Regions Financial Aktie

All right. I think we're going to begin. Good morning, everyone. Gerard, awesome job once again putting together this conference. Thank you. I'm here to introduce Regions Financial, a $24 billion market cap. This is, by the way, before yesterday. A $24 billion market cap, $160 billion asset bank that is headquartered in Birmingham, Alabama, and has retail banking offices in 15 states.

Regions should be applauded for a decent stretch of strong predictable earnings. And though the market has rewarded the performance when looking at price to tangible book value levels, one could argue that the stock has often been mispriced on price-to-earnings basis.

In the past year, 15 years, Regions' relative multiple relative to the S&P Regional Bank Index has exceeded 1.0x in just 4.6% of the roughly 3,900 trading days. It is a bit better over the past 5 years, but still only 13.4% of the time.

We are really happy to have with us here this morning, Senior EVP and Chief Financial Officer, Anil Chadha; and Senior EVP and Head of Consumer, John Jordan. Thank you both for -- and your colleagues for being here.

And one note, we will leave plenty of time for audience questions if you could just wait until I kind of give the prompt. But yes, good morning, and thanks for being here.

Thank you for having us. We appreciate it.

I guess I'll start off with the first question. Coming into earnings season, investors were worried about higher rates, deposit pressure, AI disruption, slowing economy, yet earnings results across the industry have been better than feared. As you sit here today, what are your commercial and consumer customers telling you? And where do you think investors are most out of sync with what you're seeing on the ground?

Yes. So I'd say for all year, we've had really positive feedback from our customers in terms of the markets we're in have had a good pace of growth fundamentally underneath them. And so we've seen that evidence in terms of customers getting positioned to put loans on balance sheet. We've seen that most particularly in line commitments being up. So sentiment has been quite strong.

For the second half of the year, interest rates have clearly been a variable that have been particularly, as you alluded to, mindful on the commercial customers in particular. Now we have maybe another variable from Tuesday that certain sectors need to think about in terms of what that could mean locally in terms of regulation and things of that nature. But the important thing is the fundamentals remain strong. We're seeing that in pipelines, and we're seeing that just in terms of good performance on the ground across our commercial clients.

And I'll let John hit what we're seeing on the consumer side.

I'd say resilience on the consumer side. We've seen just deposit balances on a per consumer per household basis staying very stable. Our average deposit balance for consumer is just $5,200. The median is $900. We've seen those stay stable. We've seen spending, really high-quality spending in the debit card. We saw a great growth in the third quarter, both debit card and credit card spend. We've seen great small business activity and formation growth in that space. And just overall, just a healthy and resilient customer base.

Regions operates in some of the fastest-growing markets in the country. As you look across the footprint today, where are you seeing the greatest opportunities for growth? And how our regions, local market positions allowing you to capitalize on those trends? You go ahead.

Well, I would just say, we love our footprint. Obviously, I'm biased. I've lived in our footprint in my whole life. I think everybody seems to love our footprint as well. We're seeing a lot of growth in the space. But if you kind of look at the geography we're in, it's about a full percentage point higher in terms of growth rates. We're seeing great business formation in that space. And then when you really look at our customer base, we've been doing business in this market for 90-plus years in most of the MSAs we serve.

And if you look at the customer base that we have, 70% of our deposit base is with customers we've been doing business with for over 10 years. So we have a great sign in Nashville that says banks have branches, we have roots. And in our geography, we have incredible roots. We have great long-term relationships with leaders in the communities. We work on 175 college campuses. So we're talking to the youth of the community. We're really connected to the nonprofits. It's a great and growing and thriving economy that we serve.

And if you look at how we're able to invest, so whereas others who are entering the market for the first time are having to establish brand-new branch presences and bring in the marketing and everything alongside of it, what we're able to do is really look across our footprint and say how can we optimize? And for us, that's why we think it's really important, the investment that we're making in opening 135 to 150 new branches.

We're excited to get that moving at a quick pace. We'll renovate most of our branches. And so for us, it's capitalizing on the spaces that we've been in, as John mentioned, for well north of 90, upwards of 150, even almost 200 years in certain places.

And so understanding these markets, having deep roots in these markets, we believe, gives us a great competitive advantage. And we have 4.5 million customers that we have the opportunity to deepen within -- as they grow their financial assets, we're able to capitalize on that. So we're really proud of where we are. We're excited about the continued investments that we can make. I feel like we're going to be a great competitor in the space.

That 150-plus branch build, that would equate to probably the 50 or 60th largest bank in the country in terms of number of branches. I guess are there any markets where you're not adding where you maybe don't have the right to win or you have a different strategy?

I think our strategy is different across each market, and it's not just different in terms of where we're adding branches. It's where we think we can be most competitive across our 3 lines of businesses. We're very intentional in terms of how we think we can win in each space.

And so as an example, in certain markets, we believe leading with -- establishing a commercial banking team is a great opportunity. We've done that in San Antonio. And we can quickly follow that with opportunities both in the retail space and in the wealth management space. So that's been our approach is to be very deliberate in terms of where do we think we can win, both in a very specific geographic area and what's the best strategy across each of our 3 businesses to capture share in the most efficient way.

John, sticking -- going back to consumer, I guess, what are account activity spending trends, customer behavior telling you about the health of the consumer today?

Like I said, it's a healthy environment right now. We've looked at everything from just account growth, which we felt very positive about. We're adding new primary households at a healthy rate. We tend to see kind of the high end of acquisition at our bank relative to competitors. And so we're still seeing a lot of new accounts. We had the highest small business account growth rate that we have in over 10 years, great activity in home equity space. I think we had the most production in the home equity space that we've had in about 4 years. We had the most credit card production that we've had in 7 years. So we're seeing just a lot of activity in the markets that we're in.

We talk a lot about gas prices. That's always something we're all complaining about a little bit. But when you kind of look at it down to the customer level, it equates to $25, maybe $50 a month, and people have been able to digest that. In other words, they've been able to adjust their spending habits. It's not been causing any sort of major pain at this point.

Now you never want to see that last for a long period of time, but we've got low unemployment and just solid fundamentals in the economy, which really benefits all banks and the business environment in general.

You mentioned home equity and the success you're having there. I guess, in terms of deepening customer relationships and driving growth, are there any other products, channels, segments that offer good opportunity?

Absolutely. I mean, our philosophy is people first. We really spend a lot of time investing in our culture. We've had the best engagement we've ever had. And we've just continued to see great success in terms of what our customers are saying about those people.

So yesterday, J.D. Power released that we were #1 in J.D. Power for small business. We've maintained kind of the top end of customer experience scores when it comes to our online banking. Our retail has the highest customer experience scores we've ever had. And so that model, that customer-friendly model, I think it works with a lot of the segments we do business with.

Our mass affluent segment has grown by almost 10% year-over-year. And that segment is growing because we're growing our customers. So 80% plus of those mass affluent customers were existing customers who migrated up the wealth spectrum and then we grew with them over time.

Like I said, we're on 175 college campuses. So our campus strategy, and we're the official bank of the SEC, which certainly matters where I live. We're on these college campuses. We're doing financial education workshops. We're there for their orientation. We're bringing students in. We're setting them up with a budget, and we're seeing great growth rates in that space.

I mentioned small business. That is a space where we've put a lot of attention, and we've seen just tremendous growth. Our lending production for our small business owners is up almost 50%. Like I said, we've got the highest checking growth rate we've had in over 10 years in that space. So those segments are highly service sensitive, sitting in our footprint. They like our model. We're seeing great growth in all of that space.

And I'll just highlight one point John just mentioned there. So the 8% growth in mass affluent and 70% to 80% of that coming from our customers growing into that segment. That cost of acquisition is dramatically lower than if someone was coming in and trying to recruit that mass affluent customer.

And so for us, capturing them at an early stage in their career, investing alongside of them produces meaningful returns as they kind of graduate, if you will, up to that segment. And of course, we have all the products and services to sell to them. That's a key piece of how we think we can continue to compete there.

That's right. We talked about the branch build. How much of that strategy is about strengthening your existing position to maybe fend off competition? How much of it is it about growth opportunities?

I'd say it's kind of -- it's both really. We're trying -- it's an optimization body of work. So we're complementing our existing footprint, which I mentioned we love in spots where the neighborhoods that are growing a little faster, we want to make sure we position our branches in those neighborhoods.

So as we look across our footprint, we'll be filling in spots with new branches. We'll also, as Anil mentioned, we'll be renovating 1,000 of our branches. So we're spending a lot of time just updating the look and feel of the branch network.

Convenience of your branch network is still the #1 factor that people use to choose branches or choose banks. And so when we look at our footprint, we really analyzed top to bottom, we felt good about where our existing branches were, but we feel like there are some spots in the neighborhoods where we already exist where we could get a little more efficient growth. And so that's where we're spending our time and our money right now.

I would say it's part of an intentional plan. So I wouldn't want you to believe that we're doing it just because others are coming in. We know where we believe we can be successful, and that's where we're going to invest. Now others see the same thing and want to come as well. But we believe understanding where the success and the growth can be gives us an advantage, and we're being very overt in getting those locations as quickly as we can.

This might be more of like an industry question, but it obviously relates to reasons. But the number of branches you had in 2015 and a decade ago was over 1,600, and now you have 1,250 and now you're talking about increasing by 150 and you see all the other banks, some of them it's market expansion or -- but what's changed -- other than interest rates going from 0 to something, what's changed the behavior of the banks where now we're building branches again?

And let me just be clear, our 1,250, we're going to open 135 to 150, we'll probably close about a like number elsewhere in our footprint. So our total branch count will be kind of relatively flat based on what we see now. But I'll let John really go into details in terms of what our customers want and expect out of the branch.

Yes, there's just natural consumer behavior, I think, that is pretty well recognized. people moving to digital. So transactions per branch continues to come down, but interactions per branch around advice and guidance and opening up new solutions has stayed relatively flat. So just the need for the number of branches in general has come down over a period of time.

And what you want to do is just make sure that you're in a relevant geography to the customers and particularly where the growth is -- and we've benefited from that because we're in great geographies where there is good growth. And to the point Anil made, we're just being very thoughtful, analytical, looking really neighborhood by neighborhood, where do we need to be, where are we not today. And there's just always going to be optimization of those efforts. And right now, it's a great time for growth for us.

I think as you think about the move of rural branches to urban branches, you just need more branches in a dense location in an urban area just to make sure the time to get to the branch is within customers' expectations. So just the density you should expect to increase as you go into larger markets.

Your footprint, I mean, you have rural markets, you have small MSAs, you have now larger MSAs, fast growing. I guess what are you seeing competitively customers, bankers, -- how difficult is that right now?

Well, we benefit from being a great place to work. I mentioned culture here. So we constantly have great applications for roles across top to bottom, technology jobs, field jobs. So from a talent attraction perspective, I'd say it's been great.

And one of the things that I would highlight is most of the markets we're in, a lot of these big competitors we're already competing with them. I mean the Nashville of the world, Miami, Dallas, Houston, Atlanta certainly is a very competitive market. And so some of the places where they're entering are the places where we have the deepest roots candidly. So they're putting a handful of branches here and there, but it's not having a really big impact in terms of our overall business. They certainly make a big splash when they come to town, but we've -- they are great competitors. We certainly respect them as competitors. But in general, it has not been a big change for all of us.

And we understand how they compete when they come into market. And so if someone is new coming into market, big or small, they're looking to attract customers and they're having to use rate to do that.

And so we understand very clearly within our customer base, what are those kind of higher beta, 100% beta customers. And within each of these areas, we can see when a bank files a branch application open. We proactively reach out to those customers, and we can make a very targeted offer to keep that customer if we choose to do so. And so understanding the tactics, understanding the branch where it may be located, where our customers are located near that branch, we can be proactive in reaching out to that customer if that's something that we choose to do.

And I would just make one more quick point that customer experience is a big differentiator right now. And in the age of AI, maybe even more because as people are looking -- using agents or using ChatGPT or whatever that they're using, those are using third-party research or rankings to really discern if you want to go to a bank, that's great.

Customer service, where do you go? Well, if we're #1 in J.D. Power for small business, for online banking, we're very high in retail banking, then it's in many ways that our focus on customer experience, particularly in the markets where we have that the sticky deposits are staying sticky, because people still like to do business with us and particularly the segments like mass affluent and small business where they are more service-oriented, we've really had a lot of success there.

This might be a little bit of a redundant question given you just mentioned J.D. Power scores and customer experience and rankings. But investors are debating deposit beta here and effects on margin. And so far, the industry is I guess, maybe outperform a bit. But the skepticism remains. Can you just talk about when you look ahead, what gives you confidence in your deposit and NII outlook?

Sure. So I'll start with a couple of the key components. So for NII, one of our biggest tailwinds we've had it for the entire year and extends into next year is just fixed asset repricing benefits that we continue to see. So every quarter, we have about $3 billion of fixed rate assets repricing.

Depending upon where rates end up, that's going to give us a benefit of, call it, 100 basis points, plus or minus, depending upon where rates are. So that will continue into the future. So that's a natural tailwind for net interest income. When it comes to betas, again, what gives us confidence, one, I think the competitive nature that we've seen has been pretty consistent over the past, let's call it, 2 years at this point.

And so understanding the nature of your customer base, us being very deliberate in keeping about 30% of our customer base being in noninterest-bearing deposits. And then within that interest-bearing bucket, clearly understanding how we kind of highlight in the investor materials, 3 different buckets of beta behavior, if you will. And that tracks pretty consistently as we back test going through time.

And so because we see the consistency of that performance, we understand how that deposit base will perform in different environments. And so it's not as if we just kind of at a high level, say, 30 -- mid- to high 30s is going to be where the beta is, it's a buildup looking at each of the segments of our customer base and understanding how they performed historically. That's how we project into the future, the confidence that we have in our beta.

We're not unique to that. I'm sure every bank in here does the same thing. But it's because of that and because of what I would say, the rational level of high competition, that's how I think you've seen us and others kind of perform as expected.

For us, clearly, having the flexibility on our balance sheet with a relatively lower loan-to-deposit ratio helps, having a lower debt footprint outstanding helps us. And so as we have periods of loan growth exceeding deposit growth, those are levers we can pull as temporary funding measures, as deposit growth continues to pick up. So all those things coming together is what really gives us confidence in our guide for beta and our ability to execute against that as time passes.

How does that play out in conviction for NII and margin in 2027?

Yes. I won't get too far into '27, but some of those tailwinds will continue. So the fixed asset repricing, I mentioned before, continues into '27. It will be at a decreasing rate, as you'd expect. But we feel good about exiting the fourth quarter with a margin around 3.70% and feel good about some of the tailwinds that can persist into 2027.

I think we'll -- I mean I have a bunch of questions remaining, but we want to open it up here just to make sure we have enough time.

Can I just ask you, you mentioned at the beginning of [indiscernible] different initial environment post Tuesday. Can you maybe just elaborate? I know it's speculative at this stage, what potential impact might be? And then just in particular on data centers, I think there's been a lot of construction. I think you've been relatively cautious and it's been more about like the ancillary stuff, the power, the construction that may have kind of supported some of your commercial loan growth. So maybe can you give us a bit more detail?

Yes, I'll start with the second. So you're right, it's an area we have not gone heavy into. We have a firm concentration limit around that of about $1.2 billion. We have about $800 million outstanding today and about $1 billion in commitments. So that's not really a place where we have been growing and not a place where clearly we plan to grow.

And so -- and structurally, as you mentioned, we have not gotten caught up in kind of what you've seen a lot of here of late. So our strategy there has been pretty intentional, and it's really just founded on our concentration risk management. There's nothing unique here that we saw something different than others. It's just traditional concentration risk management has kept us to limit the amount of that, that we're willing to put on our balance sheet.

And going to the first part of your question, yes, interest rates have been clearly topical for our customers all year long, really picked up in the third quarter. I think in certain pockets of our customer base, the Tuesday results maybe have some additional questions as to what could happen from a policy standpoint and regulation in certain industries. But the fundamentals are still strong, but it's just, I think, another variable that I think everyone will be paying attention to over the next several months and quarters.

There are some potential tailwinds. Tariffs have been a headwind for a period of time. Immigration has been an issue in terms of labor force. And so there's possible we could see some push and pull of things that actually could help as we look forward across different industries that we lend to. But too early to tell. We'll see how things emerge. But I would say maybe just another element of uncertainty that our customers and banks will have to deal with as we look forward.

This is Chris Spahr with Wells Fargo. John, what is the payback period for the branch builds? And with the consolidation, is there any offsets to that? And then also, do you expect the production increase in the markets that you're already in as you improve your density?

Yes. Good question. So typically, we get 3-year payback is typical for a successful branch. We really -- there's some dependency there on whether we are consolidating. So as Anil mentioned, a lot of the branch building is going to be taking maybe 1 or 2 branches and putting them in a better spot. And so we do expect better productivity and better growth based on the repositioning.

As you sort of look at the map, we're going to add about 5%, 6% of household coverage by this effort. And we're just going to be looking at this as an ongoing part of running the business. We do measure productivity just at the individual and branch level, obviously, like most banks do on a weekly basis. And we've seen great productivity improvements, particularly in the areas where we've specialized in small business, mass affluent.

We're seeing better lending, better results. We've given the branch teams more capacity to get out and talk to small businesses. And so with tools and resources and sort of just the automation, we've seen a lot of success in terms of just continuing to reinvest into growth and reinvest into productivity of the branch teams.

And clearly, the payback period definitely differs in terms of the strategy. So John is alluding to when you do kind of a 2 for 1, you get the benefit of reduced cost and others. If you're doing a brand-new build in a new location, clearly, your payback period is going to be longer than that.

The other thing I'd mention is some of our strategy, I think I mentioned San Antonio earlier, it doesn't always have to be led by retail. That's an example where we actually took a commercial first approach. We had an opportunity to bring in a team. And so complementing that team with the retail branch presence, that economics looks different as well because you're able to capitalize and grow commercial opportunity as well. So depending upon the strategy in which you execute that, the payback, as you'd expect, would be different in different situations.

Robert Scott Siefers with TD Cowen. John, I was just curious if you could talk a little bit about maybe like the rate of change in the competitive environment. The reason I ask is because, we've all been concerned for a few years about this approach on your territory by top market players. But the point their own expansion, they just become seasoned players as well as they -- rather than new entrants. So does that make it tougher or easier to compete?

And I guess the other factor is, to your point from this morning on the branch expansion discussion, the Southeast has just a lot of new community formation. So you all are sort of new entrants in that regard. So maybe just sort of rate of change or direction of travel, has it gotten easier or tougher over the last couple of years? And how do you see it trajecting? Yes.

I was at a large bank for 21 years before I joined here. Banking is something like constant change really. And I would say that for Regions Bank, we certainly feel that. But we monitor -- really, if you think about a consumer business, it's actually kind of simple. I mean, you have to manage a lot of processes. There's a ton of moving parts, but how is your acquisition engine working. And we tend to be at the very top end of acquisition in terms of just the percent as you kind of measure us through third party. So that engine is still working great.

You want to build primacy, which we're in the top quartile in terms of building primacy. That engine is still working really, really well. You got to be great at pricing, and we've got a great team of people who are pricing, making sure that we maintain cost, the low-cost advantage, which we will maintain. And you've got to continue to deepen and engage over time. And so you kind of look across the spectrum of the processes that we're managing, they're evolving. But we're getting -- we're continuing to get better.

I mean, we're having more people open up digital accounts, which is a capability that we're -- that everyone has, but it's -- we're seeing great growth in that space. As I mentioned, we're #1 in the online banking space from a J.D. Power space. So we -- I feel like we've got a very defendable position.

And when you look at these -- and I don't have the stats on this specifically, but if you kind of look at these new market entrants, who are they going to be winning their customer base from. If you're a community -- someone who's doing business with a community bank, you're going to be changing to another bank, you're going to go to one of the big banks or you're going to go to one is a little bit more of a hometown, more traditional banking, high service model. And so I think we win our fair share in that. And so, I think that if we kind of look across the footprint, we're still seeing great success. There's no kind of warning signals that change is outpacing us.

The other thing I would just highlight is every branch is using AI for us. Everyone has Copilot, everyone is using action planning. They're using it to help target and help them with conversations. We've put in AI training simulation. So everyone's practicing conversations, honing their skills. We're seeing, like I said, more productivity from our bankers. So although there is great competition, there's a lot of change. We've been monitoring all the processes and feel good about where we are.

Ryan Kenny with Morgan Stanley. So Regions has always been really strong at really gathering the primary core checking account of the consumer. Are you seeing as we stay in this higher for longer interest rate regime environment than the 2010 competition for those low-cost primary checking accounts increase? Are you seeing more marketing expense from competitors? And as you think about your strategy to really win those checking accounts, clearly, you're focusing on branches, you're partnering with SEC, which strategies are working the best in any areas where you're falling a little bit short?

I'd say you do see a lot of offers, a lot of marketing offers out there across our footprint, certainly in places where people are either entering the market. But I would say just in general, that people are paying a lot. A lot of them are paying high dollars for mass affluent households because of high switching cost, and it's really hard to get those customers to move.

We spent a lot of our time acquiring young adults, mass market accounts, easier to move, easier to change. So we've had a very efficient model, I think, in terms of growth. And then like I said, our mass affluent segment is growing largely from our existing customer base. So we feel good about the model, and we kind of look across our footprint. We've seen, I think, pretty steady results.

Different markets, like Anil mentioned, I mean, we have a different look and feel in some Texas markets than we have in certainly Birmingham or Huntsville or Mobile or Nashville. So there's slightly different kind of cost of acquisition across those, but we -- that's something that we're always monitoring and trying to optimize for in terms of our marketing expense.

So our focus there is both on the consumer and on small business. And year-to-date, our acquisition rate for small business has been about 120 basis points and on the consumer side, it's been around 40 basis points. Both are well above our peers. And so that's the data that -- and this is from third-party data that we get. So that's data suggesting that what we're doing is working.

Now it takes time to get there. Clearly, when you're attracting new customer accounts. And an average account for us is $5,200. A new customer average account is probably closer to $2,000 to $3,000. So it's constant work that you have to do. But once you get that going, that continues to be kind of a tailwind for you. The small business side, that's another one. And so that's where we think really making the investments that we have and seeing it pay off in terms of our acquisition rate is, we believe, a very good sign of that strategy working.

A lot of business comes from referrals, believe it or not. I mean, still in this world of kind of a lot of things, a lot of offers out there in your mailbox, its almost people I feel like have almost become kind of numb to all of that's hitting them. So we're seeing a lot of our business comes from customers referring business to us.

And then just as a follow-up on your core consumer checking account, I believe that average balance over time is something like $5,000. Has that changed recently? Any change in rate sensitivity on the consumer? Or is it still fairly great [indiscernible]

I would say it's stable on the balances, which $5,200 plus or minus a little bit, has been very stable. And Anil may alluded to this, we have rate-sensitive customers. And we have customers who may hold their savings elsewhere. We don't chase rate. So we do -- we know the levers. We're watching where we need to grow deposits or where we may want to offer some pricing differentiation. But in general, it's a very targeted approach for us, and it's really to fund our balance sheet as needed. I mean, we continue to grow those low cost or no-cost deposits, and that's been our focus for years and years now.

Other questions? I'll throw one in. We haven't talked about capital. You shifted from a CET1 ratio, reflecting AOCI inclusion to one that also incorporates proposed endgame relief. I guess how should we interpret that change? And where do you think you're going to be able to operate from a CET1 perspective once the rules are finalized?

Sure. We try to provide transparency for all components. And so just to kind of level set, we -- our reported CET1 ratio for third quarter was 10.8%. We showed kind of a waterfall, if you will, of just the impact of AOCI, took that ratio down to about 9%. And then the proposed change in risk-weighted assets took it up to about 10% kind of a fully phased-in Basel III end game.

And the reason we did that is once we get the final rule, we expect that that's how we should start to show everyone. We'll see what type of phase-in periods exist and whatnot. So if you have a 10% fully phased-in ratio, generate 50 basis points of capital every quarter, 20 basis points of that will go to the dividend. We think that's sufficient capital for us to continue to grow our business and buy back shares as appropriate.

We still think managing to 9.25% to 9.75% is appropriate. And so as we invest in our business, you should expect us to kind of be at that level. Once we get the final rule, we'll see what type of phase-in exists, and that may influence kind of how we think about it. But based on what we're seeing right now, we feel good about the capital that we have. You saw us buy back about $94 million in share repurchases in the third quarter. Depending upon where rates are, clearly sitting here today, that will be a tailwind to capital. We expect we should be able to buy back more than that this quarter dependent upon rates.

Yes, if I could just go with a quick one. Stephen Scouten, Piper Sandler. Your economic projections in your presentation are relatively conservative to what we've seen from actual GDP growth. Besides the obvious for rising tide lifting all banks maybe with GDP growth. How else could you see that benefit you maybe disproportionately around loan growth or otherwise in terms of your current projections?

Yes. So for loan growth, I always like to break it into its component pieces. So for our business, most of our loan growth is coming from C&I and CRE, where we participate in the consumer, we really don't expect to see much growth there.

To the extent rates perform better than we expect, we potentially could see some momentum in the mortgage space. John alluded to some home equity production. But for us, we think our opportunity to grow loans is really in the C&I and CRE space. That's where we're making investments in our move towards kind of more middle market lending. That's where we're seeing good pipeline growth. And so I think that's the opportunity ahead of us to continue to grow. On the consumer side, it would be if rates came down more meaningfully, we could see some mortgage opportunity there.

Mike Mayo with Wells Fargo Securities. You addressed capital, and let's just assume Basel III is a done deal and you talked about the capital return. But in the wake of the elections, not just nationally, but state by state, what are you scared of? What do you plan for the worst and hope for the best as you plan for the worst, what comes to mind?

Yes. I don't know that I'd say scared. I think when I look at the elections, it's just a reminder, you have to be adaptable. And so as we think about where we want to deploy capital across our footprint, we still think our footprint is going to be a net beneficiary of new business formation, customers moving into the market. There could be places where maybe as a result of Tuesday, they may look a little different. I still believe it's going to be greater than the national average across the footprint. But maybe some states get disproportionately more than others. But you know what, they're still in our footprint. And so I can't think of -- and there may be one.

So excuse me, if there is, I can't think of maybe a beneficiary from Tuesday that's not in our footprint. And so there could be some shifting. But net-net, I think all the markets we've been focused on for growth will still be growth drivers, the degree of which potentially could change. But the Southeast, I still believe is going to be an area of outsized growth. And if we need to adapt our investment, we will, but it's not like we have to expand. It's still within our footprint. So that's the way I think about it based on kind of what we've seen over the past 4 days, but they reserve the right to change my opinion as things emerge.

I was thinking we should do a contest to see when Lauren Boebert is going to be invited on advance of the stars and how many days from now. But I didn't expect that. Credit, yes, credit -- I guess, credit, can you just talk a little bit about -- I mean, obviously, commercial real estate performed better than maybe people expected. How are you thinking about that portfolio? You talked about growing it. Net charge-offs going forward. Overall, like what are you concerned about right now other than the data center?

Yes. And again, data center is not a big exposure for us. But we had a really strong third quarter. I'd caveat that as that's when everything goes right, you get a quarter like that. As we look forward, we guided towards the low 40s or the low end of our 40 to 50 basis point range for the full year. That's still what we expect.

We have a portfolio of credits that we've been monitoring that are fully reserved for, whether they charge this quarter or '27 is TBD. But again, the reserves are sufficient there.

We really haven't seen any new signs of stress across our portfolio. A reminder on the consumer side, we're prime, super prime. So that's performing as you'd expect to see it. So we feel really good about our performance so far to date, feel good about our reserve coverage.

And so sitting here right now, I don't see any signs. But clearly, this is an area we need to stay attentive to as things emerge. But this is where our concentration risk management improvements over the years is really paying off. As we look at our portfolio, there's really no areas of outsized concentration.

And so where that -- if you look back over the past several years, you could argue that's been a headwind to growth. In periods like now where there's greater uncertainty, it's an asset to us to not have any areas where we feel like we have heightened exposure. And so making those tough decisions along the way, now is the time when we get to sit back and be a little more comfortable because of that.

And specific to CRE, we had some ratings migration, but that we don't feel like there's any material risk of loss in those portfolios. So we feel good about that.

Mike has a follow-up question.

You may want to make a boat on the Lauren [indiscernible]

When it comes to acquisitions, buy or build and -- When it comes to acquisitions, buy or build, you already talked about the build. So I guess, buy and what's your sales pitch if you want to buy somebody? What do you bring to the table for, say, a smaller bank that you might want to acquire? Why haven't you seen more deals in the bank industry generally?

Yes. So when it comes to acquisitions, we like the non-bank bolt-on stuff. I know that's not a glamorous answer, but I think it's really important. I think The Frazer Lanier acquisition, even though it's very specific to an area, it shows an ability to grow revenue.

One of the things that I am concerned about after Tuesday is revenue headwinds. And so the fact that we've continued to add bolt-on businesses is one of the reasons we've been able to generate an additional $1 billion of revenue since the great financial crisis, while we've lost $600 million. And so those bolt-on acquisitions, I think, matter and they kind of build up through time. With respect to why haven't we seen more bank acquisitions, may need to ask someone else who's kind of more focused in that space because that's not an area that we're focused on right now as we've indicated. But for us, it's really focusing on non-bank acquisitions. That's where we spend our time and think they provide great benefits for us in terms of revenue diversification.

And what's progressing the headwinds? Are you thinking about [indiscernible] policy?

I think, from a policy standpoint, some of the early concerns that people have voiced, I don't know which ones are going to win out. But if there is concerns around certain revenue streams that could be at risk from a regulatory standpoint, I think it's always good to have diversification. And that's what we think these non-bank acquisitions provide for us.

We have one final quick question. You can just carry on.

Stephen Scouten from Piper Sandler. Can you talk a little bit about [indiscernible] What that means for you in terms of efficiency, commercial offset and [indiscernible]

Yes. So deposit system, we actually put our first account on it in the past couple of weeks. So we're actively starting to test it. I still believe that's mid next year to maybe third quarter next year time line. Really excited about the possibilities of being on the first true modern core platform.

You mentioned a couple of them, product velocity development, incredibly important. Think about what could come in the way of tokenized deposits being able to deploy that, being able to have more of bespoke product offering and pricing strategies across markets.

Today, it's a very inefficient way to do that. That platform will allow us to do that in a far more efficient way. And so when we think about meeting evolving customer needs and expectations and pricing for that, we think this platform really allows us the opportunity to do that.

And look, when you put in something like this, you are converting yourself onto a new platform. And so it's a skill set that I think is just good hygiene for us to learn. And so that's the skill set we'll have after we put in place the system, and that will help us on a go-forward basis.

Thank you very much. We really run out of time, but we really appreciate Regions coming back to the conference.

We appreciate it. Thank you all for being here.

Good morning, and welcome to Regions Financial Corporation's quarterly earnings call. My name is Chris, and I will be your operator for today's call. [Operator Instructions]

I will now turn the call over to Chris Best to begin.

Thank you, Chris. Welcome to Regions Third Quarter 2026 Earnings Call. John and Anil will provide high-level commentary regarding our results. We ask that you review the cautionary statements included in our earnings documents, which are available in the Investor Relations section of our website. These materials contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results as well as forward-looking statements about Regions performance. These statements speak only as of today, and we undertake no obligation to update them.

I will now turn the call over to John.

Thank you, Chris, and good morning, everyone. We appreciate you joining our call today. Earlier this morning, we reported earnings of $611 million, resulting in earnings per share of $0.71. On an adjusted basis, earnings were $622 million or $0.73 per share. We delivered adjusted pretax pre-provision income of $870 million and an adjusted return on tangible common equity of 22%.

As we move through the second half of the year, what stands out most to me is the consistency of our performance. While continuing to generate strong financial results, we remain focused on strengthening the franchise through investments in talent, technology, products in key markets. Those investments continue to enhance our ability to serve customers and compete effectively.

Across our businesses, we continue to see healthy customer engagement. On the consumer side, we continue to grow households and checking accounts while deepening primary relationships. Commercial clients continue to invest in their businesses, technology and long-term growth initiatives. While the operating environment continues to evolve, activity levels across the franchise remain constructive.

Credit quality continued to be a source of strength during the quarter. Annualized net charge-offs were 29 basis points of average loans, while business services criticized and total nonperforming loans continued to decline. Despite these positive trends, we remain focused on actively managing risk across the portfolio.

While remains the foundation of our strategy, we're also generating strong momentum across our fee-based businesses. Capital Markets and Treasury Management each delivered record revenue during the quarter, reflecting strong client engagement and continued execution across both businesses.

Wealth Management revenue moderated from record second quarter levels but remained strong relative to the prior year. Collectively, capital markets, treasury management and wealth management, continue to perform at historically strong levels, demonstrating the strength of our diversified fee-based business model and the value we provide to our clients.

We continue to make meaningful progress on our cloud-based deposit platform implementation and broader modernization efforts. As we've discussed previously, we're taking a deliberate phased approach that we believe appropriately balances execution discipline with the scale and complexity of the initiative. This is one of the most significant technology investments in our company's history, and we remain confident in both our approach and the long-term benefits this investment will deliver.

Our commitment to long-term investment extends beyond talent and technology to the communities we serve. This year marks 30 years as the bank of the Southeastern Conference, a milestone we're proud to celebrate. We believe the longevity of that relationship reflects the strength of our brand, the depth of our community relationships and our long-standing commitment to customers and businesses we serve. As we look ahead, we remain confident in our position. We have a strong franchise, healthy customer relationships and a leadership team focused on execution. We believe the investments we've made and the momentum we're seeing across the business position Regions well for a strong finish to 2026 and sustained success in the years ahead.

Now, Anil will provide some highlights regarding the quarter.

Thank you, John. Let's start with the balance sheet. Both average and ending loans increased modestly versus the second quarter. As expected and consistent with market trends, growth moderated from the stronger pace experienced during the first half of the year. Growth was again driven by broad-based commercial lending activity, including continued strength across several C&I categories, including government and public sector and wholesale and financial services.

While net loan growth remained concentrated among investment-grade commercial clients, production trends continue to be healthy across our emerging commercial and middle market businesses, supported by recent talent investments. Consumer loan balances declined modestly during the quarter. Growth in credit card and home equity was offset by continued softness in residential mortgage and Regions home improvement finance, reflecting the higher rate environment and muted housing market activity.

As we look ahead, current levels of client engagement, production activity and pipeline strength continue to support our confidence in the growth outlook. We continue to expect full year average loan growth to be up low single digits versus 2025.

Turning to deposits. Both average and ending balances decreased modestly, primarily reflecting activity from a few of our largest commercial customers utilizing our institutional investment services for specific investment strategies combined with expected seasonal outflows in public funds deposits. As a reminder, the company continues to manage substantial excess client balances for our commercial clients totaling approximately $16 billion through highly liquid off-balance sheet investment solutions.

Underlying commercial trends remain healthy with continued growth in new accounts, and increases in both average and ending commercial noninterest-bearing balances during the quarter. Retail deposits performed as expected, with growth in new accounts, partially offset by late-summer seasonal spending. Consumer money market balances continued to grow while year-to-date small business account openings reached their highest level in the past decade, excluding the pandemic period and are approximately 100 basis points higher than the prior year period.

