Q3 2024 Regions Financial Corp Earnings Call

Thank you for watching.

Christine: Good morning and welcome to the Region Financial Corporation's quarterly earnings call. My name is Christine and I'll be your operator for today's call.

Christine: I would like to remind everyone that all participant-ball minds have been placed on listen only. At the end of the call, there will be a question and answer session. If you wish to ask a question, please press star one on your telephone keypad.

Speaker Change: I will now turn the call over to Dana Nolan to begin.

Dana Nolan: Thank you Christine, welcome to Region start for 2024 earnings call.

Dana Nolan: and David will provide a level commentary regarding our results.

Speaker Change: Her name is Documents, which included her forward-looking statement, disclaimer, and non-gap information are available in the Investor Relations section of our website. Please, disclose yours, cover our presentation materials, prepare your comments, and Q&A. I will now turn the call over to the German.

Speaker Change: Thank you, Dana, and good morning, everyone. We appreciate you joining our call today. This morning, we reported strong third quarter earnings of $446 million, resulting in earnings per share of 49 cents.

Speaker Change: for the third quarter, total revenue grew on a reported and adjusted basis, as both net interest income and fee revenue in pre-recorded over quarter. In fact, almost every category within fee revenue experience grew compared to the second quarter.

Speaker Change: and live with a growth in revenue, adjusted nine interest expense increased modestly quarter of a quarter.

Speaker Change: Average loans remain stable while ending loans to climb slightly quarter of a quarter, reflecting modest customer demand, continued focused on client selectivity, as well as further pay downs and credit resolutions in the portfolio.

Speaker Change: in general, sentiment among corporate customers remains cautiously optimistic.

Speaker Change: Despite recent interest rate cuts and the possibility of more, customers are hesitant to make Catholic spinatures until the resolution of the election, along with the greater economic and geopolitical certainty.

Speaker Change: Our focus remains on understanding our customers involving needs and providing tailored solutions to ensure we are well positioned to support them when the time is right.

Speaker Change: Harris, the pod of the client's slightly while ending the pod that's remained stable during the court as the pod that remakes in trends of stable loss.

Speaker Change: All those certain portfolios within the corporate bank contained experience stress. Overall, our corporate and consumer customers remain healthy, and our credit metrics have stabilized.

Speaker Change: Before wrapping up, I want to take a moment to speak about recent hurricanes, Elaine and Milton. They were incredibly powerful storms, and the impacted communities across our footprint faced difficult challenges as they begin the recovery process.

Speaker Change: I'm extremely proud of the way our teams are responding to meet the needs of our customers, fellow associates and communities affected. The reasons has a long history of helping communities through challenging times, including natural disasters, who will continue to support the recovery efforts.

Speaker Change: In summary, we're primary third quarter results driven by the successful execution of our strategic plan.

Speaker Change: Our highly desirable footprint, along with the investments we're making in talent, in technology, and in products and services, our positioning us to benefit as macroeconomic conditions improve.

Speaker Change: We have a great plan and a leadership team with a proven track record of successful execution. We're on track for a strong finish to 2024 and are well positioned to continue generating top-core tower results in 2025 and beyond.

Speaker Change: and now David will find some highlights regarding the court.

David: Thank you, John. Let's start with Balachi, average loan for main stable while ending loans declined slightly on a squint or quarter basis. Within the business portfolio, average loan for main stable, quarter over quarter.

David: As John mentioned, pipelines are likely to remain soft as customers continue to seek more certainty on a handful of fronts. In addition, customers continue to carry access to liquidity.

David: and utilization rates remain below historic levels. Average consumer loans also remain stable as modest growth in credit card was offset by decline to the other categories.

David: We continue to expect 2024 average loans to be stable, to down, obviously compared to 2023.

David: from a positive standpoint, the positive bounce has followed expectations this quarter. In the levels we're stable and averages we're down about 1% largely due to normal and we're spending among consumers.

David: Competitive rates declined in advance of the Fed rate cut and consequently, customer demand for CD softened, further slowing the rate seeking behavior we experienced throughout the cycle.

David: As a result, the percentage of non-interpreting deposits remain stable in the lunatic 30% range.

David: Let's shift in that interest income.

David: net interest income increase 3% length quarter outperforming our expectations.

David: The increase reflects stability and deposit trends together with asset yield expansion. Year today we have repositioned $3.6 billion of securities realizing $175 million of pre-tax losses, resulting in an estimated 2.5 year payback.

David: This includes the incremental sale and reinvestment of approximately $1.3 billion of securities in the third quarter at a $75 million pre-tax loss.

David: Importantly, the strategy of selling shorter duration and buying longer duration securities has been helpful in maintaining our duration target and has benefited the unreliable loss on the portfolio as interest rates move lower in the third quarter.

David: Going forward, we will continue to evaluate further repositioning with respect to risk management and capital goals. However, near-term opportunities with attracted payback periods are limited given current market dynamics.

David: Similar to the second quarter transaction, the proceeds of $1 billion September debt issuance were used to purchase a lack of amount of securities in order to maintain a relatively neutral bout sheet position and bolster liquidity.

David: As expected, intersparing deposit costs have peaked, remaining flat with a second quarter level at 2.34%.

David: This completes the full rising rate cycle with our interspereying deposit data, finishing at 43%.

