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Wednesday, July 16, 2025 at 9:30 a.m. ET
Chairman, President, and Chief Executive Officer — Bryan Jordan
Senior Executive Vice President and Chief Financial Officer — Hope Dmuchowski
Executive Vice President, Chief Credit Officer — Thomas Hung
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Adjusted EPS: $0.45 in Q2 2025, up $0.03 from the previous quarter.
Net Revenue: Net revenue increased by $4 million in Q2 2025 from Q1 2025.
Net Interest Income (NII): Increased by $10 million quarter over quarter, mainly due to loan portfolio expansion in Q2 2025.
Net Interest Margin: Decreased by two basis points to 3.40% in Q2 2025, primarily due to a four basis point increase in interest-bearing deposit costs.
Total Expenses (excluding deferred comp): Increased by $4 million sequentially in Q2 2025, including a $3 million decrease in personnel costs and a $7 million increase in outside services.
Loan Growth: Period-end loans rose 2% quarter over quarter in Q2 2025, including a $689 million increase in loans to mortgage companies, and a $316 million increase in C&I lending.
Deposit Growth: Period-end deposits increased 2% sequentially in Q2 2025, driven by $1.6 billion growth in brokered CDs. Non-interest-bearing deposits also grew by $57 million.
Average Rate Paid on Interest-Bearing Deposits: Increased to 2.76% in Q2 2025 from 2.72% in Q1 2025.
Interest-Bearing Deposit Beta: 72% since Fed rate cuts began in Q3 2024.
Credit Quality: Net charge-offs increased by $5 million to $34 million in Q2 2025, with a net charge-off ratio of 22 basis points. ACL to loans declined to 1.42% due to mix shift.
Non-Performing Loans (NPLs): Decreased by four basis points from the previous quarter, partly due to non-performing pre-payoffs.
Fee Income: Decreased by $3 million sequentially (excluding deferred compensation), with fixed income ADR down 6%, and non-ADR at normal levels.
CRE Portfolio: Balances continued to decline due to project payoffs, approximately $125 million in upgrades from classified assets, and about $125 million in payoffs.
CET1 Capital Ratio: Maintained near-term target level of 11% CET1.
Share Repurchases: $9 million was repurchased, with over half of the $1 billion authorization remaining.
2025 Expense Guidance: Lowered to flat to up 2% for full year 2025, following effective expense management and lower commissions.
Full-Year 2025 Revenue and PPNR Guidance: Range remains unchanged; Achieving the upper end of full year 2025 guidance would require further NII gains and a meaningful pickup in countercyclical businesses.
Long-Term ROTCE Target: 15%+ ROTCE target over the next two to three years, supported by efficiency and business execution synergies.
PPNR Growth Opportunity: Management identified potential to add $100 million or more from existing business lines via client relationship deepening and synergy execution.
First Horizon Corporation (NYSE:FHN) delivered sequential improvements in adjusted earnings, net revenue, and NII, reflecting growth in key lending categories and disciplined expense management. Management reaffirmed unchanged revenue and PPNR targets for the year, while lowering expense guidance to flat to up 2% for full year 2025, reflecting cost control and subdued commission activity. Loan and deposit balances both grew 2% quarter over quarter, underpinned by increases in brokered CDs and mortgage warehouse lending. Capital deployment priorities will continue to favor organic loan growth over buybacks, but remaining authorization provides flexibility depending on loan pipeline evolution.
Hope Dmuchowski stated, "we are seeing stronger NII in the first half of the year, and we're not anticipating a cut until September at this point in our guidance outlook." indicating an expectation of sustained NII momentum absent near-term rate changes.
Bryan Jordan framed loan growth prospects as concentrated in regional banking, mortgage warehouse, ABL, and equipment finance, adding, "There's good pipelines in those and good momentum overall in across a lot of businesses,"
Management described CRE risk as transitory for multifamily, linked to slower-than-anticipated absorption but not elevated long-term concern.
Dmuchowski emphasized the $100 million PPNR opportunity is "deepening our relationships with our clients. So that is increasing our loans to them, getting more deposits from them." with tech investments now supporting both expense leverage and revenue growth.
Mortgage Warehouse: A credit facility for mortgage originators, allowing banks to fund mortgages until they are sold into the secondary market.
ADR (Average Daily Revenue): Revenue per day, often used in fixed income or commission-based business segments to monitor short-term business activity.
ACL (Allowance for Credit Losses): Reserve set aside to cover estimated future credit losses on loans.
CRE (Commercial Real Estate): Banking industry term for commercial property lending, including projects such as multifamily, office, and retail.
