would that make more sense? Thanks. Ron O'Hanley: Ebrahim, as as you know, we've been quite clear and disciplined about how we think about m and a. M and a is not a strategy, but it's a way to implement and accelerate a strategy. And so it's it's a very high bar for us because shareholders have alternatives and alternative use of that capital. So we would agree with your assessment that the that the environment, particularly in The US, is is probably a little bit more benign than it's been in the past, but that doesn't change our So we will continue to we're we're confident in our organic growth capabilities, but we will continue to look at opportunities to accelerate our strategy. And and what we did with Apex is actually a great example of that. We've been talking about wealth service now for a little over a year with you. And we like the trajectory we're on. A, the opportunity to to make this investment in Apex and more importantly, to have some significant influence and control over commercial direction of it as it relates to wealth custody was a way that we felt could absolutely accelerate our revenue gathering capability. So that's that's an example. And whether it's a large acquisition or a small acquisition, it'll go through that same kind of discipline bar. Operator: Our next question will come from David Smith with Truist. Your line is open. Please go ahead. David Smith: Thank you. On the topic about you know, investment and overall your integrated model, You spoke some about the investment services opportunities with wealth providers that you know, this investment creates for State Street. Does that also create potential opportunities in the investment management side of the house? Ron O'Hanley: Yeah. It's it's it's a great question, David, because the rise of of wealth management as creates real opportunities and has created real opportunities for investment managers. We we are already actively participating in that space. And so a significant portion of State Street's State Street Investment Management assets under management, well over 20% of it, is associated with wealth And you know, they you you can see the growth there. For example, in the low-cost S and P funds, which are growing at a much higher rate than the industry than the than the overall, and we continue to build share there. And so that is very much a part of our strategy as we think about wealth services. Which is providing the infrastructure and the servicing capabilities to our clients, but also in a very user-friendly and convenient way. Providing them with with these asset management exposures that we can provide at very low cost. Operator: Thank you. Our next question will come from Vivek Juneja with JPMorgan. Your line is open. Please ask your question. Vivek Juneja: Thanks. John, just a quick question on your loans that are very much in spotlight right now, NB NDFI or NDFI, whatever you wanna call them. You've got what is your exposure there from what we can see? Seems like over 60% of it is to BDCs. Any thoughts on that? Any color on sort of what's strategic rationale for that higher percentage going to be received? John Woods: Yeah. Thanks for the question, Vivek. I'd say the 60% is broadly NDFIs, not all BDCs, but the the way I would talk about this, first, we we have a much smaller loan portfolio. Than most of the banks, you know, that you would be in the peer set in the peer set first. Just so from a quantum standpoint. When you look at the mix and where we're playing, our growth and and the loan portfolio itself is really concentrated the private credit and private market space. So subscription finance, which is exceptionally low credit you know, risk over time, is a huge, portion of our loan book, not only outstanding, but also the marginal growth. As well as we do a fair bit of triple a CLOs, second big category for us. And then there is a there is a category of supporting private credit and BDCs, but those are integrated clients that we're serving, you know, from a custody standpoint. And and from a servicing standpoint. And so these are these are really deep customer relationships. So the substantial portion of our loan book is exceptionally high quality. It's relatively diversified. There is a CRE book, but it's it's relatively small. And it's been shrinking over time. And you know, broadly, no real signs of of deterioration in credit. That that we've seen to date. We're keeping an eye on it, but feeling reasonably comfortable with what I've seen so far in the loan book. Vivek Juneja: Okay. When I said BDCs, meant BDC is from the data we could follow, looks like, or 60% off your NDFIs exposure. It's not yeah. It's it's broadly NDFIs, you know, but but rather than just BDCs. Ron, a question for you maybe. What are you seeing as regards Charles River with the fixed income clients? Obviously, there's been the issue with Invesco, but beyond that, are you seeing more outflows in the fixed income order management systems? Or any color, any update you can give us there because there's been some questions on that. No. I mean, the Ron O'Hanley: it's as you know, that was an area that we have put a lot of development effort into. To not only bring it to par, but to bring it to be a distinctive platform A lot of that development was delivered last year. Even more is being delivered this year. So not only we're not seeing outflows, but we've got much of the backlog that you see of the alpha backlog that you see includes clients that will be coming on to the fixed income side of it. So it's both equities and fixed income are equally important to us. Vivek Juneja: Okay. Thank you. Operator: Our next question will come from Brennan Hawken Bank of Montreal. Your line is open. Please ask your question. Brennan Hawken: Hi there. So I'd like to follow-up on Vivek's last question, actually. I know that you spoke to sustained on the software and processing side. But but you know, within the marketplace, it does, at least in the minds of a lot of investors, seem to suggest that Aladdin picking up some momentum you know, And so and and it from what we hear, it's not purely the fixed income side. You know, there some equity decent sized equity managers who are who are considering the shift as well. When you think about how the progress position in the marketplace, what adjustments are you looking to make? In order to better position competitively and and maybe, you know, recapture some of the solid momentum you've had previously? Thanks. Ron O'Hanley: Brennan, the we remain we remain pleased with the momentum that we have. And we think about Charles River, there's there's two important elements of it. There's Charles River standalone as a front office software provider. And and then there's the Charles River as part of a integrated alpha offering. And sometimes Charles River is completely integrated. Into alpha. Where it is the front, and then we're doing the middle and the back and other elements of health. And sometimes as as we said from the outset on alpha, we were going to build this as a open architecture interoperable platform. So we are also the largest operator of the competing platforms where it'll be another front office platform, but we are there as the middle office provider and as the and as the back office provider. And and the growth there in in all those segments continues to be strong. It's a it's a competitive marketplace, but when you look at where the business is going, and who's gaining share, mean, the first of all, it's one of these very interesting markets where there's some third party players but you're also competing with the in sourced option. And there's still a fair amount that's insourced that's probably not viable. Over over time, which will remain a source of growth. So competition is good. And we view ourselves as a very formidable competitor, and we'll continue to put investment into it. Last thing I would point out is going back to the point on wealth. We're a significant player on on the wealth front end. And we're building that out. And now being able to to partner that with what we've done on the wealth custody side. We think creates some significant opportunities in some of the out years in terms of having a a additional source of revenue from the Wells side where Charles River is the front end in the portfolio construction. Of these adviser and adviser platforms. And the custody being provided by our wealth custody offering. Brennan Hawken: Great. Thanks for that color, Ron. John, love to drill down on reinvestment rates So could you speak to where reinvestment rates versus roll off rates are? How much you're picking up? And doing the math on the deposit beta, you know, in the US dollar, which is clearly your your largest base of of deposits, running around maybe you know, low to mid seventies depending year over year versus quarter over quarter. Is that what gets to is the roll off rates what gets to the US rate neutrality. Or do you think you're rate neutral even before we account for the roll off benefit? Thanks. John Woods: So, you know, I think I think you put it all in when you basically say in The US, you know, we're we're in the neighborhood of, call it, you know, I think we've said this previously, but in the neighborhood of around $2,000,000 per cut. Per quarter so near neutral. Respect to the Fed. That's that's encompassing all factors. In terms of the the the reinvestment, role off, and reinvestment, you we you can kinda see that in the neighborhood of approximately you know, and this jumps around quarter to quarter. And but but a a rule of thumb know, and, again, to be clear, it can be a little higher or a little lower in any given quarter. But rule of thumb is we tend to get about $5,000,000,000 of cash flows that get reinvested round numbers at about about a call it, 75 to a 100 basis point, you know, round trip. Where, you know, you're kind of maturing in the low threes and being able to reinvest somewhere near high threes or in the low fours. Over the last couple of quarters. And so that's a pretty good rule of thumb in terms of that. That'll continue for into the future and certainly through 2026. More broadly, the the the terminated hedge item that I mentioned earlier, that's not been in our run rates in terms of the benefit. That benefit will will newly present itself in the fourth quarter. And will also be a tailwind into 2026 And so it's it's those two items which are mostly not rate dependent. That add to the other forces I mentioned, which is some strong spot deposit levels at the end of the third quarter, that that directionally continue to be above the averages for 3Q into 4Q quarter to date. That really underpin a lot of the support for rising net interest margin and NII in 4Q. And we'll come back to you in January with an update about where all that comes together and shakes out for '26. But those are those are my thoughts on that question. Operator: There are no further questions. I will turn the call over to management for closing remarks. Ron O'Hanley: Thank you all for joining us. Elizabeth Lynn: Have a good day, and feel free to reach out to investor relations with any questions. Thank you. Bye.
Operator: Thank you for standing by. And welcome to the Fifth Third Bancorp Third Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I'd now like to turn the call over to Matt Curoe, Senior Director of Investor Relations. You may begin. Good morning, everyone. Welcome to Fifth Third's third quarter 2025 earnings call. Matt Curoe: This morning, our Chairman, CEO and President, Timothy N. Spence, and CFO, Bryan D. Preston, will provide an overview of our third quarter results and outlook. Our Chief Credit Officer, Greg Schroeck, has also joined for the Q&A portion of the call. Please review the cautionary statements in our materials, which can be found in our earnings release and presentation. These materials contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results as well as forward-looking statements about Fifth Third's performance. These statements speak only as of October 17, 2025, and Fifth Third undertakes no obligation to update them. Following prepared remarks by Tim and Bryan, we will open up the call for questions. With that, let me turn it over to Tim. Good morning, everyone, and thank you for joining us today. At Fifth Third, we believe that great banks distinguish themselves not by how they perform in benign environments, but rather by how they navigate uncertain ones. Timothy N. Spence: Our operating priorities are stability, profitability, and growth in that order. We seek to achieve them by obsessing over the detail on our day-to-day operations while simultaneously investing for the long term. As you are aware, last week we announced the merger of Fifth Third and Comerica. Our M&A framework has been consistent. Matt Curoe: First, that M&A is not a strategy unto itself. Timothy N. Spence: But rather a means to achieve stated strategic objectives. Second, that the cash earn-back, IRR, and NPV of synergies must be superior to organic alternatives to justify higher execution risk, and third, that the outcome must be a company that is better Matt Curoe: and not just bigger. We believe this is one of those rare combinations that satisfies all three criteria. The Third standalone momentum in the revenue and expense synergies from Comerica should produce a well-diversified Timothy N. Spence: even more profitable company with even better long-term growth. Matt Curoe: Shifting to third-quarter earnings. This morning we reported earnings per share of $0.91 or $0.93 excluding certain items outlined on Page two of the release. Reported and core results include the impact of nearly $200 million of provision expense associated with the fraud at Tricolor, which marked an otherwise excellent quarter of operating results across NII fees, expenses, and strategic growth. Average loans increased 6% year over year Timothy N. Spence: marking the fourth consecutive quarter where year-over-year loan growth accelerated. Average demand deposits were up 3% year over year, led by 6% consumer DDA growth. Adjusted revenues also rose 6% underpinned by 7% improvement in net interest income and 5% growth in fees. Matt Curoe: Adjusted PPNR increased 11% producing 330 basis points of positive operating leverage. Timothy N. Spence: Even with the impact of the large fraud, our profitability remains strong. On an adjusted basis, our ROA was 1.25%, our ROTCE was 17.7%, and our efficiency ratio was 54.1%. Matt Curoe: In credit, commercial nonperforming assets declined 14% and criticized assets decreased Timothy N. Spence: 4%. To the lowest level in over three years. Matt Curoe: Lastly, tangible book value per share grew 7% year over year, and 3% sequentially in a quarter in which we repurchased $300 million of stock. Timothy N. Spence: And raised our common dividend by 8%. Matt Curoe: Turning to our growth strategy, our investments in the Southeast, and expanding our middle market sales force and in building high growth recurring fee business Timothy N. Spence: continue to demonstrate strong results. Matt Curoe: We added 13 branches in the Southeast during the third quarter. Including our first in Alabama. And we Timothy N. Spence: expect to open 27 more before the end of the year. Matt Curoe: Consumer households across Timothy N. Spence: Southeast increased by 7% year over year, more than four times the rate of underlying market growth. Our deposit pricing remained with the total cost of retail deposits in the Southeast averaging 193 basis Matt Curoe: points in the quarter. Timothy N. Spence: We'll leverage the same proven de novo playbook marketing tactics, and differentiated digital offerings to drive retail to Matt Curoe: deposit. Growth, Timothy N. Spence: as we add 150 branches to Matt Curoe: Comerica, Texas footprint. Timothy N. Spence: Together, we'll have a presence in 17 of the fastest-growing large US metro areas. In our regions, our focus on middle market and wealth is delivering new quality relationships, granular loan growth, and recurring fees. Matt Curoe: In the third quarter, Timothy N. Spence: middle market RM headcount increased 8% year over year. New client acquisition increased 40%, and average middle market loans increased 6%. In wealth and asset management, Matt Curoe: adviser headcount rose 10% year over year, while fees climbed 11%. Timothy N. Spence: And assets under management reached $77 billion in the quarter. Post close, we will rely on the same recruiting discipline investment capacity, and one bank sales approach to help Comerica accelerate the growth of their Matt Curoe: crown jewel middle market franchise. Timothy N. Spence: In our CIB vertical, franchise finance had another standout quarter. Over the past year, we have served as the lead arranger on 24 transactions totaling $3.9 billion. Matt Curoe: Including eight in the third quarter alone. Over the past two years, Timothy N. Spence: the Franchise Finance team has generated more than $40 million in annual commercial payments fees. And $34 million in capital markets. Fees. We are excited to add America's strong verticals to our existing expertise including in national dealer services, environmental services, and tech and life sciences, among others. Matt Curoe: In commercial payments, fee growth reaccelerated to Timothy N. Spence: 3% sequentially in the third quarter. Matt Curoe: Newline increased revenue by 31% year over year and grew deposits Timothy N. Spence: by more than a billion dollars. We expect New Line to sustain its growth as transactional activity ramps Matt Curoe: from the rollout of Stripe treasury and many other category defined with payments customers, who build on Newline's API. We're also seeing strong early activity from our acquisition Timothy N. Spence: of DTS Connect. Since the announcement, we have launched pilots with the most profitable quick service restaurant in the industry, and a 1,200 location chain of convenience stores. And also executed the first preordered branch change order at a major bank. With over 2,000 branches. On Direct Express, Matt Curoe: our merger with Comerica should simplify the transition for its 3.4 million program participants. Timothy N. Spence: We also anticipate additional growth opportunities stemming from the president's executive order mandating the transition to electronic payments for all federal disbursals. Lastly, we continue to deploy technology and lean manufacturing principles Matt Curoe: produce savings and boost scalability. Timothy N. Spence: From our peak staffing level in early 2019, Matt Curoe: total headcount of Fifth Third is down 8% while adjusted revenues are up Timothy N. Spence: 20%. Percent. Matt Curoe: The investments we've made will help us to efficiently scale the business and achieve our synergy target as we integrate Comerica. Before Brian provides further detail on our outlook, I'd like to revisit the commitments we made Timothy N. Spence: beginning in the year. To deliver record NII regardless of the rate environment Matt Curoe: and to produce 150 to 200 basis Timothy N. Spence: points positive operating leverage for the full year. Matt Curoe: We will deliver both. Timothy N. Spence: Looking to 2026 and beyond, there is so much to be excited about at Fifth Third. Among these, the tailwind from our investments in the Southeast along with 60 additional branches to be open next year the sustained excellence of our J. D. Power award-winning digital experience and differentiated payments products the incredible new colleagues geographies, and capabilities Comerica becoming Matt Curoe: part of our company. Timothy N. Spence: I'm grateful to all the people whose hard work has put us in a position to take these steps. To the colleagues of both Matt Curoe: Fifth Third and Comerica who will work so hard in the coming months to make our partnership a success. Timothy N. Spence: And in particular to our clients who entrust us with their well-being. Matt Curoe: With that, Bryan will provide more detail on the quarter and our outlook for the fourth quarter. Thanks, Tim. And thank you to everyone joining us today. Third-quarter results reflect disciplined execution of our strategic priorities. Expanding in the Southeast, scaling payments in new line, and maintaining operational efficiency while delivering strong performance in a rapidly changing environment. Adjusted revenue was $2.3 billion our highest since 2022. NII grew 7% year over year, and 2% sequentially and net interest margin expanded for the seventh. Consecutive quarter. Our balance sheet continued to benefit. From our balanced business mix through diversified loan origination platforms, fixed rate asset repricing tailwinds, and broad funding sources supporting proactive liability management Our fee businesses, led by wealth, commercial payments, and capital markets, delivered adjusted growth of 5% year over year and 7% sequentially. This revenue performance along with ongoing expense discipline, led to an 11% increase in pre-provision net revenue and 330 basis points. Positive operating leverage. On an adjusted basis compared to the third quarter of last year. As Tim mentioned, tangible book value per share including the impact of AOCI, grew to 3% from the second quarter. Despite only an eight basis point decrease in the ten-year treasury rate unrealized losses on our portfolio improved 9% sequentially. Underscoring the benefit of our bulletin locked out securities These positions provide certainty of cash flow and should continue to support tangible book value growth as they pull to par. Now diving further into the income statement and balance sheet performance, net interest margin, expanded 23 basis points over last year. And one basis point sequentially. Year over year, average loans are up 6% and excluding CRE categories, average balances are up 7%. Repricing benefits on fixed rate assets and disciplined management of liability costs continue to contribute to the strong NII As Tim noted, relationship manager headcount is up 8%, and average middle market loans grew 6% over the last year. Third-quarter middle market production rebounded sharply. Up around 50% on both the year over year and sequential basis. Production levels are stable to improving in 11 of 14 regions, with the strongest performance in Central Ohio, Georgia, Texas, and the Carolinas. Provide our fintech lending platform for practice finance, continues to drive growth. With balances up nearly $1 billion over the last year. This growth in middle market C and I and provides helps offset paydowns in our CIB and CRE portfolio. Where average loan balances declined modestly as clients accessed bond and permanent financing markets during the quarter. This capital markets activity was a contributor to our strong fee performance during the quarter. Production in our corporate banking verticals also rebounded this quarter. Up 24% over two q. Pipelines for middle market and corporate banking remained strong heading into year-end. Commercial line utilization helps steady throughout the quarter, and ended in the mid 36% area. In total, end of period commercial loans are up 5% over last year. Consumer loans grew 2% on an average basis, and 1% on a period-end basis from the prior quarter. We once again saw growth in nearly every major consumer lending category. Led by continued strength in auto and home equity lending. Shifting to deposits, Average core deposits increased 1% sequentially driven by DDA and money market growth. Average noninterest bearing deposits grew 1% sequentially and 3% over the prior year. Led by consumer DDA growth of 6% as we continue to drive strong household growth. Through our de novo investment. 3% over the last year, led by the 7% growth in the Southeast. Proactive balance sheet management, has allowed us to maintain our strong liquidity position while reducing our overall funding cost. We remain focused on granular insured deposits growing average consumer and small business deposits by 1% sequentially. Consumer and payments linked deposit growth has given us the flexibility to manage down wholesale funding which declined 3% sequentially This favorable mix shift lowered the cost of interest-bearing liabilities by one point. Our Southeast De Novo investments continue to deliver high quality low-cost retail deposits. Locations open to 2022 and 2024 are significantly outperforming expectations. With deposits per branch at month 12 averaging over $25 million. Outpacing our model target. And as Tim mentioned, our total cost of deposits in the Southeast is only 1.93%. Generating 200 plus basis points of spread relative Fed funds. We remain on track to open 50 branches this year with 23 opened year to date. We have secured approximately 85% of the locations for the additional 200 Southeast branches that we announced last November. We ended the quarter full category one LCR compliance at a 126% and our loan to core deposit ratio was 75%. Down 1% from the prior quarter. Moving on to fees. Adjusted noninterest income excluding security gains, and Visa swap impacts, grew 7% sequentially and 5% over the last year. Wealth fees rose by 11% over the year on $8 billion of AUM growth. And strong retail brokerage activity. Capital markets fees rebounded up 28% since sequentially, and 4% over the last year, driven by higher activity in loan syndications and m and a advisory. Commercial payment fees increased $5 million or 3% sequentially including a $2 million negative impact from higher earnings credits on demand deposit growth. This fee performance was driven by core treasury management, and new line related gross fees. New line related deposit hit $3.9 billion. Up $1 billion from a year ago. The securities gains of $10 million were from the mark to market impact of our nonqualified deferred compensation plan, which is offset in compensation expense. Moving to expenses. Adjusted noninterest expense, increased 3% compared to the year-ago quarter, and 2% sequentially. Reflecting continued strategic investments in technology, branches, and sales personnel. Even with the headcount additions of associated with these investments, overall headcount is down 1% versus last year. As our value stream programs continue to drive savings through automation and process By year-end, we anticipate $200 million run rate annualized run rates savings associated with our value stream Shifting to credit. The net charge off ratio a 109 basis points for the quarter. Which includes a $178 million in net charge offs from Tricolor. NPAs declined 10% sequentially, as expected and the NPA ratio decreased 65 basis Broad based credit trends remain stable across industries and geographies. Excluding Tricolor, commercial charge offs were 51 basis points compared to 38 basis points in the prior quarter. This increase is due to the resolution of certain non-performing loans for which specific reserves had been previously established. Commercial non-performing loans, decreased 14% to sequentially, and 30% since the first quarter. Consumer charge offs were 52 basis down four basis points. Which is the lowest level over the last two years. The sequential decrease is primarily due to improvement in solar lending charge offs which were down 39 basis points sequentially. Expected. The broad consumer portfolio remains With nonaccrual, over 90 delinquency rates. Stable and improving across loan categories. Provision expense included a $142 million reduction in our allowance for credit losses. Reflecting improvement in Moody's macroeconomic scenarios and a reduction in specific reserves. Even with the scenario improvement, our baseline and downside cases assume unemployment reaching 4.88.4% in 2026, respectively. We made no changes to our scenario weightings during the quarter. ATL as a percentage of our portfolio loans and leases decreased 13 basis points to 1.96%. The ACL as a percentage of nonperforming assets increased to 302% due to the decrease in NPA. Moving to capital. CET one ended at 10.54%. Consistent with our near-term target 10 and a half percent. Timothy N. Spence: The pro forma CET one ratio Bryan D. Preston: including the AOCI impact of the securities portfolio, is 8.8%. We expect continued improvement in the unrealized losses at 62% of fixed rate securities in our AFS portfolio. Are in bulldozer lockout structure. Which provides a high degree of certainty to our principal cash flow expectations. Moving to our current outlook. We expect NII to be stable to up 1% from the third quarter due to loan and core deposit growth. This outlook assumes two twenty-five basis point rate cuts during the fourth quarter. We expect average total loan balances to be up 1% due to normal seasonal growth strong C and I pipeline, and continued broad-based momentum in consumer lending. We expect adjusted noninterest income to be up two to 3% due to seasonal strength in capital markets, and continued commercial payments growth. Fourth-quarter adjusted noninterest expense is expected to be up 2% due to the opening of 27 financial centers in the Southeast and incentive compensation related to the growth in capital markets fees. In total, our guide implies full-year adjusted revenue to be up nearly 5% and PPNR to grow 7% to 8%. Moving to credit, Fourth-quarter net charge offs are expected to be around 40 basis points. Finally, turning to capital. We will be pausing share repurchases until the close of the Comerica acquisition. Which is currently expected around the end of 2026. In summary, we expect to maintain our momentum. As we end the year and achieve record NII positive operating leverage, and strong returns in an uncertain environment. All while continuing to invest for the long term. With that, let me turn it over to Matt to open up the call for Q&A. Thanks, Bryan. Before we start Q&A, Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press 1 and your telephone keypad. If you would like to withdraw your question, simply press 1 again. Your first question today comes from the line of Gerard Cassidy from RBC Capital Markets. Your line is open. Gerard Cassidy: Good morning, Tim. Good morning, Bryan. Morning, Gerard. Timothy N. Spence: Tim, can you Gerard Cassidy: give us some further updates or color on the Comerica transaction in terms of how it's been received internally at Comerica and maybe by their customers Timothy N. Spence: they're Gerard Cassidy: going to be obviously part of Fifth Third in a short while. And then second, as part of that, how the process is going with the regulators we're seeing an incredibly expedited timeline on deals that have been announced before your deal being improved and approved in less than six months. Timothy N. Spence: Yeah. Happy to do that, Gerard. And I think in general, I it it's just been, I think, in positive all the way across the board. So I just to start with regulators, first, Bryan D. Preston: I think we're making good progress on the regulatory filings Expect to have them complete by the end of the month. And then at for you, the s four that should be filed shortly after we get the q out. I think the controller or the currency's public commentary actually was attached to a new charter approval recently, but about accelerating the review of both new charter app Timothy N. Spence: and merger applications is clearly a very positive development and consistent with what we're seeing in other deals. And all the early engagement that we have done with the regulators has been constructive. Bryan D. Preston: So I feel very good about the timeline that we laid out and that Bryan just reiterated. I think the feedback from employees and communities has been really positive. On both sides. Of Fifth Third in Comerica. I think the when the number one question that we're getting is what the name of the Detroit Tigers Stadium is gonna be at the end of all this, that's a pretty good sign about what about what we're dealing with. So I I and I think what has rung through to folks is this idea that we're gonna be able to accomplish things together that neither company was gonna be able to do on their own. You know, there was a a one one of the other CEOs on another call talked a little bit about their philosophy on m and a. And what they were interested in not. I actually think what he said, if I were to abstract a little bit, is really true. Like, if you're gonna do a deal and you want it to be successful, Timothy N. Spence: it either has to be strength bearing strength. Bryan D. Preston: Or strength pairing opportunity. You can't have places where both companies are weak, be credit cold, a deal outcome. And and the beauty of what we're doing Timothy N. Spence: with Comerica is Bryan D. Preston: the things you need to believe are either strength strength or strength opportunity. Right? We're great at retail deposit gathering. And are already primarily retail deposit funded. So we're gonna be able to do a lot there. Timothy N. Spence: They have a fabulous granular middle market loan franchise. We Bryan D. Preston: price more granularity in our commercial business. So there's gonna be a really nice complement there. We're both strong in different ways in the payments business and in wealth management, so there's a strength strength match. I just think there's a lot you know, positive there. And I think, you you know, that what we are going to try to do either late later this quarter or as we turn the beginning of the year is to just provide a little bit more insight to investors on the synergies. I we are feeling very good about our ability to get the outcomes When you when you look at the synergies, as a percentage of Fifth Third and Comerica combined, which is really the right way to look about it look at it Timothy N. Spence: that's the way that we'll be approaching. This exercise. They're quite manageable. And I think well defined. Bryan D. Preston: But I just in general, I the reception has been like, it's it's I we we the teams on both sides were small because of the focus diligence. Gerard Cassidy: Effort. Timothy N. Spence: So that Bryan D. Preston: I the the first announcement Monday morning was wow. You know, followed by, I think, in general, a lot of excitement about what we're gonna be able to get done together. Gerard Cassidy: Great. I appreciate that. And then as a follow-up, as as you said in your opening comments, the great banks distinguish themselves on how they navigate uncertain environments. And this week has certainly been very uncertain for many of the regional banks, including your own. Because of the concerns about this NDFI lending. And the contagion risk. And and I frame that with you. If you go back to the nineteen eighties and look at what happened to price of oil in Texas, dropping below $10 a barrel, it led to the contagion risk of commercial real estate blowing up. In the NDF portfolio, you have it. I know you have the tricolor issue, but is there a contagion risk in there? And can you just share maybe your thoughts on what's going on with that portfolio and how the market's reacting to it? Timothy N. Spence: Yeah. I appreciate you being the one to give the history lesson. Time around. Normally, feel like it has to be me on this So thanks for that. And you'd be happy to know I assigned the book Belly Up as reading to a new executive at Fifth Third. There's a lot of familiarity with the oil patch bus in Texas and Oklahoma. Bryan D. Preston: Around the shop here. And Timothy N. Spence: I I think one of the challenges we have on the NDFI fund is while the Fed's reporting was designed to be helpful here, the categorization is a little bit confusing. So Schroeck is prepared to talk a little bit about maybe an easier way to understand what's in NDFI across the industry and in our portfolio in particular. So I'm gonna turn it over to him. Greg Schroeck: Yeah. It's a great question, Gerard. Thank you. I'll start by saying it's portfolio that we have maintained low levels. We're the lowest in the FI concentrations of of large banks were at about 8%. Of the total portfolio. As Tim said, the call report categories can be pretty generic. So I'll I'll I'll provide a breakdown. Contained in that portfolio. I'll start with REITs. So REITs and other mortgage related facilities make up 33%. Of our NDFI balances. And represent the largest portion of the Timothy N. Spence: portfolio. Greg Schroeck: Represents one of our oldest asset classes within our ABS portfolio. We have processes, procedures, and structures that been tested through the cycle, and include robust monitoring of lean, We've not had any losses in in this portfolio over the last ten years. So really solid portion of the portfolio that makes up our largest component. Next, about 24% of the NDFI balance are payment processors. Insurance companies, brokerage firms, SBIC firms. Balances in this category are primarily related to large players well recognized names, and not at all related the conversations going on in the market in the market right now. Next would be our subscription facilities at 18%. Of NDFI funds represent exposure to high net worth individuals and other private capital investors. Who have capital commitments to these funds. Third, percent of the balances are loans to private capital warehouse facilities. This category has been an area rapid growth in the industry. However, we've been really intentional in limiting our growth in these vehicles. We only we have one lender where we have a deep relation This is a portfolio where we have deep relationships with the lenders typically lending into one of their portfolio companies. And that's that relationship orientation is key we look into that that portion of the NDFI portfolio. The smallest share of NDFI balances are loans to non-real estate and non-private credit related warehouses Of our balances. It's about 9%. Put the tech that category includes our exposure to consumer asset classes, Gerard, you mentioned three calor Tinep, it's in that broad issue. It's in that portfolio and has received significant scrutiny. As part of our comprehensive review of portfolio. Given that comprehensive review, if you'll very confident in the quality of the remaining clients. It's in that category. We've been overall and we've been very deliberate in our strategy to keep NDFI portfolio balances diversified. Our disciplined underwriting framework is designed to safeguard portfolio quality by avoiding aggressive advance rates, which we see in the market sometimes. Overly concentrated collateral pools, inexperienced management teams and structures, that do not meet our overall risk appetite. I'll also add as part of the Comerica George, you mentioned Comerica, but part of that review during our due diligence, we also reviewed Comerica's NDFI portfolio. 70% of Comerica's NDFI portfolio is concentrated in low-risk subscription facilities? Which complements our disciplined approach to client selection and portfolio diversification. Post close, our combined NDFI portfolio balances will be 7%. So down from our fifth or overall 8%. So we feel really good about the ongoing diversification Gerard Cassidy: Thank you for the thorough answer. Appreciate it. Operator: Your next question comes from the line of Ebrahim Poonawala from Bank of America. Your line is open. Good morning. I guess maybe just sticking with Ebrahim Poonawala: with credit and outside of the NDFI issue, just if you from a mark to market standpoint, are your customers feeling the pain on the commercial side from tariffs and slowing activity? Or are we on the other side actually where things are picking up in terms of folks wanting to make investment decisions which could drive loan growth. I'm just wondering what seems more likely as it cut through all this noise at the moment. Yep. Yeah. Yeah. Timothy N. Spence: I think Bryan D. Preston: unfortunately, the answer to that is yes. Timothy N. Spence: On on on both points. I the the quota that quarter, I I was out in Bryan D. Preston: several of our markets. I got to visit about three dozen of our commercial clients. Timothy N. Spence: And the quarter to quarter went to the client who referred to his Outlook Bryan D. Preston: as, quote, nauseously optimistic. I the the tariff uncertainty absolutely continues to weigh on any clients that are exposed That that said, I would tell you, in general, people are more optimistic than they were in the second quarter. In in part because when you add up all of the different tariffs there is some uniformity across most of the countries that provide you know, our significant sources of the supply chain for folks in materials and manufacturing and you know, the construction and the other sectors that are you know, big big in our footprint. The the the question mark really has been what would be the who would bear the brunt of the tariff? And I I would take say now on balance, it's a sort of a shared pain approach here where the supplier, the intermediary, and the customer each absorbing about of the third a third of the increased cost. But the supplier and the intermediaries have also been clear whenever we talk to them. That their intent is ultimately to get back to prior margins, which would mean over time, you would see continued price increases as a mechanism to move the Timothy N. Spence: you know, the cross Bryan D. Preston: that through. That the the bright spot here is really one that's just the Fed resuming rate cuts Timothy N. Spence: I think people have been more optimistic about they're more front end focused. Than I think I would have said I believe them to be they're more optimistic about what the value of Bryan D. Preston: you know, a total of 50 to a 100 basis points of cuts. You know, we'll have on client demand and also penciling out of their own investments. There there's also another reality here. Which is a lot of our clients when the tariff announcement hit, deferred capital expenditures and have been renting, either renting excess space or renting equipment. And we are getting requests now. For financing that are reflected in the pipeline in the middle market business in particular. To support the sort of shift from rent to own. So I think that's that's quite positive. The other thing that I like seeing is I like our logistics clients. They're a good bellwether on the sort of know, wheels of the economy turning. And we're we're hearing from logistics clients that there hasn't exactly been a huge rebound, but that they activity has stabilized and is you know, moving on the you know, the ups ups the upswing I the the folks that are that having the most robust demand, obviously, are the people who are either attached to the big government infrastructure invest investments, things like bridges and roads that are moving forward or folks that are attached to AI, And there's so much demand there because with one of our clients is in the concrete business, it did not they not only have a strong order book, but the suppliers are driving the pricing as opposed to the buyers driving the pricing. In these cases, meaning the margins are really great. And the other end of the I think residential construction, auto still slower. Ebrahim Poonawala: Okay. Cool. Thanks for that. And I guess just a separate question. Think back to Comerica, I think if you don't mind spending some time around, and you talked about this when you announced the deal, Just the optionality that Comerica provides. So you've talked about opening the branches in Texas. But Comerica also had a big technology life science practice. And Cisco to Newline's been leaning in there. Just either it's that or either it's double clicking on the existing footprint and deepening relationships which may have kind of sidelined a bit over the last decade. What's that potential to unlock and accelerate growth for the combined entity as we look out a year from now. Timothy N. Spence: Yeah. I think thanks for asking on that one. I'm yeah. You know, I like, one of my fundamental beliefs is if you don't wanna grow by sacrificing pricing, or risk discipline, you have to attach yourself to segments of the economy that have a secular tailwind. And the innovation economy is the the most pronounced, you know, profound secular tailwind on the, you know, on the business side. Of our business. In The US. So I am quite excited about the potential on tech and life sciences. Historically, the OCC looked at that business a little bit differently than other people did, but I think the early signals coming out of the OCC are that they want national banks. To be able to compete in all markets. And I I am optimistic that we're gonna be able to do some interesting things there. I you know, Michigan is about creating finishing off the play in terms of a fortress position in the Midwest. Texas for us is gonna be about investment. I think we can continue to add a lot more middle market bankers and clearly the branches are there. California really will be a more business focused strategy. And and between New Line, which is a unique asset, and the fact that a lot of the early folks at SVB actually were from a predecessor to Comerica in 1991, You know, we have credibility having been in that market. Like, the the there's a really interesting thing to be done there because post SPV to point, you have you know, First Citizens still active, you have JPMorgan active, you have a couple of investment banks active. That really are leading on the m and a advisory and capital raising front. And then you have foreign banks. And and a fragmented market like that will be you know, is is good hunting for people like us. Ebrahim Poonawala: I the thing that's Timothy N. Spence: probably important to remember with Comerica is I think they're running a four to one deposit to loan ratio, three to one, four to one deposit to loan ratio in that market. So one of the things we may do very early on is just focus on the ways in which we can leverage Newline to drive even more deposits on platform as well. Operator: Well, thank you so much. Your next question comes from the line of Scott Siefers from Piper Sandler. Your line is open. Scott Siefers: Good morning, guys. Thank you for taking the question. Timothy N. Spence: Hi. Scott Siefers: Hey, Tim. So, I mean, based on all you've said, I I don't get the impression that there's any change or or impact Bryan D. Preston: to your de novo expansion plans while you go through the Comerica transaction. But I was just hoping you could spend a moment discussing sort of how you balance the the planned organic expansion with the large integration just to make sure nothing sort of slips through the cracks. Timothy N. Spence: Yeah. No. That's great. So I think you you have probably have to think about it in in two ways. One is just what resources did the it did, you know, did the two sort of separate growth areas of focus drawn So the the De Novos are in the Southeast footprint. There is gonna be I well, there are some really wonderful Comerica bankers in the Southeast, but they don't have a branch presence. So we're not gonna have disruption in those markets. So the regional leaders who have to be on top of driving the daily, weekly, monthly activity in the Southeast are not gonna be disrupted. That's the first thing. Secondarily, the people inside the bank who find the location who build the locations, and who run the locations are three different groups. So 85%, as Bryan said, of the locations have been found. Meaning, that that group has the capacity to be able to be looking for locations in Texas. And if you just do the math on the 40, we will have built in the second half of this year. The 60, we just said we're gonna build next year. By the time we're at a point where we've got sites and permits pulled, the people who build the locations are gonna be freed up. You know, from the Southeast to be able to shift their focus onto the you know, the acceleration of the openings in Texas. And and lastly, because of the scale we have in the Southeast, the the draw on human capital and the need to drive recruiting and otherwise to be able to the new branches is substantially lower because the majority of the folks we put into the de novos are people who have trained up and come through our other retail financial centers And and therefore, the Southeast is sort of on the flywheel of being able to feed itself. So there there really is not an overlap in terms of the critical resources to be able to do those two things. Think the second thing that's really important is we've talked a lot about the focus on modularity. In the way that we drive the retail expansion, I you know, I wait. That that has been the point I'm trying to make whenever I say we haven't built a 100 branches. We built one branch a 100 times. Bryan D. Preston: It's Timothy N. Spence: a consistent site selection model It's a consistent retail format, meaning there's no need for additional engineering re resources. Or otherwise If if we have experience at this point with the essentially every zoning jurisdiction, and set up that you would want to experience in the zoning rules in general in Texas are much easier than they are in the Southeast and certainly than the the the Midwest. So it's not like we're gonna have to learn on the fly here. We just have to find the locations, and we have the people to do that. And we gotta build same thing we've been building and we know how to do that, obviously. And, you know, and then the focus really is gonna be on making sure that as we do the conversion in Texas, the initial experience that Comerica's existing retail clients have is really, really strong. And then that we are doing the recruiting that we need to do to be able to support the larger you know, the larger base. Lastly, it's probably worth noting that I think we were at we've we were building a fair number of de novos in '19 when did the MB conversion. We didn't have any problem juggling both of them. Those either. Scott Siefers: Mhmm. Ebrahim Poonawala: Okay. Scott Siefers: Perfect. Thank thank you for that. And then with regard to direct Direct Express, you know, you noted the merger should simplify the transition for their customers. I imagine it really eases things for you all as well. I know there was already you know, a sense of urgency to get the balances moved. Before the the merger was announced But was hoping you could just sort of spend a moment at at least at a a top level on you know, how I presume it's all still going to switch to Fifth Thirds rails. You know, how how will what are the sort of the plans for for that to take place? Ebrahim Poonawala: Yep. Timothy N. Spence: So the the transition schedule that we talked about when we announced the Direct Express win that, you know, commencing Fifth Third as the administrative agent for new program enrollees in the beginning of the first quarter and then starting the conversion process. At the end of the second quarter. Is, you know, still progressing as planned. And and I and I feel good about all that. The the dynamic here that's most important is that we were gonna have to issue out of our own bins or buy Comerica's bins in order to be able to make the card numbers. Work. Right? And Mhmm. That when when the deal closes, again, provided that it closes as as we expected to and in advance of when we were planning the back end conversion, The the the factor that would have driven new card issuance would have been the need to use a bid range. So we Kurt and I had actually talked about this or buying the bins. From Comerica prior to commencing the discussion on the the the merger itself. We were looking at the possibility of being able to simplify that aspect. For the program participants. And clearly, we get the deal closed, the bins are ours, and we'll be able to continue the issue. You know, out of them and and maintain existing cards. Scott Siefers: Yeah. Perfect. Ebrahim Poonawala: Okay. Good. Thank you very much. Operator: Your next question comes from the line of Manan Gosalia from Morgan Stanley. Your line is open. Manan Gosalia: Good morning. I you you touched on direct Express right now. I was wondering if you could talk about Bryan D. Preston: the opportunities Manan Gosalia: there on the income statement and the contract Timothy N. Spence: there. Manan Gosalia: And I think on the CMA deck, you adjust about a 100 and and 10 million in NII. But can you touch on what the full opportunity is there how do you expect expect that to grow? The the fee contribution that you expect Bryan D. Preston: Yeah. Happy to happy to talk, Manan. You know, the big question when we announced the program was really about the win of the program was about the timing of when we would see the balance transitions over, and that was one of the reasons why we said we provide more information in the fourth quarter. Obviously, the the Comerica transaction provides a lot more certainty around how the balances will hit the third. Balance sheet. Know, it's three on average, it's about 3 and a half billion dollars of DDA. That will obviously provide a lot of funding benefits associated with our balance sheet. From a fee perspective, the way to think about it is there's probably a, you know, 15 to 20% type margin on the fees relative to the expense load. And you're probably looking at something that is in the range of a 100 to a $110 million type. Expense level. That's primarily related to the processing cost. And the fees. The there's a gross up on the fees associated with the interchange that comes through. We do have some revenue share with our processing partners. That's why there will be a fairly direct link on that. And then the growth for us primarily gonna be related to transaction activity in the future as well as growth in the programs. And we are excited about the potential for incremental growth in the program due to the executive order trying to limit more to limit the amount of paper checks that are issued And this is the government's program for electronic disbursement. So we do believe there's even more upside in the program over time. Manan Gosalia: As the government Bryan D. Preston: continues to try to find efficiencies and it's dispersion. Process. Manan Gosalia: That's very helpful. Timothy N. Spence: Maybe if I can pivot over to credit. Yeah. Excluding the credit that you called out, I think, as you know, we're about 52 basis points. Greg Schroeck: Points this quarter. And you're guiding for about 40 basis points. Points. In the fourth quarter. I know you talked about some of the sentiment and what you're hearing, but can you to what gives you the confidence that NCOs will step down from here? And how we should think about that? Going into 2020? '6? Bryan D. Preston: Yeah. It's Greg. Great question. So I look at it a couple different ways. One of them, even indicators, right, criticized assets. As Bryan mentioned. Our criticized assets are down are down again. 