David: While also maintaining 30% more deposit balances than held prior to the pandemic. Once again, highlighting the funding advantage of region's industry-leading deposit franchise.

David: Now, as we transition to a falling rate environment, hedging and the ability to reduce the positive stress, result in a well protected profile.

David: Following the initial Fed phones decline, we have experienced a reduction in interspereying deposit rates and our exit rate for the quarter amount of to 2.2 percent consistent with a roughly 30 percent data.

David: in the fourth quarter we would expect further benefit from deposits as turn products began to mature at price lower, equating to mid-30s beta and neutral sensitivity position in the quarter.

David: Over time, we believe falling rate deposit baiters have the ability to drip tire toward those experience in the rising grape cycle.

David: When coupled with fixed-rate asset turnover at higher market yields, this provides the support, the grown-in interest income in the fourth quarter and beyond.

Speaker Change: Let's take a look at Fee Ravanoop's formus during the quarter.

Speaker Change: and Justin Ninenterson come increased 9% driven by improvement almost every category. Most notably, service charges, capital markets and wealth management.

Speaker Change: Service Charges increased 5% driven primarily by Treasury Management, semiannual fees, as well as the benefit of one additional business day in the quarter.

Speaker Change: Capital Markets increased 35% due to the increase in emanating advisory fees, as well as an increase of securities underwriting in placement fees, driven by market stabilization.

Speaker Change: Over time, and in a more favorable interest rate environment, we expect our capital markets business can consistently generate quarterly revenue of approximately $100 million. But we expect it will run around $80 to $90 million in the fourth quarter.

Speaker Change: Well, management increased by percent to a new quarterly record reflecting increased sales activity and stronger markets.

Speaker Change: Based on your ZA results, we now expect four year 2024, adjusted non-interest income to be in the 2.45 to 2.5 billion dollar range.

Speaker Change: Let's make one of the nine intersex fans.

Speaker Change: Adjusted 93's expense increased 4% compared to the prior quarter. Driven primarily by 6% increase in salaries and benefits, resulting from one additional day of the quarter.

Speaker Change: Increased performance based incentives and the impact of HR-related asset valuations.

Speaker Change: The company also recognized $14 million of expense during the quarter associated with these ongoing litigation escrow related to their class B shares.

Unknown Executive: We remain committed to prudently managing expenses to fund investments in our business, who will continue focusing on our largest expense categories, which include salaries of benefits, occupancy, and vendor spend.

Speaker Change: We remain committed to prudently managing expenses to fund investments in our business who will continue focusing on our largest expense categories, which include salaries and benefits, occupancy, and vendorsmen.

Unknown Executive: Based on year-to-day results, including out performance in revenue, and elevated HR asset valuations, we now expect four year, 2024, adjusted nine interest expenses to be approximately $4.25 billion.

Speaker Change: Based on year-to-day results, including out performance in revenue, and elevated HR asset valuations. We now expect four year, 2024, adjusted nine interest expenses.

Speaker Change: The B-approximately $4.25 billion.

Unknown Executive: Regarding asset quality, as John indicated, overall credit performance continues to stabilize during the quarter, and importantly, our results include the impact of the recently completed SNIC exam. Prevision expense was $4 million less than that charge off at $113 million, and the resulting allowance for credit loss ratio increased one basis point to 1.79%.

Speaker Change: Regarding asset quality, as John indicated, overall credit performance continues to stabilize during the quarter, and importantly, our results include the impact of the recently completed snake exam.

Speaker Change: For vision expense was $4 million less than that charge off at $113 million and the resulting allowance for credit loss ratio increased one basis point to 1.79%.

Unknown Executive: As expected, met charge-off as a percentage of average loans increased six basis points to 48 basis points driven primarily by large information credit and one office credit. Now, performing loans as a percentage of total loans declined two basis points to 85 basis points, and business services criticized loans climbed $171 million.

Speaker Change: As expected, Matt Chargeroff says a percentage of average loans increase six basis points to 48 basis points driven primarily by large information credit and one office credit.

Speaker Change: Now performing loans as a percentage of total loans declined two basis points to 85 basis points and business services criticize loans to climb $171 million.

Unknown Executive: We continue to expect four year, 2024, net charge off to be towards the upper end of our 40 to 50 basis point range.

Speaker Change: We continue to expect 4-year 2024 in that charge-offs to be towards the upper end of our 40-50 basis point range. I've heard that we'll do a few large credits within our previously identified portfolios of interest.

Unknown Executive: I'm sure it will do a few large credits within our previously identified portfolios of interest. However, those losses are substantially reserved for.

Unknown Executive: Let's turn to capital liquidity. We ended the quarter with an estimated Common Equity Tier One ratio of 10.6%. While executing $111 billion in share purchases and $229 million in common dividends during the quarter.

Speaker Change: However, those losses are substantially reserved for them.

Speaker Change: The Stern to Capone with Quiddity.

Speaker Change: We ended the quarter with an estimated common equity tier 1 ratio of 10.6%. While executing $111 billion in share repurchases, and $229 million in common dividends during the quarter.