CET1 (Common Equity Tier 1): Core capital measure for banks, reflecting the primary capital buffer against losses.
PPNR (Pre-Provision Net Revenue): Bank performance metric defined as net revenue before loan loss provisioning, reflecting underlying profitability.
ROTCE (Return on Tangible Common Equity): Key banking profitability ratio, measuring net income relative to average tangible common equity.
Beta (Deposit Beta): Degree to which deposit costs rise or fall in response to changes in benchmark interest rates.
Brokered CDs: Certificates of deposit placed through third-party brokers, often used to quickly raise large deposit balances.
ABL (Asset-Based Lending): Lending secured by a borrower’s balance-sheet assets, commonly used for working capital or liquidity in specialized lending areas.
NDFI (Non-Depository Financial Institution): Financial firm not engaged in traditional deposit-taking, such as finance companies or specialty lenders.
Bryan Jordan: Thank you, Tyler. Good morning, everyone, and thank you for joining our call. We appreciate your continued interest in First Horizon Corporation. I'm pleased with our results in the second quarter. Our balance sheet growth, credit, and profitability were all strong in the quarter. The economy continues to be relatively stable. We are seeing improving customer confidence, but uncertainty remains around tariffs, interest rates, and the economic outlook. Sitting here today, we believe that the fundamentals in the economy, especially in our southern footprint, will remain good for the back half of 2025 and into 2026. Our focus remains on safety and soundness, profitability, and sustainable growth. We are pleased to report that our credit trends remain consistently strong.
We continue to deliver on our profitability targets with expense and pricing discipline despite increased deposit pressure and competition. And finally, balance sheet growth this quarter is in line with the broader industry trends. On Slide five, we share a few highlights from the quarter. We earned an adjusted EPS of $0.45 per share, which was a $0.03 increase from the prior quarter. These results reflect net revenue growth of $4 million from the first quarter and improving credit. The primary driver of our PPNR improvement was $10 million of incremental net interest income, which came mostly from our growth in loan portfolio.
We also maintained expense discipline with total expenses excluding deferred compensation increasing by only $4 million from the last quarter. Our credit portfolio remains strong. Our charge-off ratio of 22 basis points remained in line with our expectations coming into the year. We saw a three basis point decline to our coverage for credit losses reflecting the loan balance mix improvements for mortgage warehouse lending growth as well as the reduction in classified loans. This quarter was a solid quarter for our balance sheet with period-end balances for both loans and deposits finishing 2% higher quarter over quarter. We are optimistic about our momentum going into the second half of this year.
With that high-level overview, I'll turn it over to Hope to run through our results in more detail. Hope?
Hope Dmuchowski: Thank you, Bryan. Good morning, everyone. On slide six, you can see our adjusted highlights for the quarter driving our $0.45 of EPS. On Slide seven, we highlight two notable items totaling $4 million of pre-tax impact in the quarter. The largest impact was an accrual release in deferred compensation related to a business unit divested more than a decade ago. On Slide eight, we cover our $10 million of net interest income growth and the two basis point compression of net interest margin. NII growth benefited from the seasonal loan growth, particularly our high-yielding mortgage warehouse business, which contributed to a three basis point expansion of total loan yields.
Our margin compression to 3.40% was mostly driven by a four basis point increase to interest-bearing deposit costs as we saw a slight increase to our rate paid on client deposits and brokered deposits grew to support loan growth, which was concentrated in mortgage warehouse. On slide nine, we provide more information about our deposit performance in the quarter. Period-end balances increased by $1.4 billion compared to the prior quarter, driven by a $1.6 billion increase in brokered CDs which primarily supported our loans to mortgage companies and offset broader industry trends and reduced deposit supply as deposit flows to other categories like brokerage accounts. We did see growth within non-interest-bearing deposits as period-end balances were up $57 million.
This growth includes the success of our seasonal marketing promotions, which start in the second quarter. Retention continues to be a highlight for our percent of the $23 billion in balances associated with clients who had a repricing event in the quarter while continuing to reduce our costs on those deposits even in a flat rate environment. For deposit pricing overall, the average rate paid on interest-bearing deposits increased to 2.76%, up from the first quarter average of 2.72%. Our strong pricing discipline through this interest rate cycle has achieved a 72% interest-bearing deposit beta since the Fed rate cuts began in the third quarter of 2024.
Absent additional Fed cuts, deposit pricing will move around slightly quarter to quarter reflecting reductions in deposit supply, evolution of competition, and balance sheet funding needs. On slide ten, we cover our loan portfolio performance. Period-end loans were up 2% from the prior quarter, driven by increases in loans to mortgage companies of $689 million. This performance reflects both seasonal trends and the benefit of market share gains that we have achieved in recent quarters. We also saw growth in our C&I portfolio with period-end balances up $316 million quarter over quarter. Our CRE balances continue to decline as payoffs of stabilized projects continued, including a reduction of non-performing CRE loans this quarter.
