First Horizon Corp Q1 FY2026 Earnings Call

Hello, everyone, and thank you for joining the First Horizon Corporation First Quarter 2026 Earnings Conference Call. My name is Lucy, and I will be coordinating the call today. It is now my pleasure to hand over to your host, Tyler Craft, Head of Investor Relations, to begin. Please go ahead.

Welcome to our first quarter 2026 results conference call. Thank you for joining. Today, our Chairman, President and CEO, D. Bryan Jordan, and Chief Financial Officer, Hope Dmuchowski, will provide prepared remarks, after which we will be happy to take your questions. We are 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 two 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 two and three 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, and you should understand that we are not obligated to update them. I will now turn the call over to D. Bryan Jordan.

Good morning, everyone. We started 2026 with strong momentum. In the first quarter, we delivered our third straight quarter of 15% or greater adjusted ROTCE, in line with our expectations, fueled by strong C&I client growth and relationship-focused client activity across our markets. Through our differentiated business model, we continue to successfully execute by providing tailored solutions to meet client needs and turning insights into profitable outcomes. We are focused on building true client relationships, staying disciplined on price and structure, and supporting our clients with the full capabilities of our franchise. Our diversified business model with countercyclical businesses positions us well as the operating environment evolves. I will now turn the call over to Hope to walk through our first quarter results. I will provide some closing comments at the end of the call. Hope?

Thank you, D. Bryan Jordan. Good morning, everyone, and thank you for joining us today. Over the last year, we have talked a lot about our efforts to improve the profitability of the balance sheet and how we laid out our strategy for the entire organization. That work is evidenced in our results this quarter, which include a return on average assets of 1.3%, up 19 basis points from the first quarter last year. Amidst rate decreases over the last year, we have grown net interest income 6% year over year, which outpaced our loan portfolio growth of 3% in that same time, demonstrating our continued focus on profitable growth. We started 2026 with great momentum, including earnings per share of $0.53, which is an increase of $0.11 over 2025. Excluding loans to mortgage companies, our C&I portfolio grew $624 million in the quarter compared to approximately flat growth in 2025. Our performance also includes an 8% improvement in adjusted pre-provision net revenue compared to 2025. Our adjusted ROTCE of 15.1% increased over 200 basis points year over year. Starting on slide seven, we walk through our net interest income and margin performance in the first quarter, which saw NII consistent with the fourth quarter absent day count impact. Our margin expanded by 1 basis point on continued strong performance in managing deposit costs following the Fed’s last rate cut in December 2025. While our variable loan portfolio experienced yield declines in the quarter, our deposit pricing discipline offset this impact. On slide eight, we cover details around our deposit performance in the quarter. Period-end balances decreased by $1 billion compared to the prior quarter, driven primarily by reductions in brokered deposits. The average rate paid on interest-bearing deposits decreased to 2.28%, coming down from the fourth quarter average of 2.53%. We maintain a cumulative deposit beta of 69% since rates started to fall in September 2024. Our interest-bearing spot rate ended the quarter at 2.27%. On slide nine, we cover our quarterly loan growth. Period-end loans increased slightly by $21 million from the prior quarter. This quarter’s results include an impressive start to the year for our core C&I business, which saw $624 million in loan balance growth. This builds on momentum we saw in 2025 and is supported by continued strong pipelines in 2026. Loans to mortgage companies experienced typical seasonality in the first quarter and ended down $62 million versus year-end. This business continues to have momentum as a source of strength for our company. Commercial real estate continues to be a headwind for loan balance growth as stabilized loans move to permanent markets and non-pass loan resolutions reduce balances. Encouragingly, our CRE pipelines are strong and present notable opportunities to stabilize CRE balances in the future. I will also note that our consumer loan portfolio declined $198 million in the quarter, which is in line with normal fluctuations. Our goal for consumer lending is to focus on relationship expansion and profitability. While competition in the market is strong, commercial loan spreads remain generally in the mid-100 to upper-200 basis points. Turning to slide 10, we detail our fee income performance for the quarter, which decreased $12 million from the prior quarter excluding deferred compensation, and is up $13 million year over year. The largest decreases for fee income come from our service charges and fee lines, which were driven by the impact of day count and normal seasonality in other service charges like treasury management fees, interchange income, NSF fees, and by quarter-over-quarter fluctuations in our equipment finance business. We saw a slight quarter-over-quarter decline in fixed income revenues due to the decrease in ADR to 742 thousand, though this is still a 27% increase year over year. We saw slightly lower ADRs at quarter-end as market volatility increased. On slide 11, we cover our adjusted expenses that, excluding deferred compensation, decreased $32 million from the prior quarter. Personnel expenses, excluding deferred compensation, decreased by $10 million from last quarter, driven by an $8 million decline in incentives and commissions, which followed higher incentive accruals last quarter. Outside services decreased by $26 million, which includes reduced expenses related to technology initiatives from last quarter and decreased marketing expenses in the quarter. Turning to credit on slide 12, net charge-offs decreased by $1 million to $29 million. Our net charge-off ratio of 18 basis points remains in line with our expectations. We recorded a provision for credit losses of $15 million in the quarter and our ACL-to-loans ratio declined slightly to 1.28%. This was driven by a mix change in the portfolio. On slide 13, we ended the quarter with a CET1 of 10.53%, driven by buyback activity and loan growth in the quarter. During the quarter, we bought back approximately $230 million of common shares. We have approximately $765 million in our current board authorization remaining. During the quarter, we successfully issued $400 million of Series H preferred stock, which drove the 44 basis point increase to our Tier 1 capital ratio of 11.95%. Our tangible book value per share is $14.34, which is up 9% year over year. This includes buybacks of $766 million during that period and an increase to our dividend. I will wrap up on slide 15. I am proud of the momentum we have to start 2026. We continue to maintain our full-year outlook and updated our near-term CET1 target to 10.5% during the first quarter. For the third consecutive quarter, we achieved 15% plus adjusted ROTCE, reflecting our focused execution on our business priorities. We continue focusing on deepening our client relationships, fully delivering our products and services across our excellent footprint, and enhancing our capabilities to create value for clients and shareholders. All of this moves us towards achieving the $100 million plus PPNR we noted last year as our opportunity in the next couple of years. We made initial progress on this objective last year and continued doing so in 2026. Our revenue expectations reflect continued capture of this profitability throughout the year. Expense discipline and underwriting consistency continue to be central to our company, and disciplined capital deployment continues moving us towards our intermediate-term CET1 targets.