We remain disciplined in managing deposit costs in an elevated rate environment while leveraging the strength of our deposit franchise to drive customer acquisition and retention. Our noninterest-bearing deposit mix remained in the low 30% range, consistent with our target and reflective of the operational nature of our deposit base. We continue to expect 2026 average deposits to be up low single digits versus the prior year.

Let's shift to net interest income. Net interest income increased 2% linked quarter, building on recent momentum in support of our structural repricing dynamics and balance sheet expansion. Net interest margin increased 2 basis points to 3.68%, reflecting our strong profitability and deposit funding advantage. During the third quarter, interest-bearing deposit costs were largely stable, increasing just 1 basis point to 1.70%. Disciplined deposit cost management and our operating account mix continues to provide a strong foundation for earnings in the current elevated interest rate environment. We expect the interest-bearing deposit beta will remain in the mid- to high 30% range through the rising rate cycle, supporting a mostly neutral interest rate risk position.

In the fourth quarter, however, lags in the repricing of certain retail deposit products following the September rate hike will provide a modest lift to net interest income. We are positioned well to benefit from higher middle- and long-term interest rates through fixed rate asset turnover.

In the third quarter, yields on newly originated fixed-rate assets were approximately 100 basis points higher than the yield on maturities. We expect this repricing advantage to expand to between 100 and 125 basis points in the fourth quarter, providing a tailwind that persists for multiple years, assuming current rate levels while moderating through time.

As previously mentioned, loan growth moderated during the quarter. However, we did see momentum pick up late, further supporting average balance and net interest income growth into the fourth quarter. The mix of loan growth continues to migrate towards high-quality credits. And while this creates a headwind for asset spreads, net interest income and margin, the economic trade-off is evident in improving credit results and deepening customer relationships.

Similarly, while the funding mix in the third quarter was negatively impacted by the migration of certain deposits to off-balance sheet products, the resulting shift supports fee revenue. Looking forward, we expect a more balanced loan and deposit growth profile to sustain profitability.

Assuming the next Fed rate hike occurs in December, we expect fourth quarter net interest income to increase between 1% and 2%, supported by persistent tailwinds from high rates, structural repricing, disciplined deposit cost management, balance sheet growth and the seasonal HR asset dividend. The fourth quarter net interest margin is expected to be approximately 3.70%.

Now let's turn to fee revenue performance for the quarter. Adjusted noninterest income increased 3% on a linked-quarter basis driven primarily by record capital markets and treasury management revenue as well as growth in commercial credit fees, bank-owned life insurance income and other noninterest income, partially offset by a $28 million decline in the market value on employee benefit assets.

Capital markets income increased 23% compared to the prior quarter, driven by stronger M&A advisory activity, securities underwriting and placement fees, commercial swap income and syndications revenue. Looking ahead, activity levels remain constructive, and we continue to expect fourth quarter revenue to be within our previously communicated range of $90 million to $105 million. The timing of client activity and market conditions will influence where we land within that range.

For full year 2026, we continue to expect adjusted noninterest income to grow between 3% and 5% versus 2025, with results continuing to track toward the lower end of that range.

Let's move on to noninterest expense. Adjusted noninterest expense was relatively stable compared to the prior quarter. Lower salaries and benefits expense attributable primarily to lower market value adjustments for supplemental employee benefit liabilities along with a decline in other expense helped offset higher equipment software expense and increased professional legal and regulatory costs during the quarter.

As expected, continued investments in technology and infrastructure were offset by disciplined management across the broader expense base. Overall expense trends remain consistent with our expectations for the year.

For full year 2026, we continue to expect adjusted noninterest expense to be up between 1.5% and 3.5%, and we expect to deliver full year adjusted positive operating leverage.

Regarding asset quality, we were encouraged by strong credit performance during the quarter, reflecting the strength and resiliency of our customer base and our continued disciplined approach to risk management. As John highlighted, annualized net charge-offs as a percentage of average loans declined 13 basis points to 29 basis points.

Business services criticized and nonperforming loans, both improved during the quarter. The business services criticized ratio declined 30 basis points to 4.71%, while the nonperforming loan ratio declined 8 basis points to 59 basis points. The allowance for credit losses ratio declined 2 basis points to 1.61%. Continued progress within previously identified portfolios of interest were largely offset by reserves maintained for macroeconomic uncertainty and other qualitative factors, resulting in a relatively stable reserve balance during the quarter.

We continue to expect full year 2026 net charge-offs to be between 40 and 50 basis points. And based on performance to date, now expected to trend toward the lower end of that range.

Let's turn to capital and liquidity. We ended the quarter with an estimated common equity Tier 1 ratio of 10.8%, while executing $95 million in share repurchases and paying $255 million in common dividends during the quarter. Liquidity remains robust with total sources well above required levels. Modest declines during the quarter reflect the impact of higher interest rates on collateral valuations as well as the changes in loans and deposits discussed previously.

Regions remains well positioned to support future loan growth while maintaining its disciplined approach to balance sheet management. Including the impact of AOCI and reflecting the proposed Basel III end game risk-weighted asset changes, our estimated CET1 ratio was approximately 10%. This level remains well above our target range of 9.25% to 9.75% and provides continued flexibility to support strategic growth and return capital to shareholders. Regions maintained a strong earnings profile that consistently generates capital, and we will continue to execute strategies to further reduce our sensitivity to interest rates.

Overall, we're pleased with our third quarter performance, which reflects the strength of our franchise, the resiliency of our customer base and the disciplined execution of our long-term strategy. We remain well positioned to support our customers, invest in growth opportunities and deliver sustainable value for shareholders.

With that, we'll open the line for your questions.

[Operator Instructions] Our first question comes from the line of Ryan Nash with Goldman Sachs.

So you guys have been able to buck the trend this quarter. Deposit costs were up just 1 basis point. Maybe just talk about expectations embedded in the 4Q NII guiding ahead. Anil, I know you mentioned they could lag a bit. But looking forward, just how do you think about balancing growing deposit to support the balance sheet and also continuing to maintain a peer leading margin. Maybe just a little bit of color on how you think about incremental funding from here. And I have a follow-up.

Yes. Thank you. So the most important thing to protect the margin is to make sure we continue to grow noninterest-bearing deposits. And so that has been a key focus of ours. That's why we're making the investments we are across our retail network, across the small business platform. We've seen great results so far this year. Small business operating accounts are up over 100 basis points this year. And so continuing to do that. It is day-to-day siding, but that is the key to success. The overall composition of our balance sheet is also what helps us. Having a relatively lower loan-to-deposit ratio is helpful. Having a lower debt footprint is helpful. It allows us to continue to invest in profitable loan growth, while being able to maintain deposit costs flexibility and having the funding needed to fund that growth through time. So continuing to do that, being mindful of putting on good profitable loan growth and continuing to execute growing noninterest-bearing deposits is the key to maintaining that flexibility and that deposit advantage and the NIM advantage going forward.

Ryan, I'd just add, we're obviously not using rate as part of our deposit -- strategy to grow deposits. But we can, if we need to, we have about $16 billion in off-balance sheet investment related deposits that customers are holding either in a suite product basically or with our institutional trust department. So we know that money is -- we can easily attract that back to the bank with higher rates. Separately, on the consumer side, back in 2022, 2023, when rates were rising, and we saw -- because of a very active program that we initiated to grow deposits, we grew CDs by about $7 billion, money market deposits by $4 billion, and we're able to do that at a deposit beta of about 44%. So when rates went up almost 500 basis points over that period of time. So -- we know we can grow deposits if we need to by using rate, and we're actively following our customer activity, but it's not part of our strategy obviously currently.

Got it. And Anil, maybe for a follow-up, just given the move in rates, your capital levels fell below the 9.25% to 9.75% without factoring in Basel III. And I think TC may have dipped a little below 7%. So -- maybe just talk about how you're planning on managing capital over the next few quarters given decent loan growth. Are you factoring Basel III now into expectations? And what time frame would you expect to be back in that sort of targeted range that you guys have been focused on for a period of time here?

Yes. So importantly, under the current capital framework, our capital level is 10.8%. So very robust capital levels. To your point, if we wanted to pro forma for Basel III end game, which we expect to see this year, that would take us to 10%, which is well above our 9.25% to 9.75% range. Also, we generated 50 basis points of capital every quarter. This quarter is a great example. It just really shows the organic capital generation that we have quarter-to-quarter. We'll pay 20 basis points out in the dividend, grow the balance sheet. And so we organically create capital as well. And also when you think about the impact from AOCI, given last quarter's rate moves, through time, we'll see that AOCI burn down, assuming flat rates. And so that's capital that accretes back to our balance sheet through time as well. And so we think we're well positioned given the organic capital we generate, given our overall capital position to continue to make all the investments we want to make and when appropriate, buy back shares through time as well.

Our next question comes from the line of Scott Siefers with TD Cowen.

I think you noted in your prepared remarks that loan demand picked up toward the end of the quarter, I believe, hopefully, I'm not putting words in mouth. We've heard that from a couple of regionals. So I guess questions and follow-ups. What do you think is driving that? And then on the flip side, is there a point where you think higher rates might start to impact demand a little more materially, I guess, on the negative side.

This is John. We have seen nice activity toward the end of the quarter, as you pointed out. Production was up year-over-year about $4 billion. We saw a 60% increase in production. And in addition to that, obviously, line utilization is up year-over-year, though down a little for the quarter. But customers are actively managing their balance sheets, investing in their business and still have a positive point of view or positive view of the economy. And so -- and we'd expect that activity to continue.

One place where we are seeing the impact of interest rates is in the investor real estate portfolio. We see -- while we're seeing growth in multifamily as a result of previous commitments that are funding, the level of new activity is slowing because of rising cost and difficulty to make the economics of those transactions work. So that's something we'll look for in future quarters, have an impact on loan growth. But in general, business sentiment is still good.

Our next question comes from the line of Erika Najarian with UBS.

I noticed that slide that you usually have in terms of where your NIM is on -- against the Fed fund background is in the third quarter side. So as we think about the rate curve and as you think about your confidence in NIB growth optimization and beta. I'm wondering how we should think about the path of the net interest margin from 3.70% exit as we contemplate two to three rate hikes over the next 12 months?

Yes. And we removed that slide given that slide was really focused for the full year. And given we gave you the fourth quarter guide, we just didn't feel that slide was as necessary. But I'll address your question. We'll go too far to give '27 guidance. But we indicated we expect to exit the fourth quarter around the 3.70% margin. So when we look forward into 2027. Some of the structural tailwinds that we have will continue into '27. So fixed asset repricing will continue. We quoted that to be 100 to 125 basis points in the fourth quarter. That will continue into the future at a lower rate as we go through time. It's still a benefit. And then we expect the balance sheet to continue to grow into '27. And so as long as we continue to generate good noninterest-bearing deposits, maintain our deposit beta in the mid- to high 30s as rate increases, that will continue to support expansion in both net interest income and the margin in the '27.

Very clear. And just to follow up on Ryan's question on capital. And congratulations, by the way, on being your new Treasurer. He's great. The -- as we think about rates being higher for longer on the belly of the curve, obviously, you bought back $95 million this quarter. How should we think about your priorities in terms of buyback versus protecting capital. And you mentioned TCE. I'm wondering Moody's has come out with tougher language for your larger bank peers, Bank of America -- there's a release in Bank of America yesterday. How much are they starting to assert themselves if more in terms of the conversation about capital?

Yes. Our conversations about capital with the rating agencies have been positive. We've been very clear with how we think about regulatory capital TCE. So our capital priorities are unchanged. We have strong capital generation. We're mindful of the interest rate environment.

It's just good to remind ourselves. Over the past 10 years, we've seen 11 quarters when the 10-year treasury has increased or decreased more than 50 basis points. And so we saw a big move this quarter, but we need to remind ourselves that large moves can happen. And so that's 1 of the reasons why we're so active in making sure that our hedging program factors that in. So you see on the slide in our appendix the fair value hedges that we put on this quarter to protect capital in a potential rising rate environment. So we'll continue to execute strategies like that to protect capital. But because of that and the capital generation that we have, we still think our capital priorities are unchanged.

With respect to the TCE ratio, I've commented on this before, but the inclusion of cash flow hedges in that calculation, I think, is meaningful for us. That's the core of our franchise values our deposit base. And so being able to maintain that duration and capitalize on that through time through revenue is important for us. And so we will make sure that we make good risk management decisions around that. But the TCE ratio really only reflecting one side of that trade, if you will, we think, is a big disadvantage of that ratio. And so we think the changes to regulatory capital those make sense, and we'll monitor TCE, but the inclusion of cash flow hedges is one that I think I wouldn't want to impact how we risk-manage our balance sheet.

Our next question comes from the line of Ebrahim Poonawala with Bank of America.

Just talk to us about from a deposit growth standpoint, I think, John, you shared some stats in your remarks, I believe earlier. But as we think about deposit growth and bringing in new customers, what seems to -- doing more to sort of deepen the relationship. And similarly, on the consumer side, because all the year is competitive dynamics, a lot of promotions from non -- sort of nonmarket banks in the Southeast. So if you don't mind sharing some color around how should we think about lower cost core deposit growth from here?

Yes. I mean it is our focus, and we dedicated our consumer banking teams to focus on acquiring the new customer checking households and new small business checking households. Our commercial bankers are focused on winning new logos, new middle market business. And that really is our objective. We're using feet on the street to do that, by and large. And we think we're in really great markets. We continue to recruit a lot of wonderful bankers. We are enabling them with a lot of really good technology, provides insights about customers and prospects, and we're focused on execution.

And as a result of that, we're growing consumer checking accounts. We're growing small business checking accounts, and that's really the core of the business, right? So as we deepen those relationships through providing customers with debit cards, with credit cards, with equity lines of credit and nor mortgages, investment products. On the other side, small businesses with treasury management payment capabilities and sometimes credit, those are relationship deepening activities. We think we've talked about growth in treasury management. Penetration rates up over 7%. Again, a focus on helping customers manage the cash flow in their business, manage the cash in their business and also take advantage of emerging new payments products that really help their businesses and help speed up cash flow as assets convert.

So I think our team is doing a really nice job, and we're seeing that in household growth and feel good about what that will mean over time as those customers activate their accounts, use their cards and do other things that result in more deposit balances coming to the bank.

And EB, I'll just add to that. We really understand the nature of our deposit base and our deposit customers. We're very proud of the 30-ish percent of our deposit base that's not interest-bearing. But even that interest-bearing portion, we understand the rate-seeking behavior of that population. We're able to test into that population and grow deposits in a very targeted fashion. This is where being some of the best growth markets in the country works to our advantage because we can do very targeted opportunities and offers to grow deposits in that bucket that we have very well defined and add to our deposit base while still protecting the noninterest-bearing deposit base, as John just alluded to.

The other thing I'd just make a point, we've grown our mass affluent customer base by about 8% year-over-year, and 85% of those customers come from our own customer base. So we're acquiring younger customers. We believe, based upon information provided by industry sources that about 3x the rate that many of our peers are, and we're converting those customers over time to be more mass affluent in nature. And as a result, their balances and their relationships grow. So a really important part of our strategy and I think producing really good results.

That's an interesting stat on the younger customer. So thanks for sharing all that color. One quick question on -- you didn't mention AI, mostly in terms of -- you've heard some of your peers talk about redirecting tech investment towards cyber risk because of AI. Just talk to us how big of a lift is that? And just how all of that is informing your concern around cyber threats, I mean not just to regions, but obviously the entire system?

Yes, absolutely. So investing in cyber defense has always been something very critical for us is even more heightened in today's environment. We are actively participating across many different industry consortiums to ensure that our cyber defense protocols are advancing as this technology evolves. And to your point, it does involve meaningful expense, both new expense and redirection of existing associates, and that's embedded in our cost base. We do expect that to continue through time. It's the new reality that we live in today. So we're definitely front and center with that.

Our CSO is actively involved with her counterparts across the industry, and we have a great team working to make sure that our customers can continue to have the trust in us that we know is incredibly valuable to them. So that is an important investment that we will constantly make to make sure that trust is maintained.

And we're able to monitor in terms of how AI is being used across different platforms, so we can track activity and how it may impact our deposit base. We're seeing very low traffic through that channel. We'll continue to monitor that. We've talked before about why we don't believe that's a meaningful threat to our deposit base but we can monitor that as well. But to your point, it's an important investment, broadly speaking, that we need to make as a company and one that we'll absolutely continue to do.

Our next question comes from the line of Ken Usdin with Autonomous Research.

One question on betas. You mentioned that you still expect that the cumulative betas in this up cycle to be in the mid- to upper 30s. Last cycle, they were higher than that. And then just wondering just what the difference is and if it's what do you tell us about either the mix of deposits or the granularity of the deposit base that gives you that continued confidence that you can kind of keep it in that much better than peer range?

Yes. One point of differentiation is the magnitude of the change before I think drove a higher beta. But in terms of what gives us confidence is really it's that granularity of understanding the nature of our deposit base. So not just thinking about it "in aggregate," but understanding. We have a portion of our customer base that's 100% beta, and we understand and can back test to see how that changes through time. And so by actively monitoring betas across different cohorts, if you will, of our deposit base, and tracking that and seeing the consistency of performance. That's what really gives us confidence in our guide looking forward.

I think too, Ken, just embedded in the numbers where some of the -- maybe some of the data I shared about our growing deposits, intentionally growing deposits, interest-bearing deposits in 2022 and 2023. You might remember that was a period of time when banks were actively seeking deposit growth. There's a lot of pressure on deposits. And so at that time, I mentioned we grew CDs by $7 billion and money market deposits by $4 billion. As a result, the deposit beta was higher at 44%, as I recall.

Yes. To your remixing point, we have, as you'd expect, as rates have moved higher, our kind of starting point today does have some of that remixing already baked into it.

Okay. Got it. And just on the loan book, I think we're just -- from here, is the loan book kind of just all moving to the same direction? Like you've kind of gotten past all those runoff book, I believe, for the most part. And so is it kind of is like business as usual from here and just really depending on the environment and what you're facing in terms of the consumer and commercial sides of the business?

Yes. And I think if you look at loan growth over the quarter, consumer loan growth has been a little bit of a headwind. And since a good bit of our consumer loan growth, consumer loan balances are in the mortgage portfolio, shouldn't expect to see a lot of growth in consumer loans, if any growth over the next quarter or 2, 3, depending upon where rates are.

On the other side, our wholesale business grew significantly. If you look at H8 data, we grew a little faster -- the H8 data in the corporate banking business. So we feel good about the path of loan growth from here. And to your point, it should be business as usual, absent the impact on the consumer business from rates.

And I'll just point, in the quarter, we saw really nice growth in IRE as well, up about 2.4%. As you look towards where rates may go in the future, that will be kind of a governor as to how much growth we see there in terms of what may get to the capital markets if rates level out a little bit. But to John's point, we're really proud of the growth that we're seeing. And when you break it down portfolio by portfolio, we think the comparison to H8 data is kind of reaffirming our belief that we're growing as our markets grow.

Our next question comes from the line of John Pancari with Evercore ISI.

On the security side, I know you had mentioned that you'll continue to review actions to manage your interest rate sensitivity. I know you further repositioned the securities book this quarter, $845 million or so. Can you just talk to us about potential further actions there to adjust your rate conductivity via the securities book and other actions that you've taken as part of that expectation to manage rates?

Yes. So we're going to maintain the discipline that you've seen from us in terms of looking at the return profile of those transactions. And so that $850 million that we executed this quarter, that $15 million, we had about a $2 million -- sorry, a 2-year payback on that. And so we've been consistent. We're thinking about that from a payback of less than 3 years and we'll do that through time.

As rates move around, we're constantly evaluating any opportunities and as securities pull closer to maturity, the lack of liquidity benefit also provides opportunity there. I wouldn't expect to see too much given what we're seeing right now. But given our history, you should expect us to continue to manage that.

Regarding the overall securities portfolio, we feel good about the size and composition of where it sits right now. We'll continue to manage the risk from interest rates, as I mentioned before, through continuing to use fair value swaps on securities to make sure that we're monitoring capital risk. And then we feel good about our mix of HTM right now at about 16%. We'll monitor that through time. But all in all, I feel like we're well positioned in this rate environment.

Okay. Great. And then separately on the credit side, credit trends were particularly solid and improved a bit this quarter. Just given the moving rates and the inflationary concerns and macro volatility out there? Any signs of erosion that you're seeing early signs were flagging? And is it -- I know your ACL ratio bumped down a little bit this quarter. Is it fair to assume that likely stable from here, just given the backdrop? Or do you think you're probably going to see that compress incrementally?

Yes. No, we think stable from here, John, based on what we know. We think the net charge-off range based on the composition of our portfolio is somewhere between 40 and 50 basis points. We're still working on a few large credits that we had identified that problem in those portfolios of interest, how and when they get resolved will impact results and could increase charge-offs modestly in a given quarter. But for the year, we would expect charge-offs within the 40 to 50 basis point range and at the -- likely at the low end of that range. And we think we see stability from here forward. Little weakness in the multifamily business, primarily in Texas, as just as a geography, some softness in absorption rates. But otherwise, and we continue to watch office and transportation given the things that are still impacting those portfolios, but they have improved. And obviously, as you see that in our results, and we would expect, as I said, stability from here.

Yes. And I would just point you maybe to three things as you think about the allowance from here. And as John mentioned, there's a couple of credits that we're still monitoring they're fully reserved for. So if they charge off over time, you should expect us to reduce the allowance by a like amount. Continue to look at the economic environment. Clearly, that's something that could be variable. And so we'll keep our eye on that. And then also just as importantly as the origination profile, we've talked a lot about investment-grade credits since I just mathematically, if that should continue into the future, we don't need to hold as much reserves against those given the better credit risk. So that could play out just in terms of the math as the ratio moves from here.

Our next question comes from the line of David Chiaverini with Jefferies.

I wanted to ask about capital markets and the outlook. You're guiding $90 million to $105 million. I was curious as to your expectation in terms of with the higher rate backdrop the extent to which this could impact your CRE customers. Are you seeing any impact at all thus far?

Well, it has had an impact on the business over the last, call it, 12 to 18 months. So we did have a good quarter in the third quarter across all components of our capital markets business, including the real estate business, we have a couple of transactions that actually could go to the secondary market and on the verge depending on what happens with rates over the next few weeks. And -- so we're guiding to 90 to 105. And we think that's a solid range if those transactions work, maybe it's on the upper end of that range. But today, we would say somewhere between 90 and 105 is where we are in the quarter.

Got it. And then on the expense side and the cloud-based deposit platform. Remind us, is there any change in timing in terms of when you expect that to be completed? And then can you refresh us on your latest thoughts on the M&A front?

Sure. So on the deposit system platform, we'll we get a pilot of associates, friends and family, so to speak, in the next week or two. And assuming that goes well, we'll start a larger pilot in the first quarter of 2027, and our intention is to convert customers over time in 2027, completing sometime towards the end of the second quarter into the third quarter of 2027. And all that is on track at the moment.

In terms of M&A, our position is unchanged. We said, "We're not interested in depository M&A." We have a really good plan. We continue to execute our plan. We can deliver top quartile, top decile results based on return on tangible common equity and a primary metric. And we think that, that's still very achievable. We have this project going on. It is consuming everyone's attention internally likely the largest technology project we've done, we're effectively converting ourselves. So we need to get through that project before we think about M&A. And I would say that when we get through it, we'll have a lot of the conversation about our interest. But today, because I think we'll have some capabilities that will position us well if we wanted to participate. But today, we are not a candidate participate in depository M&A.

Our next question comes from the line of Matt O'Connor with Deutsche Bank.

I was just hoping you could talk about the wealth fees, sorry, if I missed it earlier, but they were down a little bit Q2 up to 5% year-over-year. Obviously, like equities have been strong, but remind us kind of how impacted they are by equity levels versus fixed income and maybe just versus other things that might be in there like annuity sales or just some the moving pieces?

Yes. So I'd break the drivers into two buckets. First, to your point, is just portfolio composition. And so looking at both equities and bonds, I would say it drives around 40% to 50% of the overall performance of the business. But most importantly, production within our financial advisers is what drives the growth as well. And so this is a place where we've really been committed to investing. This business has done very well for us. You've seen us post record quarters in prior quarters. This quarter, we ticked down just a little bit, still seeing good production and expect that to return. But as you think about the drivers of revenue, I'd break it into those buckets.

And see, I'd make the point, just we will end -- likely end the year with a record year in wealth management. So while we had a little softness in the quarter, relatively speaking, it's going to be a really good year for wealth management, and we would expect that trend to continue.

Our next question comes from the line of Ryan Kenny with Morgan Stanley.

So just following up on the conversation around the core deposit system conversion -- have been in the works for a few years now. And just wondering if you could give an update on the timing? And do the capabilities that you're launching needs to evolve given that we now are facing the rise of AI tools and real-time payments? And which specific capabilities do you think will most be able to help you enhance your customer product set?

Yes. So we are on schedule to deliver the platform in 2027. And as I mentioned earlier, we'll start a pilot in the next week or two. And that pilot will gravitate to a much larger set of customers after the first of the year, and we will convert customers in waves over the course of the year, likely completing that toward the end of the second quarter or sometime early in the third quarter based on what we know today. The platform will be a contemporary platform. We think this gives us a lot of capabilities that we don't have today. It's a real-time system. And we think that will be an advantage that we have and something we can bring to our customers will also allow us to bring products, pricing mechanisms to customers that we don't have today. We think we can do -- we'll be able to do that much more quickly. And so we're excited about the capabilities.

With respect to artificial intelligence, again, we think the system is one component of a transformation of our business as we think about how do we make it easier for our bankers and our customers to do business. How do we transform our client onboarding experience, sales enablement, problem resolution. The new system in combination with artificial intelligence and process improvement driven by bankers that know and understand our processes are things that we think will give us a real competitive advantage once the system is in place and we can begin to combine technology, with process improvement and quality bankers.

And then separately on consumer deposits. So it seems like you're not seeing much of an impact from AI -- consumer checking balances. But are you seeing any impact from inflation driving loan...

Yes. No, it's something we monitor very clearly. I'd just remind you have a couple of metrics. So our average customer deposit account balance is right at $5,200. That's a similar number to what I've shared with you before. And the median is still right around $900. And so we have not seen a meaningful shift in that. We talked earlier this year about the benefit of taxes and how that the buffer for higher cost across the board, but really aren't seeing much movement. We track energy cost. And so year-over-year, the impact of higher gasoline prices on our customer is about $24 a month. And so our customers are very resilient, and we see that in their deposit balance.

Our next question comes from the line of Christopher Spahr with Wells Fargo.

First is just a little clarification. So the comments on the higher tech spend in the quarter, is that tied at all to the transformation or the systems upgrade?

That's just investment in cybersecurity. So think about Frontier AI and investments that we're making to ensure we have a trustful platform for our customers. And some of that is just a redirectment of existing spend and then some marginal spend as well. But all that's in the numbers for the quarter.

And then will there -- once you get -- so towards the second half of next year, will there be any kind of relief on the expense side or head count with the -- when you're finally done with the deposit conversion?

I think a couple of things. One, we will move on to a new general ledger platform as well. And so there will be continued investments in tech spend. I won't give you too much guidance into 2027. But look, we think technology investment is something that we will continue to do. There are ample projects that we think can enable our business investment as we compete in markets that we're in today. And so we're very focused on a couple of key projects today. But when we bring those online, there are plenty of other projects that we think technology can bring to bear to help our bankers support our customers day in and day out, and we have some great business cases that we'll be executing upon in years to come.

So I won't go too far in terms of headcount going forward. But I think what you should see is us continuing to invest in capabilities that will enable our bankers to serve our customers.

Okay. I guess what I'm getting out to is, I believe in the past, you've talked about total tech spend being a little elevated above your, what, 10% to 11% range of revenues, if I recall, right?

Yes.

And is that, will that continue beyond the second half and into '28?

I think it will continue for a couple of years, it will start to come down as revenues start to grow.

Our next question comes from the line of Chris McGratty with KBW.

Maybe asking the expense -- putting the deposit conversation and the tech spend together. It feels like there's a path to continued operating leverage beyond 2026. Any pushback to that observation?

Generating positive operating leverage through Tom is a commitment of ours. When you have significant investments like we have right now, the timing of them, as you can imagine, when you start depreciating capital spend and bringing on SaaS related expenses is important just in terms of the math. And so the timing of all that will impact positive operating leverage. We're still committed to delivering it. But as we get closer to giving guidance for 2027, we'll clarify that. But the underlying core of our business, the revenue we generate, the expense discipline is unchanged. Where we have significant projects like this that becomes a bit of a math exercise that we can go through. But the core of our business, our core strategy is unchanged. And as we are closer to '27, we'll update you on our guidance.

Chris, we're committed to delivering positive operating leverage.

Great. Yes, that's right here. Okay. And then, John, the follow-up would be Heron not ready for depositories, but I guess when that date potentially comes, can you just I know it's been a while, but what was kind of the ideal wave you want situation be? Any parameters or guidepost would be great.

I'm sorry, I missed the first part of the question.

-- transaction.

For transaction, M&A. Yes. Okay. Got it. I'm sorry. So I think as we think about depository M&A, if we were interested, we probably will be most focused on creating more density in markets that we're in. We're in a lot of really great markets. And I think we had an opportunity to, again, create more density, build a stronger business in some of the markets we're in where we're not as present, that would certainly be a consideration. I mean, in the end, we have a very good, obviously, low-cost deposit base, very loyal customer base. And I think any acquisition that we might consider if we were interested in depository M&A would have to be one that was complementary. It's certainly not going to be the same as, but will be complementary to the customer base that we currently have in the deposit base we have. That would be our primary focus.

This concludes our question-and-answer session. I would now like to turn the call back over to John Turner for closing comments.

Okay. Well, thank you very much. Again, we're awfully proud of our quarter and the consistent performance we continue to deliver. Appreciate your interest in our company and participating today, and hope you have a great weekend. Thank you.

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

Moving right along, I'm very pleased to have Regions Financial with us. From the company, returning John Turner, Chief Executive Officer, and making his debut at least as CFO, Anil Chadha. So guys, thank you for being with us.

Great to be here having us.

Maybe the best place to start is to just talk to the overall operating environment. It's, kind of, I think, been constructive so far, despite a lot of uncertainties on various topics. We're just talking about rates. And just maybe just tell us what you're hearing, seeing for your commercial customers, consumer customers, what your data is telling you?

I think the operating environment is good. I've been in a number of markets over the last 6 or 8 weeks across our footprint. We operate in 15 states. So Southeast, Texas and the Midwest. And across those markets, customers are investing. Consumers are optimistic in spending. We're seeing credit card spending up 8%, debit card spending up 7%, deposit balances are still really good. And customers are -- they're mindful of all the things that are going on around the world and across the country, but focused on their businesses and their particular balance sheets. And I think it's very constructive.

Maybe just talk to the competitiveness in those markets. One of the things that we've heard, particularly in the Southeast and Texas, where you are is, right? You've had a lot of new banks opening double branches, a lot of bigger banks trying to get bigger. Wells Fargo just talked about how they're outgrowing because of their asset cap coming off. And just maybe talk about the competitive landscape today maybe versus a couple of years ago? And just what Regions is doing to, kind of, differentiate itself, defend itself?

If it weren't for competition, it would be a great business. We are experiencing, I'd say, increased competition, banks coming into our markets that haven't been there. And our focus is just continuing to execute our plan. We know those banks are coming. We know what they do well. We know how they do it generally. We have a lot of data and analytics about our own customers. We're focused on retaining those customers, at the same time, growing new relationships. And that's about recruiting bankers. So we're adding bankers across our footprint. It's about investing in our markets. We're going to build between 130 and 150 branches over the next 3 to 4 years. It's about investing in technology to enable our bankers to better serve their customers and to enable our customers to better serve themselves and have a better experience. And I think we're doing those things. And as a result of that, we are competing very effectively in all the markets we're in.

Many of our markets we've been in for 100 to 150 and some almost 200 years. And so we have a strong brand. We have bankers that are well known. We have a reputation, and we have a very loyal customer base, and we intend to protect that and grow off that base. And I think so far, that's working well.

And I'll just add to that when it comes to the data we have about our customers. We know our customers very well. When we look at the deposit side of our balance sheet, being able to really understand between our noninterest-bearing and interest-bearing deposits, how we expect them to perform through different rate cycles has been a really key benefit for us. And so having a very strong good noninterest-bearing deposit base has paid off for us meaningfully and really understanding what we expect from our interest-bearing deposit base as well, both in terms of how we react to competition, but also how we react to the rate environment, has been how we've been able to protect our deposit costs through some pretty good competition in our markets.

And I guess maybe before we, kind of, delve into some of the financials. On the July call, you kind of -- you guys gave us a good outlook slide and then throughout the slide deck, kind of, a good tidbits in terms of how the quarter is expected to shape up. With 2 weeks to go in the quarter, just maybe any updates to, kind of, some of the guidance for the quarter or the year or just things playing out as expected?

Yes, I think you're playing out as we expect them to. So we continue to see, as John mentioned, good underlying growth in our markets. We had pointed to as we looked at our loan guide and our deposit guide that the pace of loan growth that we saw in the first half of the year, we thought that would moderate a bit in the second half of the year. If you look at the H.8 data and kind of zoom into where we are, that's what you're seeing, and so we're seeing that as well. We had guided to 2% NII increase quarter-over-quarter. That's what we're seeing in terms of what's coming on the balance sheet. And so depending upon where loans go for the balance of the quarter, we feel good about that guide.

When we look at noninterest revenue, expenses, everything is, kind of, coming in as we'd expect. So no updates to our guidance.

Okay. Maybe just if we could anyway unpack some of the drivers, starting with loan growth in the July call, you talked about pipeline is up 15% year-over-year. Line utilization was up almost 100 basis points, I thought, during the quarter. Yes, just maybe talk to, kind of, moderating expectations, but maybe, kind of, go through the key drivers of the portfolio and moderate, but still good growth where you, kind of, see it from here?

Yes. So if you look at our balance sheet, where we saw a lot of good growth the first half of the year was particularly in C&I. And if you zoom back to the first quarter, we saw a nice bit of growth late in the quarter when you saw line draws as Iran conflict picked up. We did not expect that to continue into the second half of the year, which is why we kept our loan guide as is and that's what we're seeing. So seeing just continued good growth in C&I and CRE.

On the consumer side, where we participate, not a lot of growth there. We've pointed out that a lot of our growth has been in investment-grade credits, which has been a deliberate path for us. We like the risk-adjusted returns on that business. We continue to see that in the third quarter. So that's all been positive. And so that's what we've seen, kind of, through the first several months of the quarter in terms of where the loan growth's come from.

Yes. And I'd just add, and these sectors won't surprise you, but energy, financial services, power and utilities, health care and defense related -- defense- and technology-related spending, all areas where we're seeing nice growth within our industry verticals.

I guess one of the things, kind of, being debated is, kind of, just the impact of AI investments, kind of, spilling over into the broader economy. I think people mentioned HVAC and concrete and some of these tangential industries. Just, kind of, given your footprint, are you seeing, kind of, just any opportunities there as that cycle plays?

Yes. I think we have opportunities to support growth in data centers. We have opportunities to bank power utility companies, and we're seeing some of that. Any, kind of, infrastructure-related spending, many of our customers are benefiting from. So I think on the one hand, it's a very positive thing. On the other hand, we want to always consider the connectivity between all that economic growth and understand where we have potential concentration risk. And so we're focused on both the positive aspects of AI and the impact it's having on our local economies, but also what the potential risks are in that, always being mindful of what the impact could be.