As I mentioned on the margin slide, total loan yields expanded three basis points from the first quarter due to the incremental balances within loans to mortgage companies, one of our highest-yielding portfolios. On slide eleven, we detail our fee income performance for the quarter, which decreased $3 million from the prior quarter, excluding deferred compensation. Fixed income performance decreased slightly with ADR declining by 6% amidst a less favorable environment. Additionally, non-ADR performed at normal levels after a slightly elevated first quarter. The current rate environment with a flat short to middle part of the rate curve creates a near-term headwind for this business.
For mortgage banking, as well as service charges, we saw a decent pickup from a seasonally slow first quarter as spring and summer months tend to see higher client activities in those areas, combining to bring in an additional $4 million of fee income. On slide twelve, we highlight that just $4 million from the prior quarter. Personnel, excluding deferred comp, decreased by $3 million from last quarter, driven by an $8 million reduction within incentives and commissions on seasonality and retention awards being paid out. This was partially offset by a $5 million increase to salaries and benefits based on higher day count, benefits seasonality, and continual investment in our associates.
Outside services increased by $7 million with the largest driver being advertising investments related to seasonal pickups and marketing activity. Turning to credit on slide thirteen. Net charge-offs increased slightly by $5 million to $34 million. Our net charge-off ratio of 22 basis points of average loans remains in line with our expectations for the year. Loan loss provision was $30 million this quarter with our ACL to loan ratio declining slightly to 1.42%, primarily due to our growth in loans to mortgage companies. This is a portfolio that carries very little loss coverage as well as a reduction in classified loans.
This reduction in NPLs represents a four basis point decline from last quarter and was partially driven by non-performing pre-payoffs. We remain extremely proud of our credit culture. Years of disciplined underwriting provide stability for our performance across economic cycles. On slide fourteen, you can see that we maintained capital levels in line with our near-term target of 11% CET1. As we have mentioned before, our priority for capital deployment is organic loan growth, which we saw this quarter. We retained just over half of our $1 billion share repurchase authorization after using another $9 million in the second quarter, which provides flexibility in achieving our CET1 target over time.
Our near-term target for capital remains unchanged at this point and we will continue to have conversations with our board to determine the right time to adjust capital levels to achieve our long-term goals. On slide fifteen, we take another look at our full year 2025 guidance. Our goal for revenue and expense remains achieving PPNR growth and we fully expect to hit this target. Our range for total revenue remains unchanged and our performance is in range so far this year. Achieving the upper end of the range we need to see continued NII momentum as well as significant pickup in our countercyclical businesses.
Following another quarter of successful expense management, and lower commissions in countercyclical businesses, we have made an adjustment to lower our expense range to flat to up 2%. Our outlook for charge-offs, taxes, and capital remain unchanged as our performance to date and rest of the year expectations fall within these ranges. I'll wrap up with slide sixteen. Over the next two to three years, our target is still to reach and maintain a 15% plus ROTCE. An important key to achieving these levels of profitability is the ability to operate efficiently and profitably.
As we recently announced, we see opportunities to grow our PPNR by $100 million or more over the coming years within our existing businesses through execution on identified synergies and deepening our client relationships. We still believe that long-term capital management and a prudent credit culture are important drivers to maximizing our profitability. And we expect to capitalize on our years of focused performance to deliver these returns. Now I will give it back to Bryan.
Bryan Jordan: Thank you, Hope. As we close out another quarter, I'm incredibly proud of the focus, dedication, and resilience our associates continue to show. I'm extremely proud of the strong foundation that we have in place. We continue to make significant progress in enhancing our organization, streamlining our go-to-market strategies, deepening collaboration between teams, and ensuring we are best positioned to capitalize on our opportunities. Over the last few quarters, we have further aligned the organization around common go-to-market strategies and clarity around our value add to clients. How we deliver that value across all conditions. Results of this focus will help us drive towards the 15% plus ROTCE that we expect to see in the next two to three years.
As Hope highlighted, in addition to normalized capital and provision levels, net revenue opportunity in our existing book of business. Through consistent execution of our business model. With this disciplined execution, our balanced business model and unwavering focus on client needs, I am confident that First Horizon Corporation is exceptionally well positioned to capture the opportunities before us. Thank you to our associates for their hard work. And to our clients for their continued trust in First Horizon Corporation. Rica, with that, we can now open it up for questions.