4%. This quarter. I also looked at predictability. We've been we we've talked over the last couple of quarters about NPAs coming down. In that 40% range. They were 14% this quarter, 30% over the last two quarters, and we have good visibility tracking to that 40%. At the end of the year. We're not not seeing NPA surprises The the the losses we're taking are are reserved. Think we'll continue to getting out ahead of some of these problems and dealing with them timely. So I feel good about that. The consumer portfolio continues to to perform very, very well. Manan Gosalia: Delinquencies are just six basis Greg Schroeck: points. Below even pre-COVID levels. Consumer loss rates stable at 52 basis points. That's consistent with our ten-year average. Bryan D. Preston: So Greg Schroeck: the portfolio is Bryan D. Preston: playing out. Greg Schroeck: And I still feel really good. I mean, excluding the three caloric fraud-related issue, Range. I still expect full-year charge offs to land midpoint of our original guidance. And assuming no significant changes in the environment, based on what I know today, continue to be very confident that commercial loss rates return to that mid Manan Gosalia: Yeah. And Manan, I just add since there's some names that have been in the news. We have no relationship with cancer We did have a relationship historically with First Brands but we exited it in a a handful of years ago. Because of some issues that were identified during the collateral reviews we were doing. And that only residual exposure there is $51,000 of operating leases. $51,000 That's secured, Greg tells me, by a forklift and a printer. I asked if the printer had wheels. He said no. So if necessary, we're gonna use the forklift to get the printer out of there. But they they're just the that that's the other thing here in terms of confidence is there's no exposure. To the names that are out in the market. Manan Gosalia: Thank you. Bryan D. Preston: Appreciate that. Manan Gosalia: Yep. Operator: Your next question comes from the line of Ken Usdin from Autonomous Research. Your line is open. Ken Usdin: Hey, Ken. Bryan D. Preston: Hey, guys. Good morning. Scott Siefers: Good morning. I was wondering if we talk a little bit about the NII trajectory and the helpers that you have. Can you just give us an update about the fixed rate repricing that you have and what you're seeing now given the change in the in the curve in terms of the the benefits and how long out you have line of sight onto that? Bryan D. Preston: Yeah. Thanks, Ken. Great question. You know, we continue to feel good about fixed rate asset repricing. That's something that was a contributor this quarter as well as for most of the year. We have seen, you know, a decent compression in the yield curve this quarter. In particular, two to three-year point in the curve has come down about 40 basis points. We talked with you as part of July earnings. And that obviously has a decent impact on the indirect auto business, which is has been a big driver of our fixed rate asset repricing. We're still seeing 4 billion to $5 billion a quarter of fixed rate assets that are repricing. And it's picking we're picking up now around a 100 basis points. And we expect that 100 basis points to persist you know, basically through the end of next year. The end of this year and end of mid to late next year. So we do feel good about trajectory that we're seeing there. Even with some of the compression that we've seen from a curve perspective. Ken Usdin: And then, honestly, for 2026, Bryan D. Preston: when you think about NII trajectory, the Comerica transaction has such a meaningful impact on overall balance sheet positioning and as we've as we've talked as part of that announcement, you know, fairly decent pickup from a profit standpoint. Perspective and then now NII. Ken Usdin: Is going to be a good component of that as we Bryan D. Preston: work ahead on bringing our diverse funding capabilities to that platform. As well as positioning the balance sheet for and using our fixed rate loan origination platforms to position the balance sheet for better long-term performance. And so we feel very good about the trajectory that on. We are heading into next year intentionally running a little bit heavier on cash and a little bit more balance on from a deposit perspective. Because we do wanna be in a position to take care of some of the funding things that they have had to do as they have managed through this environment the last couple years. And so you are gonna see us a little bit more balanced on from a retail perspective. We've always been very focused on keeping our retail contribution. To be the primary funder of our balance sheet. And that's something that know, we'll wanna continue to do as we bring the Comerica Comerica balance sheet on board. Ken Usdin: Yeah. Scott Siefers: Great. And that was actually dovetails to my follow-up, which was just Bryan D. Preston: you know, it's been great to see the Scott Siefers: noninterest bearing growth over the last couple of quarters. And still a little increase in the Timothy N. Spence: IBD Scott Siefers: cost. So to that point you just made, and given that we're on the next leg down of the rate cycle, what does that put us into context in terms of what you're expecting to see in terms of deposit betas on on the IBD side? Thanks. Bryan D. Preston: Yeah. For the next I would tell you for the next couple quarters, the fourth quarter and into first quarter, we're gonna be a little less aggressive than we have been. We delivered a low sixties, beta. On the first 100 basis points cuts. Prior to the Comerica transaction. You know, I had high confidence that we were gonna be able to deliver kind of mid-forties to low fifties beta. Which would kept us Scott Siefers: which which would have kept us in a good position. Bryan D. Preston: But given the point of trying to stay balanced on from a retail perspective, because we want to work ahead and be in a position to deal with some high-cost funding that's on their balance sheet. That'll be a very accretive transaction for us in 2026. When we utilize when we utilize the optionality that our funding position will give us. Next year to deal with some issues on the combined balance sheet. Gonna we are gonna run a little lower on our betas. Here. So I would expect that for the fourth quarter and the first quarter, for our betas to be in the more like 30%. Range. And so that's a little bit of the rationale when we talk about a kind of a stable to up 1% NII forecast for the Ken Usdin: Yep. Scott Siefers: That that makes sense. Okay. Thanks for that, Bryan. Operator: Your next question comes from the line of Christopher Edward McGratty from KBW. Your line is open. Christopher Edward McGratty: Hey, Chris. Hey. Timothy N. Spence: Hey. Good morning. Sean Culhane actually on for Chris McGratty. Quick question just on the expense growth Bryan D. Preston: expectations. You touched on near-term expense growth elevating as you continue to invest in the branch expansion. But just longer term, how should we think about operating leverage from here? Timothy N. Spence: And maybe more specifically, how you think about organic expense growth in terms of balancing places that require continued investment? Such as payments, as well as the branch expansion obviously in Texas as well as Southeast But versus kind of like the synergies and the offsets from both the merger as well as prior AI expense. Lot of good questions. Embedded in there. So a couple of things. One, the the the branch expense is seasonal. Right, for us. So we I think we said we were gonna get about 50 branches opened this year, so 40 is a 50 happened in the second half of the year. That's part of the reason that you see the ramp in the fourth quarter is half. Of the branches in total get opened in the fourth quarter alone. And that's actually an improvement for us. It used to be here 80 or 90% of the branches got opened in the fourth quarter. Bryan D. Preston: So Timothy N. Spence: I wouldn't read too much into the fourth quarter as a point of extrapolation into the future. We do believe we have the ability to continue to drive operating leverage out of the company. It's been convenient that others have offered 2027 as a medium-term you know, guidance range because that corresponds with the numbers that we provided for the combination of Fifth Third and Comerica and you know, the outlook there was 19% ROTCE, or better and, you know, getting down to the low to mid-fifties mid call 53% in terms of the efficiency ratio, and we've printed from 54 this quarter. The guide implies 54 next quarter. So there is continued operating leverage in order to get there. And that's inclusive of the sorts of investments we're making in the business. I mean, we bought a payment software company in this past quarter that feathered into the run rate. I think what what's worked for us here has been this belief that we need to fund something on the order of half of everything that we want to invest back into the business. Through finding other savings opportunities Now that's principally been automation, leveraging technology to drive people cost down and to improve scalability. And those investments are gonna be super helpful as I mentioned in my prepared remarks. As as we integrate Comerica. But it it's it's allowed us to just look at it over five years. I mean, I think we bought now five fintech companies during that period in time. We've built more branches than anybody other than JPMorgan during that period time. We've been growing the Salesforce by five to 10% across the you know, regional footprint during that period of time, making big investments in tech platforms and otherwise. And despite all that, we've had I think, something that's on the order of the lowest cumulative expense growth. Across our peer group. So we are gonna continue to invest in the company I'm super excited, as I've said, about the opportunities to invest into places like Texas and scaling the verticals like National Dealer Services and pairing that with the auto business and and life sciences like you bring that. Earlier. Bryan D. Preston: But Timothy N. Spence: we also expect ourselves to have to pay as we go in addition to asking in invest investors. To back it, and that's why you get the operating leverage Scott Siefers: at the end of the day. Operator: That's great color. Thank you. Timothy N. Spence: Appreciate it. Operator: Your next question comes from the line of Michael Lawrence Mayo from Wells Fargo Securities. Your line is open. Hey, Mike. Hey. I I have kinda one negative question, one positive question. So the negative question, if you could just double click on the the tricolor category. I think it was 9% of your total NDFI Bryan D. Preston: Just elaborate more on what contained that category. And the deposit question is, you talked about the team that will be in charge of the integration of Comerica You have Jamie. We also don't heard you talk about Darren King either. I almost forget that he's there. You're keeping him like, locked in a closet somewhere, but you have a lot of Timothy N. Spence: talent at the top of the the house. I like to hear how they're they'll be deployed for the integration, but but first, more elaboration on the the Tricolor Bryan D. Preston: category. Greg Schroeck: Yeah. I was gonna say we'll start there because now I'm gonna go get Darren out of his office and demonstrate that he's has free to move. Around the building. Go ahead, Greg. Timothy N. Spence: So if I can Greg Schroeck: it's primarily consumer asset classes. So consumer auto, consumer finance companies is And there's a reason why it's our lowest category from a concentration standpoint, and we're watching that consumer very, very closely. Clearly impacted with higher interest rates, unemployment, inflation, etcetera, but that's primarily what makes up that category. Timothy N. Spence: Yeah. And it's not, I think, dominated by relationships with the largest players, the long tenure in their in their having been through all these names myself, as I mentioned at Barclays, I find confidence that Trifor is unfortunately, it it is unique there in terms of yeah. I I I think we have an an excellent team. And I think Comerica is bringing really excellent executives to the table in terms of what we're doing here. So the integration advisory council jointly staffed. Jamie, is on on point since the third. Megan Burkart from Comerica, their their chief administrative officer from Comerica. Folks like Darren, and Pete Sefzik from Comerica the IT leaders, folks from operations and otherwise all all involved here Darren, it it is focused Darren's worked very closely with Peter in thinking through how we integrate the middle market bankers. Darren's responsibility here is regional banking. So Darren Darren's had wealth management. Middle Market, and Business Banking. Peter will take on wealth management. Darren's taking on the expanded middle market business banking. Side of the equation. So they they have been working through a few roles. Taking opportunities where we're allowed to do so to meet people. And to Michael Lawrence Mayo: you know, Timothy N. Spence: make sure that everybody knows that if you talk to customers, you're in good shape in terms of the you know, being able to look forward to, you know, a a broader quality product set and more capacity to invest in in in growth The other thing I'd tell you I'm really optimistic about is we have a really outstanding IT organization The IT group here is essentially entirely been since 2018 or 2019. It is led by people who were Fortune one fifty CIOs, people who founded businesses, that ended up being taken out by major players in information security. And people who have actual engineering background. So they're not vendor managers, or IT maintenance people. They're people who understand architecture and software engineering. You know, and otherwise, that's been a big part of the success. Drew Tram, our CIO is the one that's led the value streams. Work over the course of the past several years inside the company that has helped to drive all savings. That So there there's a really good bench of people around the table here. To ensure that we you know, retain what is great about both companies. And execute a seamless conversion and get the cost out. You know, as we need to. And now that the dust has settled a little bit, one Michael Lawrence Mayo: challenge that you think you're really gonna have to gear up for that you it's more in your face and you Timothy N. Spence: maybe underappreciated or you just like, hey. This is we're gonna have to do this right and one positive. That you said, hey. This might be better than we thought. Greg Schroeck: Yeah. Timothy N. Spence: Think the the challenge is we're set that Comerica had a a public consent order attached to the trust business and specifically a conversion they did there. I would tell you that's I don't perceive that to be an an like, a challenge in the sense that I'm worried about being able to get it done. But it's clearly priority one is ensuring that we have the trust business on stable footing. As part of getting this conversion done because we like the businesses. That they're in. I think they're quite complementary to the segment of the market that we serve in our custody business. Greg Schroeck: But Timothy N. Spence: we we gotta get that work done expeditiously and well. So that that remains you know, big point number one. I think the thing that I'm probably most optimistic about is the the we've a lot of former Americans here. They have a lot of former fifth herders there. They seem to have done well. In both places. I can speak to the former Comericans that are here. You know, they they've been big parts way that we've driven the growth in the expansion markets. They have leadership roles here in payments. And have have led businesses like Business banking you know, corporate social responsibility, otherwise. Like, so I'm I'm most excited about our ability to unlock the Comerica bankers that we now that we can provide a broader funding base and there isn't a competition from an investment perspective on needing to invest in sort of LFI level you know, control environment. That is the thing that that more I talk to folks, the more you feel There are a lot of good ideas here. There are places where we have the ability to grow that they just there there was an inherent limit because they were trying to balance more priorities than we'll need to balance as a combined company. Michael Lawrence Mayo: So it sounds like some Timothy N. Spence: ex-frenemies will become colleagues They had worked together before. Greg Schroeck: Yep. That's the he that's right. Michael Lawrence Mayo: So we we we from frenemies to friends again, maybe. Timothy N. Spence: There we go. Operator: Alright. Michael Lawrence Mayo: Thanks a lot. Gerard Cassidy: Yeah. Operator: Your next question comes from the line of Peter Winter from D. A. Davidson. Your line is open. Peter Winter: Hey, Peter. Thanks, Tim. Timothy N. Spence: Hey. Just at Barclays, following the the Tricolor Peter Winter: announcement. You mentioned Timothy N. Spence: that you're going to take a step back look at the processes to see if you could have done anything differently. And, of I'm I'm just curious what you discovered, and you need to make any changes. Greg Schroeck: Yes. Thanks for asking that. Greg will give you some detail there. Timothy N. Spence: Yeah. So obviously, a lot of time given the surface circumstances that we've spent. While we still think it's an isolated event, we treated it with the seriousness of the We completed a comprehensive review of that entire asset-backed finance portfolio, tracing cash flows, collateral movements in and out of our facilities then into securitizations. The work included a full inspection of our processes, our procedures, our policies, underwriting, portfolio monitoring, It was it was an end-to-end inspection. By by our leaders. We've identified a couple of things that we'll start to implement from an enhancement standpoint. We'll continue to do that and we'll continue to reinforce some of the of the ongoing monitoring that that that needs to take place in that space. Couple of things I would point out is is 92% of the ABF exposure is through bankruptcy remote SPV securitizations. Structures. They're nonrecourse or self-liquidating They're they're they're underwritten. Through the structure through advanced rates. To a triple b or better. So investment grade type of of underwriting. We also engaged a third-party firm to validate a 120,000 vehicle identification number VINs tied to our consumer collateral or loan collateral. The results were conclusive 99.99% of of the VINs have been verified as valid. With only two exceptions. We're tracking those two exceptions down. Greg Schroeck: As in two hands. As in two VINs. Two cars. Yeah. The the overall exercise to your question confirms that that Timothy N. Spence: we we still feel very good about the overall portfolio as portfolio not had losses. In the past in any meaningful way? Clearly, the tree core was a broad do a little differently. Going forward based on the inspection. But based on the inspection, the the the house to house search that we did I still feel I still feel very good about about the portfolio. Peter Winter: Come on. Michael Lawrence Mayo: Thanks. And then just a quick follow-up. Timothy N. Spence: With the Comerica deal, you'll have roughly $290 billion in assets and become a category three bank. Does that happen when the deal closes or is it kind of a four-quarter average before you become category three? And Michael Lawrence Mayo: does that Timothy N. Spence: involve entail Bryan D. Preston: additional expenses Timothy N. Spence: maybe risk management controls? Yeah. We so at the end of last year, we've actually been going through a process for some time in terms of preparing for category three readiness. This is something that we actually kicked off back in when we're in the process of March Madness associated first Republic of making sure that we really understood what that path looks like. And at the end of last year, we actually hired a third party to come in and do a catheter readiness assessment for us and to help us build out the compliance work plan as we were gonna head down either on an organic path or some reason the transaction were to occur that was accelerated it? So we have a good sense of Michael Lawrence Mayo: what that path Timothy N. Spence: looks like and the cost associated with it. You know, clearly, there's certain things we'll have to do some investments in terms of enhancing some reporting capabilities, things like 2052 a, the the of reporting and the time turnaround of that reporting accelerate. From a a t plus 10 reporting to t plus two. There's some new credit reporting that we'll have to do. But all of those things are known and manageable. What's interesting about this process is that there are a number of different CAT III requirements, and they're actually all the discussed with regulators and agreed to conversion and compliance timeline as a agreed with regulators on that line item by line item. Perspective on the individual requirements. Twenty fifty-two a recording being one of the first So those are all things that we're working through right now, all contemplated in the financial numbers that we've provided. And from a cost perspective, we'll be managing Operator: Thank you. Your next question comes from the line of Erika Najarian from UBS. Your line is open. Erika Najarian: Hey, Erika. Hi. Timothy N. Spence: Hey. So just wanted to make sure that we're Erika Najarian: taking away the right message from a funding strategy perspective. Tim, it really struck me when we you did the Comerica announcement conference call that you said that it was funding that was really preventing them from fully realizing their growth potential. And then you know, Bryan noted, you know, it's a 30% deposit beta from here. As we think about, you know, the go forward both from a standalone company and and together, should we should we now think, okay, the priority has to be you know, retaining the the funding and that's more priority growth in deposits and retention of deposits. It's a bigger priority over over price. And by the way, that's okay because the power of the combined NII from both the bigger balance sheet and the purchase accounting will supersede sort of the lower reprice. Timothy N. Spence: Yeah. Great question. No. I I think I would say that the priority here is is replacing the funding And then so it supporting the right level of growth beyond that. We have run at a loan to deposit ratio that's a little below where we need to be. So that we we are in good shape in terms of being able provide some excess funding But I've talked a lot about the fact that we prize a $60.40, like, living inside a fixed a $60.40 mix. We like balance. We we like diversity. Diversification. And and that's gonna mean that that we have to grow retail deposits at a rate that will allow us to essentially remix out of some higher cost corporate cash. And other funding sources, Intrify deposits, and otherwise over time. That are on Comerica's balance sheet. And into a more retail heavy mix. The good news is we have like, what I would argue is the best retail deposit engine in the retail bank. Sector and the tailwind of all these branches in the Southeast plus what we're gonna be able to do just leveraging Comerica's existing branches where they hadn't done any consumer deposit marketing, as I understand it, for over a decade. K? And we bring an analytic engine and a JD Power award-winning product set that will hit those branches day one and make them more productive. Plus then the network benefit that you get out of the build-out in Texas. That really is meant to provide a catalyst where retail deposit growth, exceeds you know, the the overall balance sheet growth and allows us to drive a remix So that Erika, I'll Bryan D. Preston: I would I would think about it for you guys and in two horizons. One, which is where do we want to be at close of the transaction? Because we know things always come up around close. You know, for example, we have shared customers in the commercial portfolio and, you know, they have a lot of times customers pick two different banks because they want diversification. So we know that there could be a little bit of outflow around that. So we wanna make sure that we have a good source of liquidity and optionality to deal with unexpected things that occur but also to help manage through the the funding cost of the company. From a longer-term perspective, I would tell you that the total funding cost for the combined company will be better going forward than the two individual companies. And, you know, you can look at things as simple as our cost of interest-bearing liabilities versus cost of interest-bearing liabilities. We are, you know, 50, 60 basis points better in total on them, and it's back to the mix of our deposits. So, yes, we're gonna lean a little bit more on retail right now because we also know that we are able to manage to very very strong and profitable long-term retail deposit cost. We just wanna be in a good position from a short-term perspective to make sure that we're ready to to navigate You know, obviously, uncertain environment and from a economic perspective, between the end of the year and and the close at the beginning of next year and to make sure that we're positioned for anything unexpected that could come up as part of the clause. Erika Najarian: And my second question, and I didn't realize we're moving you were closer to $10.15. This is for you, Tim, and maybe if Jamie is also in the room. Since he's head of integration. So clearly, the financial benefits are obvious. You know, you talk very passionately about the cultural and strategic fit. We have seen in the past some of the larger deals that have been announced previously been hampered by sort of poor back-end execution, right, in terms of how they approached the tech integration And we haven't talked much about that Tim and Jamie. I'm just wondering if you could maybe give us a sense of your approach for the back end and tech into integration and how you would prevent that in terms of, you know, prevent, like, slippage in terms of expenses or delay in expense synergies and all of that. That has have hampered peers. Yeah. Timothy N. Spence: Great question. You're gonna have to make do with me because Jamie is so focused on the back-end conversion that he's off working with the team. So he will be at NAB, Erika. So I would encourage you to ask the to ask the same question then and and you'll get the benefit in his answer. I you know, the conversion is the moment of truth because it's the first thing that you do to has a very material impact on customers if you get it wrong. Right? And the the work that has to be done on making sure that the receiving environment is clean and that you're not making any changes so that there aren't any unanticipated hiccups doing the data mapping. So that you are able to ensure that what you convert populates correctly and then managing the customer experience. I mean, simple things like you know, so many customers use biometrics today. To log in that I not everybody knows their password. And as a byproduct, when you ask them to download a new app and tell them their username and app and password, ported over, you know, that you you run into issues. So there there is an incredible amount of detailed work that has to get done just on the mapping and the communication and then the pre-conversion actions that you can take to ensure that the conversions themselves go smoothly. And I'm coupled then with I think, having the right level of staffing on hand, whether it's in the branches, in the call centers, or otherwise. So they you don't have a situation where something unanticipated comes up. Like, maybe a customer's mobile phone number is out of date, and when they go into change it, it locks them out of using Zelle for two weeks or something like that. You know, those are the sorts of things that you have to be in front of to make sure that, you know, the the conversions go well. The one thing that I will tell you is maybe different here than some of the other larger deals where there have been issues. Is there is no debate about which technology we're gonna use. So the is not gonna be a scenario where we go through and try to pick the best of both companies and then reintegrate them. The the Comerica customers and business are gonna move from the Comerica platforms to Fifth Third with the exception of the National Dealer Service business, where we don't have a platform The reason we had to get out of the business five years ago, we have always liked it. We just we didn't have the scale to be able to you know, to to support the the platform. So we know our environment. And that our you know, should be in a substantially better position because we're not doing systems integration and conversion on top of one another It's just a conversion exercise. And they don't have there's not a single platform they have that we haven't converted before. You know, in terms of the key the key platforms. And in many cases, they're on the same platforms. That that that we are. Erika Najarian: Perfect. And thank you, Greg, for all of that color. It's never fun when you're popular, but I think investors appreciated the color. Timothy N. Spence: I don't know. I it's it's good for people like Greg to feel good. Feels like they're popular once in a while. Right? I went through middle school profoundly unpopular too. And the second I got a moment in sun, I feel pretty good about it. I think that wrap on that note, we probably should wrap it up. Bryan D. Preston: Yeah. I think so. Timothy N. Spence: Thank you. And thanks everyone for your interest in Fifth Third. Please contact Investor Relations department if have any follow-up questions. Rob, you may now disconnect. Disconnect the call. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Welcome to the Liberty Energy Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Anjali Ramnath Voria, Vice President of Investor Relations. Please go ahead. Anjali Ramnath Voria: Thank you, Bailey. Good morning, and welcome to the Liberty Energy third quarter 2025 earnings conference call. Joining us on the call are Ron Gusek, Chief Executive Officer, and Michael Stock, Chief Financial Officer. Before we begin, I would like to remind all participants that some of our comments today may include forward-looking statements reflecting the company's view about future prospects, revenues, expenses, or profits. These matters involve risks and uncertainties that could cause actual results to differ materially from our forward-looking statements. These statements reflect the company's beliefs based on the current conditions, that are subject to certain risks and uncertainties that are detailed in our earnings release and other public filings. Our comments today may include non-GAAP financial and operational measures. These non-GAAP measures, including EBITDA, adjusted EBITDA, adjusted net income, adjusted net income per diluted share, adjusted pretax return on capital employed, and cash return on capital invested are not suitable for GAAP measures and may not be comparable to similar measures of other companies. A reconciliation of net income to EBITDA and adjusted EBITDA, net income to adjusted net income, and adjusted net income per diluted share and the calculation of adjusted pretax return on capital employed and cash return on capital invested as discussed on this call are available on our Investor Relations website. I will now turn the call over to Ron. Ron Gusek: Good morning, everyone, and thank you for joining us to discuss our third quarter 2025 operational and financial results. Liberty achieved revenue of $947 million and adjusted EBITDA of $128 million in the third quarter, despite a slowdown in industry completions activity and market pricing pressure. Our team delivered solid operational results once again, delivering the highest combined average daily pumping efficiency and safety performance in Liberty's history. We are committed to driving outstanding results for our customers while navigating current market challenges. Our leadership in technology innovation and service quality delivers differential results, strengthening long-term relationships and reinforcing our competitive position through cycles. While we anticipate market headwinds will persist in the near term, we are well-positioned to capitalize on opportunities that will make us stronger as the cycle improves. Our Digi Prime fleets are achieving outstanding performance and leading efficiency metrics across the company. Several fleets deployed with our largest customers broke new records for pumping hours, horsepower hours, and proppant volumes pumped during the quarter. Additionally, our team's uniquely engineered 30% on DigiPrime pumps. The elegant simplicity of Liberty's design reflects advanced engineering and thoughtful innovation, resulting in a streamlined power-dense unit that delivers superior performance and increased output between maintenance cycles. Across our fleet, we are also driving meaningful efficiencies for our customers with our AI-driven automated and intelligent rate and pressure control software, StimCommander. This advanced fleet control software enables pump operators to navigate diverse fleet designs seamlessly, managing on-site pressure and rate. By automating these functions, StimCommander delivers significant benefits: faster and more consistent stage execution, reduced time on location, fuel savings, lower emissions, and improved safety. Today, fleet automation is driving a 65% reduction in the time to deliver the desired fluid injection rate and a 5% to 10% improvement in hydraulic efficiency. This marks the culmination of a decade of effort by the Liberty team, enhanced by the strategic acquisition of SLB's completion technologies during the COVID downturn. Liberty's cloud-based platform, Forge, further empowers StimCommander with intelligent asset orchestration through continuous AI optimization. By analyzing billions of data points and leveraging years of Liberty's best-in-class operational execution, Forge enhances Stim Commander's performance and precision. We mistakenly called it a large language model in our press release. But it isn't static AI. It's a distributed agentic intelligence system built for the field. Continuously plans, learns, acts, and adapts through real-time feedback and reinforcement loops, ensuring each iteration enhances the next decision. By modeling the evolving behavior of every asset, Forge turns raw data into predictive intelligence, driving compounding performance gains across every stage, fleet, and operation. It also integrates critical insights from proprietary Liberty platforms like FracPulse, our real-time monitoring and analytics system, to provide comprehensive tracking of fleet condition, performance, and emissions. Together, these technologies create a powerful adaptive automation ecosystem that delivers increasing operational efficiency and value. Structural demand for power continues to strengthen, as evidenced by large-scale long-duration power commitments across the industry. AI compute load represents a meaningful long-term growth opportunity, and broader electrification trends and industrial reshoring efforts are also driving incremental steady baseload demand. At the same time, the grid is facing mounting reliability and capacity challenges driven by increased intermittent generation and a lack of investment in transmission infrastructure. Liberty's power opportunities are strengthening as sophisticated electricity consumers seeking dynamic, flexible solutions are recognizing the value of having an advantaged energy partner that provides a solution aligned with their specific needs. Liberty is in close engagement with potential customers with large, highly transient power demand that will benefit from rapid deployment schedules with high-reliability power solutions at grid-competitive prices. Customers will have a key power partner that offers a fully integrated energy solution spanning on-site power, fuel management, and the option for grid integration and attributes. Furthermore, our on-site power solutions are fully customizable power plants that provide consumers with reliability and surety around long-term power costs, serving as a strategic hedge against potentially significant increases in grid power prices. We are confident in the growth trajectory of our power business and are expanding our power deliveries in anticipation of customer conversions from our expansive pipeline of opportunities. We are in the process of securing additional power generation, bringing our total capacity to over one gigawatt to be delivered through 2027. And we expect further increases will be necessary to meet the growing demand for our services. Oil and gas industry frac activity has now fallen below levels required to sustain North American oil production. Oil producers, which comprise a vast majority of North American frac activity, opted to moderate completions against the backdrop of macroeconomic uncertainty and after exceeding production targets during the first half of the year. Slowing trends in oil markets have more than offset increased demand for natural gas fleet activity, where long-term fundamentals remain encouraging in support of LNG export capacity expansion and rising power consumption. Moderation in activity anticipated in the near term is transitory in nature. Global oil oversupply is expected to peak during the first half of 2026. Many shale oil producers are targeting relatively flat oil production, requiring modest activity improvement in the coming year from current levels. And long-term gas demand and related completions activity continue to be on a favorable trajectory. Together, these factors set the backdrop for improving frac fundamentals later in 2026, assuming commodity futures prices remain supportive. Lower industry activity and underutilized fleets in today's frac markets are driving pricing pressure, primarily for conventional fleets. This slowdown is accelerating equipment attrition and fleet cannibalization, setting the stage for a more constructive supply and demand balance of industry frac fleet in the future. An improvement in frac activity coupled with tightening frac capacity would support better pricing dynamics. The outlook for higher quality next-generation fleets remains strong as operators continue to demand next-generation fleets that provide significant fuel savings, emissions benefits, and operational efficiencies. Liberty's Digi Technologies platform continues to see significant demand and more favorable economics through cycles and leverages our total service platform with scale advantages, integrated services, and robust digital technologies. Although industry frac activity has declined since early 2023, the Liberty team has consistently outperformed markets by staying relentlessly focused on customer success and alignment of shared priorities. During the third quarter, we further strengthened our simul frac offering with the reallocation of horsepower for long-term partners. We remain focused on expanding competitive advantages through cycles, allowing us to navigate softer anticipated conditions in the months ahead, while remaining well-positioned to react swiftly when demand for frac services rises. We have never been better positioned to face tough markets and take advantage of profitable opportunities. We are excited by the momentum we are seeing in both our completions and power opportunities and are well-positioned to deliver an unparalleled offering in the years ahead. I wanted to take a moment to share that we recently welcomed Alice Yake, a recognized energy and infrastructure expert, to our Board to help guide and accelerate our efforts in power services. With decades of leadership across energy infrastructure, power service and strategy, and regulatory affairs, as well as critical perspectives on electrical infrastructure challenges, she brings a rare combination of technical depth, policy insight, and executional excellence. As the energy landscape rapidly evolves and demand for resilient, reliable power systems grows, we are excited to move forward with intention, drawing on her expertise to shape impactful power solutions. I will now turn the call over to Michael to discuss our financial results and outlook. Michael Stock: Good morning, everyone. Let me begin by celebrating the successes of the Liberty team. Our year-to-date results have been solid during a period marked by macro uncertainty, OPEC plus supply increases, and softening frac trends. The Liberty team has outperformed the market by leading in reliability, technology, and service quality across all facets of the business. From frac and wireline to our sand mines and sand handling businesses, CNG deliveries, and power services, we are proud of the hard work and dedication our team has shown over the last several years, continuing to drive innovation, equipment, and digital technologies, and strengthen our long-term competitive advantages. In 2025, revenue was $947 million compared to $1 billion in the prior quarter. Our results decreased 9% sequentially as activity softened following a strong uptick in the second quarter, and market-driven pricing headwinds took hold. Third-quarter net income of $43 million compared to $71 million in the prior quarter. Adjusted net loss of $10 million compared to adjusted net income of $20 million in the prior quarter and excludes a $53 million tax-affected gain on investments. Fully diluted net income per share was $0.26 compared to $0.43 in the prior quarter. Adjusted net loss per diluted share was $0.06 compared to a profit of $0.12 in the prior quarter. Third-quarter adjusted EBITDA was $128 million compared to $181 million in the prior quarter. General and administrative expenses totaled $58 million in the third quarter, flat to the prior quarter, and included non-cash stock-based compensation of $5 million. Other income items totaled $57 million for the quarter, inclusive of $68 million of gains on investments offset by interest expense of approximately $11 million. Third-quarter tax expense was $12 million, approximately 22% of pretax income. We continue to expect tax expense rate to be approximately 25% of pretax income in 2025, and we expect no significant cash taxes in the fourth quarter. Ended the quarter with a cash balance of $13 million and net debt of $240 million. Net debt increased by $99 million from the prior quarter. Third-quarter use of cash included capital expenditures, working capital, lease payments, debt issuance costs, and $13 million in cash dividends. Total liquidity at the end of the quarter, including availability of the credit facility, was $146 million. Net capital expenditures were $113 million in the third quarter, which included investments in DigiFleets, capitalized maintenance spending, LPI infrastructure, power generation, and other projects. We had approximately $6 million of proceeds from asset sales in the quarter, and we now expect total capital expenditures for 2025 of approximately $525 million to $550 million. In the fourth quarter, we are anticipating normal seasonal trends relative to the third quarter. E&P production outperformance coupled with economic uncertainties already led to industry-wide activity reductions in the third quarter, setting up a more normal cadence of activity into the fourth quarter. At these levels, we believe the industry activity will begin to stabilize and could see an eventual uptick during 2026. Looking ahead, our 2026 capital expenditures are markedly shifting towards growing opportunities for power generation services. We now expect to have approximately 500 megawatts of generation delivered by the end of 2026, another one gigawatt of cumulative power generation by the end of 2027. We expect further increases will be necessary to meet significant power opportunities. Our completions CapEx moderates in the years ahead. We remain relentlessly focused on generating significant value for our shareholders. We believe we are fast approaching the bottom of the trough in our cyclical completions business, and we are excited by the momentum we are seeing in PowerUp opportunities. As such, we increased our quarterly cash dividend by 13% to reflect the confidence we have in our future and a continued commitment to delivering long-term value to shareholders. I will now turn it back to the operator for Q&A, after which Ron will have some closing comments at the end of the call. Operator: We will now begin the question and answer session. Please pick up your handset before pressing the keys. Our first question comes from Stephen Gengaro with Stifel. Stephen David Gengaro: Thanks and good morning everybody. Ron, I think the first for me is I think we've in general come to have a lot of confidence in Liberty's deployment of capital. But the big question that we get often is, you have power on order and we're sort of awaiting contracts. So can you just talk about sort of your visibility on demand for the power generation assets that you are planning to add over the next twenty-four months? Ron Gusek: Certainly, Stephen. And first of all, appreciate your recognizing that we are sound stewards of capital. We've done that for fifteen years and would certainly assure you that we don't view the power business any differently than that. This is not something we're going to approach any differently than we have our core business. I would tell you a few things in answer to that. First of all, I think we've learned that it takes a little longer in the power business to get a contract to completion than it does in our core oilfield services business. And so, while you always have lots of great opportunities and we've talked about our sales pipeline there, it just takes a bit more time to get these things to the place where we're comfortable making an official announcement around them. I would say maybe in general answer to your question a few things. Number one, in the last ninety days, our sales pipeline has more than doubled from what we talked about at the end of the second quarter. I would tell you also that the urgency in that sales pipeline has increased meaningfully. And so, we're absolutely feeling that and you're seeing that our response around ordering power. I would tell you that between LOIs and contract terms, we have out in front of customers paper for more than a few gigawatts of capacity needs. And I would tell you that ourselves as the leadership team together with our Board, are sufficiently confident in our ability to convert some of that to long-term contracts that we have made the decisions we have around the ordering of additional capacity. Conversations will carry on and when we get to a place where we have paper we're comfortable talking about and making a firm announcement around, we'll absolutely do that. I would say that in all cases we're talking