First Horizon (FHN) Q2 2026 Earnings Call Transcript

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DATE

Wednesday, July 15, 2026 at 9:30 a.m. ET

CALL PARTICIPANTS

• Head of Investor Relations - Tyler Craft
• Chairman, President and Chief Executive Officer - Bryan Jordan
• Chief Financial Officer - Hope Dmuchowski
• Chief Credit Officer - Thomas Hung

TAKEAWAYS

• Net Income Available to Common Shareholders -- $260 million, representing a 12% increase compared to the second quarter of 2025.
• Diluted Earnings Per Share -- $0.54, up $0.09 or 20% from the previous year.
• Adjusted Pre-Provision Net Revenue -- $364 million, increasing 8% year over year driven by loan growth and relationship profitability.
• Net Interest Income -- $679 million on a taxable-equivalent basis, up $9 million sequentially due to loan portfolio expansion.
• Net Interest Margin -- 3.49%, a three basis point decline from the prior quarter reflecting higher deposit costs from brokered funding.
• Average Loan Balances -- $64.7 billion, increasing $1.5 billion from the first quarter of 2026.
• Period-End Loan Balances -- $65.3 billion, reflecting $1 billion in commercial loan growth and expansion in the Southeast markets.
• Commercial and Industrial Loans -- $37.3 billion at period-end, with $710 million in growth excluding loans to mortgage companies.
• Commercial Real Estate Loans -- $13.6 billion at period-end, representing a $175 million increase over the prior quarter.
• Period-End Deposits -- $68.1 billion, up $1.6 billion from the first quarter of 2026 primarily due to an increase in brokered deposits.
• Interest-Bearing Deposit Cost -- 2.33% on average, increasing five basis points sequentially with a period-end spot rate of 2.43%.
• Cumulative Deposit Beta -- 66% since interest rates began to decline in September 2024.
• Adjusted Noninterest Expense -- $526 million, up $6 million sequentially excluding deferred compensation driven by seasonal marketing and hiring.
• Provision for Credit Losses -- $15 million, remaining consistent with the prior quarter and reflecting consistent credit resolution efforts.
• Net Charge-Offs -- $33 million, or 20 basis points, which remains in line with management's full-year 2026 expectations.
• Nonperforming Loans -- $531 million, a decrease of $75 million or 13 basis points to 0.81% of total loans.
• ACL to Loan Ratio -- 1.24%, down from 1.28% in the first quarter of 2026 reflecting improved portfolio credit quality.
• CET1 Ratio -- 10.5%, meeting the company's near-term target while supporting organic loan growth.
• Share Repurchases -- $100 million, totaling four million shares repurchased at an average price of $24.52 per share.
• Tangible Book Value Per Share -- $14.53, representing a 7% increase year over year.
• Fixed Income Average Daily Revenue -- $594,000, which is an 8% increase year over year despite macroeconomic volatility.
• Risk-Weighted Assets -- Expected to decrease by approximately 10% under the currently proposed Basel III standardized approach.
• Brokerage, Trust, and Insurance Income -- $45 million, up $14 million year over year due to wealth management momentum and the LPL platform conversion.
• Salaries and Benefits -- $215 million, reflecting a $4 million increase from the first quarter of 2026 due to hiring and higher day count.
• Revenue Growth Guidance -- Re-iterated at 3% to 7% for the full year 2026.

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RISKS

• Jordan noted, "uncertainty around oil and particular and the conflict in the Middle East," as external factors that could impact the broader economy and market volatility.
• Dmuchowski stated, "uncertain outlook is the next rate move this year and is it an increase or decrease will drive" the trajectory of deposit costs in the second half of the year.
• Hung indicated that sectors like trucking, auto, and restaurants remain "elevated in terms of credit risk relative to other industries" due to pressure on lower-end consumer spending power.

SUMMARY

Management of **First Horizon Corporation** (NYSE:FHN) emphasized a strategic focus on deepening client relationships and maintaining a countercyclical business model to deliver performance through economic cycles. The company reported continued loan growth momentum in commercial and industrial segments and is prioritizing the expansion of fee-based services through wealth management and treasury solutions. Capital remains a core strength, with the company supporting organic growth and opportunistic share repurchases while navigating potential regulatory changes. Additionally, the company is investing in technology and artificial intelligence to drive operational efficiency across its southern U.S. footprint.

• CEO Jordan emphasized the company's competitive positioning by "pairing big bank capabilities with a community bank touch," which is intended to attract and retain high-value relationships.
• The company is focused on a $100 million-plus PPNR opportunity through deeper penetration in treasury management, commercial real estate pricing, and wealth management services.
• CFO Dmuchowski confirmed that management expects expenses to remain "flattish" for the remainder of 2026 following the conclusion of seasonal marketing campaigns.
• Management expects an approximate 10% reduction in risk-weighted assets under the proposed Basel III standardized approach, which would provide additional capital flexibility.
• CEO Jordan noted that the organization has hired 53 bankers during the quarter, focusing on commercial and wealth-facing relationship managers to build future momentum.
• The wealth management segment is benefiting from the conversion to the LPL platform, which management said has allowed for "deepening product penetration with our existing clients."
• Credit Officer Hung highlighted that the 13 basis point reduction in nonperforming loans was driven by a focused effort on "upgrades, payoffs, and restructurings."

INDUSTRY GLOSSARY

• ACL: Allowance for Credit Losses, a reserve established to cover estimated credit losses over the life of the loan portfolio.
• ADR: Average Daily Revenue, a metric used to track the performance of the fixed income trading and sales business.
• Basel III: A set of international banking regulations designed to mitigate risk within the financial sector by requiring banks to maintain certain leverage ratios and keep certain levels of reserve capital.
• CET1: Common Equity Tier 1, a measure of a bank's core equity capital compared with its total risk-weighted assets.
• FTE: Fully Taxable Equivalent, an adjustment that makes the interest income from tax-exempt and taxable securities comparable.
• LMC: Loans to Mortgage Companies, a specialized lending segment focused on providing credit to residential mortgage originators.
• LPL: LPL Financial, the brokerage and investment platform used by First Horizon's wealth management division.
• NIAC: Net Income Available to Common Shareholders, representing profit after preferred dividends have been paid.
• NIM: Net Interest Margin, the difference between the interest income earned by a bank and the amount of interest paid out to lenders.
• NPL: Nonperforming Loan, a loan on which the borrower has not made the scheduled payments for a specified period.
• PPNR: Pre-Provision Net Revenue, total revenue less noninterest expense, before accounting for the provision for credit losses.
• ROTCE: Return on Tangible Common Equity, a financial ratio measuring the return on the tangible portion of common shareholders' equity.
• RWA: Risk-Weighted Assets, used to determine the minimum amount of capital that must be held by banks to reduce the risk of insolvency.