Operator: Thank you, Bryan. If you would like to ask a question, you can do so by pressing star followed by one on your telephone keypads now. And if you change your mind and would like to remove that question, you can then press star and two to remove it. And as a reminder, that is star followed by one to register for a question. When speaking, please ensure your phone is unmuted locally. We will pause here briefly whilst questions are registered. Your first question on the line comes from Michael Rose with Raymond James. Please go ahead.
Michael Rose: Good morning, everyone. Thanks for taking my questions. Just wanted to get, Bryan, just some background and color as to where, you know, clients stand at this point. I think we're seeing a little bit better loan growth. It was good to see the, you know, decent C&I growth this quarter. CRE was down a little bit, I think we're hearing more and more banks talk about CRE opportunities and then especially on the construction side as well. Can you just give us a sense, you know, I know utilization is flat, but just where the health of the borrower is and if you are starting to see increased activity.
I know you have a, you know, talked about kind of low single-digit loan growth next year. So any updates to that as well would be great. Thanks.
Bryan Jordan: Yeah. Sure, Michael. Thank you. The borrower is remarkably resilient. And customers are in a very positive place right now. If you were sitting here ninety days ago, you would have had a more significant evaluation, but it's interesting. Borrowers have been very resilient. They process through some of the early impacts of tariffs and how that's gonna affect business. They are leaning in more and more to opportunities.
It's not as all things, there's different places on the spectrum that people are, but we see increasing optimism, and we're likely to see, in our view, improved activity over the back half of this year as some of these tariff questions get further settled over the next thirty, sixty, ninety days. And we think borrowers are generally excited about the opportunity.
Michael Rose: Great. And maybe just as one follow-up, you know, I think we've seen a lot of progress on the deregulatory front. You guys still have the CET1 target of the ten and a half to eleven. Is there any, you know, chance that could be, you know, kind of moved down and then just, you know, crossing that with the fact that the stocks have done pretty well here recently. The earn-back and the buyback is getting a little longer. Just wanted to gauge your appetite for buybacks as we move forward.
Bryan Jordan: Yes. We've this is a process that we go through, and we work through it with our board. We complete annual stress testing. I would say that the results of the CCAR process with the largest institutions were generally favorable, and you saw, I think, a more positive regulatory outcome in that regard. And I expect that over time, we will be able to move those capital levels lower. We will continue to evaluate economic conditions. We'll continue to discuss it with the board, and we'll continue to juxtapose it against what we expect in terms of growth in the balance sheet.
That said, in the absence of organic opportunities for us to invest, i.e., loan growth, we certainly are comfortable repurchasing our common stock. We do believe that we will create significant value over the next several years. And even at these higher levels, we think that there is value in our repurchase program. And that as we drive towards this fifteen plus percent ROTCE, that value will move up. So we think we have lots of levers. We think we start with a very strong capital position, and we think it gives us tremendous flexibility as we look at the back half of 2025 and into 2026.
Michael Rose: Great. I appreciate you taking my questions. I'll step back.
Bryan Jordan: Sure thing.
Operator: Thank you. Your next question comes from Chris McGratty with KBW. Please go ahead.
Angela Estron: Hey. How's it going? This is Angela Estron for Chris McGratty. I know you've had strong deposit pricing so far this cycle, and I know this quarter picked up slightly on the brokered, to fund mortgage warehouse. But do you see any incremental deposit repricing opportunities going forward? Thanks.
Hope Dmuchowski: Chris, I do see deposit repricing opportunities going forward, but I think that they could possibly be up or down. The forward curve is a big impact to how deposit competition is heating up. As we see that first cut move out, people are willing to guarantee rate and term. As I mentioned on our first quarter call, we weren't seeing much competition. We weren't seeing that were out there past thirty or forty-five days. We're now competing in an environment where we're seeing competition that's guaranteeing rates at, you know, just slightly below the current Fed funds rates and guaranteeing them for six to nine months.
And although we're gonna continue to keep walking back our current clients when we bring new to bank clients in with that promo, we have had to slightly uptick our current client promotion in order to achieve that ninety-five percent retention we want on client money. And so as I've said multiple times, I think that this deposit site repricing cycle will be a little bit more of a zigzag than a typical hockey stick where, as you saw last quarter, we were able to significantly bring it down this quarter, we gave away a couple of basis points.
I think as we see that cut come into expectation, if we do see one come in into September, we'll be able to continue to walk that back. And the pace of cuts will make a difference for how quickly we can walk back deposit pricing.