about long-duration partnerships here, things that are measured in fifteen plus years. I would also say that these are things that would be deployed over a period of time. This is not conversations for deployments overnight. But as you've come to see, I think with data centers, things that would grow gradually in building blocks over a period of years. Stephen David Gengaro: Great. Thanks for all the detail. And just one quick follow-up. Is there a specific customer base we should be thinking about? Or is it data centers, energy applications, etcetera? Or is it something specific that you're really targeting? Ron Gusek: I would say that we can of course, continue to talk to a range of end-use customers. I would say that my expectation is we probably end up with a higher percentage of our capacity with data center customers than maybe we had anticipated at the outset of our foray into this business. Stephen David Gengaro: Great. Thanks for the color. Michael Stock: Stephen. Operator: Our next question comes from Marc Bianchi with Cowen. Please go ahead. Marc Gregory Bianchi: Hey, thank you. Guess on the hey guys, on the financing of all of this capacity that's coming in, where is the capital going to come from? Are you potentially getting customer prepayments or maybe we have some sort of PPP and you can finance against that. What should the capital look like for funding this growth? Michael Stock: I'll take that one, Mark. So power plants, PPAs or any long-lived assets like this like we think we'll have the co-locators or those data centers fund their projects. There will be a long-term ESA, energy service agreement, PPA. The assets themselves will be most likely for the large load customers drop down into a project company. Those project companies will be funded via debt that is backed by that PPA ESA. About the fact that most likely that will be project-specific debt maybe around you could get to approximately 70% of the capital needs by debt. It will be non-recourse to the corporation probably funded if you were looking at the debt markets at the moment, anywhere, depending on whether you're in construction or whether or not you are in production of electrons, that's probably somewhere between mid to high single-digit paper that you're looking at there. The balance would come from cash flow which is again the 70% would come from cash flow from the company. And corporate debt. So that would be we may look at depending on the size of the project and the partners involved taking on potentially minority infrastructure partners alongside us some of those projects. So there's the large load. When you think about the data center, the big large load projects or even the large load C and I, think about greenfield industrial projects. The smaller projects, if you think sub-one 100 megawatts will be funded on the balance sheet. Those ones where you think about oil and gas customers, etcetera, they will be sort of maybe a shorter term somewhere between five and ten-year contracts of small numbers. And as you see, some of our larger projects we may well do within with our other partnership, technology partnerships, and as we see, you may have multiple technology in there as evidenced by our OCLO partnership. That is in the future in the 2030s. That will also potentially be part of it as well. So, a lot there will be a lot of details around each of these projects that will come out when we make the announcements. Marc Gregory Bianchi: Yep. That's very helpful. Thank you, Michael. Other question I had was on we've heard some of the other participants in sort of mobile energy support for data centers talk about transient response and you guys mentioned it in your press release. These other participants have said that there's certain technology advantages that they have around satisfying that need. Can you talk about how Liberty plans to handle that? And maybe just educate us a little bit about what the transients response involves? Ron Gusek: Well, we won't get into the absolute details there, Mark. Certainly, we're working on some thoughtful and I'd say maybe somewhat proprietary solutions around that. But I would tell you that our electrical engineering team has been working very, very closely with our partners in that space around a very specific solution to that. And that solution is tailored specifically to the generation assets that we will be deploying to any given individual project. So of course, as you can appreciate, a large recip behaves slightly differently than smaller recip behaves slightly differently than a gas turbine. And so as you consider being able to respond to transient loads in each of those environments, you need to have a solution that is tailor-made to that. And so we're confident our engineering team together with those partners have a fantastic solution that meets those needs. And so, we're comfortable with how we're moving forward there. Michael Stock: And one thing I might clarify the amount just a little bit. I wouldn't characterize it as mobile power. I think sort of that's a leftover from a couple of years ago. Yeah. There is some mobile power what we use for frac. There will be some version of mobile power that we will use for about data hall commissioning. Or special power boosting wins needed when you're kind of doing an expansion on a site-specific project. But this is institute power permanently in place doing permanent power generation. So would say, I think you need to kind of think about that differently from the sort of the generator into companies. This is truly pure power generation. Marc Gregory Bianchi: Great. Thanks so much. I'll turn it back. Ron Gusek: Thanks, Mark. Operator: Our next question comes from Scott Gruber with Citigroup. Please go ahead. Scott Andrew Gruber: Yes, good morning. Mike, I just want to get a Good morning. Wanna get a little more details, you know, just around the CapEx build-up for next year with the additional megawatts coming in? I assume that the base business kind of down towards maintenance CapEx. Maybe if you can give us some additional color on the building blocks for that the 26 CapEx figure? Michael Stock: Yes. As obviously, we always give you the details in the January call. We'll give you the buildup and then kind of update that guidance as we go through it. But yes, we're expecting to have 500 megawatts through the end of the year. Some of that will be landing towards the end of the year then will just be the package generation. But some of it will or significant portion of it will be with installation. So I think, you know, you can use sort of a variation around I mean, just think about installed generation around that $1.5 to $1.6 million a megawatt. If you think of sort of long lead and generators around $1.1 million. So it will be a balance of that, and we'll give you an update. A view of that in January. As we go through. And we'll give you a probably, I would say, expecting January bit more of a longer-term look on our current views on future cash flows in the Power. Yeah. We'll probably take a little bit of a longer view on how we talk to street by January on that. Part of the business. Scott Andrew Gruber: Okay. When they I speak to my next question? I was I was gonna ask, maybe to provide some color just on the EBITDA payback. On the contracts you're seeing, if it's kind of 1.5 ish on CapEx per megawatt, you know, you're still thinking we're kind of in that three to four-year payback? You know, on that investment? So Michael Stock: Scott, it obviously depends on the term of the contract. When you think about longer live contracts with investment-grade clients in the fifteen plus years, obviously, you're going to have a longer cash on cash payback to achieve our targeted return profile of an unlevered cash return in sort of the high teens. Right? So you're probably talking 5%, 5% and bit on that. Short-term contracts obviously will be a quicker payback. So if you're doing shorter-term contracts in the five to seven years for smaller oil and gas implementation, yes, you'll be on the three plus year, the three-year version of that. But the longer life contracts, obviously, you're going to have a longer payback period. But much more secure, and it's gonna be take or pay the essays. Scott Andrew Gruber: I got you. If I could sneak one more in. Is there tension today between kind of reserving some capacity for larger data center contracts and kind of not wanting to dedicate that capacity to some other end markets? Is the data center opportunity moving so quickly that you guys don't really feel attention in terms of dedicating capacity. At this juncture? Michael Stock: There is significant tension around reserving capacity. Near-term generation capacity near-term generation need is very high. Near-term generation capacity is nowhere near what's available in the market. So there is significant tension around that. Scott Andrew Gruber: Interesting. Okay. I'll take it back. Thanks for the thoughts. Operator: Our next question comes from Adi Modak with Goldman Sachs. Please go ahead. Adi Modak: Hi, good morning team. Ron, it's taking longer to sign some of these power contracts because the market is different. But can you help us think through the steps that you are looking at to sign these contracts so that we understand it? Ron Gusek: Yeah. And I think there's a number of them. Course, these are big projects. These are billions and billions and billions of dollars of investment that are going into the ground there. And so as you think about all the pieces that have to come together there, it's not an insignificant number. In our oilfield services world, you have an E&P that's already locked up land. They've done their geology work. And they're drilling wells. In a pretty straightforward cadence. And so they have a pretty clear outlook to that. In this case, you're talking about a series of parties that have to come together identify the land, take care of air permitting, fiber, fuel source in the form of natural gas. And end use if you're a hyperscaler, the end-use contract with the customer that's going to co-locate in that facility you have to have a number of these pieces that all come together and ultimately, when all of those are satisfied, then get comfortable signing the final energy services agreement with us. And so, while they are somewhat long in the making, you get I would say we get to clarity around what the end result is going to look like sooner than that. But that doesn't mean you're at a firm contract at that point in time. So, just have to work alongside of them and as they work through these steps and patiently stand by until we get to a place where we can sign the final documents. Adi Modak: That makes a lot of sense. Thanks for the explanation there. And then maybe for Michael, you talked about project-level financing for some of these entities. Would you consider equity or any kinds of converts as potential tools in the mix? Michael Stock: So obviously, I mean, we are always looking for the most cost-effective and the most efficient way to finance the growth of this company to drive the highest value for our investors. So as we would say, nothing is necessarily off the table. But we have, I believe, a very, very clear path to being able to fund a large portion of these projects without major dilution. Adi Modak: Got it. Thank you so much. Thanks guys. Stephen David Gengaro: Thanks, Adi. Operator: Our next question comes from Saurabh Pant from Bank of America. Please go ahead. Saurabh Pant: Hi, good morning Ron and Mike. Good morning. Ron, Mike, it sounds like you're making a lot of good progress on the power side of things. And maybe kind of a follow-up on what Aarti just asked on the contracts, right? How are thinking about those contracts? These are very different from what not just you, what we are used to. Right? So we are trying to figure out how are you looking at potential risk, and pitfalls and liabilities, right, all that good stuff, right? So maybe just a little bit of color fifteen year, maybe north of fifteen-year contracts how do you protect yourself from that risk? I know the opportunity is fantastic, right? But I'm weighing up both sides of the equation. Michael Stock: Right. So the first way that you look at it is who's your counterparty? That's arrived. So, okay, you're looking at even though let's just say 70% of the sort of data market that's going be built is probably you know, six or seven large invest very, very large investment-grade clients. Right? The other 30% is more the multiple uses the banks you know, so that, you know, the BFAs, the JP Morgan, just the smaller companies in the world. Just a joke. But those sort of thing, investment-grade off-site and so your ESA is with that large investment. Investment-grade offtake. You're doing it in conjunction with a company you know, these very large developers build the data centers and run them as a REIT. So you choose your counterparty on that side very closely. Somebody who's given execution, history ability to put the buildings on the ground in a reasonable time frame. Right? Then you've got to look at obviously, you've got an engineering effort on your own, making sure you understand your solutions, make you understand the delivery of your supply chain, and your EPC partner that is executing on that to make sure that you are not running in that you see a reasonable time schedule, you have no issues around delays around LDs? It's an engineered solution, making sure that you are building let's just say, 1.2, 1.3 x to get you to your five nines. We can do with the smaller resets and your comfort level around being able to deliver that IT load that they need. So it's all of that you know, managed, by the team here, rolling up into a risk committee. Those are reviewed on every single project. And that balance of that is what protects you. Now each one of these large loan projects will be rolled down into a separate project code. You know, the you know, as I said, with nonrecourse debt that will have the specific or just like you do with any other large real estate development, with the corporate protections around that. So it's a very different setup from our current business, but we have thought through all that very, very carefully. Saurabh Pant: Okay, okay. No, that's fantastic color, Mike. We'll keep an eye out on how things evolve. But just one other thing, Ron, Mike, whoever wants to take this on the technology side of things, right? When we were talking about 400 megawatts that was supposed to be all nat gas resets, right? But now that we are over one gigawatt, and again, this is not the end, by the way, right? I'm sure you would look at more opportunities. How are we looking at the technology side of things evolving between? Recaps and turbines and maybe a little bit of a battery to supplement all of that, right? How are we thinking about that? And then just the lead time. To order that and get that in time? Ron Gusek: That's a very good question. And I would say that I think we've always said well RECIPs are going to form the core of our technology platform. That we recognize there are going to be cases where other technologies will make a lot of sense in concert with those or maybe in place of those. So, I would tell you today that of the capacity we are procuring, the large majority of that remains gas recip engines. We like that technology and we believe it brings some inherent benefits to the table, particularly around heat rate. But that said, when it comes to power density, you get some real benefits from a gas turbine. And so, we absolutely see those as part of the puzzle. Then as you think down the road, you know the end-use parties that are going to be consuming these electrons or at least the vast majority of them. And they all have publicly stated goals around reducing the intensity of their electricity. We have some very specific partnerships around that, particularly the Oklo partnership. We will sometime into the next decade be able to bring small modular nuclear to the table. And so we see that being a piece of the puzzle as well. In the nearer term, recognizing that emissions can be a challenge particularly in non-attainment areas. We've talked about the Colorado Air And Space Port as an example. The Front Range Of Colorado is a non-attainment area and requires some very specific solutions to ensure we can achieve the emissions caps that necessary there. Fuel cells offer a great partnership together with gas Resip to help accomplish that. And so you can expect, we talk about these projects in the future, likely a mix of generation technologies. That are best suited to address the needs of that particular site. Saurabh Pant: Okay. Fantastic Ron. I'm glad we are talking about the next decade and not the next quarter. But thank you for the color, Ron. I'll turn it back. Ron Gusek: Awesome. Thanks so much. Operator: Our next question is from Tom Curran with Seaport Research. Please go ahead. Thomas Patrick Curran: Good morning. Sticking with the Power as a Service business here, for the additional 100 megawatts of capacity being delivered this quarter, Q4, would you please review the deployment timeline and its major stages? Are you still anticipating about six months from equipment delivery to purchase revenue out in the field? And then do you anticipate opportunities to maybe shorten that timeline as you ascend the learning curve? Michael Stock: So I'll take this one. It depends on the generally, from package resets to electron generation, six months is a good sort of average number. You know, when you move up the scale onto the turbine side of the world, you probably take that to maybe all the larger resets, which will be in large power holes, that's probably nine months from generation to electrons. Now you can depending on where the project is, some of these large projects are gonna be interesting. Because that's sort of an average as you will be doing sort of the dirt work and the building. And sort of landing the generation. So some of the early generation will have a longer time to revenue generation and some of the later engines that get installed will have a shorter time. So just talking in general averages, and I think that's a fairly real it's going to be project and site-specific around that on average over the next five years. Thomas Patrick Curran: Got it. And then Liberty not only has a well-deserved consistently earned seller reputation as a sort of capital. But I would argue on the technology side, as frequently the smartest guys in the room, you know, trailblazers on innovation and technology adoption. I don't want to unfairly highlight sort of one that didn't work out here, but when it comes to Natron, obviously, nailed it with being ahead of the curve on Advanced Nuclear and the Yoklo relationship. As well as on enhanced geothermal and Fervo. Neatron hasn't worked out Ron, I'd just be curious to hear when it comes to long-duration energy storage, and that longer-term potential for where you might go with batteries as part of LPI's DPS fleet. How are you thinking about sodium-ion technology? Do you still think that's going to be one of the likely longer-term winners? Or are you maybe pivoting to other electrochemical technologies when it comes to batteries? Ron Gusek: Yes. Good question. I would say that as far as the technology itself goes, still a big fan of sodium-ion technology. If you think about things like the C rating and potential cycle count, for a sodium-ion battery, it's just awesome technology in that regard. You can dump charge into and remove charge from those batteries at rates that are hard to match with some other technologies. And the total cycle count or lifespan for one of those batteries is meaningfully higher than for lithium-based technology. So we really do like the technology. Unfortunate the Natron situation that they just couldn't get to scale, but we'll still continue to watch for that technology to be deployed. We use a lot of battery capacity in our world today, that's present in our Digi world, both on the Digi Prime fleets and on the Digi frac locations. We rely on lithium-based technologies there because you have a weight consideration that comes into play. Don't get the same energy density out of sodium-based chemistry as you do out of a lithium-based chemistry. And so when weight and size are a factor, there's a reason lithium technology is the technology of choice in EVs, for example. And the same is true for us. Of course, we have size and space considerations when it comes to deploying batteries on our frac locations. And so we've leaned towards lithium technologies there. We're familiar with those. We have strong partnerships there. And we'll continue to leverage those partnerships as necessary, on the core OFS space and in the power space to the case that that makes sense. But we'll continue to keep an eye on those other technologies for future opportunities as well. Thomas Patrick Curran: Very helpful. I appreciate taking my questions. Michael Stock: Thanks a lot. Thanks, Tom. Operator: Our next question comes from Jeff LeBlanc with Tudor, Pickering, Holt. Please go ahead. Jeffrey Michael LeBlanc: Good morning Ron and team. Thank you for taking my question. Good morning, Jeff. I was just curious, how should we think about capital allocation between frac and LPI moving forward? We know that you previously mentioned that the base cases for no digi bills in 2026, given the compelling opportunity in power, is there any reason this shouldn't be the case moving forward if frac prices stay at the current levels? Michael Stock: So our freight business is an incredibly vibrant and great business that has great long-term cash generation ability over the next decade. And so we invest in that business as we always have and as we always will on the basis and the timing of the cycle. For that business. And that won't be affected at all by investments in our power business. We are not going to be capital limited as far as investments in these two businesses. They stand alone, and they we will invest as makes sense for future cash generation abilities. Jeffrey Michael LeBlanc: Yes. That makes sense. Thank you very much. I'll hand the call back to the operator. Operator: Our next question comes from Derek Podhaizer with Piper Sandler. You may go ahead. Derek John Podhaizer: Hey, good morning. I just wanted to go back to Saurabh's question and maybe clarify the answer. On just the type of equipment that you'll be ordering and delivering, I know initially it was the 400 megawatts. I think that was typically made up of the recifs, the 2.5 to five megawatt units. So then we think about the incremental 100 by the end of next year and then the 600 plus to get to over a gigawatt. I think you started mentioning we might get a mixture of type of assets. But can you be more specific if you will continue to invest in the reset? Then if you are moving towards the turbines, maybe how much is we could think about that in terms of megawatts for your deliveries? Ron Gusek: Derek, I would say that the vast majority of this incremental capacity is also gas recip. Turbines will play a role in our world. Although I think as we continue to look forward, we will still lean very heavily on the gas resip technology. If you think about and I've said this in past calls, ensuring long-term durability in the business, bringing the best technology to the table, in support of our customers. We like recip because of the heat rate. You have an opportunity under simple cycle conditions to deliver conversion of molecules to electrons at a level that is on par with the grid today at about 45% thermal efficiency. That is impossible to achieve with a simple cycle turbine. You're going to right out of the gate put yourself at a disadvantage with respect to fuel burn, per electron delivered. And so, while we believe there is an important place for turbines in the power generation world, we talked about density as one of those attributes. We really like the gas reset technology and you should expect to see that be a very meaningful part of our portfolio today, tomorrow, and in the years to come. Derek John Podhaizer: That's helpful. And maybe just to clarify on that, is there any larger resets that you go out and acquire? I mean, I know the 2.5% to 5%, but 10 megawatt plus type of RESIPs out there that can you can put into your portfolio? Ron Gusek: Yes, there absolutely are. So if you think about our portfolio going forward, it is going to be we're going to have capacity centered around the yen unit, which is 4.3, 4.4 megawatts per unit. But you absolutely can get much bigger gas recip engines in that. Michael mentioned the idea of a power haul. The Genbacher's are a packaged unit, something that we package and deliver to site basically ready to go, say for some basic dirt work. As you start to move into that larger capacity, the 10, 11, 12 megawatt kind of size, those are very, very large units. Those are going to be inside of a power hall, building that will be constructed on-site and then we'll have those installed in there. And so as he was alluding to the different timelines for from delivery to power generation, it was specifically around those two different asset scales that he was talking. So you should expect to see both that smaller, more modular type approach in our world, along with the larger units deployed in a power haul type facility also. Michael Stock: If you look at it, Derek, you're going to have power blocks basically with our partners at Caterpillar sort of the 2.5 megawatts and 25 megawatt blocks. You're gonna have the larger Yenbakkers and 50 megawatt blocks. To deliver. Then we'll have 200 megawatt power haul, which is delivered by a number of our core partners for these larger recip engines. And then as you go up in size after that, there's any very, very large installations, that's when, as Ron pointed out, you might go to a larger sale turbine solution as well as waiting for the Oakland powerhouses, which would be our natural sort of large scale behind the resets once we get past 2,030. Once into 2030, that that'll that'll be solution there. Derek John Podhaizer: Right. Okay. That makes that very helpful detail. And I guess for those power hauls, bigger resets, are those included in this one gigawatt target that you just laid out? Michael Stock: We're not going into the details of exactly where it is. But, you know, there are they are basically all research within that one gigawatt number. Derek John Podhaizer: Got it. Okay. That's fair. And then I mean a ton of questions have been asked on power. So just maybe a housekeeping one for me as far as how we should think about the fourth quarter. Obviously, we have some seasonality creeping in. Third quarter much was softer than expected. But how should we think about maybe top line and some of the decrementals? Should we stay at that 55% level? Or should we start to normalize just given of where we start in 3Q and where we're going in 4Q? Ron Gusek: Derek, I would say that at this point in time, we're anticipating just typical seasonality. As really the change in cadence from Q3 to Q4. We'll see how that plays out as the quarter unfolds. But that's what we're assuming at this point in time. Derek John Podhaizer: Got it. Very helpful. I'll turn it back. Thank you. Ron Gusek: Thanks, Dave. Operator: Our next question is from Keith Mackey with RBC Capital Markets. Keith MacKey: Hi, good morning and thanks for taking my questions. Hi, Keith. The first one good morning. First one is to start out on that $1.5 million to $1.6 million per megawatt number. We've been incorporating something slightly lower than that in the $1.3 million to $1.4 million range previously. Can you just talk about kind of what has driven the increase there? Is it varying scope of the equipment you'll be providing around these projects or is it pricing or is it a mix of both? Just curious what's really driven that? And ultimately how close you think we are to the end stage determination of what these projects will actually cost once they get into the field? Is that 1.5 to 1.6 fifty percent to 70% confidence number? Or is it a 70% to 85% confidence number? Just curious for some sort of does depend on scope, Keith, you know, kind of material. Michael Stock: That's us taking, you know, thirteen eighth generation stepping it up to 35 and handing the electrons off. So that your scope can move I mean obviously that's assuming to some degree you know, some point, most of the gas delivered to the fence line. Right? So depending on where sort of how long the gas line, who's scope that's in, how long sort of, you know, the interstate connection and the pipe. And so a lot of moving parts around where that those projects can ultimately come in, know, and whose scope that ends up in. That's why those sort of numbers are there. There also are price increases, right? I mean, as you can see, there is a huge amount of demand power generation. A large portion of that is sort of built outside the country. So, sort of prices are moving on a fairly regular basis. And as when we look out a lot of some of these prices, we're starting to look at discuss with our partners. Supply chain is out 28%, 29%. Talking to the OPAL team about what we can do on 30. So we are talking a large long way into the future in some of those. So the pricing will move over time. The great thing is when you look at the efficiency of our solution the effectiveness of what we can do and the capital effectiveness especially. We can provide what is a grid parity or lower than grid price now to these large load customers with very little inflationary need comparative to what the group is going to go up, right? Capacity fee is going to kind of probably inflated CPI, Everybody, I would say, if you that you talk to agrees over the next fifteen years the inflation rate of natural gas, given how successful we are, on our completions business and how good our service teams are there, is going to be far lower than the general inflation rate of grid power price. Right. So when customers sign up with us now, they're getting at grid or lower than grid pricing. And if they project forward fifteen years, going to be significantly below what the grid pricing is then. So it's a compelling, compelling technological and economic solution for these folks. Keith MacKey: Yes, got it. I appreciate the color on that. Maybe if I could just circle back to Derek's question about about Q4. I understand the guidance there for normal seasonality although it tends to be an industry where I find that normal seasonality is is hardly normal. We might agree. So, yeah, so if we were to put, you know, just some general guideposts around that, like, if I look at the last two years, the revenue is down 12%, down seventeen percent in 'twenty-three and 'twenty-four, respectively, for Q4. Like is that sort of the range we should be thinking about for Q4 this year with kind of a similar level of decremental? Or is there anything specific in this year that might make it different from those prior years? Michael Stock: I think that's probably the top end. I think we're getting to normal seasonality, which is lower than the last two years. But that's probably the top end of what you would model. As activity-based decrementals on that, yes. Keith MacKey: Okay. Got it. No, I appreciate that color. Thanks very much. Operator: Our next question comes from Eddie Kim with Barclays. Please go ahead. Eddie Kim: Hi, good morning. Just wanted to touch on that additional capacity of 600 megawatts. Just wanted to clarify how much of that 600 megawatts is secured or how much you've ordered versus how much of it you're in advanced discussions for? And secondarily, just your confidence level in being able to deliver that full one gigawatt capacity by the 2027. We've heard a lot of OEMs are that they're sold out. So just curious confidence level in being able to deliver that on time. Michael Stock: Yes, very we have unique relationships. Obviously, we've these are a lot of the same players that we've put north of $5 billion to work with over the last twelve years. Right? So we have unique relationships with these folks. So very, very confident, you know, supply chains, we're clarifying some of the bits and pieces of some parts of those megawatts at the moment. But yes, very confident that will all be delivered. Now that will be landed. That's not generating. That will be landed. Right? So that's the key portion of what's available. So it can be then being of like starting to be worked on to the dirt. Eddie Kim: Understood. Understood. And then just in terms of that 600 megawatts, is all of that in advanced discussions right now? Or have you actually secured, some part of that? Michael Stock: Oh, it's all in advance. But as far as the supply chain, the delivery of it? Eddie Kim: Just in terms of what you've ordered. Michael Stock: Vast majority. Eddie Kim: That's majority of the 600 megawatt incremental 600 megawatts is ordered. Okay. Understood. Correct. Okay, great. Follow-up is just on Oklo. First, I believe you had a small equity stake Oakla. Could you just remind us how big that stake is? And with regards to the collaboration agreement, are you currently contemplating in terms of the number of megawatts you'll be allocating or ring sensing for that collaboration? When do you think is the earliest we would see a deployment of those assets? Michael Stock: So sort of our investment in Oclo, I think is in our queue. Kind of the details around it. And you'll see that we had been monetizing some of it and actually just moving that straight into deposits on power generation which again, I think our long-term power generation contracts and context with the hyperscalers. A large number of those will eventually include the inclusion of potentially inclusion of SMS. Maybe not on the same specific side, but with the same customers, right? You think the vast majority, 70% of the sort of the IT infrastructure data centers are going be built by six or seven folks. Right, using 10 or 12 developers to do that work for them. So the combination of ourselves and OCLO will be involved in a lot of projects together. We'll see how that goes. But we it was quite exciting. I'll check the groundbreaking of the national lab generator and we're hoping to see electrons flowing from that at twenty-eighth, I believe. So I think the DOE has been very, very helpful with the development of nuclear. Eddie Kim: Great. Thank you, Michael. I will turn it back. Operator: Our next question is from Dan Kutz with Morgan Stanley. You may go ahead. Daniel Robert Kutz: Hey, thanks. Good morning. Good morning, Dan. Good morning, Dan. So Michael, correct me if I'm wrong, but I think earlier all the color that you gave around the financing options, that was That was all for the incremental 600 megawatts. So, A, correct me if that's wrong. And B, I just wanted to confirm for initial 400 megawatts that you guys ordered, is the plan still that that's all going to be financed organically using the revolver and using organic cash or I guess in a scenario where maybe if things played out worse than contemplated in the near term here and how would you think about financing options for the initial 400 megawatts? If kind of the existing capital structure needed a little bit of extra capital to kind of get those crafts finished line. Michael Stock: Thanks. Yes, hang on. I can answer. Alright. So, I don't think you should think of the initial $400,000,000 the next 600 I think you need to think about this as a building of an ongoing business, right, holistically. We will fund sort of the early stage deposits, the movement of supply chain. Until those those long lead time equipment are assigned to assigned ESA. When they are assigned to assigned ESA, it could be megawatt number 98 or megawatt number 105, whichever the big one it is. It's assigned to an ESA. You drop down into a project, and then funded separately. So really what you're looking at there and about 30% of that project will be funded by equity either ours or potentially in partnership. And so when you look at it, it's going to be an ongoing stream, a development stream. You got to remember, what we're doing here is we're building a company for decades, a generational company. It's a generational power generation company with strong fifteen plus year cash flows are going to be building out an exponentially additive as we go through into the future. So this is something that is being built brick by brick by brick. So I think that's the key way to think about that. Daniel Robert Kutz: Great. That's really helpful. And then I don't know maybe for Ron or either of you, I guess just thinking about some of the puts and takes on completion services or frac profitability per fleet and there are some puts and takes to think through. I mean, you guys have flagged pricing pressure and then also I feel like Liberty tends to be less reactive in kind of scaling up and down the cost structure and up and down cycles, but rather kind of kind of maintains the high-quality labor force and, you know, the overall high-quality business. But I guess there's some offsets you guys have flagged as well growing fleet size and horsepower per fleet. At least this year the fleet mix improved with incremental effect deliveries, efficiencies are improving. So, maybe you could just unpack what you've seen in kind of profitability per fleet and how you think that trends moving forward? Thank you. Ron Gusek: Certainly Dan. I would start by saying that of course we view this business just like Michael talked about the power business. This is we have a long-term view on this. So no, we of course, we don't react quarterly to ups and downs. People are our most important asset. They are the reason we are as successful as we are. And so, we don't make changes in headcount because of what we view as a short-term blip in activity. I think we are very confident in the long-term viability of the business. In the long-term outlook for oil and gas demand. And the role that Liberty will play in delivering that. So we take a long-term view to that piece of our business as well and particularly the people that are involved in that business. There are, as you say, some puts and takes. Of course, we are in an industry that has competitors. And unfortunately, when we have companies that find white space on their calendar, the way they choose to defend market share is with price. And we're not immune to that, of course. Our customers are aware of where the market is. And so that ultimately leads to conversations that have us needing to adjust our pricing in line with the market. That said, we are still fully utilized today. That is a testament to the people that are in the field, the technology that they have to work with the supply chain and other things that support them. And we expect that to continue. And we'll navigate the pricing headwinds in the near term and when things get better, we will be as we always have been in the past, the best-positioned company to take advantage of that going forward. Daniel Robert Kutz: Awesome. Thank you both very much. I'll turn back. Operator: This concludes our question and answer session. Would like to turn the conference back over to Ron Gusek for any closing remarks. Ron Gusek: Thank you, Bailey. Pride ourselves on delivering efficiency. On maximizing the effective utilization of the assets we deploy to the field. With the goal of delivering the lowest total cost of completions for our customers and ensuring that a barrel of oil or Mcf of gas produced here in North America remains competitive on the global stage. Delivering the highest levels of efficiency means ensuring we have the best of everything on location. The best people, the best technology, the best company to deliver each individual service. We've always said that Liberty wants to be the provider of frac, wireline, and logistics on any well site. But only if we are the best choice in each of these. If not, then take what we are best at and pair us with the best partners for the others. Accepting mediocrity is just bad business. Bad for competitiveness, bad for consumers, and bad for investors. Unfortunately, the current punitive tariff policies are doing just that. Tariffs make the economy less efficient. They're a path to mediocrity, not excellence. They raise prices, cut profits, increase unemployment, diminish productivity, and slow economic growth. North America is a leader in energy production. Energy that the world desperately needs. Unfortunately, tariffs on steel and aluminum products are driving up the cost of that production impacting competitiveness on the global stage, potentially leading to a loss of market share. How is that a positive income for either The U. S. Or our trading partners? The Secretary of Energy has called the race for AI dominance our next Manhattan project. Winning this race requires access to massive amounts of new power generation capacity and associated hardware along with many other sophisticated components. Much of this is currently made overseas and much of it is now subject to tariffs. Is this a path to winning a race the administration has identified as so critical to our nation's future? I would argue no. It's a path to mediocrity at best. I hope we quickly pivot to a different course. One that puts us firmly on the path to energy and AI dominance here in The U. S. Thanks for joining us on the call today. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. Welcome to the Third Quarter 2025 Webster Financial Corporation Earnings Call. Please note this event is being recorded. I would now like to introduce Webster's Director of Investor Relations, Emlen Harmon, to introduce the call. Mr. Harmon, please go ahead. Emlen Harmon: Good morning. Before we begin our remarks, I want to remind you that comments made by management may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to the Safe Harbor rules. Please review the forward-looking disclaimer and Safe Harbor language in today's press release and presentation for more information about risks and uncertainties which may affect us. The presentation accompanying management's remarks can be found on the company's Investor Relations site at investors.websterbank.com. For the Q&A portion of the call, I ask that each participant ask just one question and one follow-up before returning to the queue. I'll now turn the call over to Webster Financial's CEO, John Ciulla. John Ciulla: Thanks, Emlen. Good morning, welcome to Webster Financial Corporation's Third Quarter 2025 Earnings Call. We appreciate you joining us this morning. I'm going to start with a recap of our results. Our President and Chief Operating Officer, Luis Massiani, is going to provide an update on developments in our operating segments, and our CFO, Neal Holland, will provide additional detail on financials before my closing remarks and Q&A. Highlights for the third quarter are provided on Slide two of our earnings presentation. Our results were strong, with a return on tangible common equity of 18%, ROA of nearly 1.3%, and growth in both loans and deposits of over 2% linked quarter. Overall revenue grew 2.3% over the prior quarter. In aggregate, Webster's results this quarter reflect how our strategic position fuels our performance, including diverse balance sheet growth while maintaining substantial liquidity and conservative credit positioning. Robust profitability is supported by a unique business mix and capital generation that supplements organic earnings growth opportunities. More specifically, loan growth was driven by diversity of categories with all of our portfolios increasing this quarter. Deposit growth was also diverse as we grew the commercial and healthcare financial services books in addition to regular seasonal growth in our public funds business. Webster's capital generation is a distinct strategic advantage. We repurchased 2.2 million shares or 1.4% of the outstanding shares at the end of the second quarter. At the same time, tangible book value grew 3.7% over the prior quarter. We continue to see the inflection point in asset quality that we projected at the onset of the year. Importantly, criticized loans were down over 7% with non-accrual loans essentially flat. Charge-offs of 28 basis points remain near the bottom of our normalized range of 25 to 35 basis points. And our provision of $44 million is down modestly from last quarter, even as we build slightly more conservative macroeconomic scenarios into our loan loss reserve modeling. As we look to the future, despite recent market volatility, macro tailwinds for the banking industry are building, and we're in a good position to benefit. Loan growth remains solid, and we are seeing opportunities to originate assets with appealing risk-reward characteristics as we did this quarter. As always, we point to the diversity of our deposit generation on Slide three, which is a key factor supporting the balance sheet as activity accelerates. We continue to see indications of a more appropriate regulatory tailoring which should over time, allow us to allocate resources towards activity-appropriate risk management practice. While we remain vigilant, tariffs and labor market uncertainty are not significantly impacting the credit performance of our loan portfolio, and we are not seeing pockets of correlated credit risk emerging. We'll also stay on our front foot in terms of business development opportunities for our existing segments. I'll now turn it over to Luis to review developments in our operating segments this quarter, including an update on commercial banking activity, the Affordable Care Act opportunity for HSA Bank, and our credit joint venture with Marathon. Luis Massiani: Thanks, John. On our business lines, activity was positive in Q3. Clients have proven to be resilient, have gained a better understanding of the potential impact from tariffs, and have continued with their business investment plan. We referenced strong commercial lending pipeline activity in our Q2 call, which came through in the third quarter with growth at the higher end of our outlook range, with all major lending categories in commercial and consumer contributing. We also saw a nice pickup in loan-related fees, as capital markets businesses were more active. Diversified deposit businesses continue to perform well, with the metros posting strong new account growth and record volume and lifetime deposit case value added. We also delivered significant growth in deposits in InterSync commercial, public sector, and business banking, funding our loan growth with deposits, which has allowed us to maintain a strong liquidity profile. The private credit joint venture with Marathon Asset Management is now fully operational, and we're working through a significant pipeline of potential lending opportunities. Early returns are positive with good alignment between our two organizations on operations risk appetite, and good referral activity on loan deposit and fee opportunity. The JV is working as intended and has expanded our ability to offer more lending solutions to our existing sponsors client base. At HSA Bank, new legislation continued to support an increase in the addressable market for HSA accounts. As discussed last quarter, the original bill that passed in July enacts HSA eligibility for bronze and catastrophic Affordable Care Act health care plans beginning in 2026. Our assessment of the original legislation was that change would increase the addressable market for 7 million customers and drive $1 billion to $2.5 billion in incremental deposit growth at HSA Bank over the next five years. In September, the Center for Medicare and Medicaid Services clarified that new HSA eligibility for bronze and catastrophic plans is more expansive than originally thought, which would further increase enrollment eligibility in the addressable market. We're working through quantifying the potential impact on account deposit growth. We are investing in our existing mobile and web enrollment systems to best serve ACA participants ahead of the annual plan enrollment period which will begin in November. These refinements will streamline and optimize the enrollment process to help us better capitalize on this growth opportunity. I'll turn it over to Neal. Neal Holland: Thanks, Luis, and good morning, everyone. I'll turn on slide four with a review of our balance sheet. Total assets were $83 billion at period end, as both loans and deposits were up over 2% this quarter. We continue to operate from an advantageous capital position, where ratios increased modestly despite the fact that we repurchased 2.2 million shares this quarter. Loan trends are highlighted on slide five. In total, loans were up $1.4 billion or 2.6%. Every loan category grew, including a pickup in commercial real estate, which has the potential to be a contributor to growth going forward. We provide additional details on deposits on slide six. Public funds were up $1.2 billion seasonally, though we saw growth in the commercial and healthcare financial services businesses as well. Deposit costs were up three basis points over the prior quarter. Income statement trends are on slide seven. Overall, we saw a positive trend on PPNR, up $5.8 million over the prior quarter. The provision was $44 million, down $2.5 million from the last quarter. Net income of $261 million is up from $259 million in the prior quarter, and EPS grew to $1.54 from $1.52 in the prior quarter. Our tax rate increased to 21.3%, consistent with our outlook for the back half of the year. On slide eight, we highlight net interest income which increased $10 million driven by balance sheet growth, and the higher day count quarter over quarter. This was partially offset by a decline in NIM. The net interest margin was down four basis points from the prior quarter, to 3.4%. Recall, there was a discrete benefit from a nonaccrual reverse that added two basis points to NIM in the second quarter. The trend in the quarter also reflects some organic spread compression. Slide nine illustrates our net interest income sensitivity to rates. We remain fairly neutral to interest rates on the short end of the curve, with a slightly greater impact to our NII from down rate shock scenarios. On slide 10, is noninterest income. Noninterest income was $101 million, up $6 million over the prior quarter. We had a modest increase in swap fee income, and we also realized a positive legal settlement of $4 million. Slide 11 has noninterest expense. We reported expenses of $357 million, up $11 million linked quarter. The largest driver of this change was an $8 million increase in incentive accruals, reflective of performance of the bank in the quarter and year to date. Slide 12 details components of our allowance for credit losses, which was up $6 million relative to the prior quarter. The largest portion of this increase was tied to balance sheet growth, as the positive asset