Full Conference Call Transcript

Operator: Welcome to the First Horizon Second Quarter 26 Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. And To withdraw your question, star 1 again. I will now hand the conference over to Tyler Craft, Head of Investor Relations.

Tyler Craft: Thank you, Rebecca. Good morning. Welcome to our second quarter 26 results conference call. Thank you for joining us. Today, our Chairman, President and CEO, Bryan Jordan and Chief Financial Officer, Hope Dmuchowski, will provide prepared remarks, after which we will be happy to take your questions. Also pleased to have our Chief Credit Officer, Thomas Hung, here to assist with questions as well. Our remarks today will reference our earnings presentation, which is available on our website at ir.firsthorizon.com. As always, I need to remind you that we will make forward looking statements that are subject to risks and uncertainties.

Therefore, we ask you to review the factors that may cause our results to differ from our expectations on page 2 of our presentation and in our SEC filings. Additionally, please be aware that our comments will refer to adjusted results which exclude the impact of notable items and to other non GAAP measures. Therefore, it is important for you to review the GAAP information in our earnings release pages 2 and 3 of our presentation, and the non GAAP reconciliations at the end of our presentation. And last but not least, our comments reflect our current views you should understand that we are not obligated to update them. And with that, I will hand it over to Brian.

D. Bryan Jordan: Thanks, Tyler. Good morning, Thank you for joining us this morning. I am proud of the results we achieved in the second quarter. Comparing our year over year performance, adjusted earnings per share for the quarter were up $0.09 or 20%. We saw an 8% increase in adjusted PPNR and period end loan balances grew by approximately $2 billion compared to the second quarter of 25. These outcomes are the direct results of our clear objectives, disciplined execution, and the value we demonstrate to clients day in and day out. We see continued growth momentum going into the second half of the year.

Our entire organization is focused on delivering strong performance through the cycle, through our core regional and specialty businesses and our countercyclical business model. Building long term relationships with client to benefit most from the value we provide remain at the center of our strategy. We continue to grow and invest in the people, products, and services that meet client needs and drive continued performance. Hope will provide some additional comments on the second quarter. And I will return at the end of the call for some closing comments. comments. Hope?

Hope Dmuchowski: Thank you, Brian. Good morning, everyone, and thank you for joining us today. Starting on slide 6, we highlight our strong earnings momentum. Shown by our results for both the second quarter and the first half of 26. In the quarter, we grew adjusted EPS by $0.01 to $0.54 adjusted PPNR by 1% to $364 million and average loan balances by 1.5 billion. Compared to the first half of 25, our adjusted ROTCE increased by over 180 basis points adjusted PPNR increased 8%, and adjusted earnings per share was up $0.21. As we move through the detailed slides, we will walk through the drivers of performance in more detail.

On Slide 8, we walk through our net interest income and margin performance in the second quarter. Our margin compressed by 3 basis points which saw NIM settle into the high 340s as we expected, reflecting the rate environment evolution into a flat to up expectation. We grew NII by $9 million this quarter, reflecting our strong loan growth. On Slide 9, we cover details around our deposit performance in the quarter. Period end balances increased by $1.6 billion compared to prior quarter. Driven primarily by growth in brokered deposits. The average rate paid on interest bearing deposits increased to 2.33% which is a 5 basis point increase from the prior quarter.

While deposit costs came up, due to the competitive environment in portfolio blend our cumulative deposit beta remains strong at 66% since rates started to fall in September 2024. The rate paid increase in the quarter is in line with the patterns we saw in 2025. While the environment remains competitive, we saw average cost of client interest bearing deposits remain roughly flat in the quarter. As always, we remain focused on growing our core deposit base and prioritizing relationship growth to sustainably and profitably grow our balance sheet. On slide 10, we cover our quarterly loan growth. Period end loans increased by $953 million from the prior quarter. Driven by $1 billion in commercial loan growth.

This growth includes $710 million in C&I growth, excluding loans to mortgage companies, and $175 million in commercial real estate growth. Which reflects the momentum we have seen in that portfolio over the last few quarters. Loans to mortgage companies grew $118 million in the quarter, which reflects normal home buying seasonality with some headwinds from the rate environment. We saw strong production in the quarter with new commitments up more than 50% year over year driven by commercial real estate activity. This creates an opportunity for flat to slightly up CRE balances this year as construction projects fund up over time. Additionally, our pipelines remain strong across our business lines and throughout our footprint.

Our commercial loan spreads remain generally consistent with prior quarters amidst the competitive environment for loan growth. Turning to slide 11. We detail our fee income performance for the quarter. Which decreased $1 million from the prior quarter excluding deferred compensation and is up $14 million year over year. We saw a quarter over quarter decline in fixed income revenues due to a decrease in ADRs to $594 thousand. So this is still an 8% increase year over year. Lower ADRs were driven by macroeconomic volatility amidst a changing geopolitical environment and uncertain rate environment.

The decline in fixed income is partially offset by increased brokerage, trust, and insurance income from continued momentum in our wealth management business and increased client activity. This is 1 of the revenue driven profitability lines that we see driving our $100 million-plus PPNR opportunity. On Slide 12, we cover adjusted expenses that excluding deferred compensation increased $6 million from prior quarter. Personnel expenses, excluding deferred comp, increased by $1 million from last quarter driven by a $4 million increase in salaries and benefits This reflects hiring as well as higher day count.

Outside services increased by $10 million which primarily reflects typical seasonality with higher marketing expenses, that are partially offset in other non interest expenses by reduced client cash incentive payouts from prior quarter's marketing programs. Turning to credit on slide 13. Net charge offs increased by $4 million to $33 million Our net charge off ratio of 20 basis points remains in line with our expectations for the year. Our provision for credit losses was $15 million in the quarter, and our ACL to loan ratio declined to 1.24%. Driven by mix change in the portfolio and continued credit resolutions as NPLs declined 13 basis points to 0.81.