Thank you, Hope. On the whole, we feel very good about how we started the year. We are seeing strong client activity in our commercial pipelines as well as business owners planning for growth. Relationship banking remains our priority, focusing on primary relationships, deepening treasury and wealth management, and making sure our solutions match client needs. In the first quarter, we saw strong production essentially evenly balanced between our regional banking and specialty verticals. C&I loan commitments reflected both deepening of existing relationships and new client acquisitions. And our CRE pipelines are as strong as they have been in years. We manage our business with three priorities: safety and soundness, profitability, and growth, which is evident in our results again this quarter. Competition is active, but our associates are protecting our base and winning with exceptional service and value. We expect that discipline, along with healthy C&I demand and the strength of our markets, to drive revenue growth as the year progresses. Our diversified model gives us a balance as the macro and geopolitical backdrop evolves. If the rate path is choppy or sentiment shifts, our countercyclical businesses are positioned to contribute. If confidence builds, our core banking engine benefits from client growth. Credit remains in line with our expectations, and we continue to approach opportunities selectively on price and structure. Our footprint is a real advantage. The Southeast and Texas remain growth corridors. We deliver big bank capabilities with the personalized touch of a community bank across our entire footprint. That combination allows us to serve clients locally while bringing the resources of the entire bank when they need them. We remain focused on expense discipline while strategically investing in talent, technology, and tools that make our associates more effective for their clients. We will stay thoughtful on capital management and we will be opportunistic with share repurchases. While the macroeconomic environment changes and creates new headwinds and uncertainties, I remain optimistic about our outlook for the year. Our job is to stack one good quarter on top of the next by effectively serving our clients and communities. Thank you to our associates for their hard work, and to our clients and shareholders for their continued confidence in First Horizon Corporation. Operator, with that, we can now open it up for questions.

We will now open the call for questions. Thank you. The first question today is from Jon Glenn Arfstrom of RBC Capital Markets. Your line is now open. Please go ahead.

Good morning. D. Bryan Jordan, you touched on some of this, but you seem a little more optimistic on the lending environment. If you could touch a little bit more on the pipelines in C&I and whether or not you have seen any impact on pipelines from the macro uncertainty?

