Regions Financial Corporation

Thank you, Chris. John and David will provide high-level commentary regarding our results. Earnings documents, which include our forward-looking statement disclaimer and non-GAAP reconciliations, are available in the investor relations section of our website. These disclosures cover our presentation materials, today's prepared remarks, and Q&A. I will now turn the call over to John.

Thank you, Dana, and good morning, everyone. We appreciate you joining our call today. Earlier this morning, we reported strong quarterly earnings of $548 million, resulting in earnings per share of 61 cents. On an adjusted basis, earnings were $561 million, or 63 cents per share. We delivered adjusted pre-tax, pre-provision income of $830 million, a 4% increase year over year, and we generated a strong return on tangible common equity of 19%. We are proud of our third quarter performance as we continue to enjoy the benefits of the investments we've made across our businesses and the successful execution of our strategic plans. Reflecting the strong benefits of our footprint, the recently released FDIC deposit data indicates that we generated top quartile deposit growth and above peer median change in market share over the measurement period and We did this while maintaining the lowest deposit cost amongst our peers. This momentum carried into the third quarter as we grew total average deposits as well as accounts across consumer checking, small business, and wealth management. We also grew average loans modestly during the quarter as corporate client sentiment has continued to improve. Year over year, pipelines are almost doubled. And we're also experiencing nice increases in production and year to date loan commitments have increased approximately $2 billion. However, we still face some headwinds from our portfolio shaping efforts in certain areas of higher risk leveraged lending. This type of portfolio shaping is consistent with our longstanding focus on soundness and appropriate risk adjusted returns. In addition, we saw a meaningful increase in loans refinanced off our balance sheet through the debt capital markets during the quarter. Importantly, with improving macro conditions along with an expected pickup in line utilization, we believe we're well positioned to generate stronger loan growth as we move into 2026. Our consumers also remain healthy. Debit and credit spend continue to increase versus the prior year, and payment rates on our consumer credit card remain above pre-pandemic levels. Importantly, consumer credit quality remains strong, exceeding our expectations. Asset quality metrics remain relatively stable near historic lows. Shifting to fees, we delivered another strong quarter in terms of non-interest revenue. Wealth management continues to be a good story for us, generating another quarter of record fee income. In capital markets, excluding CVA, also reached a record high during the quarter. M&A activity continues to pick up along with commercial swaps, syndications, and debt underwriting. Additionally, treasury management continues to grow at a nice pace year over year. We see continued opportunity to grow clients through both new relationships and within our existing customer base. We continue to make good progress on investments to modernize our core technology platforms. We're planning to upgrade our commercial loan system to a new cloud platform in the first half of 2026. We'll begin running pilots on our new cloud-based deposit system beginning in late 2026 with full conversion anticipated in 2027. Once completed, we expect to be one of the first regional banks in the country on a truly modern core platform. We're also having success in our efforts to recruit and hire quality bankers across our priority markets, and we remain on track with our target banker additions in our branch banker reskilling and reallocation efforts. Wrapping up, we're proud of our third quarter results. The investments we're making to modernize our core systems and add talent in priority markets are progressing well, further enhancing our ability to serve customers' evolving needs and positioning us to capitalize on growth opportunities. Our associates' commitment and strong execution have been instrumental in driving these results. We expect this momentum will continue into 2026 and beyond, creating sustained value for our shareholders. With that, I'll hand it over to David to provide some highlights for the quarter.