Unknown Executive: When adjusted to include AOCI, common equity tier one increased meaningfully from 8.2% to an estimated 9.1% from the second to the third quarter. The improvement reflects the benefit to AOCI from lower interest rates and our active management of the duration of the securities portfolio. Additionally, moving into the third quarter, we transferred $2.5 billion of available-for-sale securities to help-to-maturity as an initial step to reduce the volatility of AOCI as we transition towards new regulatory expectations in the future. We expect to maintain our reported common equity tier one ratio consistent with current levels over the near term.

Speaker Change: When adjusted to include AOCI, common equity tier 1 increased meaningfully from 8.2% to an estimated 9.1% from the second to the third quarter.

Speaker Change: The Improvement reflects the benefit to ASCI from lower interest rates and our active management of the duration of the securities portfolio.

Speaker Change: Additionally, new the end of the third quarter, we transferred $2.5 billion of available for sell securities.

Speaker Change: to help the maturity.

Speaker Change: as an initial step to reduce the volatility of AOCI as we transition towards new regulatory expectations in the future.

Speaker Change: We expect to maintain our reported commentant with dear one ratio consistent with current levels over the near term.

Unknown Executive: This level will provide meaningful capital flexibility going forward to meet proposed and evolving regulatory changes, along with the implementation timeline.

Speaker Change: This level will provide meaningful capital flexibility going forward to me, proposed and evolving regulatory changes.

Unknown Executive: While supporting strategic growth objectives and allowing us to continue to increase the dividend and repurchase shares, we'll see you next time.

Speaker Change: but along with the implementation timeline, while supporting strategic growth of directors and allowing us to continue to increase the dividend and repurchase shares commensurate with our industry.

Speaker Change: with that will move to the Q&A portion of the call.

Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. You may press star 2 if you would like to remove your question from the queue. Please hold why we compile the Q&A roster.

Speaker Change: Thank you. Our first question comes from line of Scott Seabers with Piper Sandler. Please receive with your questions.

Speaker Change: Morning everybody.

Scott Seabers: Morning, thank you for taking the question.

Scott Seabers: and David was something you could sort of touch on some of the new ones within NIA moments, and I guess I'll ask you to...

Scott Seabers: The first and then follow a question all kind of wrapped into one. I think you've previously suggested the margin could push up closer to like 360 as we enter next year and then you know kind of advance from there over the next couple of years. It feels like the force quarter might take a little bit of a step back and it does that knock us off the track for the 360 and prior path and then the fall on is regardless it still feels as if.

Speaker Change: and I will remain on an upward trajectory so any updated thoughts on how the pacing looks over the next few periods? Sure. Yes, Scott, I think we're still in tact with regards to that 360.

Speaker Change: Do you think we'll be in?

Speaker Change: and the lower part of the 350s in the fourth quarter. We're going to grow a little bit in terms of NIOs as indicated. And then, you know, going into 2025, we still have benefit from, you know, the front book back book that's going to benefit us. We've had a little bit of earning asset growth too.

Speaker Change: and continue to control our deposit cost and of course we have our derivatives that naturally reset.

Speaker Change: You know, those are a negative carry this past quarter of about $110 million, and so has rates come down that certainly helps offset lowering rates. So give us confidence that we can go into next year and grow the margin.

Speaker Change: Okay, perfect. Thank you very much. I appreciate it. You're welcome.

Speaker Change: Our next question comes from a line of John Pankary with Evercore. Please receive with your question. Morning John.

Speaker Change: Morning.

Speaker Change: on...

John Pankary: Just first on the low-growth side, I guess if you could just give us a little more color of what you're seeing in terms of...

John Pankary: Welcome, man. I know you became a utilization is running below historical levels.

John Pankary: and given that, you know, what do you see as the catalysts really to be driving on material pickup and maybe how do you think about that pickup materializing when you look at either fourth quarter or twenty twenty five, thanks.

Speaker Change: Yeah, so we've sent our customers are cautiously optimistic. I would say the environment is generally a positive one. The economy is still good, the slowing. We've seen some growth in middle market commercial in our energy portfolio and asset base lending, and that's offset by declines in the real estate book as...

Speaker Change: as Projects are maturing and particularly the multifamily space paying off.

Unknown Executive: All set some of the growth we're experiencing on the business side. We've had a little growth in credit card balances and in our inner vague originations. That's somewhat all set by the clients and mortgages. We're experiencing some pay-downs there. So, I think activity is okay; pipelines are softer than they were last quarter. But we still feel like we will see some modest, possibly growth in loans in 2025, as there's more certainty about the political environment. As there's more certainty about the continued direction of the economy, prices begin to moderate a bit. Businesses are still doing well; balance sheets are strong, margins are compressing, but customers are still making good money.

Speaker Change: which offsets some of the growth we're experiencing on the business side. We've had a little growth in credit card balances and in our interveic originations. That's somewhat offset by the clients and mortgages. We're experiencing some pay downs there. So I think activity is okay. Pipelines are softer than they were last quarter, but we still feel like we will see some. [inaudible]

Speaker Change: Myest Possibly Growth in Loans in 2025, as there's more certainty about.

Speaker Change: The Political Environment, as there's more certainty about the continued direction of the economy prices begin to moderate a bit. Businesses are still doing well, balance sheets are strong, margins are compressing but customers are still making good money and we think they'll want to invest in their business when...

Unknown Executive: And we think they'll want to invest in their business when it's more clear. We see you have a more clear path in later in 2025.

