加载中...
共找到 25,218 条相关资讯
Shares of stocks linked to agriculture, soybeans and cooking oil are are up on Wednesday after President Donald Trump said that the U.S. was considering “terminating business with China having to do with Cooking Oil and other elements of Trade” as retribution against Beijing for refusing to buy American soybeans.
Operator: Good morning, everyone. Welcome to the Synchrony Financial Third Quarter 2025 Earnings Conference Call. Please refer to the company's Investor Relations website for access to their earnings materials. Please be advised that today's conference call is being recorded. Currently, all callers have been placed in a listen-only mode. The call will be opened up for your questions following the conclusion of management's prepared remarks. I will now turn the call over to Kathryn Miller, Senior Vice President of Investor Relations. Thank you. You may begin. Kathryn Miller: Thank you and good morning everyone. Welcome to our quarterly earnings conference call. In addition to today's press release, we have provided a presentation that covers the topics we plan to address during our call. The press release, detailed financial schedules, and presentation are available on our website, synchronyfinancial.com. This information can be accessed by going to the Investor Relations section of the website. Before we get started, I wanted to remind you that our comments today will include forward-looking statements. These statements are subject to risks and uncertainty, and actual results could differ materially. We list the factors that might cause actual results to differ materially in our SEC filings, which are available on our website. During the call, we will refer to non-GAAP financial measures in discussing the company's performance. You can find a reconciliation of these measures to GAAP financial measures in our materials for today's call. Finally, Synchrony Financial is not responsible for and does not edit or guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcast is located on our website. On the call this morning are Brian Doubles, Synchrony's President and Chief Executive Officer, and Brian Wenzel, Executive Vice President and Chief Financial Officer. I will now turn the call over to Brian Doubles. Brian Doubles: Thanks, Kathryn, and good morning, everyone. Synchrony delivered another strong financial performance in 2025 that included net earnings of $1.1 billion or $2.86 per diluted share, a return on average assets of 3.6%, and return on tangible common equity of 30.6%. We generated $46 billion of purchase volume in the third quarter, a year-over-year increase of 2% as trends across our five platforms improved even as the effects of our previous credit actions continue to impact average active accounts. Spend across our digital platform increased 5% driven by higher spend per account and reflecting strong customer response to our enhanced product offerings and refreshed value propositions. Diversified and value purchase volume grew 3% reflecting strong retailer performance and growth in out-of-partner spend. Purchase volume in Health and Wellness also grew 3% reflecting growth in Pet and Audiology partially offset by lower spend in Cosmetic. Meanwhile, purchase volume in Home and Auto was down 1% generally due to selective spending in Home Specialty. And purchase volume in our Lifestyle platform was down 3% reflecting lower spend in Outdoor and Specialty as consumers continue to manage discretionary spend. Dual and co-branded cards accounted for 46% of total purchase volume in the third quarter and increased 8% versus last year driven by higher broad-based spend across these card programs and Synchrony's branded general-purpose card. Out-of-partner spend on our dual and co-branded cards generally reflected year-over-year improvement in the mix of discretionary spend as the quarter progressed with continued points of strength coming from restaurants and electronics. And as highlighted on Slide three of our earnings presentation, average transaction values for the portfolio were approximately 40 basis points higher than last year, building on the improving trend over the last four quarters. This trend occurred across all credit grades and generations within our portfolio with particular strength coming from non-prime pointing to the efficacy of our credit actions as we strengthen the mix of that cohort. Customers across credit grades and generations also increased their spend frequency during the third quarter, up about 3.4% in the quarter versus last year. Collectively, Synchrony's portfolio spend trends suggest that the utility and value we offer through our variety of product offerings are resonating with our customers and driving stronger engagement as they navigate the continued uncertainty in the broader environment. We are a trusted partner to almost 70 million customers, many of the nation's most respected brands, and hundreds of thousands of small and mid-sized businesses across the country. It is both a privilege and an opportunity to connect them through our financial ecosystem and empower them with financial flexibility and choice. And given how our credit actions have outperformed our expectations, we began gradually reversing some of our tightening in areas where we see strong risk-adjusted growth opportunities. We're monitoring our portfolio closely and expect to make similar incremental adjustments gradually over the coming months as supported by broader macroeconomic conditions. In the meantime, Synchrony has continued investing in our business and executing across our strategic priorities. We added, renewed, or expanded more than 15 partners during the third quarter, including the Toro Company, Regency showrooms, Lowe's commercial program, including the pending acquisition of its co-branded credit card portfolio, and Dental Intelligence. Synchrony's launch of the Toro Company credit card will deliver a variety of our promotional financing options to their extensive network of independent dealers across the outdoor environment solution space. Our multi-year renewal with Regency Furniture provides access to Synchrony financing across more than 95 furniture stores across the Northeast under the brand names of Regency, Marlowe, Value City of New Jersey, and Ashley. And Synchrony is also proud to build on our more than 45-year relationship with Lowe's by enhancing our existing commercial program and acquiring our commercial co-branded credit card portfolio. We look forward to relaunching the Lowe's Business Rewards credit card with enhanced value and a seamless customer experience as we help Lowe's pros pay for the tools and supplies they need. In addition, we announced our strategic partnership with Dental Intelligence, a leading patient relationship management and analytics platform used by over 9,000 dental practices. That joined Synchrony's more than 40 healthcare software solution partnerships designed to strengthen patient-provider relationships and enhance practice operations through innovative technology. Our new seamless integration with Dental Intelligence now includes Synchrony's CareCredit financing options, including CareCredit status tool. Providers can offer CareCredit to patients more intuitively through simple automated payment communications and make it easier for patients to understand their payment options. Our integration process is faster and more efficient than ever, strengthening care processes, driving administrative efficiency, and empowering patients to get the care they need when insurance is not sufficient. Synchrony's recent acquisition of Versatile Credit is yet another example of how we are driving expanded access to flexible financing while also enhancing the value we deliver to small and mid-sized businesses across the country. Versatile is a leading multi-source financing platform with more than 30 integrated lenders across the full credit spectrum that helps merchants and providers empower their customers with smarter financing options across online, in-store, and mobile points of sale. They're able to deliver seamless integrations, higher approval rates, and detailed reporting to drive sales across home, auto, and elective medical merchants and providers. Moving forward, Versatile will continue to operate its existing business strategy and maintain its data integrity to continue to provide financing through their existing lender integrations for their merchants. Synchrony will receive referral revenue and leverage our scale and underwriting expertise in combination with Versatile's innovative technology to accelerate our embedded finance strategy. And while we do not expect Versatile to be material to Synchrony's near-term financial performance, we do expect our collaboration to contribute to Synchrony's profitable growth for years to come. Lastly, albeit early, the momentum and execution in the first month of our Walmart program launch is off to a great start and the initial results have been very encouraging. We believe that the combination of such a compelling value proposition, innovative customer experience, and highly prominent product placement should position this product as a top-of-wallet card and drive deeper engagement for Walmart customers across the country. With that, I'll turn the call over to Brian to discuss our financial performance in greater detail. Brian Wenzel: Thanks, Brian, and good morning, everyone. Synchrony's third-quarter financial results were highlighted by continued strength in our credit performance and acceleration of our purchase volume trends, which was broad-based across our five sales platforms and all generations. We generated $46 billion of purchase line during the third quarter, which was up 2% year over year and continued to be affected by the credit actions we took between mid-2023 and early 2024 and continued selectivity in customer spend behavior. Ending loan receivables decreased 2% to $100 billion in the third quarter due to the combination of lower prior period purchase volume and average active accounts as well as higher payment rate. The payment rate increased by approximately 60 basis points versus last year to 16.3% and was approximately 120 basis points above the pre-pandemic third-quarter average. Net revenue of $3.8 billion was flat versus last year as higher net interest income was offset by higher RSAs driven by program performance. Our net interest income increased 2% to $4.7 billion reflecting a 14% decrease in interest expense, partially offset by a 16% lower interest income on investment securities. Our third-quarter net interest margin increased 58 basis points versus last year to 15.62. There are two key drivers of this net interest margin improvement: one, a 58 basis point decline in our total interest-bearing liabilities cost versus last year, which contributed approximately 49 basis points to our net interest margin and two, a 35 basis point increase in our loan receivables yield, which contributed approximately 29 basis points to our net interest margin. This increase was primarily driven by the impact of our product, pricing, and policy changes or PPPC's partially offset by lower benchmark rates and lower assessed late fees. These improvements were partially offset by another two key drivers of net interest margin. One, an 88 basis point reduction in our liquidity portfolio yield, which reduced our net interest margin by 14 basis points. The decline generally reflected the impact of lower benchmark rates. And two, a 35 basis point decrease in the mix of loan receivables as a percent of interest-earning assets, which reduced our net interest margin by approximately six basis points. Moving on. RSAs of $1 billion were 4.07% of average loan receivables in the third quarter and increased $110 million versus the prior year, primarily reflecting program performance, which included lower net charge-offs and the impact of our PPPC's. Other income increased 7% year over year to $127 million which included the impact of PPPC related fees. Provision for credit losses decreased $451 million to $1.1 billion driven by a $255 million decrease in net charge-offs and a reserve release of $152 million versus a build of $44 million in the prior year. The current year reserve release included the impact of a $45 million reserve build for the pending acquisition of the Lowe's commercial co-brand credit card portfolio, which is expected to close during 2026. Other expense increased 5% to $1.2 billion generally reflecting higher employee costs and costs related to technology investments, partially offset by preparatory expenses related to the proposed late fee rule change in the prior year. The third-quarter efficiency ratio was 32.6%, approximately 140 basis points higher than last year due to higher overall expenses and the impact of higher RSAs on net revenue as credit performance improved. Taken together, Synchrony generated net earnings of $1.1 billion or $2.86 per diluted share and delivered a return on average assets of 3.6, a return on tangible common equity of 30.6% and a 16% increase in tangible book value per share. Next, I'll cover our key credit trends on Slide eight. At quarter end, our 30 plus delinquency rate was 4.39%, a decrease of 39 basis points from 4.78% in the prior year and 23 basis points below our historical average for the 2017 to 2019. Our 90 plus delinquency rate was 2.12%, a decrease of 21 basis points from 2.33% in the prior year, in line with our historical average from the 2017 to 2019. And our net charge-off rate was 5.16% in the third quarter, a decrease of 90 basis points from the 6.06% in the prior year and seven basis points above our historical average for the 2019. Net charge-off dollars were down 8% sequentially. This compares favorably to the 2017 to 2019 average sequential dollar decline of 7%. When evaluating our credit performance, our portfolio delinquency and net charge-off trends reflect both the efficacy of our credit actions and the power of our disciplined underwriting and credit management strategies. These trends reinforce our confidence in our portfolio's credit positioning as we move forward and provide a strong foundation for us to execute our business strategy. Finally, our allowance for credit losses as a percent of loan receivables was 10.35%, which decreased approximately 24 basis points from 10.59% in the second quarter. Turning to Slide nine. Synchrony's funding, capital, and liquidity continue to provide a strong foundation for our business. During the third quarter, Synchrony's direct deposits remained sequentially flat as broker deposits declined by $2.4 billion. At quarter end, deposits represented 85% of our total funding with unsecured debt representing 7% and secured debt representing 8%. Total liquid assets decreased 7% to $18.2 billion and represented 15.6% of total assets, 94 basis points lower than last year. Moving to our capital ratios. Synchrony ended the third quarter with a CET1 ratio of 13.7%, 60 basis points higher than last year's 13.1%. Our Tier one capital ratio was 14.9%, 60 basis points higher than last year. Our total capital ratio increased 60 basis points to 17%. And our Tier one capital plus reserves ratio increased to 25.1% compared to 24.5% last year. During the third quarter, Synchrony returned $971 million to shareholders, consisting of $861 million in share repurchases and $110 million in common stock dividends. Recognizing the strength of our balance sheet, our strong capital generation capacity, and the resilience of our business from both our sophisticated underwriting and retailer share arrangements, Synchrony's Board approved an incremental $1 billion in share repurchases in September, bringing our total authorization to $2.1 billion at the end of the third quarter. Synchrony remains well-positioned to return capital to shareholders as guided by our business performance, market conditions, regulatory restrictions, and our capital plan. Turning to our outlook for 2025 on Slide 10. Our baseline assumptions for the full-year outlook continue to include minor modifications we made to our PPPC's this year as well as our September launch of our Walmart One Pay program. Exclude any potential impacts from a deteriorating macroeconomic environment or from the implementation of tariffs and potential retaliatory tariffs as the effects remain unknown. And now also included the acquisition of Versatile Credit, which is not expected to have a material impact on our 2025 financial performance. Focusing on our outlook in more detail. We continue to expect flat ending receivables versus last year, reflecting the ongoing impact of selective customer spend and the continued effect of our past credit actions on purchase volume and payment rate, the latter which remains elevated relative to our pre-pandemic average. While we made certain modifications to our credit strategy in the third quarter and expect to make further adjustments in the fourth quarter, we do not expect them to have a material effect on growth in 2025. While our past credit actions have contributed to higher payment rate and slower loan receivables growth over the short term, they have meaningfully strengthened our portfolio's credit performance. We now expect our loss rate to be between 5.6-5.7%, which is towards the lower end of our long-term underwriting target of 5.5% to 6%. The combination of higher payment rates and improved credit outlook is contributing to lower interest and fees, which is expected to reduce net interest income and result in RSAs between 3.95-4.05% of receivables and net revenue between $15 billion and $15.1 billion. We expect our net interest margin to increase and average approximately 15.7 for the full 2025, reflecting lower funding costs due to lower benchmark rates, partially offset by lower yielding investment portfolio and an increasing mix of loan receivables as a percent of earning assets driven by the impact of seasonal growth and a continued reduction of our excess liquidity. And lastly, we're updating our efficiency ratio expectation between 33-33.5%, primarily reflecting the updated net revenue outlook. We continue to expect other expenses to increase approximately 3% on a dollar basis for the full year, which includes the Walmart program launch costs. In summary, Synchrony's outlook for 2025 demonstrates the strength of our distinctive business model and delivers net interest margin expansion, stronger delinquency formation and net charge-offs, and continued performance alignment through the RSA. This will drive higher risk-adjusted return and return on average assets that exceeds our long-term target of 2.5%. With that, I'll turn the call back over to Brian. Brian Doubles: Thanks, Brian. Before I turn the call over to Q&A, I'd like to leave you with three key takeaways from today's discussion. First, the combination of Synchrony's credit expertise, discipline, and credit actions have enhanced the resilience of our portfolio, creating a strong foundation on which to grow in 2026 and beyond. We're encouraged by the trends we've seen in our customers and our portfolio and are optimistic that we will continue to adjust our credit actions subject to macroeconomic conditions. Second, Synchrony is executing on our key strategic priorities to grow and win new partners, diversify our programs, products, and markets, and deliver best-in-class experiences for all those we serve. And as we continue to elevate the ways in which we connect our customers with our partners, providers, and merchants, we're driving greater utility and value and deepening our position at the heart of American commerce. And third, Synchrony's differentiated business model, consistent prioritization of growth, strong risk-adjusted returns, and robust capital generation position us uniquely well to drive considerable long-term value for our many stakeholders. With that, I'll turn the call back to Kathryn to open the Q&A. Kathryn Miller: That concludes our prepared remarks. We will now begin the Q&A session. So that we can accommodate as many of you as possible, I'd like to ask the participants to please limit yourself to one primary and one follow-up question. If you have additional questions, the Investor Relations team will be available after the call. Operator, please start the Q&A session. Operator: Certainly. Thank you, Ms. Miller. We'll go first this morning to Terry Ma with Barclays. Please go ahead. Terry Ma: Hi, thank you. Good morning. Maybe just to start off with the updated revenue guide. You lowered the high end of the range this quarter after lowering it last quarter. So just curious, what was kind of incremental throughout the quarter that led you to lower it? Brian Wenzel: Yes. Morning, Terry. When you think about the net revenue guide, have a couple of moving pieces in there. One is the positive nature of the PPPC's that are going into place to drive revenue. I think two things that counterbalance that a little bit, Terry. Number one, the continued improvement in delinquencies. If you look at the rate, 4.39% at the end of the quarter, which is better than the pre-pandemic period of 2017 to 2019 by 23 basis points. That's driven a lower incident rate really of late fees, which we view as positive because you're getting it from you're getting the positivity from a credit perspective. And then obviously, the payment rate is elevated because we have lower subprime. Again, that's 80 basis points down year over year on non-prime, flat quarter on quarter. But it's really the fact that the payment rates elevated a little bit lower late fee incidents, but you have some positivity rate relative to PPPC's that are in there. Terry Ma: Got it. Maybe just a follow-up on the triple PC modifications. You had disclosed I think last quarter and even on stage with me a month ago that you wrote back APRs for one partner. I did also recently notice an updated TJ Maxx agreement with a lower APR. So just wanted to confirm that is in fact the retailer you cited before and it's not a new rollback. And then to the extent possible, any color you can provide on whether or not there are additional conversations happening? Brian Doubles: Yes. So let me take that. Mean, first, we're not going to comment on any specific partner programs. But as I mentioned previously, any potential rollbacks are going to happen partner by partner. There is no big rollback plan that's in the works. And frankly, there's not a lot of discussions happening with our partners right now. As I mentioned last quarter, we did have one partner that wanted to make a change to one element on their program, which we've already done. We had one other change that we made in the fragmented space related to promotional fee. That added up to less than $50 million in revenue, pretty small overall, and that's already been incorporated into the outlook. Any other potential discussions in the future are going to happen partner by partner. I would think of them kind of normal course. We're always looking at pricing in conjunction with credit, the value proposition on the card, where the competition's priced, where other partner programs are priced. And again, with the goal of leveraging price to drive sales for our partners and growth for the program at good returns. Terry Ma: Okay. Got it. Thank you. Brian Wenzel: Great. Thanks, Terry. Thank you. We'll go next now to Ryan Nash with Goldman Sachs. Please go ahead. Ryan Nash: Hey, good morning, guys. Brian Wenzel: Hey, Ryan. Good morning, Ryan. Ryan Nash: So you seem to be bucking the trend that the broader market had been concerned about this quarter given concerns on credit and low-end consumer. Brian Doubles, maybe just expand a little bit on what you're seeing on the consumer. And given the actions that you've taken, if we're in sort of a stable macro environment, could we continue to see this better than expected credit performance? And then I have a follow-up. Brian Doubles: Yes, sure, Ryan. Look, we still think the consumer is in pretty good shape. They've been very resilient. We're not really seeing any signs of weakness. We're actually seeing improvement as we think about both spending trends, but also what we're seeing on credit has outpaced our expectations. So we're pretty optimistic in terms of the trends we're seeing across the portfolio. Purchase volume turned positive this quarter, up 2%. All five platforms improved as you look at them sequentially. We saw particular strength in digital, health and wellness, D and B. We're seeing nice growth in the co-brand portfolio. Purchase volume was up 8% receivables were up 13%. So I think there's definitely reason to be optimistic. And inside of those numbers, there really isn't much lift from opening up the credit box. So we have plans to add back about 30% of the sales from the credit actions that we took earlier, and that leaves another 70% that we'll evaluate over the next couple of quarters. So all else being equal, we should get a little more lift towards year-end and as we head into next year. So we're pretty optimistic in terms of everything we're seeing from the consumer at this point. Ryan Nash: Got you. And maybe just as a follow-up to the point that you just made. Obviously, you've been in a bit of a restrictive credit environment. You talked about rolling back 30% of the credit actions. You have Walmart coming back coming on board, which should help. And you made some positive comments there. Maybe just talk about the path back to, call it, mid-single-digit growth that I know you guys have talked about, maybe talk about in terms of Walmart versus everything else? And what do you see as the key drivers there? Obviously, the 70% unwind would be a big part of that. But maybe just help contextualize that for us. Brian Doubles: Yes. We've got a few things that we're really excited about. Walmart, obviously, is a big one. We're officially launched now as of September. We're very excited by the early results. We're seeing good growth in new accounts. We like the mix that we're seeing. We like the out-of-store spend that we're seeing. The placement in-store and on all of Walmart's digital properties has been really great. So out of the gate, this is one of the fastest de novo programs that I can remember. We've also got the Pay Later launch at Amazon. We're seeing really good results there out of the gate. That should benefit us as we head into 2026. Last quarter, we announced the PayPal physical card launch. It's very early, but we like what we're seeing there. And then there is still opportunity to drive some growth through opening up the credit box. We're going to be balanced there. We're going to look at areas where we know we're going to get really good risk-adjusted returns. We started in our Health and Wellness platform. But we're going to continue to evaluate that as we get through the end of this year and into 2026. So there's a lot of really positive momentum and different dynamics when you look at product launches, value props, and things that we think will really benefit us as we get into 'twenty-six. Ryan Nash: Got it. Thanks for the call, Brian. Brian Wenzel: Yes. Thanks, Brian. Thank you. We'll go next now to John Pancari with Evercore. Please go ahead, John. John Pancari: Good morning. Just back to the broader consumer, it's encouraging to hear that you're not yet seeing broader signs of weakness and the consumer is still in pretty good shape. We're clearly seeing a degree of bifurcation out there in terms of the lower income brackets. Can you talk a little bit more specifically about what you're seeing amid your lower income cohorts? Are you seeing differing payment rate behavior, greater stress in terms of spend behavior or credit dynamics, just to see how you may be seeing it within your base? Brian Wenzel: Great, great. Good morning, John. Thanks for the question. When we look at what I'd say two specific areas. When you first think about spending for a second, we showed a chart on in the presentation this morning about average transaction value and average transaction frequency. When you look at it on a credit tier basis, the non-prime for us actually performed better than the other cohorts, right, when I think about it on a sequential basis and even on a year-over-year basis. That's mainly the fact that what we've done with the credit actions is removed probably the lower end of that subprime population. So I think we're seeing stronger behavior patterns, whether it's on a transaction value basis or a frequency basis. So their willingness to engage, their willingness to use the card, their willingness to engage with the products has been better than the other cohorts simply by the fact of what we've done, right, relative to the credit actions. Again, when you I want to reinforce the fact that our non-prime is down about 80 basis points year over year. When you go into the payment trends, actually, the payment trends are very strong for us when you think about that cohort that is non-prime. And when I look at it, John, the implications of the benefit, you're seeing more people that are paying mid-pay in the non-prime population, but where the shift is coming from is really from below mid-pay players. So the way to interpret that is we have lower delinquency in some of those, but they are paying mid-pay. So I think when we look at the payment strength of non-prime borrowers, when we look at the payment engagement with values or frequency, they are performing better than some of the other cohorts, so performing extremely well. Again, we're probably better positioned because we took those broader-based actions that over 2023 and 2024. Brian talked about some of the opening of the credit aperture. These are things around upgrades to dual card. These are things around giving credit line increases to people who've been around a year. So we're not taking what I would view as incremental risk exposure, but rather we're taking what you can term more thoughtful growth actions into the portfolio itself. So we're not just lowering credit scores and taking greater risk. Got it. Okay, great. Thanks for that. John Pancari: And then on the capital front, saw a nice increase in your CET1. Buybacks came in higher than expected around $861 million. You still have the and now with the increase, you have the $2.1 billion authorization. Can you maybe help us frame the how you think about the potential pace of buybacks as you look at the fourth quarter and into 2026 given your capital levels where they stand now? Thanks. Brian Wenzel: Yes. John, capital is a real strength for our company, Ray. We clearly know we operate from a position of excess capital. The great thing about this business is it generates a lot of capital. When you look at Page nine of our deck over the last year, we generated over 350 basis points of incremental CET1 just from the earnings of the business. So strong capital generation and the ability to deploy that, right? So the Board felt really confident when they looked at the resiliency of the business, that capital generation and where we work to add that $1 billion. Now that leaves us with $2.1 billion over the next three quarters. We don't really provide guidance for that, but obviously we're going to deploy that in what I would say is an aggressive but prudent manner. And I think we've demonstrated that whether you go back to 2019 and then after the pandemic. But obviously, we're focused on reducing the CET1. And I think if you look over the history, we retired over 55% of the common shares here since we began share repurchases back in 2016. So again, we'll be aggressive but prudent through the rest of this capital plan. And we're going to focus now in the fourth quarter about getting set to prepare our capital plan for the early part of next year. Brian. Appreciate the color. Brian Wenzel: Thanks, Dave. Have a great day. Operator: Thank you. We'll go next now to Mihir Bhatia of Bank of America. Mihir Bhatia: Hi, good morning. Thank you for taking my questions. I wanted to start the allowance ratio and the reserve rate outlook. Maybe just talk a little bit about the puts and takes in the quarter in terms of what drove the step down. Was it just your own credit performance? How much did macro scenarios contribute? And then as we think about 4Q, should we expect the typical seasonal step down? Or was some of that already incorporated this quarter? Brian Wenzel: Mihir, and thanks for the question. So as you think about the reserve rate reduction and release that happened in the third quarter, I'd say a couple of things. Number one, first and foremost, it was driven by our credit performance, not only delinquency formation, but the performance of how it rolls through. We continue to see tremendously strong entry rate into delinquency below the pre-pandemic period. We saw stabilization really in early stage delinquencies. So think about that two to four new and then four plus we saw some strengthening. That continued strength that we saw, which hopefully or it led to us narrowing our range down to 5.6 to 5.7 for the year, that credit performance is a big driver in the rate reduction that you saw. I'd also say we use the Moody's baseline. And if you looked at that baseline, August to May, it was actually a little bit better than that. So there's a little bit of macro improvement in the base model. What I'd say is the macroeconomic QA overlay that we had on there stayed consistent from a deterioration standpoint from the second quarter to the third quarter. So it really was the base performance of the business that drove that. As you think, we don't provide guidance for the fourth quarter, but as you think about the fourth quarter, the way I think about it is this, you generally see a step down rate relative in the reserve rate for the seasonal balances kind of coming in. I think it's fair to say that the seasonal balance you may have seen last year will not be as strong. So I would expect the reserve dollar post in the fourth quarter to reflect the growth in the assets, not quite as much seasonal given where we are. If I take it up here to 10,000 feet, what you're going to see and what you should see is that they're ultimately over a period of time will be a downward bias on the reserve rate, right, as you get unemployment in the base model, which again, the base model before you overlay any macro has a 4.8% unemployment rate at the end of next year. As that comes down more in line, as the QAs go away, you should see more tightening of the reserve raising move forward that potentially can offset future growth related builds. Mihir Bhatia: Got it. No, that makes sense. If I could just turn to go back to growth and the discussion about the unwinding of credit actions in the 30% and the 70%. I guess maybe to tie that a little bit to like account average accounts are still down year over year. Obviously transaction frequency and values are up. It sounded like some of the unwinding you're doing is much more related to your existing accounts. So I guess what do we need to see for average accounts to start trending up or to turn positive? Is it just going to come from like natural growth? Or is there like credit unwinding that will be happening in the short term? I guess what I'm trying to understand is the 30%, 70% discussion, that 30% sounded like very much focused on internal accounts like existing upgrades, etcetera. And I'm trying to think of like account growth and just increasing the number of consumers, what's going to drive that? Brian Wenzel: Yes. Again, I think the way to think about the active accounts, Mihir, we had been in a restrictive position. We continue to remain in a restrictive position. I think when we were with you back in July, we talked about taking certain credit actions really in the Health and Wellness business. Some of that clearly would be at the acquisition point. There is some of the unwind that we're doing in the fourth quarter is also acquisition related. So I think even though we don't disclose the topic or the metric in our earnings material now, If you look at new account, our new account was sequentially in year over year is up 10%. So again, we're starting to see the consumer more willing to not only apply, but also our ability to approve them. So I think that's a turning point. I think when you look at average active sequentially, did inflect in the third quarter. So we would expect it to go back up. Again, you hope in the fourth quarter given the product where you have people, especially who are inactive today, reengage with the product for holiday, we'd expect to see a lift. And most certainly, Brian highlighted a couple of places where we're adding, whether it's Walmart, Pay Later at Amazon and really the PayPal modifications we made should also add to average active account increases as we move forward. Mihir Bhatia: Got it. Thank you for taking my questions. Brian Wenzel: Thanks. Have a good day. Operator: We'll go next now to Rob Wildhack with Autonomous Research. Rob Wildhack: Maybe one more on potentially reversing the tightening. Could you give us some color on maybe what the waypoints you might be looking for to unwind that as we go forward? I guess if we is it going to be more macro related? Or is it going to be more driven by your own credit results? Brian Wenzel: Yes. Good morning, Rob. And again, thanks for the question. It's a combination, right? Clearly, what we want to see is the macro environment potentially clear. I think there is some I'd say a mixed labor market, why people focus on the unemployment rate, when you look down our Nick jolts, when you think about both the demand side and supply side of the employment market and wage gains. Are some mixed messages in there, clearly softening but mixed messages. So clearly, we like to see the macro environment clear. We've seen consistency in the performance in our book to the extent that it continues to perform well. That's a good indicator on how we could potentially remove some of those restrictions or open that aperture a little bit more. And if our credit continues to improve and we've seen a trajectory when you look at the sequential benefit year over year, it's widening out. It's been widening out for the last several quarters on 30 plus delinquencies. So you said those things happen. So it is a combination clearly of the macro environment and clearly in the honest behavioral patterns that we have in here. Brian Doubles: I think it's probably fair to say also that we were just myopically looking at our the performance of our own book, we would probably open up a little bit more than we are that there's some, as Brian said, mixed signals in the macro that give us a little bit of pause, not concern. But when we look at the performance inside of our portfolio, we're very encouraged by what we've seen. Just look at any of the delinquency metrics and even underneath those metrics, when you look at entry and roll rates, we're very encouraged by the trends that we're seeing. Rob Wildhack: Helpful. And maybe on NII and the NIM, we can back into the fourth quarter numbers implied by the guidance. What are sort of the puts and takes you would advise us on as we're thinking about that exit rate on NII and the NIM and extrapolating that out beyond this quarter? Brian Wenzel: Yes. Again, thanks for the question, Rob. I think as you think about our framework for the fourth quarter, clearly the biggest piece is going to be the mix on ALR versus AEA, right? You're going to increase the percentage of receivables, which is traditional. That's going to be the bulk of the driver that kind of comes in. When you think about the subcomponents that go into there, when I think about loan yield for a second, you got factors that go a little bit both ways. Number one, you're going to get a PPPC lift sequentially on a dollar basis that will flow through. You'll get a little bit of compression from prime that kind of comes through there. And then you'll have a little bit of the denominator impact that kind of comes through. So again, that's the benefit of the PPCs roll through, but again there's some offsets and then the seasonal nature of the denominator that kind of comes through. I think when you think about the interest expense or interest-bearing liability side, again, while a lot of our maturities in the fourth quarter are at kind of current rates, maybe a little bit lower, I think you get the benefit of some of the things that we did earlier. So that should be a benefit and a step up of the net interest margin as we close out the fourth quarter. I appreciate the question on '26, but obviously as the PPPC is kind of come in, payment rate ultimately should begin to navigate down. You would hope that there would be a bias for some upward momentum, but we'll be back in January to give you more specific color on how NIM develops. All right. Rob Wildhack: Thank you very much. Brian Doubles: Thanks. Thanks. Have a good day, Rob. Operator: We'll go next now to Mark DeVries at Deutsche Bank. Mark, please go ahead. Mark DeVries: Yes. Brian Doubles, thanks for the comments on kind of the encouraging signs on the Walmart program. I was hoping you could just elaborate on how the value prop of that card kind of compares to the last time you partnered with Walmart, kind of what that does for your optimism about how big that program can be relative to the last time you partnered? And also just kind of what it's doing in terms of driving uptake on the card engagement and the types of customers you're attracting? Brian Doubles: Yes. Sure, Mark. So there's a couple of things I'd highlight. I think first, this is a leading-edge program from a tech perspective. We're leveraging the One Pay app, our API stack. We're connected in there completely embedded digital experience. So that entire experience from application through servicing will be done through the One Pay app. This is definitely one of our most technologically advanced programs. So that's the first thing I would highlight. Second, to your point, we have a very strong val prop on the card. The Walmart Plus members, they get unlimited 5% cash back at Walmart. They get 1.5% cash back everywhere else. And even if you're not a Walmart Plus number, you still save 3% at Walmart, 1.5% everywhere else. So very attractive val prop on the card. And I think you really do get an exponential benefit when you align a terrific loyalty program like Walmart Plus with the credit program, and that's what we're trying to do here. We have, I mentioned earlier, a really strong digital and in-store placement. So a nice commitment from all parties to grow the program. Walmart's investments in e-comm, they give us a great platform really to drive new accounts. And if you go online and you see walmart.com, you can see the placement across the digital properties is really strong. The signage in the store is very prevalent, allows customers they can easily just scan a QR code and apply for the card anywhere in the store. So I think it's a combination of all those things that gets us frankly really excited about this program and the opportunities ahead. Mean, I it can clearly be a top five program at some point in the future. And we're excited about the growth that this could drive for both us and for Walmart. Mark DeVries: Okay. That's helpful. And then just a follow-up question on your delinquency trends. Looks like they continue to trend more favorable than normal seasonality. Is that your perception? And also if so kind of what are the implications for trends for DQs and charge-offs as we look out kind of six to twelve months? Brian Wenzel: Yes. Thanks Mark. Yes, they have necessarily or presented that to our analysis they have been performing better. So as Brian highlighted, that's why we adjusted the credit aperture both in the third quarter and now what we're doing in the fourth quarter, again aligning that roughly 30%. Again, items, but adding back some of the restrictions we put in place. I think as you do that, as we kind of settle in here, you're going to begin to merge back or migrate back to generally seasonal trends as we move forward here. But again, we've seen that improvement. And I think it goes to as a testament really to the underwriting models we deployed, the alternative data we use in the model as well as the power of having the data that comes from our partners, they really drove that. So again, I would think about it more seasonally from this point will be the safest bet. But again, we're very proud of the performance in credit and really positions us well as we exit 2025 into 2026 from a business perspective. Mark DeVries: It. Thank you. Brian Doubles: Thanks, Have a good day. Operator: Thank you. We go next now to Don Fandetti at Wells Fargo. Don Fandetti: Good morning. Can you talk about any potential portfolio acquisitions that you might be looking at or new de novo programs? And then I guess on the Versatile acquisition, is that sort of a one-off? Or do you feel like you need we'll see more of these bolt-on technology acquisitions? Brian Doubles: Yes. Sure, Don. Look, would say without getting too specific, we've got a really strong pipeline across all of our platforms, combination of some programs with existing portfolios, plenty of de novo opportunities. So we're encouraged when we look at the pipeline. Our team is very active just given our size and scale in the partner-based business. Pretty much every RFP in the industry comes across our desk and we compete really hard on those. I think in terms of what we're seeing in the market, I think pricing continues to be pretty disciplined. We're not seeing any real irrational behavior. We're competing and winning based on our products and capabilities, our technology stack, what we're doing around data, our underwriting engine with Prism. So I feel great about how we're competing and what we're winning. We won't win every program out there because there's always going to be some pricing or terms considerations that we won't agree to. We're very disciplined around risk-adjusted returns. But generally, I feel really good about the pipeline. And then on Versatile, it's going to be a great acquisition for us. They've built a really strong business. We've been partnering with them for twenty years. So we know each other really well. We've got a great relationship, really strong cultural fit. And look, at the end of the day, all of our partners are looking to leverage credit to drive more sales and enhance loyalty, right? And the versatile platform is going to allow us to approve more customers. That's great for our partner base. It's great for their customers. And so we'll drive a higher approval rate. And we'll do that either by doing the lending ourselves or through other institutions. And for those loans that we don't underwrite, we'll earn a fee. So it benefits us and helps us drive some non-lending revenue. So positive from all aspects, relatively small acquisition, won't be material in the near term, but it's exactly the type of acquisition that we look for where it's not a big capital outlay, but an acquisition that allows us to leverage our scale to grow it to grow the business. Yes. Brian Wenzel: I'd just add on, when you think about Versal for us, again, Brian, it's not necessarily material to all Synchrony. But when you look at where is the IRR or ROIC, it's very attractive which goes back to some of the pricing discipline and how we look at these acquisitions and a very reasonable payback on tangible book value. Got it. Thank you. Thanks. Brian Wenzel: Have a great day. Thanks, Tom. Operator: We'll go next now to John Hecht at Jefferies. John Hecht: Good morning, guys. Thanks for taking my questions. Know you first question, I know you don't give details at the partner level by name. But maybe can you talk about characteristics of partners where you're seeing expansion versus maybe modest contraction? I mean, maybe like the digital mix or versus in-store or anything like that. Is there any way for us to think about the growth from that perspective? Brian Doubles: Yes. I think, John, the thing that really makes a program successful is a little bit of the intangible, which is how engaged is the partner in the program, where does it sit on their list of priorities and the things that they're trying to drive across the business. So regardless of what platform you're in for a second, just think about it, it is a priority of the CEOs and the executive leadership team, one of our partners, to promote credit, to drive the program, to measure the program, to hold their teams accountable as well as to hold us accountable for driving growth. That's really the secret sauce. And in order to do that, both parties have to be all in. You have to have really good alignment in the contract, really good alignment through the RSA. And if it's a priority for them and you have all of those other building blocks, great technology integration, a seamless customer experience, strong NPS, all of those things really good growth. And so it's a combination of a lot of different building blocks, but there's also just the intangible of where does it sit inside of the partner in terms of their priority and what are they trying to drive and how are they trying to leverage credit to improve their sales to drive loyalty in their customer base. Brian Wenzel: Yes. The one thing I'd add, as you kind of go through the platforms, John, you think about let me just point out the areas where we probably see more pressure, right? In Home and Auto, see pressure in the Home and SpecialtyHome Improvement business. When you think about lifestyle, their platform that again still doesn't have positive purchase volume growth, it's in that outdoor power equipment, power sports. So you think about that bigger ticket, really more discretionary purchases, a little bit in cosmetic and health and wellness. That's where the consumers pull back. Where you do see areas of strength where think about diversified value, we have some real value-oriented players in there that as a retailer growing fairly significantly. So we're maintaining or expanding penetration as you think about that. And then obviously in the digital, there's a lot of broad-based partners in there who are expanding it as significant eclipse again. We're maintaining that penetration in those segments. So again, I think when you look at some things that are probably bigger ticket discretionary. But even inside Home, we see expansion in some of the furniture partners that we have and verticals we have there. So again, I think we see green shoots inside the portfolio of really the consumer kind of engaging in some of those discretionary purchases. Maybe some of the bigger ones are still a little bit patient on making. John Hecht: Okay. Super helpful color. And then second question, Brian, you mentioned payment rates, they've been elevated really since for the last several years. In your opinion, what's the source of that? Are you seeing that across a variety of income levels? And can you tell how much of that might be like debt consolidation? Brian Wenzel: Yes. So let me bifurcate that a little bit, John. If I go up to 10,000 feet, you really have two big drivers on why payment rate is elevated when you look at an absolute rate basis. Number one is the credit actions we've done, which has been more restrictive into the non-prime area. So when you go and look at non-prime as a percent of total, we're better 80 basis points year over year. And really where it's coming out is the top end, which you see a higher payment rate at that really top end versus the non-prime. So that's number one. And that's to be expected, right, relative to that. That's why you're getting the benefit in charge off and delinquency. The other thing is that on some of the bigger ticket discretionary promotional financing purchases, promo as a percent of the balances are down. Now promo balances have a payment rate of call it 9% to 10%. Your core balances have a payment rate of 19% to 20%. So that mix shift that happens, it does have a little bit of influence on payment rate in and of itself. When we start to kind of go down to it by credit grade, John, what we're seeing here is actually strength in the non-prime and payment rate, because again we took out some of that bottom end of the non-prime through our credit action. So when I look at it on a cohort across the entire book with regard to payment rate, it's really the strengthening brings you back to the credit actions in and of itself. Even when we look at it generationally, generationally it's kind of moving in parallel given the characteristics of each of those cohorts. So again, the strength is more driven by a little bit of mix between promotional balances versus core and then really the credit actions are the biggest driver. John Hecht: Okay. Thanks very much. Brian Wenzel: Thanks, John. Have a good day. Thanks, John. Operator: Thank you. And ladies and gentlemen, we do have time for one more question this morning. We'll take that now from Jeff Adelson of Morgan Stanley. Jeff Adelson: Hey, good morning, guys. Thanks for fitting me in to be in here. Just as a follow-up on the payment rate question, one topic that's come up more recently is there's been some more prepayment out there more in the installment world of the lending spectrum and some of that may be coming from increased competition or private credit demand to originate new loans. Now I know credit card is a different animal here, more of a revolving product, but just curious if you're maybe noticing any of that competitive dynamic flowing in and maybe keeping the payment rate a little bit more elevated here? Brian Wenzel: Yes. Thanks for the question, Jeff. When I look at it, I'm going cut it two different ways. When we look at whether installment is impacting our business, when we look at application flow, where maybe installments could be a different payment option, we have not seen application flow negatively decline. Actually, in fact, we've seen application flow increase throughout the portfolio. So I don't think we see competitive dynamics where an installment product is disintermediating us right relative to that or causing them. Back to the question that John, I apologize for not necessarily answering and maybe where you're heading a little bit. When you think about people consolidating debt into an installment type loan or some type of personal I'd say this, did two different types of analysis, right, relative to that. One where we looked at cohort of or the trust portfolio and said, look at accounts that were revolvers for six consecutive months and then paid off to zero. As that balance shifted and it has not shifted materially, most certainly not in a manner that would equate to what you're seeing in some of the loan growth that you see in personal loans. We also went out and looked at sample of the population and looked at number one, do we see an increase in our portfolio, people have taken out personal loans, number one. And then number two, for some of the heavy revolvers, have we seen any of the payment behavioral changes pre and post those that have taken out a personal loan? And the answer is we have not seen that. So again, every issuer is impacted by some form of personal loan, but it's not been a significant driver that's influenced our resulted from a growth perspective or from a payment rate perspective. Jeff Adelson: Got it. That's helpful. And as my follow-up, just piggybacking off the commentary on the success of Pay Later at Amazon, you obviously have that product out there with other partners like Lowe's. Does the success of that launch maybe reinforce or shift how you're thinking about leaning into that opportunity going forward? Should we be expecting a continuous kind of launch of this multi-product strategy going forward at every partner you have? And maybe just update us on how that's coming up in the conversations with your partners as they maybe compare you guys to the offering some of the other buy now pay later players are giving them? Brian Doubles: Yes, sure. Look, I think we've been able to demonstrate the power of being able to offer multiple products inside a program. We're thrilled with the progress on pay later across the business. We now have it at some of our largest partners. You mentioned Amazon, we have it at Lowe's, JCPenney, Bell, Sleep Number. And our partners aren't really seeing the products as an either-or. They really do see the value of the multi-product strategy. They think that's a real opportunity. They fully appreciate that customers have different financing needs. In some cases, revolving product is right for some purchases. Others prefer fixed payments of a buy now pay later product. But we're anchored in that multi-product strategy. And based on our conversations with our partners, that's really resonating with them. So that's the strategy going forward. We're excited to continue to roll it out to the partner base. Operator: Thank you. And ladies and gentlemen, this will bring us to the conclusion of today's Synchrony Financial's third quarter earnings conference call. We'd like to thank you all so much for joining us this morning and wish you all a great rest of your day. Goodbye.