Our teams continue to do an excellent job of working with our clients to resolve credit issues. As rates decreased over the last several quarters, we have been able to consistently find ways to resolve credit and maintain our strong credit performance. On Slide 14, we ended the quarter with CET1 of 10.5%, which is in line with our near term target. We had strong loan growth as well as buybacks of 4 million shares totaling $100 million this quarter. Our tangible book value per share ended the quarter at $14.53 and is up 7% year over year. Which includes buybacks of $807 million and an increase to our dividend.

We continue analyzing the potential impacts of Basel III and currently expect an approximate 10% reduction in risk weighted assets in the standardized approach as it is currently proposed. I will wrap up on Slides 15 and 16. We continue to reiterate our full year expectations as outlined on Slide 15. While the macroeconomic environment and competition may change, our business model creates resilient earnings and our associates consistently deliver on expectations including our $100 million PPNR opportunity. Now I will give it back to Brian.

D. Bryan Jordan: Thank you, Hope. The second quarter of 26 was very similar to what we saw in the second quarter of 25 regarding deposit competition and increases in deposit costs. Macro volatility impacting fixed income revenue various other seasonal patterns like home buying and marketing campaigns. Ultimately, we create value for our shareholders by prioritizing full relationships with clients who value the services we provide. The work we have done over the last 18 months to create a clear common understanding of the ways we win in the market and how we prioritize profitability and our objectives strengthens our ability to deliver results to our investors.

On the whole, we feel very good about where we are and how we are executing. Our job is to stack 1 good quarter on top of the next by serving clients well, staying disciplined, rather than reacting to economic volatility and market changes. Expense discipline remains a priority as we continue to strategically invest in talent, technologies, and tools that make our associates more effective for clients. Capital is a strength for us. Near term, we are managing CET1 ratio around 10.5% while we continue to support organic growth. We will stay thoughtful on capital deployment and be opportunistic with share repurchases. We believe we can operate a lower CET1 ratio over time as conditions allow.

Our footprint and operating model continue to serve as competitive advantages. By pairing big bank capabilities with a community bank touch, we are well positioned to attract full clients and grow with the markets and lines of business we serve. Thank you to our associates for their hard work and to our clients and shareholders for their continued confidence in First Horizon Rebecca, with that, we will open it up for questions.

Operator: We will now begin the question-and-answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Jon Arfstrom With RBC Markets.

John R: Hey. Good morning.

D. Bryan Jordan: Morning, John.

John R: Hey. Just wanted to ask a couple of questions about the revenue environment. Hope, can you touch a little bit on the deposit cost outlook help us understand what you are seeing. I know you said the average client interest bearing deposits were roughly flat sequentially, but what can we expect from here on deposit costs and funding costs in general?

Hope Dmuchowski: Good morning, John. Thanks for the question. As we look out as to where deposit costs will go in the rest of the year, I expect it to look very similar to last year. As you looked at what happened in 2025, following the this cuts at the end of the year, rates came back up. The competition increased. And if we continue to see this trajectory, I do think that, our beta will continue to shrink slightly. But I wanna make the point in that we said at the end of last year, both Q3 and Q4, we were maximizing the decrease in our deposit cost knowing that we give some back once rates stop cutting.

So this is as expected, John. Also, Q2 and Q3 is the most competitive time for offers. You see in our expenses every year in Q2, we talk about the increased marketing cost that goes with those acquisition offers. I think really the trajectory for the back half of the year, we start looking at Q3 and Q4, it does depend on which way rates go. I mentioned in my prepared remarks, as did Brian, the uncertain outlook is the next rate move this year and is it an increase or decrease will drive that. But I do expect it to continue to increase consistent with what we saw last year as rate cuts.

John R: Mhmm. Okay. And then I guess, loan competition and yields, I see a little bit of compression this quarter. But do you feel like it is still rational Brian? Anything you would like to flag in terms of yields? And anything that is more, more competitive than other areas.

D. Bryan Jordan: Yes. I would describe the loan markets, John, as maybe a little surprisingly optimistic. Pipelines have continued be very strong. Whether it is in customer request for lending or just in anecdotal conversations with customers people are still very optimistic about the economy and very forward leaning. So I am I am surprised that how optimistic things feel given some of the uncertainty around oil and particular and the conflict in the Middle East. Loan pricing and structure, I can always give you anecdotes where it seems it is very competitive. And it is very competitive. For larger transactions in particular.

At the end of the day, I think you will see over the course of this year, the demand for deposit and lending continue to probably put a little bit of pressure on relative spreads on both sides of the balance sheet. As this economy continues to churn forward in very positive fashion.

John R: Yeah. Okay. So a little pressure on spreads, but feeling good about volumes is the summary.

D. Bryan Jordan: Yes. Yep. Yes. Very accurate. Okay. Alright. Thank you very much.

Hope Dmuchowski: Thank you. Have a great day.

Operator: Your next question comes from Michael Edward Rose with Raymond James. Please go ahead.

Michael Edward Rose: Hey. Good morning, guys. Thanks. Maybe we can just start on the ADR side. I mean, obviously, you guys kind of gave the update interquarter just based on, where the curve is now. What the expectations for rates are. I know it is hard to forecast, but can you just talk about the puts and takes in that business just given where we are? Thanks.

D. Bryan Jordan: Yeah. Well, I will start. it is hard to put a beat on it. ADRs last week were very strong. So, you know, rates are moving. They are very volatile with what is going on. In the marketplace. Given the CPI, the VPI today, the market is taking some of the certainty or the expected certainty around increases in rates over the back half of this year out, is diminishing some. I think we are in a channel where the volatility is going to have a real I guess, I do not want to repeat-- real. it is a real-time effect on what is happening in the fixed income businesses. Rates move higher and investors see it as opportunistic.

We will see ADRs pick up and as rates are trending down, I think you will see less volume. On the whole, it feels like the back half of this year is not gonna be as strong as the back half of last year. But I just do not know how rates are gonna move given the uncertainty around what is happening in The Middle East and oil, what is happening with the Fed and rate cuts and inflation. We will know more 30, 60, 90 days from today. But there is you know, very positive signs like a week last week that was very strong.