Got it. And just on the deposit side, you talked to low single-digit type growth this year. Maybe provide us an update on trends quarter-to-date. A lot of discussion on mix, on rate? And just maybe talk to just how you think about deposit costs in a potential likely rising rate backdrop.

Sure. So just top of company overall deposits, we expect the third quarter typically from a seasonal standpoint, will be, kind of, flattish. That's what we've seen year in and year out, and that's what we'd expect to see this quarter. When you zoom in a level below that, the key for us is to continue to grow noninterest-bearing deposits. And so that's both on the consumer side and on the small business side.

And so quarter-to-date and year-to-date, we've seen really good growth according to third-party data services. We are growing faster than our peers in those 2 metrics, which we really like. It's a deliberate area of investment for us. And so that matters because if we can grow and protect that deposit base, that's a source of good, stable funding for us.

When it comes to interest-bearing deposits, again, we know how they behave. When we look at the balance of the year and see a potential rate hike tomorrow, we still expect, as we guided to, to see flattish interest-bearing deposit cost in the third quarter.

And we assume, given the timing of when rate cuts would happen, we'd expect to see, kind of, a mid-30s beta on those deposit repricing into the second half of the -- into the remaining part of the year. That's, kind of, what we expect in terms of overall deposit cost, so in line with what we had guided to for the third quarter.

Got it. You, kind of, reiterated the 2% NII guide for Q3. I think for the full year, you're talking 2.5% to 4%. Maybe talk to some of the key drivers, kind of, supporting the second half trajectory and just how do we start to begin to think about, kind of, NII as we forecast next year?

Sure. So for the third quarter, we'll pick up an extra day, which will benefit NII. We'll pick up fixed asset repricing. So as a reminder, we have about $3 billion to $4 billion of fixed assets that reprice each quarter. Given where rates have moved this quarter, we've, kind of, guided towards a 75 to 100 basis point range. We're towards the upper end of that range given just where rates are right now. We also have a swap benefit that will benefit this quarter from an NII and margin standpoint. Then the balance really to get to the 2% of loan growth.

And so again, a good start to the quarter. I like the path we're on right now. We'll see, kind of, where that comes in for the full quarter and the mix of it. So I alluded to a good investment-grade originations this quarter. So that comes with slightly lower spreads as we've seen over the balance of the year, but again, a positive from an overall return standpoint.

So that's the third quarter, extending into the fourth quarter especially when you think about the margin, you lose the impact of the day count in the fourth quarter, so that would drive the margin up closer to the 3.70s that we had guided towards. We think that trajectory can extend into 2027. We won't give guidance just yet. But clearly, looking at the pace of rate increases, the reaction to that will be important as we look into 2027. But those are the key drivers of the trajectory for us for the balance of the year.

So I guess to exit the year at 3.70s, you feel good about. So I guess you, kind of, talked that figure down on both the April and July calls. Now it feels like you're in a good spot. Maybe just talk to, kind of, what knocked it down versus, kind of, initial expectations and then how to think about potential expansion from there? And is there a normalized NIM to think about as the Fed hikes a little bit and yield curve gets some steepness back?

Yes. The main reason that we brought that down a bit was, one, what we're putting on the balance sheet being slightly more investment grade than we initially thought. And then also just from a macro standpoint, just continued tightness in credit spreads, started off the year pretty tight. We expected they would relax at some point. But we see it today in the bond market, seeing in the lending market as well, just credit spreads remain quite tight. And so we expect that to persist for the balance of the year. So that was the real driver of bringing down the NIM guide.

Looking out into '27, where those factors play out, that will be an important consideration. Controlling deposit costs, making sure loans and deposits grow in tandem with each other, it will be a critical point for us to drive home. And then also just understanding, kind of, the repricing of fixed assets as you see, kind of, elevated rates. Those will be the key drivers that really set the stage for all ahead in 2027.

Got it. And on the fee side, I think you're talking 3% to 5% growth for the year, although maybe at the lower end of the range. Just maybe talk to, kind of, what's driving that outlook and kind of what businesses you see some opportunities?

Sure. Really strong start to the year, both in Wealth Management and in service charges with treasury management continue to having great quarters. Slow start for capital markets for us, specifically the businesses that we're in, just had a slower start to the year. We had talked about that picking up in second half of the year into that $90 million to $105 million range a quarter, and that's what we're seeing so far in the third quarter.

So we feel good about that. And so we expect that to continue to grow into the second half of the year. Mortgage has just been tougher given where rates are. So that's, kind of, been depressed from our initial expectations given where the 10-year is and the impact on overall mortgage growth. But those are the drivers. And the reason to be on the low end of the range was just looking, kind of, midway through the year where capital markets was and what we thought was reasonable for the balance of the year.

Do you feel good about the range for capital markets despite the fact rates stay elevated?

We do. So clearly, that puts pressure on the real estate business. But in terms of what we see in the pipeline, what's kind of closed already for the quarter, we feel good about the second half of the year.

That's good. On the expense side, I think you've talked to, kind of, 1.5% to 3.5% growth for the year, definitely a positive operating leverage. As you begin planning for next year, just how do you balance, kind of, continued investments back in the franchise versus operating leverage? And I think this year, if you, kind of, pencil out the midpoint of what you said, it's sub-100 basis points of operating leverage. You aspire to do higher than that. Is that the right number? And just how do you think about that?

Sure. So most importantly, we think delivering positive operating leverage through time is critically important. That's, kind of, how our business is set up. That's what we should be delivering. In any one given year, you have to look at, kind of, what your key investment areas are and just, kind of, run the math, if you will. But for us, we talk a lot about our ability to grow our business and the profitability that we generate, we're very interested in investing back in our business and people and technology.

And of course, to do that the right way, it takes upfront cost. And so those are the investments that we're willing to make to grow our business, especially given the markets that we operate in. Now it's incumbent upon us to find ways to fund that growth. So that's something that we focus on day in and day out.

Every once in a while, you get a curve ball thrown at you like Frontier AI, which takes investment, right, for all of us to make sure we're attacking the right way. So we'll, of course, invest in those critical needs, but again, the key thing for us is whether it's going back several years when risk management was a significant source of investment. Today, it's technology, cybersecurity, we'll make all those investments to continue to grow our business in a safe and sound way, and we have to find ways to fund that through time. So delivering positive operating leverage through time is critically important for us to continue to do, and you should expect to see that from us.

I guess you've talked about this deposit systems transformation. We're talking about it for a while. But I feel like we're maybe getting close.

Getting close.

Just update us in terms of what you've done, what's left to do and kind of how this makes Regions a better company?

We've reached the testing phase, and we'll actually begin a pilot next month with 100 or so, kind of, friends and family pilot, which will run through the end of the year, assuming that goes well, we'll begin a customer pilot in the first quarter with 8,000 to 10,000 customers. And assuming that goes well, we'll begin to transition customers onto the new system. So there's no big bank conversion approach, it will be incremental as we go. We're excited about it. We think that once the system is implemented, we obviously have a contemporary cloud-based platform. It will give us the ability to bring products to market more quickly to update our systems much more quickly and easily, which provides better protection, cybersecurity, protections and other things.

We think it's going to make us -- give us the ability to get to market with products much more quickly. It gives better insights because we've been able to organize and cleanse our data in order to transition to the new system, it gives us confidence.

If we decided we want to participate in depository M&A, we will have converted ourselves onto a new system that gives us a lot of flexibility. So there are just a lot of very positive things that come from our conversion. It will have been about 7 years from the planning of this to the end. And we've gotten to the point now where everyone is focused on that critical point just before conversion where everyone is focused on success. And so it's been a significant undertaking, it super complex, but we think we have a good plan, and we'll execute it well and are excited about what it means to the company when we're finished.

Interesting. We'll come back to something you said in a moment. But maybe just talk about AI, certainly been one of the themes of the conference. Maybe talk to just where Regions is seeing the biggest benefit from that maybe at the moment? And just where you see, kind of, some of the greater opportunities looking out?

Yes, for us, where we see the best benefit is when we couple AI with other process improvement opportunities. So AI by itself and trying to get a big bang benefit, it's just not an area we've been focused. Clearly, there's some low-hanging fruit, if you will. We've been developing or deploying GitHub Copilot across our developer community all year long. I want to say we're about 80% deployed across our developers and see about a 30% lift in co-development. So that allows us to not have to add as many developers as we otherwise would have.

Other places where we've deployed it would be an intelligent document processing, or just processing documents. It's how we analyze information for next product offerings for our customers. These are some things that we've been doing for years, but generative AI is allowing us to amplify that. So for us, we're not looking at it as just a singular approach to drive meaningful cost efficiencies but more what can we use AI for to enable our bankers to have more productive conversations with customers to drive business. And for our back office personnel to be able to do their business in more efficient ways.

There's some broader company-wide initiatives that we think we can continue to invest in with better data in terms of how we onboard customers, how we enable our bankers to service customers. There's some big enterprise projects that we think we can deploy through time. But for us, this hasn't been a, kind of, massive AI across all use cases.

We're really taking a step back and saying, how can we use it in a productive way to be more efficient, but not on the singular use case standpoint. And from our perspective, it's helped us, as you think about some of the variable costs that have become more prevalent here of late with cost of tokens and things of that nature by taking a more deliberate approach. We haven't had any types of surprises that you've seen other stuff.

Got it. And then maybe shifting gears to credit quality metrics have been improving for several quarters in now. The environment has certainly been favorable. Just as you, kind of, look at your portfolio, any emerging areas of potential concern? Does the Fed potentially or likely raising rates add things to your portfolio of interest watch list and just how you're thinking about the backdrop there?

Yes. Credit quality has continued to improve quarter-over-quarter. We had several quarters ago, identified a couple we defined as portfolios of interest, office, transportation, particularly being two. And we've worked through a few problems in those portfolios. We've seen the level of criticized and classified loans come down, non-accruals have come down, charge-offs have come down and we expect those trends to continue. So credit quality is improving still. And we don't particularly see any areas of concern do think as rates go up, there will be things to watch. But we've been focused on continuing to work through any areas of our portfolio where we thought we had maybe a little more risk than we were comfortable with, importantly focused on balance and diversity, ensuring that we don't have any concentration risk that we're uncomfortable with.

And as a result, we expect our portfolio to perform very consistently as the economy evolves and feel good about credit quality, very good about credit quality.

Okay. I guess for several years at this conference, you always used to say our CECL reserve level -- or reserve levels are going to go back to CECL Day 1, and they now have. So now we're there. So just how do we think about, kind of, the reserve level from here. Is that the floor? Could it go lower? And just you're growing loans or how does that impact?

Yes. So I think at this point -- to your point, we've gotten back to that Day 1 measurement. From here, you're really going to start looking at the construct of the balance sheet, right? And so back to my earlier comments, when you're growing investment-grade credits, you'd expect everything else equal, the math would push that reserve ratio lower. And so I'd say, really looking at where growth is coming from, we provide some disclosure where we have ACL ratios by product type. I think that can be helpful. But also, we still have some uncertainty embedded in our allowance today.

Clearly, where we're sitting today with the prospective rates, it's probably good to have that in there. So that would be another area where through time, that could increase or decrease. But I really think at this point, you really got to look at where we're growing the balance sheet. To John's point, credit quality remains really strong. And so that's not going to be a big driver. But I think from here, the math will result in ratios based upon what we're putting on the balance sheet.

And so it could go up or down from here. But right now, we feel really good about the levels. And we continue to put on investment-grade credits, you should expect that it could come down.

Got it. And then on capital, on a marked basis, I think you were 9.5% in the second quarter, smack in the middle of 9.25%, 9.75% range you guys have talked about. I guess this quarter, there could be some AOCI pressure. I know share repurchases moderated a bit in the second quarter. You talked about it getting a little bit better in the third. Just how should we think about the overall pace of buyback and capital return.

Yes. I think -- so we'll continue to manage inclusive of AOCI as we have. And so to your point, we're kind of right at 9.4%, 9.5% in the second quarter. We'll generate, call it, 40 to 50 basis points of capital every quarter, pay a dividend, that will take about half of that put in your whatever loan growth we're going to have. And then from there, it's just -- it's share repurchases, given what AOCI does.

And so clearly, this quarter, it's going to stress AOCI given where rates are, but it really just becomes a bit of a math exercise at that point because we generate so much capital every quarter, we don't feel like we need to storehouse capital. And so really, our approach to share repurchases is trying to have as good a forecast as we can for loan growth and the impact of rates, which is incredibly difficult to do. And then we'll fill in with share buybacks when we can do so. We'll manage within that 9.25% to 9.75% range. it's really just, kind of, where rates end up really being the governor there.

And then if we look at the kind of Basel III proposals, I think you get like a 100 basis point potential pickup. How do you just think about that? You don't have it today, you'll likely get it in the future when you do -- if when you do get it, just how do you play with that?

Yes. So I always like to remind everyone the net impact of Basel III Endgame is a negative to us just because we're managing to the AOCI every day. So it will take us from, call it, reported 10.7, probably down to 10.4, 10.5. So a modest negative impact of the proposal overall. But to your point, the RWA benefit pushes you back up there.

Yes. So for us, we'll look at that capital is capital that we can deploy either into our business as we have before or we'll buy back shares with it. Again, we'll understand the right range for us to manage to. We still think the 9.25 to 9.75 range is important. Others will manage their capital through time to levels they feel appropriate, and that will be important for us to consider. But for us, it's a great opportunity to continue to invest in our business, and we'll treat that additional capital that's freed up just like we do today.

As we speak about the uses of capital, John, it wasn't lost on me when you were talking about the deposit systems, how you said it positions you to depository acquisitions. If you want, I guess, do you want to? Clearly, this is a scale business, there's some big players in your market and your company is a product of 2 very, very sizable acquisitions and a bunch of smaller ones. Just how are you thinking about M&A in the backdrop and the regulatory environment that feels very favorable at the moment.

Yes. Today, we're not interested in depository M&A. Our position's unchanged.

But tomorrow?

Tomorrow, either. We get through depository system conversion. We have some more flexibility. We're always thinking about how we're positioned and what's going on in the market, and it's something we are observing, we're considering. But the answer today is no, we don't have interest. It's really for the reasons we've said before, which is we have a plan that says we just execute our plan. We continue to deliver top quartile or top decile results in terms of return on tangible common equity, which is what we've been managing to. And we believe that's really important.

There's a lot of risk of execution associated with M&A, and we think just executing our plan gets us to a very good place. So that's number one. Two, we are very focused on getting this deposit system conversion completed. Our resources are focused there. And so anything that would distract those teams from the work they're doing, I think, brings risk to the company and risk to anyone we were potentially acquiring. So again, our position is unchanged. But we'll consider what's going on in the market. And this time next year, we may have a different conversation, but I don't know that, that will be true. We just have options then that we don't have today, let's say.

I know small deals aren't glamorous, the bolt-on deals that we've been doing before. But when we step back and look at the number of deals that we've done over the past several years, they have diversified our revenue streams. And just going back to capital for a minute, the latest Fed stress test, our PPNR covered charge-offs about 101%. And that's not by accident, it's by adding additional revenue streams.

So in and of themselves, none of these, I know, are glamorous, but it does provide additional revenue diversification for us that allows us to be better positioned to manage capital through different environments. And so we like those. We'll continue to do those. I think they're great uses of capital and allow us to scale in certain parts of our business to much higher levels.

This Frazer Lanier acquisition we did in July, again, a small acquisition, but really a great scale opportunity for our government and institutional banking business. And so we think we can take that business from what it is today in Alabama and scale it across our footprint and provide a real good growth opportunity for us.

I'll just make another point there. If you go back to 2011 come forward, we've given up about $600 million in noninterest revenue. $300 million was to Reg E and the Durbin Amendment interchange and another $300 million to changes in our overdraft NSF policies and practices. At the same time, over that period of time, we've grown noninterest revenue by $600 million. So we've produced about $1.2 billion in growth off of what was about a $2 billion run rate. Over that 15-year period, much of that has come from the investments we've made in things like capital markets and wealth banking in the mortgage business.

So I think there's a lot of power in the non-depository acquisitions that we've made, and we'll continue to make to build -- to add to our business.

These are, I guess, mergers, consolidations, integrations going on within your footprint. You have Huntington-Cadence, Synovus-Pinnacle and there's certainly some others. Maybe just talk to your ability to capitalize on potential disruption of others. I feel some deals aren't going as smoothly as others, just the ability to hire talent, pick up customers.

Well, we ask our bankers every day to stay in front of the customers to know who the other good bankers are in the market. That's just the way we should be doing business. And I think in periods of disruption where there is -- where there are acquisitions, does create periods of disruption, that creates opportunity. If you're out prospecting in your markets, if you're calling on other bankers in your markets, and on a regular basis. So we've been able to add 75 or 80 bankers to our commercial banking teams, our wealth banking teams, our treasury management teams across our footprint. We're adding customers, talked about growth in consumer checking account growth in small business checking accounts.

Some of that is because of the disruption is being created in our markets. But it is the result of just consistently doing our business well. It's not because we're focused on one specific institution or one transaction, it's because there is a little disruption in the market, and we're out trying to take advantage of the opportunities the market provides.

Got it. And you talked about your strong profitability metrics driven by organic growth. I think you think 20% ROTCE in the second quarter. You talked to 16% to 18%, kind of, longer term. I don't know how do you, kind of, think about the current environment in terms of just cyclical benefits versus, kind of, structural changes talked about potential regulatory improvements. Talk about the fee income job you've done there. Just what is, kind of, the right profitability range to think about? And how do you just balance growth versus profitability?

Well, our focus has been soundness first. We want to create a consistently performing resilient, sustainable business with some investors, go back 15-plus years, we might have a reputation for being more volatile in the way that we operate or in the markets that we operate in. And we want to build a business that is the [ antis ] of that. We want to be, again, consistently performing, resilient, sustainable. So that starts with soundness. Then focus on profitability and then growth. There are going to be periods of time when you really can't grow profitably and soundly. And so if you look back on the last number of years, there have been periods when we haven't grown as much as maybe some of our peers. And that's because of our focus on soundness first, profitability second and then growth.

And I think we'll -- that will continue to be our -- the way that we operate. We'll continue to make investments in our business. We think that we can through different periods in the economy, consistently generate that 16% to 18% return on tangible common equity. We had a 20% quarter last quarter. A lot of things came together. Credit quality continues to improve. So I think we're going to be a top quartile performer, and that's going to kind of be the range that we operate in.

I think when you just look at the range, you normalize for different rate environments. And so including AOCI, definitely uses a denominator. So that's just some math pieces of it. But through time, investing in noninterest revenue businesses. So the more we can deepen treasury management customers that adds to profitability. The more we can sell ancillary business to our core lending customers that increases profitability. So all these investments are intentional to help couple with lending to boost profitability when you think through time, I would say just be mindful: one, to John's point, just how good credit is right now, shouldn't always assume that; and then two, the inclusion of AOCI and the return metric does, kind of, boost it a little bit today in terms of what it could be in different rate environments.

Good point. I guess maybe for you, Anil, I guess, Regions had a CFO before you for a very long period of time. You get to come in and replace Dave. Just any areas of financial strategy or capital allocation philosophy where you see an opportunity to evolve, kind of, Regions approach?

Yes. So I joined Regions 15 years ago when David hired me into the bank and been working with Deron the entire period of time. So a lot of the capital management philosophies David and -- architected them, I was behind the scenes, maybe plugging in wires and things of that nature. But I'm fortunate to step into a very well-performing bank. And we've been successful for deliberate reasons. So being thoughtful of how we allocate capital, understanding the returns we get off of that capital, making certain we understand the construct of our balance sheet, the liquidity of our balance sheet, making tough decisions deciding not to invest X what we thought -- or some people thought was excess cash into securities when we knew that was much shorter duration. So it's been a product of making very tough decisions, understanding the nature of our customers, understanding our balance sheet.

And so for me, incredibly blessed to walk into a great situation, a very high-performing bank. But what guide us here isn't going to get us where we want to be. And so making sure we stay disciplined in times like now, when there are opportunities to grow and making sure we stay disciplined to maintaining good profitable growth, sound profitable growth is critically important. And so it's my responsibility to work with 20,000 people every day to make sure we're making the right decisions, not just for today for the bank that we want in 5 years from now. And so blessed to walk in, in a very strong situation. And it's our job to make sure it stays that way.

I guess what would you say is the biggest surprise as you, kind of, step into the new role? I know you've been behind the scenes for many years but here at the forefront?

Well, I was thinking about this and just go back to where we're sitting in January. And we were contemplating a world where the 10-year was going to be below 4% in that last -- in a couple of weeks.

And the week 2 Fed cut.

Exactly, yes. So just think about what's happened this year. First, AI is going to be a great enabler. Next thing AI is going to disintermediate all our deposits. Now AI may kill us all. I mean it's been a very dynamic first 6 to 9 months in the role, but making sure you, kind of, focus on the things you can control surrounding yourself with good people, but there's been a lot of curveballs thrown at us this year when you think about where we're sitting in January, where we're sitting today.

I guess one of the other things we thought at the start of the year was just more bank consolidation. I think we put it out to -- every year, we put out a top 10 list of things going to happen. The only thing you see year-to-date we're wrong on is the lack of bank M&A. And I guess, John, to your point, you're tied up with the deposit conversion to go on or interrupt that, which makes sense. But I guess why do you think there hasn't been just more consolidation. You're a top 30 bank, but there's 4,000 banks more than you at a scale business. This regulatory window is open. What do you think the holdup is?

It felt like initially when the regulatory environment improved that all of a sudden, everyone thought they were a buyer when a lot of people thought they were going to be sellers. And so I don't think there was much interest, frankly, as everyone anticipated. And then there were a couple of our peers who indicated very directly that they wanted to be a acquisitive and they have been. And as you observed, it takes a little while to integrate those acquisitions. And so I anticipate they may be back in the marketplace again. We'll see. But I think there just weren't as many -- as I said, weren't as many sellers as people thought they'd be now as we approach the end of President Trump's term may be people begin to rethink their positioning, but I don't really have any insight into that.

That's fair. Great. On that note, please join me in thanking John and Anil for their time today.

Good morning, and welcome to the Regions Financial Corporation's quarterly earnings call. My name is Chris, and I'll be your operator for today's call. [Operator Instructions]

I will now turn the call over to Tom Speir to begin.

Thank you, Chris. Welcome to Regions Second Quarter 2026 Earnings Call. John and Anil will provide high-level commentary regarding our results. We ask that you review the cautionary statements included in our earnings documents which are available in the Investor Relations section of our website.

These materials contain information regarding the use of non-GAAP measures and reconciliations to the GAAP results as well as forward-looking statements about region's performance. These statements speak only as of today, and we undertake no obligation to update them.

I will now turn the call over to John.

Thank you, Tom, and good morning, everyone. We appreciate you joining our call today. Earlier this morning, we reported earnings of $549 million, resulting in earnings per share of $0.64. On an adjusted basis, earnings were $583 million or $0.68 per share. we delivered adjusted pretax pre-provision income of $831 million and generated an adjusted return on tangible common equity of 20%. Overall, we're pleased with our performance for the second quarter reflecting disciplined execution across the franchise and the benefits of investments we've made to position the company to deliver sound and profitable growth.

As we look across our footprint, we remain encouraged by the overall operating environment. Economic activity is solid, and despite ongoing uncertainty, businesses are generally well positioned, and we continue to see steady levels of investment and job growth across our markets. On the consumer side, spending trends remain healthy. and customers maintain solid account balances and liquidity buffers relative to their spending levels with overall financial conditions remaining stable. This is supporting continued momentum in our core businesses.

Loan growth has strengthened driven by new originations and expansion within existing client relationships as pipelines continue to build. Average deposits grew modestly, including over 1% growth in noninterest-bearing deposits, supported by household and operating account growth. While activity in capital markets and residential mortgage has been impacted by the higher interest rate environment, we continue to see solid performance across our other fee businesses, including another record quarter in wealth management income.

Credit performance has continued to improve with lower net charge-offs in the quarter and reductions across business criticized and nonperforming loan categories reflecting further progress resolving previously identified portfolios of interest. Based on these trends, we believe credit has largely normalized, and we remain committed to our disciplined approach to credit risk management.

Turning to our strategic priorities. We've made meaningful progress this quarter advancing our key initiatives that are central to our long-term strategy. We're proud to once again be recognized by J.D. Power as the #1 regional bank in online banking satisfaction, along with a significant improvement in our mobile app ranking to #2. These results reflect the work we've done to enhance the client experience deliver more intuitive digital capabilities and make banking easier for our customers.

We also reached an important milestone in our core modernization efforts with a successful implementation of our new commercial lending platform. This represents a significant step forward in enhancing our technology infrastructure, improving speed to market and elevating the experience we deliver to our clients, and bankers. We're also making good progress on our core deposit transformation with testing underway in a pilot expected later this year, keeping us on track for full conversion in 2027.

In addition, we're seeing solid results from our strategic investments across each line of business. Within our consumer bank, reskilled small business bankers have helped generate a 7% increase in year-to-date small business checking account production versus 2024 levels, while small business balances contributed just over 30% of the company's quarter-over-quarter growth in average noninterest-bearing deposits.

In Commercial Banking, over the past 18 months, we've added more than 60 bankers, helping drive an almost 40% increase in new commercial logos through the first half of 2026. Within Wealth Management, we have also seen strong momentum with advisers hired over the past 3 years, growing client assets by almost $6 billion.

Finally, subsequent to quarter end, we announced the acquisition of the Frazer Lanier Company, a full-service investment banking firm with strong capabilities in municipal securities. We believe this transaction expands our capital markets platform, enhances our municipal finance expertise and allows us to broaden the solutions we provide to the public sector and institutional clients.

Consistent with our strategy, this is a targeted investment that builds on areas where we've demonstrated strength and positions us to continue growing our Capital Markets business over time. We feel good about our performance for the quarter and believe we're well positioned to continue executing our strategic plan and deliver consistent, sustainable long-term performance.

With that, I'll turn it over to Anil to provide more detail on the quarter.

Thank you, John. Let's start with the balance sheet. Average loans increased approximately 2% during the quarter while ending loans grew 1%. Growth was driven by broad-based commercial and industrial lending categories, including power and utilities, manufacturing, government and public sector and retail trade. While off of a smaller base, investor real estate also generated solid growth, led by multifamily.

This performance was supported by strong production and increased bridge financing for maturing credits. Results reflected both new client and acquisition and expanded relationships with existing customers. Importantly, this growth remained very high quality, with over half consisting of investment-grade credits. While utilization rates continued to improve during the quarter, the majority of growth was driven by new loan production and increased commitments.

As John noted earlier, we continue to be encouraged by the overall operating environment across our footprint. Lending activity continues at a healthy pace and loan pipelines remained strong, up roughly 15% from a year ago and remains diversified across industries, markets and client segments. Consumer loan balances remained relatively stable as new production approximated paydowns, primarily in residential mortgage and home improvement financing. We continue to expect full year average loan growth to be up low single digits versus 2025.

Turning to deposits. Average balances increased modestly, while ending balances declined approximately 1%, reflecting normal seasonal patterns associated with tax refunds and payments. Consumer deposits continued their strong performance as checking balances grew despite healthy underlying consumer spending trends. Our noninterest-bearing deposit mix remained in the low 30% range, consistent with our target and reflective of the operational nature of our deposit base.

We continue to experience a shift of deposits from CDs into money market accounts across both consumer and wealth management segments, driven by our intentional product management strategy. Average deposit balances grew while total deposit costs remain controlled, supported by our strong deposit franchise and focus on customer acquisition and retention. As a result, we continue to expect 2026 average deposits to be up low single digits versus the prior year.

Let's shift to net interest income. Net interest income increased 2% linked quarter driven by multiple factors. As in prior quarters, favorable repricing dynamics and disciplined deposit cost management continued to provide a strong foundation for growth with loan balance expansion further contributing to second quarter momentum. The net interest margin of 3.66% continued to evidence our profitability and deposit funding advantage. During the second quarter, interest-bearing deposit costs fell 3 basis points to 1.69%. We anticipate a largely stable deposit cost over the second half of the year, assuming a constant Fed funds rate.

As expected, over the entire falling rate cycle, the interest-bearing deposit beta has been 37%. To the extent the Fed moves rates, we would expect a similar mid-30s beta, resulting in a neutral interest rate risk position. Low levels of unsecured borrowings will continue to provide future funding flexibility as evidenced this quarter, while helping insulate deposits from potential repricing risk in a higher rate environment. Net interest income also benefited from fixed rate asset turnover with elevated long-term rates supporting pricing on new term loans and securities, along with the securities repositioning transaction executed earlier in the quarter.

At current rate levels, we would expect balance sheet repricing to support margin expansion over multiple years. Third quarter net interest income is expected to increase approximately 2% and progressing toward the middle of our 2.5% to 4% full year outlook. And based on our current expectations for loan growth, we expect our net interest margin to exit the year at approximately 3.7%.

The interest rate environment is highly uncertain with multiple competing forces influencing current and expected levels. Our balance sheet is positioned well for the environment in different short-term rate movements with the ability to benefit from elevated long-term rates. Hedging activity in the quarter was largely focused on extending interest rate protection.

Now let's turn to fee revenue performance for the quarter. Adjusted noninterest income increased 7% on a linked-quarter basis as growth in several core fee categories was partially offset by lower bank gold life insurance and commercial credit fees. Wealth management income increased 6% and delivered another record quarter driven by higher production and favorable market conditions. This business continues to be a consistent contributor to fee revenue growth.

Card and ATM fees increased 8%, driven primarily by seasonally higher transaction volumes. Market value adjustments on employee benefit assets increased $29 million during the quarter. As a reminder, these market value adjustments are largely offset within salaries and benefits expense. Capital markets income excluding CVA, increased modestly compared to the prior quarter as improvements in loan syndications, M&A advisory fees and real estate capital markets were offset by lower commercial swap income.

As John mentioned earlier, higher long-term interest rates have impacted overall capital markets income, however, we continue to expect quarterly revenue to increase within our $90 million to $105 million range, trending towards the lower end of the range in the third quarter and moving higher thereafter. For full year 2026, we continue to expect adjusted noninterest income to grow between 3% and 5% versus 2025. Based on our performance through the first half of the year, we currently expect results to trend toward the lower end of that range.

Let's move on to noninterest expense. Adjusted noninterest expense increased 4% compared to the prior quarter, driven primarily by higher salaries and benefits. Salaries and benefits increased 6% and attributable primarily to higher revenue-based incentives, the impact of a full quarter of merit and expenses offsetting the positive employee benefit asset valuation adjustments. As we continue to invest in the franchise to support long-term growth, we remain focused on maintaining a disciplined approach to expense management. For full year 2026, we continue to expect adjusted noninterest expense to be up between 1.5% and 3.5% and we expect to deliver full year adjusted positive operating leverage.

Regarding asset quality, annualized net charge-offs as a percentage of average loans declined 12 basis points to 42 basis points. Results during the quarter continued to reflect progress on previously identified portfolios of interest that have been reserved for in prior periods. Business services criticized and nonperforming loans both declined during the quarter. with the business services criticized ratio declining 14 basis points to 5.01% and the nonperforming loan ratio declining 4 basis points to 67 basis points.

The allowance for credit losses declined $34 million during the quarter. The reduction was driven primarily by continued resolution of previously reserved for charge-offs, partially offset by reserve builds related to high-quality loan growth. As a result, the allowance for credit losses ratio declined to 1.63%. We continue to expect full year 2026 net charge-offs to be between 40 and 50 basis points.

Let's turn to capital and liquidity. We ended the quarter with an estimated common equity Tier 1 ratio of 10.7%, while executing $59 million in share repurchases and paying $226 million in common dividends during the quarter. Earlier this week, the Board of Directors approved an increase in our quarterly common stock dividend to $0.30 per share, representing a 13% increase from the prior quarter and continuing our strong track record of returning capital to shareholders.

Over the last 10 years, we've increased our dividend at a 16% compound annual growth rate, ranking within the top quartile among our peer set. In addition, we recently received our 2026 supervisory capital stress test results from the Federal Reserve. Regions delivered outstanding performance, generating the highest level of pretax pre-provision net revenue as a percentage of average assets among our defined regional bank peer group, reflecting the strength of our core earnings profile. Importantly, our pre-provision revenue fully offset projected credit losses over the 9-quarter stress horizon with a coverage ratio of 101.4%, the second highest within that same peer group.

As previously communicated by the Federal Reserve our stressed capital buffer will remain at the regulatory floor of 2.5%. Overall, these results reinforce the resilience of our earnings profile, balance sheet and capital position under severely adverse conditions. Likewise, liquidity remains stable and robust with total liquidity sources well above required levels and ample capacity to support future loan growth. Including the impact of AOCI, our CET1 ratio is estimated at approximately 9.5%, which remains within our targeted operating range of 9.25% to 9.75%.

Our capital priorities remain unchanged, and we expect to continue managing capital within this range, providing flexibility to support growth, navigate evolving regulatory requirements and return capital to shareholders. We're pleased with our performance this quarter and believe we are well positioned to continue to deliver strong results.

With that, we'll open the line for your questions.

[Operator Instructions] Our first question comes from the line of Ken Usdin with Autonomous Research.

This is [indiscernible] jumping in for Ken. Could you talk about the operating leverage expectations for this year, just given the first half fee trends or tracking towards the lower end of the guide?

Sure. I'd be glad to. So just to remind everyone of our guide. So for net interest income, we expect to grow that at 2.5% to 4%. Noninterest revenue 3% to 5%, and we're pointing to the low end of the range. And then for noninterest expense, 1.5% to 3.5%. So if you put all that together, that will generate pretty positive operating leverage.

When you think about the math in terms of where we are midyear versus where we expect to perform in the second half of the year, I would look at the year-over-year comparables. There are some kind of relatively unfavorable comparables, if you will, just from a pure math standpoint in the first half of the year. But we're confident as we look in the second half of the year, particularly when it comes to revenue and our expectations for where we expect to grow revenue that we'll be able to deliver positive operating leverage as we continue to focus on good expense management as we believe we have for the first half of the year.

Okay. Great. And in terms of loan growth, what are you seeing out there? Just talk us through the dynamics in terms of demand from clients? And also just talk through the loan spread commentary or trends that you've been seeing?

Just maybe I'll comment broadly about the environment. It's constructive, very good. We feel like businesses are well positioned, and there is broad-based demand across industry sectors and across the geographies we bank. We're seeing continued growth in pipelines. And again, that is generally across the business, about 100 basis point increase in line utilization over the quarter, which again, reflects, I think, ongoing investment.

There's good job growth. Consumers feel confident as well. Their deposit balances have remained consistent with historic levels. Spending is up. And so I'd say, generally, we feel good about the prospects for continued loan growth and our ability to meet our targets for the year.

Do you want to comment on spread?

Sure, glad to. And just for the quarter, our loan yields were down 1 basis point. That's an improvement over what we saw in the first quarter. So if we really break it into 2 buckets. About half of our loan growth this quarter was an investment-grade credits. So as you'd expect, those have tighter spreads reflecting the better credit quality of those credits. The other half was in good middle market lending, where we're getting good returns on the spreads we're seeing in that business.