Operator: Good morning, and thank you for standing by. Welcome to Abbott Laboratories' Third Quarter 2025 Earnings Conference Call. All participants will be able to listen only until the question and answer portion of this call. During the question and answer session, you will be able to ask your question by pressing the star one one keys on your touch tone phone. This call is being recorded by Abbott Laboratories. With the exception of any participants' questions asked during the question and answer session, the entire call, including the question and answer session, is material copyrighted by Abbott Laboratories. It cannot be recorded or rebroadcast without Abbott Laboratories' expressed written permission. I would now like to introduce Mr. Mike Comilla, Vice President, Investor Relations. Mike Comilla: Good morning, and thank you for joining us. With me today are Robert Ford, Chairman and Chief Executive Officer, and Philip Boudreau, Executive Vice President Finance and Chief Financial Officer. Robert and Philip will provide opening remarks. Following their comments, we will take your questions. Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2025. Abbott Laboratories cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in forward-looking statements. Economic, competitive, governmental, technological, and other factors that may affect Abbott Laboratories are discussed in Item 1A, Risk Factors, to our annual report on Form 10 for the year ended 12/31/2024. Abbott Laboratories undertakes no obligation to release publicly revisions to forward-looking statements as a result of subsequent events or developments except as required by law. On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott Laboratories' ongoing business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings news release and regulatory filings from today, which are available on our website at abbott.com. Note that Abbott Laboratories has not provided the related GAAP financial measures on a forward-looking basis for the non-GAAP financial measures for which it is providing guidance because the company is unable to predict with reasonable certainty without unreasonable effort the timing and impact of certain items which could significantly impact Abbott Laboratories' results in accordance with GAAP. Unless otherwise noted, our commentary on sales growth refers to organic sales growth, which is defined in the press release issued earlier today. With that, I will now turn the call over to Robert. Robert Ford: Thanks, Mike. Good morning, everyone, and thank you for joining us. Today, we reported organic sales growth of 7.5%, excluding COVID test sales. Our growth was led by double-digit growth in medical devices, where several high-growth segments showed an acceleration in growth in the third quarter compared to growth in the first half of this year. And also high single-digit growth in established pharmaceuticals led by double-digit growth in our key 15 markets. Earnings per share rose to $1.30, up high single digits compared to last year and up double digits when excluding the impact of the expected large year-over-year decline in COVID test sales that occurred in the third quarter. Our performance continues to be driven by innovation, positioning Abbott Laboratories to consistently deliver high-quality results and durable long-term value to our shareholders. Recently launched new products generated nearly $5 billion in sales this quarter and added more than 100 basis points to organic sales growth. Looking ahead, we expect increasing contributions from new products across the portfolio with a balanced mix of iterative and transformative innovation. Robert Ford: I'll now summarize our third quarter results in more detail before turning the call over to Philip. And I'll start with Nutrition, where sales increased 4% in the quarter led by the adult nutrition business. Ensure remains the cornerstone of our adult nutrition portfolio, trusted by millions of consumers seeking to maintain or improve their health. Strong brand recognition, combined with favorable demographic and dietary trends, including an increased focus on protein intake and immune system health, continues to fuel our growth. Growth in adult nutrition was driven by 10% growth in international markets, where we continue to see strong demand from both Ensure and Glucerna. To support future growth, we continue to invest in these well-known brands to ensure they evolve along with changing consumer preferences. We recently launched a new version of Glucerna that contains only one gram of sugar. And later this month, we'll launch a new version of Ensure that contains 42 grams of protein. Moving to diagnostics, where we saw modest sales growth in the quarter, excluding COVID testing sales. As expected, challenging market conditions in China impacting both price and volume remain a headwind for our core lab diagnostic business. Excluding China, Core Lab Diagnostics grew 7% with markets such as the US showing an acceleration in growth in the third quarter compared to growth in the first half of this year. Our strong consistent performance outside of China reflects durable underlying demand in markets around the world. Philip Boudreau: And growth of 8% in point of care diagnostics was driven by growing adoption of two first-of-a-kind tests. Our point of care concussion test and a high sensitivity troponin test which allows for earlier and more accurate detection of a heart attack. Turning to EPD, sales increased 7% led by double-digit growth in our key 15 markets, highlighting broad-based demand and strong commercial execution. From a product portfolio perspective, several therapeutic areas delivered strong contributions including gastroenterology, cardiometabolic, and pain management. These areas continue to benefit from favorable demographic trends and growing demand for high-quality affordable medicines. We continue to make good progress as it pertains to our biosimilar strategy, a key growth pillar for EPD. During the quarter, we advanced the regulatory approval process for several biosimilars and remain on track with our planned cadence of product and geographic launches that began this year. And I'll wrap up with Medical Devices, where sales grew 12.5% driven by double-digit growth in diabetes care, electrophysiology, cardiac rhythm management, heart failure, and structural heart. In diabetes care, sales of continuous glucose monitors were $2 billion in the quarter and grew 17%. In electrophysiology, sales grew double digits in the US and internationally. The launch of our new Volt PSA catheter in Europe continues to go very well and helped deliver double-digit growth in ablation catheters in international markets this quarter. Feedback from European physicians who have used Volt continues to be very positive, and we look forward to bringing Volt to the US market next year. In structural heart, growth of 11% was led by share gains in TAVR and growing adoption of Triclip. During the quarter, we achieved important milestones in our Structural Heart business. In July, we received regulatory approval for Triclip in Japan. Triclip is the first and only minimally invasive treatment option available to patients in Japan to treat tricuspid regurgitation. And in August, we received CE Mark for expanded indication for our TAVR valve Navitor to treat people who are at low or intermediate risk for open heart surgery. This expanded indication was supported by data from our VANTAGE study, which was presented as a late breaker at the European Society of Cardiology Congress. In cardiac rhythm management, growth of 13% was led by strong uptake of our leadless pacemaker Avera, which is expanding the market and capturing share in both the single and dual chamber pacing segments. Our vision for Avera was to help change the standard of care for cardiac pacing, and that vision is now becoming a reality with our cardiac rhythm management business outperforming the market for ten consecutive quarters and driving acceleration in growth from high single digits last year to double digits this quarter. Heart failure growth of 12% was driven by growth across our portfolio of ventricular assist devices and growth of CardioMEMS, our implantable sensor used for the early detection of heart failure. And vascular growth of 5% was led by continued strong performance in our market-leading portfolio of vessel closure products and increasing contributions from ESPRIT, our below-the-knee resorbable stent. In August, we received CE mark for ESPRIT, and we look forward to bringing this innovative technology to people outside the United States who suffer from peripheral artery disease. Lastly, neuromodulation growth of 7% was led by strong performance of our Eterna rechargeable spinal cord stimulation device in international markets, reflecting both continued uptake in existing markets and launches in new markets. So in summary, we delivered another very good quarter. Our pipeline has been highly productive and continues to fuel growth. And we remain on track to deliver high single-digit organic sales growth and double-digit EPS growth. I'll now turn over the call to Philip. Thanks, Robert. Philip Boudreau: As Mike mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis. Turning to our third quarter results, sales increased 5.5% or 7.5% when excluding COVID testing-related sales. Adjusted earnings per share of $1.30 was in line with consensus estimate. Philip Boudreau: Foreign exchange had a favorable year-over-year impact of 1.4% on third-quarter sales, which was less favorable than what we forecasted at the time of our earnings call in July. Regarding other aspects of the P&L, the adjusted gross margin profile was 55.8% of sales, which as expected reflects a decrease compared to the prior year due to the impact of tariffs. Adjusted R&D was 6.4% of sales, adjusted SG&A was 26.4% of sales. Adjusted operating margin was 23% of sales, which reflects an increase of 40 basis points compared to the prior year. And based on current rates, we expect exchange to have a favorable impact of approximately 1.5% on our fourth-quarter reported sales. With that, we will now open the call for questions. Operator: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press 11 again. For optimal sound quality, we kindly ask that you please use your handset instead of your speakerphone when asking your question. And, again, that's 11 to ask a question. And our first question will come from Larry Biegelsen from Wells Fargo. Your line is open. Larry Biegelsen: Good morning and congrats on the quarter. Thanks for taking the question. Robert, back in July, you sounded comfortable with consensus sales and EPS for 2026. I'd love to hear your high-level thoughts on next year if you're still comfortable with consensus, it seems like you have some nice tailwinds next year. Thanks for taking the question. Robert Ford: Yeah, Larry. Yeah. I'm very comfortable with consensus. In fact, you know, this is a question that was asked last year in our Q3 earnings call and consensus for 2025 at that time was, you know, seven and a half percent, EPS growth of, percent. That's the same consensus estimates that we have today. And I was comfortable with delivering that type of growth at that at this time last year and I'm comfortable again today forecasting to deliver that. That type of growth next year. These estimates that you referenced, they're pretty much in line with the results that we've delivered year to date. And we deliver those results in a year where we face I'd say, than expected headwinds in diagnostics and unexpected impact here from tariff. I think that's just a great example of of the culture we have here at Abbott Laboratories. So it's just no excuses, just adapt and adapt and deliver and, you know, the portfolio that we have, we have the ability to do that. But when I think about our ability to sustain this level of performance that we're seeing in '25 into 2026, I really see it as you know, kind of three key buckets of of of growth for us, Larry. First of all, there's underlying momentum in the current portfolio, whether it's in med tech, in established pharmaceuticals, large portion of our diagnostic business. And I expect that I expect that momentum to continue. You know, we've got high growth products here, whether it's Avera, TAVR, Libre, TriClip, I'm sure we'll talk about those. So that's one big driver of our growth. Sustaining into next year. Second one, I'd say, new product launches. We've got a lot of new product launch cadence into next year, whether it's a volt in The US, pack lex Duo, our dual analyte sensor the new Alinity N diagnostic system, biosimilars. I mean, these are all, product launches here that will add to our sales and sales growth, and that will gain momentum. Over the course of the year. And then as I said also, we've got let's say, some easing of some of the headwinds that we had this year. Pretty significant headwind in diagnostic. We talked about that, I guess, in July. Over a billion dollars of headwind, whether it's the VV pricing dynamics in China this year or the or the decline in COVID testing? I think we'll start to see a full lapping of that next year. On a year basis, but we'll start to see some of it quite frankly, in Q4. So so I feel I feel very confident and comfortable with that type of top line growth. And and if you look also why we're in this position, Larry, I mean, we made investments in 2020, 2021. You know, these product launches that I'm highlighting here, those those investments that we made. So we'll be able to deliver that high single digit top line growth double digit EPS growth, while at the same time, I'm gonna remain unwavering here in the commitment to invest in the pipeline and drive growth organically. We'll have close to 200 clinical trials across all of our businesses, across variety of different geographies next year. And within those, we're gonna initiate some really important pivotal trials year that we're funding for products that we expect are going to be significant contributors in future, whether it's the mitral valve replacement clinical trial that will go into Our balloon TAVR trial will go into IDE. AVARE conduction system pacing, peripheral IVL IDE trial, a continuous lactate monitor sensor, IDE trial. So so we could do we can maintain this top and bottom line growth while at the same time making the investments in the portfolio that we know we need to do. And then we got a good track record here expanding our gross margins and our op margins. We've got great gross margin improvement teams. We've been able to work hard this year be able to mitigate the impacts of tariffs as they have full year effect. Next year. So we feel good about being able to drive the top and the bottom line. The portfolio has been pretty resilient over these years. It's got nice offensive and some defensive kind of characteristics. Overall, I feel very good about the momentum we have going into the momentum that we have in the second half and of this year, into next year and just feel good about the outlook that we've got for next year. Yep. Larry Biegelsen: Yeah. Perfect. For taking the question. Robert Ford: Thank you. Operator: Our next question will come from Robbie Marcus from JPMorgan. Your line is open. Robbie Marcus: Great. Good morning, and thanks for is Robert, two quick ones from me, one on diabetes, one on EP. Maybe first on diabetes, such an important driver to Abbott Laboratories. Beat overall driven by outside The U. S. With the slight miss in The U. S. Just given the investor focus there, was hoping you could give a little more color on what's happening in The U. S. And outside The U. S. And how you're thinking about the market developing, particularly in The U. S. With the ketone sensor on its way hopefully next year? And what seems like increasing commentary on, CMS coverage of non-intensive type two? Robert Ford: Sure, Robbie. Yeah, US grew 19% We really have any kind of comps on that. So and year to date, The U. S. Is up 25%. I think growth I think what you're referring to a little bit there is growth in the first half of the year was a little bit higher, really due to some shelf restocking dynamics that we saw. If you remember last year, Robbie, we launched Libre three plus and had a pretty significant drive in demand here higher than what we had anticipated. And the new manufacturing facility we made the investment wasn't fully up and running. So that caused back orders with customers, it caused back orders to wholesalers at the pharmacy channel. The way we had planned this year was our site would come up and running and it would be more of a linear kind of recovery But the factory actually did really well in the first half. So that led to customers doing some restocking earlier than what we had bought. And a little bit higher quite frankly just given the demand that they were seeing in in Libre three. So that resulted in a little bit of a pull forward of a couple percentage points. Of growth. So I think it's just a little bit of a timing dynamic. I think most importantly we remain on track with the original U. S. Full year growth assumption of over 20%. So demand is still very, very strong. And we're seeing that. To your question on, you know, kinda next year, yeah, I expect to see another real strong year of growth in in The US with additional demand coming from the from the new, from the new sensor the new dual analyte sensor. I think that's gonna help drive increasing penetration, in that intensive in user segment. So I'd say, there's still room for penetration I would say, in that segment. In The US, it's there's still some rum also, but I'd say gonna really help us drive drive share gains. Whether it's in you know, pumper in the pumper segment or just in general intensive insulin user segments. There's still a lot of penetration in the basal segment I mean, I know because of the dual analyte sensor, we get a lot of attention on this insulin, intensive insulin segment. But I'm still very bullish on the basal segment. In The US, it's only about 20% penetrated today. Internationally, it's only 5% it's less than 5%. So I think there's still a lot of opportunity for growth in The U. S. With continued basal penetration and then not to mention the potential for CMS to cover type two non insulin. I think that's an opportunity. See positive signs of that developing. The ADA has been very of that. I think you can probably see proposed coverage of that come out sometime next year, maybe in the first half But then you've got then you know this pretty well, Robert. You got your normal you know, timing there of comment periods, the final covered decision, when the actual date's gonna be. So I think there's a scenario where that could happen next year. But and we'll be ready to execute, but I'm not building that I'm not building that assumption of that segment coming in or having any significant contributions in 2026. It's not in my base forecast. For 2026. So but I think you know, if it I think this will be a a real nice win for CMS patients. So I think we've got a lot of growth opportunities between the patient segments between the technology being launched across geographies. I know you're question was focusing lot on The US. I think we've got a great portfolio and a great lineup as we go into The US next year. But I also think that just tremendous opportunity internationally. And that's an area of particular strength for us that we built the scale, that we built the technology and the cost positions there. So, feel good about I good about Libre. I feel good about our U. S. Position. And the momentum that we're going have US and internationally. Robbie Marcus: I appreciate that. And then you talked about new product launches, Volt was one that you highlighted. We're expecting that I believe, around midyear. Next year in The U. S. Just maybe speak to Volt, the early feedback in Europe that you've received and how people should think about the ramp in cadence of Voalte and overall EP as we move into next year? Thanks a lot. Robert Ford: Sure. Well, we're seeing acceleration on our growth rate in EP, obviously, the second half. We knew that was going to be the case. Second half was going be better than the first half. And 26 will be better than 25. I think that you've seen here double digit growth across the board, more specifically also in our ablation catheter portfolio. So yeah, I feel good about what we've done here, Ravi. I mean, this idea that we've been playing defense over the last couple of couple of years, it's actually been a quiet offensive strategy where we've used the adoption of PSA on other competitive systems to increase our capital footprint. Now we'll be in a position to bring in the catheter, the PFA catheter It's doing very well. I just got some feedback. Yesterday and, been following, the rollout You know, it's going very well. I'd say efficacy and efficiency, those seem to be table stakes right now. PFA has proven to work and get the job done more quickly. So I think what I'm seeing now is longer term durability of results, safety, These are becoming quickly think, the points of competitive differentiation. And I think Volt is gonna offer a couple areas there. I'm not I'm not the I'm not the expert on all this, but what I've heard so far has been that two advantages that come across loud and clear for Volt is it delivers energy in a in a very kind of focused direction. They're The lesions are are are broader. They're deeper. Seem to be more durable and minimizes the risk of hemolysis. And then the second thing I continue to hear, resounding positive feedback is the integration with, you know, with Insight is a game changer. Right? That real time contact visualization that we always talked about, we thought that that was gonna be an important differentiation. And we're seeing that. It reduces because you've got that real time. We're seeing that it's reducing the amount of applications And as a result of that minimizing muscle contraction. And that minimization of muscle contraction allows us to then run these procedures with conscious sedation rather than exclusive with general anesthesia. I think that's hugely important aspect if you look at what's going on with healthcare systems and the difficulties with dental anesthesia, and having that that specialty ready to go at any given time. So that gives us flexibility in a lot of European markets. In a lot of segments here in The US. So we'll continue to roll it out internationally and I think your timing for for Volt is is is an okay timing for now. I mean, obviously, we're gonna try and target to to see an earlier approval, but for now, I think that's not a bad timing to have. And but I think what's been clear for me over these last couple of years is just the importance of the full portfolio. And I think that Abbott Laboratories has shown that it does have a full portfolio, not just of the mapping, the capital, the the talent and the clinical specialists that are out in the field. But also bringing in a wide variety of different PFA tools, whether it's, you know, a one shot, whether gonna be a focal PFA, through our pack deflects that we we expect to get approval in Europe next year. Quite frankly, it's been increasingly clear to me that the company are going to need more than just PFA. You're going to need to have PFA and unique gonna need to have LAA. So and we've got both of those. So I don't think it's a question of Abbott Laboratories being late. We're right on time, and we're complete with the full portfolio that we need. So I expect EP to do much better in '26 than what it did this year, and I think this year has done pretty well too. Appreciate all the insights. Thanks, Robert. Operator: Thank you. Our next question comes from David Roman from Goldman Sachs. Your line is open. David Roman: Thank you. Good morning. I wanted to switch gears a little bit on to the Diagnostics business. Mean clearly, a lot of focus this year on some of the discrete headwinds that you faced around China VBP and DRG updates. The dynamics with USAID and COVID testing, I think you made clear in your comments around '26 an expectation that those headwinds start to moderate. But could you maybe talk a little bit more on some of the underlying drivers of the business and how you think about an overall acceleration in the Diagnostics business going forward? Robert Ford: Sure. I don't think the dynamics that we've been talking about, David, have changed. And I don't think that's a bad thing to be quite honest with you because it it just shows that I think we've got a handle on kind of the headwind, that we've been facing. Which was really the VBP in the diagnostic area. I think of the things I talked about, you know, different from other VBPs that we've seen, in China is that you know, usually, if you want a VVP kinda tender, you you you you have a price hit, but then you've got volume kind of offset. I think you just raised there one of challenges we've seen in this segment specifically is you had the price hit, which was majority of our headwind, but you also saw some changes in in the DRG model that has impacted volume a little bit also. So I was actually in China last week. I spent a week there. I was over there over the weekend too. I had an opportunity to really go in-depth with all the different stakeholders. I think the team has done a really good job at navigating this. And I think that if you look at some of the dynamics that we're seeing in some of the accounts, we're starting to see a little bit now of some of that that volume start to re pick up. I'm not going to say that it's fully back, but I'm I'm encouraged to see some of the signs, start to pick up in terms of volume there. And if you look at how that happened to us, it really started happening in Q4 of last year. So we'll start to see a little bit of that headwind kind of that comp start to be minimized in Q4 This Year In China. And then next year, like I said, we've made changes. We've brought in new products, new management teams, etcetera. And I feel good about what I saw there last week, David. So I don't think that that's changing. And like I said, I think that's not a bad thing. We'll be lapping all of that, and we're seeing nice progress there. From the team too. I do think that the aspect that is changing is we are seeing our business outside of China continue to accelerate and that's going to be the other dynamic here to be able to move our diagnostic business from being you know, kind of low single digit growth, to now kind of mid single mid to high single digit growth next year. U. S. Has done incredibly well. I give a lot of kudos to the team there. They were up 10% this quarter. And that's driven by a lot of new business capture. So again, portfolio is very competitive. We got a large number of new business that we we last year, and continue to see new business converting to Abbott Laboratories this year. So I think share gains in The U. S. Is really what's driving that. European region did very well too. The quarter. I think they were up six to 7% they're doing very well also. Then Latin America, for us is, you know, growing mid teens, consistently growing mid teens here also. So I think the dynamic is not changing. So we're not seeing the situation get get worse in China. And I think the teams are doing really well there. We'll be out of that next year and outside of China. I think the dynamic going exactly how we've expected them to go, which is Alinity is being rolled out. It's a very competitive system. The are hitting their stride here in various important geographies and like I said, I expect that to continue. So you put you put that combination together, David, of passing the headwinds of the VBP in China, and continue acceleration in the on all the other geographies. I I think diagnostics is set up for a nice for a nice recovery year next year. David Roman: Very helpful. And maybe just one follow-up here on on the P and L. I think in the gross margin line, there are probably a lot of moving parts as quarter around the first quarter burdening the impact of tariffs and then also probably some foreign exchange related dynamics on a move in the euro, for example. Can you maybe help us decompose a little bit sort of the operational performance in the P and L from some of those other other factors and how we should think about margin trajectory on a go forward basis? Robert Ford: Yeah. I'll ask Philip to take that one, Philip. Philip Boudreau: Yeah. Thanks, David. And and I think you touched on on the right elements there. Gross margin continues to be a key area of focus for us. We've spoken the past of the dedicated teams that we have, in each of our business that that drive the constant ideation and execution throughout our supply chains and operations, even our affiliates. And, you know, that's progress that we to make good traction on here. The step back that you referred to here in Q3 sequentially, certainly reflects a normal pattern that, we have more of our plant operational maintenance shutdowns that occur in the third quarter. So that's a a normal sort of phenomenon. Also, as you touched on, the first meaningful impact of of tariffs that we're feeling in in gross margin is in the third quarter there as well. I would say we've done a really nice job in terms of the the team that I chartered to work on on tariff mitigation. And so you know, we continue to make good progress there and implement ideation not only on on how to improve that impact going forward. But also the teams generating ideas to pass over to the gross margin expansion teams and so continue to feed that funnel. And I think we are kind of on track with year to date 60 basis points of gross margin expansion and comfortable that that pattern will continue here and and kind of maintain that sort of 57% outlook in the profile going forward. Robert Ford: Thank you very much. Operator: Thank you. Our next question will come from Josh Jennings from TD Cowen. Josh Jennings: Hi, good morning. Thanks for taking the question. Wanted to circle back on the EP franchise and the outperformance in March Sorry to get a little bit granular, Robert, but was hoping you could just help us better understand the drivers of the double-digit ablation catheter growth one and then sorry for three-part question, but, hopefully, there'll be pretty easy to digest. Second is is just, you know, I think the consensus view is that Abbott Laboratories' mapping franchise has been driving the double-digit growth this year to date. Maybe just help us understand as a competitive environment of mapping evolves, you know, how how you see the mapping franchise, performance in in 2026. And then just last and the third part, where do you where does Abbott Laboratories' CPFA penetration in The US and N O US by the time Voalte's launched globally? So I guess in 2026, do you think we we could be north of 80% in The US and and a little bit lower than that OUS? Thanks for for taking the questions. Robert Ford: Sure. Let me see if I can kinda go through all of them here on this think your first question was just what's driving the ablation, the double-digit ablation growth. That's significantly driven by international, as you probably would have expected Josh. So a big driver there, has been that. But, know, we've got good growth, good good mapping growth in The United States still. We still believe that we're the data shows that we're still market leader in in mapping cases. Obviously, with with other competitors launching, their mapping systems, We've seen an uptake, in in their mapping in their in in in the amount of cases that they're now mapping. Tied to their own catheters. So but even even with that, we we still feel that we've got a leadership position in the amount of cases that, that we've mapped, for We have added other products also that help drive our growth there. Again, this goes back to this understanding of all the different segments in the EP area. Catheters are important. They're a big segment of the market and so are diagnostics. But we've got other parts of the portfolio also that are driving driving growth. We recently launched a our 13 French digital sheets which is viewed as, you know, one of the best introduced, one of the best introduced to sheaths. For not only our product, but even for competitive systems also. So so that that helps also. We're launching, you know, ICE also. So that's also a driver. So I think, again, going back to my comment you gotta have a full portfolio here. And I think trying to pin it down to, like, is it mapping? Is it is it this? Yeah. I mean, obviously, we're tracking all those different segments, Josh. But, know, we kinda view it as looking at the amount of cases that we're doing and looking at it on a revenue per case. And our revenue per case is actually going up. As we're introducing more and more new products. To support those cases. So then I think your last question was about penetration of PFA. It seems like it is becoming the go-to energy source here. I think the numbers that you threw out there, sound sound reasonable. If you think about 2026, you'll now have all four manufacturers with with PFA ablation catheters, with mapping tied to PFA ablation catheters. So I think that think that number sounds sounds reasonable to me. And then internationally, yeah, it's a it's a little it's a little bit less, but we'll see. Yeah. We'll see what what will happen. I think that Volt could actually could actually change that dynamic And and and maybe it can lead to a much higher penetration rate in international markets, specifically in Europe that mimics mimics The US penetration. But it's not a bad assumption to have for now. Josh Jennings: Appreciate it. Thanks, Robert. Operator: Thank you. Next question will come from Vijay Kumar from Evercore ISI. Your line is open. Vijay Kumar: Hi, Robert. Good morning, and thank you for taking my question. I had one on maybe high level on China rate. I I I know there is know, outside of VBP, think some macro issues or challenging volumes. Right? So when you look at overall China, inclusive diagnostics and med tech and and and EPD franchise, Can you just remind us you know, what what China has done for you? Year to date? What was it last year? What is your view on normalized growth outlook for China? I think one of your peers just said that they expect the mid-teens organic growth outlook for China. I'm curious to hear, your view on China. Robert Ford: Yeah. Sure. Let because I was there last week, like I said, It's an important market for us. It's gonna continue to be an important market. But as the company has grown and portfolio and it's it's in our total revenue as percent of total revenue has come down a little bit. Right? So if you look at that China, let's say ten years ago, Vijay, it was probably close to, like, nine, 10% of total Abbott Laboratories revenue. Today, it's it's less than 6%. But it doesn't mean that it's not an attractive area of the world for us to continue continue to invest in and drive to. If you look at our EPD and nutrition businesses, those two businesses have been up double digits year to date. And the team has done a really good job there about building a portfolio and and taking advantage of of of the growing segments there that we can we can offer innovation and solutions there. Our cardio neuro business has actually seen sequential growth step up throughout this year. I think if you take out the real challenge for us has been obviously the piece. And that was one of our larger businesses in China before before the VBP. So Q3 decline was pretty much in line with what we saw in Q1 and Q2. So but if you if you remove that, I'd say our growth rate in China is around five to 7%. If you take out the diagnostic piece. And I think that that's probably not a bad place to be in. And as we expand the portfolio there, bring new innovations, I think that that's that's that's probably a good growth target that I look at for 2026. I I don't know who who you're referring to who's talking about mid-teens. You know, if you've got if it's a company that doesn't have a lot of business, then yeah, then then you've got opportunities to grow your position. We've got a lot of in China, and I I think that a growth rate of mid-single digits, at least how we're planning for, is how we built our how we're looking at our 2026. And and quite frankly, we look kinda go forward. So I'm placing a lot more emphasis on growth contributions from from other geographies. I think we've got a lot more opportunities than over here. But again, like I said, still remains an important market for us and we're committed to it. Vijay Kumar: That's helpful. And then maybe one quick one on of your I think CRM, now your fastest growing product line within within MedTech. And and that's kind of crazy when you think about diabetes and and, all the other, good things that's happening, can you remind us on on how big is this category, the dual chamber, needless pacemaker, And where are we from a penetration standpoint? What innings are we in? Robert Ford: Yeah. I'm gonna pick up on it's kinda crazy comment that you made. For us, it's it's actually taking a vision that we had, like I said in my opening comments, to to change the standard of care here. Make the investment that's been done. And I think now we're seeing the benefit It fundamentally changed the growth trajectory of our business You know, I'd say five years ago, our CRM business was was flat, flat business, then it moved to a, you know, mid single digit high single digit, and then this quarter hitting double digits. It it's it's it's pretty remarkable also, would say, given the fact that this has historically been a low growth market. So we're obviously taking market share. I give total kudos to the team in terms of how they went about this, all the way from R and D, operations, clinical commercial. I think they've done a really good job. And I think Avera is is just now really hitting its stride. And we're driving uptake in both single and dual chamber. I expect this to continue. I expect this type of performance to continue for the next two years. They've established a very large base of US physicians that are now implanting this. I'd say on the single chamber we're probably about 50% penetrated. And so there's still room to grow there. But half of our implants so far have been dual chamber and and were probably sub 10% penetration over there. And those those penetration rates are are are mostly US. So I think there's a lot of opportunity here for us to do this. And to live up to that vision. We've got great opportunity international too. We're seeing really nice momentum in in in Europe and Japan. And I think the long term aspiration here to be able to convert a significant portion of market. We we estimate the the the low voltage pacing market to be around $4 billion. We wanna convert a significant portion of that and and in doing so, become the market leader in this segment. So, and the team's done a really good job and there's pipeline. There's there's innovation, there's clinical work, there's investment behind it. So I got, it's not crazy to think about it if you look at all the work that the team has done and put forward, and, I think they're ready to capitalize on this. And they've got they have pretty high aspirations where they wanna take their sales and their market position. Vijay Kumar: That's very helpful. Thank you. Thank you. Operator: Our next question will come from Danielle Antalffy from UBS. Your line is open. Hey. Good morning, guys. Thanks so much for for taking the question. Robert, I wanted to touch on the two questions, one on diabetes, one on structural heart. Just wanted to touch on the structural heart piece of the business. And specifically in left atrial appendage closure and how you guys are thinking about that has been a high growth market. It feels like you guys might not really be benefiting yet from the concomitant procedure. Maybe you could talk a little bit about how you see, left atrial appendage closure evolving for Abbott Laboratories specifically in in 2026 and beyond? And then just one quick follow-up on diabetes. Thanks so much. Robert Ford: Yeah. Sure. Listen. I think it's a it's a really important area of growth. You're right. I don't think that we've taken, the right amount of share with a concomitant procedure. I know that the teams are looking at at, you know, how to do that, more effectively. As we go into, beginning of next year. But this is an area that, we continue to invest in. I think that what I'm seeing right now from the results or at least feedback that I've heard from physicians on our next generation, AMOLED device is, significantly positive, versus what I've heard from other products that we put into trial. So when I get calls and texts and things like that from some of the KOLs that are working on the trial, Really making sure that we understand of how how and how good this next generation is. I think that's gonna allow us to do that. We've actually completed the enrollment of that trial, so we're gonna be filing you know, we've to do the follow-up and then we'll be filing in the first half of the next year. So we'll see if, if this is a, if this is a 2026 launch or if it's more of 2027 launch. But I think that's gonna be hugely important. And I think it's gonna be hugely important as it relates to our full portfolio here. We think that it's going to be a differentiator for us. To be able to have not all not only all the PFA tools and mapping tools and service and support, but now to be able to add a a a much more competitive device on the LAA side. We've got a read out of our trial, against NOAC. That'll be in 2027. I I understand that there'll be a readout from competitive system next year, but I think that this is a this is a high growth area and one that's got a lot of attention, from me. And from the management of our device teams on how we can kind of leverage, the portfolio better. So, I've got high expectations as we go into as we go into year and especially with the next generation product. Danielle Antalffy: Gotcha. And then just the quick question on diabetes. You know, we've talked in the past about CGM becoming standard of care. And I'll be very honest. It it surprises me that we're still only 20% penetrated in The U. S. In basal. What do you think are still the barriers to this, and how how long will they persist? I mean, you talk to clinicians, and it feels like the momentum is there, and and quite frankly, we should be inflecting at this point, and I just can't tell if we if are. So just curious what you think is is maybe preventing that, or maybe you think we're in the inflection. I I don't know. I don't wanna be free open. Just if you could comment on that. Robert Ford: Yeah. I think it's it's it's difficult to generalize. Every market that we've seen on the Basal has gone at different different speeds. If I look at some of the European markets where we got full basal, It's actually gone, I would say, maybe at three quarters of the of the speed that the intensive insulin user kinda got picked up. And you're right, The US is a little bit slower. I think there is a large universe of primary care docs that needs to be covered. There's probably more awareness that needs to be built. I know you might think, well, there's just already a lot of awareness. How come it's not ascended? But still a lot of pockets around this country where, know, we're going in with our sales force for the first time. And, you know, there's a there's a very high level understanding of what CGM is. But there's hasn't been a lot of experience. So that's what we're working on, a lot of sampling, programs, I think the work that we did that the team did for epic integration in a more turnkey versus, you know, every different office doing their own integration. So to have it fully integrated into Epic, I think that'll be good. And I think the other thing, that is going to be important for the primary care doc, mean these are very fast visits Danielle. They don't have a lot of time. So I think they're starting to really the benefit of using ambulatory glucose profiles and look at those and be able to find out where the problem is, in that basal population. It's twenty percent. It's It's there are probably pockets in The United States where I've seen higher penetration. Rates, but that's okay. I think that what's important for us that we're continuing to see an increased sustained penetration. And I think that if I were to sum it up, it's probably more dependent on us than it is about concerns about whether there's value or not value. I mean, I think the clinical data is pretty ound in terms of the benefits that it has. So this for me is more about us doing better, investing more, covering more physicians, and that's what we're doing. Great. Thank you. Thank you. Operator: Our next question will come from Joanne Wuensch from Citi. Your line is now open. Joanne Wuensch: Thank you, and good morning. Two quick questions on nutrition, so I'll put them both up front. Could you give us an update please on where we're sitting on the neck litigation? Then it looks like there were some pockets of nutrition that were weaker this quarter than, we would have expected? And if you could just sort of address that and how you think about that going forward, that would be great. Thank you. Robert Ford: Yeah. Sure. On the litigation, you know, as I've done in the past, I'm not gonna comment on, you know, any of deep into any specific cases. I think you saw over the last couple of months, you saw, some of the, federal cases, go through go through the process. In both those cases, Abbott Laboratories won on summary judgment. So we stand behind I mean, I'll I'll just stand behind the products. I stand behind, you know, our label and and the importance of these products in the health care system. So we'll see we'll see more cases. Progress this year and and into and then into next year. There's there's clearly a difference in terms of how the federal cases are being looked at versus, maybe some, of those earlier cases, on the state are being looked at. But, yeah, we we remain we remain committed and will will you know, commit to, you know, defending the product and defending the use of it going forward. I think your other comment was pockets of softness in in nutrition. I'd say for me, think if you look at the 4% growth, it's pretty much in line with our kinda historical growth rate. I think the one that was a little bit off where we historically had been was in our U. S. Pediatric And that's just competitive competitive impact. We gave back some share, that we had captured last year when a competitor experienced a supply disruption. I knew it was going to be difficult to hold on to it, to hold on to it permanently. But still, I'm disappointed, that we saw that happen. And then on top of that, we also saw, a large WIC contract, state contract move from Abbott Laboratories to a competitor in in the quarter. So that so that had an impact over there. I I expect some of these, some of these share losses here that we've seen in The U. S. To impact our growth rate here. And The US pediatric for the next couple of quarters. But what I'll say is we faced this during the supply disruption in 2022 and we got our share back. It takes a few quarters but I'm, I'm, I'm very confident the team will be able to do that. First, because we we recently won two new WIC contracts The combination of those two contracts actually are higher than the one that we lost, but those go into into effect Q1 and Q2 Of Next Year. And Then We've Got Several New Product Launches That We'll Be Launching Here In The US, over the next couple of quarters. So it's gonna take a couple of quarters, but I'm I'm confident we'll be able to get our share back. Thank you. Robert Ford: Thank you. Operator: Our next question comes from Travis Steed from BofA Securities. Your line is open. Travis Steed: Hey, thanks for the question. I guess kind of big picture, I wanted to talk about the sustainability of the device business. You've had kind of 10 plus quarters of double digit growth. Just trying to think about the sustainability of that going forward when you think about the procedures and underlying procedure market growth in the pipeline that you guys have? I just want to think about your view there kind of longer term. Robert Ford: Yeah. And I think, the way, our device portfolio has a evolved, if you look back five, six years ago, was a high single digit grower in the combination it was really you had double digit growth in diabetes and EP and structural heart and then you had say about it was about 40% of our revenue in vascular and CRM that was relatively flat. So, the way we've done this and I've talked about this also is okay, how do we ensure that the high growth areas continue to grow and accelerate? And that's what we're seeing in structural hardy and EP and diabetes, even in heart failure. And then how do we reposition what we would characterize as historically slower growth segments of a very large portion of our portfolio, how do we get them from being flat to at least growing mid single digits. And if you get them to grow mid single digits, then you then you move up to double digits. And that's what essentially has happened. If you look at our CRM business, I talked about this it's gone from being flat to now being double digit. That has a tremendous And I think that there's a lot of sustainability in that. And then in our vascular business, we started repositioning the portfolio I would say Vastr is on the same journey that CRM was on maybe maybe a year or so behind the boat. We're already seeing the impact We've been able to show pretty consistent delivery of 5% to 6% growth in our vascular business over the last year or so. So I think they're on their kind of journey to reposition the portfolio to higher growth. My expectation is is very sustainable We're in these very high growth markets. We have great portfolios. We've been investing, significantly and disproportionately in those programs product development, clinical trials. And so I think it's very sustainable. Travis Steed: Great. I wanted to follow-up on on some of the balance sheet and and m and a kind of a lot of cash in the balance sheet. You know, how do you think about the portfolio over the medium term? Do you have the right assets going forward in a new market you wanna be in? You know, at at some point, are we gonna see you guys kinda utilize the the balance sheet and and the cash? Robert Ford: Yeah. Well, we have been using it. We have been using it in terms of dividend and growing our dividend. We have been using it in terms of share buybacks. We've been using it in terms of debt and debt pay down. We've got $3 billion of debt, to pay down next year. And I think I'd prefer to pay that down when it comes due, but we'll we'll wait see what what interest rates look like. So we have been using it. We've been making investments investments, internal investments with manufacturing and some of our digital solutions. So, So yeah. I don't I don't I don't think that we've just been sitting on it. Obviously, we've businesses that are very strong positive cash flow generators. On the M and A side, yes, like talked about there being opportunities, very good opportunities out there. We've got a strong organic pipeline which allows us to be a little bit more selective. But there are opportunities that fit us strategically and there are a lot of opportunities that fit us strategically and make an can generate an attractive return. We've got capacity to do that too. So I like the position we're in but we are putting our cash to use. Travis Steed: Great. Thanks lot. Robert Ford: Yeah. Operator, we'll take one more question, please. Operator: Thank you. And our last question will come from Suraj Kalia from Oppenheimer and Co. Thank you for taking my questions. So, Robert, structural heart continues to be an important segment for Abbott Laboratories in you talked about some of the new products on the Verizon balloon expandable valves, Cepheus, so on and so forth. Would love to get your thoughts specifically on the mitral and tricuspid US TAM The landscape seems to be changing with SGLT2 inhibitors cath lab capacity, and so on. What are the puts and takes for realizing this TAM? You for taking my questions. Robert Ford: I mean, I think there's a lot of opportunity, in in in those two products that you just referred to. I think on the on the on the tricuspid side, I'd say, what needs to be done here is continue to invest in data and data generation to be able to strengthen the referral pathways, to be able to have broader adoption. I think between, repair and replace good to have both those tools. Right now, what I'm seeing is repair is is being is being the preference, just given the safety profile. On the MitraClip side, we've invested in a clinical trial to look at using MitraClip in low and intermediate risk patients. So I think for those two products, you're going to have to, continue continue to invest in clinical and clinical evidence. Obviously you support that with your field based teams, etcetera, but I think the real big drivers of continued drivers of that are gonna be, clinical evidence. But I mean, I take a step back here and maybe just look at how you started your question about Structural Heart. You went quickly into those two products. But this is an area that if my view, if you wanna be a cardiovascular med tech leader, you have to have a strong robust, and differentiated portfolio and strong position, in Structural Heart. If you look at the revenue, across the players, know, last year, I think we crossed over to number two. So we have a number two position. And I don't think that's by accident. We've invested in that area. We've invested heavily in that area. We've got a portfolio of great products here, MitraClip, TriClip, you got Navitor, you got Amulet, and you've got several if I look at over the next couple of years, there are multiple catalysts here to sustain and even accelerate this double digit growth that we got, whether it's label expansions in Navitrol MitraClip, we we launched our fifth generation MitraClip and TriClip product. That's important We've seen guideline changes happen. Saw some of that guideline change happen at the European conference, about a month ago. Expanding the product and the technologies to other markets. I think the the the launch of TriClip in Japan is going to be a real important move for us. We've done some bolt on m and a in this space also. This quarter, we actually bought a an AI powered, imaging, software company in Europe, that specialize, in interventional cardio, pre procedure planning. I think that's gonna be hugely important in this space. So we've added to that and, you know, integrating that team in into our into our programs. And then the pipeline, like you said, whether it's Balloon Tavern, Ambulet three our next generation AMBLET, and, you know, our our mitral replacement valve. I think that's those are all, you know, I actually been pretty close. I've been closer to the mitral replacement program recently. And the feedback that I've heard from this product is just spectacular. And I think it's got the potential to live up to the expectation that we all had back in 2015 when all of us made significant investments in buying early assets and with the belief that my could be as big as TAVR. I think that this is the product that's going to it's got the potential to fulfill that promise. So I put all that together. I think that we're tremendously, competitive position in Structural Heart. Portfolio is very and we're gonna continue to invest in it and and be a leader here. So I feel good about that part of our med tech portfolio and be able to sustain that double digit growth going forward. So well, I I I realize we've we've hit our time here. Let me just make some closing remarks. Delivered another very good quarter. Year to date, we've delivered 7.5% organic growth, 10% EPS. Showing that we can expand our op margin profile. We've expanded that by a 100 basis points. And I think we've delivered all of that as I said, in in in in one of the questions here with some some larger than expected headwinds here that we faced in our businesses that we feel will be kind of behind us, next year. So our organic r and d engine continues to be highly, highly productive. And I expect that we'll be able to sustain this performance, this growth as we as we carry into 2026 and beyond. So with that, I'll wrap it up. And thank you for joining us today. Philip Boudreau: Thank you, operator, and thank you all for your questions. This now concludes conference call. A webcast replay of this call will be available after eleven a. M. Central Time today on Abbott Laboratories' Investor Relations website at abbottinvestor.com. Thank you for joining us today. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a wonderful day.
Operator: To all sides on hold. We do appreciate your patience and ask that you please continue to stand by. Please stand by. Your program is about to begin. If you require assistance throughout the event today, please press star zero. Good day everyone, and welcome to today's Q3 Bank of America Earnings call. At this time, I would like to turn the program over to Lee McIntyre. Please go ahead. Lee McIntyre: Good morning. Thank you. Thank you for joining us to review our third quarter results. Our earnings release documents are available on the Investor Relations section of the Bank of America website. Those documents include the earnings presentation that will make reference to during the call. Brian Moynihan will make some brief comments before turning the call over to Alastair Borthwick, our CFO, to discuss more of the details in the quarter. Let me just remind you that we may make forward-looking statements and refer to non-GAAP financial measures during the call. The forward-looking statements are based on management's current expectations and assumptions, and those are subject to risks and uncertainties laid out factors that may cause our actual results to materially differ from expectations. Our detailed in the earnings, material and available in the SEC filings on the website. About non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in our earnings materials and are also available on the website. With that, Brian, over to you. Brian Moynihan: Thank you, Lee, and good morning, and thank you all for joining us. Bank of America delivered a strong third quarter with good growth both in the top line revenue and bottom line EPS, all driven by strong operating leverage. Our ROTC improved to 15.4%. This quarter's results provide good momentum as we finish 2025 and head into 2026. We have been demonstrating consistent organic growth for many quarters. This quarter's results highlight the continued organic strength of our world-class deposit and lending capabilities. Our results also underscore the benefits of a diversified business model with top-tier position, not only in lending and deposits, but also across the markets, businesses and wealth management, global markets and global banking. Before I turn it over to, I'm going to hit a few highlights here. We reported revenue of $28 billion, up 11% year over year. EPS was $1.06, up 31% year over year. We drove operating leverage of 560 basis points in the quarter. The efficiency ratio fell below 62%. The return on assets reached 98 basis points. And during the quarter, we returned to our shareholders $7.4 billion through dividends and share repurchases, net interest income on an FTE basis reached a record $15.4 billion. That was supported by strong commercial loan and deposit growth, along with continued balance sheet positioning. Investment banking fees exceeded $2 billion, up 43% year over year. Our team in sales and trading grew revenue 8%, marking our 14th consecutive quarter of year over year revenue growth. Our asset management fees increased 12% compared to last year. All the business segments contributed to earnings improvement and had growth earnings two stood out this quarter. Our consumer banking team delivered $3.4 billion in after-tax earnings, up 28% year over year, with 600 basis points of operating leverage. This reflects strong revenue growth and disciplined expense management. This business is driven off the core operating accounts of our consumer customers, and we gained more of them this quarter. These accounts have strong balances per account. The customers give us great customer scores and we operate them at lower costs with more primacy in the account and lower attrition compared to anyone in the industry. That is a winning combination. Our global wealth and management teams posted net income of nearly $1.3 billion, up 19%. That was driven by the strong Merrill and private bank advisor productivity. And in concomitant continued growth in fee-based assets, lending in this business was particularly strong, with $12 billion in loan growth in this quarter. GWIM also opened another 32,000 banking accounts and grew deposits $3 billion from quarter two. As we look ahead, we believe this quarter's performance continues to reflect the impact of the investments we have made on a continuous basis for many years in technology, talent and client experience. These continue to translate into strong financial results. We have been growing loans with the right risk and deposits as we continue to gain market share through organic growth. That translated into continuous NII improvements and complementary growth in our fee-based businesses. This quarter, I also, as usual, commend you to look at the digital slides in the appendix on slides 20, 22 and 24. They show the continued progression across all the businesses of applied technology, with lots of discussions going on about technology and AI and other things. We give you the stats, what you'll see in these slides is a customer-facing activities of Erika. For example, there are many other applications of AI going on in this company, but this one has been handling successful interactions for years with scale and that application has now been applied across other businesses and even across our employee base. So we're confident in our trajectory of our results, and we are excited about the opportunities ahead. We look forward to look forward to talking to you at Investor Day in November. I'll turn it over to Alastair to walk through the financials in more detail. Alastair Borthwick: Thank you, Brian, and I'm going to start with slide three to begin our discussion. And I just have three things on the income statement that I want to add to Brian's comments. First, we're pleased with the continued demonstration of expense discipline across our businesses. So in the third quarter, we delivered 11% year over year revenue growth, significantly outpacing 5% expense growth and resulting in that strong 6% operating leverage. Of the $28.2 billion in total revenue and aggregated amount of $11.3 billion came from our sales and trading, investment banking and asset management fees. Three of our more highly compensable market-facing areas. So those areas grew 15% year over year. In the aggregate, and we're excited to continue our investments given their strategic importance and attractive returns when coupled with investment spending and inflation. This revenue growth helps frame the 5% expense growth. Even better. Importantly, expense growth versus the second quarter was held to under 1%, while those same compensable revenue streams grew 8% sequentially. Further reinforcing our ability to scale efficiently and invest where it matters most. Second, provision expense improved this quarter with net charge-offs declining 10%, and we had a modest reserve release as a result of both credit card and commercial real estate improvement. The strong asset quality reflects the continued strength of our credit portfolio. Years of disciplined risk management and higher growth of the portfolio than other banks with good credit results. Lastly, our average diluted share count declined by 24 million shares from the second quarter, and this quarter included the dilution we've highlighted before in our filings. And that comes from our 2008 issued convertible preferred Series L stock. On slide four, you'll note the various earnings highlights. Brian and I have talked about. I don't have much to add here, and would instead spend just a moment on our continued organic growth, which is powering our loan and deposit activity. We added new clients and we deepened relationships with existing clients and across consumer wealth, commercial and institutional businesses. Our teams are winning in the marketplace by putting our clients first. As always, we highlight the continued organic growth across each of our businesses. Driven by client engagement, disciplined execution and strategic investment. And you can see the results there on slide five. Consumer banking continued to show strong momentum. We grew another 212,000 net new checking accounts, extending our string of consecutive growth to 27 quarters. This includes the fourth consecutive quarter of increased average noninterest bearing deposits, and those are important because they are the primary operating account for a relationship and they're quite beneficial as a low-cost funding source. Additionally, card, home and auto loan balances grew year over year, reflecting healthy consumer demand. And we believe those further cement the relationship beyond just the operating account alone. In small business, we continued our strength, our string of lending growth, and we remain the number one leading provider of credit to small business in the United States. Wealth and investment management saw client balances climb to more than $4.6 trillion, driven by strong AUM flows of $84 billion in the past year. Strong loan originations and market appreciation. Our advisors continued to deliver comprehensive solutions to help clients achieve their financial goals. In global banking, we saw a nice pickup in client activity in investment banking, resulting in market share gains, leadership rankings across many products and the highest non-pandemic fee quarter in our firm's history. Commercial client activity showed a continuation in the demand for loans and cash management needs, as Treasury service fees increased 12% year over year. Alongside deposit growth of 15%. Markets continued to deliver on their string of year over year revenue growth and also continued to grow loans from healthy demand of our clients. Let's transfer to a discussion of the balance sheet using slide six, where you can see total assets ended the quarter at $3.4 trillion. That's down $38 billion from the second quarter. As good loan growth was offset by lower global markets assets and wholesale funding reductions. As part of our plan to continue to tighten the balance sheet. Importantly, this balance sheet tightening will continue to benefit the net interest yield. NII deposits ended just over $2 trillion and were up $72 billion from the year ago period, with growth in both interest bearing and non-interest bearing deposits. Average global liquidity sources of $961 billion remained strong, and shareholders equity of $304 billion was up $4.6 billion from last quarter. As we issued $2.5 billion of preferred stock. Otherwise, a $2 billion increase in tangible common equity to $208 billion included a modest capital build, as net income was slightly more than capital distributions, and we saw some improvement in AOCI, we returned $7.4 billion of capital back to shareholders, with $2.1 billion in common dividends paid and $5.3 billion of shares repurchased. Tangible book value per share of $28.39 rose 8% from the third quarter of 24. Looking at regulatory capital, our CET1 level increased modestly to $203 billion, while the risk-weighted assets were relatively flat. And that drove our CET1 ratio higher to 11.6%. This is well above our October 1st 10% regulatory minimum. Our supplemental leverage ratio was 5.8% versus a minimum requirement of 5%, which leaves capacity for balance sheet growth. And our $473 billion of total loss absorbing capital means our TLAC ratio remains comfortably above our requirements. On slide seven, we show a ten-quarter trend of average deposits to illustrate the extension of consecutive growth across those periods. Average deposits were up $71 billion, or 3.7%, from the third quarter of 24. Consumer deposits were up 1% year over year, while global banking deposits grew 15% compared to a year ago. Our global capabilities, digital solutions and relationship managers continue to win clients in the marketplace. In addition, we remain disciplined on pricing to achieve that growth. Overall rate paid on total deposits declined 32 basis points year over year, reflecting both lower rates and disciplined actions in our global banking and wealth management businesses. Rate paid on the roughly $950 billion of consumer deposits remained low at 58 basis points in Q3, driven by the operating nature of that account and client base. Compared to the second quarter, total deposit rate paid rose two basis points due to mix shift into interest bearing, and we expect improvement next quarter, driven by repricing after the Fed funds rate cut in late September. Let's turn to loans by looking at average balances on slide eight. You can see loan balances in Q3 of $1.15 trillion, improved 9% year over year, driven by 13% commercial loan growth. Consumer loans grew at a slower pace and importantly, were up across every loan type for the second consecutive quarter. Every business segment recorded higher average loans on both a year over year basis and on a linked quarter basis. Focusing on commercial loans and global markets, we continue to take advantage of the strong financing demand in the marketplace from institutional borrowers, where we lend against diverse collateral pools. Small business is benefiting from our newly combined local market-based coverage model for small business and business banking, and that's creating more capacity for client expansion. And lastly, note the 9% improvement in wealth management as affluent clients borrowed for investments in assets like sports and arts and businesses. So all of that balance sheet activity across deposits and loans results in net interest income. And let's turn our focus to NII on slide number nine. On a GAAP non-fully taxable equivalent basis, NII in Q3 was $15.2 billion on a fully taxable equivalent basis, NII was a little less than $15.4 billion. And as I said earlier, that's up 9% from the third quarter of 24. NII grew $1.3 billion year over year and $572 million on an FTE basis over the second quarter, driven by higher loan and deposit balances and benefits from fixed rate asset repricing and versus Q2, we also gained an extra day of interest. The net interest yield, improved seven basis points from the second quarter, reflecting the growth in NII, while the earning asset balance modestly declined as loan growth replaced lower yielding securities and global markets balances declined modestly. And as I said, we reduced expensive wholesale funding and cash. Regarding interest rate sensitivity on a dynamic deposit basis, we provide a 12-month change in NII for an instantaneous shift in the curve. So again, that means interest rates would have to instantaneously move another 100 basis points lower than the expected cuts that are already contemplated in the curve. So if you think about that 100 basis points below what the curve implies, more simply put, that would mean, for instance, on the short end, the July Fed funds rate next year would be getting down to 2.25%. So on that basis. A 100 basis point decline would decrease NII over the next 12 months by $2.2 billion. And if rates went up 100 basis points. NII would benefit approximately $1 billion. With regard to a forward view of NII, let me give you a few thoughts. In January and again in April, we provided our expectation that we could exit Q4 of 2025 with NII on a fully taxable equivalent basis in a range of $15.5 to $15.7 billion. We also noted our expectation for that growth to accelerate in the second half of 2025. Despite all the uncertainties we've experienced around tariffs and rates, we've seen good performance against our expectations. And even with the third quarter. Late quarter interest rate cut and with the curve anticipating two more cuts in October and December, we believe fourth quarter NII will be in the higher end of that range of expectations. So think of that as being $15.6 billion plus on a fully taxable equivalent basis. And that would represent approximately 8% growth from the fourth quarter of 24. Thinking a bit more generally, we just note for the full year of 2026, our expectations about the drivers of growth are largely aligned with 2025 performance. We expect good core NII, performance driven by core loan and deposit growth. A little bit above GDP, which. Will additionally benefit from sizable fixed rate asset repricing. And in 2026, we expect to see roughly $10 to $15 billion in combined quarterly mortgage-backed securities. And mortgage loans. Those will roll off and they'll be replaced with new assets at 150 to 200 basis points. Higher yield. That should result in full year NII growth, somewhat similar to 2025 performance over 2024. So think of that as something like 5 to 7% growth. Okay, let's turn to expense. And we'll use slide ten for the discussion. First I just want to highlight the strong operating leverage which we expect again in Q4. We reported $17.3 billion in expense this quarter. And that was up modestly compared to the second quarter and up 5% year over year. As I noted earlier, the year over year increase was primarily driven by incentives tied to growth, especially in our market-facing businesses, as well as ongoing investments across the enterprise. Looking ahead to Q4, we expect expenses to remain roughly in line with Q3. As you know, headcount is the key driver of expense from compensation and benefits to occupancy costs and technology. And we manage this closely. Not just in total numbers, but also in organizational structure, ensuring we're striking the right balance of managers and teams. And the good news is we continue to manage headcount well. So looking at the past three years, we've been able to lower our headcount from a peak of 217,000 to 213,000. Now. And more recently, since the third quarter of last year. We're down 500, which includes the addition last quarter of nearly 2000 plus college grads. And it's this disciplined approach that supports both efficiency and growth. So let's now move to credit and turn to slide 11. And you can see asset quality remains sound with improvements in several key indicators. Net charge-offs were $1.4 billion, down about 10% from the second quarter, with the improvement split pretty evenly between credit card and commercial real estate. The total net charge-off ratio this quarter was 47 basis points, down eight basis points from Q2. Q3. Provision expense was $1.3 billion and mostly matched net charge-offs. We had a modest reserve release associated with improved outlooks for both credit card and commercial real estate. Focusing on total net charge-offs again and looking forward in the near term, we would not expect much change in total net charge-offs given the steady consumer delinquency trends, stability of CNI and reductions in CRE exposures. On slide 12. In addition to the improvement in consumer losses. Note the reductions in both reservable criticized and non-performing loan metrics. Commercial portfolios. Non-performing loans are down 19% from Q2 and Reservable. Criticized exposure in commercial real estate is now down nearly 25% from the third quarter of 24. As we dealt with the more problematic exposures across the year. Let's turn to the performance across our lines of business, beginning with consumer banking on slide 13. Summer banking delivered strong results, generating $11.2 billion in revenue, up 7% year over year and $3.4 billion in net income, or 28% growth. Return on allocated capital rose to 31%. These results reflect the value of our deposit franchise, underscoring both the breadth of our platform and the success of our organic growth strategy and digital banking capabilities. Innovation such as family banking are high value cash back credit cards, and our industry-leading preferred rewards program are delivering differentiated value to clients and value we believe is unmatched elsewhere. This client value proposition, combined with disciplined pricing, helped drive a 9% year over year increase in net interest income. Another strong highlight this quarter was expense management, which enabled us to deliver more than 600 basis points of operating leverage, continued innovation and the deployment of advanced technology and tools helped us to hold expense growth to just 1% year over year. While revenue grew significantly as a result. Our efficiency ratio improved, falling below 50% for the quarter. We continue to invest in high tech, which drove higher digital engagement, and we continue to invest in high touch. We continued our march into new markets, filled out more of previously expanded markets and supported our brand in those communities. As an example, we just opened four new financial centers in Idaho over the past six months. Expanding our presence and complementing our existing Merrill team in the local market to better serve clients in that region. Consumer investment balances grew 17% to $580 billion, supported by market appreciation and $19 billion in full year client flows. Third quarter average balance per new account of $110,000 is up 6% from last year, and the investment platform serves as a great catch basin for first-time investors and for more affluent investors looking to manage some element of their own money. As mentioned earlier, consumer net charge-offs improved on a linked quarter basis. Following a decline in delinquencies. The largest component of consumer losses is credit card, and our loss rate decreased from 3.82% to 3.4%. Linked quarter. This contributed to an improved risk-adjusted margin on credit card approaching 7.5%. Finally, as shown on appendix, slide 20. Strong digital adoption and Erica engagement continues and customer experience scores remain elevated, reflecting the impact of our ongoing investments in digital capabilities. Turning to wealth management on slide 14, the business delivered a strong quarter marked by improved profitability. Net income grew 19% year over year to nearly $1.3 billion, driven by new household growth, strong AUM flows, loan growth and disciplined expense management that produced meaningful operating leverage and a 26% return on allocated capital. We achieved 300 basis points of operating leverage, which contributed to a 27% pre-tax margin, an improvement of over 200 basis points to. Merrill and the private bank managed $4.6 trillion in client balances and continued to generate organic growth, with $84 billion in AUM flows over the past year. This reflects a healthy mix of new client assets and existing clients, putting more capital to work. During this past quarter, Merrill and the private bank added 5400 net new relationships, with the average size of new relationships continuing to grow across both businesses. And importantly, we're not just adding relationships. We're deepening the ones we enjoy already. And reflecting the strength of our integrated model and our product offering. The percentage of clients with banking products continue to rise, and it's now at 63%. In the third quarter, GWIM reported record revenue of $6.3 billion, up 10% year over year, led by a 12% increase in asset management fees. Loan growth remained strong and we saw a notable pickup in custom lending with both volume and loan size increasing. And that drove a 9% year over year increase in average loans. Finally, I'd highlight the continued digital momentum as shown on slide 22. New accounts are increasingly being opened digitally, underscoring the effectiveness of our digital investments and the evolving preferences of our clients. On slide 15, you see the results for global banking, which benefited from improved investment banking activity, significant deposit growth and solid loan performance in Q3. Global Banking delivered net income of $2.1 billion, up 12% year over year, supported by 500 basis points of operating leverage and a 17% return on allocated capital. The standout driver of performance was a 43% year over year increase in Firmwide investment banking fees, which fueled 7% overall revenue growth. Firmwide investment banking fees rose across the solution set advisory was up 51%. Debt underwriting increased 42%, and equity underwriting grew 34%. We maintained our number three position year to date, and we also gained market share during the quarter. Notably, we participated in several of the industry's largest transactions, a clear testament to the value clients place on our financial advice and solutions. Non-interest expense grew compared to last year as we continue to invest in the future. And average deposits grew 15% year over year, contributing to a 6% increase in global transaction services revenue. And, importantly, disciplined pricing. Coupled with lower rates led to a 47 basis point decline in rate paid compared to a year ago. Switching to global markets on slide 16, I'll focus my comments on results excluding DVA, as we typically do. As Brian mentioned, we extended our streak of strong revenue and earnings performance, and once again achieved a solid 13% return on allocated capital in the third quarter. Global markets generated net income of $1.6 billion, up modestly year over year, and consistent with the prior quarter revenue. Excluding DVA, grew 10% year over year, driven by strong sales and trading performance and the benefit of higher investment banking revenue shared with global banking. Focusing on sales and trading revenue, ex DVA rose 8% year over year to $5.3 billion. Thick revenue grew 5%, driven by improved performance in credit products. Equities trading led the improvement, with 14% revenue growth supported by increased financing activity in Asia. Expense growth year over year reflects both the revenue increase and higher trading related costs in certain Asian markets, and those costs are passed through to clients and therefore appear in both the revenue line and the expense line. As noted earlier, we continued to benefit from lending opportunities tied to highly collateralized pools of high quality assets and clients value our expertise and the liquidity we provide in delivering these solutions. On slide 17, all other shows a loss of $6 million in the third quarter, with very little to talk about here. Our third quarter effective tax rate was 10.4%. And excluding the tax credits related to investments in renewable energy and affordable housing. And a small number, a small amount of discrete items, the effective tax rate would have been much closer to a normal corporate tax rate at approximately 23%. So thank you. And with that, we'll jump into the Q&A. Operator: At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw yourself from the queue at any time by pressing star two. We'll take our first question from Glenn Schorr with Evercore. Your line is open. Glenn Schorr: Hey, Glenn. Hi. Thanks. Hey, Glenn. Brian Moynihan: Glenn, before you start, let me just say it seems like one of the phone lines may have cut out at some point during the call, but the webcast was working throughout. So just a reminder that the website will have the replay of the call in case you were on one of the lines that might have had a break in it. So, Glenn, go ahead. Glenn Schorr: No problem, no problem. So, Alistair, I heard your question. Your comments on the expense message for the fourth quarter. So appreciate that. I guess I have a bigger picture. AI question of. Okay, your big banks still are. You're ahead of the curve in terms of digitizing the whole franchise. But with the infusion of AI throughout the organization and you still have big manual functions throughout the firm, why aren't you and others talking about AI as a huge efficiency driver of better margins in the years to come? Is it just a little too far off? Am I a little too optimistic? I'm just curious on that front. I think, you know, your operating leverage is great. I'm not talking about that. I'm just talking about AI's potential in general. Brian Moynihan: I think, Glenn, it's Brian. Good to hear your voice. Look, we believe applied technology, which is a range of outcomes from the digitization that we show in those pages in 2022 and 24 over a period of time. And the customer adoption of technologies and interfacing with our company and technology. Always provides that. So we had 280,000 people 15 years ago. We have 213,000 people. Three years ago, we had 217,000 people. After the pandemic and all the manual stuff we had to build up, we worked that back down. So we believe strongly that all technologies help drive that. And this technology and artificial intelligence allows you to do things that heretofore haven't done. And so I think the question is just it's to put it in place. You have to have your data appropriately arrayed. You have to make sure the models are going to give the right answer. It has to be in a controlled environment, because in a regulated institution like ourselves, we don't, you know, we don't get you. Know, excuse saying the model said it, sorry. It has to be right. And so if we turn down a mortgage loan under automated underwriting, we're liable for the outcome irrespective of how we did it. So we're seeing it go everywhere and the volumes activity the company have gone up huge since, you know, that period of time where the headcount has come down by a lot. And so, so we continue to apply what I'd look at carefully on those pages is things like on the consumer page, you'll see Eric interactions building up and Erica users building up. And we've gone from 200 and tenths questions that could be answered to 700. But just to put that in context, you know, in the last 24 hours, there were 2 million interfaces where consumer got an answer from Erica and our company and that same technology is applied in the institutional basis. I think you can see that on page 22. If I'm right, or maybe 24, but you can see that, Erica, in the institutional a lot smaller number of customers. But rising very fast. So that's just one model. We have models all over the company. So we believe strongly that this will have an impact. We will continue to manage it. But the implementation these are not proofs of concept and things like that. They're past tense things happening. 