Speaker Change: It's more clear. We see you have a more clear path in later in 2025. Yeah, John is David. I would add that, you know, our expectation is for real GDP to be in the two little over 2% range in 2025. We officer in great markets and we think we can take advantage of those when a little bit of this uncertainty that John just mentioned dissipates a bit and then get on the growth trajectory in 2025. You know, we're going to have a more clear path in the future. We're going to have a more clear path in the future.

Unknown Executive: Yeah, John, David, I would add that, you know, our expectation is for real GDP to be in the two, little over 2% range in 2025. We obviously are in great markets, and we think we can take advantage of those when a little bit of this uncertainty, the John just mentioned, dissipates a bit and then get on the growth trajectory in 2025.

Unknown Executive: And then separately, on the expense side, can you maybe talk about your confidence in your upwardly revised expense expectations here? I guess borrowing the outperformment of revenue on the seaside, do you see other risks that could pressure expenses higher again beyond revenue-related? And then, how does that influence your expectation for a positive operating leverage next year?

Speaker Change: for that. And then separately on the extent side.

Speaker Change: Can you maybe talk about your confidence in your upwardly revised experience expectations here? I guess, boring!

Speaker Change: The Opera Corment of Revenue on the C-Side, do you see other risks that could pressure expenses higher, again, beyond revenue-related, and then, out of that influence, your expectation for a positive operating leverage next year?

Unknown Executive: Sure. Now, once you get to this close to the year, you know, the expense estimate is we're pretty tight on that. We just don't see anything that could take us out of the. What we've given you from an estimate standpoint and, you know, we're set up. We've done a good job of managing our expenses. It's an everyday thing for us.

Speaker Change: Sure, I know you'll once you get to this close to the year, you know, the expense estimate that we're pretty tied on that. We just don't see anything that can take us out of the...

Speaker Change: and what we've given you from an estimates standpoint and, you know, we're set up. We've done a good job of managing our expenses. It's an everyday thing for us.

Unknown Executive: You know, we continue to look at expense savings opportunities because we want to use some of those savings to reinvest in our business to continue to grow, which sets us up for growth in 2025. And yes, we will generate positive operating leverage in 2025. So, you know, we're with kind of don't see anything that's really could create, you know, major uncertainty in the fourth quarter, in particular. Our largest expense, obviously, is salary and benefits, and that's controllable.

Speaker Change: You know, we continue to look at expensive savings opportunities because we want to use some of those savings to reinvest in our business to continue to grow, which is sets us up for growth in 2025. And yes, we will generate positive operating leverage in 25. So, you know, we're kind of don't see anything that's really could create.

Speaker Change: and the Major uncertainty in the four-quarter particular. Our largest expense, obviously, is salary and benefits, and that's controllable. At the time, the investments that we're making.

Unknown Executive: As we calm the investments that we're making, we have a big technology project underway, as you know. We believe that project is on track on budget. And so don't have a lot of concern about that at the moment, either.

Speaker Change: We have a big technology project underway as you know, we believe that project is on track, on budget. And so don't have a lot of concern about that at the moment either.

Unknown Executive: Great. Thank you. I appreciate it.

Speaker Change: Thank you very much, I appreciate it.

Unknown Executive: Our next question comes from a line of either him who don't want to always think of America. Please repeat with your question.

Speaker Change: Our next question comes from the line of either him, but in a while I'll always thank of America, please receive it your question.

Unknown Executive: I guess we'll first question at home.

Speaker Change: Morning. Morning. I guess we're a first question around.

Ebrahim Poonawala: And I think David you mentioned the charge of towards the higher end sectors you've talked about, just maybe if we look forward, given whether economy today is, may your customer basis, do you think that charge of remains sticky, in that quality to 50 range, do we actually say, our stair step function decline at some point or the coming quarters? Yeah, Ebrahim, we look back historic at our historic performance; it's been kind of an average of 46 basis points, the charge hours prior to the pandemic, and we've indicated we think based upon the composition of our portfolio that our charge hours will range somewhere between 40 and 50 basis points.

Speaker Change: Credit, I think David you mentioned the charge of towards the higher end.

Speaker Change: The sectors you've talked about, just maybe if you look forward, given whether economy today is, may your customer basis. Do you think the charge of remains sticky?

Speaker Change: In that quality to 50 range, do we actually see our stair step function decline at some point with the coming quarters?

Speaker Change: Yeah, Abraham, and we look back historic at our historic performance, it's been...

Speaker Change: and I'm an average of 46 basis points at George Os prior to the pandemic.

Speaker Change: We've indicated we think based upon the composition of our portfolio, that our charge also range somewhere between 40 and 50 basis points on average. There may be a quarter where they're modestly higher because of large exposures, maybe a quarter where they're lower because of...

Unknown Executive: On average, there may be a quarter where they're modestly higher because of large exposures, maybe a quarter where they're lower because of better performance, particularly in the business portfolio, but we are seeing really good consumer credit performance right now and feel good about that. And again, based upon the composition of our portfolio and our historical performance, we think that 40 to 50 basis point range is pretty typical.

Speaker Change: is a better performance, particularly in the business portfolio, but we are seeing a really good consumer credit performance right now and I feel good about that.

Speaker Change: and again, based upon the composition of our portfolio and our historical performance, we think that 40 to 50 basis point range is pretty typical.

