"First Horizon" Q2 2026 Earnings Call - Loan Growth and Wealth Fees Offset Margin Compression as Deposit Costs Trend Higher

Rebecca, Conference Call Operator, First Horizon: Welcome to the First Horizon second quarter 2026 earnings conference call. After today’s prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Tyler Craft, Head of Investor Relations.

Tyler Craft, Head of Investor Relations, First Horizon: Thank you, Rebecca. Good morning. Welcome to our second quarter 2026 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’ll be happy to take your questions. We’re also pleased to have our Chief Credit Officer, Thomas Hunt, 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’s 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. Last but not least, our comments reflect our current views, and you should understand that we are not obligated to update them. With that, I’ll hand it over to Bryan.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Thanks, Tyler. Good morning, everyone. Thank you for joining us this morning. I’m proud of the results we achieved in the second quarter. Comparing our year-over-year performance, adjusted earnings per share for the quarter are 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 2025. 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 counter-cyclical business model. Building long-term relationships with clients who benefit most from the value we provide remains 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’ll return at the end of the call for some closing comments. Hope?

Hope Dmuchowski, Chief Financial Officer, First Horizon: Thank you, Bryan. Good morning, everyone, and thank you for joining us today. Starting on slide six, we highlight our strong earnings momentum shown by our results for both the second quarter and the first half of 2026. 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 2025, our adjusted ROCE 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 this performance in more detail. On slide eight, we walk through our net interest income and margin performance in the second quarter.

Our margin compressed by three 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 nine, 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 broker deposits. The average rate paid on interest-bearing deposits increased to 2.33%, which is a five basis point increase from the prior quarter. While deposit costs came up due to the competitive environment and 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 are 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 pre-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 a 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 594,000. Though 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 one of the revenue-driven profitability lines that we see driving $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 quarters 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 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 credits 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 $857 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’ll 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 Bryan.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Thank you, Hope. The second quarter of 2026 was very similar to what we saw in the second quarter of 2025 regarding deposit competition and increases in deposit costs, macro volatility impacting fixed income revenue, and 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’ve 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’re executing. Our job is to stack one good quarter on top of the next by serving clients well and 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’ll 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 client relationships 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.

Rebecca, Conference Call Operator, First Horizon: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one 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 John Armstrong with RBC Markets.

John Armstrong, Analyst, RBC Markets: Hey, good morning.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Morning, John.

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

Hope Dmuchowski, Chief Financial Officer, First Horizon: Good morning, John. Thanks for the question. As we look out as to where deposit costs will go in Q3 and 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 successive rate cuts at the end of the year, rates came back up. The competition increased. If we continue to see this trajectory, I do think that our beta will continue to shrink slightly. I want to 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 costs, knowing that we’d give some back once rates stop cutting. 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 Bryan, the uncertain outlook. Is the next rate move this year, and is it an increase or decrease will drive that. I do expect it to continue to increase, consistent with what we saw last year absent of rate cuts.

John Armstrong, Analyst, RBC Markets: Mm-hmm. Okay. I guess loan competition and yields, I see a little bit of compression this quarter. Do you feel like it’s still rational, Bryan? Anything you’d like to flag in terms of yields and anything that’s more competitive than other areas?

Bryan Jordan, Chairman, President, and CEO, First Horizon: Yes. I would describe the loan market, John, as maybe a little surprisingly optimistic. Pipelines have continued to be very strong, whether it’s in customer requests for lending or just in anecdotal conversations with customers. People are still very optimistic about the economy and very forward-leaning. I’m surprised at how optimistic things feel given some of the uncertainty around oil in particular and the conflict in the Middle East. Loan pricing and structure, I can always give you anecdotes where it seems irrational. It is very competitive, and it’s very competitive for larger transactions in particular.

At the end of the day, I think you will see over the course of this year that the demand for deposits 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 a very positive fashion.

John Armstrong, Analyst, RBC Markets: Yeah. Okay. A little pressure on spreads, but feeling good about volumes is the summary.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Yes. Very accurate.

John Armstrong, Analyst, RBC Markets: Okay. All right. Thank you very much.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Thank you. Have a great day.