2 million customer faces yesterday. So this isn't something to come. We've been at it a while, but I think the idea of it providing constant leverage and constant reinvestment with the same expense base is really what we're after, and then grow the revenue faster, continue to take market share. So it's impact on expenses is felt. We are reinvesting some of that to actually grow faster. And you're seeing the results of that. Glenn Schorr: Okay. So that more revenue and same expenses. Would still bring us better margins in the future. That's really where I'm. Going. Sounds like you agree, but you don't want me to pin you down on on a point in time. Brian Moynihan: Yes, I think the. To say this will happen next week or the week after. You have to be a little careful, because we have to get it right. That model took us years to perfect. It's not something you can snap your fingers at and make happen. And we have. It's a human being. Change too. So? So stay tuned. We'll give you more of that broader. We'll have the experts talk to you in early November. But it's here. It's working. I'm proud of the team for taking a taking it to implementation across the board. But it allows us to continue to, you know, manage this. With, you know, just in the last five years, we have 20% more core checking holders and consumer than we did. You know, five years ago. Think about that. You know, in consumer checking, balances are up by 50%. You know, 50% in that time. You think about the leverage in that. And that's why the consumer kicking in as the knee kicks in, you're seeing them have such good year over year results. Glenn Schorr: Okay I appreciate that. Thank you. Operator: We'll move next to John McDonald with Truist Securities. Your line is open. John McDonald: Hi. Good morning. You guys had good results across all your capital markets businesses, sales and trading IB wealth. It's always hard to have an outlook here, but just wondering broadly how you're feeling about the environment pipelines and investments made in those businesses against what's usually a seasonally slower fourth quarter and coming off such a strong three? Alastair Borthwick: Thanks, John. I'll start with investment banking. We've obviously seen a pickup in activity here in the third quarter. We were happy to see that as as we've seen more certainty now around trade and tariffs and around taxes as well. It's allowed our client base to make longer term decisions. And that's reflected in our investment banking activity in terms of the pipelines. They're up this quarter up. Over double digits. So we feel good about the pipeline and the way it's developing. And you know we'll need to see how the transactions execute in Q4. But it feels like a good environment in terms of, for example, M&A at this point. Around the global markets, business. We've obviously invested significantly there, just as we have in investment banking. I should go back to investment banking and the investments we've made there. We've always profiled the investment we've made in middle markets and in international and in earlier stage, faster growing economies. So that's been a big part of our investment banking growth in the course of the past year or so, when we get to sales and trading. We've obviously invested a lot there in terms of technology and people and balance sheet. Normally Q4, you see a seasonal impact from client activity slowing as you move into the fourth quarter. That would be pretty normal. But the constructive environment for the sales and trading business remains as investor clients continue to reposition based on rates and policies as they develop around the world. So it feels like a continued constructive environment for the global markets. Sales and trading business. John McDonald: Great. Thanks, Alastair. And just also, you mentioned deposit beta. What are you expecting for deposit beta across your various businesses? If we continue to see the Fed moving rates down. Alastair Borthwick: I think you'll see us do the same thing we've been doing and the wealth business. Obviously, we tend to move with money market rates. Those tend to be a full pass through. So in the wealth business, I'd expect us to fully pass through rate cuts from this point forward. And around global banking. While we always do it on a client by client basis. Particularly around interest bearing, we'd expect to pass through as the rate cuts develop as well. So I'd expect you to see us with the same disciplined pricing on the way down as we offered on the way back up. And the only thing I think you'll just have to remember is because the September rate cut came so late, you won't see that in our Q3 numbers, but you will see it in our Q4 numbers. John McDonald: Got it. Okay. Thank you. Operator: We'll take our next question from Jim Mitchell with Seaport Global Securities. Your line is open. Jim Mitchell: Hey. Good morning. Alistair. You noted you took down more expensive wholesale funding on the liability side, which kept the balance sheet relatively flat, which? Seems more creative than NII accretive. So the question, I guess, is how many quarters of that do you expect? And and what sort of earning asset growth should we expect over the next? Year or so. Alastair Borthwick: Yeah. So we've talked about that. That would be a focus for us over time when people ask us about net interest yield, we tried to explain it's going to improve over time based on two things. First is net interest income is going to continue to increase. And the second is the balance sheet. We don't think will grow quite as fast as the loans and deposits grow. And that's because there's still some more wholesale funding that we can pay down. As you point out, it doesn't cost us anything in terms of NII, but it is net interest yield accretive. So we've got a little bit more of that to do. It won't be the major part of our any net interest yield accretion. But I think you can almost think about it being kind of like, you know, 1% slower, maybe over the course of the next year or so. Jim Mitchell: Okay. No, that's helpful. And then just maybe pivoting to capital, you guys, as you noted, you're well above your 10% minimum. Seems like we have GSIB surcharges likely coming down and other reforms. Why not? You know, how do you think about the buffer where it is today and what prevents you from taking that down a little bit? And if you have a longer term target, be great. Brian Moynihan: Our target will be, as we said before, Jim, sort of 50 basis points over the regulatory minimums. And so you should expect us to keep working that down. Interestingly enough, the ratios are flat this quarter because the extra earnings and stuff. So we took $7.3 billion of capital and put it back in there. You'd expect us to continue to at a good rate. And then through the good organic growth, which is what we use the capital for, we use up some of it and we'll continue to work it down. If that organic growth isn't sufficient to use up the capital over the near term, we've got to get these rules finalized. We make sure all the different, you know, is it ten, is it 10.2 on the averaging? This is all flopping out there. You'd expect in the first half of next year at the intent. Is there the outlines of rules there. The adoption of the actual rules is what we want to make sure it gets through. And then then we'll adjust. But our hope would be to grow our way through it, because then you'd see a lot more earnings. But if not, we'll just keep peeling down the capital. Jim Mitchell: Okay. Fair enough. Thanks. Operator: We'll move next to Erika Najarian with UBS. Your line is open. Erika Najarian: Hi. Good morning. You know you reported clearly a standout quarter with a Rothesay or ROTC of 15.4% I know I'm probably jumping ahead of what you plan to say on November 5th Brian. But you know one of your closest peers, Wells Fargo, did put out a medium term target of 17 to 18%. You know, JP Morgan has had a 17%. Rotsee target through the cycle for a long time. You know, given that you've hit this target now, you know, should we presume that this is something that you could sustain over the near term and perhaps continue to work upwards sort of closer to those targets? Brian Moynihan: So, Erika, I mean, I think you should expect us to continue to walk our return on tangible common equity north from here. We plan to take you through that at Investor Day. But I think if you take the kind of NII growth that we anticipate, you compound that over several years. When you think about the organic growth that the platform delivers and then. You think about the boost we get from fixed rate asset repricing. And you combine that with the fee growth. It gets pretty interesting over time. So we'll walk you through that when we get together in November. Erika Najarian: Great. Brian Moynihan: And. On on the efficiency ratio, one of your peers talked about a natural inflation rate just in labor of 3 to 4%. And you know, clearly you're delivering operating leverage. This quarter. And what you're implying for the fourth quarter as well. You know I guess this is a two part question. You know, as we think about how you're framing that ROTC walk in 2026. You know, do you sort of plan to move away from the 1 to 2% expense growth? And talk about efficiency instead, or, you know, is there sort of enough still identifiable inefficient expenses in the franchise that you could recycle? And, you know, perhaps, you know, continue on sort of, you know, this, this lower sort of expense rate target. Brian Moynihan: I think, Erika, there's a lot of pieces to that. But the, the expenses in our company are driven by the numbers of teammates and what we pay them. And so, you know, our job is to keep using the technology as we just as I discussed earlier, that continues to allow us to do more with the same amount of people or less people, and then to pay those people more in relation to the productivity of the company. And so, yes, there's a embedded cost of teammates that grow, and we want it to grow because for compensation grows. PCA private bank, private bankers, client compensation grows, investment bankers because that grows more directly in line with revenue. But think about a broad context. If we keep the headcount basically running flattish, the volumes across it, the NII across it, higher and the the growth that's coming is through some of the markets related businesses. And then managing headcount, you know, appropriately around in the back office and other types of things. You know, that's good. What AI does is gives us a chance to manage some of the expense base a little differently going forward than we had in the past, which will be helpful. And so we feel good about that, whether it's the. The idea is to grow revenue as fast or faster than expenses and create operating leverage is a simple way to think about it. But it's complex. And then the actual efficiency ratio. Remember this gets down to comparisons between companies or business mix. So our wealth management efficiency ratio inherently is 74% at 26% pre-tax margin. Consumers at 50%. You know, banking is down below 50%. It really you got to sit how much your revenue is coming through the various pieces will determine the aggregate efficiency ratio. Our job is just to continue to improve it. Erika Najarian: Improve from the 62%. Got it. Thank you so much. Operator: We'll take our next question from Mike Mayo with Wells Fargo Securities. Your line is open. Mike Mayo: Hey, Brian. You left me hanging with that last answer when you talked about the efficiency ratio. You expect to improve. It was 65%. Last year. Last quarter. And 62% and improve the efficiency ratio to what? Or do we have to wait till November 5th, or is that something that is kind of an not you don't guide to or. You know, and also in terms of I'm just looking for some more meat on the bone, so to speak. I mean, I guess year over year headcount is down 500 and revenues are up 3 billion. So I think that's kind of what you're talking about. But where does that eventually take you to given your business mix? Brian Moynihan: Look, the question is where's the revenue coming from for the next four quarters? NII is obviously much more efficient in the sense of cost, because same loan balances, the same people producing additional credit relationships. The embedded cost, of production and consumer for the million cards we do new cards, we do a quarter. The the number one small business lender in the country and producing good growth there that all falls. The bottom line expense base is built to have that kind of activity growth. So we feel good about it. We'll give you more guidance. But at the end of the day, it'll be a result of, you know, where the revenue is coming from. Especially in the markets, business. And you know, how, how, how much that impacts it. But you you should be very confident, Mike we managed expenses well in this company. And the headcount well. And so we'll continue to do that. Mike Mayo: Could you just give us a little bit more on AI? I mean, you're ranked top. Ten globally as far as a bank and using AI and with your patents and everything else. And it's getting back to that first question on this call. You know, how much savings do you have from AI? How do you measure those savings? What are some of the best initiatives you think you have, or just help us frame how that could transform the company a little bit more? If you could? Brian Moynihan: Yeah, well, as I said, with a little bit more time to dedicate to that discussion, we'll have a panel of experts show you what the work we're doing. But I'd make 3 or 4 points about AI. Our view of AI is it's enhanced intelligence that that the teammates are going to be critical to delivering the services and therefore it's a it's a enhanced intelligence, not an artificial intelligence. The second is it's not something to think about. It's something to happen. As I said yesterday, 2 million customer interactions were handled through the platform just on the consumer side alone. So and then the third thing is we think the paybacks are coming and there. But what's interesting is that the places we can apply it are different than some of the other technologies we've had in the past. So and we'll take you through that. So we feel good about it ought to help with the overall efficiency of the company, relative human cost being 6,070% of our costs. And but it comes with higher technology costs, higher work. So just in the coding area, we saved about 10% of the aggregate amount of coders we have working. But we're dedicating that to drive more efficiency. So we'll take you through all that. It's exciting. It's not a theoretical question. That Bank of America, it's an applied question at Bank of America. But you do have to be careful about extrapolating things that that have to be done right in order to work. And, you know, the $3 billion we spend on data and, you know, sort of two. For 2014 to 19 to get the data perfect in this company or as perfect as we could, perfect is beyond reach. But you know, that that kind of number has to be spent by competitors. And we spent it, admittedly, for potentially a little bit different reason, but it takes that much work. Mike Mayo: All right. I'll take that as a teaser for November 5th. Thank you. Brian Moynihan: Thanks. Operator: We'll move next to Chris McGratty with KBW. Your line is open. Chris McGratty: Oh, great. Good morning. On credit overall really strong results. I mean, under the hood if we go to level deep is there anything that's giving you a little bit of pause. Today versus maybe 3 to 6 months ago and anywhere that you're not leaning into with the balance sheet, with the growth picking up, anywhere, you're avoiding? Thank you. Alastair Borthwick: Well, the broad the broad outline is not yet. And no meaning, but not yet. We haven't decided to change anything. And no, we're not really observing anything other than continued strong performance in the credit portfolios. So the report, the results we reported today, you can see consumer charge offs came down again. And commercial charge offs came down again. Now those commercial charge offs that are really, really low level. So credit remains in a good place. And and we built this responsible growth strategy to do two things. First, to have a risk appetite that we're proud of through the cycle. And second, to deliver loan growth that exceeds the industry. So we feel like we're succeeding on both of those right now. Now, you know, when you see headlines, do you immediately do a look across on everything? Yes. If something changes overnight, do we spend time as a team considering is there anything we should be changing? Yes. But right now the broad message we need to send to people right now is the credit portfolios are performing very well at this point. Brian Moynihan: So, Chris, welcome to coverage of our company core. Like this is salubrious. And that, you know, it shows you both grow and do it the right way and have great, great credit results. So and if you look beyond that, remember our industry, the regulated part of our industry, the 30 banks or so go through a car test that you get to see the results on. They go through tremendous shared credit, depth of examinations. You see. And so I think if you look at the statistics by our industry and our peers, you know, they are in strong shape. And the comparisons to 2019 are interesting because that was like a 50 year low in our or 50 year good. The best year in 50 years in our company's credit history. So we're comparing it to one of the best years. So we feel very good about it. We can both grow and do it with the right risk. And Alastair talked about that. So we're comfortable. We're pushing forward. Chris McGratty: All right. Great Brian thank you so much. Brian Moynihan: Thank you. Operator: We'll take our next question from Ken Usdin with Autonomous Research. Your line is open. Ken Usdin: Hi. Good morning. Thanks. Just a follow on on the on the loan growth side. A lot of the loan growth you've been putting on in the commercial side, looks like it's been in the market segment. And just wondering just how much both capacity you have to continue to build that part of the book. How much demand you're still seeing for it, and how do you think about like the spreads and and returns on that part of the business versus, you know, kind of the banking book growth? Alastair Borthwick: Yeah. So in terms of capacity, we've got a lot. And I say that because obviously at $2 trillion of deposits and a trillion 150 of loans, we've got substantial excess that we can provide for clients in the economy over time. So we've got a lot of capacity in terms of demand. I'd say it's been reasonably robust over the course of the past couple of years, and we happen to be in a good place to capitalize on that, because when you talk about the world's leading asset managers, we have great relationships with them in our global markets, business and in investment banking. And then we're in a position where we're not loaned up. So we have the ability to provide the lending capital, and then you've got to structure it the right way. And we obviously have that capability. So those sorts of things put us in a good position to see that demand. Spreads have been attractive. You know, a big part of the global markets story of improving returns over time has been growing. Their loan book with attractive returns, and you've seen them consistently improve return on capital. So we've been happy there. And then the only other thing I would just remind you is because these are often so, well, collateralized and structured, they're typically investment grade. They typically have better risk ratings than some of the lending that we do in other places. And our risk and our net charge offs in this area have been close to zero. So we've had terrific empirical performance from this portfolio over a long period of time. Ken Usdin: Got it. Okay. And on the retail side, on the consumer side, it looks like. And consumer deposits on average, we're down a little bit sequentially. Just just wanted to just see what you're thinking about. I know that's been something that been looking for to get that mix going more towards retail deposit growth. And it's been a little bit more wholesale in the last couple of quarters. What are you seeing just in terms of of when you expect that to inflect? And is it just people are putting money elsewhere, whether it's back in the markets or other places? Just your thoughts on retail deposit growth from here. Thanks. Alastair Borthwick: Yeah. Well, look, we're encouraged. If you look back to last year's third quarter, we're up and we were up second quarter to second quarter. So a little bit of this is second to third quarter seasonality. We feel like we have inflicted on consumer. So we're up 1% year over year. I think you're detecting from me you know would we love to see more growth in consumer. Would we like to be back to the 4% plus that we we typically enjoy? Yes, we would. But remember we're coming off of a period where consumer deposits really had to normalize after pandemic. And it was important for us to get to the third quarter of 24, where it looks like we kind of bottomed out. Now we're a year further in and and we're growing the core. So you can see our noninterest bearing was up 1%. So look, we're not at this point. We're not chasing CDs, broadly speaking. So that's not where the growth is coming from. We're trying to make sure these are high quality operating deposits with the clients that they really stick with us for the next 20 or 30 or 40 years, so that remains the strategy. Brian Moynihan: Yeah, I just said if you look at page 19, lower left, you'll see that the the growth, as Alastair said, the 1%, 9 billion from third quarter last year, this year was all in the low interest and noninterest category, which is the more beneficial part of it. So go back to that 220,000 units of new checking primacy. That new checking accounts that are primary that we focus on the primary account and household, you know, think of that. You know, compounding over the last three years, you know, three quarters of a million new checking accounts per year that are 90 plus percent primary household. You know, are the core transactional account. That's where we see that compounding in against that was sort of a build up of some of the rate seeking activity and a run run down to that. And then secondly, against that frankly, was the higher end consumers moving their money out of of inert lower end stuff as rates rose that were behind. But if you look in the core bracket of consumer, they're actually growing deposits in that business in that there customers continue to grow. Ken Usdin: Okay. Got it. Thanks, guys. Operator: We'll move next to Matt O'Connor with Deutsche Bank. Your line is open. Matt O'Connor: Hi. Good morning. Can you talk about how sensitive you are to lower medium and long term rates? We've obviously seen a decent drop here, just kind of in the context of the benefits from fixed rate asset repricing. And the 2.3% Nim that you've talked about. Looking at a couple of years. Alastair Borthwick: Matt, I don't have a great deal to add to what I covered earlier. So, you know, when we talk about that asset sensitivity of an instantaneous drop in 100 basis points at both the long end and the short end, it has an impact of $2.2 billion of net interest income. So now that that obviously requires, number one, it happens tomorrow. Number two, it exists all year. And number three, it happens at the short end and the long end, all at the same time. So I don't know how. How you would assign a probability to that. But it's obviously on the lower end. But we provide it. So you get a general sense for asset sensitivity. On the short end you'd end up seeing probably 80% or so because so much obviously of the company's balance sheet just reprices daily. And then. On the longer end is probably 20% of the sensitivity. And that that tends to be the fixed rate asset repricing. Then the question becomes if you've got fixed rate asset repricing over many, many years, obviously it can impact positively or negatively depending on where rates go and bounce around over that period of time. So we'll have plenty of time to guide you. I think each quarter as we go through and we can share with you what's actually happened with rates and then what that means looking forward. Matt O'Connor: Okay. And then just on this kind of more medium term Nim outlook that you've talked about, 2.3%. Sometimes it's two two, sometimes it's maybe a little bit higher depending on the mix. Earning assets and growth. But just any updates on that as you think about the medium term outlook. Thank you. Alastair Borthwick: No update other than we're one further quarter into that March. We added seven basis points this quarter. We're up over 2%. And the team and I know what we need to do. We just have to keep going. Matt O'Connor: Okay. Thank you. Operator: We'll take our next question from Betsy Graseck with Morgan Stanley. Your line is open. Betsy Graseck: Hi. Good morning. So Alison and Brian, I wanted to make sure I got the guidance right here. First off, on the NII, as you're thinking about 2026. Highlighting that the inputs are similar to this year. And you indicated 5 to 7% up NII 26 over 25, is that right? Alastair Borthwick: Yeah. And the background there, Betsy, just so you know, is we're obviously going to get pretty good core growth from, you know, just the organic behavior of the clients and adding some over time. So think about that like 4 to 5%. And then you get a little bit of boost from fixed rate asset repricing. You got a little bit of rate cuts in the future. But when you add all that together we feel like it's probably something like 5 to 7%. Betsy Graseck: Okay, great. That was what I was wondering. If it's just Nim or is that Nim plus volume. And it's it's all in holistic. Okay. Alastair Borthwick: And again, you know, here we are. It's whatever it is. October 15th. So as we as we go through time, we'll be able to update you more. And I think we'll give you a sense also at Investor Day of how that plays out over the course of multiple years, because obviously we're going to get this asset repricing over multiple years, and we're going to benefit from that. Betsy Graseck: Yes, of course. And then more near term, there was a comment you made about expenses being flat in. Next quarter versus this quarter. Alastair Borthwick: Yeah. I said I think I said we thought they'd be flattish because we anticipate the headwinds going to be flattish. And then it's just a question of what happens with the revenue side. Betsy Graseck: The headcount would be flattish. Okay. But I wanted to get a sense as to, are you thinking about how are you thinking about NII and fees on the back of that? Because, you know, the question that's coming up is, hey, you're guiding down for next quarter on expenses coming in flattish, not coming down. But I'm wondering, what's your what's your expectation for capital markets and other compensatory revenues? Because I think we would like to hear the whole picture, not just one piece of the income statement outlook. Alastair Borthwick: Yeah. So let me let me try to reframe on the expense side what I'm trying to communicate is the overall expense base for the company. We expect to be kind of flattish. For the fourth quarter, because the headcount is flattish, we can just see that it's just that's where it is and that's the biggest part of the expense base of the company. Now, obviously, we have to watch and see what happens with revenue in the fourth quarter. We don't know that yet. But we have no reason to believe anything other than sort of flattish, kind of expense at this point. For the fourth quarter. And then in terms of the net interest income, I think we tried to make sure we were clear with earlier in the year, thought 15, 5 to 15, seven. We were making that projection a long time ago. That was a year ago. And and now that we're three quarters through, and now that the third quarter was, you know, probably a little ahead of where we hoped, we kind of feel like it's 15, six or higher. It's going to be the higher end of the range is what we're trying to communicate. Betsy Graseck: Okay. And the capital markets backlog has that shaping up. And what does that look like for next quarter? Alastair Borthwick: Well, in terms of the investment banking I look I talked about that earlier. The pipeline looks good. It's just a question of what we can execute in Q4. But it feels to us like this is a more constructive environment for investment banking than it was earlier in the year. And then in terms of the sales and trading business. Obviously we have to think about the normal Q4 seasonality. When you think about it relative to Q3. But it is a I'd say it remains a very constructive environment for the sales and trading business in particular. So we feel good about that. We're off to a good start this quarter, but obviously it will depend on what happens with the. The. Will obviously depend on what happens with the markets overall. And then, you know, just taking a big zoom out. Always the key for us is just we got to manage those businesses for the long term. And we're looking forward to talking about that when we get together. In November together. For Investor Day. So. Betsy Graseck: Great. Thanks so much. Appreciate it. Operator: We'll take our next question from Gerard Cassidy with RBC. Your line is open. Gerard Cassidy: Hi, Alistair. Hi, Brian. Hi there. Alison, you guys are talking about your consumer deposits. And when you look at your consumer deposits back in the fourth quarter of 2019 and compared to today, obviously they're higher. And the Fed shows the entire industry, consumer deposits, household checking account deposits are, you know, significantly higher from pre-pandemic. So that pandemic surge hasn't left the banking system. Do you guys have any color on what you're seeing from that behavior, from pre-pandemic to today? I know you're taking market share and you're growing while yours are growing, but any color on why we still have such elevated levels of deposits? Brian Moynihan: Gerard. So I think if you remember back in, we're all in 21 and stuff trying to, you know, have the great debate about where all this cash that was put into the economy going to flow right back out, etc., and if you drew a line of the growth rate, you know, leading up. To 19 over a long period of time and then saw a bubble above it, it was working. It's basically worked its way back down relative in the aggregate amount of deposits and relative synchronicity to the to the to the long term growth rate. So the size economy is bigger, the notional economy is bigger. We we can get economists in our company and I'm sure in your company that will have a great debate. Notional real economy sizes and stuff. But it's just the economy is bigger. The amount of cash in circulation is bigger. So therefore you expect it. Now the most important thing, though, is that we've gained share during that time in terms of core transactional. So we're you know, we're 20%, 30% more. In deposit transaction accounts. And our consumer business, that's numbers of customers who are carrying instead of 6 or $7000 on average, $9,000 in average. And at the same time, we're probably we've reduced the numbers of branches because of more digitization, automation, the numbers of teammates in consumer dedicated to service, etc.. So it's a great operating leverage. So even though the economy grew and everything else, the fact of the matter is those deposits that are core in the all in cost of all consumer deposits, 58 basis points against the current rate environment is a big profit improvement in that consumer business. In just in the last year, you saw a 30% increase and it's still gaining the efficiency, not from cost reduction as much, but cost levels against the NII improvement as the knee comes in the company. They are a big beneficiary of of that amount. So it's so I'd say I think you're now seeing deposits grow in the industry. Now for at our company now for many quarters, I think it was the mid of. Almost two years, a year and a half to two years ago where we bottomed out and we've grown since then. And so you ought to grow with the economic growth. And if you take share, you grow a little faster. That's the gig that we're we don't see any dynamic that, you know, even as they continue to. Adjust interest rates and stuff that you see a lot of money flowing back out of the banking system. It's kind of already happened, frankly. Gerard Cassidy: Got it. Okay. Thank you. Operator: We'll move next to Saul Martinez with HSBC. Your line is open. Saul Martinez: Hi. Good morning. Thanks for taking my question. You obviously. You had. Pretty impressive growth in in in commercial loans. And, you know, markets lending up 36%. Just look at overall US commercial overall commercial loan growth. Well into the double digits. You obviously have a you know a very good track record versus your peers in terms of credit and underwriting. But you know that. But I guess the question is what I guess what should give us confidence that you're not compromising on risk to get that kind of the kind of growth that you're seeing, what's allowing you to take share and grow in an outsized way versus your peers without any without changes to pricing or risk. Risk assessment. Alastair Borthwick: Yep. Well. Remember, this is this is not new for us. And this is all focused on our clients. That's a core part of responsible growth. It's got to be focused on clients. And the clients that we're talking about here are typically the top asset managers or the top financial institutions in the world. So that's that's who we're interested in working with here. Beyond that, we're looking for collateral pools. We want high quality. We want diversified. We're looking for structures that have security, credit enhancement, performance triggers, mark to market. They typically tend to be shorter duration. And then you know, we don't put all our eggs in one basket. We're diversified across multiple sectors. So that can be mortgage or it can be asset based. It can be business lending or private equity. It can be consumer assets or subscription facilities. And. And when you add all that up. You end up with a diversified book that's typically investment grade. It's lower risk. And the loss you know, the loss content. If you look at our secret, it's less than a basis point. If you look at our CLS, it's less than 0.1%. So by the time you you have those great clients, you have good collateral, you have good structures. Generally speaking, you tend to have little losses. And then the asset test ultimately shows up in returns for the global markets business, because any losses they absorb and over time they've done a good job of deploying capital. While increasing ROA and return on capital. So we feel like that business has worked well. The final thing I'll just say is, I mean, I feel like we have we have differentiated capability here in that. We tend to have very strong relationships with these global markets, clients that we talked about. We have the structuring and the underwriting, and we've got the excess in the form of lots of deposits and less loans where we can actually make loans to those clients to satisfy the demand. Then it's just a question of, are we getting the return for the risk? We believe that we are. Saul Martinez: Okay. That's helpful. I guess a related question, and I'd love to get your perspective on the sustainability of the results of your capital markets businesses. So I'm not just the markets business, but investment banking as well. I mean, is this quarter investment banking fees are at levels you haven't seen since 2021. And it feels like, you know, we really are in a sweet spot where we're seeing resurgent investment banking activity in a lot of optimism that this has legs. And this is also occurring in environment where, you know, the markets, businesses are performing well, much for you guys. But for, you know, for a lot of folks and I'm just curious if you know. If an environment where we do see investment banking continuing to grow over a multiyear period is that consistent, is that environment where the markets businesses can continue to stay at current levels in terms of revenues, because those are businesses that do generally benefit from more, more, more volatile economic and market backdrop. So I'm curious if you have a view on sort of the interplay between, those two and whether, you know, you know. The markets business can continue to do well in environment that is a little bit more stable, that is more suited to investment banking continuing to grow. Brian Moynihan: I think. So let's sort that. And one of the reasons why we started a long time ago, disclosing global markets separately as a separate operating unit, because it supports the whole company, including the wealth management business, including the consumer business for FX transactions. So we disclosed it separately, but a to do. To show its breadth in the company, but also to show it's less volatile than people assume it is when you're running the way that Jim and the team have run it. So. 14 quarters in a row of year over year revenue growth is is a pretty sustainable record. And there might be some data that's broken. It has been broken for three plus years. So that's good. And the profitability i.e. the returns of the business continue to go up. And that has a lot to do with how they conduct the business and how they, you know, it's a it's a moving business, not a storage business. It's not holding a lot of risk on a given day. On the lending. It's high quality assets underneath them. No surprise. ET cetera. ET cetera. So that's, you know, so we feel that is sustainable. And yes, it does it benefit and especially on the equity side, you know when markets are moving around and people are trading more. Sure. You saw that this quarter. But overall it just keeps grinding its way forward. Now when you look on the investment banking, you know, $2 billion in fees coming in the quarter, you know, everybody expected it to be less than that. It came. But you're seeing the activity spread out geographically. You're seeing a lot of activity in the midsize market in the US, which we are capturing through the combination of our investment banking teammates and our commercial banking teammates to cover all the markets and are out there in our middle market franchise and capturing strong market share from those customers. But I think one of the things you need to think about is, is that business. We we run a global corporate investment banking business as a consolidated business, as a business. And that goes into global banking along with our middle market and our business banking business. Why that's important to think about is with our relationship with these customers. We have their credit relationship, their transaction services relationship, and the fees for that grew 12% year over year. And their investment banking and their, you know, hedging and other types of things on top of that, in the markets. And by doing all that, you actually have a more stable revenue stream attached to that business. So whether investment banking goes up or down by $100 million, if you look at the global banking results. The the volume of revenue is coming from the lending side and the deposit side. So, you know. It's great to see Matthew and the team have a good quarter. But Matthew themselves will tell you it's also great that the loans grew or the deposits grew year over year. The loans are solid. That and then the working with the middle market and the loan growth we're seeing there. It's a holistic view of the customer. And I think that's sustainable. Saul Martinez: Great. That's very helpful. Thank you. Operator: And it does appear that there are no further questions at this time. I would now like to return the call to Brian. Brian Moynihan: I thank you, operator. First, I want to thank our team here at Bank of America quarter like this. As a salubrious setting for us to finish up 25 and head to 26. It's a great amount of work done by talent team, and I want to thank them for doing that. Next, I think for you as shareholders, you also saw a good quarter, good returns, good, good operating leverage, good growth in the core businesses, some extra kick from investment banking and else. But I think as we started just focus on all the businesses grew their earnings, all the businesses have strong returns and they all created operating leverage. By and large, by and large. So we feel very good about that as we turn to 26. So we look forward to seeing you a few weeks at Investor Day. And thank you for your time and attention. Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful afternoon.
Operator: Welcome to the Bank7 Corp. Third Quarter 2025 Earnings Call. Before we get started, I would like to highlight the legal information and disclaimer on Page 27 of the investor presentation. For those who do not have access to the presentation, management is going to discuss certain topics that contain forward-looking information, based on management's beliefs, as well as assumptions made by and information currently available to management. Although management believes that the expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectations will prove to be correct. Such statements are subject to certain risks, uncertainties, and assumptions, including, among other things, the direct and indirect effect of economic conditions on interest rates, credit quality, loan demand, liquidity, and monetary and supervisory policies of banking regulators. Should one or more of these risks materialize or should underlying assumptions prove incorrect, actual results may vary materially from those expected. Also, please note that this conference call contains references to non-GAAP financial measures. You can find reconciliations of these non-GAAP financial measures to GAAP financial measures in an 8-K that was filed this morning by the company. Representing the company on today's call, we have Brad Haynes, Chairman; Thomas L. Travis, President and CEO; JT Phillips, Chief Operating Officer; Jason E. Estes, Chief Credit Officer; Kelly J. Harris, Chief Financial Officer; and Paul Timmons, Director of Accounting. With that, I will turn the call over to Thomas L. Travis. Good morning. Thank you for joining us. Thomas L. Travis: As you can see, we had a very solid quarter. Essentially, we just are a broken record, but it's a shout-out to our banker. And if you look at the organic growth in both the loan and deposit portfolios, we had a very, very good quarter, and it's not a surprise. Again, we do not take them for granted, but I think sometimes people take our great results for granted. But organic growth has just been really good all year. And it's continuing to drive the institution forward. And so when you look at our income and strong capital accumulation, you can see the effects on the capital ratios, which are really, really strong and have us well-positioned. And so all the elements of the bank look fantastic. The liquidity, the capital, earnings, and the margin, and so we're excited about where we are. We're excited about the markets we operate in. And we're just delighted with the results. And so with that said, we're here for any questions. Operator: We will now begin the question and answer session. 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 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Nathan Race with Piper Sandler. Please go ahead. Nathan James Race: Hi. This is Adam Kroll on for Nate Race. Adam Kroll: Good morning, and thank you for taking my questions. Morning, Adam. Yeah. So maybe just to start on loan growth, you know, you guys obviously had another really strong quarter in terms of growth. So I'd just be curious how the pipeline stands today and how you're thinking about growth in the fourth quarter and into '26? Jason E. Estes: Yes. Thanks, Adam. This is Jason. And you know, the quarter was outstanding. And as Tom mentioned, you know, the team of bankers just keep delivering, you know, and it's not just loans. It's deposits as well, which are so vital, you know, to us continuing to be able to expand like this. So the current pipeline is good. But, again, as we caution each quarter, you know, we're prone to lumpy paydowns as people exit. You know, there's a lot of conversations about what kind of economy we're going to have here in the near term. And so, you see a lot of people exiting businesses or specific assets. And so we're not immune to that. We've been able to overcome significant exits this year just with robust growth. I think continuing the theme that we've had here for really the whole year. I really expect kind of a high single-digit year-over-year growth. That's our target. That's our goal. I think we'll be able to deliver on that. But so right now, the pipeline still has plenty of activity in it. But, again, we're always careful with those lumpy paydowns. Adam Kroll: Got it. Yeah. I really appreciate that. And kind of going off of that, I'd be curious if you could touch on what you're seeing in terms of the loan pricing dynamics among competition and what you're seeing new loans come on the portfolio relative to maybe that 7.4% or so that you've signed in September. Jason E. Estes: Yeah. I think if you look at the average, we'd be slightly below that 7.4, somewhere in between seven and seven and a quarter. I think, for the bulky new funding. And then I think there's more pressure. You talk about the competitors from a loan standpoint, seems to be less pressing than the deposit side. Which, you know, that ebbs and flows, but that seems to be the flavor of the week right now. There's a little more pressure on the deposit side than the loan side. Adam Kroll: Got it. And then last one for me is, you know, obviously, there's been plenty of deal activity within your market. So just any update on the M&A front? Thomas L. Travis: You know, we're constantly out there, and we've had opportunities over the last few months, and looked at various transactions and we're active in that space. And we continue to proceed with a nod towards strategic combinations and that hasn't really changed. And so one of these days, we're gonna find something that works. And you know, so really, our posture hasn't changed. Adam Kroll: Got it. Thank you for taking my questions. Jason E. Estes: Thank you. Operator: The next question comes from Woody Lay with KBW. Please go ahead. Wood Neblett Lay: Hey. Good morning, guys. Morning, Woody. Wanted to touch on the net interest margin to start. Really strong quarter in the third quarter, but it did look like with the rate cut in September, the quarter-end margin was a little bit lower than where it was in the third quarter. I guess if we get a couple more rate cuts through year-end, can you just talk about how we should think about the trajectory of the margin from here? Kelly J. Harris: Yeah. Woody, this is Kelly. We did the quarter at 4.55 from a quarter-end perspective. As Jason mentioned, we did experience some deposit upward pressure on the cost of funds towards the end of the quarter. I think if you look at the first rate cut in Q4, you could see further NIM compression slightly down to 4.50. And that starts to slow with additional rate cuts. Towards the latter half of the quarter, that could creep down to 4.47 as those loan floors kick in. But then also assuming that we can keep pace on the liability side. Wood Neblett Lay: Got it. That's helpful. And then I also wanted to touch on the loan fee income. It's the past couple quarters, it's come up pretty nicely, and it now represents about 40 basis points of the margin. Could you just talk about the dynamic there on what's been driving that income up? How sticky can that be going forward? Jason E. Estes: Yeah. I think, again, that goes back to successful efforts by the sales team, you know, of a robust deal market. We've just seen a lot of activity, a lot of opportunities. Our salespeople have done a fantastic job of converting. And so when you say how sticky is that, gosh, it feels like we've really beat the mean here for a couple quarters in a row. You know, I think you'll see it trend back toward normal, though fourth quarter, who knows, the pipeline is strong. But definitely feels like a bit of outperformance the last couple of quarters. Wood Neblett Lay: Got it. And then lastly, just on credit. I mean, credit trends were really strong in the quarter, but you did elect to increase the reserve some just on a percentage basis. You just sort of walked through the decision there and just any broader thoughts on credit? Thomas L. Travis: Yeah. I think this is Tom. The real key here is the growth in the portfolio. And when you look at the macro events in the world right now, it's frightening a little in a lot of areas. And it's increased what I think is the volatility of just the overall credit markets. And so when we grow the portfolio and we see increased volatility in the macro world out there, we believe it's prudent to put the hay in the barn, so to speak, relative to all those factors. And, you know, it gives us a lot of comfort in we benefit from really strong, strong capital levels. And it's always been fascinating to me that when people around the world in our space talk about blame loss reserves, there isn't really much discussion usually on the capital levels. And so you know, one could argue and say, why do you even need to worry about anything if you're gonna maintain capital levels the way you are? But I think the importance for us is, you know, the Rubik's cube, so to speak, and we stay really focused on the loan book, the macro factors. And so when you look at that growth, we felt like it was prudent and to maintain the integrity of our process. That's why we did it. Wood Neblett Lay: Got it. So just as a follow-up, was it driven by some changes in the scenario weighting? And if that's the case, do you think we could see some additional reserve build from here? Thomas L. Travis: I think it was driven by all of the above. And you know, could we see us increasing and putting more provision? It's possible. It depends on the macro factors, and it depends on the growth. But I would say that, you know, I don't want to signal anything, but I would say that we're pretty set right now for the foreseeable future. But, if macro conditions change, adjustments need to be made, or if we have additional growth, then you know, you could see more provisioning. Wood Neblett Lay: Yep. Alright. Well, I appreciate all the color. Thanks for taking my questions. Operator: Again, if you have a question, please press star then 1. The next question comes from Matt Olney with Stephens. Matthew Covington Olney: Yes. Hey, guys. Thanks for taking the question. Just wanted to ask about the outlook for fees and expenses. And I know this can be impacted by the oil and gas revenue, so just any kind of call you can give with and without that. Thanks. Kelly J. Harris: Hey, Matt. This is Kelly. I think we got pretty close on the core fee income from Q3, and we anticipate a similar run rate both on the core fee and the expense side, the million core fee and then $9.5 million on the non-interest expense side. And then, yeah, you're correct. The oil and gas is a little bit less predictable, but we're also utilizing the Q3 as a good guide for Q4. Matthew Covington Olney: Okay. Thanks for that, Kelly. And then on what about the expectations around mortgage? I know you guys made an investment there recently. I would love to get your updated thoughts about expectations for this investment, especially within 2026? Jason E. Estes: Thanks. I think right now, the mortgage business, at least here locally, it's pretty slow still. Maybe not as bad for the mortgage lenders as it is for the realtors. But, you know, until you see something give, you know, whether it's discounts or lower rates, I think we're kind of expecting more of the same where, you know, it's covering itself. It makes a little bit of money. But it's definitely not what we think is possible if you see a real change in the rate scenario. Or, you know, we think there's a lot of headwinds against that business, and it's not just rates. You know, that affordability of housing is a big deal. And it's a little hard for us to handicap, but you know, personally, I'd be surprised if '26 isn't better than '25. But who knows? You know? There's so much going on really across the globe that impacts our economy and people's ability to get wage gains and afford a new house. And so we're as curious as you are. I wish I had a more specific answer, but I would think that next year would be a little bit better for us in the mortgage business. I will say the pipeline has picked up compared to what it was six months ago. You know, we're sitting here with probably, I would say, three times the number of transactions and dollar volume that will close in the next sixty days than what we had. But I'll also tell you the fallout rate's quite high. You know, I don't know how closely you follow the industry, but we're seeing a lot more contracts break and people not close than historically has been the case. Thomas L. Travis: This is Tom. I would add also just a reminder on who we are and what we are. And specifically, as it relates to mortgage, it was an important acquisition for us, and it was obviously a relatively small amount of dollars given our earnings and the size of the company. But we're more of a rifle shooter than a shotgun shooter in the business. And the strategic implication of buying that company, and Dale built a really fine mortgage operation. We're really glad to have him. But we feel like we're a professional mortgage provider now. And when you look at what the mortgage space will be for us going forward, we're delighted that we have the ability to deliver to our high net worth clients and other people. And so I don't want to minimize mortgage at all because it's a wonderful, nice little segment, but it's always going to be that more niche specialized service that we provide our customers and hopefully, one day, it'll grow into a much more significant income provider, but I think that's gonna take some time. And in the meantime, we're really, really happy with the acquisition. Matthew Covington Olney: Yep. Okay. Well, appreciate the commentary on mortgage. And if I could just circle back to the M&A topic. It sounds like there's still conversations with potential candidates, and I guess, Tom, I'm curious, kind of what do you see as the major challenge for M&A today? And what do we need to see to see just improved volumes within the region? Thomas L. Travis: You know, I would say that we still have the overhang of the AOCI that's keeping some sellers on the bench. It's a slow boat to China. And it's not just the AOCI in the bond portfolio, but there are it's disappointingly surprising how many bankers booked really long maturity, lower fixed rate loans. And it's just gonna take some time to work out. So that has a dampening effect on sellers, they all think they're worth fill in the blank, whatever. They all think they're worth one and a half to two times. And you know, when you factor all those purchase accounting marks into the equation, it makes it more difficult. I would also say that we, you know, we own more than 50% of the shares of this company. And we act like owners, and we act like owners every day. And especially in the M&A space. And so think when you look at our disciplined approach, and just following the numbers, it makes it a little more challenging as compared to I'm not gonna reference any particular transactions, but there have been two or three transactions recently that are real head-scratchers, and I'm not sure that those transactions should have happened the way they did. But they did. So I just think the landscape is gonna be it's better a lot of excitement out there. But those factors are always gonna make it more challenging for Bank7. Now with that said, you know, I can't get into specifics on what we've looked at over the last nine months or so, but we've come close on a few transactions. And so I don't want anybody to think that we're not competitive because we are. But I think that you're gonna see continued eagerness in the M&A space in our industry, and eventually, we'll find something that works strategically for us. Matthew Covington Olney: Okay. Well, thanks for the commentary, and it feels like Bank7's in a nice spot for M&A. So appreciate it. Operator: We have a follow-up from Nathan Race with Piper Sandler. Please go ahead. Nathan James Race: Yeah. Just to follow-up on credit. You obviously had really strong credit performance during the quarter. But, Tom, you mentioned the concerns within the macro environment. So I was just curious if you're seeing anything in terms of criticized or classified migrations during the quarter. Jason E. Estes: No. It was very benign in the quarter migrations. You know, we had a couple move down, a couple move up. Couple payoff that were on our special mention rating. So all in all, very, very neutral. If I had to cap it, was it slightly positive or slightly negative? I would say it was slightly positive, but in general, you know, couldn't be happier with where we are credit within the whole portfolio. Nathan James Race: Got it. Thank you for taking my question. Operator: This concludes our question and answer session. I would like to turn the conference back over to Thomas L. Travis for any closing remarks. Thomas L. Travis: Thank you again for joining us. We're happy with our quarter. Looking forward to our near future, and thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. Welcome to Morgan Stanley's Third Quarter 2025 Earnings Call. On behalf of Morgan Stanley, I will begin the call with the following information and disclaimers. This call is being recorded. During today's presentation, we will refer to our earnings release and supplement, copies of which are available at morganstanley.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Morgan Stanley does not undertake to update the forward-looking statements in this discussion. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. This presentation may not be duplicated or reproduced without our consent. I will now turn the call over to chairman and chief executive officer Ted Pick. Ted Pick: Thank you. Good morning, and thank you for joining us. In the third quarter, Morgan Stanley generated record top and bottom line performance with revenues of $18.2 billion and EPS of $2.80. Robust returns on tangible of 23.5% reflect the operating leverage of the integrated firm. The capital markets flywheel is taking hold as the administration seeks to execute on its three-pronged strategy to reshape the economy with Fed rate cuts likely to continue into next year. Across public and private markets, institutional and retail clients are engaged, seeking trusted advice and global access from investment bankers, financial advisers, and market specialists. From 2024, a top priority for the team has continued to be the reaffirmation of Morgan Stanley's strategy to raise, manage, and allocate capital. And over time to execute on a higher plane when favorable capital markets environments permit. Our business model is activity-based. And while we cannot control the broader economic and market backdrop, the heart of the Morgan Stanley investment thesis remains our delivering earnings and returns durability alongside continued dividend growth through periods of uncertainty. This focus on maintaining earnings durability and driving earnings growth is governed by execution, rigor, inside the lanes of the priorities outlined in our annual strategy deck. The readout of sequential EPS results during this period underscores ownership of earnings growth and durability against different economic backdrops. 02/2188, 02/20/2260, 02/13, and now February. Morgan Stanley is well positioned in each of our businesses and is demonstrating consistent execution. Total client assets across wealth and investment management are up $1.3 trillion over the last year, have reached $8.9 trillion. In Wealth, our scale and client reach continue to drive performance. Reported margins were a full 30%. We added $81 billion of net new assets and $42 billion in fee-based flows in the quarter. Investment Management continues to scale capabilities with sustained leadership from Parametric. Across all three regions, our institutional securities business delivered outstanding results. Our equities business affirmed its number one position with a standout quarter. A rebound in the investment banking environment reopened the door to strategic M&A and renewed financing activity. The equity underwriting result was also industry-leading this quarter. Which speaks to the power of our integrated investment bank. With respect to the bank regulatory capital framework, regulators are moving toward a more balanced approach. Executing on their prudential oversight responsibilities, and more leveling the competitive playing field were the largest best-capitalized financial institutions can once again act as a primary engine to drive sustainable economic growth. Morgan Stanley specifically appreciates the Fed's recent reconsideration of our CCAR results we look forward to ongoing dialogue and transparency. Our excess CET1 capital stands at over 300 basis points. Periods of economic and geopolitical uncertainty were to be expected. As we transition from the post-pandemic period we called the end of the end of history to a period we now could call the continuation of history. A period in which the push and pull of industrial policy national identity, and technological innovation will continue to be front of mind for our clients and stakeholders. Morgan Stanley will continue to capture opportunities the world through cycles, staying close to our clients, as they raise, manage, and allocate capital. We're actively investing in the integrated firm, across wealth and investor management institutional securities, across our bank and infrastructure units. We are deploying capital and expanding capabilities through the wealth funnel and enhancing the global distribution of our asset management offerings. As macro uncertainty and enormous opportunity, uncomfortably coexist, our 2025 year-to-date results demonstrate both the capability and the capacity to deliver earnings durability and generate operating leverage against shifting economic and geopolitical backdrops. Morgan Stanley's strategy remains consistent and our durable earnings and capital strength are clear. The quarter's performance across wealth and investment management alongside the strength across institutional securities in all three regions, underscores the proposition of the integrated firm. We are focused on generating strong returns for our shareholders and have real degrees of flexibility to pursue growth opportunities across our core businesses. We are committed to advancing through $10 trillion in total client assets and on to the next phase of Morgan Stanley's growth trajectory. As the firm celebrates its ninetieth anniversary we are as ever focused on executing first-class business in a first-class way. Across the integrated firm for our clients, our shareholders, and our colleagues. Sharon will now take us through the quarter in greater detail. Sharon Yeshaya: Thank you, and good morning. The firm delivered exceptional results in the third quarter, underscoring the power of our global integrated firm. And the scale of $8.9 trillion in total client assets. Performance was very strong across the businesses and regions. Driving record revenues CVA of $2.80. And an ROTCE of 23.5%. The year-to-date efficiency ratio, 69%. The firm continues to demonstrate operating leverage. While maintaining focus on longer-term investments. Our investments in workplace, E Trade, and our investment banking franchise are yielding results. Our early AI use cases some live and some in pilot, are showing progress. These include the DevGen AI tool, which enhances developer efficiency by modernizing code. Terrible, an interactive tool that quickly analyzes and summarizes data, and LeadIQ, our AI-powered lead distribution platform. Focusing on matching workplace and self-directed relationships and facilitating engagement with our financial advisers. Together, these use cases are laying the foundation to drive productivity across the firm. Now to the businesses. Institutional securities revenues were a standout at $8.5 billion driving powerful operating leverage. While The Americas led the year-over-year growth, clients were active around the world. We are continuing to see attractive returns from steadily investing across the integrated investment bank. Themes around emerging technologies and renewed investor appetite in Asia contributed to the results. Investment banking activity has meaningfully improved several years of muted volume. Capital markets reopened and supported underwriting issuance across both debt and equity products. Specifically, market receptivity for IPOs encouraged both sponsor and founder-led companies to come to market. This combined with strong credit metrics set the stage for renewed strategic activity. Investment banking revenues increased to $2.1 billion marking one of the strongest quarters in recent years. The year-over-year improvement was driven by broad-based strength with underwriting results up over 50%. Advisory revenues increased year over year to $684 million driven by higher completed activity. Equity underwriting revenues increased 80% year over year to $652 million driven by IPO activity. And further supported by strength across equity products and sectors. Activity picked up materially in September, on the back of record-breaking post-Labor Day issuance in The Americas. Fixed income underwriting revenues were $772 million, driven by higher noninvestment grade and investment grade loan issuance. As the M&A market shows signs of recovery, event lending commitments event-related lending commitments met receptive Results were supported by higher flow activity as clients took advantage of refinancing opportunities. Secular themes and pent-up demand have supported an increase in activity across the integrated investment bank. Clients are increasingly turning to Morgan Stanley, to navigate complexity, monetize opportunities, and deploy capital decisively. In the quarter, robust pipelines translated into announcements. And credit markets were resilient and open conducive to activity. We continue to selectively hire bankers and product specialists as the integrated firm culture is opportunities to deepen the coverage footprint. Our lend our leading equities franchise generated $4.1 billion in revenue. Propelled by broad-based performance across products and regions. Prime brokerage revenues drove results. As average client balances and financing revenues reached new records. Cash results were strong, reflecting active client engagement. And an increase in global market volumes compared to the prior year. Derivative results were up year over year. Driven by higher activity, and regional strength in EMEA. Fixed income revenues were $2.2 billion. The business showed consistency driven by strong client engagement. Across credit and commodities, partially offset by lower results in foreign exchange. Micro results increased year over year. Performance was driven by strength in securitized products. Benefiting from robust securitization activity and historical growth in durable lending balances. Macro revenue declined versus the prior year. Volatility decreased in foreign exchange markets across developed mark currencies, leading to reduced client activity and trading opportunities. Results in commodities finished the quarter with strength, increasing year over year, driven by our North American power and gas business. Which included structured transactions during the period. In the quarter, ISG provisions were modest at $1 million as a sequential improvement in the macroeconomic forecast was offset by portfolio growth and individual assessments. Net charge-offs totaled $46 million primarily driven by commercial real estate loans that had largely been provisioned for in prior quarters. Turning to wealth management. Our franchise is growing with sustained momentum, reinforcing our industry-leading position. A record $7 trillion in total client assets, record revenues of over $8 billion and continued operating leverage drove margins to 30%. Another quarter of strong net new assets and robust fee-based flows illustrate the power of the funnel and the scale of our client base. Which spans over 20 million relationships. Assets that originated from workplace continue to migrate into our Advisor led channel. As a result of the consistent investments we have made into our differentiated platform. We are not standing still In the third quarter, we continued to invest. Deepening our competitive moats. In areas like our expanded collaboration with Carta in private markets, and in digital assets through announced partnerships with Zero Hash. We continue to innovate reinforcing our leadership in the industry and enhancing our ability to service our clients with unique capabilities. Moving to our business metrics. Record revenues were $8.2 billion. The business continues to demonstrate operating leverage with the reported margin expanding to 30.3%. DCP negatively impacted the margin by approximately 100 basis points this quarter. Asset management revenues were a record as $4.8 billion Fee-based flows were exceptionally strong, exceeding $40 billion for the second consecutive quarter. Transactional revenues were $1.3 billion and excluding the impact of DCP, were up 22% year over year. Throughout the quarter, retail clients were engaged across products. And self-directed activity was particularly strong. We launched Pro or we excuse me. We launched Power E Trade Pro, which is a reflection of our investments to enhance our platform. These investments have helped support E*TRADE. Transactional revenue, which is highly accretive to our margin. Bank lending balances rose $5 billion sequentially to $174 billion reflecting our multiyear investments to meet the full portfolio needs of our growing client base. In the quarter, we deepened our client penetration with lending solutions, inclusive of securities-based lending and mortgages. Sequentially, total end period deposits grew to $398 billion and net interest income increased to $2 billion The growth in NII was driven by the impact of our market environment and the cumulative loan growth. Looking ahead to the fourth quarter, we expect to see a modest sequential gain in NII. Of course, the rate environment, trajectory of loan growth and deposit mix will all come into play. Finally, in the third quarter, we delivered net new assets of $81 billion a testament to the depth and breadth of our diversified to platform. All three channels contributed to our asset growth. The reopening of the IPO market also supported results. Further evidence that our workplace channel serves as a powerful asset acquisition tool. This quarter, the business demonstrated exactly what it is built to do. With over 20 million relationships and $7 trillion in total client assets, our scale and connectivity sets us apart positioning us to deliver. Turning to investment management. The business continues to perform well. Are seeing momentum for secular demand in our highly sought after Parametric Solutions and expanding our global reach in fixed income. Our investments have supported our growth to a record $1.8 trillion in total AUM. And further position the business for the opportunities ahead. Long term net inflows were $16.5 billion in the quarter, Over half these inflows were driven by Parametric, and further supported by ongoing strength in fixed income. Parametric inflows were inclusive of a large partnership with a third party investment adviser seeking greater tax efficiency for its clients. Liquidity and overlay services had inflows of $24.8 billion. Driven by demand for our liquidity strategies. Revenues of $1.7 billion increased 13% compared to the prior year. The increase was driven by higher asset management and related fees. On the back of higher average AUM. Performance based income and other revenues $117 million supported by gains in infrastructure, private equity and real estate. Turning to the balance sheet. Total spot assets grew to $1.4 trillion Standardized RWAs increased sequentially to $536 billion as we actively supported clients. Exposures rose intra quarter. On greater levels of activity and reduced into quarter end as we syndicated risk. Our standardized CET1 ratio stands at 15.2%. We opportunistically bought back $1.1 billion of common stock in the quarter. Our quarterly tax rate was 23%, excluding $50 million of net discrete tax benefits. We continue to expect our fourth quarter tax rate will be approximately 24%. The firm is operating with momentum across all segments. We enter the fourth quarter from a position of strength with a combined $8.9 trillion in total client assets. An engaged client base, healthy