Bryan Jordan: Angela, I'll add to that. We clearly saw a pickup in deposit, and that really fits with what is a contracting fit balance sheet, which contracts supply money. It fits with our longer-term view that with the ease of transferring money with digital tools, for example, across multiple platforms, the deposit costs are gonna have a slow migration up over time. That said, we work really hard in our markets with a lot of day-to-day interaction with customers to create win-win situations where we price deposit attractively for our customer and build strong long-term relationships and at the same time do it in a way that creates profitable long-term value for our First Horizon Corporation shareholders.
I think as you look at the next several quarters, I would not sit around and say, you know, there ought to be a wholesale objective to raise or lower deposit costs. I think it's about creating value for our customers and our shareholders by building those long-term relationships, recognizing that we're not playing solitaire in the marketplace and that there are a lot of forces in play and a lot of people opening the de novo branches and advertising exceptionally high rates and things of that nature.
And I think our bankers have done a very nice job over the last ninety days, the last two years, to be more expansive in managing through a change in deposit environment, and we'll continue to deal with it in a very proactive way.
Angela Estron: Great. Thank you. That was really helpful. And then just one more for me. Creditors made strong and within your guided range, but can you speak to any verticals or geographies that you're seeing that's signs of stress in or more concerned about right now? Thank you.
Bryan Jordan: Yeah. I'm happy to take that one. It hasn't really changed significantly from what we've discussed in the last couple of quarters. It's generally speaking, on the C&I side, more of the consumer-facing type of industries. So for example, trucking, auto finance, consumer finance, those are the ones I'm watching more closely.
And then on the CRE side, it's generally speaking, what we're seeing great migration is more so on the multifamily side, and what that is being driven by is really more so what we believe a shorter-term problem in terms of a lot of multifamily inventory coming online within the last few years and hence absorption is slower than expected, but we expect that to resolve over the next few years.
Angela Estron: Great. Thank you.
Operator: We now have Jon Arfstrom with RBC Capital Markets. Please go ahead.
Jon Arfstrom: Hey. Thanks. Good morning. Morning, Bryan. Hope, what kind of expectation do you have for mortgage warehouse balances? You got a big step up in period end versus average in to continue into Q3. Do you expect to retreat? It's been a really strong business for you. But do you expect this in the balances?
Hope Dmuchowski: Jon, I do expect in Q3 that we'll, you know, be at this level or higher. I want to give you a different answer yesterday and this morning when I saw how bad the mortgage data was just from last week. So I guess the question is, is that a one-week trend, or are we gonna see continued decreases in mortgage originations? But mortgage warehouse has been a strong growth story for us for multiple years as we've continued to commit to our existing clients and pick up new clients. We're still adding new clients into that business every quarter. We just increased some lines and brought some new clients on in the last quarters.
I think we'll continue to see momentum in that in line with how the mortgage industry for purchases and refis are trending. If it trends up, I believe our balance will be up. If it stays stable, we'll continue to see that momentum about where it is today.
Bryan Jordan: Yeah. And Jon, I've been asked. There's always gonna be seasonality to that business with home buying season, but you know, in addition to winning some clients, I think what we've has really helped drive our growth and showing our success in the sector is we've continued to gain more share especially with our existing customers who have access to multiple lines across multiple banks. But because of our execution and service within specific customers as they grow, we're also getting a larger share of their businesses. And that's partly what you're seeing as well.
Jon Arfstrom: Yeah. Okay. Good. That's helpful. And then, Hope, maybe just a simple question. The adjusted expense guidance, does the high end of the revenue range if you hit that at four percent, does that equate to hitting two percent of expenses? Or if things are higher on the revenue trend, you might have to adjust that back higher again on expenses.
Hope Dmuchowski: Yes. I don't see us having to go above two percent, Jon. We did do a lot of do and what would the commission be. So if we were to hit the higher end of the revenue, I still believe that we will be under that two percent. If we're, you know, at the lower end, you'll be closer to that flat expense guidance that we're giving now.
Jon Arfstrom: Okay. That's great. Thank you very much. Nice job.
Hope Dmuchowski: Thank you.
Operator: We have a question from John McDonald with Truist.
John McDonald: Hi. Good morning. Just got a follow-up question on loan growth. What are you seeing in terms of momentum and the potential for loan growth in some of your specialty verticals?
Bryan Jordan: Sure. John, I can help address that one. On the we are seeing good growth on the regional banking side that your question regarding specialty lines, we've talked about mortgage warehouse a lot. But beyond that, we actually saw a pretty good growth in momentum from both our ABL line as well as equipment finance. There's good pipelines in those and good momentum overall in across a lot of businesses, but I'll especially highlight those two.