Rebecca, Conference Call Operator, First Horizon: Your next question comes from Michael Rose with Raymond James. Please go ahead.

Michael Rose, Analyst, Raymond James: Hey, good morning, guys. Thanks for taking my questions. Maybe we can just start on the ADR side. Obviously, you guys gave the update inter-quarter. Just based on where the curve is now, what the expectations for rates are, I know it’s hard to forecast, but can you just talk about the puts and takes in that business just given where we are? Thanks.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Yeah. Well, I’ll start. It’s hard to put a beat on it. ADRs last week were very strong. Rates are moving. They’re very volatile with what’s going on in the marketplace. Given the CPI, the PPI 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. It’s diminishing some. I think we’re in a channel where the volatility is going to have a real, I was going to say, I’m going to repeat real. It’s a real time effect on what’s happening in the fixed income business. As rates move higher and investors see it as opportunistic, we’ll see ADRs pick up. As rates are trending down, I think you’ll see less volume.

On the whole, it feels like the back half of this year is not going to be as strong as the back half of last year. I just don’t know how rates are going to move given the uncertainty around what’s happening in the Middle East, in oil, what’s happening with the Fed and rate cuts and inflation. We’ll know more 30, 60, 90 days from today. There is very positive signs, like a week last week that was very strong.

Michael Rose, Analyst, Raymond James: Perfect. Maybe just to follow up there, when we do get capital reform, that’s obviously going to benefit the system as a whole. Would you expect to see more volume from that? Not all of it can be returned through buybacks and dividends. I would assume that some of it would be put in securities and that could benefit the business. Just wanted to see if you guys have thought about the potential uptick from higher capital levels and reg reform.

Bryan Jordan, Chairman, President, and CEO, First Horizon: I think it’s possible. I agree. I don’t 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. I think you might see some lending activity also come back from the secondary markets. On the whole, I think it’s generally a positive thing for the fixed income business. I wouldn’t today speculate on how great that’s going to be.

Michael Rose, Analyst, Raymond James: All right, great. Maybe just one follow-up, just as it relates to credit. Last quarter, we spent a lot of time talking about NDFI and things like that. Doesn’t seem to be a real topic this quarter. Obviously, the improvement was good. I guess how much better can it really get in your eyes? If volatility does persist, could we start to see things maybe trend the other way? Thanks.

Thomas Hunt, Chief Credit Officer, First Horizon: Yeah. Hey, Michael. Good morning. I think the short answer on NDFI is there’s been no real change since the last quarter. It continues to be a relatively steady performing portfolio for us with no major concerns. No part of me is necessarily looking for it to get better. I think just the consistent steady performance that we’ve already had, that’s what I’m expecting and that’s what we’re managing towards.

Michael Rose, Analyst, Raymond James: All right, great. Thanks for taking my questions.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Thank you.

Rebecca, Conference Call Operator, First Horizon: Your next question comes from Jared Shaw with Barclays. Please go ahead.

Jared Shaw, Analyst, Barclays: Thanks, good morning. Maybe going back to the deposit discussion, were there any unique drivers of some of the non-time interest bearing runoff? How should we look at sort of the outlook for broker deposits from here?

Hope Dmuchowski, Chief Financial Officer, First Horizon: Yeah, Jared, 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’s not loss of clients quarter-over-quarter, it’s the average balance in their accounts. The one trend we did see is money moving from traditional money markets or CDs back into the equities market in our wealth business. We’ve seen a little bit of a churn there, no real main theme. I think just as we know, the consumer has less cash flowing through their checking accounts and they’re spending down their savings, our commercial clients are funding up projects and putting that cash to work.

Jared Shaw, Analyst, Barclays: Okay. All right, thanks. Looking at the securities side, 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 to go? Are you doing anything differently in that right now in terms of purchases compared to what we see for average yields in the second quarter?

Hope Dmuchowski, Chief Financial Officer, First Horizon: Yeah, we have not been running that off. It varies a percentage or 2 quarter-over-quarter just as you look how the total balance sheet is compromised. We continue to reinvest. We have $1.2 billion rolling off at approximately 2.8%, and we’re replacing that at 4%+ right now. I say now because as we just talked about earlier, the rate outlook continues to change. Yes, there’s positive momentum for earnings there, we do not expect a shift in mix onto our balance sheet.