pipelines, and global reach. We remain focused on continuing to invest in our business, as we look ahead. And with that, we will now open the line up to questions. We are now ready to take in questions. To get in the queue, you may press star and the number 1 on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press star and the number 2 on your touch tone telephone. You're allowed to ask one question and one follow-up, and then we'll move to the next person in the queue. Please stand by while we compile the Q&A roster. We'll take our first question from Dan Fannon with Jefferies. Ted Pick: Please go ahead. Good morning, Dan. Good morning, Dan. Good morning. Morning. Dan Fannon: Ted, I was hoping you could just talk about the environment. You've been quite bullish all year. Obviously, a great quarter. Can talk about the sustainability of these trends, maybe the of the backlog in investment banking, the diversity and you know, how that compares to maybe prior periods. Yes. Ted Pick: The question is the right setup. Whether we are entering a golden age in investment banking remains to be seen, but it has been now several years of chatter around green shoots, and now the flywheel is taking hold. It's happening across industry groups. It's happening across regions. It's happening against a generally more favorable regulatory backdrop. It's happening at a time where there is deglobalization and reglobalization depending on where you are. How you're looking at it. And obviously the need to defees the cost of endogenous AI. So that sets up for a very interesting environment for strategics who now will compete for product with sponsors in each region and in each major industry. We've been spending considerable time and capital on building our investment banking core. And the fruits of that are seen in both the equity and debt underwriting number and an advisory number that continues to pick up. And to what you're alluding to, Dan, the pipeline looks very good. Across all three regions. So we are optimistic. Now of course, the world is an uncertain place, and there could be pauses depending on how geopolitics feel. But generally, speaking, the investment banking product category over the next couple of years should be generally up into the right. Dan Fannon: Great. Thank you. That's helpful. And then Sharon, I was hoping you could expand upon your comments around just the NNA growth within the wealth channel. You talked about workplace and the IPO market being a contributor. Maybe if there's a way to contextualize that a bit more and also just talk about the other channels in terms of the momentum there as well. Thank you. Sharon Yeshaya: Absolutely, Dan. Thank you for the question. All the channels are strong. Self-directed. We've been increasing our marketing and business development. You see that. Our advisory is also strong. We have new clients, existing clients both coming in, so we're attracting assets held away. But we're also bringing in new clients, and that's a lot of the tools and the that we've been giving to our advisers. And as it relates to workplace, that's probably the most exciting part. I think we're just scratching the surface of what we've seen in workplace. It's bringing in assets, not just in NNA, but also directly into fee-based flows. So people are you know, we're seeing momentum as you have IPOs come to market. People are bringing their assets to Morgan Stanley. They're dropping into their self-directed accounts yes. But they're also moving it directly into the adviser led And that's been a large part of the story. I think you and I have talked about it, Dan, Historically, you've asked about we've given a $300 billion number about that workplace migration, and we've said that we've seen about $60 billion of migration per year. We're already three quarters into it, and we're exceeding those numbers from a full year basis. So Workplace has been a contributor to net new assets, to fee-based flows, and channel migration. Our next question comes from Ebrahim Poonawala with Bank of America. Your line is now open. Good morning. Ted Pick: Hi, Ebrahim. Ebrahim Poonawala: Hey, Ted. I had a question on the pretax margin hitting 30% I know you kind of removed all the pluses and the signs when you took over as CEO, but it's coming up a lot more frequently in our conversations with investors is when we look beyond one, you think you achieved a point where the 30% pretax margin is sustainable? And again, I'm not saying you're changing your guidance, but I'm just wondering when you think about the outlook and all the productivity improvements, etcetera, is the risk that the 30% is drifting higher, or moving lower in terms of when we think about the medium-term outlook? Ted Pick: Thanks for your question. It's incredibly important that we continue to understand that the investment dollars go into that wealth business to broaden and deepen the funnel flywheel that Sharon just described. Whether it is putting more dollars in the pro product in E Trade where we're also focused on upping deposits, whether it's investing in adjacent digital asset product whether it's in deepening our relationships at the corporate workplace, center or it's ultimately in our financial advisers we're going to continue to put investment dollars into the system. Now whether that with continued operating leverage gets us to a number that is higher than 30 over time. Let's see how it goes. But right now, what's important for everyone to see that we had a reported number in a reasonably friendly environment that was, I believe, 30.3%. But that is an output, not an input. So the continued input is our investment dollars to drive PBT growth and what is most exciting about what the wealth team has done is to drive revenues and to drive overall growth in each piece of the funnel. Ebrahim Poonawala: Got it. And I guess just in terms of you mentioned a friendly environment. There's so much discussions around whether there's an AI bubble. We are in the late nineties in terms of where we are in the cycle. Just talk to us when you think about both sides of the business, investment banking, and as you're getting insights from how your clients on the wealth side are thinking about things, just how do you handicap that risk of where we might be in the cycle? And what has history taught us of what that implies for your revenue or growth outlook. Sharon Yeshaya: So when we think about our use of AI, and what we're seeing is there are many places that one can use AI It's not just around efficiency, but it's also productivity both on the expense line, but also on the revenue line. I tried to note three different examples at the beginning opening comments. And they were purposeful because they all represent different ways that one can begin to use AI from a from a full firm perspective. You know, one is just going through code and being able to work faster, make sure that, you know, we can be more efficient with our time, that coders can be more efficient as they go through lines of code that they that they're able to see. And rewrite. And so that's one example that you we can all kinda see across different firms, and I think different institutions have talked about it. Then you have things that are specific to a Morgan Stanley, which might be around LeadIQ, and that's very revenue driven. Right? So how do you give more time to an adviser? How do you make sure that you give more matches produce better results? And that's how we've been using all sorts of technology on FORWARD. And then you have things that you can see across all sectors. Parable is something that we've been doing really in finance. Looking at our data, piloting it through, and finding ways to summarize key data that other companies can also take advantage of. And so I think for you you take a step back and your question is, well, what does it mean? There is a lot of ways to use this technology. It's extremely powerful. And this is another place where I think we really are just scratching the surface of what it can do. Sharon Yeshaya: We'll move to our next from Christian Bolu with Autonomous. Your line is open. Ted Pick: Good morning, Ted. It's Sharon. Yeah. Christian. Ted. Christian Bolu: Wanted to follow-up on wealth management and your outlook for that business. Just given your leverage to private markets and technology technology sectors through Solium or your Carter partnership, I'd imagine you should be an outside beneficiary of the wealth creation around sort of the AI CapEx cycle. Curious how you see that. And then how does how does how does that influence your outlook for sort of five to 7% organic growth over time? Sharon Yeshaya: So when we think about private markets, say we are, you know, obviously, the largest provider of all the the alternative space, yes, for wealth management businesses just given our overall aggregate size. It's about $250 billion of client assets. But on the forward, I think what's important here is that there's an education process. We don't look at it as something, you know, you're not gonna necessarily flip the switch. There's obviously places that we can to see asset asset growth and asset accumulation. And we're offering new products to our clients. Such as just evergreen products, products that allow for lower denomination size. But this is a journey, and it will take time as we think about the education process. And reweighting or rebasing individual portfolios. So absolutely a growth opportunity. But, again, one that will take time. Christian Bolu: Thank you. And then on equities, really nice nice growth there, and it's been a consistent pattern of share gains in that business for a while now. Just remind us again, kinda what's driving share gains there, and then where do you see further opportunities going forward? Sharon Yeshaya: So as it relates to equities, it's an incredible business. We've done an incredible amount of investing in our platform, in our people. And in also our global regions. Equities more broadly does speak to what we've talked about when we talk talk about durable share based gains for ISG. This is a durable business. Where you have increases in prime brokerage balances We have obviously spent the time looking at our end clients and looking at the end at the end balances. But this is yet another place where you do see technology investing dollars going in. You see that on the derivative side? And you see that on some of the cash based businesses and what we've offered internally in terms of trading tools to make our own business more efficient. So for us, Christian, what's important is the consistency and the consistent growth that we've seen in that equities business. And I would be remiss if I don't mention yet again the strength of the global nature of this franchise. We talk a lot about our competitive moats. Those moats are not built immediately. So when we talk about these investment cycles, we've been investing in Asia throughout Asia for some time. In different periods of time, you see different periods of growth across that region. Sometimes it's Japan. Sometimes it's China. Sometimes it's India. And so that global reach and that investment is one that you're just seeing take place and take shape, I should say, as the global markets begin to reemerge in this capital market cycle. Sharon Yeshaya: We'll move to our next from Brennan Hawken with Bank of Montreal. Brennan Hawken: Good morning. Thanks for questions. Ted Pick: Hey. How are doing, Ted? Brennan Hawken: Talk to you again. Ted Pick: I'd love to drill into the Carta relationship. Sharon Yeshaya: So you guys recently expanded that partnership. You made reference to it in your prepared remarks. Can you speak to the experience that you've had with Carter Carta prior to that and your expectations for now larger relationship. Yeah. It's really nice to hear from you, Brennan. So it's nice to hear you back on our calls. This has been a this has been a multipronged approach in terms of the Carter relationship. So as you know, private Carta generally deals with the private markets side from the stock plan perspective, and you know that our platform deals with both the public and the private market side. So where the original relationships started is a referral based model. So as companies began to move from a private side to a public side, they would be referred to Morgan Stanley. And that's working. We've seen evidence. We've had referrals. We've had number of referrals since that original relationship, was started. And we have seen conversions into into our space from the public side already over the course of this year. So it's been a great experience. But there's now a second prong of the approach. As you know, what makes our platform on the wealth management side stand out is the value of advice explaining the value of advice to our clients, to our, you know, broader client base, which is a standout. We often call it a category of one. What Carta now does is it's been interested in being able to offer these services not just to the individual founders or the top providers, you know, the tops of the the companies as they as they go from a private to a public state, but throughout their entire journey. So we're offering our advice based service to those individuals And from that perspective, it also helps solidify some of the other work that we've been doing. Right? We've done a lot of work on trying to service founders, on trying to service family offices. There's all different places when you can think about how we've grown our wealth management business. In types in terms of the types of coverage we give to the individuals. And this is just one more place where a relationship with Carta can be helpful, and it will allow us to better deepen relationships also with private companies. Brennan Hawken: Thanks for that, Sharon. And and thanks for the warm welcome back. I appreciate it. When you think about that added access, right, plus the the the strong and established business that you have in Solium that has that veers a little bit more privates. I know you guys don't call. You know what I mean. How much more substantial is that base versus 2021 when we last saw robust capital markets Sharon Yeshaya: Well, I think that goes back I think it was Ebrahim. I can't remember Maybe Dan Fannon. The first question that we answered about NNA it's just the beginning. I mean, I don't know how else to say it. It's something when we we look at what's going on in workplace across net new assets, across IPOs, These are all ways for us to build out the integrated firm. And we talked a lot about it over the course of the last two years and more recently over this year when we spoke about the integrated firm effort. This is a place that you're seeing that build from a wealth management creation side. We have people around it to help shepherd individuals, across the entire firm as you think about institutional securities, think about underwriting, etcetera. So there's a lot more to go in the entire ecosystem of being able to work with companies and their founders, understand them from beginning to end, and then bring them to market and service them throughout the the the life cycle of that corporation. Sharon Yeshaya: Our next question comes from Glenn Schorr with Evercore. Glenn Schorr: Good morning. Quick one first. Sharon Yeshaya: Sharon, I was very intrigued by your comment on the parametric inflows. And the large partnership with third party investment adviser. So my my question is Parametric's grown a lot and I feel like we're still scratching the surface. But are you and that was a direct thing and a direct sales into your wealth channel? Can can you differentiate your growth mindset going forward for a, pan penetrating Europe, your huge client base, and then, b, is there a big white label opportunity that this is starting to scratch the surface of? Sharon Yeshaya: So the way that I would describe it is what you're seeing is you have our wealth channel. You've seen growth, but that and that has done that has been based on multiple years of what we call tax university. So when we first bought Parametric, we worked within our system to the product and the benefits of what you can use through tax harvesting, etcetera, within your portfolio. How is Parametric used? To our financial advisers? So our financial advisers started to use it more and better understand that actual product. So that's one channel of growth. Then you have other retail distribution channels. That are also using it. And what I spoke to specifically here that was a newer opportunity that we haven't seen before in such size is we've started to work with third party asset managers as well. We had a press release out close to a year ago at this point where we did discuss that this is something we're working towards. And we've talked about different types of asset managers who can look at their own portfolios, and say, for my own portfolio and the assets that I cover, maybe this would be a good tool. And that's what we saw in terms of the inflow. Those will be lumpier. We're not saying that that's necessarily something that you're gonna see every quarter, which is why we called it out. But it's certainly another place and another channel where we see the opportunity for Parametric over time. Glenn Schorr: K. Awesome. I appreciate that. Bigger picture, Ted, I'm I'm curious. You agree with everything you said. The regulatory frame capital framework is is hopefully gonna be more balanced. You got an 80 basis point refund recently. As you mentioned, you have over 300 of excess capital, and you're making tons of money. So I think the buybacks and dividends are good. But my big question is, are there areas that you could deploy more kappa at a higher pace into to drive growth? Your your return on tangible equity is hardly anything to complain about. But it is a big denominator. Are there areas that could deploy at a faster pace, whether it be organic or inorganic? That would just broaden the platform, make the company better, drive future growth. Ted Pick: Well, Glenn, as you say, that's the key question. The dividend is now $1 share. That is sacrosanct and we'll continue to grow that along The buyback has been opportunistic. We'll continue to buy shares back. Maybe at a slightly higher cadence. But we're going to continue to view that as a tactical lever. As you know, over the last year plus, we've accreted $7 billion $810 billion of capital dating back a number of quarters. So that, of course, has been effectively capital put in the piggy bank. As we think about investment, heard Sharon talk about a whole bunch of that. The best uses of capital continue to be internal investment into the business and to the integrated firm. Those are can either be adjacent investments they can be a little more orthogonal, like, digital assets or something that is kinda new and offers diversification effect. But they're all in the cylinders of the strategy around wealth investment manager and then the investment bank. The mantra has been to scale with our key clients to build out product capabilities to invest in technologies why I thought it was great that Sharon into some detail on some of the technologies that are are being born as we speak. Some of them are efficiency driven, some of them are effectiveness driven. If you think about the kind of locus of the integrated firm is, it's around the key decision makers at these banking or asset management clients or our wealth management clients where they are the primary decision maker for strategic financing or catalyst events, which of course, dovetails with the investment banking wave that is kicking in now. And we are investing a lot of dollars whether it's in the Markets business intra quarter or it is through our wealth clients either directly or indirectly. So E*TRADE PRO is effectively an investment, it just happens to be an internal one. Sharon has spoken at some length around workplace and connectivity of private companies in Carta. Think about what we're doing with zero hash and building out the full wallet. Some of this stuff we can either harkening back to the equities days of fifteen years ago, we might buy, we might build, we might lease, but those are investments that are made inside the business and eventually for the benefit of our our financial advisers. We're also building out our bank That is a a key channel that we are much focused on. As you know, Glenn, and that's gotten a lot of dollars and attention too. So the organic opportunity is the one that clears the bar and checks the most boxes. And that's gonna be the continuing strong bias of the group. That having been said, we are well aware of the capital cushion. We do have thanks to the better part of fifteen years of mister Gorman. We have been well versed and trained around the thinking on the inorganic. Whether it fits in the strategy, whether the culture's right, whether the timing makes sense, and then ultimately whether the price works. Strategy, culture, timing, price. And right now, there is a lot of product that is coming at us. But in virtually every case, Glenn, feel we can do the build internally. Organically. And for the last two years, I think you'd agree what's been most important in the delivery of our management team, which has worked together for ten, fifteen, twenty years, beginning, of course, with Dan and Andy leading the firm and then Sharon, Eric, Charles, and then the rest of the operating committee that for the last two years, we've been focused on what we're gonna do and putting up the numbers. And that hasn't been at the total expense of the inorganic. But we have felt comfortable continuing to make the case that there is growth both in wealth and investment management and then durably inside the investment bank. And that the sum of those two would be greater than the whole in the context of the integrated firm, that it would not just be kinda sales y, but it would be something that the right kind of market environment would offer operating leverage. So in a sense, it's been the little picture. The little picture of both kinda know, squirreling away some chestnuts, but then also building out the income statement making sure that there's manifestly operating leverage against the uncertainty of geopolitics and transitioning economy. And then over time, we can consider carefully whether the inorganic ticks all four boxes, strategy, culture, timing, price, and whether we wanna fold something in. As you well know, this firm has successfully integrated Smith Barney, Solium, E Trade, and Eaton Vance But there is such a thing as winner's curse in the financial services space. And we were not about to make that mistake. We don't need to put up a print for the sake of it. We are very excited, by the way, on our announcement on Zero Hash. We think it's great. We're building out the full wallet. And we will be ready to go as we move into 2026. But whether we continue to compound the wealth and asset management base through $10 trillion organically or whether we do something inorganically it'll have to fit the test. But I wanted to give you a sense that, of course, we think very much about the big picture. Know, forest to the trees, but we also in this two year period, have been very much focused on the little picture, the speck on the rug and making sure that we have numbers that are clean and that sustain the valuation that the market has awarded us, and then we move forward with a capital buffer that is 250 to 300 basis points plus. Sharon Yeshaya: We'll move to our next question from Erika Najarian with UBS. Erika Najarian: Hi. Good morning, Erika. Just one follow-up. Sharon Yeshaya: Good morning. Just had one follow-up question. On the back of the first question on the investment banking backlog. You know, as we think about the sustainability of the investment banking strength, can't help but notice that, of course, markets are at all time highs, and and and spreads are quite tight. It seems like the right precondition for the realization pipeline for sponsors to also take hold. And, Ted, I'm just wondering what other preconditions do you think are needed for that to be, you know, to be for the realization pipeline to spill into 26 activity? We're seeing it. So thank you, Erica, for the question, but we're beginning to see it already. We saw it in the third quarter, and it continues to be a big part of our sort of backlog as you think about and pipeline for the forward. And the reason that we think that it's coming fruition is, as you said, we are think the capital markets kick in. As Ted said, he says the capital flywheel is working. The capital markets flywheel is working. Specifically, when we have IPOs, that provides another lane for exit And so that provides two sort of places that a financial sponsor can look, both an acquisition opportunity and exit from the perspective of an advisory or from the perspective of IPO. And so what we've seen is that that's been helpful to help the engagement, and it's certainly something that's already beginning to play out in the market. Marketplace. Ted Pick: And the bigger picture here is that being a private company, a successful private company, over the last number of years, as you know, Erica, the old rule of thumb was when you had a certain number of beneficial owners or a certain level of wealth created, you need it to go public if for no other reason to to fees employee stock option plans and to have currency to get bigger through acquisition. The reality is that the democratization of the private channel and the ability for companies to stay private longer has been has been one that has very much taken hold and for lack of better words, been institutionalized over the last five, ten years. So being a private company, a good private company, has been a good thing. And and the street has been helpful in offering sponsors additional space beyond the ten year fund to continue to keep the winners in house. At the same time, being a public company has not been that great. The regulation got, as you know, much tougher, and the just sort of the the the reality of being a mid cap or even small cap company that may be orphaned, and still has to comply with the the regulatory burden, is tough. So one of the things that we think is going on here is that with some rebalancing of the regulatory framework, the ability to go public the ability to go public perhaps earlier and to draw the attention of new issue investors who were not cleaning up a secondary sale of a financial sponsor but in fact or a strategic investor, but in fact, are coming in where there's still plenty of growth and is sort of going public discount premium that makes it an exciting asset class again we're optimistic about that. The reality is the sponsors have have not moved as fast. Because they've had the ability to sustain these capital structures as private companies. That has its pluses. That has its minuses. What's changed, though, is that as we notwithstanding all of the concerns with elements of the three-pronged strategy, the demonstrated success of prong one and now much of prong two. And clearly, prong three, I. E. Deregulation, which will be very much a pro business and hopefully pro broader economy phenomenon, makes it more interesting for the strategic buyer to or the seller, in fact, if they wanna purify their portfolio to go in and do something. To do something on a cross border basis, to know that there are regulators gonna give it a thumbs up or thumbs down, versus stymieing it for uncertain periods. There may be deals in the national interest that won't go through. But the entire proposition of mid to large to mega cap M and A has been one that has not been on the table for a long time. If there's going to be large cap m and a across growth industries around the world, there will also be an IPO market as they work symbiotically in terms of attracting growth capital to grow the winners. Erika Najarian: Great. Sharon Yeshaya: Thanks for the complete answer. It that's it for me. Ted Pick: Thanks, Erica. Move. Sharon Yeshaya: To our next question from Devin Ryan with Citizens. Morning, Ted. Good morning, Sharon. How are you? Devin Ryan: Morning, Devin. I want to start with a question on wealth management net interest income. Obviously, it really benefited short term rates rose in in prior years. And I heard Sharon's comment for a modest increase in NII in 4Q even as the Fed is now starting to lower rates. And so I think what's becoming more clear is there's a lot of natural hedges in the model there. Balances, sec lending, pledged assets, stabilization and kind of the brokerage sweep balances. So I'm just curious, as we think about rates now starting to move lower and perhaps the first 100 basis points of cuts, do you see a scenario where GWM NII can actually grow? And then can you just talk a little bit more about some of these hedge impacts as we get the other side of this? Yeah. Absolutely. I'll take the question. There you know, we'll we will review 2026 guidance in 2026. But sitting for where we are today, Sharon Yeshaya: yes, there is room for an inflection as you continue to move higher. You could ask me, well, how could you you know, to your point, well, what are these offsets? And how can you get there even if rates begin to move down? Of course, it will depend on how quickly rates move, you know, and if it's prices is from the forward curve we sit in today. So all of my answers are predicated on that on kind of this moment in time. But at this moment in time, the reason that you can have that outlook really has to do with the lending balances that we've seen and the consistent growth in lending balances SBLs, for example, is something that I talked about this quarter. I think we've talked about it over the course of the last couple of quarters. In a place of growth. And that is coming not just from existing clients. So you could say, well, your existing clients, aren't they tapped out? We're getting new balances. We're getting new client participation, and there's more to do to help the bank itself grow, as Ted said. So that's a place where you can have that potential growth. The other offset that I would note to you is, historically, when we've seen rates come down, we've also seen an increase in balances. Yes, there's a trade off in terms of how quickly will those interest rates come down and what will that mean. But that is from a a sense of modeled behavior. Another natural point than you could see in terms of a potential upside rather than downside on the forward. Devin Ryan: That that's great color. Thanks, Sharon. And just a quick follow-up on the equities trading results. Obviously, feels like the bar keeps moving higher here. And you referenced the growth in financing and kind of record results there. Can you just give us a sense of kind of what the growth function has looked like in financing relative to intermediation over the past couple of years? And then just what the the mix kind of looks like there today and how that's evolved as well? Because it just feels like you're building kind of a higher base overall in equities, and love to just get a little more sense there. Thank you. Sharon Yeshaya: Certainly. I mean, we talked about record balances in financing, and we talked about that. That should obviously, you should think about that relative to where markets are. You're gaining client share, wallet share. But you're also benefiting one is benefiting from increased balances as the markets have risen. As it relates to the more transactional level of activity, that's gonna really be based on what's going on in the marketplace in time. And you could see that more based on a volume driven approach. I e, are volumes rising or are they falling and client activity more broadly So that might be more idiosyncratic to your point And so, yes, the base will rise as those prime brokerage balances will rise, assuming that there's not sort of some major market decline which would cause a contraction in balances. Ted Pick: Yeah. I mean, to be to echo that, we're at 6,700 S and P, and you know, index asset price highs around the world. So if there is a deleveraging event or just lower let's say, there's a a sort of recession scare and the markets are lower, well, definition, the financing revenues will be lower. I mean, they're they they are they are linked in that sense as you know, inextricably. What is what is an interesting development, though, inside of equities is, first of all, as global as ever, as Sharon has talked about, we have a business that is thriving both in in Asia, which is, as you know, multiple locations and then also in Europe, again, multiple locations But then also the development of our derivatives business liquid derivatives and the cash business, once thought to be one that would be totally electronified, that is being run very much as a barbell with the best in class, NSAID product, as you're aware of, but also, one where the high touch old school research, sales driven product with a world class research department with folks who have been at Morgan Stanley for twenty, twenty five, thirty years. Who are embedded with our asset managers and are able to help them capitalize in a market now that is rewarding dispersion across strategies and across waiting. So the first time in a generation you have real dispersion amongst our clients, which means they are looking for intellectual capital. We can offer that. And that there is real real ability now to monetize that not just in the classic financing pie, but also across cash and derivatives. Sharon Yeshaya: We'll move to our next question from Mike Mayo with Wells Fargo. Mike Mayo: Ted, hey. In the past, you said it's the moment of I think, boat wow. And I guess it's playing out. And you mentioned IPOs, mergers, the flywheel. You mentioned US, Europe, Asia, Mid, large, major corporate. So it seems like a lot's going on. But I think the question is, can you size where we are in the capital market cycle? Like, what inning are we in? Are you over earning, under earning? Just if you can dimension this for us. Thanks. Ted Pick: Well, I mean, you you've been at this long enough to know that the the the the typical answer that one would give would be driven by where we are in the economic cycle. And I'm just not sure it's working that way this time. There is clearly pent up pent up supply of product. And Ideaflow that, as we've talked about, stems back from the earliest days of the pandemic. Whether it's embedded in sponsor portfolios or it has been sort of ideas in the making inside of the EU or Greater China or Japan or obviously in The United States. So some of that inventory is meant to come. There's also the reality of almost like a Mika esque you know, big size creates category killers. And the the regulatory on large cap M and A has also been kind of an unnatural constraint to the supply of large cap mergers that now need to happen to defuse the costs of AI. So I think those are all tailwinds. What I am less certain about and I wouldn't want to be caught on the wrong side of kind of a nebulin take on the world is there is a lot of geopolitical uncertainty by definition. And there is considerable uncertainty around how a K economy manifests itself in terms of Fed policy and then fiscal response function. I mean, to just ignore that would be silly. And the markets have come a long way. Then there's also the reality that the private capital class has been democratized over a relatively short period of time. So there will be there will be occasions where folks are gonna find out things they don't like around liquidity or issues, whether, by the way, those are public or private companies. So I I I don't think it's just blue sky, all boats steaming. What I do think is that for the first time in a long time, the largest investment banks that have global enterprises, that have invested in world class corporate finance bankers, who can offer the full set of global idea flow and then risk management around uncertainty through an M and A announcement, which is not just regulatory uncertainty, but it could be foreign exchange, It could be the hedging of interest rates. And then through to the complexity of a rights offering or sub IPO, that entire daisy chain Mike, probably takes us back to something that feels like the mid 90s, for example. It could take us back to periods that are in the mid-00s before credit got out of hand, where you have real companies that are getting out and doing back to basics corporate finance The difference now is you need the full kit. You need the full global support. And it has been, as you've pointed out, and rightly pointed out, a lot of talk about a lot of green shoots for a heck of a long time. So some folks have blinked. And other folks have continued to invest And we feel good about that opportunity over the next three to five years. But will there be periods where the windows could well shut because the geopolitical uncertainty takes us to risk off or asset prices correct, Absolutely. In which case, which which companies you bank, which ideas are going to actually be the ones that win the day, that's where winning and losing is gonna be is gonna be made amongst the global investment banking group. Mike Mayo: So your staffing and resourcing for this capital market cycle for the next three or four years or so? Ted Pick: Yeah. We have we have the kind of tension inside where on the one hand, we have we have an installed base because, as you know, introducing new bankers on what is sort of the longest sale It's like a financial adviser that this is, like, the key event for the for the CEO, the CFO, the founder. They don't wanna meet someone new. The installed base has to have been there, which is why a lot of the hiring we did, we did over the last three to five years. On the other hand, you don't want to overhire because you know that investment banks tend to behave pro cyclically. So is there some tension in the system? From folks who want us to have more bodies in front of 3,000,000,000 to $5,000,000,000 market cap companies to get that sell side. Yes, there is. And I think that's a good thing. When the tension is like three, four, that feels right. If it's one, that means you're probably overdone. As you would point out, then you've got a purge and reset, and it kinda messes up the narrative. And if it's a seven or eight, that means, obviously, we haven't made a decision about where we wanna have leadership. And we wanna have leadership in the core trusted adviser bracket. The integrated firm proposition, of course, is that you may be trusted advisor or founder, and that founder may have a relationship with a wealth manager And that wealth manager then can work with the investment banker, and it's not forced behavior It's behavior that is something that is unnatural because we've been at it together for a long time. Sharon Yeshaya: We'll move to our next from Chris McGratty with KBW. Chris McGratty: Great. Thank you. You said your good morning. Ted, you talked about the 300 basis points of excess relative to minimums. I guess a two part question just a follow-up. Number one, what's the right level of management buffer there? How how that might be evolving and and, perhaps the algebra behind it? That's the first question. Sharon Yeshaya: I mean, I I think that, you know, he gave we we've highlighted where we have excess capital. That's obviously on a risk weighted basis. Honestly, like a a risk asset based basis, we also have capital as it relates to SLR. In terms of how and where it's evolving, it will really depend on everything that we see on the forward. So you think about the models that we're supposed to get from a C CAR perspective, that's gonna help us understand. Base RWA or trust RWAs You think about Basel, that will help us understand what is base RWAs, then you have to understand the overlap. And G SIB. So those are all three pieces on a risk based capital framework. That we're waiting for, and that will help inform us on the forward look. As well as a finalized rule on SLR, which I think the industry is really looking forward to seeing so that we can move away from that being a binding constraint and a backstop. Ted Pick: And I don't know if this is algebra, Chris, but the way I would I would I would sort of think about it is in line with what Sharon just said is I believe in the last call, said 200 plus. And we were at 15 for the quarter. And, obviously, the the you know, there's there's isolation from period to period. But we were at 200. Plus, I said. We said. Right? And then then this quarter went from 15 to fifteen two notwithstanding, obviously, the payout of dividend and the buyback. Because we just accreted more capital. We also, during the period received the reconsideration on CCAR from the Fed to the tune of another 80 basis points. So 80 plus 20, that's 100. And so I'd say the 200 goes to two fifty plus in the spirit of conservatism. Taking 50 out of the 100. Alright? So 200 on sort of 200 plus was the prior, two fifty plus feels like the way to say it. Sure. We could say more because the actual number is three forty. The implied buffer is there. I think others have said colleagues on prior calls, and I I would much agree with and repeat, the the algebra, as you say, around the number by definition, you need to have effectively a buffer on a buffer because of the regulatory uncertainty which which nodule is the governor and then the entire process of going through submissions and the like, hoping some simplification some additional transparency, which we're much seeing from the Fed and the other regulators, we are it's early days, but really heartened by that. There's more of a common sense approach to this. I should, by definition, over time, prudently lower the size of anyone's buffer because they just know predictably what framework they are being measured by as opposed to the uncertainty underlying the test itself. In times that are relatively not uncertain for large, well capitalized banks fifteen years after Dodd Frank. So that would be the way to think about it. In terms of the size of the buffer But if you wanted to just jot down a number, I'd say two fifty plus is a comfortable way to to go from here. Did you have another question? Oh, no. Looks like you'll like we're we're moving here. We're moving. Our next question comes from Saul Martinez with HSBC. Hey, good morning. Okay, Saul. Saul, you're you're the last you're the last one up. I'm getting I'm getting signals that you're you're you're Okay. You're clean up. So let's make it a really a softball softball softball here at 10:40, please. I'll I'll I'll do my best. I think I'll I'm gonna ask a question you think in a way you've been you've been asked a few times. About the sustainability of of the results in institutional securities. But I I guess I'll ask it a little bit more bluntly. You know, you did 20% ROTCE. This quarter. Saul Martinez: Through nine months, 17%. Know, I guess, can you sustain this type of profitability in in institutional security? Because it would imply that given your business makes, you know, you would imply that your Roth here consolidated level would be above 20%. And, you know, IBCs obviously, this quarter, you know, very strong at levels we haven't seen since 02/2021. Obviously, a lot of room for optimism for for a lot of reasons. You've highlighted, Ted, but we are, you know, really in a sweet spot if you choose markets businesses are also humming and and doing you know, extremely well. So I'm I'm just curious your perspective. Is it an environment where you know, investment banking continues to grow over a multiyear period is it consistent with you know, a backdrop where market's revenues can be sustained at these levels or even grow given these businesses too. Benefit from a volatile economic and market backdrops, you know, recognizing that they're know, many sources of durability too and perhaps more than there have been in the past. But don't know if that's a softball question, but I'll try to put a bow on the conference call. And leave you with that one. Ted Pick: Yeah. I I thought you said it nicely. I wouldn't go call softball. It's a sort of medium ball, but a very fair a very fair question. And sort of a of a cousin of Mike's question. Look. Again, 6,700 S and P you are going to have businesses that are going to if you if you execute well, you're gonna have performance, assuming the operating model is well functioning, and tight credit spreads the financing flywheel should work. If you have lower asset prices, and deleveraging and credit spreads widen because there's recession concern, or an inflation scare, my guess is markets businesses generally are going to perform less well. I mean, that there's no untying that link. So some of this has to be driven by whether you think we are at the early stages of reacceleration of growth in The US economy and then the global economy. And there are signs that that is happening. Or you think you're actually in a later stage of market evolution, I. E, the economy may be Okay, but the markets have had a huge run risk assets have had a huge run, and we are going to chop around or even trade lower in which case then the markets businesses are generally on the street going to have to work through that. That having been said, we spent a lot of time doing everything we can to make sure that there is durability inside of these businesses that we are an essential one, two, three partner to the largest asset managers with whom we are wedded to and that we are doing business that we think is right in line with advising our clients. That we you see it, the VAR ticks up, but not dramatically. That the use of capital is is prudent, but that we are connecting not just inside of equities, but across fixed income I'd call out, by the way, that the performance of the fixed income business for the last whole bunch of quarters has been remarkably stable. That speaks to the management of that business. As a part of a durable narrative inside of the investment bank, but then across the firm. The investment banking flywheel, again, is also activity based and economically sensitive. But we do think that the pent up supply there is going to have to come. And we do believe that in the investment banking and capital markets new issue arena, we are gaining share. We would be seeking to do that. Globally over the next year or two years. And then as it relates to the Markets business, I. E, sales and trading of stocks and bonds, we want to do it prudently. We're not looking to overreach We are well aware of what the underlying valuation narrative is for Morgan Stanley. We want to serve our clients. We want to help fill capacity and capability for them. But we are going to continue to have a high bar on what new business we take on. And how it generates incremental margin. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you everyone for participating. You may now disconnect. And have a great day.
Operator: Thank you for your patience, everyone. The Equity Bancshares, Inc. 2025 Q3 earnings call will begin shortly. In the meantime, you can register to ask questions by pressing star followed by one on your telephone keypad. Thank you for your patience, everyone. The Equity Bancshares, Inc. 2025 Q3 earnings call will begin in two minutes' time. Hello, and welcome to the Equity Bancshares, Inc. 2025 Q3 Earnings Call. My name is Carla, and I will be coordinating your call today. During today's presentation, you can register to ask questions by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I would now like to hand you over to the Vice President of Corporate Development and Investor Relations, Brian Katzfey, to begin. Please go ahead when you're ready, Brian. Brian Katzfey: Good morning. Thank you for joining us today for Equity Bancshares, Inc.'s third quarter earnings call. Before we begin, let me remind you that today's call is being recorded and is available via webcast at investor.equitybank.com, along with our earnings release and presentation materials. Today's presentation contains forward-looking statements which are subject to certain risks, uncertainties, and other factors that could cause actual results to differ materially from those discussed. Following the presentation, we will allow time for questions and further discussion. Thank you all for joining us. With that, I'd like to turn the call over to our Chairman and CEO, Brad Elliott. Brad Elliott: Good morning. And thank you for joining Equity Bancshares, Inc.'s earnings call. Joining me today is Rick Sems, our bank's CEO, and Chris Navratil, our CFO. We are excited to take you through one of the busiest, most transformational quarters our company has realized in its history. We kicked off the quarter with the close of our merger with NBC on July 2, adding locations throughout Oklahoma, including a new metro market in Oklahoma City and many outstanding other communities in Oklahoma. At close, the merger added $665 million in loans and $808 million in deposits to the legacy Equity Bank balance sheet, serviced by an excellent team that is motivated to continue to drive growth in our now broader Oklahoma market. The last two weeks of August, we converted NBC onto Equity Bank's core system. We are now operating fully integrated, and all of the expenses will be rung out in the third quarter, with a few trailing into the fourth quarter as we have now fully integrated that transaction. Following the close of NBC, we marketed and closed on a subordinated debt raise providing $75 million in capital at the holding company to allow the continued execution of our dual growth model. In September, we announced our definitive merger agreement with Frontier Holdings, the parent company of Frontier Bank. The transaction will extend Equity Bank's footprint into Nebraska, a market we have been working to enter for many years. This adds strong earning assets and an engaged and highly productive team with locations in Omaha, Lincoln, and other nearby communities. Entering the year, following our capital raise in December 2024, we had a strategic roadmap to enter both Oklahoma City and Omaha in 2025. We have accomplished our goal via two mergers with like-minded partners that provide ready-built scale to each of these markets. I want to take a minute to thank all the Equity Bank team members that have put the time and effort to position us for success on all of these transactions. Julian Huber is best in class at organizing due diligence, spearheading the process, and driving integration. Our continued success in closing these transactions is a credit to Julie and her team. Dave Pass and Becky Winter drive the technology integration and adoption process, allowing for near seamless conversions. Jonathan Roop and his team of retail operators and ambassadors man the lobbies to assist customers with the transition. And Brian Katzfey and Brett Reber work with our regulators to facilitate a timely application process that allows them to be approved as quickly as possible. All transactions stay committed effort from our organization and our team members for us to continue to shine and be able to execute on our strategies. In addition to all of that, our legacy franchise and team members continue to be there for the communities and customers. As we realize non-acquired growth in both loans and deposit portfolios during the period. We closed the quarter with our annual Board strategic retreat and left it energized to continue to grow Equity Bank, both in our current footprint that we are operating in and an expanding footprint in Nebraska. The Board and management are aligned and confident in our capacity to execute on the opportunities ahead of us. I am proud of all that we have accomplished in the quarter and I'm excited about all that we have positioned to accomplish as we close 2025 and move to 2026. I'll pause and hand it over to Chris to walk you through our financial results. Chris Navratil: Thank you, Brad. Last night, we reported a net loss of $29.7 million or $1.57 per diluted share for the quarter. In addition to all the expansionary developments Brad discussed, we also completed a bond portfolio repositioning during the quarter, selling $482 million in investment par value at a realized loss of $53.4 million. The sold assets were yielding 2.2% on average, while the cash flow was reinvested in cash and securities yielding approximately 5%. Impacts on expectations for future quarters will be discussed in greater detail later in this call. Adjusting earnings for the pre-tax loss of $53.4 million as well as costs incurred on M&A of $6.2 million and CECL double account provisioning of $6.2 million, pre-tax earnings were $28.4 million. Tax effected at 21% yield net income of $22.4 million or $1.17 per diluted share. Net interest income for the period was $62.5 million, up $12.7 million linked quarter. Margin for the quarter was 4.45%, an improvement of 28 basis points when compared to margin of 4.17% linked quarter. Non-interest income, excluding the impact of the portfolio repositioning for the quarter, was $8.9 million, up $300,000 from Q2. The increase was driven by improvements in customer service charge line items including deposit services, treasury, debit and credit card, mortgage, and trust and wealth as we integrated the NBC franchise. Notably, non-interest income was not a core contributor of the acquired franchise and end results were in line with expectations. Non-interest expenses for the quarter were $49.1 million, adjusted to exclude M&A charges, non-interest expenses were $42.9 million, an increase of 8.3%, reflecting the impact of the NBC acquisition. Non-interest expense as a percentage of average assets improved 22 basis points during the quarter to 2.8%. System conversion was completed in late August with associated expenses primarily out entering the fourth quarter. Our GAAP net income included a provision for credit loss of $6.2 million. The day two provisioning or CECL double count accounted for all of the provisioning. The ending coverage of ACL loans was 1.25%. The ending reserve ratio inclusive of discounts related to NBC closed the quarter at 1.36%. The periodic increase in ratio reflects the addition of non-PCD credit marks from NBC. TCE closed the quarter at 9.7%, reflecting the impact of the NBC transaction offset by strong core earnings. With the reissuance of $75 million of sub debt during the quarter, we closed with total risk-based capital of 16.1% and sufficient cash at the holding company to facilitate the Frontier acquisition and more. At the bank level, the TCE ratio closed at 9.9%, benefited both by earnings exclusive of the cost of repositioning and improvement in the unrealized loss position on securities portfolio. I'll stop here for a moment and let Rick talk through our asset quality for the quarter. Rick Sems: Thanks, Chris. The addition of NBC's loan portfolio during the quarter added $7 million in non-accrual relationships and $16.7 million in classified assets. Total PCD loans acquired were $32.8 million with a fair value mark of $7.5 million or 23%. Management is actively working on resolutions on these additions and does not anticipate losses in excess of marks. Non-accrual loans closed the quarter at $48.6 million while classified assets closed the quarter at $82.8 million or 12.37% of bank regulatory capital. Excluding additions from NBC, non-accrual and classified assets declined $1 million and $4.9 million respectively. Loans past due and non-accrual as a percentage of end-of-period loans declined to 1.55% from 1.65% linked quarter. Net charge-offs annualized were 10 basis points for the quarter as a percentage of average loans while year-to-date charge-offs annualized were six basis points. ACL coverage is sufficient to absorb more than ten years of current period annualized losses. Looking ahead, we remain positive on the credit environment and the outlook for the remainder of 2025. Despite some uncertainties in the broader economy, credit quality trends across our portfolio remained stable and below historic levels. Our partnership with NBC has yielded a combined organization with shared disciplined underwriting, strong capital, and reserve levels positioned to navigate any potential headwinds. Chris Navratil: Thanks, Rick. As I previously mentioned, margin improved 28 basis points during the quarter to 4.45%. Period results were positively impacted by 13 basis points of expansion in purchase accounting amortization and seven basis points of non-accrual improvement. The remaining eight basis points is attributable to improving asset mix and the bond portfolio repositioning. Normalizing purchase accounting to 12 basis points of margin and backing out non-accrual benefit would yield core margin of 4.35%. Cost of interest-bearing liabilities and cost of deposits increased three and five basis points respectively during the quarter as NBC's liabilities were dilutive to Equity's position entering the period. The impact of the FOMC's decision to reduce rates in the quarter will not have a meaningful impact on margin as the balance sheet remains neutrally positioned for this type of cut. During the quarter, average earning assets increased 16.3% to $5.6 billion. The combination of margin and asset expansion led to an increase in net interest income of $12.7 million, approximately $2 million ahead of the midpoint of our forecast. Comparative outperformance was driven by better than expected purchase accounting and asset quality as well as the mid-period reposition of the bond portfolio and continued positive earning asset remixing. Loans were 76.2% of interest-earning assets for the quarter versus 75.8% in the previous quarter. As we look to the fourth quarter, we anticipate margin in a range of 4.4% to 4.5% as additional tailwinds from the investment portfolio repositioning are partially offset by normalization of purchase accounting accretion and the removal of positive non-accrual impacts. As a reminder, within our outlook, we do not include future rate changes. Though our forecast continues to include the effects of lagging repricing in both our loan and deposit portfolios. The outlook slide includes the fourth quarter of 2025 exclusive of our announced transaction with Frontier and a full year 2026 inclusive of Frontier impacts. As we close the quarter, the transaction is progressing through the approval process and we anticipate receiving approvals in the fourth quarter. Depending on the impact of the government shutdown on the process, we continue to anticipate closing the transaction in 2025. Rick Sems: Thanks, Chris. I wanted to start by echoing Brad's comments acknowledging the exceptional efforts of the Equity Bank team over the past ninety days. It's been a transformational quarter and it would not have been possible without the committed efforts of the best community bankers in the business. Our balance sheet was bolstered by the addition of NBC locations, customers, and team members in the quarter. At acquisition, the transaction added $665 million in loan balances and $808 million in deposit balances. As I've had the chance to work closely with the teams in Oklahoma City, and throughout the state of Oklahoma, since the close of the transaction, my excitement for the contribution of this market to Equity continues to grow. There is tremendous opportunity in the communities and tremendous potential in the bankers who are now a meaningful part of the Equity Bank franchise. Throughout the footprint, our production teams continue to originate loans and relationships at a high level. Exclusive of NBC, we realized modest growth in both the loan and deposit portfolio, the majority of our markets contributing. Loan production in the quarter was $243 million, up 23% linked quarter. Originations came on at an average rate of 7.14%, representing continued accretion to current coupon loan yield on the portfolio. The team continues to focus on growing relationships, deepening wallet share, and pricing for the value provided, which will benefit Equity Bank into the future. In addition to realized production, our pipelines continue to grow throughout our banker network, positioning the bank to execute on organic growth initiatives as we close out 2025 and look to 2026. As we close the quarter, our 75% pipeline is $475 million. Line utilization was flat for the quarter at approximately 54%, though unfunded position rose with the addition of NBC and production in the quarter, providing opportunity for increases moving forward. Total deposits increased approximately $860 million during the quarter. Excluding $808 million in balances added by NBC, and $15 million in brokered account growth, organic deposit growth during the period was approximately $37 million. Non-interest-bearing accounts closed the quarter at 22.52% of total deposits, up from 21.56% at the end of Q2. Our retail teams have been busy in 2025. In the first nine months, they have shown positive trends in gross and net production levels, including net positive DDA account production, though we have a long way to go to meet the aggressive goals we have set. I look forward to assisting this group in realizing success throughout 2025 and beyond. The addition of NBC and the announced addition of Frontier add asset generation depth to our footprint, while complementary community markets continue to provide funding opportunities. As we closed our annual strategy session in September, management and the Board left aligning the expectations for realized growth in the balance sheet and non-interest revenue lines through the remainder of 2025 and into 2026. I look forward to assisting this excellent team in executing. Brad Elliott: I take a great deal of pride in all this the Equity team has accomplished in 2025. We entered the year with capital to grow, and an expectation that we can deploy it. As we close the third quarter, and we look to the end of the year, we will have leveraged that trust to grow the balance sheet by approximately 40% while positioning the company to earn $5 per share in 2026. I am excited to lead this organization as we work to empower our employees, our customers, and our communities while integrating a strong return for our shareholders. Management and the Board are aligned as we continue to execute on our mission throughout our growing footprint. Thank you for joining the call, and we're happy to take your questions at this time. Operator: Thank you. We will now begin the question and answer session. And our first question comes from Terry McEvoy with Stephens. Hi, good morning everybody. Terry McEvoy: Maybe just start with the deposit question. Could you just talk about your pricing strategy, kind of actions taken before and then after the Fed rate cut? Last month to cut deposit costs and maybe has the market moved along with you? Chris Navratil: Yes. I'll touch on it quickly, Terry, and then Rick might add some additional color. In terms of pricing strategy, we've been relatively consistent as we look at the rate cuts since the starting of the rate cut cycle. In terms of being able to take out of the higher end of our deposit rates and consistently bring them down in line with the moves on the FOMC rates. So as the most recent cut came into place, we implemented the same strategy. And today, we haven't seen any meaningful shifts from it. On a competition basis, we haven't seen any meaningful outliers to competition at this point. Really consistent trends in terms of what they're doing relative to what we're doing. So positive outcomes there is really, like, to cost moving forward. Rick Sems: Yeah. And I don't think I have anything to add to that, Terry. We're not seeing we're able to get those costs out and not really seeing a backlash. Terry McEvoy: Okay. And then as a follow-up, could you just maybe run through business sentiment in your operating footprint and how that's kind of captured or incorporated into your outlook for loan growth? Chris Navratil: Yes. So we look at that pretty regularly from our team. I get feedback from the markets. And right now, things look pretty strong. You know, we're not really seeing impacts or much of a you know, obviously, tariffs continue to be a big question that people ask. We're just not really seeing that being a problem. They seem to be able to be absorbed and then a lot of our businesses really don't seem to have a lot of impact because of the local nature of it. So we look at that on a regular basis and we're still really fairly at what we're seeing, fairly bullish on what the market looks like. Terry McEvoy: Thanks for taking my questions. Operator: The next question comes from Jeff Rulis with D.A. Davidson. Jeff Rulis: Question on the deposit side as well. I thought you mentioned that the lift in deposit cost was some of that linked quarter, was that due to NBC not so much just competition increasing that was more acquired lift? Chris Navratil: Yes, Jeff. The increase period over period is entirely attributable to the liabilities brought on through the NBC transaction. Jeff Rulis: Got you. Okay. And then also on the loan front, it looks like based on averages kind of a mid-single-digit period and 26 over 25 kind of loan growth expectation and just wanted to kind of dig into that a little bit. Is that are you thinking that maybe payoff activity that's been a little bit of a near-term headwind that subsides a little bit? Or is that given the production and pipelines that you think the clip of growth could kind of pick up into that mid-single-digit range? Just trying to unpack expectations for payoff activity if that's in that guide. Chris Navratil: So a couple of things on that, Jeff. So when we look at it, we look at and kind of obviously, the amount of production. So the production we're getting better at being consistent and having that at a higher number. So when you look at over the last three years, kind of on a same banker by banker basis, we're just high we're doing more production this year than we've done in either of the last two years. And we see that continuing to move. So that's one factor. Then you're adding in Oklahoma City, and we'll next year be adding in Omaha. Those are two markets in which you're gonna see strong likely to see strong production in that. So that's gonna help out. On the payoff side, in 2023 and in 2024, we had amortization, payoffs, pay downs of around 15 or 16% in each of those years from a beginning balance. So far this year, we're on pace to be around 23% on an annualized basis, so that's obviously an uptick. Historically, look at it, we kind of think around in that upper teens 18% to 20%. Is what payoffs and pay downs should be. So likely, a scenario in there next year where we get we kind of bounce back a little bit to that lower level. So you put all those things together, and that gives us confidence in that ability to have growth next year. Jeff Rulis: That's great detail. Thanks. Maybe just one last one on the credit side. Kind of core legacy balances coming down on problem loans encouraging and then in your commentary, it kind of sounded like if anything, maybe some broader economic watching things. But I guess from your end of things, you're looking at your portfolio, areas of strain it sounds pretty contained, but where you would point to that maybe you continue to watch for potential issues if anything? Rick Sems: Across the portfolio? Yes. What I would say, Jeff, is you know, we're watching all areas closely. We're not seeing a lot of strain in any areas. We've talked about QSRs. We don't have a lot of QSR restaurant exposure as a percentage of our portfolio, but you look nationally, the food industry is tight. Really hard for them to expand their ability to collect more and they can't cut costs because labor costs are still high and food costs are still high. So that's an area. I think the consumer we're watching the consumer. We don't have a big consumer direct exposure, but we all have an indirect exposure to consumers. I just think the consumer has to be getting tighter and tighter all the time. Which has to at some point, has to lead to something. I don't know what that is, but it has to lead to something. Agriculture, you know, our ag guys, we're watching those guys pretty close. We have real low loan to leverage on those. The Frontier Bank credits up there are really well structured and good. And so we're not looking for a lot of issues on those. They're going to have really good crops this year. Although prices are great. But you know, I just think inflation is a bigger part of this economy than people are talking about, and I think where those where inflation hits people, is where you're gonna have exposure eventually. We're gonna have a bubble pop. I still don't see that bubble yet. Jeff Rulis: Okay. Rick Sems: Yet. Operator: The next question comes from Nathan Race with Piper Sandler. Nathan Race: Hi, guys. Good morning. Appreciate the loan production specifics in the quarter, but just curious, early indications you're seeing out of the team at NBC in terms of how they're contributing to loan growth these days in the third quarter and how they're kind of maybe taking advantage of the larger hold limits and expanded products that Equity brings to the table? Rick Sems: Yeah. So just a couple of things in there. When we for instance, when we talk about pipeline right now, we haven't put them into our pipeline. So that's all positive. I want to make sure we're clear on that. And then we're just really starting that process. I mean, we're having great costs over down has really, really helped because we're seeing we're able to make credit decisions pretty quick down there. So I think what we're seeing is a lot of their really, they've got some really great clientele down there, and they are already taking advantage of the opportunity for us to do larger holds. They have a fantastic footprint of million-dollar and under loans, $2 million and under loans. It's really granular. But some of those are real strong real strong borrowers. And so we are and just last week, we were with a number of them. And so we've already gotten a couple of requests. Can you do a $5 million deal for us? Can you do a $10 million deal? So we're just it's anecdotal at this point in time. But we're really seeing some of them taking advantage of that. In addition to that, we also added a few bankers, and this is something that we'll be continuing to do as we bring the Frontier online as well. In Omaha, there's opportunity for growth. So we're adding more bankers just like we did in Oklahoma City, and taking full advantage of those markets. So far, again, it's anecdotally really positive really positive opportunities and outcomes for us. Nathan Race: Okay. Great. That's very helpful color. And then question for Chris on the margin guidance for next year. Obviously, implied a step down from 4Q, but just curious as you look at some of the offsets to some variable and floating rate loans repricing lower following additional, presumable Fed cuts. Hoping you could just kind of expand on some of the inherent levels levers that you guys have to mitigate some of that potential loan yield compression and just what the opportunity set looks like to improve the funding mix and cost of Frontier, which, I think is running above equity historically. Chris Navratil: Yes. Good questions, Nate. In terms of the forward-looking net interest margin compression, all of that's a function of the impact of Frontier relative to where Equity Bank is. So as I mentioned in the comments, there's not factored in reducing costs and associated impacts or reducing in marked interest rates and associated effects on Equity core margin. So that decline is just attributable to the margin being brought on by the Frontier Group post-purchase accounting adjustments. In terms of ability to address declining interest rates in the environment and the balance sheet will operate, a couple of things I'd point out. One is on the liability side, prices above 2% today, we got there's $3 billion plus on our balance sheet today, currently costing us above that 2% Mendoza line. At 3%, it's 2.5. At three and a half plus, $2.2 billion. On the asset side, in terms of repricing through 2026, we have $425 million of loan repricing that's currently on the books subprime rate. So there's room to some of it will come down, some of it will potentially move up. There's room to maintain kind of relative neutrality there. As the Fed makes modest decisions around interest rates, the structure of the balance sheet will allow for, and I think, control and consistency in margin figures. So there's quite a few levers in that mix that we can obviously pull as we begin to kind of pull downs on the FOMC side of things. In terms of doing or improving the mix, at Frontier specifically, as we bring them on, we'll have a balance sheet that has some excess cash that has some capacity to pivot and close out of what are the highest costing aspects of their cost of funding base. And then as we look to grow in Omaha, I think we're excited about the opportunity that there is to continue to expand the franchise around the markets that we're acquiring there as well as continue to grow in our legacy core markets to be able to drive some repositioning of funding. And as we see some maturities and we see some roll-off in the NBC footprint, or I'm sorry, the NBC, but the Frontier footprint, replacing them with those alternative, lower-cost, core structures. Nathan Race: Okay. That's super helpful. Thanks for all that, Chris. And I'm sorry. You also remind us if you have any floors that would become impacted, you know, based on the number of future Fed cuts within the floating rate portfolio? Chris Navratil: Yeah. We do have floors built into many of our loans. The actual floor rate being triggered there's quite a bit of gap in terms of when we would actually start to hit them. So the majority have 200 basis points plus of capacity to be cut before they're gonna meaningfully hit those floors driving prepayment. So there's still cushion on them, but there are floors that are in place. At a level after moderating customer. Nathan Race: Okay. Great. I appreciate all the color. Thanks, guys. Operator: Just as a reminder, the next question comes from Damon Del Monte with KBW. Damon Del Monte: Good morning, guys. Thanks for taking my questions. Just first question on the outlook for '26 and the range for provision. Chris, does that include like the day two CECL expectation? Or is that what you expect on a like an operating basis? Chris Navratil: That's just reflective of an operating basis provision, Damon. It does not exclude the it doesn't include the double count. Damon Del Monte: Okay. And so that seems to be a bit higher than kind of where you guys have been tracking more recently. Any color kind of behind that? Chris Navratil: There's no specific drivers. I would say that we think there's the additive risk. It's really just conservatism, I think, as we look forward. As it relates to provisioning. Damon Del Monte: Okay, great. And then, with regards to like the securities portfolio this quarter, I think it's down to about 16%, a little bit over 16% of average earning assets, which is, you know, lower than where it's tracked the first half of the year, which was closer to like 20%, 21%. Do you kind of when you look over the next few quarters here, where do you kind of see that ratio shaking out? Do you think it goes back towards the 20 or do you kind of have it more in the mid-teen range? Chris Navratil: Yeah. Damon, I think it'll stick at a lower than 20% position with the additions of the expected addition of Frontier and the addition of NBC, that ratio is gonna kind of inherently move down based on the combination they brought over. But the relative maintenance of kind of that mid to high teen position will continue because where there's liquidity and pledging where that portfolio is going need to continue to maintain it at kind of that relative level. So I would look for it to stay closer to where it is versus expanding back to where it was. Damon Del Monte: Got it. Okay. Brian Katzfey: Great. Everything else has been asked and answered. So thank you. Operator: Thank you. Operator: And the next question comes from Brett Rabatin with Hovde Group. Brett Rabatin: Hey guys, good morning. Wanted to go back to payoffs for a second on loans. And you guys gave the number for payoffs this year versus a historical. And I'm just curious, you're thinking about payoffs going forward. How does the recent movement of the intermediate to longer end curve, how do you sort of factor that into your thoughts on a possible cessation or slowing of loan payoffs? Rick Sems: Yeah. I mean, I think as it comes down a little bit, you know, kind of, perhaps, you know, I actually don't as we've been looking at it, don't think that we really think there's gonna be having too much impact on that. We've as I've kind of looked at it, again, it's more of when projects are being completed. That we're seeing some of those taking it to the permanent market or having sales. That's again what we tend to see. We don't tend to see a lot of our customers that all of a sudden decide, you know, when they're in that they're gonna change it. If there's a mass change in the rates, you know, then that can happen. But right now, we're not seeing you know, it's not a 100 basis point. A 150 basis point movement that would get them, you know, kind of out of bed to make the change. So I just don't see that, necessarily being a big driver. Either to slow it or to speed it up with those rate movements right now. Brad Elliott: Yeah. Okay. The payoff we had are I can tell you some of them are driven by kind of a can't go into too much detail from a customer information. But driven by kind of a weird situation that happened with one of our relationships from a depth. Yeah. Standpoint. And so that drove a lot of movement from a relationship and related relationships that the estate needed to just clear it out. So aren't gonna see that again ever probably. So that drove a big chunk of payoffs this quarter. Chris Navratil: Yeah. And, Russ, those are gonna be positive in terms of declining rates in and sentiment is, we do still carry consumer real estate half a billion dollars of residential real estate loans that have relatively low coupons in a world of improving sentiment on the consumer side, you'll see some increased prepayment there. Which actually have a positive impact. On margin, kind of regardless of how it's redeployed. So some opportunity will come with that declining rate and sentiment as well. Brett Rabatin: Okay. That's helpful. And then, Brad, I wanted just to get if you could, the Outlook from an M&A perspective and just how you think about the changing landscape and what that might mean for your strategy relative to pricing, you know, maybe earn back periods or going to be lower or maybe you're going to be able to buy bigger, you know, better banks relative to historical from a profitability perspective. Just wanted to get maybe your thoughts on how you see the environment for you guys over the next year. Brad Elliott: Yeah. I don't think the environment's changed much in the last year. I think there's still a lot of opportunities there, a lot of conversations. As we look at these opportunities, there's ones that are gonna garner better pricing, and there's ones that are gonna not garner that pricing. So we have a whole bucket and we don't stratify them and say, we like this one more than that one. We look strategically, do they fit? How do we integrate them? What's the timing of them? And so you know, we still have lots of conversations going on with opportunities and we'll continue to be selective from the standpoint it has to fit our earn back model and our strategy. Brett Rabatin: Okay. Great. Appreciate all the color, guys. Operator: And as we have no further questions in the queue, this does conclude today's Equity Bancshares, Inc. earnings call. Thank you everyone for joining today's call. Have a great day and you may now disconnect.