Michael Edward Rose: Perfect. And maybe just a follow-up there. When we do get capital reform, that is obviously going to benefit the system as a whole would you expect to see more volume from that? Because not all of it can be returned through buybacks and dividends. I would assume that some of it will be put in securities and that could benefit the business.

D. Bryan Jordan: Just wanted to see if you guys have thought about the potential uptick from I think it is it is possible. I agree. I think that buyback will return at all. I do think that the relative effect on risk weightings will impact where people feel like they can lend. And I think you might see some lending activity also come back from the secondary markets. But on the whole, I think it is generally a positive thing for the fixed income business. But I would not, today, speculate on how great that is gonna be.

Michael Edward Rose: Alright. Great. Maybe just 1 follow-up. Just as it relates to credit. Last quarter, we spent a lot of time talking about ND and things like that. Does not seem to be a real topic this quarter. Obviously, the improvement was good. But I guess how much-- you know, how much better can it really get in your eyes? And if volatility, you know, does persist, could we start to see things maybe turn the other way? Thanks.

Thomas Hung: Yeah. Hey, Michael. Good morning. The I think the short answer on NBFI is there is been no real change since the last quarter. It continues to be a relatively steady performing portfolio for us with no major concerns. And so no part of me is necessarily looking for it to get better. I think just a consistent steady performance that we have already had it would be a that is what I am expecting, and that is what we are managing towards.

Michael Edward Rose: Alright. Great. Thanks for taking my questions.

Hope Dmuchowski: Thank you.

Operator: Your next question comes from Jared David Shaw with Barclays. Please go ahead.

Jared David Shaw: Thanks, and good morning.

D. Bryan Jordan: Good morning.

Jared David Shaw: Maybe going back to the deposit discussion, were there any unique drivers of some of the non time interest bearing runoff, and how should we look at sort of the outlook for broker deposits from here?

Hope Dmuchowski: Yeah. Sharon, there was no main themes. I will say it was pretty broad based when we started looking at where we saw changes in balances. it is not loss of clients quarter over quarter. it is the average balance in their accounts. The 1 trend we did see is money moving from you know, traditional money markets or CDs back into the equities market in our wealth business. We have seen a little bit of a churn there, but no real main theme.

I think just as we know, the consumer has less cash flowing through their checking accounts and they are spending down their savings and our commercial clients are funding up projects and putting that cash to work.

Jared David Shaw: Okay. Alright. Thanks. And then, looking at the securities side, you know, you continue to run that down and use that to fund other growth. How low should we expect the securities as a percentage of assets go? And you know, are you doing anything differently in that right now in terms of purchases? Compared to what we see for average yields the second quarter.

Hope Dmuchowski: Yeah. We have not been running that off. It varies, you know, a percentage or 2 quarter over quarter just as you look at how the total balance sheet is comprised. But we continue to reinvest. We have $1.2 billion rolling off at approximately 2.8%, and we are replacing that at 4 plus percent right now. I say now because as we just talked about earlier, the rate, outlook continues to change. But yes, there is positive momentum for earnings there. But we do not expect a shift in mix. Onto our balance sheet.

D. Bryan Jordan: And that securities portfolio today, Jared, is about 11% of total assets or thereabouts. We try to run that portfolio as small as we can because we do not believe that we create any economic value for our shareholders or for our customers for that matter there. there is a floor to it, We maintain the securities portfolio for liquidity, balance it out on our asset liability situation or sensitivity. And at the same time providing collateral for public funds and things of that nature. So there is a floor to it. But if given the opportunity, we would allow that to migrate down.

Jared David Shaw: Great. Thank you.

Operator: Your next question comes from Bernard Von Gazzicchi with Deutsche Bank. Please go ahead.

Bernard Von Gazzicchi: Hi, good morning. Just the first question on the brokerage trust insurance fees. They have been growing nicely versus the year ago period as well as versus the first quarter. Could you just provide some color on what is driving results? Is it a combination of the macro and micro factors? Just thoughts on how you expect revenues to trend in the second half of the year. I believe you mentioned increased wealth management penetration across the footprint. With 5 million recognized. in 1H 2026 as part of the growth.

Hope Dmuchowski: Yes. Thank you for the question. In Q3 of last year, we completed our conversion onto the LPL platform. And so it is allowed us to deepen our product penetration with our existing clients as well as bring new clients on to the platform. We have been hiring wealth advisers. We have been building out the deepening initiative that you spoke about, which is where do we have commercial clients that we can also cross sell wealth to. And I think that momentum or I expect that momentum to continue as we continue to get the benefit of growing our franchise through the LPL partnership and new wealth advisors.

Bernard Von Gazzicchi: Great. And then just maybe a follow-up on the hirings, like you mentioned, hiring 53 during the quarter. Just any color on the mix upfront versus, say, mid- to back office during the quarter? Or year to date and just any expectations on hirings in the second half of the year?

Hope Dmuchowski: Yep. We are continuing to hire bankers across our footprint as we did last year. it is pretty broad based in some key growth areas as well as some businesses we just talked about wealth. We are not investing back into support areas right now. 1 of the things that AI we talk about a lot is to create efficiency so you can scale your front office without having to add the support partners. The 1 exception to that in headcount growth is fraud. We are continuing to invest people into our fraud business as it gets more and more difficult to prevent fraud for our consumer and our commercial clients.

D. Bryan Jordan: Yeah. Bernard, I am I am really proud of the hiring that we have done in the organization. Over the last 12 to 18 months. We have attracted very strong talent, and we are seeing positive results from that. And I am optimistic that over the next 2 to 3 years, you will continue to see that momentum build. We feel very good about our hiring in the marketplace.

Bernard Von Gazzicchi: Great. Thanks for taking my questions.

Hope Dmuchowski: Thank you.

Operator: Your next question comes from Janet Leigh with TD Cowen. Please go ahead.

Janet Leigh: Good morning.

Hope Dmuchowski: Good morning.

Janet Leigh: Just following up on deposits. Is there room for broker deposit balances to unwind versus the $2 billion increase in the quarter? And interest bearing deposit cost in the third quarter could potentially come in below the 2.43 spot rate? Given the CECL strength and core deposits.