I'd say broadly speaking, the market is competitive, but our competition is remaining rational. We're staying disciplined to good returns on what we're putting on our balance sheet. But we did talk a bit about tightening credit spreads last quarter. We saw that this quarter to a lesser degree, and you see that in our loan yields being relatively flat quarter-over-quarter.

Our next question comes from the line of Ryan Nash with Goldman Sachs.

Anil, you noted that fixed rate asset repricing should support the margin over multiple years. I know the bank historically talked about a 3.60% to 3.90% NIM over time. I guess based on the current environment, where do you see the margin going over the medium term? And what are the key drivers of that in this rate environment? And I have a follow-up.

Sure. Yes. So we exited the quarter with a 3.66% margin down a basis point. When we look out to the third quarter, we expect to be flat to slightly up. And so the key drivers there is we'll have, as you mentioned, fixed asset turnover again. So just to remind everyone, we have about $3 billion. We expect to receive 75 to 100 basis points of a pickup in that repricing. We also have a hedge rate increase of about 7 basis points. You can see that on Slide 16 of our presentation. So that will benefit the margin.

Then we have 1 additional day in the quarter, which will impact the margin in the third quarter. And from there, we expect to continue to grow into the fourth quarter, we'll see another bit of fixed rate turnover in the fourth quarter. And just a reminder, we also have a dividend on our HR assets that will occur in the fourth quarter as well. That'll get us to the $370 million -- approximately 3.70% that we guided to. The pace of loan growth will be dependent in terms of where we ultimately exit the quarter, but we're confident in getting to that 3.70% level as we exit the year.

Got you. And I guess maybe as a follow-up, Anil, so the buyback slowed a bit this quarter. I know that you were in the lower part of the range. You may have used this quarter to catch up a little bit and you also had the restructuring. But as you look forward, based on John's comments before regarding loan growth, what are your expectations for buyback from here? Can we see it move back to the higher levels where you had been operating at.

Yes, you alluded to it. So we exited last quarter with a common equity Tier 1 inclusive of AOCI of 9.4%. That increased about 10 basis points. That's call it $125 million of share repurchases just there. So each quarter, we'll generate between 45 to 50 basis points of capital. Dividend will be -- it was 18 basis points this quarter based upon our new Board approved dividend that will tick up a bit to 20 basis points.

To your point, we'll always focus on growing good quality loans. We saw nice growth this quarter, and we expect to see that into the future. But given where we are at 9.5% in terms of the Basel III common equity 1 ratio, we would expect share buybacks in the third quarter to pick up a bit given we're kind of at the midpoint of our range.

Our next question comes from the line of John Pancari with Evercore ISI.

On the -- I appreciate the color on the loan spreads. On the deposit pricing side, maybe if you could just give us an update on what you're seeing there. We're hearing quite a bit about the competitive environment, particularly in the Southeast and particularly coming from banks expanding more actively in the Southeast. So I want to get what you're seeing there on the ground in terms of pricing pressure.

Sure. I'd remind you that this competitive pressure has existed for 12 to 18 months. So what we're seeing today is much of what we've seen historically. We're very proud of how we've defended our deposit base and our deposit costs. As expected, our interest-bearing deposit cost declined 3 basis points to 1.69%. We had the benefit of about $5 billion of CD maturities this quarter. In the second quarter, we were able to pick up about 30 basis points on those.

Going forward, based upon our performance, we expect deposit costs to stay approximately where they are now. We do have continuing CD maturities, but where we're putting those back on is at an equivalent rate. But this is a place where we're really proud of our overall performance. And this is not something that we just accidentally have. This is a phenomenal asset that we have, which is our deposit base. We spent a lot of time making sure that we're making the right investments in terms of having the right products and services for our customers, having great branch locations for them to come into having great bankers to deliver those products and services.

And importantly, we spend a lot of time investing in great data and analytics to really make sure we understand the nature of our deposit base, how we expect them to perform and that gives us confidence both to take risk management strategies around that also to be confident in our guidance to you all in terms of how we expect deposit costs to perform over time. And so this is something that we have a great deal of confidence in. And it's something as we look forward, we're confident that we'll be able to deliver the deposit cost that we've guided you all towards because of the investments we've made and how well we understand the nature of our deposit base.

Great. Okay. And then secondly, just on the credit backdrop, I wanted to see if you're seeing any signs of incremental stress. I know in the past few quarters, you've been working through. Some of the portfolios of interest and you took a few bumps on charge-offs as you work some things out, but you saw good improvement in your losses this quarter. So any newer developments, any update there or incremental work out that you're working on at this point?

Yes. John, thanks for the question. Obviously, credit has continued to improve, and we would say normalize as we've seen nonperforming loans continue to come down, level criticized loans coming down. The business office portfolio is down 35% year-over-year, trucking down 25% year-over-year and communication is an area where we've had some challenges down 50% year-over-year. That's about $1.3 billion in outstandings in those 3 portfolios of interest that have exited the bank, and that certainly has helped as we think about credit quality.

And those portfolios are continuing to improve. We are seeing a little softness in multifamily in a couple of markets we're following but nothing to be particularly concerned of. And I'd say otherwise, we feel really good about the credit and the positioning of our portfolio and expect it to perform in a normal sort of way as the next few quarters develop.

And just related to -- if I could ask one more. On the reserve front, you released about 6 basis points on the reserve ratio this quarter. How should we think about the outlook from here?

Yes. I think we've been talking about getting back to an equivalent CECL day 1, which today is basically -- it's [ 162 ], so pretty much where we're at now. As you look forward, there's a couple of things that we'll keep our eye on. There is still some uncertainty in the market right now. And so as you'd expect, we are keeping some reserves back just for that. We'll continue to monitor credit performance. We had a great quarter this year. We're expecting that to continue into the future.

We talked a lot about the originations that we're putting on our balance sheet, about half of them being investment grade. And so we'll continue to track that. But right now, we think the [ 163% ] coverage ratio that we have right now is indicative of where we'd expect to be absent new information over the next several quarters. We'll continue to monitor both the macroeconomic uncertainties that are still out there also our overall credit trends as we go through time.

Our next question comes from the line of Manan Gosalia with Morgan Stanley.

So it looks like you saw some nice consumer deposit growth in the quarter. Corporate deposits were down slightly. Is that just seasonality? Or are you seeing some element of corporates investing in their own business, spending more of their own cash which is when I look at the loan side as well, right? Like the utilization, it is up quite nicely.

A little bit of both. I'd say predominantly seasonality, but we are seeing customers use some of their excess cash balances. And similarly, to your point, we're also seeing customers use their lines of credit a little more than they have been with line utilization up 100 basis points, which is positive.

Is the trend you expect to continue?

Say that again?

That's a trend you expect will continue to...

Yes, it is.

Got it. Okay. And then if I look at Slide 6 and I look at the range around the NII assumption. On the lower end, am I reading it right? I guess all of this happens, the tenure goes below 4% asset spread size and loan and deposit balances decline, et cetera, you would still get to that low end of the NII guide.

Yes, you're reading that correctly.

Our next question comes from the line of Dave Rochester with Cantor Fitzgerald.

Just back on loan growth, it looks like even if average loans are flat in 3Q and 4Q on a quarter-over-quarter basis that you landed in the middle of that average loan growth guide range for the low single digits. So just if we can just talk about maybe your outlook for the back half of the year, with pipeline is stronger now, are you thinking that, that back half could actually exceed growth in the first half? How are you thinking about that?

We had really good loan growth in the first quarter. Good growth in the second quarter as well, but really started off strong, as we talked about before, some of that withdrawals that we saw late in the quarter. So we'd be cautious to extend too much of that into the second half of the year. I think what we delivered this quarter, we feel good about in terms of closer to being a run rate. But I wouldn't just extrapolate out what we've seen in the first half has potentially occurring in the second half, given we did see some higher draws in the first quarter that may not occur as we go into the second half of the year.

Okay. And then just given the reduction in the more problematic portfolios that you just talked about earlier, despite the softness that you mentioned in multifamily, as you look ahead beyond some maybe incremental improvement you could see in the back half of this year, are you thinking that maybe that net charge-off range could step down to something that's more of a sub-40 basis points level, assuming the economy remains resilient.

We're continuing to debate and talk about that just based upon the composition of our portfolio, which has changed a little over the last 12 to 24 months or so. Today, we're still guiding to 40 to 50 basis points. And as we begin thinking about 2027, we'll contemplate whether or not that range changes looking forward.

And I think we have to take a look at across all the portfolios and look at where more normalized charge-offs could be. We continue to benefit on the consumer side for near recoveries on the real estate side. So being thoughtful in terms of how long does that continue into the future will also impact how we think about our guidance going forward.

Sounds good. Any steps you're taking on the multifamily front?

Just continuing to watch that. I'd say there's just a couple of discrete markets where we see absorption rates being a little slower than we might have expected and/or rising interest rates potentially impacting the refinanceability of some of those projects. So -- into the permanent market. So just watching that, nothing to be particularly concerned about today.

Our next question comes from the line of Erika Najarian with UBS.

Just wanted to double-click on sort of the funding strategy from here, if lending growth continues at a pretty solid pace for the rest of the year, Anil take us through the trade-off in terms of how you're thinking about maybe using some short-term borrowings, FHLB advances as funding versus you mentioned that deposit costs you'd like for it to stay where they are now. So take us through sort of the thought process in terms of defending our core deposit cost base versus looking at other avenues to fund loan growth if we don't see deposit growth materialize in the second half of the year.

Sure. So first and foremost, over the long term, it is our strategy to ensure that loans and deposits grow at a similar rate. Now to your point, at any 1 given period of time, you could see that loans grew faster than deposits. The key for us is to continue to make sure we're investing in the right products and services and bankers to grow our operating accounts for small business and core consumer checking accounts. We saw nice growth this quarter in that. You saw noninterest-bearing account balances for us, grow about $500 million on average. And so we'll continue to make those investments to make sure we have that pace of growth continue into the future. That's the key to our profitability advantage and we'll continue to do that.

Now to your point, you'll have periods of time where you may have opportunities to grow loans faster than deposits. So yes, we will utilize FHLB advances to fill that gap in a short-term basis. We'll do what you saw us do this quarter was issued $1.5 billion of unsecured debt, very good pricing, treasuries plus $68 million. So we'll do that from time to time as well when we have opportunities to fill gaps. But that will be our strategy going forward. But make no mistake, our long-term strategy is still to make sure we're growing deposits commensurate with loans.

Got it. And in terms of just on deposit pricing again, obviously, you have -- have always had an enviable deposit base, how should we think about pricing and betas if we do get that rate hike? And going back to the earlier question, as you talked about this more intense competitive dynamic in deposits over the past 12 to 18 months, like has it been on promo pricing? Has it been on sort of cash incentive to open DDA accounts elsewhere. Maybe talk us through sort of what you have been up against over the past 12 to 18 months.

Yes. Over the past 12 to 18 months, we've consistently seen competitors issue promotional pricing in markets where they're looking to grow. That has been consistent. I'd say what we've seen over the past, call it, 6 months is that pricing has not dramatically changed as you've seen the outlook for rates change. And so I've talked about this before, all banks are trying to manage -- thread this needle in terms of growing deposits but also protecting their deposit costs because they're trying to drive profitability. So that's been unchanged in the market. we continue to benefit from -- and historically, our ability to reprice our CD portfolio.

Going forward, our ability to manage the mix of our deposit base is the key advantage for us. I just talked about being able to grow noninterest-bearing deposits it's being patient in terms of being able to meet short-term funding needs with alternative funding sources, having a 76% loan-to-deposit ratio is a huge advantage that we have over our peers. So these are advantages that we can pull upon to not feel the pressure to have to use rate to grow funding as others may have to do.

Got it. I'll follow up offline on the 25 basis points.

Yes, on beta, we expect our guidance, and we expect to maintain a mid-30s beta, should the Fed increase, we still expect that to hold.

Our next question comes from the line of Gerard Cassidy with RBC Capital Markets.

John, you touched upon the deposit system conversion expected in 2027. A two-part question. Is it the beginning of 2017, do you convert all the deposits onto the new system or the middle end of the year? And then the second question is, what kind of capacity and when you convert everything over, what kind of growth capacity do you have with this new system? Could you deposits 50% before you have to do another systems or add capacity or something like that?

Yes. Great question. So Gerard, we will begin a pilot family and friends, so to speak, sometime in September or October with the idea that we would begin to convert some discrete section of customers likely in the first quarter of 2027. This will not be a big bang type conversion. So we have the ability to migrate customers to the new system over time. And it's our expectation that we will do that in 2027 and be complete midyear to sometime in the third quarter of 2027.

Once it is complete, and we'll have a contemporary platform, we think it gives us a lot of capabilities, the ability to bring products to the market much faster, provide a much better customer experience to keep our systems updated and current, much more easily because of the API layers that we will depend on. And generally, because it's a cloud-based platform. And then generally, we -- in terms of capacity, we think we have tremendous capacity. I can't tell you how much of that will be, but we think it will give us quite an advantage in terms of our ability to grow on that system with partners that we have.

Very good. Those fire trucks in the background, your building's not on fire.

No, it's not.

Because I heard John pause there for a minute. Okay. And then as a follow-up question, you guys have always -- and you did it again this quarter, give us good color on the portfolios that may have weaknesses in transportation, for example, the commercial real estate office, which, of course, now are on the mend. So my question is, when you guys look out into the future, one of the areas that I'm wondering about is the success that the AI industry has had on this country's economy, which has been very powerful and the boom is incredible.

But we know as in past periods, like the dot-com period, where we had all those fiber cables built, eventually, it was a bust. And I'm not suggesting AI is going to be a bust. But how do you guys do the second derivative analysis? Because I know you're not financing for the most part, the data center construction. But your customers that might be connected to this ecosystem. How do you keep an eye on that? So that 2 years from now, it's the portfolio that everybody has kind of watch out for?

Yes. I think we're trying to have discussions on a routine basis just in terms of understanding what's in our portfolio, what the connectivity is and doing some just different kinds of analysis stressed analysis to say if this particular sector has some weakness, how does that affect us? what companies, what industries are connected, what interconnectedness is there here that we need to be concerned about. Part of that is, I think, fundamentally, just embedded in our concentration risk management analysis and the conversations that we have about that generally. But as we think about portfolio, we think about credit risk, we're having ongoing conversations about the connectedness of exposure, interconnectedness of exposure throughout that sector.

I think we add to that, we bring our discipline of being cautious as to how quickly we would grow anything until we get all those learnings back. And so soundness, profitability and growth in that order matters, especially when you're thinking about industries like this, where there could be change. And so we don't want to get too far ahead of ourselves and growing ahead of that as we gather this data that John was alluding to.

Very good. And then just a real quick one, John. You mentioned about the multifamily market a couple of bespoke markets that you're deepen an eye on. Can you -- is that Charlotte or is the Nashville, what's...

In Texas.

Our next question comes from the line of Matt O'Connor with Deutsche Bank.

Was hoping to dig into some of the traditional banking fees. Slide 7, you split out the consumer and corporate service charges, both growing really nice year-over-year. And I guess I'm wondering, I think the corporate stuff is the treasury management investments you've made, but maybe comment on how sustainable that is? And then on the consumer side, I think a big chunk is overdraft. So I guess I always wonder, is that like good or bad when overdraft has become so much.

Yes. Maybe I'll speak to initially to your question about treasury management in general. We've improved our penetration rate in terms of the number of customers, percentage of customers to whom we're delivering treasury management products. It's grown from 57% to over 66% over the last 5 years or so. It's really been a focus of ours. We've improved our product offering. We've improved our sales capabilities and is generally how we think about making recommendations to customers to meet their specific needs. That has created a lot of momentum in treasury management, and I would expect that to continue.

Similarly, the wealth business, we reached another record in terms of the amount of revenue we're generating. And that's based on investments in talent. It's based on expansion of our capabilities just generally a good working relationship across our businesses. So we're ensuring that we're making appropriate referrals and helping customers meet their needs. Again, I think that business will continue to grow and it's one that we feel really good about from that standpoint.

On the consumer side, we're growing consumer checking accounts, and we're seeing increased consumer activity. So I mentioned debit spending, credit spending, on a transaction basis, up 8% on a dollar of transaction or amount of spend up 8%. So we're seeing good activity across the consumer book. Overdraft fees were up modestly this quarter, I guess, and that would be somewhat seasonal. And -- so I think -- well, go ahead.

Yes. No, we also look at that in particular on a very granular basis. So we look across different cohorts so we understand the drivers of the increase. Because to your point, it can be a leading indicator of risk, if not monitored appropriately. So we look across each cohort to see how it's performing. We also look how it tracks into any potential charge-off risk. We're not seeing that yet.

So what we're seeing now is that consumers to make -- continue to make themselves available to that service that we provide for them. But as of what we're seeing now, they're curing that, and so we're not seeing much role to charge. But to your point, it's something that we monitor as a potential early sign, but we don't see any issues of that just yet.

Okay. That's helpful. And then within Capital Markets, how big is this [ Mini deal ] in terms of revenue impact? Or is it just kind of a rounding error? And then just kind of long-term ambitions to call it, both grow capital markets and maybe diversify it a little bit in some of the businesses.

Yes. Initially, it will have a modest impact. Longer term, I think we'll have a meaningful impact on our ability to meet customer needs in particular. And we'll be another catalyst to help us grow the capital markets business. It was a very targeted acquisition. We have a really good government and institutional banking business, generating deposits and making direct loans.

What we didn't have was the capability to offer municipal underwriting and securities products. And so this will allow us to do that, and again, specifically meet some needs that we were otherwise unable to meet since the sale of Morgan Keegan back in 2012. So it complements a business. It's really a good one for us. And I think over time, we'll make a reasonable contribution to additional earnings.

And then just interest in kind of further expanding this business over time and also kind of diversifying into areas that you're underway.

Yes. I mean we have a stated objective to continue to grow the percentage of noninterest revenue as a percentage of total. And one of the ways we do that is to invest in expanding our capital markets capabilities and business. If you go back to 2014, it was a $60 million to $70 million business, and we should end the year somewhere between $360 million and $380 million, I think, and we hope to be a $400 million business over time. We said it ought to be a $80 million to $100 million kind of business. every quarter. And so we'll continue to make investments to ensure that we grow and diversify our revenue and that we increase the percentage of noninterest revenue as a percent of total.

Our next question comes from the line of Christopher Spahr with Wells Fargo.

I just like to follow up on the capital markets question. Just you bought Clearsight in 2021, and you had a little bit of a bump in revenue. But really, revenues really haven't grown much on a core basis over the last 4 or 5 years, and we're having record capital markets this year. So what do you think you need to do? If your stated goal or you said in the past to be an industry-leading bundle market investment bank, what do you need to do in between and also, you've also done some lift-outs and tactical hire. So is it just a mix? Is it just a amount of execution? Just like what is going to help drive that fee line?

Well, I would -- it has grown. Again, since 2014 from $60 million to $70 million to levels that we've reached today. We have not increased revenue much over the last 2 years, and some of that's just been a function of the interest rate environment that we are operating in. M&A activity is up 1 quarter. Next quarter, we see our real estate capital markets activity up and M&A down.

So I think we've sort of reached a place where -- it's time to begin to move to the next level. We think the investments we've made in talent will help us do that. I believe that over time, we continue to work with our customers to develop the opportunities that we think exist to meet some of their needs, we'll see more growth in capital markets. But in general, we're very happy with the investments that we've made and the role that Capital Markets plays in helping us deepen relationships and grow and diversify our revenue.

Okay. Great. And my follow-up is on [ Wealth ] actually has grown really well, at least in prior years. So just most of your disclosures have been mostly on the deposit side. Like what are the underlying assets under management, net new assets that you're acquiring? Like what is driving that fee line?

Yes, we've made the point in our maybe earlier comments over the last 3 years, the wealth bankers that we've added have themselves generated over $6 billion in new assets under management. And we're seeing growth in across the wealth platform, whether it be in our retail brokerage business or in our private banking business, our institutional wealth business. All of those are growing, and that's really a function, I think, of both good activity in the market, but more acquisition of customers and customer assets, which are driving increases in fees.

And can you put that $6 billion into context, like on the base of what.

Hunt $60 billion, yes.

Our next question comes from the line of Chris McGratty with KBW.

Getting back to the buyback question, the importance of the rating agencies and the TCE ratio is getting a little bit more airtime. I guess, how does that affect how you're thinking about buybacks not only near term but also with follower.

Yes, it will impact us over the long term. So first, we'll wait to see for the final Basel III rule to come into effect. Just to remind everyone kind of on a fully phased-in Basel III end game, we expect to be probably around 10.5% based on current capital levels. To your point, we are having discussions with the rating agencies around how they will think about this through their lens. As of right now, we're still holding to our guide of [ $9.25 to $9.75 ] we'll evaluate that once we kind of get better clarity from them. But the opportunity ahead of us is still there. Where we ultimately land is still subject to further conversation. But we still have an incredible opportunity to deploy capital back into our business and look forward to doing that once we get the final rule.

Okay. And then secondarily, does the commentary before related to the pilot and the conversion and the timing in the middle of next year, does that at all influence or change prior comments about inorganic focus for the placebo future?

No. I mean I think we're still -- I would say we're not interested in depository M&A. That as an issue or a topic we continue to visit. But I think you can expect us to stay focused on deposit conversion that we have right now, it is super important to us. It's a complex project. One that's going very well. We have a lot of optimism about our ability to execute it, and that's where we'll primarily be focused that just the execution of our business, which I think we're doing really well.

Okay. And then just last, if I could, on the preferred. Could you just help us with any back half expectations for dividend.

Yes. As of right now, it kind of goes hand-in-hand with common equity Tier 1. So when we're managing the higher levels of common equity Tier 1, then we may ultimately need won't feel the need to kind of pre-issue any preferred ahead of them. And so I'd say we're going to wait and see where the rating agency conversation lands that will determine kind of first part of the capital stack. If we feel like we want to add preferred through [indiscernible], we'll do that, but we don't build the need to do anything in the near term based on what we're hearing right now.

Our final question comes from the line of Vivek Juneja with JPMorgan.

Just a follow-up on the earlier question on deposit betas, your CD cost, do you have room to bring those down further? You seem to have brought it down. What are the maturities you have there? I'm trying to understand this your ability to be able to keep betas at mid-30s.

Yes, we're confident being able to keep betas in the mid-30s. When we look at the upcoming CD maturities that is declining to about $3 billion a quarter. we think will basically bring on the repriced CDs about at an equal cost. So that's what gives us confidence in our guide that we think the overall deposit pricing will be flattish from here.

So you're able to keep that at current rates, even with all the promo pricing. And is that more in your metropolitan markets? Or is it in the rural areas, given the competition from newcomers. And also the online company...

The first, I would really kind of more target the discussion around where we're doing any type of promotional because we're in all these markets, we don't have to do broad promotional pricing to try to enter the market. We're already there. So going back to my earlier comments on understanding our customers, understanding how they behave. We're able to bring all this information together to be incredibly targeted with any customers that we want to do promotional pricing to.

We don't have to do it on a broad scale. So we do it in a very targeted way for particular customers that we feel like we may want and need to do that. But for us, it's not a meaningful headwind in terms of deposit cost because one, we don't need it from a funding standpoint Two, we're already in these markets. And so three, we can be very focused in terms of where we want to deploy that.

Okay. And you said you don't lead [indiscernible] to funding despite loan growth doing a little bit better.

Yes. Look, our long term, we're not going to fund loan growth with high-cost promotional deposits. If we have loan growth that exceeds deposit costs in any one given period, we'll look to other funding sources that we have available to us, our debt footprint is roughly half of the peer average. So we'll pull on those things first. We'll continue to invest in growing our noninterest-bearing and low-cost deposits to ultimately catch up. But our business model is not built around using high-cost deposits as a funding source.

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

Okay. Well, thank you, everyone. We appreciate your interest in Regions and your interaction with us today. Have a great weekend.

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

Okay. Up next, we have Regions Financial, and I'm delighted to have with us today John Turner, Chairman, President and CEO; Anil Chadha, CFO of Regions Financial. Thanks so much for joining us.

Thank you for having us.

Okay. So I've been starting a lot of these conversations with an update on the environment. What are you guys seeing in your Southeastern footprint? Are you seeing any impact maybe on the negative side or on the positive side as we think about higher energy prices here.

So you're aware, I guess we operate in 15 states, but the bulk of our business is in 7 Southeastern states and Texas and 90-plus of our deposits. As I've gotten across our markets, talking to customers, the topic of oil prices and the war really doesn't come up unless I bring it up. I think businesses generally are well positioned. Their balance sheets are strong. They have good liquidity. And they've been through so much over the last 5, 6 years with just uncertainty changes, dealing with COVID and the things that followed that, that most of them are just focused on how they operate their business and operate it well.

So I'd characterize businesses is positive. They're making investments. we're seeing job growth either through new job announcements, new investments or extensions of existing projects and things. Unemployment rates are fairly low in our markets. the consumer is very healthy. We see consumers -- consumer spending transaction, debit transaction is up about 4%. Dollar value spend up 6% on credit cards, up 6 transactions and spend up about 8%. So customers -- consumers are spending, they feel confident. And generally, I'd say the economy is good.

And that translates well in the corporate and small business side as well?

It does. Yes, it does. We're seeing good stability across the wholesale sector generally.

And I think that feeds nicely in the loan growth. We've seen a clear positive inflection on loan growth over the last couple of quarters. You had some noncore runoff previously that's now largely behind you. Talk about where you're seeing the strongest growth on the commercial side right now?

So we had nice growth in the first quarter, and it was split between -- about half of it was increases in line utilization. The other half was new originations to support capital investments of different kinds. It also was bifurcated, about half between our middle market commercial banking business and half between -- in our corporate banking group, some of our specialized industries functions.

So specifically, we saw a growth in the energy sector, power and utilities, health care, our asset-based lending business, our REIT business, all demonstrated nice growth during the quarter.

And as we think about what's been happening since the end of last quarter as you think about the line utilization on the middle market side and the corporate side. Is that continued? Has that held up?

Line utilization is stable and pipelines continue to grow. And so I'd say, yes, the momentum is holding up.

Okay. That's it. And the other side of that is, increasingly, we're hearing anecdotes of maybe loan spread tightening in geographies. Are you seeing any of that? Is there any risk of any of that right now?

Yes. We saw some loan spread tightening in the first quarter. I'd say, one, it's been broad across the markets. We've seen it in credit markets broadly. We also, within our portfolio, have had some mix shifts as well, which has contributed to lower loan yields. It's better credit quality but lower yields as a result. But credit spreads being tight, has been kind of a theme throughout this year.

We actually took advantage on that and capitalize when issuing some unsecured debt over the past couple of weeks, which helps us from an overall funding standpoint. We think credit spreads will remain tight probably for the next few months, but maybe in the latter part of the year, you'll see some relief on that.

So tighter credit spreads, but I guess, better credit risk-adjusted return are the same.

Profitability looks good.

Got it. Okay. And one of the other areas is as loan spreads tighten, maybe a little bit of that is competition. You're seeing some competition on the deposit side as well across the industry. How are you thinking about -- especially as you're in the Southeast, it's a highly competitive market. It's a highly sought after market as well. How are you thinking about defending and even maybe growing market share in that region?

Well, first of all, we enjoy the benefit of good liquidity. So we're operating at about a 74% loan-to-deposit ratio today. Our customer base is generally a mass market customer. If you kind of bifurcate our deposits between the wholesale bank. Our commercial banking business built around primarily middle market companies that we've been doing business with for a long time in markets that we know well, 67% of our commercial banking relationships, have treasury management relationships with us.

And so there's a real stability in that deposit base, which we enjoy. On the consumer side, the average customer deposits about $5,400. The average checking account balance is about $3,200. And the mean balances $900. So we have I would say, again, a sort of a blue collar mass market deposit base. 47% of our chain account customers have a savings account with us, only 8% have a money market account. So it's -- it's -- these are people that are working class that don't have a lot of investable dollars.

And so what we're competing for is the operating accounts of small businesses and mid-sized business and the household accounts of consumers. Day in and day out, if we're winning those opportunities, we believe we can continue to grow our business, not only to defend the business we have, but grow the business in the markets that we serve, when we need to compete on rate, we can, but that's not something that we choose to do that we have to do, and we've built our business around just trying to manage that core deposit base really well.

I'd add that competition in the Southeast has been fierce for years. Now there's new entrants coming in. And so we have a well-established playbook, if you will, how to be proactive when we anticipate competition coming in. We know where they're going to open branch locations. We know our customers in those locations, we can be proactive in terms of reaching out to them. But to John's point, we win when we grow household accounts and operating accounts. So the key to us is to make sure we're making investments in those platforms such that our customers want to stay on that, and we can bring more customers on the platform, that's where we win.

And I think you mentioned, was it $5,400? Was the average deposit post $900 was the median. So fairly low deposit balances per account. I think one of the areas where there is a debate going on right now is whether eventually, maybe not right now, but eventually a genetic AI, stable coins, maybe tokenized money market funds might drive even more yield-seeking behavior with some of the smaller balance accounts as well. Is that something that you're thinking about right now? How do you think it's...

Well, we're thinking about it because we keep getting asked about it. But I think, generally, when you think about our customers, they maintain in their account about 1.6x what they spend every month. So they have very little investable excess balances. Most have -- if they have savings, it's for an emergency and that's it. And so I don't think that -- I do believe there may come a time when agents do help people search for best rate and move money around and people have confidence in that capability and they're willing to let a bot move their money around.

I don't think that's going to impact our customer base anytime soon. One, I don't know that our customer base would be willing to accept that sort of innovation; two, more importantly, just don't have the excess liquidity to rely on that service. And just as a gauge for our customer, even across our wealth space, we opened up a couple of crypto ETFs a few months back for our wealth customers. And we've seen less than $200,000 of investment into it. So it's just not new our customer base is right now.

Got it. And anything on the corporate side there? I guess some of these deposits are already fully optimized, but any concerns there or anything you're thinking through there?

Not me.

Okay. John mentioned earlier, treasury management is key. I mean, having that relationship is really important to that customer. And so we think we have to continue to invest in that. That's what they're looking for is efficiency of payments, and that's where our focus is.

Got it. Okay. So maybe we can bring this a little bit more Anil, are there any updates that you'd like to share on the second quarter and what you're seeing so far?

Yes. We're pleased with how the year is progressing. So I'll start kind of our longer-term guidance is unchanged across each of the areas we expect to see low single-digit loan and deposit growth. Fee revenue NII, all expected to perform full year as we'd expect. With respect to short-term guidance, we guided NII to be up 2% quarter-over-quarter. That looks to be intact. With respect to capital markets, we've given a range of 90 to 105 we pointed to the low end of the range. as we look at the businesses within our capital markets, real estate capital markets is a rate dependent business.

And with rates being a bit elevated here, we're seeing a little bit of a slowdown in activity in that part of the business. I'd say second quarter probably look more like the first quarter when it comes to capital markets, but we think that will rebound into the second half of the year.

Got it. And any impact specifically as we think about the value of the curve being higher, the long end of the of being higher on NIM and NII?

Yes. So we benefit -- we're neutral to short-term rates, but longer-term rates as they tick up, we'll benefit from that. Our margin was 3.67% in the first quarter. We expect to be in the mid- in the second quarter and grow into the balance of the year, exit kind of in the low 30s. For us, with higher rates, we benefit with fixed asset repricing turnover. Deposit competition remaining kind of steady as it has been and maintaining that will be key. But we feel good about the path of the NIM and where we're positioned relative to what we're seeing in the yield curve. So I still feel good about that low mid-3.70s number by the end of this year.

Yes. Okay. Perfect. We -- maybe we'll touch on the capital markets side because that's another aspect you mentioned. To your point, it is a more difficult environment as rates move higher. But as you look across the business today, and as you think about where the rebound will eventually come from, where do you see areas where you're seeing the strongest momentum?

Well, in our business sort of breaks down each park making almost equal contribution where we have, I'd say, stalled out a lot or we don't have as much momentum as we would like is in the M&A advisory space where we've we think we'd like to have some more capabilities, frankly. That business has not been growing over the last 24 months as much as we would like.

And then separately, in the real estate capital markets business, we've made really good investments there. It's a nice business. It has been impacted some by rising rates as we see customers tend to want to extend and renew rather than access the permanent placement market in this rate environment. That could change if rates stabilize for a longer period of time.

But with the anticipation rates may come back down, we expect there'll be a little delay there in terms of that business regenerating gaining momentum, I guess, I'd say. But all in all, happy with the capital markets business. I was making the point earlier today, in 2014, we generated $64 million of capital markets revenue. Last year, it was $360 million. So we've made investments. We've seen the business grow and we're ready to grow it to $400 million and beyond, we see a few things to fall into place.

So there's other fee businesses where you've talked about an opportunity, whether it's wealth management, treasury management, mortgage banking, you've continued to see momentum and continue to grow your scale there. which businesses do you think have the potential to become structurally more important as we think about the earnings profile over the next few years?

Treasury management is super important to us. That's the core of all the relationships we have across our commercial wholesale bank, and we have an opportunity, we think, to continue to grow that. It's been growing at 7% to 8% and should continue on that pace, we believe. Wealth management in the markets we're in with the migration of people, the opportunities that we have across our commercial banking business to deliver more products and services to customers.

Another part of the business now growing at 8% to 9%. We expect that trend to continue as well. So both would be really important. We like the mortgage business a lot. We have mortgage servicing capabilities that we think are differentiated. We like banking, people that own their own homes. They tend to have more deposit balances, they help to generate more revenue. So we'll stay invested in the mortgage business as well. I think treasury management and wealth management likely have the opportunity to be a little more differentiated in terms of contribution.

I'm sure we'll get into Basel Endgame and the changes there a little bit later, but as I think about the mortgage banking business and the changes that are coming with mortgage risk weights and potentially around even mortgage servicing, does that change your appetite or change the economics of that business over time?

Yes. I think our appetite remains strong. To your point, it's been a highly credit space right now where prices have really kind of not really met our return thresholds. With a potential improvement in the risk weights from the 250 to maybe closer to 100% risk weight, that would help in and of itself. I think the one thing to keep in mind, as many banks exited the space when you saw an increase in risk weights. And so who we're competing against today tends to be nonbank players who won't necessarily benefit from that risk weight change. So it's our hope that, that can kind of move in our favor a bit. But to John's point, we really like that business. It's a business we've stayed invested in, and we think we'll continue to grow through time.

And would you, I guess, accelerate ahead of time? Or would you need to wait for the Basel Endgame rules...

We're still competitive now with where we're pricing. We won't get too far ahead in terms of what could happen, but we'll stay diligent in terms of deals that come our way now in terms of how we're pricing them.

Got it. Maybe let's pivot over to expenses. Your guide for this year is expense growth between about 1.5%, 3.5%. How should we think about operating leverage and the right level of operating leverage for regions over time just given the amount of investment spend that's underway in the company.

Yes. Look, we think, over time, we should continue to deliver positive operating leverage. Any one given year, the math could present a difficulty. But through time, we think our business in such a way that we should be able to consistently deliver positive operating leverage. When it comes to investments in technology, those are things that should at their core either make us more efficient or provide opportunities to deepen relationships and grow revenue. And so there could always be a timing mismatch of investment ahead of revenue or cost benefit recognition.