Operator: Greetings, and welcome to The PNC Financial Services Group, Inc. Earnings Conference 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. Now my pleasure to turn the call over to your host, Bryan Gill. Thank you, Bryan. You may begin. Bryan Gill: Well, good morning, and welcome to today's conference call for The PNC Financial Services Group, Inc. I'm Bryan Gill, Director of Investor Relations for PNC. Participating on this call are PNC's Chairman and CEO, Bill Demchak, and Rob Reilly, Executive Vice President and CFO. Bill Demchak: Today's presentation contains forward-looking information. Cautionary statements about this information, as well as reconciliations of non-GAAP measures, are included in today's earnings release materials, as well as our SEC filings and other investor materials. These are all available on our corporate website pnc.com under Investor Relations. These statements speak only as of 10/15/2025, and PNC undertakes no obligation to update them. I'd like to turn the call over to Bill. Bill Demchak: Thank you, Bryan, and good morning, everyone. As you've seen, we had an excellent quarter. Bryan Gill: Building on a great year so far. Bill Demchak: Our results for the third quarter reflect an impressive performance across the entire franchise. We reported net income of $1.8 billion or $4.35 per share. We grew customers, loans, and deposits and continue to deepen relationships across our businesses and geographic footprint with positive trends in our legacy and fast-growing expansion markets. Our NII growth trajectory continued as expected, coupled with very strong fee growth and well-controlled expenses. And as a result, we delivered record revenue and PPNR, as well as another quarter of positive operating leverage. Credit quality continues to remain strong with a net charge-off ratio of only 22 basis points. While there are obvious potential downside risks to the U.S. economy, our customers remain on solid footing. From a consumer perspective, spending has been remarkably resilient across all segments. And corporate clients are expressing cautious optimism about their business outlook. Ultimately, this is driving a sound economy. Looking at our business lines, we continue to execute on our strategic priorities. Retail banking, consumer DDAs grew 2% year over year, including 6% growth in the Southwest driven by strength across our branch and digital channels. Customer activity in the quarter remained robust with record debit card transactions and credit card spend, as well as record levels of investment assets in PNC Wealth Management, our newly rebranded brokerage business. We continue to invest in our future growth. By the end of the year, we will open more than 25 new branches. And importantly, we remain on track to complete our 200-plus branch builds by 2029. In C&IB, we saw record non-interest income driven by broad-based performance across fee income categories, and pipelines remain strong. Within our asset management business, we continue to see client growth and positive net flows from both legacy and expansion markets, with the expansion markets growing at a faster pace. Before I pass it over to Rob, I wanted to say how excited we are about the recent announcement to acquire FirstBank. Kevin Klassen and his team have built a premier bank in the Colorado region with a focus on strong customer service and an enviable branch network. Upon closing, this deal will propel PNC to the number one market share position in retail deposits and branches in Denver. It will also more than triple our branch footprint in Colorado, while adding additional presence in Arizona. And finally, as always, I'd like to thank our employees for everything they do for our company. With that, Rob will take you through the quarter. Rob? Rob Reilly: Thanks, Bill, and good morning, everyone. Our balance sheet is on slide four and is presented on an average basis. For the linked quarter, loans of $326 billion grew $3 billion or 1%. Investment securities of $144 billion increased $3 billion or 2%. And our cash balance at the Federal Reserve was $34 billion, an increase of $3 billion. Deposit balances were up $9 billion or 2% and averaged $432 billion, and borrowings increased $1 billion to $66 billion. AOCI at September 30 improved $65 million or 13% compared with the prior quarter and was negative $4.1 billion. Our tangible book value of $107.84 per common share increased 4% linked quarter and 11% compared to the same period a year ago. We remain well-capitalized with an estimated CET1 ratio of 10.6% and an estimated CET1 ratio inclusive of AOCI of 9.7% at quarter end. We continue to be well-positioned with capital flexibility. During the quarter, we returned $1 billion of capital to shareholders, which included $679 million in common dividends and $331 million of share repurchases. And we expect fourth-quarter share repurchases to continue to be in the range of $300 million to $400 million. Slide five shows our loans in more detail. During the third quarter, we delivered solid loan growth. Balances averaged $326 billion, an increase of $3 billion or 1% compared to the second quarter. Average commercial loans increased $3.4 billion or 2%, driven by growth in the C&I portfolio, partially offset by a decline in commercial real estate loans of $1 billion. Growth in C&I was driven by strong new production, particularly in Corporate Banking and Business Credit. And during the third quarter, utilization remained slightly above 50%. Commercial real estate balances declined $1 billion or 3% as we continue to reduce certain exposures. Consumer loans were stable as growth in auto and credit card balances was offset by a decline in residential real estate loans. Total loan yield of 5.76% increased six basis points compared with the second quarter. Slide six details our investment securities and swap portfolios. During the third quarter, average investment securities increased approximately $3 billion or 2%, driven by purchasing activity late in the previous quarter. Our securities yield was 3.36%, an increase of 10 basis points. And as of September 30, our duration was 3.4 years. Regarding our swaps, active received fixed rate swaps totaled $45 billion on September 30, with a received rate of 3.64%. And forward starting swaps were $9 billion with a receive rate of 4.11%. Importantly, our securities portfolio is well-positioned for a steepening yield curve that will support substantial NII growth in 2026. Slide seven covers our deposit balances in more detail. Average deposits increased $9 billion or 2% during the quarter, driven by particularly strong growth in commercial interest-bearing deposits, which were up 7%. Non-interest-bearing balances of $93 billion were stable and were 21% of total deposits. Total commercial deposits grew approximately $9 billion or 5% linked quarter. Growth was due in part to seasonality, but also reflective of both new and expanded client relationships. Our total rate paid on interest-bearing deposits increased eight basis points to 2.32% in the third quarter, reflecting the outsized growth in interest-bearing deposits and the resulting change in our deposit mix, along with slightly higher consumer rates paid. Going forward, we anticipate our rate paid on deposits will decline in the fourth quarter because of the full quarter impact of the September Fed rate cut. Our expectation for additional cuts in October and December. Turning to Slide eight, we highlight our income statement trends. Comparing the third quarter to the second quarter, total revenue was a record $5.9 billion and was up $254 million or 4%. And non-interest expense of $3.5 billion increased $78 million or 2%, which allowed us to deliver more than 200 basis points of positive operating leverage and record PPNR of $2.5 billion. Provision was $167 million and declined $87 million compared to the second quarter. Our effective tax rate was 20.3%, and third-quarter net income was $1.8 billion or $4.35 per diluted share. In the first nine months of the year compared to the same time last year, we've demonstrated strong momentum across our franchise. Total revenue increased $1 billion or 7%, driven by record net interest income and record fee income. Non-interest expense increased $213 million or 2%, reflecting increased business activity as well as continued investments in technology and branches. And net income grew $638 million, resulting in diluted EPS growth of 17%. Turning to slide nine, we detail our revenue trends. Third-quarter revenue increased $254 million or 4% compared to the prior quarter. Net interest income of $3.6 billion increased $93 million or 3%. The growth reflected the continued benefit of fixed rate asset repricing, loan growth, and one additional day in the quarter. And our net interest margin was 2.79%, a decline of one basis point reflecting the outsized commercial deposit growth I previously mentioned. Importantly, our expectation is for NIM to continue to grow going forward, and we still expect to exceed 3% during 2026. Non-interest income of $2.3 billion increased $161 million or 8%. Inside of that, fee income increased $175 million or 9% linked quarter, reflecting broad-based growth across categories. Looking at the details, asset management and brokerage income increased $63 million or 3%, driven by higher equity markets and included positive net flows. Capital markets and advisory revenue increased $111 million or 35%, driven by an increase in M&A advisory activity as well as higher underwriting and loan syndication revenue. Card and cash management revenue was stable as seasonally higher credit and debit card activity was offset by lower merchant services. Lending and deposit services revenue increased $18 million or 6% due to increased activity and client growth. Mortgage revenue increased $33 million or 26%, reflecting elevated MSR hedging activity and higher residential mortgage production. And other non-interest income of $198 million included negative Visa derivative fair value adjustments of $35 million, primarily related to Visa's September announcement of a litigation escrow funding. Notably, we continue to see strong momentum across our lines of business and throughout our markets. And year-to-date, non-interest income of $6.3 billion grew $337 million or 6% compared to the same period last year. Turning to Slide 10, third-quarter expenses were up $78 million or 2% linked quarter. The growth was largely in personnel costs, which increased $81 million or 4% and included higher variable compensation related to increased business activity. Equipment expense increased $22 million or 6%, reflecting higher depreciation related to investments in technology and branches. Importantly, all other categories declined or remained stable. Year-to-date non-interest expense increased by $213 million or 2%. And as we previously stated, we have a goal to reduce costs by $350 million in 2025 through our continuous improvement program, and we're on track to achieve that goal. As you know, this program funds a significant portion of our ongoing business and technology investments. Our credit metrics are presented on slide 11. Overall credit quality remains strong. Non-performing loans of $2.1 billion were stable linked quarter. Total delinquencies of $1.2 billion declined $70 million or 5% compared with June 30, reflecting lower commercial and consumer delinquencies. Net loan charge-offs were $179 million, down $19 million, and represents a net charge-off ratio of 22 basis points. Provision was $167 million, resulting in a slight release of loan reserves primarily due to an improved outlook for our CRE portfolio, reflecting both lower loss rates and continued runoff. At the end of the third quarter, allowance for credit losses totaled $5.3 billion or 1.61% of total loans. In summary, PNC reported a solid third quarter. Regarding our view of the overall economy, we're expecting real GDP growth to be below 2% in 2025 and unemployment to peak above 4.5% in mid-2026. We expect the Fed to cut rates three consecutive times with a 25 basis point decrease at the October, December, and January meetings. Looking at 2025 compared to 2025, we expect average loans to be stable to up 1%. Net interest income to be up approximately 1.5%, fee income to be down approximately 3%, due to elevated third-quarter capital markets and MSR levels, and other non-interest income to be in the range of $150 million to $200 million. Taking the component pieces of revenue together, we expect total revenue to be stable to down 1%. We expect non-interest expense to be up between 1-2%. And we expect fourth-quarter net charge-offs to be in the range of $200 to $225 million. And with that, Bill and I are ready to take your questions. Operator: Thank you. We'll now be conducting a question and answer session. Our first question today is coming from Scott Siefers from Piper Sandler. Your line is now live. Scott Siefers: Good morning, everybody. Thank you for taking the question. Rob, I was hoping you could please expand upon your thoughts on the margin for performance and outlook. I guess in particular hoping you could especially touch on that idea of the third-quarter commercial deposit growth, sort of what it might have done to the third-quarter margin? Then why what occurred with the third-quarter margin, meaning just like compression isn't necessarily representative of the path you'd expect going forward. I think you suggested we could still get to like a 3% number at some point in 2026. So maybe sort of the what happened with that deposit growth? What effect did it have? And then what are we looking for going forward? Rob Reilly: Yes, sure, Scott. Good morning. Let's start with the last part there first. We do, as I mentioned in the comments, we do still expect our NIM to continue to expand and hit the 3% and above sometime during 2026. So no change there in terms of the trajectory. The difference in the quarter was the outsized commercial interest-bearing deposit growth. So we grew $9 billion, which was easily the most that we've ever grown commercial interest-bearing deposits in any quarter, particularly in 2025. And even though we kept our rate paid on commercial interest-bearing deposits flat, to actually down a basis point in the quarter, it affected our NIM because of the mix change. Commercial interest-bearing deposits, as you know, are priced higher than consumers. So when you put that into the weighted average, that costs us four basis points, four basis five basis points on R and D that would have otherwise been there had we not grown those deposits. And I think it's a good question to make sure you understand what's going on there. But it's also a good point a good for us to point out that NIM is an outcome, something that we manage to. So this is a good example. Lots of our commercial clients want to put deposits with us. We can do that in an NII accretive way. It costs us a couple of basis points for NIM and that's a good thing. So going forward, continue to expect NIM to expand. It's just that outsized growth sort of on an apples to apples basis reset at the weighted average. Scott Siefers: Okay. Perfect. Thank you for that, Rob. And then I was hoping you could just touch on expenses and just a little more thought of why they go up in the fourth quarter. I guess, just given the revenue backdrop, as for my perspective, might have thought maybe a little more lift in the third quarter. I'm just not sure how all the accruals work. Yeah. So it kinda feels like Yeah. Full year would be okay. But you know, curious to hear any of your thoughts in there. Rob Reilly: Yeah, think the full year is the way to look at it. Because there are some seasonal aspects to some of our expenses. They don't fall uniformly in each quarter. The difference is back in July when we gave full year guidance, we expected expenses to be up for the full year 1%. We're pointing now to 1.5%. But you've got to go back to July. The non-interest income expectation was up 4.5% and we're pushing 6%. So that delta in terms of the outperformance on the fees drove our expenses a little bit higher, but those as you know are good expenses. Scott Siefers: Yeah. Perfect. Okay. Wonderful. Thank you very much. Rob Reilly: Yes. Thanks, Scott. Operator: Thank you. Next question is coming from Betsy Graseck from Morgan Stanley. Your line is now live. Betsy Graseck: Hi, good morning. Bill Demchak: Good morning. Betsy Graseck: Bill, I wanted to understand a little bit about how you're thinking about scale in this environment. I know you've spoken about that recently, but we've had some deals since then. And what should we be anticipating as we move forward here in this timeframe where we have opportunities to maybe move the needle more than we have in the past. Bill Demchak: I think you should look at our organic growth success. You know, we're particularly in the new markets, where we've laid out a path importantly to be able to grow our retail franchise at the pace we grow our C&I franchise. And that's the whole long term. When we talk about scale, when you have two giants gathering up retail share, unless we can keep pace share in C&I doesn't necessarily do us any good. We're on track to do that. We did the FirstBank acquisition because it was it was kind of a really focused retail gather dominance in a particular state or a couple markets. Opportunity to accelerate what we're doing. But you shouldn't expect that to be the norm. You shouldn't expect us to kinda chase a deal frenzy. You know, we'll look at things should they advise, but you know, we'll be selective as we've always been. Betsy Graseck: Okay. And then, Rob, on the C&I loan growth very impressive, just want to understand how much of that is NDFI versus non? And then separately on the CRE, commercial real estate runoff, how much longer should we anticipate that's going to continue because obviously taking away from some of the balances here. I'm wondering when we're going to get to CRE actually growing. Thanks. Yeah. Rob Reilly: Yes. No, that's a good question. Let's answer the second one first in terms of the commercial real estate balances. We expect that to inflect at the beginning of next year. So we're near the end. In terms of the sort of the rundown of those balances. We are doing new deals but as we work through, obviously, the issues in office, etcetera, we'd expect that to turn positive going into 2026. And the first part of the question was? NDFI. NDFI, yes. No growth there. All the growth that we had in C&I was outside of that. I know there's a lot of focus on NDFI. We still feel this isn't part of your question, but it's implied. Feel very good about the credit quality there. The composition, as you know, the vast majority of ours is an asset securitization, bankruptcy remote investment grade clients, and the extent that we're involved with private equity, it's in capital commitment lines that have very low loss rate. So, and the NDFI is not part of our story this quarter. Betsy Graseck: Okay. Thank you. Sure. Operator: Thank you. Next question is coming from John Pancari from Evercore ISI. Your line is now live. John Pancari: Good morning. Good morning, Don. Just back to the margin in NII, want to see if you can I appreciate the color you gave around the deposit dynamics and what impacted the blended deposit cost for the quarter? And maybe if you could talk about left side of the balance sheet in terms of your updated thoughts around fixed asset repricing opportunity. Is that changed at all given the moves along the curve in the ten year? And then also we've had a couple of banks flag some tightening loan spreads on the commercial front. Wanted to see if you're also seeing that impact and how that could impact your loan yields as you look out? Rob Reilly: Yes, sure. Sure, John. When I broaden that out a little bit for NII. So NII for the full year, we're pointing to up 6.5%. As we go into 2026, as we said previously, we expect that trajectory to continue and actually increase. PNC on a standalone basis, so not including FirstBank. We'll have these numbers for you in January. But PNC Bank on a standalone basis in '26, consensus for NII is growth of about billion dollars and that's we see that and we agree with that. We'll have more for you and update, obviously, in January. But the point is that our NII trajectory is in place, the fixed rate asset repricing is still there going into '26 with momentum. Bill Demchak: Hey, Jeff. Part of the shortfall against previous guys just in third quarter was was simply the shift or sorry, into the fourth quarter is a shift on our expectation of Fed cuts. So what's hitting us is if they cut late in the fourth quarter, our deposits don't necessarily catch up in the first. So what happens is we'll make a little less in the fourth quarter, make a little more in the first quarter. But nothing has changed whatsoever. In our NII outlook. The only thing has changed is like, a month shifting on when we had cuts, which affects where it lands. Rob Reilly: And then with the, you know, the end of the calendar there in December, was of we have the the negative effect of that, those cuts occurring in December and the positive happening after December. So that explains why delta of our expectations in NII for Q4 were different than July. John Pancari: Got it. Okay. Now, you. That's very helpful. And thanks for the color on the 2026 NII. That was good my part B to the question. Therefore, my follow-up would be around the loan growth outlook. What are you seeing right now in terms of broader commercial loan demand? Are you we've had some banks flag still some lackluster commercial demand and not yet seeing CapEx pull through. What are you seeing on that front? Are seeing some strengthening there? Or is it still somewhat a wait and see type of approach? Bill Demchak: At the margin, I guess, little strengthening, but what we've seen activity in is M&A financing syndications. A utilization I was thinking Rob really hasn't changed. That's what we see. Yes. Rob Reilly: Hasn't gone down because we we had to pick up in the second quarter. It was sustained to first and the second, and then we held it. Yeah. Bryan Gill: And we continue to see some solid growth in unfunded commitments. Bill Demchak: So you kinda back all the moving parts out in the sense that, okay, utilization didn't change. We actually grew balances absent real estate and a pretty healthy clip and our pipelines are strong. So I had a kind of just rephrase my question and things I guess feel good in loan growth outside of this waiting for the inflection in real estate. Rob Reilly: And and as Bryan just mentioned, I don't know if you'd heard that, our DHE continues to grow, our commitments continue to grow. They're unfunded in some part, but there's when clients put those in place, there's the expectation that they're going to use them. John Pancari: Got it. Okay. Thanks so much, Rob. Appreciate it. Thanks, Bill. Operator: Thank you. Next question today is coming from Ebrahim Poonawala from Bank of America. Your line is now live. Ebrahim Poonawala: Hey, good morning. Guess maybe Rob or Bill, would love to get your perspective on how you're thinking about the right level of capital for PNC. If I look at the adjusted for EOCI at 9.71 of the larger banks brought down kind of where they're operating the bank to 10, 10 and a half. Yesterday. So as a result, not not that that should dictate where you run the bank, but I would love to hear, do you think is 9.5% to 10 is the right place? Is it 9%? Just how are you thinking about it? And is there still Moody's, of course, upgraded some of your ratings or the outlook recently? So is there a push and pull with the rating agencies around this topic? Thanks. Bill Demchak: Why don't you go ahead and start, Rob? Sure. Rob Reilly: Well, yes, Ebrahim, good question. Right now, our CET1 is 10.6% on AOCI adjusted just below 10%. So we're in a good position relative to our capital. We had always said that our operating guideline the Basel III N rules and capital rules still fluid that we would operate between ten percent and ten point five. We're at the high end of that. But getting some recent developments, the Moody's that you had cited that was previously a binding constraint. It's possible that we would work to the lower end of those ranges and possibly even lower. But we'll assess all that with our Board as we go into the New Year. Bill Demchak: Yes. We're going to have to do some work because some of the thought process on the rating agencies has actually changed. And then you know, we'll see what happens with risk-weighted assets and anything that comes out in Basel three proposals. But it's in flux and we are at the high end of whatever that flux might be. Yeah. That's right. That's what I'm putting. Resulted. Yeah. Ebrahim Poonawala: Got it. And just on the other side of it, I'm not sure, Rob, if you laid out what your expectations on GDP growth going into next year were. Rob Reilly: But Ebrahim Poonawala: between loan demand picking up or credit worsening, like what do you see as the more likely outcome? Like do we we expect just between the tax bill and overall and rate cuts to drive loan demand higher? Or are you seeing more increasing businesses come under pressure of a somewhat stagnant economy and that could lead to more credit issues? Yeah. I like you know, I think, and Bill made one jump in here too. Mean, think as Bill said in his opening comments, you know, Rob Reilly: despite some of the obvious things going on around the world where the economy looks pretty good, And as we go into 2026, we see some strength around the loan growth possibilities that we just talked about. And credit quality is very good. Criticized assets are down, non-performers are flat, delinquencies are down, charge-offs are down, our expectation for charge-offs are down. So feel pretty good. Going into the New Year. Bill Demchak: The survey that we just did in partnership with Bloomberg with corporate CFOs surprised us to the upside. Majority were bullish not just on their own Actually, vast majority were bullish not just on their own company, but on the economy which kind of surprised me. A big part of that theme was the ability and the work sets they've done to kind of work through tariffs whatever they might be and sharpen up their own companies both in terms of resiliency and just cost efficiencies. You know, and the consumer remains deposits are growing. It's it's we've got a whole bunch of things that could land on us, but none of them are there and none of them are served. Rob Reilly: And all the leading indicators of the credit are are positive. Ebrahim Poonawala: Yeah. Got it. Thank you. You. Operator: Next question is coming from Chris McGratty from KBW. Your line is now live. Chris McGratty: Great. Good morning. Rob, maybe start on Slide seven, the $9 billion of commercial interest bearing. I'm interested in what in your opinion drove the surge this quarter and whether that's you bring in more on the balance sheet, if there's a change in behavior. What's the, I guess, the outlook as well? Rob Reilly: Yes. We just it's a combination of things as these things usually are. It's more deposits coming from existing and new corporate clients. In some instances, we did see what were previously our customers had deposits on sweep accounts going into money markets coming on balance sheet because rates coming down on the money market made made it almost a tie or less in terms of putting it with us and all else being equal, they have a relationship with us, they like it with us. Chris McGratty: Okay. And then and my follow-up would be just year over year, most of the most of the growth has been in commercial. I guess, are your expectations heading into next year with lower rates in terms of mix of deposit growth for the company? Rob Reilly: So we expect further deposit growth going into next year. And of course, in January, we'll give you our full 2026 outlook. Don't expect big mix changes like we saw here in the third quarter. That could always happen, but that's unusual. I would expect the mix to be fairly stable going into the end of the year and into next year. Could see a little increase in non-interest-bearing deposits in the fourth quarter. See that sometimes, but that's sort of on the margin. Chris McGratty: Okay. Thank you. Operator: Thank you. Next question is coming from Erika Najarian from UBS. Your line is now live. Erika Najarian: Hi, good morning. Wanted worth repeating Rob, given sort of the stock reaction, I just wanted to make sure that investors are taking away the right thing from your response to Pancari's question. You're expecting 6.5% net interest income growth in 2025. Given the momentum in what Bill mentioned retail deposits, remixing also fixed rate asset repricing you expect 26% NII growth to be better than that 6.5% excluding FirstBank? Rob Reilly: Comfortably, yes. Erika Najarian: Comfortably. Okay. Perfect. So so add add the word comfortably. So that I'm Bill Demchak: Yeah. I there seems to be a lot of I mean, let's just hit the issue. There seems to be a lot of confusion because NIM went down totally explained by deposits and then NII felt a little light as we go into our guide. Because of this issue of when rate cuts are. There's absolutely nothing that has changed on our trajectory of forward NII growth. We will be comfortably above $1 billion on top of this year. For twenty twenty six's number. Erika Najarian: Right. It's just a timing difference. Right? I mean, later later cuts and you know, so far goes down and then yeah. It takes time to reprice deposit. Okay. Well, I you gotta we we hit you with two things. Right? Bill Demchak: We confused you with deposit growth. So just isolate that for a second. We're corporate yeah. And NIM. So we get corporate deposits in it. SOFR minus something and we put them on deposit at the Fed at SOFR plus something. We have no supplemental leverage you know, issues in our company. So it's just money in the pocket. It hurts our NIM when we do that, but we do that all day long. It's riskless money in our pocket. The the NII on a go you know, the totality of our NII repricing that occurs because of the way we positioned the balance sheet. Has not changed at all. All this changed is one month on our expectations of Fed cuts. Erika Najarian: Got it. Which become out which Rob Reilly: had actually a little just a little bit, but Yeah. Just to complete the story. Erika Najarian: Got it. Just the second question, to switch gears and this is for Bill and Rob chime in as well. I thought it was important given all the recent headlines and also investor concerns about NDFI. To ask Jamie at the JPMorgan call, even what kind of questions to ask the banks in order for investors to assess the risks. So I'll ask you, what questions should investors be asking in order to be comfortable with the NDFI risk on bank balance sheets? We're hearing that frequency and severity should be much lower than a, you know, direct lending, and, you know, the loss history has been pretty pristine like Rob reiterated. So what even are those questions that we should ask to really make sure that we're investing in the right underwriters as we think about potential cycle turn? Bill Demchak: Yes. So I mean if you want to go down that hole and it is worth discussing. The category is the wrong category. Because there's a whole bunch of things that they bucketed into non-bank financials. One of which which is by far our largest holdings our securitizations to corporates where we basically securitize bankruptcy remote receivables for investment grade corporates. That is very low risk of default and extremely low loss given default. Inside of securitization, we just saw an example of something in the auto space that went bad where it looks like the underlying collateral was highly correlated with the actual corporate itself. Right? So you had auto loans with an auto loan maker. And you might have we'll have to see what comes out of it. Some not very careful follow-up you know, filing of UCC filings and title tracking. I think that's a wild anomaly. Certainly has nothing to do with our book. The other things you look at, we have capital commitment lines that are effectively diversified receivables from large pension funds and investors. That there's never been a loss on. And I think that's pretty safe business. You know, other people will have other things in that bucket, but that's the vast majority of what we have in the bucket. Erika Najarian: Got it. Thank you. Operator: Thank you. Next question is coming from Gerard Cassidy from RBC Capital Markets. Your line is now live. Gerard Cassidy: Hi, Bill. Hi, Rob. Rob Reilly: Hey, Rob. How are Gerard Cassidy: In your opening comments, you talked about I if I heard it correctly, 'd reckon debit transactions, this quarter as well as, I think, you said credit card activity as well. Can you just give us some color behind that and what you think how that might continue to flow into the first part of next year? Bill Demchak: Yeah. I you know, look. The the the credit and debit spend interestingly, is across all buckets. More credit in a lower income. Buckets. I don't know that that can continue eventually. They're gonna hit limitations. You know, most of the consumer spend that you know, has grown year on year is coming, I think, from the wealth effect in the higher end of our you know, wealthy clients. Right, who who see stock market audio, and everything else, and it continues to climb. That's one of the reasons I'm you know, I remain pretty comfortable with the economy. As long as there's consumer spend, and we don't have a big crack in employment that know, it's weakening. But thus far hasn't really fallen. I think the economy's fine. Rob Reilly: And I'd add to that. I'd I'd ask just for PNC that you know, we continue to add particularly in our newer markets. Debit card and credit card users. So Yeah. That's a big part of why, you know, we're doing what we're doing there as well. Bill Demchak: Yeah. But but even if I account call hoard Yeah. So we're seeing more total volume, but even by account cohort. The consumer sale continues to continues to spend. And we grow card balances for the first time and Yeah. Yeah. Yeah. A while. Yeah. Largely on new customers. And not not pushing on credit to do that. Just kind of our new card launches. New offers. Yeah. Gerard Cassidy: Got it. And then as a follow-up, there's been real optimism about the tailwind that we're all expecting with the regulatory changes that are underway. There was a notice of proposed rulemaking today on MRAs, matters that require retention and safety and soundness. So, hopefully, they're not gonna be using them for ticky tacky stuff and helps everybody, yourself and all all the others. As we go forward. But, Bill, can you Rob, can you give us some color on what you're hearing in terms of the encouragement coming out of Washington and how the regulators are working with the industry rather than against the industry. Then if you could also tie in you made a comment a moment ago about Moody's and the rating agency Do you think they're going to be the, capital binding constraint going forward and not the actual bank regulators when it comes to CET one ratios? Bill Demchak: So let's connect. Go to Moody's here in a second. That there is a strong push out of I would say, Washington broadly to simplify the regulatory process and focus it on things that are material risks. Inside of that, you saw the the MRA proposal that I think if it does nothing else, it will get rid of all the crazy ancillary work we do on minor MRAs. You know, if it's if if you're not in a bank, you don't really understand this. But if we get an MRA and by the way, we get a lot of them for kind of, like, silly things, and you you have to you get the MRA. You negotiate it with the regulators. That's a team of people. Then you write your response to how you're gonna fix the MRA. And then you assign a people who are responsible for the MRA, and then you do set up committees, and then you spend a thousand hours like, fixing some, you know, in the MRA process where you could actually fix the issue that they were concerned about in ten hours. So it if it actually comes out the way they wrote their proposal, it's a massive work set decline inside of our company. Not because we're not going to fix issues, but rather that we're gonna just fix issues, as opposed to talk about them. Months. On capital, it'll be kind of interesting. You know, Moody's had been the binding constraint. But remember, Moody's triggers their ratings off of risk-weighted assets. Also. So when nozzle three endgame comes out, depending on how they calculate risk-weighted assets, Right? That that even if you're supposed to hold, you know, in our example, this you know, we're sitting at 10 to 10 and a half, It could well be that our capital ratio spikes because risk-weighted assets go down because operating risk and or investment grade credit is treated differently. That's our new new definitions. Yeah. So I don't I I think it's way too early to kind of assume who or what is the binding constraint. Till we actually see what comes out of Basel three endgame because the is in Basel three, we're gonna drop risk-weighted assets pretty potentially, pretty substantially. Gerard Cassidy: And and based on your guys' experience working with both the regulators and the rating agencies, is there a preference on which one you'd rather have be the binding constraint? Not to put you on the spot, but if you don't wanna answer it, that's fine too. Bill Demchak: Think look. At the end of the day, we're the binding constraint. You know, we we we wanna we wanna make sure the company is is well-capitalized for all scenarios. I don't know that I necessarily you know, let let's assume for a second that everybody completely lost their mind and said risk-weighted assets fell in half. I would say no. That doesn't mean I'm gonna you know? That's right. You know, drop our capital ratio materially below where it is today. I I I just I think I think all the extra external people who look at our capital do so with rough assumptions. Whereas you know, we look at it with great detail. And run the company for the you know, to have you know, Jamie's words of fortress balance sheet independent of what other people tell us. Gerard Cassidy: Sounds good. Appreciate the color. Thank you. Operator: Thank you. As a reminder, if you'd Our next question is coming from Ken Usdin from Autonomous Research. Your line is now live. Ken Usdin: Great. Thanks a lot. Rob. I just wanted to ask you if you could talk a little bit more. You mentioned that deposit cost should be down in the fourth. And and just, you know, furthering this discussion about the commercial growth that you saw this quarter, knowing that's just simply higher rate product. Can you kind of just tell us how then you expect the wholesale track to compare with the retail track as you get down to this next phase of the rate cycle? Yeah. Yeah. So yeah. So we do expect that our rate date will come down in fourth quarter. In fact, it has already come down. You know, and then it's just a question of the betas in terms of the categories. You know, C&I, as you know, can be moved pretty fast. I can get to a 100% beta, maybe not right out of the box, but eventually. High net worth somewhat similar. Retails where it's a little bit slower, just because the rate paid there is still pretty low. This is nothing new. But just in terms of that back book pricing that down, there's not as much of an ability to do that because they're already down. But again, that's that's been the case you know, for a while. Ken Usdin: Right. Okay. And then on on this just on the commercial growth, it's interesting to you got this new business. You say that partially new customers. So just wondering, like, you keep it at the fed for now. Do you presume this also leads to incremental loan growth? You eventually get the confidence that sticky deposit growth and you put in securities and kinda lock in some more just know, coming back to that this discussion of it's good to get the extra deposit growth. Do you assume it's sticky and kind of what's the best way to maximize on higher cost deposit opportunities like what's happened in the wholesale side this Thanks. Bill Demchak: I would hope that the industry has learned by now that shouldn't put duration on corporate deposits. Particularly when it's excess cash. Now we do it on, you know, transaction accounts, DDAs that corporates fund for, you know, our GM products. But when they are just floating extra cash, we treat it like it's a duration of a day. Rob Reilly: I wouldn't mind you some of it for some other Ken Usdin: Well, I I guess that's still the, you know, the the the the timing debate. Right? You get some great extra deposit growth, but we're still waiting for the, you know, the great, you know, step up on the loan growth side. It was really good this quarter, but that's part of this just, slight timing disconnect with the rates paid versus just sitting in cash. I guess people are just still, you know, looking to understand, like, what kind of inflection do you expect on the loan side. Yeah. Bill Demchak: Just look. We're I mean, simplify the question. We are very liquid and can support loan growth. You know, activity utilization pop line total commitments have popped, activity this quarter on the back of an M&A was higher. We saw capital markets and imbalances. And, again, if you just back out you you know, the continued decline in real estate that will inflect. Like, we didn't have that. Our loan growth year on year would have I don't know, would've been a big big number. Yeah. C&I absent absent real estate, you know, that's likely to continue. Rob Reilly: And then select in the at the beginning, like, '26 said earlier. Shit. Bill Demchak: Yeah. And can't do. I mean, it's accretive. So we're sitting here. Deposit at the feds isn't bad. We're making money. Yeah. Ken Usdin: Absolutely. Yeah. Okay. Great. Thanks, guys. Operator: Thank you. Next question is coming from Mike Mayo from Wells Fargo. Your line is now live. Mike Mayo: Hey. Bill, can you expand more on the potential benefits of less regulation the cost of MRAs, You know, like, how much could this potentially save in expenses? When you throw it all in together, like, the examination, the MRAs, the the more of the ticky tacky process oriented stuff, and they're moving more toward just plain old financial strength like in the old days. Like, how much do you spend? How many people are dedicated to some of those efforts that might go away at some point? Bill Demchak: Yeah. It's a good question, Mike. And I don't know that I mean, it's just out, so I don't know that we've tried to quantify it. But, I mean, it's it's you know, an FTE equivalence. It's hundreds and hundreds of people. That that are just you know, tied up the oh, what's the best number I can get? BPI put out something like, a year ago. You need to go back and look at it where we talked about the number of hours, man hours, the banks are have increased on MRA compliance. Since, like, 2020 or something. And it was it was a clean double, if not more. Since it what they're talking about is a material change in You know, we'll have to work our way through, but what that actually means. You know, importantly, it doesn't mean we're gonna back off on what we actually do to monitor it monitor risk including appliance and some of the things we used to you know, get MRAs for that we won't get anymore. It just means that we won't have all the process around it. And the process is what kills us. It's not actually the work to fix things. It's the it's the documentation and the and the meetings and the committees and the secretaries of the committees and the and the follow-up. It's just it it's I mean, you can't even imagine how bad it is unless you actually sit in a bank. And then if they actually get just to clean it up, it's something. Mike Mayo: No. It's it's we all that's our job is to try to quantify these things. But just as far as how much of your time it takes, if you go back say, twenty years ago, how much time you spent on these things, and then after the financial crisis, how much time you spent? And then two years ago, I think peak regulation, how much time you spent, and now kind of where you are today. Like, how would you spot something like that? Bill Demchak: Twenty twenty years ago is actually a bad time period for PNC. So you're you're one of the few that's around back then. We spent a lot of time on regulatory stuff, but that was us, not the system. It know, it's just increased through the years. You know, our board, you know, the best example is the amount of time our board spends. Reviewing you know, nonstrategic ticky tacky MRA related regulatory stuff. You know, it's gone from something we never really talked about in the ordinary course to you know, half of our time spent with our board. Mike Mayo: So half the time that you spend with your board is on regulatory matters? Bill Demchak: I'm just thinking through, you know, we have a we have, you know, compliance committees So so assume risk committee, compliance committees, tech committees, they all own you know, MRAs that we need to report out on. It's a lot. I mean, we're we're gonna have to that announcement was a massive announcement. And we'll see how it plays out. Industry has to do a lot of work to figure out what that actually means. We're kinda numb from the existing process, so we'll have to see But it's it's it's a lot of it's a lot of FTEs. Mike Mayo: Alright. We'll we'll stay tuned. Thank you. Operator: Thank you. Next question is coming from Matt O'Connor from Deutsche Bank. Your line is now live. Matt O'Connor: Hi, Bill. Wanna follow-up on your comment about not chasing M&A. I guess if that's the case and you know, you've got all of capital and operating leverage and desire to get bigger. Like, thoughts on just leaning in from your organic point of view, whether it's you know, additional ramp up in branches, maybe leveraging the deal Bankers, Or just how are you thinking about organic opportunities to maybe accelerate some of the growth? Bill Demchak: Well, you know, we've been going at that pretty hard, and you'll see you know, in our in our plans that, you know, the capital that we put behind branch builds you know, we we talked about, hey. We completed 25 this year, but that 200, like, we have sites out there. We have construction going on, and we're gonna continue this. You know, into the foreseeable future. So this wasn't kind of a onetime announcement. And then we're done. You'll see us continue to roll this investment into you know, important markets that to get over that 7%. Kind of branch share. CNI we can grow at pace. You know, we we add bankers to our newer markets as we kinda fill client plates with the bankers we have. And the growth opportunity there you know, continues for years. And that's about people and brand and kinda persistence. In calling with good ideas. So that that one, I don't worry about. It's just this retail share where you know, you have to get this isn't just you know, see in my view, if you wanna be in the retail banking business, until you get sufficient share to be able keep your retail clients who move around the country Like, you you gotta drop the attrition rate. And I think you're at a disadvantage to these giant banks, and I think they continue to gobble it up. And so have a path to get there organically. Know, people get all everybody's all excited about M&A, but there actually aren't many visible sellers who have any of decent retail share. Part of the reason a lot of these guys are selling is because they don't have an answer to this question. You know, one of the deals we've recently seen is actually, you know, they were the extreme position of simply having corporate deposits. In a struggling retail franchise. So, you know, think about how I might look at that deal. That actually exacerbates our problem. It doesn't help it at all. Right? We we need real honest retail share, which is what got us so excited about FirstBank. You know, that's what they do. Clean deposits, clean branches, great customer service. Low cost deposits, You know, when we talk about scale, that that's the thing we're always talking about. Everything else, we can grow organically with no worries. Rob Reilly: Yeah. Just add just add to that, Matt. I mean, the organic growth opportunity that we have ahead of us is is got us excited because the organic growth contributions to everything in our company and every business line are substantial. Bill Demchak: We're seeing higher growth rates and corporate than the expansion markets, higher growth rates in asset management, higher growth rates in retail. We are one of the things we're gonna have Alex and Bev. But we not said it? We have not said it. Oh, oops. We have not We're gonna we're gonna detail in one of the upcoming conferences the success we've had over the last you know, we've been at it for a handful of years, but but the success, progress, and momentum inside of our retail franchise which gives us a lot of comfort that while it might take longer, we're gonna succeed at this. Rob Reilly: And it is happening. Bill Demchak: From, you know, DDA growth, customer set, number of products owned, lot of a lot of good positive signs that give us comfort we can do this organically. Matt O'Connor: That's helpful. And then just specifically on the pay of the branch openings, I mean, just step back and say, you know, we we thought in the next M&A cycle, there might be something bigger we could do at a reasonable price. Now that's probably not to be the case. So let's kind of double or triple down the efforts. Mean, I know there's only so much you can build out of time, but you're a big company, lots of leads. I would think you could do multiple of what kind of what what you've put out there. If if you wanted. Bill Demchak: Yeah. It's we're actually you know, part of it is we're building on what we've historically done. I think we're we're doing, like, twice or three times the pace of what we did a year before. So having to scale our internal group that actually does that. Site selection, know, takes time. And then the actual builds, you know, if we have a 150 bills going on right now, I gotta manager each one of those sites. So we gotta scale all of that. But you're right. As we kinda build this skill set, which we haven't exercised for a bunch of years, we could accelerate it if we wanted to. And the other thing, you know, people's like, why why are you building branches? We still have branch probably more branches in the country than we necessarily need in the long term. PNC doesn't necessarily have the branches in the markets. We need saturation. And then importantly, you know, a lot of the banks that you might say, hey. Why don't you buy this or why don't you buy that? Their branches are in a state that we might as well just build them. From scratch anyway. Yeah. They're in the wrong place. They're all They don't really have real retail customer relationships. A lot of it's brokered, and it's real estate. So that's not gonna be the answer to how we fill this in. Matt O'Connor: Okay. All those details were helpful. Thank you. Operator: Thank you. We've reached the end of our question and answer session. I'd to turn the floor back over to Bryan for any further or closing comments. Bryan Gill: Well, thank you, Kevin. And thank you all for joining our call today. If you have any follow-up questions, please feel free to reach out to the IR team. Bill Demchak: Thanks. Thanks everybody. Thank you. 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: Greetings, and welcome to the Prologis Third Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Justin Meng, Senior Vice President, Head of Investor Relations. Thank you. You may begin. Justin Meng: Thanks, Jamali, and good morning, everyone. Welcome to our third quarter 2025 earnings conference call. The supplemental document is available on our website at prologis.com under Investor Relations. I'd like to state that this conference call will contain forward-looking statements under federal securities laws. These statements are based on current expectations, estimates, and projections about the market and the industry in which Prologis, Inc. operates, as well as management's beliefs and assumptions. Forward-looking statements are not guarantees of performance, and actual operating results may be affected by a variety of factors. For a list of those factors, refer to the forward-looking statement notice in our 10-Ks or other SEC filings. Additionally, our third quarter earnings press release and supplemental do contain financial measures such as FFO and EBITDA, that are non-GAAP. And in accordance with Reg G, we have provided a reconciliation to those measures. I'd like to welcome Tim Arndt, our CFO, who will cover results, real-time market conditions, and guidance. Hamid Moghadam, our CEO, Dan Letter, President, and Chris Caton, Managing Director, are also with us today. With that, I will hand the call over to Tim. Tim Arndt: Thanks, Justin. Good morning, and thank you for joining our call. The third quarter marked another period of solid performance with many encouraging signs across our business. We had a record quarter for leasing with signings of nearly 62 million square feet and an uptick in portfolio occupancy and another very strong quarter in rent change. We see a more positive tone across the platform with strengthening customer sentiment, improved leasing velocity, and continued success in build-to-suit activity. Which taken together suggests the market has found footing and the stage is set for an inflection in occupancy and rent. Momentum also extended to our data center business. This quarter, we moved another 1.5 gigawatts of additional capacity to our advanced stages. Now with 5.2 gigawatts of power either secured or in this advanced stage, Prologis, Inc. is one of the largest owners of utility-fed power available for data centers. Translating this to dollars would amount to $15 billion of investment as powered Shell and as much as four times that if delivered in a turnkey format. For this reason, we've begun the exploration of additional capitalization strategies to fully capture the opportunity. Our ability to combine real estate, power access, customer relationships, and capital provides the foundation for one of the most significant value creation opportunities in our history, and we are well-positioned and laser-focused on its execution. With that as a backdrop, let's turn to our results. Core FFO, including net promote expense, was $1.49 per share. And excluding net promotes was $1.50 per share, each ahead of our forecast. As noted, we had a record leasing quarter supported by a clear pickup in new leasing, which had been below historical levels for some time, but is now rounding out together with healthy renewal activity and heightened build-to-suit demand. As a result, occupancy grew over the quarter to 95.3%, an increase of 20 basis points. In flight to quality persists to our curated portfolio and platform, evidenced by our 290 basis points of outperformance in The U.S. Rent change during the quarter was 49% on a net effective basis and 29% on cash, highlighting the durability of our lease mark to market, which will provide meaningful rent change over the coming years even at spot rents. The lease mark to market ended September at 19%, which reflects the capture of another $75 million of NOI during the quarter and a further $900 million of NOI as leases roll. Putting it all together, net effective and cash same-store growth during the quarter were 3.9% and 5.2%, respectively. In terms of capital deployment, we had a lighter quarter of development starts with expectations for a strong fourth quarter due to the specific timing of transactions. Two-thirds of our volume in the fourth quarter in the third quarter was in build-to-suits with large global customers, many of whom rank in our top 25. We signed an additional nine build-to-suits this quarter, driving the total to 21 so far for the year, and amounting to $1.6 billion of total expected investment. Beyond that, this pipeline continues to grow with dozens of viable deals on PLD-owned land, an outcome of our close customer relationships and strategic land bank. We expect build-to-suits will represent over half of our development volume for the full year. Finally, our energy business delivered 28 megawatts of solar generation and storage in the quarter. With 825 megawatts of current capacity, we are on track to deliver on our one-gigawatt goal by year-end. Interest from customers remains robust against the backdrop of increasing energy prices and forecasted shortages in power. We continue to integrate our solar storage and off-grid energy solutions with our real estate, another example of how Prologis, Inc. continues to evolve with and for our customers. On the balance sheet, we closed on $2.3 billion financing activity across the REIT and funds, which included a very successful €1 billion raise at 3.5%. Our global access to capital remains one of the defining strengths of our franchise with an in-place cost of debt at just 3.2% and more than eight years of average remaining life. In our strategic capital business, we had modest net inflows for the quarter across our open-ended funds as investors began to reengage following several uneven quarters. But at the same time, we're excited by our progress on new vehicles that are drawing strong interest and position us well for the next phase of growth in this business. We look forward to sharing more on this in the fourth quarter. Turning to our customers. Sentiment is clearly better as informed by our day-to-day discussions across the globe as well as in focused strategic dialogue like that in our customer advisory board held late last month. Beyond improved decision-making, larger occupiers are pursuing reconfiguration consolidation strategies with a shift toward network optimization rather than contraction. In keeping with a typical real estate cycle, we'd expect smaller and medium-sized enterprises to follow suit. Out of interest, e-commerce penetration, now 24% of US retail sales, has expanded since COVID and continues this march higher as a meaningful and secular driver of demand with 52 unique names transacting this quarter. In terms of operating conditions, overall, we see demand improving, occupancy has formed a base, rents are progressing through their bottoming process. In our US markets, we estimate 47 million square feet of net absorption for the third quarter, holding market vacancy steady at 7.5% we expect it to top out. Meanwhile, the supply picture remains favorable as the construction pipeline depletes and starts are below pre-COVID levels. Market rent declines have been slowing just over 1% this quarter, also evidencing the market shift. Our strongest markets in The U.S. continue to be across the Southeast and Texas with solid absorption in Houston, Dallas, and Atlanta. The tone in Southern California is also improving, although rents remain soft, leasing activity has turned up both in LA and the Inland Empire. Consistent with our prior view, we expect SoCal to lag the broader inflection in operating conditions in the near term but outperform over the long term. Our platforms outside The U.S. are certainly a bright spot. Latin America again delivered excellent results where Brazil and Mexico together have been providing the highest same-store growth in our portfolio. Europe has maintained higher occupancy and more moderate rent decline relative to The U.S. And our Japan portfolio maintains its track record of exceptional occupancy overcoming the higher market supply of recent years. With real estate in 20 countries across the world's most dynamic markets, our global scale continues to serve customers and the benefits of this diversification are evident in our performance. Finally, on data centers, demand for our product has been exceptional. Every megawatt we can deliver over the next three years is already in dialogue with customers. We're taking a deliberate and disciplined approach consistent with our build-to-suits strategy. And by staying close to customers and their evolving needs, we have strong conviction in the depth of our pipeline and look forward to announcing on a handful of starts in the coming quarters. Turning to guidance as we move into year-end. Average occupancy at our share is unchanged at the midpoint, of 95% and rent change will average in the low 50s for the full year. The range for same-store NOI growth is increasing to 4.25% to 4.75% on a net effective basis and 4.5% to 5.25% on a cash basis. We are increasing our G and A guidance to a range of $460 million to $470 million and also increasing our strategic capital revenue guidance to a range of $580 million to $590 million. In capital deployment, we are increasing development starts at share to a new range of $2.75 billion to $3.25 billion. And as a reminder, previously announced data center starts are included in this guidance. We are also increasing our combined disposition and contribution guidance by $500 million to a range of $1.5 billion to $2.25 billion at our share. In total, our guidance for GAAP earnings to range between $3.40 and $3.50 per share, Core FFO, including net promote expense, will range between $5.78 and $5.81 per share while core FFO excluding net promote expense will range between $5.83 and $5.86 per share, a $0.02 increase from our prior guidance. To close, the outlook for Global Logistics is strong, and the demand for data centers and distributed energy systems is robust, all of which underpins our confidence in the long term and absolutely unique opportunity for our business. Our focus remains on disciplined growth, operational excellence, and leaning in on these long-term trends. These priorities have been central to Prologis, Inc. since its founding and continue to shape every decision we make. And as we reflect on the leadership that built this company, and the enduring culture that Hamid has created, we do so with a deep sense of commitment and continuity. The foundation of excellence is strong, The strategy is clear. And the opportunities ahead are significant and unmatched. Thank you, and I'm going to pass the call over to Dan to close out our prepared remarks before turning to Q and A. Dan Letter: Thanks, Tim. Before we move to questions, I wanted to take a moment to recognize today marks Hamid's last earnings call as our CEO. This is his 112th call since we went public back in 1997. It's really hard to sum up everything he's accomplished in just a few words. We've all learned so much as part of the school of AMB and Prologis, Inc. under his leadership. And it's truly been a one-of-a-kind experience. Over more than four decades, Hamid has built something special. A company that leads our industry, sets the standard for innovation, and puts people, culture, and customers first. He's created a platform that's second to none. Built on vision, courage, and the ability to see around corners. For me, it's been a privilege to watch him lead. To see how he balances ambition with humility. And how he pushes all of us to think bigger and move faster. Hamid, on behalf of all of us at Prologis, Inc., thank you. For your leadership, your trust, and for everything you've done to make Prologis, Inc. what it is today. You will likely never fully comprehend the impact you've had on the people in this room, this company, or this industry over the last 42 years. We're all grateful, and we're excited for what's ahead with you as executive chairman. With that, operator, we're ready for questions. Operator: Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. And for participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from the line of Jon Petersen with Jefferies. Please proceed with your question. Jon Petersen: Great. Thanks, and congrats on the quarter. Hard to top Dan's commentary there, but Hamid, thanks for all your honest commentary over the years. Really enjoyed starting earning season with your call for the last 112. I guess I haven't been around for all 112, but for a lot of them. If I could start with a question on data centers, right at the top, you said you're exploring additional capitalization strategies. Can you talk more about what that might look like? If you're looking at exploring, establishing a fund to buy out properties upon completion, or maybe more of a development fund, maybe just generally what your comfort level is on owning and operating data centers beyond development at this point. Thank you. Dan Letter: Thanks, Jon. Let me start and then maybe Tim will pile on here. But it might be helpful for me just to lay out what's going on in our data center business right now. We've talked a lot over the last couple of years about building an experienced and dedicated team from the industry. And we've been very successful in doing that, and we're gonna continue to build the team into 2026. We also have really incredible operational synergies between our core business and this data center team. With our procurement platform, you look at our distributed energy business now, just really significant synergies. And then this pipeline that we have is huge. It's really significant. 1.4 gigawatts of power and it's secured or under construction stage. Or the 3.8 gigawatts, in the advanced stages. So really incredible what this team has done in a very short period of time. We are continuing with the same strategy we've been sharing along the way, which is build-to-suits, with these hyperscalers. And it's really amazing just the active discussions and conversations and lease dialogue with these customers across our entire pipeline. As Tim mentioned in the script, every megawatt we can deliver over the next three years is already accounted for in conversation. So we have a big tailwind behind us there. And then if you think about our land bank, our 14,000 acres of land that we own or control, you look at our 6,000 buildings, in these infill locations and think about how well we are set up for not only the current wave of AI demand but the next wave which will be inference. So these are big numbers and we have taken the next step of starting an exploration over what the universe of opportunities are, what is the art of the possible for us, in the data center business and capitalization. So we don't have any specifics to share with you now, but we hope to in the coming quarters. Tim Arndt: And I will just pile on with one thought, Dan. It's just that in the interim, the balance sheet is obviously very capable of taking out a large volume of projects. We have almost $2 billion under construction in this last year or two, which we can easily grow given the scale and rating of the balance sheet. Dan Letter: Thank you, Jon. Operator, next question. Operator: Thank you. Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question. Michael Goldsmith: Good afternoon. Thanks a lot for taking my question and congratulations, Hamid. My question is on the net absorption during the period. I think, Tim, you called out 47 million, which is a pretty material acceleration from the prior two quarters. So is there a way to think about how much of that was kind of pent-up demand from the uncertainty earlier in the year versus, like, what is kind of, like, the sustainable run rate? And then also just, you know, if you could talk a little bit about the cadence of leasing through the quarter so we can get a sense of if it's accelerating. Tim Arndt: So, yeah, you're right. Net absorption, 47 million square feet. Yeah. There's some catch-up there from the second quarter. Parsing that, parsing the market statistics, is not something that we can do. We can look at our own leasing activity and there's a clear turning point in demand. There's a clear move higher. And so some of it is catch-up, but there's just a clear step higher. And this is revealed in a variety of things, including our pipeline, which remains full. And I just for context, as you make an assessment of these numbers, know that we think roughly 60 million square feet is a normal velocity, a quarterly velocity for the demand to improve in the coming quarters. Thank you, Michael. Operator, next question. Operator: Thank you. Our next question comes from the line of Steve Sakwa with Evercore ISI. Please proceed with your question. Steve Sakwa: Yeah. Thanks. Good morning. And, Dan, I echo many of the comments that you made about Hamid and really wish you luck moving forward. Maybe just following up on Michael's question about the supply and demand. As you look out over the next year or so, would it be your expectation that supply and demand are kind of largely in equilibrium? Or do you think they're still a little bit tilted more to supply outpacing demand? And I guess what are those expectations then for market rent growth as you look out over the next twelve months? Dan Letter: Thanks, Steve. Let me start, and I'm gonna pass it over to Chris. The way you need to think about this right now is we're in a classic real estate cycle. Demand is strengthening. And we're seeing these large customers make decisions. That's the real big early sign of a recovery. And as supply remains low, as Tim mentioned in the script, it's below pre-COVID levels. And with occupancy and rents bottoming out, that's a good sign for what's to come. But, yeah, Chris can give you some more specifics. Chris Caton: Yeah. Absolutely. So, Steve, the key missing ingredient here was this new direction in demand emerged over the third quarter. And so we had roughly 95 million square feet of net absorption year to date, and we think the full-year number will be roughly 125 million square feet. So it's on a path of improvement that will emerge. How that plays through in '26? We think vacancy rates are topping out around this level. And that's based on, you know, working under construction pipeline. Stands today, which is 190 million square feet. And so we'll see deliveries decline into 2026. A lower hurdle for net absorption to begin to cause the market to tighten. And how demand comes through in the marketplace will be a product both of the pipeline we have today and the macro environment that emerges over the next ninety days and over the course of the year. Dan Letter: Thank you, Steve. Operator, next question. Operator: Thank you. Our next question comes from the line of Ronald Kamdem with Morgan Stanley. Please proceed with your question. Ronald Kamdem: Hey. Great. Congrats on Hamid as well. Very impressive. I guess my question was just, you know, you guys are looks like you're calling for an inflection point here. In occupancy, in rent, and so forth. I just was hoping you could sort of double click and talk about sort of the different tenant categories, what you're seeing on the ground, then any sort of markets that are standing out like Southern California? Thanks. Chris Caton: Sure. It's Chris. So demand has clearly turned a corner. I hope you're hearing that. And the market is in an inflection point, an inflection period here. This comes from greater breadth and depth of our customer discussions and their willingness to make decisions. We're seeing it in leasing volumes as we described, including better new leasing, which had been quieter. And in our sustained elevated pipeline, and lease proposals. As we look at market contours and the contours of our pipeline, I'd say it's substantially similar to the color we gave you ninety days ago. So there's good activity across early proposals and more mature negotiations. In terms of both new and renewal activity. And across a range of markets, the one area that stood out to us was still clear strength in the larger size categories. So that's clear above half a million square feet, but it's also broadening down to say over 250,000 square feet. So there is a move higher. As Tim described, the strength of our business is international in nature, so let's not lose that point. It's really, across all the geographies he named. And then in The United States, it's really in the Sunbelt. Dan Letter: Thank you, Ron. Operator, next question. Operator: Thank you. Our next question comes from the line of Craig Mailman with Citi. Please proceed with your question. Nick Joseph: Thanks. It's Nick Joseph here with Craig. And just to echo everyone else, congrats, Hamid, and best of luck. Just going back to the data center, kind of comments. I understand the value creation on the development side. How are you thinking about the normalized growth rate of data centers versus industrial, just from an owned perspective? Tim Arndt: Well, I'll take the first part of that at least. I mean, I think if you think about so far what we have been doing on the exit side of these assets, selling them then we're contemplating a sell-down, which will be maybe substantially the same thing. The way we think about its contribution to the growth rate is really the reinvestment of that value creation back into the core business. You know, if we think about that in our logistics development portfolio, just to give you a rule of thumb, where we let's pick $5 billion as a run rate of development, investment and logistics. Ought to contribute about 150 basis points of additional growth per annum. So you could use that to benchmark a similar concept to the value creation you might expect we'll generate in this business. Dan Letter: Thank you, Nick. Operator, next question. Operator: Thank you. Our next question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question. Caitlin Burrows: Hi. I guess, congrats, Hamid, on everything, and given it's your last call, I guess, there's something you wanna be able to talk about on the call. So I was wondering on the in the press release, you mentioned that you believe one of the most compelling setups for logistics, rent and occupancy in the past four years. I feel like we've talked about it a bunch, and everybody's talked about turning the corner, but everybody likes to hear your views. So wondering, last quarter, you mentioned that market rents growth could happen in 2027. Wondering if that's still your view, and is it just I guess, when we think of, like, more details on that comment in the press release, is it, setup for 2027 as opposed to, like, something more near term? I feel like it piqued some interest. So wondering if you discuss a little bit. Hamid Moghadam: Sure, Caitlin. Here's the way I look at all of these cycles, including recovery from the global financial crisis and other things. At the end of the day, it is the rate of return and replacement cost that drive long-term rents. So we have a bogey out there. I don't know whether it's six months out, a year out, or two years out. I really don't know. But I know when the market stabilizes, it will stabilize at a much higher level than today's rent. So really, what you and we and everybody else has to handicap is what is the catch-up slope from where we are today to that higher trend line which is gonna grow over time with inflation and all that. But that trend line is significantly above today's rents. We can argue how much and you know, I think it's about 40% over in place. And probably 20 to 25% above market rents today. But we can debate that. But you know, depending on how long out you assume for that, it will affect your growth rate, but those growth rates will be really high. And let's assume that it takes another quarter or two before we get on that trajectory. It doesn't matter because during a quarter or two, we lease relatively small amounts of space and those marginal differences in rent don't matter much. What ultimately matters to the earning power of this company, which I acknowledge may be past the window that you guys are most interested in. Or may not. That is what excites me about this business. Dan Letter: Thank you, Caitlin. Operator, next question. Operator: Thank you. Our next question comes from the line of Vikram Malhotra with Mizuho. Please proceed with your question. Vikram Malhotra: Morning. Thanks so much, and Hamid, really gonna miss you on these calls. Hopefully, we hear from you in some other shape or form. Hopefully, you'll perhaps you'll start a blog or a podcast, which will be helpful. But congratulations and wishing you all the best for your next move. Maybe just a quick I just wanna clarify one thing, and then my question really is, you've talked a lot about bottoming. You said market vacancy is likely bottoming given Prologis, Inc. typically outperforms. I'm sort of wondering what your view is on the direction of Prologis, Inc.'s occupancy into 4Q specifically. And know, broadly next year and what that means for rent growth in Prologis, Inc.'s markets. And then just to clarify, Hamid, you mentioned, you know, on Caitlin's question, I just wanted to get a bit more specific on the next year or so that the biggest the big opportunity you see you know, specifically, it more in vacancy? Is it more in rent growth? Or is there something else you're thinking about bigger picture in terms of the opportunity? Thanks so much. Tim Arndt: Hey. Hey, Vikram. I'll start. Good multipart question there. Well done. On occupancy, you can unpack our average occupancy guidance. Obviously, it provides a range of outcomes given just there being a quarter left. But look, I'm reasonably confident we're gonna sustain around this level. It'd be a consistent commentary with what we said about the market. And we'll be looking for opportunities to build from there, going into 2026. Chris Caton: You asked about the market landscape. I think that was question two. And as it relates to the rent forecast, let me describe how hard it is to have an inflection conviction at this point. At an inflection point. And so let's just level set. Market vacancies, seven and a half percent today. Gonna hang around this level. For a little while, for a couple quarters, let's say, and improve through '26, later in '26. And that's gonna be a product of the supply that's coming in the marketplace, By the way, development starts are 75% below peak and running 25% below pre-COVID levels. And demand you know, ran 47 million square feet in the quarter, and has a potential to improve over the course of the coming year, but perhaps not quite get back to normal just given the broader macro landscape, notwithstanding the momentum we have with our customers. And so the thing that I think you'll see on rent growth, without giving you a specific number, is the weakness, the softer markets, are dissipating. And there's a wider range of better and stronger markets, and that's gonna really evolve over the course of the next year. Dan Letter: Let me just pile on one more thing before Hamid comments on whether or not he's gonna start a blog or a podcast. No. Okay. You got that answer already. But going into 2026, our priorities remain the same. If you look at our build-to-suit pipeline right now, it remains robust, and we're having a phenomenal year with build-to-suits, 21 deals signed. 