Unknown Executive: And I guess this one question, maybe for David around deposit price, saying I'm just wondering, did the signaling by the Fed with the first 50 basis points late cut give enough ammunition to actually flex deposit cost lower, even assuming we don't get a November cut, or do you think every incremental late cut is much needed in order to be able to bring deposit cost lower. No, I think you'll, you should continue to expect the cost of the client into the fourth quarter. You know, we have several things working, some maturing CDs that are, you know, in that 425 or 50 range going on today, closer to 4.

Speaker Change: And I guess this one question.

Speaker Change: David, David, around deposit pricing. I'm just wondering the signaling by the Fed, with the first 50 basis on delayed cards.

Speaker Change: is a family nation to actually flex the positive costs lower even if assuming we don't get a November cut or do you think every incremental laid cut is much needed in order to be able to bring the positive costs lower.

Speaker Change: I think you'll use your continued to expect the cops to pass across the decline into the fourth quarter. You know, we have...

Speaker Change: So things work in some maturing CDs that are, you know, in that 425 or 50 range going on today, closer to 4.

Unknown Executive: We had an exit rate; we put in the script, interest bearing cost being 220. So if you look at where we were for the quarter, it was 234. So that gives you the indication that you should continue to see the benefit of that coming down, even if we don't get another cut. Now, obviously, more cuts would be an even further reduction in cost, but you also have to factor in the brief investment yield on the assets side too.

Speaker Change: We had an exit rate, we put in the script, interest bearing cost being 220. So if you look at where we were for the quarter, it was 234, so that gives you the indication that you should continue to see the benefit of that coming down, even if we don't get another cut.

Speaker Change: Now, obviously, more cuts would be even further reduction in cost, but you also have to factor in the read investment yields on the asset side too.

Unknown Executive: So we think we're well positioned back to the first question that we got, Scott, in terms of the NII. We think we can continue to grow NII and the resulting margin in the fourth quarter in the end of 25.

Speaker Change: We think we're well positioned back to the first question that we got from Scott in terms of the NII, we think we can continue to grow NII and the resulting margin in the fourth quarter in the end of 25.

Speaker Change: Good. Thank you.

Unknown Executive: Our next question comes from line of Eric and a gerian with UBS. Please be seated with your question.

Speaker Change: Thank you.

Speaker Change: Our next question comes from line of Eric and a gerian with UBS please be seated with your question

Unknown Executive: Hi, good morning. Morning, Eric. Morning.

Speaker Change: Hi, good morning. Morning, Eric.

Unknown Executive: David, I'm sorry for another question on the deposit repricing. I'm wondering if it could give us a sense of, you know, the cadence over the next several quarters. So obviously, you know, some of the maturing retail and index deposits will repric more immediately.

Eric Gerian: and David, I'm sorry for another question on the positive repricing. I'm wondering if it could give us a sense of, you know, the cadence over the next several quarters.

Eric Gerian: So obviously, some of the mentoring retail and index deposits will reprise more immediately. How should we think about, once the easy stuff has reprised?

Unknown Executive: You know, how should we think about, you know, once the easy stuff has reprised, you know, how we can look forward to deposit repricing going forward. And maybe think of through, you know, if we haven't seen a neutral rate that wasn't zero in such a long time. You know, what is your typical deposit spread when the neutral rate has a level like two and three quarters and three percent?

Eric Gerian: you know, how we can look forward to deposit repricing and going forward and maybe think us through you know if we haven't seen a neutral rate that wasn't zero in such a long time, you know what is your typical deposit spread when the neutral rate has a level like two and three quarters and three percent.

Unknown Executive: There's several questions baked in there, so if you look at maturity, that was the first part of your question. We have, Brian, at three billion dollars that'll be maturing here in the fourth quarter between our retail customers, which is probably two and a half of that number, and then we got some wealth and small business customers. But we're not seeing the flight for yield as much as we had been, and so that's dissipating. And as I mentioned earlier, our CDs are 425 to 450 that are maturing. New rates for CDs are closer to 4.

Speaker Change: and there's several questions baked in there, so if you look at maturity, that was the first part of your question.

Speaker Change: We have Brian at $3 billion that will be maturing here in the fourth quarter between our retail customers, which is probably two and a half of that number, and then we got some wealth and small business customers, and we're not seeing the...

Speaker Change: the flight for yield as much as we had been and so that's dissipating and as I mentioned earlier our

Speaker Change: CEDs, a 425 to 450 that are maturing new rates for CEDs or our closure to 4. Still trying to keep the duration tight, I guess the average is probably closer to 5 months now. With this expectation as rates we're going to come down, we would have an opportunity to take care of it.

Unknown Executive: Still trying to keep the duration tight, I guess the average is probably closer to 5 months now. With this expectation, is rates we're going to come down. We would have an opportunity to take care of it. You know, from a money market standpoint, you can see a lot of the deposits ship that came out of N.I.B. went into money market. We can continue to challenge those rates pretty quickly. And so I think we have a mechanism to be able to adjust our rates pretty quickly. You know, at 3% of Fed funds, you know, talking about deposit costs in the 1% range, so a couple hundred basis points spread between those two.

Speaker Change: You know, from a money market standpoint, you can see a lot of the deposits ship that came out of N.I.B. went into money market, we can continue to challenge those rates pretty quickly.