quality trends we realized last quarter continued. Our CECL macroeconomic projections are slightly worse this quarter. Slide 13 highlights our key asset quality metrics. Charge-offs of 28 basis points were consistent with last quarter. Our commercial classified ratio declined 10 basis points from the prior quarter and nonperforming loan ratio was down one basis point. Turning to slide 14, our capital ratios remain above well-capitalized levels and we maintain excess capital to our publicly stated target. Our tangible book value per share increased to $36.42 from $35.13 with net income and improvement in AOCI partially offset by shareholder capital return. I will wrap up my comments on slide 15, with our outlook for the fourth quarter. We're expecting net interest income to be effectively flat to the third quarter. Balance sheet growth will be offset by lower quarterly NIM. Underlying this assumption, we anticipate seasonal outflows of deposits. We will also have higher debt costs in the quarter until we redeem the subordinate notes due in 2029 and 2030 which we intend to do this quarter, subject to market conditions. Fees are likely to step back a bit without the benefit of another legal settlement. The roughly 1% decline in deposits is an effect of lower public funds on a seasonal basis. Excluding this, we would expect to grow deposits by roughly 1% this quarter. On a full-year basis, relative to the outlook we provided in January, we'll be above the range on loan growth at the top end of our NII guidance and a bit higher than the midpoint on fees and expenses. With that, I'll turn it back to John for closing remarks. John Ciulla: Thanks, Neal. This past week, Webster celebrated its ninetieth anniversary of a founding as First Federal Savings and Loan Association of Waterbury in 1935. Originally founded by Harold Webster Smith with $25,000 he borrowed from friends and family to help people build and buy their homes amidst the Great Depression, First Federal, now Webster, has grown to one of the country's largest commercial banks offering sophisticated financial products to diverse client segments. The bank's sustained success is the result of a consistent commitment to doing what's right for our colleagues, clients, and the communities we serve. Webster's strong and consistent results this quarter echo the bank's performance since its founding. I'd like to thank all of these parties and our other various business partners for helping to grow Webster into the institution it is today. Our performance this quarter, this year, and over Webster's history is a true team effort. And we're proud to drive consistent and comprehensive positive outcomes. Thank you for joining our call today. Operator, we'll take questions. Operator: Thank you. If you would like to withdraw your question, simply press 1 again. Again, we ask that you please limit yourself to one question and one follow-up. Thank you. Your first question comes from Jared Shaw of Barclays. Your line is open. Jared Shaw: Good morning, everybody. John Ciulla: Hey, Jared. Jared Shaw: Maybe just starting with the Marathon partnership. If you can give any detail on early success there, and is that reflected in sort of the optimism for growth in '25? And I guess how should we think about that in '26? Luis Massiani: Yeah, Jared. This is Luis. So far so good, is how we characterize it. We have started building a nice pipeline of business there. Annual weekly calls and meetings of our investment committee to actively review transactions and placing them into the joint venture. We started approving transactions. We started originating transactions. So from the perspective of what we thought it was going to allow us to do, which is being able to offer an expanded product set to our diverse universe of sponsored clients, it's essentially achieving exactly that, which is great. And so long term, we feel that the prospects for what we're trying to do there are good, which we're gonna be able to offer more, and that's gonna result in both transactions for the JV as well as opportunities for on-balance sheet business, which you haven't seen the impact of that much because it's still early stages. But as we move into 2026, we think that that's gonna be a good it's gonna allow us to, you know, an expanded product offering, which should reflect in some on-balance sheet business as well and other opportunities with deposits, fees, capital markets, business also. So so far, so good. Jared Shaw: Okay. Alright. Great. Thanks for that detail. And I guess shifting over to the deposit side, you know, Mitros balances are up. Interesting. Balances are up. How should we think about the trajectory of growth over the near and midterm there and the priority of those versus broker deposits? Neal Holland: Yeah. So this is Neal. We continue to do all we can to grow the attractive categories in HSA and Ametros. Those are great businesses, and we love growth there. We have seen strong growth in InnerSync year, and we prefer Intersink balances over broker deposits. You know, we pretty much have no cost to originate the operating costs are more than offset by the fees we earn in that business. And it's a 100% beta. So in a down environment, we'll be an attractive balance for us. We really use broker deposits to in Q2 and Q4. We have seasonal inflows of public deposits, which come in obviously in Q1 and Q3. And so as you'll notice, this quarter, we had seasonal inflows of those public deposits. So our broker concentration is down to about 2% and, you know, next quarter, it may jump up to 4%, and then Q1 will probably be more back down that 2% range. So we really use broker deposits to offset those swings in our public deposits. Jared Shaw: Okay. Thank you. John Ciulla: Thanks, Jared. Operator: Your next question comes from Mark Fitzgibbon with Piper Sandler. Your line is open. Mark Fitzgibbon: Hey, guys. Good morning. John Ciulla: Mark, good morning. Mark Fitzgibbon: There's been a lot of talk, John, this past week about the private credit space, and so I wondered if you could share with us any details on sort of what sort of lending exposure you'd have. Do you have to the private credit industry, and maybe any areas that you might be avoiding within that space. John Ciulla: Yeah. Mark, I'll give you an overview. Our NDFI exposure and, obviously, everybody's been talking about this a lot as pretty amorphous and large category. For us, it's pretty simple. We've got about $6 billion in what would be characterized as NDFI. 90% of that for us is really in two categories. And relatively evenly split. One is fund banking, which everybody understands lower yielding, lower risk, that's really tied to the LPs fulfilling their commitments to private equity funds. Right? There's no operating risk with borrowers. And as I think people know in the history of that product, there's been virtually no losses. The other half for us is in lender finance. It's about $2.6 billion. We've been in that business. We're not newcomers. For about ten years. And the way we characterize that business for us is we deal with top name asset managers with significant AUM and experience. You know, we advance on a pool of loans effective senior leverage, and attachment point of 2.7 times across the book as we go through that. We have had zero losses zero classified or nonaccrual loans over the ten-year period. And so I think it's really important to for us, and we feel very, very comfortable in this space. Many of them are 20% risk-weighted assets, so significantly lower risk, and they carry a lower yield as well. And as we've grown that, we've you know, that's that's been in our plan. So we feel very comfortable with our NDFI exposure just given the characteristics and nature. And our history in the business. So you know, we haven't been exposed to the headline credits that you've you've seen in the last few days, I guess, mostly. But we're we're very confident that the underwriting we have in there is extremely solid. And we're not in any sort of other esoteric risk classes. Mark Fitzgibbon: Okay. Great. And then just to follow-up kinda changing gears a little bit. I know, John, you've said in the past that you're not interested right now in doing bank M&A. But I guess I'm curious if the category four threshold is lifted, given that, you know, the regulatory environments so welcoming these days of bank M&A. Why not sort of push that to the front of the line in terms of priorities? John Ciulla: Yeah, Mark. We're we are going to be consistent to what we did what we've said many times. I don't think the lifting of the category four hurdle changes our outlook. Right? It could benefit us from an expense perspective and let us focus on competing and growing our business lines instead of necessarily building out other regulatory mandated infrastructure. But as it relates to M&A, you know, we have said and we continue to believe that it would be highly, highly unlikely for you to see us acquire a whole bank over the short or medium term given our momentum and given what we think we can create and given the risk of getting involved in M&A on an offensive basis. We continue to look at, you know, smaller healthcare-related acquisitions, that, you know, wouldn't dilute tangible book value significantly. And could add to our fee and deposit generating capabilities. But as it relates to whole bank M&A, we're not interested in participating at the current time. Mark Fitzgibbon: Thank you. Operator: Your next question comes from Chris McGratty with KBW. Your line is open. Andrew Leischner: Hey. How's it going? This is Andrew Leischner on for Chris. Good morning. Just on the loan growth, looks like the Q4 guide is back around where you've been after the strong quarter this past quarter. Can you speak in a little bit more detail about current pipelines? And then how is it be thinking about the loan growth outlook going into 2026? Thanks. John Ciulla: Yeah. I think our pipelines are continuing to be relatively robust. We talked about a big pipeline heading into the third quarter, and you saw us pull through. I think our view on the fourth quarter is that we anticipate, you know, as normally happens in the fourth quarter, maybe a higher level of prepayments. And so I think our view of looking at a relatively solid pipeline, our pull-through rates, and year-end prepays and payoffs. That's why you see us not going with the same level of third-quarter loan growth. We could outperform that, you know, if payoffs don't come through and we continue to originate. But I'd say we feel really good about our pipelines. We're also, I think, really getting narrowly focused on capital allocation and trying to make sure that our risk-return profiles on the loans we're originating work, and we're, you know, wanting to continue to grow core C&I categories as we move forward. So kinda business mix, what we believe in payoffs, and a pretty solid and robust pipeline will lead us to good solid growth in the fourth quarter. We just don't anticipate it being as strong as in the third quarter. Andrew Leischner: Okay. Great. Thank you. And then just one follow-up. Just given that CET1 is still above your near-term target, at eleven point four, how should we be thinking about the pace of buybacks going forward? Thanks. John Ciulla: Yeah. I think I'm gonna give you the boring answer that we always do. You know, we're looking to deploy capital into loan growth. We're looking at potentially some strategic, you know, smaller inorganic growth with respect to our healthcare vertical on fees, and deposit growth capabilities. If we don't have robust loan growth and we don't have opportunities to deploy capital in the aforementioned healthcare space, I think then you'll see us look at returning share capital to shareholders. Obviously, we also take into consideration in the market and where credit's trending as well. You'll continue to see us buy back shares, and the pace of that will be dependent on what I mentioned earlier in terms of other priorities for capital use. Andrew Leischner: Okay. Great. Thank you. John Ciulla: Thank you. Operator: The next question comes from Matthew Breese with Stephens Inc. Your line is open. Matthew Breese: Hey, good morning. John Ciulla: Hey, Matt. Matthew Breese: The first one is kind of a two-parter. You'd mentioned in the release and in your opening remarks that tighter loan spreads on new loans were a driver of NIM compression, and so I was hoping you could talk a little bit about that. What new spreads are, and with the five-year down a bit, what new commercial real estate new commercial estate yields are today, and then the other thing I wanted to hone in on was commercial loan yield for the presentation. We're at 6.41%, so down a healthy 15 basis points quarter over quarter, but SOFA was relatively flat. And so I was curious why such a pronounced drop in commercial loan yields as well. John Ciulla: Yeah. I'll let Neal give you specific numbers. But I think, you know, we've had a continued trend line of onboarding higher quality credit if you look at sort of weighted average risk rating on originations over the past several quarters. Compared to what's in the existing book. You know, there's a significant positive delta there. So I think part of it, Matt, is risk selection. Part of it is credit spread compression. You know, the markets there are tighter credit spreads on high-quality commercial real estate deals and other areas. So I would say it's a combination of mix and tighter spreads in what we're originating. It goes to my earlier point on the previous question that we continue to look as we move forward that it's not just loan growth for loan growth's sake. We wanna make sure we're onboarding high quality, but we're also onboarding good solid loan yields so that we can make sure that the NIM is not contracting perpetually over time. I think that would be my answer, and you know, I think we're pleased with what we're being able to onboard in terms of full relationship, high-quality commercial real estate and C&I deals. But they are coming in at a lower yield than this historically had been the case. Neal Holland: Yeah. John hit it. 6% range on originations on recent originations. And then it really is our loan mix and categories. And the risk weighting of what we've originated the last few quarters has been very high quality. Which is great from stable long-term credit performance. But it does put some pressure on our NIM. So that has been our trend recently on where we're originating in the high-quality assets we've been putting on our books over the last few quarters. Matthew Breese: Got it. Okay. And then my other one is you know, John, back to M&A. You know, obviously, there's some big bank deals out there. It seems like the window is open. And I do not get the sense that you're a whole bank buyer near term or medium term, but I am curious what you think strategic options are on the sale front. And how seriously that's considered. And I asked because I'm getting that question more and more frequently. And would love your thoughts there. John Ciulla: Yeah. I mean, it's always a tough one to answer. We're not looking to sell the bank. We're also pragmatic and good fiduciaries with our board and so, obviously, if there was an opportunity to become part of a large bank, we would have to evaluate that. But, Matt, as I said earlier, I think the whole dialogue around M&A, I understand why the question's there, and there's gonna be probably more transactions. We just take kind of a pragmatic fiduciary approach, make sure that we're operating at a high level and continuing to have a good organic path forward. We would have to react, obviously, if there was an opportunity and look at it from a pragmatic perspective. But it's not something that we're looking for proactively. Matthew Breese: That's all I had. Thank you. John Ciulla: Thanks. Operator: The next question comes from Casey Haire with Autonomous Research. Casey Haire: John, wanted to follow-up on the NDFI question. Fully appreciate your answer and that these asset classes are low risk. But some of the others that were that, you know, are in these headlines you know, where they got blindsided was the double pledging of collateral. So which seems like an easy thing to safeguard against. So what countermeasures do you have in place to guard against you know, your borrowers double pledging double pledging collateral? John Ciulla: Yeah. That's a great question. Right? It's around how do you protect against fraud, and I think it starts with who you do business with. And, as, you know, a former chief credit officer, I'm always I probably, to a fault, tell people I can't you can't promise excellent and perfect credit performance. But if you think about the fact that what I talked about you know, Jason So to, our chief Chris Credit Risk Officer, always pushing people away when they wanna deal with first-time asset managers and people that, you know, are don't have great reputations in the space. And so it starts with dealing with high-quality established asset managers and then doing strong quarterly reviews. You know, we've had instances on some of these pools in lender finance when a credit goes bad, the asset manager replaces that poor credit with a performing credit. You know, we're at relatively low LTVs when we lend against it. So I think it's a combination of being diligent in the underwriting to start and making sure you're dealing with people who have a track record of transparency and being able to provide great information. Underwriting and looking through to the portfolio of loans you're lending against, and as I said, we've had ten years of perfect credit performance. Will that continue forever? We're in the business of taking risk. I can never say never, but I think we do a good job. And I think it kind of the way I describe KCRs. Our sponsor book. Right? It's not all things are created equal, and people who get involved in that business, we've been in it for twenty years. We kinda know who operates in the industry. You kinda know who you wanna deal with. You make your best guesses and diligence on underwriting and monitoring, and so far, so good. I think that's the best I can give you. Casey Haire: Gotcha. Understood. Okay. And then just apologies if I missed this in prepared remarks, but the outlook for I mean, the credit quality was stable. Didn't get worse, which is good, but it didn't show much improvement from NPAs and commercial classified. So just wondering, what's the outlook going forward? Is this expected to cure gradually or kinda run-in place? Know, just an outlook on how credit quality cures. John Ciulla: Yeah. I think it's a great question. And I think, you know, when I talked to Jason I think we were a bit disappointed to not get more resolution on the nonaccrual and classifieds. And I had mentioned, and we go back, that some of that resolution is a bit sticky. Right? We're smart. We know that we wanna get those headline numbers down because if people think there's an overhang, but we're also, you know, looking at economic profit when we look through these things. And if we've got a good collateral base, and we think that there's not big losses, we're not gonna do something stupid economically. I think the key underlying factor of why you heard me not sheepishly but confidently say that we think the inflection point continued is that a lot of this has to do with kind of roll rate right, and trend lines in risk rating. And that 7% decline in criticized assets, which is, you know, the step before we get to classify the nonaccruals. Was really important to us that we continue to see in our quarterly reviews an overall improvement in risk rating migration which portends well you know, absent a credit correction and a recession and other things. It portends well to a lower future inflow of problems and we do see line of sight to resolution on a bunch of those nonaccruals and classifieds. So for us, we feel like, hey. We'd like to accelerate that. We had line of sight to what we thought was slightly better resolution on some of those. But there's no question that from our standpoint with respect to the level of charge-offs the risk rating migration trends, and the lower criticized assets that this was another positive step in our credit performance. And, again, overall, know, we've been able to continue to post high returns given our active you know, actual credit costs over the last several quarters. So you know, we're feeling good about our credit profile. And as I've always mentioned, and I don't wanna go on too long, but you know, most of our I should say a large portion of our classified and nonaccrual loans are concentrated in healthcare services and office. Right? And so on two relatively discrete and small portfolios. So I think that's why we feel pretty comfortable that credit's trending in the right direction. Casey Haire: Great. Thank you. John Ciulla: Thank you, Casey. Operator: The next question comes from Anthony Elian with JPMorgan. Your line is open. Anthony Elian: Hi, everyone. On credit more broadly, just to follow-up, your metrics on slide 13 look really good. But I'm curious if beyond your comments on MDFIs, on this call, if there are any portfolios you're taking a closer look at today or scrubbing, especially after the recent events? John Ciulla: Yeah. I mean, I guess I guess we're you know, we think we're proactive. And as I've mentioned several times, we haven't really seen any pockets of correlated risk in either asset class, geography, business line of ours. Obviously, we looked at auto when we saw this. We've got very small exposure to auto. I think it's, like, $300 million overall, and that would include, you know, any part of the entire ecosystem. And so that's that we don't have a specialty team. We're not involved. That's sort of just in our general commercial business. So I would say no. You know, we focused on resolving office. We continue to move. It's been a little bit slower the last quarter. You know, obviously, we're keeping an eye on rent-regulated multifamily because of all the noise around the potential election of the mayor there. We still feel very comfortable with that portfolio. It's extremely granular. And, you know, it's performing well with a good updated debt service coverage ratio. So I don't think there's anything that's high on our radar screen in terms of flashing yellow lights or red lights. Anthony Elian: You. And then my follow-up, Slide 28, it looks like loan origination rose from the prior quarter and much of that came from commercial real estate. I'm curious on the types of CRE loans you originated during the quarter and if this is a good level for CRE originations going forward. Luis Massiani: Yeah. Sure. That's, you know, a great question. Part of that was we alluded to the pipeline that was, you know, a little bit softer at the beginning of the year, and we started to we talked that I think it was in the first quarter earnings call. That we had started to see that build up in the early part of the second quarter and then throughout the second quarter. And so part of how to, you know, think about Q3 is that there was some you know, pent-up activity in the pipeline that was, you know, fully reflected and came through in Q3. So, therefore, the growth was, you know, stronger than prior quarters in you know, and it was, you know, good diversified industrial and, you know, kind of multi you know, asset classes. And so mix of the business was great. You know, good structure, relatively good pricing. So we were very pleased with the type of originations that we saw. With that said, pipeline is still in very good shape. But as John alluded to the combo of potentially some accelerated payoff activity, particularly if rates go down, then the fact that you don't have the that quarter and a half or two quarters of pent-up demand that we had from the first and the second quarter, we think that there's gonna be good commercial real estate originations in Q4 and then into 2026. But it shouldn't be, you know, kind of the Q3 number should not be seen as a watermark or a high watermark for what originations will be going forward. But still good strong growth. John Ciulla: And I would just add to that. We feel very comfortable. We're still in the, you know, mid two fifties with respect to concentration on CRE. As a percent of tier one capital plus reserves and we can bounce around, you know, down or up 10% from there. And feel very comfortable that from a regulatory perspective and from an overall risk management perspective, we're comfortable. So it's an important category for us. You'll probably see growth. But to Luis's very good point, I think you know, it'll be thoughtful growth as we move forward. Anthony Elian: Thank you. Operator: The next question comes from Bernard Von Gizycki with Deutsche Bank. Your line is open. Bernard Von Gizycki: Bernard, good morning. Neil, first question for you. So you noted the higher debt costs. It looks like you might be absorbing one more rate cut than previously assumed in your guidance. It looks like sponsor obviously might have been maybe a bit better than expected. And I know that's, like, a bit higher yielding. The four q NII, the 630 million, just what what are you thinking of the exit run rate for the for the NIM in four q? Any changes there? Neal Holland: Yes. Yeah. So on the last call, we talked about a Q4 NIM of being in the range of three thirty-five to three forty. You know, after you take into account the seasonal factor, the extra sub debt that we'll be holding in Q4, we've got a little bit of timing around the seed portfolio and kind of loss of very high yielding loans from the seeding of the JV kinda put some onetime pressure. We were as I mentioned before, and they're continuing to originate the high quality kind of the lower spread new originations. That puts pressure on q '4. So you know, if you take our six thirty NII that equates there's opportunity and risk to that depending on to a guide of right around six sorry, three thirty-five for the Q4. how quickly we reprice deposits. And that's you know, if you look at our growth rate last quarter, which was almost 10% annualized on loans and deposits, there's less opportunity for us to price down. So what we're looking at in Q4 is, potentially a little bit lower growth, and so potentially a little bit of opportunity to outperform. But we've kind of our guide is more in the lower end of what we stated last quarter for Q4. Now that being said, Q1 next year, we're not ready to talk about Q1 guidance, but know, we've talked about our seasonality trends. So, you know, I would clearly expect Q1 next year to be back up higher than Q4 of this year. And then we'll talk more about full year '26 guidance when we meet next time. Bernard Von Gizycki: Okay. Great. Thanks for that color. Just post my follow-up for, Lisa, this is for you. Obviously, they just say pipeline is growing. You know, you mentioned obviously, from last quarter, the target addressable market increasing. That opportunity at least on the deposit side being, you know, the one to two and a half. And the recent changes and catastrophic accounts should increase it further. And I know you're still assessing. But just any progress you can share just longer term we should think about the fee income growth opportunity? Luis Massiani: I know you have the $3.03 and a half million, you know, accounts there. I'm not sure if you can share how many of those have a bank account or bank product. Or just anything you can just help frame how big this opportunity could be potentially next year or further? Yeah. That's a great question. And the short answer to that last part that you asked on, you know, I'll call it the cross sell of other baking products into that channel. Is that it's not much? Is the way to characterize it today. But we view that as being one of the big opportunities and untapped you know, kind of channels where we think that we could do a substantially better job going forward. And so part of that is making the investments that we have on the technology front on people, and on, you know, expanding the product set. To be able to create a, you know, something that from a product perspective, from a product bundle perspective is attractive to be able to sell into that three and a half million client channel that we have there. And so part of that is banking, know, traditional banking products. Part of that is in insurance related products, Medicare related products. And so that is you know, it's coming together. We, you know, we anticipate in expect that there is going to be greater activity broadly in the age channel in 2026. And I'll, you know, I'll remind you that the opportunity going forward, particularly as it relates the addressable target market, is slightly different or it's actually very different to what we do today. Right? Today, the vast majority of what we do in HSA is a, you know, b to b to c business where we're going through large employers. And so it's not that the client relationship, even though it is a deposit account with us, is one removed in the sense that it really goes through the largest employer that is our kind of the that's how we originate the transaction accounts. As we move into the catastrophic and the bronze plan opportunities with that increase and expanded target size, really a direct to consumer business. It's much more akin to what we do in our traditional banking side, the consumer banking and through our direct channels. And so that's why we think that that's a great in that. The you know, that is identifying an HSA client that could become more than just HSA because it's gonna be a direct to consumer relationship. We're gonna be you know, data mining the you know, to identify the individuals and then having them be a date direct, you know, kind of broad HSA and Webster client. So you know, along with the way of saying that it's a great opportunity for us. We're building that we have the investments. We're making the investments. To be able to capitalize on that. And we envision that in 2026, we should start seeing some benefit out of all the investments that we've made. Bernard Von Gizycki: K. Thanks for taking my questions. Operator: The next question comes from David Smith with Truist Securities. Your line is open. David Smith: Good morning. Outside of HSA, can you talk about the investment opportunities you're prioritizing for the bank? And, you know, with the likely rise in the category four threshold, does that free up investment dollars that you can redeploy into that are more directly related to revenue or the profitability of the bank? Thank you. John Ciulla: Yeah. I think that's a great question, and the short answer is yes. You know, we've talked openly about the fact that, you know, Neil talked about a kind of 60 over three years, a 60-ish million dollar investment run rate increase in expenses. Related to category four. You know, we are taking a, again, a pragmatic approach. We're gonna wait to see and get more clarity on whether that threshold's lifted. You know, I think we believe that there is a reasonable probability that that happens. And that would allow us to either avoid some of those costs or clearly spread them out over a longer period of time. And, you know, our view is that we can take some of that and increase current profitability, but we wanna certainly redeploy some of those investment dollars into new business initiatives. Those would include our continued digitization of channels across, you know, our various business lines, treasury management capabilities, new teams in key geographic middle market segments, and so, you know, it's kind of being able to really focus on accelerating some of our business opportunities. HSA, we talked about it heretofore. I think we have some adjacent opportunities in the Metro and HSA as well. So I think it'll give us an opportunity to accelerate some of those investments as we move forward. And I think what we're trying to do is I think we will have more clarity on that on the regulatory thresholds. By the time we get to the January earnings call. We're going to our board in a couple of weeks get our three-year strategic plan vetted and approved. And I think we'll be able to talk a lot more about how we redeploy some of those investment dollars when we're clear that we can redeploy those investment dollars, and I that should all be factored into our guidance in January. David Smith: Thank you. John Ciulla: Thank you. Operator: The next question comes from Daniel Tamayo with Raymond James. Your line is open. Daniel Tamayo: Thank you. Good morning, everybody. I apologize. I jumped had to jump on the call a little bit late, but is as it relates to the most recent rate cut, I'm just curious the ability you've had to reprice you know, funding downward and if you've had to move all loan rates down in an equivalent manner or if you've been able to hold the line. Just curious on basically, on the impact on of the rate cut on spreads. Neal Holland: Yeah. So, you know, we're positioned as we've talked about pretty neutrally. So, obviously, we did see some yields decline on our variable rate portfolios. We tried to be aggressive on the deposit side. I think we made some good movements on the commercial side. On the consumer side, there's been a little bit of lag in the industry. We've recently moved down and are seeing, you know, about a month after the cut, some pretty good movements down. So we are balancing, maintaining our loan deposit ratio with the speed of our decline. So we'll be monitoring closely during what we expect to be two more cuts throughout the end of this year and hopefully can drive a strong beta. Our forward guidance is based on a beta just shy of 20 30% and kind of a pretty in line with what we've been talking about the last few quarters. And we've plans in place to achieve that going forward. Daniel Tamayo: Okay. Great. Thanks for that. And, you know, I talked pretty bullishly about the opportunities from the Marathon JV particularly next year and going forward as it relates to adding loan growth for the sponsor book. Does the uncertainty and the issues that we've had in the last few weeks in private credit and loans to NDFI impact that the way that you think about that you know, that JV at all? I'm just curious if there's any kind of overlap there. John Ciulla: Yeah. I don't think so. You know, when we're we've talked a lot about our sponsor finance business, right, which is not NDFI. It's financing you know, companies that are platform companies or private equity firms. And we've had good success over a long period of time. I remind you that our partnership with Marathon is as much a risk management tool as it is an offensive opportunity. It allows us to have offer more products and services and a bigger balance sheet implied without taking additional risk on the bank's balance sheet. Our sponsor finance business has not grown in the last eight quarters as much as it had in the prior ten years. Because of the proliferation of private credit and because of lower M&A activity and because, quite frankly, we've stuck to our risk profile. And I think been pretty conservative there. So you know, I think general economic conditions obviously have an impact on the way we look at leveraged finance. But with respect to what you saw in the market and reactions over the last couple of days, it really has no impact on the way we look at predictable, protectable cash flows of our, you know, direct borrowers in the sponsor book. Daniel Tamayo: Terrific. Appreciate that color, John, and thanks for your prior answer, Neal. That's it for me. John Ciulla: Thank you. Operator: The next question comes from Janet Lee with TD Securities. Your line is open. Janet Lee: Good morning. Sorry. I joined a little late, so sorry if I missed prepared remarks. But for the loan growth in the quarter, it was pretty robust on a period end basis. So if I look at the C&I loan growth, is this is most of this growth coming from, like, the middle market? I know that includes, like, the fund banking part. And given that CRE run offs will not be in the in I mean, we're not gonna see, like, much CRE runoffs in the future quarters. Is it fair to believe that the loan growth in 2026 I know you're not guiding to '26, but loan growth should be improving versus, like, the four four to 5%. Growth that was previously expected for 2025. Is that the right way to think about it? John Ciulla: That's an interesting question. I sat at a conference mid-quarter you know, what we expected, and I think it was a panel, and then the investors said 5% loan growth. I think we think about kinda steady loan growth in next year in this economic environment in that range. We're not ready to provide guidance because as I said, we're right now going through our plans. We are looking at making sure that our loan growth is diverse. We want full relationship loan growth. CRE will be a part of that. We'd like, obviously, middle market and C&I to continue to add to that as well. I don't think, Janet, I'm prepared to say that we expect loan growth in '26 to be higher than those mid single digits, which I think is what people who have provided guidance and industry experts have said. So I'd rather not go there now. I think we think that that would be pretty good solid loan growth. And as we finish our strategic plan and look at the economic environment, we'll let you know in January what we think we can achieve. And we won't and as I said in it to an earlier question that you may have missed, it's not just about balance sheet growth for growth for balance sheet's sake. We wanna make sure we're also onboarding good risk return assets. So that's the way I would look at it now just thinking forward. Janet Lee: Got it. And just going back on NDFI, sorry to just keep coming back. Back at this, but your exposure is $6 billion. Just given all of these you know, headlines that just keep coming up, does this change your appetite on growing the NDFI exposure, or are you completely comp do you use that you're comfortable with your position? But does it does that change your appetite for driving growth coming out of this segment, or does it does it die? John Ciulla: It's kind of a trap question. Right? Because I think we're all smart leaders here the way we think about things. And optically, we have to be absolutely sensitive to the way people view the makeup of our balance sheet. But I would say, fundamentally, the two categories that make up the substantial whole of our NDFI exposure actually are really low risk and, quite frankly, lower yielding loan categories that we feel very comfortable with. To the extent we have opportunities in fund banking and lender finance, and we're not stretching into areas, and we're not dealing with new newly formed asset managers or going into different esoteric asset classes, we feel comfortable continuing to originate but we'll do it in the context of our overall loan portfolio and concentrations, and obviously have an eye to what's going on trend line wise in the industry. So if we were to see significant cracks in a broader private credit screen. Obviously, we would either pull back or change our underwriting guidelines. But right now, we don't think based on a couple of days and a few headlines that we would need to change the way we view the market. Janet Lee: Thank you. Operator: The next question comes from Jon Arfstrom with RBC Capital Markets. Your line is open. Jon Arfstrom: Hey, John. Lot of the topics have been covered, but small one. Can you talk a little bit more about the noninterest income drivers? And what you're seeing there and what kind of expectations you have? Neal Holland: Yeah. I could jump in there. So on the noninterest income side, we had a nice increase quarter over quarter, and we talked about a piece of that was due to a legal settlement. But outside of that, we saw nice growth in client activity. As loan originations have picked up, there's more activity. More swap income. We've found some unique new ways for syndication income. So I would say, overall, we were pleased with the quarter there. Overall, obviously, as we benchmark, we benchmark against peers positively in a lot of segments. And fee income is one of the areas that we're a little bit lower and we're working on different initiatives. As Luis mentioned, there's some opportunities on the HSA side. There's obviously opportunities to do our JV, and we'll continue to look for ways to drive new categories there. But you know, kinda going forward, I think, until those new potential streams kick in, we'll be kind of in that similar growth range that we've been in over the last year or so on the noninterest income. Jon Arfstrom: Okay. Good. Thank you on that. John, kind of a high wire act question, but just back on the election. Is that a legitimate concern for you as a banker that banks the city? Shouldn't and know, should investors be concerned about it at all? Just how do you think about the potential risks or we just, you know, is it overblown in your mind? John Ciulla: Yeah. It's a it is a high wire question. I think if we look at credit performance and our credit portfolio, it's not a big issue in the medium term. Right? I think we look at the way we've underwritten. We look at what a new mayor would have the power of doing in terms of changing rules, regulations, and other things that would really impact our borrowers' ability to generate income and cash flow and service debt. So I think that may be a bit overblown. You know, Luis and I talk about this. I do think you know, you what you want is a healthy New York City. Both from a credit performance, but even more importantly, from a business performance and our ability to continue to generate growth in deposits. So that's something that we look at and, you know, try and figure out whether over time the city gets less competitive rather than more competitive. If there were a change significant change in policy. But I think you know, his history would tell you that things don't move as dramatically in either direction. When you have these changes. That you can navigate through them. So in our base case, like, we don't have thoughts that there's gonna be a precipitous inflection point in either business activity or credit performance in the near term. I think, you know, my personal and, I guess, when Luis and I talk about the longer-term risk is you get a trailing economic growth in the city. You get, you know, other quality of life changes or things that people perceive, and that could have an impact in the long term. But as I look over our three-year plan, we don't think there's a material financial impact. By the mayor election in New York. Luis Massiani: And the one thing that I'd add there is that as you think about future opportunities for growth, the vast majority of where we have to live in the to the topic of what we were talking about before, where we're investing the thing that we're focusing on. Even though we are always going to be a know, we're gonna have a good, you know, part of our business fee, you know, connected and tied into New York City if we're not gonna be growing, particularly in the new business lines both on the lending and deposit side. Not connected to New York City. So everything that we're doing on HSA, on the mutuals, on Intersink, on the deposit side are not connected directly to New York City. So from that perspective, we don't see that that should be an impact on our ability to continue to generate good deposit funding. And conversely, on the lending side, when you think about the diversified verticals, yes, there's a portion of what we do, particularly in CRE that is New York City connected, but the vast majority of growth and the opportunities that we have seen have not been recent in the last two or three years post-merger connected directly in New York City. And so we think about the business opportunity, or the existing book of business, yeah, it's something that we'll have to deal with. Although, I think we're in very good position to, you know, to be able to offset whatever comes our way from that perspective. And as we think about the business opportunity longer term and growth trajectory, we don't think that materially impacts our ability to continue to do what we've been doing. Operator: The next question comes from Laurie Hunsicker with Seaport. Your line is open. Laurie Hunsicker: Yes. Hi, thanks. Good morning. John Ciulla: Good morning. Laurie Hunsicker: My first question is super quick. What's your spot margin? Neal Holland: Our spot margin our margin at the end of the quarter was down three basis points from the average at three thirty-seven. There's a lot of volatility in spot margin though, but it kinda ties into what we were talking about in direction. Laurie Hunsicker: Yep. Appreciate all the color on that. Okay. Second question here is around credit. So I just wanna understand a couple things. Your $6 billion NDFI portfolio that's within the sponsor and specialty finance book. And I guess secondly or, you know, yes or no. And then just the can you think can you help us think about how much there is nonperforming and what the charge off were. And then finally, the 37 million you have in commercial net charge offs, just because I don't see the breakdown, can you share with us what's C&I What's Cree? What's what's what's office, And I know it just hit you with a lot, but I just I want some more details on that. Thank you so very much. John Ciulla: Yes, Laurie. We'll try and we may have to get back to you in a couple of those things. But I'll tell you that the answer is no. To your first question. All of our MDFI is not included in and specialty. Our lender finance numbers are included in sponsor. Our fund banking is and we have it on footnoted on the slide is included in in our C&I business. And then with respect to some of those specific credit questions, we might get back to you. Let me just give you a high line again. Right? We've got the concentration of charges historically and nonaccruals have been concentrated in our healthcare services book. Which is down to about $400 million. So, again, very discreet and low. Talked about the sponsor book as having some volatility in risk rating. But not translating into loss. And I think that's continued I'm trying to think of the other question. Laurie, what I'm gonna do is have Jason and Neil talk to you offline. We're not seeing any material deterioration in our sponsor book. That's the short answer. And what we've seen with respect to trucks oh, she had charge offs in fourth quarter As I looked at those charge offs, there weren't any high single points. All the charge offs were under $10 million with respect to single point charges. There was an office an office loan in there. There was a C&I loan in there. An ABL credit. So these were all kind of relatively granular across categories in commercial. That is all the time we have for questions. Operator: I will turn the call to John Ciulla for closing remarks. John Ciulla: Thank you very much. I really appreciate everybody's engagement this morning. Have a great day and a great weekend. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Good morning, and welcome to the Regions Financial Corporation's quarterly earnings call. My name is Christopher Spahr, and I will be your operator for today's call. I would like to remind everyone that all participant phone lines have been muted. I will now turn the call over to Dana Nolan to begin. Dana Nolan: Thank you, Christopher Spahr. Welcome to Regions Financial Corporation's third quarter earnings call. John Turner and David Turner will provide high-level commentary regarding our results. Earnings documents, which include our forward-looking statement disclaimer and non-GAAP reconciliations, are available in the Investor Relations section of our website. These disclosures cover our presentation materials, today's prepared remarks, and Q&A. I will now turn the call over to John Turner. John Turner: Thank you, Dana Nolan, and good morning, everyone. We appreciate you joining our call today. Earlier this morning, we reported strong quarterly earnings of $548 million, resulting in earnings per share of $0.61. On an adjusted basis, earnings were $561 million or $0.63 per share. We delivered adjusted pretax pre-provision income of $830 million, a 4% increase year over year. And we generated a strong return on tangible common equity of 19%. We are proud of our third quarter performance as we continue to enjoy the benefits of the investments we have made across our businesses and the successful execution of our strategic plans. Reflecting the strong benefits of our footprint, the recently released FDIC deposit data indicates that we generated top quartile deposit growth and above peer median change in market share over the measurement period. And we did this while maintaining the lowest deposit cost amongst our peers. This momentum carried into the third quarter as we grew total average deposits as well as accounts across consumer checking, small business, and wealth management. We also grew average loans modestly during the quarter as corporate client sentiment has continued to improve. Year over year, pipelines are almost doubled, and we are also experiencing nice increases in production. And year to date, loan commitments have increased approximately $2 billion. However, we still face some headwinds from our portfolio shaping efforts in certain areas of higher-risk leverage lending. This type of portfolio shaping is consistent with our long-standing focus on soundness and appropriate risk-adjusted returns. In addition, we saw a meaningful increase in loans refinanced off our balance sheet through the debt capital markets during the quarter. Importantly, with improving macro conditions along with an expected pickup in line utilization, we believe we are well-positioned to generate stronger loan growth as we move into 2026. Our consumers also remain healthy. Debit and credit spend continue to increase versus the prior year, and payment rates on our consumer credit card remain above pre-pandemic levels. Importantly, consumer credit quality remains strong, exceeding our expectations. Asset quality metrics remained relatively stable near historic lows. Shifting to fees, we delivered another strong quarter in terms of non-interest revenue. Wealth management continues to be a good story for us, generating another quarter of record fee income. In Capital Markets, excluding CBA, also reached a record high during the quarter. M&A activity continues to pick up along with commercial swaps, syndications, and debt underwriting. Additionally, treasury management continues to grow at a nice pace year over year. We see continued opportunity to grow clients through both new relationships and within our existing customer base. We continue to make good progress on investments to modernize our core technology platforms. Planning to upgrade our commercial loan system to a new cloud platform in 2026. We will begin running pilots on our new cloud-based deposit system beginning in late 2026 with full conversion anticipated in 2027. Once completed, we expect to be one of the first regional banks in the country on a truly modern core platform. We are also having success in our efforts to recruit and hire quality bankers across our priority markets. And we remain on track with our target banker additions and our branch banker reskilling and reallocation efforts. Wrapping up, we are proud of our third quarter results. The investments we are making to modernize our core systems and add talent in priority markets are progressing well, further enhancing our ability to serve customers' evolving needs and positioning us to capitalize on growth opportunities. Our associates' commitment and strong execution have been instrumental in driving these results. We expect this momentum will continue into 2026 and beyond, creating sustained value for our shareholders. With that, I will hand it over to David Turner to provide some highlights for the quarter. David Turner: Thank you, John Turner. Let's start with the balance sheet. Average loans grew 1%, while ending declined 1%. Within the Corporate Bank, areas experiencing growth during the quarter include financial services, government and public sectors, commercial durable goods manufacturing, and utilities within C&I, along with a modest increase in CRE. Offsetting this growth, however, is our ongoing portfolio shaping efforts that John Turner mentioned. Year to date, we have exited approximately $900 million in targeted loans and estimate we have another $300 million of these loans to work through over the remainder of the year. While we are also very proud of the record quarter we experienced in our capital markets business, that does come with additional headwinds to loan growth where we saw approximately $700 million in loan balances refinanced into the debt capital markets. Average and ending consumer loans remained relatively stable as growth in credit card home equity was offset by a modest decline in other categories. We now expect full-year 2025 average loans to remain relatively stable versus 2024. Deposits remain strong overall. Consumer deposits were roughly flat quarter over quarter, slightly ahead of typical seasonal trends. Both acquisition and retention have been solid across core and priority markets. Priority markets performed well, with the majority experiencing average balance increases. Commercial deposits also showed strength, with a notable increase in average balances across money market and non-interest-bearing checking. The overall share of non-interest-bearing deposits to total deposits remained within our expected low 30% range. The commercial bank continued a five-quarter trend of growing total client liquidity on and off balance sheet, reflecting strong client retention and acquisition. Favorable business profitability and healthy liquid balance sheets combined with our bankers' efforts have helped us capture available opportunities. As a result, we are increasing our expectations for full-year average deposit balances. We now expect average deposits to be up low single digits versus the prior year. Let's shift to net interest income. Net interest income was relatively stable linked quarter. After adjusting for elevated income in the second quarter, associated with a large credit-related interest recovery and fluctuations in hedge-related income, net interest income grew modestly, benefiting primarily from new fixed-rate asset originations and reinvestments in today's elevated rate environment. Interest-bearing deposit cost increased two basis points in the third quarter due in part to growth in market rate corporate deposits, coupled with a muted quarter for CD maturities as previously discussed. The low absolute level of deposit cost continues to highlight Regions Financial Corporation's competitive funding advantage and its benefit through cycles. The net interest margin declined six basis points. In addition to the nonrecurring items from the second quarter, the margin was negatively impacted by day count, as well as elevated cash levels that were slightly above our long-term target. Looking ahead, we expect the net interest margin to rebound into the mid-360s in the fourth quarter, providing positive momentum into 2026. Growth in net interest income and margin are expected to resume from fixed-rate asset turnover, additional securities repositioning performed late in the third quarter, prudent funding cost management including lower deposit pricing, and modest loan growth. The strength of our balance sheet positioning is evident as expectations shifted to a declining Fed funds environment. We believe net interest income remains well protected from lower short-term interest rates with a neutral position when combining our floating rate product mix, prudent hedging program, and ability to manage deposit costs. To remain relatively neutral to changes in Fed funds, we target a mid-30s interest-bearing deposit beta. We remain confident in our ability to achieve the beta target through the repricing of our market price and index deposits. Additionally, we have the opportunity to further reduce CD rates as maturities escalate in the fourth quarter. Tactics to reduce deposit costs are well underway, and we expect a meaningful decline in the fourth quarter. We now expect full-year 2025 net interest income to grow between 3-4%. Now let's take a look at fee revenue performance during the quarter, which is a really good story for us. Adjusted non-interest income increased 6% linked quarter as we achieved growth in several categories. Service charges increased 6%, driven by increased account openings, seasonally higher activity, and one additional business day in the quarter. Capital markets income excluding CBA increased 22% compared to the prior quarter, representing a new record. The increase was driven by higher M&A advisory activity, commercial swap sales, loan syndications, and debt underwriting activity. With respect to the fourth quarter, we currently expect to be in the $95 million to $105 million range. Wealth Management delivered a third consecutive quarter of record-setting income, driven primarily by elevated sales activity and favorable market conditions. With respect to full-year 2025, we now expect adjusted non-interest income to grow between 4-5% versus 2024. Let's move on to non-interest expense. Adjusted non-interest expense increased 4% compared to the prior quarter. Salaries and benefits increased 2%, reflecting higher than anticipated health insurance-related costs, higher revenue-based incentives, and growth initiative-related hires. Year to date, higher than anticipated health insurance-related costs as well as market value adjustments on employee benefit assets have pressured our full-year expense expectations. We now expect full-year 2025 adjusted non-interest expense to be up approximately 2%, and we expect to generate full-year adjusted positive operating leverage at the lower end of the 150 to 250 basis point range. Regarding asset quality, annualized net charge-offs as a percentage of average loans increased eight basis points to 55 basis points and reflect solid progress made on resolutions within certain previously identified portfolios of interest which were already reserved for. Business services criticized loans improved significantly during the quarter, decreasing almost $1 billion or 20%, while nonperforming loans decreased 2% with the NPL ratio declining one basis point to 79 basis points. As a result of the significant improvement in Business Services criticized loans, and the overall decline in NPLs, as well as the solid progress made on resolutions within certain stress portfolios, the allowance for credit losses decreased $30 million during the quarter. The resulting allowance for credit loss ratio was reduced two basis points to 1.78%, while the allowance as a percentage of NPLs actually increased to 226%. We now expect full-year net charge-offs to be approximately 50 basis points and expect losses to remain elevated in the fourth quarter as we continue to resolve credits in the portfolios of interest. Importantly, we have reserved for the remaining anticipated losses associated with these portfolios. Let's turn to capital and liquidity. We ended the quarter with an estimated common equity Tier 1 ratio of 10.8% while executing $250 million in share repurchases and paying $235 million in common dividends during the quarter. When adjusted to include AOCI, Common Equity Tier 1 increased from 9.3% to an estimated 9.5% quarter over quarter, attributable to strong capital generation and a reduction in long-term interest rates. We expect to manage common equity Tier 1 inclusive of AOCI at this approximate level going forward, which should provide meaningful capital flexibility to meet proposed and evolving regulatory changes while supporting strategic growth objectives and allowing us to continue to increase the dividend and repurchase shares commensurate with earnings. As John Turner indicated, we are pleased with our quarterly performance, particularly given the evolving market dynamics. And we believe we are well-positioned regardless of market conditions. This covers our prepared remarks. We will now move to the Q&A portion of the call. Operator: Thank you. Our first question comes from the line of Ken Usdin with Autonomous Research. Please proceed with your question. Ken Usdin: Good morning, John Turner. Morning, everybody. So I just wanted to level set and just make sure we are very clear with everybody that it was the stuff you had set aside, David Turner, that you ended up with, that was stuff you have been talking about for a long, long time, and it looks like underneath that, once those are resolved, just can you just give a good update for how you are seeing, any other portfolios that you are watching obviously, the tone that we are talking about this week across the group? Thanks. John Turner: Yes. Ken Usdin, this is John Turner. I would say we have identified office and transportation as portfolios of interest for quite some time and the charge-offs predominantly the charge-offs you saw in the third quarter related to office. We expect to resolve some additional credit exposures either at office or transportation in the fourth quarter, which is why we are guiding to continued somewhat elevated charge-offs. But still feel good about long term our guidance of 40 to 50 basis points. Significantly, if you look at just credit quality overall, we had over $900 million in reductions, almost $1 billion in reductions in classified loans during the quarter. Some portion of that was a result of upgrades and in fact we saw more upgrades than downgrades for the first time in a number of quarters. Significantly more upgrades than downgrades, I would say. And importantly, we had significant payoffs in the portfolio during the quarter as well, which resulted in the pay downs. And that improvement was across a variety of categories. It was in office. It was in transportation. Some of that was the result of the resolution of some of the problems that we have. We also saw improvement in technology in that portfolio and in generally in multifamily, where the biggest amount of improvement was seen in the portfolio. So good trends. Nonperforming loans, down modestly. We would expect that trend to continue as we resolve matters in the fourth quarter and potentially in the first. The only other area that we are seeing maybe a little elevated risk is in telecommunications where we have had some exposures related to just the changing dynamics in the television media industry. Again, that we would say is overly significant, but if we are watching another portfolio, that would be likely be it. Feel good about our exposures to non-depository financial institutions. Almost 40% of our exposure is in our REIT portfolio, which is a legacy business something we have been involved in for quite some time. It is a relationship business, generates significant deposits. Capital markets fee income for us. It is very low leverage. And has performed really well. Very good credit quality has demonstrated over a long period of time. The balance of our NDFI business is pretty well distributed. There are no significant concentrations of any kind. Business is managed by bankers with a good deal of experience. And in many cases, also involves our asset-based lending group we call Regions Business Capital, which is trained and routinely monitors customer accounts asset quality, etcetera. So we feel really good about our NDFI exposure. Very limited, not a lot of private not a lot of direct private equity exposure, I would say. Ken Usdin: Appreciate all that color. So one more point on that loan point you made that there has been some continued, like you said, paydowns in a bunch of the portfolios. So how close are we to getting what you would anticipate to be the bottom just looking at a bunch of the ending period balances and also just noting that C&I was a little bit lower this quarter, probably in part to what you were just speaking to. Thanks. Yes. I think in David Turner's John Turner: prepared comments, said we would expect another 300 plus or minus million dollars in pay downs related to exit portfolios. The good news is if pipelines are up 100% year over year. They are growing significantly. Production is up a little less than 20%. Year over year. So we feel good about what we are seeing. Unfortunately, line utilization is down 70 plus basis points. So still have a lot of liquidity. That is reflected customers do, and that is reflected by the deposit growth we have seen. In our Corporate Banking business. And until customers use some of that liquidity excess liquidity, probably not going to see a real increase in line utilization, but we are prepared for it. And we continue to grow new relationships to grow existing relationships. And that is, I think, demonstrated in the increase in commitments we are seeing and in pipeline activity. So we are optimistic about 2026 and what we will see based upon the experience we are having today. And Ken Usdin, just to be clear, the $300 million we think will get dealt with this year. So that we start '26 and we are ready to go. And grow. Ken Usdin: Great. Thank you. Operator: Our next question comes from the line of Scott Siefers with Piper Sandler. Please proceed with your question. Scott Siefers: Good morning, John Turner. Good morning. Thanks for taking the question. Just want to follow-up just a little just just so I make sure, I understand kind of what is being reduced. When you make the comments about portfolio shaping, are those did those indeed align with what you would characterize as sort of portfolios of interest on the credit side? In other words, the stuff that you are charging off, is that also the stuff that is where we are, getting those balance reductions or are those, like, mutually exclusive? John Turner: No, it would be a combination of both. I think saying balance reductions in some categories where we had identified credits as having some weakness, so they were not necessarily in our portfolios of interest. An example of that would be maybe multifamily, where we it was a portfolio we were observing, but we did not feel there was any risk of loss in that portfolio as absorption rates have improved. As projects have stabilized and moved from construction to lease up or lease up stabilization, we have been able to upgrade those credits, and that has had a positive impact on the multifamily portfolio. On the other hand, we did have some charge-offs in apartment and in transportation, which in part led to some of the reductions that we experienced. But the big change was leverage lending portfolio, that $900 million year to date is where that predominantly came from. Scott Siefers: Okay. Wonderful. Thank you for that clarification. And I guess regardless, it sounds like we are getting to a point where you enter next year kind of free and clear anyway. So but, nonetheless, appreciate that. And then John Turner, just a broader strategic question. You have been pretty clear that you all would rather focus internally than engage in M&A. Just curious if your thoughts have changed now that you have a smaller competitor in your footprint getting much larger and then one of your category four competitors making it way into category three with a deal of its own. Any change now that the ground is shifting a little in your thinking at all? John Turner: No. Our position has not changed. I would say we have great confidence in our strategic plan. We have been focused on executing it. Over the last seven, eight years, and it has produced awfully good results for our shareholders. We have, we think, really great bankers. We are in really good markets. Our opportunity is to continue to grow from the present that we have. We are certainly aware of all that is going on in the market marketplace. We continue to follow the activity and we challenge ourselves from time to time about whether or not we ought to be more interested in depository M&A. But today, we continue to believe that it is disruptive, that it takes your focus off of executing your business on a day-to-day basis. And so would say that we are completely focused on the execution of our strategic plan. And we will continue to maintain that position. Recognize that always going to do what is in the best interest of our business and our for our shareholders. Today, we think that is executing our plan. Scott Siefers: Understood. Okay, perfect. Thank you all very much. Operator: Our next question comes from the line of Steven Alexopoulos with TD Cowen. Please proceed with your question. Steven Alexopoulos: Hey, good morning, John Turner. Good morning. Morning. I was start on the margin first. So you are guiding to a mid-three sixties. In the fourth quarter to give you one of the highest margins in the industry. I am looking at Slide six which says you are mostly neutral to rate. So does that mean that if the Fed is cutting rates, can hold them steady from that? But continue to see NIM expansion from this mid-three 60 level given the success of turnover you are calling out on the same slide? David Turner: Yes. So this is David Turner. So right now, front book, back book benefit is about 125 basis points if you average out loans and securities. That is down from the second quarter because primarily the ten year coming down. But we still see some benefit there. Our beauty of our hedging portfolio is to protect us. As rates come down. So we still have negative carry in our derivative portfolio, our hedging portfolio. It gets less negative as rates come down. So that is why we have confidence that we have been able to have a pretty resilient net interest margin regardless of what rate environment that we have. We clearly had a higher margin last quarter. We have tried to provide and remind everybody what we said on the call last time had some one timers that boosted that about three to four basis points that did not repeat. So we put on Page five to try to help walk that forward. And but yes, we have pretty good confidence that we are going to grow 1% to 2% in net interest income. And if you look at of where we think your earning assets will be, that should produce a margin and getting close to the mid-360s. Steven Alexopoulos: Okay. That is helpful. And then on the positive operating leverage, I know you are saying it is going be the lower end of the 150 to $2.50 range. And you are taking the adjusted expense outlook up to the upper end of the 1% to 2% range, The question is, should we assume that the increase in the expense outlook is sticky here, just given inflationary impacts? And as we look forward, there is more of a element to expenses which is going to restrict your ability to drive more material positive operating leverage. David Turner: Well, if you look at, so we do not adjust our a age asset number. That was about $12 million. We tried to show you there is $12 million in NIR and there is an $12 million in NIE. They offset. But when you are looking at percentage change for positive operating leverage, which is the percentage change in revenue less percentage change in expense, it affects you there. We cannot undo what is happened. And so all it is is a recognition of where we are through nine months. We have really good expense controls. We feel good about where our expenses will be in the fourth quarter. And we are giving you the guide for the fourth quarter assuming our HR asset thing is zero. We because we do not know if what is going to happen with the market could go up or down. So, in some regards, we would like to adjust for that, but that is frowned upon. So what we do is we show you both sides so that you could do your own math. And that is all this is. There is no runaway inflation. There is no cost that we cannot deal with appropriately. And listen, we are going to have approximately 2% increase in cost for the year. Pretty good. And nice operating leverage. So we feel good about our expectations for the fourth quarter. Steven Alexopoulos: Okey dokey. Thanks for taking my questions. Okay. Operator: Our next question comes from the line of John Pancari with Evercore. Please proceed with your question. John Pancari: Hey, John Turner. Good morning. John Turner: Good morning. John Pancari: So back to the charge-offs and the resolutions that you are working through, just for little bit more color there, is this more a function of a more proactive posture by Regions Financial Corporation to address some of these lingering and, you know, previously identified issues or is it more a function of borrower progression that they are now at the point where you can quantify the loss content and then address them. John Turner: Yeah. Typically, John Pancari, it is the latter. Mean, you just work on something until you cannot work on it anymore. Or until the borrower does not have any capacity to continue to support the loan or the borrower makes some decision that potentially is adverse to potential collection of the credit. Then we are in a position to resolve it. Each case is different. And timing has a lot to do with recognition of loss. In this case, we just had a number of things come together in the quarter. John Pancari: Okay. Got it. Thanks, John Turner. And then secondly, also on related to this, I guess, back to the portfolio shaping efforts around the exit portfolios. If I could maybe ask Scott Siefers's question another way, How much of the rationale in these portfolio shaping actions is driven by the rate environment and the backdrop versus the credit risk dynamic? John Turner: I would say it is driven both by our credit risk appetite and returns. We have going back to 2015, really focused on capital allocation. Think that has been one of the hallmarks of our success and the execution of our plan. And so we are aligning our credit risk appetite with expected returns in portfolios. And we will occasionally originate a credit believing that we have the opportunity to expand the relationship. As we look back on that, we conclude after two or three years that we were wrong, there was not a path to expand a relationship. And so we choose to exit. There are also situations where we just look at the overall profile of a portfolio or relationship and decide that the credit risk is more than we want to take. And so much of what we have been executing is part of a leverage portfolio that was primarily based on enterprise value lending and assumptions, and we have just do not believe that is a place where we want to be at this point. So we have chosen to exit a number of those relationships. John Pancari: Got it. And if I could just ask one more related to that. What is the risk that or the potential that you flagged the remaining $300 million that you are working through, what is the potential that it could continue to increase even after that and be more of a growth headwind? Or anything as you look at? John Turner: That is what we have identified. And we have an ongoing rigor around looking at relationships and portfolios. So today, that is our best advice and guidance. We do not anticipate any significant additional reductions, but I would say that one of the things that we feel really good about is again, the rigor and the process around to think about capital allocation and returns on that capital. So six to twelve months from now, we might identify something else that we decide we want to trade out of. All the while, we are improving returns on capital that our shareholders are giving us to deploy into our business. So again, we think our if you look at our track record, served us awfully well. And John Pancari, I will add. Sometimes a customer business model will change after we have provided credit to them, and that business model change is not consistent with our expectations and our under our original underwriting and return expectations change we will exit as a result of that. And so we have constantly been portfolio shaping. This particular year, it was just a little bit larger than it has been. And so to John's point, you will see it in 2026, but today, we do not anticipate it being at the level that you have seen in 2025. John Pancari: Got it. That makes sense. Alright, David Turner. Thank you. Thanks, John Turner. David Turner: Yes. Thank you. Operator: Our next question comes from the line of Dave Rochester with Cantor Fitzgerald. Please proceed with your question. Dave Rochester: Hey, good morning guys. On loan growth, I know you have had some investors point out that loan growth has been kind of hard to come by Regions Financial Corporation over the last year or two. But you lay out a really solid case here for some acceleration next year. With all the assets you mentioned, plus you have the banker expansion and the reskilling going on. And you are far along that plan there. So it seems like you might be pretty well positioned to grow maybe even faster than GDP in group next year once you kick out that $300 million. Is that the thinking at this point? Is that within the realm of possibility? John Turner: Yes. I think we have consistently said our expectations would be to grow our loan portfolio consistent with GDP in our markets plus a little bit. And we have real GDP right now, low. Around 2% That is baked in and we will give you guidance in terms of what our expectations is for low for what our expectation will be for loan growth later. But that is your you are framing that up kind of consistent with what we have been saying. Dave Rochester: Sounds good. Maybe just switching to credit real quick. Your comments earlier on the telecom book, How big is that exposure that you are looking at within that segment right now that you are maybe a little bit more concerned about? John Turner: Total is about $700 million. So not relatively speaking, not significant. Dave Rochester: Great. And then one last one on credit. It is a pretty meaningful move lower. Obviously, to see the reduction in criticized loans. You guys have done a lot of work on that front on derisking in the portfolio. I know you talked about NPAs continuing decline. Are you looking at maybe more steeper declines over the next few quarters to given everything you are seeing and all the work you have done? John Turner: I think you can assume that, although reluctant to give too much guidance there because, again, the timing of when we resolve credits has a lot to do with ultimately what the level of NPAs are. Yes. But you can assume if criticized loans came down by almost $1 billion the trajectory is positive. Yes. As a result, our 1.78% loan allowance ratio should over time as we work through the charge-offs, which we have reserves for, you would see our reserve trickle down closer to that 2019 kind of day one CECL of 163. I think we show that on one of our pages in our deck. I think it is Page 40, something like that. Yes. Dave Rochester: Sounds good. Thank you very much. John Turner: Thank you. Operator: Our next question comes from the line of Gerard Cassidy with RBC. Please proceed with your question. Gerard Cassidy: Guys. You guys do not have a dog in this fight. So I am asking this more from a theoretical point of view. These issues we are seeing with some of your peers in the regional bank space on fraud. Can you share with us from your experience when fraud happens, is it driven more because the people that are running the organizations are crooks or is it more that the underlying fundamentals really deteriorate and the first action they may take is to kind cover it up with fraud, which eventually leads to a bad outcome. Do you guys have a sense from just your experience when you go back a number of decades how this kind of develops? John Turner: Gerard Cassidy, first of all, I certainly do not want to speak for and I know you did not ask this question, but for any other institutions. I will just speak about my experience. Over forty now, I think, three years in the banking industry, most of that is a commercial banker. I think it is both. Occasionally, you will get in business with someone that is a crook from the get-go. In other cases, the business deteriorates. The owner or the sponsor does not know what else to do. They think just like anybody that embezzles typically, they think they are going to pay it back. And I think it is true of people that get involved with fraud and double pledging assets and those kinds of things they think they can resolve the matter over time and ultimately, they cannot. So my experience has been both. That is why we focus so intensely on client selectivity. Knowing who we are banking and doing business almost exclusively in our footprint. Because that is the best way to know who you are banking to observe on a regular basis how your customer is doing and to ensure you are on top of what is going on with the exposures? Very good. Very helpful. Thank you. And then coming back to your earlier comments, John Turner, about your deposits and I think deposit market share from the FDIC data. There has always been a concern that the big trillionaire banks are going to take advantage of deposits from the regional banks. Obviously, you are not seeing that. Can you share with us the strategies you are using that you have seen your success in deposit growth and maybe Eli, some of the fears that some investors have that regional banks are not going to be that competitive against these trillionaire banks? Yes. Thank you for the question. We have been in a lot of the markets that we are in for one hundred and fifty million one hundred and sixty, one hundred and seventy plus years. We are the hometown bank in so many places. We have a well-known brand, well-known bankers. Believe in our people and think they do a great job. We continue to make investments in technology to ensure that we are providing customers with access to banking any way they want to bank. We continue to focus on how we use the data we have and the technology that we offer to provide personalized unique ideas and solutions to help customers. I think all those things, Gerard Cassidy, are really, really important. Combine that with our focus on customer service, and the great job our bankers do building brand loyalty. And we are continuing to grow consumer checking accounts across our footprint. And that is a challenging aspect of what we do. We are a relationship bank, and we live that. And I think it as a result, we feel good about our ability to continue to compete with the larger banks. There are lots of smaller banks who are coming into our markets as well. And then non-banks, I think we are in a good position. We are going to continue to leverage our brand, leverage our footprint, and we believe we can continue to be very competitive and grow. David Turner: Sure. I will add one thing. I get a lot of questions about branches and we clearly have more branches on a relative basis than almost anybody. And the reason for that is we are in a lot of towns inside of our four states that we operate in. So when we see people moving into the Southeast, for instance, it depends on where they are going. They are coming to the larger major metros. And so we will compete for deposits based on service, as John Turner just mentioned. But we are not seeing that type of competition move in in the smaller towns. It is just cost prohibitive. I do not think people would do that. We have been in these little markets for a long, long time. When you are in these small markets, you have to have a physical point of presence, which is why we have as many branches that we do. So, we can continue to compete. Two-thirds of our deposits are consumer non-interest-bearing deposits that are based on how we serve our customers. And if we continue to do a good job there, we get a high promoter score and a lot of loyalty. From that customer base. Gerard Cassidy: Very good. Thank you, gentlemen. John Turner: Thank you. Operator: Our next question comes from the line of Ebrahim Poonawala with Bank of America. Please proceed with your question. Ebrahim Poonawala: Good morning, David Turner. Hey, morning, David Turner. I just wanted to follow-up. When we think about just the expense growth this year, 2% means you have best in class, ROE. Just remind us, you started this, I think, a year ago. In terms of just the investment spend. And to what level do you think you could see, like, investment spend pick up be it branches? You obviously have a big technology conversion coming up. And kind of how are you thinking about growth versus the ROE math whether better growth for a slightly lower ROE would be okay. Just would love your thought process there. David Turner: Well, to your point, we continue to make investments in our technology initiative. That is kind of in our run rate. We do not expect that to change materially. Year on year. We have made investments in bankers, and we will continue to do so in particular in those eight priority markets that we have listed. It is important for us it is a great question because it is a good challenge in terms of how much money can we invest today without having too much negative impact on our return. The return on tangible common equity is critically important to us. John Turner mentioned it 2015. We became fixated on capital allocation because we think having an appropriate return correlates real tightly to your share price, and that is what shareholders want you to do. That being said, we want to grow, too. So we are trying to be balanced in terms of how much investment we make while keeping the returns relatively high. And so we have begun to invest in our network and marketing and things of that nature to change a little bit of the growth trajectory. You should see us grow things like small business relationships, which will come with deposits. Not really as much in loans, but deposits. Which is the fuel for how we really make money going forward. So as loan growth picks up, we want the good core low-cost funding to be right there with it. And that is why we started making the like you said, about a year ago, and we will continue that into 2026. Ebrahim Poonawala: Got it. Thanks for that. And then just one on capital and you have the slide 11 where you talk about just the puzzle endgame. As you look forward on changes on the regulatory and supervisory front, anything in particular that would help you in terms of how you are running the business or the balance sheet, and could that cause any changes even at the margin, on the capital liquidity growth? David Turner: Well, you know, things like the long-term debt thing, we hope is gone. That is to prevent us from having to issue more expensive long-term debt. So that is positive. The Basel III, where it was going until right at the very end when it kinda got pushed off, was going in a way that was reasonably helpful to us. RWAs were going to come down a little bit. As the gold plating was removed. And that being said, the AOCI component there is a chance it does not cover a category four like us. We have given you the numbers assuming it is in there, but it may not be. We also have to consider rating agencies. That is important too. And they are trying to figure it out as well. We have seen other larger institutions talk about capital targets that are real close to where we are, and we are trying to figure out how what the new regime is going to be. We think we are in a good spot and we have a lot of optionality with capital because we are already there at 9.5% with AOCI. And could there be some incremental benefit could be, but we are not counting on that. If it works to our favor, then we will take advantage of it as we see it. Ebrahim Poonawala: Helpful. Operator: Our next question comes from the line of Chris McGratty with KBW. Please proceed with your question. Chris McGratty: Good morning, David Turner. Good morning. Going back to the deposit betas, I think it was the mid-30s comment. Is it feels conservative to me, I guess, maybe in your view there. Is it an element of conservatism or is it an element a bit of, like, protecting your market, some of the larger banks coming in? David Turner: What we are trying to do is tell you what our guidance is based on. And our guidance is based on that 35% beta. We clearly were higher than that going up, and we would expect over time that we would get the 43% beta that we had back. But that will take some time, and we do not want to commit to that because we do not want it to be time-based. We feel fairly confident we can have a 35% beta. And with that, has a nice, continued growth and a resulting margin. As a result of it. So we have a chance to outperform. On that front. We are a little we are at 32%, 33 right now. Have a big CD maturity quarter coming up in the fourth quarter, which gives us confidence on that 1% to 2% NII growth and margin growth. But, and we expect that to result in a cumulative beta pushing on 35%. At that time. If we get a little bit more, then everybody will be happier. Chris McGratty: Understood. Perfect. And my follow-up I think you were pretty clear about your capital priorities. If and when the situation changes and inorganic growth becomes more likely, is that a situation where you think you would have to communicate that change to the market before? Or do you kind of think what you said publicly is sufficient? Thanks. John Turner: Well, I think we always want to keep our options open. But and as I said earlier, M&A is not part of our strategic plan today. We feel really confident in our strategic plan. We have to run the business for the benefit of the business and the shareholders. Things change. I do not know how we necessarily signal that anymore. Than providing the perspective that I just have. Chris McGratty: Okay. Thank you. Operator: Our next question comes from the line of Betsy Graseck with Morgan Stanley. Please proceed with your question. Betsy Graseck: Good morning, David Turner. Morning, Betsy Graseck. Hey. So I had two quick questions. One is on the CD roles that are coming in the coming quarter. Can you give us a sense as to the NIM impact there or basis point impact in deposits? David Turner: Well, it is $5.5 billion and really just depends on what happens with rates there. And that is a big driver of our improvement from $359 million to the mid-360s. We also have some back book opportunities to change as we go through time. So, we are trying to shortcut the math for you. And tell you that is the driver probably the single biggest well, that and the front book, back book. Repricing. Those are the two big drivers of getting to the mid-360s. Betsy Graseck: Alright. Thanks. And then separately, how should we think about the NIM NII outlook in an environment where the Fed is cutting slowly 25 bps a meeting, versus more rapidly, call it 50 bps a meeting for a little bit. David Turner: Well, when you go rapidly, it takes time to reprice things so that that will hurt your NIM in the short term and you will catch up later. If it goes slow enough where you can reprice appropriately, then that helps you maintain a little more stable net interest margin. And that is the beauty of what we have done, because we can change our pricing. We have our hedge portfolio that is protecting us. So as rates continue to come down, that negative carry that we have today will dissipate. Or decline helping us support net interest income and the resulting margin. And that is why we have a fairly stable margin at just about in any interest rate environment especially if the Fed moves at a moderated pace. It is the quick pace up and down that poses risks to a given quarter's excuse me, a given quarter's net interest income and margin. Because you just cannot go reprice time deposits immediately. It takes time to work through it. Betsy Graseck: Alright. Great. Thank you. Operator: Your final question comes from the line of Christopher Spahr with Wells Fargo. Please proceed with your question. Christopher Spahr: Good morning, David Turner. Thanks. Hi. Good morning. Thanks for taking the call. So I just want to think about the salary and comp outlook as we kind of exit the fourth quarter. So if you look at average head count for the year, it is pretty much flat. It is kind of creeped up a little bit. On the end of period basis, but average is about flat. And yet, comped for the full year or year to date is up 4%. So, you know, how do you kind of take that into account for as we kind of exit fourth quarter, and how does that kind of relate to some of your investments? And maybe some of the tech benefits that you expect over time with all the investments you have already made? Thank you. David Turner: Yeah. So we do not see a huge change in head count. We are making investments in client-facing people. In all of our businesses. We are looking to have savings on headcount through natural attrition, by leveraging technology and process improvement. And we have been reasonably effective at that. We have an opportunity, I think, to move that up quite a bit when you talk about artificial intelligence and things of that nature, I think, can be helpful. Are in the formative stage of that. So how much we can change, we are not going to go there just yet. But we do not see any big change in salaries and benefits. We generally start with about a 2.5% to 3% baked in salary increase across kind of across the board. Some are higher, some are lower. That is generally how it has been working, and we do not see that changing. For 2026 at this point. Do you want to make sure that you know that, that HR asset valuation, which is offset in NIR, is in that salary and benefit line item. So when you are calculating your averages, need to take that out because that can skew the numbers a little bit too. Christopher Spahr: Thank you. John Turner: Okay. Well, thank you all. Appreciate your interest in our company, and hope you have a good weekend. Operator: This concludes today's teleconference. You may disconnect your lines at this time.
Operator: Good day, and welcome to the Independent Bank Corp. Third Quarter 2025 Earnings Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Before proceeding, actual results may differ materially from these statements due to a number of factors, including those described in our earnings release and other SEC filings. We undertake no obligation to publicly update any such statements. In addition, some of our discussion today may include references to certain non-GAAP financial measures. Information about these non-GAAP measures, including reconciliations to GAAP measures, may be found in our earnings release and other SEC filings. These SEC filings may be accessed via the Investor Relations section of our website. Finally, please note this event is being recorded. I would now like to turn the conference over to Jeffrey Tengel, CEO. Please go ahead. Jeffrey Tengel: Good morning, and thanks for joining us today. I'm accompanied this morning by CFO and Head of Consumer Lending, Mark Ruggiero. We had a busy third quarter. We closed on the enterprise on July 1 and completed the systems conversion this past weekend. We posted solid financial results and continue to make progress on several of our strategic initiatives. Results for the third quarter reflect continued NIM improvement, strong C&I loan growth, solid growth in low-cost deposits, lower credit costs, and the beginning of the realization of cost savings from the Enterprise acquisition. Our PPNR return on average assets was 1.7% on an operating basis, and our operating return on average tangible common equity improved 283 basis points to 13.2%. I wanted to focus most of my comments on the enterprise integration and conversion. Before we get into some of the specifics, I would like to highlight one important difference in this transaction. The typical pattern in most of the acquisitions I've been involved in is for the acquired CEO to get a big payday and ride off into the sunset. In the case of Enterprise, their former Chairman and Founder, George Duncan, remains actively involved as an advisor to our Board, chairs the newly created Lowell Advisory Board, and continues to be an advocate for Rockland Trust and the community. There are several other senior executives from Enterprise who also continue to be a resource and advocate for us. The involvement and insights provided by George and his colleagues have been invaluable as we bring these two banks together. Simply put, they care. Regarding the integration, things went extremely well. We've had great collaboration between the teams post-close and the lead-up to the systems integration and conversion that took place this past weekend. While it's still early, we think the conversion went exceptionally well. Many colleagues across various business lines commented on how this transaction differed from others they were involved in. The level of teamwork and appreciation for what each side brought to the table was a common theme across many I spoke with. For Rockland Trust colleagues, we have been open to acknowledging ways in which the Enterprise Bank did things differently and perhaps better. We have already adopted some practices and approaches from Enterprise. On the commercial banking side, we've retained almost 100% of client-facing personnel and have experienced negligible customer loss. Obviously, keeping the lenders has helped retain the customers. The Enterprise lenders are fully embracing Rockland Trust's diverse lending product set as well as our treasury management and fee income offerings. As evidence of this engagement, Enterprise Bankers' originations for the third quarter this year were 27% higher than the prior year period. This is a testament to my comment last quarter where I highlighted our similar credit culture. As such, there has not been the typical transition period where the acquired bankers must figure out where the new bank's credit appetite is. A key initiative going forward will be to continue to cross-sell deeper into this enterprise customer base. On the retail banking side, it's important to emphasize that no Enterprise branches were closed and all Enterprise branch employees were retained. There are many strategic and tactical methodologies that we have found to be beneficial, and we'll be working to incorporate those at Rockland. These include incentive plans, position responsibilities within a branch, and de novo branch openings. Excluding brokered funds, deposit retention at Enterprise has been better than expected. We are also eager to bring our broader consumer lending product set to this market, with early activity indicating the team is well-positioned to introduce both mortgage and home equity offerings to further support these strong communities. Within our investment management group, we've been able to retain all employees we had targeted. The caliber of talent, the strength of the client base, and the depth of relationships between colleagues and clients are outstanding. At both Rockland Trust and Enterprise, a client-centric focus and the cultural integration has been excellent. In summary, success is driven by having talented and engaged employees. It was great to note that over 90% of Enterprise employees who had a job offer extended accepted that offer. We can't be more excited about the merits of this transaction. Shifting gears a bit to the general business conditions in the current environment, we can now add the government shutdown to the existing list of tariffs, government funding, inflation, and unemployment that weigh on clients' minds. Overall, the word I think our clients would use to characterize all this is uncertainty. Yet our client base remains resilient. The recent AIM poll, which is the Associated Industries of Massachusetts, showed that their Massachusetts business confidence was in the high 40s, right where it's been for the last five months. A score of 50 is considered negative. Of note, the poll was taken prior to the government shutdown. Turning to results at Independent Bank Corp., I would like to touch on just a few financial highlights before I turn it over to Mark. First, 13% annualized rate. This represents continued strong performance in our legacy markets like Plymouth County, coupled with some of our newer initiatives maturing. Second, commercial real estate loan balances declined organically at a 6.7% annualized rate due to normal amortization and the intentional reduction of transactional CRE business. We've talked in the past about getting our CRE concentration below 300%. As expected, the Enterprise acquisition resulted in our CRE concentration increasing. However, the quarter-end number landed at 295%, indicating we have quickly met our challenge to get our concentration below 300%. Despite this, there remains additional transactional CRE we wish to exit as quickly and as economically as possible while still serving our legacy client base. In all, we see a clear path for the bank to return to a rate of loan growth more commensurate with our solid deposit growth. Third, we think generating organic demand deposit growth of 5% annualized in the third quarter, which has been a historical strength of ours. DDAs represent a healthy 28% of overall deposits, about where we were pre-pandemic. In the third quarter, the cost of deposits was 1.58%, highlighting the immense value of our deposit franchise. Lastly, our wealth management business continues to be a key value driver. We grew our AUA to $9.2 billion in the third quarter, inclusive of the $1.4 billion acquired from Enterprise. Now that we have the Enterprise conversion behind us, we will continue to prepare for our core conversion of the entire bank scheduled for May '26. The move to a new platform within the FIS ecosystem will improve our technology infrastructure, enhance efficiencies and scalability, and support the future growth of the bank. We think third-quarter results are an important