John McDonald: Okay. And, Tom, maybe on CRE, what's the dynamic you're seeing between new business and your pipelines versus continued pay downs there?
Thomas Hung: Yeah. I mean, as you saw, our CRE balance did decrease in the second quarter. Now I would say that's actually a pretty good story because what we saw in CRE was a lot of improvement in terms of working through our classified assets. Just in CRE alone, we had about $125 million in upgrades from classified as well as about $125 million in payoffs. And as far as the new business opportunities, our pipeline in CRE is slightly down, but I don't think that's unexpected given our focus on construction, especially the multifamily sector.
And then as I mentioned with what's going on in inventory in the Southeast right now, it would make sense that new stocks are down a little bit.
John McDonald: Got it. Thank you.
Operator: Thank you. We have Ebrahim Poonawala with Bank of America now.
Eric: Hey. Good morning. This is Eric on for Ebrahim. Wanted to follow-up on the expense guide kind of as it relates to fee income. Even at the low end, you kinda have a step function in expenses here. Wanted to talk about if there's any downside there and kind of trends you're seeing on the fee income side as it relates to kind of hitting that up front of the expense guide?
Hope Dmuchowski: Yeah. Our fee income this quarter, as we mentioned in our prepared remarks, is down an ADR 6% quarter over quarter, and this is our lowest ADR quarter in a year now. We've seen it a strong Q4, which we thought was going to continue, and we haven't seen, as we mentioned, there's a lot of dynamics for the FHN Financial that impact it, but right now, it's the shape of the curve that's having a little bit of a downward pressure on their ADR. As we look at the expense guidance, we do have additional investments in marketing and advertising that are coming in. We typically see Q3 be a higher expense quarter for advertising specifically related to promotions.
Right now for checking accounts, there's a cash offer. It takes time to earn that. Those will get paid out the end of Q2 and Q3. We also have some of our technology, and that's financial statements you have is on our brand new general ledger. So that project is starting to amortize through. We finished a couple other large projects. So there's just some increases that are coming into the run rate in the second half, both seasonally and as we continue to invest in the organization. But I do believe, you know, that higher end of the two percent I said before is if our commission businesses significantly pick up here.
You know, getting into that higher six or seven hundred ADR range for the future quarters.
Eric: Got it. It's like to hear about the general ledger. I know we've heard about that for a while. Guess the second is just one more, I guess, on the buyback. You know, very different quarter than first quarter. How do you feel about do you expect to use the remaining authorization kind of in the coming quarters, or is it very market dependent on how loan growth trends?
Hope Dmuchowski: It really depends on our loan growth story. We talked about $9 million of purchases. I'll tell you those all were done early in the quarter we came out of the blackout period as we've had negative loan growth last quarter. We got back into purchasing our shares every day after earnings. As we got into May, we started to see our pipeline really build. We started to see fund ups of existing lines and so we stopped our share buybacks. We monitor on a weekly basis of where do we think our loan growth is gonna be first and then how do we deploy that excess capital into buybacks.
We are anticipating we'll continue to have loan growth in the back half of the year excluding the seasonality of mortgage warehouse. So I don't know if we'll spend all of it, but I do expect that we will spend more into it as we continue.
Eric: Got it. Thank you.
Operator: We have Jared Shaw with Barclays. Your line is open.
John Rauh: Hi. This is John Rauh for Jared. It's just quickly on that, the six hundred to seven hundred thousand ADR comment. Is that what you're expecting for the second half of the year, or is that, like, a longer-term target?
Hope Dmuchowski: Yeah. That was about commissions. What would it take to get the higher end of the expenses was the question. We need to, you know, increase our ADR about two hundred, you know, hundred and fifty to two hundred k to hit the high end of that guidance. As we think about our FHN financial business, we say it's about a sixty percent expense ratio. And so if you think about adding a hundred k a day, how that would impact your expense line is about sixty percent commission. So we do not have expectation that this time the market's gonna improve that much in the back half of the year.
But the market continues to change day by day and week by week, and so we saw some, you know, stabilization in the equity market. We saw the forward curve start to deepen without that middle part being where it is today. We could see weeks or months at that. But at this point, we don't that's not part of our guidance. So that is why we still have the high end of the revenue range if we start to see some pickup in that business in the back half of the year.
Bryan Jordan: I'll give you a couple of data points to give you some sense of how difficult it is to forecast. We roughly two weeks in the month of July, so in the month of the third quarter. One month, we're a little low excuse me. One week, we're a little over seven hundred thousand in ADR. The next week, we're a little over four fifty thousand in ADR. So there is a lot of volatility. It has to do with the headlines, what's happening with interest rates, what's happening globally.