Thank you, John. Let's start with the balance sheet. Average loans grew 1% while ending declined 1%. Within the corporate bank, areas experiencing growth during the quarter include financial services, government and public sectors, commercial durable goods manufacturing, and utilities within CNI, along with a modest increase in CRE. Offsetting this growth, however, is our ongoing portfolio shaping efforts that John mentioned. Year to date, we have exited approximately $900 million in targeted loans and estimate we have another $300 million of these loans to work through over the remainder of the year. While we are also very proud of the record quarter we experienced in our capital markets business, that does come with additional headwinds to loan growth, where we saw approximately $700 million in loan balances refinanced into the debt capital markets. Average and ending consumer loans remained relatively stable as growth in credit card and home equity was offset by modest decline in other categories. We now expect full year 2025 average loans to remain relatively stable versus 2024. Deposits remain strong overall. Consumer deposits were roughly flat quarter over quarter, which is slightly ahead of typical seasonal trends. Both acquisition and retention have been solid across core and priority markets. Priority markets performed well with the majority experiencing average balance increases. Commercial deposits also showed strength, with a notable increase in average balances across money market and non-interest-bearing checking. The overall share of non-interest-bearing deposits to total deposits remained within our expected low 30% range. The commercial bank continued a five-quarter trend of growing total client managed liquidity on and off balance sheet, reflecting strong client retention and acquisition. Favorable business profitability and healthy liquid balance sheets, combined with our bankers' efforts, have helped us capture available opportunities. As a result, we are increasing our expectations for full-year average deposit balances. We now expect average deposits to be up low single digits versus the prior year. Let's shift to net interest income. Net interest income was relatively stable late quarter. After adjusting for elevated income in the second quarter associated with a large credit-related interest recovery and fluctuations in hedge-related income, net interest income grew modestly, benefiting primarily from new fixed-rate asset originations and reinvestments in today's elevated-rate environment. Interest-bearing deposit costs increased two basis points in the third quarter, due in part to growth in market rate corporate deposits, coupled with a muted quarter for CD maturities, as previously discussed. The low absolute level of deposit costs continue to highlight region's competitive funding advantage and its benefit through cycles. The net interest margin declined six basis points. In addition to the non-recurring items from second quarter, the margin was negatively impacted by day count as well as elevated cash levels that were slightly above our long-term target. Looking ahead, we expect the net interest margin to rebound into the mid-360s in the fourth quarter, providing positive momentum into 2026. Growth in net interest income and margin are expected to resume from fixed rate asset turnover, additional securities repositioning performed late in the third quarter, prudent funding cost management, including lower deposit pricing, and modest loan growth. The strength of our balance sheet positioning is evident as expectations shift to a declining Fed funds environment. We believe net interest income remains well protected from lower short-term interest rates with a neutral position when combining our floating rate product mix, prudent hedging program, and ability to manage deposit costs. To remain relatively neutral to changes in Fed funds, we target a mid-30s interest-bearing deposit beta. We remain confident in our ability to achieve the beta target through the repricing of our market price and index deposits. Additionally, we have the opportunity to further reduce CD rates as maturities escalate in the fourth quarter. Tactics to reduce deposit costs are well underway. and we expect a meaningful decline in the fourth quarter. We now expect full year 2025 net interest income to grow between 3% and 4%. Now let's take a look at fee revenue performance during the quarter, which is a really good story for us. Adjusted non-interest income increased 6% late quarter as we achieved growth in several categories. Service charges increased 6%. driven by increased account openings, seasonally higher activity, and one additional business day in the quarter. Capital markets income, excluding CBA, increased 22% compared to the prior quarter, representing a new record. The increase was driven by higher M&A advisory activity, commercial swap sales, loan syndications, and debt underwriting activity. With respect to the fourth quarter, we currently expect to be in the $95 to $105 million range. Wealth management delivered a third consecutive quarter of record-setting income, driven primarily by elevated sales activity and favorable market conditions. With respect to full year 2025, we now expect adjusted non-interest income to grow between 4% and 5% versus 2024. Let's move on to non-interest expense. Adjusted non-interest expense increased 4% compared to the prior quarter. Salaries and benefits increased 2%, reflecting higher than anticipated health insurance related costs, higher revenue based incentives, and growth initiative related hires. Year to date, higher than anticipated health insurance related costs, as well as market value adjustments on employee benefit assets, have pressured our full year expense expectations. We now expect full year 2025 adjusted non-interest expense to be up approximately 2% and we expect to generate full year adjusted positive operating leverage at the lower end of the 150 to 250 basis point range. Regarding asset quality, Annualized net charge-offs as a percentage of average loans increased eight basis points to 55 basis points and reflect solid progress made on resolutions within certain previously identified portfolios of interest, which were already reserved for. Business services criticized loans improved significantly during the quarter, decreasing almost $1 billion, or 20%, while non-performing loans decreased 2%, with the NPL ratio declining one basis point to 79 basis points. As a result of the significant improvement in business services criticized loans and the overall decline in NPLs, as well as the solid progress made on resolutions within certain stress portfolios, the allowance for credit losses decreased $30 million during the quarter. The resulting allowance for credit loss ratio was reduced two basis points to 1.78%, while the allowance as a percentage of MPLs actually increased to 226%. We now expect full-year net charge-offs to be approximately 50 basis points. We expect losses to remain elevated in the fourth quarter as we continue to resolve credits in the portfolios of interest. Importantly, we have reserved for the remaining anticipated losses associated with these portfolios. Let's turn to capital and liquidity. We ended the quarter with an estimated common equity Tier 1 ratio of 10.8% while executing $250 million in share repurchases and paying $235 million in common dividends during the quarter. When adjusted to include AOCI, common equity Tier 1 increased from 9.3% to an estimated 9.5% quarter-over-quarter, attributable to strong capital generation and a reduction in long-term interest rates. We expect to manage common equity Tier 1 inclusive of AOCI at this approximate level going forward, which should provide meaningful capital flexibility to meet proposed and evolving regulatory changes while supporting strategic growth objectives and allowing us to continue to increase the dividend and repurchase shares commensurate with earnings. As John indicated, we're pleased with our quarterly performance, particularly given the evolving market dynamics, and we believe we are well positioned regardless of market conditions. This covers our prepared remarks, and we'll now move to the Q&A portion of the call.