But we think all those investments through time, even solidify our ability to generate positive operating leverage, and that's kind of how we make investment decisions in that area.

So one of the areas where you've been spending investment dollars is on your multiyear core systems modernization effort. Another -- I take that a lot of banks have spoken about at this conference is AI and how that impacts the overall operating spend of the business. Does that new system help you unlock more of an opportunity on the AI side?

I think on the deposit side, when you talk AI, you start with data, right? And so one of the most important benefits we're getting out of this deposit platform is we had to really clean up our data, and so that will naturally provide us opportunities to consider how Gen AI can be deployed off of that data. The platform in and of itself is not really a thing that we'd say would be a Gen AI enabler. But I think the data will clearly help us better leverage advanced analytics on a go-forward basis.

So what are you doing on the AI side in terms of the investment spend? And like are you seeing any productivity gains already?

Yes. So I'd remind everyone, go back 7 years, we've been deploying traditional AI across many parts of our business, we call it IQ products. And we've done it across small business, commercial and wealth. And structurally, what we've been doing is putting AI tools on top of our customers' data and having that inform bankers as the best ways to interact with the customer in terms of products or services they may want or potential areas of risk that might be emerging. And so we think that continues even as you move into generative AI, we're doing some of that in our retail banking banker Assist product.

And so we think that continues. But at the core, it's investments in AI to better help our employees be more productive in meeting our customers' needs. That's kind of one place I'd point you to. The other place we've talked about before is on GitHub Copilot across our developer community. So we've deployed it through the end of the first quarter across about 50% of our developers. We're seeing about a 30% lift in co-development. And so for us, that equates to about 6,000 to 7,000 additional coding hours per month.

And so that's a real benefit that we're seeing right now that as you look to future investments in technology, it allows us to reduce that marginal cost of kind of technology development and code writing.

So when we think about the tech spend, you've also spoken about how that's gone from like 9% to 11% of revenues historically, and that's gone up by at least a percentage point or so going forward. How much of that investment has changed the bank versus run-the-bank?

Yes. We don't split the two. Historically, we think we had a pie chart that maybe bifurcated it a bit. But I'd say on a go-forward basis, the two are a bit interchangeable. Just going back to my example that I gave on the Temenos system. When you invest in data cleanup, you're naturally making an investment to change the bank in terms of how you can use that data. So I think that differentiation will probably abate through time. We think about it in terms of total investment and making sure that we have the right platforms and systems and processes to be efficient as a bank and meet our customers' needs in the most efficient way.

Got it. Maybe let's dig in on some of the newer priority markets that you're growing deposits in. I think Houston and Dallas are 2 of your key priority markets. What are you seeing in those markets today in terms of, I guess, pricing dynamics or deposit competition or anything else there?

Well, first of all, the great markets and a lot of competition. I wouldn't say it's necessarily any more competitive than it always is because they are just big dynamic markets. But plenty of opportunity focused on the right markets -- submarkets for us. We are enjoying continuing to grow our business out there. And I think you'll see more people focus on Texas as a place to do business because it's very pro-business oriented, very growth-oriented. No income tax. That probably -- so the growth profile will continue. And I think you'll see more -- again, more people investing there.

And as you think about small business opportunity, whether it's in those new markets or even in your existing markets? I think you've initially called out that, that's an area where you have an opportunity to do much more. What specifically do you think is the opportunity today? And are there any investments that you need to make to capture that opportunity?

So across our footprint, I think there are 12 million small businesses. We bank about 450,000 of them. So there's plenty of opportunity. Our focus has been more recently around understanding the composition of our branch markets. And where we have concentrations of small businesses, we've been dedicating additional resources, people to focus on calling on those small businesses. small business owners, they need help. They need advice, just like consumers do.

And so we're dedicating about 300 additional resources in our branches dedicated specifically to small businesses. We'll roll out a new digital platform for small businesses later this year, which we think will also be helpful. But at the end of the day, I still think it's about people. It's about bankers connecting with business owners. And we believe that is a recipe for having success, particularly in areas where we have concentrated opportunities.

Got it. Well, maybe let's pivot over to credit. You spoke about the environment, you spoke about there. You're not really seeing anything major there. But as we think about any portfolios of interest, or anything else that you might be seeing in the credit environment today where are you most concerned? Where you're most focused on?

Yes. I mean primary areas of concern have been office and transportation, we called out. We watch multifamily. It seems to have worked through some of the softness that we're in was in the portfolio and specifically in some markets. So we're actually seeing nice momentum in multifamily originations, again, which is good. Office, we've worked through generally work through the problems that we have. We may have 1 or 2 more credits to resolve.

Same thing with transportation after what was probably a 3-year recession in transportation, it seems to stabilized. And I've been asked about what about energy prices, what about the cost of fuel, it could have an impact. But I think, by and large, today, for the most part, the weaker transportation operators have been eliminated. And so stronger companies are now in the market and things have rationalized a bit there.

So I feel less concerned -- we've seen a pocket of stress in, let's say, television station in that subsector. Maybe in digital distribution of the Internet on a rural basis. There are a couple of credits related to the build-out of an Internet network in the rural areas. Other than that, I can't really point to anything that I would say where there's been some stress, particularly in our portfolio.

If you look at our allowance coverage ratio, as an example, as we've taken charges that we fully reserve for, you've seen that continue to tick down.

We ended the first quarter at 1.68% based on what we see right now, we still think we're on a path to that day 1 number, call it, 1.62%, dependent upon how the macro environment continues to evolve.

We continue to see criticized classified come down. NPLs have come down and credit has returned us to a more normal circumstance.

And is that largely a function of -- we had rates go up to 5% bps since come down at the end of '24, end of '25. Does that help the customer -- the end customer? Is that what's driving the credit improvement? Is it more so just portfolio seasoning over time? What's been driving it?

I mean I think with the exception of, let's say, office and transportation, those were two discrete portfolios that others across the industry had an issue office. Clearly, everybody had issues with Beyond that, business has been pretty stable for most industry sectors. And I think that's a variety of things, including managing their businesses well. They're not overly leveraged. The interest rate environment certainly has been helpful.

So say energy prices stay where they are right now, does that meaningfully impact the cash flows that trucking and transportation businesses. Is that something that you're focused on?

Well, we're watching broadly what the higher energy prices might mean for businesses and for consumers. I can't point to any area that I would call out as being or more potentially impacted than another at this point, but there clearly could be implications if energy prices are sustained for a long period of time. But we're not going to speculate on what those are as much as we just continue to do what we do to monitor and manage potential emerging risk in the business.

Got it. Okay. Maybe let's pivot over to M&A. Let's look at this from both aspects. One is there's been an acceleration of M&A across your footprint. That's created some disruption. It's presumably an opportunity for you. What are you seeing there? What's causing disruption out there? And what are you doing to capitalize on it?

During merger and acquisition activity, to your point, disruption is created. There's uncertainty on the part of bankers uncertainty on the part of customers. And some number of bankers and/or customers will consider moving their relationship or their place of employment. So we try to identify who those customers potentially are.

Presumably, because we've been in the markets for a long period of time, we've been prospecting on those customers and we just upped our efforts. Sometimes it works out, sometimes it takes longer, maybe it doesn't work out at all, but we have a heightened amount of activity in places where we think there's potential disruption.

On the other side, we have a number of competitors who are doing a great job trying to keep those customers and keep those bankers. So it's not a foregone conclusion that there's going to be a lot of net loss or gain. But our -- we can certainly make a lot of effort in those opportunities. And to your point, there are a number of things going in our market. So maybe that does create some opportunity.

And it's also important for us to keep what we have today, whether it's customers and associates. And really good to see kind of getting through bonus season. Our attrition rate on the banker side is down north of 100 basis points. And so bankers really like the platform that we have and even in an area of increased competition we're able to retain our good bankers.

Are there any verticals or geographies specifically that you're focused on to take advantage of this disruptor?

Well, we've called out 8 priority markets. That would be Miami, Orlando, Tampa, Atlanta, Nashville, Huntsville, Dallas and Houston. Those are areas where we think we can make additional investment in people in facilities and have opportunity to grow. So you can -- we highlight those for sure.

All right, perfect. So well, I'll ask the other side of the M&A question, and I know you've answered this before, but I sort of have to ask. As we think about the regulatory environment, the window is open right now, we don't know how long that window will be open. You guys have excess capital. How are you thinking about M&A strategically from there?

So we remain interested in non-depository M&A. We've made a number of acquisitions over the years that have added to our capital markets capabilities, wealth management, bought mortgage servicing rights, consumer finance business, small business finance business. Those are things we want to continue to do, and none of them have been big investments and none of them have had huge impacts on our business, but they've been helpful.

So we'll keep looking for those opportunities. With respect to depository M&A, we have not been active. We've said we're not interested, and that remains our position. We're generating an 18-plus percent return on tangible common equity. We're growing earnings per share, tangible book value at the top of the peer group.

We think we can continue to do that, just executing our plan over the next few years. And the risk associated with on the other side, execution of a transaction to generate what I would consider marginal benefits from our perspective, just doesn't -- it doesn't make a lot of sense to us. So we think our shareholders want to see consistent performance. We think they want to continue to see top quartile returns on tangible common equity and earnings per share growth, and we're going to continue to work on delivering that through organic growth and management of our business.

Fair enough. So then as we think about capital, and we think about the changes with Basel and game, what does that mean for capital deployment? Was that -- what does that mean for the longer-term return profile of the bank? Can you give us some more color there?

Sure. So just to level set, our common equity Tier 1 on a reported basis was 10.7% in the first quarter. If you could pro forma the two main aspects of the Basel III Endgame inclusion of ASCI and then for us, standard tenderized approach on risk weights. That's about a 10% benefit in RWA for us. That will equate to a pro forma CET1 ratio of 10.4%. So our capital distribution priorities are unchanged. We'll continue to invest in good loan growth on balance sheet. We'll ensure we have good growth in dividend consistent with our earnings profile.

As John alluded to, nonbank M&A is something we'll consistently look for -- and then ultimately, we'll buy back shares after that. We're fortunate we generate between 40 and 45 basis points of capital every quarter. And so we don't need to warehouse capital. And so that's how we'll think about deploying that. you can pro forma what the net effect would be if you got the full benefit just through RWA, it would increase returns by potentially north of 100 basis points. That's just doing math, right? We need to first get a final rule.

We need to understand how the rating agencies think about the RWA through that lens. Once we get clarity around all that, you should see us kind of execute and bring our capital back in line with our targets, which are sold not in quarter to 9.5%.

Is there an internal governor on TC to TA ratios? Or I guess, how do you think about capital ratios outside of the CET1 ratio?

Yes. I think risk-based measures are important. I mean clearly, we track things like leverage ratio when we look at TCE to TA, but not being risk sensitive, I think, is an important factor there. The other thing, just in the weeds on the mass, the inclusion of the mark on derivatives, I think is another kind of negative towards the TCE ratio. It's not like securities, which have liquidity. This is just your mark on this was kind of one side, if you will, of your interest rate risk management. So I think those two factors are reasons why I think TCE to TA something to calculate, but hopefully, we can be more advanced to the system in terms of how we manage capital and use risk-sensitive measures.

Got it. Okay. So we're almost out of time. Maybe with that, I'll ask a final question. John, as we wrap up, what do you think the market is still missing about the region's financial story here?

Well, I don't know about missing so much as I think we believe we have the real value in our franchise is our low-cost deposit base. And we're committed to managing and protecting that deposit base and growing. And we believe if we do that, we continue to focus on taking care of our customers, managing the risk in our business. We have built a model that delivers consistent, sustainable results, and we believe those results will be top quartile in terms of returns over the number of years and to do that, and we think our shareholders will be happy with our performance.

All right. Perfect. With that, please join me in thanking John and Anil. Thanks so much.

Thank you. Thanks for having us.

Good morning and welcome to the Regions Financial Corporation's quarterly earnings call. My name is Chris, and I'll be your operator for today's call. [Operator Instructions] I will now turn the call over to Dana Nolan to begin.

Thank you, Chris. Welcome to Regions First Quarter 2026 Earnings Call. John and Anil 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. Before we turn to the quarter, I want to take a moment and personally thank Dana for her service and leadership. After nearly 40-year credit regions, she's made the decision to retire. Dana has been a steady and trusted voice for our company and an important link between our leadership team and the investment community. Her deep understanding of our business, fair with her clear and straightforward communication style help strengthen our credibility with investors and are widespread respect across the industry. We're incredibly grateful for Dana's leadership and the standard she's set, and we wish her nothing but the very best going forward.

Turning to our financial results. This morning, we reported strong first quarter earnings of $539 million or $0.62 per share. This represents an 11% and 15% increase, respectively, versus adjusted prior year results. Adjusted pretax pre-provision income was $805 million, up 4% year-over-year, and we generated a return on tangible common equity of 18%. The momentum we saw at the end of last year and carried into the first quarter. We grew loans and deposits on both an average and ending basis and our credit metrics continue to improve as we resolve our portfolios of interest. Conversations with customers suggest that despite recent volatility, sentiment remains generally optimistic. Businesses are continuing to manage their balance sheets and income statements prudently with strong liquidity and solid capital positions.

On the consumer side, fundamentals remain relatively sound. Aggregate balance and spending trends for Regions customers are stable to mostly positive. The labor markets are not showing signs of material weakness. We are seeing some pressure among lower-income customers but larger income tax refunds compared to last year have helped to offset a portion of that impact. Importantly, our consumer loan portfolio continues to be primarily prime to super prime. We continue to make good progress on our core transformation, including investments in artificial intelligence. We are on track to deploy our commercial lending system and small business digital origination platform this summer and system testing on the core deposit system is also underway. We expect to launch a pilot in the third quarter and begin conversion in 2027.

At the same time, we remain focused on near-term drivers of growth. Our strategic growth hiring initiative is on track, and we continue to make targeted investments in products and services across all 3 of our lines of business. There's a lot of internal energy and excitement around our technology enablement initiatives, and we're motivated to continue building on that momentum. I'll just conclude by saying that we're pleased with our first quarter results and are excited about the opportunities that lie ahead.

With that, I'll hand it over to Anil to walk through the quarter in more detail. Anil?

Thank you, John. Let's start with the balance sheet. Ending loans grew 2% while average loans increased approximately 1%. Growth was driven by broad-based C&I lending, including power and utilities, manufacturing, health care and asset-based lending. Roughly half of this quarter's growth came from higher line utilization with the balance driven by new loans, approximately 80% of which were to existing clients. Almost 2/3 of the growth was investment-grade credits with the majority of the remaining growth near investment grade for very high quality. While the macroeconomic outlook remains volatile, we experienced strong loan growth in the latter half of the quarter.

As John noted earlier, client sentiment remains broadly positive. Loan pipelines and commitments remain strong, and overall lending activity remains at a good pace. An area that has not been a meaningful growth driver over the past year is NDFI-related lending. These lines reflect long-standing client relationships with predominantly investment-grade credits with nearly half of balances associated with our long-standing REIT business. Private credit exposure remains limited, less than 2% of total loans largely investment-grade, well enhanced and existing client paydowns exceeded draws during the quarter. With respect to our full year growth expectations, we continue to expect full year average loans to be up low single digits versus 2025.

Turning to deposits. Average balances increased modestly, while ending balances increased approximately 1%, reflecting normal seasonal patterns associated with tax refunds and payments. Balances grew while total deposit costs continued to decline, supported by our strong deposit franchise and focus on customer acquisition and retention. Through deliberate product management, we continue to see a shift from CDs into money market accounts across both our consumer and wealth businesses with growth in the combined balances. Our noninterest-bearing deposit mix remained in the low 30% range, consistent with our target and reflective of the operational nature of our deposit base. As a result, we continue to expect 2026 average deposits to be up low single digits versus the prior year.

Let's shift to net interest income. As expected, net interest income was lower linked quarter, driven primarily by 2 fewer days in the quarter and the absence of nonrecurring items that benefited the fourth quarter. The net interest margin of 3.67% continues to evidence region's profitability advantage. That said, margin came in below expectations for the quarter, reflecting tighter asset spreads as a result of market conditions paydowns of higher-yielding loans and remixing into higher quality credits. The core balance sheet performed well during the quarter and provides a solid foundation for net interest income growth over the remainder of the year.

Our neutral interest rate positioning once again performed as designed in the quarter with minimal impact to net interest income from the Fed's fourth quarter interest rate cuts. During the first quarter, interest-bearing deposit cost declined 13 basis points. The following cycle interest-bearing deposit beta stands at 35%, and we remain confident in the mid-30s beta with the potential to outperform over time. Net interest income also continued to benefit from fixed rate asset turnover with elevated long-term rates supporting pricing on term loans and securities. At current rate levels, we would expect balance sheet repricing to support margin expansion over multiple years. Finally, recent loan growth acceleration positions us well for future interest income growth.

Subsequent to quarter end, higher interest rates created an opportunity to sell approximately $900 million of shorter duration of securities that no longer support our balance sheet management objectives at a $40 million loss, repositioning those into longer-duration product types. The transaction is also well aligned with our overall capital deployment priorities, carrying a short approximately 2-year payback period and enhancing overall securities yields. In the second quarter, we expect a strong rebound with approximately 2% net interest income growth, followed by additional expansion in subsequent quarters. Fixed rate asset turnover, seasonal average deposit inflows accelerating loan growth and continued discipline and funding costs will drive net interest income growth and a stable Fed funds environment. For full year 2026, we reiterate our net interest income expectation of between 2.5% and 4% growth and for the net interest margin to exit the year at low [ 3.70s ].

Now let's turn to fee revenue performance for the quarter. Adjusted noninterest revenue declined 2% on a linked-quarter basis as seasonally lower card and ATMs and a decline in other noninterest income were partially offset by higher capital markets revenue. Capital markets income increased 5% during the quarter, driven by improvements in commercial swap, loan syndication and securities underwriting activity partially offset by lower real estate capital markets and M&A fees. Despite ongoing headwinds associated with market volatility and elevated interest rates, we continue to expect Capital Markets quarterly revenue to increase within our $90 million to $105 million range, trending near the lower end of the range in the second quarter and moving higher thereafter.

Wealth Management remains a good story for us, supported primarily by continued sales momentum with revenue up 9% year-over-year, and we expect this business to continue to be a steady contributor to fee revenue growth. Card and ATM fees declined 5% from the prior quarter reflecting typical seasonal patterns. We expect this line item to draw normal patterns peaking next quarter and moderating throughout the second half of the year. Other noninterest income declined 29%, driven primarily by commercial lease sales activity with $6 million of gains recognized in the fourth quarter and $7 million of losses recognized in the current quarter. Service charges remained stable during the quarter as record treasury management fees offset seasonally lower consumer revenue. Overall, treasury management grew 6% on a linked-quarter basis, including strong growth in core payments revenue. We continue to invest in talent and innovation within the treasury management space with a focus on embedded payments and digital client experiences. We expect this business to remain a source of growth within overall service charges. For full year 2026, we continue to expect adjusted noninterest income to grow between 3% and 5% versus 2025.

Let's move on to noninterest expense. While we continue to make meaningful investments across the franchise to support long-term growth, we remain focused on maintaining a disciplined approach to expense management. Adjusted noninterest expense declined 4% linked quarter reflecting broad-based improvement across most expense categories. Salaries and benefits remained relatively stable as lower incentives and declines in market value adjustments for employee benefits liabilities offset the seasonal increases associated with payroll taxes, 401(k) match and merit. For full year 2026, we expect adjusted noninterest expense to be up between 1.5% and 3.5%, and we expect to deliver full year adjusted positive operating leverage.

Annualized net charge-offs as a percentage of average loans decreased 5 basis points to 54 basis points, reflecting continued progress on resolutions within previously identified portfolios of interest, which we reserved for in prior periods. Business services criticized and total nonperforming loans remained relatively stable during the quarter as risk rating upgrades continue to outpace downgrades. The resulting NPL ratio declined 2 basis points to 71 basis points, and the business services criticized ratio declined 16 basis points to 5.15%. Allowance increases tied to loan growth and greater macroeconomic uncertainty were more than offset by meaningful progress in resolving loans within previously identified portfolios of interest sustained risk-rating upgrades, exceeding downgrades and continued improvement in the business services criticized and total nonperforming loan ratios. As a result, the allowance for credit losses declined $39 million. Strengthening asset quality across portfolios, combined with high-quality loan growth drove an 8 basis point reduction in the allowance ratio to 1.68%, while coverage of nonperforming loans remained solid at 238%. We expect full year 2026 net charge-offs to be between 40 and 50 basis points.

Let's turn to capital and liquidity. We ended the quarter with an estimated common equity Tier 1 ratio of 10.7% while executing $401 million in share repurchases and paying $227 million in common dividends. We are encouraged by the proposed changes to the regulatory capital framework, which will revise the definition of capital to include AOCI and implement broad updates to risk-weighted assets calculations under the standardized approach. Including AOCI reduces our reported CET1 ratio to an estimated 9.4%. However, based on our preliminary assessment, the proposed changes are also expected to result in an estimated 10% reduction in risk-weighted assets, contributing to an approximate 100 basis point increase in capital. Taken together, the proposed changes are expected to result in a fully implemented Basel III common equity Tier 1 ratio of approximately 10.4% on a pro forma basis.

Importantly, our capital priorities remain unchanged. Once finalized, we expect to continue managing our fully implemented Basel III co-equity Tier 1 ratio around the midpoint of our established 9.25% to 9.75% operating range. Finally, liquidity remains stable and robust with ample capacity to support future growth. As John indicated, we are pleased with our quarterly performance, particularly given the evolving market dynamics and believe we remain well positioned to continue delivering consistent, sustainable, long-term performance for our shareholders. This covers our prepared remarks.

We will now move to the Q&A portion of the call.

[Operator Instructions] Our first question comes from the line of Ryan Nash with Goldman Sachs.

It was good to see that you reiterated the guidance across the board despite a slightly softer start. So I wanted to focus on revenues, whether it's NII or fees, given 1Q along with some of the 2Q commentary, maybe just give us a sense of how you're tracking relative to your ranges and what is your confidence in terms of reaching the middle or the upper part of the NII range? And what do we need to see that happen? I have a follow-up.

So first of all, we're very confident in hitting the ranges. Let me start with net interest income. So I think importantly, exiting the quarter with the strong loan growth that we saw $2.3 billion point-to-point is really a great tailwind for us heading into the second quarter, our deposit performance. The growth that we saw during the quarter was also really strong. our ability to continue to bring down deposit costs. We exit the quarter on interest-bearing deposit costs of 1.69%. That's another good tailwind for us. And as we've talked about before, we still have fixed asset turnover that will benefit us over the course the remainder of the year. So all of those things coming together is really what gives us the confidence in terms of what we expect to see for NII, both in the second quarter and going forward through the year. And I'd say loan trends are still look good. So we're confident in what we're seeing will continue to persist.

With respect to noninterest revenue, a couple of things there. So first, cyclically, the first quarter is typically low for some of the consumer fee items, consumer service charges, card and ATM fees tend to be lower in the first quarter. We expect that to rebound in the second quarter. So that will be a nice tailwind. We've talked about capital markets and gave our guide for the second quarter and for the rest of the year. And then treasury management wealth just continue to be good growth stories for us. We continue to expect to see growth there. It's great to see another record quarter on treasury management. Wealth Management, up 9% year-over-year. So -- so all these things are really pulling in the right direction. And so what we're seeing right now really gives us confidence that we'll operate within the range that we've given.

And then I have a follow-up and a comment. First for my follow-up. You noted that you still expect to manage to the midpoint of your range on capital, but I think you noted that it creates meaningful flexibility. So just given the coming changes, maybe just talk about the potential to manage the low end or even below given that these changes are coming and maybe expand on the flexibility comment? What else do we see for leveraging the capital? That's my question. And then my comment Dana, I just want to say thank you for all the help over the years and enjoyed taking care of your grandchild and doing some traveling.

Thank you, Ryan.

Yes. Great question, Ryan. So we don't want to get too far ahead of the proposed rule. So as we indicated, based on the proposal when you include AOCI and then the expected benefit in risk-weighted assets, we expect to be around 10.4%. The timing of each component, the phase-in schedule things of that nature will matter a lot. And so we're not going to get -- we're not going to get ahead of that. We're going to continue to manage capital the way you've seen us. Our capital distribution priorities are unchanged. We'll monitor these proposals and once finalized, it will be our plan to continue to manage capital within that range. That is unchanged. But we don't want to get too far ahead of this. We're fortunate we generate enough capital to do everything we want today to grow the business. And so we don't have to distribute capital ahead of this. We'll take our time. But when we get final rules, our distribution priorities are unchanged, and we still believe our targets are where we should be.

Our next question comes from the line of Scott Siefers with Piper Sandler.

Maybe, Anil, I was hoping you could sort of address a little -- in a little more detail the moving parts in the margin outlook for the remainder of the year. I think you touched on combination of the tighter asset spreads and loan remixing as factors in the first quarter. Maybe just going forward, how much will those need to find relief? Or is there simply enough balance sheet repricing opportunity going forward that you can absorb continued pressure from those dynamics that hit the first quarter but still see both the margin and NII?

Sure. So first of all, managing deposit cost is still the primary mechanism that we have to continue to meet our margin objectives for the year. As already alluded to where we exited the quarter from an interest-bearing deposit cost. So the opportunity there is still going to be a meaningful driver in terms of where we go over the balance of the year talked about the fixed asset repricing opportunities that we have, about $9 billion looking forward. So that will be helpful. We did see, as we alluded to, some investment-grade credit draws late in the quarter, we like that credit. It's lower credit risk, great returns. We also saw a good kind of middle market growth throughout the first part of the quarter. So we expect to see that over the course of the year, and that's going to benefit the margin as well as we look forward. So deposit growth that's going to continue to grow. I already mentioned, we had good growth this quarter. We're going to see seasonal uptick in the second quarter. So all those factors coming together really going to be positive in terms of where our margin goes from here over the course of the year.

Terrific. Okay. And then, John, your commentary on customer sentiment sounded pretty good. And I think, Anil, you mentioned that about half the first quarter loan growth came from higher line utilization. Maybe where are utilization rates versus, say, 90 days ago, where would you hope to see those advanced to as the year unfolds?

Yes. So utilization rates are up about 200 basis points, I guess, across both the corporate banking markets or customer base and our middle market customers. And we'd expect to see a little more activity as the year goes along, it is based upon the constructive feedback we're getting from customers. I will say that we observe liquidity -- customer liquidity is up, at least in -- at Regions by about 7% year-over-year. So customers are still creating additional liquidity. At the same time, we are seeing borrowing activity, which is positive.

And then just final, Dana, same thing, thanks for all the help. Best wishes.

Thank you.

Our next question comes from the line of John Pancari with Evercore.

On the deposit backdrop. I know you had indicated some pretty good deposit dynamics. So I wonder if you can elaborate on the competitive backdrop that you're seeing in the Southeast. You've had a number of banks flag seemingly intensifying competitive pressures on the deposit front from not only some incumbents, but some newer entrants to the market. So what are you seeing in terms of deposit pricing dynamics, has that been impacting your expectation at all underlying the margin?

Sure, John. Yes. So we've been in a highly competitive deposit backdrop, I'd say, for north of a year. The one thing I'd say that's been consistent is we are seeing banks and we are as well, offering promotional offers in certain key markets where everyone is looking to grow customers. What I'll also say is banks are also being prudent in terms of how they think about the back book of their deposit base to manage that in the context of their overall deposit cost. And so the strategies are very similar to what we've seen over the past year. We've adopted an approach that we think appropriate, where we can continue to grow new customers, especially in these high-growth markets. but also take advantage of our back book to price that in a way that's able to manage our deposit cost where we think it should be over time. We're seeing the same thing within our customer base -- sorry, amongst our peers. And so we think that dynamic will continue to hold as loans continue to grow, I'm optimistic in terms of what we're seeing in the capital markets, the debt capital markets where banks are accessing liquidity there. And so from what I see now, the way banks are managing their deposit base and other funding sources, I think, will continue as we all have opportunities to grow loans from here.

Great. All right. And then on the margin, I know you cited the pressure from tighter asset spreads. If you can give us a little more color there on where spreads stand, what loan types are you seeing that compression? Is that competitive pressures? And you also mentioned the paydown of some higher-yielding loans. So if you can just give us a little more color on that? And is there any incremental actions you expect on the portfolio reshaping?

Yes, really on the tighter spreads, it's primarily in larger C&I where we saw line utilization late in the quarter. That's a primary area. We also saw just earlier in the quarter broadly across the balance sheet in terms of tighter mortgage spreads for some of the actions the government is taking as well as retail [indiscernible] that we saw earlier in the first quarter. But primarily where we're seeing the tighter spreads is in IG within the C&I space.

Got it. Okay. And then the portfolio reshaping efforts, anything incremental that you expect on that front?

I think all that's proceeding just as planned. And as we alluded to last quarter, a lot of that is behind us. And so we're -- we'll continue going down that path as we have.

Best of luck Dana on retirement. .

Thank you, John.

Our next question comes from the line of Manan Gosalia with Morgan Stanley.

You spoke about line draws. I mean it sounds like it's a good fundamental demand coming through. Just wanted to see if you've seen any defensive line draws any reason that utilization rates may flatten or even decline from here?

Yes. The line draws that we saw were predominantly late in the quarter when there is volatility in the capital markets. So that's really where we saw most of that come in. I wouldn't call it defensive in nature. I would just say given where the [ counter ] markets were, as we saw uncertainty in the market, customers drew on bank lines. So I'd expect that to abate through time as capital markets reopen, but nothing defensive in terms of what we're seeing. .

Got it. And then maybe on the capital markets side, I guess your expecting that trend to the lower end given volatility in rates. Most of your comments in the environment have been fairly constructive. So I guess what market conditions would move you back towards $100 million-plus range on capital markets revenues?

Well, the primary business that's impacted is our real estate capital markets business, and it's been soft now for 4 or 5 quarters based on just the rate environment. So as rates -- longer-term rates come down, we would see, we believe, a benefit in the real estate capital markets business, which would be important. And that would more than offset any impacts on other parts of the business. .

And Dana, all the very best.

Thank you, Manan.

Our next question comes from the line of Gerard Cassidy with RBC.

And Anil, in talking about the loan loss reserve, I think you pointed out that the increases were tied to loan growth, but also the macro uncertainty out there. If the conflict in the Middle East takes decided to turn for the better. The straits opened up today as you probably saw the headlines. What would that do for the second or third quarter allowance does that start to reduce the loans as that macro risk drops meaningfully and kind of surprises all of us that it's maybe going to be resolved sooner than expected?

Yes. And if you look on the waterfall that we included in the appendix, we attributed about $17 million of growth quarter-over-quarter to macro uncertainty. That's primarily what we're seeing in the Middle East. So to the extent that gets resolved and the other kind of second order effects resolve in a positive to neutral way, we could see a modest release in the allowance of that. I wouldn't say it's overly material, but we did feel appropriate to put up a little bit in terms of macroeconomic uncertainty, but that's the part of the allowance that I'd point you to.

Very good. And then to follow up on the commercial loan conversation, that you guys have presented, you're not really big NDFI lenders as a regional bank, you're down at the bottom of kind of the group, which lowers the risk, of course. But what -- I guess, why haven't you maybe pursue it as aggressively as some of your peers in terms of the different categories of NDFI lending. What do you guys see there that makes you maybe a little more cautious?

Well, I think we just generally are more cautious, Gerard. And as we think about our lending activities, they're principally based on relationships that are established within our footprint. We have some businesses where we have specialized capabilities, and we actually do lend out of footprint. This would be an area where we're getting our feet wet, learning a little more about it. Today, we have relationships with about 20 -- just in excess of '25 funds, and those funds are fairly broadly distributed in terms of the businesses, the sectors that they're lending into total exposure, I think just above $3 billion to those funds within private credit, about $1.8 billion. So we're just in exposure, I mean, in outstandings. I think we're just trying to learn to understand can we build relationships, can we gain deposits? Can we participate in capital markets activity? Because that's fundamental to how we want to operate our business. We can't do that, then it's just not an appropriate allocation to capital for us.

And Dana, hopefully, you have tons of fun in retirement.

Thank you, Gerard.

Our next question comes from the line of Ken Usdin with Autonomous Research.

It was good to hear about -- sorry, let me start it again. First quarter credit quality was exactly as expected, taking care of that already expected stuff and then your outlook for the year looks good and there was good stability in the NPAs and some of the other metrics. So just are you kind of through that piece of taking care of some of that legacy stuff? And just your general line of sight on some of those other portfolios that you've mentioned in the past.

Yes. I would say, Ken, we previously identified office, multifamily, transportation and communications as portfolios where we have some credits we're working through, working out. We have generally seen most of that activity has been completed, but we still have a few credits of some size that we're working on. And so while we are indicating that we expect charge-offs over the course of the year to be between 40 and 50 basis points of the timing of which we get back within that range is still not entirely clear, but we think credit quality is continuing to improve, as indicated, reflected in our metrics. Nonperforming loans down to 71 basis points, criticized loans continuing to decline charge-offs should follow as their trailing indicator of improving credit quality.

And I'll just add, as all that happens, our 1.68% allowance ratio should approximate down to the 1.62% that we disclose or kind of day 1 that assumes we resolve the credits that John mentioned, and that assumes that the macroeconomic uncertainty gets resolved in a positive way. The timing of which that happens, we'll see. That's where we think we'll end up based on the composition of our loan portfolio.

Understood. Okay. And then just second thing on -- Anil, you're starting right off of the back following David, on the hedging and securities portfolio repositioning activity. Is that at all any adjustment to that higher for longer? Or is that -- is this more just kind of a normal course of moving some stuff further out to later time periods? I'm just wondering if it's just like normal course or if any adjustments you're making because the environment?

No, it's just normal course as security shorten. They don't accomplish our balance sheet management objectives as they once did. And so we'll extend duration on the new securities that we purchase. So just an extension of what you've seen us do before.

Our next question comes from the line of Matt O'Connor with Deutsche Bank.

I just wanted to follow up on the fees. I guess some of these categories, if you look year-over-year, the growth was a little bit less than I would have thought like the consumer service charges flat operate up a little bit, hard flat? And maybe just talk about kind of some of those dynamics, and I know you gave some guidance for card in 2Q, but just kind of thinking about those categories maybe more medium term.

Yes. So I'd say in terms of medium-term guidance, they are cyclically lower in the first quarter. They tend to peak in the second quarter and then kind of hold flat from there. From a year-over-year comparison standpoint, we do have some kind of one-off items, if you just look quarter-over-quarter, in particular, in terms of how we treated certain expenses associated with some of those programs. So there are some onetime changes if you just look year-over-year, would mute the growth. But in terms of past from here, we expect to peak next quarter at hold at that level throughout the rest of the year.

And that will be for the card and ATM fees, right, to the...

And the consumer service charges portion.

Our next question comes from the line of Ebrahim Poonawala with Bank of America.

I guess first question, just around looking to your sort of messaging on the drawdowns towards the end of the quarter due to market, does that create a risk of payoffs? And I'm just wondering if some of the macro subsides markets are less volatile, do you see customers paying off and that credit then moves off balance sheet? And secondly, as we think about just capital markets, obviously, it's a more real estate bias. In your case, without getting any rate cuts for the year, do you think just CRE lending, real estate capital markets can still have a good year?