Yes, happy to, Jon Glenn Arfstrom. The pipelines in C&I continue to be very, very good. And while the short-term effects of the disturbance or the trouble in the Middle East has people asking questions, it really has not had a significant downward impact on C&I pipelines at this point. In fact, we still see a continuation of what we saw building in 2025, which is business owners and leaders looking to grow, invest, and build. That has been positive. In addition, I mentioned, and I think Hope did as well, that CRE pipelines have continued to build. As you know, that is a business for us where loans originate and fund over about a three-, four-, five-year period and then pay off all at once. We have not seen pipelines this strong since the 2021–2022 timeframe when rates were essentially zero, so those pipelines are building. We are very optimistic about the outlook for lending growth over the course of this year. You will see in our results, and it is somewhat evident in the way that we have transformed our balance sheet over the last 18 months, we have continued to focus on profitable growth. We have repositioned the business to align around our consolidated strategy, and with that, we are seeing an improvement in the profitability of the lending that we are doing. We are focused very much on relationship lending; for things that are not relationship-oriented, we are being very disciplined. So we look at the year and are very optimistic. I said in my closing comments that the market is still very competitive, and without a doubt, the markets are still very competitive. Very good loan transactions have a lot of competition, and our bankers are doing a very nice job of not only getting our fair share, but maybe a little bit more.

That is helpful. And then maybe one more on lending. I think Hope, usually you handle this one. But on the loans to mortgage companies, despite the fact it has been maybe a choppy environment, you are still up like 35% year over year. Do you expect a typical seasonal bounce in warehouse balances? And since it is a bigger category for you, maybe you can size it for us and give us an idea of what we could see in Q2 and Q3.

Thanks, Jon Glenn Arfstrom. I will say we do expect to see a seasonal increase in Q2. We are already starting to see some of that fund up at the end of March and beginning of April. Now whether it is typical, I cannot say what typical is anymore. The last two years have been some of the lowest mortgage origination years in the last 20 years. I think the way rates have been going the first part of the year, we are probably going to see low mortgage origination and a low refinance rate. But we do expect that it will trend consistently with Q1 to Q2 and Q3 of the last two years. We have picked up market share, and that has shown and continued to show in our strong loans to mortgage company balances even at the end of Q4 and Q1. I have said before, I think one of the biggest upsides to our guidance would be if we saw a refi wave. I think it gets less likely the further that the 30-year rate goes up, but in the back half of the year that is still a possibility, although that is not built into our outlook today.

Good morning. Thanks for taking my questions. Maybe I will take the other side of the balance sheet from Jon Glenn Arfstrom. On deposit competition, I noticed that the interest-bearing spot rate was 2.27% versus the full-quarter average of 2.28%. Can you talk to us about deposit competition? It seems like anecdotally over the past month, it has definitely increased. What can we expect in terms of what you have modeled for rate scenarios for the year, and what is a more optimal environment for deposit pricing at this point?

Thanks for the question. I think this year is shaping up to look a lot like last year in the seasonality of deposit rates. As we expected more rate cuts, competitors brought in their terms and their rate guarantees. We are starting to see that shift to longer guarantees and higher rates for longer in competition. As you saw, our spot rate is still below our average, and we are generally there. I do think that deposit costs will slightly trend up in Q2 and Q3 if we do not see a rate cut. Additionally, I mentioned in my expense comments that marketing was down in Q1. We tend to do a lot more new-to-bank acquisitions in Q2. It is the time that consumers start thinking about moving their checking accounts, savings accounts. They have gotten tax refunds. With that new-to-bank promotion out there, we will see a little bit of uptake, and then we will walk it back just like we have the last two years. And that is in our guidance.

Good morning, Michael Edward Rose. Happy to address those. Overall, I remain pleased with our very consistent credit performance, headlined by the 18 basis points net charge-off rate, which is slightly below the median of the range. That said, there are always things that we want to watch carefully. For me in particular, I am still carefully watching anything that is most closely tied to consumer discretionary spending, especially with recent increases in energy prices. That certainly affects discretionary spending. Sectors like trucking, auto, and restaurants are things that I want to watch more closely. On private credit, that is something that we are certainly monitoring as well, but I would point out we have very minimal exposure to that segment. In terms of direct exposure to private credit, it is less than 1% of our loan book, and substantially all of that is backed by tangible assets like real estate, inventory, equipment, or accounts receivable. There is very, very little enterprise value lending exposure.

Good morning. On the $100 million of incremental PPNR, what are any of the assumptions behind that for cost savings and/or potentially slower hiring driven by AI implementation? If there is nothing included in there, is AI a positive or a negative to that $100 million?