Bryan Jordan, Chairman, President, and CEO, First Horizon: 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 don’t 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, balancing out our asset liability situation or sensitivity, and at the same time providing collateral for public funds and things of that nature. There is a floor to it, if given the opportunity, we allow that to migrate down.

Jared Shaw, Analyst, Barclays: Great. Thank you.

Rebecca, Conference Call Operator, First Horizon: Your next question comes from Bernard von Gizycki with Deutsche Bank. Please go ahead.

Bernard von Gizycki, Analyst, Deutsche Bank: Hi, good morning. The first question on the brokerage trust and insurance fees. They’ve been growing nicely versus a year ago period as well as versus the first quarter. Could you just provide some color on what’s driving results? Is it a combination of the macro micro factors? 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 one half 2026 as part of the growth.

Hope Dmuchowski, Chief Financial Officer, First Horizon: Yes, thank you for the question. In Q3 of last year, we completed our conversion onto the LPL platform, it’s allowed us to deepen our product penetration with our existing clients as well as bring new clients onto the platform. We have been hiring wealth advisors. We’ve been building out deepening initiative that you spoke about, which is where do we have commercial clients that we can also cross-sell wealth to? 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 Gizycki, Analyst, Deutsche Bank: Great. Maybe a follow-up on the hirings, like you mentioned in wealth. I know you added a headcount of 53 during the quarter. Any color on the mix of front versus, say, mid, back office during the quarter or year to date, any expectations on hirings in the second half of the year?

Hope Dmuchowski, Chief Financial Officer, First Horizon: Yeah. We are continuing to hire bankers across our footprint as we did last year. It’s pretty broad-based in some key growth areas as well as some key businesses. We just talked about wealth. We’re not investing back into support areas right now. One of the things that AI we talk about a lot is it can create efficiency, so you can scale your front office without having to add the support partners. The one exception to that in headcount growth is fraud. We’re 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.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Yeah, Bernard, I’m really proud of the hiring that we have done in the organization over the last 12-18 months. We have attracted very strong talent, and we’re seeing positive results from that. I’m optimistic that over the next two to three years, you will continue to see that momentum build. We feel very good about our hiring in the marketplace.

Bernard von Gizycki, Analyst, Deutsche Bank: Great. Thanks for taking my questions.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Thank you.

Rebecca, Conference Call Operator, First Horizon: Your next question comes from Janet Lee with TD Cowen. Please go ahead.

Janet Lee, Analyst, TD Cowen: Good morning.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Good morning.

Janet Lee, Analyst, TD Cowen: 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 costs in the third quarter could potentially come in below the 243 spot rate, given the seasonal strength in core deposits?

Hope Dmuchowski, Chief Financial Officer, First Horizon: Janet, absolutely. That is a possibility. We do not try to fund loan growth as a priority with deposits. We have seen two successive quarters of strong loan growth and the seasonality of deposit campaigns when clients move deposits, as well as the balances that they’re already go after. It does tend to take up in Q2 and Q3, and we would trade that in paying down brokers. However, is it going to come in lower than where we ended the quarter? It’s really hard to know this early in the quarter. It’s really hard to know with the changing macroeconomic outlook and the rate outlook, what we will see. It is our goal to continue to grow customer deposits to fund loans.

Janet Lee, Analyst, TD Cowen: Got it. On 2026 revenue growth guide, if we assume current mid-single digit loan growth, perhaps relatively stable 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%-7%. Is that the fair baseline expectation or assumption that we could assume? If not, what are the levers to do better than the low end?

Hope Dmuchowski, Chief Financial Officer, First Horizon: Yeah, I think that is one assumption that you can run. We run a series of different scenarios in a changing rate environment and economic outlook. One of the comments you said is compressing NIM. If NII is growing and NIM is compressing, that’s still positive to revenue growth over the year. We are, for 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 countercyclicals perform. Our FHN Financial, as Bryan mentioned earlier, had a great second half of last year. To get to the higher end of that range, you would have to be equal or outperforming that. A rate increase, we have an asset-sensitive balance sheet.