stepping stone to improve growth and profitability for Rockland Trust. We expect to build off these solid results in the quarters ahead. We believe prudent expense and capital management, continued NIM improvement, the realization of the benefits of the Enterprise acquisition, and improved organic growth will unlock the inherent earnings power of Rockland Trust. On that note, I'll turn it over to Mark. Mark Ruggiero: Thanks, Jeff. As Jeff just hit on a lot of the key drivers for the quarter, I will go into a bit more detail in a few areas, focusing primarily on the Enterprise acquisition, some of the big moving pieces during the quarter, and expected trends going forward. To summarize the quarter results, 2025 third-quarter GAAP net income was $34.3 million and diluted EPS was $0.69, resulting in a 0.55% return on assets, a 3.82% return on average common equity, and a 5.84% return on average tangible common equity. Excluding $23.9 million of merger and acquisition expenses, and $34.5 million of day two CECL provision for non-PCD acquired loans and their related tax impacts, the adjusted operating net income for the quarter was $77.4 million or $1.55 diluted EPS, representing a 1.23% return on assets, an 8.63% return on average common equity, and a 13.2% return on average tangible common equity. I'll start with some of the key metrics that are heavily impacted by the Enterprise acquisition. First, in terms of a capital update, a reminder, we originally estimated the Enterprise deal to result in 9.8% tangible book dilution. Including estimated M&A to be incurred in the fourth quarter, we pegged actual tangible book dilution right around 7% as the loan interest and credit marks came in lower than originally modeled. As such, we anticipate slightly lower earnings accretion than originally modeled as well. In addition, we repurchased $23.4 million capital at an average price per share of $64.07 during the quarter. Despite the deal impact dilution and repurchase activity, our improved earnings profile and OCI movement resulted in a tangible book value per share decrease for the quarter, of only $2.17 or 4.5% while the tangible book value per share is up modestly over the year-ago metric. Regarding the net interest margin, the reported margin improved meaningfully to 3.62% for the quarter. The 25 basis point increase from the prior quarter can be summarized by highlighting a few key components. First, both the Rockland Trust and Enterprise Bank balance sheet profiles are well-positioned to experience margin growth from loan and securities cash flow repricing, and we saw that drive a good portion of the increase this quarter. In addition, though it has negligible impact on the actual net interest income results, the margin also improved slightly by the payoff of approximately $110 million of acquired debt from Enterprise. The margin also expanded approximately five basis points due to purchase discount accretion on the acquired securities book. And lastly, saw approximately eight basis points of expansion from purchase loan accretion. Regarding this last item, we recognize that the loan accretion results are less than suggested in our guidance last quarter. I would suggest that this is purely a timing issue. The total accretable loan interest and CreditMark is approximately $160 million, and we will expect the vast majority of that to come in over the next five to seven years. However, we remind everyone that the actual results can often be lumpy due to prepayments, individual loan payoffs, and repricing events. As long as longer-term rates remain intact, we are confident that our reported margin will sustain and will reflect a sustainable level as those accretion numbers roll down. With the Federal Reserve cut occurring in mid-September, the quarterly results had very little impact from the Fed action. We continue to reiterate our guidance that the bank is positioned to see little impact on the net interest margin from the recent and any future Fed cuts. Shifting gears to loan and deposit activity for the quarter. We are very pleased with the organic results for the quarter. As Jeff just alluded to, you saw our strategic initiative to focus on relationship CRE and C&I lending on display. As total C&I balances increased organically over 13% on an annualized basis for the quarter and are up over 7% through the first nine months of the year. In addition, we are still optimistic over CRE construction activity moving forward with the year-to-date declines driven primarily by runoff and workouts of more transactional balances. Specific to the Enterprise acquisition, our newly acquired teams are working off of the same playbook. Prioritizing C&I and relationship CRE, and they have not missed a beat remaining very active in the deal flow during the quarter. This focus resulted in a modest decline of approximately $45 million in total loan balances from the enterprise activity which was nicely offset by growth in the legacy Rockland book. Moving to the deposit side of the balance sheet, the story is equally positive. First, specific to the enterprise acquired balances, the third-quarter results reflected a decline of approximately $80 million. However, only $30 million of that relates to relationship balances. While $50 million reflected the payoff of a maturing brokered CD. And similar to the loan activity, the legacy Rockland deposit organic growth more than offset the enterprise-related reductions. Resulted in approximately 1% combined annualized growth for the quarter. Switching gears to asset quality. The quarterly results capture a few different moving pieces related to the allowance for loan loss and provision levels. High-level net charge-off activity was only $1.8 million for the quarter. Or four basis points on an annualized basis and overall asset quality metrics remain strong. To provide a little more color on the reported results, the allowance for loan loss increased $45.7 million for the quarter which includes $34.5 million of day two provision on non-PCD acquired loans, $9 million of carryover allowance on acquired PCD loans, and $4 million of core provision less charge-off activity. Total non-performing assets at September 30 are 0.35% of total assets and include approximately $25 million of acquired NPAs from Enterprise. And though no new to non-performing activity was up slightly from the prior quarter, no material loss exposures were identified in those recent downgrades. Rounding out the update on non-interest related items, we are pleased to report that both non-interest income and non-interest expense are right in line with expectations following the Enterprise merger. On the fee income side, as Jeff just mentioned, it's worth re-highlighting that the merger brought over an additional $1.4 billion in assets under administration. With the current quarter activity, total AUA grew to $9.2 billion as of September 30. On the expense side, I will highlight a few key items. First, we reaffirm our original guidance of achieving 30% cost saves on the acquired enterprise expense base. To be fully realized during 2026. Merger-related expenses totaled $23.9 million for the quarter and were comprised primarily of severance-related costs and professional fees. Amortization of intangible assets for the quarter was $7.3 million with $6.1 million related to the newly acquired intangibles from the Enterprise deal. And as Jeff mentioned in his comments, we are working through implementation efforts for a core system upgrade in May '26. We had little impact from this in the third-quarter expenses, though we do anticipate approximately $5 million of one-time costs to be incurred over the next couple of quarters. And lastly, the reported tax rate for the quarter stayed relatively consistent at 22.8%. I'll now just close out my comments with fourth-quarter guidance only as I will plan to give full-year 2026 guidance with our fourth-quarter results. In terms of both loan and deposit growth, we anticipate a low single-digit percentage increase off the September balances. Regarding asset quality, as I've been stating, we still do not see any pervasive issues across segments. And as such, provision will continue to be highly driven by developments of individual commercial credits. Regarding the net interest margin, we reaffirm and anticipate 4% to six basis points of expansion on an adjusted basis which excludes loan accretion impact, which as I noted before can be volatile on a quarter-to-quarter basis. For non-interest income, we estimate flat to the low single-digit percentage increase off the third-quarter results. And for non-interest expense, we anticipate total core expenses excluding merger-related costs and one-time conversion upgrade costs to decrease by approximately $2 million. This decrease represents a portion of the remaining enterprise cost saves expected to be realized. As some temporary salary costs will extend into the first quarter. Now, as I just alluded to earlier, with the enterprise core conversion behind us, we are ramping up efforts in preparation work for our upcoming core system upgrade. Which we estimate will result in approximately $3 million to $5 million of one-time costs during the fourth quarter. And lastly, the core tax rate for the fourth quarter is expected to be in the 23% range, further impacted by any one-time adjustments associated with finalizing the 2024 tax returns. That concludes my comments. And with that, we'll now open it up for questions. Operator: We will now begin the question and answer session. The first question comes from Steve Moss with Raymond James. Please go ahead. Steve Moss: Good morning, good morning, Steve. Hi, Steve. Nice quarter here and definitely a lot of moving pieces. Maybe just one thing to start here. I noticed in the deck you guys had said there was good C&I growth. Just wondering if you could quantify that number here as you're kind of hard with the merger noise. And then also just talk about the loan pipeline. Jeffrey Tengel: Yeah. So the C&I growth has been, as I said in my comments, really a function of we're really good at what we do and we've been doing it a long time, but it's really been in that kind of the lower middle market. And so we've continued to make progress there. As I mentioned in some of our legacy markets like Plymouth County, we've changed the incentives of the bankers there too and sent more C&I than CRE and with the balanced scorecard, C&I usually checks more of those boxes like with deposits and treasury management and such. So, we think that's part of it. And then we had, as I mentioned the last couple of quarters, we hired somebody to lead our effort in the middle market and in some of our specialty businesses and he's had an immediate impact. And the loans that his groups and that he are responsible for are all C&I and they tend to be a little bit bigger than some of the things we've done historically. And so that's really what's driving the C&I growth that we've been seeing over the last quarter or two. With regard to the pipelines, I'd say they're pretty healthy. I mean, haven't seen a dramatic increase or decrease. I think they've been somewhat stable with where they've been in the past. Obviously, kind of with the caveat that as you clear out portions of your pipeline with closings, you got to rebuild it a bit. So we've been experiencing that quarter to quarter. Overall, I think they've been pretty healthy. Steve Moss: Okay. Appreciate that color. And just curious, where is loan pricing you guys these days? Mark Ruggiero: Yes. I mean, still on a spread basis, Steve. We stay disciplined. We're still looking to get above 200 basis points on a spread, especially on the C&I side. Given where rates are today, as you can expect that tends to lead you to around 6%, low sixes. So we're always looking at staying disciplined to get the appropriate spread over whatever term we're funding. Jeffrey Tengel: Steve, one other comment maybe on our C&I exposure since I know it's a topic that we'll probably get asked about later is, none of the growth that we're talking about in C&I is coming in the NDFI space. So, don't have any specialty businesses that are geared to that space or have much in the way. We have a couple of one-off relationships with leasing companies where we provide a line to them. But it's incredibly modest and we don't have any of our initiatives pointed at that space. So, all of the C&I growth that we're talking about is all Eastern Massachusetts and it's all kind of middle market companies. Steve Moss: Right. And then just kind of curious here in terms of the on the office side of things, a stable quarter, I guess, is kind of how I would characterize it for office. Just kind of curious, how are you guys thinking about resolution here? Are you guys feeling better in terms of office credit? There's obviously a few a decent number of classified loans coming to maturity next year in particular. Just kind of curious if you have any updated thoughts as to what you're seeing and resolution on the criticized and classified? Jeffrey Tengel: Yes. So I'll start and then Mark you can you can comment. I would say in general, I feel better today than I did six months ago. And part of that is we've resolved several of the larger problems we've had and part of that is when I sit through a lot of the meetings where we're talking about these credits, I think you know, the general feeling I walk away with is we still have work to do. We're not out of the woods yet, but it feels like there's a good number of of the work we're doing with these loans where we expect a positive resolution or a positive outcome in part because the sponsors working with us were reaching middle grounds on this. We're providing them time to to get the asset they own maybe in better shape and they're providing us with money or a master lease or what have you. So there's a there's a bunch of different ways to get to that point. But I would say net net I feel positive. That's not something I could put numbers to, but it's just a general feeling. Mark Ruggiero: Yes. I don't have too much more to add, Jeff, outside of when you look at, as you were indicating to some of the the practical implications of what's coming due over the next couple of quarters. It's really concentrated in just a handful of loans. And to be honest, a couple of these are trending in the right direction where there's potential for upgrades of risk ratings and good resolution. If there is a little bit of an uncertainty, you're certainly not seeing the loss exposures that we experienced earlier in the quarter. So I think from that perspective, it feels like true losses and provision expectations feel much more contained. Steve Moss: Okay. That's great. And maybe just one last one for me and I'll hop back in the queue. But you guys found a bit more constructive on commercial real estate balances and definitely talking about a better C&I loan pipeline. I know, Jeff, you've been talking about more organic growth for a little while now. Historically, you guys have done mid single digit type I'm sorry, low single digit type loan growth. Could we maybe see something a little better next year given what kind of sounds like things are shaking out? Jeffrey Tengel: Yes, I think we could if the trends continue here. And and we get our enterprise bankers continuing on the same path that they they just demonstrated in the first quarter that we've owned them. I feel feel like kind of if I were to bracket it kind of low to mid single digits. So, think previously we would have said low single digits. So, don't think we're ready to put a stake in the ground and say this is what we think the number is going to be. But But I think we feel pretty good about. Steve Moss: Great. I appreciate all the color here and I'll step back in the queue. Nice quarter. Jeffrey Tengel: Thanks. Thanks. Operator: The next question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead. Mark Fitzgibbon: Hey guys, happy Friday. Hey Mark. Hey Mark. Mark, first question I have for you is, your guidance on the margin of four to six basis points of expansion in the fourth quarter, does that assume one or two Fed rate cuts? Mark Ruggiero: Somewhat moot to Fed cuts, guess I would say Mark, because we're as I mentioned in the call, like I really feel good about our ability to neutralize any Fed cuts pretty quickly. So I would suggest that similar guidance regardless of the Fed action. Mark Fitzgibbon: Okay. And then secondly, now that you've marked the securities portfolio of enterprise, any plans to kind of restructure that? Mark Ruggiero: Probably not at this point. I mean, not that it's about a reporting answer here, but I think we view that as now being market securities. So whether we sell those off and replace with new securities, I think you're in the same position. So it's asset classes we're comfortable with. We're comfortable with the total book of the securities portfolio. And the all in now yield on that book is is certainly a lot better. So I don't feel strongly there's any reason to restructure that at this point. Mark Fitzgibbon: Okay. And then I wonder if you could give us any color on the $16.8 million of new non-accruals. Any particular is it concentrated in a couple of loans? What type of loans? Anything you could share with us? Sure. Mark Ruggiero: Yes, it's a it's actually really only three loans greater than $1 million in that number. The largest being about a $4.5 million construction loan that came over with with the Enterprise acquisition. That's a fairly benign story there in terms of what we expect from probably hopefully no loss. This was a construction loan that was under an agreement and had just been delayed and kind of pushed out that P and S has since expired, but the interest is still there and we're hopeful and feel pretty optimistic that there is a sale that will get paid out in full on that. So that's a $4.7 million loan. That was the biggest of them. After that you dropped to $1 million and $1.1 million, one of those being a residential loan that appraisal is well in support of the outstanding balance and then it's just a handful of smaller stuff. So I know the number ticked up a bit from the prior quarter, but we really don't see any any loss exposure in that bucket at this point. Mark Fitzgibbon: Okay. And then I noticed you bought a little bit of stock back quarter at an average price like $64 and change. How do you think about the tangible book value dilution from buying it up here at, call it, $140 million or $145 million of tangible book value. Mark Ruggiero: Yes. I mean, it's always a valuation consideration. Certainly, we're always a bank that's sensitive to tangible book dilution. But at the same time, it really comes down to do we feel the banks appropriately valued and what's the right level to be buying at. So I think it's it's something we're going to continue to reassess at what ranges will tear up activity. I'd like to suggest we will continue to stay active but we'll just revisit that over the next next month or two and see what the right levels are to keep INF? Mark Fitzgibbon: Okay. And then lastly, for you Jeff, I was curious given how friendly the regulatory environment seems to be for M&A these days, what are your thoughts about doing another transaction? And would you look at all sort of further afield from what you have traditionally? Jeffrey Tengel: Yes. So I guess I would point back to the last couple of quarters and our posture hasn't really changed which is not really interested or focused on M&A at the moment. We're very focused on organic growth and getting our company positioned to continue to be a good earner. And the integration and and conversion of enterprise. And just because the conversion is behind us, that doesn't mean our work is done. So, we still have a lot of work to do making sure that continues to be a good story, the conversion I'm speaking of. And then we saw a lot of integration activities going on in order to synergize the enterprise franchise with the rest of our franchise. So, message hasn't really changed in my mind. Thank you. Mark Fitzgibbon: Thanks, Mark. Operator: The next question comes from Laurie Hunsicker with Seaport Research. Please go ahead. Laurie Hunsicker: Yes. Hey, good morning. So Jeff, I just wanted to start by asking a question that I think you largely answered, but I just want to hear it because it's so great. NDFI exposure is basically nothing. Jeffrey Tengel: It's I mean, to the extent you want to call a couple of local leasing companies where we have some exposure to. But beyond that, it's really it's negligible. It's not hasn't ever been really a focus of ours isn't today. We don't have any businesses geared towards that sector of the economy. Laurie Hunsicker: Right. Okay. And then office, just circling back to that, so the $42.9 million of criticized that you've got maturing in the fourth quarter, I guess how much of that came from EBTC, so it's marked or how should we think about that piece? It's up from where you were last quarter, but obviously quarter didn't include EBTC. Is there any color you can give us around that 42.9% criticized office maturing in fourth quarter? Mark Ruggiero: Yes. You've seen this now play out on a few loans. I think over the last couple quarters here, Laurie. Those were primarily the same two loans that we talked about as maturing last quarter. We entered into a couple of short-term extensions as we were working through more permanent resolutions. So happy to report on one of those loans, which is a $27 million relationship that was just recently approved for a new two-year renewal with some injected equity as well. The projected debt service coverage looks very strong. So that property has morphed into a much better position. And was just recently extended. The other remaining balance, so there's really only two notes that make up that $42 million. The other one is likely to be sold. We're entertaining that right now. The offer we see on the table falls just a little bit short, but nothing of a material nature. So we're hopeful for a resolution there as well. But that one is just potentially a pending sale. Laurie Hunsicker: Got you. And that's $16 million. That's about $16 million correct. Mark Ruggiero: There's another couple of million dollars related to that relationship that is not in that number that is exposure to the same borrower, but the office exposure is only $16 million. Got you. Laurie Hunsicker: Got you. Okay. And then it looks like your office non-performers down to $22 million. That's great. That's just that that class A office NIC. Correct. That maybe is gonna go back on performing status here in the next one or two quarters. Can you just help us think about that one? Any updated information? Mark Ruggiero: That one would not be returning. They have a essentially payment-free period for quite some time now heading out into 2026, aware of the even though it's technically performing. Under the modification we're of the opinion that we would not restore it back to accruing until we see cash flow resuming. So that's going to stick around on NPA for a bit unless there's a path to a full resolution through another channel. But if it stays as is, it'll just it'll be on payment deferral for quite some time. Laurie Hunsicker: Got you. Okay. And that still is $22 million is that right? It is still $22 million that is the one, that's just one one loan. Okay. Great. Appreciate all the details you give on office. Okay. So maybe jumping over to margin, what was your spot margin? Mark Ruggiero: Spot margin for September excluding loan accretion I think is the appropriate number to give you that was $3.57. Laurie Hunsicker: Okay. And then And that includes the bond accretion back to maybe question earlier, we view that as as the core margin now or what we refer to as our adjusted margin. So that is inclusive of the bond pickup we got with enterprise, but I will continue to isolate the loan accretion as can be a bit lumpy. Laurie Hunsicker: Perfect. Okay. And then I do appreciate that loan accretion income is lumpy. Initially, obviously, your guide was 18 basis points. You had less dilution, the tangible book on the deal, which was amazing, but obviously, less accretion. I mean, and I know I can jump around, but thinking about it, like, eight basis points give or take on margin. Is that the right way to be thinking about it? Mark Ruggiero: It feels to to be candid, Laurie, I think it would probably move up a bit from there. I don't want to predict an exact number, but you didn't see a lot of payoffs this quarter, which typically can accelerate some of the marks. So I would expect that move north a bit. I just don't want to pick a number. I think it's important to note though the 18 points I think that you were referring to was also inclusive of the securities accretion as well. So that's five basis points of the 18. So I think if you're isolating just the loan mark that would have originally thought to be 13 basis points or so. You may see a quarter where it actually is in that range or you may see a quarter like you saw here. So I think you're going to see I think you will see volatility between 10 basis 13 basis points on a given quarter. If that makes sense. Okay. Laurie Hunsicker: That's helpful. Okay. And then just jumping over to expenses. So by my math, you got one-time charges left to $32 million. Is that right? Or is there a better number? Mark Ruggiero: The $61 million we originally modeled we a lot of that actually went through enterprise and I shouldn't say a lot, but about $22 million of that went through enterprises. Books. In the second quarter. They were change of controls that was pushed through on their side. Prior to close because they were change of control contracts and the accounting nature suggested it was their expense. So 22 of it already went through enterprise, We've incurred about twenty seven or twenty nine year to date. And based on the revised estimates, I'm probably looking around $8 million number 8 million to 10 million in the fourth quarter. Laurie Hunsicker: That's great. Okay. And that finishes it. Okay, good. And then if we think, to your point, that core expenses here increased $2 million ex merger, ex said, ex system upgrade. I mean, I guess, we sort of fast forward in we would be looking to a clean quarterly run rate on expenses, how should we be thinking about that number? Mark Ruggiero: Yes. It's a good question. I will reserve formal guidance for 2026 till next quarter. But I think if you just look at the third quarter, round to $137 million of what I would call core expenses excluding M&A will we're pegging additional cost saves of about $2 million that gets you to $135 fully baked cost saves will probably get a little better than that. We're going to go through the budget process and strategic planning in the next couple of months. I wouldn't suggest there's meaningful increases by any means coming, but I don't want to pick a a new number yet for 2026, but I don't think you're to see it move too far north from that map that I was just suggesting, is about a 135 per quarter type number. Laurie Hunsicker: That's great. Super helpful. Thanks for taking my question. Mark Ruggiero: No problem. Thanks Laurie. Operator: The next question comes from David Conrad with KBW. Please go ahead. David Conrad: Hey, good morning. I was hoping you could help me out a little bit with the securities portfolio if I promise this will be the last time that I'll ask it. But I was wondering if you can kind of split out the kind of legacy with the enterprise book. In other words, you went from February to February. Just wondering what the yields are on the marked enterprise side and then what what kind of improvement from the February on the legacy side and kind of what's the new investment run rate you're getting there? So I'm trying to kind of figure out where the cash flows are going and where the yields can improve if that makes sense? Mark Ruggiero: It does. I may not have all the pieces for you, so I may need to follow-up. But I would peg the yield on the acquired book in the low 4% range and I can follow-up with an exact number there, but I believe the discount mark that you're seeing in a creep in essentially brings that piece of the portfolio into the low fours. Which is consistent with what we're replacing runoff of our legacy securities at with new securities. And that's the lift you're seeing on on the Rockland side. So the cash flows we're anticipating on our book I guess on the combined book going forward is about $700 million in 2026. I guess technically a portion of that is already at market rate because if it's enterprise related, it's been marked up to the 4% range. But a good portion of that will be on average probably 1.5%, 2% coupons that are being replaced at 4% yields. And that's that's a piece of that overall margin expansion that we've been talking about pretty consistently now for a few quarters at four to six basis point range is because a basis point or two of that is because of the securities repricing that we're Yes, got it. David Conrad: Okay, perfect. And then following up with the earlier comment, a question from Steve. On loan yields. I think that was more directed towards C&I. Maybe the belly of the curve has come in a little bit more than what I thought, but I'm this I'm a new CRE is there a difference in in kind of the new money yield you're looking at there? Mark Ruggiero: Not much, David. I think fixed rate free is probably penciling out somewhere around there. Sure we're seeing some competition get below 6% given as you mentioned the contraction at that part of the curve. So I'm not suggesting we're not doing deals that might be slightly under 6%, but it's going to be right around probably 6%. We are seeing pretty modest pickup in swap activity. I think that's back on the table for borrowers to be thinking about. That's a product we've always been very comfortable with. So you saw a bit of an uptick in the third quarter fee income as it relates to swap fees. So again swap pricing I wouldn't suggest is that far off. It's just I think borrowers are thinking about that a bit more now as well. David Conrad: Got it. Okay, perfect. Thank you. Appreciate it. Mark Ruggiero: Okay. Thank you. Operator: We do have a follow-up from Steve Moss with Raymond James. Please go ahead. Steve Moss: Good. Two calls from me guys. In terms of the balance sheet, you guys have a reasonably healthy cash position here. Been running it for a little bit. Just kind of curious if there's any thoughts on deploying some of that into securities here and maybe shifting the mix given Fed rate cuts or just any thought process around that? Mark Ruggiero: Yes. Yes. It's a good question. I mean, think as the balance sheet has grown there's certainly a slightly elevated cash position that we believe is appropriate just from a liquidity management standpoint. But I do think there's opportunity to put a little of that back into securities. I think right now we're comfortable with the current level as we work through the acquisition. We get a bit more visibility into what loan growth expectations look like. So I'm not I'm not feeling antsy to rush to put that cash to work. Really would like to see what the loan demand looks like, obviously, how deposits play out post acquisition. So sitting on a little bit of excess cash feels appropriate right now. Steve Moss: Okay. Appreciate that. And then on cap here, you guys are almost at a 13% CET1 ratio. Kind of curious how you're thinking about a longer-term target. And given good profitability in and where credit is these days, could you be a little bit maybe more aggressive on the buyback? I heard your answer on TBV. Buying back, but it seems like you have room here. Mark Ruggiero: No, it's a fair question. Certainly, I think optimal levels of CET for us in this environment I would certainly be comfortable at 12% CET1, 8.5% to 9% tangible capital. And you're hitting the nail on the head that suggests there's opportunity to continue to engage in buyback activity to work that down. So that would require a lot of buyback I think to be realistic there. So it's something that we understand and appreciate ideally we would love to be able to take advantage of these great new markets that we're in with enterprise and grow into that capital. Growth will need to be driven by good core funding. I think that's going to be a lot of what our mentality will be. So if can find better growth because we're getting good deposits and good funding I'd prefer to grow into that capital, if growth stays in that low to mid single digit range, I think buyback is certainly a tool that we should be exploring more. Steve Moss: Right. All right. That's everything for me. Thanks. Mark Ruggiero: Thanks, Steve. Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to Jeffrey Tengel for any closing remarks. Jeffrey Tengel: Thanks. We appreciate your interest in Independent Bank Corp. and everybody have a great day. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to the Huntington Bancshares Third Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Erik Wasserstrom, Director of Investor Relations. Eric, please go ahead. Eric Wasserstrom: Thank you, and good morning, everyone. Welcome to our third quarter call. Our presenters today are Stephen Steinour, Chairman, President and CEO, and Zachary Wasserman, Chief Financial Officer. Brendan Lawlor, Chief Credit Officer, will join us for the Q&A. Earnings documents, which include our forward-looking statements disclaimer and non-GAAP information and copies of the slides we'll be reviewing are available on the Investor Relations section of our website, which is www.irhuntington.com. As a reminder, this call is being recorded and a replay will be available starting about one hour after the close of the call. With that, let me now turn it over to Steve. Stephen Steinour: Thanks, Eric. Morning, everyone, and welcome. We delivered another outstanding quarter. The business is performing exceptionally well across all fronts. We have tremendous momentum and we are poised to accelerate from here. I'll cover the highlights and then Zach will take you through the details. Turning to Slide five, there are three key messages that we'd like you to take away from this call. First, we continue to execute our growth strategy with excellent results. All elements of our model are contributing to this growth, and we will continue investing to generate a high level of growth into the foreseeable future. Second, we are achieving top-tier profitability and returns as an outgrowth of our revenue generation and strong positive operating leverage. And third, we are poised to further accelerate our growth in Texas. We look forward to welcoming our Veritex colleagues and customers to Huntington next Monday. The partnership and interim planning efforts led by Malcolm Holland and team have positioned us for a fast start, initiating the springboard we envisioned. So we're very excited for what lies ahead. Slide six illustrates the outcomes of these key messages. Our foundational organic growth strategies deliver our national scale capabilities and expertise through local market relationships. You can see the results of that on the top of the slide. We have massively outpaced our peers on both loan and deposit growth, the outcome of which is the phenomenal pace of our PPNR expansion. And given our rigorous adherence to our risk management principles, we have not deviated from our aggregate moderate to low-risk appetite while driving this performance. Slide seven illustrates how this operational approach creates value. We drive powerful growth. This growth enables us to invest to compound our competitive advantage. The investment results in meaningful operating leverage, and we maintain disciplined capital allocation and robust risk management to both protect our balance sheet and enable us to take advantage of moments of disruption. All of this enables us to drive long-term shareholder value. As evidenced in this quarter's results, we grew revenue 14% year over year, adjusted PPNR 16%, and tangible book value by 10%, while generating an adjusted ROTC above 17%. And as Zach will discuss in a few moments, we are again raising our financial guidance for the year. We also have extensive experience in integrating acquisitions and in mobilizing the combined organization to execute on the cost and revenue synergies that we identify. Based on this experience, we are very confident in the seamless integration of Veritex, which will springboard our growth in Texas. We remain extremely excited by our partnership with Veritex. When we close this combination on Monday, we will achieve immediate scale in Texas. By our estimate, we will become the fourteenth largest depository in the state and the fifth largest in Dallas, ahead of nearly all of our regional bank peers, including pro forma for recently announced transactions. We will execute on the cost synergies we've identified, which we expect to drive one percentage point improvement in our efficiency ratio and approximately 30 basis points of lift to our ROTCE. But our greater opportunity is in the revenue growth synergies that we will generate as we accelerate the rollout of the full Huntington franchise into these markets. First, we will leverage Veritex's network to deliver the full suite of our consumer and small businesses as well as digital capabilities. Second are the fee-based opportunities we can offer into Veritex's commercial and consumer customers, including payments, wealth management, and capital markets. Third, we will leverage our combined scale and the benefit of Veritex's deep local relationships to accelerate the growth of our existing commercial verticals and local middle market banking. We're very confident in our ability to realize these synergies. Additionally, we see substantial incremental opportunities to generate revenue synergy as we further invest into our Texas franchise. We will continue to build out our branch network in Dallas, Fort Worth, and Houston, and expand our commercial banking activities across the state, amongst other actions. As I've said, this partnership will be a springboard for our growth in this incredibly attractive market. To summarize, we're executing on our organic growth strategies to drive industry-leading revenue growth. We're achieving outstanding profitability, which enables us to reinvest to compound our competitive advantage. We're poised to springboard our growth further through the partnership with Veritex. And all of this is driving a high level of tangible book value growth and increasing our return on tangible common equity. With that, let me turn it over to Zach to discuss the quarter's financial results in detail. Zachary Wasserman: Thank you, Steve, and good morning, everyone. Let's begin with the highlights of our third quarter results on Slide nine. Huntington delivered another outstanding quarter, with earnings per common share of 41¢. On an adjusted basis, excluding the gain on sale of a portion of our corporate trust and custody business, an FDIC deposit insurance fund assessment benefit, and Veritex acquisition-related expenses, EPS was 40¢, up 18% year over year. Average loan balances grew by $2.8 billion or 2% from the prior quarter, while average deposits increased by $1.4 billion or 1%. Reported 10.6% with adjusted CET one at 9.2%, up 30 basis points from last year and within our target operating range. Credit performance remains strong, with net charge-offs at 22 basis points and allowance for credit losses ending the quarter at 1.86%. On slide 10, loan growth accelerated to 9.2% year over year, led by strength in commercial lending and significant contributions from our new initiatives. During the quarter, new initiatives account for $1.2 billion, representing approximately 40% of total loan growth. Key drivers included our geographic expansion in Texas, and North and South Carolina, as well as strong performance in our funds finance and financial institutions group commercial verticals. Of the remaining $1.6 billion in loan growth from the core, we delivered $700 million from corporate and specialty banking, $600 million from auto, $400 million from regional banking, $100 million from middle market, and $200 million from asset finance. These gains were partially offset by a $600 million in distribution finance inventories that was largely seasonal, and a $100 million decrease in commercial real estate. Turning to deposits on slide 11, average balances increased by $1.4 billion or 0.8% and our overall cost of deposits declined by two basis points during the quarter. Our relentless focus on growing households and deepening primary bank relationships within a disciplined framework has proven a powerful lever in driving sustained deposit gathering, with disciplined pricing. Our teams are performing exceptionally well as we grow our funding base, and we expect to drive funding costs lower with additional Fed cuts. On to slide 12. During the quarter, we drove approximately $40 million or 2.7% sequential growth in net interest income. This represents almost 12% growth on a year-over-year basis. Net interest margin was 3.13% for the third quarter, up two basis points from the prior quarter. Operating performance accelerated throughout the quarter on a number of fronts, including NIM, powering margin to outperform the expectation I shared at the mid-quarter conference, due to both better than expected funding costs and better asset yields. Turning to slide 13. We continue to manage our hedging program to accomplish our objectives of protecting capital from a potential higher rate environment, while protecting NIM from a potential lower rate environment. Over the last year, we've reduced our asset sensitivity to a near-neutral position. Moving on to Slide 14. On an adjusted basis, noninterest income increased by 14% or $75 million compared to the prior year. Our fee businesses were strong across virtually every area, but with notable performance in our key strategic areas of focus. Payments, wealth management, and capital markets collectively grew 13% year over year. Momentum remains strong across these businesses, and we expect them to continue driving fee growth going forward. In addition, loan and deposit fees benefited powerfully from commercial loan commitments. Moving to slide 15. Payments delivered 10% year-over-year growth, propelled by a 20% increase in commercial payment revenues, reflecting deeper customer relationships and contributions from merchant acquiring. Moving to wealth management on slide 16, wealth fees increased by 12% year over year, assets under management up 11%, and advisory households also rising at 9%. Over the past twelve months, we've gathered approximately $1.7 billion in net flows, as our teams continue to execute against our advice and guidance-focused strategy. Moving to slide 17. Capital markets grew 21% year over year, supported by advisory, syndications, and commercial banking-related activities. In our advisory business, we continue to benefit from efforts to introduce this service to more of our middle market and large corporate customers. The advisory backlog continues to build, and we expect sustained momentum in commercial banking production to carry over to capital markets for another strong result this quarter. Additionally, our leveraged finance and private equity platform is now fully built out and will start to more meaningfully contribute to our results going forward. Turning to slide 18. GAAP noninterest expense was $1.2 billion, modestly higher than the prior guidance, due to revenue-related compensation from the robust revenue outperformance in the quarter. Our expense management remains focused on driving positive operating leverage, both this year and over our long-range financial plan. As we have noted, we were executing disciplined cost efficiency programs that reduce baseline expenses and create the capacity to robustly grow investments in the business, even as we create overall positive operating leverage. On a trailing twelve-month adjusted basis, we have generated 500 basis points of positive operating leverage. Our outlook for full-year 2025 operating leverage is now more than two and a half percentage points of efficiency ratio improvement, significantly wider than the original budget of approximately 1% coming into this year. Slide 19 recaps our capital position. We continue to increase our common equity tier one. Our capital management strategy remains focused on our top priority of funding high-return loan growth and second, supporting our strong dividend yield. As we have noted, we intend to continue driving adjusted CET one higher toward the midpoint of our nine to 10% operating range. Given our progress driving adjusted CET1 higher, and our projections of continued strong capital generation, we expect to have capacity to add repurchases to the mix of distribution in the coming quarters. Our intention is to approach any share repurchase activity in a systematic manner over time, while also remaining opportunistic to overweight activity in quarters when we believe the shares are significantly undervalued. Our baseline assumption as of now is for approximately $50 million of repurchases per quarter through 2026. We will continue to optimize this amount based on the pace of loan growth and the objective of continuing a gradual upward trajectory of adjusted CET one toward the midpoint of the range. Turning to slide 20. Our disciplined approach is generating powerful returns and driving shareholder value. Over the past year, we've grown adjusted ROTCE by more than one percentage point through robust PPNR expansion while simultaneously increasing our capital base. As noted, tangible book value is up 10% year over year, and we've returned over 45% of earnings through dividends. Turning to slide 21. Credit quality continues to perform very well, with net charge-offs of 22 basis points. Forward-looking credit metrics remain stable. The criticized asset ratio was 3.79%, while the nonperforming asset ratio declined three basis points since last quarter and has been trending in a narrow range for several quarters. On to slide 22. While economic and policy uncertainty has persisted throughout the year, we continue to deliver terrific performance and are once again raising our expectations for revenue and earnings growth. The outlook I'll share on this slide reflects both standalone Huntington and the anticipated impacts of the Veritex close. On a standalone basis, we're continuing to see strong loan growth and are expecting to hit the high end of our guidance range at approximately 8% for the full year. Inclusive of Veritex, we expect to see full-year ADB growth of approximately 9% to 9.5%. On deposits, we also see performance at the high end of our prior growth guidance at approximately 5.5%. Inclusive of Veritex, we expect to see deposits on a full-year ADB basis approximately six and a half to 7%. On a Huntington standalone basis, we are increasing our net interest income full-year guidance by two percentage points to 10 to 11% from the prior range of eight to 9%, driven by better than expected loan growth and higher NIM. We are very pleased with our management of NIM in 2025 and the expansion we have driven. For the fourth quarter, expect our standalone Huntington NIM excluding the impact of Veritex to rise between one and two basis points from the Q3 level. And as we've noted in past updates, we anticipate standalone NIM to rise again in 2026 by at least 10 basis points, driven primarily by continued benefits from fixed asset repricing. Given our neutral asset sensitivity, our modeling would indicate we could achieve this level of NIM expansion in Fed funds scenarios ranging from zero to as many as seven cuts. We expect NIM expansion and continued strong growth in loans to drive another powerful expansion of spread revenues next year. We expect this higher NIM into 2026 and the continued strong growth in loans to drive another powerful expansion of spread revenues next year. Speaking briefly about the impact on NIM from the combination with Veritex, we expect Veritex will lift the Q4 reported NIM by an additional two to three basis points. Of this two to three basis points lift from the acquisition, about one basis point is from PAA accretion. We expect a similar dynamic in 2026, in which Veritex adds two to three basis points on top of the NIM expansion we anticipate for next year. We have laid out a schedule of the expected PAA accretion for the fourth quarter and for 2026 in the appendix to the earnings slides. We expect that we will realize approximately two-thirds of the total PAA benefit from Veritex by the end of next year, with a much smaller amount trailing into 2027 and thereafter. Continuing with guidance on revenue drivers, on a standalone basis, we're increasing our full-year fee income guidance to approximately 7% from our prior range of four to 6%. Momentum is building across the fee businesses, and we expect to carry that momentum into the fourth quarter and beyond. On a standalone basis, we expect expense growth of 6.5% driven by volume-related drivers and higher incentive compensation. Throughout the year, our outlook for positive operating leverage has continued to expand from approximately 100 basis points at the beginning of the year to now over 250 basis points expected as of today. This is a powerful testament to the strength of our revenue generation and performance on programs to drive efficiency in baseline expenses while we continue to invest powerfully in the business. For the fourth quarter, we expect approximately $20 million of core PPNR benefit from Veritex, which equates to about a penny of earnings per share. We also expect to incur the majority of acquisition-related one-time expenses in the fourth quarter with approximately 125 to $150 million recognized at closing or shortly thereafter. On credit, we anticipate charge-offs at or below the midpoint of the range on a full-year basis. The tax rate for the full year is expected to be between 17.5% and 18%, benefiting from some discrete items. Lastly, please note that we completed a preferred issuance in the third quarter, which will result in higher preferred dividends in the fourth quarter and subsequently. We included an updated quarterly dividend schedule in the appendix of the earnings deck. Turning to Slide 23. In closing, our focus remains on driving long-term shareholder value. Our performance reflects disciplined execution, a powerful and scalable franchise, and a durable business model. Risk management is deeply embedded in our culture, and our capital and liquidity positions remain top tier. Organic growth continues to outpace peers, supporting attractive revenue and earnings growth and driving value creation. The Veritex acquisition provides a springboard for future growth. With that, we'll conclude our prepared remarks and