Jared David Shaw, there is nothing in there about expenses. That is all deepening relationships and about revenue. In my prepared remarks, we talked about 6% more NII year over year with 3% balance growth in a decreasing rate environment. You can see the profitability of the existing relationships at renewal or new-to-bank additionally creating more value for us. There are no expense assumptions embedded. As far as AI, we do have a flat expense outlook excluding countercyclical commissions. We have said that is coming from the technology investments we have made over the years and continue to make so that we can scale revenue without having to scale the back office. It is less about cost savings right now in our outlook and more about being able to scale, invest in new hires, and grow our market share without having to add all of that support infrastructure.

I will take that. Right now, we are comfortable with the 10.5%. As I have said in the past, this is something that we talk with our board continuously about, and we will continue to do that. Given the near-term uncertainty about what is happening with respect to oil prices and what that means to inflation in the economy, it is probably not a bad idea to see a few more cards here. Overall, we are very optimistic that the economy is still in a pretty good place and that over the next several weeks to months, we will start to see some of this uncertainty settle down. At that point, we will continue to evaluate whether we bring those ratios down. As we have said, we believe that we can operate the organization at a lower CET1 ratio than 10.5%, and over time, we will get there.

Yes, great. Good morning, guys. Wanted to revisit the NII outlook. Hope, you mentioned that deposit costs were going to feel some pressure going forward. Can you shed some light on loan yields and bond yields given the fixed-rate asset repricing benefits and, overall, what does that do for NIM?

Thanks for the question, Casey Haire. On the deposit side, what I said was slight pickup. I do not expect that to put a ton of pressure on NIM or NII. It is really the mix that you bring new-to-bank. I see that in the low to mid-single digits, and that is manageable for us in our current outlook. As far as bond prices and the outlook there, it is really hard to predict what is going to happen, as D. Bryan Jordan mentioned earlier. We saw a lot of volatility that impacted FHN Financial at the end of March, and April has started off slow. We have a slide in the back of our deck about where the market is for FHN Financial today, and we have it in red and green, and all but one factor is in red for them as of today. That does not mean it could not change going into the back half of the year, but we do see some risk there. We do not see any risk to our outlook of our guidance on total revenue. So NII would have come down with rate cuts, so we saw some stability. We could see FHN Financial pick up, maybe some additional refi. We feel that we are really balanced in the back half of the year to hit that revenue guide.

Casey Haire, you asked about fixed asset repricing. We have something like a little more than $1 billion of investment securities that reprice over the course of this year. And then on the fixed-rate loan side, whether it is a long-term ARM, etc., it is a little over $5 billion that reprices in 2026. In total, we have about $6 to $7 billion of assets that will reprice, principally at higher rates.

It is hard to say because things evolve on a quarter-to-quarter basis. Depending on what happens with loan growth, grade migration, and classified resolutions, all of that can change the result quarter to quarter. But we feel like we are very adequately reserved at this current time. At our current ACL, that is approximately seven times our average net charge-offs over the last two years. I believe where we are currently is a very well-reserved position relative to our very steady net charge-off performance.

On your comment about mortgage warehouse and NDFI, I want to point out that for us, the way we do mortgage warehouse, we do not really consider it NDFI, although the call report does. We hold the underlying collateral. We take each note at closing. We have discussed that we had 1 basis point of charge-offs in the last 10-plus years on average annually. That comes down to operational risk. Should the company that we are lending to have an issue and can no longer be in business, we have the notes. We have worked through that and then pledge them and sell them or put them on our balance sheet. For us, NDFI is an operational risk.

Mortgage warehouse and NDFI are all part of our ACL for the C&I business. I do not have it broken out in front of me in terms of specific lines of business. Overall, as you saw, we did add a little bit to our C&I reserves this quarter. That is more a reflection of some overall economic uncertainty around the conflict in the Middle East as well as how that is impacting discretionary consumer spend. Overall, I would say, as I mentioned earlier, we are well reserved from both a C&I basis as well as an overall ACL basis. Specific to NDFI, it may be helpful to break down the components a bit.

I think the other driver is likely to be an acceleration of economic growth. The economy today is growing pretty steadily, probably in that 2.5% to 3% area. Given what we know today, there is probably greater downside risk than upside opportunity. If that gets resolved and the pace of growth in the economy picks up, loan growth will naturally pick up, and we could get to the higher end of that range. So it will be a combination of how interest rates play out and, more importantly, what that means in terms of economic growth overall.

We have no further questions at this time. I would like to hand it back to D. Bryan Jordan for closing remarks.

Thank you, Operator. Thank you all for joining our call this morning. Please reach out if you have any further questions. We appreciate your interest. Hope everyone has a wonderful day.

This concludes today’s call. Thank you all for joining. You may now disconnect your line.