So maybe I'll answer the second question first. Yes, we continue to lean into that opportunity. We have actually a fairly significant portion of our portfolio is maturing towards the back end of the year. There will be some opportunities within that portfolio to help customers with permanent placement of those obligations. Additionally, we see other opportunities with customers who have debt and other places that will need to refinance. So I think the real estate capital markets business can still have a good year even if we don't get a lot of improvement in rate, but if we do, it gets materially better, we think.

With respect to line utilization, about half of the increase in line utilization was attributable to our larger corporate customers. The other half to our market customers, who are continuing to invest in their businesses and grow. And while there is some risk that we'll see some paydowns amongst those larger corporate customers, we expect the middle market customers, again, to continue to borrow as they invest in their businesses. Pipelines are up for the year fairly significantly. And so we also expect new originations to overcome any paydowns that we might experience in the corporate space. So all in all, we feel still really good about our ability to deliver the loan growth that we've guided to.

Got it. And then just maybe, Anil, for you or both of you and we think about the declining RWA density on the back of the capital proposals, how sensitive are you to managing to a certain level of tangible common equity ratio. Just any thoughts there?

Yes. I wouldn't say that we're managing to a tangible common equity ratio. I'd say what we're thinking about really is, one, across all the changes that are being proposed, hey, we think they're positive. We'll continue to manage to a total CET1 ratio within that 9.25% to 9.75% range. We think it's appropriate. We'll manage through that through time as we get finalization of the rules, with respect to the proposed RWA changes themselves. We have to think about not just the regulatory implications, but other constituents as well and how they think about RWA and the capital that's needed on our balance sheet. Again, we think all of this is positive to what we can do to capital through time. But our caution will be one tied to finalization of the rules and two, just to make sure that we understand where each of the other constituents land as well when it comes to these proposed changes.

Got it. And Dana, all the best, and I'm sure we'll stay in touch. Take care.

Appreciate it. Thank you.

Our next question comes from the line of Dave Rochester with Cantor Fitzgerald.

Just want to go back to the credit discussion. I'm trying to figure out how you're thinking about the trajectory of the problem loan buckets from here. Just given all the work that you've already done, are you expecting to see more meaningful moves lower in NPAs and criticized assets as we get to the back half of the year? And then if you could just update us on your progress in the transportation book, that would be great.

Yes. We should see -- continue to see some improvement in credit quality and NPAs could come down a little further. I would say if you look back over time, NPAs have averaged closer to 1%, I think. And so I wouldn't expect them to come down too much further than 71 basis points. Maybe we get into the 60s, but I don't see a lot of movement beyond that. But I would tell you that we think credit is pretty well normalized in our book given the composition of our portfolio today, and we feel good about our ability to deliver on the 40 to 50 basis points of charge-offs as we indicated.

With respect to transportation, we're still working through a couple of credits there. But generally speaking, I think we have identified and resolved most of the exposure. We provided some slides in the deck. I can't recall which slide it is exactly on transportation, 24, give you a little insight into our exposure there. And think of what you'd see is, one, we've had a fairly significant reduction in the size of the outstandings or commitments representing about 1.2% of total loans. NPLs have come down to about $51 million. And again, just look at our reserve against that portfolio, we think it's appropriately reserved for any losses that we might experience.

So you're in the latter innings on that one [indiscernible]?

Yes, we are.

Great. And then just back on the securities repositioning you did, just given today's rates, is there any more you could do there? Anything that's left on the table that you could potentially source at some point in the future?

Yes, I'd say it's small. There's not much right now. What we'll continue to look at as securities as they get closer to maturity, that creates an opportunity, but we'll need to see where rates are to see if it makes sense to do. As you've seen from us in the past, we're very mindful of thinking about it through returns, payback period, really strong payback period on this trade we did 2 years. So we're disciplined when it comes to using capital in this way.

Anil, welcome. And Dana, it's been great working with you. Good luck and enjoy.

Thanks.

Our next question comes from the line of Erika Najarian with UBS.

Anil, just a two-parter for you on CET1 first. Given your risk profile, what was the consideration? Or what are your considerations in terms of RSA, which you showed us versus ERBA? And you mentioned other constituents. A few of your peers have talked about the ratings agencies and perhaps because of the benefit to RWA, particularly for the regional banks that there might be a tendency for the rating agencies to look at unrisk-weighted assets. or sort of unrisk weighted capital measures. And so just wanted your comments on those 2 topics.

Sure. So you really hit the second point. That is the other constituency that we need to be mindful of. And as you alluded to, some use direct regulatory risk-weighted assets and their approach. So we will need to see how they think about this. And we'll clearly work with them to share our thoughts on that, but you really hit the second piece there. On the first piece, just to walk you through our preliminary view of the 2 approaches. And so we communicated our 100 basis point expected impact under the standardized approach. We've looked at the ERBA approach. In particular, as you know, the 2 primary benefits that we would get through that approach are the incremental benefit of risk weights on investment-grade credits that we've talked about today. So that's meaningful. And then also other retail exposures where you could get an incremental lift in terms of risk-weighted assets. The counter to that for us is the operational loss add-on. And so our current oculation of that for us actually overwhelms the benefits from the other two. It's something we have to continually assess. We're fortunate that as proposed, you kind of have an evergreen option to opt in, which is beneficial. But for us right now, the operational loss component overwhelms the benefits, in particular, from investment-grade credits and retail exposures as currently proposed.

Got it. And just -- and Tom will follow up with you a little bit on capital during our catch-up call. But the second question I want to pose is, maybe just directly asking you mentioned that deposit costs are a big factor in terms of your net interest income outlook. And again, you must be very flat or that a lot of your peers, both money center and regional are coming into the markets that you've long dominated if the Fed doesn't cut, what is sort of the trajectory for deposit costs at regions? In other words, are you -- will you be able to keep deposit costs flat if the Fed isn't cutting this year?

Yes. We will. And we think -- I talked about the 1.69% exit rate. We think that will continue into the second quarter, and it will decline modestly. Total deposit costs will decline modestly from there. Again, we think the competitive pressures banks are kind of performing as we'd expect in terms of how they're managing deposit costs, and we expect that to continue into the future.

Our next question comes from the line of Chris McGratty with KBW.

Intra-quarter, you talked about living in the 16 -- the high end of the 16% to 18% return on tangible common equity range for the next 3 years. You were slightly above that next -- last year. I think the Street's got you a little bit over 18%. Is the outlook that those comments were made now that we have some clarity on regulatory how much does the numerator versus denominator play in maintaining that level of profitability?

Yes. So looking forward, there's a couple of things to think about. One is with let's talk about the proposed capital changes first. If those go in as proposed and if the other constituents don't meaningfully impact how we think about capital, that in and of itself is a tailwind to returns to the extent we reduce the buyback shares from that. so that would prop up returns overall. But look, our -- the reason we frame up our guide of 16% to 18% is really because, as we've said before, we need to be top quartile when it comes to overall returns. We don't need to be #1. We need to make sure we make all the right investments into our business. And we believe that we can continue to do that. We do it this quarter in terms of the growth that we saw. But when we do that, we're going to continue to grow income and so returns will be increased from that as well. But the point of us making that statement is we want to reiterate that we are well positioned to grow we do not feel like we have to be #1 in our peer group. We're committed to invest capital as long as we get a good return out of it. But that's really why we positioned it the way we have. We'll continue to monitor the peer landscape Back to my earlier point, everyone is going to benefit to some degree from these capital proposals. Others are taking actions where they think they may be able to raise returns. And so we'll continue to reassess what the right levels are for us through time, but our goal is to remain top quartile amongst our peer set.

That's great color. And my follow-up would be just more capital beyond buybacks. You've been clear about inorganic not being a focus today. I guess, maybe remind us where you are with some of the projects internally. As you fast forward to the back half of the year, is that something where you may have to consider to be more flexible with inorganic growth if the right opportunity came about?

We'll deliver the loan system conversion. The end of May, we've got a fairly significant improvement in our digital offering to particularly small businesses that delivered over the course of the summer and then begin piloting our deposit conversion in the third quarter. And that project continues to progress on track. We feel really good about it. And so that will position us, we believe, to do a number of things, focusing on how do we continue to improve our business improve the customer and banker experience once we get that work done. So those are important areas of focus for us. In terms of what it means for inorganic growth, we're going to stay focused on executing our plan. We believe our plan will allow us to deliver top quartile results for our shareholders, consistent with the same good execution that we've experienced over the last 5, 6, 7 years, and we'll -- that will be our focus going forward.

Final question comes from the line of David Chiaverini with Jefferies.

Follow-up on deposit costs. There's been some discussion about how cash optimization by customers in an AI world, could pressure deposits at banks that have a lower cost of deposits relative to peers. Can you talk about your view on this and how Regions plans to protect its market share?

Sure. No, it's a great question. And what could happen from AI is kind of proliferating several parts of the economy. When we think about the impact on deposits, we kind of start with the nature of our customer base. So our customer base average deposit is about $5,200. And when we think about the ability for customers to move money around what our customers are really using their account for is for ease of payments. And so we have to stay focused on making sure we're providing them the most efficient way to make payments across their daily lives, a much lower percentage of our customer base is really yield seeking. And so that, in my opinion, will be the first place where you will see the use of AI allow people to move funds around. I'd also say it's pretty easy to move funds around today. I mean it doesn't take too much effort to move cash in and out of accounts to get a higher yield. I'm sure AI can do it marginally quicker, but I'll just say, I think today, it's pretty efficient as well. So I think it's something that could play out. I think it will play out more severely for those customers that have larger balances seeking yield. We see them do it today. But as of right now for our customers, we need to make sure we're giving them all the payment capabilities they need to be done efficiently. And we'll continue to monitor this space, but that's kind of how we're thinking about it right now.

Very helpful. And then shifting over to the hiring pipeline, how does that look given the M&A that's occurring in your footprint?

It's good. It's good. We have hiring plans in our commercial banking business, in our wealth banking business, in our branches. And we're moving along having accomplished more than 2/3 of the hiring that we hope to do as part of our plans, part of our 3-year plan. And so we feel really good about the quality of the bankers that we're hiring and the opportunities that we have associated with that. It takes a little while for those bankers to begin to generate new business once they get settled in. So we'd expect to see the impact of some of that hiring in the latter part of this year and into 2027, which is again another tailwind for growth, we believe.

Yes. I'd just say even for our existing banker population, our platform is really delivering them the opportunity to grow their business. We're seeing a really nice decline year-over-year in attrition, even amongst our existing bankers. And so for us, we view that as a great lot of confidence that they have the platform they want to be able to deliver to their customers.

All the best, Dana.

Thank you.

Okay. Thank you very much. Well, I appreciate everybody's participation. And once again, congratulations to Dana. We appreciate her leadership, commitment, connectivity with all of you in the investment community. We will miss her, but we're confident Tom is going to do a great job. So thank you, and have a great weekend.

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

We'd like to get started with our first fireside chat after lunch here. Could you just get my papers in order. We have Regions Financial Corporation. To my immediate left, we have John Turner, who is Chairman, President and CEO of Regions, which has about $160 billion in assets. He joined or he became President of Regions back in 2011, and he's been obviously managing and running the company for quite some time.

Moving on to Anil Chadha, if I said , right? Okay. He's the incoming Chief Financial Officer. Prior to that, he was the Controller, and he will be taking over the official reins, I think, March 31. Is that correct? And he's replacing, of course, David Turner, who's at the end of the podium here, and many of you know David. He's been to our conferences in the past. He joined Regions in 2005 and he's been there for over 20 years and has been CFO since 2010.

The other change in management is out front here, Dana Nolan. She's been with Regions for 37 years, doesn't look it, but she's been there 37 years. And she's been heading up Investor Relations since 2016 and she would join the Investor Relations department in 2010. Her replacement sitting to her left is David Speir, he joined Regions in 2009. And prior to taking over the Head of Investor Relations, he headed up the Strategy and Corporate Development area. And when he joined Regions in '09, he joined it in the treasury department. So gentlemen, thank you for joining us today.

And maybe, John, we could start off with questions directed toward you. Obviously, you're in a dynamic economy in the Southeastern part of the United States. Maybe you could talk to us what's going on now? I know it's early in the year, but what are some of the economic trends you're seeing down there, behaviors by your corporate and consumer customers?

Yes. So despite some of the recent volatility, customers remain, I think, optimistic. We have businesses continue to demonstrate really good, I think, management of their balance sheets and income statements, good liquidity, good capital position. So businesses are generally positive. We're seeing continued job growth in our markets, nice announcements of job creation North of Birmingham, 1,500 jobs, West of Birmingham with 1,000 jobs down in Lower Alabama, 2,000 here, 2,500 there. Same thing repeats itself in Georgia, in Tennessee, in South and North Carolina, where we do business.

So good economic activity. Consumer is generally in pretty good shape. We're seeing more pressure probably on the lower income customer, consumer customer. Those customers bank, they have the checking accounts with us. We don't provide a lot of credit to that customer. So we're not seeing much change in our consumer credit metrics, but we do know there's a little stress on the lower end, but a lot of good job creation. So we expect continued economic expansion across our primary markets, which again are 7 Southeastern states and Texas. We also do business in the Midwest, which is -- that economy is pretty solid, too.

Yes. When you think about profitability, you guys are at the top of the heap amongst your peer group, of course, with a return on tangible common equity of about 18%. When you look at it through the cycle, and I don't like that expression, but what's a reasonable number that when you kind of look back and as we look forward of return on tangible common equity?

Our target stated now a number of years ago is 16% to 18% return on average tangible common equity. And we've outearned that for the most part over that period of time, particularly over the last 5 years. Our stated goal is to be in the top quartile amongst our peer group. And we've been fortunate enough to perform at the top of the peer group just based on positioning and I think really good interest rate risk management, among other things. But I believe somewhere between 16% and 18% is going to consistently be our target, absent some changes. And again, our focus is on being in the top quartile amongst our peer group.

Yes. Anil, in the fourth quarter earnings call, you guys spoke about fee revenue growth. And if I recall, it was 3% to 5% type of growth through 2026. Can you give us some of the drivers behind what you expect to drive that growth?

Sure. I'll start with capital markets. So we've a range of $90 million to $105 million a quarter. We stated that we expect to start the year towards the lower end of that range. We still feel like that business is going to continue to grow year-over-year. We're seeing good activity in that business. Pipelines are building. As you know, with that business, it's always about timing of when deal activity will close, but we're very optimistic in terms of seeing year-over-year growth there.

Wealth management was a really strong business for us last year. It's a place where we're making a lot of investments in FAs and financial advisers. We're going to continue to do that, and we're going to continue to see growth in that business from production, but also to the extent the market is in our favor, we'll grow even more.

Then, of course, just growing accounts, treasury management, consumer checking accounts, fee-based revenue will grow because of that. Treasury Markets was another really important business for us last year. It's a place we'll continue to make investments to drive capabilities for our customers. And so when we make all these investments, we expect to see revenue to grow, and that's what's embedded in our guidance for the year.

Got it.

Let me go back to the last question you asked. I want to be clear, 16% to 18%, we expect to operate at the top end of the range.

Okay.

Over the next 3 years, the next planning cycle. So just to be clear, I don't want anybody to think that we believe that our returns are going to decline over the next 3-year period. We do not at this point.

Sure. And maybe, John, there's been a number of mergers and acquisitions in your folks' footprint. What are some of the opportunities that you guys see as a result of your competitors being focused on integrating their deals successfully?

Well, as we often say about M&A, it's hard and it creates disruption. One of the reasons that we have not been attracted to M&A is we think that we have a plan that will allow us to continue to execute well and deliver the kinds of returns, as I've just suggested, that we have been. So hard for us to go acquire a bank and that's going to, in some way, negatively impact the returns that we believe we can generate for our shareholders.

So for us, that disruption creates opportunity to win new customers. It creates opportunity to hire bankers to come to work with us. And we are seeing those opportunities and enjoying the benefits of some of that.

Yes. And on a similar vein, JPMorgan and some of the big money center banks, which really were not opening branches 10 years ago in some of your strongest markets, particularly Alabama, let's say. Now they're expanding. Can you share with us the competition? Is it going to intensify? And can you tell us how you think you're going to approach that?

Well, definitely intensifying. And with respect to the likes of JPMorgan, who are building branches in our footprint, we're always looking at branch applications across our footprint. So we know who's opening, what branches, when and where. We're able to look at our customer base and know whether or not our customer has an ancillary relationship with that bank.

So as an example, a customer maybe has a credit card with JPMorgan. We can see that payment through the activity in their account. And we know to target our focus on that customer because we believe that's who they're going to try to win. So we anticipate that. And as they begin opening their branches, we're countering that activity with outreach, with different kinds of offers and things to ensure that we maintain those relationships.

And I'd like to say, even in our best markets, we have 30% market share. That means 70% of the customers are banked by somebody else. And so I remind our investors that we've been the hometown bank in so many of these markets. We've had long relationships with our customers.We have a strong local brand. Our bankers have a strong local brand and we're out actively working with our customers every day. We believe that, that 70% of customers who are not banking with us, but with someone else are at as much risk or more of leaving the institution they bank with and our customers are leaving us.

So I feel good about what we're doing. Clearly, more competition in our markets makes us up our game and get better at what we do, and we like the challenge.

Good. David, since I know you got 20 days left, and you're not just a handsome face up here. I have to ask you a question. Obviously, you joined the bank about 20 years ago. We had a really rough time in '08, '09. You and I have compared notes on that. When you think back over your 20 years, what has changed the most that you -- for the better, of course, at Regions and just banking in general?

Well, we learned a lot from mistakes that we made. If you go back and look at interest rate risk management, we had probably the highest net interest margin in 2007 over 4% and we were asset sensitive and we wrote that right into the ground and our margin was 250 something.

We learned to take that volatility out of our income statement because it's 2/3 of our revenue. And if you aren't good interest rate risk managers, you really can't be in banking. And so we learned how with our low-cost deposit base, how to hedge that risk, which is a low rate environment and we started putting that on, and it's been one of the key reasons why we've outperformed the peer group, in particular, when rates fell.

So we weren't particularly good at credit risk management. And we learned that concentration and risk management is important. We had too much land, too much real estate. Now in part, we put 2 real estate banks together in '06. So it took -- we knew we had a concentration, but we had to move much quicker because the financial crisis hit us.

So we learned from mistakes. We had a really good leader. Grayson Hall started out leading the bank and having us really focus all of our people on the mission, what we were trying to do. And he served us for 9 years, and then John took over and has taken it up another notch.

So we've had really good leadership. We have really, really good people working together. And if I had to say what's the single most important thing, it'd be that. We've had some hugely talented people that have come through Regions, some retired, some still there. And I think understanding what we're trying to accomplish, we've talked about being a top quartile performer. There's a reason for that because that gives us control over our destiny.

And so having everybody focus on executing their part of our strategic plan. We remind them all the time, this is your part, play your part. And when they do that and everybody runs in the same direction, you get the results that we're getting. So there's no one thing, but boy, we really did learn from our mistakes. We made some doozies. And the reason we're here is because of our deposit base, and it continues to be the competitive advantage that we have that's very, very difficult for anybody to replicate.

Yes. Anil, following up on David's comments, particularly about the margin and hedging, which Regions truly stands out. Can you share with us now David is obviously retiring, has been part of the team that put that together. Can you share with us how you're going to continue to carry that ongoing?

Absolutely. So I joined the bank in 2011, so right when this was coming to an end and then the rebuild, if you will, was starting. So I saw firsthand the impact of being all sides did to the bank. We've had a great team in place for many years who've worked on this together. So we've learned the lessons from the past. We've seen the benefit of having a well-hedged portfolio, capitalizing on the strength of our deposit base, and we're not going to go back against that.

So our strategy going forward is going to be the same because we've learned our lessons before. We've seen the benefit and allows us to extract the benefit from our franchise. And so I'm 100% convicted that it's the right strategy going forward, and you shouldn't see anything else from us.

Very good. Yes. Go ahead John.

I give David a little credit, too. The other thing I think has been really important to us is to focus on capital allocation and an understanding of risk-adjusted returns in our business and a willingness to exit businesses, portfolios, relationships that didn't generate appropriate risk-adjusted returns. And as a result, we've seen the benefits of that, I think, in our returns as we've been much more effective at managing the capital that our shareholders are kind enough to give us.

Sure. Absolutely. John, Regions has a number of systems upgrades that you're going through. Can you share with us where we stand there and what -- how it's going to roll out? And what it means to the profitability going forward?

Yes. So the first, I guess, big delivery is in May when we convert from one AFS platform to another. And that's going well. We're sort of in the last stages of that as we think about the conversion. And I think that will give our -- it will make the experience for our customers and our bankers better and will help reduce complexity. We're going from 3 systems to 1, which will be important. And again, I think give us some contemporary capabilities we don't have followed by a conversion of our deposit system. And we're in the user acceptance testing phase now. All the work to connect our platform with the application layer has been done. And now so we're testing to see if everything is going to work like it's supposed to.

We've gone through the phase of account origination, which is the first step in our user acceptance testing. Money movements next, and that's the more complicated part of the business. And so we'll see. But today, we feel good about where we are. Assuming we stay on track, we'll begin a pilot in the third quarter of this year with the idea that we begin conversion in the first quarter of 2027, and we complete all that by the mid part of 2027.

No big bang for us. So it will be a fairly measured approach to ensure that there's not a lot of disruption to our customers. But we're excited about the Temenos relationship platform and what that new deposit system will give us in the future.

Is simply what was like the major -- I mean, the advantages you're going to get now versus the old system? What...

Just. Well, the first thing was the old system was sunsetted, and we were the last bank on it. So there was really -- we didn't have much -- we did not have much choice. We had to do something. So we chose Temenos. We think it gives a concurrent cloud-based platform, will allow us to bring products to market much more quickly. It's forced us to organize our data in ways that we think now we've cleansed our data. It's well organized. That's going to be a key advantage, we think, in the future.

The whole process we're going through of essentially converting ourselves, strengthens our whole program management program. And so if we were ever interested in M&A, we'll have a team that's converted. We've already converted about 5 million customers, our own customers. And so we know how that process works. We certainly know our system well. And so I think it gives us a lot of advantages, both currently and in the future when the work is done.

Gerard, maybe one thing I'd add to that is the other capabilities it gives us is as we think about deposit pricing opportunities in a highly competitive environment, we're able to better segment our data and have bespoke offerings in particular markets, customer segments, as John mentioned, how granular we get with customers we really want to target. We are much better capable of doing that off of the new platform. So we're excited about that. The other thing that's out there for -- in the industry is tokenized deposits. And it provides us a platform there as well. So we're excited about those opportunities looking forward also.

Tying into the systems, can you share with us how you're implementing artificial intelligence, AI and what some of the benefits could be for your organization? We'll talk about that.

We'd glad to do so. So we have multiple use cases that we're investigating across the company. I think before you all heard me talk about what we've done in the developer space. So we've deployed the developer tool, Copilot -- GitHub Copilot, across our developer community. Through the end of the year, we had deployed that to approximately 10% of our developers. We expect to have that fully deployed to 100% of our developers by the end of this year. Where we've deployed that up until now, we've seen 30%, 60%, 90% lift in test case development.

So we think that's a huge opportunity for us going forward, especially as we continue to invest in technology. So it's not a reduction in headcount story. It's how do we really grow the business and grow the use cases in a far more efficient manner. So we're really excited about that. Each of our businesses are also looking for opportunities to better enable revenue generation. So focused on hiring the right bankers, making sure they have the right technology capabilities to deliver products and services to customers. And so we've deployed tools in the past across our commercial banking and wealth space. There's opportunities for us to expand that as well.

Then we're also investigating places where we have high turnover. So call center and places like that where you can deploy chatbots and potentially manage your turnover risk in a more efficient way. So there's a lot of use cases out there. We're glad to see some of them start to produce some early returns, especially in the developer space. But it's a place you have to continue to invest and stay up to date on most of the opportunities that are available.

One of the stories or themes in the investment world is how agentic AI could possibly force deposits, low-cost deposits into higher-yielding deposits. And David touched on your asset of the low-cost deposit base. Can you share your thoughts on how that might impact those customers? I think some people don't fully appreciate a $5,000 depositor may not necessarily run.

There's a certain segment of the deposit population or our customer base who are rate shoppers. We know that. An agent may make it easier for them to rate shop. But they're already pretty good at it, I promise.

I agree.

And so -- and that customer and those funds, we're not competing for on a regular basis. Remember, we're operating in a 72% to 74% loan-to-deposit ratio. Our focus is on low-cost transactional primary deposit relationships, operating accounts of small businesses and middle market companies. That's the core of our deposit base.

And so yes, I think it may make it easier for some customers to shop rate. Our deposit base is very granular to your point. Average consumer customer account balance about $5,500. So I just think, yes, it will have an impact on the industry. Yes, it will have some impact on us, but I don't see it as being a real threat to our business because of the very core nature of it. And we continue to grow it and we grow it amongst more core customers. So if you look at our track record over the last couple of years, we've grown deposits almost as fast as any of our peers and at a cost that's significantly lower than our peers. We'll continue to do that.

Yes. Sticking with the nonbank competitors, if you will. Can you tell us some of the competitive dynamics that you're seeing from the nonbank lenders or the fintech players? How is that shaping up in terms of competition for you folks?

Yes. I mean we've had nonbank lending competitors for some time. And the way we have viewed those, we try to learn from them, understand what they're offering, what customers like. We've actually acquired -- we've actually acquired 2, I think, right, Ascentium and EnerBank now, what we call [indiscernible] Home Improvement Finance Group. And we did that after studying what we saw in those particular segments and deciding that we wanted to have those capabilities, but we thought acquiring them rather than building them out suited us. And we believe that's been true.

In the case of Ascentium has been a great product offering for our small business customers. We now leverage it through our branches, which has been really helpful. We're about to introduce some digital account opening capabilities to our small business customers. We think will allow us to leverage that Ascentium platform into depository relationships that didn't exist. So there are a lot of things that advantages we think we've gained.

But the key is study what they're doing, understand what customers prefer, determine whether or not you can offer those capabilities or you need to acquire. We're seeing that in the payment space as well, where we have entered into some relationships in treasury management to give us some payment capabilities like in health care payments that we think are going to be really important to our customers. And so that's been our approach, and I think it served us well.

Yes. Regions has been very good in giving us color and insights on credit quality. And you've identified in the past certain segments of the portfolio you're watching extra carefully. Can you update us on what you guys are thinking on credit and in particular, the segments of the portfolio that you're putting in?

Yes. In our case, credit continues to improve. Charge-offs were elevated in the fourth quarter, may be elevated again in the first quarter, but we're guiding to 40 to 50 basis points for the year, and we think that's a good range. We've identified some problem credits in office and in transportation, to name 2 sectors that we continue to work through. There are some -- a couple of credits that are related to the digital space that we're also working on, working out of.

But over that period of time, the last couple of quarters, you've seen level of criticized, classified assets come down, let of nonperforming assets come down. And we believe that's a trend that is -- will be sustained. What you'll see as that occurs is our provisioning will likely come down as well. And over time, we'd expect the allowance to return toward what we'd call a CECL day 1 portfolio, which was about 163, 164 or something like that. So credit quality is good. And we don't see really any new emerging areas of problem for us.

Very good. Coming back to the branches that people are expanding with. Can you share with us your branch expansion strategy? And for maybe a generalist PM, it's counterintuitive. You touched on digital, but everything is going digital, who goes into a branch, that kind of stuff. So maybe some thoughts on that.

Yes. We find customers still associate with branches. They want to come into branches when they need advice and guidance when they have a problem, when they are doing something that they don't have a lot of experience doing or it's a first-time event. We think branches still provide an important connection to our brand. People see our branches in markets. They know we're making investments there, reminds them of who the bank is. We think the way branches look and feel is a really important reinforcement of who our brand is. And so they're important.

To your question, we're going to build 135 to 150 branches over the next 5 years. We just made the decision to pull that forward a little bit. It was a 7-year plan. Now it's 5 and might be 4 if we can acquire properties faster and we think we have the opportunity to make investment. Simultaneously, we'll probably close about as many because what we see is population shifting. We see opportunities to combine branches, 2 for 1, 3 for 1. And all that both gives our customers more opportunities to bank with us, gives us access to new customers and at the same time, it helps us manage the cost associated with continuing to expand our footprint.

So what we found is branching in existing markets where we have a presence already is highly profitable. Entering de novo markets where we have a very limited presence is much more challenging. And that's because, again, we're focused on building core relationships with customers, not just buying deposits. And that's hard work. But where you have a presence, you're known in a market, you got a lot of -- you got a big tailwind and helps a lot.

And in those 160-plus branches, geographically, where are they -- what's the concentration?

Looking at some numbers the other day. I would say maybe 16 to 20 in Florida, maybe 6 to 10 in and around Atlanta, in Tennessee across markets, again, maybe in these numbers are I'm trying to -- from memory, but let's say, 12 to 16 in Tennessee. So pretty widely distributed across our footprint. And no concentration of more than in, let's say, Miami, 6 to 9 in Nashville, 5 to 7 as an example.

So no branches in Portland, Maine.

Not yet. Not yet. Maybe a well thought, I know where all the money is? Right.

Very good. When we look at bank M&A, we touched on it briefly. It's going to continue, we think. What's your guys' view just from that standpoint, not the existing deals that have been done, but just view...

We'll continue. I mean we've been in a consolidating industry going back at the beginning of time, I guess. But certainly, over the last number of years, we've seen consolidation. The regulatory environment appears to be quite favorable. The turnaround time on approvals has been really amazing, surprising and great for the industry. The certainty of a transaction lends to, I think, more confidence, both on the part of the buyer and the seller, which is a really good thing and very appropriate, in my opinion.

We're winding down here in the last couple of minutes. And maybe, John, you can share with us, and David also like you to answer this, what message do you want to leave with investors today? And David, I know this is your last public appearance. So any last thoughts as well I would like to hear. But start off with -- do you want to start with me?

Okay. Well, I would say we're focused on continuing to make it -- we're in really great markets. We're focused on continuing to make investments in people, in technology and process to ensure that we're building a bank that performs consistently, is resilient and that consistent performance is sustainable over time.

We're not going to be the fastest horse in the race. Often refer to us as a little bit of the -- we're the tortoise in a lot of respects. But we're focused on managing our business for the benefit of our shareholders, our customers, our associates and our communities over time. And I think we have -- because of that, we've been able to build a business that has, over the last 5 years, delivered top returns in our peer group, and we think we'll continue to do that with a focus on capital allocation, risk-adjusted returns, doing the right thing the right way.

And I feel good about what we've accomplished, great about the team that we're building. And again, we're in really good markets. So I think we'll execute well. And notwithstanding the fact that we'll have a new CFO, I think we'll be okay.

Okay. David, anything to add?

Anil is going to do fine. No, it's been a great run for the past 20 years. And listen, Regions, people ask what is misunderstand about Regions. We really have a good team. We have -- we're in great markets. We have a great foundation in terms of our deposit base that we can leverage. We know how to make money. We learned a lot of that from all the mistakes that we made, but we're very good at what we do. and capital allocation is critically important to us. And we don't have to do anything. It doesn't have to be real special, just execute the plan. We don't have a very complicated strategic plan.

Our Board signs off of it on it every October, and we all know our part. We just execute that plan to John's point, we're going to have one of the highest returns. We don't have to be #1 in return. We just need to be top quartile. And we stay fixed on that, and we're going to be efficient, have to continue to monitor cost. We're going to pay a fair dividend. I had to get that in fixed income, I need debt. They voted me down on the increase I wanted to have that day, by the way. But anyway, it's been a great run, and thank you guys for all the support and beatings that you've given me.

And it hasn't been a great run. You'll be missed, both personally and professionally from everybody. So what I did was I had a T-shirt made up. And it has obviously the green logo of Regions. But what I did was I had the stock performance under your tenure but it has been a great run. But what's even better David and I share stories about grandkids. So I had...

And so the little guys know what their grandmother has been doing. So David, thank you so much. I got T-shirts for a bunch of you. So I know John is going to want to wear T-shirt in the office. But please do a round of applause for the guys from Regions. Thank you.

So we'll go ahead and get started. So first of all, welcome, everyone, to Bank of America's Annual Financial -- 34th Annual Financial Services Conference. Ebrahim Poonawala, Head of North American Bank's research for BofA. We're on the Day 2 of our conference, or actually Day 3, in earnest began on Monday evening. And I think so far so good. Outside of all the market noise, I think just the updates from the banks across lending, capital markets has been fairly constructive. So hopefully, that can continue today if we kick off our sessions. And a lot of points of discussions around regulatory clarity. We hosted a panel yesterday talking about potential for some Basel Endgame proposals towards the end of the quarter and some opt-in, opt-out option for regional banks ex the G-SIB. So I think should be interesting few months ahead.

And then obviously, AI disruption risks being sort of the topic du jour. Whether or not it lasts a week from now, time will tell, but great conversations. I would also like to request you all to save the date for next year, it's February 8 to 10, same location. Turns out people don't really hate being in Miami in February. So we decided we'll do more of the same.

And for those of you who are on the webcast, hopefully, you can join us next year. So with that, I would like to welcome our next speakers, Regions Financial. From Regions we have David Turner, Chief Financial Officer; sitting next to David, we have Brian Willman, Head of Corporate Banking; and then Anil Chadha, incoming CFO of Regions Financial. Thank you, gentlemen, for being here.

Thanks for having us.

And I mean, obviously, a huge time you to David, who was not planning to participate on this discussion. So I had to drag him and I think I just feel like there's so much history around banks and Regions tied to David. So it would be remiss if I lost out on this opportunity to ask you a few questions. And not all of you may know, like David's had a big part. I actually indirectly work for David back in the day as part of Morgan Keegan, and David played a role in, for better or worse for sort of kicking me out. So...

We sold the whole company. Sorry.

But I always knew he didn't really like me as much. But -- so I wish I was that important. But David, more seriously, I think, you've been in banking 40 years. At Regions, I think like most investors think of you, along with John, as sort of the architect of the Regions that we know of today. Maybe spend some time talking through the evolution of this franchise, maybe going all the way through the Regions-AmSouth merger prefinancial crisis. And where -- how it has evolved during the crisis, and what you have as a bank today, one of the best deposit franchises in the country, one of the highest ROE franchises within the regional banks? So over to you, David.

Okay. Well, thanks for having us, and good morning, everyone. Yes, it's been a great long ride. I go back to the merger, Regions acquired AmSouth in 2006. We put 2 real estate banks together, concentrated real estate in the state of Georgia and Florida. Didn't know there was going to be a great financial crisis right around the corner. And that move of putting those 2 banks together just about caused us to fail. We did not fail, as you know. And the reason for that is our deposit franchise, which continues to be a competitive advantage for us today. We have a very loyal deposit base, low-cost deposit base, and I'll get to that in a minute, but that really saved us at the time.

We were not particularly good at interest rate risk management, and we weren't particularly good at credit risk management, 2 things you actually have to be pretty good at if you're going to be in regional banking. We weren't really good at expense management, and our capital allocation process didn't exist. So other than that, we were pretty good. And so we learned a lot of lessons for what not to do. And on Page 21 in the deck, it really speaks to our net interest income and margin lesson from that time. We had the highest net interest margin in 2007, a little over 4%, and we wrote that down, staying asset sensitive when rates were cut in the great financial crisis to 2.56% or something like that. And we learned that what's important to us is low interest rates are really our nemesis. So we have this great deposit franchise. But if you can't extract the value out of it in all interest rate environments, then you don't have a competitive advantage because when rates are low, everybody has cheap funding.

