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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.
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