75% of that volume has already started this year. You expect to see the rest of it start through the end of the year. And we're in conversations on nearly 30 million square feet of new deals. So really excited about that. It's by far the best incremental return on our investment. And then you look at our data center business. Data center business is significant and gonna continue to invest and keep that a high priority. And then, if you, also, we're gonna have started spec in 18 markets this year. And I can see that actually opening up a bit more especially as Chris mentioned internationally. And then even in several pockets around The United States. So plenty of priorities and big things to look into '26 and be excited about. Thank you, Vikram. Operator, next question. Operator: Thank you. Our next question comes from the line of Samir Khanal with Bank of America. Please proceed with your question. Samir Khanal: Yeah. And thanks a lot. I guess congratulations from our side as well, Hamid. Tim, can I ask you to provide more color on the customer sentiment you talked about, the strengthening in your opening remarks? Clearly, there is a tariff news you get, you know, pretty much on a weekly basis creates the volatility? But are customers now at a point where, you know, they think this is sort of the new normal and are more comfortable making long-term decisions as we think about sort of this inflection in occupancy? Thanks a lot. Dan Letter: Yeah. Samir, this is Dan. Yes is the answer to your question. Customers have definitely become more desensitized to the short-term noise as they look at making long-term decisions. It's great to see these well-capitalized large companies leading the way because we typically see the small media businesses follow suit here. So overall, they need to make these long-term decisions and can no longer be held back. Thank you, Samir. Operator, next question. Operator: Thank you. Our next question comes from the line of Nick Thillman with Baird. Please proceed with your question. Nick Thillman: Good morning out there and congratulations, Hamid. I guess kind of looking at the overall we understand demand is kind of getting back to its long-term average. Starts coming down. Tim, I just kind of wanted we hear a little bit on just credit risk, and private credit. I guess are you seeing anything in the portfolio that might give you a little bit of pause when you're looking at just kind of vacancy peaking here and then the ability to build occupancy, any sort of risk within the portfolio or broader market in general? Tim Arndt: No. I would say not in the way you're asked. I mean, bad debt expense is elevated. We've been talking about that over the course of the year and even coming into the year pre-tariffs. We had an expectation for a little bit elevated level may have expected in the thirties at the beginning of the year, and our experience is probably gonna be forties in terms of basis points, on revenue. Well below some of the higher numbers we had seen in past crises. And, you know, we've taken the opportunity in this last cycle where you know, it's very challenging to get space, and we could do more around customer selection. And credit and did a great job improving the overall credit health of the portfolio, and I think that shows up in these statistics. Dan Letter: Thank you, Nick. Operator, next question. Operator: Thank you. Our next question comes from the line of Vince Tibone with Green Street. Please proceed with your question. Vince Tibone: Hi. Good morning, and congratulations again, Hamid, from the entire Green Street team on a great career. And then just yeah. I have one more question on the data center business. I just would like, you know, like to understand how much data center development you'd be comfortable starting. And, again, given you're having, you know, under construction in any given point in time. But just trying to get at, like, how quickly you could potentially realize the large value, you know, value creation potential from the data center land bank? Like, what's the constraint from doing, you know, 3 plus billion of data center starts in a given year. It seems like demand is there and the power is secured. So I'd love to just kind of get a sense of what the realistic pace of starts or how you're really thinking about that dynamic. Tim Arndt: Hey, Vince. It's Tim. I don't know that I see a limit. 3 billion is a very easy number, honestly, to handle. I think, you know, if we were talking about a speculative program, that's where we would have a lot of consternation about what's the appropriate number and getting out on a limb. Our approach here on build-to-suits together with the debt capacity in our balance sheet, the liquidity, the takeout options we're exploring, we're not constraining ourselves. And that's why we're very active in pursuing I hope it's getting underscored here the incredible amount of energy we have now gathered. And the volume of customer conversations that we're having is also very high. So we're gonna see volumes come through. Preparing for them. And, we're ready for them. Dan Letter: Yeah. And, Vince, the way I think about it is power will be the constraint. Going forward. It won't be capital. Dan Letter: Thank you, Vince. Operator, next question. Operator: Thank you. Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question. Blaine Heck: Great. Hamid, congrats on all your success. Best of luck, and I hope we can stay in contact. You guys talk a little bit about your updated thoughts on the transaction market and acquisition opportunities and whether you've seen any movement in cap rates or pricing in general as the ten-year has showed some moderation more recently? Dan Letter: Thanks, Blaine. The transaction market's been surprisingly resilient. As a matter of fact, volumes in '25 are up about 25% year over year. So we're seeing a lot more out there. Overall pricing is pretty consistent. Market cap rates in the low fives and then I would say IRRs in the low to mid-sevens, obviously, on low location and product type and maybe one of the biggest drivers is how much Walt is left. People are more focused on shorter-term Walt today than before. Thank you, Blaine. Operator, next question. Operator: Thank you. Our next question comes from the line of Mike Mueller with JPMorgan. Please proceed with your question. Mike Mueller: Yeah. Hi. Thanks. Congrats, Hamid, as well, and best of luck. I guess the question, can you talk about the pace of spec development leasing today and if you're seeing notable improvement there recently as well? Tim Arndt: Hey, Mike. It is getting better. Yeah. We, you know, we would typically seven to eight months, I would say, on the lease of time across spec. That did extend probably over twenty-three, twenty-four by a month, a month and a half on average, and we're slowly seeing that come back to its historical norm. So yes. Dan Letter: Thank you, Mike. Operator, next question. Operator: Thank you. Our next question comes from the line of Nicholas Yulico with Scotiabank. Please proceed with your question. Nicholas Yulico: Thank you. So, you know, just looking at the rent change that you guys quote, the cash net effective rent change mark to mark on leasing that happens in the quarter. It's you know, came down over the past year and was just hoping you could break out maybe some of the impact of that from, you know, one, just cycling through now some tougher, you know, lease expiration comps maybe, you know, COVID leases, you know, in impacting that number? And then also on, you know, the renewals, if you could just talk about if you know, since your retention's up, occupancy's starting to pick up, if you've been running a sort of, occupancy first type strategy where you're willing to negotiate more on, renewals and know, that's impacted mark to market. And, you know, as we think about, this potential for inflection here in your portfolio, You know, is there some help that comes to the mark to market number because of, any of these factors changing? Thanks. Tim Arndt: Yeah. Let me start with the prospect of rent change and kind of how the lease mark to market is gonna sustain. You know, even the fact that that's come down to 19% this quarter, I'm quoting that effective here is 22% last quarter. It's really important to contrast that with what our rent changes, though, in the immediate. Which is in the low fifties, as I mentioned. So it does really highlight a wide the potential for rent changes off of that average. And this is also an opportunity to remind you to take a look at our expiration schedule available in the supplemental. We cast out what the expiring rent is over the next five years. You can unpack from that same schedule what we see as market rent and see positive rent change in the forties is what you'll get mathematically next year. You'll see in the thirties, the following twenties, and the following. That's without any further market rent growth. In fact, all the way through that expiration schedule, you'll see uplift. So I think that is a not perfectly understood or appreciated story, so I'm glad you honed in on that. With regard to pushing rents, I think was sort of the second part of your question. We are. You know, you may recall in years past, we've talked about an active measurement we take where we kind of watch the teams and understanding how many deals are being lost. Due to rents. In the go-go days, 21, '22, we are looking to see a meaningful number there. We want to see that aggressiveness in negotiations. And that ground down to about zero. Maybe in '23, some of '24. We're starting to see that lift up again, which is showing the courage as some of the market conditions tighten. To lean in on those conversations and push rents again. It's gonna happen in different markets at different paces, but it is beginning. Dan Letter: Thank you, Nick. Operator, next question. Operator: Thank you. Our next question comes from the line of Brendan Lynch with Barclays. Great. Thank you. I wanna echo everyone's congratulations to Hamid. I think there'll be case studies written on your career and the company built for decades to come. In terms of my question, talk about a third of your customers serving basic daily needs, about a third serving cyclical demand. And about a third catering to more structural trends like e-commerce. Could you talk about where you're seeing the biggest changes in leasing and which of these buckets have more or less strength at present? Chris Caton: Sure. It's Chris. I'll jump in. So where are the areas of biggest strength? I think for sure e-commerce is part of the story. It's running at nearly 20% of new leasing. So that's an area of strength. That's a global phenomenon. That's a range of markets phenomenon. It's also particularly, infill as service levels continue to improve. So e-commerce would be part of that story. And then I would say stable growth businesses, so your food and beverage, your medical companies, These are companies who are investing in their supply chains to improve service levels and also manage their costs. They're looking at their networks. They're looking at their labor spend and managing their cost. And so there's a supply chain investment there. Then the question would be maybe where's where is their softness? And I would offer there is some cyclical spending categories that are subdued. So I look at the auto space, I also look at housing-related categories. So for example, furniture. Those are areas where perhaps high interest rates have led to less robust growth in those industries generally, and so we have fewer requirements coming in from those categories. Dan Letter: Thank you, Brendan. Operator, next question. Operator: Thank you. Our next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your question. Todd Thomas: Hi. Good morning. Thanks so much, and congrats, Hamid. Best of luck. I wanted to ask about the revised guidance. It implies a sequential decrease in core FFO of about $0.06 at the mid. Just curious if you can discuss some of the moving pieces that we should be thinking about some of the puts and takes heading into the fourth quarter. And as we think about 2026. Tim Arndt: It's a one of the you know, there's a few elements here, and it gonna point to the need to rely on the kind of the full year to step back. A lot of what occurred in the in the third quarter were some timing really in two categories I'd highlight. One is in the timing of sales of investment tax credits. These are credits you may recall that are generated out of our solar and energy business. We generate more credits than we can use on our own return. We sell excess credits. That happens upon the completion and stabilization of particular projects, and that timing across quarters can be uneven. We had a particularly large quarter of that in the third quarter, and you may have seen that represented in the other income line. In our P&L. That is no change to our full-year forecast. That's fully expected on the full year. It's just the lumpiness between quarters. So between that and the other larger area would just be G and A. We'll lighter G and A quarter due to the timing of some particular items. It'll be a little bit heavier in the fourth quarter. Those two things, when normalized, explain what looks like a deceleration. And, you know, if you're trying to unpack kind of a run rate looking ahead of 2026, I've used more of the second half of the year versus the fourth quarter. It will tell you a little bit more. You know, on that point, as we look ahead to 2026, I'd call back to, you know, the building blocks that we've talked about in the past of what long-term earnings ought to look like for Prologis, Inc., which is high single digits. We get there through not just the base of same-store growth, but after leveraging that with our financial and operating leverage, piling on the value creation to accretion we spoke about earlier, the contributions from the essentials businesses. These are all the things that keep you there. Into 2026, that's all in play with two headwinds to continue to be mindful of. One would just be about the march up on interest rates here that is still present. You know, with the long average remaining life we have in our debt portfolio, it'll be moderate, but it is kind of anti-accretive to the bottom line if you think about it in that way, and that will still be in play for us. And the other thing that is will be occurring as we go through this transition and capital deployment. You know, last year, 2024, was our lightest year of development starts since our merger, which is really kind of incredible to think about. So its contributions at stabilization, which will be broadly in 2026 to that growth rate are nearly absent. They'll be quite low. At the same time that we're really excited about the capital we're gonna be reinvesting into not only just logistics, but also data center. So that deployment drag is as we've called it in the past will be a bit more present next year. I think a simpler way of, thinking through all of that might just be that a lot of the way we're looking at '26 right now feels like the way we were looking at '25, one year ago. So hopefully that helps. Dan Letter: Thank you, Todd. Operator, next question. Operator: Thank you. Our next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question. John Kim: Hey. Congrats to Hamid certainly on the Mount Rushmore. We wheat fields in her book. But I'd like to ask about the direction of same-store NOI given your guidance for the year. It implies basically that, that slows down to about 3.5% in the fourth quarter despite occupancy improving. I wanted to see if that was a realistic figure for you. And, also, if you can remind us how you treat solar income in same-store. Is it part of your same-store results given they are additive to existing assets? Tim Arndt: Yeah. John, you know, as a statistic you guys can't see from our disclosure is what is this average occupancy within the same-store pool itself. And given our M&A and a lot of changes to what comprises same-store it can be a markedly different number at times. And in that regard, the average occupancy in that pool a year ago was quite high actually. And so we have that comp to work against here in the fourth quarter, and that's really what you're probably seeing in the deceleration. Rent change is really what I would stay focused on. And that's gonna remain very, very strong. Yeah. Solar revenues and their expenses do appear in NOI. They are very small at this stage. I would highlight and relatively flat probably across years. Their growth rate is not as significant as what hope to see in the logistics front. Dan Letter: Thank you, John. Operator, final question please. Operator: Thank you. Our last question comes from the line of Craig Mailman with Citi. Please proceed with your question. Craig Mailman: Hey, guys. Thanks for the follow-up here. And Hamid, echo everyone say you'll be missed and best of luck in the next chapter. And I guess since I'm the last question, I'll try to pop two in here. Just a clarification on Nick's earlier question about how you guys think about the growth rate for the data center side. I guess we were thinking more same-store growth of a hyperscale portfolio versus that of an industrial portfolio from an owned perspective and how you guys think about that as you're evaluating these different structures to potentially hold deals longer or in perpetuity, and then the second question, Tim, I know in the past you've talked about the gap between new lease signings and when they actually commence. And so I'm just kind of curious from an average occupancy perspective, with the reacceleration of leasing you had here kind of the third quarter and hopefully into the fourth, when we should really start to see that average occupancy inflect quickly back up into 95% and because I guess everyone's asking about same-store and earning and that would be in my view, probably a big piece of that acceleration. Tim Arndt: Okay. Craig. So I think that the way you're framing some of the growth discussion around data centers is just not how we're thinking about it. You know, going back to I guess it was Nick's comments. We really do think about the value creation reinvestment back into our core business. I recall comments on this back at our investor day in 2023, and we stuck with that. Now we may retain some interest that was as we've been talking a lot about here, But in that regard, then it contributions to base rent and same-store growth will be relatively small. Right? Because we'll just have a small proportionate share of those earnings. And, you know, I think it also highlights I'm not sure if this was intimating your question, but we wouldn't look at our willingness to stay in the business or grow it more or less based on its same-store growth profile. You know what I mean? That's an earnings concept. That's a gap concept. We're gonna look at all of these investments from a total return and value creation perspective. That's what you see in our strategy. You wanna hit occupancy? Hey, Craig. I'm gonna understand your question on returning to 95% is really a market question given where the company is leased. So just to be clear, the market is seven and a half percent. Vacant today, and we see it hanging here for a period of as demand normalizes in the coming you know, years, let's say, and that'll present opportunity that'll present recovery opportunity. And I wanna make a long-term comment on that market vacancy. We enter this new phase of the market at a substantially lower market vacancy as compared to prior cycles. We're talking about hundreds of basis points of superior starting point as compared to the prior cycles. And so that's gonna set up the market for the rent dynamic and the optimism that Hamid shared earlier. Dan Letter: Thank you. Operator: And ladies and gentlemen, we have reached the end of the question and answer session. I'll now turn the call back over to management for closing remarks. Hamid Moghadam: Thank you. This is Hamid, and thank you, And so many of you said so many nice things in this forum and elsewhere. In the last couple of weeks. Before I wrap it up, I just wanted to share a brief personal note with you guys as my role as CEO. Yes. It has been forty-two years, twenty-seven of which have been a public company and 112 calls. I guess, Warren Buffett has beat me on longevity, but since he doesn't do calls, I'm gonna have this record on calls. For a while. But when we started this business in '83, it was a tiny startup. The world was just a very different place in terms of our industry. Today, Prologis, Inc. is one of the most valuable property companies in the world. And the business has become highly professionalized and has grown in its scope and global footprint. To witness that arc and to have had the privilege of leading this company through it all, it's been surreal. We've navigated financial crises, geopolitical shocks, more than a few once-in-a-lifetime events. Sometimes it feels like one of those every quarter. But here's the truth. Our success has very little to do with me. It's been really the result of working with great colleagues, great partners, service providers, investors, loyal customers, and of course, a generation of you analysts and your many questions many pesky questions because it made us better. That and a little good fortune and maybe a few good decisions along the way have been what has made this company what it is today. What I'll remember is not the deals or the numbers but really the people and the culture. And that's what the foundation and the secret sauce to this company. So I'm stepping aside with complete confidence and I better be that way since more than half my net worth is invested in this company. So I take this transition very seriously. And I know that our next chapter is in the hands of an exceptional leader supported by a terrific team. They embody the same vision and values that have always defined and driven Prologis, Inc. These are the people who make Prologis, Inc. even will take Prologis, Inc. even further. I really believe, and I wanna underline this, and I say it every year almost. That the best years of Prologis, Inc. are still ahead of it. We are building a company of enduring excellence. It's been our mission, and I know we'll continue to guide everything we do. So to all of you, colleagues, customers, investors, analysts, and the press, thank you for your trust, your candor, and your partnership. It's been an honor of my professional life to lead this company. And I couldn't be prouder of where we are and where we're going. Okay, Dan. And the team will speak to you next quarter, and I may be the questions then. Thank you. Goodbye. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation. Have a great day.
Denise: Good morning, everyone, and welcome to the Citizens Financial Group Third Quarter 2025 Earnings Conference Call. My name is Denise, and I'll be your operator today. Following the presentation, we will conduct a brief question and answer session. As a reminder, this event is being recorded. Now, I'll turn the call over to Kristin Silberberg, Head of Investor Relations. Kristin, you may begin. Kristin Silberberg: Thank you, Denise. Good morning, everyone, and thank you for joining us. First this morning, our Chairman and CEO, Bruce Van Saun, and Interim CFO, Chris Emerson, will provide an overview of our third quarter results. Brendan Coughlin, President, and Don McCree, Chair of Commercial Banking, are also here to provide additional color. We will be referencing our third quarter presentation located on our Investor website. After the presentation, we will be happy to take questions. Our comments today will include forward-looking statements which are subject to risks and uncertainties that may cause our results to differ materially from expectations. These are outlined for your review in the presentation. Also reference non-GAAP financial measures. So it's important to review our GAAP results in the presentation and the reconciliation in the appendix. With that, I will hand over to Bruce. Bruce Van Saun: Thanks, Kristin. Good morning, everyone, and thanks for joining our call today. We announced very strong financial results today as our momentum continues. We feel like we are firing on all cylinders. Financial highlights include EPS growth of $0.13 sequential quarter or 14%. We had strong NII growth of 3.5% sequentially paced by NIM expansion of five basis points and net loan growth across consumer, private bank, and commercial similar to last quarter. Fee growth was 5% versus Q2 paced by a tremendous quarter in Capital Markets, our second highest ever, as well as continued nice growth in wealth fees. Sequential positive operating leverage was 3%, as expense growth was held to just 1%. We continue to experience favorable credit trends and we still have a robust balance sheet. Our CET1 increased 10 basis points to 10.7%. We have an LDR of 78.3 and virtually no wholesale borrowing. We continued the strong execution of our strategic initiatives during the quarter. The private bank had a banner quarter on deposits with spot growth of $3.8 billion to $12.5 billion, already ahead of our year-end $12 billion target. Loans and AUM continue to track well. We have now added eight wealth lift-outs to the private wealth platform with more in the pipeline. We continue to build out our private bank team with additional hires in Southern California and we now have around 500 people in the business. Quite the ramp from a startup in 2023. In addition, our efforts across New York City Metro, private capital, and payments are all tracking well. Our efforts around reimagining the bank continue to make good progress. We've systematically evaluated all areas of the bank to seek opportunities to improve how we are serving customers and how we are running the bank. We will give the full parameters of this effort on the January earnings call. Overall, we expect benefits to largely offset costs, including one-timers in 2026, with net benefits beginning to positively impact results in 2027 and becoming quite meaningful thereafter. One of my priorities this year has been to commence the transition of the leadership team I assembled a decade ago to the new refresh team that can take us forward for the next decade. Most recently, we announced that Don McCree will be retiring in March 2026, having handed the reins to Ted Swimmer earlier in October. Don has been a great partner and has made a big contribution towards our success. It's been a real pleasure working with him. We've been planning Don's succession for some time and I have every confidence that Ted is the right leader to take us on the next leg of the journey. When Anoye Banerjee arrives in ten days as our new CFO, the team will have been largely refreshed with several younger dynamic, outstanding new leaders. Turning back to the financials. With respect to Q4, we expect to continue to see attractive earnings growth based by positive operating leverage, favorable credit trends, and share repurchase. We remain highly focused on executing our strategic agenda which should deliver superior organic EPS growth relative to our peers over time as well as further improvements in returns. We are positioned well to sustain our momentum into 2026. The macro environment remains positive despite continuing uncertainty with respect to fiscal and monetary policies. We will stay focused on executing the things that we can control as we continue on our journey towards building a top-performing bank. With that, let me turn it over to Chris Emerson, our Interim CFO. Chris? Chris Emerson: Good morning, everyone. As Bruce mentioned, we delivered a strong revenue performance with disciplined expense management in the quarter, driving both sequential and year-over-year positive operating leverage of about 35% respectively. We saw good growth in deposits with the private bank hitting $12.5 billion in deposits for the third quarter, up $3.8 billion. Lending continued to pick up during the quarter, with growth led by increasing sponsor activity in commercial and the private bank. Given our strong outlook, the Board of Directors declared a quarterly dividend of $0.46, which is a $0.04 or 9.5% increase. Referencing slides five and six, we delivered EPS of $1.50 for the third quarter, an increase of $0.13 or 14% over the second quarter. PPNR was up 9% sequentially and 20% year over year. Capital markets delivered a record third quarter and our best performance since the all-time high in 2021. Performance was strong across all categories, demonstrating the power of our capabilities as market activity picks up. Net interest margin continues to steadily expand, up five basis points to 3%, and average loan volume was up 1%. Which combined delivered 3.5% NII growth. Expenses were well managed and we had 3% positive operating leverage. Credit trends continue to be favorable and net charge-offs were lower as expected. We continue to maintain robust capital, strong liquidity levels, and a healthy credit reserve. We ended the quarter with our CET1 ratio at 10.7%, while executing $75 million in stock buybacks during the quarter. And importantly, are executing well against our key strategic initiatives with very strong momentum in our private bank and private wealth build-out. The private bank continues to steadily grow its earnings contribution, adding $0.08 to EPS this quarter, up from $0.06 the prior quarter. With this, the Private Bank hit an important milestone this quarter, achieving cumulative breakeven with the EPS contribution since the launch in 2023 completely covering our investments and then some. In about two years. Next, talk through the third quarter results in more detail starting with net interest income on slide seven. Net interest income increased 3.5% linked quarter driven by continued expansion of our net interest margin. And a 1% increase in average interest-earning assets. The margin expansion of five basis points was driven by the time-based benefits of non-core runoff and reduced impact from terminated swaps, as well as fixed-rate asset repricing. We continue to do a good job optimizing deposits in a competitive environment, Interest-bearing deposit costs were stable while total deposit costs were down slightly. Our cumulative interest-bearing deposit beta was 53% through the third quarter. Moving to slide eight, fees are up 5% linked quarter and up 18% year over year. As I mentioned earlier, Capital Markets delivered a record third quarter and our second-best ever quarterly performance. An increase in market activity drove strong M&A results, even before including the deals that were delayed from the prior quarter. We saw a meaningful pickup in debt underwriting primarily driven by refinance activity and we delivered a solid performance across loan syndication fees and equity underwriting. We continue to perform well in the league tables, ranking fourth for the last twelve months on deal volume, for middle market sponsored loan syndications. And our deal pipelines across M&A, debt, and equity capital markets remain strong. Wealth business delivered a record quarter with higher advisory fees from continued positive momentum in fee-based AUM growth given strong inflows from the conversion of private wealth lift-outs. As well as market appreciation. As expected, mortgage and other income came down from elevated levels in the prior quarter. On slide nine, expenses are up 1% reflecting continued investment in the build-out of private bank and private wealth. And strong capital markets performance. Disciplined expense management and strong revenues resulted in approximately 170 points of improvements in our efficiency ratio. To 63%. Our top 10 program is progressing well and is on target to deliver $100 million pre-tax run rate benefit by the end of this year. I'll provide an update on our Reimagine the Bank initiative in just a few minutes. On slide 10, period-end loans were up 1%. This includes non-core portfolio runoff of roughly $600 million in the quarter. And excluding non-core, loans were up approximately 2% on a spot basis. The private bank delivered solid loan growth again this quarter with period-end loans up about $1 billion to $5.9 billion, reflecting a pickup in commercial line utilization and growth in retail mortgage. Commercial loans were up slightly on a spot basis, given increased line utilization tied to sponsor activity. We continue to reduce CRE balances which were down about 3% this quarter and 6% year to date. And core retail loans grew by about $1 billion driven by home equity and mortgage. Next, on slides eleven and twelve, we continue to do a good job on deposits. With non-interest-bearing balances increasing by about $1.5 billion or 4%, maintaining a steady mix at 22% of the book as our overall spot deposits increased approximately $5.18 billion. Average deposits were up 1% driven by increases in the Private Bank and Commercial with spot up 3% including some larger transactional flows towards the end of the quarter. We continue to focus on optimizing our deposit funding costs with a further reduction of higher-cost treasury broker deposits this quarter and a decline in retail CD rates. Our interest-bearing deposit costs are stable linked quarter translating to a 53% cumulative down beta. And importantly, stable retail deposits are 66% of our total deposits. Which compares to a peer average of about 56%. Moving to credit on Slide 13. Net charge-offs of 46 basis points are down from 48 basis points in the prior quarter driven primarily by a decrease in C&I. Credit trends continue to trend favorably with non-accrual loans down slightly linked quarter driven by C&I and CRE with criticized balances also declining. Turning to the allowance for credit losses on slide 14. The allowance was down slightly to 1.56% this quarter as the portfolio mix continues to improve due to non-core runoff, the reduction in the CRE portfolio, lower loss content front book originations across C&I and retail real estate secured. The economic forecast supporting the allowance is relatively stable to the prior quarter. The general office balance of $2.5 billion continued to decline modestly in the third quarter driven by paydowns and charge-offs. This is down by $1.6 billion since March 2023, roughly 40%. The reserve for the general office portfolio is $314 million, which represents a robust 12.4% coverage. Moving to slide 15, we maintain excellent balance sheet strength. Our CET1 ratio increased to 10.7% and adjusting for the AOCI opt-out removal, our CET1 ratio is 9.4%. We returned a total of $259 million to shareholders in the third quarter, with $184 million in common dividends and $75 million of share repurchases. Moving to slides sixteen and seventeen, we are well positioned to drive strong performance over the medium term with our overall three-part strategy. A transformed consumer bank, the best-positioned commercial bank among our regional peers, and our aspiration to build the premier bank-owned private bank and private wealth franchise. The private bank continued to make excellent progress as you can see on slide eighteen and nineteen. The Private Bank delivered its strongest quarter of deposit growth so far with end-of-period deposits up $3.8 billion to $12.5 billion and average deposits up $2.2 billion to $10.7 billion. The overall deposit mix continues to be very attractive with about 34% in non-interest bearing at the end of the quarter. We also delivered strong loan growth this quarter adding roughly $1 billion of loans to end the quarter at $5.9 billion. This reflects growth in subscription finance, as line utilization rose with increased client transaction activity as well as good growth in mortgage. So far, we've added eight wealth teams to our platform with more in the pipeline. We ended the quarter with $7.6 billion in AUM, up $1.1 billion linked quarter. Reflecting the continued strong conversion rates of the wealth lift-outs. With year-to-date earnings of $0.18, we are tracking to approximately 7% earnings contribution, which is above our target of 5% plus accretion. To Citizens bottom line 2025. We continue to remain focused on sustaining strong growth in the private bank while maintaining a high level of profitability. With ROE in the 20% to 25% range 2025 and over the medium term. Moving to slide 20, our Reimagine the Bank initiative continues to take shape. We feel very good about how we are currently positioned. However, the pace of change is accelerating and competition is fierce. So we are taking the opportunity to think boldly about what will be needed to take the bank to the next level. We have a team of executives from across the bank working on cultivating technology and AI-enabled ideas that will empower our colleagues to run the bank better and we are looking at all our key customer touchpoints to simplify and improve customer experience. Aside from technology, we're looking at areas like reducing the number of vendors we use, and rationalizing how they serve us across the bank. We are also looking at how we use our corporate facilities, how best to optimize our branch network to build our market share in key markets. Have more details on the contours of the program for you on our year-end earnings call, but suffice to say, we will be running the program with our usual financial discipline with an eye toward minimizing the impact of one-time costs and capital investments in 2026 by executing initiatives with faster paybacks. The program will drive positive net benefits in 2027 that we expect will accelerate into 2028. With this program, we aspire to deliver fully phased-in run rate benefits greater than top six which was in excess of $400 million. On slide 21, we provide our guide for the fourth quarter which contemplates two twenty-five basis point rate cuts. One in October and another in December. We expect net interest income to be up approximately 2.5% to 3% driven by an improvement in net interest margin of approximately five basis points and interest-earning assets up slightly maintaining a fairly consistent spot LDR to the third quarter. We expect non-interest income to be stable with capital markets holding steady to the third quarter and some puts and takes across other categories. We are projecting expenses to be stable to up slightly and we expect to deliver sequential positive operating leverage for the third quarter in a row and for the full year. Credit is expected to continue to trend favorably with charge-offs in the low 40s basis points. And we should end the fourth quarter with a CET1 ratio stable at 10.7% including share repurchases of roughly $125 million which depending on the amount of loan growth could be revised. The fourth quarter tax rate should be approximately 22.5%. Moving to Slide 22, looking out to the medium term, we see a clear path to achieving our 16% to 18% ROTCE target. Expanding our net interest margin is an important driver along with the impacts of the successful execution of our strategic initiatives and improving credit performance. To wrap up, our strong third quarter results demonstrate the quality and potential of our fee businesses as well as the consistent improvement in our net interest margin. Coupled with our continued expense discipline, we achieved positive operating leverage for the second quarter in a row. Credit trends continue to improve and with our strong reserves and capital level, we are in an excellent position to continue navigating a dynamic environment. While supporting our clients, and continuing to progress our strategic initiatives. And with that, I'll hand it back over to Bruce. Bruce Van Saun: Okay. Thank you, Chris. Denise, let's open it up for some Q and A. Denise: Thank you. Our first question today comes from Scott Siefers with Piper Sandler. Your line is open. Scott Siefers: Good morning, everyone. Thanks for taking the question. Maybe Chris, was something you could spend just a moment discussing the expected margin trajectory sort of both near term and then toward the 3.25 to 3.50 medium-term target. I know the fourth quarter margin should come in around 3.05, which is up but sort of toward the lower end of the range you all had discussed previously. Maybe just thoughts on how things are trending versus your expectations and then sort of the puts and takes as we go out beyond the fourth quarter in your mind? Chris Emerson: Yes. Thank you for the question. As you mentioned, we're forecasting that $3.05 million into the fourth quarter. And as you know, that's on the back of a lot of the time-based activity, the non-core runoff, the terminated swap benefit, fixed asset repricing. And although we're slightly asset sensitive, we believe that positives on swaps and our mix will overcome the asset sensitivity and allow us to hit $3.05. Into the fourth quarter. And as we project out across the medium term to our $325 million to $350 million range, we really look at that in a couple of buckets. We've got our time-based benefits, which is the majority of everything that you're going to see there. As well as the front book, back book, which is adding a couple of basis points each quarter to round it out. And then the net of our mix pricing and others should take us the rest of the way into that range. Bruce Van Saun: Yes. I would also say Scott, it's Bruce that the initial several quarters back view was that we could exit three zero five to three ten I'm still happy to be at three zero five A couple of things have happened over the course of the year. One is that the back end of the curve has come down. So I think our original view was the tenure would be in a four twenty five to four fifty range. And so it's lower than that which crimps a little bit the front book back book benefit. It's still there, but we assumed it would be a little higher The other thing that's happened is that commercial loan pricing spreads have come in. It's a bit tight. And so it's those two factors really which have brought us in kind of still within the range, but more at the lower end of that range. Scott Siefers: Perfect. That's good color and thank you. And then Bruce maybe sort of a broader top-level question. The ground seems to be shifting a little in the large regional space. I think since last quarter where it looks like we're going to create a new Category four name with one merger and then move another Category four bank up to category three eventually. Any updated thoughts on the role M and A might play in the Citizens story over the next couple of years? Or is it still that you've got just plenty of organic runway that you'd rather sort of maintain that organic momentum? Bruce Van Saun: Yes. I'd say that's still the case Scott. So we have I think our own somewhat analogous acquisition to what other people are doing was the startup of the private bank. And we're getting significant accretion to the bottom line and we didn't have to expend any capital to do that. We took a little risk in the startup of the business which is now already covered the initial investment. And it's an excellent well-positioned business that has we're competing that to continue to get growth. While we're achieving very strong profitability levels. And so that's our focus is to make sure we execute well on that We set that business up to be a really valuable franchise in the medium and long term. I think we're on that trajectory which we feel good about. We have another a bunch of other initiatives too looking at New York Metro and the growth that we're achieving there. Looking at some of the investments we've done in the commercial bank and how we're covering private capital. And we've been waiting for activity levels to pick up. To really demonstrate the prowess of how that business is positioned. And now when you see activity levels picking up, I think you can see the power of what we've assembled. So So we have a lot of strong growth We're always alert for opportunities. But as I said in the past, it'd be it have to be a pretty high bar for us to you know, go down that path and look at look at things inorganic. Scott Siefers: Terrific. All right. Wonderful. Thank you for the color. Bruce Van Saun: Yes. Denise: Thank you. Your next question comes from Dave Rochester with Cantor Fitzgerald. Your line is open. Dave Rochester: Hey, good morning guys. Nice quarter. Thanks. Just real quick on the Private Bank outlook. You reiterated the levels you talked about before in terms of loan deposit targets AUM. You're already there on deposits, so it would be great to just hear your outlook there. Over the next quarter, the next year. And then in terms of AUM, it looks like there may be a little bit of a gap. If you could just talk to your confidence in hitting that target by the end of the year, that would be great. Thanks. Bruce Van Saun: Sure. I'll start and then Brendan can offer color. But I'd say path on deposits is not going to be linear. So you're going to have I'd say in the second quarter we saw some outflows near the end of the quarter. And the third quarter, we saw some inflows. Near the end of the quarter. And so you kind of have to look at this kind of over the trajectory over several quarters. It averages out We feel really good that we're already at the year-end level and we would expect to see some growth. But I don't think it will be that significant. We won't have another quarter like we had in and Q4, but we should still achieve net growth from here. So that's good. I think loans is tracking well. AUM which you pointed out is a combination of things. So some of it is lift outs that we've already done and how fast they're converting over their base. Some of it is lift outs in the pipeline and when they close And some of it is the referrals that we're getting from the private bank. Over to private wealth. And so I think the wild card as to whether we hit that number or not at the end of the year is going to be a couple of the lift outs in the pipeline. Do they happen in Q4? Do they spill into Q1? I'm not concerned by that. I mean if it's just a timing based difference. The good news is that we're continuing to see a lot of interest in the platform. We've gone around the whole circuit and we've got two wealth teams paired up with each private banking team. And so, we feel good about how it's building the quality of what we're assembling. We have more in the pipeline. We'll see exactly when that timing hits. So with that, let me turn it over to Brendan. Brendan Coughlin: Yes. Thanks, Bruce. Maybe start with a point or two on the medium-term outlook and then add to Bruce's comments about Q4. We feel really confident over the next year or two that this momentum we're seeing will continue. And to kind of give you a few points here, but the original team that we brought over back in 2023 estimate maybe they've got 50% to 60% their book of business size of what they had prior to First Republic's failure. Now we don't expect that to get back to a 100% given the market we're operating in and higher rates and so on and so forth. But the capacity to continue to grow is there. Then you supplement that with the management actions we've taken since we brought that team on board. Bruce mentioned and Chris did too. We started with about 150 people, we're up to five people. We're slowly and surely adding scale and capacity, expanding geographies. We've added new capabilities in family office. We've added new products and partner loan program. So on and so forth. And we're doubling the number of PBOs that we have between now and the end of next year. And you see in our deck that PBOs have over 300,000,000 which is incredibly large for such a short time period to open a retail branch. So that should give us fuel in the tank. We also have done a really nice job connecting the franchise, particularly as of late with One Citizens. And so we're starting to see a lot of cross-pollination of the private bank just being us protecting it, incubating it to grow. Now it's starting to become upscale and they're working more effectively with the commercial bank, with our investment bankers, with our business banking team, with the retail the wealth team, we're seeing a lot of cross-pollination that it's not just about growing, getting their clients back. It's now about cross-selling into the existing Citizens franchise in private banking. So there's a lot of tailwinds here that we see in the future that should give you broad confidence on sustaining this performance. And not a lot to add to Bruce's comments about Q4. I would just add on the AUM front that if a team pushes out into next year, it's got a negligible net income impact in the short term. It's basically breakeven in the first year. And so really it's just the headline metric. And if we end up missing by a little bit and it pushes to Q1, it's not gonna take us off our financial profile or outlook at all. And we've got a very robust pipeline of talent that has high degrees interest in joining our wealth platform. So anyway, we still feel good. We got a real good shot to hit our metrics. Bruce Van Saun: Yeah. I would just close with one thought here is that when we initially did the deal we gave targets out into where we thought we'd be in 2024 the next year and then the year after that being '25 And so it's likely that we'll want to refresh kind of over the next three-year view where do we think we can take this business and I think I've said publicly that the contribution to our bottom line could double theoretically within the next three years if we stay on this trajectory. So we have high growth ambitions for the business, but at the same time, we want to run it profitably and sustain that ROE in the 20% to 25% range. So I think this business ultimately will occupy some of the white space that First Republic created when they went under. But we'll do it and I think the two-point zero version is going to be even better given the totality of what Citizens offers with a solid commercial bank. Think we can be in position to really be the bank for successful people. And entrepreneurs. And kind of across all industry realms PEVC and as commercial real estate and other sectors. So that's what we're aiming for. And I think we're really on the way to achieving that. Dave Rochester: Well, it all sounded good guys. I really appreciate that. Maybe just one last quick one. On Slide 22, I noticed you dropped your fed funds range here by 25 bps but you still kept the range the margin range intact at 3.25%, 3.5 I know it seems like a small change, but the sensitivity of that the $325,000,000 to $3.50 is something investors have been asking about. Quite a bit. So I thought this was a positive that you reduce that the Fed funds but you kept the margin range. So we kept the range the same. And then if you could give any color on the sensitivity of that range to Fed funds changes that would be great. Thanks. Bruce Van Saun: Yes, sure. And so over time we've been layering in hedges to protect the kind of downside if the Fed cuts rates more aggressively And so that's been a focal point. But again, we don't want to be wrong. We don't want to just concern ourselves with kind of the Fed cutting more aggressively because we still have a lot of inflation and we could stay sticky high. And so we haven't we've kept kind of a balanced view as to let's put those hedges on opportunistically when we see little spikes. And so so over time, if you look back over the six quarters, I think we've increasingly solidified our view that we can sustain that cone at three twenty-five to three fifty kind of at lower Fed funds rates down to two seventy-five even I'd like to say down to 2.5 given direction of travel potentially with Feds. And so we're working on that. But anyway, it's good to spot that because to bring that down to two seventy-five to three seventy-five I think is progress and how we're trying to position ourselves from an interest rate risk management standpoint. Dave Rochester: Great. Appreciate it. Thanks guys. Chris Emerson: Sure. Denise: Thank you. And your next question comes from Ebrahim Poonawala. Your line is open. Ebrahim Poonawala: Hey, morning. Hi. Just as a follow-up on the very quick on the sensitivity of the Fed funds to the margin. Bruce, you talked about the ten year having coming down took has taken out some win from the back book repricing. Is there a level that you're watching on the ten year where it really begins to sort of hurt that three twenty-five medium term sort of margin outlook? That we should be aware of? Bruce Van Saun: No. I'd like so one of the other changes that we that you may not have noted was down in that footnote around the ten year range. We've also moved that lower being reflective of kind of where the ten year is out the window. I think our view still is that we stay kind of between 44.5% and that the curve will stay steep. As the Fed cuts. So that's kind of the house view The fact is though that we're more sensitive to the short end of the curve and what happens with Fed funds less sensitive to kind of the steepness of the curve although it can have an impact. But even though we took down that range on the ten year we've solidified where we are in this call. That kind of shows you that moving that four twenty-five down to four fifteen didn't have much of an impact. And so we'll see where things go. I'd be surprised if we get kind of meaningfully below four But even if we did, don't think it has a very significant impact. It can cost us a few basis points. But I think the trajectory with time based is the predominant driver going forward. And the front bookback book has been positive. It could be a little less positive but actually not a big concern at this point. Ebrahim Poonawala: That's helpful. And I guess just another one, looking at slide 20, and I know we get a bigger update in January. But as we think about the one-time costs tied to this reimagining the bank and re-architecting it, Any sense of just what cost save opportunity are there that could help fund that investment as all of us think about what expense growth could look like next year? Thanks. Bruce Van Saun: Sure. And so if you look back historically, in terms of what were those one-time costs. They tended to be either severance related or consulting to implement some of the ideas. Or some frictional cost in terms of vendor tear-ups or write-off of technology. Platforms. I wouldn't expect the kind of one-timers to vary from that bucket. And the question is, like what's the pacing on how we're incurring those costs? And then can we make sure we have a list of fast actionable items that can start to spin up some benefits in year-end '26 so we can largely neutralize that. So what we try to do on this slide was really just show you the contours of the exercise. So like we're turning over every rock, we're looking at customer touchpoints, how we're running the bank, etcetera, etcetera. But then when we bring it back to a financial framework, we're trying to make sure it scales, so that ultimately we achieve meaningful size similar to or better than top six. That we don't go backwards and have a negative impact on kind of 26 and if we do it's quite mild. It's moderate modest I would say. And then that we start to already see some real benefits coming in, in 2027 and that kind of really the ship comes in, in 2028. So that's I know the way we're thinking about it. Brendan, you can add some color to that and maybe talk about a couple of the fast action ideas that we're thinking about for 2026. 2026, yes. Yes, sure. So if you bucket our ideas into two categories, know, I'd sort of broadly describe them as tech and AI enabled for 50% or so, and the other 50% would, be less so around tech and AI enabled. And maybe you could categorize them as more traditional and what we would have seen in a Project Top in the past, but with a longer-term outlook, a more strategic application of those categories. So vendor simplification, post-COVID reevaluating our workforce and where we wanted to be over the next five years and cleaning up our corporate facilities where we can take out some excess seating capacity and strategically restructure to build our culture and have people co-located to move faster, more innovative ways. So there's things like that. The branch network as an example, we think it's time to position it for long-term net household growth and deposit growth. We, have made strong and steady progress, but there's more more work to do, now that we have better visibility into what post-COVID world will look like for retail banking. We still have a number of branches that are underperforming and can help fund the journey of repositioning the network and densifying in other markets to position for growth. All of those things we have analyzed and we have enough quick wins there to drop to the bottom line that it can self-fund whatever one-time costs come along with it. When you turn your attention to the tech and AI-enabled initiatives, it will require technology investment, which will be a little bit higher probably than some of our other top programs just given the amount of runway of three years multiplied by introducing new things like tech like AI, like data and analytics into the ecosystem. So because we would capitalize that over time and get the benefits over time, Those costs are you could consider them one time as an investment, but the way you would account for them, they would be linked to the benefits over the three-year window. So it allows us to smooth it out and make sure that there's a de minimis J curve on the suite of portfolio of initiatives that we're going after. And we feel pretty good. That we can accomplish that. And certainly our principal objective is to deliver our 16% to 18% ROSI target over the medium term And this should be accretive to that not in not take us in the wrong direction. And so we've engineered the whole program to do just that. Ebrahim Poonawala: That's great color. Thank you. Denise: Thank you. And your next question comes from Anand Ghosaleh with Morgan Stanley. Anand Ghosaleh: Hi, good morning. I wanted to check-in on the capital markets side. You noted second best quarter ever, the best third quarter. I understand some deals were pushed from 3Q, to 3Q from 2Q. But can you talk about the pipeline that you're seeing today? What the outlook looks like? Going into 4Q and going into next year? Bruce Van Saun: Sure. I'll start and flip it to Don. But I think we've seen strength this quarter across the board. If you look at the major places that we're playing our bank lending syndicated lending business has been strong. Our bond So that's been strong. And then business has been strong. The equities calendar has opened up M and A activity has picked up. So if you think of those are kind of the four big areas we're doing well across all four. And I'd say looking out the conditions that we've gotten used to the uncertainty and some of the headline risk that takes place. But market participants are saying this is the new normal and we have to get on with doing business. Having spreads really tight is good for refinancings and pull forward and kind of that realm. But anyway, we have strong pipelines into Q4 and we feel good about how we're positioned and we can have a sustained period of increased activity which benefits us relative to peers based on what we've built out in the capital markets. I'll turn it over to Don with that. Don McCree: I don't really know what I can add to that. It was it was pretty complete. I think the thing is I look back at the third quarter and as I look into the fourth fourth quarter into 2026, it's the diversity of the flows. So as Bruce said, we're seeing it across M and A pipelines, bond pipelines, IPO pipelines, equity follow-ons, and syndicated finance. The one thing that we haven't really seen, which feels like it's beginning to get going right now is private equity leaning in. I mean, you've seen some big private equity mega deals be announced, but the core middle market private equity, Brendan and I were at one of the yesterday and they said, finally, we're starting to see the 2021 vintages begin to get refinanced. So that is not in the pipelines in significant way. We think that that could be quite a big opportunity for us as we go forward. But I would just say that it's as I look back on second quarter, third quarter into fourth quarter into 2026, We've just got a real diversified flow of business. Remember, we are a middle market investment bank. And we basically make a lot of our money and a lot of our transactional volumes with our core clientele and with our core private equity relationships. And I don't really see it slowing down anytime in the future. As Bruce said, I think the backdrop is better than I've seen it in three or four years just in terms of Washington sentiment liquidity in the marketplaces, interest rates. There's a lot of positives out there that should continue to propel the capital markets. Key lines. Anand Ghosaleh: That's very helpful. And then maybe maybe if I can pivot over to credit. There's a lot of focus on the risks around private credit this quarter. Have a slide at the back where you showed that the exposure is about $3.3 billion. Could you give us some more color on what that exposure looks like and where you see potential risks and what you're broadly seeing there? Don McCree: Yes. Why I pick up on that also? So the way we lend to the private credit complex is really through securitization structures. So it's very, very high credit quality with diversified pools of collateral. Haven't looked completely, but I don't think we've had any losses in our private credit pools. Related to any of the big headline kind of bankruptcies that have happened. Terms of the underlying. But just think about it, we lend against 100,000,000 to 150 different collateral pools of individual credits. And we have very strong structures, very strong protections in terms of covenants collateral kick outs, visibility into the underlying structures. So are super and as you said, it's a very small portion of our overall book, but it's actually one of the highest quality things that we do across the entirety of the commercial bank. So I'm very comfortable with it. And the thing I always look at is are there structural degradations going on in terms of terms and conditions? In terms of how people are lending into some of the private credit funds. We haven't seen it. And the structures are holding up pretty well so far. Most of these are three sixty four day lines. They're pretty short term, so we can adjust the book if we see anything that disturbs us pretty quickly. So I would just add that if you look at big categories like subscription line, financing or securitizations or asset-based structures, They're loss history is pretty pristine and they're all investment grade across those three categories. So we're very diligent on who we're lending money to and we're very diligent around the structures that we feel protect us So we have a very positive view on credit in that area in those areas. Anand Ghosaleh: Yes. Great. Great. Thank you. Bruce Van Saun: Thank you. Denise: Your next question comes from Chris McGratty with KBW. Your line is open. Chris McGratty: Great. Good morning. Bruce, the 16% to 18% ROTC over time, does I'm trying to connect the reimagine the bank benefits to the range that you've previously given. Does this do the benefits from this new plan, we'll get in January, does that give you a bias to a certain part of the range or perhaps a sooner realization? I'm just trying to connect the two. Bruce Van Saun: Yes. So we're on our way to 18 and we're not reliant on the reimagine the banks today. To get into that range. So So to me the question is you know, how soon do they have meaningful impact and that should allow us to torque those numbers up a bit. I think it's too early to do that. We're just kind of flashing you the contours of the program. But anyway I think we'll have more specific color on that when we get to January and we give you a more fulsome forward outlook. Chris McGratty: Okay. So it's additive. I guess it's, you're not announcing this plan because you're not on track to get it. This is gives you greater confidence that you will get there. Right. Okay. And then once you get those benefits, then the question is how much will flow straight through versus do you want to reinvest and accelerate the growth rate in private bank and have the flywheel go even faster, which creates positive operating leverage and more PPNR growth. And so you have all those decisions, but I think importantly, if you're improving your cost structure and your cost base and your customer experience that puts you in a very strong position to have optionality of the things you want to do. So that's how I would think about it, Chris. Chris McGratty: Okay. And thanks for that. And my would be on just use of capital. You You've talked about the earnings contribution of the private bank picking up the loan growth is picking up. Any other I guess, near to intermediate term uses of capital, either organic or inorganic that we might need to be thinking about? Thanks. Bruce Van Saun: Yeah. I think the number one is to facilitate the loan growth as it comes back, which we think will continue. That's we want to grow the business and grow the number of customers that are customers of the bank. And so you saw also we announced the dividend increase. We want to now get back on a regular cycle of dividend increases. I don't at this point see meaningful uses of capital on bolt-ons. There's a we can look for other M and A boutiques and industry verticals that we have if we don't think we have full coverage, we can look at doing some interesting tech-oriented acquisitions in the payment space again which won't use a huge amount of capital. So there's a good likelihood that we'll continue to be repurchasing our share with the excess capital we're generating. And as I like to say, I still think the stock is cheap if we continue to execute. We're buyers here at this stock price. Chris McGratty: Okay, great. Thank you so much. Denise: Thank you. Your next question comes from John Pancari with Evercore ISI. Your line is open. John Pancari: Good morning. Bruce Van Saun: Hi. John Pancari: Just on the expense front, I know you said at the ongoing investments in the private bank and teams as well as in the parts of the commercial bank, but also the reimagining initiative. Given all of that, and given where you're running right now in terms of your expense growth, how do you think about the pace of expense growth that's reasonable as we look at 2026? And if you're unable to give us too much around that, is there a way we could think about the degree of positive operating leverage that's attainable as we look at it because certainly it's a pretty wide range in terms of some of the projections out there and and it could be pretty meaningful as you look at the pace of your revenue growth at this point? Bruce Van Saun: Yes. So again, if you look at this year, we're already back into positive operating leverage territory. And I think we'll continue to see that NIM expansion and NII growth which really comes without a lot of additional expenses. So that's very accretive to the efficiency ratio improvement and positive operating leverage. Where we have been leaning in on investing expense dollars has been the buildup of the private bank. So this year, we were running say 2.5% to three on the core business and then add another 1.5% plus to the private bank. And I think investors should feel really good about that. We're getting a great return on those expense dollars. So So I think looking out into next year, and I don't want to get into guide because I say we're going to do it in January. But I think we'd have even more positive operating leverage because I think we'll have higher revenue growth for the full year and the expense growth shouldn't be too far off of what we're doing this year. It's just an early glimpse. John Pancari: Okay. Thanks, Bruce. I appreciate that color. It's helpful. And then regarding the margin, I know you earlier you cited a bit tighter commercial spreads that had impacted the margin performance and your outlook a bit here. Can you maybe elaborate a little bit where are you seeing that tightening? And what areas is it what competitors are you seeing that that are driving that pressure? Is it more temporary? Or do you think there's a degree of permanence to this that's going to require a reaction out of you? Don McCree: No, I think what if you look at the broad markets at every credit index, we're tightening across the board. And the good news is that that's reflective of lots of liquidity in the marketplace, but it's putting a little bit of pressure on refinancing. As we think about returns in terms of customers that we're banking, we of course focus on NIM and return on credit allocation, but we look at overall returns on relationships and you add in Brendan's done on the private bank, it's just another way that we can kind of interact with the clients that we're banking. So the the the real strategy that we've tried to build over the last ten years has been one of broad-based financial services applications where we can make a combination of fee income and NII on the commercial side of the equation. And I think that that's proven to be quite effective. If you look at our overall returns on our client relationships, they're going up quite a bit. So, we're giving a little bit back on spread here and there, we're making it up on fee income. And you can see that in some of the results that we've been doing. But I think it's I don't see that equation changing a lot over the next year or two. There's a lot of liquidity and I think spreads are going remain tight. And we just got to pick our spots and make sure that we generate broad returns across the relationships that we're trying to bank. John Pancari: Got it. Thanks so much, Don. Very, very helpful. Chris