Hope Dmuchowski: Janet, absolutely. That is a possibility, and we do not try to fund loan growth as a priority with deposits. We have seen 2 successive quarters of strong loan growth and the seasonality of deposit campaigns when clients move deposits as well as the balances that there are to go after. It does tend to take up in Q2 and Q3, and we would trade that in paying down broker. However, is it going to come in lower than where we ended the quarter? it is really hard to know this early in the quarter. it is really hard to know with the changing macroeconomic outlook and the rate outlook what we will see.

But it is it is our goal to continue to grow customer deposits to fund the loan.

Janet Leigh: Got it. And on 2026 revenue growth, guide, If we assume current mid-single-digit loan growth, perhaps relatively stable cyclical account sorry, countercyclical fee businesses and NIM likely coming down if deposit costs are rising. That implies revenue growth coming in at the low end of the 3% to 7%. Is that the fair baseline expectation or assumption? that we could assume? Or if not, what are the levers to do better? Than the low end?

Hope Dmuchowski: Yeah. I think that is 1 assumption that you run. We run a series of different scenarios in a changing rate environment and economic outlook 1 of the comments you made is you said is compressing NIM. If NII is growing and NIM is compressing, that is still positive to revenue growth. Over the year. We are the first half of the year, at the average for revenue growth When I look at the back half of the year, it really depends on what happens with the rate outlook and how our countercyclical perform. Our FHN Financial, as Brian mentioned earlier, had a great second half of last year.

So get to the higher end of that range, you would have to be equal or outperforming that. But a rate increase, we have an asset sensitive balance sheet, so a rate increase is another scenario you can run, and we would pick up more NII from that on the exact same balance sheet without growth. And so I think you have got to play all those factors out not knowing if we will have a rate decrease or increase this year. And we have run all of those scenarios for the back half of this year, and we feel confident that we will be well within that range.

D. Bryan Jordan: The other lever that Hope mentioned earlier in her prepared comments was we are really focused on how we improve the profitability of the balance sheet. And if you look at loan growth over the last year and improvement in PPNR, we are outpacing the growth in the balance sheet. And there is a real with improvement in profitability. positive effort, and we are getting very good traction to really improve every dollar of capital we have allocated in the business.

And I think the combination of all of those gives us confidence in what essentially is the framework for 2026 that we laid out in the early part of this year even in the context of all the uncertainty that has occurred in the last 90 days, 180 days around interest rates and oil in the Middle East. We still feel very good about our outlook for this year.

Janet Leigh: Thank you.

Hope Dmuchowski: Thank you.

Operator: Your next question comes from Casey Haire with Autonomous Research. Please go ahead.

Casey Haire: Thanks. Good morning, everyone. Wanted to touch on expenses. The so the expense guide, which you which you reiterated, it assumes that expenses kinda hold flat with this second quarter run rate The outside services was up quarter to quarter, and it and it kind of ramps last year. So just wondering, what, do I have that right that expenses kinda hold flat with the second quarter run rate, and what is the outlook on the outside services?

Hope Dmuchowski: Casey, you said it perfectly. You answered the question for me. We are expecting expenses to be flat from here on out, and we did have in the back half of last year 1 time expenses, related to finishing up some projects, some initiatives that will not repeat in the back half of this year. So we do expect it to be flattish here. We will see some movement between outside services and other, and that is really related to the marketing campaigns. Right now, we are in the acquisition phase, so it hits above, and then we pay the cash incentives. You will see our DDAs are up this quarter.

We are seeing positive momentum with our DDA cash offer, and those will pay out in future quarters. You will see it switch a little bit in the P and L but we do expect flat expenses the next 2 quarters from here.

Casey Haire: Great. Thank you. And then, Tom, question for you, 2 parter on credit. So the ACL down 18 bps over the last year. You did have a very nice NPL redux this quarter. I guess, question is, how low can that ACL ratio go? And then separately, that the NPL ratio can this momentum continue? can-- you know, is there an outlook that you can drive that lower from 81 basis points?

Thomas Hung: Yes, sure. Hey, Casey. I will answer that in a few different parts. I will start with the 18 basis point reduction that you mentioned That is factors: We have been very diligent in how we manage our portfolio. So what you have seen is a continual decrease in our special mention and substandard assets. We have been very diligent in our underwriting how we resolve those credits. And so that 18 basis points is a combination of improving portfolio credit quality. it is also got all the positive resolutions you have mentioned, in NPLs in the last quarter. It also reflects just economic outlook as well. There are internal factors we control.

There are also external factors around economic factors. But you add all of that together and actually, I missed a major 1, which is obviously a very consistent and low net charge off performance. All of that put together is why we have had the decrease in ACL. I would point to the 1.24 that we ended this quarter at is still over 6 times our average net charge offs. Over the last year and more than 7 times over the last 2 years. So I would I would characterize that as well reserved to our performance As I look out ahead, where does ACL go?

I think that is something that I would not speculate on because as I mentioned, there are internal things that we absolutely can control, and I-- our whole team, our whole bank continues to prioritize minimizing losses and maximizing recoveries as opposed to say, timely resolutions. And I think we control the things we can control, but there are external factors such as unemployment, interest rates, economic outlook, consumer spending power, inflation, geopolitical risks. there is so many things that can influence ACL going forward that I would not speculate on kind of where that can go. The last piece, you mentioned NPLs. You know, I think that is a real highlight for Credit this quarter down 13 basis points.

Once again, that is a combination of a lot of different things. We have been working on very diligently on focusing on our NPLs, and we had a number of positive resolutions this quarter. What you are seeing there is a combination of upgrades, payoffs, restructurings. And then as I mentioned, our focus continues to be on minimizing losses and maximizing recoveries as opposed to timeliness. So we will absolutely focus on continuing to reduce that number. But like I said, I take a long term view on all of this rather than trying to, get quick resolutions.

Casey Haire: Great. Thank you.

Operator: Your next question comes from Ebrahim Poonawala with Bank of America. Please go ahead.