Speaker Change: I think we have a mechanism to be able to adjust our rage pretty quickly.

Speaker Change: You know, at 3% of Fed funds, you know, talking about the power of the cost and the 1% range. So a couple hundred basis points spread between those two. I think the same amount of the cost. Tell the other one. Yeah. Yep.

Unknown Executive: That is very helpful.

Unknown Executive: That includes not, you mean not, including not interested. Yeah, total deposit costs. Yes, including not.

Speaker Change: got it, very helpful. The includes not, you mean, not including not interest bearing.

Speaker Change: Yes, our total deposit cost. Yes, you're seeing nice things.

Unknown Executive: Perfect. And, and John, the second question is for you. You know, a lot of the remaining challenge, so to speak, stories in banks have often been management teams in boards undoing under-investment of predecessors. And you know, you guys have always hit the right balance of, you know, efficiency and investment. You know, as we think about the set up for next year, David mentioned the N.I.R. trajectory, you know, if we remove the election and certainty, I suspect that your fees will benefit as well in 2025. Should we, you know, calibrate our application for expenses relative to revenue, rather than just, you know, resetting it flat to up 1% or whatever it is.

Speaker Change: and John the second question is for you, you know, a lot of the remaining challenge, so to speak, stories in banks.

Speaker Change: have often been management teams in boards undoing under-investment of predecessors and you guys have always hit the right balance of, you know.

Speaker Change: Efficiency and Investment. You know, as we think about the setup for next year, David mentioned the NNR trajectory. You know, if we remove the election and certainty, I suspect that your fee is a benefit as well in 2025.

Speaker Change: Should we calibrate our application for expenses relative to revenue, rather than just resetting it flat to up 1% or whatever it is.

Unknown Executive: In other words, you know, should the streets of the structure say, what can regions generate revenue lives in a binary environment and just expect positive operating leverage from there. Yeah, I think it's a day, you know, we're committing the positive operating leverage in 2025. You know, what a lot of what we do is we look at the revenue generation we're going to have. We have our core expenses; we're constantly challenging. And we're trying to figure out how much we can free up for investment because the more we can free up an investment is not just technology and, you know, cyber or consumer compliance is people.

Speaker Change: She had the sweetest expressive work in breathing, generate, revenue-wise, and a bioring environment and just expect positive operating leverage from there.

Speaker Change: Yeah, I think it's a day, you know, we're committing the positive offering of leverage in 2025.

Speaker Change: You know, a lot of what we do is we look at the revenue generation we're going to have, we have our core expenses, we're constantly challenging, and we're trying to figure out how much we can free up for investment, because the more we can free up an investment, it's not just technology, and...

Unknown Executive: It's putting more people on more boots on the ground and markets that we want to continue to grow in, but we have a, you know, we have obviously a cap in terms of how much we can do based on the revenue generation that we have. So we need to generate positive operating leverage. We think that creates your whole value over time and, you know, if we can generate more revenue, then we can use a bigger piece of the expense base to make those investments. But that's where it gets calibrated to come back to generate positive operating leverage.

Speaker Change: You know, cyber or consumer compliance is people. It's putting more people on more boots on the ground and the markets if we want to continue to grow in.

Speaker Change: but we have a, you know, we have a...

Speaker Change: obviously I can't in terms of how much we can do.

Speaker Change: based on the revenue generation that we have.

Speaker Change: We need to generate positive operating leverage, we think that creates your older value over time.

Speaker Change: You know, if we can...

Speaker Change: We can generate more revenue than we can use a bigger piece of the expense base to make those investments, but that's where it gets calibrated to generate positive offering leverage. I just add Erica, we're committed to finding ways to eliminate expenses.

Unknown Executive: I would just add, Erica, we're committed to finding ways to eliminate expenses to use those money to finance investments in our business. And if you look at transaction management as an example, we've grown relationships by 5% year over year and revenues up 18% year over year. Excuse me, we're up 9%. We finally have, I think, capital markets back on track and that business is continuing to grow; has been a great growth story for us. This 2014, when we began expanding our capabilities there, mortgage is an area where we're making some investment as we believe that business will improve, and then small business we think is an opportunity across our footprint. So we believe we have a number of pathways to grow, and we intend to finance the investment in that growth through expenses, eliminating expenses that will allow us to make those investments.

Speaker Change: to use those monies to finance investments in our business. And if you look at Transure Management as an example, we've grown relationships by 5% year-over-year and revenues up 18% year-over-year in wealth management where we've been adding some wealth bankers and we expect to do that again next year. Relationships are up 9% and assets under management, excuse me, are up 9%.

Speaker Change: We finally have, I think, capital markets back on track and that business is continuing to grow has been a great, grows story for us since.

Speaker Change: This 2014 when we began expanding our capabilities there, mortgage is an area where we're making some investment as we believe that business will will improve and then small business we think is an opportunity across our footprint so we believe we have

Speaker Change: a number of pathways to grow and we intend to finance.

Speaker Change: The investment in that growth through expenses, eliminating expenses that will allow us to make those investments.

Unknown Executive: Perfect. Thank you.

Speaker Change: Perfect. Thank you. Thank you.

Unknown Executive: Our next question comes from line of Matt O'Connor with Deutsche Bank.