Emerson: Thanks. Denise: Thank you. The next question comes from Matt O'Connor with Deutsche Bank. Your line is open. Nate Stein: Good morning. This is Nate Stein on behalf of Matt O'Connor. Wanted to ask a quick follow-up on the cost base. Costs were really right in line with the guidance range this quarter despite a really solid fee print. Were there any specific flexes you engaged during the quarter to keep costs relatively well managed? Bruce Van Saun: I would say that you know, you can count on us to be disciplined on expenses and so, we're still driving. We're now pivoting all the attention reimagine the bank, but we still have our top 10 program that is gaining traction and ramping up some benefits. And so notwithstanding strong capital markets and we put away a little more in compensation, we're still trying to excise expenses through the TOP program that we can repurpose for kind of more customer-facing investments. And when we see the productivity results that we're getting that we have to put away more compensation. We can offset that with some of the things through these top efficiency programs. Nate Stein: Thank you. And then just following up on the Reimagine the Bank program, I totally appreciate we're going to get more financial details in January, but I guess just wanted to ask on your confidence in the $400 million plus total run rate benefit over time? Bruce Van Saun: Well, I would say if you learned anything about this leadership team over the past decade, we don't throw numbers out there that we don't think we can achieve. So we're pretty darn confident. Kristin Silberberg: Thank you. Anand Ghosaleh: Okay. Denise: Thank you. Your next question comes from Peter Winter with D. A. Davidson. Your line is open. Peter Winter: Thanks. Good morning. So nice to see average loan growth turn positive this quarter. Was just wondering, could you provide some additional color on the drivers to loan growth going forward and maybe how loan demand has changed over the last ninety days? Bruce Van Saun: Yes. So I think you've now seen two quarters in a row where we've net loan growth, meaning that we've had growth in consumer, we've had growth in commercial, we've had growth in private bank. And that is offsetting reductions in non-core as well as some balance sheet optimization in the C and I book and in CRE where we're seeing some meaningful pay down. So anyway, that's good to see. And I think over time the non-core is waning. So that will be less of a drag I think the C and I will be lower going forward. We've done a lot of that. Balance sheet optimization. Cree, we're still managing that down to get kind of back to playing weight that we'd like to play at. But I think there's still good dynamics around consumer commercial and private bank. That will lead to continued growth. And the amount will depend on kind of what we see in the external environment. On consumer, it's been really led by mortgage and HELOCs. HELOC is been the shining star We have some hope in the future for card loan growth to pick up now that we've launched a whole new card family We might be a little more selective in mortgage and not continue to use our balance sheet as much restrict it more for important relationship customers and focus more on conforming. So anyway that's a tactical shift that you could see going forward. Commercial, we've seen a lot of growth in the NDFI space. But we still are investing in middle market to achieve growth in some of our expansion regions. We could consider New York an expansion region, but also Florida California where we've added some really great talent and we're starting to see that spin up a little bit and achieve some growth And private bank is kind of very consistent now. We have a bunch of penetration in the PEBC space. This past quarter we saw a pickup in line utilization. We're starting to see the individual customers come in and borrow for greater mortgages and HELOCs and some of the similar dynamics that we're seeing the consumer side. So anyway, I think we're well positioned to capture growth across all of those three segments and we'll have less of an offset coming from non-core in the future. Peter Winter: Got it. That's helpful. And then just one follow-up. Just credit continues to trend favorably, but economic growth is slowing job growth has been weakening. Are you seeing any signs of credit weakness in either the consumer or within the commercial borrowing? Borrowing base? I'll I'll put that to Brendan first and Don second. Brendan Coughlin: So Yeah. I'll just I'll just start with the mix of the portfolio and our NCO rate you should expect it to continue to go down in the consumer business in part with the non-core running down and auto has a higher loss rate than the rest of the consumer portfolio. Consumer portfolio is in the high 40s at the moment in terms of basis points for loss rate auto historically has been in the 70 to 80 basis point range. So is that when those down, the denominator shrinks, you should see losses come down overall. Inside of each category, NCOs are very stable, delinquent are very stable. I would broadly just characterize it as fully normalized from COVID. In the card book as an example that many of our peers saw too, the 2021 and 'twenty two vintages had a little bit of a short term blip with FICO inflation coming off of the stimulus impacts of COVID that has generally run course. You're seeing delinquency rates actually come down in our card book. Right now, it's a smaller part of the portfolio, so it didn't show up in mass in of our total net delinquency rates or charge off rates. But there's nothing I'm looking at right now that gives me any pause. When I look at the health of the actual US consumer, it's also very, very stable. You have to really de average it to see stress and it's on the lower end of the market in the bottom two to three deciles of The United States where you're seeing both deposit stress, you're seeing some increased overdraft occurrences and where they have credit, you're seeing modest credit stress. We just don't typically lend to those customers. So it's not in our portfolio. So there is some tail risk, but but not doesn't exist in our bank at scale. So we feel really good. I don't see anything right now that would suggest even really a blip in terms of consumer credit right now for us. Don McCree: Yeah. And would echo that on the commercial side. I mean, other than Cree Office, which our story and we're very well reserved and we're very comfortable. We've seen almost no migration on that side of the equation in the last year, year and a half. So we're well kind of positioned for how we work out that book of business. We are seeing really no deterioration on the C and I side at all. And I think of the things that's been encouraging to me is that our you hear a lot in the press about middle market companies and the impact of tariffs and the impact of employment and things like that. But these companies have been operating ever since COVID in a very difficult environment and they're running their businesses in a really way. And they've deleveraged. They've gotten work capital efficient. And we're just seeing no deterioration on the credit side at all. So we have a lot of early indicators around watch meetings and things moving into workout and everything looks stable from the six month to twelve month out forecasting. So we feel very good about the contours of our book overall. Peter Winter: That's great. Thanks very much. Denise: Thank you. Your next question comes from Gerard Cassidy from RBC Capital Markets. Your line is open. Gerard Cassidy: Good morning, Bruce. Bruce Van Saun: Hey, Gerard. Gerard Cassidy: Don, just a follow-up on your comments about credit. Two-part question. You answered earlier about the private credit, how you're looking at the structural degradations and there really aren't any. Are there any other points that we outsiders can look to since private credit has grown rapidly as you all know? That we can keep an eye on to see if there is any credit potential credit deterioration coming, even though it's we recognize it's held up well, you guys don't have any real issues with it as well? Don McCree: Yes. I would say, you see a lot of the filings that all the different credit companies provide and there is a bankruptcy here and a bankruptcy there. And what I would say in terms of the way we manage the business is we have pretty strong visibility into the underlying contours of the individual portfolios. And it seems okay broadly to us so far. But I would look at the 10 Ks and the regulatory filings and the BDC is going to be different than the private credit fund is going to be different than a SPET situations fund and you know that Gerard. I mean, all of the different kind of attachment points for each of these complex is gonna be quite different from an LTV standpoint and evaluation standpoint. So it's really hard to generalize. And as Bruce said before, we try to pick our counterparts very carefully They're professional investors. A lot of them are both in the equity side and the debt side of different equations. They usually don't mix those two involvements, but they're very strong analytical kind of complexes, which we have a lot of complex confidence in. And that's the way we pick our client space. We wouldn't go in broadly and buy private credit across the board, but that's not the business we're in. So I would pay attention to the filings and the some of them are more complete than others, but we look at them all. So that's that's the only advice I'd give you, Gerard. Gerard Cassidy: No. No. I appreciate it. Thank you. And then possibly for you, Bruce. This administration has shown that when they say something, follow through on it and our Treasury Secretary about two months ago, Scott Pessens, said that this country has got a housing emergency. And aside from the actual structure of building more houses, reducing regulations, putting that off to an aside for a moment, From the financing side, mortgage rates obviously are much higher today than they were four years ago. What do you think they could do, Bruce, to lower mortgage without moving the government bond yield curve down, which I think can do, but that spread today between mortgage rates and government bond rates is pretty wide. It's over 200 basis points. Do you have any thoughts on what they might be able to do to try to bring that down, would then lead to refinancing activity for you guys and mortgage originations? Bruce Van Saun: Well, think they're thinking about this holistically. But there's affordability issue which is at the root of why the market is tepid. And so housing prices have run up too much. And there's kind of new supply constraints in terms of regulation. So there's all of that to deal with. And then I think that spread do they through their quantitative tightening, do they what's the strategy around mortgages? One lever that they have to pull. But it's kind of a thorny problem. It's nice talk about it I'm not I don't I'll be curious to see when they unveil if this is really a national crisis that we have to deal with, what what the plan is when it comes down the pike. We're not counting on ultimately a big lift in our mortgage business. We like refocus the business to use our capital to support good customers in their life journey. And giving them mortgages that we have broader relationships with. So I think the days if you go back to 2019 after we bought Franklin and rates came down and we coined all this money, it was a bit of a sugar high. It felt good. It protected capital, generated capital. We didn't really get credit for it as a sustainable earnings driver. So I'd say where we are today is that that business has been right-sized, repurposed, feel really good about how we're running it good net promoter scores, efficient always room for improvement. But it's much more targeted than it was before. If rates come down and there are chances catch some of the refinancing wave, sure we'll catch some of it, but it's not going to be in the magnitude it was before. And recognize we also have exited the wholesale business over the last three years as well. And that was one of the drivers for why we captured so much upside. So where we're going with the fee, the fee reliance is still capital markets. I think we've built the Cadillac among the super regional banks. And so we should continue to see strong growth there over time. We have a really good risk management business in our FX interest rate and commodities hedging business. So we have a wealth business that just hit another record high this quarter. Every quarter year we're hitting record highs as we build out the wealth business. The card business we've been investing in. There can be growth in card fees. And so we're kind of pivoting to I think what our more durable sustainable maybe a little less volatile fee revenue sources. And a bit not reliant as reliant on mortgage. Brendan, if you want to add to that. Brendan Coughlin: Yes. Just a few points. If there's any Washington intervention, I think the the challenge is in the purchase market and on the supply side of generating more affordable housing. And if you look at The U. S. Homeowner right now, and then apply what's our role as a lender. 74% of the country has interest rates under 5% on their mortgage. And so you'd have to believe a whole lot to have a massive refi pickup here with rates having a six handle on it now and the long term rates relatively stable. You'd have to really assume a very, very different rate outlook for there to be a huge boomlet of refi activity. And so then you're attention turns and our mix is seventeen eighteen percent of our business is refi write outs predominantly purchase volume. And so to unlock that, interest rates will help a little bit, but really it's got to be the supply side and the affordability of housing and access to new housing that would drive the solve for the issue that Washington is talking about. Bruce mentioned all the other fee categories. The other thing I would just mention is I think from a lender standpoint, we're incredibly well positioned with our HELOC business given that dynamic of 74% of the country has rates below 5%. And if you don't believe mortgage rates will drop below that anytime soon, we've got a boomlet of HELOC activity where the country has the most equity the history of The U. S. Built up on consumers' kind of personal balance sheets and they can tap it And we're number we've been number one for three or four quarters in a row, including against all the GSIBs nationally in HELOC lending both on balance growth as well as new originations and we're really only originating in 15 states. So we're we've got an incredible competitive advantage there to drive loan growth at high quality massive loan affluent homeowner home growth with high credit and low CLTVs. We're looking at this very holistically in terms of where we can compete to win and our mortgage business is well positioned. We think it's in the same size now as our peers. So even though we've recontoured the business, we haven't given up in the off event that rates do crater, we still are positioned well to capture in line peers. It's just structured a little bit differently than it was for us a couple of years Appreciate all the color guys. Thank you. Sure. Don McCree: I think we have time for one more quick question. Denise: Thank you. That does come from Ken Usdin. Your line is open. Ken Usdin with Autonomous Research. Your line is open. Kristin Silberberg: I think we may have lost Ken. Okay. Sorry. We missed you, Ken, but do dial in and talk to Chris later. So I guess that's it. And thanks everybody for dialing in today. We certainly appreciate your interest and support. Have a good day. Take care. Denise: Thank you. That does conclude today's conference call. We appreciate your participation and you may disconnect. Thank you.
Operator: Hello and welcome to ASML Holding N.V.'s Q3 2025 results video with Christophe Fouquet and Roger Dassen. Roger, if I can start with you and can I ask you to give us a summary of Q3 2025 results? Roger Dassen: Sure. Net sales came in at €7.5 billion. That included, by the way, the recognition of one High NA system. Also included in there, €2 billion for installed base revenue. Gross margin for the quarter came in at 51.6%, all of that I would say within guidance. Net income for the quarter came in at €2.1 billion and we recorded net bookings for the quarter of €5.4 billion, included in there €3.6 billion for EV. Operator: And Roger, can I ask you to give us a guidance on Q4 2025 as well as the full year for 2025? Roger Dassen: Sure. So for the quarter, we are looking at revenue between €9.2 billion and €9.8 billion. It's a big quarter, a lot bigger than last quarter. But actually that's as planned also as we communicated before. And it's also what we saw in 2024. We also had a very big Q4 there. Included in that number would be an installed base revenue of approximately €2.1 billion. The gross margin for the quarter somewhere between 51-53%. If you then take that to the full year, we would be looking at a full year around €32.5 billion in terms of net sales. The gross margin, we say around 52%. As a matter of fact, you take the midpoint of the guidance for the quarter, you get a little bit above the 52% for the full year. Operator: Christophe, if I could ask you then to give us your view on how you are seeing the market at the moment. Christophe Fouquet: Yeah. I think we have seen a flow of positive news in the last few months that have helped to reduce the uncertainty, some of the uncertainties we discussed last quarter. First, we continue to see strong news about commitment to AI, which means we think investment in advanced logic and DRAM. Second, and it's very important for us, it looks like AI is going to benefit a larger part of our customer base. Third, we continue to make very good progress with our litho intensity, especially with EUV that continue to be adopted with DRAM and advanced logic customer. On the other hand, when we look at China, we believe that the demand of our Chinese customer is going to be significantly lower in 2026 than it has been in 2024 and '25 where we had very strong business there. Operator: So what does that mean then for ASML Holding N.V. in 2026? Christophe Fouquet: Well, we believe that the impact of these dynamics will only be effective partially in 2026. But still for 2026, we expect our net sales to not be below 2025. If we look at our product mix, the dynamics are going to favor UV, which we believe will increase, while the dynamic in China will most probably lower the business in Deep UV. And we will provide more details about 2026 in our January call. Operator: Turning to technology. Roger, can I ask you to give us your thoughts on the recent announcement that we had in terms of the collaboration with ASML Holding N.V. and Mistral AI? Roger Dassen: Yes, indeed. We enter into a partnership with Mistral AI. I think Mistral is really recognized on a number of fronts. I think they're recognized for their business-to-business approach. They're also recognized for the quality of their large language model, particularly when it comes to software coding and software coding development. So they're recognized for that. That's the reason why we entered into the partnership with them because many people look at ASML Holding N.V., look at our products and really looking at hardware. But I think increasingly I think people appreciate the very significant software content that is within those systems. I think people really understand that if you get to the level of precision and the level of speed that we have in our scanners, but also quite frankly what we need in metrology and inspection, it's pretty clear that the software contingent therein becomes increasingly important. So that's the reason why this is very strategic to us, why it's very strategic to improving the performance, improving the precision and the speed of our tools as we bring them to our customers. So therefore, this collaboration is truly a strategic choice for us. I would also say that on top of the significance that it has for our products, it's also AI is also a great way to improve the speed of our product development, to improve the speed of our time to market of any product development to our customers. And that's another big area that we're collaborating with Mistral on. So all in all, we believe a very strategic partnership. We also, to underscore that strategic partnership. As you know, we were the lead investor for their Series C funding round. And by being the lead investor, we took approximately an 11% share in Mistral. We also have a seat on their strategic committee. We truly believe that by doing this, we also get closer and closer to the AI world, which we believe is so pivotal to what we do at ASML Holding N.V. Operator: Staying on technology, Christophe, can you share then maybe some of the highlights over the last quarter in terms of our roadmap? Christophe Fouquet: Yes. I think we continue to see a very strong execution of our technology roadmap. I'll start with EUV. We had some very good papers presented at SPIE Semicon conferences stressing the progress we are making driving down the cost of technology for the most advanced nodes of our customer. On INA, we shared the fact that at our customer, more than 300,000 wafers were now run. And some of our customers also reported the fact that the maturity of INA today is quite ahead of what the maturity of Loiner was at a certain period of time. So this was very positive. I think one important news also came from SK Enix, who announced the start of the installation of their first 5,200 in their production fab, positioning this tool basically as one of the key enablers for the future of Dera. On top of that, I think we're also very happy to report that we have shipped our first advanced packaging product. We have said in the past that we'll be supporting our customer with 3D integration. We have shipped the XT260, which is a high productivity scanner that will support advanced packaging and provide up to 4x productivity compared to the existing product. Operator: So yes, you're mentioning then 3D integration. What's some of the rationale and maybe some of the opportunities you see for ASML Holding N.V. in the space? Christophe Fouquet: Well, I think 3D integration, of course, is the other way to drive Moore's Law. And when it comes to TD, we have our lithography roadmap. When it comes to 3D integration, I think we mentioned in Capital Market Day that we will start helping our customer in this field. Our customers have told us that there is a need for innovation in 3D integration because their requirement will become more and more stringent. When we look at those requirements, we also see that a lot of the technology we have developed for Holistic Lithography can be transferred to 3D integration. And this is why we are looking at several opportunities. The XT260 is the first product, there will be more. And because of innovation, we are capable again to bring technology that can really make a difference. If we look at next year, we see many customers that have shown interest in this tool proving again, I would say, the future value of our technology there. Operator: Then as a final question, can I ask you to remind us of maybe the long-term opportunities for ASML Holding N.V. and a little bit the market you see there? Christophe Fouquet: Well, first, as we mentioned in the Capital Market Day, we said that most probably AI will drive more advanced application in semiconductor. So advanced DRAM, advanced logic. I think this is happening and this is driving more advanced litho, higher litho intensity, and we expect that to continue. As we just discussed, we see that 3D integration will become a new opportunity, which we are going to pursue. And as Roger explained very nicely, we also see that AI could create a lot of value in our product moving forward. So we continue to see a very strong opportunity on our technology roadmap. Finally, to close on the number, as mentioned in the Capital Market Day, we expect 2030 to see an opportunity for revenue between €44 billion and €60 billion and a gross margin between 56-60%. Operator: Great. Thank you very much. Thank you both, Christophe and Roger. Christophe Fouquet: Thank you.
Operator: Thank you all for standing by for the First Horizon Third Quarter 2025 Earnings Conference Call. Today's call will be starting in about two minutes. Press star two if you wish to remove yourself from the queue. Should you need operator assistance at any point during the call today, you can press star. Thank you. Good morning all, and thank you for attending the First Horizon Third Quarter 2025 Earnings Conference Call. My name is Breeka, and I will be your moderator for today. All lines will be muted during the presentation portion of the call. There will be an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Tyler Craft, Head of Investor Relations at First Horizon Bank. Thank you. You may proceed, Tyler. Tyler Craft: Thank you, Breeka. Good morning. Welcome to our Third Quarter 2025 Results Conference Call. Thank you for joining us. Today, our Chairman, President, and CEO, D. Bryan Jordan, and Chief Financial Officer, Hope Dmuchowski, will provide prepared remarks, after which we will be happy to take your questions. We are also pleased to have our Chief Credit Officer, Thomas Hung, here to assist with questions as well. Our remarks today will reference our earnings presentation, which is available on our website at ir.firstverizon.com. As always, I need to remind you that we will make forward-looking statements that are subject to risks and uncertainties. Therefore, we ask you to review the factors that may cause our results to differ from our expectations on page two of our presentation and in our SEC filings. Additionally, please be aware that our comments will refer to adjusted results, which exclude the impact of notable items and other non-GAAP measures. Therefore, it is important for you to review the GAAP information in our earnings release, page three of our presentation, and the non-GAAP reconciliations at the end of our presentation. And last but not least, our comments reflect our current views, and you should understand that we are not obligated to update them. And with that, I will hand it over to Brian. D. Bryan Jordan: Thank you, Tyler. Good morning, everyone. Thanks for joining us. We appreciate your continued interest in First Horizon. I am extremely pleased with our performance this quarter, highlighted by strong adjusted EPS of $0.51 per share. We continue to deliver excellent returns for our shareholders and execute on our priorities across the franchise, focusing on safety, soundness, profitability, and sustainable growth. Thank you to our associates and clients for their continued dedication and trust in First Horizon. I will invite Hope to walk through the financial results, and I will share my perspective on the rest of the year and the broader economy at the end. Hope Dmuchowski: Thank you, Brian. Good morning, everyone, and thank you for joining us today. I am excited to share the details behind another great quarter for First Horizon. Getting started on Slide five, with some of our key performance metrics. We generated an adjusted earnings per share of $0.51, a $0.06 increase from last quarter. This earnings growth increased our adjusted return on tangible common equity by 135 basis points to 15%. Moving ahead to Slide seven, we cover our $33 million of net interest income growth and the 15 basis point expansion of net interest margin. NII growth benefited from average loan balance growth, including our high-yielding mortgage warehouse business, which contributed to a 14 basis point expansion of total loan yield and drove margin expansion to 3.55%. NII and NIM this quarter also benefited from the recognition of interest income associated with increased accretion related to the Main Street lending program. This impact is primarily concentrated in the third quarter. On Slide eight, we provide more information about our deposit performance in the quarter. Period-end balances decreased by $52 million compared to the prior quarter, driven by a $652 million decrease in brokered CDs, offset by growth in index and promotional deposits, which reflect loans to mortgage company seasonality. We did see growth within noninterest-bearing deposits as period-end balances were up $131 million. Retention continues to be a highlight for our deposit story as we retained approximately 97% of the $29 billion in balances associated with clients who had a repricing event in the quarter while continuing to reduce our costs on those deposits even in a flat rate environment. For deposit pricing overall, the average rate paid on interest-bearing deposits increased to 2.78%, up from the second quarter average of 2.76%. Our objective is to achieve consistent betas through the cycle as the rate environment evolves. Please keep in mind that there is a delay between Fed rate moves and deposit rate adjustments as we work through client repricing. On slide nine, we cover our loan portfolio performance. Period-end loans were down slightly from the prior quarter. Loans to mortgage companies decreased $132 million during the third quarter, which is in line with our normal seasonality that peaks in the middle of the summer. This portfolio continues to be roughly three-fourths purchase transactions versus refinances. To the extent that mortgage rates decline in a falling rate environment, refinance activity could pick up. We saw growth again this quarter in our C&I portfolio with period-end balances up $174 million quarter over quarter. We continue seeing CRE balances decline in line with the longer-term pattern we have seen of stabilized projects moving into the permanent markets. Importantly, we remain focused on growing higher profitability relationships, see this in relationship depth with our clients and yields in our loan portfolio with spreads from the mid-100 basis points to the upper 200 basis point range. This overall growth pattern is consistent with our expectations for average loan balance growth in 2025. On Slide 10, we detail our fee income performance for the quarter, which increased $26 million from the prior quarter, excluding deferred compensation. As improved business conditions led to increased customer activity for FHN Financial. We saw ADR increase to $771,000 and drive fixed income fee revenues of $57 million. Mortgage fees increased by $6 million, driven by an MSR sale during the quarter. On Slide 11, we highlight that excluding deferred compensation, adjusted expenses increased $45 million from the prior quarter. Personnel expenses, excluding deferred compensation, increased by $9 million from last quarter, driven by $6 million in incentives and commissions, growth on the improved ADRs. Outside services increased by $8 million, with the largest driver being project expenses and technology and risk, partially offset by declines in advertising as prior quarter campaign costs moved to new account promotion payouts within other expenses. Expenses this quarter reflect a contribution of $20 million to the First Horizon Foundation. This higher amount for the contribution we typically make to our foundation maximizes the relative tax advantages available for contributions made in 2025. Turning to credit on Slide 12. Net charge-offs decreased by $7 million to $26 million. Our net charge-off ratio of 17 basis points is in line with our expectations for the year. Loan loss provision was a credit of $5 million this quarter. This resulted from loan payoffs, and the ACL to loans ratio declined to 1.38% as we saw criticized and classified loans decline and balances grow in lower-risk categories. Our two basis point increase to NPLs is relatively flat. We feel confident in continuing long-term credit trends and success in problem loan workouts. On slide 13, we ended the quarter with CET1 of 11%, which is flat quarter over quarter. When we completed our annual stress testing during the quarter, we noted that our updated near-term target will be 10.75%, and we intend to make progress towards this target in the coming quarters. With loan balance declining in the quarter, our share buybacks accelerated to $190 million, with approximately 8.6 million shares repurchased. We have more than $300 million in remaining buyback authorization for our current program. On Slide 14, we take another look at our full-year 2025 guidance. We remain confident in achieving year-over-year PPNR growth. We maintain our revenue guidance. The NII benefit this quarter discussed earlier in counter-cyclical fee income from FHN Financial provided offset to the asset sensitivity of our balance sheet in this falling rate environment. With a significant foundation contribution noted earlier, our expense guidance remains unchanged. And the potential for increased commissions driven by ADR growth, as that business has accelerated in the third quarter, we currently expect that expenses may finish 2025 at the top end of our current guidance range. As we noted in our stress testing press release, in the near term, we are targeting 10.75% CET1, as we continue progressing towards our long-term normalized CET1 targets. Our outlook for charge-offs and taxes remains unchanged as we close out the year. I will wrap up on Slide 15. We are proud of our performance, our 15% adjusted ROC this quarter, and to see our countercyclical business model support profitability as we enter a declining rate environment. Through continued capital normalization, the value generated by our credit culture and performance, and most importantly, our ability to execute on creating value through efficiency and revenue enhancements like those aligned with our $100 million plus PPNR opportunities, we are confident in our ability to hit our near and long-term targets. Our target for the coming year remains achieving a sustainable 15% plus adjusted ROTCE. And with that, I will give it back to Brian. D. Bryan Jordan: Thank you, Hope. We are starting to see activity pick up overall, and the economy continues to perform reasonably well. On the whole, our clients are growing more confident navigating tariffs, and we are seeing their willingness to take action flow through solid pipeline momentum. Now that we have seen the Fed initiate rate cuts, with the potential for more to come, we are optimistic that this will drive growth across a broader economy and is an important opportunity for First Horizon to capitalize on profitable loan growth across our diversified lines of business in the coming quarters. This past quarter, our organization continued to make meaningful progress positioning First Horizon for the future. We invested further in our systems, technology, and process, which enables us to deepen client relationships and deliver our broad financial capabilities with a community banking approach. Our bankers continue delivering our relationship approach to our clients. The third quarter was our highest origination funding order in the last two years. Bank M&A activity clearly accelerated in the third quarter. While our near-term focus is unchanged, I am increasingly confident in our ability to integrate a well-structured merger with a strong cultural fit in our existing footprint if such an opportunity arises in 2026 or beyond. Our team's energy remains high, our strategy is clear, and our competitive position in our attractive Southern footprint is enviable. We see continued strength in both our credit trends and our capital outlook. Forward-looking, we remain focused on executing the initiatives that resulted in more than $100 million of pre-tax net revenue. We expect to drive sustained profitable growth supported by our balanced business model and our unwavering commitment to safety, soundness, and serving our clients. Our goal of delivering sustained 15% adjusted ROTCE remains firmly in sight, powered by the hard work of each of our associates. Their dedication and resilience continue to drive our momentum and success. Breeka, we can now open it up for questions. Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, you can do so by pressing star followed by one. The first question we have from the phone lines comes from Jon Arfstrom with RBC Capital Markets. You may proceed. Jon Arfstrom: Thanks. Good morning, everyone. Good morning. Hey, Brian, maybe we will just start the call with, you talked a little bit about the activity picking up and some pipeline momentum. How optimistic are you on growth? And is it really a noticeable change from a quarter ago? D. Bryan Jordan: Yes. It has picked up. There is more confidence, and it is noticeable. And I would say the jet be seen how anything that occurs with the new friction around Chinese tariffs may impact things. But we did see confidence building throughout the quarter and pipeline beginning to build in the middle of the quarter and beyond. And so it has been a noticeable change. Customers are more confident and more forward-leaning. Lower rates and the trajectory of rates cost added to folks' confidence. And I see no reason in the immediate near term that that ought to soften. It looks like it's sustainable at this point. Jon Arfstrom: Okay. Then Hope, one for you. Just on the margin, it surprised us positively. It feels a little bit elevated. Is there a better starting point for the margin for the fourth quarter given the Main Street impact and the mortgage company impact? Hope Dmuchowski: Jon, great to hear from you. Thanks for that question. Yes. We did have, as we note in our earnings slide, a one-time adjustment this quarter that did increase our margin. Last quarter, we were at three forty, and I think that's a good way to think about in the high three thirties and three forty. We've been pretty consistently there for the last few quarters and even this quarter if you adjust out that one-time item. Jon Arfstrom: Yes. Okay. D. Bryan Jordan: Thank you very much. Operator: Your next question comes from Michael Rose with Raymond James. Your line is open. Michael? Operator: Michael, could you please ensure your line is unmuted locally before speaking? Michael, if you could please ensure your line is unmuted. We have Franco, why don't we go ahead? Yeah. We'll go ahead, and we'll come back to Michael later maybe. Operator: Your next question comes from Casey Haire with Autonomous. Please go ahead. Casey Haire: Great. Thanks. Good morning, everyone. Good morning. Wanted to touch on the core deposit franchise on slide eight. I know there were some seasonal challenges this quarter, but just looking at the trends, the core deposit franchise is down almost 8% over the last two quarters. Just what is driving this and what is being done to kind of stabilize or reverse the trend and sort of the outlook. Hope Dmuchowski: Yeah. Casey, I'm not sure exactly what you're calling core deposits. You know, we really pull out broke and wholesale in the deck in order to really show the match funding that we do with mortgage warehouse. But you know, H eight data is slightly flat to decreasing the deposits in the interest industry, are shrinking, specifically out of banking. We mentioned in our last earnings call that we saw a mix out of money markets, and we looked at where our clients transferring their funds that was into brokerage account. And so I think the competition for deposits will continue to heat up. We talked about last quarter and this quarter prepared remarks that we have a high retention rate of our existing clients. And we put additional money into marketing and cash offers in order to increase new to bank clients. But deposit competition has been significant this year as you've seen, especially as it comes to rate and bringing that rate down on existing customers. It's really a balance that we focus on how do we keep existing customers with a fair rate through this environment. Casey Haire: Okay. Alright. I'm referring to, like, the DDA and the base rates. Right? That's, like, that's down 8% over the last two quarters. You know, that's definitely below that's definitely lagging h eight. And you guys are talking about keeping beta consistent with the prior cycle. It just seems kind of a challenge with the loan to deposit ratio at 97% and, you know, the core deposit franchise under pressure. Hope Dmuchowski: Yeah. Casey, on slide eight, if you look at the stacked bar chart, third quarter 2024 non-interest-bearing deposits, which is really, you know, a lot of our DDA and our customer money there. It went from 9.2 to 11.4 in a year. So I don't see that as decreasing. DDA is just a subset when you look at price for it, but we are focused on growing that noninterest-bearing deposit core, and we've continued to see momentum quarter over quarter as illustrated on Slide eight. D. Bryan Jordan: Casey, we feel very good about the core deposit franchise. We feel very good about the of customers and particularly our ability to adjust or repricing. We are mindful of the loan to deposit ratio. And that's one measure. But I think when you look at loans and securities to total deposits, our comparisons are much more in the middle of the pack. We feel good about the momentum we see in the business. We have a significant focus on our core consumer banking business. We have recently hired a new Head of Consumer Banking and we see very good momentum there. And it's easy to conflate what's happening in wholesale and brokered with what's the core franchise, but we feel very, very good about the progress we're making there and have a very optimistic outlook as we look into 'twenty six and beyond. Hope Dmuchowski: Casey, one note, I think you may I'm trying to figure out your your your question. I think you may be talking about the promotional deposits and CDs. That is a subset that we show for what the opportunity is to reprice down during a decreasing rate cycle. A lot of those do go to base pricing and are somewhere else in the chart. So it may be a correlation that that's not a causation. We are trying to bring new to bank clients down to base rate. And then they fall out of that bucket over time. Casey Haire: Okay. Alright. And just last one for me, Brian. I wanted to touch on your your m and a comment. So you know, in terms of what you guys would be looking for, in terms of size and geography, if a if a bank op acquisition were to present itself in 2026? D. Bryan Jordan: Yeah. Yeah. I want to be really clear and and and sort of reiterate where I start I started. Our near-term priorities are not changed and we're very focused on driving $100 million of incremental pre-tax pre-provision and continuing to focus on executing our business model. Given that the M and A environment has picked up and the progress we're making on the foregoing, I feel very good about our ability to integrate if the right opportunity does present itself in 2026 and beyond. That said, I tried to focus my comment on the fact that we are very focused on the footprint that we're in that it's a fill-in opportunity with a strong deposit franchise. It gives us the ability to leverage our middle market consumer our middle market commercial consumer, private client wealth businesses across that. So cultural fit is very important. But our short-term focus is unchanged. We're very focused on executing the business model. Just really mindful of the fact that the environment has changed and that we will be opportunistic if it presents itself in '26 or later. Casey Haire: Okay. Thank you. D. Bryan Jordan: Thank you. Operator: We have a question from Ben Gurlinger with Citi. Your line is open. Ben Gurlinger: Hi. Good morning. Tyler Craft: Morning, Ben. Ben Gurlinger: I just wanna kinda follow-up on Mike's question regarding M and A. It seems like people have kind of implied that First Horizon would be a potential seller down the road given the one has happened before, I guess, you could say. But when when you think about just the environment, it seems like bigger deals are more in vogue and more accepted by regulators. When you think about the opportunity in front of you and shareholder value, I mean, are you taking yourself off the table, or or is this more so just kind of positioning if if something smaller did come up that you could potentially be a buyer? So kind of think about the I mean, the share price is down quite a bit on your comments. D. Bryan Jordan: I'm sorry. The last part broke up then. Ben Gurlinger: Based on your your your closing remarks, are you about being a potential buyer yourself, it's it's taking the your share price down a bit because it's not really what an implication of people thought might happen. I just hopefully, you can expand a little more. D. Bryan Jordan: Well, I I don't I don't think that that I intended to to change anything that that we have previously said other than to to to enforce the idea that we are making progress on the priorities that we have laid out and that that we are increasingly confident given the right opportunity in our footprint that we could be in a position to do that. It is clear that with recent approvals and the otherwise enthusiastic M and A environment that the regulatory backdrop seems to be in improving. In terms of our thinking about our franchise long term, tried to be very consistent on this point over 2018. Roughly eighteen years, which is that we are very focused on creating value for our shareholders. Both near and long term that we believe we have to operate the franchise with a long term mentality. And that means focusing on building the business in our case for the next one hundred and sixty one years. And investing in that regard. I don't believe that changes any of our optionality and while we were not for sale in the early part of 2022, we received an offer that our board did the right thing in considering that alternative and the various alternatives and the need to create maximum value for shareholders. And so I'm not changing anything about the future, just saying that we're in a much better place today than we were six months ago and that given the the the changing environment to the extent that opportunities present themselves, we're in increasingly improving position to consider fill in opportunities in our franchise. Ben Gurlinger: Gotcha. Got it. It's helpful. And then you see from a from a core basis, hope, it seems like you said the mainstream lending program added roughly seven bps. So, I mean, when we think about a starting point for fourth quarter and into next year, kind of the high three forties is feel like that's an appropriate level. But when you think kind of just the cadence of potential cuts in October and December, talked about repricing on deposits. How do you think we should position the margin movement especially with mortgage warehouse, you see seasonal outflow over 4Q or potentially 1Q grow? Hope Dmuchowski: Yeah. I I think in the near term, Casey, you know, the high three thirties or low three forties is the way to think about us. That's where we've been the the prior two quarters. And if you adjust out the main street lending, program, terminations, that would bring us down to the low 340s this quarter. As far as repricing the deposits, I would expect it to look a lot like it did last year, where in Q3, we saw the rate cut. And then in Q4, we picked up the beta. Know, I don't know if we'll have an October cut or December, but that repricing will always lag. And to my earlier comments about slide eight, I think we may have confused people about core deposits versus noncore deposits trying to show the opportunity to reprice. We particularly took out the added in the index bar, which shows what we can reprice down, you know, more real time. And then the promo. 13, you know, 6,000,000,000 of promo deposits and that will reprice at promo expiration down with each rate cut. So we've seen a high 60, low 70 beta, and we you know, our targeting trying to continue that trajectory as we go into a falling rate environment. Ben Gurlinger: Thank you. Hope Dmuchowski: K. We Sorry, Ben. One correction. I was looking at my chart wrong. It's 22 of promotional deposits and 13 of face. I inverted that. So apologies for that. Operator: Thank you. We now have Anthony Elion with JPMorgan on the line. Anthony Elion: Good morning. Hope, you had a strong quarter on both 4%. I know you noted that expenses may trend at the high end of the range, but given the strength you saw in revenue in 3Q, I'm wondering if you also expect revenue to trend closer to the high end of the range or if there's a level of conservatism in your outlook? Hope Dmuchowski: Yeah. I I think, you know, if you look at the fact that we have nine out of the twelve month base and you look at what our year to date results are, we'll absolutely be you know, short of any, unexpected event in the next two and a half months. We would expect to be towards the higher end of the revenue range. The the one that I can't predict well right now is FHN Financial. They had a really strong fixed income quarter, specifically a really strong September. And in the last two weeks, we've seen that come down pretty significantly. Partially, we we think, due to the government shutdown. But I think to get to the higher end of that range, we would need FHL Financial to have a similar quarter to Q3, if not better. Anthony Elion: Thank you. And then, one on credit, maybe for Tom if he's on the line. There were several questions on the large bank calls yesterday on their loan exposure to NDFIs given growth in that category over the past several quarters. I think your loan exposure to NDFIs is a little over 10% for the call report. Just given what's happened in the past several weeks, is this a loan category you're doing a deeper dive on now? Or anything more broadly on credit? Thank you. Thomas Hung: Yes. Hey, Anthony. I am on the line, thanks for the question. If I look at our NDFI book, mean, is is an area we've always, even before events, always monitored very carefully and looked at. Overall, I kind of break our NDFI book into three separate components. Our consumer lending portion of NDFI actually remains very, very strong. There's a very low amount of our CNCs. I think kind of I would specifically more focus on based on the recent events on our consumer financing portion of that. That's where kind of our auto and retail financing would fall into. For us, it's a relatively small book. It's only about 2% of C and I or about 1% of total. And there are some elevated NPLs and classifieds in that book. However, it's it's it's all well within control. And we also have a lot of expertise and a lot of history in this space. And so, you know, one thing I would point to, for example, is we've always maintained a full-time team of field examiners that are consistently out and out customers on-site visits. That team has an average of eighteen years' experience in the space. And between that team and outside vendors, we're on-site one to three times every year at our customer site. To examine the collateral. Thank you. Operator: Thank you. Your next question comes from Jared Shaw with Barclays Capital. Your line is open. You may proceed with your question. Jared Shaw: Hi, good morning. Thanks. I guess maybe sticking with credit, you talked about the broader improvement in the criticized and classified. Did you change any of the assumptions on the macro side for the CECL analysis? Driving that allowance? Is it all just sort of fundamental loan by loan improvement? Thomas Hung: Yes. So on the seasonal modeling process, we use Moody's Analytics for running our macroeconomic scenario. There is some management judgment in terms of our weighting between the baseline and the and the upside and the downside scenarios. Like I said, large we really follow Moody's analytics. I think, you know, maybe what you're driving at is regarding the the the decrease in ACL that we had this year. Some of that is individually loan driven. Think you probably you probably noticed our criticized assets down about 9% or $330 million on the quarter. So we've certainly seen some good overall positive grade migration that's contributing to that. And so it's partly that and as well as so as well as the updated Moody's Analytics outlook. Jared Shaw: Okay. Alright. Thanks. Thomas Hung: And then on the loan growth, you referenced Brian, you referenced the pay down of construction and move over to permanent. I guess at what level or what point could we expect to see net growth in CRE? D. Bryan Jordan: Yes. So that Jared, good morning. That's a business that is, as you know, you originate a loan and it funds up over two or three or four years and it pays off all at once as it goes into the permanent market. So it has a bit of a spring loading effect over time. We are starting to see with lower rates that those pipelines have built. The third quarter origination activity was significantly better than earlier in the year. So we're seeing progress. And as those projects fund up, you'll start see it come into equilibrium. I would expect you'll have another quarter or two of continued pay down payoffs but we're starting to see borrowers lean in a bit more. Tom, don't if there's anything you'd add to that. Thomas Hung: No, I think that's right. That's really kind of the effect of a more construction-heavy portfolio on our CRE side. Jared Shaw: Okay. And then if I could just ask a final one on the Main Street accretion. Was that related to loans acquired through Iberia and just accretion at final payoff or what was what was driving that outsized accretion this quarter? Hope Dmuchowski: No. It's not related to Iberia or an The Main Street lending program is coming to an end as they gave banks the opportunity to repurchase those loans for existing clients. And so we had some existing clients that were part of that program where we repurchased the loan. Or purchased a lot for the first time. Jared Shaw: But it's now on our balance sheet. So just from that loan hitting our balance sheet at the end of last quarter, Hope Dmuchowski: Correct. Jared Shaw: Thank you. Operator: We now have Timur Braziler with Wells Fargo. Please go ahead. Timur Braziler: Hi, good morning. Morning. Sticking to the m and a theme, a couple of months now since the Pinnacle Synovus announcement. I'm just wondering what you're seeing in terms of fallout from that transaction. Is that increasing competitive nature on loans deposit? Talent? Just maybe talk us through kind of the first couple of months post that deal. D. Bryan Jordan: Yeah. I think it's too early to see an awful lot of impact from that. I would say that the environment for lending in particular and people to a certain extent has or really experienced RMPM team has gotten tighter over the last couple of quarters. You see it in pricing in terms and structure. So it's a competitive environment. And I think it goes back to know, we've had a significant shift in the last call it two years from people wanting to bring down risk-weighted assets to a real emphasis on growth and growth in lending. We think that that the environment is pretty constructive as we look into the rest of 2025 and into 2026. We've had very good success in recruiting bankers and we continue to talk to bankers all across the franchise. And we're looking to be very, very focused in growing the franchise by focusing on our commercial middle market banking our specialty businesses, our private client wealth teams. And we think we are well positioned to do that. Over the next really several quarters. Timur Braziler: Okay. And then know, Brian, your your comment on on potentially integrating a well-structured merger. I mean, that's a little bit more pointed than in the past in terms of First Horizon, maybe looking to engage in M and A here in the next couple of years. I guess, what does that mean for just the potential pool of buyers out there? I know recent quarters, the comment has always been that there's not that many logical buyers kind of lined up. Is this further reinforcing that statement? And, I guess, is that really the driver here? Is that there's lack of logical buyers, and then, therefore, you gotta just keep going and kind of consider all possible options on on the capital front. Just wondering what changed in terms of making that more point of comment on the M and A side? D. Bryan Jordan: Yes. I think I think it's really much more narrow in that that one, the regulatory environment particularly the bright line around $100 billion or Category four in total assets seems to be a little less bright and potentially can be moved up over time and significantly easier to deal with. Two, the approval process is significantly quicker than it has been in the not too distant past. And so that's a positive. And there do does appear to be more activity in terms of thinking about what the future may look like. And as we look at our footprint, it is an opportunity to to potentially gain a bigger foothold in some of these very fantastic markets that we have across our franchise. With respect to our longer-term thinking, it really is not a change. We are very focused on deploying capital in the We want to focus first on deploying that capital on an organic basis. M and A is an alternative to deploying that capital, but it is not our priority. Number one growth is focused on organic deployment of capital and our franchise and we think we have a number of growth opportunities. I don't think it changes anything about the optionality we have as as an organization. We believe we create shareholder value by deploying capital in the business and growing and building for the long term. And we don't think that in way changes other alternatives that are available. So the big shift is the environment has changed significantly the last several quarters. And the bright line seems to be a little less bright and approval processes and the ability to announce a transaction and get it done in a timely manner seems to be better. And so while I said earlier that we're not making a big shift in the near term, I am saying that given that backdrop who knows what happens in '26 and '27 and beyond? Timur Braziler: Got it. Thank you. Operator: We now have Ebrahim, Tinwala. With Bank of America on the line. Eric: Hey, everyone. Good morning. This is Eric on for EV. Hope, you mentioned kind of the 15% Roxy target next year. I know you guys have talked previously kind of about expenses at a high level. For next year. Can you just talk about as we head into 2026, kind of what you need to do to hit that 15% and to achieve that and kind of what's baked into being able to kinda get there? Hope Dmuchowski: Yeah. Our last slide in the deck shows the three components pretty clearly. The first is bringing capital down. We have a near-term target of 10.75%, which we're working towards after we successfully completed our stress testing. Longer term, Brian and I have been very public, we think 10% to 10.5% is the right capital level for our balance sheet. The second is credit normalization. We've been building provision for two plus years now for charge-offs that haven't materialized that we don't expect, that we will see spike. We've given guidance this year, charge-offs between fifteen and twenty-five basis points, and we're coming in on the low end of that. So it's not having to build provision and being able to have a more normalized credit cost, we build our balance sheet. And the third is PPNR growth in our book. We have $100 million plus of opportunities that we expect to get out of our existing client base and franchise over the next, you know, two plus years. Eric: Okay. Got it. That that's helpful. Hope Dmuchowski: I I guess is the follow-up, was curious just about capital. 11%. You've said 10/1075 is kind of the near-term target. And Brian, maybe kind of with respect to the M and A point, is that excess capital I mean, you talked about buyback capabilities. Are the deals you're thinking about kind of tuck in, or are they larger deals that could be done, in 2026? D. Bryan Jordan: I I think as we sit here today, if we use capital for M and A, it would largely be tuck in. We think we have significant growth opportunities to invest organically in the franchise and we we really do believe that buyback opportunity for returning capital, repatriating capital to shareholders through that program, gives us the tools or the flexibility to manage our capital levels. We we talked to our board consistently about capital capital adequacy and how we deploy excess capital. We're not making any significant shifts in the way we thought about it. For for a number of years. Eric: Got it. Okay. Yeah. A lot of M and A questions. Stock's down 12 right now just because of that fear, I think. So wanted to make sure that you had the chance to kinda clarify those comments. Hope Dmuchowski: Yep. I mean, I'll reiterate what what Brian said is we haven't changed our stance. We've been talking about opportunistically what has changed is that there are smaller banks that are selling in our footprint. And the comment was was meant to note that we are able to take advantage of that with our strong, franchise. And reiterate what Brian said earlier, we were not for sale when TD brought us an offer, but our board looked at it and did the right thing. You know, I think we might be over indexing a little bit on a couple of comments Brian made about a changing m and a buyer environment. We have not changed our stance on optionality. Eric: Thank you. Operator: We will now move on to the next questioner. We have Chris McGrathey with KBW. Andrew Leishner: Hey. How's it going? This is Andrew Leishner on, for Chris McGratty. Just on Good morning. Going back to capital. As as you you make progress towards that updated 10.75% CET1 target, will buybacks continue to be more of a function of where loan growth lands any given quarter, or will we greater appetite for those buybacks going forward? Thanks. Hope Dmuchowski: Yes. Absolutely. The first priority is to grow the balance sheet with loan growth. And so as we put out the target for our share buybacks in at the beginning of a quarter, we look at what our forecast is for loan growth. And then what you know, what capital we cannot deploy to loan growth, we then deploy to share buyback second. Andrew Leishner: Okay. Great. Thank you. D. Bryan Jordan: Sure, James. Thank you. Operator: We now have Christopher Marinac with Janay Montgomery Scott on the line. Please go ahead. Christopher Marinac: Brian, I know Tom talked about NDFI loans earlier. I was just curious about the deposit opportunity with these customers, particularly outside of the mortgage finance channel? Is that an area that you can grow in the treasury area and otherwise? D. Bryan Jordan: Yes. That's an area where we've had a tremendous amount of focus over really the last several years, and we have made significant progress with respect to our focus on deposit gathering activities and our specialty lines of business more broadly. I think in our supplemental information, you'll see that the loan deposit ratio is very high, if not relative. It's not relatively high, it's just very high. But we've made progress in that regard. Those businesses have traditionally more lending oriented. They are very, very attractive because they have attractive competitive dynamics. We have deep expertise and knowledge in those businesses. And we have made progress and I expect that we will continue to make progress. Penetrating deposits. We've put in place treasury management products that make it significantly easier with the ability to gather those deposits. So I feel good about the focus and the progress and I expect that we will continue to see that deposit growth. Christopher Marinac: Sounds great. Thank you for that background. I it, and thanks for taking our questions today. D. Bryan Jordan: All right. Thanks, Chris. Operator: We have a question from Janet Leigh with TD Cowen. Please go ahead. Janet Leigh: Good morning. Know you guys touch up on f a FHN trading revenue before, but I want to just get more color. So most of the strength came in September, it seems. But is it sort of around when the rate cuts came? Because when I look at the shape of the curve, looking at the two two to five and the the spread between the two year and five year, the average spread hasn't changed that much in the third quarter versus 2Q, So I'm trying to understand what drove the 40% increase in ADR in the quarter. And the sustainability of the level going forward? Or if the strength had any to do with more securities repositioning, from the banks. Hope Dmuchowski: Janet, we saw the momentum pick up. Really, the two weeks before the rate cut as the Fed started to strongly signal that we would see a rate cut. We saw it through early October, you know, October until the government shutdown. And so I don't believe, and we have not heard that it's a ton of balance sheet repositioning. We typically tend to see that at the end of the year. We've commented in our last two years in our earnings that at the end in Q4, we saw FHN pick financial pick up due to balance sheet restructuring at year end, but I don't believe we had much of it this quarter. As far as the ability to maintain it, I think, know, whether we see a rate cut this month or, in December would be positive for their business as well as the shape of the yield curve, which is moving around a lot right now in the last week or two as we look at both the tariff impact and the government shutdown impact. I'm hoping it rebounds from where we've been in the last two weeks. Janet Leigh: Okay. Got it. That that's helpful. And in terms of the other C and I balances excluding the loans to mortgage companies, so that increased this quarter but roughly at half the pace reported in the second quarter. Has anything changed? I know that Brian commented that the pipelines are building, but is there anything to read from the change in C and I loan growth this quarter versus the last quarter? And are you do you still expect that sort of mid single digit loan growth in 2026 is a reasonable place to be? Thomas Hung: Yes. No, I would say there's no significant change third quarter, second quarter. In the second quarter, our C and I balances excluding mortgage warehouse was up over $170 million. So I think that reflects good momentum. When we're talking kind of one point difference quarter to quarter, that's a matter of just a couple of deals. So that's just little bit of inherent lumpiness. Overall, we have really good momentum in our C and I and in our trade channels. D. Bryan Jordan: And with respect to 2026 outlook, I'm still with the mid single digit loan growth numbers. And clearly, we've as I said earlier, we're expecting a turn in real estate lending as rates have come down and projects pencil out better and the momentum that we're seeing the organization. So, we're still comfortable with what I said several months ago about 2026. Janet Leigh: Got it. Thank you. And my last question is just following up on M and A. Would you for potential M and A opportunities, would you look at contiguous Or is it focused on your core footprint? And also, in terms of the timing, would you be comfortable crossing $100 billion without the regulatory I mean, without asset threshold being lifted above $100 billion? D. Bryan Jordan: Yeah. So couple of thoughts. One, I said near term, you know, nothing's really changed. So I think this is if anything it's 26% and beyond. But yes, we'd be focused on our core franchise. And two, I'm increasingly confident that the ability to cross $100 billion is significantly better than it would have been eighteen, twenty-four months ago. Janet Leigh: Thank you. Thank you. Operator: Thank you. Just a quick reminder that it's star followed by one. To register for questions. And we have another question from Nick Alabokal with UBS. Please go ahead. Nick Alabokal: Thanks for taking my question. Maybe just one more on M and A. I know the you've flagged in the past the PPNR opportunity, a $100 million plus over the next couple of years here. With a chunk of that at least stemming from residual opportunity because of the Iberia First Horizon merger? Do you feel like you need to realize a significant portion of that $100 million plus opportunity prior to engaging in any further M and A? D. Bryan Jordan: Well, it's been our focus to be well down the path. And as we continually have said, it's $100 million plus pre-tax pre-provision. We are in the process of really realizing that. And my message this morning is we are making progress in that regard. I feel good about the progress that we are making and that we are likely to make and that gives us increasing confidence that if anything presented itself in terms of the fill-in opportunity, that we would be in a position to execute on both. Nick Alabokal: Understood. Thank you. And then I guess, looking out to '26 and the potential for flattish expenses there, ex any changes in the fixed income business. Can you just touch on how you're thinking about balancing expense discipline versus investing, especially you think about the possibility of being a much larger institution? D. Bryan Jordan: Yeah. I'll start and then hope can can clean it up, I suppose. Look, we think we have the ability given the the levers that are in place and particularly some of the investments that we've been making over the last couple of years to deliver on flattish expenses, caveated as you appropriately did with the fee income business. We can deliver on that, that we can continue to invest in technology, infrastructure and and continue to deliver superior customer and associate experiences and that we can do all that and maintain flattishness. That does include continuing to build the capability to be an LFI or a Category four banking institution. So our outlook for expenses does not in any way inhibit our ability to continue to build the franchise for the long term and continue to build it in a way that delivers for our customers, communities and for our associates and shareholders. Hope Dmuchowski: I think Brian said it well. You know, I'll reiterate we are still investing with flat expenses. We do have anchor growth built in there. We have de novos that are opening later this year and next year. Brian mentioned earlier hiring a a new retail head that is also going to make some investments back into our franchise. We announced two and a half years ago that we would have a three-year $100 million investment back into our technology. Those investments do come with additional revenue cost saves. We're getting to see you know, as we come to complete that third year, we're seeing the benefit of those efficiencies. We've also made many strategic decisions that decrease our operating costs. We've talked before when we've had some restructuring charges in our earnings about outsourcing our facilities management to JLL, our broker dealer partnership with LTL, all of these things are items that help us drive efficiencies in our expenses while raising revenue. Nick Alabokal: Thanks for taking my questions. D. Bryan Jordan: Thank you. Operator: Thank you, Nick. Our final question comes from Jon Arfstrom with RBC. Jon Arfstrom: Hey, thanks. Thanks for taking the follow-up. Annoying here, Brian, to talk about this. But I think you're saying you can run the company. You can't you cannot run the companies if someone larger like like TD is gonna come in with a big premium in the near term. You have to keep looking ahead growing the franchise. If a small deal comes up, you consider it. If it enhances franchise value. A big premium comes in next week or a year from now, the board would consider it. But if it doesn't happen, you can't just sit there and wait. Is that know it's annoying, but that's that's the message. Right? Really nothing's changed in terms of your approach? D. Bryan Jordan: Yeah. Yeah. Absolutely, John. You you said it much more than I've said it this morning. Nothing has changed in our view. We believe we have to run the franchise for the long term. And that does include considering deploying capital and fill-in acquisitions. We believe that very strongly that if we create value by delivering higher returns, improving profitability, growing the franchise and capitalizing on one of the best footprints we believe in in the banking space. That that not only keeps our optionality open, but it it doesn't take any off the table. So I I think as you articulated, we we don't see ourselves limiting our optionality in any way by continuing to invest and deliver in the franchise. Jon Arfstrom: Yep. Okay. Thank you very much. Appreciate it. No. Thanks. Thanks for your help. Operator: Thank you. We now have another follow-up from Anthony Elion with JPMorgan on the line. Anthony Elion: Hey, Brian. One more on M and A. And I'm curious, you kept emphasizing in footprint existing footprint, but if I think Iberia and Capital Bank they expanded your footprint to the Carolinas, Texas, Louisiana. So I'm curious why put the emphasis on in footprint this time around in Europe prepared remarks? Thank you. D. Bryan Jordan: Yeah. Anthony, it's really, in many ways, very, very different. If you think about Capital Bank for example, we were largely a Tennessee-based franchise at that point in time and that that really enhanced our small presence in the Carolinas expanded South Carolina in particular and Florida. IBERIABANK sort of rounded out that footprint. And today, we have a geographic footprint that broadly ranges from Texas to Florida to Virginia to Arkansas and back to Texas. We look at the growth and the in that footprint, it really seems the place that we ought to focus. And and we don't see anything at least immediately that says we ought to try to expand upon what is one of the highest growing parts of The U. S. Economy. Anthony Elion: Thank you. D. Bryan Jordan: No. Thank you. Operator: Thank you. I can confirm that does conclude our question and answer session today, and I would like to hand it back to our CEO, Brian Jordan, for some final closing comments. D. Bryan Jordan: Thank you, Breeka. We appreciate everyone joining us this morning. We appreciate your time and your interest. If you have follow-up questions or you need additional information, please do not hesitate to reach out. Hope everyone has a great day. Thank you. Operator: Thank you all for joining the First Horizon's Third Quarter 2025 Earnings Conference Call. Today's call has now concluded. You may now disconnect, and please enjoy the rest of your day.