move to Q&A. Brendan Lawlor: Thank you, Zach. We will now take questions. We ask that as a courtesy to your peers, each person ask only one question and one related follow-up question. If you have additional questions, please return to the queue. Thank you. Operator: You. Keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to move your question from the queue. And as a reminder, please ask one question, one follow-up, then return to the queue. Our first question today is coming from Jon Arfstrom from RBC Capital Markets. Your line is now live. Jon Arfstrom: Hey. Thanks. Good morning, everyone. Nice job. Hey. Question first question is on the loan growth outlook. Can you talk a little bit more about the pipelines Zach, you mentioned you felt like growth is still accelerating. And I guess, I'm not as curious about the expansion driven markets, but more about the core trends, what you're seeing and you feel like that's still accelerating? Zachary Wasserman: Yeah. Jon, this is Zach. I'll take that and the short answer is yes. We have a lot of momentum coming into the fourth quarter. The guidance we provided implies approximately 1.5% sequential growth. That's relative to the 2% sequential growth we just posted in the third quarter. So there's a lot of strength we see right now in pipelines and just the momentum of the business generally. In the core business, in core of the business, we're seeing regional banking, for example, continues to power very strong growth. Our broad commercial specialty business performing very well. We would always expect the fourth quarter to be a quite good equipment and asset finance production quarter just given the seasonality of that. And a number of other areas continue to perform well. And then also see continued strength in consumer auto is an area that has continued to grow sequentially throughout the year. And our broad other consumer lending activities continue pretty well. Also. So confidence is high for the fourth quarter. As I look out into next year, the 26, clearly not giving formal guidance at this moment, but you know, our working assumption is somewhere in the mid to high single digits. For year over year loan growth in 2026 as well. Jon Arfstrom: Okay. Perfect. Appreciate that. And then maybe Brendan or Steve, can you can you talk a little bit more about what you're seeing from a credit quality point of view? There's obviously a lot of fear and uncertainty out there. Your numbers look very clean, but in anything you're watching more closely and curious how you feel about credit in general. Stephen Steinour: Yeah. We've had just a this is Steve. We've had a really exceptional year in terms of credit performance and our outlook would suggest that's gonna continue. Everything we'll what we see at this point would suggest that's the case. We, you know, there have been some issues with different companies and and impacting different lenders. We've fortunately not had any issues. I I trace it back. You know, we put aggregate moderate to low risk gap appetites in place fifteen years ago. You've seen our reporting on the consumer side, how tight it is. We're essentially that tight on the commercial side as well. The policies, the front end guidance, the active portfolio management, the other controls, the the disciplines, the diversification, all have will help us. At some point, there'll be a downturn, but all help us significantly. And and and, again, you've seen that in the stress tests that have been done over the years as well. So we're we're we're optimistic about about loan growth going forward. As Zach said, a minute ago, and we're confident in our ability to manage the risks. Brendan Lawlor: Okay. We're not seeing anything at this point that concerns us. Jon Arfstrom: Yep. That's helpful. I appreciate it. Thank you. Operator: Thank you. Next question today is coming from Manan Gosalia from Morgan Stanley. Your line is now live. Manan Gosalia: Hey. Good morning. Thanks for taking my questions. Just as a follow-up to the last question, just given the recent headlines around alleged fraud, double pledging of collateral, can you talk about the safeguards that you implement to guard against that? Brendan Lawlor: Sure, Manan. This is Brendan. I'll I'll take that. Know, as kind of tagging on to what Steve said that the aggregate moderate to low risk appetite that we've that's been sort of the foundational for us for the last fifteen years where it all sort of begins. The client selection, the disciplined client selection on the front end, active and rigorous portfolio management as we oversee these loans through their financial performance as well as collateral monitoring. You know, help us to pull out any soft spots that we might see because of that active nature we we work with our clients well in advance of anything like like the events that have happened over the last month. So I feel really confident in our ability to actively manage our book. Stephen Steinour: Manan, we also have always had a relationship orientation. And so that that, I think, helps us avoid situations like those that have recently been reported because we're we're not looking to just make a loan. We're looking for a relationship. And absent the absent that, we, you know, we we tend to pass. In fact, a couple of ones that been that have occurred recently, we we've passed on those. Manan Gosalia: Great. And and can you talk a little bit more about the NDFI book? You know, what's in there? And how we should think about the risk around that book? Brendan Lawlor: Sure, Manan. I'll take a we I'll take a swing at that. You know, if you if you exclude out things like loans to REITs, and subscription lines and higher rated insurance companies. Our NDFI portfolio exposure is approximately it's right around 2% of total loans. So you know, those as Steve was talking about, those loans are really characterized through a relationship approach, with, you know, a lot of diversity baked in there. And then the active portfolio management that I talked about. So you know, all in all, as we look at that, we feel very good about how we're positioned against the NDFI portfolio. Manan Gosalia: Thanks for that. Operator: Thank you. As a reminder, star one to be placed into question queue. Our next question is coming from Christopher McGratty from KBW. Your line is now live. Christopher McGratty: Oh, there we go. Sorry about that. If we think about operating leverage comments, two fifty million or so, I guess, medium term, how do you how do you see how do you see this trending? Given the balance of synergies and investments to become larger? Thank you. Zachary Wasserman: Yeah. It's a it's a great question, Chris. Let let me let me unpack that for you. So really, really pleased with how we managed operating leverage this year. Know, rising from, you know, less than 1% in our budget to over 2.5% now, even as we continue to drive very significant investments into the business, investments growing almost 20% year on year in the business. So just a powerful testament to the way we're managing expenses. You know, as as we think about the expense model, going forward, you know, the the the approach we're taking is very sustainable. We're continuing to drive fundamental reengineering into the cost base, taking out about 1% of baseline operating expenses every year and then funneling that into offensive investment related expense categories like technology development, marketing, addition of new people to build out these businesses. And so, you know, that's the that's the that baseline model can continues to be really strong, and and and it's our approach for the next several years. All things equal, when we do budgeting, we start with an assumption of at least 1% operating leverage. Any given year, and potentially up to 2%. As as I'm thinking about next year, were still finalizing that budget, but that's a pretty reasonable range for you to expect for for twenty six. Christopher McGratty: Alright. Very helpful. Thank you. And and then maybe maybe, Steve, on the the strategic question. Right? You you've got a a lot of momentum in your business. I think you've got a stock that people want to own. Can you just speak to the M and A conversations that might be happening as you kind of close the Veritex deal? Stephen Steinour: Chris, I was waiting for that one. Thank you for the question. You know, we've done three combinations in fifteen years. We've invested a lot. In the last three years in the organic growth of the businesses, the Carolinas, the specialty businesses, Texas expansion, including the combination with Veritex. And we have a lot on our plate that will drive organic growth. That is that has been and continues to be our primary focus. We're extraordinarily pleased and confident of what we have before us in Veritex excited to be closing Monday. This past Monday through Wednesday, our board was in Texas meeting with our new colleagues. Brantley Standridge has gotten us into a great position for an accelerated start with Malcolm Holland and team. And I I think we've got a lot to go after. So those are the priorities. You know, we've we've again, we've had three combinations in fifteen years some point, there'll be something else. But but but our focus is driving the the the organic growth of the company. You know, we I'm gonna preempt the potential another question. We were not involved COVID. Are focused on driving organic growth for the company. Christopher McGratty: Thank you. Operator: Thanks, Chris. Thank you. This question is coming from Matthew O'Connor from Deutsche Bank. Your line is now live. Nathan Stein: Hey, everyone. Good morning. This is Nathan Stein on behalf of Matthew O'Connor. You know, you talked about NII increasing again next year, and you gave some specific commentary on the NIM and loan growth operating assumptions. But how can I think about your operating assumptions for NII on a stand-alone basis relative to up 10 to 11% this year? Zachary Wasserman: Yeah. Great. Great question, Nate. Thank you. This is Zach. I'll take that. You know, as I as I think about the the spread revenue model, 2025 is a great you know, example of how we're how we're driving it. Strong loan growth, 8% loan growth, this year, and 10 basis points of of NIM expansion is driving that, you know, what we just posted 12% year on year growth in spread in the third quarter. I think about '26 I think the model is gonna look similar. You know, you just heard me say earlier to to Jon Arfstrom's question that I'd expect, you know, mid to high single digits in loan growth, and from my prepared remarks earlier, I noted my expectation of at least 10 basis points of spread revenue expansion. So that should drive a pretty strong outcome or the of NIM expansion. And so that should drive a pretty strong overall spread revenue outcome for for 2026 as well. Nathan Stein: Okay. Sounds good. And then I, you know, I won't ask about M and A, but I guess just on the organic growth, and you guys have demonstrated a lot of really good growth. The past few years and then in March as well. But the expansion markets are really ultra competitive. And can you just talk about how you're continuing to grow in those regions against both the national players and also the a very you know, long-standing local banks. Stephen Steinour: Sure. Nate. This is Steve. You know, we we compete against all these banks. All of our markets are competitive. In Carolinas and Texas, those are rapidly growing local economies. And and Texas is the eighth soon to be the seventh large economy in the world. So you have a massive amount of economic activity there. In the Carolinas, we made that move couple of years ago. We we we were in early. We have great colleagues who we've attracted to the company, and they've done a phenomenal job. We're very, pleased with the progress we've made in North And South Carolina and the build-out that's occurring. We opened a handful of branches this year. There'll be a couple of dozen next year. And the same the following year, that will allow us bring the full franchise to all the businesses, that we operate today into the Carolinas. We've also brought some teams on in a couple of adjacent states in Atlanta and a couple of parts of Florida. That are off to a fabulous start as well. So the average tenure of our our colleagues, in terms of experience in The Carolinas is is a couple decades. So we these are seasoned colleagues. They've got great relationships. They're well established. They're doing an excellent job carrying our brand forward. And they've accelerated our profitability well beyond what we thought was possible. And in the case of Texas, essentially the same thing. Our our Texas teams and middle market teams we put in place and Dallas and Houston a year and a half or so ago. Turned profitable very, very quickly. They're growing nicely. Number one SBA lender in Texas. We've got some specialty in corporate businesses in Texas, and now we have Veritex. And that will allow us to bring the full franchise into Texas. So these markets are competitive to be sure. And the Carolinas were off to a great start. That started, you know, several years ago. So we're we're we're established. And in Texas, we expect to wrap establish ourselves because we've got great new colleagues joining us from Veritex. We we're not doing a day novel pill. We're already there at scale. As I mentioned, number five share in Dallas. It's a great position to play Frost. We're very excited, as you can tell, about the opportunities before us but I'll also come back. The core franchise is performing very well. We expect to grow in the core on a continuing basis, and and I'm optimistic based on the the the great colleagues we have here and the this this the overall strategies of diversification. And bringing our national capabilities through at a local level. And we've had a winning winning set of strategies. So combined, very optimistic about our organic growth. Well into '26 and and potentially beyond assuming the economy holds up. Thank you. Operator: You. Next question is coming from Steven Alexopoulos from TD Cowen. Your line is now live. Steven Alexopoulos: Hey. Good morning, everyone. Wanted to start. So, Steve, you're one of the very few regional bank CEOs which have been in seat since GFC. And even though you feel good about your credit book, you know as well as anybody, this is an industry where a few banks can take down the rest. I mean, your stock's now down double digit over the past month. Steve, are you concerned that there are more credit quality issues out there lingering in the industry. Stephen Steinour: Steven, I I suspect there are isolated issues that are in the industry. But I think on the whole, the industry has derisked since the GFC. And that's part of what you're seeing with the rapid rise in in you know, shadow banking system or NDFI, whatever you wanna whatever you wanna call it. I I think the banks are in a much better position today particularly those that are are broadly diversified, and most of us are. Certainly, we are. And, again, we've managed with this aggregate moderate to low risk app, in place. You've seen fifteen years of consumer quarterly reporting. It's incredibly tight. And I I think I think the industry's you know, there'll be there'll be some some episodic moments and some one offs. But I think the industry is in in in in very good shape. And, you know, I'm I'm obviously aware of Jamie's position, but comments this week, but but I don't see it broadly. Affecting the industry. And many of those who reported are are suggesting, you know, the consumer's in relatively good shape. We certainly are. Not seeing forward indicators in terms delinquency or other measures. Sorry for a long-winded answer. Go ahead, Steven. Alright. Steven Alexopoulos: We we I appreciate that answer. If if I could pivot to for a follow-up maybe for Zach. So there were return on tangible equity is very impressive here. And I'm looking at the 16 to 17% medium-term goal you're calling out for 2027, are you are you signaling that the return's going to decline in that range I don't know if it's the Veritex deal. Can you just walk us through how you get from current returns to that target? Zachary Wasserman: Yeah. Thanks for the question. Steven. I appreciate you you calling that out. You know, when we set those medium-term targets, we obviously wanted to signal what we thought was most likely the case, but also to be somewhat conservative and give ourselves the chance to to beat it. And so really pleased that we were able to, excuse me, drive ROTCE up over a percentage point this year and already get above the high end of that medium-term range, which, you know, clearly, you can imagine would have us take a step back and see whether we would want to adjust that range going forward. And and we could potentially do that. You know, for us, the focus is really that that kind of dual approach to drive value here for our shareholders. Drive tangible book value per share, higher in a very powerful way, 10% growth this quarter. In our Investor Day, I signaled high single single digit to low double digit growth for the foreseeable future of that, but also couple it with a really strong return. And so, you know, we're certainly doing that now, and you know, we'll we'll give that target some thought as we go into next year. Steven Alexopoulos: Got it. Perfect. Thanks for taking my questions. Steve. Have a great day. Operator: Thank you. Our next question is coming from Kenneth Usdin from Autonomous Research. Your line is now live. Ben: Hey. Good morning, guys. This is Ben on from Ken's team. You guys talked about the deposit pricing outperformance. I guess what's kind of driving that? And then how do you expect betas to look over the next 100 basis points or so of cuts? Zachary Wasserman: Yep. Great question, Ben. I'll take that. This is Zach. So we feel just incredibly pleased with how our deposit teams are executing on both rate and volume. Frankly, they handily exceeded our plans in the third quarter on both of those fronts. So just execution is extraordinarily good. And if I was to show you and zoom in to the last two weeks of the quarter where the rate cut really occurred, we had a 40% beta. In the last two weeks of the quarter. So that 40% is is what we've guided for over the long term. It continues to be our expectation for what we'll see over the course of this overall down rate cycle. However, ultimately manifests itself. You know, I think if I your question was sort of how are we doing it? And what I would tell you is it's an incredibly sophisticated approach that our teams have of managing deposit activities, and it it's all underpinned by the fact that we have primary bank relationships. And we say that a lot, but it's but it really is foundational strategy. We're we're winning the checking and operating accounts of our consumer and commercial customers. We're gathering other pools of liquidity, and we're managing the overall rate to be very efficient for us to gather gather marginal funding and it's all supported by extraordinarily sophisticated analytical and operational approaches that allow us to do that at a pretty granular level. So that's the playbook. It's working very, very well. And and underlies our expectation of continuing to drive solid volume into next year. You know, we talked a little bit about our loan growth outlook for next year. I didn't comment on our deposit growth outlook. But that likewise is is in a a pretty solid position as well. We we expect to match fund loan growth as we go into next year with with core deposits. Ben: Great. And just a clarification for next year, the 10 basis points of NIM expansion, is that on a full-year basis, 26 over 25? And then, I guess, is is fixed rate repricing gonna be the biggest driver there? Just any color on that. Thanks. Zachary Wasserman: Yes is the short answer to your first question. And if you unpack the drivers of of of NIM expansion here, you know, the the the biggest and most and most significant kind of net driver is that fixed asset repricing. We've talked about this for a while. You know, we got 12 base points of year over year benefit in fixed asset repricing in 2024. We estimate this year 2025 to be around 10 basis points. Next year, we're estimating at this point seven basis points of additional fixed asset repricing. And even, frankly, further into 2027, benefits. And it's really driven, you know, foundationally by you know, the the roll off yields we're seeing in categories like auto and equipment leases, is is a lot lower than our new production yield, something like, you know, 70 to 75 basis points today in terms of that that that difference. And so that's really what what drives that, and it's quite sustainable. You know, we're also generally pretty asset neutral here in terms of our asset sensitivity position, as we indicated in the prepared materials. And so that really helps us to buffer the various scenarios and rate. And so we think that roughly 10 basis points or even more in most likely scenarios is is durable under a very wide range of of ultimate interest rate outcomes here. Ben: Great. Thank you. Operator: Appreciate it. Thank you. Next question today is coming from Ebrahim Poonawala from Bank of America. Your line is now live. Ebrahim Poonawala: Hey. Good morning. Zach, just following up on the deposit growth. I think the question I had was as we think about this deposit pricing competition and where your able to grow these deposits both in from a market standpoint and price standpoint, just speak to the competitive landscape, and I think the where I'm going with this is, as we think about the balance sheet growth outlook from here, incrementally, that accretive to where the net interest margin is today or dilutive? Zachary Wasserman: Thanks. Yeah. Yep. Terrific question. And I think the the the short answer is accretive. We're seeing very strong marginal returns, and I think the the combination of what we're doing with asset yields benefiting from feedstock server pricing was a little mechanical. But also actively modulating where we're where we're producing to really optimize rate on the yield side and then couple that with driving down deposit costs. Is a very intentional strategy to drive marginal returns higher. And so we're seeing that. You know, we get a lot of questions, but certainly a lot of interest on what's the vector right now in the competitive environment. And, you know, what what I would tell you is we're not seeing anything very significant on the whole. Terms of a change. It has been competitive. It remains competitive. And, you know, we have to be you know, very, very smart in terms of how we how we operate. And, you know, to be honest, it's a it's a battle of sort of, you know, a 100 different levers all at the same time. It's incredibly sophisticated and granular. And but, you know, the the the team is just executing exceptionally well to to drive both low in volume and yield, but also drive down deposit costs and and and and really make marginal funding as efficient as possible. So high confidence we're gonna keep that going. Ebrahim Poonawala: Understood. And one just on a loan growth. I'm sorry if you could test this. Steve, you talked about the bonus depreciation seasonally. Equipment finance lending, a strong quarter for Huntington. I'm just wondering, has the tax bill related sort of stimulus flowing through where clients are now beginning to make those investments and is that driving increased lending demand as we go into 2026? Stephen Steinour: Ebrahim, we we are we typically have a very good fourth quarter for asset finance. The the activity is is firming up now, will be in line with our expectations. I don't think this will be a record year. A part of that is because of of tariffs having some impact on imported components. And then some delays that occurred earlier in the year in just ordering. That they can't get physical delivery now in the fourth quarter. But but this is a good good quarter, and I think it sets up next year to be very good year. Ebrahim Poonawala: Got it. Thank you. Operator: Thank you. We reached the end of our question and answer session. I'd turn the call back over to management for any further or closing comments. Stephen Steinour: Thank you for joining us today. In closing, our teams continue to deliver just exceptional results. Highlighted by our peer-leading growth, our robust profit growth, and strong return on capital. We've never been better positioned, and we're very confident in our ability to drive continued strong performance. Finally, as usual, I'd like to thank our nearly 20,000 Huntington colleagues who every day look out for each other, for our customers, driven this performance. But as you heard throughout the call today, we're really excited for our partnership with Veritex and to welcome Malcolm and and our new Veritex colleagues this coming Monday. So thank you all for your interest in Huntington. Have a great day. Operator: Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good day, everyone, and welcome to the Glacier Bancorp, Inc. Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 11 again. Please note this conference is being recorded. Now it's my pleasure to turn the call over to Glacier Bancorp, Inc.'s President and CEO, Randall M. Chesler. Please go ahead. Randall M. Chesler: Good morning, and thank you for joining us today. With me here in Kalispell is Ronald J. Copher, our Chief Financial Officer; Tom P. Dolan, our Chief Credit Administrator; Angela Dosey, our Chief Accounting Officer; and Byron J. Pollan, our Treasurer. I'd like to point out that the discussion today is subject to the same forward-looking considerations outlined starting on Page 13 of our press release, and we encourage you to review this section. We delivered another excellent quarter, continuing our momentum with strong margin expansion, higher loan yields, lower deposit costs, and solid high-quality loan growth. We also completed the core conversion of the Bank of Idaho, with assets of approximately $1.4 billion, and shortly after quarter-end, we successfully closed the acquisition of Guaranty Bank and Trust, adding $3.1 billion in assets and expanding our presence in the Southwest. Bank of Idaho was successfully folded into three of our existing divisions: Citizens Community in Pocatello, Mountain West in Boise, and Wheatland Bank in Eastern Washington. The Bank of Idaho brought us a terrific team of lenders and staff as well as excellent customer relationships. The Guaranty transaction marks our first entrance into the state of Texas, and we're excited about the long-term opportunities this brings. Our focus now is on delivering a flawless conversion in 2026 and making sure we have happy employees and satisfied customers. For the third quarter, Glacier Bancorp, Inc. reported net income of $67.9 million or $0.57 per diluted share. The third quarter net income represents an increase of 29% from the prior quarter and reflects a 33% increase in net income compared to the same quarter last year. Pretax pre-provision net revenues of $250 million for the first nine months of the current year increased $77.1 million, or 45% over the prior year's first nine months. Our loan portfolio grew $258 million to $18.8 billion, or 6% annualized from the prior quarter. Commercial real estate continues to be a key driver of loan growth. Deposits also grew, reaching $22 billion, up 4% annualized from the last quarter. Non-interest-bearing deposits grew again this quarter, increasing 5% annualized and now representing 31% of total deposits. We reported net interest income of $225 million, up $18 million or 9% from the prior quarter and up $45 million or 25% from the same quarter last year. Our net interest margin on a tax-adjusted basis expanded to 3.39%, up 18 basis points from the prior quarter and up 56 basis points year over year. This marks our seventh consecutive quarter of margin expansion, reflecting the strength of our loan portfolio repricing, our ability to get good margin on new loans, and our continued focus on managing funding costs. The loan yield of 5.97% in the current quarter increased 11 basis points from the prior quarter and increased 28 basis points from the prior year third quarter. The total earning asset yield of 4.86% in the current quarter increased 13 basis points from the prior quarter and increased 34 basis points from the prior year third quarter. Total cost of funding declined to 1.58%, down five basis points from the prior quarter, as we reduced higher-cost Federal Home Loan Bank borrowings by $360 million. Core deposit costs decreased in the quarter to 1.23% from 1.25% in the prior quarter. Non-interest expense was $168 million, up $13 million or 8% from the second quarter, primarily due to increased costs from acquisitions. Non-interest income totaled $35 million in the current quarter, up $2.4 million or 7% from the prior quarter and up 2% year over year. Service charges and fees increased 5% from the prior quarter, while gains on loan sales increased 18% from the prior quarter. Our efficiency ratio remained at 62%, down from 65% a year ago, with good momentum for continued steady reduction. Credit quality remains very strong. Our nonperforming assets remain low, at 0.19% of total assets, and net charge-offs were $2.9 million for the quarter or three basis points of loans. Our allowance for credit remains at 1.22% of total loans, reflecting our conservative approach to risk management. We continue to maintain a strong capital position, with tangible stockholders' equity increasing $34 million or 14% in the current year. Tangible book value per share increased to $20.46, up 8% year over year. And we declared our 162nd consecutive quarterly dividend of $0.33 per share, underscoring our commitment to delivering consistent shareholder returns. We are very pleased with our performance this quarter. Our expanding footprint, unique business model, strong business performance, disciplined credit culture, and strong capital base provide a solid foundation for future growth. That ends my formal remarks. And I would now like the operator to open the line for any questions our analysts may have. Operator: Thank you. And as a reminder, to ask a question, simply press 11 to get in the queue. And wait for your name to be announced. To remove yourself, press 11 again. Please standby while we compile the Q&A roster. One moment for our first question that comes from the line of Jeffrey Allen Rulis with D.A. Davidson. Please go ahead. Jeffrey Allen Rulis: Thanks. Good morning. Good morning, Randy. You guys on margin, you did note the seven consecutive quarters of the expansion. This quarter's was the largest sequential of all of them. Won't read into kind of the lumpiness of that, I suppose, but a good sign nonetheless. You guys have really guided very well on trend on that front. Maybe just catch us up on where you think you see it headed in light of September's cut and potentially a couple more through the end of the year. That'd be great on the visibility front. Byron J. Pollan: Hi, Jeff. This is Byron. Yeah, it has been great to see the continued improvement in our margin. And I would say those repricing drivers in our balance sheet that we've discussed, they remain in place. And so we do see continued growth ahead of us. In terms of our outlook for Q4, we anticipate that we will grow our margin an additional 18 to 20 basis points in the fourth quarter. That does include the impact of Guaranty. I know a lot of folks will be interested in our 2026 outlook. Don't have specifics for you there. We're just now starting our budgeting cycle for 2026. But broadly speaking, what I can say is we do expect to see continued margin growth throughout the year. I would say though that the pace of quarterly increase is likely to moderate throughout next year. So hopefully that gives you some color for where we're headed. We do see continued growth. Jeffrey Allen Rulis: Just to refine that, Byron, when you said the margin growth throughout the year, you're mentioning additionally in '26, but not specifically. And is that what you were referring to? Byron J. Pollan: Exactly right. Yeah. I don't have a specific guide for you in '26. I think we need to get to our budgeting cycle first to really refine that expectation. From where we sit right now, we do see continued growth throughout the year. But quarter to quarter, I could see the pace of growth starting to moderate a little bit. Jeffrey Allen Rulis: Understood. Thank you. And Randy, you know, we are early goings in the Texas market, but interested in the reception there and how potentially your view of finding further partnerships in Texas and Oklahoma, if that's if you got any update there, if you're just as encouraged? Or less more, just interested in that feedback so far. Again, very early, but notable anyway. Randall M. Chesler: Yeah. No. Absolutely. First, I'd say I think Guaranty may be the best cultural fit of any acquisition we've done in the last ten years. Very, very good fit. Our focus right now is on getting Guaranty converted in 1Q and making sure that goes extremely well. I will tell you there's conversations already. We'll have plenty of interested banks who would like to have a conversation when we're ready. Our job one, right now is making sure we get through the conversion in 1Q and do it really, really well. Make sure our customers are happy, employees are happy, and then, like I said, we'll have plenty of banks to talk to. Jeffrey Allen Rulis: Gotcha. Maybe one last housekeeping if I could squeeze it in. Tax rate seemed a little elevated. I don't know if that's a factor of kind of merger costs, but if you could just point us to maybe a good rate going forward. Ronald J. Copher: Yeah. Jeff. Ron here. It is a function of, largely the merger-related expenses, some of which are nondeductible. I would tell you that third quarter rate, I would use that as well for fourth quarter. Jeffrey Allen Rulis: Okay. Ron, are you at is that assumption of additional merger costs or just more of a core rate to match third quarter? Ronald J. Copher: We'll have some more merger costs as well. I think it's a pretty good rate to go with. Jeffrey Allen Rulis: Okay. Thank you. Operator: Thank you so much. One moment for our next question. That comes from the line of David Pipkin Feaster with Raymond James. Please proceed. David Pipkin Feaster: Hi. Good morning, everybody. Randall M. Chesler: Morning, David. Maybe just on the growth side. I mean, you know, loan growth has been solid, kinda remained in that mid-single-digit realm. Just wanted to get a sense of how demand's trending, how the pipeline's shaping up and you're backfilling that production. And then know, just any comments on the competitive landscape as well. And, you know, I mean, we're hearing more competition, especially on the pricing side, maybe more on the structure as well. But just again, wanted to get a sense of your thoughts on the loan growth side and how that competitive landscape is shaping up. Tom P. Dolan: Yeah, David. This is Tom. Yeah. Third quarter was another good quarter for us. And typically, second and third quarter are seasonally stronger for us, a little bit less so in fourth and first quarter. You know, I think we expect that a little bit, but, you know, from a pipeline perspective, we continue to see consistent pull through. We continue to see consistent build back. And it is really fairly consistent throughout the footprint too. And I think from a competition standpoint, it's a little bit geographic specific. In some of the larger markets, we'll see more pricing competition, a little bit less so in markets where we have more of a controlling market share. We're certainly in the types of deals that we go after, you know, just core Main Street lending, we're not really seeing competitors stretch on the structure side, which is encouraging. And that's certainly not something that we would do. So it tends to be more pricing related. David Pipkin Feaster: Okay. And maybe just staying on credit broadly. I mean, credit is still pretty benign for y'all, especially just, you know, given the government. The increase that you guys saw in nonaccrual is all government guaranteed. Is there anything on the credit front that you're seeing at this point or watch more closely? Or is there anything specific within the small business space that you're seeing notable pressures? Tom P. Dolan: You know, the only industry that's that I would say is a little bit outsized is probably the ag sector. You know, hard grain prices, hay prices are still quite depressed. You know, we're faring quite well through this. You know, I think our banks do a good job of securing those assets with, you know, certainly more hard assets than crops. And so, you know, I think that gives the flexibility of both us and the borrower to work through these cycles. And, you know, certainly, our ag lenders have a tremendous amount of experience of seeing cycles like this over and over again. But outside of that, David, there's really no specific geography or industry segment that's showing an outsized level of risk. You know, we saw a little bit of an increase this quarter similar to last quarter. I think we're just continuing to see more normalization from the historic lows that we were showing for the last couple of years. David Pipkin Feaster: Okay. And then maybe last one for me, just maybe a bit higher level. Can like, I mean, we look back. I mean, there's obvious you guys have done a great job driving the margin expansion. Right? And there is a huge tailwind just from the remixing your pricing side. And then, again, obviously, organic, you know, loan and deposit growth is, again, accretive to the margin as well. You know, you look pre-pandemic. Right? I mean, you guys were consistently operating, you know, well north of 4%. Yeah. Is that just in this kind of world, is that still a reasonable target? I mean, you guys have continued to march your way towards that. But is that a reasonable target that we could hit in some time in the foreseeable future? Is that just kinda curious your thoughts on that. Byron J. Pollan: Yeah, David. I do think we can get back to that 4% threshold. It's a matter of timing. I think it's really a matter of when, not if. I don't have specific timing for you. I, you know, it wouldn't surprise me, you know, the end of next year if we see a full handle on our net interest margin. Now a lot of things could impact that between here and there. You know? Know, what happens with our loan growth and deposit growth, you know, what's the Fed doing and shape of the curve, all of those things are going to influence that longer-term margin. But I do see the potential to get there in the future. David Pipkin Feaster: That's super helpful. Thanks, everybody. Byron J. Pollan: You're welcome. Thank you. Operator: Our next question comes from the line of Matthew Timothy Clark with Piper Sandler. Please proceed. Matthew Timothy Clark: Good morning, everyone. Wanna start it on the deposit cost side. Just if you could give us the spot rate on deposits at the September and just give us a sense for what kind of beta you think you can achieve with, you know, this late this last rate cut that we just got and subsequent rate cuts? Byron J. Pollan: Sure. Our spot deposit cost on September 30 was 1.22%. In terms of our beta, to this point, we've been able to achieve a downright beta somewhere in the mid-teens with some amount of lag. Our deposit cost doesn't react immediately to a rate cut. It takes us a little time to kind of work into that, you know, call it 15% deposit beta. With the addition of Guaranty, their deposit base has a slightly higher beta. So you know, if we were 15, I think somewhere going forward with a combination of Glacier and Guaranty, you know, maybe that pushes us up, you know, another couple of percent. So somewhere in the range of, you know, call it 15 to 20% would be my expectation for our down rate beta going forward. Matthew Timothy Clark: Okay, thank you. And then the other one for me, just around the expense run rate and your updated guidance there whether or not that's changed since last quarter with Guaranty. Now in the fold, at the start of the fourth quarter. I don't know if you want sounds like you're still budgeting for next year. So I don't know if you want offer up anything in the first quarter, but I assume there's some seasonality there. Ronald J. Copher: Yes. Let's Ron here. Thank you for the question. Yes, we'll we're budgeting, so I'm just gonna limit the discussion to the third quarter. I want to touch on that and then go towards the fourth quarter. So in the third quarter we finished reported non-interest expense, $167.8 million. That includes $7 million in acquisition-related expense. And $800,000 we incurred in for a fixed asset write-down related to a branch consolidation in one of our Montana markets. And I wanna remind folks that the core non-interest expense that includes merger-related expenses, other one-time unusual items. So taking those adjustments into account, our core non-interest expense was flat at $160 million right in the midpoint of the guide of $159 million to $161 million that was shared on last quarter's call. And then moving into the fourth quarter, just looking at Bank of Idaho, we had a full three months of expense from them versus two months in the prior quarter. So Bank of Idaho projected to add $9 million to $10 million in that third quarter came in just about $9 million the low end of that guide. And we expect that to occur. Bank of Idaho impact for the fourth quarter will be just right around that $9 million number. So then with the acquisition of Guaranty Bank, on October 1, versus we were thinking it would be October 31, we're now gonna have a full three months of expense from Guaranty. And this will cause a step up in our core non-interest expense. It'll add $21 to $22 million to core non-interest expense in the fourth quarter. But in addition, because of purchase accounting, we're gonna have $3 million of amortization expense for a core deposit intangible that we had to record as we would on any acquisition. So in the fourth quarter, when you look across it and put it all together, we're expecting a range of $185 million to $189 million. And again, that includes Guaranty Bank. So but collectively, I just wanna speak very highly of our bank division corporate departments. They've done very well in limiting, controlling their expenses. We do continue to take a cautious approach in hiring, spending in general. You still got higher levels of market volatility. Etcetera. Let me open it up for questions. Matthew Timothy Clark: That's great, Ron. Thanks for the color. Operator: One moment for our next question. And it's from the line of Robert Andrew Terrell with Stephens. Please proceed. Robert Andrew Terrell: Hey, good morning. Randall M. Chesler: Morning. Robert Andrew Terrell: Maybe I'll just start back back there on your senses. Ron, I really appreciate the guidance on 4Q with all kind of the moving pieces. Just understanding that, you know, the core system conversion for Guaranty isn't until 2026. I'm assuming the $185 million to $189 million guide for the fourth quarter doesn't incorporate much in terms of cost save. And question being, should we expect some off that $185 million to $189 million going into '26 just as we experience the core system conversion and get some get some call saves. Ronald J. Copher: Yeah. We will have in the beginning of the first quarter, again, largely related to after the conversion, that's when the cost saves really start to kick in. And as we modeled we're modeling 20% reduction in non-interest expense cost saves. 