Unknown Executive: Please receive a question. More Matt.

Speaker Change: Our next question comes from a line of Matt O'Connor with Deutsche Bank. Please proceed with your question. Morning Matt. Good morning. I wonder if you guys could talk about the card and ATM fee line. I know it's just a few million dollars down to you and not like all of them packed for your ball picture, but it was down and I was just looking at how it's been down six of the past seven quarters of the year and just for minus what's going on there. Good morning Matt. Good morning.

Unknown Executive: Good morning.

Unknown Executive: I was wondering if you guys could talk about the card and ATM C-line. I noticed it's a $2,000 down to you and not like all of them packed over your ball picture, but it was down and I was just looking how it's been down to the past, about seven quarters a year, and just remind us what's going on there. Matt, that's so you want to pick on the only one that didn't grow, okay? We've been telling me. You know, that's just really a volume thing in a mix between credit and debit, and you know, there's always an all that there's nothing systemic there that shouldn't enable us to grow that over time, so there's not a big store there.

Speaker Change: Yeah, man, so you won't pick on the only one that didn't grow, okay? Tell them things. That's just really a volume thing and a mix between credit and debit and depends on what season you're in. You can get a little bit of noise and all that. There's nothing systemic there that shouldn't enable us to grow that over time. So there's not a big story there.

Unknown Executive: Okay. And it doesn't seem like the risk of debit card in a kind of form has fly to down, so it's a line that our hopeful growth in the future.

Speaker Change: Okay, and it doesn't seem like the risk of debit card in a kind of form has fly to down. So, it's a line on it that you're hopeful of growing in the future.

Unknown Executive: Yeah, I mean, the way to grow that is to continue to grow customers, and so we focus on growing checking accounts. The more checking accounts we get, the more cards we have in people's hands, and I think, again, being in the markets that we're in, they're going to give us the opportunity to do that, especially as we invest in people that I just talked about. So, yeah, I think that's an opportunity to grow. You do point out that there is a risk there in terms of the debit interchange rules. If that goes through and has quite a down, we don't know that there's no law that says it has to change it all from where it is right now.

Speaker Change: Yeah, I mean the way to grow that is to continue to grow customers and so we focus on growing, checking accounts and

Speaker Change: The more checking counts we get more cards we have in people's hands and I think again being in the markets that we're in are going to give us the opportunity to do that especially as we invest in people that I just talked about.

Speaker Change: So, I think that's an opportunity to grow, you do pour it out that there is a risk there in terms of the, you know,

Speaker Change: David, interchange rules. If that goes through it has quite a down. We don't know that there's no law that says it has changed it all from where it is right now. So we're not continuing to monitor that, but right now we don't count that as something will happen in 2025. And Matt, I just remind you that we talked about this before, based up publishes a power score, which is a reflection of.

Unknown Executive: So we're going to continue to monitor that, but right now we don't count that as something will happen in 2025.

Unknown Executive: Yeah, and Matt, I just remind you that we talked about this before. Visa publishes the power score, which is a reflection of consumer customers, debit utilization, activation utilization, and for 42 cores in a row now, regions, customer base has been first in terms of power score.

Speaker Change: of Consumer Customers, David utilization, activation of utilization, and for 42 cores in a row now, regions, customer base has been first.

Unknown Executive: We have a customer base that's very actively used as their cards, particularly debit cards, and so the day was point, as long as we can continue to grow households, put more cards in customer hands. We believe that there's plenty of opportunity to grow fee revenue associated with that category.

Speaker Change: in terms of power score. We have a customer base that's very actively used as their cars, particularly, Devon Cars. And so, David's point, as long as we can continue to grow households, put more cars in customer hands.

Speaker Change: We believe that there's a plenty of opportunity to grow a free revenue associated with that category.

Unknown Executive: All right, that's helpful.

Unknown Executive: Thank you very much.

Speaker Change: All right, that's helpful. Thank you very much. Thank you. Thank you.

Betsy Graseck: Your final question comes from the line, Betsy Graseck with Morgan Stanley. Please receive your question. Good morning. Hey, good morning.

Speaker Change: Your final question comes from the line Betsy Gray sick with Morgan Stanley. Please receive your question.

Unknown Executive: Yeah, a couple of cleanups here. One just, I know we talked a lot about deposit rates, and I'm wondering, what's the implication for deposit growth? And how are you thinking about that? You know, because the fuel for, you know, the balance sheet, obviously. Yeah, it gets back to again being in the markets that we're in. A lot of migration of people and businesses into our markets; we're making investments in people. And, you know, our core strategy of our company has been focusing on growth and checking accounts of a consumer and wealth. And operating accounts of a business, including small business, where we're really kind of putting more effort on that than we have in the past.

Speaker Change: Hi, good morning. Yeah, a couple of cleanups here. One just, I know we talked a lot about the positive rates. And I'm wondering, what's the implication for the deposit growth? And how are you thinking about that? You know, because the fuel for, you know, the balance sheet, obviously.

Speaker Change: And it gets back to again being in the markets that we're in, a lot of migration of people and businesses into our markets. We're making investments in people and our core strategy of our company has been focusing on growth and checking accounts of a consumer and wealth.

Speaker Change: and operating accounts of a business, including small business where we're really kind of putting more effort on that than we have in the past. We're up about 30% since the pre-paying gimmick in terms of deposits.