Ebrahim Poonawala: Hey. Good morning. Just had 2 follow-up questions. I guess, I hope, Brian, for you. 1 on capital, if I heard you correct, Hope, you mentioned risk weighted assets down about 10% under the standardized approach. that is roughly whatever 110 basis points of CET1. Just talk to us in terms of as we think about capital allocation given where your CET1 arguably at the higher end when we think about the 10 and a half, Just how are you thinking about where you could deploy that capital Would buybacks be attractive once we get some finality on these rules?

Or just, yeah, in terms of beyond organic growth because does not feel like organic growth's gonna absorb all that excess capital. Thanks.

Hope Dmuchowski: Ebrahim, thanks for the question. Yes, it is a combination of those and it depends on the outlook. As Brian and I have talked about multiple times, when we look at capital, we look at it and we do our annual stress test. Although we are not required to do it, we do it. We review it with our board and we look through, you know, the next 1 to 2 years for capital, which is do we believe we are gonna need to fund loan growth? Loan growth being the priority for how we want to use capital Second is what is the right level of dividend for a company, and third is share buyback.

And so when we look out towards, that 10% reduction, we will look at not just this quarter, how do we get how do we put that all the work, what do we reserve so that we have it to grow our balance sheet. it is hard for me to know when it will all go into place, Ebrahim, and what the economic environment could be. We came into this year, you know, expecting load of mid single digit loan growth. I do see an environment where we can get back into the high single digits and 10% loan growth as an economy, especially in the Southeast as quickly as our markets are growing.

I just do not know when that market starts to turn. In timing with when Basel III endgame will be implemented and approved.

Ebrahim Poonawala: Got it. And then I guess just separately, appreciate you outlining a $100 million PPNR opportunity ahead of the bank. But just talk to us. We are seeing competitors either acquiring banks, adding branches, acquiring bankers. Just talk to us if you think about the top 3 areas, where investment spend is going, from a growth standpoint, like, how would you sort of characterize that in term either banker hiring? Are you opening branches in new markets? If you can talk through that. Thanks.

D. Bryan Jordan: Yeah. We are investing across a number of fronts, and 1 you did not mention very much was technology. We continue to invest in technology. We are building branches not so much in new markets. We are building branches in existing markets where we think we have tremendous opportunity to improve our density, our 24 by 7 always on advertising, and commitments to those markets. The Carolinas, Raleigh Durham, Chapel Hill is a good example of that. As I mentioned earlier, I feel good about the hiring we are doing across the organization. We have hired in markets, broadly speaking, to go deep and broader, mostly commercial and wealth-type RMs, customer facing bankers.

And we will continue to do that as well. And then technology, we made a huge push in technology following the termination of the merger agreement. That work is largely, if not fully done, but we continue to invest in our mobile banking system and how we deploy AI. So we are looking to invest in a in a number of fronts. I thought Hope did a really good job describing and expenses earlier, and that is 1 part of the forecast that we have the most certainty over. We feel very, very good about our ability to control expenses, and that is the 1 thing that we can control with a high degree of certainty.

And we feel good about our ability to continue these investments to grow the franchise and invest and at the same time manage expenses within the flattish corridor that we have described.

Ebrahim Poonawala: Got it. Thank you. Thank you.

Operator: Your next question comes from Ben Gurlinger with Citi. Please go ahead.

Ben Gurlinger: Hey. Good morning. Good morning. Good morning. Hate to beat a dead horse, but it is clear that people are pretty focused on your funding mix. it is not interest bearing deposit cost. Given that you guys have a pretty seasonal balance sheet, like, is there any reason why 4Q 26 should have a materially different overall kind of percentages of funding. Than for relative to, like, 4Q 2025. I e, like, broker comes down and like I am I am just trying to get a sense of, like, you do have seasonality. Is there anything to assume that seasonality does not really play itself out again?

Hope Dmuchowski: No. there is nothing to say that we expect this seasonality, and Brian mentioned that in his prepared remarks. And I mentioned my first question. This year, deposit cost and deposit growth is trending just as we have seen in the last 2 years following rate cuts that then stopped abruptly. We do not know what when or what the next, rate movement will be. You know, the only thing that would move that is if we saw a late in the year mortgage warehouse spike. We saw mortgage refinance late in the year. That would be the only thing that would change that materially. But, no, we do not expect a material change. Got it.

Ben Gurlinger: Okay. that is helpful. that is pretty much all I had. I appreciate it. Thank you.

Hope Dmuchowski: Thank you.

Operator: Your next question comes from Anthony Albert Elian with JPMorgan. Please go ahead.

Anthony Albert Elian: Hi. Good morning. Another 1 on deposit costs. Last quarter, you pointed to a slight pickup in deposit costs, and you saw a 5 basis point increase on average in 2Q. Would the pace of deposit cost increases in the second half be higher than the increase you saw in 2Q given where the spot rate is now and your earlier comments on 3Q and 4Q being the most competitive for deposit offers?

Hope Dmuchowski: I think it is hard to pin it down within you know, 1 basis point, this early in the quarter. The biggest piece is how much loan growth we get. We talked about having another great quarter of originations that will fund up. And so how do we fund growth? What does the growth on the balance sheet look like? As Ben just pointed out, while mortgage warehouse seasonally is higher in the summer. That is a traditional home buying season. We have already seen that. We do match fund mortgage warehouse. with wholesale funding traditionally. So I think you have really gotta look through the cycle and not just quarter to quarter with the seasonality.

But it really is hard for me to tell you exactly where we are gonna be within a couple of basis points, in 75 days from now, but we are trending, you know, consistently as we just said, and we are continuing to manage customer costs.

D. Bryan Jordan: I will add to Hope's comment. My instincts are that what I see in the marketplace and anecdotally, I think in the near term with the uncertainty, around interest rate direction and right now, some bias in the market for rising rates. It does look like people are trying to lock in funds today for with an anticipation of higher rates. And so I think that is changing the mix a little bit. You are seeing more CD offers in the marketplace. You are seeing still very competitive and aggressive money market rates in the marketplace.

And at the end of the day, as I have said for a couple of years now, you are still in this secular change where the cost of deposits is drifting slowly towards wholesale cost of funds just with the transparency of interest rates. So my gut tells me that you could see rates drift up a little bit over the next quarter or so. But I think the seasonality effects will play-- you know, the driver from our perspective is to be extraordinarily thoughtful and competitive about how we build client relationships, how we ensure that we pay our customers fairly for the business that they do with us, get paid fairly for the credit that we provide.