Early rate increase is another scenario you can run, and we would pick up more NII than that on the exact same balance sheet with outgrowth. I think you’ve got to play all those factors out, not knowing if we’ll have a rate decrease or increase this year. We’ve run all of those scenarios for the back half this year, and we feel confident that we will be well within that range.

Bryan Jordan, Chairman, President, and CEO, First Horizon: The other lever that Hope mentioned earlier in her prepared comments was we’re really focused on how we improve the profitability of the balance sheet. If you look at loan growth over the last year and improvement in PPNR, we’re outpacing the growth in the balance sheet with improvement in profitability. There is a real positive effort, and we’re getting very good traction to really improve every dollar of capital we have allocated in the business. 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 Lee, Analyst, TD Cowen: Thank you.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Thank you.

Rebecca, Conference Call Operator, First Horizon: Your next question comes from Casey Haire with Autonomous Research. Please go ahead.

Casey Haire, Analyst, Autonomous Research: Thanks. Good morning, everyone. Wanted to touch on expenses. The expense guide which you reiterated, it assumes that expenses kind of hold flat with this second quarter run rate. The outside services was up quarter-over-quarter, and it kind of ramped last year. Just wondering, do I have that right, that expenses kind of hold flat with this second quarter run rate and what’s the outlook on the outside services?

Hope Dmuchowski, Chief Financial Officer, First Horizon: Casey, you said it perfectly. You answered the question for me. We are expecting expenses to be flat from here on out. We did have, in the back half of last year, one-time expenses related to finishing up some projects and some initiatives that will not repeat in the back half of this year. We do expect it to be flattish here. We will see some movement between outside services and other, that’s really related to the marketing campaigns. Right now, we’re in the acquisition phase, it hits above, then when we pay the cash incentives, you’ll see our DDAs are up this quarter. We’re seeing positive momentum with our DDA cash offer, and those will pay out in future quarters. You’ll see it switch a little bit in the P&L, we do expect flat expenses the next two quarters from here.

Casey Haire, Analyst, Autonomous Research: Great, thank you. Tom, question for you, two-parter on credit. The ACL down 18 basis points over the last year. You did have a very nice NPL redux this quarter. I guess first question is, how low can that ACL ratio go? Separately, the NPL ratio, can this momentum continue? Is there an outlook that you can drive that lower from 81 basis points?

Thomas Hunt, Chief Credit Officer, First Horizon: Yeah, sure. Hey, Casey. I’ll answer that in a few different parts. I’ll start with the 18 basis points reduction that you mentioned. That is different factors. We have been very diligent in how we manage our portfolio. What you’ve seen is a continual decrease in our special mention and substandard assets. We’ve been very diligent in our underwriting and how we resolve those credits. It’s that 18 basis points is a combination of improving portfolio credit quality. It’s also got all the positive resolutions you’ve mentioned, especially in NPLs in the last quarter. It also reflects just our economic outlook as well. There are internal factors we control. There are also external factors around economic factors. You add all of that together, actually, I missed a major one, which is obviously our very consistent and low net charge-off performance.

All of that put together is why we’ve had the decrease in ACL. I would point to the 124 that we ended this quarter at is still over six times our average net charge-offs over the last year and more than seven times over the last two years. I would characterize that as well reserved relative to our performance. As I look out ahead, where does ACL go? I think that’s something that I would not speculate on because as I mentioned, there are internal things that we absolutely can control. Our whole team, our whole bank continues to prioritize minimizing losses and maximizing recoveries as opposed to, say, timely resolutions. I think we control the things we can control. There are external factors such as unemployment, interest rates, economic outlook, consumer spending power, inflation, geopolitical risks.

There’s so many things that can influence ACL going forward that I wouldn’t speculate on where that can go. The last piece you mentioned, NPLs, I think that’s a real highlight for credit this quarter, down 13 basis points. Once again, that’s a combination of a lot of different things. We’ve been working on very diligently on focusing on our NPLs, and we had a number of positive resolutions this quarter. What you’re seeing there is a combination of upgrades, payoffs, restructurings. As I mentioned, our focus continues to be on minimizing losses and maximizing recoveries as opposed to timeliness. We will absolutely focus on continuing to reduce that number. Like I said, I take a long-term view on all of this rather than trying to get quick resolutions.