Unknown Executive: You know, we're up about 30% since the pre-pandemic in terms of deposits since 2019. And so we think we have a good opportunity to grow. We have to be competitive with rates, Betsy, and we're not trying to just be the low-cost provider. We're trying to be fair and balanced, and we think we've done that. And so, you know, we're going to have our opportunity to grow. And, you know, in the corporate banking side, we've managed about $8 billion cash off balance sheet for our customers. And we're not paying; we're not paying the rate that they would want.

Speaker Change: since 2019 and so we thank we have.

Speaker Change: a good opportunity to grow. We have to be competitive with rates, Betsy. We're not trying to just be the low cost provider. We're trying to be fair and balanced and we think we've done that. And so we're going to have our opportunity to grow. And on the corporate banking side, we've managed about $8 billion of cash off balance sheet for our customers. And we're not paying the...

Unknown Executive: We get it for them, and we get a little fee for it. But if we ever needed that liquidity for that, we could increase our rates and grow there. But we hadn't had to do that.

Speaker Change: The rate that they would want, we get it for them and we get a little fee for it, but if we ever needed that liquidity for that, we could increase our rates and grow there. But we hadn't had to do that. What we want to do is make sure we're bouncing the positive growth and loan growth to maximize our net interest margin.

Unknown Executive: What we wanted to do is make sure we're balancing the positive growth and long growth to maximize our net interest margin. Sure, okay, and that's helpful.

Unknown Executive: Color and appreciate the $8 billion there in the corporate banking. The other question I just had is on the investment spend in capital markets specifically.

Speaker Change: Sure, okay, no that's helpful. Color and appreciate the 8 billion there in the corporate banking.

Speaker Change: The other question I just had is, on the investment spend in...

Unknown Executive: Is there anything in capital markets that you're thinking about investing more into, you know, power that line? And what I'm thinking about, I'm wondering, is the private credit piece of the ecosystem here. You know, it does continue to grow, and there are opportunities for banks to help originate, source, you know, structure, etc. And I'm wondering, is that an area that you would be looking to invest in, or you would say absolutely not.

Speaker Change: Capital Markets specifically, is there anything in Capital Markets that you're thinking about investing more into power that line? And what I'm thinking about, I'm wondering, is the private credit piece of the ecosystem here, does continue to grow, and there are opportunities for banks.

Speaker Change: to help originate source, you know, structure etc. And I'm wondering, is that an area that you would be?

Unknown Executive: There's other things to work focus on.

Speaker Change: Looking to invest in, or you would say absolutely not, there's other things that we're focused on. Thanks.

Unknown Executive: Thanks. I think we're following the developments in the private credit space. And there are a couple of different models that are emerging. They're all new. And so we'll, you know, we'll follow that with some interest, but we don't have any specific inclination at this point. Much of what we're seeing so far in the way of private credit origination in our markets are things that we're nice to doing. So higher leverage, less covenants, just the regulations that don't interest us at this point. But again, we're following that development closely.

Speaker Change: I think we're following the developments in the private credit space and there are a couple of different models that are emerging, they're all new and so will.

Speaker Change: will follow that with some interest, but we don't have any specific inclination at this point. Much of what we're seeing so far in the way of private credit origination in our markets are things that we're nice to doing. So, higher leverage.

Speaker Change: Left Covenant, just a resignation that don't interest us at this point, but again, we're following that.

Unknown Executive: In terms of capital markets, we've made some great investments. We want to continue to optimize those seeing the benefits as an example of our investment in small and real estate originations. Placement revenue. Separately, our M&A advisory platforms, but clear sites, Black Arch are doing well. We have the opportunity to take advantage of the investments we've made. And to look to potentially add some capabilities around the, the fringes. Either add ones to those businesses or potentially some, some fixed income sales and trading capabilities over time.

Speaker Change: Development closely. In terms of capital markets, we've made some great investments, we want to continue to optimize those, seeing the benefits as an example of our investment in small and real estate originations.

Speaker Change: Placement Revenue

Speaker Change: separately, our M&A advisory platformers both clear-side, black arch are doing.

Speaker Change: Well...

Speaker Change: and we have an opportunity to take advantage of the investments we've made and to look to potentially add some capabilities around the fringes, either add-ons to those businesses or potentially some.

Unknown Executive: But we don't have any burning desire to do anything other than execute well on the investments that we've made so far.

Speaker Change: Um...

Speaker Change: Some fixed income sales and trading capabilities over time, but we don't have any burning desire to do anything other than execute well on the investment set we made so far. That was perfect. Thank you so much. Yep. Thank you.

Unknown Executive: That was perfect. Thank you so much.

John Turner: I would like to turn the call back over to John Turner for closing comments. Great. Well, we appreciate you're participating in our call today. Thank you so much for your interest in our company.

Speaker Change: Thank you. I would like to turn the call back over to John Turner for closing comments.

John Turner: We appreciate your participating in our call today. Thank you so much for your interest in our company. Have a great weekend.

Unknown Executive: Have a great weekend.

Unknown Executive: This concludes today's teleconference. You may disconnect your lines at this time.

Speaker Change: This concludes today's teleconference. You may disconnect your lives at the time.

Speaker Change: [inaudible] The National Assembly of the National Assembly.