And we look at all of it in the context of a market that is moving a good bit. So at the end of the day, my gut is maybe up a little bit But it is hard to know given all the moving parts in the marketplace.

Anthony Albert Elian: Thank you. And then on the NIM, so last quarter's call you gave us, a range hope of high 3.40s for 2Q. If I look at consensus has you hovering at that level over the next couple of quarters. I am wondering how you are thinking about NIM for 3Q given, again, your earlier comments on deposit costs. Thank you.

Hope Dmuchowski: I think NIM, we expected to settle in this year in the mid 3.40s to high 3.40s. That will vary, you know, a basis point or 2 on NIM for us is really about fixed, not just deposit cost. Mortgage warehouse is our highest spread business. So as that, funds up, you know, you can see some margin compression there, but it is positive to NII. And I think the really important thing when we talk about NIM compression is our deposit growth is our deposit increase and our deposit growth is to fund loan growth. So it is still driving positive NII with slight NIM compression.

We have been saying for about 3 quarters now, we think a normalized for 2026 is the mid to low 3 fours, and we are at the or mid to high 3 forties, and we are at 49. So that gives us a lot of room to come in that full year guidance we have given on them. And feel confident on the full year we will. But to Brian's point, there is a lot of moving parts right now. But I do not wanna disconnect the deposit growth is tied to loan growth, which positive for NII right now.

D. Bryan Jordan: What I would say is you cannot spend a NIM, which is a ratio. You spend NII, which is dollars.

Anthony Albert Elian: Thank you.

Hope Dmuchowski: Thank you.

Operator: Your next question comes from Timur Braziler with UBS. Please go ahead.

Timur Braziler: Hi. Good morning. Hope, on the seasonal deposit campaigns that you guys are running, can you just maybe talk through the magnitude of those and where your pricing should go to seasonal campaigns?

Hope Dmuchowski: Yeah. I mentioned this a few times at recent conferences that we have done, fireside chats but the 1 size, you know, headline rate is not how deposits are working now. 1 of the 1 of you on this call actually calls branches and puts a report out saying in this city, here's the offers. We have gotten to the point in our industry, and us as well, where we do have different rate specials in different cities. We tier, you know, lower end deposits versus higher, jumbo CD are back with a much more premium rate.

So unlike 2023 where I could tell you, you know, we were offering $5.25 to everybody in all states above 25 thousand. that is not how we are doing deposit competition anymore. it is not how we are doing promos. So it is a mix issue of how do you grow, with where the market is. The Southeast is a very competitive market, for deposit as to have, migration in and additional competitors either grow their footprint or enter. But it is not equal in all states and all cities.

And so we are getting much more intentional about where we can grow at what rate, which is how we are able to manage that deposit cost more consistently through the cycle than we were back in 2022 and 2023, not just for us, but as an industry.

D. Bryan Jordan: As you mentioned earlier, Hope, we have we have invested in cash offers for noninterest bearing deposits. We are starting to see very positive traction there. And essentially, that is an effort to build primacy and essentially the core account with customer relationships are built around. So we are investing our market dollars both in noninterest bearing and bearing deposits. And as hope said, it depends on market. It on the part of the curve we are trying to go at.

Timur Braziler: Okay. And I guess in that same way, if we do get a 25 basis point hike, if the forward curve actually does play out, I guess, what does the margin trajectory look like with 1 hike?

Hope Dmuchowski: No. that is just like the opposite. it is gonna be the opposite of what we saw decreases, which is the loan side reprices up first and the deposit price will lag. What we have seen in decreasing environment is the loan yield comes down first and then the deposits lag. So you will have some margin expansion in that first quarter. And then you will see it compress back as the deposit reprice You know, we have anywhere from 3 year to 3 months to 13 month commitment on, you know, something like a jumbo CD So you have gotta let that play through in either a rate increase or a rate decrease.

So there is a lag quarter to quarter, over the full year or over a 12 month period, you would expect it to we expect it to match.

D. Bryan Jordan: Our business model is very balanced through the cycle given where fixed income ADRs are today, a rate increase would be incrementally more positive because ADRs have already been at a relatively low level. So if the Fed were to move up 25 basis points, it would look more like the interest sensitivity that we have described as opposed to the aggregate sensitivity of the balance sheet.

Timur Braziler: Great. And, Brian, if I can sneak 1 more in for you, just would love to get your thoughts on broader M&A in the environment. Are the conversations as dead as the deal activity has been in recent recently? I guess, what are you seeing from your seat in terms of you know, books coming across your desk or broader conversation side?

D. Bryan Jordan: From my perspective, you know, I am focused on how we drive the profitability in this business. I would say as sort of a macro observer of the marketplace, given the significant amount of M&A activity that occurred in the middle part to the end of 25 and the relative absence of that in the first half I do not know whether that is what is driving it. I suspect it is probably a number of things, including you know, uncertainty about what is happening in credit in the Middle East. But it does feel more benign today than it did call it, 12 months ago for sure.

Timur Braziler: Great. Thank you.

Operator: Your next question comes from David Chiaverini with Jeff. Please go ahead.

Brooks Sutton: Hey. Good morning, guys. Brooks Sutton on for David Chiaverini. You guys have mentioned in reference to $100 million-plus revenue opportunities several times today across initiatives like treasury management. CRE pricing, wealth management, and the regional specialty partnership model. As you sit here today, which of those initiatives do you think has the longest runway for growth and where are you seeing the strongest client adoption? Thanks.

D. Bryan Jordan: I think they all have pretty long runways. I think maybe the most significant in terms of ability to create or drive value is deeper much deeper penetration of relationships where we have a loan only or near loan only relationships and better penetration. Our TM folks are making significantly more calls with their managers. And that, I think, is probably number 1 that I would list. Second is introducing our private client, our wealth management teams to those relationships. But, essentially, it has to be executed at a client and relationship at a time Our teams are very focused on it. They understand where they are in their relationships.

And not to repeat a point I made earlier, but you see it in the balance sheet when you look at the improvement in PPNR versus the growth in the balance sheet, you can assume underneath that there is some relationships and particularly participations where we did not believe that we had the opportunity to create relationship value over the long term. So we have traded out some loan growth over the course of the last year. But on a whole, we did not expect this to occur overnight. We have been focused on it now for 18 to 24 months.