Casey Haire, Analyst, Autonomous Research: Great. Thank you.

Rebecca, Conference Call Operator, First Horizon: Your next question comes from Ebrahim Poonawala with Bank of America. Please go ahead.

Ebrahim Poonawala, Analyst, Bank of America: Hey, good morning.

Thomas Hunt, Chief Credit Officer, First Horizon: Good morning.

Ebrahim Poonawala, Analyst, Bank of America: Just have two follow-up questions, I guess Hope, Bryan, for you. One on capital. If I heard you correctly, Hope, you mentioned risk-graded assets down about 10% under the standardized approach. That’s roughly, whatever, 100, 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 10.5. 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 it doesn’t feel like organic growth is going to absorb all that excess capital. Thanks.

Hope Dmuchowski, Chief Financial Officer, First Horizon: Ebrahim, thanks for the question. Yes, it is a combination of those, it depends on the outlook. As Bryan and I’ve talked about multiple times, when we look at capital, we look at it when we do our annual stress test. Although we’re not required to do it, we do do it. We review it with our board, we look through the next one to two years for capital, which is what do we believe we’re going to 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, third is share buybacks.

When we look out towards that 10% reduction, we will look at not just this quarter, how do we put that all to work, but what do we reserve so that we have it to grow our balance sheet. It’s hard for me to know when it’ll all go into place, Ebrahim, and what the economic environment could be. We came into this year expecting low to 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 don’t know when that market starts to turn in timing with when Basel III endgame will be implemented and approved.

Ebrahim Poonawala, Analyst, Bank of America: Got it. Appreciate you outlining the $100 million PPNR opportunity ahead of the bank. Talk to us, we are seeing competitors either acquiring banks, adding branches, acquiring bankers. Talk to us, if you think about the top three areas where investment spend is going from a growth standpoint, how would you characterize that in terms either banker hiring? Are you opening branches in new markets? If you can talk through that. Thanks.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Yeah. We’re investing across a number of fronts, and one you didn’t mention very much was technology. We continue to invest in technology. We’re building branches, not so much in new markets. We’re building branches in existing markets where we think we have tremendous opportunity to improve our density, our 24 by seven 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’re doing across the organization. We’ve hired in markets, broadly speaking, to go deeper and broader, mostly commercial and wealth type RMs, customer-facing bankers, and we will continue to do that as well. Technology. We made a huge push in technology following the termination of the merger agreement.

That work is largely, if not fully, completed. We continue to invest in our mobile banking system and how we deploy AI, so we are looking to invest in a number of fronts. I thought Hope did a really good job describing expenses earlier. That’s the one part of the forecast that we have the most certainty over. We feel very good about our ability to control expenses. That’s the one thing that we can control with a high degree of certainty. 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’ve described.

Ebrahim Poonawala, Analyst, Bank of America: Got it. Thank you.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Thank you.

Rebecca, Conference Call Operator, First Horizon: Your next question comes from Ben Gerlinger with Citi. Please go ahead.

Ben Gerlinger, Analyst, Citi: Hey, good morning.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Good morning.

Hope Dmuchowski, Chief Financial Officer, First Horizon: Good morning.

Ben Gerlinger, Analyst, Citi: I hate to belabor the point, it’s clear that people are pretty focused on your funding mix, if not interest during deposit costs. Given that you guys have a pretty seasonal balance sheet, is there any reason why 4Q26 should have a materially different overall percentages of funding than for relative to 4Q25? I.e., broker comes down. I’m just trying to get a sense of you do have seasonal. Is there anything to assume that seasonal doesn’t really play itself out again?

Hope Dmuchowski, Chief Financial Officer, First Horizon: Ben, no. There’s nothing to say that we expect the seasonality, and Bryan mentioned that in his prepared remarks, and I mentioned in my first question. This year, deposit costs and deposit growth is trending just as we’ve seen in the last two years following rate cuts that then stop abruptly, and you don’t know when or what the next rate movement will be. The only thing that would move that is if we saw a late in the year mortgage warehouse spike. If we saw a mortgage refinance late in the year, that would be the only thing that would change that materially. No, we do not expect a material change.