And second quarter was very volatile, and our crystal ball as we look into the back half and what's gonna happen in terms of tariffs, interest rates, Fed policy, all of that has got fuzzier and not clearer. And so it's really hard for us to try to pin the number down with any real high degree of precision. That's why Hope's giving you the ranges she has.
John Rauh: Okay. Great. Thank you for that color. And then I guess on the hundred million dollar PPNR opportunity that's been talked about. I'm wondering how much of that is on the revenue side versus the expense side, and is that mostly driven by I guess, is would the revenue side be more driven by fees than NII? Just some more examples of what's behind that hundred million dollar number.
Hope Dmuchowski: Yeah. The majority, if not all of that hundred million PPNR is deepening our relationships with our clients. So that is increasing our loans to them, getting more deposits from them. We have a big focus. We've talked about many times on our treasury management program. We converted our systems at the beginning of this year. We've invested in that business and we're continuing to look at our current client base that we don't have treasury management deep in that relationship. Fee income can also be a part of it, but that really is how do we get our current clients, how do we get deeper relationships with them that are more profitable for First Horizon Corporation.
Bryan Jordan: We think, yeah, there are a lot of benefits still for us, and in what I talked about in my prepared comments of really making sure that we're very effective in our go-to-market strategy across the entire franchise, if we can continue to invest. And as we look at our book of business, the opportunity to drive greater value for our clients and at the same time create enhanced returns for our shareholders. We think there's a huge opportunity in the Southern footprint. And so we think, as I said back in the spring, it's a hundred million plus, and we think there's a lot of opportunity there.
John Rauh: Okay. Great. Thank you. That's all for me.
Hope Dmuchowski: Thank you.
Operator: Your next question comes from Christopher Marinac with Janney Montgomery Scott.
Christopher Marinac: Thanks. Good morning, Bryan, and this may be for Tom as well. When you look at your loans to other financial intermediaries, I know the large majority is to the mortgage channel. For the other smaller component, is anything interesting there future growth? Are there opportunities to do treasury management services with those type of other players in the financial ecosystem?
Thomas Hung: Yeah. Sure. Hey, Christopher. I can address that one. Outside of the loans to mortgage companies, we do lend into NDFIs and well as, you know, I mentioned consumer finance earlier. That's always been a core part of, especially our ABL business. You know, I think the performance has been relatively good. Except for, obviously, there's some softness due to the economic uncertainty right now. In terms of treasury management opportunities specific to those business, it's actually fairly minimal. Those are generally more lending opportunities but high-yielding lending opportunities.
Christopher Marinac: Great. Thank you for that. And, Bryan, from a, I guess, a large perspective, do you see opportunities where M&A from other banks is going to create opportunity for you in this next year, or do you think that's a little further ahead?
Bryan Jordan: Yeah. I know everybody, when they see a deal in their market says that's gonna create a lot of opportunities. I think there's a lot of opportunity due to change in the industry at any given point in time. I think M&A is likely to pick up given the example we saw earlier this week. It's really hard to target where and when, but everything that I see and hear anecdotally in terms of the regulatory approval process, confidence around timelines, things like that lead me to believe that you're probably see some pickup. And I think change in any marketplace, change in the environment, creates opportunity.
But as I said, an answer to a previous question, just the opportunities we see to standardize, streamline that go-to-market strategy, how we deliver value for our customers, our clients. All of that coupled together, I think, presents really nice opportunities for us coupled with a high growth footprint.
Christopher Marinac: Understood. Thank you, Bryan. And thank you for taking our questions today.
Bryan Jordan: Alright. Thanks, Chris.
Operator: Now have Anthony Elian with JPMorgan.
Anthony Elian: Hi. Good morning. This is for Hope. You reduced your expense outlook tied to lower commissions. But left the revenue guide unchanged. Is it fair to say that the mix of revenue growth you expect for this year is now skewed more towards NII rather than fee income? Compared to a quarter ago?
Hope Dmuchowski: Anthony, absolutely. When we came into this year, our guidance included multiple rate cuts, but we have not seen one yet. And so we are seeing stronger NII in the first half of the year, and we're not anticipating a cut until September at this point in our guidance outlook. And that is allowing our NII to stay higher. And that is what's keeping our countercyclical businesses slower. And so as we did not reset the revenue side, if there is still the possibility that we could get to the higher end. But it's as commissions are paid out for those countercyclical businesses, it is a monthly, quarterly plan.
And so the savings in the first half of the year in that commission guidance that we originally had once we spent.