So we started hedging, and we're really good at that. Our treasury team worked together to start doing that in 2019. And now we have -- if we're not the highest margin, we're #1 or 2, and not only that, our volatility is down dramatically. So our margin is going to be somewhere between 3.60% and 3.90% just about any interest rate environment. So we've taken that volatility out. That was a huge lesson for us to learn. That's 2/3 of our revenue. If you don't do that well, you're in trouble. Credit risk management, we had concentrations, as I mentioned. We've taken care of all of that. We did some derisking, and Brian will talk about that, last year, and that was a headwind to loan growth, which shouldn't be there this year, so we'll talk about that in a minute.

And then we had to be really good at expense management, which we were not. We -- today, we have a pretty good efficiency ratio. And yes, we have more branches than almost everybody on a relative basis, but it's where our low-cost core deposits come from. So you can't just look at that. Every banker that comes through ask us to get rid of branches, and it's not happening. So good expense managers. We're very good from a liquidity standpoint and capital allocation became really vital. So we think of capital first. So we generate 40 basis points of capital, round numbers, every quarter. We use 18 of that for dividend. So the 22 really is for loan growth.

When it's there, appropriately priced, relationship-driven, we get paid for the risk that we take. And if it's not, we buy our stock back or we'll do a securities repositioning. So all those things were -- sound so basic today, but if you don't do them well, you're not going to perform. And so we do that. That's in place. We have processes in place. And this transition to Anil as CFO is going to be seamless. And I'm going to go play golf and learn how to putt and move on. But I'm excited about what we've built together as a team and looking forward for these guys to continue growing.

I think you said this in one of our published reports that David should write a book on interstate risk management for bank CFOs as a manual. But I guess maybe, Anil, over to you. Sort of big shoes to fill. So just if you don't mind spending a few minutes around your background with Regions, and just as you come through, your view of the balance sheet, sort of risk management, interest rate and otherwise, yes?

It's great to be here. So I've worked for Regions for right at 15 years, just over 15 years. I joined the bank in 2011 in the Corporate Treasury group, and task #1 was to build out the CCAR stress testing process. Well, first figure out what it is and then build it out. The commitment that we had from the CEO down is what allowed us to be successful in doing so. So I was fortunate enough to lead that team for the better part of probably 8 years, became Assistant Treasurer, worked with David in the early stages, primarily on capital, liquidity and funding. That was my primary areas of focus when I was in corporate treasury.

Had the opportunity in 2019 to go to our risk management team, help build out the CECL function, build out risk analytics and really kind of bring some structure to how we approach credit risk. So did that for about 3 years. And then when our Controller retired, David asked me to come back to finance, not an accountant by trade, but we have a fantastic team there. So it was just an opportunity for me to come back to finance, lead in a broader way, did that for a couple of years and then took on the corporate finance FP&A role when that leader left the bank.

What's important in all that is 15 years is not just me. There's a deep talent base that we have within our finance function, where we've all learned from David and his 16 years as being CFO. And so he mentioned everything that we've done to improve, and he mentioned we built processes in place. And that to me is what's critically important. My approach is going to be very similar to David's. I have a similar risk lens to how we approach making decisions, how we position our balance sheet, how we take actions going forward. It's proved us incredibly well in the past, and you should expect to see the same from that on a go-forward basis.

Thank you for that. I'd love to circle back on a few things you mentioned. But maybe, Brian, for you and before we talk about the today and the now, but something that David mentioned, like I had the view that it's very, very challenging for a real estate bank to all of a sudden overnight become a C&I lender. Just talk a little bit about the transition when we think about Regions over the last decade in terms of diversifying the loan book. And then maybe from there, we can talk about what growth outlook looks like.

Sure. Well, good morning. Thanks for having me. I think David alluded to this, when Regions was combined with AmSouth, primarily real estate bank, I joined in 2009. And my background was primarily C&I. And so I was charged with basically helping reshape the commercial bank into going from CRE lenders to bankers. And so you do that over time. Some of that's developing your own within, but also a lot of hiring external and really putting out a North Star around, "Hey, we want to be local bankers, giving advice, giving different products and services to the Southeastern footprint that we operate in." That took time. There was turnover. We had some days where we didn't really know if we were going to make it, as you alluded to, but here we are 17 years later and a really diversified book, both in C&I and CRE.

We've also done that based on without making a bank acquisition, but really filling in product capabilities on nonbank side, whether it's building up our capital markets capabilities to service our capital needs of our clients, certainly on the real estate side, that's been a good story for us. But the fundamental change was we had to be really good risk managers. We just could not afford to continue to go back and have volatility in our charge-offs. And I think you'll see that as we work through some of these portfolios of interest, that volatility will continue to decrease, and we feel really good about the portfolio as a whole.

As I transition maybe briefly to kind of the growth, I know the knock has been, well, when is Regions going to start showing loan growth? Last year, you recall, we were really focused on derisking our corporate banking group's portfolio targeted around our portfolios of interest. We had about $770 million or so of those in our portfolios of interest, office, trucking, senior housing. We also, based on our leveraged lending book, realized that, that was probably not the right risk-adjusted return. And so we also reduced and exited about $1.7 billion or so last year. We've reduced the leverage lending book about 20% last year alone. And then as you think about the normal capital markets activities that refinance off our balance sheet, that was really good for fee income, but obviously a headwind to our balance sheet.

You transition to 2026, that capital markets activity will always be there, but it's not a headwind for us to grow the loan book. And we're already seeing some green shoots midway through the quarter around loan growth. We feel good about the guide that we've given. I think the operating environment is very constructive for our clients to start putting capital to work. Good news for us is that line utilization hasn't really picked up at all, but we're still been able to deploy our capital and grow the book. And so -- and then the last thing I would say is remaining derisking is really only about $400 million over the next 2 years. So that's vastly behind us, and I think we'll have a good story around growing the book.

That was helpful. Maybe just sticking with loan growth and the customer sentiment. What do you think it takes for line utilization to pick up? A couple of years ago, it used to be that clients were waiting for rates to be cut by the Fed, et cetera. There was policy tariff uncertainty a year ago. My sense is there's a lot more higher tolerance for some of the unknowns. But what do you think it takes for clients to sort of actually...

Yes, I agree. I think the environment, certainly, lower rates could be a catalyst, but it's not a requirement. We've been growing commitments about 2%, 2.5% a year, just to level set 1 percentage increase in line utilization. We're about 31.5% right now, translates to about $660 million of fundings. And so when I'm out with clients, whether it's middle market, large corporate, they realize that their strategy, they have to start deploying capital. I do think the tariff uncertainty of last year, the geopolitical, that's largely subsided. They've been able to protect their margins. Top line growth is still strong. And I think now we're seeing some evidence of that in some sectors, not broad-based, but I do expect line utilization to pick up in '26 for us. The sentiment just is different. The uncertainty, everyone was kind of in lockdown mode. I don't see that being the case. And that's already happening, at least evidenced in our book.

Got it. Maybe, I guess, Anil, switching to you. As we think about the levers that banks have capital expenses, maybe just talk about, I think over the last 12 to 18 months, Regions has talked about investing in expansion, higher-growth markets. Give us a mark-to-market on where that stands? And when you look at '26 and beyond, what are the top 3 investment priorities?

Sure. So our investments have been equally in 2 places. One, banking is a people business, so heavily invested in hiring more bankers, reskilling bankers for different roles. What's important is that's work we started last year. We're about 75% through the hiring plans that we have across Brian's business, across consumer and wealth as well. So we have already made significant traction in onboarding those associates. We expect them to start delivering mid this year in most cases. And to Brian's point, we're already seeing green shoots of what they are producing. That's what we planned initially. We're more than willing to increase that to the extent there's good banking teams come available. That is where we think we should continue to invest in people, in markets that we feel have a great opportunity to deliver for us.

To your point, technology is another place where we are heavily invested. We've talked a lot about the core transformation that's underway. We'll deploy our commercial lending system mid this year. We'll start to deploy and test our deposit system this year and into next year. And then we also have a new general ledger that we'll be putting in place into the future. But beyond all that, we're also making targeted investments in each of our businesses aligned with our strategic plan. So making sure Brian's treasury management team has all the products and capabilities they need to be successful, making sure, on the consumer side, we have the best digital experience that we can in order to continue to attract new customers there.

So these are places that we will continue to invest, both in people and technology. We'll make sure those investments generate the returns that we expect to see. But when we have opportunities, we're more than willing to continue to make additional investments. And as we've said before, it's incumbent upon us to continue to find ways to fund that internally as well. You've seen that historically for us with our compound annual growth rate of 2.8% from an expense standpoint, and we are committed to continuing to deliver positive operating leverage. But when it comes to investing, to making sure that we can grow and deliver the returns that our shareholders and that we want, we're more than willing to make investments today to the extent those opportunities exist.

Got it. I think that's a good message. I think most long-term investors would like banks to invest, grow, sort of make resiliency towards the growth and the profitability profile. When you think about the savings, just given the job you've -- it's been great over the last 10 years, like how hard is it to find incremental savings today?

It becomes different. So when we went back in 2017, '18, '19, we had a much bigger opportunity. And so you can take a different approach to how you do that. Now you need to be more focused, right? So where are the pockets where there's opportunities to be more efficient. This is where you can bring in new technological advances and say, okay, in places like contact center, in places like certain parts of risk management, we know there's potential capabilities, whether it's with traditional AI, machine learning, generative AI to bring additional technology to bear and supplement the work that needs to be done. In many cases, these areas have high turnover. So it's a natural place where you can embed technology and be more efficient, things like co-development.

It's a place where -- that's not to reduce, but it's to limit the amount of increase that we may need in terms of new developers through time. So we've started to deploy GitHub Copilot across our developer community. We deployed about 10% of the developer community by end of -- at the end of 2025. Where we've deployed in limited use cases, we've seen 30% to 90% lift in co-development. It's our goal to deploy that across 100% of our developers this year. So when you think about all the technological advances that we need to make as a bank, when you have capabilities like that, that can drive greater efficiency, it's a way for us to limit incremental headcount that's going to drive business performance.

Got it. Maybe, Brian, for you, when we think about just corporate banker hiring, one, talk to us about how competitive the landscape is to hire bankers, plus you're in markets where we are seeing a fair amount of M&A going on. Does that create opportunities for the bank?

It does. Maybe I'll separate into 2 categories. First, in our priority markets where we've been making investments that Anil alluded to, we've had success. I think it's a local approach. Our local leaders know who the competition is. The recruiting doesn't happen overnight. That's built over time with relationships. And then because we've not done a bank transaction, we've been very stable. And so with the disruption of some of our competitors, that's been an opportunity for us to bring over talent, to onboard them and obviously, their client book at some point. In our core markets where we've been operating 100, 120, 130 years, for perspective, the average client tenure in the corporate banking group is 30 years. And 75% of our revenue comes from clients that we bank 5 years or longer.

And so we have an innate kind of sticky client base. And so when competitors come in and they're disrupting, I tell our teams all the time like, know who your clients are, assume somebody else is out there talking as well as your team, have a plan of being proactive, not reactive. And at the end of the day, we're still in the customer service business. Don't give a client a reason to move. And if you do that, you're bringing advice and products and services, you're deploying the balance sheet and you're doing that in a consistent way and you institutionalize the clients, so they just don't have one contact person with their banker, it's the whole support team, then that typically works out well.

On the priority markets, we're already seeing benefits of the hires that we made last year. We grew our new client, we call them, new logos 17% last year, and 40% of that growth came from those priority markets. And so I think, just to level set, last year, for the Corporate Banking Group, was a record year for top line revenue. It was a record year in treasury management. It was a record year for total client liquidity, both on and off balance sheet, hit $50 billion, and it was the second best year ever in capital markets. And so we have momentum, and I think we certainly expect that to continue. We're about 2/3 of the way of hiring our bankers. We'll have the rest of them hired by, I would imagine, the third quarter this year. Onboarding is going well, and they see the value of our culture and ability to service their clients.

And just to that point, I think Anil mentioned hires from last year or over the last 18 months should start sort of delivering by the middle of the year. What else is required in terms of the infrastructure build-out? When you think about the priority markets, hiring the bankers, I think Anil mentioned like supporting you on the tech side, on payments, et cetera. Like what are the 1 or 2 things most that you need beyond just the banker hiring to be sort of 100% there?

Yes. I've talked about the banker kind of the frontline client-facing. But behind that, you have to hire treasury management support. You have to hire credit product support to deliver and underwrite and service credit risk. The technology investments around product that we're making in treasury management, all that is a total view. So the bankers kind of get the headline, but you're going to have more investments to support that. I think, for us, as Anil mentioned, as a business leader, we're always trying to find ways to self-fund this growth. And there's opportunities, whether it's around our AI journey, it's around banker enablement, client onboarding, credit delivery and servicing. So all those things will gain efficiencies that we can redeploy and hire those product teams.

For me, it's -- our business is not complicated. You hire the best people in the best markets, and you empower them with really good product and intelligent delivery, you're going to differentiate yourself and you're going to see the success that we've enjoyed. And so competition is good. I have a college baseball background. I love the competition. I think our teams thrive on it. It makes you better. You can't get lazy. You have to have a sense of urgency, and that's what we're doing, and we're in great markets, but we can't take that for granted because we know competition is out there.

It's good to hear. When you think about the investment banking business, Regions obviously has sort of higher exposure to real estate banking, which just a sector that's been more rate sensitive. When we look at it today in terms of like the real estate -- investment banking to hit its full potential, do we need the curve to be a bit lower? Like what do you need from the rate side for that business to pick up?

Yes. I think that's a great point because as we alluded to last year, we had a little softer fourth quarter in capital markets. Primarily the miss was in M&A. We had 2 acquisitions over the years, Clearsight and BlackArch, as you know. The M&A side, that pipeline has fully recovered. We see really the bid-ask spread has started to tighten, pipelines look really good. But in the real estate capital markets, when we build up that agency platform, historically, you've needed the 10-year to be 4% or lower. Now we'll see what the jobs report comes. We'll see what happens. But that -- I tell our teams that can't be the sole reason why you perform or not perform. And so we've hired additional originators within our HUD business. We actually are out there in the multifamily space saying, "Hey, what's the supportable loan that we can do? Can we make sure that we pull some of this forward?"

And then a lot of people talk about the upcoming maturity wall. We have a bridge lending program that we feel like we can retain if we don't place them in the agency permanent market. So I think that's more of a little bit more interest rate dependent, but I don't think that's going to be a big headwind. We've guided to [ 90 to 105 ] or so a quarter. Some of that's episodic. We did see some delays because of the government shutdown in some cases. But if you think about the allocations that Fannie and Freddie are getting in 2026, we feel like there's a lot of pipeline that can fill for us to deliver those capital market fees, so...

Got it. I guess maybe switching gears a little bit to deposit growth outlook. Just talk to us, like we've talked in the past, right? I mean every bank in the country wants to get into the Southeast, makes the market extremely competitive. When you think about, one, what does the competitive landscape look like today? Is it any better or worse compared to a year ago? And then how does the bank like Regions that already has a very good deposit franchise go about growing deposits or core deposits?

Yes. So competition has always been pretty stiff in our markets. They've been desirable for a long time. They've gotten increasingly more desirable. So competition has always been the case. Logos may change, but we're still competing with bankers day in and day out. When it comes to protecting our deposit base, there's a couple of things that have to be front and center. One, you have to continue to deliver the capabilities that your existing customers want, whether it's on the consumer side or on the business side. You need digital capabilities, you need treasury management capabilities that evolve with the business. And so you've got to do everything you can with your investments to make sure you protect what you have today.

When it comes to attracting new, you want to be in the markets we're in. That's where you're seeing population growth. That's where you're seeing small business formation. And so we have that natural tailwind that we can take advantage of, but we also need to invest in that. And so investments that we're making in better capabilities to capture small business deposits are something that we're really excited about. But they're also just continuing to make sure we have good branching. We're in the right locations within our footprint. We'll relocate as we need to, to make sure we're where the population growth is, but you need to do a little bit of everything. That's how you protect what you have. And going back to what Brian said earlier, you do not need to give your existing customers any reason at all to move. Nobody wants to move their operating accounts. It's a very difficult thing to do. It's a headache. And so we cannot give them a reason to do that. And that's we have to continue to invest to make sure we're meeting the needs that they have.

Yes. And maybe just if I could add real quickly. In the wholesale bank, I talked about total client liquidity getting to an all-time high. We did that while still bringing down wholesale deposit costs 37 basis points last year. And so again, it kind of goes back to that local relationship that we've -- I mean that's our secret sauce. That's how we differentiate.

Let me add one other thing because Anil mentioned the small business opportunity. So there are 5 million small businesses in our 8 priority markets. There are 12 million small businesses in our footprint. We bank currently 400,000. We have a huge opportunity to grow small business deposits because every small business has to have an operating account. They don't all need loans, but they need an operating account and the payment mechanism. And so we are reskilling 300 bankers in the consumer side. We've hired small business relationship managers, and we're going after the small business because you can get low-cost bulk deposits to go with the loan growth we just talked about because you can't let loan growth outstrip your deposit growth. Otherwise, your profitability is not there. So doubling down on small businesses is important.

That's a good point. I guess maybe, Anil, just sticking with deposits balance sheet. I think David mentioned NII 3.60% to 3.90% range, more or less. Just as we move forward, what's your view on interest rates or the outlook? And how do you think about just risk management to keep the margin in what's still a relatively narrow band?

Sure. So just to level set, we ended the fourth quarter at 3.70%, had a couple of onetime items, really sets kind of a 3.66% starting point. We expect that to grow throughout the year towards the end of the year. And so that's what we expect in terms of what we're seeing right now. In terms of protecting the margin, going back to my opening comments, we've seen the benefit of the importance of appropriate risk management around the margin. You saw us start to do some of that late last quarter. We put on $3.5 billion of hedges looking at longer-term rates. So really protecting against what could be lower rates on the long end. We added about another $1 billion this quarter. So we're effectively hedged at around $4.15 billion plus or minus on the 10-year equivalent.

We think that's important because if we deliver what our expectation is relative to margin performance, we're going to deliver the returns we expect. We don't need to take outsized risk when it comes to NII and margin to get there. So when we have a plan that delivers what we think is appropriate, we're going to lock in a portion of that and minimize the variability around that. That's what we've done for many years, and we're going to continue to do that. So we think the outlook is positive. We look at deposit costs. Brian mentioned our ability to manage deposit costs. We exited the year at 1.78%. January is at 1.73%. So we continue to have the tailwind of being able to bring deposit costs down. And with loan growth that we expect this year, with fixed asset repricing occurring this year, $12 billion to $14 billion of -- probably picking up about 75 basis points to 1% on that. Those are all the tailwinds that we have into this year when it comes to NII and margin.

And what gets the NIM to 3.90% versus 3.80%, like how you think about it?

Yes. I think you have to have a steeper curve to do that. I think you need to have -- you have to continue to outperform on the deposit cost side. That type of environment is going to allow you to get to a higher end of that range.

And the back book repricing, do you think, for the most part, the benefits of back book repricing begin to fade as we look beyond '26?

We still have a couple of years of benefit there. So I would not expect that to fade this year. It will continue out a couple more years.

Got it. Maybe pivoting to just regulations, capital allocation. First, from a regulatory standpoint, I think we had a conversation yesterday where, among all the rules, there's a heightened focus on one on the supervision side and in terms of looking at liquidity, liquidity rules, stress testing, et cetera. Is there anything from a regulatory standpoint that could -- I mean, again, you have done an awesome job managing through the way the framework is today. But I'm just wondering, is there anything at the margin that you could see get shifted or normalize on the regulatory side that would sort of help Regions?

Well, broadly speaking, not getting anything new is incredibly valuable. When you don't have the new things coming at you that you have to throw people, time and energy at, that is a huge benefit. So just knowing what the rules are going to be, that don't underestimate the benefit of that. In terms of what could happen this year with respect to wherever the Basel III Endgame comes, we might get some marginal relief from a risk-weighted asset standpoint. We'll see what happens with respect to inclusion of AOCI. I know the rating agencies still care about that. So we're going to continue to manage inclusive of. But just not having new things coming at you is a huge benefit across the company.

Git it. And I guess tied to that, when we think about capital deployment priorities, obviously, there's a lot of M&A going on. It feels like there's a window over the next few years to do some deals. Just talk to us -- remind us on the capital deployment priorities and how M&A fits or does not fit into them?

Sure. So we'll generate -- as David mentioned earlier, we'll generate 40 basis points of capital a quarter. Number one priority is we'll have our dividend of 18 basis points of that. From there, we're going to invest in good organic loan growth. And we think we have great opportunity this year, as we've talked about before in terms of what we'll see in our core markets and our priority markets. If there's capital left over from there, we'll continue to look at nonbank acquisitions to bolster the noninterest revenue sources that Brian alluded to earlier. We're constantly looking at that. And from there, we'll buy back shares. We don't need to execute M&A to achieve our strategic plan. It's disruptive. It takes us off the goals that we have in place. We know it's out there around us. We love to be able to take advantage of opportunities to hire bankers when that's the case. But that's not something that's at the forefront of our mind. It's not something that we need to achieve our strategic plan. And so we're going to focus on executing our plan and delivering what we've committed to.

And on the nonbank side, would it be wealth management, would it be capital markets, like where would we see interest?

I think it's both.

Yes. We're evaluating capabilities in 2 areas: capital markets, specifically, municipal finance. And then on the health care payment space, we've actually had 2 recent joint ventures and announcements and partnerships around really patient refunds. That whole payment ecosystem, embedded finance, that's something that's really important to us, and we've made investments, and we're starting to kind of see some early returns of those. I think that's the 2 main areas from a nonbank perspective that we will either make direct acquisitions or investments or potential JVs with so...

David, for you. I mean, we started with the Regions-AmSouth merger. When we think about bank M&A, like -- so you laid out a great case for organic growth, investment spend, like what's happening there. But are there good strategic deals that can be done or just M&A is so disruptive to the process of running a bank where it becomes prohibitive to some extent?

Well, I think John Turner, our CEO, has mentioned that we are obviously aware of what's going on around us. We know that the environment is conducive to M&A, and you've seen that. But they are -- it is disruptive. And bank M&A, if you look -- our history is not a good history in our industry. We have a tendency to overpay. We don't get the returns. We have cost saves that are too high that don't come to fruition. And so that being said, as we think about M&A and Anil now has a corporate development group, they look at things all the time, but it's not part of our plan. But when we think about it, what matters is when you can get density in the market that you're already in, when you get products or services that you don't have that you can push through your customer base, we look at the deposits of those potential opportunities because we have the best deposit franchise, and we're going to be -- if we did a deal, we'd be giving that to a target, what are they going to give us, our shareholders in return?

And so looking at their deposit base is important, looking at their business and how it can be helpful, not just to get bigger. We're $160 billion. If we were $320 billion, people would still say you need to get bigger for scale purposes, and that doesn't matter. It's the density in the market that matters, and running your franchise appropriately matters. There're banks that are smaller than us that are very good banks that operate just fine. It's not about getting bigger. But if we can find something that really was complementary that made sense at the right price, all these things lined up, then maybe you could do a deal. But for us, trying to do that right now and we're putting in a new deposit system would probably cause us to have to push out cost saves 6 months. And market probably wouldn't like that, but that's just the reality. And so we need to stay focused on our business, execute our plan, get our deposit system in, and then we're going to have a competitive advantage, we believe, to go to the market after that. And that will be sometime in '27.

Got it. That was helpful. I guess maybe I'm not sure what the jobs data looked like, but maybe on credit quality -- it's good, I guess. Okay. That's good. The green on my screen generally makes me feel better. It should not, but it does. But just talk to us about credit quality, right? I think we've had -- we've argued that there are parts of the economy that have been in some version of a recession over the last few years. When you look at your portfolio, are there aspects to that where you're like, I think trucking and shipping has been one, obviously, over the last few years. As we look forward, are there areas where you do think there's a little bit more vulnerability in terms of credit losses and delinquencies picking up?

Yes. From our perspective, on the wholesale side, we don't really see any other concerns outside of those previously identified portfolios of interest that we're having continued resolutions for. I will tell you, as we look at our overall book from a risk rating perspective, we're seeing upgrades outpace downgrades by a factor of 1.75. We continue to see reductions in criticized, classifieds and NPLs. And so from our perspective, because we've done a lot of the heavy lifting last year and the previous year, as I alluded to, derisking our leveraged lending book, our NDFI portfolio is really pretty stagnant. It's primarily 70% investment grade, mostly large unsecured REITs. And so we don't feel like there's any big potential clouds forming for us as we look at our portfolio.

We have a very granular base of clients. And we're shifting even probably more so in terms of our small business, SBA, Ascentium that are secured. Obviously, we have syndications. We have things that we're going to drive capital markets fees, but you have to be very targeted client selectivity. Just like we saw some of the fraud last year that we were not a part of, it just underscores how important your credit quality, asset management, being curious in terms of who you're putting on your balance sheet, and that's just basic banking 101. So from our perspective, regardless of what the macroeconomic forces feel in our markets, population growth is outpacing the national average, business formation, we feel pretty good. The sins of the past, so to speak, that we've kind of resolved, that's largely behind us.

And I'd just say, on the consumer side, the part of the sector that we lend to is performing very well. So we don't see any real risk there. And all this is kind of embedded in how we think about the allowance from here. And we've talked before about continuing to bring that down closer to the 1.64% that we kind of have. So all that's aligned with our current thoughts of what we're seeing from a credit standpoint.

And just very quickly, and again, there's been a lot of noise in the market. When we think about AI disruption risk to businesses, how do you think about that within your sort of portfolio companies who you lend to?

Obviously, there's been headline risk around the software companies with Anthropic's announcement. That's not a business that we have a lot of exposure to. That's typically enterprise value lending. I think our total exposure that we accounted in that space is less than $200 million. And so it's not something for us. Even with the change in the leverage lending guidelines, we look at our policy that doesn't change how we underwrite and our go-to-market strategy. So for us, we -- even though we have technology expertise within our industry verticals, we really pulled back from that many years ago.

I guess I know we have only 30 seconds left. David, any final words of wisdom for us?

Wisdom, no. I think great team, looking forward to what Regions is going to do moving forward. I'm still an investor, still counting on the dividend. And so that's going to be protected. But listen, the industry -- financial services industry is probably going to have a really good '26. Everybody is set up. You're going to start seeing loan growth a little stronger this year. And I think this whole AI and technology is really interesting and exciting stuff. There's a lot to be learned. So I think we're just scratching the surface on what this could do for our industry. And to your point, you're making [indiscernible] to our clients in terms of what that looks like. So I guess we just have to stay tuned. But thank you for what you do. And for all of you, investors, it's been a great run.

Thank you very much.

Thank you.

Good morning, and welcome to the Regions Financial Corporation's quarterly earnings call. My name is Chris, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Dana Nolan to begin.

Thank you, Chris. Welcome to Regions Fourth Quarter and Full Year 2025 Earnings Call. John and David will provide high-level commentary regarding our results. Earnings documents, which include a 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. Before we begin, I'd like to take a moment and personally thank David Turner for his service and leadership. After a nearly 40-year career in auditing and finance, including 20 years of service at Regions, he's made the decision to retire. David has been one of, if not the longest serving CFOs across the financial space and is highly respected given his depth of experience and its practical approach. David joined the bank at a critical moment in our history through his steady leadership, strategic insight and disciplined approach to financial management, which has not only navigate an exceptionally challenging period for our industry, but emerge stronger, building the solid foundation we stand on today.

While we certainly will miss David's leadership, not to mention his trademark sense of humor, I'm genuinely excited about working closely with Anil Chada, our newly appointed CFO. Anil brings a deep understanding of Region's strategic vision and is fully aligned with our near-term goals and long-term priorities. Having been a key member of David's leadership team for the past 5 years.

At the same time, Anil offers a fresh perspective that will help us continue evolving and strengthening our business. With that, let me turn to our financial results. This morning, we reported strong full year earnings of $2.1 billion, resulting in earnings per share of $2.30 or $2.33 on an adjusted basis. We also generated one of the highest returns on tangible common equity in the industry at just over 18%. We also reported solid fourth quarter earnings of $514 million, resulting in earnings per share of $0.58 and $0.57 on an adjusted basis.

We had a few items which negatively impacted fourth quarter earnings by an additional $0.04. Dave will provide more detail on those in a moment. As you look at our results, it's clear we executed well against our strategic priorities and continue to build momentum heading into 2026 and beyond. We've made significant progress in hiring bankers to support our growth initiatives and our investments in priority markets continue to pay off, accounting for over 40% of our new corporate client growth during 2025.

We also made meaningful progress on our multiyear effort to modernize our core systems. When complete, we will be among a very small number of regional banks operating in a true modern core platform, something we believe will strengthen our competitive position. We launched a new native mobile app that's performing exceptionally well, earning a 4.9 out of 5 star rating in the App Store. And we continue to invest in capabilities that matter: authentication, data governance, data management and real-time data. These investments strengthen security, enhance the customer experience, support growth and expand the use of both traditional and generative AI across the company.

Our transformation touches every layer of our technology stack in every business channel and support function. We feel good about where we are and the opportunities ahead. At the same time, we remain disciplined focused on the fundamentals. Loan growth was challenged in 2025. Large corporate customers took advantage of very attractive financing opportunities in the capital markets and paid down debt. Our commitment to ongoing portfolio management and focus on risk-adjusted returns also drove reductions in loans outstanding as we exited certain portfolios and relationships.

However, our net interest income continued to benefit from fixed asset turnover and prudent funding cost management, and we expect those tailwinds to persist. We grew adjusted noninterest income by 5% in 2025 as our wealth management and corporate bank businesses achieved another year of record fee income. Treasury Management products and services achieved a second consecutive record while Capital Markets posted its second best year ever. We managed expenses prudently, producing 140 basis points of adjusted positive operating leverage, and we grew capital, increasing tangible book value per share by 20%, while returning $2 billion to shareholders through dividends and share buybacks.

In summary, we delivered solid financial results through focused strategic execution, advancing our modernization agenda, strengthening our technology foundation and driving performance across the franchise. We entered 2026 with momentum, a disciplined operating posture and a clear commitment to generating consistent sustainable long-term performance. Before I turn it over to David, I want to thank our 20,000 Regions associates, their dedication to serving customers, living our values and executing with integrity is the reason we've been able to deliver the performance we're discussing today.

Our progress is the result of commitment day in and day out to doing the right things the right way. Our associates continue to demonstrate what it means to serve with purpose, adapt with resilience and work as one team. I'm incredibly proud of the way we show up for our customers, our communities and for one another. I want to thank them for their leadership, their hard work and their belief in what we're building together.

With that, I'll hand it over to David to provide some highlights from the quarter and the full year.

Thank you, John. Before we move to the balance sheet, let me address the additional fourth quarter items John mentioned that were not included in our non-GAAP adjusted items. We recorded $26 million of incremental tax expense associated with adjustments to certain state income tax reserves, resulting in a full year effective tax rate of 21.4%.

For the full year 2026, we expect the effective tax rate to return to the 20.5% to 21.5% range. We also incurred a total of $14 million of incremental expense related to severance, pension settlement and Visa Class B litigation escrow funding. These items collectively reduced our fourth quarter EPS by $0.04. Now let's move on to the balance sheet, average and lending loans were relatively stable versus 2024 and the third quarter. While loan demand has been modestly improving throughout 2025, we experienced over $2 billion in strategic runoff mainly from leverage lending and continued resolutions within our portfolios of interest.

We also saw a consistently elevated refinancing of large corporate loan balances into the capital markets during 2025. The good news is that many of these headwinds are now largely behind us. Client sentiment is improving. Loan pipelines and commitments are strengthening. Excess corporate liquidity is beginning to normalize. And as John mentioned, we've made significant progress in our banker hiring initiative. Taken together, these trends give us confidence that loan growth will return to more normal levels in 2026.

For the full year, we expect average loans to be up low single digits versus 2025. Deposits continued to perform well this quarter. Ending balances were up approximately $800 million, supported by strong customer acquisition and retention. Average deposits were roughly flat modestly outperforming typical year-end seasonality, particularly in consumer banking, where we normally see declines ahead of tax season. Importantly, we achieved this stability while continuing to reduce total deposit costs.

Rate movements continue to drive a steady mix shift from CDs into money market accounts in both consumer and wealth. Higher third and fourth quarter CD maturities helped lower our average portfolio cost and as expected, balance attrition was modest. We saw limited impact to overall balances even as some funds migrated to money market. In the Commercial Bank, our 5-quarter trend of growing total client managed liquidity on and off balance sheet modestly reversed in the fourth quarter, driven primarily by a decline in off-balance sheet liquidity.

Corporate customers are beginning to deploy excess liquidity into business investments, which we expect to support bank borrowings in 2026. Our noninterest-bearing mix remains in the low 30% range, consistent with our target and reflective of the operational nature of our deposit base. As a result, we again expect 2026 average deposits to be up low single digits versus the prior year.

Let's shift to net interest income. Despite lower-than-anticipated loan growth, Net interest income grew by 2% linked quarter at the upper end of our expected range. Additionally, the net interest margin rebounded to 3.7%, up 11 basis points, inclusive of the nonrecurring benefits from higher-than-anticipated seasonal HR-related asset dividends and credit-related interest recoveries. The balance sheet remains well positioned for the current and expected environment. Our neutral interest rate positioning performed as designed in the quarter with very little impact to net interest income from the Fed's interest rate cuts.

In the fourth quarter, Interest-bearing deposit costs declined 16 basis points, equating to a 36% linked quarter beta. The falling cycle interest-bearing deposit beta is 33% and we remain confident in a mid-30s beta with the potential to outperform over time. Net interest income also benefited from fixed asset turnover in the fourth quarter as a steep yield curve continued to support term loan and securities pricing levels. While we expect these benefits to persist in 2026 and beyond, asset repricing is exposed to [indiscernible] and long-term rate fluctuations. To mitigate a portion of this exposure, we added $3.5 billion of forward starting received fixed swaps scheduled to begin throughout 2026. These hedges distinct from our short-term rate protection are intended to lock in rate levels on future loan and securities production.

Finally, the increase in margin was partly due to lower earning asset balances, including cash, which is now within the range we consider sufficient for liquidity management. Turning our attention to 2026, we expect net interest income to grow between 2.5% and 4%. The first quarter will be modestly lower, driven by fewer days and timing of HR-related asset dividends and the benefit from interest recoveries that benefited the fourth quarter. We anticipate sequential growth thereafter, supported by a well-protected interest rate risk position, continued fixed asset turnover and balance sheet growth.

After normalizing for nonrecurring items in the fourth quarter, our mid-360s net interest margin is a better starting point when looking to 2026. We expect the margin to be around 3.7% in the first quarter, elevated by day count. A continuation of positive trends throughout the year supports a low to mid-370s net interest margin in the fourth quarter of 2026.

Now let's take a look at fee revenue performance during the quarter. Adjusted noninterest income increased 5% in 2025, but declined 6% versus the third quarter. The quarter-over-quarter decline in capital markets reflects postponed M&A transactions and normal seasonality in loan syndication and securities underwriting activity. Real estate capital markets and commercial swap activity was further impacted by the temporary government shutdown.