Ben Gerlinger, Analyst, Citi: Got it. Okay. That’s helpful. That’s pretty much all I had. I appreciate it. Thank you.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Thank you.

Rebecca, Conference Call Operator, First Horizon: Your next question comes from Anthony Elian with JPMorgan. Please go ahead.

Anthony Elian, Analyst, JPMorgan: Hope, good morning. Another one on deposit costs. Last quarter, you pointed to a slight tick up in deposit costs, and you saw a five basis point increase on average in 2Q. Would the pace of deposit cost increases in the second half be higher than the increases 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, Chief Financial Officer, First Horizon: I think it’s hard to pin it down within one 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 we’ll fund up. How do we fund growth? What does the growth on the balance sheet look like? As Ben just pointed out well, mortgage warehouse seasonally is higher in the summer. That is a traditional home buying season. We’ve already seen that. We do match fund mortgage warehouse with wholesale funding traditionally. I think you’ve really got to look through the cycle and not just quarter-to-quarter with the seasonality. It really is hard for me to tell you exactly where we’re going to be within a couple basis points 75 days from now.

We’re trending consistently, as we just said, and we’re continuing to manage customer costs.

Bryan Jordan, Chairman, President, and CEO, First Horizon: 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 interest rates, it does look like people are trying to lock in funds today in anticipation of higher rates. I think that’s changing the mix a little bit. You’re seeing more CD offers in the marketplace. You’re seeing still very competitive and aggressive money market rates in the marketplace. At the end of the day, as I’ve said for a couple of years now, you’re 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.

My gut tells me that you could see rates drift up a little bit over the next quarter or so. I think the seasonality effects will play. 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, and get paid fairly for the credit that we provide. We look at all of it in the context of a market that is moving a good bit. At the end of the day, my gut is maybe up a little bit. It’s hard to know given all the moving parts in the marketplace.

Anthony Elian, Analyst, JPMorgan: Thank you. On the NIM, in last quarter’s call, you gave us a range, Hope, of high 340s for 2Q. If I look at consensus, it has you hovering at that level over the next couple of quarters. I’m wondering how you’re thinking about NIM for 3Q, given, again, your earlier comments on deposit costs. Thank you.

Hope Dmuchowski, Chief Financial Officer, First Horizon: NIM, we expect it to settle in this year in the mid 3.4s to high 3.4s. That’ll vary. A basis point or two on NIM for us is really about fixed, not just deposit costs. Mortgage warehouses are highest spread business. As that funds up, you can see some margin compression there, but it’s positive to NII. I think the really important thing when we talk about NIM compression is our deposit increase and our deposit growth is to fund loan growth. It’s still driving positive NII with slight NIM compression. We’ve been saying for about three quarters now, we think a normalized for 2026 is the mid to high 340s, and we’re at 349. That gives us a lot of room to come in that full year guidance we’ve given on NIM, and feel confident on the full year we will.

To Bryan’s point, there’s a lot of moving parts right now, I don’t want to disconnect. The deposit growth is tied to loan growth, which is positive for NII right now.

Bryan Jordan, Chairman, President, and CEO, First Horizon: What I would say is you can’t spend a NIM, which is a ratio. You spend NII, which is dollars.

Anthony Elian, Analyst, JPMorgan: Thank you.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Thank you.

Rebecca, Conference Call Operator, First Horizon: Your next question comes from Timur Braziler with UBS. Please go ahead.

Timur Braziler, Analyst, UBS: 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 you’re pricing some of those seasonal campaigns?

Hope Dmuchowski, Chief Financial Officer, First Horizon: I mentioned this a few times at recent conferences that we’ve done and fireside chats, the one size headline rate is not how deposits are working now. One 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 lower end deposits versus higher. Jumbo CDs are back with a much more premium rate. Unlike 2023, where I could tell you we were offering 5.25% to everybody in all states above $25,000, that’s not how we’re doing deposit competition anymore. It’s not how we’re doing promos. It is a mix issue of how do you grow with where the market is.

The Southeast is a very competitive market for deposits that continue to have migration in and additional competitors either grow their footprint or enter, it’s not equal in all states and all cities. We’re getting much more intentional about where we can grow at what rate, which is how we’re 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.