Anthony Elian: Thank you, Hope. And then my follow-up, just on the additional hundred million incremental opportunity for pretax income. Do you have all of the, I guess, any incremental tech build, interest the incremental opportunities you'd expect from, you know, you mentioned earlier increasing loans, getting more deposits, more treasury management. Is that all built out to support the incremental pretax income you'd see? Thank you.
Hope Dmuchowski: Great question, Anthony. And, yes, that is built out, and a lot of this incremental revenue we're talking about is tied to our three-year investment into technology, into better systems, new platforms, and additional capabilities for our clients. So they go hand in hand. As we've talked about our three-year tech investment roadmap, we said the project, you know, every project that comes forward and comes through our board for funding have an investment board that looks at all of our tech projects. It comes with either a business case that drives revenue that we then track the businesses to, or it comes with a cost save, which we also track the businesses to.
So the tech investments, we're starting to see the benefits on the expense side, and we're starting to see the opportunity on the revenue side start to open up now.
Anthony Elian: That's great. Thank you.
Operator: Thank you. One final reminder, if you would like to ask any further questions, you can do so by pressing star one. And we have Nicholas Holowko with UBS on the line.
Nicholas Holowko: Hi. Good morning. Thanks for taking my question. Appreciate a value of thoughts on the buyback and how you're thinking about evaluating the right level of CET1 in the future. But I'm just curious if you have any updated thoughts on the regulatory development of the past couple months and whether there are any proposals either in the works or that could be on the horizon that might change the way you're thinking about other uses of capital.
Bryan Jordan: Yeah. Good morning. This is Bryan. I think it's early to reach conclusions about where the regulatory evolution pretty positive if not very positive developments around potential greater tailoring as it relates to BrightLine around a hundred billion dollars, for example. Opportunities for improved processing of M&A applications and things of that nature. I think in the short run, it probably does not change the way that we think about capital and capital deployment in the organization. We are very committed to growing organically in this twelve-state footprint that we have. Principally a southern footprint that has very strong growth dynamics. We think it gives us in all likelihood, the flexibility as the largest players bring down capital levels.
We think that will be positive to mid and smaller organizations, midsize and smaller organizations as well. And I think we're gonna have plenty of opportunities to deploy capital in our business and in our footprint. As I said earlier, we're completely comfortable in looking at opportunities to buy back the stock and, as Hope said, a couple of different ways. We have plenty of authorization that we can use to execute upon that. If your question is asking about or inferring about M&A opportunity, nothing has really changed in our view. We think there's a tremendous amount of opportunities. We've been mentioned, like, a hook a couple of different ways to footprint one hundred million dollars to improve profitability.
And we want to move those things down the road before we get focused on anything else. And so who knows how things play out over a two or three-year period, but in the short run, we're very, very focused on deploying capital and growth in the business. We're focused on capitalizing on the client opportunities we have in our footprint. We use our buyback where appropriate and then we'll deal with regulatory changes as they get finalized, implemented over the next couple of years.
Nicholas Holowko: Perfect. Appreciate the color. And then just maybe as a follow-up, thinking about the direction of the margin and NII over the next couple of quarters here. Any color you can give on the trends you're seeing on loan repricing and any spread compression that you might be observing in the market? Thank you.
Bryan Jordan: I'll start. It's gotten to be, as I said earlier, much more competitive on the deposit side. It's gotten to be much more competitive on the lending side. And I would say that we are seeing greater competition on both price, i.e., lower spreads, and on the structure side in the marketplace. And I think that is a reflection of a number of things. Many of them would be positive in my view. One is think people have greater confidence in the likelihood that we're gonna navigate through the changes that are going on that are in the economy. And so I think people see positive outlook. Two, growth is still relatively slow.
But borrowers are starting to lean in, and they have a lot of competitors for their lending business. So in general, I think the spreads in the lending businesses will not be widening out significantly. I do think that it will be a very competitive marketplace as it has been for years and years and years, but it's picking up the competition in the back half of this year, in my view, is likely to be greater than it was in the first half or in 2024 for sure.
Nicholas Holowko: Got it. Thanks for taking my questions.
Bryan Jordan: Thank you.
Operator: Thank you. We have no further questions. So I would like to hand it back to our CEO, Bryan Jordan, for some final closing comments.
Bryan Jordan: Thank you, Rica. Thank you all for joining our call on this very busy morning. I know there are a lot of releases going on. We appreciate your time. We appreciate your interest in First Horizon Corporation. If you need additional information or you have follow-up questions, please reach out to any of us. We'll be happy to try to get that information for you. Thank you again for your interest in First Horizon Corporation. I hope you all have a great day.
Operator: Thank you all for dialing in. I can confirm that does conclude today's conference call. Thank you all for your participation and you may now disconnect.
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