And we are seeing very positive signs And I am very encouraged about our ability to achieve what we have laid out. it is built into the expectations that Hope and I have talked about a couple of times for this year, but we feel very good about our ability to achieve it.

Brooks Sutton: Great. Thank you very much.

D. Bryan Jordan: Thank you.

Operator: Your next question comes from Christopher William Marinac with Breen Capital. Please go ahead.

Christopher William Marinac: Hey. Good morning. Brian, how do you think about the return on tangible common equity as it relates to kind of matching charge offs with provision or having provision slightly less. I know Tom talked about this earlier on the call, but just kind of curious how you think about ROTCE from that framework.

D. Bryan Jordan: Yeah. I think, you know, I start with the bias that creating the maximum return we can on the capital we have deployed in the business is ideal. I think it is harder to think about provision and charge offs vis return on capital because if I have been in recovery as a CPA for a long time now. But as I understand, the basic framework of CECL, you know, for every loan that is on the balance sheet, every single dollar, we provided what we think the life of loan losses are. So the real drivers of variation around the return on the existing balance sheet is what happens with the economy.

Presumably, new provision is driven by changes in the economy expected, and it is also driven by the new production we put on. So I am not-- I think our credit cost is going to be at the lower end of over time, the industry range, our charge off, and our provisioning is gonna be driven with some volatility here and there about what is happening with customers. But as Tom said, I feel good about a 13 basis point reduction net reduction in NPAs over the course of this quarter. Our loss content is still very consistent with where it has been. Our outlook for loss content continues to be very constructive.

So you know, I recognize that you know, maybe embedded in your question is, well, if you provided another 2 pennies, you know, your ROTCE would have been closer to 15 as opposed to $15.03 or whatever the math says. But I am not sure given the way the CECL models, that is necessarily a fair comparison. I think you know, our bias is to continue to improve the profitability of the business control credit costs, be predictable to our customers through the cycle. Be predictable to our shareholders in terms of the credit risk we have embedded in the balance sheet. And if we can do those things, we will continue to drive improved and improving ROT over time.

Christopher William Marinac: that is fair, Brian. Thank you very much for your perspective, and thanks for taking all of our questions this morning.

D. Bryan Jordan: Yes. Thanks, Christopher. Appreciate it.

Operator: Your next question comes from Christopher McGratty with KBW. Please go ahead.

Chris McGratty: Great. Thanks for squeezing me in. I just want to go to slide 16 for just a moment. I like the lower quadrant, right quadrant, what you have accomplished towards that 100 million PPNR. I just want to get a clarification. Is the message here that you are roughly 15% to 20% of the way to that $100 million that is question 1. And point 2 is when do you think you will get that full $100 million?

When I originally brought it up and put a $100 million estimate out there, it was roughly a year ago, and we have continued to make progress and I referred to the profitability that is embedded in this and profitability that is been embedded in our forecast or our expectations rather for 2026.

D. Bryan Jordan: I said at the time, year ago, it is probably a 2- to 3-year exercise. And I think we are we are in progress on that. But to your specific question, that is not intended to signal that we are at any percentage point of completion at this point. That we are continuing to work on it. And you know, we continue to focus on driving that profitability and when we achieve what we think is that initial $100 million, I will be this disappointed if we are not continuing to work on the plus part of it. So I think there is a lot of opportunity in our existing book of business.

And, Christopher, on Slide 16, we say here's a couple examples that is not meant to be an inclusive list.

Chris McGratty: Got it. Okay. Thank you.

Operator: Your next question comes from John Pancari with Evercore. Please go ahead.

John Pancari: Hey. Good morning. This is Gerard Sweeney in for John. Just want to follow-up on credit. You sound pretty healthy there. On last quarter's call, you mentioned keeping an eye on the consumer sensitive areas like trucking, auto and restaurants. Would you say these are performing better than you expected so far in 2Q and 3Q? Or are these still areas that you are watching? And if not, any other areas to keep an eye on?

Thomas Hung: Yeah. Happy to answer that. Those are the sectors we continue to watch closely. I will say they have proven to be very resilient so far. So we need to continue to monitor it because I do believe there is increasing pressure on especially lower end consumer consumers and their spending power. But all of that said, within the sectors that you mentioned, retail, restaurants, things that are closest to end consumer, it is been surprisingly resilient. And so we will continue to monitor it, but those do remain elevated in terms of credit risk relative to other industries. And so we will continue to closely.

John Pancari: Okay. Thank you. And then Yeah.

D. Bryan Jordan: I will I was just gonna add that you know, you see I am not gonna put a alpha letter on the shape of the economy, but you do see in some of these consumer sensitive areas, people are reallocating where they are spending. They are still spending less on certain categories like dining out, more on fuel, and things of that nature. nature. But overall, as Tom said, the consumer is still holding up very well, and I think more than anything, that is tied to very low. Particularly, unemployment trends have been very, very low, and employment trends have been very, very good. Understood. Thank you. Then last 1 for me.

Just on all the hiring comments that you have had on this call, do you think has been the bigger driver of attracting talent to First Horizon? And have you seen opportunities from m and a in your markets where it could create relationship managers getting dislodged or, you know, otherwise creating attrition? Yeah. I think clearly, the drivers in our attractiveness as a platform is somehow embedded in our big bank muscle and small-bank hustle advertising tag. And it really is giving relationship bankers and teams the ability to understand a big bank product set have confidence that they can deliver that big bank product set and what our risk profile is.

And at the same time, be able to personalize those services in the way that a community bank would. So I think as much as anything, it is the ability to have confidence about what you can deliver for customers have the autonomy to look and feel like a very connected and personal relationship bank.

John Pancari: Okay. Great. Thank you very much.

D. Bryan Jordan: Thank you.

Operator: There are no further questions at this time. I will now turn the call back to Bryan Jordan Chairman, President, and CEO for closing remarks.

D. Bryan Jordan: Thank you all for joining us this morning. Thank you again to our associates and our shareholders for all that you do for the organization. Please reach out if you have any further questions. Hope everyone has a great day.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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