Bryan Jordan, Chairman, President, and CEO, First Horizon: As you mentioned earlier, Hope, we’ve invested in cash offers for non-interest-bearing deposits. We’re starting to see very positive traction there. Essentially that is an effort to build primacy and essentially the core account which customer relationships are built around. We’re investing our market dollars both in non-interest-bearing and interest-bearing deposits. As Hope said, it depends on market, it depends on the part of the curve we’re trying to go at.

Timur Braziler, Analyst, UBS: I guess in that same light, 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 one hike?

Hope Dmuchowski, Chief Financial Officer, First Horizon: It’s going to be the opposite of what we saw with decreases, which is the loan side reprices up first and the deposit price will lag. What we’ve seen in a decreasing environment is the loan yield comes down first and then the deposits lag. You’ll have some margin expansion in that first quarter, and then you’ll see it compress back as the deposits reprice. We have anywhere from 3 month to 13 month commitments on something like a jumbo CD. You’ve got to let that play through in either a rate increase or a rate decrease. There is a lag quarter to quarter, but over the full year or over a 12-month period, we expect it to be matched.

Bryan Jordan, Chairman, President, and CEO, First Horizon: 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. If the Fed were to move up 25 basis points, it would look more like the interest sensitivity that we’ve described as opposed to the aggregate sensitivity of the balance sheet.

Timur Braziler, Analyst, UBS: Great. Bryan, if I can sneak one more in for you. Would love to get your thoughts on broader M&A in the environment. Are the conversations as dead as the deal activity has been more recently? What are you seeing from your seat in terms of books coming across your desk or broader conversations had?

Bryan Jordan, Chairman, President, and CEO, First Horizon: From my perspective, I’m focused on how we drive the profitability in this business. I would say as a 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 2025 and the relative absence of that in the first half, I don’t know what’s driving. I suspect it’s probably a number of things, including uncertainty about what’s happening in credit in the Middle East. It does feel more benign today than it did, call it 12 months ago, for sure.

Timur Braziler, Analyst, UBS: Great. Thank you.

Rebecca, Conference Call Operator, First Horizon: Your next question comes from David Chiaverini with Jefferies. Please go ahead.

Brooke, Analyst, Jefferies: Hey, good morning, guys. Brooke stepping on for David Chiaverini. You guys have mentioned in reference to the $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.

Bryan Jordan, Chairman, President, and CEO, First Horizon: I think they all have pretty long runways. I think maybe the most significant in terms of ability to create or drive value is much deeper penetration of relationships where we have loan-only or near loan-only relationships and better penetration. Our TM folks are making significantly more calls with their relationship managers, and that, I think, is probably number one that I would list. Second is introducing our private client, our wealth management teams to those relationships. Essentially, it has to be executed a client and relationship at a time. Our teams are very focused on it. They understand where they are in the cycles with relationships. 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’s some relationships and particularly participations where we didn’t believe that we had the opportunity to create relationship value over the long term. We’ve traded out some loan growth over the course of the last year. On the whole, we didn’t expect this to occur overnight. We’ve been focused on it now for 18 to 24 months, and we’re seeing very positive signs, and I’m very encouraged about our ability to achieve what we’ve laid out. It’s 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.

Brooke, Analyst, Jefferies: Great. Thank you very much.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Thank you.

Rebecca, Conference Call Operator, First Horizon: Your next question comes from Christopher Marinac with Breen Capital. Please go ahead.

Christopher Marinac, Analyst, Breen Capital: Hey, good morning. 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.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Yeah. 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’s harder to think about provision and charge-offs vis-a-vis return on capital because I’ve been in recovery as a CPA for a long time now. As I understand the basic framework of CECL, for every loan that’s on the balance sheet, every single dollar we’ve provided what we think the life of loan losses are. The real drivers of variation around the return on the existing balance sheet are what happens with the economy. Presumably, new provision is driven by changes in the economy expected, it’s also driven by the new production we put on.

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 going to be driven with some volatility here and there by what’s happening with customers. 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. I recognize that maybe embedded in your question is, well, if you had provided another $0.02, your ROTCE would’ve been closer to 15 as opposed to 15.3 or whatever the math says. I’m not sure, given the way the CECL models, that’s necessarily a fair comparison.