For 2026, we expect Capital Markets quarterly revenue of $90 million to $105 million, trending near the lower end of the range early in the year and moving higher as the year progresses. Wealth Management delivered record full year revenue and a fourth consecutive quarter of growth, supported by continued sales momentum and a favorable market backdrop. Mortgage income increased 8% in 2025. However, fourth quarter results were negatively impacted by changes to MSR valuations and net hedge performance.

Service charges increased 4% in 2025, led by another record year in treasury management and strong growth in consumer checking and operating accounts across small business and commercial customers. For full year 2026, we expect adjusted noninterest income to grow between 3% and 5% versus 2025.

Let's move on to noninterest expense. Adjusted noninterest expense increased 2% in 2025 and was stable quarter-over-quarter. Salaries and benefits rose 3% in 2025 driven by higher health insurance costs higher revenue-based incentives and hiring tied to growth initiatives. Equipment software expenses increased 4% 2025 as we continue our core modernization and migrate further to Software as a Service solutions, technology costs will run a bit higher. Historically, technology spend has been 9% to 11% of revenue. Going forward, we expect it to be between 10% to 12%. Over time, these investments will drive efficiency and allow us to manage head count lower through attrition.

For full year 2026, we expect adjusted noninterest expense to be up between 1.5% and 3.5%, and we expect to deliver full year adjusted positive operating leverage. Regarding asset quality, annualized net charge-offs as a percentage of average loans increased 4 basis points to 59 basis points, reflecting material progress on resolutions within previously identified portfolios of interest, which were reserved for in prior periods.

Business services criticized and total nonperforming loans decreased 9% and 8%, respectively, as risk rating upgrades continue to outpace downgrades. The resulting NPL ratio declined 6 basis points to 73 basis points. As a result of the improvement in business services criticized loans and NPLs as well as continued resolutions in stress portfolios, the allowance for credit losses decreased $27 million. The allowance for credit loss ratio declined 2 basis points to 1.76%, while the allowance as a percentage of NPLs actually increased to 242%.

We expect full year 2026 net charge-offs to be between 40 and 50 basis points. Should macro conditions continue to improve, we have the opportunity to operate towards the lower end to the middle part of that range for the year. Let's turn to capital and liquidity. We ended the quarter with an estimated common equity Tier 1 ratio of 10.8%, while executing $430 million in share repurchases and paying $231 million in common dividends. When adjusted to include AOCI, Common equity Tier 1 remained unchanged compared to the prior quarter at an estimated 9.6%.

We expect to manage common equity Tier 1 inclusive of AOCI around this level, providing meaningful flexibility to meet proposed and evolving regulatory changes, support strategic growth and continue increasing the dividend and repurchasing shares commensurate with earnings. Likewise, liquidity remains stable and robust with ample capacity to support growth. As you've heard throughout the call, we feel good about the progress we made this year. And importantly, the momentum we're carrying into 2026. Many of the 2025 headwinds are behind us and the underlying trends, loan pipelines, deposit strength, fee income growth and continued improvement in credit are all moving in the right direction.

We're executing well investing where it matters and doing it with the same discipline around capital, expense management and returns that have served us well over the years. There's a lot of opportunity in front of us across our markets, across our businesses, supported by the ongoing modernization of our core systems. We believe we're well positioned to take advantage of those opportunities and to continue delivering consistent, sustainable, long-term performance for our shareholders. This covers our prepared remarks.

We'll now move to the Q&A portion of the call.

[Operator Instructions] Our first question comes from the line of Ryan Nash with Goldman Sachs.

David, just wanted to say congratulations on the retirement. You will certainly be missed on these calls. Maybe not by me, but I'm assuming by others.

Thank you, Ryan. [indiscernible].

I was actually hoping to get to come on now out of you. So I'll take the [indiscernible]. But maybe to start with loan growth. So at the conference last month, you guys talked about pipelines being up over 80% and you were growing commitments. Maybe just unpack for us the loan growth guidance, how much do you anticipate coming from C&I, from consumer. And within the outlook, is there any further runoff baked in or movements into capital markets that's embedded in there?

Yes. It's John. Thank you for the question. First of all, customer sentiment is generally positive, and I think the environments are pretty good. That being commercial customers, I should say. We have seen nice increase in pipeline activity quarter-over-quarter, year-over-year, and we believe that's a catalyst for growth. We're beginning to see customers use some of their excess liquidity, which we think is also a precursor, obviously, to borrowing and increased line utilization. We've talked about the good markets that we're in. About 40% of our new logos, new customers came from the new markets that we're in. We're continuing to hire bankers. We've targeted hiring almost 120 bankers over a 2-year period. We hired about 50 in 2025. So we're working toward adding those additional bankers.

They'll all be -- or virtually all be in our priority markets, those 8 priority markets where we think we have real opportunity. We're adding small business bankers in our branches that's separate from those 120 commercial bankers that we want to add. So we believe those activities really set the foundation for growth. We're leaning into our expertise. We have some really strong specialized industry groups, particularly in energy and health care our utilities, where we think we're going to continue to see expansionary activities, and we really like our real estate banking team and all the capital markets products that we have to go with that. And we think, position us to to grow on the wholesale side of the business.

So while we're guiding to lower single-digit loan growth, I think we feel good about how we're positioned today -- we've seen nice commitment growth. And again, pipeline activity is positive. On the consumer side, I would say, let customers are still in really good shape from our perspective. activity is still good. While we don't expect a lot of growth out of our consumer business, I expect that we'll see some. But the primary driver will be our commercial banking activities and leaning into the strength of our franchise, both our core markets and our growth markets, our priority markets where we have opportunities.

The final question you had was related to runoff. We think we've worked through most of the portfolio-shaping activities that have been underway over the last 12 to 18 months. And so I don't believe that would be a headwind as it has been particularly through 2025.

Got you. Maybe as my follow-up. So John, the banks over the last 10 years has been focused on improving returns, and it's obviously resulted in you guys having peer-leading returns and the environment now feels like the markets are much more focused on growth and you're obviously taking steps with a lot of the hiring that you guys are doing. But maybe just talk a little bit about how you're thinking about the trade-off between growth and returns at this point? And -- do you foresee that a lot of this hiring that you're doing is going to result in an uptick in growth over time so that you guys are going to be growing more in line with peers. How do you think about that trade-off over the medium term?

Well, I'd say, first and foremost, we're focused on capital allocation on risk-adjusted returns on ensuring that we're delivering top quartile returns on tangible common equity. That's our focus. That was our commitment back to ourselves and to the market in 2014, 2015. And I think that focus has allowed us to continue to shape our business in a way that we are performing at the top of our peer group from a return on tangible common equity perspective. And as a result, our shareholders are benefiting as a result of that.

And I would say that -- as we think about growth, we've historically said we want to grow with the economy plus a little, and that reflects the good markets that we're in. I think that will always be true. Our desire is to deliver consistent, sustainable, long-term performance to eliminate some of the volatility that had characterized our franchise back in the 2000s and early 2000s in particular, and I guess, all through the 2000s through that decade. And I think we've generally done that.

And so -- to me, there's no trade-off between growth and returns. We need to make sure that we're sound first, we're prompt second and that we're growing third. And we think we can do all those things, given the markets that we're in.

Ryan, I'll add this is David. There's a lot of discussion about balance sheet growth. We also were fixated on earnings per share growth with the right return profile, and our earnings per share growth has been quite nice over an extended period of time relative to the peer group. So there are a lot of other ways to continue to make money. We acknowledge we want to grow the balance sheet, but you need to do it in a responsible way when it's there. And if you try to force it, you're going to get yourself in trouble. We've been very disciplined with that. We're in great markets with the hires that John mentioned, and we think we can grow faster on the balance sheet than what you've seen at least in 2025.

I was trying to let you get off is on your last call, David, but I appreciate the color. Thank you.

Our next question comes from the line of Scott [indiscernible] Piper Sandler.

David, I was hoping you could maybe help to kind of unpack the fourth quarter capital markets performance and outlook. The postponed M&A transaction is definitely understandable, given the shutdown, but you had also in the release, noticed lower syndication and securities underwriting activity that kind of feels like the will start on the slower end of the pickup from there. So just curious about any comments about pipeline, why projects or lease back up after the first quarter, et cetera.

Yes. We feel good about capital markets in total. The loan syndications have a little bit of seasonality there in the fourth quarter. It came in a bit weaker than we had hoped, but we believe that could pick up in 2026. We'll have a little bit of a slow start in the first quarter, but it will pick up, and we're -- we believe that guidance that we've given you is pretty good.

M&A activity by its nature is a bit episodic. We do have a lot in the pipeline that just didn't get closed in the fourth quarter. We expect that to get closed in the first half of the year. And so we think capital markets, it had its second best year in its history. I just had a we just didn't have the fourth quarter where we wanted it to be. So we think we're going to rebound and feel very confident that we're going to get that up on a run rate in the guidance that we've given you.

I would just add -- and with respect to real estate corporate banking and capital markets-related activities, we're adding a couple of bankers to that business, and we think that will be a catalyst for some additional revenue improving interest rate environment helps as well. So it's -- the business is pretty well balanced, I think, between a variety of sources of revenue, and we expect that will be another good year for Capital Markets, and we should see nice growth over 2025 performance. .

Perfect. And then -- so the [indiscernible] performance, it sounds like it's going very well and could still ultimately outpace your expectations? Just maybe some additional thoughts on pricing trends, what you're seeing competitively and especially how they move from here if we get another couple of rate cuts throughout 2026.

Yes. So that last part of your question is important. It's -- we want to remain competitive, but we also have to acknowledge where the market is going. We had a pretty big CD maturity quarter, as we told you at the last conference we were at in the fourth quarter that helped propel that 36 basis point improvement over beta for the quarter, 33% on a cumulative. We think -- and our guidance has really centered around the mid-30% change. And so we think if you look at the first quarter, we'll have another $3.5 billion of CD maturities. We got another $5 billion in the second quarter. It's a pretty big quarter there.

So being reactive, we've had nice reactivity from our Corporate Banking group and our consumer banking group and the wealth group to react to what's going on in the marketplace to watch what the Fed is doing, but also to stay competitive in the markets that are important.

Terrific. Okay. SP1 And David, just congratulations on your guide. We'll certainly miss on these calls and [indiscernible].

Thank you, Scott. Appreciate it. .

Our next question comes from the line of Gerard Cassidy with RBC.

David congratulations should leave in big shoes to fill. Good luck in the future endeavors.

Thank you, Gerard. I appreciate it.

John and David, can you share with us -- you mentioned in the slide -- I think it was Slide 3 on the loans about the downsizing of the portfolio, and you specifically pointed out about $2.6 billion of loans in '25 were refinanced through the capital markets. Can you share with us what's the attraction that the customers are seeing? Is it lower rates, easier terms? What's the real driver of that going into the capital markets?

Gerard, most of that activity is in investment-grade credits within our real estate corporate banking business, so REITs within the energy portfolio and financial services, insurance companies that we bank. And so the cost of capital was lower, they could borrow more cheaply, terms were potentially better. It's an activity that does occur on an annual basis. We see particularly in those 3 industries, customers enter the capital markets and raise some capital and that activity occurred this year as well. Probably a little earlier than it does sometimes, oftentimes, within the REIT portfolio, particularly it's the third quarter of the year, but we did see a fair amount of activity in 2025.

Was it more pronounced, John, in '25 than years past that you can recall?

Seems to be. Yes, it seemed to have been because the market was not open for a while and then when it did open, we did see a lot of activity. .

Got it. And then just following up on credit quality. Obviously, credit is in good shape. You guys have identified the higher risk portfolios of office, commercial real estate and trucking and transportation. Any color on the trends you mentioned that the backdrop is getting better economically for trucking. What are you guys seeing in those higher-risk portfolios as we look into '26.

Yes. Well, first of all, I'd say, to your point, credit quality or the deterioration in credit quality peaked a couple of quarters ago, we've seen 4 quarters of improvement in nonperforming loans down from 96 basis points to 73. Criticized loans down 32% over a 4-quarter period. Charge-offs, which is a trailing indicator, reached a high point this quarter at 59 basis points. We expect then obviously to come down. We're guiding to 40 to 50 basis points and feel very confident that we'll perform within that range. So we do expect to continue to see improvement in credit quality.

I would say trucking and transportation is getting better, but still challenged from our perspective. Other industries like Forest Products some construction-related activity or building materials industry is still struggling a little bit. But in general, I would say we continue to see as reflected and the metrics in our own portfolio continued improvement. And so are optimistic about 2026 and beyond. .

Jordan, I'll add. So we're sitting with an allowance for loan loss -- credit loss of [indiscernible] now. We put a schedule in the back of our appendix, it shows you at kind of day one season was, which is when an environment is pretty benign from a credit standpoint. That implies, based on the current portfolio that we have today, then our reserve could be 164. So over time, and we can debate what that means in terms of over time. You should expect us all things being equal to get back to a normalized environment, that 1.76 to trend down to 1.64. You saw a bit of that were down 2 basis points this quarter. and you should see that trend continue throughout '26.

Our next question comes from the line of John Pancari with Evercore.

David, you're a legend. Best of luck. We will miss you. And apparently, other banks are going to miss you too. I've been gearing from a number of other executives to saying how much they're going to miss team conference and [indiscernible]. And you're welcome. We look forward to working with you. So just a question on the capital front. Just given the at $10.8 million. You did the $430 million of buybacks in the fourth quarter. I mean, could you just kind of frame how you're thinking about the pace of buybacks as you look at the capital need for organic -- you talked about loan growth generally improving and some of the one-off slowing. So how do you balance that in terms of the pace of buybacks that you think is reasonable as you look at '26.

Sure, John. This is Anil. I'll take that. So we look at -- every quarter, we generate about 40 basis points of capital, and we'll pay a dividend about 18 basis points of that. To your point, beyond that, -- our #1 focus is to invest back into our business through good loan growth. When we see that, we're definitely going to fund that with capital. When we don't see that, we're going to step in and buy back shares like we saw us do this quarter. So the $430 million is really a testament to what we were seeing in terms of loans coming on to the balance sheet. We saw an opportunity early in the quarter, in particular when the stock price was down a bit and stepped in and bought back shares then. So -- our goal is to always invest in loan growth. And when we see that good quality loan growth, we're going to step in there and generate and invest capital into that.

And I'll add to. So we're at 9.6% on an adjusted CET1 adjusted for our range is 9.25% to 9.75%. So we're right on top of that, have a little extra. And we're going to do exactly what Neil said to use it for loans and then buy it back if it's not there, if the loan growth is not there.

Got it. Okay. Very helpful. And then separately, I guess, if you could just give us your updated thoughts around M&A potential, whole bank M&A. Just obviously pick up -- we know that there is a potential need for scale in certain businesses, certain markets, obviously, that that you could argue is here. And then lastly, it looks, I guess, there could be this M&A window close. How do you view it? What's your updated thoughts on that front?

Yes, maybe I answer the last part first. The window clearly is open, but I don't think decision-making of any sort of should be driven by whether the window is open or closed. I mean, ultimately, it ought to be about whether or not a transaction is in the best interest of the bank's shareholders and will create value for shareholders over time. We remain -- our position is unchanged. We're -- M&A is not -- depository EBITDA is not part of our strategy today.

We are continuing to observe what's going on in the marketplace. We do not suffer from fear missing out at this point. We're going to continue to operate our business, execute our plan, focus on our transformation of our core deposit system and all that goes with that over the next 15 to 18 months and just continue to do what we've been doing.

Our next question comes from the line of Peter Winter with D.A. Davidson.

John, I wanted to ask about just overall banking. Obviously, it's a very competitive business, but -- do you see risk of losing market share as these bigger regional banks are coming into your markets? Or is it really an opportunity on taking advantage of some dislocation .

Well, we think it's an opportunity. And we, again, are in really good markets, core markets where we've been for 125, 150, in some instances, 175 years. We have a really strong brand. We have very good market share bankers that are well known in their communities and do a really good job taking care of our customers, and we have an opportunity to grow in those markets, and we are doing that separately we're in growth markets. We talk about our 8 priority markets where we have the chance to grow and last year, about 40%, as I said earlier, of our new commercial banking relationships or one in those markets.

And so I view it as an opportunity to continue to grow. We're going to focus on our customers on providing unique ideas and solutions to help them grow their businesses, whether they be businesses or consumers, we're going to take care of our customers. And I think we'll have an opportunity to continue to grow our business and regardless of what the conditions are in the markets that we operate.

Got it. And then can you talk about where you are in the process of the modernization of the platform and maybe highlight some of the benefits from this initiative versus competitors? .

Sure. So we have worked through all the very difficult integration work, and we've now entered the user testing phase, and that will go on for likely the next 2-plus quarters. We should sometime in the third quarter move to production in a pilot phase, where we'll begin with a small cohort of customers piloting the system to ensure that it does everything that we believe it will do, and that will lead us to beginning a conversion of our customer base in early 2017, assuming everything continues to go as planned, been really happy with the progress we're making. Team's doing a great job. It is a super complex and challenging effort, but we have been, as I said, really pleased with with the effort activity and the progress that we're making.

To your question about the benefits to us, and we think that will give us a speed to market flexibility as we're going to offer customers new products. It will support our ambition to be sound in that the system will be very contemporary in nature. We're not customizing any aspect of it, so we can continue to update the system as the vendor provides updates and that will be super helpful to us. It also, I think, will enhance our ambition to provide a really great experience and omnichannel experience to our customers. And we think that, that will be really, really important.

Another benefit is in order to convert your 5 million customers from 1 system to another. You have to go through the process of cleansing all your data, organizing your data in a way that that will facilitate a lot of things, including additional work we're doing around artificial intelligence and generative AI. So we think there are a lot of benefits, both direct and indirect that will support the business and are excited about how that will position us going forward.

And David, I'll add my congratulations to retirement. It's truly been very enjoyable working with you over these years. .

Thank you.

Our next question comes from the line of Christopher Spar with Wells Fargo.

My question is regarding the expense outlook. And just looking at the head count increase, the competition increase, a large regional bank basically kind of threw down the gauntlet earlier today talking about how the kind of expand into the growth markets. And I understand that you're going to kind of defend your market share or try to grow that. But just wondering like if -- how are you going to be able to keep costs kind of with inflation where it is and with higher head count.

And then second, to follow up will be on the tech initiative and the increase in tech spend, I get it, where you are that kind of manage head count lower through attrition. I'm just wondering your ability to do that in the time line for that as well.

Yes. Thanks for the question. This is Anil. So it's an important question and something that we've been focused on for going back 10 years. There's always been important places where we need to invest in our business, whether it's in risk management, whether it's in security and of course, growing our bankers is something that we've been very focused on over the past couple of years. We always have to find ways to fund that growth. And over the past 10 years, you can see in our slide deck, our compound annual growth rate for expenses is 2.8%. So it's incumbent upon us every day to make sure we're making the right investments to grow revenue. making the right investments in technology, but also find ways to fund those investments. That's been a critical part of our history. It's something really important to us now. It's evident in our expense guide for the next year, and it's evident in our commitment to positive operating leverage. So it's something we've seen before, and it's something that we continue to execute day in and day out. .

Our next question comes from the line of David Chiaverini with Jefferies.

I had a follow-up on loan growth and the pace of hiring. So you mentioned about hiring 120 bankers over 2 years. You did 50 in 2025. I'm curious, how does this pace compared to the prior say, 3- to 5-year trend? And do you expect incremental hiring above this pace as you take advantage of the M&A disruption?

Yes. So it would be a bit of an uptick in hiring, I would say, over the previous -- I think your time frame was 3 years and reflects our double the pace, I would say -- reflects our commitment to, again, growing primarily in these primary markets or priority markets where we see opportunity. With respect to incremental hiring, one of our expectations of our leaders in our markets is that they're constantly recruiting and identifying who the best bankers are in the markets that they operate in.

So to the extent that we find an opportunity to hire a banker or a team of bankers who are recognized in their markets as being really good at what they do, and we think they'd be a great addition to the Regions team. I expect our teams will recruit them to come to work for us, whether they're included in the 120 targeted bankers or not. So we're actively looking for bankers all the time who can provide great service to our customers and be additive to our teams.

Great. And as we think about the guide of low single digit for 2026, as the headwinds subside, it sounds like borrower sentiment is improving. Pipelines are up significantly. You're mostly through the runoff. Is this low single digit this year kind of a step function to mid-single digit looking out to 2027.

I think that's reasonable to assume. We're not -- we haven't committed to that yet. Dan will let me provide the guidance beyond 2026. But I think you can expect momentum to continue -- we expect momentum to continue to build in our business, particularly as we're recruiting more talent, and we're benefiting from the opportunities that are in our markets.

Great. And David, congrats on your retirement.

Thank you. I appreciate it. .

Our next question comes from the line of Ebrahim Poonawala with Bank of America.

I guess just one -- a couple of follow-up questions. One, on the systems conversion, John, David, I'm not sure if you mentioned when this will all be completed. And in the meantime, does it restrict your ability to do something? I heard your comments around M&A earlier, but if you wanted to that it's sort of restrict the flexibility in the meantime or not?

We expect to be completed toward the latter part of 2027. And I would say technically, it does not restrict our ability to do an M&A transaction. Practically, it would be very challenging, we believe. So that is a factor and certainly in how we think about how we're positioned relative to M&A and outreach.

Got it. And -- just one follow-up on the loan growth front. When we think about just the tariff uncertainty and maybe the Supreme Court is going to rule on this next week, do you think that may materially change sort of sentiment among your customers when they think about borrowing and investing? Or do you think they have enough clarity today to kind of move forward with expected plans?

We think to have enough clarity. I don't hear and don't talk with many customers who are overly focused on that topic now.

Got it. Anil, congratulations and David all the best. I look forward to seeing you, sir. .

Thank you. Appreciate it.

Our next question comes from the line of Betsy Graseck with Morgan Stanley.

David, I'll throw in my comments, too. Thank you so much for the time and insights over the years, and I hope that wherever retirement takes you. You have a fantastic and enjoyable time.

Thank you, Betsy. I really appreciate it. .

And Anil, I look forward to working with you. I do just have 2 short follow-ups. One is just on the net interest margin, as you discussed way earlier in the call. starting -- coming in, in 1Q similar to where we are today and then dipping down a bit and then ending the year roughly where we are today if I have that right. I'm just wondering what is the dip down a function of? And how low does it go during that pressure point?

Yes. I think -- so first off, we did level set where we finished. So we had about 4 basis points of NIM in there through things that won't -- that we aren't counting on repeating interest recoveries being one in the HR asset dividend, which was unusually high. We always have a little bit of that. Doesn't mean we won't have an interest recovery. We just don't count on it. So that's 4 basis points. So we start with [indiscernible] we think we'll finish the quarter -- first quarter at $3.70, and it will inch up from there throughout the year. And maybe we get a few more points on top of that, somewhere between the low 370s and the mid-370s perhaps. And that's assuming you see our assumption is that we have that mid-30% beta expectation in our loan growth in low single digits, I think, would be important. And we have -- we don't have any big changes in the 10-year in particular as we get repricing -- fixed asset repricing benefits.

Okay. Great. And then on the John, you talked about the tech spend going from 9% to 11% of ROS to 10% to 12% and that, that offset would be headcount. And I'm just wondering, is that expected to be managed in a way that the tech investment spend and the head count offset each other in each quarter? Or should we expect any kind of expense ratio changes as you're going through those, which sounds like of course, but you tell me.

Yes. Betsy, we don't have any big initiatives planned. I mean, again, as I think Anil pointed out, 1 of the, we believe, strengths of the company is how effective we managed our expenses over the last 10-plus years. And so we're always looking for opportunities to improve. There are areas that are probably obvious to you where there -- we believe there's opportunity for improvement and use of technology, which will result in reallocation of head count more than likely in the places where we have a chance to support growth. So I think we'll manage it over time as -- again, as the opportunities develop, it won't be part of a broad onetime initiative.

Matthew, that comment was meant to be a very broad comment. It was not to be a back-ended way I say we're going to have volatility in our quarterly expense structure because of it. So don't read that into it.

Our next question comes from the line of Chris McGratty with KBW.

I'm interested in your trends in consumer account checking account growth. That's been a big focus for the larger banks this quarter and the number of accounts they're opening. -- with your exceptional retail deposit base, can you just talk about trends in new account growth?

Yes. We're seeing nice growth in in consumer checking accounts. Again, our focus is on a core consumer checking customer, one that is going to have a direct deposit with us is going to actively use their debit card and use their checking account, that is our history. That is the source of our very loyal low-cost deposit base, and that's what we're continuing to focus on growing. We have seen a nice increase in digital originations. So as we have developed our digital capabilities, our mobile banking platform has continued to improve, and we're seeing additional enhancements to our growth initiatives as a result of that.

Customer has to have a direct deposit with us for us to count on a new. Yes, well, I should say also, we just introduced a new capability allows our customer to pretty easily move their direct deposit from a competitor to regions, which has resulted in, I think, a nice increase uptick in activity.

Great. And just a finer point on the tech question. The 10 to 12, is that a kind of a 1-year catch up? Or is that kind of the new level set? I know you've been at 9% to 11% for a bit of time.

Yes. Yes, we'd say that's a new level set. We've been running at about 11%. So the upper end of that 9% to 11% range. So we've shifted our guidance to 10% to 12%.

Our next question comes from the line of Erika Najarian UBS.

Actually, most of my questions have been asked and answered, but maybe just one for Anil, since you're on the line. Could you give us a sense of when you take over and fill these very large shoes that David has left for you. What would you tell investors your sort of top 3 priorities are as you take on the role .

Yes. First, it's great to step in to the role with the stability that we have. We have a great strategic plan that John has outlined and the Board has approved, and it's critical for us to continue to execute that. It's nice to come in when you're performing very well. It's incumbent upon us to continue to do that. And David has built a phenomenal team in finance great partnerships with our businesses. And that is job #1, 2 and 3 is to continue on the great path we've been on, execute our plan and to continue to deliver great financial performance.

Got it. And David, you'll be missed, but I'm sure investors won't miss you [indiscernible] on the golf course and it's scary to think that you're actually potentially going to get better and lower your head [indiscernible]. So congratulations, and welcome again, Anil. Thank you.

Our final question comes from the line of Matt O'Connor with Deutsche Bank.

I was hoping you guys to talk about your leverage to the recovery in commercial real estate. Obviously, there's the credit aspect of it been pretty clear about being past the worst there and being well reserved for remaining office losses. But as you think about from a loan volume perspective. Obviously, we're seeing industry loans inflect, -- it does seem like there's more and more momentum building. So how do you think about that leverage? You do have a good flight in there selling a lot of maturities coming in the next couple of years, which is the case for the industry. So is that upside risk as we think about growing loans overall? Or is there a risk that more of the CRE loans get refied away from you than expected?

Yes. I mean we've -- so we've been very successful when things mature to be being able to refinance those, the rate environment's helping a bit more on growth in that space, in particular, in multifamily because we've been able to -- as rates have come down, the math is starting to work. So before the rates came down, we were demanding more of a down payment to make the math work for us, but that didn't happen with the developer. So -- now it's coming into equilibrium. We're seeing demand for multifamily. We're seeing more opportunity there and yes, we had derisked commercial real estate over the years, but that is not constraining our ability to grow when we get paid for the risk that we take. And so hopefully, we'll have the opportunity to grow over time.

Yes. I'd just add, Matt, we have really strong real estate banking teams, great customer base. We have developed, I think, a portfolio of products, which allows us to meet our customers' needs across variety of financing capabilities and requirements. And I feel like it's a business that we will continue to invest in. We'll continue to see it, grow, and I'm confident that we will -- it will be an important contributor to our longer-term success, both on the balance sheet and the income statement as capital markets activity picks up. .

Okay. That's all our call today. Thank you very much for your participation and your support of Regions. We appreciate it. And everybody, congratulations. I'll have my congratulations to David Turner. Done a great job for us here, been an important -- really important member of our leadership team. We will miss him and his sense of humor, but are excited about Anil and he is filling the role of CFO. So -- thank you again for your participation, all the best. .

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

Up next, we're excited to have Regions joining us once again. Had another strong year, growing revenues well ahead of expenses, manage its credit well and returning capital. While growth has been slow across the industry, Regions appear as poised to deliver improving loan growth in '26 and beyond, continues to have the best-in-class deposit base, has allowed us to have the highest returns in the peer group for the last 4 or 5 years.

Here to tell us more about the strategy is CEO, John Turner. John is going to walk us through some slides. Also joining us on the stage is the illustrious CFO, David Turner; and then Head of Corporate Banking, Brian Willman. So let me turn it back over to John for his prepared remarks.

Okay. Yes. So I'll just start with -- I think -- thank you, Ryan, for having us. Thanks for the introduction. If you look at our performance over the last 10 years, we've been focused on creating consistent, sustainable long-term performance. That's been about focus on soundness, profitability and growth in that order of priority.

As a result of that, we've been focused on how do we improve our credit risk management, liquidity risk management, capital management processes. We've been focused on capital allocation, risk-adjusted returns. We've improved our operational and compliance processes. We think we're really well positioned today. And as a result of that have been delivering good results.

All the while we've been investing in our business, investing in talent, investing in technology and growing and diversifying our revenue base. Our focus on credit risk management, which has been about client selectivity. It's been about sound underwriting, concentration risk management has produced, we think, really good results.

Our focus on capital allocation has led us to exit certain businesses and portfolios, and it served us well in the CCAR process as capital degradation as a percentage of overall losses is best or amongst the best in our peer group. And similarly, our hedging strategy has helped us protect our PPNR and as a percentage of stress losses, again, would be at the top of the peer group.

Importantly, driving shareholder value, we have increased our dividend at a compound annual growth rate of more than 10% over each of the last 6 years, while buying back more shares on a relative basis than any of our peers.

Our focus on risk-adjusted returns and profitability, combined with capital allocation has led us to deliver industry-leading, peer-leading return on tangible common equity. We've gone from the bottom of the peer group in 2015 to the top of the peer group in each of the last 5 years, all the while making investments, we think, to continue to sustain our performance.

At the same time, our earnings per share growth has been top quartile over each of the last 3, 5 and 10 years as well. We believe in investing in our business, driving growth in our dividend and also return of capital produces nice shareholder returns for our customers.

And again, you can see here over a 3-, 5- and 10-year period, our performance. And likewise, growth in tangible book value and dividend, we think, should correlate to our share price, and we're at the top of the peer group in this category as well.

We have occasionally been criticized for not growing as fast as our peers, particularly because we're in really good markets. But if you adjust for M&A, and we would be the only one of our peers, I think, that has not done any M&A over the last 5 years, we're actually growing top quartile loans and deposits amongst our peer group over that 5-year period.

We're in some really good markets, and we believe that we can continue to deliver this kind of growth based upon on where we are. Generally, if you look at our deposit growth, again, we've experienced deposit growth amongst our peer group, and we've done that at a cost that's significantly less than we're experiencing than our peers are experiencing.

We think given both the growth in our low-cost deposit base and our very proactive hedging strategy that we can protect our margin over that time as well. Quickly, we've identified 8 priority markets that we think are really important to our growth, have tremendous opportunity to grow deposits in those markets. Over 50% of our deposit growth over the last 5 years has come from these particular markets.

They have really good growth dynamics, and we think present great opportunity. And finally, I'll just say that we're continuing to, as I mentioned, invest in our business, particularly in talent. We'll add 170 commercial, corporate wealth, real estate bankers over the next 3 years.

We're repositioning about 600 branch bankers. Either focused on small business or mass affluent that align well with the opportunities that we perceive in the markets that we're in. And we're continuing to invest in technology in our mobile platform. We talked often about investments in our new deposit system.

All those things we think position us really well for the future and to continue delivering the kinds of results that I demonstrated earlier. So Ryan, with that, I'll maybe settle in for some questions.

Thank you, John. Appreciate the prepared remarks.

So maybe to build on some of the things that you talked about, the banks had a really good year. Revenues continue to grow, margins expanding, controlling costs. However, loan growth remains somewhat soft for a variety of reasons, which we'll get into later.

But maybe just talk a little bit about what do you think are the key variables that are going to allow the bank to succeed as we move into 2026.

Well, we're going to keep doing the things that we've been doing, which is focus on capital allocation, focus on the soundness parts of our business. I think we have good opportunities to grow the business. I think we're positioned to do that given that we have the right processes and controls in place.

It's about bankers getting out and serving customers every day in our markets. And again, the markets have really good dynamics, and we think that we'll continue the kinds of trends that we have been experiencing.

Great. So I wanted to talk about sentiment in markets. I'm not talking about Georgia reading Alabama, but the sentiment in the actual lending markets. I know that you're out in the market talking to clients a lot.

Brian, I know that you're obviously out of ton. Maybe we get your updated views on both the economy across your footprint and client sentiment in terms of how you're positioned into the current -- the environment we're about to go into.

I think the economy is still good in our markets. We're experiencing growth at a faster rate across our particularly 7 Southeastern markets and Texas than most of the country. Good job creation. Consumers still feel confident they are continuing to spend.

Spending and savings patterns are pretty consistent with historical norms. We really haven't seen any change in that. Credit metrics are good on the consumer side and job creation is continuing throughout the Southeast. So that's important.

And similarly, I think businesses, though they are dealing with the uncertainty, and it does create some reluctance on the part of business to invest. We're seeing businesses gain a little more confidence as they have figured out how to deal with tariffs and the impact of those things and some of the other uncertainty that's been created.

And so we would, I guess, characterize the economy as decent today, but do feel like that there is continuing momentum building, and we're seeing that through activity in our -- particularly in our wholesale business that Brian might refer to.

Yes. Just to underscore what John said, client sentiment in the wholesale business has been pretty positive, especially if you contrast that versus the first part of the year, we had a lot more uncertainty. They've realized how to navigate on lowering the short end of the curve and interest rates.

And so we're seeing that manifest in our wholesale pipelines. As an example, our 75% probability to close pipeline in the wholesale bank is up 84% versus this same period last year.

You also are seeing total client liquidity, which has increased at a record pace for 5 consecutive quarters. This quarter, that client liquidity is starting to come down. So to me, that's a precursor to loan growth in 2026. So I think overall, the economy, coupled with client sentiment is improving, and we'll see that borne out next year.

We'll come back to that shortly. So there's a lot of things going on in your markets. On one side, there's banks coming into your footprint, right, including Alabama. We also there's a handful of banks going through big deals including an MOE, which is obviously creating disruption.

So when you put these together, are you seeing any of these things impacting competition, either good or bad? And do they on net present opportunities for Regions?

Yes. We always have competition, and we are experiencing more competition from the bigger banks. I think it's about really continuing just to execute our business well. In the 86% of our deposits are in 7 Southeastern states. When you add Texas, it's over 90% of our deposits. We've been in most of those markets for a really long time, in some instances, 150, 175 years. We have a strong brand. We have strong connectivity with our markets, local leadership. Our model is very much built around local bankers, working with industry and product expertise.

I think that resonates with customers. And so as long as we're staying out in front of our customers, staying connected to customers, providing great service and meeting their needs, I'm confident in our ability to continue to compete well with both large and small competitors who are coming into the markets that we serve.

And we think that we have an opportunity to continue, as I've suggested, to grow in those markets as well because of disruption that gets created as a result of some of the additional activity.