Operator: Hello and welcome to ASML Holding N.V.'s Q3 2025 results video with Christophe Fouquet and Roger Dassen. Roger, if I can start with you and can I ask you to give us a summary of Q3 2025 results? Roger Dassen: Sure. Net sales came in at €7.5 billion. That included, by the way, the recognition of one High NA system. Also included in there, €2 billion for installed base revenue. Gross margin for the quarter came in at 51.6%, all of that I would say within guidance. Net income for the quarter came in at €2.1 billion and we recorded net bookings for the quarter of €5.4 billion, included in there €3.6 billion for EV. Operator: And Roger, can I ask you to give us a guidance on Q4 2025 as well as the full year for 2025? Roger Dassen: Sure. So for the quarter, we are looking at revenue between €9.2 billion and €9.8 billion. It's a big quarter, a lot bigger than last quarter. But actually that's as planned also as we communicated before. And it's also what we saw in 2024. We also had a very big Q4 there. Included in that number would be an installed base revenue of approximately €2.1 billion. The gross margin for the quarter somewhere between 51-53%. If you then take that to the full year, we would be looking at a full year around €32.5 billion in terms of net sales. The gross margin, we say around 52%. As a matter of fact, you take the midpoint of the guidance for the quarter, you get a little bit above the 52% for the full year. Operator: Christophe, if I could ask you then to give us your view on how you are seeing the market at the moment. Christophe Fouquet: Yeah. I think we have seen a flow of positive news in the last few months that have helped to reduce the uncertainty, some of the uncertainties we discussed last quarter. First, we continue to see strong news about commitment to AI, which means we think investment in advanced logic and DRAM. Second, and it's very important for us, it looks like AI is going to benefit a larger part of our customer base. Third, we continue to make very good progress with our litho intensity, especially with EUV that continue to be adopted with DRAM and advanced logic customer. On the other hand, when we look at China, we believe that the demand of our Chinese customer is going to be significantly lower in 2026 than it has been in 2024 and '25 where we had very strong business there. Operator: So what does that mean then for ASML Holding N.V. in 2026? Christophe Fouquet: Well, we believe that the impact of these dynamics will only be effective partially in 2026. But still for 2026, we expect our net sales to not be below 2025. If we look at our product mix, the dynamics are going to favor UV, which we believe will increase, while the dynamic in China will most probably lower the business in Deep UV. And we will provide more details about 2026 in our January call. Operator: Turning to technology. Roger, can I ask you to give us your thoughts on the recent announcement that we had in terms of the collaboration with ASML Holding N.V. and Mistral AI? Roger Dassen: Yes, indeed. We enter into a partnership with Mistral AI. I think Mistral is really recognized on a number of fronts. I think they're recognized for their business-to-business approach. They're also recognized for the quality of their large language model, particularly when it comes to software coding and software coding development. So they're recognized for that. That's the reason why we entered into the partnership with them because many people look at ASML Holding N.V., look at our products and really looking at hardware. But I think increasingly I think people appreciate the very significant software content that is within those systems. I think people really understand that if you get to the level of precision and the level of speed that we have in our scanners, but also quite frankly what we need in metrology and inspection, it's pretty clear that the software contingent therein becomes increasingly important. So that's the reason why this is very strategic to us, why it's very strategic to improving the performance, improving the precision and the speed of our tools as we bring them to our customers. So therefore, this collaboration is truly a strategic choice for us. I would also say that on top of the significance that it has for our products, it's also AI is also a great way to improve the speed of our product development, to improve the speed of our time to market of any product development to our customers. And that's another big area that we're collaborating with Mistral on. So all in all, we believe a very strategic partnership. We also, to underscore that strategic partnership. As you know, we were the lead investor for their Series C funding round. And by being the lead investor, we took approximately an 11% share in Mistral. We also have a seat on their strategic committee. We truly believe that by doing this, we also get closer and closer to the AI world, which we believe is so pivotal to what we do at ASML Holding N.V. Operator: Staying on technology, Christophe, can you share then maybe some of the highlights over the last quarter in terms of our roadmap? Christophe Fouquet: Yes. I think we continue to see a very strong execution of our technology roadmap. I'll start with EUV. We had some very good papers presented at SPIE Semicon conferences stressing the progress we are making driving down the cost of technology for the most advanced nodes of our customer. On INA, we shared the fact that at our customer, more than 300,000 wafers were now run. And some of our customers also reported the fact that the maturity of INA today is quite ahead of what the maturity of Loiner was at a certain period of time. So this was very positive. I think one important news also came from SK Enix, who announced the start of the installation of their first 5,200 in their production fab, positioning this tool basically as one of the key enablers for the future of Dera. On top of that, I think we're also very happy to report that we have shipped our first advanced packaging product. We have said in the past that we'll be supporting our customer with 3D integration. We have shipped the XT260, which is a high productivity scanner that will support advanced packaging and provide up to 4x productivity compared to the existing product. Operator: So yes, you're mentioning then 3D integration. What's some of the rationale and maybe some of the opportunities you see for ASML Holding N.V. in the space? Christophe Fouquet: Well, I think 3D integration, of course, is the other way to drive Moore's Law. And when it comes to TD, we have our lithography roadmap. When it comes to 3D integration, I think we mentioned in Capital Market Day that we will start helping our customer in this field. Our customers have told us that there is a need for innovation in 3D integration because their requirement will become more and more stringent. When we look at those requirements, we also see that a lot of the technology we have developed for Holistic Lithography can be transferred to 3D integration. And this is why we are looking at several opportunities. The XT260 is the first product, there will be more. And because of innovation, we are capable again to bring technology that can really make a difference. If we look at next year, we see many customers that have shown interest in this tool proving again, I would say, the future value of our technology there. Operator: Then as a final question, can I ask you to remind us of maybe the long-term opportunities for ASML Holding N.V. and a little bit the market you see there? Christophe Fouquet: Well, first, as we mentioned in the Capital Market Day, we said that most probably AI will drive more advanced application in semiconductor. So advanced DRAM, advanced logic. I think this is happening and this is driving more advanced litho, higher litho intensity, and we expect that to continue. As we just discussed, we see that 3D integration will become a new opportunity, which we are going to pursue. And as Roger explained very nicely, we also see that AI could create a lot of value in our product moving forward. So we continue to see a very strong opportunity on our technology roadmap. Finally, to close on the number, as mentioned in the Capital Market Day, we expect 2030 to see an opportunity for revenue between €44 billion and €60 billion and a gross margin between 56-60%. Operator: Great. Thank you very much. Thank you both, Christophe and Roger. Christophe Fouquet: Thank you.
Operator: Good afternoon, and welcome to the J.B. Hunt Transport Services, Inc. Third Quarter 2025 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 Andrew Hall, Senior Director of Finance. Please go ahead. Andrew Hall: Good afternoon. Before I introduce the speakers, I would like to provide some disclosures regarding forward-looking statements. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates, or similar expressions are intended to identify these forward-looking statements. These statements are based on J.B. Hunt Transport Services, Inc.'s current plans and expectations and involve risks and uncertainties that could cause future activities and results to be materially different from those set forth in the forward-looking statements. For more information regarding risk factors, please refer to J.B. Hunt Transport Services, Inc.'s annual report on Form 10-Ks, other reports, and filings with the Securities and Exchange Commission. Now, I would like to introduce the speakers on today's call. This afternoon, I'm joined by our President and CEO, Shelley Simpson, our CFO, Brad Delco, Spencer Frazier, EVP of Sales and Marketing, our COO and President of Highway Services and Final Mile, Nick Hobbs, Brad Hicks, President of Dedicated Contract Services, and Darren Field, President of Intermodal. I'd now like to turn the call over to our CEO, Ms. Shelley Simpson, for some opening comments. Shelley? Shelley Simpson: Thank you, Andrew, and good afternoon. Throughout the year, our focus has been on three clear priorities: operational excellence, scaling into our investments, and continuing to repair our margins to drive stronger financial performance. We are executing these priorities with discipline and determination, guided by a strategy designed to strengthen our competitive position and unlock long-term value for our shareholders. I am highly confident that our approach is building a stronger company, one that is fully equipped to capitalize on meaningful growth opportunities ahead while driving stronger financial performance. Across our businesses, service levels remain excellent. We have systemically elevated our service standards to drive disciplined profitable growth with both new and existing customers. Even as overall freight demand softened during the quarter, our unwavering commitment to service enabled our intermodal and highway businesses to capture additional volume and outperform the market. Operational excellence is now synonymous with J.B. Hunt Transport Services, Inc., and we are leveraging this reputation to drive strategic growth and maximize returns on our investments to match the unique value and strong service levels we provide for customers. We remain focused on controlling what we can, optimizing costs in the near term without sacrificing our future earnings power potential. In addition, we are placing a heightened emphasis on operational efficiency throughout the organization. By streamlining processes, adopting best practices, and leveraging technology, we aim to utilize every resource as effectively as possible to maximize productivity and performance. Our initiative to lower our cost to serve, announced last quarter, is focused on removing structural costs from our business. The organization's collaborative efforts continue to gain momentum, and Brad will share more details on our progress. This initiative marks our latest evolution in expense discipline, and we are making good progress towards reaching our $100 million savings goal and advancing towards our long-term margin target. Now, let me address the elephant in the room: rail consolidation. J.B. Hunt Transport Services, Inc.'s position is rooted in our commitment to delivering exceptional intermodal service and creating long-term value for our customers and shareholders. We recognize both the opportunities and risks that consolidation presents. But our decades of experience, including navigating seven prior Class I railroad mergers, and our thoughtfully developed long-term agreements and strong relationships with NS, CSX, and BNSF should provide the basis for us to adapt to any changes in the industry. As the largest domestic intermodal provider, our scale and influence allow us to coordinate complex intermodal moves and deliver unique solutions for our customers. We are consistently rated best in class by third-party industry surveys of intermodal customers. And our ability to deliver seamless, differentiated service across the entire North American intermodal network is a key competitive advantage. Our focus remains on providing reliable, efficient, and innovative service that benefits our customers now and into the future. As the rail industry evolves, we expect our proven adaptability and unwavering dedication to service will not only safeguard our leadership position but should also continuously set higher standards of excellence for our customers. I want to close by recognizing the entire organization for their hard work and progress across many areas of focus. The third quarter is extra special at J.B. Hunt Transport Services, Inc. as it includes National Truck Driver and National Technician Appreciation Week. Our professional drivers and maintenance teams are the backbone of our success. And their record-breaking safety performance is a testament to their skill, dedication, and attention to safety every day. We appreciate all they do to keep our company, our customers, and our communities safe. With that, I'd like to turn the call over to our newly appointed CFO, Brad Delco. Brad Delco: Thanks, Shelley, and good afternoon. I will hit on some highlights of the quarter, review our capital allocation plan, and give an update on the lowering our cost to serve initiative. Let me start with the quarter. As you have already seen from our release, revenue was roughly flat year over year while operating income improved 8% and diluted earnings per share improved 18% versus the prior year period. While inflation in insurance, wages, and employee benefits and equipment costs were all up, our productivity and cost management efforts more than offset those headwinds to drive our improved results. Over the years, you have heard us talk about investing in our long-term growth, maintaining cost discipline without jeopardizing our future earnings power, and creating operating leverage when the market returns. Well, it's no secret the market hasn't returned yet, but the notable improvement in our financial performance this quarter should serve as a true testament to the talent and capabilities of the people throughout our organization and the execution of our strategy towards operational excellence in safety, service, and lowering our cost to serve. On capital allocation, our balance sheet remains healthy, maintaining leverage around our target of one times trailing twelve-month EBITDA while purchasing over $780 million or 5.4 million shares of our stock year to date. This aligns with our messaging around prefunding our long-term future growth during the downturn and having the flexibility with the strong cash flow generation of the business to be opportunistic with share repurchases as a way to return value to our shareholders. We will be disciplined in our capital allocation approach with investing in the business as priority number one, sustaining our investment-grade balance sheet, supporting future dividend growth, and finally continuing our opportunistic repurchases. Last quarter, we outlined our lowering our cost serve initiative to remove $100 million of structural costs from the business. I'm happy to share we are off to a good start, having eliminated greater than $20 million in the quarter. Examples of our success are in service efficiencies, balancing our networks, dynamically serving customers to meet their needs, focusing even more on discretionary spending, and driving greater asset utilization. We remain committed to updating you on our progress going forward. But our intent is to demonstrate our progress in our reported results rather than just speak to them. As we noted last quarter, we will realize a portion of these benefits this year, with the majority of the impact realized in 2026. Let me close with this and what I hope you take away from our quarter. First, our company continues to execute from a position of strength. We have been transparent with our strategy, our investments to be best prepared to service our customers' future capacity needs. Second, we also continue to remove structural costs from the business. We are off to a good start and have more work to do. Third, our business continues to generate a significant amount of cash, and we remain focused on generating strong returns with our deployed capital. We have been opportunistic with our share repurchases, all while maintaining modest leverage on our balance sheet. That concludes my remarks. Now I'd like to turn it over to Spencer. Spencer Frazier: Thank you, Brad, and good afternoon. I'll provide an update on our view of the market and some feedback we are hearing from our customers. Overall demand trended below normal seasonality for much of the quarter outside of the seasonal lift we saw at quarter-end. On the supply side, truckload capacity continued to exit the market, and the pace of exits is accelerating. But the soft demand environment is likely muting the market impact of capacity attrition. Outside of recent weeks, truckload spot rates remained under pressure in the quarter. More recent regulatory developments and, more importantly, regulatory enforcement is having an impact on capacity. While this industry may have a chicken little reputation when it comes to predicting capacity changes, the capacity bubble may be deflating as we speak. In the near term, customers will remain skeptical of any predicted change, only believing it when they experience it. Shifting to intermodal, volumes declined 1% year over year. We believe our volumes held up better relative to the broader truckload market decline, primarily because more customers are converting freight to intermodal from the highway as they see our commitment to operational excellence differentiating J.B. Hunt Transport Services, Inc. Intermodal from the competition. The service we provide ranks us at the top of our customer scorecards, and we continue to be ranked at the top of industry surveys as well, with a Net Promoter Score of 53. When we go to market, we work with customers to dynamically solve their supply chain needs by designing and executing our operations to meet their requirements. For example, in our intermodal business, customers trust us to select the most efficient service regardless of the rail provider to seamlessly move their freight throughout North America. Today, roughly half of our interchange volume on transcontinental shipments occurs through a steel wheel interchange. This ratio can change dynamically and demonstrates our ability to be agile at scale to execute and meet our customer expectations. Regardless of how the rail landscape and operating scenarios might change over the next couple of years, we remain committed to delivering exceptional service and growing with our customers. Regarding the current peak season, the strong container volume into the West Coast in July generated headlines regarding a potential pull forward. Ocean peak season came early. That said, it is important to disconnect the timing of peak season on the water from the peak season of the inland supply chain. Our customers are still expecting a peak season, although the magnitude and duration of peak volumes will vary. Our conversations indicate there is a large amount of freight that was imported early that hasn't moved through the inland supply chain yet. No one has canceled Christmas. I'll close with some customer feedback. Our customers realize the financial health of the transportation industry is not great. And as a result, they are choosing to do more with the best carriers and more with fewer carriers. Shippers are focused on creating efficiencies in their supply chains by working with providers who are safe and financially sound and who execute with agility and predictability. Our scroll of services continues to operate from a position of strength, creating value as the go-to transportation provider for our customers. I would now like to turn the call over to Nick. Nick Hobbs: Thanks, Spencer, and good afternoon. I'll provide an update on our areas of focus across our operations, followed by an update on our Final Mile, truckload, and brokerage businesses. I'll start on our safety performance. Safety is a core piece of our culture and a key differentiator of our value proposition in the market. We are coming off of two consecutive years of record performance measured by DOT preventable accidents per million miles, and our safety results through the third quarter are performing even better than these record performances. This performance is a testament to our people and the attention to detail they bring to the job every day, as well as our focus on proper training and technology. Our safety performance is a key piece of driving out cost and will continue to be an area of focus. While the ultimate impact on industry capacity is hard to pinpoint, we believe the recent developments on regulations and enforcement, when taken together, could have a noticeable impact on available industry capacity. These include new regulations around English language proficiency, B1 Visas, FMCSA, biometric ID verification, and non-domiciled CDLs. Importantly, for J.B. Hunt Transport Services, Inc., we do not expect to see any material impact on our capacity. There have been some signs based on what we are seeing in our truck and brokerage operations that it could have a broader industry impact. Moving to the business, let's start with the final mile. As we said last quarter, business conditions in our end markets remain challenged with soft demand for furniture, exercise equipment, and appliances. We continue to see positive demand in our fulfillment network driven by off-price retail. Going forward, we expect market conditions to remain challenged through at least year-end. Our focus remains on providing the highest service levels, being safe and secure, ensuring that the value we provide in the market is realized to drive appropriate returns. In 2026, we do anticipate losing some legacy appliance-related business, but we will be working diligently on backfilling with other brands and service offerings in this segment of our business. Moving to JBT, our focus in this business hasn't changed, and we are winning business with strong service from both new and existing customers, leading to our highest quarterly volume in over a decade. We are remaining disciplined with our growth to ensure our network remains balanced in order to drive the best utilization of our trailing assets. Going forward, we are pleased with the direction of this business in this soft demand environment and the progress we are making on lowering our cost to serve. We see an opportunity for further efficiency and automation gains in the future as we continue to leverage our 360 platform. That said, meaningful improvements in our profitability in this business will be driven by greater levels of rate improvement and overall demand for truckload drop trailing solutions. I'll close with ICS. During the third quarter, volumes modestly improved sequentially as new volume from recent bid wins was partially offset by soft demand in the overall truckload market. Truckload spot rates remained depressed throughout the quarter, but we saw gross margins remain healthy. We are almost through bid season and are pleased with the awards we have received, with rates up low to mid-single digits, winning volume with new customers. Our focus here remains on profitable growth with the right customers where we can differentiate ourselves with service. Going forward, we will remain focused on scaling into our while continuing to make improvements to our cost structure and leveraging our 360 platform to drive greater efficiency and automation, which will help lower our cost to serve. With that, I'd now like to turn the call over to Brad. Brad Hicks: Thanks, Nick, and good afternoon everybody. I'll provide an update on our dedicated results. Starting with the quarter, at a high level, our third quarter results were very strong, particularly in light of this challenging freight environment. We believe our results are a testament to the strength and diversification of our model, the value we create for our customers, and how we drive accountability at each site and customer location. As a result, we continue to see good demand for our professional outsourced private fleet solutions. During the third quarter, we sold approximately 280 trucks of new deals. As a reminder, our annual net sales target is for 800 to 1,000 new trucks per year, and we would be on pace with this target absent the known losses disclosed almost two years ago. Encouragingly, our overall sales pipeline remains strong as our value proposition in the market remains differentiated. Our sales cycle in dedicated is typically eighteen months from start to finish, and our pipeline includes both large and small fleets at various stages of completion, all underwritten to our return targets. Overall, I remain pleased with the momentum and activity in the pipeline. As I just mentioned and as we have communicated over the past eighteen months, we have had visibility to fleet losses that wrapped up in early July, which negatively impacted our third quarter '25 truck count by about 85 trucks versus our second quarter results. Navigating through these losses, in addition to call outs we've had related to some customer bankruptcies and the overall market dynamics, demonstrates our discipline and strong execution. While we were losing locations that had historically delivered mature margins, we were simultaneously absorbing startup costs from onboarding new business. Despite facing these two margin pressures, we still maintain double-digit margins during this period. I am extremely proud of all of our teams for their effort. Hope going forward, knowing that most of our fleet losses are behind us, is that we are back on track with our net fleet growth plan moving forward. We believe the performance of our dedicated business has been a standout not only for our company but also the industry. We have great visibility into the financial performance of each account, which provides a high level of accountability at each location and a diversified customer base with our managers on-site with our customers, which we believe creates unique value that is a differentiator for us. Going forward, with our known losses behind us, our expectation for modest fleet growth in 2025 has not changed. As we have said previously, when we sell new truck deals, and that business starts up, we do incur some expenses as that business is onboarded. That said, this isn't new for us. We are starting up new customer locations each quarter. Given our progress with respect to lowering our cost to serve, we expect our 2025 operating income to be approximately flat compared to 2024. The magnitude of any potential variance higher or lower to this outlook will be driven by the number of locations we start up during the quarter. We believe the setup is favorable for us to continue our growth trajectory in 2026 and beyond. Our business model and value proposition are differentiated in the market and continue to attract new customers. We remain confident in our ability to compound our growth over many years to further penetrate our large addressable market. With that, I'd like to turn it over to Darren. Darren Field: Thank you, Brad. Thank you to everyone for joining us this afternoon. I'd like to start by saying I feel really good about our performance and how our strategy and solid execution drove meaningful improvements in our results. I believe this is a true testament to our focus on operational excellence, cost discipline, and progress on lowering our cost serve initiative. Before we get into more detail on the results, I want to follow up on some of Shelley's comments regarding the potential for Class I rail consolidation. First, there are still a lot of unknowns. But I am confident J.B. Hunt Transport Services, Inc. should be a primary consideration and actively engaged in all discussions involving the future of the intermodal industry as well as the execution of all Class one's desire to take share from the highway to grow their intermodal service offering. We have offered seamless transcontinental intermodal services for decades, connecting BNSF with both Eastern railroads, and believe that opportunity could exist well into the future regardless of the various outcomes we know are either announced or speculated in the market. We continue to see a large opportunity to convert highway shipments to intermodal, and if the motivation for consolidation is to compete more with trucks, we believe this will present our industry-leading intermodal franchise additional growth opportunities. We are one of the largest purchasers of rail capacity in North America, and we will engage in discussions with all rail providers to execute on a strategy and plan that we think is in the best interest of our shareholders. Turning to the quarter, demand for our domestic intermodal service wasn't all that strong, but nonetheless, we saw sequential improvement in volumes and executed some of the most efficient dray service in our history, particularly in September. As Spencer mentioned, we still expect the peak season as lots of volume that moved on the water earlier this year will still need to advance in the inland supply chain ahead of the holidays. Volumes in the quarter were down 1% year over year and by month were down 3% in July, down 2% in August, and flat in September. After seeing unique strength off the West Coast last year due to the threat of the East Coast port labor disruption, TransCon volumes were down percent in the quarter, while Eastern loads were up 6%. As we've communicated all year, we had a bid season strategy focused on getting better balance in our network to grow volumes and repair our margins with more price, particularly in our headhaul lanes. Last quarter, we talked about our success in the bid season, particularly around balance, and we think that success combined with our lowering our cost to serve initiatives were key contributors to our year-over-year and sequential performance improvement. Our service performance remains strong. Our primary rail providers BNSF, NS, and CSX continue to deliver excellent service, which we believe is taking share from Highway. I am confident our service offering is being recognized in the market. Customers are reengaging with us with additional opportunities largely driven by our differentiated service and value compared to both highway and IMCs. As you all are keenly aware, we have the capacity and ability to execute on a meaningful growth plan over the coming years based on investments we've already made. In closing, we remain very confident in our intermodal franchise and the value we provide for our customers. We have shown the ability to grow and generate strong returns through many rail consolidation events over the past few decades and look forward to the opportunities we have in front of us. With that, I'd like to turn it back to the operator to open the call for questions. Operator: Thank you. We will now begin the question and answer session. The first question comes from Chris Wetherbee with Wells Fargo. Please go ahead. Chris Wetherbee: Hey, thanks. Good afternoon, guys. Hey, good afternoon. I guess maybe if we could start on the cost side and maybe unpack, I think you said $20 million in the quarter, I think $100 million is the total program. Can you give us a little sense maybe by segment how that played out? Any examples that you can provide in terms of detail would be great too. And then I guess as you think forward, is it sort of progressive from the 20 to the 100 over the several quarters? Any sort of insight there? And I guess in that context, boxes were down sequentially for the first time in quite some time. So just kind of curious how that is sort of part of the plan if it is? Brad Delco: Chris, I'll try to address the first part and I'll pass it over to Darren to address the second part. Really there's progress across all areas of the business. And so when we think about, as we laid out last quarter, what are the three buckets that we were targeting for this initiative? It was around efficiency and productivity. That's not just in the business, that's also in back office and how all that gets allocated to businesses. Driving better asset utilization, I mean, saw that in intermodal. We certainly saw that and you heard some comments about almost record performance in our tractor utilization in our dray operations. You saw good improvement in productivity in Dedicated. I wouldn't want to say one segment versus the other, but I think you've seen it in the results across the board. In terms of how we're going to progress going forward, I said in my comments, we're going to give you an update each quarter. We said we think most of this will reveal itself next year. Listen, we're off to a good start. We wanted to share that and I think you see it in the results. And while we do speak to it and we will speak to it each quarter, really the intent here is for you guys to see it in the results. And I'm glad that you guys can see it in the results we printed this afternoon. So I'm going to pass it over to Darren and let him address maybe the container count question and appreciate the question, Chris. Darren Field: Yes. I mean, the container count isn't down. We have equipment that reaches useful life every quarter. It's a small amount. Sometimes there's a repair bill that may be greater than what the book value of that piece of equipment is, and we'll retire it. The other component is we've worked closely with Dedicated in a few examples where we found what had been leased trailers in an account, we were able to use containers instead. It's a pretty small number, but those would be the kind of moving pieces there. Nothing significant in terms of a real change in direction on container equipment. Operator: The next question comes from Brian Ossenbeck with JPMorgan. Please go ahead. Brian Ossenbeck: Hey, good evening. Thanks for taking the question. I think Mike was giving some commentary about pricing for next year. I think it was in ICS low to mid-single. So hoping you can kind of run through what you're expecting across the different modes. And if I'm hearing you correctly, lowering the cost to serve, if rates do stay flat or don't move a whole lot for next year, it sounds like the structural reductions here mean that the performance like this can be more durable and perhaps even better whenever we do get to that long-awaited upcycle? Thank you. Nick Hobbs: Yes. Thank you. I was really talking about what we've seen in recent bids and the awards that we've seen, not really what we thought next year was going to be on rates. But we've seen in ICS in particular, we've seen some success and growth in the amount of loads and in our pricing as we kind of focus on the more difficult challenging business that's not as commoditized, and so I think you see that in our gross margin. So it's just the type of business that we're working on that we saw that. And then Brian, to the second part of your question, I mean, clearly, the rate environment has been challenged now for quite some time for our industry. This initiative, again, that we launched, you really dig in on the deep into all the details, we have a spreadsheet that has over 100 lines of things that we're going to attack. And we've had very healthy debates around our executive table about what's structural, what's temporary, what we think are just cost avoidance versus are things that we're removing. And the numbers we're sharing, I mean, I think we said last quarter, our goal is and what we've identified as something far greater than $100 million. We've always been, I believe we've always been a fairly conservative company. We have a very strong say-do culture. If we say something, we're really setting out to do it. And so we're comfortable sharing the $100 million. Again, we're off to a good start. Our hope is while we've had tremendous headwinds in this industry, at some point headwinds will turn to tailwinds. And I think it will make it, it'll make the work we're doing look even stronger. Again, in my comments, you heard us say, we really are trying to set this business up to drive stronger incrementals when the market is more in our favor. And I think some of the discipline we have around cost is setting us up very nicely for that. Operator: The next question comes from Jonathan Chappell with Evercore ISI. Please go ahead. Jonathan Chappell: Thank you. Good afternoon. Don't know who wants to answer this, maybe Darren or Spencer or even Brad, but you've talked about the demand challenges. We all know about that. Pricing in the spot market doesn't seem to have done very much from three months ago either. But if you look at revenue per load in both intermodal and you had a pretty nice sequential improvement. So I'm trying to understand is that a decision you have to make versus volume, volume versus pricing? Is that a mix situation? Is that surcharges? And is that now the starting point? You always talk about like the cake being baked into the next year. Given that sequential increase down to 3Q, is this the starting point of which the cake is baked? Or is there a risk that that could actually move backward closer to the 2Q levels? Darren Field: Okay. This is Darren. I'll try to tackle at least part of that. If Spencer has anything to add, he can certainly jump in. So we've often talked about we implement about 30% of prices in the first quarter, thirty percent second quarter, 30% third quarter, and call it 10% in the fourth quarter. I have long said the third quarter is the best time to see the results of the previous bid cycle. And I think that's what we did just show in terms of the results is that's a fully implemented bid season. What is washed in the results is there is some good pricing movement in the headhauls. There is some negative pricing in backhauls. And when you combine them, it looks relatively muted in terms of price per load. We reported minus 1%. And so I don't know that the sequential change did that come from some sort of a mix shift? It could have probably has some element of mix in there. I would say while our transcon volumes weren't up year over year, I do believe our transcon volumes were up sequentially. And so that can play a role in terms of what happens sequentially from a revenue per load position. Nick Hobbs: Yes. And Jonathan, this is Nick. I'll talk about ICS. I would just say it's really mix in ours and type of business from just think about team or hazmat, just various different things that we're going after. It's a little bit more difficult, multi-stop. So those carry a little higher rate. So it's the type of business that we're targeting in ICS. Operator: The next question comes from Scott Group with Wolfe Research. Please go ahead. Scott Group: Hey, thanks. Afternoon. So I want to follow-up maybe similar to that last question. So obviously, very good sequential margin improvement from Q2 to Q3 in intermodal. Like how much of that do you think is the cost side of what you're talking about versus the yield side? I know we had earlier peak season surcharges this year. Ultimately, I'm trying to just figure out like the sustainability of this and as costs continue to ramp, should we be expecting further sort of sequential improvement off of this trough? Q2 to Q3, further improvement in Q3 to Q4, or is it not necessarily going to play out that way given some of the puts and takes with timing of peak surcharges and things like that? Darren Field: Well, clearly, peak season surcharges got a lot of press. We went early because a lot of customers had believed that they needed extra capacity. I wouldn't say that the third quarter was a particularly strong peak season surcharge quarter. Frankly, we were disappointed in demand off the West Coast during the quarter and even adjusted our peak program in the middle of the quarter as an example. So I wouldn't want our analysts to believe that that's driven largely by peak season charges. Really when we set out with our bid strategy a year ago, we wanted to grow clearly. We wanted to improve price and we wanted to improve balance. And the improvement in balance, whether that be from growth westbound or an improvement in some price eastbound in the headhauls. I mean, of that result is driving improvements that we feel confident we can continue to sustain as we move forward. The cost side, we did, we were able to implement some small technology enhancements during the summer that really began at the end of the second quarter that helped define for our entire operations planning team some new flexibility that our customers had given us in some cases. And from that, we were able to drive real efficiency in our driver base. We were able to drive out some empty miles on the drayage system. So these are areas that we feel are sustainable. And as we continue to look for opportunities to grow, what I don't want anyone to hear is that growing in imbalanced lanes is a bad thing. It doesn't have to be bad. It just ultimately the pricing on those loads has to cover the cost of positioning empties. And in a lot of cases, I think our customers are beginning to look hard at their supply chains, what's happening with them, and can we look into the future and find a way to get back growing in markets that maybe are in balance that doesn't have to be a bad thing for us. But I believe the cost improvements that we made during the quarter, we must sustain those moving forward. Operator: The next question comes from Brady Lares with Stephens. Please go ahead. Brady Lares: Hey, great. Thanks. I wanted to touch on DCS for just a moment. Sales have continued to be pretty strong over the last few quarters despite trade uncertainty and a tough freight backdrop. Can you talk about what's driving these wins at this point? Four years into a freight recession? And despite the strength in sales, you mentioned in your prepared remarks, you saw a pretty meaningful improvement in margins. Can you think of help us think about how much of that was just an improvement in your cost to serve versus kind of a maturation of these earlier sales? Brad Hicks: Yes. Thanks, Brady. This is Brad. First, let me say just how remarkably proud I am of our entire team in DCS. The effort, the service, our drivers, maintenance teams, all the support personnel, our operators, just fantastic results in the quarter, both from an execution standpoint, from a safety standpoint, and certainly from a value creation and value delivery to our customers. And I think that the reason I say that is, I think that is one of the differentiations for J.B. Hunt Transport Services, Inc. is really our CVD program, customer value delivery. And so when I think about the value that we can create for our customers, both through creative solutions, but also just our density and our ability to leverage and share our resources across multiple customers and multiple business types to really drive and create valuable solutions. The second part of that is, yes, we have worked hard and similar to Darren, there's a variety of initiatives that we've kicked off. Some earlier in the year, some more recent. There's been great work done by our maintenance teams helping lower our cost to serve, both by creating more uptime for our equipment and also lowering the cost of the actual maintenance program that we have. And then lastly, risk is a critical component of private fleet, and the environment we're in and what insurance has done the last several years that we've talked about often. And we're doing a fantastic job there, as Shelley mentioned and Nick did as well in the prepared comments. And so can't really say it's one thing. It's all those things together that makes our program different, we believe. And I think that that's why we've continued to have success even though the backdrop of this market has been pretty terrible as we all know. Operator: The next question comes from Ken Hoexter with Bank of America. Please go ahead. Ken Hoexter: Great. Good afternoon. Nick, you mentioned kind of seeing signs of impacts of ELP and the P1 visas. Is that what's driving kind of spot rates up the last few weeks? Is that capacity removal already being seen in the market? Not the demand side, but the supply side? And then Shelley or Darren, I think you mentioned about the state of the potential rail mergers, but have you had conversations with UNP or Norfolk on sustaining your access or anything? Is that a discussion you've had at this point? Ahead of their filing? Nick Hobbs: Yes. Well, Ken, I'll start with one and let Darren get over to question two here in a second. So question one, yes, that's the reason you've seen spot rates up in the last couple of weeks. It's been because of enforcement activity and when you see the pockets, I would say it's been able to cover freight, it's just tightened it up and so we've seen a little tightness in probably eight to 10 markets and I think you can kind of follow the news around and see where ICE is active and in big metropolitan areas. And so it's a combination of non-domicile. It's also some cabotage. It's also some fear factors. But we're prepared for that for whatever happens. We're set up with intermodal, dedicated, our brokerage, just like when we went through COVID. We will be able to get the capacity no matter what happens in the market. So but we are seeing it in some spots, just a little notice, nothing extreme. Darren Field: And for your second question there, Ken, clearly got two questions in there, very different subject. I don't know how that slipped by the new IR guy. So I'm not going to talk through any kind of rail conversations. I think it is important that all of our shareholders and all of our customers hear any future merger that would be approved for whatever reason has been perceived that J.B. Hunt Transport Services, Inc. would have to move our traffic to CSX. And that's not accurate at all. There's nothing about a future state new railroad that would mean our current Norfolk Southern footprint that we have today would be required to change. I think we referenced that we would intend to speak to all of the railroads to make sure that we can solve for our customers' networks and continue to be what we've been to the market for decades now. And that's just drive home the ability to take a customer's needs, translate that into what the railroad capacity and capabilities are, combine it with our world-class drayage system, and provide intermodal solutions for those customers using the best solution available. And that will be our approach for as long as I'm here. Operator: The next question comes from Jordan Alliger with Goldman Sachs. Please go ahead. Jordan Alliger: Yes, hi. So given sort of the color and commentary on customers still expect peak season and load still to advance inland against the pull forward, is there any way you could sort of put that together a little bit and think through sort of loads and volumes for you guys relative to what we just saw in the third quarter as we look out the next quarter or so? Just from a high-level perspective, thanks. Spencer Frazier: Yes. Hey, John, this is Spencer. Thanks for the question. The main point that I really wanted to make there, there's been quite a few headlines that come out and say, hey, peak is over. There's not going to be a peak. And I totally agree with that from an ocean perspective. But we always have to remember that that domestic, that inland supply chain, the timing of that is really driven by actual consumer and customer demand. And that's going to take place at the same time it does every year, associated with the holidays. So that was kind of point number one. And then back to our customers are expecting a peak season. I think even the NRS came out with their retail sales number or retail sales for September being up 5.7%. Our customers are working to keep their consumers, to keep all of us engaged and make sure that they can hit their sales targets and goals for the holiday season. And that they're expecting to do that. Now for us, definitely the deals and agreements and support that we have for our customers is unique. And each one of our customers is unique on how they're executing their peak volume. But the big thing when you think about going forward to your question, you look at last year, last year was artificially inflated due to the East Coast strike concerns and other issues. And that really started in the '4. And carried through to really where West Coast port volumes were up 20% significantly all the way through the year. I expect the comps associated with that change and really the current import volumes to really be challenged all the way through March '6. So I think that where we're at today and what we've done and what we're going to do to help our customers through peak, we're looking forward to doing that. And working with those customers that have provided us with the forecast and what their needs are. Operator: The next question comes from Ravi Shanker with Morgan Stanley. Please go ahead. Ravi Shanker: Great, thanks. I'm going to throw in a long-term question here and maybe sharing this topic close to your heart. Just kind of given you guys probably led peers on JV360 and all the tech investments kind of many years ago, can you talk about kind of what you guys are working on right now? What that technology capital envelope looks like? Key initiatives there and kind of how the ICS business would look like from a tech and automation perspective maybe three, four years from now? Thank you. Shelley Simpson: Thank you, Ravi. And love to talk about technology. Our strategy is rooted in how we transform our logistics. We want to be smarter, more predictive, and automated through JBM360. And if you just think about what our platform does, it supports $2 billion in carrier freight transactions, and that gives us scale to innovate. And we could do that quickly and effectively. As I think about what we're working on, we've deployed 50 AI agents. That's across the business. We're trying to automate tasks, streamline our operations. And maybe just a few examples. Today, 60% of our third-party care check calls, those are automated. More than 73% of our orders are auto accepted, 80% of our paper invoices are paid without a manual touch. Our dynamic quote API responds to 2 million quotes a year. And we've automated about 100,000 or a little more than one hundred thousand hours annually across our highway, dedicated, and CE teams. And so it's not just about AI for us, it is about how we think about technology, but how does it empower our people. And so whether that's engineering better processes or using robotic automation, leveraging AI, we're focused on helping our teams work smarter and become more efficient. And that's going to improve our operational performance and enhance our customers' visibility and their experience. So as we continue to refine our technology strategy, our goal remains very clear to us. We're going to deliver measurable gains in cost savings, we're going to increase our customer satisfaction, and we want to gain market share as a result. Now as I think about ICS, they have a great opportunity to do even more work when it comes to automation because the nature of the new customers they're onboarding are less sophisticated from a technology perspective. So it's really a new for them. If you think about our overall company, our company and the percentage of customers that we have that are large shippers, we're heavily distorted to. And so I would say that's our opportunity to really grow with those small to midsized customers and that's where automation will help significantly. We've got a clear path of things that we're working on. And then I want to make sure that I do mention we did talk about Up Labs, which is a company that we've partnered with and really having them attack two of our areas that we believe need rewritten from a process and even more importantly technology where they're integrating AI into those processes. Those two areas I would say, we're in the middle of, really investigating and determining next path forward. But for us, all of this is about efficiency across our entire system. And so that's part of our lowering our cost to serve. It's part of our transformation work. And I don't think it just has to be AI that makes that happen. It could be a combination of processes, robotics, and AI. Operator: The next question comes from Bascome Majors with SIG. Please go ahead. Bascome Majors: Brad, as you get into the planning period for next year, can you talk a little bit about some of the higher visibility big-ticket cost items in the budget, be it health and welfare or insurance? Just what is the inflationary backdrop you're continuing with now? And how do you think shifts into next year? And you put it on the blender with the $50 million plus incremental cost savings, how much do you really need to get from pricing and growth to offset that? Thank you. Brad Delco: Well, Bascome, the way you started with that question, I was just going to say yes, yes, yes, and yes. I would say the big areas where we're seeing inflationary pressure always on our people and wages but in particular around benefits. Group medical healthcare costs are, I don't think it's unique to J.B. Hunt Transport Services, Inc. I think it's a challenge for any and all businesses. So that's certainly an area that I think is a hot topic as we're thinking about planning for 2026. Insurance, yes, we're in the renewal process now. It's probably too early to comment on that. But particularly as you get into certain layers or areas of coverage, we're seeing greater cost and largely because of how and how these claims are settling. And I think it's again, it's not that's not unique to J.B. Hunt Transport Services, Inc. The thing that I'm really proud of is, and you heard Shelley and Nick both talk to it and our whole company should be proud of, is our safety performance. I mean, we're coming off of a very strong year last year, which was best, which bested the prior year. And year to date, I'll knock on wood here, our performance is better than last year and the best way to reduce our cost on claims and insurance items is to really to avoid any incidents. And so that's the goal. The goal is zero and we got a long ways to go to get there. In terms of what do we need, our customers I know are going to push hard unless there is a meaningful change or a change in the supply-demand balance. I think Nick alluded to the fact that there are maybe some things that are starting to pop up that might be reasons for more concern about what the capacity situation looks like going forward. But we got to at least get above inflation. And if inflation is running 3%, I feel like our industry needs something better than that to get into a healthier spot. And our industry is not in a healthy spot. And I think most of you who have covered this for a long time know that. So our goal and we had a lot of follow-up conversations after our last earnings call about is $100 million net or gross, and I jokingly will say this here, I've asked each of those investors to define it for me and they all gave me a different example. At the end of the day, lowering our cost to serve of $100 million, we want that to show up and be very visible to our owners. And we want to be obviously visible to you as well. But I would say we need something mid-single digits next year for our to at least get back on a healthier path to margin recovery and particularly for some of these transportation providers to reinvest or be at reinvestable levels. So that's a long answer. I know I didn't answer it specifically because I don't want to give guidance as to what our rate expectations might be next year. But I would hope the value that we're providing customers will allow us to earn an appropriate return on the investments and the risk we're taking serving those customers. Operator: The next question comes from Tom Wadewitz with UBS. Please go ahead. Tom Wadewitz: Yes, good afternoon. Want to give Shelley a shot at a question here if she wants to take it or I guess could pass along certainly. But when I think about coming out of a downturn in the industry, it seems like there we look for kind of a catalyst to change the shipper mindset. And I know you've got tons of experience working with shippers over time. So do you think this the DOT efforts that you listed a number of them, I think there's a lot of focus on the non-domiciled CDL issue right now. But do you think that those DOT efforts are really causing a lot of concern in the mindset? And there's potentially a shift in that mindset that seems important to pricing. And then I guess within that is the 200,000 number DOT talked about, is that you think that sounds right? Or does that not sound right? Thank you. Shelley Simpson: Yes. Thank you, Tom. And let me start and I'll have the team kind of jump in here. Overall. When I think about how our shippers are viewing the market, it has been a surprise to all of us. So to J.B. Hunt Transport Services, Inc. and our shippers, how this market still is in the same place it's been over the more than three years. And so I would tell you, our customers a year ago they were prepared and understood the why. That we would need more price. It's not that our customers are unsympathetic to our position, but they're managing their costs based on what they see from a bid perspective and what they see from a cost perspective. And so, I think it's incumbent on us. One of the things I think is important is we are a growth company, but we're a disciplined growth company. We can't just grow. We have to be disciplined in our growth strategy. And making sure we articulate that. I'll tell you this Tom, as much as Darren's talked about our pricing change, although that might seem really simple to do, in this environment, those were very difficult discussions, but they were really fueled by our operational excellence and being able to talk to our customers about what great work we're doing and they saw value in that. I've not seen us have to fight so hard for 12% before. When you know inflation is so much more than that overall. So I would tell you, I think customers want to help us. We need the market to change in order to do that. Do I think that non-domicile CDL could be a catalyst? Sure. It would at least make a little more sense to me why there's so much capacity in the market versus just our statistics say today. But I would tell you things have to change from here. If that's one of the things that happens, then does that happen in the next twelve months? Does that take twenty-four months for it to happen? But let me just take a pause there and let Nick maybe you want to jump in on the non-doms. Nick Hobbs: No, yes. And I might just add a couple of quick things here, Shelley. I totally agree. Our customers really the last two years have been planning for changes in cost that really didn't materialize because they didn't have to. I think some of the things that we're seeing right now with a little bit of a disconnect in spot price rates going up versus volumes going down, the first time we've seen that. Maybe in the history of some of the data. Our customers look at macro data and spot pricing and volumes. Let me go back to until they actually experience it or feel it at the dock level, until freight is not picked up. They won't make a meaningful change. So that's the area where we've got to give them confidence and predictability of our capacity and service, which we've done through operational excellence. That as this thing does change, whether it's near term or over time, they can count on us to take care of their business. Nick? Nick Hobbs: I'll just add a couple of things. On the non-dom, I think the $200,000 is fairly legit. But I think there's a lot of other factors of drivers that's coming across the border, call it, cabotage. It should only be in the border zone. Is some good data out there. From a couple of sources that's come out recently to talk about that. And so I just think there's other factors that's going to continue to impact that. But really to see any impact in the speed, it's going to take the economic side along with the regulation side and that's what's going to drive the timing is those two. In my opinion. Operator: The last question comes from Brandon Oglenski with Barclays. Please go ahead. Eric Morgan: Hey, good afternoon. This is Eric Morgan on for Brandon actually. Thanks for taking the question. Just a quick one on intermodal growth in the East. I think you referenced in the prepared remarks having the labor port issue kind of playing in there. So I'm just wondering how sustainable that level of growth is moving forward and maybe in the context of some of this different seasonality you're seeing this year would be helpful. Thanks. Darren Field: Sure. So I think in reference to the labor situation, that had more to do with last year's comps on the West Coast. Volumes being strong. Our Eastern network volume really doesn't have a lot of interaction with the import economy a ton. I think that the Eastern network continues to be where we see the best highway to rail conversion opportunity. Our East network also includes Mexico as an example. And so we have really nice solid growth coming northbound out of Mexico as part of that. We think that the vast majority of the millions of loads that remain to be converted from highway to intermodal are in the East. So we're encouraged by our growth in the East, and we expect and anticipate we can continue to grow in the East for years to come. Operator: This concludes the question and answer session. I would like to turn the conference back over to Mrs. Shelley Simpson for any closing remarks. Please go ahead. Shelley Simpson: Hey, thanks everyone for joining. Hey, we're pleased with our results in the short term, especially considering this environment. But we have more work to do and we're not satisfied. We're going to continue to remain focused on our priorities of operational excellence in both service and safety. We're going to scale into our investments through disciplined growth, and then we're going to keep repairing our margins, and that will drive stronger financial performance. We're a growth company. It's important, and we have the highest service across all five of our business units. I think the highest since I've been with the company from a consistency across the segments. We see that metric as a key enabler to execute on our strategy and maintain our say-do culture on delivering what we say and what we expect from ourselves. Thanks for your interest, and we'll see you next quarter. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
U.S.-China trade tensions are back—and things could get worse for investors before they get better, some on Wall Street say, with the possibility of a big pullback in stocks and a retreat in some hot sectors.
Cameron Dawson, NewEdge Wealth CIO, joins 'Closing Bell' to discuss how to think about recent equity markets, if the character of this market has changed and much more.
Friday's bruising stock-market selloff unleashed a flurry of options-trading activity, as individual investors scrambled to buy the dip by scooping up bullish call options.
Consumer spending inched down in recent weeks, the Federal Reserve's survey found.
Global public debt is projected to reach 100% of GDP, prompting governments to tolerate higher inflation as a solution. Persistent inflation will erode cash value, making stock market investment essential for wealth preservation despite high valuations.
Fed reserve balances have dropped to $3 trillion, causing stress in overnight funding markets as Treasury debt issuance continues. Chair Powell signaled that quantitative tightening, or QT, is nearing its end, but overnight funding volatility persists due to declining reserves and Treasury activity.