I think 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. If we can do those things, we will continue to drive improved and improving ROTCEs over time.

Christopher Marinac, Analyst, Breen Capital: That’s fair, Bryan. Thank you very much for your perspective on. Thanks for taking all of our questions this morning.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Yes. Thanks, Chris. Appreciate it.

Rebecca, Conference Call Operator, First Horizon: Your next question comes from Chris McGratty with KBW. Please go ahead.

Chris McGratty, Analyst, KBW: 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 of what you’ve accomplished towards that $100 million PPNR. I just wanted to get a clarification. Is the message here that you’re roughly 15%-20% of the way to that $100? That’s question 1. Point 2 is, when do you think you’ll get that full $100?

Bryan Jordan, Chairman, President, and CEO, First Horizon: When I originally brought up and put a $100 million estimate out there, it was roughly a year ago. We have continued to make progress, and I’ve referred to the profitability that’s embedded in this and profitability that’s been embedded in our forecast or our expectations rather for 2026. I said at the time, a year ago, it’s probably a two to three year exercise, and I think we’re in progress on that. To your specific question, that’s not intended to signal that we’re at any percentage point of completion at this point, that we’re continuing to work on it. We continue to focus on driving that profitability, and when we achieve what we think is that initial $100 million, I’ll be disappointed if we’re not continuing to work on the plus part of it.

I think there’s a lot of opportunity in our existing book of business.

Hope Dmuchowski, Chief Financial Officer, First Horizon: Chris, on slide 16, we say, here’s a couple examples. That’s not meant to be an inclusive list.

Chris McGratty, Analyst, KBW: Got it. Okay. Thank you.

Rebecca, Conference Call Operator, First Horizon: Your next question comes from John Pancari with Evercore. Please go ahead.

Gerard, Analyst, Evercore: Hey, good morning. This is Gerard swinging in for John. Just wanted to follow up on credit. 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 Q2 and Q3, or are these still areas that you’re watching? If not, any other areas to keep an eye on?

Thomas Hunt, Chief Credit Officer, First Horizon: 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. We need to continue to monitor it because I do believe there is increasing pressure on especially lower end consumers and their spending power. All of that said, within the sectors that you mentioned, retail, restaurants, things that are close to the end consumer, it’s been surprisingly resilient. We’ll continue to monitor it, but those do remain elevated, in terms of credit risk relative to other industries. We’ll continue to monitor closely.

Bryan Jordan, Chairman, President, and CEO, First Horizon: You can-

Gerard, Analyst, Evercore: Thank you.

Bryan Jordan, Chairman, President, and CEO, First Horizon: I was just going to add that you see, I’m not going to put an alphabet letter on the shape of the economy, you do see in some of these consumer sensitive areas, people are reallocating where they’re spending. They are still spending less on certain categories like dining out, more on fuel and things of that nature. Overall, as Tom said, the consumer is still holding up very well, and I think more than anything, that is tied to very particularly unemployment trends have been very low and employment trends have been very good.

Gerard, Analyst, Evercore: Understood. Thank you. Last one from me. Just signing off of the hiring confidence that you hit on in this call, what do you think has been a bigger driver of attracting talent to First Horizon? Have you seen opportunities from M&A in your markets where it could create Relationship Managers getting dislodged or otherwise creating attrition?

Bryan Jordan, Chairman, President, and CEO, First Horizon: 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. It really is giving relationship bankers and teams the ability to understand a big bank product set and have confidence that they can deliver that big bank product set and what our risk profile is. At the same time, be able to personalize those services in the way that a community bank would. I think as much as anything, it is the ability to have confidence about what you can deliver for customers and have the autonomy to look and feel like a very connected and personal relationship team.

Gerard, Analyst, Evercore: Okay, great. Thank you very much.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Thank you.

Rebecca, Conference Call Operator, First Horizon: 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.

Bryan Jordan, Chairman, President, and CEO, First Horizon: Thank you, Rebecca. 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.

Rebecca, Conference Call Operator, First Horizon: This concludes today’s call. Thank you for attending. You may now disconnect.