50% of that we will achieve in twenty-six, The other 50% will be in '27. And so as I mentioned earlier, you know, we're still beginning, I should say, in the budgeting process, but still there will be some moderation. Robert Andrew Terrell: Yep. Got it. Okay. I appreciate it. And if I could go back to just the margin commentary briefly for Byron, I appreciate all the color there. I specifically wanted to ask about the comment of just less margin expansion sequentially throughout 2026 versus what you've experienced this year. And you guys have benefited from a few things this year. It's M and A has helped. The FHLB deleverage has helped significantly, and I think that slows down or kind of ends in 1Q of next year. But then the fixed asset repricing. And I'm curious, the comments on slower margin expansion next year, is that mostly reflective of less FHLB deleverage potential, less M and A related expansion, but asset repricing trends staying intact? Or do you expect relatively less asset repricing benefits as well? Byron J. Pollan: I would say for the most part, it's the FHLB deleveraging. As you point out, that we really finished that by the end of the first quarter. And so we don't, that extra boost or pop that we get from paying down high cost of funding, you know, that will end in Q1. But also on the fixed asset repricing, we still see from a balance perspective, we still see that asset repricing is there. I would say from a rate perspective, the five-year point of the curve has come down some. And so you know, that's also kind of playing into and influencing that comment I made earlier, where we're seeing less lift. I think we'll see less repricing lift just because of where that five-year point of curve is right now. It could change, of course. Robert Andrew Terrell: Yep. Fair enough. Okay. And last one, just for Randy. I appreciate your comments on the Texas market and how well the Guaranty acquisition has gone so far. I wanted to ask about your comments. I know the near-term priority is getting everything integrated from Guaranty. But sounds like conversations maybe could be picking up. And I think your comments were specific to Texas, but I'm curious just on the overall M and A strategy going forward. Should we expect there is more of an emphasis in the Texas market as you build out scale there? Or are you equally as focused kind of legacy Mountain West franchise Texas? I guess, one more in a roller you expect to grow more in one than the other? Randall M. Chesler: Yes. So, I'd say overall, M and A I think what we offer is becoming even more attractive to sellers, with some of the larger banks purchasing banks and our market. We think that's very positive for us. So we offer something that's very different and very attractive to a lot of sellers. I don't think we can put an emphasis on Texas over the Mountain West, the Southwest over the Mountain West. It's just getting back to we have a lot of optionality with very, very good sellers across that entire area. So we don't we're not really prioritizing one area over the other. Like I said, our focus is to do a great job on the conversion. And then we'll see where the conversations take us. Robert Andrew Terrell: Great. Thanks so much for taking my questions. Operator: Thank you. Our next question is from Kelly Ann Motta with KBW. Please proceed. Kelly Ann Motta: Hey, good morning. Thanks for the question. Randall M. Chesler: Good morning, Kelly. Maybe one for Byron. I think the guidance for margin last quarter was 15 to 17 basis points plus another five to seven from Guaranty. It seems like at least near term, it might be a little bit lower. Can you provide any context for the color around that? Wondering if Guaranty is maybe contributing less or there's less accretion income. Any color would be helpful. Thank you. Byron J. Pollan: Sure. We have an estimate in there for the loan marks and the purchase accounting accretion. So we have an estimate in there. I think it may be a little bit more modest than it was prior quarter. Also, kind of back to that five-year point of the curve, our repricing list is just a little bit softer. And also, just looking at the rate cuts, and I mentioned that lag on the deposit side. So the timing of the cuts and the reaction of our deposit base can create a little bit of noise during the quarter. And so put that all together, thought it might be good to just kind of rein in just a little bit that margin. That 18 to 20 is still very strong. Quarter for us. Kelly Ann Motta: Got it. That's really helpful. Another question that maybe you can humor me on, this non-depository financial institution lending. From what I can see in the call reports, it looks like it's almost negligible where you guys, what your exposure is. Just wondering if that's the case and if you could provide, just a moment. Credit has been such a strong selling point of Glacier, just the types of commercial credits you look at, and kind of, what gives you comfort with the outlook ahead. Thank you. Tom P. Dolan: Sure, Kelly. It's Tom. And you're right on the assessment of non-depository financial institutions. It's immaterial. You know, Kelly, it's just it's not a business line for us. You know, neither a syndicated or any other indirect type of business. You know, with our division model, we kinda answered the last part of your question. You know, at the end of the day, we're a collection of community banks. We're Main Street lenders that deal with local businesses and consumers, and we just haven't had the appetite really at all for syndicated and direct, nor do we foresee exploring it. And so, you know, I think when we look at the nature of the pipeline, it really falls right in line with how the footprint is laid out. Good strong local borrowers, Main Street lenders that we've had relationships with for years. Kelly Ann Motta: Thank you, Tom. I'll step back. Operator: Thank you so much. And as a reminder, to ask a question, simply press 11 to get in the queue. Alright. And our last question comes from the line of Tim Coffey with Janney Montgomery Scott. Please proceed. Tim Coffey: Thank you. Good morning, everybody. Randall M. Chesler: Morning. Tim Coffey: Tom, if I could follow on that last question Kelly was asking. I mean, we've seen a handful of missteps in the last couple of weeks from some banks. And I was wondering if in general, you could discuss kind of the processes and checks you have in place at Glacier. Ensure that borrowers are doing what they're supposed to be doing. Tom P. Dolan: Yeah. Sure. Well, you know, first of all, it begins with knowing your customer. And, you know, the other thing is the loans that we have on our books, we're in control over. So that kinda goes back to that indirect comment or purchase participations or syndication. That just isn't really a space that we play in. We wanna be, you know, directly in control of the relationship. Then, you know, I think to answer the latter part of your question, you know, we have credit administration functions in every single one of our divisions. And that's proximate to the street, proximate to the customers. They're in the communities where we meet with our borrowers on a regular basis. Typically minimum, on a quarterly basis for our larger borrowers. But we're also seeing these borrowers at community events and sporting events. And so, you know, it goes back to just the true core community bank type lending. And then, from a more formal perspective, we're very good and deliberate with our covenant structure and our new originations. Our ongoing annual reviews of both, you know, each of the division banks and then also an ongoing regular review of the portfolio at large. And so, you know, I think when you just encapsulate all those things together, we really have a strong understanding of what's going on with our borrowers. Tim Coffey: Alright. That's great. All my other questions have been asked and answered. Thank you. Operator: Thank you so much. And this will conclude our Q&A session. And I will pass it back to Randy for concluding comments. Randall M. Chesler: All right. Thank you, Carmen. And I want to thank everyone for dialing in today and joining our call. Have a great Friday and a great weekend. Operator: Thank you. And this concludes our conference. Thank you all for participating. And you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Ally Financial Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sean Leary, Chief Financial Planning and Investor Relations Officer. Please go ahead. Sean Leary: Thank you, Daniel. Good morning, and welcome to Ally Financial's Third Quarter 2025 Earnings Call. This morning, our CEO, Michael Rhodes, and our CFO, Russ Hutchinson, will review Ally's results before taking questions. The presentation we'll reference can be found on the Investor Relations section of our website, ally.com. Forward-looking statements and risk factor language governing today's call are on Page two, GAAP and non-GAAP measures pertaining to our operating performance and capital results are on Page three. As a reminder, non-GAAP or core metrics are supplemental to and not a substitute for U.S. GAAP measures. Definitions and reconciliations can be found in the appendix. And with that, I'll turn the call over to Michael. Michael Rhodes: Thank you, Sean, and good morning, everyone. I appreciate you joining us for our third quarter earnings call. Before we dive into results, I want to reflect on the refresh strategy we've rolled out in January, which has reshaped Ally into a more focused organization. These changes are not cosmetic. They are foundational, and the third quarter provides clear evidence that our strategy is working. If I had to choose one word to define this quarter, it would be momentum. Not isolated wins, but sustained improvement driven by our 10,000 colleagues who are executing with discipline, urgency, and purpose. We are seeing it in the traction each of our three core business franchises have with our customers. We're seeing it in our financial performance, and we're seeing it in the way our teams are showing up every day to serve our customers in a compelling way. With that, let's turn to our third quarter financial results. We achieved significant year-over-year earnings growth with adjusted EPS up 166% to $1.15 per share. Core ROTCE was 15% on a headline basis and about 12% excluding the impact of AOCI. These increases are driven by embedded structural tailwinds in the balance sheet, continued credit normalization, and disciplined expense and capital management. Third quarter adjusted net revenue of $2.2 billion, up 3% year over year, despite the sale of the card business earlier this year. Excluding the sale of credit card, year-over-year net revenue growth was 9%. Net interest margin excluding core OID, expanded to 3.55%, up 10 basis points quarter over quarter driven by continued optimization on both sides of the balance sheet. And we remain confident in our ability to deliver on our medium-term target. Meanwhile, CET1 of 10.1% equates to $4.5 billion of excess capital above our regulatory minimum. Importantly, these results reflect momentum across our franchise. Margin is expanding with a clear path to the upper 3% range. Operating leverage is improving, supported by top-line revenue growth and disciplined expense management. Credit trends are supportive as delinquency rates continue to normalize and the net charge-off rates improve due to underwriting actions and servicing enhancements implemented over the past two years. And our capital ratios are growing steadily. Expense discipline remains paramount, and this quarter, we rolled out our proprietary AI platform, ally.ai, to 10,000 teammates to help them streamline tasks, automate routine work, and make more informed decisions. Looking beyond the financial results, our unmatched brand and leading culture continue to provide distinct advantages in the markets we serve. Our brand continues resonating in the market as consumers once again choose Ally for a reputation at a higher rate than the industry average. Our employees show up for our customers and communities every day, and that impact is felt in everything we do. While recognition is never the goal, Ally was recently honored by the American Banker with an award for the most powerful woman in banking, top team. That's a first for a digital-only bank. We also climbed the rankings on Fortune's best workplaces within our industry. Recognitions like these are testament to our culture, our people, and what it means to be uniquely Ally. With that context, let's turn to Page five and discuss the core franchise that are fueling our momentum and position us for sustained growth moving forward. Dealer financial services continues to be the cornerstone of our performance. Within the auto finance business, consumer originations of $11.7 billion were driven by 4 million applications. That's our highest application volume ever. The strength of our dealer relationships and the scale of our franchise enable us to be selective in loans we book, optimizing for both pricing and credit. Simply put, dealers want to do business with Ally, and we're seeing it in our results. Our differentiated model provides dealers a comprehensive suite of solutions spanning consumer and commercial financing, smart auction, and pass-through programs, and a broad range of insurance products. This positions Ally as a unique strategic partner to our customers. Originated yield came in at 9.7% with 42% of originations for our highest credit quality tier, a direct reflection of our disciplined strategy to balance attractive pricing with prudent risk management. Turning to insurance, we continue to leverage synergies with auto finance to enhance the overall value proposition we offer to our dealer partners. Our insurance team remains focused on expanding relationships and deepening engagement with the 7,000 dealers they currently support. In Corporate Finance, we delivered another strong quarter generating a 30% ROE, along with 10% growth in loan portfolio. We're maintaining disciplined risk management while actively exploring new verticals, structures, products, and solutions to generate incremental accretive business. This is a business built on trust, speed, and performance, and we're committed to scaling it responsibly. Turning to our digital bank, it remains a key differentiator in the marketplace. Our customer-first approach continues to set us apart. We ended the quarter with $142 billion in balances, reinforcing our position as the largest all-digital bank in the U.S., serving 3.4 million customers. Deposits remain the foundation of our funding profile, representing nearly 90% of total funding. 92% are FDIC insured, demonstrating the strength and stability of our deposit base. Our mobile app continues to earn top-tier accolades for customer satisfaction, and our suite of digital products is driving deeper engagement, fueling loyalty, and reducing rate sensitivity. Before I turn over to Russ, I want to leave you with this. We are pleased with our progress and even more confident in where we're heading. But let me be clear, we still have work to do. We are doubling down on our core franchises. They are driving improved results and setting us up for focused growth moving forward. We're creating long-term value for shareholders, customers, employees, and the communities we serve. We've built a differentiated foundation, resilient, scalable, and aligned with our long-term goals, and we see room for organic growth across each of our businesses over the years to come. Momentum is real, and we are confident in our ability to sustain it. And with that, Russ, I'll turn it over to you to walk through the financials in more detail. Russ Hutchinson: Thank you, Michael. I'll walk through third quarter performance starting on Page six. As mentioned last quarter, our financial results reflect the closing of the sale of our credit card business at the beginning of the second quarter. Prior year comparisons may be impacted by the sale, I'll highlight those areas as we move through the results. Excluding core OID, net financing revenue totaled $1 billion, up approximately 4% on a linked quarter and year-over-year basis. We continue to benefit from the momentum in our core franchises, given ongoing optimization of deposit pricing, and strategic remixing of the balance sheet toward higher-yielding asset classes. I'll provide more detail on margin shortly. Adjusted other revenue totaled $557 million, up 5% quarter over quarter and approximately flat year over year. Growth in insurance, smart auction, and our pass-through programs offset the headwinds in the sale of credit card and ceasing mortgage origination. Taken together, total revenue of $2.2 billion is up 3% year over year, but up 9% when you adjust for the sale of credit card. Provision expense of $415 million was down approximately 36% year over year given continued normalization in retail NCOs and reserve build in the prior year period. In retail auto, the NCO rate declined 36 points year over year to 1.88%. We continue to be encouraged by the trends within the portfolio as Vintage Dynamics and enhanced servicing strategies drive favorable loss trends. I'll cover credit performance in more detail shortly. Noninterest expense was $1.2 billion, down $22 million sequentially and up $15 million versus the prior year. As mentioned previously, controllable expenses were up year over year driven by nonrecurring benefits recorded in 2024. We continue to anticipate flat expenses this year and are committed to maintaining disciplined expense management going forward. In total, adjusted earnings per share of $1.15 was up 166% year over year. Another encouraging step as we progress towards our medium-term targets. Turning to page seven. Net interest margin, excluding OID, was 3.55%. An increase of 10 basis points from the prior quarter. On a quarter-over-quarter basis, NIM expansion was driven by repricing of the liquid deposit and CD portfolios, and continued remixing of the balance sheet as growth across retail auto and corporate finance replaced lower-yielding mortgages and securities. Retail auto portfolio yield, excluding hedges, was up two basis points quarter over quarter to 9.21%. Looking ahead, we expect modest expansion in portfolio yields. Lower benchmark rates will influence originated yield and impact the portfolio's ultimate trajectory. But retail auto loan growth is expected to support accretive remixing of the balance sheet. Industry-wide liquidation activity has increased, partly due to demand pull forward. Traditional trade-ins continue to represent most of the activity, and liquidations have been concentrated in lower-yielding loans, resulting in minimal impact to net interest margin. On the liability side, 3Q results reflected the full benefit of the 10 basis point reduction in liquid savings rates we made in June, and a modest benefit from our most recent liquid savings rate reduction in September. We also continue to benefit from the natural tailwind in CD repricing as $8 billion of CDs carrying a 4.3% yield during the third quarter. The value of our brand extends well beyond rate, and fosters our consistently strong retention and renewal rates. The stability of the portfolio and our pricing power the strength of our digital bank. With balances tracking in line with our expectation of relatively flat balance for the year. Just like last year, we expect deposit beta will start slow and gradually migrate to our cumulative beta target. We have included an additional schedule in the appendix providing a detailed view of how deposit beta played out starting this time last year as the Fed reduced benchmark rates by 100 basis points from 5.5 to 4.5%. This historical example is not guidance. But we feel it's a valuable comparison to frame how beta evolves to a series of Fed fund rate reduction. As we've previously noted, Ally is the liability sensitive over the medium term but asset sensitive in the very near term. Driven by floating rate commercial loans and pay fixed hedge exposure. Therefore, reductions in short-term rates particularly material reduction, pressure margin expansion early on. I'll discuss our outlook for margin in more detail shortly. Turning to Page eight. Our CET1 ratio of 10.1% represents approximately $4.5 billion of excess capital above our SCD minimum. On a fully phased-in basis for AOCI, CET1 for the period is 8%, an increase of 90 basis points year to date. In August, we executed a $5 billion retail auto credit risk transfer transaction which generated approximately 20 basis points of CET1 at issuance. With significant investor demand, the was the tightest spread we have seen today. We will continue to use these structures opportunistically as a mechanism to efficiently supplement organic capital generation. To date, we've completed three transactions, and while they provide a low cost of capital, we remain balanced in our use given the relatively short duration of the capital they generate. Our capital management priorities remain unchanged. We are focused on deploying capital to drive accretive growth in our core franchises, while continuing to move our fully phased-in CET1 level higher. Last week, we announced a quarterly common dividend of $0.30 per share for the 2025. Consistent with the prior quarter. Share repurchases remain a key capital management priority. The continuing strength of our CET1 position and increasing organic capital generation through earnings. Provide greater flexibility, and inform the appropriate timing to resume repurchases. Turning to book value at the bottom of the page. Adjusted tangible book value per share of $39 increased over 11% from the prior year. We remain focused on growing tangible book value per share and driving shareholder value through disciplined capital management in the years ahead. Turning to Page nine. Credit trends across our portfolios remain encouraging. The consolidated net charge-off rate was 118 basis points. A decline of 32 basis points to the prior year. This quarter's consolidated net charge-off rate reflects the impact of the card sale, which contributed to the year-over-year improvement. In retail auto, the net charge-off rate was 188 basis points. Up 13 basis points sequentially given seasonal trends, but down 36 basis points year over year. A third consecutive quarter of year-over-year improvement reflects strong performance from recent vintages and the benefits of continuing servicing enhancements. Moving to the top right of the page, 30 plus all in delinquencies of 4.9% is down 30 basis points from the prior year and marks the second quarter of improvement year over year. This continued improvement further reinforces our constructive view on the near-term loss trajectory within our portfolio. But we continue to assess the dynamic macro environment. Vintage level delinquency trends are included in the supplemental section of the earnings presentation and are also disclosed in our 10 Q and 10 Ks. The benefit of vintage rollover continues to be evident in actual results. Turning to the bottom of the page on reserves. Consolidated coverage increased one basis point this quarter to 2.57%. While the retail auto coverage rate remained flat at 3.75%. Our retail auto coverage levels continue to balance the favorable credit trends within our portfolio against an uncertain macroeconomic outlook and softening employment. Our modeled reserve contemplates the consensus outlook with peak unemployment of 4.6% before reverting to a historical mean near 6%. As we have consistently messaged, we do not forecast reserve releases. And they are not incorporated into our mid-teens return guidance. Moving to our auto finance segment on page 10. Pretax income of $421 million was up $66 million year over year, primarily driven by lower provision expense. Our lease remarketing performance was breakeven for the second consecutive quarter. As noted, we expect remarketing performance to be less of a factor moving forward given the reduced volume of terminating units not covered by residual value guarantees. As illustrated on the bottom left, retail auto portfolio yield, excluding the impact from hedges, increased two basis points quarter over quarter. Originated yield of 9.72% was down 10 basis points quarter over quarter with 42% of retail volume generated from our highest credit tier. We actively calibrate our buy box to adapt to the evolving market, with a sharp focus on risk-adjusted returns. These capabilities give us conviction in our ability to sustain attractive originated yields through the cycle, while also improving the overall credit quality of our portfolio. Prime credit remained the majority of our originations in the quarter with average FICO of 708. FICO scores below 620 represented roughly 10% of volume while sub 540 volume was only 2%. Both consistent with historical trends. On the bottom right of the page, you'll see consumer originations of $11.7 billion, up 25% year over year fueled by a record 4 million applications. Importantly, strong application volume increases our ability to be highly selective in underwriting, targeting attractive risk-adjusted returns while maintaining discipline and prudence. For context, our 22,000 dealer network enabled us to look at roughly $125 billion worth of volume during the quarter. Providing the opportunity to drive accretive growth and monetize declined applications through our pass-through program. Turning to our insurance business on page 11. We recorded core pretax income of $52 million, which was up $6 million versus the prior year. Total written premiums of $385 million were up $1 million year over year and up $36 million on a sequential basis. We continue to leverage synergies with auto finance to drive momentum within the business. The year-over-year increase in losses was primarily driven by loss reserves as we grew the portfolio. We didn't observe any large weather events in 3Q. But our reinsurance program continues to reduce exposure within the book. Insurance remains a key component of our capital-efficient other revenue expansion as we continue to focus on growing our premiums over time. Corporate finance results are on page 12. Core pretax income of $95 million reflected another strong quarter with a 30% return on equity. Net revenues of $136 million was up $9 million quarter over quarter and down $10 million year on year. With higher syndication and fee income in the prior year driving the annual decline. End of period HFI loans ended $11.3 billion. An increase of approximately $1 billion year over year reflecting our focus on prudently growing the business. We delivered another quarter with no new nonperforming loans and no charge-offs. Criticized assets and nonaccrual loan exposures were 9%, and 1% of the total portfolio, remaining near historically low levels. We continue to leverage long-standing relationships with financial sponsors along with the strategic expansion of our product suite. Together, they drive accretive, responsible loan growth even in a competitive market. On page 13, I'll conclude with a brief update on our financial outlook. We remain encouraged by the momentum across our core franchises and the strong execution from our team. On margin, we narrowed the range to 3.45 to 3.5%. Consistent with what we indicated in July, we said we expected full-year NIM to land in the upper half of our 3.4% to 3.5% full-year guide. We expect fourth-quarter NIM to be roughly flat to third quarter as the Fed embarks on a series of Fed fund rate reductions. As a reminder, given our near-term asset sensitivity, the magnitude and timing of rate cuts will influence margin over the next couple quarters. We expect NIM to migrate to the upper threes over time, but it won't be a straight line. The strong NIM expansion we saw in the second and third quarters of this year following Fed actions at the end of last year support our confidence in our medium-term NIM trajectory. On credit, we've said full-year NCOs could fall towards the low end of our two to 2.25% guide if the constructive trends we were seeing declining delinquencies, strong photo loss rates, and supportive used car prices continued through the year. We now expect full-year NCOs of approximately 2%. At the low end of our full-year guide based on the continuation of those trends. We could print full-year NCOs a few basis points higher or lower than 2%, based on year-end, total loss rates, or changes in used car prices. As a reminder, the constructive trends we're seeing started in the fourth quarter last year, which will impact the year-over-year comparison in fourth quarter relative to what we printed in 3Q. As a result of the update on retail auto NCOs, our outlook for consolidated NCOs is now approximately 1.3%. We continue to approach credit with discipline. Ensure we remain well-positioned in the current macroeconomic environment. The outlook for average earning assets is consistent, but it's important to note the underlying growth trends. Our guide continues to be impacted by commercial floor plans. Dealers are maintaining leaner inventory levels due to the impact of tariffs, and the effects of demand pull forward. These leaner inventory levels are supportive to overall dealer health. However, even with this impact to average balances, we expect ending earning asset balances to be flat year over year. Growth in the portfolios we want to grow, retail auto and corporate finance loans, are offsetting lower inventory levels as well as the nearly $4 billion headwind from the sale of card and runoff of mortgage assets. This trade-off supports our margin expansion and earnings growth. Finally, we expect our full-year effective tax rate to be approximately 22%. The remainder of our guidance is unchanged, reflecting consistent execution across our business businesses. With that, I'll turn it over to Sean for Q and A. Sean Leary: Thank you, Russ. As we head into Q and A, we do ask that participants limit yourself to one question. And one follow-up. Daniel, please begin the Q and A. One one on your telephone. And wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from Sanjay Sakhrani with KBW. Your line is open. Sanjay Sakhrani: Obviously, lots of jitters around some of the cracks that we've seen in subprime auto and just broader consumer credit trends. Michael, it seems like your metrics don't necessarily suggest a lot of that, and I know you guys have gotten ahead by containing some of the growth and tightening your underwriting standards. But I'm just curious if you can comment on that and sort of how you see the path forward and if you've seen any contagion, so to speak. Michael Rhodes: And maybe I'll start. Sanjay, thanks. And Russ, if you see if have anything to add. But, look, we're observing consumer behaviors that are, you know, honestly better than our expectations. And, appreciate there's a lot of macro uncertainty in the but we're not seeing that impact our credit performance. And so we're we're you know, we feel good about what we're seeing right now. Russ Hutchinson: Yeah. We're certainly, you know, benefiting from a lot of the decisions we made around underwriting, you know, dating back to 2023 when we really started tightening, and that's giving us the benefit in terms of vintage rollover that quite frankly still has some legs to it. We've also, as we've talked about before, made a number of enhancements to our servicing strategies. And so we've got some benefits kind of baked into the trends we're seeing in our portfolio. That we're seeing in the outcomes. I'd say as we kinda look through our portfolio, I know subprime has been a particular focus for folks. We look at some of our lower credit tiers and, quite frankly, those tiers are performing better than our expectations at the time when we price them. So, yeah, we continue to feel pretty good about what we're seeing in our book. You know, all that being said, we have to acknowledge that there's an uncertain macro, you know, and as you'd expect, we're watching that very closely. Sanjay Sakhrani: Thank you. And just to follow-up on the NIM. Obviously, Russ, you gave us some sort of expectations on a go-forward basis with the push and pull of rates going lower, just, you know, that target of getting into the upper threes, I mean, like, over what timeline, you know, if you assume the forward curve, do you anticipate getting there? And then just on that specific point, if we think about the yields component, we've heard about banks kind of reengaging with the market. I'm just curious if you guys are seeing any impact related to that. Thank you. Russ Hutchinson: Great. Maybe I'll start with your question on the NIM trajectory first. You know, we put in our presentation on page 19 in the supplemental portion, you know, a bit of a historical case study. We basically looked at our beta evolution following the Fed's rate reduction last year this time, as you'll recall, yeah, between September and December, they took a 100 basis points out of Fed funds. Know? And just as we're guiding this year, it translated into, you know, a slower early beta. And then what you really saw with us is, you know, that NIM expansion that we saw in, you know, was really driven by the catch-up of that beta. And so Q2 of last year and this past quarter Q3, yeah, that's a dynamic that we expect to repeat as the Fed has once again embarked on a series of rate cuts to fed funds. And so I think that provides useful help in terms of understanding how our NIM and our how our beta evolves through these rate-cutting cycles. And I think that should give you and others confidence in terms of our overall trajectory and how we see the path to high threes. On your second question around just kind of competition in the market, yeah, maybe I'd start by saying, you know, the level of competition in the market isn't unexpected to us. It's not unexpected to us to see, you know, other smart, sophisticated financial institutions recognize the attractiveness of the market that we play in. And, you know, we've talked extensively about just kind of how attractive we think our 2024 vintage has been in terms of the risk-adjusted returns on that vintage as well as, quite frankly, the '23. So, you know, it's not surprising to us to see other institutions attracted to the sector. And they've been here all year. I mean, we've seen that increased competition from a number of players all year. You know, all that being said, you know, we've been really thoughtful about where we play and how we play. And that's translated into a tremendous amount of momentum with our dealers. You know, we are a consistent player in the market. We are a consistent partner to the dealers and the OEMs that we work with. And we've been quite frankly rewarded in terms of the amount of application volume we've seen. We've had, you know, three straight quarters of record application volume. It's translated into, you know, really great originations both in terms of volume as well as in terms of credit and yield. You know, this is a large and fragmented market, and you know, I think we've been thoughtful about where we play. We've been thoughtful about providing a really attractive value proposition to our dealer and OEM partners. And we're seeing the benefit of that. I think we've also seen the benefit of, you know, some degree of demand pull forward just given some of what's going on with tariffs as well as the EV lease tax credit program that terminated at the end of last month. And so, you know, we're seeing some benefits in terms of volume there that have certainly helped in terms of creating a great opportunity set. But I'd say we feel really good about our ability to compete in this market. And our ability to continue to get, you know, really great originations in terms of credit, in terms of risk yield. That ultimately support our overall NIM trajectory. Sanjay Sakhrani: Thank you, guys. Sean Leary: Thank you. Our next question comes from Robert Wildhack with Autonomous Research. Your line is open. Robert Wildhack: Hey, guys. The past few quarters, you've called out favorable flow to loss trends. Was wondering if you could just give us a quick update on what you're seeing there most recently. Are they still as favorable as they were earlier in the year? Russ Hutchinson: Yeah. They've continued to be favorable. You know? And as you've seen, we've now had we've now seen delinquency levels overall start to come down, and I'd say, you know, we're encouraged by the fact that our flow to loss rates continue to be solid even as delinquencies have come down. Robert Wildhack: Okay. Great. And then if I look back, in 2020, you bought back stock within an 8.5% CET1 ratio that was kind of fully marked for CECL. Obviously, higher than that on a reported basis. I appreciate that's not a perfectly comparable period to the present and obviously depends on the final rule going forward. But is there any reason you could think of why that wouldn't be, like, at least a reasonable benchmark for the potential for capital return going forward here? Russ Hutchinson: Yep. Maybe I'll pull back a little bit, and I'll just maybe at the risk of reiterating some of the stuff we said in our prepared remarks. Yeah, we feel great about the progress we've made in capital over the course of this year. I mean, we've both increased our CET1 ratio, you know, on a stated basis and a fully phased-in basis, while supporting the growth of our core businesses. You know? And that obviously comes from a lot of hard decisions we made about the businesses that we've chosen to exit. It also comes from some of the flexibility we get from transactions like the CRT transactions that we've been doing and that we talked about earlier. But we feel great about our progress there. We also feel good about the organic capital generation of business and our outlook and our expectation that we'll continue to increase that level of organic capital generation. So, you know, we feel really good about the progress, and as we said in the prepared remarks, share repurchases remain a key priority for us in terms of capital management. And I did, you know, I kind of go back to the remarks that, you know, and I think you're kind of pointing out some of the right factors to consider. But, you know, as we continue to see improvement in our fully phased-in CET1 ratio, you know, and as we continue to see in our organic capital generation, yes, those are the things that we're gonna look towards in terms of determining the appropriate timing of returning to our share repurchase program. Yeah. Those are kind of the right important kind of benchmarks that we think about. Robert Wildhack: Okay. Thanks. Sean Leary: Thank you. Our next question comes from John Pancari with Evercore. Your line is open. John Pancari: Good morning. Russ Hutchinson: Morning, John. John Pancari: Just wanna see if I could get a little bit of color around your earning asset expectation. I know you had reiterated the down 2% this year, and I believe previously you had indicated on a more normalized basis, which we believe would be more like 2026, that you could see the average earning assets up low single digits. So implying, you know, that inflection into next year, can you just give us that updated view there in terms of the components? Do you feel confident in that in the low single-digit pace that we could see next year and that inflection? And then maybe if you could also talk about liquidations. That you might be seeing. I know you had indicated that refinancing pressure has picked up a little bit, although off of a low base, but just driven by some of the larger competitors in the space. Wanted to see if that's continuing, if that poses any risk. Thanks. Russ Hutchinson: Yeah. I'll start with the thanks, John. I'll start with the earning assets trajectory, and you know, I think the dynamics that you generally pointed out sound correct to me, and maybe I'll just kind of go through it a little bit. You know, what we've seen this year is, you know, we've obviously seen the impact of exiting the card business as well as mortgage. And then we've also seen the impact of leaner dealer inventories. And so at this, you know, so when we kind of look at our points of, you know, end-to-end earning asset levels start of the year, to our ending earning assets at the end of the year, you know, to point to flat, the way we get there is through growth in the portfolios we really want to grow. Our highest margin, highest returning portfolios in retail auto, and corporate finance. And so, you know, underlying that flat year-to-year comp on earning assets is really growth in the businesses we wanna grow. And the impact of winding down some of the stuff we've exited as well as softness on the dealer inventory side. As we look forward, you know, obviously, we've exited what we've exited. And so as we go forward, you know, really the dynamic comes to the ongoing runoff of our mortgage loan portfolio, which we continue to wind down versus the growth in our core businesses. You know? And as you know, from a business perspective, you know, floor plan's an important business for us. But it's important to us really, you know, as it supports a dealer relationship that gets us more business. That's higher margin that we really like in terms of retail auto loans as well as insurance and smart auction and pass-through. But as we look forward, our expectation is, you know, call it low single-digit percentage growth in earning assets overall. Obviously, you know, faster growth in the places that we really wanna grow in retail auto loans and corporate finance. You know, of course, the opportunity we said that we see will impact our overall growth rates in any particular period. But I think if you look at us over the medium term, you should generally expect that kind of single low single-digit growth overall but faster growth in retail auto loans and corporate finance. Michael Rhodes: And, Russ, just to underscore that, like, we really feel good about the places we're growing. We're growing where we wanna be growing and think that will set us up very well. Russ Hutchinson: Your question on liquidation rates. And I'd say, look. Liquidation rates are certainly normalizing, you know, from a period post-pandemic where they were a little lower. You know? But I would say, you know, when you think about liquidation rates, it's still predominantly a trade-in story. That is, it's more, you know, people trading in their vehicles as opposed to refinancing. They, you know, continues to be a pretty small part of the population overall. The auto product is not really a refinance product per se. All that being said, you know, we're seeing trends that are consistent with the industry. We are seeing refinances come up. But, again, it's coming off of a really small base. It's still a really small part of the overall picture. When we look at liquidations more broadly, you know, it's still kind of more driven by trade-ins, and it tends to be lower-yielding loans. And so it really hasn't had a significant impact on us from a NIM perspective. John Pancari: Great. Okay. Thanks for that, Russ. Appreciate it. And then just one follow-up. Just around the business base, Mike, I was wondering if you can give a little color here. I know you made some real good progress in streamlining the business base. You talked about mortgage, talked about card exits, and really focusing on your core strength in auto and commercial in corporate finance. You know, over time, do you see any additional modifications to the business base, either expansion into areas that you feel better about from a risk-adjusted return basis, or you may not have critical mass now? I mean, just as you had time now to work with this business mix, how do you view that evolving longer term? Michael Rhodes: Well, a great question. Thanks. Look. Overall, when I look at our businesses, I feel really good about the businesses that we're in. And, you know, one of the characteristics of the businesses that we're in and where we're investing and growing is they're generally fragmented businesses where we have what I call, relevant scale. As we feel great about our position today, we feel no desire. We're done doing any work to try to figure out, you know, what's the next, you know, kind of product line to go into. We think there's lots of organic runway in front of us. You know, are there gonna be adjacencies within dealer financial service or adjacencies within the corporate finance business, which are, you know, kind of close cousins to what we're doing. Yeah. There may be, and we'll look at those. But those are the situations where actually leveraging some strength we already have as opposed to try to do something totally new and different. And so, you know, think about what we've done in dealer financial service around insurance or the pass-through programs or smart auctions. Kinds of examples where we've got a great set of relationships and distribution capability with our customers. And there's something else that fits that nicely, yeah, we'll be looking at those. But kind of going, you know, far afield and other types of products, that's not on the radar screen. John Pancari: Okay. Great. Thanks for taking my question. Sean Leary: Thank you. Our next question comes from Jeff Adelson with Morgan Stanley. Your line is open. Jeff Adelson: Hey, good morning, guys. Thanks for taking my questions. Just to sort of follow back up on the origination strength, you know, this was the fastest growth you've seen here, I think, in almost four years. You obviously highlighted the record application volumes, but it does maybe seem like you're approving a little bit more than the application growth, which I think was 11% growth year over year. So could you just talk about maybe what's driving the strength of application here? Maybe what's giving you some confidence to lean in a little bit more here. And how you're getting that with, you know, even keeping your s tier at 42% or above where it's been historically. And I think just also as a part of that lease also look like it has some strength going a lot faster than the rest of the, you know, loan origination book. So maybe comment on that. Thanks. Russ Hutchinson: Yeah. Maybe I'll start off by saying our approval rates and our capture rates were entirely consistent with historical. So the, you know, the volumes that we saw were completely a function of the opportunity set, the application volume that we were able to drive. We can and we can go through the puts and takes with you know, as we kind of think about the call afterwards. Just on the strength we saw in lease volume in particular, a big component of that was EV leases. As you know, Jeff, the EV lease tax credit program expired on September 30, and we certainly saw some pull forward, you know, as consumers and dealers rush to get deals done ahead of that deadline and take advantage of that tax credit program. And, you know, quite frankly, you know, there's probably some pull forward we saw in the second and third quarter as a result of just some of the noise around tariffs as well. So definitely some demand pull forward in quarter, but I'd say yeah, we feel great about the traction that we have with our dealer and OEM customers. You know, I think our go-to-market helping them sell as many vehicles as possible and making their businesses better is clearly something that resonates. Our consistency in the market, you know, and just the overall value proposition we provide, you know, being for them, being there for them in terms of dealer floor plan, insurance, retail auto loans across a wide spectrum. As well as the additional value we provide to our pass-through programs and our smart option. It's clearly resonating and we're seeing a lot of benefit and traction that's helping us deal with some of the increased competition in the sector. Jeff Adelson: Okay. Great. Thanks, Russ. And maybe just to follow-up on Sanjay's around, you know, credit performance. At least one of your peers did see some, you know, accelerating DQs this past quarter. And I think, you know, there's been some similar commentary around pulling back on, you know, standards and tightening standards over the past few years, which you've talked about, obviously. I guess, is there anything else you think you're doing different? Or what others are seeing that you're not at the low end of the spectrum. And just to maybe follow-up on the servicing strategies, could you talk about how that's performing, maybe modification rate, and what the stick rate has been of those coming off modification? Thanks. Russ Hutchinson: Yeah. So, yeah, maybe I'll start and kind of what we're seeing, you know, within our own book in terms of kind of the lower end of the spectrum. Yeah, we said in our prepared remarks that, you know, the stuff that we do that's below, you know, call it a 620 FICO is pretty small. But as we look at some of our lower credit tiers, yeah, they're actually performing better than the expectations we set at pricing. But as you pointed out, you know, again, it's a small portion of our book. As you pointed out, you know, we've been tightening now for a couple of years. And so what we're seeing to a large degree is the benefit of some of the underwriting decisions that we made through the course of 2023. And that gave us, you know, these really strong books, the, you know, the back half '23 and in particular, the '24 vintage. And so, yeah, we're seeing the benefit of that. And then as you pointed out, we're also seeing the benefit of enhancements that we've made to our servicing strategies. You know, we've talked about these extensively in the past. There's nothing new or different this quarter. It's stuff that we've been doing and refining over the course of the last few years. But it comes down to, you know, one of the simple things is just, you know, how we communicate with our customers and, you know, we're a lot more digital in our communications, so we like to talk to our customers. In the way that they're most responsive to you, whether that's email or digital or chat or telephone. You know, we're just much better at tailoring our communications to, you know, to what resonates best with them. You know, we're also doing we have we've also been doing some interesting things over the last couple of years. Things like sending customers, you know, kind of more notifications and transparency around kind of where they are in the process. And so, for example, we'll issue a customer notification when the repo ticket is issued. And we found that those notifications help. Sometimes they spur a customer who really wants to stay in the car to give us a call and to work with us. And then on the other side of it, we've made changes in terms of kind of reducing some of the frictions and just making it easier and more seamless to run things like extensions and modifications. And then as you would imagine, we have been really careful to make sure that we're tracking those loans at this time to make sure we're getting the stick rates that we're looking for and that we truly are getting better outcomes and not kicking a can down the road. We've talked about this a little bit in the past, but we have policies in place in terms of really making the customers pony up in terms of putting cash on the table in order to earn those earn entry into those programs. And then finally, on repo timing. You know, in this, you know, these policy changes date back now a few years. But we've been adjusting our approach to the timing of repossession. Not across the board, but in a thoughtful way, you know, looking at specific kind of consumer behavior and tiers and using our behavioral modeling to figure out where it makes sense to delay the repossession. And we found giving our agents a little bit more time to work with the customer in a lot of cases, gives us a better outcome. Again, you know, paying attention to kind of how those loans behave over time. Yeah, we really do believe we're getting better outcomes here. So yeah, we've had a few years here in terms of making enhancements to our servicing and, you know, and we've had the benefit of being able to track, you know, how those changes have performed over time. And so we feel pretty comfortable that we're getting better outcomes here. Now you can't talk about credit without talking about the macro. You know? There's a macro uncertainty out there. Potentially weakening in the employment picture, and that's all stuff that we're watching very closely. And tracking. But I would say, you know, we are we definitely feel we're getting tangible benefits. From both the vintage rollover and the servicing enhanced work enhancements that we've put in place over the last few years. Jeff Adelson: I really appreciate that. Thanks, Russ. Sean Leary: Thank you. And our final question will come from Moshe Orenbuch with TD Cowen. Your line is open. Moshe Orenbuch: Great, thanks. Maybe at the risk of talking again about the competitive environment, you were able to have very, very strong application volume. Are there things that you'll be doing in the future that would actually help the, you know, the conversion and closing rates or, you know, I mean, how do you sort of think about that? Like, is that something that we could look forward to, you know, at tail end of this year and into 2026? Michael Rhodes: Moshe, this is Michael. You know, great question. As you know, we have the good fortune certainly on the auto side to look at a large volume of applications on a daily, weekly, quarterly basis. And, you know, one of the benefits that we have of having, you know, we're in this markets. We're in these markets through kind of all cycles and doing you create these very rich datasets. So you can imagine, we are always looking and trying to find the segments where we see incremental opportunity. And that's a never-ending process. Data evolves, and then we learn more and more. And when we look at our segments in different ways and really micro segments. So, yeah, we're gonna continue doing that. We'll do that today, tomorrow, and ongoing. And hopefully, in doing so, we'll find out, you know, new veins of profitable business for us to underwrite. And then, you know, as Russ said that you do need to overlay a little bit of a macro view. We gotta be careful not to overlay the for the macro because right now, things look good, but there is some uncertainty. On a go-forward basis. But we feel that we're just in a really good position to have the volume of applications that we see and be able to really go to school and try to understand really how to maximize not only business for ourselves, not only how to maximize the impact we have on the dealer community. Russ Hutchinson: Yeah. And the only thing I'd add to that is, you know, we also have our pass-through programs. And so, you know, we're providing value to our dealers, you know, beyond what we're underwriting for our balance sheet. And we also have the benefit of being able to service that paper and obviously, it gets an economic benefit from it. But I think as Michael points out, I think, you know, we benefit tremendously just from the amount of application volume we see and the amount of loan activity we see in the sector. Moshe Orenbuch: Yeah. Michael Rhodes: And, Moshe, if you're the last question, I may use some of your time just for a bit of a wrap-up as I think about the quarter. Moshe Orenbuch: Before you do that, Michael, could I just have one quick follow-up and, obviously, let some of that time go. But just from a capital standpoint, you did the CRT transaction. Should we expect more or less of that, Russ, as we go into 2026, I guess, recognizing that there's, you know, the RWA of the assets that ran off at 25 were higher than the ones probably running on the '26. Russ Hutchinson: We'll certainly do more transactions. Yeah. We've done three transactions so far, and it's a tool that we like. It affords us a very low cost to capital. And it's a tool that we intend to continue using. However, we'll use it thoughtfully and opportunistically. And, you know, we pay very close attention to, you know, effectively the ramp we're creating as that capital runs off. Relatively quickly with the speed of the underlying loans. But, yeah, you can expect us to continue to be active in this market. Moshe Orenbuch: Thanks very much. Michael Rhodes: Good. And then so is Amortia's the kind of the rapid by can. You know, so I'm, what, about a year and a half into my role or so. And, as I kind of reflect about where we are, one of the comments I made in my prepared remarks was really this notion of momentum. And we talk about a strategy refresh we undertook, and we've talked about disciplined execution, and it's creating momentum. It's creating momentum in the areas that we signaled in the really quarters and quarters ago that we wanted do is that an improved net interest margin, auto losses, and being disciplined in expense and capital. And so we actually see this quarter as a real testament to the fact that we're on the right path. And are very pleased with the momentum that we're seeing right now. Sean Leary: Thank you, Michael. Seeing no additional questions in the queue, we'll go ahead and conclude today's call. As always, if you have additional questions, please do feel free to reach out to investor relations, and thank you for joining us this morning.
Market liquidity is deteriorating, with reserve balances dropping to $2.988 trillion and Treasury General Account refills draining cash. The Secured Overnight Financing Rate, or SOFR, has surged to 4.3%, trading well above the Fed's lower target bound and widening its spread.
The central bank's quarterly business-outlook survey and September's consumer-price index data are slated for release next week.
Markets are trading near all-time highs with valuations reminiscent of the late Internet Boom, which should be raising concerns about an overdue correction. Retail margin debt has surged 39% since April, reaching a record $1.13 trillion, amplifying risks of a significant selloff.
Despite signs of nascent problems in the credit market, the S&P 500 shows it's as resilient as a ‘cockroach.'